Drug development is an inherently risky and challenging
endeavor, but not all drug development is the same. Some areas,
including drugs for the central nervous system (or CNS), have
notoriously below-average success rates, and H. Lundbeck's (OTCPK:HLUYY)
(LUN.KO) recent clinical failures provided yet another unwelcome
reminder to investors that the clinical pipeline they're counting on to
restore the company to a growth trajectory carries a high level of risk.
The
failures of foliglurax and LuAG06466 don't impact my baseline fair
value much at all, as I had assigned low probabilities of success to
each compound. Still, it does hurt sentiment as it further highlights
how the cupboard is relatively bare when it comes to novel compounds
that could contribute to sales in the mid-to-late 2020's. While these
failures could conceivably motivate the company to look for additional
late-stage/pre-commercial compounds to help shore up near-term earnings,
such deals are almost always more expensive than riskier early-stage
deals. For better or worse, while I do believe Lundbeck shares are
undervalued now, the company's focus on CNS drugs is always going to
translate into an elevated level of R&D/pipeline risk.
Read more here:
Two More Clinical Failures Underline Lundbeck's High-Risk R&D Model
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