Takeda Pharmaceutical Co.’s shares might be trading at about half of their level before the $62 billion acquisition of Shire in 2018, but the drug pipeline and cash management are helping to change the market’s perception of the company’s long-term value, Chief Executive Officer Christophe Weber said.
“When you do an acquisition like that of this scale — and it’s not only a big acquisition, it was a very big acquisition compared to our size as well — it’s normal that the market gets a little bit frozen,” Weber, 55, said in an interview. “We are in a different phase, now in a good phase. We are confident about our outlook.”
Takeda’s shares are trading at about half of their level from a 2017 peak, giving the Tokyo-based drugmaker a market value of about 6 trillion yen ($44 billion). With cash flow growing, Weber said the company is seeking to reduce debt and return cash to shareholders via dividends and buybacks. Those efforts have started to pay off, with Takeda’s stock price up about 20% this year.
Although Takeda reported a 10% decline in operating profit to 461 billion yen for the fiscal year that ended in March, analysts project, on average, that profit will almost double to a record 920 billion yen for the current fiscal period. That’s well above the company’s own forecast for 520 billion yen. On a core basis, which Takeda defines as excluding taxes, amortization and other charges, operating profit will be closer to 1.1 trillion yen.
Takeda completed a 100 billion yen share buyback in April, and has kept dividends steady. Shareholders should expect this policy to continue, according to Constantine Saroukos, the drugmaker’s chief financial officer.
“We’re very much focused on returning cash to our shareholders,” Saroukos, 51, said in the interview. This “could be in terms of dividend increases in the future, but also share buybacks,” and “with our free cash flow improving, gives us a lot more levers to pull to continue to drive shareholder returns,” he said.
Takeda is assuming an exchange rate of 119 yen to the dollar for the current fiscal year, although this week the yen is trading at around 136 yen, near multidecade lows. If dollar-yen stays at around 130, “we’ll have single-digit, high single-digit upside on our revenue guidance and our earnings per share,” Saroukous said.
More than 80% of Takeda’s revenue is earned abroad. Asked whether the weaker yen, which boosts Takeda’s income converted into its home currency, would allow for more shareholder cash returns, Saroukos said: “The fluctuations of the yen doesn’t change our strategy or capital allocation.”
‘Mind Blowing’
Both the CEO and CFO emphasized that the main beneficiary of the improved cash position will remain the development of new drugs and therapies.
Takeda is “very committed” to the development of a drug to treat narcolepsy and is working hard to make up for an 18-month delay with a backup after terminating its leading project in October, Weber said.
A backup compound called TAK-861 shows efficacy with “a much lower dose” than TAK-994 it scrapped after it caused problematic liver-damage side effects, Weber said. The new drug in development appears to be a better candidate, with mid-stage of clinical trials scheduled for later this year, although Weber declined to comment when the trial will be completed.
“TAK-861’s market potential is equivalent of TAK-994,” said Weber. “We believe that it’s different enough to hope that it will not have the same safety issue while having the same level of efficacy, because the efficacy is mind blowing.”
After the leading compound failed, Takeda’s stock fell about 10% over two days in October. The drugmaker is counting on narcolepsy treatments to make up for a sales decline when Entyvio, its blockbuster drug for ulcerative colitis and Crohn’s disease, eventually faces generic competition. Entyvio, Takeda’s biggest product, generated about 15% of its total revenue for the year ended March.
The company hasn’t seen any biosimilars of Entyvio in development and doesn’t expect the market entry until the end of the decade, and through 2032, when many of the drug patents expire, Weber said.
“It’s impossible that they will be there by the time of the exclusivity expiration,” Weber said of competing products. “We have not been super precise about when, exactly, because there is still a little bit of uncertainty.”
Narcolepsy, a chronic sleep disorder responsible for sudden sleep attacks and daytime drowsiness, affects an estimated 135,000 to 200,000 Americans, according to the US National Institute of Neurological Disorder and Stroke. The market, valued at $2.7 billion in 2020, is projected to more than double to reach $6.7 billion by 2030.
The successful progress of TAK-861 could generate interest in shares, said Stephen Barker, an equities analyst at Jefferies Financial Group Inc. “On the other hand, if they say they’re dropping that one too, that would be bad for the shares.”
The company is also searching for mid- to late-stage assets to make up for the anticipated sales fall of Entyvio, Weber said.
Separately, Weber says he is potentially interested in expanding a partnership with JCR Pharmaceuticals Co. to develop drugs using the company’s cutting-edge technology to transport drugs to the brain called J-Brain Cargo. The companies agreed to jointly develop an experimental drug JR-141 to treat Hunter Syndrome, a rare inherited genetic disorder caused by a missing or malfunctioning enzyme, in September last year.
“The advantage of partnership is you start somewhere,” said Weber, when asked about the potential for the technology’s use in other neurological disorders, such as Alzheimer’s. “It can lead to other opportunities.”
https://finance.yahoo.com/news/takeda-now-good-phase-growth-210000333.html
