Marking one of the few grim spots in Japan’s soaring stock market, shares of Takeda Pharmaceutical Co. 4502.TO -5.94% dropped nearly 10% in Tokyo trading Friday morning as it shocked investors with a huge miss in earnings and a disappointing outlook for the year ahead.
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The dismal performance of Japan’s biggest drug maker also raises alarm bells on its aggressive overseas drive with its president admitting it had miscalculated costs linked to its $13.7 billion purchase of Swiss drug-maker Nycomed.
“Our estimate was too optimistic when it came to predicting the final phase of a full year in operation since the Nycomed acquisition,” Takeda President Yasuchika Hasegawa said at a news conference Thursday.
“We’ll never let this happen again,” he said.
Both analysts and investors are skeptical. The company’s shares were down 6.6% in Tokyo trading early Friday afternoon after shedding nearly 10% earlier in the morning, in a dismal contrast to a 2.8% gain in the Nikkei Stock Average.
“We see lax cost controls at both plants and offices as the biggest challenge facing the company,” Ryoichi Urushihara, an analyst at Nomura Securities Co., wrote in a report.
As one reason for the company’s cost control troubles, Mr. Hasegawa said he was misled by assumptions rooted in precedent and failed to listen to the fresh cost estimates provided by the heads of local operations.
For the business year ended in March, Takeda sharply missed the profit targets set out only three months ago, burdened by bigger-than-expected research expenses as well as the costs of marketing products in emerging markets. The company also expects an operating profit of ¥140 billion for the current fiscal year, well below its May forecast for ¥225 billion and analysts’ projection for ¥214 billion in a poll by Thomson Reuters.
In another negative surprise, the company didn’t provide specific numerical targets in its medium-term business plan, although it did promise to achieve a compound annual growth rate of mid-single digits in sales and at least 20% in operating profit in the years through March 2018.
Highlighted by the Nycomed purchase in 2011, Takeda has gone on a whirlwind buying spree in recent years to gain access to emerging markets, expand its pipeline, and grow its vaccine business. Still, the company has struggled to offset a tight profit squeeze on its blockbuster drugs caused by the entry of lower-cost generic products. The global industry environment has also become tougher as governments worldwide scramble to cut health care costs.
“The light inside the tunnel that I mentioned last year will take a bit longer to reach the exit,” Mr. Hasegawa said, adding the speed of its recovery from the patent cliff will be slower than earlier expected.
Buried in its earnings release, Takeda also announced Thursday that Deborah Dunsire, who was the first female director to join Takeda’s board last year, will step down as chief executive of Millennium Pharmaceuticals Inc. as part of a broader integration of its oncology research. Ms. Dunsire, who is leaving the company, will be replaced with Anna Protopapas, who is also from Millennium and a rising star at Takeda who helped to engineer the Nycomed buyout.
