Takeda Pharmaceutical Co. (TAK, $14.21): “The Take on TAK”
By: Danny
Scelza, AIM Student at Marquette University
Summary
- 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%.
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.
