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Good day, everyone, and welcome to the conference call of Takeda Pharmaceutical Company Limited. [Operator Instructions] Now we'll start the conference. Mr. Okubo, please go ahead.
[Interpreted] Thank you very much for joining us today despite a very busy schedule for the third quarter earnings call -- conference call. At today's conference call, I would like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 of the United States. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in our most recent Form 20-F and in our other SEC filings. On Page 2, there is some important information. Please refer to this slide as well. I would like to introduce the presenters and also those who are available to answer your questions today: President and CEO, Christophe Weber; Chief Financial Officer, Costa Saroukos; R&D President, Andrew Plump; and Japan Pharma Business Unit President, Masato Iwasaki. We would like to begin by the presentation by CFO, Costa, overview of the third quarter results. And after the presentation, we will have time for Q&A. Please refer to the material in front of you for the conference call. Thank you.
Thank you, Takashi, and hello to everyone. Before I go into the details of the quarterly performance, I want to emphasize some important high-level messages on Slide 2. First, the integration of Shire continues to be a great success. 12 months have passed since deal close, and we are truly operating as One Takeda, with 50,000 employees working together to execute on our strategic priorities. Second, I want to highlight Takeda's commitment to ESG, and in particular, our recently announced carbon neutrality targets. Our focus on ESG underlines our commitment to sustainability, and we strive to ensure business growth over the long term through our global brands, R&D engine and strong margins. Finally, I'm pleased to report that our business momentum remains strong. We have a solid year-to-date financial performance, driven by our 14 global brands, cost synergies and OpEx efficiencies. As a result, I'm very pleased to announce that we're confirming our underlying revenue guidance, and we are raising profit guidance for the full year. Furthermore, we now expect positive reported operating profit for the year, having completed the purchase price allocation for Shire. Now let's look at some highlights from the quarter year-to-date on Slide 3. Starting with business area focus, we saw continued strong performance from our 14 global brands, growing 20% year-to-date. Our R&D engine continues to strengthen the pipeline, as highlighted at our recent R&D Days in New York and Tokyo. This quarter, we've had important updates for our Wave 1 pipeline with TAK-788 and TAK-924 initiating Phase III studies and an additional data readout for our dengue vaccine. Our global brands also continued to generate data in new indications. And in quarter 3, we announced positive results for both ALUNBRIG and NINLARO. Regarding financial strength, we have delivered solid year-to-date results with an underlying core operating profit margin of 30.9%. The net debt-to-adjusted EBITDA ratio is now at 4.1x, slightly higher than previous quarter, as expected, having paid the full year dividend and tax on proceeds from the divestment of Xiidra. Finally, as a result of our strong business momentum as well as faster-than-expected realization of synergies, we are confirming our full year underlying revenue guidance of flat to slightly increasing and raising our full year guidance for core operating profit and underlying core EPS. We have also completed the purchase price allocation for the Shire acquisition, resulting in a positive impact to the reported P&L. Whereas we had initially expected an operating loss in fiscal year '19, we now expect to report positive reported operating profit this fiscal year. Slide 4 is a summary of the fiscal year 2019 quarter 3 year-to-date results. Revenue was JPY 2.519 trillion, growing at 82.6% versus the prior year with the addition of revenue from Shire. Compared to a pro forma baseline of Takeda plus Shire, underlying revenue growth was minus 1.2% for reasons I'll explain later. Reported operating profit was JPY 162.5 billion, down 42.9%, impacted by significant onetime and noncash costs related to the Shire acquisition. However, core operating profit, which adjust for these and other nonrecurring items, was JPY 792.2 billion, growing at 129.9% year-on-year. Our core operating profit margin increased by 6.5 percentage points to 31.4%, driven by cost synergies and OpEx efficiencies. Underlying core operating profit margin, which further adjusts for foreign exchange and divestitures and forms the basis of our margin targets, was similarly strong at 30.9%. Reported EPS was JPY 27, also impacted by large onetime and noncash items. And core EPS was JPY 360, an increase of JPY 24 versus the prior year. Underlying core EPS, which is part of our management guidance, was JPY 359. Finally, free cash flow was JPY 745.7 billion or approximately USD 6.8 billion, with strong operating cash flow supplemented by divestiture income. Slide 5 shows the year-to-date reported P&L, which was largely impacted by noncash purchase accounting expenses. Reported gross margin declined by 6.6 percentage points, impacted by JPY 168.9 billion of noncash cost of goods expenses, mainly from the unwinding of inventory step-up as part of the purchase price accounting. Amortization and impairment increased significantly due to the addition of JPY 243.9 billion of amortization costs related to the Shire acquisition. In addition to these noncash expenses, we also booked JPY 95 billion of integration costs related to Shire, mostly within other operating expenses. Consequently, reported operating profit declined 42.9% year-on-year. Reported net profit was JPY 42.5 billion, also reflecting JPY 114.1 billion of interest expenses. Slide 6 shows our year-to-date core P&L, which excludes major onetime and noncash items. Core operating profit was JPY 792.2 billion, an increase of 129.9% versus prior year. The core operating profit margin of 31.4% is an improvement of 6.5 percentage points versus the prior year, primarily driven by lower OpEx. Core net profit was JPY 560.2 billion, and core EPS was JPY 360. On Slide 7, let me go into more details on year-on-year revenue performance. On the left is reported revenue, which increased by 82.6% due to the addition of Shire. On the right is underlying pro forma revenue growth split out into our 5 key business areas. I'm pleased to report that GI, Oncology, Neuroscience and PDT Immunology all continued to demonstrate good growth versus the prior year. Rare Diseases declined by 11%, which is consistent with the trend we saw at quarter 2. Rare Hematology continues to be impacted by the competitive landscape. And HAE growth was negatively affected by stocking in the prior year as well as generic entry for FIRAZYR. In addition, Rare Metabolic has been impacted by the U.S. recall of NATPARA. Other noncore products also continued to decline, down minus 12%. This was accelerated by generic entry of ULORIC in the U.S. in July. In total, pro forma underlying revenue declined by minus 1.2%, with our 5 key business areas unable to fully offset the decline of others. However, as a reminder, last year, during quarter 4, Takeda conducted an extensive inventory harmonization to align Shire's inventories with Takeda's lower days on-hand policy. Therefore, we expect revenue growth to recover in quarter 4 of fiscal year 2019. Slide 8 shows Takeda's 5 key business areas of GI, Rare Diseases, Plasma-Derived Therapies, Oncology and Neuroscience, which represent 79% of total revenue. I'll highlight some topics from each business area in the next slides. First, GI on Slide 9. The portfolio grew 10% versus prior year, spearheaded by the excellent performance of ENTYVIO, up 35%. ENTYVIO patient share continues to expand in both the U.S. and Europe, and prescribers are becoming increasingly aware of the positive head-to-head data in UC that was published last year. As we announced in December, we have received the complete response letter for our subcutaneous formulation in UC, and we are currently working with the FDA towards a resolution. We expect to have an updated time line within the first half of calendar 2020. Importantly, this CRL is not related to safety or efficacy data and does not have any impact on the marketed IV formulation. I would also like to inform you that Takeda has settled with Roche to resolve all ongoing patent proceedings and disputes between the companies relating to ENTYVIO and Roche's 809 patent. The financial impact of this settlement is not material to Takeda and has no impact on our margin and deleveraging targets. We remain very confident in the growth outlook for ENTYVIO and its potential to realize $4 billion to $5 billion in peak revenue. Also in GI, we saw continued strong growth of TAKECAB, up 25%, and an acceleration of Gattex growth to 23%. Gattex has benefited from Takeda's leadership position in GI, and we continue to capture new patients, including pediatrics in the U.S., after our label update in May last year. Slide 10 shows our HAE portfolio, which declined 11% year-on-year. The rate of decline has slowed compared to prior quarters as TAKHZYRO continues its impressive uptake. But growth is still impacted by the stocking of CINRYZE and FIRAZYR in the prior year, lower demand for CINRYZE and loss of exclusivity for FIRAZYR. Importantly, TAKHZYRO's excellent global launch continues, with over 2,100 patients now receiving the product, driving overall growth of the HAE prophylaxis market. In the U.S., we continue to see strong uptake across all prescribers, and there has recently been an increase in the proportion of patients using TAKHZYRO that are new to Takeda. This means that, currently, 40% of patients starting on the product are either new to therapy or switching from other companies' products. Outside of the U.S., strong launches continue in Europe where reimbursement discussions are progressing well. Turning to Slide 11. Rare Metabolic declined by 4% due to the recall of NATPARA in the U.S., where we have not recognized any revenues since September. In line with our patient-centric values, we have a special use program for patients who are at extreme risk of life-threatening complications if they discontinue NATPARA treatment. For those patients, we provide the product at no cost, but they may only administer 1 dose per cartridge instead of 14. Consequently, over the course of 1 month, these patients would use what would normally be a whole year's worth of supply. Takeda is working closely with the FDA on our plan to resupply NATPARA more broadly to the market. However, based on recent discussions, we expect a delay. As a result, we no longer expect to record any U.S. NATPARA revenue in fiscal year 2020. Excluding NATPARA, the Rare Metabolic portfolio is growing steadily at 2%. On the right of the slide, the Rare Hematology franchise sales declined 14% year-to-date with the impact of the competitive landscape still in line with our expectations. Slide 12 shows our PDT Immunology portfolio growing 5% in total Immunoglobulin growth was 4% year-to-date, still impacted by shipment delays that occurred in quarter 1. But for the 3-month period, October to December, growth was at 7%. We expect to continue delivering high single-digit growth for the remainder of the year. Looking to the future, Takeda is committed to making the necessary investment to support our plasma business, as we highlighted at the PDD -- sorry, PDT Investor Day in November last year. Since the Shire acquisition close in January, we have increased our number of plasma collection centers by 27, bringing the global total to 149. Furthermore, we have committed to increase our plasma supply at manufacturing capacity by over 65% over the next 5 years. On Slide 13, you can see that our Oncology portfolio also continues to perform well, growing 7% over the prior year. Importantly, several of our growth products in Oncology continued to generate additional data in new indications. In the last quarter, we announced positive Phase III data for both NINLARO and ALUNBRIG as well as receiving a new indication approved for ADCETRIS in Japan. Moving to Slide 14, Neuroscience grew 5% year-on-year, driven by VYVANSE and Trintellix. Growth has mostly come from the U.S. with optimization of our promotional activities and focused execution enabling us to capture market share. In addition, we have just launched both of these products in Japan. Slide 15 shows the revenue of key products within our 4 -- so within our focused business areas. In particular, we are focused on maximizing our 14 global brands indicated here by the red globe. In total, these products generated JPY 836 billion in year-to-date sales and are growing at 20% year-on-year. ENTYVIO, TAKHZYRO, NINLARO and our subcutaneous IG products have all displayed particularly strong growth. Shifting the discussion now from reported -- from revenue to the profit, please turn to Slide 16, which shows the bridge from reported to core operating profit. As you can see, we had a JPY 168.9 billion noncash impact to cost of goods, mainly from the purchase accounting impact of unwinding inventory step-up. Next, we had JPY 329.1 billion in total of amortization and impairment costs, of which $243.9 billion relate to the Shire acquisition. Again, these are all noncash expenses. In addition, we booked JPY 95 billion of onetime Shire integration-related costs, which will enable us to realize our synergy targets. Adjusting for these and other onetime items, reported operating profit of JPY 162.5 billion becomes core operating profit of JPY 792.2 billion. Next, I am pleased to report that the integration of Shire continues to be successful, as highlighted on Slide '17. As I mentioned in my opening remarks, we are now operating as One Takeda, 12 months after deal close. Talent selection had been completed from 98% of all employees, and retention has been better than industry benchmarks. We believe this is a testament to how our employees are embracing Takeda's mission and our strong set of values. We have also made steady progress with integrating to our geographical footprint, and many large multifunction site moves were completed at the end of 2019. On divestitures, we continue to pursue opportunities to divest $10 billion of noncore assets to accelerate deleveraging and focus on our 5 key business areas. We have already completed the sale of Xiidra and have announced the divestment of TachoSil and portfolios of OTC and noncore assets in EMEA and Russia-CIS. Currently, negotiations are ongoing for further potential divestments. We also remain focused on achieving annual recurring cost synergies of $2 billion by the end of fiscal year 2021, and the current speed of synergy capture is moving ahead of initial plans. Previously, we indicated that we would reach a run rate of 70% by the end of next fiscal year, but now we are tracking towards 80% achievement as we execute against the targets in our synergy and OpEx tracking platform. As shown on Slide 18, we are closely tracking synergies and OpEx across the entire business in a number of cost packages. For example, we continue to make progress on facilities as we get closer to finalizing the footprint of our commercial office locations. Of the 146 sites in scope, 36 have closed as of December 2019, and we are on track to close additional sites in fiscal year 2020. In technology, our 20 cornerstone IT projects have now progressed to execution phase, and we are rolling out the One Takeda ERP template. As a critical enabler of improving cost efficiencies, we continue to expand the influence of Takeda Business Solutions, or TBS, a fully functional global team that supports numerous functions to leverage scale and drive optimization. One core focus of TBS is increasing the use of robotics, and we are in the process of rolling out automated solutions in a broad range of areas. Some early initiatives include VAT refund optimization and journal automation process. TBS will continue to play a major role as we drive towards our medium-term margin targets. Please turn to Slide 19, where we discuss margins further. The first 9 months of this fiscal year have been very strong, with an underlying core operating profit margin of 30.9%. The improvement versus prior year was mainly due to a better OpEx margin, driven by cost synergies and continued OpEx efficiencies. As I've mentioned in previous quarters, we do have some phasing of expenses, and the loss of exclusivity impact is larger in the second half of the fiscal year, which explains why the margin year-to-date is lower than it was at quarter 2. Furthermore, we expect this phasing impact to continue in quarter 4, which is why our guidance for the full year margin is for high 20s. With our commitment to managing OpEx, we are very confident that we will achieve our target of mid-30s underlying core operating profit margin within the fiscal years ending March '22 to March 2024. Switching to cash flow. Slide 20 shows the evolution of our cash balance over the first 9 months of the fiscal year. Operating cash flow for the period was JPY 484.3 billion, and this number includes a negative impact of onetime integration costs and a JPY 70 billion cash tax payment on Xiidra proceeds. Free cash flow, which also takes into consideration divestment income and CapEx, was JPY 745.7 billion. This abundant free cash flow comfortably covers the full year dividend payment and interest costs and has also enabled us to pay down a significant portion of debt. As a reminder, we do not have any further debt maturities within fiscal year 2019. Takeda remains wholly committed to our target of reaching 2x net debt to adjusted EBITDA in the medium term, and we have made great progress year-to-date. Slide 21 shows the change in net debt from the end of March to the end of December 2019. In our last earnings call, I mentioned that the leverage ratio may slightly increase from October to December due to payment of the second half of our dividend for the year as well as tax on the Xiidra proceeds. Despite these 2 large cash payments in December, we have made fantastic progress to reach 4.1x net debt-to-adjusted EBITDA, having started the year at 4.7x. Going forward, we may continue to see quarter-to-quarter fluctuations, but we remain absolutely committed to achieving our target of 2x within the fiscal years ending March '22 to March 2024. I would also like to mention that we recently amended financial covenants on certain borrowings. A key amendment was related to certain loans maturing beyond July 2020, deleting the covenant that Takeda's reported profit before tax must not be negative for 2 consecutive fiscal years. Although we are confident we would not have triggered this covenant, we have replaced it with a net debt-to-adjusted EBITDA ratio since EBITDA and not reported profit before tax better reflects the cash earnings of the company. Moving next to management guidance on Slide 22. Pro forma underlying revenue guidance remained unchanged at flat to slightly increasing, and underlying core operating profit margin remains in the high 20s. Although our guidance is unchanged for both of these, the strong year-to-date performance of our 14 global brands, combined with accelerated synergies and continued OpEx discipline, means that we are now very confident in our ability to meet these targets. With regards to underlying core EPS, our strong performance year-to-date enables us to upgrade the outlook to JPY 385 to JPY 405. I realize that for the margin and EPS guidance, we are already at a high achievement rate after 9 months. However, I'd like to remind you that quarter 4 is historically the weakest quarter for Takeda in terms of profitability, and this year is no exception. In addition to phasing of expenses, we will also have a larger impact in quarter 4 from ULORIC and FIRAZYR erosion as well as a lack of U.S. income from NATPARA. Slide 23 shows our revised reported revenue and core operating profit forecast. For reported revenue, business momentum driven by our 14 global brands means that we are upwardly revising our forecast by JPY 26 billion to JPY 3.286 trillion. With regard to core operating profit, in addition to business momentum, we also expect a benefit from synergies and OpEx, enabling us to increase the forecast by JPY 20 billion or 2.2% to JPY 950 billion. Next, I would like to take a few moments to explain the results of the completion of purchase price allocation for the Shire acquisition. Please refer to Slide 24. In accordance with accounting practices, PPA does not get finalized until 1 year after deal close. And consequently, we updated and confirmed the numbers in January this year. As a result of this process, there was minimal change in the fair value to Shire -- on Shire intangibles and goodwill. In terms of the P&L impact, the impact is positive, benefiting from a longer weighted average amortization period. For fiscal year 2019, we expect a positive impact of JPY 118.8 billion versus our previous forecast at quarter 2. Amortization expenses are reduced to JPY 325.2 billion, and expenses for the unwind of inventory step-up are now expected to be JPY 190 billion for the year. From fiscal year 2020 onwards, we expect the annual amortization cost of Shire intangibles to be around JPY 330 billion until fiscal year 2023 then declining to JPY 210 billion by fiscal year 2027. The unwind of inventory step-up expense is expected to be JPY 86 billion in fiscal 2020, declining to JPY 33 billion in fiscal 2021. As a reminder, both amortization and unwind of inventory step-up are noncash expenses and do not affect core operating profit or cash flow. Slide 25. As a result of the completed PPA, we have made some significant revisions to our reported forecast for fiscal year 2019. Within cost of goods, we expect the noncash expense for the unwinding of inventory step-up to be JPY 21 billion lower than our previous forecast from October. Furthermore, we expect amortization of intangible expenses to be lower than our previous forecast by JPY 97.8 billion. Elsewhere, we are expecting higher onetime other operating expenses due to the acceleration of integration and rationalization of our manufacturing network. Please note that the drivers of this increase are primarily noncash expenses. Altogether, these revised assumptions mean that we now expect reported operating profit to be positive JPY 10 billion, an improvement of JPY 120 billion compared to our previous forecast. We raised our profit before tax forecast by JPY 150 billion, also benefiting from reevaluation gain of a financial asset. In closing, on Slide 26, I want to drive home our focus on delivering against our financial commitments. We are confirming our underlying revenue guidance for fiscal year 2019. And as explained at our R&D Day, we expect to realize sustainable revenue growth over the long term with our 14 global brands and 12 Wave 1 pipeline assets more than offsetting the headwinds we face from competition and loss of exclusivity. While driving revenue growth, we will also focus relentlessly on realizing our cost synergies target of $2 billion, which will contribute towards realizing top-tier margins in the medium term. Divestitures will continue to be important as we look to accelerate debt paydown and focus on our key business areas. With the 4 deals announced to date, we are already at approximately 55% of our $10 billion divestment target. These divestitures, along with the strong cash generation of the business, will drive us towards deleveraging targets, and we remain confident to reach 2x net debt-to-adjusted EBITDA within the March 2022 to March 2024 time frame. Finally, we remain committed to shareholder returns with our well-established dividend policy of JPY 180 per share annually. That concludes my presentation, and we will now move to a Q&A session with Christophe, Andy, Masato and myself. Thank you.
[Interpreted] Thank you very much. Now we would like to open the floor for questions. [Operator Instructions] Now we would like to open the floor for questions. Thank you.
[Operator Instructions]
[Interpreted] Citigroup, Mr. Yamaguchi.
[Interpreted] Yes. Yamaguchi with Citi. Shall I ask all the 3 questions at once?
[Interpreted] Yes, please.
[Interpreted] Understood. First question, regarding core-based outlook, JPY 30 billion upward revision. Out of this business momentum -- well, I don't really understand how much of this is business momentum or the breakdown of business momentum, specifically which product was strong. Can you please explain? That's my first question. And my second question is TAK-924 data readout. I understand that the data readout was published or announced. I remember hearing from you that depending on the data readout of the 924, you may be able to file directly immediately. In other words, the study could turn out to be pivotal. So is this data enough to make the study pivotal? That's my second question. And the last question is TAK-003, dengue fever vaccine. You have already disclosed that data. And in serotype 3, efficacy seems to be lower than in others. So do you think you can continue to work on this as planned?
Thank you very much for the question, Yamaguchi-san. I suggest that Costa answer the first question, Andy the second one and I will cover the third one. Costa, perhaps, begins.
So thank you very much, Yamaguchi-san. So for quarter -- for the year-to-date quarter 3 results, the key business momentum from a revenue standpoint is truly the GI franchise, driven mainly by ENTYVIO. We're seeing significant market share improvements in ENTYVIO, mainly in the U.S. and Europe. We're also seeing PDT Immunology growing. If you compare it to quarter 2 this year, the growth was 4%, and we're slowly catching up, and now it's at 5% for quarter 3. On top of that, strong contribution from Oncology, mainly NINLARO, ADCETRIS and as well as ALUNBRIG. And then we're seeing some synergies on the revenue from the acquisition in Neuroscience, particularly around Trintellix and VYVANSE. So that's really what we're seeing, mainly the key drivers.
And this is -- Yamaguchi-san, it's Andy. On 9...
TAK-924.
Yes, yes. Thanks, Christophe. On 924, the Phase II -- maybe it'd be helpful if I go back in history a bit. When we started the Phase II study, which is in a mixed population of -- on the AML spectrum of high-risk myelodysplastic syndrome patients through to low-blast AML patients and including kind of patients in between with the condition called CMML. So it's a mixed population. When we started the study, we did not have proof-of-concept in that population. We had done some Phase I -- early Phase I/Phase II work in AML patients and saw some very encouraging results. So when we started this study, it wasn't intended to be a pivotal study. It was an open-label study. We closed down the -- the open-label closed, blinded ourselves to the study results and when we started seeing some very encouraging data in that mixed population, and we went to the FDA. And as we've stated, the FDA was open to considering the study as pivotal, but raised a very high bar looking for evidence of benefits on survival -- overall survival and event-free survival. We've completed the study. The data are quite robust. We're very confident in the profile. We -- the numbers are small, so we haven't, in the overall population, seen a statistically significant effect on overall survival. We have seen significant trends in overall survival. And in some of the subsets, we do see significant results in overall survival. So the data are very compelling to us. So we've completed enrollment in the PANTHER Phase III study for this population, and we're still in the process of kind of working through our own projections as to how best to manage these data as well as the Phase III data. We haven't yet gone to the FDA. My guess is it's still somewhat of a toss-up as to whether we can use the Phase II data, but we will need some interim data from the Phase III study or whether we'll need to complete the Phase III study for registration. From a time line standpoint, I think the worst-case scenario is we're probably about 12 to 18 months out from the event-driven Phase III study, but more to come in terms of then the path forward.
Sorry, I forgot to introduce myself. Regarding the dengue vaccines, the first, I would like to say that the data is still maturing. So we will wait for the 24-month efficacy on safety data. But what is also clear is that the overall efficacy of the vaccines is good because the response on type 1 and type 2 was very strong. Weaker efficacy on type 3, but remember that the type 1 and type 2, overall, are the most prevalent serotype in the world. So we think it's still a very potentially important vaccines to limit the impact of dengue across the world. But we will see what the next data readout looks like. But so far, we think it's an encouraging data.
[Interpreted] Next question is from Mr. Hashiguchi of Daiwa Securities.
[Interpreted] Hashiguchi speaking. I have one question. Shire's acquisition, related to that deal, intangible amortization. I would like to ask about the amortization. Your valuation, you refined the input into the valuation of that this time, and average period of amortization was extended, as I understood. For -- about what specific items of intangible how your valuation change resulted in this extension of period of an amortization? Please explain.
I'll take that question. Thank you very much for the question. So just to give you some history, so -- and the process of the purchase price allocation. So there is 1-year measurement period from the date of acquisition. So when we originally did the purchase price allocation. It was in March 2019, that was 3 months after completing the acquisition of Shire. One year later, which we completed now in January, was the final PPA, which was audited and supported by Deloitte & KPMG. And what happens there is it allows management to refine some of the original forecast from the original PPA. In essence, what you can see is the variance between the intangible asset when we first did the PPA in March as well as the goodwill when we first did it in March of 2019 versus the current final PPA, the variance is very small. It's 3%. And for the scale of that size of acquisition, it's quite impressive that we're able to manage the overall PPA in that -- with that sort of level of variance, minimal variance. Now to answer your question why there was a weighted average -- longer weighted average valuation for the amortization period. So when you refine the forecast, we realized that there were some assets that had longer economic life than what we originally forecasted, such as the immunoglobulin -- PDT immunoglobulin business assets. They have longer economic useful life. And then also the Rare Metabolic, in particular, have longer useful life -- economic useful life. And as a result of that, we updated the PPA with -- and as a result of that, there was a benefit on the overall amortization.
[Interpreted] Crédit Suisse, Mr. Sakai.
[Interpreted] This is Sakai speaking. I have 2 questions. First question is about China. China PDT business, I want to know what the setup in China is. I don't have the knowledge, and just I wanted to ask you. Maybe the hospital operation will go down, capacity will go down because of the coronavirus situation. And what about the plasma collection centers? Maybe the utilization of hospitals are going down. This is something that your competitors are saying. So I want to know how much impact this will have on your business, on Takeda's business. There may be some positives as well, for example, if the patient has pneumonia and become severe, then they have to use immunoglobulin. So do you think that this will have a positive impact on your demand? Because in China, albumin is the only product that is being imported right now. So maybe the supply will be short according to some views. So how do you see this? That's my first question.
Thank you, Sakai-san. So our current situation in China regarding plasma-derived therapy is that we are not collecting plasma. We are only importing our albumin product into China. So in that sense, we will not be impacted by any diminished capacity of plasma collection. And I don't know what would be the impact on the albumin demand, but we are -- we have a limited exposure to -- yet because we would like to grow in the long term. But at the moment, we have a limited exposure in China for our PDT business.
[Interpreted] Understood. I have another question about products. ENTYVIO, you have the subcu CRL. And you said this was not about efficacy or safety, so I'm assuming this is the 6-month review by FDA. And is it proceeding smoothly? Are there any problems or not? And also for NATPARA, as you may know, your competition is negotiating with the FDA very aggressively. When it comes to NATPARA, I know that it's important in order for you to take care of your patients, but we are experiencing so much delay. And also, on top of that, you are talking about reintroducing the product into the market, which will push up the costs and expenses. So what is your view on NATPARA?
At the moment, we are reassessing the complete response letter points, and we will respond to them in due time. As you mentioned, there is nothing about the efficacy or the safety of the product. It's more related to device and other consideration. So we will resubmit and we will refile. And it's still early to predict when we will refile and how long it will take for the FDA to assess the dossier, but this is our intent. Regarding NATPARA, our intent also is to reintroduce the product to the market in a commercial setting at one stage. We are, today, saying that we don't forecast this introduction to happen in fiscal year 2020 because the situation is quite complex, but we do intend to find a way to reintroduce the product in the future. And until then, we'll continue with the special use programs as much as possible to help the patients while we are working on the reintroduction of the product.
Just if I can add one comment from a PPA perspective. We had the opportunity to also refine the forecast for NATPARA, so we were able to, with the final PPA, adjust the intangible value of NATPARA downwards to reflect the recall.
[Interpreted] I think you mean impairment when you say downward revision?
No, no, no. So this is really important that you -- it's cleared. So the PPA, the finalization of the PPA was done in January this year. So you have an opportunity to refine your forecast. And as a result, we were able to reduce the size of the intangible asset for NATPARA downwards so without impairing. So it's important you understand it. So we closed the PPA with a lower value for NATPARA versus the original March 2019 PPA intangible value for NATPARA.
[Interpreted] Next question is from Morgan Stanley Securities, Mr. Muraoka.
[Interpreted] Muraoka from Morgan Stanley. One question is about regarding the Page 50 of the PowerPoint slide. At the very bottom of the Slide 50 is the tax rate to the adjusted EBITDA. About this tax rate, 20% to 23% was the previous forecast, but it's now high-teen to low-teen this time -- it's high to low 20s this time. So what is the reason for this down revision? And core EPS base to tax rate, was that down revised in the same way? That's my first question. My second question is regarding the next fiscal year. I understand that the NATPARA will be negatively affected. However, your core business -- base business are performing very, very well. Therefore, performance growth as far as core operating profit can grow in a good manner. Next fiscal year, can we expect that continuation for the next fiscal year? That's my second question. My third question, $72 billion, you have made progresses ahead of the original time line schedule. That means that potentially you may increase this target of $2 billion to upward. That's my third question.
I will answer the second question and Costa, the first and the third. I mean it's too early to give an outlook for next year. We'll do that in May. But of course, what you are seeing today and the way the business is progressing, the way we are delivering our synergies and managing our margin is very encouraging for next year. So that's what I can say at the present time. So I think this is, I think, a very positive trend, which positions well the company for next year.
Yes, thanks for the question. So let me just quick highlight on the tax rate. Yes, you're correct. The reason why we're seeing a favorability there is a result of incurring less tax on the legal entity restructuring efforts of -- on the Shire integration, and particularly in Japan. And regarding the synergies, we have communicated an acceleration of delivering the synergies. So historically, we've said 70% in the first 2 years. Given the fact that we've been able to integrate faster than we expected, we've increased the synergy capture to 80%. We're not in a position to discuss -- I think it's too premature to discuss any potential synergy increase at this stage.
[Interpreted] Mr. Muraoka, are you satisfied with the answer?
[Interpreted] Regarding the tax rate, I was not able to understand the explanation fully. So regarding the core operating profit tax rate, has it been reduced? Regarding core EPS as well, tax rate has been reduced in the same way?
Yes, there's been favorability because of the overall results of incurring less taxes. So that's correct. Your assumption is correct.
Next question is [indiscernible] from [indiscernible].
I just had a question on VELCADE. If I look at the numbers in this quarter, the erosion was a bit more significant, down minus 8%. And in your notes, you described -- attributed that to a decrease in ex U.S. royalty income due to generic entry in Europe. I just had -- I wonder if you can give me more color on that. Now do you see that also then happening in the U.S. at some point? And then if you can give us just a bit of an understanding as how much of VELCADE is Europe or ex U.S. versus U.S. just as we look at now going forward.
So your observations are correct. Yes, we've seen an erosion in Europe because of generalization of VELCADE in Europe and less royalties. At this stage, it's still too early to explain our position on VELCADE U.S. and the potential entry -- competitive entry. So we will be in a position by May when we come out with our 2020 forecast and guidance. We'll be in a much clearer position to give guidance on the VELCADE impact in the U.S.
[Interpreted] Next question is from Tokai Tokyo Research Center, Mr. Akahane.
[Interpreted] Regarding one point, this guidance of -- that you presented about this time and how you structured, built this guidance. JPY 120 billion up guidance this time, so the -- or if it is in black, profitable. And 193 point -- 1 billion negative to -- by 1 quarter, and 5 -- JPY 56 billion was upgraded. And in total, JPY 120 billion. And then you mentioned that the reason of this represent PPA completion of Shire acquisition. However, you -- looking at this, and it appears that you only revise assumptions but not the forecast at all. You have not revised the forecast. Is that the correct reading of what you announced about the guidance this time?
So I think you're referring to Slide 25. And what we are doing is, actually, we are upgrading the revised forecast. So you can see on Slide 25, let me walk you through the difference -- the variances between the previous forecast, which we mentioned we updated in October to the current revised forecast that we are updating now. And so you see the revenue in the -- this previous forecast, that column on the right-hand side, you see revenue is up by JPY 26 billion, and that's mainly driven by the business momentum, which we talked about already. We do have improvements in the cost of goods, mainly because of the purchase price accounting inventory step-up. So that's a lower unwind of inventory step-up due to the refinement in the purchase price accounting on the inventories. Another big topic here is the amortization of intangible assets. You see that's an improvement of JPY 96 billion versus the previous forecast, and that's a result of the lower amortization after PPA finalization and also the longer weighted average amortization period, which we discussed previously. We have also a JPY 20 billion favorability versus our previous forecast on the assumption on the impairment of intangible assets, and that's mainly due to refinement of our forecast plus the fact that when your overall size of your intangibles is reduced from an accounting standpoint, so is your overall impairment calculation. I do want to highlight that we increased, however, you'll see our -- sorry, we decreased -- well, we increased our other operating expenses by JPY 46 billion, and that's an acceleration of our integration efforts to hope as we speed up and execute on our synergy targets faster, our integration expenses also go up, but then it's also part of our manufacturing rationalization program where we're reducing our footprint in the manufacturing space. So really, I'd draw your attention to that column because that's really the key updates to this forecast for quarter 3 versus quarter 2 forecast. I hope I answered your question.
[Interpreted] At the fourth quarter, so the JPY 100 billion that you booked in the Q3, that will be the end and the entirety of the number, which will be generated by the Shire acquisition PPA completion and now will be posted or very little will be booked into Q4. Is that right understanding?
So this is -- yes, so what we're saying, this is the -- yes, exactly. So what we're saying is we expect the full year results reported operating profit to be JPY 10 billion. It's JPY 120 billion better than our previous forecast that we mentioned in October.
The PPA that Costa described is now locked to the amortization of intangible assets, is locked and will not change between now and Q4. I mean that's done and finished now. And Costa gave you also the type of evolution of -- in the long term of this amortization of intangible assets.
[Interpreted] Can I ask one more question?
[Interpreted] Yes, please.
[Interpreted] Regarding infections, you are working on the dengue and the Zika, those infectious diseases. And in fact, the infectious companies made a profit back in the 80s with HIVs, and there has been SARS and other infectious diseases. I think that the infectious disease situations are much, much serious to date than in the past. And I think the weight in your overall business of infectious diseases is much more significant than in the past due to the current situation. And how do you think about this?
Well, I mean we are aiming to develop the vaccines. So we are focusing on that. Dengue is our latest, most advanced vaccines. Zika is right after. So I would agree with you. I think the infectious risk has increased in the last decade and we are seeing that again with the coronavirus right now. I mean the risk is there. The difficulty is to bring, of course, good vaccines or antibiotics to treat -- or antivirus to treat this risk. But we are focusing on that with dengue, for example, or Zika. That's correct, yes. So I think it's still -- we don't have a large business yet, but we are investing in R&D, and we hope that we will get there sooner or later.
[Interpreted] It's time to close the Q&A session. We would like to extend our gratitude to your participation despite a very busy schedule, and thank you for your continued support. Thank you.
Thank you for your taking time. And that concludes today's conference call. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]