Release number: 140
Release date: 09-11-2004
Release time: 13:40
Today the Supervisory Board of H. Lundbeck A/S approved the company’s interim report for the nine months ended 30 September 2004.

• Cipralex®/Lexapro® revenue is now higher than citalopram revenue.
• New products launched within the past three years now represent 49% of Lundbeck’s total revenue (excluding the gaboxadol payment), an increase from 26% in the year-earlier period.
• Profit from operations for 2004 is forecast at approximately DKK 2.5 billion. 
• The free cash flow amounted to DKK 1,794 million. Adjusted for the Synaptic acquisition, this represents a 53% increase over the year-earlier period.
• The free cash flow is upgraded and is now expected exceed DKK 2.0 billion in 2004.
• Lundbeck plans to launch another share buy-back programme in 2004. This share buy-back programme of up to DKK 500 million is scheduled to be completed by 1 April 2005.

Highlights of the interim report

 

Â	DKKm	Growth in DKK	Growth in local currencies
Revenue	7,628	2%	12%*
   - Cipralex®	1,214	224%	Â
   - Lexapro®	1,803	28%	Â
   - Ebixa®	496	202%	Â
   - Citalopram outside the USA	2,111	(38%)	Â
   - Citalopram in the USA	875	(35%)	Â
   - Other products	1,129	52%	Â
Â	Â	Â	Â
Profit from operations	2,341	25%	Â
Net financials	21	134%	Â
Net profit for the period	1,566	27%	Â
Â	Â	Â	Â
Cash flows from operating and investing activities (free cash flow)	1,794	314%**	Â
Earnings per share (EPS)***	6.81	28%	Â

*) Exclusive of the initial payment for gaboxadol, revenue fell by 3% in Danish kroner, while it rose by 6% in local currencies

**) Adjusted for the Synaptic acquisition, the free cash flow grew by 53%.

***) Lundbeck will be changing the calculation principle for EPS, meaning that treasury shares will no longer be included in the calculation. The number of shares used in the EPS calculation was 229,916,331 as of 30 September 2004.

 

Outlook for 2004
Profit from operations is 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 upgraded and is now expected to exceed DKK 2.0 billion in 2004.
 
Report
The Lundbeck management report the financial performance for the first nine months of 2004 which underlines the continuing growth in sales of the company's new products and the retained focus on cost savings and efficiency enhancement.

For the first time since the launch of the company’s new generation antidepressants Cipralex®/Lexapro®, the majority of the company’s antidepressant revenue derives from these two drugs.

 

Cipralex®/Lexapro® revenue is now greater than citalopram revenue

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In addition to Cipralex®/Lexapro®, the company’s portfolio of new drugs includes Ebixa® for the treatment of Alzheimer’s disease. Ebixa® revenue continues to grow, and the combined sales of our new drugs, Ebixa® and Cipralex®/Lexapro® accounted for 49% of the company’s total revenue (excluding the initial payment from Merck & Co.) in the period compared with 26% in the year-earlier period.

Cipralex®/Lexapro®
Cipralex®/Lexapro® has a very attractive product profile, offering a number of benefits in the treatment of both depression and anxiety. 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® still remains to be approved in Canada, and the price remains to be fixed in France. As announced in connection with earlier delays, the delay in Canada is caused by lengthy regulatory processing of our application, while the situation in France is due to prolonged price negotiations. The company expects Cipralex® to be approved in Canada and that a satisfactory and fair price will be achieved in France, but this is not likely to occur before the end of the year. From the time when the company is notified about the approval of the application and the price in Canada and France, respectively, in 2005, it will take a few months before marketing activities can commence.

Cipralex® revenue amounted to DKK 1,214 million in the first nine months of 2004, which is an increase of 224% over the year-earlier period. At DKK 464 million, Cipralex® revenue was particularly high in Q3. Due to quarter-on-quarter changes in distributor purchases, the company only expects a small increase in Cipralex® revenue in the fourth quarter of 2004.

In the USA, Lexapro® is currently the second-most prescribed antidepressant, and supported by the growing market share during 2004, Lexapro® revenue went up 28%.

Ebixa®
Ebixa® (memantine) is the first and only drug approved for the treatment of late-stage Alzheimer’s disease. Ebixa® has excellent tolerability and its mode of action is different from that of other products in the market. In addition to being approved for the treatment of late-stage Alzheimer’s disease, Ebixa® has shown a positive effect in treating mild to moderate Alzheimer’s disease.

The launch of Ebixa® progressed well during the first nine months of the year, resulting in a growing market share. 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.

Citalopram
Outside the USA, generic citalopram is currently available in almost every market around the world. In many of these markets, Lundbeck has been facing competition from generic drugs for a long time and has already lost large citalopram market shares.

After the end of the reporting period, Lundbeck announced that generic citalopram has been approved for marketing in the USA. Since the end of 2003, Lundbeck and Forest Laboratories, Inc. our partner in the USA, have reduced Celexa® inventories, and Lundbeck reported declining revenue of citalopram in the US in 2004. This has significantly reduced Lundbeck’s quarter-on-quarter sensitivity to the launch of generic citalopram in the USA in 2004.

At 30 September 2004, prepayments from Forest amounted to approximately DKK 1.2 billion of Lundbeck’s total assets, down from DKK 1.7 billion at the end of 2003. Citalopram accounts for less than 15% of these payments, with Lexapro® making up the rest.

Relative to the year-earlier period, revenue from citalopram in the USA fell by 35% in the first nine months of the year to stand at DKK 875 million. Because of the method applied by Lundbeck in recognising revenue from the USA, there may be variations in quarter-on-quarter citalopram revenue during the course of the year. Although there was a fall in sales of citalopram volumes in the USA in Q3 relative to Q2, Lundbeck generated higher revenue owing to higher prices realised in the US market in the third quarter. In Q3, Lundbeck also supplied generic citalopram to Forest Laboratories that markets generic citalopram under a different brand in the USA.

Expenses
Our focus on cost savings and enhancement of work processes resulted in a lower cost level during the first nine months of 2004. Total costs were thus down 5% relative to the year-earlier period.

Research and development costs amounted to approximately 18% of revenue excluding the initial payment for gaboxadol. Research and development costs are expected to rise in Q4 2004.

Pipeline update
During Q4, we expect the Committee for Medicinal Products for Human Use (CHMP, an EMEA committee) to recommend the approval of Azilect® (rasagiline), Lundbeck’s first drug for the treatment of Parkinson’s disease. After receiving CHMP approval, Azilect® must be given the final approval of the European Commission before we can commence price and subsidy negotiations with the various national authorities. As Commission approval is unlikely to be obtained until at the beginning of 2005 at the earliest, Lundbeck expects to start marketing Azilect® during the first half of 2005.

Lundbeck, Solvay Pharmaceuticals, B.V. and Wyeth Pharmaceuticals are currently conducting large phase III clinical studies with the drug bifeprunox for the treatment of schizophrenia. These studies will be completed during 2005, and Lundbeck currently expects to file an application for registration in 2006 and to commence marketing of the drug in 2007.

Drugs in clinical development

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Share buy-back
Earlier this year, Lundbeck initiated and completed a DKK 400 million share buy-back programme. Today, the company will announce the commencement of a new share buy-back programme for up to DKK 500 million in accordance with the authority granted by the shareholders in general meeting from time to time of up to 10% of the share capital. The shares will be acquired in the open market via a designated bank with a view to cancellation in connection with the company’s annual general meeting due to be held in 2005. The Lundbeck Foundation will through its wholly owned subsidiary LFI A/S participate in the buy-back on a pro rata basis in order to retain an unchanged ownership interest. The pro rata participation of the Lundbeck Foundation ensures the retention of a free flow of shares of approximately 27%. The company will complete this programme by 1 April 2005. A tax clearance from the Danish tax authorities has been applied for in relation to the share buy-back programme.

Events occurring after 30 September 2004
On 28 October , Lundbeck and Forest Laboratories, Inc., Lundbeck’s business partner in the USA, announced that generic Celexa® (citalopram) had been approved for marketing in the USA.

As previously announced, Lundbeck and Forest Laboratories had expected generic citalopram to be launched at the beginning of 2005. Despite the earlier-than-anticipated launch, Lundbeck maintained its forecast for profit from operations for 2004.

 

On 21 October , it was announced that Lundbeck had filed an application for approval of Ebixa® for the treatment of mild to moderate Alzheimer's disease.

The application is based on two clinical studies supporting Ebixa’s efficacy, safety and tolerability as monotherapy in the treatment of patients with mild to moderate Alzheimer’s disease. The two phase III studies were conducted in the US and Europe, respectively, and included a total of 873 patients with mild to moderate Alzheimer’s disease.

Currently, the treatment of mild to moderate Alzheimer’s disease is limited to the class of drugs known as acetylcholinesterase inhibitors (AChEIs). An indication extension for Ebixa® would provide physicians with an effective drug for the treatment of patients in all stages of Alzheimer’s disease.

 

On 11 October , Lundbeck presented new data at the European College of Neuropsychopharmacology conference (ECNP) in Stockholm, which showed that Cipralex® (escitalopram) is effective and has a favourable tolerability profile compared to placebo and is significantly more effective than Paxil® (paroxetine) in the treatment of generalised anxiety disorder (GAD). The proportion of patients reaching remission at the end of the study was also significantly higher for the Cipralex® (10mg) group than either placebo or Paxil®.

 

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
Measured in local currencies, Lundbeck’s revenue rose 12% relative to the year-earlier period. Measured in Danish kroner, revenue rose 2% relative to the year-earlier period to DKK 7,628 million.

Revenue for the first nine months 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 rose 6% measured in local currencies and fell by 3% measured in Danish kroner. 

Revenue from Cipralex® amounted to DKK 1,214 million in first nine months of 2004, up 224% from DKK 375 million in the year-earlier period.

Revenue from citalopram outside the USA declined 38% to DKK 2,111 million from DKK 3,414 million in the year-earlier period.

Ebixa® revenue amounted to DKK 496 million in the first nine months of 2004, representing a 202% increase from DKK 164 million in the year-earlier period.

Lundbeck’s income from sales of Lexapro® in the USA was DKK 1,803 million compared with DKK 1,407 million in the same period of last year, an increase of 28%.

Lundbeck’s income from sales of citalopram in the USA was DKK 875 million compared with DKK 1,353 million in the same period of last year, corresponding to a 35% 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 1,179 million at 30 September 2004 compared with DKK 1,604 million at the end of September 2003 and DKK 1,748 million at year-end 2003.

Revenue from other antidepressants and antipsychotics totalled DKK 527 million in the nine-month period compared with DKK 541 million in the year-earlier period.

Lundbeck’s other revenue in the first nine months was DKK 602 million, including the USD 70 million income from Merck & Co., Inc. Other revenue amounted to DKK 202 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 included in the financial statements at the forward rates. The effect on the profit is DKK 202 million (DKK 258 million at 30 September 2003) compared to a situation where the income is included at the current rates of exchange during the period. Of the total effect, DKK 203 million, compared to DKK 265 million in the year-earlier period, stems from the hedging of USD. This amount has been added to income from sales of citalopram and Lexapro® in the USA.

At 30 September 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 3.5 billion. Of this amount, DKK 2.9 billion is accounted for as hedging contracts and DKK 0.6 billion as trading contracts. The average forward rates at 30 September 2004 were EUR 745.42 and USD 617.62. Deferred recognition of net currency gains amounted to DKK 48 million at 30 September 2004 against DKK 154 million at 30 September 2003 and DKK 200 million at 31 December 2003.

The average forward rate for the first nine months of 2005 will be approximately 615 for USD, using the existing hedging contracts. The corresponding forward rate for the first nine months of 2004 was approximately 687.

Expenses
Lundbeck’s total expenses, exclusive of net financials and tax, were DKK 5,287 million in the first nine months, down 5% relative to the year-earlier period.

At DKK 1,287 million, production costs in the first nine months of 2004 were 2% lower than in the year-earlier period. Third-quarter cost of sales were affected by greater consumption of expensive raw materials purchased from external production partners and, on a smaller scale, destruction.

Distribution costs were DKK 1,786 million, a 3% drop compared with the year-earlier period. The decrease was primarily the result of the restructuring and efficiency enhancement initiatives in our sales organisation. 2004 has seen a continuing high level of activity in the international sales and marketing organisation related to the launch of Cipralex® and Ebixa®.

Administrative expenses fell by 5% to DKK 958 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 1,270 million, down 10% from DKK 1,413 million in the first nine months of last year. Activities in 2004 have 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 period saw substantial costs associated with Lundbeck’s ongoing efforts to further develop Cipralex® for the treatment of new indications. In the first nine months of the year, 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 431 million, down from DKK 403 million in the same period of last year.

Net financials
In the first nine months of 2004, the Group’s net financial income totalled DKK 21 million compared with a net expense of DKK 62 million in the same period of last year.

Unrealised losses concerning other investments exclusive of exchange differences amounted to DKK 7 million against an unrealised loss of DKK 76 million in the same period last year.

Net interest income was DKK 30 million in the period, compared with DKK 9 million in the same period of last year.

The net currency expense relating to financial items amounted to DKK 2 million against a DKK 5 million income 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 nine months of 2004, the amount was an expense of DKK 13 million compared with an income of DKK 94 million in the same period last year.

Translation of foreign exchange items represented an income of DKK 11 million during the period, compared with an expense of DKK 89 million in the same period of last year.

Income tax
The income tax expense amounted to DKK 806 million in the nine-month period, compared with DKK 579 million in the year-earlier period.

The effective tax rate was 34% as compared with 32% in the year-earlier period. 

Net profit for the period
Profit from operations was DKK 2,341 million, a 25% increase over the year-earlier period. Excluding the USD 70 million payment from Merck, profit from operations rose 2% relative to the year-earlier period. 

Profit before tax in the first nine months of 2004 amounted to DKK 2,363 million against DKK 1,810 million in the year-earlier period. Profit after tax and minority interests was DKK 1,566 million, an increase of 27% over the first nine months of 2003. Adjusted for the USD 70 million income from Merck, profit after tax and minority interests rose 4% relative to the year-earlier period.

Investments
Lundbeck’s net investments in the first nine months of 2004 totalled DKK 122 million against DKK 1,124 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 118 million. In the year-earlier period, the amount was DKK 672 million, excluding the Synaptic acquisition. Investments for the year primarily took place within production and research and development activities.

Other investments, net, totalled DKK 4 million in the first nine months of 2004, compared with DKK -291 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 1,916 million in the first nine months compared with an inflow of DKK 1,557 million in the year-earlier period. The increase was 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 1,794 million, compared with DKK 434 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 in the first nine months of 2004 generated a net cash outflow of DKK 880 million against an outflow of DKK 2 million in the year-earlier period. The year’s cash flows from financing activities were notably affected by the DKK 400 million buy-back of Lundbeck shares and dividend payments of DKK 409 million.

In connection with the announcement of the financial results for 2003, Lundbeck introduced a share buy-back programme up to a maximum of DKK 400 million. The programme has been completed, and Lundbeck bought back 3,086,670 shares at an average price of DKK 129.60 per share.

Lundbeck’s interest-bearing net cash (the company’s holding of cash and cash equivalents less interest-bearing debt) was DKK 1,747 million at 30 September 2004 compared with DKK 790 million at the same time last year. In addition to interest-bearing net cash, Lundbeck has unutilised credit facilities of DKK 2.7 billion, of which DKK 2.3 billion are guaranteed.

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

Equity
Equity at 30 September 2004 increased to DKK 7,547 million from DKK 6,734 million at 30 September 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	0
Disposals 2004 – realised currency gain on hedged transactions transferred to the income statement and balance sheet	  (152)
Payments under share based plans	(29)
Exchange differences, associates	           6
Purchase of treasury shares, net	(399)
Tax on equity items relating to the period	50
Net profit for the period	1,566
Equity 30 September 2004	7,547

In the first nine months of 2004, return on equity was 21.7% compared with 19.6% 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 Lundbeck set up a new option plan for senior and key employees, an employee share plan for employees of the Danish companies and a share price based plan for the 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 plan expired on 30 September 2004.

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 395,237 shares at 30 September 2004.

Share option plan for key employees (2002):
The plan expired on 31 August 2004.

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 296,851 shares at 30 September 2004.

Warrant scheme for key employees (2004):
The company has authorisation to grant 2,700,000 options at DKK 5 each.
At 30 September 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 September 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 September 2004 totalled 5,366,351.

Accounting for incentive plans:
The liability relating to the incentive plans amounted to DKK 48 million at 30 September 2004 against DKK 113 million at 30 September 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 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 September 2004.
The holding of treasury shares acquired partly to secure and fulfil the incentive plans and partly as part of the share buy-back programme has been deducted from equity. The market value at 30 September 2004 was DKK 584 million against DKK 275 million at 30 September 2003.

Number of employees
At 30 September 2004, Lundbeck had 5,012 full-time employees, which is a decrease of 575 relative to 30 September 2003 and a decrease of 305 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 nine months ended 30 September 2004

H. Lundbeck A/S

Flemming Lindeløv Chairman of the Supervisory Board

Claus Bræstrup 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:

• Helle Hedegaard Juhl, Media Relations Officer, tel +45 36 43 41 68.

 

 

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. 5,000.

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
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