Takeda Pharmaceutical Company Limited (NYSE:TAK) Q4 2022 Earnings Call Transcript May 11, 2023
Takeda Pharmaceutical Company Limited reports earnings inline with expectations. Reported EPS is $0.39 EPS, expectations were $0.39.
Christopher O’Reilly: Thank you very much for joining FY 2022 earnings announcement of Takeda. I will serve as MC, Head of IR. My name is O’Reilly. [Operator Instructions] Before starting, I would 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 20-F and in other SEC filings. Please also refer to the important notice on Page 2 of the presentation. Regarding forward-looking statements and our non-IFRS financial measures, which will be discussed during this call, definition of our non-IFRS measures and reconciliations risk comparable IFRS measures are included in the appendix to the presentation.
Now let’s move to the presentations. President and CEO, Christophe Weber; and R&D President, Andy Plump; CFO, Costa Saroukos, will provide you with a presentation, then we will have Q&A session. Let’s start.
Christophe Weber: Thank you, Chris. Thank you, everyone, for joining us today. It’s a great pleasure to be with you. Fiscal year 2022 has been a very successful year, during which we have been putting our corporate philosophy into action to create long-term business and societal value. Everything we do is guided by our values, brought to life through action based on patient, trust, reputation and business in that order. This is fundamental to our strategy, our identity and our culture. We have been steadily executing towards our vision to discover and deliver life-transforming treatments with a commitment to patients, our people and the planet. A good example is how we have chosen to price our recently approved dengue vaccines QDENGA.
We are prioritizing countries with the highest burden of disease and where barriers to access to medicines and vaccines are particularly complex. In line with our cheap pricing strategy, we will adjust QDENGA price according to a country’s economic stage and health system maturity to ensure broader access. For example, the private market price for QDENGA in Indonesia will be about 1/3 its European price and far lower than other innovative vaccines in Indonesia. With regard to our people in priority, our intention is to create an exceptional inclusive people experience wherever we work. For our colleagues who can work virtually as well as in our offices, we emphasize effectiveness, flexibility and inclusion with fit for purpose and regular face-to-face interaction and are leveraging data and insight to inform our approach.
We are also committed to delivering a high standard of environmental leadership, and we made important progress toward our greenhouse gas emission goals in fiscal year 2022. As an example of the multiple initiatives we have underway, in March this year, we officially opened our first positive energy manufacturing support building at our site in Singapore. This building actually produced more electricity than it consumes, and it is the first of its kind in the biopharmaceutical industry in Singapore. In the U.S. Our virtual power purchase agreement with Enel North America is expected to create up to 350,000 megawatt hours of renewable energies credit per year. That accounts for approximately 20% of Takeda’s current enterprise, Scope 1 and 2 greenhouse gas emission.
We are also doubling down our investment in data, technology and AI with a 10% investment increase in 2022 to improve our productivity across our entire value chain. In these ways, through our core business, Takeda is creating long-term value for patients, shareholders and society, while making a positive impact on our people, communities and the planet. Turning to Slide 5 to our financial performance. I am pleased to say that fiscal year 2022 was an excellent year for Takeda as we delivered our exceeded management guidance for revenue and profit growth. On the top line, we booked revenue of more than ¥4 trillion for the first time, representing core growth of 3.5% at a constant exchange rate. This performance was driven by our growth in lunch product, which increased 19% at a constant exchange rate and now represents 40% of our total revenue.
Core operating profit was nearly ¥1.2 trillion, representing growth of 9.1% at a constant exchange rate. And core earnings per share was ¥558 with growth of 13.9% at the constant exchange rate. I also want to highlight our continued progress in reducing our debt. We have now brought our leverage ratio down to 2.6. This includes the impact of a $3 billion payment we made in Q4 to acquire TAK-279 from Nimbus. Excluding that, we will have reached 2.3x or the low 2s target we set as 1 of our key financial metrics commitment after the Shire acquisition. This achievement enabled us to pivot to a new phase of investing for growth and shareholder returns. Moving to the right-hand side of the slide, and our pipeline progress in fiscal year 2022, our dengue vaccine QDENGA received approval in multiple countries, including Indonesia, the European Union, U.K. and Brazil.
We have since received additional approvals in Argentina and Thailand and have launched in a number of European and Nordic countries. The U.S. FDA also accepted QDENGA for priority review, and we are looking forward to a potential approval in the U.S. and to expanding access to these vaccines to other regions later this year. Also this year, we have positive late-stage clinical trial data readout for TAK-755 and fazirsiran. Based on favorable interim Phase III result, we are on track towards the filing of TAK-755 as a treatment for congenital thrombotic thrombocytopenic purpura, or cTTP, a rare blood clotting disorder with limited therapeutic option. We also announced positive Phase II results for fazirsiran in alpha-1 antitrypsin deficiency associated liver disease.
And this year, we have begun dosing patients in the Phase III studies. Our Orexin franchise is also advancing. We began a Phase IIb study for TAK-861 in narcolepsy type 1 and type 2 and published positive Phase I data for TAK-925 in the post anesthesia setting. We continue to strengthen our pipeline with external opportunities to complement our innovative internal R&D engine. This included the acquisition of TAK-279 for immune-mediated disease as well as in-licensing agreement for fruquintinib for colorectal cancer and TAK-227 for celiac disease. We are optimistic about this late-stage programs and the potential of this molecules to bring meaningful advancement for patients. Looking ahead to fiscal year 2023 on Slide 6. We have been communicating for some time that this coming year will be challenging due to the impact from loss of exclusivity, most significantly VYVANSE in the U.S. and AZILVA in Japan.
However, these are temporary headwinds and do not alter the momentum of our growth and launch products nor our excitement in the pipeline to deliver major and long-term growth. As a result of the strong deleveraging progress I highlighted on the previous slide, we are now entering a new phase for the company in terms of capital allocation. I am pleased to announce a planned dividend increase from ¥180 to ¥188 per share in fiscal year 2023, underscoring our confidence to grow beyond the near-term challenges in fiscal 2023. With regard to our guidance for the coming year, for revenue, we expect momentum from our growth and launch product to largely offset the impact of generic insurance. However, we do have an additional headwinds from COVID-19 vaccines expectation.
In fiscal year 2022, we actually exceeded our revenue forecast for COVID-19 vaccines in Japan with almost ¥60 billion in sales. But as a result of softening demand and the government cancellation of their order for Nuvaxovid, we now expect fiscal year 2023 revenue to be minimal. As a result, our management guidance is for core revenue to decline by low single-digit percentage at a constant exchange rate, with COVID-19 vaccines being the main difference from our previously communicated goal of holding revenue flat this year. With regard to profits, we do expect an impact from losing the high-margin product generic in 2023, but we are doubling down on OpEx discipline to limit the impact as much as possible. That said, we are not holding back from making the necessary investments to secure future growth, and we’ll continue to invest in R&D and data and technology to secure Takeda long-term competitiveness.
Although we expect core operating profit to decline in the low 10 percentile, we are still forecasting an absolute amount of more than ¥1 trillion. Core EPS is expected to be ¥434. After several years of business transformation, integration and deleveraging, we have built competitive global scale with a strong financial foundation and are confident in our future growth. This enabled us to pivot our capital allocation policy to place less emphasizes on rapid debt paydown and instead allocate more capital towards growth investments and shareholder returns. This includes the adoption of a progressive dividend policy which means that going forward, we intend to increase or maintain our dividend every year, reflecting a new chapter for Takeda with a clear focus on investing for growth and shareholder return.
Moving to the right of the slide, our upcoming pipeline milestones also support our confidence in the future. First, we are expecting some significant life cycle management expansion this fiscal year as we now anticipate regulatory decisions in the U.S. for Entyvio subcutaneous formulation for ulcerative colitis and for HYQVIA and GAMMAGARD LIQUID for CIDP. We also expect the readout for ALOFISEL Phase III ADMIRE study, which we believe will support the U.S. filing of this highly innovative cell therapy for complex perianal fistula. And as I mentioned, we also anticipate further approval decision for QDENGA, including in the U.S. as well as an approval decision in the U.S. for TAK-755 for cTTP. Lastly, we expect to obtain Phase IIb results for TAK-279 in psoriatic arthritis and initiate a pivotal Phase III program in psoriasis.
Andy will share additional information on these programs later in the presentation. Turning to Slide 7 on our high-level outlook for the near, medium and long term. Based on our current assumption for fiscal 2023, we expect to return to revenue, profit and margin growth in the near term, driven by continued expansion of our growth and launch product such as ENTYVIO, TAKHZYRO, LIVTENCITY and our plasma-derived therapies. We will also start to see meaningful contribution from QDENGA. We are also excited about our late-stage pipeline and anticipate significant milestone in ‘23 and onwards, as I have already touched upon. Following the temporary generic headwinds we faced this year, we have no significant loss of exclusivity exposure until the launch of Entyvio biosimilars, which could be as late as 2032, and therefore, the momentum from our growth and launch products, coupled with new launches from the pipeline will continue to drive growth into the medium term.
Beyond that, we expect our investment in R&D to continue to pay off in the medium and long term with progress in our clinical pipeline. As we look to the future, we remain committed to returning to a core operating profit margin in the low to mid-30s, supported by productivity improvements driven by data, digital and technology. We will also continue to evaluate asset-specific business development opportunities to further enhance the pipeline and reinforce our growth profile. Finally, as I mentioned, our updated capital allocation policy include our progressive dividend policy of increasing or maintaining our dividend each year. In closing, fiscal year 2022 was a year of growth and strategy execution. We continue to deliver on our long-term commitment, progress our pipeline and return value to our stakeholders while leading up to our values and bringing life-transforming treatments to patients.
With that, I will turn the call over to Andy to update you on our pipeline. Thank you.
Andrew Plump: Thank you, very much, Christophe, and hello to everyone on today’s call. If we can go to the next slide, please, Slide 9. We continue to build forward momentum with our innovative pipeline this past year. I’m very excited to share our progress and highlight major milestones achieved in fiscal year 2022 as well as highlight expected major events in the coming year 2023. As Christophe mentioned, we had multiple pipeline successes this past year. We received several approvals for QDENGA in endemic markets. We also had approval in Europe and a positive CHMP opinion that could support the approval in 8 additional dengue endemic countries participating in the first-ever EU medicines for all procedure. The WHO estimates around 4 billion people are at risk of dengue infection globally with an estimated 400 million infections, 500,000 hospitalizations and 25,000 deaths each year and most of these deaths occurring in children.
In our 4.5-year TIDES clinical outcomes trial, QDENGA demonstrated an 84% reduction in hospitalizations. As we work to provide broad access to endemic regions around the world, we now have the potential to significantly reduce the hospitalizations and deaths caused by dengue infection in the decades to come. We also had a number of positive study readouts to further advance our pipeline this year. And as Christophe mentioned, these include a Phase III readout for TAK-755, a Phase II readout for fazirsiran and proof-of-concept data for our Orexin franchise. These positive studies support important program stage ups. We are on track to file TAK-755 for the treatment of congenital TTP in the U.S. with submissions in other regions to follow. We initiated a Phase III pivotal trial for fazirsiran.
Fazirsiran is an innovative and very promising RNA interference therapy that may stop the buildup of harmful protein aggregates in the liver, which can cause inflammation, fibrosis and ultimately liver failure. Fazirsiran has the potential to reduce the inflammation and fibrosis and prevent liver failure in patients with alpha-1 antitrypsin deficiency. We also advanced TAK-861 into Phase IIb dose-ranging studies for patients with both narcolepsy type 1 and narcolepsy type 2. While this has been a strong year for pipeline growth, it has not been without its headwinds. Based on feedback from regulatory agencies, we decided not to pursue approval for LIVTENCITY in first-line CMV infections. We continue to believe there was a net positive benefit shown against the standard of care in the frontline trial.
But after discussions with regulatory agencies have decided to make the trial results available to transplant physicians via publications but not pursue a label supplement. LIVTENCITY remains the only approved therapy for refractory CMV infection and has made meaningful impact to the lives of patients in the post-transplant setting. In the coming year, we see significant opportunities to further expand our growth and launch products. The potential approval of Entyvio subcu in the U.S. for ulcerative colitis and potential approvals for HYQVIA and GAMMAGARD LIQUID in the U.S. for CIDP. Both represent expansion opportunities for 2 of our largest franchises. In fiscal year 2022, we also made significant investments to enhance our long-term growth prospects with a number of pipeline-enhancing deals.
These include TAK-279, which I will highlight in more detail later in the presentation; fruquintinib, a highly selective oral potent inhibitor of VEGF receptor 1, 2 and 3 with very strong overall survival data in previously treated metastatic colorectal cancer. This program has already been filed in the United States, and TAK-227, a potential first-in-class oral celiac disease therapy with strong data in the human gluten challenge study that was recently published in the New England Journal of Medicine. Next slide, please. Through our disciplined prioritization process, we also made a number of strategic and data-driven decisions to prioritize investments in our most promising programs which further propelled the progression of our pipeline.
As a result, we achieved 41 clinical stage ups and 8 approvals from the 4 major regulatory agencies around the world. We also continue to evolve our strategic focus. As an example of our disciplined decision-making, we discontinued R&D efforts in adeno-associated virus or AAV gene therapy. This decision will allow us to focus even more deeply in areas of cell and gene therapy, we believe we can offer transformative therapies to patients and become industry leaders. These include our innovative allogeneic NK and gamma delta cell therapy platforms as well as next-generation delivery mechanisms for gene therapy. Next, Slide 11, please. Depicted here are our late-stage development programs. TAK-755 had strong interim results from our Phase III trial in congenital TTP, a rare disease caused by a deficiency of the protease ADAMTS13.
TAK-755, our recombinant ADAMTS13 designed to replace this missing enzyme, showed a 60% reduction in the incidence of thrombocytopenic events versus the standard of care. TAK-755 was also better tolerated. Treatment-related adverse events were 9% for TAK-755 and 48% for the standard of care. We are on track for our first filing in the U.S. As previously mentioned, we have an exciting late-stage addition to our pipeline in TAK-279, a highly selective oral allosteric TYK2 inhibitor. We’ll be starting a pivotal development program in psoriasis in fiscal year 2023. Additionally, we will have a Phase IIb readout for psoriatic arthritis this fall and are preparing at risk to start a pivotal development program for these patients in early fiscal year 2024.
In parallel, we will be accelerating the development of TAK-279 Crohn’s disease, ulcerative colitis and systemic lupus erythematosus as well as exploring a broad range of additional indications. So next, Slide 12, please. Now I’d like to remind you why we are so excited about TAK-279. Firstly, TAK-279 is over 1.4 million-fold selective for TYK2 versus the JAK family receptors, important for a best-in-class TYK2 inhibitor given the known safety concerns associated with the JAK inhibitors. Secondly, as presented at the American Academy of Dermatology in March, TAK-279 has very strong Phase IIb clinical data in moderate-to-severe plaque psoriasis. 33% of patients taking a 30-milligram pill achieved clear skin or PASI 100 with a once daily administration.
Photo by Julia Zyablova on Unsplash
In addition to the strong efficacy profile, adverse events were generally low. The most common adverse events were COVID-19 and acne, and importantly, acne and its related forms resolve while patients continued treatment in all but 1 study participants by week 12. We are looking forward to advancing TAK-279 into 2 Phase III trials in psoriasis and conducting a head-to-head trial against deucravacitinib based on these promising data. The figure at the bottom of this slide shows a high-level time line of our anticipated clinical milestones over the next 2 years. Next, Slide 13, please. I’d like to now focus on our promising mid-stage pipeline. We are quite energized by recent developments in our Orexin franchise. Earlier this year, we advanced TAK-861, our oral Orexin program into Phase IIb. Thanks to our knowledge of the narcolepsy space, experience with orexin agonists and close site engagement, we were able to start Phase IIb studies in both narcolepsy type 1 and narcolepsy type 2 within days of establishing proof-of-concept.
We recently started enrollment in our long-term extension study that will provide valuable insights on both long-term safety as well as efficacy. In addition, we recently presented data for TAK-925, our intravenous orexin agonist at the International Anesthesia Research Society. There is significant unmet need in post-anesthesia recovery due to respiratory depression caused by anesthetics, leading to complications and admission to the intensive care unit. In our study, healthy volunteers recovering from opioid-induced respiratory depression had significant benefits following TAK-925 administration. In this trial, we saw the potential of TAK-925 to reverse respiratory depression while maintaining analgesic effect. Thus, having the potential to reduce complications.
TAK-925 is now recruiting in a large Phase II study to explore potential postoperative benefits in patients with obstructive sleep apnea and others at high risk for respiratory complications. We are evaluating accelerated pass-through approval in a variety of surgical settings. Next, TAK-227 is a potential first-in-class therapy designed to prevent the immune response to gluten in celiac disease and is now the most advanced program in our celiac disease portfolio. These are the first of many new molecular entities that will emerge from our rich and transformative early to mid-stage pipeline, which we are confident will add to our growing late-stage portfolio. Next slide 14, please, my last slide. 2022 was a strong year for our pipeline. In addition to the progress already mentioned, we had significant life cycle advances for our marketed growth and launch products.
Based on the progress in 2022, in the coming year, we have the potential approval of ENTYVIO subcutaneous in the United States for ulcerative colitis, the potential approval of HYQVIA as a maintenance therapy for CIDP in the U.S. and Europe, potentially a large growth driver for plasma-derived therapy and ALOFISEL, our mesenchymal stem cell therapy will have a Phase III readout. If positive, we plan to submit a BLA in the U.S. for complex perianal fistulas this year. We expect these data to support the concept of cell-mediated closure, which could drive significant growth for ALOFISEL. Overall, we are pleased with how we progress the pipeline in fiscal year 2022 and excited about the strong momentum and meaningful advances we can make in 2023.
Thank you, and I will now turn it over to Costa.
Constantine Saroukos: Thank you, Andy, and hello, everyone. This is Costa Saroukos speaking. Today, I’ll walk you through the financial highlights of our fiscal 2022 full year results and our outlook for 2023. Starting with fiscal 2022 results. I’m pleased to say that it was an excellent year for the company as we delivered or exceeded management guidance and booked a record ¥4 trillion in revenue and core operating profit of almost ¥1.2 trillion. Starting from the top line, core revenue for the full year was ¥4.03 trillion or approximately USD 30.3 billion. Despite the entry of VELCADE generics in May 2022, we delivered solid revenue growth, up 3.5% versus prior year at constant exchange rate, driven by our growth and launch products.
These products now represent 40% of total revenue and grew at 19% on a constant exchange rate. Reported revenue growth was 12.8% with business momentum and FX upside more than offsetting the impact of a ¥133 billion gain from the sale of the Japan Diabetes business that was booked in Q1 of the prior year. Core operating profit grew at 9.1% at a constant exchange rate to ¥1.19 trillion, breaking the ¥1 trillion threshold for the first time in Takeda’s long history. And our core operating profit margin was 29.5%, an increase of 1.6 percentage points on a year-over-year basis. This year-on-year margin improvement is an indicator of our financial discipline and our ability to control costs. In fact, at constant exchange rate, our SG&A spend was lower than last year.
Reported operating profit grew at 6.4% versus prior year, overcoming the high hurdle set by the gain on the diabetes portfolio in the prior year. Free cash flow for fiscal 2022 was ¥446.2 billion. But excluding the $3 billion upfront payment we made in Q4 for the acquisition of TAK-279 from Nimbus, it would have been ¥837.3 billion or USD 6.3 billion. As a reminder, the total upfront consideration for TAK-279 was $4 billion, and the remaining $1 billion will be paid in the first half of fiscal 2023. We finished March with net debt to adjusted EBITDA of 2.6x. If we exclude the Nimbus upfront payment from the calculation, it would have been 2.3x, meaning we would have achieved the low 2s deleveraging 1 year ahead of our target. This closes the chapter on the last major financial target from the Shire integration.
Going forward, we’ll continue to focus on financial discipline and maintaining solid investment-grade credit ratings, but we are no longer in a phase of rapid deleveraging. After a record year for core earnings in fiscal 2022, we faced significant loss of exclusivity headwinds in 2023, making it a challenging year. Momentum of our growth and launch products is expected to largely offset the revenue impact of losses of exclusivity, predominantly from VYVANSE in the U.S. and AZILVA in Japan. However, year-over-year revenue and profit growth will also be impacted by lower expectations for coronavirus vaccines in Japan. In fiscal 2022, we booked almost ¥60 billion in revenue for Nuvaxovid and Spikevax. But we expect the contribution in fiscal 2023 to be minimal.
On the OpEx line, we will stay disciplined to limit the margin impact from generic entry of VYVANSE and AZILVA which are high-margin products. That said, we will not compromise on making the necessary investments in R&D and data and digital to secure long-term competitiveness. Lastly but importantly, we are updating our capital allocation policy to reflect the achievement of our deleveraging target with the planned dividend increase, our first in 15 years to underscore our confidence in the mid- to long-term growth outlook of the company. Slide 17 shows our results versus full year guidance for fiscal 2022. We’re delighted with our performance as we delivered growth at a constant exchange rate at or above management guidance for revenue and profits.
For core revenue, we achieved strong top line growth of 3.5%, and at the high end of our guidance for low single-digit growth, driven by our growth and launch products, which more than offset the impact of VELCADE generics from May 2022. Core operating profit grew at 9.1%, also at the high end of our guidance range for high single-digit growth. This strong performance was driven by the expansion of high-margin products, coupled with our OpEx discipline to deliver operating leverage. For core EPS, I’m pleased to say we exceed the guidance of high single-digit growth, growing at 13.9% at constant exchange rate, reflecting strong business performance and a more favorable core tax rate due to recognition of previously unrecognized tax losses.
Finally, on free cash flow, the Nimbus deal was not factored into our estimates when we gave a forecast of ¥650 billion to ¥750 billion at Q2 earnings, which itself was an upgrade from the initial guidance of ¥600 billion to ¥700 billion given in May last year. Including the Nimbus payment we made in Q4, free cash flow for fiscal 2022 was ¥446.2 billion. However, excluding Nimbus, it would have been ¥837.3 billion, well exceeding our forecast. Slide 18 goes into more detail on the full year 2022 performance versus prior year. As already highlighted, we delivered excellent results this year, driven by business momentum demonstrated in our constant exchange rate growth in the far right column of the slide. If we look at the actual numbers, we also saw a significant tailwind from FX due to the depreciation of the yen, resulting in double-digit reported and core revenue growth and reported in core EPS growth of over 30%.
I’d like to highlight again our core operating profit of almost ¥1.2 trillion, the highest amount in Takeda history with a 1.6 percentage point year-on-year margin improvement to 29.5%. Core EPS for the year was ¥558. Let me go into more detail on the full year revenue performance versus prior year on Slide 19. On the left is a waterfall chart for reported revenue which grew at 12.8% year-on-year with business momentum and FX favorability more than offsetting the impact of ¥150 billion in one-off revenue we booked last year related to asset transfers, including the Japan Diabetes portfolio and ¥150 billion of loss of exclusivity impact most significantly from VELCADE in the U.S. Core revenue on the right-hand side adjust the 2021 baseline to exclude the one-off revenue book from asset transfers last year.
You can see that our business momentum driven by the growth and launch products delivered 3.5% growth at constant exchange rate, with the additional tailwind of FX raising total core revenue growth to 17.7%. On Slide 20, you can see the key driver of top line growth is our portfolio of growth and launch products, which generated approximately ¥1.6 trillion or 40% of total revenue, with 19% growth at constant exchange rate. Incrementally, these products added ¥435.8 billion or USD 3.3 billion of revenue compared to last year. This is the portfolio driving total company growth this year despite the VELCADE loss of exclusivity. And we expect that continued momentum of these products will allow us to largely offset the impact of loss of exclusivities, including VYVANSE in 2023.
Within our 5 key business areas, GI, our largest area by revenue, grew at 9% on a constant exchange rate basis. This was spearheaded by ENTYVIO, which grew at 15% and is now the #1 prescribed biologic for IBD in the U.S. We will see significant growth potential for ENTYVIO towards its peak sales estimate of $7.5 billion to $9 billion and achieved an important milestone with the recent resubmission of the subcutaneous formulation in the U.S. In rare diseases, we see continued demand and geographic expansion for TAKHZYRO, including recent listings on the NRDL in China to deliver growth of 25%. We have also delivered a very successful launch of LIVTENCITY with 98% of transplant centers in the U.S. having now initiated therapy on at least 1 patient and real-world physician utilization demonstrating longer duration of treatment than we had initially anticipated.
PDT Immunology continues to be very strong with 15% growth, including 16% growth of immunoglobulin and 19% growth of albumin, reflecting strong demand. We have continued to expand our plasma donation center network, adding 29 centers in the fiscal year to date, bringing our total global footprint now to 233 centers. I’m very pleased to announce that we have now achieved our target of over 65% increase in plasma supply and manufacturing capacity versus the 2018 baseline, 1 year ahead of plan. This is despite the COVID-19 pandemic, during which we consistently outperform the industry and met all our planned commitments to patients. A fantastic achievement by the team and a testament to how successfully we are managing our end-to-end PDT business.
We are continuing to make investments in data, digital and technology-led transformation and capacity expansion across the value chain including plans to increase our donation center network by another 20-plus centers in fiscal 2023 and investments across the manufacturing network, including the recently announced facility we plan to build in Japan. We intend to give an update on our future capacity increase goals at a PDT-focused investment later in the fiscal year. Next is Oncology, which is declining year-on-year as expected, given that VELCADE generics entered the U.S. market from May 2022. Excluding VELCADE, the rest of the portfolio grew 5%, driven by ALUNBRIG, EXKIVITY, Adcetris and Iclusig. Finally, Neuroscience continues to perform very well with growth of 12%, driven by VYVANSE and Trintellix.
As we have previously communicated, we expect generic versions of VYVANSE to launch in the U.S. in August of 2023, which means that we do not expect the neuroscience — sorry, we do expect the Neuroscience business to decline in the coming year. Finally, the Other segment is declining mainly due to some regional loss of exclusivities in Japan. This other segment now includes our newly launched vaccine QDENGA for the prevention of dengue disease, which we are also classifying as our newest growth and launch product. We’ve already had a number of important approvals, including Brazil, Indonesia, Thailand and EU, and we look forward to ramping up our vaccine rollout in 2023. The other segment also includes our COVID-19 vaccines in Japan. These generate almost ¥60 billion in revenue in fiscal 2022.
But as we look ahead to fiscal 2023, we expect them to decline based on lower market demand and the Japanese government’s canceled purchase order for Nuvaxovid. As a result, we expect to see minimal revenue contribution from the COVID-19 vaccines in 2023, and therefore, they will no longer be classified as growth and launch products going forward. Moving down to the P&L. On Slide 21, we show the key drivers of reported and core operating profit performance for fiscal 2022. Reported operating profit was ¥490.5 billion, growing at 6.4% versus prior year with business momentum and FX benefits more than overcoming the impact of the sale of the Japan diabetes portfolio, which generated or contributed ¥131.4 billion to reported operating profit in fiscal 2021.
On the right side of the slide, you can see the core operating profit was almost ¥1.2 trillion with our growth and launch products coupled with OpEx discipline, driving a very strong performance of 9.1% growth at constant exchange rate. FX was an additional benefit, resulting in actual core operating profit growth of 24.4%. Slide 22 shows our net debt balance compared to the end of March 2022 and demonstrates the continuation of our steady deleveraging progress from 2.8 down to 2.6x. Again, this number reflects the $3 billion upfront payment that we made to Nimbus in quarter 4 for TAK-279. Excluding this payment, we would be at 2.3x which is comfortably in the low 2s, a target we had set to hit by fiscal 2023 as part of the Shire integration.
With this target achieved, we can close out the final chapter of the integration and look ahead to a new phase of capital allocation. Although we continue to make progress with debt repayments in fiscal 2022, paying over ¥280 billion, 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 the euro, and this movement is captured within the other bar in the chart. However, as a reminder, the depreciation of the yen also benefited EBITDA, which means the impact of FX on our leverage ratio is minimal. Also, we have structured the currency denomination of our debt to mirror our cash flow, which ensures that over time, we’ll be able to pay down debt with minimal impact from FX movements.
On Slide 23, you can see our debt maturity ladder as of March 2023. We paid off a significant amount of debt again this fiscal year, including a total of $1.2 billion of higher interest USD-denominated bonds and EUR 750 million of floating rate bonds. We also did some recent refinancing of 2022 and 2023 Japanese yen-denominated loans with new maturities in fiscal years 2028 and 2030. As a result, we are able to maintain a very comfortable debt maturity profile over the coming years. And importantly, our debt remains at 100% fixed rate with a weighted average interest of approximately 2%. Next, moving to Slide 24 and our outlook for fiscal 2023. As we’ve communicated for some time, fiscal year 2023 will be a challenging year due to loss of exclusivity impacts including VYVANSE in the U.S. and AZILVA in Japan.
In fact, the total revenue impact from generic entry is expected to be approximately ¥330 billion this coming year. While we expect our growth and launch products to offset much of this impact on revenue, we also faced the additional headwind from lower expectations from COVID-19 vaccine revenues. Starting with core revenue, we are forecasting ¥3.84 trillion or a decline of 4.7%. In addition to the loss of exclusivity and coronavirus impact, this also reflects a slight headwind from FX. Excluding that, on a constant exchange rate basis, our management guidance is for a low single-digit percent revenue decline. Core operating profit is being impacted by product mix due to higher-margin products facing generic entry, but we are striving to minimize the impact through OpEx discipline.
We still forecast to land above ¥1 trillion core operating profit in fiscal 2023, with a year-on-year decline in the low 10s percentile on a constant exchange rate basis. Core EPS is projected to be ¥434 with a year-on-year decline in the low 20s percentile reflecting a more normalized tax rate versus the benefit we had in fiscal year 2022. We expect reported EPS to decline by 56%, reflecting some onetime items on top of the headwinds impacting our core numbers, including an expectation for higher restructuring costs and lower financial income. Moving to free cash flow, where we expect to generate between ¥400 billion to ¥500 billion next year. Please note that this forecast reflects ¥180 billion of CapEx related to the remaining USD 1 billion upfront payment for TAK-279, the Nimbus acquisition, and the $400 million we paid to Hutchmed in April for fruquintinib.
Adjusting for those deals, you can calculate that free cash flow would be in the ¥600 billion to ¥700 billion range, which is the same as our initial forecast for fiscal year 2022. We believe this guidance demonstrates our ability to weather the storm through the loss of exclusivity headwind in the coming year. Importantly, we are confident in our ability to return to growth in the near term and to continue to grow the business into the future. Underscoring this confidence and supported by our robust cash flow outlook is our decision to adopt a progressive dividend policy with an increase from ¥180 to ¥188 in our fiscal 2023 forecast. On the next couple of slides, let me go into a little more detail on the pushes and pulls of fiscal year 2023 forecast.
Starting with revenue on Slide 25. You can see that the growth and launch products are expected to offset a significant portion of the ¥330 billion loss of exclusivity impact. However, we are now expecting the additional headwind of COVID-19 vaccine revenue declining year-on-year. In fiscal year 2022, we recognized revenue of ¥58.9 billion from our COVID vaccine program in Japan, higher than our forecast of ¥50 billion. However, revenue is expected to decline in fiscal ‘23 based on outlook for lower demand and the Japanese government cancelation of the Novavax supply contract in February of 2023. Previously, we have been expecting coronavirus vaccine revenues to grow in fiscal 2023, which would have enabled us to maintain total revenue broadly flat on a constant exchange rate basis.
However, this change in vaccine expectation is the main reason why we are now projecting low single-digit decline at constant exchange rate. On an actual currency basis, we also expect FX to be a headwind in 2023, resulting in a total revenue decline of minus 4.7% year-on-year. Slide 26 shows the factors impacting our core operating profit forecast. We have bucketed the loss of exclusivity and coronavirus impact together here. And in total, these do represent higher-margin products, which is why the impact on profit growth is more substantial than the impact on revenue. I did want to highlight on this slide that we are continuing to make the necessary investments in R&D and data and digital to support the long-term growth of the company, but that we are being very disciplined in our approach to OpEx. As you can see from the chart, while we plan to increase R&D investment by 4%, we expect non-R&D OpEx to be flat year-on-year on a constant exchange rate basis despite the inflationary challenges that we face.
FX is also a headwind to our forecast but in spite of that, we are still projecting to deliver core operating profit of more than ¥1 trillion in fiscal year 2023. Moving on to Slide 27. I want to speak to the updates we are making to our capital allocation policy. You will recall that previously, our policy consisted of 3 pillars: investing for growth, deleveraging rapidly and shareholder returns. As we have shown today, we would have reached low 2s net debt to adjusted EBITDA in March 2023 if we exclude the upfront payment to Nimbus for TAK-279. We are really proud of this deleveraging achievement as it reflects on the excellent work we have been doing day-to-day to grow revenues while maintaining strong OpEx discipline and continuing to invest in our future growth.
We have made great progress in creating a strong financial foundation and precisely because of that progress, we are now able to enter into a new phase. While focusing on maintaining our solid investment-grade credit ratings, we no longer include deleveraging rapidly as a core pillar of our capital allocation policy, meaning we can pivot more towards investing in growth and shareholder returns. Investing for growth will continue to consist of strategic investments in internal and external opportunities to enhance the pipeline with the recent numbers and Hutchmed deals as a good example. We will also continue to invest in maximizing the potential of our marketed portfolio while maintaining our focus on expanding our plasma drive therapies business to reinforce our leading position and maximize our growth potential.
With regards to shareholder returns, we are adopting a progressive dividend policy, which means our intention will be to increase or maintain the dividend each year going forward. The incremental amount may fluctuate each year depending on our cash flow outlook. And for fiscal 2023, we are raising the dividend to ¥188 per share from ¥180 per share. Share buybacks when appropriate, also remain an option for reinforcing shareholder returns, although we do not anticipate implementing a buyback in the immediate future. To close out today’s presentation, I’d like to revisit the slide Christophe showed you, outlining our long-term commitment to growth and shareholder returns. While fiscal year 2023 will be a challenging year, the headwinds we face are temporary, and we expect to return to sales, profit and margin growth in the near term.
Our growth and launch products continued to deliver strong momentum, representing 40% of our portfolio and growing at 19% at constant exchange rate in fiscal year 2022, and we expect these products to further expand over the coming years, including our newest launch, QDENGA. On top of that, we expect further launches from our late-stage pipeline, such as fruquintinib, TAK-755 and soticlestat in the near term and TAK-279 and fazirsiran later in the decade. Once VYVANSE and AZILVA are behind us, we anticipate limited loss of exclusivity exposure until Entyvio biosimilar launch potentially as late as 2032. And by then, we plan to further build out our pipeline and portfolio through internal R&D efforts as well as asset-specific business development, enabling us to secure a long-term growth into the next decade.
Meanwhile, we will remain focused on cost discipline with data and digital playing a huge role in how we optimize our cost base and increase productivity supporting our return to low to mid-30s core operating profit margins. We’re extremely confident in the near term as underscored by our dividend increase this year and look forward to delivering growth and shareholder returns over the near, medium and long term. Thank you, and now we’ll open it up for some Q&A.
A – Christopher O’Reilly: I would like to take questions from the participants. In this Q&A session, we have Christophe, Andy, Costa and Ramona Sequeira, Global Portfolio Division President; Julie Kim, U.S. Business Unit President; Milano Furuta, Japan Pharma Business Unit President; Giles Platford, PDT Business Unit President; and Teresa Bitetti, Global Oncology Business Unit President, are also on the panel. [Operator Instructions] So the first question is Yamaguchi-san, Citigroup.
Christopher O’Reilly: Okay. Thank you for your question. So with that, I’d like to bring today’s conference call to a close. Thank you very much, everybody, for participating today. And if you have any follow-up questions, please reach out to the Investor Relations team. Thank you very much, and have a good evening or good day.
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