Ladies and gentlemen, welcome to the H. Lundbeck Q3 2020 Conference Call. For the first part of this call, all participants will be in listen only mode and afterwards, there will be a question and answer session. Today, I'm pleased to present Deborah Dunsayer, President and CEO Anders Gutschher, Executive Vice President and CFO and Johan Lufmann, Executive Vice President of Research and Development. Speakers, please begin.
Thank you, operator, and thanks to all of you for your interest in Lundbeck. We welcome you to our teleconference covering our financial report for the 1st 9 months of 2020. As you heard, I'm joined by Anders Goetscher, our CFO Johan Lutmann, our Head of R and D. But also joining is Jakob Tolstrup, Head of Commercial Operations and joining from Chicago in North America, Peter Anastacio, our Head of the North American Operations. On Slide 2, you see our disclaimer.
And I know you've all read it, so we'll move on. Next slide. First, let me start by reiterating that I am very proud of the way Lundbeck employees have responded to the immense challenges of the COVID-nineteen pandemic. They continue to put patients first while embracing and delivering on our Expand and Invest to Grow strategy. Against a backdrop of constant change, we're very pleased with the development of the business, delivering revenue growth of 6% at reported rates during this 1st 9 months of the year.
Our strategic brands continue to show good growth, both in volume and value across all regions. Several of our mature brands have shown remarkable resiliency, which can be attributed to their well known effectiveness and very good tolerability profiles. As you know, however, the situation across the world remains fluid, with very few countries fully back to pre pandemic normal business. And now, some are reentering various levels of government mandated restrictions. As such, the pandemic continues to affect the delivery of health care and our business in many ways.
I think we can't underestimate how badly treatment is needed for patients facing mental illness, especially during the pandemic. We see increased stress, anxiety, and depression rates across the globe. This stress is magnified by the challenges of getting access to appropriate care. One thing that was affected by access challenges was Vyapti, which launched in the US during the 1st wave of the pandemic. Initial uptake has been slower than originally anticipated, but we are getting great feedback on the product from patients and physicians in the marketplace, and sales in the Q3 have doubled compared to the Q2 of this year.
We've developed a robust financial flexibility, both through our business performance, but also the very given our inability to promote our products normally. Given our inability to promote our products normally. While the overall trend in Q3 improved, physician patient interactions are still significantly reduced in many areas. I'm happy to say that most of our field force is now able to make some in person calls, but overall call volume is still well below pre pandemic levels. Our teams continue to be creative leveraging virtual platforms to educate patients and health care providers across all aspects of our business, from conferences to product launch events, to adapting clinical trial monitoring and continuing patient follow-up, albeit remotely.
It's important to stress that we still expect to deliver top line revenue per the guidance we announced in February, despite significant headwinds, both from the pandemic and, more recently, from currency depreciation. Anders will elaborate on the financials in detail, but I simply will state here that we've narrowed the guidance range for the year with just 2 months to go. Next slide, please. Our 5 strategic brands continue to perform well, delivering substantial growth, up 19% in aggregate, adding more than DKK 1,000,000,000 in sales compared to the same period last year. These products constitute 59% of Lundbeck's total sales, given healthy volume growth over the 1st 9 months, a testament to the value these products provide as well as the excellence in execution by our organization around the world.
In the Q3, we have seen impact from exchange rates, and of course, there is impact on the growth of new to brand prescriptions. Given the limitations the pandemic has placed on patient interaction with health care providers as well as on our ability to conduct normal promotional activities. Next slide, please. In North America, we're very pleased with the strong growth of 19% for our strategic brands in the 1st 9 months. The growth of the strategic brands more than offset the decline of loss of exclusivity brands, leading to a total revenue growth of 6% for the 1st 9 months of 2020.
We also see sound performance from several of our mature brands. But maybe I should just add that the growth seen with Sabral in the quarter is not a trend shift, but more a sign of quarterly fluctuations. International markets, which includes China and Japan, increased 8%, reaching DKK3.3 billion or 25% of our total revenue. This region is still in the early part of the rollout of our strategic brands, which showed a growth of 18%. We expect significant long term growth for these products in the region.
Negative currency development in the 3rd quarter impacted the reported revenue growth. Europe shows good momentum with revenue increasing 4%, driven by volume growth and achieving DKK2.5 billion, the strategic brands grew an impressive 17%. Next slide, please. Revenue from Brintellix Trintellix reached DKK2.3 billion in the 1st 9 months, a growth of 14% reported and 16% in local currencies. In the Q3, we see continued flattening or even a slight reduction in total prescriptions for the major depressive disorder market, reflecting an impact of the pandemic on people seeking care or receiving care through telemedicine.
In this setting, physicians are more likely to start a new patient on older generic therapies. Patients already on Trintellix Brintellix continue with therapy and receive more tablets per prescription, which is somewhat offsetting the softness in new patient scripts. Next slide, please. Rexulti is still mainly a U. S.
Franchise, though we've recently launched the product in Brazil and are planning additional launches through 2020 2021. Rexulti achieved DKK2 1,000,000,000 in sales for the period, which represents an impressive growth of 24%. However, it has been slightly impacted by reduced volume growth in the atypical antipsychotic market in the wake of the pandemic. In the 3rd quarter, the reported growth reached 4%, but in local currencies, growth was at 9%. These are strong numbers, given it's Rexalte's 5th year
on the
market. The main driver of growth is increased volume demand in the U. S. Major depressive disorder market. Next slide, please.
Northera grew 16%, finishing the period just below DKK 1,900,000,000. Abilify Maintainer grew by 19% to more than 1 point Abilify MNTENA grew by 19 percent to more than DKK1.7 billion. In many markets, Abilify Mantenna is the 2nd most prescribed long acting injectable treatment for patients with schizophrenia. And indeed, in some European markets, it is the market leader. Abilify MNTANA continues to hold its 18% market share.
Overall, we continue to see solid growth in the long acting injectables market, although this market has also been slightly impacted by the pandemic. Next slide, please. Vyepti has doubled in sales in the 3rd quarter. We're very encouraged with how this product is delivering for patients. Based on patient testimonials and feedback from health care providers, Vyepdi is fully delivering on its powerful, fast, and sustained promise.
We see a growing number of practices ordering vials. Consistent with our expectations, some 80% of the accounts purchasing by Epti are among buy and bill practices. On the market access side, we have made strong progress in obtaining coverage with both regional and national plans. Over 120,000,000 people now have access to VIEpti through plans which do not require any branded preventive therapy step through. And we're certainly seeing sales momentum accelerating.
It's very clear that the pandemic has significantly limited patient ability to receive infusion products across all categories, but this is gradually improving. Our sales force is also coming back into the field, which is vitally important for this newly launching brand. While the revenue is certainly not what it would have been without the pandemic, we remain very confident in the profile of VIApti to deliver for patients and become a strong growth driver for Lundbeck in the future. Next slide, please. Lundbeck has a large portfolio of mature brands, some of which have been in the market for decades.
You can split the portfolio in 2. Our 3 U. S. Products, Onphi, Sabral, and Zenazine, are declining more gradually after the initial steep loss to generics post exclusivity. The larger group of mature brands have high levels of trust and brand recognition in many markets around the world, which makes this portfolio of products remarkably resilient.
In fact, Cipralex Lexapro grew at 7% in local currencies through the 1st 9 months. I believe this is an underappreciated franchise for Lundbeck as it remains highly profitable and cash generative. Next slide, please. In February of 2019, we announced our Expand and Invest to Grow strategy. We continue to make significant progress along all our strategic imperatives, which sets us up for long term growth.
Our top priority is, of course, to maximize the value of our brands, particularly our strategic brands. And as you've seen, they are performing well. We have expanded our operating space and therapeutic reach through acquisitions last year, and we're now in the process of building a migraine and specialty pain franchise with the launch of VIEpti. We're transforming our R and D organization to build a pipeline around high unmet medical needs in specialist neuroscience indications. We're building a winning culture, leveraging the diversity of our global workforce to drive our progress.
I'm now going to hand the microphone over to Johan Lutmann to comment further on our progress in R and D.
Thanks, Deborah. Please turn to Slide 13. While we continue to maximize our brands we already have, we have simultaneously focused on filling our pipeline with treatments for brain diseases for which there are few, if any, treatment options. With a focus on niche diseases affecting more defined subpopulations of people where there's a high unmet medical need. We're making good progress on new neurology and psychiatry and specialist pain indications, while we are investing to maximize Brintellix, Brintellix, Vixulti, Abilify Maintainer and our new brand, Vyepdi.
With regards to Vyepdi, we have continued with filings in Brazil and the Philippines. So the number of submissions now stands at 9 with more to come. We will also submit the European marketing authorization application before the end of the year. The clinical trials that slowed due to COVID-nineteen are starting to pick up pace. Enrollment rates are increasing.
However, we are still not at levels we saw pre pandemic. Overall, we have a strong sustainable Phase 1 set of assets. We are continuing the investigation of our early development portfolio, including the PACAP and MAGLIPACE programs. As an example, we have started a Phase 1b study with MAGLIP66 in PTSD, and we plan to start 3 additional Phase Ib studies to fully explore the therapeutic potential of this biology. Next slide, please.
Our Phase 3 clinical study evaluating rixaltine Alzheimer's agitation has, as previously announced, been seriously impacted by the COVID-nineteen pandemic. To address this, together with our partner, Otsuka, in dialogue with FDA, we took the opportunity to increase the power of the trial and to adjust the sample size to maximum of 3 30 subjects. We have also decided to conduct an interim analysis when a targeted sample of 255 subjects has completed the trial. The interim analysis decision will be in accordance with pre specified criteria and conducted by an independent data monitoring committee and expected to take place during the Q2 of 2021. These decisions increase the power of the study overall, in addition gives us the possibility for an early stop with a successful interim readout.
Next slide, please. For Vyepdi, episodic cluster headache has been selected for indication expansion based on evidence supporting the role of CDRP in this disorder. Episodic cluster headache is a terrible, very painful condition, characterized by episodic attacks of intense unilateral headache. Most patients experiencing cluster headache attacks rate their pain intensity as an ear to or diverse possible. The condition is also termed suicide headache as patients with this condition also have a higher than usual suicide rate.
The social impact of cluster headache is considerable, and it's associated with substantial direct and indirect economic consequences. Cluster headache has a prevalence of 0.1% with a 2 to 6 times higher average incidence rate for males compared to females. There are significant unmet need for just every clinical aspect of cluster headache. The currently available preventive pharmacological treatments are non specific, insufficient and hampered by side effects. We anticipate initiating the ALLEVIATE study soon, and the study will recruit around 300 individuals.
The primary efficacy endpoint is changed from baseline in number of weekly attacks. Next slide, please. Together with Otsuka, we have been conducting a pivotal Phase I study investigating a new innovative and patented protective formulation, iripiprazole, allowing for dosing every 2nd month. Dosing every 2nd month can add important benefits in terms of convenience for the patients and has the potential to increase treatment adherence. The need for medication monitoring by healthcare professionals, family and caregivers is also likely reduced.
This study has now concluded with a positive outcome. In addition to assessment of safety and tolerability, the objective was to establish the similarity of aripiprazole concentrations when given every 2nd month with the new 2 month formulation versus administering Abilify Maintainer monthly given over 2 months. This was shown by observing the exposure in the last dosing interval. The study showed that the new 2 month formulation, while being safe and tolerable, provided effective plasma concentrations of aripiprazole for 2 months. This means that the new formulation can be dosed every 2nd month compared to monthly Abilify Maintainer.
Based on the data obtained, no further clinical studies are expected to be required. Scale up of manufacturing capacity is underway at Otsuka Pharmaceuticals and regulatory submission is planned in the U. S. And Europe for the first half of twenty twenty two. Next slide, please.
As I touched on before, we are substantially transforming our approach in R and D to be able to more effectively expand our pipeline with a balance of 1st in class and best in class drug candidates to enable a steady progression of breakthrough and differentiated medicines across all development phases. We have refocused our internal discovery search on 4 biological clusters, which are shown at the left side of this slide. These biological clusters represent areas of important emerging advances in neuroscience, with rich opportunities to establish drug discovery programs with strong impact and potential to address areas of highest unmet medical need. Drawing on the buildup of our experimental medicine expertise, we are also strengthening our abilities to early establish the technical and scientific qualities of our clinical candidates, enabling us to gain more objective evidence of drug action and test efficacy early in development, thereby de risking the path to the market. We will continue to enhance our science and development capabilities, including with digital technologies in pursuit of delivering medicines with better outcomes for patients.
With that, I'd like to conclude the R and D update and pass over to my colleague Anders for financial update.
Thank you, Hen. Please turn to Slide 18. Lundbeck's strategic brands have shown very robust double digit growth for several years now, and that has continued in the 9 months period, although the global pandemic is having a negative impact on the demand growth in the Q3. In aggregate, we have seen a 6 percent growth in the net sales in the 1st 9 months driven by the resilient Lundbeck product portfolio and even in light of the currency headwinds in the 3rd quarter. Cost of sales increased by 20%, partly reflecting amortization of Vyepsy and partly due to valuation adjustment on Vyepsy inventory following reduced production costs, which will benefit the gross margin going forward.
Looking at core costs, the increase was only 2%. The core gross margin, therefore, increased from 85.8% to 86.3%. SG and A costs for the period were DKK 5,000,000,000 compared to DKK 4,600,000,000 in 2019. The SG and A ratio for the period was therefore 37.2% compared to 34 point 6% for the same period last year. The increase is mainly due to investments in the commercial organization in the U.
S, China and Japan related to the support, the continued growth of Brintellix and Yepti. The SG and A costs have benefited from the COVID-nineteen related cost avoidance due to lower activity level as well as positive currency effect in the latter part of the period. Research and Development costs increased to $3,700,000,000 for the period and D costs are impacted by increased clinical activity for Vyepdi, costs related to the impairment of follicularax of approximately DKK800 1,000,000 announced in March 2020 and the R and D restructuring cost related to the changes in the R and D ratio for the period was 20.6%. Core EBIT reached 3.7 1,000,000,000 and the core EBIT margin faced a modest decline from 31.8% to 27.7%. The effective tax rate for the period was heavily impacted by the follicularx impairment.
Focusing on the core tax, it actually declined to 19%. Core earnings per share reached DKK 14.87 per share. Please turn to Slide 19. As you can see from the slide, free cash flow was solid and grew versus last year. On the right part of the chart, you can see that the acquisition we made last year increased the debt, which was DKK 5,000,000,000 at the end of September, but the net debt to EBITDA ratio is still at a healthy level of 1.1x.
We expect the net debt to be around DKK 5,000,000,000 at the end of 2020. I'm pleased that Lundbeck has, for the first time in its history, issued a corporate bond a couple of weeks ago, thereby improving our financial flexibility. The bonds provide a very attractive long term financing and are a strong supplement to our existing funding sources. Our ability to raise capital in the bond market at these attractive interest rates is a testament to the financial strength and quality of Lundbeck as a company. The 7 year bond was priced at a coupon of 0.875%, which we are extremely pleased with.
The corporate bond issuance raised €500,000,000 in cash, which will be used to repay the bank debt we obtained when acquiring Alder Biopharmaceutical. Please turn to the next place next slide. We have narrowed the guidance corridor for the year and now expect growth in revenue in the range of 3% to 4%, corresponding to a revenue range of DKK17.5 billion to DKK17.8 billion. We are therefore still in the range we provided in February, despite negative headwind from U. S.
Dollar. I think it's relevant to stress again that currencies will provide headwind in the Q4, which only partially will be mitigated by hedging. In the Q4, we will likely see continued negative impact on demand from the pandemic on several markets and products. In China, we will see a negative impact from volume based procurement or BBP on EBITDA, which is our 2nd largest product there. Please also note that especially International's market can show significantly quarterly fluctuations as a consequence of timing of shipments.
Q4 will likely suffer from that, but it is important for me to stress that we do not or we do expect continued growth for our Strategic Brands in the coming years. The financial guidance for EBITDA, core EBIT and reported EBIT for the year has also been narrowed and with a slight upgrade of core EBIT. Core EBIT is expected to reach a range of DKK4.3 billion to DKK4.5 billion, which is a margin of at least 24%. On that note, please remember that we in February guided core EBIT to be in a range of DKK3.5 billion to DKK4 billion, so a material upward vision and by the way, leaving a higher base to perform from next year. Reported EBITDA is expected to reach between DKK2 and DKK 2,200,000,000 for 2020.
For the full year, you should expect financial items to be a net expense of DKK100 1,000,000 to DKK200 1,000,000 depending on the currency development. To conclude, let me provide some of the pushes and pulls that will impact 2021. We expect continued growth of the Strategic Brands, including an acceleration of the VIEpti sales, Nothera loss of exclusivity by February 2021 is expected to impact sales of that product by around 50%, as we do expect multiple generics to come onto the market at that time. Regarding cost, we expect to have a higher clinical and commercial activity level including for YEPTI. Based on current exchange rate, top line will have some headwinds, whereas there will be some benefit at the cost level.
Based on these pushes and pulls, it is obvious at risk that revenue and EBIT for 2021 may well be lower than the expected level for 2020. Next slide, please. Lundbeck has shown over the past 20 years, it has been able to overcome fluctuations in the pipeline, including loss of exclusivity and still grow the company. Over the 20 years period, Lundbeck has been able to show an average growth rate in sales of more than 7%. From the graph, you can also see that we have had periods with significant impact from generic erosion, but also that the company has emerged stronger after these periods.
I'm comfortable that Lundbeck after Nothera's LOE will still be able to grow and continue to deliver value in the future. Now I will hand over to Deborah for the final remarks.
Thanks, Anders. And please turn to Slide 22. As we forge ahead for the remainder of 2020, we'll work to navigate the effects of COVID-nineteen while driving our strategic brands forward. The outstanding operating results over the past years gives us a strong financial foundation to continue to drive our Expand and Invest to Growth strategy forward and deliver a sustainably, profitably growing company in the coming decades as we refocus on restoring brain health so every person can be their best. With that, I'd like to thank you for your interest and open the Q and A session.
Our first question is from Wimal Kapadia from Bernstein. Please go ahead. Your line is open.
Great. Thanks very much for taking my questions. Wilmar Kapadia from Bernstein. Just firstly on the interim readout for Ruxolitin alzheimer's agitation, clearly a positive over here sooner. But I wanted to get a sense, just on Lundbeck's confidence in the trial, given that the data from the previous Phase III trials and some of the nuances that drove complications in certain sites, how do you feel about the potential to actually show a positive outcome in this third study?
And how much of a factor is a higher dosing of 3 milligram? And just tied to that, how confident are you in the recruitment given further lockdowns could be quite problematic? And how much flex have you included in your timelines for the interim readout? Then my second question is just, just to get a sense of VIP expectations heading into 2021. The consensus is close to DKK700 1,000,000.
So I wanted to get a sense if you believe that number is actually achievable or do you expect a continued slow and steady ramp at least in the first half of twenty twenty one? Thank you.
Thanks, Vamil. I'll start and then hand over to Johan. With respect to the interim in AAD and how do we feel about this program, I think we had a trial that demonstrated significance, looking at a 2 milligram dose in fixed dosing trial, we had a trial that demonstrated significance for patients at the 2 milligram level in a flexible dose trial. And now we have a trial that tests 23 milligrams of a drug that we know has significant benefits in schizophrenia and major depressive disorder. So we're very encouraged, and we look forward to seeing the results in this group of patients who need good therapy for agitation.
Rexulti has a profile that we believe can deliver. I'll pass it over to you to for further comment, Johan.
Yes. Just a few comments on the overall confidence. So obviously, the trial was ongoing in the midst of the pandemic. So what we're doing here is basically to assure that we deliver upon that promise that Deborah talked about. The data from the previous two studies, we are very robust at the higher doses.
And here, we also have a 3 milligram dose and we have a pooling of the data. So we'll look at this data overall. We need to establish a little more safety data at the highest 3 milligram dose. So I would say from an efficacy point of view, it shouldn't be a big issue, particularly after the changes we made now when we increased the power and allow us also to have an early look at the data. So I think it's 2 smart moves to change the study.
Recruitment confidence. Well, that's a little bit why we have the interim analysis also because we are very confident to reach the interim analysis time point. As you well know, we cannot predict the future of the pandemic. We have actually learned to live a little bit with the new normal in this trial. The trial was actually halted, as you may know, early in the spring.
We got restarted, and we have actually more or less all the trial sites open. Obviously, they have problems in enrolling on and off. But in terms of getting the interim, we are very close to be there in terms of enrollment, in terms of the overall 330. This is the best fair estimate we can have right now based on the current enrollment rates.
Yes. So to your question on Vyapti, first, we're not going to give guidance on 2021. But a lot is depends this brand is dependent on the resolution of the pandemic. So its ability to inflect the growth is going to be largely dependent on the ability of patients to come in to see physicians. So right now, what we're looking at is further closings in different areas of the world and in different areas of the U.
S. So we'll have to see how that pans out. Anders, you had a comment and
then Peter? And then I can also add that consensus numbers has been the consensus number has been pretty stable during the year. And I would assume that, that number is not reflecting also the decline depreciation in U. S. Dollars.
So that also needs to be taken into account. So when you look at the number, you need to take in what Deborah just alluded to, the uptake from the pandemic and then the depreciation in dollar. Great.
Great. Thank you very much. Thanks.
Our next question is from Chung Hyung from Credit Suisse. Please go ahead. Your line is open.
Hi, guys. Thanks for taking my questions. I have 3, if I can. Just in the presentation, you highlighted that Trintellix and Rigsoldi, the patient load remains disproportionately affected by COVID. So should we expect a dampening of growth of these products during the period of when the pandemic lasts?
And then perhaps then return back to normal levels we saw pre COVID? Or is the expectation we should see a faster recovery to normal trends in the 4Q? And then similarly on Ophi and Sabril, the level of the growth was significantly higher. Is this a new quarterly base during the pandemic? Or again, should they return back to the usual levels very quickly in 4Q?
And then just on Alzheimer's agitation, will we have a press release about the interim analysis if it doesn't hit at interim and the trial continues towards the expected completion dates in the first half of twenty twenty two? Thanks very much.
Okay. I'll start on Trintellix and Rexalti and then hand over to Peter. I think what we're saying with these major depressive disorder category has had a dip in terms of access to care, both branded and generic. And we're seeing some recovery of that now, but the generic is returning a little bit faster than the brand, which is not surprising, given that any new patient is started on an SSRI or SNRI. And then later, after many of them have tried those and not necessarily got the result that they need, will be moved to a branded therapy.
So we will see that continuing. I'll also say that with our drug Lexapro or Ciprolex, we've seen the resiliency of patients being put on escitalopram or Lexapro, because the profile of that drug is so strong, not only for major depressive disorder, but also for that condition together with anxiety, which has been quite prevalent in the pandemic, given the circumstances. So I think we will see recovery to growth. I think that the profile of Trintellix is extremely strong for patients who need to function well. So I have no lack of confidence in Trintellix's ability to really deliver for patients in the future.
Peter, would you like to comment?
Yes. I'll just add a few comments on top of that. First of all, I echo what Deborah said that I see nothing structurally underlying or anything that would stand in the way for recovery of growth other than pandemic related things. And just to give you some perspective, as you've probably tracked other categories, new to brand prescriptions across the entire pharmaceutical industry is down post pandemic versus pre pandemic. And then you ask yourself, why is that?
Clearly, there's some promotional component to that because a lot of these prescriptions are branded prescriptions that are very sensitive to promotion and obviously promotion has been impacted. But also as Deborah mentioned, patient volumes, physician practice hours, openings, some being better at telehealth than others, all affect that. And I believe that's exactly what we're seeing with these 2 specific and nothing else beyond that. And so I fully expect as those dynamics return back to normal that we will see the kind of growth that we've seen in the past for Rixalte Inter Intellix. Yes.
And I think as to the will the first Q4 return to normal again, it's going to be the ability of patients to get to their physicians and get therapy. We know that in telehealth, physicians are most likely to either keep a patient on a current therapy or start a new patient on something, a drug that they know particularly well, which means that in telehealth, we'll see a slower recovery of the brands. But it's pandemic related, at which point they'll recover. On Onfie and Sabreel, we expect that those are not new trends, there's quarterly fluctuations. And Peter, perhaps you can comment?
Yes, definitely echo that. I don't think anybody should anticipate that this is the new trajectory of the products. There's a number of factors that I think led to the strength of both of those brands in the quarter. In some instances, we've heard of cases of some generics having some supply issues. You also have some gross to net favorability.
We do these kind of gross to net adjustments periodically as we compare our actuals versus what we had accrued for. And then also this a small component of it, but nonetheless a component is that you see this phenomenon really across the world, but certainly in the United States that some of the more older tried and true established products have a touch more resiliency than some of the newer products that are still establishing themselves and subject to promotion and all the things we just talked about. And so I think Adfie and Sabyl as tried and true products also are having some small benefit from that. But it's a variety of factors and you should not expect that to continue.
And then regarding the AAD interim, we would anticipate that there will be a release at that time, and remember it's an interim designed for an early stop for efficacy, or futility, or the trial will predetermined number of patients.
Our next question is from Sachin Jain of Bank of America. Please go ahead. Your line is open.
Hi, Sachin Jain, Bank of America. Three topics, if I may. Firstly, back on the results in interim apologies. If the effect size to your prior Phase 3 studies with 2 milligrams is repeated in this study, would the study stop at interim or have you set a higher bar for stopping at interim? Just trying to get a feel of how we think about study stop at interim versus final analysis on your statistical setup.
Second question, just to dig a little bit more into 2021 trends, any additional color you can give us on SG and A and R and D growth into next year, particularly related to Vyepsy? And then thirdly, another question around consensus on mid term margin outlook to the extent you're willing to comment. Consensus has core EBIT margins expanding from 23%, 24% to present to low 30s by 2023. Any perspective you can provide on that 700 basis points of margin expansion And what sort of Viate T sales is required to support it or any other factors
that could aid? Thank you.
Okay. Johan, will you take the first question?
Yes. The first one is very straightforward. We look at the clinical significance as same as the statistical significance. So there is no basic assumption change in this trial in terms of effect size.
SG and A wise, you can see that we have said that this year, we have improved our SG and A will be improved with around €600,000,000 due to the pandemic. I assume that these €600,000,000 will travel back next year, assuming that we will be preparing for the U. S. Launch or the European launch of Vyepdi. We will have more activities behind the Vyepdi in the U.
S. Hopefully. So you should see an increase. But of course, that also come on top of that SG and A. The SG and A level has been more muted this year.
And from a margin expansion, it goes without saying what we have said is that 2020 2021 and to some degree 2022 will be impacted by heavy investments in R and D with all the different activities with Yevgen. That will, of course, impact the margin. But to come to be more specific on the margin expansion, it goes without saying that when we come to 2023, 2024, then we assume that we'll get more back to more normal EBIT margin levels.
Our next question is from Emily Field of Barclays. Please go ahead. Your line is open.
Hi, thanks for taking my question. Just a question on the Vyapti and cluster headache. I believe that that's an indication where some of the other CGRPs have struggled. So I was just wondering if you could go into your confidence that Vyapti could be successful in that indication. And then you kind of touched on this in your answer to Trent's question, but coming out of the pandemic, we've talked about in the past the tsunami of mental health, obviously for that to impact you guys or require a return of new patients, new patients to then fail on a generic to get to some of your key brands.
So when would be a realistic expectation where we could actually see if this is a phenomenon that would actually come to fruition and potentially impact Lundbeck's business? Thanks.
Great. Johan, on the cluster headache?
Yes. Thanks for the question. I assume you allude to that Emgality made it basically into that indication and IOVI did not. There are a lot of learnings from those trials in terms of the time of the attacks, the period after initial attack. And we have learned how to navigate those kind of trials much from those trials.
They really set the stage for us. So in terms of the 1 to 2 week readout we have, that is a little earlier than the other trials because that's really when the intensity is more aggregated number of attacks is more intense. There's also another thing I'd like to highlight. We have an IV infusion here, which gives a much presumably a much faster onset. So that's another thing that is advantage with Vyapti in particular against the others that have been tested there.
This will be an episodic cluster headache, which is the indication that Emgality also was successful in.
Then to your question about the rising rates of mental ill health during the pandemic, I think that we're seeing people reaching out via a large number of different places to seek help for mental ill health during the pandemic. Not all of those places are through going to physicians, because physicians, at least in the most acute part of the pandemic, particularly primary care physicians were needing to triage, and needing to conserve capacity to take care of patients with COVID. So a lot of people with mental ill health got delayed or not seen. So I think that's part of the reason that we haven't seen it working through. We are seeing that beginning to come back to normal as patient visit with physician rises, and as physicians' ability to be accomplished in using telehealth rises as well.
But as you point out, they do go through, a new patient will typically go through an SSRI or 2, before they would transition to a drug like Trintellix. Trintellix's great benefit is its restoring function. So it treats depression, but it leaves people very well functioning. We know this from the cognition effect of impact on speed of processing, and that's typically when people are working, that that is highly desirable. So as we see the pandemic clear, and people returning to work, we see less anxiety combined with depression, I think that's when we'll start to see the recovery.
We're already starting to see it, but really take place with Trintellix. Peter, would you like to comment?
I would just add that the mental health impact is very real. And just because it's not fully showing up in the antidepressant prescriptions. I mean, clearly, we know that substance abuse, self medication, etcetera is very real and on the rise. And certainly, we hope that those things get eradicated and don't become clinical issues that require treatment. But it's safe to assume that at some point that will happen and that it will show up in the prescription trends.
But it's tough to determine when that is based on all the things that we talked about because of volumes of patients, physician access, all the things that we've already discussed. But it's very real. And as Deborah and as you pointed out, Emily, if it were to affect us, there would for sure be a lag effect given that patients would try generic treatments. If the stats hold up, 2 thirds of those patients are not going to do well on those generic treatments and then be eligible for branded treatments like our therapies.
Great. Thank you.
Our next question is from Diana Na from Goldman Sachs. Please go ahead.
Hi, thanks for taking my questions. It's Diana from Goldman Sachs. I just have a couple of questions, please. First on AVX-fourteen thirteen or 6,466. You mentioned about starting multiple Phase I trials, including a trial in PTSD.
Given the trial step back into Rett, just wondering what your rationale is for initiating trials in these other indications? And could you also disclose what the other indications are? And then my second question is just on RYXOTELT. Could you confirm when the Phase II and III trial readouts are in borderline personality disorder and PTSD, please? And how would you say the trial recruitment are progressing for those trials?
And then just have a big sort of picture question on your pipeline. Obviously, you had a number of Phase II trial setbacks year to date. Just wondering what your latest thinking is around sort of strengthening the mid stage pipeline? And how should we think about your appetite for further business opportunities? Thank you.
Okay. So covering the Waterfront there. Johan Peeps will start with the Magli 66.
Yes. Thanks, Diane, for all those questions. I'll try to answer the Magli first. Yes, you noted that we had a smaller study in Tourette that we had a readout earlier. That was a study that actually started by our the previous owner, Abide, of this program.
This was actually a little optimistic study. It was not the main area where we think the biology speaks to in this field, but they thought it was worthwhile with an attempt there. We took a little bit of a reload, how we look at the biology and we sat down and looked at where is the evidence strongest. And one area is PTSD and that's what we announced now. I will not go in details on the 3 others that we're looking at, but they're all sort of top of the list of biologies where we think endocannabinoids may speak to us.
We have as I tried to explain in one slide here, we have an approach in very early development where we include Phase I patient populations very early. And that's really an exploratory signal detection approach. So the four indications we eventually will look at in Phase Ib are primarily for signal detection. They may not be eventually defined, I'll find an indication we go for. That actually applies even to PTSD.
It's the signal detection exercise we do in Phase 1. In terms of if I should go on with Rixalte?
Well, I'll just add to that, Johan. I think in that signal detection, your teams of experimental medicine are collecting a number of biomarkers across this group of 4 indications, which span neurology and psychiatry, to really give us coverage of that waterfront to understand how the biomarkers are moving and how this helps us select patients going forward.
Yes. Thanks, Deborah. So basically what we started here is a mesh of activities, biomarker activities and indication activities, looking at symptomatic and mechanistic readouts to really fully harvest what may come out of that biology. So that's really the approach I try to paint here. Ryxalti, borderline and PTSD.
Well, first COVID 19 pandemics hit those trials substantially. The Borderline study was just at its start. So obviously, it was most severely hit because of that very, very early stage. The PTSD trial was substantially more underway and it gained much better momentum. I have to say both trials are now back, although not back where we like them to be.
The PTSD one in particular is with all the sites open and enrolling reasonably well. You have to remember those populations are slightly different than the Alzheimer trial population. These are, of course, outpatients and patients that we can reach that are less affected by the pandemic. In terms of time lines, it's really very hard to estimate right now. We are looking at this continuously.
We will keep you updated once we know better. At this stage, it's we stick to what is in clinicaltrial.gov for the time period because we are not at the level where we can reset the timelines.
When we think about our pipeline going forward, we continue to survey the external world to see what will fit well with our 4 biological areas that we really want to pursue in neuroscience, that Johan described. And we'll still look at deals across all stages of the pipeline. Clearly, finding the right mid stage assets would be interesting, and important, but we don't feel that we are in a rush that we have to do any particular thing. It's going to be when the right thing emerges for either a partnership, a license or a bolt on acquisition that would make us move. Anders, do you want to make a comment?
No? Johan? I may add, obviously, the other growth driver is the internal pipeline, and we have steadily built up a pretty substantial Phase 1 pipeline. Obviously, we would like to be very careful before we exit out of that asset described. But whenever it's possible, of course, out of those different programs, we progress those as rapidly as possible into Phase II and Phase III.
Our next question is from Mark Goodman from Leerink Partners. Please go ahead.
Yes, hi. Couple of questions. First, Peter, can we just go back to Trintellix for a second? I understand that there's a push to generics first, but that's been going on for years. So has there been some type of incremental change?
I mean, you mentioned that there's the older products are tending to get used first in telehealth, but your product is an older product. So I would think people know it pretty well. So I guess I'm just wondering if there's been some change in the payer landscape and whether you've changed something there because it just feels like I don't know, I'm just not sure I'm understanding. 2nd question is at R and D just on alpha synuclein. I was wondering if you could talk to us a little bit about how yours is different from Roche's and what you thought about the Roche data from earlier in the year and why your product should be different?
And then Deb, just on business development, What are your thoughts on some of the trades that have occurred over
the past quarter?
Are you have you taken a look at some of these? And just wondering, are valuations reasonable at these levels?
Okay. Thanks, Mark. Peter, you take the Trintellix question first.
Yes. Thanks, Mark. And glad you asked the question because I'd rather have the opportunity to help clarify rather than leaving you confused. So what we're trying to communicate is that not first of all, let me be clear, nothing has changed from a payer perspective. We still have the same great access that we had before.
I think what we're trying to communicate is the dynamic that we are hearing and experiencing is that typically when a patient gets put on a new therapy or switch to new treatments. The doctor likes to do a physical exam or face to face, etcetera. So that's why you see, not just unique to to Lundbeck products, but across the market, you do see a decline post COVID of new to brand prescriptions. The continuing prescriptions are resilient. So patients are staying on the therapies, it's easy to write a refill and patients to continue on therapies.
But new to brand prescriptions across both generics and branded are down, but branded are more down. And in the case of Trintellix, it's almost certainly there's a promotion impact. So the fact that we're not able to be in front of those customers the way we were to keep Trintellix top of mind is one of the parameters. The other thing that's unique in our portfolio with particularly in the United States is that about 40% of the prescriptions are accounted for by primary care doctors. And they have disproportionately been impacted in the pandemic, more than others.
Many of those practices, as Deborah was describing, were embroiled in, you know, dealing with the pandemic itself as, you know, frontline workers, but also the lower patient volumes have impacted their staffs and their office hours, etcetera. And also, they've been one of the specialties that's been the slowest to adopt telehealth. So those are some of the things that we think disproportionately affect, Trintellix. But I can't emphasize enough, there is nothing we see underlying, that has changed or would reduce our confidence in the ability for Trintellix or Rixalpi for that matter or the other brands to continue to grow once these headwinds from the pandemic are lifted.
Okay. Alpha synuclein?
Yes. You're asking about the PASADENA trial that was done by Roche on the protein drug. It's an interesting set of data. This is this biology they're exploring is sort of the 3rd sibling after amyloid and tau and now we go for alpha synuclein. And this is probably going to be a very long journey like the other indications, the other protein aggregation diseases.
The data was a mixed bag. And they initially came out with a press release saying they missed the primary endpoint. And then with further analysis, they saw a pretty remarkable effect on motor symptoms with combined doses, 35% decline decrease of the decline. That's encouraging. The dose response data was a little puzzling with a lower dose being more effective.
So in terms of being a solid proof of concept, it's not really there yet. In terms of similarity to our molecule, it's a little early to say how these therapies differ, but generally, it's no big difference. If you know the tau molecules a bit, they are known to differ substantially. In this case, there are no major differences between the tau molecules that we're dealing with and that Roche is dealing with. Alphacin.
Alphacin, yes, in the molecules we're dealing with. So yes, it has some bearing on how we view the biology, but it's way too early to conclude from it.
I think on the business development side, I think some of the trades we've seen are pretty well So throughout the pandemic, the valuations on acquisitions, I think, have been pretty resilient, reflecting that there is a lot of money in the marketplace. We've seen people be able to raise financing at pretty extraordinary rates for new companies. So it doesn't make it a buyer's market necessarily. So I think one has to be very thoughtful about valuation and always as what we've said from the beginning, when thinking about external assets, we always think about how do we make sure we can return to the Lundbeck shareholder after paying any premium to the an acquisition target company's shareholders. So it's I think it's been pretty resilient in terms of valuation.
Moving on to the next question, which will be the last question.
Our last question is from Carsten Lundberg of SEB.
So the stock is now down on a little bit more than 6%, accelerating during this call. And I actually think it happened after Anders said that EBIT next year would probably be lower than EBIT this year. And I'm, of course, interested in understanding a little bit more from which level you're talking about here. Is it reported EBIT of say $2,200,000,000 which includes the goodwill write down in Q1 of a little bit more €750,000,000 or what level are you talking about here?
I need to clarify. I don't think I said that EBIT next year would be lower than this year. What I if I said that, then that was wrong. What I said was that revenue would be impacted. What you see is that the dollar rate is against us.
It has been there has been a depreciation of the dollar. So you should anticipate, if you just take like for like, if you look into the 2020 numbers, the guidance we have, if you just calculate what is the depreciation of the dollar, it will have impact around €500,000,000 next year. I don't know what the dollar rate is when we announced in the beginning of February. I have not said that EBIT would be lower year. That is way too early to speculate.
So we will continue to drive to be cost conscious. What you have seen this year is that we have a write off of the follicular eggs. We had some one offs that impacted this year. That will of course not impact next year. And then if you look at the underlying operational level, then you would of course see more cost compared to what you have here.
But in nominal numbers, I'm not saying that we are going to have a lower EBIT next year. That is definitely too early to conclude.
All right. Good to hear. And then the second question, that's just on the uptake of the oral CGRPs in the U. S. Market.
I know that you consider these acute treatments and therefore a completely different segment. But when looking certainly seems like the launch of AbbVie's oral product has sort of impacted growth for the entire injectable CGRP market. Do you prescribe to this as well? Or do you see something different when you look at the prescription data?
So Peter, I'd ask you to comment.
Yes. Just to reiterate that we definitely do see these as different markets. Just to put this in some perspective, the acute market is more than the prevention market. So it's important to understand that these are 2 different markets with 2 different sets of dynamics. Having said that, I don't think that there is evidence that would suggest that the acute orals have slowed the growth.
It's kind of tough to determine what's happening in that regard given the pandemic dynamics. Everything that we've said here applies to virtually all new branded products and new prescriptions. So I think it would be premature to conclude that and even if that was the case, which I don't believe it is, I would imagine it's a short term phenomenon because if you look at the first of all, none of those products have been proven to be effective in prevention, but even if you look at the acute data, the degrees of pain, pain improvement, etcetera, certainly, leave a big opportunity, for patients to be dissatisfied and continue to be on therapies, especially preventive therapies. So I think, I wouldn't draw that conclusion, especially under these pandemic dynamics And I certainly don't think that the orals, will, will ruin the opportunity for the preventives to continue to grow.
I think as with many new therapies, they start to expand the market as migraine patients who have been dissatisfied with therapy for so many years sometimes come back into the treatment market, and I think we will see an overall expansion of the acute migraine market and the preventive market. So, thank you all for your interest in Lundbeck, and we look forward to a strong finish to 2020.