H. Lundbeck A/S shares surged to the highest price in 13 years as Chief Executive Officer Kaare Schultz, just three months on the job, said he’ll cut about 17 percent of the workforce as the drugmaker fights generic competition.
The maker of medicines for psychiatric and neurological disorders said it will eliminate 1,000 jobs as it restructures its Copenhagen headquarters and commercial operations in Europe and elsewhere. Lundbeck expects to save 3 billion kroner ($445 million) annually from 2017, it said in a statement.
Cost reductions were anticipated by some investors, but “likely not on this scale,” Peter Welford, an analyst at Jefferies LLC in London, said in a note to investors. Together with strong second-quarter results and a rosier forecast, “what’s not to like?”
The move is a dramatic start to Schultz’s tenure at the Nordic region’s third-largest drugmaker by sales. The former chief operations officer at Novo Nordisk A/S became Lundbeck’s CEO in May. “Unsatisfactory profitability” and a 7 percent decline in underlying revenue caused by generic competition for the antidepressant Cipralex and Alzheimer’s treatment Ebixa necessitates firings, Schultz said.
Lundbeck shares gained 19 percent to close at 201 kroner in Copenhagen. That’s the highest price since December 2002 and the biggest gain since May 6, when Lundbeck said that Schultz would lead the company after not getting the top job at Novo, the world’s largest insulin maker.
“We need a higher profitability if we are to invest in the development of Lundbeck and new drugs and thereby create value,” the CEO said.
Lundbeck will focus on marketing new products such as its antidepressant Brintellix and Rexulti for schizophrenia, as well as in-house drug development rather than partnerships for late-stage programs, Schultz said in an interview.
Lundbeck raised its full-year revenue forecast to about 14 billion kroner, up from a previous prediction of 13.2 billion kroner to 13.7 billion kroner. The company said it expects positive reported operating profit in 2016, with further improvement in 2017 after the restructuring.
Revenue of 3.63 billion kroner in the second quarter exceeded the average analyst estimate of 3.46 billion kroner. Sales of medicines including Abilify, a mood-stabilizing drug, and Brintellix exceeded estimates, while Cipralex fell short.
Lundbeck said it will book expenses of 1.1 billion kroner in the third quarter as a result of restructuring and another 600 million kroner in impairments from cutting estimates of asset values.