Hard science

However, the therapeutic focus on the brain and its disorders carries some risk. While there is high market opportunity because of the enormous unmet medical need, that need exists because the science behind the cure is so elusive. According to the World Health Organization (WHO), one out of every four people develops a mental illness at some point in their lives; the number of patients with dementia is forecast to double—to more than 75 million—over the next 18 years. In China alone, CNS-related conditions are now the fastest growing source of healthcare expenditures; worldwide, the indirect economic burden of caring for mentally disabled people is rising even faster than their prevalence.

At the same time, new drug treatments for this population have been slow to emerge from the laboratory. The Tufts Center for the Study of Drug Development (TCSDD) finds that neuroscience drug candidates carry the longest lead time from proof of concept to registration (10 years plus) of any therapeutic sector—a key indicator of risk for a process where time is money. Because of the size and complexity of clinical trials in the CNS field, many candidates end up failing at the crucial Phase III stage of development, where costs tend to be highest. Over the past decade, big companies like Pfizer have scaled down or abandoned their commitment to the field, resulting in less competition and more "blue ocean" market space for those who opt to stay the course.

In addition to the scientific challenge of brain disorders, the Lundbeck product portfolio is in a transitional phase. The company's top-selling therapy, the anti-depressant Cipralex/Lexapro, which accounted for well over half of Lundbeck's worldwide sales of $2.9 billion in 2011, faces a loss of exclusivity in most marketed countries over the next 12 months. The crucial US patent on Lexapro expired in March, and sales here have since dropped by more than two thirds. In Europe, the drug is already subject to intense generic competition. The only bright spot for the once blockbuster drug is Japan, which saw launch of Lexapro last August and with support from partners Mochida and Mitsubishi Tanabe has already wrested a respectable 3.5 percent market share.

Lundbeck's other key products—Ebixa, (promoted by Forest as Namenda in the United States) a treatment to slow cognitive decline in Alzheimer patients; Azilect, (promoted by Teva in the United States) for Parkinsons Disease; Xenazine, an orphan drug used to treat chorea associated with Huntington's disease; and Onfi, an anti-epileptic—are targeted specialty products; together, they are unlikely to achieve the blinding success of the Cipralex/Lexapro franchise. Finally, another new product launched within the past year, Syncrest, an anti-psychotic for bipolar disease and schizophrenia developed by Merck, which Lundbeck is marketing in Europe, is building slowly and will take time to create a significant revenue base.