Takeda Pharmaceutical Company Limited (TAK) specializes in developing treatments in the fields of neuroscience, gastroenterology, oncology and other rare hereditary diseases. Headquartered in Japan, the company has multiple research facilities and strategic collaborative agreements with multiple research-based pharmaceutical companies worldwide. Renowned investor Cathie Wood held 15.94 million shares of TAK as of May 26. This represents a 0.64% weighting in the Ark Genomic Revolution ETF (ARKG). 

Ionis Pharmaceuticals, Inc. (IONS) is an RNA-targeted therapeutics developer based in the United States. The company develops oral medications for the treatment and management of rare life-threatening diseases and lifelong ailments. Wood owns 7.86 million shares of IONS (as of May 26), representing a 0.65% weighting in the ARKG ETF. Ark Investment has a 5.58% stake in IONS.

Wood is betting on the capacity of genomics to shape the healthcare industry in 2021. The progress made by various companies in the field of DNA sequencing should allow them to develop cures for serious life-threatening diseases, such as cancer and lifelong ailments. In a CNBC interview, Wood said, “DNA sequencing is going to introduce science into healthcare decision making for the first time…We’re going to be able to cure diseases that we never thought it would be possible to cure, including cancer.” TAK and IONS have been making substantial progress on this front. And as the tech integration into healthcare increases the efficacy of the clinical trials, both companies should be able to launch multiple new drugs in the market soon.

TAK has declined 11.3% over the past year, while IONS lost 36.6% over this period. However, TAK has gained 3% over the past three months, while IONS declined 32.2%. In terms of their past month’s performance, TAK is the clear winner with 1.2% gains versus IONS’ 18.6% decline.

Click here to checkout our Healthcare Sector Report for 2021

But which stock is a better buy now? Let’s find out.

Latest Movements

As one of the leading research-based pharmaceuticals companies in the world, TAK received the 2021 Facilities of the Year awards for its manufacturing facilities in Japan and Ireland from the International Society for Pharmaceutical Engineering.

On May 21, the company received emergency approval to distribute the Moderna COVID-19 vaccine in Japan. TAK conducted phase three immunogenicity and safety clinical trials of the vaccine and is expected to be its primary distributor across Japan. This should allow the company’s revenue to increase significantly in the coming months.

The company’s drug candidates for small cell lung cancer treatment and anti-CMV treatment were approved for priority review by the U.S. FDA. If approved, these drugs could establish TAK as one of the biggest pharmaceutical companies worldwide.

IONS has been expanding its drug portfolio for quite some time. It reported positive top line results from phase two clinical trials for its drug candidate to treat hereditary angioedema on March 29. In the following month, the company began conducting phase three trials for its drug to treat juvenile onset ALS. These successful clinical trials position it nicely to develop a breakthrough drug for the treatment of these serious ailments.

However, the company is being investigated by Bronstein, Gewirtz & Grossman, LLC for potential violations of federal securities laws. Commenced in April, these fraud allegations shed a negative light on the company’s reputation and growth prospects.

Recent Financial Results

TAK’s operating profit increased 407.2% year-over-year to JPY 509.27 billion ($4.67 billion) in the fiscal year ended March 31, 2020. Its net profit increased 749.9% from the same period last year to JPY 376.01 billion ($3.45 billion). Its EPS came in at JPY 238.96 ($2.18), up 745.9% from the year-ago value. Its cash flow from operating activities improved 50.9% from the prior year to JPY 669.75 billion ($6.15 billion).

IONS total revenues were $60 million for the fiscal first quarter, ended March 31, 2021, indicating a 9.1% decline year-over-year. Its loss from operations stood at $92 million, up 50.8% from the prior year quarter. This can be attributed to a 5.2% rise in operating expenses. Its net loss and loss per share stood at $90 million and $0.64 respectively, over this period.

Past and Expected Financial Performance

TAK’s revenues have increased at a 21.8% CAGR over the past three years. The company’s levered free cash flow and total assets have grown at CAGRs of 40.5% and 46.5%, respectively, over this period. Its EPS improved 745.9% year-over-year.

In comparison, IONS’ revenues grew at a 9.2% CAGR over the past three years. Its total assets improved at a 20.1% CAGR over the past three years, while its levered free cash flow declined at a rate of 5.5% per annum over this period. The company’s EPS declined 400.6% year-over-year.

Analysts expect TAK’s EPS to improve 507.7% in its fiscal year 2021, 5.1% in fiscal 2022, and at a rate of 0.6% per annum over the next five years. The company’s revenue is expected to decline 4.2% in the current year and increase marginally in  2022.

The Street expects IONS’ EPS to remain negative until at least 2022. The consensus EPS estimates indicate a 43.7% year-over-year improvement in fiscal 2021, 3.8% rise in 2022, and 98% rise per annum over the next five years. Analysts expect the company’s revenues to decline 14.4% in the current year and increase 9.7% next year.

Profitability

TAK’s trailing-12-month revenue is 4.08 times IONS’. Furthermore,  TAK’s 68.91% gross profit margin is significantly higher than IONS’ 19.82%. TAK is also more profitable, with a 24.1% levered free cash flow margin versus IONS’ 13.43%.

In addition, TAK’s return on sales, ROE and ROA margins of 11.76%, 7.6% and 1.89%, respectively,  compare well with IONS’ negative values.

Valuation

In terms of trailing-12-month Price/Sales, TAK is currently trading at 203.26x, which is significantly higher than IONS, which is currently trading at 7.03x. However, TAK is the more affordable stock in terms of forward EV/Sales (3.05x vs 6.57x).

IONS’ forward non-GAAP P/E multiple is negative. In comparison, TAK is currently trading at 4.79 times its 2021 EPS estimate.

POWR Ratings

TAK has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. IONS, on the other hand, has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

TAK has an A grade for Value. This is justified because the company’s 4.79 forward P/E multiple is 85% lower than the 31.95 industry average. In contrast, IONS has a C grade for Value, consistent with its negative forward price-to-earnings multiple.

TAK has a B grade for Stability. This is in sync with the stock’s 0.48 beta. In comparison, IONS has a D grade for Stability, consistent with its relatively high 1.03 beta.

Of the 493 stocks in the Biotech industry, TAK is ranked #19. IONS is ranked #102 out of 230 stocks in the Medical – Pharmaceuticals industry.

Beyond what we’ve stated above, we have graded both the stocks for Momentum, Quality, Sentiment and Growth. Get all TAK Ratings here. Also, click here to view all IONS Ratings.

The Winner

TAK has an ISS Governance QualityScore of 1, indicating relatively low governance risk. IONS, in contrast, has a QualityScore of 7, indicating relatively higher governance risk. This, combined with higher revenue and earnings growth potential and relatively lower valuation, makes TAK the better investment bet here.

Our research shows that the odds of success increases if one bets on stocks with an Overall POWR Rating of Strong Buy or Buy. Click here to view the top-rated stocks in the Biotech industry. Get all top-rated stocks in the Medical – Pharmaceuticals industry here.  

Click here to checkout our Healthcare Sector Report for 2021

TAK shares were trading at $17.30 per share on Thursday afternoon, up $0.09 (+0.52%). Year-to-date, TAK has declined -4.95%, versus a 12.56% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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