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LEO PHARMA | ANNUAL REPORT 2011

Translation of the Danish Annual Report 2011

LEO PHARMA | ANNUAL REPORT 2011

LEO Pharma A/S

2 LEOPharma

AnnualReport2011 3

CONTENTS

MANAGEMENT’SSTATEMENTANDAUDITOR’SREPORT

Management’sStatement 5IndependentAuditor’sReport 7

MANAGEMENT’SREVIEW

Companyinformation 85-yearfinancialhighlightsoftheGroup 9Management’sReview 11

FINANCIALSTATEMENTS1JANUARY–31DECEMBER

Accountingpolicies 25Incomestatement 35Balancesheet 36Cashflowstatement 39Notes 41Investmentsinaffiliates 54

PresentedandadoptedattheAnnualGeneralMeetingoftheCompanyon26March2012

CVR56759514

ThisAnnualReportisanextractoftheCompany’sstatutoryannualreportpursuanttoSection149oftheDanishFinancialStatementsAct.ThestatutoryannualreportwillbesubmittedtotheDanishBusinessAuthority,andacopymaybeobtainedviatheAuthority’swebsitewww.cvr.dk.

4 LEOPharma

Fromtheleft:

Anders B. SpohrExecutiveVicePresidentGlobalProductSupply

Lars OlsenExecutiveVicePresidentSalesandMarketing

Gitte P. AaboPresidentandCEO

Kim KjøllerSeniorVicePresidentGlobalDevelopment

Tore DuvoldSeniorVicePresidentNewProductDiscovery

GROUP MANAGEMENT2012

We help people achieve healthy skin

AnnualReport2011 5

TheBoardofDirectorsandtheBoardofExecutiveshave today considered and adopted the AnnualReportofLEOPharmaA/Sforthefinancialyear1January–31December2011.

TheAnnualReporthasbeenpreparedinaccordancewiththeDanishFinancialStatementsAct.

In our opinion, the Consolidated Financial State-mentsandtheParentCompanyFinancialStatementsgiveatrueandfairviewofthefinancialpositionat31December2011oftheGroupandtheCompanyandoftheresultsoftheGroup’sandtheCompany’s

operations and consolidated cashflows for 2011.

Inouropinion,Management’sReviewincludesatrueand fair account of the development in the oper-ationsandfinancialcircumstancesoftheGroupandtheCompany,oftheresultsfortheyearandofthefinancialpositionoftheGroupandtheCompanyaswellasadescriptionofthemostsignificantrisksandelements of uncertainty facing theGroup and theCompany.

WerecommendthattheAnnualReportbeadoptedattheAnnualGeneralMeeting.

MANAGEMENT’S STATEMENT

GitteP.Aabo LarsOlsen AndersB.Spohr President,CEO

Ballerup,26March2012

Board of Executives

Board of Directors

PoulRødbroeRasmussen Chairman

KarinAttermann JannieKogsbøll LotteHjortshøjLarsen

PederHolkNielsen JensBoOlesen JukkaPertola

JanRasmussen PerHåkonSchmidt GormM.Thamsborg

6 LEOPharma

AnnualReport2011 7

Auditor’s Report on the Consolidated Financial Statements and the Parent Foundation Financial Statements WehaveauditedtheConsolidatedFinancialState-mentsandtheParentCompanyFinancialStatementsofLEOPharmaA/Sforthefinancialyear1January–31December2011,whichcompriseincomestate-ment,balancesheet,notesandaccountingpoliciesforboththeGroupandtheParentCompany,aswellasconsolidatedcashflowstatement.TheConsoli-datedFinancialStatementsandtheParentCompa-nyFinancialStatementsarepreparedinaccordancewiththeDanishFinancialStatementsAct.

Management’s Responsibility for the Consolidated Financial Statements and the Parent Company Financial StatementsManagement is responsible for thepreparationofConsolidatedFinancialStatementsandParentCom-panyFinancialStatementsthatgiveatrueandfairviewinaccordancewiththeDanishFinancialState-mentsAct, and for such internal control asMan-agement determines is necessary to enable thepreparation of Consolidated Financial StatementsandParentCompanyFinancialStatementsthatarefree frommaterialmisstatement,whetherdue tofraudorerror.

Auditor’s Responsibility Ourresponsibility istoexpressanopinionontheConsolidated Financial Statements and the Par-ent Company Financial Statements based on ouraudit.Weconductedouraudit inaccordancewithInternationalStandardsonAuditingandadditionalrequirementsinaccordancewithDanishauditreg-ulation.Thisrequiresthatwecomplywithethicalrequirements and plan and perform the audit toobtainreasonableassurancewhethertheConsoli-datedFinancialStatementsandtheParentCompanyFinancial Statements are free frommaterialmis-statement.

Anaudit involvesperformingaudit procedures toobtainauditevidenceabouttheamountsanddis-closures intheConsolidatedFinancialStatements

andtheParentCompanyFinancialStatements.Theauditproceduresselecteddependontheauditor’sjudgement,includingtheassessmentoftherisksofmaterialmisstatementof theConsolidatedFinan-cialStatementsandtheParentCompanyFinancialStatements,whetherduetofraudorerror.Inmak-ingthoseriskassessments, theauditorconsidersinternalcontrolrelevanttotheCompany’sprepara-tionofConsolidatedFinancialStatementsandPar-entCompanyFinancialStatementsthatgiveatrueand fairview inorder todesignauditproceduresthatareappropriateinthecircumstances,butnotfor the purpose of expressing an opinion on theeffectivenessoftheCompany’sinternalcontrol.AnauditalsoincludesevaluatingtheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesmadebyManagement,aswellasevaluatingtheoverallpresentationoftheConsoli-datedFinancialStatementsandtheParentCompanyFinancialStatements.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforourauditopinion.

Theaudithasnotresultedinanyqualification.

OpinionIn our opinion, the Consolidated Financial State-mentsandtheParentCompanyFinancialStatementsgiveatrueandfairviewofthefinancialpositionoftheGroupandtheCompanyat31December2011andoftheresultsoftheGroup’sandtheCompany’soperationsaswellastheconsolidatedcashflowsforthefinancialyear1January–31December2011inaccordancewiththeDanishFinancialStatementsAct.

Statement on Management’s Review

WehavereadManagement’sReviewinaccordancewiththeDanishFinancialStatementsAct.Wehavenot performed any procedures additional to theauditoftheConsolidatedFinancialStatementsandtheParentCompanyFinancialStatements.Onthisbasis, inouropinion, the informationprovided inManagement’sReviewisconsistentwiththeConsoli-datedFinancialStatementsandtheParentCompanyFinancialStatements.

Kim Füchsel StateAuthorisedPublicAccountant

Lars BaungaardStateAuthorisedPublicAccountant

INDEPENDENT AUDITOR’S REPORT

To the Shareholder of LEO Pharma A/S

Copenhagen,26March2012PricewaterhouseCoopersStatsautoriseretRevisionspartnerselskab

8 LEOPharma

MANAGEMENT’S REVIEW

Company information

Company LEOPharmaA/S Industriparken55

2750Ballerup Denmark

Telephone:+4544945888 Fax:+4572263321 Website:www.leo-pharma.com E-mail:www.leo-pharma.com/contact CVRNo:56759514 Founded:1908 Reg.office:Ballerup Financialyear:1January–31December

Board of PoulRødbroeRasmussen,ChairmanDirectors KarinAttermann JannieKogsbøll LotteHjortshøjLarsen PederHolkNielsen JensBoOlesen JukkaPertola JanRasmussen PerHåkonSchmidt GormM.ThamsborgBoard of GitteP.Aabo,President,CEOExecutives LarsOlsen AndersB.Spohr

Auditors PwC Strandvejen44 2900Hellerup Denmark

AnnualReport2011 9

5-YEAR FINANCIAL HIGHLIGHTS OF THE GROUP

2011 2010 2009 2008 2007 DKKmillion DKKmillion DKKmillion DKKmillion DKKmillion

Income statement Revenue 7,741 7,245 6,082 5,709 5,246OfwhichoutsideDenmark 7,492 7,033 5,763 5,400 4,937Operatingprofit/loss 158 177 -876 2,464 2,318Netfinancials 838 887 857 737 583Profit/lossbeforetax 996 1,064 -19 3,201 2,901

Net profit/loss for the year 624 700 -167 2,528 2,365

Balance sheetNetinvestmentin: Intangibleassets 0 0 6,266 0 0Property,plantandequipment 410 541 284 141 184

Fixedassets 24,600 23,486 26,560 20,761 17,777Currentassets 4,364 3,805 7,706 3,624 2,794

Total assets 28,964 27,291 34,266 24,385 20,571

Equity 21,426 20,833 20,096 20,321 17,832

Ratios Profitmargin 2% 2% -14% 43% 44%Returnonassets 1% 1% -3% 11% 11%Returnonequity 5% 5% 0% 17% 17%Solvencyratio 74% 76% 59% 83% 87%

Employees Averagenumberofemployees 4,391 3,796 3,278 3,008 2,921

10 LEOPharma

AnnualReport2011 11

2011marksLEOPharma’ssecondfullfinancialyearsincethelaunchoftheGroup’sgrowthstrategy.Theoverallobjectiveof thestrategy is todevelopandstrengthenLEOPharma’sposition–bothinnewandestablishedmarkets–byofferingmore treatmentoptionsandthroughcontinuousdevelopmentofcom-petencesamongtheGroup’semployees.

Consequently,considerableinvestmentsweremadeintheseareasin2011.Thedevelopmentandlaunchofnewtreatmentoptionswereintensifiedand,bytheendoftheyear,LEOPharmawasactivein61countries.Thenumberofemployeesaveraged4,391in2011,comparedto3,796in2010.

In2011,LEOPharmareviseditsbusinessstrategy.Amongotherthings,thisledtoanewmissionandvisionwhichclearlyreflecttheGroup’sglobalcom-mitmenttowardspeoplesufferingfromskincondi-tions.Withitsnewvisionandmission,LEOPharma

wantstomakesurethatthesepatientsgetaccesstomoreandimprovedtreatmentoptions.

TherevisedbusinessstrategywaslaunchedintheformoftheLEO powerhouseinJune2011.Inaddi-tiontoLEOPharma’smissionandvision,theLEOpowerhouseincludestheGroup’slong-termsuccesscriteriaandfivestrategicfocusareas:theso-calledcorporate Must-Win Battles.TheLEOpowerhouseisbuiltonsolidfoundationsconsistingoftheGroup’svaluesandguidelinesforhowleadersandemployeesshouldinteractanddevelop.

Results of strategic initiatives in 2011ThefivecorporateMust-WinBattlesensurethatweoptimiseourprioritisationoftheGroup’sresourcesintheefforttoachieveouroverallgrowthtargets.Allfivefocusareasshowedpositiveresultsin2011,asdescribedbelow.

MANAGEMENT’S REVIEW

LEO mission

We help peopleachieve healthy skin.

LEO vision

We are the preferred dermatology care partner improving people’s lives around the world.

12 LEOPharma

Peopledevelopmentsessions(PersonalDevelopmentDialogue,PDD)wereintroducedforallemployeesinDenmark.Thistoolwillberolledouttotherestoftheorganisationin2012.

Top115leaderscompletedtheGrowingLEOLeadershipprogrammeatIMDinSwitzerland.

ThemanagementdevelopmentprogrammeGrowingLEOLeaders,whichnumbers470leadersworldwide,wasintroducedin2011.

TheglobalintranetPulsewaslaunchedinordertoestablishajointcommunicationchannelandaplatformforknowledge-sharingforallLEOemployees.

MarketingapplicationsrelatingtoPicato®forthetreatmentofactinickeratosiswerefiledintheUSA,Europe,AustraliaandBrazil,andLEOPharmapassedsevenFDAinspections.

Anumberofinitiativeswereintroducedtoensurepatient-centredcare,includinganewGlobalPatientEngagementdepartment,integratedcareprogrammes,PeopleBox(internalinformationprovidingemployeeswithaninsightintoandunderstandingofthechallengesfacingpatients)aswellasMoments,thepsoriasiscommunicationplatform.

Grosssalesofstrategicpsoriasisproductsincreasedby21%comparedto2010.

ThemarketingapplicationrelatingtoPicato®wasfiledwiththeBrazilianauthorities.

AnindependentfunctionfocusingonbusinessdevelopmentwassetupinChina.

DERMATOLOGY – EXPANDING OUR FOOTPRINT

GROWING PEOPLE, GROWING LEO

NEW MARKETS – FUTURE OPPORTUNITIES

DERMATOLOGY– EXPANDING OUR

FOOTPRINT

2015

GROWING PEOPLE, GROWING LEO

NEW MARKETS – FUTURE

OPPORTUNITIES

AnnualReport2011 13

Aclearstrategywasimplementedforinnohep®forthetreatmentofthrombosis:

TheSYRIUSprojectwasinitiated,theobjectiveofwhichistosecurethedeliveryofpre-filledsyringesfortheUSmarket.

CATCH,thelargestclinicalstudyeverinLEOPharma’shistory,aimstoprotectcancerpatientsagainstvenousthrombosisthroughtreatmentwithinnohep®.

innohep®grosssalesincreasedby9%comparedto2010.

10%revenuegrowthontheUSmarketmeasuredinDanishkroner.

ThenumberofemployeesintheUSAincreasedfrom33in2010to194in2011.

AnextendedLEOQualityCare™programmewasintroducedtoensurethecorrectuseofdrugsbypatients.

ThemarketingapplicationrelatingtoPicato®forthetreatmentofactinickeratosiswasfiledwiththeUSFoodandDrugAdministration(FDA).

INNOHEP® – FULL SPEED AHEAD!

USA – YES, WE WILL!

innohep®

– FULL SPEED AHEAD!

USA– YES, WE WILL!

14 LEOPharma

In 2011, LEOPharmaextended its focus area toincludetheindicationactinickeratosis,andsotheGroup’sstrategictherapyareasnowconsistofthefollowing:

DERMATOLOGY

PsoriasisEczemaSkininfectionsActinickeratosis

In2011,thestrategicproductswithindermatol-ogycomprisedDaivobet®(psoriasis)andXamiol®(psoriasis).In2012,LEOPharmawillextenditsstrategicdermatologyportfoliowithPicato®(actinickeratosis),whichhasbeenapprovedbytheFDAandwillbelaunchedintheUSAinMarch2012.Thetargetisfor50,000patientstobereceivingtreatmentwithPicato®bytheendof2012.LEOPharmaexpectstoobtainapprovalforPicato®intheEU,BrazilandAustraliain2013.

THROMBOSIS

Thestrategicproductfortheindicationthrombosisisinnohep®.

STRATEGIC PRODUCTS

AnnualReport2011 15

LEOPharma’srevenuefortheyearinDanishkro-ner increased by 7% in 2011.Measured in fixedexchangerates,growthtotalled7%in2011.LEOPharma’s gross salesmeasured in Danish kronerincreasedby9%in2011comparedto2010.

IncreasedsalesoftheGroup’spsoriasisproductscontributed to LEO Pharma’s growth, especiallyintheUSmarket.RevenueintheUSAincreasedby10%measuredinDanishkronercomparedto2010.TheUSAgenerated20%ofLEOPharma’stotal revenue in2011. Looking forward, theUSaffiliateisexpectedtocontinueitssignificantcon-tributiontogrowthwithintheareaofdermatol-ogy.RevenuegrowthmeasuredinDanishkroneroutsidetheUSAincreasedby3%inEuropeandby18% in the rest of theworld. LEOPharma’sgrowthin2011wasprimarilydrivenbythestrate-gicproductsDaivobet®,Xamiol®andinnohep®.Asaresult,measuredinDanishkroner,grosssalesofDaivobet®increasedby19%,Xamiol®by30%andinnohep®by9%.

In 2011, we launched Daivobet® Gel in France,theUK, theNetherlands,Belgiumand theNordiccountriesotherthanDenmark.Daivobet®GelsalestotalledDKK209millionin2011.

Several new unitsIn2011,theGroupcontinueditsmarketexpansionbysettingupaffiliates inAustraliaand Italy,andestablishments in SouthKorea and Indonesia. InAustralia,werepurchasedtherightstoourpsoriasisportfolioon1June2011.

Moreover, with effect from 1 January 2012, LEOPharmahasrepurchasedtherightstoourpsoriasisportfolioinItalyandpartsofourpsoriasisportfolioinGermanyandAustria.

Satisfaction despite the financial crisisThesalesgrowthfor2011isconsideredsatisfac-tory,despitetheadverseeffectonrevenuecausedbyseveralnegativefactors.Asaresultoftheglobalfinancialcrisis,LEOPharmahadtoincreasecom-pulsorydiscountsin2011comparedto2010duetothetighteningofEuropeanhealthbudgets.LEOPharma’stotaldiscountsasapercentageofgrosssalesincreasedby1%orDKK71million.

ThefinancialcrisisinGreeceresultedinasignificantdecreaseinsales,particularlysalesof innohep®.Thisisprimarilyduetothefactthat,asaconse-quenceofthecrisisandconsiderablebaddebtsin

FINANCIAL RESULTS FOR 2011

Iberia5% LEO DE

4%

LEO US22%

LPI 20%

France-Magreb20%

North Atlantic17%

Nordic-Benelux12%

FORDELING AF TOTALT SALG

LEO CODE OF CONDUCT

GxP Non-GxP

Group PoliciesGroup Guidelines

SOPs

Analytical Methods Test Methods

Work Instructions

Strategiclevel

Operationallevel

8,000

6,000

4,000

2,000

0

7% compared to 2010

7%

NET SALES YEAR-TO-DATE AT ACTUAL RATES

20102011

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

DKK million

16 LEOPharma

2010,theGrouphadtotightenthepaymenttermsforGreekhospitals.

Voluntary recall of innohep®

InMarch2011,LEOPharmadecidedtorecallinno-hep®vialsintheUSAfollowingadialoguewiththeFDA. The recall took place because the FDA hadexpressed concern over a theoretical risk of thepresenceofparticulatematterinvialsreleasedintheUSA,andwasnotthereforelinkedtoanyinci-dencesofadverseeventsorcustomercomplaints.Therewerenoothersignificantrecallsin2011.

Supplies affected by a fireIn2011,saleswere,toaminorextent,affectedbysupplyproblemsfollowingafactoryfireinDenmarkand production difficulties in France. After rapidandfocusedefforts,productionisrunningsmoothlyagain.

Investments in new employees Aspartofthegrowthstrategy,LEOPharmaiscur-rentlyincreasingstaffnumbersacrosstheglobalorganisation,resultinginincreasedexpenditure.In2011,theGrouptookonnet675newemployees,which isanet increaseof17%on thepreviousyear.

Inlinewithgrowthtargets,thenewemployeesaremainlyemployedinsalesandmarketingrolesinthenewlyestablishedmarkets.StaffexpensesrosefromDKK2,091millionin2010toDKK2,670millionin2011.

Increase in external expensesOtherexternalexpensesincreasedtoDKK3,595million from DKK 3,314 million in 2010. Theincreaseisprimarilyattributabletoincreasedsalesandmarketingexpenses,includinginvestmentsinnewmarketsandexpensesrelating to theprep-arationof thePicato® launch in2012.Moreover,aspreviouslycommunicated,LEOPharmaisplan-ningtoreplacesomeoftheGroup’sownproductionfacilitieswithincreasedoutsourcing.AprovisionofDKK46millionwasmadein2011toimplementthischange.

Satisfactory resultsTheprofitbeforetaxwasnegativelyaffectedbyamor-tisationofintellectualpropertyrightsinrespectofPica-to®relatingtotheacquisitionofPeplin,Inc.in2009,aswellasamortisationrelatingtothere-acquisitionofdis-tributionrightsontheUSmarketin2009totallingDKK725million.Impairmentandamortisationofintellec-tualpropertyrightstotalledDKK1,168millionin2010.

TheGroup’snetfinancialincometotalledDKK838mil-lionin2011,comparedtoDKK887millionin2010.In2011,LEOPharmainvestedDKK410millioninprop-erty,plantandequipment.The investmentsmainlyrelatetoextendingtheGroup’sfactoriesinFranceandAustraliainordertoensureadequatecapacityforthefuturesalesgrowthforinnohep®andthelaunchofPicato®in2012,aswellastotheconstructionofanewofficebuildingattheBallerupheadquarters.

PositivecashflowofDKK1,820millionwasgener-atedfromoperatingactivitiesin2011.TheGroupachieveda5%returnonequityin2011and,attheendoftheyear,equitytotalledDKK21,426million.Basedontheseresults,LEOPharmaisentering2012withasolvencyratioof74%.

ThemarketvalueoftheGroup’sbondholdingswasDKK20,421millionattheendof2011.

Theresultsfor2011areinaccordancewithManage-ment’sexpectationsfortheyear,andarethereforeconsideredsatisfactory.

SPECIAL MATTERS

Theeffective tax rate for theLEOPharmaGroupchangedfrom34%in2010to37%in2011.Theprimaryreasonforthechangeisthat,inconnectionwiththeprocessofintegratingthePeplinactivities,LEOPharmasoldintangibleassetsbelongingtothePeplinGrouptoLEOLaboratoriesLtd,which trig-geredcapitalgainstaxforthePeplinGroup.

Compensation from lawsuitsLEOPharmareceivedcompensationofDKK70mil-lionin2011connectedtotwopatentlawsuits.Theamounthasbeenrecognisedasincomein2011aspartofotheroperatingincome.

FINANCIAL RESULTS FOR 2011

AnnualReport2011 17

Operating risksLEOPharma iscontinuallyworkingonensuringareasonablebalancebetweenriskexposureandvaluecreation.Therefore,we regularlyenter into long-termagreementsforthesupplyofrawmaterialsandothercriticalinputfortheGroup’sproduction.

Market risksLEOPharmamakesconsiderableeffortstoprotectitsintellectualpropertyrightsatalltimes,bothforexist-ingandfornewdrugs,andtoensurethatwecarryonourbusinesswithoutinfringingtherightsofothers.

LEO Pharmamakes great efforts to develop andmaintainitscompetencesinthisarea,andtheGroupconsistentlydefendsitsrightsifothersattempttoinfringetheGroup’spatents.

Asoftheendof2011,severallawsuitsfiledbyandagainst LEOPharma relating to patent rights arependingconcerningrightsinrespectofproductsinLEOPharma’spsoriasisportfolio,both intheUSAandinEurope.Asamatterofprinciple,theGroupdoesnotdisclosethecontents,statusandpossibleoutcomeofsuchpendingpatentcases.Moreover,LEOPharmaisapartytoalawsuitintheUSAcon-cerningovertimepaytosalesrepresentatives.ThesuitwasfiledinFebruary2012.LEOPharmadoesnotexpectthecasetohaveanysignificanteffectontheGroup’sfinancialposition.

AlargenumberofLEOPharma’sinsurablerisksarecoveredbyinsurance,whichismanagedbythePar-entCompanyinBallerup.Themostsignificantriskscoveredrelatetoproductliability,buildings,movableproperty,inventories,consequentiallossandtrans-portationofgoods.

Foreign exchange risksBasedontheGroup’sfutureoperatingbudgets,cashflowsinforeigncurrenciesarehedgedonaregularbasis.LEOPharmadoesnothedgenetinvestmentsinforeignaffiliates,andallhedgingofforeignexchangerisksiscentralisedwiththeParentCompany.

Liquidity risksLEOPharmaiswhollyownedbytheLEOFoundation,andconsequentlycurrentcashflowsareaccumulat-edintheParentCompany.AstheGrouphasahighsolvencyratio,wecanseenomaterialliquidityrisks.

Interest rate risksTheloanportfolioconsistsofbothvariable-rateandfixed-rateloans.

Credit risksThemarketfordrugsinEuropehasbeenaffectedbythefinancialcrisis.Greeceisthecountrywhere

LEOPharmahasbeenmostseriouslyhit.In2011,the Group received Greek bonds as payment forreceivablesfromtheGreekauthorities.DuetotheunresolvedfinancialsituationinGreece,LEOPharmamadeaprovisionforbaddebtsin2010.TheFinan-cialStatementsfor2011werepositivelyaffectedbyanetamountofDKK38millionasaresultofpartoftheprovisionfrom2010beingrecognisedasincomein2011.

In2011,theGrouptightenedupitscreditpolicyinordertocounterfuturebaddebts.

Therearenomaterialrisksrelatingtoindividualcus-tomersorbusinesspartners.

The Group’s credit risks relate partly to primaryfinancial assets and partly to derivative financialinstruments with a positive market value. Creditrisks relating to financial assets equal the valuesrecognisedinthebalancesheet.

Expectations for 2012LEOPharmawillcontinuetoimplementitsgrowthstrat-egyin2012,includinginitiativessupportingthepatientfocus reflected inLEOPharma’smissionandvision.

AspartoftheGroup’scorporateMust-WinBattles,LEOPharmawantstocreateaglobalandpatient-centricorganisationinrelationtostructure,pro-cess-esandknowledge-sharing.Inordertoachievethisgoal,theGroupwillstartimplementinganumberofinternalinitiativesin2012andinthecomingyears.

TheGroupwillfurtherexpanditsresearch&devel-opmentprogrammeswithaspecial focusonder-matology.Furthermore,anincreasedandtargetedsalesandmarketingplanisexpectedtohelpmeetthegoalofdouble-digitsalesgrowth.Inthisregard,thelaunchofPicato®intheUSAwillplayaconsider-ablepart.Earningsfor2012areexpectedtobeinlinewith2011.

Elements of uncertaintyItisplannedthatPicato®willbemarketedbytheGroup’sUSaffiliatefromMarch2012.AllpreviousFDAinspectionshaveproceededaccordingtoplan,andtheFDAhasapprovedtheproductformarket-ing.However,aproductlaunchwillalwaysbesub-jecttouncertainty,andiftheproductdoesnotmeetsalesexpectations,thismayhaveanegativeeffectonexpectedresultsfor2012.

SPECIAL BUSINESS AND FINANCIAL RISKS

18 LEOPharma

AnnualReport2011 19

LEOPharma’semployeesarethefoundationsoftheGroup’scontinuedsuccess.Therefore,considerableinvestmentshavebeenmadeintheprofessionalandpersonal development of employees through twomanagementdevelopmentprogrammesandapeo-pledevelopmentsessiontool.

In2011,LEOPharmacompleteditsfirstglobalman-agementdevelopmentprogrammefortheGroup’stop115leaders.Alsolastyear,theGrouplaunchedasimilarmanagementdevelopmentprogrammefor470leadersworldwide.

BothprogrammesaimtogivetheleadersaninsightintotheGroup’sstrategicobjectivesandtools,and

Research & developmentIn2011,theGroupintensifieditsresearch&developmentstrategywithaclearfocusondermatology.Duringthecourseof2011,thepipelinewasstrengthenedconsiderably;seeoverviewabove.Bytheendof2011,LEOPharmahadastrongportfolioofR&Dprojectswithinitsfocusareas:

DermatologyAnumberofclinicalactivitieswereinitiatedinordertoincreasemarketandproductindica-tionsforDaivobet®GelandDaivobet®Ointmentforthetreatmentofbodypsoriasis.

InMarch2011,anapplicationfortheregis-trationofPicato®fortopicaltreatmentofactinickeratosiswasfiledwiththeFDA,whichapprovedthedruginJanuary2012.LEOPharmaalsofiledapplicationsforregistrationwiththeauthoritiesinBrazil,AustraliaandtheEUin2011.

InJanuary2012,LEOPharmain-licensedaprojectinpre-clinicaldevelopment(VBY-891)fortheoraltreatmentofmoderatetoseverepsoria-sisfromtheAmericancompanyVirobay,Inc.

soestablishajointapproachtobeingaleaderatLEOPharma.In addition to management development, theGrouphasfocusedonemployees’professionalandpersonaldevelopment.Atthebeginningof2011,LEOPharmaintroducedpeopledevelopmentses-sionsandimplementedthedialoguetoolPersonalDevelopmentDialogue(PDD).Thistoolgivestheemployeesanopportunitytoexpresstheircareerand development aspirations and, together withtheirlinemanagers,prepareawrittenagreementconcerningthefuturedirectionoftheirprofessionalandpersonaldevelopment.Infuture,PDDwillbeconductedeachyear.

ThrombosisAlthoughLEOPharma’soverallfocusisondermatology,theanti-coagulant(bloodthin-ner)innohep®forthetreatmentofthrombosisisalsopartoftheGroup’sstrategicproductportfolio.

Inordertoexpandtheindicationareaforthrombosis,LEOPharmahasmadeconsider-ableinvestmentsinaclinicalstudy(CATCH)toinvestigatetheeffectsoflong-termtreatmentwithinnohep®forcancerpatientswhohavesuf-feredvenousthrombosis.

Ownership structureLEOPharmaiswhollyownedbytheLEOFoundation,Industriparken55,2750Ballerup,Denmark.

Post-balance sheet eventsNopost-balancesheeteventshaveoccurredinfluencingeitherthefinancialpositionfor2011orexpectationsfor2012.

BASISOF EARNINGS

EARLY CLINICAL CANDIDATEPRE-CLINICAL I II III REGISTRATION LAUNCHEVALUATION

Daivobet® Gel Body psoriasis

LEO 90110Psoriasis

LEO 90100Body psoriasis

LP 0067Psoriasis

VBY-891 Psoriasis

LP 0058Inflammatory indications

LEO 29102Eczema

Picato® GelActinic keratosis

PEP00 5Non-melanoma skin cancer

LEO 27847Nephrology

20 LEOPharma

AnnualReport2011 21

Joint direction and understandingOureffortsasanenterprisearenotonlymeasuredbytheresultsweachieve;howweachievethemisalsoextremelyimportant.LEOPharma’svaluesaretheguidingprincipleswhichensurethatwealwaysdotherightthing.

Tohelpusputourvaluesintoaction,in2011wedevelopedourrulesofethics,theLEO Code of Con-duct,whichallLEOemployeesmustcomplywith.Based on local legislation and the core value ofintegrity,theLEOCodeofConductguidesthecon-ductofemployeesintheirdailyworkandsetsthetonefortheGrouppolicieswhichensurethatourbusinesspracticelivesuptothelegalrequirementsinforceatanytimeandcomplieswithourrulesofethics.Aspartoftheimplementationprocess,ourleadersandemployeesenter intodialogueacrosstheorganisationconcerningourethicalstandards,andemployeescompleteacompulsorye-learningcourseontheLEOCodeofConduct.

Professional management of corporate social responsibilityTheGroup’scorporatesocialresponsibilitybasicallyfocusesonensuringthatallleadersandemployeesliveuptotheLEOvalues.

AllLEOPharmaemployeesmustbeable tocom-municatevaluesandguidelinestocooperationpart-ners,patientorganisations,authorities,healthcarepersonnelandotherstakeholders.

GxPandnon-GxPGroupPoliciesandGuidelinesareunitedinajointqualityassurancesystem.GxPistheabbreviationforthespecificrulesregulatingthepharmaceuticalindustry,i.e.GoodLaboratoryPractice(GLP),GoodClinicalPractice(GCP),GoodManufacturingPractice(GMP)andGoodDistributionPractice(GDP).

Looking to the futureIn2012,LEOPharmaplanstolookintoestablishingawhistleblower function.Furthermore, theGroupintendstoimplementananti-corruptionpolicywhichsetsthetoneforfightingcorruptionasoutlinedintheLEOCodeofConduct.

ENVIRONMENT, HEALTH AND SAFETYItisLEOPharma’sambitiontoensureasafeandhealthyworkingenvironment,protecttheexternalenvironment, minimise energy consumption andpreventpollution.Therefore, it is important thatLEOemployeeshaveacommonunderstandingofwhatthisworkmeans.

Withthisinmind,LEOPharmapreparedanenvi-ronmentalandenergypolicyin2011,aswellasanoccupationalhealthandsafetypolicy.Thesepol-iciesapplytotheentireGroupandwerepublishedintheautumnof2011.Theactualimplementationattheproductionsiteswillbelaunchedinthefirsthalfof2012.

InLEOPharma’sopinion,themostmaterialenvi-ronmentalimpactandenvironmentalrisks,aswellasrisksinrespectofoccupationalhealthandsafe-ty,relatetoproduction.Therefore,theworkontheGroup’senvironmentalandenergypoliciesandoccu-pationalhealthandsafetypolicy,aswellasrelatedactivities and results, focuses on our productionsites.

Certification of our management systemsLEOPharmaisworkingactivelyandprofessionallyonimprovingtheenvironmentandtheworkingenviron-mentinaccordancewithinternationalstandards.Inordertomakesurethatallproductionsiteshaveauniformandstandardisedapproachtothemanage-mentofenvironmentalresponsibilityandresponsi-bilityrelatingtooccupationalhealthandsafety,LEOPharmahasdrawnupaplanforthecertificationofour environmental management system and ouroccupationalhealthandsafetymanagementsystem.ThemanagementsystemsarebasedontheGroup’senvironmentalandenergypoliciesandoccupationalhealthandsafetypolicy,andhelpmanageandcon-tinuouslydevelopourworkwithintheseareas.Oneaspectofthisplanisthatemployeeswhoworkonenvironmentalissuesandissuesrelatingtooccu-pationalhealthandsafetyattheproductionsitesshould, in future, share their experience inordertomakesurethatcertificationunderinternationalstandardsisobtained.

CORPORATE SOCIAL RESPONSIBILITY

Iberia5% LEO DE

4%

LEO US22%

LPI 20%

France-Magreb20%

North Atlantic17%

Nordic-Benelux12%

FORDELING AF TOTALT SALG

LEO CODE OF CONDUCT

GxP Non-GxP

Group PoliciesGroup Guidelines

SOPs

Analytical Methods Test Methods

Work Instructions

Strategiclevel

Operationallevel

8,000

6,000

4,000

2,000

0

7% compared to 2010

7%

NET SALES YEAR-TO-DATE AT ACTUAL RATES

20102011

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

DKK million

22 LEOPharma

Impact of our effortsLEO Pharma continued its comprehensive invest-ments inproperty,plantandequipment in2011,focusingparticularlyonproductionfacilities.Theseinvestmentsarecentraltoreducingtheenvironmen-talimpact,improvingtheworkingenvironmentandincreasingourproductioncapacity.

Inaddition to thepublicationof the LEOPharmaGroup’senvironmentalandenergypolicyandoccu-pationalhealthandsafetypolicy,managementofenvironmental responsibility has been strength-ened.InJuly,theproductionunitinFrancewasISO14001-certified,andinDecemberasuccessfulregis-trationauditwasperformedattheDublinproductionunit.Theregistrationauditors’recommendationinrespectofofficialcertificationofLEOPharma’senvi-ronmentalmanagementsystemisexpectedearlyin2012.

AkeyelementofLEOPharma’senvironmentalman-agementisregularimprovementmeasures,includ-ingmeasures relating toenergy-savingactivities.The Ballerup production unit made a significantcontributiontothisprocesssinceanumberofini-tiativesatthesiteresultedinatotalenergyreduc-tionof3,788MWh.Thiscorrespondsto4.5%ofLEOPharma’stotalenergyconsumptioninDenmarkin2010.Furthermore,thenewenergy-efficientfactoryinEsbjergwascommissionedin2011.In2011,theGroupimplementedthefirstphaseofanenergyprojecttoenabletheDublinproductionunittoproduceenergyitselfandrecoverandreusewasteheatfromtheproductionprocessforwatercooling.Whenthesecondphaseof theproject iscompletedin2012,annualreductionsof8,400MWhand3,600tonsCO

2areexpected.

Targets for the benefit of the environment and peopleAsignificantfocusareafor2012isto initiatetheimplementationofLEOPharma’sglobalpoliciesontheenvironment, energyandoccupational healthandsafety.

Asregardstheenvironmentandoccupationalhealthandsafety,LEOPharmawillconsequentlypursuethefollowingtargetsinordertoachievethedesiredlev-elsin2015:

TARGETS FOR 2015

Environment and energy:ISO14001certificationofallexistingproductionsites

Implementationofenergy-savingprojectsresultingina15%reductioninenergyconsumptioncomparedto2010

Occupational health and safety:OHSAS18001certificationofallexistingproductionsites

LTI(Lost-TimeInjury–i.e.thenumberofaccidentsresultinginmorethanoneday’sabsence)inlinewithbestpracticeinthepharmaceuticalindustrybytheendof2015

ETHICAL RESEARCH AND MANUFACTURING

Thepharmaceuticalindustryisstrictlyregulated,andalldrugsmustcomplywiththerulesofGoodLabor-atory Practice (GLP), Good Clinical Practice (GCP),GoodManufacturingPractice(GMP)andGoodDistri-butionPractice(GDP).

Inadditiontocomplyingwiththeseprinciples,LEOPharmahasananimalwelfarepolicywhichsetsoutguidelines for the animal trials performed by theGroup.Theanimalwelfarepolicydescribeshowtoper-formresearchworkinaccordancewiththeprincipleofthe3Rs,i.e.replace,reduceandrefine.LEOPharma’scooperationpartners,e.g.ContractResearchOrgan-isations(CROs)anduniversities,willalsobeobliged,infuture,toliveuptothemindsetandprinciplespre-scribedbyouranimalwelfarepolicy.

GxP rules show the wayThe quality assurance systems ensure that LEOPharmacomplieswithcurrentrulesandregulationsinconnectionwiththedevelopmentandmanufac-tureofdrugs.

AnimaltrialsareauditedbytheDanishauthorities


AllexistingproductionsiteswillbeOHSAS18001-andISO14001-certifiedin2015.Moreover,theproductionunitinDubliniscertifiedundertheenergystandardEN16001.TheproductionunitinCorkexpectstobecertifiedunderthesamestandardin2014.TheremainingproductionsitesintendtoincorporateenergymanagementintheISO14001standard.

PRODUCTION SITE OHSAS 18001(Occupational Health and Safety)

ISO 14001(Environment)

Ballerup and Esbjerg (DK) 2013

Cork (IE) End of 2012

Certified

Certified

2013

Dublin (IE) 2013 Beginning of 2012

Vernouillet (FR) Beginning of 2014

Southport (AU) End of 2014 End of 2014

AnnualReport2011 23

andbyLEOPharma’sinternalAnimalWelfareCoun-cil.TheCouncilhasaninternaladvisoryfunction,butalsodiscussesexternalmatters inrelationtoCROs.Infuture,theLEOPharmaveterinarianwithoverallresponsibilityforanimaltrialswillbeauthor-isedtointerveneinrelationtoCROs.

Inconnectionwithclinicaltrials,theManagementGroupforCROcooperationsupportsanumberofstudygroupsforthepurposeofensuringacommonunderstandingofhowbesttoarrangethecooper-ation.

Focus on cooperationLEOPharmaiscontinuallyworkingonimprovingitsqualityassurancesystems.In2011,LEOQual-ityTrackingwaslaunchedinordertostrengthenquality assurance processes across the Group.Moreover, approximately 1,300 employeesreceivedfurtherGMPtrainingatourproductionsitesin2011.

Inordertoimproveconditionsforbothemployeesandlaboratoryanimalsatmodernlaboratoryanimalfacilities,LEOPharmacontinuedtoplayanactivepartin2011ascooperationpartneroftheCenterforAppliedLaboratoryAnimalResearch(CALAR),whichworksonresearchinthisfieldatthehighestscientificlevel.

In 2011, the Group also focused on developingStandard Operating Procedures (SOPs) specifyingtheguidelinesforcooperationwithCROsinclinicalstudies.

Knowledge and insightThe Group intends to continue the GxP trainingofemployees in2012.Furthermore,LEOPharmaplanstoincreaseanimalwelfareawarenesswithintheorganisationbymakinginformationmoreeasilyaccessibletoallemployees.

AsLEOPharmaexpectsthat,infuture,moreclinicalstudieswilltakeplaceinCROsinChina,aClinicalTrialManagerwasemployed inChina in January2012.ThiswillensuretheimplementationofbestpracticeinthecooperationwithChineseCROsrightfromthestart.

ETHICALMARKETING

Oneof themostsignificantresultsofourethicalmarketingwork in2011wasthedevelopmentofnewguidelinesspecifyinghowLEOPharmamarketsitsdrugsandcommunicatesandcooperateswithhealthcarepersonnel,etc.

ThenewguidelinesformthebasisforensuringthatLEOemployeesarefamilliarwithbothinternalandexternalrulesandregulationsrelatingtothemarketingofdrugs.TogetherwithLEOPharma’sbusinessstrategyandtheLEOCodeofConduct,theguidelinesalsosetthetoneforourethicalmarketing.

Global direction with local controlEmployeesallovertheworldarerequiredtocom-plywiththeethicalmarketingguidelines.Inorderto ensure compliance, the Group’s country and/or region managers are responsible for ensuringthatemployeesaretrainedintheguidelines.Fur-thermore,thecountryand/orregionmanagersareresponsiblefortheimplementationofsystemsandprocedureswhichensurecompliancewithguidelinesandpolicies,aswellaslocalrulesandregulations.

Transparency in patient cooperationInthe2010AnnualReport,LEOPharmamentionedthedevelopmentofaGrouppolicyrelatingtoethicalmarketingasagoalfor2011.PreliminaryworkhasbeenperformedinconnectionwiththeLEOCodeofConduct,andthefinalGrouppolicyisexpectedtobereadyinthefirsthalfof2012.Furthermore,LEOPharmaplanstocontinuetodevelopspecificguidelines.

Throughourcooperationwithpatients’associations,LEOPharmaexchangessignificantknowledgeaboutpatients’ livesand thechallenges facingpatientsduetoillness.Suchknowledgeisdecisiveforthedevelopmentofdrugsandvarioussupport initia-tivesbasedonpatientneeds.LEOPharmawantstransparencyinthedialoguewithpatients’associa-tions.Consequently,asfromJanuary2012,wewillreportonsuchcooperationontheGroup’swebsiteonaregularbasis.


24 LEOPharma

AnnualReport2011 25

TheAnnualReportofLEOPharmaA/Sfor2011hasbeen prepared in accordancewith the provisionsoftheDanishFinancialStatementsActapplyingtolargeenterprisesofreportingclassC.

Theaccountingpoliciesappliedremainunchangedfromlastyear.

Recognition and measurementRevenuesarerecognisedintheincomestatementasearned.Furthermore,valueadjustmentsoffinancialassetsandliabilitiesmeasuredatfairvalueoramor-tised costare recognised.Moreover, all expensesarerecognisedintheincomestatement,includingdepreciation,amortisationandimpairmentlosses.

AssetsarerecognisedinthebalancesheetwhenitisprobablethatfutureeconomicbenefitsattributabletotheassetwillflowtotheCompany,andthevalueoftheassetcanbemeasuredreliably.

LiabilitiesarerecognisedinthebalancesheetwhenitisprobablethatfutureeconomicbenefitswillflowoutoftheCompany,andthevalueoftheliabilitycanbemeasuredreliably.

Assetsandliabilitiesareinitiallymeasuredatcost.Subsequently,assetsandliabilitiesaremeasuredasdescribedforeachitembelow.

Certainfinancialassetsandliabilitiesaremeasuredatamortisedcost,whichinvolvestherecognitionofaconstanteffectiveinterestrateoverthematurityperiod.Amortisedcostiscalculatedasoriginalcostless any repayments andwith addition/deductionof the cumulative amortisation of any differencebetweencostandthenominalamount.

Recognition and measurement take into accountpredictable losses and risks occurring before thepresentationoftheAnnualReportwhichconfirmorrefutecircumstancesexistingatthebalancesheetdate.

Danishkronerisusedasthemeasurementcurrency.Allothercurrenciesareregardedasforeigncurrencies.

Consolidated Financial StatementsTheConsolidatedFinancialStatementscomprisetheParentCompanyLEOPharmaA/SandaffiliatesinwhichLEOPharmaA/Sdirectlyorindirectlyholdsmorethan50%ofthevotesorotherwiseexercisescontrol.TheConsolidatedFinancialStatementsarepreparedbycombiningtheFinancialStatementsofthePar-

entCompanyandallaffiliateswithsubsequentelim-inationofintercompanytransactions,intercompanyshareholdingsandbalancesaswell asunrealisedprofitsfromintercompanytransactions.TheFinan-cialStatementsofallcompanieshavebeenpreparedaccordingtothesameaccountingpolicies.

Enterprises acquired during the year and newlyformedenterprisesareincludedintheconsolidationasfromthedateofacquisitionorformation.Enterprisesthataresoldorwoundupduringtheyearareincludedintheconsolidatedincomestatementupuntilthedateofdisposaloruntil thebusinesswaswoundup.Comparativefiguresarenotrestatedfornewlyacquired,soldorwound-upenterprises.

Foreign currency translation Onrecognition,transactionsinforeigncurrenciesaretranslatedattheexchangeratesatthetransactiondates. Exchange differences arising between thetransactiondateratesandtheratesatthepaymentdatesarerecognisedinfinancialincomeandexpens-esintheincomestatement.

Receivables,payablesandothermonetaryitemsinforeigncurrenciesare translatedat theexchangerates at the balance sheet date. Any differencesbetweentheexchangeratesatthebalancesheetdateandtherateatthetimewhenthereceivableorthepayablearises,oratrecognitioninthemostrecentFinancialStatements,arerecognisedinfinan-cialincomeandexpensesintheincomestatement.

On recognitionof foreignaffiliates, incomestate-mentsaretranslatedattheaverageexchangeratesoftheperiod,andbalancesheetitemsaretranslatedattheexchangeratesatthebalancesheetdate.

Exchange adjustments arising on the translationof the opening equity of foreign affiliates at theexchangeratesatthebalancesheetdateandonthetranslationoftheincomestatementfromaverageexchangeratestotheexchangeratesatthebalancesheetdatearerecogniseddirectlyinequity.

Derivative financial instrumentsDerivative financial instruments are recognisedinthebalancesheetatcostandaresubsequentlymeasuredat their fair values.Positiveandnega-tive fairvaluesofderivativefinancial instrumentsarerecognisedinprepaymentsanddeferredincomerespectively.Changes in the fair values of derivative financialinstrumentsthataredesignatedandqualifyasfairvaluehedgesofarecognisedassetorarecognised

ACCOUNTING POLICIES

26 LEOPharma

liabilityarerecognisedintheincomestatementasareanychangesinthefairvalueofthehedgedassetorthehedgedliability.

Changesinthefairvalueoffinancialandderivativefinancialinstrumentsthataredesignatedandqualifyashedgesoffutureassetsorliabilitiesarerecognisedasprepayments/deferred incomeandasfinancialhedgesinequity.Incomeandexpensesrelatingtosuchhedgingtransactionsaretransferredfromequityonrealisationofthehedgeditemandrecognisedasfinancialincomeandexpenses.

RevenueRevenuefromthesaleofgoodsforresaleandfin-ishedgoodsisrecognisedintheincomestatementwhenthesaleisconsideredeffectedbasedonthefollowingcriteria:

•Deliveryhasbeenmadebeforeyear-end

•Thereisabindingsalesagreement

•Thesalespricehasbeendetermined andpaymenthasbeenreceivedormay withreasonablecertaintybeexpected tobereceived

RevenueisrecognisedexclusiveofVATandnetofdiscountsrelatingtosales.

Consumption of raw materials, consumables and goods for resaleExpensesforrawmaterials,consumablesandgoodsforresalecomprisetherawmaterials,consumablesandgoodsforresaleusedtoachievetherevenuefortheyear.

Other external expensesOtherexternalexpensescompriseindirectproduc-tioncostsandexpensesforpremises,salesanddis-tributionaswellasofficeexpenses,etc.

Other external expenses also include research anddevelopmentcoststhatdonotqualifyforcapitalisation.

Staff expensesStaffexpensescomprisewagesandsalariesaswellaspayrollexpensesotherthanproductionwages.

Amortisation, depreciation and impairment lossesAmortisation,depreciationandimpairmentlossescom-

prise amortisation, depreciation and impairment ofintangibleassetsandproperty,plantandequipment.

Other operating incomeLEOPharma’slicenceincomeisrecognisedonthebasisoflicenceholders’salesforthefinancialyearandisstatedasotheroperatingincome.

Otheroperatingincomeincludesnon-recurringincomefromthesaleofrightsandgainsonthesaleoffixedassets,etc.aswellasotheroperating incomeofasecondarynaturetothecoreactivitiesoftheGroup.

Asamainrule,thesaleofrights,etc.isrecognisedasincomeatthetimeofsale.IfthesaleresultsinanobligationfortheLEOGroup,theincomeisaccruedoverthedurationoftheobligation,andinthecaseofsaleswheretheincomeisdependentonfutureevents,theamountisrecognisedasincomewhentheeventoccurs.

Financial income and expensesFinancial incomeandexpensescomprise interest,realised and unrealised exchange adjustments,priceadjustmentofsecuritiesaswellasextrapay-mentsandrepaymentundertheon-accounttaxationscheme.

Tax on profit/loss for the yearTaxfortheyearconsistsofcurrenttaxfortheyearanddeferredtaxfortheyear.Thetaxattributabletotheprofitfortheyearisrecognisedintheincomestatement,whereasthetaxattributabletoequitytransactionsisrecogniseddirectlyinequity.

Anychangesindeferredtaxduetochangestotaxratesarerecognisedintheincomestatement.

Intangible assetsIntangibleassets,includingdevelopmentprojects,aremeasuredatcost.

Costs of development projects comprise salaries,amortisationandotherexpensesdirectlyorindirectlyattributabletotheCompany’sdevelopmentactivities.

Developmentprojectsthatareclearlydefinedandidentifiableand in respectofwhich technical fea-sibility,sufficientresourcesandapotential futuremarket or development opportunity in the enter-prise can be demonstrated, and where it is theintentiontomanufacture,marketorusetheproject,are recognised as intangible assets. This appliesif sufficient certainty exists that the value in useof future earnings can cover cost of production,

ACCOUNTING POLICIES

AnnualReport2011 27

sales, distribution and administrative expensesinvolvedaswellasthedevelopmentcosts.

Developmentprojectsthatdonotmeetthecriteriaforrecognitioninthebalancesheetarerecognisedasexpensesintheincomestatementasincurred.Development projects, patents, trademarks andrights are measured at cost less accumulatedimpairmentlossesandamortisation.Amortisationisprovidedsystematicallyovertheexpectedusefullife,between3and20years.Theamortisationprofileisonastraight-linebasisadjustedfortheriskrelatingtotheunderlyingasset,sothatupto33%oftheamortisationisbroughtforwardfromthesecondhalfoftheexpectedusefullifetothefirsthalf.

Othercostsrelatingtothemaintenanceofpatents,etc.areexpensed.

Projectsareassessedonanongoingbasisconsider-ingdevelopmentprogress,expectedapprovalsandcommercialutilisation.

Property, plant and equipmentProperty,plantandequipmentaremeasuredatcostlessaccumulateddepreciationandlessanyaccumu-latedimpairmentlosses.Costcomprisesexpensesfor materials, sub-suppliers and labour for fixedassetsproduced.Thetotalcostofanassetisbro-kendownintocomponentswhicharedepreciatedseparatelyiftheexpectedusefullivesoftheindivid-ualcomponentsarenotthesame.Anyinterestandotherborrowingexpensesarenotincludedincost.

Depreciation is calculatedona straight-linebasisovertheexpectedusefullives:

Buildings 10-25years

Plantandmachinery 5-10years

Otherfixturesandfittings,toolsandequipment 3-10years

Leaseholdimprovements 0-10years

Profitsandlossesonthesaleofproperty,plantandequipmentarecalculatedasthedifferencebetweenthesalesprice lesssellingexpensesandthecar-ryingamountatthetimeofsale.Profitsorlossesarerecognisedintheincomestatementunderotheroperatingincomeorotheroperatingexpenses.

Thecarryingamountsofintangibleassetsandprop-erty,plantandequipmentarereviewedonanannualbasistodeterminewhetherthereisanyindicationofdecreaseinvalueotherthanthatexpressedbyamortisationanddepreciation.Ifso,animpairment

testiscarriedouttodeterminewhethertherecov-erableamountislowerthanthecarryingamount,and theasset iswrittendown to its lower recov-erableamount.Thisimpairmenttestiscarriedouton an annual basis for development projects inprogress,irrespectiveoftherebeinganyindicationsofdecreaseinvalue.

Therecoverableamountoftheassetiscalculatedasthehigherofnetsellingpriceandvalueinuse.Wherearecoverableamountcannotbedeterminedfortheindividualasset,theassetsareassessedinthe smallest group of assets forwhich a reliablerecoverableamountcanbedeterminedbasedonatotalassessment.

LeasesLeasesunderwhichtheGroupassumessubstan-tiallyalltherisksandrewardsofownership(financeleases)arerecognisedinthebalancesheetatthelowerofthefairvalueoftheleasedassetandthenetpresentvalueoftheleasepaymentscomputedbyapplyingtheinterestrateimplicitintheleaseoranapproximatedvalueasthediscountrate.Assetsacquiredunderfinanceleasesaredepreciatedandwrittendownforimpairmentunderthesamepol-icyasdeterminedfortheotherfixedassetsoftheGroup.

Theremaining leaseobligation iscapitalisedandrecognisedinthebalancesheetunderdebt,andtheinterestelementontheleasepaymentsischargedovertheleasetermtotheincomestatement.

Allother leasesareconsideredoperating leases.Paymentsmadeunderoperatingleasesarerecog-nised in the incomestatementonastraight-linebasisovertheleaseterm.

FIXED ASSET INVESTMENTS

Parent Company’s investments in affiliates IntheAnnualReportoftheParentCompany,invest-mentsinaffiliatesaremeasuredundertheequitymethod.Thismeansthattheaffiliatesaremeasuredinthebalancesheetattheproportionateshareoftheirnetassetvalue,andthattheParentCompany’sshareof theprofit for theyearof theaffiliates isrecognisedintheincomestatementlessunrealisedintercompanyprofits.

SecuritiesTheholdingofbondsthatareheldtomaturityisclassified as fixed asset investments. The bondsareinitiallyrecognisedinthebalancesheetatcost.

ACCOUNTING POLICIES

28 LEOPharma

AnnualReport2011 29

Subsequently,theholdingismeasuredatamortisedcost,whichincludesrevaluation/write-downoftheholdingofbondsatparoverthetermoftheindi-vidualseriesofbonds.

InventoriesRawmaterialsandpackingmaterialsaremeasuredatthelowerofcostundertheFIFOmethodandnetrealisablevalue.

Workinprogressandfinishedgoodsaremeasuredatcost.Thecostoffinishedgoodsandworkinprogresscomprisesthecostofrawmaterials,consumables,directlabourandindirectproductioncosts.Indirectproduction costs comprise indirect materials andlabouraswellasmaintenanceanddepreciationofthemachinery,factorybuildingsandequipmentusedinthemanufacturingprocessandcostsoffactoryadministrationandmanagement.

Thenetrealisablevalueofinventoriesiscalculatedas salespricewithdeductionof costsof comple-tionandexpensesincurredtoeffectthesaleandisdeterminedallowingformarketability,obsolescenceanddevelopmentinexpectedsalesprice.

Obsoletegoods,includingslow-movinggoods,areexpensed.

ReceivablesReceivablesaremeasuredatamortisedcost,whichusuallycorrespondstonominalvaluelesspotentialbaddebts.Basedonan individual assessmentofeachtradereceivable,provisionsforbaddebtshavebeenmadewherethisisconsiderednecessary.

Exchange adjustments of intercompany balanceswithaffiliateswhichareconsideredpartofthetotalnetinvestmentintheaffiliatearerecogniseddirectlyinequity.

Prepayments and deferred income Prepaymentsincludeprepaidexpensesincurredrelatingtorent,insurancepremiums,subscriptionsandinterest.

Deferred income includes payments received inrespectofincomeinsubsequentfinancialyears.

ProvisionsProvisionsarerecognisedwhen– inconsequenceofaneventthatoccurredbeforeoronthebalancesheetdate–theGrouphasalegalorconstructiveobligation,anditisprobablethateconomicbenefitsmustbegivenuptosettletheobligation.Provisionsarenotdiscounted.

PensionsPaymentsintodefinedcontributionplansarerecog-nisedintheincomestatementintheperiodtowhichtheyrelate,andanyamountspayablearerecognisedinotherpayablesinthebalancesheet.

Inrespectofdefinedbenefitplansanannualactu-arialcalculationismadeofthevalueinuseoffuturepaymentsunder thescheme.Thevalue inuse iscalculatedonthebasisofassumptionsrelatingtofuturedevelopments inpay levels, interest rates,inflationandmortality.ThevalueinuseiscalculatedonlyforthebenefitstowhichtheemployeeshaveearnedarightthroughtheiremploymentwiththeGroup.Theactuariallydeterminedvalueinuselessthemarketvalueofanyplanassetsisrecognisedinpensionobligationsinthebalancesheet.PlanassetsarerecognisedtotheextenttheGroupisabletoobtainfutureeconomicbenefitsintheformofreim-bursementfromthepensionschemeorreductionoffuturepayments.

Pensioncostsfortheyeararerecognisedintheincome statement based on actuarial estimatesandfinancialexpectationsatthebeginningoftheyear.

Anydifferencesbetweenexpecteddevelopmentsinplanassetsandpensionobligationsandreal-isedvaluescalculatedatthebeginningoftheyearareconsideredactuarialgainsorlosses.Actuar-ialgainsandlossesarerecognisedinincomeorexpensesbasedonacorridorof0%.Calculatedgainsandlossesarerecognisedovertheexpect-edaverageremainingemploymentperiodoftheemployees comprised by the pension scheme.Pensioncostsrelatingtopreviousyearsaredis-tributedovertheaverageperioduntilthebenefitshavevested.

TaxThecorporationtaxrecognisedintheincomestate-mentconsistsofcurrenttaxfortheyear,changesinprovisionfordeferredtaxandadjustmentstoprevi-ousyears.Taxattributabletoequitytransactionsisrecogniseddirectlyinequity.

Deferredtaxisprovidedundertheliabilitymethodandcomprisesalltemporarydifferencesbetweenthecarryingamountandtaxbaseofassetsandliabili-ties.Deferredtaxisalsoincludedtocoverrecaptureoftax-deductiblelossesinforeignaffiliateswhichareexpectedtobecomerelevantasaconsequenceoffutureearningsofpreviouslyjointlytaxedforeignaffiliates.

The tax bases of tax losses carried forward andtax incentivescarried forwardare included in the

ACCOUNTING POLICIES

30 LEOPharma

AnnualReport2011 31

statementofdeferredtaxtotheextentthesevaluesarelikelytobeutilisedinfuturetaxableincome.

Deferredtaxrelatingtopotentialgainsandlosseson investments inaffiliates isnot includedunlessthesharesareexpectedtobesoldwithinashortperiodoftime,inwhichcasetheshareholdingsaretransferredtocurrentassets.

Deferredtaxiscalculatedattheexpectedtaxratefortheenterpriseconcerned.Taxpayableincludescurrenttaxcalculatedonthebasisoftheexpectedtaxableincomefortheyearaswellasanyadjust-mentfortaxespayableforpreviousyears.

TheParentCompanyisjointlytaxedwithitsDanishafiliates.ThejointlytaxedDanishenterpriseshaveadoptedtheon-accounttaxationscheme.CurrenttaxfortheyearofthejointlytaxedDanishenterprisesandtaxonrecapturedincomeareincludedinthePar-entCompany’staxcharge.ThejointlytaxedDanishenterprisessettlethetaxwiththeParentCompany.

Extrapaymentsandrepaymentsrelatingtothepay-mentofcorporationtaxareclassifiedasfinancialincomeandexpensesandarenot includedintaxprovisionsorintheadjustedincometax.

Segment reportingRevenueisbrokendowngeographically.

Definition of ratios

Averagenumberofemployees

Profitmargin

Returnonassets

Returnonequity

Solvencyratio

Cash flow statementThecashflowstatementispreparedaccordingtotheindirectmethodbasedonprofitbeforetax.Thestatementshowscashflowsfromoperating,invest-ingandfinancingactivitiesaswellascashandcashequivalentsattheendoftheyear.

CashflowsfromoperatingactivitiesarecalculatedastheGroup’sprofit/lossfortheyearbeforeextraordi-naryitemsandtaxadjustedfornon-cashoperatingitemssuchasdepreciation,amortisationandimpair-mentlossesaswellaschangesinworkingcapital.Workingcapitalcomprisesinventories,tradereceiv-ablesandtradepayables,etc.

Cashflowsfrominvestingactivitiescomprisepay-mentsfromacquisitionsanddisposalsofintangibleassets, property, plant and equipment aswell asfixedassetinvestments.

Cashflowsfromfinancingactivitiescomprisepay-mentsfromtheraisingandrepaymentofshort-termandlong-termdebt.

Cashandcashequivalentsonlycomprisecashatbankandinhand.

ACCOUNTING POLICIES

Averagenumberoffull-timeequivalentemployees

Operatingprofit

Revenue

Operatingprofit

Averageassets

Profitbeforetax

Averageequity

Equity

Assets

x100

x100

x100

x100

32 LEOPharma

LEO PHARMA | FINANCIAL STATEMENTS

AnnualReport2011 35

INCOME STATEMENT

GROUP PARENT COMPANY

2011 2010 2011 2010 Note DKKmillion DKKmillion DKKmillion DKKmillion

Revenue (1) 7,741 7,245 5,681 5,579Changeininventoriesoffinished goodsproducedandworkinprogress 412 95 106 20

8,153 7,340 5,787 5,599 Other operating income 97 59 441 486

8,250 7,399 6,228 6,085 Consumptionofrawmaterials,consumablesandgoodsforresale 862 408 2,805 2,425Otherexternalexpenses (2) 3,595 3,314 2,063 1,869Staffexpenses (3) 2,670 2,091 1,027 818Depreciation,amortisationandimpairmentlosses (4) 955 1,380 749 928Otheroperatingexpenses 10 29 0 25 OPERATING PROFIT/LOSS 158 177 -416 20 Incomefrominvestmentsinaffiliatesaftertax (10) 0 0 366 42Financialincome (5) 917 1,055 856 1,045Financialexpenses (6) 79 168 106 181 PROFIT/LOSS BEFORE TAX 996 1,064 700 926 Taxonprofit/lossfortheyear (7) 372 364 76 226 NET PROFIT/LOSS FOR THE YEAR 624 700 624 700 proposedtobedistributedasfollows: Proposeddividendfortheyear 130 0Retainedearnings 494 700 624 700

36 LEOPharma

BALANCE SHEET AT 31 DECEMBER GROUP PARENT COMPANY

Assets 2011 2010 2011 2010 Note DKKmillion DKKmillion DKKmillion DKKmillion

FIXED ASSETS Intangible assets Industrialpropertyrights 1,816 2,442 1,816 2,442Trademarks 0 0 0 0Developmentprojects 426 527 0 0Total (8) 2,242 2,969 1,816 2,442 Property, plant and equipment Landandbuildings 1,006 764 532 419Leaseholdimprovements 43 19 0 0Plantandmachinery 638 512 307 254Otherfixturesandfittings,toolsandequipment 97 107 78 94Fixedassetsunderconstruction 274 479 170 276Total (9) 2,058 1,881 1,087 1,043 Fixed asset investments Investmentsinaffiliates (10) 0 0 2,119 2,029Othersecurities (11) 19,728 18,361 19,728 18,361Deferredtaxassets (14) 572 275 0 0Total 20,300 18,636 21,847 20,390 TOTAL FIXED ASSETS 24,600 23,486 24,750 23,875 CURRENT ASSETS Inventories Rawmaterialsandconsumables 221 297 111 108Workinprogress 679 377 326 233Finishedgoodsandgoodsforresale 353 243 177 164Total 1,253 917 614 505 Receivables Tradereceivables 1,803 1,753 608 513Receivablesfromaffiliates 0 0 2,393 1,815Otherreceivables 871 805 754 742Prepayments 83 113 14 30Total 2,757 2,671 3,769 3,100 Cash at bank and in hand 354 217 8 0 TOTAL CURRENT ASSETS 4,364 3,805 4,391 3,605 TOTAL ASSETS 28,964 27,291 29,141 27,480

AnnualReport2011 37

BALANCE SHEET AT 31 DECEMBER GROUP PARENT COMPANY

Equity and liabilities 2011 2010 2011 2010 Note DKKmillion DKKmillion DKKmillion DKKmillion

EQUITY Sharecapital (12) 250 250 250 250Retainedearnings 21,046 20,583 21,046 20,583Proposeddividend 130 0 130 0 TOTAL EQUITY (13) 21,426 20,833 21,426 20,833 PROVISIONS Deferredtax (14) 506 407 502 427Pensionobligations (15) 31 68 0 0Otherprovisions (15) 449 293 50 66 TOTAL PROVISIONS 986 768 552 493 LIABILITIES Long-term liabilities Creditinstitutions 0 57 0 57Total 0 57 0 57 Short-term liabilities Creditinstitutions 4,658 4,486 4,612 4,472Tradepayables 384 376 215 209Payablestoaffiliates 2 6 1,769 1,148Corporationtax 440 21 30 0Deferredincome 50 50 50 50Otherpayables 1,018 694 487 218Total 6,552 5,633 7,163 6,097 TOTAL LIABILITIES 6,552 5,690 7,163 6,154 TOTAL EQUITY AND LIABILITIES 28,964 27,291 29,141 27,480 Contingencies (16) Financialinstruments (17) Relatedparties (18)

38 LEOPharma

AnnualReport2011 39

CASH FLOW STATEMENT FOR THE LEO GROUP

GROUP

2011 2010 DKKmillion DKKmillion

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax 996 1,064

Adjustments: Depreciation,amortisationandimpairmentlosses 955 1,380Unrealisedexchangeadjustments -9 16Exchangeadjustment,securities -13 -78Corporationtaxpaid -173 -602Pensionobligations -39 11Otherprovisions 204 41Otheradjustments -20 26 Changeinworkingcapital: Changeininventoriesandreceivables -326 -345Changeintradepayablesandotherpayables 215 414

1,790 1,927 CASH FLOWS FROM INVESTING ACTIVITIES Investmentsinproperty,plantandequipment,net -410 -541Fixedassetinvestments,net -1,355 2,229

-1,765 1,688 CASH FLOWS FROM FINANCING ACTIVITIES Netproceeds,long-termdebt 0 -643Changeinbankdebt 112 -7,906

112 -8,549 TOTAL CHANGE IN CASH AND CASH EQUIVALENTS 137 -4,934 Cash and cash equivalents at 1 January 217 5,151 Cash and cash equivalents at 31 December 354 217

ThefiguresinthecashflowstatementcannotbedirectlyderivedfromthefiguresintheConsolidatedFinancialStatements.

40 LEOPharma

AnnualReport2011 41

LEO PHARMA | NOTES

42 LEOPharma

NOTES TO THE FINANCIAL STATEMENTS


2011 2010 2011 2010 DKKmillion DKKmillion DKKmillion DKKmillion

Note 1 – Revenue

Segmentation – geographical

SalesinDenmark 249 212 249 212

SalesoutsideDenmark 7,492 7,033 5,432 5,367

Total net sales 7,741 7,245 5,681 5,579

Note 2 – Other external expenses

Fee to auditors appointed at the general meeting:

StatutoryauditoftheFinancialStatements 6 5 2 2

Otherassuranceengagements 1 0 0 0

Taxassistance 7 3 3 1

Otherservices 3 6 2 3

17 14 7 6

Note 3 – Staff expenses

Wages,salariesandremuneration 2,287 1,745 956 754

Pensions 205 195 85 75

Othersocialsecurityexpenses 198 170 6 8

Ofwhichcapitalised -20 -19 -20 -19

2,670 2,091 1,027 818

Average number of employees for the year 4,391 3,796 1,533 1,418

RemunerationtotheBoardofDirectorsamountsto

DKK4million(2010:DKK1million).

RemunerationtotheBoardofExecutivesamountsto

DKK20million(2010:DKK20million).

Note 4 – Depreciation, amortisation and

impairment losses

Industrialpropertyrights 626 807 626 807

Developmentprojects 99 361 0 0

Landandbuildings 87 80 45 41

Leaseholdimprovements 8 3 0 0

Plantandmachinery 103 97 51 53

Otherfixturesandfittings,toolsandequipment 32 32 27 27

955 1,380 749 928

AnnualReport2011 43




Note 5 – Financial income

Interestincomeonbonds 818 899 818 899

Interestincomefromaffiliates 0 0 8 5

Exchangegains 68 64 0 50

Otherfinancialincome 31 92 30 91

917 1,055 856 1,045

Note 6 – Financial expenses

Interestexpensestoaffiliates 0 0 19 18

Exchangelosses 0 0 13 0

Otherfinancialexpenses 79 168 74 163

79 168 106 181

Note 7 – Tax on profit/loss for the year

Currenttaxfortheyear 566 200 -2 -4

Changeindeferredtax -194 164 82 230

Adjustmentrelatingtopreviousyears 0 0 -4 0

372 364 76 226

Tax on changes in equity 4 -24 4 -24

TaxinaffiliatestotalsDKK296million

(2010:DKK138million).

44 LEOPharma

NOTES TO THE FINANCIAL STATEMENTSGroup

Total

Industrial Development intangible

DKKmillion propertyrights Trademarks projects assets

Note 8 – Intangible assets

Costat1January2011 4,884 9 1,678 6,571

Exchangeadjustment 0 0 39 39

Total cost at 31 December 2011 4,884 9 1,717 6,610

Amortisationat1January2011 2,442 9 1,151 3,602


Amortisationfortheyear 626 0 99 725

Total amortisation at 31 December 2011 3,068 9 1,291 4,368

CARRYING AMOUNT AT 31 DECEMBER 2011 1,816 0 426 2,242

Costat1January2010 4,884 9 1,551 6,444


Total cost at 31 December 2010 4,884 9 1,678 6,571

Amortisationat1January2010 1,635 9 727 2,371


Amortisationfortheyear 807 0 0 807

Impairmentlossesfortheyear 0 0 361 361

Total amortisation at 31 December 2010 2,442 9 1,151 3,602

CARRYING AMOUNT AT 31 DECEMBER 2010 2,442 0 527 2,969

AnnualReport2011 45

NOTES TO THE FINANCIAL STATEMENTSParent Company

Total

Industrial intangible

DKKmillion propertyrights Trademarks assets

Note 8 – Intangible assets

Costat1January2011 4,884 6 4,890

Total cost at 31 December 2011 4,884 6 4,890

Amortisationat1January2011 2,442 6 2,448

Amortisationfortheyear 626 0 626

Total amortisation at 31 December 2011 3,068 6 3,074

CARRYING AMOUNT AT 31 DECEMBER 2011 1,816 0 1,816

Costat1January2010 4,884 6 4,890

Total cost at 31 December 2010 4,884 6 4,890

Amortisationat1January2010 1,635 6 1,641

Amortisationfortheyear 807 0 807

Total amortisation at 31 December 2010 2,442 6 2,448

CARRYING AMOUNT AT 31 DECEMBER 2010 2,442 0 2,442

46 LEOPharma

NOTES TO THE FINANCIAL STATEMENTSGroup

Otherfixtures Total Leasehold andfittings, Fixedassets property,

Landand improve- Plantand toolsand under plant and

DKKmillion buildings ments machinery equipment construction equipment

Note 9 – Property, plant and equipment

Costat1January2011 1,853 26 1,829 612 479 4,799

Exchangeadjustment 0 0 -2 0 0 -2

Additionsfortheyear 332 36 229 22 247 866

Disposalsfortheyear -8 -6 0 -13 -452 -479

Total cost at 31 December 2011 2,177 56 2,056 621 274 5,184

Depreciationandimpairmentlossesat

1January2011 1,089 7 1,317 505 2,918

Exchangeadjustment 2 1 -2 0 1

Depreciationandimpairmentlosses,disposals

fortheyear -7 -3 0 -13 -23

Depreciationfortheyear 87 8 103 32 230

Total depreciation and impairment

losses at 31 December 2011 1,171 13 1,418 524 3,126

CARRYING AMOUNT AT 31 DECEMBER 2011 1,006 43 638 97 274 2,058

Costat1January2010 1,731 12 1,728 603 214 4,288

Exchangeadjustment 7 2 3 3 0 15

Adjustment,beginningofyear 0 0 0 0 1 1

Additionsfortheyear 125 14 121 18 490 768

Disposalsfortheyear -10 -2 -23 -12 -226 -273

Total cost at 31 December 2010 1,853 26 1,829 612 479 4,799

Depreciationandimpairmentlossesat

1January2010 1,016 5 1,240 480 2,741

Exchangeadjustment 3 1 2 2 8

Depreciationandimpairmentlosses,

disposalsfortheyear -10 -2 -22 -9 -43

Depreciationfortheyear 79 3 83 32 197

Impairmentlossesfortheyear 1 0 14 0 15


losses at 31 December 2010 1,089 7 1,317 505 2,918

CARRYING AMOUNT AT 31 DECEMBER 2010 764 19 512 107 479 1,881

AnnualReport2011 47

NOTES TO THE FINANCIAL STATEMENTSParent company

Otherfixtures Total andfittings, Fixedassets property,

Landand Plantand toolsand under plant and

DKKmillion buildings machinery equipment construction equipment

Note 9 – Property, plant and equipment

Costat1January2011 937 965 488 276 2,666

Additionsfortheyear 158 104 11 151 424

Disposalsfortheyear -1 0 0 -257 -258

Total cost at 31 December 2011 1,094 1,069 499 170 2,832

Depreciationandimpairmentlosses

at1January2011 518 711 394 1,623


disposalsfortheyear -1 0 0 -1

Depreciationfortheyear 45 51 27 123


losses at 31 December 2011 562 762 421 1,745

CARRYING AMOUNT AT 31 DECEMBER 2011 532 307 78 170 1,087

Costat1January2010 865 917 482 122 2,386

Additionsfortheyear 73 67 10 293 443

Disposalsfortheyear -1 -19 -4 -139 -163

Total cost at 31 December 2010 937 965 488 276 2,666

Depreciationandimpairmentlosses

at1January2010 478 677 370 1,525


disposalsfortheyear -1 -19 -3 -23

Depreciationfortheyear 40 39 27 106

Impairmentlossesfortheyear 1 14 0 15


losses at 31 December 2010 518 711 394 1,623

CARRYING AMOUNT AT 31 DECEMBER 2010 419 254 94 276 1,043

48 LEOPharma




Note 10 – Investments in affiliates

Costat1January 2,035 2,005

Additionsfortheyear 213 30

Total cost at 31 December 2,248 2,035

Valueadjustmentat1January -6 765

Shareofprofit/lossfortheyear 366 42

Dividends -448 -920

Exchangeadjustments 166 111

Exchangeadjustmentofequity-equivalentloans -207 0

Adjustments,beginningofyear 0 -4

Total value adjustment at 31 December -129 -6

CARRYING AMOUNT AT 31 DECEMBER 2,119 2,029

Note 11 – Other securities

Costat1January 18,321 20,596 18,321 20,596

Additionsfortheyear 3,346 2,249 3,346 2,249

Disposalsfortheyear -1,981 -4,524 -1,981 -4,524

Total cost at 31 December 19,686 18,321 19,686 18,321

Valueadjustmentat1January 40 44 40 44

Valueadjustmentfortheyear 6 6 6 6

Valueadjustmentondisposalsfortheyear -4 -10 -4 -10

Total value adjustment at 31 December 42 40 42 40

Carrying amount at 31 December 19,728 18,361 19,728 18,361

Market value on the balance sheet date 20,421 18,304 20,421 18,304

AnnualReport2011 49


Note 12 – Share capital

Thesharecapital,whichis100%ownedbytheLEO

Foundation,Ballerup,Denmark,isdistributedasfollows:

Preference shares:

640sharesofDKK100k 64,000


34sharesofDKK10k 340

210sharesofDKK1k 210

Total preference shares 80,000

Ordinaryshares



7sharesofDKK10k 70

30sharesofDKK1k 30

100sharesofDKK1,000k 100,000

Total ordinary shares 170,000

Total share capital (DKK thousand) 250,000

In2009,therewasashareincreaseof100sharesofanominalamountofDKK1millionpershare.

TheConsolidatedFinancialStatementsoftheLEOFoundationmaybeobtainedatthefollowingaddress:

Industriparken55,2750Ballerup,Denmark.

50 LEOPharma


Note 13 – Consolidated equity 2011

Retained Proposed DKKmillion Sharecapital earnings dividend Total

Equityat1January 250 20,583 0 20,833

Exchangeadjustments 0 166 0 166

Taxonchangesinequity 0 -4 0 -4

Exchangeadj.ofequity-equivalentloans 0 -165 0 -165

Adjustmentoffinancialinstruments 0 -28 0 -28

Proposeddividendforthefinancialyear 0 -130 130 0

Netprofit/lossfortheyear 0 624 0 624

Equity at 31 December 250 21,046 130 21,426

Note 13 – Parent Company equity 2011

Equityat1January 250 20,583 0 20,833


Taxonchangesinequity 0 -4 0 -4

Exchangeadj.ofequity-equivalentloans 0 -165 0 -165

Profit/lossfromaffiliateaftertax 0 366 0 366

Profit/lossinParentCompany 0 258 0 258

Adjustmentoffinancialinstruments 0 -28 0 -28

Proposeddividendforthefinancialyear 0 -130 130 0

Equity at 31 December 250 21,046 130 21,426

Note 13 – Consolidated equity 2010

Retained Sharecapital earnings Total

Equityat1January 250 19,847 20,097

Exchangeadjustments 0 111 111

Changesrelatingtoaffiliates 0 -4 -4

Adjustmentoffinancialinstruments 0 -71 -71

Netprofit/lossfortheyear 0 700 700

Equity at 31 December 250 20,583 20,833

Note 13 – Parent Company equity 2010

Net Retained Sharecapital revaluations earnings Total

Equityat1January 250 765 19,082 20,097


Changesrelatingtoaffiliates 0 -4 0 -4

Profit/lossfromaffiliatesaftertax 0 42 0 42

Dividendreceived 0 -920 920 0

Profit/lossinParentCompany 0 0 658 658

Adjustmentoffinancialinstruments 0 0 -71 -71

Transfer 0 6 -6 0

Equity at 31 December 250 0 20,583 20,833

AnnualReport2011 51




Note 14 – Deferred tax (net)

Deferredtaxat1January -132 13 -427 -220

Adjustmentsrelatingtopreviousyears 4 -4 4 0

Deferredtaxonprofit/lossfortheyear 194 -141 -79 -207

Deferred tax at 31 December 66 -132 -502 -427

Thedeferredtaxrelatestocurrentassets,licences,fixed

assetsandlossesrelatingtopreviouslyjointlytaxed

foreignaffiliates,intercompanyprofits,indirectproduction

costs,etc.

IntheGroup’sbalancesheet,DKK572million(2010:

DKK275million)isrecognisedinfixedassetinvestments,

andDKK506million(2010:DKK407million)isrecognised

inprovisions.

Note 15 – Pension obligations and other provisions

Pension obligations

Provisionforpensionobligationsat1January 68 56 0 0

Exchangeadjustment,beginningofyear 1 1 0 0

Adjustmentfortheyear -38 11 0 0

Provision for pension obligations at 31 December 31 68 0 0

TheGroup’scompaniesinIreland,theUK,theNetherlands

andNorwayoperatedefinedbenefitplans.

Deficitsrelatingtopensionschemesat31December2011

totalDKK392million(2010:DKK284million).

Other provisions

TheGroup’sotherprovisionsat31December2011

totalDKK449million(2010:DKK293million).Inthe

ParentCompany,otherprovisionstotalDKK50million

(2010:DKK66million).Otherprovisionscomprise

expectedexpensesrelatingtotheobligationtoaccept

returnedgoods,discounts,restructuringandseverance

pay,etc.

52 LEOPharma

AnnualReport2011 53


Note 16 – Contingencies

TheParentCompany’ssecurityprovidedandguaranteecommitmentstotalDKK153millionat31December2011

(2010:DKK136million).

TheamountrelatingtotheGrouptotalsDKK165millionat31December2011(2010:DKK148million).

GuaranteesissuedconcerningtheGroup’sIrishcompaniescompriseallliabilitiesofthecompanies.At31

December2011,thecompanieshadtotalliabilitiesofDKK131million(2010:DKK116million).

TheParentCompanyhasleaseobligationsofDKK37million(2010:DKK37million).OfthisDKK24millionrelates

toaffiliates(2010:DKK23million).LeaseobligationsrelatingtotheGrouptotalDKK335million(2010:DKK304

million).

AssecurityforabankloanandoverdraftfacilitiesatacarryingamounttotallingDKK4,658million(2010:DKK

4,543million),aswellastheestablishmentofguaranteecommitmentsatavalueofDKK16million(2010:DKK

14million),LEOPharmaA/ShaspledgedbondsatacarryingamountofDKK4,692million(2010:4,883million).

TheamountrelatingtotheGroupalsototalsDKK4,692million(2010:DKK4,883million).

TheParentCompanyhasissuedaletterofsupportinrespectoftheaffiliatesLEOPharmaceuticalProductsHellas

Ltd.,Greece,andAktieselskabetaf30.april2003,Denmark.

Attheendof2011,thereareseveralpendingpatentlawsuitsfiledbyandagainstLEOPharmaconcerningrights

relatingtoproductsinLEOPharma’spsoriasisportfolioinboththeUSAandEurope.LEOPharmaisalsopartytoa

lawsuitintheUSAconcerningovertimepaytosalesrepresentatives.ThelawsuitwasfiledinFebruary2012.LEO

PharmadoesnotexpectthependingcasestohaveanysignificanteffectonthefinancialpositionoftheGroup.

Note 17 – Financial instruments

TheGroupandtheParentCompanyusebothoptionandforwardcontractsaspartofmanagingforeignexchangerisks.

At31December2011,thereareoutstandingforwardcontractsin:AUD,HKD,JPY,KRW,PLN,SAR,SEK,THBand

ZAR.Thecontractamountat31December2011totalsDKK325million(2010:DKK406million).

At31December2011,thereareoutstandingoptioncontractsin:AUD,CAD,CHF,CNY,GBP,JPY,NOK,SEKandUSD.

Thecontractamountat31December2011totalsDKK1,815million(2010:DKK487million).

At31December2011,theGroupandtheParentCompanyalsohaveoptioncontractsin:AUD,CAD,CHF,CNY,EUR,GBP,

JPY,NOK,SEKandUSD.At31December2011,thecontractamounttotalsDKK4,455million(2010:DKK670million).

Note 18 – Related parties

LEOPharmaA/S’srelatedpartieswithsignificantinfluencecomprisetheCompany’sBoardofDirectors,Boardof

Executives,theLEOFoundationandaffiliatesofLEOPharmaA/S.

LEOPharmahashadrelatedpartytransactions,allofwhichhavebeensettledonanarm’slengthbasis.

54 LEOPharma

INVESTMENTS IN AFFILIATES

Nominal Reg. office Ownership Currency capital ‘000

LøvenskemiskeFabriksHandelsaktieselskabet Denmark 100% DKK 30,000

QSIPharmaA/S Denmark 100% DKK 1,250

Aktieselskabetaf30.april2003 Denmark 100% DKK 1,700

SARLLEOPharma Algeria 100% DZD 2,000

PeplinPtyLimited Australia 100% AUD 0

PeplinResearchPtyLtd. Australia 100% AUD 0

PeplinBiolipidsPtyLtd Australia 100% AUD 0

PeplinOperationsPtyLtd Australia 100% AUD 0

PeplinUnitTrust Australia 100% AUD 0

LEOPharmaPtyLtd Australia 100% AUD 0

LEOPharmaNV Belgium 100% EUR 273

LEOPharmaLTDA. Brazil 100% BRL 4,500

LEOPharmaInc. Canada 100% CAD 8,400

LEOLaboratoriesLtd. UK 100% GBP 12,000

LEOPharmaOY Finland 100% EUR 151

LaboratoiresLEOS.A. France 100% EUR 9,000

LEOPharmaceuticalProductsHellasLtd. Greece 100% EUR 28,600

LEOPharmaBV Netherlands 100% EUR 227

LEOLaboratoriesLtd. Ireland 100% EUR 22,100

LEOPharmaceuticalProductsLtd. Ireland 100% EUR 13

WexportLtd. Ireland 100% EUR 2,600

LEOPharmaHoldingLtd. Ireland 100% EUR 100

PeplinIrelandLimited Ireland 100% EUR 22,239

LEOFarmaceuticiS.r.l. Italy 100% EUR 10

LEOPharmaS.p.A Italy 100% EUR 620

LEOPharmaK.K. Japan 100% JPY 10,000

LEOPharmaConsultancycompanylimited China 100% CNY 10,243

LEOPharmaLLC Morocco 100% MAD 100

LEOPharmaAS Norway 100% NOK 3,000

LEOPharmaSp.z.o.o. Poland 100% PLN 50

LEOFarmacêuticosLda. Portugal 100% EUR 626

LEOPharmaceuticalProductsSarathLtd. Switzerland 100% CHF 50

LEOPharmaAsiaPTELtd. Singapore 100% SGD 100

LaboratoriosLEOPharmaS.A. Spain 100% EUR 1,214

LEOPharmaAB Sweden 100% SEK 1,000

LövensLäkemedelAB Sweden 100% SEK 100

LEOPharmas.r.o. CzechRepublic 100% CZK 350

LEOPharmaSARL Tunisia 100% TND 10

LEOPharmaİlaçTicaretAnonimŞirketi Turkey 99.96% TRY 50

LEOPharmaGmbH Germany 100% EUR 750

LEOPharmaceuticalProductsInc. USA 100% USD 1

LEOLaboratoriesLtd. USA 100% USD 1

LEOPharmaAmericasInc. USA 100% USD 50

LEOPharmaInc. USA 100% USD 2,500

PeplinInc. USA 100% USD 15

NeosilInc. USA 100% USD 5

PeplinOperationsUSAInc. USA 100% USD 1

LEOPharmaGmbH Austria 100% EUR 76

Design&Production:AgergaardProofreading:BorellaprojectsPhotos:PeterBrinchPhotographyPrinting:RosenbergBogtrykApS

ThankyoutotheLEOPharmaemployeeswhoallowedtheirphotostobetakenfortheAnnualReport.

TheAssyrianlionbecametheregisteredtrademarkofLøvensKemiskeFabrikin1911.Ithadbeenintroducedin1905asthelogoofKøbenhavnsLøveapotekbyartistAnnaRink,whohadtakenherinspirationfromanAssyrianbas-reliefattheLouvreinParis.

TheLEOlionhasdefinedthecompany’svisualidentityforacentury.OverthelasthundredyearsthelogohasbecomesynonymouswiththeLEOPharmabrandworldwide.

LEOPharmaA/SIndustriparken55

2750BallerupDenmark

Tel.+4544945888www.leo-pharma.com

LEO

® ©LEO12895CorporateCommunicationsMAR2012.CVRNO.56759514AllLEOtrademarksmentionedbelongtotheLEOGroup.

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