Lundbeck is a Danish laboratory specializing in the treatment of psychiatric and neurological disorders. The group has an international presence and a solid portfolio of drugs already on the market and in development.
Hans Lundbeck, the company's founder in 1915, started out as a trader supplying a variety of products, including photographic equipment and aluminum foil machines. The turn towards the pharmaceutical market came later, with the start of imports of medicines and cosmetics: Lundbeck then began to produce its own medicines.
Today, Lundbeck is an internationally active pharmaceutical company. The company generates half its sales in the United States, a quarter in Europe and a quarter in the rest of the world, notably Brazil, Mexico, Canada and Australia.
The majority of sales (70%) are generated by "strategic brands":
- Abilify Maintena / Abilify Asimtufii: a monthly intramuscular injection for the treatment of schizophrenia and bipolar disorder in adults (16% of sales)
- Brintellix / Trintellix: for the relief of major depressive disorder (22%)
- Rexulti / Rxulti: indicated as adjunctive therapy in adults suffering from major mental disorders, schizophrenia or agitation associated with dementia due to Alzheimer's disease (23%)
- Vyepti: a preventive treatment for migraine (8%).
The remainder of sales are generated by brands that are already mature or have fallen into the public domain. These include Cipralex and Lexapro (11% of sales), for the treatment of depression. There are also prescriptions for hypotension, epilepsy, Parkinson's disease, chorea, psychosis and more.
All in all, Lundbeck generates sales of DKK 41.5 billion (around USD 5.9 billion), with margins well above 10%. However, long-term growth is modest. Too modest to convince investors. As a result, the stock is trading at levels equivalent to those it had 20 years ago... This is all the sadder for shareholders, as the stock has been falling since its 2017 highs, despite a few short-lived surges.
Nevertheless, Lundbeck has a well-advanced pipeline of potential new drugs, with three in the launch phase, two in phase 3 clinical trials (the last phase before filing a marketing application), two in phase 2 and four in phase 1.
The pipeline is not an advantage in itself: all laboratories have to prepare for the future, and clinical failures can occur. R&D costs represent less than 20% of annual sales: this is standard in the sector.
This year, growth is expected to be strong. Our strategic brands reported good sales figures for the first nine months of the year. Lundbeck raised its expectations, which has been rather rare in recent years.
On the balance sheet, things are also reassuring: the Dane has a very healthy cash position of DKK 4bn (around USD 568m). This situation makes it possible to make acquisitions - rare though they may be - such as the $2.6 billion purchase of Longboard this year. Longboard specializes in neurology, and its flagship drug is in phase 3 clinical trials for rare and severe epilepsy. In these indications, there are currently few valid therapeutic options.
If we broaden the spectrum over the next few years, Lundbeck hopes to accelerate sales in Asia, particularly China, where needs are colossal. Priority is given to Vyepti (for migraine), which should be on sale in the country within one or two years.
Clearly, Lundbeck's prospects and business model are not the stuff of dreams. Margins are well below those of other major European pharmaceutical companies. Even so, the company's valuation is particularly low given its prospects, even if it is in line with its average since the pandemic: less than 14 times for this year, 12 times next year... This year, Lundbeck is targeting sales growth of between 12% and 14% and adjusted EBITDA growth of between 17% and 20%. These good prospects are accompanied by structural changes: the management team has been renewed almost in its entirety, starting in 2021.
Without wishing to look for the low point on the chart, Lundbeck's valuation today is fairly low in relation to its prospects, which are better than usual. A rebound of the stock cannot be ruled out, even if its performance has not been negative since the beginning of the year.
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