Takeda Pharmaceutical Company - Q2 2025

Transcript

Speaker 7

You've joined the FY24 Q2 earnings announcement by Takeda. I'm the Master of Ceremonies and Head of IR. My nameis O'Reilly. Thank you for this opportunity. Allow me to explain the language setting first. Please find the language selection button at the bottom of the Zoom screen, and if you wish to listen in Japanese, please choose Japanese. If English, English. If you want to listen to the original voice, please keep it off.

In today's call, the U.S. Private Securities Litigation Reform Act of 1995.

Christopher O'Reilly (Head of Investor Relations)

Before starting, I'd like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause actual results to differ materially are discussed in the most recent Form 20-F and our other SEC filings. Please also refer to the important notice on page two of the presentation regarding forward-looking statements of non-IFRS financial measures, which will also be discussed during this call. Definitions of non-IFRS measures and reconciliations with comparable IFRS financial measures are included in the appendix to the presentation. Now we would like to start the presentation. Today we have President and CEO Christophe Weber, Chief Financial Officer Milano Furuta, and President Andrew Plump presenting to you, and the presentation will be followed by Q&A. Let's get started.

Christophe Weber (CEO)

Thank you, Chris, and thank you, everyone, for joining us today. Our fiscal year 2024 first half performance demonstrates the strong momentum of our growth and launch product portfolio, the potential of our pipeline, and our commitment to driving efficiencies to improve our margins. First half revenue grew 5% at constant exchange rate, driven by our growth and launch product, which grew 18.7% at constant exchange rate, and now accounts for 47% of total revenue. Vyvanse's decline is 29% in the U.S. and 18% globally, a slower-than-expected erosion in the U.S. We, however, assume that Vyvanse's generic erosion will potentially accelerate in the second half as generic supply normalizes, impacting our revenue and profit growth in the second half of the year. I will discuss our growth and launch product performance in more detail on the following slide.

In the first half of the fiscal year, our core operating profit margin was 30.2%, benefiting from product mix, phasing of R&D investment, as well as the early impact of our efficiency programs. Our progress in the multi-year efficiency program announced in May 2024 is on track. We have taken tough but necessary decisions to drive efficiencies and deliver core operating profit margin improvement while rigorously prioritizing our pipeline. However, we are weighting our R&D investment toward the second half of the fiscal year to support our late-stage pipeline, where we have multiple programs now in phase three. This has been factored into our profit outlook for the full year. Our innovative late-stage pipeline is advancing, and we have multiple programs in phase three development this year.

In August, we initiated the phase 3 clinical trial of TAK-861 for narcolepsy type 1, a significant step towards reducing the overall burden and functional impact of this disease. Following this, in October, we presented proof-of-concept data for the treatment of immunoglobulin A nephropathy with mezagitamab at the American Society of Nephrology, highlighting its potential as a treatment for this disease. Turning again to our financials, we are raising our full-year 2024 management guidance and reported on core forecast, reflecting first half performance and updated foreign exchange assumption for the year. In this presentation, Milano will speak in more detail about our updated guidance as well as progress in implementing our efficiency program. Turning to slide five, we achieve robust performance broadly across our growth and launch product portfolio.

Together, this life-transforming treatment now accounts for 47% of total revenue and achieves significant growth at 18.7% at constant exchange rate in the first half. The performance of our growth and launch product is underscored by Entyvio's return to double-digit growth, accelerated by the launch of the Entyvio Pen in the United States. Mainstays, such as immunoglobulin and Takhzyro, continued robust growth, and newly launched products Fruzaqla and Adzynma have a strong early uptake, exceeding revenue expectation. Approvals of Adzynma in the European Union and Fruzaqla in Japan support the geographical expansion of these new treatments and underscore their future potential. I will discuss this in more detail on the next slide. As I just noted, Fruzaqla launch has been flawless and has exceeded expectations since its launch in the United States in November 2023, prompting an update to our forecast.

We have seen a strong uptake in fourth line, with new patient market share reaching 29% as of our latest data in July. We are also seeing continued momentum in the third line setting, reflecting the positive early reception and demand for this therapy. Significant need for new treatment options in metastatic colorectal cancer and positive feedback from oncologists have been key drivers of its initial uptake. Fruzaqla's inclusion in both National Comprehensive Cancer Network and European Society for Medical Oncology guidelines further validates its importance in the treatment of metastatic colorectal cancer and underscores its position as a critical option for oncologists and patients. With eight regulatory approvals in less than a year since U.S. approval, we are positioned to begin commercialization more broadly this year, further supporting global growth. This includes our recent approval in Japan, where we will build on our heritage in colorectal cancer.

As we continue to expand into additional markets, we expect further regulatory decisions on launch throughout fiscal year 2024 and 2025, which will provide more patients with access to Fruzaqla. Turning to the right side of the slide, congenital thrombocytopenic purpura, or cTTP, is an ultra-rare, potentially fatal blood clotting disorder with limited treatment options. Adzynma launched in the United States in November 2023 for the treatment of cTTP and has generated strong prescriber interest. Since then, Adzynma has also launched in Japan, Germany, and Austria. Further launches are planned in the European Union, where Adzynma is the first and only enzyme replacement therapy specifically for the treatment of cTTP. Eohilia is currently the only oral therapy available for eosinophilic esophagitis, a chronic immune-mediated inflammatory disease.

Since its launch in the United States in February 2024, we have seen growing patient demand due to increasing awareness and progressive, yet slightly slower-than-expected coverage. Unaided awareness among healthcare professionals is approaching 80%, and initial patient experience has been positive. Turning to the next slide, I would like to provide more details about Entyvio performance. Since the launch of the Entyvio Pen in the US, Entyvio's growth rate in the US has accelerated back to double-digit at +10% in the first semester and +13% in the second quarter at constant exchange rate, compared to a 4.2% growth rate in fiscal year 2023. This is a great performance, but slightly below our expectation. The issues have been a somewhat lower market growth than expected and slower-than-expected access pathway.

However, as of July this year, Entyvio Pen coverage extends to more than two-thirds of the eligible patient population in the United States, and we will continue to work on the pull-through, supporting doctors and patients to get reimbursed while transferring from an IV under a Part B plan to a sub-Q under a Part D plan. Based on very positive satisfaction feedback from patients and doctors, we are optimistic that the demand for the sub-Q formulation and Entyvio overall will accelerate in the future. Nevertheless, at this stage, based on first-half results, we have updated our global full-year growth forecast for Entyvio to 11%, an acceleration from 6.6% in fiscal year 2023. Our updated forecasts assume a potential growth slowdown in Europe and a demand acceleration in the U.S., although the expected revenue acceleration is probably insufficient to propel our overall growth into the high teens.

Entyvio will continue to outperform the overall inflammatory bowel disease advanced therapy market. We continue to see long-term growth potential for Entyvio, powered by demand for the Entyvio Pen, and we are confident in our peak sales outlook of $7.5-$9 billion, even when considering the potential impact of the Inflation Reduction Act in the United States. The continued strong performance of Entyvio, as well as our newer growth and launch products such as Fruzaqla, Adzynma, and Eohilia, demonstrate the value of this portfolio and its ability to address patient needs. In closing, we are very pleased with what we have achieved in the first half of fiscal year 2024. In a challenging environment, we continue to deliver on our financial commitment to progress our pipeline and to create long-term value for our stakeholders. We look forward to the opportunities that lie ahead.

Thank you for your continued support and confidence in Takeda. I will now hand over to Milano to discuss our financial results and outlook.

Milano Furuta (CFO)

Thank you, Christoph, and hello, everyone. This is Milano Furuta speaking. Slide nine summarizes our financial results for the first half, or H1, of fiscal 2024. We had a very strong six months, driven by momentum of our growth and launch products and continued by balanced demand. We also had some benefits from the phasing of investments, particularly in R&D. H1 revenue was almost 2.4 trillion JPY, an increase of 13.4% versus prior year, or 5% growth at constant exchange rate, or CER. Core operating profit, Core OP, was 719.9 billion JPY, a year-on-year increase of 22.3%, or 12.9% at CER. Reported operating profit was 350.6 billion JPY, growing almost 200%. We booked less impairments and other one-time costs compared to the last fiscal year, which contributed to this reported operating profit increase on top of the strong Core OP performance.

Core EPS and reported EPS were 310 yen and 119 yen, respectively. Operating cash flow was 451.3 billion yen, up 54.9% year-on-year, reflecting our strong profit growth as well as improvements in working capital. Adjusted free cash flow was 247.5 billion yen. Let's look into the details, starting from revenue dynamics on slide 10. Our growth and launch products grew strongly, 18.7% at CER, more than offsetting the loss of exclusivity impact, such as Vyvanse in the U.S. and Azilva in Japan. Additionally, net positive growth in other brands contributed to 5% revenue growth at CER. The depreciation of the yen versus major currencies was an additional tailwind of 176.5 billion yen, resulting in 13.4% growth on actual FX basis. Slide 11 shows the year-on-year bridge for core operating profit. In addition to the profit contribution from positive revenue dynamics, we benefited from phasing reinvestment, particularly in R&D.

R&D investment in H1 decreased by 8.3% at CER. This is primarily due to the termination of certain programs during our pipeline prioritization at the end of FY23. However, it is worthwhile to note that with multiple programs moving into phase three, we expect an increase in R&D spend for the full fiscal year. We managed other OpEx lower than the last year with cost discipline. Core OP grew at 12.9% at CER, and with a positive FX impact, we landed with absolute growth of 22.3% for the first half year. Next, reported operating profit. This H1, the impairment of intangible assets became much smaller compared to the last year when we recognized impairments of other R&D and Exkivity. Although we have booked sizable restructuring expenses for the ongoing efficiency program this year, other operating expenses benefited from lower legal provisions and reversal of a pre-launch inventory.

These factors, on top of our strong Core OP growth, helped almost triple our H1 reported operating profit to JPY 350.6 billion. Next slide, 13. As announced in May, we have kicked off an enterprise-wide efficiency program. Our aim is to free up resources to invest for future growth while to improve operating profit margin by 100 to 250 basis points each year from FY25 towards our low- to mid-30s % target. Please note the baseline of this margin improvement is our original forecast of 23% margin this year. Slide 14, starting with an organizational agility, we have made structural changes across several corporate and regional functions. For example, in R&D, we implemented changes to reflect the pipeline prioritization decisions made last fiscal year.

We also exited our research site in San Diego, meaning we will focus our research activities in two sites going forward, which are Cambridge in the U.S. and Shonan in Japan. In addition, we have a project that had been announced and become effective in the second half of the year, such as a Future Career Program in Japan. In procurement, our team continues to find opportunities to unlock savings across various cost categories, capturing JPY 20 billion of savings to date, and as a company, we are focused on embedding data, digital technologies to drive efficiencies and enable savings. We are building capabilities in-house with our Innovation Capability Centers, now providing solutions to tasks where we previously relied upon external vendors.

The impact of our DD&T initiatives can be seen across the value chain, from accelerating patient recruitment in clinical trials to reducing inspection times in our manufacturing network and to optimizing our plasma collection processes. With regards to implementation costs associated with this efficiency program, in H1, we booked 61.6 billion JPY of expenses. This is in line with the plan and on track towards a full-year forecast of 140 billion JPY. As you can see from the breakdown, the majority of expenses have been related to severance, but there are also project costs and write-off expenses included in the total. Next, let me give an update on our revised outlook for the full year, starting with management guidance. We are upgrading each line item to reflect the strong H1 performance driven by overall positive revenue momentum.

Revenue is now expected to be flat to slightly increasing, core operating profit a mid-single-digit % decline, and core EPS approximately 10% decline on a CER basis. Our updated forecast is now JPY 4.48 trillion of revenue, JPY 1.05 trillion of core operating profit, and JPY 456 of core EPS. In terms of currency assumptions, we have revised the euro from 160 to 165 yen, while keeping the US dollar unchanged. This update has a positive impact on revenue, but negative impact on core operating profit due to our large manufacturing cost base in Europe. On a reported basis, we forecast operating profit to be JPY 265 billion and reported EPS to be JPY 43. We raised our free cash flow forecast range to reflect the uplift in core operating profit. Slide 16 shows the moving parts in our updated forecast. The biggest driver of incremental revenue is finance.

While anterior growth is accelerating, we made an adjustment to the forecast. In the meantime, there is a stronger-than-expected performance of other products such as Fruzaqla, Adcetris, Qdenga, and Takhzyro. This results in an overall positive revision of revenue categorized as other products on this slide. FX is also positive to our revised revenue forecast. For core operating profit, we expect the incremental profit contribution from Entyvio's to be partially offset by a number of items. First, there is a slightly unfavorable product mix impact due to the relatively high profitability of Entyvio. Also, within the other products column, we anticipate incremental manufacturing expenses such as the preparation for future supply of Qdenga. Slight increase in OPEX includes additional investment in launching products such as Fruzaqla and higher personnel cost based on timing of exits during the efficiency programs.

Finally, FX, while positive to revenue, has a negative impact on COP due to the depreciation of the yen versus euro. Slide 17. Let me explain some of the variance between H1 COP results and the implied H2 COP. First, we expect a reduction in gross profit from product revenue. Roughly 50% of this is our ADHD portfolio, mainly Vyvanse, due to acceleration of generic erosion. There are many different elements included in the other 50%, such as phasing of shipments like vaccines, tender timing for certain rare disease products, and a general competitive trend in some markets. The second biggest driver is R&D. Our forecast reflects plans to ramp up investment in late-stage programs such as TAK-861, TAK-279, and Mezagitamab, based on timing of phase 3 trials. For the COGS and SG&A, our forecast reflects expectation for expenses to be more weighted towards the second half.

Although we usually have seasonality that results in higher cost in H2, the trend is even more pronounced this year. In part, this is because the spending slowed during the early stages of the efficiency program as organizational changes were being made. Finally, there is also a minor headwind from FX built into the plan. So this year, we are dealing with dynamic situations of the LOE of Vyvanse, acceleration of the Entyvio growth with a pen launch, the enterprise-wide efficiency program, and the progression of the late-stage pipeline. While there may be some variabilities, we are very confident that we can deliver this updated management guidance. Thank you for your attention, and now I will hand over to Andy.

Andrew Plump (President of Research & Development)

Thank you very much, Milano, and hello to everyone on today's call. If we go to the next slide, please.

This quarter, we have several significant updates to our late-stage pipeline. Last month, we presented important long-term extension data from the phase 2b trial of our oral orexin agonist TAK-861 in narcolepsy type 1, or NT1, at Sleep Europe 2024, which is one of the most impactful sleep conferences of the year. The results demonstrate that TAK-861 continues to be highly efficacious and well tolerated at six months and beyond. TAK-861 also shows improvement on cognitive domains like sustained attention, memory, and executive function after eight weeks on therapy, a first for the orexin class. Following discussions with regulatory authorities, in August, we initiated the FirstLight study, a global phase 3 development program for TAK-861 in NT1. Enthusiasm amongst investigators is high, and enrollment is progressing well.

I'm pleased to share that recruitment has been completed significantly ahead of timelines for two pivotal head-to-head phase three trials of our TYK2 inhibitor, zasocitinib, versus Otezla in psoriasis. In addition, our partner Protagonist, who is developing rusfertide and injectable hepcidin mimetic, has completed phase three enrollment for the treatment of polycythemia vera, or PV. As you may recall, Takeda and Protagonist entered into a worldwide license and collaboration agreement for rusfertide earlier this year. Last week, Takeda presented positive interim results from a proof of concept trial evaluating Mezagitamab in primary IgA nephropathy, or IgAN, at the American Society of Nephrology's Kidney Week. Mezagitamab, a potential best-in-class anti-CD38 antibody, demonstrates rapid and sustained reductions from baseline in serum IgA up to 70% and galactose-deficient IgA up to 62% as an add-on to the standard of care.

At week 36, participants also achieved a 55% mean reduction from baseline in 24-hour proteinuria. Of course, with the caveats of small patient numbers, we see signs of clinical benefit with stable renal function up to 36 weeks. Mezagitamab demonstrated a favorable safety profile and was well tolerated with no discontinuations due to drug-related adverse events. We plan to engage with regulatory authorities this year as we are already preparing for phase 3 development. Looking beyond our late-stage new molecular entities, as Christoph has already noted, we achieved regional expansions for our growth and launch brands, including Eohilia, Fruzaqla, and HyQvia. Next slide, please. Very excited to extend an invitation for all of you to join our R&D Day on September 12th, starting at 6:30 P.M. Eastern Standard Time and 8:30 A.M. September 13th in Japan.

The main focus of this event will be a deep dive into our high-value late-stage pipeline programs with a focus on zasocitinib, our orexin franchise, including TAK-861 and TAK-360, rusfertide, fazirsiran, and Mezagitamab. During the session, we will review the unmet medical need for the multiple indications these programs are targeting, as well as phase 3 study designs, timelines, competitive positioning, and commercial potential of each asset. We will also provide updates on our evolving R&D strategy in our core therapeutic areas of gastrointestinal inflammation, neuroscience, and oncology, including disease areas of focus and business development strategy. We have made substantial strides in enhancing our clinical development capabilities with an emphasis on data, digital, and technology. Of note, we will review Takeda's forward-looking development model and demonstrate how it has yielded positive results in accelerating these late-stage pipeline programs.

The format will be a hybrid event featuring live presentations in Tokyo with a virtual option for any participant. Please save the date. Thank you very much, and at this point, I'll turn it back to Chris for the Q&A session. それでは、皆様からのご質問を受けたいと思います。回答者。

We would like to take questions as respondents. In addition to Christoph, Milano, and Andrew, we have Ramona Sequeira, President of the Global Portfolio Division, and Julie Kim, President of the U.S. Business Unit, Giles Platford, PDT Business Unit President, and Teresa Bitetti, President of Global Oncology Business Unit. If you have a question, please raise your hand in Zoom. And if you are on Japanese line, please ask a question in Japanese. And if you are on English line, please ask a question in English. And if you are listening to the live audio, you may be able to speak in either one of those languages.

Please limit your number of questions up to two. And please ask all the questions you have. Thank you.

Okay, I'd like to take the first question from Steve Barker at Jefferies. Steve, if you'd like to unmute and ask your question, please.

Stephen Barker (Analyst)

Yes, Steve Barker from Jefferies. Thanks for taking my questions. My first one is about your plasma business. So on a half-year basis, the trend looks very healthy. However, looking at the quarter-quarter trend, it looks like sales did decline in the second quarter compared to the first quarter. If you could please comment on the underlying dynamics. And then, yeah, so that's the first question. And second question, I'd like to ask Andy about mezagitamab. And congratulations on the good data shown at ASN.

But just looking at the timelines, it looks like Mezagitamab will come to the market behind other disease-modifying products such as the APRIL inhibitors. And so I was just wondering how you see anti-CD38s like Mezagitamab fitting into the treatment algorithm for IgAN. Thank you.

Christopher O'Reilly (Head of Investor Relations)

Okay, thank you, Steve. So for the first question on PDT, I'd like to ask Giles to comment on that. And then for the second question on Mezagitamab, perhaps Andy can comment on the data. And then if Ramona has any comments on the positioning at this point, then that'd be great to have your comments as well. Thank you. Thank you, Steve, for the question. This is Giles speaking. We did have strong first-half growth for our PDT business with 14% year-over-year growth.

Our Ig business continues to perform well with growth of 16% and with a core growth from our innovative sub-Q portfolio and our albumin portfolio, particularly driven by strong demand in China, but also with some supply phasing delivered growth of 11%. We maintain our full-year guidance of high single-digit growth for the PDT business overall, 5%-15% for our Ig portfolio, and single-digit growth for our albumin business. We have flagged that we will see slightly slower growth this year due to planned upgrades and associated shutdowns of our manufacturing facility for albumin.

I would just call out that we continue our trend of positive margin expansion as well, driven by reducing donor compensation levels, investments in data, digital, and technology to drive donor experience, but also productivity of our collections network, improvements in yield in our fractionation process, and also positive product mix, as I alluded to, with a creative growth from our innovative subcutaneous Ig portfolio. Thank you for the question.

Andrew Plump (President of Research & Development)

Hi, Steve, it's Andy. Thank you for your question, and thank you very much for recognizing the strong data that we presented last week. Your question gives me the opportunity to, again, remind you and everyone that we will be having the R&D day in December on December 12th and 13th in Japan and Eastern Time.

Our focus on that day will be addressing exactly the question that you're asking for Mezagitamab for all of our late-stage programs, which is to help you better understand the programs, how we're designing the programs, the competitive positioning, and what we see of it as the commercial opportunity. I'll say that the data that we presented, and again, the numbers, the patient numbers are relatively small, but the consistency of the observations that we're seeing and the potency of the effect is quite remarkable and suggests the potential for a best-in-class across all of the potential disease-modifying agents. There are a few features that I'll just highlight around the Mezagitamab activity and IgAN and remind you that we saw similar robust effects in ITP. The first is the rapidity of the effect.

The onset of the effect seems to be faster than what we're seeing with other potentially disease-modifying agents. The second is when we look at the reductions in IgA and galactose-deficient IgA, which many believe is the pathogenic form of immunoglobulin in IgAN. We're seeing over 60% and close to 70% reductions, which is disproportionate to what we see for other immunoglobulins, and we don't know exactly why, but it's clearly something unique about this particular mechanism and maybe even our molecule. We've seen stabilized renal function up to 36 weeks, of course, again, small patient numbers and a relatively short timeframe, but when we add all of this up, we're incredibly encouraged by the potential of the molecule.

And then before I hand it over to Ramona, and Ramona can make some comments about competitive positioning, I'll say that we are meeting with the FDA in the coming weeks, and we have a very aggressive and proactive phase three program, and our goal is to accelerate our study as much as possible. And we have a number of different ways that we're going to be looking at doing that. Ramona, would you like to add?

Ramona Sequeira (Senior Executive)

Yeah, thank you, Andy. And Steve, I think Andy answered that so perfectly. I'll add just a couple of things. First of all, we know this is going to be a large and growing market in the coming years as you get more disease-modifying treatments available for patients, which is really important.

But based on what we know and what we're seeing, we're very excited about the positioning of 079, kind of where it hits in the immune cascade. The efficacy, as Andy mentioned, very rapid. The dosing, the safety profile, we feel it's going to be very unique for patients and have an edge for sure in first-line utilization for a disease-modifying agent. Thank you.

Stephen Barker (Analyst)

Thanks very much.

Christopher O'Reilly (Head of Investor Relations)

Thank you, Steve. Okay, we'd like to take the next question. Mike Nedelcovych from TD Cowen, please unmute and ask your question.

Michael Nedelcovych (Analyst)

Thank you so much. I have two, if that's okay. The first relates to Entyvio. We've gotten quite a bit of IBD data across mechanisms in the last few weeks. I know you have reiterated your long-term Entyvio outlook, but have any of these updates caused you to change your thinking about the market one way or the other?

A related question on that topic, does your peak sales outlook contemplate a successful Entyvio combination? And if not, could there be upside to your projection? And then my second question relates to Qdenga, which has been a bright spot. There may be competition on the horizon. However, as Merck pursues its own dengue vaccine, are you aware of any differentiation in the competitor's candidate?

Christophe Weber (CEO)

Okay, thank you, Mike. I'd like to ask Ramona to take those. Ramona? Sorry, my apologies.

Ramona Sequeira (Senior Executive)

Hi, Mike. I will take the Entyvio question before I move on to Qdenga. First, with your question on peak sales for Entyvio, the answer is no. When we did the peak sales estimate, which we still believe is absolutely achievable, we did not contemplate combination therapy.

And certainly in this market now, we see more desire for physicians to use combination therapy in different types of patients, particularly in Crohn's, and are doing some evidence generation ourselves to look at how Entyvio may be used in combination therapy. But certainly, that is an open question, and we think Entyvio is such a foundational therapy that that combination just makes sense clinically for physicians. So that remains to be seen, but our peak sales did not anticipate that. And certainly, we did see the market continuing to evolve and change with new entrants coming in.

I think the reality is Entyvio is the most frequently prescribed brand in the U.S., the only gut-selective advanced treatment option, the only product to have demonstrated head-to-head superiority against another advanced therapy in UC, and we're very confident in the efficacy and safety profile across all of the patient populations where we're used, and so we certainly see that franchise continuing to grow for us and doing very well, then your question on Qdenga, could you just remind me again, maybe Mike or Chris, the question on Qdenga? It was Merck, I think, was it, the Butantan or the Merck? That's right. Yep. Yeah. The competitive landscape. Yeah, so I think this is another one where truly Takeda has set the bar for what good looks like when looking at efficacy and safety in an endemic disease such as dengue.

I haven't seen anything from any competitor that can even come close. In fact, I think there's still a lot of opacity in the actual data for some of the competitors coming out. The data that's been shared has been in very small data sets, and we haven't seen anything to indicate first that the efficacy is going to be similar to Qdenga, but also, the amount of time that we spent in these trials doing the follow-up and showing the long-term durability of the asset, we think has set a new bar for other companies, and based on the safety needs in this population, we feel other companies are going to have to demonstrate that level of efficacy and safety as well, and certainly haven't seen that yet, and I believe that's going to take some time to do if they're even able to do it.

Michael Nedelcovych (Analyst)

Thank you so much.

Thank you. ありがとうございました。それでは次の質問に移ります。 Thank you very much. Let's move on to the next question. Citi Yamaguchi-san, please ask your question.

Can you hear me?

Yes. Thank you. So this is Yamaguchi from Citi. Two questions, please. The first one is regarding same Entyvio, but I'm trying to ask about the company guidance change. I used to have 16%, now it's around 11%, I think, in the US. And you're doing better, but there seems to be some marketing situation and patient situation, which is more of a macro side. But can you give me what do you think about changing and what you did not think about changing and how the SG promotion has been going through? So that's the first Entyvio corporate guidance changing assumption question. That's the first one. The second one is the total company guidance change.

Milano Furuta (CFO)

I understand the Vyvanse erosion is going to happen in the second half. But given what has been exceeding your expectation in the first half, first half already you are generating around 700 billion JPY of P already. And the 50 billion JPY upper revision sounds very conservative to me, even though Entyvio has been cut as well. But can you remind me, it looks pretty conservative to me given you are doing the cost cutting as well.

Is it the right way to observe or not really? You are really not that conservative as far as the company guidance? That's the second question. Thank you.

Thank you, Yamaguchi-san. So the first question on Entyvio, perhaps I'll ask Julie to add some comments on that. And then the second question on the total company forecast, I'd like to ask Milano to take that one.

Ramona Sequeira (Senior Executive)

Thank you for the question, Yamaguchi-san.

In regards to the growth of Entyvio, when you look at the U.S., yes, we are seeing accelerated growth for Entyvio versus last year, and we expect to continue to have accelerated growth through the rest of the year. In regards to the dynamic as to why we lowered the overall guidance from 16% to 11% is because the acceleration is not as fast as we had anticipated at the beginning of the year, and so part of that, as you heard from Christoph as he was going through the presentation, is in regards to to improve our access pull-through for the patients as we have both Part B and Part D on Entyvio IV and Pen. This is part of the reason why we've lowered the overall expectation from 16% to 11%.

Also in Europe, for the second half of the year, we expect a lower growth due to the competitive dynamics and increased pressure on pricing. So that's why the change from 16% to 11%. Milano, over to you for the second question.

Christophe Weber (CEO)

Yamaguchi-san, thank you for the question. So there is a lot of moving parts, actually, if you compare the H1 results and then H2. So maybe the first one is you already addressed like Vyvanse. We expect, we still believe Vyvanse will, the generic erosion will accelerate it in H2. That's the first one. And then there is different dynamics between H1 and H2 in terms of timing shift, like shipment of the vaccines or shift from H2 to H1, like tender or contract renewal, and then sometimes those timing change. That's also the impact like H1, H2, the profitability.

At the same time, there is general competitive trends in some hemophilia or multiple myeloma, those markets. So all in all, we expect some decline in terms of gross profit contribution when you compare H1 to H2. At the same time, the second biggest driver is actually R&D. In H1, we had some less spends in R&D, partly or mainly because we terminated some programs in the last fiscal year. But instead, we are accelerating R&D activities to ramp up the phase three activities, right? That's going to more weight toward an H2. That's why those kind of dynamics and combined, this H1, H2 profile is a little bit the kind of we see the contrast in H1, H2. That's how I see it.

Right. So can I ask a quick follow-up question on Entyvio, Chris?

Christopher O'Reilly (Head of Investor Relations)

Okay. Yes, please go ahead. Thank you. Thank you, Bruce.

So you talk about access. Is this getting better now? It might be the timing issue. So now it is okay or not really? How about access?

Ramona Sequeira (Senior Executive)

Yes, Yamaguchi-san. So it is improving as time passes. We are working on a number of different tactics to improve the access. And so we are seeing the impact of that as we have the acceleration in our demand. So while it was not as fast as we had wanted initially, it is improving, and we are making progress.

Okay. Thank you. Thank you, Chris. Thank you. That's it.

ありがとうございました。それでは次のご質問に移りたいと思います。 Thank you. I'd like to move on to the next question. Next is Matsubara-san. Nomura Securities, please. 失礼いたしました。次はJ.P. Morgan。 Excuse me? Wakao-san, J.P. Morgan. Please unmute and ask a question.

Thank you very much. I have two questions. One is about Entyvio. I'd like to know more about the current market situation.

Regarding PEN, access issues were answered. Now I understand. Concerning IV, why is it not growing so much? Because IV is Skyrizi and Rinvoq. I think they have been progressing very well. Entyvio, IV and Skyrizi, is it coming from the positioning differences of those products? Another question is about TYK2 inhibitor. Phase 3 will be finishing earlier, and I think the first phase 3 will be finishing within December. The data readout, can we consider it's going to be at the beginning of the next year? Thanks to the acceleration of this development, do you think that the filing for approval, that timing will be also accelerated or not? Entyvio again. So on the overall market dynamics, not around just the PEN access, but also on the IV in particular, positioning vis-à-vis Skyrizi and Rinvoq.

Milano Furuta (CFO)

I'd like to ask Julie to take that question. The second question on the TYK2, TAK-279 phase 3 timing, when we expect to get data and whether we can accelerate the filing timelines. I'd like to ask Andy to comment on that, please.

Ramona Sequeira (Senior Executive)

Thank you, Wakao-san, for the question. In regards to the competitive dynamics for Entyvio IV in the U.S., Entyvio overall is still the market leader when it's in regards to IBD and market leader in regards to bio-naive starts. Where we see Skyrizi and other competitive entrants creating movement in the market is in second line and further lines of therapy. In first line, as I said, we're quite proud of Entyvio's performance.

It's a product that's been on the market for over 10 years and still able to hold the first line position due to its strong track record in terms of safety and efficacy. It's still the only gut-selective product that's available in IBD, and that's part of the reason why we believe Entyvio continues to perform really well in first line.

Andrew Plump (President of Research & Development)

Good evening, Wakao-san. This is Andy. So thank you for your question on zasocitinib. So we're quite pleased with the execution of the phase 3 psoriasis program. We're six-to-seven months ahead of our schedule, our benchmarks. Actually, our benchmarks are not based on our own estimates. They're based on benchmarking across the industry for psoriasis studies. So it's a great example of the new capabilities that we've built into development. To be fair, we haven't disclosed a specific filing date yet for the program.

As you can look in the backup slides, we have FY26/27 as our target filing date. So what we'll plan to do in December at the R&D Day is, in a much more explicit way, go through the design of the program, what we're anticipating we would include in the filing, and what that filing date will look like. I mean, as you can imagine, given the acceleration, we're looking at the front end of that 26 to 27 timeframe. But we'll get into that in more detail next month. Okay. So can I assume the first trial data readout will be early next year? We haven't disclosed when we read out the data. So just so you understand, we have multiple ongoing studies. There are two primary comparison studies to apremilast. We've completed enrollment for each of those studies.

We have a third phase 3 study that's a safety study that's ongoing. There are some requirements for safety that we'll have to meet with the FDA in particular, and then we have a fourth study that will be important in terms of positioning, which will be a head-to-head study against deucravacitinib. So how we then manage disclosure of data from all these, we still have to work through. Okay. Thank you. I'm looking forward to R&D day. Thank you. Thank you. Thank you, Wakao-san. Okay. I'd like to take the next question. I'd like to call upon Tony Ren from Macquarie. Tony, please unmute and ask your question. Yeah, sure. Thank you for the opportunity. Actually, just stay on TAK-279, zasocitinib. So this question is again for my first question is for Andy.

So like you just alluded to, I noticed that the Latitude Psoriasis 3 study is recruiting, and it's looking to recruit a very large number of 1,300 patients over four years of follow-up. And Andy also just mentioned the FDA possibly requiring safety, longer-term safety observations. And the study description says it's going to check the side effects of the agent and how well it is tolerated. So I just want to get a sense. You have already completed enrollment of your Latitude 1 and 2 phase 3, right? So why start such a trial right now? I mean, would this affect your regulatory timeline? So that's my first question. The second question is on Takhzyro. So in HAE, so Intellia announced its phase 2 data of their in vivo CRISPR gene editing therapy. So the data looks very good.

So just want to get a sense from you, how do you think that might affect Takhzyro's future prospects? What would be the clinical differentiation of the two? Yeah. So these will be the two questions for me. Thank you.

Christophe Weber (CEO)

Andy, would you like to begin with the Zasocitinib question?

Andrew Plump (President of Research & Development)

Sure. Thank you, Tony. So again, I'll just emphasize that all the details that we'll go very deep into these details on December 12th and 13th of the R&D day. Dialing up for the psoriasis program, there are three core elements to the package, the regulatory package. And there's a fourth element around commercial competitiveness and positioning. The first are the first two studies, the Apremilast head-to-head studies, by far and away the most important studies demonstrating the efficacy and safety profile.

The third, which is why we started the Latitude 3 study, is to have an adequate patient safety database at one year. We don't expect that we'll need to wait for the completion of every patient in that study. That's to supplement the safety package from the first two studies. The third piece, of course, will be the CMC package, so those three elements, efficacy and safety from the two main Apremilast head-to-head studies, extended safety from Latitude 3, and then our CMC package. Those will be the key elements of our regulatory package, and then the head-to-head study against Deucravacitinib, that won't necessarily be part of that won't slow down our registration package, but our hope is to have that study completed and ready for launch of Zasocitinib.

Did the FDA come back to you and required and demanded the safety study after looking at the discussion with them? Or did you decide? Okay. No, no. I mean, to be clear, there are general guidelines for the number of patients that are required to have been dosed on active drug for a year. So I mean, of course, every program has a unique conversation with FDA, but there's nothing particular about our safety profile. Our safety profile and overall therapeutic index is quite strong. Predominantly, we're following guidelines that exist.

Okay. Very good.

Ramona Sequeira (Senior Executive)

I can jump in here and answer the question on Takhzyro then. So let me first say that Takhzyro, after six years in the market, continues to be the number one prescribed advanced long-term prophylaxis treatment.

And we've got right now a commercial presence for Takhzyro in 55 countries. So we see continued growth, as you see in our results, being fueled by growth of the prophylactic market as well as additional launches coming. So with respect to new therapies and certainly a gene therapy, there's questions that we would want to see answered that will come over time, such as the durability, the efficacy, the safety, the access to the number of patients worldwide that need it. But right now, we've got very, very strong open-label extension data, real-world evidence data, strong improved quality of life, and over two and a half years on therapy showing very, very strong reduction in attacks and attack-free for many patients. So confident in our positioning, confident in what the product's been able to do for patients, truly transform their lives.And certainly, on behalf of patients, welcome new entrants in the future, but it's very early days.

Okay. Very good. Yeah. Thank you, Ramona.

Thank you, Andy.

Christopher O'Reilly (Head of Investor Relations)

Thanks, Tony, for your questions. Okay. I'd like to take the next question, please. So up next, UBS Securities, Sakai-san or Haruta-san, please unmute and ask your question.

Hi, Chris. I haven't asked the question for some time, so this is my time. Just a couple of questions regarding your domestic operations. One, PDT. Now, the government is talking about improving the supply of the plasma in Japan. And I think Takeda's name has been mentioned about expanding the infrastructure and also the facility of the PDT here in Japan. Are you doing anything, or are you going to proactively deal with this issue in Japan? That's my first question. And second question, again, regarding Japanese operation.

Now, amazingly, your sales proportion in Japan is now less than 10% of your total revenues. The question is, how do you manage your Japanese business going forward? Now, you are taking this new Career Development Program, kind of redundancy program, right? And you have done this in the US. I think that's a part of the margin improving exercise. But where are you going to end up in Japan, really? I mean, it seems to be you don't require that many reps in Japan, considering your product portfolio right now. So I'm just wondering what you're thinking about. So these two questions, please.

Christophe Weber (CEO)

Thank you, Sakai-san. So I think the first question, specific to PDT, I'd like to ask Giles to comment on that. And then the second question on our broader positioning in Japan, I'd like Christoph to comment on that one, please.

Christopher O'Reilly (Head of Investor Relations)

Thank you, Sakai-san, for the question. This is Giles speaking. We have announced in 2023 an investment in an end-to-end manufacturing facility for plasma therapies in Japan. We remain on track to bring that facility online by the end of this decade. And we are also working very hard to improve standard of care for patients who depend on plasma-derived therapies with primary immunodeficiencies, secondary immunodeficiencies, and indications like CIDP and MMN. We have launched our first global subcutaneous Ig product, Cuvitru, already for patients with PID and SID. And we have recently, in quarter two of fiscal 24, filed with the Japan authorities HyQvia for treatment of CIDP and MMN. And we expect to file for immunoglobulin 10% by the end of this fiscal year as well.

So we are working closely with the authorities to support in addressing their concerns around sustainable supply and supply chain sovereignty around plasma-derived therapies for the patients who need them in Japan. Thank you for the question.

Yeah, just to follow up, is that going to be a business opportunity, or is that going to be risk of margin deterioration? I know you don't disclose the margin from PDT, but can you just, well, qualitative comment? I would appreciate your qualitative comment if you could make.

Well, there is a high unmet need for plasma-derived therapies in Japan. This is a market that today is relatively underdeveloped, and I would say historically, perhaps not fully valued.

That's why we're working with the authorities to invest in a manufacturing facility to meet the needs of patients in Japan, at the same time ensuring that the authorities in Japan understand that the value that these treatments bring to patients, to their families, and to the health system at large so that this investment does provide both supply for patients but also sustainable business growth. And this is why we also announced that facility would not only be supplying patients in Japan, but would be a hub both for the Asia region and globally to support the needs of patients who depend on these therapies.

Understood. Thank you.

Christophe Weber (CEO)

Hi, Sakai-san. This is Christoph. A couple of points here. First, the Japanese business is our second biggest business in the world after the U.S.

Yes, your Japanese revenue is less than 10% because the world is big, and Takeda is a big global company. But this is our second biggest business in the world. What we need in Japan is to grow, and we will grow by launching more innovative new medicine, and that's what we have started to do for many years. So this is our intent. Japan is a very high priority. We have, obviously, a very strong presence in Japan and will continue to have a very strong presence and very strong reputation so we can really launch efficiently new products. So we are ambitious in Japan. Every single global product in Japan is launched in the world is launched in Japan. Plus, we always find opportunities to launch specifically some new innovative medicines in Japan. We did that very well, for example, in our oncology business.

Today, we are one of the leaders in oncology in Japan because we launch our global product in Japan, but also we were able to license many products as well for the Japanese market. So we are ambitious in Japan. The reorganization that we are doing now is really to align an organization to a portfolio of products which has evolved a lot. We have more product treating rare disease, specialty disease. We used to be more a general medicine type of portfolio, but we are now much more innovative, but also we have more targeted therapy. We want to provide the best possible service and provide the best information to doctors. And this is why we are reorganizing our operation today to be able to provide.

All right. Okay. Thank you. Looking forward to your R&D day.

Christopher O'Reilly (Head of Investor Relations)

Thank you. Thank you, Sakai-san.

I think I'd like to take one final question in today's call. So I'd like to call upon Miki Sugi from Bernstein. Miki, please unmute and ask your question.

Thank you very much for taking my questions. So two questions, please. So first of all, Entyvio, I imagine that in Entyvio growth and a 10%, congratulations. It's a great recovery of growth. And it's coming from the price, the pen as well as patient expansion. Can you tell us what are the kind of rough division of the source of these two, the growth drivers? And the second one is for TYK2. So TYK2 in the US continues to make a kind of slow progress for its launch.

And despite the fact that it has shown pretty clear the efficacy superiority vis-à-vis Otezla, and I'm wondering, given that situation, that you continue to believe that the head-to-head, your TYK2 inhibitor against TYK2 is important for your future positioning. Can you tell me that your thinking wouldn't change despite the situation of TYK2? These are two questions. Thank you.

Christophe Weber (CEO)

Thank you, Miki. So the first question was on the Entyvio sources of growth. And so I'd like to ask Julie to take that question. And perhaps Julie can also take the second question on our thoughts of the TYK2 positioning in the market, Zasocitinib vis-à-vis TYK2.

Ramona Sequeira (Senior Executive)

Yes, thank you for the questions. And in regards to Entyvio, when you look at the U.S. in particular, I'm assuming that's where your question is focused on.

When you look at the U.S. in particular, with the launch of the pen, we've had access to new patient populations, new HCPs that we did not have access to before. So that is part of the acceleration in our demand. But as we also shared previously to some of the other questions, Entyvio overall still performs very well. It continues to be the benchmark in IBD, and that's why we are able to hold on to our first-line position. In regards to the revenue, you were asking, I believe, the split between demand and revenue. So some of the revenue growth is coming from the mix between pen and IV.

And as I mentioned in the earlier part, for the second half of the year, while we do continue to expect demand acceleration, we do expect to see some of the channel dynamics and mix to have less acceleration on revenue than on demand overall, but still continuing to grow into the second half of the year. So hopefully that addresses your question on Entyvio. For your second question.

Oh, sorry. So about Entyvio, is it also right to understand that actually the pen price per patient is higher? So that's just the conversion from IV to pen also contributes to your growth? Or as you were saying, that really access to more broader patients and broader in the physicians' base, that's kind of more the driver? It is both. And roughly, is it in half and a half or? Half and a half in regards to. So the contribution coming from the price difference versus the actual expansion of patient base?

So in regards to the split, roughly 7% is from demand, and the rest is from price.

Oh, great. Thank you very much. Does that answer your question?

Christophe Weber (CEO)

Yes. Okay. Julie, it's Christoph. It's 7% out of 10, right? Correct. Yeah. So 70% is demand, 30% is price. So it's 7% of 10%, just to be clear.

Yeah. Thank you. No, that's clear. Thanks.

Ramona Sequeira (Senior Executive)

Okay. Okay. So I'm sorry. Did you have another clarification?

No, I just wanted to also follow up on the TYK2 questions as well.

Yes. Yes. So our TYK2 versus the TYK2. So first and foremost, we are waiting to see the data that comes out of our phase three, but we're very encouraged by the data that we have thus far.

Milano Furuta (CFO)

And if we are able to have that differentiated positioning and the stronger efficacy vis-à-vis Deucravacitinib, then that is going to help us with our positioning in the U.S. So that is a key component. And then the second part of what we will have to do with TAK-279 is in regards to how we address the access challenges. So here, we will learn from what our competitor has had to deal with, but also what we are learning as we continue to pull through access with Entyvio Pen.

Thank you very much. That's clear. Thank you.

Christopher O'Reilly (Head of Investor Relations)

Thank you, Miki. So with this, I'd like to bring today's conference call to a close. Thank you all very much for your participation. Thank you.