The Viking approach to success in pharma
Some Irish scholars, in a recent idle moment, were speculating on what might have happened if Brian Boru, High King of Ireland, had lost the Battle of Clontarf in 1014?
Would we still be under the influence of the Norse way of doing things? Would we have been able to resist the attentions of our nearest neighbour and become more Swedish or Dutch or, better still, more Danish?
We have had a thousand years to think about this puzzle without ever coming to any conclusion, but if we were more Danish we might, like the Danes themselves, have made a bigger noise in the competitive world of Big Pharma. The Danes have created two world-class companies in this field - Novo Nordisk, and the company we are examining this week, H Lundbeck A/S.
A mid-sized pharma company with a market value of DKK 56bn (€7.5bn) and based in Copenhagen, Lundbeck focuses on the treatment for depression, schizophrenia, Parkinson's and Alzheimer's. It is a fully integrated pharma company with a diversified portfolio and has developed a successful partnership with Otsuka, a Japanese pharma concern. It employs over 5,000, but this will change.
Founded as a trading company 100 years ago by Hans Lundbeck, it has been launching its own unique products since the 1960s, giving it the basis of today's blockbuster drugs mainly targeting the 700 million people living with psychiatric or neurological disorders.
In the last 18 months, the company has attracted investor attention and its shares have rocketed. Prior to that, Lundbeck had seen some of its profitable drugs fall over the patent cliff but it quickly upgraded its offerings which have been a success.
The company's sales last year were mixed. The important US market saw sales rise by 70pc, driven by the introduction of new products. In contrast, European revenues dropped by a quarter. This decline was caused by generic competition following the loss of patents of its mature drugs. Sales for the rest of the world also declined 9pc, mainly due to patent expiry of some of its drugs. However, the company remains optimistic on China and Japan for increased sales.
Like other pharma groups, Lundbeck has had its problems. Five years ago, it was forced to establish a new US distribution system. This was to deny the use of its epilepsy drug by the US prison system for executions. After pressure from Amnesty International the company reviewed all orders and denied orders from the prison systems.
Lundbeck's share movement in the last decade is interesting. In this period its shares have traded in a band between DKK 80 (€11) to DKK 120 (€16) but since early last year they have taken off and now trade at DKK 283 (€38), a record.
Its sales revenue of DKK 14.6bn (€2bn) is still below that of five years ago, but is 8pc ahead of the previous year, driven by its new products which now account for 25pc of total revenue.
The outlook for Lundbeck this year looks good. It expects that sales will rise, driven by the continued robust performance from its new products. This will offset the erosion of its mature products by generic competitors.
To further recover its profitability the company last year announced a cost reduction programme and the loss of 1,000 jobs. Investors will also be pleased that it expects to reverse its losses with profits and expects dividends to return.
Lundbeck has a Danish talent for being able to make the most out of specialist niche markets. The Danes were able to do the same in agricultural markets down the years so there may be something about an especially Scandinavian approach to business that we lack. It's too late to begrudge Brian Boru his 1014 win, but it makes you think!
Nothing in this section should be taken as a recommendation, either explicit or implicit, to buy any of the shares mentioned.