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Takeda's pursuit of UK pharma major Shire has not only made
headlines over the last few months, it also heralds a sea change
within Japan's largest drugmaker. The proposed deal has led to a
clash between Takeda's centuries-strong corporate culture and the
drive for growth from overseas markets, thanks to the company's
first non-Japanese CEO, Christophe Weber. If approved by
shareholders, the deal will catapult Takeda into the top ranks of
the global pharmaceutical industry, but it also comes - somewhat
ironically - as Japan's latest drug pricing policies threaten to
demote the country as one of the world's most sought-after pharma
markets.
Takeda's acquisition of Shire promises many benefits. The company
expects the acquisition to yield cost synergies of at least USD1.4
billion, including USD600 million in research and development
(R&D) expenses.
However, on 28 June a group of some around 130 Takeda shareholders
attempted to block the proposed deal at the company's Annual
General Meeting (AGM). The group holds a combined 1% of Takeda and
is made up of ex-Takeda employees who argue that the acquisition
goes against the company's long-held corporate values.
The amount of debt required to fund the proposed deal is an "abuse"
of the values of "Takeda-ism", argued the dissenting group's
representative, the 88-year-old Yujiro Hara, a distant relative of
the Takeda founding family.
The statement led many observers to wonder: What is Takeda-ism? And
why should it be allowed to block a multi-billion deal that would
propel Takeda to the top global ranks?
According to Hara, Takeda-ism is a corporate credo that entails
avoiding carrying overly high risks" or "burdening the company with
excessive debt".
Says Mr. Hara, a former Takeda employee: "We were told not to
upgrade our seats on bullet trains during business trips as the
company worked to cut down costs and had a reserve of over JPY2
trillion. But now, it's already a debt-ridden company with debts
exceeding JPY1 trillion, and the Shire acquisition will further add
to that, making it a company with debts of over JPY6 trillion."
(source: Pharma Japan)
(In response, Weber has said that Takeda's ratio of net debt to
EBITDA (earnings before interest, taxes, depreciation and
amortization) stands at 1.8, which rating agencies see as
controllable.)
Still, a lot of international investors would appear to agree with
Mr. Hara. Since the proposed acquisition was announced in March
2018, Takeda's shares have slumped by over 20%, primarily due to
concerns over the amount of debt required to fund the deal.
Takeda's falling shares have also dismayed stalwart investors who
viewed the blue-chip as a safe retirement holding. "I've owned
Takeda shares for a long time because of high dividends, thinking
it's better than saving money in the bank. But share prices have
been falling since the beginning of the year, and things didn't
change even after the Shire announcement. I don't want to sell them
at a loss now, so have no choice but to hold onto them," a
74-year-old man from Osaka Prefecture told Pharma Japan.
It's easy to understand Takeda shareholders' dismay. The concerns
reflect a clash between the old and the new. Takeda was founded in
Osaka in 1781, which means it predates most of the modern Western
pharmaceutical industry. Our modern-day pharma giants, including
Eli Lilly, Roche and Burroughs-Wellcome (now GlaxoSmithKline)
started as local apothecaries that took on wholesale production in
the middle of the 19th century. In addition, Weber's entrance as
Takeda's first non-Japanese CEO in 2014 - a disruptive event in
itself - came with an unprecedented drive for overseas
expansion.
It also doesn't help that Takeda plans to sell its original Osaka
headquarters, which the company has owned since 1781, to fund the
acquisition of Shire. To many Takeda shareholders, it must feel
like the company is not just morphing into an unfamiliar global
behemoth, but is also slashing its Japanese roots.
Ultimately, the dissident shareholders' bid to block the deal
failed. But that does not mean they will stop fighting. The group
aims to block the Shire takeover by drumming up as much support as
possible for 'nay' votes at an extraordinary shareholders meeting,
to be held sometime between late this year and early next year.
Takeda needs to clinch two-thirds approval for its planned issuance
of new shares - a de facto vote on the deal itself.
"The Shire acquisition will probably go through even if we gather
the shares of founding family members and ex-employees," Mr Hara
said. "We know that we probably don't have a chance to win, but we
can't just sit by and see Takeda going in the wrong
direction."
The Takeda-Shire acquisition will not be the last major M&A
deal out of Japan. The country's drug pricing policies have become
increasingly unfavorable to drugmakers over the years. The latest
round of National Health Insurance (NHI) drug pricing reforms have
significantly narrowed eligibility for the price maintenance
premium, introduced cost-effectiveness as a major factor in drug
pricing, and accelerated the pace of price cuts. Pharmaceutical
associations EFPIA and PhRMA have warned repeatedly that Japan's
drug pricing reforms will discourage drug makers from investing in
research and development in the country.
Weber is mindful of Japan's reduced growth prospects.
"This (the Shire deal) is a unique opportunity for Japan, because
Japan doesn't have a global champion and might never have one if we
don't do this deal. The countries that have one, they all built it
by M&A -- GlaxoSmithKline, Sanofi. It's easy to say their
M&A has been bumpy along the way, but what would those
companies be if they had not done it?" he told Bloomberg.
Even some Takeda shareholders agree.
"Japan is facing a shrinking population, and the market will become
smaller and smaller. Just like Softbank, Takeda should take risks
to grow," a 61-year-old man told Pharma Japan.
The dissenting shareholders are right: Takeda is moving away from
its traditional roots. But that is likely what is required for the
company to guarantee its future - by looking beyond Japan.