Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Early this morning, the Nikkei carried an article (<a href="https://asia.nikkei.com/Business/Business-Deals/Ex-Takeda-chairman-comes-out-against-Shire-purchase" target="_blank">English version</a>) saying that former <a href="https://www.smartkarma.com/entities/11747" target="_blank" data-smartkarma-citation="entities:11747:1">Takeda Pharmaceutical (4502 JP)</a> CEO and Chairman Kunio Takeda (joined Takeda right out of college in 1961, eventually president and CEO (from 1993 to 2009) and Chairman from 2003 to 2009) had put out through a spokesperson that he was against the deal. 
This comes as "a surprise" because of the late date (proxies will generally be due in the next 2-3 days) but is not, strictly speaking, a surprise. Other media outlets like the FT had suggested a couple of weeks ago (and it was believed in some corners for months before) that Kunio Takeda privately opposed the deal and leaned towards the opinion that it was a "high risk deal", not necessarily taking the view of other family member Kazu Takeda (descendant of the family and Takeda voice in the TTBF) who had opposed the deal, partly on the grounds that Takeda “will no longer be a Japanese company” (also FT) if it closes the deal.
The statement by Kunio Takeda suggests less of a nationalistic bent (Kazu Takeda has seemed to lean on the nationalist tone, as has some of the Takeda family opposition to foreigners in past) and more of a thoughtful angle. But in his heyday, he was well-regarded for being aggressive, even in buying businesses overseas.
<blockquote>
A company with no sense of crisis and no appetite for reform will eventually lose the battle against time and disappear.  Takeda Kunio, Fortune Magazine, 2003
</blockquote>
What does this mean for the shareholder vote on December 5th?
There are precedents to revisit. They are worth a look.
There are also considerations about how the shareholder register has changed (i.e. what you can see vs what you cannot see, and how people vote).

<table class="table table-striped">
<tbody>
<tr>
<td colspan="2">
<h2>Previous Insights in This Series</h2>
</td>
</tr>
<tr>
<td>9-May</td>
<td><a href="https://www.smartkarma.com/insights/takeda-shire-i-on-drug-deals-and-deckchairs" target="_blank" data-smartkarma-citation="insights:20087">Takeda/Shire I : On Drug Deals and Deckchairs</a></td>
</tr>
<tr>
<td>2-July</td>
<td><a href="https://www.smartkarma.com/insights/takeda-shire-ii-drugs-divvies-and-agm-votes" target="_blank" data-smartkarma-citation="insights:21733">Takeda/Shire II:  Drugs, Divvies, and AGM Votes</a></td>
</tr>
<tr>
<td>1-Oct</td>
<td><a href="https://www.smartkarma.com/insights/takeda-shire-iii-egm-announced-drug-deal-coming-together" target="_blank" data-smartkarma-citation="insights:24574">Takeda/Shire III : EGM Announced, Drug Deal Coming Together</a></td>
</tr>
<tr>
<td>19-Nov</td>
<td><a href="https://www.smartkarma.com/insights/takeda-shire-iv-making-drug-deals" target="_blank" data-smartkarma-citation="insights:26018">Takeda/Shire IV:  Making Drug Deals</a></td>
</tr>
</tbody>
</table>

Early this morning, the Nikkei carried an article (English version) saying that former Takeda Pharmaceutical (4502 JP) CEO and Chairman Kunio Takeda (joined Takeda right out of college in 1961, eventually president and CEO (from 1993 to 2009) and Chairman from 2003 to 2009) had put out through a spokesperson that he was against the deal. 
This comes as "a surprise" because of the late date (proxies will generally be due in the next 2-3 days) but is not, strictly speaking, a surprise. Other media outlets like the FT had suggested a couple of weeks ago (and it was believed in some corners for months before) that Kunio Takeda privately opposed the deal and leaned towards the opinion that it was a "high risk deal", not necessarily taking the view of other family member Kazu Takeda (descendant of the family and Takeda voice in the TTBF) who had opposed the deal, partly on the grounds that Takeda “will no longer be a Japanese company” (also FT) if it closes the deal.
The statement by Kunio Takeda suggests less of a nationalistic bent (Kazu Takeda has seemed to lean on the nationalist tone, as has some of the Takeda family opposition to foreigners in past) and more of a thoughtful angle. But in his heyday, he was well-regarded for being aggressive, even in buying businesses overseas.

A company with no sense of crisis and no appetite for reform will eventually lose the battle against time and disappear.  Takeda Kunio, Fortune Magazine, 2003

What does this mean for the shareholder vote on December 5th?
There are precedents to revisit. They are worth a look.
There are also considerations about how the shareholder register has changed (i.e. what you can see vs what you cannot see, and how people vote).





Previous Insights in This Series



9-May
Takeda/Shire I : On Drug Deals and Deckchairs


2-July
Takeda/Shire II:  Drugs, Divvies, and AGM Votes


1-Oct
Takeda/Shire III : EGM Announced, Drug Deal Coming Together


19-Nov
Takeda/Shire IV:  Making Drug Deals




Takeda/Shire V: Tradition vs the Next Generation, Former Chairman Doesn't Support But...

Last Monday - 12 days after <a href="https://www.smartkarma.com/entities/11747" target="_blank" data-smartkarma-citation="entities:11747:1">Takeda Pharmaceutical (4502 JP)</a> released earnings, and less than a week after EC Anti-Trust Phase I ended and led to a further EC Anti-Trust Remedies negotiation period (where notification is due 20 November 2018, after Commitments were submitted in N/1 on the 26th of October) - Takeda and <a href="https://www.smartkarma.com/entities/22142" target="_blank" data-smartkarma-citation="entities:22142:1">Shire PLC (SHP LN)</a> announced the convocations of their respective EGM and Scheme Meeting.The meetings are for December 5th, which means my prediction from 6 weeks ago on the "early version" of ths schedule was a day too early. It surprised some that the two companies would release the convocation notices when the EC had not formally approved, but a couple of days earlier, various media carried <a href="https://www.nytimes.com/reuters/2018/11/09/business/09reuters-shire-m-a-takeda-pharma-eu-exclusive.html" target="_blank">stories</a> suggesting that approval had basically been won by Takeda's offer to divest Shire's pipeline compound SHP467 after the EC noted the overlaps with Takeda's own Crohn's disease  and ulcerative colitis/IBD drug, which is called Entyvio, which Takeda had indeed disclosed October 26th, saying that there were no discussions with the EC on any other products or assets.What surprised more people was the long delay between the EGM/Scheme Meeting and the Proposed Effective Date of January 8th. There is a reason for that.The index implications are roughly unchanged from the last piece <a href="https://www.smartkarma.com/insights/takeda-shire-iii-egm-announced-drug-deal-coming-together" target="_blank" data-smartkarma-citation="insights:24574">Takeda/Shire III : EGM Announced, Drug Deal Coming Together</a>. Some of the mandate impact has already been felt. Some of it will be felt in the next six weeks. Most of the index impact will come in the first days of January, but there could be a catch.

Last Monday - 12 days after Takeda Pharmaceutical (4502 JP) released earnings, and less than a week after EC Anti-Trust Phase I ended and led to a further EC Anti-Trust Remedies negotiation period (where notification is due 20 November 2018, after Commitments were submitted in N/1 on the 26th of October) - Takeda and Shire PLC (SHP LN) announced the convocations of their respective EGM and Scheme Meeting.The meetings are for December 5th, which means my prediction from 6 weeks ago on the "early version" of ths schedule was a day too early. It surprised some that the two companies would release the convocation notices when the EC had not formally approved, but a couple of days earlier, various media carried stories suggesting that approval had basically been won by Takeda's offer to divest Shire's pipeline compound SHP467 after the EC noted the overlaps with Takeda's own Crohn's disease  and ulcerative colitis/IBD drug, which is called Entyvio, which Takeda had indeed disclosed October 26th, saying that there were no discussions with the EC on any other products or assets.What surprised more people was the long delay between the EGM/Scheme Meeting and the Proposed Effective Date of January 8th. There is a reason for that.The index implications are roughly unchanged from the last piece Takeda/Shire III : EGM Announced, Drug Deal Coming Together. Some of the mandate impact has already been felt. Some of it will be felt in the next six weeks. Most of the index impact will come in the first days of January, but there could be a catch.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/068/507/original/2018-11-02_10-20-29.png?1541121653" class="editor-image img-responsive" data-smartkarma-image-id="68507"></figure>Source: Japan Analytics
NB: companies are colour-coded by sector
</div>28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the evolution in the ranking of the leading non-financial Japanese companies by market capitalisation measured at the end of each of the last 28 years.METHODOLOGY - Our comments follow in the detail below, but first a few notes:-<ul>
<li>In the interests of clarity (/sanity?), financials have been omitted. Twelve of the Top 20-ranked companies in 1990 were financials. However, only <a href="https://www.smartkarma.com/entities/742" target="_blank" data-smartkarma-citation="entities:742:1">Nomura (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/6483" target="_blank" data-smartkarma-citation="entities:6483:1">Aozora (8304 JP)</a> and <a href="https://www.smartkarma.com/entities/16897" target="_blank" data-smartkarma-citation="entities:16897:1">Shinsei (8303 JP)</a> have survived in their original corporate structure and have the same ticker code. Our chart would have otherwise have included the now-merged IBJ, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank, Sakura Bank, Sumitomo Bank, Tokai Bank, Sanwa Bank and Mitsubishi Trust Bank.  Excluded from the present-day Top 20 are <a href="https://www.smartkarma.com/entities/218" target="_blank" data-smartkarma-citation="entities:218:1">Mitsubishi UFJ (8306 JP)</a>, <a href="https://www.smartkarma.com/entities/217" target="_blank" data-smartkarma-citation="entities:217:1">Sumitomo Mitsui Financial (8316 JP)</a>, <a href="https://www.smartkarma.com/entities/838" target="_blank" data-smartkarma-citation="entities:838:1">Japan Post Bank (7182 JP)</a>, <a href="https://www.smartkarma.com/entities/359" target="_blank" data-smartkarma-citation="entities:359:1">Japan Post Holdings (6178 JP)</a> and <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial (8411 JP)</a> from the present day.</li>
<li>Only companies that were in the Top 20 in 1990 or 2018, as well as those companies that have been in the Top 10 for at least three of the last 28 years, have been included. </li>
<li>Two companies from 1990's Top 20 - Seibu Railway and Japan Airlines - have since been delisted. Although they have relisted as <a href="https://www.smartkarma.com/entities/458" target="_blank" data-smartkarma-citation="entities:458:1">Seibu Holdings (9024 JP)</a> and <a href="https://www.smartkarma.com/entities/1184" target="_blank" data-smartkarma-citation="entities:1184:1">Japan Airlines (9201 JP)</a>, they are no longer highly-ranked.</li>
<li>Seven current Top 20 companies - (<a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/1089" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo (9437 JP)</a>, <a href="https://www.smartkarma.com/entities/639" target="_blank" data-smartkarma-citation="entities:639:1">KDDI (9433 JP)</a>, <a href="https://www.smartkarma.com/entities/13498" target="_blank" data-smartkarma-citation="entities:13498:1">Japan Tobacco (2914 JP)</a>, <a href="https://www.smartkarma.com/entities/13520" target="_blank" data-smartkarma-citation="entities:13520:1">Central Japan Railway (9022 JP)</a>, <a href="https://www.smartkarma.com/entities/751" target="_blank" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a> and <a href="https://www.smartkarma.com/entities/15070" target="_blank" data-smartkarma-citation="entities:15070:1">Recruit (6098 JP)</a>)  - have listed during the last 28 years. </li>
</ul>THE 2050 RANKING?- Which of the current market leaders will still be in the Top 20 in 2050 in their current guise? For those still around to read this in 32 year's time, we would wager on just three - <a href="https://www.smartkarma.com/entities/3077" target="_blank" data-smartkarma-citation="entities:3077:1">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony (6758 JP)</a>.


Source: Japan Analytics
NB: companies are colour-coded by sector
28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the evolution in the ranking of the leading non-financial Japanese companies by market capitalisation measured at the end of each of the last 28 years.METHODOLOGY - Our comments follow in the detail below, but first a few notes:-
In the interests of clarity (/sanity?), financials have been omitted. Twelve of the Top 20-ranked companies in 1990 were financials. However, only Nomura (8604 JP), Aozora (8304 JP) and Shinsei (8303 JP) have survived in their original corporate structure and have the same ticker code. Our chart would have otherwise have included the now-merged IBJ, Fuji Bank, Dai-Ichi Kangyo Bank, Mitsubishi Bank, Sakura Bank, Sumitomo Bank, Tokai Bank, Sanwa Bank and Mitsubishi Trust Bank.  Excluded from the present-day Top 20 are Mitsubishi UFJ (8306 JP), Sumitomo Mitsui Financial (8316 JP), Japan Post Bank (7182 JP), Japan Post Holdings (6178 JP) and Mizuho Financial (8411 JP) from the present day.
Only companies that were in the Top 20 in 1990 or 2018, as well as those companies that have been in the Top 10 for at least three of the last 28 years, have been included. 
Two companies from 1990's Top 20 - Seibu Railway and Japan Airlines - have since been delisted. Although they have relisted as Seibu Holdings (9024 JP) and Japan Airlines (9201 JP), they are no longer highly-ranked.
Seven current Top 20 companies - (Softbank (9984 JP), NTT Docomo (9437 JP), KDDI (9433 JP), Japan Tobacco (2914 JP), Central Japan Railway (9022 JP), Fast Retailing (9983 JP) and Recruit (6098 JP))  - have listed during the last 28 years. 
THE 2050 RANKING?- Which of the current market leaders will still be in the Top 20 in 2050 in their current guise? For those still around to read this in 32 year's time, we would wager on just three - Keyence (6861 JP), Toyota Motor (7203 JP) and Sony (6758 JP). 

Japan: The Evolution Of (Non-Financial) Market Leadership

Asia Healthcare Analyst, Pathology Associates Limited

Dion Stéfan Büchner M.D., FCAP

Asia Healthcare Analyst

Pathology Associates Limited

Equity Bottom-Up

Key highlights<ul>
<li>Notwithstanding brisk contribution by the key growth drivers including Entyvio (+33% to ~¥129b), Ninlaro (+36% to ~¥30b), Takecab (+22% to ~¥27b) and Trintellix (+16% to ~¥27b), overall revenue stayed flat y-o-y to ~¥880b, primarily due to the negative impact from divestitures in FY17</li>
<li>However, favorable sales product mix drove gross margin improvement of ~130bps to 74%</li>
<li>Furthermore, decline in Core SG&amp;A (-4% to ~¥286b; excluding Shire integration related costs) and R&amp;D (+2.4% to ~¥151b) resulted in ~14% and 20% increase in Core EBIT (to ~¥212b) and Core EPS (~¥ 215 / share) respectively.</li>
<li>While the company essentialy maintained topline guidance, it revised Core EBIT ~+7% to ~¥330b primarily due to growth driver momentum.</li>
<li>On Shire, the company commented that the proposed acquisition is on track and that integration planning is well underway.</li>
</ul>

Key highlights
Notwithstanding brisk contribution by the key growth drivers including Entyvio (+33% to ~¥129b), Ninlaro (+36% to ~¥30b), Takecab (+22% to ~¥27b) and Trintellix (+16% to ~¥27b), overall revenue stayed flat y-o-y to ~¥880b, primarily due to the negative impact from divestitures in FY17
However, favorable sales product mix drove gross margin improvement of ~130bps to 74%
Furthermore, decline in Core SG&amp;A (-4% to ~¥286b; excluding Shire integration related costs) and R&amp;D (+2.4% to ~¥151b) resulted in ~14% and 20% increase in Core EBIT (to ~¥212b) and Core EPS (~¥ 215 / share) respectively.
While the company essentialy maintained topline guidance, it revised Core EBIT ~+7% to ~¥330b primarily due to growth driver momentum.
On Shire, the company commented that the proposed acquisition is on track and that integration planning is well underway.


Takeda 1H FY18 (YE Mar'19) Results - First Glance

<ul>
<li>Non-inhibitor patients constitute ~80-90% of the total hemophilia A population size</li>
<li>Consequently, Hemlibra’s (emicizumab, in-house, US Launch -Nov 2017 for inhibitor pts, co-developed with <a href="https://www.smartkarma.com/entities/26852" target="_blank" data-smartkarma-citation="entities:26852:1">Roche Holding Ag (ROG SE)</a>) approval for non-inhibitor patients will significantly boost <a href="https://www.smartkarma.com/entities/4489" target="_blank" data-smartkarma-citation="entities:4489:1">Chugai Pharmaceutical (4519 JP)</a>’s topline</li>
<li>However, Hemlibra faces fierce competition from <a href="https://www.smartkarma.com/entities/27033" target="_blank" data-smartkarma-citation="entities:27033:1">Shire PLC (SHPG US)</a>’s Advate / Adynovate (antihemophilic factor recombinant), which is currently the gold standard therapy for non-inhibitor patients.</li>
<li>While Hemlibra scores higher with overall positive clinical data and convenient dosage regimen (once a week 1st four weeks, then monthly SC vs 2/3 times a week IV for Shire drugs), concerns remain over recently reported case of development of anti-drug antibody to Hemlibra</li>
<li>On the other hand, Advate/Adynovate has been on the market for &gt;15 years leading to robust safety data in the real-world setting.</li>
<li>Consequently, it will be important to monitor the rate of patient switch from current gold standard therapy to Hemlibra.</li>
<li>We estimate Hemlibra to capture ~40% share of the non-inhibitor market in 5 years after launch and project combined (from inhibitor and non-inhibitor) FY22e global sales potential of $4.3b.</li>
</ul>


Non-inhibitor patients constitute ~80-90% of the total hemophilia A population size
Consequently, Hemlibra’s (emicizumab, in-house, US Launch -Nov 2017 for inhibitor pts, co-developed with Roche Holding Ag (ROG SE)) approval for non-inhibitor patients will significantly boost Chugai Pharmaceutical (4519 JP)’s topline
However, Hemlibra faces fierce competition from Shire PLC (SHPG US)’s Advate / Adynovate (antihemophilic factor recombinant), which is currently the gold standard therapy for non-inhibitor patients.
While Hemlibra scores higher with overall positive clinical data and convenient dosage regimen (once a week 1st four weeks, then monthly SC vs 2/3 times a week IV for Shire drugs), concerns remain over recently reported case of development of anti-drug antibody to Hemlibra
On the other hand, Advate/Adynovate has been on the market for &gt;15 years leading to robust safety data in the real-world setting.
Consequently, it will be important to monitor the rate of patient switch from current gold standard therapy to Hemlibra.
We estimate Hemlibra to capture ~40% share of the non-inhibitor market in 5 years after launch and project combined (from inhibitor and non-inhibitor) FY22e global sales potential of $4.3b.


As Expected, USFDA Approves Hemlibra for Hemophilia A in Patients Without Inhibitors

Ireland

Shire was a global specialty biopharmaceutical company that focused on developing and marketing medicines for rare diseases and other highly specialized conditions. Its products spanned therapeutic areas including hematology, immunology, neuroscience, gastrointestinal conditions, and ophthalmology. Shire was founded in 1986 and acquired by Takeda Pharmaceutical Company in 2019.

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Shire (SHPGF US)

Takeda/Shire V: Tradition vs the Next Generation, Former Chairman Doesn't Support But...

Early this morning, the Nikkei carried an article (English version) saying that former Takeda Pharmaceutical (4502 JP) CEO and Chairman Kunio...

Travis Lundy

Takeda/Shire IV: Making Drug Deals

Last Monday - 12 days after Takeda Pharmaceutical (4502 JP) released earnings, and less than a week after EC Anti-Trust Phase I ended and led to a...

Travis Lundy

Japan: The Evolution Of (Non-Financial) Market Leadership

28 YEARS OF NON-FINANCIAL MARKET LEADERSHIP - To offer some light relief from the current market, we have compiled a graphic illustrating the...

Campbell Gunn

Takeda 1H FY18 (YE Mar'19) Results - First Glance

Key highlights Notwithstanding brisk contribution by the key growth drivers including Entyvio (+33% to ~¥129b), Ninlaro (+36% to ~¥30b), Takecab...

Dion Stéfan Büchner M.D., FCAP

As Expected, USFDA Approves Hemlibra for Hemophilia A in Patients Without Inhibitors

Non-inhibitor patients constitute ~80-90% of the total hemophilia A population size Consequently, Hemlibra’s (emicizumab, in-house, US Launch -Nov...

Dion Stéfan Büchner M.D., FCAP

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