Siegfried when substance matters Semi-annual report 2008

Siegfried when substance matters Semi-annual report 2008

Key figures Continuing Operations 1 st Half-Year 2008 1 st Half-Year 2007 Difference Change in % Net sales (million CHF) 159.6 157.8 1.8 1.2 Net profit (million CHF) 21.9 18.3 3.6 19.6 Operating profit (EBIT) (million CHF) 28.5 21.4 7.1 33.2 Operating margin (%) (EBIT) 17.9 13.6 Cash flow from operating activities (million CHF) 15.3 4.8 20.1 n.a. EBITDA (million CHF) 46.3 40.6 5.7 14.1 EBITDA margin (%) 29.0 25.7 Capital expenditure (million CHF) 18.2 12.6 5.6 44.2 Personnel expenses (million CHF) 51.5 53.5 2.0 3.9 Employees (number) 1 817 862 45 5.2 Group June 30, 2008 December 31, 2007 Shareholder s equity (million CHF) 480.4 491.3 10.9 2.2 Total assets (million CHF) 660.7 674.2 13.5 2.0 Equity as a % of total assets 72.7 72.9 1 Semi-annual average

Semi-annual report 2008 Siegfried Posts Growth Despite Negative Currency Influence During the first half of 2008, the Siegfried Group (SWX: SFZN) achieved revenues of CHF 159.6 million, an increase of 6.8% in local currencies and, as a result of the declining U.S. dollar, 1.2% in Swiss francs. Operating profit (EBIT) reached CHF 28.5 million (+33.2%). The sale of the pharmaceutical production facility in Zofingen to the U.S.-based Arena Pharmaceuticals and license payments for a previous bio-generic project both contributed to the positive results. Semi-annual report Siegfried Holding Ltd. 3

Siegfried Actives Division The Division increased production during the first six months compared to 2007 and markedly upped utilization levels. Due to customer postponements of deliveries to the second half of 2008, the Division results of CHF 95.1 million remained below the 2007 results (12.7% in Swiss francs and 4.9% in local currencies). Operating profit (EBIT) amounted to CHF 1.7 million, clearly lower than last year. One reason for the comparative shortfall is the one-time payment of CHF 9.1 million made by U.S.-based Celgene during the first half of 2007 for a reactor system. The Siegfried Actives Division sells a substantial part of its production to U.S. dollar regions, which strongly impacted both revenues and operative results; leaving a 7.8% currencyinfluenced difference in revenues. Successful standard products The expansion of standard product activities (incl. controlled substances) continues. Primarily, this includes a range of opiate-based substances for powerful analgesics used in cancer therapies. New substances are continually being brought to commercial production. In addition to the U.S. market, interest for opiate derivatives is also growing markedly in the Canadian and European markets. Sales of the active pharmaceutical ingredients methadone and nicotine, where Siegfried Actives is the market leader, continue to develop well. Currently, Siegfried Actives is working to expand its product range of nicotine derivatives. Good order inflow For the Siegfried Actives Division, the rate of incoming orders remains solid. Last year, 20 new exclusive synthesis projects were won; during the first half of 2008, six more projects were added, and we await decisions on various promising offers. The pipeline for exclusive synthesis currently has 8 projects for pharmaceuticals that have already been launched by the customer. Further 6 projects are in the clinical phase III, and 26 projects are in phases I or II. Two products are about to go into ramp-up of production that will add to the 2008 results and be a key growth factor in 2009. 4 Semi-annual report Siegfried Holding Ltd.

Siegfried Generics Division Siegfried Generics developed well during the first six months of 2008 and achieved revenues of CHF 64.6 million (+32%). The CHF 30.3 million EBIT was bolstered by the sale of the pharmaceutical facility in Zofingen to Arena Pharmaceuticals in San Diego. Operating profit was CHF 16.7 million, which includes licensing income for a successfully completed bio-generics project. Generics in new dosage forms After the sale of the production facility in Zofingen, the production of generics (in solid dosage forms) will be successively transferred to Malta. In addition, new dosage form projects will supplement the pipeline; these will be carried out in cooperation with industry partners. The generics pipeline now has 13 projects, including 3, which are already in the registration phase. The remaining projects are in the evaluation phase. Rapid development of the inhalation technology Development work on generic inhalation products used for asthma therapy is moving along vigorously. A new GMP production facility in Höchstädt, Germany was found for the manufacture of inhalation drugs based on the PulmoJet. The development lab in Munich was updated and continues to grow. The inhalation technology costs were charged to the profit & loss statement. Discussion with potential marketing partners in the U.S.A. and Europe are now underway. Initial cost sharing solutions, especially for a project targeting the U.S. market, are expected already in 2009. Semi-annual report Siegfried Holding Ltd. 5

Outlook The Siegfried Group expects the Siegfried Actives Division to achieve markedly better sales for the second half of 2008 despite the negative U.S. dollar pull and this trend might continue into the next year. A key reason for this optimism is the expected ramp-up for two larger customer projects, scheduled for the end of the year. These active pharmaceutical ingredients might also have a positive influence on margins in 2009. The competitive situation will become increasingly noticeable for the Siegfried Generics Division, resulting in declining revenues for the second half of 2008. Nevertheless, the Siegfried Group sees single digit growth for the year. Due to the weakness of the U.S. dollar and ongoing investments in the inhalation technology, operating margins might drop slightly below 10%. Net profit should remain solid, thanks to the abovementioned special factors. 6 Semi-annual report Siegfried Holding Ltd.

Semi-annual report Siegfried Holding Ltd. 7

Consolidated Income Statement (unaudited) In 1 000 CHF Continuing operations 1 st Half-Year 2008 1 st Half-Year 2007 Net sales 159 644 157 792 Cost of goods sold 110 346 116 455 Gross profit 49 298 41 337 Marketing and sales 6 001 6 224 Research and development 19 023 16 965 Administration and general overhead 11 787 9 845 Other operating income 16 062 13 126 Operating profit 28 549 21 429 Share of results of associated companies 536 Financial income 999 771 Financial expenses 1 988 2 578 Exchange rate differences 1 913 1 705 Profit before taxes 26 183 21 327 Income taxes 4 247 2 990 Net profit from continuing operations 21 936 18 337 Net profit from discontinued operations 27 143 Net profit group 21 936 45 480 Net profit per share Undiluted net profit per share (CHF) 7.9 16.5 Diluted net profit per share (CHF) 7.9 16.5 Net profit per share (continuing operations) Undiluted net profit per share (CHF) 7.9 6.6 Diluted net profit per share (CHF) 7.9 6.6 8 Financial Statements Siegfried Group

Segment information continuing operations (unaudited) In 1 000 CHF Change in % Change in % Group 1 st Half-Year 2008 1 st Half-Year 2007 in CHF In local currency Net sales 159 644 157 792 1.2 6.8 Operating profit 28 549 21 429 33.2 Segment depreciation 17 752 19 139 7.2 EBITDA 46 301 40 568 14.1 EBITDA margin (%) 29.0 25.7 Share of results of associated companies 536 Financial result, net 2 902 102 Profit before taxes 26 183 21 327 22.8 Change in % Change in % Siegfried Actives 1 st Half-Year 2008 1 st Half-Year 2007 in CHF In local currency Net sales 95 087 108 882 12.7 4.9 Operating profit 1 671 10 029 83.3 Segment depreciation 15 781 17 420 9.4 EBITDA 17 452 27 449 36.4 EBITDA margin (%) 18.4 25.2 Change in % Change in % Siegfried Generics 1 st Half-Year 2008 1 st Half-Year 2007 in CHF In local currency Net sales 64 557 48 910 32.0 32.6 Operating profit 30 255 9 938 204.4 Segment depreciation 1 955 1 719 13.7 EBITDA 32 210 11 657 176.3 EBITDA margin (%) 49.9 23.8 Other and eliminations 1 st Half-Year 2008 1 st Half-Year 2007 Change in % Operating profit 3 377 1 462 n.a. Segment depreciation 16 EBITDA 3 361 1 462 n.a. Financial Statements Siegfried Group 9

Consolidated Balance Sheet (unaudited) In 1 000 CHF December 31, 2007 Assets June 30, 2008 restated Non-current assets Property, plant and equipment 309 594 317 673 Intangible assets 49 337 48 870 Investments in associated companies and joint ventures 5 821 5 477 Financial and other non-current assets 21 165 1 124 Non-current pension assets 12 180 18 815 Deferred tax assets 8 006 8 698 Total non-current assets 406 103 400 657 Current assets Inventories 158 782 160 523 Trade receivables 64 951 68 737 Other current assets 18 301 19 408 Derivative financial instruments 1 514 527 Cash 11 013 4 713 Total current assets 254 561 253 908 Non-current assets held for sale 19 600 Total assets 660 664 674 165 Liabilities and Equity Equity Share capital 5 600 5 600 Treasury shares 5 329 4 950 Reserves and retained earnings 480 111 490 631 Total equity 480 382 491 281 Non-current liabilities Non-current financial liabilities 71 704 75 824 Non-current provisions 13 025 9 166 Deferred tax liabilities 31 734 34 776 Other non-current liabilities 2 942 2 940 Non-current pension liabilities 3 710 3 454 Total non-current liabilities 123 115 126 160 Current liabilities Trade payables 9 608 15 156 Other current liabilities 38 028 35 262 Current pension liabilities 1 154 954 Current provisions 3 230 3 735 Current income tax liabilities 5 147 1 617 Total current liabilities 57 167 56 724 Total liabilities 180 282 182 884 Total liabilities and equity 660 664 674 165 10 Financial Statements Siegfried Group

Condensed Consolidated Cash Flow Statement (unaudited) In 1 000 CHF 1 st Half-Year 2007 1 st Half-Year 2008 restated Profit before taxes from continuing operations 26 183 21 327 Depreciation of property, plant and equipment and intangible assets 17 752 19 139 Change in provisions 4 454 6 000 Other non-cash items 28 795 6 407 Change in net current assets and other items 4 267 44 815 Cash flow from operating activities 15 327 4 756 Purchase of property, plant and equipment 18 204 12 624 Sale of non-current assets held for sale 21 822 Miscellaneous cash flow from investing activities 309 834 Cash flow from investing activities 3 309 11 790 Change in financial liabilities 23 21 140 Purchase/disposal of treasury shares, net 392 1 092 Dividend paid 11 647 11 583 Cash flow from financing activities 12 016 31 631 Cash flow from discontinued operations 44 656 Net change in cash 6 620 3 521 Cash at January 1 4 714 18 963 Net effect of exchange rate changes on cash 321 68 Cash at June 30 11 013 15 510 Consolidated Statement of Recognized Income and Expense (unaudited) In 1 000 CHF 1 st Half-Year 2007 1 st Half-Year 2008 restated Cashflow Hedges - gains (losses) taken to equity 743 Available-for-sale financial assets - gains (losses) taken to equity 4 696 5 415 - transferred to income statement 2 362 Actuarial gains (losses) from defined benefit plans 7 824 2 028 Exchange rate differences 11 198 13 Income taxes on items recorded in equity 2 927 118 Discontinued operations - Exchange rate differences transferred to income statement 1 694 Expense recognized directly in equity 20 791 2 539 Net profit from continuing operations 21 936 18 337 Net profit from discontinued operations 27 143 Total recognized income and expense 1 145 48 019 Financial Statements Siegfried Group 11

Condensed Consolidated Statement of Changes in Equity (unaudited) In 1 000 CHF 1 st Half-Year 2008 1 st Half-Year 2007 At January 1 479 782 447 703 Restatement (first adoption of IFRIC 14) 11 499 8 891 At January 1 (restated) 491 281 456 594 Total recognized income and expense 1 145 48 019 Dividends 11 647 11 583 Change in treasury shares 392 1 092 Employee share plan 5 At June 30 480 382 494 122 Market prices In CHF 2004 2005 2006 2007 2008 Registered share highest 171.5 165.4 211.0 206.9 186.0 lowest 135.0 138.0 161.0 173.0 148.3 at year-end 141.1 164.5 183.0 193.0 at June 30 158.5 Most important exchange rates Balance sheet Final rates Final rates Change Currency June 30, 2008 December 31, 2007 in % 1 USD 1.019 1.124 9.3 1 EUR 1.606 1.657 3.1 Income statement Average rates Average rates Change Currency 1 st Half-Year 2008 1 st Half-Year 2007 in % 1 USD 1.0560 1.2280 14.0 1 EUR 1.6060 1.6211 0.9 12 Financial Statements Siegfried Group

Notes to the Consolidated Financial Statements Accounting principles The Consolidated Financial Statements include the unaudited half-year accounts of Siegfried Holding AG, which is incorporated in Switzerland, and its subsidiary companies for the reporting period ended 30 June 2008 (First half-year 2008). The financial reporting complies with the International Financial Reporting Standards (IFRS) and with the International Accounting Standard 34 Interim Financial Reporting (IAS 34), issued by the International Accounting Standards Board (IASB). The accounting principles are described in detail in the Annual Report 2007 of the Siegfried Group and have also been applied unchanged for the half-year accounts with the exception of the adjustments explained below. If necessary, the comparative amounts taken from the prior year half-year consolidated financial statements have been reclassified or supplemented for changes in the presentation of the consolidated financial statements. Changes in accounting principles The following new interpretations became effective on January 1, 2008: IFRIC 11 Group and Treasury Share Transactions IFRIC 12 Service Concession Arrangements IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction The new interpretations IFRIC 11 and IFRIC 12 had no effect on the interim financial statements of the Siegfried Group. However, the adoption of IFRIC 14 led to a restatement as of January 1, 2007. The financial effects of this restatement are described in the notes to the consolidated financial statements. IFRS 8 Operating Segments. In 2007 the Siegfried Group has early adopted the new standard, which is compulsory from January 1, 2009, following the sale of the Sidroga division and the changes in the management structure. The comparative figures of June 30, 2007 have been adjusted according to the new presentation. The Siegfried Group is currently assessing the potential impact of the other standards and interpretations that will become effective from January 1, 2009 or later and which have not been early adopted. 1. Siegfried Generics licensing revenues During the first six months of 2008, Siegfried Generics achieved licensing revenues of CHF 13.5 million from a bio-generics project begun in 1998. The project was successfully licensed in 2001, with payments pegged to milestones. At the signing of the contract in 2001, CHF 4 million were paid. In 2006 another CHF 10 million was added when our customer submitted the dossier. Finally, CHF 13.5 million was paid at the time of the market launch. The milestone payments for 2008 will be made by installments: CHF 5 million in 2008, CHF 5 million and CHF 4 million will be due in 2009 and 2010. Payments submitted after 2008 are discounted to their net present value. 2. Gains on the sale of fixed assets On December 17, 2007, Siegfried and Arena Pharmaceuticals GmbH (the Swiss subsidiary company of the U.S.-based Arena Pharmaceuticals Inc.) signed four long-term cooperative contracts in the areas of chemical development, galenic production, compliance, and services. In addition, Siegfried sold the pharmaceutical production facility in Zofingen, Switzerland to Arena, including technology, equipment and the corresponding facility premises for CHF 42.8 million. The transaction was finalized on January 9, 2008. The sold assets were reported separately (per December 31, 2007) at a value of CHF 19.6 million under non-current assets held for sale. The transaction includes a CHF 31.8 million cash payment by Arena and the transfer of 1,488,482 shares of Arena Pharmaceutical Inc. to Siegfried. The transferred shares have a lock up period of three years, they are treated as available for sale financial assets and included in Financial and other non-current assets. CHF 21.8 million were due on the date of the transaction; the remaining CHF 10 million will be paid in three equal installments in three, four and five years after the completion of the deal. These payments are discounted to their net present value. The galenic production at Siegfried will be transferred stepwise to Malta and to third party facilities. The resulting transfer costs and costs related to the transaction (CHF 7.5 million in total) were provided for. These amounts will be drawn upon until 2010. Overall the transaction results in a gain from the sale of assets of CHF 13.5 million. Financial Statements Siegfried Group 13

3. IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction is applicable to all post-employment defined benefits and other long-term employee defined benefits. IFRIC 14 adresses the issue of an economic benefit from refunds or reductions in future contributions as well as the question of when a minimum funding requirement might give rise to a liability. The Siegfried Group has applied the revised standard retrospectively as of January 1, 2007, it had the following impacts: Restated Consolidated Balance Sheet In CHF 1 000 1.1.2007 30.6.2007 31.12.2007 Non-current pension assets + 11 547 + 15 161 + 15 427 Non-current pension liabilities + 1 889 + 493 Deferred tax liabilities + 2 656 + 3 053 + 3 435 Equity + 8 891 + 10 219 + 11 499 Together with the first application of IFRIC 14, non-current pension assets were presented separately from non-current pension liabilities. The restatement had no effect on the consolidated income statements of theses periods. The actuarial losses from defined benefit plans included in the Consolidated Statement of Recognized Income and Expense of CHF 7.8 million include CHF 6.6 million due to the application of IFRIC 14. 4. Change in the scope of consolidation On February 19, 2008 Siegfried (Canada) Inc., Montreal, Canada, was incorporated with capital stock of CAD 100. The new company s activities include the development of generic pharmaceutical products. 14 Financial Statements Siegfried Group

Cautionary statement regarding forward-looking statements This Annual Report contains certain forward-looking statements identified by words such as believes, expects, anticipates, projects, intends, should, seeks, estimates, future or similar expressions or by discussion of, among other things, strategy, goals, plans or intentions. Various factors may cause actual results to differ materially in the future from those reflected in forwardlooking statements contained in this Annual Report, among others: (1) pricing and product initiatives of competitors; (2) legislative and regulatory developments and economic conditions; (3) delay or inability in obtaining regulatory approvals or bringing products to market; (4) fluctuations in currency exchange rates and general financial market conditions; (5) uncertainties in the discovery, development or marketing of new products or new uses of existing products, including without limitation negative results of clinical trials or research projects, unexpected side-effects of pipeline or marketed products; (6) increased government pricing pressures; (7) interruptions in production; (8) loss of or inability to obtain adequate protection for intellectual property rights; (9) litigation; (10) loss of key executives or other employees; and (11) adverse publicity and news coverage. The statement regarding earnings per share growth is not a profit forecast and should not be interpreted to mean that Siegfried s earnings or earnings per share for 2008 or any subsequent period will necessarily match or exceed the historical published earnings or earnings per share of Siegfried. Impressum This semi-annual report is also available in German, being the original version. Siegfried Holding AG Untere Brühlstrasse 4 CH-4800 Zofingen Phone + 41 62 746 11 11 Fax + 41 62 746 11 03 www.siegfried.com Editor: Peter A. Gehler Marcel Gremaud Idea, Concept and Layout: Seiler Communications AG, Zürich Photos: Albert Zimmermann, Zürich Print: Offsetdruck Goetz AG, Geroldswil Financial Statements Siegfried Group 15