Financial review Distribution costs rose by 28% to DKK 2,449 million as a result of expansions of the international sales and marketing organisation and substantial expenses in connection with the introduction of Cipralex® and Ebixa® . Administrative expenses went up by 32% to DKK 1,318 million, due mainly to the cost of establishing new subsidiaries as well as the continued expansion of the Groups IT and communications infrastructure. Preparations for the implementation of an SAP system in 2003 to replace existing systems, mainly within production, finance and purchasing, contributed to the increase. Research and development costs amounted to DKK 1,573 million in 2002 against DKK 1,541 million in 2001, corresponding to an increase of 2%. 2001 was strongly affected by the high cost of developing Oral Copaxone®. In 2002, the research and development organisation was enlarged to enable the company to conduct studies in Lundbecks late phase projects. The greater part of the research resources were expended on conducting phase II studies of Bifeprunox, CEP 1347 and Gaboxadole and on commenced Cipralex studies of new indications, including in particular GAD (Generalised Anxiety Disorder). In addition, the required post-marketing study of sertindole was commenced. In 2002, research and development costs accounted for 17% of revenue compared to 20% in the previous year. Depreciation and amortisation charges, which are included in the individual expense categories, totalled DKK 405 million in 2002 against DKK 315 million in 2001. A major part of the increase is attributable to amortisation on goodwill and other intangible assets acquired in 2001 in connection with the purchase of Byk Gulden Lomberg Chemische Fabrik GmbHs share of Lundbeck GmbH & Co. Higher depreciation and amortisation charges also reflect the depreciation commenced on Lundbecks new manufacturing facilities in Seal Sands, England, and the growing investment level in recent years. Financial items In 2002, the Groups net financial expense amounted to DKK 286 million compared to a net income of DKK 79 million in 2001. Of the net expense of DKK 286 million, DKK 42 million was net interest income and market value adjustments of the bond holding. In 2002, the market value adjustments amounted to DKK 5 million against DKK 2 million in 2001. Unrealised losses on other investments exclusive of exchange differences amounted to DKK 299 million against a gain of DKK 102 million in 2001. Lundbecks other investments at 31 December 2002 were mainly a shareholding in Cephalon, Inc. with a market value of DKK 345 million. The years value adjustment of the Cephalon shares was an expense of DKK 291 million inclusive of exchange differences against a gain of DKK 128 million in 2001. The net currency expense relating to financial items amounted to DKK 29 million compared to DKK 54 million in 2001. Under the chosen hedging principle, income and expenses related to financial instruments classified as hedging instruments and meeting the criteria for hedging future transactions are taken directly to equity and ­ on realisation of the hedged item - transferred from equity for inclusion in the same item as the hedged item. Profit from operations was affected by a net currency income of DKK 122 million in 2002 against DKK 35 million in 2001. Income/expenses relating to trading, i.e. instruments that do not meet the criteria for hedging, are recognised directly under financial items at market value. In 2002, the amount was an income of DKK 131 million against an expense of DKK 44 million in 2001. Tax The tax for the year totalled DKK 805 million against DKK 582 million in 2001. The effective tax rate was 38.8% against 30.5% in 2001. The increase in the effective tax rate is due primarily to the value adjustment of the investment in Cephalon because no provision has been made for deferred tax on the value adjustment of other investments as these are expected to be realised without taxation. The effective tax rate before the value adjustment of equity investments was 33.8% against 32.3% in 2001. The current tax charge for the year, including prior year adjustments, amounted to DKK 716 million, corresponding to an effective tax rate of 34.5%, while tax on equity items corresponds to an effective tax rate of 1.1%. Net profit for the year In 2002, Lundbeck achieved its best ever operating results. Profit from operations went up by 29% to DKK 2,361 million. 62 L U N D B E C K A N N UA L R E P O RT 2 0 0 2 Contents Report Important events in 2002 Product portfolio Alzheimers disease Depression Parkinsons Supervisory Board Arne V. Jensen, Chairman Elected at the 1984 Annual General Meeting Directorships Corporate Management Corporate Management Erik Sprunk-Jansen President and CEO Directorships: Priva Report Group financial highlights 1998-2002 1998 DKKm 1999 DKKm 2000 DKKm 2001 DKKm. 2002 DKKm Lundbeck experienced a successful but challenging year in 2002 In 2002, Lundbeck continued recent ye Internationalisation and geographical expansion In 2002, the company continued its internationalisat Continued strengthening of the R&D organisation In 2002, the company continued to strengthen its Important events in 2002 In January, Lundbeck announced that the Swiss health authorities had appro Important events in 2002 an offer to acquire Synaptic Pharmaceutical Corporation, a US-based drug d Product portfolio Drugs in clinical development Registration application 2003 2003 2004 Expected la Alzheimers disease Drugs in clinical development Registration application 2004 Expected launch 2005 Alzheimers disease Alzheimers is the most common form of dementia. Dementia is derived from the Lati Alzheimers disease We want people to know about our predicament of failing memory. I have come to t Alzheimers disease Lundbecks R&D activities The cause of Alzheimers disease remains to be disco Alzheimers disease Alzheimers disease, the prevalence rises to about 5% for people aged 65-74 and t Alzheimers disease None of these drugs will cure Alzheimers or stop the disease from progressing. T Alzheimers disease Market size North America Europe Rest of world The market for drugs for the Depression Drugs in clinical development Registration application 2003 Expected launch 2004 Compoun Depression Depression originates from Latin = press down What is depression? Common symptoms of dep Depression Stages of the disease Stage Mild depression Symptoms The patient is in a worse mood tha Depression A life with depression Marie-Louise: Being in a big black hole. That is a fitting descri Depression Lundbecks R&D activities In spite of the good treatment options available for depres Depression Existing treatments and drugs on the market The antidepressant market is dominated by th Depression Market size North America Europe Rest of world The antidepressant market represented Depression Successful launch of LexaproTM in the USA The launch of LexaproTM in the USA was highly Depression Cipralex® better than Cipramil® At several international conferences, Lundbeck has prese Parkinsons disease Drugs in clinical development Registration application 2003 2005+ Expected launch Parkinsons disease The stages of the disease The characteristic motor and facial expressions that a Parkinsons disease Physiological changes in the brain A characteristic of Parkinsons disease is the Parkinsons disease Research at Cephalon and Lundbeck has shown that CEP-1347 enhances the survival Parkinsons disease form of involuntary movements, on-off syndromes, and hallucinations in late stag Schizophrenia Drugs in clinical development Registration application Expected launch 2005 2005 2005+ Schizophrenia Schizophrenia translates directly from Greek Schizo = split; phrenos = mind What is s Schizophrenia Negative symptoms are also frequent in patients with schizophrenia. They are called n Schizophrenia Life with schizophrenia Lone: My disease started long before anyone else noticed it. Schizophrenia increase the risk of developing schizophrenia later in life. Neurochemical abnormalit Schizophrenia Diagnosis There are many symptoms of schizophrenia, and all can be features of other Schizophrenia Brand name Zyprexa® Risperdal® Seroquel® Leponex® Zeldox® Solian® Haldol® Tiapridal® Other CNS diseases Drugs in clinical development Registration application 2005+ Expected launch 2005 Other CNS diseases improvement. However, there are variations in time to progression, degree of occ Other CNS diseases What is epilepsy? Epilepsy is a brain disorder in which clusters of nerve cells, Risk To a company conducting research and international operations such as Lundbeck, avoiding risk Risk More than 95% of Lundbecks revenue derives from customers outside Denmark and is settled in cu Outlook for 2003 2003 will be a challenging year and a year of possibilities for Lundbeck. Cipralex Corporate Governance Following the publication of the so-called Nørby report on Corporate Governanc Corporate Governance disclosing the steps taken or scheduled by the company in order to reduce this Corporate Governance ­ its shareholders ­ have been secured added value. This is to make the intere Know-how and competencies Lundbecks employees Competent employees Lundbecks vision is to become The Know-how and competencies research in and development of drugs for the treatment of diseases in the Know-how and competencies Effective and safe production facilities Lundbeck has been manufacturing Lundbecks environmental factors Lundbecks mission is to improve the quality of life for people suff Lundbecks environmental factors Strengthened environmental communication Management believes that t Shareholder information Lundbecks year on the stock exchange H. Lundbeck A/S shares are listed on t Shareholder information Composition of shareholders At the end of 2002, there were 17,971 registere Shareholder information Share ratios Ratios per share, DKK Earnings (EPS) Cash flow Net asset value Shareholder information Dividend 1998-2002 1998 Dividend - total (DKKm) Dividend per share (DKK)* Shareholder information Financial calendar 2003 Tentative dates 10 March 2003 8 April 2003 6 May 20 Summary for the Group 1993-2002 Income statement (DKKm) Revenue Profit before research and developm Summary for the Group 1993-2002 Ratios - continued Solvency ratio (%) Capital employed (DKKm) Capit Financial review The annual report of H. Lundbeck A/S has been presented in accordance with the pro Financial review As a result of Lundbecks currency hedging policy, foreign exchange losses and gain Financial review Distribution costs rose by 28% to DKK 2,449 million as a result of expansions of t Financial review Profit before tax rose by 9% to DKK 2,075 million and profit after tax and minorit Financial review Lundbeck also acquired an additional 18.14% of the shares in CF Pharma, bringing L Financial review Cash flows from financing activities amounted to DKK -252 million net against DKK Financial review Income from sales of citalopram and escitalopram to Forest is recognised as follow Financial review 1 September 2003 to 1 April 2004 subject to specified conditions in periods when t Financial review Liability ­ 1999 plans Share option plan for the Executive Board and key employees Financial review Value of treasury shares and option contract Holding at 31 December 2001 Shares pu Financial review amounted to DKK 239 million compared to DKK 156 million at the end of 2001. The no Financial review Income and expenses relating to hedging contracts covering the part of the hedged Accounting policies The annual report of H. Lundbeck A/S has been presented in accordance with the Accounting policies systematically through the income statement based on an individual assessment o Accounting policies for hedging the fair value of a recognised asset or liability are recognised in Accounting policies Government loans and grants Forgivable Government development loans are recogni Accounting policies where the intention is to manufacture, market or use the project if the cost ca Accounting policies the companies equity value, calculated in accordance with the parents accountin Accounting policies Periodical payments to defined contribution plans are recognised in the income Accounting policies equivalent to the capitalised value when the effective rate of interest is used Income statement for the year ended 31 December 2002 PARENT 2001 DKKm 2002 DKKm Notes GROUP 2002 D Balance sheet at 31 December 2002 Assets PARENT 2001 DKKm 2002 DKKm Notes 2002 DKKm GROUP 2001 DKK Balance sheet at 31 December 2002 Liabilities PARENT 2001 DKKm 2002 DKKm Notes 2002 DKKm GROUP 200 Equity at 31 December 2002 Group Share capital Share premium DKKm Reserve for treasury shares DKK Equity at 31 December 2002 Parent 2001 Equity at 1.1.2001 Adjustment due to changed accounting poli Cash flow statement for the year ended 31 December 2002 GROUP Notes 2002 DKKm 2001 DKKm Profit fro Management statement Statement by the Supervisory Board and the Executive Board on the annual repor Auditors report Auditors report To the shareholders of H. Lundbeck A/S We have audited the annual r Notes 1. Revenue PARENT 2001 DKKm 2002 DKKm 2002 DKKm GROUP 2001 DKKm 335.3 2,709.6 1,968.3 378.5 Notes 2. Staff costs ­ continued Incentive plans: Share option plan for the Executive Board and key Notes 2. Staff costs ­ continued Share price based plan for employees in foreign subsidiaries (1999 Notes 3. Depreciation and amortisation PARENT 2001 DKKm 2002 DKKm 2002 DKKm GROUP 2001 DKKm 97.4 4 Notes 5. Financial items, net PARENT 2001 DKKm 2002 DKKm 2002 DKKm GROUP 2001 DKKm 39.2 21.5 40.2 Notes 6. Tax on profit for the year PARENT 2001 DKKm 2002 DKKm 2002 DKKm GROUP 2001 DKKm 445.1 15. Notes 7. Intangible assets and property, plant and equipment GROUP Goodwill DKKm Product rights DKK Notes 7. Intangible assets and property, plant and equipment ­ continued GROUP Land and buildings D Notes 8. Investments in subsidiaries Total DKKm Cost DKKm Accumulated revaluations DKKm Accumulated Notes 8. Investments in subsidiaries ­ continued Ownership Lundbeck Argentina S.A., Argentina Lundb Notes 9. Investments in associates Total DKKm Cost DKKm Accumulated revaluations DKKm Carrying amo Notes 12. Share capital The share capital of DKK 1,168.7 million at 31 December 2002 is divided int Notes 14. Provision for pensions and similar liabilities PARENT 2001 DKKm 2002 DKKm 2002 DKKm GROUP Notes 14. Provision for pensions and similar liabilities ­ continued The UK defined benefit plan is Notes 15. Provision for deferred tax GROUP Temporary differences between assets and liabilities as Notes 15. Provision for deferred tax ­ continued PARENT Temporary differences between assets and l Notes 16. Long-term liabilities other than provisions PARENT 2001 DKKm 2002 DKKm GROUP 2002 DKKm 20 Notes 18. Contractual obligations Rental and leasing obligations Lundbeck has obligations amounting Notes 19. Contingent liabilities Incentive plans The Group has an obligation relating to share opti Notes 20. Financial instruments Currency risks Net forward exchange contracts and currency options Notes 20. Financial instruments ­ continued Currency options (zero-cost options): Contract amount c Notes 20. Financial instruments ­ continued Interest rate risks The interest rate risk has been cal Notes 21. Related parties Lundbeck defines related parties as: - The companys principal shareholder Notes 23. Adjustments GROUP 2002 DKKm 2001 DKKm Depreciation and amortisation Increase/(decrease) Lundbeck worldwide For further information please see our website: www.lundbeck.com Parent company