Earnings Call Transcript - TAK Q1 2025

Christopher O’Reilly, Head of IR

Thank you very much for taking time out of your very busy schedule to join us for this first quarter earnings call by Takeda for FY ‘24. I’m the master of ceremony today. My name is O’Reilly from IR, I’m the Head of IR. I would like to explain the language setting first. Please find the language button at the bottom on the Zoom window. If you wish to listen in Japanese, please select the Japanese; if English, please select the English. If you want to listen to the original, please turn them off. Before starting, I would 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 regarding forward-looking statements and our non-IFRS final measures, which will be also discussed during this call. Definitions of our non-IFRS measures and their reconciliations with the comparable IFRS financial measures are included in the appendix of the presentation. Now without further ado, we would like to move on to the presentation of the day, which will be given by Christophe Weber, President and CEO; Milano Furuta, Chief Financial Officer; and Andy Plump, R&D President. Following the presentations, we have the time for Q&A. Now let us begin. Christophe, over to you.

Christophe Weber, President and CEO

Thank you, Chris, and thank you, everyone, for joining us today. It’s a pleasure to be with you all. Overall, we had a very positive start to fiscal year 2024. In the first 3 months, revenue grew 2.1% at constant exchange rate. Performance was driven by the continued strong momentum of our Growth & Launch Products, which grew 17.8% at constant exchange rate, and they now represent 46% of our total revenue. ENTYVIO growth has started to accelerate since last quarter with the launch of ENTYVIO Pen in the U.S. Still early days as we are getting full access coverage, but encouraging. We also saw robust growth of our immunoglobulin portfolio, TAKHZYRO, QDENGA and FRUZAQLA. We are also managing actively the life cycle of our Growth & Launch portfolio. In Q1, we further expanded our main product geographic reach with approval of LIVTENCITY in Japan and FRUZAQLA in Europe. In the first quarter of the fiscal year, our core operating profit margin was at 31.6%, benefiting from phasing of R&D investment, reduction in other OpEx and temporarily lower-than-anticipated generic erosion of VYVANSE in the U.S. Over the remainder of the fiscal year, we expect multiple pipeline programs to progress into Phase III, and we are awaiting our R&D investment towards future quarter accordingly. We also expect VYVANSE generic erosion to come back in line with projections. We continue to be very focused on improving our core operating profit margin through our multiyear efficiency program. This program is focused on 3 areas of opportunity: increasing organizational agility, improving procurement savings and strengthening how we leverage data, digital and technology across Takeda. Our progress on this program is on track. In Q1, we took concrete steps to improve organizational agility, for example, in R&D and in our U.S. commercial organization. We also identified and executed new procurement-led efficiencies. For example, we have been using data, technology and AI to optimize our supplier selection process. We believe that our investment in data, technology and AI will yield productivity and efficiency gains across our value chain. For example, in manufacturing and quality, our goal is to accelerate the release of drug batches, which will improve our working capital and our ability to supply it. We also took steps to further enrich our pipeline. We signed 2 option agreements for mid- and late-stage programs: one with Ascentage for olverembatinib for chronic myeloid leukemia and other hematological concerns; the other with AC Immune for ACI-24.060, an active immunotherapy designed to delay or slow Alzheimer’s disease progression. Agreements such as these complement our existing pipeline and portfolio and all promise for enriching our pipeline in the future. We also made notable advancements in our organic pipeline, too, and Andy will discuss this in more depth in his presentation. In closing, we are very pleased with the progress we made in this first quarter, which reinforced our ability to deliver on our mission to transform the lives of patients while driving long-term business growth and profitability. I will now hand over to Milano to discuss our financial results. Thank you.

Milano Furuta, Chief Financial Officer

Thank you, Christophe, and hello, everyone. This is Milano Furuta speaking. Slide 6 summarizes our Q1 financial results. Revenue was just over JPY 1.2 trillion, an increase of 14.1% or 2.1% at constant exchange rate, which we call CER. Top line performance of CER was driven by our Growth & Launch Products with some upside from milder-than-anticipated VYVANSE generic erosion. Core operating profit, or core OP, was at JPY 382.3 billion, a year-on-year increase of 17.1% or 4.5% at CER. This core OP growth benefited from phasing of R&D investments, which we expect to be weighted more heavily in the remainder of the year. Reported operating profit was JPY 166.3 billion, a decline of 1.3%, including the impact of restructuring expenses for the cost efficiency program and the impairment of soticlestat after the Phase III study readouts. Core EPS and reported EPS were JPY 176 and JPY 61, respectively. Operating cash flow was JPY 170.3 billion, primarily driven by core OP improvements. Adjusted free cash flow was JPY 23.7 billion, reflecting almost JPY 100 billion of business development activity in Q1 and including the in-licensing of rusfertide from Protagonist and our option agreement with AC Immune. Please note that we have introduced the term adjusted free cash flow in fiscal year '24, but the calculation is exactly the same as we used for free cash flow in our presentations last year. Let’s look at the year-on-year revenue dynamics on Slide 7. Takeda’s Growth & Launch Products grew 17.8% at CER in Q1, more than offsetting the loss of exclusivity impact such as VYVANSE in the U.S. and AZILVA in Japan. Additionally, net positive growth in other brands contributed to 2.1% revenue growth at CER. The depreciation of the yen versus major currencies was an additional revenue tailwind of JPY 127.2 billion, resulting in a 14.1% growth on an actual FX basis. Takeda has a balanced portfolio across 6 key business areas which are all growing, except neuroscience due to VYVANSE’s loss of exclusivity. These are driven by Growth & Launch Products, as Christophe said, which now represent 46% of total revenue and are now growing at 17.8% at CER. All of these products performed broadly in line with expectations in Q1. ENTYVIO growth was 7.6% at CER. We have seen an uptick from the prior quarter supported by the launch of ENTYVIO Pen in the U.S. As of July, 2 out of 3 patients have access to ENTYVIO Pen based on U.S. health plan adoption. We expect growth to further accelerate this year with expansion of access. TAKHZYRO continues to have strong momentum with growth of 19.8% at CER. It is capitalizing on its leading position in the expanding prophylaxis market in HAE. Within PDT, immunoglobulin grew 21.9%, while albumin declined 14.2% due to anticipated phasing of supply to China. We expect albumin revenue to recover and reaffirm the full year forecast to single-digit growth at CER. We are happy to see the first launch uptake of FRUZAQLA and QDENGA. For FRUZAQLA, it is still early days, but the first quarter sales are slightly better than we expected with revenue of JPY 11.9 million. We expect momentum to continue with EU approval in June and approval in Japan anticipated soon. QDENGA, our dengue vaccine, is now available in 21 countries. We see strong demand in both endemic and non-endemic markets. Recently, the WHO added QDENGA to their list of pre-qualified vaccines; and Gavi, the Vaccine Alliance, approved its support for our dengue vaccine program. These acknowledgments should drive further awareness and access for QDENGA going forward. Slide 9 shows the year-on-year bridge for core operating profit. You can see how loss of exclusivity had a proportionally larger impact on profit than revenue due to the high gross margin of products like VYVANSE and AZILVA. In Q1, this was offset by phasing of expenses, particularly in R&D. R&D investment in Q1 decreased by 7.7% at CER, but we still expect a modest increase for the full year as multiple programs move into Phase III in the coming months. In other OpEx, we saw a decline versus the prior year benefiting from initiatives, including the rationalization of real estate we executed last year. The cost efficiency program that we announced in May is also progressing on track. We expect savings from this program will ramp up in the coming quarters. When it comes to reported operating profit, higher impairment of intangibles, mostly for soticlestat, and higher restructuring costs associated with the efficiency program more than offset the core OP growth. Restructuring costs in Q1 totaled JPY 40.9 billion, tracking in line with our expectations for the full year. Also in Q1, we booked a legal provision in other expenses according to our agreement in principle to resolve U.S. product liability litigation related to Prevacid and Dexilant. The full year FY '24 outlook is unchanged from what we provided in May. We will continue to monitor the VYVANSE generic erosion alongside performance of the rest of our portfolio and FX rates. We will provide an update at the Q2 earnings in October. A brief update on the financing activities. In June, we issued a new hybrid bond of JPY 460 billion. All the proceeds will go towards refinancing the JPY 500 billion of hybrid bonds from 2019 that we’ll call in October 2024. The balance of JPY 40 billion will be refinanced with hybrid-backed loans, which will come into effect on the call date. In July, we executed USD 3 billion of debt financing. We used this to prepay USD 1.5 billion of bonds maturing in 2026 and to pay down another USD 1.5 billion of outstanding commercial paper. I just want to clarify, as all these are refinancing activities, they are leverage neutral, and they have smoothed out our debt maturity ladder, as you can see. We maintained 100% of our debt at a fixed interest rate, and the weighted average cost is now approximately at 2%. Thank you for your attention, and I’ll now pass over to Andy.

Andy Plump, R&D President

Thank you very much, Milano. Hello to everybody on today’s call. So if we go to the next slide, please, Chris. Thank you. We start with soticlestat, which recently completed Phase III trials in 2 indications: Lennox-Gastaut and Dravet syndrome. As previously communicated, soticlestat failed to demonstrate clinical benefit in Lennox-Gastaut. Soticlestat also failed to meet its primary endpoint in the Dravet syndrome Phase III trial, narrowly missing with a p-value of 0.06. However, the totality of data from this study with meaningful effects on key secondary endpoints, combined with the highly significant results from the large Phase II study, suggest clear clinical benefits for soticlestat in Dravet patients with a differentiated safety profile. Given the large unmet medical need in Dravet, we are investigating a potential regulatory path forward. This quarter, we had important Phase IIb data presented for TAK-861 and mezagitamab that we will describe later in the presentation. FRUZAQLA and LIVTENCITY had additional approvals that expand their geographic reach. Maralixibat was filed in Japan for Alagille syndrome and progressive familial intrahepatic cholestasis. In addition, we continue to expand the depth and breadth of our pipeline by signing 2 option deals, as Christophe mentioned, for mid- and late-stage programs. From percentage Ascentage Pharma, olverembatinib is a third-generation PCR-able tyrosine kinase inhibitor to treat CML and other hematological malignancies. From AC Immune, ACI-24.060 is an active immunotherapy aimed at slowing Alzheimer’s disease by targeting toxic amyloid beta. Building on the optionality we have gained with these 2 deals, let’s now turn our attention to the overall momentum we are generating in our pipeline. Next slide, please. Our rich R&D pipeline continues to advance with 2 significant opportunities: zasocitinib, our selective TYK2 inhibitor; and TAK-861, our orexin 2 receptor agonist, both poised to deliver near-term Phase III readouts. Zasocitinib has the potential to be the leading oral treatment for patients with moderate to severe plaque psoriasis, addressing a significant unmet medical need for patients seeking clear skin. The Phase III trials are enrolling rapidly, and we expect to complete enrollment in fiscal year 2024. TAK-861 is also advancing rapidly as we have initiated global Phase III trials in narcolepsy type 1. We will provide updates on the zasocitinib and TAK-861 pivotal trial designs, our overall program timelines and market potential later this year at our R&D Investor event. Beyond these 2 programs with significant revenue potential, we have significant depth and breadth in our late-stage pipeline that will further contribute to Takeda’s long-term growth. Our partners at Protagonist have been making strong progress with rusfertide, which continues to enroll well with a target filing expected in fiscal year 2025. Fazirsiran continues to advance, and mezagitamab will begin Phase III trials for immune thrombocytopenia or ITP in the second half of fiscal year 2024. Near-term Phase II readouts that can expand our growing late-stage pipeline include ADZYNMA in immune thrombotic thrombocytopenic purpura or ITTP and TAK-227 in celiac disease. We have additional data inflections within our early-stage pipeline and intend to continue targeted business development activities to further enhance our maturing pipeline. Now let’s review some of the exciting data that was presented this past quarter. Next slide, please. These transformative Phase IIb data presented at the SLEEP conference demonstrate the potential to revolutionize the treatment of narcolepsy type 1 or NT1. Unlike existing treatments, by addressing the underlying pathophysiology of the disease, TAK-861 has shown the ability to significantly improve patients’ quality of life and, in many cases, normalize the entirety of their symptoms. Greater than 80% of the NT1 patients on the mid to high twice-daily doses were within the normal ranges for the Epworth Sleepiness Scale and the Maintenance of Wakefulness Test. Weekly rates of cataplexy were driven to near 0. This efficacy was sustained over an 8-week treatment period, and 95% of patients rolled over into a long-term extension study with no patients discontinuing due to treatment-related adverse events. We are observing sustained efficacy in our long-term extension study with no evidence of hepatotoxicity. Over 100 patients have now been treated for at least 6 months on active therapy and approximately 20 patients for greater than 1 year. We intend to present long-term efficacy and safety data at a medical conference this fall. It’s worth noting that current NT1 therapies have shown maintenance of wakefulness times ranging from 3 to 10 minutes and Epworth sleepiness scores around 12 to 15, underscoring the unmet need for patients with narcolepsy. We are committed to bringing this exciting therapy to patients as quickly as possible. Let’s now focus on the mezagitamab immune thrombocytopenia or ITP data. Next slide, please. Mezagitamab is an anti-CD38 antibody which depletes antibody-producing plasma cells as well as impacting a range of other cells involved in inflammatory processes. This leads to a rapid onset of response and a long-lasting immunomodulating effect. The unmet medical need in ITP is high with relatively few approved therapies and as many as 1/3 of patients not well controlled on existing therapies. In this Phase IIb trial, we assessed the efficacy of mezagitamab in a deeply treatment-experienced population of patients with persistent or chronic ITP. The study demonstrated consistent dose response and high response rates at the high doses. There also appears to be the potential for durable and long-term remission after therapy is stopped. The treatment of emergent adverse effects was similar between treatment and placebo arms. We will be starting a Phase III program in ITP in the second half of the fiscal year. Finally, I would like to take this opportunity to invite you to our R&D Day to be held December 12 in the evening, Eastern Standard Time, and the morning of December 13 in Japan. We will review data, development plans, timelines and our assessment of the market opportunities for zasocitinib, TAK-861 and other late-stage pipeline programs. Please save this date in your calendars. Thank you very much, and I will now turn it over to Chris to open the Q&A session.

Christopher O’Reilly, Head of IR

We would like to invite questions. In addition to Christophe, Milano and Andy; Julie Kim, President of the U.S. Business Unit, will also join the Q&A.

Hiroyuki Matsubara, Analyst

Yes, this is Matsubara from Nomura Securities. Can you hear me okay?

Christopher O’Reilly, Head of IR

Yes.

Hiroyuki Matsubara, Analyst

I have two questions. First question is about VYVANSE. The generic supply will start again in August. So what is the current situation? And in the second quarter, do we see a decline in revenue? Or do we see that in the third quarter? What is your view? And the second question is about immunoglobulin. I understand that it’s growing right now. But donor fee or other measures, maybe you can implement measures to improve OP margin? Are you doing that right now? And have those measures changed since the last quarterly call?

Christopher O’Reilly, Head of IR

Okay. Thank you for your question. So the first question on the latest status of VYVANSE in the U.S. and the generic supply and when we expect that to accelerate, I’d like to ask Julie to comment on that question. And then the second question about any changes in our plasma business, particularly around donor fees, margin improvements, any commentary on that? I’d like to ask perhaps Christophe to take that question. Julie?

Julie Kim, President of U.S. Business Unit

Thank you, Chris, and thank you for the question, Matsubara-san. In terms of VYVANSE, as you’ve noted, we have seen the supply from generics companies improve over the past quarter and, therefore, our VYVANSE demand has declined, although it was above what we were expecting. Quarter-over-quarter, we do expect the supply situation for the generics to improve, but it is very difficult for us to accurately predict exactly what their supply might be. So we are monitoring this closely for VYVANSE. We do not have any supply challenges. And as I said, we do expect the overall supply for the generics to improve quarter-over-quarter. From a VYVANSE perspective, we saw roughly just over 30% decline versus last year, and we expect our continued erosion of VYVANSE to proceed as planned. Thank you.

Christophe Weber, President and CEO

Thank you for the question regarding PDT. We had a strong quarter in terms of growth. We anticipate that the growth for the full year will be slightly lower, but there is very strong demand. Our margin has been improving for a few quarters, starting just after COVID. This improvement is due to our optimization of the supply chain. We are fully utilizing our manufacturing capacity to grow our revenue. The donor fee has remained stable for a couple of quarters, and we expect it to stay that way, although we will monitor its evolution. Overall, this is how we are increasing our margin. We are actively managing the donor fee and growing our revenue. Additionally, our subcutaneous segment is growing at a faster rate, which contributes to our overall margin. Thank you.

Christopher O’Reilly, Head of IR

Now Jefferies, Mr. Steve Barker, it seems you raised your hand. Please go ahead, Steve.

Steve Barker, Analyst

Thank you for giving me this opportunity to ask two questions, both are related to pipeline. Firstly, I was wondering if you could comment on your decision to end your partnership with JCR for Hunter syndrome candidate JR-141. And then second question is regarding your deal with AC Immune for Alzheimer’s. And given the regulatory challenges that Eisai’s LEQEMBI continues to suffer, I think there are questions in people’s minds about the amyloid thesis in general, but this deal seems to indicate that Takeda believes that this is a very legitimate target. And I was wondering if you could comment on that topic generally and on this program more specifically.

Christopher O’Reilly, Head of IR

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

Andy Plump, R&D President

Sure, it’s Andy Plump. Firstly, as you know, we’ve significantly prioritized our pipeline over the last year to enhance capacity for our late-stage programs, and the decision regarding JCR-121 was part of that process. We are quite optimistic about this program, and we hope it will be successful for both patients and JCR. Regarding the ACI-24.060 program, my perspective differs slightly from yours. The benefits we’ve observed from the amyloid beta clearing with passively administered antibodies are undeniable, showing clear clinical advantages. Although the benefits are modest, many believe this reflects the timing of intervention. We believe the active immunotherapy vaccine has the potential to offer a safer profile due to the way these antibodies are raised. Of course, we need to wait for the Phase II data, which we have yet to see, as this is still a very early program. However, if we observe similar amyloid beta clearing to what has been seen with passively administered antibodies, we believe there is potential to intervene earlier in patients with a more convenient administration method. Many of us think that intervening earlier could significantly enhance efficacy. While the uptake of these antibodies has been slow, we believe the vaccine presents a very different profile that could transform the treatment of this disease.

Steve Barker, Analyst

Just to follow up on the first topic. Takeda already has the best-selling treatment for Hunter disease, ELAPRASE. And presumably, you thought that the new asset you were developing with JCR had the potential to displace that. Is there something that you’ve seen in the market performance of cargo in Japan, for example, that made you rethink that view? Do you think that ELAPRASE can continue to be the most popular treatment for Hunter syndrome going forward?

Andy Plump, R&D President

I would like to ask Julie to provide some insight here. To clarify, the asset from JCR, 141, is different from ELAPRASE because it has a shuttle mechanism that enables it to cross the blood-brain barrier. Our goal for JCR and for patients using this asset has been to broaden the treatment possibilities of this replacement enzyme to also help children with neurological symptoms. Julie, would you like to add anything?

Julie Kim, President of U.S. Business Unit

Sorry, just trying to get myself off mute. So yes, in terms of ELAPRASE, we continue to be pleased with the presence of ELAPRASE on the market. And there are a couple of small competitors, as you are aware, in some of our markets for the Hunter patients. We also had, as you know, another program that we were studying in terms of Hunter that did not meet its endpoints in the Phase III. So we continue to see that there is interest in developing further treatments for Hunter patients. But at least for now, ELAPRASE continues to serve the needs of those patients. Thank you.

Christopher O’Reilly, Head of IR

Moving on to the next question, Morgan Stanley, Mr. Muraoka.

Shinichiro Muraoka, Analyst

This is Muraoka from Morgan Stanley. My first question is about ENTYVIO. I think ENTYVIO Pen is a wonderful story. And the CER for full year is 16%, that’s the target. And if you think about the gap against the target, you have to really accelerate the growth in the second quarter. Otherwise, you cannot really achieve the full year target on a constant currency basis. Do you believe that you can catch up before the end of the year? And if so, do you have any evidence? Why do you think that? Sorry, that was the first question. And the second question is at the time of our R&D Day, 079, mezagitamab IgAN POC data, can we expect to see that on the R&D Day? That’s the second question.

Christopher O’Reilly, Head of IR

Okay. Thank you for your question. So the first question on ENTYVIO and the confidence in the full year target of 16% growth. Considering the importance of the Pen launch in the U.S., I’d like to ask Julie to comment on our expectations for the rest of the year for ENTYVIO and the Pen uptake. And then the second question on whether we will see TAK-079, mezagitamab IgAN data at the R&D Day later in the year, I’d like to ask Andy to comment on that.

Julie Kim, President of U.S. Business Unit

Yes. Thank you for the question, Muraoka-san. In terms of ENTYVIO in the U.S., as you’ve noted, the Pen launch has gone well thus far, and we are continuing to increase our access for patients. We’ve seen 6.5% growth in Q1 in the U.S. And we do expect, since the Crohn’s indication was also just approved a couple of months ago, that we will see further acceleration as we continue to pull through not just the UC indication on Pen, but also the Crohn’s indication on Pen. As Christophe mentioned in the presentation and Milano as well, we are continuing to increase access for patients in the U.S. And with the combination of the 2 indications, plus improved access, we do expect to see an acceleration in the second half of the year for Pen in the U.S. I would also note that last year, we had, across the globe, 12% growth in volume, and we do expect to see lower EU clawbacks this year, so that will also contribute to our ability to achieve the 16% growth year-on-year for ENTYVIO, which we acknowledge is ambitious. But we do have positive indications in terms of our ability to achieve that. And as I said, we continue to push in the U.S. and growth in Europe continues to be strong as well. Thank you.

Andy Plump, R&D President

Yes. Muraoka-san, thank you. It’s Andy. So obviously, we’ll take a deep dive into the mezagitamab program as one of the key areas of focus at the R&D Day in December. It’s including ITP, IgAN and other indications that we’re considering this, the mechanism of action for this molecule suggests the potential for benefits across a range of indications. We’re clearly committed to ITP. We have very robust Phase Ib data in IgAN. IgAN is an extraordinarily competitive field. We think our profile is equal to or better than anything that’s been reported, but we’re being thoughtful in terms of how we proceed. Our intent right now is to disclose data at a medical conference in the fall and to have that data available to share with you at the R&D Day, but we’re also thoughtful of the competitive landscape. And so more to come. Thanks.

Christopher O’Reilly, Head of IR

Okay. Thank you very much. I’d like to call on the next question, Mike Nedelcovych from Cowen.

Mike Nedelcovych, Analyst

I have two. My first is on TAK-279. So as I’m sure you’re aware, another competitor TYK2 inhibitor failed in a mid-stage IBD trial. Relative to deucravacitinib, you have noted in the past that TAK-279 is being tested at higher equivalent doses, and that could make the difference in IBD. Should we apply the same logic when comparing to the Ventyx molecule? Or are there additional factors to consider? And my second question relates to guidance. VYVANSE again performed better than expected this quarter and, at least by our estimation, all of your key products as well. So I’m curious if your reiteration of full year guidance is meant to lean cautious or if there may be headwinds in the rest of the fiscal year that we’re not considering?

Christopher O’Reilly, Head of IR

Thanks, Mike. So I think the first question for Andy. And then the second question on guidance, I’d like to ask Milano to comment on that, please.

Andy Plump, R&D President

Mike, thanks for the question. We’ve seen the same information from the Ventyx disclosure, which is primarily a press release, so we don't have all the data available. From what we gather, it was a relatively small study focusing on Crohn’s disease using doses similar to those in their psoriasis Phase II program. The data from that psoriasis program showed suboptimal results compared to our 30-milligram dose in 279, showing a slight improvement over deucravacitinib and a slight decrease compared to 279. These are the same doses applied in the IBD trials. The IBD trial reported a failure in its primary endpoint, which is subjective and unusual for a Phase II study. However, they indicated dose-dependent positive effects on a more objective endpoint, which is endoscopy. We will need to wait for more data, but our internal viewpoint is that this is actually promising for 279. We continue to have strong confidence in its potential in IBD, and both the Crohn’s and ulcerative colitis studies are progressing, with results expected in 2026.

Milano Furuta, Chief Financial Officer

Thank you, Mike. I will address the second question regarding guidance. We are not changing our guidance at this time. It's not purely about headwinds; there are a couple of factors impacting both our revenue and expenses. Regarding revenue, you mentioned VYVANSE, and while we did experience some positive outcomes at the start of this quarter, we now anticipate that the erosion from VYVANSE generics will align with our expectations. Furthermore, we foresee an acceleration in generic erosion in the upcoming quarters. On the expense front, our R&D investments are scheduled more heavily for the remainder of the year. Overall, when we look at the full year, we don't believe there are significant factors warranting a change in guidance at this moment. However, we will keep an eye on the situation and provide an update during the Q2 announcement in October.

Christopher O’Reilly, Head of IR

Moving on to the next question, JPMorgan, Mr. Wakao, please.

Seiji Wakao, Analyst

Yes, this is Wakao from JPMorgan. I have two questions. My first question is about ENTYVIO. SKYRIZI was recently approved for the indication of UC. Does this negatively impact ENTYVIO’s share or revenue? That's my first question. My second question is regarding the gross profit margin. I believe the target for the full year is 65.5%, and the first quarter was at 68%. What factors could cause this number to decrease from the second quarter onward? That’s all.

Christopher O’Reilly, Head of IR

Thank you, Wakao-san, for the question. So the first question on ENTYVIO impact from the approval of SKYRIZI in UC, any impact on market share? I’d like to call on Julie to comment on that. And then second question for Milano on gross margin, 68% in Q1 with an outlook for 65% for the full year. What are the reasons why it will decline in the coming quarters?

Julie Kim, President of U.S. Business Unit

Thank you for the question, Wakao-san. In terms of the UC indication, ENTYVIO continues to hold our strong position as market share leader in first line. Where we do see churn in terms of patients is in second line and beyond, and this is where SKYRIZI had their initial impact with CD and that’s where we are seeing their initial impact for UC as well. So again, from a mechanism of action perspective, ENTYVIO remains the only gut-selective therapy that’s out there for IBD patients, both in UC and CD, and the new entrants seem to be impacting more within the other classes, the other MOAs. Thank you.

Milano Furuta, Chief Financial Officer

Thank you, Mr. Wakao. This is Furuta speaking. In terms of our outlook on gross margin, after the first quarter, for the remainder of the year, VYVANSE and AZILVA, high gross margin products will be shrinking, especially VYVANSE. So that’s the impact. And also albumin, lower-margin products, we will see recovery in terms of demand as well as revenue, and this is why we expect the gross margin to lower somewhat. Q1 gross margin is in line with our expectations. So currently, we want to maintain the existing guidance.

Christopher O’Reilly, Head of IR

Moving to the next question, I’d like to call upon Tony Ren from Macquarie.

Tony Ren, Analyst

I want to ask about your IVIG, specifically your immunoglobulin in CIDP. We recently saw some data coming from argenx regarding their VYVGART, which received approval for CIDP in late June. They mentioned that the uptake in CIDP is exceptionally strong. With that competition now in the market for about a month, I'm curious about what you're observing. My second question is about the market share for ENTYVIO. If you look at what AbbVie has been saying during their earnings calls regarding IBD, they are clearly targeting the frontline bio-naive IBD setting very aggressively. I’d like to know your perspective on this. Also, I noticed that you used to present a longitudinal market share graph of ENTYVIO and its competitors in IBD, but I didn’t see it in this presentation for the first quarter. I wanted to check if I missed it.

Christopher O’Reilly, Head of IR

Thank you, Tony. I think we can call on Julie to answer both of these questions. Julie?

Julie Kim, President of U.S. Business Unit

Yes. Thank you, Tony, for the questions. So let me start with your first one in regards to CIDP. So in terms of CIDP, our expectations have not changed in terms of the long-term position for IGIV or IGs in general, not just IV, both our GAMMAGARD LIQUID and HYQVIA in CIDP. And so, of course, for patients, it is always a positive situation when they have more choice, especially with the disease area like CIDP where the patients are heterogeneous and we know that not all patients respond to IG therapy. But IG does remain the gold standard. And we are pleased with our launch of CIDP and HYQVIA over the past several months. Moving to ENTYVIO. So you had a couple of questions on ENTYVIO. So let me see if I remember them correctly. So the first, in terms of ENTYVIO share in first-line vis-à-vis AbbVie. So as I mentioned for first-line bio-naive share, we are still the market share leader both in overall. And then when we talk about the market share graph, which I think is your second question, so as you are aware, I’m sure everyone is aware, there was a cyber situation earlier this calendar year that impacted claims and claims processing. And because of that, at this point, we’re not able to show the current share data. As soon as that has been sorted and worked through in terms of the claims data in the U.S., we will be able to revert and show the share data again. But in terms of first-line bio-naive, ENTYVIO is still the market share leader. I hope that addresses your questions. And if I missed something, please ask again.

Christopher O’Reilly, Head of IR

Moving on to the next question, UBS Securities, Haruta-san.

Kasumi Haruta, Analyst

Yes, this is Haruta, UBS Securities. My first question is about R&D organization. Margin improvement program is in place. And within FY ‘24, in terms of headcount, organizational structure, I understand that you’ll finish reorganizing, and you mentioned that. I think some of the functions will be centralized and the efficiency will be improved. But with fewer headcount, how can you improve productivity? And how do you intend to run, operate the new organization? So that’s my first question. My second question is about the ENTYVIO biosimilar. I think some companies are advancing in the development, not necessarily in all indications, but in 2025 or 2026, some of the Phase III studies will be completed according to my estimation. Now status of biosimilar development, considering this status, do you think ENTYVIO can protect itself against the biosimilar until 2030, 2032? Do you maintain this assumption? Or do you have any updates on how long you can protect yourself against biosimilars?

Christopher O’Reilly, Head of IR

Thank you, Haruta-san, for your questions. So the first question on R&D organization, with the restructuring of the organization that’s taking place this year, how can we make sure that we are improving productivity through this period of change? And then the second question was on ENTYVIO biosimilar timing. So I think the first question, for Andy; and then second question, I think perhaps, Christophe, if you could comment on our latest biosimilar entry timing assumptions for ENTYVIO.

Andy Plump, R&D President

Thanks, Chris, and thanks, Haruta-san. So we’re continually looking at our pipeline. We’re continually making data and strategic-driven decisions to prioritize our pipeline, and we’re continually looking at how we operate to ensure that we’re operating in the most effective and efficient way possible. We, over the course of the last year, as I mentioned earlier, went through quite a significant pipeline prioritization to ensure that we were concentrating our resources as much as necessary to support our growing late-stage pipeline, which now has 6 programs in it and the potential for more programs to come. As Christophe has mentioned, previously, we’ve also year-on-year been increasing our R&D budget to ensure that we can support that pipeline. So the efficiency program that we’ve undertaken over the past year, and that’s in full swing right now, is really designed to ensure that we have an organization that can drive fully that pipeline forward. Given the prioritization, we feel that we’re rightsized to deliver on that pipeline. We’re also, as we’ve mentioned in many different settings, we’re also looking to leverage more and more efficiencies in automation from data, digital and technology. And we’re starting now to realize some of the benefits of that strategy.

Christophe Weber, President and CEO

Thank you for the question regarding ENTYVIO biosimilars. Look, based on what we know and we look at, of course, the development stage of biosimilars, but also we look at the defense of our patent set, we don’t see any reason to change our current assumption that the earliest biosimilar could enter the market in the U.S. will be 2030 to 2032. So no change to our assumptions so far based on what we know. I will also mention because we get this question very often that the ENTYVIO Pen, which is very important right now, as Julie mentioned, it does allow us to keep our leadership in bio-naive patients. We have not seen a market share decline because of the ENTYVIO characteristic. But the ENTYVIO Pen is not allowing us to have a longer protection. So this is why we have no change to our assumptions when it comes to biosimilar entry. Thank you.

Christopher O’Reilly, Head of IR

Next question, from Citi, Yamaguchi-san.

Hidemaru Yamaguchi, Analyst

This is Yamaguchi from Citi. I have two questions. The first question that might be in the presentation, but I may have missed it, but the QDENGA, Q1 looks very strong. And is there any kind of one-time factor why this is the kind of basic number for this quarter, which I can think over the 4x more than this one? So that’s the first question, QDENGA situation. The second question is kind of a repeated question, but the progress rate in the Q1 as far as earnings is concerned, except currency, except VYVANSE, is it in line or is it still pretty looks good as far as the earnings progress is concerned, except currency and then VYVANSE?

Christopher O’Reilly, Head of IR

Thank you, Yamaguchi-san. So the first question on QDENGA performance, I’d like to ask Christophe to comment on that. And then the second question on Q1 progress rate versus the full year, excluding FX, I’d like to ask Milano to comment on that, please.

Christophe Weber, President and CEO

Thank you, Yamaguchi-san. I believe QDENGA is off to a strong start, with considerable demand in both endemic countries and those with a travel market. We are currently increasing our manufacturing capacity, which is a limiting factor as demand exceeds our supply. Our efforts to expand this capacity are ongoing, and we are very satisfied with the initial launch. While there isn't anything unusual at this point, we expect to see variations in the future, particularly as we enter more public immunization programs. These programs do not follow a fixed order but depend on the supply we can provide to governments. Overall, the product is performing exceptionally well, especially given the significant issue dengue poses in many countries. Thank you.

Milano Furuta, Chief Financial Officer

Thank you, Yamaguchi-san, for the question. Overall, we believe the top line is on track and aligned with our expectations. VYVANSE experienced some positive performance at the beginning of the quarter, but we anticipate that the impact of generic erosion will bring it back to our expected levels moving forward. On the expense side, we had some delays in R&D spending, leading to lower expenses in the first quarter. However, those development costs will increase later in the year. So while we had reduced expenses in Q1, they will catch up. Overall, everything is proceeding as we expected, which is why we are maintaining our guidance at this time. Thank you.

Christopher O’Reilly, Head of IR

I think we have time for just one final question, so I’d like to call on Miki Sogi from Bernstein.

Miki Sogi, Analyst

So first question is the TAKHZYRO and immunoglobulin. It seems like these 2 products had really strong growth in the first quarter. Is there any market dynamics that -- can you explain this -- the growth? And also, is this something you are expecting to sustain over the year?

Julie Kim, President of U.S. Business Unit

Thank you, Miki. Julie...

Miki Sogi, Analyst

On the second, maybe I should have asked the second question.

Christopher O’Reilly, Head of IR

Okay, you have a second. Yes, please.

Miki Sogi, Analyst

Yes, exactly. Yes. For the second question regarding the TYK2 from BMS, we have been hearing that the launch of this first-in-class TYK2 inhibitor has been somewhat disappointing, primarily due to slow payer coverage. I would like to know if your TYK2 inhibitor is expected to face a similar pace, or if not, what strategies you would implement differently?

Julie Kim, President of U.S. Business Unit

Regarding TAKHZYRO and the growth of immunoglobulins, I will focus on the growth in the U.S. compared to the rest of the world. In the U.S., we are seeing very strong year-over-year growth in the number of patients for TAKHZYRO. Despite the product being available for several years and facing competition from new oral treatments, patient growth remains robust. For instance, in the first quarter of this year, around 25% of our start forms came from prescribers who were using TAKHZYRO for the first time, which is encouraging. Internationally, we also observe patient growth and new market launches contributing to TAKHZYRO's strong performance. Regarding immunoglobulins in the U.S., we recently received approval for our CIDP indication for HYQVIA and GAMMAGARD LIQUID, which has led to overall strong growth in our IG products due to increased diagnosis and treatment optimization in primary immune deficiency, along with the new CIDP indication boosting growth in the U.S. Internationally, demand continues to outstrip supply, further driving growth. Chris, could you remind me of the second question? Sorry, it slipped my mind.

Christopher O’Reilly, Head of IR

Thoughts on the TYK2 uptake in the U.S. and implications for TAK-279.

Julie Kim, President of U.S. Business Unit

Sure. Sure. On the TYK2 uptake, so look, it’s not our place to comment on our competitors’ performance. But as you heard from Andy, in terms of TAK-279, we believe in the differentiated profile that we’ve seen thus far for TAK-279. And from a commercial perspective, if that data bears out in Phase III, that will give us a very strong position from a commercial standpoint to launch successfully against the existing products in the space in psoriasis as well as vis-à-vis the existing TYK2 product as well. Thank you.

Christophe Weber, President and CEO

Sogi-san, sorry, maybe let me add some comments around IG. So yes, the IG’s growth in Q1 was pretty strong comparing to our annual guidance, but the growth rate in a quarter-by-quarter growth rate of PDT can fluctuate a bit. So the we expect to stay the full year growth would be within the guidance, which is in the 5% to 15%.

Christopher O’Reilly, Head of IR

Great. Thank you, Sogi-san. With this, we’ve reached the end of the call. So thank you, everyone, for joining us today, and we wish you all the best. Thank you very much.