Takeda Pharmaceutical Company Limited (NYSE:TAK) Q2 2022 Results Conference Call October 27, 2022 5:30 AM ET
Company Participants
Ayako Iwamuro – IR
Christophe Weber – President and CEO
Andrew Plump – President, R&D
Costa Saroukos – CFO
Ramona Sequeira – President, Global Portfolio Division
Teresa Bitetti – President, Global Oncology Business Unit
Julie Kim – President, US Business Unit
Giles Platford – President, Plasma-Derived Therapies Business Unit
Masato Iwasaki – Representative Director, Japan General Affairs
Conference Call Participants
Hidemaru Yamaguchi – Citi
Stacy Ku – Cowen
Motoya Koutani – Nomura Securities
Shinichiro Muraoka – Morgan Stanley
Seiji Wakao – J.P. Morgan
Fumiyoshi Sakai – Credit Suisse Securities
Akinori Ueda – Goldman Sachs Securities
Naomi Kumagai – Mitsubishi UFJ Morgan Stanley
Hiroaki Hashimoto – Nikkei BP
Ayako Iwamuro
Thank you very much for taking time out of your busy schedule to join us today for Takeda’s Financial Results Webinar for the Second Quarter of Fiscal Year 2022. My name is Ayako Iwamuro, I am in charge of IR. I will be your moderator today. Very nice to meet you.
First, let me explain the language settings. At the bottom of the Zoom window, there is a language button. If you prefer to listen in Japanese, please select Japanese. If you prefer to listen in English, please select English. Or if you prefer to listen to the live audio, please select off.
Before starting, 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 our most recent Form 20F and in our other SEC filings. Please also refer to the important notice on page two of the presentation material.
I would now like to turn to today’s presentation. Let me introduce to you today’s presenters. First, Christophe Weber, President and CEO; Andy Plump, President, R&D; Costa Saroukos, Chief Financial Officer. They will be giving the presentation. The presentation will be followed by a Q&A session.
I’d now like to begin. Christophe, over to you.
Christophe Weber
Thank you very much, Ayako, and thank you everyone for joining us today. It’s really great pleasure to be with you.
On the first slide, I would just summarize that Takeda, our vision is to discover and deliver life-transforming treatments, guided by our commitment to patients, our people and the planet. This is a purpose-led approach, which is at the core of our strategy for global growth on long-term value creation for our stakeholders. Our performance in the first half of the fiscal year further demonstrates our progress in executing on that strategy as we look to accelerate growth, advance our pipeline, and deliver on our commitment.
I will move to slide five. If someone can move the slide. Yes. Thank you. On slide five, I would like to take you through some of the recent highlights. In the first six months, our core revenue was JPY1,974.8 billion, which represents a 5.5% growth at constant exchange rate. Core operating profit for the period was JPY625.2 billion, growing at an impressive 14.5% also on a constant exchange rate basis. This enables us to deliver a strong core operating profit margin of 31.7%, an improvement of 2.4 percentage points versus prior year. And core earnings per share was JPY288 with growth of 15.8% at — again at constant exchange rate. Based on these strong results, we are reconfirming the full year management guidance for low single digit core revenue growth and high single digit core operating profit and core EPS growth. These are all at constant exchange rates.
On a reported basis, our strong business performance coupled with foreign exchange tailwinds enabled us to deliver reported revenue growth of 10.1% and that is despite the large gain of JPY133 billion we booked as revenue in the first quarter of the last year related to the sale of the diabetes portfolio in Japan. Our business momentum remains strong and the significant upside we are seeing from foreign exchange has led us to raise our reported and core forecast and free cash flow outlook for the full year. Costa will share further details on this.
The revenue growth in the first half of the year was driven by our growth and launch products, which delivered strong performance across our key business areas and grew 19% year-on-year at constant exchange rate. ENTYVIO, TAKHZYRO, and Immunoglobulin each recorded double-digit growth of 17%, 31%, and 17%, respectively, in the first half of the fiscal year and we saw continued launch momentum from EXKIVITY and LIVTENCITY, demonstrating the strength of our commercial execution. We continue to see potential for further market growth and share expansion for ENTYVIO and we are raising our peak sales estimate to new range of $7.5 billion to $9 billion. I will discuss this in more detail in a moment.
Earlier this month, we achieved a significant pipeline milestone when the CHMP-recommended approval of our dengue vaccines candidate, TAK-003, for prevention of dengue disease. This came just two months after our vaccine’s first approval in Indonesia. I will discuss QDENGA further on the next slide. We also received a positive CHMP opinion for maribavir in relapse and refractory cytomegalovirus disease after a transplant. In both cases, we expect the European Commission to decide upon marketing authorization in the coming months. And, most recently, we entered into a collaboration and licensing agreement with Zedira and Dr. Falk Pharma to develop TAK-227 for the treatment of celiac disease, an area of significant unmet need for patients.
I would like now to focus on our dengue vaccines. The CHMP positive opinion for TAK-003 marked a major moment for Europe and the dengue-endemic countries that participated in the EU medicine for all procedure. But it’s also critical moment for the global health community. Severe dengue is a leading cause of serious illness and death among children and adults in Latin America and Asia. And the impact of dengue goes beyond just those who are infected. There is often a significant economic burden on families supporting an — hospitalized family member and an outbreak of dengue can overwhelm hospitals, causing a restriction in access to healthcare.
The incidence of dengue has grown dramatically in recent decades, causing an estimated 390 million infection and 0.5 million hospitalizations annually. Over half of the world population is at risk, according to the WHO, who have identified dengue as a top 10 threat to global health.
Among the factors driving this rising prevalence, the most critical ones are the urbanization, globalization and climate change. All in all, this speaks for the urgent need for safe and effective vaccine for the prevention of dengue disease.
So, with the approval in Indonesia and if approved by the European Commission, QDENGA will be a critical addition to the limited set of tools available to prevent dengue. The results from our Phase 3 clinical trial demonstrated long-term protection against dengue fever through 4.5 years with the vaccines preventing 84% of hospitalized dengue cases and reducing cases of symptomatic dengue by 61% overall with no important safety risks identified to-date.
The positive CHMP opinion is particularly encouraging, because this is also the European Medicines Agency’s first ever parallel assessment of a medicinal product for use in countries outside the EU, all eight of which are dengue endemic. What’s very important here is that the CHMP-recommended approval for broad use regardless of prior dengue exposure, which will make QDENGA the only dengue vaccines that does not require a blood test before administration, which we see as eliminating a critical barrier to access and increasing confidence about the efficacy and safety of the vaccines. As I said, we expect the European Commission to make a decision on approval in the coming months with some dengue endemic countries to follow.
Besides Europe, we’ve received our first approval in Indonesia in August and then expect to launch QDENGA there in early 2023. More filings have to come with the US filing expected within fiscal year 2022. In December, we will hold an investor event to dive deeper into our commercial strategy for this exciting vaccine.
Moving to ENTYVIO, for which we are raising our peak sales outlook to USD7.5 billion to USD9 billion from the previous estimate of USD5.5 billion to USD6.5 billion. Since its launch in 2014, ENTYVIO has delivered outstanding growth momentum and we are on track to exceed USD5 billion in revenue this fiscal year. ENTYVIO has established itself as a leading treatment option for IBD and is currently the number one prescribed biologic in bio-naive patients.
Our confidence in raising peak sales reflect the continued expansion of the biologic market and in a number of other factors related to the product. First, ENTYVIO has a depth of clinical data on real world experience, demonstrating its efficacy and safety. While we do expect there to be an increasing competition in IBD, we have yet to see any other product demonstrating superiority over existing biologic therapies. So, again, ENTYVIO also continues to gain total patient share in various regions and potential share gain are far from exhausted. As you can see from the chart, we continue to see an upward trend in market share in key regions.
In addition, we remain on track to file a subcutaneous formulation in the US in the fiscal year 2023, opening another pathway for growth. We will also continue to invest in further evidence generation to maximize the potential of the product.
Finally, as we share — as we have shared previously, we have significantly extended our base case timeline for when biosimilar are likely to be launched. At this stage, it is highly unlikely that we will see a biosimilar launch this decade and it could be as late as 2032. So, including — this quarter demonstrated our growth strategy remains on track. We continued to deliver on our financial commitment to progress our pipeline and to create long term value for our stakeholders, while we fulfill our purpose of bringing better health for people and a brighter future for the world.
With that, I will turn the call over to Andy to update you on our pipeline. Thank you.
Andrew Plump
Thank you, Christophe, and hello to everybody on the call today. If we go to the next slide, 10, please, Chris. As Christophe just mentioned, we are extremely excited about the positive CHMP opinion supporting the broad use of QDENGA. We believe QDENGA is a transformative vaccine, fills a substantial unmet medical need for individuals in and, of course, travelers too, warm weather climates.
According to the World Health Organization, dengue is a top global threat that causes an estimated 500,000 — 500,000 hospitalizations each year. QDENGA has the potential to prevent morbidity and mortality from dengue in endemic regions around the world. And as we’ve learned from COVID, vaccine that protects against viral outbreaks and hospitalizations may also prevent local healthcare systems from being overwhelmed and unable to provide routine care. This potential approval is the culmination of more than 10 years of successful research and development to produce a safe and effective vaccine against the dengue virus. And after many years of thoughtful development, we were able to show an 84% reduction in hospitalization and no harmful effects 4.5 years after vaccination.
Moving to LIVTENCITY, which was approved in Canada and Australia for second-line post-transplant CMV disease this quarter, as Christophe just mentioned, we also received a positive CHMP opinion in September. We’re looking forward to the near-term approval and launch in the EU. TAKHZYRO is filed in the US for the prevention of HAE attacks in children two to 12 years of age. If approved, it will be the first and only prophylaxis treatment available for patients younger than six years of age.
We have one new clinical start this quarter for TAK-920, an antibody treatment for Alzheimer’s disease targeting TREM2. This is the second experimental therapy to enter clinical development using Denali’s blood-brain barrier transport vehicle-enabled technology.
And, lastly, we signed a licensing agreement with Dr. Falk Pharma and Zedira for TAK-227 in the US and other territories outside of EUCAN, Australia, and China. TAK-227 is an oral tissue, TG2, or Transglutaminase-2, inhibitor with enriched activity in the intestines. The TG2 enzyme generates immunogenic gluten peptide fragments following the breakdown of gluten in the stomach and intestines. By inhibiting the body’s immune response to gluten, it has been demonstrated to prevent mucosal damage in the small intestine. A Phase 2a proof-of-concept study published in the New England Journal of Medicine demonstrated a protective effect of TAK-227 in patients undergoing a six-week gluten challenge.
TAK-227 showed very significant protective effects on the ratio of villous height to crept gas in the duodenal mucosa, widely considered to be the most objective and valid endpoint in clinical studies for celiac disease. The trial also showed favorable effects of TAK-227 on a number of patient-reported outcomes. The program is currently in a Phase 2b trial testing three different doses and two dosing schedules over a 12-week period in celiac patients on gluten-free diet. This agreement to bring a Phase 2b program is strong early data into our pipeline, complementing our portfolio of potential best-in-class therapies for moderate to severe celiac disease. Other programs include the potent short-acting oral glutenase, TAK-062, with potential for mealtime dosing and the systemically administered immune tolerizing nanoparticle, TAK-101.
So let me tell you a little bit about celiac disease. As a global presence of about 1% of the population and no approved therapies, maintaining a strict lifelong gluten-free diet is highly burdensome and even with dietary modification many patients continue to have persistent symptoms, small intestinal mucosal injury and the potential for very severe secondary consequences, including malnutrition, cancer, diabetes, and even a higher mortality rate. If proven safe and effective, these investigational therapies have the potential to substantially benefit patients who continue to suffer from celiac disease, despite dietary intervention.
We can move to slide 11, please. Shown here are 10 late-stage development programs, which continue to advance. As mentioned, we’ve received a positive CHMP opinion for LIVTENCITY in second-line CMV disease and a positive CHMP opinion for QDENGA as part of the EU medicines for all process. We are on track to start a Phase 3 trial for Fazirsiran, or TAK-999, by the end of our fiscal year and we continue to search externally for programs within our therapeutic areas and strategic focus that can add to our late-stage development pipeline and contribute to our marketed portfolio this decade.
Next slide, please, Chris. We continue to be excited about our proof-of-concept readouts to come over the next one to two years. We plan to share updates on several of these programs, including TAK-861, the oral Orexin 2 receptor agonist by the end of the fiscal year. These are the first of many new molecular entities that could emerge from our rich and transformative early-stage pipeline and add to our growing late-stage development programs.
Next slide, please. Shown here are select expansion opportunities we have for our major brands. We completed filing for TAKHZYRO for the prevention of hereditary angioedema in children based upon the outstanding data presented from the SPRING study at the European Academy of Allergy and Clinical Immunology this past summer. These data continue to illustrate the best-in-class efficacy and safety profile of TAKHZYRO, demonstrating 95% reductions in HAE attacks. We also filed CUVITRU for primary and secondary immune deficiency in Japan, continuing the product’s global expansion and we are on track to soon file HYQVIA in the US and EU as maintenance therapy for patients with CIDP based upon the positive results announced last quarter.
If we can go to the next slide and my last slide, please. We have several key regulatory decisions and Phase 3 study readouts expected this year. This quarter QDENGA was approved in Indonesia with a broad label. We also received a positive CHMP opinion, recommending a broad label in the EU and in dengue endemic countries participating in the parallel EU medicines for all procedure. We look forward to an EU decision in the coming months and additional regulatory reviews in dengue endemic countries in Latin America and Asia. We are on track to release the additional Phase 3 readouts later this fiscal year.
Thank you all very much, and I will now turn it over to Costa. Costa?
Costa Saroukos
Thank you, Andy, and hello, everyone. This is Costa Saroukos speaking. Today, I’d like to walk you through Takeda’s fiscal 2022 first half financial highlights. But before that, I’d like to make a couple of high-level comments on our financial resilience in the current macro environment.
Firstly, we have been delivering on our growth strategy and our growth and launch products maintained strong momentum that we expect to carry on through the entry of VYVANSE generics next year and beyond. And, as Christophe detailed earlier, we are increasing our peak sales forecast for ENTYVIO to USD7.5 billion to USD9 billion.
Next, we delivered year-over-year core margin improvement of over 2 percentage points, despite the inflationary environment and despite emergence of VELCADE generics in May of this year. We have strong liquidity and we have already locked in 98% of our debt at fixed rates with a weighted average interest rate of 2% and, in fact, we will pay off the final portion of floating debt in November. So, by next month, we’ll be at 100% fixed rates, meaning we’re in a very favorable position within the current environment of increasing interest rates. Finally, FX has been a significant tailwind for Takeda this year and we are upgrading our guidance to reflect these. I’ll go through the details of this shortly.
Now, turning to slide 16, and the financial highlights for the first half. Core revenue continues to deliver strong growth, up 5.5% versus prior year at constant exchange rate. This was driven by growth and launch products, such as ENTYVIO, TAKHZYRO, and Immunoglobulin as we delivered growth in all geographic regions. We also continued to see steady uptake from the recent launches of LIVTENCITY and EXKIVITY in the US. Reported revenue growth was 10.1% with business momentum and FX more than offsetting the impact of a JPY133 billion gain from the sale of the Japan diabetes business that was booked in Q1 of the prior year. This one-time event is the only difference between reported and core revenue growth rates.
The gain from the portfolio sale is also the main reason that reported operating profit for H1 declined on a year-on-year basis. Core operating profit, which excludes this gain, grew at 14.5% at a constant exchange rate to JPY625.2 billion. Our core operating profit margin was 31.7%, an increase of 2.4 percentage points on a year-over-year basis. This year-on-year margin boost is an indicator of our financial resilience and our ability to control cost. In fact, at constant exchange rate, our SG&A spend declined versus prior year.
Net debt to adjusted EBITDA came down to 2.6 times from 2.8 times at the end of Q1, which means, we are getting very close to our target of low-2s. With regard to the full-year guidance, we are reconfirming our constant exchange rate growth guidance, while upgrading our reported and core and cash flow forecast, primarily due to FX tailwind.
Slide 17 shows our first half results in more detail. On the left-hand side, you can see the impact of the sale of the Japan diabetes portfolio last year on our reported growth rates as well as our cash flow. The impact of this one-time event on our growth rates will unwind over the rest of the year and for the full year we are expecting double-digit reported operating profit and reported EPS growth.
Focusing on the core numbers on the right, I’m very pleased with the H1 growth we are delivering on a constant exchange rate basis with revenue up 5.5%, core operating profit up 14.5% and core EPS growth of 15.8%. In addition, foreign exchange has been a significant tailwind for us year-to-date resulting in actual core EPS growth of close to 35%.
Let me go into more detail on the H1 revenue performance versus the prior year on slide18. On the left is a waterfall chart for reported revenue, which grew at 10.1% year-on-year with business momentum and foreign exchange favorability more than offsetting the full impact of the JPY133 billion one-off we booked in Q1 of last year from the sale of Japan diabetes portfolio. Core revenue on the right-hand side excludes the impact of the diabetes portfolio sale. And, as you can see, our business momentum was driving 5.5% growth at constant exchange rate, with the additional foreign exchange tailwind driving total core revenue growth of 18.9%.
On slide 19, you can see that the key driver of topline growth is our portfolio of growth and launch products, which generated JPY759.8 billion or 38.5% of total revenue in H1 with 19% growth at constant exchange rate. Incrementally, these products added JPY205 billion, or USD1.4 billion, of revenue compared to the first half of last year. Within our five key business areas, GI, our largest area by revenue grew at 12% year-to-date on a constant exchange rate basis. This was spearheaded by ENTYVIO, which grew at 17%, driven by continued increase in bio-nave patient share. In rare diseases, which grew at 8%, we see continued demand growth and geographic expansion for TAKHZYRO, which delivered growth of 31%. We also see early indicators of success with the LIVTENCITY launch with 75% of transplant centers in the US having now initiated therapy with at least one patient.
PDT Immunology continues to be very strong with 14% growth, including 17% growth of immunoglobulins fueled by strong global demand and enabled by steady supply. We have continued to expand our donation center network adding 16 centers in the last six months and we are on track to our guidance of 10% to 20% increase in plasma donation volumes for the full year. We are also managing costs to improve margins over time and have reached donor compensation in the US is down by over 15% compared to the first half of fiscal 2021.
Next, in oncology, which is declining year-on-year, as expected, given that VELCADE generics entered the US market from May this year. Excluding VELCADE, the rest of the portfolio grew at 6%, driven by ALUNBRIG, EXKIVITY, ADCETRIS and ICLUSIG. Finally, neuroscience continues to perform very well with growth of 11%, driven by VYVANSE and TRINTELLIX, while the other segment is declining due to some regional loss of exclusivities in Japan.
On slide 20, we show the drivers of reported and core operating profit for the quarter. Reported operating profit was JPY255 billion, a decline of 26.3% versus prior year. Again, the decline is predominantly coming from the gain on the sale of the Japan diabetes portfolio, which contributed JPY131.4 billion to reported operating profit last year. We also had some one-off items impacting the other column here, such as impairment of intangible assets, which includes NATPARA and higher pre-launch ENTYVIO — sorry, and higher pre-launch inventory in preparation for future launches.
As a reminder, the main impact on reported operating profit growth is due to the sale of the diabetes portfolio in Q1 of last year. This will unwind over the coming quarters and we are forecasting for full year reported operating profit growth of 15%. Core operating profit was JPY625.2 billion with our business momentum driving 14.5% growth at constant exchange rate and FX and incremental tailwind driving total growth of 28.7%.
Slide 21 shows our free cash flow of JPY296.9 billion for the first half, comfortably covering the half year dividend payment and net interest paid as well as the share buyback we completed in April this year. We closed September with ample cash of almost JPY800 billion and total liquidity of JPY1.4 trillion or close to USD10 billion.
Slide 22, the net debt balance is shown here compared to the end of March and demonstrates the continuation of our steady deleveraging progress from 2.8 times down to 2.6 times. The amount of debt on our balance sheet in Japanese yen terms increased over the period due to the depreciation of the yen versus the dollar and euro. However, as a reminder, the depreciation of yen also benefited EBITDA, which means that the impact of FX on our leverage ratio is small. Also, we have structured the currency denomination of our debt to mirror our cash flow, which ensures that over time we will be able to pay down debt without being impacted by FX movements.
On slide 23, you can see our debt maturity ladder as of September. In addition to the USD219 million of fiscal year 2022 debt that we paid in April, we also recently called USD1 billion of debt maturing in fiscal year 2023 for prepayment this month. These payments were for USD-denominated bonds with interest rates of 3.6% and 4.4%, respectively, allowing us to further optimize our debt profile. We are on track towards our plan of paying off approximately JPY500 billion of debt this fiscal year, targeting higher than average interest debt.
As a reminder, our current weighted average interest rate is approximately 2% and, importantly, 98% of our total debt is at fixed interest rates. And by November 2022, we expect our debt to be at 100% fixed rates. This puts us in a very strong position in the current macro environment of rising interest rates. Finally, I’d like to point out that we’ve had some positive changes in our recent credit ratings with both JCR and R&I upgrading our ratings recently.
So next to slide 24, where we reconfirm our full year management guidance for growth at constant exchange rate with core revenue growing at low single digit and core operating profit and core EPS growing at high single digit. For our reported and core forecast, we are upgrading our numbers primarily to reflect FX tailwinds. On a reported basis, we increased our revenue forecast to JPY3.93 trillion, operating profit to JPY530 billion and EPS to JPY198 with strong growth rates versus prior year.
On a core basis, revenue is expected to be JPY3.93 trillion with core operating profit now expecting to reach JPY1.18 trillion and core EPS to reach JPY525. This represents growth of approximately 15% for core revenue and 23% for core operating profit and core EPS. This upgrade is based on FX rate assumptions using the first half average FX rates, specifically a JPY132 to the US dollar and JPY138 to the euro.
Finally, we are also increasing our outlook for free cash flow from JPY600 billion to JPY700 billion now to JPY650 billion to JPY750 billion, primarily reflecting the FX benefit. We also remain fully committed to our full-year dividend of JPY190 per share.
To close out the presentation on slide 25, I’d like to reemphasize the key elements of our strategy to deliver sustainable growth and value for shareholders. We continue to see strong momentum from our commercial portfolio, which enabled us to deliver 5.5% core revenue growth at constant exchange rate in the first half of this fiscal year. This is driven predominantly by our growth in launch products growing at 19% on a CER basis, more than offsetting the impact of generic versions of VELCADE in May 2022.
Our margins are strong with 31.7% core operating profit margin in H1 and we delivered core operating profit growth of 14.5% at constant exchange rate, well on track towards our full-year guidance of high single-digit growth. And our success is built on a solid financial foundation with robust cash flow that we will continue to allocate towards growth opportunities, continued deleveraging and competitive shareholder returns. We have abundant liquidity and a well-structured debt profile of 98% fixed rates at an average cost of 2%, which positions us well in the changing macro environment.
Finally, before we open it up to Q&A, I would like to bring to your attention an upcoming investor call we have scheduled for mid-December, focusing on our launch plans and commercial strategy for QDENGA. We look forward to your participation in this event.
With that, I’d like to open it up for Q&A. Thank you very much.
Question-and-Answer Session
A – Ayako Iwamuro
Now, I would like to take your questions. In addition to Christophe, Andy and Costa, the management team, which you can see on the slide is also present to take your questions. [Operator Instructions] Now I’d like to take the first questions. From Citi, Yamaguchi-san. Please unmute yourself, and ask your questions.
Hidemaru Yamaguchi
Can you hear me okay? I am Yamaguchi.
Ayako Iwamuro
Yes, we can hear you well.
Hidemaru Yamaguchi
I have two questions. First question is, for this quarter you are doing very well. On next quarter, VYVANSE patent cliff is going to be something that you are facing, but new products are doing well. So for the next fiscal year, your revenue is going to be more or less flat, that your profit is going to come down according to your guidance. Is there any updated guidance? And that’s my first question.
And the second question is about TAK-861. By the end of this fiscal year, you are going to obtain POC, that’s been confirmed, is there any latest update? Whether the study is going well and if you’ll be able to obtain POC before the end of this fiscal year? Can you comment on that?
Ayako Iwamuro
Thank you very much. Our first question, Costa, could you please respond. And then the second question about the Orexin program, Andy, please respond.
Costa Saroukos
Great. Thank you very much, Yamaguchi-san, for your question. First, let me just say that I’m very pleased with our first half results for fiscal year 2022. We are showing very strong growth as you mentioned on the growth on launch products growing at 19%. This generated USD1.4 billion in revenue for the first half of the year and with this trajectory and continuation of growth, as you mentioned, we feel like this could potentially offset the impact next year of VYVANSE loss of exclusivity. Just as a reminder, VYVANSE loss of exclusivity is more targeted around August. So you don’t have the full impact, not the full 12 months impact there.
Having said that, on the margin side, we are looking at managing our margins accordingly. The growth and launch products is also highly — high in margin products overall. They have higher margin than the total company and then, of course, on the OpEx standpoint, we will continue to stay very laser-focused on managing our OpEx to ensure that we have a sustainable core operating profit margin. We will give you more information in May when we give our guidance, but directionally we are feeling pretty solid about this year. And also with the trajectory of our growth and launch products next year and our cost management, I think this is something that we can manage the overall core operating profit margin, but we’ll give you more information in May of next year when we give out 2023 guidance.
Andrew Plump
Yamaguchi-san, this is Andy. Thank you for your question for — on TAK-861. So, yes, the study is going very well. This is our Phase 1, Phase 1b study. We’re currently in the process of enrolling and evaluating patients with type one narcolepsy for — with four weeks of treatment with TAK-861. We know TAK-861 is an active molecule. We’ve looked at sleep-deprived healthy volunteers. The key questions for us are the overall profile and we’re looking at a number of endpoints in this study. The 40-minute mean — meaningful wakefulness task we’re looking at sleepiness indices and we’re looking at a number of different parameters, and we’re also very conscious of dose. And so we’re trying to understand where that dose — that optimal dose range is going to be for TAK-861. And we’re planning at risk to begin a Phase 2b study later this year. So we’re waiting now for the totality of data to come in and we’ll have all of those data to support that decision by the end of the fiscal year.
Hidemaru Yamaguchi
Thank you.
Ayako Iwamuro
[Foreign Language] Thank you. The next question is Stacy Ku from Cowen. Please.
Stacy Ku
Hi. I’m Stacy Ku from Cowen. Thanks for taking our questions, and congratulations on the progress. So the first question is, as you continue to nicely deleverage, can you expand some more on the potential strategy for business development? Which core therapeutic areas are you identifying opportunities and maybe clarify the potential phase and development and potential size of the opportunity? So, that’s the first question.
And then for ENTYVIO, as we approach 2023, wanted to confirm if the subcutaneous offering is still on track? So, do we expect filing for both UC and CD? And does the updated guidance includes subcutaneous contribution in 2024?
And then last, kind of another follow-up on ENTYVIO. Just can you provide some additional details between the potential hot drivers between the high-end and low-end of the peak sales? There are few moving pieces, so is it the competition that we should be considering when we look at this wide range or is it more of the potential impacts from biosimilar entry. So, any additional details would be appreciated? Thank you very much.
Ayako Iwamuro
Thank you, Stacy. The first question about the business development, Christophe, could you please take it? And second and third question about ENTYVIO, Ramona, could you please respond?
Christophe Weber
Yes. Thank you, Stacy. It’s Christophe. So on the BD front, we want to enrich our pipeline, so the first thing is that we are not looking for large M&A. We have the scale we need. We have the — we are global. We can compete in every key market. By the way, QDENGA is a vaccine that we can launch by ourselves, because we have such a strong presence in countries which are endemic. It’s a good example of how you combine innovation and globalization and how could — you can launch a global product.
But we do seek to enrich our pipeline. We have 40-product in development in the pipeline, but we know that not all of them will make it. So we are looking at enriching our pipeline. So we are looking at assets, which are in mid late stage and, let’s say, assets that could be launched before end of the decade, and we are focusing on our core therapy area. Sometimes, if there is adjacency, we could look at it as well, but that’s mainly where we are looking at and you have seen our cash flow, very soon we will be in the low-2. So we have some firepower, if you like, to do this type of very targeted business development. But it’s really asset-by-asset. We’re not — again, we’re not looking at scale. We’re looking at quality assets.
Ramona Sequeira
Thank you, Stacy, for your question. So, it’s Ramona here. So let me answer your questions about ENTYVIO. So, first of all, absolutely. The subcutaneous form is still very much on track to be filed in FY23 as we’ve previously disclosed and we’re confident that we have the package to be able to file that and we’re excited actually looking forward to bringing the subcu to the US market.
On the range that we’ve provided for ENTYVIO, on the — in the situation where we were [Technical Difficulty] not to get a subcu in the US, certainly, that would put us towards the lower end of the range, but as all of our projections are on track you would expect us to be more in the mid to higher level of the range. And the reason for the range is, as you said, the competition. So depending on how standard of practice changes with a number of new molecules coming into the market, it’s very difficult to project now five, six, seven years out. And so, we’re giving ourselves a range to be able to do that, but we’re — everything we’re seeing right now in the market even with new products coming on-board is that ENTYVIO is just more and more being solidified as a safe, effective, first-line foundational therapy for IBD. So we feel very positive about all of the underlying trends we’re seeing even with new products entering the market. Thank you.
Stacy Ku
Thank you very much.
Ayako Iwamuro
Thank you, Stacy. [Foreign Language] Moving on to the next question. Nomura Securities, Kohtani-san. Please unmute yourself, and ask your question.
Motoya Kohtani
This is Kohtani from Nomura Tokyo. Can you hear me? Can I ask this question in English?
Ayako Iwamuro
Yes, of course.
Motoya Kohtani
Okay. So I have three points. One, when I look at Page 38 of the financial document, I find that out ALUNBRIG has failed the ALTA-3 trial, which obviously was the head-to-head comparison versus ALECENSA as a leader in ALK positive NSCLC. So my understanding is that, this was the largest and last trial for ALUNBRIG to really expand its sales potential. So — and yet it doesn’t really seem like Takeda has impaired this asset. Is there a possibility that ALUNBRIG could meet your high expectations without ALTA-3? That’s number one.
Number two. I think the really good news in Q2 was TAKHZYRO growing really strongly within the US, again with, I think, [indiscernible] growth in the US in Q2. I think in the first quarter, the growth was quite limited. I think, constant currency wise was very small. So we were a bit concerned about the unexpected share gain of Orladeyo, the oral drug from BioCryst. Could you share with us what you’re seeing on the ground in terms of TAKHZYRO? Are you seeing a reversal of the patients from Orladeyo after having HAE attacks or side effects?
And the third point is, can you talk about your view on 2024, because VYVANSE expires in 2023 August, there is a sizable investment in 2024 also, and I think even with the revised forecast, 2023, it’s probably likely to show a decline in core OP. Now if 2024 is also going to show a decline in core OP, that’s problematic, is there — if you could share with us your view on [2022] (ph)? That’s it for me.
Ayako Iwamuro
Thank you, Kohtani-san. So first question about ALUNBRIG ALTA Study, Teresa, could you please take it? And then the second question regarding the TAKHZYRO and then the competitive situation, Ramona, could you please respond? And then the last question about 2023 and the 2024 outlook, Costa, could you please take it? Thank you.
Teresa Bitetti
Hi. This is Teresa Bitetti responding here. So you are right about the ALTA-3 trial. But what we found is that ALUNBRIG continues to deliver strong year-over-year results, driven by where we’ve seen this growth in UK and in Japan as well as in our growth in emerging markets. We’re continuing to focus our efforts. So even without the head-to-head trial, we’re focusing our efforts in the first-line setting where it’s clear that there is strong benefit for ALUNBRIG, which includes the overall improved intracranial efficacy, long term tolerability, dosing impact and quality of life that are really meeting the needs of patients. So there is still a lot of growth in this product and we’re going to continue to focus our efforts there.
Julie Kim
Hi, Kohtani-san, it’s Julie Kim. I’m going to take your TAKHZYRO question, because I believe you’re asking more about the dynamics in the US market. So, for TAKHZYRO, we are seeing good growth, good market demand for TAKHZYRO. We continue to believe in the strong efficacy profile that TAKHZYRO provides for patients and we’re seeing that in terms of the resurgence in demand.
From a market dynamic standpoint, while we anecdotally we are seeing some patients who have started on oral come back to TAKHZYRO because of the efficacy profile that we have, there isn’t anything specific that we would comment on that beyond the anecdotal evidence that we have seen.
From an execution standpoint, what I would comment on is that, we’ve been working very hard on, let’s say, eliminating friction in the system. There are quite a lot of hurdles that patients still need to go through to get on therapy once they are diagnosed and so some of that resurgence in demand, we believe, is because of our efforts in terms of, as I said, eliminating friction in the system to allow patients to have access to therapy much faster. Thank you.
Costa Saroukos
Thank you, Kohtani-san, for your question. Let me just — without giving guidance for fiscal year 2024 give you some key pushes and pulls here. Firstly, the VYVANSE impact will be more heavily weighted in 2023, for sure. There will be some carryover in 2024, but the majority, as a proportion, will be impacting us in 2023. For 2024, the impact overall for loss of exclusivity will be much less than what we’ve experienced in fiscal year 2023 and also in 2022. So, overall, the LOE in 2024 will be much lower.
Then on the flip side, on the topline revenue, we continue to see growth of our growth and launch products accelerating. We have QDENGA launching as well and that will also continue to drive some topline revenue growth.
And then, finally, on the OpEx, we’ll continue to manage G&A, SG&A, OpEx. We will continue to improve our PDT profitability. You saw that this year and last year we’ve had some dynamics, market dynamics, which has increased overall donor fees but that’s starting to — as you saw in Q2 year-to-date, our donor fees have started to come down by more than 15% versus prior year, so we expect improvements in PDT profitability as well.
Motoya Kohtani
Thank you.
Costa Saroukos
Now, there was a question on the ALUNBRIG impairment, we do the regular tests as well every year and every planning cycle, we still have a buffer here on ALUNBRIG. It’s not just on revenue, but it’s the overall cash flow NPV versus the purchase price. So we get this assessed on a regular basis by our external auditors and thus far we have not triggered any impairments. Thank you very much, Kohtani-san, for your question.
Ayako Iwamuro
[Foreign Language] Thank you for your question. Next question is from Morgan Stanley Securities, Muraoka-san. Please unmute.
Shinichiro Muraoka
Good afternoon. I am Muraoka from Morgan Stanley. Do you hear me okay?
Ayako Iwamuro
Yes.
Shinichiro Muraoka
Thank you. My first question is about shareholders’ returns. Leverage has come down and your performance is quite good, so probably you can start thinking about increasing your dividend, it’s actually high time for you to think about it. Any comments, including the timing of doing that, what’s your thought on that? That’s my first question.
The second question, new — two new products, LIVTENCITY and EXKIVITY. During the first quarter, their growth looked very well, but during the second quarter, if I look at the numbers, quarter-on-quarter, it looks like their growth rates are flat. What’s the background? Is this a slowing down or is this just a transient situation? Can you give me some background of that? That’s all from me.
Ayako Iwamuro
Thank you, Muraoka-san. The first question about the shareholder’s return, Costa, could you please take it? And then the second question about the EXKIVITY’s uptake, Teresa, please respond. And then the third question about the LIVTENCITY’s performance, Ramona or Julie, could you please respond? Thank you.
Costa Saroukos
Yes. Thank you, Muraoka-san, for your questions. It’s a great question and it’s definitely something we’re looking at, in particular, as we continue to deleverage. We’ve promised as part of the capital allocation policy to deleverage rapidly and to get down to the low 2 times. We are on track to delivering that target. You saw already in Q2, year-to-date, we’ve gone — we’re down to 2.6 times. But we are still not there. We’re still not at low 2 times, but I’m confident that we’re going to get there and potentially even get there faster than our original committed timeline of fiscal year 2023. So once we close this, we will get — we have a lot more firepower and a lot more cash flow, our free cash flow continues to grow, and then of course we will look at reducing the number of capital allocation drivers. Today, we have three. It’s investing for — our growth drivers deleveraging rapidly and shareholder returns. Once we deleverage down to the low two, we’ll have two areas of focus. One being continuation of investing for growth, which could be also, as Christophe alluded to, acceleration of acquisitions, later-stage acquisitions for growth, continuing to invest in R&D, both in-house and partnerships, continuing to invest in new product launches. And then the second one is obviously the shareholder returns and, look — and, perhaps, dividend increases could be definitely on the cards there. So, thank you very much, Muraoka-san, for your question. And we are looking into it. Thank you.
Julie Kim
So Muraoka-san, this is Julie Kim. I can take your question on LIVTENCITY and then I’ll pass to Teresa for EXKIVITY. So in terms of LIVTENCITY, we’re very, very excited about the treatment option that this provides for individuals with refractory CMV as there really wasn’t a treatment available to them. And what we are seeing in terms of the growth that you’ve pointed out is, it’s not a new trend per se. Transplant is an acute situation. It is an event that happens, so it’s very hard to predict when patients will need LIVTENCITY as a treatment. What we are very encouraged by is the fact that we have over 90% of our patients receiving full course of therapy. We have very high coverage, over 90% coverage from a reimbursement standpoint, and we have over 80% of the centers now treating patients with LIVTENCITY and so there is still opportunity for growth and we expect LIVTENCITY to continue to do well. Teresa?
Teresa Bitetti
Yeah. Thank you. This is Teresa. Thanks for the question on EXKIVITY. We continue to be pleased with the results of EXKIVITY’s launch in the US market and the data shows that EXKIVITY continues to capture half of all new patient starts among the two branded EGFR exon 20 treatment options that are there. So, we continue to see the increased potential for more growth. We do see an opportunity to increase duration of therapy. So we are working with physicians to make sure that we educate very clearly on side effect management, dosing and the importance of the duration of that therapy. So there is no change to our growth forecast, at the moment. I mean, we will continue to keep an eye on that and keep you updated as we gain more and more insights as we continue to launch EXKIVITY. So, thank you.
Ayako Iwamuro
[Foreign Language] Thank you, Muraoka-san. Next question is J.P. Morgan, Wakao-san. Please unmute.
Seiji Wakao
This is Seiji Wakao, J.P. Morgan. Thank you very much. I have two questions. First is ENTYVIO peak sales increase. In Page 12, you listed up several factors — so — for this upgrade, but which one is the biggest factor? The top is — the ones most important, meaning biosimilar entry is not now expected until 2032, is that the biggest reason? Looking at the current situation, ENTYVIO share seems to be very close to the peak, but do you think that as market grows then ENTYVIO sales will also grow?
Next is about TAK-861. Regarding the TAK-861, whether to continue the study or not, I think you will make a decision within this year. That’s what I heard. But now I think it’s shifted to — by the end of March. Does that mean that you need to take longer time to make a decision? And, also, what about the safety profile of TAK-861? I think, that you seems to be more careful than myself, so the required criteria over safety for TAK-861, it is now higher or severe? So the other compounds moving on to Phase 2 compared to those cases, do you think that TAK-861’s hurdle to move onto the next phase is higher?
Ayako Iwamuro
Wakao-san, thank you very much. Question about the ENTYVIO peak sales revenue, Ramona, could you please take it? And the second question about the TAK-861, Andy, could you please respond? Thank you.
Ramona Sequeira
Yes. Thank you, Wakao-san. Let me answer your question on ENTYVIO peak sales. So, you’re correct. The major driver of the increased peak sales is the — basically the increased time on market that allows us to continue to take advantage of the positive trends and grow and that’s what’s driving the increased sales. We have a number of positive trends which include, as I mentioned, continued growth in share and continued growth in first-line therapy within continued growth of the IBD market and we expect such good to be coming in the US as well. And, certainly, we do see more competitors entering the marketplace, so that would be a bit of a headwind, but we feel confident in our new peak sales estimate, given the positive trends in our favor and the extended time we have with ENTYVIO. Thank you.
Andrew Plump
On TAK-861 — this is Andy. On TAK-861, we will pass on — we’re moving forward the program in an accelerated fashion and it is entirely on track. So the intend to start a Phase 2b study at the end of this fiscal year is very much in line with what we’ve communicated and signaled at the beginning of the year.
With respect to safety, we’re — as I said, this is a very accelerated program and we’re balancing the potential to bring forward a transformative therapy for patients with narcolepsy, while ensuring that we’re doing everything we can to guarantee patient safety. So we’re being very thoughtful in how we make and drive decisions, given the experience with TAK-994. But we remain extremely excited about the mechanism and, over the next couple of months, we’ll have a full dataset on TAK-861 that allow us to make a decision as to whether we move forward or not.
Seiji Wakao
[Foreign Language]
Ayako Iwamuro
[Foreign Language] Thank you very much, Wakao-san for you question. Next question, Credit Suisse Securities, Sakai-san. Please unmute your microphone, and ask your question.
Fumiyoshi Sakai
Yes. This is Sakai with Credit Suisse. First question to Costa. So you made an upward revision, and on Page 20, core profit margin for the first half, there was a JPY69.1 billion factor from FX and for full year its JPY800 billion, so I understand that ForEx was taken into account and Supplement A16 shows the sensitivity for exchange rate, you have some assumptions there. And for the full year, JPY132, so this is not much different from the first half, JPY131, and based on that you came up with this JPY800 billion or JPY80 billion. In terms of a core margin, maybe the margin would go down. That’s my question. So how do you — how did you calculate that? What is the formula? Can you please explain how you calculated this number? That’s my first question.
And another question is for Andy. So Orexin Phase 1b study that’s been mentioned before, this is Phase 1b, so there is no blinding and healthy volunteers subject. I’m sure that you have seen the raw data to a great extent and based on all the raw data you have seen already, you don’t see any safety signals, is that a correct understanding? So those are the two questions.
Ayako Iwamuro
[Foreign Language] Thank you, Sakai-San. Costa take the first question around the upgraded guidance. And then also Andy around Orexin program, could you please respond? Thank you.
Costa Saroukos
Yes. Thank you, Sakai-san, for your questions. So if you look at — on that Slide A16 in the Appendix, you’re right, we have the new US dollar, the JPY132 in — for the full year assumption now and year-to-date it’s — what we saw actual was JPY131. So the way we calculated the overall future exchange for the US and euro was, we used the year-to-date average, okay. So JPY132 for the USD and JPY138 for euro. Now, we don’t see any major impact on the core operating profit because of this. So, overall, the COP margin is quite neutral overall to the company, because of the product mix and also the cost base that we have.
Now, on — we saw that in September, the US dollar was at JPY144 — the yen to the US dollar was JPY144. Now, if that continues for the rest of the year, we do have further upside. At this stage, it’s very hard to predict what the full-year impact will be on FX. But if it is around JPY144, we have further upside to our core revenue, our core operating profit, and our core EPS. And the upside if it was similar to what we saw in September of JPY144 to the US dollar, it would be an upside — incremental upside of about 3% on the core revenue, around 4% on the core operating profit, and approximately 5% on the core EPS. So that gives you a sort of a broad understanding, but no impact to the margin. Thank you, Sakai-san, for your question.
Andrew Plump
Sakai-san, you’re correct, the 1b portion of the study is — that doesn’t have a comparator arm. It’s just an active arm. And in the blinded data to-date, it’s — remember, it’s four weeks of dosing. But in the blinded data today, we don’t see any signal to suggest any liver safety issues so far.
Fumiyoshi Sakai
[Foreign Language] Thank you.
Ayako Iwamuro
Thank you, Sakai-san. Next question is from Goldman Sachs Securities, Ueda-san. Please unmute yourself.
Akinori Ueda
Hi. I’m Ueda from Goldman Sachs. I have two questions. First, going forward, R&D strategy update, when are you going to disclose your updated R&D strategy? Last year, you had explanation meeting for Wave-1, giving us outlook for each one of the products in Wave-1, but since then I’m sure that there have been a lot of updates. Therefore, as of right now, what is the renewed outlook of R&D strategy and what is the potential you are looking at for each product and when are you going to update us on that? What is the timing for that? TAK-861, before the end of this fiscal year you will be able to have the data and after that probably you can give us an update, so it’s going to be early next year that you can update us on that.
And the second question is about PDT, about the donor fee development. Page 34, right now, the donor fee is coming down, you are showing that on that page, but, as of now, the current level compared to the pre-COVID time before the donor fee went up, how do you compare the current level compared to the pre-pandemic level and this declining trend, is it going to continue?
Ayako Iwamuro
First question about the next R&D Day expected, Christophe, could you please respond to this question? And then the second question around the donor fee, Giles, could you please respond? Thank you.
Christophe Weber
Yes. Thank you, Ueda-san. We — first, we update about our pipeline at every quarter and I’m so sure we keep you updated. We will organize an R&D Day as soon as we will have enough new events, new readout. So either it will be in fiscal year 2022 or at the beginning of 2023. We have not decided the date yet.
Giles Platford
Yeah. This is Giles speaking. So, as Costa mentioned, we have been able to reduce, year-on-year, our donor compensation by upwards of 15% for the first half of fiscal 2022 and we continue to monitor market dynamics closely as we need to strike the right balance between collecting enough plasma to meet our commitments to patients and, of course, improving margins. Our ability to continue on this trajectory will be contingent on market dynamics. Thank you for the question.
Ayako Iwamuro
[Foreign Language] Ueda-san, thank you very much. We’d like to move on to the next question. Next is Mitsubishi UFJ Morgan Stanley, Kumagai-san, please.
Naomi Kumagai
This is Kumagai, Mitsubishi UFJ Morgan Stanley. Can you hear me?
Ayako Iwamuro
Yes.
Naomi Kumagai
Thank you. I have two questions. One is about the QDENGA. About your pricing strategy, I’d like to hear more? I think it depends, probably, on country, so what is your view about the pricing? And second is the TAK-227. It is a very interesting molecule, I think, and what’s your future development program over TAK-227 as much as you can disclose? Thank you.
Ayako Iwamuro
Thank you, Kumagai-san. So the first question about the QDENGA pricing strategies, Ramona, could you please take this question? And then the next question about the TAK-227, Teresa, could you please — Andy, could you please respond? Thank you.
Ramona Sequeira
Yes. Thank you very much, Kumagai-san. I would like to take the question on QDENGA pricing. So, first of all, let me remind you that dengue is endemic in over 100 countries, many of these are some of the most populous countries in the world. And as we bring this vaccine out globally, we want to make sure that it’s accessible to all of the patients who needed both in private and public markets, in travel markets and in endemic markets. So what we’re doing with dengue is we’re going to be coming out with a tiered pricing strategy, so that we can segment markets based on healthcare sophistication and make sure that it becomes available to the patients who need it. We are having a Dengue Investor Relations Day on December 15th and at that time we will be sharing more about our launch plans and would be [Technical Difficulty] enjoy you attending it, hopefully. Thank you.
Andrew Plump
So, thank you very much for the question on TAK-227. We’re extremely excited about this mechanism. It’s easily the most compelling program to emerge in the celiac space now and really ever and it’s working through a very unique mechanism in the intestine, where it prevents the ability of the immune system to recognize gluten. It prevents — it’s an enzyme that modifies the gluten fragments, so they can’t be presented to our immune system and that mechanistic hypothesis played out in a Phase 2 study that was published in the New England Journal of Medicine last year. I encourage you to seek out that article, because it’s incredibly compelling benefits on multiple pathological endpoints and the suggestion of significant benefits to patient symptoms. It’s a really exciting molecule.
Right now, our partners at Dr. Falk and Zedira running a Phase 2b study, it’s a 12-week study and patients on a gluten-free diet, it’s actually a different design than the 2a study, which was a gluten challenge study. So we looked at intestinal pathology and symptoms in response to gluten that was given to patients during the study. The Phase 2b study will just look at patients living their normal lives, avoiding wound, so it’s more of a real-life scenario.
At the completion of the Phase 2b study, Takeda will take control of the global Phase 3 study and the FDA has just released a guidance that it provides great clarity on what’s necessary for an approval in celiac disease. So we’ll need both histological and patient reported outcomes, both of which we’ve seen benefits on in our Phase 2a study and it will be a one-year study in duration. So we have tremendous clarity in terms of that plan and even before we finalize the deal, we started to work together closely with our partners to build that strategy so we could accelerate it.
Naomi Kumagai
Understood. Very well. Thank you very much.
Ayako Iwamuro
Thank you, Kumagai-san. Next question from Soki-san from Bernstein. Please unmute yourself, and ask your question.
Unidentified Participant
[Technical Difficulty] I have two questions. So first question is around PDT costs. So we understand that you have been presenting the declining of the fees and donation fee that should impact the PDT product costs. So that, what is the [Technical Difficulty] please help us understand what is the kind of degree of impact that is coming from the donation fee to the close of the PDT? And also what are the other key factor that also impact your PDT costs? And how much eventually are you expecting to decrease [Technical Difficulty]
And second question is around the operating profit this year. So we understand that the — you have just reported the operating profit — reported operating profit, the year-over-year — the growth was actually declined by [Technical Difficulty] but you are projecting that you will end the year with 15% growth year-over-year and what would be the key driver [Technical Difficulty] So those were my two questions.
Ayako Iwamuro
I’m sorry, but we cannot really hear you very well. Could you please ask the second question once again?
Unidentified Participant
Yes. So the second question is around operating profit. Hope you can hear me?
Ayako Iwamuro
Not enough yet. Could you please get closer to the microphone or —
Unidentified Participant
Can you hear me?
Ayako Iwamuro
Barely.
Unidentified Participant
Can you hear me?
Ayako Iwamuro
Yes. We can hear you very well. Please repeat the second question. Thank you.
Unidentified Participant
Great. Thank you very much. The second question is around operating profit. So you have reported that the first half of the operating profit was — the growth for the operating profit for the first year — first half of the year was minus 26%, but you are projecting that the — that you will end the year with the reported operating profit with 15% growth year-over-year. So I was just wondering what is the key assumption to make such a strong finish by the end of the year?
Ayako Iwamuro
Thank you very much, Soki-san. So the first question around the donor fees and then also the impact to the COGS to the PDT business, Giles, could you please take it? And then also the next question around the operating profit, Costa, could you please respond? Thank you.
Giles Platford
Yeah. Thanks for the question. This is Giles again. Absolutely right. We have been successfully bringing down donor compensation levels, albeit still above pre-pandemic level, but upwards of 15% reduction in the first half of fiscal 2022 and all the while maintaining our collection volumes above pre-pandemic levels for the past 18 months and we’re the only one of the top three companies to be able to achieve that. We do expect that trajectory to continue. Of course, that will depend on market dynamics and there are other factors as well that give us confidence that we can continue to improve our margins overtime, a continued focus on innovation and you will have heard from Costa to start that our Immunoglobulin portfolio grew 17%, whilst our SCP portfolio actually grew 19%. So that focus on innovation with CUVITRU and HYQVIA continuing to increase contribution of our innovative IG portfolio. So the SCP portfolio now represents 26% of total Immunoglobulin revenues and increasing over time.
And the other thing is continued focus on productivity and efficiency improvement right across the value chain from collection through fractionation, purification and distribution. So that’s helping to improve our margins over time as well. Thank you for the question.
Costa Saroukos
Yes. Hi, Soki-san. Thanks for the question. So if I understood correctly, because you were breaking up, you just wanted to understand the reported operating profit growth for the full year guidance versus the first half of the year. So, again, the main reason for the decline is coming from the one-off gain on the sale of the Japan diabetes portfolio last year in Q1. So every quarter that goes by, this gain from Q1 would unwind. So, for example, if you look at our Q1 reported operating profit that was declining close to 40%. Now, in Q2, it’s declining at minus 26% and every quarter that gap will start to come down. So you’ll start to see the impact of that quarter one of last year gain for the sale of the diabetes portfolio, because it’s a one-time event, it will unwind for the full year. So that’s something that you just need to keep an eye on. Thanks for that.
Unidentified Participant
Thank you very much.
Ayako Iwamuro
[Foreign Language] Thank you, Soki-san. Now, next question is going to be the last question. We would like to conclude with the next question. The next question is from Nikkei BP. Hashimoto-san, please unmute yourself.
Hiroaki Hashimoto
I am Hashimoto from Nikkei BP. Do you hear me okay?
Ayako Iwamuro
Yes.
Hiroaki Hashimoto
I have two questions. First about dengue vaccine. This is going to be the first global vaccine with high expectations. I do understand that. But it’s taken 10 years. So why is it that it’s taken so long? For any global vaccine, is that a normal timeline or is it because of the difficulty specifically with dengue vaccine? And NUVAXOVID, another vaccine, Omicron variant product is being developed by Novavax and they are going to file in the fourth quarter in Japan for Omicron variant, NUVAXOVID, are you going to develop that for Omicron variant as well?
Ayako Iwamuro
Thank you very much for your question. Christophe, could you please take the first question around the QDENGA development history? And then the second question around the NUVAXOVID omicron-specific vaccine, Masato, could you please take it? Thank you.
Christophe Weber
Yes. Thank you, Hashimoto-san, for the question. 10 years, but you need to understand that we had — we generated 4.5 years efficacy data, so half — in fact half of the 10 years, it’s about conducting the clinical trial and generating is 4.5 years. I think that’s very important. And that depends by disease, by vaccines, but, normally, it’s very important to have long-term efficacy data. There was an exception made for COVID vaccines, frankly, where — because of the crisis, the reward was satisfied with six months, but that’s the exception. Normally, you have — you need more long-term efficacy data. So that’s what we generated and 4.5 years is quite long. It’s quite long. So that’s just explain why it took overall 10 years to generate these vaccines. Dengue is also very complicated, because you have multiple serotypes and this is — the infection gets more severe when you get more exposure. So it’s actually a very tricky disease to protect against and that’s why we are so pleased with the result that we generated with these vaccines. Thank you.
Masato Iwasaki
This is Iwasaki speaking. Thank you very much for your question, Hashimoto-san. So, yes, we have been able to bring two vaccines to Japan to respond to the pandemic situation. We are contributing to the public health of this country. We are very proud of it, and we have a very strong sense of mission.
And about NUVAXOVID, Omicron variant vaccines, as you have said, at the outset of your question, overseas, outside of Japan, Novavax is developing or considering developing NUVAXOVID for Omicron variant according to some reports. As of now, in Japan, we don’t have anything that we can disclose, but we will continue to monitor Novavax situation overseas and we will have continued close cooperation and communication with PMDA and MHLW to consider whether we should be also developing NUVAXOVID for Omicron variants or not. Thank you very much, Hashimoto-san.
Ayako Iwamuro
With this, we conclude the conference call for today. Thank you very much for taking time out of your busy schedule to attend today. If you have any individual questions, please contact our IR office. We look forward to your continued support. With this, we conclude the webinar. Thank you.
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