Tuesday, December 14, 2021

An International Equity holding: Takeda Pharmaceutical Co. (TAK, $14.21): “The Take on TAK” By: Danny Scelza, AIM Student at Marquette University

 Takeda Pharmaceutical Co. (TAK, $14.21): “The Take on TAK”

By: Danny Scelza, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


  • Takeda Pharmaceutical Co. (NYSE:TAK) engages in research and development, manufacturing, and import and export of pharmaceutical products worldwide. It offers pharmaceutical products in the areas of gastroenterology, oncology, neuroscience, and rare diseases.
  • Takeda is the Japanese partner for Novavax Inc’s COVID-19 vaccine and is preparing to get regulatory approval for a rollout of the vaccine early next year. As soon as the product is approved, it should be ready in time to help with Japan’s booster shot programme.
  • In early September, Takeda received confirmation they have successfully addressed a warning letter from March 2020 regarding their manufacturing cite in Hikari. Takeda has upheld quality standards and thorough communication with the FDA throughout this process as the Hikari site is set to develop and manufacture 250 million Novavax doses.
  • Management has indicated that they are initiating a share buyback of up to ¥100 billion, nearly $900 million, as they are looking to deliver value to their shareholders. Management believes they are buying back shares at a considerable discount and to underscore the confidence in their business

Key points:

Takeda’s diverse portfolio of 14 brands, which now represents 42% of total revenue, is the driving force in their 13% growth in top line revenue and a 12.8% overall revenue growth and compared to the prior year. Growth prospects from new indication and expanding market penetration is believed by management to not be reflected in the current share price. Their dynamic growth strategy and strong cash flow generation are key drivers that led to the announced stock repurchase.

Within the past month, Takeda was forced to stop their trial of TAK-994, which is an oral orexin treatment against narcolepsy. The major setback resulted from a liver safety signal from a patient who experienced a significant increase in liver enzymes and Takeda discontinued the trial to protect patient safety. This discontinuation led to a 10% decrease in stock price and a 52-week low for the pharmaceutical company. However, TAK is still developing other molecular solutions such as TAK-861 in the same clinical area for oral orexin solutions to narcolepsy, which do not share the same risk profile as TAK-994.

Despite the setback, management believes their pipeline is still strong and showing increasing value, highlighted by their Plasma-Derived therapy business. The plasma protein therapeutics market is surging in demand, large in part to COVID-19 plasma-based insights and solutions, but also due to overall trends towards detecting rare diseases at earlier stages. Plasma-derived therapy is a core part of their business and they have seen promising growth trends and have invested significant R&D expenses into this market. TAK also increased plasma donation growth projections from 15% to 25% for 2021 to combat with tight gross margins associated with their plasma therapies. The increase mostly comes from high plasma donor fees, but also to support their overall target revenue growth in that area. The Plasma-Derived therapy is anticipated to keep growing in demand and market value through 2026 and Takeda is a large player in that market.

What has the stock done lately?

Since the TAK-994 setback, where the stock reached a 52-week low of $13.81, the stock price currently sits at $14.21. Setbacks in the healthcare industry can create significant headwinds and lose investor confidence quickly and Takeda is taking necessary steps to recover from the steep drop in share price.

Past Year Performance:

Takeda’s 52-week price performance is at -16.69%, again, large in part due to the TAK-994 mishap. Prior to that, TAK was performing consistently, between a $17-$18 share price, and the stock is sitting at a potential large discount. Management believes that their price is discounted at  30%, hence triggering a large share buyback. Takeda’s 2021 dividend yield is very strong at just above 5.5%, well above the market median of 2.3%.

Source: FactSet

My Takeaway

Sitting near the 52-week low for TAK, the current share price makes for an interesting point of entry for investors. Management believes TAK is severely undervalued in their current share price as TAK has become a relatively cheap pharma business. With the actions taken by management, of a large stock repurchase and high dividend yields, to support their belief of undervaluation and a strategic brand growth strategy, there is substantial reason for optimism. Not in an ideal position to sell, the AIM fund should hold its position on TAK and anticipate share price to bounce back.

Source: FactSet