Business Context and Reporting Period
This Form 6-K filing by Takeda Pharmaceutical Company Limited, dated February 15, 2019, covers two primary items: the announcement of a proposed hybrid bond issuance and the full-year 2018 financial results of Shire plc, which Takeda acquired on January 8, 2019. The Shire results represent the last full fiscal year prior to the acquisition and are presented on a standalone basis.
Key Financial Metrics (Shire plc Full Year 2018)
| Metric | 2018 Value | 2017 Value | Change |
|---|---|---|---|
| Product Sales | $15.0 billion | $14.4 billion | +3.9% |
| Total Revenues | $15.5 billion | $15.2 billion | +2.2% |
| Operating Income (GAAP) | $3.2 billion | $2.5 billion | +32.2% |
| Non-GAAP Operating Income | $5.9 billion | $6.0 billion | -1.6% |
| Net Income (GAAP) | $2.3 billion | $4.3 billion | -45.5% |
| Non-GAAP Net Income | $4.6 billion | $4.6 billion | +0.9% |
| Operating Cash Flow | $4.6 billion | $4.3 billion | +8.3% |
| Non-GAAP Free Cash Flow | $4.2 billion | $3.4 billion | +23.3% |
| Net Debt to Non-GAAP EBITDA | 2.1x | N/A | Improved |
Material Changes and Drivers
- Revenue Growth: Driven by Immunology (+5.7%), recently launched products (+52.2%), international markets (+7.0%), and Neuroscience (+11.1%). Growth was achieved despite competitive impacts on LIALDA, CINRYZE, and FEIBA.
- GAAP Profitability: GAAP operating income surged 32.2% primarily due to a gain on the sale of the Oncology franchise ($2.4 billion) and lower expenses related to the unwind of inventory fair value adjustments. GAAP net income declined significantly due to a higher U.S. tax reform benefit recognized in 2017.
- Non-GAAP Performance: Non-GAAP operating income decreased slightly (-1.6%) due to higher depreciation from a new manufacturing facility in Georgia. Non-GAAP EBITDA remained flat as lower gross margins were offset by cost discipline.
- De-leveraging: Strong cash generation allowed Shire to reduce its net debt to Non-GAAP EBITDA ratio to 2.1x by December 2018.
Hybrid Bond Issuance and Outlook
Takeda filed a shelf registration to issue up to 500 billion Japanese yen in Hybrid Bonds (subordinated bonds). This issuance is intended to replace all or part of the existing Senior Short Term Loan (SSTL) used to finance the Shire acquisition. The total debt outstanding will not increase as a result of this transaction.
- Structure: The bonds possess equity-like features, including an option to defer interest payments and subordination in liquidation. Takeda expects rating agencies to treat 50% of the proceeds as equity.
- Timeline: Pricing and final terms are expected to be determined during or after April 2019.
- Pipeline Milestones: Shire achieved key regulatory approvals in 2018, including TAKHZYRO (HAE treatment), MOTEGRITY (Chronic Idiopathic Constipation), and approval for the new Covington, Georgia plasma manufacturing facility.
Investor Verification Checklist
- Hybrid Bond Terms: Verify the final pricing, interest rate structure, and redemption dates once announced post-April 2019.
- Integration Synergies: Monitor Takeda's future reporting for the realization of cost synergies and the impact of the Shire acquisition on consolidated margins.
- Competitive Landscape: Assess the ongoing impact of generic competition on Shire's established brands (e.g., LIALDA) and the commercial uptake of new launches (e.g., TAKHZYRO).
- Debt Refinancing: Confirm the execution of the 500 billion JPY hybrid bond issuance and the subsequent reduction of the Senior Short Term Loan.