Fourth quarter and full year report 2009 - Lundbeck delivers 22 percent revenue growth for 2009 and meets financial expectations for 2009

H. Lundbeck A/S (Lundbeck) announces 2009 results, which meet financial forecasts and continue to show growth in all regions. Full year revenue was DKK 13,747 million and increased 22% at constant exchange rates compared to 2008. Growth was driven by key products and the acquisition of Ovation Pharmaceuticals, Inc. (now Lundbeck Inc.).

 

·       Going into 2010 Lundbeck has three products - Azilect^®, Xenazine^® and Sabril^® - with the potential to be significant contributors to revenue and growth.

 

·       Cipralex^®, Ebixa^® and Azilect^® continue to show strong growth by 12%, 17% and 43% respectively. Lexapro^® was up 9%.

 

·       Xenazine^® contributed DKK 298 million in the 9 months, following the acquisition of Ovation (now Lundbeck Inc.) in March 2009.

 

·       Lundbeck writes down Circadin^® rights of DKK 157 million.

 

·       Profit from operations (EBIT) was DKK 2,858 million in 2009. EBIT margin was 20.8% for the year. Operating profit before depreciation and amortisation (EBITDA) was DKK 3,728 million corresponding to an EBITDA margin of 27.1%.

 

·       Lundbeck expects revenue of DKK 14.3-14.8 billion and EBIT of DKK 3.0-3.4 billion for 2010.

 

·       The Supervisory Board proposes to pay dividend of DKK 3.07 per share.

 

* Constant exchange rates

 

In connection with the full year report, Lundbeck's President and CEO Ulf Wiinberg said:

"Our key products continued to gain market share, we have shown strong financial performance and have reached our financial expectations. Although the development of Lu AA21004 is delayed, additional positive data have further strengthened our belief in the compound. During the year we acquired Lundbeck Inc. and with the launch of the Decisions Now programme, we have made significant progress in addressing our 2012 challenge."  

Management review

 

Financial highlights and key figures

                                                                                                                                   

1) Definitions according to the Danish Society of Financial Analysts' Recommendations & Financial Ratios 2005.

 

 

Lundbeck's development portfolio

Lundbeck is developing a number of new and promising pharmaceuticals in its existing fields of specialisation; depression, anxiety and psychotic disorders - and in new areas such as epilepsy, stroke and alcohol dependence. Lundbeck's pipeline includes:

 

One compound under FDA regulatory process                                         

Five compounds in clinical phase III

Five compounds in clinical phase II                                                          

One compound in clinical phase I              

 

Pipeline development is summarized as follows:

 

Clinical phase III

Headline results from the clinical trials in the phase III programme with Lu AA21004 in major depressive disorder (MDD) have been received, and the additionally received data from the programme has shown encouraging results for the potential efficacy and the tolerability profile of Lu AA21004. As previously communicated it has been concluded that it is necessary to conduct additional studies including higher doses, in order to file for a marketing approval in the US. The plans are being finalised and the new programme is planned to be initiated during the first half of 2010.

 

The phase III programme with nalmefene in alcohol dependence is progressing as planned and two of the three studies are now either finished or very close to finish recruiting patients which is ahead of plan. Data from the clinical programme is expected around year-end 2010. Filing in Europe is expected in the second half of 2011.

 

The phase III programme for desmoteplase in both DIAS-3 and DIAS-4 has experienced a slow initial patient recruitment. Additional centres will be initiated over the next 6 months and other initiatives will be taken to speed up recruitment. Only limited impact is expected on the previously communicated timelines. If the studies are positive, desmoteplase could be eligible for priority review by the FDA.

 

Recruitment in the clinical phase III programme with clobazam in patients from 2 to 60 years of age with Lennox-Gastaut Syndrome has been finalised. Data is expected by mid-2010 and filing of an NDA in the US is expected in the beginning of 2011.

 

Enrolment of the first patients in the required safety study in the clinical phase III programme for IV carbamazepine is expected to start during the first half of 2010. US regulatory filing is currently anticipated in 2012.

 

Clinical phase II

In December 2009, positive headline results from the clinical trials in the phase II development programme with zicronapine in schizophrenia were announced. The programme consisted of two studies, which involved approximately 375 patients in total.

 

In the two recently completed randomised clinical phase II trials, zicronapine was tested at several dosages between 3-10 mg/day. The two studies were exploratory, and therefore not powered to show clear statistical differences. However, in these studies, zicronapine did show clear statistical significant separation from placebo at doses 7 and 10 mg, together with very convincing efficacy and safety data when compared to olanzapine. In the placebo-controlled trial, zicronapine showed a clear dose-response and a statistically significant improvement in the PANSS (Positive And Negative Syndrome Scale) score at both 7 and 10 mg doses. In the olanzapine-referenced study, zicronapine showed a comparable reduction in the PANSS score. From both trials, it can be concluded that zicronapine was safe and well-tolerated.

 

Lundbeck is now finalising the planning for additional clinical work with zicronapine, including plans for the pivotal programme, which is expected to commence in the end of 2010.

 

The clinical phase II study of Lu AA24493 in the treatment of Friedreich's ataxia, which was initiated in November 2009, is rapidly recruiting patients and data is expected mid-2010. The phase I programme with Lu AA24493 in ischaemic stroke is also expected to be concluded mid-2010.

 

In November, Lundbeck announced the initiation of a multi-centre, placebo-controlled, fixed-dose study of Lu AE58054 as an add-on to donepezil in patients with moderate Alzheimer's disease. The clinical phase II study plans to enrol approximately 270 patients. The purpose of this study is to investigate if Lu AE58054 treatment improves cognition and functional outcomes after 24 weeks in patients with moderate Alzheimer's disease already in treatment with donepezil. Furthermore, the ongoing clinical phase II study with Lu AE58054 in patients with schizophrenia is about to be completed, and Lundbeck expects to report headline results from the study during the first half 2010. 

 

Lu AA24530 is progressing according to plan. Based on the solid clinical phase II data reported in July 2009, a pivotal phase III program is planned to commence by the end of 2010

 

In November 2009, the two clinical phase II studies with Lu AA34893 in bipolar depression and MDD were terminated in order to carry out additional pre-clinical work. Lundbeck has now decided to prioritise the development of Lu AA21004 and Lu AA24530 higher, and has closed down the clinical development programme for Lu AA34893. Lu AA34893 was the third compound which was part of the collaboration with Takeda.

 

In May 2009, the clinical phase II study with Lu AA39959 in bipolar disorder was suspended. Pre-clinical work is progressing as planned and a decision regarding the future development path of this project is expected by the end of 2010.

 

Clinical phase I

The profile of Lu AA38466 makes the development within neurological disorders less attractive, which is why the clinical phase I programme for this project has been closed down.

 

Revenue

Total revenue for the fourth quarter was DKK 3,540 million, an increase of 35% in local currency compared to same quarter in 2008. All of Lundbeck's key products showed growth during the quarter, while Lundbeck Inc. contributed with DKK 361 million.

                                                                                      

 

Serdolect^® generated revenue of DKK 66 million for the full year. In the future it has been decided that Lundbeck will not report Serdolect^® sales figures separately, and it will be included in Other pharmaceuticals.

 

Europe

In the fourth quarter, revenue in Europe rose 15% at constant exchange rates to DKK 1,889 million. The increase was driven by high growth in Cipralex^®, Ebixa^® and Azilect^® growing 17%, 17% and 31% respectively at constant exchange rates compared to fourth quarter 2008. Revenue from Other pharmaceuticals was DKK 247 million and declined 5% at constant exchange rates. 

                                                    

 

In December 2009, a generic version of escitalopram entered the Danish market. Cipralex^® revenue in Denmark in 2009 was less than 1% of total Cipralex^® sales.

 

At the beginning of 2010, Azilect^® was granted public reimbursement in France, and the product is already experiencing a promising uptake. The Parkinson's disease market in France generates annual sales of more than EUR 100 million (approximately DKK 750 million). 

 

Serdolect^® revenue of DKK 43 million is included in Other pharmaceuticals for the year.

USA

Revenue for the fourth quarter was DKK 961 million in the US, an increase of 131% in local currency. Growth was driven by a significant increase in Lexapro sales and the inclusion of Lundbeck Inc., which generated revenue of DKK 361 million for the quarter.

 

                  

Revenue from Lexapro^® was DKK 600 million, an increase of 43% in constant exchange rates. Growth was impacted by higher prices in 2009 and the inventory reduction of Lexapro^® in the fourth quarter of 2008, lowering the comparable figure for 2008 by approx DKK 150 million. Growth in Danish kroner was 18%. The difference compared to growth in local currency is primarily due to lower hedging rates for the US dollar, affecting the profit & loss statement in Q4 2009 compared to the hedging rates affecting the profit & loss statement in Q4 2008.

 

Prepayments from Forest, recorded in Lundbeck's balance sheet as the difference between the invoiced price and the minimum price of Forest's inventories, was DKK 693 million at 31 December 2009, compared with DKK 597 million at 31 December 2008. Excluding related hedging contracts, prepayments from Forest would be unchanged. At the end of 2009, inventories corresponded to approximately six months of commercial supply.

 

At the end of the third quarter of 2009, Sabril^® was launched in the US for the treatment of refractory complex partial seizures (rCPS) and infantile spasms (IS). Sabril^® was introduced into the market, with an extensive Risk Evaluation and Mitigation Strategy (REMS) programme, as required by the FDA and created in collaboration with the agency.

 

Xenazine^®[1] sales for the fourth quarter were DKK 110 million an increase of 23% compared to the last quarter. Xenazine^® generated revenue of DKK 292 million for the full year.

 

International Markets

Revenue in International Markets in the fourth quarter was DKK 612 million, an increase of 17% compared to the same quarter last year. This increase was driven by key products, all of which experienced double digit growth in constant exchange rates.                                                        

 

 

In the second half of 2009, revenue in Turkey was hit by a structural change in the Turkish healthcare system. This change demanded a substantial price reduction for pharmaceuticals and has resulted in inventory reductions at wholesalers in Turkey in the second half of the year. Sales in Turkey are picking up, but at lower levels. In the third quarter of 2009, generic versions of Cipralex^® were launched in the Australian market, affecting Cipralex^® sales negatively in the second half of the year.

The reimbursement granted for Cipralex^® in two provinces in Canada during the year continued to have a positive impact on sales in the fourth quarter, and at the end of December 2009, Cipralex^® held a market share of 9.8% in Canada compared to a market share of 7.1% at the end of 2008. In the fourth quarter of the year, Cipralex^® and Ebixa^® were granted public reimbursement in China.

 

In the beginning of 2010, Lundbeck entered into an expanded agreement with Teva regarding Azilect^®. The agreement with Teva now includes the rights to six Asian countries - China, South Korea, Hong Kong, Malaysia, Thailand and the Philippines. Azilect^® is currently only marketed in Turkey and South Africa within International Markets.

 

Serdolect^® revenue for the year of DKK 23 million is included in Other pharmaceuticals for International Markets.

 

Expenses

Total costs for the quarter were up 24% compared to fourth quarter 2008. The increase was mainly driven by the inclusion of Lundbeck Inc., which had an impact on all cost categories.

 

 

Lundbeck has decided to write down rights to Circadin^®, a product for the treatment of primary insomnia. Lundbeck in-licensed Circadin^® from Neurim Pharmaceuticals in 2007, and has since launched the product in a number of European countries. The write down had a negative effect of DKK 157 million on distribution costs for the fourth quarter.

 

Total expenses for the full year were DKK 10,889 million an increase of 18% compared to 2008. Excluding Lundbeck Inc. and LifeHealth, total costs for the year were DKK 9,567 million an increase of 4% compared to last year.

 

Dividend

The Supervisory Board proposes to pay dividend for 2009 of 30% of the net profit for the year to shareholders of the parent company, corresponding to DKK 3.07 per share.

 

Financial guidance and forward-looking statements

For the full year 2010, Lundbeck expects revenue to increase to DKK 14.3-14.8 billion and profit from operations (EBIT) to reach DKK 3.0-3.4 billion. Profit from operations before depreciation and amortisation (EBITDA) for the year is expected to reach DKK 3.9-4.3 billion.

 

The guidance for 2010 is based on the knowledge that Lundbeck has today and the magnitude of the guided range is an expression of the current uncertainties related to the global economical climate. As a consequence, Lundbeck foresees that healthcare reforms may be introduced, which could potentially have a financial impact on the company.

 

 

This announcement contains forward-looking statements that provide current expectations or forecasts of events such as new product launches, product approvals and financial performance.

 

Forward-looking statements are subject to risks, uncertainties and inaccurate assumptions. This may cause actual results to differ materially from expectations. Factors that may affect future results include interest rates and exchange rate fluctuations, delay or failure of development projects, production problems, unexpected contract breaches or terminations, government-mandated or market-driven price decreases for Lundbeck's products, introduction of competing products, Lundbeck's ability to successfully market both new and existing products, exposure to product liability and other lawsuits, changes in reimbursement rules and governmental laws and related interpretation thereof and unexpected growth in costs and expenses.

Change in accounting policy

As a consequence of the expansion of the agreement with Teva Pharmaceutical Industries Ltd. (Teva) on Azilect^® and as a result of the clarification made in 2009 to IAS 18 Revenue in respect of the agent and principal method, Lundbeck has changed its accounting policy with respect to presentation of the existing agreement concerning Azilect^®.

 

On conclusion of the agreement made in February with Teva, Lundbeck believes that the company is acting as principal in respect of total Azilect^® sales. This means that Azilect^® will henceforth be treated for accounting purposes in the same way as Lundbeck's other products, for which the company pays a proportion of the revenue or earnings to an external partner. As a result of the change, Azilect^® will henceforth make a full contribution to consolidated revenue, whilst license payments to Teva will be recognised as part of the cost of sales, as opposed to the previous policy under which revenue from Azilect^® was recognised net of license payments.

 

As a result of the change in accounting policy, revenue from Azilect^® for 2009 is DKK 769 million. With the previous accounting policy Azilect^® sales would have been DKK 365 million. Cost of sales for 2009 is DKK 2,655 million, compared to costs of DKK 2,251 million, using the previous accounting policy.

 

New incentive plan in the Lundbeck Group

The Supervisory Board of H. Lundbeck A/S has resolved, pursuant to the authorisation in article 4.4 of the company's articles of association, to issue warrants for up to a nominal value of DKK 5,000,000, corresponding to 1,000,000 shares of DKK 5 each. However, if the principles for determining the exercise price mean that the value of an issued warrant on 16 March 2010 is lower than the value of a warrant calculated as per 3 March 2010 which entitles the holder to subscribe one share at market price on 3 March 2010, this may result in the issuance of a greater number of warrants, however, no more than the total remaining authorisation to the Supervisory Board in article 4.4 of the articles of association, i.e. a total maximum nominal amount of DKK 21,250,000 of warrants, corresponding to 4,250,000 shares of DKK 5 each.

 

Members of H. Lundbeck A/S' Executive Management and executives appointed by H. Lundbeck A/S' Executive Management who are employed by H. Lundbeck A/S or H. Lundbeck A/S' subsidiaries are eligible to receive warrants. The above-mentioned subsidiaries comprise Danish and foreign enterprises in which H. Lundbeck A/S directly or indirectly holds at least 50 % of the shares. The members of the company's Supervisory Board are not comprised by the scheme.

 

The right to subscribe for warrants pursuant to the applicable terms and conditions will generally be granted on 16 March 2010, although the right to subscribe for warrants may be granted within the above-mentioned limits until 1 October 2010.

 

All of the warrants subscribed or a part thereof will be available to members of the Executive Management on 16 March 2013 subject to H. Lundbeck A/S obtaining a specific ranking in a peer group of companies, based on total shareholder return performance, and also subject to the Executive Management member's continuing employment in the period from 16 March 2010 until and including 16 March 2013. The warrants subscribed or a part thereof will be available to other executives on 16 March 2013 subject to the executive's continuing employment in the period from 16 March 2010 until and including 16 March 2013.

 

The Supervisory Board has fixed the number of warrants that each member of the Executive Management may subscribe as the number at market value corresponding to no more than 8 months' worth of base salary in 2010 for the Executive Management member in question, capped at 12 months' worth of base salary for the company's CEO. However, from these grants, the value of the allocated free shares will be deducted. See below.

 

For each of the eligible recipients, which have been appointed by the Executive Management, the Executive Management of H. Lundbeck A/S determines the number of warrants that each eligible recipient is entitled to subscribe.

 

Five warrants entitle the holder to subscribe 1 (one) Lundbeck share of DKK 5 nominal value. The subscription of shares will take place at a price per share of DKK 5 nominal value, corresponding to the price of the H. Lundbeck A/S share on NASDAQ OMX Copenhagen A/S (all trades) on the business days during the period from 4 March 2010 - 10 March 2010, inclusive, however, the price per DKK 1 nominal value must not be lower than 85% of the market price of the H. Lundbeck A/S share at the date of grant, all trades, divided by 5 and rounded up to the nearest whole number of kroner (exercise price). The warrants may be exercised during certain windows in the period from the date of grant, 16 March 2013, until and including 16 March 2018.

 

The number of warrants granted to Executive Management members is calculated and determined when the exercise price is known. The value of the warrants granted is calculated using the Black & Scholes formula based on the assumption that H. Lundbeck A/S ranks number one in the above-mentioned peer group.

 

The market value of the warrants at the time of the award on 3 March 2010 is calculated at approximately DKK 24.0 million using the Black & Scholes formula based on market assumptions. The number of warrants granted is low compared to the overall share capital of H. Lundbeck A/S, and therefore no adjustment has been made for the dilutive effect of the warrants granted when calculating the market value.

 

The Supervisory Board also resolved to grant the individual Executive Management members a number of free shares in H. Lundbeck A/S, the number of which is calculated by dividing 10% of each Executive Member's base salary in 2010 by the exercise price applicable for the warrants. However, the number of shares will be adjusted where necessary to comply with the 10% value limit stipulated by section 7 H(2)(ii) of the Danish Tax Assessment Act. The shares are granted on terms and conditions consistent with the remuneration guidelines for the Executive Management of H. Lundbeck A/S that were adopted at the company's annual general meeting held on 22 April 2008.

 

However, for executives in the US subsidiaries (4 persons) Stock Appreciation Rights and Restricted Cash Units on economic terms essentially corresponding to the terms for the warrants granted to other executive employees will be issued.  

 

In the financial statements, the incentive programme will be recognised in the income statement at fair value, and a probability calculation will be made in respect of H. Lundbeck A/S' ranking in the above-mentioned peer group in terms of warrants granted to the Executive Management. Shares and warrants will be granted to Executive Management members subject to these members achieving market goals, and the value of the award is therefore recognised in the income statement over the vesting period (three years). The value of other awards is recognised in the income statement at the date of grant.

 

Protection of patents and other intellectual property rights

A prerequisite for Lundbeck's continued investment in innovative pharmaceuticals is that intellectual property rights are respected. Lundbeck believes that the Group's intellectual property rights are valid and enforceable, and it is Lundbeck's policy to enforce its intellectual property rights, wherever they may be violated. Lundbeck is involved in pending patent trials in Austria, Belgium, Brazil, Canada, Denmark, Finland, France, Germany, Hungary, Israel, Lithuania, The Netherlands, Norway, Portugal, Rumania, Spain, Turkey, UK and the US in respect of the Group's intellectual property rights concerning escitalopram.

 

Conference call

Today at 2.00 pm (CET), Lundbeck will be hosting a conference call for the financial community. You can listen to the conference on the Group's website www.lundbeck.com under the section "Investors - Presentations".

 

Further information

An electronic version of the annual report for 2009 and further information about Lundbeck is available from the company's website www.lundbeck.com. The print version of the annual report for 2009 will be available on 7 April 2010.

 

Lundbeck contacts

 

 

 

About Lundbeck

H. Lundbeck A/S (LUN.CO, LUN DC, HLUKY) is an international pharmaceutical company committed to improve the quality of life for people suffering from central nervous system (CNS) disorders. For this reason, Lundbeck is engaged in the research and development, production, marketing and sale of pharmaceuticals across the world, targeted at disorders such as depression and anxiety, schizophrenia, insomnia, Huntington's, Alzheimer's and Parkinson's diseases.

 

Lundbeck was founded by Hans Lundbeck in 1915 in Copenhagen, Denmark, and today employs over 5,500 people worldwide. Lundbeck is one of the world's leading pharmaceutical companies working with CNS disorders. In 2009, the company's revenue was DKK 13.7 billion (approximately EUR 1.8 billion or USD 2.6 billion). For more information, please visit www.lundbeck.com.