Otsuka Holdings announced 3Q FY12/15 results at 13:30 on 13 Jan. 1-3Q OP fell 4.5% YoY to Y147.1bn, but already beat the firm’s previous full-FY12/15 guidance of Y120bn. The firm hiked its FY12/15 OP projection to Y145bn (+Y25bn vs previous CoE), but its assumption for US Abilify sales looks conservative. Our initial impression is positive.
However, operating losses are expected in 4Q, and uncertainty remains over the firm’s ability to reach the earnings bottom cited in the medium-term business plan (OP of Y100bn in FY12/16) once the Abilify patent runs out. Therefore our overall impression of earnings is neutral. Instead, we focus our attention on FY12/16 guidance.
FY12/15 guidance calls now for sales of Y1.41tn (+Y30bn vs previous CoE), OP of Y145bn (+Y25bn), RP of Y150bn (+Y25bn), and NP of Y90bn (+Y10bn). The increase in FY12/15 guidance was mainly due to the upside in the outlook for US sales of Abilify (whose US patent expired in late April; US FY12/15 sales CoE raised from Y196bn to Y224bn) due to the slow penetration of Abilify generics, but this was a one-off factor limited to FY12/15. We lift our forecasts in line with the new guidance to reflect the 3Q results, but leave our forecasts from FY12/16 unchanged. We will review our medium-term forecasts as needed based on our follow up with the firm.
3Q OP fell a sharp 38% YoY to Y43.9bn. 4Q guidance is for an operating loss of Y2.1bn, and many market participants are skeptical of this. 3Q OP included 1) Y32.3bn in one-off licensing revenue (incl milestone payments accompanying US approval of Abilify generic Rexulti), and 2) Y12.8bn OP in the nutraceuticals business (mainly Pocari Sweat). The firm expects the above licensing revenue to fall to Y1.5bn in 4Q, while nutraceuticals business OP usually shrinks to around Y5bn in 4Q as summer ends and the autumn/winter begins. Given the above, we would not be surprised if OP ends up close to breakeven.
Following such a decline in 4Q, uncertainties remain over the firm’s ability to achieve OP of Y100bn in FY12/16. In addition, the firm’s medium-term targets do not include roughly Y20bn in M&A-related costs accompanying the AVANIR acquisition (amortization of goodwill, intangible fixed assets).