Lundbeck Looks Largely Played Out

I’m often sloth-like when it comes to selling positions in good companies, but it looks to me like the time to part company with H. Lundbeck A/S (OTCPK:HLUYY) (LUN.CO) may be close at hand. Despite concerted efforts to differentiate its new product portfolio, Lundbeck is struggling to gain much headway versus generics in the U.S., while generic competition continues to threaten lucrative profit centers in the mature portfolio. What’s more, the cupboards are pretty bare when it comes to the pipeline, and though management seems more positive on M&A than it has in the past, early-stage assets aren’t likely to garner much enthusiasm.

Lundbeck shares are trading around my fair value, suggesting a total return potential in the high-single digits – which really isn’t too bad today (and part of the reason I’ve been slow to sell). The announcement of a new CEO could also be a stock-moving event (in either direction), as he or she will likely have a vision for Lundbeck that offers at least some change from today. I don’t believe my low single-digit growth expectations are all that aggressive, but these shares are looking pretty “meh” after a strong run driven by new launches and rigorous cost restructuring.

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Lundbeck Looks Largely Played Out

Seeking Alpha: Lundbeck Continues To Rebuild Its Reputation

It may be good advice to not look a gift horse in the mouth, but it's also a pretty good idea to not get overly excited about unreliable financial performance drivers. I'm still generally bullish on Denmark's H. Lundbeck A/S (OTCPK:HLUYY, LUN.CO) (or "Lundbeck"), but my enthusiasm is tempered by revenue beats that are coming largely from declining businesses, difficult marketing environments for key drugs, and a pipeline that may be hard-pressed to drive a lot of near-term pop.

I want to make it clear that I'm talking about the difference between tapping the brakes and diving out of the car entirely. I still think Lundbeck is a worthwhile idea as a long-term holding, but I think the sentiment has shifted from unduly (if not absurdly) negative a year or so ago to perhaps a little too positive in the near term. I still believe $38-42 is a reasonable fair value range for the ADRs, with potential upside from high-risk clinical programs where the value is presently heavily discounted, but I'm a little less excited about the near-term outperformance potential from the core drug business.

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Lundbeck Continues To Rebuild Its Reputation

Seeking Alpha: Lundbeck's Results Easing A Lot Of Anxiety

Denmark's H. Lundbeck A/S (or "Lundbeck") (OTCPK:HLUYY) (LUN.KO) continues to do a commendable job of restructuring and repositioning itself to come back from significant patent cliffs. Not only has the company launched two potential, albeit uncertain, blockbusters in the last two years, the company's cost restructuring effort seems ahead of plan. With the company now offering a credible trajectory toward 20%-plus free cash flow margins and respectable revenue growth, a fair value of DKK247/$37.25 seems reasonable today.

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Lundbeck's Results Easing A Lot Of Anxiety

Seeking Alpha: Lundbeck Executing Where It Can, But The Biggest Drivers Are Risky

As I've written in the past, I think being a little reluctant to sell out of a good position is far from the worst trait an investor could have. To that end, while I saw less value left in the shares of Danish drug company H. Lundbeck (OTCPK:HLUYY) (LUN.CO) than I would have liked back in August, I was hesitant to sell ahead of potential upside in the cost-cutting program.

Since that last article, Lundbeck shares have logged solid double-digit appreciation and outperformed most pharmaceutical peers. Moreover, the company has provided some evidence that the cost-cutting efforts will drive better profit improvements than the sell-side initially expected. That said, the valuation argument is even harder to make now, and the prime drivers of further outperformance are both risky and at least a few months off.

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Lundbeck Executing Where It Can, But The Biggest Drivers Are Risky

Seeking Alpha: A New Beginning For Lundbeck, But Not A Clean Start

These are interesting times for H. Lundbeck (OTCPK:HLUYY) (LUN.CO) and its shareholders. This smallish Danish specialty pharmaceutical company is attempting to launch new drugs into crowded markets with questionable differentiation and has a relatively modest (and high-risk) pipeline, as well as limited resources with which to acquire new candidates. Amidst these challenges, the company saw its CEO resign for violating its code of ethics - hardly what investors ever want to see amidst challenging multi-market drug launches.

Wednesday may go down as a big turning point. There are still very legitimate worries about the future of the company's newest launches, but the company announced the hiring of a very well-regarded pharma executive as its new CEO. His options may be limited by Lundbeck's resources and reputation, but investors who are positive on the company's new drugs and underlying approach to drug development are going to very much look forward to what he can offer in terms of better sustained performance.

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A New Beginning For Lundbeck, But Not A Clean Start

Seeking Alpha: Lundbeck Continues To Fight To Stand Out

The Danish pharmaceutical company H Lundbeck A/S (OTCPK:HLUYY) (LUN.CO) isn't going to resolve its challenges quickly. While I continue to believe there is a strong argument to be made that Lundbeck has developed a roster of differentiated CNS products that can stand apart from branded and generic competitors, the fact remains that the Street has yet to be convinced and the company is still facing significant near-term profit erosion from lost patent coverage on key drugs and significant investments to support drug launches.

Buying Lundbeck now remains a bet on the prospects that better clinical data for key products like Brintellix, Abilify Maintena, and brexpiprazole will translate into major sales and that compounds like Selincro and Northera will emerge as significant contributors in their own right. With base-case upside of around 25% and bull-case upside of more than 40%, I continue to believe it's a bet worth making for more aggressive investors.

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Lundbeck Continues To Fight To Stand Out

Seeking Alpha: Lundbeck Remains A High-Risk/High-Reward Specialty Pharmaceutical Play

There isn't that much middle ground when it comes to Danish CNS specialty pharmaceutical company H Lundbeck A/S (OTCPK:HLUYY) - sell-side analysts either think it is an overvalued company with little chance of differentiating its new products in the market or they think it is an undervalued company that can drive significant value through advanced drug design methods that lead to products with better efficacy and/or safety profiles. With the recent clinical failure of desmoteplase and an unimpressive initial ramp for Brintellix and Abilify Maintena the bears are looking stronger of late, but I believe this risky specialty pharma company still has a few strong cards left to play.

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Lundbeck Remains A High-Risk/High-Reward Specialty Pharmaceutical Play

The Motley Fool: Is Alkermes plc Stock Undervalued?

In simple terms, what Alkermes plc (NASDAQ: ALKS  ) is attempting to do is not easy. Few companies manage to successfully transition from being a licensor of drug formulation technologies to a proprietary drug developer and likewise few independent biotechs successfully take on the challenges of developing drugs for difficult-to-treat conditions like schizophrenia and depression. Alkermes has strong technology and intellectual property in its favor, though, and I for one would not underestimate the long-term potential.

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Is Alkermes plc Stock Undervalued?

Seeking Alpha: Lundbeck Delivers Some Data-Driven Upside

Danish specialty pharmaceutical company H Lundbeck A/S (OTCPK:HLUYY) (LUN.CO) is facing down some steep patent cliffs, as about two-thirds of the company's first revenue loses patent protection over the next two and a half years. Management hopes that significant new drugs launched with partners Takeda (OTCPK:TKPYY) and Otsuka (OTCPK:OTSKY) will more than fill the gap, and some recent updates on key drug Brintellix have been positive. Lundbeck is also looking at upside potential from desmoteplase, brexpiprazole, and Northera (which Lundbeck is acquiring in its announced deal for Chelsea Therapeutics (CHTP)), though these are higher-risk options today. All told, while Lundbeck remains a risky proposition, there is still upside to over $30.

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Lundbeck Delivers Some Data-Driven Upside

Seeking Alpha: Ongoing Skepticism Toward Lundbeck Still Leaves An Opportunity

Danish mid-cap CNS drug specialist H Lundbeck (or "Lundbeck") (OTC:HLUYY) (LUN.CO) doesn't get all that much attention in the U.S., even though drugs like Lexapro, Namenda, and Abilify Maintena may be a little more familiar to many readers. What is also familiar here is Lundbeck's story over the next few years - one where revenue and profits will come under serious pressure from branded drugs going generic, and where investors have to look to a relatively narrow list of drugs/drug candidates to offset the losses.

As it stands now, I believe the Street is overestimating the profit pressures that Lundbeck will experience and underestimating the extent to which management can cut costs to compensate. While pipeline risks are real, I believe these shares are still undervalued. These shares are up 40% from my earlier recommendation, but I believe there could be another 20% to go, as well potential positive drivers from better-than-expected pipeline and business developments.

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Ongoing Skepticism Toward Lundbeck Still Leaves An Opportunity

Seeking Alpha: Alkermes Still Not Getting Full Credit For Its Pipeline

Biotech is a strange world, one where investors often seem to prefer stories that are relatively weak on sales, earnings, and actual data. Maybe that makes a certain amount of sense - in the absence of data, investors are free to dream about blockbuster drugs and multi-baggers.

In the case of Alkermes (ALKS), it would seem that having an actual cash flow-generating business is almost a detriment to the stock. Given that I believe Alkermes combines a strong (and fairly stable) royalty-generating business with a high-risk/high-reward, but undervalued, pipeline, I believe this is a stock worth considering even at these relatively elevated prices for biotech stocks.

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Alkermes Still Not Getting Full Credit For Its Pipeline