Lek Business Results in 2004

CEE/SEE/CIS Business Center sales (Central and Eastern Europe, Southeast Europe and the Commonwealth of Independent States)

Lek d.d. finished 2004 with sales income of SIT 127,653 million and net profits of SIT 23,680 million following Slovene Accounting Standards.

The net profit in sales of Lek d.d. was 18.6%, which is slightly lower than in 2003, when it reached 19.2%. After the exceptional results of 2003, which were connected with the launching of Amoxiclav and Omeprazole on the US market, turnover in Slovene tolars in 2004 was 6.7% lower than the previous year. Although solid market shares were achieved for both leading American products, competition led to price erosion which affected the amount of sales. Total turnover in the USA in 2004 by export prices amounted to SIT 36,939 m. The falling exchange rate of the US dollar also had a major effect on the achieving of sales targets, owing to which the value of sales was lower by 8 billion tolars.

Financial results of Lek d.d. in 2004 (in SIT m)*

SAS – Slovene Accounting Standard
*Data not audited

Owing to its good sales results, Lek for the most part maintained its high level of profitability. The effects of the weak dollar and price erosion were partially offset by the launching of new products on Lek’s traditional markets and by the release of a part of reserves where it was necessary to reduce intellectual property risk for product marketing.

Revenues Lek d.d. 2004

Markets

Western Europe, the USA and overseas countries accounted for 40.6% of total sales, Central and Eastern Europe and the CIS accounted for 46.5%, and the Slovene market 12.9%. With this Lek achieved a very balanced sales markets structure, which allows us to attain optimal utilization of the potentials of products which are intended for global sales.

If we focus on regional market structure, the share of sales in the countries of the expanded European Union amounted to 36.2% of total sales.

Lek’s leading markets are the United States of America, Poland, Slovenia and the Russian Federation. The highest growth, 33 percent, was recorded in the Russian Federation, where Lek increased its market share. Our range of OTC medicines made a major contribution to the excellent results in this country, and also recorded above-average growth of company performance.

On the coming into effect of the maximum attributed values for generic drugs, the total price savings which Lek contributed to the Health Insurance Institute of Slovenia exceeded SIT 2.5 billion last year, which indicates the major effect of the measures implemented for the long-term stability of the health-care budget.

In Poland Lek consolidated its position among the leading suppliers of generic pharmaceuticals, in second place behind domestic firm Polpharma.

Despite falling prices and increased competition, Lek managed to maintain the market shares of its key products in the USA.

Products

Amoxiclav, which is a global product with respect to the number of markets and sales routes, was once again the leading product in 2004. It was followed by Omeprazole, Ketonal and Amlopin. Among the leading new products launched in the last year were drugs for lowering cholesterol such as pravastatin and Tulip®.

Investments in development

2004 also saw intensive development activities and investments. Lek is a development center for pharmaceutical formulations, active pharmaceutical ingredients and biopharmaceutical medicines in global Sandoz network. Lek d.d.‘s investments into research and development activities amounted to SIT 13 bn, or 10.2% of turnover.

Investments

The amount of investments by the Lek business group amounted to SIT 21.1 billion, or 14.7% of turnover. The majority of investments were made in Slovenia (expansion of tablet manufacturing capacities and reconstruction of the sterile manufacturing plant for ampoules in Ljubljana, PORT 1 and the new organic synthesis plant in Mengeš, expansion of manufacturing and infrastructure for the introduction of new products at the manufacturing plant in Lendava, infrastructure and cost efficiency improvements at the manufacturing plant in Prevalje), as well as in the manufacturing centers in Poland and Romania. Intensive investment is the basis for the growth of operations in the coming years.

Employees

In 2004 Lek increased its number of employees by 271 associates, of whom 103 in Slovenia and 168 abroad.

Hiring of new associates was highest in research and development, sales and marketing and manufacturing and logistics.

Lek employment structure:

Situation as of 31st Dec. 2004 includes employees of Lek, contractually employed associates are not included
Contractually employed associates in Slovenia and abroad: 326

Corporate citizenship

Lek pays a great deal of attention to increasing its level of corporate citizenship. With respect to the level of investments, number of employees and paid taxes, Lek strengthened its position as a corporate citizen both in Slovenia and in all other locations where it operates. In addition, we participate in various humanitarian, health-care, educational, cultural, sports and other social activities which further strengthen Lek’s image.

Our future orientations and goals are related to the consolidation of market shares and securing our position as a leading supplier of generic drugs on all key markets. In this way we contribute to the growth of Sandoz and the realization of its efforts and strategic goal to become the world’s leading supplier of generic medicines.

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Lek, a new Sandoz company, is an international pharmaceutical company which operates as a business center on the markets of Central and Eastern Europe, Southeastern Europe and the CIS region, and also markets its products successfully on the US market, in the EU and elsewhere around the world. Lek creates value through the development, manufacturing and sales of pharmaceutical products, active pharmaceutical ingredients and biopharmaceutical products. Lek employs about 4,186 people in various regions and achieved total sales of USD 746.5 million in 2004. For further information please consult http://www.lek.si

Sandoz, a Novartis company, is a leading global supplier of high-quality generic pharmaceuticals. Headquartered in Vienna, Austria, Sandoz is a Retail Generics company operating also two Business Units with specific strategic focus – Industrial Products and Biopharmaceuticals. In 2004, Sandoz achieved sales of USD 3.045 billion, employs about 13,400 people and operate in over 120 countries around the world.

Novartis AG (NYSE: NVS) is a world leader in pharmaceuticals and consumer health. In 2004, the Group’s business achieved sales of USD 28.2 billion and a net income of USD 5.8 billion. The Group invested approximately USD 4.2 billion in R&D. Headquartered in Basel, Switzerland, Novartis Group companies employ about 81,400 people and operate in over 140 countries around the world. For further information, please consult http://www.novartis.com