2 0 0 8 A n n u A l r E P o r t

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2008 annual report

Meda AB, Pipers väg 2A, Box 906, SE-170 09 Solna, Sweden Phone: +46 8-630 19 00, Fax: +46 8-630 19 50

info@meda.se www.meda.se

MEdA’S 2008 AnnuAl rEPort

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1 Contents | 2008 annual report

ACQUISITION OF VALEANT’S OPERATION IN WESTERN AND EASTERN EUROPE With sales in 2008 of about SEK 1,100 million, operations in western and eastern Europe, and reinforcement of the central nervous system (CNS) and dermatology therapy areas, the Valeant acquisition follows Meda’s growth strategy. Meda also established a marketing organization in Russia via this acquisition.

ACQUISITION OF PRODUCT PORTFOLIO FROM ROCHE

Acquisition of four well-established specialist drugs from Roche, a Swiss pharmaceutical company, further strengthened Meda’s position in the pain and inflammation, cardiology, and CNS therapy areas. The products have strong brands, and annual sales are expected to reach about SEK 500 million.

Milestones

MEDA | Milestones

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2008 in figures | 2008 annual report

2008 in figures

%

0 5 10 15 20 25 30 35

2008 2007

SEK million

0 500 1,000 1,500 2,000 2,500

2008 2007

*excl. non-recurring effects SEK million

0 200 400 600 800 1,000 1,200

2008 2007

0 2,000 4,000 6,000 8,000 10,000 12,000

2008 2007

SEK million NET SALES

OPERATING PROFIT* PROFIT AFTER TAX*

EBITDA MARGIN*

Group sales reached SEK 10,675 million (8,145).

•

Operating profit rose to SEK 2,302 million (1,670).

•

Excluding non-recurring effects, operating profit rose to SEK 2,517 million (1,890).

Profit after tax rose to SEK 954 million (833). Excluding non-

•

recurring effects, profit after tax rose to SEK 1,071 million (874).

Earnings per share (EPS) increased to SEK 3.49 (3.36). Exclud-

•

ing non-recurring effects, EPS rose to SEK 3.92 (3.52).

Proposed dividend per share: SEK 0.75 (0.75).

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*excl. non-recurring effects

3

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CEO’s report

MEDA | CEO’s report

Strong growth characterized 2008. Sales rose to SEK 10,675 million via acquisitions, new partnerships, and organic growth for prioritized products. Profit development continued to be good. Suc- cessful integration of Valeant’s pharmaceutical operation in western and eastern Europe led to significant geographic expansion and establishment of new business platforms, particularly in Russia.

Today, Meda has sales organizations in 42 countries and markets its products through partnerships in about 120 countries. De- spite recent rapid expansion, Meda’s stable operation spreads geographic and product risks well. No single product accounts for more than 15% of total sales and no single market for more than 20%.

A short summary of 2008 reveals that Meda’s sales rose to SEK 10,675 million

(8,145), a rise of 31%. Earnings before interest, taxes, depreciation, and

amortization (EBITDA) rose 36% to SEK 3,640 million, and the EBITDA

margin (excluding non-recurring effects) was 34.1% (32.8).

Streamlined administration, a highly efficient sales and marketing organization, and outsourcing of specialized services characterize the Meda model. Conse- quently, Meda remains flexible and can rapidly implement new business opportunities. Meda’s success is based on the teamwork and efforts of all its employees.

We aim to use the expertise of acquired companies and to encourage international professionalism—everyone in the Group has the same professional development opportunities. The will to set new goals, the drive to meet and exceed them, and the ability to adapt to change in a highly competitive market yield obvious results.

The support of Meda’s shareholders is also vital. In November—during the global financial crisis and rapid slowdown in the global economy—Meda’s new share issue was oversubscribed. We will do our best to maintain the great trust placed in us.

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5 CEO’s report | 2008 annual report

GOING FORWARD

Meda will make key launches in the coming period. The pipeline contains one or two significant launch possibilities per year for the next three years. These include:

Astepro (treatment of rhinitis, a

•

follow-up to Astelin), FDA-approved in October 2008.

Azelastine once-daily, now in the regis-

•

tration phase with the FDA.

Onsolis, a new pain product with

•

expected FDA approval in Q2 2009.

A ketoprofen-omeprazole combina-

•

tion product—the first in its class to be approved in Europe.

Future royalty income from Retigabine can be substantial. GlaxoSmithKline and Valeant will market the product globally, and if sales reach expected levels, Meda’s royalty income could reach SEK 600–800 million annually. The new drug application for the epilepsy indication is expected to be submitted to the FDA in 2009.

In coming years, Meda will further strengthen its position as a world-leading specialty pharma company. Successful acquisitions provide us with a good, stable cash flow. Meda’s strong pipeline could also facilitate future opportunities.

Anders Lönner President and CEO

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MEDA | Trends and specialty pharma

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7 Trends and specialty pharma | 2008 annual report

Trends and specialty pharma

PHARMACEUTICAL MARKET

Industry experts indicate that the 2008 global pharmaceutical market totaled nearly USD 750 billion. North America and Eur- ope dominate the market, with North America making up more than 40 percent of global pharmaceutical sales, while Europe represents more than 30 percent. The five largest markets in Europe are France, Germany, Italy, Spain, and the UK, which together make up more than 60 percent of the European market.

Recent years have seen 4–5 percent growth in North Ameri- can and European pharmaceutical markets, with North America in the lower range of the interval and Europe in the upper.

GROwTh FACTORS

The most critical growth factors are due to changes in available medicines and demographic evolution—our populations are growing older and requiring more medicines.

The increasing proportion of elderly persons, primarily in developed nations, has led to a gradual increase in use of pharmaceuticals. Demand for medicines for age-related diseases is on the rise, as are costs. Average cost of medications for a 60-year-old is estimated to be double that of a 40-year-old. The shift from inpatient to outpatient care has led to an increasing number of patients receiving drug treatment for longer periods.

Maintenance treatment to prevent hospital stays has received high priority from care providers and greater acceptance from patients. Growth in number of patients, coupled with increased use of medications per patient, has led to an upswing in pharmaceutical market volumes, regarding number of prescriptions and doses.

As more people can afford medications and the population continues to age, new drug R&D is increasingly focused on lifestyle diseases and illnesses that were never before subject

to drug treatment. Newly developed drugs that target a relatively rich population are often expensive. In many cases, such prices can be justified from a completely social or medical perspective because they reduce expenses in other areas. In other cases, pharmaceutical companies’ marketing has led to prescribing changes. Most rising pharmaceutical costs in developed countries are due to doctors more often prescribing new, usually more expensive drugs. Changes in the total pharmaceutical range can also have a cost-lowering effect, for example, increased prescription of generic drugs (chemical equivalent to a more expensive brand-name drug whose patent has expired).

CHANGING PHARMACEUTICAL MARKET

Growing competition in the pharmaceutical industry has led to greater consolidation in recent years. Several big international pharmaceutical companies—big pharma—have merged to leverage economies of scale in production and marketing and to promote R&D productivity. This development, together with the increasing impetus to find new blockbusters—drugs with extremely high sales figures—has led big pharma to concentrate its resources on a smaller number of products.

One effect of this focus on blockbusters is that many medically valuable products—which are simply not big enough or are too local (with sales confined to a few geographical markets)—

are of less interest to big companies. In some cases, these companies completely abandon certain therapy areas to focus on those in which they pursue long-term research.

Due to limited resources, small, medium-sized, and new pharmaceutical companies are forced to concentrate on their core activities; this has helped several new companies find a niche in the market. As R&D, production, or pharmaceutical marketing

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and sales specialists, they can offer specialized services as outsourcing to small companies so that the latter have no need for big, expensive organizations, which until now have been typical of the pharmaceutical sector.

ChANGED MARKET CONDITIONS

Due to the high cost of publicly financed medicine in Europe, influence over choice of medications has gradually shifted from the prescribing doctor to various coordinating committees and purchasing organizations. The American market also faces major changes. This turns the spotlight on direct product compari- sons—of medical properties and price—which radically changes the playing field for the pharmaceutical industry.

INCREASING PhARMACEuTICAL COSTS

Going forward, pharmaceutical costs are expected to rise further, despite greater cost awareness among health authorities worldwide. Why? Because:

Demand for medicines is rising as the population ages.

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Lifestyle-disease prevention has increased, especially blood

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pressure and blood lipid lowering drugs.

Maintenance treatment with expensive new drugs for dis-

•

eases, such as cancer, has increased.

The price-pressing effect of the expiration of several key pat-

•

ents in recent years is expected to fade, because fewer such patents are scheduled to expire in the future.

Prices can mainly be controlled by legislation and regulation of subsidies for prescription drugs and by instructing prescribing doctors to always select the least expensive equivalent. Regula- tions vary from country to country. To further complicate mat- ters, nations’ attempts to maximize competition by minimizing obstacles for new players must be balanced against the impera- tive to secure safe medicines for consumers.

Exchange-rate fluctuations can also result in significant price variations for the same drug in various countries. Sometimes those price differences make parallel trade with medicines fea- sible, which in turn prevents excessive price differences.

GENERICS

Generic drugs—less-expensive copies of medicines whose patents have expired—are often used as alternatives to the original drugs.

The US is the biggest market for generics, while generic usage varies greatly from country to country in Europe. In several of the newest EU member states, such as the Baltics and Poland, generic drugs represent a large proportion of total prescriptions—

in some countries more than 70 percent of the volume. At the same time, generics are not widely prescribed on many large markets; France, Italy, and Spain prescribe a low proportion of generic drugs. Denmark, Germany, Sweden, and the UK fall in the midrange. But Germany and the UK have the greatest sales of generic drugs, in terms of value.

SPECIALTY PHARMA

Due to the previously mentioned pharmaceutical industry trends, a new type of drug company has developed—specialty pharma.

Here, the business concept often involves assertively taking advan- tage of opportunities for product acquisitions of everything from small niche products to potential blockbusters, while meeting market demands for cost-effective solutions. A trend of consolidation through mergers is expected in specialty pharma companies.

A specialty pharma company may take responsibility for product development in the later clinical phase but often refrains from capital-intensive, risky early research because new drug development cost—from early clinical research to product launch—has skyrocketed.

Instead, new products are acquired by working actively and systematically to identify products for in-licensing or acquisition. Specialty pharma companies can take over and develop medically valuable products that large companies are giving lower priority. Greater focus on marketing and sales helps retain volumes at satisfactory levels.

A specialty pharma product portfolio can contain everything from purely generic drugs to refined specialist products. In general, increasing focus is being placed on specialist drugs that target a small, but clearly defined group: niche busters.

Specialty pharma companies are often attractive partners for pharmaceutical and biotech companies with no marketing organizations. They have the capacity and expertise to manage potential global blockbusters and smaller niche products, and they can adapt their marketing to local conditions.

Broadly speaking, the specialty pharma sector falls into three segments, based on focus:

MEDA | Trends and specialty pharma

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9 Trends and specialty pharma | 2008 annual report

1. ACQuISITIONS AND IN-LICENSING

Companies that build a product portfolio in one or a limited number of therapy areas via acquisitions and in-licensing. By limiting their activities to a handful of therapy areas, but retaining the opportunity to focus on blockbusters and niche products, these companies can compete with much larger companies and win substantial market share with limited capital investment and minimal risk. This segment includes companies that combine marketing of specialist products and acquired original brands with product development of, say, a new pharmaceutical formulation or a new indication. Such market-adapted product development is often called product life-cycle management. Meda’s aim is to be a key global player in this category of specialty pharma companies.

2. DRuG DELIVERY

Companies that specialize in developing various drug delivery methods—finding new ways of getting medication into the body, such as using a tablet, capsule, injection, spray, inhaler, or patch.

Often, this involves inventing a new administration technique for patent-free substances to create a new, improved, patented product. Risks and development costs for this type of product development are significantly lower than for traditional research. This

segment includes companies that focus solely on developing new drug delivery technologies and companies that combine development technology with marketing of the most important of their own products, often in collaboration with other companies.

3. GENERICS

Companies that primarily market and sell generic products. In some cases, certain aspects of these products can be improved.

Focus is largely on substances for blockbuster products, because volume is a key factor for generic companies.

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Strategy and business development

MEDA | Strategy and business development

Once a Nordic distributor with sales of about SEK 120 million, Meda has evolved since 2000 to become a leading international specialty pharma company. Meda is fully represented in Europe and North America through its own sales organizations in 42 countries, with about 1,700 employees in sales and marketing and sales of more than SEK 10 billion.

The pivot of the strategy was to build a future with Meda’s own products. This has been accomplished via acquisition of product rights; greater focus on long-term partnerships;

and enhanced skills in sales, marketing, and business development. More than 90 percent of Meda’s product portfolio now comprises its own products, up from about 20 percent in 2001. Meda has used a cost-effective approach with a focus on medical quality to meet cus- tomer needs. Efforts have been oriented mainly toward identifying potential acquisitions and in-licensing opportunities.

During 2003–2005, Meda acquired several small pharma companies in northern Europe and several medically well-motivated products from companies including GlaxoSmithKline, Novartis, Wyeth, and Omega Pharma/Pfizer. In parallel, Meda began building its own marketing companies in key European countries, such as France, Germany, Italy, and the UK.

In 2005, Meda acquired Viatris, a German pharmaceutical group, which was a milestone in Meda’s continued development and trans- formed Meda into one of the leading specialty pharma companies in Europe. The previously announced plans—to establish marketing companies in the major European markets—

were realized via the Viatris acquisition. Meda gained access to several established marketing

organizations, which yielded significant sales synergies.

When it acquired 3M’s European pharmaceutical division in early 2007, Meda solidified its position as a leading European specialty pharma company. Market position was further strengthened in the top European pharmaceutical markets, and Meda’s impact in the key cardiology and dermatology therapy areas grew.

Meda finalized the MedPointe acquisition (a US specialty pharma company) in August 2007. The acquisition established Meda as an international specialty pharma company with its own US sales organization.

Expansion continued in 2008; Meda acquired Valeant’s pharmaceutical divisions in western and eastern Europe and world rights to four drugs from Roche, a Swiss pharma company. Annual sales surpassed SEK 11 billion, and Meda is now an international leader among specialty pharma companies.

The strategy adopted in 2000 remains highly relevant for the future. Acquired companies are immediately integrated into Meda’s Group organization, and mature and specialist product acquisitions are transferred directly to the corporate product portfolio.

Meda puts priority on marketing and constantly strives to maintain the strength of a small company in its flat organization with short decision paths and accelerated work processes. Combined with the resources of a large company, this creates clear competitive advantages and ensures continual realization of key business opportunities.

Product acquisitions are preceded by meticulous analysis based on several criteria, such as the product’s phase in the life cycle, Meda’s business concept is…

…to offer cost-effective, medically well-motivated products.

Goal Enhance its position and become the world-leading specialty pharma company.

Means Active acquisition strategy and organic growth through market-adapted product development.

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11 Strategy and business development | 2008 annual report

brand strength, patent protection, profitability, complexity of product formulations, and potential for continued product development.

Aimed at enhancing future organic growth in the key therapy areas, drug development is another component in Meda’s strategy. A strong pipeline has been built up in recent years. As in the past, Meda still refrains from capital- intensive, risky early research to instead concentrate on late clinical phase development.

Numerous important advances in drug development were made in 2008, and Meda expects registration approvals and market launch opportunities for several products in 2009, mainly:

Astepro, a follow-up to Astelin approved by the FDA in

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October 2008. Market launch began in Q1 2009.

Azelastine once-daily, for which the FDA accepted the

•

registration application as complete for final evaluation.

Onsolis, a new pain product for which FDA approval is

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expected in Q2 2009.

The first NSAID and proton pump inhibitor combination

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product (ketoprofen and omeprazole).

See page 31 for more information about Meda’s ongoing development projects.

0 2,000 4,000 6,000 8,000 10,000 12,000

2008 2007 2006 2005 2004 SEK million

SALES TRENDS

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Key acquisitions and partnerships

MEDA | Key acquisitions and partnerships

ACQUISITION OF VALEANT’S PHARMACEUTICAL BUSINESS IN WESTERN AND EASTERN EUROPE In September 2008, Meda acquired Valeant’s pharmaceutical divisions in western and eastern Europe, Africa, and the Middle East. The acquisition has had positive short- and long-term effects on the company: it gave Meda its own sales organization in Russia, enabled distinct opportunities in eastern Europe for market synergies with products in the Meda pipeline, and fortified Meda’s market position in western Europe and the UK in particular.

Most acquired products are in two of Meda’s key therapy areas: CNS and dermatology. Acquired operations generated sales of about SEK 1,100 million in 2008, of which eastern Europe represents about SEK 200 million. The largest markets in terms of sales and number of employees are Germany, the UK, Italy, Spain, and Russia. Operations acquired from Valeant in the Middle East and Africa report annual sales in excess of SEK 100 million, mainly in Turkey, Saudi Arabia, and South Africa.

Restructuring of Valeant’s organization is complete; the new organizational structure took effect in January 2009.

The acquired drug product portfolio includes Mestinon, Tas- mar, Solcoseryl, Dermatix, Efudix, and Cesamet, which generate combined annual sales of more than SEK 500 million. Specialist physicians mainly prescribe these six products.

ACQUISITIONS FROM ROCHE’S PRODUCT PORTFOLIO In October 2008, Meda acquired global rights to four drugs from Roche, a Swiss pharma company: Marcoumar, Torem, Tilcotil, and Aurorix. All the products have strong brands, and total sales in 2008 reached about SEK 500 million, mainly in Germany, Spain, Switzerland, the US, and France. The acquisition significantly enhanced Meda’s position in the cardiology, CNS, and pain and inflammation therapy areas.

POTENTIAL FOR SUBSTANTIAL ROYALTIES FROM RETIGABINE

The partnership between GlaxoSmithKline and Valeant (Meda’s partner) for Retigabine (the active ingredient) represents potential for substantial royalties to Meda on future global sales.

Retigabine represents a new method for affecting potassium channels in the CNS; the product has been documented for epilepsy treatment. Efforts are in progress to expand indications in the area of pain, for example, neuropathic pain.

Estimated worldwide sales potential is around SEK 10 billion. Meda is entitled to a 7 percent royalty on sales in the US market, 6 to 8 percent in European markets (which will vary depending on sales and profitability), and 3 percent in other European markets. Meda is also entitled to more than SEK 200 million when certain non-sales milestones are achieved.

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13 Key acquisitions and partnerships | 2008 annual report

The Meda and Valeant negotiation teams in final discussions for acquisition of Valeant’s western and eastern European operations.

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MEDA | Key acquisitions and partnerships

STRATEGIC PARTNERSHIP WITH VALEANT

In August 2008, Meda and Valeant initiated a strategic partnership to establish joint ventures in Australia, Canada, and Mexico to develop and market existing and future products. Meda will be a majority owner (55 percent) in such companies. The joint venture companies will be responsible for registration applica- tions and marketing of the products, which will initially include Onsolis (breakthrough pain in cancer patients), Edluar (tempo- rary treatment of sleeping problems), and Flupirtine (pain relief).

ACQUISITION OF GLOBAL RIGHTS TO EDLUAR AND OX-NLA FROM OREXO

In April 2008, Meda acquired world rights to two of Orexo’s patented drugs in phase III: Edluar and OX-NLA.

Edluar is documented for short-term treatment of insomnia and contains zolpidem, a well-documented active ingredient.

Edluar’s proprietary, sublingual tablet formula is fast-acting and effective. The FDA approved the product in March 2009.

OX-NLA is a patented nasal spray formula that contains cetirizine (an antihistamine). The liposomes in OX-NLA give the product unique characteristics.

EXPANDED PARTNERSHIP WITH RECORDATI

In October 2008, Meda and Recordati, an Italian pharmaceutical company, entered into a long-term agreement regarding sales of Lercadip (lercanidipine) on the Spanish market. Lercadip is a calcium channel blocker used to treat hypertension. In 2008, Lercadip generated sales of about SEK 60 million in Spain.

Before the new agreement, Meda and Recordati already had a long-term partnership in several other European markets for the cardiology therapy area.

ACQUISITION OF ELLEM

In April 2008 Meda acquired the Swedish company Ellem Läke- medel AB, which added products including Bamyl (pain relief) and Cocillana-Etyfin (cough suppressant) to Meda’s product portfolio.

EUROPEAN PARTNERSHIP AGREEMENT FOR ORADISC In November 2008, Meda entered into an agreement with Uluru Inc., an American specialty pharma company. Among other things, the agreement gave Meda exclusive sales rights to Ora- Disc A in most European countries, including in eastern Europe.

OraDisc A contains amlexanox, an active ingredient used to treat aphthous ulcers. OraDisc A is a proprietary product consisting of a novel, thin, water-erodible disc that is applied and adheres to the mouth ulcer for concentrated local delivery of the active

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Meda in brief

Meda in brief | 2008 annual report

OPERATIONS

Meda is an international specialty pharma company with full representation in Europe and the US through own sales organizations in 42 countries, about 1,700 employees in marketing and sales, and annual sales of more than SEK 10 billion, including acquisitions in 2008.

On other markets worldwide, its products are marketed and sold via agents and other pharmaceutical companies. Meda’s products are sold in about 120 countries.

On 31 December 2008, Meda had 2,715 employees (2,440).

Meda AB is the Group’s parent company;

its head office is in Solna, outside of Stockholm. Meda is listed under Large Cap on the NASDAQ OMX Stockholm exchange.

In 2008, Meda acquired several new companies and various established pharmaceuticals and integrated them into the Group. Meanwhile, new product development continues to be strong and aims to develop a competitive pipeline specifically focused on the US and European markets.

Lisabon Portugal

Madrid Spanien

Bordeaux Mérignac Paris Frankrike Bryssel Belgien Irland

Dublin

Cambridge

Storbritannien Amsterdam

Neder- länderna

Bad Hamburg Cologne Tyskland

Milano

Italien Istanbul

Turkiet Athen Grekland Wangen

Schweiz Radebeul Prag Tjeckien Wien Österike UngernBudapest

BratislavaSlovakien Åbo

Finland

Stockholm Sverige

Oslo Norge

Somerset

Köpenhamn Danmark

Polen Warszawa

Letland Litauen

Estland Lisbon

Portugal Madrid Spain

Bordeaux Mérignac Paris France Brussels Belgium Ireland

Dublin

Cambridge UK

Amstelveen Nether- lands

USA Somerset

Decatur

PortugalSpain France

Belgium Ireland

UK Nether-

lands Germany

Italy

Turkey

Egypt Jordan Libya Moldova

Ukraine

Serbia

Saudi Arabia Greece

Switzerland Czech Rep.

Austria Hungary Slovakia

Finland

Russia

Belarus Sweden

Norway

Denmark

Latvia Lithuania

Poland Estonia

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MEDA | Meda in brief

%

10 20 30 40 50 60 70

2008 2007 2006 2005 2004 MARGIN TREND

0 2,000 4,000 6,000 8,000 10,000 12,000

2008 2007 2006 2005 2004 SEK million

SALES TREND

Other

Netherlands

Germany Sweden

France UK

Italy

US

Belgium

Spain Portugal

EMPLOYEES PER COuNTRY SALES PER COuNTRY

Other

Netherlands

Sweden

France UK

Italy

US

Belgium

Spain Denmark

Germany Gross margin

EBITDA*

* excl. non-recurring effects

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17 Meda in brief | 2008 annual report

KEY PRODuCTS

Product Therapy area

Meda’s 2008 sales, SEK million

Compared with 2007, in %

ASTELIN Respiratory 1,472 +141 *

TAMBOCOR Cardiology 901 +3

BETADINE Dermatology 798 +7

MINITRAN Cardiology 508 –1

ALDARA Dermatology 415 +15

ZAMADOL Pain and inflammation 378 –9

OPTIVAR Respiratory 315 +93*

SOMA Pain and inflammation 314 +140*

FORMATRIS Respiratory 180 +53

NOVOPULMON Respiratory 180 +5

PRODUCTS AND KEY THERAPY AREAS Meda’s product portfolio is based on five key therapy areas: respiratory, cardiology, pain and inflammation, dermatology, and CNS. These groups make up about 80 percent of total sales. Local products constitute another major part of Meda’s product portfolio.

Meda is increasingly focused on specialty drugs for small patient groups. Specialty drugs often have lower sales overheads, because marketing can be directed toward a limited, clearly defined target group. As a rule, the market for specialty drugs is less subject to competition and less price sensitive. In contrast, a traditional blockbuster focus demands massive marketing efforts on a market that is often highly competitive.

Respiratory

Dermatology CNS Local products

Pain and inflammation

Cardiology SALES PER ThERAPY AREA

* Most sales are due to the MedPointe Inc. acquisition in August 2007 (now called Meda Pharmaceuticals Inc.). Consolidation thus affects comparison to 2007.

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MEDA | Meda in brief

RESPIRATORY THERAPY AREA ASTELIN*

Sales of Astelin (treatment of allergic and non-allergic rhinitis) amounted to SEK 1,472 million (611). US market sales in local currency totaled USD 206 million, cor- responding to a 9% pro forma increase.

OPTIVAR*

Sales of Optivar (treatment of allergic conjunctivitis) amounted to SEK 315 million (164).

NOVOPuLMON

Sales of Novopulmon (budesonide Nov- o lizer, treatment of asthma, chronic obstructive pulmonary disease [COPD], and bronchitis) amounted to SEK 180 million (172). The product grew strongly on the German market, while eastern European distributors were negatively affected by stockpiling done in 2007.

FORMATRIS

Sales of Formatris (formoterol No- volizer, treatment of asthma, and COPD) amounted to SEK 180 million (118). Sales increased 53%. Continued high demand in Germany and launch in several new European markets drove growth.

CARDIOLOGY THERAPY AREA TAMBOCOR

Sales of Tambocor (treatment of cardiac arrhythmia) amounted to SEK 901 million (871).

MINITRAN

Sales of Minitran (angina prevention) amounted to SEK 508 million (512).

PAIN AND INFLAMMATION THERAPY AREA

ZAMADOL

Sales of Zamadol (treatment of moderate to severe pain) amounted to SEK 378 million (417). Price levels of Tramadol products are falling on several European markets.

SOMA*

Sales of SOMA (muscle relaxant) totaled SEK 314 million (131).

The increase is mainly due to strong growth of Soma 250 mg on the US market.

DERMATOLOGY THERAPY AREA BETADINE

Sales of Betadine (antiseptic) amounted to SEK 798 million (747).

ALDARA

Sales of Aldara (e.g., treatment of actinic keratosis) amounted to SEK 415 million (362).

SALES GROWTH OF KEY PRODUCTS IN 2008

* Most of these sales are due to the acquisition of MedPointe Inc. (now Meda Pharmaceuticals Inc.) that was completed in mid-August 2007. Consolidation thus affects comparison with the previous year.

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19 Meda in brief | 2008 annual report

Meda’s operations are divided into four functions: marketing and sales, development, manufacturing, and administration.

On 31 December 2008, Meda employed 2,715 people, of whom 53 percent were women and 47 percent were men.

MARKETING AND SALES

Meda’s marketing function consists of more than 1,700 employees in Europe and the US. An efficient, non-bureaucratic structure characterizes the organization. Read more about marketing and sales on page 20.

DEVELOPMENT

Meda’s development function includes drug development, regulatory activities, and its business development department.

The function focuses on market-specific product development, and Meda is now pursuing several development projects in the late clinical or registration phase. For more information on the development function and Meda’s pipeline, see page 31.

MANuFACTuRING

The manufacturing function ensures a steady product flow to Meda’s marketing companies. Meda has three wholly owned manufacturing units, two in Europe and one in the US. For more information on Meda’s manufacturing function, see page 35.

ADMINISTRATION

The administration function consists mainly of Meda’s finance department and Group Services. The finance department has three primary focuses: performance (budgeting, planning, and follow-up), compliance (accounting, reporting, and taxes), and risk management (currency and interest rate risks and insurance). The Group Services department consists of corporate legal, brand management, and HR administration.

Marketing and sales Administration

Manufacturing

Development

EMPLOYEES PER FuNCTION FUNCTIONS

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Marketing and sales

Since 2000, Meda has been establishing a competitive marketing and sales organization that covers all of the US and Europe. Expansion occurred in parallel with increased profitability. Acquired companies adapted quickly to the Meda model, in which marketing and personal sales are important elements.

%

0 10 20 30 40

2008 2007 2006 2005 2004

MARKETING ORGANIZATION An efficient, non-bureaucratic structure and highly educated employees characterize Meda’s marketing and sales organization. Meda has a strong presence on the market with about 1,700 employees.

Meda has about 500 employees in the US and about 1,200 in more than 40 European countries.

MEDA | Marketing and sales

EBITDA MARGIN*

0 500 1,000 1,500 2,000

2008 2007 2006 2005 2004

EMPLOYEES, MARKETING ORGANIZATION

MARKETING ORGANIZATION PER COuNTRY Other

Netherlands

Germany Russia

UK

US

Belgium

Spain Sweden

*excluding non-recurring effects

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21 Marketing and sales | 2008 annual report

Knowledge and quality are the basis of Meda’s marketing. Depending on a product’s approval—prescription or over- the-counter (OTC)—and local legislation, marketing is highly differentiated between products and countries.

Prescription drugs are primarily marketed via personal sales combined with training programs and seminars, often in collaboration with clinics. Medical representatives make personal sales visits

in all countries, targeting selected groups.

OTC pharmaceuticals are marketed to the public via several channels, such as newspaper and magazine ads, broadcast media, the internet, and other media.

In some markets, it is also permitted to market prescription drugs to the public.

Patients increasingly demand more information on drugs and involvement in treatment decisions, so they often gather their own information on the internet.

Besides traditional media advertizing, patient organizations for specific diseases are a vital channel for patient outreach.

Meda’s marketing organization works continuously to identify the target groups with the greatest potential, and to ensure that earmarked marketing resources are allocated to areas in which they will produce most value.

MARKETING

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MEDA | Marketing and sales

CUSTOMERS

For prescription drugs, the most important target groups are doctors, nurses, and other medical professionals at specialist clinics and general practices. The health care system has key opinion lead- ers (KOLs)—such as leading specialists on pharmaceutical committees—with strong international, national, and local influence. It is important for Meda to provide information and build confidence in its products among all these groups.

In many markets, pharmaceutical committees or purchasing organizations—

gatekeepers—serve as industrial purchas- ers. They may be state organizations or private health insurers. They compare and evaluate the properties and prices of various products, then issue recommen- dation lists and make decisions regarding procurement orders and subsidy levels for various drugs. Influence of these groups is increasing in Europe and the US, which creates need for new thinking about customers and their requirements, where evidence-based medicine (documented clinical profiles of medications) is increasingly accompanied by demands for cost effectiveness and health economics gains.

In some markets, organizations negotiate directly with pharmaceutical companies as to whether or not Meda’s products will be covered by their systems.

Because Meda increasingly chooses to focus on specialist drugs, niche busters, its marketing sets its sights on specialists. There is a big difference in the cost of marketing medications to specialist doctors and marketing them to general practitioners in outpatient care. Overall, specialist pharmaceuticals mean lower sales overhead, because marketing can be directed toward a limited, clearly defined target group. In the largest European markets, marketing cost per sold dollar is 20–30 times higher for products that target general practitioners, compared with products that target specialists.

For OTC medications, marketing is largely focused on end customers—patients. Pharmacies and other establish- ments that provide pharmaceuticals are key sales channels for OTC drugs, and their staffs are key in providing advice to customers.

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23

Paris Brussels

Bad Homburg

Madrid

Marketing and sales | 2008 annual report

COMPETITORS

The pharmaceutical market is highly competitive, and each product’s clinical profile, effects, side effects, and cost effectiveness in comparison with similar products are decisive factors in a product’s market position and success. As with most other pharmaceutical companies, Meda’s main competitive tool is its products. Medically valuable products combined with an experienced marketing and sales organization with specialist expertise in key therapy areas are important tools for competing with other pharmaceutical companies.

Besides product competitiveness, Meda competes with acquisitions and in-licensing. In particular, Meda competes with other pharmaceutical companies in the same fields. Meda’s market coverage—with proprietary sales organizations in 42 countries and capacity for product registration and development—

gives it a unique market position and a clear competitive edge. In major mergers, competition can also be a venture capital company, often in collaboration with other pharmaceutical companies.

INTERNATIONAL TRADE BUSINESS International Trade Business (ITB) is a Meda unit in charge of products that are marketed and distributed by partners in countries in which Meda has no sales organization. The unit operates in more than 80 countries. ITB’s partnering pro- cess is a systematic method for promot- ing Meda’s products in key markets. A proven marketing concept for a product is adapted to local conditions. ITB’s mis- sion is to create ideal conditions for new sales organizations on new markets.

MARKETING CENTERS

Meda’s marketing centers are marketing organizations within the company with no geographical ties. The centers provide support to a given product group in a specific therapy area. Meda’s marketing centers also maintain relationships with KOLs and international organizations in what is called medical marketing.

The marketing centers convey targeted information on all of Meda’s products and facilitate exchanges of information, ideas, and experience among local sales organizations. Meda’s marketing centers are divided internally by key therapy area.

Meda has four marketing centers in Europe: Respiratory (Bad Homburg), Cardiology (Paris), Pain, inflammation, and CNS (Madrid), and Dermatology (Brussels).

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MEDA | Product portfolio

Product portfolio

Meda’s key therapy areas are respiratory, cardiology, pain and inflammation, dermatology, and CNS. Products in these groups generated about 80 percent of total sales in 2008. The 10 largest individual products account for about 50 percent of total sales, of which the largest-selling product accounted for about 15 percent.

Some of Meda’s most important products are described below, categorized by key therapy areas. A selection of other products is described on page 29.

Astelin Aldara

Zamadol SOMA

Betadine

Minitran Tambocor

Novopulmon Optivar

Formatris

Respira- tory Cardio-

logy Pain and

inflammation Derma- tology

SALES PER ThERAPY AREA KEY PRODuCTS PER ThERAPY AREA

RESPIRATORY

Asthma and allergies are widespread diseases that affect many people. By 2011, an estimated 60 million people will suffer from asthma and 180 million from allergic rhinitis just in the seven largest markets—France, Germany, Italy, Japan, Spain, the UK, and the US.

Chronic obstructive pulmonary disease (COPD) is another widespread disease commonly associated with asthma and allergies. By 2011, about 60 million people in those same seven markets are expected to suffer from COPD.

Meda’s 10 most important products include four in the respiratory therapy area: Astelin (allergic and non-allergic rhinitis), Optivar (seasonal and non-seasonal allergic conjunctivitis), Novopulmon (asthma, COPD, and chronic bronchitis), and Formatris (asthma and COPD). Some of Meda’s other respiratory products are Allergospasmin (reproterol, sodium cromoglycate), a combination drug for treatment of exercise-induced asthma and mild asthma caused, for example, by allergies, and Ventilastin (salbutamol), a bronchodilator that alleviates asthma and COPD symptoms.

Respiratory

Dermatology CNS Local products

Pain and inflammation

Cardiology

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25 Product portfolio | 2008 annual report

ASTELIN*

Astelin contains azelastine, an active ingredient, and is a nasal spray approved for allergic and non-allergic rhinitis treatment. In Europe, Meda markets azelastine products under brands such as Allergodil and Rhinolast. Astelin sales in 2008 amounted to SEK 1,472 million (611).

Meda is pursuing a comprehensive development program for azelastine nasal spray:

Astepro, the new formula of azelastine nasal 1.

spray, was approved by the FDA in October 2008.

A new drug application for azelastine nasal 2.

spray (once-daily) was submitted to the FDA in August 2008.

A combined product that contains azelastine 3.

and fluticasone, a well-established steroid, is in phase III.

For more information, see “Products under development” on page 31.

Astelin is protected by patent in the US until 1 November 2010; it will have pediatric exclusivity until 1 May 2011. But under the terms of a settlement agreement, two companies may start selling a generic product in March and August 2010, respectively. If this occurs, the companies must pay a royalty of more than 30 percent to Meda for a defined period.

OPTIVAR*

Optivar contains azelastine, an active ingredient, and is an antihistamine delivered in eye drops. In Europe, Meda markets azelastine eye drops under brand names such as Optilast, Al- lergodil, and Afluon.

Optivar is approved for seasonal and non- seasonal allergic conjunctivitis treatment in adults and children (children over three in the US). Allergic conjunctivitis is an antigen-trig- gered inflammation of the conjunctiva. Typical symptoms are redness, itching, and/or watering of the eyes, which are usually present in connec- tion with hypersensitivity caused, for example,

by high pollen counts or contact with animal fur.

Allergic conjunctivitis is a common condi- tion that affects many people. Nearly 25 percent of the US population is estimated to suffer from some form of allergic conjunctivitis.

Optivar sales in 2008 reached about SEK 315 million (164). The product is protected by patent in the US until 1 November 2010 and subsequently will have pediatric exclusivity until 1 May 2011. But under the terms of a settlement agreement, a few companies may start selling a generic product in December 2009 and in 2010, respectively.

EXAMPLES OF MEDA’S KEY PRODUCTS IN THE RESPIRATORY THERAPY AREA

FORMATRIS

The active ingredient in Formatris is formoterol, a bronchodilator or long-acting beta agonist, which is used for the treatment of asthma and COPD. Like Novopulmon, the drug is delivered via Novolizer, an advanced, refillable, multi-dose

dry powder inhaler. Formatris is available in two strengths, 6 and 12 μg, depending on the market.

Formatris sales reached SEK 180 million (118) in 2008.

* The MedPointe Inc. acquisition accounts for most of Optivar sales. The acquisition occurred in mid-August 2007, and the company is now called Meda Pharmaceuticals Inc. Consolidation effects do not allow comparison of 2008 results with the previous year.

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MEDA | Product portfolio

NOVOPuLMON

Novopulmon is used to treat asthma, chronic obstructive pulmonary disease (COPD), and chronic bronchitis. Novopulmon contains the active ingredient budesonide. Like Formatris, it uses the Novolizer inhalation system, an advanced, refillable, multi-dose dry powder inhaler. Unlike other systems, the Novolizer system provides signals that indicate correct inhalation and assure proper drug delivery.

The Novolizer system is available with various pharmaceutical ingredients for complete

asthma and COPD therapy. Besides budesonide, Meda also markets Novolizer with formoterol and salbutamol.

Novopulmon is available in two strengths, 200 µg and 400 µg, and has a market leading position in Germany. Both strengths are registered and introduced in most major European markets. Market introduction is in progress where approval is granted.

Novopulmon sales in 2008 were SEK 180 million (172).

Tambocor is a well-established antiarrhythmic drug for the treatment of atrial fibrillation—

the most common cardiac arrythmia in clinical practice. Atrial fibrillation affects 5–10 percent of the population over the age of 65. One registered use is for the prevention and treatment of paroxysmal atrial fibrillation (repeated attacks that subside spontaneously).

Tambocor sales are concentrated to the major European markets, where specialists prescribe it. About 80 percent of sales are

in France, Germany, Italy, and Spain, where Tambocor is the market leader in the antiarrhythmic segment.

The patent for the active ingredient in Tambocor expired in the mid-1990s. Tambocor controlled-release has been introduced in several European markets and makes up about 50 percent of total Tambocor sales.

Tambocor sales in 2008 were SEK 901 million (871).

EXAMPLES OF MEDA’S KEY PRODUCTS IN THE CARDIOLOGY THERAPY AREA TAMBOCOR

CARDIOLOGY

Cardiovascular disease is a collective term for diseases that affect the circulatory system, such as arteriosclerosis, atrial fibrillation, and chronic heart disease. Many risk factors affect prevalence of cardiovascular diseases, including age, diet, exercise, genetics, smoking, and stress. Cardiovascular disease is most prevalent in the US, Germany, and Japan.

Meda’s 10 most important products include two in the cardiology therapy area: Tambocor (arrhythmia) and Minitran (angina pectoris). Other cardiovascular products sold by Meda include the anti-hypertensive drugs Cibacen, Cibadrex, Zanidip, and Zanipress; Marcoumar (an anticoagulant);

and Torem (a loop diuretic).