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

Ladies and gentlemen, welcome to the H. Lundbeck Q2 2020 Conference Call. [Operator Instructions] Today, I'm pleased to present Deborah Dunsire, the President and CEO; Anders Götzsche, the Executive Vice President and CFO; and Johan Luthman, Executive Vice President of Research and Development. Speakers, please begin.

Thank you very much, operator, and thank you all for your interest in Lundbeck. We want to welcome you to this teleconference covering our financial report for the first half of 2020. As you've heard, together with me are Anders Götzsche and Johan Luthman, but I'm also joined by Jacob Tolstrup, Head of Commercial Operations; and calling in from Chicago, Peter Anastasiou, Head of North America. On Slide 2, you can see the company's disclaimer and I know you've read it many times before. So I'm not reading it out. I'm sure you'll be glad to hear. On Slide 3, the first thing I want to say is something I already said last quarter, I am very proud of the way Lundbeck employees have responded to the immense challenges of the COVID-19 pandemic. They continue to put patients first, while embracing and delivering on our Expand and Invest to Grow strategy. The pandemic has affected the delivery of health care in many, many ways. In the first quarter, we saw major discontinuity. Physician patient interactions were severely interrupted as people sheltered in place and health care providers' capacity was redirected. Our market-facing employees were also completely out of the field. We saw people stocking up on medicines across all parts of the chain from patients in their homes to the distributors. As the situation has slowly begun to return to somewhat normal in the second quarter, we've seen the stocking effects unwind. Overall, I would say that the first half in totality is a more balanced reflection of the underlying performance of the business than either quarter alone. We're pleased with the development of the business in the light of the challenges delivering overall growth in revenue of 5%. Our strategic brands continue to show remarkably strong growth, both in volume and value across all regions. In total, our strategic brands grew by 25% and now constitute 60% of our revenue. In April, Vyepti was launched in the U.S. As you can imagine, that launch needed to be significantly adapted given the pandemic limiting patients' abilities to see their physicians. Even though, we have seen patients treated and they have had very good responses. We're acutely aware that 2020 is a year with more than usual uncertainty. But in the first half, the business has delivered solid performance in the market, and costs have come down, given the inability to conduct business in the normal way. Anders will elaborate on the financials in detail, but I will simply state that we are reaffirming our revenue guidance and upgrading our EBIT guidance. With that, please turn to Slide 4. Front and center for all of us in the first half has been the impact on all aspects of life from COVID-19. Our priorities at Lundbeck have been and will remain preserving the health and safety of our employees, as well as continuing to supply all our medicines to the millions of patients around the world who depend on us. We've successfully implemented and embraced new ways of working, switching to virtual interactions internally and externally around the world. The COVID pandemic continues to impact clinical activities, and we're -- while we're seeing some sites opening again slowly in the last week, it is still affected, and Johan will elaborate on this in a few minutes. Currently, we have not observed a meaningful impact to our business from increased unemployment, but we don't yet know the longer-term implications if unemployment remains at elevated levels and a significant number of patients lose their commercial health insurance, particularly in the United States. We know that this continues to be a fluid and rapidly changing situation in different countries and regions, and we'll continue to adapt our work to local needs to best drive the business as we have done successfully in the first half. Next slide, please. Our 5 major strategic brands generated substantial growth, up 25% in aggregate, adding more than DKK 1 billion in sales compared to the same period last year. There's healthy volume growth for all our strategic brands. These growth products constitute 60% of Lundbeck sales. I'm going to touch on each of them individually but overall, we expect these strategic brands to continue their double-digit growth in 2020, a testament to the value these products provide as well as to the excellence in execution by our organization around the world. Next slide, please. Starting with Brintellix/Trintellix, the revenue has reached DKK 1.6 billion in the first half of 2020, a growth of 21%. If we only look at the second quarter, the reduced promotional activity, combined with destocking in the retail channel, has muted the growth versus what was seen in Q1. Beginning in mid-March, COVID-19 significantly reduced patient visits to health care providers across psychiatry and primary care, and that's impacted new prescriptions as the health care providers are most comfortable starting a new patient on medication or changing an existing patient’s medication when they can see the person face-to-face. This has led to a flattening or even slight reduction in total prescriptions for major depressive disorder medications in the first half when compared to the end of last year. I will note, though, that the product continues to increase its market share, and we're confident that we'll see continued solid demand growth driven by an increase in new patients as well as improved persistence on therapy in the balance of the year. Next slide, please. Rexulti is still mainly a U.S. franchise, although we are planning additional launches throughout 2020. The brand achieved close to DKK 1.4 billion in sales for the period and that represents an impressive growth of 35%, particularly impressive given this is its fifth year in the market. The main driver of growth is increased volume demand in the U.S. major depressive disorder market. Next slide, please. Northera grew 19%, finishing the period just above DKK 1.2 billion. We continue to expect good volume and value growth for this product in 2020. Next slide, please. Abilify Maintena, which was launched in 2013, grew by 24% to close to DKK 1.2 billion. In many markets, Abilify Maintena is the second most prescribed long-acting injectable treatment for patients with schizophrenia. In the U.K., it is actually the most prescribed brand and in the Nordics, it ties for first position. We continue to see solid growth in the overall LAI market, and Abilify Maintena maintains its 19% market share. Next slide, please. As you know, we filled the first orders and infused the first patient with Vyepti in April. It's very clear that the pandemic has significantly limited patients' ability to receive infusion products across all categories. Additionally, normal launch promotional activities could not happen during the shelter in place. The revenue for Vyepti is therefore, not surprisingly, below our original expectation. With that said, we are very encouraged with how the product is delivering for patients. Based on early feedback from both patients and their health care providers, Vyepti is fully delivering on its fast, powerful and sustained promise. We do see good progress in the number of practices ordering vials. 80% of the accounts purchasing are buy-and-bill for Vyepti, which is consistent with our internal expectations. We're encouraged to see that accounts that are high-volume anti-CGRP writers but who do not choose to buy-and-bill are able to refer to infusion centers when they prescribe Vyepti. On the market access side, we've made strong progress in obtaining coverage in both regional and national plans. Last week, the seventh largest plan, the federal employee program, issued their policy for Vyepti, and we now have access to more than 100 million patient lives without needing to go through a branded step edit. I'll now hand the microphone over to Johan Luthman to comment on the R&D effort.

Thank you, Deborah. Please turn to Slide 11. The disruptions from COVID-19 impact our portfolio differently in different programs and regions. The broad life cycle management program on brexpiprazole is heavily affected, though we are now beginning to be able to recruit patients in these trials again. In particular, the Phase III study in agitation in Alzheimer's disease is impacted as a significant part of the patients enrolled are institutionalized and recruit most patients from the United States. The time lines for our trials will be reassessed once this situation stabilizes. But the situation is improving as restrictions are being lifted. We have been able to initiate the delivery study with Vyepti and the VIVRE study with vortioxetine, and our early programs are also starting to show good momentum. Importantly, for Vyepti, we will substantially enlarge the R&D effort, including several indication expansion studies. The first new indication will be a Phase III study in cluster headache with some 300 individuals that is planned to start later this year. Vyepti has also been submitted for approval in 6 countries during the quarter, which makes a total of 7 submissions beyond the U.S. for Vyepti so far. The Canada submission previous quarter. In our early development stage portfolio, I'd like to mention that the lead campaign in our MAGLipase program is planned to enter into 4 new Phase Ib studies from late 2020 and into the beginning of 2021. Additionally, we have recently started Phase I with the second program from this platform. Finally, I'd like to remind you of our communication last week of an early termination of the proof-of-concept study with the PDE10 inhibitor, AF11167 in negative symptoms of schizophrenia based on hitting the fertility boundaries in an interim analysis. Next slide, please. All medical conferences since March this year has been virtual and American Headache Society conference in June, we had several poster session, including 1 demonstrating subgroup data in patients with medication overuse headache. Medication overuse headache usually coexists with chronic migraine or chronic tension type headache, and it's most often associated with overuse of medications to treat acute migraine attacks. Of the 1,072 patients in PROMISE 2, 431 patients equivalent to about 40%, had a dual diagnosis of chronic migraine and medication overuse headache at screening. In patients with medication overuse headache, Vyepti 100-milligram and 300-milligram demonstrated a similar reduction in days of treatment use over 24 weeks of treatment, which was greater than the reduction observed with placebo. Vyepti reduced mean days acute headache medication use, including triptans specifically, by around 50% over weeks 1 to 12 in patients with chronic migraine and medication overuse headache compared with about 25% with placebo. And results sustained with further decrease at weeks 13 to 24. Next slide, please. The Relief study Vyepti has finalized recruitment approximately 2 months ahead of time. The study was initiated in November last year in order to characterize the profile of Vyepti in more detail in the first 24 hours after infusion and to underscore its fast onset of action. The study has enrolled 485 individuals with migraine or eligible for preventive medication. The co-primary endpoint is to evaluate the effect of Vyepti compared to placebo with respect to time to headache pain freedom and time to absence of most bothersome symptoms during the current migraine. Included as key secondary endpoints are patients achieving freedom from pain and absent of most bothersome symptoms measured 2 hours after initiation of treatment. We expect to see headline data during the second half of this year. Next slide. In June, we have also managed to initiate the delivery study, the Phase IIIb study for European market access. The purpose of this study is to evaluate Vyepti in the prevention of migraine patients whose treatment with other preventive therapies has been unsuccessful. The patient must have documented evidence of treatment failure in the past 10 years of 2 to 4 different migraine preventive medications and to have a history of either previous or active use of triptans for migraine. The study is planned to recruit around 840 individuals. With that, I turn over the presentation to Anders for a financial update.

Thanks, Johan, and please turn to Slide 15. Lundbeck's strategic brands have shown very robust double-digit growth for several years now. The compounded growth for the past 6 years shows an impressive 90% growth. Further, the compounded growth for the total revenue has been 4% for the last 6 years, also supported by a 5% growth in the first half of 2020. It's important to highlight that there has been no disruption in the supply chain or in the production, which has secured that patients have had availability and access to their medicine. Please turn to the next slide. We have seen a 5% growth in net sales in the first half, driven by the resilient Lundbeck product portfolio. Please recall that in the first quarter, we showed 8% growth benefiting from stocking and slightly increased demand and in the second quarter, we realized 3% as the positive stocking effect have been washed out. Cost of sales increased by 5%, which is in line with the revenue growth and the gross margin is, therefore, unchanged at 80.7%. In the gross margin is included amortization of product rights, which was DKK 560 million for the period compared to DKK 424 million in the same period last year. SG&A costs for the period were the DKK 3.4 billion compared to DKK 3 billion in 2019. The SG&A ratio for the period was, therefore, 37.8% compared to 35.8% for the same period last year. The increase is mainly due to investments in the commercial organization in the U.S., China and Japan to support the continued growth of Brintellix, Trintellix and Vyepti. Research and development costs increased to DKK 2.7 billion for the period. R&D costs are impacted by increased clinical activity for Vyepti, costs related to the impairment of foliglurax around DKK 800 million, as announced in March 2020. R&D restructuring costs related to the changes in the R&D organization announced in June this year. Adjusted for the impairment of Rexulti -- or foliglurax and the restructuring cost, the R&D ratio was 20.6%. Core EBIT reached DKK 2.5 billion, and the core EBIT margin faced a modest decline from 32.2% to 27.8%. It should be mentioned that the COVID-19 pandemic has also impacted the company's cost spend, which has led to a reduced operational cost of 6% to 7% compared to our expectations. The effective tax rate for the quarter is heavily impacted by the foliglurax impairment. Focusing on the core tax rate, it's actually declined to 17.5%. Finally, our net financials have benefited from a reevaluation of Lundbeck's shares in the biotech company, Imara, due to the company's U.S. IPO. Core earnings per share reached DKK 10.3 per share. Please turn to Slide 17. In North America, we are very pleased with the continued strong growth of 26% for our strategic brands, which now constitute more than 80% of the revenue. The strong growth of the strategic brands led to a total revenue growth of 5% for the first half of 2020. International markets increased 11%, reaching DKK 2.2 billion or 25% of our total revenue. This region is still in the early part of the rollout of our strategic brands, which showed a growth of 26%. We expect significant long-term growth for these products in the region. Despite continued pressure on prices in China, we also continue to see growth in this important market. Europe is delivering solid growth with revenue increasing 4% to almost DKK 1.7 billion. The main driver is volume growth, which to some extent has been offset by destocking and slightly reduced demand in the second quarter. The European region had strong growth, mainly driven by our strategic brands, which grew 20% and now constitute more than 58% of sales in the region. Please turn to the next slide. As you can see from the slide, free cash flow was solid and grew versus last year. On the right part of the chart, you can see that the acquisition we made last year increased the net debt, which was at DKK 6 billion at the end of June but the net debt-to-EBITDA is still at a healthy level of 1.3x. We expect net debt to be in a range of DKK 5.5 billion to DKK 6 billion at the end of 2020. Please turn to the next slide. Based on the solid performance in the first half, we today have confirmed the revenue guidance that we provided in May, with the expected growth in revenue of 2% to 6%, corresponding to a revenue range of DKK 17.4 billion to DKK 18 billion. We expect continued growth for our strategic brands, which will more than offset the impact from the continued generic erosion on our mature portfolio. Included in the reported revenue is hedging, which for the whole of 2020 is expected to be a loss of DKK 100 million to DKK 150 million. It is important to highlight that following the coronavirus outbreak, Lundbeck continues to see increased uncertainty for the remaining part of 2020. The financial guidance for EBITDA, core EBIT and reported EBIT for the year has been increased due to the one-off cost savings mainly within promotion activities and travel spend as a consequence of the COVID-19 pandemic. Core EBIT is expected to reach a range of DKK 3.90 billion to DKK 4.3 billion, which is a margin of at least 22%. Reported EBIT is expected to reach between DKK 1.8 billion and DKK 2.2 billion for 2020. For the full year, you should expect financial items to be a net expense of DKK 100 million to DKK 200 million, depending on currency development. Now I will hand over to Deborah for the final remarks.

Thanks, Anders. Please turn to Slide 19. Lundbeck continues our long-standing commitment to serve societal needs where we can make a difference as we focus on supporting the UN sustainable development goals. We support societal needs in multiple ways in our business but most recently have added support to patients and communities with respect to COVID-19. We're also proud to sign on to the AMR Action Fund, a $1 billion fund raised by 20 pharmaceutical companies, partnered together with WHO and some other agencies with a goal to create 2 to 4 new antibiotics by 2030 to address the rising threat of antimicrobial resistance. While we're not directly involved in antibiotic research, we view it as a societal obligation to join this initiative. Since antimicrobial resistant bacteria pose a rising and unmitigated threat to health worldwide. Lundbeck is committed to achieving 0 carbon economy and setting science based targets. In May, Lundbeck joined with more than 150 global corporations to encourage governments around the world to align their COVID-19 economic aid and recovery efforts with ambitious climate action. This initiative amplifies our participation in the global movement, business ambition for 1.5 degrees C where companies align their business actions with the Paris agreement. Lundbeck's actions to reduce energy consumption and CO2 emission by optimizing our facilities and replacing conventional fuel with biofuels continues. In the next wave, we will extend our goals to include emission reduction from our entire value chain. These so-called scope 3 emissions represent the largest proportion of our total climate impact as a company. Next slide, please. It has been a very busy period, rather an understatement. And I'm sure that the rest of 2020 will continue to challenge our creativity and resilience as we work to mitigate the effects of COVID-19, continue the phased launch of Vyepti in the U.S. and drive our current business forward as we continue to execute on our Expand and Invest to Grow strategy. With the strength of our organization and the momentum of our growth brands, Lundbeck will continue to be a robust and sustainable company in the months and years ahead. The outstanding operating results over the past years give us a strong financial foundation to continue to drive our Expand and Invest to Grow strategy and deliver a sustainable company into the decades to come as we focus on restoring brain health so every person can be their best. With that, I would like to thank you for your interest and open up the Q&A session. Operator?

[Operator Instructions] And our first question comes from the line of Trung Huynh of Crédit Suisse.

Trung Huynh from Crédit Suisse. I've got 3, if I can. First, you upped your core EBIT guidance on the cost savings from the pandemic. But next year, could you give us some help about your costs? You continue to invest in Vyepti to make it a global brand, you're still very much active in R&D [indiscernible] 2021 core EBIT on 2020. My second question is on China growth, that seems to be doing quite well. But perhaps could I get your thoughts on the impact of BPD next year? We see that Lexapro and Ebixa on the BPD list, what impact could this have for '21? And then finally, just a modeling question. The level of other revenue was impacted by a one-off this quarter. Do you have a guide for the second half of the year? And how should we think about this going forward?

Thanks a lot. An easy 1 for me. I'm handing over the EBIT question to Anders, along with the modeling on other revenue, and Jacob will take the China question. Do you want to start to Jacob.

So Trung, thanks for the question. You're absolutely right. So new policy for the BPD, the third around has been announced, where Ebixa is included also Cipramil, and there's still some uncertainties here. What we try to model after is what we've seen in the past and the further policies will come out later with the time line of, you could say, bidding and announcement towards the end of this year in November. Cipramil is a fairly small product for us in China, and it's handled by Xian Janssen. So the impact that we will have potentially is on Ebixa. Ebixa is our second biggest product in China. So there will be an impact. How large, how much to quantify that, I don't think I will do that on this call, but there will be an expected impact on Ebixa that we would have to account for next year.

Sorry, can you remind me how big China sales are for Ebixa?

I don't think we have spelled it out. Overall, China is around DKK 1 billion in sales to give you that. And then remember, it's a broad portfolio in China where we promote all our brands. So that's both the Cipralex and Lexapro in China. It is the [indiscernible] handled by CMS. It's Ebixa, it's Cipramil, and then it's [indiscernible] and Trintellix. And out of those, Ebixa is the second biggest product today in China. But I don't think we have -- we spelled it out.

And Trung, you asked about other revenue about one-offs. I don't think there is any kind of one-offs in other revenue. What we have said is that compared to when we started the year, we anticipate it to be a bit lower than beginning of the year due to that some of the contracts we have with external supply has been more muted so we anticipate it will be a bit lower. And compared to cost, it was difficult to hear all that you were falling out from the line. But regards to '21, it goes without saying that we will, as Johan alluded to, we will continue to invest in Vyepti. And that will, of course, be part of R&D cost next year with additional indications. And then we will, hopefully, in the end of '21 get approval for Europe. And then we will start the prelaunch activity for Vyepti. And then during '21, we will also hopefully launch in some countries with Vyepti, which will, of course, increase cost.

The guidance will only be given in February.

Our next question comes from the line of Wimal Kapadia of Bernstein.

Wimal Kapadia from Bernstein. Could I just firstly just push a little bit more on Rexulti in Alzheimer's agitation in the trial there. So firstly, just to confirm that the trial has restarted? And then secondly, as you said you are reassessing time lines, any comments on whether Lundbeck plans to use the statistical modeling to maintain the 1H '21 time line? Or could the data actually be delayed in the second half or beyond? And my second question is just on OpEx. And the DKK 2 billion incremental spend for older in 2020? I guess just some context on whether we still expect that DKK 2 billion to be in 2020? Or could we see a delay to some of that spend occurs in 2021? So any color there would be great. And then the final question is just on Vyepti coverage. Thank you very much for the details on the greater than 100 million lives accessed without a need to step through a branded product. But just to confirm, do you actually have greater access with step restrictions? And then just any comments on how you expect that access to evolve would be great.

Perhaps we'll start with the Rexulti AAD trial, and Johan can talk about that.

There are kind of 2 parts of the question, the model impact. But let me mention on the execution of it a little bit. So obviously, this is, as I said, the U.S. study, primarily, we have sites out by the U.S. and obviously, when you run these trials, you have sites that are heavily affected right now is in dementia and institutionalized people. So people that are really very much affected by the COVID-19 pandemics, which means that it's almost impossible to predict how the trial will progress. You're correct, the trial has restarted. Many sites are open, but the amount of enrollment will be very, very hard to predict going forward. It's a very fluid situation. So we cannot comment on time lines for the study right now.

Yes. I think all sites that may be open may need to pause if COVID-19 in their particular local area flares up again, and we've certainly seen some of that. With respect to the guidance we had given on investment behind Vyepti, I think that we've seen savings in the first half, and we've recognized those in upgrading our EBIT guidance. We hope that we'll be able to invest everything we thought we could in the second half if the world opens up, and we can make those -- the type of investments but we will see it continue into 2021, and there are other regions that might launch. So we could see slight increases in 2021. For the coverage question, I'm going to hand it over to Peter to give you more color.

Yes. Wimal, thanks for the questions. Yes. In terms of -- I heard you mostly want to focus in on what steps are involved. So just like most highly generic markets, there are generic steps that most plans have in place, 1 or 2 generic steps of some of the older preventatives like beta blockers, old antidepressants, et cetera. That's not unusual. We see that in the antidepressive market. We see that in the antipsychotic market. But importantly, those more than 100 million covered lives that have no branded steps is very important. And that's what we've mostly been working towards is to avoid the branded steps. And so far, of course, there's -- not all plans have made their coverage decisions. It's a fluid process. Every day, more and more plans are making decisions. But so far, we've been pleased with the progress that we've made in terms of getting a significant number of patient lives that don't require any branded steps.

I think the Wimal's question went on to say, is there further access with some branded step edits. And Peter, I think it's true to say that there are a couple of plans where there are branded step edits.

Yes. Yes. Exactly.

One thing we should clarify is the J code situation, Peter?

Yes. We were guiding that it could take up to a year for the J code. The CMS did roll out a new process, but because it was so new, we weren't sure that it would materialize as advertised, but we're very pleased that it did. And so in July, we were notified that the J code has been issued, but it will not take effect until October 1. But that's certainly something that has happened ahead of where we had guided in the past.

Our next question comes from the line of James Gordon of JPMorgan.

This is James Gordon from JPMorgan. First question was just about COVID-19 pressures and the pace at which they bake. When we look at Trintellix, it looks like there was a bit more of a deceleration observed for this product than some other products, the outpatient products, even like Rexulti. I think maybe it seems like that sales reps haven't been interacting with doctors, so there hasn't been much promotion going on. Are those issues all resolved? And do you think you're going to see a rapid acceleration to the Trintellix now going into Q3? Or could it take a while for Trintellix to get back to normal? And maybe more generally on COVID pressures. So cost savings, you made some cost savings because of COVID-19. It looks like maybe it looks like some DKK 400 million is going to be the total saving. That's how much EBIT guidance has gone up by. Have you had all of that benefit already in Q2? Or is there still a bit more cost savings to help you in the second half as well, like maybe another DKK 100 million? So that was the first question, please. And the second question was a little bit further out. So just more generally for 2021 so it's good that you'll not have the COVID-19 pressures, but you are going to have [indiscernible] probably and some more back to launch costs. So just how to think bigger picture about 2021? Is it likely to be a growth year or is it more of like a sort of transition year and an investment year when we think about the core EBIT level before sort of returning to growth in 2022?

So I think Peter will start on discussing Trintellix and the COVID-19 pressures. Anders will take the cost savings, and I'll take this the last.

James, thanks for the question. Yes. So you compared Trintellix and Rexulti, for example. And the dynamics there are different. So Rexulti is very heavily driven by psychiatrists, by specialists, whereas Trintellix is driven certainly by psychiatrists but also a heavy influence by primary care physicians. And so some of the effects that you're describing with Trintellix relate to really 2 things, the PCP presence, they were quicker to close during the pandemic, they were slower to open, slower to go to telehealth and that sort of thing, where we were seeing the psychiatrists were already moving to telehealth before all of this. And certainly, were more open and accessible. But the second piece is also promotion. So we have a partner in the U.S., Takeda. The way we have responsibilities is both of us call on psychiatrists. But Takeda takes exclusive ownership of the PCPs. So I think the lower promotional efforts that were observed during the quarter also impacted Trintellix as well, particularly in the primary care segment.

And from the cost savings, the cost savings that we have baked into the guidance upgrade is more or less already realized in the first half. So what we anticipate is that we see that the reopening is continuing and that we are able to invest behind the products to drive the growth that we have signaled, the continued growth of the strategic brands in the second half.

And then lastly, on Northera, obviously, the exclusivity or patent lapses in February of 2021. And I think a lot about whether it's a growth year or a transition year depends on what happens in the second half of '20. If the COVID-19 impacts continue to be strong, and patients really can't get out to physicians, and there's a drag factor on NRXs and new patient starts as well as an impact on Vyepti where patients are getting the infusions, then we may see a bit more of a transition year. If the second half things resolve, and we can get back to fully executing on our business, then it would be less of a bump. So I think the uncertainty in the second half makes me a little cautious about giving a very directive answer to that question.

Our next question comes from the line of Emily Field of Barclays.

I know you touched on the unemployment situation in the U.S. briefly and that it has not impacted your business. But I guess just for the sake of argument, if unemployment was hypothetically to stay at current levels, what kind of impact would that have on your U.S. business year-over-year, just if you could frame sort of an order of magnitude? Then also on Vyepti, have you started any in person promotional efforts as of yet? And then also, I was just curious, some of the scripts for the oral CGRPs have looked somewhat strong during the pandemic. Do you suspect that there's been any share shift to oral just given the challenges that lockdown presents? Or are these being viewed by providers as very discrete markets between acute and preventative?

Thanks, Emily. Peter is closest to the market where all of those questions are directed. So why don't you take that, Peter?

Yes. I will try to address those. And please, Emily, tell me if I forget to address any of your 3 questions. But first on Vyepti in the field. Yes, we are back in the field, basically with all of our sales forces. As you can imagine, it's very regional in terms of the degree of openness. So while our reps are out, almost all of them both with Vyepti and the other products, not all doctors are seeing reps and certainly, the levels of call volume is certainly not at pre-pandemic levels. But people are back out in the field, where it's safe to do so in various parts of the country. In terms of your question about oral CGRPs, it's tough to speculate exactly what's happening. Of course, they -- I do believe that customers think about them differently, acute and maintenance -- or excuse me, acute and prevention. Also, the price points for some of the oral CGRPs probably are prohibitive to using them on a regular basis with regard to prevention. So I think most of the use that we are seeing is in the acute setting. And so I think those are separate markets in the eyes of customers. And I think the dynamics, of course, in terms of prescribing an oral or being able to do telehealth and making a prescription versus an in-office infusion certainly create a different dynamic between the 2 categories. And was there a third question?

I think the unemployment in the U.S. and an order of magnitude. We haven't specified an order of magnitude. But if you had a comment, Peter, on the commercial lives.

Yes, it's tough to speculate. I mean, each 1 of our category, each 1 of our markets has a different payer mix. Some are more dominated by commercial than others. And I think the insurance issue mostly relates to -- the unemployment issue relates to commercial insurance. So what we could see and a lot of companies could see, although we haven't observed it yet, is a mix shift with commercial potentially decreasing as people lose their job and lose their benefits to something like Medicaid, but we have not yet observed that. It's kind of tough to speculate on what impact that would have if it did happen.

Our next question comes from the line of Martin Parkhøi of Danske Bank.

Martin Parkhøi from Danske Bank. 3 questions. And 1 for almost each. I'll start with Jacob, just because now there's a lot of focus on U.S. and unemployment rates in U.S., but occasion, did it take business outside U.S. as well? Can you tell a little bit about, one, of course, the possibility of government cost measures on the product areas, what are your experience with ceases within great disorders and also an impact on what products are sensitive to out-of-pocket spend, which, of course, also occurs in this recession. And then secondly, to ask, just on the top line guidance, what would the top line guidance of the DKK 17.4 to DKK 18 billion have been if you have used the same spot rates as you used in connection with your first quarter results? And then final question, I think it's for Jacob and maybe also Johan can chip in. Just to get a complete overview because we talk about Northera patent expire next year, but if you look at a 10-year horizon for it, where do you actually see the challenges, what years? And what time do you see the challenges of your current portfolio? And how do you believe your current pipeline actually address these challenges?

Okay. Perhaps Jacob you'll start?

Let me answer. Thanks, Martin. I would say, overall, on the government initiatives, we haven't seen anything at this point in time. It's something that we live with all the time in, I would say, especially in Europe, where we have always government initiative. We have an ongoing price pressure on all our brands in Europe every year. We have not seen any new or exceptional initiatives anywhere in Europe at this point in time. You could say that the -- all the international markets, I would say, outside of China and Japan, basically, Australia is more or less out-of-pocket markets and there, of course, there could be an impact if you see prolonged unemployment rates on the purchasing power for some of our brands. But it's too early to speculate in right now, also at this point, we have not seen an impact. If we go back and model what it looked like during the financial crisis in those days, and I know this is different but in those days, we also did not see an impact. So you have different dynamics that come into play here for a number of patients coming in and then an economic crisis at the same time. So it's too early to speculate in.

With regards to the top line guidance, as compared to previous years, it's a pretty broad guidance we have, and that is, of course, also reflecting that there are uncertainties. But you're, of course, right that FX, especially U.S. has been declining and if the level has kept the same in the first half, as it -- compared to what you're seeing now, then, of course, the revenue would be DKK 100 million to DKK 200 million higher. But I'm not saying, I'm speculating in that the guidance would have been different because the guidance is based on multiple factors.

Great. And then your overview question in the 10-year time frame, where do we see the challenges? Well, it goes without saying that any time a great brand, which has been so valuable to patients, growing with great momentum goes off-patent or exclusivity, it's a challenge. We do see some momentum in the growth brands and in the momentum that will come in with Vyepti in migraine prevention will help us through those years. Of course, we've got 2021 and Vyepti will still be a small brand at that time. And our big brands, Rexulti, Trintellix and Abilify Maintena will be the drivers for us weathering Northera. 2024 in Europe and a bit later in other markets, Abilify Maintena patent is the next 1 to go. And by then, we'll have Vyepti growing strongly around the world and potentially bringing in other indications from both Rexulti, where we have life cycle management ongoing with AAD, PTSD in Phase III and borderline personality disorder coming up. And there are some interesting programs in our Phase I portfolio that could potentially have opportunity to accelerate, but of course, it's much too early to tell with those. And then we will keep looking externally for products that can fit in with our capabilities and the growth drivers for Lundbeck.

Our next question comes from the line of Michael Novod of Nordea Markets.

Just 2 questions. One regarding Japan. So in Q1, you noted that the launch of genetics in Japan had sort of been depressed, given that it was difficult to go out fully. And also with the prescription limitations that are in Japan in the initial days. How does that sort of pan out right now? And how do you -- what do you expect for 2021? And then secondly on Abilify Maintena and the 2-month formulation, we're awaiting some data, and then you will file. Maybe you could just confirm to us when you're expecting to file for approval, will you be able to launch? And how fast do you expect the patients can be able to get switched from the 1-month into the 2-month formulation.

Yes. I'll be happy to start with on Japan. You're absolutely right that we did see an impact on Japan when Trintellix launched. We had a very strong uptake in the very early part of 2020, and then we were impacted by the situation. And as you're pointing out, the biggest issue we have is the traditional 2-week prescription ban you have for the first year on a new medication in Japan. So it is difficult to get traction when you're not out there and being able to talk about your product. At the same time, it's only for 2-week prescriptions. So what we've seen lately is that we are coming back. We have had a higher share of voice during the period, including all online activities. And now we are getting out more together with our partner in Japan and seeing physicians face-to-face. So we have since April started to see good uptake of Trintellix. We are still behind plan, but we do see an uptick and then I see sort of the real change in that uptick will happen once the ban is being lifted towards the very end of this year.

Johan on Abilify Maintena?

Yes. I can probably not comment so much because, obviously, this is based on a number of pharmacokinetic parameters, and those are still being explored. So obviously, if we deliver on this, it can progress very well. But right now, it's too early to tell.

And what about -- just a follow-up on that. What about sort of the commercial side of this 2 months versus a 1 month? And is this all about a very aggressive switching strategy? Or how should we think about this because there is, of course, a patent expiry coming up?

Yes. I can say from my markets, I see this actually is a very interesting opportunity. And of course, it will be helpful to have it out as soon as possible so that we have that differentiation between the different formulations. I think it's a great offering to patients that are using long-acting injectables that they -- we also have an offering that goes up to 2 months. So certainly, we will see a cannibalization, and we also see generic competition coming in on the 1 month, but I think the 2 months will offer an additional benefit for patients that are already now also have that same opportunities for other brands going out to 3 months. So I think a very interesting opportunity there will, of course, be patent-protected for a longer time for us in Europe.

We have seen in this pandemic time groups coming out in the U.S. to say it will be valuable to have a lot of your patients on the longest possible acting -- long acting. And so 2 months fits right into that type of recommendation.

Our next question comes from the line of Michael Leuchten of UBS.

3 questions, please. One, just a clarification on the VBP Ebixa answer. Is Ebixa positioned differently to Lexapro, where my understanding is that in the past, you haven't participated in some of the tenders because you had enough volume and growth elsewhere? So should we think about the trajectory here differently for the 2 products? And second question on the Northera erosion for next year. I guess, that is a product that again in Q2 was a lot stronger than expected, I guess, a function of the distribution channels. How should we think about the speed of the Northera erosion? Can you give us any commentary at this point? And my question for -- on R&D, on the Phase II failures, is there anything to read into the latest round of failures. You have in the past commented on how too much risk was taken later in development. So in that spirit, how do you read the Phase II failures, the last 3 that we've seen? Any comment would be helpful.

Yes. On Ebixa in China. Overall, you could say the dynamics are similar. That means that already today, we have generics on the market that has a relatively sizable portion of the in-market sales for memantine in China. We have several GQCEs. So you could say, quality generics in the market that can go into the bidding. And that's why we also estimate that we will see significant price bidding going down and we do not participate. We do not anticipate to participate in that. So we will not go in bid to win. So in that sense, it will be similar, you could say, to what happened to Lexapro in China.

Peter, would you like to comment on the erosion we anticipate?

Yes, I will. Thanks for the question. With regard to Northera, when I think about comparison to our previous 3 LOEs, I would think that it would look more like a Xenazine or a Sabril than an Onfi, for 1 main reason, and that is because Northera like Sabril and Xenazine has been distributed through specialty pharmacies. It's not a retail product like Onfi. And so I won't get specific about what we expect in terms of percentage erosion, that sort of thing. Those numbers, of course, will be embedded in our 2021 guidance that we issue in February. In general, if you're trying to assess how we think about it, it would be more in the Xenazine, Sabril camp than Onfi. And of course, the other thing I have to say is erosion always depends on the number of generics at the time of LOE. And that's, of course, something that's tough to speculate on.

Johan, would you like to comment on the Phase II?

Yes. So obviously, we are trying very hard to put our efforts where -- and risk where is the right place for it. The most recent announcement with PD10, that was an early interim analysis in a smaller Phase II proof-of-concept study. First time this molecule met sort of efficacy evaluation. So that's the place where you'd rather like to have them then later in the development. But obviously, we have a strategy now where we're trying to really put as much of derisking efforts we can in our development. And that is really the strategy to make sure we're not having late-stage failures. And that is indication and mechanism of action dependent. So we are moving forward much more carefully in picking the indications and the mechanism we're going to work on. So we get much more early answers before we make those bigger investments.

I think it's important to say that you'll see us do that more with these Phase II proof-of-concepts and trying to make sure we've got the right indication. I still remain happy that we were prepared to try in negative symptoms in schizophrenia. These patients have no approved therapy and there were indications from the early Phase I and the preclinic that there may be a possibility. So it was worth trying in a measured way, and that's what we did. Unfortunately, for patients, it did not deliver.

Our next question comes from the line of Marc Goodman of Leerink Partners.

Yes, just a continuation of the R&D discussion. Can you talk a little bit about the MAGLipase and these programs that you're working on? There's obviously a new one, 06479. What indication goals are you pursuing there? How are the other studies going with the other asset? And then just second of all, on business development, I was curious if you just -- the next deal that we see is it more likely to be a late stage asset versus something that's preclinical or Phase I because of the Phase II losses that occurred over the past 6 or so months. Just wondering if you were changing your strategy at all to kind of boost that Phase II, Phase III area up more? And then lastly, if you could just maybe take a look at the Phase I assets that you list here in the press release, which one of these will we see some real proof-of-concept data first?

Johan?

Yes, let me start on the program questions. So first of all, MAGLipase platform that we acquired through the Abide acquisition is really a very promising platform. We remain extremely confident that this will play out as an interesting class of molecules in the future. But obviously, it's early stage. And that's why we are playing in that space, very early developments based exactly to the point I addressed before. We like to find the right indications. We have not gone public yet, which kind of indications we're going in. But we're going into those that are some manner is supported by exo-cannabinoids but also somewhat more innovative ideas around this. So we'll gradually tell you where we're working on this if it delivers and looks fine. We like to have very directive, small studies that can be conclusive. But we're not going to reveal at this stage, which indications. In terms of Phase I assets and which ones are closest to get to proof-of-concept again, that's really based on that whole idea, we would like to get the information content very early, but we do have a number of late-stage Phase I assets. We have our antibody, [ Azamab ], for synuclein which has been in Phase I for a while and it's progressing. That's, of course, a disease modifying mechanism so it takes a little longer to get to a proof of concept if we progress into Phase II. The MGLLi, I already commented upon. So I'd rather see the molecules mature in the Phase I space before we progress and de-risk before we go into bigger Phase II studies. Like I always say, let the molecule speak, and that's where we should do in Phase I.

And the second, MGLLi?

The second MGLLi, yes, that's an interesting one. It's -- they're all differentiated. They are follow-up molecules, not backup molecules. So it definitely has its own space. It has some improved pharmakinetic properties in terms of target action. It's about the same. I'd like to mention that we have a whole flow off follow-up molecules that we're working on in the preclinical space. This is not probably the last molecule we take into this space because we really like to see the different pharmakinetic properties also play out with this target biology.

And then on the BD question, Marc, I think that we're looking at filling -- and we've said across all stages of the pipeline. And so we would be opportunistic in late-stage if there was a deal that fit with Lundbeck at the right price. Many of those are not at the right price. So I wouldn't hold your breath for that. But we are active in looking at across all stages of the pipeline. The great thing about Lundbeck is that we have 5 brands that are continuing to grow strongly. And that gives us a great foundation to be able to be thoughtful and disciplined on price as we do our business development externally. We only unfortunately have time for 1 more question.

Our last question comes from the line of Carsten Lønborg of SEB.

Excellent. I actually just had -- yes, just 1 question, I guess. Peter, you mentioned on the oral CGRPs that you didn't think that pricing levels were sustainable for preventive use. Do you mind telling us how do you actually benchmark price-wise to the orals if it came to preventive use with Vyepti?

Yes. So what I meant there is that daily preventative treatment of 30 pills a day or 30 pills a month, I should say or whatever the paradigm would be in clinical trials, of course, it could be prohibitive. I was telling you what I hear from our customers, not necessarily our own belief. I don't like to speculate about other products. I'm just telling you what we typically hear. And at the current price point, I believe it's roughly $80 per pill, if I'm correct, you'll have to fact check me on that. But that could be, at least in the eyes of our customers we've been told, could be prohibitive. But I certainly can't speculate what plans would do and what any of those companies would do in the future.

So list price you will talk about here, I guess?

Yes, I certainly have no visibility to what their gross to nets are and things like that.

Okay. And then just 1 quick follow-up. Just listening to your Vyepti with the sales force being back on the ground again. Where are you in terms of commercial push just right now? Are you exactly where you would like to be? Are you at 50% capacity, 80% capacity, where are you?

Yes. I'd be surprised if anybody on the planet said that they were right where they want to be given the current situation. So no, we definitely are. I won't get into the specific numbers because I think that also gives away what we're doing in terms of competitors and that sort of thing that may be listening in on our calls. But I won't say what percentage that we're at, but we're certainly not back at full capacity. But we are -- our team is in the field, not just as I mentioned with Vyepti, but others, almost everybody is able to make calls with our customers. In every part of the country, it's different in terms of customers' receptivity based on the local situation with the pandemic and hotspots and things like that and certainly, a blend of virtual and face-to-face calls are growing rapidly every single day, but certainly are not at pre-COVID levels. But I won't give a specific number of where we're at in terms of that as a percentage.

I will now hand back to our speakers for closing comments.

We'd like to thank you all for your attendance today, and we look forward to talking with many of you over the next few days on the virtual road shows. Thank you.