Takeda Pharmaceutical Earnings: Results in Line, Pipeline on Track, FVE Increased

Narrow-moat Takeda’s 4502 fiscal second-quarter earnings were in line with expectations on a constant currency basis. Revenue was JPY 1.04 trillion, which is 4% year-on-year growth and negative 0.8% on a constant currency basis. Core operating profit was JPY 262 million, or 25.2% of revenue, which is 5.3 percentage points worse than the same period last year. We think this is mostly attributable to loss of revenue from high-margin coronavirus products and also elevated research and development expense. The company revised its guidance for reported figures to account for JPY weakness and asset impairments but did not change its constant currency guidance for core figures.

We raise our fair value estimate to JPY 4,700 from JPY 4,500 due to incremental progress in the company’s pipeline and view shares as modestly undervalued. Our model adjustments reflect the positive top-line results in TAK-279′s (TYK2 inhibitor) Phase II results in psoriatic arthritis, the Food and Drug Administration’s acceptance of Takeda’s resubmission for approval of Eohilia (oral budesonide for treating eosinophilic esophagitis), and more bullish expectations on Qdenga (dengue vaccine). This is partially offset by the withdrawal of Exkivity and Alofisel’s failure in its confirmatory trial for complex Crohn’s perianal fistulas, which also resulted in impairment charges of JPY 28.5 billion and JPY 74.0 billion, respectively.

We think it is crucial for the company to stay on track with its pipeline development schedule for its core assets, including a final “go or no-go” decision for TAK-861′s (orexin-2 receptor agonist for narcolepsy) Phase 3 trials by early 2024 and speedy enrollment of its Phase 3 trials for TAK-279, with planned initiations for psoriasis in fiscal 2023 and for psoriatic arthritis in early fiscal 2024.