English - Siegfried

custom synthesis and shorten project lead times. In the comingyears, Siegfried will look increasingly to strategic partnerships,and also align our customer support and operatingprocedures with this strategy. Furthermore, we are strivingto gain the necessary critical mass to weather downturnsin customer research projects by widening our base ofcustomer projects. An initial step in this direction was takenby fulfilling our goal of 15 new projects for 2006. Currently,the Siegfried Division pipeline is at an all-time high.As part of our multi-client product offer, the Siegfried Divisionwill launch additional active ingredients used for analgesicsin the North American market (obtained two years ago withthe acquisition of the Penick Corporation) in 2007. With thegovernmental licensing and registration process now complete,these products will be produced in our Pennsville (NewJersey) facility in 2007. Customer orders have met expectationsand management is currently looking at expanding theproduct line of active ingredients for analgesics. Manufacturedin Pennsville, these products are classified as ‘controlledsubstances; the U.S. government closely monitors their productionand distribution. Imports are not allowed; these ingredientsmust be manufactured in the U.S. Siegfried has theexperience and necessary licenses to manufacture controlledsubstances for the U.S. market; previously we produced activeingredients for narcotics in Pennsville for decades.Despite a difficult market, Siegfried increased generics salesin 2006, achieving the second-best results (after the recordsetting2004 results). However, this success should notdisguise the fact that the global generics market remainsvolatile. Many of our competitors offer the developmentand production of generic products (in tablet form) andour biggest customers are making efforts to create in-housedevelopment and production capabilities. Our businessmodel (the development of registration dossiers for genericproducts and the production of finished products for ourcustomers) is under pressure, which has already led to thecancellation and depreciation of several projects in 2006.Our response to these challenges is twofold: First, we willenter new markets (Australia, New Zealand, EasternEurope, and the Middle East) with our classic generic products.Secondly, we are investing in new, demanding andpatentable technologies. Supplementing our service-basedbusiness model with technology will take time to realize.At the start of 2007 we constructed a development lab forinhalation technology in Munich, Germany; the necessarypatents were acquired in 2007.Our smallest business unit – Siegfried Biologics – for bio -logically produced active ingredients delivered solid results,including a milestone payment for an expired license project.Chairman’s Letter5