Earnings Call Transcript - TAK Q3 2025

Operator, Operator

Let me start by reminding everyone that we will be discussing forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Actual results may vary significantly from those we discuss today. The factors that could lead to such differences are detailed in our most recent Form 20-F and other SEC filings. We also ask you to refer to the important notice on Page 2 of the presentation regarding forward-looking statements and our non-IFRS financial measures, which will be part of our discussion. Definitions of our non-IFRS measures and reconciliations with the corresponding IFRS financial measures are included in the appendix of the presentation, so please check Page 2 for important notices. We will now begin the call. First, we would like to welcome our CEO, Christophe Weber, to share his comments.

Christophe Weber, CEO

Thank you, Chris. Hello, everyone, and thank you for joining us. As you might have seen from our press release, today marks an important announcement regarding our Q3 results. Milano will speak to that, and my retirement from Takeda and succession. After 12 fulfilling years with Takeda, the Board and I have agreed on June 2026 as a date of my retirement from Takeda. I will no longer be on the Board of Takeda after June 2026. I’m very pleased to announce that the Board has selected Julie Kim, President of our U.S. business unit as my successor. Julie will be proposed as a new candidate for the Board at the ordinary General Meeting of Shareholders in June ‘26, and will then be nominated as President and CEO. The unanimous decision to select Julie was made after a very robust multiyear process, assessing both internal and external candidates. To ensure a smooth transition, we are sharing this decision now, the timing aligned with our exciting growth outlook on potential drug launches which may start as early as the second half of 2026. It will allow us to select and nominate Julie’s successor, obviously, a key role as the U.S. represents 50% of our revenue. This time frame also aligns with anticipated retirement of several external independent directors, allowing both Julie and me to be actively involved in the Board member selection process. Now I wanted to share some words about Julie. Julie joined the Takeda executive team in 2019. She has been the President of the U.S. Business Unit and U.S. Country Head for the past 3 years. Prior to that, Julie led our plasma-derived therapy business unit. With over 30 years of health care experience, Julie is uniquely qualified for this role. The Board and I have absolute confidence in Julie's capabilities and leadership qualities. She embodies our corporate values, ensuring decisions are patient-first, inclusive and thoughtful. Importantly, our commitment to Takeda’s purpose is unwavering. I have witnessed firsthand that she also has the right character and it to lead a complex global company like Takeda. For now, nothing has changed. We are focused on advancing our promising late-stage pipeline and preparing for future launches. I couldn’t be more excited about what lies ahead for Takeda. Back to you, Chris.

Operator, Operator

Now we would like to start the presentation from our CFO, Milano Furuta and this will be followed by a Q&A session.

Milano Furuta, CFO

Thank you, Chris. Hello, everyone. This is Milano Furuta speaking. It’s my pleasure to give an update on Takeda’s Q3 results for FY 2024. The positive momentum of our portfolio has continued into quarter 3 with year-to-date revenue growth of 4.5% at constant exchange rate or CER, driven by our Growth & Launch products, which grew by 14.6% at CER. In addition to top line growth, we also delivered margin improvements with 28.5% core operating profit margin, an increase of 1.6 percentage points. This reflects the strength of our Growth & Launch products, slower-than-anticipated VYVANSE generic erosion and OpEx savings from the efficiency program we initiated in May 2024. We are also very excited about our late-stage pipeline. This month, we completed the licensing agreement for elritercept, a late-stage potential best-in-class oncology program. And as we introduced at our R&D Day in December, 2025 will be an important year for our pipeline with 3 Phase III data readouts expected this calendar year. With seretide in PossemiaVera, oveporexton and tafocitinib in psoriasis. Based on our positive business momentum, we are raising our full management guidance again this quarter and now expect revenue core operating profit and copy margin growth this year. And with the extra cash flow generated from this upside, we also plan to initiate a share buyback of up to JPY 100 billion. Slide 4 summarizes our financial results for the first 9 months of FY ‘24. Revenue was over JPY 3.5 trillion, an increase of 9.8% versus prior year or a 4.5% growth at CER. Core operating profit reached JPY 1 trillion year-on-year increase of 16.3% or 10.1% at CER. Reported operating profit was JPY 417.5 billion, growing at 86%. Core EPS and reported EPS were JPY 443 and JPY 134, respectively. Operating cash flow was JPY 835 billion, an increase of 90.8% year-on-year, reflecting profit growth, lower cash taxes and a smaller increase of working capital. Adjusted free cash flow was JPY 568.3 billion. Slide 5 shows a breakdown of our key business areas and the Growth & Launch products, which are driving our performance. These products represent 47% of total revenue and grew by 14.6% at CER year-to-date. Within GI, ENTYVIO growth was 6.6% at CER. Although underlying demand remains strong and in line with our plan, the growth rate was impacted by 2 specific factors. First, there was a higher baseline for Q3 growth due to shipment timing last year. On top of that, we booked a gross to net adjustment in Q3 this year of approximately USD 50 million. This adjustment was a correction of our past statutory government price calculations that had accumulated over 10 quarters since mid-2022. If we exclude the impact of shipment timing and this gross to net adjustment, year-to-date ENTYVIO growth would have been 9.4% at CER. Next, in rare disease, where TAKHZYRO continues to lead the HAE prophylaxis market, delivering 16.4% growth at CER. ADZYNMA also continued their strong launch momentum. Within plasma-derived therapies, immunoglobulin and albumin grew by 11.9% and 2.2%, respectively. In Oncology, Takeda is expanding very well. Most of the revenue is currently from the U.S. but we recently launched in Japan, and we are making progress with approvals and reimbursement in Europe. In Vaccines, Kudanga is now available in 27 countries, and we see strong global demand in both endemic and non-endemic markets. We have sold over 10 million doses since launch in 2022, and we remain focused on further expanding access to this important vaccine. From Slide 6, I’ll explain more about year-on-year growth dynamics. First, a revenue growth. Our Growth & Launch products more than offset the loss of exclusivity impact mainly from finance and XL in the U.S. and Azilva in Japan. In addition, net positive growth in other brands, such as ADCETRIS and Iclusig contributed to a 4.5% revenue growth at CER. The depreciation of the yen versus major currencies contributed JPY 171.9 billion, resulting in 9.8% growth on an actual FX basis. Slide 7 shows a year-on-year bridge for core operating profit. There was a positive gross profit contribution from revenue dynamics, partially offset by a JPY 29.9 billion adjustment due to the implementation of the accounting process to recognize the accumulated FX impact of inventories. Moving to OpEx, we had a year-on-year reduction in spend at CER with lower R&D expenses, primarily due to the termination of several programs during our pipeline prioritization at the end of FY ‘23. We are also starting to see the benefits of our efficiency program on OpEx. Overall, core operating profit grew by 10.1% at CER or 16.3%, including the benefit from FX. Next, reported operating profit. In addition to core growth, the main driver of the 86% increase was lower impairment costs compared to the last year. Restructuring costs primarily related to the efficiency program or JPY 107.4 billion, on track with our plan. Our updated outlook for FY ‘24 reflects that we are upgrading management guidance. Revenue and core operating profit are both expected to increase at low single-digit rates. Core EPS guidance has also improved to flat to slightly declining at CER. The updated forecast is now JPY 4.59 trillion in revenue, JPY 1.15 trillion in core operating profit, and JPY 507 in core EPS. This means our core OP margin is now expected to be 25.1%, an increase over last year. On a reported basis, we forecast operating profit to be JPY 344 billion and reported EPS to be JPY 75. We’re also raising our free cash flow forecast range to JPY 550 billion to JPY 650 billion due to the uplift in core operating profit and expected proceeds as part of the upcoming sale of Takeda Teva, our joint venture in Japan. With this performance and cash flow, we have decided to implement a share buyback of up to JPY 100 billion. Slide 10 illustrates the moving parts in our credit forecast. We are upgrading revenue by JPY 110 billion, mainly reflecting year-to-date performance versus the previous forecast. Based on year-to-date trends, we expect guidance upside of around JPY 40 billion versus prior forecasts. We also expect a net positive impact from the rest of the portfolio. FX is also a benefit to our revised revenue forecast. For core OP, the majority of the JPY 100 billion increase is driven by product performance and R&D savings, partially offset by the accounting change impact to the cost of goods that was not included in our prior forecast. Of the reduction in R&D expense forecast, approximately half is due to post-trial access costs for TAK-611 and TAK-609 previously expected as R&D expense, but now in other operating expenses. The remaining benefit is due to FC&C savings. This brings our Q3 earnings presentation to an end, and we would like to welcome your questions. Thank you.

Operator, Operator

Now we would like to entertain questions from you. Christophe, Milano, and R&D President, Andy Plump will be joining this session. The first is from Jefferies, Mr. Baker.

Stephen Barker, Analyst

Steve Barker from Jefferies. My question is about some accounting issues. You mentioned a negative impact on your forecast, and I want to understand that better. You're devaluing the yen-denominated value of inventory, which will increase your COGS. Additionally, regarding R&D, is the increase related to specific clinical trials a one-time issue, or should we expect to see this rise in other expenses going forward? I have two accounting questions, please.

Operator, Operator

Okay. Thank you, Steve. Milano, would you like to answer those questions?

Milano Furuta, CFO

Thank you for the questions, Steve. Regarding the first question about COGS, the explanation is somewhat technical, so please bear with me. In intercompany transactions, we have internal markups, which are eliminated during the consolidation accounting process. Due to different functional currencies and high transaction volumes, we need to use adjusting accounts to accurately reflect our inventories. These accounts have accumulated mainly due to the impact of foreign exchange in prior periods. This time, we’ve decided to implement an accounting process to acknowledge the accumulated foreign currency effects on inventories, recognizing it as a one-time adjustment of about JPY 26 billion for previous periods. For the current fiscal quarter 3, the recognition is approximately JPY 3.9 billion, which is a result of acknowledging the foreign exchange impact on inventories.

Stephen Barker, Analyst

Right. So it’s really a one-off.

Milano Furuta, CFO

Yes. We are now introducing a systematic approach to recognizing the FX impact through the cost of goods sold, similar to amortization. Therefore, the amount will not be significant. We are actually recognizing an amount equivalent to two years, so it will be much smaller and will be recognized regularly over the quarters.

Stephen Barker, Analyst

Right. It won’t build up anymore.

Milano Furuta, CFO

No. We decided to terminate the development of the 609 and 611 programs based on the clinical trial results. However, at the request of patients, we are providing access to these molecules for those looking for post-trial access. As a result of this decision, we accrued costs for this post-trial access, amounting to approximately JPY 16 billion, which we recorded in other operating expenses for Q3. This is essentially a one-time expense for this program.

Stephen Barker, Analyst

Understood. And a related question, could you help me understand the ENTYVIO issue, so gross to net true-up adjustment? I don’t understand what that is.

Milano Furuta, CFO

Yes. So there is a gross to net adjustment in the U.S. market, right? And then that’s going to be referred to especially the government pricing. We identified some miscalculation in the past 10 quarters. All these things are not material. The accumulated number is about USD 50 million over the more than the 2 years. But we identified this kind of miscalculation, so we are now addressing or crafting this kind of variances and then we are booking as a kind of negative to the revenue.

Operator, Operator

Citi, Yamaguchi San.

Hidemaru Yamaguchi, Analyst

So Yamaguchi from Citi has two questions. The first question pertains to the management change. It seems like you were planning to maintain your management team until the ENTYVIO timeline around 2030, but you have decided to make changes next year. Is there a specific trigger related to the company's fundamentals that prompted this decision? Can you explain why now? The second question is about this year's earnings, which are improving due to the residual buyback and currency fluctuations. However, this also suggests that the hurdle for next fiscal year is set to be higher. While I know you don't currently provide guidance, could you share the advantages and disadvantages for the upcoming fiscal year starting next April? Will operating profit remain flat, experience a slight decline, or is it too dependent on various factors? What trends do you foresee for sales and operating profit in the next fiscal year?

Operator, Operator

Thank you, Yamaguchi-san. The first question on the rationale behind the management change and second on outlook for 2025. So Christophe, would you like to take those questions?

Christophe Weber, CEO

Yes. Thank you very much, Yamaguchi-san. On the management change, we feel that this is a good timing. In 2026, I will have been 12 years, which is quite a long period. It would have been very, very long. But it’s also a good window now because we are at the end of the VYVANSE impact actually. I’ll come back to that in your second question. We are before the wave of new product launch. You don’t want to make a management change during a new product launch. You want to do that before. That’s why we are announcing now with this transition period that will give us time to find and select the successor of Julie who will be in place and with a more stable leadership before we launch this product in the U.S. It also coincides with some changes that will happen at our Board. We do have a 10-year tenure limit for our external directors. So there will be some rotation happening in 2026. We feel it’s good to have the future Board and the future CEO synchronized. So that’s also another consideration that we discussed, and that’s why we decided on June 2026. On the second question, Yamaguchi-san, of course, the upside, 40% of the upside is VYVANSE, but 60% is non-VYVANSE. So we shouldn’t forget that we have good dynamics with our Growth & Launch product. Obviously, VYVANSE is a big upside this year. The residual impact of VYVANSE in next year will be more limited. If you look at the generic penetration today, it’s 65% of the molecule. We have not reached the bottom, but we are getting close to it. So that’s why we feel confident that next year will be a growth year in revenue and bottom line. Why? Because once the VYVANSE impact will be a residual impact, we expect our Growth & Launch product to continue to grow in the future.

Operator, Operator

We’d like to take the next question from TD Cowen, Mike Nedelcovych.

Mike Nedelcovych, Analyst

I have two, both on the topic of zasocitinib Phase III psoriasis program. So first, when we see the first readout, what would you define as success or, put another way, what result would make you feel more confident in your head-to-head ducravasitinib trial? And what result might make you feel a little more concerned? Just as an example, should we focus on PAS 75, the primary endpoint or would you urge us to scrutinize PAD-100? That’s my first question. And then my second question is on timing. One of zasocitinib’s Phase III psoriasis trials LATITUDE-002 is actually a couple of months past its primary completion date on clinicaltrials.gov. Should we take this to mean that the 16-week primary endpoint has been recorded? And if so, do you have data in-house? Or do you remain blinded until the longer-term endpoints readout?

Operator, Operator

Thank you, Mike. Andy, would you like to take those 2 questions, please?

Andy Plump, R&D President

Sure, Chris. And actually maybe Christophe can also provide some thoughts in terms of the overall profile of zasocitinib and what we would consider differentiated. So Mike, let me start with your second question first, which is timing. As we’ve mentioned, as of November of last year, we’ve completed enrollment of the 2 primary Phase III studies. These are the pivotal and registration-enabling studies with primeless as a comparator. As you mentioned, the primary endpoint is a 16-week endpoint but the studies are completely blinded until week 52 for one of the studies in week 60 for the second study. This ensures that we maintain the full integrity of these studies and we have a 1-year safety database. So the direct answer to your question is that we don’t have data in-house, and we’re not planning an interim analysis. I’m quite excited about the speed at which we’ve enrolled these studies, and we’re looking forward to seeing data at the end of the year. Before I hand it over to Christophe, I’ll mention that the primary endpoint for the study is PASI-75 and there are historical reasons why we’ve used 75 as the primary endpoint. The study is very well powered to see benefits on one of the key secondary endpoints and the one that we’re most enthusiastic about will be PASI-100. There’s been a trend in psoriasis, particularly driven by some of the efficacious parenteral agents, subcutaneous and IV agents, where patients are now really focused on clear skin, and that’s where we see our clear advantage. Christophe, I’ll hand it back to you if you have additional comments.

Christophe Weber, CEO

Yes. Thank you, Andy. Thank you, Mike. Our goal with zasocitinib is to redefine what an overall product can do, again, in psoriasis in terms of efficacy and safety. We will look at significant efficacy whether it is 100 or 75 compared to what we have been able to deliver in the past and being much closer to a biological efficacy. That’s what we believe will redefine the overall segment and the role of overall product in the treatment of psoriasis. I think that’s really our main aim and that’s what we are looking for when we look at the result of the study.

Operator, Operator

Moving on to the next question. Nomura Securities, Matsubara-san.

Hiroyuki Matsubara, Analyst

I have two questions. First question is about ENTYVIO. Compared to the previous quarter, growth of ENTYVIO is not very clear. I don’t think it’s growing. Is this because of the holidays pushing down the shipment? Or is it due to the competitive environment changing? That’s my question. The second question, sorry, is about the CEO. I understand you have thought about the timing of switching to the new CEO. Now under the new CEO, what do you expect to happen? I understand that Julie has experience in business in the United States and in the industry. So those aspects of the company may grow. But what is the growth strategy under her? What do you expect to do for Takeda?

Operator, Operator

Thank you for the questions. So the first one was on ENTYVIO quarter-on-quarter growth. Is there anything of note here in terms of competitive dynamics changes? And then the second question on expectations for Julie as the incoming CEO. So I’d like to ask Christophe to answer those questions, please.

Christophe Weber, CEO

Thank you for the question. Regarding ENTYVIO, we need to exclude the one-time adjustments mentioned for shipment phasing. Last year, Q3 was particularly strong due to these phasing issues. After adjusting for the gross to net price ASP change, our year-to-date growth stands at 9.2%, and our quarterly growth is slightly lower than Q2 but still significant. It's crucial to focus on the year-to-date performance. Excluding these two one-offs, we're seeing over 9% growth. We're happy with the positive response to the pen launch, which has led to a 30% increase in the number of prescribers from quarter to quarter. Our access has improved considerably, but we aim to exceed 90%. Overall, our market position remains stable, with ENTYVIO maintaining its leadership in first-line biological treatments. While we've lost some share in the second and third lines, we're growing faster than the overall market. The launch of the panel is a key milestone in ENTYVIO's lifecycle. For your second question, I want to emphasize that Julie will continue to lead our U.S. operations until we find her successor, which will take some time. We'll look internally and externally for this role, ensuring that our focus remains on business performance. Julie has been an integral part of our executive team since 2019 and has played a significant role in shaping our strategic direction. She currently oversees our U.S. business, which accounts for 50% of our total revenue. Her support for our strategy means we shouldn't expect major directional shifts for now, but she will be available to address related questions starting in 2026.

Operator, Operator

So for the next question, I’d like to call on Tony Ren from Macquarie.

Tony Ren, Analyst

My first question is about the gross to net adjustment for ENTYVIO. I believe I heard Milano mention that it was related to selling ENTYVIO to the U.S. government over the last 10 quarters. I want to confirm if that was correct. Additionally, would you say that the 11% CER growth rate you initially guided is now not achievable? Also, regarding the U.S. IRA price negotiation, Amgen’s Otezla has now been officially included in the 15 drugs for the 2025 price negotiation. How does that impact your clinical development or commercialization plans for zasocitinib?

Operator, Operator

Thank you, Tony. So the first question on some more detail on the gross to net for ENTYVIO and any impact on the 11% full year that we previously disclosed for ENTYVIO. So Milano, if you’d like to follow up on that one. The second question on the IRA, any impact on zasocitinib because of OTEZLA’s inclusion. I’d like to ask Christophe to comment on that one, please.

Milano Furuta, CFO

Tony, thank you. So this adjustment is related to our gross to net calculation regarding government pricing calculations and we are sharing this information with the U.S. But this impact is, unfortunately, we didn’t have forecasted or anticipated when we developed this guidance of 11%. So with this amount, it might be a little bit challenging to reach 11%, but basically, if we take out this impact, overall, we are in line with our internal plan.

Christophe Weber, CEO

For the IRA, Otezla is one of the products included in this second wave. It reinforces our clinical development plan without altering it. We believe we will have a distinct profile in terms of efficacy, allowing us to differentiate ourselves from previous oral products. Being included in the IRA does not change our strategy; it emphasizes the need for differentiation, which we believe we will achieve in terms of efficacy and safety. This applies not only to Otezla but also, as you mentioned earlier, to our competitors, as we are conducting a head-to-head study against Ducra later on.

Operator, Operator

Moving on to the next question. Morgan Stanley, Muraoka-san.

Shinichiro Muraoka, Analyst

My first question is about next fiscal year, which is coming in 3 months. How do you see the next fiscal year? 100 to 250 basis point margin improvement that you have always talked about. Do you think you can sustain that for next fiscal year, can we expect that to happen? And another question is what about dividends? This year, you made upward revision twice, but the dividend was the same. It’s still the same. If the OP margin improves in the next fiscal year, based on our progressive policy, do you think the dividend could increase? Or can we be confident that the dividend will increase? That’s my first question. And the second question is about ENTYVIO biosimilar. Alvotech Teva started a Phase III program recently, and it is becoming more crowded. It seems timing-wise, you always maintain that you’ll be okay up until 2030. Maybe that is still true. But really focus on the timing. Are you going to be okay up until 2030 or 2032 in terms of biosimilar entry timing? Can you please help me organize my thoughts on this?

Operator, Operator

I have a question regarding the outlook for margin improvement in 2025, and I would like Milano to share thoughts on the dividend for next year. Additionally, I would like to ask Christophe about any changes in the assumptions regarding the biosimilar for ENTYVIO and its entrance timing.

Milano Furuta, CFO

Good evening, Muraoka-san, thank you for your question. First with regard to OP margin 100 to 250 basis points improvement is the basic thinking. 23% is the base number that we were thinking about for this fiscal year. However, based on the latest outlook, 25.1% landing for OP margin is expected, which means that we are now putting together the budget for next fiscal year. We will take a close look at that, and we would like to make an official announcement in May. Core OP margin is something that we always want to improve. This is the policy of the management. We will be finalizing the numbers to help improve that. Regarding dividend payment, it is different from the share buyback that we have announced recently. We want to do something that is stable for the long term and also progressive, sustaining the level or increasing if possible. It’s very difficult to comment at this point in time. But I don’t think you have to worry about reducing the dividend at the very least. Thank you.

Christophe Weber, CEO

Thank you very much, Muraoka-san. Regarding ENTYVIO, we have observed increased activity in the development of biosimilars. For the serious market, we still believe that biosimilar entry will occur between 2030 and 2032. There is a significant amount of patent expirations expected in 2032, and the outcome of litigation surrounding these patents is uncertain. The development and litigation process is time-consuming. If you are optimistic about the strength of our patent, you might assume 2032. If you are less optimistic, you might consider 2030 or a timeframe between the two. We tend to support the 2032 assumption based on our confidence in our patent portfolio, though this could change. Currently, there are no updates to our stance on biosimilar entry, particularly in the U.S. In Europe, the legal framework varies by country. However, our position in the U.S. remains clear.

Operator, Operator

Next question from JPMorgan, Wakao-san.

Seiji Wakao, Analyst

Wakao from JPMorgan. I have two questions. First, could you explain the reasoning behind the decision to implement the share buyback this time? Is it primarily due to the low share price? What message does this decision convey? Also, can you provide details on the timing of the Phase III data readout for TAK-861 and TAK-279?

Operator, Operator

Thank you, Wakao-san. So the first question on the thinking behind the buyback, I’d like to ask Milano to comment on that. And then the second question, Andy, any further detail you can provide on timing of Phase III for TAK-861 and TAK-279?

Milano Furuta, CFO

Thank you, Wakao-san. We updated our capital allocation policy two years ago and established a framework that maintains our investment grade credit rating. The two main pillars of our capital allocation strategy are investing for growth and returning value to shareholders. This year, we are generating more cash flow than we initially anticipated. We have been allocating this additional cash selectively, as you may have noticed with a few targeted deals. Our current focus is on advancing our late-stage pipeline. Regarding shareholder returns, we believe now is the right time to start share buybacks, utilizing nearly half of the increased cash flow resulting from our updated guidance. We believe this decision aligns with our capital allocation policy.

Andy Plump, R&D President

Wakao-san, this is Andy on timing of each of the studies. As you know, from the R&D Day, we have 3 major Phase III readouts coming this year for our current compounds. For oveporexton for risperatide, we’re expecting top line data this quarter. For oveporexton, we have 2 ongoing Phase III studies in narcolepsy, and enrollment for each of those studies has exceeded our forecast. While we haven’t given exact dates, we’re hoping to have data mid-2025. For zasocitinib, we have 2 primary registration-enabling studies. As I mentioned earlier, those have completed screening and enrollment as of November of last year. We have a third study that’s a study to garner additional safety, that study continues to enroll. You can kind of do the math on the timing for the first 2 pivotal studies. As Christophe alluded to earlier, we’ll be starting a head-to-head study against to cravacitinib sometime mid-year. That study won’t be part of our original filing. Our hope is to have data from that study to support the launch.

Operator, Operator

Moving on to the next question, SMBC Nikko, Wada-san.

Hiroshi Wada, Analyst

Just one question. IRA on price negotiation. 2028, I think ENTYVIO might be included. What is your read on the situation? Do you think ENTYVIO will be included?

Operator, Operator

The possibility of ENTYVIO included in IRA in 2028. Christophe, if you’d like to comment on that?

Christophe Weber, CEO

Wada-san, it’s a possibility. That’s why we kept our peak range between 7.5 to 9. Initially, we had this range because we were not sure that we would launch a pen. We landed a pen, but we kept that range to include the possibility of an IRA inclusion in the future. So it’s a possibility that we have in mind, yes.

Operator, Operator

Next, Hashiguchi-san from Daiwa Securities.

Kazuaki Hashiguchi, Analyst

Hashiguchi speaking. In the U.S. business environment changes and how that impacts your business. I would like to have your idea not limited to the pharma industry, but in various industry scenes. Some devices have recently shown from various players. How could that type of change impact your business, including opportunities and risks? For example, PBM may be redesigned, and that could impact your pricing? What’s about that?

Operator, Operator

So Christophe, would you like to answer that question on the potential impact of changes in the U.S. environment.

Christophe Weber, CEO

Yes. Hashiguchi, yes, I mean, there will be some changes in the U.S. environment. Health care is one of the topics that any administration will focus on. The Trump administration just announced that they are committed to carry on with IRA. That’s one point. This pricing system will carry on for now. It might be adjusted in the future, we will see that; that’s something to take into consideration. On the other hand, keep in mind that as part of the IRA, there was also for Medicare patients and out-of-pocket cap, which is a positive in many diseases, especially oncology. There are pluses and minuses. We believe that the U.S. country will remain absolutely vital for innovative companies and R&D-driven companies like Takeda. This country is where new innovative medicine have the fastest launch. This is where we have the highest level of innovation recognition and reward for innovation. This is very important, especially as we are contemplating the launch of our new product. The environment is changing, like in other countries. Another element we are also watching are more geopolitics. Will there be tariffs, for example, impacting pharmaceutical medications? It could be. At Takeda, we have a manufacturing network focused on the U.S., Europe, Singapore, and Japan. It has been a global network built on the premise of free trade. If there are more forces against free trade, that will also likely have an impact.

Operator, Operator

Sogi-san from Bernstein.

Miki Sogi, Analyst

Can you hear me? This is Miki from Bernstein.

Operator, Operator

Yes, we can hear you.

Miki Sogi, Analyst

I have two questions. First, regarding ENTYVIO, we recently noticed a report stating that the listing price for ENTYVIO increased by 1%. Can you explain how that price increase affects your actual net sales? Additionally, does this impact the government rebate since it exceeds the inflation rate? My second question concerns R&D spending. We understand that, despite the post-trial drug costs shifting to other expenses, overall spending appears lower than anticipated. Will you be spending more in the fourth quarter to stay aligned with the budget you previously communicated to us?

Operator, Operator

Thank you, Miki. So the first question on ENTYVIO price increase, I’d like to ask Christophe to comment. The second question on the R&D budget and progress towards the full year forecast, Milano, if you could please comment on that.

Christophe Weber, CEO

Thank you, Miki. Yes, this price increase is more a reflection of the rebate mechanism happening in the U.S. market. To be competitive, you need to give rebates, and that’s really the mechanic. You don’t see this increase on the net price. The government price is calculated on the net price. I think that’s really the effect of the rebate mechanism. By the way, this is something we think should be fixed, and there is a lot of discussion right now about PBM and rebate. We are voting for this rebate to be replaced by some mechanism.

Milano Furuta, CFO

Thank you for the question regarding R&D spending. To clarify, we are not experiencing any slowdown in operations. In fact, we are accelerating our efforts. We are enhancing our R&D operations with a focus on operational efficiency, as we have implemented an efficiency program since the start of this fiscal year. In the fourth quarter, we typically see a slight seasonal increase in R&D spending. We are about to initiate two Phase III programs for post-trial access in PSA and mezagitamab for ITP. With these two new clinical trials, we also expect an increase in R&D spending.

Operator, Operator

Because of the time constraints, the next question will be the last from UBS, Sakai-san.

Fumiyoshi Sakai, Analyst

Two questions. This is more like a general question for Dr. Prem. IRA has started impacting the industry and likely it will remain for some time, and the industry is screaming about how it is squeezing low-molecule development. Do you think that this is going to impact your pipeline strategy going forward, especially I’m interested in the lifecycle management strategy? Can you comment on anything interesting on this topic? That’s my first question. The second question is for service, I must say. But will Julie be stationed in Tokyo? Is that going to be a condition for her to be appointed as CEO?

Operator, Operator

Thank you, Sakai-san. The first question to Andy on IRA impact on pipeline strategy, specifically on zasocitinib, and the second question to Christophe, on where Julie should be located?

Andy Plump, R&D President

Thank you very much, Sakai-san. It’s a great question to end the call on. I can’t say that IRA won’t affect the R&D strategies across the industry. Of course, it has an effect on R&D strategies. I would say that the strategy that we’ve adopted for our organization Takeda withstands the IRA in the sense that we’ve always focused on innovation and high unmet medical need in everything that we do. I think that in order to be competitive in the world of IRA, those are 2 features that every company will need to focus on: innovation and high unmet medical need. With respect to zasocitinib, I would say that yes, IRA has effects on how we strategically approach zasocitinib. This is a molecule with potential for many indications. Historically, companies might have approached a program like this strategically in a more sequential way. We’re approaching it in a parallel way. As you know, we have 4 ongoing indications today: psoriasis, psoriatic arthritis, ulcerative colitis, and Crohn’s disease. We are in the process of looking at additional indications. Over the coming months, you will hear more of our strategy to expand for zasocitinib.

Christophe Weber, CEO

Sakai-san, thanks for your questions. First, I would like to say that I started a few years to be based in Tokyo the majority of the time and in Boston. I am between these two locations, because our global hub in Boston is so important. So I want to stress that out. My location today is Tokyo and Boston, and Julie is very much committed to also have this Tokyo-Boston location. That’s part of the agreement if you like.

Operator, Operator

Thank you for today’s seminar. Thank you very much for your participation in this session, and we look forward to your continued support. Thank you.