The Pharma cluster comprises the business groups DSM Pharmaceutical Products and DSM Anti-Infectives.

DSM is one of the world’s leading independent suppliers to the pharmaceutical industry, with some 40% of today’s top-selling medicines in the world containing ingredients developed and produced by DSM.

• Solid growth and performance in Pharma Chemicals
• Clinical trial line for sterile manufacturing started
• Breakthrough XD^™ process announced for biopharmaceutical production

DSM Pharmaceutical Products is a leading provider of high-quality custom contract manufacturing and development services to the pharmaceutical, biopharmaceutical and agrochemical industries. Customers around the world are serviced from six manufacturing sites in the United States and Europe. Customers include seventeen of the top twenty pharmaceutical companies and the top three agrochemical companies as well as a large number of biotech, specialty and emerging companies across the globe.

DSM Pharmaceutical Products’ contract manufacturing services include the production of advanced intermediates, active pharmaceutical ingredients (APIs), amino acids and derivatives, mammalian cell production of monoclonal antibodies and proteins, finished-dose form manufacturing of solids, scheduled drugs, aseptic liquid and lyophilized products. DSM focuses the right resources on providing the highest level of service and quality while applying innovative solutions to satisfy customers’ unique manufacturing needs. DSM Pharmaceutical Products consists of four business units.

DSM Pharma Chemicals is a provider of custom chemical manufacturing services for complex registered intermediates and APIs. Using a large technology toolbox, it provides manufacturing services from four European-based facilities located in Austria, the Netherlands, Italy and Germany.

DSM Biologics is a provider of biopharmaceutical manufacturing technology and services. DSM Biologics and Crucell NV have co-exclusive rights to license the high-producing PER.C6^® technology platform to the biopharmaceutical industry as a production platform for recombinant proteins and monoclonal antibodies. DSM Biologics operates a manufacturing facility in Groningen, the Netherlands, approved by the US Food and Drug Administration (FDA) for mammalian-cell-based contract manufacturing and PER.C6^® process support. DSM Biologics also offers microbial-cell-based contract manufacturing services through its operations in Capua, Italy.

DSM Pharmaceuticals, Inc. is a provider of high-quality finished-dose-form manufacturing services to the pharmaceutical and biopharmaceutical industries. Operating from Greenville, North Carolina (United States), the company manufactures sterile injectables (aseptic liquid and lyophilized), and solid-dose forms (tablets and capsules) for companies around the world.

DSM Exclusive Synthesis / Intermediates is a global provider of custom manufacturing services for the agrochemical industry and a provider of organic intermediates to the fine-chemicals industry. Customers are served from the production site in Linz, Austria.

DSM Pharmaceutical Products provides solutions to the development and manufacturing needs of the pharmaceutical and agrochemical industries. The business group derives sustainable success from the application of a wide range of technical and regulatory capabilities to deliver services in a compliant, timely and cost-effective manner.

The business group’s performance was very much in line with expectations. Sales declined by 9%, mainly due to the divestment of the South Haven site in 2006. Operating profit of DSM Pharmaceutical Products was close to the level of 2006, as the business group was almost able to compensate for the expiration of Roche contracts. DSM Pharma Chemicals showed a good performance and profited from continued new business uptake and the growth of existing development projects and commercial products. DSM Pharmaceuticals, Inc. showed a lower activity level, primarily due to sterile injectables.

Eleven new products were launched from the Greenville, North Carolina (United States) facility in 2007, including two sterile biologics for which the pre-approval inspections were waived by the FDA (the US Food and Drug Administration).

Expansion in the sterile manufacturing area continued on schedule as the clinical trial materials manufacturing facility in Greenville was completed and qualified and is in operation for several new customers. The cytotoxic manufacturing suite is on schedule for commercial operation in 2008.

The DSM Exclusive Synthesis / Intermediates business showed a better performance due to restructuring of the portfolio. As part of the accelerated Vision 2010 strategy, it has been decided to divest the intermediates business.

DSM Biologics’ activities were centered on providing manufacturing services for new and existing customers from the facility in Groningen (Netherlands) and expanding the PER.C6^® Development Center in Boston, United States with joint-venture partner Crucell NV.

The number of new manufacturing projects increased compared with 2006. DSM Biologics also announced the innovative XD^™ process. This cell-based manufacturing process tailored to the PER.C6^® technology platform is capable of producing much higher yields in manufacturing, and can create a breakthrough in biopharmaceutical manufacturing.

An operational excellence project implemented in solid-dose manufacturing resulted in a significant increase in contribution margin in line with the business group’s strategy of growing its activities and improving its profitability.

• Financial performance improved significantly
• In full pursuit of partnering strategy
• Strong growth in enzymatic green technologies

Penicillin-based anti-infectives are among the most important pharmaceutical products in the world in terms of volume. The products in DSM Anti-Infectives’ current portfolio are very effective in combating a broad spectrum of bacterial and fungal infections in both humans and animals and as such are of vital importance for people’s well-being and healthier economics in farming.

As a relatively cheap treatment against infectious diseases, penicillin-derived pharmaceuticals can be afforded by a large and growing part of mankind, with pronounced growth in the developing economies of China, India, other countries in Asia and Africa. Consumption in the Western world with its highly regulated markets is more or less stable. DSM Anti-Infectives is the only penicillin producer outside of China.

In this context DSM Anti-Infectives – as the leading supplier of bulk active ingredients and important intermediates – has defined a strategy that is aimed at actively maintaining this leadership position via customer intimacy in the different markets and technological innovations leading to both further improved production (cost effective and leaving less of an environmental footprint) and a strengthened product portfolio in generic active ingredients. DSM Anti-Infectives will achieve this by actively seeking partnerships, and where necessary rationalizing parts of the portfolio.

DSM Anti-Infectives holds global leadership positions in penicillin G, penicillin intermediates (6-APA and 7-ADCA), semi-synthetic penicillins, semi-synthetic cefalosporins and side chains to produce these active pharmaceutical ingredients (APIs), and in other active ingredients such as potassium clavulanate and nystatin.

Contrary to previous years, the global overcapacity (mainly based on newly installed facilities for the production of penicillin and derived products in China) did not result in oversupply. The main cause of this was the temporary output reduction forced by Chinese authorities on a few major players in the industry in order to comply with environmental regulations. In 2007 this led to a temporary shortage in the total value chain for penicillin-based APIs, leading to significant price increases in raw material intermediates and all related products. Sales increased by 32%.

The overall growth of market demand for penicillin equivalents was 4-6% in 2007. In spite of the weak US dollar versus the euro and the higher raw-material and energy prices, DSM Anti-Infectives was able to strongly improve its bottom line. This was due not just to market circumstances, but also to effective cost control based on the restructuring programs started in 2005.

This result improvement did not apply to the side-chains part of DSM Anti-Infectives’ portfolio, where capacity and demand were not fully in balance, although the company was able to increase prices while maintaining market share. The weaker US dollar however prevented this from being reflected in the results.

In 2007 the decision was taken to divest the clavulanic acid business and the manufacturing site in Sweden. At the same time the efforts to broaden the portfolio to include active pharmaceutical ingredients that will become generic in the coming years were increased.

In this program DSM Anti-Infectives is strongly profiting from its market access to key generic pharma houses, building on its strong technological knowledge and geographic spread advantages. Besides the focus on this program, DSM Anti-Infectives’ R&D efforts continue to concentrate on reducing the variable costs of its core products, and on green routes to reduce the group’s environmental footprint even further.