H. Lundbeck A/S (HLUNB) Earnings Call Transcript & Summary

[Interpreted] I'd like to welcome you to this year's Annual General Meeting on behalf of the Board of Lundbeck. As you all know, conditions are very different from what you saw. But still, we are holding the AGM to the benefit of our shareholders of the companies. Because as the Danish Prime Minister says, it is important to keep the wheels rolling at a time like this. That's why we fully support the initiatives and recommendations from the Danish authorities. At the moment, they're trying to reduce the spreading of the virus, put a number -- maximum number on the people who get together and there are rules on social distancing. So we have encouraged all shareholders to use the webcast for the AGM, and we're very pleased that people are doing that. As also mentioned in our letter to all of you registered shareholders, we want to help reduce the infection period and have a brief AGM. So we've decided that the Board's report on the company's activities and the year under review will not be given here at this meeting. But actually, it has been available, it has been published at the Lundbeck website since Thursday, the 19th of March. True to tradition, the AGM, you can watch that in Danish and English on our website. There is simultaneous interpretation here in the room. And when our CEO Deborah Dunsire speaks, there will also be simultaneous interpretation into Danish. And these versions will be available on our website both the Danish and the English version. Let me start by presenting the present Board of Directors of Lundbeck. You have them up here on the screen. But the other members are not present in the room today because of the situation. Thus, elected by the AGM in addition to myself are: Lene Skole-Sørensen, the Vice Chair; Jeremy Max Levin; Lars Erik Holmqvist; Jeffrey Berkowitz; and Henrik Andersen. And then we have employee-elected by the employees: Rikke Kruse Andreasen, Ludovic Tranholm Otterbein and Henrik Sindal Jensen. These are board members elected by the employees. And then we have the executive management. We only have the CEO, Deborah Dunsire, present in the room today. But we have Anders Götzsche, who is Executive Vice President, the CFO; Jacob Tolstrup, EVP, Commercial Operations; Lars Bang, EVP, Product Development & Supply; Peter Anastasiou, EVP for North America; Johan Luthman, EVP for R&D. He started in February '19, just before last year's AGM. Keld Flintholm Jørgensen, EVP, Corporate Strategy & Business Development. He started working for us in April '19. And Elise Hauge, she is the EVP for People & Communications. She started with us in September '19. So I'd like to start by thanking the executive management and all the employees at Lundbeck for their sterling effort and the excellent results achieved in '19. It's a very busy year with many big initiatives and projects. It's been a pleasure to see this development, to participate in strategic discussions about what direction to take the company. And I've been very pleased to cooperate with the new expanded executive management. There are 3 new members that joined the executive management in '19. We've asked Jørgen Kjergaard Madsen, attorney-at-law from Kromann Reumert, to act as our Chair of the meeting at this year's AGM. Over to you, please.

[Interpreted] Thank you. Thank you for choosing me for that. This is really extraordinary circumstances we have this year. And in many respects, that will be reflected in the proceedings here today. It's excellent to see that all shareholders have complied with our request and have not turned up here at the AGM in these premises. They are using the webcast, and we really appreciate that. And you know it's been possible to give a proxy and use your postal vote. So we are in compliance with authority requirements when it comes to reducing the risk of spreading the virus. We have representation here of about 81% of the voting capital. Normally, I have some practical comments for the shareholders turning up. I don't have to do that today. Just I can go straight to the formal elements. My first task is to ascertain that the AGM has been lawfully convened and can make decisions. First of all, the AGM must be held at the right place. That's in the capital region. That's 7.1 of the Articles, and we are there. So that's fine. And before the end of April, yes, we are okay. And the convening notice is minimum 3 weeks and maximum 5 weeks, and we are also in compliance with that because convening notices was on the 26th of February 2020. It was published on the company's website and by Nasdaq Copenhagen, and by e-mail to registered shareholders who have so asked. So the convening notices and the documents required under the Danish Companies Act and the Articles, they have been available since the 26th of February on the company website, so that is also in the required period prior to the AGM. The agenda is in accordance with the Articles of Association. There are no items on the agenda that require the presence of a specific number of shareholders or a specific part of the share capital. So on that basis, I take it that the AGM has been lawfully convened and can make decisions. And there wouldn't seem to be anyone commenting on that and being able to comment on that, so I hereby conclude that the AGM has been lawfully convened and can make decisions. Let me just take you through the items on the agenda. First of all, we have items 1 and 2, that's the Report from the Board of Directors on the company's activities and the year under review, and the presentation of the audited annual report for 2019 for adoption. Three, that's the appropriation of profit, so the decision on the appropriation of the profits of the year. Four, that's the election of members to the Board of Directors. Five, approval of the remuneration for the Board of Directors in the current financial year. Six is election of the state-authorized public accountants. And seven, that's proposals from the shareholders or the Board of Directors. I'll suggest that we hear back to those when we reach that item on our agenda. And as usual, we will finish with any other business, that is item 8. And I can tell you that because of the proxies and personal votes received, we do have the necessary majority to adopt all the motions, all the proposals made here at the AGM today. So items 1 and 2 on the agenda. As mentioned by the Chairman, then in order reduce the length of the AGM and the potential risk, it has been decided, as you understood, that the report of the Board of Directors was just the recent version. It was uploaded since last Thursday. You could see -- if you watch it, you can see it on the website and the annual report. Also, the annual report has been available since February. So it's an unqualified notice from the auditors. You can see that on Page 97 in the annual report, so no problems from the auditors. Now we have received an intervention from the Danish Shareholders Association, Michael Thøgersen, and I've been asked to read that out to you here at the AGM. So I'm going to do that now. It goes as follows, and it is from the Association of Danish Shareholders by Mr. Michael Thøgersen: "My name is Michael Thøgersen, I represent the Association of Danish Shareholders, and many of our members are probably shareholders in H. Lundbeck. I'm a great admirer of Lundbeck. There are massive challenges in the development of diseases in the central nervous system, and many of us have family or friends affected by Alzheimer's or Parkinson's disease. If you can solve the mystery of these disorders, the Nobel Prize should be waiting for you. 2018 was a record year with revenue of DKK 18.1 billion and a net profit of DKK 3.9 billion, so it's not surprising that we see a fall in 2019 with a revenue of DKK 17 billion and a net profit of DKK 3.6 billion. The dividend will be DKK 4.10, that is a significant fall compared to last year's dividend to DKK 12 per share, but that is understandable. It must be stated that certain products like Onfi are affected by the emergence of generic products in the market, probably at a much lower price. That is understandable. But Cipralex, which is categorized as a nonstrategic brand is, as far as I know, also meeting competition from generic products, but still showing revenue growth. Is there any particular reason for this, for instance, that patients stick to a medicine if it has proven to be effective? You've also carried out significant acquisitions of Abide Therapeutics and Alder BioPharmaceuticals, these have cost billions. I'm sure that the management of Lundbeck knows what it's doing, but allow me one question. Why are these companies being sold? Is it simply a matter of the price being too tempting for the previous owners? Or can Lundbeck add a synergy effect and how are the financial perspectives? A few years ago, I asked about Selincro, the first drug against alcohol abuse since Antabuse. Since the world population has hardly become total abstainers, I'm surprised that it's not mentioned at all. I have to ask about the coronavirus. It affects all companies. And I must ask you whether you are experiencing supplier problems or employees being quarantined. For a number of years, I've been pointing out that it is odd that there are members of the Board and management who do not possess any shares in Lundbeck, and we've never really gotten an answer. So I was very pleased when it came to my attention a year ago that Mrs. Deborah Dunsire, CEO of H. Lundbeck, had purchased shares for almost DKK 1 million. Mrs. Deborah Dunsire, I was really pleased to learn sometime last spring that you had purchased shares in H. Lundbeck for nearly DKK 1 million. This is a great signal to send to us ordinary small shareholders. I really appreciate it. Finally, let me just wish you all a good 2020." That was all from the Association of Danish Shareholders. Does Deborah Dunsire want to come back and comment on that presentation? The floor is yours.

Good day, everyone. Hello, everyone -- by webcast. We're very, very grateful to everybody who has abided by the Danish government's request to social distance and stay home. We do have a production ongoing on our site. And so we do try to minimize the number of people on site to protect those workers and be able to continue to produce the medicines that we serve over 7 million patients around the world with every day. So thank you for your questions. It's very much appreciated, the interest you have in our company and the support for Lundbeck. Addressing the question about Cipralex. Cipralex is an outstanding antidepressant medication. It has been off-patent for a number of years and has been exposed to significant generic competition. There are markets in the world where people are paying for the medication themselves. And as prices have reduced, they prefer the branded medication to the generic medication, and so choose to buy the brand. We also have a couple of markets in the world where the medication is still on patent, for instance, in Japan, and it is promoted in Japan by a partner, Mochida. So we do get some growth out of markets like that. In addition, in China, we took back the rights from a partner that had been promoting Cipralex. And so we gained somewhat more revenue by having taken Cipralex back into our own portfolio even though it is exposed to generic competition in China. So we're delighted to have brands that have served patients so well for so many years. And of course, Cipralex is one of those brands that we don't promote all around the world, but it is an important brand for many of our local companies. Moving to your question on Alder and Abide. You asked why were these companies being sold. Well, for different reasons. When I think about Abide, our scientists at Lundbeck had been interested in the mechanism of MAG lipase in the brain working on the endocannabinoid system for some time, and we've been working with academic labs on that particular pathway. We uncovered that the company Abide was working in a similar area and actually was more advanced than the work we were doing. So we were very interested in the work that was being done at Abide and began to have conversations with them. They were facing the need to refinance the company, and so it was a time where the shareholders of that company needed to make a decision whether to accept an offer to buy the company or raise money in the market. And so they chose to sell the company at that time. We gained a lot of synergy because we can work with the scientists at Abide and bring those medicines forward to patients in a way that a small company could not. With respect to Alder BioPharmaceuticals, there, that company had brought eptinezumab to an FDA submission and were also facing the need to build significantly the resources in the company with field forces that would've required an increase in spending, so they would have had to refinance the company also. Initially, they were not interested in being acquired, so we were negotiating European rights with them. But ultimately, we were able to put forward an offer that the shareholders accepted for acquisition of the entire company. The synergy for us with eptinezumab is that we have the global reach to be able to launch that product in chronic migraine prevention as well as develop it in other indications. So with the scale of Lundbeck and the global reach, we can gain more from that product than Alder BioPharmaceuticals would have been able to do alone. So that's the background to those 2 acquisitions. You asked about another product that has been very -- had a very important benefit for patients who were facing alcohol craving and who were abusing alcohol. This product did show success in its clinical trials. Unfortunately, in the marketplace, when it was launched, the product was only indicated when the patient chose to take it. It was not to be used every single day. And that was a difficult message for physicians and patients to understand. And so the product did not get the uptake, other than particularly in France, where we still sell Selincro and it is a reasonable business. It is a good product that can serve patients, but unfortunately, the way it was indicated to be taken left people a little confused and so didn't get the uptake in the market that we had hoped. Moving on to your question regarding the coronavirus. We're very grateful that -- to our employees in our production sites, both in Lumsaas, in Valby, in Padua in Italy, and in Valbonne in France, who continue to work making and packaging and shipping the medicines that we make around the world. So far, all of our production facilities are able to keep working. Obviously, we have reduced staff as much as possible, and we've reduced all office-based staff at our Valby location to working from home so that we reduce the density on our site to protect our ability to continue to produce medicines. We are so grateful to those workers who have continued to come in day after day to make sure those medicines are produced. In our employee base, we have had a couple of people who have been quarantined, basically being exposed to people who've returned from Northern Italy or had an infection after a ski vacation. But so far, all our employees are healthy. In China, we certainly saw an impact of all our employees being at home from approximately January 24 all the way through March 2. We do have our office back working, 50% of the employees are back in the office each day, again, to reduce density. And our representatives are beginning to be able to make appointments with physicians, but clearly not fully back to normal as yet. Around the world, we're following the guidelines of authorities in social distancing or working from home to support the efforts to contain the coronavirus. And I think I'll stop there. Thank you, again, for your interest in Lundbeck.

[Interpreted] Thank you. There are no further questions or comments. So the report from the Board of Directors, the AGM has taken note of that and the annual report has been adopted. Item 3 of the agenda, that's the resolution on the appropriation of the profit of the year. 31% will be paid out as dividend, DKK 4.10 per share. That's all in all DKK 816 million. There are no questions or comments concerning that item either. So that has been duly adopted. That brings us to item 4, that's the election of members to the Board of Directors, and I give the floor to the Chairman, Lars Rasmussen.

[Interpreted] The Board of Directors, as mentioned, consists of 9 members, 6 of them elected by the AGM and reelected every 4 years by the Danish employees of the group. As mentioned before, 2019 was a busy year for Lundbeck. It also meant a busy year for the Board. The launch of the new strategy in February and the subsequent implementation and the 2 acquisitions that were made have meant that the Board got together 11 times in the year under review. One of them was a 2-day seminar, the strategy seminar. Every year, the Board carries out self-evaluation to assess strengths and weaknesses, the cooperation of the Board and cooperation with the executive management, the composition of the committees and the work of the committees and other elements. In 2019, the evaluation was made with the assistance of a third party assisting the Board with the process and with reviewing the outcome. The evaluation was made in that all Board members and executive management members filled in -- completed a detailed questionnaire, and then there were individual follow-up interviews with the external consultant. The evaluation showed a great satisfaction with the cooperation and the interaction between executive management and Board. It's open, transparent, constructive and involving this corporation. The result also showed great satisfaction with the competencies and composition of the Board and management. We made adjustments in recent years to adapt to the needs of the company, so the composition is deemed to be appropriate to implement the strategy and take the company into the future. A lot of satisfaction was also expressed with the adjustment of competencies and the work of the 3 committees. We have the Remuneration & Nomination Committee, we have the Audit Committee, and we have the Scientific Committee. The Board is not proposing any changes to the composition at this year's AGM. The Board finds that the proposed candidates together possess the necessary technical and international experience to ensure that the company can have a position as a leading global pharmaceutical company, focusing on research and development in regard to brain diseases. The Board also finds that the size of the Board is appropriate, seen in light of the company's needs and the ambition to have a constructive debate and an efficient and effective decision-making process. The competencies of the individual members are proposed and explained in the convening notices. If the candidates proposed are related, 4 of the 6 will be independent. Lene Skole and Lars Holmqvist are not considered because they do work for the Lundbeck Foundation. The other proposed candidates are deemed to be independent. So back again to Jørgen Kjergaard Madsen for the final approval of the new Board of Directors.

[Interpreted] Thank you. And there have been no other proposals made. So the Board of Directors have been reelected. Lars Rasmussen, Lene Skole-Sørensen, Lars Erik Holmqvist, Jeffrey Berkowitz, Henrik Andersen and Jeremy Max Levin have been duly reelected. Congratulations. That brings us to the next item on our agenda. That is item 5. This is the matter of approval of the remuneration for the Board of Directors for the current financial year. Over again to the Chairman, Lars Rasmussen.

[Interpreted] The remuneration of the Board was increased most recently in 2017, 3 years ago. The Board is proposing that the level should be adjusted in accordance with general increases since 2017, should be at a level so we can attract and retain relevant competencies with adequate international experience, the people that can help us implement our business strategy and raise our overall goal. The Board is proposing a basic fee of DKK 400,000 and that the addition for our Board members residing permanently outside Europe should also be DKK 400,000. The Chair of the Board receives 3x the basic fee. The Vice Chair receives twice the basic fee. And the Board proposes that the fee for participation and committee work will not be changed. Before we make this adjustment, let me say that Lundbeck is below the average of the C25 companies. When the adjustment is made, the company will be more or less on par with the C25 companies in Denmark. Back to the Chairman of the meeting, Jørgen Kjergaard Madsen.

[Interpreted] Thank you. No questions or comments have been received concerning this item. So the proposal has been duly adopted. That brings us to item 6 on the agenda. That's the election of an auditor, a public accountant. And the proposal here is to elect PricewaterhouseCoopers as the public accountant for the financial year. It's in accordance with the recommendation from the Audit Committee to the Board. And there are no other proposals, so they have been duly elected. PricewaterhouseCoopers state-authorized public accountants shall be auditors for the company. That brings us to item 7 on the agenda, and those are then the proposals from the Board. And under this particular item 7, adoption of the items 7.3 and 7.4. They do require 2/3 of the votes cast and 2/3 of the voting capital present at the AGM, while the other proposals only require a simple majority. So the first item 7.1 is a kind of a repeat, if you like, it's always on the agenda. It's an authorization to the Board allowing the company to acquire treasury shares up to a limit of 10%. No questions or comments concerning that. So that has also been duly adopted. That brings us to 7.2. That is the adoption of a new remuneration policy for the Board of Directors and the executive management. Over again to the Chairman, Lars Rasmussen, who will take us through this item.

[Interpreted] Lundbeck's remuneration policy describes the principles and the framework for the overall pay of Board members and executive management members. A competitive remuneration is necessary to be able to attract and retain and motivate competent members of the executive management and Board of Directors. Compensation principles are to ensure that we have the same -- that the executive management has the same interest as the shareholders. We want to obviously comply with the changed regulation of the Danish Companies Act and also this European Union directive concerning shareholder rights concerning the pay of executive management. So we have a more transparent description of these components of the pay and how it can contribute to the long-term growth, the sustainability of the company. We have a short-term program, that this is what I call short-term incentives or STIs, and we have long-term programs, LTIs, long term incentives. These are linked to our financial results to ensure we have a solid financial focus that will contribute to an even stronger Lundbeck going forward. The policy also contains more specific events relating to future engagement, retention and compensation to ensure that Lundbeck can remain competitive when it comes to attracting and retaining competent staff members at the executive management level also. The proposed limits for variable pay, that's the STIs and the LTIs, are in accordance with Lundbeck's existing guidelines for remuneration. And any future changes of the existing program design, that will require a change of the policy and approval by the AGM. The remuneration for our Board of Directors and the executive management are in full compliance with the policy. Further details concerning the remuneration for the Board members and the executive management members you can find in our annual remuneration report also published on the Lundbeck website. So the Board is thus proposing that the current principles be replaced by the new remuneration policy. Over to the Chairman of the meeting.

[Interpreted] Thank you very much. And again, I can note that there are no comments or questions for that item. And again, I establish that the proposal is adopted. I'll move on to the item 7.3. This is an authorization for the Board of Directors to increase the share capital of up to nominally DKK 100 million. We have not received any remarks or questions for that item either, and therefore, I can note that the proposal has been adopted. That leads me to item 7.4, a proposal to amend the standard agenda for the Annual General Meeting to include an advisory vote on approval of the remuneration report. So this is a formal but also very practical item on the agenda. We have not received any comments or questions. Therefore, I can again note that the proposal is adopted. That leads me to item 7.5 on the agenda. Again, this is a reoccurring practical item on the agenda, where we authorize the Chairman of the Annual General Meeting to make such amendments in additions to the resolutions passed by the AGM as may be required by the Danish Business Authority. We have again not received any comments or objections, so I can note that the proposal is adopted. That leads me to item 8 on our agenda, the final item on the agenda, any other business. Here, we have not received any requests for questions or remarks. And therefore, I can conclude that we have exhausted our agenda, and it is only time for me to thank you for an exceptionally well-behaved AGM this year, and I pass the floor back to our Chairman to round off the AGM.

[Interpreted] Thank you very much, Jørgen. I would like to thank you for this year's Annual General Meeting. And not least, I would like to thank all of you for following our plea to watch the AGM from home. I'm already looking forward to our AGM next year, which will take place on the 23rd of March 2021, because I'm sure we will be having an AGM just as we normally do. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]