Biotest AG — Interim / Quarterly Report 2004

Aug 26, 2004

Biotest Aktiengesellschaft Dreieich

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Quarterly report as of June 30, 2004

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Biotest Aktiengesellschaft Dreieich

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The Biotest Group continued its strategic reorientation process in the second quarter and increased its operating earnings (EBIT) by 70% on the previous year.

Group structure

A further milestone in the group’s reorganization was reached effective June 1, 2004. The business operations of Biotest Pharma GmbH including all of its activities were leased to Biotest AG. All of its employees and activities were transferred to Biotest AG. Biotest Pharma GmbH will continue to own the equipment and buildings and, above all, all of the pharmaceutical licenses. It is thus the responsible party within the meaning of the Arzneimittelgesetz (German Pharmaceuticals Act).

Thanks to this organizational measure, all activities are now bundled in Biotest AG, which has two product divisions – Pharmaceutical and Diagnostic.

In the case of Biotest Hellas, all of the applications have now been filed with the authorities to transfer pharmaceutical distribution rights, and business operations commenced in the third quarter.

Sales growth continues to be cautious yet positive

Despite the continued difficult situation on the national and international pharmaceuticals markets and the sustained weakness of the US dollar we have been able to keep group revenue in the first six months of 2004 at almost the same level as the previous year. Revenue totaled € 110.9 million, falling just short of last year’s € 113.2 million. This was due to a Biotest’s conscious caution in tender transactions in South America and Asia, where the pressure from competition was particularly strong. In many cases the revenues would not have covered the production costs. Sales stabilized on the German market, and revenue lifted significantly in Europe.

The individual divisions grew as follows in the first two quarters:

quarters:
	Q2	Q2	Q1Q1
	2004	2003	20042003
Division	€million	€million	€million€million
Pharmaceutical	33.7	35.0	38.840.0
Diagnostic	19.1	19.0	19.319.2
Group	52.8	54.0	58.159.2

Price pressure continues to make itself felt on the international market for plasma derivatives. In addition to the difficult situation in the healthcare sector, this is primarily due to the competitive environment currently being restructured by suppliers of plasma derivatives. As already mentioned, this is mostly impacting markets in emerging nations. Biotest was able to stabilize its sales on the German market despite the significantly higher compulsory rebates resulting from the Beitragssicherungsgesetz (German Contribution Security Act), and it increased its sales in Europe by more than 10%.

Positive sales growth was recorded in particular by our immunoglobuline specialties – Hepatect[®] , Pentaglobin[®] and Intraglobin[®] . This means that Biotest is continuing to consistently pursue its course towards a stronger presence on the key pharmaceuticals markets at the cost of lower margin regions.

Optimization work on the new fractioning line has been completed on schedule. Initial pharmaceutical product license for the new immunoglobuline Intratect[®] is expected in the next few months. We plan to launch the new product on the German market in the fall of 2004.

We were able to keep sales at a stable level in our Diagnostic division. Higher sales in Germany and Europe were offset by lower sales in the US and Asia – partly due to currency exchange rates, partly due to the respective dates.

Sales growth with hygiene control products and in transplantation diagnostics continued to be successful. This allowed us to overcompensate for a slight revenue downturn in transfusion diagnostics. A key milestone for the future growth of our Diagnostic division was the successful completion of the US Food and Drug Administration (FDA) inspection in June. This inspection is an major component of the product license application for the TANGO blood group system in the United States of America. US marketing is expected to start in the first half of 2005.

Operating result significantly up year-on-year

We were able to once again significantly increase our operating result in the second quarter compared to the previous year, even though growth in the pharmaceutical sector was lower than in the first quarter. In total, our operating result of € 8.9 million is up almost 70%

on the same period of the previous year, when we recorded an operating result of € 5.3 million. The earnings situation in our main facility has improved despite the ongoing expenses from our reorganization program. Growth at our subsidiaries was also positive.

We also recorded a positive cash flow from operating activities in the second quarter, and it totaled around € 9.3 million in the first six months. The cash flow from investment activities shows a cash outflow of € 5.6 million. This means that capital expenditure has slowed down as scheduled, as the investment projects previously reported are nearing completion.

Financial position

The group’s total assets were down around € 6 million as of June 30 compared to December 31, 2003. Total assets fell from € 350 million to around € 344 million, however this means that they are up again slightly on the first quarter.

Assets remain unchanged at net book values. Amortization and depreciation totaling € 5.3 million was offset by investments in intangible assets and property, plant and equipment of almost the same amount. The additions to intangible assets mostly relate to the acquisition of distribution rights for the Greek market from the former distributor.

Investment activities in the Group, and thus also in the Pharmaceutical division peaked in 2003 – as we already announced.

A significantly lower amount was invested – € 5.8 million – than in the same period of 2003. This is thus € 0.5 million up on the amortization of intangible assets and the deprecation of property, plant and equipment. The downturn in financial assets shows the sale of our interest in the Sifin Institut für Immunpräparate und Nährmedien GmbH, Berlin, at book value.

After a significant reduction in inventories as of March 31, inventories increased in the second quarter to € 117.8 million – thus reaching the level for the year.

This is mostly due to the pre-production of new products to ensure immediate sales after product approval.

Financial debt fell by around € 12 million in the first half of the year. In total, liabilities fell by € 15 million compared to December 31, 2003.

The net cash used in financing activities reflects the scheduled downturn in financial debt.

Human Resources

Our structural modifications continued during the second quarter as announced, and led to a further reduction in the number of employees.

Compared to December 31, 2003, our workforce fell by 14 from 1037 to 1023 employees. Heipha Dr. Müller GmbH is currently enjoying significant success, and hired four new employees.

Outlook

In the second half of 2004 the market for plasma derivatives will also be characterized by continued price pressure and significant insecurity as well as cost-cutting measures imposed by jurisdiction. There will be further modifications to capacity as a result of continuing consolidation within the industry. The advantages of our new production lines will not make themselves felt in 2004 due to the fact that approval for Germany is not expected until the fall of 2004, and as a result of this that European approval will not be issued until later.

Continued stable growth is expected in the Diagnostic division.

As a result, on the whole Biotest is thus forecasting sales for 2004 that are on a par with 2003, and positive earnings before taxes (EBT).

Provisions for taxes were formed, in particular by our company in Italy. Payments for the current year are only made in the second half of the year. The other provisions mostly relate to deferrals during the year and personnel-related provisions.

Quarterly financial statements of the Biotest group as of June 30, 2004

All figures in € million

Biotest consolidated balance sheet

	30.06.	31.12.	30.06.
Assets	2004	2003	2003
Intangible assets	5.0	3.5	3.0
Property, plant and equipment	143.9	145.0	140.9
Financial assets	0.6	1.0	1.3
Noncurrent assets	149.5	149.5	145.2
Inventories	117.8	117.2	126.4
Trade receivables	61.1	59.0	58.5
Other assets	7.6	8.9	15.0
Cash and cash equivalents	4.6	12.1	9.5
Current assets	191.1	197.2	209.4
Deferred tax assets	3.3	3.3	5.7
Total assets	343.9	350.0	360.3
Liabilities and shareholders' equity
Issued capital	20.5	20.5	20.5
Sharepremium	79.0	79.0	79.0
Retained earnings	2.6	8.1	8.4
Consolidated net loss for theyear	– 0.4	– 5.7	– 0.2
Equity	101.7	101.9	107.7
Minority interests	1.8	1.4	1.3
Provisions for pensions and
similar obligations	35.1	34.6	33.8
Provisions for taxes	1.8	0.8	4.1
Otherprovisions	26.0	18.7	24.0
Provisions	62.9	54.1	61.9
Financial liabilities	151.3	163.0	158.8
Tradepayables	13.4	14.8	16.7
Other liabilities	10.8	12.9	11.9
Liabilities	175.5	190.7	187.4
Deferredprovisions for taxes	2.0	1.9	2.0
Total equity and
shareholders’ liabilities	343.9	350.0	360.3

Biotest consolidated income statement

	Q2	Q2	H1	H2
	2004	2003	2004	2003
Revenue	52.8	54.0	110.9	113.2
Cost of sales	– 27.8	– 30.4	– 57.6	– 61.8
Grossprofit	25.0	23.6	53.3	51.4
Sales and marketingcosts	– 12.2	– 13.7	– 24.6	– 27.4
Administrative costs	– 5.1	– 4.7	– 9.7	– 8.9
Research and development costs – 4.3		– 4.1	– 8.0	– 8.5
Other operating income
and expenses	0.3	– 0.9	– 2.1	– 1.3
Operating result	3.7	0.2	8.9	5.3
Financial result	– 3.3	– 1.9	– 6.9	– 5.5
Pre-tax earnings	0.4	– 1.7	2.0	– 0.2
Taxes	– 0.9	1.1	– 2.0	0.2
Earnings (after taxes)	– 0.5	– 0.6	0.0	0.0
Minorityinterests	– 0.1	– 0.1	– 0.4	– 0.2
Consolidated net income	– 0.6	– 0.7	– 0.4	– 0.2
Earnings per share
(in euros)	– 0.08	– 0.08	– 0.05	– 0.02

Biotest consolidated statement of changes in shareholders’ equity

in shareholders’ equity
	H1/2004	H1/2003
Biotest AG shareholders' equity (Jan. 1)	101.9	108.5
Consolidatedprofits H1	– 0.4	– 0.2
Currencyimpact during period	0.2	– 0.6
Biotest AG shareholders’ equity
(June 30)	101.7	107.7

Biotest cash flow statement

Biotest cash flow statement
	H1/2004	H1/2003
Cash flow from operatingactivities	9.3	6.0
Cash flow from investingactivities	– 5.6	3.1
Cash flow from financingactivities	– 11.3	– 7.5
Net change in cash and
cash equivalents	– 7.6	1.6
Changes in cash and cash equivalents
due to currencytranslation	0.1	– 0.2
Cash and cash equivalents as of January1	12.1	8.1
Cash and cash equivalents as of June 30	4.6	9.5

Notes

1. The above report of the Biotest group for the first six months of 2004 is in line with International Accounting Standard No. 34.

2. The same accounting and valuation methods were applied as for the preparation of the IAS consolidated financial statements for fiscal year 2003.

3. This report is unaudited.

4. Segment reporting

4.1 Revenue

4.1 Revenue
Division	H1/2004	H1/2003
Pharmaceutical	72.5	75.0
Diagnostic	38.4	38.2
Group	110.9	113.2
4.2 Operating result
Division	H1/2004	H1/2003
Pharmaceutical	10.4	1.8
Diagnostic	1.9	2.6
Holding	– 3.4	0.9*
Group	8.9	5.3

• During the first half of 2003, the holding company oncharged costs to the Pharmaceutical and Diagnostic divisions. These costs were not oncharged in 2004.

5. Employees (full-time)

5. Employees (full-time)
	June 30, 2004	Dec. 31, 2003
Sales	318	310
Administration	126	129
Production	485	494
Research and development	94	104
Group	1,023	1,037

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Biotest AG

Landsteinerstr. 5, D-63303 Dreieich PO Box 102040, D-63266 Dreieich Phone +49 (0)6103 801-444 Fax +49 (0)6103 801-880 Internet: www.biotest.com

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