Interim report

INTERIM REPORT JANUARY-SEPTEMBER 1998 * Strong sales growth in most important markets. Astra Pharmaceuticals, Astra's new U.S. subsidiary, started operations on July 1, 1998 * During the period January-September 1998, the Group's sales rose 20 percent, or 14 percent for comparable units1, to SEK 39,072 m. Pretax earnings rose 7 percent, or 12 percent for comparable units, to SEK 11,258 m. Net earnings rose 8 percent, or 10 percent for comparable units, to SEK 8,067 m. * During the third quarter of 1998 Astra's sales amounted to SEK 13,915 (10,986) m. Pretax earnings amounted to SEK 3,005 (3,494) m. Net earnings totaled SEK 2,239 (2,422) m. * Atacand now launched in some 20 countries * Positive preliminary clinical results for perprazole, Astra's new proton pump inhibitor. Astra Pharmaceuticals, L.P., Astra's new U.S. subsidiary, started operations on July 1, 1998, in accordance with the restructured agreement with Merck & Co., Inc. Under the agreement, Astra achieves strategic freedom and control of the operations in the U.S. market, as well as the right to buy out Merck's interest. The new agreement is expected to have an accretive impact of more than 5 percent on the Astra Group's net earnings starting in the year 2000, after an initial dilutive effect of approximately 10 percent during the second half of 1998 and approximately 5 percent for the full year 1999. 1Calculations of changes for comparable units pertain to the situation according to the previous agreement between Astra and Merck. Under the new agreement, all sales of Prilosec (Losec) and Plendil in the U.S. are included in the Astra Group's sales from July 1, 1998, and onwards. Previously, half of sales were included since the half-owned company Astra Merck, Inc., was consolidated according to the proportionate method. The sales-related compensation payable to Merck is now included in the Group's operating expenses. These changes affect comparability with previous reporting periods. The sales-related compensation for Prilosec to Merck amounts to approximately 30 percent of sales. For perprazole the compensation will be lower. For all other products, except these, the sales-related compensation is expected, on average, to be about 15 percent and will decrease gradually over time. Sales Astra's sales during the third quarter amounted to SEK 13,915 (10,986) m., an increase of 27 percent compared with the corresponding period a year ago. For comparable units the sales increase was 7 percent. Sales growth was reduced by wholesale inventory fluctuations in the U.S. between the second and third quarters of 1998. Adjusted for inventory fluctuations, third quarter sales would have been approximately SEK 1,800 m. higher. Sales during the period January-September 1998 rose 20 percent to SEK 39,072 (32,457) m. Price and exchange rate movements did not affect sales growth during the period. For comparable units, sales rose 14 percent. The North American market is Astra's fastest growing market. For comparable units, sales rose 29 percent to SEK 15,494 (9,978) m. Astra's sales in Europe during the first nine months totaled SEK 18,787 (17,115) m., an increase of 10 percent. Among the major European markets, Astra's sales in local currency rose 11 percent in Germany, 27 percent in France and 13 percent in Italy. Astra's sales in the U.K. and Sweden were impacted by parallel trade. Sales in the U.K. and Sweden fell by 13 percent and 5 percent, respectively. In the Asian countries (including Japan), Astra's sales totaled SEK 2,001 (2,581) m., a decrease of 13 percent when adjusted for the divestment of Astra's generics division in Japan. SALES BY PRODUCT July-Sept. Percentage Jan.-Sept. Percentage Full year GROUP (SEK m.) 1998 1997 change 1998 1997 change 1997 Gastrointestin 7,809 5,524 +41 (+40) 21,005 15,656 + 34 (+32) 21,796 al Cardiovascular 2,413 1,984 +22 (+22) 6,818 6,019 + 13 (+15) 8,258 Respiratory 2,018 1,801 +12 (+12) 6,299 5,808 + 8 (+10) 7,994 Pain control 948 928 + 2 (+ 5) 2,768 2,659 + 4 (+ 6) 3,700 Other products 535 588 - 9 (- 8) 1,607 1,807 - 11 (- 10) 2,466 Astra Tech 192 162 +18 (+15) 575 508 + 13 (+13) 691 TOTAL 13,915 10,986 +27 (+26) 39,072 32,457 + 20 (+20) 44,904 Figures in parentheses refer to percentage change calculated at constant exchange rates. Astra's sales of the antipeptic ulcer drug Losec during the period January- September totaled SEK 20,754 (15,466) m., an increase of 34 percent. For comparable units the sales increase was 21 percent. Total sales of Losec in the world market amounted to approximately SEK 28,700 (22,860) m. Sales of the asthma drug Pulmicort rose 9 percent to SEK 3,923 (3,592) m. The product is currently being introduced in the U.S., where sales amounted to SEK 251 ( - ) m. The market penetration in the U.S. has initially developed somewhat more slowly than originally anticipated. During the third quarter, however, prescriptions have increased steadily. The U.S. Food and Drug Administration (FDA) has now also approved Pulmicort for once-a-day asthma treatment for adults and children from the age of six with mild to moderate asthma well-controlled by an inhaled corticosteroid. Regulatory applications for Pulmicort for the treatment of chronic obstructive pulmonary disease are currently being reviewed in some twenty countries. Sales of Oxis, Astra's new long-acting bronchodilator, totaled SEK 221 (34) m. Sales of the beta-blocker Seloken, Astra's largest product in the cardiovascular area, rose to SEK 2,601 (2,241) m., an increase of 16 percent. Sales of the vasodilator Plendil totaled SEK 1,834 (1,680) m., corresponding to an increase of 7 percent for comparable units. The new antihypertensive agent Atacand was recently launched in France, Italy, Spain and the U.S., among other countries, and is now launched in some 20 countries altogether. In Germany the product already has a market-leading position. Sales of Atacand totaled SEK 198 ( - ) m. Regulatory applications for use of Naropin for, among other things, post- operative pain management for up to three days, have been filed in Europe and the U.S. Today Naropin is approved for treatment of pain up to 24 hours after surgery. Sales of Naropin totaled SEK 164 (64) m. The decline in sales of other products was caused by the sale of Astra's generics division in Japan. Earnings Astra's pretax earnings for the third quarter of 1998 totaled SEK 3,005 (3,494) m. Earnings were affected by the restructured agreement with Merck. For comparable units, earnings rose 1 percent. In addition, third quarter earnings were affected by the above mentioned wholesaler inventory fluctuations in the U.S. market. During the period January-September, pretax earnings totaled SEK 11,258 (10,508) m., an increase of 7 percent, or 12 percent for comparable units. Research and development expenditures rose 22 percent during the first nine months to SEK 7,389 (6,067) m. Operating earnings amounted to SEK 10,406 (10,179) m., an increase of 6 percent for comparable units. Operating earnings included SEK 2,455 (2,012) m. in depreciation. The Group's net financial income for the first nine months increased to SEK 852 (330) m. Net interest income totaled SEK 712 (542) m. Financial exchange differences totaled SEK 140 (-212) m., and have been affected by a weaker Swedish krona. Net earnings decreased during the third quarter to SEK 2,239 (2,422) m. During the first nine months, net earnings rose 10 percent for comparable units, to SEK 8,067 (7,461) m. The effective tax rate was 28 (29) percent of pretax earnings. Earnings per share amounted to SEK 4.91 (4.54). Capital Expenditures and Financial Position Astra's capital expenditures totaled SEK 3,359 (3,002) m. during the first nine months, of which SEK 1,602 (1,633) m. were in Sweden. In addition, Astra acquired assets in the U.S. in connection with the new Merck agreement amounting to a total of SEK 11,354 m., of which SEK 7,786 m. was goodwill. The Group's liquid assets at September 30, 1998, amounted to SEK 19,486 (21,594) m. Agreements In October Astra signed a collaboration agreement with the British genomics research company Oxagen Ltd., aimed at identifying hereditary causes behind the development of atherosclerosis. The research program is being conducted in collaboration with clinical research centers in the U.K., Sweden, Germany and Italy. The collaboration agreement has a term of five years and entails a commitment by Astra to pay for research support plus royalties on future products. Also in October, Astra signed a licensing agreement with the French research company NicOx SA pertaining to nitric oxide nonsteroidal anti-inflammatory drugs (NO-NSAIDs). The agreement gives Astra exclusive worldwide rights, excluding Japan (semi-exclusive), to develop and market NO-NSAIDs in the area of pain and inflammation. Astra will cover all costs for clinical development, in addition to paying royalties on future products. Astra decided during the third quarter to return all rights pertaining to ALX1-11, a recom- binant parathyroid hormone (PTH) for treatment of osteoporosis, to Allelix Biopharma ceuticals, Inc., Canada. First Clinical Results for Perprazole In October, Astra presented positive preliminary clinical results on perprazole, Astra's new-generation proton pump inhibitor. The results on short-term treatment of primarily reflux esophagitis (inflammation or ulceration of the esophagus) show that perprazole demonstrates significant clinical superiority over Losec. For patients with severe reflux esophagitis, perprazole shows even greater benefits. Perprazole is being studied in an extensive clinical research program involving over 11,000 patients. Södertälje, Sweden, November 2, 1998 Håkan Mogren President and Chief Executive Officer This interim report has not been subject to special examination by the Company's auditors. Copies of this interim report will be dispatched to Astra shareholders. Astra's year-end report will be released on February 16, 1999. TREND IN FIGURES CONSOLIDATED EARNINGS July-Sept. Percentage Jan.-Sept. Percentage Full year 1 1 STATEMENT 1998 1997 change 1998 1997 change 1997 (SEK m.) Sales 13,915 10,986 + 27 (+ 7) 39,072 32,457 + 20 (+14) 44,904 Operating (11,205) (7,569) + 48 (+15) (28,658) (22,393)+ 28 (+17) (31,392) expenses Operating exchange (19) 13 - (8) 115 - 32 gains/losses Operating 2,691 3,430 - 22 (- 10,406 10,179 + 2 (+ 6) 13,544 earnings 10) Financial 208 233 - 11 846 662 + 28 959 income Financial (47) (45) + 4 (134) (120) + 12 (141) expenses Financial exchange gains/losses 153 (118) - 140 (212) - (60) Net financial 314 70 +349 852 330 +158 758 income/ expenses Minority interests 0 (6) - 0 (1) - 3 in earnings Earnings 3,005 3,494 - 14 (+ 1) 11,258 10,508 + 7 (+12) 14,305 before taxes Taxes (766) (1,072) - 29 (3,191) (3,047) + 5 (4,104) NET EARNINGS 2,239 2,422 - 8 (- 1) 8,067 7,461 + 8 (+10) 10,201 Earnings 1.36 1.47 - 8 (- 1) 4.91 4.54 + 8 (+10) 6.21 per share (SEK) 1 Percentage change figures in parentheses refer to changes for comparable units, i.e. the situation according to the previous agreement between Astra and Merck. SALES - LARGEST Jan. - Sept. Percentage Full Year DRUGS (SEK m.) 1998 1997 change 1997 Losec 20,754 15,466 +34 (+32) 21,526 Pulmicort 3,923 3,592 + 9 (+10) 4,922 Seloken 2,601 2,241 +16 (+16) 3,162 Plendil 1,834 1,680 + 9 (+14) 2,241 Xylocaine 1,379 1,382 0 (+ 2) 1,915 Rhinocort 941 915 + 3 (+ 4) 1,267 Bricanyl 888 927 - 4 (- 2) 1,275 Imdur 670 657 + 2 (+ 4) 913 Marcaine 469 495 - 5 (- 2) 670 Ramace 374 367 + 2 (+ 3) 488 Figures in parentheses refer to percentage change at constant exchange rates. CONDENSED CONSOLIDATED BALANCE SHEET (SEK m.) Sept. 30, Dec. 31, Sept. 30, 1998 1997 1997 Intangible assets 15,958 6,536 6,713 Other noncurrent assets 19,820 18,451 17,126 Inventories and current 15,811 12,814 12,100 receivables Liquid assets 19,486 24,479 21,594 ASSETS 71,075 62,280 57,533 Stockholders' equity 51,124 46,015 43,274 Provisions 5,463 6,399 5,642 Liabilities 14,488 9,866 8,617 STOCKHOLDERS' EQUITY AND LIABILITIES1 71,075 62,280 57,533 1 of which, interest-bearing provisions 3,908 3,500 2,997 and liabilities OTHER Sept. 30, Dec. 31, Sept. 30, 1998 1997 1997 Return on capital employed 25 26 28 (%) Return on stockholders' 25 27 28 equity (%) Equity ratio (%) 72 74 75 Number of shares, millions 1,643.2 1,643.2 1,643.2 Contact persons: Staffan Ternby, Vice President, PR & Information, Astra AB, +46-8-553 261 07 Mikael Widell, Press Manager, Astra AB, +46-8-553 264 28 Michael Olsson, Manager, Investor Relations, Astra AB, +46-8-553 259 52 Jörgen Winroth, Investor Relations U.S., Astra AB, +1 609 896 4148 ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are ready for download: http://www.bit.se/bitonline/1998/11/02/19981102BIT00130/bit0001.pdf http://www.bit.se/bitonline/1998/11/02/19981102BIT00130/bit0002.doc