Medivir — Annual Report 2011

Apr 10, 2012

A N N U A L R E P O R T 2011

Research around the polymerase and protease enzymes, and how we can inhibit their involvement in the pathology of various diseases represents the core of our pharmaceutical research and development.

With yearly sales of half a billion Swedish kronor and high innovation in pharmaceutical research, we are continuing to build our company towards profitability.

TMC435 gives Medivir a unique opportunity to be out on the market with the next generation of HCV pharmaceuticals.

CEO's statement

Medivir is now an even more
commercial and complete company 1

The Chairman and CEO in conversation

The acquisition of BioPhausia is accelerating
Medivir's development towards becoming
a profitable specialty pharmaceutical
company2

Medivir's history

Development milestones from 1988–2011 3

The year in brief

Business highlights, quarter by quarter .4

Medivir towards the goal of becoming a profitable pharmaceutical company World-leading know-how in the target

enzymes polymerases and proteases.6

A new platform is taking us forward

Own products, new partnerships and strengthened research organization.. . . . . .8

Xerclear is Medivir's inhouse developed cold sore pharmaceutical, which was launched in 2011. It is sold by GSK in Europe as an OTC pharmaceutical under the Zoviduo/Zovirax Duo brands.

Cross Pharma – business opportunities in the parallel import of pharmaceutical

Strengthening the group's commercial
operations, good growth in 201112

Project portfolio

An overview of Medivir's
development projects13

Medivir's employees – everyone plays a role in the complete picture

Ten of our employees talk about their role in our organization . . . . . . . . . . . . . . . .16

Innovation – from idea to market

Interview with our Research &
Development VP, Charlotte Edenius 18

Potent protease inhibitors create a unique position

A breakthrough for new treatments is creating hope and expectation... . . . .20

Protease inhibitors becoming the standard for treating hepatitis C Professor Ola Weiland talks about advances in treating hepatitis C . . . . . .22

Our in-house projects outside the hepatitis C segment Dengue fever, chronic pain and skeletal disorders... . . . . . . . . . . . . . . . . . . . . .23

Glossary

Definitions and explanations24

Report of the Directors .. . . . . . . . . . . . . . . . 25 The Medivir share.. . . . . . . . . . . . . . . . . . . . . . . 36 Management.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Corporate Governance Report . . . . . . . . 40 Board of Directors .. . . . . . . . . . . . . . . . . . . . . . 48 Income Statement .. . . . . . . . . . . . . . . . . . . . . . 51 Statement of Comprehensive Income 51 Balance Sheet .. . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Changes in Equity .. . . . . . . . . . . . . . . . . . . . . . 54 Cash Flow Statement .. . . . . . . . . . . . . . . . . . 55 Accounting principles .. . . . . . . . . . . . . . . . . . 56 Notes .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Certification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Audit Report .. . . . . . . . . . . . . . . . . . . . . . . . . . . 82 Six-year summary .. . . . . . . . . . . . . . . . . . . . . . 83 Key figures and definitions .. . . . . . . . . . . 84

Dear shareholders

Medivir has a wide variety of communication channels, one of them being its Annual Report, addressing those of you who want to get a simple overview of our business over the past year. During the year, we took a momentous step in our commercial ambitions and established a market presence in the Nordics with annual pharmaceutical sales of some sek 500 m. Hopefully, every reader will be able to find some interesting sections in this review of our operations. Core and Cure are strategic catchwords for Medivir. Core is about our know-how, and Cure expresses our endeavor to treat patients with the pharmaceuticals that we are developing and selling.

We now have nearly 11,000 shareholders, 9,500 of whom are private investors. This is up 60% on the previous year due to the new shareholders we gained from our acquisition of BioPhausia. In terms of capital, we still have a high share of institutional ownership, some 30 and 40 percentage points being held by foreign and Swedish institutions respectively.

We're really pleased about our work in developing Medivir and proud of getting such strong support from our shareholders. I hope that this year's Annual Report can help increase understanding of what we do and stimulate your curiosity about our business.

In the first part of the Annual Report, we review our ambitions, our know-how and the platform that will take us forward towards our goal of becoming a profitable pharmaceutical company. In our work, we hope to contribute to new and better treatments for diseases. The next section presents our Directors' Report, and in the third section, we have our Income Statements, tables and figures.

Here's wishing you an enjoyable read of our Annual Report for 2011!

Rein Piir EVP Corporate Affairs & IR

BUSINESS CONCEPT

To develop pharmaceuticals against infectious diseases for global sale and to commercialize products on the Nordic market.

GOAL

To be a profitable Nordic specialty pharmaceutical company in high growth.

STRATEGY

• Enhance and strengthen R&D
• Establish new partnerships
• Expand commercially

Medivir in brief

Medivir is a specialty pharmaceutical company with unique positioning on the Nordic market. A momentous step in the company's development was taken in 2011 through the acquisition of BioPhausia. Now, Medivir is a more complete pharmaceutical company, which combines successful research operations in infectious diseases with a Nordic sales organization that generates yearly sales of some sek 500 m.

Medivir – a Nordic pharmaceutical company on the advance

BioPhausia	A commercial portfolio currently generating annualized sales of some sek 500 m.
Xerclear®	Successfully taken a product all the way from original idea to market.
R&D	Pharmaceutical research and development focusing on infectious diseases and with specialist competence in the segments of proteases and polymerases.
TMC435 and hepatitis C	Strong positioning in the hepatitis C segment with one of the most promising hepatitis C CDs in clinical phase III.

FACTS ON MEDIVIR

• Operations have their registered office in Stockholm, where 112 of the company's 168 employees are stationed, while 5 work at the company's office in the UK and 51 in Poland.
• Consolidated net sales in 2011 were sek 698.6 m with operating profit of sek 111.8 m. At year-end 2011, the group's cash position was sek 536.3 m.
• The research portfolio has 11 projects, seven of which are run by partners. Four of these projects are in the hepatitis C segment, of which protease inhibitor TMC435 is the most advanced, now in clinical phase III trials.
• The company has a profitable sales operation in the Nordics, which consists of a product portfolio of some 15 pharmaceuticals and parallel imports of pharmaceuticals for the Swedish market.
• The company's IPO was in 1996, Medivir is traded on Nasdaq OMX, the Stockholm Stock Exchange's Mid Cap list.

Medivir group	2011	2010	2009	2008	2007	2006
EBITDA (sek 000)	135,348	-128,851	-129,425	-103,410	-13,644	-154,525
EBIT (sek 000)	111,914	-136,726	-139,815	-113,733	-37,320	-201,596
Operating margin, %	16.0	-222.2	-544.4	-117.0	-15.0	-159.9
Profit margin, %	15.9	-218.1	-527.1	-102.9	-11.6	-159.0
Debt gearing, multiple	0.2	0.0	0.1	0.0	0.0	0.04
Return on :
equity, %	13.4	-35.3	-61.3	-29.5	-10.3	-69.3
capital employed, %	14.2	-35.2	-61.2	-29.6	-9.9	-66.6
total capital, %	12.7	-28.8	-46.8	-23.9	-7.6	-52.8
Equity ratio, %	80.7	83.7	75.0	77.4	83.7	65.0
Average number of shares, 000	29,924	24,718	20,844	20,844	16,873	12,903
Number of shares at year-end, 000	31,254	28,593	20,844	20,844	20,844	12,903
Basic and diluted earnings per share, sek	3.80	-5.43	-6.49	-4.76	-1.74	-15.16
Equity per share before and after dilution, sek	35.05	21.24	7.38	13.80	18.42	14.44
Net worth per share before and after dilution, sek	35.05	21.24	7.38	13.80	18.42	14.44
Cash flow per share after investments, sek	-4.26	-3.34	-6.76	-2.14	-4.91	-7.39
Cash flow per share after financing activities, sek	-3.71	20.39	-6.76	-2.14	7.95	-8.28
Dividend per share, sek	0	0	0	0	0	0
Number of outstanding share warrants	712,507	803,647	760,000	970,000	970,000	676,995

Key figures

CEO's statement

The acquisition of BioPhausia in 2011 was a clear and conscious step on the way towards Medivir's express goal of becoming a profitable research-based specialty pharmaceutical company. This acquisition included BioPhausia's portfolio of prescription pharmaceuticals, and Cross Pharma, together generating yearly sales of half a billion Swedish kronor with good profitability. In addition, Medivir gained a complementary organization with experience of marketing and selling pharmaceuticals. Maris Hartmanis has been CEO of the Medivir Group since September 2011.

– Through the acquisition of BioPhausia, Medivir became a more commercial and complete company with unique breadth for its size. Its business now covers the whole chain from the early discovery phase within preclinical pharmaceutical development, to marketing and selling, as well as the parallel import of, pharmaceuticals.

Commercial and operational expertise

As a research and development company, Medivir focuses on infectious diseases with world-leading know-how in the target enzymes, polymerases and proteases. The acquisition of BioPhausia brought the specialist know-how in marketing and sales that Medivir did not possess. The Group has now laid the foundation for the competence necessary for the expected launch and commercialization of Medivir's leading project in hepatitis C, TMC435.

One of the primary tasks for the coming year is to keep working on integrating both companies' know-how, experience and disciplines. Medivir has the know-how and resources for developing pharmaceuticals right through the preclinical, and into the clinical, development phases. BioPhausia brings know-how and resources in the regulatory segment, pharmacovigilance, purchasing, logistics, distribution, marketing and sales. In the best possible way, we will use both companies' strengths to build the profitable research-driven pharmaceutical company that we want to become on the Nordic market.

An attractive collaboration partner

Medivir's research and development into new and improved pharmaceuticals is the base of the business. The second big task for us in 2012 is to retain our status as a partner of choice among the pharmaceutical companies that team up with us and to tie in new

collaboration partners. With our creativity and competence, we are constantly creating new, attractive research and development projects, any of which could be significant, to ourselves, our partners and patients. Another goal is to drive selected projects further into clinical phases in-house to create incremental value.

We've attracted a lot of attention – and deservedly so – for TMC435, the flagship of our current portfolio. This project represents a significant portion of our enterprise value, and there are hopes that TMC435 will be one of those pharmaceuticals that substantially improve the proportion of patients actually cured and the quality of life for people with the most severe, and also most common, strain of hepatitis C. We expect our partner to be able to file a registration application for this pharmaceutical in the US, Europe and Japan in the first half-year 2013.

Our own revenues

Our product portfolio of prescription pharmaceuticals, and the parallel import of pharmaceuticals run by Cross Pharma, have brought the group new revenue streams and market presence. We view this as a step towards us reducing our financial risk, with profits being reinvested in new pharmaceuticals and in our own research and development. We are sticking with our strategy, and holding firm on our course towards Medivir becoming a profitable specialty pharmaceutical company.

Maris Hartmanis Chief Executive Officer March 2012

"I have chosen to be active in life sciences right through my career, and I'm driven by working on products that either improve people's quality of life, or can cure them from disease," says Maris Hartmanis, the Medivir group's CEO. Maris Hartmanis became CEO of Medivir in September 2011. His previous position was as CEO of Bio-Phausia AB. Maris Hartmanis was born in 1953, is a D. Eng. and Associate Professor of Biochemistry at the Royal Institute of Technology, Stockholm. He has been active in the life sciences industry for the last 25 years, holding positions at Gambro, Gyros, Amersham Bioscience (now GE Healthcare) and Pharmacia & Upjohn (now Pfizer).

In conversation with the Chairman and the CEO

In 2011, Medivir acquired the Swedish specialty pharmaceutical company BioPhausia, and thus gained a breadth of expertise and a business that extends from research and development to the sale of prescription pharmaceuticals, and that has yearly sales of sek 500 m.

Meet Chairman of the Board Göran Pettersson and CEO Maris Hartmanis as they discuss the past year and their thoughts for 2012.

What were the most important events of 2011?

Göran: 2011 was an eventful and significant year in many respects. The buy-out of BioPhausia was a momentous step on Medivir's road to becoming a profitable Nordic specialty pharmaceutical company. We've seen stable progress of the projects we are running in-house, not least our own hepatitis C projects. In addition, our most advanced hepatitis C project, run jointly with Janssen Pharmaceuticals, TMC435, entered global phase III trials. The development tempo of competing hepatitis C pharmaceuticals has accelerated with exceptional speed, and many partnerships and large transactions were conducted between companies in the year. Here, TMC435 has secured leading status in the development of the next generation of combination therapies. Our partner on TMC435, Janssen Pharmaceuticals, has entered several key partnerships in which we expect to see different combination trials on TMC435 being conducted. Accordingly, our partnership project is at the leading edge of the hepatitis C segment, and I'm convinced that TMC435 will be one of the vital cornerstones in future treatment of different patient groups with hepatitis C.

In the year, the Board also appointed a new CEO, Maris Hartmanis, formerly CEO of BioPhausia, who succeeded Ron Long in September. Maris Hartmanis's experience and personal qualities are a good fit for taking Medivir forwards.

Maris: as a result of being appointed as CEO in the autumn, the integration of BioPhausia was one of the primary issues. I've prioritized creating a collective platform for the two organizations without losing speed in our research, development or sales. It's exceptionally stimulating to be able to conclude that our internal projects, like our main project TMC435, progressed positively, simultaneous with sales of our pharmaceuticals continuing as planned.

Explain the significance of acquiring BioPhausia and how you intend to manage this acquisition in the coming years Göran: our buy-out of BioPhausia brings us a commercial platform and an experienced and highly skilled organization. Thereby, we have quickly laid the foundation for the organization necessary to commercialize TMC435 in the Nordics. Apart from a good and fast start of building our organization, the acquisition brought us a pharmaceutical portfolio of strong brands.

We will continue to manage our commercial organization through channels including continuing to build on our current product portfolio and creating value for Medivir's owners, and our collaboration partners, the healthcare sector, and not least, those patients that use our pharmaceuticals.

Maris: the acquisition of BioPhausia brought Medivir a portfolio of recognized and well-established pharmaceuticals with strong brands and the parallel import business, Cross Pharma. Medivir, whose core competence lies in the antiviral segment, has very strong positioning in the research and development of new and innovative pharmaceuticals. BioPhausia possesses an organization with experience and know-how in the marketing and sale of pharmaceuticals. The two companies' competences complement each other superbly.

The acquisition means that Medivir is already an established company on the commercial map, which is important for preparations ahead of the launch of TMC435 in the Nordics.

Has the work of the Board of Directors' changed direction due to the current financial crisis?

Göran: our strategy and business orientation remain the same, and we're continuing to work on them.

Primarily, the role of the Board is to set a framework for operations and to encourage create the conditions amenable to enhancing our assets, and increasing their value over time. Our daily operations are run by our management and its coworkers. The Board of Directors follows operational work, and is there to offer support and advice. However, we are very conscious that the 'price of money' increased in the autumn, which means it is still more important for the Board to prioritize correctly between different business opportunities in the short and long term.

From a commercial perspective, what is most important in 2012?

Göran: Medivir has a good financial position, and we must ensure that it remains strong. We have skilled people with high levels of competence and long-term experience of

developing pharmaceuticals. We should provide this organization with the best prospects of developing and extending the company. We possess an experienced organization and the stability of a company that sets a good foundation for continued development of our business opportunities. Preparations for a Nordic launch of TMC435 are continuing, and are a high priority in 2012.

Maris: apart from a sharp focus on preparations for the Nordic launch of TMC435, the company has financial stability in the form of a portfolio of well-established pharmaceuticals with strong brands. We should continue to develop this part of our business and the injection of funds pharmaceutical sales bring us will be re-invested in new pharmaceuticals and in research and development. We will keep developing and exploiting new and innovative projects and our technology platforms, in forms including our library of chemical compounds, simultaneous with our intention to drive our own existing projects quickly and on a focused footing towards the clinic and the market.

Medivir's history

1988 Medivir founded.

1989 Collaboration agreement with American Cyanamid in HIV.

1992 Collaboration agreement with Eli Lilly in HIV, and with Wellcome.

1995 Medivir acquires CCS, Clean Chemical Sweden AB, a Swedish-based skincare products manufacturer.

1996 Medivir listed on the Stockholm Stock Exchange. Partnership with Abbott commences.

2000 Acquisition of Mimetrix with the aim of strengthening and expanding in the protease segment.

2004 Agreement in hepatitis C with Tibotec on TMC435.

2006 Phase III trial on Lipsovir (Xerclear®) commences.

2008 Registration application for Xerclear® filed with regulatory authorities in the US (the FDA) and European authorities.

2009 Xerclear® approved for sale on certain European markets, and on the American market in early-August.

2010 Meda licenses the sales and marketing rights to Xerclear® for North America, Mexico and Canada, and Glaxo SmithKline for OTC sales.

Rights issue and private placement conducted.

2011 Global phase III trials on TMC435 commence and are fully enrolled.

North American market rights to Xerclear® sold to Meda.

Acquisition of BioPhausia with the aim of strengthening Medivir's commercial platform.

The year in brief

The advances of our project portfolio continued in 2011, and we established a product and market presence in the Nordics. In terms of the share, the year was turbulent, with a 24-month share price upturn being broken in June. Like many other companies, we were affected by the financial crisis and the outflow of liquidity from the European stock market in the third quarter. Companies of our type, which are associated with a higher risk profile, were affected especially severely. In addition, sector peers experienced several projects setbacks in the third quarter, which exacerbated negative share price performance. A consolidation and clear positioning of companies that research and have hepatitis C pharmaceuticals commenced in the fourth quarter.

10 February Medivir publishes the commencement of a clinical phase Ia trial on polymerase inhibitor TMC649128 against hepatitis C.

14 February Medivir commences a research and development partnership with Janssen Pharmaceuticals targeting dengue virus.

18 February TMC435 phase III program commences on treatment-naive hepatitis C patients and relapsers.

22 February Medivir publishes positive interim results (SVR24) from a phase IIb trial on TMC435 on treatment-naive hepatitis C patients.

1 March Medivir's cold sore pharmaceutical Xerclear® launches in the US.

1 April Interim data from week 24 on the TMC435 hepatitis C phase IIb trial ASPIRE presented to the EASL.

11 April Medivir makes a take-over bid for BioPhausia.

20 May Medivir presents positive 48-week interim results from phase IIb trial ASPIRE on TMC435 in treatment-naive hepatitis C patients of genotype 1.

23 June Medivir signs distribution agreement with Daewoong on Xerclear® in China and Hong Kong.

29 June Medivir receives usd 45 m from Meda for the American rights to Xerclear®.

The Medivir share

6 July TMC435 granted fast track status by the FDA, the US pharmaceuticals regulatory authority. TMC435 to be in a combination trial with Pharmasset's PSI753977 for hepatitis C patients of genotype 1.

26 August Medivir subsidiary BioPhausia divests its generics business.

30 August Medivir strengthens its management.

31 August Patient enrolment for three global phase III trials on TMC435 on patients with hepatitis C (HCV) genotype 1 infection completed.

26 September Maris Hartmanis becomes CEO of Medivir.

30 September Medivir reports that four TMC435 abstracts have been accepted for presentation at the AASLD meeting in San Francisco.

Analysts monitoring Medivir

ABG Sundal Collier Erik Hultgård

Credit Suisse Adam Cutler

Danske Bank Hans Jeppsson Mattias Häggblom

D. Carnegie AB Camilla Oxhamre

Enskilda Securities Lars Hevreng

Jefferies International Ltd Peter Welford

Nordea Markets Olle Sjölin Pareto Öhman Fondkommission

Redeye

Peter Östling Remium Alexander Weiss

Yilmaz Mahshid

Svenska Handelsbanken Marek Poszepczynski

2 November Medivir publishes final results from a TMC435 phase IIb study ASPIRE (C206) on treatmentnaive hepatitis C patients of genotype 1.

7 November Medivir's partner Tibotec reports the final SVR24 results from the phase IIb trial PILLAR on TMC435 on treatment-naive hepatitis C patients at the AASLD meeting.

15 November Clinical trials on TMC649128, a nucleoside hepatitis C NS5B polymerase inhibitor in a clinical phase 1b trial, are discontinued because antiviral efficacy did not achieve the target for the product profile. The focus in the partnership with Janssen Pharmaceuticals is now on the nucleotide polymerase inhibitor program, where a candidate drug (CD) was designated in the autumn.

15 November Capital markets day in Stockholm.

2 December TMC435 to be evaluated in a phase II trial in combination with NS5A inhibitor daclatasvir (BMS-790052) in hepatitis C patients.

Medivir – towards the goal of becoming a profitable pharmaceutical company

Over the years, Medivir has entered several successful partnerships with other pharmaceutical companies on developing new experimental drugs. Since 2011, the company has gained a more broadbased, commercial and visible business than previously through its acquisition of BioPhausia and its product portfolio of pharmaceutical sold on the Nordic market. Through partners, Medivir is also launching the in-house developed cold sore pharmaceutical Xerclear®, and in 2012, GlaxoSmithKline commenced OTC sales of Xerclear® under the Zoviduo and Zovirax Duo brands in Europe. Thus the business has been significantly extended, and now covers everything from early research phase in pharmaceutical development to selling and marketing pharmaceuticals.

Medivir's research focuses on developing small molecule pharmaceuticals, primarily against infectious diseases caused by viruses. The company invests in advanced preclinical research technology and has a proprietary, unique and extensive compound library. Profits from current pharmaceutical sales are re-invested in researching and developing new pharmaceuticals. The company constantly endeavors to find new and improved treatments for serious and hard-to-treat diseases.

The base of Medivir's research is its in-depth knowledge of the enzymes polymerase and protease, where the company has worldleading status. Since its incorporation, the enzyme polymerase has been a research target, and this enzyme is involved in several serious indications where Medivir has produced polymerase inhibitors against shingles, hepatitis B, hepatitis C and HIV.

Many viruses code for proteases, which are necessary enzymes for the virus's ability to replicate. By inhibiting the specific viral proteases, it is possible to prevent and block virus replication. The company has several projects based on protease inhibitors. The project that has proceeded furthest in the development chain is TMC435 against hepatitis C.

The project portfolio primarily addresses infectious diseases caused by viruses. It has a total of 11 projects in different development phases. Nine of these projects are in infectious diseases and seven are outlicensed to partners that fund and partner with Medivir for onward development. Five of the 11 projects address hepatitis.

The company will continue to develop pharmaceuticals in-house and through outlicensing or through partnerships with other pharmaceutical companies. Acquisitions or inlicensing of other pharmaceuticals for the Nordic market may also be considered. Global phase III trials on TMC435 will conclude in 2012 and we expect our partner to file registration applications in the first halfyear 2013 with regulatory authorities in the US, Europe and Japan. The results from phase III trials are expected to confirm the potential evident in previous clinical trials, and accordingly, the pharmaceutical may contribute to the desired change in the treatment of hepatitis C, through its improved efficacy, fewer adverse events, shorter treatment times and fewer tablets through a QD dosing regime. In a later stage, with its potent anti-viral efficacy, TMC435 may also play an important role in completely replacing interferon and ribavirin in treating the disease.

A new platform taking us forward

With yearly sales of half a billion Swedish kronor and high innovation in pharmaceutical research, we are continuing to build our company towards profitability.

Over the years, Medivir has entered a number of successful partnerships with other pharmaceutical companies, on developing new experimental drugs. The company gained a more express commercial focus than previously in 2011 through the acquisition of BioPhausia and its product portfolio of pharmaceuticals, and now enjoys the prospects of operating in the Nordics.

Accordingly, our business has been significantly expanded and covers everything from the early research phase of pharmaceutical development to the sale and marketing of well-established pharmaceuticals. Research into the enzymes polymerase and protease and how we can inhibit their activity in the course of different diseases constitutes the core of our research and pharmaceutical development. Medivir possesses the internal competence to take a project from preclinical research to clinical development and market launch.

8

Over the years, Medivir has accumulated an internationally competitive business that makes us an attractive collaboration partner for the large pharmaceutical companies.

Accordingly, Medivir has laid the foundation for continued development into one of the leading specialty pharmaceutical companies in the Nordics. The cornerstones of the journey the company has begun toward this goal are reviewed below.

Current platform Future strategic focus

R&D R&D Commercial business

Keep developing and strengthening Establish new partnerships Expand commercially

A profitable pharmaceutical company

Keep developing and strengthening R&D

Pharmaceutical development is a step-by-step process that takes time, extending from generating ideas, development through different phases, registration, and finally, the sale and marketing of approved pharmaceuticals.

It is essential to continue developing Medivir's research organization to increase the number of new and innovative project ideas that can be quickly transformed into pharmaceutical projects. This is a process that has commenced both in terms of technology platforms that can shorten lead-times and further enhance the quality of work, and by adding key competences. It also includes research work into identifying new potential target proteins for future pharmaceutical development that offer synergies with Medivir's current protease and polymerase research, and the prospects of extending to new therapy areas, which in research terms, are close to the infection segment.

At present, the greatest human resources are allocated to projects run in-house within hepatitis C where Medivir possesses long-term experience and in-depth know-how. Because the company's pharmaceutical development is based on knowledge of two specific enzyme classes, one of which is proteases, two projects are also being conducted that address indications other than infectious diseases.

Tomorrow's projects will crystallize from the early phase of idea generation. It is also important to commence projects in partnership with other companies, one example being Medivir's dengue project, a partnership with Johnson & Johnson. Inlicensing of additional projects may also be considered, with the consistent aim of balancing and diversifying the risks of the project portfolio.

One precondition for this development chain working is that at suitable junctures for projects, Medivir is able to enter partnerships with other pharmaceutical companies.

Establish new partnerships

Partnerships are entered to diversify portfolio risks, but also to drive projects forward to market registration in the optimal and most effective way in terms of finances and competence.

Entered partnerships generate revenues in the form of milestone payments during project development on the way to becoming registered pharmaceuticals.

Medivir then receives royalty revenues on the product's sales, apart from the Nordic markets where Medivir has retained the market rights for all its projects. Partnership may also involve Medivir assuming greater development responsibility, while also perhaps retaining the rights to larger future sales markets.

Expand commercially

The commercial operation has the competences necessary to be able to launch, market and sell pharmaceuticals on the Nordic market.

TMC435 – a key product for the Nordic market

Medivir possesses the Nordic market rights to TMC435 and the company is strengthening its Nordic marketing and sales organization ahead of its launch. This preparatory work focuses on creating relationships with relevant regulatory authorities, organizations, opinion-formers in the healthcare sector, specialist physicians, clinicians etc.

It is important to gain complete knowledge on the structure of the hepatitis C market, how it moves and its drivers. The patient and physician perspective is most important, because these groups are considered the endusers. The specialist sales organization to be established closer to launch will serve and address these key groups. Just as for its other products, Medivir will set specific requirements in terms of monitoring, supervising and reporting to the regulatory authorities on TMC435. The know-how and competence Medivir now possesses in-house will be a great benefit in this process.

New pharmaceuticals for our Nordic platform

Another building-block of our commercial expansion will be entering partnerships on marketing, inlicensing or straight acquisitions of pharmaceuticals that can be sold on the Nordic market.

Work on identifying these business opportunities will now be intensified now that all necessary business functions are in place.

Nurturing and developing existing products

Medivir currently possesses some 15 well-established prescription pharmaceuticals in its commercial operation. Focusing on profitability, the current portfolio is safeguarded and optimized through a good product mix, continuous reviews of pricing strategies, good relationships with contract manufacturers and through prioritized, sales-driven marketing.

The products have strong brands and a stable positioning on the market. Their potential adverse event profiles are well known, enabling the pharmaceuticals to stand up well in competition with products where no extensive knowledge has yet been accumulated. These products, in tandem with the parallel import business of Cross Pharma, contributes to stable and profitable annual sales of just over sek 500 m, and we expect to increase sales by bringing new products into the portfolio.

The pharmaceuticals in Medivir's product portfolio are well known and have long-term prescription traditions in Sweden. All pharmaceuticals are sold on prescription and are present in several therapy areas, such as respiratory tract, pain and cardiovascular. Some of the most well-know pharmaceuticals follow:

Mollipect	Mollipect is used for coughs with heavy phlegm, and simultaneously has a bronchodilatory effect.
Citodon	Citodon is used against various types of pain.
Lithionit	Lithionit is used both prophylactically and therapeutically for treating bipolar disorder.
Paraflex	Paraflex has a muscle relaxant effect for treating problems including lumbago, pulled muscles and tension headache.

For more information on pharmaceuticals, go to FASS, www.fass.se

Functions necessary for having registered pharmaceuticals on the market

Regulatory affairs

The close contacts with regulatory authorities taking place throughout the development phase of a pharmaceutical continue after the pharmaceutical is registered and is selling on the market. At this phase, it centers on monitoring news related to the pharmaceutical, and following up progress through the pharmaceutical regulatory authorities i.e. the Medical Products Agency (in Sweden). All changes conducted, on anything from production to packaging design, must be summarized and filed with the regulatory authority.

Pharmacovigilance

The company is responsible for maintaining control over its pharmaceuticals and for continuously monitoring news on these pharmaceuticals and their active ingredients worldwide. Potential aberrations such as sudden and not previously reported adverse events, must be reported to the regulatory authorities. Pharmacovigilance covers a raft of contacts with the regulatory authorities, as well as collating factual information from the company itself as well as patients and different news sources.

Quality

Quality thinking permeates all operations at all levels and is crucial for internal work and external partnerships. It is important for example to secure the quality of the contract manufacturers that manufacture the company's products, and for all aspects of transportation.

Medical affairs

Work in this function addresses the healthcare sector and patient groups. Having proprietary products on the market means obligations including being able to offer information on the pharmaceutical and respond to questions from patients and healthcare staff. The company must be able to respond to questions of various degrees of difficulty, and for the existing pharmaceutical portfolio, the company has a very substantial knowledge base and data manuals on how products work because the pharmaceuticals are well established.

Suppliers

Pharmaceuticals must be transported from manufacturers to the right place, on time, in the most effective way. Maintaining control over distribution, choice of distribution channels and inventory management, as well as reviewing it continuously, ensures effective goods flows and control over all cost factors.

Xerclear is Medivir's in-house developed cold sore pharmaceutical, which was launched in 2011. It is sold by GSK in Europe as an OTC pharmaceutical under the Zoviduo/Zovirax Duo brands.

Manufacture

For its pharmaceutical portfolio, Medivir assigns contract manufacturers in different parts of the world, mainly in Europe. Compliance with Good Manufacturing Practice (GMP) applies in this work. GMP is the official regulatory structure that governs how a pharmaceutical should be manufactured to assure quality. All contract manufacturers are regularly inspected by the European pharmaceutical regulatory authority, the EMA, and its member countries, which is a requirement for getting products approved. All manufacturers are also inspected by Medivir's own quality function.

Environment

The environmental impact stemming from Medivir's operations consists of emissions from production, transport and laboratory activities. The EMA and European pharmaceutical regulatory authorities have put a sharp focus on the environmental impact of pharmaceutical manufacture in recent years, and increasing environmental standards have gained a central role in applicable GMP guidelines. Medivir closely monitors progress in the segment and works continuously on enhancements for long-term sustainable development.

Market and sales

Prescription pharmaceuticals are primarily marketed via product briefings, training programs and seminars – and even collaborations with the healthcare sector. It is significantly cheaper and more time-efficient to address marketing activities to the specialist care sector than to primary care general practitioners. In all the Nordic countries, the most important target groups for treatments against hepatitis C and a number of other infectious diseases are within specialist care.

Cross Pharma – opportunities in the parallel import of pharmaceuticals

Cross Pharma is an independent subsidiary of the Medivir Group. It was formerly an integrated business area of BioPhausia.

Parallel imports are based on the EU's principle of free movement of goods within the Union. The principle is that goods are purchased from countries where they are cheaper than in the country where they are to be sold, in this case Sweden. The items are then repackaged and distributed to pharmacies on the Swedish market at a lower price than the original producers'. Parallel import of original pharmaceuticals is closely regulated and monitored by the Swedish Medical Products Agency and the EMA.

"Purchase prices, exchange rates and availability determine where we purchase pharmaceuticals. In 2011, sterling exchange rates meant that pricing was attractive in the UK. We buy the surplus capacity of pharmaceuticals available in different European markets," explains Johan Frödin, CEO of Cross Pharma.

Cross Pharma's wholly owned subsidiary in Poland, Prodlekpol, plays a key role in the value chain, which re-packages pharmaceuticals for onward distribution. Some 50 people work there.

"The company also packages pharmaceuticals for Polish parallel importers and a number of originators. Thanks to the relocation to new, state of the art, highly effective

premises early in 2011, this unit has high capacity, and our goal is to bring in more external assignments."

Cross Pharma's customers are the pharmacy chains formed in conjunction with the deregulation of the Swedish pharmacy market. Pharmacies are permitted to negotiate the price of merchandise, OTC products and parallel imports. Accordingly, they can purchase pharmaceuticals at a lower price than they can from original producers.

Cross Pharma enjoyed a high sales increase in 2011, and sales for the fourth quarter were sek 84.7 m, implying increased growth for the fifth consecutive quarter. There are 18 companies currently active in parallel import sales registered in Sweden. Cross Pharma is the fourth largest company in Sweden.

"We quality-assured our processes and strengthened our organization in the year, and we're now looking forward to continued growth. Simultaneously, we're working actively to reduce the risks of our business all the time. We're constantly monitoring the status of the global economy, and the EU countries specifically. We have good control and can quickly realign and purchase pharmaceuticals from the most advantageous markets if required," continues Johan Frödin.

Project portfolio

				Preclinical phase Clinical phase
Project	Therapy area	Partner	Research	Develop ment	Phase I	Phase IIa	Phase IIb	Phase III	Market
In-house develope d pharmace	utical
Xerclear® (Zoviduo/Zovirax Duo)	Herpes labialis	GlaxoSmithKline (GSK)
Infec tious disea ses
Hepatitis
TMC435	Hepatitis C	Tibotec Pharmaceuticals/J&J
HCV POL (Nucleotide)	Hepatitis C	Tibotec Pharmaceuticals/J&J
Nucleotide inhibitor	Hepatitis C
NS5A inhibitor	Hepatitis C
Lagociclovir valactate (MIV-210)	Hepatitis B	Daewoong
Dengue virus
NS3 protease inhibitor	Dengue fever	Janssen Pharmaceuticals
Other indica tion s
Cathepsin K inhibitor	Bone disorders
Cathepsin S inhibitor	Neuropathic pain
/AIDS
MIV-410 (PPI-801/802)	HIV	Presidio
HIV-PI	HIV	Tibotec Pharmaceuticals/J&J
Herpes virus
Valomaciclovir (MIV-606)	Shingles	Epiphany

Pharmaceuticals targeting infectious diseases Projects targeting infectious diseases Projects targeting other indications

Our focus in pharmaceutical development is on infectious diseases caused by viruses. At year-end 2011, the project portfolio consisted of 11 projects, nine of which are in infectious diseases. The biggest single commitment in this segment is in projects for treating hepatitis C, where four of the projects are located.

Our in-house developed pharmaceutical Xerclear® (Zoviduo/Zovirax Duo) was launched in 2011.

Portfolio realignment in the year

At the beginning of 2011, we had nine projects, one was terminated in the year and three new ones were added. Early in the year, two activities run in-house transformed into projects, both in the hepatitis C segment. Medivir's project portfolio currently includes hepatitis C projects in all three important mechanisms (protease, polymerase and NS5A inhibitors). The hepatitis C project that is most advanced, in phase III, is protease inhibitor TMC435.

Portfolio structure

In-house projects

Four of the eleven projects are run completely in-house, two of them in hepatitis C, where Medivir develops nucleotides (NS5B polymerase inhibitors) and NS5A inhibitors. The other two are inhibitors of cathepsin K, a broad-based project addressing bone disorders, and cathepsin S inhibitors, focusing on neuropathic pain.

In partnerships

Seven of our projects are run in partnerships, with the partner responsible for all or part of project development and funding. Partnerships create the prospects for achieving risk diversification and efficiently optimizing the possibilities of the different projects. The circumstances of partners and projects differ widely, which are considered when entering agreements, with the consistent aim of improving Medivir's prospects of getting the projects developed towards market launch. Janssen Pharmaceuticals, a Johnson & Johnson subsidiary, is the company we have most partnership agreements with, a total of four projects, two of which are in hepatitis C, one in HIV, and one within dengue fever. For an overall review all projects, see pages 14-15.

Hepatitis C –continued focus in-house

Hepatitis C is a major, widespread disease, where most of the people infected are undiagnosed and where it can take up to all of 20-30 years before the disease is detected. Accordingly, Medivir considers that a pressing medical need will persist in future, and that hepatitis C will remain a major indication in 20-30 years' time.

In 2010, Medivir commenced two new preclinical programs in the hepatitis C segment that have been highly successful, and where so far, Medivir has retained all commercial rights. The goal is to develop improved hepatitis C pharmaceuticals that have the potential to serve as part of interferon and ribavirin-free therapy administered in a single daily dose.

The most advanced hepatitis C program is based on nucleotides that inhibit NS5B polymerase. This is a type of inhibitor that Medivir thinks will be a central component of future combination therapies. In 2011, Medivir developed a new class of nucleotides with very promising characteristics. These nucleotides exhibit high potency against HCV, simultaneous with not exhibiting cytotoxicity in the experiments conducted, which is a common adverse event with nucleos(t)ides. Compounds currently in development have characteristics on a par with the most advanced compounds in the clinical development phase. Patents applications were filed in 2011 and work is focused on the selection of clinical development candidates.

Medivir is also running a project relating to development of the next generation of NS5A replication complex inhibitors that address the weaknesses currently identified with competitors' pharmaceutical molecules with this mechanism. Patent applications were filed in 2011 and work is focusing on the screening of development candidates.

Other projects

The bone disorder project, cathepsin K underwent preclinical development in the year. Assuming a positive outcome of the data evaluation from these safety studies, the project will enter clinical phase I trials in the first halfyear 2012.

Hepatitis C and B

TMC435

Mechanism

HCV NS3A-protease inhibitor.

Phase

Phase III.

Progress in the year

Very positive results from three phase IIb trials were presented in the year.

• The PILLAR trial on treatment-naive patients demonstrated a cure rate with TMC435 as an adjunct to SoC of 81-86%, and 83% of patients could conclude all treatment after 24 weeks, i.e. halving their treatment time.
• The DRAGON trial in Japan on treatmentnaive patients demonstrated a cure rate of 82%, and 87% of patients could conclude all treatment after 24 weeks.
• The ASPIRE trial on treatment-experienced patients demonstrated very positive results with a 51% cure rate in null responders and a 75% cure rate on partial responders.

Overall, TMC435 was demonstrated as very safe and well-tolerated in all trials, with no further adverse events over SoC. Based on this, phase III trials on treatment-naive patients (QUEST1 and QUEST2), on relapsers (PROMISE) and four phase III trials in Japan commenced in Q1 2011.

Competitive advantage

TMC435 belongs to the second generation of protease inhibitors and has a competitive profile, which so far, has demonstrated equivalent or superior antiviral potency to the recently approved protease inhibitors telaprevir and boceprevir, but with a significantly better safety profile. Together with TMC435 being administered in a single daily dose, compared to telaprevir and boceprevir, which require dosing several times daily, this is a big advantage for the patient and could make a further contribution to improved treatment outcomes in clinical practice.

Partner

Partnership with Tibotec, now Janssen Pharmaceuticals, since2004.

Mechanism

Nucleotide-based HCV NS5B-polymerase inhibitor.

Phase

Preclinical development.

Progress in the year

A CD has been designated and this project has commenced preclinical development.

Competitive advantage

Nucleotide-based NS5B polymerase inhibitors have demonstrated a high genetic barrier to resistance development and good pan genotypic activities against HCV. This profile makes developing a product used in combination with other direct-acting HCV antivirals attractive.

Partner

Partnership with Ortho Biotech Products LP, an affiliate of Tibotec now Janssen Pharmaceuticals, since 2008.

NS5A replication complex inhibitor Lagociclovir (MIV-210)

Mechanism

HCV NS5A replication complex inhibitor.

Phase

Preclinical optimization.

Progress in the year

The project progressed well, several patents were filed and a series of molecules with very promising characteristics were identified.

Competitive advantage

NS5A replication inhibitors have demonstrated high potency, and accordingly, fit combinations with other direct-acting HCV antivirals very well. Medivir's intention is to develop second-generation NS5A inhibitors with an improved profile of genotype coverage.

Partner

This project is being run in-house.

HCV POL (Nucleotide) Polymerase inhibitors (Nucleotide)

Mechanism

Nucleotide-based NS5B polymerase inhibitor.

Phase

Preclinical optimization phase.

Progress in the year

This project made rapid progress, several patents were filed and a series of molecules with very promising characteristics were identified.

Competitive advantage

Nucleotide-based NS5B polymerase inhibitors have demonstrated a high genetic barrier to resistance development and good pan genotypic activities against HCV. This profile makes developing a product used in combination with other direct-acting HCV antivirals attractive.

Partner

This project is being run in-house.

Mechanism

Nucleoside-based HBV DNA polymerase. inhibitor.

Phase

Preparations for phase II.

Progress in the year

The project progressed well, with developments including a preparatory toxicology trial concluding with a positive outcome.

Competitive advantage

Effective against multi-resistant HIV and HBV that has developed resistance to other pharmaceuticals on the market. Highly potent in an in vivo model for hepatitis B. Good pharmacokinetic characteristics in phase I and effective against multiresistant HIV in pilot study.

Partner

Daewoong has licensed MIV-210 for China, South Korea, Japan and Taiwan and is responsible for clinical development of MIV-210 as a potential hepatitis B pharmaceutical.

Drug Development Process

Cathepsin K inhibitor Cathepsin S inhibitor Protease inhibitor

Mechanism

Inhibitor of protease cathepsin K reduces bone and cartilage resorption

Phase

Preclinical development phase. Two CDs, MIV-710 and MIV-711 were designated, MIV-711 is in the preclinical development phase.

Progress in the year

A number of preparatory preclinical safety and pharmacological trials were conducted on MIV-711. The goal is to commence clinical development in the first half-year 2012. Preclinical trials in disease models conducted. Apart from corroborative trials in osteoporosis, preclinical models indicate that MIV-711 can reduce the resorption of bone and cartilage in osteoarthritis.

Competitive advantage

MIV-710 and MIV-711 are highly potent, selective cathepsin K inhibitors. Very positive preclinical pharmacokinetic characteristics suggest single daily dosing will be possible.

Partner

This project is being run in-house.

Herpes HIV/AIDS

Valomaciclovir (MIV-606) MIV-410 (PPI-801/802) HIV PI

Mechanism

Nucleoside-based VZV DNA polymerase inhibitor against shingles and postherpetic neuralgia. Also active against other herpes viruses.

Phase

Concluded phase IIb trial (herpes zoster) and phase IIa trial (mononucleosis).

Competitive advantage

Phase IIb results indicate reduction of shinglesrelated postherpetic neuralgia (PHN), and that a single daily dose is equally effective to SoC, which is administered three times daily.

Partner

Epiphany Biosciences.

Bone disorders Neuropathic pain Dengue fever

Mechanism

Inhibitors of protease cathepsin S influence various different intracellular and extracellular inflammatory mechanisms in the CNS and peripherally in the body.

Phase

Preclinical optimization phase.

Progress in the year

Highly potent compounds with high selectivity and good pharmacokinetic qualities have been identified. Proprietary cathepsin S inhibiting substances with positive outcomes have been evaluated in preclinical models of neuropathic pain.

Competitive advantage

First in class potential for treating neuropathic pain. New mechanism with potential as monotherapy and adjunct to SoC.

Partner

This project is being run in-house.

Mechanism

Nucleoside-based inhibitor of polymerase reverse transcriptase (NRTI).

Phase

Preclinical development phase.

Competitive advantage

Potent NRTI with new inhibition mechanism. Expected to be usable to treat patients with multiresistant HIV and for cytomegalovirus infections in immunosuppressed patients.

Partner

Development Preclinical Development

Presidio Pharmaceuticals has licensed MIV-410 and is responsible for continued development.

Confirmatory studies Phase III

Registration and Launch to the market

Preclinical studies to document that the drug is safe to bring into humans.

Preclinical

Application for start of clinical studies in humans

First study in healthy volunteers to document that the drug is safe, followed by studies in patients to demonstrate efficacy and define a safe and efficatious dose.

Exploratory studies Phase I and Phase II

Pivotal studies to confirm the safety and efficacy in large clinical trials.

Competitive advantage

Mechanism

Phase

Early research phase.

Progress in the year

Dengue specific NS3 protease inhibitor.

Work continued in preclinical research phase.

There are no dengue pharmaceuticals on the market at present. Prophylactic treatment of dengue fever for inhabitants of areas where outbreaks occur and for travel to regions where dengue occurs. Treatment is also intended to mitigate the risk of developing the more serious complications (hemorrhagic dengue) which can result in internal hemorrhaging and hemorrhagic shock.

Partner

Partnership with Janssen Pharmaceuticals since February 2011.

Mechanism Protease inhibitor.

Phase

Preclinical optimization.

Competitive advantage

HIV protease inhibitor with high antiviral potency against wild-type and multiresistant virus.

Partner

Partnership with Tibotec Pharmaceuticals Ltd, now Janssen Pharmaceuticals, since 2006.

Medivir's employees – everyone has a role to play in the big picture

The number of Medivir employees increased in the year from 80 to 168 through the acquisition of BioPhausia. It is important to clarify the significance of different units internally and externally to understand the whole picture. Meet some of Medivir's people and see how their different roles complement each other, and their position in the chain from the early discovery phase of new compounds to selling and marketing products.

ESMERALDA WOESTENENK, Senior Research Scientist in the department of Pharmacology and Molecular Sciences

"My role is to produce our active target proteins. This is early in the process, almost directly after an idea has emerged on a specific area or a protein to study more closely. Right now, I'm involved in our research into dengue fever. We use a fast-growing bacterium to assist in producing proteins. We produce the gene that expresses the protein and introduce it into the bacterium, which means that the bacterium starts to produce the protein we're interested in. It's not always as easy as it sounds. Sometimes the bacterium is badly affected by the protein which it is forced to produce, and then we have to use other methods or systems."

ANDERS KALLIN, Cell and Molecular Biologist in the Bioscience department

"My role extends over the whole preclinical research process. My perspective is biological and addresses the enzymes that are central to the diseases the company is working on. I produce methodologies for testing the inhibitors Medivir produces against these enzymes in cell systems to determine whether they satisfy our needs. Work is in a controlled laboratory environment where I handle cells in cultures with or without inhibitors of various concentrations, and then monitor how the cells react to the treatment. I use various biological methods for this to measure enzyme activity in cell cultures. I can also get an early warning signal if an inhibitor is toxic at this stage. In this way, I get a measure of how effective our inhibitor is."

JIMMY LINDBERG, Researcher in X-ray crystallography, a scientific discipline between biology and chemistry

"I work on computational chemistry and X-ray crystallography, techniques used very early in developing a new pharmaceutical. If a compound shows some efficacy against a disease, we want to refine it. That's where X-ray crystallography comes in. The technology produces a 3D structure of biological components and is used in finetuning chemical compounds. We can illustrate how compounds interact on a very small scale with human or virally produced proteins that we want to access in 3D. Based on this, the chemist can alter the compound so it has a better fit to the target protein, and thus, we block its activity. The aim is to construct a molecule as effectively as possible early in the process."

TATIANA AGBACK, Assosiate Director NMR (Nuclear Magnetic Resonance Spectroscopy)

"I analyze and define the structure of molecules that our chemists have synthesized to ensure that we have the right starting-point from day one. I do this using NMR, a highly advanced spectroscopic method enabling the study of every atom in a molecule. Defining structures is a big responsibility. There is no room for error, and I have to reject things if something doesn't look completely right. I get involved in all the preclinical phases on the way to designating a CD. There's a lot of teamwork, and it often feels like 2+2 is 5 here."

ANNELIE LINDQVIST, Analytical Chemist in the DMPK/Bioanalysis department

"Once my team has completed in vivo/in vitro trials of new compounds, it's my job to analyze and prepare the results. Using mass spectrometry, I analyze the assays with the analysis method I have produced for the new compounds and determine the concentration in assays. There are a lot of values, measures to be taken, contents and concentrations to check. By using cultivated cells from different organs, we can also examine how compounds are metabolized, and how fast this happens. I get involved in the process after the synthesis chemists have produced active compounds that the biologists had demonstrated to have the desired activity in various assays systems."

ANNA BERGGREN, Regulatory Affairs Manager

"We come into the picture when it's time to prepare an application to approve a pharmaceutical. We are responsible for all the related documentation – on pharmaceutical quality, preclinical and clinical trials – being compiled in accordance with applicable regulations and sent to the pharmaceutical regulatory authorities in those countries where we're seeking approval. We manage ongoing contacts with regulatory authorities during the actual approval procedure, because many questions must be answered quickly. Once the pharmaceutical is approved, there's a lot of work involved in supporting the product with a lot of variation—anything from altering the production process to an extended indication. At present we primarily work on a Nordic footing, but we also collaborate with registration experts outside the Nordics, for example for Xerclear®'s registration in China, Korea and Israel. In the future, we hope to be able to offer regulatory input back in the clinical trial phase."

ÅSA JANSSON, Medical Information & Safety Manager

"My duties start as soon as a product is approved, after all pharmaceutical development work is done. I work on external medical issues. We have to be able to respond to medical questions on our products when consumers, pharmacies, physicians and other healthcare staff get in touch. I also work on pharmacovigilance, i.e. pharmaceutical safety. There are stringent standards to observe for the safety of the company's pharmaceuticals and reporting information on adverse events to the regulatory authorities. Going forward, I will also be responsible for medical issues and pharmacovigilance work on Xerclear®, Medivir's proprietary cold sore salve."

ANNE-CHARLOTTE HOLMLÖV, Marketing Manager

"I work as a Market Manager and my goal is to ensure that the pharmaceuticals we have in our portfolio reach patients in the best way. This work involves a close dia logue with prescribers, pharmacy managers, patient organizations, business intelligence, and obviously, various type of marketing activities. The portfolio consists of an array of mature, well-established pharmaceuticals with strong brands, but if prescribers and patients are familiar with products, we often need various types of patient support to ensure good ordinance, something that we do a lot of work on. Contributing to better health of patients with our pharmaceuticals is top of our agenda, and although we have come a long way, there's still a lot to do."

KAJ LEHTINEN, Director of IT and Facilities

The high-tech research we conduct requires sophisticated IT support. The data we generate from advanced equipment like NMR, computational chemistry and crystallography must be stored and archived securely and safely in systems so that it's easy to find and analyze. Our data volumes are constantly increasing, and we have a substantial storage need. Because research projects can run for at least 10-15 years, we must be able to access data from the start of a project if required, maybe 12-13 years later. We have well-planned structures, policies, regulations and guidelines for where and how we store data. After acquiring BioPhausia, we need IT support from a commercial perspective, with inventory control and documentation from our ongoing contacts with the regulatory authorities being some examples."

MALIN EKDAHL, Purchaser, Cross Pharma

"I work as a purchaser of parallel-imported pharmaceuticals from different EU countries. My day-to-day work consists of extensive contacts with suppliers, pricing enquiries and purchasing admin. Pharmaceuticals are repackaged at our unit in Poland, which we then sell on the Swedish market, to pharmacies. Volumes are determined by pharmacy demand. We receive a monthly forecast from the pharmacies that buy from us, and can base our purchasing on it. Purchasing differs from a regular buyers' job, because the availability of pharmaceuticals is limited and varies from market to market. When the pharmaceutical is sold on the Swedish market, we offer the pharmacies a price below the original producer's, which creates price pressure and competition on the pharmaceutical market. All our pharmaceuticals have to be approved and registered with the Swedish Medical Products Agency or EMA, its European equivalent. We currently have some 120 pharmaceuticals on the market, but there is a constant influx of new products."

Innovation – from ideas to the market

One of the central elements in pharmaceutical development is a high rate of turnover of new, innovative ideas. Qualitative evaluation before an idea becomes a pharmaceutical project is achieved through scientific and commercial evaluation, as well as internal competition.

What's the thinking at such an early stage in the life of a pharmaceutical? What decides whether an idea becomes a project? Charlotte Edenius, Medivir's Executive Vice President of Research & Development, explains.

The base of our business

Knowledge of the mechanisms of polymerase and proteases is the base of our business. Our second specific area of know-how lies in infectious diseases, and then primarily, viral diseases.

These are the research segments where we are primarily on the lookout for ideas for forthcoming new and important pharmaceuticals, and a number of promising hepatitis C projects have been spawned, but we also intend to extend our perspective to adjacent segments in terms of mechanisms and diseases.

Multiple sources of new ideas

Possessing substantial knowledge on viral diseases, proteases and polymerases in-house is vital if you're going to foresee the unexpected, either in your own lab or in scientific or patent literature. Apart from proprietary lab work, conferences, university networks and studying patent and scientific literature are all vital sources of new ideas. Hypotheses and ideas can also come from other external sources, such as research teams or other innovative small enterprises.

Focus and a high rate of turnover

Specific and profound knowledge is necessary to be able to evaluate new ideas theoretically and practically so the right decisions are taken at the right time. Being able to discontinue and close down projects that do not appear to be matching expectations quickly is just as important as focusing fully on ideas that have the potential to become new or improved medical treatments. Limiting our focus to polymerases, proteases and viral diseases means that the generation of ideas is focused, but it's important to let ideas flow at an early stage, and we also start to look at other adjacent indications. Virally induced cancers are an example of segments that are well suited to our basic technologies.

Evaluation criteria and priorities

Many different aspects are considered when evaluating whether an idea can proceed and be allocated resources for further evaluation:

• Whether it lies within the company's strategic indications or technology segments,
• The degree of certainty as to whether the target protein, i.e. the protease or polymerase, is involved and critical in the disease you wish to treat,
• Whether there are biomarkers/infectious models that can demonstrate whether a pharmacological/virological effect can be generated,
• Or if quite simply there are precedents in clinical development that corroborate the hypothesis.

We also evaluate the medical need, and obviously, commercial potential too, which often go hand in hand.

From theory to the lab

If the theoretical evaluation phase has a positive outcome, we can begin laboratory evaluation. One or several assays, i.e. lab tests or models, may need developing and setting up. There might be an early reference compound you wish to synthesize and test in the models you set up to see if the hypothesis even holds. This evaluation can take a few months, and if the results are positive, it's time to take the first step in the actual pharmaceutical development process and start to search for chemical molecules that inhibit the specific target protein.

The project has to stand up to continuous evaluation on the way to clinical development

Ideas do not become projects until you have been able to verify that you have found compounds with the right mechanisms and characteristics that you think could be, with work, refined into a finished pharmaceutical. In this stage, greater resources are allocated and different competences get involved. One important step is the first evaluation of an internally developed compound in a disease model. However, being successful here doesn't mean you're finished. Apart from inhibiting the relevant protein, the compound must also be absorbed in the digestive tract, not be metabolized too quickly in the body, so that it has to be administered too often, and it can't be toxic, i.e. cause adverse events. So there are many aspects that have to work before you can designate a CD. Evaluations are conducted continuously through the course of the project, both of the project's inherent qualities, but also in relation to other internal projects. There are a lot of ideas and there's competition over resources, so it's important to always evaluate and prioritize those projects with the best potential to succeed.

If an idea stands up right the way through preclinical research and a CD has been designated, it's time to document compound safety in specific regulatory safety trials. Once they are complete, it's time to take the step into clinical development.

New treatments within hepatitis C

creating hope and expectation

In several respects, the treatment map for the hepatitis C virus was re-drawn in the year. For the first time, regular standard of care has been supplemented by a protease inhibitor in a triple therapy offering superior efficacy and curing more patients than previously.

A new generation of pharmaceuticals has arrived, for treating patients with hepatitis C genotype 1. The protease inhibitors Incivek/Incivo (telaprevir) and Victrelis (boceprevir) were launched in the year, and have started something of a revolution for treating hepatitis C-infected patients.

Potent protease inhibitor allow unique positioning

Standard of care has consisted of interferon and ribavirin since 1992. Treatment for patients with hepatitis C genotype 1 has been long-term, associated with many and severe adverse events, and of the people that decide to commence treatment, some 40% are cured.

The new protease inhibitors are administered in combination with the previous SoC, interferon and ribavirin. This triple therapy is now recommended as the new SOC for hepatitis C. The combination is more effective and cures more patients, which is a breakthrough.

Unfortunately, the first generation of protease inhibitors involve severe adverse events.

Overall, the new and improved treatment is helping lift hopes of future pharmaceuticals, such as TMC435, which has a safe and clear profile in terms of adverse events, to be able to further improve hepatitis C treatment.

There is a lot of hope surrounding new hepatitis C treatments, and a step-by-step process in developing future hepatitis C pharmaceuticals is ongoing.

New pharmaceuticals should:

• Be able to increase the proportion of patients cured
• Shorten treatment times
• Eliminate interferon from treatment, because it causes severe adverse events
• Be able to eliminate ribavirin, for the same reason

TMC435 in global registration trials

Medivir is developing the protease inhibitor TMC435 in partnership with Janssen Pharmaceuticals. Phase III trials commenced early in 2011 and we expect Janssen Pharmaceuticals to file a registration application in the first half-year of 2013 in the US, Europe and Japan. With TMC435, Medivir is in a unique position to be an early mover on the market, with the next generation of anti-hepatitis C pharmaceutical. The potential for improvement is substantial compared to the first generation of protease inhibitors against hepatitis C.

TMC435 is well positioned because it can deliver superior efficacy, and a safe profile in terms of adverse events at lower doses, with one tablet once daily. These characteristics also make it very promising for future combination alternatives with other direct-acting antivirals. The hope is to be able to offer patients a single tablet without requiring treatment with interferon or ribavirin. Three global phase III trials on TMC435 in combination with the then-SoC interferon and ribavirin started early in 2011. These trials, QUEST-1 and QUEST-2 have enrolled treatment-naive patients, i.e. those that have not previously received treatment for their infection. PROMISE enrolls patients that have previously responded to interferon-based therapy, but relapsed. Phase III trials on TMC435 are ongoing in parallel in Japan, both on treatment-naive patients and treatment-experienced patients. All phase III trials focus on patients infected with HCV genotype 1, i.e. the most common, but also hardest-to-treat version.

TMC435's profile opens new possibilities

Based on results from phase II trials, TMC435's safety profile looks very positive, for treatment-naive and treatment-experienced patients. Until the present, TMC435 has achieved exceptionally positive results on treatment-experienced patients with advanced liver disease. TMC435 does not cause any additional adverse events, which distinguishes it from first-generation protease inhibitors and many of the other pharmaceuticals in different drug classes that are behind TMC435 in development.

In addition, treatment times were halved for most patients, while the treatment is significantly more effective. TMC435 is administered as only one tablet in a single daily dose, compared to other pharmaceuticals, which are administered more often, and with more tablets on these

key facts Hepatitis C

• • An estimated 2 to 3% of the global population, or some 170 million people, have chronic hepatitis C virus(HCV) infection.
• • Between 3 and 4 million people are infected yearly.
• • Over 12 million people are infected in the US, Europe and Japan.
• • There are six different genotypes of hepatitis C, with genotype 1 being the hardest to treat.
• • Some 70% of all infected patients worldwide carry hepatitis C genotype 1. The figure in the US and Europe is higher, at some 75%.
• • Statistically, 60-70% of the patients carrying hepatitis C develop chronic liver disease, 5-20% develop cirrhosis and 1-5% currently die of cirrhosis or cancer of the liver.
• • A total of over 350,000 people die of hepatitis C-related liver disease each year.

Source: WHO

occasions. This makes patients' daily lives easier, and they have better prospects of completing their treatment, another contributor to more patients being cured.

The goal is to be able to treat hepatitis C patients without interferon and ribavirin in the future

The interferon in current SoC causes many and very severe adverse events. Many patients are unable to tolerate interferon treatment and discontinue treatment early without a cure. The ribavirin included in current SoC also involves severe adverse events, primarily causing severe anemia, being carcinogenic and teratogenic.

Accordingly, various combinations of direct-acting anti-virals are now being investigated.

Medivir's partner Janssen Pharmaceuticals is working actively for TMC435 to be evaluated in combination with other direct-acting antivirals, and Janssen entered two clinical partnership agreements in 2011.

The first was with Pharmasset, now owned by pharmaceutical company Gilead, to study TMC435 in combination with the nucleotide GS-7977. The second partnership has been entered with Bristol-Myers Squibb (BMS) to investigate whether in combination with BMS's NS5A replication complex inhibitor, TMC435 can extend the treatment options for hepatitis C patients. Both clinical partnerships will commence phase II trials in 2012 to evaluate TMC435 in combination with these compounds in a treatment free of interferon and ribavirin.

The results from these phase II trials are scheduled to be available from late-2012 onwards. Assuming the data is positive and that the parties share a common interest, TMC435 combinations may continue directly into phase III registration trials.

TMC435 appears to be the most effective and safe protease inhibitor in development, and by clinically trialing it in combination with other compounds, it may create several winning combination therapies going forward. Medivir has also retained the market rights to combination therapies with TMC435 in the Nordics.

Evolving HCV landscape

Treatment responses Highest treatment responses Most difficult to treat Genotype/subtype G1a G1b G4/6 G3 G2 Liver disease, F0-F4 F4 F3 Non-cirrhotic ( F0-F2) Population Blacks Hispanic Caucasian IL28B at baseline TT CT CC Patient characteristics - Treatament experienced Null responder Partial responder Relapser treatment naive

• Treatment naives

Rapid positioning, acquisitions and high values

A process of consolidation and staking out clear positioning by companies researching and developing hepatitis C pharmaceuticals commenced in 2011. There are great expectations for new therapies, and it is important to secure control over potential combination alternatives. This consolidation process will continue in 2012, partly through extensive collaboration agreements such as those Janssen Pharmaceuticals reached with Pharmasset/Gilead in the year and BMS on TMC435, and through continued mergers and acquisitions.

With so many people infected with hepatitis C in the world, new treatments enjoy substantial market potential. We have merely seen the beginning of a very highgrowth market, in terms of the number of treated patients, but also values. Over the next ten years or so, we will witness new combinations of pharmaceuticals. The virus is associated with high complexity, and we have only really started to scratch the surface.

Protease inhibitors are becoming the standard in treating hepatitis C

The first generation of protease inhibitors for treating hepatitis C infection genotype 1, boceprevir and telaprevir, were approved in 2011. In December 2011, the Swedish Medical Products Agency updated its recommendation for treating hepatitis C and now recommends protease inhibitors being included in all treatment of genotype 1 patients.

"This new treatment marks a breakthrough whereby more patients may become free of the disease," explains Ola Weiland, a professor at the Infection Clinic of Karolinska University Hospital

What were the weaknesses of previous treatment?

"It consisted of a combination of interferon and ribavirin, which are antivirals that strengthen the immune response, but the treatment demands a lot of patients. Medication usually continues for 48 weeks, and has severe adverse events. Initially, interferon produces symptoms resembling influenza, and affects mental health, often causing depression and anxiety. Ribavirin primarily causes anemia, skin rashes and irritation. Because of the frequent adverse events and poor treatment response, the risk that patients give up and conclude their treatment early is high. Among the patients with genotype 1 that still go through with treatment, about half are cured."

How do protease inhibitors complement the treatment?

"Protease inhibitors attack the virus directly and block the NS3/4A protease that the virus needs to replicate. Clinical trials on boceprevir and telaprevir demonstrate that some 30% more patients with genotype 1 are cured, usually more quickly, which is revolutionary in hepatitis C treatment."

What's most important in the search for a new treatment?

"Better treatment outcomes and fewer adverse events. For individual patients, the most important thing is the pharmaceutical producing fewer adverse events, a shorter treatment time and simpler dosing, with fewer doses per day. All these are contributors to better treatment outcomes. As long as hepatitis C therapy includes interferon and ribavirin, we won't be able to avoid their adverse events, with interferon being particularly problematic. It would be best if the new pharmaceutical brought into treatment causes as few adverse events as possible. Unfortunately, boceprevir and telaprevir have additional specific adverse events, and require patients to take a lot of tablets. However, the treatment times of most previously untreated patients can be reduced, which hopefully means more patients still complete their treatment and can be cured."

What directs treatment choices at present?

"There are lots of deciding factors to consider, including the likelihood of obtaining a positive treatment outcome, the patient's disease outlook otherwise, the risk of adverse events put in relation to how close at hand the availability of improved therapies is. At present, it's about treating those patients that really need it, with express scar formation who can't wait. If a patient with genotype 1 infection has no express fibrosis (a precursor of cirrhosis) there may be cause to delay treatment. Progress on the next generation of hepatitis C pharmaceuticals is going quickly, and looks like it will be available soon, with preliminary results demonstrating a better adverse events profile, the need for fewer tablets and better healing. In this case, these are big advances on the preparations currently available. But progress isn't stopping there, and soon we'll see a raft of new treatment alternatives, further improving the patient outlook."

What would be a desirable scenario for clinicians treating hepatitis C?

"What they want is a tablet-based treatment with a short treatment time and high cure percentage that can be managed on a broad, outpatient basis. Arguably, patients that have already received a transplanted liver and relapsed, whose deterioration is rapid, have the greatest need. For these patients, clinics want an effective treatment that doesn't interact with the immunosuppressive treatment they are already receiving, to avoid rejecting the transplanted organ. Because of interactions with protease inhibitors, they cannot be used in such cases. New orally administered directacting antivirals, or DAAs, without interaction, as well as exciting new

nucleoside analogues, look very promising so far, and will probably reach the market in just a few years."

Ola Weiland, Professor and Senior Physician at the Infection Clinic of Karolinska University Hospital in Huddinge, Sweden, has 40 years' experience of hepatitis B and C evaluates new hepatitis C treatments.

Our in-house developed projects outside the hepatitis C area

Based on Medivir's leading competence within proteases, the company is also engaged in research outside the hepatitis C segment, in indications like dengue fever, in chronic pain and bone disorders.

Cathepsin K inhibitors

Medivir's cathepsin K inhibitor project is in the late preclinical development phase, with the aim to commence clinical trials on the first CD, MIV-711, in the first halfyear 2012. The goal is to develop new treatments against bone disorders, such as osteoporosis and osteoarthritis.

The formation and resorption of bone in the skeleton is a constant process. This process is controlled by two types of cell, osteoblasts for forming new skeletal tissue, and osteoclasts for breaking down bone, resorption. The protease cathepsin K is excreted by osteoclasts, and is significant in the metabolism of bone and cartilage. An imbalance in this process can result in increased bone resorption, which features in several, very common diseases.

Osteoporosis is the second-biggest global health problem, and involves a markedly increased risk of fractures of the hips or wrists. In itself, this disease does not cause chronic pain, but older women especially can be affected by compressed vertebrae, which causes serious pain for the patient. The treatments available are based on compounds including bisphosphonates and pharmaceuticals that resemble estrogen.

Osteoarthritis is a common disease among older people, whose articular cartilage is metabolized, causing compromised mobility and pain. At present, there are no effective pharmaceuticals and treatment is symptomatic in combination with physiotherapy, and in severe cases, surgery.

Medivir intends to develop specific cathepsin K inhibitors to treat disorders including osteoporosis and osteoarthritis. One key factor for a new pharmaceutical is to inhibit bone resorption without affecting the formation of new bone in the body. Results of preclinical trials indicate that MIV-711 has the right prospects of attaining such a favorable profile in clinical terms.

Cathepsin S on the way towards CD designation The protease cathepsin S is involved in the body's immune system, and in preclinical models has demonstrated a role in the neural inflammation that can develop into very hard-to-treat neuropathic pain.

One example of neuropathic pain is the chronic pain that can develop after a trauma or surgery, when a nerve fiber is damaged. Current pharmaceuticals for this type of pain are ineffective and associated with adverse events, and there is a pressing need for improved analgesics.

Medivir's cathepsin S project is in late preclinical optimization, and the goal is to be able to designate a CD with the potential to develop into a pharmaceutical that is more effective with fewer adverse events than extant pharmaceuticals against neuropathic pain.

Dengue – an exciting project continues in the research phase

According to the WHO, dengue fever is the fastest growing mosquito-spread disease in the world. It is common in countries with tropical or subtropical climates, and often occurs in urban and suburban areas. The WHO estimates that some two-thirds of the world global population currently lives in the risk zone.

Dengue fever is transmitted through mosquito bites infected with one of the four closely related viruses that cause the disease. A bite causes fever, rashes, skin, muscle and joint pain. In most cases, the disease is benign. But if an individual that has recovered from the viral infection is re-infected, hemorrhagic dengue fever can develop, with hemorrhaging of internal organs, which can lead to hemorrhagic shock, and in certain cases, death. Medivir has been running a development and collaboration partnership with Janssen Pharmaceuticals since February 2011, whose goal is to develop an antiviral compound, a dengue protease inhibitor, to treat dengue, were at present, there is no specific treatment.

Glossary

Antiviral

Inhibition of virus growth.

CD (candidate drug)

Compound designated to proceed into clinical studies. Medivir uses the same criteria as the big pharmaceutical companies.

Cathepsin K

A protease that can metabolize collagen in bone and cartilage.

Cathepsin S

A protease that has a role in chronic pain and the presentation of antigens.

Clinical studies

Studies of experimental drug on humans.

Enzyme

A protein molecule, typically a very large one, that catalyses chemical reactions in living cells. These reactions occur rapidly and with great precision without the enzyme itself being consumed. Polymerases and proteases are enzymes.

Genotype

An individual's precise genetic characteristics (genome), usually in the form of DNA. Within HCV genotype 1a is the most common in North America, and 1b in Europe.

Hepatitis B

Jaundice caused by human Hepatitis B virus (HBV).

Hepatitis C Jaundice caused by human Hepatitis C virus (HCV).

HIV (Human immunodeficiency virus) Causes deficiencies in the immune system and gives rise to AIDS.

IAS (International Accounting Standards) See 'IFRS'.

IFRS (International Financial Reporting Standards)

New accounting rules adopted by the EU. Intended to facilitate comparisons between Annual Reports in different European countries. Listed companies must comply with IFRS since 1 January 2005.

Interferon

Human protein with antiviral effect.

Janssen Pharmaceuticals

In this Report, collective term for those Johnson & Johnson group companies that Medivir has agreements with such as Tibotec Pharmaceuticals Ltd., Ortho Biotech Products LP, Centocor Ortho Biotech Products LP and Janssen Pharmaceuticals.

Labial herpes/cold sores

Caused by herpes simplex virus type 1 (HSV-1) and transmitted via saliva/oral contact. There are two types of herpes simplex virus, type 1 and 2 (HSV-2). HSV-2 is normally sexually transmitted, but it can also cause labial herpes. The infection becomes latent and the virus can be reactivated.

Milestone payments

Payments upon attaining contracted achievements.

Neuropathic pain

Nerve pain arising as a direct consequence of lesions or disease that affects the somatosensory system. There is a distinction between peripheral and central pain.

NS5A/B inhibitor

Inhibitor of one of the two polymerase proteins that interact to replicate the HCV genome.

Nucleoside analogue

A structural modification of the nucleosides used as building blocks for genes.

Nucleotide

A nucleoside with one or more phosphate groups.

Option Right to buy shares at some time in the future.

Osteoarthritis Chronic degenerative arthritic disease.

Osteoporosis Brittle bones.

Peg-IFN

See 'Interferon'.

Pharmacokinetics

The study of a drug's metabolism in the human body (absorption, distribution, conversion and secretion).

Polymerase

A type of enzyme that replicates genes, for example, of a virus.

Postherpetic Neuralgia

Pain that persists, often for several months, after shingles lesions have healed.

Preclinical research

Research into a pharmaceutical compound prior to studies on humans (clinical studies).

Pre-emption

If a holder of class A shares wishes to sell these shares, they must be offered to other holders of class A shares first.

Protease

An enzyme able to break proteins down into smaller units.

RBV See 'Ribavirin'.

Replication complex inhibitor

A compound that prevents the HCV genome replicating by inhibiting NS5A or NS5B. Resistance Reduced efficacy of a compound that normally suppresses a virus or other microorganism.

Ribavirin

A nucleoside analogue which inhibits virus replication through cellular interaction.

Royalty

Payment, often calculated as a percentage of product (drug) sales.

Share issue

Provision of new shares to raise capital.

Shingles

Painful disease with vesicles on the skin caused by a herpes virus, the varicella- zoster virus (VZV). This virus remains latent within the body after chickenpox infection, and may re-activate many years later, causing shingles.

VZV (Varicella-zoster virus)

A herpes virus that causes chickenpox, usually in children, and which remainsin ganglia throughout life. It may re-activate later and if so, give rise to shingles.

Report of the Directors

All figures are for the Group for the financial year 1 January - 31 December 2011 unless otherwise stated. In the Annual Report, comparisons are with the corresponding period of 2010 unless otherwise stated.

The Board of Directors and Chief Executive Officer of Medivir AB (publ), corporate identity number 556238-4361, with registered office in Huddinge, Sweden hereby present the Annual Report for the operations of the group and parent company Medivir AB (publ) for the financial year 2011.

The Medivir group comprises 14 companies with operations in three countries. The parent company of the group is Swedish public limited company Medivir AB, whose shares are quoted on Nasdaq OMX Stockholm. For more information, please see www.medivir.se.

Operations

Medivir is a research-based specialty pharmaceutical company focused on infectious diseases. An important step in the company's development was taken in 2011 through the acquisition of BioPhausia. Medivir has now laid the foundation for its continued development towards becoming one of the leading specialty pharmaceutical companies in the Nordics. Medivir's business goal is to become a profitable pharmaceutical company with its main focus in infectious diseases.

Medivir is now a complete pharmaceutical company, which complements successful pharmaceutical development in infectious diseases with a Nordic market presence, and its current business generates some sek 500 m of annual sales.

After the acquisition of BioPhausia, Medivir is organized into two business areas, Pharmaceuticals and Parallel Import.

The pharmaceuticals business area includes the group's research and development portfolio, the inhouse developed cold sore pharmaceutical Xerclear® and the original pharmaceuticals owned by BioPhausia, the most well known being Citodon, Mollipect, Laxabon and Suscard. Since Medivir's acquisition of BioPhausia, sales of original pharmaceuticals continued their stable progress, with an unchanged, positive EBITDA margin.

The Parallel Import business area, Cross Pharma, imports, packages and sells original pharmaceuticals on the Swedish market. To exploit new business opportunities, which are expected to have a positive impact in 2012, Cross Pharma increased its employee headcount. This means that fixed costs increased in the final quarter of the year, thus having a negative effect on operating margin. Through its preparations in the fourth quarter, Cross Pharma should be able to re-attain its historically good earnings levels.

Over the years, Medivir has entered a number of successful partnerships with other pharmaceutical

companies on the development of new experimental drugs. Medivir currently possesses the competence to take projects from preclinical research to clinical development and market launch in-house. Medivir's business focus in pharmaceutical development is in infectious diseases, which is where the majority of its projects are. The project portfolio also has some projects addressing other indications where polymerase and protease play a key role in the course of the disease. Medivir is in a range of collaborations in clinical and preclinical phases with established pharmaceutical companies and smaller biotech enterprises. Currently, our biggest focus in infectious diseases is in hepatitis C where we have two projects run with partners and two that are being developed in-house. These projects address the hepatitis C virus from two different mechanisms; inhibiting the enzymes protease and polymerase. We are currently well-positioned in the hepatitis C segment where our most advanced project, TMC435, which is run in partnership with Janssen Pharmaceuticals, is in global phase III registration trials.

Significant events in 2011

Acquisition of BioPhausia

During the second quarter, Medivir acquired pharmaceutical company BioPhausia. This acquisition is an important step in Medivir's express goal of becoming a research-based specialty pharmaceutical company with long-term profitability. This acquisition extended Medivir's existing business operations in the Nordics and brought a portfolio of prescription products, Cross Pharma, which conducts the parallel import of pharmaceuticals in Sweden and a generics business in the form of subsidiary BMM Pharma AB. The generics business was sold to Bluefish Pharmaceuticals AB in August. After adjustment for this divestment, Medivir retained annual sales of prescription pharmaceuticals of some sek 500 m, and also created a platform for the expected launch and commercialization of TMC435 in the Nordics, where Medivir possesses the commercial rights.

The product Xerclear®

The global product launch of Medivir's in-house developed cold sore pharmaceutical Xerclear® commenced via partners in 2011. Meda AB launched this product in the US as a prescription pharmaceutical in 2011. The North American rights were sold in the summer for a lump-sum payment of usd 45 m (sek 278.9 m). This agreement triggered a royalty payment of sek 37.6 m to AstraZeneca. Medivir's partner GSK will commence the launch of this cold sore pharmaceutical in the first quarter of 2012 on its first five OTC markets in Europe, under the Zoviduo and Zovirax Duo brands.

TMC435 – protease inhibitor for the treatment of Hepatitis C virus infections (HCV) in partnership with Janssen Pharmaceuticals

TMC435, a protease inhibitor for treating hepatitis C virus infections (HCV), is being developed in partnership with Janssen Pharmaceuticals, a Johnson & Johnson group company.

Global phase III trials on TMC435 started at the beginning of the year. Patient enrollment was completed during the summer. In these phase III trials on treatment-naive patients and relapsers, a new primary endpoint, SVR12 instead of SVR24, was approved in a new agreement with the FDA. This means that the clinical treatment duration is reduced by 12 weeks.

Final results on TMC435 from the phase IIb trial ASPIRE (C206) were presented in the autumn. These final results demonstrated a significant increase in viral cure rates in patients who were previous null responders to hepatitis C treatment, compared to control group, which was pegylated interferon and ribavirin alone. TMC435 was generally safe and well tolerated at all doses and treatment times in the different patient groups. Safety data is consistent with that previously observed when treating naïve patients with TMC435.

The long-term goal is to produce an interferon and ribavirin-free combination therapy for hepatitis C. TMC435's characteristics are well suited as a cornerstone of future combination products based on two or more direct-acting antivirals with different mechanisms of action.

In the year, Janssen Pharmaceuticals also commenced two clinical collaboration projects for combination therapy, one with BristolMyersSquibb and its NS5A replication complex inhibitor (daclatasvir). The second is with Pharmasset, now acquired by Gilead Sciences, and its compound GS7977, a nucleotide-based polymerase inhibitor. These companies' CDs are in phase II and have a different mechanism of action to TMC435. The aim is to evaluate efficacy and safety in combination therapy with each compound. Through these partnerships, TMC435 is well positioned in the development and evaluation of new alternatives for treating hepatitis C, without interferon and ribavirin. The combination trials to be conducted first are on treating HCV genotype 1 infections, the most common and hardest-to-treat type of hepatitis C infection. TMC435 will be studied in combination with these compounds in phase II trials, commencing in 2012.

TMC649128 – polymerase inhibitor for the treatment of Hepatitis C virus infection (HCV) in partnership with Janssen Pharmaceuticals

Medivir's other collaboration project with Janssen Pharmaceuticals in hepatitis C is for developing nucleoside/nucleotide polymerase inhibitors. TMC649128 is a nucleoside NS5B polymerase inhibitor that entered clinical phase I trials at the beginning of the year. It was demonstrated a safe and well tolerated, but its antiviral efficacy did not satisfy the intended specification and further development of this compound was discontinued in the fourth quarter. Parallel efforts to develop a nucleotide-based polymerase inhibitor continued on the project. A CD has been designated, and this project is now in preclinical development ahead of clinical trials.

Hepatitis C in-house

Medivir has two proprietary hepatitis C projects, one a nucleotide-based polymerase inhibitor and one NS5A replication complex inhibitor. Both are in preclinical optimization. In the former project, new and highly potent nucleotides have been identified, with profiles comparable to the most advanced compounds in clinical development phases. Patent applications have been filed, and work is focused on the selection of clinical development candidates. The program with the NS5A replication complex inhibitor is to develop the next generation of pharmaceutical with this action mechanism and the objective of treating a broader patient group than is possible with those CDs currently in clinical development.

Other R&D projects

On the Cathepsin K project, for treating skeletal disorders, several preclinical trials were concluded in the year and are currently being evaluated. Assuming a positive outcome of these evaluations, the ambition is to commence clinical phase I trials in 2012.

Organization

Medivir strengthened its organization and commercial presence in the Nordics during the second quarter through the acquisition of BioPhausia. Maris Hartmanis was appointed Medivir's new CEO in September, while the company's management also gained new appointments. Please read more in the Corporate Governance Report on page 40.

Patents and patent filings

Securing patent protection in the early preclinical research phase is the foundation of all new pharmaceutical projects and the company's future commercial prospects. At the same time, it is important to monitor competitors' patents in order to avoid the risk of infringement. Patent activities are an important and integrated part of work at Medivir during product development, and later, when the product is on the market. At the close of 2011, Medivir

had 66 patent families, including those filed by collaboration partners.

A patent family is the collection of national or regional patents and patent applications that cover a single invention or group of related inventions. In 27 of these 66 families, the official examination process has progressed to the point that at least one US or EU patent has been granted. Including these approved US/EU patents, Medivir or its partners had 567 granted patents in force at year-end.

Project	Patent No	Normal expiry	AU	BR	CA	CN	EU	IL	IN	KR	JP	MX	MY	RU	TW	US	ZA	Expiry of further patent families
Xerclear®/	WO96/24355	02/2016					19
Xerese®	WO00/29027	12/2019					20
	WO07/014926	07/2026					36
TMC435	WO05/073195	01/2025					35											2028
HCV POL	WO2010/130726	05/2030					All
HCV NS5A	Not published	12/2032					All
HCV Nucleotides	Not published	12/2032					All
MIV-710	WO09/000877	06/2028					All
MIV-711	WO2010/034790	09/2029					All											2032
HIV-PI	WO2011/070131	12/2030					All
Cathepsin S	WO2011/070541	06/2030					All											2032
Valomaciclovir MIV-606	WO97/30051	02/2017					29											2028
Lagociclovir valactate MIV-210	WO99/09031	08/2018					25											2032
MIV-410 (PPI-801/802)	WO07/006707	07/2026					19

• Patent granted. • Patent pending, await examination at the patent Office. • Patent allowed by Patent Office examiner, but not yet issued.

Normal expiry

• • Since 1995, almost all countries specify a patent life of 20 years from the international application date.
• • In Europe, it is possible to secure up to five year's extension of pharmaceutical patents via a Supplementary Protection Certificate, or SPC. This supplementary protection is granted if the European marketing authorization was granted more than 5 years after the patent filing date. Of Medivir's projects, such extensions would apply to MIV-606 (2/2022), MIV-210 (8/2023) and TMC 435 (7/2028, assuming launch in late 2013), extended expiry stated in brackets. The supplementary protection can be extended by a further six months if an approved clinical program in children is undertaken in parallel with the usual clinical trials. For Xerclear/ Xerese, Medivir has currently been granted five year supplementary protection certificates in Sweden, Denmark, the UK, France and Portugal and the corresponding SPC applications are being processed in countries such as Germany, France, Spain, Austria and Finland. Certain other EU countries may also be granted SPCs provided that marketing authorizations for Xerclear are finalized by Medivir's partner GSK in the next few years. Thus the expiry date for patent protection on Xerclear, including supplementary protection, is 2/2021.
• • In the US, the possibility to extend patents is a complex matter, and may be based on a delay at the Patent Office (known as a PTA), or delays with the FDA (known as PTE) and for the execution of an approved clinical trial on children. Although this has not taken legal effect, the US Patent Office has preliminarily announced a Notice of Allowance that it has now approved the patent on TMC435 with a considerable number of days' PTA extension. Medivir's American lawyers estimate the total PTA extension at 1,020 days.Accordingly, the expiry date for the main US patent is around August 2029, but potential delays by the Patents Office printers may positively affect the final number of days, which will be determined in the second quarter of 2012.
• • Many countries have an additional form of market exclusivity for pharmaceuticals, called "data exclusivity". This prevents generic pharmaceutical applications

"ANDA" being approved based on an original product for a defined number of years, namely 10 years in Europe, 2.5 - 5 years in the US and 6 years in China. This exclusivity is independent of patents and as it is based on the launch date, the exclusivity may extend longer than the patent life.

Country codes

• • AU Australia, BR Brazil, CA Canada, CN China/Hong Kong, IL Israel, IN India, KR South Korea, JP Japan, MX Mexico, MY Malaysia, RU Russia, TW Taiwan, US USA, ZA South Africa. WO is an international (PCT) patent application.
• • EU At present, a European patent can cover all countries in the EU and a number of other European countries such as Switzerland, Iceland, Croatia, Turkey, and Norway. Medivir always validates granted European patents, at least in the key pharmaceutical markets of Germany, the UK, France, Italy, Spain, Switzerland and Sweden. The figure in this column is the total number of European countries where the patent has been validated.

Additional patent families

• • Wherever possible, Medivir ensures that its patent applications include product claims (also known as "composition of matter") and therapeutic method claims. Product claims are preferred in pharmaceutical contexts as they give control over product pricing, notwithstanding that further uses for a product may be discovered in the future.
• • Medivir practices patent portfolio management and files subsequent applications for enhancements conducted in-house and CRO developments such as formulations, synthesis methods and synergistic combinations. Although such patent families can seldom totally prevent generic competition after the basic product patent has expired, they do serve a role in ensuring continued royalty income from Medivir's partners even after the introduction of generic competition. This extended royalty period is indicated in this column.

Results of operations and financial position of the group

Turnover, 1 January – 31 December 2011

Net sales were sek 698.6 (54.9) m, an increase of sek 643.7 m year on year. Turnover for the period mainly consisted of a one-off payment for Xerclear® of sek 278.9 m for the sale of the American rights. According to the terms of this agreement, Meda receives all rights to the product in North America. Turnover in the period from the sale of original pharmaceuticals was sek 111.2 (0.1) m and turnover from parallel imports was sek 185.9 (-) m. Turnover in the period was also sourced from two milestone payments from Medivir's partner Tibotec totaling sek 122.3 m. These related to the start of phase III trials on TMC435 against hepatitis C of sek 51.8 m and the start of phase Ia on TMC649128 against hepatitis C of sek 70.5 m. In the same period of the previous year, turnover primarily consisted of one-off payments of sek 45.3 m for a licensing agreement for Xerclear®.

Allocation of net sales (sek 000)	2011 Jan-Dec	2010 Jan-Dec
Outlicensing and research agreements
One-off payments	401.2	47.1
Pharmaceuticals sales	111.2	0.1
Parallel import	185.9	–
Other services	0.3	7.7
Total	698.6	54.9

Costs and results of operations,

1 January – 31 December 2011

Cost of goods sold was sek -240.6 (-0.8) m, a sek 239.8 m increase. Gross profit was sek 457.9 (54.1) m. Operating expenses were sek -346.1 (-190.8) m, a sek 155.3 m increase year on year. Operating expenses were divided between cost of sales of sek -95.2 (-9.5) m, administrative expenses of sek -47.2 (-29.5) m, research and development costs of sek -184.1 (-153.4) m and other operating expenses/ income of sek -19.7 (1.6) m. Cost of sales increased by sek 85.7 m and costs for administration increased by sek 17.7 m because of costs in the acquired commercial operations of BioPhausia and royalty costs to third parties. Research and development costs increased by sek 30.7 m mainly because of higher external project costs and royalty costs to third parties. Other operating income/expenses increased by sek 21.3 m mainly due to transaction costs for the acquisition of BioPhausia.

The operating profit/loss was sek 111.8 (-136.7) m, a positive change of sek 248.5 m year on year.

The profit/loss from financial income/expense was sek -0.6 (2.5) m. The profit/loss from financial income/ expense includes impairment on shares of Epiphany Biosciences Inc. of sek 7.8 m and an impairment of shares in Presidio of sek 1.3 m because permanent value impairment is judged to have occurred in the period. Tax for the period was sek 2.5 (0.0) m, and is tax on temporary differences, i.e. the difference between carrying amounts and taxable values.

100% of the shares of generics company BMM Pharma AB were divested in the third quarter 2011. The purchase price, including the value of inventories on the date of sale, was sek 32.2 m. The divestment affected net profit for the period negatively by sek -0.5 m. The criteria for recognition as a discontinued operation have not been satisfied because BMM Pharma AB was neither an independent segment nor a significant part of operations.

Net profit/loss for the period was sek 113.8 (-134.2) m.

Segment information

Prior to the acquisition of BioPhausia, Medivir was organized into a single integrated operating segment. After the acquisition of BioPhausia, Medivir is organized into two operating segments. The core of the business operations consists of the Pharmaceuticals operating segment. The Pharmaceuticals segment comprises research and development of new products, as well as manufacturing, marketing and sales of pharmaceuticals. The Pharmaceuticals segment includes the group's research portfolio, in-house developed cold sore pharmaceutical Xerclear® and original pharmaceuticals that BioPhausia has unlimited ownership but including some generic products where BioPhausia's ownership is limited. BioPhausia divested the company's generics business in the third quarter 2011. The second operating segment consists of the Parallel Import business operation in BioPhausia subsidiary Cross Pharma, which imports original pharmaceuticals from EU countries where pricing is lower than in Sweden. When pharmaceuticals are sold on the market, pharmacies are offered a price that is lower than the original producers.

Pharmaceuticals segment (sek m)	2011 Jan-Dec	2010 Jan-Dec
Net sales	512.7	54.9
EBITDA	137.6	-128.8
EBITDA %	26.8%	-234.6%

Turnover and results of operations, 1 January - 31 December 2011

Net sales were sek 512.7 (54.9) m, a sek 457.8 m increase year on year. Turnover in the period primarily consisted of a one-off payment of sek 278.9 m (usd 45.0 m) for Xerclear® for the sale of the North American rights and two milestone payments from Medivir's partner Tibotec of sek 122.3 m. Turnover in the period from sales of original pharmaceuticals remained stable with an unchanged healthy EBITDA margin. Of total net sales, 78 (86)% consisted of one-off payments for outlicensing and partnership agreements and 22 (0)% of pharmaceutical sales.

EBITDA for the period was sek 137.6 (-128.9) m, equating to a margin of 26.8 (-234.8)%. EBITDA includes research and development costs of sek -184.1 (-153.4) m. EBITDA for the period, without adjusting for surplus values on consolidation of inventories from the acquisition of BioPhausia amounted to sek 164.0 m, equating to a margin of 32.0%.

Parallel imports segment (sek m)	2011 Jan-Dec	2010 Jan-Dec
Net sales	185.9	–
EBITDA	-2.3	–
EBITDA, %	-1.2	–

Turnover and results of operations, 1 January - 31 December 2011

Net sales for the period amounted to sek 185.9 m. EBITDA for the period was sek -2.3 m, equating to a margin of -1.2%. A number of products with insufficient market potential were identified in the period, which resulted in inventory impairment of sek 5.8 m. EBITDA for the period without inventory impairment and adjusting for surplus values on consolidation from the acquisition of BioPhausia amounted to sek 6.4 m, equating to a margin of 3.4%.

Cash flow and financial position

Cash flow from operating activities was sek 57.3 (-76.9) m. The American rights for Xerclear®were sold in the second quarter, which affected cash flow from operating activities for the period by sek 278.9 m.

Cash flow from investing activities was sek -184.8 (-5.8) m. In the second quarter of 2011, Medivir acquired BioPhausia, which affected investing activities by sek -191.7 m after bank balances taken over. The generics company BMM Pharma AB was divested in the third quarter of 2011, which had a positive effect on cash flow from investing activities in the period of sek 24.0 m.

Cash flow from financing activities was sek 16.5 (586.5) m.

At the beginning of 2011, cash and cash equivalents including short-term investments with a maximum maturity of three months were sek 647.2 (143.6) m, and sek 536.3 (647.2) m at the end of the period, a change of sek -110.9 (503.6) m. Assets pledged were sek 162.2 (0.0) at the end of the period.

In accordance with its Finance Policy, Medivir invests its financial assets in low-risk interest-bearing securities. Medivir's existing financial assets are judged to secure the funding of operations.

Investments, depreciation and amortization

Investments in intangible fixed assets in the period were sek 559.4 (0.3) m, which related to the acquisition of BioPhausia. Of this acquisition, sek 351.9 m was product rights, sek 19.2 m trademarks and brands and sek 188.3 m goodwill.

Investments in tangible fixed assets were sek 17.3 (5.8) m in the period and were mainly for research equipment. Depreciation of tangible fixed assets in the period of sek -7.5 (-7.3) m was charged to profits. Amortization of intangible fixed assets in the period of sek -15.9 (-0.6) m was charged to profit.

Royalty obligations

A major part of Medivir's research and development projects were developed entirely in-house and Medivir is thus entitled to all revenues from such inventions.

A small share of Medivir's projects originate from Swedish universities, which means Medivir is entitled to revenues, in return for which it pays royalties.

In addition, there are some projects that have previously been licensed to third parties, but which have reverted to Medivir, and Medivir has undertaken to pay a royalty to the former licensee.

Royalty costs to third parties were sek 50.6 (0.0) m in the period. Of these, sek 37.7 m were royalties to Astra-Zeneca, which are included in cost of sales and sek 12.9 m of royalties to other licensees, included in research costs.

Transactions with related parties

Transactions with related parties are on an arm's length basis. Intragroup sales amounted to sek 37.1 (20.0) m. Intragroup purchases amounted to sek 36.5 (21.1) m. There are agreements between companies belonging to senior managers and Medivir, which confer entitlement to royalties on products that the company may develop based on patented inventions that the company has

acquired from these individuals before and during their time as researchers at Medivir. In the period, remuneration of sek 0.9 (0.0) m was paid. In the period, Medivir purchased sek 0.2 m of office services from Scicona Ltd., which is owned by Ron Long, and entered an option agreement with PepTonic AB, of sek 0.5 m, where Ron Long has a minority shareholding. These payments were made in the period when Ron Long was CEO and a Board member of Medivir AB.

Parent company in brief, 1 January - 31 December 2011

Medivir AB (publ), corporate identity no. 556238-4361, is the parent company of the group. Operations primarily consist of research and development, and administrative functions.

Parent company net sales were sek 432.3 (72.3) m. Operating expenses were sek -265.2 (-190.8) m, up sek 74.4 m year on year. Operating expenses were divided between selling expenses of sek -45.5 (-9.5) m, administrative expenses of sek -36.5 (-28.7) m, research and development costs of sek -184.1 (-152.1) m and other operating expenses/income of sek 0.9 (-0.5) m. The operating profit/loss was sek 167.0 (-119.2) m. The profit/ loss from financial income/expense was sek -13.4 (-16.5) m. The net profit/loss for the period was sek 153.6 (-135.7) m.

Investments in tangible and intangible fixed assets were sek 15.8 (5.8) m.

Investments in financial fixed assets were sek 604.1 (0.0) m, relating to the acquisition of BioPhausia. The acquisition cost includes sek 17.6 m of transaction costs. Cash and cash equivalents including investments in securities, etc. with a maximum maturity of three months amounted to sek 516.3 (644.6) m. For comments on operations, please refer to the section on consolidated earnings and financial position.

Human resources

Medivir combines advanced research with commercial business activities. Its operations set high demands of its people and on an innovative and high-performance corporate culture. We work according to a specific process of goal-orientation and measurement, where managers and staff jointly set individual goals for the year based on the overall goals of the company, and evaluate and appraise previous efforts. It is important for commitment that every staff member understands the company's mission and goals, and how their individual performance contributes to them.

Competence development and innovation

Medivir is a knowledge-intensive company with high educational standards. This high skills level is a decisive factor for Medivir to reach its ambitious goals. Many employees participate actively in academic networks to access new research discoveries that make a positive contribution to the business.

Salaries, benefits and labor market regulation

Favorable employment terms are a prerequisite for Medivir being able to hire and retain competent people. Accordingly, Medivir offers competitive salaries and benefits. The company conforms to the principle that salary levels should be set individually and be differentiated, and that salary levels are set based on locally agreed salary criteria. Medivir complies with and respects labor market regulations and the agreements between participants on the labor market. We have constructive collaborations and good relations with trade unions and employers' organizations.

Working climate

A good working climate paves the way for job satisfaction, low sickness absence, good relations and limited staff turnover. Employee satisfaction surveys are regularly conducted to ensure a positive working climate. Management and managers put a big emphasis on information from the employee satisfaction survey and work on implementing change reflecting these results. Medivir endeavors to achieve a working environment that promotes health and wellbeing. Medivir offers its staff keep-fit activities, and pays for regular health check-ups and influenza vaccinations.

Diversity and equal opportunities

The number of permanent employees at the end of the period was 168 (80) with a good balance between men and women. It is self-evident for everyone to be offered the same opportunities and treatment regardless of age, sex, religion, sexual orientation, disability or ethnic origin. People from 14 different countries work for Medivir. Medivir's management has eight members, three of which are women. The Board has four members, one of which is a woman. Medivir should also be a company where a good work-life balance is possible. The number of employees in the period increased by 88 mainly as a result of the acquisition of BioPhausia, whose subsidiary Cross Pharma's Polish packaging plant has 51 employees. Occupational health and safety and environmental work Medivir endeavors to comply fully with all occupational health and safety-related legislation and regulations, and conducts systematic occupational health and safety work to continuously improve occupational health and safety. Medivir's Occupational Health & Safety and Environmental Policies demonstrate the importance of good occupational health and safety and of minimizing environmental impact. Documented safety procedures are in place and Medivir's staff receive ongoing training on safety issues. Formal responsibility for occupational health and safety is delegated down the management line. An occupational health and safety team consisting of managers, safety representatives and others work on these matters on an ongoing basis and conduct regular safety inspections.

Incident reporting is an important tool for improving occupational health and safety, and implies all incidents and accidents being followed up. No accidents in the workplace were reported to the Swedish Work Environment Authority in 2011 or 2010.

The company's research and development work involves controlled use of biological and hazardous material and waste. The greatest health risks arise when handling chemicals. Conducting risk assessments before laboratory experimentation and handling all chemicals correctly minimizes the health risks. Protective equipment and clothing are used. All work with chemicals is conducted in ventilated localities. All fume cupboards and secure benches are equipped with alarms and are regularly inspected. Medivir has an extensive program for the disposal and destruction of environmentally hazardous waste. Medivir works constantly to reduce its usage of environmentally hazardous substances and is not involved in any environmental disputes.

Medivir has reported its usage of class II biological substances to the Swedish Work Environment Authority inspectorate and holds permits from the Swedish Work Environment Authority to use class III and III* (normally not airborne infection) biological substances (reference AFS 1997:12). Additionally, Medivir has permits from the Municipality of Huddinge to handle inflammable solvents and research animal approval from the Swedish Ministry of Agriculture.

IT security

The importance of protecting the company's information means that IT security is a high priority for Medivir. Medivir's IT security policy includes guidelines for its resources, responsibilities, authorization, administration of rights, virus protection, traceability, classifying information, plus operational and communications security.

All data is copied and processed according to welldefined security and back-up routines. External communication is safeguarded with encrypted data traffic. Computers and software are secured by applying local hardware encryption. Medivir also endeavors to continuously reinforce staff security-consciousness when handling hardware and software continually.

The Board of Directors' proposed guidelines for remuneration to senior managers

The Board of Directors proposes that the Annual General Meeting (AGM) approves the following guidelines for remuneration to senior managers. In most respects, these guidelines are consistent with those principles applied until the present. Senior managers mean the CEO and other members of group management. Remuneration to senior managers will consist of basic salary, performancerelated pay, incentive schemes approved by the AGM, pensions and other benefits. The guidelines will apply to employment contracts entered after the AGM's resolution on guidelines, and for amendments made to existing terms and conditions, after the AGM resolution.

Medivir will offer overall compensation on market levels enabling the hiring and retention of qualified senior managers. If local conditions justify variations to the remuneration principles, such variations will be permitted.

Basic salary

Basic salary should consider the individual's areas of responsibility and experience.

Performance-related pay

Performance-related pay payable in cash may amount to a maximum of 50% of annual basic salary. Performancerelated pay should be linked to predetermined and measurable criteria, designed to promote the company's long-term value creation.

Other benefits

Senior managers may receive other conventional benefits, such as company cars, corporate healthcare, etc.

Pension

Pensions should be defined contribution. For the CEO and other senior managers the premium will comprise up to 35% of basic salary. The Board is however entitled to offer other solutions that are approximately comparable with the above in cost terms.

Severance pay etc.

A mutual notice period of a maximum of six months should apply. The basic principle is that severance pay or similar payments should not be made, but – at a lump sum of a maximum of 100% of annual remuneration – may be agreed in instances of change of control.

Additionally, for the Chief Executive Officer, there may be entitlement to severance pay of a maximum of 100% of annual remuneration if the company terminates the employment of the Chief Executive Officer, or if the Chief Executive Officer resigns due to a significant breach of contract on the part of the company.

Share and share-price related incentive schemes

Where applicable, share and share price-related incentive schemes should be approved by the AGM. Granting should be in accordance with AGM resolutions.

Non-compliance

The Board is entitled to depart from the above guidelines if the Board considers that there are specific circumstances justifying this in individual cases.

Remuneration decided at an earlier date

No remuneration decided at an earlier date has become due for payment. At present, two option plans are running that encompass all permanent employees (at the time of allocation), including senior managers.

Remuneration paid in 2011

For information on remuneration to senior managers paid in 2011, refer to Note 5 in the Annual Report 2011.

Information on deviations from the 2011 guidelines

In one respect, the Board of Directors departed from the guidelines for remunerating senior managers decided by the AGM 2011. This departure consists of CEO Maris Hartmanis's employment terms conferring entitlement to severance pay and pension over and above that following from the guidelines. Regarding Maris Hartmanis's remuneration in 2011, see Note 5 of the Annual Report 2011. Maris Hartmanis was CEO of BioPhausia, which Medivir acquired in 2011. Maris Hartmanis was initially hired as Medivir's Deputy CEO and COO, but was later appointed as CEO. The Board of Directors decided that a departure from the guidelines was justified in the circumstances against the background of Maris Hartmanis's new employment terms in these respects being essentially consistent with his previous terms as CEO of BioPhausia, and that he could not be reasonably expected to accept a deterioration of his employment terms as a result of his employment with Medivir.

Significant events after the end of the period

Phase II combination trial on TMC435 and GS7977 commenced in January

A phase II trial, conducted by Tibotec Pharmaceuticals, will study the efficacy and safety of 12 and 24-week treatment with TMC435 at 150 mg per day in combination with GS7977, 400 mg per day with or without ribavirin, for people with chronic hepatitis C infections of genotype 1 that were previous null responders to peginterferon/ribavirin treatment. The primary endpoint of this trial will be sustained viral response after 12-weeks' treatment (SVR12). TMC435 is an NS3/4A protease inhibitor, and Pharmasset's GS7977 is a nucleotide NS5B polymerase inhibitor.

GlaxoSmithKline (GSK) initiated European OTC launch of Xerclear under the Zoviduo and Zovirax Duo brands

In June 2010, Medivir reached an agreement with GSK, which received exclusive rights to market and distribute Xerclear® for OTC sale on several markets, including Europe, Russia, Japan, India, Australia and New Zealand. GSK has now commenced the first wave of OTC launches involving the five countries where Zoviduo and Zovirax Duo are so far approved for OTC sale: Denmark, the Czech Republic, Slovakia, Portugal and Poland. These launches will be conducted through the spring, starting February. GSK's objective is to launch the product on the remaining markets as each regulatory authority approves it for OTC sale. For these exclusive rights, GSK will pay Medivir up to double-digit royalties on sales.

Two new phase III trials commenced on TMC435

Dosing and screening of patients have commenced in two new clinical phase III trials (HPC3001 and HPC3011) on Medivir's CD, protease inhibitor TMC435 in a single daily dose, developed by Janssen Pharmaceuticals for treating hepatitis C virus (HCV).

HPC3001 is a phase III trial that will study the efficacy, safety and tolerability of TMC435 and telaprevir, both dosed in combination with pegylated interferon α-2a (peg-INF) and ribavirin (RBV) in patients infected with hepatitis C genotype 1, and who are null responders or partial responders to previous treatment with peg-INF/ RBV. This trial is randomized, double-blind and a double-dummy design, with two trial arms, with expected enrolment of 744 patients.

The purpose of this trial is to demonstrate the efficacy of TMC 435-based treatment in comparison with an approved telaprevir regimen in these hard-to-treat patient groups.

Patients will receive TMC435 150 mg once daily or telaprevir 750 mg dosed every eight hours in combination with peg-INF/RBV for 12 weeks, followed by 36 weeks of peg-INF/RBV alone. The primary trial endpoint is to measure sustained virologic response 12 weeks after treatment concludes (SVR12).

HP3011 is an open phase III trial with one trial arm that will examine the efficacy, safety and tolerability of treatment with TMC435 in combination with peg-IFN/ RBV on 100 patients infected with hepatitis C genotype 4, that are previous null responders, or relapsers after previously concluded treatment.

Current standard of care (SoC) for chronic HCV infection of genotype 4 consists of 48 weeks of peg-IFN/ RBV, a treatment regime where a high share of patients do not attain SVR.

All patients will undergo 12 weeks' triple therapy with TMC435 at 150 mg once daily and peg-IFN/RBV, followed by peg-IFN/RBV alone. The total treatment time is response based for all patients, and all treatment can be discontinued in week 24 if the predetermined criteria are satisfied. Participants with cirrhosis will receive 48 weeks' treatment without reference to virologic response after treatment or to treatment histories. The primary endpoint of this trial is SVR12.

Application to commence phase I trials on cathepsin K filed with the regulatory authorities

Based on the results of preclinical safety and toxicology trials conducted on MIV-711, required as the basis for enabling the commencement of clinical trials, Medivir has taken the decision to commence the clinical development of MIV-711. The first stage is to apply for clinical trial permits with a European regulatory authority. The first clinical trial will commence as soon as permission is obtained.

Future progress summary

Medivir is a research-based specialty pharmaceutical company focused on infectious diseases with the ambition of being a profitable Nordic specialty pharmaceutical company in high growth in a few years. Medivir is working on a goal-oriented and strategic footing to create the best possible prospects of developing the company quickly and with balanced risks The company has a solid financial position.

The acquisition of BioPhausia brought yearly sales of prescription pharmaceuticals on the Nordic market of just over sek 500 m, as well as a complementarynew organization. Medivir now possesses a breadth of knowhow and operations extending from research and

development to the marketing and sale of prescription pharmaceuticals. Medivir also possesses attractive projects in development phases, with TMC435 being the most advanced, which is in clinical phase III. In combination with the ambition of identifying new business opportunities in the Nordics, these factors are the foundation of the continued work to develop Medivir towards profitability.

Significant risks and uncertainty factors

An effective risk assessment reconciles Medivir's business opportunities and results of operations with shareholders' and other stakeholders' requirements for long-term value growth and control. Pharmaceutical research and development to approved registration and launch is a highly risky and capital intensive process. The majority of projects that are started never reach market registration. If competing products take market share or competing research projects achieve better effect and reach the market faster, the future value of Medivir's product and project portfolio may be lower than originally expected. Medivir's ability to produce new CDs, enter partnerships on its projects and successfully develop its projects to market launch and ongoing sales, and to secure funding of its operations, are decisive to its future.

Patent protection

Medivir's future success is largely dependent on its ability to secure and retain protection on the intellectual property relating to its products. Its prospects of patenting inventions in the biotech and pharmaceutical sectors are generally hard to assess and involve complex legal and scientific matters. There can be no guarantee that Medivir will secure and retain patents on its products or technologies. Even if patents are issued, they may be infringed, invalidated or circumvented, which will limit Medivir's ability to prevent competitors from marketing similar products and reducing the time for which Medivir can protect its products with patents.

Safety and efficacy criteria relating to clinical trials

Before the launch of any of Medivir's experimental drugs can be initiated, Medivir and/or its collaboration partners must demonstrate that such compounds satisfy the stringent requirements of safety and efficacy that are set by the regulatory authorities in the countries where marketing of the pharmaceutical is planned. Usually, the procedure for securing regulatory permits requires extensive preclinical and clinical trials, is very costly, and takes substantial time. The FDA, EMEA and other regulatory authorities may delay, limit or refuse permits for several reasons, including an experimental drug

perhaps not being safe or effective. If Medivir is unable to secure permits for its current or future CDs, it will not be possible to market or sell them. Potential shortcomings or delays in the execution of preclinical or clinical trials may impair or delay Medivir's capacity to generate revenues from the commercialization of these CDs and may have a significant negative impact on its ability to retain and add to its project portfolio.

Regulatory approvals

Medivir is exposed to regulatory decisions such as the necessary permits to commercialize pharmaceuticals and regulatory changes regarding pricing and discounting of pharmaceuticals or altered conditions for prescribing a specific pharmaceutical.

Production

Medivir has no proprietary production, and accordingly, the company is dependent on subcontractors for pharmaceuticals production and production for non-clinical and clinical development. The relevant compound must be produced in sufficient quantities and with sufficient quality. There is a risk that Medivir does not have the possibility of satisfying its production needs for a reasonable cost at the appropriate time.

Competition

Competition in Medivir's business segment is significant and Medivir's competitors may develop, market and sell pharmaceuticals that are more effective, safe and cheaper than Medivir's The pharmaceuticals industry is highly competitive and there is a risk that current product margins will not be maintained. A number of Medivir's largest competitors develop and market pharmaceuticals addressing the same diseases as those Medivir is focusing on. Competitors may also have greater production and distribution capacity, as well as superior sales and marketing prospects than Medivir.

Commercial success and market acceptance

Even if Medivir's project and product portfolio secure regulatory approval, it cannot be certain that the pharmaceutical will attain commercial acceptance among physicians, patients or client organizations. The level of market acceptance depends on a number of factors including the incidence and degree of potential adverse events, access to alternative therapies, price and costefficiency, and Medivir's development partners' or licensees' sales and marketing strategies.

Product liability and insurance cover

Medivir's operations involve product liability, which is unavoidable in conjunction with the research and development, preclinical trial, clinical trial, production, marketing and sale of pharmaceuticals. Even if Medivir judges that its current insurance cover is sufficient, because the scope and amount of indemnity are limited. Accordingly, there can be no guarantee that Medivir will secure full recompense for potential damage in accordance with its current insurance cover. There can be no guarantee that appropriate insurance cover can be arranged at an acceptable cost, that such insurance cover may be arranged in any circumstances, nor that product liability claims or other claims will not have a significant negative impact on Medivir's operations and financial position.

Collaboration risks

Entering collaboration agreements with pharmaceutical and biotechnology companies to develop and launch the company's potential products is a component of Medivir's strategy. Success in such collaborations may be variable. Conflicts or differences of opinion may arise between Medivir's collaboration partners or counterparties in terms of interpreting clinical data, achieving milestone payments, interpretation of financial remuneration for, or ownership rights to, patents and similar rights developed within the auspices of these collaborations. A small number of partnership collaborations currently represent a large proportion of Medivir's current and potential future revenues and these collaboration partners are often significantly larger than Medivir. Moreover, several collaboration partners have an interest in competing products and there can be no guarantee that they will not have interests that conflict with Medivir's own.

Dependency on key employees

Medivir is highly dependent on a number of key employees. Its ability to hire and retain qualified employees is crucial to ensuring the level of competence of the company.

Financial risks

Medivir has reported losses historically and judges that losses will be reported through the coming years. There can be no guarantee that in the future, Medivir will be able to post positive profits. Nor can there be any guarantee that Medivir will not need additional capital contributions or that the required capital can be secured at terms acceptable to Medivir.

Entered and new partnership collaborations may have a significant effect on Medivir's future revenues and cash position. Historically, a high share of Medivir's revenues have consisted of, and in the future may also consist of, milestone payments from collaboration partners assuming the successful achievement of specific goals during pharmaceutical development. Medivir is entitled to such milestone payments according to several current partnership agreements. However, there can be no guarantee that these specific goals can be achieved or that the collaboration partner can meet the milestone payments. For a detailed review of financial risks such as currency risk, interest risk, credit risk and liquidity risk, please refer to Note 8 on pages 68-72.

Corporate governance

From 1 July 2008, Medivir applies the Swedish Code of Corporate Governance, see Corporate Governance Report on page 40.

AGM 2012

The Annual General Meeting will be held at 2 p.m. on Thursday, 10 May at the Polstjärnan Conference Center, Sveavägen 77, Stockholm, Sweden. Shareholders wishing to participate should firstly be included in the share register maintained by Euroclear Sweden AB (formerly VPC) by no later than Friday 4 May and secondly notify

CHRISTINA KASSBERG EVP Finance & Administration Phone +46 (0)8 546 831 69 christina.kassberg@medivir.se

the company at the address Medivir AB, Blasieholmsgatan 2, 111 48 Stockholm, Sweden or by telephone on + 46(0)8 407 6430. The company must have received this notification by no later than Friday 4 May. Updated information on the AGM is available at the company's website, www.medivir.se.

Proposed appropriation of profits

The Board of Directors and Chief Executive Officer propose that retained profits, sek 148,484,729, are carried forward.

Dividends

The Board of Directors proposes that no dividends are paid for the financial year 2011.

The Medivir share

The Medivir share

Medivir's class B share was floated on the Nasdaq OMX Stockholm Stock Exchange on 14 November 1996; the high-vote class A share is not listed..

Share structure, earnings per share and equity

At the end of the period, Medivir had 31,253,827 (28,593,229) shares divided between 660,000 (660,000) class A and 30,593,827 (27,993,229) class B shares with a nominal value of sek 5. The average number of shares in the period was 29,293,528. All shares are equally entitled to Medivir's assets and profits. Class A shares have ten votes and class B shares one vote. The share capital at the end of the period was sek 156.3 (143.0) m, and equity was sek 1,095.6 (607.3) m.

Basic and diluted earnings per share, based on a weighted average number of outstanding shares, was sek 3.80 (-5.43). Equity per share was sek 35.05 (21.24). The equity ratio was 80.7 (83.7)%.

For a review of Medivir's financial risks and the principles applied for financial risk management, see Note 8 on page 68-72, "Financial Risks."

Share structure, 31 December 2011

Share class	No. of shares	No. of votes	% of capital	% of votes	Shares after full exercise of options
A 10 votes	660,000	6,600,000	2.1	17.7	660,000
B 1 vote		30,593,827 30,593,827	97.9	82.3	31,370,460
Total	31,253,827	37,193,827 100.0 100.0			32,030,460

Share price performance and turnover in 2011

In 2011, Medivir's share price fell by 53% from sek 141.25 to sek 66.50. In the same period, the Nasdaq OMX Stockholm Small Cap index (OMX-SSCPI) fell by 25%. At year-end 2011, Medivir's market capitalization was sek 2,035 m, based on a closing price of sek 66.50. In 2011, the turnover of Medivir shares on Nasdaq OMX Stockholm was 24,218,238 equivalent to a turnover rate of 83%, compared to 96% for Nasdaq OMX Stockholm. On 29 February 2012, the share price was sek 66.25, equivalent to market capitalization of sek 2,026 m.

Beta value

As of 31 December 2011, Medivir's class B share had a beta value of 1.21. This value is based on historical closing prices on the last trading day of each of the preceding 24 months. The same measure is applied on the Nasdaq OMX Stockholm All-share Index, and provides an indication of the extent to which a share price fluctuates against an index. If a share has the same price variation as the index, its beta value is 1.0; if it has been more volatile, its value is greater than 1.0, and vice versa.

Dividend policy

A proposal on dividends will not be raised until longterm profitability can be expected through new product launches on the market.

Warrants and stock options

The purpose of option plans is to promote the company's long-term interests by motivating and rewarding the company's senior management and other staff. As of the reporting date, Medivir has two outstanding staff stock option programs, see table below.

At the beginning of 2011, there were two outstanding option plans divided over a total of 803,647 outstanding options. In the period, 91,140 options were converted in the 2007 plan which increased share capital by sek 0.5 m and other paid-in capital by sek 5.6 m. The number of outstanding options at the end of the period was 712,507, corresponding to 776,633 class B shares. The number of outstanding options corresponds to approximately 2.5% of the capital and approximately 2.1% of the votes and upon full conversion, could increase equity by sek 78.1 m, and accordingly, the total number of shares could amount to 32,030,460. The conversion terms for the option plans were restated after the preferential rights issue in the second quarter 2010. The options from the 2007 and 2010 programs confer the right to conversion of 1.09 share per option. The exercise prices for the option plans have also been recalculated.

For more information on Medivir's stock option programs, see Note 5 on pages 65-67 and the following table.

Outstanding option plans, 31 December 2011

Type	Duration Number		Exercise price,	Rights to no. of shares	Outstanding shares today and at full conversion
No. of shares					31,253,827
Stock opt.	2007-2012 318,107		61.20	346,737	346,737
Opt. progr.	2010-2013 394,400		132.30	429,896	429,896
Total		712,507		776,633	32,030,460

Shareholder agreement and pre-emption

There is an agreement between holders of class A shares in Medivir, stipulating that the parties will behave in accordance with decisions reached on relevant issues by the parties prior to annual general meetings. If, during their consultative deliberation, the parties are unable to agree on a particular issue, the resulting decision is that opinion represented by the majority of class A share votes represented during the consultation process. Furthermore, the agreement implies that if holders of class A shares wish to transfer their class A shares to another holder of class A shares or a third party, the shares will be reclassified as class B shares. The same applies if a party acquires class A shares of Medivir in any other way. If a majority of the holders of class A shares so decide, the class A shares will have the facility for transfer to a new owner without reclassification, at which point the new owner will become party to the applicable shareholders' agreement for holders of class A shares. For class A shares, preemptive rights apply pursuant to the Articles of Association.

Medivir's 15 largest shareholders, 30 December 2011*

Name	Class A shares	Class B shares	% of votes	% of capital
Bo Öberg	284,000	262,475	8.3	1.8
Nils Gunnar Johansson	284,000	76,575	7.9	1.2
Staffan Rasjö		2,282,582	6.1	7.3
Skandia Fonder		1,485,480	4.0	4.8
Tredje AP-fonden		1,200,660	3.2	3.8
AFA Försäkring		1,128,959	3.0	3.6
Fidelity Funds Northern Trust		1,054,439	2.8	3.4
Alecta Pensionsförsäkring		1,000,000	2.7	3.2
Länsförsäkringar Fonder		970,372	2.6	3.1
Christer Sahlberg	92,000	29,881	2.6	0.4
Pictet & Cie		898,469	2.4	2.9
DnB Carlsson Fonder		798,637	2.2	2.6
Unionen		704,200	1.9	2.3
Banque Carnegie Luxembourg		663,679	1.8	2.1
Handelsbanken Fonder		599,177	1.6	1.9
Total 15 largest
shareholders	660,000	13,155,585	53.1	44.2
Total other shareholders		17,438,242	46.9	55.8
Total	660,000	30,593,827	100	100
Total class A and B shares		31,253,827
Total number of votes		37,193,827

* Source: VPC Analys, register of shareholders. The table may include composite data from multiple entries in VPC's statistics. These composite entries are intended to indicate an institution's or private investor's total holdings in Medivir. Such composite entries are not utilized in other tables relating to the Medivir share.

Share and shareholder structure

Year	Transaction	Nominal amount, sek	Change in share capital, sek	Total share capital, sek	Total no. of class A shares	Total no. of Class B shares	Total no. of shares
	1988/89 Incorporation	10		50,000	5,000		5,000
	New share issue 1:1	10	50,000	100,000	10,000		10,000
	New share issue 3:1	10	300,000	400,000	10,000	30,000	40,000
1991/92	Bonus issue 1:1	10	400,000	800,000	20,000	60,000	80,000
	New share issue 1:8	10	100,000	900,000	22,500	67,500	90,000
	1992/93 Bonus issue 4:1	10	3,600,000	4,500,000	112,500	337,500	450,000
	1994/95 Non-cash issue 1:7	10	2,250,000	6,750,000	112,500	562,500	675,000
1996	Bonus issue 3:1	10	20,250,000	27,000,000	450,000	2,250,000	2,700,000
	Split 2:1	5		27,000,000	900,000	450,000	1,350,000
	Reclassification of class B shares	5		27,000,000	740,000	4,660,000	5,400,000
	New share issue 598:2700 at a subscription price of sek 125 sek	5	5,980,000	32,980,000	740,000	5,856,000	6,596,000
1997	Reclassification of class B shares	5		32,980,000	660,000	5,936,000	6,596,000
1999	Non-cash issue	5	295,110	33,275,110	660,000	5,995,022	6,655,022
2000	Private placement	5	7,025,000	40,300,110	660,000	7,400,022	8,060,022
	Non-cash issue	5	475,000	40,775,110	660,000	7,495,022	8,155,022
	Exercise of options 1996-2001	5	665,000	41,440,110	660,000	7,628,022	8,288,022
2001	Exercise of options 1996-2001	5	500	41,440,610	660,000	7,628,122	8,288,122
2002	Private placement	5	1,507,390	42,948,000	660,000	7,929,600	8,589,600
2004	New share issue 2:1	5	21,498,410	64,446,410	660,000	12,229,282	12,889,282
	Exercise of options 2002-2007	5	66,645	64,513,055	660,000	12,242,611	12,902,611
2007	New share issue 5:3	5	38,707,830	103,220,885	660,000	19,984,177	20,644,177
	Exercise of options 2002-2007	5	996,850	104,217,735	660,000	20,183,547	20,843,547
2010	New share issue	5	26,219,390	130,437,125	660,000	25,427,425	26,087,425
	Private placement	5	11,250,000	141,687,125	660,000	27,677,425	28,337,425
	Exercise of options 2005-2010	5	921,650	142,608,775	660,000	27,861,755	28,521,755
	Exercise of options 2007-2012	5	357,370	142,966,145	660,000	27,933,229	28,593,229
2011	Exercise of options 2007-2012	5	496,705	143,462,850	660,000	28,032,570	28,692,570
	Non-cash issue	5	12,806,285	156,269,135	660,000	30,593,827	31,253,827

Shareholder statistics as of 30 December 2011*, by size of holding

Shareholder categories, 30 December 2011*

Size of holding	No. of share holders	No. of class A shares	No. of class B shares	% of capital	% of votes
1-100	5,162		198,452	0.6	0.5
101-1 000	4,263		1,593,525	5.1	4.3
1 001-5 000	869		1,845,779	5.9	5.0
5 001-20 000	203		1,990,929	6.4	5.3
20 001-100 000	81		3,773,326	12.1	10.2
100 001-	57	660,000	21,191,816	69.9	74.7
Total	10,635	660,000	30,593,827	100.0	100.0

	% of votes	% of capital	No. of share holders
Swedish institutions	37.05	44.09	645
Foreign institutions	23.29	27.72	368
Swedish private investors	39.45	27.94	9,530
Foreign private investors	0.21	0.25	92
Total	100.0	100.0	10,635

* Source: VPC Analys.

Management

MARIS HARTMANIS

Born in 1953. Ph.D. in Biochemistry and Associate Professor at the Royal Institute of Technology, Stockholm. President and CEO at Medivir and CEO of BioPhausia. Employed in 2011. More than 25 years within the Life Science industry in senior positions at companies like BioPhausia, Gambro, Amersham and Pharmacia. Medivir shareholding: 10,000 class B.

EVA ARLANDER

Born in 1964. Pharmacist, Ph.D. in Medical Science. Executive Vice President Commercial. Project Manager of Xerclear. Medivir employee since 2004. Previous positions include Project Manager and Manager of AstraZeneca's clinical research operation. Medivir shareholding: 0. Stock options 2007–2012: 10,000.

Option program 2010-2013: 9,500 warrants, 9,500 stock options.

CHARLOTTE EDENIUS

Born in 1958. MD and PhD (Karolinska Institutet, Stockholm). Executive Vice President R&D. Medivir employee since 2010. Previously Senior Vice President Preclinical and Clinical R & D, Orexo, Chief scientific Officer at Biolipox and various positions within Clinical R&D AstraZeneca, Södertälje. Medivir shareholding (family): 3,100 class B. Option program 2010-2013: 2,000 warrants, 2,000 stock options.

CHRISTINA KASSBERG

Born in 1968. B.Sc. (Econ.) Executive Vice President Finance & Administration. Medivir employee since 2000. Previously Controller of Medivir AB, Accounting Manager at Skandia Link Multifond and Auditor at Öhrlings PricewaterhouseCoopers. Medivir shareholding (family): 13,367 class B. Option program 2010-2013: 9,500 warrants, 9,500 stock options.

JENS KRISTENSEN

Born in 1958. Executive Vice President Clinical. MD from Denmark and PhD from the University of Uppsala. Medivir employee since 2011. Previously Chief Medical Officer and VP Clinical Development at Karo Bio AB and Melacure AB and before that various positions within Neuroscience R&D at Astra-Zeneca. In total 13 years within the medical industry and 15 years of clinical experience. Board certified specialist in Anaestesia, Intensive Care and Pharmaceutical Medicine.

Medivir shareholding: 1,000 class B.

REIN PIIR

Born in 1958. B.Sc. (Econ.) Executive Vice President Corporate Affairs & IR. Medivir employee since 2000. Previously senior positions include Healthcare & Research at D. Carnegie AB and Research & Strategy at SPP. Medivir shareholding: 0. Option program 2010-2013: 9,500 warrants, 9,500 stock options.

PAUL WALLACE

Born in 1962. Ph.D. University of Cambridge. Executive Vice President Business Development. Employed since 2000. Previously Business Development Manager at Peptide Therapeutics plc and Director of Research at Eclagen, both in the UK. Medivir shareholding: 0. Stock options 2007-2012: 22,000. Option program 2010-2013: 9,500 warrants, 9,500 stock options.

HÅKAN WALLIN

Born 1962. BA from Stockholm University and CEFA from Stockholm School of Economics. Executive Vice President Corporate Development. Employed since 2010. Previous appointments: Chairman of Aerodyn AB, member of the Board of Directors and CEO of Libertas Capital Nordic AB, partner and head of life-science at ABG Sundal Collier AB's Corporate Finance department, Senior Manager at Ernst & Young's Corporate Finance department, and auditor at Arthur Andersen AB. Medivir shareholding: 2,600 class B. Option program 2010-2013: 9,500 warrants, 9,500 stock options.

Corporate Governance Report

The Medivir group consists of 14 companies, which conduct operations in three countries. The parent company of the group is the Swedish public limited company, Medivir AB, whose shares are quoted on Nasdaq OMX Stockholm.

Good corporate governance is an essential component in the work behind creating value for Medivir's shareholders. The objective is to create good prospects for an active and responsible ownership role, a well-balanced division of responsibility between the owners, Board of Directors and management, and transparency towards owners, the capital markets, employees and wider society.

The figure to the right illustrates Medivir's corporate governance model and how the central bodies operate.

External regulation

As a Swedish public limited company with securities quoted on Nasdaq OMX Stockholm, Medivir is obliged to comply with a variety of different regulations that impact on the company's governance. The most important external regulations include:

• The Swedish Companies Act
• Accounting regulations
• Nasdaq OMX Stockholm's Rules for Issuers
• The Code of Corporate Governance

Compliance with applicable regulations for stock market trading

No breaches of existing stock market rules occurred, and Medivir's operations were conducted in accordance with generally accepted practice on the stock market.

Compliance with the Swedish Code of Corporate Governance

Medivir has applied the Code of Corporate Governance since 1 July 2008, and has undertaken to follow best practice with regards to corporate governance wherever possible. This includes continuing to comply with the Code of Corporate Governance. Medivir has deviated with the Code of Corporate Governance in respect of the number of members of the Audit Committee, with more information under 'Audit committee' below. Information on the Code of Corporate Governance is available at www.bolagsstyrning.se.

Internal regulations

For compliance with laws and regulations and to satisfy the high ethical standards we apply to Medivir ourselves, Medivir also has internal regulations including:

Medivir's corporate governance model

** Appointed 1st September 2011.

* Ron Long resigned 26 September. *** Up to and including 1st September.

• Articles of Association
• Board of Directors' Rules of Procedure and CEO's Instructions
• Board Committee Rules of Procedure
• Remuneration Guidelines for Senior Managers
• Finance Policy
• IT Policy
• Accounting and HR Handbook

Significant events in 2011

• On 1 June, Medivir reported the completion of the public take-over bid of BioPhausia AB. BioPhausia was de-listed from the Stockholm Stock Exchange on 15 July 2011.
• Maris Hartmanis was appointed as Deputy CEO and Chief Operating Officer (COO) and as a new member of Group Management on 1 September 2011.
• Bertil Samuelsson was appointed as Chief Scientific Adviser (CSA) on 1 September 2011, and thus left Group Management after 11 years' service as Vice President of Discovery Research.
• Charlotte Edenius was appointed Executive Vice President of Research & Development on 1 September 2011. Charlotte Edenius was already a member of Group Management.

• Jens D. Kristensen was hired as Executive Vice President of Clinical and became a new member of Group Management.

• Ron Long left Medivir on 26 September after approximately 2½ years as CEO and President.

• He simultaneously resigned his Board and Committee positions with Medivir.
• Maris Hartmanis was appointed CEO and President effective 26 September 2011.

The share and shareholders

Medivir's class B shares have been traded on Nasdaq OMX Stockholm's main market since 1996. The class A shares are not quoted. All shares are equally entitled to participation in Medivir's assets and profits. Class A shares have ten votes per share and class B shares have one vote per share. Class A shares are covered by a preemption clause in the Articles of Association and a conversion clause, whereby class A shares may be converted to class B shares. At shareholders' meetings, each party entitled to vote may vote for the full number of shares held and represented without limitation.

Medivir's share capital was sek 156.3 (143.0) m at year-end, divided between 31,253,827 (28,593,229) shares, each with a nominal value of sek 5. The closing price at year-end was sek 66.50 (141.25) per share, equating to market capitalization of sek 2,035 (3,996) m.

At year-end there were 10,635 (6,601) shareholders, of which 9,425 (5,517) had holdings of 1,000 shares or less. Bo Öberg was the largest shareholder in terms of voting rights, followed by Nils-Gunnar Johansson and Staffan Rasjö. 88.6% (83.5) of shareholders held 1,000 shares or less and the ten largest shareholders held 29.1% (36.4) of the total number of shares and 40.4% (33.5) of the total number of votes. Foreign shareholders held 27.97% (30.0) of total equity. For more information about ownership structure, see 'the Medivir share' on page 36.

Decision-making at shareholders' meetings

Medivir's shareholders exercise their right of decision at shareholders' meetings (Annual General Meeting and, when invoked, Extraordinary General Meetings). Most of the decisions at shareholders' meetings are taken with a simple majority. However, in certain cases the Swedish Companies Act prescribes that decisions are reached by a qualified majority.

Annual General Meeting

Shareholders exercise control over the company at the Annual General Meeting (AGM), or where applicable, Extraordinary General Meetings (EGM), which are Medivir's chief decision-making body. The AGM is held within six months of the end of the financial year. The AGM resolves on issues including election of the Board

of Directors and Chairman of the Board, appoints Auditors, resolves on the adoption of income statements and balance sheets, resolves on appropriation of the company's profits and discharging the Board members and CEO from liability, resolves on the Nomination Committee and its work, and guidelines for remunerating senior managers. Information on the company's previous AGMs is available at the company's website. There is also information on shareholders' entitlement to have matters considered at the AGM, and when Medivir should have received shareholders' requests for such matters for consideration.

Annual General Meeting 2011

The AGM 2011 was held on 5 May 2011. 78 (38) shareholders attended the meeting, personally or by proxy, representing some 42.40% (53.8) of the votes. Attorneyat-Law Erik Sjöman was elected Chairman of the Meeting. All Board members elected by the Meeting attended. The minutes from the AGM are available from Medivir's website. Matters the Meeting resolved on included:

• Re-election of the Board members Göran Pettersson, Björn C. Andersson, Anna Malm Bernsten, Ingemar Kihlström and Ron Long (CEO).
• Re-election of Chairman of the Board Göran Pettersson.
• Board of Directors' fees for the period until the next
• AGM of a maximum of sek 1,520,000 divided as follows. – Chairman of the Board: sek 450,000
• Other Board members not employed by the company: sek 200,000 each
• Chairman of the Audit Committee: sek 80,000
• Other members of the Audit Committee: sek 65,000 each
• Chairman of the R&D Committee: sek 80,000
• Other R&D Committee members not employed by the company: sek 65,000 each
• Chairman of the Remuneration Committee: sek 65,000
• Other Remuneration Committee members not employed by the company: sek 50,000 each
• As before, Auditors' fees for the period until the next AGM would be payable according to open account.
• Guidelines for remunerating senior managers.
• Procedures for the Nomination Committee's appointment and work.
• Authorizing the Board of Directors to decide on the new issue of class B shares at a total not exceeding 10% of the total number of outstanding class B shares of the company after utilizing this authorization on one or more occasions before the next AGM, with or waiving shareholders' preferential rights.*

*This authorization has not been utilized.

Extraordinary General Meeting 2011

An Extraordinary General Meeting (EGM) was held on 5 May 2011. The minutes of this shareholders' meeting are on Medivir's website. Some of the resolutions reached by the meeting were:

To authorize the Board of Directors to decide on the new issue of class B shares on one or more occasions before the next AGM, with the right and obligation to pay for the new shares through transfer (in kind) of shares of BioPhausia AB (publ) shares to Medivir, because of Medivir's public take-over bid.

Annual General Meeting 2012

Medivir's AGM 2012 will be held on 10 May at the Polstjärnan Conference Centre, Stockholm, Sweden on 10 May. Shareholders that wish to have a matter considered by the AGM should submit their written request to the Board of Directors in good time prior to the Meeting. More information is available on Medivir's website.

Nomination Committee

The Nomination Committee procedure adopted at the AGM 2011 involves;

• The Chairman of the Board contacting the three largest shareholders in terms of the number of votes at the end of the third quarter of the year, who are offered the opportunity to each appoint a representative to a Nomination Committee.
• If any of these shareholders declines the entitlement to appoint a representative, this entitlement transfers to that shareholder with the largest shareholdings after these shareholders.
• According to this procedure, the Chairman of the Board should also be a member of the Nomination Committee. The Nomination Committee should select a Chairman internally to lead its work.

The Nomination Committee should prepare proposals for electing and remunerating the Board of Directors and Chairman of the Board, and where applicable, Auditors, and methods for appointing a Nomination Committee and its Chairman should be submitted to the AGM for resolution. Shareholders may submit proposals for the Nomination Committee through means including e-mail to valberedning@medivir.se. The names of shareholders' representatives on the Nomination Committee are published by no later than six months prior to the AGM.

Members of the Nomination Committee

The current Nomination Committee consists of the Chairman of the Board and three members appointed by the three largest shareholders in terms of the votes as of 30 September 2011:

• Anders Algotsson, Chairman and representative of AFA Försäkring
• Caroline af Ugglas, representative of Skandia Liv
• Bo Öberg, representative of class A shareholders
• Göran Pettersson, Chairman of Medivir

Nomination Committee for the AGM 2012

Name	Representing	Prop. of votes, % 30 Sep. 2011
Caroline af Ugglas	Skandia Liv	3.44
Anders Algotsson	AFA Försäkring	3.04
Bo Öberg	Class A shareholders	18.74
Göran Pettersson	Medivir's Board of Directors	0.03
Total		25.25

Nomination Committee duties

Over the years, the duties of the Nomination Committee have changed to satisfy the standards of the Swedish Code of Corporate Governance. However, the primary duty of the Nomination Committee remains to propose candidates for election to the Board of Directors. To do this, the Nomination Committee must stay informed on the group's strategy and its future challenges in order to be able to judge which competence and experience are necessary for Board members. Moreover, the Nomination Committee must consider all applicable rules governing the non-affiliation of Board members. In addition, the Nomination Committee consults on proposals for AGM resolutions regarding remuneration and fees to:

• Non-employed Board members elected by the AGM
• The auditor
• Members of the Nomination Committee.

Until the present, the Nomination Committee has not proposed that any remuneration should be paid to its members. The Nomination Committee proposes candidates for auditor jointly with the Board of Directors' Audit Committee.

The Nomination Committee should also propose a candidate for election as Chairman of the AGM.

Work of the Nomination Committee for the AGM 2012

The work of the Nomination Committee commences with a review of a checklist of all the duties the Nomination Committee should conduct as defined by the Swedish Code of Corporate Governance, and the Rules of Procedure of the Nomination Committee, which are adopted at the AGM. In addition, a schedule

Name	Appointed	Born	Function	Remuneration Committee	Audit Committee	R&D Committee	Affiliated to management and major shareholders
Björn C Andersson	2008	1946	Member		Chairman		No
Ingemar Kihlström	2008	1952	Member	Chairman		Member	No
Ron Long*	2007	1947	Member			Chairman	Yes
Anna Malm Bernsten	2006	1961	Member	Member	Member		No
Göran Pettersson	2008	1945	Chairman				No

Composition of the Board of Directors, May 2011 - May 2012

* Ron Long is affiliated to the company due to his employment as Medivir's CEO. Ron Long resigned on 26 September 2011.

Board members' attendance in 2011*

Name	Function	Board meetings	Remuneration Committee	Audit Committee	R&D Committee
Björn C Andersson	Member	23/23		6/6
Ingemar Kihlström	Member	22/23	4/4		2/2
Ron Long**	Member	11/18			1/1
Anna Malm Bernsten***	Member	14/23	4/4	6/6
Göran Pettersson	Chairman	23/23

* If a member was prevented from participating in a Board meeting, they had the opportunity of presenting their views to the Chairman before the meeting. ** Ron Long resigned on 26 september 2011.

*** Anna Malm Bernsten did not participate in the Board of Directors' consultations and decision-making regarding the purchase of BioPhausia AB.

is set for the work to be conducted. A good understanding of Medivir's operations is decisive for the members of the Nomination Committee to perform their duties.

The Chairman of the Board is responsible for appraising the work of the Board of Directors including individual members' efforts annually. The Nomination Committee has been kept closely informed of the results of these appraisals, including the appraisal of the Chairman of the Board. Based on this information, the Nomination Committee can judge which competence and experience are necessary for Board members.

In addition, the Nomination Committee has received the group's and Audit Committee's appraisal of the quality and effectiveness of the work of the auditor, including recommendations for auditors and audit fees. By 26 March 2012, the Nomination Committee had held four meetings, which all members attended. The Nomination Committee's complete proposals for the AGM 2012 were published in tandem with the invitation to the AGM.

Board of Directors

The Board of Directors bears ultimate responsibility for Medivir's organization and administration of the company's operations and has the overall duty of administering the company's affairs on behalf of the shareholders in the best manner possible. The Board of Directors sets the guidelines and instructions for day-to-day operations led by the CEO and President. In turn, the CEO and

President ensures that the Board of Directors is kept regularly informed of events that are significant to the group. This includes the progress of the group and the group's results of operations, financial position and liquidity.

In accordance with the Articles of Association, the Board of Directors should consist of a minimum of three and a maximum of ten members, with a maximum of two deputies.

Members serve, effective from the end of the AGM when they are elected until the end of the succeeding AGM. There is no limit to the number of consecutive periods a member may serve on the Board of Directors.

The CEO may be elected to the Board of Directors, but according to the Swedish Companies Act, the CEO of a public company may not be appointed as Chairman of the Board.

Composition of the Board of Directors

The Board of Directors elected by the shareholders at the AGM 2011 for the period until the end of the AGM 2012 consisted of five members including the Chairman of the Board. Ron Long resigned on 26 September 2011, whereupon the Board of Directors had four members including the Chairman of the Board. Ron Long was the only Board member who was also a member of Medivir's management in 2011. For a review of the Board members, see page 48.

Rules of Procedure

In accordance with the Swedish Companies Act, each year, the Board of Directors adopts written Rules of Procedure that clarify the Board's responsibilities and formalize the Board's and its Committees' internal division of responsibility including the role of Chairman, decisionmaking processes within the Board, the Board's meeting schedule, invitations to Board meetings, agendas and minutes. The rules of procedure also formalize how the Board should receive information and documentation as supporting data for its work, to be able to reach well-founded decisions. The Board also adopts written instructions for the Chief Executive Officer each year, which clarify the CEO's responsibility for ongoing administration, reports to the Board and their content, requirements of internal control instruments and other matters that require the Board's decision or notification to the Board.

According to the Rules of Procedure, a Board meeting following election should be held immediately after the AGM. In addition, the Board of Directors normally holds at least six scheduled meetings each year. Four of these are held in conjunction with publication of the group's annual and interim financial statements. At least one meeting deals with the research portfolio, and at least one meeting deals with specific strategy issues. Budgets and financial prospects are dealt with during the final month of the calendar year. Additional meetings, including telephone conferences, are held as necessary.

Non-affiliation

Several different types of non-affiliation requirement apply to the Board of Directors and its committees. Medivir applies the non-affiliation standards of applicable Swedish legislation, the Swedish Code of Corporate Governance and NASDAQ's stock exchange rules. The Board of Directors' composition satisfies all applicable requirements of non-affiliation.

For the AGM 2011, in accordance with the standards of the Swedish Code of Corporate Governance, the Nomination Committee's judgment was that four of the members proposed as Board members were non-affiliated to Medivir, its management and major shareholders. These four people are: Göran Pettersson, Björn C. Andersson, Anna Malm Bernsten and Ingemar Kihlström.

Board of Directors' duties

The primary duty of the Board of Directors is to manage the group's operations on behalf of the shareholders in such a way that shareholders' interests in terms of good,

long-term returns on capital are satisfied in the best possible way. The Board of Directors' work is regulated through the Swedish Companies Act, the Articles of Association, the Code and the Rules of Procedure that the Board of Directors has adopted for its work. Medivir's Articles of Association are available at the company's website.

The Board of Directors manages and decides on overall group issues such as:

• Primary goals
• Strategic orientation
• Essential issues relating to finance, investment, acquisitions and divestments
• Following up and controlling operations, corporate communications and organizational matters, including appraising the group's executive management
• Election of, and where required, termination of, the company's CEO
• Overall responsibility for preparing effective systems for internal control and risk management
• Important policies.

The Board of Directors' work in 2011

In 2011, the Board held 23 meetings where minutes were taken. All meetings in the year conformed to an approved agenda, which was supplied to members before meetings, with documentation for each item on the agenda. Normally, each scheduled Board meeting lasts half a day to provide time for presentations and discussions. An appointed lawyer served as secretary at all Board meetings. The CEO attended the majority of Board meetings.

Other Medivir employees reported at Board meetings as required. Each scheduled Board meeting includes a review of current business conditions, the Group's results of operations and financial position as well as prospects for the remainder of the year. Reports on the work of Committees by the Chairmen of each Committee are usually dealt with at each board meeting. The work of the Board of Directors was intensive in the year, with more Board meetings than usual, which largely focused on:

• Acquisitions
• Finance issues and the Group's capital structure
• Strategic focus
• Financial performance
• Research and pharmaceutical development
• Partnerships and collaborations
• Major investments and commitments
• Interim reports, financial statements and annual accounts.

Board committees

There are three consultative committees within the Board of Directors: the Remuneration Committee, Audit Committee and R&D Committee.

Remuneration Committee

The Remuneration Committee is appointed by the Board and should consist of a maximum of four members. In 2011, the Remuneration Committee had the following members: Ingemar Kihlström (Chairman) and Anna Malm Bernsten. The Committee is advisory and is not entitled to take decisions.

The primary duty of the Remuneration Committee is to represent the Board in matters relating to remuneration and employment terms for the CEO and senior managers that report directly to him based on the principles of remuneration and employment terms for the CEO and other senior managers resolved by the AGM. The Committee continuously reports on its work to the Board. In 2011, the Remuneration Committee held four meetings where minutes were taken that all members attended. In addition, the Committee held a number of consultations by telephone and email. Largely, the Committee focused on:

• Review of proposals for a new program for short-term performance-related pay.
• Review of proposals on salary and benefits for senior managers for 2011.

Audit Committee

The Audit Committee is appointed by the Board and should consist of a maximum of four members. In 2011, the Audit Committee had the following members: Björn C Andersson (Chairman) and Anna Malm Bernsten. Both members are non-affiliated and possess audit competence. The Committee is advisory to the Board and is not entitled to take decisions.

The primary duty of the Audit Committee is to support the board in its work on the company's risk management, governance and internal controls and to quality-assure financial reporting. The Committee considers significant auditing issues that the Group is affected by, meets the company's Auditors on an ongoing basis and appraises the audit process. The Committee also supports the Nomination Committee when preparing proposals for Auditors, their remuneration and approves which supplementary services the company may purchase from its external Auditors. The Chairman of the Audit Committee is responsible for the whole Board being kept continuously informed on the Committee's work, and where necessary, submits matters for decision to the Board.

In 2011, the Audit Committee held six meetings where minutes were taken that all members attended. Largely, the committee focused on:

• The scope and accuracy of the financial statement.
• Reviewing the company's risk management, governance and internal controls
• Reviewing the key policies
• Significant audit issues
• Reviewing reports from the company's Auditor elected by the AGM including the Auditor's audit plan

According to the Code of Corporate Governance, the Audit Committee should consist of at least three Board members. In 2011, Medivir chose not to comply with this stipulation, because the Board considers that Björn C Andersson and Anna Malm Bernsten have the required competence to perform the Committee's duties.

R&D Committee

The R&D Committee is appointed by the Board and should consist of a maximum of four members. Up until 26 September 2011, the R&D Committee was comprised of Ron Long (Chairman) and Ingemar Kihlström. Because on 26 September, Ron Long left his position as CEO and President of Medivir, he also resigned his Board position and position on the R&D Committee.

The Committee is advisory and is not entitled to take decisions, over and above what is stated below. The primary duty of the R&D Committee is to review Medivir's research portfolio and provide the Board of Directors with decision-support data for the strategic orientation of the R&D portfolio. In addition, the R&D Committee should:

• Approve project start-ups at the start of lead optimization.
• Advise management on complex scientific issues.

In 2011, the R&D Committee held two meetings when minutes were taken, which all members sitting at the time attended.

Group Management

The Board of Directors appoints the CEO and President, and where necessary, the Chief Operating Officer. In Medivir, the CEO and President is the same person. The CEO leads the work of Group Management and is responsible for operating activities jointly with Group Management in accordance with the Swedish Companies Act, other laws and ordinances, applicable rules for listed companies, the Articles of Association and the CEOs Instructions. Group Management consists of eight people, including the CEO, and has a broad composition

of individuals with in-depth, thorough experience of the research and development, marketing and sales of pharmaceuticals. Management also possesses the necessary skills in accounting, finance and corporate communications. For a presentation of management, see page 39. The role of Group Management is to:

• Establish a long-term vision, corporate culture and strategies and policies based on the goals set by the Board of Directors.
• Set goals for the operational units, allocate resources and monitor the results of these units.
• Produce information and documentation as supporting data for the Board of Directors to be able to take wellfounded decisions.

Medivir transforms its strategic goals into goals for the operational units. This is conducted primarily to measure:

• Progress of the research portfolio
• Financial performance and results of operations per operational unit
• Employee satisfaction and influence.

Goals for the coming year are updated on the basis of yearly strategy work. Goals are set for each unit and communicated through the whole organization and constitute a management tool for adapting the goals of operational units and employs to the company's goals, and to monitor fulfillment of goals and monitor identified risks.

Medivir has two dimensions. The legal entities of 14 companies, which are active in three countries, and the operational units organized into two business areas: Pharmaceuticals and Parallel Import. The Pharmaceuticals business area includes the group's research portfolio and the original pharmaceuticals that BioPhausia has unlimited ownership of. The Parallel Import business area conducts the parallel import of pharmaceuticals.

Election of auditors

The duties of the Nomination Committee include proposing an auditor to the AGM. Medivir's auditor is authorized public accounting firm Pricewaterhouse-Coopers, with Auditor-in-Charge Claes Dahlén. PricewaterhouseCoopers was elected by the AGM 2008 for a period of four years. This agreement runs until its expiry in 2012, and subsequently, from the AGM 2012 onwards, auditors will be elected for one year.

The work of the auditors:

• The auditors work according to an audit plan, which obtains the views of the Audit Committee and the Board of Directors, and reports its observations continuously to the Audit Committee and to the Board of Directors partly during the process of the audit, and partly in tandem with adopting the annual accounts.

• Reviewing interim reports and annual financial statements to judge their accuracy, completeness and the consistency of the accounting records with generally accepted accounting practice and relevant accounting principles.
• The auditors also participate at the AGM, where they review their audit work and any observations.

In the fourth quarter of 2011, PricewaterhouseCoopers replaced audit firm Ernst & Young as auditor of the BioPhausia group. In 2011, all Medivir's interim reports were reviewed by the auditor.

Apart from auditing, Medivir also consulted PricewaterhouseCoopers on tax issues and a range of audit and finance matters. PricewaterhouseCoopers verifies its independence ahead of decisions to also offer independent advisory services to Medivir apart from its auditing assignment.

Remuneration to the Board of Directors and senior managers

Principles for remuneration

Principles for the remuneration of senior managers of Medivir are approved by the Annual General Meeting (AGM). Senior managers are the CEO and other members of the Management team.

The AGM 2011 approved the Nomination Committee's proposed guidelines for senior managers. Essentially, these guidelines are consistent with the principles adopted to date. Essentially, these guidelines mean that the company would offer total compensation on market terms that would enable the hiring and retention of skilled senior managers. Remuneration to senior managers may consist of basic salary, performance-related pay, incentive plans resolved by the AGM, pensions and other benefits. Basic salary should consider individual areas of responsibility and experience. Cash performance-related pay maybe a maximum of 50% of annual basic salary. Performance-related pay should be linked to predetermined and measurable criteria, designed with the aim of promoting the company's long-term value creation.

For more information on remuneration, see Note 5 on pages 63-67.

The Board of Directors' proposed guidelines for remuneration for the AGM 2012 are essentially consistent with those principles applied until the present. The Board of Directors' complete proposals to the AGM 2012 are stated on pages 31-32.

Remuneration to senior executives (ksek)*

Function	Year	Basic salary	Performance related pay	Severance pay	Benefits	Total	Pension	Total incl. pension
CEO	2011*	3,690	0	1,694	21	5,405	356	5,761
	2010	3,387	–	–	–	3,387	–	3,387
Other senior executives	2011**	8,818			4,906	13,724	1,940	15,664
	2010***	7,682	1,867	–	2,053	11,602	1,713	13,315
Total	2011	12,508	0	1,694	4,927	19,129	1,940	21,425
Total	2010	11,069	1,867	–	2,053	14,989	1,713	16,702

*Ron Long resigned 26 september 2011 and was replaced by Maris Hartmanis.

**In 2011, apart from the CEO, management consisted of seven people.

***At the beginning of 2010, apart from the CEO, management consisted of six people, and at the end of the year, seven people.

Directors' fees (ksek)*

		Directors' fees		Audit Committee		Remuneration Committee		R&D Committee			Total
Name	Function	2011	2010	2011	2010	2011	2010	2011	2010	2011	2010
Björn C Andersson	Member	200	185	80	80	–	–	–	–	280	265
Ingemar Kihlström	Member	200	185	–	–	65,	65	65	50	330	300
Anna Malm Bernsten	Member	200	185	65	65	50	–	–	–	315	250
Göran Pettersson	Chairman	450	435	–	–	–	50	–	–	450	485
Total		1,050	990	145	145	115,	115	65	50	1,375	1,300

* Remuneration to the Board of Directors for the period May 2011-April 2012 and for the period May 2010-April 2011, sek 000. Fees to Board members elected by the AGM are resolved by the AGM after proposal from the Nomination Committee. Fees were payable according to the above table for 2000 and 2010. No consulting fees were paid to Board members. There is no remuneration to members that are also employees of the group. Remuneration is excluding travel expenses.

Long-term incentive programs

The intention of long-term incentive programs is to promote the company's long-term interests by motivating and rewarding the company's senior managers and other employees. Each year, the Board takes decisions on proposals to the AGM for potential new long-term incentive programs and their scope, goals and number of participants.

The AGM 2007 resolved on a five-year staff stock option plan of 480,000 options. The AGM 2010 resolved on a three-year stock option plan of 394,400 share warrants and staff stock options. After vesting, these options can be exercised to subscribe for class B shares for the payment of an exercise price.

Remuneration to senior managers

Senior managers mean the CEO and other members of management. Medivir obtains and evaluates information on market remuneration levels for relevant sectors and markets on a continuous basis. In 2011 and 2010, remuneration was payable according to the table on this page.

Remuneration to the Board of Directors

Fees to the Board of Directors of Medivir are approved by the AGM subject to proposal from the Nomination Committee. Remuneration was payable according to the table on this page in 2011 and 2010.

Auditors' fees

Fees for the audit of Medivir are approved by the AGM's after the Nomination Committee's proposal. For 2011 and 2010, fees were payable as in the following table. In the 2010 figures, the balance sheet item equity also included an amount of sek 1,195,000 for auditing in addition to the audit assignment relating to new share issues.

Auditors' fees (sek 000)	2011	2010
PWC
Auditing	537	330
Auditing services over and above audit assignment	330	284
Tax advice	336	108
Other services	1,323	898
Sub-total	2,526	1,620
Ernst & Young
Auditing	553	–
Auditing services over and above audit assignment	27	–
Sub-total	580	–
Total	3,106	1,620

Board of Directors

GÖRAN PETTERSSON

Chairman of the Board. He was born in 1945 and elected to Medivir's Board in 2008. Göran is a pharmacist and market economist (IHM) and possesses long-term experience of the pharmaceutical industry in Sweden and foreign countries. He has been a self-employed life sciences consultant since 2000, and previously held senior positions with the Astra group, KabiVitrum, Pharmacia/ PharmaciaUpJohn and Meda. Göran holds several directorships in other companies and is Chairman of Axelar AB and Vivoxid Oy and a Board member of Pfizer Sweden's pension fund and Recipharm AB. Medivir shareholding (incl corp. holdings): 16,250 class B.

BJÖRN C ANDERSSON

Born in 1946, has been a Board member since 2008 and is Chairman of Medivir's Audit Committee. He is a Licentiate of Economics and former employee of Handelsbanken, where he was Deputy CEO and Head of Handelsbanken Markets, then Head of Handelsbanken Asset Management. Björn is Chairman of NAXS Nordic Access Buyout Fund AB and a Board member of Bliwa Livförsäkring, Euroben Life & Pension Ltd and Nordben Life Insurance & Pension Ltd. Medivir shareholding: 1,500 class B.

INGEMAR KIHLSTRÖM

Born in 1952. Board member since 2008 and Chairman of Medivir's Remuneration Committee and a member of its R&D Committee. Ingemar is an Associate Professor at the University of Uppsala, and is a self-employed consultant in the life sciences sector. He possesses broad experience of pharmaceuticals and business development, from the pharmaceutical industry and financial sector. Ingemar previously held senior positions with Pharmacia, Aros Securities and ABG Sundal Collier. He has several directorships in Scandinavia, including chairmanships of Creative Antibiotics AB, Hammercap AB and RecoPharma AB, and is Deputy Chairman of Diagenic ASA. Medivir shareholding (family): 5,850 class B.

ANNA MALM BERNSTEN

Born in 1961. Member of Medivir's Board since 2006. Also a member of Medivir's Audit and Remuneration Committees. Anna holds a B.Sc. and has broad experience of life sciences and is a self-employed leadership and business development consultant. Senior executive experience at GE Healthcare Life Sciences, Pharmacia, Assa Abloy, Medivir, Baxter Medical and Carmeda AB. Anna is a Board member of Birdsteep ASA, Cellavision AB, Fagerhult AB, Matrisen AB, Nolato AB and Chairman of Scientific Solutions AB and former Board member of BioPhausia AB. Medivir shareholding: 3,406 class B.

BioPhausia AB Chairman: Eva Arlander Board members: Maris Hartmanis and Christina Kassberg

Cross Pharma AB Chairman: Maris Hartmanis Board member: Christina Kassberg

Auditors

PricewaterhouseCoopers AB for 2008–2012. The Senior Auditor is Authorized Public Accountant Claes Dahlén

Board of Directors' report on internal controls

The Board of Directors' responsibility for internal controls is regulated in the Swedish Companies Act and the Swedish Code of Corporate Governance. Internal controls over financial reporting are a component of the overall internal controls of Medivir, and are a central component of Medivir's corporate governance.

Internal control over financial reporting

The overall purpose of internal controls is to obtain reasonable assurance that the company's operational strategies and goals are monitored and that shareholders' investments are protected. Additionally, internal controls should provide reasonable assurance that external financial reporting is reliable and prepared in accordance with generally accepted accounting practice, that applicable laws and ordinances are observed, and that the requirements of listed companies are observed. According to COSO framework, internal controls consist of components such as control environment, risk assessment, control activities, information and communication and monitoring.

Control environment

The company's internal control structure is based on the division of duties between the Board of Directors and its Committees, the CEO and President. The control environment is also the culture the Board of Directors and management communicate and operate from.

The company's control environment is based on:

• Control documents such as the Board of Directors Rules of Procedure and CEO's instructions, policies and guidelines.
• Corporate culture
• The company's organization and the way it conducts operations, with clearly defined roles and responsibilities and the delegation of authority.
• Group-wide planning processes such as the R&D Portfolio Review process, and the yearly budget process.

Medivir's financial reporting conforms to applicable laws and ordinances for companies listed on Nasdaq OMX Stockholm's main market. Apart from external laws and ordinances, the internal control environment includes policies and guidelines such as a finance policy, certification and authorization instructions as well as purchasing and investment policies. Internal control documents are updated regularly to capture changes to legislation. There are also checklists for significant routines and processes. Internal instructions and routines are subject to continuous enhancement. Financial statements are prepared monthly and quarterly for the Group, parent company, subsidiaries, operational units and projects. This process involves special checks that can be conducted to ensure that reports maintain high quality.

Risk assessment

Effective risk assessment integrates Medivir's business opportunities and results with the requirements of shareholders and other stakeholders for stable, long-term value growth and control. Research and pharmaceutical development to approved registration is a highly risky and capital-intensive process. The majority of projects that are started never reach market launch. If competing products take market shares or competing research projects achieve better efficacy and reach the market faster, the future value of Medivir's product and project portfolio may be lower than originally expected. Medivir's ability to produce new CDs, enter partnerships on its projects and successfully develop its projects to market launch and sustained sales, and to secure funding of its operations, are decisive to its future.

Medivir is exposed to the following main categories of risk:

• Exogenous risks such as regulatory approval, competition, price changes, external seasonal fluctuations and patent protection.
• Operating risks such as integration risk, production risk, dependency on key persons and partnerships;
• Financial risks such as liquidity, interest, currency and credit risk.

A more detailed description of exposure to risk and how Medivir manages it is provided on pages 33-35.

The risk of material misstatements in reporting may arise in conjunction with the book-keeping and measurement of assets, liabilities, revenues and expenses or non-compliance with disclosure requirements. Other risks in tandem with financial reporting include fraud, losses or embezzlement of assets or undue preference of another party at the expense of the company.

Medivir's risk assessment of financial reporting is designed to identify and evaluate the most significant risks affecting internal controls over financial reporting. Policies and guidelines for accounting and financial reporting cover segments of special significance to promote accurate and complete accounting, reporting and communication at the right time. Identified risks are managed through well-documented processes, through the clear division of duties and responsibilities and appropriate decision-making processes. This means that important transactions require special approval to ensure that assets are managed correctly.

Control activities

The primary purpose of control activities is to prevent, discover and rectify misstatements in financial reporting. Processes and activities have been structured to manage and address significant risks related to financial reporting.

These activities include analytical updates and comparisons of the progress of profits or items, reconciling accounts and balances, and approval of all business transactions and collaboration agreements, powers of attorney and certification instructions, as well as accounting and valuation policies. Access to ERP systems is largely limited by authority, responsibility and role.

There is an established controller function that conducts control activities at all levels of the company. This function analyses and monitors budget variances, prepares forecasts, investigates significant fluctuations over periods and also reports within the company, which minimizes the risk of misstatements in financial reporting.

Information and communication

Medivir has information and communication pathways intended to promote the completeness and accuracy of financial reporting. The Board of Directors approves the Group's annual accounts and financial statement and assigns the CEO to issue quarterly reports pursuant to the Board's Rules of Procedure. All financial reports are published in accordance with applicable regulations. External information is communicated through channels including Medivir's website (www.medivir.se), where quarterly reports, financial statements, annual reports, press releases and news are uploaded in chronological order. Information from press and analysts' conferences is also uploaded to the website.

The Board receives regular financial reports on the Group's financial position and results of operations. Meetings are held within the company at management level, and at the level individual units consider appropriate. The intranet is a prime internal communication channel, where policies, guidelines and information are uploaded and briefings for all staff are held on an ongoing basis.

Monitoring

The Board of Directors considers all the Group's quarterly reports, financial statements and annual reports before publication. The Board receives regular financial reports on the Group's financial position and results of operations, and the Group's financial situation is considered at every Board meeting.

The Board's monitoring of internal control of financial reporting is mainly conducted through the Audit Committee. Medivir's Auditors review operations pursuant to the audit plan and monitor parts of internal controls within the auspices of the statutory audit annually. After the audit is completed, observations are reported continuously back to the Audit Committee. The auditors also attend one Board meeting each year, where they report their observations on the audit for the year and operational routines. The practice on this occasion is to reserve time for special discussions where the CEO or other employees are not present.

The company has a simple legal and operational structure and formulated controlling and internal control systems. Against this background, the Board of Directors has chosen not to operate a dedicated internal audit process. The Board and Audit Committee evaluate and monitor the issue of the potential creation of an internal audit function on a continuous basis.

Income Statement

			Medivir Group	Medivir AB
sek 000	Note	2011	2010	2011	2010
Net sales	1	698,566	54,912	432,322	72,319
Cost of goods sold		-240,621	-770	-181	-770
Gross profit/loss		457,945	54,142	432,141	71,549
Selling expenses		-95,179	-9,517	-45,482	-9,517
Administrative expenses		-47,159	-29,533	-36,536	-28,670
Research and development costs		-184,064	-153,398	-184,064	-152,098
Other operating income		17,392	7,852	13,457	5,762
Other operating costs		-37,086	-6,273	-12,545	-6,273
Operating profit/loss	2,3,4,5,6	111,849	-136,727	166,971	-119,247
Profit/loss from participations in group companies	7	-526	–	-23,353	-18,983
Profit/loss from other securities and receivables	8	-9,133	–	-9,133	–
Other interest income and similar profit/loss items	8,9	21,134	2,532	19,750	2,532
Interest costs and similar profit/loss items	8,10	-12,118	-33	-642	-33
Profit/loss after financial items		111,206	-134,228	153,593	-135,731
Tax	11	2,545	–	–	–
Net profit/loss		113,751	-134,228	153,593	-135,731
Net profit/loss attributable to:
Equity holders of the parent		113,751	-134,228
Basic and diluted earnings per share	12	3,80	-5,43
Average number of shares, 000		29,924	24,718
Number of shares at year-end, 000		31,254	28,593
Proposed dividend per share, sek		0	0

– = not applicable

Statement of Comprehensive Income

		Medivir Group	Medivir AB
sek 000	2011	2010	2011	2010
Net profit/loss	113,751	-134,228	153,593	-135,731
Other comprehensive income
Exchange rate differences	-26	1,034	–	–
Other comprehensive income for the period, net after tax	113,725	-133,194	153,593	-135,731
Total comprehensive income for the period	113,725	-133,194	153,593	-135,731
Total comprehensive income attributable to:
Equity holders of the parent	113,725	-133,194	153,593	-135,731

Balance Sheet

			Medivir Group		Medivir AB
sek 000	Note	2011 31 dec	2010 31 dec	2011 31 dec	2010 31 dec
ASSETS
Fixed assets
Intangible fixed assets
Capitalized expenditure for research and development work		3,489	3,959	3,489	3,959
Trademarks and brands		18,112	–	–	–
Product rights		318,968	–	–	–
Goodwill		188,153	–	–	–
Other intangible assets		272	389	272	389
Total intangible fixed assets	13	528,994	4,348	3,761	4,348
Tangible fixed assets
Buildings and land		1,712	1,924	1,712	1,924
Equipment, tools, fixtures and fittings		33,909	22,887	31,477	22,887
Total tangible fixed assets	14	35,621	24,811	33,189	24,811
Financial fixed assets
Participations in group companies	15	–	–	604,312	200
Financial assets held for sale	16	9,659	18,793	9,659	18,793
Deferred tax assets	11	78,385	–	–	–
Total financial fixed assets		88,044	18,793	613,971	18,993
Total fixed assets		652,659	47,952	650,921	48,152
Current assets
Inventories	17	73,990	95	261	95
Current receivables
Accounts receivable		67,216	2,561	249	627
Receivables from group companies		–	–	3,994	410
Tax receivables		3,654	–	–	–
Other receivables		12,935	4,238	3,987	4,238
Prepaid costs and accrued income	18	10,039	23,405	5,580	22,116
Total current receivables		93,844	30,204	13,810	27,391
Investments in securities, etc.
Other investments in securities, etc.	19	425,334	418,568	425,334	418,568
Cash and bank balances	19	110,945	228,672	90,963	225,986
Total investments in securities, etc.		536,279	647,240	516,297	644,554
Total current assets		704,113	677,539	530,368	672,040
TOTAL ASSETS		1,356,772	725,491	1,181,289	720,192

– = not applicable

			Medivir Group	Medivir AB
		2011	2010	2011	2010
sek 000	Note	31 dec	31 dec	31 dec	31 dec
EQUITY AND LIABILITIES
Equity, Medivir group
Share capital		156,269	142,966
Other contributed capital		1,757,255	1,396,074
Exchange rate difference		5,766	5,792
Accumulated deficit		-823,714	-937,578
Total equity, Medivir group		1,095,576	607,254
Equity, Medivir AB
Restricted equity
Share capital				156,269	142,966
Statutory reserve				827,971	827,971
Total restricted equity				984,240	970,938
Non-restricted equity
Share premium reserve				1,100,162	738,980
Accumulated deficit				-1,105,270	-969,538
Net profit/loss				153,593	-135,731
Total non-restricted equity				148,485	-366,289
Total equity, Medivir AB				1,132,725	604,648
Long-term liabilities
Liabilities to credit institutions	20	70,041	116	41	116
Other liabilities		610	–	–	–
Total long-term liabilities		70,651	116	41	116
Current liabilities
Subordinated loan	20	62,572	–	–	–
Liabilities to credit institutions	20	32,790	75	75	75
Accounts payable		26,012	18,000	10,522	18,000
Liabilities to group companies		–	–	61	2,561
Other liabilities		12,521	4,595	4,118	4,321
Accrued costs and deferred income	21	56,650	95,451	33,747	90,472
Total current liabilities		190,545	118,121	48,523	115,429
TOTAL EQUITY AND LIABILITIES		1,356,772	725,491	1,181,289	720,192
Assets pledged	22	162,168	–	1,153	–

– = not applicable

Changes in equity

Group, sek 000	Share capital	Other contributed capital	Exchange rate difference	Accumulated deficit	Total equity	Number of shares
Opening balance, 1 January 2010	104,218	848,231	4,758	-803,351	153,856	20,843,5471)
Total comprehensive income for the period			1,034	-134,227	-133,193
New share issue	37,469	530,700			568,169	7,493,878
Conversion of options	1,279	15,440			16,719	255,804
Acquisition of options		1,637			1,637
Option plans: value of staff service		66			66
Closing balance, 31 December 2010	142,966	1,396,074	5,792	-937,578		607,254 28,593,2292)
Opening balance, 1 January 2011	142,966	1,396,074	5,792	-937,578		607,254 28,593,2293)
Total comprehensive income for the period			-26	113,751	113,725
New share issue	12,806	354,734			367,540	2,561,257
Conversion of options	497	5,830			6,327	99,341
Issue expenses		-376			-376
Option plans: value of staff service		993			993
Other adjustments				113	113
Closing balance, 31 December 2011	156,269	1,757,255	5,766	-823,714	1,095,576	31,253,8274)

1) Opening number of shares in 2010: 660,000 class A shares and 20,183,547 class B shares, quotient value: sek 5.

2) Closing number of shares in 2010: 660,000 class A shares and 27,933,229 class B shares, quotient value: sek 5.

3) Opening number of shares in 2011: 660,000 class A shares and 27,933,229 class B shares, quotient value: sek 5.

4) Closing number of shares in 2011: 660,000 class A shares and 30,593,827 class B shares, quotient value: sek 5.

Quotient value is calculated as share capital divided by total number of shares.

Proposed dividend for 2011: sek 0 per share.

Parent company, sek 000	Share capital	Statutory reserve	Share premium reserve	Accumulated deficit	Net profit/ loss for the year	Total equity	Number of shares
Opening balance, 1 January 2010	104,218	827,971	191,138	-834,555	-134,983		153,789 20,843,5471)
Appropriation of profits
Previous year's profit/loss brought forward				-134,983	134,983	0
Total comprehensive income for the period					-135,731	-135,731
New share issue	37,469		530,700			568,169	7,493,878
Conversion of options	1,279		15,440			16,719	255,804
Acquisition of options			1,636			1,636
Option plans: value of staff service, Medivir AB			66			66
Closing balance, 31 December 2010	142,966	827,971	738,980	-969,538	-135,731		604,648 28,593,2292)
Opening balance, 1 January 2011	142,966	827,971	738,980	-969,538	-135,731		604,648 28,593,2293)
Appropriation of profits
Previous year's profit/loss brought forward				-135,731	135,731	0
Total comprehensive income for the period					153,593	153,593
New share issue	12,806		354,734			367,540	2,561,257
Conversion of options	497		5,830			6,327	99,341
Issue expenses			-376			-376
Option plans: value of staff service, Medivir AB			993			993
Closing balance, 31 December 2011	156,269	827,971	1,100,161	-1,105,269	153,593	1,132,725	31,253,8274)

1) Opening number of shares in 2010: 660,000 class A shares and 20,183,547 class B shares, quotient value: sek 5.

2) Closing number of shares in 2010: 660,000 class A shares and 27,933,229 class B shares, quotient value: sek 5.

3) Opening number of shares in 2011: 660,000 class A shares and 27,933,229 class B shares, quotient value: sek 5.

4) Closing number of shares in 2011: 660,000 class A shares and 30,593,827 class B shares, quotient value: sek 5.

Quotient value is calculated as share capital divided by total number of shares.

Proposed dividend for 2011: sek 0 per share.

Cash Flow Statement

		Medivir Group		Medivir AB
sek 000	Note	2011	2010	2011	2010
Operating activities
Operating profit/loss		111,849	-136,727	166,971	-119,247
Reversal of non-cash items
Depreciation and amortization		23,434	7,875	7,938	7,875
Other reversals 1)		-34,678	-13,484	-35,291	-14,746
		100,605	-142,336	139,618	-126,118
Interest received	9	1,318	545	2,091	544
Dividend received	9	1,996	297	1,996	297
Interest paid	10	-11,806	-33	-535	-19
Tax received/paid	11	0	0	0	0
Cash flow from operating activities before changes
in working capital		92,113	-141,527	143,171	-125,295
Increase(-)/decrease(+) in inventories		32,360	524	-166	524
Increase(-)/ decrease(+) in current receivables		14,494	-2,850	-9,771	-1,430
Increase(+)/ decrease(-) in current liabilities		-81,705	66,981	-15,918	67,517
Cash flow from operating activities		57,262	-76,871	117,316	-58,683
Investing activities
Acquisitions of intangible fixed assets		-152	-306	-152	-306
Acquisitions of tangible fixed assets		-17,190	-5,462	-15,577	-5,462
Acquisitions of operations	23	-191,652	–	-235,793	–
Sales of operations	24	24,048	–	–	–
Sales of tangible fixed assets		162	0	0	0
Cash flow from investing activities		-184,784	-5,768	-251,522	-5,768
Financing activities
Conversion of options		6,080	16,719	6,080	16 719
Subscription for options		247	1,637	247	1 637
New share issue		0	606,370		606 370
Issue expenses		-376	-38,201	-376	-38 201
Borrowings		100,000	–	–	–
Repayment of loans		-90,000	–	–	–
Increase (+)/decrease (-) of long-term liabilities		535	–	–	–
Shareholders' contribution, subsidiaries		–	–	0	-18,055
Cash flow from financing activities		16,486	586,526	5,951	568,470
Cash flow for the year
Cash and cash equivalents at beginning of year		647,240	143,580	644,554	140,535
Change in cash and cash equivalents		-111,036	503,886	-128,255	504,019
Exchange rate difference, cash and cash equivalents		75	-226	–	–
Cash and cash equivalents at end of year	19	536,279	647,240	516,299	644,554

1) Reversals mainly consist of deferred income of sek -51,765,000 from 2010 (accrued income of -16,719,000) and valuation of financial instruments of sek 15,574,000 (1,643,000).

Accounting principles

Group

Medivir prepares its Consolidated Accounts in accordance with IFRS, International Financial Reporting Standards, as endorsed by the EU. This is the same standards-based regulatory structure as applied to the Annual Report for 2010. In addition to the stated IFRS, the Group also observes RFR's (Rådet för finansiell rapportering, the Swedish Financial Reporting Board) recommendation RFR 1 Supplementary Accounting Rules for Groups) and applicable pronouncements from the Swedish Financial Reporting Board. The Medivir Group presents an Income Statement classified by function, implying that operating costs are divided between costs of goods sold, cost of sales, research costs and administrative costs. The Group utilizes cost for balance sheet items unless otherwise stated.

IFRS are in constant development. During the preparation of the Consolidated Accounts as of 31 December 2011, several standards and interpretation statements were published, of which only some have come into effect. An assessment of the impact the introduction of these standards and statements has had, and may have, on Medivir's financial statements follows. Comment is confined to those amendments that have, or could have, a material effect on Medivir's accounting.

New and revised standards the Group has applied from 1 January 2011

IAS 24 (Amendment) Related Party Disclosures

Applies to financial years beginning 1 January 2011. The amendment clarifies the definition of a related party and includes relief of disclosure requirements on companies with significant state ownership. The disclosure requirements on intragroup transactions and the Group's associated companies are extended. The amendment has not implied any change to the Consolidated Accounts, because there are no associated companies within the Group at present.

The IASB's annual improvement project 2010

Several amendments were included in the annual improvement project 2010 which became effective on 1 January 2011, of which the following amendments are relevant to the Group.

IFRS 7 Financial Instruments – emphasizes the interaction between quantitative and qualitative disclosures regarding the character and scope of risks stemming from financial instruments. At present, this amendment does not imply any change to disclosures by Medivir. This amendment only affects classification and disclosure and does not affect the measurement of balance sheet items or profit or loss.

IAS 1 Presentation of Financial Statements – clarifies that a company should present a statement of each item in other comprehensive income for each component of equity, either in its statement of changes in equity or in the notes to its annual accounts. The statement is currently presented in the statement of changes in equity and this amendment does not mean any change to the presentation of Medivir's financial statements. This amendment only affects classification and disclosure and does not affect the measurement of balance sheet items or profit or loss.

Amended standards that have not come into effect and that are not adopted proactively by the Group

IFRS 9 is the first standard issued in the large-scale project to replace IAS 39. IFRS 9 retains but simplifies the model of several bases of valuation and establishes two primary measurement categories: amortized cost and fair value. Classification is on the basis of the company's business model and characteristic qualities of the contracted cash flows. The guidance of IAS 39 regarding impairment testing of financial assets and hedge accounting continue to apply. Previous periods do not need to be restated if a company applies the standard. The standard is not yet endorsed by the EU. The IASB's stated enactment date is from 1 January 2015 onwards.

IFRS 10 Consolidated Financial Statements. This standard replaces IAS 27 Consolidated and Separate Financial Statements regarding the rules for consolidated financial statements. The standard contains no changes compared to the current IAS 27 as to when consolidated financial statements should be prepared and the rules for consolidation on acquisition and divestment, but offers further guidance on determining control when this is hard to judge. This standard is not yet endorsed by the EU and is scheduled to come into effect on 1 January 2013.

IFRS 12 Disclosure of Interests in Other Entities Covers disclosure requirements for subsidiaries, joint arrangements, associated companies and non-consolidated structured entities. The standard is not endorsed by the EU and is scheduled to come into effect on 1 January 2013.

IFRS 13 Fair Value Measurement is intended to define a consistent standard for measurement at fair value. The standard does not involve extended requirements for when fair value should be applied, but offers guidance on how it should be applied when other IFRSs already require or permit fair value measurement. The standard is not yet endorsed by the EU and is scheduled to come into effect on 1 January 2013.

IAS 1 Presentation of Financial Statements. The amendment means that items in other comprehensive income should be divided into two categories. Items that will be reversed to profit or loss for the year should be recognized in a separate category and items that will not be reversed should be recognized separately. The revised standard is endorsed by the EU and should be applied to financial years commencing 1 July 2012 or later, with retroactive effect.

Apart from the above standards, no comment has been issued on a number of interpretation statements and amendments to standards that have been issued because they are not judged to have any effect on the Group's accounting or presentation of financial statements, and accordingly, are not relevant to the Group.

The essential implication for Medivir's financial statements of currently applicable IFRS is stated in the following headings, where the principles of the Annual Report are reviewed in more detail.

Parent company

In its accounting, Medivir AB continues to apply those accounting principles relevant to legal entities that prepare Consolidated Accounts and are listed on a stock exchange. Medivir AB observes RFR 2 "Accounting for Legal Entities."

In accordance with RFR 2, the parent company will structure its reports in accordance with all applicable IFRS unless the standards allow an exemption from their application. Accordingly the parent company's principles are consistent with the Group's unless otherwise stated below.

Consolidated Accounts

The Consolidated Accounts have been prepared using acquisition accounting, implying that subsidiary equity at the time of acquisition is eliminated. The equity of the acquired subsidiary is measured at the acquisition date on the basis of the fair value of identifiable assets and liabilities taken over. The cost of the acquisition consists of the fair value of assets submitted as payment, issued equity instruments and liabilities arising or taken over as of the transfer date.

In those cases where the cost of shares and subsidiaries exceeds the fair value of acquired assets and liabilities, the difference is recognized as good will.

Costs directly related to the acquisition are reported in the Group under other operating costs in the Income Statement when they arise. Transaction costs in the parent company are included in the cost of shares in subsidiaries.

Subsidiaries are all companies where Medivir is entitled to formulate financial and operational strategies in a manner usually following from a shareholding amounting to more than half of the votes. Subsidiaries are consolidated from the day when the controlling influence is transferred to the Group onwards. They are deconsolidated from the date the controlling influences ceases onwards. For each acquisition, the Group decides whether potential non-controlling interests in the acquired company are recognized at fair value or at the holding's proportional share of the carrying amount of the acquired company's identifiable net assets.

Moreover, the preparation of Medivir's Consolidated Accounts conforms to the stipulations of IAS 27 and IFRS 3 such as elimination of intragroup receivables and liabilities as well as intragroup income and costs, implying that the Consolidated Income Statement and Consolidated Balance Sheet are reported without intragroup transactions.

Translation of foreign currency

Functional currency and reporting currency

Items stated in the financial statements for the various entities within the Group are valued in the currency used in the economic environment where each company is primarily active (functional currency).

Swedish krona, the parent company's functional currency and reporting currency, is utilized in the Consolidated Accounts.

Transactions and balance sheet items

Foreign currency transactions are translated to the functional currency at the rates of exchange ruling on the transaction date. The exchange rate gains and losses arising when paying for such transactions, and upon translating foreign currency monetary assets and liabilities at the closing day rate, are reported in the Income Statement. Profits and losses on trading receivables and liabilities are reported net under other operating income or other operating costs.

Group companies

Profit or loss and the financial position of all Group companies with a functional currency that differs from the reporting currency, are translated to the Group's reporting currency as follows:

• Assets and liabilities for each balance sheet are translated at the closing day rate.
• Income and costs for each of the Income Statements are translated at average rates of exchange. If average rates of exchange are not a reasonable estimate of total exchange rate effects for the year from each transaction date, income and costs are translated instead at the transaction date, and
• All exchange rate differences arising are reported in other comprehensive income and accumulated as a separate portion of equity.

Income Statement

From 1 January 2011, Medivir amended presentation of its Income Statement from classification by cost to classification by function in accordance with the description in IAS 1 Presentation of Financial Statements. Management's judgment is that an income statement classified by function gives a better impression of the company's

financial results and increases comparability with other companies in the same business segment. To improve comparability in the company's progress, comparative figures for 2010 have also been restated. The Group's results of operations and financial position are not affected by the amended presentation. No reclassification or restatement of balance sheet items has occurred. The costs in Medivir's operations are allocated between cost of goods sold, Marketing & Sales, Administration and Research & Development:

Cost of goods sold

Cost of goods sold consists of purchasing and manufacturing cost of goods sold during the period

Marketing & Sales

This function is responsible for the commercialization of research projects, product launches and the sale of pharmaceuticals on a proprietary basis and via collaboration partners.

Administration

This function consists of the company's administrative functions such as management, business development, IR and accounting functions.

Research & development

This function covers Medivir's research and pharmaceutical development in preclinical and clinical trials, and regulatory activities.

Financial instruments, reporting, disclosure and classification

For information on financial risks and investments, see Note 8 on pages 68-72, Financial risks.

Financial assets reported at fair value in the Income Statement Medivir's investments in securities, etc. are managed as a Group of financial assets and the profit or loss is evaluated based on fair value, in accordance with the documented risk management and investment strategy. Accordingly, Medivir has chosen to report the changes in fair value of its investments in securities, etc. in the Income Statement.

Financial assets held for sale

Holdings of shares in Medivir's licensing partners Epiphany Biosciences and Presidio Pharmaceuticals Inc. have been classified as financial assets held for sale.

Because none of these shares are listed, and are not registered on a recognized marketplace, other non-observable data is used as the basis of measurement of the shares instead. An estimation of value consists of the companies' reported results of operations and financial position, the progress of the companies' project portfolio, share price performance on the Nasdaq biotech index, and where applicable, independent third-party valuations. If the valuation results in an estimated value change, the value change is reported in the statement of other comprehensive income for the period.

If a negative value change is judged as significant, or for an extended period, accumulated impairment is recognized in profit or loss. A subsequent positive revaluation of such impairment loss is recognized in other comprehensive income and not in the Income Statement.

Accounts receivable and other receivables

Accounts receivable are non-derivative financial assets, with measured or measurable payments that are not listed on an active marketplace. Their distinguishing feature is that they arise when the Group supplies money, goods or services direct to a customer without any

intention to trade in the arising receivable. They are included in current assets, apart from items with maturities more than 12 months from the reporting date, which are classified as fixed assets. Initially, accounts receivable are reported at fair value, and subsequently, at amortized cost, by applying the effective interest method, less potential provisioning for impairment. Other receivables, and where applicable interim receivables, are reported according to the same principles.

Provisioning for the impairment of accounts receivable is effected when there is objective evidence that the Group will not be able to receive all amounts due according to the original terms of such receivables. The amount of the provision is the difference between asset carrying amounts and the present value of estimated future cash flows, discounted by effective interest. The provisioned amount is reported in the Income Statement. Other receivables are reported in the same manner.

Purchases and sales of financial instruments

Purchases and sales of financial instruments are reported on the transaction date – the date Medivir undertakes to buy or sell the asset. Financial instruments are derecognized from the Balance Sheet when the right to receive cash flows from the instrument has expired or been transferred and the Group has transferred basically all risks and rewards associated with rights of ownership.

Accounts payable and loan liabilities

Accounts payable and loan liabilities classified in the other financial liabilities category are initially reported at fair value, and subsequently at amortized cost, by applying the effective interest method.

Subordinated loan with detachable warrants

The Group's subordinated loan is a composite financial instrument separated into a debt portion and an equity component. The equity component separates the detachable warrants. Upon issuance of the subordinated loan, the fair value of the debt portion was determined by measuring the fair value of a similar debt with no conversion right. The liability is classified as an other financial liability measured at amortized cost.

The value of warrants is measured as the difference between the amounts the Group received for the subordinated loan and the fair value of the liability at the issue date. The carrying amount of warrants will not be restated in forthcoming periods. Where applicable, transaction costs are allocated between the debt portion and equity component on the basis of the value division at the issue date.

Staff stock option plans

As of the reporting date, Medivir has two outstanding staff stock option plans.Upon conversion/exercise, cash and cash equivalents would increase by the exercise/conversion price and the share capital by a nominal sek 5 per share, with the remaining deposited amount increasing equity. For more detail on the various effects of each plan and the number of outstanding stock options, see page 37, 'share warrants and stock options' and also Note 5. on pages 65-67. Medivir recognizes its stock option plans in accordance with IFRS 2.

Medivir values current plans at the grant date at fair value and then allocates the value over the vesting period as a personnel cost. This remuneration to personnel implies that Medivir issues equity instruments (share warrants that personnel are entitled to in the plans' agreements) and thus, for the cost associated with each period, achieves the corresponding increase in other contributed capital (share premium reserve in the parent company).

Social security costs on stock option plans

For each outstanding plan, Medivir makes provisions for social security costs at each year-end. The provision for social security costs is calculated according to UFR 7 with the application of the same valuation model used when the options were written. The provision is revalued on each reporting date on the basis of a calculation of the charges that may be payable when exercise takes place.

Medivir uses the Black & Scholes model for valuation, which takes into account factors including the share price, remaining time until exercise, volatility and risk-free interest rate, see pages 65-67.

Payments of social security expenses in connection with employees exercising options are offset against the provision made according to the above. The social security cost on the taxable benefit (the difference between the redemption/exercise price and market value of shares) that arises when stock options are exercised can be covered in terms of cash flow in the Group. This is achieved by Medivir exercising a portion of options the Group retains to shares and selling them. However, the personnel cost arising in the Income Statement, which is provisioned on a continuous basis in accordance with UFR 7, will not be offset by a cost reduction (income), but the effect arises in cash flow terms only.

Warrants

The warrants issued do not imply any personal expenses in accordance with IFRS 2 or any provision for social security costs because the options are purchased on market terms. Premiums received have been added to the share premium reserve in equity.

Intangible fixed assets

Good will

Good will arises on the acquisition of subsidiaries consists of the amount by which cost exceeds the fair value of the Group's share of the acquired company's net assets on acquisition. Good will is subject to annual impairment tests and is reported at cost less potential accumulated impairment losses. Impairment of good will is not reversed. Good will is allocated to the cash-generating units expected to be favored in the business combination that gave rise to the good will item.

Trademarks and brands, product rights

Trademarks and brands, and product rights acquired separately are recognized at cost in the Group. Trademarks and brands, and product rights acquired through a business combination are recognized at fair value on the acquisition date. Trademarks and brands, and product rights have a definite useful life and are recognized that cost less accumulated impairment. Amortization is on a straight-line basis over estimated useful lives of 10-15 years.

Research and development costs

Development expenditure is expensed on an ongoing basis. In accordance with IAS 38 Intangible assets, costs for researching and developing pharmaceuticals should be capitalized when the following criteria are satisfied:

• it is technically possible to complete the pharmaceutical,
• management intends to complete the pharmaceutical and the conditions for sale are in place,
• the asset is expected to provide future economic benefits,
• Medivir judges that the resources necessary to complete development of the asset are available,
• expenditure for development can be measured reliably.

Medivir's judgment of this principle for current development projects is stated on page 61 (significant estimates and judgments). In 2009, Medivir demonstrated that the above criteria were satisfied for Xerclear™, as approval from registration authorities in the US and Europe had been secured. Development costs for the product are reported as intangible fixed assets at historical cost from the registration date onwards. Expenses arising before this time will still be reported as costs.

Historical expenses includes direct expenses for completion of the pharmaceutical including patents, costs for registration applications, product testing, including employee benefits.

Amortization is on a straight-line basis to allocate development costs on the basis of estimated useful life. Amortization begins when the pharmaceutical starts generating income. Useful life is based on the underlying patent term and is 10 years.

The amortization term for capitalized development costs for Xerclear® thus exceeds the five years, which according to the Swedish Annual Accounts Act, should be the parent company's amortization term in normal circumstances. The motivation for this longer amortization term is that Xerclear® is expected to generate revenues throughout its patent term.

Medivir's other costs for research and development are reported as they arise, as are costs for patent and technology rights developed itself and other similar assets. Against the background of the contents of the 'significant estimates and forecasts' section on page 61, other research work performed by Medivir is judged to be associated with such uncertainty that IAS 38's capitalization criteria cannot be considered satisfied, primarily because of difficulties in judging whether it is technically possible to complete the pharmaceutical.

Other intangible fixed assets

Development costs for Medivir's ERP systems that enhance the performance or extend the useful life of software are reported at historical cost. These costs are amortized over estimated useful life. The estimated useful life is five years, whereupon the reported asset will be amortized over this term on a straight-line basis in accordance with this estimate.

Tangible fixed assets

Tangible fixed assets are reported at historical cost less depreciation. Historical cost includes expenditure that can be directly attributed to acquisition of the asset.

In accordance with IAS 16, Property, Plant and Equipment, plan depreciation is estimated on the original historical cost with depreciation rates based on estimates of the assets' economic useful lives.

The Group applies the following depreciation terms: buildings 20 years, equipment, tools, fixtures and fittings 5-10 years and IT hardware 3 years.

Impairment

Good will with an indefinite useful life is subject to annual impairment tests. Tangible and intangible fixed assets are subject to impairment testing, and impairment losses are taken at any time internal or external indications of potential impairment arise in accordance with IAS 36. An impairment is conducted at the amount by which the asset's carrying amount exceeds its recoverable amount. Recoverable amount is the greater of the fair value of the asset less cost of sales and value in use. Value in use means the total of the present value of expected future cash flows and the expected residual value at the end of the useful life. When measuring value in use, future cash flows are discounted at an interest rate that considers the market assessment of risk-free interest and risk. In the Group, measurement is based on results achieved, forecasts and business plans. When judging impairment, assets are grouped

at the lowest level where there are separate identifiable cash flows (cash-generating units).

Intangible assets that are not in use are not amortized, but subject to impairment testing yearly. If the recoverable amount is less than the carrying amount, an impairment loss is taken. Recoverable amount consists of the highest of fair value and value in use. Value in use is measured proceeding from estimated future cash flows on the basis of competitive position and estimated market shares.

In the parent company, investments in subsidiaries are measured at cost and subject to impairment tests at each year-end. The subsidiary's equity then forms a key criterion for this assessment. Supplementary investments may be conducted through new share issues or shareholders' contributions.

Inventories

Inventories are reported at the lower of cost or net realizable value. Cost is determined using the first in, first out (FIFO) method. Cost includes purchasing cost, customs and transportation costs and other direct costs associated with goods purchases. The net realizable value is the expected sales price in operating activities less cost of sales. Risk of obsolescence and established obsolescence are considered in the valuation. As goods in inventory are sold, their carrying amount is expensed in the period in which the corresponding revenue is recognized. Losses on goods in inventory are recognized in the Income Statement in the period to which the loss relates.

Equity

Transaction costs directly attributable to the issuance of new shares or options are reported in equity as a deduction from issue proceeds in the capital component, other contributed capital.

Revenues

Revenues include the fair value of what is received or will be received for goods or services sold. Revenues are recognized excluding VAT, returns and discounts, and after eliminating intragroup sales. Revenues are recognized when amounts can be measured reliably and it is likely that the future economic benefits will flow to the Group.

Sales of pharmaceuticals

To recognize revenues from the sale of pharmaceuticals, the following criteria of IAS 18:14 should be satisfied:

• The company has transferred to the buyer the significant risks and rewards of ownership of the goods.
• The company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold.
• The amount of revenue can be measured reliably.
• It is probable that the economic benefits associated with the transaction will flow to the company.
• The costs incurred or to be incurred in respect of the transaction can be measured reliably.

For Medivir, the applied principle means the revenues from sales of pharmaceuticals are recognized at the time of delivery to the customer through the customer taking over the economic risks and rewards at that time. This assumes that the other above criteria are also judged to be satisfied at that time.

Outlicensing and collaboration agreements

Revenues from agreements made between partners to Medivir on research projects are recognized based on their economic substance. Remuneration in these agreements can be payable in the form of upfront fees on entering agreements, milestone payments, remuneration as full-time equivalents (FTEs) of the number of

research positions and/or royalties. In addition, according to agreement, Medivir is entitled to remuneration for costs incurred. The revenue from this remuneration is recognized in the same period as the cost as revenue for invoiced costs.

Revenues are recognized initially on the judgment of whether the agreement with the counterparty affecting Medivir's intangible asset (one or more research projects) means that collaboration should be conducted on a research project with the partner, or whether the license that the partner receives in the agreement means that the intangible asset has been divested from an accounting perspective (i.e. a sold license to dispose over the asset).

This judgment is conducted on the basis of the criteria of IAS 18 for the sale of a good (see above on the sale of pharmaceuticals). If these criteria are satisfied, the judgment is that the economic substance of the agreement means a divestment of the underlying asset. If the criteria are not satisfied, no divestment of the asset has occurred.

Reporting in the case where the economic substance of an agreement is that sale of a research project has occurred Upfront fees received on entering a license are recognized as revenues on entering the agreement if there is no restriction in the agreement with the counterparty. In the event of any of the criteria of IAS 18:14 (see above) not being satisfied, revenue recognition is delayed until all criteria are satisfied. Potential additional remuneration in the form of milestone payments is recognized when the criteria of each outlicensing agreement for remuneration to Medivir have been satisfied and verified with the counterparty, because at that time, the additional revenue can be measured reliably. Revenues are considered as remuneration for a sold license that entitle a counter party to utilize Medivir's intangible asset. Royalties are reported in the period they are accrued according to the agreement.

Reporting in the case where the economic substance

of an agreement is that a collaboration should be conducted In these cases, Medivir has commitments in the agreement, often for future development that should be independent or jointly with the counterparty. Depending on the content of the specific agreement, a reporting method is chosen for when and at what value revenues are recognized. Factors affecting revenue recognition on collaboration agreements include:

• if remuneration is first received when goals are achieved
• if remuneration is payable for work done directly (e.g. for a number of FTEs)
• if remuneration is received in advance or subsequently in relation to the services rendered in the agreement

Remuneration received in the form of upfront fees and that relates to commitments in the agreement that Medivir has not yet rendered is allocated over the term of the agreement when Medivir fulfils its commitments. If remuneration is in the form of research services (e.g. FTEs), revenues are recognized as the work is done. Remuneration received when development goals are achieved (often in the form of milestones) in a collaboration agreement are recognized when it is clear that Medivir should receive remuneration in accordance with the agreement. This is then considered as remuneration for services rendered in the period until this date inclusive. This revenue recognition model is often termed the milestone method. Namely, the percentage of completion method cannot be applied to research projects that have potential future milestones from a collaboration partner. This is because it is not possible to measure a degree of completion in a sufficiently reliable manner as IAS 18 stipulates as a standard for percentage of completion on a project, nor is it possible to measure which expenditure will be

incurred to achieve the corresponding milestone (number of researchers and other direct expenditure may vary over time) accurately enough and there is no remuneration due if the project does not succeed in satisfying the criteria agreed with the collaboration partner.

Central government support (EU and other subsidies)

Central government support is reported in accordance with IAS 20 under other income. Support received is recognized as revenue when the company satisfies the conditions associated with the support, and it can be reliably determined that the support will be received.

Support received is reported in the Balance Sheet under deferred income with revenue recognized as the terms for securing the funds are satisfied. Medivir receives central government support mainly in the form of research subsidies from the EU. An insignificant portion of Medivir's projects are financed with central government support.

Operating segments

IFRS 8 requires segment information to be presented from management's perspective, which means it is presented in the way used in internal reporting. The basis for identifying reportable segments is internal reporting such as that reported and monitored by the chief operating decision maker. In this context, the Group has identified the Group President as the chief operating decision maker. The President/CEO judges the results of operating segments based on the EBITDA measure, which is earnings before interest, taxes, depreciation and amortization. Before the acquisition of BioPhausia, Medivir was organized into a single integrated operating segment. After the acquisition of BioPhausia on 31 May, Medivir's business operations are organized into two operating segments. The core of business operations consists of the Pharmaceuticals business segment. The Pharmaceuticals business segment consists of research and development of new products and their manufacture, marketing and sale. The pharmaceuticals segment includes the Group's research portfolio and the original pharmaceuticals that BioPhausia has unlimited ownership of including those generic products where BioPhausia has limited ownership. In the third quarter of 2011, BioPhausia divested the company's generics business (which until the divestment, was part of the Pharmaceuticals segment). The second operating segment consists of the Parallel Import business of BioPhausia subsidiary Cross Pharma, which imports original pharmaceuticals from EU countries where pricing is lower than in Sweden. When these pharmaceuticals are sold on the market, pharmacies are offered prices that are lower than the original producer's.

Leases

Medivir's lease arrangements are classified as either operating or finance leases.

Lease arrangements are fixed assets were the Group essentially has the economic risks and rewards associated with ownership are classified as finance leases. The leased item is reported as a fixed asset in the Balance Sheet, and the obligation to pay the leasing charges is reported as a liability. At the beginning of the lease term, finance leasing is reported in the Balance Sheet at the lower of the leased item's fair value and the present value of minimum lease payments. Lease payments made are reported allocated between amortization and interest. The leased fixed asset is depreciated over the asset's useful life.

Lease arrangements where Medivir does not have any significant risk or benefits from an item are reported as operating leases. Payments made over the lease term are expensed in the Income Statement on a straight-line basis over the lease term, see Note 6, on page 67.

Pension liability and pension cost

Medivir AB's ITP (supplementary pensions for salaried employees) scheme is insured with Alecta and should be considered as a defined benefit pension scheme in accordance with statement UFR 3 from RFR.

In accordance with UFR 3, the company should account its proportional share of defined-benefit commitments, plan assets and costs associated with the scheme. Because Alecta is unable to provide sufficient information, for the present, this scheme is reported as defined contribution.

Alecta's surplus can be distributed to policyholders and/or beneficiaries. At year-end 2011, Alecta's surplus in the form of its collective consolidation ratio was 113% (146), according to Alecta's computations. The Group judges that current premiums should cover the current commitments. The Group's other pension schemes are defined contribution. The charges are reported as personnel costs when they become due for payment.

Remuneration on dismissal

Remuneration on dismissal is expensed when the obligation to pay remuneration arises.

Income tax

The tax cost for the period consists of current tax and deferred tax. Tax is recognized in the Income Statement apart from when tax relates to items recognized in other comprehensive income or directly in equity. In such cases, tax is also recognized in other comprehensive income and equity respectively. Current tax is tax to be paid or received for the current year and restatements of current tax relating to previous years.

Deferred tax is recognized in accordance with the balance sheet method on all temporary differences that arise between the taxable values of assets and liabilities and their carrying amounts in the consolidated accounts.

Deferred tax receivables are recognized to the extent it is likely that future tax loss carry-forwards will be available.

Note 11 states items including the estimated deductible deficits accumulated in the Group. The Group's taxable deficits have no expiry.

The treatment of deferred tax on temporary differences is reported and explained in Note 11 on page 73. The various components of consolidated total tax are also explained in this Note.

Cash Flow Statement

The Cash Flow Statement has been reported by applying the indirect method. Reported cash flow only includes those transactions involving payments made or received. Cash and bank balances, plus investments in securities, etc. such as commercial paper, fixedincome and bond funds with maximum maturities of three months are reported as cash and cash equivalents in the Cash Flow Statement.

Significant estimates and judgments

Preparing accounts in accordance with generally accepted accounting principles and consistent with IFRS necessitates Management and the Board of Directors making estimates and assumptions regarding the future. These estimates and assumptions affect reported revenue and cost items, asset and liability items, as well as other disclosures. Estimates and judgments are evaluated continuously and based on historical experience and other factors including expectations of future events regarded as reasonable in prevailing circumstances. Segments including such estimates and assumptions that may have a significant material effect on the Group's results of operations and financial position are reviewed below.

Revenues

Medivir does not utilize the percentage of completion method for forthcoming potential milestone payments in the research projects, because there is constant uncertainty regarding how far the project has progressed, and the likelihood of it achieving the next goal/ milestone. Thus, the income side only states determined and nonrepayable income that can be considered to have accrued.

Allocation to periods could demonstrate how Medivir progressively receives income from the counterparty's utilization of intellectual property. But if the percentage of completion method was applied, there would be a risk of income being reported as uncertain in terms of whether Medivir would ever receive any payment. In such circumstances, an announcement from the counterparty that a project was being discontinued, for example, would imply that Medivir had reported inaccurate profit or loss.

Research and development expenses

Development costs including registration costs are reported as costs on an ongoing basis as long as the future economic benefits from these costs are uncertain. Pharmaceutical development is generally a complex and risky activity, and the majority of research projects never result in a pharmaceutical on the market.

Development costs should be capitalized when projects are likely to succeed. Each research project is unique and must be judged individually on its own conditions. The earliest assessed timing for capitalization is after phase III trials have been conducted, but even after the completion of phase III trials, the majority of uncertainty factors could remain so that the criteria for capitalization cannot be considered satisfied. In such cases, capitalization does not occur before the pharmaceutical is approved by the relevant regulatory authority.

Given premature capitalization, there is a risk that a project would fail and that the costs offset could not be justified, but would have to be expensed directly. In turn, this would imply that previous and current year profits/losses would be misleading because of an overly optimistic assessment of the likelihood of success.

Intangible assets

The Group conducts annual impairment tests on goodwill, other intangible assets with indefinite useful lives and incomplete development projects. Other intangible assets are subjected to impairment tests when events or changes indicate that carrying amounts may not be recoverable. When measuring value in use, future cash flows are discounted at an interest rate that considers the market assessment of risk-free interest and risk (WACC). The Group bases these calculations on achieved results, estimated forecasts and business plans. When judging impairment, assets are grouped at the lowest levels where there are separate identifiable cash flows (cash-generating units). The estimates and assumptions management makes when conducting impairment tests can have a substantial impact on the Group's reported profit or loss. Impairment is conducted if the estimated value in use is less than the carrying amount and is charged to profit or loss. For more information, see Note 13 for assumptions made, and a review of the effect of reasonable possible changes in those assumptions that form the basis of measurements.

Tax

The deferred tax receivable has been measured on the basis of management and the Board of Directors' judgment of future utilization of the accumulated deficits on consolidation within the foreseeable future. A revised judgment of how the deductible loss carry-forward can be recovered through future taxable surpluses may affect reported tax in results of operations and the balance in forthcoming periods. For more information, see Note 11.

Notes

• = Not applicable All amounts are to the nearest thousand Swedish kronor (sek 000) unless otherwise stated.

Note 1 Segment reporting

Operating segments are reported in a manner that is consistent with internal reporting presented to the chief operating decision maker. The chief operating decision maker is the function responsible for allocating resources and judging the results of operating segments. In the Group, this function has been identified as Group management.

Prior to the acquisition of BioPhausia, Medivir was organized into one integrated operating segment. After the acquisition of BioPhausia on 31 May, Medivir's business operations are organized into two operating segments. The core of business operations consists of the Pharmaceuticals operating segment. The Pharmaceuticals operating segment consists of the research and development of new products and their manufacture, marketing and sale. The Pharmaceuticals

segment includes the Group's research portfolio, the self-developed cold sore pharmaceutical Xerclear and the original pharmaceuticals that BioPhausia has unlimited ownership of. The second operating segment consists of the Parallel Import business operation in BioPhausia's subsidiary Cross Pharma, which imports original pharmaceuticals from EU countries where pricing is lower than in Sweden. When pharmaceuticals are sold on the market, pharmacies are offered a price that is lower than the original producer's.

Group management judges operating segments based on the EBITDA (earnings before interest, taxes, depreciation and amortization) measure, operating profit before depreciation, amortization and impairment.

		2011		2010
(sek 000)	Pharmaceuticals	Parallel Import	Total	Pharmaceuticals	Parallel Import	Total
Net sales	512,621	185,945	698,566	54,912	–	54,912
EBITDA	137,633	-2,285	135,348	-128,852	–	-128,852
EBITDA, %	27	-1	19	-235	–	-235
Depreciation, amortization
and impairment	-22,242	-1,192	-23,434	-7,875	–	-7,875
Net financial position	-210	-498	-708	2,499	–	2,499
Profit/loss after financial items	115,181	-3,975	111,206	-134,228	–	-134,228

Information has not been stated for assets and liabilities by operating segment because group management does not use this information in its control.

	Group	Parent company
Division of net sales (sek 000)	2011	2010	2011	2010
Outlicensing and collaborations agreements
One-off payments	401,222	47,135	401,222	47,135
Research collaborations	–	–	25,495	19,956
Pharmaceuticals sales	111,234	109	3,335	109
Parallel imports	185,945	–	–	–
Other services	165	7,668	2,270	5,118
Total	698,566	54,912	432,322	72,319

	Group	Parent company
Geographical division of net sales (sek 000)	2011	2010	2011	2010
Sweden	278,126	40,677	5,584	38,131
Rest of Nordic region	15,299	16	4	16
Europe and US	405,134	12 436	426,734	32,389
Rest of world	7	1783	–	1,783
Total	698,566	54,912	432,322	72,319

Total fixed assets in Sweden amount to 651,322 (47,953) and in Poland, 1,340 (0).

Large customers

The Group's three largest customers provide a total of 77% of total revenues of the Group of which 278,819 relate to an external partner in Luxembourg (Pharmaceuticals segment), sek 70,538 relate to a partner in the US (Pharmaceuticals segment) and 188,076 to a single partner in Sweden (of which 85,618 in the Pharmaceuticals segment and 102,461 in the Parallel Import segment).

Not 2 Costs allocated by cost class (sek 000)

		Parent company
2011	2010	2011	2010
240,621	770	181	770
193,502	94 956	172,328	92,793
109,466	89,617	85,997	89,617
15,923	554	562	554
7,511	7,321	7,195	7,321
			191,055
	567,023	Group 193,218	266,263

Not 3 Intra-group transactions (sek 000)

Parent company

Intragroup sales were 37,118 (25,495). Intragroup purchases were 36,483(0).

Not 4 Costs for auditing and audit consulting (sek 000) 1 )

	Group			Parent company
	2011	2010	2011	2010
PWC
Auditing	537	330	451	241
Auditing activities over and above audit assignment	330	284	330	284
Tax advice	336	108	336	25
Other services	1,323	898	1,241	897
Ernst & Young
Auditing	553	–	–	–
Auditing activities over and above audit assignment	27	–	–	–
Tax advice	–	–	–	–
Other services	–	–	–	–
Total	3,106	1,620	2,358	1,447

1) The Group's audit firm is PricewaterhouseCoopers.

The balance sheet item equity also includes an amount of 1,195 for auditing activities over and above audit assignment relating to new share issues in 2010.

Auditing means fees for the statutory audit, i.e. the work necessary to present the audit report and audit advisory services provided relating to the audit assignment.

Not 5 Average number of employees, salaries, other benefits and social security costs

Average number of employees	Group 2011		Group 2010		Parent company 2011			Parent company 2010
	Women	Men		Total Women	Men	Total	Women		Men Total	Women	Men	Total
Sweden	65	48	113	38	39	77	45	39	84	38	39	84
Finland	2	0	2	–	–		–	–		–	–
Poland	43	12	55	–	–		–	–		–	–
Total	110	60	170	38	39	77	45	39	84	38	39	84

		Group	Parent company
Salaries, benefits, social security costs and pension costs, sek 000	2011	2010	2011	2010
Salaries and benefits
Ron Long (CEO until 26 September 2011)	4,322	3,387	4,322	3,387
Maris Hartmanis (CEO from 26 September 2011)	1,062	–	1,062	0
Anna Malm Bernsten (Board member)	260	250	260	250
Björn C Andersson (Board member)	275	265	275	265
Ingemar Kihlström (Board member)	310	275	310	275
Göran Pettersson (Chairman)	495	485	495	485
Total, Board of Directors and Chief Executive Officer	6,724	4,662	6,724	4,662
Senior managers	8,818	11,602	8,818	11,602
Other employees	56,629	47,499	41,309	47,499
Total salaries and benefits	65,477	63,763	50,122	63,763
Statutory and contracted social security costs	24,168	22,947	19,835	22,947
Pension costs	12,499	8,123	9,096	8,123
of which for the CEO of the Group sek 356,000 (2,000) and parent company sek 356,000 (2,000).
Total salaries, benefits, social security costs and pension costs	108,838	94,833	85,766	94,833

Remuneration in the financial year

Board of Directors

Fees are payable to the Chairman of the Board and Board members in accordance with AGM resolution. There are no fees for work on the Nomination Committee. In the financial year, 1,340 (1,275) of fees were paid to the Board of Directors of Medivir, of which 495 (485) to the Chairman of the Board. Board members are also reimbursed for travelling expenses to Board meetings etc. There is no pension plan for the Board of Directors. No consulting fees were paid to Board members in 2011. In 2010, consulting fees of 60 were paid to Ingemar Kihlström.

Remuneration guidelines for senior managers

The AGM 2011 approved the Nomination Committee's proposed guidelines for senior managers. Essentially, these guidelines are consistent with the principles adopted to date. Essentially, these guidelines mean that the company would offer total compensation on market terms that would enable the hiring and retention of skilled senior managers. Remuneration to senior managers may consist of basic salary, performance-related pay, incentive plans resolved by the AGM, pensions and other benefits. Basic salary should consider individual areas of responsibility and experience. Cash performance-related pay maybe a maximum of 50% of annual basic salary. Performance-related pay should be linked to predetermined and measurable criteria, designed with the aim of promoting the company's long-term value creation.

Pensions

The pension plans for the CEO and senior managers will conform to the ITP (supplementary pensions for salaried employees) plan. In the UK, individual pension plans may be applied corresponding to legislated fees, as well as 6% of basic salary excluding bonus and benefits. Without limitation to the above, the Board of Directors is entitled to offer other solutions, which in cost terms, are approximately equivalent to the above instead.

Severance pay, etc.

A mutual maximum notice term of six months should apply to the CEO and other senior managers. In addition to what is stated above, no severance pay or similar remuneration should be payable, but – at a maximum amount corresponding to 100% of annual basic salary – may be agreed in instances of change of control.

Information on a departure decided from the 2011 guidelines

The Board of Directors is entitled to depart from the above guidelines if, in an individual case, the Board of Directors judges that there are special circumstances justifying this. On one occasion, the Board of Directors departed from the guidelines for remunerating senior managers decided by the AGM 2011. This departure consists of CEO Maris Hartmanis's employment terms conferring entitlement to severance pay and pension over and above that following from the guidelines. Maris Hartmanis was CEO of BioPhausia, which Medivir acquired in 2011. Maris Hartmanis was initially hired as Medivir's Deputy CEO and COO, but was later appointed as CEO. The Board of Directors decided that a departure from the guidelines was justified in the circumstances against the background of Maris Hartmanis's new employment terms in these respects being essentially consistent with his previous terms as CEO of BioPhausia, and that he could not be reasonably expected to accept a deterioration of his employment terms as a result of his employment with Medivir.

Chief Executive Officer

Salary and benefits to Ron Long, who left his position as CEO on 26 September 2011 were 2,628 (3,387) in the year, bonus of 0 (0), other benefits of 0 (0) and provision for severance pay of 1,694 (0). Total remuneration was 4,322 (3,387). Pension provisioning in the year was 0 (0). A mutual notice period of six months applied to Ron Long.

Maris Hartmanis was appointed as Deputy CEO on 1 September 2011, and as CEO on 26 September 2011. Salary and benefits to Maris Hartmanis were 1,062 (-) in the year, bonus of 0 (-) in the year, other benefits of 44(zero). The pension plan for the CEO in 2011 was defined contribution and could amount to 35% of basic monthly salary.

Pension provision in the year was 356 (-). Potential bonus was maximized to a value of 50% of basic salary. A mutual notice period of six months applies to Maris Hartmanis. Maris Hartmanis is entitled to severance pay corresponding to 12 times the value of basic monthly salary at the time of termination, plus the average of the three most recent financial years' potential outcome of the bonus if the company terminates Maris Hartmanis's employment or Maris Hartmanis terminates his contract due to a significant breach of contract by the company.

Other senior managers

Other senior managers means the seven people apart from the CEO that make up management. Management consists of three women and four men. Salary of 8,818 (7,682), performancerelated pay of 0 (1,867) and option benefits of 4,906 (2,053), total remuneration of 13,724 (11,602) was paid to other senior managers. Pension provisions of 1,940 (1,713) were paid to other senior managers. For disclosures on option holdings, see page 39. Mutual notice periods of six months apply to other senior managers.

Share warrants and staff stock option programs

Medivir has adopted long-term share-based incentive programs intended to promote the company's long-term interests by motivating and rewarding the company's senior management and other staff. The performance of these programs is measured to the extent considered necessary. At the beginning of 2011, Medivir had two outstanding option programs, the option program 2007-2012 and the option program 2010-2013 including share warrants and staff stock options. A review of share-based payment in the company follows.

Valuation model for options

Medivir has selected Black & Scholes as its option valuation model. In its choice of model, the company considered the same factors as knowledgeable and interested parties that are mutually independent would consider.

The key factors in the underlying model were as follows:

• Exercise price
• Life-time of the options
• Current price of underlying shares
• Expected volatility of the shares
• Expected dividends and
• Risk-free interest over the life-time of the options

Expected volatility is a measure of the extent of price fluctuations during a period.

Medivir has considered the following factors when estimating expected volatility:

• Implicit volatility for other corporate instruments that are subject to trading, and that involve terms of an option nature.
• Historical volatility of the share price, and because the company was floated on the stock market recently, the historical share price performance of comparable companies. The historical period was as long as the options' life-times.
• The long-term average level of volatility.

Valuation parameters	Grant date by program
as of the grant date		2010-2013	2007-2012
Valuation parameters	Share warrant	Staff stock option	Staff stock option
Share price, sek	114,93	104,06	57,95
Exercise price, sek	144	144	66,64
Volatility, %	31	31	27
Expected dividend	None	None	None
Risk-free interest rate, %	1,5	1,5	4,1
Fair value per option, sek	12,00	12,44	14,40

Costs of staff stock option programs

Medivir reports its staff stock option programs in accordance with IFRS 2. Medivir measures the relevant programs at the grant date at fair value, then allocating their value over the vesting period as a personnel cost. Staff stock options are expensed over three years and a proportionally higher portion of this cost is reported in the first year. sek 1.0 (0.1) m was reported in net profit/loss as a personnel cost for the staff stock options.

Upon the potential exercise of staff stock options, a taxable benefit arises between the conversion price and the market value of the shares, on which social security costs are payable. To cover potential future social security costs, the Group disposes over a number of options for subscribing for shares of Medivir AB (known as a hedge).

Hedge options are used to subscribe for shares that are sold on the market to generate cash flow into the Group to cover payments of social security costs. However, the personnel cost for the social security costs that arise in the Consolidated Income Statement is not matched by a cost reduction, but rather, the effect arises in cash flow terms only. This is because proceeds from the sale of shares, from a group perspective, are treated as an issue of equity. The market value of the options is measured according to UFR 7 each quarter, and is used to determine the provision for social security costs.

sek -7.5 (+4.3) m has been provisioned in net profit/ loss for accrued social security costs that would arise on the taxable benefit upon exercising staff stock options.

Cash settlement

According to an addendum to the terms and conditions for the option programs 2005-2010 and 2007-2012, in certain circumstances, Medivir should be able to offer cash settlement to those option holders that so wish. In cash settlement, the option holder does not need to deposit the exercise price of the option and not receive any share, but instead receives a cash sum. Cash settlement can be implemented if it is possible to borrow the relevant number of shares via the equity repo market temporarily, and then sell them. The option holder receives the difference between the proceeds from the sale of shares, after deducting commission and a predetermined exercise price in the relevant staff option program.

Accordingly, the option programs are what are termed equitysettled programs and not cash settled. Cash settlement is exclusively a service to Medivir's staff to offer assistance in selling the shares that they are entitled to their option agreements, assuming this can be achieved in a flexible manner, with the aid of a commercial bank external to Medivir. Accordingly, employees may not demand cash settlement instead of equity instruments, but if the situation permits, may obtain assistance with the service of selling their instruments. Accordingly, staff may also pay the commission an external party requires to assist them with their own transactions.

Staff stock option program 2005-2010

The AGM 2005 resolved to adopt a staff stock option program consisting of 280,000 staff stock options and an equal number of underlying share warrants. A total of 183,600 staff stock options were granted to staff, with the remaining options being held by Medivir Personal AB to cover social security costs. Subscription for class B shares was permitted in the period 1 July 2005 - 31 December 2010. The subsidiary Medivir Personal AB disposes over these share warrants to satisfy the commitments ensuing from the staff stock options issued within the auspices of the staff stock option program 2005-2010. Each staff stock option can be exercised to acquire one share of Medivir AB through the agency of the subsidiary against payment of an exercise price corresponding to at least 130% of the closing price of Medivir's class B share as quoted on Nasdaq OMX Stockholm's Small-cap List at the grant date (albeit subject to a minimum of SEK 87.00) for each share. The staff stock options have been granted to employees of the Medivir group free of charge.

For the program 2005-2010, there is entitlement to acquire new shares at one-third of the total number of granted staff stock options from the date falling two years after granting onwards, and a further one-third at each of the two subsequent anniversaries. All this assumes that at each stated date, the holder remains an employee of the company and has not been dismissed or given notice of termination from their employment with the company.

Options	2011	2010
Outstanding as of 1 January	0	280 000
Granted	–	–
Exercised	–	-140,265
Forfeited	–	-139,735
Outstanding as of 31 December	0	0
Exercisable as of 31 December	0	0

The theoretical market value calculated according to the Black & Scholes model was sek 11.60 per option as of the grant date, and as of the reporting date of 30 September 2010, market value was sek 55.83. After the rights issues of 2010 and 2007, the conversion terms of the program were re-stated, and entitled conversion to 1.27 shares per option, with the exercise price being restated as sek 63.00. In 2010, the weighted average exercise price was sek 65.83 and the weighted average share price as of the exercise date was sek 111.

Staff stock option program 2007-2012

The AGM 2007 resolved to adopt a staff stock option program consisting of 480,000 staff stock options and an equal number of underlying share warrants. A total of 360,000 staff stock options were granted to staff, with the remaining options being held by Medivir Personal AB to cover social security costs. Subscription for class B shares is permitted in the period 18 June 2007 - 30 April 2012. The subsidiary Medivir Personal AB disposes over these share warrants to satisfy the commitments ensuing from the staff stock options issued within the auspices of the staff stock option program 2007-2012. Each staff stock option can be exercised to acquire one share of Medivir AB through the agency of the subsidiary against payment of an exercise price corresponding to at least 115% of the closing price for Medivir's class B share as quoted on Nasdaq OMX Stockholm's Small-cap List at the grant date (albeit subject to a minimum of sek 66.64) for each share.

The staff stock options have been granted to employees of the Medivir group free of charge.

For the option program 2007-2012, there is entitlement to acquire new shares at 30% of the total number of granted staff stock options from the date falling one year after granting onwards, a further 30% at the second anniversary and 40% at the third anniversary. All this assumes that at each stated date, the holder remains an employee of the company and has not been dismissed or given notice of termination from their employment with the company.

Options	2011	2010
Outstanding as of 1 January	409,247	480,000
Granted	–	–
Exercised	-91,140	-70,753
Outstanding as of 31 December	318,107	409,247
Exercisable as of 31 December	318,107	409,247

The theoretical market value calculated according to the Black & Scholes model was sek 14.40 per option as of the grant date, and as of the reporting date of 31 December 2011, market value was sek 8.46. After the rights issue of 2010, the conversion terms of the program were re-stated, and entitled conversion to 1.09 shares per option, with the exercise price being restated as sek 61.20. In the period, the weighted average exercise price was sek 64.40 and the weighted average share price as of the exercise date was sek 130 (107).

Staff stock option program 2010-2013

The AGM 2010 approved a staff stock option program consisting of 394,400 options, of which some 343,000 have been granted to employees of the group and the remaining 51,400 have been retained to cover expenditure for social security costs. The program means that all employees are offered the opportunity to acquire 171,500 share warrants on market terms. For each share warrant an employee acquires, they also receive a staff stock option free of charge. The term of this program is 30 April 2010 to 31 May 2013, and after vesting, each option shall be exercisable to subscribe for class B shares against the payment of an exercise price.

The subsidiary Medivir Personal AB disposes over these share warrants to satisfy the commitments ensuing from the staff stock options issued within the auspices of the stock option program. Each option can be exercised to acquire one share of Medivir AB through the agency of the subsidiary against payment of an exercise price corresponding to at least 125% of the closing price of Medivir's class B share as quoted on Nasdaq OMX Stockholm's Small-cap List at the grant date (albeit subject to a minimum of SEK 144.00) for each share. The staff stock options have been granted to employees of the Medivir group free of charge.

For the option program 2010-13, there is entitlement to acquire new shares at 100% of the total number of purchased share warrants, and staff stock options granted consequently, from the second anniversary of granting onward. Entitlement to exercise the staff stock options is conditional on the holder remaining an employee of the company at the time and not having been dismissed or given notice of termination from their employment with the company.

Options	2011	2010
Outstanding as of 1 January	394,400	–
Granted	13,600	394,400
Exercised	–	–
Outstanding as of 31 December	408,000	394,400
Exercisable as of 31 December	0	0

The theoretical market value calculated according to the Black & Scholes model was sek 12.00 per staff stock option and sek 12.44 per share warrant as of the grant date in 2010. The theoretically calculated market value according to the Black & Scholes model was sek 33.95 per staff stock option and sek 36.33 per share warrant at the grant date. As of the reporting date of 31 December 2011, market value was sek 0.61. After the rights issue of 2010, the conversion terms of the program were re-stated, and entitle conversion to 1.09 shares per option, and the exercise price has been restated to sek 132.30.

Transactions with related parties

Transactions with related parties are on an arm's length basis.

There are agreements between companies owned by senior managers and Medivir conferring entitlement to royalties on products the company may develop based on patented inventions the company has purchased from the relevant people before and during their time as researchers at Medivir. Remuneration of sek 0.9 (0.0) m occurred in the period.

In the period, Medivir AB purchased sek 0.2 m of office services from Scicona Ltd., which is owned by Ron Long, and entered a 0,5 m option agreement with PepTonic AB, in which Ron Long has a minority share. These payments were made in the period when Ron Long was CEO and a Board member of Medivir AB.

Not 6 Lease arrangements including property rent (sek 000)

	Group		Parent company
	2011	2010	2011	2010
Costs for the year1)	14,522	10,095	5,292	4,833
Nominal value of future minimum lease payments for irrevocable lease arrangements including property rent
Within one year 2)	14,433	9,570	4,755	4,581
Between one and five years 3)	51,456	27,151	7,777	7,817
Total	65,890	36,721	12,531	12,398

1) Costs are mainly premises rent for Medivir UK, Medivir AB and BioPhausia. Total rent costs for the Group amount to 12,857 (10,095), of which rent costs for Medivir AB are 4,283 (3,903), Medivir UK 5,263 (5,624) and BioPhausia 1,803. Of rent costs for the year, 6,752 (7,160) have been recognized as revenue due to subletting of research premises at Chesterford Park. A net profit/loss of -19 (1,897) for subletting is recognized under other revenue in the Income Statement. The lease contracts of Medivir AB expire between 2011 and 2013, and for Medivir UK at Chesterford Park, the lease contract runs until 2025. Medivir UK's lease is indexed every fifth year. The research facility at Chesterford Park has been sublet until 2015 inclusive. Subsequently, this contract may be extended, and accordingly, no provisioning for periods after 2015 has been made, because the company judges that costs will also be covered for rental income for the remaining period.

2) Of which 6,788 of revenue will be recognized due to subletting the research facility at Chesterford Park.

3) Of which 27,151 of revenue will be recognized due to subletting the research facility at Chesterford Park.

Not 7 Profit/loss from participations in Group companies (sek 000)

	Group		Parent company
	2011	2010	2011	2010
Capital gain/loss on sale of BMM AB	-526	–	–	–
Dividend from Medivir Personal AB	–	–	2 500	–
Impairment losses on shares in subsidiary Medivir UK Ltd.	–	–	-25,853	-18,983
(see also note 15, Participations in Group companies)
Total	-526	–	-23,353	-18,983

Not 8 Financial risks

The main financial risks that arise as a consequence of managing financial instruments consist of market risk (interest risk, currency risk and share price risk) credit risk, liquidity and cash flow risk. The financial risks are managed in accordance with a policy adopted by the Board. This policy means that investments of cash and cash equivalents will be conducted in such a manner that the

invested assets generate secure and stable returns. The objective is to achieve the best possible return for the lowest possible risk level. Underlying instruments should have low risk, and the aim when investing cash and cash equivalents will be to diversify risk. The company will invest its cash and cash equivalents with recognized institutions, such as major Swedish banks.

The connection between IAS 39 categories

and Medivir's balance sheet items	Financial assets				Loan and account receivables
Group, 31 Dec 2011 (sek 000)	recognized at fair value in the Income Statement	Cash and cash equivalents	Accounts receivable	Financial assets held for sale		Total
Financial assets held for sale				9,659		9,659
Accounts receivable			67,216			67,216
Accrued income and deferred costs						–
Other investments in securities, etc.	425,334					425,334
Cash and bank balances		110,945				110,945
Accounts payable					26,012	26,012
Borrowings					165,287	165,287
Finance lease liabilities					191	191
Total	425,334	110,945	67,216	9,659	191,490	804,644

Group, 31 Dec 2010 (sek 000)	Financial assets recognized at fair value in the Income Statement	Cash and cash equivalents	Accounts receivable	Financial assets held for sale	Loan and account receivables	Total
Financial assets held for sale				18,793		18,793
Accounts receivable			2,561			2,561
Accrued income and deferred costs			16,719			16,719
Other investments in securities, etc.	418,568					418,568
Cash and bank balances		228,672				228,672
Accounts payable					18,000	18,000
Finance lease liabilities					191	191
Total	418,568	228,672	19,280	18,793	18,191	703,503

Financial assets recognized at fair value

		Measurement at fair value at the end of the period based on:
Group 31 Dec 2011 (sek 000)	Carrying amount	Tier 1	Tier 2	Tier 3
Financial assets recognized at fair value in the Income Statement:
Other investments in securities, etc.	425,334	425,334	–	–
Financial assets held for sale:	9,659	–	–	9,659
Total	434 993	425,334	–	9,659

		Measurement at fair value at the end of the period based on:
Group 31 Dec 2010 (sek 000)	Carrying amount	Tier 1	Tier 2	Tier 3
Financial assets recognized at fair value in the Income Statement:
Other investments in securities, etc.	418,568	418,568	–	–
Financial assets held for sale:	18,793	–	–	18,793
Total	437,361	418,568	–	18,793

The following table illustrates changes for instruments in tier 3 in 2011

Opening balance	18,793
Losses recognized in the Income Statement	-9,134
Closing balance	9,659

No purchases, sales, gains or losses of financial assets recognized at fair value based on tier 3 occurred in 2010.

Market risks

Interest risk

Interest risk is the risk of a negative impact on cash flow or financial assets and liabilities resulting from changes in market rates of interest. Interest risk arises in two ways; the Group's investments in interestbearing assets whose value changes when interest rates change and the cost of the Group's borrowings when interest rates change.

Medivir's investment policy implies that the company invests its cash and cash equivalents in instruments such as bank and corporate commercial paper, fixed-income and bond funds, fixed bank investments and special deposits. Thus changes in market rates of interest affect Medivir's profit/loss through reduced or increased returns on financial assets.

As of 31 December 2011, the Group's cash and cash equivalents including investments in securities, etc. with maximum maturities of three months were 536,279 (647,240). 425,334 (418,568) of this total was invested in fixed-income funds with discretionary management. In 2011, Medivir received an average yield on cash and cash equivalents of 3.1%. Yields in the year varied between 0.5

and 3.1%. Based on an average of existing investments in securities, etc. in the year, and if yields had been 1 percentage point higher or lower, this would have had an annualized positive or negative profit impact of some 6,000. Falling interest rates would result in reduced yields on the Group's cash and cash equivalents. If yields fall to 0% in 2012, this would exert a profit/loss effect of -18,600 given unchanged holdings of cash and cash equivalents. The Group's borrowings as of 31 December 2011 consisted of a subordinated loan with fixed interest during the term of the loan, bank borrowings and an overdraft facility with a three-month fixed interest period. The Group's interest exposure is stated in the following table.

The Group's interest risk relates to changes in market interest rates and their effect on the debt portfolio. At the end of the period, the Group had fixed and variable interest. The Group does not use interest hedging instruments. The choice of fixed interest period is based on a cost-benefit analysis at each time for arranging loans. In its judgment of fixed interest periods, the Group considers its estimated cash flows.

Borrowings, 31 December 2011	Amount, sek 000	Interest cost 2012 given unchanged interest levels	Average interest rate level, %	Average fixed interest period, months	Change in interest cost 2011, given interest of +1%, sek 000
Subordinated loan 2012	62,572	4,533	7%	6	Fixed interest
Bank borrowings	100,000	6,030	6.03%	3	1,000
Overdraft facility	2,715	103	3.80%	3	27

Profit/loss would be negatively affected by 1,027 given a one percentage point interest rate increase according to the above.

Currency risk

Currency risk is the risk that the fair value or future cash flows associated with financial instruments vary due to changes in foreign exchange rates. Profit is affected when costs and revenues in foreign currencies are translated into Swedish kronor (transaction risk). The Balance Sheet is affected when assets and liabilities in foreign currencies are translated into Swedish kronor (translation risk).

In accordance with Medivir's Finance Policy, the Group did not use currency hedging in 2011. This means that income and costs have been affected by foreign currency fluctuations. The company's operating profit had a -170 (-670) net effect in exchange rate gains/ losses in the financial year, with the exchange rate gains/losses in net financial position amounting to -675 (40).

All trading in foreign currency was conducted at the best rate of exchange attainable at the point of exchange. Many of Medivir's contracts involve payments in eur and usd, implying that accounts payable and accounts receivable have currency exposure.

The Group's transactions in foreign currency consist of revenues from partners on research projects, pharmaceutical sales, purchases of goods and other operating costs. The Group's transactions in its most common currencies and the theoretical effect on profit or loss arising if the average rates of exchange on each currency change by 5% are stated below.

A sensitivity analysis demonstrates that 5% appreciation of the Swedish krona against the above currencies' annual average exchange rates would have meant a profit improvement of 10,112 (712) for the Group and parent company. The corresponding depreciation of the Swedish krona would have reduced profits by -10,112 (-712).

2011	Sales	Costs	Operating profit/loss	Change +/- 5%
EUR	60,202	-85,960	-25,757	+/- 1,288
USD	375,695	-33,526	342,169	+/- 17,108
GBP	–	-104,158	-104,158	+/- 5,208
DKK	718	-11,651	-10,933	+/- 1,547
NOK	8,849	-3,452	5,397	+/- 270
PLN	3,270	-7,756	-4,486	+/- 224
Total	448,735	-246,503	202,233	+/- 10,112
2010	Sales	Costs	Operating, profit/loss	Change +/- 5%
EUR	10,611	-13,779	-3,168	+/- 3,326
GBP	45	-5,517	-5,472	+/- 5,746
USD	43,307	-22,024	21,283	+/- 22,347
DKK	–	-11,965	-11,965	+/- 12,563
Total	53,963	-53,285	678	+/- 712

The table illustrates the currency-exposed operating income and operating costs as net amounts per currency in sek 000.

Share price risk of unlisted shares

In 2007, Medivir received shares from a new issue conducted by Epiphany Biosciences, Medivir's licensing partner on the shingles project MIV-606 (EPB-348) and shares from a new issue conducted by Presidio Pharmaceuticals Inc., Medivir's licensing partner on the compound MIV-410 (PTI-801). The total value of the shares amounted to 9,659 (18,793). Impairment of 9,133 (0) was expensed in 2011. Medivir classifies the shares as financial assets held for sale in accordance with IAS 39, and the shares are reported in the Balance Sheet under the "financial fixed assets" item.

Because none of these shares are listed, and are not registered on a recognized marketplace, other data than market quotation is used as the basis for valuation of the shares instead. An estimation of value consists of the companies' reported results of operations and financial position, the progress of the companies' project portfolios, share price performance on the Nasdaq biotech index, and where applicable, independent third-party valuations. If the valuation results in an estimated value change, the value change is reported in the statement of other comprehensive income for the period. Medivir does not have any investments in listed shares, hence there is no share price risk.

Credit risk (Counterparty risk)

Credit risk is the risk that a counterparty is unable to fulfill its contracted obligations to Medivir, thus causing a financial loss for the company.

Medivir invests its cash and cash equivalents with Swedish fund managers with high credit ratings, P-1 from Moody's. In the year, these investments did not experience any value changes resulting from changes to asset managers' credit risk.

Medivir may also be exposed to credit risk in accounts receivable. As of the reporting date, Medivir has 67,216 (2,561) of outstanding accounts receivable. Historically, Medivir has never needed to impair accounts receivable. Medivir has several partnerships with established pharmaceutical companies and smaller biotechnology enterprises, which diversify risks. Pharmaceutical sales are to large, established distributors, which in turn, sell pharmaceuticals on to pharmacies. Because the distributors do not bear any credit risk for insolvency of pharmacies, the Group risks bad debt if payments are not forthcoming from the pharmacy to the distributor.

Age analysis of accounts receivable (sek 000)		Group
	2011	2010	2011	2010
Not due	66,693	2,561	240	627
Overdue 0-90 days	523	–	9	–
Total	67,216	2,561	249	627

Other receivables amount to 16,586 (4,238) of which 0 (0) was due on the reporting date.

The Group's cash and cash equivalents are invested in liquid assets with low credit risk such as certificates of deposit, fixed income and bond funds subject to low risk levels (P-1, Moody's) through discretionary management. No credit risks are considered to apply to the above investments.

Liquidity and cash flow risk

Liquidity risk is the risk of future difficulties for Medivir to fulfill its obligations associated with financial liabilities. A financial liability is each liability in the form of a contracted obligation to pay cash

or other financial assets to another company, or to exchange a financial asset or financial liability with another company subject to terms that may be disadvantageous for the company.

The following table illustrates the maturity of the financial liabilities of the Group

Group				Parent company
31 Dec 2011	Less than 1 year	Between 1 and 2 years	Between 2 and 3 years	Less than 1 year	Between 1 and 2 years	Between 2 and 3 years
Accounts payable	26,012			10,522
Subordinated loan 2012	62,572
Bank borrowings	30,000		70,000
Overdraft facility	2,715
Total	121,299		70,000	10,522
		Group			Parent company
2010-12-31	Less than 1 year	Between 1 and 2 years	Between 2 and 3 years	Less than 1 year	Between 1 and 2 years	Between 2 and 3 years
Accounts payable	18,000			18,000
Subordinated loan 2012
Bank borrowings
Overdraft facility
Total	18,000			18,000

The amounts maturing within 12 months are consistent with the reported amounts, because the discount effect is insignificant. Other liabilities amounted to 12,521 (4,595) and mature within 12 months.

Liquidity risk is managed by Medivir investing cash and cash equivalents in fixed-income funds with low risk and a liquid market. Medivir's management and Board of Directors maintain continuous access to information regarding the company's equity and cash and cash equivalents. Liquidity and cash flow forecasts are prepared on an ongoing basis based on expected cash flow, to monitor liquidity capacity. As of the end of the period, Medivir has negative net debt, i.e. cash and investments in securities, etc. exceed the Group's interest-bearing liabilities. Medivir's research operations are selffinanced. Through the acquisition of BioPhausia, which provides the Group with continuous sales of pharmaceutical products, a more continuous positive cash flow is also created, enabling higher debt gearing than the Group has had historically. As portions of the Group's interest-bearing liabilities become due for repayment, there is a refinancing risk in tandem with the extension of existing

borrowings. The funding strategy focuses on securing the Group's need for loan financing, in terms of its long-term borrowing requirement and the daily payment obligations that Medivir has towards its lenders and suppliers. Borrowing is primarily through BioPhausia AB. Current liabilities are covered by Medivir's cash position and investments in securities, etc. on the reporting date, and accordingly, there is no liquidity risk for financial liabilities. The Group also disposes over unutilized credit facilities.

Capital

Consolidated equity is 1,095,575 (607,254) and is the company's secure base for financing operating activities. A detailed specification of shareholders' equity is on page 54. The cash position and investments in securities, etc. amounts to 536,279 (647,240).

Medivir's business goal is to be a profitable midsized specialty pharmaceutical company in high growth within a few years. Medivir is working on a goal-oriented and strategic footing to create the best possible prospects of running projects quickly and with balanced risks. Medivir has a solid financial position. The acquisition of Bio-Phausia brings annual sales of prescription pharmaceuticals on the Nordic market of over sek 500 m, and an all-new organization. Medivir now possesses the breadth of know-how and operations that extend from research and development to the marketing and sale of prescription pharmaceuticals. Medivir also has attractive projects in development, with TMC435 being the project that is most advanced, now in clinical phase III. These factors, combined with the ambition of finding new business opportunities in the Nordics, is the foundation of continued work on developing Medivir towards profitability.

Pharmaceutical research and development to approved registration and launch is a highly risky and capital-intensive process. The majority of the projects commenced will never reach market registration. If competing products take market shares or competing research projects achieve better efficacy and reach the market faster, the future value of Medivir's product and project portfolio may be lower than originally expected. Medivir's ability to produce new CDs, enter partnerships on its major projects to market launch and continued sales, and to secure funding of its operations, are decisive to its future.

While Medivir does not have a long-term independent earnings ability with sustainable profitability, the company will maintain a low debt gearing and a high equity ratio. No proposals regarding dividends to shareholders will be considered until long-term profitability is achieved. No dividends will be considered during the coming years.

Not 9 Interest income and similar profit/loss items (sek 000) 1)

	Group			Parent company
	2011	2010	2011	2010
Interest income, bank	1,215	529	1,049	529
Interest income on current receivables	26	–	–	–
Interest income Group companies	–	–	1,043	–
Exchange rate difference intra-group balances	2,232	–	–	–
Interest income from fixed-income investments	–	14	–	14
Dividends from fixed-income fund	1,996	297	1,996	297
Fair value change on fixed-income fund, unrealized	15,574	1 649	15,574	1,647
Other financial income	89	43	88	45
Total	21,134	2,532	19,750	2,532

1) Other interest income and similar profit/loss items are an effect of investments in securities, etc., recognized at fair value in the Income Statement and cash and bank balances.

Not 10 Interest costs and similar profit/loss items (sek 000)

	Group		Parent company
	2011	2010	2011	2010
Interest costs	9,235	-19	642	-19
Exchange rate difference, inter-company transactions	2,661	–	–	–
Exchange rate difference, other	13	–	–	–
Other financial costs	209	-14	–	-14
Total	12,118	-33	642	-33

Not 11 Tax (sek 000)

		Group	Parent company
Tax on profit/loss for the year	2011	2010	2011	2010
Current tax	–	–	–	–
Deferred tax	2,545	–	–	–
Tax on profit/loss for the year	2,545	–	–	–
Applicable tax rates
Sweden	26.3%	26.3%	26.3%	26.3%
UK	28%	28%	–	–
Difference between consolidated tax reported in the Income Statement and tax based on applicable tax rate
Profit/loss before tax	111,206	-134,228	153,593	-135,731
Tax at applicable tax rates	-29,247	35,302	-40,395	35,697
Tax effect of non-deductible impairment losses	-3,425	-301	-9,992	-5,293
Tax effect of non-deductible items	4,115	670	4,754	–
Tax effect of non-taxable income	–	340	–	–
Effect of foreign tax rates	39,490	–	45,634	–
Utilization of loss carry-forwards not previously capitalized	-2,715	-36,010	–	-30,403
Tax effect of deficits for which tax assets are not considered	-5,673	–	–	–
Utilization of capitalized tax asset	2,545	0	0	0
Reported tax

Deferred tax recognized in the Balance Sheet relates to the following:

Deferred tax	Asset	Liability	Net
Deferred tax asset
Capitalized loss carry-forward	83,528	–	83,528
Intangible fixed assets	–	5,387	-5,387
Subordinated loan	244	–	244
Closing balance	83,772	5,387	78,385

Change in deferred tax for the period:

Deferred tax asset	As of 31 Dec 2010	Purchased operation	Sold operation	Recognized in profit/loss	As of 31 Dec 2011
Capitalized loss carry-forward	0	94,683	-5,481	-5,674	83,528
Total deferred tax asset	0	94,683	-5,481	-5,674	83,528
Deferred tax liability
Temporary differences relating to:
Intangible assets	0	4,118	651	618	5,387
Inventories	0	7,705	–	-7,705	0
Subordinated loans	0	979	–	-1,223	-244
Other	0	-91	–	91	0
Total deferred tax liability	0	12,711	651	-8,219	5,143
Net deferred tax asset	0	81,972	-6,132	2,545	78,385

At year-end 2011, the total accumulated deficit of the Group is sek 1,365 m, of which sek 318 m has been capitalized. The remaining deficit of sek 1,047 m are deficits of the parent company and of Medivir UK that have not been capitalized due to difficulties in judging when the timing of capitalization of deficits can be offset against future surpluses.

Not 12 Earnings per share

		Group
	2011	2010
Basic and diluted earnings per share, sek1)	3,80	-5,43
Net profit/loss	113,751	-134,227
Average number of shares, 000	29,924	24,718

The calculation of earnings per share is based on net profit/loss divided by the average number of shares for the year.

1) Earnings per share before dilution – Profit after financial items less full tax divided by the average number of shares. Diluted earnings per share – Earnings per share after financial items less full tax divided by the average number of shares and outstanding share warrants, adjusted for potential dilution effect.

Not 13 Intangible fixed assets (sek 000)

	Group					Parent company
Group 2011	Trademarks and brands	Product rights	Goodwill	Capitalized expenditure for R&D	Other	Capitalized expenditure for R&D	Other
Opening acquisition cost	–	–	–	4,383	2,742	4,383	2,742
Capitalization	–	–	–	152	–	152	–
Increase through business combinations	19,234	351,874	188,271	–	–	–	–
Sales and retirements	–	-20,000	–	-216	–	-216	–
Exchange rate differences	–	–	-118	–	–	–	–
Closing accumulated acquisition cost	19,234	331,874	188,153	4,319	2,742	4,319	2,742
Opening amortization	–	–	–	-424	-2,353	-424	-2,353
Amortization for the year	-1,122	-14 239	–	-445	-117	-445	-117
Sales and retirements	–	1 333	–	39	–	39	–
Closing accumulated amortization	-1,122	-12,906	–	-830	-2,470	-830	-2,470
Book value at year-end	18,112	318,968	188,153	3,489	272	3,489	272

	Group					Parent company
Group 2010	Trademarks and brands	Product rights	Goodwill	Capitalized expenditure for R&D	Other	Capitalized expenditure for R&D	Other
Opening acquisition cost				4,077	2,856	4,077	2,856
Capitalization				306	–	306	–
Increase through business combinations				–	–	–	–
Sales and retirements				–	-114	–	-114
Exchange rate differences				4,383	2,742	4,383	2,742
Closing accumulated acquisition cost
Opening amortization				–	-2,300	–	-2,300
Reversal of capitalized costs				–	78	–	78
Amortization for the year				-424	-130	-424	130
Sales and retirements
Closing accumulated amortization				-424	-2,553	-424	-2,553
Book value at year-end	–	–	–	3,959	389	3,959	389

Trademarks and brands

Trademarks and brands relate to Cross Pharma, and arose on the acquisition of BioPhausia AB. Amortization is on a straight-line basis over the assessed useful life of 10 years.

Product rights

Product rights relate to the acquisition of BioPhausia AB; there were two product portfolios on acquisition; proprietary products and license rights for generic products. The generics portfolio was divested on 1 September. Amortization of remaining product rights is on a straight-line basis over the assessed useful life of 15 years.

Goodwill

Goodwill relates to the acquisition of BioPhausia AB. Goodwill has an indefinite useful life and is subject to annual impairment tests.

Capitalized expenditure for research and development work

Capitalized development expenditure for Xerclear. Useful life is based on the underlying patent life-time and is 10 years. Amortization is on a straight-line basis to allocate development costs on the basis of estimated useful life.

Other

Other intangible assets are capitalized development expenditure for ERP systems. The useful life is estimated at 5 years, whereby the reported asset is amortized in accordance with this estimate.

Impairment tests

Intangible assets with indefinite useful lives are subjected to impairment tests at least annually. Assets that are depreciated or amortized according to plan are subject to impairment tests whenever events or changed circumstances indicate that their carrying amount is not recoverable.

The following table illustrates the carrying amount of goodwill allocated by cash-generating units

sek 000	31 Dec 2011	31 Dec 2010
Parallel Import	150,481	–
Pharmaceuticals	37,672	–
Total	188,153	–

The present value of future cash flows of each cash-generating unit are calculated for impairment tests.

Future cash flows are based on the budget adopted by the Board of Directors and current trends. The adopted budget is based on a large number of detailed assumptions regarding volume growth, rates of exchange, cost growth, etc. In addition, budgets are based on knowledge from management and other executive staff within the organization, on history and also forward-looking information. The forecast for the time period in the following year's budget and beyond are based on management's long-term forecast planning. This is based on several more over-arching assumptions regarding the economy, volume growth, competition, rates of exchange, cost growth, etc. The computations and forecasts are based on supporting data from external sales statistics and internal trend analysis. Together with management experience, estimated forecasts, business plans and existing agreements with suppliers, these form the basis of estimates.

WACC

The discount rate applied has been calculated as the WACC (weighted average cost of capital) and amounts to 11.5% before tax. The discount rate is based on a market assessment of the average cost of capital considering estimated risk level prevailing. Required returns on equity are based on assumptions of a risk-free interest rate of 3.5%, a market risk premium of 5% and a beta value of 1.

Sensitivity analysis

The sensitivity analyses are conducted to analyze how changes in WACC and estimated growth rates affect the estimated value in use of cash-generating units.

Not 14 Fixed assets (sek 000)

		Group		Parent company
Buildings and land 1)	2011	2010	2011	2010
Opening acquisition cost	17,719	17,719	4,232	4,232
Purchases	–	–	–	–
Closing accumulated acquisition cost	17,719	17,719	4,232	4,232
Opening depreciation	-15,795	-15,583	-2,308	-2,096
Depreciation for the year	-211	-212	-211	-212
Closing accumulated depreciation	-16,007	-15,795	-2,520	-2,308
Book value at year-end	1,712	1,924	1,712	1,924

1) The value of buildings in the Group corresponds to incurred cost of improvement in rental properties.

		Group
Equipment, tools, fixtures and fittings	2011	2010	2011	2010
Opening acquisition cost	134,537	130,925	119,817	116,205
Purchases	17,010	5,462	15,577	5,462
Increase through business combination	1,562	–	–	–
Sales and retirements	-3,223	-1,850	-1,336	-1,850
Exchange rate differences	-496	–	–	–
Closing accumulated acquisition cost	149,390	134,537	134,058	119,817
Opening depreciation	-111,650	-106,121	-96,930	-91,401
Depreciation for the year	-7,299	-7,109	-6,983	-7,109
Sales and retirements for the year	3,105	1,580	1,332	1,580
Exchange rate differences	363	–	–	–
Closing accumulated depreciation	-115,481	-111,650	-102,581	-96,930
Book value at year-end	33,909	22,887	31,477	22,887

Finance leases

Tangible fixed assets include leased items that are held through finance leases as follows:

		Group		Parent company
Equipment, tools fixtures and fittings	2011	2010	2011	2010
Cost	266	266	266	266
Accumulated depreciation	-111	-57	-111	-57
Book value at year-end	155	209	155	209
Future minimum lease payments have the following due dates:
Within one year	75	75	75	75
Between one and five years	41	116	41	116
Total	116	191	116	191

Depreciation of 53 (53) was charged to profit/loss.

Not 15 Participations in Group companies (sek 000)

	Corporate ID no.	Registered office	No. of shares	Share of capital	Book value 2011	Book value 2010
Subsidiaries:
Biophausia AB1)	556485-0153	Stockholm	342,564,194	100%	604,112	0
Medivir UK Ltd	3496162	Essex, England	2,000,007	100%	0	0
Medivir Personal AB	556598-2823	Huddinge	1,000	100%	100	100
Medivir HIV Franchise AB	556690-7118	Huddinge	1,000	100%	100	100
Total					604,312	200

1) Holdings in BioPhausia AB: Cross Pharma AB, OY Cross Pharma AB, Prodlekpol, Altesse AB, Astor Pharma AB, Glycovisc BioTech AB, Lefarm, BioPhausia A/S, OY BMM Pharma AB.

Not 16 Financial assets held for sale (sek 000)

		Group		Parent company
	2011	2010	2011	2010
Epiphany Biosciences
Opening book value	14,165	14,165	14,165	14,165
Impairment loss	-7,836	–	-7,836	–
Closing book value	6,329	14,165	6,329	14,165
Presidio Pharmaceuticals Inc.
Opening book value	4,628	4,628	4,628	4,628
Impairment loss	-1,298	–	-1,298	–
Closing book value	3,330	4,628	3,330	4,628
Total	9,659	18,793	9,659	18,793

In 2011, valuations conducted by independent parties indicate that market value was significantly below carrying amount, and the value impairment was judged to be significant and permanent, and accordingly, the holdings in Epiphany and Presidio were impaired by 7,836 and 1,298 respectively to assessed market value.

Not 17 Inventories (sek 000)

	Group		Parent company
	2011	2010	2011	2010
Finished goods	61,877	95	261	95
Raw materials inventories	8,207	–	–	–
Goods in repackaging	3,906	–	–	–
Total	73,990	95	261	95

Impairment of inventories for the year amounts to sek 8,185,000 (0) and are included in cost of goods sold.

Not 18 Prepaid costs and accrued income (sek 000)

	Group		Parent company
	2011	2010	2011	2010
Pre-paid rent	3,229	2,210	948	931
Licensing fees	2,566	1,043	2,566	1,043
Accrued milestone payment	–	16,719	–	16,719
Servicing agreements	418	1,137	418	1,137
Connecting to external databases	853	1,507	853	1,507
Other items	2,974	789	796	779
Total	10,039	23,405	5,580	22,116

Not 19 Other investments in securities, etc. and cash and bank balances (sek 000)

		Group		Parent company
	2011	2010	2011	2010
Fixed-income and bond funds 1)	425,334	418,568	425,334	418,568
Cash and bank balances	110,945	228,672	90,963	225,986
Total	536,279	647,240	516,297	644,554

Not 20 Interest-bearing liabilities (sek 000)

	Group		Parent company
	2011	2010	2011	2010
Long-term interest-bearing liabilities, sek 000
Bank borrowings	70,000	–	–	–
Finance lease liability	41	116	41	116
Total long-term interest-bearing liabilities	70,041	116	41	116
Current interest-bearing liabilities, sek 000
Liabilities to credit institutions	32,715	–	–	–
Finance lease liability	75	75	75	75
Subordinated loan	62,572	–	–	–
Total	95,362	75	75	75
Unutilized credit facilities
Overdraft facility	97,285	–	–	–

Not 21 Accrued costs and deferred income (sek 000)

	Group		Parent company
	2011	2010	2011	2010
Accrued holiday pay	15,857	10,756	13,149	10,756
Accrued performance-related pay and severance pay	1,592	5,000	1,592	5,000
Accrued research costs	4,733	2,179	4,733	2,179
Accrued rent	4,713	3,243	–	–
Accrued social security costs on staff stock options	427	7,926	427	7,926
Accrued social security costs	3,000	–	1,716	–
Accrued salaries	4,310	913	–	913
Deferred income	1,054	53,600	1,054	52,000
Other items	20,964	11,834	11,076	11,698
Total	56,650	95,451	33,747	90,472

Not 22 Assets pledged (sek 000)

	Group		Parent company
	2011	2010	2011	2010
Floating charge (approx.)	104,250	–	–	–
Shares in subsidiaries	56,765	–	–	–
Pledged bank balances	1,153	–	1,153	–
Total	162,168	–	1,153	–

Not 23 Acquired operations

On 31 May, Medivir acquired 100% of the shares of BioPhausia AB for a total purchase price of sek 586.5 m, of which sek 218.2 m was settled in cash. Acquisition costs in the Group amount to sek 20.9 m and are included in other operating costs. Acquisition costs in the parent company were capitalized and amount to sek 17.6 m.

On 11 April 2011, Medivir publicized its offering to acquire all the shares and listed share warrants of BioPhausia. This offering consisted of a combination of cash and new class B Medivir shares, with each BioPhausia share valued at sek 1.65 and each listed share warrant at sek 0.32, equating to the listed price at the acquisition date. An EGM (Extraordinary General Meeting) of Medivir on 5 May secured shareholder support to issue shares as payment. The Board decided to conduct the acquisition on 31 May 2011. The valuation of the new class B Medivir shares was based on the listed price of sek 143.50 at the acquisition date. A total of 2,510,817 class B shares were issued, with an additional sek 184.5 m paid in cash for the acquisition. This acquisition did not include any additional purchase price. At the end of the period, Medivir's holding was 100%.

BioPhausia complements Medivir's operations with its competence in regulatory work, logistics, distribution, marketing, sales and the quality-assurance of pharmaceuticals, as well as a local presence in Sweden, Denmark and Finland. This acquisition is also an important step ahead of the expected launch and commercialization of TMC435 in the Nordics, where Medivir holds the commercial rights. The transaction was based on commercial benefit and with this acquisition, Medivir has taken a step toward its goal of becoming an integrated and profitable Nordic specialty pharmaceutical company focusing on infectious diseases.

The revenue from BioPhausia recognized in the Consolidated Income Statement since 1 June 2011 amounts to sek 293.8 m. BioPhausia also made a sek -16.7 m contribution to net profit/loss. If BioPhausia had been consolidated from 1 January 2011, revenue would have been sek 512.3 m and the contribution to net profit/loss sek 10.3 m. Because inventories at the acquisition date are recognized at estimated net realizable value, BioPhausia's net profit/loss for the period was negatively affected by sek 29.3 m.

The fair value of acquired identifiable intangible assets amounted to sek 371.1 m, of which product rights are sek 351.9 m and trademarks and brands are sek 19.2 m. Goodwill of sek 188.2 m has been allocated as follows: sek 150.5 m of product rights included in goodwill are recognized as an intangible asset and consist of the amount by which acquisition cost exceeds the fair value of the identifiable net assets at the acquisition date. No part of recognized goodwill is expected to be deductible.

An acquisition analysis for the purchase of BioPhausia, summarizing the purchase price paid and the fair value of acquired assets and liabilities taken over reported on the acquisition date follows.

Reporting of purchase price (sek m)

Total purchase price	586.5
Liability for compulsory redemption	0.7
Cash settlement of compulsory redemption	33.7
Cash payment, staff stock options	0.6
Cash payment, listed share warrants	12.9
Fair value of issued shares	367.5
Cash payment, shares	171.0
Purchase price

Assets of the acquired operation measured at market value (sek m)

Fixed assets
Intangible fixed assets	371.1
Tangible fixed assets	1.6
Deferred tax asset	82.2
Current assets
Inventories	113.2
Accounts receivable	56.7
Current tax receivables	5.6
Other receivables	0.7
Prepaid expenses and accrued income	9.4
Cash and bank balances	26.6
Total assets of acquired operation	667.0

Liabilities of the acquired operation measured

at market value (sek m)
Long-term liabilities
Subordinated loan	60.7
Current liabilities
Repayment of long-term debt	156.2
Accounts payable	18.6
Other liabilities	9.4
Accrued expenses and deferred income	23.8
Total liabilities in acquired operation	268.8
Acquired net assets	398.2
Goodwill	188.2
Total purchase price	586.5

Cash and cash equivalents (sek m)

Effect on consolidated cash and cash equivalents	-191.6
Cash and cash equivalents in acquired operation	26.6
Cash paid, purchase price	-218.2
Cash and cash equivalents

Not 24 Discontinued operations

On 1 September, 100% of the shares of BMM Pharma AB were s old to Bluefish Pharmaceuticals AB for a total purchase price of sek 32.3 m, of which sek 24 m was settled in cash and the remaining purchase price will be settled within 12 months. The sale resulted

in a loss of sek -0.5 m and a cash flow of sek 24.0 m. The revenue BMM Pharma AB contributed to consolidated turnover is sek 8.3 m and the contribution to net profit/loss is sek -7.0 m.

Not 25 Post balance sheet events

Phase II combination trial on TMC435 and GS7977 commences

In January, a trial run by Tibotec Pharmaceuticals commenced, which will study the efficacy and safety of 12 and 24 weeks' treatment with TMC435, 150 mg per day in combination with GS7977 (Pharmasset), 400 mg per day, with or without ribavirin, on individuals with chronic hepatitis C infection of genotype 1 that are previous null responders to peginterferon/ribavirin. The primary endpoint will be sustained virologic response after 12 weeks' therapy (SVR12).

OTC launch of Xerclear® in Europe started by GSK under the Zoviduo and Zovirax Duo brands

According to a June 2010 agreement with GSK conferring exclusive rights to market and distribute Xerclear® for OTC sale on several markets, GSK has initiated OTC launches in five countries where Zoviduo and Zovirax Duo are approved for OTC sale: Denmark, the Czech Republic, Slovakia, Portugal and Poland. The launches will be through the spring, starting in February. GSK's objective is to launch on more markets as each regulatory authority grants approval for OTC sale. GSK will pay Medivir up to double-digit royalties on sales for its exclusive rights.

Two phase III trials on TMC435 commence

Dosing and screening of patients have commenced on two clinical phase III trials on Medivir's protease inhibitor TMC435 dosed once/ day, developed by Janssen Pharmaceuticals.

The phase III trial HPC 3001 will evaluate the efficacy, safety and tolerability of TMC435 and telaprevir, both dosed in combination with pegylated interferon -2a (peg-INF) and ribavirin (RBV) in patients infected with hepatitis C genotype 1 that are previous null responders or partial responders to peg-INF/RBV. This trial is a randomized, double-blind and double-dummy design with two trial arms on some 744 patients. Dosing will be 150 mg once/day or telaprevir 750 mg every 8 hours in combination with peg-INF/RBV for 12 weeks, followed by 36 weeks of peg-INF/RBV alone. The primary trial endpoint is sustained virologic response 12 weeks after treatment concludes (SVR12).

HP3011 is an open phase III trial with one trial arm that will examine the efficacy, safety and tolerability of treatment with TMC435 in combination with peg-IFN/RBV on 100 patients infected with hepatitis C genotype 4, that are previous null responders or relapsers after previously concluded treatment.

All patients will undergo 12 weeks' triple therapy with TMC435 at 150 mg once/day and peg-IFN/RBV, followed by peg-IFN/RBV alone. The primary endpoint of this trial is SVR12.

Application for phase I trials on MIV-711

Based on the results of preclinical safety and toxicology trials, Medivir has decided to commence the clinical development of MIV-711 and has applied for a clinical trial permit with a European regulatory authority. The first clinical trial will commence as soon as permission is obtained.

Certification

The Board of Directors and Chief Executive Officer certify that the Consolidated Accounts have been prepared in accordance with IFRS (International Financial Reporting Standards) as endorsed by the EU and give a true and fair view of the Group's financial position and results of operations. The Annual Accounts have been prepared in accordance with generally accepted accounting principles and give a true and fair view of the parent company's financial position and results of operations. The Report of the Directors of the Group and parent company give a true and fair view of the Group's and parent company's operations, financial position and results of operations, and describe the significant risks and uncertainty factors facing the companies included in the Consolidated Accounts.

Huddinge, Sweden, 26 March 2012

Björn C. Andersson Board member

Anna Malm Bernsten Board member

Ingemar Kihlström Board member

Maris Hartmanis Chief Executive Officer

Göran Pettersson Chairman of the Board

Our Audit Report was presented on 30 March 2012 PricewaterhouseCoopers AB

Claes Dahlén Authorized Public Accountant

Auditor's report

To the annual meeting of the shareholders of Medivir AB (publ), corporate identity number 556238-4361

Report on the annual accounts and consolidated accounts

We have audited the annual accounts and consolidated accounts of Medivir AB for the year 2011. The annual accounts and consolidated accounts of the company are included in the printed version of this document on pages 25-81.

Responsibilities of the Board of Directors and the Managing Director for the annual accounts and consolidated accounts

The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these annual accounts and consolidated accounts in accordance with International Financial Reporting Standards , as adopted by the EU, and the Annual Accounts Act, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these annual accounts and consolidated accounts based on our audit. We conducted our audit in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts and consolidated accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts and consolidated accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the annual accounts and consolidated accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors and the Managing Director, as well as evaluating the overall presentation of the annual accounts and consolidated accounts.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinions

In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2011 and of its financial performance[and its cash flows for the year then ended in accordance with the Annual Accounts Act, and the consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the Group as of 31 December 2011 and of their financial performance and cash flows in accordance with International Financial Reporting Standards, as adopted by the EU, and the Annual Accounts Act. The statutory administration

report is consistent with the other parts of the annual accounts and consolidated accounts.

We therefore recommend that the annual meeting of shareholders adopt the income statement and balance sheet for the parent company and the Group.

Report on other legal and regulatory requirements

In addition to our audit of the annual accounts and consolidated accounts, we have examined the proposed appropriations of the company's profit or loss and the administration of the Board of Directors and the Managing Director of Medivir AB for the year 2011.

Responsibilities of the Board of Directors and the Managing Director The Board of Directors is responsible for the proposal for appropriations of the company's profit or loss, and the Board of Directors and the Managing Director are responsible for administration under the Companies Act.

Auditor's responsibility

Our responsibility is to express an opinion with reasonable assurance on the proposed appropriations of the company's profit or loss and on the administration based on our audit. We conducted the audit in accordance with generally accepted auditing standards in Sweden.

As a basis for our opinion on the Board of Directors' proposed appropriations of the company's profit or loss, we examined [the Board of Directors' reasoned statement and a selection of supporting evidence in order to be able to assess] whether the proposal is in accordance with the Companies Act.

As a basis for our opinion concerning discharge from liability, in addition to our audit of the annual accounts and consolidated accounts, we examined significant decisions, actions taken and circumstances of the company in order to determine whether any member of the Board of Directors or the Managing Director is liable to the company. We also examined whether any member of the Board of Directors or the Managing Director has, in any other way, acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

In addition, we have read the corporate governance report and based on this reading, and our knowledge of the Company we believe we have sufficient basis for our opinion. This means that our review of the Corporate Governance Report has a different focus and a limited scope than the scope of a an audit conducted in accordance with International Standards on Auditing and auditing standards in Sweden.

Opinions

We recommend to the annual meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.

A corporate governance report has been prepared and its statutory information is consistent with the annual accounts and the consolidated accounts.

Stockholm 30 March 2012 PricewaterhouseCoopers AB

Claes Dahlén Authorized Public Accountant

Six-year summary

Medivir Group, sek 000	2011	2010	2009	2008	2007	2006
INCOME STATEMENT 1)
Net sales 2)	698,566	54 912	25,684	97,175	249,623	126,049
Work performed by the company for its own use and capitalized	–	–	4,077	–	–	–
Other operating income	–	–	5,737	4,800	3,840	3,287
Operating costs	-586,717	-191 639	-175,313	-215,708	-290,783	-330,932
Operating profit/loss	111,849	-136,727	-139,815	-113,733	-37,320	-201,596
Profit/loss from financial investments	-643	2,499	4,427	13,711	8,489	1,140
Profit/loss after financial items	111,206	-134,228	-135,388	-100,023	-28,832	-200,455
Full tax	2,545	0	13	820	-487	4,876
Profit/loss after full tax	113,751	-134,228	-135,375	-99,203	-29,318	-195,580

		31 Dec 2011 31 Dec 2010 31 Dec 2009 31 Dec 2008 31 Dec 2007 31 Dec 2006
BALANCE SHEET
Intangible fixed assets	528,994	4,348	4,632	482	936	1,390
Tangible fixed assets	35,621	24,811	26,941	35,764	35,878	33,361
Financial fixed assets	9,659	18,793	18,793	18,793	18,793	0
Deferred tax asset	78,385
Inventories and current receivables	73,990	30,299	11,254	31,990	73,928	56,942
Cash and cash equivalents and investments in securities, etc.3)	630,123	647,240	143,580	284,486	329,330	195,066
Equity	1,095,576	607,254	153,855	287,606	383,979	186,306
Deferred tax liability/provisions
Long-term interest-bearing liabilities	70,041	116	191	–	–	–
Long-term non-interest-bearing liabilities	610	–	–	–	–	–
Current liabilities	190,545	118,121	51,154	83,908	74,887	100,452
Total assets	1,356,772	725,491	205,200	371,515	458,866	286,758
Capital employed	1,095,576	607,254	153,855	287,606	383,979	193,181

1) the Income Statements for 2010-2011 are classified by function and the Income Statements for 2006-2009 are classified by nature of expense.

2) Net sales in 2007 mainly comprised three milestone payments totaling SEK 182.3 m for HCV protease inhibitors from Tibotec Pharmaceuticals Ltd. Revenues from pharmaceuticals sales via the acquired operations of BioPhausia are included in revenues from 1 June 2011 onwards.

3) The increase in cash and cash equivalents in 2010 and 2007 is due to factors including new share issues conducted in the second and fourth quarters of 2010 and the first quarter of 2007 by Medivir AB.

Key figures

Medivir Group	2011	2010	2009	2008	2007	2006
EBITDA (sek 000)	135,348	-128,851	-129,425	-103,410	-13,644	-154,525
EBIT (sek 000)	111,914	-136,726	-139,815	-113,733	-37,320	-201,596
Operating margin, %	16.0	-222.2	-544.4	-117.0	-15.0	-159.9
Profit margin, %	15.9	-218.1	-527.1	-102.9	-11.6	-159.0
Debt gearing, multiple	0.2	0.0	0.1	0.0	0.0	0.04
Return on:
equity, %	13.4	-35.3	-61.3	-29.5	-10.3	-69.3
capital employed, %	14.2	-35.2	-61.2	-29.6	-9.9	-66.6
total capital, %	12.7	-28.8	-46.8	-23.9	-7.6	-52.8
Equity ratio, %	80.7	83.7	75.0	77.4	83.7	65.0
Average number of shares, 000	29,924	24,718	20,844	20,844	16,873	12,903
Number of shares at year-end, 000	31,254	28,593	20,844	20,844	20,844	12,903
Basic and diluted earnings per share, sek	3.80	-5.43	-6.49	-4.76	-1.74	-15.16
Equity per share before and after dilution, sek	35.05	21.24	7.38	13.80	18.42	14.44
Net worth per share before and after dilution, sek	35.05	21.24	7.38	13.80	18.42	14.44
Cash flow per share after investments, sek	-4.26	-3.34	-6.76	-2.14	-4.91	-7.39
Cash flow per share after financing activities, sek	-3.71	20.39	-6.76	-2.14	7.95	-8.28
Dividend per share, sek	0	0	0	0	0	0
Number of outstanding share warrants	712,507	803,647	760,000	970,000	970,000	676,995

Definitions

Average number of shares

The unweighted average number of shares during the year.

Capital employed

Total assets less non interestbearing liabilities including deferred tax liabilities.

Cash flow per share

Cash flow divided by the average number of shares.

Debt gearing

Interest-bearing liabilities divided by shareholders' equity.

Diluted earnings per share

Earnings per share after financial items less full tax divided by the average number of shares and outstanding share warrants, adjusted for potential dilution effect.

Earnings per share

before dilution Profit after financial items less full tax divided by the average number of shares.

EBITDA

Earnings before interest, taxes, depreciation and amortization. EBIT

Earnings before interest, taxes, depreciation and amortization.

Equity ratio

Shareholders' equity in relation to total assets.

Full tax

Tax on profit after financial items and deferred tax on change in untaxed reserves.

Net worth per share

Equity plus hidden assets in listed equities divided by number of shares at the end of the period.

Operating margin Operating profit as a

percentage of net sales.

Profit margin Profit after financial items as a percentage of net sales.

Return on equity

Profit after financial items less full tax as a percentage of average shareholders' equity.

Return on capital employed

Profit after financial items plus financial costs as a percentage of average capital employed.

Return on total capital

Profit /loss after financial items plus financial costs as a percentage of average total assets.

Shareholders' equity per share

Shareholders' equity divided by the number of shares at the end of the period.

Shareholders´ equity

The total of non-restricted and restricted equity at the end of the year. Average equity is calculated as the total of opening and closing balances of equity divided by two.

Forthcoming financial information

• The Three-month Interim Report will be published on 10 May 2012.
• The Six-month Interim Report will be published on 23 August 2012.
• The Nine-month Interim Report will be published on 20 November 2012.

These reports will be available at Medivir's website, www.medivir.se under the heading Investor Relations, as of these dates.

Medivir sends its reports to all shareholders, except those who declined all information when registering their VP accounts.

For more information on Medivir, please contact Rein Piir, EVP Corporate Affairs & IR.

REIN PIIR

Phone direct: +46 (0)8 546 831 23 Switchboard: +46 (0)8 407 64 30 rein.piir@medivir.se

Annual General Meeting

P L E A S E N O T E

Medivir's AGM will be held at the conference hall Polstjärnan, Sveavägen 77, Stockholm, Sweden on Thursday 10 May 2011 at 2 p.m.

Shareholders intending to participate in the Annual General Meeting should

• firstly, be recorded in the shareholders' register maintained by Euroclear Sweden AB by no later than 4 May 2012 and
• secondly, notify the company of their name, address and telephone number by mail to Medivir AB, Blasieholmsgatan 2, SE-111 48 Stockholm, Sweden or by telephone: +46 (0)8 407 64 30 or fax:+46 (0)8 407 64 39 or e-mail: enter@medivir.se by no later than 4 May 2012.

Important notice for nominee-registered shareholders For entitlement to participate in the Annual General Meeting, shareholders with nominee-registered holdings should temporarily re-register their shares in their own name with Euroclear Sweden AB. Shareholders desiring such re-registration must inform their nominee thereof in good time before 4 May 2012.

photography Joakim Folke

produc tion Admarco/Medivir editing Med Enkla Ord /Medivir translation Turner & Turner print Billes

The task of maintaining and entering new partnerships builds on a broad engagement within Medivir where many disciplines are involved.

Expertise on polymerase and protease mechanisms is the foundation for our operations. The other specific area of expertise is within infectious disease, especially viral diseases.

Blasieholmsgatan 2, SE-111 48 Stockholm, Sweden • Visit: Hovslagargatan 5 Phone: +46 8 407 64 30 • Fax: +46 8 407 64 39 • info@medivir.se • www.medivir.com