For Lundbeck’s acquisition strategy bad luck comes in threes

The failures of two bought-in assets leave a third hopelessly exposed to the Covid-19 lockdown.

Corporate strategy

It is admirable for a company like Lundbeck to have recognised the need to restock its drug development pipeline and turned to putting its cash pile to some serious acquisitions in an effort to remedy the problem.

Unfortunately, those acquisitions have fired blanks. Last week two assets that the Danish group had bought in bombed, in mid-stage trials against Tourette’s syndrome and Parkinson’s dyskinesia. And one bought-in drug that has been approved, the migraine product Vyepti, could end up being derailed by the Covid-19 pandemic.

Vyepti is one of Lundbeck’s most important assets, carrying an NPV of $1.1bn, as calculated from EvaluatePharma’s consensus of sellside analysts. Lundbeck acquired it when it was already awaiting registration, as part of last September’s $2bn takeover of Alder.

Lockdown

But a drug that has to be administered at the doctor’s surgery will surely struggle at a time when all but essential activities are on lockdown owing to the coronavirus pandemic. Sellside consensus sees Vyepti selling $41m this year and $124m in 2021, but Leerink has already slashed these to $6m and $78m respectively in light of Covid-19.

While this is clearly not the fault of Lundbeck, the company looks exposed, and its stock has fallen to a five-year low. Last week’s failures of Lu AG06466 and foliglurax will only have exacerbated the situation.

Lu AG06466, for Tourette’s disease, was acquired along with its originator, Abide Therapeutics, which Lundbeck had bought for $250m last May. On Friday the Danish group said Lu AG06466 flunked a phase II study, failing to beat placebo in terms of its primary measure, the Yale Global Tic Severity Scale.

Lundbeck says it will continue to investigate Lu AG06466 in other CNS disorders. But the failure, coming on the heels of that of Teva’s Austedo, leaves the industry pipeline in Tourette’s barren, with Otsuka’s Abilify and Therapix’s THX-110 practically the only remaining clinical projects.

Prexton write-off

Lundbeck’s Parkinson’s setback, meanwhile, related to foliglurax, which had been originated by Prexton, a company Lundbeck paid $100m to acquire in March 2018. Though this only had modest 2024 revenue forecasts – $14m, according to EvaluatePharma – its discontinuation caused Lundbeck to cut full-year earnings guidance as the group wrote off foliglurax’s $100m balance sheet value.

Foliglurax, an mGluR4 modulator, failed the phase II Ambled study, in which subjects’ off time was not significantly reduced versus placebo after four weeks. The absolute reductions, 16 and 26 minutes for two doses, came up well short of an 80-minute threshold. A separate phase II trial, Attuned, had been withdrawn for “business reasons” before starting recruitment.

As Lundbeck is a profitable business with firepower for more deals analysts see it being capable of deepening its pipeline further, though the current environment is anything but conducive to business development. Investors have to hope that after a triple whammy of bad luck the group’s fortunes change.

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