Takeda Pharmaceutical Company Limited (TAK) Q1 2025 Earnings Report, Transcript and Summary

[Interpreted] Thank you for joining us for FY '25 Q1 earnings announcement by Takeda despite your very busy schedule today. I'm the master of ceremony, Head of IR, my name is O'Reilly. Thank you for this opportunity. [Operator Instructions] And before starting, I'd 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 our most recent Form 20-F and in our other SEC filings. Please also refer to the important notice on Page 2 of our presentation regarding forward-looking statements, our non-IFRS financial measures, which will also be discussed during this call. Definitions of non-IFRS measures and reconciliations with the comparative IFRS financial results are included in the appendix to the presentation. Now we'd like to begin. Presentation will be given by Christophe Weber, President and CEO; Milano Furuta, Chief Financial Officer; and Andy Plump, R&D President, and this will be followed by a Q&A session. Let us begin. Christophe, over to you, please.

Thank you, Chris, and thank you, everyone, for joining us today. Our fiscal year 2025 first quarter results reflect the significant impact of VYVANSE's generic erosion on revenue and cooperating profit, which we had anticipated. We actually expect this impact to moderate in future quarters, and fiscal year 2025 will be the last year of significant impact from VYVANSE erosion. There is no change to our outlook for the full year. Milano will discuss our financial results in detail in his presentation. Fiscal year 2025 is a pivotal year for Takeda, not least because of our rapidly progressing late-stage pipeline. I'm very pleased with our pipeline progress so far and excited about the future. As you know, earlier this month, we announced positive results from 2 pivotal Phase III double-blind placebo-controlled studies of oveporexton. Both studies met all primary and secondary end points at each of the dose we studied. We are very encouraged by this result and what they could mean for people living with narcolepsy type 1. Later on this call, Andy will walk you through the top line results and what you can expect next with oveporexton and our orexin franchise as well as other pipeline achievements since Q4. Before we dive deeper into our pipeline strategy, I will pass over to Milano to review our financial results. Milano?

Thank you, Christophe, and hello, everyone. This is Milano Furuta speaking. Let's go to Slide 5, which summarizes our Q1 financial results. As we had anticipated, Q1 is highly likely to be the quarter mostly impacted by loss of exclusivity because of the strong VYVANSE performance in Q1 fiscal year 2024. This created a high comparative baseline for growth rates in Q1, but we expect this to moderate over the rest of the fiscal year. Revenue in Q1 this year was just over JPY 1.1 trillion, a decrease of 8.4% or minus 3.7% at constant exchange rates or CER. Core operating profit or OP was JPY 321.8 billion, a year-on-year decrease of 15.8% at actual FX or 11.9% at CER. Reported operating profit was JPY 184.6 billion, which grew 11%. Core EPS and reported EPS were JPY 151 and JPY 79, respectively. Cash flow was strong this quarter, with adjusted free cash flow of JPY 190.1 billion. Slide 6 shows our Growth and Launch Products, which represents 50% of revenue. In Q1, they grew 5% at CER. We see it a little bit slow start, but we anticipated a higher growth rate in subsequent quarters. In GI, ENTYVIO growth was 4.9% at CER, partially reflecting intensified competition in the IBD market. We do see increasing number of active ENTYVIO PEN patients in the U.S., growing approximately 30% since the last quarter. Awareness, prescription and satisfaction level for ENTYVIO PEN are high, and our focus is to reduce complexity along the reimbursement and authorization pathway. As access for the PEN expands, we expect a higher growth rate for ENTYVIO in the coming quarters. In Rare Diseases, TAKHZYRO continues to grow as a market leader in HAE prophylaxis. In our PDT portfolio, there was some phasing impact in our Q1 results. This is quite commonly PDT, where we often see fluctuations on a quarter-to-quarter basis. We expect both IG and albumin to grow high single digit for the full year. In Oncology, FRUZAQLA continues to expand as we roll out global launches. In vaccines, QDENGA was impacted by the timing of product shipments as well as transactional effects, mainly the euro appreciation against the Brazilian real. QDENGA volume is increasing, and we still expect to deliver strong growth for the full year. Slide 7 shows year-on-year revenue performance with a total company. Although our Growth and Launch Products are expanding, we had a significant impact this quarter from VYVANSE generic erosion. Last year, there was a strong rebound in VYVANSE revenue in Q1, mainly due to generic supply constraints in the U.S. and the growth ex U.S. ahead of loss of exclusivity. This resulted in a high year-on-year comparison for Q1 this year. We saw the generic supply situation in the U.S. improved from Q2 last year and the generic launches in Canada, Germany and Brazil last summer. This means we expect less headwind from VYVANSE from next quarter onwards. VYVANSE was the main driver of our revenue decline of 3.7% at CER, in addition to some impact from Medicare Part D redesign. FX was also a headwind this quarter due to appreciation of the Japanese yen against major currencies. Slide 8 shows a year-on-year bridge for core operating profit. You can see that the LOE of high-margin VYVANSE was the main reason for the year-on-year decline of 12% at CER. This was partially offset by operational efficiencies from the enterprise-wide efficiency program we initiated last year, in particular in R&D spend. Next, reported operating profit increased by 11% versus prior year, mainly due to lower impairment and restructuring expenses. Slide 10 is our latest debt maturity ladder. In June and July this year, we executed 2 leverage-neutral bond issuances, one in Japanese yen and the other in U.S. dollar, to pay off the short-term funding we raised to prepay syndicated loans in March 2025. We had to prepay these loans to streamline our upcoming maturity profile in terms of both duration and currency mix. Of note, this new U.S. dollar bonds generated significant demand, more than 4x the USD 2.4 billion that we finally issued. This enabled us to secure favorable terms. In addition to these refinancings, we also repaid debt that matured in Q1 this year, including an USD 800 million bonds. Over the next 3 years, our average annual maturity is now approximately JPY 220 billion, which we believe is manageable considering our cash flow outlook. Slide 11 shows our full year outlook for FY '25, which is unchanged since May. As we have explained today, Q1 was significantly impacted by VYVANSE generic erosion, but this was within our expectation, and we are not changing our management guidance. Finally, a word on tariffs. Our FY '25 outlook does not reflect the potential impact of tariffs. And in general, we believe that we are well positioned to manage the potential impact at this time. This slide is the same as we showed at Q4, and I would like to emphasize again that the value of our imports into the U.S. is approximately 8% to 10% of our U.S. revenue, and the vast majority of this comes from Europe. The tariff rate, let's say 15%, would be applied to this number once it becomes effective. Thank you, and I'll now hand over to Andy for updates on the pipeline.

Thank you very much, Milano. Hello to everyone on today's call. I'm very excited to begin with the impactful update we have on oveporexton. Narcolepsy type 1 is a neurologic disorder caused by the loss of orexin-producing neurons in the brain. It is characterized by daytime symptoms like excessive daytime sleepiness, cataplexy, cognitive effects such as lack of sustained attention, and nighttime symptoms like sleep paralysis and disrupted nighttime sleep, which all have a substantial impact on patients' ability to function as well as quality of life. As we communicated earlier this month, both Phase III studies met all primary and all secondary endpoints, demonstrating statistically significant and clinically meaningful improvements at week 12 across all symptoms at both BID doses. These doses were chosen to provide flexibility for physicians and patients to manage daytime and nighttime symptoms. The p-value you see on this slide of less than 0.001 does not do justice to the statistical significance of the trial. Often, results had many more 0s before the 1. Oveporexton is on track to be the first-in-class and potentially best-in-class orexin 2 receptor agonist that treats the underlying orexin deficiency and has the potential to establish a new standard of care in NT1. In 2 Phase III trials, oveporexton demonstrated the ability to normalize the majority of treated patients across almost all NT1 symptoms. Improvements in excessive daytime sleepiness were measured using the Maintenance of Wakefulness Test and the Epworth Sleepiness Scale. MWT is a test used for regulatory purposes, where patients are kept in a dark room and asked to stay awake for 4 40-minute sessions. It is best accompanied with subjective endpoints like the Epworth Sleepiness Scale that describes how well patients respond to treatment. Most of the patients on oveporexton achieved normal ranges for both the MWT and the Epworth Sleepiness Scale. Cataplexy is a very important endpoint for patients and regulators. We were thrilled to see that it was so significantly improved across all doses as measured by Weekly Cataplexy Rate questionnaires. Cognitive benefits like sustained attention were recorded using the Psychomotor Vigilance Test. And finally, the benefits to patient satisfaction and quality of life were recorded using surveys like the Short Form-36 that includes measures of fatigue, and measures of holistic function like the Narcolepsy Severity Scale for Clinical Trials that measures the effects on disrupted nighttime sleep, among other symptoms. Nighttime symptoms are also measured subjectively with the use of sleep diaries. Now importantly, all objective measurements were associated with subjective improvements of daily function. Oveporexton was generally well tolerated with a safety profile consistent with past studies, no serious treatment-related adverse effects were reported. The most common adverse effects were insomnia, urinary urgency and frequency. As with the Phase IIb experience, the majority of urinary events and insomnia decreased over time in both severity and frequency. More than 95% of participants who completed the study is enrolled in the long-term extension. We believe these data and the high enrollment in the long-term extension study are strong indicators of the transformational benefit oveporexton can deliver across the symptoms that impact NT1 patients. And we look forward to sharing multiple oral presentations starting at World Sleep, with more to follow at future medical conferences. Takeda will host an investor call on September 8, 2025, from World Sleep in Singapore. Based on these strong Phase III data, we plan to file for U.S. approval in NT1 later this year, with regional filings to occur simultaneously or shortly thereafter. We believe these outstanding Phase III results have the potential to establish oveporexton as a new standard of care for patients with NT1. Next slide, please. The Phase III results in NT1 are exciting, and this is just the beginning. We will continue to gather information in the long-term extension to see how patients fare over longer periods of time. As previously reported, sustained effects beyond 6 months have been observed with many of the patients being treated for more than 2 years now. We believe the long-term extension data from the Phase III and Phase IIb trials will enhance our deep understanding of orexin biology, and allow us to optimize treatment for patients in need of this lifetime therapy. Our orexin franchise is making rapid progress beyond oveporexton. The next-generation orexin 2 receptor agonist TAK-360 is in Phase II development for narcolepsy type 2 and idiopathic hypersomnia. These results are expected to read out at the end of this fiscal year or early in fiscal year 2026. And of course, we continue to work in our laboratories on the discovery and development of additional tailored orexin agonists that have the potential to address vast unmet needs in diseases where orexin plays a role. We expect a new next-generation orexin agonist to enter the clinic later this year as we accelerate development of our multi-asset orexin pipeline. Next slide, please. Pipeline momentum in fiscal year 2025 is off to a great start. We now have outstanding results from 2 Phase III programs in hand. The Phase III VERIFY study of rusfertide, a first-in-class synthetic hepcidin mimetic in development to treat polycythemia vera was presented at the American Society of Clinical Oncology Plenary session. The Plenary session is where data with the potential to transform medical practice is typically highlighted. The discussion at the Plenary session, an ASCO appointed expert emphasized that, "The study result is practice-changing," and recommended that rusfertide should become part of the standard of care for patients. In our GI squared therapeutic area, we initiated a Phase III head-to-head trial comparing zasocitinib versus deucravacitinib that is designed to clearly differentiate zasocitinib in psoriasis. We also initiated a Phase III trial for elritercept in second-line anemia-associated myelodysplastic syndrome. This is the beginning of a broad late-stage elritercept development program, for which we'll have more to say in the future. There are several regional approvals this quarter, including European approval of ADCETRIS as part of an additional chemotherapy regimen in frontline Hodgkin lymphoma. Our plasma-derived therapies continues to broaden indications and enter new markets. HYQVIA was approved in CIDP and multifocal motor neuropathy in Japan. GAMMAGARD ERC, a new formulation with low IgA antibodies, was approved for the U.S. and European markets. In addition, HyHub and HyHub Duo, 2 new devices designed to streamline the administration of HYQVIA, were approved in the U.S. Looking forward to the rest of the fiscal year, and if you could move to the next slide, please. 2025 is indeed a pivotal year for our late-stage pipeline. I have already highlighted the next steps for oveporexton. For rusfertide, we are targeting a medical conference in the second half of the fiscal year to share our 52-week data update that will include durability of response and additional safety. We plan to file an NDA in the U.S. for rusfertide and polycythemia vera in the second half of fiscal year 2025. And finally, later this year, we will have top line data for zasocitinib in 2 pivotal Phase III psoriasis trials, LATITUDE 3001 and 3002. Looking further into the future, next slide, please. The 6 programs in our late-stage pipeline have the potential to deliver transformative benefits to patients while contributing to Takeda's long-term growth. Zasocitinib, our oral allosteric TYK2 inhibitor, continues to add expansion opportunities, and we'll start a Phase II study in hidradenitis suppurativa, or HS, within the next year. HS is a chronic, recurrent and debilitating inflammatory skin condition. The global prevalence is estimated to be around 2%. There are limited approved treatment options available, and people living with HS continued to experience high disease burden. We believe there is a significant need for a durable and effective advanced systemic therapy. Going forward, we will maintain our strong focus on late-stage development activities with a continued emphasis where possible on acceleration. These efforts will support our ambition to file up to 5 additional indications from our late-stage programs through fiscal year 2029. Thank you very much, and I'll now turn it back to Chris for Q&A.

[Interpreted] Now I'd like to open the floor for your questions. And we have Christophe, Milano, Andy and U.S. Business Unit President, Julie Kim as well to answer your questions. [Operator Instructions] First question, Morgan Stanley, Muraoka-san.

[Interpreted] This is Muraoka, Morgan Stanley. About the sales of individual products, looking at that ENTYVIO, IG, VYVANSE, QDENGA, they were relatively weak. And I think your message was they're okay. But in the second quarter, for those 4 products that I just mentioned, do you expect recovery? That's my first question. And the second question is orexin. After 861 and 360, I think you have another molecule coming into the pipeline. So what is the additional benefit? And what kind of clinical advantage can we expect for this new molecule that we added to the pipeline?

[Interpreted] First question was about IG, ENTYVIO, VYVANSE, and what was the fourth one?

QDENGA.

QDENGA. Okay, thank you. So the first question, about some of the products that were a little bit weaker in Q1, so IG, ENTYVIO, VYVANSE, QDENGA in particular. How are these looking to perform in the rest of the year? Perhaps I'll ask Christophe to begin that answer and then Julie to add detail as required. And then the second question was for any additional data that we can -- or any additional direction we can provide on the next additional orexin agonist coming through into the pipeline later this year. I'd like to ask Andy to comment on that, please.

Thank you, Chris. It's very clear that in our mind, the first quarter is quite soft and does not reflect the underlying dynamics of our product. And this is why we have not changed our guidance for the year. We believe that this first quarter does not reflect the dynamic of the product. So in the case of ENTYVIO, the PEN continues to accelerate. We are not at full market access yet in the U.S. So that means that we are losing some prescription and therefore, some switch opportunity from IV to subcu, but we are progressing in terms of market access and will reach the maximum and the optimal stage during that -- this year. So that we continue to accelerate the PEN and the feedback we are getting on the PEN is very strong. Julie can explain further. On VYVANSE, Milano has explained that Q1 is extremely impactful in terms of growth rate because of a year-on-year comparison. We also know that eventually, there will be -- we'll reach a plateau. Therefore that's why we believe that this year is the last year of significant impact of VYVANSE generic exposure. So you will see a waning impact during the year, especially because there was a very significant generic penetration at the end of last year. The immunoglobulins, there is always some quarter-by-quarter growth rate change, but we remain committed to the forecast that we gave in Q4, which is mid-single-digit overall PDT franchise growth, high single digit for IG. So you see we are slightly lower. I mean remember that when it comes to immunoglobulin, the demand is greater than supply. So it's all about allocation, and we have a very competitive portfolio right now with new indication. And QDENGA is actually the same. The demand is greater than supply. We are ramping up our supply. So it's all about shipment and allocating our doors to where we have greater demand. So we are very much convinced that QDENGA will continue to grow in the future. And this is why, overall, we believe that we will deliver our guidance, which is broadly flat in revenue, for example, for the year.

Muraoka-san, this is Andy. Maybe I can dial up and provide some context regarding our approach to orexin and our broader orexin franchise. So we think of diseases that could potentially be managed through orexin agonism in 3 buckets. There's orexin deficiency, which is NT1. There are other rare diseases that are characterized by normal orexin levels, like NT1 and idiopathic hypersomnia. And then there's a large array of more common diseases that have symptoms like disruptions in sleep-wake cycles like other neuropsychiatric symptoms that we believe modulation of the orexin pathway could be beneficial. And it's clear that TAK-861 is not just a first-in-class for type 1 narcolepsy, but a potential best-in-class and with potentially very little room for additional differentiation. For TAK-360, as I've mentioned, we're still learning a lot about TAK-360, and we have 2 ongoing Phase IIb programs in type 2 narcolepsy and idiopathic hypersomnia. So rare diseases that are characterized by orexin deficiency. We'll have another molecule coming into the clinic later this year, and we continue to build additional molecules that have differentiated pharmacology that we can use to begin to explore benefits in more common disorders. The way I would think about orexin is that with 861, we're really just scratching the tip of the iceberg.

[Interpreted] The product that is different in pharmacology is that for more general disease, more common diseases. Is that the correct understanding?

That's our intent at this point. I mean, we have to also recognize that there's still an immense amount to learn about this pathway after type 1 narcolepsy. So we have the level of experience that we have in type 1 narcolepsy with these Phase III results and with the extension from our Phase IIb study, where we have patients now up to -- have been on therapy for up to 2 years is quite extensive. There's still very little known about this pathway outside of type 1 narcolepsy. Our intent is to win and own this pathway with multiple molecules and explore the best potential of this disease in both rare and common disorders.

[Interpreted] Next question is Yamaguchi-san from Citi, please.

Can you hear me?

Yes, we hear you.

This is Yamaguchi from Citigroup. I have 2 questions. The first question, regarding the competitive landscape of narcolepsy. Recently, Alkermes put up a top line release on the orexin, and they seem to be missing cataplexy portion of the data. And you talk about -- Andy-san was talking about cataplexy portion. So can you -- you don't need to talk about completion, but can you elaborate how this is important and how this is going to be differentiated from your products and Alkermes products? That's the first question. Second question is more broad questions. Christophe-san was talking about some general investment strategy for the U.S., which does not really contain new things, but it was like $30 billion in total. Globally speaking, a global major company like your company is trying to put up some investment to the U.S. market for the future, especially on the manufacturing side. Do you have any kind of new plan how to accelerate those investments in the U.S.? Or can you make any kind of comment on what's the new sort of business model that U.S. companies, including your companies, are looking for in the U.S. like DTC, trying to control the cost structure. So that's an open question, the second one.

Thank you, Yamaguchi-san. So the first question on our thoughts on evolving data in the narcolepsy landscape. I'd like to ask Andy to comment on that. And then the second question on investment in the U.S. or how our business may evolve given the changing landscape in the U.S. I'd like to ask Christophe to comment on that, please.

Thanks, Chris, and thanks for the question, Yamaguchi-san. So as I mentioned, we believe that TAK-861 oveporexton is not just first-in-class but potentially best-in-class agent. We've seen benefits across all symptoms using both objective and subjective measures. And in many cases, these benefits normalize these patients across all many or some of the symptoms of narcolepsy type 1, including cataplexy. So cataplexy is a somewhat variable measurement. We were very pleased to see that our results in cataplexy are quite significant and very meaningful for patients, and we look forward to presenting those data at World Sleep next month. It's hard to comment on the competitive landscape because we haven't seen data. So we'll see data rolling out in Sleep. But I think suffice it to say, we really believe, with the time advantage that we have and with the data that we'll present next month, that oveporexton is a highly competitive agent in this class.

Thank you, Andy and Yamaguchi-san. Regarding our investment first, I would like to remind everyone that we are highly invested in the U.S. So for example, if you look at our manufacturing network, the country where we have the biggest manufacturing presence in terms of number of sites and number of products we manufacture, number of colleagues that are involved, is by far the U.S. So that's why we are extremely balanced and we will continue to invest in this manufacturing network in the U.S. And that's also why we -- our exposure to tariff is limited, as Milano explained. So strategically, we continue to take into consideration many parameters when we decide a new investment. Of course, we are very much aware of geopolitical consideration and other considerations. So that will drive our investment decision in the future. But I want to really reinforce the fact that we are extremely invested in the U.S. on the manufacturing side, obviously, also on the R&D side. We do the majority of our research and development activities in the U.S. So -- and that, we think, is important for our long-term strategy and strategic situation because we also do the majority of our revenue, the biggest part of our revenue in the U.S. When it comes to the DTC, I will ask Julie to comment on the direct-to-consumer model. If Julie, could you give your perspective about that, that would be great.

Yes. Thank you, Christophe. In terms of the direct-to-consumer model that you've heard about in the news, this is an opportunity for the pharmaceutical companies to be able to offer their medicines on a platform, cutting out the middleman in the U.S. So this would allow us to go direct as the platform indicates. And this would provide lower pricing directly to patients without necessarily impacting the pharmaceutical companies negatively because as you're probably aware, on average across the industry, roughly 50 cents of the dollar goes to other players in the value chain. So the manufacturers currently receive, on average, 50 cents on the dollar. So being able to offer a significant discount on the list price through these platforms does give patients a direct benefit, and it's also good from the manufacturer standpoint as well.

Julie, can you comment? Still just to manage expectations, our portfolio of product does not -- is not an easy one to apply DTC. Can you comment on that?

Sure. The key aspect of the DTC platforms that I should have mentioned is that this is cash paying for the patients. And so this is primarily more retail medicines. The current products like insulin are offered in this type of platform as well as GLP-1, for example. So our portfolio is not necessarily this type of retail medicine, but we will look at opportunities for products such as TRINTELLIX on this platform.

Thank you, Yamaguchi-san. Moving to the next question then. Next question, I'd like to call on Stephen Barker from Jefferies, please.

Yes. Steve Barker from Jefferies. My first question is related to spending. You are forecasting full year SG&A flat year-on-year and a small increase in R&D, but both SG&A and R&D were both down substantially in the quarter. So I was wondering if you could comment on that and the outlook for spending? And then the second question is related to orexin. As per the slide, you are looking for the new compound, which is scheduled to enter development this year. You're looking at indications like sleep-wake, respiration, metabolism. Sleep-wake, I think that's something related with Alzheimer's respiration. Should we be thinking sleep-wake is Alzheimer's respiration, sleep apnea perhaps, and then metabolism. Is that something -- if you could comment on how orexin might affect metabolism and if it could actually be useful in treating obesity. I'd like a comment on that, too, please.

Thank you, Steve, for your questions. So the first question on trends of spending Q1 versus the full year outlook. I'd like to ask Milano to comment on that? And the second, on the new compounds in orexin, looking at sleep-wake disorders, what potential exists in these areas, particularly obesity is an area of interest. I'd like to ask Andy to comment on that, please.

Steve, thank you for the question. So let me answer to the -- about SG&A first. So this is -- mostly this decline compared to year-on-year in the last quarter 1 is for SG&A, it's more like FX. If you compare the constant exchange rate, it should be mostly flat. That's SG&A. So it's in line with the full year forecast. For R&D, we do the invest for the pipeline development. And still, we anticipate the R&D investment is ramping up. For example, now we start head-to-head study with deucra in July. Elritercept, also in July, we started the trial. For 360, also we started the trial in April. So we are ramping up our activities. But still the good thing is that we also see the savings from the efficiency program we initiated last year. And then we are also keeping the very tight management of the headcount, the cost to both sides. So that we see also the benefit from all the savings efforts. So that's how the Q1 the numbers, they eventually, they landed. But eventually, we are still keeping the full year forecast management guidance for both SG&A and R&D.

Stephen, on your question regarding the breadth of potential of orexin agonists across indications. I'll go back to the earlier comment that we're really just starting to scratch the surface of the potential of this biology. We know now definitively that agonism of the orexin 2 receptor in type 1 narcolepsy can have profound benefits and be administered in a way that's tolerable for patients. So now we're starting to imagine and develop molecules that have an array of pharmacology that will allow us to explore opportunities in other rare disorders like type 2 narcolepsy, like idiopathic hypersomnia, and then begin to explore opportunities in other disorders that are characterized by either sleep-wake cycle disruption because there's an obvious link there. Respiration, we've already shown and we've published with TAK-925, our IV molecule, that there are unique properties of this pathway in respiration. And based on extensive scientific literature and the expression patterns of the orexin receptors in the hypothalamus, we believe that there are potential opportunities in metabolism. I don't want to get too far out ahead of ourselves. Our goal is to develop the array of molecules that will allow us to explore this breadth of indications and to go from there.

Thank you, Steve. Moving on to the next question. I'd like to call on TD Cowen, Michael Nedelcovych.

I have 2. My first is on ENTYVIO. You've noted in the past that transitioning patients from Part B to Part D coverage has been a hurdle to adoption of the PEN. Why should we expect that dynamic to fall away in the coming quarters? And on the same topic, a competitor, IL-23, will likely soon offer subcutaneous induction and maintenance. How do you think that might change the competitive landscape, especially considering that the ENTYVIO PEN seems to be helping to ward off competition. So that's my first question on ENTYVIO. And then my second question is on zasocitinib. In the head-to-head trial versus deucravacitinib, can you remind us if it's powered for superiority? And in that trial, if zasocitinib only shows non-inferiority, how would that affect your $3 billion to $6 billion peak sales ambition in psoriasis?

Thank you, Michael. So the first question on ENTYVIO coverage and competition landscape, I'd like to ask Julie to comment on that. And the second question on the head-to-head, is it powered for superiority? Andy, if you could take that one, please.

Michael, thank you for the question. When you look at the dynamics in the U.S. around PEN access, you are right, there have been challenges in terms of making the switch. But we're working through the quality, I'll call it, the quality of the access at the local level. Sometimes, this is a challenge of the coverage that's provided at the parent plan, not being pulled all the way through to the local plan. Sometimes it's because of that switch from IV to PEN, medical to pharmacy. Sometimes, it's a system issue and helping, again, at the very local level, addressing those specific system issues. So we're attacking all of these one by one. And as we clear through them, we are seeing the pull-through on PEN. So this is why we believe that as we continue to improve the overall coverage level and that quality of the pull-through that we'll see the benefit from PEN driving further growth as we're seeing roughly 30% growth quarter-over-quarter on the PEN. In terms of the second part of your question in regards to subcu induction, that is something that we are also looking at. And for right now, ENTYVIO still has very strong bio-naive starts within UC in particular. And so this is something that, as we continue again to pull through on the access, we expect to see further growth for the PEN.

And Michael, I'll start on zaso and then hand it over to Christophe to talk about the competitive dynamic. So we're seeing great progress in our overall zaso program. As I mentioned, on track to read out our 2 psoriasis Phase III studies later this year. Our psoriatic arthritis program is going well, 2 Phase IIb studies in UC and Crohn's that will read out next year, starting now in HS. And then we have an additional indication and perhaps indications that we look forward to starting soon. Your question specifically on the head-to-head with deucravacitinib, yes, this study is powered for superiority. And Christophe, I'll hand it back to you.

Thank you, Andy, and thank you, Mike, for the question. Yes, it's a head-to-head superiority because we are very confident, obviously, that the product profile will deliver this type of result. It is important because we want to demonstrate that zasocitinib is a new class of oral, which changed the efficacy profile of the oral treatment. Today, the oral treatment have around 16% market share, and it has not been growing. And we believe that our compound zasocitinib, perhaps also with another compound or another class in development in oral. You know what I'm talking about, we'll change that. And we believe that's the promise of this new oral is to really change the importance or the contribution of oral treatment to the treatment of psoriasis. So this head-to-head is important to really create a new oral standard in terms of efficacy. But of course, we will also use the Phase III result. Thank you.

[Interpreted] Let me go to the next question, Nomura Securities, Matsubara-san.

[Interpreted] This is Matsubara, Nomura Securities. Can you hear me okay?

[Interpreted] Yes, we can hear you.

[Interpreted] My first question is related to an earlier comment. First quarter growth, first quarter numbers doesn't necessarily represent the overall growth dynamic. But if you look at the sales in the U.S., it looks quite weak. So I want to understand why. That's my first question. And the second question is about TAKHZYRO. Again, TAKHZYRO is weak in the United States. What is the reason behind this? And also Ionis' donidalorsen is going to be launched very soon. So this is going to be a competition for new patients. So should we have some concern for this product in the future?

Thank you, Matsubara-san. So the first question on the U.S. revenue performance in Q1 and what some of the dynamics there are? And then the second question on TAKHZYRO specifically. So I'd like to ask Julie to comment on those, please.

Thank you, Matsubara-san, for the question. One of the things that please remember in terms of the U.S. performance is that you're also seeing reflected in these numbers, the impact of the Medicare Part D redesign across key products in our portfolio. So that is part of the impact on the growth. In regards to TAKHZYRO in particular, TAKHZYRO continues to have strong performance in the U.S. And yes, there are new competitors coming on to the market. But in terms of efficacy, there is really not a significant change in efficacy from those competitor products. When you look at the long-term history that we have, both in terms of performance and safety, and you look at the real-world data that we've collected on TAKHZYRO since its launch, we are in a very strong position to defend TAKHZYRO in HAE.

[Interpreted] This is Furuta speaking, I would like to add just one comment. In the United States, Christophe and Julie has already mentioned the product dynamics and also we don't -- I don't have any additional thing to say about the overall situation. But everything that we've experienced so far is U.S. focused, including VYVANSE. VYVANSE's impact is the biggest in the U.S. And this is why the U.S. numbers and performance looks a little bit softer. As far as TAKHZYRO is concerned, demand continues to be strong, but the channel inventory is now lower. That's another factor behind the weak performance of TAKHZYRO.

[Interpreted] Next question is Wakao-san, JPMorgan, please.

JPMorgan, Wakao. I have 2 questions. Firstly, about R&D expense. R&D expense represent only 90% progress toward the full year guidance, which seems to be slow. Is this in line with the plan or there are any suppression for spending? And based on the first quarter progress, do you foresee any change to your full year R&D expense outlook, with the 861 oveporexton Phase II now completed, also does not seem to be a fact that to drive an increase in this fiscal year. This is the first question. And the second question is about MFN. You briefly mentioned the U.S. policy, but I'd like to know more about Most Favored Nation drug pricing policy. Are you currently in discussion with the U.S. government on MFN? And have you received any indication of targeting drug pricing? That's it.

Thank you, Wakao-san. So the first question on R&D expense progress towards the full year guidance. Is this in line with plan? Milano can comment on that. And then the second question on discussions around Most Favored Nation, I'd like to ask Julie to comment on that, please.

Thank you, Wakao-san. So I'm going to comment on the first R&D spend in Q1. So if you compare against last year Q1, there is a multiple effect. So I think to Steve's question previously, I explained in -- as a kind of efficiency program as a whole. But there's a detailed explanation I can add. So the -- compared to last year, we had some -- a few program termination, like soticlestat or 062. So these program termination create some space for the budget. That's one. The second, we had some pipeline financing arrangement with Blackstone. That also helps for the R&D savings. And the third one is something I mentioned previously that we are continuing for the efficiency program efforts. So we managed the overall, the budget, everything is very tight. So that's also creating the savings space. So if you recall our explanation of the Q4, we are making all these savings, and then we will reinvest for those savings for the pipeline development. That's going to happen. So from July, we are starting the Phase III for the elritercept, head-to-head study with the deucra. So this will ramp up, and then we will increase. We will ramp up all these R&D operations. So eventually, all in all, we are in line with the plan.

So could you clarify first quarter performance? Was in line with your internal plan or below?

Yes. We are making savings. But overall, we are in line with the plan.

And thank you, Wakao-san. In terms of MFN discussions in the U.S., so there have been numerous different statements about MFN, both from the President as well as others in the administration at a high level. So details have not really been shared yet at this point. We have not been contacted directly in terms of price and negotiations at this point. We are gearing up and preparing for the potential negotiation of ENTYVIO as part of the IRA Medicare price negotiations. Now MFN in general, there are a basket of countries that are being considered, we think. And we are assessing what the potential impact of that could be depending on a variety of different scenarios for how MFN can be applied. So we're working on our own mitigation plans for that, and we're preparing, as I said, for the price negotiations as part of the IRA Medicare price negotiations. That is a place where the MFN type of approach could be applied, but we're waiting to see further details.

[Interpreted] Due to time limitation, the next question will be the last question, which is from Ueda-san from Goldman Sachs.

[Interpreted] Yes, this is Ueda, Goldman Sachs. I want to ask a question about the preparation for the launch of oveporexton. First-in-class and best-in-class potentials were mentioned today. But what about the sales team? And what are the preparations underway for the launch of oveporexton? Because you're focusing on NT -- narcolepsy type 1, I think diagnostics is very important. Last year, in R&D Day, you talked about use of digital technology potentially. So I want to understand how this technology is being prepared, leading up to the launch.

Thank you for the question, Ueda-san. So a question on how we are preparing for the launch of oveporexton. What are the approaches we're taking, including use of digital, et cetera. So I'd like to call upon Julie to answer that question, please.

Yes. Thank you for the question, Ueda-san. As you can imagine, we are very excited to be preparing for the potential launch of oveporexton for narcolepsy type 1 patients. So we are gearing up in terms of our commercial structure and organization as well as our medical team, which is already out in the field educating on oveporexton in narcolepsy type 1. In terms of the digital support for oveporexton, we are looking at a number of different avenues and approaches to support, particularly diagnosis in narcolepsy type 1. This is an area where we are looking to unlock the bottleneck that exists in terms of diagnosis through sleep centers. So we will share more detail once we're able to do so. But this is quite an exciting opportunity for us. And as I said, we're looking at multiple digital avenues to support diagnosis and the overall patient experience.

[Interpreted] Thank you. Additional comment from Furuta-san.

[Interpreted] Yes, Mr. Wakao. Q1 R&D spend, I just wanted to add some comment because there may have been some inaccuracies in what I said earlier. Q1, we had savings. And your question was whether this is according to our internal plan. And I have to say that the savings actually was bigger than what we had planned for. But R&D delivery implementation is according to plan. So saving is not impairing the delivery of R&D. And we are really enjoying the benefit of the efficiency programs in the past, which means that it's possible that savings may be a little bit higher than we have planned.

[Interpreted] Thank you very much. With that, we would like to conclude today's webinar. We would like to thank you all again for being a part of this program despite a very busy schedule, and we appreciate your kind, continued support. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]