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1 A N N U A L R E P O R T

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3 Healthy growth

4 4 P R O B I T A S P H A R M A A N N U A L R E P O R T

5 H E A L T H Y G R O W T H 5 Healthy growth Growth is a clear sign of health and strength. Nothing is more rewarding than seeing our children grow healthy, full of life, acquiring new skills as they move through the different stages of life. For Probitas Pharma, growth is an integral part of our development. Over the last twenty-five years, the average growth rate of the group has been over 20% and this has transformed us into one of the leading biopharmaceutical companies in the world. This growth demonstrates our belief in a job well done, in not leaving anything to chance, and in controlling every detail of our work in order to ensure the quality and efficacy of our products and services, which are designed to improve the health and well-being of millions of people who need them. For Probitas Pharma, growth also means thinking about the future, combining the criteria of quality, innovation, safety and professional ethics with over sixty years of experience. This allows us to plan for ambitious yet sustainable development, and to deliver continued, healthy growth.

6 6 P R O B I T A S P H A R M A A N N U A L R E P O R T Dear shareholders, Once again I am writing to you to present the annual report of our organization s activities, with the satisfaction that comes from seeing that we have achieved the primary objectives we had set. The pages which follow provide a detailed report of these activities, but I would like to take this opportunity to highlight some of them here. The acquisition of the Mitsubishi Pharma assets in the United States was probably the single most important event of 2003, not so much because of the investment in itself, but rather because it has allowed us to grow our North American operations more rapidly and more decisively due to the fact that we now have licenses, inventory and an important manufacturing facility. However, incorporating an organization such as this one, which already existed in Los Angeles, into our group of companies, has required the teams on both sides of the Atlantic to make huge efforts to adapt, and I would like to recognize this here. In this regard I would particularly like to acknowledge the contribution of Greg Rich. He will already be well known to most of you. He was chosen to lead the process of establishing our operation in North America. His profound knowledge of the industry and of the organizations in Barcelona and Los Angeles has been invaluable, as the process is not simply one of exchanging roles, but rather of adapting to a culture, a set of methods and a philosophy which are all very different, and which Greg knows extremely well from his own experience. Today, a third of the employees of our organization are based in the United States, while many of our other employees belong to widely differing countries and cultures. This is a reflection of the fact that we are consolidating ourselves as an international holding company with a presence in the world s most important markets. All of our lines of business have sustained high levels of activity, and I would like to comment on this very briefly. Bioscience has been a particularly active year for this division, with the granting of the licenses to market Flebogamma and Albumin 25% in the USA. The year also saw the granting of the Spanish license for Trypsone, a new therapeutic protein which has been added to our range of products, and which is essential in the treatment of certain respiratory diseases. The registration of pharmaceutical products requires years of work by many departments and teams within our organization, such as R&D, Regulatory Affairs, Production, Marketing and the Technical and Scientific Areas, among others, all of whom have worked extremely hard to obtain such licenses. Achieving this is the best recognition of their efforts. Another significant development has been the construction of the new production plant for intravenous immunoglobulin, a facility which boasts the latest technological developments, and which was entirely designed by our engineering team. The construction project was completed in a mere twelve months. It is currently at the validation stage at the time equipment is being installed. Diagnostic. For the Diagnostic division, 2003 saw a particularly significant development with the signing of a contract with Ortho Clinical Diagnostics, a subsidiary of Johnson & Johnson, to market the ProVue autoanalyzer for immunohematology tests in the United States. This was developed by the Diagnostic division of Probitas Pharma and has been successfully commercialized in the main world markets under the name WADiana.

7 H E A L T H Y G R O W T H 7 The new plant for the production of Leucored blood bags for blood banks also started operating in The new facility in Torres de Cotillas, in the Region of Murcia in Spain, has the highest levels of certification and is designed to meet the growing demand for this type of product. Hospital. During the past year the Hospital division also opened its new facilities for the production of intravenous serum, and it leads the Spanish market in this product range. These are the most modern facilities in Europe, and have significantly increased our production capacity for this type of product. Innovative features include the incorporation of a system for preparing the product from concentrate, together with a large number of other technological innovations designed by our engineering team, which was responsible for the new facilities. The Grifill 2.0 system for the preparation of intravenous mixtures has obtained an FDA license for sale in the United States. This will allow the Hospital division to start operations in the USA with a unique product which has been entirely created, developed and manufactured by our group of companies. It would be wrong of me to end without mentioning that 2003 came to an end without us having achieved one of our most dearlyheld objectives: the flotation of our company on the Stock Exchange. As you will all know, this has not been due to lack of foresight on our part but rather a reflection of the profound instability of the financial markets after September 11th. The slowness of the recovery has sustained this situation for longer than had been expected, but we still hope to achieve our ambition during the coming financial year, so long as the conditions are right has already gone down in our history as a year of great importance for the project of internationalizing our group. We are not lacking in plans, and we approach these with equal quantities of ambition and caution. The support and trust which you give us are a vital incentive for us in our efforts to deliver healthy growth for our group of companies. Sincerely yours, Juan Ignacio Twose Vice-President Manufacturing Victor Grifols Roura Chairman of the Board of Directors Víctor Grifols Chief Executive Officer Ramon Riera Vice-President, Márketing & Sales

8 8 P R O B I T A S P H A R M A A N N U A L R E P O R T AT A GLANCE

9 H E A L T H Y G R O W T H 9 500, , , , , , , , , , ,000 50, , , Total income Euros in thousands 180, , , , , , , ,640 40,000 30,000 20,000 10,000 19,550 21,341 37,122 35,292 Acquisitions Investments Euros in thousands Net profit Euros in thousands

10 10 P R O B I T A S P H A R M A A N N U A L R E P O R T

11 2003 ACTIVITIES REPORT

12 12 P R O B I T A S P H A R M A A N N U A L R E P O R T Introduction The macroeconomic environment During 2003, economic activity both in Spain and throughout the world took place against a background of uncertainty and instability. At the beginning of the year the war in Iraq and the outbreak of SARS paralyzed the international financial markets and, according to the World Trade Organization, the volume of international trade was significantly affected. Although there were some signs of recovery by the third quarter, the economic situation both in Europe and in the United States was not particularly good and the majority of international organizations scaled back their growth forecasts. Despite this, the Spanish economy performed somewhat better than the European average. Spanish Gross Domestic Product (GDP) grew by 2.4% during 2003, compared with growth of 2% in In contrast, average GDP growth for the European Union was 0.7%. The pharmaceutical industry accounts for 1.4% of Spain s GDP, employing more than 39,000 people. Also worthy of note is the strengthening of the euro, a factor which has threatened exports within the euro zone. For Probitas Pharma, these fluctuating exchange rates had a negative impact on sales amounting to 10.6 million euros. At the same time, the increased value of the euro also led to a decline in the cost of plasma, Probitas Pharma s main raw material, which it purchases in dollars. However, any positive impact arising from the lower cost of plasma will not be felt until 2004, due to the length of the production process for plasma products and the prolonged storage and quarantine periods.

13 H E A L T H Y G R O W T H 13 Trend towards consolidation in the plasma derivatives sector continues during 2003 The trend towards consolidation within the plasma derivatives sector continued during 2003, with the year seeing the purchase of some of the assets of Alpha Therapeutic Corporation (the North American subsidiary of Mitsubishi Pharma Corporation) in the United States and Asia by Probitas Pharma, and the acquisition of Aventis Behring s plasma derivatives business by the Australian company CSL. These developments have led to Probitas Pharma moving up to fourth place in the worldwide plasma derivatives market, with a market share of almost 8%. By the end of 2003, six companies controlled three quarters of the global market in plasma derivatives: CSL-Aventis (23.5%), Baxter (18.2%), Bayer (11.9%), Probitas Pharma (8%), American Red Cross (6%) and Octapharma (4.9%). Last year, proteins derived from plasma were used to treat over a million patients, particularly those with immunological deficiencies, hemophilia and burns. Sales for the sector reached 5.6 billion dollars in 2002 and could grow at a rate of 8% over the next three years. Each year, over 25 million liters of plasma are processed throughout the world, producing around 500,000 kilograms of albumin and over 50,000 kilograms of immunoglobulin. Among the most important markets which do not have their own plasma processing facilities and depend on external supplies are Canada, Latin America, the Middle East, India, Africa, and various countries in Eastern Europe and in the Far East. The level of demand in these markets outstrips the supply capacity of the plasma fractionation industry.

14 14 P R O B I T A S P H A R M A A N N U A L R E P O R T General information about the group

15 H E A L T H Y G R O W T H 15 General trends during the period: a year of consolidation and growth The development of Probitas Pharma s business during 2003 was marked by the consolidation of its internationalization process. This has led to the strengthening of the group s current position in the plasma derivatives market, and the company now ranks fourth worldwide in this sector. Probitas Pharma ended the 2003 financial year with an overall business figure of million euros, representing growth of 9.1% compared to the preceding year. The principal factors which have contributed to these results were positive sales growth in the United States, both of plasma derivatives and of diagnostic equipment, and sales growth in the Spanish market. At the same time, key margins have improved. The company s EBITDA was 73.4 million euros, a margin of 17.2% over sales and an increase of 23% in comparison to the preceding year. EBIT reached 50.8 million euros, a rise of 21.5% in comparison to This meant that net profit for the financial year 2003 was 21.5 million euros, 14% higher than for Significant growth was observed in all business lines. The Bioscience division grew by over 10% in The opening of new markets and the granting of new plasma derivatives licenses in countries where the division already had a presence helped to achieve this growth. Turnover for the Hospital division grew by 9%. Increased demand for serum and other non-biological products was the key factor in this. Finally, the Diagnostic division also saw significant growth of 20% in comparison to the preceding year thanks to the various agreements reached with leading companies in the sector during In April 2003, Probitas Pharma signed a new syndicated loan for 225 million euros with the participation of 27 Spanish and international financial entities. The loan is structured in two tranches: million euros with a five year maturity, and 67.5 million euros over three years. The resources that became available as a result of this operation have been used to pay off the previous syndicated loan for 90 million euros signed in April 2001, to restructure short-term debt and finance the business plan for the coming years.

16 16 P R O B I T A S P H A R M A A N N U A L R E P O R T The internationalization of Probitas Pharma During 2003, turnover generated by Probitas Pharma outside Spain represented 66% of total sales. These sales grew by 8.3% in comparison to 2002, amounting to million euros. Of all export markets, the rise seen in the United States was the most significant, and sales there accounted for 26.7% of total sales outside Spain in This statistic demonstrates Probitas Pharma s swift penetration of the North American market, a development which has been driven both by the increase in sales of plasma derivates and by the signing of important commercial agreements with some of the leading companies in the diagnostics sector. The purchase of assets belonging to Alpha Therapeutic Corporation in the middle of July allowed Probitas Pharma to strengthen its industrial structure in the United States and to enhance its presence in one of the regions where the plasma derivatives market has the greatest potential. The purchase agreement included, among other assets, a plasma fractionation plant in Los Angeles together with the company s commercial structure in Asia. This means that Probitas Pharma now has a direct presence in Thailand, Malaysia and Singapore, where it already had a representative office. In the Asian markets, sales exceeded 9 million euros in 2003 and currently represent 3% of the group s total sales outside Spain. Notwithstanding these developments, Europe continues to be the major export market, with 57.3% of the total. By country, the largest markets are Italy (16.4%), the United Kingdom (15,6%), and Germany (13,2%). Moreover, the group s growing presence in Eastern Europe enabled the creation of a new subsidiary in Poland: Grifols Polska. Latin America accounted for almost 10% of total international sales in Mexico, a country in which Probitas Pharma has been operating for 10 years, generated 3.5% of these sales. A tender contract for the supply of Factor VIII was not renewed in Brazil, reducing the group s presence in this country, which currently contributes 2.6% of total exports. During the past year, the group has undertaken the reorganization of its commercial and industrial activities. Among the changes, it is worth noting the significant progress achieved in the industrial sector during the year with the full integration of Biomat USA as a plasma providing company within the plasma derivatives production chain.

17 H E A L T H Y G R O W T H 17 Growth rates are sustained in Spain despite market maturity In Spain Probitas Pharma maintained its strong growth during Turnover reached 142 million euros, a 10% increase with respect to 2002 On an industrial level, the Hospital Division increased its presence in the Spanish market during The inauguration and start-up in September of the new factory to produce serum in glass bottles, located at Parets del Vallés (Barcelona), and the extension of the plant for plastic containers in Las Torres de Cotillas (Murcia) made a significant contribution to production capacity for intravenous solutions. The serum factory at Parets del Vallés is one of the most modern and fully automated in Europe and can produce up to 45 million bottles per year. Once the extension has been completed, the facilities in Murcia will have a production capacity of 20 million, including serum bags and bags for blood collection and storage.. Probitas Pharma is currently the leading company in Spain in the production of serum in glass containers and number two in bags. The company launched various new products for the Spanish market in 2003 which have had a positive impact on the group s turnover. Among these were Trypsone, a solution for the treatment of pulmonary emphysema as a result of alfa-1 antitrypsin deficiency, or the new Fleboflex Grifols Physiological Saline and Fleboflex Grifols 5% Glucosade bags. Fleboflex is a new bag manufactured with polypropylene which retains the characteristics of the bags: low weight, easy to manipulate and very strong, and has the added advantage that it can be used in the preparation of medicines which are not compatible with PVC. With regard to alliances with other companies, in November Probitas Pharma reached an agreement with Carmel Pharma to market Phaseal in Spain and Portugal. This is a protection system which minimizes the risk associated with the handling of cytostatics or toxic medication.

18 18 P R O B I T A S P H A R M A A N N U A L R E P O R T Human Resources Probitas s human capital ensures the solidity of the company s project. The challenge for Probitas Pharma is to ensure that it has the right people and organization to enable it to research, develop and manufacture products designed to secure the health and well-being of people. And all of this with the highest levels of quality, effectiveness and safety. For this reason the Human Resources policy of the group is designed to select, imbue with loyalty and train the people the organization needs in order to achieve its objectives of effectiveness and creativity, ensuring that every individual reaches their full potential for professional and personal development. Currently, Probitas Pharma employs more than 3,400 people. Of these, 52.8% are employed in Spain while the rest work for the group s companies in other countries. Other European countries account for 4.8% of the workforce, 38.7% are employed in the United States, 2.5% in Latin America and 1.2% in the Asia-Pacific region. The workforce is predominantly young: in Spain 47% of employees are aged between 25 and 34, with 32.4% between 35 and 44, and 2.6% over 55. The number of new appointments at Probitas Pharma continues to grow steadily. As of December 31, 2003 the holding company had 3,471 employees, 23.7% more than the 2,807 people employed the year before ,2 1, Employees by geographical area In percentage 4.8 Asia / Pacific Latin-america USA Europe Spain

19 H E A L T H Y G R O W T H 19 Probitas Pharma conducts various training programs with the aim of improving the performance of the company s activities and promoting the professional development of each staff member. The aim is to ensure that the human resources fit the company s strategic objectives. Quality, the implementation of a Plan for Safety in the Workplace and the recent implementation of procedures for good environmental management, such as those required for the ISO certification, have been some of the Human Resource priorities in The participation of employees in the company s Training Plan has been particularly impressive. During 2003 the group invested more than 1.4 million euros in training. 1,266 training initiatives were implemented, accounting for over 57,800 hours of time, divided as follows: Other 15 Languages 18 Production 6 Products 6 New technologies 15 Management skills 7 Quality 9 Technical skills 10 Training in 2003 by topics (in percentage) Environment and safety 14 50% of employees received the relevant certification, recognizing their ability to take on the responsibilities directly related to their job description. Optimization of corporate applications 2003 has seen a significant reorganization of the group s activities, especially in the companies outside Spain. Probitas Pharma s presence in a number of international arenas required the standardization of working methods and the implementation of a range of IT tools and applications in order to generate gains in efficiency and ways of operating. While this process actually started over four years ago, 2003 saw an important step forward in this area after the purchase of the Alpha Therapeutic Corporation assets in Los Angeles. The past year has seen the start of the first phase of implementing the SAP system in the USA, including both the coordination of specific modules in different areas and companies, and training in usage of the system and in its procedures.

20 20 P R O B I T A S P H A R M A A N N U A L R E P O R T R&D: serving people Research and Development have been one of Probitas Pharma s priorities throughout its history. This commitment is expressed through specific projects in every one of the company s divisions. In 2003, the company dedicated 23 million euros to R&D, almost 6% of sales turnover. The company s R&D policies are also reflected in patents for procedures and health authority registrations which allow the application of products to patients. Probitas Pharma has some 250 patents in over 45 countries, while in plasma derivatives alone it has over 340 health authority registrations in 69 countries. In terms of human capital, 180 professionals concentrate their efforts on creating safer, more effective products, optimizing existing production processes and constantly improving the treatments in use. The fundamental mission of the R&D Department of the Bioscience Division is to obtain, purify, stabilize, and virally inactivate all those proteins which exist in plasma and whose therapeutic use is known. Another important field is the study of therapeutic applications for those proteins whose use is not yet known. Among the organizations with which Probitas Pharma works, including public and private bodies, both national and international, are the Spanish and European Pharmacopeias (which establish quality criteria for plasma derivatives) and the World Health Organization. In 2003, the public authorities recognized Probitas Pharma s important work as a company in the vanguard of scientific research and development and technological innovation (R&D&i). Profarma II, a program run jointly by Spain s Ministry of Science and Technology and the Ministry of Health and the Consumer, has for the second year in succession awarded Probitas Pharma the maximum rating of Excellent for its research projects. Probitas Pharma first entered these programs in At the beginning, the group only presented research projects in the Bioscience area, but in subsequent years, projects in the Hospital and Diagnostic divisions were included. The aim of the program is to promote R&D&i in the pharmaceutical industry, and also to encourage the application of new technologies, the development of therapeutic tools for the treatment of a range of illnesses, and the implementation of production technologies, and to foster the growth of specialized jobs. Research and development in the Diagnostic division fundamentally pursues two lines of activity: the first is concerned with the production of more sensitive diagnostic devices which produce replicable results, while the second focuses on the development of reagents, in particular those designed to determine blood groups based on high-sensitivity gel technology. In 2003, the device which has defined the innovative and technological nature of Probitas Pharma is WADiana, used to determine blood groups and perform pre-transfusion tests. WADiana is marketed in North America by Ortho Clinical Diagnostics, a subsidiary of Johnson & Johnson, under the name ProVue.

21 H E A L T H Y G R O W T H 21 Probitas Pharma speeds up and simplifies plasma imports from the United States in 2003 During 2003 a key development was the creation of a simplified procedure for factory clearance and dispatch of biological raw materials. Achieving this will allow customs clearances for human plasma imports to be done directly using electronic communications without customs agents intervening.. The importing company can obtain the goods by completing the procedures over the Internet, with the consequent financial savings, together with greater flexibility and speed. The logistics department of Probitas Pharma anticipates that this service will soon be extended to other imports made by the group. Probitas Pharma s manufacturing facilities Factory for the production of serum at Parets del Vallés (Barcelona, Spain) opened in September 2003, it occupies an area of 5,700 m 2 and has a production capacity of 45 million bottles of serum per year. Plant for the production of plasma derivatives located at Parets del Vallés (Barcelona, Spain). This is one of the largest plasma fractionation plants in Europe and one of only four European plants with an FDA license (Establishment License) for the production of plasma derivatives. It occupies an area of 32,717 m 2 and has a fractionation capacity of 2.1 million liters of plasma per year. Manufacturing facilities for the production of intravenous serum in plastic bags and blood bags at Las Torres de Cotillas (Murcia, Spain). This produces 14 million bags of intravenous serum per year, principally for Spanish hospitals. It also produces 6 million bags for blood extractions, of which over 50% are exported. These new Probitas Pharma facilities, which started operating in 2003, are part of the new Murcia-II Industrial Complex which is being created to expand production capacity in stages. When the project has been completed, both complexes will occupy an area of over 8,000 m 2. Plant for the production of diagnostic reagents and instruments located at Parets del Vallés (Barcelona, Spain). Plant for the production of plasma derivatives located at Los Angeles (California, United States). These assets have allowed Probitas Pharma to consolidate its industrial structure in the United States. The plant occupies an area of 39,432 m 2 and has a fractionation capacity of 1.8 million liters of plasma per year. Biomat USA Plasmapheresis Centers. Biomat USA currently has 49 plasmapheresis centers spread across 28 states of the United States.

22 22 P R O B I T A S P H A R M A A N N U A L R E P O R T Analysis by Division Bioscience Division The Bioscience Division includes all the products and activities relating to plasma for therapeutic use. With growth of over 10%, sales turnover reached 281 million euros in This represents 66% of the group s total sales, and it is hoped that in the near future the volume of business will grow thanks to the company s ongoing penetration of the US market following its acquisition and integration of the assets of Alpha Therapeutic Corporation. Obtaining licenses to market new pharmaceutical products in this market will be a decisive factor if the growth forecast is to be exceeded. During 2003, the most significant development for the biological products division was the purchase and integration of the assets of Alpha Therapeutic Corporation. This operation included the plasma fractionation plant in Los Angeles, inventories, licenses and the commercial structure which Alpha operated in some Asian markets. With regard to the registration of Bioscience Division products, an important development was the granting of the license for intravenous immunoglobulin (IVIG) in mid-december, issued by the US Food & Drug Administration. Obtaining this was the result of clinical trials held successfully in the United States, which have confirmed the clinical efficacy, high tolerance and safety of Flebogamma, the name under which Probitas Pharma markets this plasma derivative. The market for IVIG is the largest in the plasma derivatives sector, and has the highest growth potential for the coming years. Before it obtained the license to market Flebogamma in the United States, Probitas incorporated Trypsone into its range of plasma derivatives in Spain. Trypsone is a high-purity concentrate of alfa-1 antitrypsin (AAT) with a high specific activity, which is used for the treatment of pulmonary emphysema. In January the contract signed by Probitas Pharma and Teraklin AG came into force. Teraklin AG is a world-leader in artificial liver support systems, and under the contract Probitas Pharma will market the MARS system, indicated for liver function support therapy. The agreement anticipates the sale of over 1,500 MARS treatment kits over three years; these have proven effectiveness and incidence in improving the survival of patients with liver failure. The agreement means that the German company has initiated its international expansion policy with Probitas Pharma in Spain and in the main Latin American markets.

23 PRODUCTS AND SERVICES SUPPLIED BY THE BIOSCIENCE DIVISION IN 2003 Coagulation Fanhdi. Human FVIII/FVW complex concentrate. Alphanate. Human FVIII/FVW complex concentrate. AlphaNine. Human FIX concentrate. Profilnine SD. Human prothrombin complex concentrate. Intensive Care Grifols Human Albumin: 5, 20 and 25%. Anbin /Antithrombin III Grifols. Human antithrombin III concentrate. Albutein 5, 20 and 25%. Human albumin. Immunology and Pneumology Intravenous immunoglobulins Flebogamma 5%. Normal human immunoglobulin. Venoglobulin S 5 and 10%. Normal human immunoglobulin. Trypsone. Human alfa-1-antitrypsin concentrate. Intramuscular immunoglobulins Grifols Gamma Anti-Tetanus/Igantet. Human anti-tetanus immunoglobulin. Grifols Gamma Anti-D/Igamad /Igantid. Anti-D (Rho) human immunoglobulin. Grifols Gamma Anti-Hepatitis B/Igantibe. Anti-hepatitis B human immunoglobulin. Grifols Human Gammaglobulin. Normal human immunoglobulin. Plasma Care Viral inactivation service for hospital transfusion plasma.

24 24 P R O B I T A S P H A R M A A N N U A L R E P O R T Hospital Division The Hospital Division s activities focus on the production and distribution of all those non-biological pharmaceutical products designed for hospital pharmacies, such as parenteral solutions and parenteral and enteral nutrition products. It saw growth of 9% in 2003, with sales turnover of 51.3 million euros. Within this division, the growth in the IV Therapy line has been a key development. This specializes in manufacturing and marketing intravenous solutions (serum) which generated 56% of the division s sales. One of the most significant events last year was the September opening of the production plant for intravenous solutions in glass bottles in Parets del Vallés (Barcelona). This was designed in accordance with strict GMP guidelines, and includes a number of technological advances developed by Probitas Pharma. It has a production capacity of 45 million bottles of serum per year, and its construction required an investment of over 11 million euros. Building this plant is part of the plan for reorganizing Probitas Pharma s production facilities in Barcelona, and this has allowed the production of intravenous serum in glass containers to be transferred in full to an independent facility. The production of serum in plastic containers has been concentrated at the facilities at Las Torres de Cotillas (Murcia). In July 2003, Probitas Pharma started up the facilities which constitute the first phase of the Murcia-II Industrial Complex, which will allow the expansion of the production capacity for current product lines in stages. This has required an investment of 3 million euros and has enabled production to increase to 14 million bags of intravenous serum per year. Another development which was part of the IV Therapy line was the installation in March of the first modular Farmaroom, a product which belongs to the Misterium cleanroom range (clean rooms for hospital and laboratory environments) designed so that pharmacies have a space which is suitable for the preparation of prescriptions. The Grifill 2.0 system received its FDA license for sale in the United States. The first distribution contract for generic medication (cephalosporinase) was signed, which will be marketed in Spain through Laboratorios Grifols. The Nutrition line has relaunched its Enteral nutrition project as the basis of the strategy for internationalizing this division. Finally, the Hospital division has carried out the first two installations of automated stores for the Kardex product in the Gregorio Marañón Hospital in Madrid and Vall d Hebrón Hospital in Barcelona. Moreover, the first successful evaluation of the Pyxis Automatic Medicine Dispensing System has taken place in Italy, and a computer program called Global Analyst has been specifically created to handle data for Pyxis.

25 PRODUCTS AND SERVICES SUPPLIED BY THE HOSPITAL DIVISION DURING 2003 Fluid therapy Parenteral solutions, intravenous mixtures, solutions for washing and irrigation, injectables Solutions for laboratory use Bags, flow dose dispensers, kits and others Grifill system for preparing intravenous mixtures in hospital pharmacies Misterium modular cleanroom system Laminar flow cabinets, instrumentation and disposable material Clinical nutrition Lipid emulsions, amino acid solutions, high-concentration glucose solutions Liquid diets, supplements Pumps, catheters, bags and kits for parenteral and enteral nutrition Hospital logistics and management Software for stock management, dispensing by unitary dose, intravenous mixtures, dispensing to out-patients, pharmacy management. Automatic systems for dispensing medication and disposable material Automatic systems for storage and management Medicine packaging and unpackaging machines. Devices and medical materials for Therapeutic radiology: Caddi CO2 injector and devices and instruments for therapeutic radiology. Needles for biopsy and angiography. Catheters for angiography, PTA catheters and accessories for therapeutic processes. Peripheral stents. Drainage sets. Urology: endourology, lithotripsy, nephrology, urodynamics, nephrostomy sets. Therapeutic cardiology: catheters for coronarography. ACTP catheters. Coronary stents. Catheters for ultrasound diagnosis; Doppler guides. Pressure guides. Ultrasound instrumentation. Auxiliary material for therapeutic cardiology. Hemostatic closure system. Anesthesia: plexus needles, epidural needles, intradural needles, neurostimulators. Combined epidural intradural sets. Vascular surgery: biliary catheters, embolectomy, irrigation, thrombectomy.

26 26 P R O B I T A S P H A R M A A N N U A L R E P O R T Diagnostic Division The manufacture and development of devices, instrumentation and reagents for clinical analysis laboratories is covered by the Diagnostic Division, which generated income of 58.7 million euros in 2003, an increase of 20% compared to This figure represents 13.7% of the group s total business. Higher sales of the Blood Bank line (specialized in the production of blood bags and extraction devices) and the Immunohematology line (specialized in devices and reagents for identifying blood groups and tests for transfusions) have contributed to this significant increase, representing 31% and 37% of total sales for the division, respectively. In 2003, the Diagnostic Division of Probitas Pharma reached a number of international agreements with leading companies in the industry, confirming its strong position in the in vitro diagnosis market. In May, Probitas Pharma signed an agreement with Ortho Clinical Diagnostics, a subsidiary of Johnson & Johnson. This company obtained approval from the FDA to market the WADiana autoanalyzer for immunohematology laboratories in the US under the name ProVue. Developed by the Diagnostic Division of Probitas Pharma, WADiana is a fully automated hematology instrument which determines blood groups and performs pre-transfusion tests. The contract anticipates the sale of 500 WADiana units over the next 5 years. In order to meet this increased demand, the Diagnostic Division has had to expand its production capacity to 200 units per year. It is hoped that WADiana, which has already been very successful in Europe and Japan with over 1,000 units sold, will have the same success in the United States. At the same time, in July the company signed an agreement with the Biological Products division of Bayer Healthcare LLC for the supply of patented pharmaceutical engineering equipment for its plasma derivatives production plant in Clayton, North Carolina. Grifols Engineering has been asked to design and develop this innovative system, which makes it possible to speed up and mechanize the plasma removal process, the first phase in the fractionation process by which plasma derivatives are obtained. The system, which has been developed for opening and emptying plasma bottles, has been designed as a fully automated line which makes it possible to guarantee temperatures and environmental cleanliness, and ensures that the conditions under which the raw material is used are optimal in terms of safety and asepsis. Finally, it is worth noting the launch of Sintromac Plus in July This is a cutting-edge IT system developed by the Diagnostic division which facilitates the decentralization of Oral Anticoagulant Therapy (OAT). The software allows family doctors to benefit from the experience of hematologists in their area via the web, so that they can manage treatment directly from their office, thus lightening the load of support work on hospitals.

27 H E A L T H Y G R O W T H 27 PRODUCTS AND SERVICES SUPPLIED BY THE DIAGNOSTIC DIVISION DURING 2003 Blood Bank Full range of Bags for extraction and storage of blood with Leucored in-line filter Complementary instrumentation for blood banks Diana system, consisting of DianaGel cards for blood grouping and instrumentation for the automation of these techniques: Diana sampler, Twin Reader and WADiana autoanalyzer which automates all stages of the process. Immunology Triturus system: Triturus autoanalyzer for ELISA techniques and panels of associated reagents, together with products related to other immunoenzymatic techniques (e.g. IFA, WB). Hemostasis Promotion and sale of laboratory techniques for determining the status of the patient s hemostatic equilibrium. There are various sets of specific reagents for different types of pathology. The measurement methods (coagulative, chromogenic and agglutination) are adapted to different types of coagulometer. Monitoring of Oral Anticoagulant Therapy (OAT) using the Sintromac computer system. Raw materials division This division basically covers the sale of plasma obtained in the United States to third parties for use as a raw material. It also includes the sale of intermediate products for obtaining plasma derivatives. The division s initial plan was modified for 2003 as a result of the changes which arose during the year. Despite this, there was an increase of 37%, with sales totaling 35 million euros. In general terms, turnover for this division started to drop and its proportion of the overall business of the company will continue to decrease

28 28 P R O B I T A S P H A R M A A N N U A L R E P O R T

29 2003 FINANCIAL STATEMENTS

30 30 P R O B I T A S P H A R M A A N N U A L R E P O R T Comments on results With regard to the development of the business during 2003, the sales of Probitas Pharma have increased by 9% in comparison to the preceding year as a result of the increases recorded by the Bioscience, Diagnostic and Hospital divisions. These figures are broadly in line with the plan drawn up at the start of the year. It is worth noting the increase in the gross margin, both in absolute terms and in relation to the sales figures. Moreover, it is hoped that in the future this margin will continue to grow as synergies are created by the incorporation into the group of Biomat USA as a provider of raw material. The relationship between gross earnings (EBITDA) and total turnover has also increased due, in part, to successes in containing the cost of sales. This development was particularly marked in the second half of the financial year due to the definitive incorporation of the assets of Alpha Therapeutic Corporation. Throughout 2003 sales (and the associated margins) have been affected by a series of factors which explain the main differences between the results and the plans which had originally been drawn up for the various individual markets. Firstly and most significantly in terms of magnitude, Probitas did not win the tender to supply Factor VIII in Brazil, a contract which it expected would be renewed at least at 2002 levels (15 million dollars). The final impact on sales was 9 million euros. In this financial year the company also stopped supplying albumin to a North American biotechnology company for use in the manufacture of a product which has been discontinued. The resultant impact on turnover was 5 million euros and this, together with the fall in sales of Factor VIII, had a repercussion on the margin of over 8 million euros. 80, , , , EBITDA Euros in thousands

31 H E A L T H Y G R O W T H 31 Net sales Euros in thousands 500, , , ,787 National International 300, , , , , At the same time, Probitas decided to end two contracts with third parties for strategic reasons. During the middle of the year, due to the fact that the FDA was soon to grant a license for the marketing of Flebogamma in the United States, the decision was taken to suspend a contract with Bayer for fraction II+III so that the anticipated increased demand for IVIG could be met. The early cancellation of the contract with Aventis for the supply of plasma was the result of a decision to allocate these third-party sales to the group itself, with the aim of achieving the desired levels of self-sufficiency as soon as possible. Sales figures under this heading would have been 11 million euros. Finally, the delay in obtaining certain licenses as per the plan meant that it was not possible to start sales of anti-hb and anti-d immune globulins in Italy. It also prevented sales of Spanish-manufactured IVIG in the United States from starting in the second half of 2003, as forecast. In this instance, it had been expected that the FDA license would have been granted by the third quarter of However, authorization was not actually given until the end of December, thus making it impossible to implement the planned strategy. Taken together, these delays have meant almost 12 million euros of lost sales.

32 32 P R O B I T A S P H A R M A A N N U A L R E P O R T SALES FOR DIVISIONS Euros in million 2002 % 2003 % % Bioscience Hospital Diagnostic Raw Materials & others The negative effect of these events on the margin has been 8.9 million euros. As a result of the weakness of the dollar over the past months, the cost of the main raw material (plasma) has fallen noticeably. However, the positive impact of this on the results will not be seen until some months later (almost a year) as a result of the lengthy production process for plasma derivatives and the periods of quarantine required. With regard to turnover, the conversion into euros of sales denominated in dollars has meant lower nominal sales. Throughout the final part of the year, the development of sales in the United States after the purchase of the assets of ATC has made it possible to absorb and offset those parts of the business which did not meet plan targets. These shortfalls have also been offset by Spanish sales which were ahead of the targets set in the plan at the end of In comparison to 2002, turnover in Spain rose by 10% to a total of 142 million euros. Raw materials & others 8.1 Diagnostic 13.8 Hospital 12.1 France 1.7 Portugal 1.8 Chile 2.2 Brasil 2.6 Mexico 3.5 Czech Republic 3.8 Others 12.7 USA 26.5 Bioscience 66.0 Germany 13.2 Italy 16.4 United Kingdom 15.6 Sales for divisions 2003 In percentage International sales 2003 In percentage for countries

33 H E A L T H Y G R O W T H 33 The client balance reflects a slight improvement in average payment terms due to the greater weight of international sales, particularly in the United States. In the medium term it is hoped that that application of the European directive on contracts with public authorities will contribute to the reduction of payment periods. This Directive regulates the charging of interest for payments which are still due after 60 days. Interest is now starting to be applied in Spain and, with some delay, in Italy and Portugal, countries with longer turnover periods. Income from interest paid on overdue payments during the last financial year reached 1.8 million euros. 300, , , , , , , , ,000 50,000 International sales Euros in thousands With regard to financial expenses, it should be noted that since 2002 the discounts on sales granted in countries such as the Czech Republic and Germany are recorded under this heading, these accounting for almost a million euros in Previously these expenses were shown as a lower sales value. The financial expenses heading also includes 2.2 million euros in exchange differences, most of which have not been executed and originate from internal loans granted by Probitas Pharma to its United States subsidiaries. Under non-operating expenses, the 9 million euros for repayment of the commercial fund arising from the acquisition of Biomat USA in 2002 should be noted. With regard to the operation for the management of stocks signed with BBVA Trade in 2001, 35 million euros of this have been cancelled during the past financial year. The initial total for this agreement was 70 million euros and it is anticipated that during the coming year the agreement will be paid off in its entirety, requiring a further 35 million euros.

34 34 P R O B I T A S P H A R M A A N N U A L R E P O R T , , , , , , , ,640 40,000 30,000 20,000 10,000 19,550 21,341 37,122 35,292 Acquisitions Investments Euros in thousands In July 2003, Probitas Pharma finalized the purchase of certain assets belonging to Alpha Therapeutic Corporation (ATC) in the United States. Under this agreement Probitas Pharma acquired the fractionation plant in California, licenses in the United States and Japan, inventories and commercial operations in the Asian markets. The acquisition of these assets has speeded up the implementation of Probitas Pharma s strategic plan. Before the acquisition, the group s consolidation in the American market was structured around obtaining the FDA license for IVIG, thus creating an entry into the market, together with the gradual introduction of other products in the future, such as Alpha 1 and the coagulation factors. The acquisition of the ATC assets has made objectives achievable in less time and with a far broader product range than initially anticipated. From a strategic point of view, the purchase of these assets is particularly significant because it strengthens the group s international presence and its diversification, giving it entry to the two main world markets for plasma derivatives: the United States and Japan. At the same time, the resultant use of two production plants offers a clear opportunity for optimizing yields, as fractionation can be divided into distinct phases given that the Parets del Vallés plant has the necessary FDA authorizations.

35 H E A L T H Y G R O W T H 35 With regard to the development of the structure of the balance sheet, a major development was the inclusion under fixed assets of the assets acquired from ATC in August 2003: these consist principally of the plasma fractionation factory (32.5 million dollars) and licenses (7.4 million dollars). The increase in current assets was the result of an increase in inventories (62 million dollars). On the liabilities side, the entries for Other Debts, both short and long-term, reflects the postponed payment to Mitsubishi Pharma Corporation for the purchase of these assets. Entry into the American market will make it possible to improve cash flows thanks to the resultant reduction of average payment periods, which are far shorter than those in Probitas Pharma s current markets. As a result of this operation the relative importance of the United States and Asia will grow far more quickly than forecast, and in 2004 these will account for over 25% of sales. With regard to future strategy and objectives, flotation on the Spanish stock exchange in 2004 continues to be the firm objective. Flotation is planned for the middle of the year, so long as the market situation is favorable, and this will allow Probitas Pharma to face the future with a solid industrial and financial basis. This solid business base, attested both by experience and by the recognition granted to it by entities such as the United States FDA, will make it possible for Probitas Pharma to continue to make strides towards the further internationalization of its business. In order to achieve this, the group will maintain its plans to strengthen its international presence by marketing new products. Consolidation in the United States and increasing its presence in other markets such as Asia are two of Probitas Pharma s short and medium-term objectives. In order to achieve this it has its own subsidiaries in Thailand, Singapore and Malaysia, and it also plans to open a new subsidiary in Japan. At the same time, the strengthening of R&D and investments aimed at improving and expanding the production plans also represents a very serious commitment for the company. Among these it is worth highlighting the construction of a specific factory for the production of intravenous immunoglobulin (IVIG), which should be completed in 2004 and will significantly strengthen exports. To do this, Probitas Pharma will invest 30 million euros until 2004 and once it is in operation it will be the largest, most modern plasma derivatives factory in Europe.

36 P36R OP BR IOT BA IS T AP S H AP RH MA A R MA A N NA UN AN LU AR LE PROE RP T O R2 T Financial Summary Fiscal year ends December 31 st CONSOLIDATED BALANCE SHEETS Assets Euros in thousands Property, plant and equipment 105,838 74,081 55,326 46,959 Intangible assets 63,664 54,563 18,323 18,237 Other assets 174, , ,310 23,857 Total fixed assets and other 343, , ,959 89,053 Cash 24,247 7,763 6,565 6,667 Accounts receivable 208, , , ,273 Inventories 256, , , ,501 Other current assets 5,952 3,417 6,459 2,520 Total current assets 494, , , ,961 Total assets 838, , , ,014 Liabilities and stockholders equity Euros in thousands Common stock 105,841 19,844 19,844 15,219 Reserves 136, , ,074 71,529 Shareholdres equity 241, , ,918 86,748 L/T bank loans 220,202 88,520 98,623 12,413 Promisory notes 5, ,062 0 Acc. payable and other liabilities 77,711 54,892 29,636 24,916 Total long term liabilities 303, , ,320 37,329 Accounts payable 154, , ,594 63,126 S/T bank loans 137, , , ,366 Promisory notes 0 4, ,420 Other current liabilities 1,325 1,290 1,556 1,025 Total current liabilities 293, , , ,937 Total liabilities and equity 838, , , ,014

37 H E A L T H Y G R O W T H 37 STRUCTURE OF THE BALANCE SHEET Percentage on total (%) Fixed assets Accounts receivable Other assets Shareholders equity Accounts payable and other Bank loans CHANGES ON THE STRUCTURE OF THE BALANCE SHEET Percentage change (%) Fixed assets Accounts receivable Other assets Shareholders equity Accounts payable and other Bank loans Fixed assets 20.2 Equity 28.9 Bank loans 43.3 Other assets 55.0 Acc. receivable 24.8 Acc.payable 27.8 Assets In percentage Liabilities and stockholders equity In percentage

38 38 P R O B I T A S P H A R M A A N N U A L R E P O R T Financial Summary Fiscal year ends December 31 st CONSOLIDATED P&L ACCOUNTS Euros in thousands Net sales 425, , , ,922 Oher income 37,119 12,148 26,436 0 Total revenue 462, , , ,922 COGS & operating expenses (411,786) (360,145) (303,063) (214,557) Operating profit 51,124 42,155 32,562 34,365 Financial expenses and other (28,908) (15,558) (16,497) (7,521) Profit before taxes 22,216 26,597 16,065 26,845 Taxes (696) (7,731) (6,056) (7,394) Attributable to minority interests (86) Net profit 21,434 18,866 10,008 19, PROFIT GENERATION Percentage on sales Profit before taxes Other expenses Operating expenses Cost of goods Net sales

39 H E A L T H Y G R O W T H 39 STRUCTURE OF THE P&L ACCOUNT Percentage on sales (%) Net sales Gross margin Operating expenses Profit from operations Profit before taxes OTHER FINANCIAL DATA Euros in thousands and percentage EBITDA Working capital Cash flow Return on sales 5,03% 4,84% 3,24% 7,82% Return on assets 2,56% 2,83% 1,65% 5,71% Return on equity 8,86% 9,84% 5,44% 22,43% EBITDA margin 17,24% 15,28% 14,47% 17,85% Indebtedness (debt/equity) 1,50% 1,35% 1,29% 1,90% Profit before taxes Euros in thousands

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