Executive Summary / Key Takeaways

• Takeda Pharmaceutical Company Limited is poised for a transformative period, leveraging its robust late-stage pipeline, particularly in orexin science for narcolepsy type 1 (NT1) and TYK2 inhibition for psoriasis, to drive significant future growth.
• Fiscal Year 2024 demonstrated Takeda's resilience, with core revenue growing 2.8% at constant exchange rate (CER) and core operating profit increasing 4.9% at CER, largely driven by its "Growth & Launch Products" portfolio, which now accounts for 48% of total core revenue.
• The company's enterprise-wide efficiency program has already yielded approximately JPY 200 billion in annualized savings, strategically reinvested into R&D and launch preparations for its promising pipeline.
• Key pipeline assets like oveporexton (TAK-861) for NT1 and rusfertide for polycythemia vera have shown compelling Phase 3 results, with oveporexton projected as a $2 billion to $3 billion peak revenue product and rusfertide at $1 billion to $2 billion.
• While facing headwinds from VYVANSE generic erosion and U.S. healthcare policy changes (Medicare Part D, 340B), Takeda's strategic investments in the U.S. and its differentiated technology position it to maintain competitive leadership and achieve its long-term growth objectives.

Takeda's Enduring Vision and Strategic Evolution

Takeda Pharmaceutical Company Limited, with a heritage stretching back to 1781, has evolved into a global biopharmaceutical leader focused on discovering and delivering life-transforming treatments. Headquartered in Tokyo, Japan, Takeda's overarching strategy centers on innovation and addressing high unmet medical needs across core therapeutic areas: gastroenterology and inflammation, rare diseases, plasma-derived therapies, oncology, neuroscience, and vaccines. This strategic pivot towards specialized, high-value therapies has been a consistent thread, shaping its current robust late-stage pipeline and competitive positioning.

The global pharmaceutical industry is characterized by intense R&D investment, stringent regulatory hurdles, and the constant threat of patent expirations and generic competition. In this dynamic landscape, Takeda differentiates itself through targeted innovation and a disciplined approach to portfolio management. The company's commitment to patients, its people, and the planet guides its operations, aiming to foster better health and a brighter future globally.

Technological Bedrock: Orexin Science and TYK2 Innovation

Takeda's future growth is significantly underpinned by its leadership in specific, differentiated technologies, notably in orexin science and TYK2 inhibition. The company's orexin franchise, spearheaded by oveporexton (TAK-861), represents a potential paradigm shift in treating narcolepsy type 1 (NT1). This investigational oral orexin receptor 2 (OX2R)-selective agonist is designed to restore orexin signaling, directly addressing the underlying deficiency that causes NT1.

The tangible benefits of oveporexton are substantial and quantifiable. In two global Phase 3 studies (FirstLight and RadiantLight), oveporexton met all primary and secondary endpoints, demonstrating statistically significant and clinically meaningful improvements across a broad range of NT1 symptoms. Specifically, it improved excessive daytime sleepiness, showing statistically significant improvement from baseline in mean sleep latency on the Maintenance of Wakefulness Test (MWT) and in Epworth Sleepiness Scale (ESS) scores at week 12 across doses compared to placebo. A majority of participants treated with the 2mg dose achieved wakefulness within the normative range (20 min on MWT), and close to 85% achieved ESS scores comparable to healthy individuals (≤10). Furthermore, oveporexton demonstrated a significant reduction in weekly cataplexy rate over 12 weeks across doses compared to placebo, with a median percent change from baseline of more than 80%. Median cataplexy-free days improved from 0 days at baseline to 4-5 days per week at week 12. These results, coupled with a generally well-tolerated safety profile, underscore its potential to normalize symptoms and transform patient quality of life, a critical "so what" for investors given the high unmet need in NT1. Oveporexton has received Breakthrough Therapy designation for NT1 from the U.S. FDA and China's NMPA. Takeda is also investigating next-generation orexin agonists like TAK-360 for narcolepsy type 2 (NT2) and idiopathic hypersomnia (IH), with preclinical asset TAK-495 expected to enter the clinic in fiscal year 2025.

Another key technological differentiator is zasocitinib, a highly selective oral TYK2 inhibitor. Takeda believes zasocitinib is a best-in-class TYK2 inhibitor due to its selectivity, once-daily dosing with full 24-hour coverage against TYK2, and promising Phase IIb data. This selectivity is crucial for minimizing off-target effects and potentially improving the safety profile compared to broader JAK inhibitors. The company's goal with zasocitinib is to redefine what an oral product can achieve in psoriasis in terms of efficacy and safety, aiming for efficacy closer to that of biologics. The ongoing head-to-head trial against deucravacitinib is designed to explicitly demonstrate this differentiation and solidify its competitive edge.

These technological advancements contribute significantly to Takeda's competitive moat, offering the potential for higher average selling prices (ASPs) and better margins in specialized markets. The strategic intent behind these R&D initiatives is to deliver transformative outcomes for patients, which in turn drives market leadership and long-term revenue growth.

Growth Engines and Portfolio Resilience

Takeda's financial resilience in recent years has been largely driven by its "Growth & Launch Products" portfolio. This segment grew 14.7% at CER in fiscal year 2024, accounting for 48% of total core revenue, and is projected to exceed 50% in fiscal year 2025. This robust performance has been critical in offsetting the significant generic impact from VYVANSE loss of exclusivity (LOE).

ENTYVIO, a cornerstone of the gastroenterology portfolio, has seen accelerated growth, particularly with the U.S. launch of the ENTYVIO Pen. While initial access challenges in the U.S. market led to a slightly slower-than-anticipated uptake, the Pen is gaining traction, with Takeda adding approximately 1,000 new pen writers each quarter. ENTYVIO maintains its market share leadership in first-line IBD treatment, especially in bio-naive patients, due to its gut-selective mechanism of action and strong safety and efficacy profile. The company remains confident in ENTYVIO's peak sales outlook of $7.5 billion to $9 billion, even considering potential impacts from the Inflation Reduction Act (IRA).

In rare diseases, TAKHZYRO continues its strong momentum, growing 16.4% at CER in Q3 FY24 year-to-date. It remains the number one prescribed advanced long-term prophylaxis treatment for hereditary angioedema (HAE) after six years on the market, with approximately 25% of new start forms coming from first-time prescribers. Newly launched products like FRUZAQLA for metastatic colorectal cancer and ADZYNMA for congenital thrombotic thrombocytopenic purpura (cTTP) have exceeded revenue expectations with impressive early uptake. FRUZAQLA achieved 8 regulatory approvals in less than a year since its U.S. launch, demonstrating strong uptake in fourth-line and momentum in third-line settings. QDENGA, Takeda's dengue vaccine, has also shown strong global demand in both endemic and non-endemic markets, with over 10 million doses sold since its 2022 launch. Demand for QDENGA currently outstrips supply, and Takeda is actively expanding its manufacturing capacity.

Plasma-Derived Therapies: A Foundation of Stability

Takeda's Plasma-Derived Therapies (PDT) business provides a stable foundation, with immunoglobulins (IG) and albumin being key products. The IG portfolio grew 11.9% at CER in Q3 FY24 year-to-date. While albumin revenue declined 14.2% in Q1 FY24 due to anticipated supply phasing to China and planned manufacturing upgrades, it is expected to return to high single-digit growth in fiscal year 2025.

The PDT segment has seen improving margins for several quarters, driven by optimized supply chains, full utilization of manufacturing capacity, and stable donor fees. Takeda is strategically investing in this area, including an end-to-end manufacturing facility for plasma therapies in Japan, expected online by the end of the decade. This investment addresses the high unmet need for plasma-derived therapies in Japan and aims to establish a hub for the Asia region and globally, ensuring sustainable supply and business growth. Approximately 60% of Takeda's PDT revenues are from U.S. domestic sales.

Financial Fortitude Amidst Transition

Takeda delivered a resilient financial performance in fiscal year 2024. Core revenue grew 2.8% at CER, reaching JPY 4.58 trillion, primarily propelled by the 14.7% growth of its Growth and Launch Product portfolio. Core operating profit increased 4.9% at CER to JPY 1.16 trillion, with the core operating profit margin expanding to 25.4%. This margin improvement, a 65 basis point increase year-over-year (or 270 basis points excluding VYVANSE impact), was a direct result of robust OpEx control and the enterprise-wide efficiency program.

The efficiency program, initiated in May 2024, has already generated approximately JPY 200 billion in annualized savings. These savings are strategically allocated, with about 65% from compensation and benefits (impacting around 3,000 positions), 20% from procurement, and 15% from other areas like sales and marketing rationalization and facility optimizations. This program enables Takeda to fund increased investments in R&D, data and technology, and new product launch preparations, even as core EPS for FY2024 was slightly impacted by higher-than-anticipated tax expenses.

Takeda's liquidity remains strong, with operating cash flow exceeding JPY 1 trillion and adjusted free cash flow reaching JPY 769 billion in FY2024, surpassing initial forecasts.

This strong cash generation has allowed for debt reduction, improving the leverage ratio to 2.8x as of March 2025, with a target to further reduce it to 2x adjusted net debt to adjusted EBITDA.

The company's debt profile is well-managed, with 100% of its debt at fixed rates and a weighted average interest rate of approximately 2%.

Competitive Arena: Differentiating in a Dynamic Market

Takeda operates in a highly competitive global pharmaceutical market, vying with industry giants like Johnson & Johnson (JNJ), Pfizer (PFE), Merck (MRK), and Novartis (NVS). While these competitors often boast broader portfolios and greater scale, Takeda strategically carves out its niche through specialized innovation and targeted market positioning.

In the oncology space, Takeda's FRUZAQLA competes with a range of established and emerging therapies. Its rapid uptake in metastatic colorectal cancer, particularly in later lines of therapy, demonstrates its ability to address significant unmet needs. This contrasts with broader oncology players like JNJ and PFE, who may have more diversified oncology pipelines but might not offer the same targeted efficacy in specific patient populations.

In gastroenterology, ENTYVIO maintains its leadership in first-line IBD treatment against new entrants like AbbVie's (ABBV) SKYRIZI and RINVOQ. Takeda emphasizes ENTYVIO's gut-selective mechanism, which provides a differentiated safety profile. This strategic focus on a unique mechanism allows ENTYVIO to retain its market position, even as competitors introduce new therapies that primarily impact second and third lines of treatment.

Takeda's orexin franchise, with oveporexton, aims to be a first-in-class therapy for NT1, directly addressing the underlying cause of the disease. This positions Takeda as a leader in a market where standard therapies only partially address symptoms. This technological advantage provides a significant competitive moat, as it offers a more comprehensive solution than existing symptomatic treatments.

For zasocitinib, Takeda is positioning it as a best-in-class oral TYK2 inhibitor for psoriasis. The planned head-to-head trial against deucravacitinib (BMS's (BMY) TYK2 inhibitor) is a direct competitive move to demonstrate superior efficacy and safety, aiming to redefine the oral segment of the psoriasis market. This aggressive differentiation strategy is crucial in a market with multiple treatment options.

Takeda's Plasma-Derived Therapies business, while facing competition from other IG manufacturers and emerging gene therapies like argenx's (ARGX) VYVGART in CIDP, benefits from the established "gold standard" status of IG therapy. The company's investment in a new manufacturing facility in Japan underscores its commitment to long-term supply and market presence in this critical area.

Overall, Takeda's competitive strategy is to focus on innovation in areas of high unmet medical need, leveraging its scientific expertise and targeted development to create differentiated products. While its overall scale and financial metrics (e.g., P/E ratio of 50.92, P/S ratio of 1.55) might differ from larger, more diversified peers, its strength lies in its ability to deliver transformative therapies in specialized segments, supported by a strong R&D pipeline and strategic partnerships.

Outlook and Strategic Imperatives

Fiscal year 2025 is set to be a pivotal year for Takeda, with management forecasting broadly flat revenue, core operating profit, and core EPS at CER. This outlook reflects the final year of significant VYVANSE generic headwinds, which will be largely offset by the continued momentum of the Growth and Launch Products portfolio and the benefits of the efficiency program.

A key driver for future growth will be the advancement of Takeda's late-stage pipeline. Three new molecular entities – rusfertide, oveporexton, and zasocitinib – are expected to have pivotal readouts in FY2025. Oveporexton is targeting regulatory filing this year, following positive Phase 3 results presented at World Sleep 2025, with a peak revenue potential of $2 billion to $3 billion in NT1. Rusfertide, having shown transformative Phase 3 data in polycythemia vera (73% of treated patients required 0 phlebotomies over 32 weeks vs. 22% on placebo), is expected to be submitted for FDA review in 2025, with a peak revenue potential of $1 billion to $2 billion. Zasocitinib's Phase 3 results for psoriasis are anticipated in the second half of FY2025, with regulatory submission targeted for fiscal year 2026. Takeda also anticipates filing 5 additional indications from its late-stage program over the next few years, signaling a robust pipeline beyond these immediate launches.

Takeda plans to increase its annual dividend to JPY 200 per share for FY2025, in line with its progressive dividend policy. This reflects management's confidence in the company's financial stability and future cash flow generation. The company is also committed to investing approximately $30 billion in the U.S. over the next five years, reinforcing its significant presence in manufacturing, R&D, and plasma donation centers, recognizing the U.S. as a critical market for biopharmaceutical innovation.

Navigating Headwinds: Risks and Regulatory Landscape

Despite a promising outlook, Takeda faces several notable risks and challenges. The most immediate is the continued erosion of VYVANSE due to generic competition. With 15 generics now on the market in the U.S., Takeda expects a smoother but significant decline in FY2025, marking the final year of substantial impact.

Challenges in the U.S. access landscape for the ENTYVIO Pen have led to slower-than-expected growth, as the new formulation falls under different insurance plans compared to the established IV version. Takeda is actively working to improve reimbursement and authorization pathways to accelerate uptake.

The evolving U.S. healthcare policy environment presents significant headwinds. The potential implementation of a Most Favored Nation (MFN) policy in the Medicaid setting could lead to an industry-wide impact of up to $1 trillion over 10 years, posing a fundamental challenge for Takeda and its peers. Furthermore, the exponential growth of the 340B program, which has evolved into a "markup program" for hospitals, significantly impacts Takeda's revenues by increasing rebates. The Inflation Reduction Act (IRA) also introduces pricing pressures, though Takeda's strategy of focusing on innovation and high unmet medical need is designed to withstand these changes.

Takeda maintains its assumption that the earliest biosimilar entry for ENTYVIO in the U.S. will be between 2030 and 2032, based on the strength of its patent portfolio and the lengthy development and litigation processes. However, increased biosimilar development activity remains a factor to monitor. Finally, while Takeda believes its exposure to U.S. and China tariffs on pharmaceutical products is limited due to its manufacturing footprint and IP location, geopolitical shifts could introduce unforeseen impacts.

Conclusion

Takeda Pharmaceutical Company Limited stands at a pivotal juncture, transitioning from a period of significant generic erosion to one defined by the anticipated launch of multiple life-transforming therapies. The company's deep-rooted commitment to innovation, particularly in groundbreaking areas like orexin science and TYK2 inhibition, forms the bedrock of its investment thesis. With oveporexton and rusfertide demonstrating compelling Phase 3 results and zasocitinib advancing rapidly, Takeda's late-stage pipeline is poised to deliver substantial new revenue streams, offsetting mature product declines and driving growth through the end of the decade.

While macroeconomic and regulatory headwinds in key markets, particularly the U.S., demand vigilant management, Takeda's proactive efficiency programs and strategic investments underscore its determination to maintain profitability and strengthen its competitive standing. The company's ability to leverage its technological differentiators, expand market access for new products, and execute its robust pipeline will be critical in realizing its ambitious peak revenue targets and delivering sustained shareholder value. Takeda's story is one of enduring purpose, strategic adaptation, and a clear vision for leadership in specialized biopharmaceuticals.