Takeda Pharmaceutical Co Ltd

TSE:4502

Earnings Call Transcript 2019-Q1

[Operator]

Good day, everyone, and welcome to the conference call of Takeda Pharmaceutical Company Limited.

This conference call may contain forward-looking statements. Beliefs or opinions regarding Takeda's future business -- future position and results of operations, including estimates, forecasts, targets and plans for Takeda. Any forward-looking statement in this conference call are based on the current assumptions and beliefs of Takeda in light of information currently available to it. Such forward-looking statement do not represent any guarantee by Takeda or its management of future performance and invokes known and unknown risks, uncertainties and other factors. Takeda is currently in an offer period with prospective Shire plc. Please carefully read the information on Slide 2 of the presentation as it contains important information. [Operator Instructions]

Now we start the conference. Mr. Okubo, please go ahead.

[Takashi Okubo, executive]

Thank you very much for joining our 2018 Q1 conference call despite your busy schedule. I am the facilitator of this meeting today. I am Head of IR. My name is Okubo. The presenters and also responders to the Q&As include President and CEO Christophe Weber; Chief Financial Officer Costa Saroukos; and R&D Integration Head, Christopher Morabito. Those 3 are joining with us. First, we'd like to have the presentation from Costa Saroukos, the CFO of the company, about the outline of the Q1 results. And then we will have the Q&A session.

Now please prepare the presentation slides for this conference call.

[Costa Saroukos, executive]

Thank you, Takashi, and hello, everyone. Thanks for joining Takeda's quarter 1 conference call. Please turn to Slide 3 in the slide deck.

I'm pleased to announce that Takeda's strong business momentum continues in 2018. This year, we have continued to make solid progress against our key priorities to grow the portfolio, strengthen the pipeline and boost profitability.

I'll introduce some business highlights on the next slide. With regards to the financials, we made a very strong start on underlying revenue and profitability, led by our growth drivers and disciplined OpEx initiative.

For reported operating profit and EPS, as expected, growth was impacted by 2 large transactions we did in quarter 1 fiscal year 2017. First, we booked JPY 106.3 billion onetime gain on the sale of Wako shares. Second, we benefited JPY 16.8 billion from the second tranche of long-listed products we sold to the Teva JV in Japan. If you exclude these 2 large exceptional items, reported operating profit grew 37.5% and reported EPS grew 32.6%.

On the bottom-right of the slide, you can see our strong underlying performance with revenue up 6.4%. Underlying core earnings grew substantially by 40.3%. And underlying core EPS was up 51.1%.

Slide 4 shows progress against our key priorities. In growth portfolio, underlying revenue was solid at 6.4% with growth in every region. Takeda's growth drivers of GI, oncology, neuroscience and emerging markets continued to drive the top line, increasing by 11.8%.

We continue to look at optimizing the portfolio through business development, and in June, we acquired TiGenix to strengthen our leadership in GI. We have treated our first patient in Europe, and we will strive to make it available to patients in other regions as quickly as possible. We have also been acting -- active in divesting noncore businesses, and within quarter 2, we will close the divestitures of Multilab in Brazil and Techpool in China.

In strengthen pipeline, we had several important updates this quarter. Entyvio was approved for ulcerative colitis in Japan, and we aim to launch in the coming month. We also had a positive readout from a Phase III study for a subcutaneous formulation.

In oncology, we achieved the primary endpoint in Phase III studies for ALUNBRIG in first line nonsmall cell lung cancer and NINLARO in multiple myeloma maintenance post-transplant. Data from these studies will be presented at future academic congresses, and we look forward to discussions with health authorities around the world about label updates. We also had 2 new molecular entities enter Phase I this quarter, one in oncology and one in GI.

Finally, boost profitability is progressing very well with a Global OpEx Initiative now fully integrated into how we work. The underlying core earnings margin increased by a significant 640 basis points, predominantly driven by OpEx discipline.

Slide 5 shows the financial highlights of quarter 1. First, the reported numbers. Reported revenue was up slightly at 0.4% with our Growth Drivers offsetting the negative impacts of foreign exchange, minus 0.5 percentage points; and divestitures, minus 5.6 percentage points. The large divestiture item impacting quarter 1 was the sale of 7 additional long-listed products in Japan to the Teva JV in May of 2017.

Reported operating profit declined by 49.3%, impacted by the sale of products to the Teva JV in addition to a JPY 106.3 billion gain from the sale of Wako shares booked in quarter 1 last year. If you exclude the impacts of both Wako and the Teva JV product sale, operating profit would have grown at 37.5%. Reported EPS decreased 46.1%, also impacted by these 2 large onetime gains in quarter 1 last year.

Underlying performance was particularly impressive, led by our Growth Drivers and OpEx discipline. Underlying revenue was up 6.4% despite price pressures in certain regions, especially Japan. Underlying core earnings increased by 40.3% with 640 basis points of margin improvement driven predominantly by OpEx discipline. Underlying core EPS for the period increased by 51.1%.

Operating free cash flow decreased 90.6% due to positive R&D milestones for the approval of Alofisel and AZILECT and the impact from the sale of additional products to the Teva JV. I will explain this in more detail in the coming slides. In line with our plan to unlock cash for noncore assets, we gained additional cash of JPY 31.9 billion from the sale of real estate and marketable securities.

Slide 6 shows the reported profit and loss statement. Revenue grew 0.4% to JPY 449.8 billion with our growth drivers overcoming the negative impacts of foreign exchange and divestitures. We're very pleased with the positive momentum of core earnings growing 9.8% to JPY 116.8 billion. As a reminder, this still includes the negative impact of divestitures and foreign exchange, which we adjust to reach the underlying core earnings growth rate of 40.3%.

Operating profit declined by 49.3%. As I've already highlighted, the main items impacting this were the sale of additional products to the Teva JV and the JPY 106.3 billion onetime gain from the sale of Wako, both booked in quarter 1, 2017.

Other moving parts impacting operating profits in fiscal year '18 compared to prior year include $10.4 billion lower gains on the sale of real estate. This was somewhat offset by JPY 8.8 billion lower amortization cost mainly due to the completion of amortization of VELCADE. In addition, we booked JPY 4.6 billion of G&A expenses related to the proposed Shire acquisition. But despite this, total SG&A declined in quarter 1 through strong OpEx discipline.

Reported EPS for Q1 was JPY 100, a decline of 46.1% versus prior year. In addition to the items impacting operating profit, this was also impacted by financial income and expenses, partially offset by improved tax rate.

Financial income declined due to the recognition of JPY 8.1 billion gain on sales of securities in fiscal year 2017. Although we also sold securities in 2018, we can no longer recognize the gain in the P&L under new IFRS 9 accounting standards. Within financial expenses, JPY 6 billion of costs related to Shire acquisitions were recorded in this period. Our reported tax rate improved by approximately 10 percentage points from 26.9% to 16.8% due to the partial release of an uncertain tax provision and favorable statutory earnings mix.

Slide 7 shows the underlying P&L. Revenue was solid at 6.4% growth. Gross profit increased by 8.8%, outpacing revenue growth. This led to an underlying gross margin of 73.2%, an improvement of 160 basis points over prior year. The gross margin improvement continues to be driven by favorable mix as higher-margin products like Entyvio and NINLARO continue to grow. The gross margin also benefited from the conclusion of a distribution deal for lower-margin consumer health care products in Japan.

OpEx expenses declined by 3.4%, resulting in a significant improvement of 480 basis points. This has been driven by seamless execution of the Global OpEx Initiative, which we have integrated into how we work through KPIs, objectives, budgets and systems. Underlying core earnings is growing 40.3% with 640 basis points of margin improvement.

The results are truly impressive, however, I do want to emphasize that this is not indicative of the full year due to some phasing impact. We remain committed to our full year outlook for underlying core earnings margin improvement at the lower end of the 100 to 200 basis points range and our longer-term goal of 100 to 200 basis points improvement every year.

Underlying core EPS for the quarter was JPY 126, up 51.1%. Our underlying tax rate improved by 3.6% -- sorry, 3.6 points from 21.2% to 17.6%. There were also some timing benefits here, and we expect the full rate to be in the low 20s for the full year.

On Slide 8, you can see the performance of our Growth Drivers. In GI, underlying revenue growth was strong at 19.3%, mainly driven by Entyvio growth of 34% and TAKECAB, 26%. Oncology was up 6.7% with the strong performance of NINLARO able to offset most of the VELCADE decline. We also continued to see steady growth of ALUNBRIG and Iclusig with these 2 assets from the ARIAD acquisition last year contributing almost half of the oncology franchise growth in quarter 1.

Neuroscience growth of 23.5% continues to spearhead the strong Trintellix performance in the U.S. Emerging markets was 6.2% growth, driven by innovative products such as Entyvio and ADCETRIS. In total, our Growth Drivers were up 11.8% in the first quarter and represent 62% of our total revenue.

Slide 9 shows the performance of our key products. Entyvio continues to power ahead as Takeda's top-selling product with JPY 60 billion of revenue and 34% growth. This growth is driven by further penetration of the bio-naïve segment in marketed countries and also from launches in new geographies. TAKECAB is still displaying robust growth of 26% with volume expansion in Japan more than enough to offset the 16.1% price cut applied to the product on April 1.

The key products in our oncology franchise all displayed compelling growth rates. ADCETRIS booked double-digit growth in Europe, Japan and emerging markets. And Iclusig has done very well in the U.S. due to increased share of voice. NINLARO and ALUNBRIG continue to perform well in their marketed indications. And as highlighted earlier, we had positive data readouts this month. Trintellix also continues to advance strongly on the back of our effective promotion activities growing 29.4% over prior year.

Turning now to key geographies on Slide 10. The U.S. continues to grow very strongly, up 14.1% year-on-year, driven by Entyvio, NINLARO, Iclusig and Trintellix. Europe and Canada was up 2% with double-digit growth of Entyvio and ADCETRIS and the steady rollout of NINLARO, but there was some negative impact from timing of shipments.

In Japan, our portfolio was subject to an average price cut of approximately 6.5% on April 1. However, despite this significant headwind, we delivered revenue growth of 6.6%, driven by continued volume expansion of TAKECAB, AZILVA and LOTRIGA and the new launch of AZILECT in June.

As mentioned on the Growth Drivers slide, emerging markets was up 6.2%. Importantly, we have returned to growth in China, up 28.6%. While it is still early days, we are encouraged by this turnaround and position China as an important region in the medium term with 7 new product launches planned over the next 5 years. Brazil continued to show strong momentum with 41.7% growth. However, Russia was slightly weaker due to the return of some products licensed from Merck and Co.

Growth of our Consumer Healthcare in Japan was predominantly impacted by the conclusion of a distribution contract for Biofermin products in September of 2017.

Slide 11 gives a snapshot of the Takeda pipeline today. We have continued to invest in early pipeline innovation while maximizing the value of our marketed portfolio through life-cycle management.

Since we last gave an update in May, we have had 2 new assets enter into Phase I. In oncology, TAK-164 is an antibody drug conjugate that we're exploring in gastrointestinal cancer. In GI, our partner, PvP pharmaceuticals, has commenced Phase I studies in celiac disease for Kuma062, an enzyme that degrades gluten so that it is no longer recognized by the immune system.

On Slide 12, we show progress versus the import R&D milestones expected this year. In oncology, we had important successful readouts for both ALUNBRIG in first-line ALK+ nonsmall cell lung cancer and NINLARO in multiple myeloma maintenance post-transplant. We have also had important progress for Entyvio in Japan with approval granted for ulcerative colitis and the submission completed for Crohn's disease.

There were 2 other data readouts this quarter that are important precursors for milestone expected in the second half of the fiscal year. For Entyvio, we recently announced that a Phase III trial evaluating a subcutaneous formulation in ulcerative colitis met the primary endpoint of achieving clinical remission. For Trintellix, we have announced the success of a Japanese Phase III study in adults with major depressive disorder. With the positive outcomes of both of these studies, we intend to move forward with preparations for regulatory submissions shown as milestones in this chart.

Slide 13 gives an update on the global OpEx initiative. I want to emphasize that I'm dedicated to delivering on our commitment of margin improvement and that the Global OpEx Initiative is now fully integrated into how we work at Takeda.

Total OpEx spend in quarter 1 was down 3.4% versus prior year, trending ahead of our full year target. This contributed 480 out of the 640 basis points improvement in underlying core earnings this quarter. There were some phasing benefits in the strong result, but we are also making tangible progress in many areas.

Zero-based budgeting is helping to drive savings ahead of targets across our cost packages. We have now embedded targets into the KPIs of all management, and this is helping to drive savings of 4.7% ahead of target across our cost packages for the quarter.

We are also making great progress in embracing a cost-conscious mindset across the organization. As one example, we have seen a 70% rise in the first months of 2018 in the use of global videoconferences as an alternative to travel. Smart choices like this on a daily basis and sharing of best practices across Takeda will continue to drive further efficiencies.

Slide 14 shows our cash flow statement. Operating free cash flow declined by JPY 50.3 billion or 90.6% compared to the same period last year. The biggest item impacting this was the sale of additional products to the Teva JV in quarter 1 of last year, representing JPY 28.5 billion. Furthermore, in quarter 1 this year, we paid JPY 8.8 billion of tax related to this transaction. If you were to adjust both years for this impact, net cash from operating activities would have been positive.

The other large item impacting operating free cash flow is a JPY 10.6 billion increase in the acquisition of intangible assets. This is mainly due to higher R&D partnership investments, including milestone payments for the approvals of Alofisel in Europe and AZILECT in Japan.

Net debt to EBITDA is now at 2x, which is slight increase from the end of fiscal year 2017 due to the dividend payment and the structuring fees for the bridge term loans as it related to the proposed acquisition of Shire in quarter 1. However, this multiple is lower than the 2.1x ratio we had at the end of quarter 1 last year, which was just after we received the cash for the Wako sale.

The strong underlying performance in quarter 1 confirms our guidance for the full year shown on Slide 15. While quarter 1 is tracking significantly higher than the plan for the full year, please bear in mind that this does include some phasing benefits and that our guidance assumes one additional VELCADE competitor launching in September 2018. We expect this to result in the loss of JPY 54 billion of VELCADE revenue, which will significantly impact our growth rates in the second half of the year.

Slide 16 summarizes the full year outlook for both underlying guidance and reported forecasts. Both of these are unchanged since the May announcement. The reported forecast does not change despite the JPY 10.6 billion cost related to the proposed Shire deal booked in quarter 1. Based on our strong quarter 1 momentum and OpEx discipline, we were able to absorb this deal-related cost for the quarter.

As communicated previously, we expect to close in the first half of calendar year 2019, and the full year -- financial year 2018 estimated financial impact of the deal would also depend on the speed of progress. A forecast that does include the estimated financial impact of the deal for the full fiscal year 2018 will be announced by Takeda once a reasonable assumption has been confirmed.

So to summarize, the quarterly results demonstrate encouraging business momentum with significant progress in all areas of the business. Although reported operating profit declined 49.3%, this was mainly due to 2 large extraordinary items in quarter 1 last year. We had the JPY 106.3 billion onetime gain on the sale of Wako and also JPY 16.8 billion from the sale of additional products to the Teva JV. Excluding these items, operating profit grew at 37.5%.

The underlying financials are off to a very strong start, led by our Growth Drivers and OpEx discipline. Underlying core earnings grew 40.3% with 640 basis points of margin improvement. This was predominantly driven by OpEx discipline being 480 basis points and gross profit representing 160 basis points. Our strong quarter 1 confirms confidence in the full year underlying guidance, and our reported forecast remains unchanged.

Now before moving into Q&A, allow me to give a couple of updates beyond the Q1 results as it relates to R&D and Shire. First, I'm delighted to announce that we have finalized the dates for Takeda's upcoming R&D days in Tokyo and Boston. We will kick off with a deep dive session in Tokyo on Thursday, September 27, followed by a similar deep dive at our Boston campus on Wednesday, October 10. Please stand by for more details soon.

Finally on Slide 19, I would like to give a quick update on the Shire transaction. Preparations for long-term financing are progressing well, and we announced last month that we have reached an agreement for a 7.5 billion term loan -- sorry, $7.5 billion term loan with leading global financial institutions.

We have also commenced the regulatory review process, and we're pleased to receive clearance from the U.S. FTC early in July. This is clearly a positive milestone for the acquisition and indicates that the process is on track. Integration preparation is also well underway, led by dedicated integration team with members from key functions in both companies.

Moving forward, we will commence more detailed integration planning consistent with Takeda's core values, leveraging expertise from both sides. Other key next steps include obtaining regulatory approvals in further key jurisdictions, including the EU, China, Japan and Brazil. Some countries may take more time than others, and our expectation remains that we will close the deal in the first half of calendar year 2019.

That concludes my presentation, and we would like to now open up the call for Q&As. Thank you.

[Operator]

[Operator Instructions] The first question is from Seki, UBS.

[Atsushi Seki, analyst]

This is Seki, UBS. So I have 2 questions, if I may. So number one, what's your updated result on timing for that EGM, extraordinary general meeting. If you haven't finalized yet, when do you plan to communicate the date for the financial community? And number two, on VELCADE. So what's your right to sold on VELCADE generics? So do you still expect substitute generic to hit the market by September? So if I check the FDA website, so it seems there no other generics have been approved by the FDA.

[Christophe Weber, executive]

Thank you, Seki-san. Christophe Weber here. I'll take the first question and Costa will cover the VELCADE generic. So the date of the shareholder will depend on the regulatory approval that we need to obtain from the different authorities. So we obtained U.S. FTC approval, which is great news. It was also very fast. Now we need to progress in Europe, Japan, China, and other authorities and other countries. So it's a bit too early to give you a date. Also of course, for us, the sooner the better, but we are dependent on these authorities.

[Costa Saroukos, executive]

Thanks, Seki-san for your question regarding VELCADE. Our financial assumptions for VELCADE is based on one additional therapeutically nonequivalent competitor launching in September 2018 with both IV and subcutaneous administration. Our assumption is not based on public information as neither the FDA nor the other companies have made any announcement as of yet. But depending on the competitive landscape, it could be potentially an upside there. So we continue to monitor the situation, but even -- just want to draw your attention, even if it is therapeutically nonequivalent, if our competitor is approved as a subcutaneous and take -- will take potentially modest pricing cuts, which will have an impact on our share -- on our market share and loss of VELCADE revenue.

[Operator]

The next question is Cairnes from Deutsche Bank.

[Joseph Cairnes, analyst]

Joe Cairnes from Deutsche Bank here. I have 3 questions, first, on the tax rate. You mentioned it's low due to partial release of an uncertain tax provision. Just wondering if you'd give us an idea of how big this was and in relation to what and how much is left? The second question would be on G&A costs. If we're stripping out the JPY 4.6 billion of G&A booked due to M&A-related expense, the underlying was down some 4% year-over-year or 1 percentage point improvement to the OP margin. Yes, could you give us an idea of where this is coming out of? I mean, you mentioned videoconferencing, but it would be great to hear in a bit more detail about the global after-tax initiative and how you, Costa, are pushing this forward. And then final question for -- on Slide 19, you're talking a bit about the efforts that you're making in preparation for the Shire acquisition. Just wondering how -- well, if you could discuss these in more details, how you guys are allocating your time between the Shire M&A deal and your normal management roles, and how your delegating to the different teams in charge of the process? Those are my 3 questions.

[Costa Saroukos, executive]

Thanks, Joe for the questions. I'll answer the first 2, and then I'll hand it over to Christophe to talk about the time spent and the Shire acquisition process. So firstly, with regards to the quarter 1 tax rate, we had a favorable -- from a reported tax rate perspective, we had a favorability of 10 percentage points. And it was driven by mainly 2 areas: favorable statutory earnings mix. So we had larger gains in Japan in fiscal year '17 and lower U.S. tax rates in fiscal year '18. We also had a transfer pricing negotiation of an advanced pricing agreement, which we received positive news for. That was in the vicinity of around [ 60 aqua yen ], and that was partially released due to the favorability of the outcome there. So these are the 2 key elements that have given us that positive tax rate, effective tax rate for both reported and also the underlying tax rate. Now that being said, we still believe throughout -- this will true up towards our average tax rate for the full year because we expect less R&D credits coming through due to -- in Japan in the later half of the year. And so that will pretty much smooth the phasing of that back to our normal tax rates that we've communicated at our forecast for 2018. With respect to G&A, maybe I can just start by saying that we have integrated our overall Global OpEx Initiative within the ways of working. So what that means is we've rolled out the zero-based budgeting process. It's linked now to our overall budgets by our system. We have also enhanced the overall KPIs, so much more transparency on a monthly basis, and then, more importantly, we've also factored the objectives, so the targets of the cost -- the overall OpEx and cost packages are now part of the senior management organization in their own individual objectives. So it's an end-to-end process, whereby, we are fully focusing on transparency, accountability as well as agility to make these improvements in the overall OpEx. So the JPY 4.6 billion that you referred to was coming out of SG&A, and we were able to absorb most of that throughout the first quarter, and it's still early days. It's still only the first quarter. We -- some of it was phasing, but we also do believe that it's encouraging signs. And I believe that the organization has the fully integrated approach to OpEx, and we'll update you in the coming quarters once we feel these further improvements.

[Christophe Weber, executive]

And for the further question regarding how we are getting organized. So of course, the thing is conditional to the approval. But what we are doing is that, on one side, we don't want to distract our business as usual, so all -- so when decisions are made, the committees that we have to make decisions, so honor is not distracted, so we continue to drive our business. So that's very important. In parallel, on the other hand, we are starting to look at preparing the integration. We have set up some integration team on the different functions, and this integration team are now working in 20 different areas from both Takeda and Shire. And we are starting to plan what could be the integration and to start planning for that. So I think that's progressing well, and both companies have a integration lead, which has been nominated. So we are starting to map what the integration would look like but also strategically, how we could get organized in the future. So it's a work in progress, but it's a very much in parallel of our business as usual, so our business as usual is not distracted by it.

[Operator]

The next question is [indiscernible] from CLSA Securities.

[Stephen Barker, analyst]

Steve Barker from CLSA. I have 2 questions. The first one is about your P&L on Page 8 of the English [ function ]. I'm looking at the other operating income of JPY 9.3 billion and then other operating expenses, which is a positive JPY 1.4 billion. Could you please explain in a little bit more detail what's actually in those 2 numbers please?

[Costa Saroukos, executive]

Sorry, Steve. Which page are you referring to?

[Stephen Barker, analyst]

It's the consolidated interim -- consolidated financial statement and major note on Page 8 of the [ function ] of the financial statement, the English version. So I'm just interested -- so you have the other operating income of JPY 131 billion last year, which was mainly from Wako. And this year, you've got 9.3, which I think you mentioned something about real estate sales.

[Costa Saroukos, executive]

Yes, so you're right. So in -- from the operating profit point of view, we had a significant impact on the gain on sale of Wako JPY 1,063 million in '17, which we're not obviously getting in 2018. In 2018, we have a gain on sale of probably plant and equipment, and that's mainly JPY 58 billion driven by the sale of land in Juso in Osaka, okay. And then we have some other -- in the expense line, we have some expenses there in -- restructuring expenses in 2017 of around JPY 65 billion, and it's relative to approximately JPY 60 billion in fiscal year '18 for June quarter. They are the key drivers that we highlighted in Q1 results there.

[Stephen Barker, analyst]

Yes, but the Q1 number is actually positive. So I mean, what is that? Is that something like reversal of the operating expense number?

[Costa Saroukos, executive]

So regarding -- that's got to do with the prelaunch inventory reserve. So the prelaunch inventory reserve relates to any products that have not been -- we haven't received FDA approval or marketing authorization approval. Basically, what happens there, it hits the expense line. It hits the operating expense line. Until we get approval for that, once we get approval for that, it gets reversed and restated to cost of goods.

[Stephen Barker, analyst]

Okay. And then my second question is about the -- I'm looking at Slide 19 in the presentation. 10 point -- The cost of the Shire deal in the Q1 so JPY 4.6 billion G&A; financial expenses, JPY 6 billion. But when you reported your forecast for the current year in May, this deal was underway already. So I'm just wondering what is in your forecasts for this deal in terms of G&A and financial expenses for your -- inside your full-year forecasts?

[Costa Saroukos, executive]

Yes, that's a great question. As I mentioned in our presentation, the full fiscal year forecast does not change despite the JPY 10.6 billion that we've already absorbed in quarter 1. Based on our strong momentum that we saw in the OpEx discipline, we were able to absorb that in the first quarter. But we expect to close the deal in the first half of calendar year 2019. And the full year of fiscal year 2018 estimated financial impact of the deal would also depend on the speed of progress. So our forecast at the moment, we haven't been able to identify the full -- because it's a bit of a moving target. So the forecast at the moment is -- we'll come back to you and announce what the overall impact will be at a reasonable time juncture.

[Stephen Barker, analyst]

So there's nothing in the forecasts right now?

[Costa Saroukos, executive]

Yes. So basically, what we're saying is the forecast -- the full year forecast has not changed from what we presented from the outlook of -- in May. And the forecast that does include the estimated financial impact of the deal for the full fiscal year 2018 will be announced once a reasonable assumption has been confirmed.

[Takashi Okubo, executive]

Thank you very much for your questions. Now I would like to take other questions please.

[Operator]

The next question is Sakai from Credit Suisse.

[Fumiyoshi Sakai, analyst]

[Foreign Language] I would like to ask you a question in Japanese, if you don't mind [Foreign Language] First question is a simple one. Noncore asset divestiture from the second quarter onwards...

[Takashi Okubo, executive]

Sakai-san, Sakai-san, can you... You are entering in the line in English, so you have to ask questions in English please.

[Fumiyoshi Sakai, analyst]

[Foreign Language] Okay, so I'll switch to English. Right after that the divestment in the noncore asset, you have divested the [indiscernible] so far, it's been rumored -- commented rumor but my question is do you have any restriction agreement between you and Shire how you divest noncore assets [indiscernible] noncore asset divestiture.

[Christophe Weber, executive]

I'm not sure -- you're not so clear on the line, Sakai-san. But in the agreement with Shire, there is no agreement about noncore asset disposal, so it's really something that we have to do based on the strategy we want to follow. I hope I answered your question because I'm not sure I understood what your question...

[Takashi Okubo, executive]

You were kind of breaking up, so...

[Christopher Hohman, executive]

Sakai-san, it's very difficult to hear you, so I'm very sorry, but we would like to move on to take other questions -- so going back to the operator, please.

[Operator]

The next questioner from Daiwa Securities, Mr. Hashiguchi.

[Kazuaki Hashiguchi, analyst]

I'm Hashiguchi. I have only one question regarding brigatinib. Earlier when you acquired ARIAD, brigatinib peak sales potential was estimated at more than $1 billion per year or more. Has it changed still? Or front line Phase III study readout was already available, so what kind of impression do you get and also updated competitors clinical trials. How do you see their data? And according to the data book, brigatinib life-cycle management plan is underway of revisiting. So peak potential sales, is this review going to impact on the peak potential sales of this product.

[Christophe Weber, executive]

Thank you for the question. We are actually overall extremely satisfied with the ARIAD acquisition. Brigatinib data will be disclosed at a later stage at the global congress. But in our mind, it still has the potential that we saw when we acquired ARIAD as being one of the best-in-class alectinib inhibitor. So at the present time, we are absolutely confirming the potential of sales of over USD 1 billion. We are seeing also Iclusig performing very well, and we'll do a further life-cycle management to strengthen the product. And we have also 788 in the pipeline, which is progressing. So overall, on the ARIAD front, all the traffic light are green and doing very well.

[Takashi Okubo, executive]

So now I'd like to take the next question.

[Operator]

The next question is from Sakai from Credit Suisse. [Operator Instructions] The next question is from Sakai from Credit Suisse.

[Fumiyoshi Sakai, analyst]

Sorry, there was a bit of confusion. Can you hear me now?

[Takashi Okubo, executive]

Yes, it's very clear, please go ahead.

[Fumiyoshi Sakai, analyst]

So the previous question was answered. So there's no restriction whatsoever about noncore asset divestiture, so divestiture of each side reciprocate.

[Christophe Weber, executive]

No restriction.

[Fumiyoshi Sakai, analyst]

Okay. I have another question, which is a simple R&D update-related question. Today, you didn't give us an update on R&D, so I wanted to ask you this question. Relugolix, TAK-385, for prostate cancer, Phase III readout in Japan, when it going to be? Myovant is starting a Phase III and that readout is very close and do you have an option for the U.S. market? I think this is very close to your expertise. So could you please update on this?

[Christopher Morabito, executive]

Sakai-san, thank you very much. This is Chris Morabito from R&D. The bulk of the relugolix activity is being handled by Myovant, as you know, but we do retain active interest in developing this for prostate cancer. The trial is going well. We can't give an update on the date of the data at this time because of the way the clinical trial is designed. Frankly, I wasn't aware of your keen interest in this study, and we could provide you some additional information if that's your focus area. Overall, we're quite pleased with the progress of our relationship with Myovant on this study. And Myovant as well could provide you some additional context, if you so desire.

[Operator]

Next question is from Merrill Lynch Securities, Mr. Watanabe.

[Ritsuo Watanabe, analyst]

I am Watanabe. Do you hear me?

[Takashi Okubo, executive]

Yes, very clear. Go ahead.

[Ritsuo Watanabe, analyst]

I have 3 brief questions, one of which is about the Shire acquisition-related costs. Sorry to repeat this question but JPY 10.6 billion is extraordinary cost for this quarter, and through year expenses for fiscal '18 should depend on the speed of the deal closure. So I understand that you don't know the exact amount. But what is the assumptions of the total amounts for the acquisition-related costs at the closing. And second question is about the noncore assets divestitures. When you consider the stand-alone Takeda operation, Brazil, China and also real estate and securities divestitures have been going on, so we are concerned that you've already used up all of the instruments. So from fiscal '19 and onwards, noncore assets can be divested furthermore from fiscal '19 and onward as a stand-alone Takeda. And the last question is about the R&D day. You scheduled it September 27 and October 10. We're looking forward to that. And I understand that you cannot talk about the Shire's pipeline. But when you consider new Takeda, we are very much keen about U.S. strategy going forward. So you have 2 separate R&D days. What kind of message are you going to communicate to the market or existing shareholders? To what extent -- what can you tell us. So as a -- just a preview, could you talk about that a little bit here?

[Costa Saroukos, executive]

Okay. So it's Costa here. I'll answer this first question regarding the Shire acquisition-related costs for the quarter 1 and full year, and I'll hand it over to Christophe to talk about the noncore assets and then Chris to talk about the R&D day. So as I mentioned today, the JPY 10.6 billion deal-related cost was predominantly driven by adviser fees and banking fees, et cetera. So this was -- the great news is that we were able to absorb that cost and no changes to the forecast for the full year. A forecast, as I mentioned, for the full year will depend on the time that we close. So it's difficult to come to you right at this stage with the final number. But -- at a reasonable juncture in the coming months, we would have an opportunity to share that with you in more detail.

[Christophe Weber, executive]

So on the noncore assets, first, you are right. We did some disposal in the past like respiratory like Wako. There are still some opportunities to do that. We did Multilab in Brazil recently, Techpool in China even more recently. I cannot disclose what is our internal list, but there are still some areas which are not within GI oncology, neuroscience area, but also, we have many -- because of historical businesses, we have many products outside of this key area. So we don't -- we just don't look only at that, but we look at businesses which we think are underperforming, our businesses which could be in better -- managed -- better managed by other companies. So we'll still have some room for doing that. On the R&D day, I mean, we'll only be able to comment on the Shire pipeline after closing. So before closing, we cannot of course comment on the [indiscernible], let's say, under Shire pipeline. So after closing, we'll have of course another R&D Day by combining the 2 pipelines. But we -- our goal with the upcoming Takeda R&D Day is to share with you how our R&D transformation that we have initiated 3 years ago is really starting to deliver and to gain momentum on how our pipeline has progressed but also what is our R&D model, our R&D engine that we have built over the years, how it's starting to deliver. And this is very important in the context of Shire as well because this R&D engine will be the R&D engine -- will be the model that we will leverage with after Shire acquisition. And so -- and as we have announced already, instead of focusing on 3 therapy area, we'll focus on 4 by adding rare disease, but it will be pretty much the R&D engine and the model that we have built in the last 4 years. So at this R&D day, we'll share with you how it has progressed and how it's starting to deliver. So I think it's going to be quite interesting.

[Christopher Morabito, executive]

So with this answer, I would like to close this Q&A session because it's already 6 p.m. So with this, we conclude your conference call. So once again, thank you very much for joining us despite of your very busy schedule. And I ask you for your future support. Thank you very much.

[Operator]

Thank you for your taking time. That concludes today's conference call. You may now disconnect your line.