Takeda Pharmaceutical Co Ltd

TSE:4502

Earnings Call Analysis

Takeda's Earnings Highlight Strong Product Growth and Adjusted Guidance

In the first half of fiscal 2024, Takeda reported revenues of JPY 2.4 trillion, a 13.4% increase, driven by an 18.7% growth in Growth & Launch products, now 47% of total sales. Core operating profit rose 22.3% to JPY 719.9 billion, with margins at 30.2%. However, Takeda anticipates a slowdown in growth due to increased generic competition for VYVANSE. Full-year revenue guidance is now set at JPY 4.48 trillion, with core operating profit expected to be JPY 1.05 trillion and core EPS around JPY 456. Notable product performances included ENTYVIO, growing 11% globally, particularly in the U.S. with new formulations.

Strong Financial Performance in H1 FY2024

Takeda Pharmaceutical Company reported robust financial results for the first half of fiscal year 2024 (H1 FY2024), with revenues reaching almost JPY 2.4 trillion, reflecting a 13.4% increase year-over-year. Adjusting for constant exchange rates (CER), revenue growth stood at 5%. The core operating profit also showed a strong performance, increasing by 22.3% year-over-year to JPY 719.9 billion, while the reported operating profit rose dramatically to JPY 350.6 billion, nearly tripling compared to the prior year.

Momentum in Growth & Launch Products

The success of Takeda’s Growth & Launch product portfolio was a significant factor in achieving this performance, with these products growing at an impressive 18.7% in constant currency terms, accounting for 47% of total revenue. Key contributors included VYVANSE, despite expectations for accelerated generic erosion in the second half of the fiscal year, and ENTYVIO, which returned to double-digit growth following the launch of the ENTYVIO Pen in the U.S.

Anticipated Challenges in H2 FY2024

Looking ahead, the company anticipates challenges, particularly with the erosion of VYVANSE facing generic competition, which is likely to escalate in H2 FY2024. Consequently, Takeda has adjusted its revenue outlook for the year to now project revenue of approximately JPY 4.48 trillion, with expectations of core operating profit declining mid-single digits and core EPS expected to decrease by about 10% at constant exchange rates.

Understanding the Efficiency Program

Takeda has initiated a comprehensive efficiency program designed to streamline operations and enhance profit margins. The company aims to improve its core operating profit margin by 100 to 250 basis points annually from fiscal year 2025 onwards. The early impact of this program is already noted in the improved margins in H1, driven by a favorable product mix and disciplined operating expenditures.

R&D Investment and Pipeline Developments

In H1 FY2024, Takeda reduced its research and development (R&D) spending by 8.3% due to a strategic review of its pipeline. Nevertheless, there are significant investments planned to ramp up R&D activities for Phase III trials, particularly for promising treatments such as TAK-861 and mezagitamab. Takeda is focusing its resources on late-stage development programs projected to drive future growth.

ENTYVIO's Performance and Market Outlook

Despite a revision in growth expectations for ENTYVIO from 16% to 11%, the drug remains a cornerstone of Takeda’s portfolio. Accelerated patient access and satisfaction with the ENTYVIO Pen are contributing to this, promising sustained growth in the long term. There are expectations that the combined therapy potential of ENTYVIO could enhance its peak sales, currently projected between USD 7.5 billion to USD 9 billion.

Future Growth Drivers and Product Launches

New product launches such as FRUZAQLA and ADZYNMA have also exceeded expectations. FRUZAQLA's early uptake in the U.S. market was particularly strong, capturing 29% market share in its initial phase. Similarly, ADZYNMA is gaining traction in the rare disease market, creating optimism for significant future revenue contributions.

Positive Currency Impact on Revenue

The depreciation of the yen has served as a tailwind for Takeda’s revenue growth, adding approximately JPY 176.5 billion across its financial metrics. Despite this, the fluctuating foreign currency exchange rates have introduced challenges for core operating profit due to the company's substantial manufacturing costs in Europe.

Revised Forecasts and Shareholder Confidence

Takeda revised its forecasts positively, reflecting the strong H1 performance. However, it remains cautious due to market dynamics, generic pressures on products like VYVANSE, and challenges in realizing full revenue potential for ENTYVIO. Throughout these changes, the company's leadership expresses strong confidence in their strategic direction, emphasizing their commitment to future shareholder value.

Earnings Call Transcript 2025-Q2

[Christopher David O'Reilly, executive]

[Interpreted] Thank you for taking time out of your very busy schedule to join the FY '24 Q2 earnings announcement by Takeda. I'm the master of ceremony, Head of IR. My name is O'Reilly. Thank you for this opportunity. [Operator Instructions]

Let me start, I'd like to remind everyone that we will 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 the most recent Form 20-F and our other SEC filings.

I'd also refer to the important note on Page 2 of the presentation regarding forward-looking statements of our non-IFRS financial measures, which will also be discussed during this call. Definitions of non-IFRS measures and the reconciliations with comparable IFRS financial measures are included in the appendix to the presentation.

Now we would like to start the presentation. Today, we have President and CEO, Christophe Weber; Chief Financial Officer, Milano Furuta; R&D President, Andy Plump, presenting to you. And the presentation will be followed by Q&A. Let's get started.

[Christophe Weber, executive]

Thank you, Chris, and thank you, everyone, for joining us today. Our fiscal year 2024 first half performance demonstrates strong momentum of our Growth & Launch product portfolio, the potential of our pipeline and our commitment to driving efficiencies to improve our margins.

First half revenue grew 5% at constant exchange rate, driven by our Growth & Launch product, which grew 18.7% at constant exchange rate and now account for 47% of total revenue. VYVANSE declined 29% in the U.S. and 18% globally, a slower-than-expected erosion in the U.S. We, however, assume that VYVANSE generic erosion will potentially accelerate in the second half as generic supply normalize, impacting our revenue and profit growth in the second half of the year. I will discuss our Growth & Launch product performance in more detail on the following slide.

In the first half of the fiscal year, our core operating profit margin was 30.2%, benefiting from product mix, phasing of R&D investment as well as the early impact of our efficiency programs. Our progress in the multiyear efficiency program announced in May 2024 is on track. We have taken tough but necessary decision to drive efficiencies and deliver operating profit margin improvement while rigorously prioritizing our pipeline. However, we are weighting our R&D investment toward the second half of the fiscal year to support our late-stage pipeline, where we have multiple programs now in Phase III. This has been factored into our profit outlook for the full year.

Our innovative late-stage pipeline is advancing, and we have multiple programs in Phase III development this year. In August, we initiated the Phase III clinical trial of TAK-861 for narcolepsy type 1, a significant step towards reducing the overall burden and functional impact of this disease. Following this in October, we presented proof-of-concept data for the treatment of immunoglobulin A nephropathy with mezagitamab at the American Society of Nephrology, highlighting its potential as a treatment of this disease.

Turning again to our financials. We are raising our full year '24 management guidance and reported on core forecast, reflecting first half performance and updated foreign exchange assumption for the year. In his presentation, Milano will speak in more detail about our updated guidance as well as progress in implementing our efficiency program.

Turning to Slide 5. We achieved robust performance broadly across our Growth & Launch product portfolio. Together, this life-transforming treatment now accounts for 47% of total revenue and achieved significant growth at 18.7% at constant exchange rate in the first half. The performance of our Growth & Launch product is underscored by ENTYVIO return to double-digit growth, accelerated by the launch of the ENTYVIO Pen in the United States. Mainstay such as immunoglobulin and TAKHZYRO continued robust growth, and newly launched product, FRUZAQLA and ADZYNMA had a strong early uptake exceeding revenue expectation. Approvals of ADZYNMA in the European Union and FRUZAQLA in Japan support the geographical expansion of these new treatments and underscore our future potential. I will discuss this in more detail on the next slide.

As I just noted, FRUZAQLA launch has been flawless and has exceeded expectations since it launched in the United States in November '23, pointing an update to our forecast. We have seen a strong uptake in fourth line with new patient market share reaching 29% as of our latest data in July. We're also seeing continued momentum in the third-line setting, reflecting the positive earlier reception and demand for this therapy. Significant need for new treatment options in metastatic colorectal cancer and positive feedback from oncologists have been key drivers of its initial uptake.

FRUZAQLA's inclusion in both National Comprehensive Cancer Network and European Society for Medical Oncology guidelines, further validate its importance in the treatment of metastatic colorectal cancer and underscore its position as a critical option for oncologists and patients. With 8 regulatory approval in less than a year since U.S. approval, we are positioned to begin commercialization more broadly this year, further supporting global growth. This includes our recent approval in Japan, where we will build on our heritage in colorectal cancer. As we continue to expand into additional markets, we expect further regulatory decision on launch throughout fiscal year '24 and '25, which will provide more patients with access to FRUZAQLA.

Turning to the right of the slide. Congenital thrombotic thrombocytopenic purpura or cTTP, is an ultrarare, potentially fatal blood clotting disorder with limited treatment option. ADZYNMA launched in the United States in November '23 for the treatment of cTTP has generated strong prescriber interest. Since then, ADZYNMA is also launched in Japan, Germany and Austria. Further launch are planned in the European Union where ADZYNMA is the first and only enzyme replacement therapy specifically for the treatment of cTTP.

EOHILIA is currently the only oral therapy available for eosinophilic esophagitis, a chronic immune-mediated inflammatory disease. Since its launch in the United States in February '24, we have seen growing patient demand due to increasing awareness and progressive yet slightly slower-than-expected coverage. Unaided awareness among health care professional is approaching 80% and initial patient experience has been positive.

Turning to the next slide, I would like to provide more details about ENTYVIO performance. Since the launch of the ENTYVIO Pen in the U.S., ENTYVIO's growth rate in the U.S. has accelerated back to double digit at plus 10% in the first semester and plus 13% in the second quarter at constant exchange rate compared to a 4.2% growth rate in fiscal year '23. This is a great performance, but slightly below our expectation. The issues have been a somewhat lower market growth than expected and slower-than-expected access pathway.

However, as of July this year, ENTYVIO Pen coverage extends to more than 2/3 of the eligible patient population in the United States, and we will continue to work on the pull-through supporting doctors and patients to get reimbursed while transferring from an IV under Part D plan to a subcu under a Part D plan. Based on very positive satisfaction feedback from patients and doctors, we are optimistic of demand for the subcu formulation and ENTYVIO overall will accelerate in the future.

Nevertheless, at this stage, based on first half results, we have updated our global full year growth forecast for ENTYVIO to 11%, an acceleration from 6.6% in fiscal year 2023. Our updated forecast assume a potential growth slowdown in Europe and a demand acceleration in the U.S., although the expected revenue acceleration is probably insufficient to propel our overall growth into the high teens.

ENTYVIO will continue to outperform the overall inflammatory bowel disease advanced therapy market. We continue to see long-term growth potential for ENTYVIO, powered by demand for the ENTYVIO Pen, and we are confident in our peak sales outlook of USD 7.5 billion to USD 9 billion, even when considering the potential impact of the Inflation Reduction Act in the United States. The continued strong performance of ENTYVIO as well as our new Growth & Launch product, such as FRUZAQLA, ADZYNMA and EOHILIA demonstrate the value of this portfolio and its ability to address patient needs.

In closing, we are very pleased with what we have achieved in the first half of fiscal year '24. In a challenging environment, we continue to deliver on our financial commitment to progress our pipeline and to create long-term value for our stakeholders. We look forward to the opportunities that lie ahead. Thank you for your continued support and confidence in Takeda.

I will now hand over to Milano to discuss our financial results and outlook.

[Milano Furuta, executive]

Thank you, Christophe, and hello, everyone. This is Milano Furuta speaking. Slide 9 summarizes our financial results for the first half or H1 of fiscal 2024. We had a very strong 6 months driven by momentum of our Growth & Launch products, and continued VYVANSE demand. We also had some benefits from the phasing of investments, particularly in R&D.

H1 revenue was almost JPY 2.4 trillion, an increase of 13.4% versus prior year, or 5% growth at constant exchange rate or CER. Core operating profit, core OP, was JPY 719.9 billion, a year-on-year increase of 22.3% or 12.9% at CER. Reported operating profit was JPY 350.6 billion, growing almost 200%. We booked less impairments and other onetime costs comparing to the last fiscal year, which contributed to this reported operating profit increase on top of the strong core OP performance. Core EPS and reported EPS was JPY 310 and JPY 119, respectively. Operating cash flow was JPY 451.3 billion, up 54.9% year-on-year, reflecting our strong profit growth as well as improvements in working capital. Adjusted free cash flow was JPY 247.5 billion.

Let's look into the details starting from revenue dynamics on Slide 10. Our Growth & Launch products grew strongly, 18.7% at CER, more than offsetting the loss of exclusivity impact such as VYVANSE in the U.S. and AZILVA in Japan. Additionally, net positive growth in other brands contributed to 5% revenue growth at CER. The depreciation of the yen versus major currencies was an additional tailwind of JPY 176.5 billion, resulting in 13.4% growth on actual FX basis.

Slide 11 shows the year-on-year bridge for core operating profit. In addition to the profit contribution from positive revenue dynamics, we benefited from phasing reinvestment, particularly in R&D. R&D investment in H1 decreased by 8.3% at CER. This is primarily due to the termination of certain programs during our pipeline privatization at the end of FY '23. However, it is worthwhile to note that with multiple programs moving into Phase III, we expect an increase in R&D spend for the full fiscal year. We managed our OpEx lower than the last year with cost discipline. Core OP grew at 12.9% at CER and with a positive FX impact, we landed with absolute growth of 22.3% for the first half year.

Next, reported operating profit. This H1, the impairment of intangible assets became much smaller comparing to the last year when we recognized the impairment of ALOFISEL and EXKIVITY. Although we have booked sizable restructuring expenses for the ongoing efficiency program this year, other operating expenses benefited from lower legal provisions and the reversal of a prelaunch inventory. These factors, on top of our strong core OP growth, helped almost triple our H1 reported operating profit to JPY 350.6 billion.

Next slide, 13. As announced in May, we have kicked off an enterprise-wide efficiency program. Our aim is to free up resources to invest for future growth while to improve core operating profit margin by 100 to 250 basis points each year from FY '25 towards our low to mid-30s percentage target. Please note that baseline of this margin improvement is our original forecast of 23% margin this year.

Slide 14, starting with organizational agility, we have made structural changes across several corporate and regional functions. For example, in R&D, we implemented changes to reflect the pipeline prioritization decisions made last fiscal year. We also exited our research site in San Diego, meaning we will focus our research activities in 2 sites going forward, which is Cambridge in the U.S. and Shonan in Japan. In addition, we have a project that had been announced and become effective in the second half of the year, such as the Future Career Program in Japan.

In procurement, our team continues to find opportunities to unlock savings across various cost categories capturing JPY 20 billion of savings to date. And as a company, we are focused on embedding data, digital and technologies to drive efficiencies and enable savings. We are building capabilities in-house with our innovation capability centers now providing solutions to tasks where we previously relied upon external vendors. The impact of our DD&T initiatives can be seen across the value chain from accelerating patient recruitment in clinical trials to reducing inspection times in our manufacturing network and to optimizing our plasma collection processes.

With regards to implementation costs associated with this efficiency program, in H1, we booked JPY 61.6 billion of expenses. This is in line with plan and on track towards a full year forecast of JPY 140 billion. As you can see from the breakdown, the majority of expenses have been related to severance, but there are also project cost and write-off expenses included in the total.

Next, let me give an update on our revised outlook for the full year. Starting with management guidance. We are upgrading each line item to reflect the strong H1 performance driven by overall positive revenue momentum. Revenue is now expected to be flat to slightly increasing. Core operating profit and mid-single-digit percentage decline, and core EPS approximately 10% decline on a CER basis. Our updated forecast is now JPY 4.48 trillion of revenue, JPY 1.05 trillion of core operating profit and JPY 456 of core EPS.

In terms of currency assumptions, we have revised a euro from JPY 160 to JPY 165 while keeping U.S. dollar unchanged. This update has a positive impact on revenue but negative impact on core operating profit due to our large manufacturing cost base in Europe. On a reported basis, we forecast operating profit to be JPY 265 billion and reported EPS to be JPY 43. We raised our free cash flow forecast range to reflect the uplift in core operating profit.

Slide 16 shows a moving part in our updated forecast. The biggest driver of incremental revenue is VYVANSE. While ENTYVIO growth is accelerating, we made an adjustment to the forecast. In the meantime, there is a stronger-than-expected performance of other products such as FRUZAQLA, ADCETRIS, QDENGA and TAKHZYRO. This results in an overall positive revision of revenue categorized as other products on this slide. FX is also positive to our revised revenue forecast.

For core operating profit, we expect the incremental profit contribution from VYVANSE to be partially offset by a number of items. First, there is a slightly unfavorable product mix impact due to the relatively high profitability of ENTYVIO. Also within the other products column, we anticipate incremental manufacturing expenses such as the preparation for future supply of QDENGA. Slight increase in OpEx includes additional investment in launching products such as FRUZAQLA and higher personnel costs based on timing of exits during the efficiency programs. Finally, FX, while positive to revenue has a negative impact on core OP due to the depreciation of the yen versus euro.

Slide 17. Let me explain some of the variance between H1 core OP results and implied H2 core OP. First, we expect a reduction in gross profit from product revenue. Roughly 50% of this is our ADHD portfolio, mainly VYVANSE due to acceleration of generic erosion. There are many different elements included in the other 50%, such as phasing of shipments like vaccines, tender timing for certain rare disease products and a general competitive trend in some markets.

The second biggest driver is R&D. Our forecast reflects plans to ramp up investment in latest programs such as TAK-861, TAK-279 and mezagitamab based on timing of Phase III trials. For the Cogs and SG&A, our forecast reflects expectations for expenses to be more weighted towards the second half. Although we usually have seasonality that results in higher cost in H2, that trend is even more pronounced this year. In part, this is because of spending slowed during the early stages of the efficiency program as organizational changes were being made. Finally, the results also may have headwinds from FX built into the plan.

So this year, we are dealing with dynamic situations of the LOE of VYVANSE, acceleration of the ENTYVIO growth with the Pen launch, the enterprise-wide efficiency program and the progression of the late-stage pipeline. While there may be some liabilities, we are very confident that we can deliver this updated management guidance.

Thank you for your attention. And now, I will hand over to Andy.

[Andrew Plump, executive]

Thank you very much, Milano, and hello to everyone on today's call. We go to the next slide, please. This quarter, we have several significant updates to our late-stage pipeline. Last month, we presented important long-term extension data from the Phase IIb trial of our oral orexin agonist TAK-861 in narcolepsy type 1, or NT1, at Sleep Europe 2024, which is one of the most impactful sleep conferences of the year. The results demonstrate TAK-861 continues to be highly efficacious and well tolerated at 6 months and beyond. TAK-861 also shows improvement on cognitive domains like sustained attention, memory and executive function after 8 weeks on therapy, a first for the orexin class.

Following discussions with regulatory authorities, in August, we initiated the first LIGHT study, a global Phase III development program for TAK-861 in NT1. Enthusiasm amongst investigators is high and enrollment is progressing well. I'm pleased to share that recruitment has been completed significantly ahead of time lines for 2 pivotal head-to-head Phase III trials of our TYK2 inhibitor, zasocitinib versus apremilast in psoriasis. In addition, our partner protagonist who is developing rusfertide, an injectable hepcidin mimetic, has completed Phase III enrollment for the treatment of polycythemia vera, or PV. As you may recall, Takeda and protagonist entered into a worldwide license and collaboration agreement for rusfertide earlier this year.

Last week, Takeda presented positive interim results from a proof-of-concept trial evaluating mezagitamab in primary IgA nephropathy, or IgAN, at the American Society of Nephrology's Kidney Week. Mezagitamab, a potential best-in-class anti-CD38 antibody, demonstrates rapid and sustained reductions from baseline in serum IgA up to 70% and galactose deficient IgA up to 62% as an add-on to the standard of care. At week 36, participants also achieved a 55% mean reduction from baseline in 24-hour proteinuria.

And of course, with the caveats of small patient numbers, we see signs of clinical benefit with stable renal function up to 36 weeks. Mezagitamab demonstrated a favorable safety profile and was well tolerated with no discontinuations due to drug-related adverse events. We plan to engage with regulatory authorities this year as we are already preparing for Phase III development. Looking beyond our late-stage new molecular entities, as Christophe has already noted, we achieved legal expansions for our Growth & Launch brands, including ADZYNMA, FRUZAQLA and HYQVIA.

Next slide, please. Very excited to extend an invitation for all of you to join our R&D Day on September 12 (sic) [ December 12 ] starting at 6:30 in the evening Eastern Standard Time and 8:30 in the morning December 13th in Japan. The main focus of this event will be a deep dive into our high-value, late-stage pipeline programs with a focus on zasocitinib, our orexin franchise, including TAK-861 and TAK-360, rusfertide, fazirsiran and mezagitamab. During the session, we will review the unmet medical need for the multiple indications these programs are targeting as well as Phase III study designs, time lines, competitive positioning and commercial potential of each asset.

We will also provide updates on our evolving R&D strategy in our 4 therapeutic areas of gastrointestinal and inflammation, neuroscience and oncology including disease areas of focus and business development strategy. We have made substantial strides in enhancing our clinical development capabilities with an emphasis on data, digital and technology. Of note, we will review Takeda's future-looking development model and demonstrate how it has yielded positive results in accelerating these late-stage pipeline programs. The format will be a hybrid event featuring live presentations in Tokyo with a virtual option for any participant. Please save the date.

Thank you very much. And at this point, I'll turn it back to Chris for the Q&A session.

[Christopher David O'Reilly, executive]

[Interpreted] Moving back to take questions from respondents. In addition to Christophe, Milano and Andy, we have Ramona Sequeira, President of Global Portfolio division; Julie Kim, President of U.S. Business Unit; Giles Platford, PDT Business Unit President; and Teresa Bitetti, President of Global Oncology Business Unit.

[Christopher David O'Reilly, executive]

Okay. I'd like to take the first question from Steve Barker at Jefferies.

[Stephen Barker, analyst]

Steve Barker from Jefferies. My first one is about your plasma business. So on a half year basis, the trend looks very healthy. However, looking at the quarter-to-quarter trend, it looks like sales did decline in the second quarter compared to the first quarter. If you could please comment on the underlying dynamics. And then if -- yes. So that's the first question.

And second question, I'd like to ask Andy about mezagitamab. Congratulations on the good data shown at ASN. But just looking at the time lines, it looks like mezagitamab will come to the market behind other disease-modifying products such as the APO inhibitors. And so I was just wondering how you see anti-CD38 like mezagitamab fitting into the treatment for IgAN?

[Christopher David O'Reilly, executive]

Thank you, Steve. So for the first question on PDT, I'd like to ask Giles to comment on that. And then for the second question on mezagitamab, perhaps Andy can comment on the data, and then if Ramona has any comments on the positioning at this point, then that would be great to have your comments as well.

[Giles Platford, executive]

Thank you, Steve, for the question. This is Giles speaking. We did have strong first half growth for our PDT business with 14% year-over-year evolution. IG business continues to perform well with growth of 16% and with accretive growth from innovative subcu portfolio. And our albumin portfolio, particularly driven by strong demand in China, but also with some supply phasing delivered growth of 11%.

We maintain our full year guidance of high single-digit growth for the PDT business overall, 5% to 15% for our IG portfolio and single-digit growth for our albumin business. We have flagged that we will see slightly slower growth this year due to planned upgrades and associated shutdowns of our manufacturing facility for albumin.

I would just call out that we continue our trend of positive margin expansion as well, driven by reducing donor compensation levels, investments in data, digital and technology to drive donor experience, but also productivity of our collections network, improvements in yield in our fractionation process and also positive product mix, as I alluded to, with accretive growth from our innovative subcutaneous IG portfolio.

[Andrew Plump, executive]

Steve, it's Andy. Thank you for your question, and thank you very much for recognizing the strong data that we presented last week. And your question gives me the opportunity to again remind you and everyone that we will be having the R&D Day in December, on December 12 and 13 in Japan and Eastern time and our focus on that day will be addressing exact questions that you're asking for mezagitamab, for all of our late-stage programs, which is to help you better understand the programs, how we're designing the programs, the competitive positioning and what we see as the commercial opportunity.

I'll say that the data that we presented and again, the patient numbers are relatively small, but the consistency of the observations that we're seeing, and the potency of the effect is quite remarkable and suggests the potential for a best-in-class across all of the potential disease-modifying agents.

So there are a few features that I'll just highlight around the mezagitamab activity and IgAN and remind you that we saw similar, robust effects in ITP. The first is the rapidity of the effect. The onset of the effect seems to be faster than what we're seeing with other potentially disease-modifying agents. The second is when we look at the reductions in IgA and galactose-deficient IgA, which many believe is the pathogenic form of immunoglobulin in IgAN, we're seeing over 60% and close to 70% reduction, which is disproportionate to what we see for other immunoglobulins. And we don't know exactly why, but it's clearly something unique about this particular mechanism and maybe even our molecule. We've seen stabilized renal function up to 36 weeks. Of course, again, small patient numbers and a relatively short time frame. But when we add all of this up, incredibly encouraged by the potential of the molecule.

And then before I hand it over to Ramona, and Ramona can make some comments about competitive positioning, I'll say that we are meeting with the FDA in the coming weeks. And we have a very aggressive and proactive Phase III program. And our goal is to accelerate our study as much as possible. We have a number of different ways that we're going to be looking at doing that. Ramona, would you like to add?

[Ramona Sequeira, executive]

Yes. Thank you, Andy and Steve, I think Andy answered that so perfectly. I'll add just a couple of things. First of all, we know this is going to be a large and growing market in the coming years as you get more disease-modifying treatments available for patients, which is important. But based on what we know and what we're seeing, we're very excited about the positioning of 079, kind of where it hits in the immune cascade, the efficacy, as Andy mentioned, very rapid, the dosing and safety profile. We feel it's going to be very unique for patients and have an edge, for sure, in first-line utilization for a disease-modifying agent.

[Christopher David O'Reilly, executive]

Okay. We'd like to take the next question, Mike Nedelcovych from TD Cowen.

[Michael Nedelcovych, analyst]

I have 2, if that's okay. The first relates to ENTYVIO. We've gotten quite a bit of IBD data across mechanisms in the last few weeks. I know you have reiterated your long-term ENTYVIO outlook, but have any of these updates caused you to change your thinking about the market one way or the other? And a related question on that topic, does your peak sales outlook contemplate a successful ENTYVIO combination? And if not, could there be upside to your projection?

And then my second question relates to QDENGA, which has been a bright spot. There may be competition on the horizon. However, as Merck pursues its own dengue vaccine, are you aware of any differentiation in the competitor's candidate?

[Christopher David O'Reilly, executive]

Okay. Thank you, Mike. So I'd like to ask Ramona to take those.

[Ramona Sequeira, executive]

Sorry, my apologies. I will take the ENTYVIO question before I move on to QDENGA. So first with your question on peak sales for ENTYVIO, the answer is no. So when we did the peak sales estimate, which we still believe is absolutely achievable, we did not contemplate combination therapy. And certainly, in this market now, we see more desire for physicians to use combination therapy in different types of patients, particularly in Crohn's and are doing some evidence generation ourselves to look at how ENTYVIO may be used in combination therapy. But certainly, that is an open question. And we think ENTYVIO is such a foundational therapy that, that combination just makes sense clinically for physicians. So we will -- that remains to be seen, but our peak sales did not anticipate that.

And certainly, we did see the market continuing to evolve and change with new entrants coming in. I think the reality is ENTYVIO is the most frequently prescribed brand in the U.S., the only gut-selective advanced treatment option. The only product to have demonstrated head-to-head superiority against another advanced therapy in UC, and we're very confident in the efficacy and safety profile across all the patient populations wherever used. And so we certainly see that franchise continuing to grow for us and doing very well.

Then your question on QDENGA, could you just remind me again, maybe Mike or Chris, the question on QDENGA. It was Merck, I think, was it the Butantan?

[Christopher David O'Reilly, executive]

That's right. Yes, the competitive landscape.

[Ramona Sequeira, executive]

So I think this is another one where truly Takeda has set the bar for what good looks like when looking at efficacy and safety in an endemic disease such as dengue. I haven't seen anything from any competitor that can even come close. In fact, I think there's still a lot of opacity in the actual data for some of the competitors coming out. The data that's been shared has been in very small data sets. And we haven't seen anything to indicate first, that the efficacy is going to be similar to QDENGA, but also the amount of time that we spent in these trials, doing the follow-up and showing the long-term durability of the asset, we think has set a new bar for other companies. And based on the safety needs in this population, we feel other companies are going to have to demonstrate that level of efficacy and safety as well. And certainly, I haven't seen that yet, and I believe that's going to take some time to do if they're even able to do it.

[Christopher David O'Reilly, executive]

[Interpreted] Let's move on to the next question. Citi, Yamaguchi-san.

[Hidemaru Yamaguchi, analyst]

So this is Yamaguchi from Citi. Two questions, please. The first one is regarding same, ENTYVIO, but I'm trying to ask about the company guidance change. It used to have 16%, now it is 11% I think in the U.S. And you're doing better, but there seems to be some marketing situations and patient situations, which is more of the macro side. But can you give me what do you think about changing and what you did not think about changing and how the SG promotion has been going through? So that's the first ENTYVIO corporate guidance changing assumption question. That's the first one.

The second one, the total company guidance change. I understand the VYVANSE erosion is going to happen in the second half. But given that has been exceeding your expectation in the first half, first half already, you are generating around JPY 700 billion already. And JPY 50 billion up revision sounds very conservative to me, even though ENTYVIO has been cut as well. But can you remind me, it looks pretty conservative to me given you're doing the cost cutting as well. Is it the right way to observe or not really? You are really not that conservative as far the company guidance? That's a second question.

[Christopher David O'Reilly, executive]

Thank you, Yamaguchi-san. So the first question on ENTYVIO, perhaps I'll ask Julie to add some comments on that. And then the second question on the total company forecast, I'd like to ask Milano to take that one.

[Julie Kim, executive]

Thank you for the question, Yamaguchi-san. In regards to the growth of ENTYVIO, when you look at the U.S., yes, we are seeing accelerated growth for ENTYVIO versus last year. And we expect to continue to have accelerated growth through the rest of the year. In regards to the dynamics to why we lowered the overall guidance from 16% to 11% is because the acceleration is not as fast as we had anticipated at the beginning of the year. And so part of that, as you heard from Christophe, as he was going through the presentation is in regards to improve our access pull-through for the patients as we have both Part B and Part D on ENTYVIO IV and Pen. So this is part of the reason why we lowered the overall expectation from 16% to 11%. And also in Europe, for the second half of the year, we expect a lower growth due to competitive dynamics and increased pressure on pricing. So that's why the change from 16% to 11%.

And Milano, over to you for the second question.

[Milano Furuta, executive]

Thank you for your question. So there is a lot of moving parts, actually, if you compare the H1 results and the H2. So maybe the first one is, you already addressed like VYVANSE. We expect -- we still believe VYVANSE will -- the generic erosion will accelerate it in H2, that's the first one. And there is like revenue dynamics between H1 and H2, in terms of timing shift, like shipment of the vaccines or shipment -- or shift from H2 to H1, like tender or contract renewal and then sometimes those tiny change. That's also the impact like H1, H2, the profitability. At the same time, there is general, like a competitive trends in some hemophilia or multiple myeloma, those markets. So all in all, we expect some declining in terms of gross profit contribution when you compare H1 to H2.

At the same time, the second biggest driver is actually R&D. In H1, we had some less expense in R&D, partly or mainly because we terminated some programs in the last fiscal year. But instead, we are kind of accelerating R&D activities to ramp up the Phase III activities, right? That's going to have more weight towards H2. That's why those dynamics and combined, this H1, H2 profile is a little bit kind of -- we see the contracts in H1 and H2. That's how I see it.

[Hidemaru Yamaguchi, analyst]

Right. So can I make a quick question or follow-up on ENTYVIO, Chris?

[Christopher David O'Reilly, executive]

Okay, yes, please go ahead.

[Hidemaru Yamaguchi, analyst]

So you talk about access, is it getting better now? It might be the time issue. So now is it okay or not really about the access?

[Julie Kim, executive]

Yamaguchi-san, so it is improving as time passes. We are working on a number of different tactics to improve the access. And so we are seeing the impact of that as we have the acceleration in our demand. So while it was not as fast as we had wanted initially, it is improving, and we are making progress.

[Christopher David O'Reilly, executive]

[Interpreted] Let's move on to the next question. Next, please, Matsubara-san, Nomura Securities, please.

[Matsubara, analyst]

[Interpreted] I have 2 questions. One is about ENTYVIO. I'd like to know more about the current market situation. Regarding Pen, access issues were answered, now I understand. And concerning IV, why is it not growing so much because AbbVie's SKYRIZI and RINVOQ, I think they have been progressing very well. And ENTYVIO IV and SKYRIZI, is it coming from the positioning differences of those products?

And another question is about TYK2 inhibitor. Phase III will be finishing earlier. And I think the first Phase III will be finishing within December. And the data read out, can we consider it's going to be at the beginning of the next year? And thanks to the acceleration of this development. Do you think that the timing for approval, that timing will be also accelerated or not?

[Christopher David O'Reilly, executive]

His question was on ENTYVIO again. So on the overall market dynamics, not around just the Pen access, but also on the IV in particular, positioning, vis-à-vis, SKYRIZI and RINVOQ. So I'd like to ask Julie to take that question.

And then the second question on the TYK2, TAK-279 Phase III timing. When we expect to get data and whether we can accelerate the filing time lines? I'd like to ask Andy to comment on that, please.

[Julie Kim, executive]

Thank you, Matsubara-san, for the question. In regards to the competitive dynamics for ENTYVIO IV in the U.S., so ENTYVIO overall is still the market leader in regards to IBD and market leader in regards to bio-naive starts. So where we see SKYRIZI and other competitive entrants creating movement in the market is in second line and further lines of therapy. So in first line, as I said, we're quite proud of ENTYVIO's performance. It's a product that's been on the market for over 10 years and still able to hold the first-line position due to its strong track record in terms of safety and efficacy. It's still the only gut-selective product that's available in IBD, and that's further reason why we believe ENTYVIO continues to perform really well in the first line.

[Andrew Plump, executive]

This is Andy. So thank you for your question on zasocitinib. So we're quite pleased with the execution of the Phase III psoriasis program. We're 6 to 7 months ahead of our schedule, our benchmarks. And actually, our benchmarks are not based on our own estimates. They're based on benchmarking across the industry for psoriasis studies. So this is a great example of the new capabilities that we've built into development.

To be fair, we haven't disclosed a specific filing date yet for the program. As you can look in the backup slides, we have FY '26/'27, as our target filing date. So what we'll plan to do in December at the R&D Day is in a much more explicit way, go through the design of the program, what we're anticipating we would include in the filing and what that filing date will look like. I mean as you can imagine, given the acceleration, we're looking at the front end of that '26 to '27 time frame, but we'll get into that in more detail next month.

[Matsubara, analyst]

Okay. So can I assume the first trial data read out will be early next year?

[Andrew Plump, executive]

We haven't disclosed when we'd read out the data. Just so you understand, we have multiple ongoing studies. There are 2 primary comparison studies to apremilast. We've completed enrollment for each of those studies. We have a third Phase III study that's a safety study that's ongoing. There are some requirements for safety that we'll have to meet with the FDA in particular. And then we have a fourth study that will be important in terms of positioning, which will be a head-to-head study against deucravacitinib. So how we then manage disclosure of data from all these, we still have to work through.

[Christopher David O'Reilly, executive]

Okay. I'd like to take the next question. I'd like to call upon Tony Ren from Macquarie.

[Tony Ren, analyst]

Actually, just staying on TAK-279, zasocitinib. So this question is again for -- my first question is for Andy. So like you just alluded to, I noticed that the LATITUDE psoriasis 3 study is recruiting. And it's looking to recruit a very large number of 1,300 patients over 4 years of follow-up. And Andy also just mentioned the FDA possibly requiring longer-term safety observations and the study description says it's going to check the side effects of the agent and how well it is tolerated. So I just want to get a sense, you have already completed enrollment of your LATITUDE 1 and 2 Phase III, right? So why start such a trial right now? I mean, would this affect your regulatory time line? So that's my first question.

The second question is on a TAKHZYRO. So in HAE, so Intellia announced its Phase II data of their in vivo CRISPR gene editing therapy. So the data looks very good. So I just want to get a sense from you, how do you think that might affect TAKHZYRO's future prospects? What would be the clinical differentiation of the 2? So these will be the 2 questions for me.

[Christopher David O'Reilly, executive]

Andy, would you like to begin with the zasocitinib question?

[Andrew Plump, executive]

Sure. Thank you, Tony. So again, I'll just emphasize that all the details, and we'll go very deep into these details on December 12 and 13 at the R&D Day. Dialing up for the psoriasis program, there are 3 core elements to the package -- the regulatory package, and there's a fourth element around commercial competitiveness and positioning. The first 2 studies, the apremilast head-to-head studies, by far and away, the most important studies demonstrating the efficacy and safety profile. The third, which is why we started the LATITUDE 3 study is to have an adequate patient safety database at 1 year. We don't expect that we'll need to wait for the completion of every patient in that study. That's to supplement the safety package from the first 2 studies.

The third piece, of course, will be the CMC package. So those 3 elements, efficacy and safety from the 2 main apremilast's studies head-to-head studies, extended safety from LATITUDE 3 to then our CMC package. Those will be the key elements of our regulatory package. And then the head-to-head study against ducravacitinib, that won't necessarily be part of the -- that won't slow down our registration package, but our hope is to have that study completed and ready for launch of zasocitinib.

[Tony Ren, analyst]

So did the FDA come back to you and required and demanded the safety study after looking at the -- after the discussion with them or did you decide...

[Andrew Plump, executive]

No, no. I mean, to be clear, there are general guidelines for the number of patients that are required to have been dosed on active drug for a year. I mean, of course, every program has a unique conversation with FDA, but there's nothing particular about our safety profile. Our safety profile and overall therapeutic index is quite strong. Predominantly, we're following guidelines that exist.

[Julie Kim, executive]

And I can jump in here and answer the question on TAKHZYRO. So let me first say that TAKHZYRO, after 6 years in the market, continues to be the #1 prescribed advanced long-term prophy treatment. And we've got right now commercial presence for TAKHZYRO in 55 countries. So we see continued growth as you see in our results being fueled by growth of the prophylactic market as well as additional launches coming.

So with respect to new therapies and certainly a gene therapy, there's questions that we would want to see answered that will come over time, such as the durability, the efficacy, the safety, the access to the number of patients worldwide that need it. But right now, we've got very, very strong open-label extension data, real-world evidence data, strong improved quality of life and over 2.5 years on therapy, showing very, very strong reduction in attacks and attack-free for many patients. So confident in our positioning, confident what the product has been able to do for patients truly transform their lives. And certainly, on behalf of patients, welcome new entrants in the future, but it's very early days.

[Christopher David O'Reilly, executive]

Okay. I'd like to take the next question, please. So up next, UBS Securities, Sakai-san Or Haruta-san.

[Fumiyoshi Sakai, analyst]

I haven't asked a question for some time, so this is my time. Just a couple of questions regarding your domestic operations. One, PDT. Now the government is talking about the improving supply of the plasma in Japan. And I think Takeda name has been mentioned about expanding the infrastructure and also the facility of the PDT here in Japan. Are you doing anything? Or are you going to proactively dealing with this issue in Japan? That's my first question.

And second question, again, regarding Japanese operation. Amazingly, your sales proportion in Japan is now risen 10% of your total revenues. The question is how you manage your Japanese business going forward? Now you are taking this new Korea development program, kind of a redundancy program, right? And you have done this in the U.S. I think that a part of the margin improving exercise. But where are you going to end up in Japan, really? I mean it seems to be you don't require that many reps in Japan considering your product portfolio right now. So I'm just wondering what you're thinking about. These 2 questions, please.

[Christopher David O'Reilly, executive]

Thank you, Sakai-san. So I think the first question specific to PDT. I'd like to ask Giles to comment on that. And then the second question on our broader positioning in Japan, I'd like Christophe to comment on that one, please.

[Giles Platford, executive]

Thank you, Sakai-san, for the question. This is Giles speaking. We have announced in 2023, an investment in an end-to-end manufacturing facility for plasma therapies in Japan. We remain on track to bring that facility online by the end of this decade. And we are also working very hard to improve standard of care for patients who depend on plasma-derived therapies with primary immunodeficiencies, secondary immunodeficiencies and indications like CIDP and MMN.

We have launched our first global subcutaneous IG product, CUVITRU, already for patients with PID and SID. And we have recently, in quarter 2 of fiscal '24, filed with the Japan authorities HYQVIA for treatment of CIDP and MMN, and we expect to file for Globulin-I 10% by the end of this fiscal year as well. So we are working closely with the authorities to support in addressing their concerns around sustainable supply and supply chain sovereignty around plasma-derived therapies for the patients who need them in Japan. Thank you for the question.

[Fumiyoshi Sakai, analyst]

Just a follow-up. Is that going to be business opportunity? Or is that going to be risk of margin deterioration? I know you don't disclose the margin from PDT, but can you just -- well, qualitative comment. I would appreciate your qualitative comment, if you could make.

[Giles Platford, executive]

Well, there is a high unmet need for plasma-derived therapies in Japan. This is a market that today is relatively underdeveloped, and I would say, historically, perhaps not fully valued. That's why we're working with the authorities to invest in a manufacturing facility to meet the needs of patients in Japan. At the same time, ensuring that the authorities in Japan understand the value that these treatments bring to patients, to their families and to the health system at large so that this investment does provide both supply for patients but also sustainable business growth. And this is why we also announced that facility would not only be supplying patients in Japan, but would be hub, both for the Asia region and globally to support the needs of patients who depend on these therapies.

[Fumiyoshi Sakai, analyst]

Understood.

[Christophe Weber, executive]

Sakai-san, this is Christophe. A couple of points here. First, the Japanese business is our second biggest business in the world after the U.S. Yes, Japanese revenue is less than 10% because the world is big, and Takeda is a big global company. But this is our second biggest business in the world. What we need in Japan is to grow, and we will grow by launching more innovative new medicine and that what we have started to do for many years. So this is our intent with Japan, is a very high priority. We have, obviously, a very strong presence in Japan, and we'll continue to have a very strong presence and very strong reputation, so we can really launch efficiently new products. So we are ambitious in Japan.

We launched every single global product in Japan, is launched -- in the world is launched in Japan, plus we always find opportunities to launch, specifically some new innovative medicines in Japan. We did that very well, for example, in our oncology business. Today, we are one of the leader in oncology in Japan because we launched our global product in Japan, but also we were able to in-license many products as well for the Japanese market. So we are ambitious in Japan.

The reorganization that we are doing now is really to align an organization to a portfolio of product, which has evolved a lot. We have more treating rare disease, specialty disease. We used to be more a general medicine type of portfolio, but we are now much more innovative, but also we have more targeted therapy. We want to provide the best possible service and provide the best information to doctors, and this is why we are reorganizing our operation today to be able to provide.

[Christopher David O'Reilly, executive]

I think I'd like to take one final question on today's call. So I'd like to call upon Miki Sogi from Bernstein.

[Miki Sogi, analyst]

So two questions, please. So first of all, ENTYVIO, I imagine that in ENTYVIO growth 10%, congratulations, it's great, the recovery of growth. And it's coming from the price of Pen as well as patient expansion. Can you tell us what is the kind of rough division of these two growth drivers?

And the second one is for TYK2. So TYK2 in the U.S. continue to make kind of slow progress for its launch. And despite the fact that it has shown pretty clear efficacy superiority vis-à-vis OTEZLA, and I'm wondering given that situation, you continue to believe that the head-to-head, your TYK2 inhibitor against TYK2 is important for your future positioning. Can you tell me your thinking wouldn't change despite the situation of the TYK2? These are the 2 questions.

[Christopher David O'Reilly, executive]

Thank you, Miki. So the first question was on the ENTYVIO sources of growth. And so I'd like to ask Julie to take that question. And perhaps Julie can also take the second question on our thoughts of the TYK2 positioning in the market, zasocitinib vis-à-vis TYK2.

[Julie Kim, executive]

Thank you for the questions. In regards to ENTYVIO, when you look at the U.S. in particular, I'm assuming that's what your question is focused on, when you look at the U.S. in particular, with the launch of the Pen, we've had access to new patient populations, new HCPs that we did not have access to before. So that is part of the acceleration in our demand. But as we also shared previously to some of the other questions, ENTYVIO overall still performs very well. It continues to be the benchmark in IBD, and that's why we are able to hold on to our first-line position.

In regards to the revenue, you were asking, I believe, the split between demand and revenue. So some of the revenue growth is coming from the mix between Pen and IV. And as I mentioned in the earlier part for the second half of the year, while we do continue to expect demand acceleration, we do expect to see some of the channel dynamics and mix to have less acceleration on revenue than on demand overall, but still continuing to grow into the second half of the year. So hopefully, that addresses your question on ENTYVIO.

For your second...

[Miki Sogi, analyst]

Sorry, about ENTYVIO, is it also right to understand that actually the Pen price patient is higher, so that just conversion from IV to Pen also contributes to your growth? Or as you were saying that really access to more broader patients and broader in the physicians, the base, that's kind of more the driver?

[Julie Kim, executive]

It is both.

[Miki Sogi, analyst]

And roughly, is it in the half and half or...

[Julie Kim, executive]

Half and half in regards to?

[Miki Sogi, analyst]

So the contribution coming from the price difference versus the actual expansion of patient base.

[Julie Kim, executive]

So in regards to the split, roughly 7% is from demand and the rest is from price. Does that answer your question?

[Miki Sogi, analyst]

Yes.

[Christophe Weber, executive]

Julie, it's Christophe. It's 7% out of 10%, right?

[Julie Kim, executive]

Correct.

[Christophe Weber, executive]

Yes. So 70% is demand, 30% is price. So it's 7% of 10%, just to be clear.

[Miki Sogi, analyst]

Yes. Thank you. No, that's clear.

[Julie Kim, executive]

I'm sorry, did you have another clarification?

[Miki Sogi, analyst]

I just wanted to also follow up on the TYK2 question as well.

[Julie Kim, executive]

So our TYK2 versus TYK2. So first and foremost, we are waiting to see the data that comes out of our Phase III, but we're very encouraged by the data that we have thus far. And if we are able to have that differentiated positioning and the stronger efficacy vis-à-vis deucravacitinib, then that is going to help us with our positioning in the U.S. So that is a key component.

And then the second part of what we will have to do with TAK-279 is in regards to how we address the access challenges. So here, we will learn from what our competitor has had to deal with, but also what we are learning as we continue to pull through access with ENTYVIO Pen.

[Christopher David O'Reilly, executive]

So with this, I'd like to bring today's conference call to a close. Thank you all very much for your participation. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]