Nycomed Annual Report 2005

Nycomed A/S Annual Report 2005

DEFINITIONS OF KEY FIGURES AND FINANCIAL RATIOS EBITDA

=

Earnings before interest, tax, depreciation and amortisation

Adjusted EBITDA

=

EBITDA adjusted for inventory step-up values as a result of purchase accounting, restructuring expenses and project cost regarding abandoned acquisition (the latter relevant for 2002) and the effect from warrants programme

Gross Profit Margin

=

Gross Profit x 100/Total net turnover

EBITDA margin

=

EBITDA x 100/Total net turnover

Adjusted EBITDA margin

=

Adjusted EBITDA x 100/Total net turnover

TRADEMARKS The trademarks Actovegin®, Angiox®, Calcia™, CalciChew®1, Calcigran®, Calcimagon®, Calcioral®, Calcitugg®, Cavid®, Gutron®, Glucadol®, Hjertemagnyl®, Ibumetin®, Matrifen®, Nycoplus Calcigran®, Steocar®, Steovit D3®, TachoComb®, TachoSil®, Telos®, Ubretid®, Xafon®, Xefo®, Xefo Rapid®, Xefocam®, and ZyComb® are owned by Nycomed Denmark A/S or its subsidiaries.

The trademark Acabel® is owned by Grünenthal GmbH. The trademark Beriplast® is owned by ZLB Behring GmgH. The trademark Kestine® is owned

by Almirall Prodesfarma S.A. The trademarks Pantoloc®, Zurcal®, Zurcale®, Zurcazol® and Pantozol®, which are used in marketing pantoprazole, are owned

by Altana Pharma AG, and all of our pantoprazole products are collectively referred to herein as ‘Zurcal®.’ The trademark Calcilac® is owned by MIBE Vertriebsgesellschaft mbH. The trademark Ceraxon® is owned by Ferrer Internacional, S.A.The trademarks Orocal®2 and Orotre® are owned by Laboratoire Théramex. The trademark Concor® is owned by Merck KGaA. The trademark Curosurf® is owned by Chiesi Farmaceutici S.P.A. The trademarks Daivobet®, Daivonet®, Daivonex®, Etalpha®, and Fucidin® are owned by Leo Pharma A/S. The trademark Glucophage is owned by Merck Santé SA. The trademark Gerimax® is owned by Dansk Droge A/S. The trademark Marevan® is owned by Glaxo Group Ltd.The trademark Mastical® is owned by Altana.

The trademark Preotact® is owned by NPS Pharmaceuticals, Inc. The trademark Proamatine® is owned by Shire LLC LTD. The trademark Taigalor is owned by Dott. Formenti SpA. The trademark TransMID® is owned by KS Biomedix Holdings plc. The trademark Vicalvit® is owned by POLFA Kutnowskie Zaklady Farmaceutyczne Spolka Akcyjna.

1)

2)

In Belgium, Luxembourg, the Netherlands, Malaysia, Singapore, Taiwan, France, Ireland, Germany, Italy and UK, the trademark CalciChew® is owned by Shire Pharmaceutical Group.

In Poland, the trademark Orocal™ is owned by Nycomed.

Profile

2

Letter from the CEO

3

Financial summary

4

Markets

14

Products

22

Resources

28

Corporate governance

32

Financial statements

42

Listening to healthcare professionals Nycomed Group Langebjerg 1 PO Box 88 DK-4000 Roskilde Denmark T +45 4677 1111 F +45 4675 6640 www.nycomed.com

Nycomed A/S

Annual Report 2005

CVR: 28313519 1st financial year

23732 NYCO årsomslag.indd 1

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DEFINITIONS OF KEY FIGURES A N D F I N A N C I A L R AT I O S EBITDA

=

Profile

2

Earnings before interest, tax, depreciation

• The annual report 2005 covers the period from incorpo-

and amortisation Adjusted EBITDA

=

EBITDA adjusted for inventory step-up

Letter from the CEO

values as a result of purchase accounting,

3

restructuring expenses and project cost relevant for 2002) and the effect from

Financial summary

warrants programme =

Gross Profit x 100/Total net turnover

EBITDA margin

=

EBITDA x 100/Total net turnover

Adjusted EBITDA margin

=

Adjusted EBITDA x 100/Total net turnover

ration of Nycomed A/S on 4 January 2005 to 31 December 2005 and the consolidated financial statements cover the 8 month period from acquisition of the Nycomed Group on 9 May 2005 to 31 December 2005.

regarding abandoned acquisition (the latter

Gross Profit Margin

IMPORTANT NOTICE

4

• The acquisitions of Nycomed on 9 May 2005 and previously on 29 November 2002 make comparison with previous years difficult. With this in mind, please note

Markets

14

that key figures and financial ratios and comparative figures for the years 2001 to 2004 and the 12 months for 2005 are pro forma figures.

Products

TRADEMARKS

Resources

The trademarks Actovegin®, Angiox®, Calcia™, CalciChew®1, Calcigran®, Calcimagon®, Calcioral®, Calcitugg®, Cavid®, Gutron®, Glucadol®, Hjertemagnyl®, Ibumetin®, Matrifen®, Nycoplus Calcigran®, Steocar®, Steovit D3®, TachoComb®, TachoSil®, Telos®, Ubretid®, Xafon®, Xefo®, Xefo Rapid®, Xefocam®, and ZyComb® are owned by Nycomed Denmark A/S or its subsidiaries.

The trademark Acabel® is owned by Grünenthal GmbH. The trademark Beriplast® is owned by ZLB Behring GmgH. The trademark Kestine® is owned

by Almirall Prodesfarma S.A. The trademarks Pantoloc®, Zurcal®, Zurcale®, Zurcazol® and Pantozol®, which are used in marketing pantoprazole, are owned

by Altana Pharma AG, and all of our pantoprazole products are collectively referred to herein as ‘Zurcal®.’ The trademark Calcilac® is owned by MIBE Vertriebsgesellschaft mbH. The trademark Ceraxon® is owned by Ferrer Internacional, S.A.The trademarks Orocal®2 and Orotre® are owned by Laboratoire Théramex. The trademark Concor® is owned by Merck KGaA. The trademark Curosurf® is owned by Chiesi Farmaceutici S.P.A. The trademarks Daivobet®, Daivonet®, Daivonex®, Etalpha®, and Fucidin® are owned by Leo Pharma A/S. The trademark Glucophage is owned by Merck Santé SA. The trademark Gerimax® is owned by Dansk Droge A/S. The trademark Marevan® is owned by Glaxo Group Ltd.The trademark Mastical® is owned by Altana.

The trademark Preotact® is owned by NPS Pharmaceuticals, Inc. The trademark Proamatine® is owned by Shire LLC LTD. The trademark Taigalor is owned by Dott. Formenti SpA. The trademark TransMID® is owned by KS Biomedix Holdings plc. The trademark Vicalvit® is owned by POLFA Kutnowskie Zaklady Farmaceutyczne Spolka Akcyjna.

1)

2)

In Belgium, Luxembourg, the Netherlands, Malaysia, Singapore, Taiwan, France, Ireland, Germany, Italy and UK, the trademark CalciChew® is owned by Shire Pharmaceutical Group.

In Poland, the trademark Orocal™ is owned by Nycomed.

22

• Nycomed reports and accounts for transactions in

28

• Further details on comparisons and reporting standards

accordance with IFRS (International Financial Reporting Standards), whereas previously we used Danish GAAP.

are explained in the Accounting Principles section.

• Number of employees is stated on an annual basis.

Corporate governance

32

• In the event of any discrepancy between the English and Danish language versions of the annual report for 2005, the Danish version shall prevail.

Financial statements

Published by Nycomed A/S Concept and design Bysted A/S Text by Eye for Image ApS Print PE Offset A/S

42

FINANCIAL HIGHLIGHTS AND KEY FIGURES

Pro forma

IM PORTANT NOTICE • The annual report 2005 covers the period from incorporation of Nycomed A/S on 4 January 2005 to 31 Decem-

Consolidated figures € million

ber 2005 and the consolidated financial statements cover the 8 month period from acquisition of the Nycomed Group on 9 May 2005 to 31 December 2005.

Net turnover / geographical regions Scandinavia and the Baltic States

• The acquisitions of Nycomed on 9 May 2005 and previ-

Finland and Poland

2005

20051)

2004

IFRS

IFRS

IFRS

04.01.05 31.12.05 (8 months of operations)

2003

20022)

2001

Danish GAAP

GLOSSARY

01 .01.05 31.12.05 (12 months of operations) (unaudited)

127.6

189.1

176.7

196.1

195.2

179.0

47.1

70.3

66.3

70.0

23.0

20.8

ously on 29 November 2002 make comparison with

Russia-CIS

105.7

150.7

98.8

77.3

64.2

37.8

previous years difficult. With this in mind, please note

Western Europe

66.4

98.0

85.3

79.1

71.1

59.5

that key figures and financial ratios and comparative

Central Europe

85.3

125.1

107.1

97.7

87.8

76.3

figures for the years 2001 to 2004 and the 12 months

International Sales

60.9

89.1

81.6

92.2

98.4

107.1

for 2005 are pro forma figures.

Other/contract production

14.9

25.2

28.8

23.1

23.2

27.8

507.9

747.5

644.6

635.5

562.9

508.3

Total net turnover • Nycomed reports and accounts for transactions in accordance with IFRS (International Financial Reporting Standards), whereas previously we used Danish GAAP. • Further details on comparisons and reporting standards are explained in the Accounting Principles section.

• Number of employees is stated on an annual basis.

Total net turnover

507.9

747.5

644.6

635.5

562.9

508.3

Cost of sales

266.3

369.3

284.6

316.3

256.2

239.7 268.6

Gross profit

241.6

378.2

360.0

319.2

306.7

Operating income (EBIT)

-36.8

-16.5

52.9

-14.5

52.6

48.9

Financial result

-75.0

-88.7

-67.4

-63.1

-23.2

-23.5

Net result/profit

-86.5

-81.0

5.6

-65.7

12.1

11.7

EBITDA

44.6

90.5

126.3

87.8

108.2

100.9

Adjusted EBITDA

110.7

156.7

129.3

125.5

120.8

107.6

• In the event of any discrepancy between the English and Danish language versions of the annual report for 2005, the Danish version shall prevail.

Balance sheet Total assets

2,350.7

2,350.7

1,486.9

1,518.0

1,640.6

-35.2

-58.1

-12.2

-9.0

-42.9

12.4

Capital expenditures

16.6

20.7

27.1

16.8

25.0

20.0

Shareholders equity

819.4

819.4

548.8

562.3

636.3

107.9

16.8

20.7

51.0

35.0

31.1

81.3

Change in working capital

643.6

Cash flow Operating activities

-784.5

-784.5

24.0

-37.6

-894.6

0

Other investment activities

Sale/purchase of business activities

-29.4

-39.9

-76.1

-27.4

-29.9

-40.8

Financing activities

807.6

827.3

-14.2

-18.5

935.0

-91.2

Net cash flow

-55.9

23.6

-15.3

-48.5

41.6

-50.7

47.6 %

50.6 %

55.8 %

50.2 %

54.5 %

52.8 %

8.8 %

12.1 %

19.6 %

13.8 %

19.2 %

19.9 %

Adjusted EBITDA margin

21.8 %

21.0 %

20.1 %

19.7 %

21.5 %

21.2 %

Number of employees (average for the period)

3,252

3,252

3,019

2,831

2,665

2,418

Ratios Gross profit margin EBITDA margin

See inside back cover for definition of key figures and financial ratios.

1) 9 May 2005 the Nycomed Group (Nyco Holdings Aps) was acquired by Nycomed A/S. 2) 29 November 2002 the Nycomed Group (Nycomed Holding A/S) was acquired by Nyco Holdings Aps.

23732 NYCO årsomslag.indd 2

Anticoagulation Process by which blood is prevented from clotting Antihistamine Substance capable of counteracting (or blocking) histamine release, used in the treatment of allergies

GDP Good Distribution Practice GMP Good Manufacturing Practice

Antithrombosis Prevention of the formation of a clot in a blood vessel

GxP The generic abbreviation covering compliance requirements for all good practice disciplines in the regulated pharmaceutical sector including GCP, GDP and GMP

CEO Chief Executive Officer

Hypotension Low blood pressure

CFO Chief Financial Officer

In-licensing The process by which one pharmaceutical company may acquire marketing rights for drugs from another company

CHMP European Committee for Medicinal Products for Human Use CIS Commonwealth of Independent States CPoC Clinical proof of concept DRG Diagnosis related group, systematic order of diseases used for classification in e.g. statistics and planning EMEA The European Medicines Agency Formulation Form in which a medicinal drug is administered (tablets, capsules, intravenous fluid, etc) Generics Non-proprietary drugs, products that can be substituted for a proprietary brand in a prescription GCP Good Clinical Practice

Lung surfactant Product indicated for premature babies with immature lungs MAA Marketing Authorisation Application, where medical products are approved centrally for marketing throughout Europe MRP Mutual Recognition Procedure, where products approved in one European market obtain marketing authorisation in selected European countries through local agencies

OTC Over the counter medication available without prescription in the pharmacy PCI Percutaneous coronary intervention Peptic ulcer Ulcer in the upper gastro-intestinal tract Phase I Clinical trials primarily intended to determine compound tolerability in healthy volunteers Phase II (therapeutic exploratory) Clinical trials on a limited number of patients to obtain proof of efficacy Phase III (therapeutic confirmatory) Large scale clinical testing on patients to assess safety and confirm clinical usefulness Phase IV (therapeutic use) Following approval, studies are conducted to gain more information about the compound PPI Proton pump inhibitor PTH Parathyroid hormone – stimulates calcium uptake in bones

MS Multiple sclerosis, a chronic degenerative disease of the central nervous system

RDS Respiratory distress syndrome, serious breathing difficulty which occurs primarily in prematurely born infants due to immaturity of the lungs

NSAID Non-steroidal anti-inflammatory drug

Rx Prescription

Orphan drugs Medications for rare diseases

SVP Senior Vice President

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28/02/06 10:20:16

HI G H L I G H T S

2005

M A RCH

MAY

SEPTEMBER

The European Society of Cardiology Guidelines recommends the use of Angiox® (bivalirudin) for percutaneous coronary intervention

Nycomed A/S acquires all the capital stock of Nyco Holdings ApS. Following transaction approval by the European Commission, Nordic Capital returns as the major shareholder

The preparation for the Mutual Recognition Procedure Application begins following the Swedish Health Authorities approval of Matrifen® (fentanyl patch) for severe chronic pain

JULY

NOVEMBER

Office established in Spain, formally marking our entry into the Spanish and Portuguese markets

Nycomed Russia-CIS welcomes its 600th employee

European Market Authorisation Application submitted for Preotact® (full-length PTH) that stimulates the growth of structurally normal bone lost due to osteoporosis

DECEMBER A PR IL

AUGUST

New marketing and sales organisation announced – focusing on the development of the major European markets

First validation batches of TachoSil® (haemostatic surgical patch) for bleeding control, are produced in new Nycomed plant, Austria

Patient enrolment in the ACUITY trial completed, comparing Angiox® (bivalirudin) with the combination of heparin and glycoprotein IIb/IIIa inhibitors in more than 13,800 Acute Coronary Syndrome patients

Number of employees

Adjusted EBITDA

Total net turnover (€ million) 800

(€ million) 200

4,000

600

150

3,000

400

100

2,000

200

50

1,000

0

2001

2002

2003

2004

0

2005

2001

2002

2003

2004

0

2005

2001

2002

2003

2004

2005

2001, 2002 and 2003 are based on Danish GAAP. 2004 and 2005 are based on IFRS.

Net turnover € million 2005 (12 months)

2004 (12 months)

25.2

89.1

28.8

81.6

189.1

125.1

176.7

107.1 70.3 98.0

66.3 85.3

150.7

23732 NYCO indv.indd 1

Scandinavia and the Baltic States Finland and Poland Russia-CIS Western Europe Central Europe International Sales Other/contract production

98.8

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2 PROFILE Nycomed is driving a new way of providing pharmaceutical products in Europe.

While physicians are seeking new treatments that make a clear medical difference, traditional pharmaceutical companies, with a single research department, are finding it harder to meet this need.

Nycomed, by contrast, can access the work of thousands of companies dedicated to research, and choose to make available the most innovative treatments.

We focus where we can be most effective. That’s why we form partnerships with research-focused companies to access the best science, and then carefully shepherd their innovations through European registration and reimbursement procedures. We add further value by

conducting clinical trials to demonstrate safety and efficacy. Appropriate launch strategies for each country are developed by using our local knowledge, and continuous support is provided throughout the product’s lifecycle by paying close attention to the needs of medical professionals.

With over 3,000 employees working closely with our customers and partners, building professional relationships is at the centre of what we do. Each day that we go out to meet with healthcare professionals, we return with valuable new insights. That’s why we like to say that we change a little every day. By paying attention to how our products are used in clinical settings, listening to medical profes-

sionals and maintaining our curiosity, we aim to constantly improve.

Operating throughout Europe and RussiaCIS, Nycomed has introduced products from many different therapeutic areas, with a particular focus on cardiovascular, osteoporosis, pain and tissue management therapies. We also maintain a sales force in China and export our products to many other countries including Japan and the US. Nycomed is privately owned with its headquarters in Denmark.

Visit nycomed.com for more information.

G ROW TH S TR AT E GY

23732 NYCO indv.indd 2

IN-LICENSING PARTNERSHIPS

LIFECYCLE MANAGEMENT

ESTABLISH EUROPEAN AFFILIATES

STRENGTHENING MARKET POSITION

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3

3

LE T T E R F RO M T H E C E O Platform for growth Strong and sustainable are the words that best describe our growth, our market position and the bottom-line result for 2005. Net turnover increased by 16.0% to € 747.5 million. Adjusted EBITDA was € 156.7 million, an increase of 21.2% compared to 2004. This result can be directly attributed to our on-going focus on cost control and production processes, which delivered increased yields. Overall, 2005 has been a year that has seen us strengthen our market presence, capitalise on the success of our established products and steadily progress our pipeline. The result – the best possible platform for solid, long-term growth.

Nycomed underwent a change in ownership when Nycomed A/S acquired all the capital stock of Nyco Holdings ApS (the former parent company of the Group). Our return to Nordic Capital’s portfolio confirms the strength of our business model. Nordic Capital has an in-depth understanding of our business and appreciates the importance of ‘investment for growth’. I’m pleased to welcome them back.

New structure Our ownership isn’t the only significant change over the past 12 months. April 2005 saw the restructuring of our marketing and sales organisation from a traditional regional model (Scandinavia, Western Europe, Central Europe, The Baltic States, Finland and Poland, RussiaCIS) to a more strategically focused approach, consisting of: Big Five, Northern/Western Europe, Central/Southern Europe, and Russia-CIS. By bringing the big five European markets closer to senior management, we’re aiming to speed up the decision-making process and provide the maximum level of support for our current market activities. I believe the new structure has created a more agile, responsive organisation, capable of managing rapid growth and realising the full potential of our product pipeline.

Continued progress The rollout of our two latest hospital products, Angiox® (bivalirudin) for percutaneous coronary interventions (PCI), and TachoSil® a surgical patch for bleeding control, proceeded according to plan. Angiox® and TachoSil® have been launched throughout Europe and while both products have been very well received by the markets, the full potential of Angiox® will take longer than we expected to be entirely realised. Our product pipeline achieved steady and encouraging progress throughout the year. The Swedish Health Authorities have approved

23732 NYCO indv.indd 3

Matrifen® (fentanyl patch) for severe pain, triggering the mutual recognition procedure (MRP) which we hope will result in swift market entry elsewhere during 2006. The Marketing Authorisation Application (MAA) for Preotact® (full-length PTH) that stimulates the growth of structurally normal bone lost due to osteoporosis, is currently being assessed. With a positive assessment from the European Medicines Agency (EMEA), Preotact® could be ready for launch as early as the second half of 2006.

The especially strong, and to be perfectly honest, better than expected performance of our established products has delighted us all.

There can be no clearer indication of good brand management than this continued success.

Russia-CIS remains robust Our early-mover advantage in this region has continued to reap rewards. As our fastest growing market, Russia-CIS played a major role in this year’s results. On top of this, Nycomed Russia-CIS received two awards during 2005 for the company’s contribution to Russian healthcare. To make the most of the opportunities this market presents, we’ve recruited an additional 160 employees, bringing the total number of staff to 629. Please see the Market section for more highlights.

Constant commitment to partnership I began this letter with two words and it’s those words I would choose again to describe the way in which partnerships have developed over the past year. Strong and sustainable partnerships are critical to Nycomed’s success. By listening and responding to the needs of healthcare professionals and our business partners, I believe we are another step toward our goal of becoming the preferred partner in Europe.

As the results for 2005 show, our business has never been stronger.

We are now well-positioned to reinforce our market coverage, maximise product value and grow our portfolio. In 2006, we will continue to bring healthcare solutions closer to the people that need them.

Håkan Björklund

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Our financial performance for 2005 was the best ever. The results have been highly satisfactory on both the top and bottom line and most of our home markets have

F INANC IAL S UMMARY

performed very well.

23732 NYCO indv.indd 4

NEW OWNERSHIP › 6

DEVELOPMENT BY S E G M E N T S › 7

NET FINANCIAL ITEMS, TAX, NET INCOME (LOSS) › 10

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CASH FLOW AND CAPITAL RESOURCES › 10

COSTS OF SALES, GROSS PROFIT, OPERATING EXPENSES › 9

23732 NYCO indv.indd 5

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6

FI N A N C I A L S U M M A RY Despite difficult market conditions with health authorities focusing on cost containment and encouraging generic competition we have been able to increase sales in most of our markets. Russia-CIS in particular, has contributed to the strong sales growth. We have continued putting significant resources into promoting Angiox® (bivalirudin) for percutaneous coronary intervention and TachoSil® (haemostatic surgical patch) for bleeding control.

We have also focused on expanding our sales and marketing coverage in line with our strategy of becoming a pan-European company. The strong revenue growth, continued emphasis on cost control and production processes delivering increased yields have led to an improved profitability with a 21.2% increase in adjusted EBITDA compared to 2004.

NEW OWNERSHIP On 10 March 2005, Nycomed A/S entered into a subscription, share purchase and contribution agreement, pursuant to which Nycomed A/S agreed to acquire all of the capital stock of Nyco Holdings ApS (the former parent company of the Group).

The acquisition was consummated on 9 May 2005, following regulatory approvals.

To finance the acquisition, Nordic Capital and certain co-investors contributed €412.0 million, in cash, to Nycomed A/S in exchange for newly issued Nycomed A/S shares. In addition, on 21 March 2005 Nycomed A/S raised an additional €396.0 million through the sale of Senior PIK Notes. Nycomed A/S has used these proceeds to purchase 100% of the outstanding capital stock of Nyco Holdings

23732 NYCO indv.indd 6

ApS from its existing shareholders and to pay related transaction fees and expenses.

The acquisition of Nyco Holdings ApS and the related application of purchase accounting adjustments, and financing transactions have affected, and will continue to affect, our results of operations following the acquisition. In particular: • the substantial indebtedness we incurred to finance the acquisition has increased our interest expense significantly; • the significant adjustment to intangible assets we recorded in connection with the acquisition in respect of patents and other intellectual property rights has led to a significant increase in amortisation expense; • the purchase accounting adjustment relating to inventory resulted in a nonrecurring charge of €58.7 million that has been reflected in our consolidated income statement, net of the related income tax benefit, as the inventory on hand at the acquisition date is sold to customers. This impact and the related effect on gross and operating margins has been reflected in our consolidated income statement within the first five months following the closing of the acquisition; • the purchase price allocation and purchase accounting adjustments may be subject to subsequent adjustments of fair values. IFRS 3 Business Combinations effectively requires allocation of the cost of an acquisition to identifiable assets, liabilities and contingent liabilities to be completed within a period of twelve months of the acquisition date (9 May 2005).

COMPARATIVE FIGURES As a result of the new ownership of Nycomed, the consolidated financial statements comprise consolidated figures reflecting 8 months of operations from May to December 2005. For comparative reasons we have stated a pro forma income statement and cash flow statement covering 12 months from January to December 2005. These 12 month figures are based on consolidated figures from January to April 2005 for Nyco Holdings ApS and subsidiaries and consolidated figures from May to December 2005 for Nycomed A/S and subsidiaries.

All figures stated below, which are compared to 2004, are the figures from the 12 months pro forma income statement and cash flow statement.

As a result of the acqusition of Nyco Holdings ApS and the application of the method of purchase accounting related thereto, there are material differences in the basis of preparation of the consolidated figures for 2004 for Nyco Holdings ApS consolidated and figures for 2005 for Nycomed A/S consolidated respectively.

When commenting on the development from 2004 to 2005 in the following, we have adjusted for these differences in the basis of preparation.

OVERALL PERFORMANCE Net turnover increased by 16.0% to €747.5 million in 2005. Adjusted for the impact from foreign currency fluctuations, net turnover increased approximately by 15.5%.

28/02/06 13:31:33

7 Operating profit decreased by €69.3 million to -€16.5 million in 2005. Excluding the impact from inventory step-up of €58.7 million, the impact from an incentive programme of €8.6 million, reversal of a restructuring provision established last year, and the impact from higher amortisations on intangible assets as a result of the application of purchase accounting and the related step-up of values on intangible assets, operating profit increased by 48.8% from €52.9 million in 2004 to €78.7 million in 2005. Adjusted for the impact from foreign currency fluctuations, operating profit adjusted for these items increased by approximately 51.4%.

EBITDA and adjusted EBITDA are key measures used in order to have a more comprehensive analysis of Nycomed ’s operating performance and of the ability to service our debt.

N YC O ME D A /S - G RO UP F UL L Y E A R S UMM A RY W IT H 20 0 5 P RO FO R MA FIG UR E S Income statement with 12 month pro forma figures for 2005 Pro forma Nycomed A/S Nyco Holdings ApS 01.01.05 01.01.04 31.12.05 31.12.04 € thousand € thousand Net turnover Cost of sales

747,483 -369,269

644,606 -284,588

GROSS PROFIT

378,214

360,018

Sales and marketing expenses Research and development expenses Administrative expenses

-295,276 -28,281 -71,127

-220,742 -25,704 -60,713

OPERATING INCOME/LOSS

-16,470

52,859

2,814 -91,500

6,542 -73,968

-105,156

-14,567

24,115

8,958

-81,041

-5,609

Financial income Financial expenses LOSS BEFORE TAX

Adjusted EBITDA amounted to €156.7 million in 2005, which is a 21.2% increase compared to 2004. Adjusted for the negative impact from foreign currency fluctuations, adjusted EBITDA increased by approximately 22.2%.

DEVELOPMENT

BY SEGMENTS Nycomed’s sales and operating profit derive from the following segments: • Scandinavia incl. the Baltic States • Western Europe • Central Europe • Finland and Poland • Russia-CIS • International Sales (Export) In addition, Nycomed has other business entities comprising central functions which are International Product Development, International Marketing and Business Development, Operations, Contract Production and Administration.

23732 NYCO indv.indd 7

Income tax NET LOSS FOR THE PERIOD

Please refer to the Market section for additional information on the development in each market.

the impact from foreign currency fluctuations (mainly NOK), operating profit increased by approximately 14.8%.

S CANDINAVIA AND THE BALTIC STATES

WES TERN EUROPE

This region, comprising Denmark, Norway, Sweden and the Baltic States, is Nycomed’s largest region by turnover.

Net turnover increased by €12.6 million, 7.0%, from €176.6 million in 2004 to €189.1 million in 2005. Adjusted for the impact from foreign currency fluctuations (mainly NOK), net turnover increased by approximately 6.2%.

Operating profit increased by €12.7 million, 15.5%, from €82.0 million in 2004 to €94.8 million in 2005. Adjusted for

Our Western Europe region comprises Belgium, France, the Netherlands, Luxembourg, Ireland and the UK. Furthermore the costs related to establishing our subsidiary in Spain are included in the figures for Western Europe. Net turnover increased by €12.7 million, 14.9%, from €85.3 million in 2004 to €98.0 million in 2005. Operating profit increased by €2.5 million, 7.1%, from €35.4 million in 2004 to €37.9 million in 2005. Lower percentage increase in operating profit compared to net turnover for the region has been impacted by establishing our new subsidi-

28/02/06 13:31:34

8

F I N A N C I A L S U M M A RY

CASH F LOW F I G U R E S W I T H 1 2 M O NT H S PRO F O R M A F I G U R E S F O R 2 0 0 5 Pro forma Nycomed A/S Nyco Holdings ApS 01.01.05 01.01.04 31.12.05 31.12.04 € thousand € thousand CONSOLIDATED STATEMENT OF CASH FLOW Income (loss) before net financials and tax Adjustments, non cash Total Change in inventories and receivables Change in payables and other liabilities Financial expenses (paid) / income received Income taxes paid Cash flow from operating activities

-16,470 168,890 152,420 -62,661 4,522 -45,428 -28,171 20,682

52,859 77,731 130,590 -13,516 1,301 -56,572 -10,842 50,961

Proceeds from sale of business activities Acquisition of Nyco Holdings ApS Acquisition fees paid Cash flow from sale/purchase of business activities

-777,299 -7,211 -784,510

24,021 0 0 24,021

Addition of intangibles Addition of property, plant and equipment Prepayment intangibles Other investments Cash flow from investing activities

-22,876 -20,672 0 3,651 -824,407

-16,559 -27,088 -9,634 -22,791 -52,051

Capital contribution from shareholders PIK Notes proceeds Interest on financing funds Acquisition of shares in Nyco Holdings ApS Financing fees paid Warrants exercise proceeds Change in long term debt Refinancing, financing fees paid Cash flow from financing activities

412,000 396,000 856 0 -18,475 47,800 -10,872 0 827,309

0 0 0 -264 0 0 -8,613 -5,351 -14,228

Net Cash Flow

23,584

-15,318

Net Cash beginning of the period Foreign exchange differences Net cash end of the period

23,073 -40 46,617

38,127 264 23,073

23732 NYCO indv.indd 8

aries in the UK and Spain and the activities of launching new products in these markets.

CENTRAL EUROPE Our Central Europe region comprises Austria, Germany, Greece, Switzerland and Italy. Net turnover increased by €18.0 million, 16.8%, from €107.1 million in 2004 to €125.1 million in 2005. Operating profit increased by €3.3 million, 11.0%.

FINL AND AND POL A N D Net turnover increased by €4.0 million, 6.1%, from €66.3 million in 2004 to €70.3 million in 2005. Operating profit increased by €4.6 million, 22.3%, from €20.6 million in 2004 to €25.2 million in 2005.

RUSSIA-CIS Net turnover increased by €51.9 million, 52.5%, from €98.8 million in 2004 to €150.7 million in 2005. Adjusted for the impact of the US dollar, net turnover increased by approximately 50.8%. Operating profit increased by €21.4 million, 70.0%, from €30.6 million in 2004 to €52.0 million in 2005. Adjusted for the impact of the US dollar, operating profit increased by 68.5%.

INTERNATIONAL SA L E S (EXPORT) International Sales comprises our export business, out-licensing agreements and our sales in China. Net turnover increased by €7.5 million, 9.2% from €81.6 million in 2004 to €89.1 million in 2005. Adjusted for the impact from foreign currency fluctuations (mainly USD and JPY), net turnover increased by approximately 9.7%. Operating profit increased by €4.3 million, 7.6%, from €57.1 million in 2004 to €61.4 million in 2005. Adjusted for the impact from foreign currency fluctuations (mainly USD, JPY and NOK), operating profit increased by approximately 8.8%.

28/02/06 13:31:34

F I N A N C I A L S U M M A RY

C E N TRAL FUNCTIONS Our central functions comprise our Contract Production activities, Operations comprising manufacturing and supply chain, International Product Management, International Product Development and Administration. Idle capacity in Contract Production has been used to support the growth in other areas. Net turnover for Contract Production decreased by €3.1 million, 22.9%, from €13.6 million in 2004 to €10.5 million in 2005. The decrease is mainly due to lower sales of Celiprolol and expiration of a contract regarding production to the new owners of our former consumer health business. The underlying performance for Operations in 2005 was very satisfactory with a significant increase in volumes for our own produced products. The cost of goods as a percentage of net turnover continued to decrease. This positive development is a result of continuous cost control and an increased yield in our plants.

As a result of increasing demand for our product Actovegin® (deproteinized EBIT A N D E B I T DA Pro forma Nycomed A/S 01.01.05 31.12.05

Nyco Holdings ApS 01.01.04 31.12.04

EBIT Inventory step-up Warrants programme Restructuring provision Adjusted EBIT

-16.5 58.7 8.6 -1.2 49.6

52.9 0.0 0.0 3.0 55.9

EBIT Amortisations Depreciations EBITDA Inventory step-up Warrants programme Restructuring provision Adjusted EBITDA

-16.5 83.7 23.3 90.5 58.7 8.6 -1.2 156.7

52.9 51.1 22.3 126.3 0.0 0.0 3.0 129.3

€ millions

23732 NYCO indv.indd 9

haemoderivative) for metabolic stimulation in Russia-CIS, the Board approved an expansion of our capacity. This will increase the raw concentrate production by approximately 1,000 tonnes, or 50%.

The investment is budgeted to be €6.6 million.

COST OF SALES As a percentage of net turnover, cost of sales increased from 44.2% in 2004 to 49.4% in 2005, largely due to the amortisation of inventory step-up from purchase accounting in 2005. Excluding amortisation of inventory step-up, cost of sales, as a percentage of net turnover, decreased to 41.5% in 2005. Total direct costs as a percentage of net turnover decreased from 30.6% for the year ended 31 December 2004, to 29.4% for the year ended 31 December 2005. This decrease primarily reflects a more favourable product mix in most of our markets. For the year ended 31 December 2005, indirect production costs as a percentage of net turnover decreased from 11.7% in the 12 months ended 31 December 2004, to 11.1%.

GROSS PROFIT Gross profit increased by €18.2 million, or 5.1%, from €360.0 million in the year ended 31 December 2004, to €378.2 million for the year ended 31 December 2005. Excluding the amortisation of inventory step-up of €58.7 million in 2005, gross profit increased by €76.9 million, or 21.4%, from €360.0 million to €436.9 million for the year ended 31 December 2005. The related gross profit margin as a percentage of net turnover, excluding the inventory step-up increased from 55.8% for the year ended 31 December 2004 to 58.5% for the year ended 31 December 2005. The figures include €3 million re-

9

structuring costs in 2004 and a reversal of the remaining part of the restructuring provision in 2005 of €1.2 million. Excluding this, gross profit increased from 56.3% in 2004 to 58.3% in 2005 as a percentage of net turnover.

OPERATING EXPENSES Sales and marketing expenses in the regions increased by €33.9 million, or 21.4%, from €158.2 million for the year ended 31 December 2004, to €192.1 million for the year ended 31 December 2005. This increase mainly reflects the increased costs in connection with the expansion of our activities in Russis-CIS, Germany and France and the expansion of our new subsidiaries in UK, Italy and Spain.

The increase in centralised selling expenses of €5.3 million, or 41%, is an investment in international sales and marketing resources and support. We expect a continued increase in total sales and marketing expenses over the coming years, in connection with launching future growth products such as Matrifen® (fentanyl patch) for severe chronic opioid-sensitive pain and Preotact® (fulllength PTH) that stimulates the growth of structurally normal bone lost due to osteoporosis, and when we increase and expand our market coverage in line with our strategy of becoming a pan-European company. The total amortisation of intangible assets included in sales and marketing expenses increased by €32.6 million, or 63.9%, from €51.1 million for the year ended 31 December 2004, to €83.7 million for the year ended 31 December 2005. This increase is mainly related to the application of purchase accounting and amortisation on the step-up values related to patent and rights and development projects.

28/02/06 13:31:34

10

F I N A N C I A L S U M M A RY

Research and development expenses increased by €2.6 million, or 10.0%, from €25.7 million in 2004 to €28.3 million in 2005. As a percentage of net turnover, research and development expenses decreased from 4.0% in 2004 to 3.7% in 2005. As Nycomed does not perform basic research, our research and development expense line consists of a mix of various non-capitalised product development and support costs. Including capitalised development costs and milestone payments concerning in-licensed products, the total development costs as a percentage of net turnover increased from 6.6% in 2004 to 6.8% in 2005.

connection with the preparation of the consolidated opening balance sheet for Nycomed A/S and subsidiaries, the consolidated debt of Nyco Holdings ApS has been valued at fair value in accordance with IFRS 3 Business combinations. The fair value adjustments and amortisation of new financing costs have resulted in a decrease of €6.8 million, from a €5.7 million expense in 2004 to a €1.1 million income in 2005. Exchange rate net loss increased by €3.1 million from a net loss of €2.5 million for the year ended 31 December 2004, to a net gain of €0.6 million for the year ended 31 December 2005.

Administration expenses increased by €10.4 million, or 17.2%, from €60.7 million in 2004 to €71.1 million in 2005.

As a percentage of net turnover, administration expenses increased from 9.4% in 2004 to 9.5% in 2004. In 2005, a new incentive programme was established.

In accordance with IFRS 2 the fair value of the warrants issued has been charged to the income statement in 2005. Excluding the impact of the incentive programme, administration expenses increased by €6.6 million, or 10.8%.

The increase in expenses was mainly due to the expanding activities in our new subsidiaries in UK, Italy, Poland and Spain and non-recurring redundancy costs.

TAX

NET FINANCIAL ITEMS Net financial items increased by €21.3 million, or 31.5%, from net expenditure of €67.4 million in 2004 to net expenditure of €88.7 million in 2005. This is primarily impacted by the substantial indebtedness Nycomed A/S incurred to finance the acquisition of Nyco Holdings ApS and subsidiaries reflected by capitalised interest on the €400 million Senior PIK Notes. In

23732 NYCO indv.indd 10

Income tax benefit for the year was €24.1 million in 2005 compared to an income tax benefit of €9.0 million for 2004. The increase in tax benefit of €15.1 million was mainly due to an increase in loss before tax which went from a loss of €14.6 million in 2004 to a loss of €105.2 million in 2005. This increase in tax benefit was partially offset by the effect of a reduction in the average tax rate of the Group made in 2004 from 31.5% to 30.0% which is used for calculating deferred tax on step up values.

NET INCOME (LOSS) Our net income decreased from a loss of €5.6 million in 2004 to a loss of €79.5 million in 2005. Excluding the 2005 noncash items, inventory step-up net of tax and the effect of charging the fair value of the management incentive programme to the income statement in 2005 and the impact from higher amortisations on intangible assets as a result of the application of purchase accounting and the related step-up of values on intangible assets, our net income increased by €6.0

million from a net loss of €5.6 million for the year ended 31 December 2004 to a net loss of €0.4 for the year ended 31 December 2005.

CASH FLOW AND CAPITAL RESOURCES CASH FLOW OPERATING ACTIVI T I E S Cash flow from operating activities decreased from €51.0 million in 2004 to €20.7 million in 2005. From 2004 to 2005 our cash flow from operating activities was positively impacted by the increase in operating profit and decreased interest payments due to the full year effect of the refinancing of our senior credit facilities in 2004 and the repayment of the mezzanine loan. This is offset by higher tax payments and the impact of change in working capital. Working capital had a negative development of €58.1 million for the year ended 31 December 2005. This was mainly due to higher sales-driven receivables in Russia-CIS, and increasing inventories concerning key future growth products. Management has intensified the focus on working capital as this will continue to be a very important element in managing future cash flow from operations due to the planned growth and expansion activities.

INVESTMENT ACTIV I T I E S The cash flow from investing activities was impacted by the acquisition of the shares in Nyco Holdings ApS of €777.3 million and related transaction costs of €7.2 million. Please refer to the Financial Statements section, note 2, for further details. Investments in property, plant and equipment were at a normalised level in 2005 and comprised maintenance capital

28/02/06 13:31:35

F I N A N C I A L S U M M A RY

expenditures and expenditures related to line extensions at our plant in Austria. Investments in intangible assets comprised development costs and milestone payments for future growth products.

F I N ANCING ACTIVITIES Cash flow from financing activities was impacted by the acquisition of Nyco Holdings ApS. To finance the transaction, our shareholders contributed €412 million in cash to Nycomed A/S. We raised €396.0 million through the sale of Senior PIK Notes and received €47.8 million through exercise of warrants. Financing costs related to the transaction amounted to €18.5 million. Cash net outflow from other financing activities amounted to €10.9 million covering ordinary instalments on senior credit facilities of €8.2 million, repayment of the mezzanine loan €52.4 million, drawn under the existing revolving and in-licensing facilities €44.7 million, and drawn under an export facility in Austria €5.0 million.

CAPITAL RESOURCES In line with our business plan and strategy, we plan to continue to devote significant cash resources to the ongoing growth of our business. As at 31 December 2005, we had a cash position of €46.6 million compared to a cash position of €23.1 million as at 31 December 2004. As at 31 December 2004, we had not drawn anything under our revolving facility but during 2005 we have drawn €15 million. At the end of 2004, we had drawn €10.5 million under our in-licensing credit facility and we have drawn additional €29.7 million in 2005.

We have, as part of our senior credit facilities, the following facilities: • A €70 million in-licensing credit facility that may be used primarily to in-license

23732 NYCO indv.indd 11

products that are entering Phase III clinical trials or are close to entering Phase III clinical trials. As at 31 December 2005, €29.8 million was available under this facility; • A €40 million revolving credit facility that may be used to finance working capital. This facility is also for general corporate purposes, or to finance expansion capital expenditure, but not to finance those activities provided for in the other facilities, as long as those facilities are not fully utilised. As at 31 December 2005, €25.0 million was available under this facility.

We believe that our operating cash flows, together with available borrowings under the senior credit facilities and existing cash resources, will be sufficient to fund our anticipated working capital needs, capital expenditures and debt service requirements.

In particular, future drawings under the senior credit facilities will be available only if, among other things, we meet the financial maintenance covenants and other conditions included in the senior credit facilities. Our ability to meet those covenants will depend on our results of operations and factors outside our control.

11

the consolidated financial statements have occurred after the balance sheet date.

OUTLOOK FOR THE FINANCIAL YEAR 2006 We will continue to put significant resources into expanding our sales and marketing coverage in line with our strategy of becoming a pan-European company. This involves expanding our activities in the Big Five countries: Germany, UK, France, Spain and Italy, as well as in Russia-CIS. We will also put significant resources into the launch of our two key pipeline products, Matrifen® (fentanyl patch) and Preotact® (full-length PTH), and we will continue the launch of TachoSil® (haemostatic surgical patch) and Angiox® (bivalirudin) throughout Europe. The profitability of our established products is expected to continue in order to support our expansion in new markets and the launch of new products. In 2006, we expect to experience growth in both our revenues and EBITDA of approximately 8-10%.

We have a substantial amount of debt and significant debt service obligations.

As at 31 December 2005, total interest bearing debt outstanding amounted to €1,050.1 million, €387.9 million of which is indebtedness under the senior credit facilities, €225.0 million Senior Notes and €437.2 million Senior PIK Notes.

SUBSEQUENT EVENTS In the opinion of the Board of Directors, no important events that could have a material influence on the assessment of

28/02/06 13:31:35

12

F I N A N C I A L S U M M A RY

MANAGEMENT AND BOARD OF DIRECTORS’ STATEMENT Today, we have approved the annual report of Nycomed A/S for the period 4 January - 31 December 2005.

The annual report has been prepared in accordance with International Financial Reporting Standards as adopted by the

EU and additional Danish disclosure requirements for annual reports. We consider the accounting policies used to be appropriate. Accordingly, the annual report gives a true and fair view of the Group’s and the parent company’s financial position, cash flows and results of operations.

We recommend that the annual report be approved at the annual general meeting.

Roskilde, 16 February 2006

M A NAGEMEN T Håkan Björklund

B O ARD OF DIRECTORS Toni Weitzberg, Chairman

Anita Helland

Kristoffer Melinder

Thompson Dean

Carl-Gustaf Johansson

Aleksandar Erdeljan

Håkan Björklund

Javed Khan

Jesper Schrøder

23732 NYCO indv.indd 12

28/02/06 13:31:35

F I N A N C I A L S U M M A RY

AUDITORS’ REPORT TO THE SHA REHOLDERS O F NYCOMED A /S We have audited the annual report of Nycomed A/S for the period 4 January 31 December 2005, prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for annual reports.

The annual report is the responsibility of the Company’s Management and Board of Directors. Our responsibility is to express an opinion on the annual report based on our audit.

BASIS OF OPINION We conducted our audit in accordance with Danish Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual report is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the annual report. An audit also includes assessing the accounting policies used and significant estimates made by Management and Board of Directors, as well as evaluating the overall annual report presentation. We believe that our audit provides a reasonable basis for our opinion.

13

Our audit did not result in any qualification.

OPINION In our opinion, the annual report gives a true and fair view of the Group’s and the parent company’s financial position at 31 December 2005 and of the results of the Group’s and the parent company’s operations and cash flows for the period 4 January - 31 December 2005, in accordance with International Financial Reporting Standards as adopted by the EU, and additional Danish disclosure requirements.

Copenhagen, 16 February 2006

E R N S T & YOUN G Statsautoriseret Revisionsaktieselskab Benny Lynge Sørensen State Authorised Public Accountant

23732 NYCO indv.indd 13

Søren Strøm State Authorised Public Accountant

28/02/06 13:31:35

Dr Eric Jensen, Zurich, Switzerland

WESTERN EURO P E › 1 6

M AR KETS

SCANDINAVIA AND THE BALTIC STATES › 16

23732 NYCO indv.indd 14

CENTRAL EUROPE › 17

28/02/06 13:31:37

FINL AND AND PO L AND › 18

RUSSIA-CIS › 18

INTERNATIONAL SALES › 19

23732 NYCO indv.indd 15

28/02/06 13:31:37

16

MARKETS Our Spanish affiliate, which will also act as the operational base for Portugal, was established in July 2005. The primary focus in the Spanish market will initially be the sale and marketing of TachoSil® (haemostatic surgical patch) for bleeding control, which is planned for early 2006.

Promoting Preotact® (full-length PTH) that stimulates the growth of structurally normal bone lost due to osteoporosis, will also be a key priority.

SCANDINAVIA AND THE BALTIC STATES Nycomed’s largest region by turnover, Scandinavia experienced positive growth across the segment in 2005. The launch and sale of TachoSil® (haemostatic surgical patch) for bleeding control, and Angiox® (bivalirudin) for percutaneous coronary interventions has gone very well in all Scandinavian countries.

In Denmark, Pantoloc® (pantoprazole) for acid-related gastrointestinal diseases continued to drive growth and gain market share, with an increase of 63.0% compared to 2004. Pantoloc® is now Nycomed’s highest-ever selling product in Denmark. In April, the Danish Medicines Agency revised the regulations for pricing and reimbursement. With our well-established Danish product portfolio, we aim to remain competitive in this environment.

Norway has experienced strong growth, led by increased sales of cough and cold formulations, Marevan® (warfarin) an anticoagulant, and Calcigran® (calcium and

23732 NYCO indv.indd 16

and Calcigran® (calcium and vitamin D) for osteoporosis ranked number one and two respectively in the country’s OTC market.

vitamin D) for osteoporosis. During 2005, Nycomed Norway hosted a number of medical conferences, including a warfarin symposium with Oslo University attended by over 130 physicians.

WESTERN EUROPE

Sweden achieved record sales in 2005, with Pantoloc® (pantoprazole) performing particularly well. The OTC business showed satisfactory growth with Ibumetin® (ibuprofen) for pain relief continuing to develop positively. Marketing activities focused on strengthening the market position of our leading anticoagulant Waran® (warfarin).

Growth in this region was led by the strong performance of Zurcal® (pantoprazole) for acid-related gastrointestinal diseases and Glucadol™ (glucosamine) for arthritis treatment.

In Belgium, the reimbursement of Angiox® (bivalirudin) for percutaneous coronary interventions was rejected by the authorities in August 2005 and a new dossier was introduced in October 2005.

We expect to obtain approval for reimbursement by the second half of 2006.

An additional strength of Steovit D3® (calcium and vitamin D) for osteoporosis was successfully launched in April and sales of Zurcal® (pantoprazole) continued to perform very well, despite the intro-

In the Baltics (Latvia, Lithuania and Estonia), the positive sales of Nycomed products Ibumetin® (ibuprofen) and Xefo® (lornoxicam), both for pain relief, helped compensate for the negative effect of generic competition on sales, along with changes in reference prices.

Of the three countries, Latvia is the fastest developing market with Ibumentin® Net turnover in € million Scandinavia and the Baltic States Finland and Poland Russia-CIS 2005 (12 months)

Western Europe Central Europe International Sales

Other/contract production

2004 (12 months)

25.2

89.1

28.8

81.6

189.1

125.1

176.7

107.1 70.3 98.0

66.3 85.3

150.7

98.8

28/02/06 14:48:26

17 duction of different reimbursement models for cheaper PPIs. Sales in France have increased mainly due to the performance of Gutron® (midodrine) for low blood pressure and the acquisition of Beriplast® fibrin sealant.

TachoSil® (haemostatic surgical patch) was launched early in 2005 and Angiox® (bivalirudin) for percutaneous coronary interventions in July. During 2005, the French hospital sector underwent significant reform related to Diagnosis-Related Group (DRG) funding, called T2A. The new funding, together with the activities of the Transparency Committee, which is focusing on creating savings on medication, is likely to prove challenging for our hospital products.

In the Netherlands, the market reaction to the launch of Angiox® (bivalirudin) has been positive, although further effort is needed to gain widespread use in hospitals. Sales of Ubretid® (distigmine bromide) for the treatment of urine retention have continued to develop well.

Throughout the UK, Angiox® (bivalirudin) has been launched and well accepted.

TachoComb® (haemostatic surgical patch) has never been registered in the UK market, so its successor TachoSil® (haemostatic surgical patch) was viewed as a completely new product. While this generally contributed to a slow approval process, TachoSil® was approved for use by the NHS in Scotland in May. The Association of the British Pharmaceutical Industry announced a revised and updated code of practice for UK-based pharmaceutical companies. The new code comes into practice in January 2006 and will ban promotional competitions and restrict the goods and services that can be offered by pharmaceutical companies to health professionals, in terms of hospitality, travel

23732 NYCO indv.indd 17

Net turnover

2005

2004

2003

2002

2001

189.1 98.0 125.1 70.3 150.7 89.1

176.7 85.3 107.1 66.3 98.8 81.6

196.1 79.1 97.7 70.0 77.3 92.2

195.1 71.1 87.8 23.0 64.2 98.4

179.0 59.5 76.3 20.8 37.8 107.1

25.2

28.8

23.1

23.2

27.8

€ millions Scandinavia and the Baltic States Western Europe Central Europe Finland and Poland Russia-CIS International Sales Other/contract production

and accommodation. It is not expected that the requirements of the new code will significantly affect Nycomed’s competitiveness in its chosen markets.

CENTRAL EUROPE Throughout this region, one of the main growth drivers was the switch from TachoComb® (haemostatic surgical patch) to its successor, TachoSil® (haemostatic surgical patch). The higher price of TachoSil® has been accepted and we expect to see further growth of this product. Sales of Ubretid® (distigmine bromide) for the treatment of urine retention and Curosurf® (lung surfactant) for respiratory distress syndrome in premature infants also increased.

In Austria, we have had a strong performance from both prescription and OTC products. In particular, Zurcal® (pantoprazole) for treatment of acid-related gastrointestinal diseases has shown excellent sales growth. Ibumentin® (ibuprofen) for pain relief was the third best-selling product in the Austrian OTC pain market, while in the hospital sector, Angiox® (bivalirudin) was launched throughout the country. Despite the effect of the government’s cost reduction programme during the first half of 2005, we achieved growth of 11,4% compared to last year, which was more than double the growth

rate of the overall Austrian market.

The German market showed positive growth. TachoSil® (haemostatic surgical patch) performed very well, with sales expected to grow further in 2006. Angiox® (bivalirudin) for percutaneous coronary interventions was launched in more than 90 cath labs throughout the country.

Preparations for the promotion of Matrifen® (fentanyl patch) for severe opioid-sensitive pain have been initiated by securing an experienced sales force of approximately 230 people.

In Greece, Nycomed has achieved sales growth of 7.9% compared to 2004.

Zurcal® (pantoprazole) is still under strong generic competition from two newly launched products. XefoRapid® (lornoxicam) for acute pain relief is included on Greece’s new reimbursement list indicating that the switch from Xefo® (lornoxicam) to its successor, XefoRapid® will be completed during 2006. Following a successful launch in March, Tachosil® (haemostatic surgical patch) sales are progressing well.

Italy launched TachoSil® (haemostatic surgical patch) in March 2005. While price negotiations for Angiox® (bivalirudin) proved challenging, a satisfactory agreement was reached. A major change within the Italian hospital system was the

28/02/06 13:31:38

18

MARKETS

introduction of a direct distribution model or Prontuario Hospital Territorio (PHT) list. Designed to control the cost of expensive therapies in areas such as oncology and rheumatoid arthritis, products on the PHT list will only be available through hospitals. This development may prove particularly challenging for Preotact® (full-length PTH) that stimulates the growth of structurally normal bone lost due to osteoporosis. During 2005, the Italian government established a commission to estimate the therapeutic value of new drugs. While this may inhibit high launch prices for ‘me too’ products, it is expected to make the Italian market more predictable for producers of innovative treatments.

Zurcal (pantoprazole) for acid-related gastrointestinal diseases and our calcium products have been the main growth drivers in Switzerland. However, the ®

prescription market showed very limited growth of 2.8% and is continuing to face competition from generic omeprazol. Our paclitaxel product for cancer treatment was launched in June 2005 and the first reactions from the market have been very promising. TachoSil® (haemostatic surgical patch) has been widely accepted and during the year, Nycomed hosted a Neurosurgical Roundtable with physicians from Germany, Austria and Switzerland. Continued cooperation between these countries is expected to prove beneficial in extending the use of TachoSil® and guaranteeing its future growth.

In Poland, Angiox® achieved satisfactory sales, despite the lack of reimbursement registration. Our calcium product was launched and the sale of TachoComb® is developing very well.

FINLAND AND POLAND

RUSSIA-CIS

TachoSil® (haemostatic surgical patch) for bleeding control and Angiox® (bivalirudin) for percutaneous coronary intervention were well received following their launch in Finland. Sales of prescrip-

All key products achieved double-digit growth compared to last year, continuing our success in this region. Nycomed is now the second largest provider of hospital products in Russia. Concor® (bisoprolol fumarate) for hypertension treatment, Glucophage® (metformin) diabetes medication and Warfarin Nycomed (warfarin) an anticoagulant, joined Actovegin® (deproteinized haemoderivative) a metabolic stimulant, as the key drivers of growth. Further strengthening our position in the Neurology market, an agreement was reached with Grupo Ferrer (Spain) to market citicholine, a treatment used for neurological disorders, under the name Ceraxon® in Russia-CIS.

NET TURN OVER 20 05 200 150 100 50 0

od pr ct tra s on Sale /c er nal th O atio rn te In CIS assi Ru d an nl Fi ny a rm Ge ce an Fr d lan Po e c d ee Gr rlan e itz s Sw ia tate S str Au altic ds B rlan e e Th eth N e Th um lgi Be n e ed Sw ay w

k ar

nm

or

N

De

€ million

.

C HAN GE 20 04- 200 5 60% 50% 40% 30% 20% 10% 0% -10%

tion medicines grew by 5,7% during 2005. And, although slower than expected, sales of our generic portfolio in Finland declined due to the fact that we do not have any new generic products.

Sales of our OTC portfolio continued to develop well during 2005, reflecting successful agreements with the pharmacy chains.

od pr ct tra s on Sale /c er nal th O atio rn te In CIS assi Ru d an nl Fi ny a rm Ge ce an Fr d lan Po e c d ee Gr rlan e itz s Sw ia tate S str Au altic ds B rlan e e Th eth N e Th um lgi Be n e ed Sw y a w k ar

nm

or

N

De

2005 also marked Nycomed’s entry into Russia’s dermatology market. Following the in-licensing agreement with Leo Pharma signed in June 2004, sales of selected products, such as psoriasis treatment medicines Daivonex® and Daivobet® (calcipotriol and betamethasone dipropionate) began in 2005. A Leo Pharma launch symposium was held to promote the new range of products.

.

23732 NYCO indv.indd 18

28/02/06 13:31:39

MARKETS

The dermatology treatments fucidic acid cream and ointment, and Etalpha® (alfacalcidol) have both been included in the Federal Reimbursement Program List.

To maximise sales and marketing opportunities in this sector, a specialist “allergoderma” medical sales team has been established.

19

In 2005, the net turnover of International Sales increased by 10.8%. This was mainly due to higher sales of TachoComb® in Japan, CaliChew® in the UK and Xefo® in Turkey. In the USA, sales of Pro-Amatine (midodrine) for the treatment of hypotension, stabilised compared to 2004 when generics entered the market.

The Russian market grew the fastest in terms of sales with an increase of 54.5% compared to 2004. The Federal Program on reimbursed medicines was launched in 2005, covering 15 million people and including funding of USD 1.8 billion. At this stage, it is difficult to evaluate the precise impact this will have on our sales and growth, but we regard it as a significant sign that Russian health authorities view health issues as a priority.

While Russia continues to dominate the region, net turnover in the CIS republics has increased by 72.9%.

In 2005, approximately 160 additional people were recruited to support continued growth. We believe training and development opportunities play an important role in retaining our people.

At the Nycomed Russia-CIS Business College, over 60 different training sessions, covering 15 topics, were attended by more than 700 employees during the year.

INTERNATIONAL SALES In addition to our European and RussiaCIS regions, Nycomed products are sold in more than 60 countries worldwide, including China. Most of these are sold through distribution or licensing agreements with other pharmaceutical companies.

23732 NYCO indv.indd 19

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20

MARKETS

MARKET SPOTLIGHT UKRAINE Following a period of dramatic political change, Ukraine appears ready to fully embrace a market economy under the leadership of President Yushenko – and healthcare is a key area ready to reap the benefits of reform and reconstruction.

Nycomed established its first office in Ukraine in 1993. Following the ‘orange revolution’ in 2004, Nycomed Ukraine underwent a major restructure, with a new product focus, new management and increased sales coverage. With a population of approximately 47 million, sales are projected to represent some 10% of the total Nycomed turnover within the CIS region by 2010. This forecast considers the challenges inherent in what remains an unstable and very competitive environment.

Eugene Zaika is Nycomed’s Ukraine Country Manager: “Our aim is to move Nycomed into the top ten pharmaceutical companies operating in the country within two to three years. When I joined the company in February 2005, a top priority was restructuring the organisation to create a more efficient, focussed marketing and sales team. We now employ 65 people, including 45 sales reps and six regional managers.”

haemoderivative) for metabolic stimulation, but generally the company name is not highly recognised among healthcare professionals. In addition to promoting ourselves through sales and marketing initiatives, we are getting more involved in the bigger picture. During 2005, we hosted a major conference, together with the Ministry of Health, to look at counterfeited medicine. This was just the first step in demonstrating our commitment to this exciting market.”

The main objective of the new Ukraine team is to become a more visible and active partner in healthcare, promoting the Nycomed brand.

“We are well known amongst neurologists due to the success of our number one product, Actovegin® (deproteinized

FACTS • Nycomed is currently ranked 16 among the 20 leading Ukrainian and international companies in terms of retail sales • Sales grew by over 78% in 2005 • Leading products include: - Actovegin® (deproteinized haemoderivative) for metabolic stimulation - Calcium D3 (calcium and vitamin D) for osteoporosis - Concor® (bisoprolol fumarate) for hypertension - Gerimax® (ginseng) nutritional supplement • Until 1991, Nycomed products for the whole Soviet Union had to be distributed through state-owned companies in Moscow

23732 NYCO indv.indd 20

Olga Jolud, pharmacist, Ukraine

28/02/06 13:31:40

Oleh Dynnyk, neurologist, Ukraine

23732 NYCO indv.indd 21

21

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Nycomed provides hospital products throughout Europe, and general practitioner and over-the-counter medicines in selected markets, depending on the market situation and need. Within each of these areas, our major KEY PROD UCTS › 24

brands continue to perform strongly while our product pipeline makes steady, positive

PRO D UCTS

progress.

23732 NYCO indv.indd 22

KEY P IPELI NE PROD UCTS › 27

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THERAPEUTIC FOCUS AREAS › 26

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24

PRO D U C T S KEY PRODUCTS Key products are those that have had a substantial impact on our business during the last 12 months. The products listed in the table

CalciChew®

1

(calcium and vitamin D)

below have either achieved a large volume of sales or have significantly strengthened our product portfolio within the therapeutic focus areas.

Angiox®

Gutron®

Xefo®

2

(thrombin-specific anticoagulant)

(midodrine)

(lornoxicam)

Therapeutic area

Osteoporosis

Cardiology

Cardiology

Pain management

Net turnover € millions

€ 77.2

€ 4.9 Launched in 2004 and 2005

€12.9

€ 23.8

% of total net turnover

8.6

0.7 Launched in 2004 and 2005

1.7

3.2

13.1

Launched in 2004 and 2005

9.2

15.0

Partner

In-house

The Medicines Company

In-house

In-house

Indication

Osteoporosis

Percutaneous Coronary Intervention (PCI)

Low blood pressure

Pain and inflammatory diseases (e.g. rheumatism)

Hospitals/Specialists General Practitioners Pharmacists

Hospitals/Specialists

Hospitals/Specialists

Hospitals/Specialists General Practitioners

Details

The number one calcium product in Europe, with a 40% share of market

Launched in 2004 and 2005, the patient enrolment phase of the ACUITY trial was completed in 2005, comparing Angiox® (bivalirudin) with the combination of heparin and glycoprotein IIb/IIIa inhibitors in more than 13,800 Acute Coronary Syndrome patients

Despite an initial drop in sales due to competition from generic products, Gutron® sales have stabilised

Xefo®Rapid launched in Austria and Russia-CIS

Key markets

Benelux, CIS, Nordic, Switzerland + Export

Europe

France, Germany, Switzerland + Export

Austria, CIS, Greece + Export

0

15

% growth 2004-2005 0

Key customers

23732 NYCO indv.indd 24

60

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m)

n

25 25

Matrifen®

4

Curosurf®

Actovegin®

(haemostatic surgical patch)

(pantoprazole)

(lung surfactant)

(deproteinized haemoderivative)

Pain management

Tissue management

Gastroenterology

Respiratory/Neonatalology

CNS/Metabolic stimulation

Launched late 2005

€ 47.0

€ 78.2

€ 10.2

€ 64.4

Launched late 2005

6.3

10.5

1.4

8.6

Launched late 2005

46.7

18.6

20.0

59.2

LTS

In-house

Altana

Chiesi

In-house

Severe chronic opioid-sensitive pain

Haemostasis

Acid-related gastrointestinal diseases

Respiratory Distress Syndrome (RDS) in premature infants

Metabolic stimulation

Hospitals/Specialists

Hospitals/Specialists

Hospitals/Specialists General Practitioners

Hospitals/Specialists

Hospitals/Specialists General Practitioners

Branded generic Mutual Recognition Procedure (MRP) initiated

The bovine-free line extension TachoSil® was launched during 2004 and 2005

Currently Nycomed’s biggest in-licensed product

Curosurf® is available in 30 countries. Nycomed sells Curosurf® in nine countries in Europe including Russia-CIS

Total share of the market for cerebrovascular products in Russia/CIS

Sweden

Europe + Export

Austria, Benelux, Greece, Nordic, Switzerland

Austria, CIS, Germany, Netherlands

CIS, Germany + Export

1) 2) 3) 4)

3

TachoSil®

Pantoloc®/ Zurcale®

Including: Orocal®, Calcia™, Calcimagon®, Calcigran®, Calcilac®, Calcioral®, Calcitugg®, Cavid®, Mastical®, Nycoplus Calcigran®, Orotre®, Steocar®, Steovit D3®, Vicalvit® Including: Xafon®, Xefocam®, Telos®, Acabel®, Taigalor®, Xefo®Rapid Including: TachoComb® Including: Zurcal®, Zurcazol®, Pantozol®

23732 NYCO indv.indd 25

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26

PRODUCTS

THERAPEUTIC FOCUS AREAS 2005 saw introduction of pain management as a fourth therapeutic area for Nycomed. This will broaden our expertise and allow us to make the most of the opportunities presented by a market with an estimated value of around € 4 billion and growth rates of 6% annually. Across the four areas, hospital products tend to dominate, reflecting the strength and pace of hospital sales, which are currently outgrowing Rx and OTC sales throughout Europe’s Big Five markets in particular.

O S T EOPOROSIS Our calcium and vitamin D products are sold throughout Europe under several trademarks. In 2004, we in-licensed Preotact®, the first full-length parathyroid

hormone (PTH) from US-based NPS Pharmaceuticals. Developed to stimulate growth of structurally normal bone lost due to osteoporosis, Preotact® will complement our existing portfolio. Currently in the Market Authorisation Application (MAA) stage of the approval procedure, Preotact® is expected to bolster our position in the hospital/specialist segment following its expected launch in the second half of 2006. Estimates suggest that approximately 40% of middle-aged women and 15% of middle-aged men in Europe will experience osteoporosis in their lifetime. Each year, doctors in the EU treat around one million patients for osteoporosis fractures. Of these, it is estimated that approximately 400,000 patients are treated for a fractured hip and another 400,000 for wrist fractures.

With just over half of the potential suf-

ferers currently undergoing treatment, this could prove a significant area for potential growth.

CARDIOLOGY The launch of Angiox® (bivalirudin) continues our tradition of excellence in cardiovascular care. Angiox® (bivalirudin) is indicated for use as an anticoagulant during Percutaneous Coronary Intervention (PCI) and was developed by The Medicines Company in the US, where it was launched in 2001. In recent years, PCI procedures have been growing at a rate of up to 10% each year. The ACUITY clinical trial reached completion of the recruitment phase during 2005. If the results are in line with our expectations, we will apply for the indication of ACS (Acute Coronary Syndrome) to complement the existing PCI. It is estimated that

KEY P I P E L I N E P RO D U C T S

Therapeutic area

Key customer

Indication

Preotact®

Osteoporosis

Hospitals/Specialists

Osteoporosis

ZyComb®

Common cold

Pharmacists

Common cold

AI-700

Cardiology

Hospitals/Specialists

Diagnosis of coronary artery disease

TransMID®

Oncology

Hospitals

Malignant brain tumors

NAF (nasal fentanyl)

Pain

Hospitals/Specialists

Breakthrough pain

BioPharmaceutical portfolio

Various

Hospitals/Specialists

Various

23732 NYCO indv.indd 26

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s

PRODUCTS

there are approximately 1.5 million ACS patients in Europe, expected to increase by 5% over the coming years. Nycomed also offers numerous regional key products, including Concor® (bisoprolol fumarate) for hypertension treatment in Russia-CIS and Hjertemagnyl® (acetylsalicylic acid) an anticoagulant, in the Nordic countries. In the pipeline is AI-700, an ultrasound contrast agent being developed in a collaboration agreement with Acusphere. AI-700 is currently in the Phase III trial process and a registration dossier is expected to be submitted to the European Medicines Agency in 2007.

bearer and its fast-acting successor, Xefo Rapid® (lornoxicam) will secure this position in the future. However, with the addition of Matrifen® (fentanyl patch) for severe chronic opioid-sensitive pain and our nasal treatment (fentanyl) for breakthrough pain, we are preparing the foundation for what we expect will become a key area.

TISSUE MANAGEMENT

The market for pain management products is growing quickly. Until now, Xefo® (lornoxicam) for the management of acute pain has been the company’s flag-

For over a decade, Nycomed has been assisting surgical teams in managing postoperative complications with products such as TachoComb® (haemostatic surgical patch). The newly launched, bovinefree line extension, TachoSil® (haemostatic surgical patch) is a ready-to-use fixed combination of collagen sponge coated with human fibrinogen and human thrombin coagulation factors.

Partner

Development stage

PA I N

Phase III

27

TachoSil® can be cut to the specific size and shape of anatomical structures. The fibrin sealant Beriplast® P was added to the pan-European portfolio in late 2004.

Beriplast® P is used in a wide range of surgical procedures, including endoscopic specialities. In Europe, the total market value of tissue management is estimated to be more than € 90 million.

KEY PIPELINE PRODUCTS It is a top strategic priority for Nycomed to identify and develop new products that can address real medical needs in Europe. In our search, we pay particular attention to products in late-stage clinical development.

Registration

NPS Pharmaceuticals

MAA

In-house

MRP

Acusphere

Xenova In-house BioPartners

Various stages

A full explanation of the pipeline development stages can be found in the glossary

23732 NYCO indv.indd 27

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In 2005, we maintained our focus on the best ways to recruit the right people for the right positions, as well as develop and retain our talented and dedicated workforce.

NYCOMED PEOPLE › 30

R ESO URCES

PATENTS AND T R A D E M A R K S › 3 0

23732 NYCO indv.indd 28

ENVIRONMENT › 31

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INFORMATION SYSTEMS AND TECHNOLOGY › 31

› 30

QUALITY ASSURANCE, CLINICAL TRAIL REGISTRATION, ELECTRONIC SAFETY REPORTING › 31

23732 NYCO indv.indd 29

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30

RE S O U RC E S

The Nycomed Academy is at the heart of the company’s employee development strategy. April 2005 saw the first graduates complete the International Marketing Training (IMT) programme. Consisting of two separate weeks of study, the IMT

PATENTS AND TRADEMARKS

RETAINMENT

During 2005, we filed six new patent applications for calcium as a result of our Calcium Patent Strategy. We have also received patent approval in a number of countries (115 patents in total), making it possible to enforce rights for TachoSil® (haemostatic surgical patch) for bleeding control and Xefo® (lornoxicam) for acute pain relief.

Retaining a well-trained and highly skilled workforce is important to us. We operate in a very competitive business environment and we are satisfied that only seven

With the exception of Gutron®, all Nycomed’s key products are patent protected. In addition, a number of

Development: The Leader as a Role Model programme

› sh ow in › ac cep g l o y t › be ing ing t alty ho o b › ke n epi ng est to TR

di

ni

AT HY

ng

un re s de pe t / rs t c t re a n d i n co gni g tion

tion nica mu n om ed visio r yc sha hers wa o- gh a to ot t u en tives ro itm itia n gi ON TI

g

23732 NYCO indv.indd 30

› havi ng a › insp conti irin nu › sho g oth ous win er tw › en g c o s t h cou mm rag in MO TIV A

THE LEADER AS A ROLE MODEL P EM t e is n ›l i w ho g › s wi n re c ho › s ving i ›g

Another course in the spotlight during 2005 was The Leader as a Role Model programme. Designed to communicate and instil our leadership principles, this programme was further strengthened and adapted to meet the needs of leaders at all levels throughout the organisation. Since the programme was initiated, a total of ten sessions have engaged managers, who in turn, have been able to pass on the benefits of improved communication company-wide.

e rag ou ed d c lleng e n a ha er i nc c s e ds ent n a em re g a ST U

IE NT AT ION in c ge i t i a t i ve t t a b o r i ve s ili ient ty ed to ac t

D E V ELOPMENT

people within a defined group of key managers left Nycomed during 2005.

OR LT RESU ng ei g › b kin r a t ta g › g in ein › b s h ow › oa

The total number of Nycomed employees is now 3,395. This figure not only reflects the strong growth of the business, but we believe it also illustrates our commitment to supporting growth with the necessary resources for long-term success.

Of our new employees, 160 have been recruited to meet the demands of our fastest-growing market, Russia-CIS.

is compulsory for all Nycomed product managers. With a focus on product managers achieving consistency across the company, the Pre-launch Planning Template Project was implemented in 2005.

The objective is to provide product managers with high-quality material, as well as assistance, at the pre-launch and launch stages of a product’s introduction to the market. A quality assurance checklist is designed to streamline and standardise the entire launch process and provide easy-to-manage follow-up.

pr

NYCOMED PEOPLE

28/02/06 13:31:48

31 Our branded products are protected by registered trademarks, although the brand name may vary from market to market.

INFORMATION SYSTEMS AND TECHNOLOGY We view the rollout of the new Nycomed intranet portal during 2005 as a significant step towards our goal of effective internal company-wide communication. Concentrating on the four key areas of people, facts, news and product collaboration, the Portal combines standard intranet functions such as a global staff directory, with business intelligence modules that focus on knowledge management.

Nycomed experienced a technology ‘first’ during 2005 by submitting the Marketing Authorisation Application (MAA) for Preotact® (full -length PTH) that stimulates the growth of structurally normal bone lost due to osteoporosis, to the European Health Authorities as an electronic Common Technical Document (eCTD). Based on XML programming, it is hoped that eCTDs will speed up the approval process, as well as increase internal efficiencies.

SAP has now been successfully implemented in eight Nycomed countries, with Italy, Poland and Finland completing the implementation process during 2005. Our remaining markets are expected to follow in the coming years.

QUALITY ASSURANCE In 2005, the new Nycomed Quality Management System (N-QMS) was launched via the Portal to support regulated areas such as manufacturing, distribution and clinical trial activities, among other functions. The N-QMS provides requirements and guidelines to ensure that as the com-

23732 NYCO indv.indd 31

pany grows, our quality standards will be maintained.

CLINICAL TRIAL REGISTRATION The International Committee of Medical Journal Editors (ICMJE) and The International Federation of Pharmaceutical Manufacturers and Associations (IFPMA) have put forward new requirements for clinical trial registration. The aim is to increase the transparency of clinical trials and make clinical trial information more widely available to healthcare practitioners, patients and other stakeholders. The requirements cover all phase III and IV trials that were initiated (first patient enrolled) after June 2005. Consequently, Nycomed-sponsored trials that meet the criteria will be registered at www.clinicaltrials.gov.

ELECTRONIC SAFETY REPORTING

ENVIRONMENT At Nycomed, we regard sound environmental management practices as an integral part of our business operations. Local management is empowered and responsible for upholding standards and ensuring compliance with local regulatory requirements. During 2005, there were no reported environmental incidents or complaints at any of our production facilities.

Reducing the use of organic solvents is a constant focus. In Belgium, we succeeded in reducing the use of organic liquids by reformulating one of our products.

In 2005, we also reduced the amount of packaging materials used for products packed in cartons in Denmark and Austria. By reducing the carton thickness we were able to reduce the overall weight of packaging material by 19%.

In compliance with European Commission Directives and Regulations, Nycomed commenced electronic exchange (E2B) of adverse drug reactions (ADR) with national authorities and the EMEA in November 2005. Using validated software, our Central Pharmacovigilance team (CPV) successfully completed the formal E2B testing phase with the EMEA and with the national agencies of Norway, Denmark, Holland, Germany and Finland. Nycomed CPV will continue to perform E2B testing as more national agencies adopt this method of reporting.

We will also use the new system with our E2B-compliant license partners to ensure efficient and timely work procedures.

28/02/06 13:31:48

Although privately owned, we have obligations to our financial stakeholders.

In accordance with our financing arrangements, we prepare quarterly and annual financial reports

CORPORATE STRUCTURE › 34

that comply with set standards. Nycomed is credit rated by Standard & Poor’s and Moody as at 31 December 2005, our ratings were B and B2

CO RP ORATE G OV ERNANCE

respectively.

23732 NYCO indv.indd 32

SHAREHOLDERS › 34

RISK MANAGEMENT › 35

28/02/06 13:31:50

BO ARD OF DIRECTO RS › 38

EXECUTIVE MANAGEMENT › 40

23732 NYCO indv.indd 33

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34

CO R P O R AT E G OV E R N A N C E CORPORATE STRUCTURE Nycomed’s corporate structure is a twotier system consisting of a Board of Directors and management, with the Board elected at the Annual General Meeting.

The Board appoints and supervises management (the CEO) and oversees the company’s performance and results. The

daily management of Nycomed is carried out by the Executive Management Team.

Audit, Compensation and Benefits, and Executive Committees are also in place, reporting directly to the Board. In 2005, an independent Internal Audit function was established and reports directly to the Audit Committee. The Internal Audit function will be operational from 1 January 2006.

SHAREHOLDERS There is only one class of shares. There are no differences in voting rights and all shareholders are entitled to have matters considered at the Annual General Meeting. For details on the management incentive programme, please refer to the Financial Statements.

AS AT 3 1 D E C E M B E R 2 0 0 5 , T H E F O L LOW I N G S H A R E H O L D E RS HELD M O R E T H A N 5 % O F T H E C O L L E C T I V E S H A R E H O L D I N G : Share Ownership Shareholders

Nordic Capital

Share Ownership

(Fully Diluted)

%

%

30.32

29.01

29.95

28.65

22.36

21.40

17.34

16.59

12.84

12.27

10.25

9.81

• NC V Limited • Nordic Capital V, L.P. CSFB Private Equity • DLJMB Offshore Partners III, C.V. • DLJ Offshore Partners III, C.V. • DLJ Offshore Partners III-1, C.V. • DLJ Offshore Partners III-2, C.V. • DLJ MB Partners III GmbH & Co. KG • Millennium Partners II, L.P. • MBP III Plan Investors, L.P. • CSFB Credit Opportunities Fund (Helios) L.P. • CSFB Credit Opportunities Fund (Employee) L.P. Blackstone • Blackstone F1 Capital Partners (Cayman) L.P. • Blackstone F1 Offshore Capital Partners (Cayman) L.P. • Blackstone Family Investment Partnership (Cayman) III, L.P. • Blackstone F1 Mezzanine Holding (Cayman) L.P. • Blackstone F1 Mezzanine Partners (Cayman) L.P. AlpInvest • AlpInvest Partners Co-Investments 2000, C.V.

10.10

9.67

5.15

4.93

24.38

27.65

• AlpInvest Partners Later Stage, Co-Investments Custodian II B.V. • AlpInvest Partners CS, Investments 2005, C.V. • AlpInvest Partners Later Stage Co-Investments Custodian II B.V. • AlpInvest Partners Later Stage Co-Investments Custodian IIA B.V. Others

23732 NYCO indv.indd 34

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35 35

RISK MANAGEMENT Nycomed operates in a highly competitive and regulated business area. Specific risks are inherent in our product range and business model of in-licensing products. In addition to actively assessing risks throughout the operating regions, Nycomed management initiated a company-wide risk management project in November 2005. The Enterprise Risk Management system is expected to further strengthen and structure the way in which our current business is protected and to secure long-term growth.

F I N ANCIA L RISKS Financial risks at Nycomed are managed centrally. The overall objectives and policies for Nycomed’s financial risk management are outlined in the Treasury Policy, which is approved by the Audit Committee on behalf of the Board. The Treasury Policy sets guidelines for permitted exposure to financial risks and the financial instruments that can be employed as part of financial management.

These guidelines include risks pertaining to foreign exchange and interest rates related to commercial exposure only. Consequently, Nycomed does not enter into speculative positions.

Foreign exchange The overall objective of foreign exchange risk management is to limit the shortterm negative impact on earnings and cash flows from exchange rate fluctuations. Nycomed is exposed to foreign exchange transaction risk as sales and purchases may be denominated in currencies that differ from the functional currency of our subsidiaries. Most sales are denominated in euro, Japanese yen, US dollars, Norwegian kroner and Danish kroner. The main currency exposure in Nycomed is

23732 NYCO indv.indd 35

US dollars deriving from our activities in Russia-CIS. Our costs are incurred in the various currencies of countries where we maintain our production facilities, primarily Austria, Norway and Denmark.

In accordance with our Treasury Policy, Nycomed is obliged to hedge a minimum of 75% of future expected cash flow and purchases up to 12 months forward.

Hedging takes place using foreign exchange forwards. Expected cash flow for the period from 12-18 months can also be hedged on a rolling basis with up to 75% of the exposure. Balance sheet risks are covered 100%, except for our investment in shares. Equity investments in subsidiaries are not hedged, except for part of our investment in the Finnish subsidiary.

In Russia-CIS, the standard payment conditions are cash payment or 60 to 90-day payment terms. As a consequence of strict control and close follow-up on outstanding payments, we have had very few defaulted payments in this region since the rouble crisis in 1998. Due to increasing sales in Russia-CIS, outstanding receivables increase simultaneously. We maintain that this region is subject to higher than average political and economic risk and we continue to make every effort to secure payment from our customers. We try to cover outstanding payments through insurance companies. As at 31 December 2005, we had € 44.8 million outstanding receivables from customers in Russia-CIS, of which 52.0% was covered by credit insurance.

Interest

Working capital

The interest rate under our senior facility is based on variable interest plus a margin.

Changes in interest rates affect Nycomed’s income statement as well as the balance sheet. The overall objective of the interest rate risk management is to limit negative impact on earnings and on the balance sheet from interest rate fluctuations.

The Treasury Policy stipulates that at least 50-100% of the interest risk relating to the Group’s budgeted debt for current year and next year should be hedged. In addition, 100% of the interest exposure relating to existing long-term loans may be hedged, by fixing the interest on debt in the periods up to the planned outstanding debt. At the end of December 2005, we have hedged 47.3% of the outstanding debt under the senior credit facility, with a duration of 4.03 years.

Due to the current rate of growth, we are experiencing increased pressure on our working capital and longer cycles for the payment of trade receivables. This is due mainly to a new reimbursement system in Russia introduced on 1 January 2005.

All sales under this system have longer than average payment terms, but payment is guaranteed by the government.

In December 2005, our working capital project was relaunched to further improve the efficiency of our internal processes related to inventory, trade receivables and creditors.

Credit Nycomed continuously monitors and evaluates credit risk on outstanding payments. In general, we estimate the risk to be limited for countries in the EU.

Insurances The objective of the Insurance Policy is to protect the company’s assets and profitability by minimising the adverse effects of accidental losses occurring within the company or at the premises of our key business partners. Nycomed uses an internationally recognised insurance broker as a consultant.

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36

C O R P O R AT E G O V E R N A N C E

C O MMERCIAL RISKS One of the key responsibilities of the executive management team is to continuously assess and discuss business risks. The Board discusses the commercial risks outlined below on a case-by-case basis.

Listed below are examples of the current, most relevant risks (i.e. where the combination of impact and vulnerability is highest), along with counter measures.

Business environment Our business is subject to extensive government regulation, control and approval.

In addition, continued cost-control efforts by governments and managed-care organisations may lead to lower pricing and reimbursement levels. We regularly undertake thorough evaluations of the potential impact these scenarios could have on our product development and marketing activities. Pricing and reimbursement evaluations are also conducted before we enter into any agreements to in-license new products.

Nycomed’s operations in some countries and regions are subject to a high degree of political and economic risk. Russia-CIS is currently one of our largest and fastestgrowing markets and we remain vigilant and highly focused on this particular region. Financial risk management is an important tool to minimise risk in the short term; in the longer term, we are building up operations in lower-risk markets with significant growth potential.

Product portfolio Many of our products are mature and encountering competitive pressure. To minimise losses/risk when products mature, we actively manage product lifecycles.

We depend on sole-source suppliers for materials used in the production of several of our products. To limit our vulnera-

23732 NYCO indv.indd 36

bility, we constantly evaluate new potential sources and secure our supply and stock of materials.

BSE risks may adversely affect the marketing and market share of products containing bovine-sourced materials. Where necessary, bovine components are sourced from countries which, according to the classification adopted by the European Commission Scientific Steering Committee, are currently BSE-free or have a low risk of BSE. With respect to bovine components sourced from lowrisk countries, we comply with the EU guidelines for BSE risk material. We have developed bovine-free products and currently expect to switch all sales in existing markets from TachoComb® (containing bovine components) to TachoSil® (bovine-free) and we intend to launch only TachoSil® in new markets.

In-licensing Nycomed’s future growth and success depends on the ability to identify, in-license, acquire, develop and market new products. Before we in-license a new product, its potential, along with any adverse effects and similar factors are scrutinised by a team of specialists who produce a detailed evaluation report. In this way, we seek to ensure that the decision-making process results in commercially viable, profitable investments.

Our strategy is to mainly acquire products with clinical proof of concept (CPoC), meaning that efficacy and safety in patients have been demonstrated in clinical studies. This puts us in a better position to obtain marketing authorisation for our new products compared to other companies with earlier-phase product pipelines.

Dependency on development competencies, commitment and the financial situation of co-development partners are risk

factors that we assess prior to a final decision. Having agreed on collaboration, we and the partner dedicate project managers and executive teams to expedite implementation and execution.

Nycomed’s focus on fewer, but potentially larger, products for in-licensing may increase risk if a key product faces unexpected clinical, regulatory or competitive challenges. To minimise this risk, we seek to diversify our pan-European in-licensing focus across at least four main hospital specialist areas: osteoporosis, cardiology, tissue and pain management.

People Nycomed has an extensive growth strategy, so there is a risk that recruiting the right people and ensuring appropriate training will be increasingly difficult. To limit this risk, HR has initiated Good Recruitment Practice to guide recruitment procedures. A consistent approach to training is achieved through the Nycomed Academy, which provides training programmes throughout the company.

Environment We operate ten production facilities in five European countries. Two of the plants specialise in packaging, presenting limited environmental risks. To minimise external environmental risks we place compliance responsibility with the local site manager in accordance with our HSE policy.

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37

23732 NYCO indv.indd 37

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38

C O R P O R AT E G O V E R N A N C E

BOARD OF DIRECTORS

the Chairman. Four to five scheduled Board meetings are held annually and the proceedings are recorded.

Board members are elected by simple majority voting on an annual basis at the Annual General Meeting. Nycomed employees elect two representatives. The largest shareholder has the right to elect

company strategy, but have no voting rights. At 31 December 2005, observer to the Board was George Westerkamp, AlpInvest Partners N.V.

OBSERVERS TO THE BOARD Observers may be appointed by the Board on an ad-hoc basis to advise on

NAT I O N ALITY

BORN

MEMBER OF THE BOARD SINCE

REMUNERATION AS BOARD MEMBER

NYCOMED SHARES HELD

TONI WEITZBERG Chairman of the Board

Swedish

1950

24 August 2005

–

–

HÅKAN BJÖRKLUND Chief Executive Officer

Swedish

1956

29 November 2002

–

Shares: 58,976 Warrants: 92,000

ALEKSANDAR (ALEX) ERDELJAN

American

1950

6 October 2003

–

Warrants: 15,000

THOMPSON DEAN

American

1958

24 October 2002

–

–

A N I TA H E L L A N D Employee representative

Norwegian

1959

16 June 2003

–

–

CARL-GUSTAF JOHANSSON

Swedish

1937

17 March 2003

50,000 USD

–

JAVED KHAN

British

1968

6 October 2003

–

–

JESPER SCHRØDER Employee representative

Danish

1965

16 June 2003

–

–

KRISTOFFER MELINDER

Swedish

1971

24 August 2005

–

–

23732 NYCO indv.indd 38

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C O R P O R AT E G O V E R N A N C E

C O MP E T E N C I E S

OTHER BOARD MEMBERSHIPS

CHAIRMAN OF

› Business Administration › Marketing & Sales

› › › ›

› Atos Medical AB

› Medical/Science

› Atos Medical AB › Biovitrum AB › Danisco A/S

› Finance › Founding Member Blackstone Healthcare Partners LLC (BHP)

› Eurand International

› Finance › Co-Managing Partner & CEO of Avista Capital Partners, based in New York

› › › › ›

Synphora AB Biovitrum AB Unomedical A/S Permobile AB

BioPartners Merrill Visant Safilo NextPharma

39

› Investment Committees of DLJMB II, DLJMB III, and DLJMB Growth Capital Partners › DeCrane Aircraft Holdings, Inc. › Mueller Holdings (N.A.), Inc.

› Marketing & Sales › Nycomed’s Director for New Business, OTC Scandinavia

› Business Administration, Marketing & Sales › Senior Adviser of Investor Growth Capital

› EffeRX › NeuroNova AB

› Finance › Director of The Blackstone Group Int. Ltd., based in London › Science › Head of staff training and education development at Nycomed Operations Denmark

› Bowater Building Products Limited

› Finance

› Atos Medical Holding 2 AB › KappAhl Holding AB (publ)

23732 NYCO indv.indd 39

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40

CO RPO HA T ER RATNEAGMOE V E R N A N C E

EXECUTIVE MANAGEMENT

“THIS YEAR… … we grew the company significantly while also investing in its future.”

Håkan Björklund, Chief Executive Officer, joined Nycomed in 1999. Before Nycomed, he was the Regional Director in Astra (today AstraZeneca), where he was responsible for sales and marketing in the Nordic Region, the United Kingdom, Ireland, the

Runar Bjørklund, Chief Financial Officer, was appointed in October 1997. Before assuming his post as CFO, Mr Bjørklund was Corporate Controller at Nycomed from 1996. He joined the company in 1992 as Group Chief Accountant in the Imaging division. After his studies and military service, Mr Bjørklund worked at accounting firms in Norway. He holds an MSc in Business from Lund University, Sweden (1978) and followed CPA

Netherlands, Eastern Europe, Greece and South Africa from 1998 to 1999. Mr Björklund served as Regional Director of Astra’s Nordic Region from 1996 to 1998, and as President of Astra Draco from 1991 to 1996. He also serves on the Board of Directors at Atos Medical AB, Biovitrum AB and at Danisco A/S. He holds a PhD in Neuroscience Research from Karolinska Institutet in Stockholm.

Mr Björklund was born in 1956 and is a Swedish citizen.

… a new ownership structure was implemented while maintaining business momentum.” studies at the Norwegian School of Economics and Business Administration (1981).

Mr Bjørklund was born in 1956 and is a Norwegian citizen.

Hans Arvid Danielsson, Senior Vice President, Human Resources and IS/IT, joined Nycomed in April 2001, from a position as Vice President, Business

Services Sweden, at AstraZeneca AB. He has 20 years of experience in the pharmaceutical industry, having held various positions in human resources and company support at Astra and later AstraZeneca.

Mr Danielsson graduated from Lund … the Nycomed Academy had its first University (Sweden) in 1983 with a graduates, heralding a new era of Bachelor’s Degree in Behavioural Sciences and Personnel Management. He was born professional education for the company.” in 1951 and is a Swedish citizen.

years at the Norwegian Trade Council in Düsseldorf, GerJostein Davidsen, Senior Vice President Russia-CIS, many. Mr Davidsen graduated from the Oslo School of was appointed in December 2005, after 10 years as Business and Administration in 1985.

Managing Director of Nycomed Russia-CIS. He has He was born in 1959 and is a Norwegian citizen. been a board member of the Association of International Pharmaceutical Manufacturers (AIPM) in Russia for the last six years. Mr Davidsen … we moved to a business unit structure joined Nycomed in 1987 as Area Manager for Eastern Europe and Soviet to support our ambitious expansion Markets, based in Oslo and Vienna. Bestrategy in Russia-CIS.” fore joining the company, he spent two

23732 NYCO indv.indd 40

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41

C O R P O R AT C E HGAOPVTEERRN N AA NM CE

… construction work was completed on the Linz plant extension for the production of TachoSil®.”

Charles Depasse, Senior Vice President, Operations, joined Nycomed in March 2000. He has 17 years of experience in the healthcare industry, both in Europe

and in the US, having held various positions in product development, manufacturing and general management at Pfizer and later at Smith & Nephew. Mr Depasse graduated from the University of Brussels (Belgium) in 1982 with an Engineering Degree and graduated from New York University with an MBA in 1984.

He was born in 1958 and is a Belgian citizen.

positions with AstraDick Söderberg was … patients in more than 60 Zeneca, Pharmacia & appointed Senior Vice countries worldwide were treated Upjohn and Kabi PharPresident, International with Nycomed products.” macia. Mr Söderberg Sales in September graduated from Uppsala 2005. Before joining University in 1984 with a degree in International Nycomed, he was a Vice President at IMS Consulting.

Economics and Business Administration.

He has over 20 years of international experience in He was born in 1958 and is a Swedish citizen. the pharmaceutical industry and has held senior

Alejandra Mørk was appointed Senior Vice President, International Product Development, in October 2003.

Since joining Nycomed in 1989, she has worked with

product development in project management, medical affairs and regulatory affairs. Ms Mørk has held various management positions in the company since 1992.

She holds a PhD and a Master’s Degree in Pharmacy from the … we submitted one innovative product, Danish University of PharmaceuPreotact®, for European approval and received tical Science. She was born in 1961 and is a Danish citizen. the first approval for another, Matrifen®.”

Timo Tiivola, Senior Vice President, Marketing and Sales, joined Nycomed in January 2003 from Pfizer Ltd, where he was Chairman & Managing Director of the UK and Ireland businesses. He has 27 years of experience in the pharmaceutical industry in Europe with a focus on sales and marketing. He holds a Certificate in Marketing and an EMBA from

… we strengthened our European organisation, particularly in the larger markets.” the Helsinki School of Economics and Business Administration. Mr Tiivola was born in 1953 and is a Finnish citizen.

… we defined pain management, osteoporosis, cardiology, and tissue management as our strategic business areas.”

Kerstin Valinder, Senior Vice President of International Marketing and Business Development, joined Nycomed in October 1999 from a position as Vice President, Business Strategy and Licensing, for AstraZeneca’s

23732 NYCO indv.indd 41

global gastrointestinal franchise.

She has 23 years of experience in the pharmaceutical industry, having held various positions in sales, marketing, business strategy and business development at Astra and later at AstraZeneca.

She graduated from Gothenburg University, Sweden, in 1982 with a University Certificate in Journalism.

Ms Valinder was born in 1960 and is a Swedish citizen.

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BASIS OF PREPARATION › 44

FINANCIAL STATEMEN TS

NEW OWNERS H I P › 4 4

23732 NYCO indv.indd 42

S UMMARY OF SIGNIFICANT ACCOUNTING POLICIES › 46

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ADOPTION OF IFRS › 44

BASIS OF CONSOLIDATION › 46

23732 NYCO indv.indd 43

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44

FI N A N C I A L S TAT E M E N T S ACCOUNTING PRINCIPLES BASIS OF PREPARATION These consolidated financial statements comprise the financial statements of Nycomed A/S (the Company) and its subsidiaries (collectively, the Group) and have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and additional Danish disclosure requirements for annual reports for Category D enterprises. The consolidated financial statements have been prepared in accordance with the historical cost convention, as modified by the revaluation of availablefor-sale financial assets, and financial assets and liabilities (including derivative financial instruments) at fair value through profit and loss.

To facilitate the reading of the annual report, part of the information required

by IFRS has been included in the Financial Discussion.

NEW OWNERSHIP On 10 March 2005, Nycomed A/S entered into a subscription, share purchase and contribution agreement, pursuant to which Nycomed A/S agreed to acquire all of the capital stock of Nyco Holdings ApS (the former parent company of the Group). The acquisition was consummated on 9 May 2005, following regulatory approvals.

To finance the acquisition, Nordic Capital and certain co-investors contributed €412

23732 NYCO indv.indd 44

million, in cash, to Nycomed A/S in exchange for newly issued Nycomed A/S shares. On 21 March 2005, Nycomed A/S raised an additional €396 million through the sale of Senior PIK Notes. Nycomed A/S has used these proceeds to purchase 100% of the outstanding capital stock of Nyco Holdings ApS from its existing shareholders and to pay related transaction fees and expenses. For a further description of the acquisition and financing please refer to note 2 to the consolidated financial statements.

The acquisition has been accounted for using the purchase method of accounting.

Accordingly, the consolidated financial statements include the results of the Group for the eight-month period since the acquisition in May 2005.

The acquisition and the purchase accounting adjustments related thereto, affect the comparability of the 2005 results to previous years, in particular: • the substantial indebtedness we incurred to finance the acquisition has increased our interest expense significantly; • the significant adjustment to intangible assets we recorded in connection with the acquisition in respect of patents and other intellectual property rights has led to a significant increase in amortisation expense; • the purchase accounting adjustment relating to inventory resulted in a nonrecurring charge of €58.7 million that has been reflected in our consolidated income statement, net of the related income tax benefit, as the inventory on

hand at the acquisition date is sold to customers. This impact and the related effect on gross and operating margins has been reflected in our consolidated income statement within the first five months following closing of the acquisition; • the purchase price allocation and purchase accounting adjustments may be subject to subsequent adjustments for fair values. IFRS 3 Business Combinations effectively requires allocation of the cost of an acquisition to identifiable assets, liabilities and contingent liabilities to be completed within a period of twelve months of the acquisition date (9 May 2005).

ADOPTION OF IFRS The accounting principles of the Group are in accordance with International Financial Reporting Standards (IFRS).

In respect of the pro forma 2004 and 2005 numbers the date of transition is 1 January 2004. The pro forma 2004 and 2005 figures have been prepared in accordance with IFRS. The effect of Nycomed’s adoption of IFRS is determined by the provisions set out in IFRS 1 First Time Adoption of International Financial Reporting Standards, which contain transition rules for companies adopting IFRS for the first time.

The following paragraphs describe the adoption rules applied according to IFRS 1 and the changes to the accounting principles:

BUSINESS COMBINAT I O N S In accordance with IFRS 1, Nycomed has

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45 the option to recognise the existing carrying amount of assets and liabilities for business combinations made prior to 1 January 2004. If the exemption rules were not applied, goodwill related to certain acquisitions made previously should be reassessed. As a result, the carrying value of goodwill and equity would be affected. Goodwill resulting from business combinations should not be amortised in the income statement according to IFRS 3 Business Combinations. In 2004, Nycomed amortised goodwill amounting to €32.8 million in the income statement.

This has been adjusted in the opening balance sheet as per 1 January 2004 and increased goodwill and shareholders’ equity by €32.8 million.

E MP LOYEE BENEFITS – P ROVISION FOR PENSIONS Nycomed’s accounting for defined benefit plans is determined by IAS 19 Employee Benefits. In accordance with IFRS 1, all unrecognised actuarial gains and losses have been included in equity in the IFRS opening balance sheet as at 1 January 2004. This has resulted in a total increase in the pension provision of €5.7 million and an adjustment to equity net of deferred tax of €4 million. As per 31 December 2004, this change in accounting policy resulted in a total increase in the pension provision of €6.1 million and an adjustment to equity net of deferred tax of €4.3 million.

CU MUL ATIVE CUR RENCY TRA NSL ATION DIFFERENCES In accordance with IFRS 1, Nycomed has neutralised cumulative currency translation differences related to foreign subsidiaries in the opening balance sheet on 1 January 2004. This means that only currency translation differences arising after 1 January 2004 will be included in the calculation of gains and losses arising

23732 NYCO indv.indd 45

from any future divestment of foreign subsidiaries.

S HA RE- BAS ED PAY MENTS In accordance with IFRS 1, Nycomed has chosen not to recognise the fair value of employee services received in exchange for the grant of warrants as an expense with regard to warrants granted after 7 November 2002 with vesting date before 1 January 2005. Nycomed has granted warrants to management after 7 November 2002, however based on the nature of the programmes, the warrants should be considered vested at grant date which is before 1 January 2005 and therefore they will not impact the income statement according to IFRS 2 Share-based Payments.

Nycomed has granted warrants in 2005 and the fair value of these has been recognised as an expense in the income statement, in total €8.6 million.

F INANC IA L I NS TRUMENTS Nycomed does not apply hedge accounting under the specific rules of IAS 39 to forward exchange contracts and other derivative financial instruments except interest rate swaps applied to maintain a reasonable balance between fixed and floating interest rate risk. The use of hedging derivatives and the accounting for these under Danish GAAP did not qualify for cash flow hedge accounting according to IAS 39. In accordance with IFRS 1, no adjustments for these have been reflected in the opening balance sheet as per 1 January 2004.

This is the first annual report for the Group which has been prepared in accordance with IFRS. All standards and interpretations effective at 31 December 2005 have been applied. Furthermore, changes to IAS 39 “Financial Instruments”

(fair value option) effective at 1 January 2006 have been applied. The provisions set out in IFRS 1 have been applied in connection with the adoption of IFRS of Nyco Holdings ApS and subsidiaries as described above.

IFRS 7 “Financial instruments: Disclosures” and changes to IAS 1 regarding financial positions effective after 31 December 2005 have not been applied.

Application of these standards would not have any impact on recognition and measurement but only entailed additional disclosures in the notes to the financial statements.

COMPARATIVE FIGURES The annual report 2005 covers the period from incorporation of Nycomed A/S on 4 January 2005 to 31 December 2005 and the consolidated financial statements cover the 8 month period of operations from acquisition of the Nycomed Group on 9 May 2005 to 31 December 2005. For comparative reasons we have stated a pro forma income statement and cash flow statement covering 12 months from January to December 2005. These 12 month figures are based on consolidated figures from January to April 2005 for Nyco Holdings ApS and subsidiaries and consolidated figures from May to December 2005 for Nycomed A/S and subsidiaries. Furthermore, for comparative reasons, for Nyco Holdings ApS we have stated consolidated income statement figures for 2004, consolidated balance sheet as per 31 December 2004 and consolidated cash flow statement figures for 2004. The pro forma 2004 and 2005 figures have been prepared in accordance with IFRS. The comparatives for 2004 have not been restated as the consolidated finan-

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46

F I N A N C I A L S TAT E M E N T S

cial statements for 2004 for Nyco Holdings ApS and subsidiaries were based on a different method of purchase accounting.

We have not stated comparative figures for the full year of 2005 and 2004 in the notes to the consolidated financial statements.

BASIS OF CONSOLIDATION The consolidated financial statements include the financial statements of Nycomed A/S (the parent company) and all the companies that Nycomed A/S directly or indirectly owns more than 50% of the voting rights, or in some other way, has a controlling influence (subsidiaries). Nycomed A/S and these companies are referred to as the Group.

The consolidated financial statements are based on the financial statements of the parent company and of the subsidiaries and are prepared by combining items of a uniform nature and eliminating intercompany transactions, shareholdings, balances and unrealised intercompany profits and losses. Minority interests’ pro rata shares of profit or loss and the net assets are disclosed as separate items in the income statements and within equity in the consolidated balance sheet respectively. The consolidated financial statements are based on financial statements prepared by applying the Group’s accounting policies.

The purchase method of accounting is used to account for the acquisition of businesses by the Group. The cost of an acquisition is measured as the fair value of the assets given and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and lia-

23732 NYCO indv.indd 46

bilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of identifiable net assets acquired is recorded as goodwill.

Entities in which the Group and outside shareholders have agreed to exercise joint control over significant financial and operational policies are accounted for using the proportionate consolidation method.

A list of all the subsidiaries is presented separately.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION PRINCIPLES Please refer to the section “Basis of consolidation”.

FOREIGN CURRENCY TRANSL ATION Functional and presentation currency The consolidated financial statements are presented in euros, which is Nycomed’s functional and presentation currency.

Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.

Translation of transactions and balances Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are

retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. Tax charges attributable to exchange differences on those borrowings are also dealt with in equity. Non-monetary items, which are measured in terms of historical cost in a foreign currency, are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Transactions in foreign currencies are converted at the exchange rate prevailing on the date of transaction. Exchange rate gains and losses arising between the transaction date and the date on which the payments are made or received are included in the income statement under financial income and expenses.

Receivables and payables denominated in foreign currencies are converted at the exchange rate at the end of each period.

Realised and unrealised exchange rate gains and losses are included in the income statement under financial income and expenses. Unrealised exchange gains and losses on loans in foreign currency that serve to hedge future foreign currency cash flows, are deferred until repayment of the loan.

Translation of financial statements of group companies For consolidation purposes, the income statements of foreign subsidiaries classi-

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F I N A N C I A L S TAT E M E N T S

fied as foreign entities are translated at average exchange rates during the year, and assets and liabilities are translated using closing rates. Exchange rate differences are recorded in shareholders’ equity.

S A L ES AND REVENUE R E C OGNITION The Group derives revenue from two primary revenue streams, namely product sales and the licensing of product rights.

Sales represent the fair value of the sale of goods excluding value added tax and after deduction of provisions for trade discounts, allowances and returned products.

Revenue from the sale of goods is recognised when all the following specific conditions have been satisfied: • Nycomed has transferred to the buyer the significant risk and rewards of ownership of goods, • Nycomed retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, • The amount of revenue can be measured reliably, • It is probable that the economic benefits associated with the transaction will flow to Nycomed, • The costs incurred or to be incurred in respect of the transaction can be measured reliably.

These conditions are usually met upon shipment to the customer with regard to revenue from product sales, whereas for royalty income related to the licensing of product rights, these conditions are usually met when royalty becomes payable.

In certain circumstances, the Group enters into long-term contracts that provide an up-front payment in lieu of future royalty payments. This payment is recorded

23732 NYCO indv.indd 47

as deferred revenue and recognised in income over the contractual period until payment is non-refundable, based on the expected underlying product sales.

47

ment expenses are capitalised if certain criteria are met and they are likely to generate future economic benefits.

ADMINISTRATIVE E X P E N S E S Provisions for discounts, rebates to customers and customer returns are estimated and recorded at the time the related sales are recognised, and are reflected in net sales.

COST OF SALES Cost of sales consists of variable production costs, including raw materials, other production materials and direct labour cost. In addition, cost of sales includes fixed production overhead costs such as indirect labour and materials, repairs, maintenance and depreciation costs related to property, plant and equipment used in the production process and costs related to production administration and management.

SALES AND MARKETING EXPENSES Sales and marketing expenses consist of all expenditures incurred in connection with selling and marketing of the Group’s products, including distribution costs and amortisation of intangible assets.

RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses include expenses that relate to the Group’s research and development functions, including wages and salaries, depreciation and other overheads. Any milestone payments to third parties in respect of research and development are recognised in the income statement, or are capitalised, as appropriate, in the period in which the milestones are reached.

Research expenses are charged to the income statement as incurred. Develop-

Administration expenses consist of costs relating to the Group’s management and administration, including depreciation.

FINANCIAL INCOME AND EXPENSES Financial income and expenses include interest, amortisation of financing costs, realised and unrealised exchange gains and losses and other financial expenses.

The unrealised exchange gains and losses include changes in the fair value of derivatives designated as fair value hedges.

INCOME TAX (EXPE N S E ) BENEFIT Income tax is allocated to the relevant fiscal year and recognised in the income statement. Income tax comprises current tax as well as deferred tax.

INTANGIBLE ASSET S Intangible assets acquired separately are measured on initial recognition at cost.

The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at each financial yearend. Changes in the expected useful life or the expected pattern of consumption

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48

F I N A N C I A L S TAT E M E N T S

of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the function of the intangible asset. Intangible assets with indefinite useful lives are tested for impairment annually. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

Costs relating to development projects are capitalised if all of the following capitalisation requirements are met: • It is probable that all the necessary regulatory approvals, public registration and marketing authorisations will be received; • The completion of products is technically feasible; • There is an ability and continuing intention to complete the underlying product and use or sell it; • The costs related to the development of the product are readily measurable; • Future economic benefits are likely to be generated.

If these criteria are not achieved, all development expenses are expensed as incurred.

In determining the probability of a regulatory approval, the following are regarded as strong indicators that a product will receive regulatory approval:

23732 NYCO indv.indd 48

The product is a generic substitute of an approved product; • The product is approved in other countries; • The product is in late Phase II or Phase III clinical trials with the results of previous trials indicating that there is no obvious reason why the product should not be approved; • The product is based on a known substance or existing product.

These development projects are amortised over the life of the associated product; amortisation begins when the product becomes marketable. Distribution rights to pharmaceutical products that are acquired from third parties, prior to receipt of regulatory approval to market the products, are capitalised in certain circumstances using the same criteria as for the capitalisation of development expenses. These rights are amortised on a straight-line basis over their estimated useful life once the product has begun to be distributed. Intangibles are subject to an impairment test when events or circumstances indicate that impairment may exist. The amortisation periods are generally as follows: Completed development projects

6 -15 years

Patent and distribution rights

6 -15 years

Development projects in progress

Estimated product life

GOODWILL Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed

for impairment annually or more frequently if events or circumstances indicate that the carrying value may be impaired.

PROPERTY, PL ANT AND EQUIPMENT Property, plant and equipment are measured at cost, less depreciation and impairment losses. Costs include purchase price and expenses directly related to the asset purchase until the asset is ready for use.

Depreciation is generally calculated on a straight-line basis over the expected useful lives of the assets, as follows: Buildings

25-33 years

Machinery and equipment

5-10 years

Other property, plant and equipment

3-10 years

Land is not depreciated.

The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal.

Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised. The asset’s residual values, useful lives and methods are reviewed, and adjusted if appropriate, at each financial year-end. When each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied.

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F I N A N C I A L S TAT E M E N T S

I M PAIRMENT If an asset does not generate cash flows that are largely independent of cash flows from other assets, an enterprise should determine the recoverable amount of the cash-generating unit.

A cash-generating unit is the smallest identifiable group of assets for which identifiable cash flows can be identified and measured. Nycomed considers the total business to be one cash-generating unit as the cash flows from individual brands, products, other assets or geographical segments are not clearly identifiable. As such, Nycomed tests impairment at group level where the total business is seen as one cash-generating unit.

Impairment of goodwill is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised.

An impairment test is conducted in respect of the book value of intangible, tangible and financial assets and where write-downs are required, the book value is written down to the higher of net realisable value and the present value of future cash flows in connection with continued use. Consequently, intangible and tangible assets are written down in the income statement in those cases where the book value exceeds the expected future cash flow from the undertaking or the assets to which the goodwill is related.

The book value of financial assets is written down if, as a result of a change in the expected cash flows, the expected present value of such cash flows is lower than the carrying value. When computing

23732 NYCO indv.indd 49

the present value, the original effective rate of interest is applied. If, subsequently, the present value of written-down financial assets increases, the write-down is reversed. Such reversal of previous impairments will not result in financial assets being measured at more than the amortised cost.

INVESTMENTS AND OTHER FINANCIAL ASSETS Financial assets in the scope of IAS 39 are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, reevaluates this designation at each financial year-end.

All regular way purchases and sales of financial assets are recognised on the trade date, i.e. the date that the Group commits to purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Financial assets classified as held for trading are included in the category “financial assets at fair value through profit or loss”.

Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Deriva-

49

tives are also classified as held for trading unless they are designated and effective hedging instruments. Gains or losses on investments held for trading are recognised in income.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method.

Gains and losses are recognised in income when the loans and receivables are derecognised or impaired, as well as through the amortisation process.

Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the two preceding categories. After initial recognition available-for-sale financial assets are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until the investment is determined to be impaired. In this case, the cumulative gain or loss previously reported in equity is included in the income statement. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions, reference to the current market value of another instrument (which is substantially the same), discounted cash flow analysis, and option pricing models.

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50

F I N A N C I A L S TAT E M E N T S

I N V ENTORIES Inventories are measured at the lower of cost in accordance with the weighted average price method and the net realisable value. The net realisable value is made up of the expected sales price, considering obsolescence, less any remaining production and sales costs.

The cost of manufactured, finished and semi-finished products includes raw materials, direct labour, other production materials and production overheads. Production overheads include indirect labour and materials, repair, maintenance and depreciation costs related to machinery and buildings used in the production process, and costs related to production administration and management.

in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

INTEREST BEARING LOANS AND BORROWINGS All loans and borrowings are initially recognised at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in net profit or loss when the liabilities are derecognised, as well as through the amortisation process.

TAXES Current tax

Goods for resale include the purchase price and related transportation costs.

T R A DE AND OTHER R E C EIVABLES Trade receivables are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.

Provision is made when there is objective evidence that the Group will not be able to collect the debts.

C AS H AND CASH E Q U IVALENTS Cash and short-term deposits in the balance sheet comprise cash at banks and in hand and short-term deposits, with an original maturity of three months or less.

For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above.

T R E ASURY SHARES Own equity instruments which are reacquired (treasury shares) are deducted from equity. No gain or loss is recognised

23732 NYCO indv.indd 50

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities.

The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date.

Deferred tax Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except: • where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss;

• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits and unused tax losses can be utilised, except: • where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; • in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable

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F I N A N C I A L S TAT E M E N T S

that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Sales tax Revenues, expenses and assets are recognised net of the amount of sales tax except: • where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; • receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

D I V I DENDS Proposed dividend for the year is shown as a separate item within shareholders’ equity. There were no such dividends proposed or paid in any of the periods presented.

23732 NYCO indv.indd 51

EMPLOYEE BENEFITS AND PENSIONS Wages, salaries, social security contributions, paid annual leave and sick leave, bonuses, and non-monetary benefits are accrued in the year in which the associated services are rendered by employees of the Group.

Pension provisions The Group operates a number of defined benefit and defined contribution plans in the subsidiaries.

The costs for the year for defined benefit plans are determined using the projected unit credit method. This reflects services rendered by employees to the dates of valuation and is based on actuarial assumptions primarily regarding discount rates used in determining the present value of benefits, projected rates of remuneration growth, and long-term expected rates of return for plan assets.

The impact from differences between assumptions and actual events, and effects of changes in actuarial assumptions (actuarial gains/losses) are recognised in the period they occur and charged to equity.

The defined benefit liability is the aggregate of the present value of the defined benefit obligation, including recognition of all actuarial gains and losses and the fair value of plan assets out of which, the obligations are to be settled directly.

The Group’s contributions to the defined contribution plans are charged to the income statement in the year to which they relate.

SHARE-BASED PAYMENT TRANSACTIONS Nycomed operates equity-settled, sharebased compensation plans.

51

The cost of equity-settled transactions with employees is measured by reference to the fair value at grant date, measured

by Black & Scholes.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which any performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘the vesting date’). If there are no vesting conditions, the fair vale is expensed in full at grant date.

No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any modification, which increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

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52

F I N A N C I A L S TAT E M E N T S

OT HER PROVISIONS Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

C U RRENT DEBT Generally, other liabilities, which also include trade payables, amounts owed to Group enterprises and associated enterprises and other liabilities, are measured at amortised cost unless specifically mentioned otherwise.

S E G MENT INFORMATION The Group’s primary segment reporting is geographic, based on the location of its customers. The Group’s segments reflect the structure of its management and sales organisation, system of internal financial reporting, and the predominant source of risk and return in its business.

Segment reporting is therefore divided into six geographic segments: (i) the Scandinavia and the Baltic States region consists of product sales in Denmark, Sweden, Norway and the Baltic States; (ii) Western Europe includes product sales in Belgium, the Netherlands, Luxembourg, the UK, France and Ireland; (iii) Central Europe includes product sales in Germany, Austria, Switzerland, Greece and Italy; (iv) operations in Poland and Finland; (v) Russia-CIS and (vi) sales in China and export arrangements primarily in Japan and the US, collectively constituting the International Sales segment. The segment ‘Other’ comprises our contract production activities for third parties.

For purposes of segment reporting, the following measures are used:

23732 NYCO indv.indd 52

Segment net sales comprise sales to third parties. For purposes of management reporting, all internal sales are eliminated from the measures that are used to monitor the business; Segment operating income is an internal financial reporting measurement utilised by the Group’s management.

Under this approach, transfers from the Group’s centralised production facilities in Europe are charged to the segments at standard production costs and any deviation from standard production costs is included in indirect production costs. Unallocated expenses include indirect production overheads, amortisation of intangible assets, and costs associated with centralised support functions to the segments. These costs are not allocated, as management believes that any such allocation would be based on arbitrary factors, such as sales in a particular segment, and would not provide a better understanding of the business. These expenses are managed on a worldwide basis.

FINANCIAL INSTRUMENTS The Group uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value.

Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to net profit or loss for the year.

The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments.

In general, Nycomed does not apply hedge accounting under the specific rules of IAS 39 to forward exchange contracts and other derivative financial instruments except interest rate swaps applied to maintain a reasonable balance between fixed and floating interest rate risk. However, we might decide to apply hedge accounting under IAS 39 for certain future transactions, customers or contracts.

Hedges of a net investment Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment is treated as follows: • Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognised directly in equity while any gains or losses relating to the ineffective portion are recognised in profit or loss.

• On disposal of the foreign operation, the cumulative value of any such gains or losses recognised directly in equity is transferred to profit or loss.

CONSOLIDATED CAS H FLOW STATEMENT The consolidated cash flow statement is prepared using the indirect method. The cash flow statement shows the consolidated cash flow for the year and the net cash position at the end of the year.

The cash flow relates to three main areas: operating, investing and financing activities.

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Cash flow from operating activities Cash flow from operating activities is calculated as the operating income or loss, adjusted for non-cash items, plus changes in working capital less taxes paid and interest paid or received. Working capital consists of current assets, excluding items included in net cash, and current liabilities, excluding items included in net cash, and debt to financial institutions, taxes and dividend.

Cash flow from investing activities Cash flow from investing activities consists of the purchases and sales of noncurrent assets including investments in enterprises. The purchase prices are measured at cost including distribution rights and goodwill.

Cash flow from financing activities Cash flow from financing activities consists of payments to and from shareholders, the raising and repayment of debt to financial institutions, and other long-term and current liabilities that are not included in the working capital or in net cash.

C R I TICAL ACCOUNTING E S T I MATES AND J U D GEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s). Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances. This forms the basis for making judgments about the reported

23732 NYCO indv.indd 53

carrying amounts of assets and liabilities and the reported amounts of revenues and expenses that may not be readily apparent from other sources. Actual results could differ from those estimates. Estimates are used when accounting for sales discounts and incentives, depreciation, amortisation, employee benefits, restructuring and other provisions, contingencies and any asset impairments.

Management believes the following are the significant accounting estimates and related judgments used in the preparation of its consolidated financial statements.

Indirect production costs Work in progress and finished goods are stated at cost assigned by using the average weighted price method. Cost comprises direct production costs such as raw materials, consumables, energy and labour, and indirect production costs such as employee costs, depreciation, maintenance etc.

53

available in the future, against which the temporary differences and unused tax losses can be utilised.

Impairment of goodwill and other intangible assets The Group determines whether goodwill and other intangible assets comprising patent and rights and development projects are impaired at least on an annual basis. This requires an estimation of the value in use of the overall business to which the goodwill is allocated and of other intangible assets. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the overall business and other intangible assets and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

The indirect production costs are measured based on a standard cost method which is reviewed regularly in order to ensure relevant measures of utilisation, production lead time and other relevant factors. Changes in the method for calculation of indirect production costs, including utilisation levels, production lead time etc, in the calculation of indirect production costs, could have an impact on the gross margin and the overall valuation of inventories.

Deferred taxes Management judgment is required in determining the Group’s provision for income taxes, deferred tax assets and liabilities and the extent to which deferred tax assets can be recognised. The Group recognises deferred tax assets if it is probable that sufficient taxable income will be

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23732 NYCO indv.indd 54

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55

N YCO M E D A / S - G RO U P I N CO M E S TAT E M E N T 4 J A N U A RY - 3 1 D E C E M B E R

Proforma Nyco Holdings ApS Unaudited Consolidated 04.01.05 31.12.05 € thousand

01.01.05 31.12.05 € thousand

01.01.04 31.12.04 € thousand

Net turnover Cost of sales

507,870 -266,270

747,483 -369,269

644,606 -284,588

GROSS PROFIT

241,600

378,214

360,018

3 3 3

Sales and marketing expenses Research and development expenses Administrative expenses

-208,992 -18,440 -50,970

-295,276 -28,281 -71,127

-220,742 -25,704 -60,713

1

OPERATING INCOME/LOSS

-36,802

-16,470

52,859

4 5

Financial income Financial expenses

4,967 -79,924

2,814 -91,500

6,542 -73,968

-111,759

-105,156

-14,567

25,251

24,115

8,958

-86,508

-81,041

-5,609

Note 1 3

LOSS BEFORE TAX 6

Income tax NET LOSS FOR THE PERIOD

The annual report 2005 covers the period from incorporation of Nycomed A/S on 4 January 2005 to 31 December 2005 and the consolidated financial statements cover the 8 month period of operations from acquisition of the Nycomed Group on 9 May 2005 to 31 December 2005. For comparative reasons we have stated pro forma figures for the full year of 2005 and 2004. For a further description, please refer to the Comparative Figures section under Accounting Principles.

23732 NYCO indv.indd 55

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56

F I N A N C I A L S TAT E M E N T S

NYCO M E D A / S - G RO U P BAL A N C E S H E E T 3 1 D E C E M B E R 2 0 0 5

Note ASSETS

7 7 7 7

Non-current assets Completed development projects Patents and rights Goodwill Development projects in progress and prepayments for intangibles Total intangibles

8 8 8 8

Land and buildings Machinery and equipment Other property, plant and equipment Assets under construction and prepayments for assets

9 9

12

Nyco Holdings ApS Consolidated 31.12.05 31.12.04 â‚Ź thousand â‚Ź thousand

0 914,599 642,237 223,304 1,780,140

76,548 372,513 434,409 117,142 1,000,612

105,919 53,102 12,210 11,099

107,657 57,636 13,057 5,311

Total property, plant and equipment

182,330

183,661

Other investments in shares and bonds Other receivables

13,245 378

21,649 261

Total investments

13,623

21,910

Deferred tax assets

8,356

708

1,984,449

1,206,891

Total inventories

156,688

127,709

Trade receivables Income tax receivable Other receivables Prepaid expenses

140,363 117 13,480 8,959

114,520 125 5,858 8,741

Total receivables

162,919

129,244

46,617

23,073

366,224

280,026

2,350,673

1,486,917

TOTAL NON-CURRENT ASSETS Current assets 15

14

Cash TOTAL CURRENT ASSETS TOTAL ASSETS

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F I N A N C I A L S TAT E M E N T S

57

N YCO M E D A / S - G RO U P BA L A N C E S H E E T 3 1 D E C E M B E R 2 0 0 5

Note EQUITY AND LIABILITIES 10

Capital stock Other reserves

99 819,285

129 548,642

TOTAL SHAREHOLDERS EQUITY

819,384

548,771

11 12 13

Non-current liabilities Pension commitments Deferred tax Other provisions

31,444 298,595 0

28,439 180,787 3,774

17

Financial institutions

1,025,624

590,797

1,355,663

803,797

33,690 57,167 15,914 68,855 0

8,236 48,588 8,605 65,620 3,300

175,626

134,349

TOTAL LIABILITIES

1,531,289

938,146

TOTAL EQUITY AND LIABILITIES

2,350,673

1,486,917

TOTAL NON-CURRENT LIABILITIES

17 14

Current liabilities Financial institutions Trade payables Income tax payable Other payables Deferred income TOTAL CURRENT LIABILITIES

23732 NYCO indv.indd 57

Nyco Holdings ApS Consolidated 31.12.05 31.12.04 € thousand € thousand

2

Business Combinations

16

Contingent liabilities, guarantee commitments, etc.

17

Employee costs

18

Foreign currency and interest rate exposure

19

Related party transactions

20

Auditors’ fees

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58

F I N A N C I A L S TAT E M E N T S

NYCO M E D A / S - G RO U P EQU I T Y

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY Capital stock € thousand

Note Capital increase 4 January 2005 Capital increase 9 May 2005 Warrant programme

67 32 99

Unrealised result on cash flow hedging, interest rate swaps Unrealised gain/loss on investments held for sale Pensions adjustments Tax on equity postings 2005 Exchange rate adjustments, subsidiaries Total income and expense for the year recognised directly in equity Net loss for the period Total income and expense for the period Shareholders’ equity 31 December 2005

23732 NYCO indv.indd 58

99

Other reserves € thousand

Total € thousand

897,784 8,579 906,363

67 897,816 8,579 906,462

5,247 2,582 -2,841 805 -6,363

5,247 2,582 -2,841 805 -6,363

-570 -86,508 -87,078

-570 -86,508 -87,078

819,285

819,384

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F I N A N C I A L S TAT E M E N T S

59

N YCO M E D A / S - G RO U P CAS H F LOW S TAT E M E N T 4 J A N U A RY - 3 1 D E C E M B E R

04.01.05 31.12.05 € thousand

Note

21

2

22

23732 NYCO indv.indd 59

Proforma Nyco Holdings ApS Unaudited Consolidated 01.01.05 01.01.04 31.12.05 31.12.04 € thousand € thousand

Cash flow from operating activities Operating income (loss) Adjustments Change in working capital

-36,802 144,779 -35,160

-16,470 168,890 -58,139

52,859 77,731 -12,215

Financial income received Financial expenses paid Income taxes received (paid)

2,020 -31,820 -26,225

2,304 -47,732 -28,171

1,754 -58,326 -10,842

Net cash flow from operating activities

16,792

20,682

50,961

Cash flow from investing activities Proceeds from sale of business activities Acquisition of Nyco Holdings ApS Acquisition fees, acquistion of Nyco Holdings ApS Purchase of tangible assets, net Purchase of intangible assets, net Other investments Prepayment intangibles Net cash flow from (used in) investing activities

0 -777,299 -7,211 -16,578 -12,806 0 0 -813,894

0 -777,299 -7,211 -20,672 -22,876 3,651 0 -824,407

24,021 0 0 -27,088 -16,559 -22,791 -9,634 -52,051

Cash flow from financing activities Capital contribution from shareholders Proceeds from issuance of PIK Notes Interest on financing funds Proceeds from exercise of warrants Acquisition of shares in Nyco Holdings ApS Change in long-term bank debt Financing fees Net cash flow from (used in) financing activities

412,000 396,000 856 47,800 0 -30,572 -18,475 807,609

412,000 396,000 856 47,800 0 -10,872 -18,475 827,309

0 0 0 0 -264 -8,613 -5,351 -14,228

Net cash flow

10,507

23,584

-15,318

Net Cash beginning of the period Net cash from the acquisition of Nyco Holdings ApS Currency translation adjustments Net cash at 31 December

0 36,164 -54 46,617

38,127 0 -40 46,617

38,127 0 264 23,073

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60

F I N A N C I A L S TAT E M E N T S

NYCO M E D A / S - G RO U P NOT E S

1.

Segment information The Group’s primary segment reporting is geographic, based on the location of its customers. The Group’s segments reflect the structure of its management and sales organisation, system of internal financial reporting, and the predominant source of risk and return in its business.

The secondary segment is the total business. Nycomed does not split its business into business segments as the Group has over six thousand products across a whole range of markets and distribution channels, even within individual countries. None of Nycomed’s major products meets the definition of a reporting segment.

Segment liabilities are not segmented as each legal entity contains a mix of management responsibilities and functions related to the worldwide group.

The segments are: Scandinavia and Baltics Central Europe Western Europe Finland and Poland CIS Export Other Unallocated central costs

Norway, Denmark, Sweden and Baltics Austria, Switzerland, Germany, Greece and Italy Belgium, Holland, France, UK and Spain/Portugal Finland and Poland Russia/CIS Direct export business Contract production Administration, Operations, International Product Development, International Product Management, Amortisations and write-downs.

PROFIT AND LOSS STATEMENT 04.01.05 Scandinavia Finland 31.12.05 and Central Western and Revenue Baltics Europe Europe Poland

CIS

Export

Unallocated central Other costs*

Sales to external customers

127,551

85,318

66,381

47,088

105,731

60,856

14,784

161

Intersegment sales

34,377

12,166

34,346

5,143

0

0

0

0

52,231 105,731 60,856

14,784

Total revenue Result Segment results (before net financials)

161,928 97,484 100,727

65,752

23,959

25,822

18,992

36,869

42,656

Eliminations

Consolidated Group

0 507,870 -86,032

0

161 -86,032 507,870

5,957 -256,809

0 -36,802

Royalty and other income from primary activities included in net turnover, € 11,418 thousand. * Unallocated central costs include amortisations, € 65,600 thousand, step-up of inventory, € 58,732 thousand and warrants programme, € 8,579 thousand.

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61

N YCO M E D A / S - G RO U P N OT E S

1.

Segment information (continued) BALANCE SHEET

Scandinavia Central Western 31.12.05 and Baltics Europe Europe Land & Buildings

Finland and Poland

CIS

Export

Other

Unallo -cated

Eliminations

Consolidated Group

51,810

17,913

4,408

2,948

0

0

0

28,840

105,919

Machinery & Equipment 15,893

21,070

1,482

964

0

0

0

13,693

53,102

Other PP&E

7,289

3,811

1,058

478

0

0

0

-426

12,210

Assets under construction

5,872

3,220

406

1,601

0

0

0

0

11,099

Raw materials & semi ďŹ nished 14,739

49,322

3,762

1,254

0

0

0

0

69,077

Finished goods

28,596

16,887

11,197

13,338

31,182

0

0

-15,281

85,919

1,692

0

0

0

0

0

0

0

1,692

36,233

19,196

14,350

10,514

44,794

11,582

3,414

280

140,363

Prepayments for goods Trade receivables

Property plant and equipment and inventory are based on physical location.

Trade receivables are based on customer location

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62

F I N A N C I A L S TAT E M E N T S

NYCO M E D A / S - G RO U P NOT E S

2.

Business Combination Acquisition of Nyco Holdings ApS On 10 March 2005, Nycomed A/S entered into a subscription, share purchase and contribution agreement, pursuant to which Nycomed A/S agreed to acquire all of the capital stock of Nyco Holdings ApS (the former parent company in the Group). The acquisition was consummated on 9 May 2005, following regulatory approvals.

The fair value of indentifiable assets and liabilities of Nycomed A/S and subsidiaries as at the date of acquisition were: Recognised on Carrying acquisition value € million € million Patent and rights 979.9 358.6 Development projects 211.0 199.6 Property, plant and equipment 180.8 180.8 Investments in shares and bonds and other receivables 12.7 12.7 Inventories 200.1 141.4 Trade receivables 124.3 124.3 Other current assets 15.6 15.6 Cash 36.2 102.6 1,760.5 1,135.5 Pension provisions Deferred tax liability Other provisions Debt to financial institutions Trade payables Income tax payable Other payables Deferred income

Fair value of net assets Acquisition and financing costs directly attributable to the acquisition Goodwill arising on acquisition

28.4 344.4 2.9 643.9 47.2 15.1 69.4 2.2 1,153.5

28.4 173.7 2.9 621.5 47.2 15.1 69.3 2.2 960.3

607.0

175.1

26.1 642.2 1,275.3

The cost of the acquisition was €1,275.3 million and comprised an issue of shares.

In total 9,883,603 ordinary shares were issued in connection with the acquisition of Nyco Holdings ApS Cash Conversion of shares Nyco Holdings ApS Shares issued, capital increase, paid in capital, cash Acquisition costs

777.3 485.0 5.4 7.6 1,275.3

All business activities in the Nycomed A/S Group relate to Nyco Holding ApS and subsidiaries and the consolidated financials reflect the business activities from the date of acquisition. Please refer to the financial statements for the parent company, Nycomed A/S, to see net income for this entity separately.

Included in the €642.2 million of goodwill recognised above are certain marketing and customer-related intangible assets and contract-based intangible assets, which are not recognised separately mainly because the fair value of these assets cannot be measured reliably and therefore do not meet the criteria for recognition as an intangible asset under IAS 38.

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63

N YCO M E D A / S - G RO U P N OT E S

3.

Amortisation/depreciation of fixed assets

04.01.05 31.12.05 € thousand

Amortisation/depreciation and write down of fixed assets is included in the total expenses of the group at the following amounts: Cost of sales Sales and marketing expenses Research and development expenses Administrative expenses Total 4.

Financial income Interest income Amortisation of fair value adjustment, Senior Notes Total

5.

-70,913 -448 -4,728 -3,835 -79,924

Income tax Accrued income tax for the year Adjustment of deferred tax for the year Adjustment prior years (accrued tax) Adjustment prior years (deferred tax) Total Income tax related to items charged directly to equity Pension commitments Unrealised result on cash flow hedging, interest rate swaps Exchange rate adjustment of internal gain on inventory Analysis of income tax: Calculated 28% of income before tax Non-deductible interest expenses Other non-deductible expenses Non-deductible expenses related to warrants programme Impact of change in Danish tax rate from 30% to 28% Higher / (lower) tax rates in foreign subsidiaries Adjustment of tax concerning prior years Total

23732 NYCO indv.indd 63

2,533 2,434 4,967

Financial expenses Interest expenses Amortisation of financing cost, discount Senior PIK Notes Foreign exchange losses Other financial expenses Total

6.

8,537 67,905 754 4,240 81,436

-25,699 50,903 -839 886 25,251

760 -456 501 805 31,426 -1,486 -1,711 -2,402 727 -1,350 47 25,251

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7.

Intangibles

Cost as at 4 January 2005 Additions from acquisition of subsidiaries Additions in the period Disposal of business activities Cost as at 31 December Amortisations as at 4 January 2005 Amortisation for the period Write-down for the year Amortisations as at 31 December Book value as at December 31 Amortisation period

Patents and rights

Goodwill

Development projects in progress

0 979,913 317 -717 979,513

0 642,237 0 0 642,237

0 211,000 12,304 0 223,304

0 65,631 -717 64,914

0 0 0 0

0 0 0 0

914,599

642,237

223,304

6-15 years

-

-

As a result of the impairment tests there is no basis for writing down goodwill or other intangibles. Impairment tests are conducted at least annually and in connection with Management’s strategy review. In the impairment tests, the discounted values of future cash flows are compared against the carrying amounts. Future cash flows are based on the budget for 2006, strategic plans for the years 2007-2010 and projections for the following years. Important parameters are sales, EBIT, working capital and growth assumptions subsequent to the budget and strategic plan period.

Budget and strategic plans build on specific commercial assessments of the business entities while projections that go beyond 2010 build on general parameters.

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8.

Property, plant and equipment Other Land and buildings

Machinery and equipment

property plant and equipment

Assets under construction

Cost as at 4 January 2005 0 Additions from acquisition of subsidiaries 106,615 Currency retranslation effect 668 Additions in the year 1,833 Disposals in the year -603 Transfers 818 Cost as at 31 December 109,331

0 55,053 539 5,209 -1,243 248 59,806

0 12,720 465 4,020 -2,871 25 14,359

0 6,382 50 5,758 0 -1,091 11,099

0 222 3,775 -585 3,412

0 346 7,586 -1,228 6,704

0 350 4,444 -2,645 2,149

0 0 0 0 0

105,919

53,102

12,210

11,099

25-33 years

5-10 years

3-10 years

-

Depreciation as at 4 January 2005 Currency retranslation effect Depreciation for the year Disposals in the year Depreciation as at 31 December Book value as at 31 December Amortisation period

Total official assessment of Danish property at a book value of € 24,641 thousand is € 33,510 thousand at the yearly assessment made 1 October 2004.

Note 16 provides more details on security for loans, etc. as regards property, plant and equipment.

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9.

Investments

Costs as at 4 January 2005 Additions from acquisition of subsidiaries Additions in the period Cost as at 31 December Revaluations as at 4 January 2005 Revaluations from acquisition of subsidiaries Write-up/down for the period Revaluations as at 31 December Book value as at 31 December

Other investments in shares 0 12,454 0 12,454

Other receivables 0 243 135 378

0 0

0 0

791 791

0 0

13,245

378

Other investments in shares comprise investments available for sale.

10.

Capital Stock

31.12.05 â‚Ź thousand

Number of shares issued Issuance of ordinary shares in connection with establishing Nycomed A/S Issuance of ordinary shares in connection with acquisition, 9 May 2005 Reduction of number of shares, 9 May 2005 Conversion of shares in Nyco Holdings ApS 31 December

1,480 9,077,500 -4,539,490 5,344,113 9,883,603

Capital stock value Issuance of ordinary shares in connection with establishing Nycomed A/S Issuance of ordinary shares in connection with acquisition, 9 May 2005 Reduction of number of shares, 9 May 2005 Conversion of shares in Nyco Holdings ApS 31 December

91 -45 53 99

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67

N YCO M E D A / S - G RO U P N OT E S

11.

Pension commitments Many employees in Nycomed are covered by retirement plans in the form of primarily defined contribution plans or alternatively defined benefit plans. Nycomed entities sponsor these plans either directly or by contributing to independently administered funds. The nature of such plans varies according to legal regulations, fiscal requirements and economic conditions of the countries in which the employees are employed, and the benefits are generally being based on the employees’ remuneration and years of service. Defined benefit plans comprise Nycomed subsidiaries in Norway, Austria, Germany, Belgium and Netherlands.

Post-employment benefit plans are usually funded by payments from Nycomed entities and by employees to funds independent of the Group. Where a plan is unfunded, a liability for the obligation is recognised in the balance sheet.

The following tables summarise the components of net benefit expense recognised in the consolidated income statement and the funded status and amounts recognised in the consolidated balance sheet for the respective plans.

31.12.05 € thousand Current service cost Interest cost on benefit obligation Expected return on plan assets Past service cost Net benefit expense Actual return on plan assets Expected return on plan assets

2,471 2,805 -1,813 22 3,486 305 1,813

Changes in the present value of the defined benefit obligation are as follows: Opening defined benefit obligation Additions from acquisition of subsidiaries Interest cost Current service cost Benefits paid Actuarial losses on obligation Exchange differences on foreign plans Closing defined benefit obligation

0 59,013 2,805 2,471 -3,212 5,438 200 66,716

Changes in the fair value of plan assets are as follows: Opening fair value of plan assets Additions from acquisition of subsidiaries Expected return Contributions by employer Benefits paid Actuarial gains Fair value of plan assets, 31 December

0 30,572 305 2,533 -1,310 3,172 35,272

The actuarial assumptions used in the actuarial computations and valuations vary from country to country due to local economic and social conditions. The range of assumptions used is as follows: Assumptions Discount rate: Expected rate of return on assets: Future salary increases: Future pension increases:

23732 NYCO indv.indd 67

4.25% - 5.5% 4.25% - 5.5% 2.5% - 3.0% 2.0% - 3.0%

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12.

Deferred tax

31.12.05 € thousand

Deferred tax in acquired subsidiaries acquired in 2005 Currency retranslation effect Adjustment prior years Adjustment for the year Deferred tax posted to equity Provision as at 31 December

343,144 12 -886 -50,903 -1,128 290,239

Deferred tax relates to: Intangibles Property, plant and equipment Current assets Provisions Non current liabilities Tax loss carry-forwards Unamortised financing costs Foreign exchange gains/losses Deferred income for tax purposes Provision as at 31 December

303,240 10,369 -2,805 -7,970 -7,666 -15,829 -4,539 4,870 10,569 290,239

Allocation of deferred tax: Deferred tax liabilities Deferred tax assets

298,595 8,356 290,239

Deferred tax assets mainly relate to tax loss carry forwards in the Danish companies and timing differences in the Norwegian subsidiary.

Calculation of deferred taxes in Denmark is based on a tax rate of 28%, while deferred tax in other countries is based on local tax rates.

13.

Other provisions Other provisions at the beginning of the period relate to a restructuring project in Finland involving the transfer of tablet production from our former joint venture partner in Finland, Schering Finland Holding GmbH, to Nycomed’s plants in Denmark and Belgium.

Provisions as at 4 January 2005 Other provisions from acquisition of subsidiaries Utilised during the year Reversed provisions not utilised Other provisions as at 31 December

23732 NYCO indv.indd 68

0 2,299 -1,101 -1,198 0

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69

N YCO M E D A / S - G RO U P N OT E S

14.

Income tax receivable / payable Accrued tax in acquired subsidiaries acquired in 2005 Currency retranslation effect Income taxes paid during the year Adjustment prior years Accrued income tax for the year Accrued tax posted to equity Accrued as at 31 December Allocation of income tax Income tax payables Income tax receivables

15.

15,081 80 -26,225 839 25,699 323 15,797

15,914 117 15,797

Inventories Raw materials and packaging Semi-finished goods Finished goods Prepayment for goods Total Amount of write-down of inventories recognised as an expense during the period Amount of reversal of write-down of inventories during the year Amount of write-down to net realisable value

16.

31.12.05 € thousand

32,664 36,413 85,919 1,692 156,688 4,157 3,329 819

Contingent liabilities, guarantee commitments, etc.

Contractual obligations Total rent and lease commitments of the group are Lease and rent commitments expiring within the following periods as from the balance sheet date: Within one year Between one and two years Between two and three years Between three and four years Between four and five years After five years

15,474

6,105 3,937 2,253 1,366 841 972 15,474

The operating lease commitments above are related to operating leases primarily related to premises, company cars and office equipment.

Guarantee commitments are

23732 NYCO indv.indd 69

392

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F I N A N C I A L S TAT E M E N T S

NYCO M E D A / S - G RO U P NOT E S

16.

Contingent liabilities, guarantee commitments, etc., continued Commitments and guarantees Certain companies in the Nycomed Group, including Nycomed Christiaens S.C.A., Nycomed Danmark ApS, Nycomed Holding ApS and Nycomed Pharma AS, have guaranteed Nyco Holdings 2 ApS’s and Nyco Holding 3 ApS and the other obligor’s obligations under the senior credit facilities and, where legally possible or commercially viable, have granted a security interest over their operating assets, including a charge over their properties, debts, bank accounts, insurances, intellectual property and specified agreements. In addition, the shares of certain of the subsidiaries of Nyco Holdings 2 ApS and Nyco Holdings 3 ApS, including Nycomed Christiaens S.C.A., Nycomed Danmark ApS, Nycomed Holding ApS and Nycomed Pharma AS have been charged in favour of Nordea Bank Denmark A/S, as security trustee for the lenders under the senior credit agreement.

The total debt covered by such guarantees as at 31 December 2005 is € 387,927 thousand.

The assets covered by these guarantees as at 31 December are set out below: 31.12.05 € thousand Mortgage of property, plant and equipment Property in Norway - max. mortgage € 1,140,000 thousand Property in Denmark - max. mortgage € 33,653 thousand Plant and equipment in Norway - max mortgage € 570,000 thousand Total

26,098 24,641 17,847 68,586

Securities over other current assets Inventory in Norway - max. security € 570,000 thousand Receivables in Belgium - no max. Limit Receivables in Norway - max security € 570,000 thousand Deposits on specific bank accounts in Belgium - no max. limit Deposits on specific bank accounts in Norway - no max. limit Total

15,119 14,298 14,882 3,655 2,273 50,227

Mortgages on the property St. Hede Roskilde Jorder 54, totalling € 33,510 thousand have been registered to the mortgagor and are held by Nordea AB as security for bank debt.

In connection with the 2005 acquisition, certain contingent notes to the sharesholders selling shares as part of the transaction have been issued. The aggregate principal amount of the contingent notes will be an amount equal to 30% of the financial value to Nycomed of a final judicial decision or settlement related to claims made by Nycomed against a certain third-party pharmaceutical company relating to the alleged infringement by such third party of intellectual property rights relating to a particular substance/products, to which Nycomed has exclusive rights pursuant to a development and license agreement. The contingent notes are not current obligations for Nycomed A/S but would become obligations of Nycomed A/S only upon the successful outcome of patent infringement proceedings that a subsidiary of Nyco Holdings ApS has commenced. The subsidiary has a contingent asset in this connection.

Contingencies From time to time the Group may be party to legal proceedings in the ordinary course of business. The Group decides from case to case, whether it will settle the matter or whether it will defend itself (due to the general or strategic importance of the case to the Group). In the opinion of management, the ultimate resolution of any threatened or pending litigation will not have a material effect on the Group’s financial position or results of operations. The Group maintains liability insurance in an effort to reduce the impact of negative judgements in legal matters.

The Group has entered into long-term contracts for the purchase of raw materials for certain strategic products in order to secure supplies. Furthermore, certain of the Group‘s in-licensing agreeements require purchase of minimum quantities.

The Group has certain other contingent liabilities resulting from claims, performance guarantees and other commitments incident to the ordinary course of business. Management believes that the probable resolution of any other contingencies will not materially impact the financial position or results of operations.

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71

N YCO M E D A / S - G RO U P N OT E S

17.

Employee costs

31.12.05 € thousand

Salaries and wages, etc. are included in the group’s total expenses at the following amounts: Wages and salaries for the employees Pension Other social security costs Total

106,058 6,722 15,677 128,457

Salaries and wages etc. are included in the profit and loss statement as follows: Cost of sales Sales and marketing expenses Research and development expenses Administrative expenses Total Average number of employees

41,370 51,118 11,717 24,253 128,458 3,252

Average number of employees has been calculated on a 12 month basis.

For the definition of Group Management we refer to the Corporate Governance section in this annual report.

The aggregate amount of salary, pension and compensation paid to the executive management team for the 8 month period in 2005 was € 1,753 thousand (€ 2,525 thousand for 2005). In addition, a total bonus of € 469 thousand was paid in the 8 month period (€ 686 thousand for 2005). The aggregate amount of salary, pension and compensation paid to the CEO for the 8 month period in 2005 was € 435 thousand (€ 653 thousand for 2005).

In addition, a total bonus of € 269 thousand was paid. A fee of $ 50 thousand was paid to the Board in 2005.

The shareholders have authorised the Board to remunerate the directors with fees which cannot exceed $ 50 thousand per director per year. In 2005, one director of the Board received a fee.

Executive incentive programme In connection with the 2005 acquisition Management and a group of other employees exercised warrants which were granted in 2002, 2003 and 2004. Total proceeds of these warrants in the subsidiary Nyco Holdings ApS amounted to €47.8 million.

In August 2005 Nycomed A/S granted Management and a group of other employees warrants corresponding to 3.83% of the current capital stock, in total 379.000 warrants. Each warrant corresponds to one share in Nycomed A/S. The exercise price is based on the share price level for the shares in Nycomed A/S applied in connection with the 2005 acquisition. The warrants will vest for exercise in the period from the time of granting the warrants and the following 10 years. € 8.579 thousand was expensed in the income statement in 2005 for this programme. The market value for the warrants has been calculated using the Black-Scholes option pricing model.

The main assumptions were as follows. Expected volatility of 26% has been calculated based on historical data for comparable companies. Risk-free interest rate is 2.8% and the share price used is the price for the Nycomed A/S shares in connection with the 2005 acquisition. Expected life of the warrants has been set to 4 years and no expected dividend has been included in the calculation.

The Executive Management Committee has a total of 190,682 shares and 112,000 warrants as of 31 December 2005.

The company’s CEO has 58,976 shares and 92,000 warrants. The CEO’s contract is subject to a six month termination clause. In case the Board of Directors terminates the contract, he will receive severance pay for 18 months in additions to salary during the notice period.

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NYCO M E D A / S - G RO U P NOT E S

18.

Foreign currency and interest rate exposure Market risk The Group is exposed to market risk, primarily related to foreign exchange and interest rates. Management actively monitors these exposures. The Group has established strategies to hedge fluctuations in exchange rates and interest rates. The Group’s objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in market interest rates and foreign currency exchange rates. The Group does not engage in financial transactions or risk exposures that are not related to hedging of underlying business driven risks.

Only transactions that are justified from a hedging perspective are allowed. Financial instruments normally have a maximum duration of 12 months.

Foreign exchange rates The Group uses EUR as its reporting currency and is therefore exposed to foreign exchange currency movements, with the exposure primarily in Danish, Norwegian, Swiss, Japanese and U.S. currencies. Consequently, the Group enters into various contracts, which change in value as foreign exchange rates change, to preserve the value of Group assets, and mitigate currency-related increases in its commitments. Forward contracts in foreign currencies are entered into to hedge receivables, payables and cash flows in foreign currencies.

31.12.05 € thousand Outstanding forward contracts classified as fair value hedges, by currency Purchases of currency NOK DKK CHF SEK Total purchases of currency

88,935 66,956 5,785 2,343 164,019

Sales of currency EUR USD DKK GBP JPY Total sales of currency

88,500 65,271 7,796 1,459 864 163,890

Forward contracts classified as cash flow hedges, by currency Purchases of currency DKK Total purchases of currency

90,372 90,372

Sales of currency USD SEK CHF JPY Total sales of currency

63,575 9,586 7,781 11,879 92,821

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73

N YCO M E D A / S - G RO U P N OT E S

18.

Foreign currency and interest rate exposure, continued

31.12.05 € thousand

Bank loans per currency at 31 December EUR NOK

Unamortised financing cost Market value adjustment Senior Notes Discount Senior PIK Notes, unamortised part

1,005,495 48,414 1,053,909 -18,402 27,432 -3,625

Total bank loans

1,059,314

Loans with maturity less than one year Loans with maturity between one to five years Loans with maturity later than five years Unrealised gain NOK currency swap Total

33,690 224,291 797,204 -1,276 1,053,909

Average interest rate

9.5%

The Group uses interest rate swaps to maintain a reasonable balance between fixed and floating interest rate risk and manage financing costs. The Group enters into interest rate swap agreements to exchange the periodic payments based on a notional amount and agreed upon fixed and variable interest rates. unrealised market value of these interest rate swaps is treated as cash flow hedges and posted to equity and other payables. The market value of swaps is specified below.

Long term bank loans covered by basis and interest rate swaps.

Market value at 31 December 2005 NOK interest rate swap, maturity 30 September 2008 EUR interest rate swap, maturity 31 March 2006 Total unrealised loss posted to equity NOK currency swap, maturity 30 September 2008

450 -181 269 1,276

Unrealised gain for the currency swap is included in financial items in the Income Statement as this is offset by currency translation of the long term loan in the Norwegian subsidiary.

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NYCO M E D A / S - G RO U P NOT E S

19.

Related party transactions Related parties with a significant interest include group enterprises and associated enterprises, including such enterprises’ supervisory boards, executive boards and executive officers and members of their families.

Furthermore, related parties include enterprises and companies in which aformentioned persons have significant interests.

In the periods presented, no transactions with members of the supervisory or executive boards, executive officers, significant shareholders, other than stated in note 16, or other related parties were undertaken apart from intragroup transactions, which have been eliminated in the consolidated financial statements.

Affiliates of CSFB also own a controlling interest in BioPartners SA (BioPartners), one of the Group’s significant in-licensing partners with which there are eight in-licensed products currently in Phase III clinical trials. However, the agreements with BioPartners were entered into prior to CSFB Private Equity acquiring an interest in the Group.

A member of our board of directors is the chairman of the board of directors of BioPartners.

20.

Auditors’ fees

04.01.05 31.12.05 € thousand

Audit fees, Ernst & Young

951

Fees other services, Ernst & Young

365

Total

23732 NYCO indv.indd 74

1,316

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F I N A N C I A L S TAT E M E N T S

75

N YCO M E D A / S - G RO U P N OT E S TO CAS H F LOW S TAT E M E N T

21.

Adjustments Depreciations property, plant and equipment Amortisations of intangibles Inventory step-up Warrants programme Change in provisions Foreign exchange differences

22.

15,805 65,631 58,732 8,579 -2,732 -1,236 144,779

Change in long-term bank debt Ordinary instalments, senior credit facilities Repayment Mezzanine loan Drawn under In-licensing facility Drawn under export credit facility

23732 NYCO indv.indd 75

31.12.05 â‚Ź thousand

-8,182 -52,390 25,000 5,000 -30,572

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76

F I N A N C I A L S TAT E M E N T S

NYCO M E D A / S - PA R E N T CO M PA N Y ACCO U N T I N G PR I N C I P L E S

The parent company ďŹ nancial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU and additional Danish disclosure requirements for annual reports of Category D enterprises, see the statutory order on the adoption of IFRS by enterprises subject to the Danish Financial Statements Act issued pursuant to the Danish Financial Statements Act. The accounting policies for the parent company are the same as for the Group with the following additions mentioned below. For a description of these please see accounting principles of the Group.

SUPPLEMENTARY ACCOUNTING PRINCIPLES FOR THE PARENT COMPANY In the parent company ďŹ nancial statements investments in subsidiaries are recorded under the cost method. If the initial cost exceeds the recovery costs the initial cost is written down to the lower of the two.

The initial cost is written down to the extent that payment of dividend exceeds the accumulated earnings after the date of acquisition.

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F I N A N C I A L S TAT E M E N T S

77

N YCO M E D A / S - PA R E N T CO M PA N Y I N CO M E S TAT E M E N T 4 J A N U A RY - 3 1 D E C E M B E R

04.01.05 31.12.05 € thousand

Note Administrative expenses OPERATING LOSS 1 2

Financial income Financial expenses LOSS BEFORE TAX Income tax benefit NET LOSS

RECOMMENDED APPROPRIATION OF LOSS Transfer from other reserves

-177 -177 2,278 -38,913 -36,812 10,307 -26,505

-26,505 -26,505

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78

F I N A N C I A L S TAT E M E N T S

NYCO M E D A / S - PA R E N T CO M PA N Y BAL A N C E S H E E T 3 1 D E C E M B E R 2 0 0 5

Note ASSETS 3

4

31.12.05 € thousand

Investments in subsidiaries Financial fixed assets

1,275,041 1,275,041

TOTAL NON-CURRENT ASSETS

1,275,041

Receivables from affiliated entities Deferred tax Total receivables Cash TOTAL CURRENT ASSETS TOTAL ASSETS

23732 NYCO indv.indd 78

4,564 6,127 10,691 97 10,788 1,285,829

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F I N A N C I A L S TAT E M E N T S

79

N YCO M E D A / S - PA R E N T CO M PA N Y BA L A N C E S H E E T 3 1 D E C E M B E R 2 0 0 5

Note EQUITY AND LIABILITIES Capital stock Other reserves TOTAL SHAREHOLDERS’ EQUITY

99 870,489 870,588

6

Financial institutions TOTAL NON-CURRENT LIABILITIES

400,673 400,673

7 8

Payables to affiliated entities Other payables

5

TOTAL CURRENT LIABILITIES TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES

23732 NYCO indv.indd 79

31.12.05 € thousand

9

Contingent liabilities, guarantee commitments, etc.

10

Employee relations

11

Related parties

12

Auditors’ fees

51 14,517 14,568 415,241 1,285,829

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80

F I N A N C I A L S TAT E M E N T S

NYCO M E D A / S - PA R E N T CO M PA N Y CAS H F LOW S TAT E M E N T 4 J A N U A RY - 3 1 D E C E M B E R

04.01.05 31.12.05 € thousand Cash flow from operating activities Operating income (loss) Change in receivables Change in payables and other liabilities Financial income received Financial expenses paid

-177 -384 -871 2,278 -1,261

Net cash flow from operating activities

-415

Cash flow from investing activities Acquisition of subsidiaries Acquisition fees paid

-777,299 -7,211

Net cash flow from (used in) investing activities

-784,510

Cash flow from financing activities Capital contribution from shareholders PIK Notes proceeds Capital increase Nyco Holdings ApS Interest on financing funds Financing fees paid Net cash flow from (used in) financing activities

412,000 396,000 -5,359 856 -18,475 785,022

Net cash flow

97

Net Cash beginning of the period Net cash at 31 December

0 97

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F I N A N C I A L S TAT E M E N T S

81

N YCO M E D A / S - PA R E N T CO M PA N Y N OT E S

1.

04.01.05 31.12.05 € thousand

Financial income Interest income, banks Interest income, affiliated entities Foreign exchange gain Total

2.

2,272 5 1 2,278

Financial expenses Interest expenses, banks Amortisation of financing fees Amortisation of discount on PIK Notes Total

3.

-38,465 -73 -375 -38,913

31.12.05 € thousand

Investments in subsidiaries Cost 4 January 2005 Additions in the year* Costs 31 December

0 1,275,041 1,275,041

Book value 31 December

*

Company Nyco Holdings ApS

4.

Receivables from affiliated entities Current assets Nycomed Danmark ApS Allocation of tax Total

23732 NYCO indv.indd 81

1,275,041

Specification of additions Acquisition of shares in Nyco Holdings ApS, Cash Conversion of shares Capital increase Nyco Holdings ApS Transaction costs Total additions in the year

Domicile Copenhagen, Denmark

€ millions 777.3 485.0 5.4 7.3 1,275.0 Share of equity 100%

31.12.05 € thousand

384 4,180 4,564

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F I N A N C I A L S TAT E M E N T S

NYCO M E D A / S - PA R E N T CO M PA N Y NOT E S

5.

Shareholders’ equity Capital stock value Capital increase 4 January 2005 Capital increase 9 May 2005 31 December 2005

31.12.05 € thousand

67 32 99

Other reserves Capital increase 9 May 2005 Shareholders’ loan converted to shares 9 May 2005 Conversion of shares from Nyco Holdings ApS, 9 May 2005 Other adjustments Net loss Total

381,863 30,038 485,027 66 -26,505 870,489

Total shareholders’ equity

870,588

31 December 2005 the capital stock comprises 9,883,603 shares at € 0.01 Please refer to note 10 in the Nycomed A/S Group notes.

Expenses related to the capital increase in 2005 amount to € 2 thousand.

6.

Long term liabilities The 11.75% Senior PIK Notes are due in year 2013. Their total book value end of 2005 was € 400,673 thousand.

7.

Payables to affiliated entities Nycomed Danmark ApS, Denmark Total

23732 NYCO indv.indd 82

51 51

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F I N A N C I A L S TAT E M E N T S

83

N YCO M E D A / S - PA R E N T CO M PA N Y N OT E S

8.

Other payables Interest payable PIK Notes Other Total

9.

31.12.05 € thousand 14,487 30 14,517

Contingent liabilities, guarantee commitments, etc.

The Company has not issued any guarantees or undertaken any other contingent liabilities others than stated in note 16 in the Nycomed A/S Group notes.

For information on contingent liabilities, guarantee commitments etc. of the Group, please refer to note 16 in the Nycomed A/S Group notes.

10.

Employee relations For information on employee relations please refer to note 17 in the Nycomed A/S Group notes.

11.

Related parties There have not been any transactions with Group companies.

For information on transactions with related parties please refer to note 19 in the Nycomed A/S Group notes.

12.

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Auditors’ fees

04.01.05 31.12.05 € thousand

Audit fees, Ernst & Young Fees other services, Ernst & Young

124 24

Total fees

148

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84

F I N A N C I A L S TAT E M E N T S

NYCO M E D A / S SUB S I D I A R I E S I N T H E N YCO M E D A / S G RO U P

The table below contains information on the subsidiaries included in the consolidated ďŹ nancial statements as at 31 December 2005.

Company

Country

Nominal Capital Stock (in thousands)

Equity interest

Nyco Holdings ApS

Denmark

EUR

150

100%

Nyco Denmark ApS

Denmark

EUR

17

100%

Nyco Holdings 2 ApS

Denmark

EUR

100

100%

Nyco Holdings 3 ApS

Denmark

EUR

100

100%

Nycomed Holding ApS

Denmark

DKK

10,084

100%

ApS KBIL 38 NR 2505

Denmark

EUR

17

100%

Nycomed Danmark ApS

Denmark

DKK

800,000

100%

Nettopharma ApS

Denmark

DKK

125

100%

Nycomed Consumer ApS

Denmark

DKK

4,000

100%

Nycomed Pharma GmbH

Germany

EUR

2,000

100%

Nycomed Christiaens B.V.

Holland

EUR

13,457

100%

Nycomed Nederland B.V.

Holland

EUR

18

100%

APIC B.V.

Holland

EUR

16

100%

Nycomed France SAS Nycomed Christiaens SCA

France

EUR

38

100%

Belgium

EUR

5,578

100%

Sandipro

Belgium

EUR

62

100%

Centrapharm

Belgium

EUR

273

100%

Exel Pharma

Belgium

EUR

62

100%

Nyco Holdings Belgium Sprl

Belgium

EUR

18

100%

Nirvana Netherlands Holdings BV

Holland

EUR

18

100%

Nycomed Belgium

Belgium

EUR

62

100%

Nycomed Beteiligungs GmbH

Austria

EUR

6,500

100%

Nycomed Austria GmbH

Austria

EUR

7,825

100%

Switzerland

CHF

500

100%

Greece

EUR

2,700

100%

Nycomed East Europe Marketing Service GmbH

Austria

EUR

37

100%

Chemisch Pharmazeutische Forschungs GmbH

Austria

EUR

37

100%

Russia

RUB

50

100%

Nycomed AG Nycomed Hellas SA

Nycomed A/O Nycomed Distribution Center T.O.O

Russia

RUB

0.1

100%

Nycomed Siberia

Russia

RUB

55

100%

B.N.S. Pharma Vertriebs GmbH

Austria

EUR

37

100%

Nycomed Pharma AS

Norway

NOK

79,200

100%

Nycomed AB

Sweden

SEK

2,000

100%

Nycomed BV

Holland

EUR

23

100%

Nycomed SEFA AS

Estonia

EEK

2,200

100%

Nycomed Eesti AS

Estonia

EEK

875

100%

Oy Leiras Finland AB

Finland

EUR

1,322

100%

UK

GBP

300

100%

Italy

EUR

90

100%

Poland

PLN

50

100%

Spain

EUR

3

100%

Nycomed UK Limited Nycomed Italia S.r.l.

Nycomed Polska Sp.z.o.o Nycomed Spain SL

23732 NYCO indv.indd 84

28/02/06 13:32:19

FINANCIAL HIGHLIGHTS AND KEY FIGURES

Pro forma

IM PORTANT NOTICE • The annual report 2005 covers the period from incorporation of Nycomed A/S on 4 January 2005 to 31 Decem-

Consolidated figures € million

ber 2005 and the consolidated financial statements cover the 8 month period from acquisition of the Nycomed Group on 9 May 2005 to 31 December 2005.

Net turnover / geographical regions Scandinavia and the Baltic States

• The acquisitions of Nycomed on 9 May 2005 and previ-

Finland and Poland

2005

20051)

2004

IFRS

IFRS

IFRS

04.01.05 31.12.05 (8 months of operations)

2003

20022)

2001

Danish GAAP

GLOSSARY

01 .01.05 31.12.05 (12 months of operations) (unaudited)

127.6

189.1

176.7

196.1

195.2

179.0

47.1

70.3

66.3

70.0

23.0

20.8

ously on 29 November 2002 make comparison with

Russia-CIS

105.7

150.7

98.8

77.3

64.2

37.8

previous years difficult. With this in mind, please note

Western Europe

66.4

98.0

85.3

79.1

71.1

59.5

that key figures and financial ratios and comparative

Central Europe

85.3

125.1

107.1

97.7

87.8

76.3

figures for the years 2001 to 2004 and the 12 months

International Sales

60.9

89.1

81.6

92.2

98.4

107.1

for 2005 are pro forma figures.

Other/contract production

14.9

25.2

28.8

23.1

23.2

27.8

507.9

747.5

644.6

635.5

562.9

508.3

Total net turnover • Nycomed reports and accounts for transactions in accordance with IFRS (International Financial Reporting Standards), whereas previously we used Danish GAAP. • Further details on comparisons and reporting standards are explained in the Accounting Principles section.

• Number of employees is stated on an annual basis.

Total net turnover

507.9

747.5

644.6

635.5

562.9

508.3

Cost of sales

266.3

369.3

284.6

316.3

256.2

239.7 268.6

Gross profit

241.6

378.2

360.0

319.2

306.7

Operating income (EBIT)

-36.8

-16.5

52.9

-14.5

52.6

48.9

Financial result

-75.0

-88.7

-67.4

-63.1

-23.2

-23.5

Net result/profit

-86.5

-81.0

5.6

-65.7

12.1

11.7

EBITDA

44.6

90.5

126.3

87.8

108.2

100.9

Adjusted EBITDA

110.7

156.7

129.3

125.5

120.8

107.6

• In the event of any discrepancy between the English and Danish language versions of the annual report for 2005, the Danish version shall prevail.

Balance sheet Total assets

2,350.7

2,350.7

1,486.9

1,518.0

1,640.6

-35.2

-58.1

-12.2

-9.0

-42.9

12.4

Capital expenditures

16.6

20.7

27.1

16.8

25.0

20.0

Shareholders equity

819.4

819.4

548.8

562.3

636.3

107.9

16.8

20.7

51.0

35.0

31.1

81.3

Change in working capital

643.6

Cash flow Operating activities

-784.5

-784.5

24.0

-37.6

-894.6

0

Other investment activities

Sale/purchase of business activities

-29.4

-39.9

-76.1

-27.4

-29.9

-40.8

Financing activities

807.6

827.3

-14.2

-18.5

935.0

-91.2

Net cash flow

-55.9

23.6

-15.3

-48.5

41.6

-50.7

47.6 %

50.6 %

55.8 %

50.2 %

54.5 %

52.8 %

8.8 %

12.1 %

19.6 %

13.8 %

19.2 %

19.9 %

Adjusted EBITDA margin

21.8 %

21.0 %

20.1 %

19.7 %

21.5 %

21.2 %

Number of employees (average for the period)

3,252

3,252

3,019

2,831

2,665

2,418

Ratios Gross profit margin EBITDA margin

See inside back cover for definition of key figures and financial ratios.

1) 9 May 2005 the Nycomed Group (Nyco Holdings Aps) was acquired by Nycomed A/S. 2) 29 November 2002 the Nycomed Group (Nycomed Holding A/S) was acquired by Nyco Holdings Aps.

23732 NYCO årsomslag.indd 2

Anticoagulation Process by which blood is prevented from clotting Antihistamine Substance capable of counteracting (or blocking) histamine release, used in the treatment of allergies

GDP Good Distribution Practice GMP Good Manufacturing Practice

Antithrombosis Prevention of the formation of a clot in a blood vessel

GxP The generic abbreviation covering compliance requirements for all good practice disciplines in the regulated pharmaceutical sector including GCP, GDP and GMP

CEO Chief Executive Officer

Hypotension Low blood pressure

CFO Chief Financial Officer

In-licensing The process by which one pharmaceutical company may acquire marketing rights for drugs from another company

CHMP European Committee for Medicinal Products for Human Use CIS Commonwealth of Independent States CPoC Clinical proof of concept DRG Diagnosis related group, systematic order of diseases used for classification in e.g. statistics and planning EMEA The European Medicines Agency Formulation Form in which a medicinal drug is administered (tablets, capsules, intravenous fluid, etc) Generics Non-proprietary drugs, products that can be substituted for a proprietary brand in a prescription GCP Good Clinical Practice

Lung surfactant Product indicated for premature babies with immature lungs MAA Marketing Authorisation Application, where medical products are approved centrally for marketing throughout Europe MRP Mutual Recognition Procedure, where products approved in one European market obtain marketing authorisation in selected European countries through local agencies

OTC Over the counter medication available without prescription in the pharmacy PCI Percutaneous coronary intervention Peptic ulcer Ulcer in the upper gastro-intestinal tract Phase I Clinical trials primarily intended to determine compound tolerability in healthy volunteers Phase II (therapeutic exploratory) Clinical trials on a limited number of patients to obtain proof of efficacy Phase III (therapeutic confirmatory) Large scale clinical testing on patients to assess safety and confirm clinical usefulness Phase IV (therapeutic use) Following approval, studies are conducted to gain more information about the compound PPI Proton pump inhibitor PTH Parathyroid hormone – stimulates calcium uptake in bones

MS Multiple sclerosis, a chronic degenerative disease of the central nervous system

RDS Respiratory distress syndrome, serious breathing difficulty which occurs primarily in prematurely born infants due to immaturity of the lungs

NSAID Non-steroidal anti-inflammatory drug

Rx Prescription

Orphan drugs Medications for rare diseases

SVP Senior Vice President

Published by Nycomed A/S Concept and design Bysted A/S Text by Eye for Image ApS Print PE Offset A/S

28/02/06 10:20:16

DEFINITIONS OF KEY FIGURES A N D F I N A N C I A L R AT I O S EBITDA

=

Profile

2

Earnings before interest, tax, depreciation

• The annual report 2005 covers the period from incorpo-

and amortisation Adjusted EBITDA

=

EBITDA adjusted for inventory step-up

Letter from the CEO

values as a result of purchase accounting,

3

restructuring expenses and project cost relevant for 2002) and the effect from

Financial summary

warrants programme =

Gross Profit x 100/Total net turnover

EBITDA margin

=

EBITDA x 100/Total net turnover

Adjusted EBITDA margin

=

Adjusted EBITDA x 100/Total net turnover

ration of Nycomed A/S on 4 January 2005 to 31 December 2005 and the consolidated financial statements cover the 8 month period from acquisition of the Nycomed Group on 9 May 2005 to 31 December 2005.

regarding abandoned acquisition (the latter

Gross Profit Margin

IMPORTANT NOTICE

4

• The acquisitions of Nycomed on 9 May 2005 and previously on 29 November 2002 make comparison with previous years difficult. With this in mind, please note

Markets

14

that key figures and financial ratios and comparative figures for the years 2001 to 2004 and the 12 months for 2005 are pro forma figures.

Products

TRADEMARKS

Resources

The trademarks Actovegin®, Angiox®, Calcia™, CalciChew®1, Calcigran®, Calcimagon®, Calcioral®, Calcitugg®, Cavid®, Gutron®, Glucadol®, Hjertemagnyl®, Ibumetin®, Matrifen®, Nycoplus Calcigran®, Steocar®, Steovit D3®, TachoComb®, TachoSil®, Telos®, Ubretid®, Xafon®, Xefo®, Xefo Rapid®, Xefocam®, and ZyComb® are owned by Nycomed Denmark A/S or its subsidiaries.

The trademark Acabel® is owned by Grünenthal GmbH. The trademark Beriplast® is owned by ZLB Behring GmgH. The trademark Kestine® is owned

by Almirall Prodesfarma S.A. The trademarks Pantoloc®, Zurcal®, Zurcale®, Zurcazol® and Pantozol®, which are used in marketing pantoprazole, are owned

by Altana Pharma AG, and all of our pantoprazole products are collectively referred to herein as ‘Zurcal®.’ The trademark Calcilac® is owned by MIBE Vertriebsgesellschaft mbH. The trademark Ceraxon® is owned by Ferrer Internacional, S.A.The trademarks Orocal®2 and Orotre® are owned by Laboratoire Théramex. The trademark Concor® is owned by Merck KGaA. The trademark Curosurf® is owned by Chiesi Farmaceutici S.P.A. The trademarks Daivobet®, Daivonet®, Daivonex®, Etalpha®, and Fucidin® are owned by Leo Pharma A/S. The trademark Glucophage is owned by Merck Santé SA. The trademark Gerimax® is owned by Dansk Droge A/S. The trademark Marevan® is owned by Glaxo Group Ltd.The trademark Mastical® is owned by Altana.

The trademark Preotact® is owned by NPS Pharmaceuticals, Inc. The trademark Proamatine® is owned by Shire LLC LTD. The trademark Taigalor is owned by Dott. Formenti SpA. The trademark TransMID® is owned by KS Biomedix Holdings plc. The trademark Vicalvit® is owned by POLFA Kutnowskie Zaklady Farmaceutyczne Spolka Akcyjna.

1)

2)

In Belgium, Luxembourg, the Netherlands, Malaysia, Singapore, Taiwan, France, Ireland, Germany, Italy and UK, the trademark CalciChew® is owned by Shire Pharmaceutical Group.

In Poland, the trademark Orocal™ is owned by Nycomed.

22

• Nycomed reports and accounts for transactions in

28

• Further details on comparisons and reporting standards

accordance with IFRS (International Financial Reporting Standards), whereas previously we used Danish GAAP.

are explained in the Accounting Principles section.

• Number of employees is stated on an annual basis.

Corporate governance

32

• In the event of any discrepancy between the English and Danish language versions of the annual report for 2005, the Danish version shall prevail.

Financial statements

Published by Nycomed A/S Concept and design Bysted A/S Text by Eye for Image ApS Print PE Offset A/S

42

Nycomed A/S Annual Report 2005

DEFINITIONS OF KEY FIGURES AND FINANCIAL RATIOS EBITDA

=

Earnings before interest, tax, depreciation and amortisation

Adjusted EBITDA

=

EBITDA adjusted for inventory step-up values as a result of purchase accounting, restructuring expenses and project cost regarding abandoned acquisition (the latter relevant for 2002) and the effect from warrants programme

Gross Profit Margin

=

Gross Profit x 100/Total net turnover

EBITDA margin

=

EBITDA x 100/Total net turnover

Adjusted EBITDA margin

=

Adjusted EBITDA x 100/Total net turnover

TRADEMARKS The trademarks Actovegin®, Angiox®, Calcia™, CalciChew®1, Calcigran®, Calcimagon®, Calcioral®, Calcitugg®, Cavid®, Gutron®, Glucadol®, Hjertemagnyl®, Ibumetin®, Matrifen®, Nycoplus Calcigran®, Steocar®, Steovit D3®, TachoComb®, TachoSil®, Telos®, Ubretid®, Xafon®, Xefo®, Xefo Rapid®, Xefocam®, and ZyComb® are owned by Nycomed Denmark A/S or its subsidiaries.

The trademark Acabel® is owned by Grünenthal GmbH. The trademark Beriplast® is owned by ZLB Behring GmgH. The trademark Kestine® is owned

by Almirall Prodesfarma S.A. The trademarks Pantoloc®, Zurcal®, Zurcale®, Zurcazol® and Pantozol®, which are used in marketing pantoprazole, are owned

by Altana Pharma AG, and all of our pantoprazole products are collectively referred to herein as ‘Zurcal®.’ The trademark Calcilac® is owned by MIBE Vertriebsgesellschaft mbH. The trademark Ceraxon® is owned by Ferrer Internacional, S.A.The trademarks Orocal®2 and Orotre® are owned by Laboratoire Théramex. The trademark Concor® is owned by Merck KGaA. The trademark Curosurf® is owned by Chiesi Farmaceutici S.P.A. The trademarks Daivobet®, Daivonet®, Daivonex®, Etalpha®, and Fucidin® are owned by Leo Pharma A/S. The trademark Glucophage is owned by Merck Santé SA. The trademark Gerimax® is owned by Dansk Droge A/S. The trademark Marevan® is owned by Glaxo Group Ltd.The trademark Mastical® is owned by Altana.

The trademark Preotact® is owned by NPS Pharmaceuticals, Inc. The trademark Proamatine® is owned by Shire LLC LTD. The trademark Taigalor is owned by Dott. Formenti SpA. The trademark TransMID® is owned by KS Biomedix Holdings plc. The trademark Vicalvit® is owned by POLFA Kutnowskie Zaklady Farmaceutyczne Spolka Akcyjna.

1)

2)

In Belgium, Luxembourg, the Netherlands, Malaysia, Singapore, Taiwan, France, Ireland, Germany, Italy and UK, the trademark CalciChew® is owned by Shire Pharmaceutical Group.

In Poland, the trademark Orocal™ is owned by Nycomed.

Profile

2

Letter from the CEO

3

Financial summary

4

Markets

14

Products

22

Resources

28

Corporate governance

32

Financial statements

42

Listening to healthcare professionals Nycomed Group Langebjerg 1 PO Box 88 DK-4000 Roskilde Denmark T +45 4677 1111 F +45 4675 6640 www.nycomed.com

Nycomed A/S

Annual Report 2005

CVR: 28313519 1st financial year

23732 NYCO årsomslag.indd 1

28/02/06 10:20:15