Medeva Plc Reports 1999 Half Year Results.

LONDON--(BW HealthWire)--July 21, 1999--

Medeva PLC (NYSE: MDV), the International Pharmaceutical Trading Company, Today Announced its 1999 Half Year Results:

HIGHLIGHTS

-- Non-CNS product sales and royalties grow 7% to(pound)106.9

million ($173.2 million)* with a profit contribution

of(pound)28.5 million ($46.2 million), up 21%.

-- Further significant methylphenidate sales decline. CNS sales fall

to(pound)19.3 million ($31.3 million) with profit contribution of

(pound)9.5 million ($15.4 million) (H1 98 :(pound)29.6 million).

-- Operating profit of(pound)21.1 million ($34.2 million) (H1 98

:(pound)37.2 million); PBT(pound)19.7 million ($31.9 million) (H1

98:(pound)36.7 million).

-- Tax rate reduced to 20% (H1 98 : 31%.).

-- EPS 4.7p (7.6 (cent); ADR 30.5 (cent)) (H1 98 : 7.2p).

-- Interim dividend maintained at 2.0p (3.2(cent): ADR 13(cent)) per

share.

-- (pound)8 million ($13 million) UK restructuring program

announced.(pound)10 million ($16.2 million) per annum cost

savings targeted.

-- Further Clickhaler molecules to be acquired.

Note: Convenience translation only at an assumed exchange rate of (pound)1:$1.62

Commenting on today's results, Medeva's Chief Executive Dr Bill Bogie said:

"Our first half 1999 results reflect the continuing decline in sales of methylphenidate. Our success in growing our core products, our tight control of costs and our investment in the future are, however, all positive. We are intent upon improving our overall performance next year, and we look forward to a period of renewed prosperity as our promising product pipeline starts to deliver new sources of sales."

OVERVIEW AND PROSPECTS

Medeva reports expected half year results that reflect the final transitional year from a Company once heavily dependant on methylphenidate sales to a much more broadly based business. Thus CNS sales in the half year were (pound)19.3 million ($31.3 million) and will decline further in the second half. By contrast non-CNS sales grew by 7% to (pound)106.9 million ($173.2 million) and are expected to continue to grow. New products and contracts will boost future sales, and together with management's plans for restructuring the business should lead to improving performance in 2000.

Our operating priority has been to develop and optimize profits from sales of our non-CNS products, particularly those associated with our Rochester facility. In this regard it is most encouraging to report that non-CNS products generated a profit contribution of (pound)23.8 million ($38.6 million), an increase of 25% over the first half 1998 and together with royalty income of (pound)4.7 million ($7.6 million) contributed (pound)28.5 million ($46.2 million), 75% of total profit before central and development expenditure (H1 98 : 44%).

Of course, our overall results reflect the continuing decline in sales of methylphenidate. This trend was already well established last year, has accelerated during this period and is expected to continue to do so during the remainder of 1999. Full year CNS sales may only total (pound)28 million ($45.4 million) and therefore methylphenidate will only make a small contribution to the Group's future until the expected introduction of a modified release form of methylphenidate in 2001.

Looking forward, we have continued to invest in building up our new product pipeline. We are pleased to announce that agreement in principle has been reached with ML Laboratories to license two further molecules in the Clickhaler DPI range. These are budesonide and formoterol. Further details will be announced when the agreement is finalized. Details of progress of our other principal projects are set out in the development pipeline section below. Our confidence is increasing in the contribution we can expect to enjoy from new products from next year onwards, notably from growing sales of Clickhaler and potential sales of both Hepagene(TM) (initially as a vaccine in Europe) and ConXn(R) for scleroderma once launched. In 2002 Medeva's CF Vector for cystic fibrosis, Hepagene as a treatment, and Nicotine for inflammatory bowel disease may also be launched provided they come successfully through clinical trials and are approved by the various regulatory agencies.

In the meantime our priorities are to remain strongly focused on our core products and to reinforce our cost disciplines. To this end we are today announcing that we plan to undertake a number of measures to reduce our cost base in the UK and increase the profitability of our domestic business; these measures include the closure of our present head office in central London and the reduction in overhead at our UK business headquarters in Leatherhead. These are expected to give rise to an exceptional charge in the second half of 1999 of (pound)8 million ($13.0 million) but will assist in securing annual cost savings of some (pound)10 million ($16.2 million) from 2000 onwards.

Medeva remains on target to achieve a double digit increase in its underlying non-CNS profit contribution in 1999. We have invested heavily in our business in the last three years and will continue to do so in the remainder of 1999 and 2000 with our total central and development expenditure broadly in line with 1998 levels for both those years. Our near term profit opportunities have also been enhanced by the recently announced co-promotion agreement with King Pharmaceuticals for the ACE-inhibitor Altace(R) in the US and by the manufacturing agreement announced last week with Aviron for the manufacture and supply from our specialist Speke site of FluMist(R), the cold-adapted influenza vaccine.

As a result of the reduced levels of profitability in our US business, Medeva's tax rate has fallen to 20%, which rate we do not expect to increase in the foreseeable future, given current fiscal legislation in our principal operating territories.

FINANCIAL SUMMARY

Our reported results remain affected by movements in the US$/(pound) exchange rate. The average rate for the first half of 1999 was $1.62 to (pound)1, compared with $1.65 for the first half 1998. In accordance with our usual practice, we have restated 1998 comparative numbers in this review at the 1999 average rate in order to show a meaningful like-for-like comparison ("CER"). This restatement has resulted in an increase to 1998 profit before tax of (pound)0.6 million.

-0-

Sales
Sales by category*

                            1st Half  1st Half   Inc/(dec)      Year
                                1999      1998(a)     (b)      1998(a)
                            (pound)m   (pound)m             (pound)m
Respiratory                     36      35          2%          73
Hospital products               21      17         24%          38
Vaccines                        16      17        (5%)          56
General products                30      27          9%          55
                           --------  ------  ----------  ----------
Total non-CNS                  102      95          7%         222
Royalties                        5       5          4%           9
                           --------  ------  ----------  ----------
Total non-CNS & royalties      107     100          7%         231
                           --------  ------  ----------  ----------
Methylphenidate                 15      37       (60%)          70
Ionamin                          4       4          0%           8
                           --------  ------  ----------  ----------
                           --------  ------  ----------  ----------
Total CNS                       19      41       (53%)          78
                           --------  ------  ----------  ----------
                           --------  ------  ----------  ----------
Total sales***                 126     141       (11%)         309
                           --------  ------  ----------  ----------

(a) 1998 has been restated at 1999 exchange rates and numbers rounded to nearest million (b) % calculated to (pound)0.1m (c) Excludes IMS US products disposed of in October 1998 and Swiss products disposed of in April 1999.

Non-CNS business

Product sales in this part of our business grew by 7% to (pound)102.2 million ($165.6 million) as the result principally of an excellent performance from those products acquired with our Rochester acquisition in 1996. In the last 12 months (H2 98 and H1 99) sales of these products were $132.5 million compared with full year sales of $99.7 million for 1998, the last year before our acquisition, which included Ionamin sales of $27.6 million. In the first half 1999 prescriptions for our lead product Tussionex grew by 37% driving sales growth in the period of 20% to (pound)14.7 million ($23.8 million). At the same time sales of Zaroxolyn grew by (pound)3.9 million to (pound)13 million ($21.1 million), with prescriptions growing 7%. The remainder of our non-CNS sales, including Delsym sales of (pound)3.6 million ($5.8 million) (H1 98: (pound)1.7 million), are at 1998 levels overall with good growth in our general products category of 9%, notably Pediapred at (pound)3.1 million ($5.0 million) (H1 98 : (pound)2.8 million), being offset by further declines in our older respiratory products.

The majority of non-CNS sales in the first half are made in the US, where the benefit of improved product mix and tight cost control has enabled us to improve our contribution margin (that is operating margin before central and development costs of (pound)16.9 million) to 23% (1998 : 20%). In the second half non-CNS margins are influenced by production yields of Fluvirin. We are currently experiencing some manufacturing difficulties, inherent with production of biological products, on the new 1999 strain of the influenza virus and this could lead to lower than expected sales in 1999.

CNS business

In the methylphenidate market the activities of our new competitors have reduced effective prices. Ionamin sales have remained flat despite the launch of two new high-profile competitor products into the anti-obesity market. Overall the effects of both price and volume declines has resulted in CNS sales falling by over 53%. Total sales of CNS products of (pound)19.3 million ($31.3 million) (1998: (pound)41.1 million) generated a contribution of (pound)9.5 million ($15.4 million), a reduction of 68% from 1998, and now represents only 25% of total contribution in the half year, compared with 56% in the comparable period.

Contribution account

The contribution from the parts of the business can be summarized as follows: -0-

                       Turnover               Profit contribution
                        1999        1998            1999         1998
                      (pound)m   (pound)m       (pound)m      (pound)m
Non-CNS                102.2          95.7           23.8         19.1
Margin                                                23%          20%
Royalty                 4.7           4.5            4.7          4.5
                 -----------   -----------    -----------   -----------

Sub total              106.9         100.2           28.5         23.6
CNS                    19.3          41.1            9.5          29.6
Margin                                               49%           72%
                -----------   -----------    -----------   -----------

                       126.2         141.3           38.0         53.2
Central activities                    -            (16.9)       (16.1)
                -----------   -----------    -----------   -----------

Continuing operations  126.2         141.3           21.1         37.1
Disposals and others(a)  2.3           9.1            -            0.7
                -----------   -----------    -----------   -----------

Before exchange        128.5         150.4           21.1         37.8
Exchange adjustment(b)  -            (2.1)           -           (0.6)
                -----------   -----------    -----------   -----------

                       128.5         148.3           21.1         37.2
                -----------   -----------    -----------   -----------

(a) IMS US products disposed of in October 1998 and Swiss products disposed of in April 1999 (b) 1998 has been restated at 1999 exchange rates

Operating profit

Continuing product sales of (pound)121.5 million ($196.8 million) (1998: (pound)136.8 million) and royalty income of (pound)4.7 million ($7.6 million) (1998: (pound)4.5 million) generated a gross profit of (pound)81 million ($131.2 million) (1998: (pound)98 million at CER). Sales, marketing and distribution costs were in line with 1998 at (pound)28.8 million whilst general and administration costs of (pound)14.5 million ($23.5 million) were down by (pound)3 million ($4.9 million) from 1998.

Development expenditure increased by 17% at CER to (pound)16.7 million ($27.1 million) and represented 13% of Group turnover, reflecting the increasing number of projects in our pipeline and the fall in turnover.

Shareholder Returns

Profit before tax was (pound)19.7 million ($31.9 million), a decrease of (pound)17 million or 46% at CER from the first half 1998. The tax rate of 20% for the period compares with 31% for the first half 1998, and results primarily from the reduced levels of profitability in the US business.

Basic earnings per share for the period were 4.7p (7.6 (cent), ADR 30.5(cent)), down by 35% from 7.2p for the same period in 1998 or 36% at CER. The Directors have declared an interim dividend of 2p (3.2(cent), ADR 13(cent)), which is the same as in 1998 and is covered 2.4 times by profits.

Cash Flow and debt

Net cash flow from operating activities for the H1 99 at (pound)37.6 million ($121.8 million) is (pound)2 million behind the first half 1998 despite the (pound)9.7 million fall in profits. Capital expenditure on tangible assets was (pound)19.8 million ($32.1 million) (1998: (pound)16.7 million) and interest, tax and dividend payments amounted to (pound)18.2 million ($29.5 million) (1998: (pound)20.2 million).

The increase in capital expenditure relates mainly to the Speke facility, where the planned expansion of production capabilities for both Hepagene, and our existing vaccine business is under way; the first phase will complete in July. Included in our plans is a biotechnology development and manufacturing facility to support our growing biotechnology interests and enhance our ability to attract potential development partners. Our recent announcement of a manufacturing agreement with Aviron signifies the importance of these new facilities. Capital expenditure will remain high as we complete this expansion.

Our three year US restructuring program is nearing completion and the final (pound)4.8 million ($7.8 million) of the US restructuring provision was spent in the first half 1999. The main intangible asset acquired during the period was the (pound)2.5 million ($4.0 million) initial consideration paid for the rights to ConXn(R). Investments acquired during the period include (pound)2.5 million ($4.0 million) of Connetics stock and a (pound)0.7 million ($1.1 million) investment in the management buy out company that purchased our Swiss facility. Borrowings increased during the period by (pound)17 million ($27.5 million); these borrowings are denominated in US$ and (pound)4 million of the increase was due to the 5% fall in the value of sterling against the US$ since December 31,1998; the remainder resulted from an increase in investments and capital expenditure. The net debt at June 30, 1999 was (pound)92 million ($149.0 million), which excludes (pound)3 million of finance leases; our credit facilities remain at (pound)167 million ($270.0 million). Interest cover remains high at 15 times after adding back capitalized interest.

PRODUCT DEVELOPMENT PIPELINE

Our new product pipeline is progressing well. Highlights of the five principal projects are as follows:

Hepagene, vaccine and treatment for hepatitis B

Hepagene as vaccine

The pan-European product license application for Hepagene as a vaccine, which was submitted in September 1998, was accepted and is progressing through the EMEA review process.

In the US, a Biologic License Application ("BLA") was submitted in February 1999 and in April 1999 we were advised by the Food and Drug Administration ("FDA") that they require additional information before they will accept the application for review. The FDA has questioned the number of subjects in the clinical database for safety evaluation and advised that it requires further information on, and modifications to current manufacturing processes. The FDA also requires further information on protocols relating to validation of equipment, processes and systems, and comparative clinical data on final manufacturing lots. Medeva has been in dialogue with the FDA and will be meeting with the Center for Biological Evaluation and Research in August 1999 to address the issues raised prior to making a resubmission of a BLA, now likely to be in 2000.

There are estimated to be potentially 15-20 million suitable candidates for Hepagene as a vaccine and Medeva's potential share of that market, estimated at 5%, would result in sales of at least $150 million per annum.

Hepagene as treatment

Current commercial development involves three randomized placebo-controlled studies: one conducted in Indonesia (in conjunction with our partner for the region, Janssen Pharmaceutica); and two pivotal studies in Europe and North America being conducted by Medeva.

All three studies are underway. The Indonesian trial is in its final phase and the results should be available by the end of 1999. Enrolment in the European study is complete and data from the first phase will be available in the first half of 2000. Completion of the North American trial is scheduled for mid 2000 and the whole program will be evaluated at the end of 2000. If Hepagene shows efficacy in presently untreatable patients, an early product license application could be filed in late 2000 in the US and Europe. With the number of chronic carriers of Hepatitis B in North America and Europe in excess of 4 million, the potential market for Hepagene as a treatment is estimated to be in excess of $500 million per annum.

ConXn(R), (recombinant human relaxin) treatment for scleroderma

In February 1999, a 180-200 patient, 16-centre, double-blind, placebo-controlled Phase II/III trial was initiated in the USA, and is progressing well to schedule. This trial is seeking to confirm the results of the Phase II trial which showed a statistically significant improvement in the primary endpoint (improvement in skin scores), as well as positive trends in secondary parameters.

ConXn(R) has orphan drug status and product license applications are scheduled to be filed in 2001 in the USA and 2002 in Europe. Relaxin is the only therapy tested in a controlled clinical study to show statistically a reversal in the progress of scleroderma. The potential market for this product, if successful, is estimated to be at least $200 million per annum.

Nicotine, topical treatment for inflammatory bowel disease of the colon

At the end of 1998 we completed an exploratory Phase I tolerance study of our newly developed, modified-release nicotine capsule which showed good safety and tolerance. Following this, in the first half of 1999, a US IND and a Canadian INDS have been prepared. The IND was filed in July and the INDS will be filed in August. The opening study is a large, multi-centre, placebo-controlled, dose confirmation study in North American patients with active ulcerative colitis.

License applications for the product in the treatment of acute ulcerative colitis are scheduled to be filed in 2001 in the USA and Europe. Filings for the maintenance of remission are scheduled to follow. The potential market for a successful new therapy in this area is estimated at between $150 and $300 million per annum.

Medeva's CF Vector, gene therapy for cystic fibrosis

A Phase I/II blinded, placebo-controlled clinical trial of Medeva's CF Vector was conducted at Stanford University in a group of 23 patients who were treated with the product in one maxillary sinus and with placebo in the other. There were no adverse events noted and the study indicated that inflammation, a marker for the disease, was reduced in sinuses treated with the product and not in sinuses treated with placebo. Full results of the study are being prepared for scientific review and publication.

A Phase I study initiated at the end of 1998 is ongoing, designed to confirm in lung tissue the findings of the earlier study in maxillary sinus tissue and to establish the safety profile of the product delivered in an aerosol form (the likely commercial delivery form).

Product license applications are scheduled to be filed in 2002 in the US and in Europe. Estimated potential peak sales for the product are $150 million per annum.

In addition to these five principal projects, we have made progress in other projects as follows:

Methylphenidate, Modified Release Formulation, for attention deficit disorder

Current formulations of methylphenidate frequently involve the need for a mid-day dose which, for children, parents and schools alike, is an unwelcome requirement. Medeva is developing a modified-release formulation of the therapy which would eliminate the need for the mid-day dose. The development program is due to be completed at the end of 1999, with the submission of a US New Drug Application (NDA) planned in the first half of 2000.

Codeine-based cough treatment

In 1998 we initiated the development of a new prescription, long-acting (12 hour), codeine-based cough treatment in the US, using our patented Pennkinetic technology. Following discussions with the FDA, further formulation work is being carried out and a New Drug Application is now scheduled to be filed in the first half of 2000.

Medeva PLC is an international company developing, manufacturing, and marketing prescription pharmaceutical products in the following main therapeutic areas: respiratory care, vaccines, CNS therapies (attention deficit disorder and anti-obesity), gastroenterology, hospital products (pain management and anesthetics) and dermatology. In the UK, Medeva is the sole producer of human vaccines, including flu, childhood and traveler's vaccines. In the US, Medeva is the leading manufacturer and distributor of methylphenidate. Medeva also has operations in France, Spain, Belgium and the Republic of Ireland.

Medeva's ordinary shares trade on the London Stock Exchange and its ADRs, each equal to four ordinary shares, trade on the New York Stock Exchange under the symbol MDV. Additional information on Medeva can be accessed on the company's home page: http://www.medeva.com.

FOR TABULAR INFORMATION, PLEASE CALL TAYLOR RAFFERTY ASSOCIATES AT 212-889-4350