How Japanese drugmaker Takeda’s $62b Shire deal reshapes pharma world

FILE PHOTO: Takeda Pharmaceutical Co's logo is seen at its new headquarters in Tokyo, Japan, July 2, 2018. REUTERS/Kim Kyung-Hoon - RC1702FA7D40/File Photo

The rapidly changing global pharmaceutical landscape reached another milestone Tuesday as Takeda Pharmaceutical Co. completed its $62 billion acquisition of Shire Plc.

Takeda’s purchase was the world’s biggest announced acquisition of 2018, transforming the 237-year-old Japanese company into a top 10 drugmaker with lucrative therapies for rare diseases and a sizable footprint in the U.S.

It’s part of a larger shift in the industry as drugmakers scramble to consolidate, seeking to bulk up to survive the increasing pressure from stricter regulations on drug prices and looming patent expirations. Already in 2019, the Takeda deal has been trumped in size by Bristol-Myers Squibb Co.’s $74 billion agreement last week to buy Celgene Corp.

Here’s how the supersized Takeda will look in the increasingly evolving pharmaceutical landscape:

Takeda and Shire’s combined revenue catapult it into the ranks of the global pharmaceutical majors — the first Japanese company to reach the top 10. The new Takeda would have ranked as No. 9 among the biggest drugmakers by revenue, but Bristol-Myers’ deal with Celgene, if it succeeds, will push it down one notch. The company will also hold a unique position in being a big pharmaceutical company with a focus on rare diseases acquired from Shire’s portfolio.

One of the key drivers for the acquisition was to gain further exposure to the U.S., the world’s most profitable drug market. Japan hasn’t become a dependable source for growth, because of a shrinking population and regulatory pressure that has pushed down drug prices nearly every year. Although the U.S. also poses a drug-pricing risk, it’s one most pharma giants are willing to take for the revenue stream.

Takeda will contribute further to the dealmaking frenzy, thanks to the heavy debt load it has taken on. The company has laid out a scenario of a potential $10 billion in divestments in an effort to deleverage. Chief Executive Officer Christophe Weber said Monday investors should expect asset sales this year. The company is looking to divest non-core businesses outside Japan where the company is not an industry leader and does not have critical mass in the market.

Takeda’s debt load was the issue that drew the biggest fire from critics of the deal, and caused Moody’s Investors Service to downgrade the company’s credit rating. Net borrowings will more than double to nearly five times earnings after it takes on about $30 billion in debt to acquire Shire, plus the debt on that company’s books. That’s compared to an industry average multiple of around one. The company has said it intends to deleverage to a debt ratio multiple of around two within five years.

Takeda’s stock price has fallen 26 percent since it announced its interest in acquiring Shire at the end of March 2018. When it eventually made its offer in May, Shire’s market valuation was higher than Takeda’s. The stock has struggled to find momentum amid technical pressures as managers shift their portfolios to account for Shire’s stock delisting and Takeda’s depository shares being listed on the New York Stock Exchange.

The shares rose as much as 2.9 percent in early Tokyo trading on Tuesday, after Takeda announced the deal closing and SMBC Nikko Securities upgraded the drugmaker, saying it was “heavily undervalued.” Takeda shares jumped 7.5 percent on Monday, for their biggest gain in almost three years.

Bloomberg

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.