Takeda Pharmaceutical is Japan’s leading pharmaceutical company by revenue. While the firm historically focused on the Japan market, management is undertaking an ambitious overhaul to diversify away from its stagnant local market and overcome patent expiries with acquisitions. In January 2019, it closed its purchase of Shire Plc for approximately $57 billion, an Ireland-based biotech firm that generated similar revenue as Takeda. The deal not only gave Takeda access to Shire’s rare disease and plasma-derived therapies, it also granted Takeda much greater penetration into U.S. markets and diversification away from Japan’s cost-cutting policies.
The company faces significant headwinds. First, there will be major loss of exclusivity events over the next 10 years, including Velcade, Vyvanse, and potentially Entyvio. Some of its businesses, such as its plasma derived therapies, face future novel competition. Although its pipeline holds promise, it is still early-stage and in the past three years the company has faced several setbacks in the clinic. Nonetheless, the company’s best assets remain attractive enough for us to assign it a narrow-moat rating.
Takeda is organized around five core businesses: oncology, gastroenterology, neuroscience, rare diseases, and plasma-derived therapies, which account for over 80% of revenue. It also has a developing vaccine pipeline. Geographically, about 50% of sales come from the U.S., 20% from Japan, and 20% from Europe and Canada.
Since the merger, Takeda’s management has moved quickly to realize synergies, implement cost-cutting measures, and sell noncore assets to pay down debt. It has brought core operating margins up to around 30% (from 10%-20%), which is in line with other large global drugmakers. The company’s long-term challenge is to use its larger global footprint and broader research and development scope to deliver strong drug candidates to offset upcoming patent expirations and competitive threats.
Opportunities:
- Takeda has recently shown good progress on its cost cutting initiatives and has identified reasonable synergy targets with Shire.
- Biologic therapy Entyvio is approved as a treatment for IBD, and the drug’s strong efficacy, novel mechanism, and clean safety profile have allowed it to compete well with older antibody treatments like Humira.
- Takeda’s pipeline has many interesting early-stage pipeline candidates, some with first-in-class or best-in-class potential.