Meda AB (publ) – Interim report, January–June 2010



CEO’s comments 

Sales during H1 2010 reached SEK 5,986 million, a 13% decrease compared to 2009. Currency effects and generic competition for the Astelin and Optivar products in the US account for the main part of this decrease. As expected, the economic climate in some European countries also affected the pharmaceutical market. Excluding these effects, underlying growth in H1 totaled about 2–3%. We have a very interesting new-product portfolio, which will yield long-term growth. Several products are in the early stages of their launch phase, such as Xerese, Ceplene, Onsolis, and Axorid.   

We continue to reinforce Meda’s position in emerging markets such as Turkey and Russia. Emerging markets already constitute about 15% of Meda’s total sales, and Meda’s average sales growth for these markets was over 15% in H1. Meanwhile, efforts to strengthen Meda’s pipeline even further is progressing. This work includes the company’s Q2 acquisition of exclusive rights to a patented project for the treatment of fibromyalgia—a large area currently lacking good treatment. In addition we have acquired exclusive rights to product development based on Aldara that can potentially be used on a significantly larger area of skin affected by actinic keratosis than the existing product.

Despite greater competition for Astelin and Optivar in the US and the effects of the economic situation in some European markets, Meda achieved a somewhat higher EBITDA for the period (excluding currency and non-recurring effects). The EBITDA margin rose to 37% (34). The higher profitability was partly due to the efficiency improvement program implemented at the end of 2009, in which marketing activities were geared more towards specialists.

Cash flow during the period remained high. Net debt has thus been substantially reduced, bolstering Meda’s freedom to make further acquisitions.

Anders Lönner

Group President and CEO

 

SALES

January–June

Net sales for January-June were down 13% to SEK 5,986 million (6,901). Currency effects regarding like-for-like sales had a negative SEK 545 million impact on sales compared to last year. Price reductions affected sales adversely in the European markets by about SEK 110 million. Key product sales in H1 were:

Astepro (allergic and non-allergic rhinitis treatment) had US sales of SEK 225 million (169) during the period. Sales in local currency were up 48% to USD 31 million (21) compared to last year.

Astelin (allergic and non-allergic rhinitis treatment) sales totaled SEK 528 million (821). In the US, sales in local currency were down 35%, reaching USD 58 million (89). Sales dipped as a result of rising sales of Astepro, its follow-up, and due to more competition in the segment.

Sales of Tambocor (treatment of cardiac arrhythmia) amounted to SEK 415 million (484). Calculated at fixed exchange rates, sales declined 5% after mandatory price cuts in several European markets. Tambocor continued to show robust volume growth. 

Betadine (infection treatment) sales decreased to SEK 423 million (469). At fixed exchange rates, sales remained unchanged compared to last year.

Minitran (angina prevention) sales reached SEK 244 million (277). At fixed exchange rates, sales were down 2%. 

Sales of Aldara (treatment of actinic keratosis) amounted to SEK 219 million (248). At fixed exchange rates, sales dropped 3%. A continued good volume increase in most markets was not able to make up for lower sales in Spain, mandatory price cuts in the European markets, and reduced inventories at the wholesale level in Germany in conjunction with switching wholesalers. 

Soma (muscle relaxant) sales amounted to SEK 182 million (240). Sales in local currency were down 16%.

Zamadol (moderate to severe pain treatment) sales decreased 16% to SEK 166 million (197). Sales in local currency dipped 8%, mainly due to lower prices in several European markets.

Meda’s sales of Mestinon (treatment of myasthenia gravis, an autoimmune disease) amounted to SEK 129 million (137). At fixed exchange rates, sales increased 3%. 

Novopulmon (budesonide Novolizer, asthma treatment) sales reached SEK 97 million (108). At fixed exchange rates, sales decreased 1% after lower sales to distributors in some export markets during the period.

See page 14 for sales information in Meda’s geographic regions.

April–June

Net sales for April-June fell 12% to SEK 3,043 million (3,464). Currency effects regarding like-for-like sales had a negative SEK 260 million impact on sales compared to last year. Price cuts in Europe reduced sales in the quarter by roughly SEK 70 million. Sales of the most important products during the period were:

Astepro (allergic and non-allergic rhinitis treatment) had US sales of SEK 128 million (123) during the period. Sales in local currency were up 12% to USD 17 million (15) compared to last year. Astepro’s proportion of total azelastine prescribed was 43% in June.

Astelin (allergic and non-allergic rhinitis treatment) sales totaled SEK 281 million (383). In the US, sales in local currency were down 28%, reaching USD 31 million (43). A generic competitor to Astelin was launched at the end of June. 

Sales of Tambocor (treatment of cardiac arrhythmia) amounted to SEK 206 million (248). At fixed exchange rates, sales were down 7%.

Betadine (infection treatment) sales decreased to SEK 212 million (240). At fixed exchange rates, sales decreased 2% during the quarter.

Minitran (angina prevention) sales reached SEK 124 million (138). At fixed exchange rates, sales remained unchanged compared to the same period last year. 

Sales of Aldara (treatment of actinic keratosis) amounted to SEK 105 million (127). At fixed exchange rates, sales decreased 9%, which is partly attributable to lower sales in Spain in Q2.

Soma (muscle relaxant) sales amounted to SEK 86 million (120). Sales in local currency were down 25%. Lowered prescribing and lower wholesale inventory levels adversely affected sales.

Zamadol (moderate to severe pain treatment) sales decreased 21% to SEK 79 million (100). Sales in local currency were down 13%.

Meda’s sales of Mestinon (treatment of myasthenia gravis, an autoimmune disease) amounted to SEK 64 million (70). At fixed exchange rates, sales remained unchanged compared to the same period last year. 

Novopulmon (budesonide Novolizer, asthma treatment) sales reached SEK 48 million (47). Calculated at fixed exchange rates, sales climbed 14% after a strong increase in the German market.

See page 14 for sales information in Meda’s geographic regions.

PROFIT

Compared to the same period in 2009, Q2’s income measure was strongly affected by exchange rate changes. The following table illustrates these currency effects and shows a condensed income statement in which 2010’s income statement items are translated to 2009’s exchange rates. 

  FIXED EXCHANGE RATES
             
  January–June   April–June  
  2010 2009 Index 2010 2009 Index
             
Net sales 6,531 6,901 95 3,303 3,464 95
             
Gross profit 4,234 4,610 92 2,136 2,341 91
Gross margin, % 65% 67%   65% 68%  
             
Operating expenses -2,707 -2,969   -1,356 -1,457  



EBIT 1,527[2]  1,641 93 780[2]  884 88
EBIT margin, % 23%[2]  24%   24%[2]  26%  
             
Depreciation and amortization -871 -708   -456 -355  
EBITDA 2,398[2] 2,349 102 1,236[2] 1,239 100
EBITDA margin, % 37%[2] 34%   37%[2] 36%  
             
Net financial items -295 -344   -160 -168  
EBT 1,232[2] 1,297 95 620[2] 716 87
Tax -388[3] -430   -189[3] -234  
Tax, % 31%[3] 33%   30%[3] 33%  
             
Net income 844[4] 867 97 431[4] 482 89
             


Operating profit

Operating expenses for Q2 amounted to SEK 1,283 million, which was on a par with the previous quarter.

Operating profit for January-June reached SEK 1,777 million (1,641), corresponding to an 8% increase.

EBITDA for the same period was SEK 2,620 million (2,349), yielding a 43.8% margin (34.0). EBITDA, excluding a non-recurring effect[5] and currency effects was SEK 2,398 million (2,349), thus yielding a 36.7% margin (34.0).

Operating profit for April-June reached SEK 1,117 million (884), corresponding to a 26% increase.

EBITDA for the same period was SEK 1,561 million (1,239), yielding a 51.3% margin (35.8). EBITDA, excluding a non-recurring effect[5] and currency effects was SEK 1,236 million (1,239), thus yielding a 37.4% margin (35.8).

Financial items

The Group’s net financial items for January-June were SEK -285 million (-344). The improvement from last year is due to a lower average interest rate and lower average debt. The average interest rate at June 30, 2010 was 3.8% (4.0).

The Group’s profit after net financial items for January-June rose 15% to SEK 1,492 million (1,297).

The Group’s net financial items for April-June were SEK -155 million (-168), compared to SEK -130 for the first quarter. The difference between the two quarters 2010 was affected by exchange rate differences.

Group profit after net financial items for the same period thereby totaled SEK 962 million (716).

Net income and earnings per share

Net income for January-June rose 20% to SEK 1,039 million (867).

Group tax expense for H1 amounted to SEK 453 million (430), equivalent to a tax rate of 30.4% (33.2).

Earnings per share for January-June were SEK 3.44 (2.87).

Net income for April-June rose 41% to SEK 679 million (482).

Group tax expense for April-June amounted to SEK 283 million (234), equivalent to a tax rate of 29.4% (32.7).

Earnings per share for April-June reached SEK 2.25 (1.60).

CASH FLOW

Cash flow from operating activities, before changes in working capital, for January-June increased to SEK 1,663 million (1,557). Implemented restructuring measures had a SEK -89 million (-92) impact on cash flow. Customary quarterly variations in tied-up capital led to a negative change in cash flow from changes in working capital that amounted to SEK -153 million (-6). Accordingly, cash flow from operating activities amounted to SEK 1,510 million (1,551).

Cash flow from investing activities was SEK -304 million (-147) for January-June. In January, Meda acquired exclusive rights to Ceplene from EpiCept Corporation, a US development company, and in February Meda in-licensed exclusive rights to Xerese, a pharmaceutical from Medivir AB, a Swedish development company. 

______________________________

In May Meda acquired exclusive rights to flupirtine, to treat fibromyalgia, from Adeona Pharmaceuticals and exclusive European rights to a new formulation of imiquimod from Graceway Pharmaceuticals.

Cash flow from financing activities was SEK -1,032 million (-1,390) for January-June. Dividend of SEK 302 million was paid to Meda’s shareholders in May.

Cash earnings per share for H1 were SEK 4.93 (4.97).

Cash earnings per share for Q2 were SEK 2.86 (2.52).

FINANCING

On June 30, equity stood at SEK 14,343 million, compared to SEK 13,664 million at the year’s start, which corresponds to SEK 47.5 (45.4) per share. The equity/assets ratio rose to 44.1% from 41.4% at the start of the year.

The Group’s net debt stood at SEK 12,215 million on 30 June, compared to SEK 13,467 million at the year’s start. The SEK 1,252 million reduction in net debt is primarily attributable to the Group’s cash flow.

PARENT COMPANY

Net sales for January-June totaled SEK 1,808 million (1,824), of which intra-Group sales represented SEK 1,438 million (1,408).

Profit before appropriations and tax reached SEK 1,225 million (3,044).

Net financial items were SEK 794 million (2,496), which includes dividend of SEK 2,801 million (2,715) from subsidiaries and related write-down on shares in subsidiaries amounting to SEK 1,844 million.

Cash and cash equivalents amounted to SEK 186 million, compared to SEK 10 million at year-end 2009.

Investments in intellectual property rights during January-June were SEK 276 million (204), and investments in property, plant, and equipment totaled SEK 0 million (0).

Non-current financial assets stood at SEK 19,581 million compared to SEK 20,432 million at year-end 2009.


Agreements and key events

Meda acquired exclusive European rights to a new formulation of imiquimod from Graceway Pharmaceuticals. The new formulation is 3.75% imiquimod topical cream indicated for the treatment of actinic keratosis (AK). This product has recently been approved in the US and Canada.

Today Meda markets a higher strength (5%) of imiquimod in Europe under the trademark Aldara. In 2009, sales of Aldara were approximately SEK 500 million.

3.75% imiquimod can be used on a significantly larger treatment area, it is once-daily and more tolerable due to the decreased concentration. The patent for this novel imiquimod formulation is pending.

Graceway is continuing its development program around 3.75% imiquimod. Meda has exclusive rights to follow-up products based on the imiquimod substance.

In consideration for the exclusive rights for 3.75% imiquimod, Meda has paid Graceway an undisclosed up-front and a single-digit royalty on net sales. No milestone payments will be due for 3.75% imiquimod.

Imiquimod is an immunomodulating agent that activates the body’s own immune defenses through the skin. Actinic keratosis (AK) often develops on skin frequently exposed to the sun and it is a common pre-cancerous lesion. It should be treated as it cannot be predicted which AK will develop into more serious forms of skin cancer. AK occurs in more than 30 million people in Europe, and only a small percentage of patients have been properly treated.

Onsolis (fentanyl) has been approved by Health Canada, the Canadian pharmaceutical authority. Onsolis is a new patented product indicated for the treatment of breakthrough pain in cancer patients.

Onsolis is the first available fentanyl product approved in Canada for this indication and it is expected to be available for patients during the third quarter of 2010. The product will be commercialized by the joint venture between Meda and Valeant in Canada (Meda Valeant Pharma Canada Inc.).

Onsolis uses a unique delivery system designed to give rapid and reliable delivery of fentanyl, the active ingredient. The product consists of a thin dissolvable disc for application of fentanyl to the buccal (inner lining of cheek) membranes.

Meda acquired exclusive US, Canadian and Japanese rights for the use of flupirtine to treat fibromyalgia from Adeona Pharmaceuticals. As part of the agreement, Meda assumes full responsibility for development and commercialization of the compound. Flupirtine is currently in phase-II development for the patented use for fibromyalgia.

Fibromyalgia is a chronic and debilitating condition characterized by widespread pain and stiffness throughout the body, accompanied by severe fatigue, insomnia, and mood symptoms. Fibromyalgia affects an estimated 2-4% of the population worldwide, including an estimated 4 million people in the United States.

There are presently three products approved for this indication in the US: Lyrica, Cymbalta, and Savella. Flupirtine differs from these products in that it employs a unique mode of action. Meda estimates the US market for fibromyalgia to be nearly USD 1 billion at launch of flupirtine.

Meda also believes flupirtine’s neuroprotective properties can be leveraged to treat new indications outside of pain and fibromyalgia, resulting in robust product lifecycle opportunities.

Under the agreement with Adeona, Meda made an up-front payment of USD 2.5 million. In addition, Meda will make a milestone payment of USD 5 million upon the Food and Drug Administration’s (FDA’s) acceptance of the New Drug Application (NDA), and USD 10 million upon NDA Approval by the FDA. Meda will also pay single-digit royalties to Adeona.

Meda reached an agreement with the Spanish pharma company Almirall regarding a respiratory combination project in the Novolizer device that Meda had certain rights to. The project is in the research phase, and Almirall has purchased Meda’s rights for EUR 45 million.

RISKS AND UNCERTAINTIES

The Meda Group’s business is exposed to financial risks. Meda’s 2009 annual report describes the company’s management of these risks (pp 67-68). Several other factors, which Meda cannot fully control, affect the Group’s operations. Factors judged particularly significant to Meda’s future growth are: competitors and pricing, actions by authorities, partnerships, market assessments, clinical trials, key individuals and recruitment, product liability, patents, and trademarks. The 2009 annual report describes these types of risks (pp 116-118).

ACCOUNTING POLICIES

Group

Meda complies with the EU-approved IFRS standards and their interpretations (IFRIC). This interim report was prepared as per IAS 34 Interim Financial Reporting. These new accounting standards apply as of January 1, 2010:

IFRS 3 (revised) Business Combinations. The change will apply prospectively to acquisitions occurring after the change’s effective date. Application will alter how future acquisitions are recognized, e.g., regarding recognition of transaction costs, conditional (contingent) considerations, and step acquisitions. The revision will not affect previously completed acquisitions but will affect recognition of future transactions.

IAS 27 Consolidated and Separate Financial Statements. The impact of this amendment includes always recognizing results attributable to minority shareholders, even if the minority interest is negative, and always recognizing transactions with minority shareholders in equity. The amendment of the standard may influence how future transactions are recognized.

In other respects, the Group’s accounting policies and calculation methods remain unchanged from the 2009 annual report.

REPORTS IN 2010

Interim report, January-September                  Wednesday, November 3, 2010

The board of directors and CEO hereby confirm that this six-month interim report provides a true and fair view of the parent company’s and Group’s operations, position and performance, and describes material risks and uncertainties faced by the parent company and Group companies.

Stockholm, August 4, 2010

Bert-Åke Eriksson                             Peter Claesson                   Marianne Hamilton
Chairman of the Board                       Board member                    Board member

Tuve Johannesson                             Carola Lemne
Board member                                  Board member

Anders Lönner                                   Anders Waldenström
CEO                                                 Board member

For more information, contact

Anders Larnholt,                                                              Phone:   +46 8-630 19 62
VP Corporate Development and Investor Relations                           +46 709-458 878


[1] Excluding non-recurring income of SEK 429 million in Q2
[2] Excluding SEK 429 million in non-recurring income.
[3] Excluding tax on non-recurring income.
[4] Excluding SEK 429 million in non-recurring income and related tax effect.
[5] Excluding non-recurring income of SEK 429 million.



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