Interim report for the second quarter of 2007
The Supervisory Board of H. Lundbeck A/S today approved the Group's
interim report for the second quarter of 2007.
* Second-quarter consolidated revenue amounted to DKK 2,612
million, a 19% increase relative to the year-earlier period (19%
increase at CER).
* Revenue derived from Europe amounted to DKK 1,490 million,
a 6% increase over the year-earlier period (6% growth at CER).
Revenue from International Markets amounted to DKK 424 million, a 36%
increase (33% growth at CER). Revenue from the USA rose 49% (56%
increase at CER) to DKK 641 million.
* Profit from operations was DKK 692 million, a 158% rise
relative to the year-earlier period. The EBIT margin was 26.5%.
Profit after tax was DKK 498 million, a 232% rise relative to the
year-earlier period.
* Lundbeck's total net investments in Q2 2007 amounted to DKK
154 million, as compared with DKK 207 million in Q2 2006 and DKK 127
million in Q1 2007.
* The Group's revenue for the first half year of 2007 was DKK
5.194 million corresponding a growth of 17% compared to the same
period last year. Profit from operations for the Group for the first
half-year of 2007 was DKK 1.349 million corresponding a growth of
88%.
* Lundbeck reiterates its full-year financial guidance for
the Group, which is a profit from operations of more than DKK 2.5
billion, an EBIT margin of 25% and a level of investment of about DKK
650 million.
Financial highlights for the period
In respect of recognition and measurement, the interim report has
been prepared in accordance with IFRS and related interpretations of
the International Accounting Standards Board (IASB), which are
expected to apply for the presentation of financial statements for
the full year 2007. The interim report is unaudited.
Q2 2007 Q2 2006 Growth in Growth at Q1
DKKm DKKm DKK CER 2007
DKKm
Revenue 2,612 2,198 19% 19% 2,583
- Cipralex® 1,027 856 20% 18% 990
- Lexapro® 641 435 47% 54% 628
- Ebixa® 409 337 21% 21% 391
- Azilect® 40 17 140% 140% 34
- Serdolect® 6 2 222% 214% 10
- Other pharmaceuticals 432 495 -13% -13% 465
- Other revenue 57 58 -2% -1% 65
Costs 1,920 1,930 - - 1,925
- Cost of sales 398 437 -9% - 497
- Distribution 590 646 -9% - 578
- Administration 384 358 7% - 377
- Research and 549 488 13% - 473
development
- Other operating -2 1 - - 1
expenses, net
Profit from operations 692 269 158% - 658
Net financials 5 -23 - - 48
Net profit for the period 498 150 232% - 466
Earnings per share, EPS 2.42 0.71 241% - 2.24
(DKK)
Free cash flow 779 -72 - - 255
Financial forecast for 2007
Lundbeck forecasts strong growth in consolidated profit for 2007
relative to 2006. Accordingly, Lundbeck expects a profit from
operations of more than DKK 2.5 billion, an EBIT margin of 25% and a
level of investment of approximately DKK 650 million.
In 2005, Lundbeck acquired the rights for desmoteplase in Europe,
Japan and the rest of the world except for the USA and Canada. At
that time, Lundbeck made an upfront payment of EUR 15 million, which
was capitalised in the company's balance sheet. Lundbeck has
regularly amortised part of this payment, which was recognised at a
value of DKK 99 million at 30 June 2007.
On 31 May 2007, Lundbeck's partners PAION AG and Forest Laboratories
Inc. announced the results of the DIAS-2 (Desmoteplase In Acute
Ischemic Stroke) study with the compound desmoteplase. The primary
efficacy endpoint in the study (the difference between active
treatment and placebo as a percentage of composite responders) was
not met, and Lundbeck is awaiting the results of an analysis of data
before we will decide on the further development process for
desmoteplase and Lundbeck's involvement in the project.
In case Lundbeck resolves to withdraw from the desmoteplase
development project, an amount of DKK 99 million will be written off
and recognised as an expense in the income statement.
This forecast is exclusive of a potential write down of the
capitalised balance sheet value of DKK 99 million for desmoteplase.
Financial forecast
2007
Forecast
Profit from operations (EBIT) More than DKK 2.5bn
EBIT margin 25%
Investments Approx. DKK 650m
Revenue in Q2 2007
The Group generated Q2 revenue of DKK 2,612 million, which was a 19%
increase on the same period of last year and a 1% increase relative
to Q1 2007. Adjusted for exchange rate fluctuations, Group revenue
rose 19% relative to the year-earlier period.
Lundbeck Group revenue
Q2 2007 Q2 2006 Growth in Growth at Q1
DKKm DKKm DKK CER 2007
DKKm
Cipralex® 1,027 856 20% 18% 990
Lexapro® 641 435 47% 54% 628
Ebixa® 409 337 21% 21% 391
Azilect® 40 17 140% 140% 34
Serdolect® 6 2 222% 214% 10
Other pharmaceuticals 432 495 -13% -13% 465
Other revenue 57 58 -2% -1% 65
Total revenue, Group 2,612 2,198 19% 19% 2,583
The Group's pharmaceuticals Cipralex® and Ebixa® (for the treatment
of depression and Alzheimer's disease, respectively) continued to
grow combined with the recently launched pharmaceuticals Azilect® and
Serdolect® (for the treatment of Parkinson's disease and
schizophrenia, respectively). The higher income from Lexapro® was due
primarily to the inventory reduction in 2006.
Second-quarter sales of newer pharmaceuticals (Cipralex®/Lexapro®,
Ebixa®, Azilect® and Serdolect®) made up 81% of the Group's total
revenue compared with 75% in Q2 2006.
Europe
Q2 2007 Q2 2006 Growth in Growth at Q1
DKKm DKKm DKK CER 2007
DKKm
Cipralex® 772 697 11% 10% 759
Ebixa® 360 303 19% 19% 343
Azilect® 40 17 140% 140% 34
Serdolect® 6 2 214% 206% 9
Other pharmaceuticals 312 381 -18% -18% 339
Total revenue, Europe 1,490 1,400 6% 6% 1,485
Cipralex® and Ebixa® are still Lundbeck's best-selling
pharmaceuticals in Europe in terms of revenue and continue to make
positive contributions to growth in Europe, posting growth rates of
11% and 19%, respectively, relative to Q2 2006.
At the end of May 2007, Cipralex® held 14.4% of total antidepressants
sales in Europe, an increase of 25% compared with at the end of May
2006. In terms of volume, Cipralex® was the most widely used branded
antidepressant in Europe at the end of May 2007.
At the end of May 2007, Ebixa® commanded 15.3% of the European market
for pharmaceuticals to treat Alzheimer's disease, as compared with a
share of 14.5% at the same time in 2006. Memantine, the active
ingredient in Ebixa®, is currently the second-most prescribed
pharmaceutical in Europe for treating Alzheimer's disease.
The launch of Azilect® is proceeding well, and the product has now
been launched in more than 20 countries across Europe. At the end of
May 2007, Azilect® held 4.1% of the composite European market for
pharmaceuticals to treat Parkinson's disease.
Serdolect® has now been launched in 20 countries across Europe,
including Spain and Germany.
USA
Q2 2007 Q2 2006 Growth in DKK Growth at Q1
DKKm DKKm CER 2007
DKKm
Lexapro® 641 435 47% 54% 628
Other pharmaceuticals - -5 nm. nm. 4
Total revenue, USA 641 430 49% 56% 631
Lundbeck's income from sales of Lexapro® in the USA was DKK 641
million in Q2 2007, compared with DKK 435 million in the same period
of last year, an increase of 47%. The increase was partly
attributable to a low income level for Lexapro® in 2006 due to the
inventory reductions made throughout 2006, partly to rising Lexapro®
sales in the US market.
At the end of May 2007, Lexapro® held 22.1% of total antidepressants
sales in the USA, as compared with a share of 17.1% at the same time
last year. Measured by the total number of prescriptions (TRx), the
number of prescriptions written for Lexapro® grew by 4.0%.
Prepayments from Forest recorded in Lundbeck's balance sheet - the
difference between the invoiced price and the minimum price of
Forest's inventories - was DKK 935 million at 30 June 2007 compared
with DKK 1,070 million at 30 June 2006 and DKK 918 million at 31
March 2007. At 30 June 2007, inventories were on a level
corresponding to just less than 9 months of commercial supply.
Lundbeck hedges income from Lexapro® and other products using
currency hedging. As a result of Lundbeck's currency hedging policy,
foreign exchange losses and gains on hedging transactions are
allocated directly to the hedged transaction. The hedging of the
company's foreign exchange income means that this income is in
reality included in the financial statements at the forward rates.
The effect on the profit was DKK -48 million in Q2 2007 against DKK 7
million in the year-earlier period compared to a situation where the
income is included at the current rates of exchange during the
period. Of the total effect, DKK -47 million compared with DKK 11
million in Q2 2006 stems from the hedging of USD. The loss from the
USD hedging is included in the income from sales of Lexapro®.
At 30 June 2007, forward exchange and option contracts had been
entered into to hedge foreign currency cash flows, primarily in USD,
equivalent to a value of approx. DKK 3.0 billion, most of which is
accounted for as hedging contracts. The average forward rates at 30
June 2007 for US dollars were USD/DKK 560.94. Deferred recognition of
net currency losses and gains amounted to DKK 33 million at 30 June
2007 against DKK 34 million at 30 June 2006 and DKK 51 million at 31
March 2007.
The average forward rate for the first six months of 2008 for US
dollars will be approximately USD/DKK 551, using the existing hedging
contracts. The corresponding forward rate for the first six months of
2007 was approximately DKK/USD 582. For the 2007 financial year, the
average forward rate for US dollars is approximately USD/DKK 575.
International markets
Q2 2007 Q2 2006 Growth in Growth at Q1
DKKm DKKm DKK CER 2007 DKKm
Cipralex®/Lexapro® 255 159 61% 56% 231
Ebixa® 49 34 46% 45% 48
Serdolect® 0 0 nm nm 0
Other pharmaceuticals 120 119 1% -3% 122
Total revenue, International 424 311 36% 33% 401
Markets
Revenue outside Europe and the USA rose 36% relative to the
year-earlier period. The increase was driven primarily by stronger
sales of Cipralex® in several major markets.
Expenses
Lundbeck's total expenses, exclusive of net financials and tax, were
DKK 1,920 million in Q2 2007, which is on a level with the
year-earlier period and with Q1 2007.
At DKK 398 million, cost of sales amounted to approximately 15% of
total revenue, which is a 5 percentage points decrease compared with
the same quarter of 2006. In nominal terms, second-quarter cost of
sales was down 9% relative to the same period of last year.
Second-quarter cost of sales was positively affected by factors such
as an adjusted inventory value and recognised indirect production
costs.
Distribution costs amounted to DKK 590 million, a decline of 9%
relative to the year-earlier period and a 2% increase on Q1 2007.
Second-quarter distribution costs were affected by a higher level of
activity in the Group's sales subsidiaries in the spring and autumn
periods, while positively reflecting ongoing streamlining and
restructuring efforts in the sales organisations in a number of
European countries.
Administrative expenses amounted to DKK 384 million, an increase of
7% compared with the year-earlier period and a 2% increase relative
to Q1 2007. The movements in administrative expenses were partly due
to expenses related to operating and expanding the Group's
information technology infrastructure.
Second-quarter research and developments costs amounted to DKK 549
million, which was a 13% increase on the same period of last year and
16% higher than in Q1 2007.
Research and development costs accounted for 21% of revenue in Q2
2007 as compared with 22% in Q2 2006. As previously announced,
Lundbeck expects that research and development costs will account for
approximately 20% of total consolidated revenue for 2007.
Depreciation and amortisation charges, which are included in the
individual expense categories, totalled DKK 135 million in Q2 2007,
up from DKK 124 million in the same period of last year.
Depreciation/amortisation per expense Q2 2007 Q2 2006 Growth in Q1
group DKKm DKKm DKK 2007
DKKm
Cost of sales 56 56 - 71
Distribution 4 3 11% 4
Administration 22 18 23% 22
Research and development 53 47 12% 50
Total depreciation/amortisation, Group 135 124 9% 147
The number of employees measured as full-time employees was 5,159 at
the end of Q2 2007 compared with 5,090 at the end of Q2 2006 and
5,126 at the end of Q1 2007.
Net financials
In Q2 2007, the Group's net financial income totalled DKK 5 million
compared with a net expense of DKK 23 million in the same period of
last year.
Q2 2007 Q2 2006 Q1 2007
DKKm DKKm DKKm
Net financials 5 -23 48
Net interest income/expenses -1 -17 3
Unrealised gain concerning other investments 1 9 24
excl. exchange rate adjustments
Net currency income relating to financial 5 -15 21
items, specified as follows:
Net income relating to trading 1 32 0
Accounting translation of currency items 4 -47 21
Net interest income, including realised and unrealised gains and
losses on the bond portfolio, amounted to DKK -1 million in Q2 2007.
Second-quarter foreign currency translation represented an income of
DKK 4 million, and net income relating to trading amounted to DKK 1
million for a total of DKK 5 million in net currency income included
in net financials.
Net income relating to trading derives from income and expenses from
instruments that do not meet the criteria for hedging and is
recognised directly under net financials at market value.
Tax
In the current quarter, a proposal for a new tax reform from the
Ministry of Taxation was adopted by the Danish parliament. As a
result of the new tax reform, Lundbeck's basic tax rate is lowered
from 32% to 30%.
The new tax reform taxes effect from 1 January 2007, and the positive
impact of DKK 14 million on the company's announced financial
statements for Q1 2007 has been fully recognised in Q2 2007.
Furthermore, the positive DKK 20 million one-off impact concerning
deferred tax has been accrued over Q2 and the final two quarters of
2007.
The income tax expense amounted to DKK 189 million in Q2 2007 against
DKK 82 million in the year-earlier period. The effective tax rate was
27.5% as compared with 35.3% in Q2 2006.
Net profit for the period
Profit from operations was DKK 692 million in Q2 2007 compared with
DKK 269 million in the same period of last year.
At DKK 687 million, profit before tax almost tripled relative to the
year-earlier period, while the net profit for the period after tax
was DKK 498 million, which was 232% higher than in Q2 2006.
Investments
Lundbeck's total net investments in Q2 2007 amounted to DKK 154
million, as compared with DKK 207 million in Q2 2006 and DKK 127
million in Q1 2007. In Q2 2007, the Group invested primarily in
research facilities in Lundbeck Research, USA, the roll-out of SAP in
the Group's subsidiaries and the extension of headquarter facilities
in Denmark.
Share buyback
In August 2005, Lundbeck launched a treasury share buyback programme
of up to DKK 6 billion. The share buyback programme is being
implemented in accordance with the provisions of the European
Commission's safe harbour regulation, which protects listed companies
against violation of insider legislation in connection with share
buybacks.
Once every seven trading days, Lundbeck will issue an announcement
concerning transactions made under the share buyback programme. At 30
June 2007, a total of 21,150,375 shares had been bought back,
corresponding to a transaction value of DKK 2,857,244,091 and an
average purchase price of DKK 135.0919, equal to about 48% of the
total programme.
Cash flows
Lundbeck's operating activities generated a cash inflow of DKK 933
million in Q2 2007, compared with an inflow of DKK 135 million in the
year-earlier period and DKK 382 million in Q1 2007. The free cash
flow amounted to DKK 779 million in Q2 2007 as compared with DKK -72
million in the same period of last year. Relative to Q2 2006, the
free cash flow is positively influenced by the higher operating
profit and an increase in the working capital, which in Q2 2006 was
affected by a repayment to Forest concerning write downs of the
Celexa® inventories.
Financing activities generated a cash outflow of DKK 589 million, as
compared to an inflow of DKK 532 million in the same period of last
year. The change was caused by the fact that the raising of a
long-term loan for DKK 1,100 million positively influenced Q2 2006.
In Q2 2007, cash flows from financing activities were affected by
dividends of DKK 325 million and share buybacks of DKK 349 million.
In Q1 2007, financing activities resulted in a cash outflow of DKK
106 million.
Lundbeck's interest-bearing net cash (the Group's holding of cash and
cash equivalents less interest-bearing debt) was DKK 1,131 million at
30 June 2007 against DKK 661 million at 30 June 2006 and DKK 1,012
million at 31 March 2007. In addition to interest-bearing net cash,
Lundbeck has unutilised credit facilities of DKK 2.1 billion.
Unutilised credit facilities consist of drawing rights on the Group's
banks (overdraft facilities) and guaranteed committed loans.
Equity
Equity at 30 June 2007 amounted to DKK 6,961 million compared with
DKK 6,332 million at 30 June 2006 and DKK 7,125 million at 31 March
2007. In Q2 2007, return on equity was 7.1% compared with 2.3% in the
same period of last year and 6.7% in Q1 2007. The changes in equity
are shown in appendix 4.
Litigation in respect of escitalopram
Lundbeck is involved in pending patent trials in the USA, the UK,
Australia, Canada, France and Germany.
USA
On 14 July 2006, Lundbeck and Forest announced that the U.S. District
Court for the District of Delaware had determined that the U.S.
patent covering escitalopram, the active ingredient in Lexapro®, is
both valid, enforceable and infringed by Teva's proposed generic
product, thereby confirming Lundbeck's and Forest's patent rights in
the USA, which expire in March 2012.
The appeal in this case was heard on 9 May 2007 before the U.S. Court
of Appeals for the Federal Circuit, and the parties involved are
awaiting a decision.
The patent at issue in the lawsuit is U.S. Patent No. Re 34,712,
which is set to expire in March 2012 and covers escitalopram.
United Kingdom
At the beginning of May 2007, a UK court ruled that escitalopram is
innovative and new, that it was not obvious to separate the molecule
and that it would lead to the benefits offered by escitalopram.
However, the court found in favour of the generic plaintiffs with
reference to specific English case law. Lundbeck has appealed the
ruling.
Lundbeck firmly believes that the Group's intellectual property
rights concerning escitalopram are valid and enforceable, and it is
still our policy to energetically defend our intellectual property
rights.
Lundbeck's development portfolio
Development activities in Q2 2007
On 9 May, Lundbeck announced that it had initiated phase I clinical
trials with its pharmaceutical candidate Lu AA39959 to investigate
the tolerability and pharmacokinetic profile of the compound in
humans. Lu AA39959, invented by Lundbeck's own scientists, modulates
ion channels in the brain via a new mechanism of action.
On 23 May, Lundbeck and BioTie Therapies Corp. announced that the
licensing agreement had entered into force on rights for the compound
nalmefene.
To maximise nalmefene's potential in the treatment of alcoholism the
partners have jointly decided to seek marketing authorisation
simultaneously in all 27 EU member states via the centralised
procedure. To this end, Lundbeck plans to further strengthen the
existing nalmefene registration dossier in its alcoholism indication
with additional phase III clinical trials. The studies are expected
to start in 2008. The license agreement terms have been amended to
reflect the planned additional Lundbeck investments to strengthen the
registration dossier for the centralised procedure.
On 31 May, Lundbeck's partners PAION AG and Forest Laboratories Inc.
announced the results of the DIAS-2 (Desmoteplase In Acute Ischemic
Stroke) study with the compound desmoteplase. The primary efficacy
endpoint in the study (the difference between active treatment and
placebo as a percentage of composite responders) was not met, and
Lundbeck is awaiting the results of an analysis of data before a
decision will be taken on the further development process for
desmoteplase and Lundbeck's involvement in the project.
On 4 June, the results of a study were published in the journal
Current Medical Research and Opinion, showing that Cipralex®
(escitalopram) was superior to Cymbalta® (duloxetine) in the acute
treatment of patients with major depressive disorder (MDD) and was at
least as efficacious in long-term treatment. The study included 294
patients with moderate to severe MDD from 35 centres in nine
countries. In addition to the positive results concerning the
efficacy of Cipralex®, the study also showed that Cipralex® is better
tolerated, with fewer patients withdrawing from Cipralex® treatment
due to adverse events compared with duloxetine.
Incentive plans
Lundbeck has established incentive plans for the Executive
Management, senior employees and key employees, which are comprised
by the provisions of IFRS 2 "Share-based payment".
Equity-settled programme
In September 2005, Lundbeck granted warrants (equity-settled
remuneration programme), which are comprised by the provisions of
IFRS 2, to members of H. Lundbeck A/S' Executive Management and
Danish and foreign executives appointed by H. Lundbeck A/S' Executive
Management who are employed by H. Lundbeck A/S or H. Lundbeck A/S'
subsidiaries.
Under the provisions of IFRS 2, this programme is comprised by the
requirement on cost recognition at the date of grant. Accordingly, no
regular value adjustments will be made, and the programme will not
affect the consolidated financial statements.
In January 2004, Lundbeck allocated warrants (equity-settled
remuneration programme) to the management and a number of key
employees. The transitional provisions of IFRS 2 cover these
warrants, as this programme was established after 7 November 2002
with a vesting date before 1 January 2005. Under the transitional
provisions of IFRS 2, this programme is not comprised by the
requirement on cost recognition and will therefore not affect the
consolidated financial statements.
The programme expires at the end of August 2007 and warrants not
exercised by this time will be annulled.
The liability based on the Black Scholes formula was DKK 27 million
at 30 June 2007.
Debt plans
In 2002, a share price based plan for employees of the foreign
enterprises was set up, and in 2004 a new share price based plan for
key employees of US enterprises was established.
The value adjustment at 30 June 2007 of the "debt plans", including
exercised plans, is recognised as a cost in the income statement in
Q2 2007 in the amount of DKK 2 million. The liability for the
debt-based remuneration plans based on the Black & Scholes formula
was DKK 8 million at 30 June 2007.
Lundbeck's Supervisory Board
Flemming Lindeløv has been a member of Lundbeck's Supervisory Board
for 10 years and has announced to the Board that he will not stand
for re-election for the Supervisory Board at the Annual General
Meeting on 22 April 2008. At the same time room is made for a new
chairman, who among others will have the task of preparing a future
generational change, when a new CEO is to be chosen.
The Board has taken cognizance of the announcement and has decided
that board member Per Wold-Olsen will take over the Chairmanship in
preparation for the candidacy for the post of Chairman after the next
Annual General Meeting. Per Wold-Olsen will also take over the post
of chairman for the Compensation Committee established by the
Supervisory Board.
Conference call
Today at 3.00 pm (CET), Lundbeck will be hosting a conference call
for the financial community. You can listen to the conference on the
Group's website www.lundbeck.com under the section "Investors -
Presentations - Teleconference".
Forward-looking statements
This announcement contains forward-looking statements that provide
current expectations or forecasts of events such as new product
launches, product approvals and financial performance.
Forward-looking statements are subject to risks, uncertainties and
inaccurate assumptions. This may cause actual results to differ
materially from expectations. Factors that may affect future results
include interest rate and exchange rate fluctuations, delay or
failure of development projects, production problems, unexpected
contract breaches or terminations, government-mandated or
market-driven price decreases for Lundbeck's 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
related interpretation thereof and unexpected growth in costs and
expenses.
Management statement
The Supervisory Board and Executive Management have considered and
adopted the interim report of H. Lundbeck A/S.
The interim report, which is unaudited, has been prepared in
accordance with the guidelines issued by the Copenhagen Stock
Exchange and, in respect of recognition and measurement, has been
prepared in accordance with IFRS and related interpretations of
International Accounting Standards Board (IASB), which are expected
to apply for the presentation of financial statements for the full
year 2007.
In our opinion, the interim report gives a true and fair view of the
Group's financial position at 30 June 2007 and of the results of the
Group's operations and cash flows for the period 1 April - 30 June
2007.
Valby, 15 August 2007
Supervisory Board
Flemming Lindeløv Thorleif Krarup Kim Rosenville Christensen
Chairman Deputy Chairman
Peter Kürstein Mats Pettersson Birgit Bundgaard Rosenmeier
William Watson Per Wold-Olsen Jes Østergaard
Executive Management
Claus Bræstrup Lars Bang Stig Løkke Pedersen
President and CEO Executive Vice President Executive Vice President
Lundbeck contacts
Investors: Media:
Jacob Tolstrup Caroline Broge
Director, Investor Relations Media Relations Manager
Tel +45 36 43 30 79 Tel 36 43 26 38
Tel +1 201 350 0187
________________________
Stock exchange relase No 284 - 15 August 2007
About Lundbeck
H. Lundbeck A/S is an international pharmaceutical company engaged in
the research and development, production, marketing and sale of drugs
for the treatment of psychiatric and neurological disorders. In 2006,
the company's revenue was DKK 9.2 billion (approximately EUR 1.2
billion or USD 1.6 billion). The number of employees is approximately
5,300 globally. For further information, please visit
www.lundbeck.com
