By Igarashi Daisuke
――How is the integration with Shire proceeding?
It is proceeding at a very good pace. I have had many townhall meetings with employees in places where Takeda and Shire are based, including Boston in the U.S. and Zurich in Switzerland. Employees have asked all kinds of questions, including those about our research and development (R&D) strategies, integration process, and how we select our business sites. In Boston, where both companies have a base, we have decided that only one will remain, but we have yet to make a decision about which one it will be; naturally, there have been questions about this.
I understand that there is concern among our employees about their future roles and positions, so I would like to address that—everyone's role and position in the company will be clear within the year. However, the integration of IT systems of the two companies, which between them have 34 manufacturing sites globally, may take two or three years.
There are also differences in the way the two companies operate. While Takeda's operating model is decentralized, Shire's was comparatively centralized. Over 60% of Shire's business was centered on the U.S., whereas Takeda's operations are organized into the four regions of the U.S., Japan, Europe and Canada, and Emerging Markets, and we give more autonomy to local businesses. There are probably also some differences due to the personalities of the CEOs.
――What led you to start considering the acquisition of Shire?
Back in 2017, we started looking at a partial acquisition of Shire's neuroscience business. Takeda was focused on areas such as oncology and neuroscience and Shire was also concentrating on the neuroscience field; it was this that first interested us. Later, as we learned more about their overall business, we began to feel that their areas of rare diseases and plasma-derived therapies were a good fit for Takeda's R&D model.
It was also a good geographical fit. Takeda is and will continue to be Japan's leading pharmaceutical company, but in the U.S., we had a relatively small business, unlike Shire which was well established there. And since both companies have bases in Boston and in Zurich, we were compatible in terms of integration.
――Was there any opposition from the board members when the idea was first considered?
There was a lot of concern about the risks involved, and questions such as "Is Shire too big?" "Can we integrate the corporate cultures of the two businesses?" "What is the product value?" "How reliable are the forecasts?" In the end, we had about 200 questions to consider, which we then examined through a process of many discussions.
――How did you convince the board members that this was the right thing to do?
With facts, data and risk analysis. We also did a lot of scenario analysis, for example examining scenarios related to the value of their products. We started discussions in September of 2017 and spent six months considering all of the factors involved. Naturally, I couldn't make such a big decision based solely on my own judgment, and in early 2018 I made sure to listen to the opinion of everyone in our executive team. It was only then that we concluded that we should go ahead with the acquisition. A few weeks later, at the board meeting on March 26, 2018, we made the final decision to propose the acquisition to Shire.
――Six months seems to be a short length of time for such a big decision.
Because we had studied the acquisition with the support of external consultants, there was a significant risk of a leak, and we needed to move quickly. Any leak before we had a chance to make the final decision would have led to a worst-case scenario. I have never said this before, but the plan was that if there was a leak before we made the final decision, we would call off the deal.
We felt that the acquisition of Shire was a truly unique opportunity to accelerate Takeda's transformation, and was indeed one that we could not miss. That said, we had already embarked on the R&D transformation and our business is growing. We have plenty of time until our next major product patent expiration in 2026, so the acquisition of Shire was not done out of obligation. There was no pressure on us to do it, meaning that we could have called it off at any time.
――How did you keep it confidential?
We used code names and all the employees involved had a very clear duty to maintain confidentiality.
――Is it true that the code names were "Yamazaki" and "Hibiki"? (Brands of Japanese whiskey made by Suntory. Shire was based in Ireland, a country famous for its whiskey)
Yes, it's true. I'm not sure whether it was the best idea (laughs).
――During the negotiations, Shire rejected the proposal three times. How did that affect the deal?
When negotiations for the acquisition of Shire (which was listed on the London Stock Exchange) were reported in the media, it created a negotiating deadline. It was reported that we had officially started the negotiations on March 28, so we had until the end of April. We had no choice but to make multiple proposals, so the media reported that we had been made to pay a high price. But we had started the negotiations with a very low offer, and the final price agreed upon was below what we at the board of meeting had set as the upper limit.
――Your counterpart in the negotiation was (former Shire chairperson) Susan Kilsby. Was she a tough negotiator?
She's a very experienced negotiator with a background in investment banking. But we also had three financial institution advisors on our side. While Susan left Shire after the acquisition, we now have three external directors from Shire: Steven Gillis, Ian Clark, and Olivier Bohuon.
――What is the biggest challenge presented by the integration with Shire?
The biggest challenge is the scale of the integration in terms of the number of things we have to reconstruct in a very short period of time. To give you an example, our compensation systems are very different and have to be rebuilt.
We created an integration team in May last year, and they have as many as 1,200 tasks to take care of, including nomination, compensation harmonization and job titles. At its peak, this integration team had 120 people from each company. We hope to carry out the majority of these operations within a year of completing the acquisition. We have a progress review every month, and everything is on track.
――We have seen a series of M&A deals in the pharmaceutical industry, but they have not always been successful. What is the key to overcoming the challenges?
One key is to have a very clear strategy. At Takeda, we announced the R&D transformation in 2016 and we have no plans to change this. The pharmaceutical industry is risky because its R&D requires huge capital investment, and it follows that it is important to have the scale capable of generating as much R&D expenditure as possible. If you look at the world's top 10 pharmaceutical companies, every one of them has grown bigger through M&As. It's not a question of whether they were successful or not.
――Do you think Takeda will need further M&A deals in the future?
M&As in the pharmaceutical industry have been going on for more than 20 years, and while I think this trend will probably continue, it may slow down. One aspect of our industry is that there is not much of a move toward integration compared to other industries. We will take things step-by-step. We have a long-term vision and I'm not in a rush at all (to make new acquisitions). Right now, I want to focus on quickly completing the integration at hand.
In the next interview, we focus on Takeda's corporate governance, including the compensation system for executives.