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

Great. Good afternoon. I'm James Gordon, JPMorgan European Pharma and Biotech Analyst. And I've got the pleasure of introducing this Lundbeck presentation today. And we're going to hear from Lundbeck's CEO, Charl van Zyl. Look forward to the presentation. Thank you very much for joining us today.

Great. Thank you, James, and good afternoon, everyone, here in the room. And of course, those who've joined us online. It's my pleasure to be able to present progress on Lundbeck today. So 12 months ago, essentially 1 year ago, we were here in front of you introducing our focused innovator strategy. And there were essentially 3 questions that we had learned from investors that were important to address in Lundbeck for the long term. The first was, can we grow the existing assets we have, the strategic portfolio faster and more through to navigate through the midterm? Can we build a long-term sustainable pipeline that can grow the company into the next decade? And the third question was, how do we fund that journey, while maintaining a healthy balance of our financial picture through the midterm. And of course, I'm pleased to stand in front of you today to be able to say that we have made significant progress against all 3 of these questions. 2024 has truly been a transformative year for the company, and I would like to, of course, go further into some of those highlights through the presentation. Today, of course, I'm making some statements that are forward-looking statements, so are subject to change as a disclaimer. So we often get the question, neuroscience. Is it more risky? Is it attractive? And I would say, first of all, we look at it through the lens of a few things. The first is huge unmet need, high burden of disease, often lifelong conditions. And these are the types of challenges that really inspire the scientists at Lundbeck. And this is really what brings us to work every day, and this is why we are in this space. Of course, there's also been a second part, which is advances in understanding of the science, the biology, the pathobiology, which, of course, makes it more clear for us to be able to target diseases more carefully and more precisely. And of course, the third one is that it's an attractive commercial area. It is continuing to grow and expected to grow certainly into the next decade. So with our knowledge we have, our know-how and the -- on the backdrop of a very attractive market segment, we feel that our focused innovator strategy is really poised for long-term success for the company. And as a focused innovator, we are very clearly also focused on where we play and where we should play. We come from a history of neuropsychiatry, where we were treating millions of patients, and we continue to treat millions of patients. But we've also expanded into neurospecialty, where we are treating maybe 10,000, 20,000, 30,000 patients. But we also see an evolution in the pipeline, where we are going to more neuro-rare diseases, where we might be treating a few thousand patients. So I think a core element of what you will see in our strategy is that we are really evolving from a broader-based neuroscience approach to a very specific specialized approach, which is going to drive the company into areas of neurospecialty, but also neuro-rare and be more diversified, where differentiation scientifically is more important than scale. And what you would have seen certainly in the last 12 months is truly a transformation in the pipeline. From a company, where we were in much more the early stage at the beginning of last year, we are now in a position, where we can have essentially 4 assets potentially in Phase III by 2026. 2 of them are already in Phase III and others are advancing. So this truly changes the profile of Lundbeck and brings us to a basis of more long-term growth through the pipeline. So how did we deliver against the promise we've made 12 months ago? And I'm immensely proud to be able to share with you a few of the highlights. This is really the highlights of Lundbeck, the organization and how we are focused on driving our strategy, our focused innovator strategy. And the first one to say is that we are growing really significantly our strategic assets at 21%, and it's underpinned by VYEPTI, Trintellix, Brintellix, Rexulti, but also some of our more mature assets like Abilify. And many of these assets have been in the market for 4 years or 5 years or even longer, but we continue to see significant double-digit growth, as a result of really focused execution of our commercial strategy. On the innovation front, we have made significant progress, of course, as I said, in the pipeline. VYEPTI is continuing to grow very well, but we've also now in -- with the readout of the Phase III SUNRISE results paves the way for us to be able to file and launch in the future also in the Asian markets. And anti-PACAP, first-in-class molecule really backs set up with a Phase II now potentially going into Phase III, where we are building a very strong position in severe preventative migraine. On the neuro-rare side, of course, we're seeing a significant build as well. We are seeing the acquisition, the largest bexicaserin we've done as a company in our history. And that is, of course, Phase III ready and being executed, but we also have amlenetug, alpha-synuclein that is also in MSA being a first-in-class molecule there as well and anti-ACTH in Crohn's disease and congenital adrenal hyperplasia. So areas, where we are now seeing our rare disease opportunity expand also for the diversification of the long-term growth of the company. Underpinning all of this is a very disciplined capital reallocation to allow us to fund our R&D-led organization, but also making sure that we fund the growth in a very focused commercial model for the future. So let me speak a little bit about growth, first of all. The first important question of our strategy is growth. And I'm, of course, very confident when I look at the results we have achieved with these 4 assets. As I've said, they are in the market for more than 5 years and continue to grow at 21% when we look at our last third quarter results of last year. But when we project this into the midterm, we, of course, see phenomenal opportunities further to grow here. We see Rexulti with the expansion of its AADAD. So this is agitation associated with dementia and Alzheimer's disease is a new indication for us, of course, in 2023 that is now driving a lot of our growth in Rexulti. And we are in discussions with the FDA around indication expansion with PTSD, as further opportunities for this asset. But we see strong growth through the midterm of Rexulti underpinned by many of the initiatives we have taken with the new indications. VYEPTI, really strong and expected to triple the sales by 2027 from where we are today. Abilify, long-acting, we are seeing here a potential to further expand. Of course, we have a 2 monthly injection now that allows us to also further manage the conversion from Maintena, but also see new patients benefiting from these 2 monthly treatment opportunity. And Brintellix/Trintellix continues to grow very strongly, both in our international markets in Europe, but also in Japan. So on the back of this, we have a really strong commercial engine that we feel can carry us through the midterm growth needs of the company. And just to give you a few examples here. On the left-hand side, you see VYEPTI. This is truly a turnaround of an asset. We see this now as one of the key assets of growth for us. As we said, this is tripling the sales by 2027. And it's driven by really clear execution of our operating model, strong investment in patient services, in mobilizing direct-to-consumer, but also investing in depth and breadth of prescribing and ensuring we have the right share of voice to be able to drive the growth of this potential opportunity for long-term growth for the company. Rexulti on the right-hand side is another growth example, where we have 2 indications today, essentially major depressive disorder. And of course, as I said, agitation associated with dementia and Alzheimer's disease. And we see clearly strong growth of our newest indication, AADAD, which now is trending towards being 20% of the new prescriptions in Rexulti. So again, a strong growth engine for us going forward. Now I'd like to switch a bit to the innovation engine. And as the focused innovator strategy is one of R&D-led organization, I can truly say that we have transformed through the leadership of our R&D Head, Johan, really a new R&D model of the future. We are clear on where we play in the psychiatry space, neurospecialty and neuro-rare. But we have shifted from a position, where we were chasing indications to really being focused on the biology, understanding the pathobiology, putting our clear emphasis on understanding the cause of the disease and the target and understanding it very well before we put it through a very strict pace of preclinical work. And then, of course, doing also adaptive proof-of-concept studies to be able to quickly understand the clinical profile, as we say, let the patients speak through this process. So truly an engine that has been revamped, rebuilt to really be important, of course, for our capability of being a focused innovator and an R&D-led organization of the future. So just to simplify a little bit the pipeline, some -- a number of advances we've seen over the last 12 months -- 12 months to 18 months, where we have now, as I said, really changed the profile of Lundbeck's pipeline to a more late-stage balanced pipeline, where we now have the potential of 4 Phase III programs by 2026, led by, of course, amlenetug, anti-PACAP, anti-ACTH and of course, also the acquisition that we've made with Longboard with bexicaserin. So let's just briefly dive into 2 of those pipeline opportunities. And here with bexicaserin, this is clearly our biggest acquisition that the company has made in its history and one where we believe we have certainly the best-in-class molecule or mode of action, broader potential of indication across a number of epilepsies. So first of all, Dravet, Lennox-Gastaut, but also developmental encephalopathies. So we see the potential of this asset to have a much broader application and peak sales potential between DKK 1.5 billion to DKK 2 billion. And we are right now in the process of, of course, integrating the Longboard acquisition and ensuring that the clinical operations are running smoothly with 3 programs in Phase III, [ DeepOCEAN, DeepSEA ] and also an open-label extension of those Phase III programs. So clearly, the focus here is on execution of these trials and ensuring we consolidate this new acquisition into our own pipeline and building strong momentum on the development in Phase III. Second important one is amlenetug, alpha-synuclein, where on the back of our Phase II data, where we show -- we demonstrated a clear trend of efficacy and the potential for disease modification. Following discussions with the FDA and with other regulatory bodies, we have entered into a Phase III program, which you see the design there, the MASCOT trial. And we are entering into an area here, where there is no treatment. So this is a first-in-class opportunity for these patients with multiple system atrophy and other devastating rare disease, neuromuscular disease. And of course, here, we see a market potential or market size between [ DKK 1.5 billion to DKK 3 billion ]. So again, an opportunity to see an asset here that could reach a blockbuster status. So when we think a little bit about Lundbeck and the Lundbeck of 12 months ago and where we are now, you see really a future state as well in this slide. You see that our commercial assets are really the foundation of our growth through the midterm, and we believe very clearly that we are investing adequately with a very focused commercial model to drive the midterm growth of those. But as you project the pipeline into the future, you really see that we have at least what we show here, 4 assets that are in the potential to go to Phase III and beyond and, of course, launch and grow the company into the next decade. So there is a clear Lundbeck of today and a Lundbeck of the future with a set of assets that will lead us more into specialty, as well as neuro-rare for the long-term sustainable growth of the company in the next decade. And so, what you see with bexicaserin, as I said, is a best-in-class molecule. Amlenetug, anti-PACAP and anti-ACTH are really first-in-class molecules, first-in-class mechanisms as well that really differentiate our pipeline to be that of a focused innovator, as we strive in our strategy. So the third question is really on funding and how do we navigate through this, where we have certainly a shift in our pipeline, more demand on our R&D investment and how do we ensure that we fund this through a healthy financial picture for the company. And we have done this through a very disciplined and systematic approach with our leadership team to ensure that we define what's essentially 30 programs inside the company that will allow us to create capital flexibility, not to drive profitability, but to allow us the capital to invest more into growth opportunities in the midterm, but most importantly, also in the R&D engine that we want to fuel for the long-term growth of the company. So that allows us with our capital reallocation, which is the biggest in the history of the company, so DKK 1 billion plus, allows us to navigate through the midterm with an adjusted EBITDA of still 30%, while investing in R&D at 20% to 25%, which is well above the peer group median in terms of R&D investment. But this, we believe, is the right approach to fuel the long-term success of the company being a focused innovator and R&D led in our approach. And so, with that, we really feel we have the foundations in place to be able to execute on the strategy over the next few years. So to conclude a few elements. First of all, there is, of course, a news-rich pipeline that is ahead of us. So there are a few that I would just highlight. Of course, not all of them today, and you have this available to you, but we will be providing also the readout of the Phase II open-label study of bexicaserin, which is the PACIFIC study. So that is coming out relatively soon in the first quarter of this year. We have -- we are engaging with the FDA following also the news that we released last week that -- we will have an advisory committee with the FDA on our indication for Rexulti in PTSD. So this is ongoing news flow that will happen in the first half of this year. We are also through our effort with the SUNRISE study, the Phase III results of VYEPTI able to file in the Asian market and pave the way for launching in China and Japan in the future. So this is just to mention a few of the highlights of news flow in the pipeline, but certainly a news-rich approach to our pipeline, and of course, seeing here really the testament of a company that has truly transformed its pipeline for the long-term growth of the company. So in conclusion, I want you to think about Lundbeck as a focused innovator and a company that is indexed to really drive research and development and lead from that perspective. It's a company that has the potential in the next decade, in the early part of the next decade to reach a DKK 30 billion sales potential, so significant growth potential for the long term. 8 out of 9 of our pipeline assets are more in the neurospecialty, neuro-rare space. So it's also transforming the company's business model into the future. And as a company that is very disciplined around how it thinks about its assets, its investment and the capital allocation to fund that journey to maintain a healthy cash flow and of course, allow us with these healthy financial dynamics to prepare the company for the future decade of growth of Lundbeck. So with that, James, I think we can go to questions. And I will, at that moment, maybe give you the floor, but I would also, of course, like to invite a few of the management team to the stage to take the questions, if that's okay.

Well, maybe [indiscernible]. [ You're going to start the podium ], how many chairs do we need?

I think we need 2 chairs.

Great. Does anyone have a question they'd like to start with? In that case, maybe I'll start with one on PTSD that's quite fresh.

Sure.

I have one audience question already, and I had a couple of questions on it. One audience question I got was whether Rexulti can still accelerate in 2025 if you don't have PTSD giving you a boost to it, given you've also got the dynamics of the existing indications of depression and schizophrenia, but then also you've got AAD as well.

So first of all, just to say, James, that PTSD was -- has not been included in any of our midterm guidance. So our growth is really coming from what we have in Rexulti today, MDD and the AADAD indication. So we believe we can continue to grow the asset based on the historical picture now 16%, and that forward-looking growth potential is still there. And of course, PTSD will be on top of that. So -- but I think, Tom, if you would like to add anything more to that, please do.

Sure. Thank you, Charl, and thank you for the question. As we think about Rexulti, as we said, we came across -- came through a flattening phase based upon having to pull back our DTC in the first month or 2 of 2024. And since then, what we've seen is an acceleration across the brand by really focusing on disciplined execution from a DTC standpoint, from an HCP sales force engagement standpoint, as well as from a patient affordability and reimbursement standpoint. We continue to see continued growth within the MDD or non-AADAD segment, but we do expect continued accelerated growth within AADAD.

And before I get to too many questions on PTSD, could you just remind us how much of Rexulti is now already [ problem with ] AAD versus the other indications?

Sure. So AADAD now represents, as of October because claims data does lag our prescription data at 19%. We've guided that AADAD will be greater than 20% by the end of the year, and we're on track to do that.

And then maybe in terms of where we are on the -- on PTSD, so do you know why you're having this AdCom? And am I right that we don't know exactly when the AdCom will be yet?

Johan, would you like to comment on that?

Yes. I mean, obviously, this came quite late in the review process, but FDA more and more uses AdComs more dynamically. So one has to be prepared for those things. It was not announced upfront, but we had an AdCom for our agitation in Alzheimer's indication. So this is 23 years ago since we last had a drug approved in this indication. So I think they probably felt that they needed to have a more deeper review. There are other applications that were reviewed last year that required an outcome. So I think they just like to pressure test a little bit extra. We're looking forward to that outcome. I have to say we have the biggest data set ever generated in PTSD. So we're happy to discuss what we have. We have across 3 trials, pretty convincing data. So we're looking forward to have a conversation about it.

And can you remind me in terms of how this -- will you get questions ahead of the AdComs? And at that time, you'll know more about what the contentious issue is?

Absolutely. We don't know the questions right now. It's just the communication that they like to have an AdCom.

Clear. And maybe a final one on this. Does given -- getting an AdCom schedule make you more or less confident that it will be approved?

I don't want to speculate on that. It's at least not a complete response letter. So it's a good step forward. And as I said, we have a lot of data to discuss.

I think we've always been consistent, James, that we see this as a [ 50-50 ], and we remain at that level for now.

Just to remind me -- remind you, we had 2 pivotal trials and then a Phase II trial. So across those trials, we had one of the pivotal trials had a strong placebo effect and missed on the primary. They had some secondary endpoints, where it hit, and that was the fixed-dose trial. So obviously, it's not the traditional replication across 2 trials that you should like to see.

And I said the final -- maybe the final -- final one on PTSD. Maybe is it just to remind people how big would PTSD be as an opportunity versus at least relative to the other indications for this drug?

Yes. So I think we have not disclosed any peak sales potential. I think we will take a bit of time to understand how, of course, let's first get through an approval. And if we launch, then allow us a few months to see an early uptake. But I think from an incidence or size of population, maybe, Tom, you can talk -- I think we are talking about 13 million at least Americans that have PTSD.

Yes. So if you think about PTSD, you can think about it in a range that it's between schizophrenia and MDD. About 13 million patients in the U.S. are diagnosed and treated for PTSD or diagnosed for PTSD, only about 23% of patients are treated. So significant opportunity to expand the diagnosis and treatment rates. I think what's important when we think about the PTSD opportunity is that 80% of the PTSD target HCPs fall within our current footprint for MDD. So we know these customers very well. And about 60% to 63% of those patients will be diagnosed for -- within the psychiatry specialty. So this is a segment, where we know very well. And PTSD will -- in and of itself will be a nice opportunity based upon the epidemiology. The other important point is we think about PTSD is the opportunity as it relates to strengthening our position in MDD as well.

Actually, final -- final, not really on PTSD as such. But just in terms of what was really the expectation in terms of where you're going to have to spend lots of launching this product. So you already have a Rexulti sales force. But is this a product, where it's a big swing factor on spend for the year?

Yes. So I think we see quite a high synergy effect on our field force. So we might have a small incremental build on the field force, but it's really the existing Rexulti field force. And of course, if you remember, we have also changed our agreement or renegotiated our agreement with Takeda on Trintellix allowed us to redeploy that field force to more growth in Rexulti.

Because I believe maybe segueing into another part of -- another theme, which would be at the analyst meeting, there's a cost-saving initiative going on or rationalization going on. And so, were you saying that you could do more than 30% margin every year or that's more like a medium-term aspiration?

What we communicated was what Charl alluded to earlier is the largest capital reallocation program Lundbeck ever did. And I think what we're not doing is a cost-saving project, but basically, we put our assets in the most value-creating constellation. So we're really placing them in the most yielding position they can have. What we guide for is to have a healthy margin of around 30% higher than 30%. So part of what we realize via the capital reallocation is given back into R&D investments. But overall, we still see roughly organically, if you don't count in '27, for example, certain pre-commercialization spend on bexicaserin or the additional R&D investment, we still see a minimum of a 2% improvement in cost ratio. So overall, I think it's a -- it's a healthy margin for us to have, and it's actually a position, where we can generate more value by growth than cutting margins further. And it supports what is our long-term ambition of around 20% to 25% of spend in R&D. We're spending around 18.5% in '24, and this will be increased significantly due to the onboarding of the Phase III project of Longboard, while the capital allocation allows us then hopefully to offset this to the highest extent in form of our '25 forecast.

And have you already done all this reallocation? Or is this something you need to do now? So is it all done and you're already reaping the benefits of that? Or is it more like you'll be there by the end of the year, but you've got to do a lot of work first?