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Good day, everyone, and welcome to the conference call of Takeda Pharmaceutical Company Limited. This conference call may contain forward-looking statements, beliefs or opinions regarding Takeda's future business, future position and the results of operations, including estimates, forecasts, targets and plans for Takeda. Any forward-looking statements in this conference call are based on current assumptions and beliefs of Takeda in light of the information currently available. Such forward-looking statements do not represent any guarantee by Takeda or its management of future performance and involve known and unknown risks, uncertainties and other factors. [Operator Instructions]
Now we start the conference. Mr. Okubo, please go ahead.
Thank you very much for joining the call today on Takeda's Q3 results despite your busy schedule. I'd like to introduce our presenters and also the respondents to the questions: the Representative Director, CEO, Christophe Weber; Chief Financial Officer, Costa Saroukos; Japan Pharma Business Unit President, Masato Iwasaki; Vaccine Business Unit President, Rajeev Venkayya; President Business R&D Head, Christopher Morabito.
First, we'd like to have explanations of Q3 results from CFO, Costa, and then followed by Q&A session. Please refer to the presentation documents at hand during the explanation, and please confirm indemnity listed on the presentation documents.
Hello, everyone. This is Costa Saroukos speaking. Thank you for joining the call today on Takeda's quarter 3 results. I'm very pleased to report that our strategic focus and superior execution continues to drive robust year-to-date performance. But before going into details on the quarter 3 results, let me quickly recap on our disclosure time lines going forward. Please turn to Slide 3. Slide 3 is aligned with the time line we showed in the presentation to announce the completion of the Shire acquisition. As a reminder, the deal was completed on January 8, 2019. Today, February 1, I will be presenting the Takeda fiscal year 2018 quarter 3 results, meaning legacy Takeda performance from April to December 2018. Later in February, Takeda will publish the January to December 2018 results for the legacy Shire business on our website.
Since the deal closed 3 weeks ago, we have been working closely with our new colleagues on bringing the 2 companies together, and we will have comprehensive business planning discussions in the coming weeks. Parallel to this, we are working with our auditors on the purchase price allocation of the deal. This will confirm how assets will be allocated on the Takeda balance sheet and what impact that allocation will have on our reported P&L. Once we have completed this process in April, we will announce revised guidance for the full year 2018 on a combined basis. The box on the right lists some of the main items that will be reflected in this revised guidance. Today, we have varying degrees of visibility in each of these items. As explained in quarter 2, the portion of Shire-related expenses to be incurred by Takeda in fiscal year 2018 are estimated to be between JPY 40 billion and JPY 60 billion, not including integration costs, debt interest and other financial expenses. In order to provide the most accurate information, we have decided to wait until we have a holistic view of the acquisition impact before announcing updated guidance for this fiscal year. Then on May 14, we will announce the actual results for fiscal year 2018 and provide guidance for 2019 fiscal year on a combined basis.
Slide 4 is a summary of our robust year-to-date performance. We have continued to make excellent progress delivering against our key strategic priorities to grow the portfolio, strengthen the pipeline and boost profitability. I will highlight some updates in the next slide.
On an underlying basis, business momentum and strict OpEx discipline continues to drive strong underlying growth. Underlying revenue was up 4.8%. Underlying core earnings increased by 32.3% and underlying core EPS grew by 34.2%. Importantly, we have continued to deliver on our commitment to margin expansion, with the underlying core earnings margin increasing by a significant 530 basis points.
For the reported results, revenue slightly increased, but our profit continues to be impacted by large onetime gains booked in fiscal year 2017 as well as Shire-related costs in fiscal year 2018. Excluding these items, operating profit growth is strong at 55.5%.
Moving to Slide 5, which shows progress against our key strategic priorities. In growth portfolio, underlying revenue was solid at 4.8%, with growth of the prescription drug portfolio in all our regions. Takeda's growth drivers of GI, oncology, neuroscience and emerging markets maintained a strong momentum, increasing by 10.5%. We also saw continued robust performance from key growth products, including ENTYVIO and NINLARO, which both grew by over 30%. In strengthen pipeline, we hit a very important milestone just a few days ago with the announcement that the pivotal Phase III trial of our dengue vaccine candidate met the primary efficacy endpoint. TAK-003 was efficacious in preventing dengue fever caused by any of the 4 serotypes of the virus and was found to be well tolerated with no significant safety concerns identified in analysis to date. With regards to NINLARO in post-transport -- transplant maintenance, as you know, the Phase III study met its primary endpoint of PFS at the first interim analysis in July 2018, and data was presented at ASH last year. This data was submitted to the FDA in November 2018. And after further discussions with the authorities, the decision has been made to withdraw the filing and to resubmit when more mature survival data are available. We'll be reviewing the timing of future analysis, and we'll work closely with the FDA on resubmission plans. We also had some important oncology milestones in quarter 3, with ALUNBRIG European approval in second-line ALK-positive non-small cell lung cancer and a positive CHMP opinion for ADCETRIS in frontline Hodgkin's lymphoma. We also advanced multiple collaborations to advance our early-stage novel immuno-oncology portfolio. Finally, we continued to boost profitability with the global OpEx initiative fully integrated into how we work and delivering stellar results. The underlying core earnings margin increased by 550 -- sorry, 530 basis points year-on-year, of which 70% is being driven by OpEx improvement. Slide 6 shows revenue by geography. The U.S. continues to perform well, up 8.5% year-on-year, driven by ENTYVIO, NINLARO, Iclusig and Trintellix. Europe and Canada was up 4.9%, primarily driven by ENTYVIO and NINLARO and supported by stable growth of ADCETRIS. Japan was also up 4.9% or 3% if you exclude a onetime upfront payment received for product out-licensing. Let me remind you that this growth is despite an average price cut to the portfolio of approximately 6.5% last April. Volume growth has offset this headwind, led by TAKECAB and AZILVA with increasing contributions from NINLARO and ADCETRIS. Emerging markets grew by 5.1%. Importantly, China delivered almost 20% growth. As we have previously emphasized, we view China as an important market and have several innovative drug launches planned for the coming years, starting with NINLARO, which was launched in July 2018. Brazil also performed well, up 26.9%, but this was somewhat offset by a decline in Russia due to the return of some licensed products last year. If we adjust for the Russia portfolio changes, total emerging market growth would have been 14.4%. Growth of our consumer health care in Japan was largely impacted by the conclusion of a distribution contract for biofermin products in 2017, coupled with lower performance of ALINAMIN. On Slide 7, you can see the performance of Takeda's growth drivers. In GI, underlying revenue growth continued to be strong at 18.6%, mainly driven by ENTYVIO and TAKECAB. Oncology was up 7% with growth of NINLARO's -- with growth of NINLARO, ADCETRIS, Iclusig and ALUNBRIG, comfortably offsetting the decline of VELCADE. Neuroscience growth of 15.2% continues to be spearheaded by strong Trintellix performance in the U.S. and has also benefited from recently launched AZILECT in Japan. Emerging markets growth was 5.1%, as explained in the previous slide. In total, our growth drivers have maintained strong momentum of 10.5% year-to-date and currently represents 63% of our total revenue. Slide 8 shows the robust performance of our key growth products. ENTYVIO continues to power ahead as Takeda's top-selling product. In the first 9 months of fiscal year 2018, delivered JPY 194.4 billion in underlying revenue, growing at 35.1%. This was driven by further penetration of the bio-naïve segment in marketed countries and also from launches in new geographies. This includes Japan, where we launched ENTYVIO for UC in November 2018. We also look forward to filing soon for subcutaneous administration, which will continue to boost the value of ENTYVIO. TAKECAB is still displaying robust growth of 18.5%, with volume expansion in Japan more than offsetting the 16.1% price cut applied to the product on April 1, 2018.
NINLARO booked revenue of JPY 44.8 billion, growing at 36.6%. This growth is on the back of increasing uptake in the U.S. and also in Europe, where reimbursement has been successfully granted in many markets. We are also progressing with new country launches, such as China where we launched last July.
ADCETRIS continued to grow well in Europe and emerging markets and also in Japan, where it was approved for frontline Hodgkin's lymphoma in September 2018.
Iclusig and ALUNBRIG, the 2 lead products we obtained through the ARIAD acquisition, continue to grow strongly at 26% and 151%, respectively. Trintellix also continues to advance well, growing 19.5% over the prior year. On Slide 9, allow me to highlight some of the important R&D milestones achieved in quarter 3. Most exciting for us are those I mentioned earlier, specifically the positive readout of the Phase III study of our dengue vaccine candidate, TAK-003, and the approval of ALUNBRIG in Europe for second-line ALK-positive non-small cell lung cancer. In Phase II, we had positive progression for TAK-906 into a Phase IIb study for gastroparesis. Also in GI, as a new milestone, we have added the upcoming Phase III data readout for TAK-721. We expect this before the end of the fiscal year. Now moving to Slide 10. We'll go into the details in the future slides, but in summary, our reported revenue increased by 0.8%. We have operating profit declining by 11.7% and EPS reported minus 32%. We'll explain, excluding the fiscal year 2018 year-to-date Shire-related costs, the impact and also the impact when you take out the gains on Wako in 2017 and additional products sold to Teva as well as the 2018 Shire-related costs. Our revenue would represent 2.2% on a reported basis increase and operating profit a solid 55.5% increase. Underlying revenue growing at 4.8%, core earnings underlying 32.3% and core EPS 34.2% growth. Slide 11 shows the reported profit and loss statement for the 9-month period. Revenue was JPY 1.38 trillion, up 0.8% versus prior year. As I mentioned on the previous slide, this includes a 1.1 percentage point negative impact from foreign exchange and 3 percentage point negative impact from divestitures. We are pleased to report double-digit core earnings growth increasing 17.7% to reach JPY 344.6 billion. As a reminder, this still includes a negative impact of divestitures and foreign exchange, which we adjust to reach the underlying core earnings growth rate of 32.3%.
Operating profit was JPY 284.4 billion, a decline of 11.7% versus prior year. Again, significant drivers of this decline were the large onetime gains we booked in quarter 1 fiscal year 2017 related to divestitures and Shire-related costs in fiscal year 2018. Additional items with an impact on operating profit growth in fiscal year 2018 include: amortization expenses, which were lower by JPY 29.5 billion, mainly due to the end of VELCADE amortization; impairment losses, which were higher by JPY 22.5 billion. This is mainly due to a Colcrys impairment reversal booked as profit in fiscal year 2017. However, we also booked JPY 7.2 billion of impairment in quarter 3 fiscal year 2018 related to the termination of an R&D collaboration with Mersana.
Other operating income declined by JPY 102.3 billion, with the main difference being the divestiture of Wako in fiscal year 2017. While we did book a gain of JPY 18.4 billion on the sale of Techpool in fiscal year '18, this was partially offset by JPY 12.5 billion lower sales of real estate so far this year. Other operating expenses was favorable by JPY 15.4 billion. This is largely due to prelaunch inventory, which was recognized as an expense in fiscal year 2017 and then reversed as a gain in fiscal year '18 as a result of FDA approval of a manufacturing plant. Net profit was JPY 164.4 billion, a year-on-year decline of 31.7%. In addition, the items -- in addition to the items explained so far, this was also impacted by lower financial income almost entirely due to the recognition of JPY 16.1 billion gain on sale of marketable securities in fiscal year 2017. Although we have so far received JPY 39.3 billion cash for securities sold in fiscal year 2018, we can no longer recognize the gain on the P&L under IFRS 9 accounting standards. Higher financial expenses with JPY 23.5 billion related to the Shire transaction, including the bridge loan fee and interest expenses on the permanent financing. Another important factor negatively impacting the bottom line is JPY 10.6 billion of higher losses in fiscal year 2018 on the share of loss of associates using the equity method. This is mainly due to an impairment charge recognized by our joint venture with Teva in Japan after revaluation of its assets in response to changes in the business environment. Slide 35 in the appendix shows the details of this impact on our P&L. The main items are a negative onetime equity method loss of JPY 49.4 billion, partially offset by other operating income of JPY 26.3 billion due to the acceleration of the deferred gain on products transferred to the JV. You may recall that the Teva JV also booked an impairment in quarter 3 of fiscal year 2017 as well, which is why the year-on-year impact is limited. Please note that both the equity method loss and the other operating income gain are both onetime noncash items. Finally, net profit was also affected by an unfavorable tax rate of 4.7 percentage points. Although the fiscal year 2018 year-to-date tax rate is consistent with the first half tax rate of around 21%, the tax rate in quarter 3 fiscal year 2017 was unusually low primarily due to tax reform in the U.S.
EPS year-to-date was JPY 210, a decline of 32% versus prior year. On this slide, we have also called out the Shire-related costs incurred year-to-date. There were JPY 25.1 billion of Shire-related costs impacting operating profit. Of this, JPY 11 billion is within G&A, including adviser fees and legal fees, and JPY 14.1 billion is in other operating expenses related to integration. Below the operating profit line, Shire-related financial expenses were JPY 23.5 billion for a total profit before tax impact of JPY 48.6 billion. After tax, the impact of Shire-related costs on year-to-date net profit was JPY 38.3 billion. Slide 12 shows our underlying P&L, which truly reflects our strong business momentum and execution of the global OpEx initiative. Underlying revenue growth was solid at 4.8%, driven by growth drivers such as ENTYVIO, NINLARO and the ARIAD-acquired products, Iclusig and ALUNBRIG. Gross profit increased 7.1%, outpacing revenue growth, resulting in an underlying gross profit margin of 73.1%. This is an improvement of 160 basis points over prior year, driven by growth of higher-margin products, such as ENTYVIO and NINLARO. Our gross margin also benefited from the conclusion of a distribution deal for lower-margin consumer health care products in Japan. Operating expenses declined by 2.7%, resulting in a significant margin improvement of 370 basis points. Underlying core earnings growth was 32.3%. The underlying core earnings margin improved by 530 basis points up to 25.3% of revenue. There are still some phasing benefits here, but as an underlying trend, we are very positive about the momentum with which we are boosting profitability. I would like to emphasize that 370 basis points representing 70% of the total margin growth is coming from OpEx improvement.
Underlying core EPS for the first half was JPY 342, up 34.2%. Our underlying tax rate was 22%, favorable by 1.1 percentage point versus prior year, mainly due to a release of a tax provision. Slide 13 shows our operating free cash flow, which declined 20.2% or JPY 30.7 billion. The largest item impacting this was the sale of additional products to the Teva JV in quarter 1 of last year. This represented a JPY 28.5 billion benefit in fiscal year 2017. Furthermore, we paid JPY 8.8 billion tax related to this transaction in fiscal year '18 for a total net negative impact of JPY 37.3 billion. Outside of operating free cash flow, our efforts to simplify our business and streamline our balance sheet generated additional cash. We continued to dispose of real estate and marketable securities, generating JPY 45.4 billion. And in addition, we received JPY 27.5 billion cash from the sale of noncore businesses, Techpool and Multilab. On Slide 14, I would like to give a brief update on progress of the global OpEx initiative, which is delivering stellar results. This program is helping to drive margin improvement, with operating expenses year-to-date declining by 2.7% and OpEx contributing 70% of the 530 basis point improvement in underlying core earnings margin. The global OpEx initiative is now fully integrated into how we work. This means that it's embedded into our budgets and systems and is reflected in KPIs. As a result, we are seeing a true shift in cost consciousness in the organization, which is driving us to exceed our global OpEx cost packages by 3.7%. Turning to Slide 15, closes out the quarter 3 earnings update. And I again would like to reemphasize the strong underlying growth driven by business momentum and OpEx discipline, delivering underlying core earnings growth of 32.3% and margin expansion of 530 basis points. Before we move into the Q&A session, I just want to make a couple of comments on the Shire acquisition. As you are aware, the acquisition was completed early in January with just 8 months between deal announcement and deal close. Some significant milestones were the listing of the Takeda ADSs on the New York Stock Exchange late last year and securing the deal financing before close at highly competitive interest rates. I want to emphasize that we do not intend to increase our debt load any further. However, we may look to optimize the debt structure by refinancing certain instruments. Throughout this process, I have emphasized a commitment to maintaining an investment-grade credit rating, and this has now been confirmed by the rating agencies. We are also proceeding with noncore asset divestiture negotiations. And while I do not have any specific updates for you today, this continues to be an area of high focus for us as we look to accelerate deleveraging and focus the portfolio. Simultaneously, we continue to look at ways to unlock cash from idle balance sheet assets through the sale of real estate and marketable securities. In fact, just this week, we announced the sale of 21 properties, which would generate a pretax gain of approximately JPY 38 billion in quarter 4. Finally, I'm pleased to say that integration is progressing as planned so far, and we held the first leadership meeting for our executive team and top 200 leaders just 2 days after deal closed. Looking forward, we are really excited about Takeda's position as a global, value-based, R&D-driven biopharmaceutical leader with significant financial strength. The substantial cash flow generation of the combined company will continue to support our capital allocation priorities. And as we continue to focus on boosting profitability, we will strive to realize top-tier margins in the medium term. Strong cash flow, synergies, OpEx discipline, all these will help us to rapidly deleverage down to our target net debt to adjusted EBITDA ratio of 2x in the medium term with the potential to further accelerate with divestitures. This is an exciting time for Takeda and our shareholders, and we look forward to coming back to you with more details soon. Thank you.
Thank you, Costa. Now we'd like to take questions. Those who are joining in Japanese or English conferences, we'd like to take questions simultaneously.
[Operator Instructions] First question is Seki from UBS.
This is Seki, UBS. So I have 2 pipeline questions. So first is NINLARO. So I'm slightly surprised to hear [ that what happened recently ]. So when do we expect to refile MM3 with updated OS data to the FDA? So -- and what's the FDA's feedback to the MM3 trial so far? I thought the PFS benefit was robust. And the -- another question for Rajeev. Congrats on the time trial. Could you help us understand your pathway to commercialize the vaccine after regulatory approval, like discussions with the WHO or probably governments, including Philippines?
Seki-san, this is Chris Morabito from R&D. Thank you for your question. As you know, the MM3 data were filed in the fall to the FDA, and it was after that we were convinced by the robust analysis of the progression-free survival. We continue to believe that there is large unmet need in this patient population. Many patients, in fact, do relapse after they receive their transplant. And in this study, after 2 years of therapy, we did see a significant improvement in progression-free survival. But after only 31 months of median follow-up, there were not enough deaths accrued in the study to assess any significant difference in overall survival or even, in fact, imply a trend in overall survival in the study. We submitted the data to the FDA, and the FDA's response back to us was that they would like to see the overall survival data before they would proceed with the analysis of the submission and the filing. And in fact, in the end, we probably should not have been surprised by this because the FDA has declared previously with other drugs that are in the space that OS is a critical endpoint for their final analysis. So as you can imagine, we're waiting for the events to accrue. And because this is an event-driven analysis, we can't predict precisely when we would be able to get those data and then complete that resubmission. The FDA continues to be very involved with us in this discussions, and the discussions are going well. It's just that now we have to wait for those data to come in.
Thank you for the question, Seki-san. This is Rajeev Venkayya with the Vaccine Business Unit. The pathway to commercialization before and after we received licensure, if and when we receive licensure, will involve extensive consultation with health authorities as well as global experts and entities such as the World Health Organization. In fact, these discussions have been ongoing as we've been keeping these groups apprised of the progress in our dengue development program. We are well aware of the significant interest in dengue in general, but specifically in dengue vaccines and safety of those vaccines. We are very encouraged by the fact that we have met the primary endpoint in our Phase III pivotal efficacy trial of the dengue vaccine, but we have deliberately not disclosed any data underlying that finding. We would -- we have decided that we will wait until we can share the key data with all stakeholders through a peer review publication, which will happen as soon as possible. Once that data is available broadly, that will facilitate further consultations with experts and stakeholders.
So just a quick follow-up, so did you agree with the FDA for their primary endpoint as the progression-free survival?
PFS is an acknowledged endpoint in the space, and it's one that the FDA continues to believe is important.
From Daiwa Securities, we have Mr. Hashiguchi.
This is Hashiguchi speaking. I have question about NINLARO maintenance therapy and refiling. FDA's requirement is OS showing a statistical significance. Is that correct? Or are they just saying that there's just simply not enough data at this point? In other words, even if there is no significant difference in OS with PFS, PFS2, and OS, if you have enough comprehensive data, do you think that you'll be able to refile and be approved? And also, FDA's way of thinking was indicated this time. And MM4 maintenance therapy without a transplantation, do you think this development pipeline will be impacted? Because earlier, you said approval in 2020 was in plan, but has that plan changed?
Thank you again for the question about NINLARO. This is Chris Morabito from R&D. So the answer to the question about overall survival is that, as I mentioned before, we simply have no data to infer any difference in OS at this point because the data are just not mature enough. The FDA has acknowledged that this is the case, and we are in active discussions with FDA about when we should be coming back with additional data for the rediscussions about the submission and filing. At this point, I don't have enough information to answer your question about the specific timing. In regards to continuing studies with NINLARO, specifically the MM4 study, that study remains on track. And in fact, we're expecting the next readout of the study to happen in 2019, in fact, the second half of 2019. So at this point, we expect no delays to the previously stated time lines.
With my first question, it was not so much about the timing, but what kind of data you think FDA would require for you to be able to refile? So statistical difference in OS is a must, do you think?
As I said, we're in active discussions with the FDA about this. At this point, we don't have clear guidance as to whether they need statistical significant difference or a significant trend. And I also mentioned previously that this is something that has come up in the past with other medicines, specifically with Revlimid. And they had discussions about OS that occurred prior to their final submission, and we anticipate the same kind of process with our medicine.
Next questioner is from Citigroup, Mr. Yamaguchi.
Hello? Do you hear me? I'm Yamaguchi from Citigroup.
Yes, we do, clearly. Thank you.
My first question is about the TAK-003. The number of the patient population or prevalent data were already disclosed, but this is something different from the existing business model in the developed countries. So the market forecast or unit price is not disclosed in the outside data. So if you sell this product, I'm not asking for your estimated pricing for this, but I'd like to understand what is the average pricing for this type of drug. If you have that knowledge, can you please let me know? This is my first question.
Thank you, Yamaguchi-san. This is Rajeev Venkayya with the Vaccine Business Unit. The pricing of the vaccine, the dengue vaccine candidate will be heavily determined by the profile of the vaccine itself, specifically the efficacy and safety profile as well as the indications and recommendations for use of the vaccine. The data to inform those attributes will come from the ongoing Phase III clinical trial. We have designed the trial in such a way that we can fully understand the efficacy and safety in a broad group of populations, including both those previously exposed to dengue as well as those who have never been exposed to dengue. So our hope is that the vaccine will ultimately be licensed in a very broad population with broad indications, but it is too early to say that because the trial is ongoing. Beyond that, I would that say we typically do not disclose information about pricing prior to actually launching the product. Thank you.
My second question -- could you take my second question?
Yes, please.
I think it is reported externally. After the integration, you have a plan to divest some businesses and there are some -- emerging market businesses may be divested according to the reports. So reflecting the historical background, GI product should be the one of the candidates for divestiture? And between Takeda and Shire, do you have any guidance about the potential candidates of the divestitures? So if you have any, could you tell us something?
Thank you for your question. This is Costa Saroukos, the CFO. So with regards to our strategy, we've always communicated with the acquisition. Firstly, our focus on deleveraging, having a net debt-to-EBITDA ratio of 2x in the medium term. So that's being very clear. We can accelerate the deleveraging by divestitures of noncore assets. The combined business, the new Takeda's business, the key focus business areas are GI, oncology, neuroscience, rare disease, plasma-derived therapies, and they represent 75% of the combined business. All other areas are noncore basically, and they represent 25%. And these are the areas that we're looking at for potential divestitures. GI is not in that category. And again, from a region and speculation of what you're hearing, we cannot comment on speculation, but we are actively looking and having conversations on our divestiture strategy. And at the right time, we'll reach out and communicate accordingly.
Crédit Suisse, Mr. Sakai.
Yes, this is Sakai. For Shire FY '18 earnings, I understand that this is going to be announced in the middle of February, as you indicated before. And I'm very interested -- well, just interested how the fourth quarter closed and since the integration process have started. January through March will be consolidated. So in this process, I understand that the executive board has been formed in a solid manner, but what is happening on the ground, for example, in terms of sales force? Takeda U.S.A. moving from Chicago to Boston, for example, is one factor. And we just ended January, I know, but I wonder if the momentum has shifted on the ground. I just want to confirm that there is no such thing, no shift in momentum.
Thank you, Sakai-san, for the question. It's Costa Saroukos here. I'll answer the first part regarding the Shire's fiscal year earnings announcement, and then I'll hand it over to Christophe to give you an update on the integration and regarding the sales force in the field, et cetera. So as highlighted in the presentation on Slide 3, we -- the Shire fiscal year 2018 results, January to December, they will be communicated middle of February. We are -- now the Shire audited -- are just completing audit validation for the fiscal year 2018, and we should have the final numbers consolidated and audited in the coming days. Once we receive that, we will then communicate accordingly. Then as I mentioned, we will have, from January 8 to the 31st of March, the results of Shire consolidated within the Takeda results. And therefore, we'll be in a position to communicate those combined consolidated results in April, factoring in the audited purchase price allocation methodology, which we're also, in parallel, working on as we speak today. Then finally, in May 14, we will communicate the fiscal year final 2018 results and the guidance for 2019 of the combined company. That will be focusing and updating you on any other topics, such as potentially integration updates as well as any longer-term aspirations.
Thank you, Sakai-san. This is Christophe here. Regarding the integration, we are obviously very careful at minimizing the disruption. So far, we have not seen any slowdown. We have not seen neither an increase of -- on pre-attrition. We have some retention plan in place. And the way we are proceeding is that every organization -- we have started with the nomination of the executive team, and then every executive team has designed its organization. And they are proceeding with the nomination, but we are very careful about the disruption. So for example, in the U.S., Ramona Sequeira has designed her organization by business unit, and we are really trying to move ahead quite quickly so that we minimize the anxiety. So the faster employees and people know what is -- the future holds, the better. And that's how we are proceeding. For example, in Europe, we have now nominated all the general managers, and they are also proceeding with the integration. So I think we are actually moving very rapidly in -- but as -- with quality as well because we want to manage well the process in order to minimize the disruption.
Understood. Just one more question for Costa. There was a question about tax synergy before, if you remember. So guidance is just under 25%, if I remember correctly. Now regarding this number, is this management accounting basis or cash-based number? My question is amortization and expensing. I think these will be excluded. So I wonder if this 25% is cash-based. Or is it based on managerial accounting? And can I please get a clarification or definition of this 25%.
So the guidance has been, firstly, from a tax synergy. We haven't communicated that the deal has any tax synergies, first of all. This is not being an acquisition pending any tax strategy. We have communicated that, from an underlying tax rate, reported tax rate, it will be below the 25% mark. And it would be to your -- to answer your question, it would be based on the cash rate perspective.
Sorry, yes, I confused my terminology. So that's net tax rate, 25% or less than 25%.
Yes. So from the definition that we communicate, it will be from a reported tax rate below 25 -- lower than 25%. Likewise, from an underlying tax rate, it would be below 25%. So that's all I can communicate with you at this stage.
Next question is from Tokai Tokyo Chosa Center, Mr. -- or Ms. Akahane.
I have one question on the -- you told about the balance sheet. There are many information, for example, JPY 1.1 trillion asset divestiture in the Osaka headquarter's divestiture. And also in terms of the financing database or euro-based financing were informed that -- I'd like to understand about the overall picture of the balance sheet. So you said that you are going to keep investment grades and also dividends, but as you know, there are significant fluctuation in the investment-grade ratings. So for the investors, it's better to know about the overall holistic pictures of the balance sheet you are aiming.
Thank you for your question. This is Costa Saroukos. So very much aware of the importance of the criteria of one is being investment-grade credit rating. We've committed to investment-grade credit rating, and one key area there is to meet the net debt-to-EBITDA ratios of 2x in the medium term. The medium term being 3 to 5 years. And then we can accelerate this deleveraging by the form of divestitures of noncore assets. This will allow us to deleverage, manage our cash flow and at the same time, stay focused on the 5 key business areas. And so with regards to -- most recently, even just yesterday, we just received A+ rating by GCR. So all the rating agencies have rated us at investment-grade credit rating, and we continue to keep that as a top priority for the company. The net debt-to-EBITDA ratio, we'll continue to reach -- focus on with regards to the divestitures and the significant cash flow that we expect to deliver from the combined company. Our EBITDA growth is considerably higher than our base that we have today, so we have significant 3x improvement. So we're going to use the cash flow to continue to deleverage.
I have one more question actually regarding the Shire acquisition. In order to reduce the interest-bearing debt, do you have any basic policy about your future divestiture? Are you going to divest each individual product one by one or you have any categories to target for the divestiture?
It's Christophe here. I mean, first, we are focusing on noncore assets, so products which are outside the 5 key businesses that we have outlined. And then, of course, it's an assessment product by product, which product are we underperforming and the value would overperform because it's a category, which is closer in the core business, for example. We are looking also at simplifying. It's an opportunity to simplify the company as well. And because we have now a much bigger company, so we can take the opportunity to reduce our number of product and simplify our supply chain, for example. And of course, we are looking also at -- the goal is to deleverage, so the multiplier of EBITDA of each product is also important. So it's not -- by the way, it's not one sell. It's multiple group that we are looking at selling. And as Costa explained, we cannot disclose that, but it's a -- we are working in parallel of couple of groups of products to sell.
The next question is Joseph Cairnes from Deutsche Bank.
So a couple of questions for me actually. I think the first one is pretty straightforward. Can we expect the usual stack of Shire numbers when you release them in mid-February? And then the second question, just to Costa on how he expects to -- or how do you expect the global OpEx initiatives to play when you're integrating Shire? I mean, Shire already has very good margins. Are you planning to implement zero-based budgeting with Shire? And how do you think that will fit in with the way they currently run the business there?
Thanks, Joseph. It's Costa here. So regarding the Shire fiscal year 2018 results, we'll be sending out a press release on those results. So that will be in mid-February. With respect to the global OpEx program, you could see already we've integrated the way -- global OpEx is integrated within the way we work in Takeda where we've got the systems in place, we've got the dashboards, the KPIs, the methodologies, et cetera. This will continue, but it's all part of the -- combined with the synergy. So it's -- what we've done as a company, we've identified the global synergy targets by business unit, by region and by functions, and this will be embedded into the process that we have today, leveraging the infrastructure we have with regards to what we've implemented thus far on the global OpEx program. So it won't be separated. It won't be an area that we're focusing just on OpEx on legacy Shire or OpEx on Takeda. It's a combined package that combines both synergies and OpEx because the end result is to improve margins. We want to be a top-tier margin company. So OpEx plus the synergies will have to deliver the bottom line and help us improve our margin to be a top-tier pharmaceutical margin player in the midterm.
Got it. So just on the first question, you're just saying a press release there. So can we expect the same kind of granularity from the press releases we would expect when we see [indiscernible]?
At this stage, Shire's had I think something in the vicinity of 35 pages. I think we won't be submitting a 35-page package. We'll revisit that. We're validating it now. I mean, we're still working on it. They're closing the orders -- they're closing the order process early next week, and we'll start to compile it, but it'll be based on the Takeda approach.
Now we are almost near to the end of this conference, so we'd like to take the one last question.
Next questioner is from Morgan Stanley, Mr. Muraoka.
I am Muraoka from Morgan Stanley. My first question, regarding the January to March period. I understand that you've started integration process. And when you look at the Takeda stand-alone between January and March, well, core earnings is already hitting JPY 330 billion. And January to March, Takeda stand-alone, I think it is pretty unlikely to see the red ink in this period. Is it the right understanding? Last year, it was a JPY 30 billion in core earnings. So if you have something extra that you can do in this period for this year, please give us some guidance regarding the core earnings.
Yes, thank you for your question. It's Costa speaking here. So regarding guidance, at this stage, quarter 3 year-to-date, we're very pleased with the Takeda stand-alone performance showing strong underlying growth of 4.8%. Core earnings growing over 32%. The implementation of the global OpEx program, zero-based budgeting, all integrated in the way we work and delivering year-to-date margin improvement of 530 basis points. We're very pleased with that. But again, we still -- for the next -- we still have 3 months of integrating the 2 companies. We're not in a position to change the guidance. We will come out and share an update in April of the consolidated position of the combined company.
Let me ask you one more question. It may be hypothetical thing. But in oncology area, if you have any interesting real business as a target for you to acquire like a $3 billion or $4 billion price tag, do you think it is valuable to purchase that? Or now you're in the -- not in the mood of the acquisition, you have to do the integration process. So what is your intent?
At the moment, we are really focusing on the integration on the -- in the oncology business unit. We are actually in the -- still in launch phase on many products in parallel, so -- and actually our business is growing. So that's really very much our focus. We do continue to have research partnership and R&D partnership, but at the moment, it's really very much our focus, integration, keeping the business momentum, which we have seen is good and also not disrupting our R&D and pipeline momentum. That's really where we are focusing on.
With this, we'd like to conclude today's conference call. Thank you very much again for joining this call despite your busy schedule. Looking forward to seeing you in the future events.
Thank you for your taking time, and that concludes today's conference call. You may now disconnect your lines.