R&D Day 2020

Views of the Group "Thinking of Takeda's Bright Future" (TTBF)

Introduction

Compared to the first R&D presentation held last November (2019) as the new Takeda Pharmaceutical Company ("Takeda"), this year's meeting (held on December 9, 2019; December 8, 2019 NY time) was appreciated in that it presented forecast figures for each product in the pipeline. However, the stock market's response was muted due to insufficient explanation of the rationale behind the company's 2030 sales revenue target of 5 trillion yen. Although there are many aspects of the entire report that are not immediately understandable, we would like to discuss the following two points.

• Although sales and earnings after the integration of Shire have been sluggish, the company expects sales of global products to increase to 3.5 trillion yen by 2024, five years from now, assuming an increase in sales of 500 billion yen.

• Ten years later, in 2030, it will reach 5 trillion yen due to the pipeline's contribution of 1.5 trillion yen.

The ¥1.5 trillion valuation for the pipeline is based on the assumption that the probability of success for all items is 100%. On the other hand, the probability of its success is estimated to be less than half, and about 600 billion yen is shown in the graph as "after Wave 1 PTS adjustment," which does not seem to undermine credibility in terms of content. However, one cannot shake the impression that it is reckless to set a figure that one feels has no clear basis as a goal for the next 10 years.

Even more problematic is the largest project, an orexin compound for narcolepsy, which is expected to contribute $6 billion (650 billion yen). If it is realized at face value, it would rank among the top 10 global products in terms of sales. However, the largest sales to date for a rare disease drug is Alexion Pharma's $3.9 billion (¥420 billion) hemoglobinuria treatment Soliris, which ranks 21st. Takeda's narcolepsy drug TAK-925 (injection) has completed Phase 1 and TAK-994 (oral) is in Phase 2 trials with a target enrollment of 202 patients. It is expected to be completed in May 2021, and the Phase 3 trial has not yet started, so current estimates may be skewed. It is unfortunate that there is no detailed disclosure on this point, and we await further explanation at the investor event scheduled for April 6, 2021.

We expect that the decrease in existing products will not be limited to $4.5 billion. The graph on page 8 of the presentation suggests that the hemophilia area, which was 330 billion yen in FY2019, is expected to decrease only about 40% to around 200 billion yen, but it is likely to decrease by another 100 billion yen to less than one-third (110 billion yen). The rationale for this is that due to intensifying competition not only from Roche's bispecific antibody Hemlibra, but also from PEGylated recombinant Factor VIII drugs such as Bayer's Jivi, Novo Nordisk's ESPEROCT, and Sanofi's Eloctate, Adinovate's successor, Adinovate's. The reason is that growth is not expected. Furthermore, various competing products in development, such as the new anti-TFPI antibody announced by Pfizer and the gene therapy SB-525, which has advanced to Phase 3, could enter the market in five years. 

The company is also facing increasing competition from PEGylated recombinant Factor VIII drugs such as Bayer's Jivi, Novo Nordisk's ESPEROCT, and Sanofi's Eloctate.

In addition, Pfizer's announcement of a new In addition, there are a variety of competing products in development, including Pfizer's novel anti-TFPI antibody and the gene therapy SB-525, which has advanced to Phase 3.

Even if the overall sales decline is limited to $4.5 billion as expected, the $8 billion (¥850 billion) assumed to be added by the global brands is likely to be less than $4.5 billion, and sales revenue is likely to remain flat to slightly increase.

Takeda's most anticipated product is the ulcerative colitis drug Entyvio, which is expected to generate $6.5 billion in sales (up $3.3 billion from 2019). However, given the market competition and the development pipeline, we estimate that sales of Entyvio will be around $4.7 billion (500 billion yen), an increase of only $1.5 billion. Looking at the competitive landscape, Janssen's anti-IL-23 antibody Stelara (indications: ulcerative colitis/Crohn's disease, plaque psoriasis, psoriatic arthritis) ranked 8th in global drug sales with sales of $6.7 billion in 2019. On the other hand, Entyvio only has gastrointestinal indications, and competition is expected to intensify as the oral JAK inhibitor anti-rheumatic drug's indication is expanded to ulcerative colitis.

Expectations for the multiple myeloma drug Ninlaro are also overblown. Failure to add the indication for first-line therapy makes the high estimate of $2 billion, let alone the low estimate of $1.5 billion, a tough situation. Janssen's Dasarex, also launched in 2015, had a primary therapy indication added last year, increasing sales by 100 billion yen to 300 billion yen.

In the attached report, we analyze the current status of Entyvio and Ninlaro, and Takeda assumes three figures,

(1) Sales revenue of 5 trillion yen in 2030

(2) Mainstay product decline of $4.5 billion by 2024

(3) Global product additions of $8 billion by 2024

This section discusses the realism of the following three figures.

Conclusion

The following three figures, which Takeda assumes, are the success or failure of the Shire merger.

1. Revenue of ¥5 trillion in 2030

2.  Decline in core product sales of $4.5 billion by 2024

3. Global product add-on (sales increase) $8 billion

Regarding the sales revenue target of 5 trillion yen in 10 years, in the best case scenario (100% success probability), the total contribution of the R&D pipeline of 1.5 trillion yen is less than 400 billion yen ($3.4 billion) for the former Shire products, which is only 200 billion yen, even if the success probability is 50%. On the other hand, of the $4.5 billion (480 billion yen) sales decline that Takeda expects in 5 years, more than 2/3 (330 billion yen) is expected to come from Shire products.

Furthermore, of the 11 products whose patents will expire in the U.S. by 2024, 10 (total sales of 430 billion yen in FY2019) are Shire products. Given this situation, it can be inferred that the Shire acquisition will not contribute to Takeda's announced sales forecast through 2030.

Takeda's expectation of "more than $8 billion from 12 global brands" in five years (FY2024) is unlikely to be realized, but even in this figure, the contribution from the former Shire products is expected to be less than 1/3 of the total, or $2.6 billion (¥280 billion).

Thus, when we analyze Takeda's projected product sales figures, we cannot help but wonder if the Shire acquisition is not necessarily contributing to Takeda's future growth, or if Takeda is overestimating the results of the Shire acquisition.

Whether or not the decrease in existing product sales will be limited to $4.5 billion, as Takeda has assumed, and the reality of an additional $8 billion from global brands, which Takeda claims will exceed this amount, must also be questioned. In order to break out of its current predicament and to envision what Takeda will look like in 10 years' time, it is imperative that the company formulate a new new product strategy.