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[Interpreted] Thank you very much for participating on our earning calls for first quarter 2019, despite your busy schedule. I am the facilitator for this session. Okubo is my name, Global IR Head.
From our side, we have presenters and also respondents to the Q&A sessions, President and CEO, Christophe Weber; Chief Financial Officer, Costa Saroukos; and R&D President; Andrew Plump, joining in this call.
First, we will have a presentation for first quarter 2019 consolidated financial results from Costa, CFO, and then we will move on to the Q&A session.
Now please prepare the presentation materials at hand during the presentation.
Go ahead.
Thank you, Takashi. Good evening, everyone. Thank you for joining Takeda's quarter 1 Conference Call. I'm delighted to say that we are off to an excellent start in the first quarter of the first full year as a combined company after the acquisition of Shire.
Cost synergies and the OpEx initiative are well on track, and we delivered strong margins with our underlying core operating profit margin at 32.4%. Cash flow was strong, and we delevered to 4.4x net debt-to-adjusted EBITDA, down from 4.7x at the end of March. Also, we are confident to raise our full year guidance based on revised assumptions for VELCADE.
Before going into details of the quarterly results, let me draw your attention to Slide 3 and the change in terminology from core earnings to core operating profit. Based on investor feedback, we decided to make this change to be more consistent with the language used by our peers. Please note, there is no change to the definition, only the terminology. Therefore, all references to core earnings in previous guidance can be substituted with core operating profit.
Slide 4 summarizes the definitions for Takeda's disclosure metrics, which remain unchanged from last year. We encourage analysts to focus on our core numbers, which adjust out major onetime and noncash items, such as Shire integration costs, the amortization of intangibles and unwinding of inventory step-up. Therefore, the core numbers better demonstrate the true earnings ability of the company.
Moving on to the highlights of quarter 1 on Slide 5. I'm pleased to announce that Takeda had a very strong start to the year, delivering on our strategic priorities while successfully executing the integration of Shire.
Starting with business area focus. We saw strong performance from our 14 global brands, growing 22% in total. The integration of Shire is progressing on track with no major risks identified so far. We are also making steady progress against our divestiture plan with the completion of the XIIDRA sale on July 1.
Our R&D engine continues to strengthen the pipeline, which now has 19 new molecular entities in Phase II and III. This quarter, we made important advances in our cell and gene therapy platforms, including the first iPS cell-derived CAR-T therapy from T-CiRA entering process development towards clinical testing. We also achieved another positive R&D milestone for subcutaneous ENTYVIO in Crohn's disease and received a Sakigake Designation in Japan for TAK-925 in narcolepsy.
Regarding the financial performance, we had a very strong quarter with underlying core operating profit margin of 32.4%. Quarter 1 margins did benefit from some phasing, but this is -- this strong start gives us great confidence in the earnings power of the new Takeda and our target of reaching top-tier margins in the medium term. I am pleased to announce that cost synergies and deleveraging are also progressing well and that we are on track towards our previously communicated targets. Finally, we are raising our full year guidance to reflect divestitures and a revised assumption for VELCADE loss of exclusivity.
Slide 6 is the summary of the fiscal year 2019 quarter 1 results. Revenue was JPY 849.1 billion, growing 88.8% versus the prior year with the addition of revenue from Shire. Compared to a pro forma fiscal 2018 quarter 1 baseline of Takeda plus Shire, underlying revenue growth would be minus 0.8%. I will explain this in more detail in the coming slides.
Reported operating profit was down 90%, impacted by significant onetime and noncash costs related to the Shire acquisition. Core operating profit was JPY 283 billion, growing at plus 142% year-on-year, and our core operating profit margin increased to 33.3%.
Underlying core operating profit margin, which also adjusts for foreign exchange and divestitures and forms the basis of our margin guidance, was also strong at 32.4%. Reported EPS was negative as a result of the major onetime and noncash items. However, core EPS was JPY 128, an increase of JPY 3 versus the prior year. Underlying core EPS, which is the basis of our management guidance, was JPY 124. Finally, free cash flow for the quarter was JPY 89.3 billion, almost tripling versus the prior year.
Slide 7 shows the reported P&L, which was largely impacted by noncash purchase accounting expenses. The reported gross margin declined by 8.6 percentage points, impacted by JPY 84.5 billion noncash cost of goods expense mainly related to the unwinding of inventory step-up as part of the purchase price accounting method. Amortization and impairment increased significantly due to the addition of JPY 109.1 billion of amortization costs related to the Shire acquisition. In addition to these noncash purchase accounting expenses, we also booked JPY 36.7 billion of integration costs related to Shire, mostly within other operating expenses.
Consequently, our reported operating profit for the quarter declined 90% year-on-year to JPY 9.9 billion. Reported net profit was minus JPY 20.7 billion, also reflecting JPY 39.9 billion of interest expenses. Reported EPS was minus JPY 13.
Slide 8 shows our core P&L, which excludes major onetime and noncash items. Core operating profit was JPY 283 billion, an increase of 142.3% versus prior year. The core operating profit margin of 33.3% is an improvement of 7.4 percentage points versus the prior year, demonstrating the strong earnings power of Takeda after the Shire acquisition. This margin improvement was driven by both product mix and OpEx.
Gross margin improved by 1.4 percentage points due to the contribution of higher-margin products such as ENTYVIO, Vyvanse and TAKHZYRO. The OpEx margin improved by 6 percentage points, benefiting from the consolidation of Shire as well as synergy savings and continued OpEx discipline. Core net profit was JPY 198.4 billion, and core EPS was JPY 128.
From Slide 9, let me go into more detail on our year-on-year revenue performance. On the left of this slide is reported revenue, which increased by 89% to JPY 849.1 billion, mainly due to the addition of Shire. On the right is underlying pro forma growth split out into our 5 key business areas.
GI, Oncology and Neuroscience all demonstrated strong growth versus the previous year. PDT Immunology increased by 2% despite a negative impact from the phasing of IVIG shipments. Rare Diseases declined by minus 10%. Rare hematology continued to decline because of competition. And HAE growth was negatively affected by stocking in quarter 1 2018. Other products continued to decline, down minus 10% versus prior year. This noncore portfolio is largely made up of older, regional brands.
In total, pro forma underlying revenue declined by minus 0.8%. However, as I mentioned, this was impacted by shipment phasing of IVIG products in 2019 and stocking of HAE products in 2018. Excluding these, growth would have been positive in the low single digits.
On Slide 10, we provide more detail on inventory and phasing impacts. First, I want to emphasize that the inventory harmonization to Takeda's distribution channel policy was completed in fiscal year 2018 quarter 4. Therefore, channel inventory levels are now normalized, and there was no residual impact on fiscal year 2019 quarter 1 actual results. However, when looking at year-on-year growth rates, we are impacted by higher revenue in fiscal year 2018 quarter 1 due to stocking, in particular, for HAE products, CINRYZE and FIRAZYR. This was a topic that Shire flagged in their earnings press release a year ago. In addition, there was a negative impact from the phasing of IVIG shipments in quarter 1 2019. However, we are confident to deliver high single-digit growth for IG for the remainder of the year. Again, without these phasing impacts, pro forma underlying revenue growth for the quarter would have been in the low single digits.
Slide 11 shows Takeda's 5 key business areas of GI, Rare Diseases, Plasma-Derived Therapies, Oncology and Neuroscience. These 5 areas now represent 78% of total Takeda's revenue. I will go into each therapeutic area in detail in the coming slides.
Slide 12 shows the revenue of key products within our focused business areas. We also highlight our 14 global brands, which, together, amount to JPY 270 billion in sales and are growing at 22% year-on-year. This quarter, ENTYVIO, TAKHZYRO, ADYNOVATE, HYQVIA and NINLARO displayed particularly strong growth. I'll give more detail on some of these brands as I walk you through each of the business areas.
First, GI on Slide 13. This portfolio is growing 8% versus prior year, spearheaded by the excellent performance of ENTYVIO growing at 37%. 5 years since its first launch, ENTYVIO's market share continues to expand driven by further penetration of the bio-naïve segment. In the U.S., we are now capturing 31% of patients new to a biologic in ulcerative colitis and 17% in Crohn's disease. ENTYVIO also continues to expand geographically with the recent approval in Japan for Crohn's disease and the submission of a new drug application in China ahead of plan. We are also taking positive strides towards making a subcutaneous formulation available with submissions currently under review in the U.S. and Europe.
Slide 14 shows our 3 focus areas within Rare Diseases. Rare metabolic grew at 4% with stable performance in lysosomal storage disorders and good momentum from NATPARA as it continues on its launch path.
Rare hematology franchise sales declined 13% in quarter 1, with the impact of the competitive landscape still in line with our expectations. In fact, despite the value decline, underlying global volume demand is still growing by 2%. ADYNOVATE grew strongly at 26% with the recently presented data from the PROPEL study reinforcing the importance of personalized prophylaxis in hemophilia patients.
ADVATE global decline was minus 18% in value or minus 11% in volume, driven by continued monetization of the standard half-life market, tenders resulting in value erosion as well as cannibalization by ADYNOVATE. It is worth noting that the decline of ADVATE has been more rapid in the U.S. compared to -- in the rest of the world.
FEIBA performance continues to be affected by competitive pressure in the prophylaxis segment of the inhibitors market, coupled this quarter with a delayed large order in Brazil.
HAE declined by 20% year-on-year. As already mentioned, quarter 1 last year was inflated due to stocking of CINRYZE and FIRAZYR. Excluding stocking impact, the HAE portfolio would have grown by high single digits.
On Slide 15, I'm pleased to report that TAKHZYRO continues on a very strong launch performance with over 1,500 patients now receiving the product globally. In the U.S., we have seen strong uptake across all prescribers. Of the patients coming on to TAKHZYRO therapy, approximately 1/3 are new to prophylaxis therapy coming from FIRAZYR and KALBITOR, 1/3 are upgrading their prophylaxis from CINRYZE, and 1/3 are new to Takeda therapies. We are also off to a good start in Germany and Austria. TAKHZYRO aims to advance the standard of care in HAE, and we are reconfirming the unique benefits with real-world clinical experience.
Slide 16 shows our PDT Immunology portfolio growing at 2% in total. Immunoglobulin products declined by minus 2% due to the phasing of IVIG shipments this quarter. We expect the growth rate to recover from next quarter and to deliver high single-digit growth for the remainder of the year.
Takeda is committed to making the necessary investments to support the plasma business, and we continue to expand our plasma collection footprint. Since the Shire acquisition closed in January, we have increased our number of plasma collection centers by 16 and currently have 111 centers in the U.S. and 30 in Europe.
On Slide 17, you can see that our Oncology portfolio continues to perform well, growing 8% over the prior year. NINLARO for multiple myeloma grew 30%, with continued growth in the U.S. and expansion into new geographies. In particular, uptake has been very strong in China, where we had 3,400 patients on therapy since launching last year. ADCETRIS and ALUNBRIG also continued to perform well.
Moving to Slide 18. Neuroscience grew 10% year-on-year driven by Vyvanse and Trintellix. Growth has mostly come from the U.S., benefiting from the new commercial structure in place since April 1, providing overall improved customer coverage.
Moving next to Slide 19, which shows the bridge from reported to core operating profit. As you can see, we had JPY 84.5 billion impact from the unwinding of inventory step-up and JPY 148.3 billion from the amortization of intangibles and impairment costs. Both of these are noncash purchase accounting expenses. Furthermore, we booked JPY 36.7 billion of onetime Shire integration-related costs, which will enable us to realize our synergy targets. Adjusting for these and other onetime items, we arrived at the core operating profit result of JPY 283 billion.
Next, on Slide 20. I'm pleased to report that the Shire integration and synergy capture is on track. Talent selection has been completed for 79% of employees, with minimal turnover in those that have been nominated. We have also been listening closely to our employees throughout the integration, and our first survey in March showed that 78% of employees believed that the combined company will better serve patients' needs. We have seen that our colleagues from Shire are really embracing Takeda's values and our corporate culture that focuses on patients, trust, reputation and business. We'll continue to engage with our employees, and we launched a follow-up survey earlier this month.
On divestitures, we are continuing to pursue opportunities to divest up to $10 billion of noncore assets to accelerate deleveraging and focus the business. We have already completed the sale of XIIDRA and announced the sale of TACHOSIL, and negotiations are ongoing for further potential divestments. We are also confirming the synergy target of USD 2 billion by the end of fiscal year 2021.
As one specific example of an initiative to capture synergies, we held a partner value summit in Boston in June with 40 of our largest suppliers. As a result, we were able to confirm approximately $200 million of synergies as well as the release of $200 million of cash flow by extending payment terms.
As explained in May, Takeda has a robust tracking platform in place to make sure that we are executing against our synergy and OpEx targets. We are tracking synergies monthly in each of the cost packages and have embedded targets into the KPIs and incentives of all management.
Slide 21 shows some specific examples of where synergies are being captured. In compensation and benefits, full-time equivalent reductions are progressing as planned, including a new footprint for the U.S. sales force effective April 1. In R&D, we have prioritized and are progressing the combined pipeline, and we'll give you more details at our R&D Day in November. We have also made the decision to transfer research operations out of Austria. In facilities, all major site decisions have been communicated, and execution is well underway in these locations. We have made 81% of commercial office location decisions across 66 countries as well as decisions for finance shared service locations in the U.S. and Europe. We are also making strong progress in technology with all core global integration-related IT programs now identified.
Moving to Slide 22. With a clear line of sight on cost synergies and continued OpEx discipline, we are well on track to meet our margin targets. In fiscal year 2018, our underlying core operating profit margin for the full year was 22%. And in May, we gave guidance for the mid-20s in fiscal year 2019 and mid-30s in the medium term. We are off to a very strong start in quarter 1 this year with an underlying core operating profit margin of 32.4%. This improvement was driven by a higher gross margin due to product mix and significantly better OpEx margin through the consolidation of Shire, synergy savings and continued OpEx discipline.
The margin in quarter 1 is not indicative of the full year due to some phasing of costs and loss of exclusivity timing, but this strong start gives us great confidence towards realizing top-tier margins in the medium term.
We also remain committed to our deleveraging target of 2x net debt-to-adjusted EBITDA in 3 to 5 years. Slide 23 shows the net debt waterfall from March to June. We ended the quarter with net debt-to-adjusted EBITDA at 4.4x, an improvement of 0.3x over the period. Please note that this decrease in leverage includes the recognition of JPY 250 billion of hybrid bonds as equity credit for leveraging purposes, in line with our agreements with the credit-rating agencies. Also, please be aware that our net debt as of the end of June does not include any of the proceeds from the sale of XIIDRA, which was completed on July 1. Furthermore, we sold an additional JPY 30 billion of marketable securities in July, which will also contribute towards deleveraging.
Next to Slide 24. Takeda does not usually change full year guidance at quarter 1, but this year, we are updating to reflect a few specific items only. Firstly, we are revising our outlook for VELCADE. Our guidance now assumes that no additional U.S. competitor will launch within fiscal year 2019. Secondly, we are reflecting the divestitures of XIIDRA and TACHOSIL because our prior guidance included the full year contribution from these 2 products. As a result of these revised assumptions, we are upwardly revising our fiscal year 2019 management guidance. Our pro forma underlying revenue growth outlook has been upgraded from flat to slightly declining to flat to slightly increasing. We are raising our underlying core operating profit margin guidance from mid-20s to mid- to high 20s. And we are increasing our underlying core EPS guidance to between JPY 360 and JPY 380. We also remain committed to our dividend of JPY 180 per share for the year.
Slide 25 demonstrates the impact these revised assumptions have on reported revenue and core operating profit. For reported revenue, the upside from the revised VELCADE assumption fully offsets the impact of the XIIDRA and TACHOSIL divestitures. Therefore, our revenue forecast remains at JPY 3.3 trillion. For core operating profit, the net impact of these revised assumptions is positive due to the higher profitability of VELCADE. Therefore, we are raising our core operating profit guidance by JPY 27 billion or 3% from JPY 883 billion to JPY 910 billion.
Moving to Slide 26, which lists other key financial assumptions for the year. Many of these were already disclosed in May 14, but based on investor feedback, we are providing new disclosures on CapEx and cash tax rate.
In closing, on Slide 27, our business area focus, R&D engine and financial strength have enabled us to deliver a very strong start to the year. The integration of Shire is progressing very well without any disruption to the business, and we're relentlessly executing towards our cost synergy, deleveraging and margin targets.
Before we open up the lines for Q&A, I would like to draw your attention to the list of upcoming investor events on Slide 28. Most of these have been previously communicated, but I'm pleased to announce that in addition to our New York R&D Day on November 14, we are adding a Plasma-Derived Therapies Day at our manufacturing site in Covington, Georgia on November 15. We will also include PDT strategy on the agenda at our Tokyo investor event on November 21. We hope to see many of you there. Thank you.
We'll now move to Q&A with Christophe, Andy and myself.
[Interpreted] Now we'd like to take questions from the participants. Those on the Japanese line and English lines, we can take the questions simultaneously from both lines.
[Operator Instructions]
[Interpreted] The first question is from Citigroup, Mr. Yamaguchi.
[Interpreted] I'm Yamaguchi from Citi. Do you hear me?
[Interpreted] Yes. Very clearly. Thank you.
[Interpreted] The first question about the -- your policy to change your performance forecast. So XIIDRA and VELCADE are the changes for this time, at the same time. And going forward, you are going to make some divestitures in a couple of years. When you conduct that divestiture, every time you have that divestiture, are you going to make the revision every time? Or this time, XIIDRA and VELCADE, which are the quite huge assumption change, and that's why you made this decision only for this time?
Thank you very much for the question. When it comes to divestitures and planning for the divestitures, we already have a good, clear view on how we will deliver the target of USD 10 billion of divestitures. The piece that we don't have clarity on is the exact timing on the execution and completion of those deals or divestitures, hence, the reason why it's very difficult to address the timing of the divestitures in future years or future quarters. Hence -- so as a result, like we did in May 14 when we announced the fiscal year 2019 results, we included XIIDRA and TACHOSIL in our numbers and then made the adjustments after the closing of the XIIDRA. And that's when we upgraded our -- adjusted our earnings. The process will be similar moving forward as well.
[Interpreted] Understood. My second question is about the PDT. I have a question about the PDT business. As an actual, Albumin is growing. Please let us know the reason for this. And IG, Immunoglobulin, due to the phasing, there are some impact, as you mentioned. In the United States, on the FDA website, supply shortage occurred for Takeda's product. That is the description made by FDA. So supply shortage can be recovered within this year. So I have questions about Albumin and Immunoglobulin.
So with regard to Albumin, we're seeing strong performance overall, especially in China and the U.S. But with regards to the Immunoglobulin, IVIG, as you alluded to and as we mentioned earlier on, we had some delay phasing in the shipments. And so we expect the shipments to go out in quarter 1, but that's been delayed. We expect the majority of that delay phasing to be recouped in quarter 2.
[Interpreted] Understood. Lastly, although it's not mentioned for R&D today, but in 2019 expected events mentioned on Page 46, as a reference, and especially H1 expected items for late-stage TAK-924 data readout, TAK-788 Phase III Hunter disease data readout, those are the expected events. And in first half, it's to be ended in the September. So I'm just wondering if it is progressing well. And can we expect the data available soon or shortly?
Okay. Thank you, Yamaguchi-san. It's Andy here. So there are 2 slides in the backup that you're referring to, Slides 46 and 47, that highlight some of the key events for the new molecular entity pipeline, Slide 46, and then the approved products pipeline that we're investing in with significant life cycle management. That's Slide 47.
So as you can see in Slide 47, we've achieved already 5 of the key events that we highlighted in the first half for 2019. For the events in the NME pipeline, looking at each of these individually, I'd say that, for the most part, we're on track. The pevonedistat study, the Phase II study, which we hope has -- which we are hopeful of, we have an agreement with the FDA that this can be a pivotal study. That's an event-driven study. So we're waiting for the final events. But the study is fully enrolled, and we still expect those events to come in this year.
The TAK-788, we have an ongoing pivotal Phase II study that's going quite well. We expect to see data from that study next year. And then we're hoping to start our frontline study, Phase III study in H1, and we're still on target for that.
TAK-609, it's a very complex study. And I'll say that we do have data, and we're in the process of trying to understand those data. It's an intrathecally administered form of I2s, and it was an extension of a study that had been a failed study. So we're in the process of working with regulatory agencies and key opinion leaders to better sort through that.
TAK-573, the POC readout is likely to be pushed out into H2, although possible still that we see something this year.
Our STING agonist, we've actually filed an IND for an IV-administered compound for -- to open in Japan. That's still on track.
For the 2 celiac programs, we are still expecting to see data for at least one of them, the Kuma program in the first half.
So overall, the answer to your question is we're on track with the key milestones.
[Interpreted] From Morgan Stanley MUFG, Mr. Muraoka.
[Interpreted] Muraoka from Morgan Stanley. I would like to ask questions in Japanese.
Hemophilia, page -- well, sorry, a 13% decline all in all, and on track and in line, that's your explanation for this announcement season. There was another company that posted impairment for hemophilia. So could you please confirm that your situation is totally different from that one?
Great question. Thank you for the question, Mr. Muraoka-san. We caught -- in May, when we announced our fiscal year earnings for '19, we did go into a lot of detail on the purchase price accounting and how we valued the hemophilia business. At that time, we were very conservative. In fact, we're much lower than the overall consensus there. At this stage, what we're seeing, we're tracking aligned to our internal expectations. So there's no changes to our forecast and internal valuations from a purchase price accounting perspective. At the same time, we were able to consolidate ADYNOVATE and ADVATE. We grouped those 2 products together, which also minimizes the risks of impairment.
So at this stage, we're very comfortable, and from the expectations perspective, we're comfortable with that approach.
[Interpreted] About neurology. Vyvanse, 13% growth. The revenue is too strong. So my question is inventory. Is it piling up again? Or is this a pure organic growth?
So inventory days on hand where -- were very -- we're managing down inventory. So there's no stocking in Vyvanse. What we're seeing, in fact, is the potential here of revenue synergies, to be honest. We're seeing a strong combined organization in the U.S., a greater coverage for the Neuroscience business. So it's really started -- we're encouraged with the first quarter results, the in-market performance. But again, from a days-on-hand inventory, we've made all those adjustments in quarter 4 of 2018. We don't see any spillover or carryover of inventory, and that's very much locked and focused on the way we approach our business moving forward.
[Interpreted] My last question about share price at the time of the start of January, and we are around the same level as where we were in January. As a management, what are you going to demonstrate in order to recover the share price?
I think we are just going to do exactly what we're doing this quarter. It's everything we commit to, we deliver. And we continue to execute, stay focused on our strategy, our strategy to deliver on our synergies, the OpEx initiative, to deleverage, to really drive our 14 global brands where you see that we're growing at 22% in the first fiscal year -- first quarter in the fiscal year. So we're steadfast. We're focusing on the integration. We're progressing very well there. And really, each quarter that progresses and we deliver, I think the share price will follow.
[Interpreted] Next question is from Credit Suisse. Mr. Sakai, please.
[Interpreted] Mr. Sakai speaking. I believe there are more questions from others, so I'd like to limit to 2 questions. First one is about the first quarter cash flow. Free cash flow is JPY 89.3 billion. And as shown in the document, the future deleveraging plan is also shown. In this quarter, hybrid bonds payment would occur. So superficially, it looks very good, deleveraging progress. However, but if you take a look at this by quarter, free cash flow needs to be more than JPY 100 billion. Otherwise, EBITDA -- not EBITDA, excuse me. The net debt-to-EBITDA multiple cannot be 2 in the future. So first quarter -- based on the first quarter results, what is your assumption going forward about this? This is my first question.
Thank you for your question, Sakai-san. So we're very encouraged with the way we started the deleveraging. The hybrid bonds is also part of the original calculation where we determine we'll get down to net debt-to-adjusted EBITDA in 2x in 3 to 5 years, in accordance to the rating agencies' calculations as well. But nevertheless, of course, as you continue to progress throughout each quarter, we're also delivering more -- driving more of the costs and the synergy savings. At the same time, quarter 1 factored in the payment of dividends. So you've got that dividend paydown, which is also driving that.
In -- what you're missing in your equation is the proceeds from the divestitures, and that's part of the way we've factored in, and we're confident that we'll get down to the levels that we're committed to. As I highlighted earlier on, we need net debt-to-adjusted EBITDA down to 4.4x for the quarter. It doesn't include the proceeds from XIIDRA, which we received on the 1st of July. It doesn't include the disposal of some of the marketable securities, which we received in July.
So we're confident we're tracking really well. I'm encouraged with the first quarter and the free cash flow. And we're still committed to driving towards that target of 2x net debt in 3 to 5 years.
[Interpreted] Understood. Regarding the product, I have 2 questions, one of which is ALUNBRIG sales. According to this document, in EU, it's progressing well, but level of sales is still very low from my impression. In the future, you may need to think about the impairment loss from this product. So how are you going to reinforce ALUNBRIG in the future? This is the first question.
And the second one is about the hemophilia competitor. Roche said that Takeda's sales structure changed. They said that Takeda's forecast was diminished. That's what they suggested in their first quarter earning call. So hemophilia sales structure, did it change? So please answer to this question, yes or no. But I'd like to understand if you have changed the sales organizational structure for hemophilia business.
Okay. Thank you for your question. So let me address the first one where you talk about the ALUNBRIG. So ALUNBRIG, when -- year-to-date, the way we're tracking, we're already progressing better than our deal model and the way we accounted for it for the -- when we did the purchase price accounting on the acquisition of ARIAD. So we're already above that. So I think the risk of impairment is low. Of course, we will improve the situation once we get first line. And so that will be also encouraging once that happens to minimize any potential impairment risk.
With regards to hemophilia, I'm not here to comment on Roche's messages. But I mean, from our end, we don't typically comment back on what our competitors are saying about us.
This is Andy. Maybe I'll just add something briefly on ALUNBRIG. So the -- so as Costa mentioned, the greater part of the value that we ascribe to ALUNBRIG comes from the frontline indication. And the ALTA-1L study is ongoing. We had our first interim analysis readout last year with 11 months of median data on the ALUNBRIG arm. So it was a very immature data set. It was presented at the World Lung Conference, and we had data that were, I think, given the immaturity of the data set, as good as could be expected with a hazard ratio of 0.49, significant efficacy in CNS metastases. So a very encouraging data set. We're now approaching the second interim analysis, which will give us a much more mature data readout, and we're on track for that data readout to occur in first half fiscal year '19.
[Interpreted] Weekly Economist, [ Mr. Murakami ].
[Interpreted] Murakami speaking. I have 2 questions. First, noncore assets to be divested, you made that announcement; cardiovascular and also metabolism, which used to be your core businesses. What's your prospect of divestiture, although the patents do not expire anytime soon? But as you approach the expiration of the patent, the value -- asset value declines. So what's your prospect of divesting those areas?
About the pipeline, neurology. The late-stage pipeline is quite scarce. So do you want to have an alliance, so any small-scale M&A or acquisition? And please state who is answering the question because through interpretation, we wouldn't know who is answering the question, okay?
Thank you very much for your question. I'll answer the first one regarding divestitures of noncore assets. My name is Costa Saroukos. So thank you very much for your question. I mean from -- our strategy has all along been -- with regards to divestitures, we're divesting noncore assets. And if you look at Slide 11, it articulates very clearly the 5 key business areas for Takeda in GI, Rare Disease, Plasma-Derived, Oncology and Neuroscience. And then the list on the right is all others. We have hundreds of products in that space, and these are the ones that we're looking at. And we -- currently, we can't go into too much dialogue on communicating which specific products they are, but we are currently in negotiation for a number of these products.
The strategy we have is, first, if we divest, it allows us to stay more focused on our core 5 business areas. It allows us to pay down the debt. So at the same time, when we divest, it will be a divestiture that also improves deleveraging.
And this is Andy Plump, Head of R&D. Thank you very much for the question regarding the neurology pipeline. So let me start by saying that we don't look at each of our individual therapeutic areas as end-to-end businesses per se. We look at our pipeline in totality. So we're not trying to fill gaps within any of our therapeutic areas. That's not our strategy. Our strategy is to raise a very high innovation bar across our 4 therapeutic areas and to, where possible, pursue unmet medical need in targeted patient segments and more and more in patients with rare diseases. And as our Neuroscience pipeline has evolved, it's becoming more and more aligned with our targeted patient segment and Rare Disease strategy. We're actually quite excited about the Neuroscience pipeline. The asset that we've alluded to is TAK-925, our orexin 2 receptor agonist, and we'll spend quite a bit of time at the November R&D talking about that program. Thank you.
[Interpreted] May I ask you a very simple question about EBITDA multiple? 4.4x for the first quarter. What's your prospect for the full year?
We haven't -- it's Costa here. Thank you for the question. We haven't given guidance for year-by-year. We -- our guidance on net debt-to-adjusted EBITDA is 2x in 3 to 5 years.
The next question is [ Mr. Silalane ] from Spinner Investment.
I just had one on the loss of exclusivity. In the last quarter, you mentioned not just VELCADE but a number of other drugs that were -- you'd provisioned to see generic competition. I was just wondering if you can give us an update as to whether we're seeing competition in those other drugs. Or what's the status of those in terms of LOE?
Yes. Thank you for your question. Yes, in May, when we announced the earnings for -- the guidance for fiscal year 2019, we did highlight the LOE impact. And again, from -- as of July 31, we're seeing ULORIC, there's 3 generics approved, 2 have already launched in the U.S. In FIRAZYR, we are seeing, again, FIRAZYR. July 19 was a generic entrant, and we're seeing already 1 generic approved, and its list price is 54% discount to WAC.
ROZEREM, 2 approvals have already taken place. And then, of course, we've -- ADDERALL XR is -- also, generic erosion is expected from April onwards. It's already started.
So our assumption has -- based on what we communicated in May, is coming through. However, the impact of the erosion is still unclear, given that most of these products are being -- loss of exclusivity and generic entries is happening in July. Hence, the reason why also, from a margin standpoint, you'll see that our current core operating margin is 32.4% in the quarter, but we are expecting that for the full year guidance to be -- we've increased it from mid-20s to high 20s because of the erosion of these LOE products, coupled with some phasing and investment.
[Interpreted] Merrill Lynch Japan Securities, Mr. Watanabe.
[Interpreted] This is Watanabe from Merrill Lynch. Can you hear me?
[Interpreted] Yes. Very clear. Thank you.
[Interpreted] About margin improvement. Core OpEx ratio has declined by 6 percentage points. Value-wise, I think it translates into JPY 50 billion or so. How much part of that is defined as a cost synergy? And from the second quarter and beyond, if your marketing efficiency has improved on year-on-year from the second quarter and beyond, the similar level of effect can be observed quarter-by-quarter. Could that be the assumption?
Thank you for your question, Mr. Watanabe-san. So yes, quarter 1, we're very encouraged with the deliverable of the improvement in the margin of 10 percentage points from 22% to 32.4%. We have 3 quarters of the improvement coming from global OpEx and synergies and 1 quarter coming from gross margin, driven by product mix, mainly Vyvanse, ENTYVIO, NINLARO and TAKHZYRO. So there's a blend of the driver there.
With regards to your question, beyond quarter 1, we -- as I mentioned in my previous answer to the previous question, there is -- some of this improvement in quarter 1 was linked to phasing. We also expect the LOE impact that we raised previously that we're seeing already, something like FIRAZYR, ADDERALL XR, ULORIC, this will have an impact on our gross margin. And so as a result of that, we still believe that we're in a position that we can increase our target guidance for operating core margin from mid-20s to mid- to high 20s for this fiscal year.
[Interpreted] Did it answer your question? Thank you. Thank you very much. Thank you. So with this, we conclude the conference call. Once again, thank you very much for your participation. I look forward to working with you in the future. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]