Accounting policies Periodical payments to defined contribution plans are recognised in the income statement at the due date and any contributions payable are recognised in the balance sheet under other payables. The present value of the Groups liabilities relating to future pension payments according to defined benefit plans is measured on an actuarial basis at intervals of not more than three years on the basis of the pensionable period of employment up to the time of the actuarial valuation. Actuarial gains and losses are recognised in the income statement as they are calculated. Provision is made in the balance sheet for the present value of plans which are not funded. The present value of the liability according to defined benefit plans which are funded by independent pension funds is measured less the fair value of the plan assets, and any net obligation is recognised under provisions in the balance sheet. Any net asset is recognised in the balance sheet as a financial asset. The years changes in the provisions relating to defined benefit plans are recognised in the income statement. Income tax and deferred tax Current tax liabilities and current tax receivables are recognised in the balance sheet, computed as tax calculated on the taxable income for the year, adjusted for provisional taxes paid. Deferred tax is recognised and measured according to the balance sheet liability method on all temporary differences between the carrying amounts of assets and liabilities and their tax base. However, no deferred tax is recognised on temporary differences relating to investments in subsidiaries, goodwill for which amortisation is not deductible for tax purposes, or other items where temporary differences, other than acquisitions of companies, have arisen at the time of acquisition without affecting results or the taxable income. In those cases where the computation of the tax value can be made under alternative taxation rules, e.g. in relation to treasury shares and equity investments, deferred tax is measured on the basis of the planned use of the asset and settlement of the liability respectively. Deferred tax assets, including the tax value of losses expected to be available for set-off against future taxable income, are recognised at the values at which they are expected to be used, either through set-off against tax on future earnings or through set-off against deferred tax liabilities within the same legal tax entity and jurisdiction. Adjustment is made of deferred tax relating to eliminations of unrealised intercompany gains and losses. Deferred tax is measured on the basis of the tax rules and tax rates that under the legislation in force at the balance sheet date will be applicable in the respective countries when the deferred tax liability is expected to arise as current tax. Changes in deferred tax as a result of changed tax rates are recognised in the income statement. Further, deferred tax is recognised on reversal of tax benefit arising from losses in jointly taxed foreign subsidiaries to the extent tax liability is expected to arise on the disposal of the assets or because of withdrawal from the Danish joint taxation scheme. Tax on equity items relating to deferred income and expenses in connection with financial instruments, treasury shares and options to purchase treasury shares as well as payments concerning share option plans and other share price based plans is recognised in equity. Deferred tax on investments in subsidiaries is not disclosed because the intention is to hold the shares for more than three years so that no tax liability is expected to arise on any disposal. Other provisions Provisions are recognised when the Group has a legal or constructive obligation that arises from past events and it is probable that an outflow of financial resources will be required to settle the obligation. Return obligations imposed on the industry are recognised in the balance sheet under other provisions if they are found to have a material effect on the financial statements. On acquisitions of companies provisions for restructurings in the acquiree are included in the calculation of cost and thus in goodwill or group goodwill to the extent they have been decided and announced on or before the date of acquisition. Liabilities other than provisions Mortgage debt and debt to credit institutions are recognised at the time of the raising of the loan at proceeds received less transaction costs paid. In subsequent periods the financial liabilities are measured at amortised cost, 78 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