Meda AB (publ) – Interim report, January-March 2010
• Group sales reached SEK 2,943 million (3,437). Currency effects and increased competition for the Astelin and Optivar products are the main reasons for lower sales than last year. • EBITDA amounted to SEK 1,059 million (1,110), increasing the margin to 36.0% (32.3). EBITDA, excluding currency effects, increased 5% to SEK 1,162 million (1,110). • Operating profit amounted to SEK 660 million (757). • Profit after tax amounted to SEK 360 million (385). • Earnings per share reached SEK 1.19 (1.27). • Cash earnings per share reached SEK 2.07 (2.44). CEO’S COMMENTS After a strong Q4 in 2009, net sales decreased 14% in Q1 to SEK 2,943 million (3,437). Mainly currency effects but also increased competition for Astelin and Optivar reduced sales by more than SEK 400 million, compared with the same period last year. The 2010 financial year will be characterized by new product launches and a further strengthening of the pipeline, which is expected to promote growth in the long term. We are in a very early launch phase for our new drugs Onsolis, Axorid, Xerese, and Ceplene. In parallel with new product launches, increased price competition presents challenges for some key products. This year we will also increase efforts in the marketing organization for emerging markets such as Russia, Poland, and Turkey where we will continue to increase the number of employees. Performance in the eastern European growth markets is promising, and Meda’s sales increased in several important markets. The company also shows good growth in the important German market, where sales at constant exchange rates increased 5%, surpassing total market performance. Profitability has improved due to last quarter's organizational streamlining in western Europe and the US. As the proportion of specialist products in Meda's product portfolio has gradually increased, marketing activities have been geared more toward specialists. This streamlines sales and marketing, and was a contributing factor to the EBITDA margin increasing to 36%. Q1 saw continued strong cash flow and a reduction in net debt of about SEK 800 million. This strengthened Meda’s financial headroom. Meda now has considerable investment capacity for further profitable growth. Anders Lönner Group President and CEO SALES Net sales for Q1 decreased 14% to SEK 2,943 million (3,437). Currency effects regarding like-for-like sales had a negative SEK 286 million impact on sales compared to last year. Key product sales in Q1 were: Astepro (allergic and non-allergic rhinitis treatment) had US sales during the period of SEK 97 (46) million. Sales in local currency were up 146% to USD 13 million (5) compared to last year. Astelin (allergic and non-allergic rhinitis treatment) sales totaled SEK 247 million (438). In the US, sales in local currency were down 41%, reaching USD 27 million (46). Sales dipped as a result of rising sales of Astepro, its follow-up, and due to reduced wholesale inventories. Astepro’s proportion of total azelastine prescribed was 43% in March. Sales of Tambocor (treatment of cardiac arrhythmia) amounted to SEK 209 million (236). Calculated at constant exchange rates, sales declined 3% after mandatory price reductions of about 10%. Consequently, Tambocor showed a sturdy growth in volume of about 7%. Betadine (infection treatment) sales decreased to SEK 211 million (229). Sales at constant exchange rates increased 2%. Minitran (angina prevention) sales reached SEK 120 million (139). At constant exchange rates, sales decreased 5%, which corresponds with developments in the segment. Sales of Aldara (treatment of actinic keratosis) amounted to SEK 114 million (121). At constant exchange rates, sales increased 2%. A continued good volume increase in most markets was neutralized partially by reduced inventories at the wholesale level in Germany in conjunction with switching wholesalers. Soma (muscle relaxant) sales amounted to SEK 96 million (120). Sales in local currency were down 7%. The Q1 decline was divided equally between lowered prescribing and lower wholesale inventory levels. Zamadol (moderate to severe pain treatment) sales decreased 10% to SEK 87 million (97). Sales in local currency were down 3%. Meda's sales of Mestinon (treatment of myasthenia gravis, an autoimmune disease) amounted to SEK 65 (67) million. At constant exchange rates, sales increased 5%. Novopulmon (budesonide Novolizer, asthma treatment) sales reached SEK 49 million (61). At constant exchange rates, sales decreased 13% after lower sales to distributors in some export markets in Q1. See page 11 for sales information in Meda’s geographic regions. PROFIT Compared to the same period last year the income measures for the quarter was strongly affected by exchange rate changes. The following table illustrates these currency effects and shows a consolidated income statement in which 2010’s income statement items are translated to 2009’s exchange rates. CONSTANT EXCHANGE RATES 2010 2009 SEK million Q1 Q1 Index Net sales 3,228 3,437 94 Gross profit 2,098 2,269 92 Gross margin, % 65% 66% Operating expenses -1,351 -1,512 EBIT 747 757 99 EBIT margin, % 23% 22% Depreciation and amortization -415 -353 EBITDA 1,162 1,110 105 EBITDA margin, % 36% 32% Net financial items -135 -176 EBT 612 581 105 Tax -199 -196 Tax, % 33% 34% Net income 413 385 107 Operating profit Operating expenses for Q1 amounted to SEK 1,242 million. The lower costs compared to the previous quarter is mainly due to streamlining, since market efforts are aimed increasingly toward specialists. Q4 2009 was also affected by restructuring costs of SEK 131 million. Operating profit for January-March reached SEK 660 million (757), corresponding to a 13% decrease. EBITDA for the same period was SEK 1,059 million (1,110), yielding a 36.0% margin (32.3). Currency effects had a negative impact on EBITDA of SEK 103 million compared to last year. Financial items Group net financial items for Q1 were SEK -130 million (-176). The improvement from last year is due to a lower average interest rate and lower average debt. The average interest rate on March 31, 2010, was 3.7% (4.4). Consolidated earnings after net financial items for Q1 decreased to SEK 530 million (581), a 9% decline. Net income and earnings per share Net income for Q1 decreased to SEK 360 million (385), a 6% decline. Group tax expense for Q1 amounted to SEK 170 million (196), equivalent to a tax rate of 32.1% (33.7). Earnings per share for Q1 reached SEK 1.19 (1.27). CASH FLOW Cash flow from operating activities before changes in working capital rose to SEK 810 million (767) in Q1. Implemented restructuring measures had an impact on cash flow of SEK -72 million (-56). Customary quarterly variations in tied up capital led to a negative change in cash flow from changes in working capital that amounted to SEK -170 million (-18). Accordingly, cash flow from operating activities amounted to SEK 640 (749). Cash flow from investing activities amounted to SEK -90 million (-116) for Q1. In January, Meda acquired exclusive rights to Ceplene from EpiCept Corporation in the US, and in February Meda in-licensed exclusive rights to Xerese from Medivir AB, a Swedish development company. Cash flow from financing activities reached SEK -533 million (-536). Cash earnings per share for Q1 were SEK 2.07 (2.44). FINANCING On March 31, equity stood at SEK 13,670 million compared to SEK 13,664 million at year’s start, which corresponds to SEK 45.2 (45.2) per share. The equity/assets ratio rose to 42.9% from 41.4% at the start of the year. Group net debt totaled SEK 12,641 million on March 31, compared to SEK 13,467 million at year’s start. The SEK 826 million reduction in net debt is primarily attributable to the Group’s cash flow. PARENT COMPANY Net sales for January-March reached SEK 842 million (888), of which intra-Group sales represented SEK 676 million (664). Profit before appropriations and tax reached SEK 152 million (151). Investments in intellectual property rights amounted to SEK 74 million (198) in Q1. Investments in property, plant, and equipment totaled SEK 0 million (0). Financial assets stood at SEK 20,283 million compared to SEK 20,432 million at year-end 2009. AGREEMENTS AND KEY EVENTS • EXPANDED COOPERATION FOR AXORID TO MARKETS OUTSIDE EUROPE In Q1, Meda expanded its partnership with Ethypharm, a French development company, for Axorid to include markets outside Europe, including Canada, Australia, and New Zealand. Previously, Meda held commercialization rights for this patented combination product in central Europe, western Europe, and eastern Europe including Russia and Turkey. Axorid combines two well-known and widely used pharmaceuticals: ketoprofen, a Non-Steroidal Anti-Inflammatory Drug (NSAID) for treatment of rheumatic disorders, and omeprazole, an acid-reducing proton pump inhibitor (PPI). Axorid can prevent gastrointestinal side effects due to NSAID use. Axorid’s once-daily administration can also improve patient compliance. • MARKETING AUTHORISATION APPLICATION FOR ASTEPRO SUBMITTED IN EUROPE A Marketing Authorisation Application (MAA) for Astepro was submitted in Q1 to European regulatory agencies through the decentralized procedure with Great Britain as reference country. • MEDA IN-LICENSES EXCLUSIVE RIGHTS TO CEPLENE Meda acquired exclusive rights to Ceplene (histamine dihydrochloride) from EpiCept Corporation, a US-based biopharmaceutical company. Meda's rights cover Europe and most key Asian markets, including Japan, China, and Australia. Ceplene is indicated for remission maintenance therapy and prevention of relapse in adult patients with acute myeloid leukemia (AML). There is currently no alternative treatment, so there is a significant medical need. Ceplene was approved by the European Commission as an orphan drug, and Meda recently began its launch in the UK. The product will be launched gradually in other important European markets in 2010. • MEDA IN-LICENSES EXCLUSIVE RIGHTS TO XERESE Meda in-licensed exclusive rights to Xerese from the Swedish development company Medivir AB. Xerese is used for the topical treatment of cold sores and contains a combination of acyclovir, an antiviral agent, and hydrocortisone. Meda’s exclusive rights cover the US, Canada, and Mexico. Xerese is the first topical treatment that is indicated to both reduce the likelihood of cold sores and shorten their healing process. Xerese was approved by the FDA in 2009 as a prescription drug. The US market launch is anticipated to begin during 2010. 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 to prospective 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–June Wednesday, August 4, 2010 Interim report, January–September Wednesday, November 3, 2010 The board and CEO affirm that this interim report (1) provides a true, fair summary of the parent company's and Group's operations, position, and earnings, and (2) describes significant risks and uncertainties faced by the parent and Group companies. Stockholm, May 5, 2010 Bert-Åke Eriksson Chairman of the Board Peter Claesson Board member Marianne Hamilton Board member Tuve Johannesson Board member Carola Lemne Board member Anders Waldenström Board member Anders Lönner CEO For more information, contact Anders Larnholt, VP Corporate Development and Investor Relations Phone: +46 8-630 19 62, +46 709-458 878 The company’s auditors did not review this interim report.
