Management Report

Bayer HealthCare

Key Data – HealthCare	1st Quarter 2008	1st Quarter 2009	Change
	€ million	€ million	%
Sales	3,731	3,843	+3.0
Pharmaceuticals	2,469	2,587	+4.8
Consumer Health	1,262	1,256	-0.5
Sales by Region
Europe	1,626	1,572	-3.3
North America	1,045	1,104	+5.6
Asia/Pacific	526	635	+20.7
Latin America/Africa/Middle East	534	532	- 0.4
EBITDA*	970	1,043	+7.5
Special items	(80)	(18)
EBITDA before special items*	1,050	1,061	+1.0
EBITDA margin before special items*	28.1%	27.6%
EBIT*	563	675	+19.9
Special items	(100)	(18)
EBIT before special items*	663	693	+4.5
Gross cash flow**	737	745	+1.1
Net cash flow**	577	699	+21.1
2008 figures restated * for definition see "Calculation of EBIT(DA) Before Special Items" ** for definition see "Liquidity and Capital Resources"

Sales in the HealthCare subgroup in the first quarter of 2009 came in 3.0% above the strong prior-year quarter, at €3,843 million (Q1 2008: €3,731 million). Adjusted for portfolio and currency effects, business remained at the previous year’s level (+0.3%). While there was a gratifying overall 2.5% increase in Pharmaceuticals sales, our Consumer Health business shrank by 4.1%, mainly due to inventory reductions by customers.

HealthCare slightly increased EBITDA before special items to €1,061 million (+1.0%). There was a pleasing improvement in earnings in the Pharmaceuticals segment, while Consumer Health recorded a decline. EBIT before special items advanced by 4.5% to €693 million (Q1 2008: €663 million). Special items totaled minus €18 million (Q1 2008: minus €100 million). EBIT grew by a substantial 19.9% to €675 million (2007: €563 million).

Pharmaceuticals

Key Data – Pharmaceuticals	1st Quarter 2008	1st Quarter 2009	Change
	€ million	€ million	%
Sales	2,469	2,587	+4.8
General Medicine	798	831	+4.1
Specialty Medicine	762	814	+6.8
Women’s Healthcare	696	722	+3.7
Diagnostic Imaging	213	220	+3.3
Sales by Region
Europe	1,088	1,035	-4.9
North America	645	703	+9.0
Asia/Pacific	415	510	+22.9
Latin America/Africa/Middle East	321	339	+5.6
EBITDA*	681	809	+18.8
Special items	(79)	(18)
EBITDA before special items*	760	827	+8.8
EBITDA margin before special items*	30.8%	32.0%
EBIT*	330	505	+53.0
Special items	(99)	(18)
EBIT before special items*	429	523	+21.9
Gross cash flow**	518	565	+9.1
Net cash flow**	397	512	+29.0
2008 figures restated * for definition see "Calculation of EBIT(DA) Before Special Items" ** for definition see "Liquidity and Capital Resources"

Sales of our Pharmaceuticals segment climbed by 4.8% in the first quarter of 2009, to €2,587 million (Q1 2008: €2,469 million). Adjusted for currency and portfolio effects, business expanded by 2.5%.

Best-Selling Pharmaceuticals Products	1st Quarter 2008	1st Quarter 2009	Change	Currency- adjusted change
	€ million	€ million	%	%
YAZ®/Yasmin®/Yasminelle® (Women’s Healthcare)	297	319	+7.4	+4.6
Betaferon®/Betaseron® (Specialty Medicine)	274	301	+9.9	+7.4
Kogenate® (Specialty Medicine)	233	249	+6.9	+3.2
Adalat® (General Medicine)	150	156	+4.0	-3.1
Nexavar® (Specialty Medicine)	101	137	+35.6	+28.6
Avalox®/Avelox® (General Medicine)	143	129	-9.8	-14.0
Mirena® (Women’s Healthcare)	112	125	+11.6	+6.9
Levitra® (General Medicine)	82	83	+1.2	-3.2
Glucobay® (General Medicine)	80	82	+2.5	-8.1
Cipro®/Ciprobay® (General Medicine)	81	80	-1.2	-4.1
Aspirin Cardio® (General Medicine)	64	73	+14.1	+9.8
Ultravist® (Diagnostic Imaging)	68	62	-8.8	-6.2
Magnevist® (Diagnostic Imaging)	60	56	-6.7	-14.9
Iopamiron® (Diagnostic Imaging)	43	46	+7.0	-13.1
Kinzal®/Pritor® (General Medicine)	34	37	+8.8	+9.2
Total	1,822	1,935	+6.2	+1.7
Proportion of Pharmaceuticals sales	74%	75%

Sales of the General Medicine business unit expanded by +4.1% to €831 million (Q1 2008: €798 million). On a currency-adjusted (Fx adj.) basis, business thus held steady year on year (-0.4%). Sales of Aspirin Cardio® expanded again (Fx adj. +9.8%), as did business with Kinzal® / Pritor® (Fx adj. +9.2%). By contrast, sales of Avalox®/Avelox® were down by 14.0% (Fx adj.) due to a weak flu season in the United States. Business with Cipro®/Ciprobay® (Fx adj. -4.1%) benefited from a U.S. government contract concluded in 2008.

The Specialty Medicine business unit saw sales grow by 6.8% to €814 million (Q1 2008: €762 million). On a currency- and portfolio-adjusted basis, business expanded by 6.0%. Sales of our cancer drug Nexavar® developed well (Fx adj. +28.6%). The multiple sclerosis treatment Betaferon®/Betaseron® (Fx adj. +7.4%) and the blood-clotting drug Kogenate® (Fx adj. +3.2%) also contributed to the increase in sales. We concluded strategic agreements with the U.S. company Genzyme Corp. for our products Campath®/MabCampath®, Leukine® and Fludara®, which posted total sales of €48 million in the first quarter of 2009. Under the agreements we will transfer these products to Genzyme in return for royalties and milestone payments. We will maintain our development alliance with Genzyme for the active substance alemtuzumab for the treatment of multiple sclerosis.

Sales of our Women’s Healthcare business unit climbed by 3.7% in the first quarter of 2009 to €722 million (Q1 2008: €696 million). The currency-adjusted increase was 3.5%. Sales of our hormone-releasing intrauterine device Mirena® advanced by 6.9% on a currency-adjusted basis. Business with our YAZ®/Yasmin®/Yasminelle® line of oral contraceptives expanded by a further 4.6% (Fx adj.), mainly as a result of the positive sales trend for YAZ® in the United States and Europe.

Sales of our Diagnostic Imaging business unit moved forward by 3.3% percent in the first quarter of 2009 to €220 million (Q1 2008: €213 million). On a currency-adjusted basis, business fell by 2.5%. The continuing decline in sales of Magnevist® (Fx adj. -14.9%) was offset by increasing business with Gadovist® (Fx adj. +44.9%). Sales of Iopamiron® receded by 13.1% (Fx adj.), mainly as a result of government-mandated price reductions in Japan. Business with Ultravist® was down by 6.2% (Fx adj.) due mainly to lower sales in the Asia/Pacific region.

EBITDA before special items of the Pharmaceuticals segment rose by 8.8 % in the first quarter of 2009 to €827 million (Q1 2008: €760 million). This increase was due to the generally positive business trend, lower manufacturing costs and synergies from the integration of Schering AG, Berlin, Germany. On the other hand, earnings were diminished by higher marketing costs and research and development expenses. EBIT before special items advanced by 21.9% to €523 million (Q1 2008: €429 million). Special items of minus €18 million (Q1 2008: minus €99 million) resulted from the integration of Schering. EBIT climbed by a substantial €175 million to €505 million (Q1 2008: €330 million).

Consumer Health

Key Data – Consumer Health	1st Quarter 2008	1st Quarter 2009	Change
	€ million	€ million	%
Sales	1,262	1,256	-0.5
Consumer Care	715	704	-1.5
Medical Care	312	324	+3.8
Animal Health	235	228	-3.0
Sales by Region
Europe	538	537	-0.2
North America	400	401	+0.3
Asia/Pacific	111	125	+12.6
Latin America/Africa/Middle East	213	193	-9.4
EBITDA*	289	234	-19.0
Special items	(1)	0
EBITDA before special items*	290	234	-19.3
EBITDA margin before special items*	23.0%	18.6%
EBIT*	233	170	-27.0
Special items	(1)	0
EBIT before special items*	234	170	-27.4
Gross cash flow**	219	180	-17.8
Net cash flow**	180	187	+3.9
2008 figures restated * for definition see "Calculation of EBIT(DA) Before Special Items" ** for definition see "Liquidity and Capital Resources"

Sales of our Consumer Health segment, at €1,256 million, were roughly level with the prior year (-0.5%). After adjustment for currency and portfolio effects, business declined by 4.1%. This was partly due to lower consumer spending in the wake of the economic crisis and inventory reductions by customers, particularly in North America, where sales receded by a currency-adjusted 10.9%.

Best-Selling Consumer Health Products	1st Quarter 2008	1st Quarter 2009	Change	Currency- adjusted change
	€ million	€ million	%	%
Contour® (Medical Care)	128	124	-3.1	-4.6
Aspirin®* (Consumer Care)	114	96	-15.8	-16.2
Advantage® product line (Animal Health)	77	78	+1.3	-3.1
Bepanthen®/Bepanthol® (Consumer Care)	46	48	+4.3	+8.3
Aleve®/naproxen (Consumer Care)	48	43	-10.4	-17.9
Canesten® (Consumer Care)	47	43	-8.5	-3.1
Baytril® (Animal Health)	38	35	-7.9	-11.7
One-A-Day® (Consumer Care)	30	31	+3.3	-6.1
Supradyn® (Consumer Care)	35	31	-11.4	-9.9
Breeze® (Medical Care)	34	30	-11.8	-16.5
Total	597	559	-6.4	-8.1
Proportion of Consumer Health sales	47%	45%
* total Aspirin® Q1 sales = €169 million (Q1 2008: €178 million), including Aspirin Cardio®, which is reflected in sales of the Pharmaceuticals segment

In the Consumer Care Division, sales moved back by 1.5% to €704 million (Q1 2008: €715 million). Business was down by 3.7% on a currency- and portfolio-adjusted basis. Our OTC business was impacted by the difficult economic environment; sales of Aleve® / naproxen (Fx adj. -17.9%), Aspirin® (Fx adj. -16.2%) and Supradyn® (Fx adj. -9.9%) fell particularly sharply. By contrast, sales of Bepanthen®/Bepanthol® (Fx adj. +8.3%) increased, due particularly to a strong business trend in France. Sales in our dermatology business (Intendis) improved to €64 million (Fx adj. +5.1%).

Our Medical Care Division raised sales by 3.8% in the first quarter to €324 million (Q1 2008: €312 million). After adjusting for currency and portfolio effects, business declined by 5.0%. The economic weakness and the resulting decline in consumer demand in the United States negatively impacted sales of our blood glucose measurement systems. Our medical equipment business (Medrad), however, expanded by 26.4% due to the inclusion of Possis Medical, Inc., United States, which we acquired in 2008 (Fx & portfolio adj. -0.2%).

In the Animal Health Division, business shrank by 3.0% to €228 million (Q1 2008: €235 million). Sales were down by 3.9% on a currency-adjusted basis. The reduction of inventories by distributors in the United States diminished sales of our Advantage® line of flea and tick control products (Fx adj. -3.1%).

EBITDA before special items of the Consumer Health segment came in significantly below the prior-year period, at €234 million (-19.3%). The main reason for these lower earnings, apart from the drop in business, was higher marketing expenses associated with the expansion of our activities in emerging markets. Earnings were also diminished by adverse effects of currency changes on the cost of goods sold. EBIT before special items fell by 27.4% to €170 million. EBIT declined to €170 million (-27.0%).