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Good day, everyone, and welcome to the conference call of Takeda Pharmaceutical Company Limited. [Operator Instructions] Now we start the conference. Ms. Ohyabu, please go ahead.
[Interpreted] Thank you very much for joining us in this FY 2020 Earnings Conference Call. I serve as a moderator today, Chief Global Corporate Affairs Officer; Takako Ohyabu.
Before we start, I'd like to remind everyone that we will be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those discussed today. The factors that could cause our actual results to differ materially are discussed in the most recent Form 20-F and in our other SEC filings. Please also refer to the important notice on Page 2 of today's presentation.
Today from our side, we have presenters and the discussions in the Q&A session, President and CEO, Christophe Weber; and Chief Financial Officer, Costa Saroukos; and Japan's Pharma Business Unit President, Milano Furuta; and Plasma-Derived Therapies Business Unit President, Julie Kim. They are with us today in this call.
First, from Christophe, CEO, the outline of the earnings results will be given to you as a presentation, and then we will take questions. Please be ready with the conference call presentation materials.
Thank you, Takako. Hello, everyone. Good afternoon. This is my great pleasure to share with you our 2020 results and 2021 outlook.
Considering the pandemic context, I could not be more proud of the way Takeda has managed the situation. And on top of that, what you will see is that we are at a very exciting inflection point in 2021, in terms of our business outlook and pipeline. So certainly a great time for Takeda in spite of the pandemic.
If I'll go to the Slide #3, everything that we have done and everything that we are working on is very aligned with our corporate philosophy, with our vision to discover and deliver life transforming treatment. To the patients, we innovate for the patients, we focus on access for the patients in the 80 countries where we operate. We very much are committed to our employees, to our people. We have 50,000 employees across the world. We want them to have the best people experience, the best experience at Takeda. And of course, in fiscal year 2020, we were very much focused on the safety of our employees. We took very early measures to keep our employees safe. But at the same time, we were able to maintain our operations, we were able to maintain our supply continuity, and this is something we are very proud of.
And we are committed to protecting our planet. So we don't develop our business and degrade our planet. Quite the contrary, our goal is to develop our activities while protecting our planet. And we are doing that by embracing the power of data and digital. I will really emphasize that we are seeing very, very strong acceleration of the use of digital, AI, machine learning and data. This was already a trend, which was -- which had started a few years ago but everything has been accelerated in the context of the pandemic in all areas of the company, not only in research, but also manufacturing, in our commercial operations, in our back office operation as well. So clearly, we are seeing a very strong acceleration of the use of data and digital.
On the next slide, if I zoom in on these areas, I will -- on the patient, I will focus on our Access to Medicine programs. In 2021, we were ranked #6 on the Access to Medicine Index, which is a very demanding index look, encompassing all dimension about access. So I think we have seen a very significant progression there. And for us, it just showed that we are very much focusing on that. We have multiple programs, from [ tier ] pricing to patient assistance programs, to generate the best possible access everywhere where we operate. Being focusing on patients is also being efficient in our operation. And we have seen that some very innovative way of working in our manufacturing site, for example, in Hikari, has been recognized by the International Pharmaceutical Engineering Society. So we are also very pleased to see that when we are innovating, it is getting recognized by external parties.
On the people front, I will emphasize the fact that we have defined how we will where -- how we'll work post pandemic. So during the pandemic, we have demonstrated that we could operate much more remotely. Of course, in our manufacturing site, our employees continued to work in our manufacturing site. But in many other positions, we have been working remotely, and we still do today in Tokyo, where I am or elsewhere.
So the question has been how we will evolve our way of working, post-pandemic, and we have defined that during the year. Takeda, we will embrace an hybrid way of working. But at the same time, we do value face-to-face interaction, on-site interaction. We don't believe that a full remote model is the right model for us, but we do believe that blending remote and face-to-face will generate much more flexibility and at the same time, reinforce our diversity, equity, inclusion. By being more flexible, we'll be able to reinforce our diversity, and this is one of another goal that we have is to really progress on our diversity, equity, inclusion programs. We have created a global council in 2020, and we will continue to further improve in this area globally.
And on the planet side, protecting our planet, I'm very pleased to share with you -- and this is something we have already shared -- that we achieved carbon neutrality in our value chain in 2020. And that's a very significant step. There are not many companies which have achieved that step. Of course, for us, it's just a milestone because we are targeting 0 carbon emission by 2040, but achieving carbon neutrality in 2020 is a very important step for us. We have other metrics or other targets when it comes to the planet in term of waste management of our water consumption, but achieving this carbon neutrality was a key milestone for us.
We have been really engaged on fighting against the pandemic. On the next slide, like many companies, we didn't have the technology to develop our own vaccines against COVID-19. Let's remember that, in fact, only a few biotech companies, which have been working for a decade on technology, have been ready to develop these COVID-19 vaccines. But we were very quick to partner with what we believe are the most promising vaccines or among the most promising vaccines. We have partnered with Novavax to develop, manufacture and commercialize up to 250 million dose of their COVID-19 candidate vaccines.
It means that we will have our own in-Japan manufacturing capacity, which would be very helpful for Japan, but also potentially for other countries. And we have also an agreement with Moderna to import and distribute, on behalf of Moderna, 50 million dose of their vaccines. We have filed the product in Japan. We just filed a Japanese specific data in May. We are expecting to get approval very soon, and we hope that we will be able to help the vaccination in Japan with these Moderna vaccines in the coming weeks and months.
As you have seen, there are some ongoing discussion with the Japanese government to potentially add 50 million more dose, for a total of 100 million dose. It is still a discussion between the Japanese government, Takeda and Moderna, but it shows that there is a great need to -- for these vaccines in Japan. We have also been involved with Plasma Alliance to develop an hyperimmune globulin product. Unfortunately, the results have not been positive. But the intent -- I think what's very important, we demonstrated that we could, as an industry, have an alliance together to move very fast, and to answer that critical question: will an hyperimmune globulin product be effective when patients are hospitalized? We know that it's not the case today, but it was a very important question to answer, and we are very proud to have triggered this alliance in order to answer that questions.
Coming to our results now on next slide. I'm very pleased to report that we have delivered our objective in 2020. It shows that our organization is resilient, that our portfolio is resilient. So if you look at our underlying revenue growth, so when we say underlying, we remove the effect of foreign exchange variation and also divestiture. For example, our underlying revenue has been growing by 2.2% in fiscal year 2020. Our underlying core operating profit has been growing at 13%. Our reported revenue has been slightly declining because of foreign exchange and divestiture. I will come back on the divestiture later, but we have had a very significant program on divestment. So for us, we look at the underlying measures to relook at the real performance of the company.
Our reported net profit has been growing very significantly at 749%, and we had a very strong free cash flow, which allowed us to reduce our net debt to adjusted EBITDA to 3.2 level. Remember that when we started in March 2019, right after the closing of the acquisition, we were at 4.7. So very significant and rapid deleveraging, which, of course, is very important.
At the same time, and this is so important for the future, we have seen a very strong progress of our pipeline. We have submitted 4 new products, the dengue vaccines, mobocertinib, maribavir and Eohilia. We know we have the 2 vaccines in Japan, I just talked about. And we have continued to progress to develop a very competitive best-in-class pipeline. And that's why I was saying earlier that we believe that we are in an inflection year in 2021 because of the progress of this pipeline that we are expecting. So overall, we are very pleased with our overall result in 2020, both on the business, whether it is revenue or profit or cash flow as well as on the pipeline.
This is driven -- on the next slide, this is driven by our portfolio. We have 5 key business areas, which represent 82% of our total business. And you can see that Takeda is not relying on 1 big product. We have multiple key medicines, very innovative, in many cases, life-saving medicines. That's why our portfolio has been resilient. And I will outline a few areas which have shown a very strong performance in fiscal year 2020. The GI area growing 14% with a product like ENTYVIO, the hereditary angioedema area with TAKHZYRO progressing very well, the PDT immunology, which has shown a very strong performance, and we are very pleased by the resilience of our PDT business.
On the plasma collection, as you know, this is a business which rely on the plasma collection. We have seen a drop of plasma collection in fiscal year 2020. But it has been, in our case, 11% reduction, much lower than what you will see on average on the market because the team was very dynamic and innovative to offset this trend of plasma collection reduction. So overall, we were able to grow at a 10% level. And I will also mention oncology with a growth of 1%. So this core business is really what is behind our business resilience.
Coming back on the R&D strategy. This is not new. On the innovative biopharma side, you know that we are focusing on 4 therapy areas: oncology, rare genetics and hematology, neuroscience and gastroenterology. We have a very unique model where we have our own research lab in Japan and in the U.S., but we have a lot of partnership. We have a very lean R&D organization, which allow us to actually invest the majority of our R&D investment on the pipeline. And today, we have 11 new molecular entity, which will be launched between now and March '25. And we have 30 more in development in later stage.
So we have 40-plus products in clinical stage in our pipeline, which is such a strong evolution compared to where we were even 5 years ago. And that's driven by our focus by therapy area as well as our very robust partnership model. About half of this pipeline is partnered. So -- and we are able to find this partner because we have an internal expertise to bring value to these partners, but because also we are open-minded to partnership at Takeda. And that's why, again, in the long term, it's all driven by our pipeline, and we are really seeing this pipeline materializing now and '21 will be an inflection year.
So if now, on the next slide, I summarize where we are in 2020. We have delivered our financial commitment. We are actually, on the integration synergy, we are done. So we have achieved our target of USD 2.3 billion of cost synergy, 1 year in advance. So we have delivered this USD 2.3 billion 2 years after closing. Initially, we thought that it will require 3 years, but I'm really pleased to say that we are there. Now that is driving our margin. We have just passed the bar of 30% margin, core operating profit margin.
So this is where we want to be. We want to be in the low to mid-30s margin. That puts us at a very competitive level against our peers. And we are doing that while investing significantly in R&D. We have exceeded our $10 billion target of divestiture, and with now approximately USD 12.9 billion of proceeds of divestiture. And we are deleveraging rapidly as a result of this margin, which is generating cash flow and divestiture.
So if you look at fiscal year '21 and beyond, we believe that our actually top line growth will accelerate. For fiscal year 2021, we have a guidance of mid-single-digit. So in 2020, we ended up at 2.2%. We are targeting mid-single digits, so around 5%. So you see there is an acceleration. And again, that's driven by our 5 core businesses and our 14 global brands. We believe that this growth momentum will continue in the midterm. We have, of course, some headwinds. We have some generic exposure. We have some price pressure, but we have enough tailwind and growth drivers in order to be confident that our top line will continue to grow in the midterm. We are in an inflection year for the pipeline. One decision we made is to ramp up our R&D investment, and it's a significant ramp up. We are increasing our R&D investment between 2020 and 2021 by JPY 66 billion. So that's a very significant increase. But we are able to do that while keeping our margin at low to mid-30s. And again, that's a testimony to our margin and resilience. And of course, investing in R&D is very critical for our long-term future. And we are -- of course, we are committed to continue to deleverage, and we want to be at 2x net debt to adjusted EBITDA ratio in fiscal year -- between fiscal year '21 and '23, no change here for this target.
If I go to the next slide, this is our reported forecast and management guidance. Again, the underlying management guidance exclude foreign exchange impact and divestiture. So this is, in our mind, the true picture of our performance. The reported forecast include divestiture. This is why, for example, our revenue in the reported number is not increasing so much as the underlying because you have the foreign exchange impact on divestiture. Our core operating profit underlying growth will be mid-single-digit. And we are, again, targeting low to mid-single margin. Our core underlying EPS will increase at mid-single-digit as well.
So in summary, on the next slide, we have demonstrated our resilience in fiscal year 2020. We, of course, continue to be involved to fight against the COVID-19 pandemic not only now in the short term, but also in the long-term because we need to be ready, unfortunately, for the next pandemic. We shouldn't forget about that and we will not forget about that at Takeda. We are delivering our commitment and our management guidance.
In fact, we are delivering better than our guidance because we have been able to deliver our synergy capture of USD 2.3 billion one year earlier. That is translated into a very strong margin and our ability to deleverage -- accelerate our deleverage to a 3.2 level. And again, pipeline is at an inflection year. We are doubling down on our R&D investment. It's very critical. We think that the pipeline is at the stage which require this increased R&D investment. And that's what will support our top line growth in the future. In '21, we are seeing an acceleration. And of course, what we will watch very much in '21 is how the pipeline is maturing.
We have -- we anticipate 5 to 6 Wave 1 pipeline regulatory submission, potentially for approval. We expect 7 new molecular entity in pivotal studies by fiscal year-end, and we'll continue to be involved with the development of the coronavirus vaccines to support Japan to fight against the pandemic.
So again, we -- what we are seeing is that this growth momentum is going into the right direction, and this is supporting our long-term goal of reaching JPY 5 trillion revenue in 2030.
[Foreign Language]
[Operator Instructions]
[Foreign Language]
[Interpreted] This is [ Akama ], Nikkei Shimbun. Can you hear me?
[Interpreted] Yes, we can.
[Interpreted] My first question is regarding Moderna vaccine that you mentioned. As of today, 50 million doses are supplied by September, I think that is the contract you have. And Mr. Weber mentioned about additional 50 million or in total, 100 million doses of supply is currently under discussion. I'd like to confirm this point. Is that right understanding?
Yes, that's correct. That has been announced by the Japanese government last week. So this is a discussion that is happening right now. I cannot provide more detail than that at this stage, but it has been announced by the Japanese government last week.
[Interpreted] Is that about Moderna vaccine and in total 100 million doses supply? That is what the discussion is going on. Is that right?
There are already 50 million committed, and the discussion is now on an extra 50 million, of course, which will be distributed later in the year.
[Interpreted] Already by September, I think 50 million doses have been already agreed. And after September, meaning that from the autumn to the winter season, there will be additional supply of 50 million doses. Is that right?
Yes. So there is -- the schedule for the extra 50 million dose is not defined yet. And this is an early discussion happening right now. So I cannot comment further on -- first, we need confirmation that this 50 million dose will happen. And then if it is confirmed, at the moment, the schedule of delivery is not defined yet.
[Interpreted] Sorry to repeat my questions. But not just the discussions with the Japanese government, I think that there will be a discussion with Moderna. Is that discussion also taking place with Moderna?
Yes. So when there is -- so there are 3 parties always involved. There is the Japanese government, Takeda and Moderna. Because, of course, Moderna is manufacturing the vaccines, Takeda is a license holder and organizing the distribution, the regulatory approval, the pharmacovigilance of the vaccines in Japan. And of course, the Japanese government is organizing the vaccination campaign. So there is always a discussion with the 3 parties involved.
[Interpreted] I have a second question. So you have filed submission for the first supply portion of Moderna, and I think you expect the approval. And in your expected results, is this Moderna vaccine revenue incorporated?
I think I missed the second part of the question.
[Interpreted] Moderna's vaccine revenue, is it included? The financial number?
It's in Japanese now. The first 50 million dose -- the first 50 million dose are included into our financials that we expressed. Yes.
[Interpreted] And can you tell me how much is actually included in your forecast in FY -- the fiscal year ending in March 2022?
It's Costa Saroukos. We're not providing guidance on the revenue impact. But what I can tell you is the numbers that Christophe presented to you today represents in our forecast, the 50 million doses, not the additional discussions on the extra 50 million. That we need to update once we finalize the discussions with the government and Moderna.
[Interpreted] I have another question, if I may. So far, you have had OTC businesses and diabetes businesses and those noncore businesses have been divested. And to a certain degree, I think that you have finished those divestitures. And then I wonder -- or we are afraid that your pace or speed of reducing the interest billing, debt repayment may slow down. Could you comment on this?
Well, so the business that we have divested were low growth business, in many cases, declining. And so that's also why we are seeing an accelerating of our remaining business, if you like, because our 5 business areas now already in fiscal year 2020, represent 82% of our total. In '21, it will be higher, it would be close to 90%. And it is where our growth is coming from. So many businesses that we have divested are -- were declining or low growth. And that's why we'll continue to be able to deleverage because we will continue to grow, our EBITDA will continue to grow. And the cash flow that we generate through our, business because we have a margin -- a core operating profit margin of 30% is very, very strong. So that's why we are very committed to continue our deleveraging.
I'd like to add a couple of comments as well to the importance and the speed of deleveraging. So what I can confirm is our debt that was due in fiscal year '21, we have already paid off. So we -- Takeda, based on the strong EBITDA, strong margins and the divestitures that we've already done in the last 2 years, we've had abundant cash flow, which has allowed us to pay the fiscal year 2021 maturities, obligations, 1 year in advance. In addition, in fiscal year '21, we will also make JPY 450 billion of prepayments for other years such as 2025 JBIC loan and some other maturities in '22 and fiscal year '23. So we are very much accelerating the deleveraging and debt paydown.
[Interpreted] This is [ Otsuka with Jiji Press ]. I have a question about the Novavax vaccine. Earlier, you said that this is going to be useful for Japan and also for other countries to have the manufacturing capacity in Japan. Does it mean that you are thinking about exporting the vaccines? And also with regard to the Moderna vaccine, there was a question about whether the numbers already reflect that. But for Novavax, is the Novavax number reflected in the numbers for this fiscal year?
So the Novavax vaccines, we have the intent to build manufacturing capacity of 250 million dose. And the Japanese government so far, has planned to use 150 million dose. So potentially, we could have 100 million dose to be used elsewhere, to be defined. And that's why I think, again, the partnership with Novavax is stronger than -- is deeper because we have this manufacturing capacity that we are in the process of building. So that's the answer to the first part of the question.
And maybe I could just add to just clarify, we have, in the forecast for 2021 fiscal year, we have not reflected any revenue for the Novavax vaccine because it's too premature to confirm what the potential impact and timing of any revenue. So the numbers that Christophe shared with you does not include any revenue for Novavax, but we'll obviously update you in due course.
[Technical Difficulty]
Lisa, I'm really sorry, it's hard to hear you. Can you speak closer to the mic?
This is Lisa [ Du with Bloomberg News ]. I just wanted to confirm the numbers again on the vaccination doses. I know that Prime Minister Suga said last week that there were talks to secure an additional 200 million doses of vaccine for Moderna and Novavax. So my understanding is that's going to be 50 million -- an additional 50 million dose of Moderna and 150 million doses of Novavax, and that will be done via Takeda. I just want to confirm those 2 numbers for the math?
Yes. At the moment, they are committed to 50 million dose of Moderna vaccines and 150 million dose of Novavax. The government is in dialogue with Moderna and Takeda to add 50 million dose extra of the Moderna vaccines.
Okay. Great. And in terms of Takeda's capacity to produce 250 million dose of Novavax, is that like an annual output that's continuous or a one-time output?
No. Once the capacity is there, the capacity is there. So that's -- that's something that we will keep, right? So we will be a player in the corona vaccines field through this partnership with Novavax. This is a long-term agreement.
Okay. Just last question. I'm just curious, you've noted that the impact of the COVID-19 pandemic is immaterial. But here in Japan, the vaccine rollout has been slow while many other major developed markets are getting back to reopening. And you also discussed briefly your reopening -- your plans to kind of go back to -- slightly back to in-person and also remote. But has the slow vaccination rollout in Japan affected how Takeda does business in Japan compared to other markets, any frictions or frustrations there?
Well, we -- those -- in many countries, the reopening has not happened yet. So it's about to happen but we are not there. So if you look at our activities, it's still very much remote or digital even in the United States, but it's about to happen. Japan is behind. So our goal now is to really support an acceleration of the vaccination. We believe it's very important that the vaccination program accelerate in Japan. Perhaps Japan is at the level where Europe was a few months ago, where the vaccination ramp-up was very slow in some European countries. And then suddenly it picked up because the process was more robust and measures were taken. I think this is what we are seeing also in Japan. I really hope that we'll see a vaccination acceleration. It's very important, otherwise, you are exposed to new spike and variant. So it's very important that the vaccination accelerates.
Thank you, Lisa. [Foreign Language] [Interpreted] Due to the time constraint, we'd like to take the next question as a final question.
[Interpreted] This is [indiscernible]. You mentioned about the style of work. And including ML and sales forces, is it the same that hybrid working model is applied? And also digital base, web based there are various tools, technologies available. Do you have any particular views regarding how you are going to operate in terms of the working style?
For employees, we have employees who are working on manufacturing site, on research lab. And of course, for them, it's more difficult to work remotely. So I think data and digital will have a different support for them, but ROE's will be more in person. Then we have office-based employees, and this is where we see a lot of potentiality for a hybrid way of working. Again, we do not believe in full remote at Takeda. We believe into this hybrid way of working, which will bring flexibility. But we don't want to lose the face to face connection.
We think it's very important. And we are empowering the managers to find the best balance with their team, and every local country has different need as well. So we are quite flexible in the way it is getting operated country-by-country and even team by team. And then you have the field force. And what we are seeing with the field force is that on top of face-to-face interaction that we had, we are seeing a development of what we call omnichannel interaction. So you could have an interaction face to face, but you could have also digital interaction or a virtual peer to peer meeting, for example.
So we are seeing a significant development of this omnichannel interaction. And what we are seeing is that the ramp-up of this omnichannel interaction differ by country and differ by doctors. Some doctors are very keen to have this type of digital interaction. And then some doctor says, well, no, no me, I don't -- I want to go back to a face-to-face interaction in the future. So we will develop our own flexibility to meet the need of our customers.
[Interpreted] Another question I have is that regarding Japan market, I think that Furuta-san is on the Board. And you have assumed President in April. How you are going to operate Japanese operations, although you have a pressure of drug pricing, and so on and so forth. But could you comment?
[Interpreted] This is Furuta speaking. I couldn't hear the earlier part of your questions.
[Interpreted] The Japanese market businesses, could you give us your view as a review of the past performances and also going forward, there could be challenges, difficulties in Japanese market. But what is your view steering the business in Japan?
[Interpreted] Thank you for your question. After becoming a President of Japan in April, I am now thinking how to operate Japanese businesses. And what's very clear is that since that time, under the leadership of Iwasaki-san, the global progressing areas should be the areas that our portfolio should shift to. So innovative, high unmet medical need areas, including oncology, neuroscience and GI and rare diseases and vaccines and PDT as well.
In those areas, we needed to keep a focus and that strategy wouldn't change. As [indiscernible] said, there are challenges like drug pricing, but high unmet medical needs areas showing the market growth; and our businesses, the portfolios in those areas have been also showing growth. Therefore, by rightly focusing on those disease areas, I believe, we'll be able to continue to grow.
[Interpreted]. Thank you, [indiscernible] and that concludes today's conference call. Again, thank you very much for joining us despite your very busy schedule. And thanks for your continued support in advance.
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.]