Meda AB (publ) – Interim report January–March 2009
• The Group’s net sales reached SEK 3,437 million (2,570), a 34% increase compared to the previous year.
• EBITDA rose 20% to SEK 1,110 million (925), thus yielding a 32.3% margin (36.0).
• Operating profit climbed to SEK 757 million (661).
• Profit after tax increased to SEK 385 million (295).
• Earnings per share were SEK 1.27 (1.09).
• Cash earnings per share increased to SEK 2.44 (1.43).
HIGHLIGHTS
Astepro – strong growth in the US
• Growth in the number of Astepro prescriptions was very positive in Q1.
• In March, Astepro accounted for about 25% of all azelastine prescribed.
Enhanced product portfolio in dermatology
• Long-term license agreements signed with Valeant for two acne products; a market estimated to around SEK 1,500 million.
• Both products are currently in registration phase.
• Meda will pay Valeant a down payment of about SEK 20 million, and single-digit royalties on sales.
SALES
Net sales for January–March rose 34% to SEK 3,437 million (2,570). Currency effects regarding like-for-like sales had a positive SEK 431 million impact on sales compared to the previous year. The Valeant acquisition contributed SEK 340 million. Sales of the products acquired from Roche in Q4 2008 reached SEK 127 million. Sales of the most important products in Q1 were:
Astepro (allergic and non-allergic rhinitis treatment) US market launch is in full swing. Sales in Q1
reached SEK 46 million, after sales to wholesalers started back in Q4 (SEK 45 million). Growth in the number of Astepro prescriptions was very positive in Q1; in March Astepro accounted for about 25% of all azelastine prescribed.
Astelin (allergic and non-allergic rhinitis treatment) totaled SEK 438 million (405). In the US, sales in
local currency were down 19% to USD 46 million (57)—mainly due to the launch of the new and improved product Astepro.
Tambocor (cardiac arrhythmia treatment) climbed to SEK 236 million (230), a 3% increase on Q1 2008. Sales in local currency fell somewhat, primarily following the previous year’s price decrease in France.
Betadine (infection treatment) rose 16% to SEK 229 million (197). Strong sales growth continued in Italy, but decreased in the Spanish market.
Minitran (angina prevention) reached SEK 139 million (128).
Aldara (actinic keratosis treatment) totaled SEK 121 million (90), a 35% increase compared to 2008.
Soma (muscle relaxant) totaled SEK 120 million (66). Sales in local currency climbed 37%. Sales of the 250 mg strength on the US market demonstrated continued robust growth.
Optivar (allergic conjunctivitis treatment) reached SEK 102 million (80). In the US, sales in local currency were down 4%.
Zamadol (moderate to severe pain treatment) increased 5% to SEK 97 million (92). Meda retained its position from 2008 in local currency despite falling price levels in several European markets.
Novopulmon (budesonide Novolizer, asthma treatment) climbed 27% to SEK 61 million (48). Export sales contributed strongly to the rise and the product grew in several European markets.
Contract manufacturing and service revenue fell as planned and reached SEK 68 million (88).
PROFIT
Operating profit
As stated in the guidance for 2009 published in the annual report, operating expenses for the period rose 9% compared to Q4 2008 and excluding restructuring costs from Q4 2008. The rise includes important investments in marketing—particularly for the US launch of Astepro.
Operating profit for January–March reached SEK 757 million (661), corresponding to a 15% increase.
EBITDA totaled SEK 1,110 million (925), yielding a 32.3% margin (36.0).
Financial items
The Group’s net financial items for January–March were SEK -176 million (–213). Higher interest-bearing liabilities compared to the same period the previous year were comfortably compensated by lower market interest rates and exchange gains. The average interest level on 31 March 2009 was 4.4%.
The Group’s profit after net financial items for January–March rose to SEK 581 million (448).
Net profit and earnings per share
Net profit for January–March increased to SEK 385 million (295).
Group tax expense for the period was SEK 196 million (153), equivalent to a tax rate of 33.7% (34.1).
Basic earnings per share for January–March were 1.27 (1.09).
CASH FLOW
Cash flow from operating activities, before changes in working capital, for January–March climbed to SEK 767 million (591). Implemented restructuring measures had an adverse effect of SEK –56 million on cash flow. Cash flow from change in working capital was SEK –18 million (–195). Cash flow from operating activities for Q1 thereby rose to SEK 749 million (396).
Cash flow from investing activities amounted to SEK –116 million (–107) for the period. In January Meda paid the remaining purchase consideration of EUR 10 million for the product portfolio acquired from Roche in 2008.
Cash flow from financing activities amounted to SEK –536 million (–371).
At the end of March, Group cash and cash equivalents were SEK 299 million, compared to SEK 198 million at the start of 2009.
Cash earnings per share rose 71% to SEK 2.44 (1.43)
FINANCING
On 31 March equity stood at SEK 13,932 million, compared to SEK 13,290 million at the year’s start, which corresponds to SEK 46.1 (44.0) per share. The equity/assets ratio rose to 38.4% from 37.1% at the start of the year. The translation difference in equity for January–March amounted to SEK 372 million (–467).
The Group’s net debt totaled SEK 15,564 million on 31 March, compared to SEK 16,129 million at the year’s start. The SEK 565 million reduction in net debt is attributable to the Group's strong cash flow, while currency effects had an adverse impact on net debt.
PARENT COMPANY
Meda AB markets and sells pharmaceuticals and healthcare products. The company also has interests in subsidiaries that operate in most European markets, the US, and the Middle East.
Net sales for January–March totaled SEK 888 million (646), of which intra-Group sales represented SEK 664 million (491). Profit before appropriations and tax reached SEK 151 million (0).
Cash and cash equivalents were SEK 4 million, compared to SEK 3 million at year-end 2008.
Investments in intellectual property rights during Q1 amounted to SEK 198 million (123), and investments in property, plant, and equipment were SEK 0 million (0).
Financial non-current assets amounted to SEK 20,834 million, compared to SEK 20,853 million at year-end 2008.
AGREEMENTS AND KEY EVENTS
• MEDA TAKES OVER GLOBAL RIGHTS TO ONSOLIS
In January MEDA acquired the global rights to the drug Onsolis from its partner BioDelivery Sciences International (BDSI). The product is in the registration phase and is used to treat breakthrough pain in cancer patients who tolerate opioid treatment. Meda already had the rights to Onsolis in the US, EU, Canada, and Mexico. The new agreement with BDSI gives Meda rights in the rest of the world and access to interesting markets such as Russia, Japan, south-east Asia, and Australia. Meda made a one-time payment of USD 3 million to BDSI for these rights. No additional milestone payments will be made to BDSI for this new market territory. BDSI and Meda also contractually agreed to an advance on the milestone that Meda will pay on receiving the FDA’s registration approval, which is expected in Q2 2009. The advance is USD 3 million, which reduces the milestone payment due on registration approval from USD 30 million to about USD 27 million.
• FDA APPROVES EDLUAR
The FDA approved Edluar (formerly Sublinox) to treat temporary sleep disorders. The product contains zolpidem, a well-known active ingredient, and uses Orexo’s patented sublingual tablet formulation. Meda made a USD 5 million milestone payment on obtaining FDA approval. No other milestones are expected to be payable to Orexo for Edluar. The US market launch is planned for H2 2009.
AGREEMENTS AND KEY EVENTS AFTER THE REPORTING DATE
• ENHANCED PRODUCT PORTFOLIO IN DERMATOLOGY
Meda signed long-term license agreements with the US pharma company Valeant, for marketing of the patented combination product clindamycin and tretinoin and for a product containing tretinoin as sole active ingredient. Both products are currently in the registration phase.
The agreement covers all of Europe and enhances Meda’s position in dermatology, a key therapy area. The products are for acne treatment and the European market is estimated to around SEK 1,500 million.
Meda will pay Valeant a down payment of about SEK 20 million, and single-digit royalties on sales. Meda will own the selected brands, and the gross margin is estimated to be over 70%. The license agreements are dependant on signing manufacturing agreements.
• ANTIVIRAL DRUG
In conjunction with acquisition of Valeant’s European operation, Meda has access to Virazole (ribavirin), an antiviral drug with a broad spectrum. The risk of large-scale spread of the new influenza A (H1N1) has made increased use of Virazole a topical issue. Meda is looking into the possibility of expanding production capacity among contract manufacturers.
• EXPANDED PARTNERSHIP WITH ROTTAPHARM | MADAUS
Meda extended its collaboration with pharma group Rottapharm | Madaus for the Urivesc® XR product, to be marketed by Meda under Madaus’ trademark Spasmolyt® Depot. The product is an extended release once-daily formulation containing the active ingredient trospium chloride for the treatment of symptoms of overactive bladder (OAB). The expanded cooperation is for the Nordic market.
GUIDANCE 2009
Meda repeats its guidance given for the 2009 fiscal year in the 2008 annual report:
Meda approaches several important launch opportunities in 2009, including
• Astepro—further development of Astelin
• The first combination of an NSAID and proton pump inhibitor—ketoprofen and omeprazole
• Onsolis—a unique pain treatment product
Meda intends to optimize the market potential of these new products. In addition, investments in the late clinical phase of drug development will be prioritized as in previous years. The increased investments in marketing and drug development will affect short–term earnings while strengthening the potential for organic growth with good profitability in the long term. Despite these additional efforts, Meda aims to maintain profitability (EBITDA margin) that exceeds 30% for the full year 2009, which is on par with the most profitable international specialty pharma companies. Meda's earnings are also affected by exchange rate fluctuations, primarily in EUR and USD, and interest rates. However, exchange rates have limited impact on the EBITDA margin since sales in foreign currency largely correspond to expenses in the same currency.
RISKS AND UNCERTAINTIES
The Meda Group’s operations are exposed to financial risks. Meda’s 2008 annual report describes the company’s management of these risks (pp 60–61). 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 annual report for 2008 describes these types of risks (pp 112–114).
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. New accounting standards applied since 1 January 2009:
The amended IAS 1, Presentation of financial statements. This amendment brings a new structure to financial reporting; the company is required to prepare a statement of comprehensive income, including all changes in assets and liabilities that are not due to transactions with the company’s owners. Changes previously recognized directly in equity are now recognized in the Group's statement of comprehensive income. Meda has chosen to present the Group's report on comprehensive income as a separate table.
IFRS 8 Operating segments – This standard replaces the previous IAS 14 Segment reporting. IFRS 8 does not change the definitions of Meda’s segments.
In other respects, the Group’s accounting policies and calculation methods remain unchanged from the 2008 annual report.
REPORTS IN 2009
Interim report, January–June Tuesday 18 August 2009
Interim report, January–September Tuesday 3 November 2009
Stockholm, 5 May 2009
Anders Lönner
CEO
The company’s auditors have not reviewed this interim report.
