Q-MED AB ANNUAL REPORT 2006
restylane is the leading product on the market for the filling out of wrinkles and the contouring of lips and the face. The products are sold in over 70 countries. Sales during 2006 increased by 33 percent compared with the previous year to 950.6 MSEK and constituted 73 percent of Q-Med’s total revenues. The restylane product group consists of sev- eral different products: restylane, restylane Touch, restylane Perlane,
restylane SubQ, restylane Vital and restylane Lipp. Furthermore, a product for body contouring has been added during 2006, macrolane.
deflux is the leading alternative to many years of treatment with antibiotics for a malformation of the urinary bladder in children (VUR – vesicoureteral reflux). deflux is approved for sales in the USA and Canada – which are the main markets – but also in Europe. A registration application is to be submit- ted in Japan in 2007. Sales increased during the year by 11 percent, which means that the product constituted 15 percent of Q-Med’s total revenues.
Q-Med is a rapidly growing and profitable biotechnology/medical device Group that develops, manufactures, markets and sells primarily medical implants.
The majority of the products are based on the company’s patented technology, nasha™, for the production of stabilized non-animal hyaluronic acid.
Q-Med has been run in its present form since 1995. The Group today has more than 600 co-workers in 19 countries, with approximately 400 at the company’s head office and production facility in Uppsala. Q-Med had a turnover of 1,304 MSEK during 2006.
Q-Med AB is listed in the Large Cap segment of the OMX Nordic Stock Exchange in Stockholm, Sweden.
The nasha™ gel is the foundation stone of the majority of Q-Med’s products.
One of its unique properties is its long-lasting effect.
2 The year in brief 3 The President’s statement 6 Objectives and strategies 8 The Q-Med share 10 Technology and
product development 12 restylane
18 Hospital Healthcare 20 deflux
Contents
zuidex, for the treatment of stress urinary incontinence in women, is approved in Europe and in Canada. A study for an application for regis- tration in the USA is ongoing and it is estimated that the product will be approved for sales in 2009. Sales of zuidex amounted to 19.1 MSEK during 2006 and accounted for 1 percent of Q-Med’s total revenues.
durolane, for the treatment of osteoarthritis of the knee and hip, is approved in Europe and in Canada and a registration application was submitted in the USA during 2006. In June 2006 Smith & Nephew was granted the global marketing and sales rights. In accordance with the terms of the agreement, Q-Med receives both one-time payments and royalties.
Revenues from durolane amounted to 136 MSEK, including royalties, which corresponds to 10 percent of Q-Med’s total revenues.
22 durolane 23 zuidex
25 solesta
26 Quality and the environment 27 The co-workers
31 Report of the Board of Directors 34 Consolidated income statement
with comments
36 Consolidated balance sheet with comments
38 Consolidated cash flow analysis with comments
39 Changes in shareholders’ equity for the Group
40 Income statement for the Parent Company
41 Balance sheet for the Parent Company 43 Cash flow analysis for the
Parent Company
44 Changes in shareholders’ equity for the Parent Company 45 Notes
67 Auditors’ report
68 Corporate governance report
73 Board of Directors and auditors 74 Senior management
76 5-year summary 77 Key ratios 78 Quarterly data 80 Definitions/Glossary 81 Annual General Meeting and
financial information
2 Q - M E D A N N U A L R E P O R T 2 0 0 6 Nordic region, 3%
Rest of the world, 5%
Asia, 20%
North America, 30%
Rest of Europe, 40%
Latin America, 2%
0 200 400 600 800 1,000
2006 2005 2004 2003 2002
821
345
112 300
9 MSEK
0 200 400 600 800 1,000 1,200 1,400
2006 2005 2004 2003 2002
518 607 823
976 1,304 MSEK
OPERATING INCOME
• Revenues rose by 34 percent and amounted to 1,303.7 (976.0) MSEK • Operating income amounted to 300.0 (111.7) MSEK • Very strong growth for the restylane product area • FDA application for restylane Perlane submitted in the USA • Chinese registration application for restylane submitted • macrolane approved for sales in Europe • Agreement entered into regarding global marketing and sales of durolane
• Clinical data for durolane analyzed and submitted in a registration application in the USA • solesta, new product for the treatment of fecal incontinence.
THE YEAR IN BRIEF
REVENUES PER GEOGRAPHIC AREA REVENUES
KEY RATIOS 2006 2005 Figures in MSEK 1,303.7 976.0 Revenues
85.0 85.6 Gross margin, % 300.0 111.7 Operating income
23.0 11.4 Operating margin, % 308.1 123.9 Income after financial items 212.4 77.1 Net income for the year
608 525 Number of employees at year-end 78.3 78.2 Equity/assets ratio, %
2.14 0.78 Earnings per share after split, SEK
12.56 11.20 Shareholders’ equity per share after split, SEK
Q - M E D 3 2 0 0 6 A N N U A L R E P O R T
THE PRESIDENT’S STATEMENT; DEAR SHAREHOLDERS
It feels as if we need to think about our future on Earth. Fugelsang has created a Swedish perspective of our small globe through his walks in space. If it were pos- sible to gather all the people on Earth in a common area and we held each others’
hands in a chain dance in an outward spiral, the surface required would have a radius of 50 kilometres – Stockholm to Knivsta more or less. No more than that!
The world is a small place, but we make it big and threatening. Thanks to the fast communications of today, we are never physically more than one day apart from each other. It was quite a different story for Genghis Khan’s Eurasian empire in the 13th century. In those days more than 100 days were needed to reach the outly- ing areas of the Empire using the fastest of horses. This naturally leads our thoughts
to this year’s theme: Asia. Japan was the star that shone most brightly there previ- ously, with its strong economy and great interest in esthetics. But the question is if China has not overtaken Japan. If you search on the Internet you get over half a billion matches! Prosperity is rapidly spreading in the region. Next year the Olympics will be held in China. We can be sure that the whole event will be first-
4 Q - M E D A N N U A L R E P O R T 2 0 0 6
cont. THE PRESIDENT’S STATEMENT
class. In Asia there are more than 2 mil- lion dollar millionaires. There is also a large appetite for new things and great respect for “Western” products. We are going in hard! Development in Asia has been very strong during 2006 and growth amounted to 61 percent.
The year 2006 is something we should be proud of. We have established our- selves over practically the whole globe through our own companies or skilful distributors. This means that we have done away with large time differences and can offer immediate service through our immediately effective products. It also means a greater closeness to all the world’s cultures and traditions. If we are to increase respect for these, it is neces- sary for us to take an interest in them.
Then we can also manage to avoid the mental barriers that would otherwise frustrate cooperation.
At the beginning of time, that is eight years ago, we measured success by calcu- lating the number of metres of wrinkles that restylane had corrected. A curve hung on the wall and this curve was conscientiously filled in after each sales report. If I remember correctly, we reached the length of a middle distance race (800 metres) or something similar.
In any case, we no longer had enough wall to draw on. If we were to amuse one- selves with the same calculation today, we could include the smoothing out of
200 kilometres of wrinkles. It will be more difficult to illustrate sales of the body con- touring products. Then we will soon have to use Mount Fuji as an example.
Our esthetics business continues to grow at an impressive rate in spite of greater competition. This means that our constant work on improvements in and broadening of the product range has paid dividends. We should invest more here, in the form of alliances and acquisitions, as the whole market is growing at an impressive 20 percent, and forecasts are that it will continue to do so for the next five years as well. Allergan, with their product Botox, have invested heavily in the area, which has made even more intensive collaboration necessary between us and our partner in the USA, Medicis. We believe that appropriate stra- tegic alliances and direct investments in new esthetic areas will allow us to at least maintain our share of the market.
The Hospital Healthcare products con- tinue to deliver a mixed bag. Last summer we entered into an agreement with a good new partner, Smith & Nephew, with regard to sales of the unique durolane
and development of new products. Here we have high hopes. However, it has been more difficult for hospitals to accept
zuidex. solesta, which has been devel- oped to help those affected by moderate leakages of feces, has now been scruti- nized in Europe and found safe to use.
However, we still need to gain experience of its effect before we can bang the big drum and give those affected new hope.
Maybe it will be when these products are introduced on the American market that sales will take off?
The world around us is changing all the time. It is therefore of the utmost importance that the personnel keep abreast of developments and can assimi- late the new situations with an open mind. And there we can really blow our own trumpet. Our meritocratic organiza- tion sets no limits for how far you can advance in your career if you constantly develop. Even though we have a very low turnover of personnel we have a rela- tively large degree of mobility within the company. In each new situation there is always a new opportunity.
Taking medicine is not fun but having fun is good medicine. We had fun when we celebrated ten years with restylane in the autumn. Almost 90 percent of all employees had left their families one Fri- day evening to have a party together.
Only a healthy organization does that!
March 2007, Uppsala
Bengt Ågerup President and CEO
Q - M E D 5 2 0 0 6 A N N U A L R E P O R T
Bengt Ågerup inspecting Q-Med’s new office facilities, which are expected to be ready for occupancy in June 2007.
6 Q - M E D A N N U A L R E P O R T 2 0 0 6
Q-Med has as its overall objective con- tinued high growth combined with good profitability. The majority of the busi- ness objectives for 2006 were attained.
Business concept
Q-Med is a medical device company that develops, manufactures, markets and sells primarily medical implants. The majority of the products are based on the company’s own nasha™ technology, for esthetic and medical use by authorized users.
Q-Med shall consistently strive to meet its customers’ and stakeholders’
expectations and needs, through constant improvements in quality and constant training.
Vision
Q-Med shall create well-being by offering innovative and immediate corrections of defects that are not life-threatening.
Our owners
Q-Med strives to give the shareholders a competitive return on invested capital both in the short term and the long term.
This will be done through high productivity, through selling innovative and high-qual- ity products that meet customers’ needs and through securing sustainable profits in the business.
Q-Med’s overall strategies and success factors
• Supply high-quality products that are simple and safe to use within esthetic and medical areas.
• Continue to develop and document products which are primarily based on the nasha™ technology and its appli- cations up to proof of effect.
• Involve customers and consumers at an early stage of product development.
• Help customers to develop their abil- ity to sell so as to attain the best possi- ble results for both themselves and Q-Med.
• Achieve the best possible international presence in prioritized markets with maintained or increased market share.
• Take responsibility in its business and in its strategies for protecting the envi- ronment and surroundings and strive for sustainable development.
• Achieve strong commitment from the co-workers by providing a good work- ing environment, opportunities to develop and competent leadership.
Objectives and outcome 2006
Growth in 2006 was high and profitability was good, which is in line with the long- term objective.
The Esthetics business grew in Europe in line with the market and the restylane
products strengthened their leading posi- tion. At the beginning of the year a new product was launched, restylane Lipp, which was very well received by custom- ers and consumers. restylane Vital has been established as an important comple- ment to the other esthetic products and the success has led to a drive to broaden the whole hydro balance concept.
The establishment of a sales model with zuidex as the main treatment alter- native for stress urinary incontinence when training of the pelvic floor does not have an effect, has not been achieved to the planned extent. A network of treating doctors has been worked up and the work of penetrating primary health care will continue through these doctors.
During 2006 an agreement was entered into that means that durolane will now be marketed and sold in all markets through a partner, Smith & Nephew.
The agreement strengthens the position of durolane on the European market, which was one of the objectives for 2006.
The objective of submitting a registra- tion application for durolane in the USA was achieved in March 2006.
The clinical studies required to obtain sales approval for further products in the USA continued according to plan for
zuidex, restylane SubQ and for the new product solesta. A registration applica- tion with regard to restylane Perlane was submitted to the FDA during the spring.
Growth for deflux in the USA was 7 percent, as opposed to a planned 25 per- cent. The treating specialist doctors are very familiar with and appreciate deflux. Work must instead be directed to a larger extent at the doctors who make the first VUR diagnosis, that is to say doctors in primary health care, something which is more time-consuming work.
The work of setting up the company’s own subsidiaries in Latin America and Asia, and developing relations with the distributors in the regions, has gone according to plan. A great deal of the growth during the year came from these geographic markets.
Objectives and activities for 2007 In accordance with the overall objective of continued high growth combined with good profitability, the following, amongst other things, will be objectives for 2007:
OBJECTIVES AND STRATEGIES
Q - M E D 7 2 0 0 6 A N N U A L R E P O R T
RESTYLANE
Continue to grow in line with the market and strengthen the leading position in the established markets, and gradually fur- ther build up the new markets in Latin America and Asia.
• Obtain sales approval for restylane
Perlane in the USA.
• Obtain sales approval in China and take the first steps towards a sales organization.
• Implement distribution in Asia via Q-Med’s warehouse in Hong Kong.
• Establish sales via the company’s own subsidiary in Poland.
• Further develop the macrolane and
restylane Vital product concepts.
DEFLUX
Strengthen the position as the market leader in the USA and Europe.
• Increase the number of doctors going over from antibiotics to deflux.
• Increase knowledge of VUR and
deflux among pediatricians and parents.
• Submit a registration application for
deflux in Japan.
DUROLANE
Based on the answers from the FDA regarding the submitted registration application, continue to assist Smith &
Nephew with the preparations for the future launch and further development.
ZUIDEX
Continue the work of establishing zuidex
in primary health care as the main treatment alternative for stress urinary incontinence together with training of the pelvic floor.
• Increase the number of women referred to treating doctors from primary health care.
• Increase knowledge of zuidex as a form of treatment among women affected.
Product development
• Further document the effect of solesta, Q-Med’s product for the treatment of fecal incontinence, through clinical trials.
• Introduce solesta among specialist doctors in Europe through user studies.
• Begin and develop collaboration with Medy-Tox Inc.
BUSINESS OBJECTIVES Eight out of twelve business objectives were achieved in 2006.
restylane to grow with the market in Europe Establish restylane Vital in Europe Establish zuidex in Europe Increase sales of durolane
3 3 3
Begin clinical studies for restylane SubQ Submit reg. application for deflux in Japan Submit FDA application for restylane Perlane Submit FDA application for durolane
3 3 3
Increased sales in Mexico and Brazil Increased deflux sales by 25% in the USA Set up Q-Med office in Asia
restylane approved in China
3 3
8 Q - M E D A N N U A L R E P O R T 2 0 0 6
Since January 2007 Q-Med AB has been listed in the Large Cap segment of the OMX Nordic Stock Exchange in Stock- holm. It was previously listed in the Mid Cap segment. During 2006 the share rose by 70 percent and at the end of the year it was quoted at 106.75 SEK. This means an increase of 636 percent per- cent since Q-Med AB was introduced on the Stock Exchange in December 1999.
Q-Med AB’s share capital at December 31, 2006 amounted to 24,387,322 SEK, divided among 99,349,329 shares. At the end of the year there were 504,672 outstanding share warrants, which means that the number of shares after full utilization of the warrants would be 99,854,001.
For further information on warrants programs, see note 10, page 56.
Each share carries one vote at the General Meeting of the shareholders and entitles the owner to an equal share of the company’s assets and income. A round lot consists of 100 shares. The share was listed on the O-list and the list for medium- sized companies (Mid Cap) on the Stock- holm Stock Exchange during 2006. Since January 2007 the share has been in the segment for large companies (Large Cap).
Split
At Q-Med AB’s Annual General Meeting on May 3, 2006 a share split of 4:1 was adopted. This meant that one former share was replaced by four new shares.
The split was carried out in June.
Development of the share price and market value
During 2006 the price of the Q-Med AB share increased by 70 percent. At the same time the SIX Generalindex rose by 24 per- cent. At the end of 2006 Q-Med AB’s share was quoted at 106.75 SEK, which corre- sponds to a total market value of 10.6 (6.2) billion SEK. This means an increase of 636 percent since it was first listed in Decem- ber 1999 at 14.50 SEK (58 SEK before the split).
The share’s highest price for the year, 117.5 SEK, was reached on September 12, 2006 and the lowest price for the year, 58 SEK (adjusted for the split) on January 31, 2006.
Trading on the stock exchange During the year 46,410,000 Q-Med AB shares were traded, corresponding to a value of 4 billion SEK. A total of 45,338 trades were made. Turnover velocity for the Q-Med AB share was 46 percent. On the Stockholm Stock Exchange as a whole the turnover velocity was 117 percent during the year.1)
Dividend policy
The Board has adopted a new dividend policy, which means that it is proposed that 50 percent of earnings for the year after tax is paid to the shareholders as a regular dividend.
Proposed dividend
For the financial year 2006 Q-Med AB’s Board will propose to the Annual General Meeting that a dividend of 2 SEK per share be paid, with 1 SEK as a regular dividend and 1 SEK as an extraordinary dividend
(the previous year’s dividend was 0.75 SEK adjusted for the split). The dividend, which in total amounts to 198.7 MSEK, corresponds to 94 percent of net income for the year.
Shareholders
At the end of the year there were 12,123 (10,693) Q-Med AB shareholders. The ten largest owners hold 72 (76) percent of the total share capital. Swedish mutual funds own 17 (14) percent, Swedish institutions 7 (5) percent and 12 (14) percent is owned by private individuals. Foreign owner- ship amounts to 17 (20) percent, besides the shares that are owned by Lyftet Hold- ing BV, previously Agerup Holding.
Share price for tax purposes
Q-Med AB’s share does not render share- holders liable to Swedish wealth tax.
Analysts following the Q-Med share Q-Med is analyzed continually by a number of stockbrokers and banks. For an up-to-date list of these, see Q-Med’s home page: www.q-med.com.
THE Q-MED SHARE
50 60 70 80 90 100 110 120
Jan
06 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: FINDATA DIREKT
The Q-Med share SIX General Index
Volume of shares traded, thousands (incl. after-hours trading)
8,000 6,000 4,000 2,000
DEVELOPMENT OF SHARE PRICE 2006
1) Turnover velocity is defined as the ratio of the total number of shares traded during the year and the total number of outstanding shares, as a percentage.
Q - M E D 9 2 0 0 6 A N N U A L R E P O R T
Q-MED’S 10 LARGEST SHAREHOLDERS
Shareholder
Number of shares
Shares and votes, % Lyftet Holding BV (formerly Agerup Holding) 47,187,340 47.5
AMF Pension fonder 4,913,050 4.9
AMF Pension 4,762,150 4.8
Oppenheimer funds 3,999,900 4.0
Swedbank Robur fonder 3,279,378 3.3
Nordea fonder 2,173,654 2.2
SEB fonder 2,014,140 2.0
SHB/SPP fonder 1,002,231 1.0
Lannebo fonder 974,900 1.0
Länsförsäkringar fonder 751,716 0.8
Other shareholders 28,290,870 28.5
Total 99,349,329 100.0
DATA PER SHARE1)
2006 2005 20042) 2003 2002
Average number of outstanding shares 99,275,590 99,254,000 99,254,000 99,254,000 99,247,096
Number of shares at year-end 99,349,329 99,254,000 99,254,000 99,254,000 99,254,000
Number of outstanding warrants at year-end 504,672 600,000 1,120,000 1,720,000 1,720,000
Earnings per share, SEK 2.14 0.78 2.60 8.52 –0.04
Earnings per share after full dilution, SEK 2.14 0.78 2.60 8.52 –0.04
Operative cash flow per share, SEK 1.50 –0.47 –1.18 –0.93 –0.84
Shareholders’ equity per share, SEK 12.56 11.20 12.35 12.91 4.37
Shareholders’ equity per share after full dilution, SEK 12.56 11.20 12.35 12.91 4.37
Share price at year-end, SEK 106.75 62.63 45.75 42.63 20.50
P/e ratio 50 81 18 5 neg.
Proposed dividend per share, SEK 2.003) 0.75 2.00 3.25 –
Source: Securities Register Centre and SIS Ownership Service AB, December 31, 2006.
1) The figures for the years 2002–2005 have been adjusted after the 4:1 split that was carried out in 2006.
2) The figures for 2004 have been adjusted for IFRS.
3) Proposed dividend.
Swedish institutions, 7%
Swedish mutual funds, 17%
Swedish private individuals, 12%
Foreign owners, 17%
Lyftet Holding BV (formerly Agerup Holding), 47%
OWNERSHIP STRUCTURE OWNERSHIP STATISTICS
Size
Number of shares
Number of owners
Shares and votes, %
1–500 1,595,497 7,544 1.6
501–1,000 1,714,058 2,099 1.7
1,001–10,000 6,219,935 2,198 6.3
10,001–50,000 4,133,927 182 4.2
50,001–100,000 2,776,788 37 2.8
100,001–500,000 9,648,062 42 9.7
500,001– 73,261,062 21 73.7
Total 99,349,329 12,123 100.0
The Q-Med share SIX General Index
Volume of shares traded, thousands (incl. after-hours trading)
Source: FINDATA DIREKT
2,000 4,000 6,000 8,000 10,000
20 40 60 80 100 120
02 03 04 05 06
10
DEVELOPMENT OF SHARE PRICE 2002–2006
1 0 Q - M E D A N N U A L R E P O R T 2 0 0 6
TECHNOLOGY AND PRODUCT DEVELOPMENT
Pure, natural and with a long-lasting effect in the human body – this is how the strengths of Q-Med’s stabilized hyaluronic acid can be summarized.
It is the foundation stone of the major- ity of the company’s products and is produced through Q-Med’s patented
nasha™ technology. Hyaluronic acid is also to be found naturally in the body.
Q-Med’s technology has resulted in safe and effective products within both Esthetics and Hospital Healthcare.
Hyaluronic acid is a sugar that is unique as it occurs in exactly the same form in almost all living organisms. Two of its important functions are keeping the skin fresh through the binding of water and giving mobility through the lubrication of joints and muscles.
Unique properties
Hyaluronic acid has been successfully used for a long time in both pharmaceuti- cals and skin care products, primarily on account of its tissue-friendliness. How- ever, Q-Med’s products have some impor- tant advantages compared with products that consist of other kinds of hyaluronic acid. The unique nasha™ technology has
made it possible to create gels that not only are tissue-friendly but also have a long-lasting effect. The secret behind these properties is that the starting mate- rial – hyaluronic acid – is only modified minimally. Q-Med’s gels are biologically degradable and allow the passage of important nutrients. In order to minimize the risk of allergic reactions and the trans- mission of infectious substances, only non-animal hyaluronic acid is used as the starting material. All manufacturing and development of new products are carried out at the company’s facility in Uppsala.
Active patent strategy
Q-Med’s most important patent is the one protecting the nasha™ technology. The basic patent was issued in the USA in 1998 and has since then also been granted in those countries where Q-Med can be presumed to have a substantial market.
Where it has been granted, the patent is valid up until May 2016 at the most, except in the USA where the company has applied for an extension of the patent time regarding restylane, from the origi- nal maximum protection time of up until 2015. The company has recently been informed that such an extension of the
patent in the USA will be granted until December 2017.
Q-Med also operates an active patent strategy that completes the protection of the nasha™ technology. This strategy will also create excellent patent protection for the new areas of use for the nasha™ gel – and new ways of administering the prod- ucts – that the company is developing.
During 2006 202.4 MSEK was invested in research and development, which corresponds to 16 percent of Q-Med’s revenues. An important part of this work is the long-established cooperation with universities, clinics and practising doc- tors all over the world.
Approximately 50 people work in the company’s own R&D activities and the prime objective is to find new, strategic areas of use for the existing technology.
This can, for example, be done by making optimal use of the opportunities within the existing patent.
Development also involves Q-Med establishing strategic collaboration with external players, who can both contribute to developing new areas of use for the
nasha™ technology and to the positions of existing products being strengthened.
FROM IDEA TO REGISTERED PRODUCT
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
Product development Pilot study
CE mark Europe CE mark
FDA USA The idea stage
FDA Study
Study
The time from idea to registered product in different countries is primarily affected by how compre- hensive the required clinical studies are and the process of each country’s authority. The requirements for getting a product approved for marketing vary greatly between different regions. Even after a prod- uct has been approved Q-Med often carries out market studies so as to thereby obtain further data concerning the product’s effect and safety.
Registration process Europe, just over 1.5
Registration process USA approximately 3 years
Q - M E D 1 1 2 0 0 6 A N N U A L R E P O R T
Extensive product and brand development
Through the nasha™ technology Q-Med has created a platform that makes it possi- ble for hyaluronic acid to be modified into products with a number of different prop- erties. The company’s specialists are con- stantly working on new improvements with regard to purity and consistency, for example. The deep knowledge of the
nasha™ technology’s possibilities – com- bined with commercial market analysis and active product strategies – has opened up for a number of innovative launches.
An extensive product portfolio has thereby been established which meets customer requirements in selected market segments within both Esthetics and Hos- pital Healthcare. restylane is perhaps the clearest example of this so-called line extension. This product family today com- prises seven different esthetic products.
During 2006 macrolane was approved for body contouring. Here Q-Med aims to develop a new product family for different forms of body contouring. Another exam- ple is solesta for the treatment of fecal incontinence. When working on this product the company has to a large extent made use of knowledge about zuidex and
deflux in order to create a new and com- mercially interesting area of use for the
nasha™ technology.
LOW RISK
The nasha™ gel is non-animal.
Unlike animal hyaluronic acid, there is no risk of transmission of infectious substances from or allergic reactions to the animal of origin.
NATURAL
The nasha™ gel is biologically degradable and is integrated into the tissue so that important nutrients can pass through the implants.
VERSATILE
The nasha™ gel can be used for many different applications as it can be modified to achieve parti- cular properties in different end products.
LONG EFFECT
The nasha™ gel is stabilized in a two-step process. This allows the effect of the implants to remain in place between six months and up to a couple of years, depending on what is desired and which nasha™
product is injected.
ADVANTAGES OF NASHA™
1 2 Q - M E D A N N U A L R E P O R T 2 0 0 6 RESTYLANE. Natural beauty, made in Sweden.
Q - M E D 1 3 2 0 0 6 A N N U A L R E P O R T
RESTYLANE for the correction of wrinkles
RESTYLANE Perlane for the filling out of deeper folds and the treatment of lips RESTYLANE Touch for the correction of thin, finer wrinkles and lines
RESTYLANE SubQ for the sculpting of facial contours, for example cheeks or the chin RESTYLANE Vital for the creation of vitality and elasticity in the skin
RESTYLANE Lipp for the sculpting of lips MACROLANE for body contouring RESTYLANE
PRODUCT GROUP
RESTYLANE WORKS LIKE THIS The products are tailor-made to give effective results for different needs and types of correction.
restylane is injected into the skin at different levels in order to achieve the right effect in the skin’s tissue structures.
RESTYLANE® Internationally leading products for filling out wrinkles and folds and contouring lips, cheeks and the chin. The treatment is simple and safe and gives immediate results. Q-Med’s restylane
products consist of a crystal-clear gel which is injected into the skin and which through its unique properties creates freshness and a natural filler where the years have begun to leave traces.
restylane is naturally degradable and is manufactured in accordance with Q-Med’s patented technology, nasha™. Sales of the restylane products increased by 33 percent to 950.6 MSEK during 2006.
RESTYLANE Lipp
1 4 Q - M E D A N N U A L R E P O R T 2 0 0 6 Nordic region, 4%
Rest of the world, 7%
Asia, 26%
North America, 15%
Rest of Europe, 45%
Latin America, 3%
REVENUES PER GEOGRAPHIC AREA
0 50 100 150 200 250 300 350 400
2006 2005 2004 2003
2002 0
10 20 30 40 50 60 70 80
186 176
241 241 380
MSEK %
Operating margin
OPERATING INCOME AND OPERATING MARGIN
0 200 400 600 800 1,000
2006 2005 2004 2003 2002
459 501
653 713 951 MSEK
REVENUES
RESTYLANE, 73%
SHARE OF Q-MED’S REVENUES
restylane is sold in more than 70 countries. Revenues during 2006 increased by 33 percent compared with the previous year and constituted 73 percent of Q-Med’s total revenues.
RESTYLANE®
Sales of restylane developed strongly during 2006. Growth was particularly clear in Asia, where the product is also to be introduced in more markets.
During the year a CE mark was also obtained for macrolane – Q-Med’s first product for body contouring.
Sales and income for the year The development of both sales and income was strong for restylane during the year. Sales amounted to 950.6 (713.3) MSEK, which is an increase of 33 percent compared with 2005. Operating income was 380.0 (240.8) MSEK and the operating margin 40 (34) percent. Sales have devel- oped positively in all the principal mar- kets. In Asia the increase was 61 percent compared with 2005. In Latin America – where Q-Med has established its own sales companies – the growth was also
unmistakable: 165 percent. Business activities have focused on Mexico and Brazil, which are two of the world’s larg- est esthetic markets.
Important events during the year In China the clinical study which was begun during 2005 on a total of 96 patients was completed. Half way into 2006 an application for sales approval of restylane
was submitted. It is expected that this application will be approved during 2007.
A new restylane product was launched at the beginning of 2006 –
restylane Lipp for lip sculpting, which has been adapted to work in harmony with the lip’s natural anatomy. The prod- uct has been well received by both users and consumers.
During the year Q-Med obtained a CE certificate for macrolane, which is
the company’s first product within body contouring. macrolane is also based on Q-Med’s patented nasha™ technology.
macrolane is approved for esthetic treat- ment for the correction of concave body deformities, such as asymmetries after liposuction.
restylane – a competitive product portfolio
restylane is the leading brand in the global esthetics market. In 1996 the first
restylane product was approved for sales. Since then almost seven million treatments have been successfully per- formed in more than 70 countries. The
restylane portfolio today comprises seven products for esthetic applications, for example fuller lips, the smoothing out of wrinkles and more rounded facial contours. All are based on Q-Med’s pat-
KEY RATIOS 2006 2005 Figures in MSEK 950.6 713.3 Revenues 380.0 240.8 Operating income 40 34 Operating margin, %
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ented nasha™ technology and give a natural appearance and a long-lasting effect. restylane has unique properties for esthetic use. The product has a great volume-creating capacity and a long- lasting effect, a consequence of Q-Med’s patented stabilization process.
restylane is based on non-animal raw material. This means that adverse effects are rare and that no allergy tests are nec- essary before treatment. As the founda- tion stone of the products is hyaluronic acid – which already exists
in all the body’s organs – the degradation process is natural. Due to this and the low degree of modification, the risk of reactions in the body, which can occur with permanent implants, is reduced.
Clinical studies have demonstrated that
restylane has scientifically proven safety and proven properties.
macrolane – a new expansive area Q-Med has obtained a CE certificate for
macrolane for the indication concave body deformities, such as asymmetries after liposuction. Traditionally patients’
own body fat, amongst other things, is used for such corrections. Using
macrolane plastic surgeons can in a safe and predictable way give different parts of the body considerably increased vol- ume. macrolane is injected deep in the skin and has an immediate and long-last- ing effect. Q-Med will develop several versions of macrolane, for example for breast augmentation, contouring of the décolletage or as supplementary treat- ment in plastic surgery procedures.
The focus on body contouring makes plastic surgeons an increasingly interest- ing customer group. This is not the case with restylane, where the customers are
primarily dermatologists. The CE certifi- cate is an important step in the develop- ment of macrolane, which will now be further documented in collaboration with leading plastic surgeons.
Hydro balance – a broadening of the customer group
Hydro balance is another growth area for Q-Med. The treatment is aimed at fairly large areas, such as the face, neck, décolle- tage and back of the hand. A number of superficial injections vitalize the skin and improve its elasticity and lustre, so that it looks younger. Considerable investments are being made within hydro balance and a new brand, with several unique prod- ucts, is to be launched. It is assessed that there is great commercial potential above all in countries and regions with warm and sunny climates, which can affect the aging of the skin. The treatment is carried out at esthetic clinics by esthetic general- ists and dermatologists. Q-Med is striving to extend the hydro balance concept to new target groups – for example cosme- tologists – by launching new products and new forms of preparations.
A growing international market The demand for esthetic products is increasing at a rapid pace worldwide.
An important driving force is that more and more people want to feel fresh and vital and that acceptance of esthetic treat- ments is increasing all the time. Q-Med today has an internationally leading position in this market.
Consolidation is an increasingly clear trend in the esthetics market. Acquisitions and mergers among large players in both the USA and Europe are increasing com- petition. The fact that the major compa-
1 6 Q - M E D A N N U A L R E P O R T 2 0 0 6
nies are strengthening their positions favours Q-Med. Tougher competition is considered to increase investments in marketing and information, which can increase the interest in esthetic products and thereby growth in the market.
Furthermore, this consolidation is con- sidered to favour companies offering quality products and well-known brands and which have extensive service orga- nizations.
Market development 2006
In the European market there are more than seventy competitors today and Q-Med’s market share is estimated to be between 40 and 70 percent, depending on the country. Sales of esthetic products are estimated to be approximately 1.5 billion SEK and annual growth to be about 10 – 15 percent. It is assessed that during 2006 Q-Med’s sales grew in line with the market.
The USA accounts for about half of the global esthetics market and annual growth is 15–20 percent. Around 24 mil- lion American women fit into the target group that Q-Med’s products are aimed at. Only approximately 1 million of these women undergo esthetic treatment, how-
ever, which means that there is great mar- ket potential. According to market ana- lysts, restylane is used in more than half of all procedures that aim to fill out wrin- kles in the USA. During 2006 Q-Med’s sales to Medicis, Q-Med’s partner in North America, increased by 60 percent compared with the year before.
The range of products and the compe- tition situation in Latin America are remi- niscent of the situation in Europe. Mexico and Brazil are the most important coun- tries. Q-Med set up its own companies in these markets in 2005, and this has had an unmistakable effect on the development of sales. During 2006 sales increased by 165 percent compared with the year before.
In Asia, it is assessed that the esthetics industry will grow very strongly during the coming years. This development is driven by the same factors as in the rest of the world. It is assessed that Q-Med’s market share in Asia is 60 – 65 percent and sales during the year rose by approxi- mately 61 percent, compared with 2005.
The biggest markets were South Korea and Japan. Sales to Japan are made to Japanese doctors who directly import
Q-Med’s products on a so-called named patient basis.
Prospects for 2007
An important objective for 2007 is to be able to maintain strong market position worldwide for restylane. Special empha- sis is being placed on Latin America and Asia, where development has so far been very positive. In the Chinese market the objective is to obtain sales approval for
restylane. The registration process with regard to restylane Perlane in the USA is ongoing and approval is expected to come during the first half of 2007.
After approval Q-Med will receive a sup- plementary purchase sum of 29.1 MUSD from Medicis.
During 2007 the foundation will be laid for the hydro balance products. Work is focused on developing the injection tech- nique together with key customers. The work on macrolane is also being intensi- fied during 2007. In parallel with more extensive studies with the product, key customers will be trained in the use of
macrolane.
In 1996 the first restylane product was launched. Since then almost seven million treatments have been successfully per- formed all over the world.
RESTYLANE®
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ETHICS PAVE THE WAY FOR RESTYLANE IN CHINA
The strong economic development in China is also creating exciting oppor tunities for Q-Med.
An application for registration has been submitted for restylane, which it is expected will be approved during 2007. Our sights are set on a launch in 4–5 major cities.
Ethics, openness and credibility are extra impor- tant concepts in Q-Med’s work in China. The back- ground to this is that the rapid economic develop- ment has also attracted unprofessional players to the local esthetics market. Profiling the Q-Med brand in a professional and thorough manner is therefore cru- cial. Another foundation stone is local suppor t and here Luni Chen, who is responsible for the work in China, plays an impor tant role. It is Luni who coordi- nates contacts with authorities, hospitals and interest organizations.
– We began clinical studies in China during 2005 and this resulted in an application for registration being submitted to the SFDA, the Chinese State
Food and Drug Administration, in May 2006, says Luni Chen. Beforehand, we had presented compre- hensive preclinical documentation, to show how effective and safe our product is. It is impor tant to emphasize at all times that we are professional and that we have a long-term view of our commitment in China.
Profiling competence
The clinical studies comprised 96 patients and were carried out at three different hospitals in Beijing. Luni Chen has also had a key role in this work with regard to establishing contacts with the relevant authorities and suitable hospitals and doctors. An application for registration should normally be processed within 90 days, but as there have been problems in the esthetics market, the authorities now have tighter controls, with longer handling times as a consequence.
– We see this as an oppor tunity, emphasizes Luni Chen. During the handling time we have a dialogue with different authorities and then have the oppor tunity to display the competence and experience that exist within Q-Med. We hope that the next step will be approval during 2007.
In parallel, Q-Med has also performed market studies to pave the way for the coming launch.
Reaching the right hospitals and private clinics in the right cities is crucial. Just as impor tant is to attract the treating doctors to Q-Med’s own train- ing courses, so that restylane is always associated with control and quality.
– In the beginning the marketing work will be aimed at four or five major cities, including Beijing and Shanghai, says Luni Chen. If the product is approved during 2007, we will begin to build up our marketing organization in earnest. In the long term it will probably comprise a sales force of approximately 30 – 40 people.
1 8 Q - M E D A N N U A L R E P O R T 2 0 0 6 HOSPITAL HEALTHCARE. Simple, effective and safe treatment for increased quality of life.
KEY RATIOS 2006 2005 Figures in MSEK 353.1 262.7 Revenues 24.3 –66.5 Operating income 7% –25% Operating margin
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HOSPITAL HEALTHCARE
The Hospital Healthcare product area consists of the products deflux for the treatment of a malformation of the urinary bladder in children, durolane for the treatment of osteoarthritis of the knee and hip joints and zuidex for the treatment of stress urinary incontinence in women.
The product area displays positive development, with increased revenues and improved margins. Total revenues amounted to 353.1 (262.7) MSEK. Operating income amounted to 24.3 (–66.5) MSEK. In June 2006 an agreement was entered into with Smith & Nephew regard- ing marketing and sales rights for durolane. Q-Med will receive royalties in the form of one- time payments on the basis of achieved objectives and also on an ongoing sales basis. When the agreement was entered into, a first payment of 73.5 MSEK was received.
Nordic region, 2%
Rest of Europe, 27%
Asia, 2%
North America, 69%
TURNOVER BY GEOGRAPHIC AREA
–150 –120 –90 –60 –30 0 30
2006 2005 2004 2003 2002
–76
–141 –140 –66
24 MSEK
OPERATING INCOME
0 50 100 150 200 250 300 350 400
2006 2005 2004 2003 2002
59 106
170 263
353 MSEK
REVENUES
Hospital Healthcare, 27%
SHARE OF Q-MED’S REVENUES
