Lundbeck Annual Report 05 16 - 17 19 Under the terms of the agreement, Lundbeck will start building an administrative and sales infrastructure in the USA in 2006, and until the market launch of gaboxadol, Lundbecks medical representatives will co-promote Mercks marketed pharmaceutical Maxalt® for the treatment of migraine. During the period until the launch of gaboxadol, Merck will consolidate revenues from the marketing of Maxalt® and will reimburse Lundbeck for a majority of the costs of Lundbecks medical representatives. Upon the launch of gaboxadol in the US market, Lundbeck will assume all expenses for its own US sales infrastructure but will also share in the overall revenue from gaboxadol in the USA. Lundbeck intends to build a sales infrastructure that matches the size of the company. This translates into a sales force consisting of approximately 250 employees, which will be substantially fewer than the number of medical representatives employed by Merck to market gaboxadol. The agreement marks an important strategic step for Lundbeck in establishing our own representation in the US market, and it provides us with a business model associated with limited financial risk owing to our sales partnership with Merck. In addition to marketing gaboxadol in the USA, Lundbecks medical representatives will also have an opportunity to market other pharmaceuticals. This could be pharmaceuticals in-licensed by Lundbeck in the future, but also medicines based on our own research and development initiatives. The companys portfolio of pharmaceuticals include Serdolect®, which was launched in the first European market at the beginning of 2006. Lundbeck holds the global rights to Serdolect® and will in 2006 investigate the possibility of applying for approval in the USA. Another key issue in the USA is how Lexapro® will perform in terms of market share. In this connection, it remains to be seen how market dynamics will change when the market-leading antidepressant Zoloft® is no longer protected against generic competition at some point during 2006. On two previous occasions, a market-leading antidepressant has come to face generic competition, benefiting the young original antidepressants in terms of market share. However, the question is whether this can be viewed from the same angle in 2006 when the third market-leading pharmaceutical will be facing generic competition. Price represents a third component. Lundbeck expects to be able to raise the price of Lexapro®, not least because our drug remains the least expensive original antidepressant in the US market. Foreign currency exposure Foreign currency management is handled centrally by the parent. The Group aims to hedge its anticipated cash flow for a period of up to 12 months, or up to 18 months for USD. The companys USD income derives primarily from sales invoiced to Forest. According to the Groups accounting policies, the minimum price is recognised as income at the time of invoicing, and the excess amount is recognised in the balance sheet as a prepayment. The prepayment and any settlements of balances are subsequently recognised as income as Forest resells the products. Income and expenses relating to hedging contracts covering this part of the hedged cash flows are recognised in the balance sheet together with the prepayment and subsequently recognised in the income statement as Forest resells the products. At 31 December 2005, this amount was a loss of DKK 15 million which has been recognised together with the prepayment. At 31 December 2004, the amount was a gain of DKK 38 million. American market conditions Lundbeck and Forest were surprised on the downside in terms of growth in the US market in 2005. Growth forecasts for the US market for pharmaceuticals to treat depression have been toned down.
ANNUAL REPORT 2005 We improve the quality of life for those suffering from psychiatric and neurologi
2005 IN BRIEF Financial ratios DKKm Revenue by geography, DKKm 9,070 1,782 2,170 1,589 7.11 2.10 20
4 CONTENTS Overskrift Financial performance Financial forecast and targets Europe Lundbecks large
Lundbeck Annual Report 05 2-3 5 lundbeck.com Financial figures in Excel On Lundbecks website you
6 Financial performance in 2005 2005 was an eventful and financially satisfactory year for Lundbec
Lundbeck Annual Report 05 4-5 7 1,488 million, corresponding to 16% of revenue. Depreciation and
8 lundbeck.com Annual reports going back 10 years In 1996, Lundbeck generated revenue of DKK 2,326
Lundbeck Annual Report 05 6-7 9 Financial forecast and targets Lundbeck deviates from previously
10 lundbeck.com Partner relationship Lundbeck collaborates with a number of partners both in the fi
Lundbeck Annual Report 05 8-9 11 Europe Lundbecks largest business area Revenue from our Europ
12 ! Facts on Cipralex® Cipralex® is the third-most prescribed original antidepressant in Europe. L
Lundbeck Annual Report 05 10 - 11 13
14 Since CHMPs (Committee for Medicinal Products for Human Use, under EMEA) temporary suspension of
Lundbeck Annual Report 05 12 - 13 15 The US market a strategic opportunity Representing 45% of
16 Lexapro® website Forest Laboratories has set up a website for everyone who wishes to know more a
Lundbeck Annual Report 05 14 - 15 17 A market share of 22.5% makes Zoloft® the current market lea
18 ! Partnership with Merck Lundbeck formed its alliance with Merck in February 2004 to develop and
Lundbeck Annual Report 05 16 - 17 19 Under the terms of the agreement, Lundbeck will start buildi
20 International Markets long-term potential Revenue from markets outside Europe and the USA I
Lundbeck Annual Report 05 18 - 19 21 In 2005, the International Markets were characterised by inc
22 ! Ebixa® for specialists Lundbeck has prepared a special website for GPs and specialists who wis
Lundbeck Annual Report 05 20 - 21 23 Conditions in International Markets The protection of intell
24 Developing new pharmaceuticals Lundbecks long-term goal is to become the worlds leader in the f
Lundbeck Annual Report 05 22 - 23 ! CNSforum Read more about research and development in drugs in
26 Bifeprunox is a new compound (a D2 and 5-HT1A partial agonist) in phase III clinical development
Lundbeck Annual Report 05 24 - 25 27 lundbeck.com Research literature Lundbecks employees have au
28 Launched pharmaceuticals in the market First Approved, registration no of countries 2001 82 Com
Lundbeck Annual Report 05 26 - 27 29 Corporate governance Control is good, trust is better The p
30 Corporate governance Corporate governance at Lundbeck On 6 October 2005, the Copenhagen Stock E
Lundbeck Annual Report 05 lundbeck.com Position on corporate governance Lundbecks Supervisory Board
32 Supervisory Board Flemming Lindeløv Chairman Elected at the 1998 General Meeting Born 20 August
Lundbeck Annual Report 05 30 - 31 33 Remuneration of and shares held by members of the Supervisor
34 Remuneration of and shares held by members of the Executive Management Remuneration paid to the
Lundbeck Annual Report 05 32 - 33 35 Organisation
36 Risk management In the individual business units, Lundbeck takes a systematic approach to monit
Lundbeck Annual Report 05 34 - 35 37 4. Risks associated with foreign currency, interest rate and
38 Developing global competencies Human resources (HR) play a key strategic role at Lundbeck. Duri
Lundbeck Annual Report 05 36 - 37 ! Lundbeck sought after Lundbecks HR department received almost
40 International career Lundbeck has subsidiaries and representative offices in 55 countries around
Lundbeck Annual Report 05 38 - 39 41 New health, safety and environment strategy successfully imp
42 show that actual emissions have been reduced. Accordingly, the higher figures for Valby reflect
Lundbeck Annual Report 05 40 - 41 43 Other initiatives enhanced efficiency in Lundbecks health, s
44 A Strategy for Health, Safety & Environment Read more about Lundbeck Health, Safety & En
Lundbeck Annual Report 05 42 - 43 45 Overview of strategic objectives 2005-2010, target status 20
46
Lundbeck Annual Report 05 44 - 45 47 Focus on creating shareholder value Lundbecks shares are li
48 ! Annual General Meeting Lundbecks Annual General Meeting will be held on 24 April 2006 at 4 pm
Lundbeck Annual Report 05 46 - 47 49 Releases from H. Lundbeck A/S in 2005 No. Date
50 lundbeck.com Archive of financial information The Lundbeck website provides announcements to the
FINANCIAL REPORT 2005 51
2 Summary for the Group 2001-2005 Income statement (DKKm) Revenue Profit before research and devel
Lundbeck Annual Report 05 12 - 13 50 - 51 3 Share data Average number of shares (millions) Earnin
4
Lundbeck Annual Report 05 12 - 13 52 - 53 5 Income statement for the year ended 31 December 2005
6 Balance sheet at 31 December 2005 Assets Parent 2004 DKKm Parent 2005 DKKm Notes Group 2005 D
Lundbeck Annual Report 05 12 - 13 54 - 55 7 Balance sheet at 31 December 2005 Equity and liabilit
8 Statement of changes in equity at 31 December 2005 Group 2004 Equity at 31.12.2003 Effect of IFR
Lundbeck Annual Report 05 12 - 13 56 - 57 9 Statement of changes in equity at 31 December 2005 Pa
10
Lundbeck Annual Report 05 12 - 13 58 - 59 58 11 Cash flow statement for the year ended 31 Decembe
12 Note 1 1. Accounting policies The annual report of H. Lundbeck A/S is presented in accordance w
Lundbeck Annual Report 05 60 - 61 13 carrying amount of investments in subsidiaries and equity at
14 Note 1 The consolidated financial statements are prepared by adding together uniform items and
Lundbeck Annual Report 05 62 - 63 15 Derivative financial instruments Forward exchange contracts
16 Note 1 Research and development costs Research and development costs comprise expenses incurred
Lundbeck Annual Report 05 64 - 65 17 protected by intellectual property rights, the maximum amort
18 Note 1 Investments in associates in the consolidated financial statements Investments in associ
Lundbeck Annual Report 05 66 - 67 19 Share-based incentive programmes in which employees receive
20 Notes 1-3 Debt Mortgage debt and debt to credit institutions are recognised at the time of the
Lundbeck Annual Report 05 68 - 69 21 2. Revenue Parent 2004 DKKm Parent 2005 DKKm Group 2005 DKKm
22 Note 3 3. Staff costs, continued Employees Parent 2004 Parent 2005 Group 2005 Group 2004 1,985
Lundbeck Annual Report 05 12 - 13 70 - 71 23 3. Staff costs, continued Warrant scheme for the Exe
24 Notes 3-4 3. Staff costs, continued Share price based plan for employees in foreign subsidiarie
Lundbeck Annual Report 05 12 - 13 72 - 73 25 3. Staff costs, continued Executive Management Numbe
26 Notes 5-7 5. Audit fees Parent 2004 DKKm Parent 2005 DKKm Group 2005 DKKm Group 2004 DKKm 1.7
Lundbeck Annual Report 05 12 - 13 74 - 75 27 7. Tax on profit for the year Parent 2004 DKKm Paren
28 Note 8 8. Property, plant and equipment and intangible assets Group Land and buildings DKKm Pla
Lundbeck Annual Report 05 12 - 13 76 - 77 29 Goodwill DKKm Patent rights DKKm Product rights DK
30 Note 8 8. Property, plant and equipment and intangible assets, continued Parent Land and buildi
Lundbeck Annual Report 05 12 - 13 78 - 79 31 Goodwill DKKm Patent rights DKKm Product rights DK
32 Notes 8-9 8. Property, plant and equipment and intangible assets, continued Goodwill impairmen
Lundbeck Annual Report 05 12 - 13 80 - 81 33 9. Investments in subsidiaries, continued Share of
34 Notes 10-11 10. Investments in associates 2005 Parent Parent Accumulated revaluation/ impairmen
Lundbeck Annual Report 05 12 - 13 82 - 83 35 10. Investments in associates, continued Financial h
36 Notes 12-15 12. Inventories Parent 2004 DKKm Parent 2005 DKKm Group 2005 DKKm Group 2004 DKKm
Lundbeck Annual Report 05 12 - 13 84 - 85 37 15. Provisions for pensions and similar liabilities
38 Notes 15-16 15. Provisions for pensions and similar liabilities, continued Furthermore, the Gro
Lundbeck Annual Report 05 12 - 13 86 - 87 39 16. Provision for deferred tax Group Temporary diffe
40 Notes 16-18 16. Provision for deferred tax, continued Parent Temporary differences between asse
Lundbeck Annual Report 05 12 - 13 88 - 89 41 17. Other provisions Parent 2004 DKKm Parent 2005 DK
42 Note 18 18. Mortgage and bank debt, continued Group Weighted average effective interest rate Fi
Lundbeck Annual Report 05 12 - 13 90 - 91 43 18. Mortgage and bank debt, continued Parent 2004 DK
44 Notes 19-21 19. Treasury shares Parent and Group Shares of DKK 5 nom. Number Nominal value DKKm
Lundbeck Annual Report 05 12 - 13 92 - 93 45 20. Contractual obligations, continued Other purchas
46 Note 22 22. Financial instruments Currency risks Net forward exchange contracts outstanding for
Lundbeck Annual Report 05 12 - 13 94 - 95 47 22. Financial instruments, continued Trading part Ma
48 Note 22 22. Financial instruments, continued Credit risks The primary financial instruments sho
Lundbeck Annual Report 05 12 - 13 96 - 97 49 22. Financial instruments, continued Interest rate r
50 Notes 23-24 23. Related parties Lundbecks related parties are - The companys principal sharehol
Lundbeck Annual Report 05 12 - 13 98 - 99 51 23. Related parties, continued Transactions and bala
52 Notes 25-28 25. Earnings per share 2005 2004 Profit for the year (DKKm) Minority interests (DK
Lundbeck Annual Report 05 100 - - 13 12 101 53 27. Working capital changes Parent 2004 DKKm Paren
54 Management statement We have today presented the annual report of H. Lundbeck A/S for 2005. The
Lundbeck Annual Report 05 102 - - 13 12 103 55 Auditors report To the shareholders of H. Lundbec
Lundbeck worldwide Parent company Denmark H. Lundbeck A/S Synthesis factories Denmark H. Lundbeck
Design: Bysted A/S Photo: Thomas Busk Print: Quickly Tryk A/S March 2006
The specialist in psychiatry and pioneer in neurology H. Lundbeck A/S Ottiliavej 9 DK-2500 Copenhag