Thursday, November 3, 2016

Lundbeck Takes A Few Hard Knocks

The stock market is a funny place when it comes to pharma/biotech. Analysts and investors can say that they're not really counting on a high-risk drug, but when that drug fails they nevertheless whack expectations commensurate with having had some pretty meaningful expectations. So when Lundbeck (OTCPK:HLUYY) (LUN.CO) announced disappointing (but not entirely surprising) results from its experimental Alzheimer's drug idalopiridine back in September, it seriously damaged the positive sentiment and momentum that had been carrying the stock.

Idalopiridine isn't the only issue. Trintellix continues to underwhelm and Abilify Maintena's ramp continues to be erratic, and the company recently saw a setback with a proof-of-concept clinical trial that could have helped expand Trintellix's market. On the other hand, Lundbeck's existing business continues to perform quite well otherwise, expense reductions are really making a difference, and management seemed to suggest that there are pre-clinical candidates that could come to the clinic faster now that idalopiridine has failed.

My fair value is about 6% lower now, largely due to tweaking some expectations and another downward revision in Trintellix. With a fair value of close to $41/ADR, these shares look more interesting again as a buy candidate. I am certainly concerned about the ongoing issues with Trintellix uptake and a thin pipeline, but those concerns seem more than reasonably discounted by the market.

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Lundbeck Takes A Few Hard Knocks

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