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

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the financial statements for the full year 2023 of Lundbeck. [Operator Instructions] I would now like to turn the conference over to Charl van Zyl, President and CEO. Please go ahead.

Thank you. And it's my pleasure, of course, to welcome you to the annual results call for 2023, as well as our full year guidance. It's for me, of course, a pleasure to be able to present to you the great results, and momentum that we see in the company. And so, I want to thank you for joining today. We can go to the next slide, please. Just as part of our forward-looking statements, of course, what we discuss today is subject to change. So let's go to the next slide, please. Of course, have the pleasure of also being joined by the team. Today here are 2 heads of geographies, Tom Gibbs and Jacob Tolstrup. We'll also hear from Johan Luthman on our progress on the pipeline. And Joerg will talk to us more specifically about, of course, the results, but also the outlook for 2024. We go to the next slide, please. I just want to pause for a moment in a sense and let you know that, of course, the work that we're doing at Lundbeck is very much to solve and improve the life of patients like Ronetta Stokes. And it's very much also our focus as a company, to be in this position where we can solve complex challenges for patients. And so today's goal, in a sense, on this call is very much to talk to you, of course, about our results, but also the strategic direction that we are setting for the company to ensure that we are able to serve more patients and, of course, solve those complex challenges in the space of neuroscience. So if we now go to the next slide, please, to really position for you a little bit where we are as a company and where we are going. Of course, this is consistent with some of the discussions, we've had with you in the past. But it's really clear that we are pivoting our strategy towards a very focused innovator going forward. Meaning, that, in a sense, we are very clear on addressing areas of very high unmet need in neuroscience, being very clear on where we play as a company. And also being very clear on how we think about investing for the best return of our investments to also the shareholders. From a long-term perspective, clearly, as we look at this, we are essentially, as a company, addressing a strategic challenge, which is really looking at long-term sustainable growth for the company. And this is also how we are positioning our direction and the efforts we're putting in place to bring that long-term sustainable focus for the company going forward. So, if we now go to the next slide. And this is really where I'd like to, of course, address with you the great performance and strong results that we've seen in 2023 across all the areas of our company. And important highlights I want to just bring out here is, record revenue of DKK 20 billion. We see very strong growth, of course, of our strategic assets. Today, they make up 69% to 70% and we see them grow at 16% on a constant basis. We are also really pleased to see the performance of Vyepti. That is, of course, growing very well on a constant basis. And we are seeing all the strong signals in the U.S. that this is going to be an important growth driver for us going forward. In 2023, we also launched the additional indication for Rexulti in AADAD. And we see very promising and strong results also there on the launch that will give us confidence to continue to invest further in this asset. You'll also see that our adjusted EBITDA, is at 7% on a constant basis. This is a reflection also that we are investing for growth and also investing in R&D, as a long-term success is very much dependent on us doing that very well and ensuring that we can drive the innovation for the long-term of the company. You'll also see strong results and contribution from Brintellix and Abilify. These are strong assets that contribute very well to our cash flow position, and continue to grow really well in the state of where we see them today. So with these results, in a sense, we get a foundation of strong momentum, strong growth. And you will also see that confidence translating into 2024, where we want to continue to invest very selectively in the growth of key assets, key geographies and of course, invest further in R&D as well. So, could we go to the next slide, please? So, again, I want to just bring it back to some of our conversations we've had with you in the past, around where we are going, and how we see ourselves going forward. So in the fourth quarter of last year, we did a strategic review, which was an important exercise for us to essentially look at a few questions. The first was, you know, can we grow more with what we have? And we feel very confident at this moment that, the investment we're making behind Rexulti and Vyepti are important investments for the long-term growth of these 2 assets. Furthermore, we are of course, and have looked through a number of initiatives across the company to ensure that we can create the financial flexibility and capital reallocation potential to invest more in a very strong and emerging pipeline that we see coming forward as well. And so, as a principle and a mindset inside the company, we're very much focused on return on investment, preserving our midterm guidance that we have said to you in the past, which is 30% to 32% by 2026 of adjusted EBITDA. And we feel confident at this point with the direction that we're setting that, we can achieve this. And furthermore, as a focused innovator, of course, we have a strong pipeline as things are emerging. Of course, Johan will talk more about that. But we are also fueling that thinking of further innovation with inorganic and very focused areas around business development to further strengthen that pipeline going forward. So with that, I would like to therefore hand over to Tom and Jacob to take us through the geographic performance. Thank you, Tom.

Great. Thank you, Charl. And next slide, please. We are very pleased with the performance of Vyepti in 2023, and this has been fueled by accelerating growth in the U.S. and supported by the continued global rollout of launches ex-U.S. Vyepti global net revenue for fiscal year 2023 was DKK 1.697 billion, and this represents 74% growth over prior year. Net revenue for Vyepti in the U.S. was DKK 1.578 billion, and this represents 66% growth over 2022. Importantly, in 2023, we began to see meaningful contribution to global sales by markets ex-U.S. with Vyepti now available in 23 additional countries. Over the course of 2023, we saw Vyepti U.S. demand accelerate 92% when comparing weekly vial demand in January versus December, and this was driven primarily by new patient starts. Additionally, Vyepti market share reached 8% of the U.S. anti-CGRP preventative market for the first time in December. This performance was driven by 2 key factors. First, an effective customer-facing model and marketing mix, which we will continue to invest in to further accelerate growth in the U.S. And second, the rollout of new data from the PROMISE 2 study, which demonstrates 40% of patients taking 300 milligrams were migraine free over a month, and this is very compelling data in the marketplace. Next slide, please. Rexulti also delivered strong performance in 2023, growing 20% over prior year and delivering DKK 4.525 billion in global net revenue. Absolute revenue growth was primarily driven by the U.S., which delivered 19% growth over the prior year and net revenue of DKK 4.206 billion. Notably, revenue ex-U.S. grew an impressive 35% versus 2022. The launch of AADAD continues to progress as planned. We are now using claims data to track the progress of the launch, as we believe these data are the most accurate reflection of indication-level data. As of November 2023, Rexulti AADAD prescriptions have increased 161.3% from the prelaunch trend. Importantly, we are seeing very good uptake within the long-term care channel, with claims data showing a 333% increase since the launch in May. The AADAD launch is driving growth for the overall Rexulti brand, with monthly demand growth of 18.8% from prelaunch AADAD levels, and this data is through December 2023. This compares, to approximately 5% to 6% volume growth over the previous 8 months prior to the AADAD launch. I will now turn the presentation over to Jacob, to discuss performance for our other strategic products.

Thank you very much, Tom. Let's go to the next slide, please. So, on Trintellix, we are very pleased to see overall growth of the brand. As expected, the U.S. has been declining. It's a decision that we made together with our partner some time back about optimizing the profit from Trintellix in the U.S. That said, we are seeing growth in the fourth quarter of 2023, of 2% in new patient starts. Going forward, however, you should expect that the growth that we expect to see overall for Trintellix/Brintellix around the world, will be driven by markets outside of the U.S. Looking at Europe and international markets, we see very strong growth of 14%. Very pleased to see that performance, especially in the light of our product being on the market for 10 years, or more in certain markets and geographies. That is driven by several factors, one being a good product. Of course, we found a great positioning over time, and we have a product that delivers on its promises. It's also important to say that the especially high growth that we see in Europe is driven by markets, where we see opportunities to expand our sales force reach into high prescribing GPs, which has paid off quite significantly for the brand over the past 2 to 3 years. Also, Lundbeck is a recognized market leader in psychiatry. Especially, in MDD, we have a long heritage, and we're building upon our heritage there in our connections with the thought leaders in the field. Going forward, we expect continued market shares gains for Brintellix, despite a market that is crowded with many different treatment options. And I would have to say also that the launch in Japan is exceeding our expectations. We now have 10% volume growth, and we expect the growth to continue in a market where we still have about 7 years before we reach LOE. Next slide, please. Abilify LAI franchise is doing exceptionally well for us and it will continue to do so. U.S. growth of 16% and ex-U.S. growth of 7%, despite some price cuts that we've seen in recent years. Going back in time, looking over the past few years, the franchise for Maintena has outgrown the other franchising the LAI field, and we expect that to continue also with the launches of the 2-month version. In the U.S., we have launched the Asimtufii in June, and we're very pleased to see a 30% volume growth of NBRxs in the U.S. for the combined franchise of the one-month and the 2-month in the U.S. since then. In Europe, we're very pleased with the recommendation for approval for the 2-month version. We expect an approval, and hopefully we can start the rollout in Europe in the spring of the 2-month version, which will be called Abilify Maintena 960 milligram or 720 milligram. Then finally, also, we have Abilify Maintena available in 34 markets today. I'm very pleased to see that we have 20 markets with above 25% market shares, 10 markets with above 30%, and finally, U.K., Italy with 40% market share. With that, I will turn it over to Johan. Thank you.

Thank you very much, Jacob. So let's turn the page for further information on R&D. 2023 was a very productive year with many events in our pipeline, across brands, lifecycle management, and with critical progression in the innovative pipeline. During the first half of the year, we had 2 FDA approvals, both together with our partner, Otsuka. First in May, we had important indication expansion for brexpiprazole with the sNDA approval for the treatment of agitation associated with dementia due to Alzheimer's disease. This was the first full approval in 20 years by FDA for any Alzheimer's disease therapy and the first approval ever for a treatment for behavioral and psychological symptoms in dementia, of which agitation and aggression constitute a major medical problem. What we keep hearing in our interactions with various leading clinicians in the U.S., is that this approval is really welcomed, reinforcing how critical it is to have an approved therapy for agitation symptoms of this disease. We have dedicated medical affairs efforts to increase the awareness of this breakthrough therapeutic option at key Alzheimer's conferences, such as AAIC, while we are happy to see a full publication of the most recent pivotal trial of the program that came out in JAMA Neurology last year. During the last year, we also progressed with submissions for approval of brexpiprazole for the indication in Canada, Singapore, Australia, and Switzerland. We were, therefore, pleased to see the approval by Health Canada 2 weeks ago, an approval that was well received and even recognized by public, media. We also had an additional FDA approval during the last -- the spring last year for aripiprazole 2 months ready-to-use long-acting injectable suspension for intramuscular administration that Jacob talked about. This product, Asimtufii, is an important addition to the Abilify Maintena brand in our long-acting therapeutic offerings to patients. The EMA review of the aripiprazole 2 months has also been concluded, as we announced 2 weeks ago, with a positive CHMP opinion. So we are looking forward to the EC, the European Commission, decision on the product in the coming months. We also obtained headline readouts in May -- in at least 8 major clinical trials last year. In September, Lundbeck and Otsuka announced the results from the Phase III clinical trials of brexpiprazole, studying the potential of the drug in the treatment, of post-traumatic stress disorder, PTSD. The data from these trials, together with the previous Phase II trial, constitute one of the largest clinical development programs ever conducted in PTSD. Importantly, PTSD is a very serious mental disorder with a wide range of symptoms, with no therapeutic options seen in more than 20 years. It's, therefore, important that we have continued interactions with FDA to decide our next steps. Last year, we also opened up the books on a trial in the eptinezumab cluster headache program, and in particular obtained data from the randomized double-blind ALLEVIATE trial in episodic cluster headache. The data were not entirely what we aimed for in the design of the trial, but still clearly supportive. We have subsequently been reviewing the data with leading clinical experts, who have been receiving the data very positively. In April, we announced encouraging positive readout from our first-in-class anti-PACAP monoclonal antibody 222 in the so-called HOPE trial. This trial outcome constitutes a breakthrough for a new mechanism of action in the prevention of migraine. It's not often in R&D, you get the chance to be part of a clinical proof-of-concept, so for Lundbeck, this was an event to cherish. But this is indeed also the first clinical new mechanism that works since the testing of CGRP in 2004. The HOPE trial data were presented at the international headache conference in Seoul in September, and the results were extremely well received by leading KOLs. We have subsequently embarked on a full development program for PACAP, which has as next step this year the initiation of a Phase IIb trial for full-dose evaluation after subcutaneous administration of the antibody. We also had overall solid progression in our innovation pipeline with an additional first in-human program start and as many as 5 new highly innovative research programs initiated. I would, however, like to draw your attention to an event we announced last week, the readout of our AMULET trial, a Phase II trial with our anti-alpha-synuclein antibody 422, where we obtained encouraging data. So with this, I'd like to go to the next slide. So 422 was evaluated in an exploratory proof-of-concept trial in a very devastating, rapidly progressing chronic disorder, multiple system atrophy, MSA for short. MSA is a fatal neurodegenerative disease with no treatment options. It is characterized by pathological aggregation of alpha-synuclein, a neuronal protein that normally is believed to regulate synaptic vesicle trafficking and thereby neurotransmitter release. However, alpha-synuclein can also be pathogenic, causing so-called alpha-synucleinopathies, neurodegenerative diseases characterized by an abnormal accumulation of alpha-synuclein protein in -- nerve cells and glial cells. There are 3 main synucleinopathies, Parkinson's disease, dementia with Lewy bodies, and MSA. And MSA is the purest form of them and the most aggressive of these diseases. MSA is a rare disorder characterized by autonomic dysfunctions and symptoms such as tremors, slow moment, muscular rigidity, and postural instability. There are generally 2 types of MSA diagnosed, the cerebellar form, which predominantly is showing balance and coordination loss. And that's the most common form. And there is also Parkinsonism or MSA-P type, which shows primarily with muscular stiffness, slowness, and tremor. We have brought our IgG1 antibody 422 through a very early set of Phase I studies. The antibody comes originally from a research collaboration with Genmab. These studies included Parkinson's patients for target engagement, verification, and some other dose-guiding studies. And thereafter, we embarked on the so-called AMULET trial to test the antibody's effect in MSA. AMULET is a small trial that was tailored for maximal signal detection in 61 patients recruited from the U.S. and Japan. The trial had 2 arms, placebo and active treatment, given every month IV for between 42 to 72 weeks. And when all subjects reached at least 48 weeks, we took a look at the data. The trial is still ongoing as an open-label study. The prime analysis of the clinical outcome measure UMSARS was based on Bayesian progression model. That's an approach aiming to study critical longitudinal changes during the disease course. Various parts of the UMSARS case were used, but the prime analysis was done on the total score. Next slide, please. The AMULET trial was initiated at the end of '21. We enrolled well throughout the trial due to high interest from investigators and patients. And we could obtain the results little more than 2 years later. The AMULET trial has showed signals of efficacy across the UMSARS clinical measures and also on some secondary clinical outcome measures, as well as on some biomarker endpoints. The prime endpoint, UMSARS total score, showed slowing of the rate of disease progression, although not reaching statistical significance. We should, however, note that there is very little prior information to sample size the trial in MSA, in contrast to indications such as Alzheimer's disease. And that we pioneered a Bayesian progression statistical model, to identify effects on longitudinal change. The secondary endpoints included assessment of function, global impression, autonomic symptoms, and global disability. Biomarker endpoints include volumetric MRI assessments, some biofluid markers, such as alpha-synuclein for target engagement, and NFL in blood and CSF. What is very important to note is that 422 was generally very well tolerated. I'm not going to dwell more on the outcome of this trial since we have secured a late-breaking presentation at the upcoming AD/PD 2024 Conference on March 8, where we'll reveal more details. What we will also now do is to seek the opportunities to speak, to key regulatory agencies and in parallel plan, the next program steps that will include, the initiation of a Phase III program, once we have fully analyzed data for proper trial design and obtain sufficient input from agencies. Next slide, please. So, we have had several important events during last year and also started 2024 with several interesting events marked here with green tick marks, such as the AADAD approval in Canada; progression of aripiprazole 2 months in Europe and now also the PoC read-out for disease modification. However, this coming period will continue to be quite news rich. Naturally, we look forward to the European Commission decision on aripiprazole 2 months within shortly. We have also expectations to be able to finish the Vyepti SUNRISE trial, a trial that is aimed to pave the way for further expansion in Asia, mainly Japan and China. It's also important to progress into clinical full development studies with 222 our PACAP asset. So the proper dose is identified for pivotal program. This will hopefully provide a very new interesting expansion of treatment opportunities in migraine prevention. Finally, I'd like to highlight that we have recently initiated some additional exploratory proof-of-concept trials for other programs, such as our anti-CD40 ligand program, 515 and our anti-ACTH program, 909. And we're expecting to get additional PoC trials started during 2024 such as for 909 in an additional indication, Cushing's disease and also start Phase II for our innovative dopamine agonist program for motor symptom treatment in Parkinson's disease. With this, I'd like to hand over to Joerg Hornstein, our CFO.

Thank you, Johan. Now let's look at our financial performance for the year and the outlook for 2024, which, as Johan indicated, is an important year for our pipeline. Next slide, please. Our full year revenue grew plus 8% at constant exchange rates, driven by our strategic brands, which are up by plus 16% for the year. The adjusted gross margin, which is removing amortization, depreciation and other adjustments linked to sales travels roughly in line with the revenue for the year. This means the margin for the year is almost unchanged. One should always be careful in focusing too much on quarterly fluctuations in cost ratios. But a note about the fourth quarter is necessary here. The quarter is impacted by higher contract work, quarterly fluctuations in scrap costs mainly related to mature products and environmental provisions. Moreover, the fourth quarter of '22 was negatively impacted by Vyepti provision for obsolescence of DKK 228 million that we have adjusted back then, but that did not reoccur in Q4, 2023. For the full year, the adjustments on gross margin include DKK 312 million provision for Vyepti inventory obsolescence and DKK 15 million restructuring costs for the closure of the sterile manufacturing line in France in comparison to the DKK 228 million for Vyepti inventory obsolescence recognized in the fourth quarter of 2022. Sales and distribution costs grew 18% at constant exchange rates. This is driven by sales and promotion activities for Rexulti in the U.S. due to the launch of Rexulti AADAD in June 2023 as well as activities for Vyepti in the U.S. and its continuing global rollout. Sales and distribution costs are impacted in Q4 by restructuring provision regarding our commercial footprint that we have also adjusted for. The increase in administrative expenses in 2023 is attributed to digital investments, the CEO transition and higher legal costs and provisions for ongoing litigations. R&D costs decreased by 7% at constant exchange rates in line with our previous communication. Adjusted EBITDA grew by plus 7% at constant exchange rates, reflecting the increased revenue and additional investments for sales and promotion activities benefited by the lower R&D costs in 2023. The reported growth of 17% can be decomposed as follows: a positive organic growth of 7%, negative FX impact of 4% and a positive hedging impact of 15%. The adjusted EBITDA margin improved by 2 percentage points to 28.4% in 2023. Next slide, please. Our EBIT grew by plus 12% in reported rates despite increased SG&A costs, and the higher adjustments of approximately DKK 200 million in comparison to '22, improving our margin by 0.4 percentage points. Net financial expenses decreased for the year by 47% to DKK 202 million. The decrease is mainly driven by the nonrecurring CVR paid in Q1, 2022 and the favorable development in interest income, due to lower debt levels and higher interest income on cash in the year. The effective tax rate of 23.5% is in line with the full year expectations, reflecting the reduced deduction of the Danish R&D incentive. Net profit increased by plus 20% to DKK 2.3 billion and adjusted net profit and EPS increased by plus 13% to DKK 4.2 billion and DKK 4.22, respectively. Next slide, please. The cash flows from operating activities in 2023 represents an inflow of DKK 4.1 billion, compared to an inflow of DKK 3.5 billion last year, clearly showcasing the strong cash generative ability of our company. The operating cash flow is obviously a reflection of the strong EBIT performance, further benefited by higher adjustments for noncash items of DKK 2.4 billion, mainly driven by higher amortizations, the higher provision for Vyepti inventory obsolescence and other provisions. This is negatively impacted by changes in working capital, driven by lower milestones payables in 2023. The cash flows from investing activities were an outflow of DKK 498 million, driven by CapEx investment and the payment of a sales milestone in 2023 in comparison to an outflow of DKK 1.8 billion in '22, which included the DKK 1.1 billion payment of the CVR. The cash flow from financing activities were an outflow of DKK 2 billion in '23, compared to an outflow of DKK 0.4 billion last year, primarily driven by higher repayment of loans and the now fully repaid revolving credit facility, under which DKK 1.2 billion were drawn last year, as well as the higher dividend payment in 2023 connected, to the improved net results in '22. The year closed with a net cash position of DKK 0.7 million compared to a net debt position of $2.2 million in 2022, effectively deleveraging the company and bringing us into a very strong financial position for the future. Next slide, please. To focus on the underlying operational performance, we are from now on introducing a constant exchange rate guidance, excluding effects from exchange rates, development and hedging. In 2024, revenue is expected to grow at a range of 7% to 10% at constant exchange rates, reflecting continued and sustainable growth driven mainly by the demand of our strategic brands. Key growth drivers are the continued strong growth of Vyepti, especially in the U.S.; the growth of Rexulti following the launch of the AADAD indication in the U.S.; the increased sales of Brintellix in Europe and international markets and the contribution of the Abilify LAI franchise in the U.S. The mature brands and especially Cipralex/Lexapro, Deanxit in China and Sabril are expected to face increased generic erosion. For your reference, considering the current exchange rates, the revenue growth rate and reported is expected to be around 4 percentage points lower than at CER. Please allow me to address the reported rates in a bit more detail. The difference between constant exchange rates and reported are the impacts of hedging and the foreign exchange development. We had a positive DKK 137 million hedging effect in '23, and we're forecasting a negative minus DKK 50 million to minus DKK 75 million. At the same time, our guidance predominantly sits on the, let's say, closing rates for 2023. Having seen quite some volatility, especially in our main currencies in the past few weeks. That is, of course, a development that we will frequently update, as part of our quarterly reporting. Adjusted EBITDA is expected to grow 10% to 16% at constant exchange rates in '24, reflecting the necessary investments, which are driving the significant revenue growth, and that will support our capabilities in innovation going forward. These investments are reflected in higher R&D costs for '24 at a range of DKK 3.9 billion to DKK 4.1 billion, driven by the progression of early stage to mid-stage for several of our projects as well as higher sales and distribution costs due to increased Vyepti and Rexulti promotional activities. Also here, considering the current exchange rates, the adjusted EBITDA growth reported rates, is expected to be around 9 percentage points lower, than at constant exchange rates. We're also here showing other relevant financial information, for you to consider when assessing the company's expected financial performance in 2024. And as alluded to earlier, this will be frequently updated. The midterm financial targets aiming for mid-single digit revenue growth in adjusted EBITDA margin of 30% to 32% by 2026 remain in place, excluding, of course, any potential material future business development activities. With that, I hand over to Charl.

Thank you, Joerg, and it's my pleasure to make a few concluding remarks. First of all to say, based on what you've heard here, we have clearly delivered on our '23 priorities. And with these great results, we really feel very confident around how we're entering also into 2024. And I want to congratulate the leadership team on these great results. What I would like to do is just go to the next slide and give you again a sense of what we have discussed with you in the past, the direction of how we see the company evolve. And of course, 2024 is an important first year of that journey for us, and it's a journey where we will very much focus on where we play, focused very clearly on where we invest with a clear growth expectation on our strategic brands, predominantly Rexulti and Vyepti and focus a lot of that investment in the U.S. We will, during this phase, also be very disciplined around our capital allocation and reallocation potential towards more investment where we can in innovation, where it makes sense for us, while preserving our midterm guidance that we have given to you in the past. Of course, as you would have seen from the results that Joerg presented, we are in a strong cash position, of course, as well, cash flow wise, but also from a firepower perspective. And we'll use this in a very targeted way to look at other opportunities externally to foster also and potentiate our internal pipeline going forward. As we sort of enter into the mid-stage where we see potential, clearly, from a migraine franchise that is emerging with anti-PACAP of course, as well as strong momentum that we see in Vyepti, we see potential to scale more in migraine in severe chronic migraine. Of course, also pipeline readouts that could emerge on the neuro-rare space that will give us additional opportunities for vectors of growth for the company. We see also in the mid-stage certainly areas for further partnership, as we are familiar with partnerships, of course, in the company. We see them also as a position of strength to further reach more patients in different geographies. And as we go towards the end of this 10-year cycle, we are also clearly seeing then more of the organic pipeline that you see today coming to the market with some breakthrough potential and of course, also a very strong and well-funded neuroscience research platform that will drive long-term success and innovation for the company. So that's really what we wanted to conclude with you today, and I would really like to now go to Q&A, and I hand it back to the operator. Thank you.

[Operator Instructions] The first question comes from the line of Marc Goodman with Leerink Partners.

This is Madhu on the line for Marc. 2 questions for you. Could you first talk about how you're thinking about the growth trajectory for Rexulti in 2024, given the feedback you've heard from the field so far and the activities in upcoming medical conferences to increase awareness? And then could you also talk a little bit more about the design of the study for the PACAP molecule and migraine in terms of how many dose arms there will be and if the doses being tested are the same as the prior HOPE study?

I'll let Tom answer the first question on Rexulti.

Thank you for the question. As I've previously stated, our experience to date continues to confirm our belief that the AADAD represents a large market opportunity with significant unmet need. And as we've talked about previously, it is a nascent market that needs to be developed. And the partnership of Lundbeck and Otsuka are committed to making sure that we make the appropriate investments to continue to raise awareness about the disease burden, the prevalence and the diagnosis and treatments of AADAD, not just for our business, but also for the patients that we serve. As we look forward, we are expecting to continue to see the growth trajectory that we've seen over the back half of the year. As I've stated earlier, we're seeing very good uptake when we look at our claims data of 161.3% growth when we look at our overall claims data. And we continue to see very rapid uptake in the long-term care setting, which is really important, 333% growth as this we see as sort of the leading indicator of how the broader business is going to go. So and I think importantly, we are looking at the AADAD launch to continue to drive the overall brand as we've talked about, and we're seeing that to-date. If we look at the overall brand metrics, we see record highs in December for NRxs, TRxs and TRx share, and that's the expectation we have moving forward into 2024.

Yes, and I take the -- this is Johan. I take the question about design of the PACAP trial. So just to remind you a little bit about HOPE trial. It was a trial where we studied 2 doses, a high and a low dose. And then, of course, placebo, and it was an IV study. So, very important for us now, is to establish that we can basically get the drug working after SubQ. There is no reason to believe it wouldn't. But you have to establish this, because, obviously, there could be differences in growth administration and placebo responses, et cetera. If you may recall, the data we talked about, particularly at the international headache conference in Seoul, we had very similar effects with the 2 doses, the high and the very low dose that we used, which was a pleasant surprise, to be honest. Meaning that, we hammered the target with a high dose really to assure solid proof-of-concept. But we also had a sniff on a dose that is maybe more doable from a cost of goods, et cetera point of view. And it worked as it looked. It was a smaller, half the size, but it looked like it worked equally well, to be honest. So, now, we're going down in doses. We're exploring further down and see how far down we can go. We have not posted a trial yet. We will reveal that while the trial is getting up and started, but we'll have a little wider dose range and definitely going down and explore where we start to lowest effect. So that's the most critical element of this. And I often preach this, it's very important to find the right dose and the right dose range for drugs when you move forward. So that's why we're not rushing into big Phase III trial. We could do that, but we'll need to have the SubQ and we need to find a solid understanding about dose sensitivities. Just very quickly, the readouts will be very similar. This is going to be monthly migraine days, et cetera. So, in terms of what we're looking for as primary and secondaries, it will be no surprises, quite traditional. But also, if I may add, very critical, moving forward this program is also to look for differentiation, and that will be built into the further programs. Not so much in this next study.

The next question comes from the line of Michael Novod with Nordea.

Just a question around sort of cost allocation going forward. We've seen you close down at least one subsidiary. So, cost allocations between IO and the U.S., also in terms of driving further growth for Rexulti, as well as Vyepti. And then secondly, maybe just -- maybe I missed it, but have you seen anything regarding filings for Abilify Maintena, i.e., any generic filings that we are not aware of? And then lastly, yes, could you please so just confirm then, if you use an FX rate, you said by sort of the end of 2023, is it fair to assume that the FX rate going into your reported guidance is around 6.75 instead of the current spot rates?

Maybe I'll take question number one and number three. I think, starting with question number one, I think we don't provide any guidance in terms of, let's say, regional cost splits of our business. I think what is fair to say is that, of course, with specifically the trajectory of Vyepti in the U.S. and the further build-out of Rexulti in the U.S. following the AADAD approval in June last year. The growth rate in the U.S. is, I would say, getting more and more important for us also in comparison to the other regions, which strongly deliver in '24 as well. Your answer on question number three, which was on the guidance, I think it's fair to say that, as I said earlier, we provide in the investor deck on Slide 58 also the, let's say, spot rate at the end of the year and also the, let's say, current trending levels. We've seen -- don't only concentrate on the dollar, because if we look overall, and you can see that in our results as well, by looking at CER and reported, many currencies other than the dollar also impact our results quite significantly. And if we look at FX rates that we used for, let's say, the guidance in '23 versus the guidance in '24, then you can say pretty much 6 out of our 8 main currencies are down by approximately more than 8%. So, I don't speculate on currency. That's why we changed to a constant exchange rate guidance. We will update reported guidance frequently, and we leave this up to you to decide to what extent this is an upside, or a downside.

And Michael, I will try to answer a little bit on your question on Abilify Maintena generics. First and foremost, I think it's important to say, because we communicated that in the past also, we do not expect generics in the U.S. anytime soon. If we look at a region like Europe, you do have generic versions on some of the other LAIs, not in all markets, in some selected markets, where they do have an impact. So that's, of course, something that, we also think about in our planning going into future years. So, when I say that, we do not have signs of generics on Abilify Maintena, you cannot say that that's the absolute truth, because at this time point, we cannot know, but we do not see indication at this time point. But that doesn't mean that, they're not underway.

The next question comes the line of Charles Pitman with Barclays.

Charles from Barclays. Maybe just firstly on M&A. Obviously, there's been a lot of hiccup in news lately and you are targeting kind of further build up in cash. And I think you previously mentioned your business relevant plan of kind of a string of pearls and target. I was wondering if given Charl, you've been enrolled a little bit longer still now, and we're looking forward now to your short, mid and long-term targets, as well as this total BD firepower number you've given us. And I wonder if you give us any kind of insight on the cadence at, which you intend to apportion this. And maybe if you could give us a bit more detail on, kind of, where you think that you need to focus in terms of therapeutic areas? And then if you could just reconfirm how we should think about this firepower, as far as a cash debt, potential use of equity split goes. And then maybe just secondly, if you could give us a bit more detail around the, kind of gross margin. So just give us an idea of what the one-off gross margin impacts have been in 4Q, '23. And why you anticipate and do you have such strong confidence in the improvement FY '24 despite the continued generic erosion of your mature brands. That would be very helpful?

Charles, I'll start with your question on M&A strategy and would be happy to build further on what we also discussed at the JPMorgan event, which is really where we see today our current growth and the investment we're making behind our existing assets. We feel we have a growth position that can carry us through the mid-term LOEs and really focus our M&A effort, more to solve the long-term, which is the post 2029 window. So when we look at M&A, we look at it in 3 buckets, building in a sense, on existing strength, or on where we see the pipeline emerging in the future. And so, those 3 areas are really continuing to look at opportunities in the neuropsychiatry space that builds off our current commercial footprint and potential. Secondly, we are looking in spaces where we look more at neurospecialty, where we are today with Vyepti. Of course, and building around that with the business model and field force that we have there, could we add additional opportunities into that organization. And then the third one is in the neuro-rare space. As you will see sometimes in our pipeline, of course, there are a number of assets that might emerge from there. And we know that also in neuro-rare space, there is a high unmet need. So, we will continue to look there as well. We, on average, monitor about 30 different opportunities, depending on data points and where they are and what might be feasible for a transaction. So, I would say, 2024 is not a must for us. We are not driven by entirely needing to do M&A, but we will look at it as you stated, a series of deals over the next 3 years, 4 years would be important. That would be in the window of potential to launch by 2028 and contributes then revenue at the time frame when we face the LOE of Rexulti. So that's how we see it. Of course, the cash flow position of the company is strong, but also, firepower, we feel is reasonable to execute on these types of deals we are looking for. And so, from that perspective, we will drive that strategy forward, but not necessarily that it's fully committed, to and must be done in 2024. I could maybe hand the next question to Joerg.

Let me take care of 2 questions. The first one was, I think, the guidance we give regarding our year-end cash position is, basically, at the end of the day, the net cash of DKK 4 billion to DKK 4.5 billion. We are -- net cash in a very comfortable position, but ultimately, we are not debt-free. We still have an outstanding DKK 500 million bond. And I think at the same time, I would reiterate here that we have just proposed a dividend of DKK 697 million, which is basically a 21% increase versus last year's dividend. To come back to your question on the gross margin. I think, as I said earlier, I would look less at Q4 fluctuations, but more the full year adjusted gross margin, which came in at 88.3%, and the guidance we provide going forward, which is around 88% to 89%. That's a good indication, and we feel comfortable achieving that.

The next question comes from the line of Xian Deng with UBS.

2, please. So, first one on Rexulti. So, I can see from your slides, so the AADAD launch seem to be going really well. But if I look at my IQVIA TRx script for total Rexulti, it seems that, at least from my end, I still haven't really seen an inflection point. So, I was just wondering if you could actually describe, give us a sense about actually the trends in depression. How is that actually have been going for the product? How do you think about it going forward, especially considering the competition this year and possibly next year? And then the second one is on 422 alpha-synuclein. So, given you now sort of initiating on Phase III, can I just first clarify that's going to be MSA? And have you already spoken to regulators on your Phase III initiation? And also, does it mean that this could actually be launched before -- earlier than you previously guided during R&D day?

Hi, thank you for the question. I'll handle the Rexulti question. I think, as you said, we're very pleased with the progress that we're making with the AADAD launch. We're seeing claims data, both in the community and the long-term care setting growing, I think, very impressively, with 161% growth overall and 333% growth in long-term care. As it relates to the overall brand, as I said, if we look at overall demand units starting in April of 2023 through December, we have seen 18.8% growth, and that compares to a growth rate, of about 5% to 6% in the previous 8 months. So, we have seen an acceleration of growth due to the AADAD launch. If we look at claims data specifically, as I said, AADAD claims prescriptions through November are up 161%, but we have also seen growth within non-AADAD claims as well, with growth of 8.9%.

Yes. And maybe I can try to answer your 422 question. Yes, so obviously, we have been doing a proof-of-concept -- exploratory proof-of-concept study in MSA. So that's where we're going primarily. That's what we hope to derisk with this study. And we have now much, much more to look at. As I alluded to before in my presentation, we don't have so much prior information to build that. Now, we have a much more different situation. We can build on prior data, and design that program moving forward in MSA. Interesting different readouts in the condition that has very broad symptoms. So, we will look very carefully in the Phase III what we're going to have readouts on. You're really pushing me a little bit here. We had readout last week and it takes some weeks to get the regulator. First of all, write an application to go to the regulators and then get the acceptance. So, obviously, we've not been to regulators to discuss the post-AMULET trial data, but we've been to regulators a lot before. So, we have quite a lot of ideas what they would think for a program moving forward. But it changes quite a bit when you have data to go there. So, we need another round with regulators. Launch earlier, yes. First of all, we need to get started with what we do next and think through that. And that will, as you already asked about, include discussions with regulators. I'd like to remind you, we have an Orphan designation in Europe, and we have SAKIGAKE in Japan. And to get some designated pathway in the U.S., would be something we're looking forward to discuss with the U.S. regulators. Now, we have clinical data, which they usually like to see to get that kind of priority pathway that we like to see. And that can also lead to, of course, more faster programs. You get priority with the regulators, they also help you much more in the pathway forward and often, the reviews are faster. But now, we're looking forward very much in the future, but we're looking forward to have that opportunity to discuss what we can do to move faster. And why is that so important? Well, of course, it's interesting for the company, but this is a horrible disease, absolutely horrible disease. And we have that open-label ongoing and we'll see how it will be in terms of patient interest and investigator interest to participate. We had good help running this trial. And I would assume we have very good help with patients wanting to get into a new trial, which is one of the key ingredients to move fast. So, there are many things here and many opportunities, but I cannot really say what they will be in terms of launch and [ projections ] at this stage.

The next question comes from the line of Charlie Mabbutt with Morgan Stanley.

Charlie Mabbutt from Morgan Stanley. I guess, firstly, on Vyepti, I was interested to know how you think, you believe the preventative market share in the U.S. could continue to trend, and where you sort of see a potential peak. And equally, I guess, the rest of world launch, you said is progressing very well. So, how do you view the rest of world opportunity for Vyepti, and if you can compare it sort of to the U.S.? And then, I guess, secondly, on the Abilify long-acting franchise, would you be able to help us think about the ex-U.S. revenue profile with sort of the 2-month version, obviously, coming to market -- potentially coming to market very soon and the patent potentially expiring at the end of the year for the one-month?

Thanks, Charlie, for the question. I'll start with Vyepti in the U.S. As I have said, we're very pleased with the progress that we're making with Vyepti in terms of its adoption within the anti-CGRP preventative marketplace. I think, importantly to note is not only what our share is when we look at the overall market, which is 8%, but we also look at where -- based upon our market position. What the overall share is for patients who have failed one or more CGRPs. And if we look at that market share, which is probably a leading indicator for the trajectory, it's at 9.6% as of September. And based upon the volume growth that we've seen over the course of the last quarter, we expect that market share to continue to grow.

And Charlie, maybe I can just add for the ex-U.S. markets and the rollout that we see there. We expect sort of a vial sold on a similar level, compared to the US, but of course, taking into account that we have markets that are launching sequentially at a different pace. If we look at our uptake this far, it looks very promising in many markets, even though that we are coming in quite a bit later than the other CGRPs. We have in some places the second best CGRP launch despite coming in later than, for instance, Emgality and Ajovy. So, very encouraged about seeing that. Our positioning, as we mentioned in the past, is very much towards severely impacted patients, which naturally leads us into the chronic space after failures. What we also see, especially encouraging from the U.S., is that physicians start to use it much more frequently and sooner in the treatment paradigm. So, I think we're just seeing the start of Vyepti here. We expect solid continued growth for many, many years to come. Then I -- you had a question around the 2-month. Very true. We expect to begin the rollout in Europe quite soon. Hopefully, we'll get the final approval in Europe soon. You should see the positioning there. Similar to the U.S., it's about offering that additional treatment options for patients that will enjoy or are enjoying the one-month and then they can go to a longer version. And we will do our best to optimize the franchise between the 2. At the time where we expect generics, that will, of course, have an impact on the one-month, though. We also, in our projections, do not expect Asimtufii to become as big as a one-month, but a very solid treatment options in our LAI franchise.

The next question comes from the line of James Gordon with JPMorgan.

James Gordon, JPMorgan. Couple of maybe financial questions. One was base business performance. So, the base business looked like it declined about 20% in Q4 or it had been flattish. But just in terms of why there was such a sharp decline in Q4, and what does guidance assume for the base business for '24? How much better do you think it would be? Second question, SG&A. So, SG&A was quite a bit above consensus in Q4, and I think there was partly some one-off factors. So, the EBITDA level, how much of that was one-off? And is it correct that roughly the guidance assumes SG&A to grow mid-single digit in '24? Is that the right assumption for what you need to support Vyepti launch and LAI launch? And then third and quick one. Cost reallocation, is it just closing some less important geographies and it's a quite minor reallocation, or might we get an update later this year, where you say that we've made this big saving, there's a cost savings plan, and that's going to have a more transformational impact on the company? And final quick one. Any estimate for how much of Rexulti you think now does come from -- or did come from AA in Q4?

Thanks, James. Quick question -- no, it's not a quick question. Quick answer to your question around the -- I believe it was the mature product performance in the fourth quarter. I think there are always declines and there are -- especially among some of the mature products, and also there are quarterly variations here that we have to look out for. So, don't use the Q4 as a trend looking into '24. I would say, though, that the biggest impact that we've seen in '23 is the erosion of Lexapro in Japan, as we've seen generics there, which certainly also had an impact in Q4 on Cipralex sales, as reported. One note here that I think is worth highlighting is that the decline that we see on Cipralex throughout '23, if we did not have the impact from Japan, Cipralex would actually have been growing in '23. So, it speaks to the impact that we've seen on Lexapro in Japan.

And I'm not sure, James, I got all of your questions regarding SG&A and EBITDA. But as I recall, I think, overall, from a ratio perspective, we anticipate an improvement in our SG&A ratios, which also allows us, basically to reallocate funds into innovation, as you see in the increased guidance on R&D costs. The second part of your question was, I believe, to the one-time effects. And I think, in principle, I would look at Q4 purely, if you look at differences between gross margin as a one-time effect, and the best, as I said earlier, is to really look at the indication we're giving forward, of adjusted gross margin between 88% to 89%.

And James, let me just quickly address your question on how -- I think you phrased it as cost cutting or cost reduction. I would look to just refrain from that. What we're really trying to do here is, when we look at the current guidance for '24, we see a very nice expansion and growth on an EBITDA level. So, we are traveling in the right direction, towards the mid-term guidance that we set of 30% to 32% by 2026. What we're really trying to address is, can we create flexibility to allocate more to innovation, once we see success in the pipeline? And I think that's really what we're trying to do. It's not a cost savings exercise, but really the potential to be flexible, to invest more in innovation when we see those opportunities come along. So, I hope that clarifies your question there.

And James, I'll finish up with the question in terms of looking at the contribution index across different indications for Rexulti. As you know, we are now tracking the business both from an MDD standpoint and an AADAD standpoint, and it's our ambition to be able to continue to grow both segments of those markets. If we look at the level of contribution of AADAD, what we call spontaneous use, prior to the launch, it was running at about 4%. If we look at the November claims data, the contribution of AADAD is now at about 11%.

Ladies and gentlemen, that was the last question. I will hand over back to Lundbeck for any closing remarks.

Great. I just want to thank everyone for joining the call today and, of course, want to again convey my confidence around how we see the company evolving, and also as we go into '24 with another strong year ahead for us. So, thank you again for joining us today.