Takeda Pharmaceutical Company Limited (TAK) Q2 FY2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call highlights moderate impact from VYVANSE erosion, growth in launched products, and promising pipeline developments. Despite competitive pressures, ENTYVIO remains a leader. Takeda's strategic partnerships and debt management are positive. The Q&A reveals confidence in product developments and strategies to mitigate risks. Although some responses were vague, the overall sentiment is positive, supported by optimistic guidance and strategic growth plans.

Key Financial Performance

Revenue in H1 JPY 2.2 trillion, a decrease of 6.9% or minus 3.9% at constant exchange rates (CER). The decline was due to the loss of approximately JPY 100 billion of VYVANSE revenue and foreign exchange headwinds.

Core Operating Profit (Core OP) JPY 639.2 billion, a year-on-year decrease of 11.2% at actual FX or 8.8% at CER. The decline was primarily due to the loss of exclusivity (LOE) of high-margin VYVANSE and transactional FX impact.

Reported Operating Profit JPY 253.6 billion, a decline of 27.7%. This was due to larger impairment losses this fiscal year, including a JPY 58.2 billion expense related to the discontinuation of cell therapy efforts.

Core EPS JPY 279, reflecting a year-over-year decline. The decline was attributed to the impairment of cell therapy, which is nondeductible from taxable income.

Reported EPS JPY 72, a 40% decline year-over-year. This was due to the impairment of cell therapy and other factors.

Adjusted Free Cash Flow JPY 525.4 billion, reflecting strong cash flow performance, including improvements in working capital.

Growth on Launch Products 5.3% at CER. This modest growth was impacted by the phasing of certain products, with higher growth anticipated in the second half.

ENTYVIO Growth 5.1% at CER. Growth was slightly below expectations due to slower-than-expected revenue growth and the need to expand formulary access.

TAKHZYRO Growth 5.9% at CER, continuing its steady growth as a market leader in HAE prophylaxis.

PDT Portfolio Growth Mid-single digit growth expected for the year, with immunoglobulin (IG) growing 3.1% and albumin declining slightly in H1 due to timing of shipments to China and cost containment measures. High single-digit growth is expected for both IG and albumin in H2.

Restructuring Costs in H1 JPY 27.4 billion, related to organizational changes impacting 600 positions and optimization of real estate.

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Operating Highlights

VYVANSE: Significant generic impact in H1 FY25, with a revenue loss of approximately JPY 100 billion. Expected to have less impact moving forward.

ENTYVIO: Growth of 5.1% at constant exchange rate (CER) in H1 FY25. Pen usage in the U.S. grew 20% quarter-to-quarter but represents only 9% of ENTYVIO volume in the U.S.

PDT Business: Expected to grow mid-single digit in FY25, with immunoglobulin and albumin growing high single digit.

Rusfertide, Oveporexton, Zasocitinib: Three new product launches expected from FY26 onwards.

Oveporexton: Phase III data shows significant improvement in narcolepsy type 1 symptoms. Filing for U.S. approval planned later this year.

Zasocitinib: Phase III psoriasis data expected by the end of FY25.

Innovent Biologics Partnership: Strategic partnership to expand oncology pipeline with three differentiated assets targeting solid tumors. Potential combined addressable market of over $40 billion for initial development plans.

QDENGA: Reallocated supply based on market needs, with some shipment timing pushed to later in FY25. Impacted by transactional FX due to euro appreciation.

Operational Efficiencies: Initiatives include organizational changes impacting 600 positions, real estate optimization, and R&D value chain efficiencies. Restructuring costs in H1 were JPY 27.4 billion.

Cost Discipline: Focused on driving OpEx savings to offset revenue losses and unfavorable product mix.

Technology and AI: Leadership in leveraging technology and AI to transform the company.

Cell Therapy: Decision to discontinue cell therapy efforts, resulting in a JPY 58.2 billion impairment loss.

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Risk or Challenges

VYVANSE generic impact: The company faced a significant loss of approximately JPY 100 billion in revenue due to the loss of exclusivity (LOE) of VYVANSE, which has been a major headwind to growth. This impact is expected to moderate in the second half of the fiscal year.

Foreign exchange volatility: Transactional foreign exchange, particularly the euro's appreciation, has negatively impacted revenue and profits, especially for products like QDENGA. The company is sensitive to euro currency volatility due to its large manufacturing footprint in Europe.

Impairment losses: The company recorded a JPY 58.2 billion impairment loss related to the discontinuation of cell therapy efforts, which has significantly impacted reported operating profit.

ENTYVIO growth challenges: Revenue growth for ENTYVIO has been slightly below expectations, leading to a revised full-year forecast of 6% growth at constant exchange rates. Slower growth in the U.S. market is a contributing factor.

Medicare Part D redesign: The redesign is impacting several products in the U.S., including GAMMAGARD LIQUID, which has affected revenue performance. This is expected to normalize in Q4.

Albumin performance in China: Albumin sales declined slightly in H1 due to timing of shipments to China and cost containment measures. The company has secured additional sustainable tender markets outside of China to mitigate this issue.

Operational efficiency challenges: The company is undergoing organizational changes impacting 600 positions and restructuring costs of JPY 27.4 billion. These efforts are aimed at driving OpEx savings but come with short-term challenges.

Regulatory and competitive pressures in oncology: The company is entering competitive markets with its oncology pipeline, including new assets from the Innovent partnership. Success depends on navigating regulatory hurdles and achieving differentiation in a crowded field.

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Guidance & Outlook

Revenue and Growth Outlook: The company expects growth in launch products to accelerate in the second half of FY 2025, with a better growth outlook for the full year. ENTYVIO's growth forecast has been revised to 6% at constant exchange rates (CER). The PDT business is expected to grow at mid-single digits, with immunoglobulin and albumin growing at high single digits. The SCIG portfolio is projected to continue double-digit growth. Albumin performance is expected to accelerate in H2.

Impact of VYVANSE Generic: The peak impact of VYVANSE generic competition occurred in H1 FY 2025, and the year-on-year decline is expected to moderate in H2. From FY 2026 onwards, the impact of VYVANSE generics will largely be behind the company.

Pipeline and Product Launches: Takeda anticipates three new product launches for rusfertide, oveporexton, and zasocitinib starting FY 2026. Zasocitinib Phase III data in psoriasis is expected by the end of calendar year 2025. The company plans to file for U.S. approval of oveporexton for narcolepsy type 1 later this year, with regional filings to follow.

Operational Efficiency and Cost Control: The company is focused on maintaining tight operational expenditure (OpEx) control through efficiency improvements. Additional organizational changes impacting 600 positions and optimization of real estate are expected to drive further OpEx savings.

Foreign Exchange Impact: Transactional foreign exchange, particularly the euro's appreciation, has negatively impacted QDENGA sales and overall profits. This has led to a slight reduction in guidance for core operating profit and core EPS to a low single-digit percentage decline.

Innovent Biologics Partnership: The partnership with Innovent Biologics is expected to enrich Takeda's late-stage pipeline with two differentiated oncology assets and a potential option for a third. This collaboration is anticipated to be a significant growth driver post-2030.

Dividend and Cash Flow: The dividend outlook remains at JPY 200 per share for the full year. Adjusted free cash flow forecast has been revised to include a USD 1.2 billion payment to Innovent Biologics, funded by cash on hand.

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Shareholder Return Plan

Dividend Outlook: Our dividend outlook remains JPY 200 per share for the full year.

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Key Q&A

Q:How will Takeda manage R&D expenses for the Innovent assets and their impact on operating margins?

A:Takeda is committed to investing in its oncology portfolio to support long-term growth while maintaining profitability. Financial implications of the Innovent deal are reflected in revised forecasts. Specific R&D spend and margin outlook for fiscal year 2026 are not disclosed, but Takeda aims to achieve mid- to long-term margins driven by top-line growth and cost optimization. Cost-sharing programs, such as with Blackstone for mezagitamab, are part of the strategy to manage incremental investments.

Q:What actions is Takeda taking to address currency-related earnings fluctuations?

A:Currency fluctuations, particularly euro volatility, have significantly impacted earnings. Takeda is considering long-term strategies, such as rebalancing its manufacturing footprint, to mitigate these impacts. However, immediate actions are not planned as currency volatility is unpredictable.

Q:What is the current state of ENTYVIO Pen insurance coverage and what actions are being taken to enhance penetration?

A:Takeda has achieved 20% quarter-over-quarter growth in ENTYVIO Pen and has signed contracts with 2 of the 3 major PBMs. Efforts are ongoing to address localized challenges and improve access at various levels, including working on the CVS contract.

Q:How is Takeda utilizing AI in drug discovery through its partnership with Nabla Bio?

A:Takeda is leveraging AI to optimize drug discovery processes. The partnership with Nabla Bio has led to successful pilot experiments, including accelerated programs and novel discoveries. Takeda aims to have over 90% of its research programs enabled by in silico technology by next year.

Q:What factors contributed to the revised gross margin guidance for the fiscal year?

A:The gross margin guidance was revised from 66% to 64.7% due to transactional FX impacts and product mix changes, including reduced revenues from VYVANSE and ENTYVIO. These factors are expected to lower gross margins in the second half of the fiscal year.

Q:When is the next data update for IBI363 expected, and when will the global Phase III trial start?

A:Takeda has not disclosed the timing for the next data update for IBI363. The global Phase III trial for second-line squamous non-small cell lung cancer is expected to start in the coming months.

Q:What are the competitive pressures affecting ENTYVIO's growth, and what is the outlook for its future growth?

A:ENTYVIO faces intensified competition, particularly in Crohn's Disease (CD), and slower-than-expected pen conversion due to access hurdles. Despite these challenges, ENTYVIO remains the market leader in IBD and is expected to achieve growth as access issues are resolved. Takeda has not revised its peak revenue guidance for ENTYVIO.

Q:How confident is Takeda in replicating impressive China data for IBI363 in international trials?

A:Takeda conducted extensive due diligence, including evaluations by its radiologists, and found strong correlations with response criteria. Enrollment in international sites like the U.S. and Australia is ongoing, and Takeda is monitoring the data closely.

Q:What is the significance of the IL-2 alpha bias mechanism in IBI363, and how does it address potential Treg activation?

A:The IL-2 alpha bias mechanism targets tumor-specific T cells expressing PD-1 and IL-2 alpha, effectively activating them within the tumor microenvironment. Takeda has not observed Treg activation, which would suppress immune response, making the mechanism consistent with encouraging clinical data.

Q:What is Takeda's development strategy for IBI363 in refractory cold tumors?

A:Takeda plans to leverage strong clinical data to conduct head-to-head trials against IO therapy in all-comers and TPS-high populations, in addition to second-line studies in IO refractory squamous and non-squamous non-small cell lung cancer.

Q:Did Takeda review data from Innovent's global Phase II study for IBI363, and what were the findings?

A:Takeda has been in constant communication with Innovent and finds the data from the global Phase II study encouraging, though it is too early to comment further.

Q:What is Takeda's approach to managing its plasma collection network and potential investments outside the U.S.?

A:Takeda is improving efficiency and productivity in its BioLife collections network, achieving a 10-11% increase in volume per donation. While not planning to open many new centers, Takeda is exploring opportunities to expand plasma collection outside the U.S.

Q:How does Takeda plan to sustain or increase its dividend payments despite downward guidance revisions?

A:Takeda's dividend policy is based on core EPS, reported EPS, and long-term debt reduction. Decisions on dividends for the next fiscal year will be announced in May, considering these parameters.

Q:What is the current state of albumin demand in China, and how does it affect Takeda's guidance?

A:Albumin demand in China has declined due to government-imposed cost controls and shipment phasing. However, Takeda has secured tenders outside China and remains confident in achieving high single-digit growth for albumin and IG portfolios.

Q:What measures is Takeda taking to mitigate geopolitical risks in its partnership with Innovent?

A:Takeda will lead global development and manufacture Innovent's molecules in the U.S. to meet regulatory standards and mitigate geopolitical risks.

Q:What is the margin outlook for Takeda's Plasma-Derived Therapies (PDT) business?

A:Takeda expects continued margin improvement in its PDT business through product mix optimization, BioLife productivity enhancements, and manufacturing process improvements.

Q:What are Takeda's ambitions for its celiac disease programs?

A:Takeda has two ongoing Phase II programs for celiac disease: TAK-227 and TAK-101. The company sees significant unmet medical need and awaits data to determine the long-term potential of these programs.

Q:What is the target product profile for mezagitamab in IgAN, and how does it compare to competitors?

A:Mezagitamab aims to offer efficacy similar to competitors with the added benefits of sustained effects after short-term dosing and improved safety.

Q:What is the outlook for ENTYVIO's growth beyond 2026, and will Takeda revisit its peak sales guidance?

A:Takeda expects ENTYVIO to maintain market share in IBD despite competitive pressures. The company has not revised its peak revenue guidance and will provide further updates in May.

Q:What is the mechanism and potential of IBI3001 as a bispecific ADC?

A:IBI3001 targets EGFR and B7H3, harmonizing with Takeda's solid tumor strategy. It uses a novel exatecan payload and has shown encouraging efficacy in early doses, with potential for enhanced targeting and effectiveness.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the timing of R&D spend and margin outlook for fiscal year 2026, as well as the exact timing for the next data update for IBI363. Additionally, responses to questions about potential changes to the MarsLight-11 trial design and geopolitical risks in the Innovent partnership were somewhat vague.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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