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Lundbeck is flush with cash despite declining revenue and record dividend payout

Danish drug group Lundbeck is starting to act up to its strategy of pursuing acquisitions and partnerships, says CEO Deborah Dunsire, who reports increased cash balance despite generic competition and the largest dividend payout ever.

Photo: /Ritzau Scanpix/Gregers Tycho

In 2019, Lundbeck payed out totaling DKK 2.4 billion (USD 360 million), the largest dividend ever, to the company's shareholders. Yet, the company is financially stronger than a year ago.

During the past year, the company has added DKK 1 billion more to its coffers and now has over DKK 4.5 billion for renewing its product pipeline via partnerships and acquisitions.

"Lundbeck is a very strong cash-generating company, and that gives us the financial flexibility to make acquisitions and strengthen all phases of our pipeline," says CEO Deborah Dunsire, who has set aside around DKK 30 billion (USD 4.48 billion) for entering partnerships, license deals and acquisition agreements.

This week, the company took the first step to follow this strategy and acquired the US biotech company Abide Therapeutics with 40 employees, an interesting technological platform and a phase II candidate.

Focused on growth

After former CEO Kåre Schultz's turn around, the dark days are returning for the Danish company.

Schultz's method to bring back growth to Lundbeck proved to be expensive in the long term as the company, in an attempt to cut costs, gave up several development projects. The company's future therefore depends on of a modest pipeline of treatments against schizophrenia, Parkinson's Disease, depression and Alzheimer's.

Several of the company's candidates disappointed in the clinical trials and in the recent Q1 interim report, the company announced the termination of the phase I pipeline compound Lu AF20513 against Alzheimer's Disease. It leaves Lundbeck without candidates to immediately fill the gap created by the expired patents on the company's products.

This harsh reality hit Lundbeck in 2019. The expiration of Onfi's patent alone cut around DKK 600 million off the revenue. Increased generic competition against Sabril also brought down the revenue by 8 percent relative to the first quarter of 2018.

The net profit also declines from DKK 1.2 billion in Q1 2018 to DKK 898 million in 2019. However, it is still enough to beat the analysts' expectations of DKK 855 million.

According to Dunsire, Lundbeck's ability to turn around the development depends on the external candidates the company works to include in its pipeline.

“We are focused on returning to growth, but the timing will depend on the kind of deals we make and when. If we brought in a compound with existing revenue, it would be sooner than otherwise," she says.

This is where the company's finances enter the picture.

Lundbeck prefers to bring in good long-term investments instead of immediate capital injections to satisfy the outside world's craving for growth, says the CEO.

"The fact that there is good ability to make deals doesn't mean that we should make one huge deal. We won't bring in current revenue at a price that doesn't allow us to return to our shareholders," says Dunsire.

English Edit: Ida Løjmand

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US acquisition to strengthen Lundbeck in the long run

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