Takeda Pharmaceutical Company Limited (4502) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to the JPMorgan Healthcare Conference. I'm Seiji Wakao, Japan Pharma analyst in JPMorgan. And it's my pleasure to introduce Christophe Weber, CEO of Takeda, and welcome him to the conference. The presentation will be followed directly by Q&A. Audience can submit questions anytime by using the ask a question on the [indiscernible] conference book, resend your questions. With that, let me turn it over to Christophe.

Thank you, Wakao San, and hello, everyone. It's my great pleasure to be with you today even if remotely. I'm really delighted to update you on Takeda and our progress, especially because this year 2021 will be clearly a very inflection -- a very special inflection year for Takeda. I'll go through the presentation, and I will say the slide numbers, so that you can follow. On Slide #2, the traditional notice regarding forward-looking statements and non-IFRS financial measures. Before -- I'll talk about the next decade about the next 10 years. On Slide 3, I'd like to step back a bit on what has happened in the last few years. And I will not go back 240 years. This year, we are celebrating our 240 years anniversary. I would go back 7 years when we started a very significant transformation at Takeda. We started the globalization of the company, and more profound, we did a significant R&D transformation. We knew that we had to become an innovative company and deliver life transforming medicine. So we started this transformation in 2014. We globalized the company to gain more scale, leverage better the global market. And as of today, we are a company of JPY 3 trillion revenue. We have almost doubled our margin. And we are -- we have a pipeline that is about to come. And this is why this year is a very inflection year. But before I talk more about this pipeline, on Slide 4, I would like to really clearly mention that we are executing against our financial commitment that we expressed during the acquisition of Shire. We are delivering our cost synergies. We are delivering our margin improvement. We have exceeded our divestiture targets. And we have now proceed, exceeding USD 10 billion at USD 11.6 billion. We are very committed to continue our deleveraging and to reach 2x net debt to adjusted EBITDA within the fiscal year '21-23. And of course, we are committed to shareholder return, especially through our dividend and we can, today, comfortably cover our dividend. So on Slide 5, what are the next 10 years? The next decade, it's all about accelerating our growth through our global brand and our pipeline. We have a target of JPY 5 trillion revenue by 2030, which is a 50% increase compared to our current revenue. And again, this is -- this will be driven organically by our pipeline and our global brand. And this is fully aligned with our vision. On Slide 6, you see Takeda vision, it's to discover and deliver life transforming treatment. We are a value-based R&D-driven company. And we do that by bringing this life transforming treatment to the patients everywhere in the world. We are very much focusing on access, especially in emerging countries, but not only in all countries, there is access issues, and we are addressing those. We want to provide the best experience to our employees and increase our diversity, equity and inclusion. We want to do that while protecting our planet. We have very clear carbon emission target, water consumption target, waste consumption -- waste management target. So you can see that our ESG agenda is fully embedded into our vision for the long term. A significant step that we are also addressing is data and digital. We made a partnership to move our entire data -- company data to the cloud, so that we can better leverage data and digital and AI in the future. So let's talk about further pipeline on Slide 7. Again, we did this very significant R&D transformation back in 2014. We are starting to see the result of that transformation today. We have 12 new products to be launched between now and March 2025. We have 40 products in clinical stage. And that's because we have focused our R&D by disease area. We are focusing on 4 disease areas: oncology, rare genetic and hematology disorder, neuroscience and GI. We also have very targeted R&D effort in plasma-derived therapy and vaccines. Our R&D model is about doing our own research in our own lab but partnering with academia, start-up biotech. And we have more than 200 partnerships currently in this disease areas. On Slide 8, you have our current pipeline, and you see when we will get our molecules approved. Again, our Wave 1 assets, it's 12 new product, which will be approved by March 2025. Among these 12 new products on Slide 8, you have 6 product which have a breakthrough or fast track designation. And you can see that all of them, except the dengue vaccines, are addressing extremely targeted disease because this is where the science is today. We believe that all these assets are truly highly innovative. But they don't have the same market potential, the same market opportunity, and this is what you see on Slide 9. This is a detailed information about our pipeline and the value that we see in our pipeline. We did a very deep dive R&D day back in December 9. And I invite everyone to look at this presentation again, you will see a lot of information on our pipeline in this presentation that we did on December 9. Among these 12 new products, which will be launched in the next 4 years, you have at least 4 assets which have a potential of peak revenue greater than USD 1 billion. And I would like to focus on those in the coming slides. On Slide 10, this is our dengue vaccines. We are planning to file these vaccines in the coming months. You can see that the overall efficacy in our Phase III clinical trial is 89.2% against hospitalization events. So we are very satisfied with the results -- with this efficacy result. The safety was also extremely positive. You can see that the highest level of efficacy is against dengue type 1 and type 2. And this is extremely important because the dengue type 2 is the most prevalent. In our Phase III trial, the type 2 serotype was responsible for 70% of the hospitalization. So we believe that this is truly an efficacious vaccine against dengue, a disease with very significant [ public health ] impact in many countries across the world. The second asset with a very high potential, on Slide 11, is TAK-755. It's a recombinant ADAMTS-13 replacement therapy to treat TTP, thrombocytopenic purpura, either congenital or immune mediated. It's a first-in-class product. We believe it will transform the management of TTP. This is a product with a very significant potential. The third asset is in the field of oncology on Slide 12. It's an armored CAR-NK cell therapy. This is a partnership with MD Anderson. We believe that this has a very significant potential to transform the field of cell therapy. This will be off-the-shelf product. It will start with the treatment of B-cell malignancies, but it has clearly the potential to have a much broader utilization against many type of indications. The fourth asset on Slide 13 that I would like to highlight is our Orexin 2 receptor agonist for the treatment of narcolepsy Type 1 and other sleep disorder. This is potentially the first-in-class product with very significant efficacy to treat narcolepsy. And narcolepsy is much more prevalent than what people think. There are about 150,000 patients with narcolepsy Type 1 in the U.S. alone. Again, a very significant market opportunities, a very significant revenue potential from this product. So these are 4 out of the 12 product. And again, you will have all the detail on this pipeline in our presentation that we did on December 9. I would like on the next slide, Slide 14, to highlight 2 assets which have a potential to accelerate and to move into our Wave 1 pipeline. One is TAK-999, which is a product for the treatment of alpha-1 antitrypsin deficiency associated liver disease. This is a partnership that we just did with [ Arrow Pharmaceuticals ] [indiscernible]. And we believe that this product has a very significant potential, again, to transform the management of the disease. The second product in the field of oncology is a small molecule inhibitor of simulation that could enhance immune response. This could have broad utilization against many indications, and we are currently conducting 17 trials in parallel to test this product against many different indications, very significant potential. This is a product that we wish to accelerate and to develop as quickly as possible. I talked about this year being an inflection year. Why? You can see on Slide 15 that we have a very significant number of milestone in the next 3 months during our Q4 fiscal year 2020. So between January and end of March, we have 6 significant milestones happening. This is why this is a very significant inflection year for us. We already got the result of Maribavir for the -- against cytomegalovirus infection, very positive results in our Phase III trial. We will share this result very soon. This is already 1 milestone that we have achieved. So the pipeline is absolutely critical for us to grow in the future in the next decade, but most of this growth impact will happen past 2024. Because many of these products will be launched between now and March 2025. Until then, our growth will be driven by our global brand. On Slide 16, you have a snapshot of our current global brands. And in the first semester of 2020 fiscal year, these global brands were growing at a rate of 15.4%. They will continue to grow in the future, and they will drive our growth, while the pipeline is getting launched. I will not go through all these global brands, but I would like to focus on a few. On Slide 17, ENTYVIO, it's a product that we launched in 2014. It was the first product that we launched globally at Takeda, that was part of our globalization agenda. To date, our largest product, still growing. It's the best-in-class product in the field of IBD. We just got approved and launched in China. By the way, in China last year, we got 4 product approved that was the most of any multinational companies in China, with ENTYVIO, ADCETRIS, [ Replagal ] and TAKHZYRO. So ENTYVIO will continue to grow, not only because of market share gain in all countries where it has already been launched, but also by geographical expansion. We believe that ENTYVIO has a big sales potential of between USD 5.5 billion and USD 6.5 billion. On Slide 18 TAKHZYRO will be our second largest global brand. It has transformed the treatment of hereditary angioedema prophylaxis. 80% of the patients treated by TAKHZYRO are attack free, very, very high level of efficacy. And then the immunoglobulin segments. The demand from immunoglobulins is sustainable. We believe that our immunoglobulin portfolio will continue to grow in the next decade at a level of high single digit, in spite of new competitors entry like FcRn. Why? Because new indications, geographical expansion, a demand today is significantly greater than supply. So we have a combination of pipeline, which we are starting to launch. We have already filed 721 Eohilia. We -- it got fast tracked. This is a priority review by FDA, and we are planning to launch anytime soon and the pipeline will continue to come. Our global brands are continuing to grow. So what does it look like for Takeda in the future? On Slide 19, you can see that in the next 5 years, our global brand will generate additional incremental revenue of about USD 8 billion. At the same time, we have -- we are facing headwinds, generic exposure on some products like VYVANSE, for example in 2023, or we are facing some competitive threat in the field of hemophilia. That will generate a loss of revenue of USD 4.5 billion in the next 5 years. The net is positive. And that's why we will continue to grow in the next 5 years. And then post fiscal year '24, '25 and beyond, ENTYVIO might face biosimilars. ENTYVIO data exclusivity is expiring in May '24 in Europe and May 2026 in the U.S. But we do have some patents with a date -- expiration date up to 2032. So we don't know exactly when biosimilar will enter the market. We took a conservative assumption that they will enter the market at the time of data exclusivity expiration. But it has to -- it is a conservative assumptions. In spite of that because of our pipeline that I just explained, we are very confident that we'll be able to grow in the future. We believe that our Wave 1 pipeline peak revenue potential is greater than USD 10 billion. And this is why we are committed to a revenue goal of JPY 5 trillion, about USD 47 billion by 2030. So on Slide 20, you can see that we are very well positioned for sustainable growth. Thanks to the profound transformation that we initiated 7 years ago. We have the R&D engine, we have the scale, we have the pipeline. And I didn't talk about the Wave 2 pipeline. I didn't talk today about our research capability, which has also -- has been transformed in the last few years. So we have an R&D engine to sustain our growth in the future. And we'll do that with very strong margin on cash flow to meet our financial commitments. And that's because of the scale of the company, about our lean infrastructure, we are very committed to deleverage rapidly to achieve 2x net debt to adjusted EBITDA by fiscal year '21 and '23. So as you can see, again, it's a very special year in 2021, not only because of the coronavirus, but because for us, it's an inflection year, inflection year for our pipeline. And we are very committed to continue to bring better health for people and a brighter future for the world in the next decade. Thank you very much. And I would like now to open to questions. Joining me will be Dr. Andy Plump, our global Head of R&D; Ramona Sequeira, our Head of the U.S. business and Global portfolio Commercialization; Costa Saroukos, our CFO; Teresa Bitetti, our Head of Global Oncology; and Julie Kim, our Global Head of Plasma-derived Therapy business. Thank you very much.

Thank you, Christophe. I'm going to start Q&A session. [Operator Instructions] So first question about the [ strategy ] to achieve the JPY 5 trillion by fiscal year 2030. I think achieving this goal depends on the success of pipeline. So what kind of option do you have, [ is it that ] you [indiscernible] to develop some current pipeline products [indiscernible]. Are there any option to acquire other company or assets? Or should we think simply it becomes difficult to achieve the JPY 5 trillion in such a case? This is first question.

Yes, thank you. I mean, you see that our -- first our pipeline -- regarding our pipeline, we don't rely on 1 or 2 assets only. We rely on 12 assets in the Wave 1 and more in Wave 2. So that gives us confidence that we will have a pipeline. It's very -- it's -- I wouldn't like to be in a position where we rely on 1 or 2 assets. Because that's a risk here. So that's the first thing. So -- and you can see, you look at the peak revenue, we have some room for error. So we don't have to have all the assets to succeed to generate the growth that we are talking about. Now having said that, we continue to partner and we might do some bolt-on acquisition if needed in the future, especially once we will have the leverage. So we are not against that, provided that they are strategic, they fit our strategy, and they are within our disease. Take TAK-999, for example, the product that we just partnered with [ Arrow ] Pharmaceuticals, it's a good example. It's an investment we made. We believe that it's a very innovative product. It's adding up to our pipeline.

Okay. Thank you. So I have question from investors about this point. So fiscal year 2030 [indiscernible] JPY 5 trillion. So first comment on the detail of this year. So including risk adjusted or not in [indiscernible]. Please comment on more detail, please.

Well, it is -- this is based on our -- based on what we see regarding our global brand, the growth of plasma-derived therapy and our pipeline. We are confident that we will be able to reach JPY 5 trillion. This is our goal. This is our ambition. Why? Because, again, we have the global brand growing. We have a very significant pipeline, again, not 1 or 2 assets, but we have 40 new molecular entity in clinical stage. So not all will succeed, but if we did a good job, and we believe we did, the majority of them will. And so that's what give us confidence that we are able to reach JPY 5 trillion. So we did that by modelization, by forecasting. We are -- you have seen in the last -- if anyone has followed Takeda in the last few years, we deliver on our objectives. We are very realistic when it comes to objectives and goals, and we believe this is a very realistic goal for us to achieve JPY 5 trillion by 2030.

Okay. Thank you. So from investors, so given your comments on the [indiscernible] of product, is it more [indiscernible] to use cash flow and [indiscernible] out assets instead of [ debt reduction ], why do you need to be to [indiscernible] net debt to EBITDA?

Costa, do you want to take that question? If I rephrase the question. The question was, it's a trade-off between debt reduction and investment on assets, right? Why do we need to be at 2x net debt to EBITDA.

Thank you very much. Good morning, good afternoon, good evening, everyone. So when we acquired the acquisition of Shire, one of the key focus areas of our capital allocation policy was to deleverage rapidly. When we integrate it, we'll have close to 5x net debt to adjusted EBITDA. We have a commitment to come to 2x net debt to adjusted EBITDA between fiscal year 2021 to fiscal year 2023. Having said that, that doesn't stop us from continuing to do acquisitions on our early stage assets. We've been doing that consistently and this is an example as part which is what's fueling many of our Wave 1 and Wave 2 assets. So we'll continue to do that. And we'll continue to drive efficiencies and pay down the debt as part of our capital allocation policy.

Okay. Thank you. So next about the pipeline. So about the potential of Orexin program, [indiscernible] sales potential of $4 billion to $6 billion is very important pipeline. So I'd like to know there is some point of this program and their current situation of that progressive market.

Perhaps Andy and Ramona?

Christophe, could you repeat the question? I had trouble hearing the question.

So about the potential Orexin program. So I'd like to know the strong point of this programs and the current situation of the narcolepsy market.

Great. Would you like me to start, Ramona, and then you can chime in?

Yes, why don't you go ahead and you start with the product and the data, which is pretty phenomenal. And then I can help flush anything out about the market after that.

Great. So this is a pathway in the brain that's involved in sleep wake cycles. And we know this from many different ways from genetics, from the development of antagonists to Orexin receptors that induce sleep and the field broadly has been looking to develop Orexin 2 receptor agonist for many, many years. And our chemists in our research laboratory in Japan had a breakthrough. It's a very difficult and very challenging medicinal chemistry target. And this breakthrough was about maybe 6 or 7 years ago. The challenge initially was that the breakthrough occurred with the molecule 925 that is IV only. And we've been using that molecule for -- to establish proof of principle in narcolepsy type 1 and in other sleep disorders. There's also an experiment. We didn't know if you agonized this target whether you could actually correct the defects in these patients. And we were, I would say, blown away by the data that we saw with 925 across many, many indications, not just treating these patients but functionally curing these patients. Unfortunately, this patient population is not amenable to a continuous IV infusion. [indiscernible] other indications where 925 could be a drug that we bring to market. But it gave us enough confidence in the mechanism that we've now doubled down. It's our most highly prioritized program internally. We have now an oral molecule, TAK-994. We have a second oral molecule, TAK-861, which will enter the clinic this month. And then we have a research program behind this to ensure that we have multiple molecules because we think that there are multiple potential indications as Ramona will go into. TAK-994 is in -- a Phase II study in patients with type 1. [indiscernible] We'll start to dose patients with [ idiopathic hypersomnia ]. It's a study to establish proof-of-concept and dose [indiscernible] ongoing study in healthy sleep deprived volunteers that we'll read out shortly and that we'll be presenting data from -- in the very near future. But I would say that we have extensive experience with this oral molecule and that looks quite promising.

So maybe just to add a little bit about the market and the patient journey in narcolepsy. So we know that this market, first of all, is highly dependent on symptomatic treatments right now. So the products that are available are wake-promoting or stimulants, often they're combined with antidepressants to address cataplexy symptoms and often also combined with things to help people sleep. So there's these -- the combination of excessive daytime sleepiness, combined with disrupted nighttime sleep, combined with cataplexy. Each of those today is treated with kind of polypharmacy, different medicines. The diagnosis rate is fairly good, maybe about 70%, 80% but -- or sorry, diagnosis rate is about 50% and then once patients are diagnosed, they end up -- most of them end up getting some sort of treatment. But as I mentioned, it's a number of medicines. The process can take from 5 to 15 years. So really, as we look at this market, we think there's an opportunity, as Andy mentioned, as we come out with a product that's addressing the underlying cause of epilepsy and actually addressing many of these symptoms, the sleepiness, the disrupted nighttime sleep, the cataplexy, to be able to find these patients, to have them diagnosed more quickly and to have them treated more effectively. We feel that even conservatively that leads to a pretty significant market. When you consider that some of the other products in the space now are well over $1 billion already, even with the limited efficacy that you're getting in the narcolepsy space. So as Andy mentioned, we're looking at narcolepsy Type 1, which is the largest. We've got narcolepsy Type 2 and then idiopathic hypersomnias. And because of the action of the molecule, there's so many different places we can go as we look at idiopathic hypersomnia as obstructive sleep apnea, excessive daytime sleepiness associated with many, many other neurological disorders. So I think we're just beginning on this journey. But definitely, narcolepsy Type 1 and 2 are the major sources of our revenue for [indiscernible] today.

Thank you. So next about PDT business. So COVID-19 pandemic had impact on plasma collection relatively. So please comment on the recovery timing of plasma collection. And please share your outlook for PDT business in year and long term.

Julie?

Thanks for the question. So in terms of plasma collections, the low point was last spring as it was for the entire industry. And since that point, we've seen recovery of collections quarter-over-quarter. At this point, we're not providing forward-looking projections. We'll do that in May with the year-end earnings report. But at this point, we can confirm that we are seeing quarter-over-quarter improvement in plasma collections. As you heard Christophe mentioned, from a long-term perspective, we do expect to see continued growth despite the entrance of potential disruptors, such as anti-FcRn for the IG portfolio in particular. And we do expect to see for the fiscal year 2020 for the IG growth to be in the 10% to 20% range as shared at the beginning of the fiscal year.

Okay. Okay. Thank you. So about products for COVID-19 [indiscernible]. So you were developing some products [indiscernible] COVID-19. So please comment on the progression especially COVID-19 and [indiscernible] vaccine development in Japan.

So Christophe, do you want me to start with COVID-19, and then you can speak to the vaccines, please?

Yes.

So in terms of the hyperimmune that we are developing, we did form a coalition with other plasma companies last year in April. And so since that point, we did have rapid development of the hyperimmune. We collected the convalescent plasma, produced clinical [indiscernible] and the NIH is conducting the clinical study. So that study has started. There are 4 hyperimmunes in that study, 2 from alliance manufactured the by Takeda and CSL and then 2 from other companies. So that trial is underway. I can share that at this point, we are over 50% enrolled. But for further details, it can be found on ClinicalTrials.gov in terms of the hyperimmune product. So we're very proud of the progress that we've been able to make in a relatively short period of time on the hyperimmune. Christophe?

Yes. Regarding vaccines, we have 2 partnerships to bring 2 different vaccines to Japan, 1 with Moderna, 1 with Novavax. Moderna is the most advanced. We are initiating this month in January, a clinical trial in Japan, involving 200 subject in the clinical trial to test the vaccines amongst the Japanese population. And we hope that, that will allow us to proceed rapidly to approval and utilization of the vaccines.

Thank you. So next about shareholder returns. I think you are making the progression on debt repayment. And do you have any plan to increase shareholder return, for example, share buyback, so before [ reaching ] the deleveraging target of 2x net debt to adjusted EBITDA?

Costa?

Yes. Thanks for the question. Yes, of course, one area of focus is our share price, and we realized that the current price that it's at is not really valuing our execution that we've delivered thus far, the value of our pipeline. So we'll continue to monitor the share price, the fact is there may be a potential to do a share buyback, but it's still too premature. I think what the key focus here is that we continue to -- waiting to see our pipeline declare itself in fiscal year 2021. I think that's really the key here. We'll continue to pay down the debt. Our net debt to adjusted EBITDA is at 3.7x. We expect to get to 2x by fiscal year 2021 to 2023. Does it necessarily need to be 2.0x? Absolutely not. So that's something that we continue to manage. And at the right time, we'll make a decision whether there's a need to do a share buyback.

Okay. So a question from investor. So it's about divestiture. So you have completed the divestiture target of $10 billion. So please comment on the divestiture strategy beyond $10 billion target.

Do you want me to take that, Christophe?

Yes.

Just a week ago, we had another divestiture of a noncore asset in China. So now that makes 11 divestitures, totaling up to USD 11.6 billion. So the great news is that we have exceeded the $10 billion target, and it's very much aligned to our strategy when we first did the acquisition. Predominantly, the funding will go towards paying down the debt. Will there be any further divestitures? I think not so much. There might be some one-off regional type divestitures. But I think the target of -- we've exceeded and the focus has been pretty much delivered on the noncore divestitures.

And I will add that this divestiture has been also strategic. It's not only to help us deleveraging faster, it's also to focus on our core business. And to simplify our organization. So you will look at all -- the divestments have been on truly non-core assets, branded generic, OTC, and so it's really a process to achieve 2 goals, deleverage, but also focus on our core business.

Okay. Okay. So next, about the Biden's administration, about U.S. industry. So what kind of changes in U.S. industry and impact on your U.S. business do you assume from Biden administration?

Ramona?

Yes. So as we look forward now to a new incoming administration and things that might happen in the drug pricing space, obviously, in the U.S., now we're still -- we've got very, very high COVID rates. There's still going to be some talk about another stimulus package to be passed as well. So there's a number of priorities that the administration is going to have to juggle as well as a senate. So the senate is 50-50, meaning that things that will be passed through the senate will need to go through reconciliation versus legislation, if there was a higher number of votes. So there's going to be, I think, some complexities as we look to 2021, but also some very high need and very high, I would say, support from pharma companies as well to look at things like patient out-of-pocket costs, how do we ensure that those have some sort of limit on them and that they are moved over the course of the year, looking at price increases. Certainly, the administration has brought up the idea of inflationary price caps. That is not something that would really impact Takeda much. If you look at our website last year, you'll see all of our price increases were in the single digits, really low to mid-single digits, and our net price increase was actually negative last year by 1.6%. So we truly are growing on volume in the U.S., not on price through [indiscernible]. So there's a number of things that the administration is going to look at. We expect continued pressure on pricing going forward. And we have been saying that pretty consistently, and we are willing to support anything that would help make our medicines more accessible to more patients and would help to ensure that patient affordability is first and foremost. And at the same time, it's really important to us that anything we support also encourages innovation. Thinking about our 12 molecules in Wave 1 and our 40 molecules in the pipeline, we don't want to get into a situation where we're making a trade-off for patients of today and denying patients of tomorrow, cures and treatments that are just unavailable right now. So I think there's going to be a lot of discussion and negotiations as we go through 2021 around pricing, but we believe it will happen in a very thoughtful and methodological way. Christophe, anything you could add there?

I think you summarized very well. We believe that whatever the administration and the reform, the U.S. country, the market will remain very [ pro ] innovation. And we know that -- I mean, our pipeline is addressing medical needs across the world, but we are extremely committed and confident that the U.S. will remain [ pro ] science and [ pro ] innovation.

Okay. [indiscernible] time for closure has come. So we'd like to close this transition. So thank you very much for your time, everyone. So I appreciate your presentation and Q&A. So thank you. Thank you for your time.

Thank you very much. Thank you.

Thank you.