Thank you for taking time out of your busy schedule today to join Terumo Corporation's financial results briefing for the second quarter of the fiscal year ending March 2027. First, CEO Samejima will deliver a presentation on Q2 update, followed by an overview of the financial results presented by Group Executive Officer and CFO Jin Hagimoto. Afterwards, we will have a Q&A session. The event is scheduled for 60 minutes in total. For this webinar, you can view the presentation in either Japanese or English using Zoom's simultaneous interpretation feature. Please use the audio selection button at the bottom of the screen. The material shared on the screen will be in Japanese only. English versions are available on our website. Should any issue arise with the broadcast itself, we will notify you via email. Prior to the start of this briefing, we would like to make the following disclaimer.
In the presentation that follows, we may make Forward-Looking statements based on the current expectations. All such statements involve risks and uncertainties. We ask for your understanding in advance that actual results may differ from these forecasts. First, Mr. Samejima, please start your presentation.
Thank you very much for attending this event today. This is Samejima. Before we begin the earnings presentation, I'd like to provide three key updates on the second quarter. First, the acquisition of Arsenal Medical. Second, an overview of the Blood and Cell Technologies business and its strong foundation for sustainable growth. Third, the voluntary recall at Terumo Aortic. Following the identification of endotoxin levels exceeding our specifications during the pre-shipment test, we are currently conducting a voluntary recall of the affected products. Let me start with the acquisition of Arsenal Medical and briefly revisit its strategic rationale behind the acquisition.
The acquisition of Arsenal Medical, which we announced on September 30th, was completed on October 2nd. The acquisition consideration is about $215 million, plus contingent consideration based on the achievement of certain milestones. Through this acquisition, we have added NeoCast, a next-generation liquid embolic agent designed for middle meningeal artery embolization, or MMAE, for the treatment of chronic subdural hematoma. In Terumo Neuro, we already offer PHIL, a liquid embolic agent, and the acquisition of NeoCast further expands our portfolio in this category. Strategically, the significance goes beyond expanding our product portfolio. We will expand our business opportunities from our core area, such as cerebral aneurysm and acute ischemic stroke, into adjacent areas like chronic subdural hematoma, thereby driving further growth in our neuro business. Next, let me turn to Blood and Cell Technologies. I will explain TBCT's overall business and the foundation for its sustainable growth.
Blood and cells form the foundation that supports numerous treatments in modern medicine. Our technology supports a wide range of medical needs globally, from blood transfusion therapy to advanced cell therapy. Shown here is our value creation process, which consists of collection, processing, and treatment. Our extensive range of technologies and expertise, which cover this entire value chain, is our greatest strength. In collection, we play a vital role not only in transfusion medicine, but also in next-generation cell and gene therapies. Trima Accel is a market leader in more than 130 countries, and Spectra Optia has become gold standard for stem cell collection worldwide. In processing, our technologies help support a safe and adequate blood supply. Mirasol helps reduce pathogens in blood components, while Reveos is creating a new market in automated whole blood processing and is serving more than 70 countries.
In treatment, Spectra Optia supports a variety of apheresis procedures. In cell therapy, Quantum Flex and Finia help automate manufacturing processes. Throughout this value chain, our software solutions and services, such as TOMEs and Veda solutions, connect technologies and data to help customers improve workflows, make informed decisions, and operate more effectively.
This extends the value we provide beyond individual products. In this way, we possess both leadership in the field of blood, which is essential to healthcare, and capabilities that continue to grow as our market evolves toward more advanced and innovative treatments. Next, I will explain the sales trend. From FY 2021 through FY 2025, TBCT has continued to grow steadily, with revenue growing at a CAGR of 14% and 5% on local currency basis. Importantly, these figures exclude Plasma Innovations. Our core business has grown steady throughout this period. At the same time, our product mix is changing.
The share of sales from Reveos and Spectra Optia is increasing, and these products have become key platforms supporting TBCT's growth. These are areas where we expect to see continued growth opportunities. Our track record of steady growth to date, combined with the changes of our product mix, forms the foundation of our future growth.
Building on this growth, in FY 2027, we expect revenue growth of 5% or more while targeting an AOP increase of JPY 5 billion or more from our FY 2026 guidance announced in August. At the same time, we are focusing on three key areas to support sustainable growth going forward. First, Reveos. Our goal is to establish Reveos as the global standard for the whole blood processing. By automating a process that has traditionally relied on manual steps, Reveos can help customers improve efficiency and standardization. We see a significant opportunity ahead with a serviceable addressable market of approximately $1.2 billion in FY 2026. We plan to capture more of this opportunity by increasing utilization in existing markets and expanding into new geographies. Second, Spectra Optia. Our focus is on expanding patient access by broadening adoption across disease states and geographies.
Spectra Optia is already a well-established apheresis platform, and the clinical evidence is growing in areas such as sickle cell disease. We see further growth potential by building the clinical evidence needed to support wider use. Third, operational excellence. We will continue to improve productivity and cost efficiency by optimizing our global supply chain footprint. These initiatives are important not only for supporting growth, but also for driving continued margin improvement. We are also modernizing our infrastructure and leveraging digital technologies, AI, and advanced analytics to improve efficiency, resilience, and scalability. Through these initiatives, we will continue to drive sustainable growth. We will share more about our strategy and opportunities ahead as part of our next five-year growth strategy, GS31, on December 15. Next, I will turn to Terumo Aortic. During pre-shipment testing of the stent grafts, endotoxin levels exceeding our specifications were identified.
We have suspended shipments of the affected RelayPlus, RelayPro, and TREO products in all markets and are proceeding with voluntary recall. By way of background, following the change in leadership of Terumo Aortic in January this year, we have been operating business under new management structure. In September, endotoxin levels exceeding our specifications were identified. This prompted us to conduct a broad investigation and review of the affected products and related manufacturing processes. The cause is still under investigation. It is difficult to fully determine the scope of the potential impact. We are in consultation with the relevant regulatory authorities to initiate a voluntary recall. We are currently working closely with the authorities, distributors, and healthcare institutions to ensure the recall, and manufacturing shipments have also been suspended, and we will take necessary corrective action based on the findings of the investigation.
FY 2026, we expect the voluntary recall to have a negative impact of approximately JPY 8 billion on revenue and JPY 41 billion on operating profit. Operating profit impact also incorporates risks related to the value of assets associated with the TA business. Jin Hagimoto will provide further details on the financial impact later in his presentation. Finally, let me share our thoughts on the path forward. First, we will continue to pursue initiatives for the future growth. We will capture future growth opportunities by building on the positions of the Arsenal Medical and sustainable growth foundations of blood and cell technology business. At the same time, we will continue to optimize the allocation of our resources. Portfolio transformation is embedded in how we manage our business.
We will continue to evaluate each business based on its global growth potential, profitability, and capital efficiency, and make the necessary decisions without slowing the pace of transformation. Finally, guided by our corporate mission of contributing to society through healthcare, we will continue to bring innovative products to healthcare providers and reliably supply products they can use with confidence. Through these efforts, we will continue to enhance corporate value. Next month, as part of GS31, we will lay out our roadmap for Terumo's future growth, and we hope you will find it of interest. Please pay attention to GS31 announcement. Thank you very much for your attention.
Next, Mr. Hagimoto will provide an overview of financial results. Mr. Hagimoto, please go ahead.
I am Hagimoto, CFO. Thank you for joining us today. I will begin by providing an overview of financial results for the first half of the fiscal year ending March 2027. First, I will explain the revision of our full-year guidance. In light of the impact of the voluntary recall in Aortic, as explained by Samejima, as well as temporary supply constraints in Neuro, we have revised our FY 2026 guidance downward. In August, we revised the guidance upward to reflect tariff refunds and proceeds from a litigation settlement. We subsequently revised it downward in October 8th to reflect the impact of the termination of the supply agreement with CSL Plasma. This latest revision reflects the newly identified impact on our TA and TN businesses since our October 8th announcement.
Regarding the neuro business, the issue is not related to demand, but rather temporary supply constraints caused by the workforce limitation at the manufacturing site. I will explain the specific impact on the next slide. This slide shows our revised guidance. We have lowered the revenue forecast by JPY 10 billion from the guidance announced in October to JPY 1,219.5 billion, reflecting the impact of the voluntary recall in Terumo Aortic and temporary supply constraints in Terumo Neuro. For operating profit, given the uncertain outlook for the Terumo Aortic, we have taken a conservative view of asset valuation and other risks. As a result, we have lowered OP forecast by JPY 41 billion from the October guidance to JPY 119 billion. Accordingly, the profit of the year is expected to be JPY 87.5 billion. Let me provide some background on the JPY 41 billion reduction in our OP forecast.
Unlike the voluntary recall of RelayPro product that began in June, the current recall covers all products manufactured at the same production site. As a result, it may take some time before supply can resume. Given these circumstances, we have carefully assessed the potential impact of the future of the business and conservatively factored in risks, including those related to asset values. Next, I will explain the key drivers of the change of OP guidance. As we recognize a number of one-time items during the first half, I would like to take this opportunity to provide further explanations. From the left, OP for FY 2025 was JPY 176.3 billion. When we announced our FY 2026 guidance in May, we projected OP of JPY 224.5 billion, reflecting profit growth mainly driven by higher revenue.
In the first quarter, we revised our forecast upward to JPY 257.5 billion, reflecting JPY 13 billion in tariff refunds and JPY 20 billion in settlement proceeds. On October 8th, we revised our forecast downward to JPY 160 billion, reflecting a total of JPY 97.5 billion in impairment losses and related expenses associated with the termination of a supply agreement with CSL Plasma.
In this latest revision, we have reflected a total impact of JPY 41 billion, including the business impact of the voluntary recall in Terumo Aortic and temporary supply constraints in Terumo Neuro, as well as risks related to asset values and other potential impacts of Terumo Aortic. As a result, we now forecast OP of JPY 119 billion. This guidance also factors in Terumo Aortic's asset valuation risks, given potential portfolio review to enhance long-term corporate value. No specific action or loss amount has been determined at this stage.
We will further review our business strategy and reassess asset values accordingly. We will continue to make necessary decisions to enhance our mid-to-long-term growth potential, profitability, and capital efficiency, and build a stronger business portfolio. This slide shows the changes in our adjusted OP guidance and the key adjustment items. We have lowered our adjusted OP forecast by JPY 3 billion from our August guidance to JPY 271.5 billion, reflecting the impact of the voluntary recall in Terumo Aortic. This still represents 24% growth year-over-year, and our underlying profit growth remains solid, supported by continued growth of our core businesses. We have also factored in JPY 38 billion in risks related to asset values in Terumo Aortic, which is included in the adjustment items shown on the right. While one-time losses have a significant impact on OP, our underlying earnings power continue to grow steadily.
Next, I will explain our guidance by company. As we did not disclose company-level forecasts on October 8, the figures shown here are compared with our most recent disclosed forecast from August. In C&V, our latest outlook reflects the impact of the voluntary recall in Terumo Aortic and temporary supply constraint in Terumo Neuro. We continue to expect solid growth at TIS and TCV. TMCS continues to perform steadily, led by HCS and PS, while TBCT is also expected to benefit from strong sales of blood collection-related products.
Organ Technologies is expected to remain strong growth, supported by the expanding liver transplant market. Based on these assumptions, we expect adjusted OP of JPY 271.5 billion, with an adjusted OP margin of 22%. While steadily addressing the challenges we face, we will continue to translate the growth of our core business into solid financial performance in the second half. I will review our results.
These are the highlights of Q2. Revenue reached a record high for the first half of JPY 624.5 billion, driven by solid performance of our core business. Strong demand continued, particularly in the Americas and Asia, resulting in 8% growth on the local currency basis. On the profit side, supported by the solid revenue growth and the positive pricing effect, adjusted OP also reached a record high for the first half. OP, however, declined year-over-year, mainly due to the impairment losses and other expenses associated with the termination of our supply agreement with the CSL Plasma.
This is our P&L performance. Revenue increased 17% year-on-year, JPY 624.5 billion. In addition to 8% growth on the local currency basis, favorable foreign exchange movement also contributed to the increase. TIS and the Global Blood Solutions led the growth, while other core business also performed solidly overall. Operating profit was JPY 70.8 billion, down 30% year-on-year. While profit growth from higher revenue and positive pricing effect contributed positively, operating profit declined significantly due to JPY 76.4 billion in impairment losses and other expenses recorded in the second quarter associated with the terminations of our supply agreement with CSL Plasma. In contrast, adjusted operating profit increased 29% year-on-year, JPY 147.3 billion. Our underlying business performance remained strong, with adjusted operating profit reaching a record high for the first half. Next slide, please. This slide shows the year-on-year profit variance analysis for Q2.
Notable developments in Q2 was the decline in operating profit. This was mainly due to the recognition of expenses, primarily impairment losses, as I explained earlier. As all of these expenses are included in adjustment items, there is a significant difference between operating profit and adjusted operating profit. Next, let me walk you through the year-on-year profit variance for the first half. The increase in gross profit from high sales was mainly driven by TIS, particularly in the Americas and Asia, as well as growth in the Global Blood Solutions and Organ Technologies. The gross margin and pricing impact contributed positively to profit, supported by tariff refunds and pricing initiatives globally. SG&A expenses increased in line with business growth and were generally in line with our expectations. Next slide, please. Now, let me walk you through the performance by company, starting with the Cardiac and Vascular, or C&V.
Revenue grew 6% on the local currency basis. In TIS, sales of key products expanded, particularly in the Americas and Asia, driving overall growth in C&V. The oncology and endovascular portfolios performed well. In Europe, performance remained soft, mainly due to temporary supply constraints caused by staffing limitations in North America. However, the cerebral aneurysm treatment business led by WEB continued to grow with solid performance in Japan and Europe. The cardiovascular business also continued to see solid demand, particularly in North America and Asia. In Terumo Aortic, revenue declined on the local currency basis, mainly due to the voluntary recall of certain models of the RelayPro thoracic stent graft system. On the profit side, higher sales and positive impact of our pricing initiatives contributed to profit growth. Together with the benefits from tariff refund, the profit margin reached 30%. Next slide, please. Next is Medical Care Solutions, or TMCS.
Revenue growth was driven by Hospital Care Solutions and Pharmaceutical Solutions. In Hospital Care Solutions, performance was supported by the positive impact of the drug price revisions in Japan, as well as the solid sales of our key product lines. In Pharmaceutical Solutions, growth was driven by projects and kitting products, including needles, particularly in Asia and Europe. Our CDMO business in Japan also contributed to perform well. On the profit side, despite the positive impact of the higher sales, profit declined year-on-year, reflecting upfront investment at the Leverkusen plant, which we acquired last year. As a result, the profit margin was 11%. Excluding the impact of the Leverkusen plant, the margin would have been 14%. At the Leverkusen plant, preparation for the launch of the pre-filled syringe line in the second half of the FY 2027 are progressing as planned.
Discussions with multiple pharmaceutical companies, mainly in Europe and the U.S., are also progressing, and we are steadily building the business foundation to support our global CDMO business expansion. Next slide, please. Next is Blood and Cell Technologies, or TBCT. In Global Blood Solutions, blood collection products, including the Trima apheresis system and the Reveos automated whole blood processing system, continued to perform well. Global Therapy Innovations also maintained strong growth, particularly in Europe, U.S., and Asia, contributed to overall revenue growth. Plasma Innovations is included in our results through Q2, but we expect the business to scale down in the second half. On the profit side, strong performance of key products, including Trima and Reveos, together with the positive impact of pricing, contributed to profit growth. As a result, the profit margin was 17%. Next slide, please. Next, let me explain the performance of the Organ Technologies.
Revenue for the first half was JPY 11.6 billion, up 36% year-on-year, continuing its strong growth. The organ preservation market using NMP or normothermic machine perfusion continues to expand, supported by the growing number of liver transplants. We expect to continue to outpace market growth. On the profit side, we recorded one-time cost in Q1 related to the optimizations of the production system for metra, organ preservation device. In addition, growth temporarily moderated in Q2 due to seasonal factors and others. As a result, the profit margin for the first half was 14%. In the second half, we expect profit growth as sales expand. Our full-year profit margin target of 20% remains unchanged. Lastly, let me walk you through the revenue performance by region. In America, TIS led growth supported by continued strong demand, while Organ Technologies also contributed to revenue growth.
TBCT and Global Blood Solutions also performed well. In Europe, Neuro continued to deliver steady growth. Pharmaceutical Solutions also drove revenue growth, supported by the strong sales of the projects and kitting products. Global Blood Solutions also performed well, delivering double-digit growth. In Japan, Hospital Care Solutions was the main growth driver, with the Neuro and the Pharmaceutical Solutions. In China, TIS remained solid, while Neuro and TMCS continued to see softer performance. In Asia, C&V led growth, mainly driven by TIS and TBCT, while Pharmaceutical Solutions also contributed to revenue growth. That concludes my presentation. Thank you very much for your attention.
We will now move on to the Q&A session. Today's briefing is being held in a hybrid format. If you are attending in person and have a question, please raise your hand. If you are joining via Zoom webinar, please use the raise hand button. If you wish to withdraw your request to ask a question, please click the raise hand button once again. To allow as many participants as possible to ask questions, we would like to ask you to limit your question to two per person. Samejima, Hagimoto, and Otaka, General Manager of Corporate Planning, will be joining the Q&A session. We are now happy to take your questions. Mr. Yamaguchi, please.
This is Yamaguchi from Citi. First question. I have two questions, and first question, probably many will ask this area, and it is about the Aortic. It seems that you have not found the full picture of the situation, and so there may be something happening at the Bolton Medical plant. What is the scope of the issue? Is it due to the manufacturing problem, or is it limited to that plant? Including that, could you elaborate on that? You gave us the JPY 41 billion, but how much do you know? Also, maybe you may receive a warning letter from the FDA, and that may complicate the matter, so please discuss. Thank you very much.
Endotoxin could occur every step of the manufacturing, and so we are investigating quite a large area, not only our company, but also our suppliers, and we have not identified the root cause yet. Exceeding endotoxin level is seen in the Bolton plant, and it did not happen any other plants in Terumo. Regarding the FDA, we do not know what will happen at all, but currently, I have to say that we do not know yet.
How soon would you know the more detail? You do not know?
Right.
What would FDA do and contact us?
We do not have any idea yet. The second is about the America's situation, the Congress. The MedTech may be more affected by the pharma because of the hospital management.
Is there any positive side for you or not?
Well, currently, it is quite difficult for us to see any indications. Lately, the tariffs would probably continue, and for the management of the hospitals, regarding the short-term impact on the management of the hospital, it is quite difficult to say for now. Currently, the impact of the midterm election will not affect our businesses in the short term.
Thank you very much.
Next, we would like to take question from Kohtani-san from Mizuho Securities.
I am Kohtani from Mizuho Securities. There are two questions from me. The first one is about the next year's impact in the Aortic business. You have changed asset value evaluation, so it may take a little bit longer. At maximum, operating the revenue JPY 20 billion, operating profit JPY 5 billion-JPY 6 billion?
We are in the midst of the investigation right now. As a first step, we have to identify the cause and take the corrective actions, and that corrective action needs to be secured to lead to the stable and secure supplies and productions. There are a couple of steps. At this point in time, it is very difficult to forecast by when we can reach to that stage. For the next fiscal year, we are not able to tell you what will be the case. At this point in time, you are going to see the product disappearing.
Maybe JPY 20 billion and JPY 5 billion would be the case if you say the product would disappear, right?
As Mr. Samejima mentioned earlier, we have to consider at what point we can resume shipping. After we identify the cause, then we need to take corrective action again. It is not controllable from our end, but we also need to assume the inspections coming from FDA as well. For the next fiscal year, as you just mentioned, this year's product level shipment could be difficult. Maybe that is things we have to take into consideration.
PMA application, do you need to make a reapplication after the recall?
No, that is not our understanding.
Understood. The second point, I am struggling to understand this. It is page seven, the performance revisions by business or company. TBCT did not have the forecast as of August, sorry, October. The revenue JPY +95 billion and JPY +20 billion, and according to Mr. Samejima, it is about JPY 5 billion or above, and adjusted operating income would be increased, and the revenue is declined.
The operating profit is declined, and the reviews is Sorry, maybe my explanation have caused some misleading impression. What I was talking about the profit for 2027 compared to the August 2026, we would have plus JPY 5 billion. That is what I wanted to say. Profit increase is because simply, this is adjusted profit, and it is excluding one-time impact. If you have an apple-to-apple comparison, we expect the increased revenue and increased profit in 2026 + 20. It is the fixed cost. Amortization cost would be lighter in the adjusted operating profit. That is why you see the positive number.
Next, Mori-san from Nomura, please.
Thank you. This is Mori from Nomura. The first question regarding the Aortic production, the Vascutek Glasgow and also Bolton in Florida. If you relocate the production from Bolton to Glasgow, is it possible to cover the line of Aortic to some extent?
Well, for now, the lead time for the production, the transfer is quite long. For the short term, we are not assuming that yet.
Thank you. The second question. I should be careful how to word this. Samejima-san, Hagimoto-san, when you started your position, you are processing in the positive way or the Forward-Looking way. With your current position, you can see that many things need to have been done but they are not done yet, or what is the background of you working in the quite the Forward-Looking way?
Well, let me be careful how to describe that. After we took our positions, we reviewed the situation of the different companies or the businesses quite carefully. We try not to postpone the issues, the solutions of the issues in the future. Both of us agreed on that. The past two and a half years, those are the ideas of our management.
Thank you very much.
Next, from UBS Securities, Yoshihara-san, please.
Hi, Yoshihara from UBS Securities. Thank you. Sorry to ask Terumo Aortic once again, but due to a bit of lacking in my knowledge. Out of the JPY 41 billion in operating profit, the majority of them are the risk associated with this business asset value. What do you mean by that?
Well, this is not something we already fixed it already, but in total, in this JPY 41 billion, the revenue in the second half, we see almost the revenue would be gone. That's why the calculation here. Another point is that legal associated reduction in valuation. Another point is that the fixed asset at the time of the Bolton Medical acquisition, there is intangible asset, and also the research asset as well. We need to consider the handling of these valuations in the future, so that's why we have included them.
The biggest amount are coming from the third point you mentioned.
Yes.
In terms of the order of the amount, the fixed asset or research and development-related assets is a fixed asset and intangible assets are biggest. Is it because that there is a possibility for you to withdraw?
Well, sorry to say the same comment as the case of the CSL, including all of the possible options we are currently thinking.
Thank you. The second question is about the production trouble in Europe. Could you tell us what would be the situation right now in more detail? Also, what is the solution possibly? The product was not WEB, but if possible, could you explain what product is affected?
At the Costa Rica production site is the case. In Costa Rica, there is the continued entrant of the other medical manufacturers, and there are some cases happened that pulling out the workers into the competitors or other companies. Compared to the past, the attrition or turnover is not so bad. It's getting better. Unfortunately, we have secured already the necessary staffing. But in order to make it a full production operation, it would take more time. That's the current situation. At this point in time, resource perspective, we have almost resolved the case, but the learning curve takes some time in the trainings, and that's why we are in the stagnant situation of the shipment. Competitors have newly built huge plants nearby, and that's why they have recruited workers from us, and we have already addressed it right away.
Can I assume six months to take for the training?
It depends on the situation. It would be about three to four months. That's what we assume.
Thank you very much.
Next from Goldman Sachs, Ueda-san, please.
This is Ueda from Goldman Sachs. First question is just a revised plan or the ideas for that. Terumo Aortic, you were quite conservative for the asset valuation, so I believe that your revised plan includes the negative factors and the actual situation may be quite steady. I believe that for the forex, you are quite conservative. So for the actual, are you expecting some upside?
For the first half, there were many one-time factors. Regarding the actual business, when you look at the adjusted OP, it is going quite steadily. In the first half, it is the highest compared to the past. In terms of the actual business, I believe that our business is going quite good. We do not assume many or any negative factors for our actual business. We did not have major changes for the adjusted OP.
Thank you. The second question. Downward revision due to the Rika and Terumo Aortic and the neuro. From the next fiscal year, what is your expectation? It seems that the neuro, you will expect the recovery. So you would not see the impact on the first half next year. When you look at the situation year-on-year, what will be the situation?
The first about the PCD. The supply agreement termination with CSL happened, as Samejima mentioned, so the impact of the Rika business on the actual P&L will be minor. Regarding the new, it is only the temporal issue. We secure the workforce and the training is going on, so we would not see any impacts next year. On the other hand, regarding Terumo Aortic, it is quite difficult for us to give you the clear explanation. We have to identify the cause and review the impact and think about the improvement measures. I would like to refrain from commenting on that now.
Regarding the last point, this year, your focus was quite conservative, so you would not expect the further worse situation from now?
We included various negative factors into our revised plan, so I believe that at least most of them have been covered.
Thank you.
Next, joining from online, from SMBC Nikko Securities, Mr. Tokumoto, please.
Tokumoto speaking from SMBC Nikko. My first question is about the Aortic business. JPY 41 billion, if you see the impairment loss, next year, the operating income may have a positive impact. Is this understanding correct?
Thank you very much for your question. It is not fixed yet, but sorry to answer in a textbook way, if we incur the impairment loss, it means that it would be the positive impact in the future in P&L.
The second question is about the Aortic. For the past three years, there is a result coming out from the Angio-Seal trial result. Of course, there are some continuous factors, but I think that is also reflecting manufacturing defect in 2024 per Rico. Beside Aortic, is there any potential risk factors in the future, like Angio-Seal?
Regarding that point, we haven't quite understood it right now. If there is anything happens, let us inform you. That is all.
Next, BofA Securities, Mr. Takeuchi.
Yes, this is Takeuchi. The first question, it's about the OT. It seems that the revenues are rather slow, and maybe it's seasonal, but it seems that your competitors are not so soft. Could you discuss the factors of the soft performance?
Well, seasonal factors, it's in, well, in the summer because of the vacations, it's rather slow. That's one thing. Another thing is that the new technology was launched from our competitors. Some customers wanted to try the new technology. After trying the new technology, actually, they are returning to us because they prefer ours. So, it seems that quite recently, the situation is improving and getting stronger. So long-term forecast will not be affected, so we will maintain our guidance.
The second question, it's about the Aortic. There are JPY 38 billion. So what's the assumption for this number? When do you start shipping, and what is your plan?
Well, as I mentioned earlier, there is nothing confirmed yet. Still, when we consider Aortic, especially the Bolton Medical, the Florida site, when we look at that, it is longer before the resumption of the shipment. Well, it will be more difficult for us to just recover. We are trying to look at how long it will take, and we have to review that. If we spend one hour to resume the operation, we also have to consider how much the recovery we can establish for going back to the market position. We have to consider the asset valuation for that.
Thank you.
Next, joining from online, from Morgan Stanley MUFG Securities. Hayashi-san, please.
Thank you. Hayashi from Morgan Stanley. I have one point regarding Organ Technologies. In the second quarter, due to the seasonality, compared to the past quarter, the revenue declined, but you have not changed the revenue plan for the full year. In the second half, you need to grow by about 50% in order to hit the target. What is the probability to achieve that? How can you grow in the second half 50% as compared to the previous year? What is the point here?
Seasonal factors there, and in terms of the transplant market, there is a tendency to grow more in the second half. NMP technology definitely is highly appreciated in the transplant market. There is a steady switching from conventional modality or method. As I mentioned earlier, in summer, there are certain clients who tried the new technologies and are coming back to our technology recently, so that is why we assume that this would be accelerated as a trend in the second half.
Thank you. Again, it is also about Organ Technologies. Sometimes, the investor asks us about the potential risks of impairment. Aortic or Rika, or there are some impairments incurred and also revaluations of the assets. The timing of those in Organ Technology or judgment call to make that impairment assessment. Is it, I think, by the end of the fiscal year? Could you describe the possibility of them?
Let me answer that question. Since this is acquired asset or business, we have the impairment loss assessment once a year. Between December to January, we carry out that assessment. Regarding the possibility of the impairment loss incurring in Organ Technologies, at this point in time, reflecting five-year strategy, growth strategy, and also this year's situation, I think we are very close to the plan we had at the time of acquisition. There is no sign that we are going to have an impairment loss at the time.
That is all.
Next, from online participant, Tony Ren, Macquarie Capital.
Hi, Tony Ren from Macquarie. Can you guys hear me?
Yes, we can hear you.
Okay, perfect. Thank you for taking my questions. First of all, going back to the Aortic recall again, I think you mentioned the levels of endotoxin for the first time, right? Is this suggestive of contaminated manufacturing equipment? Could you give us a little bit of technical background there? That is my first question. And the second one is on your supply shortage with Terumo Neuro. It looks like a large competitor entered your manufacturing area, right? So it looks like it is permanently tilting the balance there in terms of labor. How do you anticipate addressing that? Would that be training more staff? Would that be more automation to replace the staff? How long do you think it will take to address this? Thank you.
Okay, let me take the first question and then followed by Jin is going to take a second question. We are still investigating the root cause of this exceeding of the limit of endotoxin. So, we have not identified the root cause yet. Endotoxin could actually be generated in any kind of a manufacturing process. So, not only internal manufacturing process, we are also expanding our scope of investigation to our vendors, suppliers as well. So, we are working very hard to identify the root cause. That is my comment to your first question.
Okay. Regarding the Terumo Neuro factory situation in Costa Rica, this is a very active work labor market at this point in time. We do see many of our competitors opening large-scale factories in the Costa Rica region. We do believe that this kind of situation will continue. Our approach to that situation is going to always be looking at the working conditions, making sure that we have sort of a kind of a pay parity with the other manufacturers, and also make sure that we have the kind of culture, kind of Terumo's culture of making sure that we can also support the people that will be working for us in the Costa Rica factory also. One of the training activities is ongoing as of today.
Although it will take three, four months to train any kind of worker who have newly joined the Terumo Neuro factories, we do believe that training activities is sort of always will continue to be optimized. If there are any possibilities we can shorten the training or the onboarding time it requires, we will do so. At this current situation, in the short term, those are the approaches we would be taking, and not a major automation, I think, can be sort of swapping out all the labor resources that we require in the short term. But those are things that we will consider also going into the future.
Yeah, thank you. Automation probably wouldn't work in the short term, but do you think it can work in the medium term to long term?
In the past, throughout our kind of mid-term strategy in GS26, we have taken quite a large activities in automating some of the manufacturing processes where we were kind of felt that would be possible. Unfortunately, some of the automation process for the Terumo Neuro products have not been sort of, how should I say, kind of set up as of today. We've made the changes, of course, we have not given up any of these kind of factory automation side, but it is something that we have tried in the past and still are kind of trying to come up with a viable results.
Understood. Yeah, thank you.
Joining from online next is Saito-san from JP Morgan.
Hello, Saito from JP Morgan. Thank you. I would like to ask you about the Arsenal Medical that you have acquired, and I would like to especially ask about the conditional compensation for the milestone achievements. Is there anything that you can share the idea about that?
At this point in time, we cannot tell you the details, but this is somewhat very standard milestone payment model. It is still in the research stage, and we are going to obtain approval going forward. As long as we can confirm the steps towards that milestones, that are confirmed, we will make the payment. For the time being, maybe it is JPY 4 billion R&D expenditure for a year. That could be a bit shifting depending on the timing of the development, but currently, we do not see any significant changes in R&D costs.
Second question is about the Plasma Innovations business. Is there any update about that? Also, the German factory for the plant or the CDMO business, is there any update?
Of course, we are doing ongoing activities for both. Also, we are working on the transitions about the CSL and Leverkusen plants. We are ramping up the production facilities. Also, we have ongoing negotiation with the pharmaceutical companies right now. At this point in time, we are not able to tell you what we have concluded the contract. It is on track, the situation for the CSL. Also, we are building up the production capability in Leverkusen as well.
Thank you.
We will take the last question from online, Andrew, please.
Sorry, two clarifying questions on the Aortic business. You mentioned management changes at Bolton Medical. The endotoxin problem, is this something new, or could it potentially have been ongoing for a very long time?
Okay. Yes, thank you for your question. This is something that we have discovered quite recently, and therefore, have started the ongoing investigations and have not successfully been able to determine what the root cause was. Therefore, this is some of the approaches that we've taken based on that newly kind of situation.
Okay, so the test was conducted recently or has been done every quarter? I'm just trying to understand whether the issue is just something that's occurred recently or is potentially much longer lasting, but just was never picked up before.
The test that we have conducted that failed was in September. Based on the September test results, we have started the long kind of factory-wise investigation.
Okay, thanks. Just following that, can you just confirm the impairment of JPY 41 billion that is basically writing off the rest of the year of revenue, and does that include impairments against all the asset values for these three products that are mentioned?
We have not yet concluded any of impairments or activities as of today. What we have included in the outlook is that there is a risk that we may have to recognize some impairment activities, but these are not yet confirmed as of today. We are looking into this as we speak and have included the numbers as a very cautious measure.
Okay. Thank you very much.
All right, it's now time to close this meeting. We would like to close the meeting, and if you have additional questions that we were not able to take, please contact the IR. We would like to close the Q2 earnings call of Terumo. Thank you very much for your participation.