Press release

Double-digit profit growth for the 15th consecutive year

Tuesday, 15 March 2011

Despite increased investments in research and development and the marketing of Ferinject® as well as difficult market conditions, Galenica increased consolidated net profit in 2010 by 10.8% to CHF 232.1 million. This gave the Group its 15th consecutive year of double-digit profit growth: a record that is unique in Switzerland. In addition to these excellent results, Galenica was able to significantly strengthen its balance sheet.

With the launch of Ferinject® that is currently underway across Europe, the preparations for the registration of Injectafer® in the US and for PA21 worldwide, as well as with the creation of Vifor Fresenius Medical Care Renal Pharma Ltd., Galenica has embarked on an extremely important implementation phase. The success of these product launches will be critical to the future of the Galenica Group. This is why Galenica has continually invested to achieve these goals and intends to further increase these investments in 2011. However, Galenica also recognises the need to commit the time and effort needed to establish Ferinject® worldwide in new therapeutic areas outside the field of nephrology.

From 1 January 2012 Etienne Jornod will concentrate on a new role as a full-time Executive Chairman of the Board of Directors. Compensation for this function will take place exclusively in the form of a single grant of shares which will be blocked for a period of five years. This compensation system demonstrates that Etienne Jornod has faith in the long-term development potential of the Group and in the management team that will deliver on its plans.

At the same time, David Ebsworth, who has served as CEO, Vifor Pharma, since 2009, will assume the role of CEO of the Galenica Group. David Ebsworth has extensive pharmaceutical business experience and has the ideal profile to develop Galenica further in this fast-growing business sector, as well as drive the other business sectors forward. In addition, at the General Meeting 2012 the Board of Directors will propose that Fritz Hirsbrunner, currently Deputy CEO and CFO, become a member of the Board of Directors.

_In 2010 Galenica generated consolidated net sales of CHF 3,104.3 million (+6.6% year-on-year). The year was marked by extraordinary investments and significant negative currency effects. However earnings before interest, taxes, depreciation and amortisation (EBITDA) were nevertheless increased by 11.3% to CHF 444.9 million, while earnings before interest and taxes (EBIT) increased to CHF 324.8 million (+22.6%). EBIT amounted to 10.5% of net sales. Consolidated net profit for 2010 went up by 10.8% to CHF 232.1 million.

_Investments in tangible and intangible assets totalled CHF 71.2 million (2009: CHF 70.3 million). Spending on research and development amounted to CHF 142.0 million (+24.5%).

_Fresenius Medical Care made an initial payment for participation in the new company Vifor Fresenius Medical Care Renal Pharma and for Galenica's ongoing development work and obligations.

_The shareholders’ equity increased to CHF 925.3 million (22.7%) representing an equity ratio of 30.8%, while net borrowings decreased by 22.5% to CHF 947.6 million. Subsequently, gearing fell from 162.2% to 102.4%.

General Meeting of 5 May 2011
_The Board of Directors will propose to the General Meeting the distribution of an ordinary dividend of CHF 8.00 per registered share (+6.7%).

_The Pharma business sector generated net sales of CHF 578.5 million (+30.1% year-on-year) in 2010. Global sales of the intravenous iron products Ferinject® and Venofer® increased by 13.0% – or by 18.1% in local currency – to CHF 254.2 million. Ferinject® generated global net sales of CHF 69.6 million in 2010. This is an increase of 67.7% over the previous year, or in local currency 74.0%. Implementing the Pharma business sector's strategy requires significant investment, particularly with regard to clinical studies for Ferinject® and PA21 as well as the marketing of Ferinject®. Spending on research and development amounted to CHF 134.7 million, an increase of 25.9% versus the previous year. Establishing subsidiaries and the international distribution network for the marketing of Ferinject® involved additional costs of around CHF 20 million. Revenues from licensing fees for CellCept amounted to CHF 187.5 million and, as expected, were impacted by the market entry of generics in some countries as well as exchange rate fluctuation. Despite this, the Pharma business sector secured an EBIT of CHF 251.7 million (+20.7%).

Optimised structure to leverage significant market opportunities
_The Pharma business sector will continue to pursue its strategy. Special focus will be placed on the growth drivers – particularly the intravenous iron replacement product Ferinject®, the new phosphate binder PA21, and the Broncho-Vaxom® and Uro-Vaxom® products against infectious diseases – and on geographic expansion and strengthening of partnerships.

_To fully exploit the existing and significant market opportunities, Vifor Pharma has optimised company structures. These will be implemented in 2011 enabling Vifor Pharma to enhance efficiency and strengthen its presence in markets worldwide. OM Pharma will be merged with Vifor Pharma's Consumer Healthcare International business. Focus on the regions will also be intensified which along with additional resources, should enable partners and affiliates to attain the targeted sales growth. This restructuring is a logical step in Vifor Pharma's development into a strong, international player in the healthcare sector.

_Ferinject® was launched in Poland in the second half of 2010; this was followed by the launch in France, at the beginning of 2011, and launches are planned for South Korea and Russia this year. The broad-based Ferinject® clinical programme with studies in seven different therapeutic areas continues to deliver results. Further studies are scheduled for 2011. The clinical study programme undertaken in collaboration with US partner company Luitpold Pharmaceuticals for the approval of Injectafer® (brand name of Ferinject® in the United States) in a number of therapeutic areas is continuing according to plan.

_Vifor Fresenius Medical Care Renal Pharma began its activities in the United States in 2011. The launch in Europe and the rest of the world is contingent on approval from competition authorities. Relevant decisions are expected by mid-year.

_The first patients in the Phase III clinical programme for PA21 will be recruited soon. The studies will be carried out in cooperation with Fresenius Medical Care.

_OM Pharma will continue to build on existing approvals of its products and is seeking new registrations in additional countries. Broncho-Vaxom® and Uro-Vaxom® in particular have significant potential in the treatment of respiratory infections in patients with chronic obstructive pulmonary disease and for women with recurrent urinary tract infections.

_Through line extensions of several key OTC products, Vifor Pharma Consumer Healthcare continues to make gains in important therapeutic areas. The ongoing difficult economic situation in UK continued to have a negative impact on business at Potters: the subsidiary was restructured, its Manchester office closed and all activities concentrated at its facility in Wigan. At the same time, an adjustment of the value of Potters brands to current value was made in the accounts.

_On a like-for-like basis the sales for the Logistics business sector were higher than in the previous year and developed better than the market, which declined by 2%. The price cuts on prescription drugs imposed by the Swiss government as of 1 March 2010, the management buyout at Globomedica as well as one-off sales realised in connection with the A H1N1 pandemic had a negative impact on sales which amounted to CHF 2,015.0 million, 2.3% below the figure reported in 2009.

_Thanks to the successful integration of Globopharm, a clear increase in the efficiency of work processes, stricter cost controls and the sale of a property not required for operations, operating profit (EBIT) increased to CHF 27.1 million (+155.7%).

_The Retail business sector increased sales to CHF 1,089.5 million (+30.1%). Most of this growth came from the acquisition of Sun Store. With internal growth of 1.9%, the pharmacy formats developed significantly better than the market (-2%). Operating profit (EBIT) increased 21.7% to CHF 50.9 million. The price and margin cuts imposed on prescription drugs by the Swiss government were largely offset by sales increases, synergies and adjustments in work processes.

_The accelerated rollout of the latest version of the pharmacy software TriaPharm® had a positive impact on the sales and profit of HealthCare Information. Sales increased by 13.9% to CHF 49.0 million. Additional factors in the increase in operating profit from CHF 2.2 million to CHF 7.2 million (+227.3%) were an increase in efficiency and synergy effects, which were possible thanks to the reorganisation of the back-office functions of HCI Solutions Ltd.

_Galenica is looking to the future with confidence, even as pharma-political pressure is increasing in some key countries and the strong Swiss franc is having a negative impact on exchange rates. The major investments planned in the growth drivers – especially Ferinject® and PA21 – will continue over the next three to four years. This period will be particularly challenging as it will take time to realise the impact of these plans.

_Due to unstable external factors, in particular the development of the US dollar and the euro, the management of Galenica aims to achieve in 2011 at least the same result as in the year under review.

Pharma: Implementing the strategy for tapping the scope for growth in key products needs time
_One of the forward-looking projects in the 2010 business year was the creation of Vifor Fresenius Medical Care Renal Pharma, in which Galenica holds a 55% stake. This new company is tasked with developing PA21 and marketing Venofer® and Ferinject® as well as PA21 in the field of nephrology. This partnership makes the Galenica Group a strong global player in one of the key segments to which the company owes its success.

_In addition, Galenica will continue its extraordinary investment activity over the next three to four years in order to further develop Ferinject® globally in promising therapeutic areas outside the field of nephrology. Because these are new indications, Galenica will need to invest both time and money for the products to become successfully established in these areas.

_At the same time, the Group will increase its activities in the development of the infectious disease products Broncho-Vaxom® and Uro-Vaxom® from OM Pharma, which likewise have significant potential at the global level. Galenica will also continue the ongoing research work for projects in the preclinical phase.

Logistics: Cost-efficient solutions
_Consolidation in the healthcare market will continue with increasing pressure on all market participants. The Logistics business sector has the ability to react rapidly and proactively to the forthcoming challenges. Galexis will expand its functionalities in view of new challenges and develop new service areas. Alloga will increasingly apply solutions which accommodate the intensified regulatory requirements with regard to the cold chain, Track’n’Trace, approval processes and protection against counterfeiting.

Retail: Expansion and optimisation
_GaleniCare will continue with the expansion in all pharmacy formats and the optimisation of individual locations. Rigorous customer orientation will focus on the expansion of existing services and the development of new services. The need for special services, such as the Pharma Care therapy support of MediService, is continuing to grow; further therapeutic fields will be added accordingly.

Other: HealthCare Information: new and further developments
_e-mediat is beginning work on the master registry for the Swiss healthcare sector. Documed will make the Swiss Drug Compendium (Arzneimittel-Kompendium der Schweiz®) available for new information appliances such as iPhone and iPad. The TriaPharm®, TriaMed® and TriaOne® management software packages will be equipped with additional user-oriented functionalities and be attractive to other customer segments, too.


Carefully planned changes ensure continuity
_Etienne Jornod has successfully managed the Group in his dual role as Chairman of the Board of Directors and CEO for the past 15 years. However, the burden of this dual role has increased significantly as a result of Galenica’s international expansion and strong growth, both of which have also increased the complexity of the Group. The Board of Directors has always planned the future of the company with great care. At the suggestion of Etienne Jornod, it decided as early as 2008 to clearly separate the dual role of Chairman of the Board of Directors and CEO in 2011.

_By entrusting Etienne Jornod (born in 1953, with Galenica since 1975) with the role of full-time Executive Chairman in the future, the Board of Directors and key shareholders want to ensure that Etienne Jornod continues to make the kinds of contributions that led to the transformation of Galenica. Therefore from 1 January 2012, Etienne Jornod will be responsible for the Group’s strategy, alliances, acquisitions and human resources policies as well as the external positioning of the Group. A detailed description of how duties will be split between the Executive Chairman and the CEO, and who will report to Etienne Jornod directly, can be found in the 2010 Annual Report.

_Effective 1 January 2012, David Ebsworth (born in 1954, with Galenica as CEO Vifor Pharma since 2009) assumes the role of CEO of the Galenica Group. He has wide-ranging knowledge of all aspects of the pharmaceutical business and the most important international pharmaceutical markets, particularly as the former President and General Manager of the Global Pharmaceutical Division of Bayer AG. David Ebsworth has the ideal profile to meet the Group’s future challenges, such as the development of the 15 affiliates set up over recent years in Europe, the US and Asia, ensuring the success of Ferinject®, which is currently being, or will soon be, launched in over 20 countries, preparing the registration of PA21, as well as heading the Corporate Executive Committee. His international experience in the pharmaceutical industry is the ideal complement to the Group's management team. David Ebsworth will retain his role as CEO, Vifor Pharma.

Succession plan for the CFO function in place early – Fritz Hirsbrunner to be proposed for election to the Board of Directors at the 2012 General Meeting
_To ensure the successful transfer of the CFO function early, Fritz Hirsbrunner (born in 1949, Deputy CEO and CFO of the Group, with Galenica since 1977 and CFO since 1992) will transfer his operational responsibilities as CFO to Jörg Kneubühler, currently Head of Corporate Finance & Controlling (born in 1960, with Galenica since 2002 and a member of the Corporate Executive Committee since 2009). From 1 January 2012, Jörg Kneubühler will assume the function of CFO of the Galenica Group. Fritz Hirsbrunner will in particular continue to ensure and maintain good relations with the financial community until 2014 and the Board of Directors will propose to the 2012 General Meeting that he be elected as member of the Board of Directors.

_The early announcement of these changes allows all those involved to prepare themselves thoroughly for their new roles.

_The Board of Directors has in-depth knowledge of the Galenica Group, its history, its potential and the challenges it will face. It is convinced that these measures will ensure that the success story twhich began 15 years ago continues under the best-possible conditions.

Risk-based and entrepreneurial compensation concept for the Executive Chairman of the Board of Directors – an act of faith in the company's strategy and employees
_The Board of Directors of the Galenica Group and Etienne Jornod have devised a new compensation system for the future Executive Chairman of the Board of Directors. The Board of Directors and Etienne Jornod unanimously agreed on a new, risk-based system. This demonstrates that Etienne Jornod identifies very closely with shareholders and confirms his confidence in the Group’s strategy and management.

_In 2012, Etienne Jornod will receive a one-off remuneration for his duties until 2017 in the form of Galenica shares, which will be blocked for the entire term of contract. Etienne Jornod is thus demonstrating his willingness to share all corporate risks, and to do so at a time when Galenica shares are among the best performers on the Swiss Exchange in 2010. It also demonstrates his confidence in the long-term strategy that he played a key role in developing over the past 15 years, and in the new Corporate Executive Committee which will manage the Galenica Group from 2012 and whose members will provide the best possible conditions to ensure the Group’s long-term success.

_The agreement covers a period from 1 January 2012 until 1 January 2017. To make up for the lack of periodic compensation over five years (salary, bonuses, options, etc.), the Executive Chairman of the Board of Directors will receive shares at February 2011 current prices as well as an amount of CHF 150,000 per year, which is used for the settlement of the employee’s contributions to social security. The value of the shares correspond to an annual taxable income of an average of about CHF 3.4 million. The shares will be blocked for the term of the agreement and cannot be sold before the expiry of the contract.

_By making this commitment, Etienne Jornod is sharing all of the Group’s strategic and operational risks, and his interests are fully aligned with the interests of shareholders. The Executive Chairman of the Board of Directors is also sending a clear signal of trust and solidarity to the Corporate Executive Committee and all employees.

_The Board of Directors is confident that this long-term orientation fully reflects the strategy of the Galenica Group, which is aimed at generating sustainable growth even during periods of difficulty and price fluctuations.

Galenica is a diversified Group active throughout the healthcare market which, among other activities, develops, manufactures and markets pharmaceutical products, runs pharmacies, provides logistical and database services and sets up networks. With its two Business units Vifor Pharma and Galenica Santé, the Galenica Group enjoys a leading position in all its core business activities. A large part of the Group’s income is generated by international operations. Galenica is listed on the Swiss Stock Exchange (SIX Swiss Exchange, GALN, security number 1,553,646).



Christina Hertig

Christina Hertig

Head of Corporate Communications

Galenica Ltd.

Corp. Communications
Untermattweg 8
CH-3027 Bern

+41 58 852 85 17
+41 58 852 85 58

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