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Drugs group Lundbeck's shares hit by profit warning

By Mette Fraende

COPENHAGEN (Reuters) - Shares in Danish drugs firm Lundbeck fell to their lowest level in over 12 years on Wednesday after it cut its profits forecast for the next two years as European sales slow and spending on new products rise to combat generic competition.

The company has already warned that earnings would stall until 2015 due to cheap generic competition for its existing drugs, meaning new products will be vital for future earnings.

But Chief Executive Ulf Wiinberg said on Wednesday that the negative impact on revenue from healthcare reforms in Europe had also been bigger than expected in the last two years and that slowing European sales and generic competition were hurting.

As a result the company said operating profits would fall further than previously forecast in 2014 as it increases investments in its late-stage drugs development pipeline and product launches.

Lundbeck is working to find new drugs to replace lost revenue from products coming off patent protection such as its antidepressant Cipralex, which is sold as Lexapro in the United States and Japan, and Alzheimer's drug Ebixa.

Wiinberg said 2014 would be the company's peak investment year for the new products pipeline, offering it a solid foundation for growth starting in 2015.

"You only get one chance to launch a product and we have to do it well," Wiinberg said at a briefing for investors.

He was commenting after the company warned in a statement that it now expects revenue in 2014 of about 14 billion Danish crowns ($2.5 billion) and an operating profit of between just 0.5 billion and 1 billion crowns.

Analysts have on average been forecasting a profit of over 2.5 billion crowns for 2014 on turnover of over 14.7 billion crowns, according to Thomson Reuters I/B/E/S Estimates.

Two years ago Lundbeck predicted its annual revenues over the period 2012-2014 would exceed 14 billion crowns a year while earnings before interest and tax (EBIT) would exceed 2 billion crowns a year.

Next years' revenue is now forecast to be in the range of 14.1 billion and 14.7 billion crowns to produce an operating profit of 1.6 billion to 2.1 billion crowns, with no change to the company's forecast for 2012.

Analysts' forecasts for this year are for operating profit to drop 41 percent to 1.99 billion crowns on revenue down 8 percent at 14.7 billion crowns, while for 2013 they predict a profit of 2.26 billion crowns on revenue of 14.5 billion crowns.

Lundbeck's shares were trading down 17 percent at 79.90 crowns at 12.44 p.m. British time, dropping below 80 crowns for the first time since April 2000.

"In the short term, earnings are under pressure," Sydbank analyst Soren Hansen said.

Lundbeck said that it expects a dividend payout ratio of about 35 percent of net profits in the 2012-14 period. Last year it paid 3.49 crowns on basic earnings per share of 11.64 crowns, a payout ratio of 30 percent.

Analysts have been predicting a 27-30 percent cut this year to 2.53-2.28 crowns, according to Thomson Reuters StarMine data.

But a number of analysts doubt that revenue from new products will be enough to secure revenue growth in 2015, compensating for lost revenue from Cipralex, Lexapro and Ebixa which together accounted for about 70 percent of group revenue in 2011.

Lundbeck is working on new products such as antidepressant Brintellix in Europe and the United States for launch at the end of next year or start of 2014, as well as alcohol dependency treatment Selincro in Europe in mid 2013.

"It is difficult to see revenue from the smaller products compensating for the large products," said Hansen.

"They have a lot of new products in the portfolio and a lot of products in the pipeline, but revenue growth in 2015 is not very likely," he said. ($1=5.6458 Danish crowns)

(Editing by Greg Mahlich)

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