Terumo Corporation

I am the CFO, Muto. I will now explain the results for the fiscal year ended March 2021.

First, here is a summary of highlights of the results. Sales revenue for the year saw steady recovery, thanks to the return of demand despite remaining effects of COVID-19 in the second half on the Cardiac and Vascular Company.

In the General Hospital and Blood and Cell Technologies companies, products related to infection prevention and COVID-19 treatment contributed to increased sales revenue and to stability for the group as a whole. Although some impact remained, the most recent stand-alone fourth quarter results showed our highest ever Q4 sales revenue.

In adjusted operating profit, there was some negative gross profit impact from volume-based procurement in China and production adjustment with TIS products and some acceleration of expenditures due to easing of restrictions on movement. However, recovery of sales revenue enabled restoration of profit to just a single-digit year-on-year decrease.

Due to this recovery of results, we will increase our dividend JPY 1 above our guidance at the beginning of the year, making the total dividend JPY 29 for FY ‘20. Our guidance for FY ‘21 is 9% to 11% sales revenue growth and 7% to 12% growth of adjusted operating profit.

I will explain the assumptions behind this guidance in later slides. Next slide, please.

Here are the FY ‘20 full year and Q4 stand-alone results. Sales revenue was able to recover to just 2% negative year-on-year growth for the year due to the steady recovery in Cardiac and Vascular.

Adjusted operating profit was negatively affected by volume-based procurement in China in Q4 and by the production adjustment undertaken to restore normal inventory levels following increases made to ensure steady supply amid COVID-19. However, Q4 stand-alone results nevertheless increased year-on-year to bring the full year back up to negative 7% growth and minus 4% when excluding FX impact.

In profit for the year, recovery progressed to bring negative growth back into single digits at minus 9%. In Q4 stand-alone results, the Cardiac and Vascular Company saw a recovery in elective procedures, so each company finished with positive sales revenue growth.

This, in turn, resulted in the group as a whole achieving its highest ever sales revenue in Q4. Next slide, please.

This is the adjusted operating profit variance analysis for FY ‘20. GP decrement by sales decrease was able to be minimized from the low point of Q1, when COVID impact was greatest, due to recovery in the second half to finish at a minus JPY 2.1 billion impact.

Gross margin decrement was reduced through recovery of Cardiac and Vascular in the second half and improved product mix at each company for an impact of minus JPY 3.7 billion. Price impact increased due to volume-based procurement in China for PCI products to minus JPY 3 billion.

Japan reimbursement completed the cycle of impact started by the previous fiscal year’s October consumption tax increase, resulting in only a small increase from the third quarter to minus JPY 3.1 billion. MDR and IT investment processes both progressed and incurred increased year-on-year expenditures to a total of minus JPY 1.9 billion.

With SG&A decrease, the level of decrease became smaller due to easing of restrictions on movement and resulting spending to finish for a positive impact of JPY 7.4 billion. R&D decrease had an JPY 800 million positive impact as we reconfirmed the level of priority for each project while largely maintaining R&D investment in projects that will contribute mid- to long term.

FX saw greater impact with yen depreciation against the dollar and euro amid unrealized profit from inventory assets, with year-on-year amounts of JPY 1.7 billion inflow and JPY 1.8 billion in stock, for a total negative impact of JPY 3.5 billion. Next slide, please.

This is the stand-alone adjusted operating profit variance analysis for Q4. Gross profit increment by sales increase is compared with the previous year, which had already seen Q4 COVID-19 impact in China.

However, due to recovery of demand, each company returned to positive growth for a JPY 4.7 billion positive impact. In gross margin, the production adjustment to normalized inventory levels had already begun in Q4.

In addition to this impact, COVID-19 impact at the Philippines plant reduced its operation level for a total negative impact of JPY 700 million. In price, there was significant impact from a new price being applied to PCI product volume-based procurement in China, which combined with reimbursement for a total negative impact of JPY 2.6 billion.

SG&A and R&D combined for only a modest positive impact, as movement restrictions in the U.S. and other regions were eased, leading to more normal expenditures.

In FX, as I just explained, yen depreciation at the end of March resulted in negative impact amid inventory asset unrealized profits, which exceeded the positive flow impact for a total negative impact of JPY 1.1 billion. Next slide, please.

Next is revenue by region. In Japan, Cardiac and Vascular Company showed steady recovery each quarter driven by Neurovascular and CV.

The General Hospital Company, in addition to its COVID-19-related infection prevention and other products, experienced accelerated sales of alliance and general hospital products like pumps in Q4 to continuously record positive growth since Q2. The Blood and Cell Technologies Company maintained good performance in line with the previous year.

As a whole, the region returned to positive growth of 3% year-on-year, and in amount, reached the JPY 200 billion level for the first time for its highest ever result. In Europe, there was some impact from COVID-19 resurgence, but the Cardiac and Vascular Company continued the positive growth that began in the second quarter, while the other 2 companies grew cumulatively in the high single digits or double digits to bring the region back to the levels of the previous year.

In Americas, The Neurovascular business and Vascular Graft business powerfully drove the Cardiac and Vascular Company in the second half, in addition to TIS making a steady recovery to reduce negative sales growth to single digits. The General Hospital Company was stable with similar results to the previous year.

And Blood and Cell Technologies Company saw positive growth with the driver of blood center products. In China, there was negative impact in Q4 from the prices of PCI products in volume-based procurement, but year-on-year growth was nearly 20% positive as the previous year had already seen COVID-19 impact.

Cumulatively as well, when excluding the impact of distributor order timing in Neurovascular, positive growth continued and there is steady recovery on the whole. In Asia, there was some impact in countries where lockdowns are continuing, so the region’s recovery remained slower when compared to other regions.

Despite this, though, looking at Q4 only, Cardiac and Vascular returned to the level of the previous year, and Blood and Cell Technologies is trending upward with steady positive growth. Next slide, please.

Here is Cardiac and Vascular Company. In sales revenue, Q4 alone saw a shift to positive growth of 4%, with the full year cumulative result recovering from Q2 to finish at minus 6% growth.

From the second quarter onward, TIS saw steady recovery as demand returned. In the most recent Q4, although there was impact from the pricing of volume-based procurement in China, the business shifted back to positive growth.

Going into the second half, Neurovascular normalized the timing of distributor orders to end its impact, shifting into positive growth from Q3 onward. In the most recent Q4, the business accelerated in developed countries especially.

And although the full year saw COVID-19 impact, it is returning towards its usual pattern of strong performance. In the CV business, there remains significant impact due to the postponement of elective surgical procedures, which require a lot of hospital resources.

However, increased ECMO product sales in Japan and positive impact from certain products and regions, the business began to see positive growth and easing of negative impacts. Vascular continued positive growth from Q2 onward, finishing up positive 5% for the year.

The abdominal stent graft TREO that was introduced into the North American market was a growth driver. In profit, the result for the full year was decreased profit due to negative sales growth.

But in Q4, the company overcame China volume-based procurement pricing impact to turn around and resume positive profit growth. Next slide, please.

Next, the General Hospital Company. In sales revenue, impact from decreased demand due to restrictions on hospital visits remained for the full year, but a gradual recovery began.

Amid this situation, Alliance and infection prevention products were strong drivers, enabling the company to overcome the negative impacts and achieve positive growth of 3%. In profit, production at the Philippines plant was reduced in Q4 due to COVID-19.

And additionally, sales promotion and R&D expenses began to recover, leading to a slightly negative profit growth. However, for the full year, the Alliance business, health care and other high-profitability products improved the product mix, leading to 2% profit growth.

Next slide, please. Next is Blood and Cell Technologies Company.

In sales revenue, drivers for the company included increased demand for convalescent plasma used in COVID-19-related treatment as well as new software for component collection systems, leading to full year positive growth of 2%. In the most recent Q4, the spread of vaccinations resulted in decreased convalescent plasma demand and an overall result similar to the previous year.

However, component collection systems grew in the double digits. In profit, product mix moved toward normal levels as demand recovered for whole blood collection, while component collection systems used with convalescent plasma treatment slowed.

In addition, sales promotion and R&D expenditures progressed back toward normal, bringing profit to the same level as the previous year. On the other hand, for the full year, product mix resulted in significant gross profit increase through sales increment, along with the contribution from strict expense controls for positive profit growth of 27%.

Next slide, please. Here are the major topics for Q4.

As a whole, the Terumo Group was honored to be selected for the Corporate Governance of the Year Award. Many of the company topics involve collaborations or acquisitions of companies that have digital health technologies.

The group headquarters has established a DX promotion office, and digital transformation is accelerating group-wide. The General Hospital company began production in Q4 on syringes that reduced dead volume in order to contribute to vaccination efforts.

In Blood and Cell Technologies company, it was announced in April that a joint business would begin with CSL in plasma collection. Next slide, please.

Next is our FY ‘21 guidance. Although the third and fourth waves of COVID-19 continue and variants pose a new serious threat, vaccinations are progressing at varying speeds between country and region.

With this difficult situation to predict, we are anticipating sales revenue expressed as a range that corresponds to the degree of recovery that occurs. The upper end of the range anticipates a certain amount of vaccination progress in the first half of FY ‘21, leading to a recovery of demand and a restoration of growth in the second half.

The lower end of the range is the scenario in which continued sporadic ways of infections similar to FY ‘20 occur and the number of COVID-19 patients fluctuates repeatedly. And then vaccination takes effect in the second half to control infections.

Based on the upper and lower scenarios of this range, our sales revenue guidance is for JPY 670 billion to JPY 680 billion. This represents 9% to 11% year-on-year growth.

Regarding expenses, we anticipate that activity restrictions will continue to ease regardless of demand level similarly to the trend we observed in Q4 of FY ‘20, and therefore, that expenses will not fluctuate significantly between the upper or lower scenario. Based on these assumptions, our adjusted operating profit guidance is JPY 124 billion to JPY 130 billion for 7% to 12% growth.

Operating profit guidance is JPY 107 billion to JPY 113 billion for 9% to 15% growth. Next slide, please.

This is the profit margin variance analysis. I will explain the variance factors in the lower scenario of the range.

First, recovery in places including the United States in Cardiac and Vascular is anticipated to raise product mix by just under 1 percentage point. However, pricing of volume-based procurement in China is expected to be a 0.4 percentage point downward impact.

As we continue in FY ‘21 to adjust TIS production toward normalizing inventory levels, we anticipate a 0.5 percentage point downward impact. In expenses, we anticipate some increases in expenses as activity restrictions ease and new products are launched, but we do not anticipate a downward impact as we will control expenses to expand less than sales revenue growth.

In other expenses, the collaboration we announced last month in plasma collection will yield sales starting next fiscal year but will incur expenses this fiscal year for a downward impact of 0.4 percentage points. In FX, we anticipate an upward impact of 0.4 percentage points due to an expected yen depreciation against the euro, RMB and emerging market currencies.

Next slide, please. I will explain guidance by company at the lower end of the range.

In Cardiac and Vascular, despite impact from the PCI product volume-based procurement pricing reduction in China, we anticipate demand recovery in markets including the United States leading to double-digit growth in TIS, Neurovascular and Vascular, with expectations for Neurovascular to approach 20% growth and the company’s sales revenue as a whole to grow 14%. In General Hospital, we expect DM to be a driver, along with Alliance and pain management products.

We expect health care products that saw increased demand in FY ‘20 to return towards normal, while general hospital products and pharmaceutical sales recover as hospital visit restrictions gradually ease, for an overall company result of 3% sales growth year-on-year. In Blood and Cell Technologies, although convalescent plasma demand is expected to decrease as vaccinations proceed, we anticipate that overall blood-related transfusion demand recovery, therapeutic apheresis and cell processing demand and sales expansion will absorb that impact, resulting in 5% sales revenue growth.

Next slide, please. Finally, regarding the FY ‘20 dividend.

In Q3, we kept the dividend outlook at the same JPY 28 level as FY ‘19 due to difficulty in foreseeing how the COVID-19 situation would evolve. However, in light of the recovery pattern we saw in Q4, we will increase the FY ‘20 dividend by JPY 1 to JPY 29.

We will continue to maintain our policy of steadily increasing the dividend amount. Thank you.

Hello, everyone. This is Shinjiro Sato.

Thank you for participating today. Last time, I spoke about our Alliance business, which is oriented toward pharmaceutical companies.

Today, I want to explain about Terumo’s Diabetes Management business. In recent presentations, we have explained how the future Terumo growth model places importance on disease management.

That approach focuses on the so-called 4 major diseases. With aging populations and improving standards of living in emerging countries, the reality is that diabetes is becoming a bigger global problem than ever before.

In addition, the paradigm shift and the evolution of business model in health care that I have emphasized over the past 2 or so years is happening with certainty. The medical device market has previously evolved along with diagnosis and treatment, but the new health care paradigm places importance on providing solutions that accompany what is called the patient journey.

Diabetes is said to be the field of health care most suited to this new model. We are committed to taking this on as one of the great challenges of the 21st century.

I will briefly give an overview of the current state of the DM business. It is right now part of the General Hospital Company.

Its sales are around JPY 20 billion. It evolved in the Japan market, centered on self-monitoring of blood glucose.

It was previously a primarily product-oriented business. And to be honest, we wish we had more fully embraced the challenge of addressing the overall disease head on.

We want to change that. Beginning in the 1980s, with the insulin injection syringe, Myjector, our big entry into the field was with blood glucose self-monitoring in the 1990s.

Another pillar of the business was the pen needle. In particular, the Nanopass development has since become well-known.

In 2018, we developed the MEDISAFE WITH insulin pump and brought it to market as the first such product produced in Japan. Another important development was the collaboration with Dexcom that began in 2019.

This began our selling of that company’s continuous glucose monitor, CGM, in the Japan market. By establishing a product lineup in these 4 fields, we finally gained the ability to provide an overall solution.

Looking at the future of diabetes management separate from the development of diagnostic devices and pumps, the key will be utilization of real patient data. This will be aided by the tools of digital technology, cloud migration and artificial intelligence.

There will continue to be competition to develop the best device capabilities, but that alone will not assure victory in the development of overall solutions. The value of new solutions will be determined where devices, patient data and medical settings connect.

The solutions that win out will be those that ultimately lead to better treatment outcomes. One appeal of the DM market is its scale.

The current number of diabetes patients, 400 million, is expected to continue to increase. At present, even just the medical device segment of the DM market has grown to a greater scale than the dialysis or PCI market.

The current market growth rate is 7.4% annually, and CGM and pumps are expected to drive that going forward. Regionally, CGM growth is strong in the United States, where insurance reimbursement for CGM has progressed.

In pumps, growth is strong in Europe, where many type 1 patients reside. SMBG still has a lot of room to grow in emerging markets.

Pen needles are growing on average globally. To expand the DM business, we must have a product lineup that goes beyond just SMBG.

In pen needles, Terumo has the unique technology of Nanopass. In CGM, the key is our collaboration with the #1 manufacturer in the world, Dexcom.

This year, we’ll see the exciting introduction of the G6 into the Japan market. In pumps, we have our internally developed MEDISAFE WITH.

We have great expectations for it. We believe that Terumo pump products are highly competitive.

A major advantage is that we have successfully combined a tubeless design, which improves patient QOL with a high administration accuracy. It has only recently entered the Japan market, but we see it as a product with the potential to play an important role in our new solutions.

Terumo has previously focused primarily on the Japan market, but our goal is global expansion going forward. However, we will proceed with separate tailored strategies for Japan and outside Japan.

First, a full product lineup in Japan. Fully utilizing Terumo’s strong hospital base in Japan, we will first focus on type 2, but also expand in the type 1 and healthy individual segments.

Outside Japan, our goal is to win in custom niches. Utilizing specific technologies, starting with Nanopass, we want to achieve breakthroughs through proactive B2B collaboration with overseas manufacturers.

New solution development will be primarily through outside collaboration. The 3 examples you see here show our overall direction in developing new solutions.

The first is with Glooko. This is an information management system that adds value to Terumo devices.

The second is for the Japan market, joint development of digital treatment support system based on personal data. The third is with Diabeloop of France.

This collaboration aims to develop an automated insulin administration system connecting CGM and pump. Now for my conclusion, Terumo intends to grow this business into a major group pillar.

We want to make it a JPY 50 billion business in 10 years. There are 4 main points to achieve this: one, a global deployment addressing regional characteristics; two, proactive leveraging of outside collaborations; three, development of overall solutions by adding value to devices; four, we will remain open to M&A opportunities that bring new capabilities or technology.

We hope you will share our high expectations for this disease solution that will stand alongside our current TIS and Neurovascular solutions. Thank you.