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 expenses and cost to sell. 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 annual report if there is an indication that the carrying amount of an asset may exceed the expectations of future income from the asset (recoverable amount). 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 fair value less cost to sell 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 cash-generating unit to which the goodwill relates (recoverable amount). Investments in subsidiaries and associates in the parent companys financial statements Investments in subsidiaries and associates are measured at cost in the parent companys financial statements. Where the recoverable amount of the investments is lower than cost, the investments are written down to this lower value. In addition, cost is written down to the extent that dividend distributed exceeds the accumulated earnings in the company since the acquisition date. Investments in associates in the consolidated financial statements Investments in associates are recognised and measured in the consolidated financial statements according to the equity method, which entails that the investments are measured in the balance sheet at the proportionate share of the associates net asset value calculated in accordance with the Group accounting policies less or plus unrealised intra-group gains and losses and plus the carrying amount of goodwill. The proportionate share of the results of the associate is recognised in the income statement after tax and elimination of the proportionate share of any intra-group gains and losses and after deduction of any writedowns of the investments. Consolidated equity includes the proportionate share of all transactions and events recognised directly in the equity of the associate. Investments in associates with a negative carrying amount are recognised at DKK 0. Receivables and other long-term financial assets considered to form part of the overall investment in the associate are written down by any remaining negative net asset value. Trade receivables and other receivables are written down to the extent they are deemed to be irrecoverable. A provision to cover the remaining negative net asset value will only be made if the Group has a legal or constructive obligation to cover the liabilities of the relevant associate. Other financial assets Other equity investments that are included in the Groups documented investment strategy are recognised on the basis of the value date and are measured at market price or estimated fair value at the balance sheet date. Both realised and unrealised gains and losses are recognised in the income statement under net financials. On initial reconition, other investments outside the scope of the documented investment strategy are measured at fair value with the addition of directly attributable costs. Other investments are subsequently measured at fair value at the balance sheet date, and changes to the fair value are recognised in equity and dividends are recognised in the income statement. When securities are sold or settled, the accumulated fair value adjustments are recognised in the income statement. Other receivables with a fixed maturity are measured at amortised cost less impairment losses as a result of diminution in value. Other receivables without a fixed maturity are recognised at cost. Inventories Raw materials, packaging and goods for resale are measured at the latest known cost at the balance sheet date, which equals cost computed accord- ing to the FIFO method. The cost of raw materials, packaging and goods for resale includes the costs of purchase plus costs incurred in bringing the inventories to their present location and condition. Work in progress and finished goods manufactured by the company are measured at cost, i.e. the cost of raw materials, consumables, direct labour and indirect costs of production. Indirect costs of production include materials and labour as well as maintenance of and depreciation on the machines, factory buildings and equipment used in the manufacturing process as well as the cost of factory management and administration. Writedown to net realisable value is made if it is lower than cost. The net realisable value of inventories is calculated as the selling price less costs of conversion and costs incurred to execute the sale and it is determined having regard to marketability, obsolescence and expected selling price movements. Receivables Short-duration receivables arising in the Groups normal course of business are measured at nominal value less impairment losses to counter the risk of loss calculated on the basis of an individual evaluation. Other securities Other securities that are included in the Groups documented investment strategy and recognised under current assets are recognised on the basis of the value date and are measured at the market price at the balance sheet date. Both realised and unrealised gains and losses are recognised in the income statement under net financials. Other securities outside the scope of the documented investment strategy are measured at fair value with the addition of directly attributable costs. They are subsequently measured at fair value at the balance sheet date, and changes to the fair value are recognised in equity and dividends are recognised in the income statement. When securities are sold or settled, the accumulated fair value adjustments are recognised in the income statement. 65 ANNUAL REPORT 2006 WE IMPROVE THE QUALITY OF LIFE... FOR PEOPLE SUFFERING FROM PSYCHIATRIC AND NEUROLOGICAL DISORDERS LUNDBECK AT A GLANCE H. Lundbeck A/S is an international pharmaceutical company with more than 50 ye See page 26 for further information about Lundbecks marketed pharmaceuticals ALZHEIMERS DEPRESSION CONTENTS MANAGEMENT REPORT Strong growth of the Groups new pharmaceuticals and progress in the pipel FINANCIAL REPORT Revenue DKK 9,221 million Profit from operations DKK 1,784 million Net profit for t FINANCIAL HIGHLIGHTS 2002-2006 Revenue DKK 9,221 million Research and development costs DKK 1,958 mi FINANCIAL PERFORMANCE The Groups new pharmaceuticals posted strong growth in all markets in 2006 and 12.9% 2.9% 15.1% By the end of 2006, Cipralex® held a market share of 12.9 per cent in Europe. By th 14 Serdolect® was launched in 14 markets in 2006. Total revenue Cipralex® Income from Lexapro® Ebix DECISIVE Lundbeck has defined a clear-cut strategy and business model for the Groups long-term devel NICHE PLAYER Through its extensive and dedicated operations as a specialist business, Lundbeck has b How will Lundbeck achieve its vision? STRATEGY Through development and growth Lundbecks vision is t 70% + 30%= 1 Own research In-licencing Lundbeck has: · a solid position in the CNS market, enjoying How does a small pharmaceutical company achieve success? LUNDBECKS BUSINESS Through a clearly defin Partnerships enable Lundbeck to maintain a research and development portfolio on a level with much l How does Lundbeck manage the Groups risks? RISK MANAGEMENT Through balanced risk exposure In the in Particularly critical risks Based on reports received by its business units, Lundbeck management has How does Lundbeck ensure good corporate governance and responsible business ethics? CORPORATE GOVER The committee prepares its recommendation to the Supervisory Board on the basis of general trends am THE LUNDBECK SHARE Lundbecks shares are listed on the Copenhagen Stock Exchange. The price of the sh Lundbecks Annual General Meeting will be held on 24 April 2007 at 4pm at Radisson SAS Falconer Cente Composition of shareholders At the end of 2006, the 27,098 shareholders registered in the companys r Analyst coverage Company ABG Sundal Collier ABN AMRO/Alfred Berg Blue Oak Capital Carnegie Bank CSFB CNS Lundbeck is dedicated to the development of pharmaceuticals for the treatment of diseases of the WORLD LEADER Lundbecks vision is to become one of the worlds leading companies in the field of disea MARKETED PHARMACEUTICALS In 2006, Lundbeck marketed a total of 14 different pharmaceuticals for the Launched pharmaceuticals in the market Compound Escitalopram Mechanism of action ASRI Indication Dep ALZHEIMERS DISEASE Alzheimers disease is the most common form of dementia. According to WHO, about 2 DementiaNet.com DementiaNet.com An online community and information website for people affected by DEPRESSION Depression is a serious disease with symptoms that may include persistent low mood, dimin 70+ million One reason why it is so difficult to tackle the biological cause of depression is that PARKINSONS DISEASE Parkinsons disease is a progressive, degenerative disorder caused by the degenera Azilect® Lundbeck has launched Azilect® in more than 20 countries. After my third or fourth appointm SCHIZOPHRENIA Schizophrenia is a mental disorder that occurs in varying degrees but is most often ch 1% Up to one per cent of the population is directly affected by schizophrenia. Read more about the d How is the the basis of long-term growth secured? INNOVATION Through the development and procuremen 250 The US market accounts for 56 per cent of the world market for pharmaceuticals for disorders of The fact that no one knows with certainty why these disorders arise is a major challenge. Read more The brain. At only 1.35 kg and accounting for less than two per cent of our body weight, the brain i RESPONSIBLE Acting responsibly is a key value for Lundbeck. We know that our decisions and actions m ACTIONS Lundbeck remains dedicated to maintaining the position as an attractive workplace with a goo How can Lundbeck retain and attract competent and committed employees? AN ATTRACTIVE WORKPLACE Thro Meet Lundbecks employees at lundbeck.com/careers Our leadership development programme builds on thr Health and safety statistics for 2004-2006 2004 Lost-time accidents Registered near-misses Indicator How can Lundbeck continue to grow without increasing its impact on the environment? ENVIRONMENTAL I More production, less environmental impact Lundbeck experienced a positive trend in 2006: we increas Strategic objectives for 2005-2010, target status in 2006 and new targets for 2007 Strategic objecti How does Lundbeck contribute to scientific progress? RESEARCH AND KNOWLEDGE SHARING Through innovat 100.000 specialists around the world have benefited from the Lundbeck Institutes direct and indirect FINANCIAL REPORT 50 FINANCIAL REPORT 50 Summary for the Group 60 102 103 106 107 108 110 Notes Management statement Audi Summary for the Group 2002-2006 Income statement (DKKm) Revenue Profit before research and developm Share data Average number of shares (millions)1 Earnings per share (EPS) (DKK)1 Diluted earnings per 54 Income statement for the year ended 31 December 2006 Parent 2005 DKKm Parent 2006 DKKm Group 2006 DK Balance sheet at 31 December 2006 Assets Parent 2005 DKKm Parent 2006 DKKm Group 2006 DKKm Group 200 Balance sheet at 31 December 2006 Equity and liabilities Parent 2005 DKKm Parent 2006 DKKm Group 200 Statement of changes in equity at 31 December 2006 ­ Group Share capital DKKm Share premium DKKm Ret Statement of changes in equity at 31 December 2006 ­ Parent Share capital DKKm Reserve for net reval Cash flow statement 1 January ­ 31 December 2006 Parent 2005 DKKm Parent 2006 DKKm Group 2006 DKKm G NOTES 1. Accounting policies The annual report of H. Lundbeck A/S is presented in accordance with In 1 NOTES Recognition and measurement take into consideration gains, losses and risks that arise befo Exchange differences arising from the translation of foreign associates are recognised in the Group 1 NOTES If the related development costs are recognised in the balance sheet, the development loan Gains or losses on the disposal or retirement of items of property, plant and equipment are calculat 1 NOTES Equity Dividend Proposed dividend is recognised as a liability at the time of adoption of t the proceeds and the nominal value is recognised in the income statement over the loan period. Debt 2-3 NOTES 2. Revenue Parent 2005 DKKm Parent 2006 DKKm Group 2006 DKKm Group 2005 DKKm 296.6 2,803 3. Staff costs ­ continued Parent 2005 DKKm Parent 2006 DKKm Group 2006 DKKm Group 2005 DKKm Execut 3 NOTES 3. Staff costs ­ continued Incentive plans Warrant scheme for the Executive Management and 3. Staff costs ­ continued Share price based plan for employees in foreign subsidiaries (1999 plan) 3-6 NOTES 3. Staff costs ­ continued Stock Appreciation Rights for employees of US subsidiaries (20 4. Depreciation and amortisation ­ continued 2005 Parent Property, plant and equipment DKKm Parent I 7-8 NOTES 7. Tax on profit for the year Parent 2005 DKKm Parent 2006 DKKm Group 2006 DKKm Group 200 8. Property, plant and equipment and intangible assets Group Land and buildings DKKm Other fixtures 8 NOTES 8. Property, plant and equipment and intangible assets ­ continued Group 2006 Cost at 01.01 8. Property, plant and equipment and intangible assets ­ continued Goodwill impairment test The carr 8 NOTES 8. Property, plant and equipment and intangible assets ­ continued Parent company Land and 8. Property, plant and equipment and intangible assets ­ continued Parent company Goodwill DKKm Pate 9-10 NOTES 9. Investments in subsidiaries 2006 Carrying amount at 01.01.2006 Capital contributions 10. Investments in associates 2006 Parent Parent Accumulated revaluation/ impairment losses DKKm Par 11-14 NOTES 11. Other investments and other receivables Group Receivables from associates DKKm Avai 11. Other investments and other receivables ­ continued Fair value adjustment of available-for-sale 15 NOTES 15. Pension obligations and similar obligations Group 2006 DKKm Group 2005 DKKm Present v 15. Pension obligations and similar obligations ­ continued A pension plan was set up in the USA in 16 NOTES 16. Deferred tax liabilities Group Temporary differences between assets and liabilities as 16. Deferred tax liabilities ­ continued Parent company Temporary differences between assets and lia 17-18 NOTES 17. Provisions Parent 2005 DKKm Parent 2006 DKKm Group 2006 DKKm Group 2005 DKKm 128.8 18. Mortgage and bank debt ­ continued Group Fixed/ floating Weighted average effective interest rat 18-20 NOTES 18. Mortgage and bank debt ­ continued Bank debt Parent 2005 DKKm Parent 2006 DKKm Grou 19. Treasury shares Parent company and Group 2006 Holding at 01.01.2006 Additions Shares cancelled 21-22 NOTES 21. Contingent liabilities Forest See note 2 Revenue in respect of the consequences of 22. Financial instruments Foreign currency risk Net forward exchange contracts outstanding for the G 22 NOTES 22. Financial instruments ­ continued Trading part Market value (forward exchange contract 22. Financial instruments ­ continued Credit risks The primary financial instruments shown in the ba 22-23 NOTES 22. Financial instruments ­ continued Interest rate risks The interest rate risk has be 23. Related parties Lundbecks related parties are - The companys principal shareholder, LFI a/s, Ves 23-27 NOTES 23. Related parties ­ continued Transactions and balances with associates Parent 2005 D 25. Earnings per share 2006 2005 Profit for the year (DKKm) Minority interests (DKKm) Net profit fo 28-30 NOTES 28. Acquisition of company In 2006, Lundbeck acquired the SGS-518 development project b 30. Releases from H. Lundbeck A/S in 2006 No. Date Subject No. Date Subject 253 06.12.2006 252 06. MANAGEMENT STATEMENT We have today presented the annual report of H. Lundbeck A/S for the financial INDEPENDENT AUDITORS REPORT To the shareholders of H. Lundbeck A/S We have audited the annual report SUPERVISORY BOARD Mats Pettersson Elected at the 2003 General Meeting Born 7 November 1945 CEO, Biov Jes Østergaard Elected at the 2003 General Meeting Born 5 March 1948 President, ilochip A/S Member, EXECUTIVE MANAGEMENT 31 December 2006 Claus Bræstrup Born 18 January 1945 President and CEO Director 107 The specialist in psychiatry and pioneer in neurology H. Lundbeck A/S Ottiliavej 9 2500 Copenhagen