Takeda Pharmaceutical Company Limited (TAK) Q4 2021 Earnings Report, Transcript and Summary

Good day everyone, and welcome to the conference call of Takeda Pharmaceutical Company Limited. During the presentation from the company, all the telephone lines are placed for listening-mode only. And the question-and-answer session will be held after the presentation. Now we'll start the conference. Mr. O'Reilly, please go ahead.

Hello, good morning, good afternoon, good evening. My name is Christopher O'Reilly, Global Head of Investor Relations. Thank you for joining this follow-up conference call on the Fiscal 2020 Financial Results of Takeda Pharmaceutical Company Limited.

Thank you, Chris, hello, everyone. Thank you for taking the time to discuss with us our 2020 results and 2021 outlook. The 2020 results, we believe have demonstrated our resilience as an organization, but also as a business, we're delivering our management guidance, we're very pleased with the fact that we were able to deliver our synergy target one-year in advance. So that puts us in a very good position in terms of margin, and profitability and cash flow. We're closing the year 2020 with a 2.2% revenue growth and on an underlying basis. And if you look at 2021, we're seeing this growth outlook to accelerate to a mid-single-digit underlying revenue growth, so which is driven by our core businesses, our 14 global brands where we do see this momentum. And we do describe, as 2021 year, as an infection year, not only for our business again, because we have delivered our synergies, our growth is accelerating, but because of the pipeline, and we do expect the year 2021 to be a very special year in terms of the pipeline maturity and the pipeline progression. So in a nutshell, that's where we are. It's an inflection year for us, and we're looking forward to discussing it with you. Thank you.

Hi, everyone, it's Costa here. I want to take the opportunity to just quickly run through a few financial highlights from our earnings presentation earlier today.

Thank you, Costa. Operator, can you open the line please for Q&A.

. The first question is from Mr. Muraoka from Morgan Stanley MUFG. So Mr. Muraoka, if you, please.

Hello .

Yes, yes. Hello, we hear you. Please go ahead.

Hi, hi, yes. So two questions, first, Novavax vaccine, can you addresses more about, yes, could you guide us though margin of the Novavax vaccine. If its launched maybe half a year or nine months later came to be a dilutive of your cooperating margin of around 30% or more. How you had done your cooperating margin of 30%. That's the first question. The second question, sorry, I'm sure on these -- on this English quote, but in terms of 994 definitely comparable you said the next update would to be end of 2021 or early 2022. So what kind of updates can we expect as the -- for at the time in terms of TAK-994? That's all.

Thank you, Muraoka. Rearrange the vaccines; I would just like to reconfirm what we have in our guidance and what we don't have. What we have in our guidance are 50 million dose of more than a vaccine that we distribute on behalf of Moderna. Of course, it's a bit wider than a distribution, because we have files of products on their behalf. We conducted the Japanese clinical trial. We manage the Pharmacovigilance. We will manage the communication with doctors. So -- but we are basically importing on behalf of Moderna and distributing. For these 50 million doses, you should visualize it financially as a distribution fee. It's not a typical revenue with, so that that's more of a setup for this Moderna vaccines.

Yes. Thanks, Christophe. And thank you Muraoka. So in terms of updates for the end of the year, there'll be substantial updates for the overall Orexin franchise, just starting with TAK-994, which is our lead oral Orexin 2 receptor agonist, that that molecule is in a very clever Phase 2, 2b study that has four parts. The first part has been completed, which is two doses proof of concept in Type 1 Narcolepsy. The second part, Part B, which is ongoing is a dose ranging study in Type 1 Narcolepsy that will be an eight-week study with an extension beyond eight weeks. Part C is a proof of concept study in Type 2 Narcolepsy and Part D is a China Type 1 Narcolepsy study. And we hope to complete all four parts by the end of the year. So we should have a clear sense of dose and an efficacy and safety and tolerability profile to share with you at the end of the year, as well as plans for our Phase 3 design for 994. We'll have data by the end of the year on TAK-861, including proof of concept data. TAK-861 is a unique molecule. We're bringing that forward because we see huge opportunities broadly for sleep wake cycle disorders, not because we see concerns with TAK-994, in fact quite the opposite. We're quite pleased with everything we've seen so far with TAK-994, including our chronic toxicology study pre-clinically, which is always an issue when we -- when you think about CNS active molecules. And then lastly, the original molecule that we brought in TAK-925, which is still a molecule that we have as an IV formulation. We'll be sharing thoughts with you at the end of the year in terms of a development program for IV indications.

Great. Thank you. Next question, please.

The next question is from Mr. Ken Cacciatore from Cowen. Mr. Cacciatore, if you please.

Thank you so much. Congratulations on all the good progress. Just a couple of questions around your very healthy cash generation. So understand we're going to continue to aggressively paydown debt. At these depressed share prices, wondering if there's contemplation of share buybacks. That's one question on excess cash. Then second question is again making really good progress on the debt, wondering if there's a chance that you'll get more aggressive on business development. Wonderful pipeline progress by Andy and team, but wondering if you're also looking to maybe augment it by getting a little bit more aggressive now on BD. And then, third question is just around PDT, maybe just a discussion around the competitive landscape and long-term growth expectations. Thanks so much.

Thank you, Ken. It's Christophe. I’ll start with a BD, then Costa can cover the share buyback questions and then Julie will cover the PDT. On the BD, obviously we are not contemplating a larger transaction, because we believe that our growth momentum is strong. We are investing doubling down on our pipeline investment. But on the other end, as part of our R&D model, we always look for partnership more early-stage, and of course partnership, which are aligned with our therapy area focus, so that that will continue. And some partnerships are very early-stage like research platform. Some partnership are more product-oriented like TAK-999 for example, we did recently. Our Maverick, which is in between platform and products so that's part of our model and we'll continue to do that. Costa?

Thanks, Christophe. Hi, Ken, thanks for the question. Yes, indeed we continue to consider and continue to keep an eye on the share price we do believe that the share price is undervalued. It's not truly reflecting the true fundamentals of the business, especially what we've done and how we've been able to deliver since the acquisition on the financial deliverables. But at the same time, our capital allocation policy, we still not shifting away from that, one, being the fact that we are focusing heavily on the growth drivers, the investment in R&D, whether it's both in-house or external. Some of these external partnerships will continue doing on early-stage assets as well. We continue to invest in China for 15 new product launches for the next five years. These are going to help us grow the top-line. And PDT, we continue to invest in PDT. And as you can see, we're really improving the overall business in PDT. We're improving our margins in PDT. And this will -- this is something that we continue to focus on. Deleveraging, it's one of our key focus to rapidly deleverage. We have however changed the wording. We've made it a bit clearer that our net debt to adjusted EBITDA ratio in our capital allocation policy, we had reached 2 times, but now we've made it clear to say reach low 2s, because we wanted to clarify that, many, we used to get a lot of questions around. Does it have to be 2.0 times, or can it be 2.1, 2.2, 2.3 times? And we want to allow ourselves a bit more flexibility here in the event of here we need -- that we may want to consider potentially a share buyback or future incremental in-house, sorry, partnership R&D acquisitions. So in a nutshell, yes, we are continuing to look at our share price. We think it's undervalued but 2021 is our inflection year for R&D. And we think the fundamentals will prevail.

Hi Ken, this is Julie. I'll take your PDT question. In terms of long-term growth perspective for the PDT business overall, we do expect to be able to continue to provide growth year-on-year for the total plasma-derived portfolio. This is primarily driven by the strong growth of the IG portfolio in particular, our subcutaneous brands, as well as robust demand for albumin, particularly from China. We do expect as we continue to invest in our R&D and those investments start coming to fruition in a few years, that that will also start contributing to our overall growth from a PDT portfolio perspective. Now when looking at the competitive landscape, which was the other part of your question, I'll put this into two different categories: first, our plasma competitors and the second, the non-plasma competitors. So when we look at the plasma competitors here a significant part of our ability to differentiate and compete is not just in terms of our product portfolio, which we're very proud of, but also in terms of how effectively we can manage our overall business unit from our plasma donation centers through manufacturing as to our ability to deliver the products to our patients. And here I think our performance in 2020, even though we're a relatively new business unit at that just over two years with Takeda, I think that 2020 has demonstrated our ability to effectively perform and even perform above the industry. From a non-plasma perspective, here we do keep our eye on the alternative therapies, particularly the anti-FcRn. We continue to believe that there will be robust demand growth for the IG portfolio, even with the anti-FcRn, eventually coming to market. We will see how they fare as they bring their first indications to market within the coming year. And then we'll have to wait and see what happens with CIDP, which is the larger usage of IG, where they can potentially compete. But again as we've shared in past, meetings the CIDP population is a very heterogeneous population. And while the anti-FcRn, if they do demonstrate safety and efficacy in CIDP, we do not expect them to be a -- and be able to service the entire CIDP patient population. So when you look at that combined with the continued level of under diagnosis and under optimization or sub optimization of therapy in primary immune deficiency and secondary immune deficiency, then there's still a significant runway for growth. And this is why we feel confident that we would be able to support year-on-year growth for the IG portfolio, which then supports the overall plasma portfolio to be able to grow.

Thank you. Thanks to the entire team.

Thank you, Ken. Next question, please.

The next question is from Mr. Yamaguchi from Citigroup. So Mr. Yamaguchi, please go ahead.

Hi, can you hear me?

Yes, we hear you. Hello.

Okay, thanks. Yes, thank you. The two questions from me, first of all, that Eohilia PDUFA data past and you put some note that the USA under the discussion is the USFDA. But can you remind me what's been a issue and when those things will be sorted out in your side. That's first question. The second question is, you mentioned about in ENTYVIO's autoinjector pivotal study starting from H2. And do you think this injector -- autoinjector will become a majority of the product in the future to maybe protecting the product from entering within a few years overall your basic expressions. Thank you.

Thank you, Yamaguchi. We're up to Andy the first question and Ramona, the second question.

Thank you, Yamaguchi. And so we don't have a lot to share on Eohilia. As you mentioned, the FDA missed their PDFUA date, which is quite unusual. So we're in a dialogue right now with the FDA. And we should have more information to share. We still very confident in the overall profile of the product and we hope to have it approved. We just don't have a keen sense exactly on timing at this point. And then I'll pass it onto Ramona, I think you're referring to the needle free device that would be starting our pivotal studies in later this year. Yes.

Yes. I can speak to that. Thank you for your question, Yamaguchi. And so yes, on the needle free device, we are proceeding as you can see in our results with into our clinical trial with that we're very excited about that. As an opportunity for patients to get access to in ENTYVIO and without the needle. I will say that it's not a LOE extension strategy. So we have disclosed earlier for ENTYVIO that the earliest we would see biosimilars on the market for ENTYVIO with 2026 in the U.S., 2024 in VCAM. However that is the earliest. We do have patents that go out until 2032 and beyond. And this is really just a way to have more patients who may have needle phobia or difficulty with needles have access to in ENTYVIO, if not an LOE extension play for ENTYVIO. Thank you.

Okay. Thank you.

Thank you, Yamaguchi. Over to the next caller, please.

The next question is from Trevor Polischuk from OrbiMed. Trevor, if you please.

Thank you for taking the question. Three questions if I may. First question is just on the fourth quarter particularly to get a little bit more color on some of the one-timers that might have boosted operating profit and earnings per share profit I think you mentioned something about the tax benefits. The second question is on guidance, so just the lack of leverage in 2021, is this mainly due to the investment you've been talking about or perhaps a mix issue, or is it just maybe a little bit conservative? And then my final question is just on COVID impact to the business both to the top-line as well as potential OpEx impact, not only for 2020, but for 2021. If you could just give us some color there, if there's any sort of notable impact for this past year and what might be coming up for the coming year. Thank you.

Hi Trevor, it's Costa here. Sorry you were breaking up when we heard the third question. We couldn't hear your first two. Can you just repeat the first two?

Yes. Sorry, Costa. I can hear the feedback. I apologize for that. The first question was just to get a little bit more color on the fourth quarter results specifically some potential one-timers that might've boosted operating profit and earnings per share in the quarter. I think you mentioned something about perhaps the tax benefits, so just a little bit of color there. The second question was on guidance, which suggests a lack of leverage in 2021. I'm just wondering is this mainly due to the investment that you spoke of or perhaps a mix issue or maybe just conservative to start the year.

Can you cover the two questions, the first two and I cover the third. Yes, okay.

Yes. Thanks, Trevor. We can -- I can cover, I think all three. So quarter four, we did see an improvement in the overall tax rate both on the core tax rate and underlying tax rate and that was predominantly driven by an acceleration -- an acceleration of the legal entity optimization, so we reduced the number of entities. And we went actually we started the -- after the acquisition of Shire, we had 400 entities and we reduced those down to 240. And so we got some tax benefits there. We also improved or accelerate some tax structures, where we were able to reduce the Japan or Japanese CFC taxes. And so I think they're the key drivers that were able to really drive an improved core tax rate and underlying tax rate. In fact, our tax rate improved by 6% versus fiscal year 2019. So I think that was a testament to the speed of integration also legal entity optimization, as well as the tax restructuring. Your second question was regarding leverage. I think you mean -- if I understood you correct is the margin. So what you mean by leverage here? Is that what -- I think that's what you mean? And so what we're saying is our margin will be approximately 30%. This year in 2020, we, our margin we landed at 30.2%. So the margin will be underlined, but underlying cooperating profit margin we think it will be pretty close to what we saw in fiscal year 2020. And that's despite the R&D investment, a step-up of R&D investment of over US$600 million. And so how are we absorbing this investment in R&D in 2021? You still have the same margin that we delivered in 2020. The key reason for that is twofold. One, the acceleration of the top-line revenue, so that's growing, you'll see in 2020, our underlying revenue grew by low-single-digit of 2.2%. In 2021, we're accelerating the top-line revenue to mid-single digit. And the second reason why we believe we can maintain the margin is because we delivered the synergies one year in advance. And so we'll see a significant carryover there as well, predominantly driven by procurement savings, headcount savings, and also SG&A was a key driver for that OpEx efficiencies. And then the third piece you asked about the COVID impact. You may recall this time last year when we gave our guidance, we said we were going to deliver the management guidance because we truly believed and felt that our portfolio was resilient. And I'm happy to say that after the results, we did prove that the portfolio was resilient. The headwinds we only had, we -- in general was the neuroscience business with VYVANSE and TRINTELLIX had some challenges because of the lockdowns in the U.S. So we saw that impact margins and VYVANSE does have a high margin. So but on the flip side, we did see some underspend in travel and meetings and events, but though about the same amount as the negative impact on the revenue for our neuroscience. So both of them basically netted off on the bottom line, so there was net-net neutral based on the COVID impact. I think, hopefully I answered your question. Thanks, Trevor.

Yes, that was great. Thanks, Costa. I really appreciate the color.

Great. Thank you, Trevor. Any other questions on the line.

.

Okay. Well, it appears there are no more questions. So we'll closeout this meeting. Thank you everyone for joining us today. And if you have any follow-up, please don't hesitate to get in touch with the IR team. Thank you very much and let's speak again soon. Thank you.

Thanks, everyone.

Thank you for your taking time. And that concludes today's conference call. You may now disconnect your lines.