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Takeda Pharmaceutical Company (NYSE:TAK)
Q4 2019 Earnings Call
May 13, 2020, 3:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Takashi Okubo

Thank you very much for joining us in this 2019 fiscal-year conference call. I appreciate your attendance. I would like to act as the moderator. I am Okubo, global IR head.

In today's conference call, I'd like to remind everyone that we'll 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 20-F and in our other SEC filings. Page 2 of today's presentation carries important points to be noted.

Today's presenters, as well as the participants for answering questions, let me introduce them to you: CEO, president, Christophe Weber; CFO, Costa Saroukos; R&D president, Andrew Plump; Japan pharma business unit president, Masato Iwasaki; and the PDT business unit president, Julie Kim. All of these participants are with us today. First, CEO Christophe is going to give us an overview of the financial results. Andy is going to talk about R&D situation, and the CFO, Costa, is going to give us a presentation on our financial status.

After the presentation, we will have time to address your questions. Please take a look at the presentation material in your conference call. You can change the pages on the website by yourself. So let's begin.

Christophe?

Christophe Weber -- Chief Executive Officer and President

Thank you, and good evening, everyone, and hello, everyone. It's really a great pleasure to present our 2019 results and outlook. Also to share with you what we are doing to help with coronavirus crisis. It's a great pleasure, but I am also, especially this year, very proud of what we have accomplished in the last year.

I think it shows the grit and the commitment of all Takeda employees. 2019 has been a very special year because that's been a year during which we did the integration and we are now operating as One Takeda. In fact, we have been operating as One Takeda since December 2019. So we moved very fast and it was a very appropriate considering that soon after the coronavirus started.

By then, we had one organization, One Takeda already operating together. So what I will do today, first, I will share with you how we are managing the COVID-19 situation. If you go on Slide 4, we have been focusing on three areas, making sure our employees are safe, maintaining our business continuity because especially with the supply of life-saving medicines like the one we have in our portfolio and developing potential therapies to treat and prevent COVID-19. And here, we are acting on the R&D side, and we are testing our pipeline and portfolio.

We are acting on the plasma-derived therapy side. And also, we are active on the vaccine side as a potential partner with other vaccines company. We have been extremely fortunate to have infectious disease experts within the company, which will guide us very early on to manage the situation. So if you go on the next slide, Slide 5, it will give you more detail about what we did.

On the employee side, we created our Global Crisis Management Committee back in early January, and we took very early action to protect our employees, to promote teleworking, for example, in Japan and across the world. On the business continuity side, we also organize ourselves to make sure that we can continue to deliver our medicine. We organized our manufacturing site to allow that, as well as our plasma collection center. On the R&D side, we could not back -- starting in March, we could not restart new trial anymore, so we have paused on the new trial initiation.

We can discuss that with Andy a bit later. And on the potential therapies, we are active in multiple industry alliance to share data, science knowledge. We are testing multiple products against COVID-19, and some are quite exciting. And also, of course, we are developing a plasma-derived therapy products, an hyperimmune globulin.

We started first by ourselves, but very rapidly, we considered that doing an alliance with all the plasma-derived company will accelerate the programs and increase also the potential capacity and volume. And I'm really proud to say that today, we are initiating the manufacturing of the clinical trial batch. So we collected enough plasma to start the manufacturing of the clinical trial batch, and we hope to initiate the clinical trial with this hyperimmune globulin product and to have the first patient enrolled in July. And of course, we have also been very active on helping the society with some product donation, with some donation.

So I think we did everything right so far to manage the situation. On Slide 6, you have some detailed information on the alliance and on the plasma-derived therapy product. I think this alliance is very unique. It has never been done before, but it has the huge benefit of pulling the plasma collection and doing one clinical trial with the entire industry involved and we can answer your question with Julie Kim who is online with us today if you need more information.

I would like now to move on our results and again, we are very pleased with our results. You will have seen that we have a very strong growth momentum with our five key business areas. If you move to the next slide, Slide 7. Our growth is driven by our 14 global brands, and it will continue in the future.

We have now a presence and the scale in all geography that matters, of course, a leading company in Japan but very strong presence in the U.S., in Europe and in emerging markets. And more importantly -- I mean, as importantly, our R&D engine is starting really to deliver. And as you will have seen last November during our R&D Day, our wave 1 product and wave 2 product. And that will add to our growth momentum in the future.

Financially, Costa will outline the fact that we are in a very strong position financially in terms of cash, liquidity, and we have been able to deleverage very rapidly in 2019. If I go into more details on Slide 8, I will outline a few points here. One is that, again, operating as One Takeda, we are extremely proud of having been able to pull that together in less than 12 months. And so starting closing January 2019.

By December '19, One Takeda operating together, we have not lost any business momentum, and we are generating the cost synergies as a consequence of that. Our five key business areas represent 80% of our business, and it's growing 6%. Our 14 global brands are growing 22%, and on the divestiture side, we have made good progress with five deals, which are for a value of USD 7.7 billion. The R&D engine is very critical that to progress and to grow in the long term, 12, we have one new molecular entity; 30, wave 2.

Andy will outline that. We are not forgetting our 14 global brands to develop new indication and geography. On the financial side, we are delivering on our commitment when it comes to revenue growing 1.6%, core operating profit with a margin of 28.9%. Free cash flow of JPY 968 billion, and we are deleveraging from 4.7 times to 3.8 times, and so we're very pleased with this achievement on the financial side.

If I go to now our guidance in 2020, what we are seeing on Slide 9, we are seeing an acceleration of our growth: revenue, low single-digit; core operating profit, high single-digit; core EPS growing low teens. We are very committed to maintain our dividend. Here, I will precise that we see our portfolio resilient to the coronavirus crisis. Why? Because our products are life-saving medicines treating very severe disease, chronic disease, disease which are not linked to elective procedures or surgery.

So we are not dependent on surgery happening for most of our portfolio. So far, we are seeing a very strong resilience of our portfolio, and that allow us to provide this guidance today. Now we are not forgetting in this environment and our commitment to environment and ESG. You will have seen our commitment in terms of carbon emission, zero carbon emission by 2040, 40% reduction by '25, carbon neutrality by 2020.

And so we are very committed to that. And in fact, we know it is the right thing to do for the world. It is also the right thing to do for the competitiveness of the company. We are also active on other dimensions that you can see, whether it is water goals or waste minimization.

When we talk about ESG, our governance model, we believe, is very strong. We are making strong efforts on Slide 11 to improve the transparency around our KPIs. If you can move to Slide 11. We are disclosing our KPIs 2019.

We are disclosing today our 2020 KPIs. We adopted a clawback policy. And so I think that we are continuously aiming to improve our governance. And we rely on that on a very strong board on Slide 12, you will see our board.

No change to our board to what you have seen. It's a board with 70% of independent directors with three committees, Audit and Supervisory Committee, Nomination Committee, Compensation Committee, all chaired and in majority composed of external directors. Now for the long term, if you look at Takeda today on Slide 13, an easy visualization of Takeda is five key business areas: GI, rare disease, plasma-derived therapy, oncology, and neuroscience. They represent 79% of our business, growing 6% in '19.

Within these areas, 14 global brands, growing 22%. On the R&D side, we focus on oncology, rare disease, neuroscience, GI, very much aligned with our business area focus. We do have some targeted investment on plasma-derived therapies and vaccines, and Andy will talk more about our R&D model. We are investing heavily on some platform like cell therapy.

We have 12 wave 1 product, which will be launched in the next five years. We believe that these 12 new products have a potential of USD 10 billion of aggregated sales. One point on China. On Slide 14, China is extremely important for us in the long term.

We are starting to see the benefit of an investment that we started years ago in China and the resulting -- resulting into the ability to launch 15 new products in the next five years. China has been growing very significantly in '19 already with a 32% growth, driven by new product launch like NINLARO, as well as demand uptake on products like albumin. And so we are very committed to China. We just got the approval of ENTYVIO, for example, in China.

So this is a very promising growth driver for us. On Slide 15, this is really visualizing the fact that we are committed to growth in the long term. We have 14 global brands growing 22% in '19. We'll have the wave 1 product launch.

That will be enough to offset some headwinds that we will see with loss of exclusivity or in the hemophilia segment, for example. And then we have a combination of global brands, wave 1 and wave 2 assets in the long term. So that's what I wanted to highlight in introduction. I will now focus on our business areas.

If you go on Slide 17. I won't go into every single one, but what I want to really here visualize is that we have these five business areas, 80% of our revenue, 100% of our investment in terms of portfolio investment. When it comes to marketing, sales, we are focusing only on these five business areas. They are growing 6%, and you see that in GI, and please go into the detailed slide later, ask question later on the different therapy areas.

I will not go through it, but you can see that we are growing 11% -- 20% -- we are growing -- sorry, 11% in GI. We are growing in hereditary angioedema. If you go back to Slide 17, we are growing in the hereditary angioedema. So that's important.

We always say that we will eventually grow this franchise, we are seeing that now, and it will accelerate in the future. So TAKHZYRO is a huge success. The hemophilia hematology segment is declining as planned, no surprise here. The rare metabolic, we have increased without the recall of NATPARA.

I would highlight the plasma-derived therapy, growing 9%. That's a huge turnaround. We are very proud of that. I think that's the benefit of having created the plasma-derived therapy business unit, which is very focusing on managing this business end to end.

Oncology growing 8%, neuroscience growing 11%. I think this is really the core of our business and very happy to answer any of your questions later on any of this franchise. So again, before I give the floor to Andy, we are extremely pleased and proud, frankly, of what we are able to achieve in 2019, especially when it comes to doing the integration, delivering our synergies without losing business momentum. And we are taking a very active part to help against the coronavirus.

Thank you very much. Andy?

Andy Plump -- President, Research and Development

Thank you very much, Christophe, and hello, everybody. If you could just -- yes, thank you very much. If we could please move to the next slide, Slide 26. 2019 was truly a watershed year for Takeda R&D.

As we move into 2020 and as we begin this new decade, we will have the opportunity to realize all of the hard work that went into our R&D transformation, a transformation that's focused on building a strong culture, on building a deep talent base, on enhancing our operational effectiveness and, most importantly, building a pipeline, an innovative pipeline that would deliver for patients and for Takeda. We have two waves of innovative NMEs that will deliver in the near, intermediate and long term. We have 14 global brands, as Christophe has alluded to, that are at the front end of their life cycle, for which we continue to invest in global expansion and in innovative new indications. We're executing on our China aspirations, and as Christophe mentioned earlier, we continue to build the core of our research model, which is based on a strong internal laboratory and on partnerships.

We also recognize that we're in a challenging time with COVID around us. This poses some uncertainty and will lead to some delays, but there are bright spots. There's hope. Let me give you one example.

We carry over 200 clinical trials. Of those greater than 200 clinical trials, 50% of them are in what we say the -- are in the conduct or closeout phase, meaning they've completed enrollment. We do not expect delays in those trials. And many of those trials represent the pivotal trials that will enable our wave 1 pipeline.

We also see opportunities, opportunities that this crisis allows us to change our ways of working, to introduce new technologies, new digital technologies into our trials, to simplify our protocols, to change the way that we interact with regulatory agencies and to enhance data handling. So next slide, please. So on Slide 27. On Slide 27, if you go to Slide 27, please, you'll see a pipeline visual that we introduced at the R&D days in November.

It's now a dynamic pipeline, and it's actually quite courageous for us to be committing to dates like this rather than a static pipeline that lists molecules by phase. It's a highly innovative, modality-diverse pipeline that focuses on high patient unmet medical need. And I think it's one of the most exciting, if not the most exciting pipelines in the entire industry. And because it's so innovative, there are the opportunities to accelerate programs throughout.

Over the past year, the R&D organization has really been focusing on execution. And we started a mantra of sorts, predictably delivering on our key milestones, and that's our intent to do everything that we can to deliver on this pipeline and bring it forward for patients. Now there are changes since November when we presented this pipeline in R&D. One that Christophe mentioned is the addition of the CoVIg-19 program that Julie can tell us about later.

We've also seen positives. TAK-721 continues to be on track for our first wave 1 filing, approval and launch. We see progress in pevonedistat in -788, which I'll mention in just a second. We have a very exciting new molecule in our wave 2 pipeline, TAK-981, which has the potential to accelerate into wave 1.

And we've made three new additions to the pipeline: TAK-605 in oncolytic virus; TAK-676, our first of several STING agonists that we'll bring forward into the clinic; and TAK-039, our first microbiome therapy that I'll tell you more about in just a second. We also moved one program out of wave 1, TAK-607. This is a program that's in a Phase 2 study. It's still possible that that Phase 2 study can serve as registration enabling.

But for purposes for right now, we've decided to move that out of Phase 1, and I think that's a reflection of the reality of what we're dealing with in R&D. There will be movements both in and out. So if we can go to the next slide, please. This would be Slide 28.

So let me just spend in the next two slides, a couple of minutes just highlighting some of our wave 1 and wave 2 programs. And I'll start with two of our very exciting oncology and near-term deliverables in wave 1, TAK-788 and pevonedistat. TAK-788 mobocertinib received breakthrough therapy designation by the FDA recently. It's a very exciting EGF HER2 tyrosine kinase inhibitor that has particular activity against the class of mutations that are highly lethal in exon 20.

Our Phase 2 study, Exclaim study is completed. We expect to see data this summer. It's an event-driven study, and we expect that to be a registration-enabling study. Our phase -- I'm sorry, our Phase 3 Exclaim-2 study is a frontline study in the same trial population, and this is one of the studies that continues to enroll despite COVID.

In addition, we've now expanded the indications for TAK-788 into a class of mutations, both in non-small cell lung cancer and in other solid tumors with HER2 variation. We're very excited about this program, and we're really looking forward to seeing the pivotal Phase 2 data later this summer. Similarly, pevonedistat, which is our NEDD8-activating enzyme inhibitor for which we're in development for high-risk myelodysplastic syndrome and AML, great progress. We've completed the Phase 2 study.

The data look exceptional. Those data will be presented next month at ASCO. The way that the study was designed, we don't think that those data can serve as registration enabling, but we're very excited about the PANTHER Phase 3 study. And as I've mentioned, this is a study that's completed enrollment, and we expect to see data from a first interim analysis that could serve as a basis for registration later this year.

Similarly, we have an ongoing study in first-line unfit AML, the PEVOLAM study. And again, this is a study that is continuing to enroll despite the COVID. And we've just triggered additional indications with combination therapies in AML. So if we go to the next slide, please, Slide 29.

We have a really exciting wave 1 -- wave 2 pipeline. And I'll just comment on two of the molecules, TAK-981 and TAK-039. TAK-981 is a molecule that comes out of the legacy millennium efforts in protein homeostasis. It is an only in-class, not just a first-in-class, but an only in-class simulation inhibitor.

We presented data last year at the American Association of Cancer Research in which we showed the plenary talk and multiple posters showing the effects that this molecule has on a number of different immune activities. We're now about two dozen patients into our dose escalation study, and we're seeing really interesting results in the clinic. We're seeing very interesting results in immune modulation, and we're starting to see responses. It's a really exciting mechanism.

In a way, it's like a checkpoint inhibitor in that it releases the brakes that a cancer cell or a virus puts on the immune system. And in this case, it affects multiple aspects of the immune system, innate signaling and adaptive signaling. Because of this reason, we were actually about to start a study in COVID-19 patients with cancer. And internally, we've just kicked up the priority of this program to accelerate, which means we're making broad and deep investments to try to accelerate this very early program.

TAK-039, another really exciting molecule. It's the third program that we've opted into as part of our partnership strategy in GI in addition to two celiac programs last year. It's an exciting microbiome program that differentiates in multiple different ways: one, it's a defined consortia; two, highly diverse; and three, we believe, has the properties to allow for efficient manufacturability. We've seen clinical data from our partner, NuBiyota, and that clinical data was in Clostridium difficile enterocolitis, where we've seen efficacy at or greater than what's been seen with fecal matter transplantation, so we've opted in.

We're very excited, and we'll be moving this forward right now in hepatic encephalopathy, another disease that many believe is driven by intestinal GIST biosis. So if we go to the next Slide 30. I won't go through this slide in much detail. It's a slide that we presented last year that highlighted our commitments to you, and so we're just following through on that and some additions.

What it does say is it says that 2019, again, was a watershed year for us. There were huge events in 2019. Some examples. We brought in TAK-007, our CAR-NK program that has the potential to be the first allogeneic off-the-shelf oncology cell therapy.

We rolled out proof-of-concept for our Orexin franchise in type 1 narcolepsy. We continue to see maturing data for our dengue vaccine that leaves us quite excited about the potential that this vaccine can play. And then we also, as I mentioned earlier, saw proof-of-concept for our first two celiac disease programs. So next slide, if you can go to Slide 31, please.

So what can you expect in 2020? Well, again, it's going to be a very exciting year for us. Now these are not comprehensive in terms of the milestones that you can expect, but let me orient you just so that you can join me in being as excited as I am about the potential of what lies ahead. We have four new molecular entities that we hope to file in 2020. TAK-721, -788, -609 and our dengue vaccine.

We have pivotal Phase 3 data that we'll roll out from the first Phase 3 study for TAK-620 that we think will support that -- the filing of that molecule. And we will continue to expand our clinical oncology focus in innate immunity. We'll be adding TAK-676, TAK-605 and three cell therapy programs to our portfolio. So the next slide, on Slide 32.

It's also important to note that we're continuing to invest in our exciting global brands, both to drive regional expansion and to bring innovation forward. And I won't go through this in detail. It's really a reference slide for all of you to turn back to. I'll just make a few comments.

The first is we have a very exciting molecule in VONVENDI that came in through the Shire acquisition. This is the only recombinant Von Willebrand factor that's used to treat Von Willebrand disease, which is a bleeding disorder, not unlike hemophilia. But unlike hemophilia, Von Willebrand disease doesn't have prophylactic therapies. VONVENDI has the opportunity to be the first prophylactic therapy used in this bleeding disorder.

And then two other events that I'll highlight in 2020 are we expect to have a path forward for both ENTYVIO and NATPARA with the FDA. So just in closing, if we move to the next slide, Slide 33, I think that you can see we're making commitments, and we're following through on those commitments. We had a great year in 2019 in delivering on our global brands and on our regional expansions. In 2020 and going forward, we will continue that focus on our global brands and on our regional expansions.

And we will start to define the next-generation portfolio for Takeda as we start to file, have approved and launch our wave 1 new molecular entities. So with that said, I'll hand it over to Costa.

Costa Saroukos -- Chief Financial Officer

This is Costa Saroukos speaking. Before going into the details of the fiscal-year 2019 results and fiscal 2020 guidance, I want to begin by emphasizing some key messages around how Takeda has delivered and will continue to deliver on its financial commitments. Turning to Slide 35. First, I'm pleased to report that we had solid fiscal-year 2019 results, driven by our five key business areas, accelerated synergy and opex efficiencies.

In fact, we are now increasing our synergy target from $2 billion to $2.3 billion as we drive toward top-tier margins in the medium term. In terms of financial resilience, we have strong liquidity with over USD 12 billion in cash and committed lines of credit. Along with our robust cash flow outlook, this gives us great confidence to meet our financial commitments even in times of macroeconomic uncertainty. During fiscal-year 2019, we made great progress toward focusing our portfolio with five divestitures announced to date with up to $7.7 billion, we have made excellent progress toward our $10 billion target.

These divestitures, along with the strong cash generation of the business, are enabling us to rapidly deleverage. In March 2020, our net debt-to-adjusted EBITDA ratio was 3.8 times, a significant reduction from 4.7 times a year earlier. We remain confident that we will achieve our target of two times net debt-to-adjusted EBITDA within March 2022 to March 2024. Finally, we expect the business momentum we saw last year to continue into fiscal-year 2020 with an outlook for strong underlying earnings growth.

And we plan to continue to deliver top-line growth over the medium-term as our 14 global brands and wave 1 pipeline offset headwinds from competition and loss of exclusivity. As you can see on Slide 36, we delivered our management guidance for fiscal-year 2019. In addition to meeting our earnings target, we also made excellent progress toward other important financial commitments, including divestitures, debt paydown and acceleration of synergy capture. On Slide 37, it's a summary of our fiscal-year 2019 results, where we delivered strong margins and cash flow in our first full year after the Shire acquisition.

Revenue was JPY 3.291 trillion, up 56.9% versus the prior year. Underlying revenue compared to a pro forma baseline of Takeda plus Shire grew at plus 1.6%. Although revenue had been declining until quarter 3, we turned this around in quarter 4, and we are back on a growth trajectory. Reported operating profit was JPY 100.4 billion, down 57.8%, impacted by onetime and noncash expenses related to purchase accounting.

However, core operating profit, which adjust for these and other nonrecurring items was JPY 962.2 billion, growing 109.5% year on year. Our core operating profit margin increased by 7.3 percentage points to 29.2%. Underlying core operating profit margin, which further adjusts for foreign exchange and divestitures and forms the basis of our margin targets, was similarly strong at 28.9%. Reported EPS was JPY 28, also impacted by onetime and noncash expenses.

I think it's an extraordinary achievement for us to be able to post positive reported EPS in this first full year after the deal closed, taking into consideration the onetime and noncash expenses. Core EPS was JPY 387, an increase of JPY 52 versus the prior year. Underlying core EPS, which adjusts for foreign exchange and divestitures was JPY 395. Free cash flow was a significant JPY 968 billion or approximately $8.9 billion with strong operating cash flow supplemented by divestitures.

Slide 38 shows the moving pieces in our reported and underlying revenue growth for 2019. On the right, you can see the strong overall performance of our five key business areas, which was partially offset by the decline of noncore other products. This bucket of other noncore products is where we are pursuing opportunities for divestitures. Moving to Slide 39, which shows the bridge from reported to core operating profit.

As you can see, reported operating profit was impacted by significant noncash expenses related to purchase accounting. We also booked JPY 151.2 billion of onetime Shire integration-related costs, which are enabling us to realize our synergies. In spite of these large onetime and noncash expenses, we still booked positive reported operating profit of JPY 100.4 billion, which is a huge improvement on our initial forecast for our reported operating loss in fiscal-year 2019. If we adjust for these items, we arrive at a strong core operating profit result of JPY 962.2 billion.

Switching to cash flows. Slide 40 shows the evolution of our cash balance over the year. Operating cash flow was JPY 669.8 billion. This includes the impact of onetime integration costs and a JPY 70 billion cash tax payment on the proceeds for the sale of Xiidra but is still more than double what we booked in the prior year.

Free cash flow, which also takes into consideration divestments and capex was an abundant JPY 968 billion. This comfortably covered the full-year dividend payment, interest cost, and enabled us to accelerate debt pay down. As well as paying off all debt that matured in 2019, we also prepaid JPY 230.5 billion or USD 2.1 billion of higher interest debt that had longer maturities. We finished fiscal-year 2019 with JPY 637.6 billion of cash, which, together with our available credit facilities, means we are very comfortable with our liquidity of over JPY 1.3 trillion or USD 12 billion.

Takeda remains committed to rapid deleveraging, and we made great progress in 2019. Slide 41 shows the net debt waterfall, and our net debt-to-adjusted EBITDA evolution. From March 2019 to March 2020, we reduced the ratio by almost one full turn from 4.7 times to 3.8 times. As I've mentioned before, going forward, we may see quarter-to-quarter fluctuations, but we remain committed to achieving our target of two times within the fiscal year ending March '22 to March 2024.

Slide 42 is our integration update slide. As Christophe has highlighted, most of the integration is now behind us, and we are truly operating as One Takeda. Our focus now is on continuing to execute toward our $10 billion divestiture target and on realizing the new increased synergy target of $2.3 billion. Turning to Slide 43.

Since April 2019, we have made great progress toward our $10 billion target. So far, we have closed three deals and announced two further agreements to divest noncore and OTC products in Latin America and Europe. In total, the divestitures announced to date are worth up to $7.7 billion, and we continue to work toward further divestitures as well. In addition to noncore product divestitures, we also continue to unlock cash through the sale of real estate and marketable securities.

In fiscal-year 2019, we generated $569 million from the sale of marketable securities and real estate, including Takeda's previous U.S. headquarters in Deerfield, Illinois. In fiscal-year 2020, we expect at least a further $700 million, predominantly from real estate. We will continue to assess further sales of marketable securities while taking market valuations into consideration.

The cash we generate from these asset sales will be put toward deleveraging. Next, on Slide 44, I'm delighted to announce that as a result of our accelerated synergy capture, we've identified further cost synergy opportunities. We're now increasing our target from $2 billion to $2.3 billion by the end of fiscal-year 2021. As shown in the graph, compared to previous guidance, the increase is driven by further SG&A savings, which now make up 62% of the total.

We are excited by this additional opportunity and have decided to reinvest $300 million upside into the business for future growth, specifically in China, plasma-derived therapies and R&D. Also in this slide, for the first time, we are showing our synergy progress to date. It demonstrates that we reached a run rate of $1.1 billion as of March 2020, which is significantly faster than our original expectations. Finally, please note that the guidance for onetime cost to achieve the synergies is unchanged at $3 billion, of which $1.85 billion has already been booked.

I'm pleased to say we were able to increase synergy target with no incremental cost. For example, through negotiating better-than-expected contract terms as part of our contract harmonization and greater purchasing power. On Slide 45, I want to reinforce how we are managing synergies and opex across 10 cost packages to track savings and drive further opportunities. It is this platform that enabled us to increase our synergy target.

An important driver of savings is our procurement team who held a Partner Value Summit in 2019 to renegotiate contracts with our top suppliers saving approximately $200 million. In 2020, we will be expanding the scope to Partner Value Summit 2.0 with over 100 suppliers expected to participate virtually. Another crucial enabler is Takeda Business Solutions, which creates value through business insights and analytics, process optimization and automation and enabling working capital improvements. Turning to Slide 46.

With a robust platform in place to track synergies and opex, we are confident to achieve our mid-term target of mid-30s underlying core operating profit margin. We ended fiscal-year 2019 at a 28.9%, in line with our latest guidance, driven by accelerated synergies and opex efficiencies. In fiscal-year 2020, we expect to reach a margin in the low 30s. While synergies will continue to contribute to margin improvement, some of these synergies will be reinvested.

I also want to point out that we expect our core gross margin to decline slightly in fiscal 2020 due to product mix, including loss of exclusivity impact from FIRAZYR, CINRYZE and ULORIC and the NATPARA recall in the U.S. We expect this, however, to recover in fiscal-year 2021. Moving next to fiscal 2020 guidance on Slide 47. The reported revenue forecast is JPY 3.25 trillion, slightly less than prior year due to foreign exchange and divestitures.

Underlying revenue, which adjusts for both these items is projected to grow in the low single digits. Reported operating profit is expected to be JPY 355 billion over triple what we booked in the prior year, benefiting from lower purchase accounting expenses and integration costs. Our core operating profit forecast is JPY 984 billion, benefiting from accelerated synergies and opex discipline. This will more than offset the negative impact of foreign exchange, divestitures that closed in fiscal-year '19 and recently announced divestitures that we expect to close in fiscal-year 2020.

Adjusting for FX and divestitures, our underlying core operating profit guidance is for high single-digit growth. Reported EPS is expected to be JPY 39, and core EPS is expected to be JPY 420, an increase of JPY 33 versus prior year. With our dividend of JPY 180, our payout ratio is approximately 43%, which is comparable to global peers, and we have great confidence in our ability to maintain the dividend at this level. Finally, our guidance is for significant underlying core EPS of low teens, also benefiting from an improved underlying tax rate.

Please note that this guidance incorporates our current assumptions for the COVID-19 pandemic. I recommend that you read the text on this slide for more details. Slide 48 shows a bridge explaining 2020 revenue guidance versus 2019 actual. First, you can see the impact from asset divested in fiscal-year 2019 and divestitures that we have announced and expect to close within fiscal-year 2020.

In addition, 2020 guidance is also largely impacted by foreign exchange rate. In recent months, several currencies have significantly depreciated against the yen, most notably the Russian ruble, Brazilian real and Mexican peso. Our guidance assumes the midpoint of January to March 2020 FX rates. So there could be upside if rates return to December 2019 levels or further risk if April 2020 levels continue for the full year.

We have included a table on FX sensitivity on Slide 84 of the appendix. With regards to business momentum of our ongoing operations, we expect to see continued strong performance from our 14 global brands. We expect that this will more than offset the headwinds we face from loss of exclusivity carryover and contract terminations and other declining assets. It is this business momentum that is driving the underlying revenue outlook for low single-digit growth.

Turning to Slide 49. On the left, you can see the bridge from fiscal-year 2019 actual to fiscal 2020 core operating profit forecast. As with revenue, there is an impact from divestiture and foreign exchange, but we expect these to be more than offset by business momentum, cost synergies and opex efficiency to result in a year-on-year growth of 2.3%. Again, we are assuming an FX impact based on recent currency trends, including the depreciation of certain emerging market currencies versus the yen.

The divestiture impact includes profit contribution of deals closed in fiscal-year 2019 and also an assumption that the recently announced divestitures in Latin America closes in mid-2020. Without foreign exchange and the Latin America divestiture, our guidance would have exceeded JPY 1 trillion. On the right-hand side is our reported operating profit forecast bridge which, as you can see, demonstrates a significant improvement over 2019. This is largely due to lower purchase accounting expenses and Shire integration costs.

On Slide 50, we are providing free cash flow guidance for the first time to reinforce confidence in our ability to pay down our debt while also covering the dividend and interest payments. We anticipate free cash flow to be between JPY 600 billion and JPY 700 billion in fiscal-year 2020, with the variance from prior year, driven by lower assumptions for divestiture proceeds. This free cash flow guidance only includes proceeds from divestitures that we have already disclosed, so there could potentially be further upside. We expect free cash flow to cover the bulk of our dividend and scheduled debt paydown, and we still have plentiful cash on hand to absorb other payments without needing to access our committed lines of credit.

We expect to end the year with still over JPY 1 trillion of total liquidity. Slide 51 shows more details on our reported forecast. I won't spend too much time on this slide as I've already covered the main items in the previous slide. However, this slide, along with Slide 82 in the appendix, provide some additional financial assumptions that may be helpful for your modeling.

I'd also like to draw your attention to the fact that we are newly disclosing detailed product-by-product guidance in the data book that accompanies this announcement. Finally, on Slide 52, I want to reinforce the fact that Takeda is delivering on its financial commitments. With a strong cash flow outlook driven by business momentum, cost synergies and noncore asset divestitures, we will allocate capital to maximize value for patients and shareholders. Firstly, we remain committed to deleveraging rapidly toward a net debt-to-adjusted EBITDA ratio of two times within the fiscal years ending March 2022 to March 2024.

Secondly, we will continue to invest in our growth drivers, and we are specifically calling out R&D, China and plasma-derived therapies. And finally, with regard to shareholder returns, I want to emphasize that we believe Takeda is a strong growth story. We are positive about our growth momentum in fiscal-year 2020 and our potential to accelerate growth in the midterm. I'd also like to reiterate our intention to maintain our well-established dividend policy of JPY 180 per share annually.

Thank you for your attention, and I'll hand it back to Christophe to close the presentation.

Christophe Weber -- Chief Executive Officer and President

Thank you, Costa. As you have seen, we are doing our best to help in this time of crisis. We are very hopeful that we'll be able to bring some treatments against COVID-19. When it comes to 2019, we delivered on our commitment, which is, of course, very important, but it put us in a very good position for the future for 2020 and beyond.

And that, combined with the R&D transformation that we initiated five years ago now, which is starting to deliver our pipeline, we think that we are in a very strong position and very good momentum for long-term growth for the company. So there's been a challenging time, where we are very proud to have been able to do this integration and put ourselves in this position so that we can manage 2020 with all the situation that we are facing, but we are in a good position for the future. Thank you very much.

Takashi Okubo

Now we would like to open the floor for taking questions. If you are joining us over the Japanese line, please ask questions in English. If in English line, please ask questions in English.

Questions & Answers:

Operator

[Operator instructions] Citigroup Mr. Yamaguchi has the first question. The floor is yours.

Hidemaru Yamaguchi -- Citigroup -- Analyst

Can you hear me?

Christophe Weber -- Chief Executive Officer and President

Yes. Loud and clear.

Hidemaru Yamaguchi -- Citigroup -- Analyst

Thank you. So I should ask all the questions I have, right?

Christophe Weber -- Chief Executive Officer and President

Yes. It's up to you.

Hidemaru Yamaguchi -- Citigroup -- Analyst

OK. First question. It's about the immunoglobulin business. 17% growth seen in Q4, and this term, 10% to 20% growth is expected.

The factors for that expected growth, what are they? And what about the COVID-19 impact on the collection business? Not in the near term, but what about the impact of COVID on the plasma collection in the U.S.? That's my first question. Would you like to answer that question first? Yes.

Christophe Weber -- Chief Executive Officer and President

Julie, can you answer that question?

Julie Kim -- President, PDT Business Unit

Sure. Yes. Thank you, Mr. Yamaguchi, for the question.

In terms of the factors for growth, as we've been sharing throughout last year, we have accelerated the rate of plasma collections increases, particularly in the U.S., for the overall Takeda network. Those increases are contributing to our ability to grow at a faster pace in fiscal-year 2020 than in FY '19. In addition, our Covington facility has fully come online, and we also initiated a number of other efficiency improvements throughout our network, both through collections and manufacturing. So all of those factors contribute to our growth in FY 2020.

In terms of the COVID impact on collections, so we did see a decrease in collections in the U.S., timed with the lockdown notification that went on state by state. However, at this point, it is too early to say what the long-term impact of that will be. Now states are opening up, and we have multiple factors that we can influence to increase collection. It's too early to say what the long-term impact will be on our overall supply.

Hidemaru Yamaguchi -- Citigroup -- Analyst

Thank you very much. Second question, it's about CoVIg-19. CoVIg-19, the timing of launch, when to start a clinical trial, you have some guidance for that. But what about the manufacturing volume by this alliance? How many doses, for how many patients do you think this alliance can prepare eventually?

Christophe Weber -- Chief Executive Officer and President

Yamaguchi-san, it's better if you ask all your questions. I think we will be able to manage it faster and better. So if you could ask all your questions, and then we will answer them one by one.

Hidemaru Yamaguchi -- Citigroup -- Analyst

I see. And another one is not a question, it's about a comment. It's not a question. It's a comment.

About presentation and outlook for each product is now issued for the first time, and it's a standard in Japan, but it's greatly helpful. So I'd like to ask you to continue doing this. That's all.

Christophe Weber -- Chief Executive Officer and President

Thank you very much for your comment, Yamaguchi-san. We are doing it because you are the one pushing us, so we are all committed but stubborn. So we hope that it will help everyone. I will let Julie to answer your question regarding the CoVIg-19.

Julie Kim -- President, PDT Business Unit

Thank you. So in terms of the supply of hyperimmune of CoVIg-19, initially, the alliance will be producing the materials for clinical supply and initial supply of the therapy. But the intent of the alliance is to have the ability for all alliance members to be able to manufacture the hyperimmune in the end, and this will be one of the ways that we will be able to create more supply for the globe in terms of the hyperimmune. The timing of that, which was part of your question -- or sorry, the volume and the timing is dependent on the ability of all of the alliance members to rapidly collect convalescent plasma.

So as everyone is aware, the supply of the hyperimmune is dependent on the supply of convalescent plasma. So we are all working in concert to collect as much convalescent plasma as possible.

Hidemaru Yamaguchi -- Citigroup -- Analyst

Thank you very much.

Operator

Next question from Hashiguchi-san from Daiwa Securities.

Kazuaki Hashiguchi -- Daiwa Securities -- Analyst

Thank you very much. This is Hashiguchi. My question is about impact of COVID-19 and also the revenue and also clinical study question. As for revenue, your products, of course, patient fluctuation is very limited, was explained earlier, and I understand.

However, at the medical institutions, this is made by the patient. The frequency has gone down. I think they're trying to make sure that therapies, that warrant patients to visit less is being desired. So will there be impact on the revenue because of changes in the prescription patterns going forward? If you could comment specifically on ENTYVIO, it would be appreciated.

As for clinical studies, new patient enrollment registration is being stopped for the moment. It was explained earlier. To restart the clinical studies, is there a study that can start earlier? And is there clinical studies that going to be delayed further? I'm sure there are important clinical studies that you consider. If there are studies that you feel that the impact is going to be quite big, please give us some examples.

Christophe Weber -- Chief Executive Officer and President

Thank you very much, Hashiguchi-san. I will answer the revenue question, and Andy will cover the clinical trial part. Our guidance includes what we estimate could be the impact of COVID-19, and we don't see a huge impact. Why? Because we are treating really severe disease, and many of our medicines are life-saving.

So it's not an option to stop your treatment in many cases. So we will see some fluctuation by country, by product, but overall, we feel confident that our portfolio is very resilient. So you take ENTYVIO, for example, and this is Crohn's disease, ulcerative colitis disease, very, very severe disease. So once you are stabilized using ENTYVIO, and ENTYVIO has demonstrated very great long-term efficacy, you don't want to stop your treatment and have the risk of having a crisis.

So now, of course, it's more complicated to get an infusion. But stopping your treatment is not an option. And it's the case for many of our medicines in rare disease, in oncology. So I think this is what we are seeing.

And none of our products, except ALOFISEL, is dependent on a surgery. So I think that's another dimension, which is important. That's why we feel confident about our overall revenue guidance. Thank you.

Andy, on the clinical trial?

Andy Plump -- President, Research and Development

Yes. Thanks, Christophe. And Hashiguchi, thank you for the question. So I don't think anybody at this point can predict precisely the degree of disruption that will impact our clinical trials, but let me, again, go back to the status of our trials.

So we have over 200 ongoing clinical trials. 50% of those trials have completed enrollment. So we don't expect any delays or any appreciable delays in many of those trials. And many of those trials include our wave 1 assets like TAK-788, like pevonedistat, like TAK-620, TAK-721, etc., so we don't expect delays in that 50%.

For the remaining 50% of trials that are either actively enrolling or in start-up phase, 10% are still enrolling. So we've granted exceptions to allow continued enrolling in 10% of our trials, most of our wave 1 assets, for example, some of our other priority programs. Now enrollment in those studies is less than what we would have projected without COVID-19. In some cases, significantly less; in some cases, modestly less.

So they continue to enroll. I think for the same reasons that Christophe mentioned around our innovative brands, our portfolio is highly innovative, and patients and investigators really want to participate in these trials. We're starting to see some very encouraging signs in our conversations with our investigators. There's a huge interest to really start to ramp up.

I'll give you one example, which is for our oral Orexin agonist, TAK-994. Looks like a really strong molecule. Looks very confident that we have an oral Orexin agonist. In March, we were ready to start our important Phase 2 proof-of-concept and dose-ranging study.

And for safety reasons, we made the decision not to enroll our first patient. We have investigators now across the world that are working very closely with us to reinitiate this trial because of the transformative potential of this medication.

Kazuaki Hashiguchi -- Daiwa Securities -- Analyst

I got all my stuff. Thank you very much.

Operator

Next question from Mitsubishi UFG Morgan Stanley, Muraoka-san.

Shinichiro Muraoka -- Morgan Stanley

Yes. This is Muraoka. My first question is about the impact of COVID-19. You said minimal impact on the revenues.

But what about regional differences, impact on emerging countries? How do you evaluate that? Russia and other emerging countries are seeing expansion spread of the infection. So do you believe that it's basically the same as other western countries? Even if infection spread in these emerging countries, do you think impact on revenue is minimal? And because of the COVID-19, activities are slowed down. Maybe the cost is less as well. So cost reduction due to COVID-19, how does it impact the plan for this fiscal year? Is it already reflected? My second question is about CoVIg-19, neutralizing antibody, if you can collect neutralizing antibody.

I understand that the potential for launch is quite high. Is that true? Anaphylactic shock may be a potential risk in terms of risk of this product. But in order to understand the likelihood of the launch, what are the potential hurdles that you need to overcome? Another question about cost synergy. With regard to cost synergy, $1.1 billion for the term that just finished.

And also, you mentioned cost synergy target. For this fiscal term, how do you expect the cost synergy to play out? In the first year, the cost synergy was difficult to see. I think that's what you said. But now you have a full-year number, you understand how the cost synergy is playing out.

So how much cost synergy do you expect for this fiscal year? And if you look at this on a quarterly basis, how do we expect to see the cost synergy? If you can share that information with us, that would be great. Thank you.

Christophe Weber -- Chief Executive Officer and President

Thank you very much, Muraoka-san. So I'll answer the first question regarding the revenue. And I guess Costa will cover the cost synergies, the third question. And the second question, I will ask Julie to answer, or Andy can jump in as well.

For the revenue, yes, we are seeing differences across countries. Even in Europe, there are differences because country are reacting differently. Health care systems are organized differently, so there will be plus or minus. We are managing a very -- in a way, our portfolio diversity is helping as well.

We are not dependent on one product. Takeda is not dependent on ENTYVIO only anymore, for example. So I think we are managing that, as well across our portfolio. In emerging countries, yes, the economic tension and crisis will certainly impact the ability of people to buy medicine when there is no reimbursement system, for example.

So this is something we need to be mindful. We are seeing also the impact on foreign exchange, for example, as well on our revenue. But again, we have an access strategy, which is very important. So we want our medicine to be affordable.

This is something that we have very much in mind. Even in the U.S. we modified our patient assistance programs to help people who have lost their job, for example. So this is something that we are very much -- we are very much on it.

So overall, at the moment, we feel comfortable to give the guidance that we are giving today. Costa, can you cover the cost synergies?

Costa Saroukos -- Chief Financial Officer

Thank you, Christophe. Thank you very much for the question. So we've been a bit more granular than before with respect to the synergies. So on Slide 44, when we presented, we articulated that we delivered $1.1 billion of synergies year to date for fiscal-year '19.

What we're also highlighting as part of the commentary there is against our original $2 billion target, we expect to be at 90% synergy deliverable by fiscal-year 2020. So that means that we, in our numbers, we estimate around JPY 800 oku, JPY 800 oku of additional synergies deliverable in fiscal-year 2020. So that's how we're tracking the synergies there, and that gets us to that 90% of the target. On top of that, you mentioned something about the cost outside of the synergies.

Yes, we do expect some favorability. And that would be the incremental -- if you look at Slide 46, you can see the bar increased from '19 to fiscal-year 2020. On Slide 46, you see where the bar goes up, and that's as a result of cost synergies and opex efficiencies. So part of that is the JPY 800 oku, which I mentioned, which is the synergies that we expect in fiscal-year '20 to get us to the 90%.

And the balance is other opex efficiencies that we're executing toward. Thank you.

Christophe Weber -- Chief Executive Officer and President

Julie, can you take the second question on CoVIg-19?

Julie Kim -- President, PDT Business Unit

Yes. Thanks for the question. So there were a few different questions related to CoVIg-19, and so I'll try to address them one by one. So in terms of the neutralizing antibody, yes, this is a very key factor for determining the dosing and the number of donations needed to treat a single individual patient.

So through the manufacturing process, we do purify, and we separate out the antibodies. We purify it, and we concentrate it into the final hyperimmune. So once we have finished our first clinical run, we will be able to finalize what that neutralizing antibody level is in our final file and, therefore, be able to confirm the appropriate dosing. In terms of the question around shock, typically, for immunoglobulin preparation, this is a very rare, severe adverse event.

And the hyperimmune is based on our existing, our meaning alliance, each company's existing immune globulin manufacturing process. So there's a long track record of safety with that manufacturing process. Of course, we will be monitoring for any safety signal during the clinical study, but we don't anticipate that that would be an issue. In terms of hurdles that we have to overcome, so as you've already pointed out, one is being able to identify the appropriate level of neutralizing antibodies that we need to have in the final medicine vial.

The second is the ability to collect sufficient convalescent plasma to manufacture more doses of hyperimmune, assuming that it is effective. And third is working with regulatory agencies to accelerate the potential approval processes given the tremendous need that exists.

Shinichiro Muraoka -- Morgan Stanley

Thank you.

Christophe Weber -- Chief Executive Officer and President

Thank you for your question

Takashi Okubo

Thank you. So due to time constraints, I'd like to take the last question. Credit Suisse Securities Sakai-san is going to ask the next question. The floor is yours.

Fumiyoshi Sakai -- Credit Suisse Securities -- Analyst

Thank you. I have two questions. First is for Andy. The other one is for Costa.

NINLARO frontline results were not very positive, and the commercial value can be reduced. It is still listed, but NINLARO's life cycle management, how are you going to handle it? What's the plan for the future? ALUNBRIG frontline, if you can't get that approved, that would become very difficult for you. But looking at the revenue from ALUNBRIG right now, it's not very favorable. Any comments on that? So that's my first question.

To Costa, Page 51, I think. I think you went over it very quickly about the cash flows. Sorry about asking this question about cash flow. The fiscal 2020, the revenue forecast for each product, as well as the cash flow outlook is now issued.

I appreciate it. Free cash flow, does this include carryover of the ones which have been announced already, what's been confirmed for this fiscal year and the further noncore asset divestitures, the JPY 6,000 oku? Can you give me the breakdown of those different items within JPY 6,000 oku? So JPY 4,100 oku of debt is also expected during 2020. What's your comment on that?

Christophe Weber -- Chief Executive Officer and President

Thank you, Sakai-san. So we start with the question for NINLARO and ALUNBRIG and will be followed by the question on cash flow by Costa. Andy, you want to take the question on NINLARO and ALUNBRIG?

Andy Plump -- President, Research and Development

Great. Thanks, Christophe. So the life cycle management plan for NINLARO, as you know, the newly diagnosed MM2 study did not achieve statistical significance. It was very borderline.

The p-value was 0.07, and actually, the effect size was quite robust, a 13-month difference in PFS between NINLARO and the comparator arm, just missed on statistical significance. We had two maintenance studies that have read out their early interim analyses, both were very successful. One post-transplant has been approved in Japan. The second maintenance indication we also hope for approval in Japan.

With respect to agencies outside of Japan, there is an intent to look for trends on overall survival. So we'll continue to track those studies. Just parenthetically, we've seen an uptick in NINLARO sales during the COVID crisis because of the convenience of having a once-weekly administered oral therapy and we've also seen robust enrollment in one of our life cycle trials, what's called MM6, which is an IV VELCADE oral NINLARO switch trial. So that life cycle management program continues.

For ALUNBRIG, we're actually quite excited about the frontline indication. It's been approved in Europe. We're filed with priority review with the FDA, and we have high hopes for approval. I mean, actually, in one of our ongoing studies, where we're continuing to enroll, which is our second-line head-to-head study against alectinib, it's actually our most rapidly enrolling study.

In part, that reflects the environment in China, where crizotinib is still leveraged as frontline therapy. So there's still great interest in ALUNBRIG really throughout the globe.

Christophe Weber -- Chief Executive Officer and President

Thank you, Andy. Costa?

Costa Saroukos -- Chief Financial Officer

Thank you. Yes, Costa here. Thanks, Sakai-san, for the question. So maybe just so I can repeat it, the cash flow, the free cash flow between JPY 600 billion to JPY 700 billion, if I understood your question, is how much -- which divestitures incorporated in those that are part of the carryover or non-carryover.

So I'd like you to turn to Slide 43. And on Slide 43, you can see the table to the left, where it says non-core asset divestitures. The two that are included here is the LatAm divestiture of USD 825 million and the Europe OTC, up to $670 million. However, please note that this is gross, not after tax.

So there will be some tax impact there on the cash flow. Finally, another comment I'd like to add is this cash flow on Slide 50 does not include some of the non-announced disposals, whether they be divestitures of other assets that we haven't yet announced and does not include any other disposals of any other real estate or marketable securities, which we have not yet announced. Thank you.

Fumiyoshi Sakai -- Credit Suisse Securities -- Analyst

Thank you very much.

Christophe Weber -- Chief Executive Officer and President

Thank you very much, Sakai-san, for your question.

Takashi Okubo

We've come to the time for concluding this meeting. So this concludes the earnings call for today. Thank you very much for attending this phone call conference. Thank you very much, and I ask you for your support and cooperation in the future.

Thank you.

Christophe Weber -- Chief Executive Officer and President

Thank you, everyone. See you soon, hopefully. Bye-bye.

Operator

[Operator signoff]

Duration: 81 minutes

Call participants:

Takashi Okubo

Christophe Weber -- Chief Executive Officer and President

Andy Plump -- President, Research and Development

Costa Saroukos -- Chief Financial Officer

Hidemaru Yamaguchi -- Citigroup -- Analyst

Julie Kim -- President, PDT Business Unit

Kazuaki Hashiguchi -- Daiwa Securities -- Analyst

Shinichiro Muraoka -- Morgan Stanley

Fumiyoshi Sakai -- Credit Suisse Securities -- Analyst

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