EUR 850.00 For Business Accounts Only

Morningstar | Maintaining Our Takeda FVE Following Strong Results in Fiscal 1H

Takeda's underlying revenue (at constant currencies, excluding one-time items and divestitures) grew 4.2% in the first half of the firm's fiscal 2018, with 31.8% core earnings growth as margin expansion drove strong bottom-line results. Takeda raised its outlook for the full fiscal year as Velcade generic competition is further delayed to March 2019 (JPY 35.5 billion higher sales expected for the year) and as the firm is seeing strong operating expense control, and we found the projected net debt/EBITDA following the Shire deal--3.3 times in March 2021 assuming no divestments--encouraging. Our 2018 forecast now assumes that the Shire acquisition closes in March 2019, and we therefore include Shire revenue (and one-time charges) in fiscal 2018. We're maintaining our JPY 5,100 per share fair value estimate for Takeda, as we think the market still incorporates slight uncertainty over the pending Shire deal. While we currently assign Takeda a stable, no-moat rating, we may consider a positive moat trend or even a narrow moat rating if returns on invested capital begin to exceed the cost of capital; our estimates are preliminary, but we assume the combined firm could see ROICs exceeding its cost of capital by 2022.

Takeda's portfolio had solid performance in the first half of the year, although Entyvio, Ninlaro, and the Shire deal remain the key drivers for shares. In the gastroenterology segment, Entyvio (33.1% growth) is now expanding into Japan, and a subcutaneous version is being filed in ulcerative colitis based on recent positive data, which should improve convenience (currently intravenous). GI drug Takecab grew 22.1% in the first half despite a 16.1% price cut in April, and Takeda plans to expand its reach into emerging markets. In vaccines, Takeda had positive data for a phase 2b trial of TAK-214 (Norovirus) and expects phase 3 data for TAK-003 (Dengue virus) by the end of the fiscal year. In oncology, Ninlaro (38% growth) should have data at ASH in December in the maintenance setting (post-transplant), and the first-line multiple myeloma study should produce data (at second interim analysis) in fiscal 2019. Adcetris should see a boost to growth from expansion into first-line Hodgkin's lymphoma, where the drug is now approved in Japan and is under review in Europe. We remain cautious on Alunbrig's potential in first-line ALK-positive lung cancer, given very strong data for Roche's Alecensa and its significant head start on the market. Pevonedistat (AML) and TAK-788 (NSCLC) are also in phase 2 studies that could allow regulatory approval, with key data for pevonedistat now expected in fiscal 2019.