Lek capitalizes on two of the largest-selling products in the world in the high-risk generics market - Combination of Lek's development and Novartis' strength in the field of intellectual property ensures excellent business results

2003 Exceptional for Lek

2. 2. 2004

Ljubljana, February 2nd, 2004 – The year 2003 was outstanding for Lek: with 145 billion tolars in sales and a 51.9-percent growth rate, Lek achieved exceptional business results and made a major contribution to the success of Sandoz, Novartis’ generics business. Lek entered the toughest pharmaceuticals market in the world, the US market, with two key products: co-amoxiclav (an antibiotic) and omeprazole (a drug for treating stomach ailments). Lek also performed well on its traditional markets of Central and Eastern Europe, South-Eastern Europe and the Commonwealth of Independent States. With a strategic decision made several years ago, Lek prepared itself for operations within the European Union; this year Lek will have direct access to those markets for its key products through Sandoz. Lek successfully completed development projects and continued investments both at home and abroad. On the introduction of a system for copayments for drugs in Slovenia, Lek enabled patients to continue using existing therapies without copayment. In 2003 Lek employed 300 new persons, of whom more than 50 are R&D experts.

Markets, products – Lek able to take advantage of opportunity on challenging market Lek’s most significant achievement in sales was on the US market, where as one of the first generics companies it introduced co-amoxiclav and omeprazole, its leading products. The combination of Lek’s development and Novartis’ strength in the field of intellectual property ensured excellent business results.

Lek’s sales also grew on the majority of their key markets. In Poland, Lek together with Sandoz was the second-largest generics company, just behind Poland’s leading domestic pharmaceuticals company, and increased its market share.

In 2004 Lek will have direct access to the markets of the European Union through Sandoz; In the coming years the European Union will be one of the key sales areas for Lek, and Lek will be present already this year with some of its key products. This will be the final step in achieving our strategic objective of implementing the development projects that require increasingly large investments in the global pharmaceutical market.

Lek earmarks 22.5 billion tolars for investments in 2003
Intensive investment activities were increased in 2003. In Ljubljana the main projects (increasing pellet and granulation capacities) were connected with the construction of a plant for manufacturing solid forms in the extension to the new pill manufacturing plant. We also built a new high-bay warehouse and completed the construction of an extension to the head quarters building and new vivariums. In Mengeš we completed the construction of a series of smaller buildings which has already made possible the increased production of lisinopril; we are also building the main building for new organic synthesis. We have completed construction of PORT1 (a Slovene acronym for recombinant technologies manufacturing plant), which will be intended for the production of recombinant drugs, and which is one of Lek’s most important projects. In Lendava we have decided to improve and expand production capacities for potassium clavulanate, and in Prevalje work is continuing on increasing capacities for coating and pill production.

Intensive investment activities were also performed abroad in 2003. In Strykow, Poland and in Targu Mureš in Romania we built two modern pharmaceuticals plants which will cover the needs of local markets and will be included in Lek and Sandoz’ production capacity strategy.

In the future as well, investments will be a part of Lek’s progress and expansion of operations. In 2004 investments will be orientated towards the ensuring of capacities for various key products for marketing in the European Union and in the USA.

Lek earmarks 8.65 % of sales for R&D in 2003
Knowledge, innovation and creativity are the key drivers of the pharmaceutical industry. Lek has repeatedly shown that in this field as well it can match the global competition with its own capabilities. At the end of 2003 successfully defended its patent no. EP 1 095 037, which covers Lek’s synthesis of omeprazole, before the Board of Appeal of the European Patent Office. Lek developed its own procedure for the synthesis of omeprazole in its laboratories in Mengeš; it has been granted patents for the synthesis procedure which is performed successfully and efficiently in Mengeš, as well as the production of the pharmaceutical form – pellets – which enables their introduction on the US market. Lek has achieved top-flight results in the field of organic synthesis with a high level of innovation, which is also the result of years of cooperation with the Faculty of Chemistry and Chemical Engineering and with the National Institute of Chemistry.

Last but not least, our investments and achievements in R&D have also been confirmed by the Slovene Chamber of Commerce through the conferring of the Innovator of the Year award in 2002 to a group composed of Dr. Viktor Menart and Simona Jevševar M.S. from Lek Pharmaceuticals and Dr. Vladka Gaberc-Porekar from the National Institute of Chemistry. The group was awarded the gold medal in December 2003 for their project Filgrastim – acquiring recombinant protein through innovative methods (development of producer cells, biosynthesis technology and a procedure for isolating recombinant proteins).

At the beginning of February 2004, Lek will enter the field of the technology of the future with the opening of the PORT1 recombinant technologies manufacturing plant, which is the first such facility in the Central and Eastern Europe region. In the field of biopharmaceuticals Lek will develop, manufacture and market drugs through its own business units and within the framework of the Sandoz Group.

In 2003 Lek hired 302 people, 203 in Slovenia and 99 abroad; in addition it enabled the employment of 60 new workers through agencies. The new employees include over 50 experts (Master’s & Doctorate degrees), who have strengthened our R&D, further underscoring our orientation towards the field of development.

In the future, Lek’s employment policies will follow the trends in its business operations. We have employed 20 people for the new PORT1 plant, including experts from the fields of microbiology, biology, biochemistry, chemistry and pharmaceuticals.

Lek’s strategic orientations and priorities for 2004
Lek’s achievements will hep Sandoz to achieve a leading market position as a global generics provider. Growth will be based on a high operational excellence, a competitive cost position, an increased level of innovativeness, best-in-class R&D functions and a leading market position on key markets. With a combination of active pharmaceutical ingredients and pharmaceuticals and on the basis of an innovative approach to generics, we will ensure an optimal business model which will create value for Novartis and other stakeholders.

Lek’s priorities in 2004 are to ensure continued growth of sales and profits, improve our competitive position in Central and Eastern Europe, South-Eastern Europe and the CIS through taking on the role of a Sandoz operations centre, to ensure the continuity of business results and competitiveness in the USA, implement the most important projects for the support of continued growth in the EU market and in the markets of the associate member countries, while successfully complementing the product range in all of its markets.

This press release contains statements and conclusions based on projections of Lek’s future business operations. These estimates are derived from the best information currently available. In case these forecasts prove unreliable, the actual results could prove different from those projected.

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For additional information, please contact: + 386 1 580 22 43 Katarina Klemenc Dinjaški, Lek’s Corporate Communication