Annual report 2006

FINANCIAL PERFORMANCE The Groups new pharmaceuticals posted strong growth in all markets in 2006 and advances were also made in our development pipeline. Revenue for the year amounted to DKK 9,221 million, and the profit from operations of DKK 1,784 million was in line with the Groups financial guidance for 2006. Revenue increased by two per cent and amounted to DKK 9,221 million in 2006, of which 75 per cent derived from Lundbecks new pharmaceuticals Cipralex®/Lexapro®, Ebixa®, Azilect® and Serdolect®. In local currencies revenue also increased by two per cent. Sales of the Groups new pharmaceuticals increased by nine per cent relative to 2005, more than compensating for the decline in revenue from the Groups mature pharmaceuticals and the lower income from Forest Laboratories, Inc., which in 2006 resolved to reduce its US inventories of Lexapro®. Lundbeck recorded a profit from operations of DKK 1,784 million in 2006. Lundbecks financial performance was positively affected by the initial public offering of LifeCycle Pharma (LCP). Lundbeck recorded income totalling DKK 155 million from the IPO. Excluding the income from LCP, profit from operations was DKK 1,629 million, and the Group thus met the financial guidance provided in connection with the presentation of the annual report for the 2005 financial year. 2006 Profit from operations* Forecasts**, DKK Realised, DKK Approx. 1.6bn 1,629m 624m 762m The Group incurred costs totalling DKK 7,437 million in 2006, an increase of eight per cent relative to 2005. Lundbeck retained a high level of research and development activities in 2006 with costs totalling DKK 1,958 million equal to 21 per cent of the Groups revenue. Costs incurred for sales and distribution rose by four per cent to DKK 2,419 million, whilst administrative expenses were up by nine per cent to DKK 1,419 million. Lundbecks cost of sales increased by 11 per cent to DKK 1,646 million. Net profit for the year amounted to DKK 1,107 million corresponding to a decline of 30 per cent relative to 2005. The decline is due to the decrease in the income from Forest. In 2006 Lundbeck bought back own shares amounting to DKK 1.6 billion. It is proposed to the Annual General Meeting that a dividend of 30 per cent of net profit for the year is paid, corresponding to DKK 333 million. Cipralex® held a market share of 12.9 per cent in Europe. Cipralex® revenue in Europe amounted to DKK 2,766 million in 2006, a 30 per cent increase over last year. In 2006, the number of prescriptions in the US market increased once again, after a downturn last year. The Group posted income from Lexapro® of DKK 1,923 million. In the USA, Lexapro® successfully increased its value market share. At the end of 2006, Lexapro® held a market share of 18.0 per cent of the US market for newer antidepressants, corresponding to a growth of ten per cent on the year before. Cipralex® sales in International Markets, i.e. markets outside Europe and the USA, climbed 50 per cent to DKK 743 million, and Cipralex® commanded a market share of 7.2 per cent at the end of 2006. Lundbeck consolidated the market position for Cipralex® by filing a registration application in the EU for approval of Cipralex® for the treatment of Obsessive-Compulsive Disorder (OCD). At the beginning of 2007, the health authorities in the EU approved Cipralex® for the treatment of OCD. In addition, positive clinical data demonstrating therapeutic benefits from using Cipralex® compared to both Cymbalta® and Paxil® in the treatment of depression were published in 2006. Like Cipralex®/Lexapro®, Ebixa® recorded growth in 2006 with revenue of DKK 1,361 million, a 23 per cent increase on 2005. Memantine, the active ingredient in Ebixa®, was used in more than one in five treatments in Europe in 2006, making it the second-most prescribed pharmaceutical for the treatment of Alzheimers disease in Europe. 7 Market position strengthened In 2006, the Groups core product Cipralex®/ Lexapro® became the most frequently prescribed branded pharmaceutical for the treatment of depression, both in Europe and the USA and thus became a leading pharmaceutical for the treatment of depression worldwide. In Europe, the positive trends for Cipralex® continued despite a value decline in the overall antidepressants market in Europe as a result of greater generic competition and health authorities squeezing the prices of branded pharmaceuticals. By the end of 2006, Cash flow from operating and investing activities Approx. 900m Investments Approx. 650m * Excluding income from the IPO of LCP ** Guidance at the presentation of the annual report for 2005 Current cash flows from operating and investing activities were lower than forecast, primarily due to higher than expected investments, higher tax payments and an increase in net financial expenses. 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