Takeda Pharmaceutical Company Limited (TAK) Q3 2023 Earnings Call Transcript

Takeda Pharmaceutical Company Limited (NYSE:TAK) Q3 2023 Earnings Conference Call February 2, 2023 5:30 AM ET

Company Participants

Christopher O’Reilly - Head, Investor Relations

Christophe Weber - President and Chief Executive Officer

Andy Plump - President, R&D

Costa Saroukos - Chief Financial Officer

Ramona Sequeira - President, Global Portfolio Division

Conference Call Participants

Hidemaru Yamaguchi - Citigroup

Motoya Koutani - Nomura Securities

Seiji Wakao - JPMorgan

Shinichiro Muraoka - Morgan Stanley

Christopher O’Reilly

Thank you for taking time out of your very busy schedule to join us for the FY ‘22 Q3 Earnings Announcement by Takeda. My name is O’Reilly, Head of IR. I’ll be the master of ceremony today. [Operator Instructions]

Before starting, I’d like to remind everyone that we will be using forward-looking statements in 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 the actual results to differ materially are discussed in the most recent Form 20-F and our other SEC filings. Please also refer to the important notice on Page 2 of the presentation regarding forward-looking statements and our non-IFRS financial measures, which will also be discussed during this call. Definitions of our non-IFRS measures and reconciliations with the comparable IFRS financial measures are included in the appendix of the presentation.

Now, we would like to move to the presentation and the presenters are Christophe Weber, President and CEO; Andy Plump, President of R&D; Costa Saroukos, Chief Financial Officer. And after the presentation, we will have time for Q&A. Let us start.

Christophe Weber

Thank you, Chris. Thank you everyone for joining us today. It’s a real pleasure to be with you. I am pleased to report that Takeda has delivered another strong quarter and we are reinforcing our long-term growth through pipeline advancements and two targeted acquisitions. These developments are well aligned with our vision to discover and deliver life-transforming treatments guided by our commitment to patients, our people and the planet. This purpose-led approach is at the core of our strategy for global growth and long-term value creation for our stakeholders.

In order to do that, we aim to create a diverse, equitable and inclusive working environment for Takeda colleagues. Our focus on creating an exceptional people experience has been critical in allowing us to maintain and develop talent, especially during the recent challenges of the pandemic. I am very proud that these efforts continue to be recognized. Last month, for the sixth consecutive year, we were 1 of only 15 companies to achieve global top employer certification for 2023. In addition to this global certification, Takeda was recognized as a top employer across 22 countries.

If now we move on the next slide, we have again delivered strong revenue and profit growth as we continue to execute on our strategy. Let me take you through some of our recent highlights. In Q3 year-to-date, core revenue was almost JPY3.1 trillion, with growth of 4.5% at a constant exchange rate. Our top line continued to be driven by great momentum from our growth and launch products, which now represents 39% of total revenue and grew at 20% year-to-date at a constant exchange rate.

Core operating profit was JPY954.7 billion, enabling us to maintain a competitive core operating profit margin of 31.1% and core earnings per share was JPY456 with growth of 17.1% at a constant exchange rate. This result very clearly keep us on track to deliver our management guidance of low single-digit core revenue growth and high single-digit core operating profit and core EPS growth on a constant exchange rate basis. And in fact, we are tracking toward the high-end of some of these metrics.

Moving now to the right hand side of the slide, we are progressing on our journey to build one of the most exciting and diverse pipeline in the industry. In December, we achieved a significant milestone as our dengue vaccine, QDENGA, was approved for use in the European Union against any serotype in individuals 4 years of age and older. This followed a positive CHMP opinion in October recommending approval in the EU and in dengue-endemic countries participating in the parallel EU medicine for all procedure. We reached a further crucial milestone late last year when the U.S. FDA accepted our dengue vaccines candidate for priority review.

We also had three positive late-stage trial readouts since our last quarterly update. In January, we announced favorable safety and efficacy results for TAK-755 from the first and only Phase 3 trial in CTTP, an ultra-rare disease with limited treatment options. Based on this data, we plan to submit TAK-755 for marketing authorization. In addition, the result from our Phase 3 AURORA trial for LIVTENCITY, maribavir, were encouraging, demonstrating evidence of durable antiviral efficacy and confirming the favorable safety profile despite not meeting the primary endpoints of non-inferiority at 8 weeks. Full data results will be submitted to a peer-reviewed journal and are being shared with regulatory agencies. Andy will share additional information on these two studies later in the presentation. In January, together with our partner, Arrowhead, we announced positive Phase 2 data for fazirsiran in alpha-1 antitrypsin deficiency associated liver disease. Takeda is responsible for taking this program into a Phase 3 study, which we expect to begin very soon.

Moving to the mid-stage pipeline, TAK-861, our oral Orexin agonist for narcolepsy has met our pre-specified criteria to advance the program into two Phase 2b studies in narcolepsy type 1 and type 2. We have been proactively planning these studies and we will be able to move very quickly. Both Phase 2b trials are currently enrolling patients. To supplement this positive development in our pipeline, we are making strategic investments in long-term growth in line with our capital allocation policy. In December, we announced a major agreement with Nimbus Therapeutics to acquire our potential best-in-class TYK2 inhibitors to be known as TAK-279 after closing. This acquisition is fully aligned with our strategy and adds another important life stage therapy to our pipeline. This therapy has possible indication across a broad range of disease, including psoriasis, psoriatic arthritis, inflammatory bowel disease and lupus. It represents clearly a very significant potential opportunity in this market.

We could potentially find this program within the fiscal year ‘25 to ‘27 timeframe, which means it could be generating significant revenue by the time [indiscernible] biosimilar, reinforcing our growth profile into the next decade. We were able to take advantage of this exceptionally rare opportunity because of our financial discipline and our success in deleveraging, which is driving our strong free cash flow. We will maintain that strong financial discipline as we continue to look for opportunities to enhance our pipeline with mid to late-stage assets.

In January, we announced an exclusive licensing agreement with HUTCHMED for fruquintinib, a highly selective VEGFR1/2/3 oral tyrosine kinase inhibitor. Fruquintinib offers a potential new treatment option for patients with refractory metastatic colorectal cancer regardless of biomarker status. The agreement will give us exclusive rights to further develop and commercialize fruquintinib worldwide, excluding China, Hong Kong and Macau. We plan to complete regulatory submissions in the U.S., Europe and Japan in 2023.

Including this quarter has reinforced our growth outlook. We continue to deliver on our financial commitment to progress our pipeline and to create long-term value for our stakeholders while we fulfill our purpose of bringing better health for people and a brighter future for the world.

With that, I will turn the call over to Andy to update you on our pipeline. Thank you.

Andy Plump

Thank you, Christophe and hello to everyone on the call today. If we go to the next slide, please. Our pipeline continues to advance with very strong momentum this quarter and fiscal year. I am excited to share several important pipeline updates that have been achieved just this quarter.

As Christophe mentioned, Takeda’s dengue vaccine, QDENGA, was approved in the EU and received a positive CHMP opinion for endemic countries participating in the EU medicines for all program. In addition, the U.S. filing is complete and QDENGA received priority review. As a result of these efforts, Takeda is on track to provide broad access to this critical vaccine with many additional approvals and launches in the near future.

QDENGA is a transformative vaccine that fills a substantial unmet need for individuals in and travelers to warm weather climates. QDENGA has the potential to prevent morbidity and mortality from dengue in endemic regions across the globe, where about half the world’s population lives. Important clinical updates include TAK-755, which at an interim analysis of the Phase 3 study, demonstrated robust efficacy and a strong safety profile compared to the standard of care in congenital thrombotic thrombocytopenic purpura or CTTP. We will file for approval of TAK-755 as the first recombinant ADAMTS13 replacement therapy for cTTP. I will discuss these data in more detail later in this presentation.

LIVTENCITY is up next. In the Phase 3 AURORA study, LIVTENCITY provided clear evidence of durable antiviral efficacy in hematopoietic stem cell transplant patients with first-line CMV infections. In addition, we confirmed its favorable safety profile versus the standard of care. We are excited to engage regulatory agencies about our filing strategy in the very near future.

Next, ICLUSIG, our third-generation tyrosine kinase inhibitor designed to block BCR-ABL. ICLUSIG met the primary endpoint in the Phase 3 PhALLCON study, demonstrating higher rates of minimal residual disease or MRD negative complete response when compared head-to-head with imatinib in frontline Philadelphia chromosome positive ALL. MRD negativity is associated with improvement in long-term outcomes for patients as reported in the scientific literature. We are discussing these potentially practice-changing data with regulatory agencies and will be the featured abstract in February’s ASCO Plenary Series.

In early January, Takeda, with our partner, Arrowhead, announced positive results for fazirsiran from the blinded Phase 2 SEQUOIA trial. Fazirsiran is a potential first-in-class RNA interference therapy designed to reduce the production of mutant alpha-1 antitrypsin protein or Z AAT as a potential treatment for the rare genetic liver disease associated with alpha-1 antitrypsin deficiency. Fazirsiran demonstrated a dramatic decrease in circulating mutant Z AAT as well as liver Z AAT globules. In addition, the percent improvement in portal inflammation and change in fibrosis were consistent with the prior open-labeled Phase 2 results. We have opened the Phase 3 study with the primary endpoint of decrease from baseline of at least one stage of histologic fibrosis measured at week 106. We believe that patients who received fazirsiran for 2 years should demonstrate continued therapeutic benefit with improvements in liver fibrosis.

Also in January, as Christophe mentioned, we announced the advancement of TAK-861 into two Phase 2b dose-ranging studies for patients with narcolepsy type 1 and narcolepsy type 2. We remain very excited about our Orexin franchise. We believe our oral Orexin agonist, TAK-861, has the potential to transform treatment for patients suffering from narcolepsy. I will describe the directional criteria used to make this decision shortly.

The last clinical update we would like to share is a new Phase 2 start for TAK-341, an antibody therapy targeting alpha-synuclein for multiple system atrophy or MSA. MSA is a rare, progressive and fatal neurodegenerative disorder. Our Phase 1 study showed strong target engagement and a significant reduction of CSF alpha-synuclein. We believe there is a strong biologic rationale that preventing the accumulation of alpha-synuclein could be a disease-modifying approach for MSA patients, for which there are currently no approved therapies.

And finally, again, as Christophe mentioned earlier, we recently signed two late-stage pipeline-enhancing deals that are pending antitrust reviews. We announced our intent to acquire a late-stage potential best-in-class oral allosteric TYK2 inhibitor from Nimbus Therapeutics. Data from a Phase 2b study of this molecule in patients with psoriasis are targeted for presentation in March just next month. With its unique allosteric mechanism of action, this asset is a potent and highly selective TYK2 inhibitor with exceptional clinical activity, a strong tolerability profile and wide therapeutic margins. We believe it has best-in-class potential across a wide range of immune-mediated conditions.

The second deal is a licensing agreement with HUTCHMED that gives Takeda worldwide rights outside of China to fruquintinib, a highly selective oral VEGF receptor tyrosine kinase inhibitor that’s already demonstrated a significant overall survival benefit in refractory metastatic colorectal cancer. Our partner, HUTCHMED has started a rolling submissions process with the U.S. FDA. Regulatory submissions are expected to be completed in the U.S., EU and Japan in fiscal year 2023.

Next slide, please. Shown here are our 10 late-stage development programs, which continue to advance. Additional progress this quarter includes the LIVTENCITY filing for relapsed refractory CMV in China and a submission of QDENGA in the U.S., which received priority review. As evidenced by the two late-stage deal announcements, Nimbus and HUTCHMED, we continue to look for transformative programs within our therapeutic areas that can add to our late-stage development program and contribute to our marketed portfolio this decade.

Next slide, please. We are energized by recent developments in our mid-stage pipeline that continues to mature and advance. As mentioned earlier, this quarter, we advanced TAK-861 into two Phase 2b dose-ranging studies for patients with narcolepsies type 1 and 2. This decision was made based on the careful review of preclinical toxicology data, data from the single and multiple ascending dose healthy volunteer cohorts, data from studies of healthy volunteers subject to sleep deprivation, and finally, efficacy and safety data for patients with narcolepsy type 1.

The pre-specified Phase 1b efficacy criteria are equivalent to those used to evaluate our other Orexin agonists. The safety review included liver safety assessments for up to 4 weeks of treatment. Our decision to progress was based upon the data for TAK-861 and our extensive datasets from prior Orexin agonist development. In addition, we highlight in green a recent submission to an upcoming conference, promising early data for TAK-925 in healthy volunteers recovering from anesthesia. We hope to share these data with you early in fiscal year 2023. At our year end call, we plan to share progress across the mid-stage programs shown here. These programs are the first of many new molecular entities that could emerge from our rich and transformative early to mid-stage pipeline, adding to our growing late-stage portfolio.

Next slide, please. Shown here are select expansion opportunities we have for our major brands. Subcutaneous ENTYVIO was filed in Japan for Crohn’s disease earlier than our initial plan. We continue to expect an ENTYVIO subcutaneous U.S. filing in early 2023. The EU filing for the approval of TAKHZYRO to treat pediatric patients is complete, as is the U.S. submission for TAK-880, an IVIG therapy for patients with the sensitivity to immunoglobulin A.

Next slide, please. As you can see illustrated here, Q3 had many regulatory and Phase 3 highlights that added to our pipeline momentum. Positive regulatory updates include QDENGA approval in the EU and UK. LIVTENCITY achieved EU approval this quarter and EXKIVITY was approved in China earlier than our initial target of fiscal year 2023. Lastly, the HyHub device, which is designed to improve the patient experience by reducing the number of steps required to complete an infusion of HYQVIA will now have a regulatory decision in the first half of fiscal year 2023. We have received some end-of-review requests from the FDA that we believe can be satisfied through additional analytical testing.

Now let’s look at TAK-755 and LIVTENCITY data. Next slide, please. TAK-755 is our recombinant ADAMTS13 replacement therapy designed to address the underlying cause of congenital TTP. The interim analysis of the first and only Phase 3 pivotal trial in cTTP patients showed a 60% reduction in the incidence of thrombocytopenic events versus the standard of care, which is plasma derived from fresh frozen plasma or FFP. TAK-755 also showed that a substantially lower proportion of subjects experienced adverse events. These and many other clinically relevant benefits from this head-to-head trial will be presented at a medical meeting later this year.

As you can see on the right, we have ADAMTS13 activity plotted versus time at varying doses. The 40 units per kilogram dose was the one used in the Phase 3 trial and is plotted in green. The gray and shaded area between the 5 and 20-unit curves is representative of the activity we would expect from the plasma standard of care, which typically provides about 10 units per kilogram of activity. These positive results are perhaps not surprising given the higher level and longer duration of ADAMTS13 activity projected. Our recombinant therapy can provide consistent and higher ADAMTS13 replacement with less risk of allergic reactions and no concerns for volume overload. TAK-755 is also being developed in immune TTP, a much more prevalent form of this disease.

Next slide, please. The AURORA trial was the largest head-to-head comparison of LIVTENCITY versus the standard of care, valganciclovir, in patients undergoing hematopoietic stem cell transplant who develop CMV infections. Despite just missing achievement of non-inferiority at the primary endpoint, we believe the durable efficacy and favorable safety profile is clinically meaningful and potentially label enhancing.

I would like to highlight the sustained numerically higher rate of long-term CMV clearance at weeks 12, 16 and 20, showing evidence of durable antiviral efficacy as well as the compelling favorable safety profile, which includes a significantly lower rate of treatment-emergent neutropenia. We will be engaging regulatory agencies shortly about a path forward.

Thank you very much, and I will now turn it over to Costa.

Costa Saroukos

Thank you, Andy and hello everyone. This is Costa Saroukos speaking. Today, I’ll walk you through the financial highlights of our fiscal 2022 third quarter results. And I’m pleased to say that it has been another strong quarter of growth. Core revenue for the 9-month period was JPY3.07 trillion or approximately $23.3 billion. Despite the entry of VELCADE Generics in May 2022, we continue to deliver solid top line growth, up 4.5% versus prior year at constant exchange rate, driven by our Growth and Launch products. These products now represent 39% of total revenue and grew 20% at constant exchange rate.

Reported revenue growth was 13.9%, with business momentum and foreign exchange upside more than offsetting the impact of a JPY133 billion gain from the sale of the Japan Diabetes business that was booked in Q1 of prior year. Core operating profit grew 9.7% at constant exchange rate to JPY954.7 billion, and our core operating profit margin was 31.1%, an increase of 1.5 percentage points on a year-over-year basis.

This year-on-year margin improvement is an indicator of our financial resilience and our ability to control costs. In fact, at a constant exchange rate, our SG&A spend continues to be lower than last year. Reported operating profit declined 13.1% year-to-date impacted by the sale of our diabetes portfolio last year, but this impact is diminishing as each quarter goes by, and we still expect to end the full year with growth. Free cash flow was very strong at JPY585.2 billion, and net debt to adjusted EBITDA came down to 2.5x from 2.8x at the start of the fiscal year, even after paying the full year dividend.

With regard to the full year outlook, we remain on track to our management guidance for constant exchange rate growth, although we are actually tracking towards the higher end of this guidance on some measures. Our reported and core forecast remain unchanged.

Slide 16 shows our first half results in more detail. On the left-hand side are our reported results. As highlighted in previous quarters, the sale of the Japan Diabetes portfolio in Q1 of last year is impacting our reported operating profit growth, but reported EPS is actually up 19.6%, benefiting from a favorable reported tax rate.

Focusing on the core numbers on the right. I’m very pleased with the year-to-date growth we are delivering on a constant exchange rate basis with revenue up 4.5%, core operating profit up 9.7% and core EPS growth of 17.1%. On top of that, FX has been a significant tailwind for us this year, resulting in actual core revenue growth of close to 20% and core EPS growth of 37%.

Let me go into more details on the Q3 year-to-date revenue performance versus prior year on Slide 17. On the left is a waterfall chart for reported revenue, which grew at 13.9% year-on-year with business momentum and FX favorability more than offsetting the impact of the JPY133 billion one-off we booked in Q1 of last year from the sale of the Japan Diabetes portfolio. Core revenue on the right-hand side excludes the impact of the Diabetes portfolio sale in the prior year. You can see our business momentum was driving 4.5% growth at constant exchange rate, with the additional FX tailwind raising total core revenue growth to 19.8%.

On Slide 18, you can see that the key driver of top line growth is our portfolio of Growth and Launch products, which generated approximately JPY1.2 trillion or 39% of total revenue quarter three year-to-date with 20% growth at constant exchange rates. Incrementally, these products added JPY350 billion or $2.7 billion of revenue compared to last year. This is the portfolio driving total company growth this year despite the VELCADE loss of exclusivity, and we expect that the continued momentum of these products will allow us to offset VELCADE Generics in fiscal 2023.

With our five key business areas; GI, our largest area by revenue, grew at 11% year-to-date on a constant exchange rate basis. This was spearheaded by ENTYVIO, which grew 17% driven by a continued increase in bio-naive patient share. In Rare Diseases, which grew 5%, we see continued demand and geographic expansion for TAKHZYRO, which delivered growth of 25%.

We also see early indicators of success with the LIVTENCITY launch, with 87% of transplant centers in the U.S. having now initiated therapy with at least one patient. PDT Immunology continues to be very strong with 18% growth, including 19% growth of immunoglobulin and 20% growth of albumin, reflecting strong demand. We have continued to expand our plasma donation center network, adding 21 centers in the fiscal year to date, bringing our global footprint now to 225 centers.

Next is Oncology, which is declining year-on-year as expected, given the VELCADE Generics entered the U.S. market from May this year. Excluding VELCADE, the rest of the portfolio grew 7% driven by ALUNBRIG, EXKIVITY, ADCETRIS and ICLUSIG.

Finally, Neuroscience continues to perform very well with growth of 10% driven by VYVANSE and TRINTELLIX, while the other segment is declining due to some regional loss of exclusivities in Japan. The other segment also includes our COVID-19 vaccines in Japan. We are seeing low market demand for NUVAXOVID than expected given the current situation of vaccination in Japan and prevalence of Omicron.

On Slide 19, we show the drivers of reported and core operating profit for the quarter. Reported operating profit was JPY401.9 billion, a decline of 13.1% versus prior year. Again, the decline is predominantly coming from the gain on the sale of the Japan Diabetes portfolio, which contributed JPY131.4 billion to reported operating profit last year. We also had some one-off items impacting the other column here, such as impairments of intangible assets, which includes NATPARA and higher pre-launch inventory in preparation for future launches. On the right side of the slide, you can see the core operating profit was JPY954.7 billion, with our business momentum driving 9.7% growth at constant exchange rate. Foreign exchange was an additional benefit, resulting in actual core operating profit growth of 26%.

Moving to cash flow on Slide 20. This slide shows our year-to-date free cash flow of JPY585.2 billion, comfortably covering the full year dividend and also the net interest payment. We also continue to make progress in reducing our debt with a total amount of JPY281.6 billion paid year-to-date, including prepayments of higher interest debt maturing in November 2023. We closed December with ample cash of JPY685 billion, and total liquidity of JPY1.3 trillion or roughly $9.5 billion. This gives us the comfort to pay for the TAK-279 acquisition from Nimbus, primarily utilizing cash on hand, pending deal completion, which we hope will occur within this fiscal year.

Slide 21. The net debt balance compared to the end of March demonstrates the continuation of our steady deleveraging progress from 2.8x down to 2.5x. Although we continue to make progress with debt repayment, the amount of debt on our balance sheet in Japanese yen terms increased over the period due to the depreciation of the yen versus the dollar and euro, and this movement is captured within the other bar in the chart. However, as a reminder, the depreciation of yen also benefited EBITDA, which means the impact of FX on our leverage ratio is minimal. Also, we have structured the currency denomination of our debt to mirror our cash flow, which ensures that over time, we will be able to pay down debt with minimal impact from FX movements.

On Slide 22, you can see our debt maturity ladder as of December. As demonstrated on the cash flow slide, we have already paid off significant amount of debt this fiscal year, including a total of $1.2 billion of higher interest USD-denominated bonds and €750 million of floating rate bonds. As a result, our debt is now 100% fixed rate, and our weighted average remains around 2%. We remain very comfortable with the debt maturity profile over the coming years.

Next, moving to Slide 23 and our outlook for full year 2022. I’m pleased to say that we are on track to meet our full year management guidance for growth at constant exchange rate, with core revenue growing at low single digit and core operating profit and core EPS growing high single digit. And in fact, we are trending towards the high end of the range for some of these metrics.

For our reported and core forecast, we are keeping our numbers unchanged from the update we gave at Q2. On a reported basis, we still anticipate revenue to be JPY3.93 trillion, operating profit JPY530 billion and EPS of JPY198. On a core basis, revenue is expected to be JPY3.93 trillion, with core operating profit expected to reach JPY1.18 trillion and core EPS to reach JPY525.

With regards to free cash flow, we are keeping our forecast unchanged at JPY650 billion to JPY750 billion, although please note that it does not include the impact of the TAK-279 acquisition from Nimbus, which may impact this number if the deal closes within this fiscal year.

To close out the presentation on Slide 24, I’d like to reemphasize the key elements of our strategy to deliver sustainable growth and value to our shareholders. We continue to see strong momentum from our commercial portfolio, which enabled us to deliver 4.5% core revenue growth at constant exchange rate Q3 year-to-date. This is driven predominantly by our Growth and Launch products, growing at 20% on a constant exchange rate basis, more than offsetting the impact of generic visions of VELCADE that launched in May 2022. Our margins are strong at 31.1%, and we delivered year-to-date core operating profit growth of 9.7% at constant exchange rate, well on track towards full year guidance of high single-digit growth.

And our success is built on a solid financial foundation with robust cash flow that we will continue to allocate towards growth opportunities such as the recent new deals with Nimbus and HUTCHMED while continuing to focus on competitive shareholder returns. We have abundant liquidity and a well-structured debt profile of 100% fixed rates at an average cost of 2%, which positions us well in the current macro environment.

Finally, before we open up to Q&A, I’d like to bring to your attention an upcoming investor call we have scheduled for mid-March focusing on our launch plans and commercial strategy for QDENGA. We look forward to your participation in this event.

With that, we can open up the line for questions. Thank you very much.

Question-and-Answer Session

A - Christopher O’Reilly

Now, we’d like to take questions from the participants. And here in the Q&A session, Ramona Sequeira, President, Global Portfolio division is joining together with Christophe, Andy and Costa. [Operator Instructions] The first question is Yamaguchi-san, Citigroup, please.

Hidemaru Yamaguchi

Hi, can you hear me?

Christophe Weber

Yes, we hear you loud and clear.

Hidemaru Yamaguchi

Thank you. Thank you very much. So this is Yamaguchi. Two quick. I think it’s better to make two questions at the same time. The first question is at margin questions. COGS and margin itself, just looking at the quarter by quarter on a sequential basis, it’s trending down especially in the Q1 to Q2 to Q2 to Q3. Can you give us a reason why or is it coming from the business mix, maybe it may have an impact on that one? But is this in line with your expectation or it’s little bit slower lower than your expectation? That’s the first question, cost of goods sold on the margin question. The second question, regarding [indiscernible] therapeutics, I understand the quarter doesn’t – quarter it’s not necessarily important, but this quarter pretty strong especially in IgG and also albumin. Can you give me the price conditions or marketing conditions or margin conditions regarding PDT especially in the U.S.? Thank you.

Christopher O’Reilly

Thank you, Yamaguchi-san. For the first question on gross profit margins on a quarter-to-quarter basis, I will ask Costa to answer that question. And then regarding the PDT business, market dynamics, pricing dynamics, I would like to ask Christophe to answer that one.

Costa Saroukos

Thank you, Yamaguchi-san for your question. Let me just refer to your question. More on a year-to-date basis, we typically, given the way the business operates, the seasonality impact and quarter-by-quarter, we prefer to look at the year-to-date. So, if you look at year-to-date, the gross profit margin year-to-date – Q3 year-to-date versus Q3 year-to-date ‘21, in fact, our gross profit is improving on an actual basis by 0.5% and on a constant exchange basis, it’s grown by 0.1%. And the main reason for this, gross profit improvement on a year-to-date basis is because of the strength of our Growth and Launch portfolio. At the same time, if you look at our core operating profit margin, it’s improved year-to-date by 1.5% for both actual and constant exchange rate. And again, the main reason is driven by the Growth and Launch products, coupled by our laser-focused efforts on managing costs, in particular, SG&A, where you see our SG&A, it’s actually favorable. So, we’re at – it’s 1.6% favorable versus prior year year-to-date. So, please consider the year-to-date numbers and the year-to-date numbers are really looking favorable overall. Thank you.

Christophe Weber

Thank you, Yamaguchi-san. It’s Christophe. Our PDT growth is really driven by volume and demand. It’s not price-driven growth. Our portfolio is growing well. Our SCIG, CUVITRU and IQVIA are growing also well. And they are significant growth driver. We have, in the quarter, by the way, we continued to increase our donation center. We added five new donation centers. So, we are on track to expand our network as planned by about 25 centers in fiscal year 2022. We – in terms of the donor cost – donor compensation, as we announced previously, we have been able to reduce slightly the donor compensation and to maintain that level in this Q3. So, really, a growth driven by the business fundamental. Thank you.

Operator

Thank you. Moving on to the next question, Nomura Securities, Mr. Motoya Koutani, please.

Motoya Koutani

Yes. This is Koutani, Nomura Securities. Can you hear me?

Christopher O’Reilly

Yes.

Motoya Koutani

It seems that I am in the Japanese channel. TAK-755, I have a question about TAK-755. If my understanding is correct, this is basically caplacizumab or cTTP, recurrence is suppressed, similar to that drug. And there is no plasma exchange and the bleeding event is fewer with the 755. That’s my understanding. So, is that correct? That’s my first question. And the second question is, I understand that you are going to be filing for this product. It was not part of the press release. But is this only for on-demand, or does it also include a prophylactic use? So, please explain that. That’s my first question.

Christopher O’Reilly

Could you please ask the second question as well?

Motoya Koutani

Yes. My second question is about TAK-341, alpha-synuclein antibody is my understanding. So, in Parkinson’s disease, you are doing Phase 1. And Mr. Plump mentioned that this short target engagement, and this is of course, for MSA, MSA actually involved alpha-synuclein. So, diagnostic criteria for MSA is just symptoms as far as I understand. So, can we really include true MSA patients in the clinical trials? How accurate can you be with that enrollment? And starting from this study, the sponsor started to be Takeda, not AstraZeneca. So, can you please explain why the sponsor has changed to Takeda? That’s my second question.

Christopher O’Reilly

So, I think these are both for Andy. So, the first question on TAK-755. So, understanding similar efficacy is for [indiscernible], but without the need for plasma exchange, is it correct, there is no bleeding events? And then for the filing, would it be on demand or is there also a prophylaxis indication possibly? And then the next question on TAK-341, was in Phase 1 for Parkinson’s now moving into a Phase 2 for MSA. But we – certainly, we can enroll the right patients given that a lot of the diagnosis is based on symptoms. So, are we sure we can correctly enroll these MSA patients? And why is Takeda be taking over leading this trial from AstraZeneca? So, I will hand over to Andy, please.

Andy Plump

Terrific. Thank you very much, Koutani -san. This is Andy. So firstly, on TAK-755, the data that we have accumulated in our Phase 3 study is both in prophylactic and in acute settings. cTTP, whether it’s congenital or immune mediated is related to either a complete deficiency or a functional deficiency and ADAMTS13 activity. So, TAK-755 is quite distinct from any existing therapy. It’s a recombinant form of ADAMTS13. And so, we are essentially providing an enzyme replacement therapy. We are placing either the genetic or the acquired deficiency in this enzyme. And the activity that we have seen in the Phase 3 study in cTTP is quite remarkable. TTP is a very complex disease. You have both clotting and bleeding. And so, the endpoints are related to both clotting organ damage that you see when you move blood flow to an organ and also bleeding. And we saw benefits across all endpoints in our Phase 3 study. And we will be presenting those shortly, and you will have a chance to see them. With respect to TAK-341, you are correct. MSA is a clinical diagnosis and has many overlaps with Parkinson’s disease. There are some distinguishing features. The rapidity of progression is one. And then there are some neuropsychiatric manifestations in MSA, which are different. But it is a diagnosis – clinical diagnosis. And so, it’s possible that some of the patients that we would include in our MSA study may not actually have MSA. I don’t think that, that’s necessarily important because our expectation is that not only will TAK-341 be effective in MSA, but we have a strong hypothesis to think that TAK-341 could be effective in Parkinson’s disease. We are starting with MSA, because it’s a more streamlined Phase 2 and Phase 3 study. We think that we can see efficacy more rapidly in MSA. But we are also considering very seriously moving into Parkinson’s disease as well. And then finally, this program is a partnership with AstraZeneca. The terms of the partnership were that AstraZeneca would manage the Phase 1 program, and starting in Phase 2 and Phase 3, Takeda would take over the market authorization application. Thank you.

Operator

Thank you. The next question is JPMorgan. Wakao-san, please.

Seiji Wakao

Wakao speaking, JPMorgan. Thank you very much. I have two questions. First is TYK2 EBITDA. In March, Phase 2b result will be announced. And looking at this Phase 2b results compared to deucravacitinib of Bristol, can we tell that this is superior? Phase 2 endpoint is, I think PASI 75 and compared to deucravacitinib, can we consider that it is expected that this Nimbus molecule is superior? That’s first question. Second question is about 861. You proceeded to Phase 2. And in TAK-994, there are some safety setbacks, but can you now believe that it’s totally eliminated, or still there is potentially a possibility of the similar risk in Phase 2 and you will monitor it? And I think it is for long-acting molecule. However, in terms of the concept, is it the similar sort of molecules?

Christopher O’Reilly

Thank you. I think both of these for Andy as well. So, the first question on the TYK2 inhibitor. So, we will see Phase 2b data in March. And will that data allow us to see superiority versus the Bristol product in the PASI 75 scores? And then the second question on TAK-861. Does this mean that we have fully overcome the TAK-994 safety issues, or does that possibility remain in Phase 2? And previously, we talked about this – about having a longer half-life, a longer duration. And is that still the case with TAK-861? Over to you, Andy?

Andy Plump

So, the TYK2 Phase 2b psoriasis – I am sorry, the TYK2 Phase 2b psoriasis data will – Nimbus has already disclosed if they intend to present that in March. The hope is that we will be closing the deal this fiscal year, and we will be presenting those data or representing those data at a medical meeting. It’s important to note the study did not include deucra. This was a study that was increasing doses of what we will call TAK-279 against placebo. So, you have to make cross-study comparisons. And when we looked at the data during our diligence, we felt that the study data suggested a high likelihood of a best-in-class profile. The best way to understand the potential of this molecule is to go back and look at some of the deucra Phase 2b data, right. And look at what you see in terms of clinical efficacy with increasing doses with deucra and then look at the dose that was chosen for Phase 3. So, we believe that deucra left efficacy on the table with their Phase 3 dose, perhaps to optimize the safety profile. But you will have an opportunity to see all of those data next month. With respect to TAK-861, TAK-861 is a distinct molecule to TAK-994. It’s more potent. It has a longer half-life. It’s a very different set of biophysical properties, and it’s dosed at a much lower level than TAK-994 to see equivalent efficacy. We haven’t seen any indication of liver toxicity in our clinical studies. Now, it’s important to note that we have only dosed patients for up to four weeks, but we haven’t seen any signals, which is quite encouraging. So, we are very excited to move forward with the Phase 2b study, which we will be testing a number of different doses and dose combinations.

Operator

Thank you very much. Moving on to the next question, Morgan Stanley, Mr. Muraoka, please.

Shinichiro Muraoka

Hello. This is Muraoka, Morgan Stanley. I hope you can hear my voice.

Christopher O’Reilly

Yes, we can hear you.

Shinichiro Muraoka

Thank you. My first question, in this third quarter, if you look at the expenses, R&D and SG&A, on a quarter-by-quarter basis, they both increased quite a lot. And based on this situation, for the full year, JPY1.18 trillion of our core profit for the full year, do we have to worry about achieving this? That’s my first question. And the second question is with regard to shareholder return. In the market, there is a heightened expectation for increased dividend by Takeda, and not just once, but continuous increase in dividend. So, in FY ‘23, ‘24 and ‘25, is your plan to continue this every year over the long-term? What is your general thinking or policy about this? Those are the two questions. Thank you.

Christopher O’Reilly

So, first question is looking at the quarter-on-quarter costs. So, R&D, SG&A tend to be higher in the third quarter. And is there any risk to the full year forecast of JPY1.18 trillion core operating profit? And then the second question on shareholder returns. What should we think about expectations of a dividend increase? Would it be something continual? And can we have the thoughts on that? So, I think both of these will direct to Costa.

Costa Saroukos

Great. Thank you very much, Muraoka-san. So, let me just start again just really drawing your attention to the year-to-date numbers, Q3 versus Q3 2021. So, again, quarter-by-quarter, this fluctuation seasonality on a year-to-date, we are comparing the right apples-to-apples baseline. So, on the SG&A numbers, you can see that our SG&A on a constant exchange rate is actually declining versus last year. So, it’s favorable 1.6%. And again, main driver for that is significant improvement in back office, more the G&A line with leveraging data digital technology, the Takeda business solutions and transactional effectiveness there. The R&D line, it’s up on a constant exchange basis of 5.3%, slightly above the growth of revenue, which is revenues growing at 4.5%. But a lot of that is driven by some timing of program completion. Overall, to your question on the core operating profit of JPY1.18 trillion, I can say that we are tracking well towards that on a run rate. You can see our run rate deliverable year-to-date, we are tracking well. And in fact, we are highlighting that the management guidance is at the high-single digit and perhaps in the higher range of that high-single digit number. So, very pleased with Q3 results, not only on the top line growth, but also on the OpEx and core operating profit overall. Regarding dividend increase of share buybacks or – we haven’t changed, we are not changing our capital allocation policy. Again, we are very much focused on investing for growth and growth drivers. We are pleased with the trend of our net debt to adjusted EBITDA coming down even from 2.8 to 2.5, even after the full year dividend has been made. And we are tracking very well towards getting to our net debt to adjusted EBITDA targets by fiscal year ‘23. So, we are very much focused on that and shareholder returns. So, we are very much focused on maintaining our discipline there. If we were to give an update on the capital allocation policy, we will consider, for sure, looking at something that wouldn’t be a one-timer. It will be something that will be consistent moving forward. But right now, it’s too early to communicate that. Thank you very much.

Christopher O’Reilly

Thank you. And now, the time has come to close. So, I would like to finish the Q&A session. Thank you very much for your participation, taking your precious time out of your busy schedule. If you have any individual follow-up questions, please contact IR. I would like to ask for your continued support.