China alone, it is estimated that more than 160 million patients suffer from hypertension and more than 20 million have diabetes. In addition, the demand for effective treatments is outpacing economic growth: while the Chinese economy grew by 9.8% in 2005, sales of pharmaceuticals leapt by 22.5%. In India, some 35% of the population currently has access to essential drugs, and the proportion is expected to increase to 80% by 2020.

Counteracting the effects of these growth drivers, however, are various negative trends, notably government price controls, with mandatory discounts, competitive pricing pressures, parallel imports from low-wage countries, and increasingly stringent regulatory requirements. Cost containment measures introduced by governments include the promotion of generics, which over the next few years will show double-digit expansion worldwide – in contrast to market growth for patent-protected medicines, which will be in the mid to high single-digit range.

These, precisely, were the priorities that we pursued in 2005. The Pharmaceuticals Division further expanded its research operations, and this process will continue in the coming year. For our generics business, the acquisition of Hexal and Eon Labs represented not only a geographical expansion but a substantial reinforcement and reinvigoration. In the US and Germany – the most important generics markets – we have secured a leading position, and gained access to a rich pipeline and new technologies. The incorporation of a dynamic entrepreneurial culture is also having beneficial effects. Sales are growing rapidly, integration is proceeding according to plan, and the team is highly motivated. Also pending is the outright acquisition of Chiron, a company in which we have held a minority stake since 1995. While Chiron’s pharmaceutical operations can be integrated into our own and its diagnostics unit has posted strong growth, its vaccines business suffered a serious decline as a result of significant quality problems in production. Accordingly, we have decided to bring our quality assurance expertise to bear and are planning strategic expansion of the vaccines business through appropriate investments.

Last year also saw the strengthening of our OTC Business Unit through the acquisition of the North American Consumer Medicines business of Bristol-Myers Squibb (BMS). This move has consolidated our position not only in a key market but also in the analgesics segment, where BMS was a major player with its Excedrin® brand.

Through organic growth and acquisitions in the course of 2005, we thus further expanded our operations in the healthcare sector, paving the way for additional sustained growth and at the same time spreading risks more widely.

What is ultimately essential, of course, is not only strategic decision-making but progress on the operational front. The gains in market share achieved by Pharmaceuticals have already been mentioned above. There was a further rise in the proportion of sales generated by products that will continue to enjoy patent protection for an extended period of time.

The first approval worldwide was granted last year by the US FDA for Exjade, the breakthrough oral iron chelator. Iron overload, mainly occurring as a result of frequent blood transfusions, previously required continuous infusion therapy, which was especially burdensome for children and adolescents. Exjade now substantially facilitates treatment for this group of patients in particular.

In Europe, the regulatory authorities granted marketing clearance for Xolair (for the treatment of severe allergic asthma) and Aclasta (for Paget’s disease).

Of the 76 projects currently in clinical development, 50 are already in late-stage trials.

One product I mentioned in last year’s letter was Galvus (LAF237, vildagliptin) –