Meda AB (publ.) – Q1 2007 interim report, January-March

Integration of 3M’s pharma division in Europe went faster than forecasted.

All non-recurring restructuring costs recognised in Q1 2007.

Significantly improved underlying operating profit.


• The Group’s net sales reached SEK 1,788.1 million (1,316.2).

• Operating profit, excluding non-recurring items, increased to SEK 434.1 million (1) (225.6)(2).

• Earnings before interest, taxes, depreciation and amortisation (EBITDA), excluding non-recurring items, rose to SEK 598.5 million(1) (318.8)(2) corresponding to a 33.5% margin (24.2).

• Non-recurring restructuring costs in conjunction with the acquisition of 3M’s pharma division stood at SEK 118.1 million.

• Operating profit, including non-recurring items, rose to SEK 316.0 million (302.0).

• Profit after tax totalled SEK 175.4 million (177.6).

• Profit per share stood at SEK 1.57 (1.63).

Highlights
• Acquisition of products from Wyeth’s portfolio.

• BEMA Fentanyl displayed positive, phase-lll study results in the US.

• Meda establishes operations in China and Turkey.

SALES
The Meda Group’s sales for Q1 2007 amounted to SEK 1,788.1 million (1,316.2) – according to plan despite the negative SEK 25 million exchange rate effect compared to last year. Acquisition of 3M’s pharma division in Europe means that Meda reached a new sales level, particularly due to addition of the Tambocor, Minitran and Aldara products. Market sales of Aldara developed generally better than planned, and positive effects on sales from indication expansion to actinic keratosis can already be observed. Sales to wholesalers of the 3M product lines were temporarily lower in conjunction with transferrals to Meda’s distribution channels.

PROFIT
Restructuring costs
Acquisition of 3M's pharma division in Europe was completed on 2 January 2007. On this date, products and staff were transferred to Meda, and the integration plan drawn up at year-end 2006 came into effect. Integration is complete, and Meda now markets the products. Integration regarding 3M’s pharma division proceeded faster than forecasted, and all non-recurring costs were recognised in Q1, while the Group’s profitability level remained stable due to underlying profitability improvement.

Q1 2006 included a positive SEK 76.4 million non-recurring effect due to sale of a production plant in the Netherlands, while non-recurring restructuring costs of SEK 118.1 million affected Q1 2007. See table on page 12 for specification of effects on operating profit for Q1. No further restructuring costs are expected during the rest of the financial year.

Operating profit in Q1 2007
Group operating profit rose to SEK 316.0 million (302.0). Operating expenses stood at SEK 766.0 million (532.8). Intangible rights amortisation accounted for SEK 144.8 million (66.5) of these expenses; restructuring costs after integration of 3M’s pharma division accounted for SEK 118.1 million. Group operating profit – excluding non-recurring items for Q1 2007 – thus climbed to SEK 434.1 million (225.6)(3).

EBITDA – including non-recurring items for Q1 – rose to SEK 480.4 million (395.2). EBITDA – excluding non-recurring items for Q1 – rose to SEK 598.5 million (318.8)3. The underlying EBITDA margin, adjusted for these non-recurring effects, thus improved significantly from 24.2% to 33.5%.

Financial items
Group net financial items for the period amounted to SEK -50.1 million (-65.2). A non-recurring effect from an exchange difference of SEK 65.3 million related to financing of the 3M acquisition had a positive impact on net financial items. So Q1 2007 Group profit – after net financial items – reached SEK 265.9 million (236.8).

Net profit in Q1 2007
Group tax expense for the period was SEK 90.5 million (59.2), equivalent to a 34.0% tax rate (25.0). Net profit reached SEK 175.4 million (177.6).

Profit per share before dilution for Q1 2007 amounted to SEK 1.57 (1.63).

FINANCIAL POSITION IN Q1 2007
Meda's financial position was reinforced during the period thanks to positive cash flow from operating activities and the implemented share issue.

Q1 cash flow from operating activities, before changes in working capital, rose to SEK 415.0 million (167.6). Implemented restructuring measures had an adverse effect of SEK -27.5 million on cash flow. Change in working capital for the period totalled SEK -93.4 million (-180.1). So total cash flow from operating activities reached SEK 321.6 million (-12.5).

Cash flow from investing activities was SEK -5,650.4 million (-301.6), of which SEK -5,636.5 million was attributable to the acquisition of 3M’s pharma division in Europe.

Cash flow from financing activities amounted to SEK 5,340.5 million (145.8). After issue expenses, the share issue generated positive cash flow of SEK 1,844.2 million, while bank loans increased (net) SEK 3,496.0 million.

At the end of March, Group cash and cash equivalents were SEK 135.6 million compared to SEK 120.6 million at the year’s start. Net debt stood at SEK 8,195.5 million on 31 March, compared to SEK 4,512.1 million at the year’s start. The equity/assets ratio was 36.4% compared to 38.0% at the year’s start.

On 31 March, equity totalled SEK 6,493.1 million, compared to SEK 4,296.8 million at the year’s start. This is equivalent to SEK 55.92 (36.23) per share.

AGREEMENTS AND KEY EVENTS
• COLLABORATION WITH NOVAMED IN CHINA
Meda launched a collaboration with Novamed Pharmaceuticals Co Shanghai Ltd regarding the Chinese market. Novamed is a relatively new pharma company that markets products from Sanofi-Aventis, among others. The pharma market – excluding traditional medicine in China – is estimated to be worth about SEK 110 billion and to have annual growth of 20%. Novamed will register and market these products: Thioctacid, Zamadol, and the Novolizer portfolio; Meda owns marketing and trademark rights to the products. The Azelastin product is already on this market. The products have great potential in China. Meda receives double digit royalty revenue and manufactures the pharmaceuticals for the Chinese market. Via this agreement, Novamed establishes a sales organisation for Meda with 200 sales reps. Meda has the option to take over the entire operation after six years.

• DECISION TO ESTABLISH A MARKETING COMPANY IN TURKEY
Meda will establish its own marketing company in Turkey, which has a very attractive pharma market worth SEK 50 billion in sales and 16% growth. In an initial stage, Meda will start marketing products such as Cibacen, Cibadrex, and Parlodel under its own management. Thereafter, other products will gradually be added to the operation. Meda's sales in the Turkish market exceeded SEK 250 million via distributors and licensees.

• MEDA’S NEW SHARE ISSUE OVER-SUBSCRIBED
Calculations show that in Meda’s share issue of 11,592,196 shares – equivalent to 99.84% of the shares offered – were subscribed for using subscription rights. Including the shares subscribed for without subscription rights, the share issue was over-subscribed. Issue proceeds totalled SEK 1,858 million before issue expenses.

The 18,288 shares not subscribed for using subscription rights, corresponding to 0.16% of the total number of shares offered, were allocated to the shareholders who had subscribed for shares without subscription rights. This was in accordance with principles described in the prospectus.

Through the new share issue, the number of shares in Meda rose by 11,610,484 and share capital by SEK 23,220,968. After the new share issue, the number of shares in Meda stood at 116,104,842 and share capital was SEK 232,209,684.

All of the issue proceeds were used for amortisation payment of the bridge financing that was secured for acquisition of 3M’s pharma division in Europe.

KEY EVENTS AFTER THE REPORTING DATE
• ACQUISITION OF PRODUCTS IN WYETH’S PORTFOLIO
Meda and Wyeth, a US pharma company, reached agreement regarding acquisition of about 10 well-established drugs in Europe. The deal marks another step in Meda’s strategy to become the leading European speciality pharma company.

The acquired products are highly recognised brands with sound profitability. Meda will take over the products on 1 May 2007. No employees will switch from Wyeth to Meda in conjunction with the acquisition, which is expected to inject sales of about SEK 160-170 million into Meda for full-year 2007 (eight months). The purchase price is about SEK 525 million and will be totally financed via existing credit facilities.

Through the acquisition Meda will strengthen its product portfolio in two of its most important markets. Italy and France account for about 60% of the acquired products’ sales, and positive marketing synergies are expected.

Seresta, the largest product, is used within the central nervous system (CNS) therapy area and its active substance is oxazepam. Oxazepam is in the benzodiazepine group of drugs and is an anti-anxiety agent used to treat sleep disorders and various substance-withdrawal symptoms. Meda already had three major CNS products: Imovane (sleep disorders), Thioctacid (diabetic neuropathies), and Parlodel (Parkinson’s disease).

The main part of the acquired sales comprises:
See the complete report

• POSITIVE PHASE-III STUDY RESULTS FOR BEMA FENTANYL IN THE US
Bio Delivery Sciences International (BDSI), Meda’s partner and licensor, published very positive results in an important phase-III study. The BEMA Fentanyl drug exhibited significant effect on breakthrough pain in cancer patients. Together with an ongoing study of long-term treatment, this study will form the basis of Meda’s registration application in Europe. Meda expects to achieve market launch sooner than previously forecasted. BEMA consists of a unique, patented technology that enables the substance fentanyl to be administered using transmucosal delivery technology via the mucous membrane of the mouth.

• MEDIUM-TERM LOAN FINANCING SECURED
On 17 April, Meda signed a syndicated loan agreement with 10 international banks. The credit facility spans five years and totals SEK 9,500 million.

ACCOUNTING POLICIES
Group
Meda complies with the EU-approved International Financial Reporting Standards (IFRS) and their interpretation (by the International Financial Reporting Interpretation Committee, IFRIC). This interim report was prepared as per IAS 34 Interim Financial Reporting. The Group’s accounting policies and calculation methods remain unchanged from the 2006 annual report.

2007 INTERIM REPORTS
January-June Wednesday, 8 August
January–September Tuesday, 30 October


Anders Lönner
CEO
Stockholm, 3 May 2007


The company’s auditors did not review the financial statements.



(1) Excluding SEK 118.1 million in restructuring costs due to 3M pharma division acquisition.
(2) Excluding SEK 76.4 million in revenue from production plant divestment in the Netherlands.
(3) Excluding SEK 76.4 million in revenue from divestment of a production plant in the Netherlands.





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