On July 31, 2020 Takeda Pharmaceutical Company Limited (TOKYO:4502/NYSE:TAK) ("Takeda") reported financial results for the first quarter of fiscal year 2020 (quarter ended June 30, 2020) (Press release, Takeda, JUL 31, 2020, View Source [SID1234562652]). Based on the first quarter performance, the company confirms management guidance, and raises reported operating profit and reported net profit for the full year. The company also announced recent updates to its R&D pipeline and highlighted its R&D momentum with seven potential New Drug Application filings planned for the next 12 months.
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Underlying revenue growth was 0.9% year on year. Takeda’s five key business areas, which represent 83% of revenue, delivered underlying revenue growth of 6%, and its 14 global brands, with reported revenue of JPY 308.0 billion in aggregate, posted 20% underlying revenue growth
Reported revenue was JPY 801.9 billion, with the impact of foreign currency and divestitures resulting in a year-on-year decline of 5.6%
Core operating profit1 was JPY 280.9 billion, with the core operating profit margin at 35.0% driven by cost synergies and OPEX efficiencies
Reported operating profit increased significantly, up 270% to JPY 167.3 billion, driven by lower purchase accounting and integration-related expenses; reported net profit increased to JPY 82.5 billion from JPY 7.0 billion a year earlier2
Reported operating cash flow increased by 21% to JPY 145.9 billion; free cash flow of JPY 146.3 billion represents a 64% increase over the prior year
Robust cash generation enabled further deleveraging to 3.7x net debt/adjusted EBITDA, demonstrating strong progress from 4.7x at the end of March 2019
Takeda increased its forecast for FY2020 reported operating profit to JPY 395 billion from JPY 355 billion, reported net profit to JPY 92 billion from JPY 60 billion, and for reported EPS to JPY 59 from JPY 39, to reflect a net gain from one-time items recognized in the first quarter
Takeda Chief Financial Officer Costa Saroukos commented:
"Takeda delivered solid first quarter results even during a period of great challenges for our employees, for patients, and for the communities we serve around the world. The performance of our global brands and key business areas demonstrates the quality of our product portfolio and resilient demand for medicines targeting severe chronic or life-threatening conditions. Among the Q1 highlights, ENTYVIO delivered exceptional underlying growth of 26%, TAKHZYRO is ramping up very well with underlying growth of 66%, and Immunoglobulin delivered strong underlying growth of 30%.
"Momentum is also building in our R&D pipeline, with seven potential Wave 1 New Drug Application filings targeted over the next 12 months, as well as further expansions of our global brands. In addition, we are making progress in various efforts to develop potential therapies for patients at risk from serious complications of COVID-19.
"Takeda has sustained the financial strength which underpins our success, with underlying revenue growth and strong underlying core operating profit growth, margins and cash flow. We continue to make steady progress toward our deleveraging and divestiture targets, and remain confident in Takeda’s growth momentum for the full year and in opportunities to accelerate growth in the medium term."
Pipeline Update: Momentum in Our Dynamic R&D Growth Engine
Takeda has built a world-class R&D engine leveraging our internal research capabilities, while also actively engaging with innovative ecosystems around the world to translate science into highly innovative medicines. The main drivers for targeted new product launches are 12 unique New Molecular Entities (NMEs) in Wave 1, which represent several potential best-in-class / first-in-class therapies targeted for launch by FY2024 with aggregate potential peak sales of more than $10 billion.
With seven potential Wave 1 NME filings in the next 12 months, as well as additional expansions of our global brands, the momentum of our R&D growth engine is increasing.
In Oncology, pevonedistat was granted Breakthrough Therapy Designation by the U.S. Food and Drug Administration (FDA) for the treatment of patients with higher-risk myelodysplastic syndromes (HR-MDS). Pevonedistat could be the first novel therapy in over a decade for HR-MDS and patients with acute myeloid leukemia for whom standard treatments are not appropriate.
We are excited about the transformative medium-term potential of a number of our major R&D programs, including:
In Oncology, TAK-007 for the treatment of hematologic malignancies on an outpatient basis, with encouraging Phase 1/2 data and cohort expansion ongoing for a pivotal study planned for next year and potential approval in FY2023
In Neuroscience, the first patient has been enrolled in a Phase 2 trial of TAK-994 for the treatment of narcolepsy type 1, with potential approval in FY2024
Progress on the extension of our global brands in Q1 included:
Approval of ALUNBRIG for first-line treatment for ALK+ advanced Non-Small Cell Lung Cancer (NSCLC) in the U.S.
Approvals for ADCETRIS in the EU for first-line systemic Anaplastic Large Cell Lymphoma (sALCL); and ADCETRIS in China for relapsed/refractory CD-30+ lymphomas
Wave 1 NME Filings targeted for the next 12 months include TAK-721, TAK-609, CoVIg-19, TAK-003, mobocertinib, pevonedistat and maribavir:
TAK-721 is on track to be the first FDA-approved agent to treat eosinophilic esophagitis
TAK-609 is in preparatory stages for a U.S. NDA submission for Hunter Syndrome with cognitive impairment
CoVIg-19 is expected to start a registration-enabling study in patients with COVID-19 in the coming weeks
TAK-003 is on track for a regulatory filing for Dengue vaccine in a number of endemic countries in Asia and Latin America
Mobocertinib (TAK-788) has the potential to set a new standard of care for a subset of Non-Small Cell Lung Cancer (NSCLC) patients with EGFR exon 20 insertions
Pevonedistat (TAK-924) has the potential to be the first novel HR-MDS therapy in over a decade; anticipated Phase 3 PANTHER trial in HR-MDS readout in second half of FY2020
Maribavir (TAK-620) has the potential to be the first approved treatment for patients with post-transplant Cytomegalovirus (CMV) infection in over a decade
The CoVIg-19 Plasma Alliance continued development of a potential non-branded investigational hyperimmune globulin (H-Ig) treatment for COVID-19. Manufacturing of the first batch of CoVIg-19 was initiated at Takeda’s Georgia U.S, manufacturing site in May, and is ready to be shipped to study sites.
In addition, Takeda is evaluating repositioning of other internal therapies (icatibant and lanadelumab) and investigational medicines (TAK-981 and TAK-671), while also researching novel approaches.
1 Underlying growth compares two periods (quarters or years) of financial results under a common basis and is used by management to assess the business. These financial results are calculated on a constant currency basis and excluding the impact of divestitures and other amounts that are unusual, non-recurring items or unrelated to our ongoing operations.
2 Core Operating Profit represents net profit adjusted to exclude income tax expenses, the share of profit or loss of investments accounted for using the equity method, finance expenses and income, other operating expenses and income, amortization and impairment losses on acquired intangible assets and other items unrelated to Takeda’s core operations, such as purchase accounting effects and transaction related costs.
3 Further information on certain of Takeda’s Non-IFRS measures is posted on Takeda’s investor relations website at View Source
Takeda delivered solid performance for the first quarter of FY2020:
Takeda started the fiscal year with underlying revenue growth of 0.9%, consistent with full year guidance of "low-single-digit growth" and with a goal of accelerating growth in the medium term. Reported revenue was impacted by foreign exchange effects and divestitures, declining 5.6% year on year
We delivered a year-on-year increase in reported operating profit to JPY 167.3 billion and an increase in reported net profit to JPY 82.5 billion compared to JPY 7.0 billion for the same period in the prior year3. This is attributable to the effect of purchase accounting expenses in the previous fiscal year and significantly lower costs related to the Shire acquisition compared to last year, as we have successfully completed most of the integration process
Core operating profit of JPY 280.9 billion declined 0.7% year on year, as OPEX improvement including cost synergies could not fully offset the negative impact of foreign exchange and divestiture effects. The core operating profit margin was 35.0%
Underlying core operating profit margin, which adjusts for the impact of foreign exchange and divestiture effects, grew strongly to 34.7%. We are on track to achieve our target of mid-30% within FY2021-2023
Operational efficiencies and cost savings supported margin performance and we are on track to achieve our targeted annual run rate of $2.3 billion in cost synergies by the end of FY2021
Takeda is deleveraging rapidly, with a net debt/adjusted EBITDA ratio of 3.7x, at the end of Q1, down from 3.8x in March 2020 and compared to 4.7x in March 2019; we are on course to meet our medium-term deleveraging goal of 2x within FY2021-FY2023
At the same time as investing in promising R&D programs and efficient pipeline growth and returning cash to shareholders through dividends, Takeda continues to maintain strong cash flow. Reported cash flow from operations of JPY 145.9 billion represents a 21% increase year on year, while free cash flow of JPY 146.3 billion increased 64% over the same period
Takeda continues to make progress in shedding non-core assets as part of its $10 billion divestiture program. Six deals worth up to $8 billion have been announced since April 2019, including three transactions worth up to $6 billion that have already closed
In addition, we plan to unlock more than $700 million of incremental cash in FY2020 through the sale of real estate and marketable securities
Takeda’s five key business areas (Gastroenterology, Rare Diseases, Plasma-Derived Therapies, Oncology, Neuroscience), with JPY 662.0 billion of reported revenue representing 83% of total Q1 revenues, delivered year-on-year underlying revenue growth of 6%. Our 14 global brands, with reported revenue of JPY 308.0 billion in aggregate, delivered a strong 20% increase in underlying revenue growth compared to last year’s fiscal first quarter performance.
Among the highlights:
Our Gastroenterology franchise delivered exceptional growth as ENTYVIO expands its share of patients and enters new markets around the world. In Rare Diseases, TAKHZYRO sales are ramping up as its efficacy profile positions it as a leading option to expand the hereditary angioedema prophylaxis market; and PDT Immunology delivered strong growth driven by GAMMAGARD liquid demand in the U.S. and subcutaneous IG worldwide
Reported revenue and underlying revenue growth rates for notable Q1 FY2020 contributors include:
ENTYVIO JPY 101.2 billion +26% (Gastroenterology);
TAKHZYRO JPY 23.2 billion +66% (Rare Diseases);
ALUNBRIG JPY 2.0 billion +26% (Oncology)
NINLARO JPY 22.9 billion +31% (Oncology)
Immunoglobulin JPY 85.1 billion + 30% (PDT Immunology)
Our PDT Immunology business area delivered reported revenue of JPY 105.3 billion, representing a 19% improvement in underlying revenue growth year on year
Neuroscience reported revenue was JPY 106.9 billion, an underlying revenue decline of 1% year on year as COVID-19-related stay-at-home restrictions significantly reduced patient visits and subsequent diagnoses for VYVANSE; TRINTELLIX achieved continued market share increases in the U.S. market
Takeda has strong growth momentum heading into FY2020 and potential for accelerated underlying growth and achieving an underlying core profit margin in the mid-30s over the medium term.
Core and underlying guidance for FY2020 remains unchanged. Takeda upgraded its reported operating profit, reported net profit, and reported EPS forecast for FY2020 due to the net positive effect of one-time items recognized during the first quarter of FY2020: an approx. JPY 60 billion increase due to the European Commission’s decision to release Takeda from the obligation to divest SHP647; and a negative approx. JPY 20 billion impact due to the remeasuring to the estimated fair value of the contingent consideration financial asset related to potential milestone receipts of Xiidra as a result of Novartis’ withdrawal of the Marketing Authorization Application in Europe.
Key assumptions in FY2020 forecast:
Company guidance reflects management’s expectations for continued business momentum across Takeda’s five key business areas, underlying revenue growth of our 14 global brands, and accelerated realization of cost synergies.
FY2020 guidance also reflects the following key assumptions, including (i) that there will not be an additional 505(b)2 competitor for subcutaneous VELCADE launched in the U.S. within FY2020; (ii) no impact of any potential further divestitures beyond what has already been disclosed by Takeda; and (iii) management’s current expectations regarding COVID-19.
To date, Takeda has not experienced a material effect on its financial results as a result of the global spread of the novel coronavirus infectious disease (COVID-19), despite the various effects on its operations as detailed in Takeda’s Quick Report for the quarter ended June 30, 2020, released today. Based on currently available information, Takeda believes that its financial results for FY2020 will not be materially affected by COVID-19 and, accordingly, Takeda’s FY2020 forecast reflects this belief. However, the situation surrounding COVID-19 remains highly fluid, and future COVID-19-related developments in FY2020, including new or additional COVID-19 outbreaks and additional or extended lockdowns, shelter-in-place orders or other government action in major markets, could result in further or more serious disruptions to Takeda’s business, such as slowdowns in demand for Takeda’s products, supply chain related issues or significant delays in its clinical trial programs. These events, if they occur, could result in additional impacts on Takeda’s business, results of operations or financial condition, as well as resulting in significant deviations from Takeda’s FY2020 forecast.