Takeda's been cutting costs on one hand and raising cash on the other to pay off its Shire deal debt—and so far, it's on track to hit those goals, executives said this week.
The company's cost-saving plan is "well on track" CFO Costa Saroukos said during a conference call Wednesday, as the Japanese pharma works to fold in Shire's operations. "[A]nd we delivered strong margins," the CFO added.
In fact, Takeda in May dialed up its annual cost-savings target to about $2 billion by the end of 2021. It had predicted savings of $1.4 billion when it first unveiled the Shire buyout.
Job cuts will deliver a big chunk of that savings; the company has said it plans to cut 6% to 7% of the combined Takeda-Shire workforce, or around 3,600 employees. So far, the company has chosen employees for 79% of the jobs on its payroll, with “minimal” changes among those who were picked, Saroukos said. For the quarter ended June 30, Takeda booked 36.7 billion yen ($338 million) in one-time integration costs.
The company's been working with vendors to shave costs, too. Takeda gathered 40 of its largest suppliers for a summit in Boston in June, and thanks to that gathering, it confirmed about $200 million worth of potential cost reductions and gained some $200 million of extra cash-flow room by extending payment terms, he said.
Takeda's huge debt load was the very concern opponents of the Shire deal raised when it was first proposed. To pay down debt, Takeda previously said that it planned to sell as much as $10 billion worth of assets outside its key areas of gastrointestinal disorders, rare disease, plasma-derived therapies, oncology and neuroscience.
By the end of June, Takeda had reduced its debt-to-earnings ratio to 4.4, down from 4.7 at the end of March. And that was before it collected $3.4 billion from Novartis in the sale of Shire's Xiidra eye drug, which was completed on July 1.
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Takeda execs also touted its margins, which hit 32.4% for the quarter ended in June, which is the company's fiscal Q1. Cost cuts and more efficient spending helped, management said. In May, Takeda had estimated margins for fiscal 2019 in the mid-20s, percentage-wise—versus fiscal 2018's 22%—and mid-30s looking farther ahead. But thanks to the Q1 performance, it hiked this year's expectations to the high 20s.
While Saroukos cautioned that Q1 isn't necessarily representative of what investors can expect for the rest of the fiscal year, thanks to some "phasing of costs and loss of exclusivity timing," he did say the number "gives us great confidence" in hitting its margin targets. And the positive trends were music to investors’ ears; Takeda’s shares surged by more than 7% in Thursday trading in Tokyo.
To keep its top managers focused on those numbers, Takeda embedded them into the performance goals used to evaluate executives’ short-term and long-term incentive pay for 2019, as well as a special long-term incentive plan tied to Shire's integration.
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That's not to say there aren't challenges ahead. Several Takeda products are facing copycat attacks in the U.S., for instance. Gout drug Uloric saw sales drop 13% to 12.2 billion yen, as two of the three approved generics rolled onto the market. A knockoff version of hereditary angioedema therapy Firazyr, which Takeda acquired with Shire, debuted at a 54% discount, Saroukos said, which poses a threat even though its recently-approved follow-up drug Takhzyro has been growing nicely.
Insomnia therapy Rozerem and ADHD medication Adderall XR also either face existing generic approvals or copycat competitors already stealing sales.
But one big generic threat eased up. Rather than expecting additional generics to hit its blockbuster myeloma drug Velcade in July, the company now said it assumes no additional copycats will launch this fiscal year. And despite Fresenius Kabi’s nonequivalent copycat, Velcade actually managed to grow sales by 7% year-over-year, to 28.1 billion yen in the U.S. in Q1, helping Takeda to raise its full-year guidance to flat to slightly increasing.