Takeda's Weber: ‘Everything Relies On Our Ability To Deliver Innovative Medicines’
Executive Summary
With the formal completion of its huge acquisition of Shire now just a day away, some eight months after it was first announced, Takeda CEO presses home what he sees as the key priorities and benefits of the combined operation - but the real work to realize these is just beginning.
A day before current Shire PLC employees globally get their new takeda.com email addresses, the acquisition’s most public champion Christophe Weber said he is “excited and confident” about the combined company’s future and Takeda Pharmaceutical Co. Ltd.’s transformation into what he sees as “a global, values-based, R&D-driven biopharmaceutical leader.”
The Japanese firm’s president and CEO told a Tokyo press conference on Jan. 7 that innovation and focus would be the merged entity’s best response to a global pharma operating environment marked by rising price pressures in many major markets, and that the immediate priorities would be “a great and rapid integration” and getting the pipeline to patients globally as quickly as possible.
After months of pre-closing preparations, working through the procedures and logistics, and facing some hostility from influential shareholders in Japan, the CEO seemed to have retained a clear focus on the single most important priority of the deal: “Everything relies on our ability to deliver innovative medicines.”
Creating Value
With the challenges of shareholder approval now behind him, Frenchman Weber again stressed during the briefing at the Japanese firm’s Tokyo headquarters that the $61bn equity value transaction – recently eclipsed in value terms by Bristol-Myers Squibb Co.’s planned $74bn acquisition of Celgene Corp. – would create a Takeda better able to deliver on multiple business and R&D fronts.
The compelling and “very strong” financial metrics, included envisioned pre-tax, run-rate synergies of at least $1.4bn annually by the end of fiscal 2021, maintained dividends, and significant underlying earnings per share accretion, would help the new Takeda better manage a more difficult environment.
“We have no doubt and are very confident in the medium term that we will have a top-tier margin, of 37% of EBITDA [earnings before interest, tax, depreciation and amortization] after synergies,” the CEO declared.
This cash flow in turn will help the company pay back the net debt associated with the deal more quickly (to 2x adjusted EBITDA within three to five years) and invest in R&D, while in the meantime it is “very pleased” with the debt financing plans, which Weber and chief financial officer Costas Saroukos noted gave a “highly competitive” blended interest rate for Takeda’s total debt of around 2.3%.
The company is due to issue its first major financial guidance post-completion in May, at the time of Takeda’s results for the fiscal year ended March 31.
Consolidation, Divestments
Touching on whether the planned BMS/Celgene deal could precipitate a further global consolidation this year, Weber told Scrip that: “We should step back and look at the global horizon. M&A has always been an important part of the global industry, with many of today’s top global companies formed through such deals.
“We are an industry that invests highly in R&D ‘at risk’ and faces patent cliffs every so often, so it is natural that this is a response. It is getting very hard to find good opportunities that fit with strategy, but generally this [consolidation] is a trend that has been existing for years.”
While he said there would be some Takeda divestments “for sure in 2019,” the executive gave nothing away on the likely post-completion shape of these, which he noted would take place to hone strategic focus and help pay down debt. But “we will look at non-core assets or where other companies could do a better job [with the asset] or we do not have critical mass.”
The Japan consumer business has been mooted by some as a candidate, but Weber said that Takeda does have critical mass in this sector, hinting that the shedding of other non-core businesses outside Japan is being looked at and is more likely.
Takeda has already provided an “illustrative case” of up to around $10bn post-tax in non-core divestments, and this will be a closely watched area once the new company starts its formal combined operations on Jan. 8.
Snapshot Of The 'New Takeda'
$31.3bn in combined revenues (49% from US, 18% from Japan, 14% from emerging markets)
$10.1bn in adjusted EBITDA
33% of employees in US (12% of employees in Japan, 39% in emerging markets)
Present in 80 countries, 30 manufacturing sites
21 pipeline assets in Phase II/III clinical development
Global Leadership Team
As already announced, three existing Shire external directors will join Takeda’s board, while Weber pointed to a highly diverse (both nationality and gender-wise) post-completion core executive team, on which 16 of the 20 members will be non-Japanese.
The top 200 leaders of the combined company have already been identified, a team that will hold its first joint leadership conference this week. The success of the deal will to a large extent “be all about people and teams”, Weber said, and a key topic of discussion at the meeting will be “patient trust” and case studies as to how this can be achieved.
Key considerations in the integration including ensuring balance and a lack of bias towards either company, although the ratio of Takeda/ex-Shire people in local implementing teams will be dependent on the pre-integration balance and appropriate expertise in each area.
The internal board directors of the “new Takeda” include Weber along with Masato Iwasaki, president of the Japan Pharma Business Unit, and R&D President Dr Andrew Plump.
Apparently assuaging some concerns in Japan about the level of globalization within the company, while global reach is seen as a core benefit of the deal, Iwasaki stressed that Takeda’s continued business presence in Japan will continue to be “very important”.
The company is now in a position to accelerate the transformation of its operations in this market, in particular by leveraging its strong primary care presence for Shire’s rare disease portfolio (which includes therapies for hematology, lysosomal storage disorders, and hereditary angioedema), and providing physician education in this sector.
Therapeutic, R&D Focus
Again reiterating the combined company’s strategic focus on the five areas of oncology, gastrointestinal, neuroscience, rare diseases and plasma-derived therapies, Weber maintained that the post-close operation would have the scale, investment and human expertise to be competitive in these areas, which together will account for around 75% of business globally.
“Some areas will grow more than others and some are facing pressures, but we are confident,” he said. GI now accounts for around 30% of combined sales and oncology for 11%, but helped by the late-stage pipeline, the aim is to become a “global top 10 oncology player” with particular strength in hematologic malignancies and a growing lung cancer presence. Shire will bolster the post-deal company’s rare disease play, a sector set for low double-digit growth.
Overall, around 40% of the current combined pipeline is partnered, around half of the pipeline has orphan drug designation, and roughly 50% has non-small molecule modality, with eight clinical-stage assets for rare diseases. The combined Takeda will in addition start off with around 180 R&D partnerships, and some 21 assets in Phase II/III development.
More broadly, while integration preparations have been taken as far as possible ahead of the formal close date, as one Takeda staff member told Scrip: “The real work starts now.” Amid renewed mega-merger activity in the global pharma sector, investors and others will be watching closely to see if the envisaged benefits of one such deal will be delivered in practice.
From the editors of PharmAsia News.