Date: 2015-08-19
Type of information: Restructuring
Compound:
Company: Lundbeck (Denmark)
Therapeutic area:
Type agreement: restructuring
Action mechanism:
Disease:
Details: * On August 19, 2015, Lundbeck announced a new restructuring programme in order to significantly improve profitability and improve the company\'s value creation. This restructuring programme will reduce the total cost base by approximately DKK 3 billion with full effect in 2017. Lundbeck will restructure headquarter functions and commercial operations in Europe and other markets which are expected to lead to a reduction of around 1,000 employees. Lundbeck intends to emphasize the focus on the following products: Abilify Maintena, Brintellix, Northera, Onfi and Rexulti. Furthermore, Lundbeck plans to capture savings through restructuring of all headquarter functions, further minimize G&A functions at affiliates and also expand the newly established Business Service Center in Krakow in Poland. In R&D a number of cost reduction initiatives have been identified including closure of selected early-stage projects. Final estimates for programme costs, benefits and headcount impact in all areas of the business are subject to completion of applicable consultation processes.
A reclassification due to management\'s reassessment of certain product rights has resulted in a change in accounting estimate for capitalization of milestone payments, which were triggered prior to receiving final market registration approval. The reclassification of certain product rights amounts to DKK 4.8 billion which has been recognized in research and development costs in the second quarter 2015.
Previously, all material milestone payments triggered by an event have been treated as a change to the fair value of the product rights. They have therefore been capitalized, and when launched, amortized over the product\'s life cycle. Prior to receiving final market registration approval, there is significant uncertainty as to whether the product will be approved and launched, i.e. whether a product right exists at this stage. Consequently, management now adopts a more conservative approach when these milestone payments predominantly will be triggered by or relate to research and development or pre-registration efforts.
Financial terms: Following the proposed restructuring programme, Lundbeck expects to recognize provisions for some DKK 1.1 billion for severance payments and restructuring costs. Furthermore, in the third quarter, Lundbeck expects to recognize approximately DKK 0.6 billion in impairment loss due to changed management estimates of certain intangible rights and fixed assets.
It is expected that the programme will reduce the total cost base by approximately DKK 3 billion in 2017.
When the restructuring programme is finalized, we expect to significantly improve the company\'s profitability and we expect to see positive reported operating profit already in 2016 with further improvement in 2017. Further details regarding the financial outlook will be presented in connection with the announcement of the 2015 Full Year results in February 2016.
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