Earnings Call Transcript - TAK Q1 2022

Christopher O'Reilly, Global Head of Investor Relations

Thank you very much for your participation in the conference call for the financial results for Q1 fiscal year 2021. My name is Christopher O'Reilly, Global Head of Investor Relations. First, I'd like to explain the language setting. At the bottom of the Zoom window, there is a language button. If we want to listen to Japanese, please select Japanese. If you want to listen to English, please select English. Or if you want to listen to the original language, please turn it off.

Christophe Weber, CEO

Thank you, Chris. It's Christophe Weber here. Thank you very much for attending our Q1 earning results. If we can go to the first slide, please. In a nutshell, as you know, this year is an inflection year for Takeda, an inflection year in terms of revenue dynamic and momentum. Our growth will accelerate in 2021. It's also an inflection year with our pipeline. This is exactly what we are seeing in Q1, which is a great start of the year. Our revenue grew 3.8%, driven by our 14 global brands, and we are really looking forward to continue to accelerate our growth in 2021. We also are very active in facilitating and helping with the vaccination. Again, the COVID-19 vaccine is in Japan, and you will have seen that we have expanded our partnership with Moderna to bring 100 million doses of the Moderna vaccines in Japan. So it’s a good start of the year in terms of topline momentum, in spite of some variability product by product. Overall, we are starting with an acceleration of our topline growth. An inflection year also with the pipeline. It's a very important year in terms of submission and approval. You saw that in the last two weeks, two of our products got breakthrough status designation in the U.S. It's a demonstration that we are also aiming for a very innovative pipeline. So TAK-994 got the breakthrough designation status as well as TAK-999. We are also continuing with the development of the Novavax vaccine in Japan with a potential approval in the second part of the year.

Andrew Plump, Chief Medical Officer

Great. Thank you very much, Christophe. I'm trying to turn my video on. Well, good evening, everybody, and thank you very much, Christophe. Three themes to my presentation this morning. The first is we have a very exciting and very dynamic pipeline, and we are 100% focused on delivering and sharpening our ability to deliver on that pipeline predictably. Secondly, we follow the science, whether that's for our pipeline or for our global brands, and you'll see a great example of the success story for ENTYVIO. And then thirdly, as Christophe just said, this is a year of significant R&D pipeline inflection. We expect major milestones coming up over the rest of this year and into early next year. If we can go to the next slide, please. Just showing you here a chronology of the major inflections and the momentum that we started late last year, and it continues into this fiscal year and into the beginning throughout next fiscal year. And not to make this slide too complex, but it's broken into three buckets. Above the timeline, you see a chronology of our submissions, expected submissions, and expected approvals of our global brands. These are all pipeline products that have been or will be submitted in the U.S. and/or the EMA. In the middle bucket, you see the progress we're making with our Orexin franchise, which includes all three of our development candidates, all three with the potential to become medicines for patients in the marketed setting, particularly the major events for our lead molecule for which we're quite excited, TAK-994. And then very importantly, you see on the bottom row, across oncology, GI, and rare genetic hematology, our other three therapeutic areas of focus, very significant and meaningful proof-of-concept inflections that we're expecting to see over the course of this year that will set us up for the future. We can go to the next slide, please. I'm not going to dive into this slide in any detail. This is a list of the major milestones for our pipeline that we put out in front of you in May at our Q4 2020 earnings announcement. There is a similar visual for our marketed brands in the appendix. In essence, it's our report card, how we judge ourselves for our success over the course of the year.

Constantine Saroukos, CFO

Okay. Thank you, Andy, and hello, everyone. I'm just waiting for the video to come up, just coming up now. Thank you so much, Andy. Great. As Christophe highlighted in his opening slide, from fiscal year 2021, we are pivoting towards acceleration of the topline growth. I'm pleased to say that we started off quarter 1 in a solid format, and we're on track towards our full year guidance of mid-single-digit underlying revenue growth. Firstly, on the topline, reported revenue growth in quarter 1 was 18.4%, benefiting from the business momentum, favorable foreign exchange, and the sale of our diabetes portfolio in Japan, offsetting the divestiture headwinds. Please note that this portfolio sale has been excluded from the core and the underlying revenue. Underlying revenue growth was positive at 3.8%, although there were some quarterly phasing headwinds for products such as TAKHZYRO and our immunoglobulin products, which we would not expect to see going forward. Both are on track to deliver our full year guidance. We also saw strong contributions from China, where we had four new approvals last year. Moving on to margins and our focus on profitability. Reported operating profit grew at 48.6%, including the benefit from the sale of the Japanese diabetes portfolio, while core operating profit declined 11.4% due to divestitures and our increase in R&D investment. Even so, we are still able to deliver a margin of 30.5%.

Hidemaru Yamaguchi, Analyst

Can you hear me? Yamaguchi from Citi. Two questions upfront. The first question is regarding Hikari factory. I think the FDA inspection should happen in July. Today is the last day of July. So can you give me, if you have, any update on the Hikari factory inspection from the FDA? That's the first question on inspection and also the warning letter, future prospect as well, that's the first question. Second question is congratulations on the BTD for 994, which is exciting. But can you remind me, if you got the BTD, does it mean that FDA already saw some efficacy data? Not Phase I, but efficacy data, either Phase II or Phase IIb, to see the efficacy potential of that drug? And also, can Takeda use this opportunity to shorten the clinical trial or launching timing in the future through those BTD designation?

Christophe Weber, CEO

Thank you, Yamaguchi-san. It's Christophe here. I'll take the first question, and Andy will take the second question. So yes, we remember that we asked for this reinspection because we felt that we met the requirements, and we progressed a lot to remediate the findings associated with the warning letter. We are very pleased that the FDA could do this inspection in July. It was complicated because, of course, of the quarantine and the environment, but the inspection did happen. We are very pleased with that. I cannot tell you the outcome of the inspection because it takes time to write the report and to conclude, but it has happened as we asked, and we are very pleased with that. We will as soon as we can disclose the findings, but for us, it was a good event that it could happen.

Andrew Plump, Chief Medical Officer

Christophe, maybe I take the 994 FDA question. So Yamaguchi-san, thank you very much for the question. The answer to the first part of your question is, absolutely, the FDA has seen data from the TAK-994-1501 study Part A. So we haven't shared that broadly externally because it's an ongoing study, but we have alluded to the significance and the robustness of the results that we've seen in that study. To be clear, the breakthrough designation by the FDA is typically allocated for a very particular indication. In this case, it's excessive daytime sleepiness for type 1 narcolepsy. With regard to your second question about acceleration, our base plan for this program is already hyper-accelerated. The lead molecule TAK-994 went into the clinic in November of 2019, and our expected base case, which we're still tracking on, is to have this submitted and approved in 2024. Having a breakthrough designation only enables that and could potentially allow for further acceleration. The breakthrough designation is an incredible opportunity to have a very privileged and iterative dialogue with the FDA. So when a key issue comes up, you're not waiting months to get in front of them. You have individuals who you're working very closely with. So it's an affirmation of the data that we've shared with you, and it gives us an opportunity to look to accelerate even further, yes.

Stacy Ku, Analyst

Stacy Ku from Cowen. Congratulations on all the progress in the quarter. A few questions. So first, any updated thoughts on TAKHZYRO? Any implications from BioCryst's ORLADEYO launch now with nearly half a year impact in the prophylaxis market? That's the first question. And the second question is going to be around mobocertinib. Can you talk about the commercial launch preparation ahead of the PDUFA date? And looking at J&J and their latest earnings release, they didn't speak too much about their launch for RYBREVANT. So what are you seeing?

Ramona Sequeira, Global Head of Oncology

Sure, I'll go ahead with TAKHZYRO. Thank you for your question, Stacy. As we assess the year for TAKHZYRO, the first quarter's performance was mainly influenced by timing, but we remain confident in our growth projections for the full year, which we anticipate will be between 10% to 20%. This year, TAKHZYRO's growth will be driven by expanding into new geographic markets. While we've established a strong presence in the U.S., we see continued growth potential in the prophylaxis market. We believe this growth will benefit TAKHZYRO as the prophylaxis market also expands. Furthermore, the ongoing COVID recovery in the U.S. presents additional opportunities, and we're starting to observe positive impacts from that segment. ORLADEYO has certainly impacted the U.S. landscape; it's beneficial to have treatment options for patients, and competition helps us stay sharp and focused on our strengths, particularly efficacy. Feedback indicates that even patients who have switched away from TAKHZYRO often return, citing its effectiveness in allowing them to live free from the stress and anxiety of HAE attacks. We have recently shared data from our longer-term HELP trial, which reinforces this ongoing impact. Therefore, we are optimistic about our growth potential driven by the COVID recovery, the increasing prophylaxis market, and our geographical expansion, bolstered by the strength of the TAKHZYRO brand.

Christophe Weber, CEO

Thank you, Stacy, for your question regarding mobocertinib. One thing I want to stress out is that with the type of pipeline progression that we are aiming for and the inflation that we are looking for, one area we are focusing on very much is about new product launch and being ready. Teresa Bitetti was heading our global oncology business unit and is very much focusing on oncology. Ramona is leading the preparation of the launch for all other products, working very closely with our R&D colleagues and our regional commercial businesses. So when a product is approved, we will be very much ready for launch. I can't guarantee you that because that's very much our focus. We know that it is a major challenge to launch a new product, but you have to be ready. So we'll be very much ready with mobocertinib.

Tatsuyuki Arai, Analyst

I have a quick question about the past quarter results, like versus like full year guidance. Could you walk through, I believe, which business unit is stronger than expected or which business unit is weaker? That is my first question. And my second question is about the plasma-derived therapy business, like I see sales declining year-on-year. Could you sort of, would the declining be like the higher volumes compared like with a market average? So my question is about a declining IG business year-on-year. That's the second question.

Constantine Saroukos, CFO

Thank you, Arai-san, for your questions. Looking at our five key business areas, we’re making good progress. Our gastrointestinal segment is performing well with an 8% growth, and we still anticipate an acceleration for the full year, aiming for 10%. The rare disease and rare metabolic portfolios are on target. Rare hematology is also aligned with our expectations given the competitive landscape. Regarding HEA, as Ramona mentioned, we have some timing issues there, but we expect that to yield positive results in the second quarter, particularly for TAKHZYRO. Julie will discuss the plasma-derived therapies and some of the timing variations we observed in the first quarters of both 2020 and 2021. Oncology is also performing well, showing strong growth of 9%, largely due to fluctuations between Elara and VELCADE from the switch to oral administration last year. We experienced some inconsistencies in quarter one, particularly last year due to the pandemic causing many customers to shift from IV to oral. Now that markets are reopening in the U.S., we are seeing a return to previous trends. The rebound in neuroscience is particularly significant, with VYVANSE showing accelerated growth as the U.S. market opens up. In addition, we've divested several noncore assets, resulting in 9% growth in that sector for the first time. Previously, we had seen consistent double-digit declines over the last year. This growth presents a continuing opportunity. Moreover, we’re seeing an increase in the COVID-19 Moderna vaccine revenue, which we began recording in the first quarter and will ramp up in the second quarter. Overall, our 14 global brands are growing at 6.8% in the first quarter, and we expect growth to accelerate, similar to last year's rate of 16%. We're starting the quarter positively and believe there's a favorable outlook, especially with our global brands.

Julie Kim, Global Head of Pharmaceutical Operations

And Christophe, I'll take it from here for the IG question. So thank you, Arai-san. In terms of the IG growth, when you look at quarter by quarter, it's very difficult to take a quarter's performance and extrapolate for the final year. Last year in quarter 1, we had very significant growth due to phasing and a difficult comparison with the previous year in FY '19. In FY '19, we had a minus 2% growth in quarter 1, and we ended the year with a 7% growth overall for IG. In 2020, we had roughly 30% growth for IG in quarter 1. We ended the year with roughly 16% growth of IG. This quarter, again, it's a difficult comparison with the 30% growth from FY '20 Q1, but we are on track to achieve the 5% to 10% growth for the year. To give you some confidence in that, if we look at our 12-month trailing growth, we are already in the mid-single digits. So again, very much on track to achieve the year-end results.

Kazuaki Hashiguchi, Analyst

This is Hashiguchi from Daiwa Securities. I have two questions. The first question, why did phasing occur for TAKHZYRO and for immunoglobulin? Not comparing to last year, but just looking at the sales for the first quarter of this year, I think the volume value is low. Why did phasing occur to come to this number? Can you be more specific? The second question is about TAK-999. Breakthrough therapy designation from FDA was achieved. In the slides given, 2025 and after is breakthrough pipeline; that is the target for your approval. But in the first half of '21, POC data will be available. That is what I read on the slides. With this BTD, the POC data, would it be possible for you to apply for accelerated approval? Is that a possibility? That is my second question.

Christophe Weber, CEO

Thank you, Hashiguchi-san. The year-on-year comparisons show some phasing dynamics because last year was very unusual due to the pandemic. This year is still impacted by the pandemic but under different circumstances, resulting in varied dynamics. For instance, regarding VYVANSE, you didn't mention that, so we need to analyze each product individually for explanations. Let's discuss immunoglobulin; perhaps Julie can provide more details on that, and then Ramona can address the situation with TAKHZYRO.

Julie Kim, Global Head of Pharmaceutical Operations

Yes. Thank you, Mr. Hashiguchi-san. Again, I would emphasize where we are when you look at the 12-month trailing growth, which is mid-single digits because there is, I'll just call it, lumpiness in terms of the sales of IG, both in terms of tender sales as well as contracts in the U.S. So it's not something that on a quarter-by-quarter basis can be extrapolated for annual growth.

Ramona Sequeira, Global Head of Oncology

Yes. And I can speak a little bit to TAKHZYRO. And as Christophe mentioned, every product because of COVID has had a bit of a unique circumstance. For instance, last year with VYVANSE, all the schools shut down, and so we saw the impact on the child market with VYVANSE. This year, we're growing on top of that. At the same time, we're seeing the adult market really grow this year in the second quarter, as an example. For TAKHZYRO, a little bit of a different situation. Last year, as we were heading into the pandemic, there was a little bit of what I would say hoarding. It was very, very strong adherence and a little bit of buy-in from the channel to make sure that they had products available for patients. Now this year, we're more in a steady state with the pandemic. We don't see those shifts of buy-in, and so we're more in a steady state with the pandemic. I would say we had expected and planned for this. We look at our forecast for the year, and we had planned for these different dynamics to happen in the quarters based on COVID recovery and last year. Looking at how we're tracking, we're tracking very much at or ahead of our plans that we had expected or forecasted.

Andrew Plump, Chief Medical Officer

I can add, Mr. Hashiguchi-san, on TAK-999. We are very excited about the breakthrough therapy designation. To give some context, this is a partnership with Arrowhead Pharmaceuticals. Arrowhead manages the program through Phase II, after which Takeda will take over for pivotal studies and beyond. The breakthrough designation was granted based on open-label data from a series of patients that Arrowhead has publicly presented, where we've observed quite striking results. A more formal Phase II study will be unblinded later this year, and we will see those results. The design of that study is very similar to the protocol that the previously disclosed patients went through, but we will have much more robust data regarding the reduction of what we believe is the pathological factor in alpha-1 antitrypsin induced liver disease, specifically the aggregate of high PI*Z alpha-1 antitrypsin. We will also assess liver inflammation and liver fibrosis. With the breakthrough therapy designation, we can certainly engage in discussions with the agency about using those data as a basis for accelerated filing. The agency has been clear regarding all liver disease programs, particularly in the challenging NASH space, that it is necessary to demonstrate changes in fibrosis over time while also committing to showing clinical benefits. We are still adhering to our projected timelines. Takeda is preparing to initiate Phase III studies next year, but having a breakthrough designation provides us an opportunity for dialogue. The FDA has been unpredictable lately regarding discussions for accelerated approval, and we will certainly be involved in that conversation.

Shinichiro Muraoka, Analyst

This is Muraoka from Morgan Stanley. My first question is about SG&A. I think it's year-on-year plus 7%, ¥218 billion. I think that this increase in SG&A is substantial. Are there any reasons behind? I think year-on-year, your forecast was to be flat. But if you consider this is not an issue, then could you also explain why do you think so? Second question is Eohilia and maribavir that you submitted. In Page 6, looking at the timeline chart there, Eohilia approval, I think there seems to be delayed to Q4. So I'd like to know the reason for this delay. Maribavir, I think the PDUFA was in May. But now it seems like it is expected to be in the third quarter. So could you also explain the background reason for this delay?

Christophe Weber, CEO

Thank you, Muraoka-san. Costa, the first question. And Andy, the second one.

Constantine Saroukos, CFO

Thank you very much, Muraoka-san, for your questions. Firstly, I want to point out that the increase in selling, general and administrative (SG&A) expenses in the first quarter of fiscal year 2021 compared to 2020 can be attributed 50% to foreign exchange impacts when you consider both core and reported SG&A numbers. Additionally, the first quarter of last year coincided with the onset of the COVID pandemic, during which many markets were locked down, leading to reduced activity in SG&A. In 2021, as markets are reopening, we are launching a considerable number of new products, especially in China, where we are experiencing growth in topline revenue. Of the overall increase in SG&A, half is due to foreign exchange effects. The first quarter of last year is not an ideal baseline for comparison. We are making investments in our launch preparations, particularly in markets like China, to support topline revenue growth. Thank you for your question.

Andrew Plump, Chief Medical Officer

Muraoka-san, it's Andy. Very briefly on maribavir: Just to clarify the situation. We submitted the dossier earlier this year, and it was accepted in May. We received a priority review, which is a 6-month review cycle, which means our PDUFA date for maribavir is in November, towards the end of November. So maribavir is tracking according to timeline. With Eohilia, we don't know what a target approval date looks like at this point. We had submitted that dossier at the end of last year. We had a PDUFA date earlier this year, but the FDA missed the PDUFA date, which is a significant event for the FDA as they have an obligation to adhere to a very high percentage of their PDUFA date. Every time they miss one, it has consequences. We're in dialogue with the FDA. There are information requests where sponsors iterate with FDA on the material. We still feel very confident in the clinical profile, the safety profile, the overall profile of this drug, and we're still hopeful that it will be approved, but we don't have a sense for timelines right now. What you see on the time line chart, the chronology on Slide 6, is just our best sense directionally of when that might occur, but that's not based on any feedback from the FDA.

Fumiyoshi Sakai, Analyst

Can you hear me now? I'm sorry, I was muted. Yes, I have two questions. Plump-san, your comment prompted a high-level question. You mentioned that the FDA has been quite unpredictable lately, particularly regarding the accelerated approval process. Are you specifically referring to the recent developments surrounding the disapproval of the Alzheimer's drug? Could you clarify what you mean by this unpredictability? Is it related to the narcolepsy drug? Looking at page 7 of your slide, you have significant events coming up, particularly regarding the regulatory alignment for the Phase III development program for narcolepsy Type 1. What discussions are expected here? You mentioned that breakthrough therapy status has already been granted, which is given if the proof of concept is innovative, but you need to achieve the Phase IIb outcome, correct? I just want to ensure I understand this process clearly. I believe that's all my questions.

Andrew Plump, Chief Medical Officer

Yes. First, let me just say that when we say we have an accelerated program, that's different than the regulatory designation of an accelerated approval. The regulatory designation of an accelerated approval means that you're having a product approved by the agency, not based on clinical endpoints, but based on biomarkers that the agency believes will predict clinical endpoints. That's exactly what happened with the neuroscience example that you just mentioned in Alzheimer's disease. Our base case for TAK-994 and narcolepsy Type 1 is not an FDA accelerated approval. Our base case is approval based on accepted endpoints for registration. The timeline we're putting forward actually is highly accelerated, but it's not dependent on an accelerated approval by the FDA. With the breakthrough therapy designation, we'll have a chance to sit very closely with the FDA and discuss what exactly will be required, what's the length of the study, what are the endpoints, whether or not there are comparators. This is a real privileged opportunity for us. Even with that opportunity, we still think that the data are so profound that we can do this in an accelerated fashion, but having that designation will certainly enable that path.

Kenya Akama, Analyst

This is Akama from Nikkei newspaper. I have two questions. First, for Andy, the Japanese MHLW has discussed pevonedistat's innovative drug designation. I believe you plan to submit this within the fiscal year ending in March '22. What is the status of the Japanese submission and what indication are you hoping to obtain? I would like to understand the approval submission status in Japan. Second, for Christophe, there are reports that the Moderna vaccine supply to Japan has faced delays. You mentioned that 50 million doses would be delivered by the end of September. What is the current progress on this? Will you meet this timeline? What commitment has been made?

Andrew Plump, Chief Medical Officer

Yes, Akama-san, thank you very much for the question. The first step for pevonedistat is the global Phase III study, the PANTHER study in high-risk myelodysplastic syndrome and low-blast AML. We'll be receiving data from that study this fiscal year, and that will determine the next steps for pevonedistat on a global basis. I actually don't have the timelines for Japan registration in front of me. We can certainly get those to you. We will have to do bridging studies in Japan. What the registration package will look like fully will require further dialogue with MHLW, but we could certainly get to those dates.

Christophe Weber, CEO

Thank you, Akama-san. For the second question, I will ask Iwasaki-san to answer because he is working on a daily, hour, minute, second basis on providing the vaccines to the Japanese. So Masato, if you could take that?

Masato Iwasaki, Supply Chain Officer

Thank you very much for your question. Today, from the Minister Kono, there was an announcement made, and I'm repeating what has already been announced. Moderna's outside of U.S. partner in manufacturing, during its inspection process, some issues were found. Therefore, vaccine supply outside of the U.S. has been delayed, and that's what we also heard. What we know at this point in time is that for Moderna, together with partners, we are able to minimize such delays in any necessary supply that's been under discussion. The manufacturing is back on track. As soon as we get a vaccine from Moderna, our importing process and delivery within Japan is ready, and we will focus on achieving those as quickly as possible on our side. Thank you very much.

Seiji Wakao, Analyst

Okay. Can you hear me? This is Wakao from JPMorgan. I have one question about the Novavax vaccine. Where will we know the profit impact of Novavax vaccine? Is it after the approval is obtained or when the government purchases it? Will it be booked in the current fiscal year, March '22?

Christophe Weber, CEO

Well, I think we will include it in our guidance, in our forecast as soon as we have greater clarity, greater information about the approval date and the possible launch in Japan as well as the formalization of the supply delivery. We are very, very committed. We are working very hard to bring the Novavax vaccine as soon as possible to Japan, but we need a bit more time to clarify the information about when it could be introduced in Japan and what the type of supply delivery schedule that we could commit to.

Christopher O'Reilly, Global Head of Investor Relations

With that, we'd like to conclude the webinar call today. Thank you very much for joining us, despite your very busy schedule. Thank you, and please continue to support Takeda. Thank you.

Christophe Weber, CEO

Thank you very much.

Constantine Saroukos, CFO

Thank you.