Takeda Pharmaceutical Company Limited — FY2021 Form 20-F
Reporting period: Fiscal year ended March 31, 2021; filed June 29, 2021. This is an annual report, not a standalone 2020 fourth-quarter filing. Financial statements are audited and prepared under IFRS as issued by the IASB. Unless stated otherwise, amounts below are JPY billions.
Business context and financial performance
Takeda is a global biopharmaceutical company operating in approximately 80 countries and regions. Its main business areas are gastroenterology, rare diseases, plasma-derived therapies, oncology, and neuroscience. The Shire acquisition completed in January 2019 substantially expanded the company’s portfolio and debt; management says integration is essentially complete.
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | 3,197.8 | 3,291.2 | (2.8%) |
| Operating profit | 509.3 | 100.4 | +407.2% |
| Profit (loss) before tax | 366.2 | (60.8) | Returned to profit |
| Net profit | 376.2 | 44.3 | +749.3% |
| Net profit attributable to owners | 376.0 | 44.2 | — |
| Operating margin | 15.9% | 3.1% | Calculated from reported figures |
| Net margin | 11.8% | 1.3% | Calculated from reported figures |
| Basic EPS | JPY 240.72 | JPY 28.41 | — |
Revenue at constant exchange rates was down 0.5%; currency movements reduced reported revenue by JPY 77.2 billion. Revenue outside Japan was 82.5% of the total, including 49.0% from the United States. The company reported one operating segment.
Cash flow, balance sheet, debt and liquidity
- Cash flow: Operating cash flow was JPY 1,010.9 billion, up from JPY 669.8 billion. Investing activities provided JPY 393.5 billion, including proceeds from business disposals. Financing activities used JPY 1,088.4 billion, mainly reflecting debt repayments and dividends. Cash and cash equivalents ended the year at JPY 966.2 billion, versus JPY 637.6 billion.
- Capital investment and shareholder returns: Capital expenditures, including additions to property, plant and equipment and intangible assets, were JPY 330.7 billion. Dividends paid were JPY 283.7 billion; the company stated an intention to maintain an annual dividend of JPY 180 per share.
- Debt: Bonds and loans totaled JPY 4,635.4 billion, down from JPY 5,093.3 billion. Management reported compliance with financial covenants. The company issued USD and euro notes during the year and used proceeds in part to refinance and repay debt. It had JPY 99.4 billion of interest and JPY 243.2 billion of principal payments due within one year, as disclosed in the liquidity discussion.
- Liquidity: Current assets were JPY 2,712.9 billion and current liabilities JPY 1,773.2 billion. Cash included JPY 177.5 billion restricted for certain vaccine operations. An undrawn JPY 700 billion committed bank facility was available; management said working capital was sufficient for current requirements and it did not anticipate material near-term funding or liquidity issues.
- Other balance-sheet items: Goodwill was JPY 4,033.9 billion and intangible assets JPY 3,909.1 billion, reflecting substantial acquisition-related asset values and potential impairment exposure. Equity was JPY 5,177.2 billion.
Material changes versus FY2020
- Revenue declined despite growth in GI and plasma-derived immunology. ENTYVIO revenue rose 23.6% to JPY 429.3 billion; immunoglobulin revenue rose 12.1% to JPY 334.9 billion; and TAKHZYRO rose 27.0% to JPY 86.7 billion.
- Offsetting pressures included a 13.3% decline in rare hematology revenue, including ADVATE down 18.6%; rare metabolic revenue fell 4.8%, partly due to the NATPARA recall; neuroscience revenue fell 4.8%; and oncology revenue fell 1.1%. Divestitures and generic erosion reduced revenue outside the core areas.
- Operating profit improvement was not solely a reflection of recurring trading performance. Cost of sales fell JPY 95.5 billion, including a JPY 118.3 billion reduction in non-cash inventory fair-value step-up charges related to Shire. SG&A fell 9.2% and R&D fell 7.4%, reflecting integration efficiencies, lower COVID-related activity and pipeline prioritization.
- Other operating income increased to JPY 318.0 billion, including JPY 228.9 billion of divestiture gains and a JPY 60.2 billion gain from revising liabilities after Takeda was released from the obligation to divest SHP647. Other operating expenses included a JPY 72.9 billion loss from revaluing contingent consideration related to XIIDRA and JPY 115.9 billion of restructuring expenses.
- Net finance expenses were JPY 143.1 billion, versus JPY 137.2 billion. The prior year’s JPY 105.0 billion income tax benefit included a JPY 94.6 billion non-cash Swiss tax-reform benefit; FY2021 income tax benefit was JPY 9.9 billion.
Outlook, risks and contingencies
- Outlook: The filing emphasizes deleveraging from operating cash flow, investment in R&D and continued dividends. The filing text does not provide a clear quantified FY2022 earnings or revenue guidance figure. Management expects some continued Shire-related amortization and inventory step-up charges in coming years.
- COVID-19: Management described overall financial effects to date as relatively limited, with no material supply disruption then anticipated. It reported disruptions to patient visits and some clinical studies, particularly affecting neuroscience, and cautioned that future outbreaks could affect demand, trials, suppliers, and cash flows.
- Product quality and supply: The FDA issued a June 2020 warning letter concerning the Hikari manufacturing plant. Corrective actions contributed to a temporary Leuprorelin supply shortage; AbbVie filed a lawsuit alleging breach of contract. Takeda said remediation was underway.
- Litigation and tax: The company reported JPY 73.4 billion of provisions for legal cases and disputes. The Irish Revenue Authority assessed Shire for EUR 398 million relating to a historical break fee; Takeda is appealing. The filing also describes ongoing product liability, patent, commercial and government investigations, including U.S. DOJ inquiries regarding patient assistance programs, TRINTELLIX, and subcutaneous immunoglobulin products.
- Key business risks: Patent expiry and generic or biosimilar competition; pricing and reimbursement pressure; R&D and regulatory uncertainty; substantial acquisition-related debt; possible impairment of goodwill and intangible assets; reliance on third-party and single-source suppliers; foreign exchange exposure; and cybersecurity, privacy and environmental risks.
- Audit and controls: KPMG issued unqualified opinions on the IFRS financial statements and internal control over financial reporting; management also concluded disclosure controls were effective at the reasonable assurance level.
Important facts for investors to verify
- How much of FY2021 operating profit and net profit is repeatable after separating divestiture gains, the SHP647 revaluation gain, Shire inventory-step-up effects, restructuring, and the XIIDRA contingent-consideration loss.
- Progress in reducing debt, cash interest burden, upcoming maturities, covenant headroom, and the effect of subsequent debt prepayments disclosed after year-end.
- Whether growth in ENTYVIO and plasma-derived immunoglobulins can offset competition and declines in rare hematology, neuroscience and off-patent products.
- Status and financial consequences of the Hikari corrective-action plan, Leuprorelin supply recovery, and the AbbVie dispute.
- Developments in the Irish tax appeal, DOJ investigations, patent cases, and other litigation beyond recorded provisions.
- Changes to the JPY 180 per-share dividend intention, formal forward guidance, and any updated assumptions supporting the recoverability of JPY 4.0 trillion of goodwill and JPY 3.9 trillion of intangible assets.