Prior to obtaining regulatory approval for the sale of a product, Lundbeck must demonstrate for each specific indication the safety and efficacy of the drug candidate for the treatment of humans by conducting preclinical studies and clinical trials. Throughout the development stage, there is a risk of a development project suffering delays or being discontinued altogether. For example, in 2007 Lundbeck was compelled to discontinue the development of gaboxadol for the treatment of sleep disorders, although the pharmaceutical candidate had reached the late development stage. To minimise the business risks associated with the development of pharmaceuticals, Lundbeck consistently seeks, through in-house research and in-licensing of pharmaceuticals, to ensure a sufficiently broad portfolio of pharmaceutical candidates. In 2007, Lundbeck initiated phase I trials with three new pharmaceutical candidates and in-licensed Circadin® for the treatment of primary insomnia. Risks associated with intellectual property rights and generic competition Lundbecks continued success hinges on its ability to protect intellectual rights for new pharmaceuticals and to operate its business without infringing on others rights. However, patents and the patent application process in pharmaceutical companies such as Lundbeck are legally and scientifically complicated processes and may be subject to uncertainty. To minimise the business risks associated with intellectual property rights and generic competition, Lundbeck thoroughly monitors and analyses the generic market and actively protects the companys portfolio of intellectual property rights. In 2007, Lundbeck was involved in pending patent trials in the USA, the UK, Australia, Canada, France and Germany. It is Lundbecks policy to defend the companys intellectual property rights energetically, wherever they may be violated. Financial risks The bulk of the Groups commercial transactions are settled in foreign currency. The foreign currency exposure is reduced by hedging positions in the most important foreign currencies through forward and option contracts and, to a minor extent, by raising foreign currency loans. The interest rate risk related to the Groups bond portfolio, debt portfolio and cash holdings is reduced by seeking short duration on both the asset side and the liabilities side. The credit risk that arises in connection with the sale of goods, the Groups bond portfolio and cash holdings is reduced by avoiding credit risk concentration and by diversifying receivables on a large number of creditworthy trading partners. In addition, the Group exclusively deals with banks that have a high credit rating. At the present time, the currency risk associated with the depreciating US dollar (USD) is the most critical financial risk to Lundbecks operations. At the end of 2007, Lundbeck has hedged income in US dollars for the entire 2008. Accordingly, if the US dollar depreciates further in 2008, this will not have any impact on Lundbecks financial results for 2008, but it may affect the companys financial performance from 2009 onwards. Risks associated with price pressure and restricted market access The pharmaceutical market is characterised by the aim of the authorities to reduce prices and regulate access to the market in order to minimise increases in government healthcare budgets. Unexpected market changes such as price reductions may have a material impact on the earnings potential of each individual pharmaceutical. Lundbeck expects that new healthcare reforms will be initiated in 2008 in several of Lundbecks markets, reducing prices and restricting access for Lundbecks pharmaceuticals. Lundbeck has established functions to ensure systematic and coordinated monitoring and response with a view to maintaining pharmaceutical prices as well as market access. Also, Lundbeck continuously seeks to adjust its organisation to accommodate the effect of changes in market conditions for the Groups pharmaceuticals. Risks associated with reliability of supply Managing reliability of supply is pivotal for Lundbeck, enabling the Group to secure patients access to Lundbecks pharmaceuticals at all times. To handle the risk associated with reliability of supply, Lundbeck carefully monitors the supply situation, and in principle the aim is to maintain an inventory level that will help overcome a production breakdown. In addition, Lundbeck has prepared plans for accessing alternative production facilities. Conversely, having too high an inventory level may entail e.g. a financial risk, which the Group takes into account when evaluating the size of inventories held by Lundbeck or its collaboration partners. It sometimes happens that pharmaceutical companies have to recall a product from the market due to the safety or quality of the pharmaceutical. Fortunately, pharmaceuticals are seldom recalled because the health of the patients is in jeopardy. However, due to the serious consequences that such situations may have, it is paramount that pharmaceutical companies thoroughly monitor the safety and quality of their pharmaceuticals. At Lundbeck, quality and safety is a key concern, and the company has procedures and systems to ensure the quality and safety of its pharmaceuticals. If, despite high levels of quality and safety, Lundbeck should be faced with a situation in which the company has to recall a product, procedures to ensure a swift and efficient response have been set up and risk-reducing measures to minimise the impact of a product recall have been launched. The sale of counterfeit medicine in the pharmaceuticals market has become a growing problem in recent years. In particular, this has been a problem with respect to pharmaceuticals to treat impotence and regulate weight, which is not the type of pharmaceuticals that Lundbeck markets. So far, Lundbeck has only experienced very few cases where attempts have been made to sell counterfeit medicine in the Groups markets in Asia and the Middle East. However, counterfeit pharmaceuticals represent a very serious problem as they jeopardise patient health and generally contribute to undermining confidence in the healthcare system. Lundbeck therefore continuously seeks to limit and counter any attempt to adulterate the Groups pharmaceuticals. 37 ANNUAL RePORT 2007 DESTINATION NEXT DECADE DESTINATION NEXT DECADE Cover photo: Eric Wainwright is a psychiatrist and works as Medical Adviso Lundbeck at a glance H. Lundbeck A/S is an international pharmaceutical company with more than 50 ye Lundbeck worldwide Parent company Denmark Iceland Ireland Italy Latvia Lithuania Norway Poland Portu Contents 5 6 12 16 24 26 27 32 36 40 46 51 54 59 Financial highlights 2003-2007 Business review Ma Financial highlights 2003-2007 Revenue DKK 10,985 million Research and development DKK 2,187 million Business review Lundbeck achieved its best ever results and also achieved its target of an EBIT marg 2007: DKK 10,985 million Revenue 2006: DKK 9,221 million Net profit for the year amounted to DKK 1, Revenue growth: +17% +22% +136% +250% I, two pharmaceutical candidates into clinical phase II a Being a research-based company, Lundbeck believes that it is important to be able to expand and stre Neurobiology scientist Lone Helboe is looking at the image of brain structures in an X-ray film, whi Alzheimers disease A lzheimers disease is the most common form of dementia. Alzheimers disease inv Marketed pharmaceuticals Lundbeck markets 14 pharmaceuticals worldwide for the treatment of diseases both depression and anxiety in comparison with a number of other antidepressants. For example, a stu Concurrently with its in-house development activities, Lundbeck dedicates an increasing amount of re Lundbecks pharmaceuticals Compound Melatonin Mechanism of action Regulation of circadian rhythm ASRI Progress in the regions Lundbeck divides its operations into three market regions: Europe, the USA a Europe, revenue, DKKm Q4 07 Cipralex® Ebixa® Azilect® Serdolect® Other revenue Total revenue 720 350 Lundbeck is one of the worlds leading companies in the development of antidepressants. In addition t ered by Lundbeck for the treatment of mood and anxiety disorders. The compounds are Lu AA21004 and L International Markets Revenue from International Markets rose 22% relative to 2006 to DKK 2,194 mill most frequently used pharmaceutical to treat Alzheimers disease, and Ebixa® continues to grow in the In recent years, Lundbecks scientists have invented a number of novel and innovative compounds for t Depression and mood disorders D epression is a serious disease with symptoms that include persiste Strategic focus Lundbeck is a research-based specialist company dedicated to the treatment of disord Partnering Developing new pharmaceuticals today is a more difficult and resource consuming process t Strategic initiatives Lundbeck aims to become a high-growth research-based CNS company. The Groups d Growth through innovation Lundbeck expects to continue to invest heavily in research and development Clinical trials are a key component in the development and approval of new pharmaceuticals. The requ At Lundbeck, research into new pharmaceuticals is the cornerstone of the companys operations. The go 30 Using methods such as microscopy, senior specialist Heidi Lopez de Diego analyses the crystals i Alcohol dependence I t is estimated that more than 30 million people in the USA, Europe and Japan Corporate governance Owing to recent years focus on corporate governance, many listed companies have Lundbeck.com/about us Position on corporate governance Lundbecks Supervisory Board has considered th Lundbeck is developing a novel potential pharmaceutical compound which has demonstrated promising pr Parkinsons disease P arkinsons disease is a progressive, degenerative disorder caused by the degen Risk management To a company conducting research and international operations such as Lundbeck, avoi Prior to obtaining regulatory approval for the sale of a product, Lundbeck must demonstrate for each Nils Ole Dalby works as a scientist in Lundbecks department for electrophysiology. He measures neuro Primary insomnia P rimary insomnia is characterised by a person experiencing inadequate or poor-qu The Lundbeck share In connection with the ongoing share buyback programme, Lundbeck bought back shar Annual General Meeting Lundbecks Annual General Meeting will be held on 22 April 2008 at 10am at H. Website Lundbeck aims to provide a good overview of the companys development to its shareholders and Analyst coverage Company ABG Sundal Collier Blue Oak Capital Carnegie Bank Credit Suisse Dansk Aktie In Lundbecks department for analytical chemistry, senior laboratory technician Rikke García Andrease Schizophrenia and psychotic disorders S chizophrenia is a mental disorder that occurs in varying d Focused efforts: Environment, health and safety Lundbeck aims to conduct its activities in a way tha Lundbeck sets high standards not only for the Groups in-house health, safety and environment initiat 44,100 tonnes, which was slightly less than in 2006. This single figure actually covers two differen Environmental impact under full control The positive trends in the key environmental impact figures Lundbecks HS&E strategy 2010, target status in 2007 and new targets for 2008 Lundbeck HS&E s The right skills for the new decade In 2007, Lundbeck strengthened its efforts to recruit and retain Lundbeck aims to be a workplace at which employees feel comfortable and would like to stay. Marie-Cl will focus on projects in the drug discovery and development organisation. Well-being in the workpl Research and knowledge sharing Lundbeck contributes to societys treatment of patients with disorders The Lundbeck Foundation is one of the largest private financial contributors to public health care r Section leader Lars Torup and molecular biologist Jacob Nielsen are looking at a 3D image of the CEP Acute ischaemic stroke S troke is the third leading cause of death in the industrialised world and 58 Financial statements 2007 Revenue DKK 10,985 million Profit from operations DKK 2,695 million Net pr Summary for the Group 2003-2007 Income statement (DKKm) Revenue Profit before research and developme Share data Average number of shares, excl. treasury shares (million)1 Earnings per share (EPS) (DKK) Financial review 2007 Income statement The Group generated revenue of DKK 10,985 million in 2007, a Income statement for the year ended 31 December 2007 Parent 2006 DKKm Parent 2007 DKKm Notes Group 2 Balance sheet at 31 December 2007 Assets Parent 2006 DKKm Parent 2007 DKKm Notes Group 2007 DKKm Gro Balance sheet at 31 December 2007 Equity and liabilities Parent 2006 DKKm Parent 2007 DKKm Notes Gro Statement of changes in equity at 31 December 2007 ­ Group 2007 Equity at 01.01.2007 Adjustment, def Statement of changes in equity at 31 December 2007 ­ Parent company 2007 Equity at 01.01.2007 Adjust Cash flow statement 1 January ­ 31 December 2007 Parent 2006 DKKm Parent 2007 DKKm Notes Group 2007 Notes to the financial statements 70 77 78 82 83 84 85 86 91 92 93 94 94 95 96 99 101 101 104 104 10 1 Notes 1. Accounting policies The annual report of H. Lundbeck A/S, comprising the financial state Income is recognised in the income statement as earned and includes value adjustments of financial a 1 Notes Exchange differences arising from the translation of foreign associates are recognised in t Tax As from 2005, the Danish companies of the Group are jointly taxed with the parent company LFI a/ 1 Notes Goodwill is amortised through the income statement in those cases where the carrying amount Share-based payment Share-based incentive plans in which employees may opt only to buy shares in the 1-2 Notes Cash flows from acquisitions and divestments of companies are shown separately under cash 2. Revenue Parent 2006 DKKm Parent 2007 DKKm Group 2007 DKKm Group 2006 DKKm 306.5 3,189.8 1,957.6 3 Notes 3. Staff costs Parent 2006 DKKm Parent 2007 DKKm Group 2007 DKKm Group 2006 DKKm Wages and 3. Staff costs ­ continued Supervisory Board Remuneration of members of the Supervisory Board for 20 3 Notes 3. Staff costs ­ continued Warrant scheme for the Executive Management and Danish and forei 3. Staff costs ­ continued Share price based plan for employees in foreign subsidiaries (2002 plan) 3-5 Notes 3. Staff costs ­ continued Executive Management Number Executives Number Other Number Tot 4. Amortisation and depreciation ­ continued 2006 Parent Intangible assets DKKm Parent Property, pla 6-7 Notes 6. Net financials Parent 2006 DKKm Parent 2007 DKKm Group 2007 DKKm Group 2006 DKKm 73.1 7. Tax on profit for the year Parent 2006 DKKm Parent 2007 DKKm Group 2007 DKKm Group 2006 DKKm 320 8 Notes 8. Intangible assets and property, plant and equipment Group Goodwill DKKm Patent rights DK 8. Intangible assets and property, plant and equipment ­ continued Group Land and buildings DKKm Oth 8 Notes 8. Intangible assets and property, plant and equipment ­ continued Parent company Goodwill 8. Intangible assets and property, plant and equipment ­ continued Parent company Land and buildings 8-9 Notes 8. Intangible assets and property, plant and equipment ­ continued Goodwill impairment te 9. Investments in subsidiaries Parent 2007 DKKm Parent 2006 DKKm Cost at 01.01. Capital contributio 10-11 Notes 10. Investments in associates 2007 Parent Parent Accumulated revaluation/ impairment lo 11. Other investments and other receivables Group Receivables from associates DKKm Available-for-sal 12-14 Notes 12. Inventories Parent 2006 DKKm Parent 2007 DKKm Group 2007 DKKm Group 2006 DKKm 207. 13. Trade receivables and other receivables ­ continued Lundbecks products are sold mainly to distri 15 Notes 15. Pension obligations and similar obligations The majority of the employees of the Group 15. Pension obligations and similar obligations ­ continued The pension plan in the USA is funded th 15-16 Notes 15. Pension obligations and similar obligations ­ continued Group 2007 DKKm Group 2006 16. Deferred tax liabilities Group Temporary differences between assets and liabilities as stated in 16-18 Notes 16. Deferred tax liabilities ­ continued Parent company Temporary differences between a 17. Provisions Parent 2006 DKKm Parent 2007 DKKm Group 2007 DKKm Group 2006 DKKm 87.5 (3.3) 84.2 84 18 Notes 18. Mortgage and bank debt ­ continued Group Weighted average effective interest rate Amor 18. Mortgage and bank debt ­ continued Bank debt Parent 2006 DKKm Parent 2007 DKKm Group 2007 DKKm G 19-21 Notes 19. Treasury shares Parent company and Group Shares of DKK 5 nom. Number Nominal value 21. Contingent liabilities Forest See note 2 Revenue in respect of the consequences of any launch of 22 Notes 22. Financial instruments Capital structure Lundbeck operates in an industry characterised 22. Financial instruments ­ continued Net forward exchange contracts and FX swaps outstanding for th 22 Notes 22. Financial instruments ­ continued Trading part Market value (forward exchange contract 22. Financial instruments ­ continued Specification of monetary assets and liabilities for the most 22-23 Notes 22. Financial instruments ­ continued Interest rate risks Interest rate risk management 23. Related parties Lundbecks related parties are - The companys principal shareholder, LFI a/s, Ves 24-28 Notes 24. Segment information Primary segments The Groups activities are exclusively in the b 25. Earnings per share ­ continued Warrants comprised by the warrant schemes established in 2005 and 28-30 Notes 28. Acquisition of company ­ continued Cost of acquisition Cash payment in January 2007 30. Releases from H. Lundbeck A/S in 2007 No. Date 317 21.12.2007 316 20.12.2007 315 18.12.2007 314 Management statement We have today presented the annual report of H. Lundbeck A/S for the financial Independent auditors report To the shareholders of H. Lundbeck A/S We have audited the annual report Supervisory Board At 31 December 2007 Kim Rosenville Christensen Kim Rosenville Christensen Elected Per Wold-Olsen Chairman Elected at the 2007 General Meeting Born 6 November 1947 Chairman, Remunerat Executive Management At 31 December 2007 Claus Bræstrup Born 18 January 1945 President and CEO Direc DESTINATION NEXT DECADE Design: Bysted A/S Annual Report photos: Nicky Bonne and Lars Bech Print: The specialist in psychiatry and pioneer in neurology H. Lundbeck A/S Ottiliavej 9 2500 Copenhagen