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STADA Shareholders' AGM

Speech of the Chairman of the Executive Board

(TRANSLATION FROM THE GERMAN VERSION – FOR CONVENIENCE ONLY / THE SPOKEN WORD IS FINAL)

Chart 1: Annual General Shareholders' Meeting of June 10, 2009

Mr. Chairman,
dear shareholders,
honored guests,

On behalf of the entire Executive Board, I would like to welcome you to the 2009 Annual General Shareholders' Meeting of STADA Arzneimittel AG.

To begin with, this year, I would like to offer special thanks to Deputy Chairman of the Supervisory Board and employee representative on the Supervisory Board, Karl Hertle. After this General Shareholder’s Meeting, Mr. Hertle will leave the Supervisory Board as, due to age reasons, he was no longer available for re-election.

Karl Hertle deserves credit for his excellent commitment not only to social harmony in the company but to STADA as a whole. I would like to ask you, dear shareholders of this company – particularly also on behalf of my colleagues on the Executive Board – for a round of respectful applause for Mr. Hertle and his exemplary constructive exercise of the rights of co-decision over many years.

The thanks of the Executive Board also go out to employee representative Mr. Adolf Zissel, who is also leaving the Supervisory Board today.

I would like to congratulate the new or re-elected employee representatives on the Supervisory Board, Heike Ebert, Karin Schöpper and Manfred Krüger. On behalf of the Executive Board, I would like to repeat our promise of constructive cooperation with you.

The thanks of the Executive Board extend also to the entire Supervisory Board and the Advisory Board for their invariably trustful cooperation but also in particular to all employees in the Group, whose commitment and hard work continually contribute to STADA’s success in particularly difficult times.

Ladies and gentlemen, in fiscal year 2008, STADA achieved operationally still generally satisfactory business results, even though some of the expectations held at the beginning of the year could not be met.

When evaluating the fiscal year, the particularly challenging environment must be taken into account.

For example, in the German domestic market – still the largest national market for STADA with approximately one third of Group sales – the statutory health insurance organizations, using the sharpened discount agreement instruments introduced by the health-care reform, are able to entice generics suppliers into increasingly intense price and discount competition – I will go into this in more detail in a moment. This structural change in the German market meant that despite growth in sales and particularly market share, the STADA Group had to report declining generics sales in Germany in 2008.

In several other European countries too, regulatory interventions in particular relating to price control as well as intensive competition greatly overshadowed the considerable growth achieved, for example in Spain, Portugal and the Netherlands.

And finally the current financial and economic crisis has also left its mark. The operating business of the Group is however quite resilient with respect to influences of economic trends – health is generally not the first area where people try to make savings. For example in 2008 and in the first quarter of 2009, in Russia, a country well-known to have been particularly badly affected by the economic crisis, we managed to achieve double-digit percentage growth in sales in local currency.

The financial and economic crisis is however, increasingly affecting STADA, producing unfavorable currency influences since about the middle of the fourth quarter of 2008, the important currencies for STADA, the Russian ruble, Serbian dinar and the pound sterling have recorded a sudden and massive devaluation against the Group accounting currency of the euro. Despite operational stability in these countries, this led to considerable burdens on sales and earnings at the Group level.

Chart 2: Sales 2008: the thirteenth record year in a row

Group sales in 2008, with an increase of 5% to EUR 1.65 billion, reached a new record level for the 13th year in a row – a satisfactory result in the view of the Executive Board and also the Supervisory Board, considering the particularly challenging, regulatory, competitive and economic environment of financial year 2008.

Even though sales growth of 13% was still achieved after nine months in 2008; sales in the fourth quarter of 2008 were however 14% below sales in the corresponding quarter of the previous year.

As well as the currency situation I mentioned previously, a very high base value from the corresponding quarter of the previous year contributed to this. Because the sale of low-margin non-core activities in Great Britain generated a decrease of 5 percentage points in the fourth quarter alone as compared to the previous year as a result of lost sales.

Additionally, in the fourth quarter of 2008, several one-time special effects, including a negative patent decision in Germany, had a curbing effect on sales.

Deducting these special effects and currency influences, the adjusted decline of Group sales in the fourth quarter of 2008 was no longer at 14% but a moderate 4%.

In the current financial year 2009, the sales situation already stabilized in the first quarter.

Although for this first quarter, a sales decrease of 6% was reported and also for the first half of 2009, the Group still expects to report declining sales. Group sales, however, adjusted for effects from acquisitions and disposals, sale and discontinuation of business activities as well as currency effects, grew in the first quarter of 2009 by 4%.

For the full year 2009, based on the expected revival of business in the second half year, there is still the opportunity to achieve and even exceed not only the adjusted but even the reported sales level of the previous year.

Chart 3: Annual General Shareholders' Meeting of 10 June 2009

The difficult regulatory, competitive and economic business environment in many national markets was also clearly noticeable in the key earnings figures of the Group.

In particular, in the German domestic market, STADA was, for the first time, unable to achieve the Group average operating profitability – a consequence of the very high level of competition here, which was triggered by the health care reform from mid 2007.

Because it has opened the door in the German market to the abuse, by way of discount agreements, of the purchasing power of statutory health insurance organizations against the generics sector. In these agreements, the health insurance organizations pressure the generics industry to reduce their margins, which could take some small market participants on quite a devastating course and could even do considerable damage to the big players in the sector.

In any other sector, this mass purchasing power of individual market participants, in this case the statutory health insurance organizations, would long ago have attracted the attention of the antitrust authorities – but this, as we perceive it, buyer trust cannot be legally attacked. As a result of German health care policy, the health insurance companies are subject only to a very limited degree to competition law.

At this point, I can only call on German health care policy makers to swiftly correct the discount agreement instruments after the federal elections, as otherwise they will systematically drive the production facilities of the German generics industry out of the country – as, incidentally, also recently publicly announced by one of our main competitors. In addition, it will lead to a noticeable deterioration in patient care within discount agreements.

I find it, for that matter, almost unthinkable that in other countries, an important and internationally successful industry could be so systematically damaged by regulatory interventions as continually happens with the German generics industry, which with STADA, Hexal and ratiopharm represent or represented three of the TOP 10 generics companies in the world.

In any case, I am not aware that Teva in Israel, Krka in Slovakia or Ranbaxy and Dr. Reddy’s in India again and again have been used or are being used by local politics as preferred targets for cost savings. Rather the international expansion of the locally grown generic industry in these countries is regularly strengthened through extensive support and not continually weakened as in Germany.

To avoid any misunderstandings: Cost containment in the health care system is necessary. But the question of why, specifically in Germany, generics suppliers, who by way of their business model already contribute to cost containment, are continually virtually squeezed out, while numerous pseudo-innovations generally continue to escape unscathed, remains a mystery of German health care policy.

I almost fear that in our politicians’ minds, they are still living in the good old days when the German pharmaceutical research industry was considered as "the world’s pharmacy” and they have not noticed that the generics business now makes up the backbone of the German pharmaceutical supply and also of the German pharmaceutical industry.

In cross-comparison to our internationally active competition, we are dealing with a serious operative location disadvantage for STADA, the continuation of which can by the way be found in a tax legislation which may well question Germany as STADA Group headquarters in the medium term.

I’m thinking here for example of the so-called interest barrier introduced by the latest tax legislation, which restricts the tax deductibility of interest expenses and which added a 5.5 percentage point burden to STADA’s tax rate in 2008.

But of course, it’s not so easy to just leave our domestic market, especially when it represents the largest pharmaceutical and also generics market in Europe at the same time.

For this reason, we have actively taken up the challenge that the German market currently poses to all generics suppliers and have clearly directed our strategy towards the target of increased sales and gains in market share.

This, of course, requires an aggressive price and conditions policy, for which STADA, thanks to continuous cost optimization, which I will come to later, is operationally particularly well positioned, also due to, among other things, considerably lower selling costs in comparison to competitors as a result of the deliberate elimination of its own doctor related sales force.

We are convinced that this strategy aimed at gaining market share is the strategically correct one for every realistic scenario in the German market at the present time.

Because if the discount agreements remain, size becomes the most important competitive factor, as only with size is it possible to withstand the monopoly of the health insurance companies in the medium term. If, however, discount agreements are removed in the medium term, the recognition of generics in the market will become more important again and the market shares achieved will then hopefully be kept with better margins. STADA is operationally appropriately prepared – as far as is reasonably possible – for both scenarios.

We are well on the way – the Group's market share in the German generics market has increased in terms of units sold, quarter by quarter, and finally in the first quarter of 2009 reached 13.2%. And we have good reason to expect that this development will also continue in further quarters.

Because one of our two labels in the German market, STADApharm, since the beginning of 2009, aims at exactly the growth in units sold we would like in the current market phase with a revised price strategy, according to which its products are always to be among the three cheapest in the market until further notice.

And additionally, we achieved an overall strong result in the AOK tenders for new discount agreements with our two companies STADApharm and ALIUD PHARMA, which makes further expansion of our market share in terms of units sold seem probable.

The two STADA sales companies received, for these Germany-wide AOK tenders of 63 active ingredients in five regions respectively, that is of 315 individual lots, a total of 40 awards. These awards, according to official ex-factory prices at the time of the award in December 2008, constitute a total of approximately 18% of the annual sales potential awarded; STADA's previous market share in this part of the portfolio was below 12%.

For this awarded annual sales potential, the respective SDADA sales company is the only discount agreement partner of the AOK for the respective active ingredient in the respective region. Products prescribed by doctors without discount agreements must be replaced when dispensed at the pharmacy by the competitive product which is covered by a discount agreement and contains the same active ingredient if doctors do not explicitly rule this out in each case by marking it on the prescription.

After lengthy legal reviews, the agreements have only been in force for a few days, namely since June 1 of this year.

With the discount agreements gained, the STADA sales companies can now, in all probability, achieve very significant increases in units sold and sales, but with considerably reduced margins. However, where the Group was not awarded any contracts, STADA has to expect, to a large extent, a decline in demand in prescriptions for AOK-insured persons during the two-year contract term.

Since the volume gained by STADA exceeds the previous market share of the Group, the target of further expanding the market position during the implementation of the new contracts on the market, which is now beginning, should be reached.

But this should not hide the fact that: We are and we remain opposed to these discount agreements, even if we have been forced into participating in their use and we aim as far as is reasonably possible to be successful with it.

In politics, we will continue to vehemently call for removal of these agreements, not only with a view to our margins, but particularly also because of our serious policy objections. And finally, we also find the product pre-selection caused by discount agreements to be questionable health care policy, because it means that patient compliance, which is so important, often falls by the wayside.

Let me summarize my short digression on the German generics market as follows: In the German generics market, STADA has been and continues to be operatively able and also strategically prepared to target further progress in terms of market position and market share by means of an aggressive price and discount policy. For significant growth in volume for essential parts of the portfolio we have accepted and will accept margin reductions in Germany, as long as overall a profitable business situation is maintained.

The German STADA business will therefore probably continue for some time to show a below-average operating profitability compared to the Group average.

And with that, let me come back to STADA’s earnings development.

Ladies and gentlemen, in addition to a difficult regulatory and competitive environment, STADA’s earnings development in fiscal year 2008 – especially in the fourth quarter – was also burdened by distinct one-time special effects and non-operational effects from currency influences and interest rate hedge transactions.

The individual effects are presented in detail in the Annual Report; I will therefore only go into the three most important now.

Thus, in the German generics market, a surprising decision for STADA by the Federal Court of Justice (Bundesgerichtshof) of December 17, 2008 in the patent litigation on the product with the active pharmaceutical ingredient Olanzapine, which is used for the treatment of mental illnesses, resulted in significant one-time special effects which burdened earnings for the Group in the amount of EUR 16 million after taxes for the reporting year 2008.

In the generics market, as is known, every supplier seeks to have new product launches take place as soon as possible, as these significantly determine the long-term market success of generics.

After the Federal Patent Court (Bundespatentgericht), in November 2007 declared the substance patent of the initial supplier for Olanzapine as null and void, numerous suppliers accordingly immediately introduced generics with this active ingredient into the German market – thus, also our two generics labels ALIUD PHARMA und STADApharm.

In December 2008, however, the Federal Court of Justice to our surprise and that of the entire industry, overrode the decision of the Federal Patent Court and declared the initial supplier’s patent legally valid until its normal expiry in 2011.

For generics of all suppliers already on the market, there was therefore an immediate sales stop.

The related expenses for the STADA Group as well as the provisions to be made for damage claims from the initial supplier for patent infringement amounted to the above-mentioned burden on net income in the amount of EUR 16 million in 2008.

However, with respect to the damages, STADA has since been able to reach a final settlement with the initial supplier, which is below our provisions and which therefore led in the first quarter of 2009 to extraordinary earnings of EUR 3.5 million before taxes.

This patent law development relating to the active ingredient Olanzapine is an exceptional case as generally in European markets the launch of generics takes place based not on an invalidity decision but after regular patent expiry.

But let me say clearly: In the event of situations with the same available information, i.e. initial invalidity and clearly positive expectations on the outcome of the patent procedure, we will always take the same action. As a large generics supplier, STADA cannot spinelessly stand aside when all other suppliers on the market go ahead and when the decision of the jurisdiction also indicates with a low risk that this is possible.

Ladies and gentlemen, a further burdening effect on earnings, which I would like to briefly explore, originates from the evaluation of interest rate hedge transactions of a Russian subsidiary in the fourth quarter of 2008.

At the close of business at the beginning of the fourth quarter of 2008, we proceeded on the assumption, which was retrospectively proven to be correct, of an increasing interest rate in Russia, against which, in view of an existing ruble loan from a previous acquisition financing we wanted to protect ourselves by carrying out a so-called “swap”, i.e. an interest rate hedge transaction.

Looking back, the decision to balance the costs of such a hedge by entering into a so-called “euro-ruble-strike” and not by using a compensation payment was unfortunately unfavorable. If this had been done, with a reasonably stable ruble exchange rate, no compensation payments would have been accrued; not until the ruble sank below a threshold price would compensation payments, which would admittedly be higher and uncapped depending on the euro/ruble exchange rate, be payable at the end of the contract term.

At that time, neither our finance department nor the advisory external experts expected the possibility of such a rapid and drastic decline in value of the Russian ruble, as was unfortunately already recorded in the second half of the fourth quarter.

Without a recovery in the ruble exchange rate – which cannot now be expected in the current economic crisis – significant compensation payments will therefore have to be made at the end of the contract term in 2010, which of course already had to be taken into account in our balance sheet for December 31, 2008.

Taking into account the ruble-euro forward price for the end of the business’s contract term – net income in the fourth quarter was thereby burdened with a net total of EUR 10.1 million.

To be clear: The business decision to enter into the interest rate hedge transaction was correct, but the decision on which structure to use was wrong in retrospect – but everything is easier with hindsight.

Because of the drop in the ruble however, the value of the euro in the existing ruble loan, for which the interest rate hedge transaction was carried out, is also reduced.

From purely a cash outflow perspective and including later loan settlement in euro by the Group, this acts as counter trade and thus leads over time, at least on a Group level, to an almost balanced cash flow-effect – something which cannot however considerably reduce our or indeed your anger over the income burden.

After careful consideration, we decided not to terminate the strike and the associated ongoing currency risk for the moment, which would indeed be possible by making a significant lump sum payment and thereby further burdening net income into the millions.

But we would then give up all prospect of extraordinary income and this prospect is not at all so small, as the ruble forward price in 2010, which is applied in our books for current business assessment, is considerably lower than the current ruble-euro exchange rate.

Thus, if the ruble remains relatively stable, then we will be able to achieve extraordinary income – if the ruble becomes considerably weaker, then while closely monitoring business, we will have to concern ourselves with the termination of the strike.

The fact that not every interest rate hedge transaction is always unfavorable is shown by the third earnings burdening effect in our income statement, which I would like to look at here in more detail.

In Germany too, we have current interest rate hedge transactions for existing loans, whose valuation as of the reporting date in accordance with IFRS resulted in a net burden on Group income of EUR 4.9 million before taxes in the fourth quarter and of another EUR 3.0 million before taxes in the first quarter of 2009.

These valuation effects, however, are temporary and purely accounts-related effects, i.e. valuation effects from an IFRS accounting treatment with no effect on cash flow, which will automatically be compensated by exactly the same amount pursuant to these accounting regulations over the period of business by opposite valuation effects, i.e. extraordinary income.

With these interest rate hedge transactions we are protecting ourselves from potential increases in the interest rate level and thus reducing our interest rate risk, which we believe is appropriate in these times of high interest rate volatility. We deliberately accept the associated temporary burden on income, which, as has already been shown, is in the end nothing more than a postponement of income over time.

Chart 4: Earnings development 2008 in detail

Ladies and gentlemen, against the backdrop of my remarks on the operationally challenging environment and the additional burdening effects it becomes clear that in fiscal year 2008 STADA could not repeat last year’s record levels in terms of earnings. So in 2008, reported net income decreased by 27% to EUR 76.2 million.

Pursuant to our longstanding dividend policy, in accordance with which we distribute approximately 40% of the reported net income, the dividend proposal of he Executive Board and Supervisory Board also decreases accordingly, so that we propose to you under item 2 of today’s agenda to distribute a dividend for fiscal year 2008 of EUR 0.52 per STADA share and to carry the remaining excess forward.

The decrease in net income, for that matter, leaves its mark on the Executive Board remuneration as well, the variable component of which clearly decreased for all members as compared to the previous year – by an average of approximately 30%.

For evaluating fiscal year 2008, from an operating point of view, the key earnings figures are to be adjusted for one-time special effects and non-operational effects from currency influences and interest rate hedge transactions, the details of which you can find in the Annual Report.

The result is that the accordingly adjusted key earnings figures for fiscal year 2008 are at the second highest level in STADA’s history.

In 2008, earnings before interest, taxes, depreciation and amortization, so-called EBITDA, which, from the Executive Board’s perspective is probably the most appropriate indicator of the operative performance of a company, reached a figure of EUR 294.3 million and is thus only 7% below the, for STADA historical record level of the previous year.

In the Executive Board’s and Supervisory Board’s view, STADA thus achieved a generally still satisfactory operating result in difficult times in 2008.

And in our outlook on earnings for the current fiscal year 2009 as well, we of course assume, despite economic conditions that remain challenging, that the earnings level will continue to be considerable, even if we fall beneath the figures for the previous year in the first half of 2009.

We have communicated a minimum goal of adjusted EBITDA of EUR 250 million for fiscal year 2009. In view of this target, the adjusted EBITDA of EUR 67.6 million achieved in the first quarter of 2009 is already in the upper area of our planning corridor.

With the expected recovery of the business in the second half year, we therefore definitely deem it possible to reach the earnings level of 2008 again and to even exceed it.

Chart 5: Stable balance sheet figures

Let us now have a joint at the Group’s financial position together, which, in the Executive Board’s view, continues to be stable.

As of the balance sheet date 2008, the equity-to-assets ratio amounted to 34.0%. Thus, it continues to be clearly in a, from the Executive Board’s perspective, satisfying area of above 30%.

There were clear improvements as compared to the previous year for cash flow from operating activities in 2008. Operating cash flow adjusted for significant influences from outside the reporting period reached the best figure of the company’s history with EUR 151.0 million.

The same applies to free cash flow adjusted analogously with EUR 48.8 million. This clearly positive adjusted free cash flow shows that STADA’s operating business – without acquisitions – was again financed through the Group’s self-generated cash flow in 2008.

Net debt amounted to little more than EUR 1 billion at the end of 2008 and is mainly financed via long-term promissory notes from various international and national banks with maturities in the area of 2010-2015. By the way, in the first quarter of 2009, a slight reduction of net debt was reached for the third quarter in a row.

The Group’s liquidity was and is guaranteed at all times. Via credit lines STADA currently has, also for acquisitions, further financial means in the amount of approximately EUR 500 million at its disposal.

STADA’s stable financial situation is also mirrored by an, as compared to the previous year, only slightly changed weighted average interest rate for the Group’s liabilities in the amount of 4.4% in 2008.

From the Executive Board’s perspective, this stability shows that especially in the current global financial and economic crisis lenders continue to have a high degree of trust in our Group’s sustainable economic capacity.

Chart 6: Irrational share performance

Unfortunately, the capital market, however, has obviously lost this trust in our sustainable economic capacity, because its reaction to STADA’s results and outlook was and is disappointing.

Since the second half of 2008, the share price development – also against the backdrop of the current global financial and economic crisis – was, as is known, very volatile and strongly decreasing.

Including net debt, today STADA is still only valued at approximately 7 times our adjusted EBITDA from 2008, this figure being markedly low among all imaginable peers in the generics sector.

What, in our opinion, are the reasons for this? Some things seem to be rationally explicable, many things, however, appear irrational when evaluating the reactions of investors to our capital market communication.

Naturally, the first earnings decrease after 12 years of continuous growth and the slightly restrained outlook for 2009 results in a loss of value, but is nearly 80% of share price decrease rationally explicable with a new sales record and a decrease of adjusted EBITDA of only 7% in 2008?

Naturally, STADA has significant business in Russia, having always earned, by the way, a lot of praise until halfway through last year. But is it rational that this regional alignment now obviously burdens our share price, although we continue to be operatively well on our way there and it is obvious that this alignment can again be a future strength of STADA once the economic crisis begins to wind down?

And is it rationally explicable that it is repeatedly speculated – despite our clear statements to the contrary – whether STADA has a financing problem, although we are largely financed through long-term loans and have borrowing facilities in the amount of EUR 500 million at our disposal?

We consider most of the reasons mentioned for the share price development to be irrational. In the Executive Board's view, the STADA share has lost value since the last Annual General Shareholders’ Meeting to an extent that seems unjustified by the current business development, as can very forcefully be demonstrated with an indexed comparison of the development of share price, sales and adjusted EBITDA over recent years.

STADA is just not a company in crisis, rather, will again, also in fiscal year 2009, that means, at the expected height of the global financial and economic crisis, which is also strongly shaking up STADA and those markets relevant for the Group, be clearly profitable. And for the years to come, from today’s perspective of the Executive Board, more distinct growth opportunities for STADA can again be seen with the winding down of the global financial and economic crisis.

Where does this operating confidence come from? I would like to answer that question with the following remarks.

Chart 7: Health care market = growth market

First of all, we should call to mind: In the future too, the health care market will most likely be one of the most important and dynamic growth markets in the world – and that largely regardless of economic trends.

Global population growth, increasing life expectancy in industrialized nations as well as medical progress are and will remain the major drivers in this context.

This is proven by a current survey from the beginning of this year, according to which the average sales growth rate expected by the companies themselves for 2009 in the health care sector is the clearly highest of all industries questioned with above 5%.

Chart 8: Generics market = growth segment

This continually growing demand is also beneficial for the pharmaceutical market. Because in the context of a health care economics comparison with other types of treatments, drugs continue to be deemed particularly efficient.

The industry’s leading market research institute, IMS Health, estimates the growth potential of the global pharmaceuticals market for the years to come to be up to approximately 7% per year in terms of sales – and that in a study just recently updated and taking the economic crisis into account.

Within the pharmaceuticals market, especially generics thereby continue to show high structural growth potentials; the annual sales growth rate of which is estimated to be at up to approximately 11% according to IMS Health.

Because generics simply allow for a low-cost medical therapy without quality cutbacks and as such represent an obvious response to the continued growing cost pressure.

Therefore, further progress in the penetration of generics is expected for most markets, which, as is known, currently have widely differing characteristics.

In addition, the continuous expiration of patents or other commercial property rights consistently ensures a constant automatic expansion of market potential available for generic competition.

Chart 9: Growth driver patent expiry

According to current market research data, the sales volume alone for active ingredients newly available for generics competition from 2009 to 2013 in the largest European pharmaceutical markets in terms of sales, Germany, the United Kingdom, France and Italy, amounts to over EUR 18 billion.

And in Germany, we have, after three lean years, now years with major patent expiries ahead of us, the current sales potential of which will total more than EUR 4 billion by 2013.

Ladies and gentlemen, if growth continues to be on the table in our markets, what are then the success factors of a generics company to successfully turn this market growth into its own growth?

The theoretical answers to this question have not changed over the past years – and especially STADA can also still give them from a position of strength.

Chart 10: Strong product development

Those who orient their business model toward generics and thus toward taking advantage of patent expiries must be able to timely manage a continuous flow of new products with its development department – and that’s exactly the case for STADA.

With the launch of 483 products in individual national markets worldwide, STADA once again proved the strength of its own product development in reporting year 2008.

The Group’s development activities are comprehensive and aimed at the long term; our developers are already today working on new generic products whose potential launch dates are beyond 2015.

Currently the approval horizon for generics with a Group-wide significance is usually at least three years.
So products which STADA plans to launch in this period have usually already been entirely developed today and are in the approval process, so that they can be available in time for patent expiry.

Thanks to our development strength, our local sales companies were able, for example, to launch generics with the active pharmaceutical ingredient Pantoprazole in five European countries at the same time as patent expiry in the current second quarter of 2009.

Pantoprazole is in terms of sales one of the strongest pharmaceutical active ingredients in the world for the treatment of gastric and duodenal ulcers. According to our estimates at ex-factory prices, the sales volume achieved with this active pharmaceutical ingredient by the initial supplier in the EU was over EUR 1.1 billion in 2008, thereof above EUR 200 million in Germany.

For the current fiscal year 2009, STADA already expects Group-wide sales with Pantoprazole generics in the amount of clear double-digit euro millions – by the way, this is one of the reasons why we expect a revival of our business for the second half of 2009.

It is just very important in the generics business to be on the market as early as possible – and with the launch of Pantoprazole generics in numerous European countries at the same time as patent expiry, we proved once again that STADA’s product development meets this essential market-strategic requirement also on an international level and thus belongs to the key success factors of the Group.

In the Executive Board’s view, the product pipeline continues to be well-filled, which, among other things, is visible in the fact that as of the reporting date December 31, 2008 STADA conducted a total of 1,200 approval procedures for more than 130 active pharmaceutical ingredients for over 50 countries.

Thus, STADA should also be able to launch numerous new products in the individual national markets in the future. This applies to generics in the EU countries in particular. But in addition, the Group will also conduct further approval activities in markets outside of the EU in which it has own sales companies or is active in the export business.

In addition to this wide range of successful development projects, however, STADA’s product development is also seen successes with several special projects.

Chart 11: Biosimilars

In fiscal year 2008, the Group’s first biosimilar product with the active ingredient Epo-zeta was launched. Epo-zeta is used – analogous to the original biopharmaceutical Erythropoetin – in nephrology for the treatment of renal anemia with chronic renal insufficiency and in oncology for the treatment of chemotherapy-induced anemia.

As is known, a biosimilar is a biopharmaceutical product, i.e. a drug with a protein as a biopharmaceutical active ingredient produced by genetically modified cell lines which, despite different producing cell lines, compared to an initial supplier product which is already on the market, is so similar that the biosimilar has proven therapeutic equivalence.

The development of biosimilar products is linked with significantly higher costs and more risks of failure than is the case for classic generics, so that, as is known, STADA uses a venture capital structure to finance the project, the BIOCEUTICALS Arzneimittel AG, in which STADA currently holds 15.86% of the shares and continues to have a so-called call option on the purchase of all outstanding BIOCEUTICALS shares, which can be exercised yearly from 2011.

After the successful approval of Epo-zeta for the indications nephrology and oncology for the EU and for Serbia in the fourth quarter of 2007, STADA launched Epo-zeta as the Group’s first biosimilar product via the Group-owned subsidiary cell pharm under the brand name SILAPO^® in Germany and via the Serbian sales company Hemofarm under the brand name Eqralys^® in fiscal year 2008.

Both sales companies hold corresponding semi-exclusive sales licenses from BIOCEUTICALS for their respective national markets; in the other EU countries, the US American hospital products company Hospira is the sales partner of BIOCEUTICALS, as is known.

The market penetration of biosimilars is expected to proceed more slowly than that of normal generics.

We are right on schedule for our long-communicated goal of EUR 20 million of sales in Germany in the third full marketing year.

While in 2008 only EUR 4.4 million in sales were achieved with SILAPO^®, EUR 3.5 million however in the second quarter, since April this year monthly sales for this product are already above EUR 1 million. SILAPO^®, too, should be able to help us meet our growth targets for the second half of 2009 and for the years to come.

For the second biosimilar project Filgrastim, for which cell pharm holds an exclusive worldwide sales license, first clinical studies, as is known, have been underway since the second quarter of 2007. Against the backdrop that first competitors have already received an EU-wide approval for a Filgrastim biosimilar it will, however, have to be reviewed in the course of the year in view of these competitors’ market data which will then be available whether the continuation of the Filgrastim project by BIOCEUTICALS and the later marketing through cell pharm remains economically promising.

STADA now has also begun preparatory work for the development of further biosimilar products from the product category of monoclonal antibodies, reviewing at the same time various financing models. Because STADA will not be willing and able to finance these biosimilars, the market readiness of which would have to be expected for the middle of the coming decade, via its own cost structure, either.

Chart 12: Current portfolio expansion: Lemod Solu^®, Apo-go^®

Another successful special development project comes from our Serbian development center. Based on the work done there, the Group achieved an approval of the FDA, i.e. the American approval authority, for the production and the export to the USA of the product Lemod Solu^® in the fourth quarter of 2008.

Lemod Solu^® contains a known and long off-patent active ingredient from the substance class of corticoids for the emergency treatment of infectious diseases, namely injectable Methylprednisolone.

The feature of this product is the new application form of a dual-chamber ampoule which makes for a comfortable, i.e. quicker and safer application and which, as yet, no other generics supplier worldwide has in its product portfolio in this form. Against this backdrop there is the opportunity for the STADA Group to expand export to the USA by several million euro per year over the next few years.

Another example of a successful special development project finally is Apo-go^®, a product for treatment of otherwise therapy-resistant forms of Parkinson’s disease with the long-known and off-patent active ingredient Apomorphin.

In fiscal year 2008, STADA obtained for this branded product, which was purchased in the context of the acquisition of the British Forum Bioscience group in 2007, approvals for the first time in six European countries for the prefilled syringe dosage form.

The international marketing of this branded product which has until now been primarily sold in the United Kingdom and Ireland thereby gives important impulses, opening up opportunities for significant additional sales in the double digit million area with this product in the following three years.

Chart 13: International sales structure

As good as a product pipeline may be filled, ladies and gentlemen, without your own sales infrastructure it is only worth half, as otherwise you would be dependent on the market success of third parties.

Particularly in Europe, where the individual national markets differ so widely in their regulations, an important success factor for any generics supplier is therefore a broad sales presence – and here, too, STADA continues to put forward a good operative alignment.

Currently, the Group is present in 30 countries with 45 own sales companies. The focus here continues to be on Europe where STADA currently operates with 39 sales companies in 25 national markets. In Asia, we are currently active with our own sales companies in five selected markets. Additionally, STADA carried out export business in more than 50 countries without its own local sales company in 2008.

We are therefore represented in terms of sales infrastructure in all the important EU markets, but also in the most important European non-EU countries, and are therefore able, particularly here in Europe, to use the economy of scale effects of an international sales structure for approval, procurement and production.

We continue to pursue the objective to constantly expand the number and, if applicable, also the structure of our local sales companies. Thus, the Group creates an increasingly strong international sales infrastructure in order to make optimum use of the existing growth potentials in the individual markets through this on the one hand and to further reduce dependence from individual national markets on the other hand.

Because internationalization, which, as is known, we have been consistently advancing for years and which reduced the German share in our Group from formerly more than 50% to about one third, is of course also an important element of our risk diversification.

Chart 14: Continuing cost optimization

Generics companies pursue a very price-sensitive and thereby also very cost-sensitive business model – and continuous cost optimization is an indispensable success factor for everyone in our sector.

In this field, STADA has had proven and continuing instruments for years, which I already presented to you in past years and which I therefore would like to only briefly mention today.

As is known, we have pursued a relocation of production capacities from outsourcing to contract manufacturers – historically and traditionally very pronounced at STADA – to in-house production particularly at locations in low-cost countries for several years. And we have achieved measurable effects with this, as can be recognized from the increasing share of our in-house production from only 30% in 2005 to 54% in 2008.

Thus, approximately two thirds of the production capacities owned by STADA are in low-cost countries today, as compared to virtually no production locations owned by STADA in low-cost countries only five years ago.

The most recent member of our family of plants is within the framework of a 50:50 joint venture with a proven local partner the second pharmaceutical plant in the greater Ho Chi Minh City area, which was opened in the first quarter of 2008, the first pharmaceuticals plant in Vietnam with EU certification for marketing of the products manufactured there.

Also in 2009 and in the years to come, we will continue to consistently work on the program for production relocation from contract manufacturers to own plants in low-cost countries and we expect further significant savings volumes from that.

We also continue to aim, with an increased number of in-house developments, at achieving a cost reduction for raw material procurement particularly for strategically important and large products especially in their initial marketing stage. Because only with such in-house developments one can avoid long-term supply ties, which are otherwise almost always connected with the purchase of dossiers or approvals.

Further elements of our continuous cost optimization target the optimization of procurement, for example with an increasingly global procurement of our active ingredients and auxiliary materials.

Moreover, growth-related economy of scale effects will also continue to contribute to cost optimization, and that not only in the field of procurement and production, but also in sales, because the continuous expansion of the product portfolio does not at all induce an equally continuous expansion of the sales infrastructure. In markets increasingly characterized by tenders, a reduction of sales infrastructure can also contribute to cost optimization, as we are known to have already practiced in the German generics market with the dissolution of our own doctors-related sales force in 2007.

Our cost of marketing and sales ratio has therefore continually decreased in recent years and we can expect this trend to continue.

The question, of course, arises, how our operating margin will develop under the offsetting influences from margin pressure and cost optimization.

Here, we increasingly have to come to a differentiated approach.

Apart from tenders, in which I also include the German discount agreements, that is in the classic sales-driven Group business, we continue to target an operating profit margin of at least 15%.

It would be very easy to postulate and meet this margin target throughout the Group – STADA only had to stay away from tenders. But that is far away from reality and the market.

Rather, any supplier – including STADA – must ask himself on the occasion of each single tender, whether the margin target is to be forced through with the risk of non-consideration or whether, for specific reasons – for example, the local market strategy – bids are submitted with lower margins in order to win additional contribution margins in an absolute perspective.

In other words: In a generics world increasingly driven by tenders, undifferentiated margin considerations can no longer be used as a criterion for success. Such a perspective would even strategically marginalize the companies.

To us, success criteria relevant for generics companies seem to be market share, adjusted EBITDA and net income and it is in these terms that we want to measure our success – in good and in difficult times.

Chart 15: Falling transaction multiples: more opportunities for cautious acquisition policy

Ladies and gentlemen, let me briefly touch the subject of acquisition policy. It has always been a part of STADA’s business model to complement organic growth with added external growth by means of carefully selected acquisitions.

In the course of 2008 as well as in the current fiscal year 2009 to date, we have abstained from major acquisitions, buying only, in total to a very small extent, in the product area, to increase already existing investments as well as to expand existing businesses in individual selected national markets.

The reason for that is the decidedly cautious acquisition policy that we had already begun to pursue early on against the backdrop of the current global financial and economic crisis.

In reviewing the numerous acquisition opportunities the Executive Board applied particularly stringent standards in terms of profitability and appropriateness of the purchase price already in the first half of 2008, i.e. still before the current global financial and economic crisis fully erupted.

In 2008, for one transaction in the generics sector an average of more than 4.5 times the sales and nearly 17 times the EBITDA was paid according to our data – more than ever before.

And then you will understand and appreciate that at this stage of overheated markets one simply has to wait until the market has calmed down, which slowly seems to be the case.

Quite a few objects that we rejected as overpriced one year ago are now on our desk again with a clearly lower multiple – possibly still overpriced, but worth a deeper look now. Of course we won’t abandon our caution – especially in these times we do not want and cannot afford a mistake with acquisitions.

Chart 16: Item 6: Authorization to acquire and dispose of own shares

Ladies and gentlemen, before I proceed to my closing summary, some brief comments on item 6 on the agenda.

In recent years, the Annual General Shareholders’ Meeting always adopted an advance resolution for the acquisition and disposal of own shares. In 2008, too, we did not make use of this advance resolution, because in the past fiscal year we, exclusively in the context of executing an employee stock ownership program based on a company agreement in Germany, purchased 127 of our own shares at an average price of EUR 45.65 and sold 4,819 of our own shares at an average price of EUR 32.90.

Nevertheless, this year once again we would like to have the authorization to acquire and dispose of own shares extended by a factual result of approximately one more year, namely until December 10, 2010, under item 6 of the agenda.

As in the past, this is not the introduction of a share buy-back program, but an additional strategic option for the Executive Board and Supervisory Board – and both bodies are of the opinion that in these times all strategic options should generally be kept open. Without a new resolution today, this possibility, however, would expire on December 10 of this year.

Chart 17: STADA’s growth perspectives

Ladies and gentlemen, let me summarize my remarks as follows:

We can assume: The markets on which STADA's business model is focused, are and remain growth markets.

Of course this – as we described in detail in the risk report of our latest Annual Report – continues to be inherently linked to a challenging environment, because long-term growth opportunities attract intensive competition. In addition, the continuous increase in demand in the health care and pharmaceutical market leads to constant cost pressure in many national health care systems, regularly entailing cost saving state regulation.

And the global financial and economic crisis will possibly bring also for STADA a number of challenges with it.

But STADA continues to have the known and proven operative strengths:

• 1. a comprehensive and successful product development,
• 2. an international sales network of local sales companies being close to the market,
• 3. a continuous cost optimization with significant saving potentials by way of increased in-house production in low-cost countries,
• 4. the again and again proven ability to quickly and flexibly adjust to fast-changing framework conditions as well as
• 5. committed and efficient employees.

And with that, it should be possible to cut a significant piece from the forecast market growth also in the years to come.

Thus, we continue to deem STADA’s operative business model sustainable and viable for the future and therefore also continue to see, from today’s perspective, the fundamental chance to achieve again growth in terms of sales and net income in the years to come regardless of conditions which remain challenging.

Whether this, also in the environment of the current global financial and economic crisis, can be achieved in the current fiscal year 2009, is – as already explained – open. But the possibility is definitely there.

Executive Board, management and all employees will work hard for it and actively approach the challenges that lay ahead of us.

Ladies and gentlemen, thank you for your attention.

Chart 18: Thank you very much for your attention!

Chart 19: Annual General Shareholders’ Meeting June 10, 2009