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08 apr. 2014
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PROGRESS
IN MIND
(NNNIUAL REPORT 20
LUNDBECK -—— ANNUAL REPORT 2013
5 YEARS PERFORMANCE
REVENUE
(DKKm)
20,000
15,258
2009 2010 2011 2012 2013
RESEARCH AND DEVELOPMENT COSTS
(DKKm)
2009 2010 2011 2012 2013
OPERATING PROFIT BEFORE DEPRECIATION
AND AMORTIZATION (EBITDA)
(DKKm)
5,000
4,000
3,000
2,000 — "
1,000 —
2009 2010 2011 2012 2013
EURm 2,046 EURm 385 EURm 384
usDm 2,717 usøm 511 usDm 509
PROFIT FROM OPERATIONS (EBIT) EARNINGS PER SHARE (EPS) PROPOSED DIVIDEND PER SHARE
(DKKm) (DKK) (DKK)
4,000 15 4.0
3.5
3,000 3.0 —
25—.
2,000 20 —"
. "4,36 1.5 —
1,000 — 1.0 —
0.5 —
2009 2010 2011 2012 2013
2009 2010 2011 2012 2013
EURM 214 EUR 0.58
uspm 285 usp 0.78
CASH FLOWS FROM OPERATING EBIT MARGIN
AND INVESTING ACTIVITIES (%)
(DKKm)
3,000 25
2,260
2,000
1000 ——— 0
0
-1,000 —
-2,000 ———
-3,000 -
2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
EURMm 303
usDm 402
2009 2010 2011 2012 2013
EUR 0.37
usD 0.49
AVERAGE NUMBER OF EMPLOYEES
2009 2010 2011 2012 2013
LUNDBECK — ANNUAL REPORT 2013 3
v
bl
I
FE
syg)
Y MANAGEMENT REVIEW
4 Preface
5 Management review of 2013
8 Strategy review
11 Research and development
13 Markets and products
16 Corporate responsibility
18 Risk management
n 20 Corporate governance
i
A 22 The Lundbeck share
25 Executive Management and Board of Directors
27 Summary for the group 2009-2013
FINANCIAL STATEMENTS
29 Consolidated financial statements
69 Financial statements of the parent company
79 Management statement
80 Independent auditor's reports
il
Y
d
1404084EogSN73076
LUNDBECK — ANNUAL REPORT 2013 &Q Go TO CONTENTS
TOWARDS
LONG-TERM GROWTH
Lundbeck is successfully navigating a period of transition. 2013 was a
very good year for us — we delivered strong results that met our financial
guidance, our product pipeline showed positive development and we
launched several new products. We are well on track to achieve our
ambition of sustained long-term growth.
Lundbeck is in the process of renewing its product portfolio
and expanding its geographical reach. Some of our products
are maturing, but we are well on our way to replacing them.
Among the highlights of an outstanding year were the approvals
and launches of Abilify Maintena?, Brintellix? and Selincro? in
different markets. Further, we saw strong performance in most
of our existing products, and specifically we are seeing rapid
growth in sales in the US and International Markets as our
recently-launched products start to take off around the world.
Revenue from New Products increased 45% in 2013.They now
contribute 20% of our total revenue — and we expect this trend
to grow and accelerate in the years to come as revenues from
recently-approved products come on-stream.
During 2013, we expanded our commercial platform in the US
to be able to successfully launch our new psychiatric products.
The new psychiatry business includes a significant sales force,
which means we can make our new psychiatric portfolio available
to more health care professionals and to more patients in the US.
As well as launching our new products, we are continuously
working to develop new innovative treatments to meet existing
unmet needs. Our late-stage pipeline shows great promise, and
we are particularly excited about three compounds: brexpiprazole,
desmoteplase and Lu AE58054, It is our hope that these com-
pounds will become effective future treatments for patients
suffering from depression, schizophrenia, stroke and Alzheimer's
disease.
While we continue to invest heavily in R&D and in expanding our
geographical reach, we are also continuing the restructuring and
optimization of internal operations in the company to improve
performance and to support innovation. An efficiency programme,
Fit-for-the-Future, has been introduced and will help free up
resources for investment in our product pipeline and geographical
expansion.
We are strongly committed to maintaining high ethical
standards and to ensuring our Code of Conduct is truly
embedded in day-to-day operations. Compliance is also one of
our top priorities. These core values support our determination
to appeal against the European Commission's decision in 2013
regarding Lundbeck's settlement agreements with generic
competitors for citalopram. We strongly disagree with this
ruling and the fine imposed.
PROGRESS IN MIND
Brain disease is a growing burden, not only for individuals
but for families and communities as well. Around the world,
some 700 million people are living with brain disease, and far
too many suffer from inadequate treatment, discrimination,
reduced number of working days, early retirement and other
unnecessary consequences.
Although extraordinary progress in treating these conditions
has been made over the last century, there remains a huge and
pressing medical need. Brain disease is one of the gravest health-
care challenges facing society today. For a company like
Lundbeck, this challenge is also a great opportunity. We are in
a unique position to develop and deliver new and innovative
medicines and to make a real difference to people living with
brain disease. We call this Progress in Mind.
On behalf of Lundbeck's Board of Directors, Executive
Management and employees, we would like to thank all our
shareholders, customers and business partners for the interest
and trust they have shown in our company throughout 2013.
[ j ÅD] B TR
UL Wéln, 7 FRR
UlfWiinberg Håkan Bjårkjind
President and CEO
Chairman of the Board of Directors
&Q GO TO CONTENTS
LUNDBECK —— ANNUAL REPORT 2013
MANAGEMENT
REVIEW
2013 was a very successful year for Lundbeck. Most of our existing
products continued to perform strongly, we received five regulatory
approvals of new pharmaceuticals and launched two new products.
We also expanded the collaboration with our partners and continued
our internal efficiency process.
Lundbeck is continuing to expand its product portfolio as
some of the long-standing products start to mature and face
competition from generics. Our priorities are the successful
launch of our new products, and the continued development
of our product pipeline and partnerships.
In 2013, we launched two new products: Selincro? in Europe
and Abilify Maintena? in the US. In addition, Brintellix? became
available in the US towards the end of 2013. Our strategic
portfolio of recently launched products also includes Lexapro?
in Japan, Onfi?, Sabril?, Saphris?/Sycrest?, Treanda? and
Xenazine?, Between them, these New Products generated
revenue of DKK 3,096 million in 2013, and we are expecting
continued high growth.
Our key pipeline products advanced according to plan. In Europe,
Abilify Maintena, Brintellix and Selincro were all approved by
the European Medicines Agency (EMA). In the US, both Abilify
Maintena and Brintellix were approved by the U.S. Food and
Drug Administration (FDA). Finally, Lu AE58054 entered into
its clinical phase ill programme.
In recent years, we have made substantial efforts to reorganize
the company to make it more flexible and effective. This enables
us to successfully manage the transition of our European pro-
duct portfolio, to mitigate the pressure from healthcare reforms,
and to overcome challenges such as increased competition from
generics, and uncertainty surrounding pricing and reimburse-
ment in Europe, The restructuring of our European commercial
infrastructure started in 2012, and we are already capturing
benefits of this process, In 2013, we began the optimization
of our administrative processes through the Fit-for-the-Future
programme, which is expected to benefit the company for
years to come,
1404084EogSN73077
Lundbeck has a sophisticated partner strategy and is highly
committed to seeing it succeed, We have a strong alliance with
Otsuka Pharmaceutical Co., Ltd, on a number of projects, such as
the development and commercialization of Abilify Maintena, as
well as brexpiprazole, Lu AE58054, Selincro in Japan and
Lu AF20513.
TOTAL REVENUE FROM NEW PRODUCTS 2009-2013 (DKKm)
4,000
3,096
3,000
2,000
1,000
2011 2013
TOTAL REVENUE 2009-2013 (DKKm)
20,000
15,258
15,000
10,000 ]
5,000
2009 2010 2011 2012
0 0 Total revenue excl. Lexapro US . Lexapro US
LUNDBECK — ANNUAL REPORT 2013 & GO TO CONTENTS
We are continuing to capture benefits from our partnership
with Takeda Pharmaceutical Co., Ltd. on the development and
commercialization of Brintellix, as well as our partnership with
Mochida Pharmaceutical Co., Ltd. and Mitsubishi Tanabe Pharma
Corporation on the commercialization of Lexapro in Japan.
FINANCIAL RESULTS
Lundbeck's financial performance in 2013, excluding the
unexpected fine from the European Commission, was better
for both revenue and for operating profit than forecasted in our
guidance published in February 2013. We continued to deliver
strong results and good profits despite 2013 being the first full
year without material revenue from Lexapro in the US, and
with the patent expiry of Ebixa? in Europe.
Our strategies for devetoping our product portfolio and
expanding our geographic reach continued according to plan.
New Products generated total revenue of DKK 3,096 million,
more than what was lost due to expiry of the Lexapro patent
in the US. In 2013, revenue from New Products grew by 45%
when compared to 2012. New Products now represent 20%
of Lundbeck's total revenue, up from 14% in 2012.
Ås a result of our geographic expansion, Lundbeck showed
continued strong revenue growth in International Markets,
which grew by 8%, and in our new products in the US (Abilify
Maintena, Onfi, Sabril and Xenazine), which were up 43%. The
year was impacted by competition from generics in certain
countries, but the underlying volume growth in Europe
continued.
Revenue for the year was DKK 15,258 million, which is an
increase of 3% compared to 2012. We are very pleased with
this result considering the patent expiry of Ebixa and the
divestment of our mature product portfolio in the US.
Total costs for the year were DKK 13,659 million compared
to DKK 13,076 million in 2012, corresponding to an increase of
4%. Recent years' efficiency programmes have made it possible
for us to invest heavily in launching our new products and we
expect to continue doing so during 2014. Research and
development (R&D) costs continued to be high and were
DKK 2,872 million, corresponding to 19% of revenue, which
is a decrease of one percentage point compared to 2012. In
2013, we absorbed one-off costs of more than DKK 1 billion
due to the European Commission fine (approximately DKK 700
million), impairment of Saphris/Sycrest, and restructuring costs.
In 2012, one-off costs were DKK 530 million.
Profit from operations before depreciation and
amortisation (EBITDA) was DKK 2,861 million, or DKK 3,971
million excluding one-off costs. Profit from operations (EBIT)
was. DKK 1,599 million, corresponding to an EBIT margin of
10.5%. Excluding one-off costs, profit from operations were
DKK 2,709 million, which corresponds to a margin of 17.8%.
Profit for 2013 was lifted by approximately DKK 170 million
milestone payment for the commercialization of Brintellix in the
US from our partner Takeda, and by a gain of DKK 566 million
from the divestment of our mature product portfolio in the US
to Recordati S.p.A.
The effective tax rate in 2013 was 41.9%, corresponding to
a tax of DKK 617 million. In 2012, the effective tax rate was
29.9%, corresponding to a tax of DKK 496 million. The increased
tax rate from 2012 to 2013 relates to the unexpected fine from
the European Commission, which is not tax-deductible.
Profit for the year was DKK 855 million, which translates to
earnings per share of DKK 4.36. At the Annual General Meeting
(AGM), the Board of Directors will propose a dividend payout
ratio of 64% of the year's profit after tax, equating to DKK 2.77
per share.
Cash flows from operating activities were DKK 3,760 million.
As at 31 December 2013, Lundbeck had interest-bearing, net
cash and cash equivalents of DKK 3,699 million, compared with
DKK 1,893 million at the end of 2012.
For details on the financial statements, see p. 29.
Financial guidance
For 2014, Lundbeck expects total revenue of DKK — 13.5 billion
compared to around DKK 14 billion as communicated in the
preliminary guidance in December 2012, EBIT is expected in the
range of DKK 0.5-1.0 billion, which is in line with earlier guidance.
These expectations assume unchanged currency rates and do not
include any milestone payments, or other one-off items.
FORECAST 2014
FORECAST' FORECAST” — ACTUAL FORECAST
2013 2013 2013 2014
(DKKbn) (DKKbn) (DKKm) — (DKKbn)
Revenue 14.1-14.7 148-152 15,258 —13.5
Profit from operations (EBIT) 1.6-2.1 1,5-1,7 1,599 0.5-1.0
+ According to guidance provided in the Annual Report 2012
… According to guidance provided m the Third Quarter Report 2013
Disclaimer
Forward-looking statements are subject to risks, uncertainties
and inaccurate assumptions. This may cause actual results to
differ materially from expectations. Various factors may affect
future results, including interest rates and exchange rate fluc-
tuations, delay or failure of development projects, production
problems, unexpected contract breaches or terminations,
government mandated or market-driven price decreases for
products, introduction of competing products, Lundbeck's ability
to successfully market both new and existing products, exposure
to product liability and other lawsuits, changes in reimbursement
rules and governmental laws, and unexpected growth in expenses.
4
LUNDBECK — ANNUAL REPORT 2013 Q GO TO CONTENTS
EVENTS & MILESTONES 2013
February
Selincro is approved in Europe for the treatment of alcohol dependence.
Abilify Maintena is approved in the US for the treatment of schizophrenia.
March
Lundbeck and Otsuka announce collaboration on Lu AE58054 for the treatment of Alzheimer's disease.
Positive data on Azilect? for the treatment of early Parkinson's disease.
April
Positive data on Brintellix for the treatment of major depressive disorder (MDD).
Positive data on Selincro før the treatment of alcohol dependence.
Selincro is launched in the first markets in Europe.
Abilify Maintena is launched in the US.
May
Positive data on Brintellix for treating symptoms of MDD,
Positive preclinical data on Brintellix for improving cognitive function in MDD.
June
Lundbeck receives the European Commission's decision regarding citalopram agreements conciuded in 2002-2003.
Lundbeck announces plans to simplify its commercial structure in Europe.
July
Positive data on Lu AE58054 for the treatment of Aizheimer's disease.
September
Lundbeck appeals the European Commission's decision regarding citalopram agreements concluded in 2002-2003.
Positive recommendation from EMA's Committee for Medicinal Products for Human Use (CHMP) on Abilify Maintena for
the treatment of schizophrenia.
October
Brintellix is approved in the US for the treatment of MDD,
Lundbeck and Otsuka begin clinical phase III studies on Lu AE58054,
Positive recommendation from CHMP on Brintellix for the treatment of MDD.
Otsuka becomes Lundbeck's partner for clinical development and co-commercialization of Selincro in Japan.
November
Brintellix is made available in the US.
Abilify Maintena is approved in Europe.
December
Lundbeck and Otsuka announce collaboration on the development of Lu AF20513, a vaccine to tackle Alzheimer's disease,
Positive data on Brintellix for improving cognitive function in MDD,
Brintellix is approved in Europe for the treatment of MDD.
1404084EogSN73078
LUNDBECK —— ANNUAL REPORT 2013 Q CG0 TO CONTENTS
STRATEGY
REVIEW
Lundbeck is in transition to a new era of growth.
We are renewing our product portfolio and expanding
geographically in order to reinforce our position as a
specialist in brain disease,
TOWARDS 2015
fooking towards 2015, Lundbeck has set
goals in four equatly important areas:
Financial ambition:
Significantly invest in long-term growth opportunities, while
remaining profitable
+» In 2013, we were able to exceed the financial guidance for
the year, despite operating under difficult market conditions
with healthcare reforms and increased competition from
generics.
+ For 2014, we expect total revenue of DKK —13.5 billion
and EBIT in the range of DKK 0,5-1.0 billion.
+ Our ambition to enter a new era of sustained long-term
growth will particularly depend on the successful launch
of our new products.
R&D ambition:
Continue tø invest heavily in R&D and deliver on our late-stage
pipeline
+ In 2013, we experienced significant progress in our late-stage
pipeline with approval of Selincro in Europe, as well as Abilify
Maintena and Brintellix in Europe and the US. Further, the
clinical phase Il programme for Lu AE58054 was initiated.
+ In 2014, we will continue to develop our late-stage pipeline
with important milestones for brexpiprazole and desmoteplase.
Further, we expect to get approval of Brintellix in more markets,
i.e, Canada,
» Our R&D focus towards 2015 will be research, early-stage
pipeline projects and clinical phase IV trials.
Product ambition:
Launch and grow our new products and diversify our product
portfolio
+. During 2013, our product portfolio became more diverse,
with New Products contributing 20% of total revenue.
+ In 2014, we will continue to focus on our new products:
Abilify Maintena will continue to roll-out in the US and will
be launched in Europe; Brintellix will be launched in Europe
and the US, and Selincro will continue to be launched in new
markets across Europe.
"+ We expect our new products to provide a solid platform for
Lundbeck's strong presence in the treatment of many brain
diseases.
Market ambition:
Expand in new markets and strengthen our global position
» In 2013, our revenue from International Markets and the
US amounted to DKK 6,710 million, or 44% of total revenue.
+ In 2014-2015, we will continue to strengthen our global
position by maintaining our strong platform in Europe, and
increasing our investments in growth markets such as the
US and selected International Markets.
»… We expect continued growth from the US as well as selected
International Markets such as Australia, Brazil, China and
Japan.
rd
LUNDBECK -— ANNUAL REPORT 2013 Q GO TO CONTENTS
OUR STRATEGIC PATH TO 2015
To help us achieve our ambitions, we have identified a strategic path of focus for the
coming years. The strategic path consists of seven pillars.
R&D STRATEGY LATE-STAGE
PIPELINE
PRODUCT
DIVERSIFICATION
1. R&D strategy
The aim of Lundbeck's R&D strategy, which was launched in
2010, is to enable the discovery and development of new
pharmaceuticals to target the underlying mechanisms of
brain diseases. The strategy requires comprehensive research
into the brain and the biology and mechanisms of brain
diseases, as well as improved understanding of research
targets and clinical outcomes.
It is essential for Lundbeck to maintain strong internal
R&D capabilities in order to establish optimal networks and
partnerships. We will continue to build external alliances to
supplement our internal capabilities, taking advantage of the
increased opportunities provided by innovative technologies.
2. Late-stage pipeline
Lundbeck's late-stage pipeline activities are focused on
a number of projects that aim at fulfilling unmet medical
needs of patients and society. In recent years, we have
experienced significant progress in our late-stage pipeline,
and we will continue to invest significantly in our R&D,
In the coming years, we will focus on important projects
such as brexpiprazole for the treatment of schizophrenia and
MDD, desmoteplase for the treatment of acute ischaemic
stroke and Lu AE58054 for the treatment of Alzheimer's
disease.
3. Product diversification
Pharmaceuticals that treat brain diseases are the largest
pharmaceutical category, accounting for 15% of the global
market and worth a total of USD 128 billion in 2012 (newest
available figures). The size of this market provides room for
growth, but in order to exploit growth opportunities,
Lundbeck must launch new and better treatments,
1404084EogSN73079
GEOGRAPHICAL
EXPANSION
PARTNERSHIPS
AND BUSINESS
DEVELOPMENT
ORGANIZATIONAL. | HIGH-PERFORMANCE
EFFICIENCY CULTURE
Since 2008, we have invested heavily in new product
opportunities in order to diversify our portfolio. As a result,
in recent years we have been able to launch a number of
new products: Abilify Maintena, Lexapro in Japan, Onfi, Sabril,
Saphris/Sycrest, Selincro, Treanda and Xenazine, Towards
the end of 2013, Brintellix also became available in the US.
Altogether, New Products generated DKK 3,096 million in
revenue in 2013.
Our priority will continue to be the successful launch of our
new products and thereby the creation of a solid platform
før Lundbeck's long-term growth,
. Geographical expansion
Lundbeck's ambition is to build global growth by balancing
our solid presence in Europe with expansion in International
Markets and the US.
In 2013, Europe constituted 25% of the global market for
pharmaceuticals for the treatment of brain diseases. We have
a strong presence in Europe, where we generated DKK 7,064
million, or 46% of total revenue this year. In recent years,
price cuts and healthcare reforms have weakened the
pharmaceutical industry's ability to maintain sustainable
profitability in Europe. As a consequence, we have
restructured our European operations.
In 2013, revenue from International Markets grew
significantly to DKK 4,075 million, equivalent to 27%
of the total revenue. Combined with our ability to expand
our presence and launch our new products, these markets
are expected to contribute significantly to our business in
the coming years.
LUNDBECK — ANNUAL REPORT 2013 OG Go TO CONTENTS
China is one of the important international markets. The
Chinese market for pharmaceuticals for the treatment of
brain diseases is still in its infancy. With a total value of
around USD 4.0 billion, it represents only 3.2% of the global
brain diseases market, However, the Chinese market is
growing rapidly due to increased acknowledgement of brain
diseases, as well as better access to treatment. Lundbeck's
presence in China is increasing and we witl invest further in
our operations in China in the coming years.
The US is by far the world's largest market for pharma-
ceuticals for the treatment of brain diseases, accounting for
47% of all saltes. In 2013, our revenue from the US amounted
to DKK 2,635 million, 17% of total revenue, We believe the
US market has significant potential for growth and we are
currently building our own platform in the US market
to strengthen our presence. In 2013, we invested in our
own psychiatry sales force in the US, we launched Abilify
Maintena in collaboration with Otsuka and started making
Brintellix available in collaboration with Takeda.
5. Partnerships and business development
Development and commercialization of new drugs is both
complex and costly. At the same time, the period during
which investments can be recovered is continually becoming
shorter. In order to maintain the strongest possible position
despite these challenges, we will continue to develop and
commercialize drugs through effective collaboration with
other biotechnology and pharmaceutical companies.
Partnerships enable Lundbeck to exchange knowledge
and devetop new pharmaceuticals. Collaboration makes
it possible to increase the number of research projects we
undertake, and thus increase our chances of success. Thanks
to many years of targeted efforts in the treatment of brain
diseases, we can offer our partners highly specialized
knowledge, and many companies see Lundbeck as an
attractive partner.
One of Lundbeck's important partners is Otsuka with whom
we have built a strong alliance on the development and
commercialization of Abilify Maintena, brexpiprazole,
Lu AE58054 and Lu AF20513, and of Selincro in Japan.
Takeda is another of our key partners. Together, we strive
for a successful launch and commercialization of Brintellix.
Among other partnerships, we also collaborate with Mochida
and Mitsubishi Tanabe on the commercialization of Lexapro
in Japan,
6. Organizational efficiency
Organizational efficiency is vital in order to sustain
profitability and realize Lundbeck's full potential. In 2013,
we announced the Fiøt-for-the-Future programme with the
aim to reduce complexity, increase organizational efficiency
and free up resources to ensure our successful transition to
an even more sustainable Lundbeck. The programme includes
initiatives to optimize and standardize administrative
processes, reduce supply chain complexity, make clinicat
studies even more effective, restructure our procurement
and decrease spending on low priority activities, The Føt-for-
the-Future programme is expected tø run in the period 2013-
2015. The full effect of this programme is expected to deliver
an annual benefit of more than DKK 500 million from 2016
onwards.
7. High-performance culture
A strong organization with a winning corporate culture is
a prerequisite for success in an ever-changing and fiercely
competitive market. It is important that we have the
optimum company structure and that our employees
have the right skills.
We aim to create a workplace that attracts, develops and
retains the best employees. We also aim to build and maintain
a high-performance culture based on our corporate values.
We expect everyone in the company to be "Imaginative,
Passionate and Responsible” and to follow our operating
principles: 'Own the future”, 'Be ambitious and take action',
'Better for less", and 'Create results together”. Clear objective-
setting and clear decision-making structures enable our
employees to know what is expected from them and
empower them to perform at the highest level every day.
Further, we have standardized HR processes including
organizational reviews, performance appraisals, talent
management and employee satisfaction surveys.
he
LUNDBECK -— ANNUAL REPORT 2013
GQ GO TO CONTENTS
RESEARCH
AND DEVELOPMENT
Five regulatory approvals of new and innovative
medicines and positive development in our pipeline
made 2013 a very busy and successful year for
Lundbeck's R&D.
Lundbeck's R&D efforts are dedicated to creating new and
innovative pharmaceuticals for the treatment of brain diseases.
Through investment and perseverance, we strive to create the
very best treatments for patients. In 2013, we reached a
number of important milestones:
Abilify Maintena (aripiprazole) for the treatment of
schizophrenia and Brintellix (vortioxetine) for the treatment
of MDD were approved by both the FDA and the EMA, We also
received formal approval of Selincro (nalmefene) for the
treatment of alcohol dependence from the EMA, Further,
Lu AE58054 for the treatment of Alzheimer's disease entered
into its clinical phase IIl programme, where we will collaborate
with Otsuka Pharmaceutical Co., Ltd. on development and
commercialization.
We had the pleasure of presenting important clinical data
for several of our compounds and products. A great amount of
data was released and presented on Brintellix, In April, positive
data was released for adult patients with MDD, who show
inadequate response to other antidepressant therapy (SSRI
or SNRI). In May, at the Annual Meeting of the American
Psychiatric Association (APA) in San Francisco, US, positive
data was presented for treating symptoms of MDD and for
improving cognitive function, and in December, at the American
College of Neuropsychopharmacology Annual Meeting (ACNP)
in Florida, US, positive data was presented for adult patients
with MDD,
Further, in 2013, we released positive data on Selincro for
reducing alcohol consumption in alcohol dependent patients
with high-risk drinking levels. Also, we released positive data on
Azilect (rasagiliné) for the treatment of early Parkinson's
disease, and at the Alzheimer's Association 2013 International
Conference (AAIC) in Boston, US, we presented positive data on
Lu AE58054 for the treatment of Alzheimer's disease.
1404084EogSN73080
R&D strategy
Lundbeck's R&D strategy is aimed at enabling the discovery
and development of new pharmaceuticals targeting the under-
lying mechanisms of brain diseases. This approach allows us
to treat the symptoms more effectively and potentially also
to alter the course of the diseases, The strategy requires compre-
hensive research regarding the brain and the biology and
mechanisms of brain diseases. It is essential for us to maintain
strong internal R&D capabilities in order to establish optimal
networks and partnerships for our projects. We will continue to
build external alliances to supplement our internal capabilities,
taking advantage of the increased opportunities provided to us
by innovative technologies.
R&D portfolio
Lundbeck's R&D portfolio consists of a number of new
pharmaceutical compounds in early-stage pipeline, and
important and promising clinical phase Ill candidates, The
projects are targeting areas where we currently have a market
presence, such as depression, anxiety and other psychiatric
disorders, as well as neurological disorders, such as Alzheimer's
disease, and new neurological areas such as stroke.
The success of our late-stage pipeline in recent years allows us
to begin to shift focus onto research, early-stage pipeline and
clinical phase IV trials. Despite this shift, we will still invest
heavily in R&D so we can continue to bring the best new
treatments to market. In 2013, our R&D investment was
DKK 2,872 million, 19% of total revenue.
Our partnership structure allows us to run an extensive
co-development on pipeline projects, particularly in our
partnerships with Takeda and Otsuka, The structure enables
Lundbeck to have more development projects running in
tandem, whilst being able to invest considerably more than
what is directly available from our R&D resources,
LUNDBECK — ANNUAL REPORT 2013 Q Go To CONTENTS
THREE PROMISING COMPOUNDS
At the end of 2013, our late-stage pipeline consisted of a
number of projects, of which three compounds, currently
in clinical phase III, are particularly promising:
Brexpiprazole — for schizophrenia and MDD
Brexpiprazole is a new investigative psychotherapeutic
compound developed to improve efficacy and tolerability
(e.g. less akathisia, restlessness and/or insomnia). The
compound has broad activity across multiple monoamine
systems, and exhibits reduced partial agonist activity at D2
dopamine receptors and enhanced affinity for specific serotonin
receptors. Brexpiprazole has entered into clinical phase III trials
for schizophrenia and adjunctive treatment of MDD.
Lundbeck is collaborating with Otsuka on the development and
commercialization of this compound.
Desmoteplase — for stroke
Desmoteplase is being developed for the treatment of acute
ischaemic stroke, Desmoteplase is a Chemical found in the
saliva of vampire bats that has the effect of catalysing the
conversion of plasminogen to plasmin, which is the enzyme
responsible for breaking down fibrin blood clots. Desmotepiase
has high fibrin sefectivity, an absence of neurotoxicity, and
no apparent negative effect on the blood-brain barrier. It has
received fast-track designation from the FDA for the indicatian
of acute ischaemic stroke.
Two placebo-controlled clinical phase III studies are enrolling
400 and 480 patients respectively. The studies are designed
with the aim of measuring the efficacy of one dose of
desmoteplase that is administered in a time window between
three and nine hours after the stroke occurs. Patients are being
recruited for the two studies at international sites in Europe,
the US, Canada, South America and Asia, The efficacy of
desmoteplase will be assessed after 90 days.
Lu AE58054 — for Alzheimer's disease
Lu AE58054 is being developed for the treatment of Alzheimer's
disease. It is a potent and selective 5-HT,-receptor antagonist.
This receptor is primarity found in areas of the brain involved in
cognition. Ao number of early clinical studies have demonstrated
that a 5-HT4-receptor antagonist could offer potential
treatment benefits. A clinical phase II study with Lu AE58054 as
augmentation therapy for Alzheimer's disease (Lu AE58054 plus
donepezil) demonstrated significant improvements in cognitive
function compared to placebo plus donepezil. Lu AE58054 was
considered overall to be well tolerated at the selected dose.
In 2013, a clinical phase III programme was initiated, Several
doses of Lu AE58054 ranging from 10-60 mg will be used in
combination with donepezil in order to explore the effect of
the compound in mild-to-moderate Alzheimer's disease as
adjunctive therapy to acetylcholinesterase inhibitors (AChEls).
The key endpoints are Alzheimer's Disease Assessment Scale
- Cognitive Subscale (ADAS-cog), Activities of Daily Living
(ADL), and the Clinical Global Impression of Change Scale
(CGIC). The programme will enrol approximately 3,000 patients
worldwide in four currently planned clinical studies.
Lundbeck is collaborating with Otsuka on the development and
commercialization of this compound.
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GQ GO TO CONTENTS
MARKETS
AND PRODUCTS
In 2013, Lundbeck continued to make positive
progress in International Markets and the US.
Sales of New Products grew by 45% and now
constitute 20% of total revenue.
Revenue from Lundbeck's New Products — including Abilify
Maintena, Brintetlix, Lexapro in Japan, Onfi, Sabril, Saphris/
Sycrest, Selincro, Treanda and Xenazine — has started to replace
revenue lost as mature products approach the end of their life
cycle, In 2013, revenue from New Products increased 45%
to DKK 3,096 million. Looking forward, recently approved
products like Abilify Maintena, Brintellix and Selincro will play
an important role in the successful transition of our product
portfolio and the growing geographic diversification of our
revenue streams,
Lundbeck's total revenue for 2013 was DKK 15,258 million,
representing an increase of 3% for the year. This was driven
primarily by revenue growth in International Markets, which
increased by 8%, and by growing revenues from our US
products (excluding Lexapro), which were up 22% compared
to 2012. In Europe, revenue decreased by 9%.
EUROPE
2013 was a challenging year for Lundbeck's operations in
Europe. We saw underlying volume growth in most European
markets. However, generic competition, healthcare reforms
and uncertainty around pricing and reimbursement meant a
decrease in revenue. We continued to face the consequences
of the economic downturn on pricing as well as increased
market regulation. Several countries required either price
decreases or rebate increases in response to the economic
conditions.
The process of restructuring that began in 2012 continued
during 2013, with the aim of building a simpler and more
efficient organization with focused competencies, better
coordination and reduced costs. As a result of this restruc-
turing, we have grouped 32 affiliates in ten strong affiliate
units and further a group of seven countries are reporting
directly to headquarters.
1404084EogSN73081
Sales of Cipralex generated revenue of DKK 3,368 million
in 2013, which is unchanged compared to 2012. Cipralex
maintained revenue levels in key markets. Ebixa generated
revenue of DKK 1,639 million før the year, a 32% decrease
in 2013, which was largely driven by the start of generic sales
of memantine. Azilect generated revenue of 1,272 million
in 2013, a 13% increase over 2012. Other pharmaceuticals
generated revenue in Europe of DKK 785 million in 2013,
a decrease of 6% compared to 2012.
REVENUE PER PRODUCT IN EUROPE (DKKm)
Growth
in local
2013 2012 Growth currency
Cipralex 3,368 — 3,379 0% (1%)
Ebixa 1,639 — 2,398 (32%) (32%)
Azilect 1,272 1,122 13% 13%
Other pharmaceuticals 785 835 (6%) (6%)
Total revenue 7,064 7,734 (9%) (9%)
TOTAL REVENUE IN EUROPE 2009-2013 (DKKm)
mn 7,064
2010 2011 2012 2013
LUNDBECK — ANNUAL REPORT 2013 Q Go TO CONTENTS
INTERNATIONAL MARKETS
Lundbeck's International Markets consist of all markets outside
Europe and the US, with our main focus on established markets
such as Canada and Japan, as well as emerging markets like
China and Brazil. Most of these markets are experiencing
relatively high growth rates for pharmaceutical products for
brain diseases. In 2013, growth in International Markets was
primarily driven by an increase in revenue from Cipralex in
various markets, strong sales of Treanda in Canada as well as
strong sales of other pharmaceuticals.
Cipralex/Lexapro generated revenue of DKK 2,565 million, an
increase of 5% from 2012, and is value market leader in the
antidepressant market in International Markets. Japan was the
fastest growing market for Lexapro with revenues increasing by
23%. Ebixa generated revenue of DKK 457 million in 2013,
which is 13% more than in 2012. China was the main
contributor to Ebixa's strong performance, with revenue
growing by 131% compared to 2012. Azilect generated
revenue of DKK 120 million in 2013, a 17% increase compared
to 2012. Other pharmaceuticals in International Markets
generated revenue of DKK 933 million, which is an increase
of 15% compared to 2012.
REVENUE PER PRODUCT IN INTERNATIONAL MARKETS (DKKm)
14
US
The US is by far the world's largest market for pharmaceuticals
for the treatment of brain diseases. The size of the US market,
and the fact that 17% of our revenue is generated in the US,
makes it a huge growth opportunity for Lundbeck.
In total, US revenue for 2013 excluding Lexapro was DKK 2,571
million, an increase of 22% compared to 2012. Growth was
driven by Onfi, Sabril and Xenazine, as well as by Abilify
Maintena, which was launched in the US in 2013.
Onfi has been very well received by US physicians and
generated revenue of DKK 573 million in 2013, a 125%
increase on 2012. Sabril continued the promising performance
of 2012 and generated revenue of DKK 530 million in 2013,
an increase of 41% compared to 2012. Xenazine generated
revenue of DKK 1,394 million in the US in 2013, up 21% on
2012. Other pharmaceuticals generated revenue of DKK 138
million, which is a decrease of 85% compared to 2012 due to
the divestment of our mature product portfolio in the US.
REVENUE PER PRODUCT IN THE US (DKKm)
Growth Growth
in local in local
2013 2012 Growth — currency 2013 2012 Growth currency
Cipralex/Lexapro 2,565 2,448 5% 9% Onfi 573 255 125% 132%
Ebixa 457 405 13% 15% Sabril 530 376 41% 45%
Azilect 120 102 17% 16% Xenazine 1,394 1,154 21% 24%
Other pharmaceuticals 933 813 15% 21% Other pharmaceuticals 138 889 (85%) (84%)
Total revenue 4,075 3,768 8% 12% Total revenue" 2,635 2,674 (1%) 1%
TOTAL REVENUE IN INTERNATIONAL MARKETS 2009-2013
" Including Lexapro
TOTAL REVENUE IN THE US 2009-2013
(DKKm) (DKKM)
5,000 5,000
4,000 4,000
3,000 3,000 —
p
E
2,000 +" 2,000 — En i
luge
1,000
o
2009 2010 2011 2012 2013
1,000 7 mm
0
!
2009 2010 2011 2012 2013
Q 0 Revenue excl. Lexapro Lexapro
LUNDBECK — ANNUAL REPORT 2013 &Q Go TO CONTENTS 15
MATURE PRODUCTS
PRODUCT REVENUE % OF TOTAL GROWTH COMMENT
(DKKm) REVENUE
Cipralex/Lexapro 5,933 39% 2% Indicated for the treatment of depression and anxiety.
(escitalopram) Lexapro is marketed in Japan by Mochida Pharmaceutical
Co, Ltd, and Mitsubishi Tanabe Pharma Corporation.
Lundbeck markets Cipralex in the rest of the world.
Ebixa 2,096 14% (25%) Indicated for the treatment of Alzheimer's disease. Lundbeck
(memantine) markets Ebixa in most parts of the world with the exception
of Japan and the US.
Azilect 1,392 9% 14% Indicated for the treatment of Parkinson's disease, Lundbeck has
(rasagiline) the commercial rights to Azilect in Europe (Lundbeck
co-promotes the product with Teva Pharmaceutical Industries
Inc. in France and the UK) and in some markets outside Europe,
- including six Asian countries.
—
NEW PRODUCTS
PRODUCT REVENUE % OF TOTAL GROWTH COMMENT
(DKKm) REVENUE
Xenazine 1,420 9% 19% Indicated for the treatment of chorea associated with
(tetrabenazine) Huntington's disease, Launched in the US in 2008,
Sabril 530 3% 41% Indicated for the treatment of refractory complex partial
(vigabatrin) Seizures in adults and children ten years of age and up and
for infantile spasms (IS). Launched in the US in 2009.
Onfi 573 4% 125% Indicated as adjunctive treatment of Lennox-Gastaut
(clobazam) syndrome for people aged two years or older. Launched
in the US in 2012,
Saphris/Sycrest 145 1% - Indicated for the treatment of moderate-to-severe manic
(asenapine) episodes associated with bipolar 1 disorder in Europe, and
for the treatment of schizophrenia and/or moderate-to-
" severe manic episodes associated with bipolar 1 disorder
outside Europe, Lundbeck retains commercial rights to
Saphris/Sycrest in all markets outside China, Japan and
the US, Launched in 2011.
Treanda 129 1% - Indicated for the treatment of patients with relapsed
(bendamustine indolent B-cell non-Hodgkin's lymphoma (iNHÅ) and chronic
hydrochloride for lymphocytic leukaemia (CLL). Launched in Canada in 2012,
injection)
Selincro N/A N/A - Indicated for the treatment of alcohol dependence.
(nalmefene) Launched in the first European markets in 2013.
Abilify Maintena N/A N/A - Once-monthly intramuscular injection indicated for the
(aripiprazole) treatment of schizophrenia. Lundbeck markets Abilify
Maintena in Europe and the US in collaboration with Otsuka.
Launched in the US in 2013.
Brintellix N/A N/A - Indicated for the treatment of MDD. Lundbeck markets
(vortioxetine) Brintellix in Europe and the US in collaboration with Takeda.
Made available in the US in 2013.
i
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CORPORATE
RESPONSIBILITY
16
Corporate Responsibility at Lundbeck focuses on meeting
stakeholders” expectations while seizing new opportunities
that benefit our business while at the same time make a
positive difference in societies in which we operate.
The principles of the United Nations (UN) Global Compact
of human and labour rights, environmental protection and
anti-corruption are used as the guiding framework for corporate
responsibility in Lundbeck. Our key initiatives and results
achieved during 2013 are described below and more
information can be found in our regular progress reporting."
Ethics and behaviour
Transparency and compliance with international regulation
and standards are structured through the Lundbeck Group
Compliance Structure, which is made up of our Code of Ethics,
Code of Conduct and corporate procedures. These describe the
principles by which we operate and provide operational
guidance for our employees and business partners. In 2013,
we finished revising our Code of Conduct to ensure that
Lundbeck meets more stringent regulations and lives up to our
stakehotders' growing expectations, During the year, a total of
114 individual audits were conducted to identify and mitigate
risks related to our Code of Conduct covering R&D, production,
health, safety and environment (HSE), human resources,
marketing, sales and finance. In the course of 2014, all
Lundbeck employees will be trained in the revised Code
of Conduct and new corporate procedures.
Transparency in interactions with healthcare professionals
One of the key areas covered by our revised Code of Conduct
is our interactions with healthcare professionals. We strive to
protect the integrity of our partners by making sure that our
interactions with them are conducted responsibly and are
properly documented to avoid any potential conflict of interest.
Lundbeck is actively involved in discussions on ethics and
transparency through our memberships in pharmaceutical
1) This constitutes the mandatory report on our Corporate Social Responsibility (CSR)
under section 99a of the Danish Financial Statements Act. Our annual communication
on progress to the UN Global Compact can be found on http://www.lundbeck.com/
global/corporate-responsib/report
industry organizations. The pharmaceutical industry has faced
calls for greater transparency from stakeholders in recent
years and has responded with initiatives such as the recently
published European Federation of Pharmaceutical Industries
and Associations” (EFPIA) Disclosure Code, which requires
members of EFPIA to disclose all payments made to healthcare
professionals every year from 2016 onwards.
Lundbeck supports these initiatives and in 2013 took steps to
promote greater transparency and ethical behaviour in our own
operations, including revising our Code of Conduct, giving more
detailed operational guidance to our employees who work with
healthcare professionals, and in the requirements to contracts
with healthcare professionals.
Collaboration with suppliers and partners
Lundbeck is increasingly collaborating with a number of
stakeholders to develop and commercialize new and better
medicines. Also, we have partnerships with thousands of
suppliers of products and services. Our aim is to create
long-term relationships with partners who share our
commitment to high ethical standards. In 2013, we began
implementing a global process for review of all our suppliers
and partners. Our evaluation criteria are based on the ten UN
Global Compact principles and due diligence of key business
partners is an integrated part of the process. The aim of the
review is to reduce risks to our business and also, in the long
term, to raise the standard of corporate responsibility among
our suppliers and partners. Our global supplier evaluation will
be completed during 2014, to become standard practice before
engaging in new partnerships in the future.
Access tø health — addressing the barriers
Lundbeck agrees with the World Health Organization principle
that 'the enjoyment of the highest attainable standard of
health is one of the fundamental rights of every human being”.
MAN
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As a pharmaceutical company, we believe that it is our
responsibility to address barriers and improve access to health,
and that we are in a unique position to use our competencies
and knowledge to do so. In 2013, we put our Access to Health
strategy into practice and made concrete progress. We have
mapped our current business practices in selected areas to
understand what we are already doing to improve access to
health, and where we could do more. We are also looking at
ways to better understand the health access barriers for brain
diseases and share that knowledge, such as by donating funds,
medicine and drug compounds for research purposes.
People and the environment
Our strategic HSE efforts have enabled us to safely
manufacture pharmaceuticals while using less energy and
emitting less COz than ever before. We work targeted with
relevant HSE issues. For example, we have improved our
HSE culture through a more systematic risk assessment,
An important goal in 2013 was the certification of our
French production site, Now all Lundbeck's manufacturing
and research facilities sites are certified according to the
international standards — ISO 14001 (environment) and
OHSAS 18001 (health and safety).
Lundbeck is actively trying to minimize our environmental
footprint, We conduct environmental risk assessments by
monitoring the effects of our new active substances through
rigorous biological, physical and chemical tests. Our COz2
strategy commits us to break the correlation between business
growth, energy consumption and the resulting COz, By
employing cleaner technologies and challenging habits and
conventional thinking, Lundbeck aims to cut emissions by 40%
by 2016 (from 2006 emission levels). We achieved our 40%
reduction target in 2013, two years ahead of plan. Replacing
fuel oil with bio oil at our chemical site in Lumsås has made
an especially noticeable contribution to this vast reduction.
Update of Corporate Responsibility strategy
In 2013, we began revising our Corporate Responsibility
strategy to reflect our priorities for 2015-2017, As an input
to this process, we have started a systematic materiality
assessment in order to identify and assess relevant issues,
Business units across the company have been asked to give
input on Lundbeck's material issues, this work will continue in
2014. We see materiality assessment as a useful tool in order
to enhance our understanding of issues that are strategically
important to our business and to our stakeholders, and that
at the same time have a societal impact in our value chain.
If done on a recurring basis, it can enable us to respond to new
issues and changes in our stakeholders” expectations, and make
sure that we focus our reporting on the most material issues.
Our updated Corporate Responsibility strategy will be finalized
in 2014,
PRINCIPLES IN THE UN GLOBAL COMPACT
CORPORATE RESPONSIBILITY STRATEGY
AND RESULTS IN 2013
HUMAN LABOUR ENVIRONMENTAL ANTI
RIGHTS RIGHTS PROTECTION CORRUPTION
Ethics and behavior
»… Revised Code of Conduct
+ Defined corporate procedure for interactions with
healthcare professionals
+. Audits conducted across business units
+. Revision of Corporate Responsibility strategy, including materiality
assessment initiated
Responsible partnerships
Improved supplier evaluation process implemented in Lundbeck Denmark
+ Training in corporate guidelines and IT systems
Corporate Responsibility due diligence process launched
Access to Health
Mapping of existing initiatives
Donation practice mapped and additional guidance on donations drafted
Health, Safety and Environment
+ ISO 14001 and OHSAS18001 certification of all Lundbeck sites
+ COz emissions reduced by 40% compared to 2006 level
+ Increase purification and recycling of solvents
+ Systematic risk assessments to further develop strong HSE culture
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RISK
MANAGEMENT
Close monitoring and the ability to respond to a
changing environment are essential for good risk
management at Lundbeck.
The principal aim of Lundbeck's risk management is to strike
the right balance between risk exposure and value generation.
Our risk management processes are constantly updated and
adapted to match internal and external requirements. This gives
our Corporate Management Group an accurate overview of
current activities and resources, and a clear basis for
decision-making on Lundbeck's overall risk exposure.
Although Lundbeck's risk management team reports to a
central Risk Office, we believe that risks are best managed by
decentralized units, which are coordinated and monitored from
the centre. These units have extensive knowledge of the risks
we face, They systematically monitor, identify, quantify and
respond to risks, and they are best placed to mitigate our
exposure in the first instance.
Lundbeck assesses the probability of an event occurring and the
potential impact for the company in terms of financial loss or
reputational damage. Risk evaluations carried out by our
decentralized units are regularly reviewed by the risk
management team through clearly-defined reporting,
decision-making and follow-up procedures. The overall risk
exposure is then evaluated by our central Risk Office.
Risk reporting and assessment
Risk reporting is an integral part of Lundbeck's overall reporting
process. Our risk register gives a consolidated picture of our risk
exposure by detailing each risk, risk category and type. The risk
descriptions describe the event, its current status, the status
of the response, an assessment of probability and potential
impact, and the name of the person responsible for managing
the risk. We have identified six categories of risk and define
them into three risk types being 'external', 'actionable' or
'strategic”. Using this information, the Risk Office assesses
the overall risk exposure and reviews it with the Corporate
Management Group. In addition, risks and risk exposure are
presented to and reviewed by our Audit Committee,
R&D
R&D in Lundbeck is focused on developing innovative
pharmaceuticals. However, there are risks involved in launching
new pharmaceuticals and treatments for known diseases.
During the R&D process, there is a risk that new products
will be delayed or dø not materialize. In each of our late-stage
projects, we consider whether starting new clinical studies or
giving additional support in ongoing studies could lead to more
successful outcomes,
Market conditions
The pharmaceutical market, especially in Europe, has been and
will most likely continue to be characterized by attempis by
authorities to cap or reduce increasing healthcare costs. These
cost containment measures are structured in several ways, such
as regulation of prices or reimbursement, or by requirements to
demonstrate added value in comparison to existing products.
In recent years, we have seen patents and data exclusivity on
established products running out, while at the same time, we
are launching several new products. Successfully balancing
efforts to get the most out of our established business while
getting market access for new products are key challenges for
Lundbeck during this transition. We are working with healthcare
authorities around the world to document the value of our
pharmaceuticals, through health-economic assessments and
other initiatives. And we are continually looking for ways to
adapt to changing market conditions.
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LUNDBECK —— ANNUAL REPORT 2013 & GO TO CONTENTS
Infrastructure
It is crucial for patients to always have access to the pharma-
ceuticals they require, As a pharmaceutical manufacturer,
we therefore need to ensure reliability of supply. We monitor
supply carefully and maintain an inventory so we can respond
to any interruption in production. To reduce production risks,
we have production and packaging facilities at six independent
sites: Lumsås and Valby (Denmark), Tainjin (China), Nice
(France), Padova (Italy), and Mexico City (Mexico). Having
a number of alternative facilities increases our production
flexibility.
In rare cases, pharmaceutical companies are forced to recall
a product from the market due to safety or quality issues.
At Lundbeck, we have systems and procedures in place to ensure
a swift and effective response should such a situation arise.
Part of our strategy is to engage in beneficial partnerships,
which means we are not always in full control of individual
projects and products, However, we maintain a close and
open dialogue with our partners to minimize risks,
As a knowledge-based company, Lundbeck's success depends
on having the right employees with the right competencies.
We seek to motivate, engage and retain our employees through
competitive remuneration and employee benefits, as well as
through individual recognition and development opportunities.
lt is also crucial that we are able to protect the knowledge that
underpins our success, We have increased our focus on
information security to protect our intellectual property rights
and to avoid infringing third party rights, We have developed
secure internal information systems and procedures to ensure
smooth and safe flow of information around our global network.
Reputation
As a leading pharmaceutical company, we know that coverage
of new clinical studies in publications, or even letters to editors,
can influence the perception of products and manufacturers.
To build confidence and trust in our capabilities, we make a
substantial investment in Creating factual and scientific informa-
tion resources for the benefit of healthcare professionals and
patients,
Strong corporate governance is an essential part of the way we
run our business and is also integral to protecting our reputation.
We have the right systems in place to ensure proactive risk
management, and we deliver fast and accurate reports on the
risk profile of marketed products, as well as on operational,
tactical and strategic financial planning.
Our Code of Conduct is pivotal to Lundbeck's approach to
compliance, It helps ensure that we comply with international
laws and regulations, pharmaceutical industry association stand-
ards and corporate reporting requirements. We conduct regular
audits of our business against our Code of Conduct., We revise
our procedures to meet changing regulation, to implement
best practice or to respond to audit observations, '
Marketing of pharmaceutical products is strictly regulated
and we are committed to complying with these regulations.
Our employees and third parties are trained to comply with
alt relevant laws and regulations. We have systems in place to
provide fair, accurate and comprehensive information on our
products.
Legal rights
Lundbeck relies on its ability to protect its intellectual rights
for new pharmaceuticals. We must also operate our business
without infringing the rights of others, For pharmaceutical
companies, patenting and the patent application process are
extremely complex, both legally and scientifically. We take
great care to develop and retain competencies in this
complicated and high-risk area,
We believe that our intellectual property (IP) rights are valid
and enforceable, and we defend these rights wherever they may
be violated. Lundbeck is pending trials concerning infringement
of our IP rights for escitalopram in Australia, Belgium, Brazil,
Canada, Denmark, Greece, the Netherlands, Portugal, Saudi
Arabia and Spain.
In 2012, Lundbeck received a Statement of Objections from
the European Commission regarding citalopram agreements
reached between 2002 and 2003 with four generic competitors.
In June 2013, the European Commission decided to fine
Lundbeck EUR 93.8 million (approximately DKK 700 million).
We strongly disagree with the decision and lodged an appeal
with the General Court in September 2013. We believe the
decision contains serious legal and factual errors. Lundbeck
expects a decision on the appeal within two or three years,
but it could take as long as six years to reach a final ruling
in the case.
Financial risks
Most of Lundbeck's commercial transactions are settled in
foreign currencies, The main currency risk at the moment
concerns fluctuations of the Canadian dollar (CAD), British
pound (GBP) and the US dollar (USD). Lundbeck's treasury
policy allows the hedging of income in these currencies for up
to 12 months. Accordingly, any change in exchange rates during
2014 will only have a small impact on our financial results for
that year.
Interest rate risks arise in connection with our money market
fund, debt portfolio and cash holding. We reduce these risks by
seeking short duration on both assets and liabilities. There are
also credit risks associated with the sale of goods, our money
market funds and cash holdings. To reduce these risks we avoid
concentrating our credit risk and we diversify receivables from
a large number of creditworthy trading partners, In addition,
we only deal with banks that have an 'investment grade' credit
rating.
rr
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CORPORATE
GOVERNANCE
20
Corporate governance at Lundbeck concerns
the way in which our company is managed and
controlled, while creating value for our company
and stakeholders.
During the year, we focused strongly on responding to the
revised recommendations of the Danish Committee on
Corporate Governance, which were introduced in May 2013.
The Board of Directors and Executive Management broadly
share the committee's views and have followed the new
recommendations. Lundbeck's corporate governance report
outlines which recommendations we comply with, partly
comply with, and do not comply with, and the reasons why.?
BOARD OF DIRECTORS
Tasks and responsibilities
Lundbeck's Board of Directors is responsible for approving the
corporate strategy, setting goals for Executive Management,
and ensuring that members of Executive Management and
other senior managers have the right qualifications. The Board
of Directors also evaluates management performance and
management remuneration, Furthermore, the Board of
Directors has the overall responsibility for ensuring that
adequate internal and external controls are in place, and for
identifying and addressing any relevant risks. This responsibility
is defined in the Danish Companies Act and stipulated in the
rules of procedures for the Board of Directors. In 2013, the
Board of Directors held nine ordinary meetings and two
extraordinary meetings, and took part in a two-day strategy
seminar with the Executive Management team.
Composition
The Board of Directors consists of six external directors
elected at the AGM, and three directors elected by our Danish
employees. Elections for the external directors are held every
year, while etections for those elected by our employees are
2) In accordance with section 107b of the Danish Financial Statements Act, Lundbeck has
disclosed the mandatory corporate governance report at http://www.lundbeck.com/
uptoad/gtobal/files/pdf/corporate, governance/2013/corporate, governance, report.pdf
held every four years. Board members may retain their seat
on Lundbeck's Board of Directors until the AGM in the calendar
year in which they reach the age of 70.
Our goals regarding equal opportunities and diversity at Board
of Directors level are ambitious yet realistic. At least one to
two of the six members elected by the shareholders should be
of the underrepresented gender (women). This target should be
reached within a four-year period, to allow for continuity of the
board. In terms of the 2013 board composition, there are two
female board members, one elected by sharehotders and one
elected by Lundbeck's employees.
Independence
Lundbeck has a two-tier board structure consisting of the Board
of Directors and Executive Management. No board member is a
member of Lundbeck's Executive Management. NASDAQ OMX
Copenhagen recommends that at least half a company's board
members should be independent. Four of the six board
members elected at the AGM are considered independent
based on NASDAQ OMX's guidelines.
Competencies
Every year, Lundbeck's Board of Directors and Executive
Management conduct a self-evaluation to assess strengths
and weaknesses of the work performed by the Board and the
committees. Based on the outcome, changes to the Board of
Directors' working procedures are discussed and any proposals
for improvement are considered. The 2013 assessment has not
given rise to any comments.
3) Lundbeck's goals are in line with the Danish Companies Act section 139a(1).
LUNDBECK — ANNUAL REPORT 2013 GQ GO TO CONTENTS
21
Committees
The Board of Directors has set up three advisory committees:
the Audit Committee, the Remuneration Committee and the
Scientific Committee. The three committees advise the Board
on financial information and reporting, remuneration of
Executive Management and the company's remuneration
strategy, and R&D, respectively. The Chairman of the Board
of Directors is not Chairman of the Audit Committee, The
Chairmanship carries out the role of a Nomination Committee.
EXECUTIVE MANAGEMENT
Lundbeck's Executive Management is responsible for the
company's day-to-day management, including the allocation
of resources, defining and implementing strategies and policies,
achieving goals, and reporting information to the Board of
Directors.
The Executive Management consists of three members
appointed by the Board of Directors. Further information on
the Executive Management team including their skillsets can
be found on www.lundbeck.com.?
Other management
Lundbeck aims to offer equal opportunities for men and
women across the organization. Lundbeck is not obliged
to have a diversity policy as the underrepresented gender
(women) at the managerial levet makes up more than 40%
of employees in Denmark.” Nevertheless, Lundbeck has decided
to establish a policy on a voluntary basis to keep our focus
on promoting diversity. In Denmark, 52% of all Lundbeck
employees and slightly above 40% of all managers are femate.
REMUNERATION
Remuneration for the Board of Directors and Executive
Management is based on guidelines approved by shareholders
at the AGM, The guidelines are available on www.lundbeck.comé
Remuneration for Lundbeck's Board of Directors and Executive
Managernent is annually benchmarked against a group of
Danish and international peer companies. The Board of
Directors approves remuneration for Executive Management
within the frame of the remuneration guidelines, while
remuneration to the Board of Directors is approved by
shareholders at the AGM.
4) http://www.lundbeck.com/global/about-us/corporate-governance/executive-management
5) According to section 139a(1) of the Danish Companies Act.
6) http://www.lundbeck.com/global/about-us/corporate-governance /remuneration
1404084EogSN73085
Board of Directors
Members of Lundbeck's Board of Directors receive a fixed
remuneration and are not included in the company's bonus and
incentive programmes in the form of cash bonus, warrants or
shares, In addition, members of the Audit, Remuneration and
Scientific Committees receive a separate fee. We recommend,
subject to AGM approval, that the basic fees for members of
the Board of Directors remain unchanged in 2014. An ordinary
member of the Board receives DKK 300,000, while the
Chairman and Deputy Chairman each receive triple and double
the basic fee, respectively. We also recommend that members
of the Audit, Remuneration and Scientific Committees receive
DKK 200,000 in 2014. The chairmen of the committees will
receive 1.5 times this basic fee.
Executive Management
The remuneration package for the Executive Management
team is structured to reward the achjevement of ambitious
short-term øobjectives and also provide incentives to focus on
long-term goals. The package consists of a base salary, short-
and long-term incentive programmes and pension. The base
salary is aligned with the average salary of our peer companies.
The short-term incentive is awarded as an annual bonus, if
agreed targets for the preceding financial year are met, The
CEO can receive up to nine months' base salary as a bonus
payout following exceptional results. The other members of
the Executive Management team can receive up to six mønths'
base salary as a bonus, also on condition of exceptional results,
In addition, members of the Executive Management team
participate in long-term incentive programmes that include
share-based instruments, such as warrants and shares. The
programmes are based on generating value for shareholders.
Executive Management can access these share-based
instruments after three years, as long as pre-defined long-term
strategic targets are achieved. The pension scheme for
Executive Management is a defined contribution scheme,
which corresponds to the market level. On termination of
employment, members of Executive Management receive
no møre than two years' salary.
LUNDBECK — ANNUAL REPORT 2013 &Q GO TO CONTENTS
THE LUNDBECK
SHARE
22
The Lundbeck share price increased significantly
in 2013 and ended the year at DKK 137.00. The Board
of Directors proposes a dividend payout ratio of 64% ofthe
year's profit after tax, corresponding to DKK 2.77 per share.
The Lundbeck share price increased 65% in 2013 and ended the
year at DKK 137.00. In comparison, the Danish capped index,
OMXC20 CAP, increased 32% in 2013, and the MSCI European
Pharmaceutical Index increased 24%.
Turnover
Total trading in Lundbeck shares amounted to DKK 6.6 billion in
2013, while the average daily turnover was DKK 26.6 million,
which represents an 6% decrease compared to 2012.
Dividend
Lundbeck's dividend payout ratio takes into consideration
our aspirations, possible business development activities and
general liquidity requirements. For the financial year 2013, the
Board of Directors proposes a dividend payout ratio of 64% of
the year's profit after tax, corresponding to DKK 2.77 per share.
In 2013, the dividend yield amounted to 2.0% based on closing
price.
Lundbeck shares are traded ex-dividend the day after the AGM,
which in 2014 will be held on 26 March. The dividend will be
paid automatically via VP Securities on 1 April 2014.
Share capital
The Lundbeck share is listed on the Copenhagen stock
exchange, NASDAQ OMX Copenhagen. All shares belong to
the same class and rank equally. The shares are negotiable and
there are no restrictions on their transferability. Each share has
a nominal value of DKK 5 and carries one vote. At the end
of 2013, Lundbeck's totat share capital amounted to DKK
980,985,180 which is the equivalent of 196,197,036 shares.
Composition of shareholders
Lundbeck's shares are registered by name and entered in the
register of shareholders. At the end of 2013, 29,406 registered
shareholders held 98% of the share capital. The Lundbeck
Foundation is the company's largest shareholder, holding
137,351,918 shares at the end of the year. This equals
70% of the share capital and voting rights of Lundbeck.
The Lundbeck Foundation is the only shareholder to report
a holding in excess of 5% of the share capital.
At the end of 2013, institutional investors in North America
held 25% of the free float, compared to 24% in 2012, European
(excluding Danish) institutional investors' share was 27%,
compared to 28% in 2012, and Danish institutional investors
held 7% of the total share capital, against 15% the previous
year. The share of the free float held by private Danish investors
was 18%, compared to 21% in 2012.
By year-end, Lundbeck's Board of Directors and Executive
Management held, directly and indirectly, a total of 9,559 and
160,362 Lundbeck shares respectively, corresponding to 0.2%
of the total shares outstanding.
Lundbeck and the equity market
Lundbeck aspires to provide a fair and accurate view of
its activities by providing ongoing communications with
prospective and existing shareholders and equity analysts.
Through regular meetings and dialogues, we convey relevant
information about our vision and goals, business areas and
financial developments. In 2013, Lundbeck's Investor Relations
team held around 200 meetings, primarily in Europe and the
US, but also in Japan, and participated in more than ten
investor conferences,
w
LUNDBECK — ANNUAL REPORT 2013 Q G0 TO CONTENTS
23
Lundbeck is currently covered by 19 sell-side analysts,
including the major global investment banks that regularly
produce research reports on Lundbeck. A list of analysts
covering Lundbeck can be found on www.lundbeck.com.7
7) http://investor.lundbeck.com/analysts.cfm
STOCK PERFORMANCE 2013
170
160
150
140
130
120
ond
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
O Lundbeck O MSCI European Pharmaceutical Index 0 OMXC20 CAP
COMPOSITION OF OWNERSHIP, END 2013
Each year, as Lundbeck's interim and full-year reports are
announced, we conduct roadshows at which our Corporate
Management Group and Investor Relations team inform
investors and analysts about the company's latest
developments. Our investor presentations are available
to view on www.lundbeck.com&
8) http://investor.lundbeck.com
STOCK PERFORMANCE 2009-2013
300
pA
250
MyV al
p.
wr
200 LEN EN Fat
150 eee ø . we Nann
sønn maj? nens y
vr ”a ore lys NE ørerne
me VA FN ON SE hy nett
50
2009 2010 2011 2012 2013
O Lundbeck 0 MSC! European Pharmaceutical index — O OMXC20
COMPOSITION OF FREE FLOAT, END 2013
0 The Lundbeck Foundation
0o Institutional, Denmark
9 Institutional, rest of Europe
"> Institutional, North America
0 Private, Denmark
2 Others, incl. non-identified
FINANCIAL CALENDAR 2014
Institutional, Denmark
Institutional, rest of Europe
> Institutional, North America
Private, Denmark
&s Others, incl. non-identified
CONTACT INVESTOR RELATIONS
11 February 2014 Deadline for Lundbeck's receipt of
shareholder proposals for the AGM
26 March 2014 AGM
1 April 2014 Distribution of annual dividends
7 May 2014 First quarter report 2014
7 August 2014 . Second quarter report 2014
5 November 2014 Third quarter report 2014
1404084EogSN73086
Palle Holm Olesen
Head of Investor Relations
Jens Høyer
Investor Relations Specialist
Tlf. +45 36 43 24 26
palo&lundbeck.com
Tlf. +45 36 43 33 86
jshrælundbeck.com
LUNDBECK -—— ANNUAL REPORT 2013
&Ø Go TO CONTENTS
24
SHARE RATIOS
2013 2012 2011
Earnings per share (EPS) (DKK) 4,36 5.94 11.64
Diluted earnings per share (DEPS) (DKK) 4,36 5.94 11,64
Cash flow per share (DKK) 19,17 10.76 18.48
Net asset value per share (DKK) 68.68 67.29 65.14
Dividend (DKK) 2.77 2.00 3.49
Dividend pay-out ratio (%) 64 35 30
Dividend yield (%) 2.0 2.4 3,2
Market price, year-end 137.00 82.90 108.00
High market price 141.7 128.00 139.70
Low market price 85,1 81.65 99.75
Price/Earnings 31,44 13.96 9.28
Price/Cash flow 7.15 7.70 5.85
Price/Net asset value 1.99 1.23 1,66
Market capitalization, year-end (DKKbn) 26.88 16.26 21.18
Annual trading, million shares 60.60 65,9 62.1
Average trading per trading day, thousands of shares 2443 264.6 243.4
SHARE FACTS
Number of shares, end 2013 196,197,036
Share capital, end 2013 (DKK) 980,985,180
Nominal value (DKK) 5
Holding of treasury shares 0
Free float (%) 30
IPO 18 June 1999
Stock exchange NASDAQ OMX Copenhagen
ISIN code DK0010287234
Ticker LUN.CO (Reuters), LUN DC (Bloomberg)
ADR programme Sponsored level 1 programme
ADR trading code HLUYY
Large indices
Dow Jones STOXX 600, FTSE4Good Europe
LUNDBECK —— ANNUAL REPORT 2013
&Q GO TO CONTENTS
VÆ
EXECUTIVE
MANAGEMENT
ULF WIINBERG ANDERS GERSEL PEDERSEN ANDERS GOTZSCHE
President and CEO Executive Vice President, RED Executive Vice President and CFO
+ Born 1958 + Born 1951 »… Born 1967
» Joined Lundbeck in 2008
Directorships
» Alfa Laval AB
»… The European Federation of
Pharmaceutical Industries and
Associations (EFPIA)
» The Pharmaceutical Research
and Manufacturers of America (PHRMA)
+ Industrial Policy Committee,
Confederation of Danish Industry
Holding of shares
- 87,739
+ Information per 31 December 2013
- Joined Lundbeck in 2000
Directorships
… ALKA/S
+ Bavarian Nordic A/S
+ Genmab A/S
Holding of shares
+ 37,151
1404084EogSN73087
+ Joined Lundbeck in 2007
Directorships
»… Veloxis Pharmaceuticals A/S
Holding of shares
+ 35,472
LUNDBECK — ANNUAL REPORT 2013
&Ø GO TO CONTENTS
26
BOARD OF DIRECTORS'
HÅKAN BJORKLUND CHRISTIAN DYVIG THORLEIF KRARUP MELANIE G. LEE
Chairman Deputy Chairman
+ Born 1956 + Born 1964 + Born 1952 + Born 1958
+ Consultant,
Avista Capital Partners
» Elected at the 2011 AGM
» Considered independent
Lundbeck Committees
+ Audit Committee (M)
+ Remuneration Committee (C)
Directorships
+ Acino Holding AG (C)
+ Alere Inc.
» Atos Medical AB
» Coloplast A/S
- CEO, Lundbeck Foundation
+ Elected at the 2011 AGM
+ Related to the Lundbeck
Foundation
Lundbeck Committees
+ Remuneration Committee (M)
+ Scientific Committee (M)
Directorships
+ ALK A/S (DC)
+ FIH Erhvervsbank A/S (C)
Holding of shares
+ Elected at the 2004 AGM
+ Related to the Lundbeck
Foundation
Lundbeck Committees
+ Audit Committee (C)
Directorships
+ ALK A/S
+ Bisca A/S
+ Exiqon A/S (C)
» Falck A/S (DC)
+ Lundbeck Foundation
+ Lundbeckfond Invest A/S
+ Elected at the 2012 AGM
+ Considered independent
Lundbeck Committees
+ Scientific Committee (M)
Directorships
- BIG plc.
Holding of shares
- 900
+ None "+ UNA Invest ApS
Holding of shares
" 1,662 Holding of shares
+ 673
LARS RASMUSSEN JES ØSTERGAARD KIM R. CHRISTENSEN JØRN MAYNTZHUSEN
» Born 1959 » Born 1948 + Born 1959 + Born 1966
» CEO, Coloplast A/S
» Elected at the 2013 AGM
+ Considered independent
Lundbeck Committees
+ Audit Committee (M)
+» Remuneration Committee (M)
Directorships
» Højgaard Holding A/S
+ MT Højgaard A/S
+ TDC A/S
Holding of shares
+ None
» Elected at the 2003 AGM
» Considered independent
Lundbeck Committees
+ Scientific Committee (C)
Directorships
+ ALK A/S
+ Scion-DTU A/S
Holding of shares
" 4,000
AGM z= Annual General Meeting, C = Chairman, DC = Deputy Chairman, M = Member
+ Information per 31 December 2013
+ Synthesis Operator
+ Elected by employees in 2006
Holding of Lundbeck shares
+ 1,502
MONA ELISABETH ELSTER
+ Born 1962
+ Senior Laboratory Technician
+ Elected by employees in 2010
Holding of shares
+ None
+ Senior Manager Supply
Optimization and Launches
+ Elected by employees in 2008
Holding of shares
» 822
LUNDBECK — ANNUAL REPORT 2013 GQ GO TO CONTENTS 27
SUMMARY FOR THE GROUP 2009-2073
2013 2012 2011 2010 2009
Income statement (DKKm)
Revenue 15,258 14,802 16,007 14,765 13,747
Research and development costs 2,872 2,919 3,319 3,045 3,196
Operating profit before depreciation and amortization (EBITDA) 2,861 2,614 4,630 4,393 3,728
Profit from operations (EBIT) 1,599 1,726 3,395 3,357 2,858
Net financials (127) (65) (96) (68) (192)
Profit before tax 1,472 1,661 3,299 3,289 2,666
Profit for the year 855 1,165 2,283 2,466 2,007
Assets (DKKm)
Non-current assets 12,286 12,382 11,731 11,249 10,972
- Inventories 1,893 1,730 1,634 1,491 1,481
' Receivables 3,611 3,649 3,226 2,917 2,655
Cash and securities 5,859 3,802 3,943 2,348 2,019
Total assets 23,649 21,563 20,534 18,005 17,127
Equity and liabilities (DKKm)
Equity 13,481 13,198 12,776 11,122 8,803
Non-current liabilities 3,650 3,384 3,062 2,836 3,772
Current liabilities 6,518 4,981 4,696 4,047 4,552
Total equity and liabilities 23,649 21,563 20,534 18,005 17,127
Cash flow statement (DKKm)
Cash flows from operating activities 3,760 2,112 3,624 3,265 3,034
Cash flows from investing activities (1,500) (1,105) (2,695) (803) (5,074)
Cash flows from operating and investing activities 2,260 1,007 929 2,462 (2,040)
Cash flows from financing activities (141) (719) (746) (2,162) 1,065
Interest-bearing net cash and cash equivalents at year-end 3,699 1,893 2,023 430 (1,456)
Key figures
EBITDA margin (%) 18,8 17,7 28.9 29,8 27,1
. EBIT margin (%) 10.5 11.7 21.2 22,7 20.8
Return on capital employed (%) 11.4 12,6 25,3 27.6 28.0
Return on equity (%) 64 3.0 19,1 24.8 24.6
Research and development ratio (%) 18.8 19.7 20.7 20.6 23.2
Solvency ratio (%) 57.0 61.2 62.2 61.8 51,4
Capital employed (DKKm) 15,641 15,107 14,696 13,040 12,278
Capital turnover (%) 64,5 68.6 78.0 82.0 80,3
Effective tax rate (%) 41.9 29,9 30.8 25.0 24.7
Investments in intangible assets, gross (DKKm) 1,204 1,349 1,193 444 980
Investments in property, plant and equipment, gross (DKKm) 311 301 419 383 258
Investments in financial assets, gross (DKKm) 7 68 2,400 8 11
Average number of employees 5,530 5,639 5,690 5,689 5,526
rNk
1404084EogSN73088
LUNDBECK — ANNUAL REPORT 2013 Ø GO TO CONTENTS 28
SUMMARY FOR THE GROUP 2009-2073
-— CONTINUED
2013 2012 2011 2010 2009
Share data
Number of shares for the calculation of EPS (millions)! 196.1 196.1 196.1 196.1 196,1
Earnings per share (EPS) (DKK)" 4.36 5.94 11.64 12.57 10.24
Diluted earnings per share (DEPS) (DKK) 4.36 5.94 11.64 12.57 10.24
Proposed dividend per share (DKK) 2,77 2.00 3.49 3.77 3.07
Cash flow per share (DKK)" 19,17 10.76 18.48 16.65 15.47
Net asset value per share (DKK)) 68.68 67.29 65.14 56.71 44.88
Market capitalization (DKKm) 26,879 16,260 21,183 20,788 18,582
Price/Earnings (DKK) 31.44 13.96 9.28 8.43 9.26
Price/Cash flow (DKK) 7.15 7.70 5.85 6.37 6.12
Price/Net asset value (DKK) 1.99 1.23 1,66 1.87 2.11
Definitions
Interest-bearing net cash Cash and securities less interest-bearing debt
EBITDA margin? Profit before interest, tax, depreciation and amortization as a percentage of revenue
EBIT margin? Profit from operations as a percentage of revenue
Return on capital employed Profit from operations plus financial income as a percentage of average capital employed
Return on equity” Profit attributable to shareholders in the parent company as a percentage of average equity,
H. Lundbeck A/S' shareholders
Søolvency ratio? Equity, year-end, as a percentage of equity and liabilities, year-end
Capital employed Total equity and liabilities less non-interest bearing liabilities
Capital turnover Revenue as a percentage of total assets, year-end
Earnings per share (Eps) Profit attributable to shareholders in the parent company divided by average number of shares,
excl. treasury shares
Diluted earnings per share (DEPS) Profit attributable to shareholders in the parent company divided by average number of shares,
excl. treasury shares, incl. warrants, fully diluted
Cash flow per share? Cash flow from operating activities divided by average number of shares, excl. treasury shares,
incl. warrants, fully diluted
Net asset value per share? Equity, H. Lundbeck A/S' shareholders, year-end, divided by number of shares, year-end,
excl. treasury shares, incl. warrants, fully diluted
Market capitalization Total number of shares, year-end, multiplied by the official price quoted on
NASDAQ OMX Copenhagen, year-end
Price/Earnings? The official price quoted on NASDAQ OMX Copenhagen, year-end, divided by diluted earnings per share
Price/Cash flow? The official price quoted on NASDAQ OMX Copenhagen, year-end, divided by cash flow per share
Price/Net asset value” The official price quoted on NASDAQ OMX Copenhagen, year-end, divided by equity per share
1) The calculation is based on a share denomination of DKK 5,
2) Definitions according to the Danish Society of Financial Analysts' Recommendations & Financial Ratios 2010.
The comparative figures for 2011 and 2012 have been restated to reflect the changes in IAS 19 Employee Benefits effective from
1 January 2013. Please find a detailed description of the restatement in note 7 /mpact of changes in accounting policies.
aen
LUNDBECK — ANNUAL REPORT 2013
CONSOLIDATED FINANCIAL STATEMENTS
29
CONTENTS
INCOME STATEMENT 30
STATEMENT OF COMPREHENSIVE INCOME 30
BALANCE SHEET 31
STATEMENT OF CHANGES IN EQUITY 33
CASH FLOW STATEMENT 34
PRIMARY NOTES
1. Critical accounting policies, including accounting estimates and judgments 35
2. Segment information 36
3, Staff costs 37
4. Goodwill impairment test 38
5. Other provisions 39
6. Contingent assets and contingent liabilities 39
SECONDARY NOTES
7, Impact of changes in accounting policies 40
8. Incentive programmes 41
9. Tax on profit for the year 43
10. Distribution of profit 43
11. Intangible assets and property, plant and equipment 44
12. Deferred tax 46
13. Trade receivables and other receivables 47
14. Cash resources 47
15. Contractual obligations 48
OTHER NOTES
16. Amortization, depreciation and impairment 49
17. Audit fees 49
18. Net financials 49
19, Earnings per share 50
20. Other comprehensive income 50
21. Inventories 51
22. Share capital 52
23. Pension obligations and similar obligations 53
24. Mortgage debt 55
25. Financial instruments 56
26, Related parties 60
27. Subsidiaries 61
28. General accounting policies 63
29, Events after the balance sheet date 68
1404084EogSN73089 .
LUNDBECK — ANNUAL REPORT 2013 Q GO TO CONTENTS 30
INCOME STATEMENT
1 JANUARY — 31 DECEMBER 2013
2013 2012
Notes DKKm DKKm
Revenue 2 15,258 14,802
Cost of sales 3, 16,21 4,038 3,720
Gross profit 11,220 11,082
Sales and distribution costs 3,16 4,200 4,836
Administrative expenses 3, 16, 17 2,549 1,601
Research and development costs 3,16 2,872 2,919
Profit from operations 1,599 1,726
Financial income 18 154 153
Financial expenses 18 281 218
Profit before tax 1,472 1,661
Tax on profit for the year 9 617 496
Profit for the year 10 855 1,165
Earnings per share (EPS) (DKK) 19 4.36 5.94
Diluted earnings per share (DEPS) (DKK) 19 4.36 5.94
1 JANUARY — 31 DECEMBER 2013
2013 2012
Notes DKKm DKKmM
Profit for the year 855 1,165
Actuarial gains/losses 23 15 (79)
Tax (4) 21
Items that will not subsequently be reclassified to profit or loss 11 (58)
Currency translation, foreign subsidiaries (115) (12)
Currency translation concerning additions to net investments in foreign subsidiaries (145) (27)
Realized exchange gains/losses concerning additions to net investments in foreign subsidiaries
(transferred to the income statement) (8) (40)
Adjustments, deferred exchange gains/losses, hedging 142 (78)
Exchange gains/losses, hedging (transferred to the hedged items) 25 (126) 130
Exchange gains/tosses, trading (transferred to net financials) - 1
Fair value adjustment of available-for-sale financial assets (25) (12)
Tax 38 5
items that may subsequently be reclassified to profit or loss (239) (33)
Other comprehensive income 20 (228) (91)
Comprehensive income 627 1,074
LUNDBECK — ANNUAL REPORT 2013 &Q Go 70 CONTENTS 31
BALANCE SHEET — ASSETS
AT 31 DECEMBER 2013
2013 2012
Notes DKKmM DKKm
Goodwill 4 3,680 3,818
Patent rights 5 49
Product rights 5,188 4,962
Other rights 120 151
Projects in progress 84 48
Intangible assets 11 9,077 9,028
Land and buildings 1,928 1,930
Plant and machinery 472 441
Other fixtures and fittings, tools and equipment 199 209
Prepayments and assets under construction 179 213
Property, plant and equipment 11 2,778 2,793
Available-for-sale financial assets 60 82
Other receivables 82 50
Deferred tax 12 289 429
Financial assets 431 561
Non-current assets 12,286 12,382
Inventories 21 1,893 1,730
Trade receivables 13 2,613 2,427
Income taxes 167 443
Other receivables 13 584 508
Prepayments 247 271
Receivables 3,611 3,649
Securities 14 1,042 1,055
Cash 14 4,817 2,747
Current assets 11,363 9,181
Assets 23,649 21,563
1404084EogSN73090
LUNDBECK — ANNUAL REPORT 2013 eo GO TO CONTENTS 32
BALANCE SHEET — EQUITY AND LIABILITIES
AT 31 DECEMBER 2013
2013 2012
Notes DKKM DKKM
Share capital 22 981 980
Share premium 22 232 276
Currency translation reserve (441) (211)
Currency hedging reserve 15 3
Retained earnings 12,694 12,200
Equity 13,481 13,198
Pension obligations and similar obligations 23 271 293
Deferred tax 12 1,132 1,143
Other provisions 5 106 58
Mortgage debt 24 2,131 1,862
Employee bonds and other debt 10 28
Non-current liabilities 3,650 3,384
Pension obligations and similar obligations 23 10 7
Other provisions 5 354 368
Mortgage debt 24 1 -
Employee bonds 18 19
Trade payables 1,967 1,599
Income taxes 58 50
Other payables 4,110 2,938
Current liabilities 6,518 4,981
Liabilities 10,168 8,365
Equity and liabilities 23,649 21,563
3
ve
1404084EogSN73091 |
LUNDBECK — ANNUAL REPORT 2013 & GO TO CONTENTS 33
AT 31 DECEMBER 2013
Currency Currency
Share Share translation hedging Retained
capital premium reserve reserve earnings Equity
Notes DKKm DKKm DKKm DKKm DKKm DKKm
2013
Equity at 01.01.2013 980 226 (211) 3 12,200 13,198
Profit for the year - - - - 855 855
Other comprehensive income 20 - - (230) 12 (10) (228)
Comprehensive income - - (230) 12 845 627
Distributed dividends - - - - (392) (392)
Capital increase through exercise of warrants 22 1 6 - - - 7
Buyback of treasury shares 22 - - - - (7) (7)
Incentive programmes - - - - 48 48
. Other transactions 1 6 - - (351) (344)
Equity at 31.12,2013 981 232 (441) 15 12,694 — 13,481
7 2012
Equity at 01.01.2012 980 226 (149) (36) 11,755 — 12,776
Profit for the year - - - - 1,165 1,165
Other comprehensive income 20 - - (62) 39 (68) (91)
Comprehensive income - - (62) 39 1,097 1,074
Distributed dividends - - - - (685) (685)
Buyback of treasury shares 22 - - - - (21) (21)
Incentive programmes - - - - 54 54
Other transactions - - - in (652) (652)
Equity at 31.12.2012 980 226 (211) 3. 12,200 13,198
LUNDBECK — ANNUAL REPORT 2013 & G0 TO CONTENTS 34
CASH FLOW STATEMENT
1 JANUARY — 31 DECEMBER 2013
2013 2012
Notes DKKm DKKM
Profit from operations 1,599 1,726
Adjustment for non-cash operating items etc. 1,375 1,039
Working capital changes 1,079 183
Cash flows from operations before financial receipts and payments 4,053 2,948
Financial receipts 69 34
Financial payments (158) (87)
Cash flows from ordinary activities 3,964 2,895
Income tax paid (204) (783)
Cash flows from operating activities 3,760 2,112
Investments in intangible assets 11 (1,204) (1,349)
Sale of intangible assets - 14
Investments in property, plant and equipment 11 (311) (301)
Sale of property, plant and equipment 5 4
Investments in financial assets (7) (68)
Sale of financial assets 17 595
Cash flows from investing activities (1,500) (1,105)
Cash flows from operating and investing activities 2,260 1,007
Loan proceeds 270 -
Buyback of treasury shares 22 (7) (21)
Employee bonds (19) (13)
Capital contributions 22 7 -
Dividends paid in the financial year (392) (685)
Cash flows from financing activities (141) (719)
Change in cash 2,119 288
Cash at 01.01. 2,747 2,467
Unrealized currency translation adjustments for the year (49) (8)
Change for the year 2,119 288
Cash at 31.12. 14 4,817 2,747
Interest-bearing net cash and cash equivalents is composed as follows:
Cash 14 4,817 2,747
Securities 14 1,042 1,055
Interest-bearing debt (2,160) (1,909)
Interest-bearing net cash and cash equivalents at 31.12. 3,699 1,893
LUNDBECK — ANNUAL REPORT 2013 &Ø GO TO CONTENTS
35
NOTE 1
1. CRITICAL ACCOUNTING POLICIES, INCLUDING
ACCOUNTING ESTIMATES AND JUDGMENTS
The consolidated financial statements of H. Lundbeck A/S have
been prepared to give a true and fair view of the Group's assets,
liabilities and financial position at 31 December 2013. This includes
the use of accounting estimates and judgments which affect the
consolidated financial statements. Executive Management believes
that the following accounting policies and accounting estimates
and judgments are critical to the financial statements.
Application of materiality and relevance
In the preparation of the consolidated financial statements,
Lundbeck aims to focus on information which is considered to be
material and thus relevant to the users of the consolidated financial
statements. This applies both to the accounting policies and to the
information given in the notes in general.
Based upon events which have taken place during the year and the
financial position at year-end, Executive Management has assessed
which information is material for the users. For this purpose,
Lundbeck operates with internal guidelines for the application of
materiality and relevance which have been agreed with the Audit
Committee and the external auditors.
When assessing materiality and relevance, due consideration is
given to ensure adherence to the International Financial Reporting
Standards as adopted by the EU and to Danish disclosure
requirements for listed companies and to ensure that the
consolidated financial statements give a true and fair view of the
Group's financial position at the balance sheet date and the
operations and cash flows for the financial year.
License income and income from research collaborations
License income and royalties from outlicensed products are
recognized in the income statement under revenue when the
following criteria have been met:
+ The mast significant risks and benefits associated with the asset
sold are transferred to the buyer.
» Lundbeck surrenders management control of the asset sold.
+ Revenue from the individual payments in an overall agreement
can be clearly separated and calculated reliably at fair value.
+" It is probable that Lundbeck will receive payment for the asset
sold.
"There are no further delivery obligations for Lundbeck concerning
the asset sold.
Non-refundable downpayments and milestone payments relating
to research collaborations are recognized in the income statement
under revenue when the following criteria have been met:
-The payment relates to research results already obtained,
"The buyer has gained access to and possession of the research
results.
» Revenue from the individual payments in an overall agreement
can be clearly separated and calculated reliably at fair value.
+ It is probable that Lundbeck will receive payment.
1404084EogSN73092
Development costs
Development costs are recognized in the income statement as they
are incurred unless the criteria for capitalization are deemed to
have been met and it is found to be probable that future earnings
will cover the development costs. Due to a very long development
period and significant uncertainty in relation to the development of
new products, in the opinion of Lundbeck, development costs
should not normally be capitalized.
Valuation of intangible assets
Goodwill and product rights represent a significant part of the
Group's total assets. The majority of the value of these items arose
through the acquisition of companies or the acquisition of rights. In
connection with acquisitions, the individual assets and liabilities are
re-assessed to ensure that both recognized and unrecognized values
are measured at fair value. Especially for intangible assets for which
there is often no active market, the calculation of fair value may
involve uncertainty. Goodwill and intangible assets in progress are
tested for impairment at least once a year or if there is evidence of
impairment, The value in use of the assets is calculated by
discounting the estimate made by management over the expected
cash flows during a budget period of at least five years with due
consideration to patent expiry. For the calculation of the value in
use of the assets, the Group uses its discount rate and
management's expectations for growth and terminal value in the
period over and above the five years. These factors are crucial for
the assessment of any impairment and thus for the final calculation
of the fair value of intangible assets.
lt is a precondition for the retention of the value of the Group's
rights that such rights are respected, It is Lundbeck's policy to
defend these rights wherever they may be violated.
Impairment
Goodwill is written down through the income statement in those
cases where the carrying amount exceeds the future net income
expected from the cash-generating unit (CGU) to which the
goodwill relates (recoverable amount). In the impairment test, the
discounted expected future cash flows (value in use) for the CGU
are compared to the carrying amounts of goodwill and other net
assets. Lundbeck has only identified one CGU as all the assets of
the Group and the related cash inflows from its activities, including
cash inflows from alliances with partners, are in all material aspects
considered to be for the benefit of the whole Lundbeck Group
across the world.
The carrying amount of intangible assets and property, plant and
equipment is analyzed in connection with the preparation of the
consolidated financial statements or if there are indications 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 recognized in the income statement under
the same items as the associated depreciation or amortization.
LUNDBECK — ANNUAL REPORT 2013 oa GO TO CONTENTS 36
NOTE 2
2. SEGMENT INFORMATION
The Group is engaged in research, development, production and sale of pharmaceuticals for the treatment of brain diseases, which is the Group's
reporting segment. The business segment reflects the internal management reporting.
In the table below, the Group's revenue is broken down by key products and regions.
Int.
Europe USA Markets Group
2013 DKKM DKKm DKKm DKKmM
Cipralex? 3,368 - 2,565 5,933
Ebixa? 1,639 - 457 2,096
Azilect? 1,272 - 120 1,392
Xenazine? 26 1,394 - 1,420
Sabril? - 530 - 530 -
Onfi? - 573 - 573
Other pharmaceuticals 759 138 933 1,830
Other revenue 1,484
Total revenue 7,064 2,635 4,075 15,258 ”
Of this amount:
Downpayments and milestone payments 1,112
Royalty 95
Of total revenue, DKK 36 million derived from sales in Denmark.
Int.
Europe USA Markets Group
2012 DKKm DKKM DKKM DKKm
Cipralex? 3,379 - 2,448 5,827
Ebixa? 2,398 - 405 2,803
Azilect? 1,122 - 102 1,224
Xenazine? 43 1,154 - 1,197
Sabril? - 376 - 376
Onfi? - 255 - 255
Other pharmaceuticals 792 889 813 2,494 ”
Other revenue 626
Total revenue 7,734 2,674 3,768 14,802
Of this amount:
Downpayments and milestøne payments 287 ”
Royalty 346
Income from divestment of ownership interests in Proximagen Group plc. 115
Of total revenue, DKK 47 million derived from sales in Denmark,
2013 2012
Non-current assets? DKKM DKKM
Denmark 6,087 5,473
USA 4,302 4,869
Other 1,471 1,562
Total 11,860 11,904
1) Exclusive of deferred tax, financial instruments and post-employment benefit assets.
LUNDBECK — ANNUAL REPORT 2013 Ø GO TO CONTENTS
37
NOTE 3
3. STAFF COSTS
Wages and salaries, etc. 2013 2012
DKKm DKKm
Short-term staff benefits 3,373 3,700
Pension benefits 211 206
Other social security costs 336 426
Share-based payments 56 62
Total 3,976 4,394
The year's staff costs break down as follows:
Cost of sales 415 444
Sales and distribution costs 1,604 2,077
Administrative expenses 983 880
Research and development costs 974 993
Total 3,976 4,394
Executives? 2013 2012
DKKm DKKm
Short-term staff benefits 54 62
Pension benefits 9 10
Other social security costs - 1
Share-based payments 19 21
Total 82 94
1) Executives are individuals who report directly to Executive Management.
Executive Management
2013 2012
DKKm DKKm
Short-term staff benefits 23 23
Severance package - 6
Pension benefits 4 4
Share-based payments 8 14
Total 35 47
In 2013, the Executive Management consisted of three members.
In 2012, the Executive Management was reduced from four to
three members.
The total remuneration of the CEO amounted to DKK 16,7 million
in 2013 (DKK 18.4 million in 2012). The remuneration includes
a short-term incentive programme, which is a combination
of company strategic and individual targets, and share-based
payments. The remuneration for 2012 included a one-off
compensation because the incentive programmes granted
in 2010 and 2011 were cancelled.
1404084EogSN73093
The members of the Executive Management participate in a
short-term incentive programme that provides an annual bonus
for the achievement of pre-determined targets of the preceding
financial year. The CEO may receive up to nine months' base salary
as a bonus on condition of achievement of exceptional results.
The other members of the Executive Management may receive up
tø six months" base salary as a bonus on condition of achievement
of exceptional results. ,
Å severance package of DKK 6.3 million was agreed for the
Executive Vice President who resigned in 2012.
Board of Directors
The total remuneration of the Board of Directors for 2013
amounted to DKK 5.7 million (DKK 5.7 million in 2012). The
amount includes remuneration for participation in the Audit
Committee of DKK 0.7 million (DKK 0.7 million in 2012), for
participation in the Remuneration Committee of DKK 0,7 million
(DKK 0.7 million in 2012) and for participation in the Scientific
Committee of.DKK 0.7 million (DKK 0.7 million in 2012). The
remuneration for 2013 is consistent with that presented at the
Annual General Meeting held on 21 March 2013.
The members of the Board of Directors held a total of 9,559
Lundbeck shares at 31 December 2013 (8,659 shares in 2012).
The total remuneration of the chairman of the Board of Directors
amounted to DKK 1.4 million (DKK 1.4 million in 2012) and the
total remuneration of the deputy chairman of the Board of
Directors amounted to DKK 1.0 million (DKK 0.8 million in 2012).
The amounts include remuneration for participation in the board
committees.
Number of employees
2013 2012
Average number of full-time employees
in the financial year 5,530 5,639
Number of full-time employees at 31.12.
Denmark 1,919 1,931
Abroad 3,599 3,610
Total 5,518 5,541
LUNDBECK — ANNUAL REPORT 2013 & GO TO CONTENTS
38
NOTE 4
4. GOODWILL IMPAIRMENT TEST
The carrying amount of goodwill amounted to DKK 3,680 million
(DKK 3,818 million in 2012). The annuat impairment test is
submitted to the Audit Committee for subsequent approval by the
Board of Directors. Based on the impairment test performed in
2013, it was concluded that there is no need for writing down the
goodwill.
CGU definition
As a result of Lundbeck's CGU definition, goodwill is now tested at
the aggregated Group level. During 2013, Lundbeck LLC, USA, was
fully integrated from a CGU viewpoint. This integration has been
most visible through the execution of the alliances with Otsuka
Pharmaceutical Co., Ltd. concerning Abilify Maintena and with
Takeda Pharmaceutical Co., Ltd. concerning Brintellix.
Methodology
In the impairment test, the discounted expected future cash flows
(value in use) for the CGU is compared to the carrying amounts of
goodwill and other net assets. The future cash flows are based on
Lundbeck's Financial Long-term Model (FLM) før the next seven
years with due consideration to patent expiry. The FLM provides
insights into for example product launch strategies and operational
plans, impact from loss of exclusivity and expected healthcare
reforms, pay-back from major investments as well as expectations
før the basic business. The key parameters in the calculation of the
value in use are revenue, earnings, working capital, discount rate
and the preconditions for the terminal period. Negative growth is
projected in the terminal period due to patent expiry. In addition,
the four category elements in the table below are considered when
determining the key parameters:
Financial elements R&D elements Market elements Other
Prices R&D spend Healthcare reforms Supply chain effectiveness
Rebates Collaborations Price reforms Reputation
Quantities Pipeline success rate
P
Patient population Product tabelling
Market access
Pharma restrictions in some markets
Market shares Liaison with regulatory bodies
Launch success
Competition
Fill rates
Prescription rates
Lundbeck costs
The cafculation of the value in use for the Group is based on a
discount rate of 11.8% (11.6% in 2012). The discount rate is before
tax, and the result of [WACC/(1 — tax rate)] and the applied cash
flows are also pre-tax figures. The calculation of the discount rate
includes a market adjustment premium,
Product positianing
Competing pharmaceuticals
Generics on the market
Strength and abilities of partners
LUNDBECK — ANNUAL REPORT 2013 & GO TO CONTENTS
39
NOTES 5-6
5. OTHER PROVISIONS
Other
Returns — provisions Total
DKKm DKKm DKKm
2013
Provisions at 01.01. 56 370 426
Currency translation (2) (4) (6)
Provisions charged 25 276 301
Provisions used (27) (207) (234)
Unused provisions reversed (9) (18) (27)
Provisions at 31.12. 43 417 460
Provisions break down as foilows:
Non-current provisions 14 92 106
Current provisions 22 325 354
Provisions at 31.12. … 3 4 40
2012
Provisions at 01.01. 77 166 243
Provisions charged 1 568 569
Provisions used (9) (213) (222)
Unused provisions reversed (13) (151) (164)
Provisions at 31.12, 56 370 426
Provisions break down as follows:
Non-current provisions 15 43 58
Current provisions 41 327 368
Provisions at 31.12. 56 370 426
The provisions cover expenses for e.g. disputes, returns, the
restructuring of the administrative processes in Europe initiated in
2013 and of the commercial organization in Europe initiated in 2012.
Of the total provisions at 31 December 2013, DKK 11 million
(DKK 3 million in 2012) related to share price-based incentive
programmes (debt schemes). Further details about the incentive
programmes are provided in note 8 Incentive programmes.
6. CONTINGENT ASSETS AND CONTINGENT LIABILITIES
Bank guarantees and letters of intent
The Group's bankers have issued bank guarantees to third parties
in the amount of DKK 85 million (DKK 105 million in 2012).
The Group has assessed that the fair value of the guarantees
is.DKK O million (DKK O million in 2012).
1404084EogSN73094
Joint taxation
H. Lundbeck A/S is part of a Danish joint taxation scheme with
the Lundbeck Foundation. As from the 2013 financial year, the
company has partly a joint and several liability and partly a
secondary liability with respect to income taxes etc. for the
jointly-taxed companies. As from 1 July 2012 it also has partly
a joint and several liability and partly a secondary liability with
respect to any obligations to withhold tax on interest, royalties
and dividends for these companies, However, in both cases the
secondary liability is capped at an amount equal to the share of the
capital of the company directly or indirectly owned by the ultimate
parent company.
Pending legal proceedings
The Group is involved in legal proceedings in a number of countries
against a number of businesses, including patent disputes. In the
opinion of management, the outcome of these proceedings will not
have a material impact on the Group's financial position, results of
operations or cash flows beyond the amount already provided for
in the financial statements. Due to uncertainty about the outcome
of the legal proceedings, the amount of the provision is uncertain.
See Risk Management, p. 18, for more details.
In June 2013, the European Commission issued a decision in which
it found that Lundbeck by entering into a few selected patent
settlement agreements in 2002 had viotated EU competition
law and thereby hindered a lawful entry of generic citalopram
into markets in the European Economic Area (EEA). The European
Commission issued a fine of EUR 93.8 million. In September 2013,
this decision was appealed by Lundbeck to the General Court. It
may take up to six years beføre this matter is finally decided by
the courts. Lundbeck does not expect that the fine will increase as
a result of the appeal. Lundbeck paid the fine in the third quarter of
2013. Consequently, Lundbeck has a contingent asset corresponding
to a maximum of the amount of the fine.
In December 2011, the Brazilian antitrust authorities (Secretariat
of Economic Law — SDE) initiated administrative proceedings to
investigate whether Lundbeck's enforcement of data protection
rights could be viewed as anticompetitive conduct. In January 2012,
Lundbeck submitted a response to the authorities. Due to a change
in the Brazilian Antitrust Law, handling of the case has shifted from
SDE to CADE (the Administrative Council for Economic Defense)
and remains pending.
Industry obligations
The Group has return obligations normal for the industry.
Management does not expect any major loss on these obligations.
LUNDBECK — ANNUAL REPORT 2013 &Q GO TO CONTENTS
40
NOTE 7
7. IMPACT OF CHANGES IN ACCOUNTING POLICIES
As of January 2013, Lundbeck has reallocated to cost of sales
amortization on product rights, which was previously recognized
as sales and distribution costs. The purpose of the reallocation is
to align cost of sales for all products regardless of whether they are
produced by Lundbeck or Lundbeck has purchased the right to the
products and subsequently amortizes the rights. The comparative
figures for 2012 have been restated.
In addition, the comparative figures have been restated as a
result of the changes to IAS 19 Employee Benefits effective from
1 January 2013. The consequence for Lundbeck is that actuarial
gains and losses have been recognized in the statement of
comprehensive income instead of the income statement and that
such gains and losses are not subsequently recycled through profit
or loss.
The income statement for 2013 shows the effect if the change
in accounting policies with regard to the reclassification of
amøortization of product rights and the changes to IAS 19 Employee
Benefits had not been effected.
The change in accounting policy with regard to IAS 19 Employee
Benefits has an effect on the income statement, earnings per
share (EPS), diluted earnings per share (DEPS), statement of
comprehensive income, statement of changes in equity and the
cash flow statement for 2012. The balance sheet is not affected.
2013 2013 2012 2012
New Previous New Previous
policies Changes policies policies Changes potlicies
Income statement DKKM DKKm DKKm DKKM DKKmM DKKm
Revenue 15,258 - 15,258 14,802 - 14,802
Cost of saltes 4,038 (800) 3,238 3,720 (395) 3,325
Gross profit 11,220 800 12,020 11,082 395 11,477
Sales and distribution costs 4,200 792 4,992 4,836 438 5,274
Administrative expenses 2,549 (7) 2,542 1,601 40 1,641
Research and development costs 2,872 - 2,872 2,919 (4) 2,915
Profit from operations 1,599 15 1,614 1,726 (79) 1,647
Financial income 154 - 154 153 - 153
Financial expenses 281 - 281 218 ” 218
Profit before tax 1,472 15 1,487 1,661 (79) 1,582
Tax on profit for the year 617 4 621 496 (21) 475
Profit for the year 855 11 866 1,165 (58) 1,107
Earnings per share (EPS) (DKK) 4.36 0.06 4.42 5.94 (0.29) 5,65
Diluted earnings per share (DEPS) (DKK) 4.36 0.05 4.41 5.94 (0.30) 5.64
2013 2013 2012 2012
New Previous New Previous
policies Changes policies policies Changes policies
Statement of comprehensive income DKKm DKKm DKKm DKKm DKKm DKKM
Profit for the year 855 11 866 1,165 (58) 1,107
Actuarial gains/losses 15 (15) - (79) 79 -
Tax (4) 4 - 21 (21) -
Items that will not subsequently be reclassified to profit or loss 11 (11) - (58) 58 -
Currency translation, foreign subsidiaries (115) - (115) (12) - (12)
Currency translation concerning additions to net investments in foreign subsidiaries (145) - (145) (27) - (27)
Realized exchange gains/losses concerning additions to net investments in foreign
subsidiaries (transferred to the income statement) (8) - (8) (40) - (40)
Adjustments, deferred exchange gains/losses, hedging 142 - 142 (78) - (78)
Exchange gains/losses, hedging (transferred to the hedged items) (126) - (126) 130 - 130
Exchange gains/losses, trading (transferred to net financials) - - - 1 - 1
Fair value adjustment of available-for-sale financial assets (25) - (25) (12) - (12)
Tax 38 - 38 5 - 5
Items that may subsequently be reclassified to profit or loss (239) - (239) (33) - (33)
Other comprehensive income (228) (11) (239) (91) 58 (33)
Comprehensive income 627 - 627 1,074 - 1,074
ks,
LUNDBECK — ANNUAL REPORT 2013 oa GO TO CONTENTS 41
7. IMPACT OF CHANGES IN ACCOUNTING POLICIES — CONTINUED
Statement of changes in equity
For 2013, DKK 11 million has been recognized in the statement of
comprehensive income instead of the income statement. For 2012,
DKK 58 million has been reclassified from the income statement to
the statement of comprehensive income.
2013 2013 2012 2012
New Previous New Previous
policies Changes policles policies Changes policies
Cash flow statement DKKm DKKm DKKM DKKm DKKm DKKm
Profit from operations 1,599 15 1,614 1,726 (79) 1,647
Adjustment for non-cash operating items etc. 1,375 (15) 1,360 1,039 79 1,118
Working capital changes 1,079 - 1,079 183 - 183
Cash flows from operations before financial receipts and payments 4,053 - 4,053 2,948 - 2,948
The remaining part of the cash flow statement is not affected.
8. INCENTIVE PROGRAMMES
Incentive programmes
In order to attract, retain and motivate key employees and align
their interests with those of the shareholders, Lundbeck has
established a number of incentive programmes. Lundbeck uses
equity-based as well as debt-based schemes.
Equity-based schemes
In the 2013 financial year, equity-based incentive schemes
consisted of warrants and shares granted in the years 2008-2013.
In June 2013, Lundbeck established a share scheme for the Executive
Management and a number of key employees in Denmark and
abroad. The Executive Management was granted 98,629 shares,
and 110 key employees were granted 401,830 shares.
1404084EogSN73095
In December 2013, 17 employees were granted 40,103 shares
on terms and conditions similar to those that apply to the share
scheme granted to key employees in June 2013.
The shares granted to the Executive Management and key
employees will vest on 31 May 2016 subject to continuing
employment with Lundbeck and Lundbeck achieving its financial
targets. The fair value at the time of grant was DKK 110.70 per share.
Warrants and shares allocated to key employees in 2010 vested
in 2013. In 2013, 5,383 warrants from the 2008 grant, 20,501
warrants from the 2009 grant and 34,641 warrants from the 2010
grant were exercised. The weighted average share price of exercised
warrants was DKK 122.17. In 2012, 593 warrants from the 2009
grant were exercised, The weighted average share price of the
exercised warrants was DKK 122.18.
LUNDBECK — ANNUAL REPORT 2013 Q G0 To CONTENTS 42
NOTE 8
8. INCENTIVE PROGRAMMES — CONTINUED
2008 2009 2010 2010 2011 2012 2012 2012 2012
Warrant schemes 20%] 30%? 50%?
Number of persons covered by the scheme 87 98 101 16 112 4 4 4 102
Total number of warrants granted 405,234 534,058 765,979 24,971 849085 155,750 233,629 389,380 692,003
Number of warrants granted
to the Executive Management 219618 333,811 507,885 -… 381,224 155,750 233629 389,380 -
Vesting date 06.05.11 16.03.12 16.03.13 16.03.13 31.03.14 31.03.15 31.03.16 31.03.17 31.03.15
Exercise period begins 06.05.11 16.03.12 16.03.13 16.03.13 01.04.14 01.04.15 01.04.16 01.04.17 01.04.15
Exercise period ends 05.05.16 15.03.17 15.03.18 15.03.18 31.03.19 31.12.18 31.12.18 31.12.18 31.03.20
Exercise price, DKK 115.00 102.00 97.00 97.00 121.00 113.00 113.00 113.00 113.00
1) As from 2012, the exercise price of DKK 113.00 is revalued by 4.00% per year adjusted for the dividend payout ratio.
Share schemes 2009 2010 2010 2011 2011 2012 2012 2013
Number of persons covered by the scheme 98 101 16 112 30 104 5 113
Total number of shares granted 92,627 96,355 6,334 156,360 383602 230,503 15,178 540,562
Number of shares granted to the Executive Management 20,794 22,308 - 35,762 - 101,107 - 98,629
Vesting date 16.03.12 16.03.13 16.03.13 31.03.14 30.06.14 31.03.15 31.03.15 31.05.16
Fair value at the date of grant, DKK 98.75 99,55 95.70 121.20 114.29 113.20 99.05 110.70
Executive Other Average
Management Executives employees Total exercise price
Warrants Number Number Number Number DKK
01.01.2012 789,915 656,240 681,546 2,127,701 108.27
Grant 778,759 223,048 468,955 1,470,762 113.00
Transfer (7,655) (127,469) 135,124 - -
Exercise - - (593) (593) 102.00
Cancellation (923,852) (289,737) (18,805) (1,232,394) 106.88
31.12.2012 637,167 462,082 1,266,227 2,365,476 111.94
Exercise - - (60,525) (60,525) 100.29
Cancellation - - (61,043) (61,043) 114.06
31.12.2013 637,167 462,082 1,144,659 2,243,908 112.92
LUNDBECK — ANNUAL REPORT 2013 oa GO TO CONTENTS 43
NOTES 8-10
8. INCENTIVE PROGRAMMES — CONTINUED 9. TAX ON PROFIT FOR THE YEAR
2013 2012
Debt-based schemes DKKm DKKm
The debt-based schemes consist of Stock Appreciation Rights Current tax 635 331
and Restricted Cash Units awarded during the years 2008-2013. Prior-year adjustments, current tax (90) (2)
Prior-year adjustments, deferred tax 19 40
In June 2013, a few employees of US subsidiaries were granted Change of deferred tax for the year 147 101
Restricted Cash Units (RCUs), a share price-based scheme with Change of deferred tax as a result of changed
conditions and award criteria similar to those of the share scheme income tax rates (128) -
granted in June 2013 to a number of key employees of the parent Total tax for the year 583 470
company and its non-US subsidiaries. The allocated RCUs, a total
of 19,003, will vest on 31 May 2016 subject to continuing Tax for the year is composed of:
employment with Lundbeck and Lundbeck achieving its financial Tax on profit for the year 617 496
targets, after which time they are settled. The size of the amount Tax on other comprehensive income (34 (26)
depends on the value of the Lundbeck share at the vesting date. Total tax for the year 583 470
The fair value per RCU at the time of grant was calculated at FEER
DKK 110.70.
Explanation of the Group's effective tax rate 2013 2012
The share price-based scheme for employees of the Group's US relative to the Danish tax rate % x
subsidiaries cannot be converted into shares because the value Danish tax rate 25.0 250
of the scheme is distributed as a cash amount. Tax effect of:
Differences in the tax rates of foreign subsidiaries
The SARS allocated in 2010 vested in 2013. The RCUs allocated from the Danish tax rate 45 (3.0)
in 2010 vested in 2013, after which time the scheme was settled, Non-deductible expenses/non-taxable income
and other permanent differences 9.9 7.4
Fair value, liability and expense recognized in the income Research and development incentives 15 (1.8)
statement Fine from the European Commission 119 -
The warrants and shares granted are recognized in the income Change of deferred tax as a result of changed
statement for 2013 at an expense corresponding to the fair value income tax rates (8.6) -
at the time of grant calculated according to the Black-Scholes Prior-year tax adjustments etc., total effect
method for the part of the vesting period that concerns 2013. on operations (2.3) 2.3
The total expense recognized in respect of equity-based schemes Effective tax rate for the year 41.9 29.9
amounted to DKK 48 million. In 2012, an expense of DKK 60
million was recognized. The expense recognized in 2012 included
an expense of DKK 17 million due to the cancellation of the 2010
and 2011 programmes granted to the Executive Management,
At 31 December 2013, the fair value of equity-based schemes
amounted to DKK 215 million (DKK 82 million in 2012).
The SARS granted are recognized in the income statement at an
expense corresponding to the value adjustment for the year based
on the Black-Schøles method, and the RCUs granted are recognized
in the income statement at an expense corresponding to the value
adjustment for the year based on the performance of the Lundbeck
share, The total expense recognized in respect of debt-based
schemes amounted to DKK 8 million (DKK 2 million in 2012).
The expense covers all debt-based schemes in force in 2013. At 31
December 2013, the total liability in respect of debt-based schemes
amounted to DKK 11 million (DKK 3 million in 2012). The liability
covers all debt-based schemes in førce at 31 December 2013,
The total expense recognized in the income statement for all
incentive programmes amounted to DKK 56 million for 2013
(DKK 62 million in 2012).
10. DISTRIBUTION OF PROFIT
The Board of Directors proposes distribution of dividends for 2013
of 64% (35% in 2012) of the net profit for the year allocated to
the shareholders of the parent company, equivalent to DKK 543
million (DKK 392 million in 2012), or DKK 2.77 per share (DKK 2.00
in 2012).
i
1404084EogSN73096
LUNDBECK — ANNUAL REPORT 2013 GQ Go TO CONTENTS 44
NOTE 11
11. INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT
Patent Product Other Projects In Intangible
Goodwill rights rights? rights' progress assets
Intangible assets DKKm DKKM DKKm DKKm DKKm DKKMm
2013
Cost at 01.01. 3,818 525 6,860 1,192 48 12,443
Currency translation (138) - (125) (1 - (264)
Transfer - - - 29 (28) 1
Additions - - 1,121 18 65 1,204
Disposals - - - (27) (1) (28)
Cost at 31.12. 3,680 525 7,856 1,211 84 13,356
Amortization at 01.01. - 476 1,898 1,041 - 3,415
Currency translation - - (60) (1) - (61)
Amortization - 6 620 77 - 703 ”
Impairment - 38 210 - - 248
Disposals - - - (26) - (26)
Amortization at 31.12. - 520 2,668 1,091 - 4,279 —-
Carrying amount at 31.12. 3,680 5 5,188 120 84 9,077
2012
Cost at 01.01. 3,865 525 5,582 1,140 64 11,176
Currency translation (47) - (17) 1 - (63)
Transfer - - - 54 (55) (1)
Additions - - 1,295 15 39 1,349
Disposals - - - (18) - (18)
Cost at 31.12. 3,818 525 6,860 1,192 48 12,443
Amortization at 01.01. - 455 1,312 964 - 2,731
Currency translation - - (8) - - (8)
Transfer - - - (1) - (1)
Amortization - 13 579 90 - 682
Impairment - 8 15 - - 23
Disposals - - - (12) - (12)
Amortization at 31.12. - 476 1,898 1,041 - 3,415 "
Carrying amount at 31.12, 3,818 49 4,962 151 48 9,028
1) Of product rights, DKK 2,632 million (DKK 2,539 million in 2012) relates to products not yet commercialized. 7
2) Other rights and projects in progress include items such as the IT system SAP. The amounts include directly attributable internal expenses.
LUNDBECK — ANNUAL REPORT 2013 Ø G0 TO CONTENTS 45
NOTE 11
11. INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT — CONTINUED
Other fixtures Prepayments
Land and Plantand and fittings,tools and assets under Property, plant
buildings? machinery and equipment construction and equipment
Property, plant and equipment DKKm DKKm DKKm DKKM DKKm
2013
Cost at 01.01. 3,844 1,468 1,051 213 6,576
Currency translation (17) (3) (17) (1) (38)
Transfer 35 68 60 (164) (1)
Additions 84 60 35 132 311
Disposals (13) (30) (128) (1) (172)
Cost at 31.12. 3,933 1,563 1,001 179 6,676
Depreciation at 01.01. 1,914 1,027 842 - 3,783
Currency translation (13) (3) (11) - (27)
Transfer (18) - 18 - -
Depreciation 134 94 76 - 304
Disposals (12) (27) (123) - (162)
Depreciation at 31.12, 2,005 1,091 802 - 3,898
Carrying amount at 31,12. 1,928 472 199 179 2,778
2012
Cost at 01.01. 3,677 1,376 1,019 309 6,381
Currency translation (6) - - - (6)
Transfer 140 87 25 (251) 1
Additions 48 48 50 155 301
Disposals (15) (43) (43) - (101)
Cost at 31.12. 3,844 1,468 1,051 213 6,576
Depreciation at 01.01. 1,790 971 806 - 3,567
Currency translation (5) - - - (5)
Transfer - - 1 - 1
Depreciation 140 89 75 - 304
Impairment 4 1 - - 5
Disposals (15) (34) (40) - (89)
Depreciation at 31.12. 1,914 1,027 842 - 3,783
Carrying amount at 31.12. 1,930 441 209 213 2,793
1) The carrying amount of pledged land and buildings at 31 December 2013 was DKK 1,688 million (DKK 1,670 million in 2012).
1404084EogSN73097
LUNDBECK — ANNUAL REPORT 2013 & G0 TO CONTENTS 46
NOTE 12
12. DEFERRED TAX
Adjustment of
, , letser Balance at Currency deferred tax at Movement Balance at
Temporary differences between assets and liabilities as stated 01.01. translation beginning ofyear — during the year 31.12.
in the consolidated financial statements and in the tax base DKKm DKKm DKKm DKKm DKKm
2013
Intangible assets 4,220 (44) - 1,014 5,190
Property, plant and equipment 436 9 (7) 11 449
Inventories (204) 41 6 97 (60)
Other items (537) 65 (78) (367) (917)
Provisions in subsidiaries 300 (1) 5 (411) (107)
Tax loss carry-forwards etc. (758) 20 266 (59) (531)
Total temporary differences 3,457 90 192 285 4,024
Deferred (tax assets)/tax liabilities? 891 82 24 (55) 942
Research and development incentives (177) 9 (5) 74 (99)
Deferred (tax assets)/tax liabilities 714 91 19 19 843
1) Movement during the year includes a reduction in deferred tax of DKK 128 million as a result of changed income tax rates.
2012
intangible assets 3,228 (25) 2 1,016 4,220
Property, plant and equipment 404 3 6 23 436
Inventories (217) 8 18 (13) (204)
Other items (261) 18 (43) (251) (537)
Provisions in subsidiaries (16) - - 316 300
Tax loss carry-forwards etc. (414) 1 30 (375) (758)
Total temporary differences 2,724 4 13 716 3,457
Deferred (tax assets)/tax liabilities 750 11 23 107 891
Research and development incentives (191) 3 17 (6) (177)
Deferred (tax assets)/tax liabilities 559 14 40 101 714
2013 2013 2013 2012 2012 2012
Deferred tax Deferred tax Deferred tax Deferred tax
assets liabilities Net assets liabilities Net
Deferred (tax assets)/tax liabilities DKKm DKKm DKKm DKKm DKKm DKKm
Intangible assets (36) 1,362 1,326 (76) 1,321 1,245
Property, plant and equipment (80) 145 65 (87) 171 84
Inventories (91) 48 (43) (134) 55 (79)
Other items (483) 322 (161) (41) 201 160
Provisions in subsidiaries (28) - (28) (222) - (222)
Tax loss carry-forwards etc. (217) - (217) (297) - (297)
Research and development incentives (99) - (99) (177) - (177)
Deferred (tax assets)/tax liabilities (1,034) 1,877 843 (1,034) 1,748 714
Set off within legal tax entities and jurisdictions 745 (745) - 605 (605) -
Total net deferred (tax assets)/tax liabilities (289) 1,132 843 (429) 1,143 714
Of the recognized deferred tax assets, DKK 316 million (DKK 474
million in 2012) related to tax losses etc. and research and
development incentives to be carried forward. Utilization of these
is based on future positive income that exceeds realization of the
deferred tax liabilities.
The recognition of tax losses is based on estimates of the expected
earnings and taxable income in loss-making entities, supported by
reports by external analysts, when available.
LUNDBECK -— ANNUAL REPORT 2013 &Q GOTO CONTENTS
47
NOTES 12-14
12. DEFERRED TAX — CONTINUED
2013 2012
Unrecognized deferred tax assets DKKM DKKm
Unrecognized deferred tax assets
at 01.01. 281 290
Currency translation - (1)
Prior-year adjustments (22) -
Additions 17 11
Utilized (11) (19)
Unrecognized deferred tax assets
at 31,12. 265 281
Unrecognized deferred tax assets primarily related to interest and
research and development incentives,
13. TRADE RECEIVABLES AND OTHER RECEIVABLES
2013 2012
DKKm DKKm
Trade receivables
Receivables 2,674 2,482
Writedowns (61) (55)
Total 2,613 2,427
Due dates of trade receivables
not written down
Not due 2,238 2,033
Overdue by up tø 3 months 240 251
Overdue by more than 3 months
and up to 6 months 79 47
Overdue by more than 6 months
and up to 12 months 21 62
Overdue by more than 12 months 35 34
Total 2,613 2,427
Other receivables amounted to DKK 584 million (DKK 508 million
in 2012), the vast majority of which were not yet due. No
writedowns were made as no losses are expected on other
receivables,
Credit risks
Lundbeck's products are sold primarily to distributors of
pharmaceuticals and to hospitals. Historically, losses sustained
on debtors have been insignificant, This was also the case in 2013.
Writedowns in 2013 were on a level with thøse in 2012.
The Group has no particular customer concentration and no
significant reliance on specific customers. Lundbeck has defined
internal procedures to be followed in connection with the
establishment of new customer relationships and changes
to existing relationships. The purpose of these procedures is to
ensure that the risk of losses is reduced to the extent possible.
1404084EogSN73098
Market risks
The pharmaceutical market is characterized by the aim of the
authorities to reduce or cap healthcare costs. Market changes such
as price reductions and ever-earlier launch of generics may have a
considerable impact on the earnings potential of pharmaceuticals.
In recent years, Lundbeck experienced significant price reductions
in several countries in Europe, where higher debts and rising
unemployment have compelled the governments to identify
savings in the public budgets. Furthermore, the earlier market
access for generic pharmaceuticals has eroded earnings from
Lundbeck's products in certain markets, where Lundbeck had
expected exclusivity to protect the value of the large investments
it had been making some years back. Lundbeck expects that these
uncertainties will continue in 2014 and 2015.
Lundbeck is monitoring developments in the European economies
and also developments in trade receivables in order to reduce the
risk of losses to the best possible extent.
14. CASH RESOURCES
2013 2012
DKKm DKKm
Fixed-term deposits 3,821 1,708
Other cash resources 996 1,039
Cash at 31.12. 4,817 2,747
Securities with a maturity of less
than 3 months? 14 .
Securities with a maturity of møre
than 3 months! 1,028 1,055
Cash and securities at 31.12. 5,859 3,802
1) The securities portfolio is classified as financial assets measured at fair value through
profit or loss.
Liquidity risks and capital structure
The credit risk of cash and derivatives (forward exchange contracts
and currency options) is limited because Lundbeck deals only with
banks with a high credit rating. To further limit the risk of losses,
internal limits have been defined for the credit exposure accepted
towards the banks with which Lundbeck collaborates. The credit
lines are presented to the Board of Directors for approval pursuant
to the Group's treasury policy.
The treasury policy deals with financial resources, foreign currency
exposure, securities portfolio and loan portfolio and is presented
once every year to the Audit Committee for subsequent approval
by the Board of Directors. In addition, the Board of Directors
approves the framework for selecting financiat collaboration
partners, commitment lines and types of business.
Pursuant to Lundbeck's treasury policy, Lundbeck must always be
capable of raising a minimum of DKK 1 billion at two weeks' notice.
If this amount is not available in cash, fixed-term deposits or bonds,
Lundbeck will enter into committed credit facilities with banks.
LUNDBECK — ANNUAL REPORT 2013 &Q G0 70 CONTENTS
48
NOTES 14-15
14. CASH RESOURCES — CONTINUED
The securities portfolio consists primarily of Danish government
and mortgage bonds with a limited credit risk and of a money
market fund consisting of Danish government and mortgage bonds.
Lundbeck operates in an industry characterized by frequent shifts
in the market situation that may involve a need for inlicensing and
acquisition activities.
At 31 December 2013, Lundbeck had a committed undrawn credit
facility of EUR 150 million with the EIB (European Investment
Bank) with a drawing right of 18 months from 23 October 2013
and a committed undrawn credit facility of EUR 75 million with
NIB (Nordic Investment Bank) with a drawing right of 18 months
from 3 December 2013. At 31 December 2012, Lundbeck had
no committed credit facilities.
In addition, Lundbeck has a number of uncommitted credit facilities
to cover its day-to-day operations.
Furthermore, Lundbeck manages its capital structure based on a
wish to carry an investment grade rating. Ao number of financial
institutions indicate that Lundbeck's calculated implied rating
would be of an investment grade nature.
Liquidity exceeding the requirement for business development
and general business purposes is primarily distributed as dividends.
Lundbeck pursues a policy of distributing between 25% and 35% of
the profit for the year as dividends, but may deviate from this
policy in exceptional cases. As the decision by the European
Commission has been appealed, Lundbeck considers the fine from
the European Commission to be an exceptional case.
Other than minor operational changes, no changes were made
to Lundbeck's treasury policy compared with 2012.
15. CONTRACTUAL OBLIGATIONS
Rental and lease obligations
The Group has obligations amounting to DKK 454 million (DKK 569 million in 2012) in the form of rentals and leasing of operating equipment.
Land and Operating
buildings equipment Total
Future rental and lease payments DKKm DKKm DKKM
2013
Within 1 year 90 48 138
Between 1 and 5 years 217 62 279
After 5 years 37 - 37
Total 344 110 454
2012
Within 1 year 111 53 164
Between 1 and 5 years 265 81 346
After 5 years 59 - 59
Total 435 134 569
Rental and lease payments recognized in the income statement
amounted to DKK 171 million (DKK 188 million in 2012).
Other purchase obligations
The Group has undertaken purchase obligations in the amount
of DKK 274 million (DKK 305 miltion in 2012).
Research and development collaborations
The Group is part of muiti-year research and development
collaboration projects comprising minimum research and
development obligations in the order of DKK 52 million
(DKK 141 million in 2012). The total amount of the obligations
may increase substantially in line with the favourable development
of the research and development projects.
Other contractual obligations
The Group has entered into various service agreements amounting
to DKK 124 million (DKK 102 million in 2012).
At 31 December 2013, the Group had capital contribution
obligations amounting to DKK 8 million (DKK 3 million in 2012).
Æ”
LUNDBECK — ANNUAL REPORT 2013 GQ GO TO CONTENTS 49
16. AMORTIZATION, DEPRECIATION AND IMPAIRMENT 18. NET FINANCIALS
2013 2012 2013 2012
DKKm DKKm DKKm DKKm
Amortization, depreciation and Net interest gains on financial assets and
impairment are specified as follows: financial liabilities measured at amortized cost (66) (72)
Cost of sales 979 581 Net gains on financial assets measured
Sales and distribution costs 26 25 at fair value through profit or loss 1 7
Administrative expenses 65 70 Net exchange gains (55) 10
Research and development costs 192 212 Net gains on other financial items (7) (10)
Total 1,262 888 Net financials (127) (65)
In 2013, an impairment loss on the Sycrest? product rights totalling
DKK 210 million was recognized in cost of sales. Furthermore, an
impairment loss on patent rights totalling DKK 38 million was
recognized in research and development costs. The recoverable
amounts were calculated on the basis of management's re-assessed
estimate of the value in use of the assets.
In 2012, an impairment loss on product rights totalling DKK 15
million was recognized in research and development costs. The
recoverable amount was calculated on the basis of management's
re-assessed estimate of the value in use of the assets.
17. AUDIT FEES
Deloitte Statsautoriseret 2013 2012
Revisionspartnerselskab DKKm DKKm
Statutory audit 7 7
Tax consulting 1 1
Other services 14 3
Total 22 11
Other services include one-off advisory services provided by
Deloitte which have been evaluated as not impairing the
independence of the external audit services provided,
A few minor foreign subsidiaries are not audited by the parent
company's auditors, a foreign business partner of the auditors,
or by a recognized, international auditing firm.
1404084EogSN73099
Interest income on financial assets measured at amortized cost
amounted to DKK 16 miltion (DKK 13 million in 2012), and interest
expense on financial liabilities measured at amortized cost
amounted to DKK 82 million (DKK 85 mittion in 2012).
LUNDBECK — ANNUAL REPORT 2013 G G0 TO CONTENTS 50
19. EARNINGS PER SHARE
2013 2012
Profit for the year (DKKm) 855 1,165
Average number of shares ('000 shares) 196,143 196,136
Average number of treasury shares ('000 shares) (6) (7)
Average number of shares excl. treasury shares ('000 shares) 196,137 196,129
Average number of warrants, fully diluted ('000 warrants) 47 14
Average number of shares, fully diluted ('000 shares) 196,184 196,143
Earnings per share (EPS) (DKK) 4.36 5,94
Diluted earnings per share (DEPS) (DKK) 4.36 5.94
The warrants granted in 2008, 2009 and 2010 have vested. At 31
December 2013, 539,417 warrants remained outstanding, and the
weighted average exercise price of these warrants was DKK 103.46.
In 2012, the warrants granted in 2008 and 2009, a total of 342,126
warrants, had vested, and the weighted average exercise price of
these warrants was DKK 107.77.
Warrants which are not in-the-money are not included in the
calculation of earnings per share (EPS) and diluted earnings per
share (DEPS). Longer term, the warrants may have a dilutive effect
on earnings per shares and diluted earnings per share.
See note 8 /ncentive programmes for additional information on
incentive programmes,
20. OTHER COMPREHENSIVE INCOME
Before tax Tax After tax
DKKM DKKm DKKM
2073
Other comprehensive income recognized under currency translation reserve
in equity is specified as follows:
Currency translation, foreign subsidiaries (115) - (115)
Currency translation concerning additions to net investments in foreign subsidiaries (145) 36 (109)
Realized exchange gains/losses concerning additions to net investments in foreign subsidiaries
(transferred to the income statement) (8) 2 (6)
Total (268) 38 (230)
Other comprehensive income recognized under currency hedging reserve
in equity is specified as follows:
Adjustments, deferred exchange gains/losses, hedging 142 (36) 106
Exchange gains/losses, hedging (transferred to the income statement) (123) 31 (92)
Exchange gains/losses, hedging (transferred to the balance sheet) (3) 1 (2)
Total 16 (4) 12
Other comprehensive income recognized under retained earnings
in equity is specified as follows:
Fair value adjustment of available-for-sale financial assets (25) 4 (21)
Actuarial gains/losses 15 (4) 11
Total (10) - (10)
LUNDBECK — ANNUAL REPORT 2013 &Q GOTO CONTENTS 51
NOTES 20-21
20. OTHER COMPREHENSIVE INCOME — CONTINUED
Before tax Tax After tax
DKKm DKKm DKKm
2012
Other comprehensive income recognized under currency translation reserve
in equity is specified as follows:
Currency translation, foreign subsidiaries (12) - (12)
Currency translation concerning additions to net investments in foreign subsidiaries (27) 7 (20)
Realized exchange gains/losses concerning additions to net investments in foreign subsidiaries
(transferred to the income statement) (40) 10 (30)
Total (79) 17 (62)
Other comprehensive income recognized under currency hedging reserve
in equity is specified as follows:
Adjustments, deferred exchange gains/losses, hedging (78) 19 (59)
Exchange gains/losses, hedging (transferred to the income statement) 130 (33) 97
Exchange gains/losses, trading (transferred to net financials) 1 - 1
Total 53 (14) 39
Other comprehensive income recognized under retained earnings in equity
is specified as follows:
Fair value adjustment of available-for-sale financial assets (12) 2 (10)
Actuarial gains/losses (79) 21 (58)
Total (91) 23 (68)
21. INVENTORIES
2013 2012
DKKm DKKm
Raw materials and consumables 162 151
Work in progress 495 408
Finished goods and goods for resale 1,236 1,171
Total 1,893 1,730
Indirect costs of production 310 296
Impairment loss for the year 58 28
Inventories calculated at net realizable value 5 4
The total cost of goods sold included in cost of sales amounted to DKK 2,309 million (DKK 2,113 miltion in 2012).
1404084EogSN73100
LUNDBECK — ANNUAL REPORT 2013 & Go 70 CONTENTS 52
NOTE 22
22. SHARE CAPITAL
The share capital of DKK 981 million at 31 December 2013 is divided into 196,197,036 shares of a nominal value of DKK 5 each.
2013 2012 2011 2010 2009
Share capital DKKmM DKKm DKKm DKKm DKKm
At 01.01. 980 980 980 980 984
Exercise of warrants 1 - - - -
Cancellation of treasury shares - - - - (4)
At 31.12, 981 980 980 980 980
2013 2012
Issued shares Number Number
At 01.01. 196,136,511 196,135,918
increase of share capital 60,525 593
At 31.12. 196,197,036 196,136,511
Shares of Nominal Proportion of
DKK 5 nom. value share capital Cost
Treasury shares Number DKKM % DKKm
2013
Shareholding at 01.01. 434 - - -
Share buyback 72,702 - 0.04 7
Shares used for financing of incentive programmes (73,136) - (0.04) (7)
Shareholding at 31.12. - - - -
2012
Shareholding at 01.01. 1,520 - - -
Share buyback 186,495 1 0.10 21
Shares used for financing of incentive programmes (187,581) (1) (0.10) (21)
Shareholding at 31.12, 434 - - -
The parent company has only one class of shares, and all shares
rank equally. The shares are negotiable instruments with no
restrictions on their transferability.
The Board of Directors is authorized to issue new shares and raise
the share capital of the parent company, as set out in article 4
of the parent company's Articles of Association.
The share capital is in compliance with the capital requirements
of the Danish Companies Act and the rules of NASDAQ OMX
Copenhagen.
In 2013, the parent company acquired treasury shares at a value
of DKK 7 million (DKK 21 million in 2012), corresponding to 72,702
shares (186,495 shares in 2012).
The shares were acquired to finance Lundbeck's long-term
incentive programmes established in 2010, A total of 73,136 shares
were used for this purpose in 2013. In 2012, 187,581 shares were
used to finance Lundbeck's long-term incentive programme
established in 2009. At 31 December 2013, the portfolio of treasury
shares counted 0 shares (434 shares in 2012).
In 2013, employees exercised warrants totalling DKK 7 million
(DKK 60,486 in 2012). The share premium in this connection was
DKK 6 million (DKK 57,521 in 2012). The share premium totalling
DKK 232 million (DKK 226 million in 2012) relates to the exercise
of warrants in 2013 and earlier.
LUNDBECK — ANNUAL REPORT 2013 &Q G0 TO CONTENTS
53
NOTE 23
23. PENSION OBLIGATIONS AND SIMILAR OBLIGATIONS
Defined contribution plans
The major defined contribution plans cover employees in Australia,
Belgium, Canada, Denmark, Finland, Germany, Ireland, Sweden, the
UK and the US. The cost of defined contribution plans, representing
contributions to the plans, totalled DKK 189 million in 2013
(DKK 184 million in 2012).
Defined benefit plans
The Group has defined benefit plans in a few countries. The most
important plans comprise employees in Germany and the UK.
The defined benefit plan in Germany is unfunded and is
administered by Lundbeck Germany. The defined benefit plan in
the UK is funded and is constituted under a trust, whose assets
are legally separated from those of the Group. For both plans, the
employees are entitled to annual pensions on retirement based
on the service and salary level until retirement.
2013 2012
Pension obligations and similar obligations DKKM DKKm
Present value of funded pension obligations 340 i 350
Fair value of plan assets (251) (243)
Funded pension obligations, net 89 107
Present value of unfunded pension obligations 144 144
Pension obligations at 31.12. 233 251
Other pension-like obligations 48 49
Pension obligations and similar obligations at 31.12. 281 300
Pension obligations and similar obligations break down as follows:
Non-current obligations 271 293
Current obligations 10 7
Pension obligations and similar obligations at 31.12, 281 300
Assumptions for the most important plans 2013 2012
Discount rate (%) 3.40-4.20 3.30-4.30
Inflation rate (%) 2.20-2,40 2.00-2.20
Pay rate increase (%) 2,40-4.40 2,40-3.70
Pension increase (%) 2,40-3.40 2.20-2,70
Age-weighted staff resignation rate (%) 0-8 0-8
Expected return on plan assets (%) 4.20 4.30
The most significant assumptions used in the calculation of the
obligation for defined benefit plans are discount rate and inflation
rate, An increase in the discount rate of 0.25% results in a decrease
in the obligation of approximately DKK 20 million and vice versa.
An increase in the inflation rate of 0.25% results in an increase in
the obligation of approximately.DKK 6 million and vice versa. The
sensitivity analysis indicates how the development in the obligation
would be as a result of a change in the individual assumptions.
However, the assumptions will most likely be correlated and
consequently result in a different obligation.
2013 2012
DKKm DKKm
The fair value of the plan assets breaks down as follows:
Shares 21 18
Bonds 35 32
Property 8 7
Insurance contracts 180 181
Other assets 7 5
Total 251 243
Shares and bonds are measured at fair value based on quoted prices
in an active market. Property, insurance contracts and other assets
are not based on quoted prices in an active market.
1404084EogSN73101
LUNDBECK — ANNUAL REPORT 2013 &Q Go TO CONTENTS 54
NOTE 23
23. PENSION OBLIGATIONS AND SIMILAR OBLIGATIONS — CONTINUED
2013 2012
DKKm DKKm
Change in present value of funded pension obligations
Present value of funded pension obligations at 01.01. 350 284
Currency translation (11) 7
Pension expenses 9 8
Interest expenses relating to the obligations 12 14
Experience adjustments (3) -
Adjustments relating to financial assumptions (4) 39
Adjustments relating to demographic assumptions (5) 3
Disbursements (10) (7)
Employee contributions 2 2
Present value of funded pension obligations at 31,12. 340 350
Change in fair value of plan assets
Fair value of plan assets at 01.01. 243 224
Currency translation (7) 6
Interest income on plan assets 8 10
Experience adjustments (1) (6)
Administration fees (1) -
Contributions 17 14
Disbursements (10) (7)
Employee contributions 2 2
Fair value of plan assets at 31.12. 251 243
Change in present value of unfunded pension obligations
Present value of unfunded pension obligations at 01.01. 144 114
Currency translation - 1
Pension expenses 4 4
interest expenses relating to the obligations 4 6
Experience adjustments (2) (2)
Adjustments relating to financial assumptions (2) 33
Disbursements (4) (3)
Curtailment - (9)
Present value of unfunded pension obligations at 31.12, 144 144
Specification of expenses recognized in the income statement
Pension expenses 13 12
Finance costs 8 10
Administration fees 1 -
Total 22 22
Specification of amount recognized in the statement of comprehensive income
Actuarial (gains)/losses (15) 79
Total (15) 79
Realized return on plan assets 7 4
LUNDBECK — ANNUAL REPORT 2013 Ø G0 TO CONTENTS 55
NOTES 23-24
23. PENSION OBLIGATIONS AND SIMILAR OBLIGATIONS — CONTINUED
For the unfunded defined benefit plans, the benefit is paid directly Other pension-like obligations
by the company. For funded defined benefit plans, the future An obligation of DKK 48 million (DKK 49 million in 2012) was
contribution depends in some countries upon the devetopment in recognized in the Group to cover other pension-like obligations,
salaries, administrative fees and regular premiums, and in other including primarily termination benefits in a number of subsidiaries.
countries the contribution depends on the surplus/deficit according The benefit payments are conditional upon specified requirements
to local requirements. The weighted average duration of the being met.
obligation is 16 years (15 years in 2012). The expected contribution
for 2014 for the defined benefit plans is DKK 23 million (DKK 14
million for 2013).
24. MORTGAGE DEBT
2013 2012
DKKm DKKm
Mortgage debt by maturity
Within 1 year from the balance sheet date 1 -
Between 1 and 2 years from the balance sheet date 1 1
Between 2 and 3 years from the balance sheet date 56 1
Between 3 and 4 years from the balance sheet date 65 58
Between 4 and 5 years from the balance sheet date 92 64
More than 5 years from the balance sheet date 1,917 1,738
Mortgage debt at 31.12. 2,132 1,862
Mortgage debt breaks down as follows:
Non-current liabilities 2,131 1,862
Current liabilities 1 -
Mortgage debt at 31.12. 2,132 1,862
Weighted
average
effective Amortized Nominal Fair
Fixed/ interest rate cost value value
Currency Expiry floating % DKKm DKKm DKKm
2013
Mortgage debt, bond loan DKK 2035 Floating 2.54 1,414 1,481 1,526
Mortgage debt, bond loan DKK 2037 Floating 1.16 438 440 426
Mortgage debt, bond loan DKK 2037 Floating 1.16 268 283 274
Mortgage debt, bond loan DKK 2034 Floating 0.92 10 10 10
Mortgage debt, bond loan DKK 2034 Floating 0,94 2 2 2
Total 2,132 2,216 2,238
2012
Mortgage debt, bond loan DKK 2035 Floating 2.08 1,413 1,511 1,571
Mortgage debt, bond loan DKK 2037 Floating 1.20 437 440 423
Mortgage debt, bond loan DKK 2034 Floating 0.88 10 10 10
Mortgage debt, bond loan DKK 2034 Floating 0,88 2 2 2
Total 1,862 1,963 2,006
Amortized cost is calculated as the proceeds received less
instalments paid plus or minus amortization of capital losses
or gains. Fair value is calculated as the market value as at
31 December of the underlying bonds.
1404084EogSN73102
LUNDBECK — ANNUAL REPORT 2013 OG GO 70 CONTENTS
56
NOTE 25
25. FINANCIAL INSTRUMENTS
Foreign currency risks
Foreign currency management is handled centrally by the parent
company. Currency management focuses on risk minimization and
is carried out in conformity with the treasury policy approved by
the Board of Directors.
The parent company hedges a significant part of the Group's
anticipated cash flows for a period of up to 12 months.
The hedging consists partly of a fixed minimum hedge and partly
of a variable part.
The fixed part is hedged by forward exchange contracts and in
some cases by currency options classified as hedging instruments
and meeting the accounting criteria for hedging future cash flows.
Changes in the fair value of these contracts are recognized in the
statement of comprehensive income under other comprehensive
income as they arise and — on invoicing of the hedged cash flow
— transferred from other comprehensive income for recognition in
the same item as the hedged cash flow.
Hedging contracts that do not meet the hedge criteria are classified
as trading contracts, and changes in the fair value are recognized as
financial items as they arise.
Net forward exchange contracts and currency options outstanding
Hedging part
Exchange Exchange Average
Contract gains/losses galns/losses hedge prices
value recognized recognized in of existing
according under other the income forward
to hedge comprehensi' t / hang: Maturity
accounting income balance sheet contracts period
Forward exchange contracts DKKm DKKm DKKm DKK
2013
CAD 851 38 39 535.33 Oct. 2014
GBP 306 (3) 11 874.15 Dec. 2014
USD 1,968 (47) 10 536.31 Nov. 2014
Other currencies 869 33 66 - Dec. 2014
Total 21 126
2012
CAD 775 (2) (42) 561.84 Dec, 2013
GBP 442 - (29) 901.78 Nov. 2013
USD 547 (6) (20) 569.85 Dec. 2013
Other currencies 1,036 13 (39) - Dec. 2013
Total 5 (130)
At 31 December 2013, the exchange difference between the
contract value and the market value of the concluded forward
exchange contracts represented a net gain of DKK 101 million
(DKK 3 million in 2012) at the balance sheet date, of which a gain
of DKK 32 million (a loss of DKK 2 million in 2012) was recognized
in the income statement.
Monetary assets and monetary liabilities for the major currencies at 31 December
2013 2012
DKKmM DKKm
Monetary assets
CAD 233 213
GBP 211 247
USD 1,153 626
Monetary liabilities
CAD 239 227
GBP 234 105
USD 1,709 1,286
Monetary assets and monetary liabilities include trade receivables,
other receivables, securities, cash, mortgage debt, employee bonds,
trade payables, other payables, deferred tax and income taxes.
Due to the long-standing fixed exchange rate policy in Denmark,
the foreign currency risk for EUR is considered immaterial, and EUR
is therefore not included in the table above.
LUNDBECK — ANNUAL REPORT 2013 GQ G0 70 CONTENTS 57
25. FINANCIAL INSTRUMENTS — CONTINUED
Estimated impact on profit for the year and equity from a 5% increase in year-end exchange rates of the major currencies
CAD GBP usD
DKKm DKKm DKKm
2013
Profit for the year (1) (8) 12
Equity (39) (19) 191
2012
Profit for the year (2) (24) (7)
Equity (38) (15) 302
The profit impact includes currency translation adjustments which
concern intra-group balances, and which are not eliminated in the
consolidated financial statements.
The equity impact primarily includes currency translation
adjustments of balance sheet items in foreign subsidiaries, currency
translation adjustments concerning additions to net investments in
foreign subsidiaries, currency translation adjustments concerning
outstanding hedging contracts and the total profit impact.
Interest rate risks
Interest rate risk management is handled centrally by the parent
company. Through the Group's treasury policy, the Board of
Directors has approved the limits for borrowing and investment.
Løans secured by property must be approved by the Board
of Directors. To hedge the interest rate risk on loans, the Board of
Directors has approved the use of interest rate swaps, Caps, Floors
and Forward Rate Agreements (FRAs).
1404084EogSN73103
In the bond market, investments may only be made in Danish
government and mortgage bonds, money market funds consisting
of Danish government and mortgage bonds and in bonds issued
by Danish banks guaranteed by the Danish state, For managing the
interest rate risk on the securities portfolio (the securities portfolio
consists of bonds and money market deposits), Lundbeck applies a
duration target capped at five years for the entire portfolio. At 31
December 2013, the securities portfolio had a duration of 0.3 years,
which translates into a gain/loss of DKK 3 million if interest rates
should fall/rise by 1 percentage point,
There were no derivatives at 31 December 2013 and 2012 to
manage interest rate risks because the distribution of debt carrying
floating and fixed interest at the given times was deemed to be
satisfactory.
LUNDBECK — ANNUAL REPORT 2013 OG Go TO CONTENTS 58
25. FINANCIAL INSTRUMENTS — CONTINUED
Classification of and maturity dates for financial assets and financial liabilities
Between Effective
Within 1and After interest
Tyear 5 years 5 years Total rates
DKKm DKKm DKKM DKKM %
2013
Financial assets
Derivatives included in the trading portfolio 2 - 2 0
Securities! 1,038 4 - 1,042 0-1
Financial assets measured at fair value through profit or loss 1,040 - 1,044
Derivatives to hedge future cash flows 124 - - 124 0
Financial assets used as hedging instruments 124 - - 124
Receivables? 3,071 82 - 3,153 0
Fixed-term deposits 3,821 - - 3,821 0-7
Other cash resources 996 - - 996 0-7
Loans and receivables 7,888 82 - 7,970
Available-for-sale financial assets - 60 ” 60 0
Total financial assets 9,052 146 - 9,198
Financial liabilities
Derivatives included in the trading portfolio 2 - - 2 0
Financial liabilities measured at fair value through profit or loss 2 - - 2
Derivatives to hedge future cash flows 23 - - 23 0
Financial liabilities used as hedging instruments 23 ” - 23
Mortgage debt? 1 214 1,917 2,132 0-3
Employee bonds 18 8 - 26 3-6
Other payables 6,052 2 - 6,054 Q
Financial liabilities measured at amortized cost 6,071 224 1,917 8,212
Total financial liabilities 6,096 224 1,917 8,237
The amounts in the table above are exclusive of interest.
1) The securities are classified as financial assets measured at fair value through profit or loss.
2) Including other receivables recognized in non-current assets.
3) Nominal value of mortgage debt totalled DKK 2,216 million in 2013.
LUNDBECK — ANNUAL REPORT 2013 Q GO TO CONTENTS 59
NOTE 25
25. FINANCIAL INSTRUMENTS — CONTINUED
Between Effective
Within 1 and After interest
Tyear 5 years 5 years Total rates
DKKm DKKM DKKm DKKm %
2012
Financial assets
Derivatives included in the trading portfolio 1 - - 1 0
Securities? 1,041 14 - 1,055 0-1
Financial assets measured at fair value through profit or loss 1,042 14 - 1,056
Derivatives to hedge future cash flows 35 - - 35 0
Financial liabilities used as hedging instruments 35 - - 35
Receivables? 2,899 50 - 2,949 0
Fixed-term deposits 1,708 - - 1,708 0-4
Other cash resources 1,039 - - 1,039 0-5
Loans and receivables 5,646 50 - 5,696
Available-for-sale financial assets - 82 " 82 0
Total financial assets 6,723 146 - 6,869
Financial liabilities
Derivatives to hedge future cash flows 33 - - 33 0
Financial liabilities used as hedging instruments 33 - - 33
Mortgage debt? - 124 1,738 1,862 0-3
Employee bonds 19 26 - 45 3-6
Other payables 4,504 2 - 4,506 0
Financial liabilities measured at amortized cost 4,523 152 1,738 6,413
Total financial liabilities 4,556 152 1,738 6,446
The amounts in the table above are exclusive of interest,
1) The securities are classified as financial assets measured at fair value through profit or loss.
2) Including other receivables recognized in non-current assets.
3) Nominal value of mortgage debt totalled DKK 1,963 million in 2012.
Level 1 Level 2 Level 3
Financial assets and financial liabilities measured at fair value DKKm DKKm DKKm
2013
Financial assets
Securities 1,042 - -
Available-for-sale financial assets 40 - 20
Derivatives - 126 -
Total 1,082 126 20
Financial liabilities
Mortgage debt 2,238 - -
Derivatives - 25 -
Total 2,238 25 -
1404084EogSN73104
LUNDBECK — ANNUAL REPORT 2013 GG G0 TO CONTENTS 60
NOTES 25-26
25. FINANCIAL INSTRUMENTS — CONTINUED
Level 1 Level 2 Level 3
Financial assets and financial liabilities measured at fair value DKKm DKKM DKKm
2012
Financial assets
Securities 1,041 14 -
Available-for-sale financial assets 58 - 24
Derivatives - 36 -
Total 1,099 50 24
Financial liabilities
Mortgage debt 2,006 - -
Derivatives - 33 -
Total 2,006 33 -
26. RELATED PARTIES
Lundbeck's related parties:
+ The parent company's principal shareholder, Lundbeck Foundation,
Scherfigsvej 7, 2100 Copenhagen, Denmark.
+» Companies in which the principal shareholder exercises controlling
influence, i.e. ALK A/S and Falck A/S.
+ Members of the parent company's Executive Management and
Board of Directors as well as close relatives of these persons.
"+ Companies in which members of the parent company's Executive
Management and Board of Directors as well as close relatives of
these persons exercise controlling influence.
Transactions and balances with the parent company's
principal shareholder
The Lundbeck Foundation, which is the parent company's largest
shareholder, held 137,351,918 shares at 31 December 2013
(137,351,918 shares at 31 December 2012), corresponding to
approximately 70% of the share capital and votes in H. Lundbeck
A/S (approximately 70% in 2012). The Lundbeck Foundation is the
only shareholder who has reported a shareholding exceeding 5%
of the share capital. This was also the case at 31 December 2012.
There have been the following transactions and balances with the
parent company's principal shareholder:
+ Dividends.
+ Payment of provisional tax of DKK 152 million in 2013 regarding
2013 (DKK 404 million in 2012 regarding 2012) concerning the
parent company and Danish subsidiaries.
+ Refund of residual tax of DKK 282 million in 2013 regarding 2012
(payment of DKK 38 million in 2012 regarding 2011) concerning
the parent company and Danish subsidiaries.
+ Interest expense of DKK 4 million in 2013 (DKK 7 million in 2012).
The Lundbeck Foundation exercises controlling influence on
H. Lundbeck A/S.
Transactions and balances with the ALK group
There have been no transactions or balances with the ALK group.
Transactions and balances with the Falck group
There have been no material transactions or balances with the
Falck group.
Transactions and balances with the Executive Management
and Board of Directors
In addition to the transactions with members of the Executive
Management and Board of Directors outlined in note 3 Staff costs
and note 8 Incentive programmes, the parent company has paid
dividends on shares held by members of the Executive
Management and Board of Directors in H. Lunbeck A/S. At 31
December 2013 and 2012, there were no balances with the
Executive Management and Board of Directors.
Transactions and balances with other related parties
In 2013, Lundbeck paid a consultancy fee of DKK 3 million
(DKK 4 million in 2012) to Lundbeck International Neuroscience
Foundation, an independent commercial foundation established
by H. Lundbeck A/S in 1997. Other than this, there have been no
material transactions or balances with other related parties.
LUNDBECK — ANNUAL REPORT 2013 O GO TO CONTENTS 61
NOTE 27
27. SUBSIDIARIES
Share of
voting rights
Purpose and ownership
%
Lundbeck Argentina 5.A., Argentina Sales and distribution 100
Lundbeck Australia Pty Ltd, Australia, including Sales and distribution 100
- CNS Pharma Pty Ltd, Australia Sales and distribution 100
Lundbeck Austria GmbH, Austria, including Sales and distribution 100
- Innenwelt Gemeinnitzige GmbH, Austria Other 100
Lundbeck S.A,, Belgium Sales and distribution 100
Lundbeck Brasil Ltda., Brazil Sales and distribution 100
Lundbeck Canada inc., Canada Sales and distribution 100
Lundbeck Chile Farmacéutica Ltda., Chile Sales and distributian 100
Lundbeck (Beijing) Pharmaceuticals Consulting Co,, Ltd., China Sales and distribution 100
Lundbeck Colombia $.A.5., Colombia Sales and distribution 100
Lundbeck Croatia d.0.0., Croatia Sales and distribution 100
Lundbeck Czech Republic s.r.0., Czech Republic Sales and distribution 100
Lundbeck China Kolding A/S", Denmark, including Other 67
- Lundbeck Pharmaceuticals (Tianjin) Co., Ltd., China Production 100
- Lundbeck Pharmaceuticals Consulting (Shanghai) Co., Ltd., China Research and development 100
Lundbeck Export A/S, Denmark Sales and distribution 100
Lundbeck Insurance A/S, Denmark Other 100
Lundbeck Pharma A/S, Denmark Sales and distribution 100
Lundbeck Eesti A/S, Estonia Sales and distribution 100
OY H. Lundbeck AB, Finland Sales and distribution 100
Lundbeck SÅS, France Sales and distribution 100
Sofipharm SA, France, including Other 100
- Laboratoire Elaiapharm SÅ, France Production 100
Lundbeck GmbH, Germany Sales and distribution 100
Lundbeck Hellas S.A., Greece Sales and distribution 100
Lundbeck Hungåria KFT, Hungary Sales and distribution 100
Lundbeck India Private Limited, India Sates and distribution 100
Lundbeck (Ireland) Ltd., Ireland Sales and distribution 100
Lundbeck Israel Ltd,, Israel Sales and distribution 100
Lundbeck Italia S.p.A. Italy Sales and distribution 100
Lundbeck Pharmaceuticals, Italy S.p.A, Italy, including Production 100
- Årchid S.a., Luxembourg Sates and distribution 100
Lundbeck Japan K. K., Japan Sales and distribution 100
Lundbeck Korea Co., Ltd,, Republic of Korea Sales and distribution 100
SIA Lundbeck Latvia, Latvia Sales and distribution 100
UAB Lundbeck Lietuva, Lithuania Sales and distribution 100
Lundbeck Malaysia SDN, BHD., Malaysia Sales and distribution 100
Lundbeck México, SÅ de CV, Mexico Sales and distribution 100
Lundbeck B.V., The Netherlands Sales and distribution 100
Lundbeck New Zealand Limited, New Zealand Sales and distribution 100
H, Lundbeck AS, Norway Sales and distribution 100
Lundbeck Pakistan (Private) Limited, Pakistan Sales and distribution 100
Lundbeck America Central S.A., Panama Sales and distribution 100
Lundbeck Peru S.A.C.,, Peru Sales and distribution 100
Lundbeck Poland Sp.z.0.0., Poland Sales and distribution 100
Lundbeck Portugal - Produtos Farmacéuticos Unipessoal Lda, Portugal Sales and distribution 100
Lundbeck RUS OOQO, Russia Sales and distribution 100
Lundbeck Singapore PTE, LFD,, Singapore Sales and distribution 100
Lundbeck Slavensko s.r.0., Slovakia Sales and distribution 100
Lundbeck Pharma d.0.0., Slovenia Sales and distribution 100
1404084EogSN73105
LUNDBECK —— ANNUAL REPORT 2013 &Ø G0 70 CONTENTS 62
27. SUBSIDIARIES — CONTINUED
Share of
voting rights
Lundbeck South Africa (Pty) Limited, South Africa
Lundbeck Espafia S.Å., Spain
H. Lundbeck AB, Sweden, including
- CNS Pharma AB, Sweden
Lundbeck (Schweiz) AG, Switzerland
Lundbeck Pharmaceutical GmbH, Switzerland
Lundbeck lag Ticaret Limited Sirketi, Turkey
Lundbeck Group Ltd. (Hotding), UK, including
- Lundbeck Limited, UK
- Lundbeck Pharmaceuticals Ltd., UK
- Lifehealth Limited, UK
- Lundbeck UK LLP, UK
Lundbeck USA LLC, USA, including
- Lundbeck LLC, USA, including
- Lundbeck Pharmaceuticals Ireland Limited, Ireland
- Lundbeck Pharmaceuticals Services, LLC, USA
- Lundbeck Research USA, Inc., USA
Lundbeck de Venezuela, C.A., Venezuela
Purpose
Sales and distribution
Sales and distribution
Sales and distribution
Sales and distribution
Sales and distribution
Other
Sales and distribution
Other
Sales and distribution
Other
Other
Sales and distribution
Other
Sales and distribution
Sales and distribution
Sales and distribution
Research and development
Sales and distribution
and ownership
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
1) In subsidtaries in which Lundbeck does not hold 100% of the share capital but has a put option to buy the remaining capital at a fixed price after a pre-arranged number of years, a debt
obligation 15 recognized instead of recognition of Minority interests.
sg
LUNDBECK —— ANNUAL REPORT 2013 Q GO TO CONTENTS
63
NOTE 28
28. GENERAL ACCOUNTING POLICIES
The consolidated financial statements are presented in accordance
with International Financial Reporting Standards as adopted by the
EU and Danish disclosure requirements for annual reports of listed
companies, including the Danish Statutory Order on Adoption of
IFRS.
The consolidated financial statements are presented in Danish
kroner (DKK), which also is the functional currency of the parent
company.
The consolidated financial statements are presented in accordance
with the new and revised standards (IFRS/IAS) and interpretations
(IFRIC) which apply for the financial year, including IFRS 10
Consolidated Financial Statements, |FRS 11 Joint Arrangements and
IFRS 12 Disclosure of Interests in Other Entities. This has not resulted
in any changes in accounting policies that have affected
recognition and measurement in the current or previous years other
than the changes described below.
Changes in accounting policies
Two changes have been made to the accounting policies which
relate to the consolidated financial statements for 2013.
Lundbeck has implemented the changes to IAS 19 Employee
Benefits effective from 1 January 2013, according to which actuarial
gains and losses must be recognized in the statement of
comprehensive income instead of the income statement and not
subsequently be recycled through profit or loss. The
implementation has resulted in additional disclosures,
In addition, as from 1 January 2013, Lundbeck has reallocated to
cost of sales amortization on product rights, which was previously
recognized as sales and distribution costs. The reallocation has been
made to align cost of sales on all products regardless of whether
they are produced by Lundbeck or Lundbeck has purchased the
right to the products and subsequently amortizes the rights,
The changes have been made with retrospective effect, and
comparative figures have been restated. The changes in accounting
policies with regard to IAS 19 Employee Benefits have improved the
profit for 2012 by DKK 58 million to DKK 1,165 million. The change
in accounting policies with regard to reallocation of amortization
on product rights has no effect on the profit for 2012, The changes
in accounting policies have no impact on the balance sheet and no
net impact on the statement of comprehensive income, statement
of changes in equity and the cash flow statement.
lf the change in accounting policies regarding IAS 19 Employee
Benefits had not been effected, profit for 2013 would have been
DKK 11 million higher, i.e. profit for the year would have been
DKK 866 million, If the change in accounting policies regarding
the reallocation of amortization on product rights had not been
effected, sales and distribution costs would have been DKK 800
million higher, and cost of sales would have been correspondingly
lower.
1404084EogSN73106
See note 7 impact of changes in accounting policies for a detailed
overview of the consequence for each specific line item and the
consequence for EPS and DEPS.
Future IFRS changes
At the date of the publication of the consolidated financial
statements, a number of new and amended standards and
interpretations have not yet entered into force or have not yet
been adopted by the EU. Therefore, they are not incorporated in the
consolidated financial statements.
None of the new standards or amendments of existing standards
are expected to have any material impact on future consolidated
financial statements.
RECOGNITION AND MEASUREMENT
Consolidated financial statements
The consolidated financial statements comprise the parent
company H. Lundbeck A/S and subsidiaries controlled by the parent
company.
Translation of foreign currency
On initial recognition, transactions denominated in foreign
currencies are translated at standard rates which approximate the
exchange rates at the transaction date, Exchange differences arising
between the exchange rates at the transaction date and the
exchange rates at the date of payment are recognized in the
income statement under net financials except in case of hedge
accounting. In case of hedge accounting, such differences are
recognized in the same item as the hedged item.
Receivables, payables and other monetary items denominated in
foreign currencies that have not been settled at the balance sheet
date are translated at the exchange rates at the balance sheet date.
The difference between the exchange rates at the balance sheet
date and the rates at the time the receivable or payable is created
or recognized in the latest consolidated financial statements is
recognized in the income statement under net financials in respect
of unhedged items and under the same item for hedged items,
On recognition of foreign subsidiaries having a functional currency
different from that used by the parent company, non-monetary as
well as monetary items are translated at the exchange rates at the
balance sheet date, Exchange differences arising from the
translation of both the balance sheets and the income statements
of the foreign subsidiaries are recognized under other
comprehensive income,
Currency translation adjustments of receivables from or debt to
subsidiaries that are considered part of the parent company's
overall investment in the subsidiary in question are recognized
under other comprehensive income.
LUNDBECK — ANNUAL REPORT 2013 &Ø GO TO CONTENTS
64
NOTE 28
28. GENERAL ACCOUNTING POLICIES — CONTINUED
Financial instruments
Forward exchange contracts and other derivatives are initially
recognized in the balance sheet at fair value on the contract date
and are subsequently remeasured at fair value at the balance sheet
date. Positive and negative fair values are included in other
receivables and other payables respectively.
Changes in the fair value of derivatives classified as hedging
instruments and meeting the criteria for hedging future cash flows
are recognized under other comprehensive income, Income and
expenses related to such hedging transactions are transferred from
other comprehensive income on invoicing of ihe hedged item and
recognized in the same item as the hedged item.
Changes in the fair value of derivatives classified as hedging
instruments and meeting the criteria for hedging the fair value of a
recognized asset or liabitity are recognized in the income statement
together with changes in the value of the hedged asset or liability.
For derivatives which do not qualify for hedge accounting, changes
in fair value are recognized in the income statement under net
financials as they arise.
Changes in the fair value of derivatives used to hedge net
investments in independent foreign subsidiaries and which
otherwise meet the relevant criteria are recognized under other
comprehensive income,
Securities, available-for-sale financial assets and derivatives
measured at fair value are classified according to the fair value
hierarchy as belonging to levels 1-3 depending on the pricing
method applied.
INCOME STATEMENT
Revenue
Revenue comprises invoiced sales for the year less returned goods,
discounts and revenue-based taxes consisting mainly of value added
taxes and revenue-based drug taxes.
Moreover, revenue includes license income and royalties from
outlicensed products as well as non-refundable downpayments and
milestone payments relating to research and development
collaborations and cottaboration on commercialization of products.
In addition, income from the reduction of investments in research
enterprises considered to represent sale of research results is
recognized as revenue.
See note 1 Critical accounting policies, including accounting
estimates and judgments, p. 35, for a description of the accounting
treatment of license income and income from research
collaborations.
Cost of sales
Cost of sales comprises the cost of goods sold. Cost includes the
cost of raw materials, transport costs, consumables and goods for
resale, direct labour and indirect costs of production, including
operating costs, amortization/depreciation and impairment losses
relating to product rights and manufacturing facilities. Cost of sales
moreover includes royalty payments concerning inlicensed
products. Also included are expenses in connection with quality
assurance of products and any writedown to net realizable value
of unsaleable and slow-moving items.
Sales and distribution costs
Sales and distribution costs comprise expenses incurred in
connection with the sale and distribution of the Group's products
sold during the year. This includes expenses incurred for sales
campaigns launched, training and administration of the sales force
and direct distribution, marketing and promotion. Also recognized
are wages and other expenses for the sales, distribution and
marketing functions, depreciation and impairment and other
indirect costs.
Administrative expenses
Administrative expenses comprise expenses incurred for the
management and administration of the Group, This includes wages
and other costs relating to the company's management, HR, IT and
finance functions. Also recognized are depreciation and impairment
and other indirect costs.
Research and development costs
Research and development costs comprise expenses incurred in
connection with the Group's research and devetopment functions,
including wages and salaries, amortization/depreciation and
impairment and other indirect costs as well as costs relating to
research and development coilaborations on inlicensed products.
Research costs are always recognized in the income statement as
they are incurred.
Development costs are recognized in the income statement as they
are incurred. Development costs are capitalized only if a number of
specific criteria are deemed to have been met.
See note 1 Critical accounting policies, including accounting
estimates and judgments, p. 35, for a description of conditions for
capitalizing development costs.
Net financials
Net financials comprise:
+ Interest income and expenses for the year.
+ Realized and unrealized market value adjustments of financial
assets, including short-term securities that are included in the
Group's documented investment strategy.
+ Realized and unrealized gains and losses on unhedged items
denominated in foreign currencies, forward exchange contracts
and other derivatives not used for hedge accounting.
+ Realized exchange gains and losses concerning additions to net
investments in foreign subsidiaries that are recycled from other
comprehensive income.
+ Realized fair value adjustments and prolonged impairment losses
on available-for-sale financial assets, including dividends.
+ Other financial income and expenses.
LUNDBECK — ANNUAL REPORT 2013 &Q Go TO CONTENTS
65
NOTE 28
28. GENERAL ACCOUNTING POLICIES — CONTINUED
Tax
The Group's Danish subsidiaries are jointly taxed with the principal
shareholder the Lundbeck Foundation and its Danish subsidiaries.
The current Danish income tax liability is allocated among the
companies of the tax pool in proportion to their taxable income
(full allocation subject to reimbursement in respect of tax losses).
Tax for the year, which consists of the year's current tax and the
change in deferred tax, is recognized in the income statement as
regards the amount that can be attributed to the net profit or loss
for the year and under other comprehensive income as regards the
amount that can be attributed to items under other comprehensive
income. Currency translation adjustments of deferred tax are
recognized as part of the movements in deferred tax in the balance
sheet.
The current tax charge for the year is calculated based on the tax
rates and rules applicable at the balance sheet date.
BALANCE SHEET
Intangible assets
Goodwill
On initial recognition, goodwill is measured and recognized as the
excess of the cost or fair value of the acquired business over the
fair value of the acquired assets, liabitities and contingent liabilities.
On recognition, the goodwill amount is allocated to those of the
Group's activities that generate separate cash flows (cash-generating
units).
Goodwill is not amortized but is tested for impairment at least
once a year (impairment test), or if there is evidence of impairment.
Development projects
Development costs are recognized in the income statement as they
are incurred unless the conditions for capitalization have been met.
Development costs are capitalized only if the development projects
are clearly defined and identifiable and where the technical rate of
utilization of the project, the availability of adequate resources and a
potential future market ør development opportunity in the
company can be demonstrated. Furthermøre, such costs are only
capitalized where the intention is to manufacture, market or use the
project, where the cost can be measured reliably and it is probable
that the future earnings can cover production, sales and distribution
costs, administrative expenses as well as development costs.
After completion of the development work, development costs are
amortized over the expected useful life. For development projects
protected by intellectual property rights, the maximum
amortization period is the remaining term of the rights concerned.
Ongoing development projects are tested for impairment at least
once a year, or if there is evidence of impairment.
Product rights and other intangible assets
Acquired intellectual property rights in the form of product rights,
patents, licenses, customer relationships and software are measured
1404084EogSN73107
at cost less accumulated amortization and impairment. The cost of
software comprises the cost of planning, including labour and costs
directly attributable to the project.
Product rights are amortized over the economic lives of the
underlying products, which in all material aspects are currently
between 8-12 years, Patents are amortized, at a maximum, over
the remaining patent period, which in all material aspects is
currently between 10-13 years, and licenses are amortized over the
period of agreement. Amortization commences when the asset is
ready to be brought into use, i.e. at the time of commercialization.
Amortization is recognized in the income statement under cost of
sales and research and development costs respectively.
Borrowing costs to finance the manufacture of intangible assets are
recognized In the cost price if such borrowing costs relate to the
production period. Other borrowing costs are expensed.
Gains and losses on the disposal of development projects, patents
and licenses are measured as the difference between the selling
price less cost to sell and the carrying amount at the time of sale.
See note 1 Critical accounting policies, including accounting
estimates and judgments, p. 35, for a description of the calculation
of the fair value of intangible assets.
Property, plant and equipment
Property, plant and equipment are measured at cost less
accumulated depreciation and impairment. Land is not depreciated.
Cost includes the costs of purchase and expenses directly
attributable to the purchase until the asset is ready for use, In the
case of assets manufactured by Lundbeck, cost includes expenses
directly attributable to the manufacture of the asset, including
materials, components, subsuppties and labour.
Borrowing costs to finance the manufacture of property, plant and
equipment are recognized in the cost price if such borrowing costs
relate to the production period, Other borrowing costs are
expensed.
Property, plant and equipment are depreciated on a straight-line
basis over the expected useful lives of the assets, which are
expected to be as follows:
Buildings 30 years
Installations 10 years
Plant and machinery 3-10 years
Other fixtures and fittings, tools and equipment 3-10 years
Leasehold improvements max. 10 years
Depreciation methods, useful lives and residual values are
re-assessed annually.
Costs incurred that increase the recoverable amount of the asset
concerned are added to the asset's cost as an improvement and are
depreciated over the expected useful life of the improvement.
LUNDBECK — ANNUAL REPORT 2013 Q Go 70 CONTENTS
66
NOTE 28
28. GENERAL ACCOUNTING POLICIES — CONTINUED
Gains or losses on the sale or retirement of items of property, plant
and equipment are calculated as the difference between the
carrying amount and the selling price reduced by costs relating to
divestment or discontinuance. Gains and losses are recognized in
the income statement under the same items as the associated
depreciation.
Available-for-sale financial assets
Available-for-sale financial assets are financial assets that are not
derivative financial instruments and that are either classified as
available for sale or that cannot be classified as loans or receivables,
financial assets measured at fair vafue through profit or loss, or
held-to-maturity financial assets.
On initial recognition, available-for-sale financial assets are
measured at fair value with the addition of costs directly
attributable to the acquisition. The assets are subsequently
measured at fair value at the balance sheet date, and changes to
the fair value are recognized in the statement of comprehensive
income under other comprehensive income with the exception of
dividends and prolonged impairment losses, which are taken to the
income statement. When the assets are sold or settled, the
accumulated fair value adjustments recognized under other
comprehensive income are recycled to net financials or revenue if
the fair value adjustment concerns investments in research
enterprises.
Inventories
Raw materials, packaging and goods for resale are measured at the
latest known cost at the balance sheet date, which equals cost
computed according to the FIFO method. Work in progress and
finished goods manufactured by Lundbeck 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 administration
and management. Indirect costs of production are allocated based
on the normal capacity of the production plant.
Inventories are written down to net realizable value if it is lower
than the cost price. The net realizable value of inventories is
calculated as the selling price less costs of completion and costs
incurred to execute the sale. The net realizabte value is determined
having regard to marketability, obsolescence and expected selling
price developments.
Receivables
Current receivables comprise trade receivables and other
receivables arising in the Group's normal course of business. Other
receivables recognized under financial assets are financial assets
with fixed or determinable payments that are not quoted in an
active market and are not derivative financial instruments. On
initial recognition, receivables are measured at fair value and
subsequently at amortized cost, which usually corresponds to the
nominal value less writedowns to counter the risk of loss calculated
on the basis of an individual assessment. A provision account is
used for this purpose.
Securities
On initial recognition, securities, including the bond portfolio, which
are included in the Group's documented investment strategy for
excess liquidity and recognized under current assets, are measured
at fair value at the value date. The securities are subsequently
measured at fair value at the balance sheet date, corresponding
to the market value at the balance sheet date. Both realized and
unrealized gains and losses are recognized in the income statement
under net financials.
Equity
Dividends
Proposed dividends are recognized as a liability at the time of
adoption of the dividend resolution at the annual general meeting
(the time of declaration). Dividends expected to be paid in respect
of the year are included in the line item Profit for the year in the
statement of changes in equity.
Treasury shares
Cost and selling prices of treasury shares as well as dividends are
recognized directly in equity under retained earnings.
Share-based payments
Share-based incentive programmes in which employees may opt to
buy shares in the parent company and in which shares are allocated
to employees (equity schemes) are measured at the equity
instruments' fair value at the date of grant and recognized under
staff costs when or as the employee obtains the right to buy/
receive the shares. The balancing item is recognized directly in
equity under other transactions.
Share price-based incentive programmes in which employees have
the difference between the agreed price and the actual share price
settled in cash (debt schemes) are measured at fair value at the
date of grant and recognized under staff costs when or as the
employees obtain the right to such difference settlement. The
incentive programmes are subsequently remeasured on each
balance sheet date and upon final settlement, and any changes in
the fair value of the programmes are recognized under staff costs.
The balancing item is recognized under provisions until the time
of the final settlement.
Pension obligations
Periodical payments to defined contribution plans are recognized
in the income statement at the due date, and any contributions
payable are recognized in the balance sheet under current liabilities.
The present value of the Group's liabilities relating to future pension
payments according to defined benefit plans is measured on an
actuarial basis once a year on the basis of the pensionabte period
of employment up to the time of the actuarial valuation. The
present value is calculated based on assumptions of the future
developments of salary, interest, inflation, mortality and disability
rates and other factors. Present value is computed exclusively for the
benefits to which the employees have earned entitlement through
their employment with Lundbeck. Pension expenses, finance costs
and administration fees are recognized in the income statement
under staff costs. Actuarial gains and losses are recognized in the
statement of comprehensive income as they are calculated and
cannot subsequently be recycled through profit or loss.
LUNDBECK —— ANNUAL REPORT 2013 & GO TO CONTENTS
67
NOTE 28
28. GENERAL ACCOUNTING POLICIES — CONTINUED
The present value of the liability according to defined benefit plans
is measured less the fair value of the plan assets, and any net
obligation is recognized in the balance sheet under non-current
liabilities, Any net asset is recognized in the balance sheet as a
financial asset.
Income tax and deferred tax
Current tax payables and receivables are recognized in the balance
sheet, computed as tax calculated on the taxable income for the
year, adjusted for provisional tax paid.
Deferred tax is recognized on all temporary differences between the
carrying amounts of assets and liabilities and their tax base, except
for temporary differences arising either on initial recognition of
goodwill or from a transaction that is not a business combination
and with the temporary difference ascertained at the time of the
initial recognition affecting neither the financial result nor the
taxable income. The tax value of the assets is calculated based on
the planned use of each asset.
Deferred tax is measured on the basis of the tax rates and tax rules
in force in the respective countries on the balance sheet date.
Changes in deferred tax as a result of changed tax rates or tax rules
are recognized in the income statement.
Deferred tax assets, including the tax value of tax loss
carry-forwards, are recognized in the balance sheet at the value at
which the asset is expected to be reatlized, either through a set-off
against deferred tax liabilities or as net tax assets to be offset
against future positive taxable income.
Changes in deferred tax concerning the cost of share-based
payments are generally recognized in the income statement,
Deferred tax in respect of recaptured losses previously deducted in
foreign subsidiaries is recognized on the basis of a specific
assessment of the intention with each individual subsidiary.
Balances calculated according to the rules on interest deductibility
limitations in the Danish Corporate Income Tax Act are allocated
between the jointly-taxed companies according to a joint taxation
agreement and are allocated between the companies that are
subjected to deductibility timitation in proportion to their share of
the total limitation., Deferred tax liabilities in respect of these
balances are recognized in the balance sheet, whereas deferred tax
assets are recognized only if the criteria for recognition of deferred
tax assets are met.
Other provisions
Other provisions consist of different types of provisions, including
provisions for pending lawsuits. Management makes assessments of
provisions and contingent items, including the probable outcome of
pending and possible future lawsuits, which are inherently subject
to uncertain future events. When management determines the
probable outcome of lawsuits and similar factors, it relies on assess-
ments made by external advisers who are familiar with the specific
cases and the existing legal practice in the area.
1404084EogSN73108
In connection with a restructuring of the Group, provisions are only
made for liabilities set out in a specific restructuring plan on the
basis of which those affected can reasonably expect that the Group
will carry out the restructuring, either by starting to implement the
plan or announcing its main components.
Other provisions are recognized 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.
Other provisions are measured as the best estimate of the costs
required to settle the liabilities at the balance sheet date.
Return obligations imposed on the industry are recognized in the
balance sheet under other provisions.
Debt
Mortgage debt and debt to credit institutions are recognized 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 amortized cost, equivalent to the capitalized value
when the effective rate of interest is used. The difference between
the prøceeds and the nominal value is recognized under net
financials in the income statement over the loan period.
Debt included in the short-term financial liquidity is measured
at amortized cost in subsequent periods,
Other payables, which include trade payables and debt to public
authorities etc., are measured at amortized cost.
CASH FLOW STATEMENT
The consolidated cash flow statement is presented according to the
indirect method and shows the composition of cash flows, divided
into operating, investing and financing activities respectively, and
cash and cash equivalents at the beginning and at the end of the
year.
Cash flows from operating activities are calculated as the Group's
profit from operations, adjusted for non-cash operating items,
working capital changes, financial receipts and payments and
income taxes paid.
Cash flows from investing activities include payments in
connection with purchases and sales of intangible assets, property,
plant and equipment and financial assets, including equity
investments in companies. Also included are securities classified as
current assets,
Cash flows from financing activities include payments to and from
shareholders and retated expenses as well as the raising of,
instalments and repayments on loans, mortgage debt and other
long-term debt.
Cash comprises cash less any drawings on credit facilities that are
an integral part of the cash management.
LUNDBECK —— ANNUAL REPORT 2013 &Ø G0 TO CONTENTS
68
NOTES 28-29
28. GENERAL ACCOUNTING POLICIES — CONTINUED
Cash flows denominated in foreign currencies, including cash flows
in foreign subsidiaries, are translated at the average exchange rates
during the year because they approximate the actual exchange
rates at the date of payment. Cash at year-end is translated at the
exchange rates at the balance sheet date, and the effect of currency
translation adjustments on cash is shown as a separate item in the
cash flow statement.
SEGMENT INFORMATION
Lundbeck is engaged in research, development, production and sale
of pharmaceuticals for the treatment of brain diseases.
Business segments are identified based on internal management
reporting. In Lundbeck, the internal management reporting follows
the Group's accounting policies. In accordance with the internal
management reporting, on the basis of which management
evaluates and allocates resources, the Group's activities are in the
business segment of 'Pharmaceuticals for the treatment of brain
diseases.
The Group's senior operational management is the Corporate
Management Group, which consists of the Group's Executive
Management registered with the authorities and persons in charge
of the functional areas: business development, finance, human
resources, legal, R&D, sales and marketing, and supply operations.
Corporate Management Group makes decisions in respect of the
future strategy, draws up action plans and defines targets for the
Group's future operations.
The geographic distribution is shown for revenue and is based
on the external customers” geographical location.
29. EVENTS AFTER THE BALANCE SHEET DATE
No events have occurred in the period from the balance sheet date
until the presentation of the financial statements which may
change the evaluation of the annual report.
LUNDBECK — ANNUAL REPORT 2013 69
FINANCIAL STATEMENTS OF THE PARENT COMPANY
CONTENTS
INCOME STATEMENT 70
BALANCE SHEET 71
STATEMENT OF CHANGES IN EQUITY 73
1. Accounting policies 74
2. Staff costs 75
3. Audit fees 75
4. Investments in subsidiaries 75
5. Tax on profit for the year 75
6. Distribution of profit 76
7, Intangible assets and property, plant and equipment 76
8. Inventories 77
9. Deferred tax . 77
10. Other provisions 78
11. Mortgage debt 78
12. Financial instruments 78
13. Contractual obligations 78
14, Contingent liabitities 78
15. Related parties 78
16. Treasury shares 78
17. Events after the balance sheet date 78
1404084EogSN73109
LUNDBECK — ANNUAL REPORT 2013 &Q GO TO CONTENTS 70
1 JANUARY — 31 DECEMBER 2013
2013 2012
Notes DKKmM DKKm
Revenue 8,132 8,400
Cost of sales 2 2,838 2,417
Gross profit 5,294 5,983
Sales and distribution costs 2 806 1,180
Administrative expenses 2,3 1,744 865
Research and development costs 2 2,790 2,796
Profit from operations (46) 1,142
Income from investments in subsidiaries 4 193 193
Financial income 537 671
Financial expenses 257 205
Profit before tax 427 1,801
Tax on profit for the year 5 108 407
Profit for the year 6 319 1,394
vi
LUNDBECK — ANNUAL REPORT 2013 &Q GOTO CONTENTS
71
BALANCE SHEET — ASSETS
AT 31 DECEMBER 2013
2013 2012
Notes DKKm DKkm
Patent rights 4 47
Product rights 3,779 3,000
Other rights 88 115
Projects in progress 61 38
Intangible assets 7 3,932 3,200
Land and buildings 1,682 1,674
Plant and machinery 283 282
Other fixtures and fittings, tools and equipment 83 93
Prepayments and assets under construction 133 174
Property, plant and equipment 7 2,181 2,223
Investments in subsidiaries 4 4,874 4,861
Receivables from subsidiaries 3,801 5,320
Other investments 59 80
Other receivables 41 5
Financial assets 8,775 10,266
Non-current assets 14,888 15,689
Inventories 8 855 806
Trade receivables 241 99
Receivables from subsidiaries 1,490 1,014
Joint taxation contribution 70 333
Other receivables 349 275
Prepayments 182 205
Receivables 2,332 1,926
Securities 1,024 1,023
Cash 4,166 2,018
Current assets 8,377 5,773
Åssets 23,265 21,462
1404084EogSN73110
LUNDBECK — ANNUAL REPORT 2013
& Go To CONTENTS
72
BALANCE SHEET — EQUITY AND LIABILITIES
AT 31 DECEMBER 2013
2013 2012
Notes DKKM DKKM
Share capital 981 980
Share premium 232 226
Retained earnings
Equity
Deferred tax
Other provisions
Provisions
Mortgage debt
Employee bonds and other debt
Payables to subsidiaries
Non-current liabilities
Mortgage debt
Employee bonds
Trade payables
Payables to subsidiaries
Other payables
Current liabilities
Liabilities
Equity and liabilities
13,081 13,237
14294 14,443
9 740 907
10 292 278
1,032 1,185
11 2,132 1,862
9 27
1,551 1,820
3,692 3,709
7 -
18 19
1,748 1,346
1,266 311
1,214 449
4,247 2,125
7,939 5,834
23,265 21,462
For further details, see note 22 Share capital in the consolidated financial statements.
1404084EogSN73111
LUNDBECK —— ANNUAL REPORT 2013 G GO TO CONTENTS 73
AT 31 DECEMBER 2013
Share Share Retained
capital premium earnings Equity
Notes DKKm DKKm DKKm DKKm
Equity at 31.12,2012 980 226 13,291 14,497
Effect of intra-group merger - - (54) (54)
Adjusted equity at 01.01.2013 980 226 13,237 14,443
Profit for the year - - 319 319
Currency translation concerning additions to net investments
in foreign subsidiaries - - (159) (159)
Realized exchange gains/losses concerning additions to net investments
in foreign subsidiaries (transferred to the income statement) - - (8) (8)
Adjustments, deferred exchange gains/losses, hedging - - 142 142
Exchange gains/losses, hedging (transferred to the hedged items) - - (126) (126)
Tax on equity entries 5 - - 38 38
Comprehensive income - - 206 206
Distributed dividends - - (392) (392)
Capital increase through exercise of warrants 1 6 - 7
Buyback of treasury shares 16 - - (7 (7)
Incentive programmes - - 37 37
Other transactions 1 6 (362) (355)
Equity at 31.12.2013 981 232 13,081 14,294
LUNDBECK — ANNUAL REPORT 2013 &Q GO TO CONTENTS
74
NOTE 1
1. ACCOUNTING POLICIES
The annual report of the parent company H. Lundbeck A/S has been
prepared in accordance with the provisions of the Danish Financial
Statements Act for class D enterprises. The annual report is
presented in Danish kroner (DKK). Other than the change described
below, there have been no changes in accounting policies.
CHANGE IN ACCOUNTING POLICIES
In the preparation of the annual report for 2013 of the parent
company, a change was made to the accounting policies. As from
1 January 2013, the parent company has reallocated to cost
of sales amortization on product rights, which was previously
recognized as sales and distribution costs. The purpose of the
reallocation is to align cost of sales for all products regardless of
whether they are produced by Lundbeck or Lundbeck has purchased
the right to the products and subsequently amortizes the rights.
The effect on profit for the year is DKK 0.
The change has been made with retrospective effect, and
comparative figures have been restated. For 2012, DKK 31 million
has been reclassified from sales and distribution costs to cost of
sales. If the change in accounting policies had not been effected,
cost of sales for 2013 would have been DKK 311 million lower
and sales and distribution costs correspondingly higher.
MERGER WITH LUNDBECK COGNITIVE THERAPEUTICS A/S
Effective 1 January 2013, the parent company merged with the
wholty-owned subsidiary Lundbeck Cognitive Therapeutics A/S. The
merger was carried out using the pooling of interests method, and
the financial statements, including comparative figures for 2012,
have been restated to reflect the merger as if the activities of
Lundbeck Cognitive Therapeutics A/S had always been carried
out in H. Lundbeck A/S.
DIFFERENCES RELATIVE TO THE GROUP'S ACCOUNTING POLICIES
The parent company's accounting policies for recognition and
measurement are in accordance with the Group's policies with
the exceptions stated below.
Income statement
Income from investments in subsidiaries
Dividends from subsidiaries are recognized in the parent company's
income statement when the parent company's right to receive such
dividends has been approved, less any writedowns of the equity
investments.
Balance sheet
Investments in subsidiaries
Investments in subsidiaries are measured at cost in the parent
company's financial statements. Where the recoverable amount
of the investmentis is lower than cost, the investments are written
down to this lower value, in addition, cost is written down to the
extent that dividends distributed exceed the accumulated earnings
in the subsidiary since the acquisition date.
Other financial assets
On initial recognition, securities and investments are measured Å
at cost, corresponding to fair value plus directly attributable costs.
They are subsequently measured at fair value at the balance sheet
date, and changes to the fair value are recognized under net
financials in the income statement.
Statement of changes in equity
Pursuant to the Danish Financial Statements Act, entries recognized
in the statement of comprehensive income in the consolidated
financial statements are recognized directly in the statement of
changes in equity in the parent company's financial statements
except for entries concerning other financial assets.
Cash flow statement
As allowed under section 86 (4) of the Danish Financial Statements
Act, no cash flow statement is presented as this is included in the
consolidated cash flow statement.
LUNDBECK — ANNUAL REPORT 2013 Q GO TO CONTENTS 75
,
2. STAFF COSTS 3. AUDIT FEES
Wages and salaries, etc.
2013 2012 2013 2012
DKKm DKKm Deloitte Statsautoriseret Revisionspartnerselskab DKKm DKKm
Short-term staff benefits 1,377 1,224 Statutory audit 2 2
Pension benefits 118 117 Other services 14 1
Other social security costs 28 27 Total 16 3
Share-based payments 34 44
Total 1,557 1,412
— Other services include one-off advisory services provided by
The year's staff costs are specified as follows: Deloitte which mave been evaluated as not impairing the
Cost of sales 276 287 independence of the external audit services provided.
Sales and distribution costs 87 83 Af: inor forei bsidiari t audited by th t
'ew minor foreign subsidiaries are no ite e paren
Administrative expenses 556 404 , . g , . au y På
company's auditors, a foreign business partner of the auditors,
Research and development costs 638 638 . . ÉN . .
— —— or by a recognized, international auditing firm.
Total 1,557 TA
Executives?
2013 2012
DKKm DKKm
Short-term staff benefits 40 43
Pension benefits 8 8 4. INVESTMENTS IN SUBSIDIARIES
Share-based payments 16 19 2013
Total 64 70 DKKM
Cost at 01.01. 4,861
1) Executives are individuals who report directly to Executive Management,
Executive Management
See note 3 Staff costs and note 8 Incentive programmes in the
consolidated financial statements.
Board of Directors
See note 3 Staff costs in the consolidated financial statements.
Number of employees
2013 2012
Average number of full-time employees
in the financial year 1,905 1,915
Number of full-time employees at 31.12. 1,898 1,912
Incentive programmes
See note 8 Incentive programmes in the consolidated financial
statements.
1404084EogSN73112
Capital contributions to subsidiaries 13
Cost at 31.12. 4,874
Income from investments in subsidiaries is dividends, which
amounted to DKK 193 million (DKK 193 million in 2012).
See note 27 Subsidiaries in the consolidated financial statements
for an overview of all subsidiaries.
5. TAX ON PROFIT FOR THE YEAR
2013 2012
DKKmM DKKm
Current tax, joint taxation contribution 254 163
Prior-year adjustments, current tax (17) (10)
Prior-year adjustments, deferred tax (3) (15)
Change of deferred tax for the year (42) 256
Change of deferred tax as a result
of a change in the income tax rate (122) -
Total tax for the year 70 394
Tax for the year is composed of:
Tax on profit for the year 108 407
Tax on equity entries (38) (13)
Total tax for the year 70 394
LUNDBECK — ANNUAL REPORT 2013 &Q Go TO CONTENTS 76
NOTES 6-7
6. DISTRIBUTION OF PROFIT
2013 2012
Proposed distribution of profit for the year DKKm DKKm
Proposed dividends for the year 543 392
Transferred to distributable reserves (224) 1,002
Total profit for the year 319 1,394
Proposed dividend per share (DKK) 2.77 2.00
7. INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT
Patent Product Other Projects In Intangible ”
rights rights? rights? progress' assets
Intangible assets DKKm DKKm DKKm DKKm DKKm
Cost at 01.01.2013 663 3,528 968 38 5,197 VW
Transfer - - 24 (24) -
Additions - 1,121 12 47 1,180
Disposals - - (26) - (26)
Cost at 31.12.2013 663 4,649 978 61 6,351
Amortization at 01.01.2013 616 528 853 - 1,997
Amortization 6 132 63 - 201
Impairment 37 210 - - 247
Disposals - - (25) - (26)
Amortization at 31.12.2013 659 870 890 - 2,419
Carrying amount at 31.12.2013 4 3,779 88 61 3,932
1) Of product rights, DKK 2,606 million relates to products not yet commercialized.
2) Other rights and projects in progress primarily include items such as the IT system SAP. The amounts include directly attributable internal expenses.
Other
fixtures — Prepayments
and fittings, and assets Property,
Land and Plant and tools and under plant and w=
buildings machinery equipment? — construction equipment
Property, plant and equipment DKKm DKKm DKKM DKKm DKKm
Cost at 01.01.2013 3,249 969 755 174 5,147
Transfer 36 55 40 (131) - w
Additions 76 9 7 90 182
Disposals (13) (26) (102) - (141)
Cost at 31.12.2013 3,348 1,007 700 133 5,188
Depreciation at 01.01.2013 1,575 687 662 - 2,924
Transfer (18) - 18 - -
Depreciation 120 60 39 - 219
Disposals (11) (23) (102) - (136)
Depreciation at 31.12.2013 1,666 724 617 - 3,007
Carrying amount at 31.12.2013 1,682 283 83 133 2,181
1) Including leasehold improvements.
SN
LUNDBECK — ANNUAL REPORT 2013 &Q GO TO CONTENTS
77
NOTES 7-9
7. INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT — CONTINUED
Impairment of intangible assets
In 2013, an impairment loss on the Sycrest? product rights totaling
DKK 210 million was recognized in cost of sales. Furthermøre, an
impairment loss on patent rights totalling DKK 37 million was
recognized in research and development costs. The recoverable
amounts were calculated on the basis of management's re-assessed
estimate of the value in use of the assets.
Pledged assets
The carrying amount of pledged land and buildings at 31 December
2013 was DKK 1,688 million. No other assets have been pledged,
8. INVENTORIES
2013 2012
DKKm DKKmM
Raw materials and consumables 170 115
Work in progress 425 338
Finished goods and goods for resale 260 353
Total 855 806
Indirect costs of production 216 218
Impairment loss for the year 48 19
9. DEFERRED TAX
Adjustment of
deferred tax Movement
Balanceat — at beginning during Balance at
01.01, of year the year 31,12,
2013 DKKm DKKm DKKm DKKmM
Intangible assets 3,050 15 724 3,789
Property, plant and equipment 612 (8) (37) 567
Inventories 219 - (2) 217
Other items (251) (21) (851) (1,123)
Total temporary differences 3,630 (14) (166) 3,450
Deferred (tax assets)/tax liabilities? 907 (3) (164) 740
1) Movement during the year includes a reduction in deferred tax of DKK 122 million as a result of a change in the income tax rate.
1404084EogSN73113
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78
NOTES 10-17
10. OTHER PROVISIONS
2013
DKKm
Provisions at 01.01. 278
Provisions charged 201
Provisions used (187)
Provisions at 31.12. 292
Provisions break down as follows:
Non-current provisions 51
Current provisions 241
Provisions at 31.12. 292
The parent company has entered into an agreement with individual
subsidiaries, under which the parent company will cover expected
losses and obligations concerning the restructuring of the
administrative processes in Europe initiated in 2013 and of the
commercial organization in Europe initiated in 2012. The parent
company has therefore made provisions to cover such losses and
obligations.
11. MORTGAGE DEBT
Mortgage debt falling due after more than 5 years from the balance
sheet date amounts to DKK 1,917 million (DKK 1,738 million in 2012).
12. FINANCIAL INSTRUMENTS
See note 25 Financial instruments in the consolidated financial
statements.
13. CONTRACTUAL OBLIGATIONS
Rental and lease obligations
The parent company has obligations amounting to DKK 63 million
(DKK 52 million in 2012) in the form of rentals and leasing of
operating equipment. Of this amount, DKK 38 million (DKK 28
miltion in 2012) falls due after more than one year. Rental and
lease payments recognized in the income statement amounted
to DKK 33 miflion (DKK 33 million in 2012).
Other purchase obligations
The parent company has undertaken purchase obligations in
the amount of. DKK 203 million (DKK 216 million in 2012).
Research and development collaborations
The parent company is part of multi-year research and
development collaboration projects comprising minimum research
and development obligations in the order of DKK 52 million
(DKK 147 million in 2012). The total amount of the obligations
may increase substantially in line with the favourable development
of the research and development projects.
Other contractual obligations
The parent company has entered into various service agreements
amounting to DKK 119 million (DKK 100 million in 2012).
At 31 December 2013, the parent company had capital contribution
obligations amounting to DKK 8 million (DKK 3 million in 2012).
14, CONTINGENT LIABILITIES
Bank guarantees and letters of intent
The parent company has entered into agreements to cover
operating losses in certain subsidiaries.
The parent company's bankers have issued bank guarantees to third
parties in the amount of DKK 30 million (DKK 59 million in 2012).
As collateral for other bank guarantees, the parent company has
issued letters of intent to the banks in the amount of DKK 5 mitlion
(DKK 4 million in 2012) on behalf of subsidiaries.
Except for the above, the Group's and the parent company's
contingent liabilities are identical, and reference is therefore made
to note 6 Contingent assets and contingent liabilities in the
consolidated financial statements.
15. RELATED PARTIES
For information on related parties exercising controlling influence Fa
on H. Lundbeck A/S, see note 26 Related parties in the consolidated
financial statements.
H. Lundbeck A/S has not entered into any transactions with related
parties that were not on an arm's length basis.
16. TREASURY SHARES
See note 22 Share capital in the consolidated financial statements.
17. EVENTS AFTER THE BALANCE SHEET DATE
See note 29 Events after the balance sheet date in the consolidated
financial statements.
SØ — >
LUNDBECK — ANNUAL REPORT 2013 & Go To CONTENTS
79
MANAGEMENT STATEMENT
Today, we considered and approved the annual report of
H. Lundbeck A/S for the period 1 January — 31 December 2013.
The consolidated financial statements have been prepared in
accordance with International Financiat Reporting Standards as
adopted by the EU, and the financial statements of the parent
company have been prepared in accordance with the Danish
Financial Statements Act. In addition, the annual report has been
prepared in accordance with Danish disclosure requirements for
annual reports of listed companies.
We consider the accounting policies used to be appropriate.
Accordingly, the consolidated financial statements and the financial
statements of the parent company give a true and fair view of the
Group's and the parent company's assets, liabilities and financial
position at 31 December 2013, and of the Group's and the parent
company's activities and the Group's cash flows for the financial
year 1 January — 31 December 2013.
We believe that the management's review includes a fair review of
developments in the Group's and the parent company's activities
and finances, results for the year and the Group's and the parent
company's financial position in general as well as a fair description
of the principal risks and uncertainties to which the Group and the
parent company are exposed.
We recommend that the annual report be approved at the Annual
General Meeting.
Copenhagen, 6 February 2014
i É
,
EXECUTIVE MANAGEMENT
(UL Wåder, (les 4 ÆZZ/ZCER
Ulf Wiinberg Anders Gåtzsche
President and CEO Executive Vice President, CFO
Anders Gersel Pedersen
Executive Vice President,
Research & Development
BOARD OF DIRECTORS
RA
Håkan Bjørklund Christian Pyvig Kim Rosenville Christensen
Chairman Deputy Chairman
oC
Uoue Wesolagkrs Elke Mer: Diam
Mona Elisabeth Elster leif Krarup Melanie G, Lee
Mm
Jørn Mayntzhusen Lars Rasmussen Jes Østergaard
1404084EogSN73114
LUNDBECK — ANNUAL REPORT 2013 Q GO TO CONTENTS
80
INDEPENDENT AUDITOR'S REPORTS
TO THE SHAREHOLDERS OF H. LUNDBECK A/S
Report on the consolidated financial statements and parent
financial statements
We have audited the consotidated financial statements and parent
financial statements of H. Lundbeck A/S for the financial year
1 January — 31 December 2013, which comprise the income
statement, balance sheet, statement of changes in equity and
notes, including the accounting policies, for the Group as well as
the Parent, and the statement of comprehensive income and the
cash flow statement of the Group. The consolidated financial
statements are prepared in accordance with International Financial
Reporting Standards as adopted by the EU and Danish disclosure
requirements for listed companies, and the parent financial
statements are prepared in accordance with the Danish Financial
Statements Act.
Management's responsibility for the consolidated financial
statements and parent financial statements
Management is responsible for the preparation of consolidated
financial statements that give a true and fair view in accordance
with International Financial Reporting Standards as adopted by the
EU and Danish disclosure requirements for listed companies as well
as the preparation of parent financial statements that give a true
and fair view in accordance with the Danish Financial Statements
Act, and for such internal control as Management determines is
necessary to enable the preparation of consolidated financial
statements and parent financial statements that are free from
material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on the consolidated
financial statements and parent financial statements based on our
audit. We conducted our audit in accordance with International
Standards on Auditing and additional requirements under Danish
audit regulation. This requires that we comply with ethical
requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements and
parent financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements and parent financial statements. The procedures
selected depend on the auditor's judgement, including the
assessment of the risks of material misstatements of the
consolidated financial statements and parent financial statements,
whether due to fraud or error. In making those risk assessments, the
auditor considers internal control relevant to the entity's
preparation of consolidated financial statements and parent
financiat statements that give a true and fair view in order to design
audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the
entity's internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness
of accounting estimates made by Management, as well as the
overall presentation of the consolidated financial statements and
parent financial statements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinion.
Our audit has not resulted in any qualification.
Opinion
In our opinion, the consolidated financial statements give a true
and fair view of the Group's financial position at 31 December
2013, and of the results of its operations and cash flows for the
financial year 1 January — 31 December 2013 in accordance with
International Financial Reporting Standards as adopted by the EU
and Danish disclosure requirements for listed companies.
Further, in our opinion, the parent financial statements give a true
and fair view of the Parent's financial position at 31 December
2013, and of the results of its operations for the financial year
1 January - 31 December 2013 in accordance with the Danish
Financial Statements Act.
Statement on the management review
Pursuant to the Danish Financial Statements Act, we have read the
management review. We have not performed any further
procedures in addition to the audit of the consolidated financial
statements and parent financial statements.
On this basis, it is our opinion that the information provided in the
management review is consistent with the consolidated financial
statements and parent financial statements.
Copenhagen, 6 February 2014
Statsautoriseret Revisionspartnerselskab
—17
Anders Dons
State Authorized Public Accountant
Eb
Martin Faarborg | —
State Authorized Public Aco ntant
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1404084EogSN73115
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