Takeda Pharmaceutical Company - Earnings Call - Q4 2025
May 8, 2025
Transcript
Christopher David O'Reilly (Global Head of Investor Relations)
[Foreign language]
Thank you, thank you. I've already scheduled to join our Earnings Announcement for 2024 for Takeda. I'm the master of ceremony, Head of IR. My name's O'Reilly. Thank you for this opportunity. Allow me to explain about the language setting first. Please find the button for language selection at the bottom of your Zoom window. If you wish to listen in Japanese, please select Japanese. If you wish to listen in English, please select the English channel. If you want to listen to the original, please turn it off.
For those of you who wish to listen to this call in English, please select English in the Zoom language select button. [Foreign language]
Before starting the briefing, mind 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 our most recent Form 20F and other SEC filings. Please also refer to the important notice on page 2 of the presentation regarding forward-looking statements and our non-IFRS financial measures, which will also be discussed during this call. Definitions of our non-IFRS measures and their reconciliation with comparative IFRS financial measures are included in the appendix in the presentation. Please also refer to page 2 for important reference. Moving on to today's presentation. Today, we have President and CEO Christophe Weber, Chief Financial Officer Milano Furuta, and President of R&D Andy Plump presenting to you today. This will be followed by question-and-answer.
Let us get started.
Christophe Weber (President and CEO)
Thank you, Chris, and thank you, everyone, for joining us today. If we go to the first slide, yes. Our fiscal year 2024 performance was driven by a combination of factors: significant generic impact from Vyvanse's loss of exclusivity, strong momentum in our growth and launch product portfolio, which more than offset the generic impact, and robust OpEx control, which helped grow our core operating profit margin. We also demonstrated the potential of our pipeline with accelerated progress in late-stage programs. Looking at our financial results, fiscal year 2024 core revenue grew 2.8% at constant exchange rate, driven by our growth and launch product, which grew 14.7%. This portfolio of product now accounts for 48% of Takeda's total core revenue. Our core operating profit for the full year was JPY 1.2 billion, representing growth of 4.9% at constant exchange rate.
Core EPS fell slightly short of our graded guidance due mainly to higher than anticipated tax expense. Core operating profit margin was 25.4%. This was more than 2 percentage points above our original expectation and represents growth of 65 basis points compared with the previous fiscal year, or 270 basis points if we exclude Vyvanse's impact. Significant OpEx savings resulting from our multi-year efficiency programs were an important driver of core operating profit and margin growth. Milano will provide an update on the efficiency program in his presentation. In addition, we continue to progress our late-stage pipeline in fiscal year 2024, supporting our future growth. We now have six phase III programs underway across our core therapeutic areas. In March, we read out positive and highly promising top-line results from a phase III study of Rusfertide in polycythemia vera, a rare form of blood cancer.
During fiscal year 2024, we also completed phase III enrollment for Zasocitinib in psoriasis and Oveporexton in narcolepsy type 1. These are on track for data readout in this year, with target filing dates in fiscal year 2025 and 2026. We are excited by the opportunities in our pipeline. This differentiated product has the potential to transform the life of patients in each of our therapeutic focus areas. Turning to slide five, we achieved strong performance across our growth and launch product portfolio. This slide transforming treatment now accounts for 48% of our revenue and achieved double-digit revenue growth of 14.7% at constant exchange rate. Entyvio and immunoglobulin continued their strong growth at 19% and 12%, respectively. Newly launched products Fruzaqla and ADZYNMA had impressive uptake, exceeding revenue expectation. Qdenga also continues its excellent launch trajectory with strong demand in both endemic and travel market.
Although Entyvio revenue performance has been below our expectation in fiscal year 2024, we are still growing above market, and growth momentum is building with the expansion of Entyvio Pen. The reason for this underperformance in the U.S. is that we underestimated the challenge associated with the changing U.S. access landscape. The Pen is a new formulation without extra cost for payers, but is in a different insurance plan compared to the IV formulation, which has been covered for the past 10 years. As a result, it has taken longer than expected to gain easy access for patients, and we are therefore still working to improve reimbursement and authorization pathways for patients. On the other hand, prescriber and patient feedback on the Pen has been extremely positive, which, once access becomes seamless, will bode well for the future of the Pen and Entyvio.
We expect Entyvio to maintain its market share leadership and grow faster than the market, even as treatment options in the IBD market are increasing. We are, of course, leveraging what we have learned from this experience as we prepare for new pipeline launches. Albumin growth in fiscal year 2024 was impacted by planned upgrade to manufacturing operation, as well as lower demand in China, but we anticipate a return to a growth trajectory of high single digits in fiscal year 2025. We expect overall this growth and launch product portfolio to support revenue and profit resilience through the final year of substantial Vyvanse erosion in fiscal year 2025, and continue to drive our growth agenda through the end of the decade. Turning to slide six, I will discuss our position within the recently evolving tariff landscape.
Note that our fiscal year 2025 guidance does not include potential tariff impact on pharmaceutical products. This is because, while the situation remained dynamic, based on what we know today, we believe that our likely potential exposure to U.S. and China tariff is limited. Tariff exposure is determined by how much of total revenue comes from imports, manufacturing site location, and country of origin, and transfer pricing policy. This map illustrates Takeda's internal global manufacturing footprint. We have 20 manufacturing sites that supply the U.S., which are shown in bold on the map. Seven of these sites are located in the United States. The others are in Europe, Japan, and Singapore. Our strategic contract manufacturers, which we use for about 20% of our production, are distributed across the U.S., Europe, and Japan, and approximately 70% of our global CMOs cost is with U.S.-based CMOs.
Our own manufacturing facility in China supports only our business in China. You can see from the map that we have historically invested significantly in the U.S., and our investments are not limited to manufacturing. We also have a vast network of BioLife Plasma donation center, as well as the majority of our R&D spend and functions located in the U.S. Note that based on our current strategy alone, we currently plan to invest about $30 billion in the next five years in the U.S. This reflects the fact that the U.S. is a world's leading market for biopharmaceutical innovation-focused companies like Takeda, and I hope that will continue.
To roughly quantify the scope of our US business subject to potential tariff, please note that while approximately 50% of total revenue is from the US, the custom value of import into the U.S. is only about 8%-10% of our total US revenue. Of note, our largest product by revenue in the U.S., Entyvio, is 100% US country of origin. The custom value of U.S. origin product that we ship to China is about 12%-15% of our China revenue. While China is a very important business in our overall business, it is growing rapidly. China revenue today is still a significantly smaller percentage of overall company revenue at approximately 4%. We continue to monitor the global tariff situation closely. Until more is known, it will be difficult to predict the total impact with certainty.
Like all global companies, we are looking across our global supply chain and taking mitigation measures for import that may be subject to potential tariff impact. Turning to the next slide, we are excited for the future and expect 2025 to be a pivotal year for Takeda as we advance our late-stage pipeline and prepare for new launches. [Kim Ison] already included very positive top-line results for a phase III study of Rusfertide. Andy will introduce the top-line result later, but the efficacy was at the high end of what we had been hoping for, with a tolerable safety profile. This reinforced our optimism about peak revenue potential of $1 billion-$2 billion that we introduced at our R&D day last year. In 2025, we'll review one-year safety and durability of response data prior to submitting this very promising therapy for FDA review.
During fiscal year 2024, we also completed phase III enrollment for Zasocitinib and Oveporexton, which are on track for data readout this year. Oveporexton is on track to be a first-in-class orexin agonist to address the underlying orexin deficiency that causes narcolepsy type 1. It has the potential to deliver a new era of care with transformative outcomes for people living with narcolepsy type 1. Phase III recruitment completed ahead of projection, and data readout is expected in the first half of fiscal year 2025. This could be a $2 billion-$3 billion peak revenue product in narcolepsy type 1. Next, Zasocitinib is a highly selective oral TYK2 inhibitor that could offer a great treatment option for patients with psoriasis, psoriatic arthritis, and other immune-related inflammatory disease.
Currently, we are conducting phase III trials for psoriasis and psoriatic arthritis, with the first dosing for psoriatic arthritis starting in March this year. We are looking forward to sharing the top-line result of our phase III trial for psoriasis later this year, followed by regulatory submission in fiscal year 2026. Shifting to our financial outlook for 2025, fiscal year 2025, we expect broadly flat revenue, core operating profit, and core EPS at constant exchange rate. Our revenue outlook reflects continued momentum in our growth and launch product, offsetting the carryover of Vyvanse's decline into fiscal year 2025. This should be the final year of significant impact from Vyvanse's generics. Our profit guidance reflects anticipated gain from our efficiency program, as well as increased investment in R&D, data and technology, and new launch preparation for our late-stage pipeline program.
Finally, in line with our progressive dividend policy, I am pleased to announce a further dividend increase to JPY 200 per share. With that, I will turn the call over to Milano to review our financial performance and guidance in more details.
Milano Furuta (CFO)
Thank you, Christophe. Hi, everyone. This is Milano Furuta speaking. Slide 10 summarizes our financial results for FY 2024. Reported revenue was JPY 4.58 trillion, with growth of 7.5% versus prior year. Core revenue, which includes a small adjustment related to divestiture ofTakeda-Teva JB in Japan, grew 7.4% at actual effects or 2.8% at CER or constant exchange rate. Core operating profit or Core OP was JPY 1.16 trillion, an increase of 10.2% at actual effects or 4.9% at CER. Our core operating profit margin was 25.4%, improving versus prior year despite gross margin pressure from Vyvanse's loss of exclusivity.
This reflects OpEx discipline through an enterprise-wide efficiency program. Reported operating profit was JPY 342.6 billion, which grew 60%. Core EPS and reported EPS were JPY 491 and JPY 68, respectively, with both impacted by higher tax expenses compared to the prior year. Operating cash flow was over JPY 1 trillion, and adjusted free cash flow was JPY 769 billion. Our strong cash flow performance reflected co-OP growth, lower cash taxes, and less business development spend compared to the prior year. Slide 11 shows our performance versus management guidance. We upgraded our guidance twice during the fiscal year to reflect the product momentum, including Vyvanse and OpEx management through our efficiency program. Compared to our latest guidance from Q3, core revenue delivered as planned, and core operating profit was at the high end of our guidance due to continued OpEx efficiency.
Core EPS, while ahead of our original guidance, landed slightly below the latest guidance, mainly because of higher-than-anticipated tax expenses. This was due to several factors, including an increase in the US international tax provision and the lower-than-anticipated R&D tax credits. Slide 12. Last year, we initiated an enterprise-wide program to drive efficiencies across organizations. Its execution has been fully on track, and we have captured approximately JPY 200 billion in annualized savings to date. About 65% of savings are from compensation and benefits, with 3,000 positions impacted to date, approximately, as well as further efforts to optimize organizational agility. About 20% of savings came from procurement initiatives across the value chain. The remaining 15% is from other areas, such as rationalization of activities across sales and marketing through R&D, and savings in facilities and equipment with site optimizations, including the San Diego research site.
Restructuring costs for the year were JPY 128.1 billion, slightly below our forecast of JPY 140 billion. This efficiency program enabled us to reduce OpEx spend in FY 2024 and free up resources to advance our pipeline, prepare for new product launches, and further build our digital technology capabilities. From slide 13, I'll explain more about the year-on-year growth dynamics in FY 2024. First, revenue. Our growth and launch products, which grew 14.7%, more than offset the loss of exclusivity impact, mainly from Vyvanse and [Adorex] in the U.S. and Azilva in Japan. Meta-positive growth in other brands, such as GATTEX, Trintellix, Entyvio, and Iclusig, also contributed to 2.8% revenue growth at CER. On actual effects basis, yen depreciation gave additional revenue lift by JPY 195 billion. Finally, this year, we recognized JPY 1.7 billion of deferred revenue related to the divestiture of Takeda-Teva JV in Japan.
This is non-core income that we adjust out of our core revenue results. Slide 14 shows the year-on-year bridge for core operating profit. Gross profit slightly increased with momentum across our portfolio, offsetting the LOE impact of a high-margin product such as Vyvanse. Moving to OpEx, you can see that we have already realized savings from the efficiency program in FY 2024, gross savings of approximately JPY 150 billion. We are directing those savings toward investments in our late-stage pipeline, new product launch preparations, and offsetting inflationary increases. Overall, core operating profit grew by 4.9% at CER or 10.2%, including the benefit from FX. Next, reported operating profit. In addition to core operating profit growth, the 60% increase was due to lower impairment cost, a net benefit in other operating income and expenses, and then FX. Next is our cash flow analysis on slide 16.
Free cash flow was JPY 769 billion, reflecting strong operating cash flow of over JPY 1 trillion, approximately JPY 750 billion of CapEx, and JPY 57.6 billion of proceeds from the sale of the Takeda-Teva JV. This exceeded our forecast of JPY 550 billion- JPY 650 billion due to lower CapEx and the cash taxes on top of higher operating profit. Our free cash flow comfortably covered our dividends and interest payments, with excess cash put toward debt pay down and share buyback. This chart reflects JPY 51.9 billion of buybacks completed by the end of March. In April, we also finished the rest of the JPY 100 billion buyback announced at Q3 earnings. Slide 17 shows our change in adjusted net debt. Our strong cash flow performance and EBITDA growth led to an improved leverage ratio of 2.8x as of March 2025.
Next, our latest debt maturity ladder. In quarter four, we prepared JPY 313.5 billion and $1.5 billion of syndicated loans using a combination of cash on hand, commercial paper, and short-term loans. We plan to refinance short-term funding with leverage-neutral debt this fiscal year. Our debt profile remains very manageable, with 100% of our debt at fixed rates, with a weighted average of approximately 2% interest rate. Moving to our outlook for fiscal 2025, our management guidance at CER is for broadly flat core revenue, with fiscal year 2025 expected to be the final year of significant Vyvanse generic headwind. We also expect core operating profit and core EPS to be broadly flat year-on-year, reflecting savings from our efficiency program and investment ahead of new launches from the late-stage pipeline. Our free cash flow outlook is stable at JPY 750 billion- JPY 850 billion.
In line with our progressive dividend policy, we plan to increase our annual dividends to JPY 200 per share. Please note that our forecast for FY 2025 does not reflect the potential impact of tariffs on pharmaceutical products by the U.S. or other countries. We continue to monitor the situation and will update our forecast if and when appropriate. However, as Christophe explained earlier, based on our current assumptions, we believe our likely potential exposure to U.S. and China tariff is limited. Slide 20 shows more detail on our FY 2025 revenue forecast. We expect to continue the momentum from our growth and launch products, which should exceed 50% of total revenue this fiscal year. The growth of these products should more than offset the carryover impact from Vyvanse and other loss of exclusivities.
Our revenue guidance also takes into consideration Medicare Part D redesign and 340B expansion in the U.S. Slide 21 further explains our outlook for FY 2025 Core OP. Gross profit is expected to improve slightly, while OpEx should see a modest increase versus prior year. We will continue to invest in R&D and data and technology, and in FY 2025, we expect a meaningful uptick in launch investment for the late-stage pipeline. Due to the acceleration of development timelines, we now expect the risk prototype of Oveporexton and Zasocitinib to all be filed in the US in FY 2025-2026. We are able to accommodate this with savings generated by the efficiency program. Slide 22 explains our reported operating profit growth.
Our reported operating profit forecast benefits from low amortization expenses, mainly due to the conclusion of the [Bybin's amortization] in January 2026, lower restructuring expenses, and lower impairment cost assumption. Turning to my final slide, page 23, the principle of our capital allocation policy remains unchanged. We remain committed to investing in growth drivers and delivering attractive returns to shareholders through our progressive dividend policy and share buybacks when appropriate. Meanwhile, I would like to clarify our target to reach two times adjusted net debt to adjusted EBITDA. We finished fiscal 2024 at 2.8x, and we aim to further improve the leverage ratio going forward. Thank you, and I'll now hand over to Andy for updates on the pipeline.
Andy Plump (President of Research and Development)
Thank you very much, Milano, and hello to everyone on today's call. We'll go to the next slide, please. 2024 was a very successful year for our R&D organization.
As Christophe has already highlighted, we entered 2025 with strong late-stage pipeline momentum. As you can see on the left of this slide, we also had significant events in 2024 for our growth and launch products, delivering on several geographic expansions, including approvals for Entyvio subcue in the U.S. for Crohn's disease, for Fruzaqla in the E.U. and Japan for metastatic colorectal cancer, and ADZYNMA in the E.U. for congenital TTP. We also continue to execute on our global expansion strategy for Qdenga, with approvals in Vietnam, Israel, and Switzerland. Maralixibat, a regional development program for Japan, achieved approval for the treatment of pruritus associated with cholestasis in both Alagille syndrome and progressive familial intrahepatic cholestasis. Now, moving to the right-hand side of this slide, you can see that our late-stage pipeline is advancing rapidly, with important data readouts coming this year.
Now, here are a few examples of major milestones achieved in the past fiscal year 2024. Our highly selective oral allosteric TYK2 inhibitor, Zasocitinib, completed enrollment in two phase III psoriasis trials approximately seven months ahead of plan, with a readout anticipated towards the end of 2025. Oveporexton, our lead orexin-2 receptor agonist, generated positive phase II-B data in narcolepsy type 1 that was presented at the SLEEP 2024 conference. Two phase III trials of Oveporexton in narcolepsy type 1 were initiated and completed enrollment in fiscal year 2024. We look forward to data readouts this summer. Our next generation oral orexin agonist, TAK-360, has also been accelerated, having initiated phase II studies in narcolepsy type 2 and idiopathic hypersomnia.
We presented compelling proof of concept data for our anti-CD38 antibody, Mezagitimab, in IgA nephropathy at the American Society of Nephrology Kidney Week meeting this past October, and we plan to initiate phase III development this year. In oncology, we in-license Elritercept, an active inhibitor from Keros Therapeutics, for the treatment of anemia-associated low and intermediate-risk myelodysplastic syndrome, or MDS, and myelofibrosis. Phase II-B data in MDS was presented at the American Society of Hematology annual meeting in December 2024, and the phase III development program is underway. As Christophe mentioned, in March, Takeda and our partner Protagonist Therapeutics announced very impressive phase III data for Rusfertide, a first-in-class synthetic hepcidin mimetic being developed for the treatment of polycythemia vera.
This entire sequence of positive phase III and phase II-B readouts, combined with new strategic partnerships closely aligned with our therapeutic area strategies, continues our strong pipeline progression into fiscal year 2025. Next slide, please. 2025 is indeed a pivotal year for our pipeline. For our six new molecular entity late-stage programs, three will have pivotal readouts this year: Rusfertide, Oveporexton, and Zasocitinib. We're off to a strong start thanks to the positive phase III results in March from the VERIFY study for Rusfertide. We'll review the top line data from this 32-week study in the following slide. Next, we have Oveporexton. Our phase III program for Oveporexton includes two global pivotal studies in narcolepsy type 1, which enrolled approximately 10 months ahead of plan.
Top line data is anticipated in the summer, and we plan to share the full Oveporexton data at an upcoming medical conference and target regulatory filing this year. Finally, we have Zasocitinib. In the first half of fiscal year 2025, we will initiate a head-to-head trial of Zasocitinib versus Ducravacitinib in psoriasis that will generate data helping to further demonstrate differentiation and support our commercial launch. Top line data from Zasocitinib's two pivotal phase III trials, LATITUDE 3001 and 3002, are expected in the second half of this fiscal year. The Rusfertide 32-week top line results were positive, achieving high statistical significance, and has been accepted for presentation in early June at ASCO's plenary sessions. Let's review the data that has been shared so far. Polycythemia vera is a hematologic cancer characterized by excessive red blood cell production.
The primary treatment goal in polycythemia vera is to keep hematocrit below 45%. Why? Because higher levels are associated with increased rates of major thrombosis and potential death from cardiovascular events. Rusfertide more than doubled clinical response rates in the phase III VERIFY study, significantly reducing the primary endpoint of phlebotomy eligibility when compared to placebo plus standard of care. All key secondary endpoints met significant statistical significance, including a threefold reduction in the proportion of Rusfertide-treated patients requiring phlebotomy, as well as improvements in hematocrit control. Additionally, and very importantly, patient-reported outcomes via the PROMIS Fatigue Questionnaire and the Myelofibrosis Symptom Assessment Form demonstrated improved quality of life. These data represent the most consistent and broad demonstration of patient-reported outcomes in PV patients. This is an interesting data point.
Throughout the entire 32-week period, 73% of Rusfertide-treated patients received zero phlebotomies versus just 22% on placebo plus standard of care, 73% versus 22%. Rusfertide, additionally, was generally well tolerated with overall adverse events and serious event rates comparable between the two treatment arms. The most common events were injection site reactions for Rusfertide, most of which were mild to moderate in intensity. Very importantly, there is no evidence of an increased risk of secondary cancers in the Rusfertide versus placebo-treated patients. These results across a range of patients treated with therapeutic phlebotomy, or the majority of patients in the study, phlebotomy plus cytoreductive therapy are truly transformative. Takeda will host an investor call on Sunday evening, June 1st at 7:00 P.M. Eastern Time from ASCO. We hope that you can join. Now, let's shift to the importance of disciplined decision-making and the connection to pipeline advancement.
We continue to make data-driven decisions to maintain focus on our most promising pipeline programs, as shown in the bottom half of this slide. These decisions allow us to pivot resources and rapidly advance development of our six late-stage programs. The deliberate and thoughtful approach we have taken over the last few years has resulted in Takeda's most robust late-stage pipeline in our modern history and is a testament to the successful transformation of our R&D organization. The six programs in our late-stage pipeline have the potential to deliver transformative benefits to patients while contributing to Takeda's long-term growth. We've previously reviewed the major 2025 events for Rusfertide, Oveporexton, and Zasocitinib, and now I'd like to highlight some expansion opportunities we are pursuing across these six programs. Indication expansions are being explored for zasocitinib, with important phase two readouts in 2026 for Crohn's disease and ulcerative colitis.
In addition, a phase II study exploring Zasocitinib's potential to treat vitiligo will start in 2025. Elritercept's proof of concept study in myelofibrosis will read out over the next year, and additional expansion opportunities are under consideration. I'm happy to report that the physisaran phase III program is enrolling well, and we are on track for data readout and filing as planned. As I highlighted earlier, fiscal year 2025 is a pivotal year for Takeda's late-stage pipeline. In addition to the three phase III readouts expected in 2025, we look forward to continuing our strong late-stage development trajectory with the potential to file five additional indications from this late-stage program over the next few years. I am excited to share updates with you as we progress throughout the year. Thank you very much, and I will now turn it back to you, Christophe.
Christophe Weber (President and CEO)
Thank you, Andy.
Closing overall, we are very pleased with what we have achieved in fiscal year 2024. In the challenging period when we are facing significant generic impact, we continue to deliver on our financial commitments, progress our pipeline, and create value for our shareholders. The momentum of our current growth and launch product portfolio will continue to drive our growth through the remainder of this decade, a period during which we face only limited generic exposure until the early 2030s. We are accelerating late-stage therapies with potential to generate significant value, including the three new molecular entities with phase III data readout already completed or expected by the end of 2025 that we shared with you today. We continue to transform the company across our value chain by leveraging data, technology, and AI.
Strong cash flows support this investment and asset-specific business development to further enhance long-term value and deliver attractive shareholder return. With this strategy, we are laying a strong foundation for Takeda's long-term growth and the next chapter in our story. In closing, we'll navigate the opportunities and challenges ahead from a position of strength, from a position of potential, with strong core values and our vision to discover and deliver life-transforming treatments guided by our commitment to patients, our people, and the planet. These values will guide us well in this fast-moving and challenging environment and generate long-term value for our stakeholders. Thank you.
Christopher David O'Reilly (Global Head of Investor Relations)
[Foreign language]
We would like to take your questions. As for the participants, Christophe Weber, Christophe Weber, and also U.S. Business Unit President, Julie Kim, Japan Business Unit President, Masato Iwasaki, and Global Oncology Business Unit President, Teresa Bitetti, are also joining to respond to your questions. Please use the raise hand button.
If you participate on the Japanese line, please ask your question in the Japanese language. If you are on the English channel, please ask in English. If you are listening to the original language, you can use either language. Please ask up to two questions per person, and you can address your two questions up front.
[Foreign language]
First question from Citigroup, Yamaguchi-san. Please start your question. Do you hear me okay?
Hidemaru Yamaguchi (Research Analyst)
Yes. Thank you very much. This is Yamaguchi from CT. I have two questions. The first question is regarding our company guidance, especially our two products. Sorry for the two parts, but the Entyvio sales growth, 9% tier basis, and also Vyvanse down by 30% for a full year.
Can you give me some upside and downside risk for this one, which was one of the two products which is going in the different direction compared to your guidance on the last fiscal year? That was the first question. The second question is regarding Oveporexton. I think Andy, someone was mentioning about the summer data readout. I thought my understanding was around June, but then I may have misunderstood. But can you confirm that you are at top line results? Timing of TAK-861 for the phase III, which is summer? And what is the conference you are referring to after summer for the data use? Thank you.
Christopher David O'Reilly (Global Head of Investor Relations)
Thank you, Yamaguchi-san. The first question on specific outlook for Entyvio and Vyvanse. Julie can comment on that. The second question around specific timing of Oveporexton data. Andy, could you please comment on that, please?
Julie Kim (U.S. Business Unit President)
Thank you, Yamaguchi-san, for the question. I'll take them in reverse order: Vyvanse and then Entyvio. With Vyvanse, as you see, we are expecting further erosion of Vyvanse in the U.S. At this point, we have 15 generics on the market in the U.S., and we anticipate that the supply challenges that we saw in the first half of last fiscal year, we would not see those sorts of supply challenges in this upcoming fiscal year. We expect the erosion to occur more smoothly than it happened last year. That is why we are guiding towards the decrease in Vyvanse, primarily driven by the U.S. situation. We will also start seeing some Vyvanse generics in other geographies, but it's much, much smaller compared to the U.S.
When it comes to Entyvio in the U.S., we expect to see continued above-market growth for Entyvio, also driven by Entyvio PenN, further increased access across the continuum for Entyvio Pen. We continue to see, as you heard from Christophe during the presentation, strong pull-through from patients. Quarter over quarter, we are adding approximately 1,000 new Pen writers each quarter. In our other geographies outside of the U.S., we continue to see strong growth, particularly in our European geography, and we expect that to continue. Thank you.
Andy Plump (President of Research and Development)
Good evening. Yeah, good evening, Yamaguchi. Sorry, did you want to follow up?
Hidemaru Yamaguchi (Research Analyst)
Yes. No, no. I'm fine. Thank you. Please go ahead.
Andy Plump (President of Research and Development)
Okay. This is Andy, and I have a big smile, Yamaguchi-san, because, of course, when you say summer, that includes June.
Just to be fair, I suspect that the data are not going to come in the early part of June based on just the timing of the trial. We have just said summer just to give us some room to ensure that we are coming out with the clearest top-line results. We have been moving very quickly with this program, and we continue to drive every step of the process as rapidly as possible. That will include not just the top-line disclosure, but also presentations at a scientific congress. We will do that as quickly as we can. We are reluctant at this point to declare which congress because, obviously, we need to have an abstract accepted. Until that has happened, we will not say that. Of course, there are a relatively limited number of important SLEEP meetings.
You could probably figure it out by just looking at those few meetings that exist. The last comment I'll make along these lines, just to ensure that expectations are set appropriately, there are essentially three parts that will constitute the filing for Oveporexton and type 1 narcolepsy. One will be, of course, these two pivotal phase III studies. The second will be the safety database that predominantly will come from the long-term extension study from our phase II-B study that we presented last year. The third will be our CMC package. Right now, we haven't declared precisely when our filing dates and when our expected approval dates will be, but those are the three pieces that will define our timing.
Hidemaru Yamaguchi (Research Analyst)
Okay. Looking forward to summer. Thank you.
Christopher David O'Reilly (Global Head of Investor Relations)
[Foreign language]
Moving on to the next question, Morgan Stanley, Muroaka-san. Please ask your question.
Please ask your question.
Thank you. This is Muroaka, Morgan Stanley. My first question is about dividends. Slight decline in profit, but the dividend is going up by JPY 4. We're happy about the increased dividend. Compared to JPY 8 increase, this is a smaller increase this time. Going forward, if your performance can be, for example, upgraded, would you maybe get closer to JPY 8 increase in dividend? Would that be possible? That's my first question. My second question is, in relation with tariffs, over the next five years, $30 billion investment will be made. I think that's what you said, Christophe, if I heard you correctly. Now, local production in the United States will be expanded. Is that the relationship?
Also, in terms of total capital allocation, do you think this investment will have a major impact, a big impact, or not so big an impact in your assessment? Those are the questions.
The first question on the dividend, why JPY 4? And if there is an upgrade to guidance, is there any room to increase that further? I'd like to ask Milano to answer that question. The second on tariffs, Christophe mentioning JPY 30 billion of investment in the U.S. over the next five years. Could you please explain a little more in detail what that refers to? Christophe, if you could take that second question.
Thank you very much, Muraka-san, for your question. This is Furuta speaking. With regard to dividend, I have to actually repeat myself. Progressive dividend policy is applied.
Core EPS, reported EPS, and free cash flow, we will monitor those factors and make decisions accordingly. Over the last two years, yes, we increased the dividend by JPY 8. Based on the current core EPS, the payout ratio is about 40%, which is quite competitive in this industry. That is our assessment. Reported EPS, while going forward, we will see a shrinkage in amortization. We expect the number to improve. Currently, we have not really reached the JPY 200 level yet. We have to consider all these different factors. This is why we have decided to increase the dividend by JPY 4 this time. Going forward, how quickly can we move to a further increase in dividend? Core EPS, reported EPS, and also free cash flow, specifically cash flow and the leveraging outlook.
All of these factors will have to be taken into account, and the decisions need to be made every year accordingly.
Christophe Weber (President and CEO)
Thank you, Muraka-san, for your questions. As you now understood, we have a very significant presence in the U.S. This is why we have actually a low exposure to tariff. We have a massive manufacturing network in the U.S. We have a very significant presence when it comes to our R&D, for example. When I said that we will invest $30 billion in the next five years, this is not new. This is to maintain this presence. This is to continue to develop the company. This is to make sure that our manufacturing sites are upgraded up to the best efficiency and productivity. This $30 billion includes our R&D spend in the U.S.
This is not a new change of strategy, but this is to illustrate that as a global innovative pharmaceutical company, we have a very strong presence in the U.S., which is by far today the country which is so important for developing biopharmaceutical innovation, but also a country very important to reward innovation as well in terms of its market. Thank you.
Christopher David O'Reilly (Global Head of Investor Relations)
[Foreign language]
Next question is Steve Barker Jeffries, please.
Steve Barker (Research Analyst)
Yes, thanks, Steve Barker from Jeffries. My first question is for Andy regarding Zasocitinib. Could you please explain your decision to choose vitiligo as the next indication for development with reference to the unmet need, the competitive environment, and mechanistically why a TYK2 inhibitor might succeed in this indication? My second question is for Julie Kim, whom I'd like to congratulate on being chosen to become the next CEO.
Perhaps you could tell us something about what you expect to be able to bring to this role. Thank you.
Andy Plump (President of Research and Development)
Hi, Steven. Good morning. Good evening. It's Andy. The question about our indication expansion strategy for Zasocitinib and why vitiligo. When we brought the program in, we were committed to the four core indications that now we have great momentum behind: psoriatic arthritis, ulcerative colitis, and Crohn's disease. We undertook a very extensive effort, a combined effort, obviously, between the R&D organization and our commercial organization looking for indications that would make most sense. The mechanism is a ubiquitous signaling molecule involved in many different inflammatory pathways with very strong human genetics that point to many potential indications. We established a rubric by which we have built our decision tree off of.
One is, where do we think that we have the greatest likelihood of scientific success? Two, how long and how costly is development? Three, unmet medical need and commercial opportunity. When we sifted through that funnel, we went from literally dozens of very exciting and potentially scientifically interesting indications to a handful of potential indications. A few have risen to the top. I do not think we will stop at vitiligo, by the way. I think that there will be more to come, and we will share those with you later. Vitiligo sifted to the top because, A, there is very strong scientific rationale. Both the genetics of this overall pathway suggest a role in vitiligo. We know that interferon signaling, for example, is involved in driving the skin lesions in vitiligo, and TYK2 is a prime mediator of interferon signaling.
It's actually a fairly prevalent disease across the world. It's highly unmet in terms of medical need. It's the kind of disease where, because there aren't existing therapies, I think we don't realize the amount of lifestyle and health devastation that comes from this disease. We think that the upside opportunity is quite high. Of course, we have to demonstrate this is a proof of concept. It will be a dose-ranging proof of concept study that wins. We have to, of course, demonstrate benefits, but we're quite excited about the possibility.
Julie Kim (U.S. Business Unit President)
Thank you, Steve, for your kind comment. It's truly an honor to be the incoming CEO for Takeda. I will share with you a couple of comments, but obviously, as it's still quite a bit of time away, I won't provide any details until next year.
First and foremost, as a member of the executive team, I've been involved in all of the strategy discussions to date. This is not going to be a situation where there will be a massive overturning of the existing strategy. My intent is to honor the legacy of Takeda and the legacy that Christophe will be leaving behind next year, but also looking to the future and taking the time to listen to stakeholders, internal, external, to understand what they would like to see from Takeda and incorporate that into what I will share next year as a direction forward for the company. I guess stay tuned, and you'll hear more from me next year.
Steve Barker (Research Analyst)
Thanks, Julie. Congratulations. Thanks very much, Andy.
Christopher David O'Reilly (Global Head of Investor Relations)
Thank you, Steve, for your question. Okay.
I'd like to move on to the next question, please, from TD Cowen, Mike Nedelkovich. Please unmute and ask your question. Hi, Mike. We can't hear you. Mike, are you unmuted?
Mike Nedelcovych (Director Equity Research for Pharmaceuticals)
Yes. Can you hear me now?
Christopher David O'Reilly (Global Head of Investor Relations)
Yes. Okay. We got you. Perfect.
Mike Nedelcovych (Director Equity Research for Pharmaceuticals)
Okay. Apologies. Sorry for that. Thank you for the questions. I have two. One relates to the Oveporexton potential launch. I imagine there are only so many prescribers when it comes to narcolepsy, and the advantages of orexin replacement should recommend themselves. My question is whether this could be one of the most successful drug launches in recent history. Assuming phase three replicates what we saw in phase two, should we expect Oveporexton to take off like a shot? If not, then why not? My second question relates to GATTEX.
It looks like timing of generic entry is still unknown, and you are forecasting a healthy number for fiscal 2025. How durable do you think this revenue could be? Thank you.
Christopher David O'Reilly (Global Head of Investor Relations)
Thank you, Mike. The first question on sort of thoughts on the Oveporexton launch trajectory, and then the second question on durability of GATTEX. Julie, could you take both of those questions, please?
Julie Kim (U.S. Business Unit President)
Yes. Thank you, Mike, for those questions. Like before, I will take them in reverse order. Yes, you have noticed that we do expect competition still, but it is delayed. This is an area where we do believe beyond the actual medicine itself, there is a lot of support needed for this patient population. A significant amount of patient services support is critical to supporting the treatment experience.
We do expect that GATTEX will not have the typical erosion curve once generic comes, as well as from competition. We do expect there to be a longer-lasting revenue stream from GATTEX. In terms of Oveporexton, I would look at this in a couple of different ways. One, we still have a diagnosis challenge for narcolepsy type 1. There will be an effort around appropriate diagnosis of narcolepsy type 1 because Oveporexton will be indicated in type 1, and current therapies are indicated in type 1, type 2, and in IH. The first aspect is the diagnosis of narcolepsy type 1. As you point out, with hopefully phase III replicating the type of data that we saw in phase I, we do expect there to be significant demand for Oveporexton given the type of efficacy we hope to see.
Now, that being said, we will have to make sure that we have all of the programs in place to ensure smooth access in this space. There is a lot of standard therapies that are much cheaper that we will have to work through from an access standpoint. Fundamentally, we are really excited about the opportunity to launch Oveporexton. The U.S. will be the first market to launch, and we're looking forward to it.
Christopher David O'Reilly (Global Head of Investor Relations)
Okay. Thank you very much. [Foreign language]
And the next question.
Hiroyuki Matsubara (Senior Analyst)
[Foreign language]
Yes, this is Matsubara. Nomura Securities. Can you hear me okay? Yes, we can. Thank you. I have two questions. First question is about the tariffs. Manufacturing sites you have disclosed today, I think that gave us some sense of comfort. Is there anything you can comment about IP? The second question is about interview.
PenN is useful, I understand. You are increasing the number of new patients, but reimbursement is the bottleneck. When do you think we will see Pen contributing in a great way, big way? The security is also there on about second-line market share currently. That's my question.
Christopher David O'Reilly (Global Head of Investor Relations)
Okay. The first question to Christophe around tariffs. Do you have any specific commentary around the location of our intellectual property? The second question on Entyvio Pen around the reimbursement challenges that Christophe referred to in the call. When do we expect an uptick in reimbursement, and how do we see usage being used in the second line given the competitive landscape? I'd like Julie to answer that second question, please.
Christophe Weber (President and CEO)
Yeah. Thank you, Matsubara, for the question. I think it's a very relevant question. You define the potential tariff impact based on your manufacturing network.
You have seen that it's located mainly in the U.S. and Europe, Japan. Also, you are right where your economic IP is located. In our case, it's mainly located in the U..S and Japan. We have never over-optimized our economic IP in low-tax locations where you need also to have a manufacturing site in order to leverage that. We have done it, but we have not done it very, very significantly. That is also why our tax rate is in the low 20% and not in the mid 10%, for example, like some other companies. This is today helping us in a way to have a lower potential tariff exposure.
Julie Kim (U.S. Business Unit President)
Sorry, I had started talking, forgotten to take myself off mute.
Your question, thank you, Matsubara, in terms of Entyvio and where we are with reimbursement and whether or not we're targeting second line, I believe, was the other part of your question. For Entyvio, we really target first-line usage because of the profile of Entyvio and its gut selective and its safety and efficacy track record. Our focus is on making sure that Entyvio is the first choice when moving to advanced therapy in IBD, particularly in UC, but also in CD. In regards to Pen, again, here, this is where we do see patients who are coming on to advanced therapy for the first time, that there is a strong preference for moving to Pen.
It is about making sure that at the local level, we work through all of the details to make sure that there is a smooth experience and transition for the patient. Quarter over quarter, as I mentioned in response to an earlier question, we are seeing an increase in the number of subscribers that we are seeing. We also have very positive feedback in terms of the patients who do go on to PenN and that they have a strong preference for it. We do expect this to continue to increase. We are still targeting our overall objective of having a 50/50 split in terms of IV and Pen for Entyvio. Thank you.
Christopher David O'Reilly (Global Head of Investor Relations)
[Foreign language]
Thank you. Next question.
[Foreign language]
Wakawo-san, JPMorgan, please.
[Foreign language] Thank you. I have two questions. First, about most favored nation policy in the U.S.
There has been discussion of drug price deductions and most favored nation policy in the US. If such a policy were implemented for Medicare and Medicaid, how do you assess the potential impact of MFN on your U.S. business? [Foreign language]
The second question, I'd like to ask a question to Milano. The fourth quarter, the gross margin rate is higher than my forecast. What is the reason of the improvement for the fourth quarter number and also the planned number for this fiscal year?
On potential impact of most favored nation, Julie can answer about that. The second question on gross margin improvement to Milano, please.
Julie Kim (U.S. Business Unit President)
Thank you, Wakawo-san, for the question on MFN or most favored nation. As you have probably seen, it's a very dynamic time here in the U.S.
This is a significant topic of discussion with the pharma board, which met this week and also met last week as well. This is an area that when you think about MFN as a concept, it is a very challenging concept to apply in the U.S. because the healthcare system here is fundamentally different than the healthcare system where the pricing is being pulled from. Basically, it is a price control being applied in the U.S. setting when the U.S. healthcare system is not set up for that. There are structural differences, particularly when you look at things like the middleman with PBMs and with other programs such as 340B.
Overall, from an industry perspective, if MFL were applied within the Medicaid setting, which of course then trickles through to 340B, that would be an industry impact over 10 years of up to $1 trillion. It would fundamentally be a significant challenge for the overall industry, Takeda included. When you look at what the U.S. government is trying to do, we think that there are better ways to encourage manufacturing investment in the U.S., R&D investment in the U.S., and to support continued innovation through the biopharmaceutical industry in America. MFN would not be the appropriate way to do it. It would be a significantly challenging situation for the whole industry, including us, to manage.
[Foreign language]
Thank you for your question regarding the gross margin.
First of all, regarding the actual gross margin in the fourth quarter, usually in the fourth quarter, because of similarity, we see the trend of a downturn. In FY 2024, we saw almost the same trend. If you compare this number to the numbers up to the third quarter in FY 2024, there have been some cumulative effects impact onto the inventory, and the valuation method has been changed. Therefore, as a result, compared to the period up to the Q3 and Q4 numbers, you may have thought that they looked different. Actually, there were not much differences. Actually, the landing was in line with what we gave guidance regarding the FY 2025 forecast. There are two points for the potential trend of the gross margin. One is the product mix, and the other is the effects, how much impact it will be onto the inventory.
We changed the calculation method, as I mentioned earlier. For the first point, the growth of gross and launch products and the balance LOE offset. Relatively speaking, the product mix impact onto the gross margin is going to be neutral, whereas in FY 2024, there are differences from the calculation method change regarding the effects impact onto the inventory. Comparing FY 2024 and 2025, this would work to improve the numbers. That's all. Thank you very much. I could understand very well.
Wakawo-san, I just wanted to add one more comment to your question rather than leaving it hanging as I did. Both the pharma board as well as individual companies, Takeda included, are putting in a significant effort to work with Congress in terms of making sure MFN is not a policy that is included in the reconciliation package.
There are other pay for that pharma as an industry believe would meet the needs of the government's request here. At this point, we will continue to support other policies beyond MFN as a way to control either pricing and/or provide a pay for in terms of the pill penalty fix, which is what started this initial conversation. Thank you.
Thank you. Thank you very much for your excellent answer. I understand it very well. Thank you.
Christopher David O'Reilly (Global Head of Investor Relations)
Thank you, Wakawo-san. Okay, moving on to the next question. I'd like to take the next question from Tony Ren at Macquarie. Tony, please unmute and ask your questions.
Tony Ren (Analyst)
Hello, can you hear me?
Christopher David O'Reilly (Global Head of Investor Relations)
Yes, Tony, we hear you.
Tony Ren (Analyst)
Okay, perfect. Yeah. Thank you for the opportunity. Yeah, the first one is for Christophe on going back to the possible impact of tariffs on last line number six.
I think I heard you saying that the customs value in the U.S., when you compare the customs value to the U.S. revenue, it's about, let me go to slide number six here, 8% or so. This feels 8-10%. It feels a little bit lower than I would have anticipated. Obviously, you guys do not disclose gross profit margin by region, but at the company level, it's about roughly 65%, which implies about 35% COGS as a percentage to revenue. There was also a question about the IP, which relates to transfer pricing. Could you help me understand how can I juxtapose COGS, transfer price, and customs value? That's a question for slide number six. Another question is that in your 2025 guidance, you budgeted roughly JPY 130 billion worth of negative impact from Medicare Part D redesign and 340B drug price program.
This is a pretty big number. I just want to see what are the drugs that are affected. If you could just briefly explain mechanistically how you arrive at the JPY 130 billion, that would be great. Yeah, thank you.
Christopher David O'Reilly (Global Head of Investor Relations)
Thank you, Tony. The first question around tariffs and the customs value impact, Christophe can start that answer. The second question on impact from Part D and 340B to Julie, but perhaps Milano could also jump in to add any comments as well. Christophe?
Christophe Weber (President and CEO)
Yeah, thank you, Tony. This is exactly why we wanted to disclose this analysis to you guys so that you do not make wrong assumptions.
50% of our total revenue is in the U.S., but the value of import from Europe, Japan, and Singapore, because this is where we can only import drugs from, is 8%-10% of the total U.S. revenue. Why 8%-10%? Because, one, there are many drugs that we manufacture in the U.S., so they are not excluded, if you like, from any import and tariff. Entyvio is a good example. Entyvio's manufacturing is in the U.S., so Entyvio is not subject to tariff, for example. You need to exclude all the products which are manufactured in the U.S. That's the first thing. After that, you need to consider the type of transfer price that exists from Europe to the U.S., for example.
As we mentioned, our IP mainly is located in the U.S. and Japan, so we do not have a significant optimization of our tax through a transfer price. That is why we wanted to share with you this simple math, because if you want to sort of modelize what could be a tariff impact, we will see how things are evolving. For example, if you take U.S., you take 50%, you take the revenue U.S., you multiply by 8%-10%, and you multiply that by an average tariff, let's say if it is Europe or Japan. I think that is how you can end up with a number. Same in China. In China, the value of import from the U.S. is 10%-12%-15%. Why? Because many products that we export to China or that China imports come from Japan or from Europe and not from the U.S.
I think this is very important to have this number to sort of scope what could be the tariff impact. This is why we believe that we do have potential exposure, but quite limited.
Julie Kim (U.S. Business Unit President)
Hi, Tony. I'll try to address the question around both Medicare Part D redesign and 340B, and then maybe Milano can jump in to talk about the total impact on the company financial picture, because I think that was the other part of your question. For Medicare Part D redesign, this is one of three areas within the Inflation Reduction Act that impacted the pharmaceutical sector. For Medicare Part D, just as a quick refresher for everyone, there was a significant shift of the government's responsibility over to payers and manufacturers.
That piece that comes over to the manufacturers on the Medicare side, this is what you are now seeing the full year impact for in our FY 2025 numbers as that went into effect in January of this year. That is what you are seeing flowing through. 340B is a program whose initial intent was to help provide support, relief, I would say, for hospitals that are taking care of uninsured patients in the U.S. This has expanded from the initial roughly 100 hospitals to over 2,000 hospitals that now use this program. It has turned into a markup program where the hospitals receive the medicines at a very discounted rate, and then they mark it up and keep the difference. This program is growing exponentially. It is the largest and the fastest growing government program of its kind.
This is having a significant impact on our ongoing revenues as the 340B program continues to expand. Those are the drivers of those two different components. One is the full year impact of the Medicare Part D redesign for the first time. The second is the growth of the 340B program in the U.S.
Milano Furuta (CFO)
Tony, if I add a little bit, as Julie explained, both the 340B expansion and Part D redesign are working in a way to increase the manufacturers, pharma companies' contribution or in the form of the rebate. This will increase the rebate for the revenue, which are kind of realizing through this Medicare Part D and 340B. The expansion of these two channels or the incremental rebate through the Part D is going to basically increase the rebate in the gross to net in the U.S. revenue.
That's the impact we are projecting. If we compare the versus FY2024, it's going to be almost, sorry, JPY 130 billion impact. It's almost like incremental gross to net or the rebate in the U.S. business. That's how the mechanistically or in the impact of our financials. I just want to add one commentary for tariff impact, Christophe explained. Even if you do the math, this impact is a potential impact of the kind of annualized impact. The amount you get by multiplying these factors would be the potential exposure to tariff. Actual maybe financial impact, even if the tariff is applied to the order, the non-U.S. country origin products, the financial impact would be more less, or sorry, less because of the first timing. Also we have some inventory on hand.
We have some mitigation measurements to manage the inventory and the supply chain. Please do not translate directly to that amount you calculate to a potential FY 2025 impact. This is going to be the potential annualized impact if the tariff becomes applied to all the non-U.S. country origin products.
Tony Ren (Analyst)
Yeah, thank you, Christophe, Julie, and Milano. Just a quick follow-up on the JPY 130 billion impact, right, gross to net. Is this number heavily concentrated on a few drugs, or is it fairly widely dispersed?
Milano Furuta (CFO)
It's across the products.
Tony Ren (Analyst)
Okay, very good. Yeah, thank you very much.
Christopher David O'Reilly (Global Head of Investor Relations)
Okay, great. Thank you, Tony. Moving on to the next question. I'd like to invite the next question from Goldman Sachs, Ueda-san. Ueda-san, please unmute and ask your question.
Akinori Ueda (Analyst)
[Foreign language]
This is Ueda, Goldman Sachs. I have two questions as well.
First question is about R&D expense, level of R&D expense. FY 2024, earlier, I think yen was weaker, but on yen basis, I think the expense was flat. Going forward, do we expect this to stabilize? Progress of the clinical program and also the efficiency program? Do you have any specific outlook or guidance that you can share about how this may change? The second question is about margin outlook. For FY 2025 plan, Vyvanse revenue or sales is still remaining. We still have a substantial sale. When do we see the bottom up of margin? When should we expect that? That is my question. Efficiency program and the LOE balance. Based on that, Core OP of a 30%. When do we see this happen? When do you think we will progress to that level? That is my question.
Christopher David O'Reilly (Global Head of Investor Relations)
Thank you. Thank you, Ueda-san, for those questions.
The first on the outlook for the R&D budget and the second on our margin outlook. Milano can answer both of those questions. Milano?
Milano Furuta (CFO)
[Foreign language]
Thank you, Ueda-san, for your questions. With regard to R&D expenses, what is the current trend? What is the outlook? For FY 2024, we had multiple factors. As we said before, some programs progressed, actually many of them progressed to phase III. Therefore, the clinical development cost has increased. At the end of FY 2023, we did prioritize the programs in R&D. This meant that some of the programs were discontinued and the expenses went down as well. For FY 2024, we also implemented the efficiency program. These are the three factors resulting in a smaller R&D budget in FY 2024.
Now, moving to FY 2025 and beyond, as we have explained in our guidance, R&D will accelerate, which means that R&D expense going forward will continue to increase over time. For FY 2025, we will continue to implement the efficiency program. There will be some carryover impact of the efficiency programs implemented in FY 2024, so we want to be able to offset the increase in R&D cost that way. With regard to outlook for margin, as we are a biopharmaceutical company, low to mid-30%, more than 30% Core OP should be our continuous target. It will be. In terms of margin improvement, the shape of the curve may look a little bit different from what we saw one year ago. There are some reasons behind this. FY 2024, to begin with, was already high in terms of Core OP. We landed at a high level.
Also, Vyvanse's generic LOE impact was pushed out to FY 2025. As somebody else asked earlier, pricing pressure was relatively high as well. Acceleration of development is the biggest factor. In order to continuously improve the margin over time, we need to make sure that the new product launches are successful. This is the most important factor and most important driver. Therefore, we will continue to invest into that. We also want to improve the margin as well. This is why we want to continue the efficiency program so that we can fund the investment.
Akinori Ueda (Analyst)
[Foreign language]
I understand. Thank you very much for your answer. That is all from me.
Christopher David O'Reilly (Global Head of Investor Relations)
[Foreign language]
Next is Sakai-san, UBS Securities, please.
This is Sakai-san, UBS. Two questions. One is, I would like to specifically ask your PDT business, how much business is based purely in the U.S. land?
When you counted the impact of tariff, did you count those equipment, correction equipment, and other machinery tools that your suppliers import from outside Japan? Sorry, not outside from Japan, outside from the U.S. That's the first question. The second question is for Ramson, as always. Look at page 26. Sorry if I missed your comment about the development program, but now you are launching this head-to-head duplex trial ahead of the readout in the second half of FY 2025. I saw the J&J press release. They've got very good, I think that was CD23, new program, right? And they are launching head-to-head with injectables. This is oral. Therefore, does that change your development strategy here going forward? That's my second question.
Thank you, Sakai-san. The first question on PDT geographic footprint and how we thought of that in the tariff impact.
Perhaps Giles can begin with an overview of the geographic impact, and then Milano can follow up with any specifics on the tariffs. The second question on Zasocitinibs head-to-head and future development strategy, Andy can take that question.
Giles Platford (President of Plasma-Derived Therapies Business Unit)
Thank you, Sakai-san, for the question about 60% of our PDT revenues are U.S. domestic sales. With regards to your question pertaining to the sourcing of equipment ex U.S. and impact from tariffs, we continue to evaluate that. We feel confident that we can manage the continued supply of equipment to the U.S. in our current understanding of the tariffs that have been already announced. Thank you.
Christopher David O'Reilly (Global Head of Investor Relations)
Okay, perhaps to Andy then for the Zasocitinib question.
Andy Plump (President of Research and Development)
Yeah, great. Sakai, thank you very much for the question.
Since we brought Zasocitinib in, we've been keen to, we believe for many reasons, it's truly a best-in-class TYK2 inhibitor based on its selectivity, based on its once-daily dosing with full 24-hour coverage against TYK2. Of course, based on the data that we've seen so far in two of our phase II-B studies. We're being keen to demonstrate in a head-to-head study against deucravacitinib that in fact, we do have the best TYK2 inhibitor. We're keen to start that study. As we've mentioned previously, the two phase III studies in psoriasis will read out later this year. We're in the process of collecting a very substantive safety database to support the filing. We're preparing for our manufacturing for commercial launch. All of that will be the basis of our filing.
The Deucra comparator study, head-to-head study will not be a part of the initial package. Our goal is for that to come out at the time of launch to support our overall messaging and differentiation package. I'd like to hand it over to you, Julie. Maybe you can talk a little bit about the access considerations in the competitive landscape.
Julie Kim (U.S. Business Unit President)
Sure. Thank you for the question around the head-to-head. First, as Andy said, we do believe that it is important to have the head-to-head with Deucra to be able to demonstrate the differentiated profile within the TYK2 space. As you pointed out, the J&J compound is also looking at head-to-heads and a different type of head-to-head. We do believe that having two strong, efficacious orals will be a benefit to growing the oral segment within the psoriasis treatment landscape.
We will continue to address and look at the different ways of differentiating Zasocitinib so that we can best support it at launch.
Okay. So J&J compound, IS26, sorry, I missed that. And just confirm, I mean, everything in budget, right? Everything in this year's budget, this head-to-head and going forward.
Giles Platford (President of Plasma-Derived Therapies Business Unit)
That's correct.
All right. Thank you very much.
Christopher David O'Reilly (Global Head of Investor Relations)
[Foreign language]
Thank you very much. With that question, we are reaching the time to close. So much for Q&A. And with this, we would like to close today's webinar. Thank you very much for joining us today in spite of the busy schedule. We hope that you continue to support Takeda. Thank you.