Lundbeck 2Q: Raised Revenues But Rocky Route Ahead
Executive Summary
Lundbeck is on the road to recovery following two years under new CEO Kåre Schultz's reign and somewhat decent Q2 results, but to secure long-term sustainability and yield riper fruit for the future, the company needs to consider striking bold partnerships and bolstering its pipeline.
Lundbeck needs to up its game: this is an underlying message captured from its second-quarter earnings call, held on Aug. 9. With further generic competition set erode sales, the company will need to consider branching out into new partnerships to expand its meager pipeline and salvage its position in the central nervous system (CNS) space.
The patents for Lundbeck's older products, Azilect (rasagiline), Cipralex (escitalopram), Namenda/XR (memantine HCL) and Xenazine (tetrabenazine) have already expired, with Sabril (vigabatrin) and Onfi (clobazam) also facing imminent generic erosion. Datamonitor Healthcare's analyst, Edward Thomason, predicts that these patent expiries will throw Lundbeck’s CNS portfolio, its main business, into a downward spiral. Though key products Abilify Maintena (aripiprazole), Trintellix (vortioxetine), and Rexulti (brexpiprazole), may push sales up, these benefits will not be visible until 2020, when products mature further and expand label indications.
In addition to the generic threats, Lundbeck's pipeline is looking weak and with only one new molecular entity in Phase III development, LUAF35700 for schizophrenia, the company will need to strike similar deals to its collaboration with Otsuka Pharmaceutical Co. Ltd. , for Abilify Maintena and Rexulti, to boost its pipeline and expand its current portfolio.
Development Setbacks
The company's hopes to make Rexulti the first approved drug for agitation associated with dementia have been knocked by mixed clinical data. Thomason said this was a "blow for Lundbeck" with only one of the two pivotal trials meeting its primary endpoint. Lundbeck blamed different care protocols in trial centers based in Russia and believes it may be able to coax an approval from the FDA, considering the unmet need in this symptom.
Nevertheless, Lundbeck may need to conduct an additional Phase III trial to secure an approval, delaying the label expansion and possibly impacting Rexulti's sale growth. Rexulti was co-developed by Otsuka and Lundbeck and approved by the US FDA in 2015 for schizophrenia and major depressive disorder.
In a report from May 2017, DMHC pegged Rexulti to become Lundbeck’s chief growth driver, with peak sales expected of $1,178m in 2026. This second quarter the drug showed an 85% increase in sales compared to the same time in 2016, going from DKK309m (~$48.76m) to DKK574m.
However, "the failure alongside the present decline of Namenda/XR (marketed as Ebixa in International markets) revenues, will leave Lundbeck with little presence in Alzheimer’s disease," said Thomason.
Trintellix, approved for major depressive disorder, has had a pro-cognitive label granted in Europe, but the US FDA rejected the label update twice, in March 2016 and later in June 2017. It is unlikely that Trintellix will secure a pro-cognitive label without another trial being conducted, but Thomason believes that this won't affect the present uptake of Tintellix in the US, which is currently high.
All Hope Is Not Lost
Abilify Maintena was approved by the FDA as a maintenance monotherapy for bipolar I disorder in July, which Thomason said was "a big win for Lundbeck but not unexpected." The product's revenue increased by 23% to DKK659m in the second quarter and is expected to rise significantly with increased uptake and its advantage over oral formulations in improving patient compliance, a problem amongst patients suffering from schizophrenia.
Jefferies' analysts had predicted sales of key products, Rexulti, Abilify Maintena, Trintellix/ Brintellix, Northera and Onfi, to be DKK2.16bn, but in Lundbeck's second-quarter earnings call that turned out to be slightly higher at DKK2.20bn.
The company's revenues were reported to have risen from DKK7,521m at the same point in 2016 to DKK8,494m this 2Q. It also raised its full-year forecast, but this reflected the sale of property and the unexpected delay in the arrival of generic competition to Sabril. Saying this, Jefferies outlined in a note from Aug. 10 that Par Pharmaceuticals is expected to launch its generic vigabatrin, a sachet formulation, in the coming months resulting in erosion in Sabril's sales later this year. Even though sales of Sabril are set to decline significantly in the second half of the year, the continued uptake of newer products should mitigate any decline.
Thomason said that this was a "strong but quiet quarter for Lundbeck, where newer products grew to negate older product decline, though patent expiries for Sabril later in 2017 and Onfi in Q4 2018 will negatively affect company topline."
|
|
DKK million |
Growth |
|
Abilify Maintena |
659 |
23% |
|
Brintellix/Trintellix |
778 |
61% |
|
Cipralex/Lexapro |
1,286 |
-4% |
|
Northera |
716 |
60% |
|
Onfi |
1,448 |
28% |
|
Rexulti |
574 |
85% |
|
Sabril |
773 |
28% |
|
Xenazine |
545 |
-34% |
|
Other pharmaceuticals |
1,579 |
-5% |
|
Other revenue |
136 |
-30% |
|
North America |
5,115 |
22% |
|
International Markets |
1,810 |
8% |
|
Europe |
1,433 |
-1% |
|
Total revenue |
8,494 |
13% |
Table 1: Table showing revenue for products and regions in the first half of 2017