Takeda Pharmaceutical Company Limited (4502) Earnings Call Transcript

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 our actual results to differ materially are discussed in the most recent Form 20-F and in our other SEC filings. Please also refer to the important notice on Page 2 of the presentation. Now please let me introduce today's presenters and panel: Christophe Weber, President and CEO; Andrew Plump, President of R&D; Costa Saroukos, Chief Financial Officer; and Ramona Sequeira, President, U.S. Business Unit and Global Portfolio Commercialization. First, Christophe will give you a presentation. And after that, we will have a question-and-answer session. Now we would like to begin.

Thank you very much. It's a great pleasure to be with you. I wish we could be setting the meeting rooms that will resolve the technical issue. But the pandemic is still there with us. And I think it's a reminder that developing treatments for any disease is so important for the society. I will jump directly to Slide #3. I'll try to save a bit of time because of that delay. You know our vision. Our vision is to discover and deliver life-transforming treatment guided by our commitment to patients, our people, and the planet. And this is a purpose-led and value-based approach, which drive all our action and decision. And also, as we look into the future, we see very significant potential in data and digital and technology. Technology will revolutionize our business and create better experience and outcome for patients, accelerate the discovery, development and delivery of life-transforming treatments, and it will transform the way we work. Our goal is to continue to grow Takeda into the most trusted, science-driven, data-enabled biopharmaceutical company. So Slide 4 just explains where we are at the present time. Our business transformation accelerated through the acquisition of Shire has provided us with the runway to scale our ambitions. As you will see in the next slide, and it's not news for you, we remain headquartered in Japan. We maintain a global hub in Boston. We have a presence in 80 countries and regions, 31 manufacturing sites globally, 3 research centers in Japan and the United States. In the last fiscal year, we had annual revenue of approximately USD 29 billion with regional breakdown of sales, which is broadly in line with the industry average. Our key business areas of GI, rare disease, plasma-derived therapies, oncology and neuroscience represent a balanced and diverse portfolio, making important contribution to our top line. Our global scale help us to drive a strong portfolio of 14 global brands to generate steady organic top line performance while also driving competitive margin and strong cash flow to fuel future innovation. Recent product launches such as EXKVITY and LIVTENCITY  inject even more growth momentum, adding to the potential of our growing global portfolio. One of our top priority has been to develop our pipeline. We have an exciting and diverse pipeline with approximately 40 new molecules with the potential to address significant unmet needs. As an R&D-driven company with a high bar for innovation, we know that not every program will succeed. However, the depth of our pipeline give us confidence that our R&D engine will continue to produce novel medicines at a level that will help support the long-term growth of the company. Having gained regulatory approval and launched 2 new products in the last month of 2021, we are even more confident today that the strength of our commercial execution, combined with the potential of our pipeline, will help to fuel our long-term revenue growth. On Slide 5, we highlight the impact of the business transformation, including the integration of Shire, which allow us to deliver our financial commitments. This includes top line acceleration with underlying revenue growth expected to be in the mid-single digit this fiscal year, driven by our 14 global brands as well as our new product launches. In addition to growing the top line, Takeda continues to focus on delivering a competitive underlying operating profit margin. Our strong margin will continue to drive our cash flow, which allow us to invest in our growth drivers while also paying down our debt towards our target of low 2s net debt to adjusted EBITDA by the end of fiscal year 2023. Finally, we have a well-established dividend policy and recently announced our first share buyback in 13 years, underscoring our confidence in our business strategy and commitment to delivering value to shareholders. Moving to the next slide, I'd like to focus on our 14 global brands, which are expected to continue to drive our growth expectation over the medium term. These brands generated a total of $11 billion in the last fiscal year and are on track to meet our underlying revenue growth forecast of 14-16 for fiscal year 2021 -- our growth forecast of 14% to 16% for fiscal year 2021. It means the potential for annual incremental revenue of approximately USD 1.5 billion driven by these 14 global brands. We expect this momentum to continue into the medium term. We expect continued growth momentum through increased market penetration in launch countries and geographic expansion in Japan and emerging markets, particularly China. To briefly highlight some of our 14 global brands, I will mention Takhzyro, which has a leading position in hereditary angioedema. I will mention our IG portfolio, hemoglobin portfolio, both IV and subcutaneous formulation. This product generated revenue of $3 billion last fiscal year and are expected to grow in the medium term. I will also mention, of course, Entyvio, our biggest product with global revenue of almost $4 billion last fiscal year, and it is constantly growing because we are constantly gaining market share in countries where we are already launched. And we are also expanding geographically and launching Entyvio in many countries. Regarding Entyvio, on next slide, on Slide 7, I would like to take some time to walk you through how we are thinking now about the time line for potential biosimilar entry for Entyvio. Until now, the base case we have been using regarding biosimilar entry timing has been the most conservative scenario, coinciding with the expiration of Entyvio data exclusivity, which occurs at the earliest in May '24 in Europe and May 2026 in the U.S. When we look at the analyst consensus for Entyvio sales erosion, this also appeared to be the assumption that most, but not all, analysts have taken. However, we are now in 2022. And being in 2022, 2 to 4 years only before data exclusivity expiry, we now believe that this previous scenarios for biosimilar entry should be revisited. Why? First, at this point, we are not aware of Entyvio biosimilar in clinical development. And our best estimate is that it will take at least 4 to 5 years for a biosimilar to go through all the clinical studies, generate the relevant data and undergo regulatory review for approval. We believe that any biosimilar entering the clinic now will be unlikely to complete the clinical development time line before the end of the data exclusivity barrier. Secondly, from an intellectual property perspective, as we have mentioned previously, Takeda has granted patents that cover various aspects of Entyvio including formulation, dosing regimen and process for manufacturing, which are expected to expire in 2032 in the U.S. Therefore, any biosimilar that seeks to launch prior to 2032 will need to address potential infringement and/or the validity of all relevant patents. Thirdly, as a reminder, Entyvio is only indicated in ulcerative colitis and Crohn disease. So any biosimilar will need to conduct studies in at least 1 of these disease areas. This is unlike biosimilar for anti-TNF, for example, which are approved in a broader range of indications and therefore the biosimilar [indiscernible] entry point. For all these reasons, we believe it is highly likely we will see biosimilar launch in the U.S. or Europe upon expiration of data exclusivity. Now moving to the next slide. Let's take a look at the new product launches and what this means for our top line over the next 5 years. With the recent approval of both EXKVITY and LIVTENCITY have demonstrated that we have a portfolio of new products coming to market that are well positioned to drive additional growth. Both EXKVITY and LIVTENCITY  are highly innovative products responding to a very high unmet medical needs, and we are really looking forward to launch these 2 products first in the U.S. and then in many countries across the world. This is the blueprint for our pipeline strategy. We set a high bar for innovation to bring forward truly transformative treatments for patients who have significant unmet needs. As for the strong growth of our global brands, we believe there is a potential for significant incremental revenue growth out to fiscal year '25 as outlined on Slide 9, with 14 global brands and new launches such as EXKVITY and LIVTENCITY expected to deliver approximately $9 billion of incremental revenue, double what we expect to lose from the loss of exclusivity of Vyvanse, Velcade and Azilva, and the decline of other in-line products such as our hemophilia franchise. We believe that the market underestimates our ability to grow through some of our near-term headwinds. But I want to emphasize that Takeda is well positioned to deliver top line growth in the next 5 years with even more confidence now that we do not expect Entyvio biosimilar launches during this time frame. In addition to top line, we'll continue to focus on our margins and strive to deliver underlying operating profit margin in the low to mid-30s range. In the previous slide, we laid out growth expectation until fiscal year 2025, but we truly believe that Takeda is well positioned to continue delivering growth beyond fiscal year 2025 well into the next decade. Looking now at Slide 10, it is important to recognize the continued growth potential of our existing portfolio, for example, our IG franchise, Takhzyro. And we believe that, that combined with the launch of new products will be more than offsetting the major U.S. losses of exclusivity in the last half of this decade, mainly Trintellix in '26 and Ninlaro in 2029. I want to emphasize that we cannot depend upon Entyvio alone to support the company over the long term. As I mentioned previously, we have built a deep and highly innovative pipeline through our R&D transformation with approximately 40 new molecular entities in clinical stage, several of which have sales potential over USD 1 billion. On the next slide, you will see that our global R&D strategy is working. We just want to reinforce this global R&D strategy here. We continue to advance highly innovative, life-transforming medicine in our core therapeutic areas of oncology, rare genetic and hematology disease, neuroscience and gastroenterology with strategic R&D investment in plasma-derived therapy and vaccines. But our R&D strategy is not only to be therapy [indiscernible] focused. It's also about a robust partnership model, which is a key driver to our success. Our world-class internal labs are partnering to access cutting-edge science wherever it originate. You will have seen, for example, that we just announced the acquisition of Adaptate Biotherapeutics to add the novel antibody-based gamma delta T-cell engager platform to Takeda immuno-oncology portfolio. 1/3 of our late-stage pipeline has received Breakthrough Therapy designation, a true testament to our innovation and focus on developing transformational therapies where there is significant unmet need. And approximately 50% of the pipeline has often drug destination or often potential in at least 1 indication. So we'll continue to make significant investment to grow our expertise and capabilities in cell therapy, gene therapy and data science and overall to progress our pipeline. On the next slide, you will see that we are building one of the most modality-diverse pipeline in the industry. And this is another part of the transformation that we did in the last few years. We are focused by therapy area, but at the same time, we are diversifying our activities across modalities in order to find the innovation and have this ability to leverage these modalities to deliver innovation in the therapy areas where we are active. This was only possible due to the total redesign of our R&D organization in the last few years. On the next slide, you will see that our R&D strategy is working. We have a pipeline which is beginning to deliver on our ambitious aspiration. I mentioned earlier the recent FDA approval of EXKIVITY and LIVTENCITY in the U.S. 90% of our pipeline didn't exist 6 years ago. Takeda R&D engine is advancing an ambitious stream of next-generation therapies. These programs are focused on providing transformative treatment for targeted population with high unmet need across our core therapeutic areas. I can -- I will not go through the entire pipeline, but I will mention a handful of programs which are truly transformative for the disease that they will treat. I would mention our dengue vaccines, TAK-755, which is an only ADAMTS13 replacement therapy in clinical development. I will mention our oncology program, modakafusp, subasumstat, for example, which has the potential to be truly innovative. In GI, I will mentioned TAK-999, our collaboration with Arrowhead in Alpha-1-antitrypsin deficiency liver disease. At the same time, we have some setback. It's very clear. I mean we received a complete response later from the FDA in response to the new drug application for TAK-721. We are assessing the detail of this CRL, of this complete response later. But moving forward, we see a great potential to further enrich our pipeline. We are excited by the future potential partnership. We'll continue to progress. We don't rely only on 5 molecules. We have 40 in development, and we will continue to focus on developing our innovative pipeline. And on the next slide, it's very clear that the commercial potential of this pipeline is very, very significant. If you look at the 10 programs, which are in Phase III or [indiscernible] stage, these 10 programs are having an aggregate peak potential sales of more than $10 billion with on a risk-adjusted basis more than $5 billion. On these 10 programs, EXKIVITY and LIVTENCITY have already been approved in the U.S. with further geographic expansion to come. Another asset with potential approval this fiscal year is TAK-019, the Novavax COVID-19 vaccine's candidate that Takeda will manufacture and distribute in Japan, subject to license and approval. And in fiscal year 2022, we anticipate the first approval TAK-003, our dengue vaccine's candidate. If I move up the list, TAK-755, and soticlestat will obtain their first approval in '23, with TAK-611 following in fiscal year, 2024. And finally, 3 of our Wave 2 programs are starting their Phase III or pivotal trial this year or next year, and we can expect potential approval path in fiscal year 2025 and beyond. On the next slide, we can see that there is more to come as we continue to derisk several of our earlier-stage program. On Slide 15, what we see is that we have 5 high-potential molecules that will have important proof-of-concept readout in the coming 2 years, including our longer-lasting oral orexin TAK-861, and first-in-class cancer therapy, subasumstat. These are just the first of many Wave 2 molecule of reach and transformative early-stage pipeline being continuously filled through partnership and our own powerful research engine. I want to underscore on this slide the importance of having built an innovative R&D engine that we've continued to generate new opportunities going forward. A year ago, I presented a slide showing a Wave 1 pipeline with $10 billion of potential peak sales. Our pipeline is dynamic in nature and we follow the science. Some of our programs have faced unexpected challenges, but we are encouraged by strong early data in programs like modakafusp alfa, and we have, in essence, TAK-999 and pabinafusp alfa to help booster the mid-stage pipeline. I can say that with a very high level of confidence that as we turn over new cards with each new data readout, the value of our pivotal stage pipeline will continue to increase. Don't forget, of course, our Orexin franchise. While we are not including TAK-994 in this calculation, we still have multiple therapies in development. And if TAK-861, TAK-925 or other programs come through development, we still see significant commercial potential. We expect to update the market on our plan for the franchise later this year. Finally, to close out on Slide 16. Our transformation continues to bring Takeda's future into focus, and we have to deliver tangible, sustainable growth. In 2014, we set out on a journey to accelerate our globalization and to reinvent Takeda into truly value-based, R&D-driven global company positioned for long-term business growth. We have proven that we can deliver on this promise. The Shire acquisition provided competitive scale. Having completed the integration very successfully, we are now in a position to deliver sustainable top line growth, maintain competitive margin and generate strong cash flow into the long term. I generate much of our success to our amazing people. I am proud of the 50,000 dedicated and patient-focused Takeda colleagues that embody our values and work tirelessly to support our mission, and they will help us build a dynamic future. Looking ahead, our growth strategy is on track. As I mentioned earlier, the growth of our 14 global brands is expected to offset a lots of exclusivity headwinds to 2025 with further growth expected beyond. These factors reinforce our target to deliver underlying operating profit margin in the low to mid-30s range. In addition, our innovative pipeline is expected to deliver accelerating contribution to the top line through the decade. We feel extremely confident about the path we are on. We are taking on big challenges that require new way thinking especially by leveraging data and technology. We are focusing on building a diverse and highly innovative pipeline that will ensure that we continue to grow into the future. And that brings us back to the vision and drivers, to discover and deliver life-transforming treatments catered by our commitment to patients, our people and the planet. Thank you very much.

Now we would like to take questions. [Operator Instructions] First is Mr. Yamaguchi of Citi.

Hi. Can you hear me? This is Yamaguchi from Citi.

Yes, we can hear you.

Great. So Happy New Year all. First, 2 quick questions. The first question is regarding ENTYVIO. You slightly changed the guidance, but kind of incremental new information regarding ENTYVIO biosimilar entry is the fact that we are getting into the new year. So that's why it takes 4 to 5 years. So reality speaking, it takes -- it won't be able to -- the biosimilar won't be able to approval for the next 4 to 5 years. Is that the right way to understand the situation? In other words, if they start next year, excluding litigations, you are not -- it will be launched in 4, 5 down the road, in a sense, you're not really guiding. There's no biosimilar up until 2032. That's the first question. Now I will go to the second question as well. Second question is you mentioned underlying revenue growth of fiscal year 2021 guidance with a mid-single digit. This is the so-called underlying revenue growth. But at the same time, sometimes there is another non-underlying factors impacting core and full numbers. And can you give me some plus and minus to adjust from this underlying revenue growth to see more in the core revenue growth, which is the more numbers people can look at it? Two quick questions.

Thank you, Yamaguchi-san. This is Christophe. I'll cover on ENTYVIO and then Costa Gruff will cover the second part of the question on the revenue reconciliation. On ENTYVIO, we have been monitoring the situation for a while. We are in 2022 now. So it's pretty clear that time is running short to have any biosimilar really to launch, let's focus in the U.S. in 2026, for example. There might be many different reasons as I outlined for why a biosimilar company are not seeing very active, we should ask them -- I mean, you should ask them if you want. We can not too much speculate. But there are many reasons. One is that it's developing an IBD product, whether it is a biosimilar or another product, it's complicated. It takes time, clinical trial are difficult to do. The other reason could be that the intellectual property situation is complex. So we -- it is very unlikely that a biosimilar could launch without some litigation. So there are many reasons. So when should we assume a biosimilar can be launched, it's very difficult to answer that question right now anymore. For sure, for sure, the scenario that we use until now, mid-'24 and mid-'26 in the U.S. is not possible anymore. We shouldn't think it should be the scenario that we should use. Now should we assume 2032 because this is when our key patents are expiring, we cannot neither predict that. And we shouldn't speculate on possible litigation outcome. So that's really the situation.

So I can answer the second. Thank you, Yamaguchi-san, for your question. So as you rightfully said, we have 2 -- the differences in our underlying revenue growth. That includes the -- it takes out the impact of divestitures and FX. And on -- and that's growing mid-single digit. When you look at core revenue growth for this fiscal year, the growth will be low single digit. So they are the 2 variances for fiscal year 2021.

Or in the same? Low single digits. Okay, rather than mid-single digits. Okay.

We'd like to move on to the next question, Mr. Wakao from JPMorgan Securities.

This is Wakao from JPMorgan. I have 2 questions. My question is similar to Yamaguchi-san. So first question about ENTYVIO LOE. So I'd like to know how we plan to use the profits from the extension of ENTYVIO LOE? So also, I'd like to know if the way of R&D investment or capital allocation in the next 2 or 3 years will change in anticipation of this? This is the first question. And the second question is TAK-861. On this -- on the 15th slide, regarding TAK-861, you mentioned that POC will be obtained for NT1 in Phase II trial during fiscal 2022. Previously, you said that the result of the Phase I trial will be available using -- during fiscal '22. Could you please explain regarding the schedule of Phase I, Phase II trials for 861? Is sure about start timing and the data readout timing of 861?

Thank you for the question. Andy will cover 861. Of course, ENTYVIO is very material to Takeda. And this new situation will generate significant upside for Takeda. Also because we will have to revise ENTYVIO peak sales projection. We are not doing it today. This is something we'll have to do in the future because our previous peak sales prediction was assuming biosimilar entry in '24 and 2026 in the U.S. No more, so our peak sales will be much higher than that. Having said that, it doesn't change our overall strategy. It doesn't change our overall strategy to focus on delivering our pipeline, to grow our top line, to focus on deleveraging, to focus on shareholder return. So overall, it's -- it will help us to deliver our strategy further, but it doesn't change our overall capital allocation strategy.

Okay. And then Christophe, if I may, on TAK-861. Wakao, thank you for the question. So we're in the process of evaluating the TAK-994 Phase IIb data set. We continue to develop a deeper understanding of the mechanism of the hepatotoxicity with TAK-994. And as we mentioned at the end of last year, we continued to accelerate TAK-861 and its Phase I program. We don't have specific targets for when we'd be disclosing additional information. But for sure, in the early part of 2020, we'll have more information on 861 in terms of its effects in sleep-deprived healthy volunteers, and in type 1 narcolepsy patients. And so we should, in FY '22 have a plan and path forward for 861.

Next question is from Mr. Muraoka, Morgan Stanley.

So this is Muraoka, Morgan Stanley. Can you hear me okay?

Yes, we can.

Now allow me to ask you a question in Japanese. About R&D updates. In your presentation, in late 2022, I heard that you will give us an update of R&D situations. What is the exact timing of the next update? And as a clinical data up later, what concretely the disclosure is you -- is the one that you are expecting to announce in late 2022. And the revenues will be growing up until FY 2022. We understand that. And regarding your core operating profit, in FY 2023, there will be a decline. And I think majority of the people consider it is unavoidable. But do you have any ideas on this and any countermeasures that you may plan to take, please.

Thank you very much for the question, Muraoka-san. For the R&D Day, Chris can confirm that we don't have a date yet for when we will do an R&D update. We'll continue to do some update every quarter, but a specific R&D day, no date yet fixed. Is it correct, Chris?