Financial review restructuring and closing down the companys regional sales and administration offices. Finally, an amount was allocated to cover any losses or costs in connection with the companys defence of its intellectual property rights. Of the total cost of DKK 287 million, DKK 222 million has been recognised as a provision in the balance sheet, while DKK 65 million has been recognised as debt. The debt item primarily relates to a settlement reached in December 2003 concerning the defence of the companys intellectual rights. Cost of sales decreased by 3% in 2003 to DKK 1,759 million. The lower level of costs was attributable to improved efficiency of in-house manufacturing processes, including substantial capacity utilisation at the companys synthesis factory at Seal Sands in the UK, leading to higher production volumes and lower cost of sales. Relative to last year, the higher production volumes have led to fewer purchases from external production partners. Distribution costs were DKK 2,486 million in 2003. The costs are on a level with 2002 and reflect the continuing high level of activity in the international sales and marketing organisation related to the launch of Cipralex® and Ebixa®. Administrative expenses were up by 23% to DKK 1,617 million, primarily due to the above-mentioned costs of DKK 287 million. Adjusted for these costs, administrative expenses were on a level with 2002. The size of administrative expenses reflects the continued expansion of the Groups IT and communications infrastructure, especially the implementation of the companys SAP system. Research and development costs amounted to DKK 1,933 million in 2003 against DKK 1,573 million in 2002, an increase of 23%. The ongoing development of Lundbecks pipeline, including the completion of phase II studies concerning CEP 1347 and the initiation of phase III clinical trials of bifeprunox and gaboxadol, was a significant factor behind the cost increase. In 2003, research and development costs accounted for 19% of revenue compared to 17% in the previous year. Depreciation and amortisation charges, which are included in the individual expense categories, totalled DKK 565 million in 2003, up from DKK 405 million in 2002. A major part of the increase in depreciation and amortisation charges is ascribable to amortisation commenced on the companys SAP-system, depreciation of the manufacturing facilities in the UK, amortisation of goodwill and other intangible assets in connection with the acquisition of Synaptic Pharmaceutical Corporation in 2003, and recent years rising investment level. Income from associate Lundbecks share of the results in CF Pharma Gyógyszergyártó Kft., Hungary, represented a loss of DKK 4 million before tax in 2003. Financial items In 2003, the Groups net financial expense amounted to DKK 76 million, against DKK 286 million in 2002. Of this DKK 76 million net expense, DKK 8 million was attributable to net interest income and exchange differences concerning the bond portfolio. Realised losses on other investments exclusive of exchange differences amounted to DKK 60 million. The loss was triggered primarily by the sale of the shares in Cephalon, Inc., which represented a financial expense of DKK 67 million in 2003, against an unrealised loss of DKK 291 million inclusive of exchange differences in 2002. The sales price totalled USD 41 million, corresponding to DKK 277 million. In 1999, Lundbeck acquired 1 million shares in Cephalon at USD 12 per share, corresponding to DKK 86 million. This means that, overall, Lundbeck realised a gain of DKK 191 million. The successful R&D partnership with Cephalon concerning the development of CEP 1347 will continue. Unrealised losses on other investments exclusive of exchange differences amounted to DKK 18 million, against DKK 24 million in 2002 exclusive of an unrealised loss on the Cephalon shares. Lundbecks other investments at 31 December 2003 were mainly a shareholding interest in Burrill Biotechnology Capital Fund K/S with an estimated fair value of DKK 89 million. The years value adjustment of the Burrill shares was an expense of DKK 40 million inclusive of exchange differences. In 2003, the company sold its shares in Neurochem and Celgene Corp. (the former Anthrogenesis). The total effect of this transaction on financial items was an income of DKK 7 million. Under the chosen hedging principle, income and expenses relating to trading, i.e. instruments that do not meet the criteria for hedging, are recognised directly under net financials at market value. 48 L U N D B E C K A N N UA L R E P O RT 2 0 0 3 SD 107 billion for both the direct and the indirect economic consequences of insomnia It is estimate Contents A process of change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Sup 2 L U N D B E C K A N N UA L R E P O RT 2 0 0 3 A process of change This is a time of change for Lundbeck ­ both inside the company and in the world Supervisory Board Flemming Lindeløv Lars Bruhn Peter Kürstein Mats Pettersson Jes Østergaard J Executive Management Claus Bræstrup Lars Bang Ole Chrintz Hans Henrik Munch-Jensen Stig Løkke P Financial performance in 2003 Group financial highlights 1999-2003 1999 DKKm Revenue 3,991 Research It is managements intention that the shareholders should benefit from the companys strong financial Financial performance in 2003 New dividend policy It is proposed to raise the dividend payment for t Audit committee In connection with the decision to set up an audit committee, the Supervisory Board Important events in 2003 In January, Lundbeck announced the results of phase III clinical studies wi In October, Lundbeck and Teva Pharmaceutical Industries Ltd. announced that a rasagiline regulatory Drugs in clinical development Compound Rasagiline Memantine Sertindole Escitalopram Bifeprunox Gabox Launched drugs Compound Escitalopram Citalopram Memantine Activity SSRI SSRI NMDA-antagonist Indicat Alzheimers disease Alzheimers disease, which is the most common cause of dementia, is a neurological It is estimated that roughly 37 million people around the world will suffer from a form of dementia Alzheimers disease It is estimated that about 30% of the patients treated with acetylcholine esteras Brand name Aricept® Exelon® Reminyl® Akatinol®* Axura®* Ebixa®* Active ingredient donepezil rivasti Depression and anxiety Depression is a disease that affects a large proportion of the population, an WHO estimates that depression will become the second-largest cause of the global health burden by 20 Depression and anxiety What is depression? Common symptoms of depression are: · Low mood · Loss of p Depression treatment options have improved dramatically since the 1950s, and today there are good po Parkinsons disease Parkinsons disease is a progressive neurodegenerative disruption of the central n It is estimated that close to 4 million people worldwide suffer from Parkinsons disease In October Parkinsons disease Market size The market for drugs for the treatment of Parkinsons disease was USD WHO estimates that approx. 1% of the worlds population at some point in life will be affected by sch Schizophrenia Drugs in clinical development Compound Sertindole Bifeprunox Lu 31-130 Launched drugs The latest generation of antipsychotic drugs were launched in the late 1990s. These drugs are charac Schizophrenia Symptoms of the disease Schizophrenia afflicts both sexes equally, and typically start Lundbeck and Merck have signed an agreement for the exclusive US development and commercialisation o Sleep disorders The sleep apnoea diagnosis rate in the USA is well above that for Europe. It is esti addiction. They each have different tolerability profiles, but typical side-effects are drowsiness, Know-how and competencies Lundbecks employees work to improve the quality of life for people sufferi Lundbecks success builds on research, development and marketing of unique pharmaceutical drugs. For Know-how and competencies Distribution by gender, worldwide, 2003 Geographic composition of employee Lundbeck received 3,100 unsolicited job applications during 2003 Age composition of Lundbecks emplo Environmental factors In 2003, Lundbeck focused on enhancing the in-house organisation of environmen The environmental approvals regulate the atmospheric emission of organic solvents. The field is also Summary for the Group 1994-2003 Income statement (DKKm) 1994 Revenue 1,336 Profit before research an Ratios ­ continued Capital employed (DKKm) Capital turnover (%) 1994 1,084 87.0 1995 1,507 91.0 26 Financial review The annual report of H. Lundbeck A/S has been presented in accordance with the prov On recognition of income from sales of citalopram and escitalopram to Forest, the quantities of cita Financial review restructuring and closing down the companys regional sales and administration offic The net currency expense included in net financials amounted to DKK 6 million compared to DKK 29 mil Financial review patents are amortised over the remaining patent period. In 2003, the patents were a Lundbecks total cash resources at 31 December 2003 appear from the table below. Cash resources 2003 Financial review According to the agreement with Forest, Lundbeck is guaranteed a minimum price. The Share price based plan for employees of foreign companies (1999 plan): In 1999, the employees of Lun Financial review Liability ­ 1999 plans Executive Management Executives Other Options employees not 2004 plans Warrants granted Stock Appreciation Rights granted to employees of American subsidiaries Financial review The return on the bond portfolio and money market deposits was DKK 21 million in 20 The companys USD income derives primarily from sales invoiced to Forest. According to the Groups acc Accounting policies The annual report of H. Lundbeck A/S has been presented in accordance with the p matically through the income statement based on an individual assessment of the economic life of the Accounting policies future cash flows are recognised directly in equity (hedge accounting). Income a Development costs are capitalised if the criteria for capitalising these costs in the balance sheet Accounting policies Development projects Clearly defined and identifiable development projects are r Investments in subsidiaries and associates Investments in subsidiaries and associates are measured a Accounting policies Liabilities relating to share options and other employee plans Liabilities relat On acquisitions of companies provisions for restructurings in the acquiree are included in the calcu 66 L U N D B E C K A N N UA L R E P O RT 2 0 0 3 Income statement for the year ended 31 December 2003 PARENT 2002 DKKm 2003 DKKm Notes GROUP 2003 DKK Balance sheet at 31 December 2003 - assets PARENT 2002 DKKm 2003 DKKm Notes GROUP 2003 DKKm 2002 DKK Balance sheet at 31 December 2003 - liabilities PARENT 2002 DKKm 2003 DKKm Notes GROUP 2003 DKKm 200 Equity at 31 December 2003 ­ Group Share capital DKKm Share premium DKKm Retained earnings DKKm Tota Equity at 31 December 2003 ­ Parent 2002 Equity at 1.1.2002 Distribution of dividend 9.4.2002, gross 72 L U N D B E C K A N N UA L R E P O RT 2 0 0 3 Cash flow statement for the year ended 31 December 2003 GROUP Notes 2003 DKKm 2002 DKKm Profit from Management statement The Supervisory Board and the Executive Management have today considered and ad Auditors report To the shareholders of H. Lundbeck A/S We have audited the annual report of H. Lundb Notes 1. Revenue PARENT 2002 DKKm 2003 DKKm 2003 DKKm GROUP 2002 DKKm 284.3 2,976.7 3,172.3 461.0 6 2. Staff costs, continued Employees: PARENT 2002 2003 2003 GROUP 2002 2,015 2,129 Average number Notes 2. Staff costs, continued Share price based plan for employees in foreign subsidiaries (1999 p 3. Depreciation and amortisation PARENT 2002 DKKm 2003 DKKm 2003 DKKm GROUP 2002 DKKm 131.8 39.8 65 Notes 5. Net financials PARENT 2002 DKKm 2003 DKKm 2003 DKKm GROUP 2002 DKKm 37.7 31.7 13.4 5.8 10. 6. Tax on profit for the year PARENT 2002 DKKm 2003 DKKm 2003 DKKm GROUP 2002 DKKm 577.6 (17.5) 8.4 Notes 7. Intangible assets and property, plant and equipment GROUP Goodwill DKKm Patent rights1 DKKm 7. Intangible assets and property, plant and equipment, continued GROUP Land and buildings DKKm Plan Notes 8. Investments in subsidiaries Total DKKm Accumulated Cost revaluations DKKm DKKm Accumulated 8. Investments in subsidiaries, continued Lundbeck Argentina S.A., Argentina Lundbeck Australia Pty Notes 9. Investments in associates Accumulated revaluations/ impairment Cost losses DKKm DKKm Total 12. Share capital The share capital of DKK 1,168.7 million at 31 December 2003 is divided into 233,7 Notes 14. Provision for pensions and similar liabilities PARENT 2002 DKKm 2003 DKKm 2003 DKKm GROUP 14. Provision for pensions and similar liabilities, continued The UK defined benefit plan is funded Notes 15. Provision for deferred tax GROUP Temporary differences between assets and liabilities as s 15. Provision for deferred tax, continued PARENT Temporary differences between assets and liabilitie Notes 16. Other provisions PARENT 2002 DKKm 2003 DKKm 2003 DKKm GROUP 2002 DKKm - 199.7 199.7 Pro 18. Treasury shares PARENT AND GROUP Shares of DKK 5 nom. Number Nominal value DKKm Share of share c Notes 19. Contractual obligations Rental and lease obligations Lundbeck has obligations amounting to 20. Contingent liabilities Incentive plans The Group has an obligation relating to share options gra Notes 21. Financial instruments Currency risks Net forward exchange contracts and currency options o 21. Financial instruments, continued Trading part: Market value (forward exchange contracts) DKKm Lo Notes 21. Financial instruments, continued Interest rate risk The interest rate risk has been calcul 22. Related parties Lundbeck defines related parties as: - The companys principal shareholder, LFI A Notes 24. Earnings per share Earnings per share (EPS) is calculated on the basis of the average numb 27. Acquisitions of companies GROUP Acquisitions of companies: Intangible assets Property, plant and Shareholder information Lundbecks year on the stock exchange H. Lundbeck A/S shares are listed on th The Supervisory Board proposes payment of a dividend of DKK 1.77 per share. This corresponds to 30% Shareholder information Composition of the shareholder group Composition of the shareholder group ex Releases from H. Lundbeck A/S in 2003 No. 119 118 117 116 115 114 113 112 111 110 109 108 107 106 10 Shareholder information Analyst coverage Broker ABG Sundal Collier Analyst Alexander Lindström Peter S U P P L E M E N TA RY R E P O RT 109 Lundbeck worldwide Parent company Denmark H. Lundbeck A/S India Lundbeck Israel Lundbeck Japan Lundb Portugal Lundbeck Portugal - Produtos Farmacêuticos Lda Russia Lundbeck Russia Slovakia Lundbeck Slo H. Lundbeck A/S Annual General Meeting will be held on 30 March 2004 at 4 pm at Copenhagen Congress In the United States, estimates range between USD 92.5 an 37 million people around the According to