The failure of Myriad Genetics' Alzheimer’s disease drug Flurizan, which Lundbeck licensed for a hefty $100m upfront a mere six weeks ago, at best looks like an expensive gamble worth taking; at the worst, it looks like an expensive failure of due diligence.  

The stock market punished the Danish company today by wiping $500m from its market value, far more than the deal cost, with the shares closing 10% lower. Considering the project was considered high risk with a relatively low chance of succeeding, the reaction suggests that investors have taken a dim view of the affair. 

What is in no doubt is that Lundbeck needs to take action to mitigate the loss of the anti-depressant  Cipralex, by far its biggest product, which will be exposed to generic competition from 2012. If Flurizan had succeeded, it would have gone a long way to solve the Danish company’s looming sales shortfall. Drug development is a risky business, and failure is part of the business model, so the extent of the sell off today is probably unfair.

However, what investors do not want to see is unnecessary risk. And what many in the market saw today was $100m blown in six weeks on a very risky project, raising concerns about management’s ability to rise to the challenges facing the company.

New chief executive

Lundbeck’s new chief executive, Ulf Wiinberg, a big pharma veteran who cut his teeth at Wyeth, has only been in the hot seat for a month, so probably had little to do with forging the deal with Myriad. With few catalysts in what is viewed as a thin pipeline, he has his work cut out. 

On a call today, Mr Wiinberg stressed that licensing in and/or buying late stage products remains a number one priority, to mitigate what he repeatedly referred to as Lundbeck’s “2012-14 challenge”. He said everything is being considered within the field of CNS, and that the company has the cash necessary to fulfil its aims. 

The executive also pointed out that the problems facing Lundbeck are the same problems facing big pharma, in terms of a looming patent cliff. However, the difference is that they can afford to take big, expensive risks more readily.  

Investors will be hoping that the next late stage deal Mr Wiinberg delivers will smack less of desperation, and more of measured consideration.