H Lundbeck A/S

CSE:HLUN A

Earnings Call Analysis

Lundbeck's Revenue Surges with Strategic Brand Growth and Positive Guidance

Lundbeck reported a 13% revenue growth for the first nine months of 2024, driven primarily by its strategic brands, which increased 21%. Vyepti and Rexulti led this charge, with Vyepti's revenue up 76% year-over-year. The company raised its revenue growth guidance to 12-14% and adjusted EBITDA growth to 17-20%. Noteworthy developments include advancements in R&D, particularly in the SUNRISE and bexicaserin trials, which bolster confidence in long-term strategies. As of now, Lundbeck maintains a strong market position, with an adjusted gross margin of approximately 88%.

Revenue Growth and Strategic Brand Performance

Lundbeck has reported a commendable revenue growth of 13% for the first nine months of 2024, significantly bolstered by its strategic brands, which experienced a remarkable increase of 21%. This growth is particularly impressive given that 74% of the company’s overall revenue is now derived from these strategic brands. Notably, Vyepti led the charge with a staggering 76% growth, contributing DKK 2.116 billion globally, while Rexulti also showed strong performance, particularly marked by a 20% increase in U.S. TRx data due to the recent AADAD indication launch.

Financials and Cost Management

Despite the strong revenue performance, Lundbeck faced some pressure on margins. The adjusted gross margin stood at 88.5%, a slight decline from prior periods largely due to rising raw material costs and inflation-related expenses. Reported costs associated with sales and distribution rose by 10%, reflecting significant investments in both Rexulti and Vyepti's promotional activities. Additionally, R&D expenditures spiked by 36% to DKK 3.4 billion, influenced by a DKK 547 million impairment loss related to the MAGLi project.

Future Guidance and Outlook

Lundbeck's leaders expressed confidence in their operational trajectory and have raised the lower end of their full-year guidance. The company is now forecasting revenue growth at a range of 12% to 14% at constant exchange rates and an adjusted EBITDA growth of 17% to 20%. This guidance reflects the strong performance anticipated from its strategic brands, especially with increased demand for Rexulti and Vyepti in both the U.S. and international markets, including promising data from recent trials.

Pipeline Progress and Strategic Initiatives

On the R&D front, Lundbeck's pipeline is progressing notably, with several compounds advancing towards late-stage trials. The company highlighted the successful SUNRISE trial outcomes for Vyepti, which are expected to catalyze regulatory submissions in Asian markets by 2025. Additionally, the initiation of pivotal trials for amlenetug in multiple system atrophy showcases the company's commitment to exploring innovative treatment pathways.

Market Developments and International Expansion

The company has also made strides in international markets, with notable growth in Asia and Europe for its brands. For example, the performance of Brintellix has been substantial, with a 14% growth overall, driven by international markets like China and Japan, indicating a robust demand for its products beyond American borders. Lundbeck’s strategy appears focused on building brand awareness in these regions and ensuring comprehensive regulatory filings to sustain and enhance growth.

Conclusion: A Strong Position for Growth

In conclusion, Lundbeck showcases a strong operational performance underpinned by substantial revenue growth, particularly in its strategic brand portfolio. While facing some margin pressures, the company's proactive management in cost control and strategic investments in R&D provides a solid foundation for future growth. The raised guidance indicates optimism for the remaining fiscal year, and the promising pipeline enhances its long-term growth horizon. Investors should remain attentive to the forthcoming trial outcomes and market expansions that could significantly impact Lundbeck's performance.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, welcome to the Lundbeck Financial Statements for the first 9 months of 2024 Conference Call. I am Youssef, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Charl van Zyl, President and CEO. Please go ahead.

[Charl van Zyl, executive]

Thank you, and welcome to our earnings call for the first 9 months of 2024. Of course, I really thank you for joining today. And needless to say, I'm really proud to present these results, which are a further validation of our focused innovative strategy, which allows us to raise the lower end of our full year guidance. But before we go to the results themselves, let us go to the next slide.

So from a disclosure perspective, the forward-looking statements are that today's discussion, of course, do include statements that are subject to change. And also, the next disclosure I would like to make is also, of course, to the agreement between Longboard and Lundbeck that is subject, of course, to closing of the tender offer to be completed.

So if we go to the agenda, the next slide, please. So of course, I'm really pleased to have the management team join me today here. So we have our 2 geographic presidents, Tom and Michala, who will talk about our geographic performance, respectively. We have Johan, who will give us an update on R&D. And we, of course, have Joerg on the financial update and outlook for the full year.

So then if we go to the next slide, which is really what I would like to, of course, share as a high-level summary of our results that we have shared with you today. And I put some context around these results because this is really, for us, of course, an important milestone, a further validation of where we are traveling for the mid- to long term. This is also consistent with what we shared with you during our Capital Markets event, and it shows again that we are executing well against our plan that we've laid out.

The first to say is that, of course, revenue is growing at 13%. And when we look at that specifically also driven very much by our strategic brands, which are growing at 21%, and this is 74% of our revenue today falling in the strategic brands category. Vyepti is leading that charge with 67% (sic) [ 76% ] and of course, also Rexulti with 16%, especially driven by the AADAD indication.

We have also seen major steps forward in the pipeline, which Johan will refer to a bit later, but the SUNRISE trial, of course, is another strong outcome for us that further supports the value proposition of Vyepti and will lead the pathway towards future launch potential in some of our Asian countries. And we also, of course, see major advances also with amlenetug into Phase III, and of course, the advances of bexicaserin into the Phase III program that is started by Longboard. So overall, these results in a sense and where we stand with the first 9 months give us that confidence that we can now raise the lower end of our full year guidance as we have disclosed, of course, today in our press release.

So with that, let's go more specifically into the performance at a geographic level, and it's my pleasure, of course, to hand over to Tom and Michala to take us through those results. Thank you, Tom.

[Thomas Gibbs, executive]

Great. Thank you, Charl, and hello, everyone. As Charl mentioned, we are very pleased with our commercial performance during 3Q 2024, which was driven by 21% growth of our strategic brands. This growth was headlined by Vyepti. Next slide, please.

Vyepti delivered strong results during the quarter, and this performance has been fueled by accelerating growth in the U.S. and supported by the continued stream of launches and robust adoption of Vyepti in prioritized European and international markets, including Canada, France, Spain, Germany and the UAE.

Vyepti global net revenue for the third quarter 2024 year-to-date was DKK 2.116 billion, and this represents 76% growth year-over-year. Net revenue for Vyepti in the U.S. was DKK 1.858 billion, and this represents 66% growth over 2023. Importantly, we are beginning to see meaningful contribution to global sales by ex-U.S. markets with Vyepti now available in some 29 markets. These markets are exhibiting strong anti-CGRP market growth and Vyepti continues to gain meaningful market share across these markets. Ex U.S. sales will receive a significant boost, if approved in Asia, based upon the positive SUNRISE trial results, which will be discussed by Johan later in the presentation.

I want to focus a moment on the U.S. Over the past year, we've worked very hard to refine our specialty commercial model to support Vyepti through a patient-centric focused ecosystem that appropriately supports the patient throughout their patient journey. We are continuing to see accelerating demand by driving depth and breadth of prescribing and continued positive momentum in new patient starts, higher written-to-infusion conversion ratios, and increasing patient persistency. Weekly market share during September hit an all-time high in the U.S. of 9.4%, and this compares to 6.8% in January.

Next slide, please. Rexulti continues to perform well, propelled by the continued strong progress of the AADAD launch in the U.S. U.S. TRx growth during the third quarter of 2024 accelerated to 20% versus prior year. Global reported revenue increased 16% through third quarter 2024 versus prior year, and revenue growth during third quarter 2024 accelerated to 22% versus third quarter 2023. Now we're pleased with the strong demand growth observed across all priority markets. The majority of the volume growth is driven by the U.S., and this is particularly attributed to the AADAD launch with 361% monthly volume growth when we compare August 2024 monthly TRx demand to the prelaunch baseline.

Rexulti AADAD volume is becoming increasingly important to the overall Rexulti growth, and we expect this to continue through 2024 and beyond. AADAD contribution has grown to 17.5% of the total TRx demand for the brand based upon the most recently available data and 22% of new-to-business prescriptions. We expect AADAD overall contribution to the brand to exceed 20% by year-end. The AADAD launch has also had a positive halo effect on the overall brand with Rexulti achieving all-time market share high last week of 2.32%, and this compares to 1.97% in January. In looking at the most recent TRx data as of October 25, 2024, overall rolling 4-week TRx growth has accelerated to 17% compared to February with improved execution across the broader marketing mix.

I will now turn the presentation over to Michala to discuss performance of our other strategic brands. Michala?

[Michala Fischer-Hansen, executive]

Thank you, Tom. Good afternoon, everyone. I'm very pleased to join you here to share some of the results we see for both Brintellix and the Abilify franchise. If we start with Brintellix, then we have a strong performance once again across the key markets. Overall, we are seeing 14% growth versus last year. And now the brand is at DKK 3.58 billion for the first 9 months of the year.

We continue to see strong momentum in Europe and international markets, where Brintellix has grown 17% versus last year. We see Europe growing at 17%, which is driven by Spain at 27%. But also in international markets, we see a 17% growth with China growing 36% and Japan growing 21%. If you look at the volume MAT growth over the last 12 months, you can see that we continue to exceed market growth in the key markets with Japan at an impressive 32% MAT volume growth. When we look to the U.S., you can see a strong and robust performance in sales with an 8% growth at DKK 1.134 billion versus last year, and this is mostly driven by favorable gross to net comparisons.

Move to the next slide, please. When we look to the Abilify franchise, we also see a solid performance with all markets contributing to that performance. The franchise delivered double-digit growth versus last year at 10% and is now at DKK 2.618 billion for the first 9 months of 2024. We have the U.S. growing at 15% versus last year, which is driven by Abilify-Asimtufii conversions that now represents 15.2% of the NBRxs for the franchise and 10.6% of the total volume. Encouragingly, we're also seeing that we have increasing conversions from the oral aripiprazole.

In EU and international markets, we had 8% growth versus last year, now at DKK 1.626 billion. And we see again strong performance across most of the markets, worth highlighting Spain, Canada and Australia. And we continue to see a strong volume growth versus the market in key markets, as you can see on the right graph. We launched Abilify Maintena 960 in Europe. As you may recall, we got the approval from EMA early in the year, and it's now rolled out in 11 markets since June of 2024. It is still early days, but the performance is in line with our expectations. And importantly, the feedback from our customers is very encouraging.

With that, I hand over to Johan.

[Johan Luthman, executive]

Thank you, Michala, and also thank you, Tom. It's great to see the strong momentum in our key brands. So let's turn page to some further information on R&D. The year continues with a very strong trajectory for R&D with a set of exciting molecules and research progressing towards clinical introduction and the advancement of early and mid-stage innovative development programs as well as important data delivered on our key strategic brands.

However, before I go into those programs, I'd like to add to Charl's comment on Longboard. The company recently initiated a pivotal bexicaserin trial in Dravet syndrome called DEEp SEA. That trial is now joined by another trial called DEEp OCEAN, which studies a mixed population of developmental and epileptic encephalopathies with Lennox-Gastaut syndrome patients included.

Returning to Lundbeck's development pipeline, I'd like to highlight that we are currently running 3 proof-of-concept trials, all with first-in-class molecules. The most recently started PoC trial is in patients with moderate-to-severe thyroid eye disease with our CD40 ligand binder 515. If the enrollment goes well, we can look forward to a readout by mid-2026. This trial joins our anti-ACTH antibody program that is already underway with 2 proof-of-concept trials.

Following the very encouraging data we obtained in the multiple system atrophy trial, AMULET with our alpha-synuclein antibody, amlenetug. We have been very busy with external data presentations, KOL interactions on the program, while also progressing towards pivotal program start. We have, during the fall, concluded interactions with key regulatory agencies, which were critical given that this is a first time registration program for this indication. After those consultations, we have finalized the trial design, and we are on the race to start up a pivotal trial called MASCOT. Similar to AMULET trial, the MASCOT trial is highly innovative with key readouts utilizing Bayesian progression statistics. Concerning our branded programs, we have obtained additional market approvals for Rexulti in AADAD, including through the access pathway that covers countries such as Australia.

Moving on, I'd like to provide some more details on the Vyepti SUNRISE trial readout that we had 2 weeks ago, a pivotal trial with the Asian markets in a so-called SUN program. The U.S. and European approvals of Vyepti were based on the pivotal PROMISE I and II trials with the market access program DELIVER also in Europe. This was further supported by the RELIEF trial that demonstrated very fast onset of action in migraine symptoms.

However, at the time the Asian program started, there was practically no information from migraine prevention trials in Asia. So the SUN program was initiated with a small spearheading trial called SUNLIGHT in chronic migraine patients with medication overuse headache. This trial had a high proportion Chinese participants. We had the readout of the SUNLIGHT trial in 2022, showing a convincing numerical advantage of Vyepti, but insufficient separation from placebo.

Other essential learnings included the types of patients being enrolled. With this highly informative data at hand, matched with the emergence of competitors' trial data, we could adapt the ongoing larger pivotal SUNRISE trial in chronic migraine. The sample size was adjusted up as well as implementing stringent screening inclusion monitoring. This trial included larger cohorts of patients from various Asian countries, most notably China and Japan. We have now also obtained data from the SUNSET open-label extension part of SUNRISE performed in the Japanese cohort. The SUNSET data reconfirms nicely the long-term sustained effects of Vyepti that we have seen in other studies in chronic migraine patients. The SUNSET study also adds critical positive on-job participation quality of life readouts.

Next slide. The SUNRISE trial included 983 patients on either 100-milligram or 300-milligram Vyepti doses or placebo with the primary readout at week 12. In the middle graph, you see monthly migraine days reported. On the primary endpoint, monthly migraine days over weeks 1 to 12, there was a reduction of 7.5 migraine days following the 300-milligram dose and 7.2 days for the 100-milligram dose. In addition, the trial demonstrated significant efficacy on all secondary endpoints and quality of life endpoints on both doses for Vyepti. Also, no new safety signals or safety concerns were seen, confirming the safety program we've seen in the past. Thus, the SUN program data nicely confirms the strong data we have on Vyepti across different trials in various geographic regions, adding to the already strong value positioning we have in migraine prevention treatment.

Next slide, please. In China, we have the opportunity to make innovative treatments available in selected pilot zones, such as Hainan and Great Bay Area. This pilot initiative is purely nonpromotional and is aimed to make treatments available to patients with high and urgent medical needs. In '23, a hospital in Hainan obtained approval to make treatment with Vyepti available, which was based on the U.S. approval. And this year, approval was given in the Great Bay Area based on Vyepti approvals in Hong Kong and Macau.

With this early availability in pilot zones, we have the opportunity to create medical awareness and to obtain critical information on real-world use. Now with the SUNRISE data, the next step is to expand access for migraine patients across Mainland China through filing in 2025. Before end of next year, we also expect regulatory submissions to PMDA in Japan and other Asian markets.

With this, I'd like to hand over to Joerg.

[Joerg Hornstein, executive]

Thank you, Johan. Very pleased and great to see the progress we're making in R&D. Before I go into the results, we're also very pleased with both our year-to-date and Q3 results. And as Charl earlier said, growth in strategic brands is even further accelerating. We grew 21% year-to-date and 25% Q3.

Next slide, please. Our revenue for the first 9 months of '24 grew 13%, driven by accelerated growth of our strategic brands of 21% with significant contribution of Vyepti and Rexulti mainly in the U.S., which overall represents nearly 70% of the overall strategic brand growth. The adjusted gross margin was 88.5%, decreasing 80 basis points, primarily driven by higher raw material and manufacturing costs, predominantly in H1 of this year, which is partially offset by a favorable volume and mix effect. This is an impact already anticipated and in line with our guidance around 88% to 89% of an adjusted gross margin for the full year.

Sales and distribution costs increased 10% to DKK 5.7 billion, reflecting mainly the continued investments in sales and promotion activities in Rexulti and Vyepti in the U.S., including the PTSD preparation for Rexulti as well as the global rollout of Vyepti. Admin expenses increased 19% to DKK 1.1 billion, primarily driven by higher legal costs, investment in Lundbeck strategy implementation, as well as higher personnel costs, as communicated in the last quarter. If we exclude the effect of the higher legal provision, then underlying administrative expenses actually increased 11%.

R&D costs increased by 36%, reaching DKK 3.4 billion, driven by, first of all, a DKK 547 million impairment loss that was recognized in R&D costs. If you take that out of the results, you actually see that underlying R&D costs increased by 14%, reaching DKK 2.8 billion, and that is mainly driven by the investments in anti-PACAP and in our anti-alpha-synuclein antibody.

Adjusted EBITDA increased by 12% as a result of the strong revenue growth driven by performance of strategic brands. The adjusted EBITDA margin was 31.6%, representing a decrease of 90 basis points, primarily due to increased cost of sales driven by higher raw materials and manufacturing costs due to inflation, but of higher R&D costs and unfavorable currency effects. And if you, in principle, only look at the negative FX impact year-to-date, then this basically constitutes a decrease of 60 basis points on the margin alone.

Next slide, please. Our EBIT increased 4% reported, 12% at constant exchange rate, growing in line with the underlying operational performance, also benefited by lower amortization of product rights. This growth was mainly offset by impairment losses due to the negative MAGLi readout that I referred to earlier in Q3 '24.

Net financial expenses were DKK 54 million, equivalent to a decrease of 63%. The positive development is mainly driven by development in interest income due to the underlying change in net debt/cash position and offset by unfavorable net currency effects. Our effective rate dropped significantly to 16%, down from 23.5% in the period last year, mainly due to a reversal of an uncertain tax position relating to DKK 283 million that was closed in Q3 of this year and related to a previous audit in 2011. Net profit increased by 18% to DKK 2.6 billion and adjusted net profit and EPS increased by 8% to DKK 3.9 billion and DKK 3.94, reflecting the adjusted EBITDA performance, the positive net financial result and the lower effective tax rate.

Next slide, please. The cash flows from operating activities in the first 9 months of '24 represent an inflow of DKK 4.48 billion compared to an inflow of DKK 3.2 billion in the same period last year. The operating cash flow reflects the continued solid EBIT performance, further impacted by higher adjustments for noncash items amounting to DKK 2.3 billion, and that increased predominantly due to the impairment loss of MAGLi project and the amortization of product rights. We see favorable changes in working capital amounting to DKK 752 million or a reduction of 57% in the first 9 months of '24, which is mainly driven by the lower inventory buildup, mainly due to the completion of the fixed batch quantity supply agreement with Sandoz in September last year.

The cash flows from investing activities were an outflow of DKK 346 million, principally driven by CapEx investments in the first 9 months of '24 compared to an outflow of DKK 362 million in the first 9 months of '23. The cash flows from financing activities were an outflow of DKK 808 million in the first 9 months compared to an outflow of DKK 2.1 billion, primarily driven by a lower debt due to the repayment of the revolving credit facility in '23, but also offset by higher dividend payments in '24. The first 9 months of '24 ended with a net cash position of DKK 4 billion compared to a net debt of DKK 46 million in the first 9 months of '23, effectively deleveraging the company ahead of the foreseen closing of the Longboard acquisition.

Next slide, please. We have raised the lower end of our financial guidance for '24, and also reflected the impact of the foreseen acquisition of Longboard and the other relevant financial information. The revenue guidance has been narrowed to 12% to 14% growth at constant exchange rate and adjusted EBITDA has been narrowed to a growth of 17% to 20% at constant exchange rates. The outlook for '24 remains confident on performance in Rexulti, Vyepti demand in the U.S. as well as higher Brintellix, Trintellix demand in Europe and Asia.

Please keep in mind that we have communicated approximately DKK 550 million of integration transaction costs tied to the foreseen acquisition of Longboard, where the majority will be incurred in Q4 2024 and adjusted for. We also updated some of the other, let's call them, soft guidance parameters to reflect the following changes. R&D costs increased to DKK 4.4 billion to DKK 4.6 billion to reflect the MAGLi impairment of DKK 547 million. We expect higher net financial expenses between DKK 50 million to DKK 100 million, predominantly due to the depreciation of the dollar in the third quarter of '24.

The negative hedging effects are now expected between negative DKK 20 million to negative DKK 45 million compared to previously negative DKK 130 million to negative DKK 155 million. Furthermore, the effective tax rate has been updated to reflect the reversal of the uncertain tax position. And our net cash position is now projected to be a net debt position between DKK 12 billion to DKK 13 billion due to the foreseen acquisition of Longboard.

And with that, I would like to hand over back to Charl.

[Charl van Zyl, executive]

Thank you, Joerg. And let me make some concluding remarks. If we can go to the next slide, please. So again, as I opened up the call, we're really confident and proud of these results, because it really is showing again the path we're following towards our focused innovative strategy at Lundbeck. And of course, today's results is another proof point on that journey. And to again remind you, a lot of our focus in the strategy is around growth, midterm and long term. And of course, when I talk about midterm today, strategic assets are growing at 21%, which is essentially 74% of our portfolio growing at this rate, thanks to the great execution, of course, of Tom and Michala's organizations.

But also when we think about long term, clearly, the pipeline is evolving and the work that Johan is doing around evolving the pipeline, including, of course, bexicaserin, subject to closing, will allow us to be in a position in the midterm to have 4 programs that could be in Phase III. So clearly also creating that pipeline for the long-term growth potential of Lundbeck. And underpinning all of this is a very disciplined capital allocation, reallocation program to remain within the corridor of our adjusted EBITDA guidance that we also disclosed during the Capital Markets event. So again, great performance in the third quarter and of course, strong pathway towards our full year guidance as we have discussed today.

So with that, it's time for questions and answers, and I would hand back to the operator.

[Operator]

[Operator Instructions] The first question comes from Marc Goodman from Leerink.

[Marc Goodman, analyst]

[indiscernible].

[Charl van Zyl, executive]

So Marc, there wasn't a very good line, but I think I understood that you wanted to know more about the Phase III program of amlenetug. But we are not [indiscernible] time line.

[Marc Goodman, analyst]

[indiscernible].

[Joerg Hornstein, executive]

Yes, okay. If that's the question...

[Charl van Zyl, executive]

Let's go for that. Thank you, Johan.

[Johan Luthman, executive]

So thank you for that question. The MASCOT trial, as we call it now is, as I said, ready designed. And we are very imminent to start it up. We are saying early next year, but we are really progressing with a lot of preparatory work. I'm not revealing the details here in terms of doses or number of subjects. We will communicate that later. But I think it's a well-designed study, pushing the limits, of course, for a new indication. And I think we had really good interactions with several regulatory agencies. So we're pretty confident that in at least some jurisdictions, we will be able to deliver data that if it's positive, it will be sufficient for drug approval. What is important to note, it's one trial. It's not 2 pivot trials. One trial is enough for this indication.

[Charl van Zyl, executive]

Great. Thank you, Johan. Hopefully, we answered your question, Marc. If we can go to the next question.

[Operator]

The next question is from Xian Deng from UBS.

[Xian Deng, analyst]

Two, please. The first one for Johan, please. Just wondering, maybe I could try to push my luck a bit more on the MSA Phase III trial. Just wondering if you are able to let us know that what is the primary endpoint? Are you still going to be using the slope analysis? And just wondering if you could maybe highlight what are the actual key differences from the Phase II and Phase III trial design, that would be great.

And the second one is just wondering in terms of thinking about the next year's cost moving parts. I understand this is going to be too early to guide for 2025, but just wondering if you could maybe remind us about the key moving parts in R&D and SG&A, and especially how should we think about the R&D step-up next year, please?

[Johan Luthman, executive]

Yes. So maybe I can start, and then maybe Joerg can fill in with the costs. I can comment briefly on that. So obviously, in this business, you don't like to change too much between Phase II and Phase III. So we try to preserve as much as possible between the 2 studies. That means that the primary endpoint is based on a patient progression model. There are different views in the world in terms of which design of UMSARS you like to use, and that's more in the analytical part. We can be adaptive with that part. But basically, what you should look forward to here is something that has many elements from the Phase II trial, including the slope analysis, the patient progression model for primary endpoints. The trial will start in the U.S., Europe and Japan. For the financial...

[Joerg Hornstein, executive]

I'll take the guidance question. I think it's, first of all, a little bit too early to give a guidance for 2025. Clearly, we continue with -- what we said during the Capital Market event was we are disproportionately allocating funds towards our 2 most strategic brands, Rexulti in the U.S. They're driving year-to-date revenue, and that's going to continue also in the next year. And of course, we'll invest into our progressing time line and also the integration, hopefully, on the foreseen closure of Longboard. But I would like to refrain a little bit from further guiding into '25 at this point in time.

[Charl van Zyl, executive]

Good. Thank you, Joerg.

[Operator]

Next question is James Gordon from JPMorgan.

[James Gordon, analyst]

[Audio Gap] savings. So you said at the CMD that you're now going to get an adjusted EBITDA margin above 30%. And subject to Longboard closing, that will put some costs up. You need to make some significant savings. Where are we on those savings in terms of things like taking out promotional costs in some smaller countries? Are you already making those savings? Or are you already going to see some benefit from that even in Q4? And do we get a sort of savings announcement with more detail at some point, maybe in conjunction with full year results? Or just each time you update us, there's going to be a bit more SG&A taken out? So how should we think about the phasing and the communication around that?

And then the second question, Rexulti for PTSD, we're less than 90 days from the February 8 PDUFA, and I haven't seen anything about AdCom. So does that suggest that we're not having an AdCom, it's just going to be smooth sailing into the decision? And given that, are you already spending on launch prep in Q4 because it does look like it's a straightforward approval now?

[Charl van Zyl, executive]

Yes. So maybe the first question, James, I'll also ask Joerg to add. But of course, we are undergoing these programs today to further look at how we reallocate capital. Part of that will be in our guidance, of course, in '25 as well once we have completed that process. So I don't think we can add specific numbers to you today. But Joerg, if you would like to add anything more?

[Joerg Hornstein, executive]

No, I think, James, you had the same question to me on the Capital Market event. And I said, of course, some of these initiatives are also structural in nature. And I would say we are, overall in terms of progress on the transformation initiatives, very well on track, but I would probably see a contribution a little bit more from the second half of next year onwards. But we'll keep you up to date as part of regular earnings release.

[Johan Luthman, executive]

Yes. On the PTSD regulatory process, I can comment a little bit. First to remind you, the PDUFA date is 8th of February. So we're getting close to it, obviously. We are logging along with the process with FDA. There has been no remarkable changes in that process during the journey so far. It's an sNDA. So obviously, there's a lot of safety data from other indications, and we have a big package for this molecule in indication as well. So there are several elements of the review that are probably pretty straightforward, preclinical safety, et cetera.

The clinical parts of the NDA review often comes quite late, but I'm sure they are into that part already, and we haven't got any sort of challenging questions on this. Are we getting an AdCom? FDA has the right to ask for that at any stage during the review process until basically the PDUFA date. So far, we haven't heard anything about it. And at the validation, when they accepted the filing, they said nothing about it.

[Operator]

The next question comes from Manos Mastorakis from Deutsche Bank.

[Manos Mastorakis, analyst]

Yes. So on Brintellix in Japan and also the SUNRISE filing. Initially, I was thinking that you -- it seems that there's no particular urgency in filing, but then you talked about raising awareness in those markets. Is that the reason why you're pushing back almost a year the actual filing? Is this related to the commercial readiness? Just give a little bit of color there. And also, it seems that there was not much of a positive reaction following the positive announcement. So what is it that the market is really missing about that? And what will you be -- yes, that's it pretty much.

[Johan Luthman, executive]

So you had something about Brintellix at the beginning. I'm not sure was that a comment on Brintellix and the shift or...

[Charl van Zyl, executive]

Yes, I think the comment is probably on the good performance in Japan. Maybe you want to comment on that, Michala?

[Michala Fischer-Hansen, executive]

Yes. No, I think your question, as I heard was basically, is it because we don't have a rush with Japan, because Brintellix is performing so strongly? And you're absolutely right, Brintellix is doing incredibly well in Japan, as in many other markets. But I'll let Johan comment on the time line.

[Johan Luthman, executive]

Yes. So Brintellix, if I just may add, we have 2-year extension now through the pediatric program. So we have a longer runway in Japan. So that's good, and the product is doing very well in Japan. But going to your question about SUNRISE, why are we filing in the later part of 2025. That's because of several reasons. We're lining up very different elements of the program here. We need, of course, standardized specific Japanese populations, and we have PK studies, you have to build a certain file, but it also relates to the CMC filing, et cetera, and the different manufacturing processes for Vyepti. So that's why we like to build a package that is very comprehensive and will be a package that is long-lasting for the market.

[Operator]

The next question comes from Charles Pitman-King from Barclays.

[Charles Pitman, analyst]

Firstly, I was just wondering if you could give us a little bit more detail on the progression of your conversion for the Abilify portfolio. Kind of what proportion of patients that are switching away from branded Maintena are switching to Asimtufii and how many are kind of potentially switching over to other products? That's the first question.

And then the second question, you kind of mentioned the gross to net adjustments impacting 3Q '24. I was wondering if you could give us a few more details on those and how we should think about those as far as kind of recurring impacts going forward? Should we think about this as a 3Q event going forward?

And then just a very quick clarification to your comment on Slide 20 and the guidance referring to it as soft guidance parameters. Can I just make sure that -- are you admitting that there's a potential to end up outside this range? Or are you allowing for uncertainty in relation to Longboard closure?

[Charl van Zyl, executive]

So let's take the first question, Tom, on Abilify switch potential. Yes.

[Thomas Gibbs, executive]

So thank you for the question, Charles. Overall, as Michala spoke to, the Abilify LAI franchise in the U.S. continues to deliver solid growth as an overall portfolio. Net revenues grew 15% through 3 quarters for 2024 versus the same time a year ago. I think it's important to note that this growth for Abilify LAI franchise is driven by the continued uptake of Abilify Asimtufii, which now contributes 11% of the overall Abilify LAI franchise, and this has resulted in a market share growth of 2% for the Abilify LAI franchise.

Now to your question, I think it's important that we note that we are starting to see greater conversion of Asimtufii outside of Abilify Maintena. Right now, we're seeing the conversion trends for Abilify Asimtufii that are encouraging because we're seeing a declining percentage of conversions coming from Abilify Asimtufii, and almost half of all conversions now are directly coming either from oral atypicals or naive patients.

[Charl van Zyl, executive]

There was a follow-on question on gross to net.

[Thomas Gibbs, executive]

So as it relates to gross to net, I think we're speaking to Brintellix for the U.S. I do not see these as continuing over time. These will be declining. What the gross to nets are, it's favorable comparison as it relates to lower Medicaid as a part of the overall payer mix, which will even out over time, and we don't see that as recurring.

[Charl van Zyl, executive]

Yes. Thank you, Tom. And Charles, just to be very clear, I think what Joerg was referring to are the other financial information or relevant information on Slide 20. But maybe not a reference to a soft guidance. We are very firm on our guidance based on what we see today. But I think it was just for completeness to share also the other relevant financial information. So hopefully, that clarifies that point.

[Operator]

[Operator Instructions] The next question is from Mattias Häggblom from Handelsbanken.

[Mattias Häggblom, analyst]

Two questions from me, please. Firstly, reading the SEC filings with background of the merger related to the proposed acquisition of Longboard, it became even clearer that the breakthrough designation for bexicaserin issued by FDA in July was a driving force for Lundbeck's willingness to hike the offer substantially from its opening offer. So can you perhaps expand with regards to the importance of the breakthrough designation in light of risks and uncertainties for drug development, not least in neurology? And then secondly, could you remind me how much is left on the balance sheet related to the MAGLi assets?

[Charl van Zyl, executive]

Yes. So thank you, Mattias, and Johan can comment in a second. But there's 2 drivers, breakthrough designation, but also the willingness from the FDA on a much broader label and a broader population. Those are 2 big value drivers that came from the end of Phase II meeting. But Johan, you want to comment on that?

[Johan Luthman, executive]

Yes, I think that pretty much it's a unique breakthrough designation, has not been given before, and this is an area with many smaller indications and a few bigger ones, Dravet and then Lennox-Gastaut even slightly bigger. So this is the first time to really have this go at a broad label for all these epilepsies. And the breakthrough designation shows how committed FDA is to do something here, but it also adds value to a product like this.

[Joerg Hornstein, executive]

And I think I'll take the question regarding how much of our Abide Therapeutics platform is still in the books, and it's around DKK 1.3 billion.

[Operator]

The next question comes from Lucy Codrington from Jefferies.

[Lucy-Emma Codrington-Bartlett, analyst]

Just a few left. Sorry if I misunderstood, but in terms of the changes you made to the SUNRISE trial in terms of the stringent screening criteria, is there likely to be any limit to the label as a result of those changes? Or were these just fairly minor? And then just secondly, is China a market where you might look to partner for commercialization? Or is this something you wish to do alone?

And then just with regards probably more broadly for the guidance and the remainder of the year, if you could just outline some of the key pushes and pulls given consensus are kind of already at the top end, if not above. So kind of where we might be wrong, I guess? And then with that, the R&D side of things, does that, just to confirm, does include some Longboard costs assuming it all goes through?

[Johan Luthman, executive]

Yes, I can start with the SUNRISE changes. No, I don't want to leave you with any impression whatsoever that this is a limitation in label what we did here. It was truly operational, I would say. Prevention of migraine is a new indication, really a new indication in China. And the diagnostic rate for chronic is often with very few years on diagnosis. And in the SUNLIGHT study, we had a fairly high degree of males and that was unusual. So we started really to just put in very, very clear guidance for the sites to do the right diagnosis. It's really the experience with the population and the trial sites experience with the population. So there was no rewriting of the inclusion criteria by itself, but it's a better inclusion of the right patients. So if anything, it could strengthen the label that we really got the typical migraine patient.

[Joerg Hornstein, executive]

And maybe I can high level touch on some of the drivers. I think it depends a little bit how you construct your models. But if you work and try to reconcile reported numbers, that's, of course, a difficult exercise, because we look here at Q4 at a bit of a different currency setup as we had in basically the last quarter of last year. And this basically is difficult to compare. You also have probably around DKK 93 million of favorable hedging impact last year that is, of course, significantly different this year, as we've also given in the other relevant information. So currency plays for a bit of a reason.

I think on the underlying drivers, we are very pleased with the trajectory performance of Rexulti and Brintellix. And as we said earlier, specifically on the U.S., Brintellix and Abilify, we've seen a bit gross to net favorability. We don't see that continuing into Q4. And I think overall, if you look at mature brands as well, year-to-date performance is pretty much in line with what we guided all year long. And if you suddenly see a bit of deviations, then this is minor, because Q3 was in principle triggered quite a bit by a few price increases we've seen in some high inflation markets. So that's where I would leave it.

[Michala Fischer-Hansen, executive]

And Lucy, thank you for your question on China. Let me start by saying that we are obviously very pleased with the very strong results that SUNRISE has shown. And of course, next is the regulatory process, which starts. In terms of how we wish to go to market, it is simply too early to speak to that at this stage. But for sure, China represents a significant market and a very interesting market for us. So more on that at a later stage. Thank you for the question.

[Charl van Zyl, executive]

I see no other questions at this point.

[Operator]

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Charl van Zyl for closing remarks.

[Charl van Zyl, executive]

Yes. Thank you for joining, of course, today, and also for receiving your important questions. So again, I want to just reiterate, and hopefully, you agree that these are compelling results and, of course, a strong validation of our path of being a focused innovator. And again, I want to thank you for your attendance today and look forward to interacting with you again in the future. Thanks again.