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Executives

Christopher HohmanSenior Vice President-Corporate Communications Department

Tsudoi Miyoshi – Senior Vice President, Head-CMSO Office

François-Xavier Roger – Chief Financial Officer

Analysts

Hidemaru Yamaguchi – Citigroup Securities

Atsushi Seki – Barclays Capital

Shinichiro Muraoka – Morgan Stanley MUFG Securities

Hiroshi Tanaka – Mizuho Securities

Fumiyoshi Sakai – Credit Suisse

Tim Race – Deutsche Bank

Takeda Pharmaceutical Co., Ltd. (OTCPK:TKPHF) Q2 2014 Earnings Conference Call August 1, 2014 4:00 AM ET

Christopher Hohman

Thank you very much for your participation in the conference call of the First Quarter Financial Results for Fiscal Year 2014 of Takeda Pharmaceutical Company Limited. My name is Christopher Hohman, Senior Vice President of the Corporate Communications Department. Now, please let me introduce today’s presenters in the panel. Mr. Francois Roger, Chief Financial Officer; and Mr. Tsudoi Miyoshi, Head of CMSO Office. First, we would like to start with the presentation on the update related to our R&D activities followed by the first quarter financial results for fiscal year 2014. After that we will have the question-and-answer session.

Now we will start the presentation. Please have the presentation materials to hand. First of all, we'd like to start with the presentation from Mr. Miyoshi.

Tsudoi Miyoshi

Good evening. My name is Tsudoi Miyoshi, Head of the CMSO. Today, I'd like to give you an update of recent events in Takeda's R&D. I will cover the following topics: pipeline stage-ups since FY 2013 financial announcement, efficacy data of VELCADE in patients with previously untreated mantle cell lymphoma, BRINTELLIX data presented at the International College of Neuropsychopharmacology World Congress and American Society of Clinical Psychopharmacology Annual Meeting and details of our strategic alliance with MarcoGenics autoimmune diseases. Next slide please.

As you can see from the stage-ups since FY 2013 financial announcement, we had some progress in our late stage pipeline. In May, we got approval of ENTYVIO for ulcerative colitis and Crohn's disease in the U.S. and Europe. We understand that this is the first biologic to have been approved for the two indications simultaneously. And we have already launched the product in the U.S. and several countries in Europe including U.K., Germany and France.

ENTYVIO is a groundbreaking new product that offers a new treatment option to patients with inflammatory bowel disease, who have failed to respond with existing products and we expect this product to become blockbuster global product for Takeda. ENTYVIO's Phase III trial is running in Japan. We will continue activities for launching this product in other regions including Japan. As you can see, we have already initiated trials of a subcutaneous formulation of ENTYVIO. We are pushing forward to develop this product into a blockbuster.

For VELCADE, we filed in the U.S. for front line mantle cell lymphoma and later I will introduce the data that supported this filing which we presented at ASCO in Chicago in June. For MLN9708 ixazomib trials are currently ongoing in relapsed or refractory multiple myeloma and newly diagnosed multiple myeloma. And in this quarter, we initiated an additional Phase III trial in the U.S. and Europe for maintenance therapy. In Japan, we started Phase III trial for our combination of NESINA and metformin.

As you know this combination is already available on the market in the U.S. and Europe. We are moving forward diligently to deliver this product also to patients in Japan as a new option for type 2 diabetes, who still need better glucose control and the mid-stage pipeline antibody drug conjugate ENTYVIO progressed to Phase II for advanced gastrointestinal malignancies. We are accelerating the development of this compound and we believe that it has potential to be a first-in-class product.

As you can see in the early stage of development, we have started clinical trials for two new compounds TAK-058, if the 5-HT3 receptor antagonist that we obtained through the acquisition of Envoy for the treatment of schizophrenia especially cognitive impairment associated with schizophrenia. TAK-935 is another new compound in the CMS area. This is a small molecule that works by prudently inhibiting a cholesterol 24-hydroxylase.

Next slide, here you can see the data presented at the American Society for Clinical Oncology meeting in June, evaluating the efficacy of VELICADE in patients with previously untreated mantle cell lymphoma. In this study, we compared with rituximab, cyclophosphamide, doxorubicin and prednisone plus vincristine (R-CHOP) to a regimen vincristine is replaced by VELICADE or VR-CAP in patients with newly diagnosed mantle cell lymphoma. The VELICADE showed a statistically significant improvement in progression-free survival in the assessment by the Independent Radiology Review Committee. Based on this positive result, we filed a submission to the FDA for this indication.

Next, I'll introduce two sets of data about BRINTELLIX. Firstly, this slide introduces data from the International College of Neuropsychopharmacology World Congress showing the efficacy of BRINTELLIX on cognitive function in adult patients with major depressive disorder. The primary endpoint of this study was the main change in DSTT from baseline at week 8. DSTT is an objective neuropsychological test associated with existing function, processing speech and attention and it used as a scale to evaluate the effect on cognitive function. In this study, BRINTELLIX showed statistically significant improvement over placebo.

In contrast, Duloxetine did not show statistical significant over placebo in this endpoint. Also BRINTELLIX and Vortioxetine were both better than placebo with statistical significance in reducing the MADRS total score from baseline at week 8, showing efficacy in treating depression and validating the clinical study. Furthermore, path analysis indicated that BRINTELLIX benefit on cognitive function was a direct treatment effect rather than a general effect due to alleviation of mood and depressive symptoms.

Next Slide please. Next allow me to introduce data presented at the American Society of Clinical Psychopharmacology Annual Meeting comparing BRINTELLIX with Escitalopram in patients well treated for major depressive disorder and experiencing treatment-emergent sexual dysfunction. In the BRINTELLIX, there was a significantly superior change in the CSFQ-14 total score at week 8 compared to the Escitalopram on CSFQ-14 is a clinical and research instrument to score assessment of sexual function. We believe that the data from this trial showing BRINTELLIX superiority of Escitalopram in improving sexual function in patient well treated for major depressive disorder and experiencing treatment-emergent sexual dysfunction will enable us to offer a new benefit to patients.

As we announced in May, we have entered into an auction agreement with MacroGenics for development in the commercialization of product candidate MGD010. MGD010 incorporates the Dual-Affinity Re-Targeting platform or the DART platform to simultaneously engage CD32B and CD79B, which are both B-cell surface proteins. It is expected that the engagement of CD79B enables specific binding to the B-cell surface in the simultaneous action on CD32B inhibit excessive activation of B-cells. It is currently in pre-clinical development for the treatment of autoimmune diseases.

Finally, I will introduce a Slide of our approval schedule. You can see, we have already obtained approval this year for ENTYVIO in the U.S. and Europe. Regarding the MLN9708 or ixazomib projected approval timing in the U.S. and Europe for the indication of relapsed refractory multiple myeloma has been changed from FY 2015 to FY 2016. Allow me to explain the background to this. At present patient enrollment has been completed and the trial is ongoing. It is an event driven study as the primary endpoint is progression free survival, or PFS, which makes it challenging to predict the precise timing of completion of the study, as of now pace of event is a bit slower than our original projection. We expect data and submission in FY 2015 and approval in 2016. This does not mean that there is any problem or concerns with the trial itself. We are very confident in ixazomib and we will diligently pursue its development in order to provide the product to patients with multiple myeloma as soon as possible.

Thank you. That’s all for my stuff. Next CFO, Francois Roger, will be providing you with financial update.

François-Xavier Roger

I'm Francois Roger, CFO. Thank you for joining this conference call today. We’ll discuss today our financial results for the first quarter of fiscal 2014. We'd also touch on relevant information about our growth, innovation, and efficiency initiatives and I will comment on how our Q1 results fits into our full year guidance. I would like to start with a few quick notes on our disclosures for results of this quarter on going forwards on Slide 1. As we have communicated previously, Takeda now transitions fully to IFRS from this reporting period onwards. Further, we are introducing core earnings as a key profit performance measure for easier comparability across global peers.

Core earnings use these operating profits and exclude items such as purchase accounting and amortization on impairments loss of intangible assets, restructuring costs and litigation costs. Core earnings is also measured, but we have used for our mid range guidance for sometime and which is also used for short and mid-term management performance and reward. In addition, we will be disclosing both sales and core earnings on the basis of reported and underlying growth. Underlying only makes two adjustments, one is constant foreign exchange and the second one is removing disposal acquisitions and if any exceptional items.

We believe this underlying growth will give a better and simpler view of our real performance. These concepts are provided in more details in the appendix section. Finally, after having carefully listen to both shareholder and analyst and in order to increase transparency from this quarter onwards we are now disclosing core net profits, core EPS, as well as information about our normalized core tax rates.

Slide 2, includes the items that I will cover today. With that let's move directly to the key highlights of the quarter on Slide 3. First of all, Q1 results showed a temporary slowdown in set goals. As a result of specific events this quarter including the Annual Japanese National Health Insurance downward price revisions as well as reductions of inventories at wholesalers in emerging markets. As a result, we don't see Q1 as an accurate proxy of (indiscernible). It is important to note that these results are fully in line with our expectations and with these announcements therefore we maintained our full year sound earning guidance.

Looking at product performance in Q1, Velcade, Colcrys, Dexilant grew steady while Brintellix started to contribute with sales level in line with our expectations. An example of our innovation includes our breakthrough product ENTYVIO. New biological therapy for UC and CD, which has now begun addressing unmet medical needs of patients both in the US and in Europe.

Also Project Summit continues to produce strong results including ¥5 billion additional savings generated in Q1 and I will touch on this, in a moment.

Next please look at Slide 5, for a closer look at the factors affecting our revenue specifically this quarter. Significant divestments totaling ¥6.2 billion impacted Q1, such as OTC products in Germany that we sold, as well as a conclusion of certain product license agreements such Edarbi in the U.S. and (indiscernible) in Japan.

Underlying revenue growth stood at minus 0.2% leading to reported revenues of ¥411 billion in the quarter. Please move to Slide 6, looking more closely at underlying revenue growth in Q1. We are satisfied to see solid momentum in new products sales that contributed to revenue growth of 4.3%, while the best business was impacted by the factors that I mentioned and that are shown on this Slide.

Slide 7, shows underlying revenue growth by region. Here again emerging markets in Japan were impacted by specific events in the first quarter. In emerging markets, we had one-off impact from inventory reductions at wholesalers.

However, keep in mind that we do confirm that emerging market revenue growth for the full year is expected to be in double digits as it was last year. In Japan, our revenue growth will be positive if we exclude the impact of NHI price revision. At the same time, we are pleased with a growth of combined ARB finally in Japan, ARB (indiscernible) combined.

Let's move to Slide 8, emerging markets revenues in the quarter showed wide range of performances. The temporarily weaker growth rate in Q1 was mainly due to distributor inventory optimization. Mainly, in CIS and LATAM and lower sales in Ukraine and Venezuela due to the political situation. We actively manage this reduction of inventory levels.

When looking at in-market or ex-distributor revenue in emerging markets. We see that Q1, growth was at high teens according to IMS data at the end of May, which is fully in line with our experience last year.

Furthermore as I mention, we forecast reaching double digit growth in emerging markets on a full year basis, as we did last year. On Slide 9, you'll find the performance in Q1 of our top 10 products. Again, revenue’s reflects growth of new products. While our best business was impacted by the NHI price revision and inventory reduction in emerging markets.

We are pleased to see the positive development of Pantoprazole plus 7.3%. Velcade plus 8.8% even after having been launched over a decade ago and Dexilant plus 8.8% among others.

So switch from (indiscernible) in-line Japan as I mentioned, is moving well as both products combine of showing positive growth of 7% year-on-year. Slide 10, looks at the growth of new products with examples of Adcetris and Brintellix.

Adcetris mainly in Europe, continues its strong performance over the past 12 months and in the US Brintellix has grown since launch in line with our expectations. Slide 12, shows the breakdown of expenses for your reference.

Our underlying core earnings were flat versus last year, slightly, better than our expectation due to some favorable timing of expenses. This happened despite, our promotional investments in new products. Looking closer at the individual expense item Page 13, you can see that our sales and marketing investments for growth has increased, to support our new products mainly Brintellix and Entyvio as we announced the beginning of the year.

While we have continued to reduce G&A expenses to bring more efficiencies as part of our Project Summit. Moving to Project Summit on Slide 14 and as I mentioned in the highlights, Project Summit continues to produce strong results. For example in Q1, we included ¥5 billion of additional savings due to this project. And we now expect to cumulatively save an estimated ¥60 billion by the end of the year, fiscal year 2014.

Which means already half of the five-year targets through 2017, which we even increased in May from originally ¥100 billion to ¥120 billion. Slide 15 introduces the additional disclosure we are now providing for tax. We realized that in the past several exceptional items, that have made our tax situation a little bit difficult to understand.

The reconciliation between reported tax rates and our normalized core tax rates helps to understand the underlying effective tax rates, which actually stood at 32.3% in Q1, 2014. This level of 32% is quite similar to what we have recorded over the last two years which we show in the appendix.

In general, the normalized core tax rate, this quarter can be considered as a fair proxy for all tax rates excluding one-offs. And in the short to mid range, we therefore expect our underlying core effective tax rate to be in the low 30s.

Slide 17 gives additional new disclosures and providing transparency. Here you show core EPS, core effective tax rates, core net profits and core EPS. Our core EPS in Q1 have been impacted as we showed on the previous page by one-off tax impacts. Slide 18, describes what we believe to be strong balance sheet. Moving to Slide 19, the company shows a slight net debt position of total payment of our final 2013 dividends during the period. Overall the profile of our debt illustrates the satisfactory level of liquidity that we benefit from.

Let's move to page 20, Takeda's CapEx is high for the first quarter, which is mainly related to some specific sizing of CapEx projects. Our operating free cash flow was impacted in Q1 by the unfavorable phasing of payments for operating expenses for CapEx and milestone payments for business development.

In Q1, for example as far as OpEx is concerned we have accumulated the payment of high cost that we book traditionally in Q4. This happens actually every year, so we usually have less cash flow generation in the first quarter of the year for the same reasons. As a result of this factor, we expect our free cash flow to improve during the full year.

Finally I will conclude with Slide 21, by reiterating of full year guidance. As I said, we consider the full year, 2014 as a year of investment for growth and Q1 as the quarter that is impacted by some temporary headwinds. We don't see as a consequence, Q1 as a good indicator of the rest of the year, which we expect to be stronger.

Now let's open the call up for your questions. Thank you.

Question-and-Answer Session

Christopher Hohman

Now we would like to entertain questions from the audience. Those who are in the Japanese and English conference you can ask questions because of the time limitation, the number of the questions should be limited to two per person. Please address both of your questions upfront. Thank you for your cooperation.

Operator

We'll have our question-and-answer session now. (Operator Instructions)

Unidentified Company Representative

The first question is from Citigroup Securities. Mr. Yamaguchi. Please go ahead.

Hidemaru Yamaguchi – Citigroup Securities

Hello, do you here me.

Unidentified Company Representative

Yes, go ahead.

Hidemaru Yamaguchi – Citigroup Securities

Yamaguchi from Citigroup. My first question is about Brintellix. There is no revenue disclosure for this and you mentioned the number is inline with plan but for the year, your expectation is ¥180 million, but according to the current pace, its not going to reach that level, and why do you think the things are inline with your expectation? That's the first question and the second question, is about the financial results. As I listen to Mr. François Roger, the first quarter especially the revenue is weak, you indicated that, but when you look the expenses and costs in comparison to the annual cost for the year, the expenses are less. So probably our profit is not so bad, that's the impression, but still you think the performance was not very strong, is that because the sales was a bit weak and for the cost, you're going to spend more costs, is that the reason? Those are the two questions that I would like to address.

François-Xavier Roger

Okay, regarding Brintellix as I said in, as of the end of June after or let's say roughly speaking about six months of sales of Brintellix. We are basically inline with what we have built in the plan. Usually the amount that we had of ¥180 million for the full year is for 12 months and there is ramp-up during the year, it's too early to draw any conclusion. Anything that we could say that we were very close to what we expected in the first six months.

As you can see on Slide 10, the amount of sales increasing months after months and so we will provide more disclosure, but once again after six months we were in line with our original plan, which the plan led to ¥100 million of sales in the full year.

Regarding Q1 as you said, we consider that, the quarter is on the weak side in terms of sales, but once again it is fully in line with what we had built in our model and in our plan. So there is no specific concern at this stage. As I described there were some specific events and one of them being the inventory adjustments in emerging market, that (indiscernible) this quarter.

As you rightly mentioned, the profit is not so bad linked to the fact that we had less expenses than expected. That being said, we have some exceptional items as well because as you may have seen, we had some write-off tax 700, for example that we stopped during the quarter, but you're absolutely right, that we – sales are on the weak side, but once again in line with our expectation and profit is slightly better than, what expected.

I would like to be careful there though, I don't want to draw any conclusion in terms of profit for the full year. (Indiscernible) guidance, but we know that there is always might be a different phasing during the year, but once again we are confident of reaching our guidance of 224 probably for sales and flat to slightly declining in core and in for the full year.

Unidentified Company Representative

Next question, please?

Operator

Next is Mr. Seki from Barclays

Atsushi Seki – Barclays Capital

Thank you. I'm Seki from Barclays. Excuse me, my first question was, can you here me, no. GSK has been trying to sell the products for EPP. And I would like to ask a question regarding M&A hurdles. Some old product portfolio, do you have any interesting purchasing for order portfolio, that’s first question. My second question is that Express Scripts (indiscernible) are seeing their formulary change this week. And are you confident to maintain the insurance coverage of the (indiscernible) and so on.

François-Xavier Roger

Okay, regarding the question, regarding natural products from GSK. We don't comment usually on M&A, but I can tell you anyway that this not, an option that we are pursuing the acquisition of the specific product line that you're mentioning. And the second question, I'm not aware of any changes that is affecting the product you mentioned in Japan, at this stage.

Operator

Next question is from Morgan Stanley MUFG Securities, Mr. Muraoka. Mr. Muraoka, please go ahead.

Shinichiro Muraoka – Morgan Stanley MUFG Securities

Good evening, this is Muraoka, speaking. Do you hear me?

Unidentified Company Representative

Yes, go ahead.

Shinichiro Muraoka – Morgan Stanley MUFG Securities

The delay of 9708, submission and approval timing, the data availability is difficult to predict, but is that going to be the first half or second half of FY2015, just on the current patent, when in 2015, I don't think this is decided yet but in the interim analysis possibly, you don’t have the earlier submission or approval, that's the first question, regarding 9708. The second question is about Pantoprazole, according to your plan. It's going to decrease of 12% and it was very weak, but in the first quarter it was actually plus 12% with constant currency 7% to 8%. Is that because your initial estimate was about conservative, those are two questions? Thank you.

Unidentified Company Representative

Mr. Muraoka, regarding the question 9708. When the disclosure is going to be available for the data or when the analysis of data is completed, which timing are you talking about?

Shinichiro Muraoka – Morgan Stanley MUFG Securities

Both.

Unidentified Company Representative

So when can we have announcements regarding the data, when would be the first announcement from your sides to us. As I said before Revlimid plus dexamethasone plus placebo and dexamethasone and Revlimid plus 9708, (indiscernible) are compared as of now. The data is the advantage and the total event incidence is slower than our projection. There are various reasons, but is blinded phase, so we don't really know the reason why the speed or the pace is rather slow and in the other company studies probably then driven that is sometimes observed as of now, we can't tell you exact timing, when the data will be available, but that leads up to 12 months timeframe.

We would like to make submission in 12 months meaning from the original brand – they will not be beyond 12 months. Okay, so submission within 12 months, so that means next calendar year in the first half you will at least have the reports, no. Within FY 2015, we will be able to file, we will be able submit, that's what I said. Thank you very much. And second question, please?

François-Xavier Roger

Regarding Pantoprazole indeed the performance was good in Q1. It’s the thing that we had done better than in terms of trend that what we expect for the full year is largely linked to the fact that Pantoprazole is reaching the LOE status in some emerging markets. So sales could decline in the future. It happened that Pantoprazole has been more resilience than what we expected initially. So I would say so far so good, but we can expect maybe more pressure going forward due to some LOE in selective emerging markets.

Unidentified Company Representative

Next question, please?

Operator

Next question is from Mr. (indiscernible) Investment Management. Yes, please.

Unidentified Analyst

My first question is regarding Brintellix. Cognitive function improvement seems to be due to more direct effect, not treating the depressive disease. Is this going to be a very strong appearing point in medical practice? However, looking at the current data, the current curve of the precision number increase don’t seems to be too strong. And have you already completed your opening accounts activities in the U.S.?

Unidentified Company Representative

I think that your question is actually two-folds. I think, you're talking about managed care, right? From myself, from R&D perspective I'd like to talk about some data, yes and also – wasn't it showing the remarkable differences? Not much, that you may be able to pursue indications that are down by the depression, is that what you said? About the data you mentioned, generally speaking in a company with a depression cognitive function declines. Therefore there is a data that if depression improves then cognitive function also improves, however in both Vortioxetine and Brintellix.

As a result of the trial of depression treatment both were effective for the treatment depression. There is Brintellix, didn't show any significant effect in terms of cognitive function, but Brintellix did, therefore because of this difference it is considered that Brintellix there have some direct effect onto the cognitive function.

However, in terms of the promotion or indication, as a data it’s not included, therefore in the US. The reps cannot promote it directly. So as of today what we can say is that, when the data is available, but today there it’s not currently used in promotion.

Unidentified Analyst

I understand and in the future, don't you plan to promote the product using this data?

Unidentified Company Representative

Well. At this point we don't have a plan to include it into indications. But because we have such a good data, how can we leverage the data would like to discuss with the ability authorities and with the next to review and decide what to do?

Unidentified Analyst

Thank you very much. May I ask the second question?

Unidentified Company Representative

Yes, please.

Unidentified Analyst

Second question is about your alliance with MacroGenics and I would like to ask this question to, Mr. Miyoshi. So, it is autoimmune disease relating to B-cells I think a typical one is SRE and it's already introduced looking at website of the MacroGenics, but from more expanded business view point, what kind of other autoimmune diseases that you can possibly consider?

Tsudoi Miyoshi

As of today, we'd like to pursue a wide range of diseases. Therefore, it's not specifically limited. As you rightfully said, currently we are (indiscernible) but with an active pursue all the possible areas. Thank you.

Operator

Next question is from Mizuho Securities. Mr. Tanaka. Please go ahead.

Hiroshi Tanaka – Mizuho Securities

Tanaka from Mizuho Securities.

Unidentified Company Representative

Please go ahead.

Hiroshi Tanaka – Mizuho Securities

I have only one question. MLN9708 is now in Phase III regarding the maintenance therapy trial as long as I see the clinical trial timeline February 2018 is that right regarding the timing of clinical trial?

Unidentified Company Representative

The study is still started July already and it would take five years because the primary endpoint is OS that we will have interim analysis and based on the interim analysis, we can make some mission and that’s a timing that you mentioned.

Hiroshi Tanaka – Mizuho Securities

This is comparison against placebo, I suppose Vipdomet. Is often use for maintenance therapy according to what I understand and head-to-head comparison with Vipdomet, is that in your plan?

Unidentified Company Representative

Vipdomet, does not have indication for maintenance therapy. In multiple myeloma, maintenance therapy is performed but the standard care is not quite established yet.

Hiroshi Tanaka – Mizuho Securities

And in that sense, how MLN9708 can be used and be effective for maintenance therapy?

Unidentified Company Representative

And that is the focus in our comparison data against Placebo? Thank you.

Unidentified Company Representative

Next question please?

Operator

This is Mr. Sakai, Credit Suisse

Fumiyoshi Sakai – Credit Suisse

I would like to ask you two questions. One is, emerging market sales. In Russia and Mexico, you mentioned about inventory levels reductions affected. In these markets, in order to improve their profitability, do you have already some plan on going and when you say inventory level reductions, what are the reasons behind? Especially, I’m concerned with Russia. Could you give us more specifically, what’s happening in those markets?

And looking at Slide 8, in quick note it says please refer to Page 27, but Page 27 shows the core EPS. So I think it's not the right page. If you modify this later please also tell us. And my second question is regarding your disclosure of core earnings, that's the disclosed from two and you used this for a major performance indicator.

And the regarding stockholder contributions, I think that previously the president made a commitment that the dividend level will be maintained until FY' 2017. And then the payout ratio or how to use cash, including all those prospective I think that did you come up with the disclosure of core earnings? Just simply showing core earnings is not fully meaningful and therefore, I would like to ask this question to someone, the financial expert, please.

François-Xavier Roger

Okay, let me answer further question on the emerging market, inventory. They want just to reassure everybody, the Russian situation has nothing to do with any political situation in any country from a part what I mentioned in Venezuela or in Ukraine. In the Russia the situation is totally different, we had for some time for several years rather high level of inventory with wholesalers in Russia and there are two reasons for it.

One of them is a fact that we have moved from exports to local manufacturing after we built a plant in Russia and the transfer required some higher level of inventory. The second one is that we had to change as when in Russia another countries, but in Russia, we did it as well to move the packaging of former Macromed products to Takeda brand and to do that, you cannot import for some time.

So, we had to do to get additional inventory for sometime as well. Now this issues rebranding to Takeda and the establishment of our manufacturing unit are behind us. So we can come back to a normal inventory level at wholesalers and we decided this is something that we managed our sales to bring that level back to market levels.

There is kind of one off to take, which we took in Q1. Mexico is a different situation and there is nothing linked to a new political situation whatsoever, but in Mexico one wholesaler, which has a significant market share is having some financial tensions and we decided to have more stringent policy in terms of credit, from a credit point of view and therefore to reduce inventory level globally in the country.

So it's very specific situation, which should come back to normal about time. So these are pure one off that happened in Q1 and they’re not likely to happen again in the future. Regarding core earnings, this is a performance indicator and indeed that we had introduced or some time.

We just mentioned now that this is main indicator that we use to communicate externally as far as profit is concerned. This is an indicator on that we have provided as well in terms of long-term guidance – the medium-term guidance to 2017. We believe it is relevant KPI as well because it allows to benchmark of performance against our competitors and you have mentioning about shareholder contribution. I want to correct something that you said we have not provided guidance or any indication in terms of shareholder remuneration and more specifically dividend till 2017. We have only indicated that we would maintain the dividend as it is today in absolute value for the year 2014 and 2015 to be paid in 2016.

We have not provided any indication in terms of remuneration level, after 2015. I take the opportunity to mention that shareholder remuneration is something that we value, which is a reason why, we have decided on this dividend, which we consider as testimony of the value that we put to shareholder remuneration, even that it is currently equivalent to a yield of about 3.8%, which we consider to be at the end of the industry.

Unidentified Company Representative

You asked about the slide number mentioned. It says, CFN express slide number 27, in fact slide number 27 and 28 are the only additional information we have about underlying growth. So this should say, please see slide 27 and 28.

Unidentified Company Representative

Thank you. Next question, please?

Operator

(Operator Instructions) Your next question comes from Mr. Tim Race, Deutsche Bank. Please go ahead.

Unidentified Company Representative

Mr. Race, please go ahead.

Tim Race – Deutsche Bank

This is Tim Race, here from Deutsche Bank in London. Just I wanted to clarify what you said on Brintellix, it wasn't quite clear on the translation. Are you definitely not filing for a label claim, the sexual dysfunction on the cognition given the data that you've got and if you're not filing for that, could you explain why wouldn't be filing for that or do you have any plan and that's all. Thank you.

Unidentified Company Representative

At the moment we do not think, we will proceed into the label. We don’t quite think that the data is sufficient. Going forward, how we can utilize this data and what kind of additional studies we may from, of course we will think about it, but we don’t think it is sufficient, right. But this is very good data to differentiate. So including that aspect, we will further discuss with the regulator

Tim Race – Deutsche Bank

Thank you.

Unidentified Company Representative

Next question, please?

Operator

(Operator Instructions)

Christopher Hohman

Thank you very much. It seems there are no more questions. We would like to close Q&A session. Thank you very much. This is the end of the conference call today. Thank you very much for your participation.

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Source: Takeda Pharmaceutical (TKPHF) Q2 2014 Results - Earnings Call Transcript

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