Release number: 135
Release date: 17-08-2004
Release time: 13:00
Today the Supervisory Board of H. Lundbeck A/S approved the company’s interim report for the first six months ended 30 June 2004.

• Sales of Lundbeck's new drugs accounted for 46% of revenue (excluding the gaboxadol payment).
• The overall costs decreased by 6% relative to the year-earlier period.
• Profit from operations is still forecast at approximately DKK 2.5 billion, while the forecast for the free cash flow is raised to above DKK 1.6 billion.

 

Â	DKKm	Growth in DKK	Growth in local currencies
Revenue	5,219	5%*	17%*
   - Cipralex®	750	284%	Â
   - Lexapro®	1,135	38%	Â
   - Ebixa®	313	304%	Â
   - Cipramil®	1,517	-35%	Â
   - Celexa®	607	-40%	Â
   - Other products	897	79%	Â
Â	Â	Â	Â
Profit from operations	1,672	41%	Â
Net financials	8	124%	Â
Net profit for the period	1,132	46%	Â
Â	Â	Â	Â
Cash flows from operating and investing activities (free cash flow)	1,375	885%**	Â
Earnings per share (EPS)	4.84	46%	Â

*) Exclusive of the initial payment for gaboxadol, revenue fell by 3% in Danish kroner, while it rose by 7% in local currencies.
**) Adjusted for the acquisition of Synaptic free cash flow grew by 142%.

 

Outlook for 2004
Profit from operations is still forecast at approximately DKK 2.5 billion, including the initial payment of USD 70 million from Merck & Co., Inc. For the development and commercialisation of gaboxadol in the USA.

The free cash flow is expected to be more than DKK 1.6 billion in 2004.

Report
Revenue of Lundbeck’s new drugs – Cipralex® and Ebixa® – for the treatment of depression/anxiety and Alzheimer’s disease, respectively, continued its upward trend during the first half of 2004. Cipralex® and Ebixa® revenue rose by 284% and 304%, respectively, relative to the year-earlier period.

Compared with the first half of 2003, the aggregate revenue from Lundbeck’s new drugs (Cipralex®, Lexapro® and Ebixa®) rose by DKK 1,100 million, an increase of 100%. Sales of new drugs accounted for 46% of revenue (excluding the USD 70 million gaboxadol payment) compared with 22% during the year-earlier period.

As communicated in connection with the release of the interim report for the three months ended 31 March 2004, the company’s management will maintain its cost focus. As a result of these measures, Lundbeck’s overall costs decreased by 6% during the first six months of 2004 relative to the year-earlier period.

The company’s net profit ratio was 26.1% in the first half of 2004 excluding the gaboxadol payment. Including the gaboxadol payment, the company’s profit ratio was 32,0%.

Â

 

Breakdown of revenue – new products represent a growing share
Sales of Cipralex® continue to rise in most of the markets in which the drug has been launched. This growth was achieved primarily by conquering market shares from competing drugs, because a number of clinical studies have demonstrated that Cipralex® is far superior to a number of the most frequently used drugs in the treatment of depression and anxiety disorders. In most European countries, Cipralex® has been approved for the treatment of depression, panic disorders and social anxiety disorder, and Lundbeck expects to submit an application for approval of Cipralex® for the treatment of generalised anxiety disorder towards the end of 2004. In the USA, Lexapro® has been approved for the treatment of depression and generalised anxiety disorder.

Cipralex® is now sold in more than 50 countries around the world. Following the approval in the first half of 2004 of Cipralex® in the Netherlands and Greece for the treatment of depression, the drug has now been approved in all European countries. The company expects to launch Cipralex® in the Netherlands and Greece in 2005.

The Lexapro® launch in the USA is one of the most successful launches of any drug in US history, and measured by the number of new prescriptions, Lexapro® is currently the second-most prescribed antidepressant in the USA.

The Celexa® market share continued to decline, and following the expiry of market exclusivity on 17 January 2004, the company still believes that generic versions of the drug will be launched in the US market at the beginning of 2005. Outside the USA, generic citalopram is currently available in all major markets in Europe and in Canada as well as in most other markets around the world.

Ebixa® (memantine) is the first and only drug approved for the treatment of moderately severe to severe Alzheimer’s disease. Ebixa®’s mode of action is different from that of other products in the market, and in addition to being approved for the treatment of moderately severe to severe Alzheimer’s disease, the drug has also shown a positive effect in treating mild to moderate Alzheimer’s disease. Ebixa® has excellent tolerability, and clinical studies have shown that the number of reported side-effects were comparable to placebo.

The launch of Ebixa® is progressing well, and the drug experienced a growing market share in the first six months of 2004. In France, Europe’s biggest market for the treatment of Alzheimer’s disease, Ebixa® now commands a market share of 17.6%. In Europe as a whole, the compound memantine has gained a position as the third-most prescribed drug for the treatment of Alzheimer’s disease.

Clinical studies have shown Ebixa® to be effective both as a monotherapy and in combination with donepezil from Pfizer, which is the market leader. Due to European patients’ limited possibilities of obtaining subsidies for combination treatments and other factors, Ebixa®’s market share in Europe has primarily been generated through monotherapy treatments.

Lundbeck’s portfolio of new products (Cipralex®, Lexapro® and Ebixa®) represents a growing proportion of the company’s aggregate revenues. In the first half of 2004, the company’s portfolio of new products accounted for 46% of revenue (excluding the gaboxadol payment) relative to 22% in the year-earlier period.

Â

Research and development and license agreements
Lundbeck is currently conducting several large and costly clinical studies in its several late-stage projects. In order to conduct these clinical studies and to consistently be able to develop and market new drugs, the company’s management has resolved to maintain a high level of R&D investment. In the first half of 2004, R&D costs represented 17% of revenue. Excluding the gaboxadol payment, R&D costs made up 18% of revenue.

On 28 June 2004, Lundbeck and Merck & Co., Inc. announced an extension of the agreement for the exclusive development and commercialisation of the sleep disorder compound gaboxadol that now also covers Japan.

Under the terms of the extended agreement, Merck and Lundbeck will jointly conduct the clinical program required for filing a New Drug Application (NDA) in Japan, with Merck funding the majority of the development activities.
Following approval, the companies plan to co-promote gaboxadol in Japan. Lundbeck will book a share of Japanese gaboxadol sales.

The gaboxadol agreement for Japan means that Lundbeck can now aim for two product launches in Japan. In addition to the alliance to market gaboxadol, Lundbeck will be able to build the company’s commercial presence in Japan by way of an upcoming launch of escitalopram.

Events occurring after 30 June 2004
In connection with the share buy-back programme, Lundbeck announced on 1 July 2004 that the company held treasury shares corresponding to 2.0% of the share capital.
Lundbeck completed its DKK 400 million share buy-back programme on 23 July 2004. Lundbeck bought back a total of 3,086,670 shares at an average price of DKK 129.59, costs included. The company subsequently owns 5,366,351 treasury shares, corresponding to 2.3% of the share capital.

Financial review

Accounting policies
General:
Lundbeck presents its annual reports in accordance with the provisions of the Danish Financial Statements Act on reporting class D enterprises, International Financial Reporting Standards (IFRS), Danish accounting standards as well as the requirements otherwise imposed by the Copenhagen Stock Exchange on the presentation of financial statements for listed companies.

The financial statements are presented in accordance with the IFRS standards and interpretations applicable to the financial year 2004.

The interim report includes only Group figures.

Segment information:
The company is only engaged in the business segment drugs for the treatment of illnesses of the central nervous system. Therefore, no segment information is provided in the interim report.

Revenue
Lundbeck generated revenue of DKK 5,219 million in the first half of 2004. Measured in local currencies, revenue rose 17% relative to the year-earlier period. Measured in Danish kroner, revenue increased by 5%.

The revenue for the first half of 2004 includes an initial payment of USD 70 million from Merck & Co., Inc for the development and commercialisation of gaboxadol in the USA. Net of this payment, revenue in the first half rose 7% measured in local currencies and fell by 3% measured in Danish kroner. 

Sales of Cipralex® in the first six months amounted to DKK 750 million, up 284% from DKK 195 million in the year-earlier period.

Sales of citalopram outside the USA declined 35% to DKK 1,517 million from DKK 2,344 million in the year-earlier period.

First-half sales of Ebixa® amounted to DKK 313 million, representing a 304% increase from DKK 78 million in the year-earlier period.

Lundbeck’s income from sales of Lexapro® in the USA was DKK 1,135 million compared with DKK 825 million in the same period of last year, an increase of 38%.

Lundbeck’s income from sales of Celexa® in the USA was DKK 607 million compared with DKK 1,008 million in the same period of last year, corresponding to a 40% decline.

According to Lundbeck’s accounting policies, sales of both citalopram and escitalopram to Forest are recognised at the guaranteed minimum price at the time of delivery. At the end of each quarter, the invoiced amount is adjusted according to the actual size of the elements included in the contractually agreed royalty calculation. The difference between the invoiced price and the minimum price of Forest’s inventories is recorded in the balance sheet as prepayments. This accounting policy does not affect Lundbeck’s cash flows. The difference between the minimum price already recognised as income and the final calculated settling price is recognised as income when Forest has sold the volume in question in the USA. At the same time, the prepayment item in the balance sheet is reduced correspondingly.

The difference between the invoiced price and the minimum price of Forest’s inventories was DKK 1,345 million at 30 June 2004 compared with DKK 1,407 at the end of June 2003 and DKK 1,748 at year-end 2003.

Sales of other antidepressants and antipsychotics totalled DKK 362 million in the first half compared with DKK 353 million in the year-earlier period.

Lundbeck’s other revenue in the first six months was DKK 535 million, including the USD 70 million income from Merck & Co., Inc. Other revenue amounted to DKK 148 million in the year-earlier period. 

As a result of Lundbeck’s currency hedging policy, foreign exchange losses and gains on hedging transactions are allocated directly to the hedged transaction. The hedging of the company’s foreign exchange income means that this income is in reality included in the financial statements at the forward rates. The effect on the profit is DKK 153 million (DKK 192 million during the first half of 2003) compared to a situation where the income is included at the current rates of exchange during the period. Of the total effect, DKK 155 million compared with DKK 191 million in the first half of 2003 stems from the hedging of USD. This amount has been added to income from sales of Celexa® and Lexapro®.

At 30 June 2004, forward exchange and option contracts had been entered into to hedge foreign currency cash flows, primarily in EUR and USD, equivalent to a value of approx. DKK 4.0 billion. Of this amount, DKK 3.3 billion is accounted for as hedging contracts and DKK 0.7 billion as trading contracts. The average forward rates at 30 June 2004 were EUR 745.63 and USD 628.27.
Deferred recognition of net currency gains amounted to DKK 34 million at 30 June 2004 against DKK 196 million at 30 June 2003 and DKK 200 million at 31 December 2003.

The average forward rate for the first six months of 2005 will be approximately 614 for USD, using the existing hedging contracts. The corresponding forward rate for the first six months of 2004 was approximately 696.

Expenses
Lundbeck’s total expenses, exclusive of net financials and tax, were DKK 3,546 million in the first half of 2004, down 6% relative to the year-earlier period.

Production costs decreased by 8% to DKK 816 million. The lower level of costs reflects the impact of the staff reduction carried out in the autumn of 2003 and improved efficiency of in-house manufacturing processes. Relative to the same period of last year, production costs have been reduced owing to fewer purchases from external production partners.

Distribution costs amounted to DKK 1,242 million. The costs are on a level with the first half of 2003 and reflect the continuing high level of activity in the international sales and marketing organisation related to the launch of Cipralex® and Ebixa®.

Administrative expenses fell by 10% to DKK 632 million, primarily owing to improved efficiency in administrative functions both in our sales subsidiaries and at the Valby head offices.

Research and development costs amounted to DKK 868 million, as compared to DKK 932 million in the first six months of last year. Costs in the first half-year reflect a continuing high level of activity, centred primarily on the implementation of phase III studies concerning bifeprunox for the treatment of schizophrenia and gaboxadol for sleep disorders as well as the phase II study concerning CEP-1347 for the treatment of Parkinson’s disease. Furthermore, the first six months of the year saw substantial costs associated with Lundbeck’s ongoing efforts to further develop Cipralex® for the treatment of new indications. In the first half, research and development costs amounted to 17% of revenue, as compared with 19% in the year-earlier period. Adjusted for the USD 70 million income from Merck, research and development costs represented 18% of revenue in the period.

Depreciation and amortisation charges, which are included in the individual expense categories, totalled DKK 253 million, down from DKK 254 million in the same period of last year.

Net financials
In the first six months of 2004, the Group’s net financial income totalled DKK 8 million compared with a net expense of DKK 34 million in the same period of last year.

Unrealised losses concerning other investments exclusive of exchange differences amounted to DKK 9 million against an unrealised loss of DKK 78 million in the same period last year.

Net interest income was DKK 13 million in the period, compared with DKK 2 million in the same period of last year.

The net currency income relating to financial items amounted to DKK 4 million compared with DKK 42 million in the same period of last year.

Income and 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 the first half of 2004, the amount was an expense of DKK 21 million compared with an income of DKK 88 million in the same period last year.

Translation of foreign exchange items represented an income of DKK 36 million during the period, compared with an expense of DKK 9 million in the same period of last year.

Income tax
The income tax expense amounted to DKK 556 million against DKK 373 million in the year-earlier period.

The effective tax rate was 33% as compared with 32% in the year-earlier period. 

Net profit for the period
Profit from operations was DKK 1,672 million in the first half of 2004, representing an increase of 41%. Excluding the USD 70 million payment from Merck in the first half of 2004, profit from operations rose 6% relative to the year-earlier period. 

Profit before tax amounted to DKK 1,684 million, as compared to DKK 1,148 million in the same period of last year. Profit after tax and minority interests was DKK 1,132 million, an increase of 46% over the first half of 2003. Adjusted for the USD 70 million income from Merck, profit after tax and minority interests rose 10% relative to the year-earlier period.

Investments
Lundbeck’s net investments in the first half of 2004 totalled DKK 59 million against DKK 954 million in the year-earlier period. The high investment level in 2003 primarily reflects the acquisition of Synaptic Pharmaceutical Corporation, the US-based drug discovery company.  

Net property, plant and equipment and intangible asset investments were DKK 67 million. In the year-earlier period, the amount was DKK 495 million, excluding the Synaptic acquisition. Investments for the year primarily took place within production and research and development activities.

Other investments, net, totalled DKK -7 million in the first six months of 2004, compared with DKK -284 million in the same period of last year, when Lundbeck sold its holding of shares in Cephalon, Inc.

Cash flows
Lundbeck’s operating activities generated a cash inflow of DKK 1,435 million in the first half of 2004, compared with an inflow of DKK 778 million in the year-earlier period. The increase was primarily attributable to a higher contribution from operations.

Due to a higher cash flow from operations and lower net investments, the free cash flow amounted to DKK 1,375 million in the first half of 2004, compared with DKK -175 million in the same period of last year, when the Synaptic acquisition had a DKK –743 million impact on the free cash flow.

Financing activities generated a net cash outflow of DKK 785 million in the first half of 2004 due to a DKK 56 million decline in interest-bearing debt, buyback of treasury shares in the amount of DKK 294 million and payment of dividends in the amount of DKK 409 million. Financing activities generated a cash outflow of DKK 15 million in the year-earlier period.

In connection with the announcement of the financial results for 2003, Lundbeck introduced a share buyback programme up to a maximum of DKK 400 million. In the period until 30 June 2004, Lundbeck bought back 2,275,559 shares for DKK 293.6 million, corresponding to an average price of DKK 129.04 per share.

Lundbeck’s interest-bearing net cash (the company’s holding of cash and cash equivalents less interest-bearing debt) was DKK 1,433 million at 30 June 2004 compared with DKK 182 million at the same time last year. In addition to interest-bearing net cash, Lundbeck has unutilised guaranteed credit facilities of DKK 2.7 billion.

Unutilised credit facilities consist of drawing rights on the Group’s banks (overdraft facilities) and guaranteed committed loans.

Equity
Equity at 30 June 2004 increased to DKK 7,212 million from DKK 6,305 million at 30 June 2003 and DKK 6,914 million at 31 December 2003.

The changes in equity are shown below:
 

Changes in equity	DKKm
Equity 1 January 2004	6,914
Dividends distributed for 2003	(409)
Additions 2004 – deferred currency loss on hedging contracts	(40)
Disposals 2004 – realised currency gain on hedged transactions transferred to the income statement and balance sheet	  (126)
Payments under share based plans	(26)
Exchange differences, associates	           4
Purchase of treasury shares	(294)
Tax on equity items relating to the period	57
Net profit for the period	1,132
Equity 30 June 2004	7,212

In the first half of 2004, return on equity was 16.0% compared with 12.8% in the same period last year.

Incentive plans
In 1999, Lundbeck introduced a share option plan for the company’s management and senior employees, an employee share plan for the employees of the Danish companies and a share price based plan for the employees of the foreign companies. In addition, in 2002 a new option plan for senior and key employees was established as well as a share price based for employees of the foreign companies. In 2004, a warrant scheme was granted to the company’s Executive Board and a number of key employees of the company and its non-US subsidiaries as well as a new share price based scheme (Stock Appreciation Rights) for key employees of the Group’s US companies.
The Supervisory Board is not comprised by the share option plans.

Management share option plan (1999):
The company has authorisation to grant 2,000,000 options at DKK 5 each. At 30 June 2004, 1,920,364 options had been granted, which was unchanged from 30 June 2003. The plan comprises 48 employees in Denmark and abroad.
Share price based plan for the employees of foreign companies (1999):
As a result of the conditions relating to the plan, the value of the plan, including the associated social security costs, corresponded to 424,795 shares at 30 June 2004.
Share option plan for key employees (2002):
The company has authorisation to grant 2,500,000 options at DKK 5 each. At 30 June 2004, 2,360,439 options had been granted as compared with 2,352,439 at 30 June 2003.
The plan comprises approx. 1,000 employees in Denmark and abroad.
Share price based plan for the employees of foreign companies (2002):
As a result of the conditions relating to the plan, the value of the plan, including the associated social security costs, corresponded to 356,617 shares at 30 June 2004.
Warrant scheme for key employees (2004):
The company has authorisation to grant 2,700,000 options at DKK 5 each. At 30 June 2004, 2,546,070 options had been granted. The plan comprises approx. 1,100 employees in Denmark and abroad.
Share price based plan for the employees of US companies (2004):
As a result of the conditions relating to the plan, the value of the plan, including the associated social security costs, corresponded to 145,150 shares at 30 June 2004.
Securing obligations relating to incentive plans:
The company purchased 2,740,000 treasury shares at a total cost of DKK 137.9 million to secure and implement the incentive plan.
The holding of treasury shares at 30 June 2004 totalled 4,555,240.
Accounting for incentive plans:
The liability relating to the incentive plans amounted to DKK 145 million at 30 June 2004 against DKK 139 million at 30 June 2003. The liability is not accounted for in the balance sheet. Disbursement relating to these plans are taken to equity.
The exercise period for the 1999 option plan runs until 1 October 2004, and for the 2002 option plan until 1 September 2004.
The exercise period for the most recent option plan runs from 9 December 2004 until 30 August 2007.
The liability has been calculated as if the options were exercisable at 30 June 2004.
The holding of treasury shares acquired to secure and fulfil the incentive plans has been deducted from equity. The market value at 30 June 2004 was DKK 605 million against DKK 308 million at 30 June 2003.

 
Number of employees
At 30 June 2004, Lundbeck had 5,104 full-time employees, which is a decrease of 431 relative to 30 June 2003 and a decrease of 213 compared with 31 December 2003. The declining number of full-time employees reflects the management’s focus on enhancing efficiency, especially in the area of production, and the adjustment of the number of employees in the Group’s other functions.
 

Shareholders
LFI A/S, which is wholly owned by the Lundbeck Foundation, is the only shareholder in Lundbeck that has announced that it owns more than 5% of the share capital.

Announcements in the first half of 2004
 

No. Â	Date Â	Subject Â
133	28 June 2004	Lundbeck and Merck announce extension to Japan of alliance to develop and commercialise gaboxadol Â
132	28 May 2004	Statement of shares in H. Lundbeck A/S held by insiders Â
131	10 May 2004	Interim report for the three months ended 31 March 2004 Â
130	28 April 2004	New study highlights positive effect of Ebixa® on brain activity in patients with mild to moderate Alzheimer’s disease Â
129	28 April 2004	Cipralex® set to launch in Spain Â
128	20 April 2004	Early treatment with rasagiline may slow Parkinson’s disease impairment Â
127	1 April 2004	Solvay Pharmaceuticals and Wyeth sign development and marketing agreement for bifeprunox in the USA Â
126	30 March 2004	The Annual General Meeting of H. Lundbeck A/S was held on 30 March 2004 at Bella Center Â
125	29 March 2004	Statement of shares in H. Lundbeck A/S held by insiders Â
124	12 March 2004	Notice convening the Annual General Meeting 2004 Â
123	10 March 2004	Announcement of results for the year ended 31 December 2003 Â
122	10 February 2004	Lundbeck and Merck & Co., Inc. announce alliance to develop and commercialise gaboxadol, a compound for the treatment of sleep disorders, in the United States Â
121	29 January 2004	Financial calendar 2004 Â
120	7 January 2004	New data on Ebixa® for mild to moderate Alzheimer’s disease Â

H. Lundbeck A/S

 

Flemming Lindeløv	Claus Bræstrup
Chairman of the Supervisory Board	President and CEO

The forward-looking statements in this announcement reflect management’s current expectations for certain future events and financial results. These statements are, of course, subject to uncertainty, and actual results may therefore differ materially from those expressed by the statements. Furthermore, some of these expectations are based on assumptions regarding future events which may prove incorrect.

Investor contact
- Steen Juul Jensen, Vice President, tel +45 36 43 30 06
- Jacob Tolstrup, Investor Relations Manager, tel +45 36 43 30 79

Media contact
- Anders Schroll, Media Relations Manager, tel +45 36 43 20 81

________________________

H. Lundbeck A/S is an international pharmaceutical company engaged in the research and development, production, marketing and sale of drugs for the treatment of psychiatric and neurological disorders. In 2003, the company’s revenue was DKK 9.9 billion. The number of employees is approx. 5,100.

H. Lundbeck A/S
Ottiliavej 9
DK-2500 Copenhagen Valby

Tel +45 36 30 13 11
Fax +45 36 30 19 40

information@lundbeck.com
Contact us