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

Okay. So let's start the session with Takeda. My name is Shinichiro Muraoka, covering Japanese pharma. And before starting this, for important disclosures, please see the Morgan Stanley Research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. So yes, let's get started with Takeda. The speaker is CFO, Mr. Milano Furuta. Thank you for joining us.

Thank you for having me here.

Thank you. So yes, you have many pipelines from the last year's R&D Day, investors awareness, interest on your pipeline has evolved significantly in the last 1 year. And today -- yesterday today, you have a new update of oveporexton narcolepsy Type 1 results. So I'd like to start with about oveporexton. First of all, so what's your appealing point of the molecule in the Phase III study?

Thank you, Muraoka-san. Hello, everyone. My name is Milano, CFO of Takeda. Just before we start last question, specifically, Muraoka-san, you mentioned a very important point, Takeda is now bringing 6 late-stage assets and which we project peak sales combined $10 billion to $20 billion. And our total revenue of Takeda is now a bit more than $30 billion. You can see the magnitude of the potential of these late-stage assets. We have 6 late-stage assets. And then this year, 2025, is quite exciting year for us because we have the 3 readouts of -- among those 6. So one is rusfertide, the molecule for the polycythemia vera. Fantastic data. We can talk about it later. And then now this morning, we presented at the World Sleep Conference in Singapore about oveporexton for narcolepsy Type 1. And then we expect another big one, zasocitinib for psoriasis in later fiscal year. That's why we are quite excited in this year. And then we are very happy to announce or present the detailed data of oveporexton this morning. So narcolepsy Type 1 is the orexin deficiency disease. And oveporexton is the first agent or the medicine -- to be medicine that we are developing, which address this root cause of narcolepsy Type 1. And our Phase III programs hit all the endpoints, there are 14 endpoints across the primary endpoints, secondary endpoints with all the data, with all the efficacy data was with very specific significant results. And starting from this the meaningful test, which is the primary data endpoints. But beyond that, we measured the multiple different efficacy endpoints, and then we hit all of them. And if you think about this narcolepsy patients are facing in day-to-day, it's extremely important that the treatment will address not only the symptoms, but how the patients feel day-to-day. So full spectrum of the quality of life. That's extremely important. That's why we are so much excited to share this data because it's demonstrate these agents' potential to addressing the full spectrum of the narcolepsy patients needs.

Yes. Great. Thank you. Yes, that's the point. So I fully agree with you. That's -- so orexin drug can change the current landscape of narcolepsy Type I, maybe eventually type II treatment significantly from the current oxybate stimulant to fewer, more efficacious and more safe treatment. But so -- and absolutely, today's -- your announcement and your completed announcement as well, the orexin drugs can change the treatment standard of care. I fully agree that. But our discussion points with investors are which of the 2 current visible treatments of orexin drug which were better or have pros and cons? Yes. Roughly speaking, your product looks pretty safe. Yes. On the other hand, on surface, some clinical endpoint competitor looks slightly better. But the drug value -- the value of the drugs are the totality of the data. So I would like to know what's the your -- potential competitive advantage you expect from your clinical drug?

Thank you, Muraoka-san. I have a slightly different view on how you compare, how you see the data. I think the very important objective of this treatment of narcolepsy is normalize the symptoms of life of the patients. And then it's pretty hard to -- how to call it, normalize more than normal. So if you normalize the patient's symptoms, day-to-day life feelings things, I think that's fine. It's a marginal numerical difference, it's going to be less important. Rather those in an excessive daytime sleepiness, cataplexy cognition, nighttime symptoms, those holistic elements should be addressed. And then all of them, if you can normalize all of them, then you achieve your objective. That's what we're bringing to the market and then for the patient's life.

Yes, I agree that. So -- and actually, in some endpoints, you said you had met all the endpoints that hamper other products even with Phase II, cataplexy data were insufficient. So your drug seems to be quite promising one. But in the market discussion, the Phase II data, for example, MWT numbers were quite high, but in this time, around 20 million, was slightly higher. So some investors are somewhat disappointing. Do you have any...

Well, the MWT is our primary endpoint. So it's very important measurement. But at the same time, it's one-off endpoints. And then if you think about how we measure that MWT, the setting, you are put in a dark quiet room, do nothing and then stay awake. So that's -- if you think about that setting, how much you can relate to, to real life. And then basically, if you can stay more than 20 minutes, then you are seen as a normal. Then it's going to be a bit difficult and then we're going to argue what is more normal than normal. So if you reach that 20 minutes threshold, we think it's very relevant for patients. And then that's how we set as an endpoint. So we believe that's quite clinically meaningful. And then we achieve that with all other parameters.

Okay. Great. And in terms of the safety profile, so yes, your molecule looks quite clean in 2 milligram and 1 milligram as well. But to blood vision, according to your explanation this morning, it was 1%. 1% is okay, right? I think your some competitors' results are quite high number, at over 10%. But I don't want to ask you about the competitors' result. But do you think certain safety profile of blood vision will be quite critical or important in the clinical setting?

Yes. So in this -- well, like many other medications, safety is extremely important. And we are glad to see that we didn't -- we don't see the treatment-related severe adverse events. And all of the adverse events is basically mild to moderate and then transcend. We are -- we don't have a concern on this visual disturbance. But given the market, many investors are quite interested in this topic, we have to proactively search the case. And eventually, we found some case, but which was very limited, low number. And then the comparable in both arms, in placebo and then the active arm. So we don't see the visual disturbance is a concern for the person.

And it's another quite common discussion of your molecule is twice daily. Competitors follow what is once daily. I think it's manageable, but could you elaborate us the twice daily is not the challenge for your future commercial activity?

Yes. so we tested -- during the course of development, we tested different dosing. And then also -- eventually, we thought that this is the best dosing due to our combination. The first one is our IIR basically is kind of mimicking external dynamics and internal dynamics. And then with the BID regimen or BID dosing, will help patients mimic the existing dynamics. Then if you look at our Phase II actual data and then the different dosing and then the 2 milligram, 2 milligram combination was that we thought is the best approach. And then maybe the patients might have a little bit flexibility depending on whether they are in their life day to day maybe they might have some plan during the day. And then maybe there's a room of the flexibility. But in the end, we think that's the best for patients.

Okay. And in terms of the regulatory steps going forward, could you let me know with the schedule of the filing, approval, launch trajectory? I think you can launch within -- before the end of next year, but please explain that.

Yes, we try to run as fast as possible. We deliver this transformational treatment to patients as soon as possible. We are projecting our filing is within this fiscal year. When we say fiscal year, our fiscal year is starting from April and then end in March. So that's the cycle. Yes, before March 2026, that's our filing time line, so second half of fiscal year. And then hopefully, we can get an approval next year...

Breakthrough designation, so priority review.

We have to look at that. But that's kind of the timing we are looking at.

But anyway, so you can launch in 2026. And after the launch, what's your expectation of the trajectory of the sales momentum after the -- so steep hike or gradual step up, what...

We expect strong uptake, of course. This is -- again, oveporexton is going to be the first agent. I would say that it's opening the new era of the treatment for the narcolepsy Type 1, addressing root cause of this disease. And there is currently some products in the market, but which are not addressing the root cause of the narcolepsy Type 1. So we expect -- there is a market there and then there's a diagnosed patient there. So we first prioritize or deliver these medicines to those diagnosed patients and parts we're not control well. And then in the same time, also which part is improving the diagnosis of this narcolepsy Type 1. Why? Because we expect -- we are now estimating the diagnosis rate as around 50%. And we are aiming to lift this diagnosis rate. Treatment rate is about 70%. And again, with this transformative medicine products, we are also aiming to lift this treatment rate as well. So all in all, if we can achieve them, we believe we can do that. And then we project the peak sales to be $2 billion to $3 billion, and it could be more. So $2 billion to $3 billion plus. That's our expectation.

So in terms of the replacement from the current treatment, oxybate or a stimulant, do you think that such a replacement to be quite fast or quite challenging?

Well, the -- it's -- if you look at the oveporexton's data, again, if we pick MWT, it's quite differential. And then biology-wise, it's addressing root cause. And then -- again, I'm repeating this one, addressing like a 14 -- in a clinical trial setting like 14 different endpoints. And so they're very addressing holistic needs of the patients. And why not? Well, of course, it will -- eventually, it's in the patient and then the doctors -- the healthcare professionals' choice. But we strongly -- we believe -- strongly, we believe that oveporexton is offering a completely different level of the treatment there.

So following today's announcement, your confidence on $2 billion to $3 billion plus had become more concrete, right?

Yes.

Great. Thank you very much. So sorry, we talked too much about oveporexton, but it's quite important one. But going forward, as you said, so zasocitinib data readout to come in. Could you let me know the time line and your expectation of the profile of that product in the competitive landscape?

Yes. So zasocitinib is a highly selective TYK2 oral agent for psoriasis, which we are developing first. And we expect the data readout to be in, again later fiscal year, so towards the end of this calendar year or maybe next quarter on the calendar. So that's been our first milestone to hit. And then without the -- if what we believe we expect, we're going to have a positive readout and then we're going to file that next year.

So -- but in this field of oral psoriasis treatment, IL-23 gives some advantage in time line to you. What's your business commercial grounds to catch-up or compete against that?

So our thesis on this treatment kind of value proposition of this zasocitinib is we want to expand this oral segment in advanced therapy. So now about maybe 15%, 16% of advanced therapy is in oral. We see there is a headroom for the growth in this space. If we can bring like biologic like oral option to patients, that's exactly what we are aiming to. And if we can bring that level of efficacy, a biologic like lots of oral convenience agents, then in part, we can double the size of the oral segment before injectables. There is another like a competitor drug ahead. We acknowledge that. But it's not so bad to have those 2 new molecules, new class -- new 2 classes or the 2 companies to create that space. So we are quite excited to create an open classification.

So other oral molecules are not just a competitor, but you -- not a collaborator but...

Yes, we're going to compete. We're going to compete them but we're going to create the space. I think that's another point. If we can create that space and then we're going to do the healthy competition. But then we can make zasocitinib quite a big product. And then we are confident on the competitiveness as well. Because if you look at the Phase IIb data in psoriasis, PASI 100 score, zasocitinib is at a quite high number, almost one to three, like 33% of the patients achieve clear skin in PASI 100, which is quite good efficacy. So if we can -- that's Phase IIb data. So there is sound viability. But if we can replicate to some extent in the Phase III, that we see a quite good competitiveness in zasocitinib.

But anyway, so data readout is coming maybe soon, in about a month. And can you file soon after that?

Maybe in next year.

Yes, you've got everything in the next year...

Maybe the, let's say, 6 months or after the readout and let's say, but we definitely want to the file in the next year.

And of course, under the other molecule of rusfertide, you had very good result, what presented at ASCO in June. When do you plan to file it? It isn't filed yet.

That's going to be the -- within this fiscal year. That's also -- so it's quite a lot of things is going to happen in there in the next fiscal year.

Yes, next 3 to 6 months, yes.

Rusfertide is another agent is we are quite excited. This is another new treatment for the polycythemia Vera. And we had -- we presented the data in ASCO. And one of the expert was calling this is a practice-changing treatment.

Yes. So in 2026 and 2027, so there's 3 molecules to be commercialized or lifting towards the big success. So my question is -- had a firm pipeline, so in terms of the earnings. So new drug concept, new drug molecule to start to contribute from the next year, so -- but in the last couple of years, you were struggling off some deterioration of the legacy product. Can we expect you can turn to the growth phase again from the next fiscal year?

Well, we have been growing. We have been growing until this year, which this year the big loss of exclusivity of Vyvanse— hit significantly this year. But until last quarter, we have been actually growing despite some loss of exclusivity. And then the major driver has been -- we have Growth and Launch Products, and which is almost like 50% of the total revenue, which has been growing double digits. And now our objective is -- but this Growth and Launch Products, mainly our biggest product is ENTYVIO. We expect to have a biosimilar entry around 2031 or '32. So this biggest product LOE, loss of exclusivity, how we can overcome? That's why we are talking a lot about this new product. So rusfertide, $1 billion to $2 billion; oveporexton, $2 billion to $3 billion plus; and then zasocitinib, $3 billion to $6 billion. So we combined all these 3 products, we are now quite confident to overcome ENTYVIO's future -- if we do a biosimilar entry.

Great. So you talked about ENTYVIO. Just current earnings wise, so I'm a bit, how can say, frustrated or disappointed about the slow penetration of the ENTYVIO. Of course, there are many -- some challenges in insurance or something else. But going forward, can we expect you can go back to the quite good sales momentum of ENTYVIO? Or are there any remaining challenges going forward?

No, we are super happy with ENTYVIO. ENTYVIO has been growing at quite a good pace. Despite this, it's like now, it's been on the market more than 10 years. And then it's still growing quite well. So this year, we are expecting 9% growth. Q1 is a little bit -- our first quarter was a little bit slow start but we expect to recover that momentum, mainly driven by the subcu pen launch. We had some initially the challenges on payer coverage, but we have addressed that one. In some, the authorization reimbursement pathway on the ground as -- I mean there were some complexity, but we addressed that one. So the -- as this subcu pen regained momentum, accelerated growth, they then to do with growth.

Okay. So yes, Q1 -- as you said, Q1 was a bit slow, but from the Q2, so ending in September, this month, so we can expect...

We need to look at that, yes.

Okay. Great. And in terms of the buyback also, yes, is okay. But in terms of the bottom line, our efficiency program, it works quite well. But could you elaborate what you are doing and what's your target to lift your margins going forward?

Yes. So in efficiency program, which we worked a lot in the last year was we have the 3 elements, key pillars. One is organizational agility. And then second is the procurement, external spend optimization. And the third one is leveraging the digital technologies. And mostly so far like a cost optimization impact is coming from the first 2. The third one is improving productivity, so it's like an indirect impact in terms of the margin improvement. But we made a significant savings in the last year, last fiscal year from this, the organizational GDP improvement and then the procurement savings. That's actually the -- creating a good financial space capacity to invest for these 6 late-stage programs as well as the new product launches. So the good thing is -- the good challenge is with this accelerated product development and then all the new product launches coming in 2026, our attention is going to how we can finance, how we can fund these investments. We don't want to compromise the investment for the future growth so that we are investing heavily to make sure maximize the potential of these assets. But at the same time, we do not want to deteriorate or damage the operating profit margin. So that's why this extensive program plays a very important role to create enough financial capacity so that we can invest in it for the future growth.

Okay. Yes. And your core operating margin target is low to mid 30s. What's the time line?

We don't specify a time line, but it has to come up with the new product launches. In our industry, in our business, that should be the driver of the margin improvement. We launch new products, and then that's going to basically those top line growth driven margin improvement should be the way we achieve the higher margin. And then that's why now we are in the phase. So now that we're going to launch -- well, we have to see the zasocitinib data, but we expect that we're going to launch [indiscernible] the next year and then more to come. So the -- we are in a good path to drive top line growth and then improve margin.

The mostly the time has come, but my last question is top management. Julie came to take over from June next year. Are there any potential changes over your Takeda's direction or strategy going forward or what could be changed?

Well, when CEO changes, there's many significant change. But the good thing is that Julie has been in executive team in the past 6 years. So she has been fully the part of the developing like basic fundamental strategy. And in that sense, on top, we don't expect like a flipping -- completely flipping the house, like the dramatic -- the change in path. What we are discussing is more how we can execute, execute faster.

Year of execution from next year, yes.

And then maximize this potential of new assets. And then further, how we can accelerate on the total company's growth.

Okay. Great. So you are entering in the next chapter of growth from the next year.

Yes. So with oveporexton, we onboard a new era for the narcolepsy Type 1 patients, but at the same time Takeda also is entering to the new era of the growth.

Okay. Thank you very much. Okay. So time has come. Thank you. Thank you very much. Thank you for joining us.

Thank you.

Thank you.