Lundbeck needs deals, but what can it afford?

With few pipeline catalysts this year the pressure is growing on Lundbeck's new chief executive, Deborah Dunsire, to deliver a deal. But the company only has $5bn to spend.

It has been over six months since Deborah Dunsire took over as chief executive of Lundbeck, and she has still not stated what she intends to do about the Danish group's over-reliance on its powerhouse legacy brands.

New senior exec appointments always raise questions about strategy, and for Ms Dunsire these concerns have become more acute since the phase III failure of one of the group’s biggest hopes, the treatment-resistant schizophrenia candidate Lu AF35700, in October. More recently, Lundbeck's marketed antipsychotic Rexulti flunked a pivotal bipolar mania label extension trial

An obvious solution to the company's stuttering pipeline is a more aggressive approach to M&A, something Ms Dunshire is considering. “We will be looking at accessing extra innovation,” she tells Vantage, adding that the group would consider various types of deals with companies at all stages of development. “Not only would we like to supplement the late-stage [pipeline], giving us more near-term launches, we would also like to strengthen the mid and early-stage pipeline.”

After the Danish company recently said it would cut its shareholder-friendly dividend to strengthen its pipeline, the pressure to make the right deal will be even greater.

However, decent CNS assets are few and far between. Ms Dunsire says Lundbeck has $4-5bn to spend, which could make things trickier still. Sage Therapeutics has been lined up as a potential takeover target, but its recent stock price surge, which has given it a market cap of almost $8bn, rules it out as a serious option.

Other targets, according to sellside analysts, range from the early-stage player Denali Therapeutics to Acadia Pharma, which has a marketed drug in the form of Nuplazid, and Intra-Cellular Therapies, in a deal that could eliminate competition in Alzheimer’s agitation.

Don't panic

As for the timing of any transaction, Ms Dunsire acknowledges that Lundbeck needs to take action, but maintains that she will not be pushed into a deal. “We have a sense of urgency, not a sense of panic,” she says.  

Some of this urgency comes from the loss of market exclusivity last October for Onfi, the group’s largest brand. Lundbeck's top line is also expected to come under pressure in the next 12-18 months as other pipeline stars including Xenazine and Sabril lose patent protection.

Deborah Dunsire
Lundbeck's chief executive, Deborah Dunsire

Although Lundbeck reported one of the strongest revenue performances in its history last fiscal year, with sales of DKr18.1bn ($2.75bn), a lot of this was down to launches of existing products in new markets, and price increases.

It is unclear whether a strategy that leans heavily on price hikes can continue. Drug costs in the US, Lundbeck’s biggest market, are coming under even more scrutiny as the country heads towards the 2020 presidential elections. 

Additionally, the previous management's strategy of cutting costs to return the group to profitability, and its focus on earlier and therefore cheaper licensing deals, has resulted in few upcoming catalysts that could move the stock before 2020.

This all means that Lundbeck is increasingly reliant on a small number of products. Its last US approval was Rexulti in 2015, leaving legacy brands to make up 58% of revenues.

Focusing on the future

As for where Ms Dunsire might restock the pipeline, she says the focus will continue to be on brain health, with proteinopathy being one potential area of interest. Many neurodegenerative diseases, including Alzheimer's and Parkinson's diseases, are caused by malformed proteins. 

Big data and machine learning will also play a bigger part in the group’s future, says Ms Dunsire, pointing to the importance of understanding patient subgroups to predict responses to treatment and help counter placebo effects.

But at the moment she is unsure how any relationships with digital companies might play out. She notes that Lundbeck is much smaller than Novartis, which has made a big push into digital health lately. 

“We would probably go down the route of partnerships to get access to both the datasets and knowhow,” Mr Dunsire says. Whatever Lundbeck’s longer-term digital ambitions are, Ms Dunsire will need to deliver some sort of pharma deal soon.  

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