What are generic medicines?
What is the Company's approach to Risk Management?
How does the PBS work?

What are generic medicines?

Generic medicines are those medicines which are no longer under patent.

At an industry level the focus on generics within the Australian pharmaceutical industry continues to intensify. The loss of patent protection for leading PBS molecules such as Simvastin has raised the awareness of generic medicines which are now widely accepted by the Australian public.

Government is taking an increasing role in promoting the use of generic medicines as it seeks ways to hold spending on healthcare at growth rates similar to GDP growth. This remains a challenging target in the face of the continued ageing of the Australian population.

What is the Company's approach to Risk Management?

The Company takes a proactive approach to risk management. The Board is responsible for ensuring that risks, and also opportunities, are identified on a timely basis and that the Group's objectives and activities are aligned with the risks and opportunities identified by the Board.

The Company believes that it is crucial for all Board members to be a part of this process, and as such the Board has not established a separate risk management committee. Instead sub-committees are convened as appropriate in response to issues and risks identified by the Board as a whole, and the sub-committee further examines the issue and reports back to the Board.

How does the PBS work?

The Pharmaceutical Benefit Scheme (PBS) is recognized globally as a stand out model for the cost effective delivery of medicines to the Australian community.

The continued steady growth in the cost of the scheme has seen the introduction of various measures to both slow the increase in cost base and in so doing ensure the long term sustainability of the program. Patients have felt the impact of recent government initiatives through and increase in the patient co-payment in 2005. At an industry level the 12.5% price reduction rule, introduced in 2005, has slowed substantially the price growth of products in therapeutic reference price groups where products have lost patent exclusivity.

It was reported earlier this year that a central plank of the Government's bid to cut the cost of the PBS is to promote the use of generic drugs that enter the market once a more expensive branded medicine comes off patent. Under this plan doctors will be required to prescribe the generic version of a therapy unless they can show there is a good clinical reason for choosing the branded drug. Against this significant opportunity for generic prescribing is an expected further price reduction program in the reimbursement price for generically available molecules.

Government is canvassing these and other options with all stakeholders across the industry. Genepharm is an active industry participant and will advocate strongly from an industry, customer, and shareholder perspective.

PBS GROWTH

PBS Actual^ Estimate*

Financial Year	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
Total Dispensed Cost ($millions)	$4,552	$4,993	$5,433	$5,928	$6,346	$6,790	$7,076	$7,506	$8,040	$8,613
Total Prescriptions (millions)	148	155	159	165	170	175	180	186	191	197
Concession Prescriptions (millions)	125	130	133	138	141	149	155	160	165	170

Source: ^PBS Statistics, Department of Health and Ageing
* Genepharm Australasia estimates