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Executives

Christopher Hohman - Vice President of Corporate Communications.

Yasuchika Hasegawa - Representative Director, President & CEO

Iwaaki Taniguchi - Senior Vice President of the Corporate Finance and Controlling Department

Tadataka Yamada - Director, Chief Medical & Scientific Officer, Executive Vice President of Takeda Pharmaceuticals International, Inc.

Analysts

Takeda Pharmaceutical Co Ltd (OTCPK:TKPYY) F4Q2012 Earnings Call May 9, 2013 8:30 AM ET

Operator

Please note that this telephone conference contains certain forward-looking statements and other projected results which involve known and unknown risks delays, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rate, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions.

During the presentation from the company all the telephone lines are placed on a listening-mode only and a question-and-answer session will be held after the presentation. This conference call is being broadcasted live on the internet but only for a listening-mode.

With that we would like to begin the conference. Mr. Christopher Hohman, please go ahead.

Christopher Hohman

Thank you very much and thanks everyone for joining us today for this conference call for overseas investors to cover Takeda's financial results for the fiscal year 2012 and our mid-range growth strategy. My name is Christopher Hohman as introduced. I am Senior Vice President in Corporate Communications. I would like to quickly introduce the panel here today with me. First of all Mr. Yasuchika Hasegawa, President and CEO; Dr. Tadataka Yamada, Chief Medical and Scientific Officer: Dr. Frank Morich, Chief Commercial Officer; Mr. Masato Iwasaki, Senior Vice President of the Pharmaceutical Marketing Division; Mr. Iwaaki Taniguchi, Senior Vice President of the Corporate Finance and Controlling Department; and finally joining us from Cambridge Massachusetts is Anna Protopapas, President of Millennium: The Takeda Oncology Company.

We will first have opening remarks from Mr. Hasegawa, followed by Mr. Taniguchi and Dr. Yamada. And then we will go into the QA session.

I hope that you are aware of financial information was announced by Takeda today. If you go to takeda.com the investor section has all of the presentations and press releases that we issued today. So if possible please access these materials. So first of all as I mentioned I would like to get started with opening remarks from President Hasegawa.

Yasuchika Hasegawa

Hi, this is Yasuchika Hasegawa, President and CEO of Takeda Pharmaceutical. Thank you for joining our annual earnings report conference call. Assuming you have reviewed our announcement materials I would like to just make two comments. One is related to the operating margin gap in the year 2012, between our original announcement of ¥1,600 billion and versus year end closure ¥1,225 billion. There are three key factors contributing to this gap. Number one is the long term investment based on the phantom stock option we offer to the oversea senior employees, management employees.

Ever since second time Abe Administration started December 26 last year, all the situation macroeconomic policies and Japan Central Bank policies and stock market have changed dramatically. Due to this for example Takeda's stock prices increased significantly during the course of first quarter from beginning ¥3855 last year to ¥5030 per share, 30% increase in one quarter. That contributed more than ¥100 billion incremental PL hit due to the phantom stock option we offer to the overseas senior management employees.

Secondly, accelerated generic penetration towards the end of the fiscal year, particularly happened in the first quarter due to the Abe Administration's encouragement for cost reduction in medical expenses to promote generic use, more so than before. And in February corporate side misjudgment on last quarter sales and spending based on the past historical pattern. We have accomplished. We made a judgment on the corporate side. There might be upside in the sales and there might be downside in spending but that judgment was incorrect. And in the end modest sales was as projected and the spending was as projected. So those three factors contributed a gap between the original announcement versus the year-end closure.

So we have learned the lessons and we have had in-depth discussion amongst the senior management leader team not to repeat the same mistake in the future again. And because of the increasing uncertain economic and the market situation we decided not to disclose three year MRP in detail. Instead we decided to disclose current year detailed plan plus indicative numbers such as top line growth and the bottom line operating margin increase in the manner of compound annual gross rate for next five years.

In that respect we announced today for next five years compound gross rate of top line sales will be mid-single digit and also the bottom-line operating margin will be 20 plus percent in compound annual gross rate. And on top of that based on these trajectory we project we decided to pay out the dividend, maintain 100 ADM per share for next three years namely 2013, 2014 and 2015.

And with regard to the 2013 operating margin when we announced mid-year, a mid-range plan, last year about same time last year we mentioned that this year means 2013 fiscal year operating margin will be ¥2,250 billion but we ended up announcing today this year's bottom line operating margin will be ¥1,400 billion. This is primarily due to the sales decline in different various part of the world starting from Japan. We have compared to the last year plan more than ¥200 billion downside primarily due to the, may be too aggressive sales projection on diabetology product like Nesina and several others due to the quicker than the original anticipated generic penetration as I mentioned.

With regard to the United State due to the voluntary withdrawal of the Omontys caused more than and other product shortfalls versus last year's plan caused more than ¥500 billion shortage. And the EU close to 600 and the other region 280. So combined we have ¥1,400 billion shortage in sales compared to the previous year announcement. But on the other hand of course shortage of the sales we have ¥400 billion cost of goods reduction and also at the same time we reduced SG&A by ¥250 billion. So net-net we have ¥750 billion negative impact on the bottom-line operating margin. Those are the primary reasons of the gaps between -- on the operating margin, between last year announcement amount versus this year's plan amount.

That's the opening remarks I would like to make and now I'd like to turn the microphone to Iwaaki Taniguchi who is going to talk briefly about numbers more in detail. Thank you.

Iwaaki Taniguchi

This is Iwaaki Taniguchi, Head of Corporate Finance and Control at Headquarter. I will walk through our financial performance of the fiscal year '12 and outlook for fiscal year '13 together with the guidance for the sustainable future growth. Please move to the presentation page two which presents results of the fiscal year '12.

Let me quickly introduce key figures for '12. First of all our net sales is ¥ 1.557 trillion, which is a 3.2% increase from previous year. Then operating income is ¥122.5 billion which is a 53.8 decrease. For your information our operating income excluding special factors is ¥267.5 billion which is 35.5 decrease. Finally net income is ¥131.2 billion which is a 7.1 billion increase from previous year.

Let me deep dive into each component of the financial from the next page. Here I want to explain the breakdown of sales increase by business segment. First one is ethical drugs segment in Japan. Also our net products line including Nesina and Azilva have made a good contribution. It was not sufficient to offset a decrease of a major existing product like Actos and Blopress, which were impacted by late 5% cutting in the listing price by Japanese government.

Overall reserve is a ¥3.8 billion decrease from previous year for this segment. And for overseas ethical drug segment we recorded ¥46.8 billion increase due to 12 months counting of legacy Nycomed product portfolio as well as new acquisitions such URL and Multilab in Brazil.

Please move onto the next page. This page shows breakdown of net sales increase by products. As you can see although we experienced decrease in Actos and other three major products we had a significant increase of ¥94.4 billion in new product category which were launched after 2009. Plus we have a benefit of full year accounting of legacy Nycomed product in 2012 compared to only six months in previous year. Please also note that Velcade has experienced a steady growth.

Please move onto the next page. This chart shows the breakdown of sales increase by region. Thanks to broader business footprint of Nycomed we experienced significant increase in Europe, Asia and Middle East, Oceania and Africa. As for Americas increase of the existing portfolio such as Velcade, Dexilant, Uloric, combined with our new product acquisition of URL and Multilab have significantly offset the effects of patent expiry of Actos. As a result decrease in Americas was limited to around 9%.

Please go to the next slide. Then this is the status of emerging countries, emerging markets which is most important growth driver to Takeda. As over fiscal year '12 emerging market represents roughly 15% of our net sales in ethical drug segment, which has increased 190% from previous year. Even if we exclude FX effects and also if we make apple-to-apple comparison with acquired companies annual (right) base sales they also recorded ¥25.6 billion sales increase which is (14) increase from 2011.

Please turn to next page. Now I am walking through a contributing factor of operating income. Mainly due to avoidance of previous years one time Nycomed acquisition charge in inventory gross profits have increased by ¥33.9 billion. However, because of a full year consolidation of a cost associated with legacy Nycomed on 12 months basis and also increase of amortization charge related to our new acquisition like URL which is roughly ¥43 billion SGA expense overall although have increased by ¥134 billion. Also adding the expenditures due to the progress of clinical study in late stage pipeline it has increased ¥42.4 billion this year. As a result operating income in 2011 -- 2012 was ¥122.5 billion which is 53.8% decline from last year.

Please move on to the next slide. This is showing a breaking for net income from previous year. Also our net income for '12 was ¥131.2 billion which was ¥7.1 billion increase from previous year. Let me explain some background. First of all we recorded ¥34.4 billion increase in the net extraordinary income segment, which I will deep dive on the next page. Secondly, we experienced significant decrease in tax which is ¥129.9 billion. This refund is related to a legacy transfer pricing settlement from Japanese tax authorities. This is a major reason. This is also combined with natural decrease of tax due to lower pretax income level compared to previous year.

The chart in the next slide is showing the breakdown of the extraordinary income and loss items. The total of extraordinary income was ¥95 billion but there was extraordinary loss on the other hand at ¥78.5 billion. The net is -- net amount is ¥16.5 billion extraordinary income which is ¥33.4 billion increase from last year. Let me explain little bit about this. The biggest impact of the biggest item is the write-off a roughly ¥33 billion intangible related to Daxas which was generated through acquisition of Nycomed. The main factors is reducing our sales forecast for this product reflecting more stringent reimbursement environment in major European countries these days.

Please go to the next page which presents cash flow situation. So this is the cash flow depiction for our fiscal year 2012. The net increase in cash is ¥91.3 billion. Overall our cash balance end of the year, fiscal year is ¥545.6 billion which is roughly ¥90 billion increase from previous year.

Please turn to next page. Now I would like to explain about the comparison with the financial forecast back in February which was already explained by Mr. Segawa. He explained as for net sales thanks to appreciation of yen, Japanese yen against other currencies final figure recorded ¥7.3 billion increase compared to our February announcement. However due to further increase of cost items our final operating income was ¥37. 5 billion short of ¥160 billion target. Major reason of cost increase was both translational effect of overseas cost item denominated in non-Japanese yen combined with increase of a equity based compensation due to increase of stock price in Japan.

We generated extraordinary income by selling a portion of our marketable securities. But due to newly impairments of items the final net income figure is short of target or ¥23.8 billion Japanese.

The next page shows our discussion towards the future. Let me move on to fiscal year '13 financial year forecast page which is page number 13. Here I am showing fiscal year financial forecast for '13. For your reference our currency rate assumption this time, this fiscal year is 90 yen per dollar and 120 yen per Euro. For next year we expect ¥1,590 billion which is ¥32.7 billion increased from last year. FX among this year's increase is roughly ¥80 billion. We will maintain ¥300 million R&D expense as a focus for sustainable future growth and for SG&A expenses we had started the company wide initiative to establish more robust and efficient operating model.

And we are now focusing on the cost efficiency by revisiting all expenditure items. Needless to say it is very important to maintain critical investment for our future rapid growth in emerging country as well penetration preparation for product launch. However we are determined to eliminate any cost item wherever possible. So anyway as a result we expect to achieve ¥140 billion for operating income which is 14% increase from previous year, fiscal year '12. So this is the fiscal year 2013 forecast.

Let me move on to the next page. So now I would like to explain the comparison between the new financial forecast as of today and that in our previous mid-range one. And indeed domestic and international environment for pharmaceutical business have drastically and rapidly changed. This have resulted in our downward adjustment. For net sales we have taken accounting to more stringent re-investment and competitive environment, both in Japan and Europe. Furthermore, we have also factored in sales decline caused by withdrawal of some products from the market. For cost side as I mentioned earlier we will maintain all required investment related to new product launch, so that we can accelerate our sustainable growth from now on. Having said that we will monitor closely all cost item, maintain a cost level lower than our previous mid-range plan, without considering FX.

So next page illustrates our new accounting standard IFRS. I have indicated previously in order to increase comparability with other international competition we will migrate to IFRS accounting standard from end of year 2013 disclosure. So for our investor's reference we are herein disclosing IFRS based financial forecast for 2013 here. Our operating margin IFRS is roughly ¥15 billion higher than that of current Japan GAAP based number mainly due to avoidance of amortization of goodwill. If you need further breakdown please take a look at page 23 of appendix. Being consistent with IFRS migration we will also disclose core earnings as a key performance indicator which is pretty common among our international competition.

Our expected core earnings in '13 is ¥280 billion which is approximately 18% of our net sales. Our next page shows our mid-term financial targets or guidance up until 2013, for your reference. So as Mr. Segawa mentioned we are expecting net sales to increase around mid-single digit for next five years, at a compound annual gross ratio basis. Same for 20% achieved for operating income for next five years, 20% CAGR and dividend to be maintained as current for next three years and we also expect R&D spending around ¥300 billion level.

Please move on to the next page which describes the product earnings for our future operating model efficiency. So ultimate goal of this project is increasing operating income level through creating more robust and efficient operating model on global basis. They exhibit some functional sub categories which have its own agenda and goals. For sales and marketing we aim at more integrated marketing strategy and sales support activities amongst global regional and country level so that we can create more synergy in this respect.

For manufacturing supply chain we intend to leverage more on existing very broad global network on infrastructure of legacy Nycomed. For R&D we will further increase the efficiency of R&D activities and carry on optimal investment to create innovation. For general and administration we will increase efficiency by further integrate and unify our current dispersed and diversified G&A operation and procedures. Through these activities we are targeting 25 core earnings to be achieved by fiscal year '17.

This is the end of my presentation. Thank you very much for listening.

Christopher Hohman

Thank you. And finally Dr. Yamada will give an update on R&D activities.

Tadataka Yamada

Thank you very much Chris and thank you all for listening in. I know you have a copy of the presentation so I am going to truncate my presentation somewhat and jump around a little bit. Going to page three; page three points out that we had a very good year in FY12. We had many important approvals and filings. Just on the approval side I should point Nesina was approved in U.S., ADCETRIS was approved for relapsed refractory Hodgkins in (pharma) and ALCL in Europe and what is not shown on this page is the recent approval of (culpasidnib) which we have end license to Pfizer in Japan.

On the registration and filing side there are four products that I would just like to highlight that will represent important launches in FY'13 going into FY'14. One is BRINTELLIX our multi-modal anti-depressant partnered with Lundbeck; Contrave, which is a obesity product; vedolizumab which is monoclonal antibody against alpha 4 beta 7 integrin for ulcerative colitis in Crohn's disease; and lurasidone for treatment of schizophrenia, lurasidone being launched in Europe. One other item on the filing side just to take note of is BLB-750 which is our pandemic influenza vaccine. This is important given its potential adaptation to H7 N9 vaccine should that be required.

Moving to page four, in the next page we have a very strong phase III program. You have heard much about this. So I won't comment more other than to say that important revolutionary products here; TAK-875 for diabetes chief amongst them but in addition, orteronel, TAK-700, MLN9708, that's called ixazomib. And an interesting compound called vonoprazan or TAK-438, potassium-competitive acid blocker primarily developed in Japan.

On page five we note some important partnerships that we have developed in the past year. I would like to highlight two. One is LigoCyte which is an acquisition of vaccine company to support our emerging vaccine franchise. This company provides us not only with the VLP technology on which to build other vaccines but brings to us a phase II asset in the norovirus vaccine, norovirus diarrhea being most common cause of epidemic diarrhea in the world and a major cause for morbidity and mortality both in the developing world and in the developed world.

The other partnership I would like to highlight is Advinus which is an Indian company that has partnered with us to develop new INDs. We have developed this relationship as a competition between our internal programs, internal capability and external capability and Advinus and external capability competing with the same targets, developing them in a race to make INDs.

The clinical element shown on slide is a measurement of R&D productivity. When I came in to Takeda just two years ago I was faced with the graph on the left, which was an assessment done by PCG of productivity amongst companies in the pharmaceutical industry. It is really based upon eNPV products in the clinical stage against a change in the eNPV against an investment in R&D. And as you can see on this analysis it looks like Takeda is second from the bottom of the cohort that was examined in terms of change in eNPV as a function of R&D investment. At the point Takeda is using $0.50 on every dollar invested in R&D. Moving forward two years we have reverse this slide. We are now second amongst the industry comparative group. We turn $1.40 on every dollar invested in R&D, and indicates a very substantial improvement in productivity.

I would like to move forward to R&D initiatives in the mid-range growth strategy and I would like to move to slide 11. We basically have three approaches to improving R&D productivity, short term, mid-term and long term. In the short term shown on slide 11, we leverage our advantage of a rich late stage pipeline. For this we want to make sure that our successful programs moves forward to the approval; vortioxetine, Brintellix is the brand name for depression, Contrave for obesity, then vedolizumab for ulcerative colitis in Crohn's Disease, and lurasidone for schizophrenia.

We will focus attention on our exciting phase III programs, including fasiglifam TAK-875 for diabetes and (inaudible) TAK428 for acid peptic disorders; ixazomib 9708 as a follow on proteasome inhibitor for oral proteasome inhibitor for multiple myeloma and TAK-700 or orteronel for prostate cancer. We have also some very important assets moving forward in the late stage our diagnostic therapeutic combinations for treatment of Alzheimer's disease using TOMM40 biomarker and the Norovirus vaccine.

In the mid-term, we are going to fill in mid-stage portfolio and to do this we are going to push forward our promising preclinical and clinical assets. They include TAK-385 which is NGA RH-antagonist for uterine fibroids; 8237 is a Aurora A kinase inhibitor; 4924 our NEDD 8 activating enzyme inhibitor and two very unusual and exciting compounds in (inaudible) potentiator and (CD30A) receptor antibody.

We've also have this project to basically look through our (inaudible) assets which could be used for additional indications and we have new programs that we will be talking about in the future in diabetes, (inaudible) fibrosis and schizophrenia.

In business development we focused on assets that are earlier stage give the richness of our late stage portfolio compounds that are ready for proof-of-concept experiment and in this regard on the next page we show an acquisition that was just announced yesterday. We acquired Invirgen, a vaccine company that has phase II asset for dengue and other compounds for other vaccines for EB71 hand foot mouth disease and chicken gunia. This acquisition complements our VLP technology acquired with LigoCyte in providing expertise in (inaudible) virus vaccines. These two acquisitions form the cornerstone for an outstanding vaccine franchise and evolution.

On the next page we will focus on improving R&D productivity in the long term by strengthening our research competitiveness and productivity. Just to give you an example of what we did last year that we will continue on moving forward. We decreased our cost per drug candidate by 40% last year in our discovery group and in the progress of candidates to IND we decreased the time what was an un-acceptable 31 months to 12 months it was a very good collaborative joint effort. And we will put fully these kinds of initiatives to continue improving our discovery research capabilities.

Finally on page 16 we show a pipeline that's moving forward in FY'13, '14, '15 and '16 we have a full and rich and deep pipeline in all the regions in the world and we feel therefore and we have a very bright future on the basis of our outstanding late stage portfolio. Thank you very much.

Christopher Hohman

Thank you. So with that we would like to commence the Q&A session. So I request the callers limit themselves to two questions each and to ask a question please follow the instructions of the operator. Operator please?

Question-and-Answer Session

Operator

We have a question-and-answer session now. (Operator Instructions) The first question is from Ms. Salva Gilotti from Platinum. Please go ahead.

Unidentified Analyst

Yeah hi, I first wanted to clarify the 20% operating profit growth which you forecast for '13 to 17, is that based on reported Japanese GAAP, the adjusted GAAP or on IFRS? And the second question is the new core earnings, is the new core earnings the same as the old operating income excluding special factors or is that the new adjusted net earnings number?

Iwaaki Taniguchi

Let me answer to your question. So 25% increase per year, average year is related to our core earnings from -- no, no. 25% operating margin to be achieved by 2017 for core earnings but we also expect the increase over operating income at the rate of 25% for next five years as well.

Unidentified Analyst

25% operating margin on the core also based on all adjusted and also 25% gross on average per year on core earnings?

Iwaaki Taniguchi

No, no, no. 20% annual gross operating income for next five years on average basis.

Unidentified Analyst

But what operating profit is that?

Iwaaki Taniguchi

It's Japan GAAP. But we are migrating to IFRS from the March next year but for 2013 we will make announcement under Japan GAAP. So operating income was -- please understand this is the Japan GAAP based number 20% CAGR.

Unidentified Analyst

Okay.

Iwaaki Taniguchi

25% the core earnings, the ratio against sales is to be achieved by 2017.

Unidentified Analyst

Okay, thank you.

Iwaaki Taniguchi

Core earnings is same concept, very close concept as the operating income results special factors.

Unidentified Analyst

Okay. That makes sense.

Christopher Hohman

Thank you very much. Next caller please.

Operator

The next question is from Ms. Amelia Sancheti from Hunter Fitzgerald. Please go ahead.

Unidentified Analyst

Hi, good evening. I was actually going to ask about the profitability margin for your emerging market business, and you previously said that it stands at around 30% and you are looking to be in line you said around 40%. I was just wondering if you could give us an update where it stands now and whether that guidance still holds. And then secondly I am might have missed this during the presentation so wondering what sort of extraordinary related expense we need to expect for Omontys and next year?

Christopher Hohman

I am answering your first question about the profitability of emerging market. We have emerging markets that have profitabilities which in the area of 40%, and for our business we can say that it seems to be relationship between market share and profitability. And we have of course strongholds where we have pretty strong market positions, and in other areas so we still focusing on growth and do heavily invest in growth. We for the time being accept lower margins but the goal is to bring the emerging markets business as a whole into the range of 35% to 40% which according to our understanding is in line with best practices.

And the second question regarding to Omontys I will hand over to Iwaaki again.

Iwaaki Taniguchi

So as for Omontys we accrued all related in 2012 already, and there is no more expense related to this product in 2013.

Unidentified Analyst

Okay, great. And then just sort of trying to go back to the emerging market question? Not to be annoying but I was just wondering sort of on the whole where we are standing now and given your goals is 35 to 40. I am just wondering sort of that merged average where we are at the moment. I do understand that some are probably sort of already there.

Christopher Hohman

We normally don't give away these numbers, but I don't think you make a big mistake if you just use the middle ground between the 40 and something that is between 20 and 30 then I think you will see…

Unidentified Analyst

Great, thanks

Christopher Hohman

Do we have another caller with the question?

Operator

(Operator Instructions).

Christopher Hohman

I am showing there is one more question, so please go ahead.

Unidentified Analyst

… from stock option and they have been taking in the operating profit and this is not a special item, they are basically taking in the reported, is that correct?

Iwaaki Taniguchi

That's correct. Yeah, all those stocks, phantom option related expense is accrued within the category R&D expense for R&D people in the category of admin general and marketing for marketing and general staff, but not in the special category.

Unidentified Analyst

So basically this is also going forward. This is not only one off that is basically also in the forecast over the next year so that's stable number

Iwaaki Taniguchi

Not necessarily depending on the behavior of exercising pattern of exercising and granting and those situations that could be affected by those factors.

Unidentified Analyst

Okay so the other delta is kind of higher SG&A cost which continues in the next years, can you just explain why the SG&A cost is so much higher, can you anticipate it?

Iwaaki Taniguchi

Because as I mentioned in my presentation we continue to make necessary investments for future growth such as new product launch preparation and expansion in the emerging country. But as I mentioned also we try to maintain cost as much as possible so we don't expect significantly increased results for ex-FX basis from current level.

Unidentified Analyst

But you invested last year than much more than you thought so basically so you start off at a higher base but you continue it.

Iwaaki Taniguchi

We expect to have same level SG&A at least next year. After 2014 it depends on the situation in product launch and emerging country situation as well.

Unidentified Analyst

And can I just understand a bit more what's going on in the gross margins? So basically the gross margins will change significantly from here going forward or should they stay the same?

Iwaaki Taniguchi

In terms of cost of goods sold which is important (competitor) of gross margin, we try to maintain our cost of goods sold as much as possible, although there is necessary increase in consistent with sales increase but the percentage of core cost of the goods sold against sales will decline so that we can increase our operating margin and gross profit as well.

Unidentified Analyst

So the gross margin should go up over the next year is what you are saying?

Iwaaki Taniguchi

Of course gross margin should go up because sales increase will absorb the increase of cost of goods sold so gross margin should increase for next at least three years.

Christopher Hohman

Do we have any other questions?

Unidentified Analyst

Can I just maybe ask another question?

Christopher Hohman

Sure. I think we have time for one more question.

Unidentified Analyst

Do you have a feel for what the tax rate will be this year? What is the assumption in your numbers?

Iwaaki Taniguchi

Yeah tax rate this year is very unique because we received a huge refund from Japanese government related to (inaudible) operating settlement. From next year we are coming back to the normal tax rate, corporate tax rate marginal and corporate tax rate like 40%, lower 40% reflecting Japanese corporate tax rate, for some non-tax deductible items.

Unidentified Analyst

So this is much higher than most people think because the tax rate should go down in Japan in general you know. In your forecast you have got higher than 40% tax rate?

Iwaaki Taniguchi

Because of the amortization of the goodwill. So this will negatively impact the corporate tax rate because this amortization of the goodwill is not tax deductible item. It will on surface negatively impact corporate tax rate as a consolidation basis.

Unidentified Analyst

Okay.

Christopher Hohman

I understand. There is one more question on the line from the investors? Operator?

Operator

That question was from Ms. Salva Gilotti from Platinum. The next question is from Mr. Rogers from Private Investors. Please go ahead.

Unidentified Analyst

Hi, I have a quick question. I was just wondering if you could give us an update on Omontis. Thanks.

Tadataka Yamada

This is Tachi Yamada. Omontis the NDA and IND -- the IND and NDA have been transferred Affymax to Takeda and Takeda have assumed all responsibility for subsequent investigation and recall of the distributed product. We are working directly with the FDA on this.

Unidentified Analyst

And just as a follow-up, do you think it will make it back to market?

Tadataka Yamada

I wish I knew the answer to that. I can't say.

Unidentified Analyst

Okay, thanks a lot

Christopher Hohman

Okay, so with that brings us to the end of the call today. I would like to thank everyone for participating and for your interest in Takeda. Thank you very much.

Operator

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

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