Meda AB (publ.) January–September 2006 interim report

• Group net sales reached SEK 3,904.6 million (1,613.7).

• Operating profit rose to SEK 1,111.4 million (361.3).

• Profit after tax increased to SEK 614.5 million (209.5).

• Profit per share rose to SEK 5.88 (2.18).

• Profit level nearly tripled.

• Increased full-year forecast.

The Meda Group’s net sales for January-September totalled SEK 3,904.6 million (1,613.7). Asthma products Novopulmon, Formatris, and Ventilastin continued to display robust growth, and the sales development for major products Betadine and Tramadol remained positive during the period.

Group sales during Q3 2006 totalled SEK 1,254.6 million (901.7). Marketing companies in the Nordics and Belgium grew strongly during Q3. France, Germany, the UK, Spain, and Italy met expectations. Export operations to markets outside Europe are receiving increased orders and now have an annual sales of more than SEK 500 million.

Operating profit
The Group’s operating profit for January-September rose to SEK 1,111.4 million (361.3).

As stated previously, operating profit includes non-recurring effects in the form of capital gain. In Q1 2006, sale of a production plant had a positive effect of SEK 76.4 million on profit. In Q2, the partnership contract with Almirall, a Spanish pharma company generated capital gain of SEK 247.5 million (of which intangible assets account for about SEK 140 million).

Operating expenses for the period were SEK 1,488.5 million (625.2). Depreciation accounted for SEK 283.5 million (134.5) of these expenses. During Q3, the cost level was lower than in Q2, partly because Almirall assumed some development costs due to the new partnership contract.

Earnings before interest, taxes, depreciation and amortisation (EBITDA) for the period totalled SEK 1,394.9 million (495.8). Excluding non-recurrent effects from disposals, EBITDA stood at SEK 1,072.4 million.

So Meda has already attained profitability (EBITDA margin after non-recurrent effects) of, on average, 27.5% during the first nine months of 2006. The target in conjunction with the Viatris acquisition one year ago was to reach at least 25% by 2007. Even though Viatris, a much larger company, had a clearly lower profitability margin (an EBITDA margin of about 15% for 2005) than Meda, the integration and the Almirall partnership enabled the new profitability level to be reached much earlier than forecast.

Financial items
In January-September, Meda reduced its interest-bearing net debt by SEK 650.0 million to SEK 4,610.8 million. The Group’s net financial items for the period were SEK -189.1 million (-122.9). Group profit after net financial items for the period thus totalled SEK 922.3 million (238.4).

Net profit
Group tax expense for January-September amounted to SEK 307.8 million (70.7), equivalent to a 33.4% tax rate (29.7).

Net profit from remaining operations was SEK 614.5 million (167.7) for the period, equivalent to profit per share of SEK 5.88 (2.18) before dilution.

Thanks to strong cash flow from operating activities, Meda’s financial position was strengthened during the first three quarters of 2006.

Cash flow from operating activities (before changes in working capital) for January-September rose to SEK 744.0 million (354.9). Implemented restructuring measures affected cash flow by SEK -93.8 million. An advance payment of SEK 98.7 million from Almirall during Q2 2006 had a positive effect on working capital. The total change in working capital was thus SEK -145.6 million (-36.5). So total cash flow from operating activities stood at SEK 598.4 million (318.4).

The Group’s net investments for January-September totalled SEK 106.1 million (6,256.5). Two major events occurred during Q1 2006, Meda acquired Parlodel for SEK 375.2 million and a production plant was sold in the Netherlands for SEK 83.0 million. During Q2, Meda entered into a strategic partnership with Almirall, which generated SEK 280.0 million. In August, the company signed an exclusive licence agreement with BioDelivery Sciences International for BEMATM Fentanyl for all European countries. SEK 18.2 million (USD 2.5 million) was paid in conjunction with signing the contract.

Cash flow from financing activities was SEK -712.9 million (6,424.4) for January-September. During the period, net amortisation of bank loans totalled SEK 663.4 million. Dividend of SEK 52.2 million was paid to Meda’s shareholders in Q2 2006.

The Group’s cash and cash equivalents at the end of September amounted to SEK 107.4 million, compared to SEK 331.4 million at the year’s start. In addition, unused confirmed credit facilities stood at SEK 1,800.3 million. Net debt totalled SEK 4,610.8 million, compared to SEK 5,260.8 million at the year’s start. The equity/assets ratio rose to 37.3% from 32.7% at the start of 2006.

On 30 September, equity amounted to SEK 4,262.2 million, compared to SEK 3,759.6 million at the start of the year, which corresponds to SEK 40.79 (35.98) per share.

In August, Meda and BioDelivery Sciences International, Inc. (BDSI), a U.S. pharma development company, signed an exclusive licence agreement for the BioErodible MucoAdhesive Disc (BEMA Fentanyl) - in all European countries. The BEMA is a patented technology that was developed to enable efficient drug delivery. The technology consists of a thin disc that attaches to the mucous membranes in the mouth. Medication is quickly absorbed in the blood to provide pain relief.

BEMA Fentanyl is in Phase III, and being documented for treatment of acute breakthrough pain in cancer patients. The market segment potential is estimated to be worth around SEK 4,000 million. Meda plans to submit an application to the European authorities within 18-20 months.

Meda paid USD 2.5 million and will pay up to an additional USD 7.5 million in milestone payments at specified development and commercialisation stages.

During the spring, Meda decided to establish operations in Poland and Hungary, which are markets with strong growth potential. A marketing organisation is now in place.

Due to the continued positive trend, Meda presents this full-year forecast for 2006:
“Meda’s earnings before interest, taxes, depreciation and amortisation (EBITDA) for all of 2006 are expected to be about SEK 1,750 million.

The previous full-year forecast for 2006 was:
“Meda’s earnings before interest, taxes, depreciation and amortisation (EBITDA) for all of 2006 are expected to exceed SEK 1,500 million.

Meda complies with the EU-approved IFRS standards and their interpretation (IFRIC). This interim report was prepared as per IAS 34 Interim Financial Reporting. The policy for reporting the primary segment was changed from business areas (Pharma and Medical Device) to geographic classification. In other respects, the Group’s accounting policies and calculation methods remain unchanged from the 2005 annual report.

Summarised financial statements for 2006 will be published on 20 February 2007.

Stockholm, 2 November 2006

Anders Lönner

The company’s auditors did not review this interim report.

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Meda is one of Europe's leading specialty pharma companies, with focus on marketing and market-adapted product development. Long-term partnerships and acquisitions are fundamental factors in its strategy.


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