3M 2005 Annual Report Download - page 45

19
indication has and is expected to continue to fall short of expectations 3M had at the time of FDA approval and 3M is
currently reassessing Aldara’s total market potential. Health Care continued to focus on operational efficiency, which
helped drive an 8.2% increase in operating income in 2005. The Company's agreement with Takeda Pharmaceutical
Co., Ltd., announced in early 2005 and described further below, is currently the focus of the Company’s efforts to
develop its immune response modifier technology while the Company reviews its other development efforts.
3M received U.S. Food and Drug Administration (FDA) approval for Aldara™ (imiquimod) Cream, 5%, in 1996 for
the treatment of external genital warts, in March 2004 for the treatment of certain types of actinic keratosis (a pre-
cancerous skin condition), and in July 2004 for the treatment of superficial basal cell carcinoma (a common form
of non-melanoma skin cancer). The patent and related rights for the imiquimod molecule are important to the
Health Care Business. The original patent on the imiquimod molecule expired in August 2004, but the patent term
extension runs through August 2009, with an anticipated pediatric exclusivity extension of a further six months to
February 2010.
In the first quarter of 2005, 3M and Takeda Pharmaceutical Co. Ltd. entered into an agreement to collaborate on a
potential breakthrough treatment utilizing an immune response modifier for cervical high-risk human papilloma
virus (HPV) infection and cervical dysplasia, which are known risk factors for cervical cancer. This immune
response modifier currently is in early stage clinical trials, and 3M and Takeda will share further development
costs. Upon successful clinical development and regulatory approvals, the parties will commercialize jointly in the
United States and Europe. Takeda will hold commercial rights in certain countries in Asia, while 3M will retain the
rights in other parts of the world.
In October 2003, IVAX Corporation agreed to assume exclusive rights to 3M’s branded health care respiratory
products, together with related marketing and sales personnel, in nine European countries. The agreement
covered QVAR™ (beclomethasone dipropionate HFA) Inhalation Aerosol, a “maintenance” medication used to
prevent asthma attacks, and also covered Airomir™ (albuterol sulfate) Inhaler, a “rescue” medication used to
relieve acute asthma symptoms. 3M will continue to manufacture and supply these products to IVAX. The total
consideration due under the agreement, including minimum annual royalty payments, was $77 million, of which
$24 million was paid in 2005, $24 million was paid in 2004 and $26 million was paid in 2003. 3M expects to
receive $3 million in 2006. 3M may also receive additional royalty payments in 2010 (up to a maximum of
approximately $7 million in total) if IVAX achieves certain annual sales levels. The Company recognizes the
royalty revenue related to the IVAX agreement ratably over the term of the licensing arrangement.
In 2004, local-currency sales in Health Care increased 1.7%, with 2004 negatively impacted by 2003
pharmaceutical and drug delivery agreements that did not repeat. Fourth quarter 2004 local-currency sales grew
5.0%, as year-on-year comparisons became more favorable. Operating income increased 9.3% to $1.123 billion in
2004.
Industrial Business (18.0% of consolidated sales):
2005 2004 2003
Sales (millions) $3,806 $3,444 $3,070
Sales change analysis:
Local currency (volume and price) 9.3% 8.2% (0.7)%
Translation 1.2 4.0 5.0
Total sales change 10.5% 12.2% 4.3%
Operating income (millions) $ 735 $ 610 $ 425
Percent change 20.5% 43.7% (11.1)%
Percent of sales 19.3% 17.7% 13.8%
The Industrial segment serves a broad range of industrial markets, from appliance and electronics to paper and
packaging and food and beverage. Products include tapes, a wide variety of coated and nonwoven abrasives,
adhesives, specialty materials and supply chain execution software solutions. The August 2005 CUNO acquisition
adds a comprehensive line of filtration products for the separation, clarification and purification of fluids and gases.
In 2005, Industrial local-currency sales grew 9.3%. The August 2005 CUNO acquisition, whose results are included in
Industrial, added 5.1% of growth in 2005. In addition to CUNO, growth was led by industrial adhesives and tapes, as