Takeda Earnings: In Line; Guiding for Revenue Declines Next Year; Dividend Increase Arrives

Narrow-moat Takeda’s 4502 fourth-quarter earnings met our expectations. Revenue was JPY 956 billion, which is 9.5% year-on-year growth, but a decline of 1.2% on a constant-currency basis. Full-year revenue was CNY 4 trillion, with core operating profit margin of 29.5%, both in line with the company’s guidance of JPY 3.7 trillion revenue and 29.8% core operating profit margin given last May, after adjusting for currency fluctuations. For fiscal 2023, the company is guiding for a low-single-digit decline in revenue at constant exchange rates and approximately 26.4% core operating profit margin. These are in line with our expectations due the loss of exclusivity for Vyvanse starting in August and also minimal revenue from COVID-19 vaccine sales. The company announced its dividend for fiscal 2023 will be increased to JPY 188 per share (from JPY 180), its first increase in 15 years.

We maintain our fair value estimate of JPY 4,400. We think progress on TAK-279, its oral TYK2 inhibitor in-licensed from Nimbus for autoimmune diseases, and TAK-861, its oral orexin agonist for narcolepsy, are the most significant potential catalysts to drive a further rally, although we don’t expect pivotal data readouts for either molecule this year.

For TAK-279, the only data readout this year is a Phase 2b trial in psoriatic arthritis. For psoriasis, its lead indication, the company will initiate two Phase 3 trials, including a head-to-head trial against first-in-class TYK2 inhibitor deucravacitinib (BMS’ Sotyktu), and listed fiscal 2025-27 as its target filing date. Management also suggested that for psoriasis it will proceed with a 30mg dose, although it might explore different doses for other indications. Since 30mg has been tested in Phase 2 trials already, this gives us some comfort that the likelihood of unexpected safety concerns derailing its development is low, at least for psoriasis.