Accounting policies where the intention is to manufacture, market or use the project if the cost can be measured reliably and it is probable that the future earnings can cover production and selling expenses, administrative expenses as well as the development costs. Other development costs are recognised in the income statement as the costs are incurred. After completion of the development work development costs are amortised on a straight-line basis over the expected useful life, however with a maximum period of 20 years. For development projects protected by intellectual property rights, the maximum amortisation period is the remaining term of the rights concerned, however with a maximum period of 20 years. measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes the costs of purchase and expenses directly attributable to the acquisition until the asset is ready for use. In the case of assets manufactured by the company, cost includes direct and indirect costs of materials, components, subsuppliers and labour. Interest relating to property, plant and equipment during the period of building and erection is not capitalised. Property, plant and equipment are depreciated on a straight-line basis over the expected useful lives of the assets, which are expected to be as follows: Buildings: . . . . . . . . . . . . . . . . . . 30 years Installations: . . . . . . . . . . . . . . . 10 years Plant and machinery: . . . . . . 3-10 years Other fixtures and fittings, tools and equipment: . . . . . . 3-10 years Leasehold improvements: max. 10 years Acquisitions at a cost not exceeding DKK 50,000 per unit are recognised in the income statement in the year of acquisition. Depreciation is recognised in the income statement under cost of sales, distribution costs, administrative expenses and research and development costs respectively. The costs of maintaining property, plant and equipment are recognised in the income statement as they are incurred, either directly in the income statement or as part of indirect costs of production. Costs incurred that significantly increase the recoverable amount of the asset concerned are added to the assets cost as an improvement and are depreciated over the expected useful life of the improvement. Gains or losses on the disposal or retirement of items of property, plant and equipment are calculated as the difference between the carrying amount and the selling price reduced by dismantling and selling expenses. Gains and losses are recognised in the income statement under the same items as the associated depreciation. Impairment losses The carrying amount of both intangible assets and property, plant and equipment is analysed in connection with the preparation of the financial statements if there is an indication that the carrying amount of the asset may exceed the expectations of future income from the asset. If this analysis concludes that the future expected net income from the asset will be lower than the carrying amount, the carrying amount will be reduced to the higher of net realisable value and value in use. Impairment losses are recognised in the income statement under the same items as the associated depreciation or amortisation. Goodwill is amortised through the income statement in those cases where the carrying amount exceeds the future net income expected from the business to which the goodwill relates. Investments in subsidiaries and associates Investments in subsidiaries and associates are measured according to the equity method. This means that the investments are measured in the balance sheet at the proportionate share of Other intangible assets Acquired intellectual property rights in the form of product rights, patents, licences and software are measured at cost less accumulated amortisation. The cost of software comprises the cost of planning, including direct labour and a share of indirect costs. Product rights are amortised on a straight-line basis over the economic lives of the underlying products. Patents are amortised over the remaining patent period, and licences are amortised over the period of agreement, however with a maximum period of 20 years. Gains and losses on the disposal of development projects, patents and licences are measured as the difference between the selling price less selling expenses and the carrying amount at the time of sale. Property, plant and equipment Property, plant and equipment are 76 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