F-4 1 formf4_080919.htm FORM F-4 Document

As filed with the Securities and Exchange Commission on August 9, 2019
Registration No. 333-
 
United States
Securities and Exchange Commission
Washington, D.C. 20549
________________________________________
FORM F-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
 
Takeda Yakuhin Kogyo Kabushiki Kaisha
(Exact name of Registrant as specified in its charter)
 
Takeda Pharmaceutical Company Limited
(Translation of registrant’s name into English)
 

Japan
2834
Not Applicable
(State or Other Jurisdiction
of Incorporation
or Organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)
Costa Saroukos
1-1, Nihonbashi-Honcho 2-Chome
Chuo-ku, Tokyo 103-8668, Japan
Tel: +81-3-3278-2306
Fax: +81-3-3278-2268
(Address and telephone number of Registrant’s principal executive offices)
 
Takeda Pharmaceuticals U.S.A., Inc.
1 Takeda Parkway, Deerfield, IL 60015 U.S.A.
1-224-554-6500

(Name, address and telephone number of agent for service)
 
Copies of communications to:
Keiji Hatano, Esq.,
Sullivan & Cromwell LLP,
Otemachi First Square, 5-1, Otemachi 1-Chome,
Chiyoda-ku, Tokyo 100-0004, Japan
+81-3-3213-6171
+81-3-3213-6470
 
Approximate date of commencement of proposed sale to the public:
Upon the consummation of the exchange offer described herein.
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13(e)-4(i) (Cross-Border Issuer Tender Offer) ¨
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)    ¨
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933.
Emerging growth company ¨
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 7(a)(2)(B) of the Securities Act. ¨
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 
CALCULATION OF REGISTRATION FEE
Title of each class of Securities to be Registered
Amount to be Registered
Proposed Aggregate Offering Price Per Note
Proposed Maximum Aggregate Offering Price(1)
Amount of Registration Fee
3.800% Senior Notes due 2020
$1,000,000,000
100.0%
$1,000,000,000
$121,200
4.000% Senior Notes due 2021
$1,250,000,000
100.0%
$1,250,000,000
$151,500
4.400% Senior Notes due 2023
$1,500,000,000
100.0%
$1,500,000,000
$181,800
5.000% Senior Notes due 2028
$1,750,000,000
100.0%
$1,750,000,000
$212,100
TOTAL
$5,500,000,000
 
$5,500,000,000
$666,600
(1)
The registration fee has been calculated based on the face value of the notes solely for the purpose of calculating the amount of the registration fee, pursuant to Rule 457 under the Securities Act of 1933.
 
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 






The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, dated August 9, 2019
Prospectus
image1.gif
Takeda Pharmaceutical Company Limited
US$5,500,000,000
Offer to Exchange All Outstanding
$1,000,000,000 3.800% Senior Notes due 2020
(CUSIP: J8129EAV0 / 874060AK2, ISIN: USJ8129EAV0 / US874060AK27)
$1,250,000,000 4.000% Senior Notes due 2021
(CUSIP: J8129EAW8 / 874060AN6, ISIN: USJ8129EAW87 / US874060AN65)
$1,500,000,000 4.400% Senior Notes due 2023
(CUSIP: J8129EAX6 / 874060AR7, ISIN: USJ8129EAX60 / US874060AR79)
$1,750,000,000 5.000% Senior Notes due 2028
(CUSIP: J8129EAY4 / 874060AU0, ISIN: USJ8129EAY44 / US874060AU09)
For an Equal Principal Amount of
$1,000,000,000 3.800% Senior Notes due 2020
$1,250,000,000 4.000% Senior Notes due 2021
$1,500,000,000 4.400% Senior Notes due 2023
$1,750,000,000 5.000% Senior Notes due 2028
Which Have Been Registered Under the Securities Act of 1933
 
We will exchange all of our outstanding $1,000,000,000 3.800% Senior Notes due 2020, outstanding $1,250,000,000 4.000% Senior Notes due 2021, outstanding $1,500,000,000 4.400% Senior Notes due 2023 and outstanding $1,750,000,000 5.000% Senior Notes due 2028 that are validly tendered and not validly withdrawn for an equal principal amount of 3.800% Senior Notes due 2020, 4.000% Senior Notes due 2021, 4.400% Senior Notes due 2023 and 5.000% Senior Notes due 2028, respectively, that are freely tradable. The outstanding $1,000,000,000 3.800% Senior Notes due 2020, outstanding $1,250,000,000 4.000% Senior Notes due 2021, outstanding $1,500,000,000 4.400% Senior Notes due 2023 and outstanding $1,750,000,000 5.000% Senior Notes due 2028 are collectively referred to hereinafter as the Outstanding Notes. The $1,000,000,000 3.800% Senior Notes due 2020, $1,250,000,000 4.000% Senior Notes due 2021, $1,500,000,000 4.400% Senior Notes due 2023 and $1,750,000,000 5.000% Senior Notes due 2028 to be offered hereby are collectively referred to herein as the Exchange Notes. The Outstanding Notes and the Exchange Notes are collectively referred to herein as the Notes.
On July 30, 2019, we called for redemption all of the outstanding Senior Notes due 2020, with an expected redemption date of August 29, 2019. We expect that no Senior Notes due 2020 will be outstanding at the time of the commencement of the exchange offer.
The Exchange Offer
The exchange offer expires at midnight, New York City time, on ●, 2019, unless extended. We do not currently intend to extend the expiration date.
You may withdraw tenders of Outstanding Notes at any time prior to the expiration of the exchange offer.
The exchange of Outstanding Notes for Exchange Notes in the exchange offer will not be a taxable event for United States federal income tax.
We will not receive any proceeds from the exchange offer.
The Exchange Notes




The Exchange Notes are being offered in order to satisfy our obligations under the registration rights agreement entered into in connection with the placement of the Outstanding Notes.
The terms of the Exchange Notes to be issued in the exchange offer are substantially identical to the Outstanding Notes, except that the Exchange Notes will be freely tradable.
Resales and Listing of Exchange Notes
The Exchange Notes may be sold in the over-the-counter market, in negotiated transactions or through a combination of such methods. Approval in-principle has been received from the Singapore Exchange Securities Trading Limited, or the Singapore Exchange, for the listing of the Exchange Notes (save for the $1,000,000,000 3.800% Senior Notes due 2020).
If you are a broker-dealer and you receive Exchange Notes for your own account, you must acknowledge that you will deliver a prospectus in connection with any resale of such Exchange Notes. By making such acknowledgment, you will not be deemed to admit that you are an underwriter under the U.S. Securities Act of 1933, as amended, or the Securities Act. Broker-dealers must use this prospectus in connection with any resale of Exchange Notes received in exchange for Outstanding Notes where such Outstanding Notes were acquired by the broker-dealer as a result of market-making activities or trading activities. We have agreed that, for a period of up to 180 days after the date of acceptance of Outstanding Notes exchanged pursuant hereto, we will make this prospectus, as amended or supplemented, available to such broker-dealer for use in connection with any such resale, and will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. A broker dealer may not participate in the exchange offer with respect to Outstanding Notes acquired other than as a result of market-making activities or trading activities. See “Plan of Distribution.”
If you are an affiliate of ours or are engaged in, or intend to engage in, or have an agreement or understanding to participate in, a distribution of the Exchange Notes, you cannot rely on the applicable interpretations of the U.S. Securities and Exchange Commission (the "SEC”), and you must comply with the registration requirements of the Securities Act in connection with any resale transaction.
The Exchange Notes have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended, the Financial Instruments and Exchange Act) and are subject to the Act on Special Taxation Measures of Japan (Act No. 26 of 1957, as amended, the Act on Special Taxation Measures). The Exchange Notes have been offered and will be offered only to persons (i) who are beneficial owners that are, for Japanese tax purposes, neither individual residents of Japan or Japanese corporations, nor individual non-residents of Japan or non-Japanese corporations that in either case are specially related persons of the Company as described in Article 6, Paragraph (4) of the Act on Special Taxation Measures; and (ii) who are not residents in Japan for Japanese securities law purposes (including a natural person having his/her place of domicile or residence in Japan, a legal person having its main office in Japan or any branch, agency or other office in Japan of a non-resident (irrespective of whether it is legally authorized to represent its principal or not and even if its main office is located in a country other than Japan)).
You should consider carefully the risk factors beginning on page 9 of this prospectus before participating in the exchange offer.
Neither the SEC nor any state securities commission has approved or disapproved of the Exchange Notes or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is ●, 2019.




TABLE OF CONTENTS
This prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any Exchange Notes offered hereby in any jurisdiction where, or to any person to whom, it is unlawful to make such offer or solicitation. The information contained in this prospectus speaks only as of the date of this prospectus unless the information specifically indicates that another date applies. No dealer, salesperson or other person has been authorized to give any information or to make any representations other than those contained in this prospectus in connection with the offer contained herein and, if given or made, such information or representations must not be relied upon as having been authorized by us. Neither the delivery of this prospectus nor any sale made hereunder shall under any circumstances create an implication that there has been no change in our affairs or that of our subsidiaries since the date hereof.

The communication of this prospectus and any other document or materials relating to the issue of the Exchange Notes offered hereby is not being made, and such documents and/or materials have not been approved, by an authorized person for the purposes of Section 21 of the United Kingdom’s Financial Services and Markets Act 2000 (as amended, the FSMA). Accordingly, such documents and materials are not being distributed to, and must not be directed at, the general public in the United Kingdom. The communication of such documents and/or materials is only being made to those persons in the United Kingdom who have professional experience in matters relating to investments and who fall within the definition of investment professionals (as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the Order)), or who fall within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons). In the United Kingdom, this prospectus and the Exchange Notes offered hereby are only available to, and any investment or investment activity to which this prospectus and any other document or materials relating to the issue of the Exchange Notes offered hereby relates, will be engaged in only with, relevant persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this prospectus or any of its contents.
This prospectus and any other document or materials relating to the issue of the Exchange Notes offered hereby is not a prospectus for the purposes of the Prospectus Regulation. The expression Prospectus Regulation means Regulation (EU) 2017/1129.
PROHIBITION OF SALES TO EEA RETAIL INVESTORS - The Exchange Notes are not intended to be offered, sold or otherwise made available to any retail investor in the European Economic Area (the "EEA"). For these purposes, a retail investor means a person who is one (or more) of the following: (i) a retail client as defined in point (11) of Article 4(1) of Directive (EU) 2014/65/EU (as amended, MiFID II), or (ii) a customer within the meaning of Directive (EU) 2016/97 (the Insurance Distribution




Directive), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II. Consequently, no key information document required by Regulation (EU) No. 1286/2014 (as amended, the PRIIPs Regulation) for offering or selling the Exchange Notes and otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Exchange Notes or otherwise making them available to a retail investor in the EEA may be unlawful under the PRIIPs Regulation.
This prospectus contains estimates and information concerning our industry, including market position, market size, and growth rates of the markets in which we participate, that are based on industry publications and reports. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to variety of factors, including those described in the “Risk Factors” section. These and other factors could cause results to differ materially from those expressed in these publications and reports.
Interest payments on the Exchange Notes generally will be subject to Japanese withholding tax unless it is established that the Exchange Notes are held by or for the account of a beneficial owner that is (i) for Japanese tax purposes, neither an individual resident of Japan or a Japanese corporation, nor an individual non-resident of Japan or a non-Japanese corporation that in either case is a specially-related person of the issuer, or (ii) a Japanese financial institution or a Japanese financial instruments business operator designated in Article 3-2-2, Paragraph (28) of the Cabinet Order which complies with the requirement for tax exemption under Article 6, Paragraph (9) of the Act on Special Taxation Measures or (iii) a public corporation, a financial institution or a financial instruments business operator, etc. described in Article 3-3, Paragraph (6) of the Act on Special Taxation Measures which has received such payments through a payment handling agent in Japan as described in Paragraph (1) of said article and complies with the requirement for tax exemption under that paragraph.
Interest payments on the Exchange Notes to an individual resident of Japan, to a Japanese corporation not described in the preceding paragraph, or to an individual non-resident of Japan or a non-Japanese corporation that in either case is a specially-related person of the issuer will be subject to Japanese income tax at the time of such interest payments.
Section 309B(1) Notification - The Exchange Notes are prescribed capital markets products (as defined in the Securities and Futures (Capital Markets Products) Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).






NOTICE REGARDING PRESENTATION OF FINANCIAL INFORMATION
In this prospectus, terms such as “we,” the “Company,” “our,” “us” or “Takeda” refer to Takeda Pharmaceutical Company Limited and its consolidated subsidiaries, as the context requires. “Shire” refers to Shire plc (or, following its re-registration as a private company under the law of Jersey on May 31, 2019, Shire Limited) and its consolidated subsidiaries, as the context requires.
Unless otherwise specified or required by the context: references to “days” are to calendar days; references to “years” are to calendar years and references to “fiscal years” are to our fiscal years ending March 31; references to “U.S. dollars,” “dollars”, "USD" and “$” are to United States dollars, references to “euros”, "EUR" and “€” are to Euros, references to “£” and “pounds sterling” are to Pounds Sterling and references to “yen”, "JPY" and “¥” are to Japanese yen. This prospectus contains certain amounts translated into Japanese yen solely for your convenience. However, these translations should not be construed as representations that the yen amounts have been, could have been or could be converted into dollars at that or any other rate.
In this prospectus, unless otherwise indicated, where information is presented in thousands, millions, billions or trillions of yen or thousands or millions of dollars, amounts of less than one thousand, one million, one billion or one trillion, as the case may be, have been rounded. Amounts presented as percentages have been rounded to the nearest tenth of a percent or one hundredth of a percent. Accordingly, the total of each column of figures may not be equal to the total of the individual items.
Except as otherwise indicated, all of the respective financial information with respect to us and with respect to Shire presented in this prospectus is presented on a consolidated basis.
In this prospectus, we include our audited consolidated financial statements as of March 31, 2018 and 2019 and for the fiscal years ended March 31, 2017, 2018 and 2019.
On January 8, 2019, we acquired all of the issued and to-be-issued capital of Shire. We are not seeking to exchange the Exchange Notes for any securities of Shire or its subsidiaries. Pursuant to Article 3-05 of Regulation S-X, we separately include in this prospectus the audited consolidated financial statements of Shire as of December 31, 2017 and 2018 and for the years ended December 31, 2016, 2017 and 2018. We also present an unaudited pro forma condensed combined statement of income for the fiscal year ended March 31, 2019. On August 9, 2019, we published our unaudited interim condensed consolidated financial statements as of June 30, 2019 and for the three months ended June 30, 2018 and 2019, which were prepared in accordance with IAS 34 and the Financial Instruments Exchange Act of Japan. An English translation of such unaudited interim condensed consolidated financial statements is included in this prospectus.
Our consolidated financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The term IFRS also includes IAS and the related interpretations of the committees (Standard Interpretations Committee and International Financial Reporting Interpretations Committee). The consolidated financial statements of Shire are prepared in accordance with accounting principles generally accepted in the United States. Therefore, our results of operations are not directly comparable with those of Shire.

i




CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements appear in a number of places in this prospectus and include statements regarding the intent, belief, or current and future expectations of our management with respect to our business, financial condition and results of operations. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “intend,” “project,” “plan,” “aim,” “seek,” “target,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or the negative of these terms or other similar terminology. These statements are not guarantees of future performance and are subject to various risks and uncertainties. Actual results, performance or achievements, or those of our industry, may differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition, these forward-looking statements are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise and involve known and unknown risks and uncertainties. These forward-looking statements involve statements regarding:
our ability to achieve the expected benefits of our acquisition of Shire;
our goals and strategies;
our ability to develop and bring to market new products;
expected changes in our revenue, costs, expenditures, operating income or other components of our results;
expected changes in the pharmaceutical industry or in government policies and regulations relating to it;
developments regarding or the outcome of any litigation or other legal, administrative, regulatory or governmental proceedings;
information regarding competition within our industry; or
the effect of economic, political, legislative or other developments on our business or results of operations.
Forward-looking statements regarding operating income and operating results are particularly subject to a variety of assumptions, some or all of which may not be realized. Accordingly, the forward-looking statements included in this prospectus should not be interpreted as predictions or representations of future events or circumstances.
Potential risks and uncertainties include those identified and discussed in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this prospectus. Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this prospectus. We disclaim any obligation to update or announce publicly any revision to any of the forward-looking statements contained in this prospectus.

ii




WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information reporting requirements of Section 13(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and, in accordance therewith, file reports and other information with the SEC. We file annual reports on Form 20-F, which commencing with our annual report on Form 20-F for the fiscal year ended March 31, 2019, included annual audited consolidated financial statements prepared in accordance with IFRS. We also furnish to the SEC current reports under cover of Form 6-K containing our quarterly unaudited consolidated financial statements prepared in accordance with IAS 34 and certain other information in accordance with Financial Instruments and Exchange Act. These reports and other information can be inspected and copied at the Public Reference Section of the SEC at 100 F Street, NE, Washington, D.C. 20549 and at the regional office of the SEC located at 500 West Madison Street, Chicago, Illinois 60661. Copies of these materials can also be obtained at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, NE, Washington, D.C. 20549, and its public reference facility in Chicago, Illinois. Such material may also be accessed electronically by means of the SEC’s home page on the Internet (http://www.sec.gov).
We have filed with the SEC a registration statement on Form F-4 under the Securities Act with respect to the Exchange Notes offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all the information contained in the registration statement. We have omitted certain items from the prospectus as permitted by the rules and regulations of the SEC. For more information with respect to us and the Exchange Notes, refer to the registration statement, including the accompanying exhibits, financial statements, schedules and notes. You may inspect the registration statement without charge at the principal office of the SEC in Washington, D.C. and copies of all or part of it may be obtained from the SEC upon payment of the prescribed fee. Statements made in this prospectus concerning the contents of any document referred to herein are not necessarily complete. The exhibits accompanying any document referred to in this prospectus are essential for a more complete description of the matter involved.

iii




ENFORCEABILITY OF CIVIL LIABILITIES
We are a Japanese joint stock corporation incorporated under the laws of Japan. The majority of our directors reside in Japan and a substantial portion of our assets and the assets of such persons are located outside of the United States. As a result, it may not be possible for holders or beneficial owners of the Exchange Notes to effect service of process within the United States or elsewhere outside Japan upon us or our directors or to enforce against us or our directors judgments obtained in U.S. courts or elsewhere, whether or not predicated upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States or any state thereof. Nishimura & Asahi, our Japanese counsel, has advised us that, in original actions or in actions for enforcement of judgments of U.S. federal or state courts brought before Japanese courts, there is in general doubt as to the enforceability of liabilities based solely on U.S. federal and state securities laws.

iv




PROSPECTUS SUMMARY
This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary may not contain all of the information that you should consider. You should carefully read the entire prospectus, including “Risk Factors” and the financial statements and other financial information included herein, before making an investment decision in respect of the Exchange Notes.
Our Business
We are a global, values-based, research and development driven biopharmaceutical company with operations in approximately 80 countries. We bring highly innovative, life changing medicines to patients across the globe, with prescription drugs marketed directly or through our partners in approximately 100 countries worldwide. Our global workforce is committed to bringing better health and a brighter future to patients. We develop and market pharmaceutical products to treat a broad range of medical conditions including GI diseases, cancer, neurological and psychiatric diseases, and rare diseases including immunology and hematology, as well as plasma-derived therapies and vaccines. We are also committed to our corporate social responsibility program, which is dedicated to global health, and our access to medicine strategy, which aims to increase access to innovative and potentially lifesaving medicines for patients with some of the highest unmet medical needs across the world.
Our Corporate Information
The address of our registered head office is 1-1, Doshomachi 4-Chome, Chuo-ku, Osaka, 540-8645, Japan, and the address of our global head office is 1-1, Nihonbashi-Honcho 2-Chome, Chuo-ku, Tokyo, 103-8668, Japan; telephone number: 81-3-3278-2306. Our corporate website is www.Takeda.com; the information on our website does not constitute a part of this prospectus.

1




Summary of the Terms of the Exchange Offer
On November 19, 2018, we completed the private offering of the Outstanding Notes. This prospectus is part of a registration statement covering the exchange of the Outstanding Notes for the Exchange Notes.
We entered into a registration rights agreement with the initial purchasers in the private offering in which, among other things, we agreed to use our reasonable best efforts to cause the exchange offer registration statement to become effective under the Securities Act as promptly as practicable, but in no event later than 270 days after the closing date. In the exchange offer, you are entitled to exchange your Outstanding Notes for Exchange Notes that are identical in all material respects to the Outstanding Notes except that the Exchange Notes have been registered under the Securities Act. In addition, the Exchange Notes will not be entitled to registration rights that are applicable to the Outstanding Notes under the registration rights agreement.
The Exchange Offer
We are offering to exchange newly issued notes in the following respective series in up to the following aggregate principal amounts:
 
 
 
US$1,000,000,000 aggregate principal amount of senior notes due 2020 (the “2020 Exchange Notes”);
 
 
 
    US$1,250,000,000 aggregate principal amount of senior notes due 2021 (the “2021 Exchange Notes”);
 
 
 
    US$1,500,000,000 aggregate principal amount of senior notes due 2023 (the “2023 Exchange Notes”); and
 
 
 
    US$1,750,000,000 aggregate principal amount of senior notes due 2028 (the “2028 Exchange Notes”),
 
 
 
which we collectively refer to in this prospectus as the Exchange Notes, for a like aggregate principal amount of the following respective series of outstanding notes:
 
 
 
    US$1,000,000,000 aggregate principal amount of senior notes due 2020 (CUSIP: J8129EAV0 / 874060AK2, ISIN: USJ8129EAV0 / US874060AK27) (the “Outstanding 2020 Notes”);
 
 
 
    US$1,250,000,000 aggregate principal amount of senior notes due 2021 (CUSIP: J8129EAW8 / 874060AN6, ISIN: USJ8129EAW87 / US874060AN65) (the “Outstanding 2021 Notes”);
 
 
 
    US$1,500,000,000 aggregate principal amount of senior notes due 2023 (CUSIP: J8129EAX6 / 874060AR7, ISIN: USJ8129EAX60 / US874060AR79) (the “Outstanding 2023 Notes”); and
 
 
 
    US$1,750,000,000 aggregate principal amount of senior notes due 2028 (CUSIP: J8129EAY4 / 874060AU0, ISIN: USJ8129EAY44 / US874060AU09) (the “Outstanding 2028 Notes”), respectively,
 
 
 
which we collectively refer to in this prospectus as the Outstanding Notes. The exchange offer is being made with respect to all of the Outstanding Notes. Outstanding Notes may only be exchanged in minimum denominations of US$200,000 and integral multiples of US$1,000 above that amount.
On July 30, 2019, we called for redemption all of the Outstanding 2020 Notes, with an expected redemption date of August 29, 2019. We expect that no Outstanding 2020 Notes will be outstanding at the time of the commencement of the exchange offer.

 
 

2




Resales of the Exchange Notes
Based on interpretive letters of the SEC staff to third parties, we believe that you may offer for resale, resell and otherwise transfer Exchange Notes issued pursuant to the exchange offer without compliance with the registration and prospectus delivery provisions of the Securities Act, if you:
    are not a broker-dealer that acquired the Outstanding Notes from us or in market-making transactions or other trading activities;
    acquire the Exchange Notes issued in the exchange offer in the ordinary course of your business;
    are not participating, and do not intend to participate, and have no
 
arrangement or understanding with any person to participate in, the distribution of the Exchange Notes issued in the exchange offer; and
    are not an “affiliate” of ours, as defined in Rule 405 under the Securities Act.
By tendering Outstanding Notes as described in “The Exchange Offer—Procedures for Tendering Outstanding Notes”, you will be making written representations to this effect. If you fail to satisfy any of these conditions, you cannot rely on the position of the SEC set forth in the interpretive letters referred to above and you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale of the Exchange Notes.
If you are a broker-dealer that acquired Outstanding Notes as a result of market-making or other trading activities, you must comply with the prospectus delivery requirements of the Securities Act in connection with a resale of the Exchange Notes as described in this summary under “—Restrictions on Sale by Broker-Dealers” below.
We base our belief on interpretations by the SEC staff in interpretive letters issued to other issuers in exchange offer like ours. We cannot guarantee that the SEC would make a similar decision about our exchange offer. If our belief is wrong, you could incur liability under the Securities Act. We will not protect you against any loss incurred as a result of this liability under the Securities Act.
We have not entered into any arrangement or understanding with any person who will receive Exchange Notes in the exchange offer to distribute those Exchange Notes following completion of the exchange offer. We are not aware of any person that will participate in the exchange offer with a view to distribute the Exchange Notes.
 
 
Restrictions on Sale by Broker-Dealers
Each participating broker-dealer that receives Exchange Notes for its own account pursuant to the exchange offer in exchange for Outstanding Notes that were acquired as a result of market-making or other trading activity must acknowledge that it will deliver a prospectus in connection with any resale of the Exchange Notes.
 
 
Expiration Date; Withdrawal of Tender
The exchange offer will expire at midnight, New York City time, on  ●, 2019, unless we extend it. We do not currently intend to extend the expiration date. We refer to this date (as it may be extended) as the expiration date. Tenders of Outstanding Notes pursuant to the exchange offer may be withdrawn at any time prior to the expiration date. Any Outstanding Notes not accepted for exchange for any reason will be returned without expense to the tendering holder promptly after the expiration or termination of the exchange offer. See “The Exchange Offer — Expiration Date; Extensions; Amendments” and “The Exchange Offer — Withdrawal of Tenders.”
 
 
Conditions to the Exchange Offer
The exchange offer is subject to customary conditions, which we may waive in our sole discretion. See “The Exchange Offer — Conditions to the Exchange Offer” for more information regarding the conditions to the exchange offer.
 
 
Accrued and Unpaid Interest
The Exchange Notes will bear interest from the most recent date on which interest has been paid on the corresponding Outstanding Notes. If your Outstanding Notes are accepted for exchange, you will receive interest on the corresponding Exchange Notes and not on the Outstanding Notes. Any Outstanding Notes not tendered will remain outstanding and continue to accrue interest according to their terms.

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Procedures for Tendering Outstanding Notes
If you wish to accept the exchange offer, the following must be delivered to the exchange agent identified below:
    your Outstanding Notes by timely confirmation of book-entry transfer through The Depository Trust Company, or “DTC”;
    an agent’s message from DTC, stating that the tendering participant
 
agrees to be bound by the letter of transmittal and the terms of the exchange offer as described in “The Exchange Offer—Terms of the Exchange Offer”; and
    all other documents required by the letter of transmittal.
These actions must be completed before the expiration date.
You must comply with DTC’s standard procedures for electronic tenders, by which you will agree to be bound by the letter of transmittal.
If you are a beneficial owner of Outstanding Notes that are held by or registered in the name of a broker, dealer, commercial bank, trust company or other nominee or custodian and you wish to tender your Outstanding Notes in order to participate in the exchange offer, you should contact your intermediary entity promptly and instruct it to tender the Outstanding Notes on your behalf. You should keep in mind that your intermediary may require you to take action with respect to the exchange offer a number of days before the expiration date in order for such entity to tender Outstanding Notes on your behalf at or prior to the expiration date in accordance with the terms of the exchange offer. See “The Exchange offer—Procedures for Tendering.”
If you are a beneficial owner of Outstanding Notes through Euroclear or Clearstream Luxembourg (each as defined herein) and wish to tender your Outstanding Notes, you must instruct Euroclear or Clearstream Luxembourg, as the case may be, to block the account in respect of the tendered Outstanding Notes in accordance with the procedures established by Euroclear or Clearstream Luxembourg. You are encouraged to contact Euroclear or Clearstream Luxembourg directly to ascertain their procedures for tendering Outstanding Notes.
 
 
 
See “The Exchange Offer—Procedures for Tendering.”
 
 
No Guaranteed Delivery Procedures
No guaranteed delivery procedures are available in connection with the exchange offer. You must tender your Outstanding Notes by the expiration date in order to participate in the exchange offer.
 
 
Effect on Holders of Outstanding Notes
As a result of the making of, and upon acceptance for exchange of all validly tendered Outstanding Notes pursuant to the terms of the exchange offer, we will have fulfilled a covenant contained in the registration rights agreement and, accordingly, there will be no increase in the interest rate on the Outstanding Notes under the circumstances described in the registration rights agreement. If you are a holder of Outstanding Notes and you do not tender your Outstanding Notes in the exchange offer, you will continue to hold the Outstanding Notes, and you will be entitled to all the rights and limitations applicable to the Outstanding Notes in the indenture, except for any rights under the registration rights agreement that by their terms terminate upon the consummation of the exchange offer.
 
 
 
To the extent Outstanding Notes are tendered and accepted in the exchange offer, the trading market for Outstanding Notes could be adversely affected.
 
 

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Consequence of Failure to Exchange
All untendered Outstanding Notes will continue to be subject to the restrictions on transfer provided for in the Outstanding Notes and in the indenture. In general, the Outstanding Notes may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the exchange offer, we do not currently anticipate that we will register the Outstanding Notes under the Securities Act. See “The Exchange Offer — Consequences of Failure to Exchange.”
 
 
Absence of Dissenters’ Rights of Appraisal
You do not have dissenters’ rights of appraisal with respect to the Exchange offer. See “The Exchange Offer—Absence of Dissenters’ Rights of Appraisal.”
Taxation
The exchange of the Outstanding Notes for the Exchange Notes pursuant to the exchange offer will not be a taxable event for United States federal income tax or Cayman tax law purposes. See “Taxation.”
 
 
Use of Proceeds
We will not receive any proceeds from the issuance of Exchange Notes pursuant to the exchange offer.
 
 
Exchange Agent
Prior to the commencement of the exchange offer, we will appoint an exchange agent therefor, the contact information for whom will be included in this prospectus by amendment.

 
 
No Recommendation
None of Takeda, the information agent or the Trustee under the indenture makes any recommendation in connection with the exchange offer as to whether any holder of Outstanding Notes should tender or refrain from tendering all or any portion of the principal amount of that holder’s Outstanding Notes, and no one has been authorized by any of them to make such a recommendation.
 
 
Risk Factors
For a detailed description of the risks related to the exchange offer, the Exchange Notes and the risks relating to our business, see “Risk Factors,” beginning on page 9.

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Summary of the Terms of the Exchange Notes
The following summary contains basic information about the Exchange Notes and is not intended to be complete. Certain of the terms and conditions described below are subject to important limitations and exceptions. For a more complete description of the terms of the Exchange Notes, see “Description of the Exchange Notes” in this prospectus.
Issuer
Takeda Pharmaceutical Company Limited
Exchange Notes Offered
    2020 Exchange Notes
    2021 Exchange Notes
    2023 Exchange Notes
    2028 Exchange Notes
 
 
 
The 2020 Exchange Notes, 2021 Exchange Notes, 2023 Exchange Notes and 2028 Exchange Notes are collectively referred to in this prospectus as the “Exchange Notes.”

On July 30, 2019, we called for redemption all of the Outstanding 2020 Notes, with an expected redemption date of August 29, 2019. We expect that no Outstanding 2020 Notes will be outstanding at the time of the commencement of the exchange offer, and that no 2020 Exchange Notes will be issued.

 
 
Maturity Dates
    2020 Exchange Notes: November 26, 2020
    2021 Exchange Notes: November 26, 2021
    2023 Exchange Notes: November 26, 2023
    2028 Exchange Notes: November 26, 2028
 
 
Status of the Exchange Notes/Ranking
Each series of the Exchange Notes will be our direct, unsecured and unsubordinated general obligations and will have the same rank in liquidation as all of our other unsecured and unsubordinated debt.
 
 
Minimum Denomination
The Exchange Notes will be issued in minimum denominations of US$200,000 and integral multiples of US$1,000 above that amount.
Payments of Principal and Interest on the Exchange Notes
The 2020 notes will bear interest at an annual rate of 3.800%, the 2021 notes will bear interest at an annual rate of 4.000%, the 2023 notes will bear interest at an annual rate of 4.400% and the 2028 notes will bear interest at an annual rate of 5.000%.
See “—Summary of the Terms of the Exchange Offer—Accrued and Unpaid Interest” for a description of the treatment of accrued and unpaid interest on the Outstanding Notes and on the Exchange Notes.

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Optional Redemption
We have the option to redeem the 2020 Exchange Notes, the 2021 Exchange Notes, the 2023 Exchange Notes and the 2028 Exchange Notes, in whole or in part, at any time prior to the maturity date with respect to the 2020 Exchange Notes, October 26, 2021 (the “2021 par call date”) with respect to the 2021 Exchange Notes, October 26, 2023 (the “2023 par call date”) with respect to the 2023 Exchange Notes and August 26, 2028 (the “2028 par call date”) with respect to the 2028 Exchange Notes, in each case upon giving not less than 30 nor more than 60 days’ notice of redemption to the trustee and the holders.
The redemption price for the Exchange Notes to be redeemed will be equal to the greater of:
(i) 100% of the principal amount of the Exchange Notes being redeemed; or
(ii) the sum of the present values of the principal and the remaining scheduled payments of interest on the Exchange Notes being redeemed (exclusive of interest accrued to the date of redemption) that would be due if such Exchange Notes were (a) held to the maturity date with respect to the 2020 notes or (b) redeemed on the applicable par call date, discounted to the date of redemption on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate (as defined in “Description of the Exchange Notes—Redemption—Optional Redemption”) plus 17.5 basis points in the case of the 2020 Exchange Notes, 20.0 basis points in the case of the 2021 Exchange Notes, 25.0 basis points in the case of the 2023 Exchange Notes and 30.0 basis points in the case of the 2028 Exchange Notes,
plus, in each case, accrued and unpaid interest on the principal amount of the Exchange Notes being redeemed up to, but excluding, the date of redemption.
We also have the option to redeem the 2021 Exchange Notes, the 2023 Exchange Notes or the 2028 Exchange Notes, in whole or in part, at any time on or after the 2021 par call date with respect to the 2021 Exchange Notes, the 2023 par call date with respect to the 2023 Exchange Notes and the 2028 par call date with respect to the 2028 Exchange Notes, in each case upon giving not less than 30 days nor more than 60 days’ notice of redemption to the trustee and the holders, at a redemption price equal to 100% of the principal amount of the Exchange Notes to be redeemed plus accrued and unpaid interest on the principal amount of the Exchange Notes being redeemed to, but excluding, the date of redemption. See “Description of the Exchange Notes—Redemption—Optional Redemption.”
 
 
Optional Tax Redemption
Each series of the Exchange Notes may be redeemed at any time, at our option and sole discretion, in whole, but not in part, and upon giving not less than 30 nor more than 60 days’ notice of redemption to the trustee and the holders (which notice shall be irrevocable), at the principal amount of the Exchange Notes together with interest accrued to the date fixed for redemption and any additional amounts thereon, if we have been or will be obliged to pay any additional amounts with respect to such Exchange Notes as a result of (a) any change in, or amendment to, the laws or regulations of Japan or any political subdivision or any authority thereof or therein having power to tax, or any change in application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after November 26, 2018, which was the date of the issuance of the Outstanding Notes, or (b) after the completion of any Succession Event (as defined in “Description of the Exchange Notes—Merger, Consolidation, Sale or Disposition”), any change in, or amendment to, the laws or regulations of the jurisdiction of the succeeding entity or any political subdivision or any authority thereof or therein having power to tax, or any change in application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the date of such Succession Event, and in either case such obligation cannot be avoided through the taking of reasonable measures available to us or the succeeding entity, as the case may be. See “Description of the Exchange Notes—Redemption—Optional Tax Redemption.”
 
 
Additional Amounts
All payments of principal and interest in respect of the Exchange Notes shall be made without withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of Japan, or any authority thereof or therein having power to tax, unless such withholding or deduction is required by law or by the authority. In such event, we shall pay, subject to certain exceptions, such additional amounts as will result in the receipt by the holders of such amounts as would have been received by them had no such withholding or deduction been required.

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Global Notes
The Exchange Notes will be initially represented by one or more global notes in definitive, fully registered form without interest coupons. The global notes will be deposited upon issuance with the custodian for DTC and registered in the name of DTC or its nominee. Beneficial interests in the global notes may be held only through DTC (or any successor clearing system that holds global notes) and its participants, including Euroclear and Clearstream.
Beneficial interests in the global notes will be shown on, and transfers thereof will be effected only through, records maintained by the depositaries and their participants. The sole holder of the Exchange Notes represented by a global notes will at all times be DTC or its nominee (or a successor of DTC or its nominee), and voting and other consensual rights of holders of the Exchange Notes will be exercisable by beneficial owners of the Exchange Notes only indirectly through the rules and procedures of the depositaries from time to time in effect. Beneficial interests in the global notes may not be exchanged for definitive notes except in the limited circumstances described under “Description of the Exchange Notes—Book Entry, Delivery and Form—Exchange of Global Exchange Notes for Definitive Exchange Notes.”
 
 
Governing Law
The Exchange Notes and the indenture are governed by New York law.
 
 
Listing
The Outstanding Notes are listed on the Singapore Exchange and are listed in a minimum board lot size of $200,000. Approval in-principle has been received from the Singapore Exchange for the listing of the Exchange Notes (save for the 2020 Exchange Notes). The Singapore Exchange takes no responsibility for the correctness of any of the statements made, opinions expressed or reports contained herein. Approval in-principle for the listing and quotation of the Exchange Notes (save for the 2020 Exchange Notes) on the Singapore Exchange is not to be taken as an indication of the merits of us or the Exchange Notes. The
Exchange Notes (save for the 2020 Exchange Notes) will be traded on the Singapore Exchange in a minimum board lot size of $200,000 for so long as any of the Exchange Notes (save for the 2020 Exchange Notes) are listed on the Singapore Exchange. No assurance is made that the application will be approved. The offering and settlement of the Exchange Notes are not conditional on obtaining such listing.
 
 
Risk Factors
See “Risk Factors” and the other information in this prospectus for a discussion of factors that should be carefully considered before deciding to invest in the Exchange Notes.
 
 
Trustee, Paying Agent, Transfer Agent and Registrar
MUFG Union Bank, N.A.

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RISK FACTORS
Any investment in the Exchange Notes involves risk. Prospective investors should carefully consider, in light of their own financial circumstances and investment objectives, the following risks before making an investment decision with respect to the Exchange Notes. If any of the following risks actually occurs, it could have a material adverse effect on our business, financial condition, results of operations and future prospects, and the market value of the Exchange Notes may be adversely affected.
The risks discussed below are those that we believe are material, but these risks and uncertainties may not be the only risks that we face. Additional risks that are not known to us at this time, or that are currently believed to be not material, could also have a material adverse effect on our business, financial condition, results of operations, future prospects and the value of the Exchange Notes. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”
Risks Relating to the Exchange Offer
Our board of directors has not made a recommendation as to whether you should tender your Outstanding Notes in exchange for Exchange Notes in the exchange offer, and we have not obtained a third-party determination that the exchange offer is fair to holders of the Outstanding Notes.
Our board of directors has not made, and will not make, any recommendation as to whether holders of Outstanding Notes should tender their Outstanding Notes in exchange for Exchange Notes pursuant to the exchange offer. We have not retained, and do not intend to retain, any unaffiliated representative to act solely on behalf of the holders of the Outstanding Notes for purposes of negotiating the terms of this exchange offer, or preparing a report or making any recommendation concerning the fairness of this exchange offer. Therefore, if you tender your Outstanding Notes, you may not receive more value than or as much value as if you chose to keep them. Holders of Outstanding Notes must make their own independent decisions regarding their participation in the exchange offer.
Late deliveries of Outstanding Notes and other required documents could prevent you from exchanging your Outstanding Notes.
Holders are responsible for complying with all procedures of the exchange offer. The issuance of Exchange Notes in exchange for Outstanding Notes will occur only upon completion of the procedures described in “The Exchange offer—Procedures For Tendering Outstanding Notes”. Therefore, holders of Outstanding Notes who wish to exchange them for Exchange Notes should allow sufficient time for timely completion of the exchange procedure. Neither we nor the exchange agent is obligated to extend the exchange offer or notify you of any failure to follow the proper procedure or waive any defect if you fail to follow the proper procedure.
If you do not properly tender your Outstanding Notes, you will continue to hold unregistered Outstanding Notes and your ability to transfer Outstanding Notes will continue to be subject to transfer restrictions, which may adversely affect their market price.
If you do not properly tender your Outstanding Notes for Exchange Notes in the exchange offer, you will continue to be subject to restrictions on the transfer of your Outstanding Notes. In general, the Outstanding Notes may not be offered or sold unless they are registered under the Securities Act, as well as applicable state securities laws, or exempt from registration thereunder. Except as required by the registration rights agreement, we do not intend to register resales of the Outstanding Notes under the Securities Act. You should refer to “The Exchange offer—Procedures For Tendering Outstanding Notes” for information about how to tender your Outstanding Notes. The tender of Outstanding Notes under the exchange offer will reduce the outstanding amount of each series of the Outstanding Notes, which may have an adverse effect upon, and increase the volatility of, the market prices of the Outstanding Notes due to a reduction in liquidity.
The exchange offer will result in reduced liquidity for any Outstanding Notes that are not exchanged.
To the extent the exchange offer is successful, the trading market for the Outstanding Notes that are not tendered and exchanged will become very limited or cease to exist altogether due to the reduction in the principal amount of Outstanding Notes outstanding after the consummation of the exchange offer, which might adversely affect the liquidity and market price of such Outstanding Notes. The Outstanding Notes may trade at a significant discount depending on prevailing interest rates, the market for Outstanding Notes with similar credit features, our performance and other factors. Furthermore, the prices at which any such trading occurs in the Outstanding Notes could be extremely volatile. Holders of Outstanding Notes not tendered and exchanged may attempt to obtain quotations for their Outstanding Notes from their brokers; however, there can be no assurance that an active market in the Outstanding Notes will exist or be maintained following consummation of the exchange offer and no assurance can be given as to the prices at which the Outstanding Notes may trade.
If you are a broker-dealer, your ability to transfer the Exchange Notes may be restricted.

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A broker-dealer that purchased Outstanding Notes for its own account as part of market-making or trading activities must comply with the prospectus delivery requirements of the Securities Act when it sells the Exchange Notes. Our obligation to make this prospectus available to broker-dealers is limited. Consequently, we cannot guarantee that a proper prospectus will be available to broker-dealers wishing to resell their Exchange Notes.
The unaudited pro forma condensed combined statement of income presented herein is not necessarily representative of our actual or future financial performance.
The unaudited pro forma condensed combined statement of income for the fiscal year ended March 31, 2019 included in this prospectus has been prepared in accordance with the relevant requirements of Article 11 of Regulation S-X and Form F-4 for illustrative purposes only, and show the effect of:
our acquisition of the entire issued and to be issued share capital of Shire (the “Shire Acquisition”);
the financing obtained by us to fund the cash portion of the consideration for the Shire Acquisition; and
the issuance of shares of our common stock to shareholders of Shire, including shares represented by our American Depositary Shares ("ADSs").
The unaudited pro forma condensed combined statement of income gives effect to these transactions as if they had occurred on April 1, 2018.
The unaudited pro forma condensed combined financial information has been derived from the audited historical financial statements of Takeda and Shire, and certain adjustments and assumptions have been made regarding the combined company after giving effect to the Shire Acquisition. The unaudited pro forma condensed combined statement of income does not include, among other things, adjustments relating to costs expected to be incurred in relation to restructuring or integration activities, estimated synergies, the effect of any refinancing of borrowings incurred in connection with the Shire Acquisition or existing indebtedness of either of Takeda or Shire or other potential items that are currently not factually supportable and expected to have a continued impact on our results. The unaudited pro forma condensed combined statement of income excludes ¥55,591 million of non-recurring costs incurred in connection with the acquisition and the impact of any incremental cost of sales related to the recognition of Shire’s inventory at fair value of ¥472,754 million, a significant portion of which is expected to be recorded within the first year after the completion of the Shire Acquisition. In addition, the assumptions used in preparing the unaudited pro forma condensed combined statement of income may not prove to be accurate. Such assumptions can be adversely affected by known or unknown facts, risks and uncertainties, many of which are beyond our control. Other factors may also affect our financial condition or results of operations following the closing of the Shire Acquisition.
Risks Relating to the Shire Acquisition
We may fail to realize the anticipated benefits of the Shire Acquisition and expect to continue to record significant expenses related to it.
On January 8, 2019, we completed the Shire Acquisition, in which we acquired the entire issued and to-be-issued share capital of Shire pursuant to a Scheme of Arrangement under the laws of Jersey. The success of the Shire Acquisition depends on our ability to realize the anticipated growth opportunities and synergies leading to cost savings we expect from combining the companies' businesses. We will need to continue to devote significant time and resources to the reorganization of our personnel structure, enhancement of cost-efficiency and the strengthening of management and operational functions in order to realize the anticipated synergies of the Shire Acquisition. We expect to incur non-recurring cash costs totaling approximately $3.0 billion in connection with the integration of Shire in the first three fiscal years following the completion of the Shire Acquisition.
Furthermore, in connection with the Shire Acquisition and the application of our inventory policies to the acquired businesses, we recognized significant non-cash expenses relating to the unwinding of fair value adjustments to inventory as a component of cost of sales in the fiscal year ended March 31, 2019 and expect that such expenses will increase in future fiscal years. We also recorded significant intangible assets in connection with the Shire Acquisition and, as a result, amortization and impairment losses increased significantly in the fiscal year ended March 31, 2019, and are expected to continue to increase in the fiscal year ending March 31, 2020.
As a result of the non-recurring cash costs in connection with the integration of Shire, the continued expenses relating to the unwinding of fair value adjustments to inventory, the increase in amortization and impairment losses on certain intangible assets and ongoing financial expenses (such as interest expenses) related to the Shire Acquisition, we expect to record a net loss in the fiscal year ending March 31, 2020. We expect certain of these expenses to continue into the fiscal year ending March 31, 2021.

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We recorded significant amounts of goodwill in connection with the Shire Acquisition, and, if we are unable to achieve the anticipated benefits of this acquisition, we could be required to recognize significant impairment losses related to such goodwill and to intangible assets recorded in connection with the acquisition, potentially up to their full value.
The expected synergies of the Shire Acquisition and the projected cash costs necessary to achieve the synergies may be affected by changes in the overall economic, political and regulatory environment, including applicable tax regimes and fluctuations in foreign exchange rates, and the realization of the other risks relating to our business described herein. Furthermore, the integration process may divert management’s attention from other strategic opportunities and the day-to-day operation of our business. If we are not able to successfully manage the integration process and create a unified business culture, the anticipated benefits of the acquisition and subsequent integration may not be realized fully or at all or may take longer or prove more costly to realize than expected.
Although integration activities are underway, we may face significant challenges in integrating the organizations, business cultures, procedures and operations of Takeda and Shire, including:
integrating personnel, operations and systems, such as research and development, manufacturing, distribution, marketing and promotional activities and information technology systems, while maintaining focus on selling and promoting existing and newly acquired or produced products;
inability to realize expected benefits from newly acquired or produced products, including pipeline products under development;
coordinating and integrating geographically dispersed organizations;
changes or conflicts in the standards, controls, procedures and accounting and other policies, as well as business cultures and compensation structures;
the need to manage, train and integrate Shire’s personnel, who may have limited experience with the respective companies’ business lines and products, and to retain existing employees, particularly high-skilled or other key employees and senior members of the management team;
maintaining and growing Shire’s customer base;
incremental tax exposure based on the differences in our corporate structure and Shire’s, including the exposure of each of the legacy Takeda businesses and the legacy Shire businesses to new tax regimes, particularly, in the case of Shire, to Japanese tax rules;
maintaining business relationships with suppliers, third-party alliance partners and other key counterparties; and
inefficiencies associated with the integration of the operations of the two companies.
Additionally, because we issued a significant number of additional shares of our common stock as part of the consideration for the Shire Acquisition, a failure to achieve the anticipated benefits of the Shire Acquisition could negatively affect our earnings per share.
We are subject to additional risks arising from the acquired businesses of Shire, particularly its plasma-derived and rare disease therapies, and from the legal, regulatory and tax regimes that Shire operated under.
We have assumed the risks related to Shire’s businesses, which differ from, or will amplify, certain risks we faced prior to the Shire Acquisition. For example, markets outside Japan, particularly the United States, represent a larger portion of the legacy Shire business than ours, and our overall exposure to these markets has increased following the completion of the Shire Acquisition. Additionally, the acquired Shire businesses include new areas for us, such as rare diseases and plasma-derived therapies. Plasma-derived therapies, in particular, present significant challenges relating to the sourcing and transportation of plasma, and production and distribution of plasma-derived products, all of which are complex and subject to extensive regulation, in addition to being capital intensive. If we are unable to manage this new business effectively, we may lose market share or customer confidence, be required to record charges related to idle capacity or impairment on facilities or take other actions which could materially and adversely affect the plasma-derived therapies business. Moreover, sales for the rare disease portfolio we acquired as part of the Shire Acquisition are

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particularly concentrated among small groups of customers, and we may be disproportionately affected by changes in their purchasing patterns, including if we are unable to appropriately manage this business.
Furthermore, we have become subject to additional legal, regulatory and tax regimes applicable to the acquired businesses of Shire, many of which are complex and could subject us to additional risks or liabilities. For example, the legacy Shire business is subject to evolving and complex tax laws in various jurisdictions and Shire routinely obtained advice on tax matters, including the tax treatment of the break fee of $1.635 billion it received in connection with the terminated offer to acquire Shire made by AbbVie, Inc. in 2014. In this respect, the Irish Revenue issued an assessment received by Shire on November 28, 2018 for €398 million on the basis that the break fee was a taxable capital gain. Based on continued advice that no tax liability should arise from the break fee, Shire has appealed this assessment and the appeals process is continuing. However, the appeal may not be successful and at this time the outcome is unknown. In addition, in connection with its acquisition of Baxalta Incorporated (“Baxalta”) in 2016, Shire agreed to indemnify Baxter International Inc., its affiliates and each of their respective officers, directors and employees against certain tax-related losses if the merger of Baxalta and Shire causes the prior spin-off of Baxalta by Baxter and related transactions to fail to qualify as tax-free. Although Shire received an opinion of tax counsel that the merger will not cause such prior transactions to fail to qualify as tax-free, such opinion is not binding on the tax authorities and the potential tax indemnification obligations are not limited in amount.
If we are unable to effectively manage these additional risks, our business, results of operations or financial conditions could be materially and adversely affected.
We have substantial debt, including a significant amount incurred in connection with the Shire Acquisition, which may limit our ability to execute our business strategy, refinance existing debt or incur new debt, and if we are unable to meet our goals for deleveraging, we could be at a greater risk of a downgrade of our credit ratings.
Our consolidated bonds and loans were ¥5,751.0 billion as of March 31, 2019, the majority of which was incurred in connection with the Shire Acquisition or represents indebtedness of Shire now included on our consolidated balance sheet. This significant amount of aggregate debt and the substantial amount of cash required for payments of interest and principal could adversely affect our liquidity. In particular, if we are unable to realize the anticipated benefits of the Shire Acquisition, we may not be able to service our indebtedness. We are also required to comply with certain covenants within various financing arrangements and violations of such covenants may require the acceleration and immediate repayment of the indebtedness, which may in turn have a material adverse effect on our financial condition. In particular, under the Loan Agreement with Japan Bank for International Cooperation (“JBIC”) that we entered into in December 2018 (the "JBIC Loan") for an aggregate principal amount of $3.7 billion, our profit before tax must not be negative for two consecutive years. As discussed above, we expect to continue to record significant expenses related to the Shire Acquisition and we expect certain of these costs to continue in the fiscal years ending March 31, 2020 and 2021. We may fail to realize the anticipated benefits of the Shire Acquisition, and expect to continue to record significant expenses related to it. If we record a net loss before tax in both of the fiscal years ending March 31, 2020 and 2021, and are unable to negotiate a waiver or otherwise prevent the acceleration of amounts due under the JBIC Loan, the amounts due thereunder and under our other financing arrangements containing cross-default provisions may become immediately due and payable, thus requiring us to refinance such debt which may result in increased interest costs. Furthermore, we may desire to or be required from time to time to incur additional borrowings, including in relation to the repayment or refinancing any of the Term Loan Credit Agreement that we entered into on June 8, 2018 (the “Term Loan Credit Agreement”) for an aggregate principal amount of $7.5 billion, the JBIC Loan, or any other indebtedness incurred in connection with the Shire Acquisition, such as the U.S. dollar and Euro-denominated bonds issued in November 2018 or the subordinated hybrid bonds issued in June 2019, or Shire’s previously existing indebtedness. Our ability to arrange a re-financing will depend on our financial position and performance, prevailing market conditions and other factors beyond our control. Moreover, if we decide to refinance indebtedness as it comes due, our overall leverage may not necessarily decrease.
We aim to decrease our leverage, with a target ratio of net debt to Adjusted EBITDA(1) of 2x or less within three to five years following the January 2019 completion of the Shire Acquisition and we have begun the process of disposal of certain non-core assets to generate cash in order to increase the pace of deleveraging. However, we may not be able to meet these goals if we are unable to sufficiently decrease our overall indebtedness, or if we are unable to achieve sufficient increases in earnings to offset our increased levels of debt. We may also not be successful in selecting non-core assets for disposal, and disposals may affect our business, financial condition or results of operations adversely, leading to larger-than-expected decreases in earnings. We may also not be able to dispose of such assets successfully in a manner that allows us to meet our goals or at all.
If we are unable to decrease our leverage, we may be unable to improve our credit ratings or be subject to ratings downgrades or other adverse actions by third-party ratings agencies. In May 2018, Moody’s (Japan) K.K. lowered our credit rating to A2 from A1, reflecting its expectations for our overall levels of leverage in the future, even in the absence of the Shire Acquisition, and in December 2018 Moody’s (Japan) K.K. further lowered our credit rating to Baa2, reflecting the increase in our ratio of net debt to Adjusted EBITDA after giving effect to the Shire Acquisition. In February 2019, S&P Global Ratings downgraded our ratings to BBB

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+, also in light of our aggregate debt and earnings profile following the Shire Acquisition. If we are unable to improve our credit ratings or if our credit ratings are further downgraded, it may negatively influence the terms for the refinancing of our existing debt or new borrowings on terms that we would consider to be commercially reasonable.
______________
(1) We define EBITDA as net profit before income tax expenses, depreciation and amortization and net interest expense. We define Adjusted EBITDA as EBITDA further adjusted to exclude impairment losses, other operating expenses and income (excluding depreciation and amortization), finance expenses and income (excluding net interest expense), our share of loss from investments accounted for under the equity method and other items that management believes are unrelated to our core operations such as purchase accounting effects and transaction related costs.
Risks Relating to Our Business
Research and development of pharmaceutical products are expensive and subject to significant uncertainties, and we may be unsuccessful in bringing commercially successful products to market or recouping development costs.
Our ability to continue to grow our business depends significantly on the success of our research and development activities in identifying, developing and successfully commercializing new products in a timely and cost-effective manner. To accomplish this, we commit substantial efforts, funds and other resources to research and development, both in-house and through collaborations with third parties. However, these research and development programs are expensive and involve intensive preclinical evaluation and clinical trials in connection with a highly complex and lengthy regulatory approval process. See “—If we fail to comply with government regulations over product development, regulatory approvals and reimbursement requirements, our business could be adversely affected.” The research and development process for a new pharmaceutical product also requires us to attract and retain sufficient numbers of highly-skilled employees and can take up to 10 years to 15 years or longer from discovery to commercial launch. Moreover, even if we successfully develop and bring to market new products, there is only a limited available patent life in which to recoup these development costs.
During each stage of the approval process and post-approval life cycle of our products, there is a substantial risk that we will encounter serious obstacles, including the following:
unfavorable results from preclinical testing of a new compound;
difficulty in enrolling patients in clinical trials, or delays or clinical trial holds at clinical trial sites;
delays in completing formulation and other testing and work necessary to support an application for regulatory approval;
adverse reactions to the product candidate or indications of other safety concerns;
insufficient clinical trial data to support the safety or efficacy of the product candidate;
difficulty or delays in obtaining all necessary regulatory approvals in each jurisdiction where we propose to market such products;
failure to bring a product to market prior to a competitor, or to develop a product sufficiently differentiated from a competing product to achieve significant market share;
difficulty in obtaining reimbursement at satisfactory rates for our approved products from governments and insurers;
difficulty in obtaining regulatory approval for additional indications;
failure to enter into or implement successful alliances for the development and/or commercialization of products;
inability to manufacture sufficient quantities of a product candidate for development or commercialization activities in a timely or cost-efficient manner; and

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the degree of market acceptance of any approved product candidate by the medical community, including physicians, healthcare professionals and patients, will depend on a number of factors, including relative convenience and ease of administration, the prevalence and severity of any adverse reactions, availability of alternative treatments, pricing and our sales and marketing strategy.
In addition, to the extent that new regulations raise the costs of obtaining and maintaining product authorizations or limit the economic value of a new product to its originator, our profitability and growth prospects could be diminished. Development of new and innovative products can also require the use of emerging platforms and technologies for which regulations either do not yet exist or are under development or modification. This may lead to greater uncertainty and risk in establishing the necessary data for approvals to conduct clinical trials and/or receiving marketing approvals.
As a result of the foregoing or other factors, we may decide to abandon the development of potential pipeline products in which we have invested significant resources, even where the product is in the late stages of development. Moreover, there can also be no assurance that we will be successful in bringing new products to market, marketing them, achieving sufficient acceptance thereof and recouping our investments in their development. For example, our pipeline compounds may not receive regulatory approval, become commercially successful or achieve satisfactory rates of reimbursement. Additionally, products approved for use and successfully marketed in one market may be unable to obtain regulatory approval, become commercially successful or achieve satisfactory rates of reimbursement in other markets. As a result, we may be unable to earn returns on investments that we originally anticipated or at all, or may be forced to revise our research and development strategy, and our business, financial condition and results of operations could be materially and adversely affected.
If we fail to comply with government regulations over product development, regulatory approvals and reimbursement requirements, our business could be adversely affected.
Obtaining marketing approval for pharmaceutical products is a lengthy, complex and highly regulated process that requires intensive preclinical and clinical data, and the approval process can vary significantly depending on the regulatory authority. Relevant health authorities may, at the time of the filing of the application for a marketing authorization, or later during their review, impose requirements that can evolve over time, including requiring additional clinical trials, and such authorities may delay or refuse to grant approval. Even where we have obtained marketing approval for a product in one or more major markets, we may need to invest significant time and resources in applying for approval in other markets, and there is no assurance that we will be able to obtain such approval. In recent years, health authorities have become increasingly focused on product safety and on the risk/benefit profile of pharmaceutical products, which could lead to more burdensome and costly approval processes and negatively affect our ability to obtain regulatory approval for products under development. For example, the U.S. Food and Drug Administration (the “FDA”), the European Medicines Agency (the “EMA”), and the Pharmaceuticals and Medical Devices Agency (the “PMDA”) in Japan have been implementing strict requirements for approval, particularly in terms of the volume of data needed to demonstrate a product’s efficacy and safety.
Even after regulatory approval is obtained, marketed products are subject to various post-approval requirements, including continual review, risk evaluations, comparative effectiveness studies and, in some cases, requirements to conduct post-approval clinical trials to gather additional safety and other data. Regulatory authorities in many countries have worked to enhance post-approval monitoring in recent years, which has increased post-approval regulatory burdens. Post-regulatory approval reviews and data analyses can lead to the issuance of recommendations by government agencies, health professional and patients or other specialized organizations regarding the use of products; for example, a recommendation to limit the patient population of a drug’s indication, the imposition of marketing restrictions, including changes in product labeling, or the suspension or withdrawal of the product. Any such action can result in reductions in sales volume and/or new or increased concerns about the adverse reactions or efficacy of a product. These substantial regulatory requirements have, over time, increased the costs associated with maintaining regulatory approvals and achieving reimbursement for our products.
If the regulatory approval process or post-approval, reimbursement, monitoring or other requirements become significantly more burdensome in any of our major markets, we could become subject to increased costs and may be unable to obtain or maintain approval to market our products. Any such adverse changes could materially and adversely affect our business, results of operations or financial condition.
If we fail to comply with laws and regulations governing the sales and marketing of our products, our business could be adversely affected.
We engage in various marketing, promotional and educational activities pertaining to, as well as the sale of, pharmaceutical products in a number of jurisdictions around the world. The promotion, marketing and sale of pharmaceutical products and medical

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devices is highly regulated and the sales and marketing practices of market participants such as us have been subject to increasing supervision by governmental authorities, and we believe that this trend will continue.
For example, in the United States, our sales and marketing activities are monitored by a number of regulatory authorities and law enforcement agencies, including the U.S. Department of Health and Human Services (the “HHS”), the FDA, the U.S. Department of Justice, the U.S. Securities and Exchange Commission (the "SEC") and the Drug Enforcement Administration (the “DEA”). These authorities and agencies and their equivalents in other countries have broad authority to investigate market participants for potential violations of laws relating to the sale, marketing and promotion of pharmaceutical products and medical devices, including the False Claims Act, the Anti-Kickback Statute, the United Kingdom (the “UK”) Bribery Act of 2010 and the Foreign Corrupt Practices Act, among others, for alleged improper conduct, including corrupt payments to government officials, improper payments to medical professionals, off-label marketing of pharmaceutical products and medical devices, and the submission of false claims for reimbursement by the federal government. Healthcare companies may also be subject to enforcement actions or prosecution for such improper conduct. Any inquiries or investigations into the operations of, or enforcement or other regulatory action against, us by such authorities could result in significant defense costs, fines, penalties and injunctive or administrative remedies, distract management to the detriment of the business, result in the exclusion of certain products, or us as a whole, from government reimbursement programs or subject us to regulatory controls or government monitoring of its activities in the future. We are also subject to certain ongoing investigations by governmental agencies.
Government policies and other pressures to reduce medical costs could have an adverse effect on sales of our pharmaceutical products.
We are subject to governmental regulations mandating price controls in various countries in which we operate. The growth of overall healthcare costs as a percentage of gross domestic product in many countries means that governments and payers are under intense pressure to control spending even more tightly. See “Business—Regulation—Third Party Reimbursement and Pricing.”
In the United States, there has been increasing pricing pressure from managed care groups and institutional and governmental purchasers. In particular, as managed care groups have grown in size due to market consolidation, pharmaceutical companies have faced increased pressure in pricing and usage negotiations, and there is fierce competition among pharmaceutical companies to have their products included in the care providers’ formularies. Moreover, as a result of the changing legislative and regulatory environment in the United States we have experienced heightened pricing pressure on, and limitations on access to, our branded pharmaceutical products sold in the United States. There has been increasing attention paid to the level of pricing of pharmaceutical products by policymakers and stakeholders, which could lead to political pressure or legislative, regulatory or other efforts to introduce lower prices, and change how the pharmaceutical supply chain could operate. In addition, there are efforts by the federal government to reduce spending on the Medicare and Medicaid programs, including proposals by the Congressional Budget Office to require pharmaceutical companies to pay a minimum rebate on drug products covered under Medicare Part D for low-income beneficiaries and to cap federal Medicaid payments to the states. Congressional proposals to convert the Medicare fee-for-service program into a premium support program could also lead to significant reductions in Medicare spending. The future of the U.S. healthcare legislation, as well as the potential impact of any new legislation, is uncertain, but we expect the health care industry in the United States will continue to be subject to increasing pricing and spending pressure, including from regulation and political and legal action.
In Japan, manufacturers of pharmaceutical products must have new products listed on the National Health Insurance (the “NHI”) price list published by the MHLW for the coverage under the public medical care insurance systems. The NHI price list provides rates for calculating the price of pharmaceutical products used in medical services provided under various public medical care insurance systems. Prices on the NHI price list have been subject to revision generally once every two years on the basis of the actual prices at which the pharmaceutical products are purchased by medical institutions in Japan after discounts and rebates are deducted from listed price. The average price of previously listed products generally decreases as a result of these price revisions. The Japanese government is currently undertaking healthcare reform initiatives with a goal of sustaining the universal coverage of the NHI program, and is addressing the efficient use of drugs, including promotion of generic use with a target of 80% penetration by volume by September 2020 with respect to products for which market exclusivity has expired. As part of these initiatives, the NHI price list is expected to be revised annually from April 1, 2021, which could lead to more frequent downward price revisions. In addition, cost-effectiveness analysis was officially introduced by the MHLW in April 2019. Products on the NHI price list nominated based on pre-defined criteria, such as the innovativeness and the financial impact, will be subject to review, and subject to price adjustments depending on outcome of this review.
In Europe, as in the United States, drug prices have been subject to downward pressure due to measures implemented in each country to control drug costs, and prices continue to come under pressure due to parallel imports, generic competition, increasing use of health technology assessment based upon cost-effectiveness and other factors. European pricing and reimbursement authorities have also intensified efforts to increase transparency of prices as well as exchange of information among the various European pricing authorities in order to raise pressure towards the industry. This pricing debate has impacted the overall political climate in Europe and has triggered a European policy initiative to review the pharmaceutical industry’s intellectual property incentives with a particular

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emphasis on orphan drugs. Any new legislation in this area would take at least two to three years to be adopted but could have significant impact on our business model. We are also facing similar pricing pressures in other regions, such as various emerging countries.
We expect these efforts to control costs to continue as healthcare payers around the globe, in particular government-controlled health authorities, publicly funded or subsidized health programs, insurance companies and managed care organizations (the “MCOs”), increasingly pursue initiatives to reduce the overall cost of healthcare, restrict access to higher-priced new medicines, increase the use of generics and impose overall price revisions. Such further implementation of these policies could have a material adverse effect on our business, financial condition and results of operations.
The expiration or loss of patent or regulatory data protection over our products or patent infringement by generic manufacturers could lead to significant competition from generic versions of the relevant product and lead to declines in market share and price levels of our products.
Our pharmaceutical products are generally protected for a defined period by various patents (including those covering drug substance, drug product, approved indications, methods of administration, methods of manufacturing, formulations and dosages) and/or regulatory exclusivity, which are intended to provide us with exclusive rights to market the products for the life of the patent or duration of the regulatory data protection period. The loss of market exclusivity for pharmaceutical products opens such products to competition from generic substitutes that are typically priced significantly lower than the original products, which typically adversely affects the market share and prices of the original products.
Generic substitutes have high market shares in a number of key markets, including the United States, Europe and many emerging countries, and the adverse effects of the launch of generic products are particularly significant in such markets. The introduction of generic versions of a pharmaceutical product typically leads to a swift and substantial decline in the sales of the original product. Our active life cycle management efforts cannot fully mitigate the impact of competition from generics. In the United States and the European Union (“EU”), for example, political pressure to reduce spending on prescription drugs has led to legislation and other measures that encourage the use of generic products. In Japan, the government is implementing various measures to control drug costs, including by encouraging medical practitioners to use and prescribe generic drugs, and in June 2017 announced its intention to raise generic drug penetration with respect to products for which market exclusivity has expired to 80% by volume by September 2020. Legislation has also been passed in the United States and Europe encouraging the use of biosimilar products. Similar to generics, biosimilars aim to provide less expensive versions of innovative biologic products. New legislation has provided abbreviated pathways for the approval and marketing of biosimilar products, which may affect the profitability and commercial viability of our biologic products.
Certain of our products have begun to, or are expected over the next several years to, face declining sales due to the loss of market exclusivity. For example, following the expiration of patent protection over bortezomib, the active ingredient in VELCADE, one of our largest selling products in the United States, a competing bortezomib-containing product has been introduced. This has led to a decrease in sales of VELCADE, and further entry of competing products could result in substantial additional declines. Such decreases may accelerate following the scheduled expiration of patent protection over the formulation of VELCADE in 2022, or earlier if a competitor is able to develop a way to formulate VELCADE in a manner that does not infringe the relevant patent or succeed in getting the formulation patent invalidated. Patent protections over VYVANSE, which we acquired as part of the Shire Acquisition and which was Shire’s largest selling product, are scheduled to expire in 2023, which we anticipate will lead to declines in sales. In addition, as patent protection has expired for PANTOPRAZOLE in many major markets including the United States and the EU, sales of PANTOPRAZOLE have continued to decline in those markets.
We may also be subject to competition from generic drug manufacturers prior to the expiration of patents if a manufacturer successfully challenges the validity of our patents, or if the manufacturer believes that the benefits of launching the generic drug “at risk” (prior to the expiration of our patent) outweigh the costs of defending infringement litigation. If such a competitor launches a generic product “at risk” before the initiation or completion of court proceedings, a court may decline to grant us a preliminary injunction to halt further “at risk” sales and remove the infringing product from the market. While we may be entitled to obtain damages subsequently, the amount we may ultimately be awarded and able to collect may be insufficient to compensate for the loss of sales and other harm caused to us. Furthermore, if we lose patent protection as a result of an adverse court decision or a settlement, in certain jurisdictions, we may face the risk that government and private third-party payers and purchasers of pharmaceutical products may claim damages alleging they have over-reimbursed or overpaid for a drug.
If our patent and other intellectual property rights are infringed by generic drug manufacturers or other third parties, we may not be able to take full advantage of the potential or existing demand for our products. The protection that we are able to obtain for our prescription drugs varies from product to product and country to country and may not always be sufficient because of local variations in issued patents, or differences in national law or legal systems, including inconsistency in the enforcement or application of law and limitations on the availability of meaningful legal remedies. In particular, patent protection in emerging markets is often less certain

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than in developed markets. Certain countries may also engage in compulsory licensing of pharmaceutical intellectual property to other manufacturers as a result of local political pressure. Furthermore, the attention of our management and other personnel could be diverted from their normal business activities if we decide to litigate against such infringement. The realization of any such risks could adversely and materially affect our business, financial condition and results of operations.
We are subject to the risk of intellectual property infringement claims directed at us by third parties.
We are subject to the risk of infringement claims directed at us by third parties, even if we do not knowingly infringe on any valid third-party intellectual property rights. Although we monitor our operations to prevent infringement on the intellectual property rights of third parties, if we are found to have infringed the intellectual property rights of others or if we agree to settle infringement claims, we may be required to recall the relevant products, terminate manufacturing and sales of such products, pay significant damages or pay significant royalties.
We evaluate any such infringement claims to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, and in keeping with applicable accounting and disclosure standards, we establish reserves and/or disclose the relevant litigation claims or decide not to establish reserves or disclose litigation claims. These assessments and estimates are based on the information available to our management at such time and involve a significant amount of management judgment. Actual outcomes or losses may differ materially from those envisioned by our current assessments and estimates. Although the parties to such patent and intellectual property disputes in the pharmaceutical industry have often settled through licensing or similar arrangements, the costs associated with these arrangements may be substantial and could include the payment of ongoing royalties. Furthermore, the necessary licenses may not be available on acceptable terms or at all. Therefore, if we are unable to successfully defend against infringement claims by third parties, our financial results could be materially and adversely affected.
The illegal distribution and sale by third parties of counterfeit versions of our products or products stolen from us could have an adverse effect on our reputation and business.
Third parties may illegally distribute and sell counterfeit versions of our products, which do not meet the rigorous manufacturing and testing standards to which our products are subject. A patient who receives a counterfeit drug may be at risk for a number of dangerous health consequences. Reports of adverse reactions to counterfeit drugs or increased levels of counterfeiting could materially affect patient confidence in our products, which could have a material adverse effect on our reputation and financial results. In addition, thefts at warehouses, at plants, or in transit of inventory that is not properly stored or that is sold through unauthorized channels could materially and adversely affect patient safety, our reputation and our results of operations.
We may not be able to adequately expand our product portfolio through third-party alliance arrangements.
We expect that we will continue to rely on third parties for key aspects of our business, including the discovery and development of new products, in-licensing products, and the marketing and distribution of approved products. A major part of our research and development strategy is to initiate alliances with third parties in the biotechnology industry, academia and the public sector, and we believe that the overall strength of our research and development program and product pipeline depends on our ability to identify and initiate partnerships, in-licensing arrangements and other collaborations with third parties. However, there can be no assurance that any of our third-party alliances will lead to the successful development and marketing of new products. Moreover, reliance on third-party alliances subjects us to a number of risks, including:
We may be unable to identify suitable opportunities at a reasonable cost and on terms that are acceptable to us due to active and intense competition among pharmaceutical groups for alliance opportunities or other factors;
Entering into in-licensing or partnership agreements may require the payment of significant “milestones” well before the relevant products are placed in the market, without any assurance that such investments will ultimately become profitable in the long term. To the extent such milestone payments are recorded as assets on our balance sheet, any termination of the relevant partnership could require us to recognize an impairment loss up to the full value of such asset;
When we research and market our products through collaboration arrangements, the performance of certain key tasks or functions are the responsibility of our collaboration partners, who may not perform effectively or otherwise meet our expectations; and

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Decisions may be under the control of or subject to the approval of our collaboration partners, and we may have differing views or be unable to agree upon an appropriate course of action. Any conflicts or difficulties that we may have with our partners during the course of these agreements or at the time of their renewal or renegotiation or any disruption in the relationships with our partners may affect the development, launch and/or marketing of certain of our products or product candidates.
In addition, a licensor may attempt to terminate its license agreement with us or elect not to renew it to pursue other marketing opportunities. Our licensors could also merge with or be acquired by another company or experience financial or other setbacks unrelated to our licensing arrangements. Any of these events may force us to abandon a development project and adversely affect our ability to adequately expand or maintain our product portfolio.
Our operating results and financial condition may fluctuate due to a number of factors and may not be comparable across periods.
Our operating results and financial condition may fluctuate from quarter to quarter and year to year for a number of reasons, including acquisitions, divestitures, major product launches, patent expiration or expiration of regulatory data protection for key products and other reasons. In particular, as part of our efforts to refocus our business portfolio, we have recently entered into a number of significant transactions that are expected to affect our results of operations, including:
the Shire Acquisition;
the acquisition of TiGenix NV in July 2018;
the divestment of Wako Pure Chemical Industries, Ltd. (“Wako Pure Chemical”), one of our consolidated subsidiaries, to FUJIFILM Corporation in April 2017;
the acquisition of ARIAD Pharmaceuticals, Inc. (“ARIAD”) in February 2017; and
the transfer of certain long-listed products, consisting of products for which patent protection and regulatory data protection have expired, to Teva Takeda Yakuhin Ltd., a wholly-owned subsidiary of Teva Takeda Pharma Ltd., a joint venture we formed with Teva Pharmaceutical Industries Ltd., in April 2016, and the subsequent sale of seven additional long-listed products in May 2017.
We intend to continue to pursue both acquisitions of new businesses and dispositions of existing businesses in the future. As a result, period-to-period comparisons of our results of operations may not always be directly comparable, and these comparisons should not be relied upon as an indication of future performance. Our operating results and financial condition are also subject to fluctuations from the risks described throughout this section.
We have significant global operations, which expose us to additional risks.
Our global operations, which encompass approximately 80 countries and regions across the world, are subject to a number of risks, including the following:
difficulties in monitoring and coordinating research and development, marketing, supply-chain and other operations in a large number of jurisdictions;
risks related to various laws, regulations and policies, including those implemented following changes in political leadership and trade, capital and exchange controls;
changes with respect to taxation, including impositions or increases of withholding and other taxes on remittances and other payments by our overseas subsidiaries;
varying standards and practices in the legal, regulatory and business cultures in which we operate, including potential inability to enforce contracts or intellectual property rights;
trade restrictions and changes in tariffs;

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complex sanctions regimes in various countries such as the United States, the EU and other jurisdictions, violations of which could lead to fines or other penalties;
risks related to political instability and uncertain business environments;
changes in the political, economic or social climate, including inter-country relationships;
acts of terrorism, war, epidemics and other sources of social disruption; and
difficulties associated with managing local personnel and preventing misconduct by local third-party alliance partners.
Any one or more of these or other factors could increase our costs, reduce our revenues, or disrupt our operations, with possible material adverse effects on our business, financial condition and results of operations. Further expansion overseas has been one of our key strategies, and, in the fiscal year ended March 31, 2019, regions outside of Japan accounted for 72.8% of our consolidated revenue, with the United States in particular contributing 39.5% of consolidated revenue, and we anticipate that these proportions will further increase once Shire’s businesses have been included in our consolidated results of operations for a full fiscal year. We expect that markets outside Japan, particularly the United States and also Europe, Canada and emerging markets, will continue to be increasingly important to our business and results of operations, increasing the likelihood that any of these risks is realized.
We may not be able to realize the expected benefits of our investments in emerging markets.
We have been taking steps to grow our business in emerging markets, which we define to include Russia/Commonwealth of Independent States (“CIS”), Latin America, Asia (excluding Japan) and Other (including the Middle East, Oceania and Africa). Our revenue from emerging markets was ¥291.6 billion (or 13.9% of our total revenue) for the fiscal year ended March 31, 2019, and we intend to pursue further growth in such emerging markets.
However, there is no guarantee that our efforts to expand sales in emerging markets will succeed. Some countries may be especially vulnerable to periods of global financial instability or may have very limited resources to spend on healthcare. Emerging markets present particular challenges in obtaining funding, achieving market access for our products and successfully ensuring that we receive appropriate levels of reimbursement. Emerging markets also tend to require substantial efforts in patient support and other programs. All of these factors may adversely affect the profitability of our businesses in these emerging markets.
In order to successfully implement our emerging markets strategy, we must also attract and retain qualified personnel, despite the possibility that some emerging markets may have a relatively limited number of persons with the required skills and training. We may also be required to increase our reliance on third-party agents within less-developed markets, which may put us at increased risk of liability. In addition, many emerging markets have currencies that fluctuate substantially, and if such currencies are devalued and we cannot offset the devaluations, our financial performance in such countries may be adversely affected. Further, many emerging markets have relatively weak intellectual property protection and inadequate protection against crime, including counterfeiting, corruption and fraud. Operations in certain emerging countries, where corruption may be more prevalent than in more developed countries and where internal compliance practices may not be well established, may also pose challenges from a legal and regulatory compliance perspective.
For reasons including but not limited to the above, sales within emerging markets carry significant risks, and the realization of such risks could have a material adverse effect on our business, financial condition and results of operations.
We face risks relating to the expected exit of the United Kingdom from the European Union.
On June 23, 2016, the United Kingdom held a remain-or-leave referendum on the United Kingdom’s membership within the European Union, the result of which favored the exit of the United Kingdom from the EU (commonly known as “Brexit”). A process of negotiation will likely determine the future terms of the United Kingdom’s relationship with the EU, as well as whether the United Kingdom will be able to continue to benefit from the EU’s free trade and similar agreements. Additionally, Brexit has impacted the EMA, which is the primary regulator of the pharmaceutical industry in the EU and which has stated that it expects to lose about 25% of its 900 staff members due to the EMA’s relocation from London to Amsterdam as a result of Brexit. The EMA has developed a business continuity plan that allows EMA to temporarily scale back or temporarily suspend lower priority activities during the relocation and as it prepares for Brexit. For example, the EMA noted in its annual report for 2018 that, in order to be able to concentrate on Brexit and the EMA’s relocation to Amsterdam, it had to delay updating its guidelines on the development of new

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medicines to treat hemophilia A and B. Delays in EMA processes such as this caused by Brexit may adversely affect or delay our business, including our ability to develop and market new or existing products in the EU.
The timing of Brexit and potential impact of Brexit on our market share, sales, profitability and results of operations is unclear. Depending on the terms of Brexit and any continuing impact on the EMA, economic conditions in the United Kingdom, the European Union and global markets may be adversely affected by reduced growth and volatility. The uncertainty before, during and after the period of negotiation is also expected to have a negative economic impact and increase volatility in the markets, particularly in the Eurozone. Such volatility and negative economic impact could, in turn, adversely affect our revenues, financial condition or results of operations.
Our results of operations and financial condition may be adversely affected by foreign currency exchange rate fluctuations.
We manufacture and sell products to customers in numerous countries, and we have entered and will enter into acquisition, licensing, borrowings or other financial transactions that give rise to translation and transaction risks related to foreign currency exposure. Fluctuations in currency exchange rates in the markets where we are active could negatively affect our results of operations, financial position and cash flows. For the fiscal year ended March 31, 2019, 72.8% of our sales were in markets outside Japan, and we expect this proportion to be even higher for subsequent fiscal periods, due to anticipated increases in overseas sales of growth driver products and the contribution of Shire’s results to our results of operations, particularly in the U.S. market. Our consolidated financial statements are presented in Japanese yen, and by translating the foreign currency financial statements of our foreign subsidiaries into yen, the amounts of our revenue, operating profit, assets and equity, on a consolidated basis, are affected by prevailing rates of exchange.
We utilize certain hedging measures with respect to some of our foreign currency transactions. However, such hedging measures do not cover all of our exposures and, even to the extent they do, they may only delay, or may otherwise be unable to completely eliminate, the impact of fluctuations in foreign currency exchange rates.
Our reliance on third parties for the performance of certain key business functions, particularly product manufacture and commercialization, heightens the risks faced by our business.
We rely on suppliers, vendors and partners, including alliances with other pharmaceutical companies, for certain key aspects of our business, including manufacture and commercialization of products, support for information technology systems and certain human resource functions. We do not control these partners, but we depend on them in ways that may be significant to us. If these parties fail to meet our expectations or fulfill their obligations to us, we may fail to receive the expected benefits. In addition, if any of these third parties fails to comply with applicable laws and regulations in the course of its performance of services for us, there is a risk that we may be held responsible for such violations as well. This risk is particularly serious in emerging markets, where corruption is often prevalent and where many of the third parties on which we rely do not have internal compliance resources comparable to our own. Any such failures by third parties, in emerging markets or elsewhere, could adversely affect our business, reputation, financial condition or results of operations.
Our dependence on third parties for the inputs for our products subjects us to various risks, and changes in the costs of materials may adversely affect our profitability.
Although we develop and manufacture the active ingredients used in some of our products at our own facilities, we are dependent on third-party suppliers for a substantial portion of the raw materials and compounds used in the products we produce. The price and availability of the raw materials for our products, including chemical compounds and biologics, are subject to the effects of weather, natural disasters, market forces, the economic environment, fuel costs and foreign exchange rates. If our cost for such materials increases, we may not be able to make corresponding increases in the prices of our products due to market conditions or our relationships with our customers, and as a result, our profitability could be materially and adversely affected.
In particular, we rely on third-party suppliers of key manufacturing inputs of certain drug products, including, but not limited to, ADCETRIS, ADVATE, ADYNOVATE, ALUNBRIG, CINRYZE, CUVITRU, ENTYVIO, FEIBA, FIRAZYR, GATTEX/REVESTIVE, HYQVIA, LEUPRON, MEPACT, NINLARO, TAKHZYRO, and VELCADE. Furthermore, certain active ingredients for these products are sourced from a single supplier. We also rely in part on third-party sources to provide the donated plasma necessary for our plasma-derived therapies. In addition, although we dual-source certain key products and/or active ingredients, we currently rely on a single source for production of the final drug product for certain of our products, including, but not limited to, ADDERALL XR, ADYNOVATE, ALOFISEL, ALUNBRIG, CINRYZE, CUVITRU, FIRAZYR, HYQVIA, LIALDA, MEPACT, NINLARO, PENTASA and TAKHZYRO. Sources of some materials may be limited to a single supplier, and if such supplier faces any difficulty in supplying the materials, we may not be able to find an alternative supplier in a timely manner or at all. If materials become unavailable or if quality problems related to the materials arise, we may be forced to halt production and sales of products that use them. In the event that any

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of our third-party suppliers is delayed in its delivery of such raw materials or compounds, is unable to deliver the full quantity ordered by us at the appropriate level of quality, or is unable to deliver any raw materials or compounds at all, our ability to sell our products in the quantities demanded by the market may be impaired, which could damage our reputation and relationships with customers and patients. In such a case, our business and results of operations could be adversely affected.
The manufacture of our products is technically complex and highly regulated, and supply interruptions, product recalls or other production problems caused by unforeseen events may reduce sales, adversely affect our operating results and financial condition and delay the launch of new products.
The manufacture of our products is technically complex and highly regulated, and as a result we may experience difficulties or delays including but not limited to the following:
seizure or recalls of products or shut-downs of manufacturing plants;
problems with business continuity, including as a result of a natural or man-made disaster, at one of our facilities or at a critical supplier or vendor;
failure by us or by any of our vendors or suppliers to comply with Good Manufacturing Practice and other applicable regulations and quality assurance guidelines, which could lead to manufacturing shutdowns, product shortages and delays in product manufacturing;
problems with manufacturing, quality assurance/quality control or supply, or governmental approval delays, due to our consolidation and rationalization of manufacturing facilities and the sale or closure of certain sites;
failure of a sole source or single source supplier to provide us with necessary raw materials, supplies or finished goods for an extended period of time, which could impact continuous supply;
failure of a third-party manufacturer to supply us with semi-finished or finished products on time;
construction or regulatory approval delays related to new facilities or the expansion of existing facilities;
additional costs related to deficiencies identified by regulatory agencies in connection with inspections of our facilities, and enforcement, remedial or punitive actions by regulatory authorities if we fail to remedy any deficiencies; and
other manufacturing or distribution problems including limits to manufacturing capacity due to regulatory requirements (e.g. Registration, Evaluation, Authorisation and Restriction of Chemicals (“REACH”) regulation in the EU), changes in the types of products produced, physical limitations or other business interruptions that could impact continuous supply.
The development and manufacture of biologics including products added to our portfolio following the completion of the Shire Acquisition and stem cell therapies resulting from our acquisition of Tigenix NV in July 2018, present heightened or additional risks. The manufacture of biologics, including stem cell products, is highly complex and is characterized by inherent risks and challenges, such as raw material inconsistencies, logistical and sourcing challenges, significant quality control and assurance requirements, manufacturing complexity (including heightened regulatory requirements) and significant manual processing. Unlike products that rely on chemicals for efficacy, such as most pharmaceuticals, biologics are difficult to characterize due to the inherent variability of biological input materials. As a result, assays of the finished product may not be sufficient to ensure that the product will perform in the intended manner. Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in, among other things, lot failures, product recalls, product liability claims or insufficient inventory, which could be costly to us or result in reputational damage.
Any of the above may reduce sales, delay the launch of new products, and adversely affect our business, financial condition and results of operations.
We are involved in litigation relating to our operations on an ongoing basis, and such litigation could result in financial losses or harm our business.

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We are involved in various litigation relating to our operations on an ongoing basis, including claims related to product liability and intellectual property as well as to antitrust, sales and marketing and other regulatory regimes. Given the inherent unpredictability of litigation, it is possible that an adverse outcome in one or more pending or future litigation matters could have a material adverse effect on our operating results or cash flows. For a description of certain ongoing litigation, see Note 32 to our audited consolidated financial statements included in this prospectus.
Economic and financial conditions may have a material adverse effect on our business, financial condition and results of operations.
Growth of the global pharmaceutical market has become increasingly tied to global economic growth. In this context, a substantial and lasting slowdown of the global economy or major national economies could negatively affect growth in the global pharmaceutical market and, as a result, adversely affect our business. In particular, weak economic conditions can have a particularly adverse impact on pharmaceutical demand in markets having significant co-pays or lacking a developed third-party payer system, as individual patients may delay or decrease out-of-pocket healthcare expenditures. Negative economic developments could also reduce the sources of funding for national social security systems, leading to heightened pressure on drug prices, increased substitution of generic drugs, and the exclusion of certain products from formularies.
Following the global financial crisis in 2008, economic growth continues to be stagnant in major developed countries while the pace of growth in many emerging economies has declined. The Brexit referendum in the U.K, political volatility in the United States following recent mid-term elections, continued instability in the Middle East and North Korea and global developments in trade and security policy have increased political and economic uncertainty. To the extent that economic or financial conditions weaken in any of our major operating markets, demand for our products or product pricing could be negatively affected. In addition, to the extent that economic and financial conditions negatively affect the global business environment, we could experience a disruption or delay in the performance of third parties on which we rely for parts of our business, including collaboration partners and suppliers. Such disruptions or delays could have a material and adverse effect on our business, financial condition and results of operations.
We may have difficulty maintaining the competitiveness of our products.
The pharmaceutical industry is highly competitive, and in order to maintain the competitiveness of our product portfolio, we are required to maintain ongoing, extensive research for technological innovations, including new compounds, to develop and commercialize existing pipeline products, to expand our product portfolio through acquisitions and in-licensing, and to market our products effectively, including by communicating the efficacy, safety and value of our products to healthcare professionals. However, healthcare professionals and consumers may choose competitors’ products over ours nonetheless, if they perceive these products to be safer, more reliable, more effective, easier to administer or less expensive. The success of any product depends on our ability to effectively communicate with and educate the healthcare professionals and patients and convince them of the advantage of our products over those of our competitors. We often carry out costly clinical trials even after our products have been launched to produce data to be utilized for these purposes, but such trials do not always produce the desired outcomes. Furthermore, many of our competitors have greater financial and other resources to conduct such trials in more detail and with larger patient populations, which may ultimately enable them to promote their products more effectively than we do. Moreover, if relevant regulators increase their approvals of new therapies developed by competitors for the conditions treated by our products, such as in order to increase the number of treatment options available for rare or orphan diseases, our business and results of operations could be materially and adversely affected.
For example, in recent years, competitors have introduced additional plasma-based hemophilia products, or such products have been approved for additional uses, which may affect (and in certain cases has affected) sales of our plasma-based hemophilia products, such as FEIBA. Moreover, certain competitors are developing other hemophilia therapies, including gene-based therapies, which, if successfully introduced, could also harm sales of our plasma-based therapies. Increased competition from new products or therapies could similarly affect our other products.
In Japan, reduced approval times for drugs already marketed outside Japan have led to increased competition through the introduction of such drugs into the Japanese market by foreign competitors. In addition, new competing products or the development of superior medical technologies and other treatment options could make our products or technologies lose their competitiveness or become obsolete. As discussed above, our products are also subject to competition from inexpensive generic versions of our products, as well as generic versions of our competitors’ products, upon the expiration or loss of related patent protection and regulatory data protection, which may result in loss of market share. If we are unable to maintain the competitiveness of our products, our business, financial position and results of operations could be materially and adversely affected.
Our products may have unanticipated adverse effects or possible adverse effects, which may restrict use of the product or give rise to product liability claims.

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As a pharmaceutical company, we are subject to significant risks related to product liability. Unanticipated adverse reactions or unfavorable publicity from complaints concerning any of our products, or those of our competitors, could have an adverse effect on our ability to obtain or maintain regulatory approvals or successfully market our products, and may even result in recalls, withdrawal of regulatory approval or adverse labeling of the product.
While our products are subject to comprehensive clinical trials and rigorous statistical analysis during the development process prior to approval, there are inherent limitations with regard to the design of such trials, including the limited number of patients enrolled in such trials, the limited time used to measure the efficacy of the product and the limited ability to perform long-term monitoring. In the event that such unanticipated adverse reactions are discovered, we may be required to add descriptions of the adverse reactions as “precautions” to the packaging of our products, recall and terminate sales of products or conduct costly post-launch clinical trials. Furthermore, concerns relating to potential adverse reactions could arise among consumers or medical professionals, and such concerns, whether justified or not, could have an adverse effect on sales of our products and our reputation. We could also be subject to product liability litigation by patients who have suffered or claim to have suffered such adverse reactions resulting in harm to their health.
Although we maintain product liability insurance at coverage levels that we believe are appropriate, we could be subject to product liability that significantly exceeds such levels. Product liability coverage is also increasingly difficult and costly to obtain, and may not be available in the future on acceptable terms. Therefore, in the future, it is possible that we may need to rely increasingly on self-insurance for the management of product liability risk. In cases where we self-insure, the legal costs that we would bear for handling such claims and potential indemnifications to be paid to claimants could materially and adversely affect our financial condition. In addition, the negative publicity from product liability claims, whether or not justified, may damage our reputation and may negatively impact the number of prescriptions of the product in question or our other products. As a result, our business, financial condition and results of operations could be materially and adversely affected.
We may not be able to attract and retain key management and other personnel.
In order to produce, develop, support and market our products, we depend on the expertise and leadership of our senior management team and other key members of our organization. The loss of key members of our organization, including senior members of our scientific and management teams, high-quality researchers and development specialists, could delay or prevent the achievement of major business objectives. The market for such talents has become increasingly competitive, including in specific geographic regions and in specialized fields such as clinical development and biosciences, and we are required to invest heavily in the recruitment, training and retention of qualified individuals, including salary and other compensation to reward performance and incentivize employees. Despite our efforts to retain them, key employees could terminate their employment with us for any reason or for no reason, and there is no assurance that we will be able to attract or retain key employees and successfully manage them. Our inability to attract, integrate and retain highly skilled personnel, particularly those in leadership positions, may weaken our succession plans and may materially adversely affect our ability to implement our strategy and meet our strategic objectives, which could ultimately adversely affect our business and results of operations.
We are increasingly dependent on information technology systems and our systems and infrastructure face the risk of theft, exposure, tampering or other intrusions.
A variety of important processes relating to the research and development, production and sale of our products depend heavily on our information systems, including cloud-based computing, or those of third party providers to whom we outsource certain business functions, including the storage and transfer of critical, confidential, sensitive or personal information regarding our patients, clinical trial subjects, vendors, customers, employees and others. The size and complexity of these computer systems make them potentially vulnerable to service interruptions, malicious intrusions and random attacks. Cyber-attacks are increasing in frequency, sophistication and intensity. Such attacks are made by groups and individuals with a wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation-states and others. Cyber-attacks could include the deployment of harmful malware, denial of service attacks, worms, social engineering and other means to affect service reliability and threaten data confidentiality, integrity and availability. The development and maintenance of systems to safeguard against such attacks is costly and requires ongoing monitoring and updating as technologies change and efforts to overcome security measures become increasingly more sophisticated. Moreover, the costs related to these security measures are expected to continue to increase. Despite our efforts, the possibility of a future data compromise cannot be eliminated entirely, and risks associated with intrusion, exposure, tampering, and theft remain. For “zero-day threats,” or new vectors of attack which are currently unknown, the risk that our defenses will be inadequate are particularly pronounced.
If our data systems are compromised, our business operations may be impaired, we may lose profitable opportunities, or the value of those opportunities may be diminished, and we may lose revenue because of unlicensed use of our intellectual property or confidential or proprietary information. Cyber-attacks could significantly impact the availability of data systems that are essential to

23





conducting routine business operations across the company, including product manufacturing or clinical development, and the recovery efforts could be both time consuming and costly. If personal information of our customers or employees is misappropriated, our reputation with our customers and employees may be injured resulting in loss of business and/or morale, and we may incur costs to remediate possible injury to our customers and employees or be required to pay fines or take other action with respect to judicial or regulatory actions arising out of such incidents. Data privacy or security breaches by employees and others with permitted access to our systems, including in some cases third-party service providers to which we may outsource certain business functions, may also pose a risk that sensitive data, including intellectual property or personal information, will be exposed to unauthorized persons or to the public.
Changes in data privacy and protection laws and regulations, particularly in Europe, or any failure to comply with such laws and regulations, could adversely affect our business and financial results.
We are subject to laws and regulations globally regarding privacy, data protection, and data security, including those related to the collection, storage, handling, use, disclosure, transfer, and security of personal data. Significant uncertainty exists as privacy and data protection laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements. For example, the EU’s General Data Protection Regulation (the “GDPR”), which imposes additional obligations on companies regarding the handling of personal data and provides certain individual privacy rights to persons whose data is processed, became effective on May 25, 2018. Moreover, significant regulatory fines may be imposed on us for violation of these requirements, particularly in the case of the GDPR, which are set at a maximum of the higher of €20 million or 4% of annual global turnover for the most serious breaches, or the higher of €10 million or 2% of annual global turnover for certain others. There is also significant uncertainty as to how the various EU member states or individual regulators will implement and interpret the GDPR, and we are still in the process of identifying and unifying differences between our and Shire’s historical GPDR compliance practices. Furthermore, legislators and regulators in the United States are proposing new and more robust cybersecurity rules in light of the recent broad-based cyberattacks at a number of companies. Compliance with existing, proposed and recently enacted laws (including implementation of the privacy and process enhancements called for under GDPR) and regulations can be costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others or damage to our reputation and credibility and could also have a negative impact on revenues and profits.
Social media platforms and new technologies present risks and challenges for our reputation and business.
Consumers, the media, pharmaceutical companies and other parties increasingly use social media and other new technologies to communicate about pharmaceutical products and the diseases they are intended to treat. For pharmaceutical companies, the use of these technologies requires specific attention, monitoring programs and moderation of comments. For example, negative or inaccurate posts or comments about us or our products on any social media networking platforms could damage our reputation and business. Social media could also be used to bring negative attention to us or to the pharmaceutical industry as a whole, which could in turn cause reputational harm to us and negatively impact our business. The nature of evidence-based health care, however, may prevent us from rapidly and adequately defending our interests against such comments. In addition, our employees and partners may use social media and mobile technologies inappropriately, which may expose us to liability, or which could lead to breaches of data security, loss of trade secrets or other intellectual property or public disclosure of sensitive information, including information about our employees, clinical trial subjects or customers.
Sales to wholesalers are concentrated, which exposes us to credit risks and pricing pressures.
A significant portion of our global sales are made to a relatively small number of wholesale distributors, retail chains and other purchasing groups. In the fiscal year ended March 31, 2019, our largest wholesale distributor accounted for 10.8% of our total revenue. If one of our significant wholesale distributors encounters financial or other difficulties, such distributor may decrease the amount of business that it does with us, and we may be unable to collect the amounts that the distributor owes us on a timely basis or at all. Furthermore, the concentration of wholesale distributors has been increasing through mergers and acquisitions. In addition to increased credit risks, this has resulted in such distributors gaining additional purchasing leverage, which may increase pricing pressure on our products. Such credit concentration risks and pricing pressure could adversely affect our business, financial condition and results of operations.
We face risks from the pursuit of acquisitions, and the anticipated benefits and synergies resulting from acquisitions may not be realized.
We regularly pursue acquisitions for a number of reasons, including strengthening our pipeline, complementing existing lines of business, adding research and development capabilities or pursuing other synergies. The pursuit of these acquisitions requires the

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commitment of significant management and capital resources in various stages, from the exploration of potential acquisition targets to the negotiation and execution of an acquisition to the integration of an acquired business into our own. The required commitment of time and resources may divert the attention of management or capital or other resources away from our day-to-day business. Moreover, we may not be able to recoup the investment of capital or other resources through the successful integration of acquired businesses, including the realization of any expected cost or other synergies. Specifically, we may encounter the following difficulties:
We may face significant challenges in combining the infrastructure, management and information systems of acquired companies with ours, including integrating research and development, manufacturing, distribution, marketing and promotion activities and information technology systems;
There may be difficulties in conforming standards, controls, procedures and accounting and other policies, as well as business cultures and compensation structures;
We may not be able to retain key personnel at acquired companies, or our own employees may be motivated to leave due to acquisitions;
We may not be successful in identifying and eliminating redundancies and achieving other cost savings as expected; and
We may not be able to successfully realize benefits from acquired products, including pipeline products under development.
Integrating the operations of multiple new businesses with that of our own is a complex process that requires significant management attention and resources. The integration process may disrupt our existing and other newly acquired businesses and, if implemented ineffectively, could have an adverse impact not only on our ability to realize the benefits of a given acquisition but also on the results of our existing operations. Integration-related risks may be heightened in cases where acquired businesses’ operations, employees or customers are located outside our major markets and we incur higher costs than anticipated due to regulatory changes, environmental factors or foreign exchange fluctuations. We continue to pursue strategic business acquisitions globally as a key part of our continuous growth strategy. If we are not able to achieve the anticipated benefits of any future acquisitions in full or in a timely manner, we could be required to recognize impairment losses, we may not be able to recoup our investment, and our business, financial position and results of operations could be materially and adversely affected. Particularly, we may be unable to achieve the expected revenues pursuant to licensing, co-promotion or co-development agreements or collaborations. We may also assume unexpected contingent or other liabilities, or be required to mark up the fair value of liabilities (or mark down the fair value of assets) acquired upon the close of an acquisition.
We may incur substantial costs due to our environmental compliance efforts or claims relating to our use, manufacture, handling, storage or disposal of hazardous materials.
Our research and development and manufacturing processes use hazardous materials, including chemicals and radioactive and biological materials, and produce hazardous waste. National and local laws and regulations in many of the jurisdictions in which we operate impose substantial potential liability for the improper use, manufacture, handling, storage and disposal of hazardous materials as well as for land contamination, and, in some cases, this liability may continue over long periods of time. Despite our compliance efforts, we cannot completely eliminate the risk of accidental contamination and any resultant injury from these materials. For example, real properties that we owned or used in the past or that we own or use now or in the future may contain detected or undetected contamination resulting from our manufacturing operations at those sites or the activities of prior owners or occupants. We may suffer from expenses, claims or liability which may fall outside of or exceed our insurance coverage. Furthermore, changes to current environmental laws and regulations may impose further compliance requirements on us that may impair our research, development and production efforts as well as our other business activities.
We may suffer large losses in the event of a natural or other disaster, such as an earthquake, terrorist attack or other catastrophic event, in any of the markets in which we operate.
Japan and other regions in the world in which we operate are subject to the risk of earthquakes and other natural disasters, including volcanic eruptions, tidal waves, typhoons, floods and hurricanes. For example, the Great East Japan Earthquake and subsequent tsunami that occurred in March 2011 caused unprecedented property and other damage, although we did not incur any significant damage to our facilities. In addition, other events outside our control, such as war, civil or political unrest, deliberate acts of sabotage, or industrial accidents such as fire and explosion, whether due to human or equipment error, could damage, cause

25





operational interruptions, or otherwise adversely affect certain of our manufacturing or other facilities as well as potentially cause injury or death to our personnel. In the event of a major natural disaster or other uncontrollable event or accident, our facilities, particularly our production plants, may experience catastrophic loss, operations at such facilities may be halted, shipments of products may be suspended or delayed and large losses and expenses to repair or replace facilities may be incurred. Such negative consequences could cause product shortages, significant losses of sales or require significant unexpected expenditures, and materially adversely affect our business, financial condition and results of operations. In addition, our business may also be adversely affected if our suppliers or business partners were to experience a catastrophic loss due to natural disasters, accidents or other uncontrollable events.
Although we purchase comprehensive global insurance to cover property damage and consequent business interruption for certain potential losses at sites owned by us and at certain critical supplier sites, we do not maintain earthquake insurance in Japan, and our insurance policies may not be adequate to cover all possible losses and expenses.
We may have to recognize additional charges on our statements of income due to impairment of goodwill, other intangible assets and equity method investments.
We carry significant amounts of goodwill and intangible assets on our balance sheet as a result of past acquisitions, including the Shire Acquisition. As of March 31, 2019, we had goodwill of ¥4,161.4 billion and intangible assets of ¥4,860.4 billion. Goodwill and intangible assets recorded in relation to acquisitions are recognized on our balance sheet on the acquisition date. Under IFRS, we are required to examine such assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Impairment of Goodwill and Intangible Assets.”
We occasionally enter into business ventures with third-party entities where we have significant influence over the decisions on financial and operating policies, but do not have control or joint control (referred to as “investments in associates”). We also enter into joint arrangements whereby we and the other parties that have joint control of the arrangement have rights to the net assets of the arrangement (referred to as “joint venture”). We account for these investments using the equity method of accounting. As of March 31, 2019, the carrying amount of investments accounted for using the equity method was ¥114.7 billion. Under IFRS, at each reporting period, we are required to determine whether there is objective evidence that the investment in each associate or joint venture is impaired.
The recognition of such impairment charges may adversely affect our business, financial condition and results of operations.
If we fail to maintain effective internal control over financial reporting, the accuracy and timeliness of our financial reporting may be adversely affected, which could cause investors to lose confidence in our reported financial information and may lead to a decline in the trading price of our ADSs or other securities, including the Notes.
Our common stock is currently listed on the Tokyo Stock Exchange and other local Japanese stock exchanges, and we have established internal control over financial reporting pursuant to the requirements applicable to companies listed only in Japan. In addition, our ADSs are listed on the New York Stock Exchange (the “NYSE”), making us subject to, among other things, the requirements under the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The standards for internal control over financial reporting under the Sarbanes-Oxley Act are significantly more extensive than those applicable to companies listed only in Japan. For example, we will be required, pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our independent registered public accounting firm has issued an opinion on our internal control over financial reporting. Pursuant to the instructions to Form 20-F, we expect to include this report in our next annual report filed with the SEC, which we currently expect will be filed by no later than July 31, 2020. We are still in the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404.
Neither our management nor independent registered public accounting firm has ever performed a comprehensive evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act because no such evaluation has been required, and we cannot be certain that material weaknesses in our internal control over financial reporting will not develop or be identified. Any failure to achieve and maintain adequate internal control over financial reporting or to implement required, new or improved controls, or difficulties encountered in their implementation could cause material weaknesses or other deficiencies in our internal control over financial reporting in the future. If we are unable to successfully remediate any material weaknesses or other deficiencies in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected, and investors may lose confidence in our financial reporting, and the price of our ADSs or other securities,

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including the Notes, may decline as a result. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the NYSE.
We are subject to additional risk due to uncertainty relating to the calculation of LIBOR, EURIBOR and other reference rates and their potential discontinuance.
The JBIC Loan and the Term Loan Credit Agreement are subject to a floating interest rate calculated in reference to LIBOR, while the floating rate Euro-denominated senior notes we issued in connection with the Shire Acquisition are subject to floating rate interest calculated in reference to EURIBOR. LIBOR, EURIBOR and other interest rate, equity, commodity, foreign exchange rate and other types of indices which are deemed to be “benchmarks” are the subject of ongoing national, international and other regulatory guidance and proposals for reform. Some of these reforms are already effective while others are still to be implemented. These reforms may cause such “benchmarks” to perform differently than they have performed in the past or to be discontinued entirely or may have other consequences that cannot be predicted, which could have a material adverse effect on our financial condition or results of operations or require us to seek to amend the terms of the relevant indebtedness, which may require significant additional time, effort or money in the form of consent payments or otherwise, and may not be possible on cost-efficient terms or at all.
In particular, regulators and law enforcement agencies in the United Kingdom and elsewhere are conducting criminal and civil investigations into whether the banks that contribute information to the British Banker Association (the “BBA”) in connection with the daily calculation of LIBOR may have been under-reporting or otherwise manipulating or attempting to manipulate LIBOR. A number of BBA members banks have entered into settlements with their regulators and law enforcement agencies, as well as the ICE Benchmark Administration (the current administrator of LIBOR), which may result in changes to the manner in which LIBOR is determined or the establishment of alternative reference rates. On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. In a subsequent announcement on July 12, 2018, the FCA emphasized the need for market participants to transition away from LIBOR before the end of 2021. Such announcements indicate that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021. Notwithstanding the foregoing, it appears highly likely that LIBOR will be discontinued or modified by 2021. A number of alternatives to LIBOR have been proposed or are being developed, but it is not clear which, if any, will be adopted. Any of these alternative methods may result in interest payments that are higher than expected or that do not otherwise correlate over time with the payments that would have been made on such indebtedness for the interest periods if the applicable LIBOR rate was available in its current form. More generally, any of the foregoing changes, any other changes to LIBOR as a result of national, international and other regulatory guidance and proposals for reform or other initiatives or investigations, or any further uncertainty surrounding the implementation of such changes, could have a material adverse effect on affected indebtedness.
At this time, it is not possible to predict the effect that these developments, any discontinuance, modification or other reforms to LIBOR, EURIBOR or any other reference rate, or the establishment of alternative reference rates may have on LIBOR, EURIBOR, other benchmarks or floating rate indebtedness.
Risks Related to the Exchange Notes
The Exchange Notes are unsecured obligations.
The Exchange Notes are unsecured obligations and repayment of the Exchange Notes may be compromised if:
we enter into bankruptcy, liquidation, rehabilitation or other winding-up proceedings;
we default in payment of our secured indebtedness or other unsecured indebtedness; or
any of our indebtedness is accelerated.
If any of these events occurs, then our assets may be insufficient to pay amounts due on the Exchange Notes.
The Exchange Notes will be structurally subordinated to the liabilities of our subsidiaries.
The Exchange Notes will be our direct, unsecured and unsubordinated liabilities. The Exchange Notes will be structurally subordinated to the liabilities of our subsidiaries. Holders of the Exchange Notes will only be entitled to assert a claim as a creditor of Takeda Pharmaceutical Company Limited that is to be paid out of Takeda Pharmaceutical Company Limited’s assets. Moreover, to the

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extent that Takeda Pharmaceutical Company Limited now or in the future provides guarantees over the liabilities of our current or future subsidiaries, such claims may rank pari passu with the Exchange Notes, depending on the terms of such guarantees.
The indenture and the Exchange Notes contain only very limited restrictions on our ability to pledge, dispose or securitize our assets, pay dividends, incur indebtedness or issue or repurchase securities and provide holders with limited protection in the event of a change in control.
The indenture and the Exchange Notes do not contain any financial covenants and contain only very limited restrictions on our ability to pledge assets to secure other indebtedness, to securitize our loan assets, or sell or otherwise dispose of substantially all of our assets, our ability to pay dividends on our shares of common stock, our ability to incur unsecured indebtedness or our ability to issue new securities or repurchase our outstanding securities. These or other actions by us could adversely affect our ability to pay amounts due on the Exchange Notes.
In addition, the indenture and the Exchange Notes do not contain any covenants or other provisions that afford more than limited protection to holders of the Exchange Notes in the event of a change in control. As discussed in a separate risk factor above, the pharmaceutical industry is one of the most active industries for mergers and acquisitions and global industrial reorganizations, and there can be no assurance that we will not be subject to a transaction that results in such a change of control.
We may redeem certain series of the Exchange Notes prior to maturity.
We may redeem certain series of the Exchange Notes, in whole but not in part, at our option prior to the final maturity date, subject to the conditions described under “Description of the Exchange Notes—Redemption—Optional Redemption.” In the case of such discretionary optional redemptions, if made after the par call date for the relevant series of Exchange Notes, we will not be required to pay any premium or other make-whole payments on the Exchange Notes being redeemed. Moreover, upon the occurrence of certain adverse tax events, we will be permitted to redeem the Exchange Notes at par. See “Description of the Exchange Notes—Redemption—Optional Tax Redemption.” If the Exchange Notes were redeemed prior to the final maturity date, holders may not be able to reinvest the money received upon such redemption at the same rate of return as the Exchange Notes.
The ratings of the Exchange Notes could be lowered.
Any ratings assigned to the Exchange Notes by third party ratings agencies are limited in scope, and do not address all material risks relating to an investment in the Exchange Notes, but reflect only the view of each rating agency at the time the rating is issued. There is no assurance that such credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment, circumstances so warrant. A downgrade or potential downgrade in our credit ratings or the assignment of new ratings that are lower than existing ratings could reduce the population of potential investors in the Exchange Notes and adversely affect the price and liquidity of the Exchange Notes. A rating is based upon information furnished by us or obtained by the rating agency from its own sources and is subject to revision, suspension or withdrawal by the rating agency at any time. See “—Risks Relating to the Shire Acquisition—We have substantial debt, including a significant amount incurred in connection with the Shire Acquisition, which may limit our ability to execute our business strategy, refinance existing debt or incur new debt, and if we are unable to meet our goals for deleveraging, we could be at a greater risk of a downgrade of our credit ratings.”
The market for the Exchange Notes may have limited liquidity.
Although approval in-principle has been received for the listing and quotation of the Exchange Notes (save for the 2020 Exchange Notes) on the Singapore Exchange, there can be no assurance that any liquid markets for the Exchange Notes will ever develop or be maintained. Furthermore, there can be no assurance as to the liquidity of any markets that may develop for the Exchange Notes or the prices at which you will be able to sell your Exchange Notes, if at all. Future trading prices of the Exchange Notes will depend on many factors, including:
prevailing interest rates;
our financial condition and results of operations;
the then-current ratings assigned to the Exchange Notes;
the market for similar securities; and
general economic conditions.

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Any trading markets that develop would be affected by many factors independent of and in addition to the foregoing, including the outstanding amount of the Exchange Notes and the level, direction and volatility of market interest rates generally.

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USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the Exchange Notes. In consideration for issuing the Exchange Notes as contemplated in this prospectus, we will receive in exchange a like principal amount of Outstanding Notes, the terms of which are identical in all material respects to the Exchange Notes. The Outstanding Notes surrendered in exchange for the Exchange Notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the Exchange Notes will not result in any change in our capitalization or result in any increase in our indebtedness.

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CAPITALIZATION
The following table shows our capitalization and indebtedness as of March 31, 2019. There will be no changes to our capitalization as a result of the exchange offer.
The capitalization table should be read in conjunction with the information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements included in this prospectus.
 
As of March 31,
2019
 
(billions of yen)
Debt:
 
Bonds
¥
3,196.4

Loans
2,554.6

Total debt
¥
5,751.0

 
 
Equity:
 
Share capital
¥
1,643.6

Authorized—3,500,000,000 shares
 
Issued—1,565,005,908 shares
 
Share premium
1,650.2

Treasury shares
(57.1
)
Retained earnings
1,569.4

Other components of equity
353.5

Equity attributable to owners of the Company
5,159.6

Non-controlling interests
4.0

Total equity
¥
5,163.6

Total capitalization and indebtedness
¥
10,914.5


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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents selected financial information as of and for the years ended March 31, 2015, 2016, 2017, 2018 and 2019, which is derived from our consolidated financial statements. These financial statements are prepared in accordance with IFRS.
The information below should also be read in conjunction with, and is qualified in its entirety by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with IFRS, which differ in certain significant respects from accounting principles generally accepted in other countries, including Japan and the United States.
 
 
As of and for the fiscal years ended,
 
 
2015
2016
2017
2018
2019
 
(billions of yen, except share and per share data and where designated as U.S. dollars)
Selected Statements of Operations Data:
 
 
 
 
 
Revenue
¥
1,777.8

¥
1,807.4

¥
1,732.1

¥
1,770.5

¥
2,097.2

Operating (loss) profit
(129.3
)
130.8

155.9

241.8

205.0

Share of profit (loss) of investments
accounted for using the equity method
1.3

0.0

(1.5
)
(32.2
)
(43.6
)
(Loss) profit before tax
(145.4
)
120.5

143.3

217.2

94.9

Net (loss) profit for the year
(143.0
)
83.5

115.5

186.7

109.0

Net (loss) profit attributable to owners of
the Company
(145.8
)
80.2

114.9

186.9

109.1

Per share amounts
 
 
 
 
 
Basic (losses) earnings
¥
(185.37
)
¥
102.26

¥
147.15

¥
239.35

¥
113.50

Diluted (losses) earnings
(185.37
)
101.71

146.26

237.56

112.86

Annual cash dividends
180.00

180.00

180.00

180.00

180.00

Cash dividends in U.S. dollars(1)
$
1.50

$
1.60

$
1.62

$
1.69

$
1.63

 
 
 
 
 
 
Selected Statements of Financial Position Data:
 
 
 
 
 
Cash and cash equivalents
¥
652.1

¥
451.4

¥
319.5

¥
294.5

¥
702.1

Total assets
4,296.2

3,824.1

4,346.8

4,106.5

13,872.3

Total bonds and loans
729.4

768.2

1,144.9

985.7

5,751.0

Total liabilities
2,090.0

1,812.9

2,397.8

2,089.1

8,708.7

Total equity
2,206.2

2,011.2

1,949.0

2,017.4

5,163.6

 
 
 
 
 
 
Other Data:
 
 
 
 
 
Number of shares outstanding at end of
period (in thousands)
789,924

790,284

790,521

794,688

1,565,006

___________
Note:
(1)
Calculated using the Japanese yen—U.S. dollar exchange rate as of March 31 of each year, based on the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York.

32





MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion of our operating and financial review and prospects together with our consolidated financial statements included in this prospectus. Our consolidated financial statements are prepared in accordance with IFRS, as issued by the International Accounting Standard Boards (“IASB”). IFRS includes International Accounting Standard (“IAS”) and related interpretations of the committees (SIC and IFRIC).
The following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of factors, including, but not limited to, those under the caption“Risk Factors” and elsewhere in this prospectus.
Overview
We have grown both organically and through acquisitions, completing a series of major transactions that have resulted in growth in our areas of therapeutic, geographic and pipeline focus. In particular, our acquisition of Shire in January 2019 strengthened our presence in GI and neuroscience, while providing us with a leading position in rare disease and plasma driven therapies. It also enhanced our research and development pipeline and created a highly complementary, robust, modality-diverse pipeline. Commercially, the Shire Acquisition significantly strengthened our presence in the United States. As a result of the acquisition of Shire, we incurred significant indebtedness to finance the cash portion of the consideration. We plan to de-lever following the Shire Acquisition using cash flows from operations and we are initiating disposals of non-core assets to accelerate the pace of deleveraging and to refocus our business on our key business areas of GI, rare diseases, plasma-derived therapies, oncology, and neuroscience.
We organize our business as a single operating segment, reflecting the presentation of information to our management for the purposes of allocating resources, measuring performance and forecasting future periods. In the fiscal year ended March 31, 2019, our revenue was ¥2,097.2 billion, our operating profit was ¥205.0 billion.
Factors Affecting Our Results of Operations
Our results are affected by the global industry trends and operating environment as described under the caption “Business” and other factors described below.
Acquisitions
We may acquire new businesses to expand our research and development capabilities (including expanding into new methodologies) and to acquire new products (whether in the development pipeline or at the marketing stage) or other strategic regions. Similarly, we regularly divest businesses and product lines to maintain our focus on our key growth drivers and to manage our portfolio.
We account for these acquisitions as business combinations and record the assets and liabilities acquired at fair value. Our results are impacted due to the impacts of purchase accounting, which typically includes fair value step-ups of inventory and property, plant and equipment and recognized material intangible assets which result in costs related to unwind of the step up and amortization expense, respectively, in future periods. Our results are also impacted due to additional interest expenses when an acquisition is financed with incremental borrowings.
On January 8, 2019, we acquired Shire for an aggregate consideration of ¥6.21 trillion, of which ¥3,029.4 billion was paid in cash and the remainder mainly in shares of our common stock. We incurred ¥3,295.9 billion in indebtedness in order to finance the cash portion of the consideration, and as a result of the Shire Acquisition assumed ¥1,603.2 billion of indebtedness of Shire which is included in our consolidated statement of financial position. We recorded goodwill of ¥3,087.4 billion and intangible assets of ¥3,899.3 billion in relation to the Shire Acquisition. The acquisition of Shire has significantly changed our business through, among other things, the significant expansion of our product portfolio and geographic presence. Our results will be significantly impacted by the Shire Acquisition with an increase to our revenues, and associated costs, and the impact of the acquisition including incremental amortization expenses related to the acquired intangible assets, incremental cost of sales resulting from the unwinding of the inventory fair value step up, the interest expense associated with the borrowings used to fund the acquisition, and the costs incurred to integrate the business. We are actively engaged in integrating Shire and expect to be able to achieve significant, recurring pre-tax synergies of approximately $2.0 billion annually by the end of the third fiscal year after the completion of the Shire Acquisition, originating from efficiencies in the combined company’s sales, marketing and administrative functions, research and development rationalization efforts and product manufacturing and supply. We estimate that the realization of these synergies will require non-recurring costs of approximately $3.0 billion in the first three fiscal years following the completion of the Shire Acquisition. We believe that the substantial cash flow generation expected to result from the Shire Acquisition will enable us to maintain our well-established dividend

33





policy, and de-lever following completion. We have begun initiating the disposal of certain non-core assets and businesses to increase the pace of de-leveraging our debt.
On February 16, 2017, we acquired ARIAD Pharmaceuticals, Inc. for a net consideration of ¥583.1 billion. Headquartered in Cambridge, Massachusetts in the United States, ARIAD was a commercial-stage biotechnology company focusing on discovering, developing and commercializing precision therapies for patients with rare forms of chronic and acute leukemia, lung cancer and other rare cancers.
As a result of our acquisitions, and the impacts described above, our results year over year may not be comparable.
Divestitures
In addition to acquisitions, we divest businesses and product lines to maintain our focus on our key growth drivers and to manage our portfolio and to provide additional cash flow to accelerate the repayment of long-term borrowings.
In April 2017, we completed the sale of our shares in Wako Pure Chemical to FUJIFILM Corporation for a sale price of ¥198.5 billion, for which we recognized a gain of ¥106.3 billion in the fiscal year ended March 31, 2018. Wako Pure Chemical generated revenue of ¥76.6 billion and ¥79.1 billion for the fiscal years ended March 31, 2016 and 2017, respectively. There was no revenue recognized related to Wako Pure Chemical for the fiscal year ended March 31, 2018.
In April 2016, we transferred certain long-listed products in Japan to Teva Takeda Yakuhin Ltd., a wholly-owned subsidiary of Teva Takeda Pharma Ltd., a joint venture we formed with Teva Pharmaceutical Industries Ltd. in which we hold a 49% interest, representing shares of Teva Takeda Pharma Ltd. received as consideration for the transfer. At the time of the transfer, we recognized a gain for the difference between the fair value consideration received (shares of Teva Takeda Pharma Ltd.) and the carrying value of the business to the extent we disposed of the business. The remainder of the gain was deferred and will be amortized over a period of 15 years from the date of the transfer, representing the estimated useful life of the intangible assets associated with the products transferred. In the fiscal year ended March 31, 2017, we recognized a gain related to this transfer of ¥115.4 billion. ¥102.9 billion of such amount was the amount of the gain recognized at the time of disposal. The remainder represents the amount of the deferred gain amortized during such fiscal year. We receive income from the joint venture in the form of a supply and distribution fee, in addition to a 49% share of the joint venture’s income or losses.
We have communicated our intention to continue to divest businesses that are not core to our operations and to reduce our borrowings with the proceeds. In May 2019, we announced the sale of Xiidra® (lifitegrast ophthalmic solution), which we obtained as part of the Shire Acquisition and the sale of Tachosil™, as described further in Note 33 to our audited consolidated financial statements included in this prospectus. We completed the sale of Xiidra (lifitegrast ophthalmic solution) in July 2019.
Patent Protection and Generic Competition
For pharmaceutical products in particular, patent protection and/or regulatory exclusivity benefit our results of operations by restricting competition. Newly introduced products, particularly those which treat conditions for which alternative treatments may not be readily available, in particular may significantly contribute to sales. However, even protected products must compete with products of other manufacturers based on efficacy, lack of adverse reactions and price. On the other hand, the loss or expiration of patent protection or regulatory exclusivity with respect to any of our principal products could have a material adverse effect on our results of operations, as generic products, which tend to be quickly adopted once introduced, may enter the market. Some of our principal products face, or are expected to face, considerable competition due to the expiration of patent or other intellectual property protection. For example, following the expiration of patent protection over bortezomib, the active ingredient in VELCADE, one of our largest selling products in the United States, a competing bortezomib-containing product has been introduced. This has led to a decrease in sales of VELCADE, and further entry of competing products could result in substantial additional declines. In certain cases, generic competitors may successfully challenge the validity of patents, or the manufacturer may decide that the benefits of prematurely launching “at risk” the generic drug outweigh the costs of defending infringement litigation. In situations where the validity of patents or the value of the protection is challenged, we may record impairment losses with respect to the relevant intangible property.
Impact of the Availability of Raw Materials
Our results of operations may be impacted if we are not able to internally or externally source critical raw materials. For example, human plasma is a critical raw material in our plasma derived therapies. Efforts to increase the collection of plasma may include the contracting and regulatory approval of additional plasma collection facilities and plasma fractionation facilitates.  During the year ended March 31, 2019, our results of operations were impacted by the fact that the demand to produce plasma derived therapies was greater than the supply of critical raw material needed.

34





Foreign Exchange Fluctuations
In the fiscal year ended March 31, 2019, 72.8% of our revenue was from outside of Japan, and we expect this ratio to further increase when we consolidate a full year of Shire results. Changes in foreign exchange rates, particularly for the U.S. dollar and the euro, relative to the yen, which is our reporting currency, will impact our revenues and expenses. When the yen weakens against other currencies, our revenues attributable to such other currencies increase, having a positive impact on our results of operations, which may be offset by increased expenses denominated in such currencies. Conversely, when the yen strengthens against other currencies, our revenues attributable to such currencies decrease, having a negative impact on our results of operations, which may be offset by decreased expenses denominated in such currencies. To mitigate the risk exposed by foreign exchange fluctuations, we utilize certain hedging measures with respect to some of our significant foreign currency transactions, primarily forward exchange contracts, currency swaps and currency options for individually significant foreign currency transactions.
Periodic Trends
Our revenues, operating profit and net income were lower in the fourth quarter of each of the fiscal years ended March 31, 2017, 2018 and 2019, due mainly to fluctuations in sales in Japan. Japanese pharmaceutical product wholesalers generally control their inventory more tightly towards their fiscal year ends, typically March 31, which causes decreased revenue in the fourth fiscal quarter. Japanese pharmaceutical product wholesalers also tend to increase purchases ahead of the New Year holidays, causing a concentration of sales in our third fiscal quarter, from October 1 to December 31.
Critical Accounting Policies
Our consolidated financial statements have been prepared in accordance with IFRS. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. On an ongoing basis, management evaluates its estimates and assumptions. Management bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable at the time the estimates and assumptions are made. Actual outcomes may differ from those estimates and assumptions.
We believe the following critical accounting policies are affected by management’s estimates and assumptions, changes to which could have a significant impact on our consolidated financial statements.
Revenue Recognition
Our revenue is primarily related to the sale of pharmaceutical products and is generally recognized when control of the products is passed to the customer in an amount that reflects the consideration to which we expect to be entitled in exchange for those products. Our gross sales are subject to various deductions, which are primarily composed of rebates and discounts to retail customers, government agencies, wholesalers, health insurance companies and managed healthcare organizations. These deductions represent estimates of the related obligations, requiring the use of judgement when estimating the effect of these sales deductions on gross sales for a reporting period. These adjustments are deducted from gross sales to arrive at net sales. The U.S. market has the most complex arrangements related to revenue deductions.
The following summarizes the nature of the most significant adjustments to revenue:
U.S. Medicaid and Medicare: The U.S. Medicaid Drug Rebate Program is administered by state governments using state and federal funds to provide assistance to certain vulnerable and needy individuals and families. Calculating the rebates to be paid related to this program involves interpreting relevant regulations, which are subject to challenge or change in interpretative guidance by government authorities. Provisions for Medicaid rebates are calculated using a combination of historical experience, product and population growth, product pricing and the mix of contracts and specific terms in the individual state agreements. The U.S. Federal Medicare Program, which funds healthcare benefits to individuals age 65 or older and certain disabilities, provides prescription drug benefits under Part D section of the program. This benefit is provided and administrated through private prescription drug plans. Provisions for Medicare Part D rebates are calculated based on the terms of individual plan agreements, product sales and population growth, product pricing and the mix of contracts. There is often a time lag of several months between us recording the revenue deductions and our final accounting for Medicare and Medicaid rebates.
Customer rebates: Customer rebates are offered to purchasing organizations, health insurance companies, managed healthcare organizations, and other direct and indirect customers to sustain and increase market share, and to ensure patient access to our products. Since rebates are contractually agreed upon, the related provisions are estimated based on the terms of the individual agreements, historical experience, and projected product growth rates.

35





Wholesaler chargebacks: We have arrangements with certain indirect customers whereby the customer is able to buy products from wholesalers at reduced prices. A chargeback represents the difference between the invoice price to the wholesaler and the indirect customer’s contractual discounted price. Provisions for estimating chargebacks are calculated based on the terms of each agreement, historical experience and product growth rates.
Return reserves: When we sell a product providing a customer the right to return it, we record a provision for estimated sales returns based on our sales return policy and historical return rates. We estimate the proportion of recorded revenue that will result in a return by considering relevant factors, including past product returns activity, the estimated level of inventory in the distribution channel and the shelf life of products.
Because the amounts are estimated, they may not fully reflect the final outcome, and the amounts are subject to change dependent upon, amongst other things, the type of purchasing organization, end consumer, and product sales mix.
Historically, our adjustments of estimates, to reflect actual results or updated expectations, have not been material to our overall business. Product-specific rebates, however, can have a significant impact on year- over-year individual product growth trends. If any of our ratios, factors, assessments, experiences or judgments are not indicative or accurate predictors of our future experience, our results could be materially affected. The sensitivity of our estimates can vary by program, type of customer and geographic location.
Impairment of Goodwill and Intangible Assets
We review long-lived intangible assets for impairment whenever events or changes in circumstance indicate that the asset’s balance sheet carrying amount may not be recoverable. Goodwill and other currently not amortized intangible assets are reviewed for impairment at least annually. As of March 31, 2019, we have ¥4,161.4 billion of goodwill and ¥4,860.4 billion of intangible assets which in aggregate represent 65.0% of our total assets.
Intangible assets related to commercially marketed products are amortized using the straight-line method over the estimated useful life, which is based on expected exclusivity period, ranging from three to 20 years. Intangible assets related to in-process research and development (“IPR&D”) product rights are not amortized until the product is approved for sale by regulatory authorities in specified markets. At that time, we will determine the useful life of the asset and begin amortization.
Assets are generally considered impaired when their balance sheet carrying amount exceeds their estimated recoverable amount. The recoverable amount is estimated for each individual asset or at the larger cash generating unit level when cash is generated in combination with other assets. Goodwill is allocated to cash generating units, or groups of cash generating units based on expected synergies as determined and the recoverable amount is estimated at the cash generating unit level. Our cash generating units are identified base on the smallest identifiable group of assets that generate independent cash inflows and are represented by the countries where we sell our products. The estimation of recoverable value requires us to make a number of assumptions including:
amount and timing of projected future cash flows;
behavior of competitors (launch of competing products, marketing initiatives, etc.);
probability of obtaining regulatory approvals;
future tax rates;
terminal growth rate; and
discount rate.
Events that may result in the change in cash flows include IPR&D projects which are not successfully developed, and/or commercially marketed products whose value becomes impaired, fail during development, are abandoned or subject to significant delay or do not receive the relevant regulatory approvals. If these events were to occur, we may not realize the future cash flows that we have estimated nor recover the value of the initial or subsequent R&D investments made subsequent to acquisition of the asset project.
Due to changes in these assumptions in subsequent periods, we have recognized impairments and reversal of impairments related to intangible assets during the periods presented. See Notes 11 and 12 to our audited consolidated financial statements.

36





Retirement and Other Post-Employment Benefit Plans
We sponsor pension and other post-employment benefit plans that cover a significant portion of our employees. We are required to make significant assumptions and estimates about future events in calculating the expense and the present value of the liability related to these plans. These include assumptions about the interest rates we apply to estimate future defined benefit obligations and net periodic pension expense, as well as rates of future pension increases. In addition, our actuarial consultants provide our management with historical statistical information such as withdrawal and mortality rates in connection with these estimates. Assumptions and estimates used by us may differ materially from the actual results we experience due to changing market and economic conditions, higher or lower withdrawal rates, and longer or shorter life spans of participants among other factors. See Note 22 to our audited consolidated financial statements for sensitivity information related to the most significant assumptions. A significant change in the assumptions in future periods could have a material impact on our consolidated financial statements. As of March 31, 2019, we have net defined benefit liabilities of ¥156.5 billion.
Business Combination – Fair value
Accounting for a business combination requires us to estimate the fair value of the assets acquired and liabilities assumed and the value of any contingent consideration. The estimate of fair value requires us to make a number of assumptions including estimated future cash flows, discount rates, development and approval milestones, expected market performance and for contingent consideration the likelihood of payment.
Contingent consideration is recorded at fair value at the end of each period. The changes in the fair value based on time value of money are recognized in Finance expenses while other changes are recognized in Other operating income or Other operating expenses on the consolidated statement of income. During the year ended March 31, 2019, the change in fair value of contingent consideration reduced the amount to be paid to us by ¥2.2 billion.
Our estimates are based on our prior experiences and industry knowledge. We believe that our estimates are reasonable, but actual outcomes could differ significantly from our estimates. A significant change in our estimates used to value acquired asset groups or business combinations could result in future write-downs of tangible or intangible assets acquired by us and could, therefore, materially impact our financial position and profitability. If the value of the liabilities assumed by us, including contingent liabilities, is determined to be significantly different from the amounts previously recorded in purchase accounting, we may need to record additional expenses, which could materially impact our financial position and profitability.
Legal Contingencies
We are involved in various legal proceedings primarily related to product liability and commercial liability arising in the normal course of our business. These contingencies are described in detail in Note 32 to our consolidated financial statements.
These and other contingencies are, by their nature, uncertain and based upon complex judgments and probabilities. The factors we consider in developing our provision for litigation and other contingent liability amounts include the merits and jurisdiction of the litigation, the nature and the number of other similar current and past litigation cases, the nature of the product and the current assessment of the science subject to the litigation, and the likelihood of settlement and current state of settlement discussions, if any. In addition, we record a provision for product liability claims incurred, but not filed, to the extent we can formulate a reasonable estimate of their costs based primarily on historical claims experience and data regarding product usage. We also consider the insurance coverage we have to diminish the exposure for periods covered by insurance. In assessing our insurance coverage, we consider the policy coverage limits and exclusions, the potential for denial of coverage by the insurance company, the financial condition of the insurers, and the possibility of and length of time for collection. Any provision and the related estimated insurance recoverable have been reflected on a gross basis as liabilities and assets, respectively, on our consolidated balance sheets. As of March 31, 2019, we have a provision of ¥46.8 billion for outstanding legal cases and other disputes.
Income Taxes
We prepare and file our tax returns based on an interpretation of tax laws and regulations, and we record estimates based on these judgments and interpretations. In the normal course of business, our tax returns are subject to examination by various taxing authorities, which may result in additional tax, interest or penalty assessment by these authorities. Inherent uncertainties exist in estimates of many tax positions due to changes in tax law resulting from legislation, regulation, and/or as concluded through the various jurisdictions’ tax court systems. When we conclude that it is not probable that a taxing authority will accept an uncertain tax position, we recognize the best estimate of the expenditure required to settle a tax uncertainty. The amount of unrecognized tax benefits is adjusted for changes in facts and circumstances. For example, adjustments could result from significant amendments to existing tax law, the issuance of regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of a tax examination. We believe our estimates for uncertain tax positions are appropriate and sufficient based on currently known facts and circumstances.

37





We also assess our deferred tax assets to determine the realizable amount at the end of each period. In assessing the recoverability of deferred tax assets, we consider the scheduled reversal of taxable temporary differences, projected future taxable profits, and tax planning strategies. Based on the level of historical taxable profits and projected future taxable profits during the periods in which the temporary differences become deductible, we determine the amount the tax benefits we believe are realizable. As of March 31, 2019, we had unrecognized deferred tax benefits of ¥259.4 billion. A change in our assumptions in future periods could have a significant impact on our income tax provision.
Restructuring Costs
We incur restructuring costs associated with planned initiatives to reduce our costs and in connection with the integration of our acquisitions. Our most significant restructuring costs are severance payments and lease termination costs. We establish a provision for restructuring costs when the plan has been approved, the cost can be estimated and the amount is probable of payment. The recognition of restructuring provision requires a number of estimates including timing of payments and the number of individuals that will ultimately remain with the company to receive severance. As a result of these estimates, the actual restructuring costs could differ from our estimates.
We expect to incur additional restructuring costs in the future related to the integration efforts associated with our acquisitions and divestitures. As of March 31, 2019, we have a provision of ¥49.7 billion for restructuring costs. See Note 23 to our audited consolidated financial statements included in this prospectus for a further description of our restructuring provisions and the change between periods.
Results of Operations
The following table provides selected consolidated statements of income information for the years ended March 31, 2017, 2018 and 2019.
 
For the fiscal year ended March 31,
 
2017
 
2018
 
2019
 
(billions of yen)
Revenue
¥
1,732.1

 
¥
1,770.5

 
¥
2,097.2

Cost of Sales
(558.8
)
 
(495.5
)
 
(659.7
)
Selling, general and administrative expenses
(619.1
)
 
(628.1
)
 
(717.6
)
Research and development expenses
(312.3
)
 
(325.4
)
 
(368.3
)
Amortization and impairment losses on intangible assets associated with products
(156.7
)
 
(122.1
)
 
(203.4
)
Other operating income
143.5

 
169.4

 
159.9

Other operating expenses
(72.9
)
 
(126.6
)
 
(103.2
)
Operating profit
155.9

 
241.8

 
205.0

Finance income
12.3

 
39.5

 
16.8

Finance expenses
(23.2
)
 
(31.9
)
 
(83.3
)
Share of loss of investments accounted for using the equity method
(1.5
)
 
(32.2
)
 
(43.6
)
Profit before tax
143.3

 
217.2

 
94.9

Income tax (expense) benefit
(27.8
)
 
(30.5
)
 
14.1

Net profit for the year
¥
115.5

 
¥
186.7

 
¥
109.0


38





Fiscal Year Ended March 31, 2019 compared with the Fiscal Year Ended March 31, 2018
Our results of operations for the fiscal year ended March 31, 2019 have been significantly impacted by the Shire Acquisition. The following summarizes the impact on our results of operations in the year end March 31, 2019 and on the change in our results between years.
 
For the fiscal year ended March 31,
 
Consolidated financial results
 
 
Impact from the Shire Acquisition
 
 
Remaining change
 
2018
 
2019
 
Change
versus
previous year
 
 
Shire operations
 
Purchase accounting
 
Acquisition/
integration
costs
 
Total impact from Shire Acquisition
 
 
Change versus previous year
 
 
 
 
 
 
 
 
(billions of yen)
 
 
 
 
 
Revenue
¥
1,770.5

 
¥
2,097.2

 
¥
326.7

 
 
¥
309.2

 
¥

 
¥

 
¥
309.2

 
 
¥
17.5

Cost of sales
(495.9
)
 
(659.7
)
 
(163.8
)
 
 
(101.6
)
 
(81.7
)
 

 
(183.3
)
 
 
19.6

Selling, general and administrative expenses
(628.1
)
 
(717.6
)
 
(89.5
)
 
 
(98.5
)
 
(0.6
)
 
(23.8
)
 
(122.9
)
 
 
33.4

Research and development expenses
(325.4
)
 
(368.3
)
 
(42.9
)
 
 
(43
)
 

 
(1.6
)
 
(44.6
)
 
 
1.7

Amortization and impairment losses on intangibles assets associated with products
(122.1
)
 
(203.4
)
 
(81.3
)
 
 

 
(99.2
)
 

 
(99.2
)
 
 
18.0

Other operating income
169.4

 
159.9

 
(9.5
)
 
 
(1.4
)
 

 

 
(1.4
)
 
 
(8.2
)
Other operating expenses
(126.6
)
 
(103.2
)
 
23.4

 
 
(4.9
)
 

 
(59.6
)
 
(64.5
)
 
 
88.0

Operating profit
241.8

 
205.0

 
(36.8
)
 
 
59.8

 
(181.6
)
 
(85
)
 
(206.8
)
 
 
170.0

Finance income
39.5

 
16.8

 
(22.7
)
 
 
0.0

 
0.2

 

 
0.2

 
 
(22.9
)
Finance expense
(31.9
)
 
(83.3
)
 
(51.4
)
 
 
(10.6
)
 
(4.2
)
 
(41.3
)
 
(56.1
)
 
 
4.8

Share of (loss) profit of investments accounted for using the equity method
(32.2
)
 
(43.6
)
 
(11.4
)
 
 
0.3

 

 

 
0.3

 
 
(11.7
)
Profit before income tax
217.2

 
94.9

 
(122.3
)
 
 
49.4

 
(185.6
)
 
(126.3
)
 
(262.5
)
 
 
140.2

Income tax (expense) benefit
(30.5
)
 
14.1

 
44.6

 
 
(11.3
)
 
44.0

 
26.1

 
58.8

 
 
(14.1
)
Net profit for the year
¥
186.7

 
¥
109.0

 
¥
(77.7
)
 
 
¥
38.1

 
¥
(141.7
)
 
¥
(100.2
)
 
¥
(203.8
)
 
 
¥
126.1

Revenue. Revenue increased ¥326.7 billion, or 18.5%, to ¥2,097.2 billion for the fiscal year ended March 31, 2019, including ¥309.2 billion resulting from the Shire Acquisition.
The remaining increase of ¥17.5 billion, or 1.0%, resulted from the continued expansion from three business areas (GI, oncology, and neuroscience), which was partially offset by the divestitures and the unfavorable impact of foreign currency movements.

39





The following shows revenue by geographic region:


For the fiscal year ended March 31,
 
2018
 
2019
 
(billions of yen, except percentages)
Revenue:
 
 
 
 
 
 
 
Japan
¥
580.3

 
32.8
%
 
¥
571.0

 
27.2
%
United States
598.3

 
33.8

 
829.0

 
39.5

Europe and Canada
313.7

 
17.7

 
405.6

 
19.3

Russia/CIS
68.2

 
3.9

 
59.7

 
2.8

Latin America
75.7

 
4.3

 
88.1

 
4.2

Asia (excluding Japan)
104.0

 
5.9

 
105.4

 
5.0

Other(1)
30.2

 
1.7

 
38.3

 
1.8

Total
¥
1,770.5

 
100.0
%
 
¥
2,097.2

 
100.0
%
_____________
Note:
(1)    Other region includes Middle East, Oceania and Africa.
We rely on our key prescription drug products to generate a significant portion of our revenue. The following products had the most significant impact on our results of operations.
 
For the fiscal year ended March 31,
 
 
 
 
 
2018
 
2019
 
Change versus the previous year
 
(billions of yen, except for percentages)
GI:
 
 
 
 
 
 
 
ENTYVIO
¥
201.4

 
¥
269.2

 
¥
67.8

 
33.7
 %
DEXILANT
65.7

 
69.2

 
3.5

 
5.3

PANTOPROZOLE
65.8

 
61.6

 
(4.2
)
 
(6.4
)
TAKECAB
48.5

 
58.2

 
9.8

 
20.0

AMITIZA
33.8

 
33.0

 
(0.9
)
 
(1.9
)
Oncology:
 
 
 
 
 
 
 
VELCADE
137.3

 
127.9

 
(9.4
)
 
(6.9
)
LEUPRORELIN
108.1

 
110.1

 
2.0

 
1.9

NINLARO
46.4

 
62.2

 
15.8

 
34.1

ADCETRIS
38.5

 
42.9

 
4.4

 
11.4

ICLUSIG
23.1

 
28.7

 
5.6

 
24.1

ALUNBRIG
2.8

 
5.2

 
2.4

 
84.0

Neuroscience:
 
 
 
 
 
 
 
TRINTRELLIX
48.4

 
57.6

 
9.2

 
19.0

Others:
 
 
 
 
 
 
 
AZILVA
64.0

 
70.8

 
6.8

 
10.6

ALOGLIPTIN
50.2

 
54.8

 
4.6

 
9.1

ULORIC
46.8

 
51.1

 
4.3

 
9.1

COLCRYS
40.3

 
30.0

 
(10.3
)
 
(25.4
)
Products acquired from Shire:
 
 
 
 
 
 
 
IMMUNOGLOBULIN

 
62.2

 
62.2

 
N/A

VYVANSE

 
49.4

 
49.4

 
N/A

ADVATE

 
32.1

 
32.1

 
N/A

ALBUMIN

 
15.8

 
15.8

 
N/A

GATTEX/REVESTIVE

 
12.8

 
12.8

 
N/A

ADYNOVATE

 
10.7

 
10.7

 
N/A

TAKHZYRO

 
9.7

 
9.7

 
N/A

NATPARA

 
7.1

 
7.1

 
N/A


40





Change in revenue was primarily attributable to the following products:
GI. In GI, revenue was driven by Takeda's top-selling product ENTYVIO (for ulcerative colitis and Crohn’s disease) with sales of ¥269.2 billion in the fiscal year ended March 31, 2019, an increase of ¥67.8 billion, or 33.7%. This increase was mainly attributable to ENTYVIO's steady expansion of patient share in the bio-naïve segment. Takeda obtained an NDA approval in July 2018 in Japan for the treatment of patients with moderately to severely active ulcerative colitis and launched the product in November 2018. Sales of TAKECAB (for acid-related diseases) were ¥58.2 billion in the fiscal year ended March 31, 2019, an increase of ¥9.8 billion, or 20.1%, versus the previous year. The increase was driven by the expansion of new prescriptions in the Japanese market due to TAKECAB's efficacy in reflux esophagitis and the prevention of recurrence of gastric ulcers during low-dose aspirin administration.
Oncology. In oncology, sales of NINLARO (for multiple myeloma) were ¥62.2 billion, an increase of ¥15.7 billion, or 33.9%, versus the previous year. Strong performance in several regions, particularly in the United States continued to contribute to the growth. NINLARO is a once-weekly oral proteasome inhibitor with a profile of efficacy, safety, and convenience. Additionally, sales of ADCETRIS (for malignant lymphomas) increased by ¥4.4 billion, or 11.4%, reflecting strong performance particularly in Japan and Brazil. Sales of ICLUSIG (for leukemia) and ALUNBRIG (for lung cancer), obtained through the acquisition of ARIAD in February 2017, grew by ¥5.6 billion, or 24.1% and ¥2.4 billion, or 84.0%, respectively. Sales of VELCADE (for multiple myeloma), which lost market exclusivity in the United States in previous year, decreased by ¥9.4 billion, or 6.9%.
Neuroscience. In neuroscience, sales of TRINTELLIX (for major depressive disorder) were ¥57.6 billion in the fiscal year ended March 31, 2019, an increase of ¥9.2 billion, or 19.0%, versus the previous year. Prescribers and patients increasingly made TRINTELLIX part of their comprehensive approach to treat major depressive disorder.
The decrease in revenue resulting from divestitures was primarily due to the sale of seven long-listed products in Japan to Teva Takeda Yakuhin Ltd. in May 2017, the disposition of Guangdong Techpool Bio-Pharma Co., Ltd. in May 2018, and the termination of Takeda’s co-promotion and distribution of XELJANZ in Japan in March 2018.
Shire contributed ¥309.2 billion to our revenue from the date of acquisition. As part of the integration, Takeda's distribution channel policies were applied to the products acquired from Shire. This resulted in a one-time destocking at wholesalers as they lowered their days-on-hand of inventory of commercial products, which resulted in lower revenue for products acquired from Shire. The sales were primarily from the following products:
GI. In GI, revenue was ¥21.5 billion primarily from the sales of GATTEX/REVESTIVE (for the treatment of short bowel syndrome) that were ¥12.8 billion.
Rare diseases. In rare diseases, revenue was ¥111.2 billion including sales of ADVATE and ADYNOVATE (both for the treatment of hemophilia A), TAKHZYRO (for the preventive treatment of hereditary angioedema), and NATPARA (for the treatment of hypoparathyroidism) of ¥32.1 billion, ¥10.7 billion, ¥9.7 billion, and ¥7.1 billion, respectively.
Plasma derived therapies. In plasma derived therapies, revenue was ¥96.3 billion including sales of IMMUNOGLOBULIN (mainly for the treatment of primary immunodeficiency and multifocal motor neuropathy) and ALBUMIN (primarily used for the hypovolemia and hypoalbuminemia) of ¥62.2 billion and ¥15.8 billion, respectively.
Neuroscience. In neuroscience, revenue was ¥60.1 billion including sales of VYVANSE (for the treatment of ADHD and moderate to severe binge eating disorder) of ¥49.4 billion.
Cost of sales. Cost of sales increased ¥163.8 billion, or 33.0%, to ¥659.7 billion for the fiscal year ended March 31, 2019. This includes ¥101.6 billion related to sales of products acquired as part of the Shire Acquisition and the impact of ¥81.7 billion mainly due to non-cash charge from the unwinding of the fair value step up on the inventory from the Shire Acquisition. This increase was offset by a decrease in remaining cost of sales of ¥19.6 billion, or 3.9%, primarily due to a more favorable product mix.
Selling, general and administrative (“SG&A”) expenses. SG&A expenses increased ¥89.5 billion, or 14.2%, to ¥717.6 billion for the fiscal year ended March 31, 2019, primarily due to inclusion of Shire’s operations in our results of ¥98.5 billion and related acquisition costs of ¥23.8 billion. This increase was partially offset by a decrease of remaining SG&A expenses of ¥33.4 billion due to a favorable impact of our global operating expense reduction initiative as well as lower long-term share-based incentive payments to management.

41





Research and development expenses. Research and development expenses increased ¥42.9 billion, or 13.2%, to ¥368.3 billion, primarily resulting from the acquisition of Shire. The remainder of our research and development expenses remained steady compared to the previous year.
Amortization and impairment losses on intangible assets associated with products. Amortization and impairment losses on intangible assets associated with products increased by ¥81.2 billion, or 66.5%, to ¥203.4 billion for the fiscal year ended March 31, 2019. This represents an increase of ¥99.2 billion related to amortization of intangible assets recorded in the Shire Acquisition and a ¥22.6 billion reversal of the COLCRYS impairment recorded in the previous year. This increase was offset by lower amortization expense of ¥36.7 billion, which related to the VELCADE intangible asset being fully amortized within the previous year.
Other operating income. Other operating income decreased ¥9.5 billion, or 5.6%, to ¥159.9 billion for the fiscal year ended March 31, 2019. The decrease was primarily due to the net impact of ¥106.3 billion gain on the sale of Wako Pure Chemical Industries, Ltd. recorded in the previous year, whereas we recorded a ¥50.3 billion gain on sale of property, plant and equipment and investment property including Takeda’s old headquarter building in Tokyo as well as a ¥38.2 billion gain on sale of shares of the subsidiary, to which respective real estate businesses were transferred in the current year.
Other operating expenses. Other operating expenses decreased ¥23.4 billion, or 18.5%, to ¥103.2 billion for the fiscal year ended March 31, 2019 which was a decrease of ¥88.0 billion partially offset by ¥59.6 billion of Shire integration costs. The decrease was primarily due to a decrease of ¥22.8 billion in restructuring expense and other costs incurred in the prior year that did not reoccur in the current fiscal year such as a ¥41.5 billion loss on the liquidation of a foreign subsidiary.
Net financial income / (expense). Net financial expense was a ¥66.4 billion in the current year, an increase of ¥74.1 billion compared to the previous year, which includes ¥41.3 billion mainly related to interest on borrowings used to partially fund the Shire Acquisition. The remaining increase is primarily due to a gain on an investment of ¥30.4 billion that was included in financial income in the prior year and is no longer be included in financial income upon adoption of a new accounting standard.
Shares of loss of associates accounted for using the equity method. Shares of loss of associates accounted for using the equity method were ¥43.6 billion, an increase of ¥11.4 billion from the previous year. This primarily relates to Takeda’s share of an impairment charge recognized by Teva Takeda Pharma Ltd. Teva Takeda Pharma Ltd. operates a business of long-listed products and generics and conducted a revaluation of its assets in response to changes in the business environment.
Income tax expenses. Income tax expenses decreased ¥44.6 billion, or 146.3% from ¥30.5 billion for the fiscal year ended March 31, 2018 to tax benefit of ¥14.1 billion for the fiscal year ended March 31, 2019. This decrease was mainly due to tax benefit of ¥58.7 billion resulting from the Shire Acquisition. Excluding the Shire Acquisition impact, the remaining income tax expenses increased ¥14.1 billion mainly due to an increase in profit before tax, as well as the impact from the enactment of the Tax Cuts and Jobs Act (Tax Reform) in the U.S. in the previous year. These factors were partially offset by capital loss related to restructuring of subsidiaries in the current year.
Fiscal Year Ended March 31, 2018 compared with the Fiscal Year Ended March 31, 2017
Revenue. Revenue increased ¥38.5 billion, or 2.2%, from ¥1,732.1 billion for the fiscal year ended March 31, 2017 to ¥1,770.5 billion for the fiscal year ended March 31, 2018. During the fiscal year ended March 31, 2018, our revenue decreased by ¥94.3 billion as a result of divestitures, which primarily consisted of ¥79.1 billion attributable to the divestiture of Wako Pure Chemical in April 2017 and ¥11.1 billion attributable to the termination of the commercialization agreement for CONTRAVE in the U.S. in August 2016. Excluding the impact of divestitures, our revenues increased by ¥132.8 billion primarily due to growth in our core therapeutic areas of GI, oncology and neuroscience, which includes the favorable impact of the strengthening of the U.S. dollar and Euro against the yen as compared to the prior year.

42





The following shows revenue by geographic region:
 
For the fiscal year ended March 31,
 
2017
 
2018
 
(billions of yen, except for percentages)
Revenue:
 
 
 
 
 
 
 
Japan
¥
655.3

 
37.8
%
 
¥
580.3

 
32.8
%
United States
520.2

 
30.0

 
598.3

 
33.8

Europe and Canada
279.7

 
16.1

 
313.7

 
17.7

Russia/CIS
57.5

 
3.3

 
68.2

 
3.9

Latin America
72.5

 
4.2

 
75.7

 
4.3

Asia (excluding Japan)
112.8

 
6.5

 
104.0

 
5.9

Other(1)
34

 
2.0

 
30.2

 
1.7

Total
¥
1,732.1

 
100.0
%
 
¥
1,770.5

 
100.0
%
_____________
Note:
(1)    Other region includes Middle East, Oceania and Africa.

43





The following table shows revenue, including royalty income and service income, for our key prescription drug products by geographic region:
 
For the fiscal year ended March 31,
 
 
 
 
 
2017
 
2018
 
Change versus previous year
 
(billions of yen, except for percentages)
ENTYVIO
 
 
 
 
 
 
 
United States
¥
99.6

 
¥
133.6

 
¥
34.0

 
34.1
 %
Europe and Canada
39.5

 
60.2

 
20.7

 
52.4

Emerging Markets
4.0

 
7.5

 
3.5

 
87.5

Total
¥
143.2

 
¥
201.4

 
¥
58.2

 
40.6
 %
NINLARO
 
 
 
 
 
 
 
Japan
¥

 
¥
2.5

 
¥
2.5

 
N/A

United States
29.1

 
39.4

 
10.3

 
35.4
 %
Europe and Canada
0.2

 
4.0

 
3.8

 
1,900.0

Emerging Markets
0.1

 
0.6

 
0.5

 
500.0

Total
¥
29.4

 
¥
46.4

 
¥
17.0

 
57.8
 %
VELCADE
 
 
 
 
 
 
 
United States
¥
112.9

 
¥
113.7

 
¥
0.8

 
0.7
 %
Other than United States
24.7

 
23.6

 
¥
(1.1
)
 
(4.5
)
Total
¥
137.6

 
¥
137.3

 
¥
(0.3
)
 
(0.2
)%
ADCETRIS
 
 
 
 
 
 
 
Japan
¥
3.3

 
¥
3.8

 
¥
0.5

 
15.2
 %
Europe
17.5

 
20.1

 
2.6

 
14.9

Emerging Markets
9.3

 
14.3

 
5.0

 
53.8

Total
¥
30.1

 
¥
38.5

 
¥
8.4

 
27.9
 %
TAKECAB
 
 
 
 
 
 
 
Japan(1)
¥
34.1

 
¥
48.5

 
N/A

 
N/A

Total
¥
34.1

 
¥
48.5

 
N/A

 
N/A

TRINTELLIX(2)
 
 
 
 
 
 
 
United States
¥
31.9

 
¥
48.4

 
¥
16.5

 
51.7
 %
Total
¥
31.9

 
¥
48.4

 
¥
16.5

 
51.7
 %
LEUPRORELIN
 
 
 
 
 
 
 
Japan (product name: LEUPLIN)(1)
¥
48.6

 
¥
41.2

 
N/A

 
N/A

United States
18.3

 
19.7

 
1.4

 
7.7
 %
Europe and Canada
31.1

 
34.5

 
3.4

 
10.9

Emerging Markets
16.3

 
12.7

 
(3.6
)
 
(22.1
)%
Total
¥
114.2

 
¥
108.1

 
N/A

 
N/A

DEXILANT
 
 
 
 
 
 
 
United States
¥
49.7

 
¥
49.5

 
¥
(0.2
)
 
(0.4
)%
Europe and Canada
5.7

 
6.4

 
0.7

 
12.3

Emerging Markets
7.3

 
9.9

 
2.6

 
35.6

Total
¥
62.6

 
¥
65.7

 
¥
3.1

 
5.0
 %
AZILVA
 
 
 
 
 
 
 
Japan(1)
¥
66.9

 
¥
64.0

 
N/A

 
N/A

Total
¥
66.9

 
¥
64.0

 
N/A

 
N/A

ALOGLIPTIN
 
 
 
 
 
 
 
Japan (product name: NESINA)(1)
¥
32.9

 
¥
26.6

 
N/A

 
N/A

United States
5.2

 
6.0

 
0.8

 
15.4
 %
Europe and Canada
6.1

 
9.0

 
2.9

 
47.5

Emerging Markets
4.9

 
8.6

 
3.7

 
75.5

Total
¥
49.1

 
¥
50.2

 
N/A

 
N/A

ULORIC
 
 
 
 
 
 
 
United States
¥
41.4

 
¥
45.8

 
¥
4.4

 
10.6
 %
Europe and Canada
0.7

 
0.8

 
0.1

 
14.3

Emerging Markets
0.1

 
0.3

 
0.2

 
200.0

Total
¥
42.2

 
¥
46.8

 
¥
4.6

 
10.9
 %

44





 
For the fiscal year ended March 31,
 
 
 
 
 
2017
 
2018
 
Change versus previous year
 
(billions of yen, except for percentages)
COLCRYS
 
 
 
 
 
 
 
United States

¥38.9

 

¥40.3

 

¥1.4

 
3.6
 %
Total
¥
38.9

 
¥
40.3

 
¥
1.4

 
3.6
 %
AMITIZA
 
 
 
 
 
 
 
United States
¥
33.7

 
¥
33.7

 
¥

 
0.0
 %
Europe and Canada
0.1

 
0.1

 

 

Total
¥
33.8

 
¥
33.8

 
¥

 
0.0
 %
PANTOPRAZOLE
 
 
 
 
 
 
 
United States
¥
10.1

 
¥
7.2

 
¥
(2.9
)
 
(28.7
)%
Europe and Canada
30.5

 
30.6

 
0.1

 
0.3

Emerging Markets
33.7

 
28.0

 
(5.7
)
 
(16.9
)
Total
¥
74.2

 
¥
65.8

 
¥
(8.4
)
 
(11.3
)%
LANSOPRAZOLE
 
 
 
 
 
 
 
Japan(1)(3)
¥
8.1

 
¥
4.6

 
N/A

 
N/A

United States
20.0

 
15.2

 
(4.8
)
 
(24.0
)%
Europe and Canada
7.1

 
7.2

 
0.1

 
1.4

Emerging Markets
9.2

 
9.7

 
0.5

 
5.4

Total
¥
44.4

 
¥
36.8

 
N/A

 
N/A

CANDESARTAN
 
 
 
 
 
 
 
Japan(1)
¥
14.8

 
¥
2.6

 
N/A

 
N/A

United States
0.6

 
0.7

 
0.1

 
16.7
 %
Europe and Canada
9.3

 
9.5

 
0.2

 
2.2

Emerging Markets
9.5

 
9.2

 
(0.3
)
 
(3.2
)
Total
¥
34.2

 
¥
22.0

 
N/A

 
N/A

_____________
Notes:
(1)    Beginning from the fiscal year ended March 31, 2019, sales of certain products in Japan are disclosed on a net basis, deducting items such as discounts and rebates, in alignment with the global managerial approach applied to individual product sales for the fiscal year ended March 31, 2018. Sales of individual products have been revised retroactively on a net basis to enable year-on-year comparisons. This reclassification has no impact on Takeda’s financial statements and does not represent a correction of figures from the prior fiscal periods. Figures for the fiscal year ended March 31, 2017 have not been reclassified retroactively.
(2)    TRINTELLIX is the brand name used since June 2016 for the product previously marketed as BRINTELLIX in the United States. The formulations, indication and dosages of TRINTELLIX remain the same as that of BRINTELLIX.
(3)    Products excluding fixed dose combinations were transferred to Teva Takeda Yakuhin Ltd., a wholly-owned subsidiary of Teva Takeda Pharma Ltd., a joint venture in Japan we formed with Teva Pharmaceutical Industries Ltd., in April 2016. Fixed dose combinations were sold to Teva Takeda Yakuhin Ltd. in May 2017. Amounts presented above represent supply sales to Teva Takeda Yakuhin Ltd., following such transfers.
Change in revenue in our three key therapeutic areas of GI, oncology and neuroscience was primarily attributable to the following products:
GI. In the therapeutic area of GI, revenue grew 23.5% compared to the previous fiscal year. Revenue attributable to ENTYVIO was ¥201.4 billion in the fiscal year ended March 31, 2018, an increase of ¥58.2 billion, or 40.6%, compared to the previous fiscal year as a result of increase in sales volume, making ENTYVIO our top-selling product. Revenue attributable to TAKECAB was ¥48.5 billion (or ¥55.1 billion on a gross basis) in the fiscal year ended March 31, 2018, compared to ¥34.1 billion on a gross basis in the previous fiscal year, with prescriptions in Japan as a result of a higher overall volume due to TAKECAB’s efficacy in reflux esophagitis and the prevention of recurrence of gastric ulcers during low-dose aspirin administration.

45





Oncology. In the therapeutic area of oncology, revenue grew 14.6% compared to the previous fiscal year. Revenue attributable to NINLARO was ¥46.4 billion, an increase of ¥17.1 billion, or 58.1% compared to the previous fiscal year, reflecting market penetration across several regions, particularly in the United States. Revenue attributable to ICLUSIG, which was obtained through the acquisition of ARIAD in February 2017, was ¥23.1 billion, its first full-year contribution to our revenue growth in this key therapeutic area. ALUNBRIG, also obtained through the acquisition of ARIAD, was launched in the United States in May 2017, and revenue attributable to it in the fiscal year ended March 31, 2018 was ¥2.8 billion. Revenue attributable to VELCADE decreased slightly to ¥137.3 billion in the fiscal year ended March 31, 2018 from ¥137.6 billion in the previous fiscal year.
Neuroscience. In the therapeutic area of neuroscience, revenue grew 24.5% compared to the previous fiscal year. Revenue attributable to TRINTELLIX was ¥48.4 billion, an increase of ¥16.5 billion, or 51.6%, versus the previous year, reflecting higher volumes as a result of expansion of market share in the U.S. branded antidepressant market, driven by our patient engagement initiatives.
Cost of sales. Cost of sales decreased ¥62.8 billion, or 11.2%, from ¥558.8 billion for the fiscal year ended March 31, 2017 to ¥495.9 billion for the fiscal year ended March 31, 2018. Cost of sales as a percentage of revenue decreased from 32.3% in the fiscal year ended March 31, 2017 to 28.0% in the fiscal year ended March 31, 2018. The decreases in cost of sales, both overall and relative to revenues, was primarily due to the disposition of Wako Pure Chemical in April 2017, which generally had lower-margin products, as well as the effect of other changes to our product mix due to the faster growth of higher margin products, such as ENTYVIO and NINLARO, relative to other products.
Selling, general and administrative expenses. Selling, general and administrative expenses increased ¥9.0 billion, or 1.5%, from ¥619.1 billion for the fiscal year ended March 31, 2017 to ¥628.1 billion for the fiscal year ended March 31, 2018, mainly due to increased long-term incentive payments to management, higher co-promotion expenses related to increased sales of TAKECAB in Japan and higher compensation costs, which contributed ¥2.6 billion, ¥4.8 billion and ¥3.8 billion, respectively. However, selling, general and administrative expenses increased at a lower rate than revenue, reflecting our overall cost reduction efforts.
Research and development expenses. Research and development expenses increased ¥13.1 billion, or 4.2%, from ¥312.3 billion for the fiscal year ended March 31, 2017 to ¥325.4 billion for the fiscal year ended March 31, 2018, mainly due to our pursuit of increased research and development projects and the effect of a weaker Japanese yen.
Amortization and impairment losses on intangible assets associated with products. Amortization and impairment losses on intangible assets associated with products decreased ¥34.6 billion, or 22.1%, from ¥156.7 billion for the fiscal year ended March 31, 2017 to ¥122.1 billion for the fiscal year ended March 31, 2018. This was primarily driven by a decrease of impairment losses on intangible assets of ¥48.2 billion, including a ¥22.6 billion reversal of the previous impairment related to COLCRYS, reflecting updated estimates about the amount of impairment due to better-than-expected sales performance. This was offset in part by increased amortization of intangible assets of ¥13.6 billion, resulting from the inclusion of amortization of intangible assets acquired in the ARIAD acquisition.
Other operating income. Other operating income increased by ¥25.9 billion, or 18.0%, from ¥143.5 billion for the fiscal year ended March 31, 2017 to ¥169.4 billion for the fiscal year ended March 31, 2018, driven mainly by ¥106.3 billion representing a gain on the sale of Wako Pure Chemical in April 2017, ¥27.5 billion representing a gain on divestments to Teva Takeda Yakuhin Ltd. and ¥18.8 billion representing a gain on sales of property, plant and equipment and investment property. Other operating income in the previous fiscal year was primarily driven by a ¥115.4 billion gain on divestments to Teva Takeda Yakuhin Ltd and a ¥12.0 billion gain from the reversal of contingent consideration liability reflecting decreased expected sales of COLCRYS.
Other operating expenses. Other operating expenses increased ¥53.7 billion, or 73.6%, to ¥126.6 billion for the fiscal year ended March 31, 2018, as compared to ¥72.9 billion for the fiscal year ended March 31, 2017. This was driven by a loss on liquidation of a foreign subsidiary of ¥41.5 billion primarily reflecting the recognition of cumulative translation losses and an increase in fair value of contingent consideration of ¥10.5 billion driven by an increase in projected sales primarily for COLCRYS.
Income tax (expenses). Income tax expenses increased ¥2.7 billion, or 9.6%, from ¥27.8 billion for the fiscal year ended March 31, 2017 to ¥30.5 billion for the fiscal year ended March 31, 2018. This increase was mainly due to the tax impact of ¥22.8 billion resulting from the increase in profit before tax compared to the previous fiscal year, as well as the effect of additional tax benefits recognized for the year ended March 31, 2017, resulting from reduction of share capital of a subsidiary, which was responsible for an increase of ¥8.9 billion. These increases were offset in part by the positive impact of the enactment of U.S. tax reforms, principally related to the revaluation of net deferred tax liability at a lower enacted tax rate and improved recoverability of deferred tax assets, which resulted in a decrease of ¥27.5 billion.

46





Liquidity and Capital Resources.
Sources and Uses of Liquidity
Our liquidity requirements mainly relate to operating cash, capital expenditures, contractual obligations, repayment of indebtedness and payment of interest and dividends. Our operating cash requirements include cash outlays for research and development expenses, milestone payments, sales and marketing expenses, personnel and other general and administrative costs and raw material costs. Income tax payments also require significant cash outlays as well as working capital financing.
Our capital expenditures for tangible assets consist primarily of enhancing and streamlining our production facilities, replacing fully depreciated items, and promoting efficiency of our operations. Our capital expenditures for intangible assets represent mainly milestone payments related to licensed products, where such assets have been acquired from third-party partners, as well as software development expenditures. Our capital expenditures, which consist of additions to property, plant and equipment and intangible assets recorded on our consolidated balance sheets, were ¥148.1 billion, ¥124.1 billion and ¥244.6 billion for the fiscal years ended March 31, 2017, 2018, and 2019, respectively. As of March 31, 2019, we had contractual commitments for the acquisition of property, plant and equipment of ¥34.0 billion.
Our capital resource management is based on the following:
investments in our internal research and development pipeline, foundational technology and ability to develop and bring to market new products;
dividends as an important tool for returning capital to shareholders, while emphasizing capital gains for shareholders through increased corporate value;
the maintenance of an investment-grade credit rating; and
disciplined alliances and acquisitions in order to strengthen our business around our key therapeutic areas.
As noted above, the return of capital to shareholders is one focus area for our management, and we believe our dividend policy is an important tool for accomplishing our goals.
Our dividend payments for the fiscal years ended March 31, 2017, 2018 and 2019 were ¥141.7 billion, ¥141.9 billion and ¥143.0 billion, respectively. It is our intention to continue to return capital to shareholders using dividends at an annual level of ¥180 per share, consisting of interim and fiscal year-end dividends of ¥90 per share.
We are required to make interest and principal payments on our outstanding borrowings. As of March 31, 2019, we have ¥122.7 billion of interest due within one year and ¥988.1 billion of principal payments on our borrowings due within one year. See “-Borrowings and Financial Obligations.”
Our sources of liquidity include cash and cash equivalents on hand, short-term commercial paper, committed borrowing lines from financial institutions and long-term debt financing from global capital markets. We monitor and adjust the amount of foreign cash based on projected cash flow requirements. As the majority of our business is conducted outside Japan, we hold a significant portion of cash outside of Japan. Our ability to use foreign cash to fund cash flow requirements in Japan may be impacted by local regulations and, to a lesser extent, income taxes associated with transferring cash to Japan.
As of March 31, 2019, we held ¥702.1 billion in cash and cash equivalents on hand and ¥300.0 billion in undrawn commitment line. We believe that working capital is sufficient for our current business requirements. Furthermore, we continually seek to ensure that our level of liquidity and access to capital market funding continues to be maintained to successfully support our business operations.

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Consolidated Cash Flows
The following table shows information about our consolidated cash flows during the fiscal years ended March 31, 2017, 2018 and 2019:
 
For the fiscal year ended March 31,
 
2017
 
2018
 
2019
 
(billions of yen)
Net cash from operating activities
¥
261.4

 
¥
377.9

 
¥
328.5

Net cash used in investing activities
(655.7
)
 
(93.3
)
 
(2,835.7
)
Net cash from (used in) financing activities
289.9

 
(326.2
)
 
2,946.2

Net increase (decrease) in cash and cash equivalents
¥
(104.4
)
 
¥
(41.7
)
 
¥
439.0

Cash and cash equivalents at the beginning of the year
451.4

 
319.5

 
294.5

Effects of exchange rate changes on cash and cash equivalents
(5.7
)
 
(4.6
)
 
(31.3
)
Net increase (decrease) in cash and cash equivalents resulting from a transfer to assets held for sale
(21.8
)
 
21.3

 
(0.1
)
Cash and cash equivalents at the end of the year
¥
319.5

 
¥
294.5

 
¥
702.1

Fiscal Year Ended March 31, 2019 compared with the Fiscal Year Ended March 31, 2018
Net cash from operating activities was ¥328.5 billion for the fiscal year ended March 31, 2019 compared to ¥377.9 billion for the fiscal year ended March 31, 2018. The decrease of ¥49.4 billion was driven by a decrease in net profit of ¥77.7 billion and the impacts of certain unfavorable adjustments including the lower income tax expenses of ¥44.6 billion primarily attributable to non-cash tax benefit on the impact of purchase accounting of the Shire acquisition, the loss on liquidation of foreign operations of ¥41.5 billion recorded in the previous fiscal year, as well as the effect of changes in assets and liabilities such as higher employee bonus payments in the fiscal year ended March 31, 2019.
These were partially offset by certain favorable non-cash adjustments such as the increase in depreciation and amortization of ¥90.3 billion mainly attributable to intangible assets recorded upon the acquisition of Shire and the decrease in inventories by ¥45.0 billion primarily attributable to unwinding of the fair value step up recorded in relation to the Shire Acquisition. This also includes other favorable adjustments such as the increase in net financial income and expenses by ¥74.1 billion primarily due to the financial expense recorded in connection with the acquisition of Shire.
Net cash used in investing activities was ¥2,835.7 billion for the fiscal year ended March 31, 2019, compared to ¥93.3 billion for the fiscal year ended March 31, 2018. This significant increase was primarily attributable to ¥2,891.9 billion of net consideration paid for the acquisition of Shire. This was offset by ¥50.7 billion proceeds from the sale of real estate primarily attributable to the sale of our former headquarters building in the current fiscal year.
Net cash used in financing activities was ¥2,946.2 billion for the fiscal year ended March 31, 2019, compared to net cash used in financing activities of ¥326.2 billion for the fiscal year ended March 31, 2018. The current fiscal year mainly includes an increase of short-term loans of ¥367.3 billion and ¥2,795.9 billion proceeds from bonds and long-term loans of mainly for the acquisition of Shire.
Fiscal Year Ended March 31, 2018 compared with the Fiscal Year Ended March 31, 2017
Net cash from operating activities increased by ¥116.5 billion from ¥261.4 billion in the fiscal year ended March 31, 2017 to ¥377.9 billion in the fiscal year ended March 31, 2018, primarily due to the impact of a higher net profit of ¥71.2 billion and the effect of certain favorable non-cash expenses and other adjustments, including a gain on divestment of a business of ¥87.9 billion, a loss on liquidation of foreign operations of ¥41.5 billion as well as a ¥30.7 billion loss relating to the share of loss of associates. Additional sources of operating cash flow were a ¥9.8 billion decrease in inventories as a result of management effort to reduce inventory levels during the fiscal year ended March 31, 2018. These sources of cash were partially offset by a higher impairment loss of ¥37.8 billion in fiscal year ended March 31, 2017 and a gain on sale of a business of ¥106.6 billion during the fiscal year ended March 31, 2018.
Net cash used in investing activities was ¥93.3 billion for the fiscal year ended March 31, 2018, compared to ¥655.7 billion for the fiscal year ended March 31, 2017. This decrease was primarily attributable to ¥583.1 billion of net consideration paid for the acquisition of ARIAD in the fiscal year ended March 31, 2017. The decrease also reflects the effect of a payment of ¥71.8 billion into a restricted cash account in the fiscal year ended March 31, 2018 in preparation for the acquisition of TiGenix NV. This was offset by ¥84.5 billion proceeds from the divestment of Wako Pure Chemical in the same fiscal year.
Net cash used in financing activities was ¥326.2 billion for the fiscal year ended March 31, 2018, compared to net cash from financing activities of ¥289.9 billion for the fiscal year ended March 31, 2017. This was primarily the result of repayments of ¥403.9

48





billion of short-term bridge loans, ¥337.2 billion of proceeds from long-term loans related mainly to the refinancing of the bridge loan for the ARIAD acquisition, and repayments of other long-term loans of ¥80.0 billion in the fiscal year ended March 31, 2018, compared to ¥407.0 billion of proceeds primarily from such short-term bridge loans in the previous fiscal year.
Borrowings and Financial Obligations
Our total bonds and loans are ¥985.7 billion and ¥5,751.0 billion as of March 31, 2018 and 2019, respectively. These borrowings include unsecured bonds and senior notes issued by Takeda in prior years, syndicated loans entered into by Takeda in prior years, borrowings obtained to fund a portion of the Shire acquisition, and debt assumed in connection with the Shire acquisition and included in our consolidated statement of financial position. Our borrowings are mainly linked to acquisitions and therefore are not exposed to seasonality.
The increase in bonds and loans relates to financing obtained to fund a portion of the Shire Acquisition and the debt assumed from Shire. In connection with the Shire Acquisition, we entered into various borrowing arrangements as described in further detail below, including bridge financing that was subsequently repaid. The borrowings entered into during the fiscal year ended March 31, 2019 that remain outstanding at the end of the fiscal year are as follows:
Term Loan Credit Agreement with a total aggregate principal amount of $7.5 billion denominated in U.S. dollar and Euro was entered into on June 8, 2018 and fully drawn in early January 2019. The proceeds drawn were used to fund a portion of the cash consideration payable in connection with the Shire Acquisition. The borrowings under the Term Loan Credit Agreement are unsecured and accrue interest based on floating rates, and will mature on January 3, 2024.
Euro denominated senior notes with a total aggregate principal amount of €7.5 billion were issued in November 2018 together with U.S. dollar denominated senior notes with a total aggregate principal amount of $5.5 billion (collectively, the “2018 Notes”). The 2018 Notes were issued in the following series:
€1,250.0 million aggregate principal amount of 0.375% Senior Notes due November 21, 2020, €1,000.0 million aggregate principal amount of the Senior Floating Rate Notes due November 21, 2020, €1,500.0 million aggregate principal amount of 1.125% Senior Notes due November 21, 2022, €750.0 million aggregate principal amount of the Senior Floating Rate Notes due November 21, 2022, €1,500.0 million aggregate principal amount of 2.250% Senior Notes due November 21, 2026, and €1,500.0 million aggregate principal amount of 3.000% Senior Notes due November 21, 2030.
$1,000.0 million aggregate principal amount of 3.800% Senior Notes due November 26, 2020, $1,250.0 million aggregate principal amount of 4.000% Senior Notes due November 26, 2021, $1,500.0 million aggregate principal amount of 4.400% Senior Notes due November 26, 2023, and $1,750.0 million aggregate principal amount of 5.000% Senior Notes due November 26, 2028. On July 30, 2019, we called for redemption all of the Outstanding 2020 Notes, with an expected redemption date of August 29, 2019.
The 2018 Notes were issued in private placements in reliance on exemptions from registration under the U.S. Securities Act of 1933 (the “Securities Act”). Interest on the series of 2018 Notes, which are subject to fixed rates, is payable annually (in the case of the Euro-denominated 2018 Notes) or semi-annually (in the case of the dollar-denominated 2018 Notes) in arrears. Interest on the series of 2018 Notes which are subject to floating rates is determined by referen