Financial statement, 1998

FINANCIAL STATEMENT, 1998 ¤ Medivir outlicenses HIV substance MIV-150 to Chiron Corp. ¤ Medivir and Chiron in research collaboration regarding future HIV drugs. ¤ Medivir acquires combinatorial chemistry technology from Chiron. ¤ Proceeding as planned: phase II trials with Medivir's ABT-606 substance against shingles and the new treatment principle against cold sores and genital herpes. ¤ Abbott has decided to exercise its contractual possibility to sublicense ABT-606. Negotiations are ongoing and Medivir is an active participant in this process. ¤ Result after financial items was SEK -38.8 (-2.6) m. This figure is entirely according to plan and the consequence of the rapid expansion of Medivir's research initiatives. ¤ CCS extends its activities with new launches targeted at professional users, as well as the retail sector during 1999. [REMOVED GRAPHICS] Medivir outlicenses its HIV substance MIV-150 to Chiron Corp. In early-January 1999, Chiron Corporation of Emeryville, California licensed the global rights to PETT, now renamed MIV-150, an example of a non-nucleoside reverse transcriptase inhibitor (NNRTI). Chiron gains exclusive rights to market and sell this drug. Chiron and Medivir will collaborate in developing MIV-150, as well as pursuing clinical trials. The first trial in humans (phase I) is expected to begin during the first half-year 1999. The agreement may yield Medivir a total of USD 35 m in license fees. Additionally, Medivir will receive royalty income from future sales, up to and including the year 2017. Medivir received USD 5 m as an upfront payment upon signing the agreement. Chiron will fund the project's development costs. At the 12th International AIDS Congress in Geneva, it became very apparent that despite major progress in recent years, there is a sizeable and growing need for new pharmaceuticals against HIV/AIDS. MIV-150 belongs to the direct- acting polymerase inhibitor, NNRTI type group. This group represents a promising candidate for HIV therapy; a new pharmaceutical in this class is now being recommended as a primary treatment in combination with two other drugs. In laboratory tests the Medivir compound is extremely active against HIV and resistant HIV and could be an advance over existing therapies. Medivir and Chiron in research collaboration regarding future HIV drugs Chiron Corporation has also signed a new agreement with Medivir regarding a funded research program to develop new pharmaceuticals against HIV/AIDS. This new agreement may provide Medivir with a total of USD 4 m in research support over two years, while also granting Chiron an option to license patent rights from the program. Medivir acquires access to new technology Under a third agreement with Chiron Medivir acquires combinatorial chemistry technology. This new technology improves the opportunities to optimize pharmaceutical substances and, for Medivir, implies more efficient and faster drug development. Chiron is a leading player in the development of combinatorial chemistry. The collaboration between the two companies is now being extended to encompass a know-how exchange in this area. Researchers from Medivir will be trained at Chiron. Medivir's substance ABT-606 against shingles now in phase II trials in several countries Phase II trials with Medivir's shingles substance ABT-606 began according to plan in June 1998. The objective of the trials is to demonstrate the efficacy of ABT-606 on patients with shingles caused by the varicella zoster virus (shingles virus). The trials are now underway at several centers in the US, Europe and Australia. These phase II trials are based on favorable results from phase I trials on healthy volunteers, where high plasma levels of the active substance were achieved, and a good safety profile without significant side-effects was observed. In laboratory trials, ABT-606 is very active against the varicella zoster virus and a number of other viruses. Medivir has outlicensed ABT-606 to Abbott Laboratories, which is now undertaking a clinical evaluation and holds global marketing rights. Abbott has decided to exercise its contractual possibility to sublicense ABT- 606. Negotiations are ongoing and Medivir is an active participant in this process. Healthy progress for ME-609, a new oral and genital herpes treatment Medivir and Astra are collaborating in the development of a treatment for cold sores and genital herpes (patent pending) based on a combination of an antiviral and an immunomodulator. Medivir's subsidiary CCS has developed a cream base for this combination. Favorable laboratory results have been achieved by Medivir and collaborating researchers in Sweden, the UK and US. Both phase I and II trials are expected to begin in 1999. Appointment of leading clinical centers for these studies has started. Development of FLG prodrug against hepatitis B FLG's oral bioavailability has been improved by making chemical modifications, resulting in a new FLG prodrug with favorable characteristics (patent pending). The FLG prodrug against hepatitis B substance is now being driven towards clinical trials. Large-scale synthesis for safety evaluation is currently in hand with a contract manufacturer, although start material delivery delay has postponed the project by about six months. The safety evaluation will get under way during the year 1999 in contract laboratories, in order to make clinical trials possible during the year 2000. The FLG substance is highly effective against the hepatitis B virus and, in published in vitro trials, has exhibited greater efficacy than lamivudine (3TC) and famciclovir, both of which are effective on patients but lead to resistance development. Other research activities Apart from the successful development of MIV-150, Medivir is also pursuing research and development associated with new inhibitors against HIV. Medivir researches on two types, active against protease and polymerase. In autumn 1998, Medivir concentrated its HIV protease inhibitor activities on what is known as the BEA series, a promising new type of inhibitor that is highly active and relatively simple to manufacture. The objective is to be able to choose a candidate drug (CD) from the series during the first half-year 1999. Medivir's research associated with new types of prodrug is continuing as planned; the intention of this project is to modify existing and future pharmaceuticals to improve absorption in the digestive tract. Medivir has submitted several patent applications for prodrugs. The desired improvement to the absorption of one existing pharmaceutical has been achieved. This drug is now being studied more closely and these promising trials are now being extended to encompass other pharmaceuticals. The objective is to initiate discussions regarding outlicensing during 1999. Together with BioAgri AB, owned by Lantmännen Invest AB and researchers at the Swedish Agricultural University in Uppsala (SLU), Medivir has initiated a joint venture denoted Agrivir*, in order to utilize new types of microorganism to refine and structurally pinpoint substances effective against disease- inducing fungi. *Name changed because it proved impossible to protect the project's former name- Biovir- internationally. If active and patentable substances are produced from this joint project, Medivir will pursue further refinement towards human medical applications, with BioAgri undertaking development for agricultural use. Personnel have been employed and accommodation rented at the Agricultural University, Uppsala, Sweden. Several exploratory university projects are being pursued to enhance Medivir's long-term supply of new pharmaceutical substances in the infection sphere. In 1989-1994, Medivir had a collaborative research and development agreement with US pharmaceutical company Eli Lilly. Medivir gained significant annual research support, while Eli Lilly held preferential rights to the licensing of those substances the companies developed together. This collaboration was concluded in 1994, with the joint research projects being retained by Medivir (in a concluding agreement), while Eli Lilly was entitled to a share of future licensing revenue. Of the formally joint projects, only the development of Medivir's MIV-150 is still being pursued. During 1998, Medivir renegotiated the agreement, so that Eli Lilly's share of the down-payment and future milestone payments would be replaced by a fixed sum, as well as a significant reduction of the royalty level. Medivir paid a portion of this sum to Eli Lilly in 1998 and will pay the remainder during 1999. Subsequently, Eli Lilly will hold no rights to future milestones. CCS CCS extends its activities with new launches targeted at professional users, and to the retail sector As an element of CCS's strategy to increase sales on new markets, a new skin- care range has been produced, branded Prosolid. The range is specifically adapted for industrial use. A collaboration has been initiated with Ejendals, one of the leading distributors of protection products for professionals. A pilot launch was implemented during the fourth quarter of 1998, with very positive results. Now, sales will be extended to cover the entire Swedish market. CCS has also teamed up with retail chains Life and Ego, with the intention of launching a new range of body cleansing and skin-care products for the retail sector in 1999. These products will be branded Naturén. According to CCS's brand strategy, Apoteket AB (the Swedish National Pharmacy Corporation) will be the sole sales channel for CCS brand products. CCS's operations are focused on self-administered care and OTC pharmaceuticals (non-prescription). The trend from previous years, towards the increased usage of generic preparations and self-administered products is continuing. Both end-users and medical practitioners are becoming increasingly price-conscious, and it is here that CCS, with its value-for-money products, enjoys an advantage. CCS's strategy is to increase its sales on new markets; the company will be able to proceed in this direction during 1999 as a consequence of its recent agreements. Investments in the extension of factory facilities, as well as the acquisition of equipment during 1998, imply that CCS is well equipped in both quality and capacity terms. Ordinary retail goods During the year, CCS's biggest product group, ordinary retail goods, fell by 8.7% to SEK 31,511,000 (34,518,000). The inclement summer weather was a contributor to this downturn, implying reduced demand for sun-screen and other skin-care products. Pharmaceuticals Sales of CCS's registered pharmaceuticals including sterile solutions grew by 21% to SEK 13,328,000 (11,023,000) during the period. CCS's hydrocortisone preparations are currently the Swedish market leader. Demand for CCS's registered pharmaceuticals is assessed to remain firm. Minilancet Sales of the CCS Minilancet declined by 7.8% in the period to SEK 11,172,000 (12,122,000). This decline is entirely associated with the Swedish market, which is subject to price pressure. CCS is also exposed to competition on this market, which the company itself considers to be patent infringement. The date for the introductory legal hearing on this issue is now set for 16 February. Dental Sales of CCS's dental range were stable during the year, amounting to SEK 2,627,000 (2,713,000). The Medivir group's revenues and expenses Group net sales amounted to SEK 69,473,000 (82,379,000). Operating costs increased to SEK -121,474,000 (-93,673,000), including goodwill amortization of SEK -1,693,000 (-1,758,000). The net financial position was SEK 12,666,000 (9,698,000). Profit after financial items amounted to SEK -38,785,000 (-2,561,000). Earnings per share were SEK -5.87 (-0.40). Net sales of parent company Medivir AB amounted to SEK 8,572,000 (21,003,000), with operating profit of SEK -55,916,000 (-18,582,000). Profit after financial items amounted to SEK -43,802,000 (-9,539,000). The profit decline, which is entirely according to plan, is due to the rapid expansion of Medivir's research initiatives, with several projects now approaching clinical trials. CCS AB's net sales amounted to SEK 59,612,000 (60,871,000) for the period. Operating profit amounted to SEK 6,346,000 (8,546,000). Profit after financial items was SEK 7,025,000 (9,197,000). Of CCS AB's total sales SEK 16,948,000 (16,128,000) are derived from contract manufacture, with SEK 15,190,000 (14,157,000) from export sales. CCS (UK) Ltd. achieved sales of SEK 2,455,000 (1,894,000), up 22% in local currency terms. Financial position Group liquid funds including short-term investment amounted to SEK 133,334,000 (174,137,000 as of 31 December 1997). On 31 December 1998 and 31 December 1997, the company had no interest-bearing liabilities. Shareholders' equity declined to SEK 210,539,000 (247,412,000 as of 31 December 1997). Group equity ratio was 89.4%, against 89.3% on 31 December 1997. Investments Gross investments in group fixed assets stood at SEK 15,746,000 (23,718,000) during the period. Investments are primarily attributable to the extension and completion of existing laboratory facilities, as well as the acquisition of equipment for Medivir AB, plus the extension of factory premises and the acquisition of equipment for CCS AB. Continued expansion During 1999, Medivir AB will continue its R&D expansion, with limited staff recruitment planned. The initiatives that have been pursued are directly associated with the development of Medivir's research projects. If MIV-150 proceeds according to plan, the resulting milestone payments imply that the Medivir group may reach break-even in 1999. Although CCS's sales are expected to increase, they are heavily dependent on the outcome of the current Minilancet patent dispute, as well as the launch of new products on new markets. The operation in Borlänge, Sweden plan to maintain an unchanged personnel manning. To summarize, the following schedule applies to Medivir's most important projects in 1999: ABT 606: Phase II trials continue as planned during 1999. ME-609: Phase I and II trials expected to start during 1999 MIV-150: Phase I trials expected to start in the first half of 1999. FLG: Continued contract laboratory work; preparation to start phase I in the year 2000. Prodrugs: Additional development work, followed by the commencement of outlicensing. Dividends The Board has decided to propose to the Annual General Meeting that SEK 0 (0) be paid in dividends. Annual General Meeting The AGM will take place at the Polstjärnan Conference Center, Sveavägen 77, Stockholm, Sweden, on 5 May 1999 at 5.00 p.m. Forthcoming reports The complete Annual Report will be available from Medivir in April and will be distributed to shareholders simultaneously. The interim report for the first three months of the year will be published on 5 May 1999. The interim report for the first six months of the year will be published on 18 August 1999. The interim report for the first nine months of the year will be published on 27 October 1999. Medivir's operations Medivir is a research and development company. The business concept is to develop new and improved substances for the treatment of infectious diseases and to develop, manufacture and market skin-care products and pharmaceuticals within CCS. The Medivir group comprises the parent company Medivir AB, plus the wholly owned subsidiary CCS AB, with its UK subsidiary CCS (UK) Ltd. Huddinge, Sweden, 10 February 1999 Jonas Frick, President and CEO This report has not been subject to any specific review by Medivir's auditors. For further information, please contact: Jonas Frick, President or Anna Bernsten, Vice President, Investor Relations and Business Development, tel: +46 (0) 8 608 3100. Information relating to Medivir is available on the Internet at: www.medivir.se ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/02/10/19990210BIT00240/bit0001.pdf Figures http://www.bit.se/bitonline/1999/02/10/19990210BIT00240/bit0002.pdf Financial Statement