Ask Takeda chief executive Yasuchika Hasegawa about facing one of the industry’s steeper patent cliffs this year and he will respond with a one-word reply: Nycomed. Japan’s biggest drug maker views the 2011 purchase of the private Swiss group – and most importantly, its on-the-ground presence in some of the fastest-growing emerging markets – as a fortunate escape route from the loss of patent protection on the $4bn-a-year diabetes drug Actos.
Whilst the industry fever for emerging markets seems to have subsided – or at least their virtues are less frequently touted – for Takeda they are essential to growth. Asked by EP Vantage what the company’s condition would be if the Nycomed deal had not emerged, Mr Hasegawa says, “I cannot imagine.”
“The timing was perfect. We’re in good shape – much better shape than before,” Mr Hasegawa says.
Replacing the cash cow
It is clear that the loss of Actos's market exclusivity last month has killed a major cash cow for Takeda. But unlike Forest Laboratories, for example, which saw net revenue drop 29% in the first quarter compared to year-earlier results with the loss of its antidepressant Lexapro, Takeda’s post-patent transition appears a little smoother. Net sales revenue growth will pause at 2% in the year ending March 31, 2013, at $19.4bn, but will accelerate again through 2015, according to EvaluatePharma forecasts.
It is worth comparing the two companies as they had two of the steepest patent cliffs of 2012 (As patent storm peaks Lilly and Astra have furthest to fall, February 9, 2012). Investors, however, appear to be wanting results before buying the company’s line on emerging markets – shares are nearly 40% below their pre-crash levels, trading at ¥3,700 today, and have barely budged in a year.
Much of the new sales will be the addition of Nycomed sales, and buying immediate entry into the Russian market, which the Nycomed acquisition enabled, is a big step forward. Nearly $15m worth of pharmaceuticals were sold in Russia in 2011, and forecasts put growth at an 11% annual rate through 2016. Before the Nycomed acquisition, Takeda had targeted Russian entry by 2013; the timetable has clearly been accelerated (Takeda confirms defensive course in Nycomed buy, May 19, 2011).
Mr Hasegawa was in Russia with the rest of the company’s leadership team to mark the completion of a new factory, which, when operational, will initially produce: blood substitute Actovegin; Cardiomagnyl, aspirin used as heart attack preventive; and over-the-counter calcium tablets. The factory in Yaroslavl will consolidate production for the Russian market from sites in Austria, Germany and Norway, thus avoiding importation duties and inspection.
Russia is primarily a market for branded generics as third-party reimbursement for drugs is uncommon, although that may change with a government coverage scheme scheduled to go into effect in 2015 or 2016. Ergo, its significance as a market for new drugs may grow in the future, and having sales and marketing infrastructure in place will be important for companies with both established and innovative products.
However, this will be tempered by the need for local clinical trial data – if Russian trial sites or local trials have not been included as part of a product’s pivotal data, it must undergo additional trials before receiving a national license. Recently introduced products like the anti-diabetic Nesina and the hypertension drug Edarbi might not need additional trials, as Russian sites were included in phase III studies.
On the other hand, Hodgkin lymphoma drug Adcetris probably would need additional data as its trials took place primarily in the US and other European countries. Russian sites were included in phase II trials for Omontys, an anaemia treatment for chronic kidney disease patients, so additional trials might or might not be needed before a launch.
Brazil and India
Focusing on emerging economies, a company cannot be singularly concerned with Russia, and a series of interviews with Takeda executives provided a picture of the company’s approach to markets in Brazil and India. In Brazil, where Takeda already had a presence, the $250m purchase earlier this year of Multilab will allow the company to leverage its flagship flu product, Multigrip, as an “umbrella brand” for other Takeda products, says Jostein Davidsen, Takeda’s head of emerging markets (Takeda continues ambitious emerging market push, May 25, 2012).
“Fully integrate Multilab into Takeda itself and get rid of the name Multilab? That will not do,” Mr Davidsen says. “Multilab has a great brand name. They have low-cost products. They have many products. They are very strong in the OTC segment flu segment, and cough and cold.”
When discussing emerging markets, India cannot be ignored, but Takeda is following a conservative course. Right now, the plan is for “organic” growth in the tough Indian market – intellectual property challenges to the most-expensive drugs combined with government pricing pressure on lower-priced drugs and vigorous competition from local manufacturers will mean Takeda will look at entering on its own in a limited way.
“I don’t see that an inorganic entry through an acquisition makes sense at this point in time given the multiples that are being paid in India,” says Frank Morich, chief commercial officer and a member of the Takeda board. “We will try a little bit on our own to see which way the market is going and see if we can actually deliver. India will not be a focus area.”
Competing in the generic markets requires a greater focus on sales and marketing, and there is no doubt SG&A costs, growing at a forecast 7% through 2018 are accelerating faster than revenues, at 4%; this may help explain why forecast net income stalls again at $2.4bn in the 12 months ending March 31, 2017.
R&D cost growth is at a much slower rate of 3%, reflecting the company’s shift away from innovative products. However, successful dealmaking could change that outlook, and on top add products with potentially wider margins than the generics and branded generics brought along with the Nycomed deal. Takeda will take an opportunistic approach to dealmaking as reflected by the $190m acquisition this year of Intellikine for $190m upfront to take control of two phase I PI3K products.
Executives point to success with Seattle Genetics’ Adcetris – ex-US rights for which it acquired through its US cancer subsidiary Millennium Pharmaceuticals – as a sign that the company has not given up on innovation.
“That’s the advantage of acquiring a company like Millenium: the proven track record and good judgement and skill in in-licensing the product,” Mr Hasegawa says. “In the past we didn’t have that so we made additions that ended up in failure in the oncology area.”
But the near-term picture remains firmly focused on expanding in emerging markets. Successful execution with sustained growth in those markets will be necessary to restore some life to Takeda's shares.
To contact the writer of this story email Jonathan Gardner in London at firstname.lastname@example.org