Eyes On Divestments, Revised Guidance Ahead Of Takeda's Q1
Executive Summary
As Takeda prepares to report its first full quarter post-Shire next week, eyes will be on further strategic divestments and trends that could lead to a raising of guidance in Q2.
Takeda Pharmaceutical Co. Ltd. is preparing to report its first complete fiscal quarter following the completion of its acquisition of Shire PLC on 8 January. Investors will be looking mainly at how performance so far is tracking against targets for the combined business, and what else may be sold off to help pay down the debt load from the $62bn deal.
The company announces its results for the fiscal first quarter ended 30 June on 31 July.
The enlarged company issued full-year guidance released at the time of the fiscal year results in May that disappointed some investors. The core earnings outlook of JPY883bn ($8.17bn) was seen by some as lower than expected, and Takeda's current (25 July) share price of around JPY3,900 is down from the JPY4,300 level in mid-May.
Formal revisions to forecasts are usually made in Japan at the time of the fiscal Q2 results (announced in late October), but there may be an indication of trends in the first three months that will give heart (or otherwise) to investors.
One bright spot is likely to be continued strong global growth for the biologic for inflammatory bowel disease Entyvio (vedolizumab). This has been benefiting from increased use in biologic-naïve ulcerative colitis and Crohn's disease patients, and in May was approved in Japan for adult moderate to severe Crohn's disease, on top of its July 2018 approval for adult moderate to severe ulcerative colitis.
Although announced after the 30 June end of the quarter, there were positive results for a new subcutaneous (as opposed to the existing intravenous) formulation for maintenance use in moderately to severely active Crohn's disease.
The SC formulation is already under review for ulcerative colitis in the US and EU (and also for Crohn's in Europe), and there may be questions around the timelines for approvals and impact of these given the improved patient convenience.
More Divestments?
But a major point of interest will be any further direction on the size and shape of possible strategic divestments, as the enlarged Japanese firm looks to rationalize and generate one-off income to pay down debt.
The former Shire dry eye drug Xiidra (lifitegrast) has already been offloaded to Novartis AG for $3.4bn upfront plus up to $1.9bn in milestones in a major deal completed on 1 July. (Also see "Novartis Delighted With Xiidra Deal Despite Eye-Watering Price" - Scrip, 9 May, 2019.)
There will clearly be more to come, and Takeda president and CEO Christophe Weber said at the time that: "We are making solid progress on our commitment to simplify our portfolio and meet our deleveraging targets."
The strategic target is to bring down the group net debt to adjusted EBITDA ratio to 2x within three to five years following the close of the Shire acquisition. Following the Xiidra deal, this figure stood at 4.7x, with JPY5,048.9bn in net debt still outstanding.
The company has already stated that around a quarter of current group revenue is considered "non-core" and has hinted that several product candidates such as gout drug Colcrys (colchicine) and diabetes product Nesina (alogliptin) might be ripe for hive-off.
Otherwise, some analyst concerns about weakness in the ex-Shire hemophilia business in the US were seen at the time of the full-year results, but the impact from inventory adjustments should be much smaller than in the January-March period.
The impact of delayed US generic competition for Velcade (bortezomib) will be another focus, and Takeda has been assuming the launch in July of an additional, but non-therapeutically equivalent, competitor (in both IV and SC formulations).
Given the product's US sales of JPY105.7bn last fiscal year, Takeda has already said a change in the situation here could impact underlying revenue growth.
While the moves come too late to impact the Q1 results, Takeda has been more active of late in India, introducing several ex-Shire products for lysosomal storage disorders. This will provide additional momentum for the rest of the year in a key emerging market where Takeda has been viewed as less active than some of its multinational peers.
Morgan Stanley MUFG analysts expect Takeda to report Q1 sales of JPY850.2bn and core earnings of JPY258.1bn, and "we think the market will focus on the core earnings run rate." The investment bank expects "relatively strong profit progress" helped by cost savings that have been tracking ahead of target.
R&D Progress
Takeda was hit by the failure of Ninlaro (ixazomib) in the TOURMALINE-AL1 trial in systemic light-chain amyloidosis, although the already commercialized proteasome inhibitor remains in development for various multiple myeloma settings. (Also see "Ninlaro Failure Leaves Little In AL Amyloidosis Pipeline " - Scrip, 6 Jun, 2019.)
The company has been keen to highlight its oncology pipeline progress, and elsewhere in the pipeline here recently took up another of partner Crescendo Biologics Ltd.'s Humabody antibodies against an undisclosed immuno-oncology target.
There may well be updates on TAK-788, a promising molecule in early clinical development for non-small cell lung cancer with EGFR exon 20 insertion mutations, while a 10-year collaboration with Kyoto University's Center for iPS Cell Research and Application is beginning to bear fruit.
Takeda has just taken up for development the first project under the 2015 partnership, an induced pluripotent stem (iPS) cell-derived CAR-T therapy it is preparing to take into the clinic in 2021. The technology uses a "master bank" of iPS cells that can be tailored off-the-shelf to individual patients, with highly scalable and lower-cost production than first-generation autologous CAR-T therapies.
Takeda has global rights to assets emerging from the partnership, and now has 12 CAR-T therapies in development, five of which are due to enter the clinic by 2021, so updates in this promising area are likely to be of interest to investors.
Elsewhere, top-line results in January showed the tetravalent dengue vaccine TAK-003 met its primary efficacy endpoint in the pivotal Phase III TIDES trial, and those following the company may be looking for further updates on the full results this year and other ongoing analyses of secondary endpoints and long-term safety.
In its current forecast, Takeda expects reported revenues of JPY3,300bn ($30.07bn; +57%) in the fiscal year ending next 31 March, and core earnings of JPY883bn (+92%).