GENOMMA LAB BUY. A Prescription for Growth; Increasing YE2010 Target Price (9/28/09) CURRENT PRICE: M$17.46/US$1.29 TARGET PRICE: M$30.00/US$2.

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1 Latin American Equity Research Mexico City, October 1, 2009 Company Update Mexico Health Care GENOMMA LAB A Prescription for Growth; Increasing YE2010 Target Price BUY Joaquin Ley* Daniel Gewehr* Roberto Liaño* Mexico: Banco Santander S.A. Brazil: Banco Santander S.A. Mexico: Banco Santander S.A. (5255) (5511) (5255) jley@santander.com.mx dhgewehr@santander.com.br rliano@santander.com.mx (9/28/09) CURRENT PRICE: M$17.46/US$1.29 TARGET PRICE: M$30.00/US$2.30 What s Changed Rating Unchanged at Buy Price Target (M$) To from EBITDA Estimates (US$ Mn) 09 to 65 from to 95 from to 138 from 99 Company Statistics Bloomberg LABB MM 52-Week Range (US$) E P/E Rel. to the IPC Index (x) E P/E Rel. to Healthcare (x) 1.0 IPC (US$) 2,170 3-Yr. EBITDA CAGR (08-11E) 39% Market Capitalization (US$ Mn) 679 Float (%) 27 3-Mth Avg Daily Vol (US$ Mn) 1.1 Shares Outst Mn 527 Net Debt/Equity (x) -0.3 Book Value per Share (US$) 0.43 Estimates and Valuation Ratios E 2010E 2011E Net Earn (M$ Mn) ,302 Current EPS Net Earn (US$ Mn) Current EPS P/E (x) P/Sales (x) P/CE (x) FV/EBITDA (x) FV/Sales (x) FCF Yield (%) Div per Share (US$) Div Yield (%) Sources: Bloomberg, company reports, and Santander estimates. Investment Thesis: We are increasing our 2010YE target price to M$30.00 per share (US$2.30) from M$19.00 (US$1.45) and maintaining our Buy rating on the stock. Our higher target price stems from increases of 9%, 15%, and 34% in our M$ EPS estimates for 2009, 2010, and 2011, respectively. Our revised estimates reflect (1) the incorporation into our earnings model of the JV signed with Televisa to enter the U.S. and Puerto Rico markets starting in 1Q10, (2) management s more aggressive approach to its start-up in Brazil, (3) the recent launch of interchangeable generic prescription drugs in Mexico, and (4) the better-than-expected results reported for 1H09. In our opinion, the Brazilian and U.S. start-ups and, more important, the introduction of generic prescription drugs in Mexico (in 3Q09) provide Genomma with substantial growth potential. While modeling these businesses anticipated contribution to consolidated results is challenging, given the market sizes, we expect them to be material. Given this potential, coupled with the strong organic growth we expect for Genomma in its Mexican and international operations, we believe Genomma could triple its 2008 EBITDA (M$691 million) by , implying a E EBITDA CAGR of 39% in local currency terms. The stock trades at a 2010E P/E of 10.4x, basically in line with its international peers. However, we believe current valuation multiples do not reflect the company s growth potential. As such, on a 2011E P/E basis, Genomma would be trading at a 28% discount to its peers. Valuation and Risks: Our 2010YE target price is based on DCF analysis, with a WACC of 11.3% and a perpetuity growth rate of 2.5%. Our price target implies 78.4% upside potential in U.S. dollars versus the expected 11.7% return for the Mexican benchmark over the same period. Risks include lower-than-expected sales of the existing product base, less success than expected from new launches/ventures, stronger competition, the possibility of not obtaining registration renewal of some pharmaceutical products by COFEPRIS, fiscal changes involving VAT, potential temporary stock overhang should Nexxus look to monetize its investment, and stronger regulations in Genomma s key sectors. * Employed by a non-us affiliate of Santander Investment Securities Inc. and is not registered/qualified as a research analyst under FINRA rules.

2 Genomma Lab: A Prescription for Growth; Increasing YE2010 Target Price Genomma Lab Internacional develops, advertises, and sells OTC medicines, interchangeable generic prescription drugs and personal-care products in Mexico, and personal care products and OTC medicine in other Latin American countries. The company produces its own advertising campaigns and manufactures its products through outsourced companies (95% of its products are manufactured in Mexico and 5% abroad). The company ended 2008 with more than 130 different products marketed through more than 40 different brands. Genomma Lab recently signed a strategic alliance agreement with Televisa to sell and distribute personal care and OTC pharmaceutical products in the U.S. and Puerto Rico through a company owned 49% by Genomma and 51% by Televisa. In 2008, Genomma posted total sales, EBITDA, and net income of US$190.1 million, US$50 million, and US$37.3 million, respectively. Banco Invex Trust 414 has a 51% share in the company and Nexxus a 22% share, while 27% free floats on the Mexican Bolsa. FIVE FRONTS OPENED FOR GROWTH We believe Genomma has substantial growth opportunities in upcoming years that could drive EBITDA and net income CAGRs of 39% and 36%, respectively, over the E period. These growth opportunities encompass five different fronts: The September 2009 start-up of the interchangeable generic prescription drug business through the Primer Nivel Para tu Salud brand. The joint venture signed in late August with Televisa that will allow Genomma Lab to target the U.S. and Puerto Rico markets, which is scheduled to start up in early The start-up of operations in Brazil at the beginning of The consolidation of recent acquisitions in Mexico (Jockey Club and Sanborns brands). Ongoing organic growth in Mexico and existing international operations. When analyzing Genomma s growth potential, we note that although seasonality affects results, it can vary significantly from quarter to quarter. This depends on when a product launches and/or a new business takes place, and the level of associated advertising. This might pressure a given quarter s margins, but should not be indicative of a sustained trend. PRIMER NIVEL PARA TU SALUD: PRESCRIPTION DRUGS In September 2009, Genomma launched its prescription medicine brand Primer Nivel Para tu Salud, which comprises some 200 medicines encompassing about 400 SKUs. Some of them (60 SKUs) were acquired from Medicinas y Medicamentos Nacionales in 1Q09, while the rest were developed by Genomma. The products launched under this brand are generic drugs, with the same active ingredient as the branded pharmaceuticals for which the patent has expired. These interchangeable generic drugs differ from common generics, as they have been successful in bioequivalence and bioavailability tests, while a generic also has the same active ingredient, but has not been submitted or successful in these trials. As with any other product in Genomma s portfolio, these products will be manufactured by third parties (the company already has contracts with more than 30 national suppliers). The advertising campaign (on air since August-September) focuses on informing consumers that one can buy the exact same medicine with the same active ingredients as the one the doctor prescribes (doctors usually prescribe a brand name drug rather than the active ingredient in Mexico) for a significantly lower price. The first-stage distribution channel for this new product line will be through large wholesalers that reach some 7,000 independent pharmacies. The overall plan is to reach about 20,000 independent pharmacies in Mexico in the medium term. 2

3 We believe the generic prescription drug segment offers a compelling business opportunity for Genomma. From an 8% market share in the medicine industry in Mexico in 2006, it is estimated that generic drugs share rose to approximately 20% in 2008, and the goal is to reach roughly a 30% share by This market share is still considerably lower than generics share in developed markets, which ranges from 60% in Denmark, to 45% in the U.S. and 38% in the U.K. and Germany. The development of the generic drugs industry in Mexico as an emerging sector is of key importance to the country. According to the World Health Organization, a critical problem in developing economies from a healthcare perspective is the population s lack of access to medicine, largely due to the high cost. We note that, on average, the savings for consumers buying a generic medicine instead of a branded product is around 60%. In Mexico today, 15% of mortality rates due to diseases are related to poverty-related conditions (infections, malnutrition and postpartum complications). Given the above, we are not surprised that the Federal Government s priority is to increase the prominence of generic drugs in years to come, both in the private and public sectors, as well as increasing the quality of these products. Besides the branded medicines (of which only 7% are under patent protection), when it comes to prescription medicines, we identify three different types of drugs: (1) similar, which do not have the same active component as the original branded medicine, but are used to treat the same conditions; (2) non-interchangeable generic medicines, which do have the same active component as the original branded product, but have not gone through bioequivalency tests; and (3) interchangeable generic drugs, which are those that have the same active component as the original branded product and have gone through bioequivalency tests, or in short, are completely interchangeable with the branded medication. The third group are the products that Genomma Lab is starting to sell through its Primer Nivel Para tu Salud product line. (Under new governmental regulations that will take effect in 2010, all three groups will have to pass the same tests.) Thus, in addition to the expected growth in the generic medicine market, we believe this change in regulation will give Genomma an edge over competitors as its products have already been tested. According to the Comision Federal Para La Proteccion de Riesgos Sanitarios (Federal Commission for Protection Against Health Risks) COFEPRIS the total private spending on medicines in 2008 in Mexico was M$169 billion, of which some M$34 billion (20%) was on generic drugs. This gives us an idea of the potential of the market for Genomma, not only regarding potential market-share gains of that M$34 billion, but also the share that the generic drugs segment should gain of the remaining 80% of the industry (which includes branded prescription drugs as well as OTC products). At the same time, according to the COFEPRIS, public expenditures on medicine in 2008 totaled M$70 billion, of which generic drugs represented 20%. While the public sector also offers an interesting target, based on our conversations with company management, we do not expect Genomma to target this market, at least in the short term. While measuring the impact of the Primer Nivel Para tu Salud product line on Genomma s top line is difficult, it will certainly be relevant considering the size of the market, the potential growth of that market and regulatory changes. We are assuming generic prescription drugs sales for Genomma of M$150 million in 2009 (4% of consolidated expected revenues), jumping to M$1.5 billion in 2011 (22% of consolidated expected revenues). This implies that Genomma achieves a market share of roughly 3% in the interchangeable generic drugs market, below the 4% it currently has in the OTC segment. Based on the fact that current OTC medicines for Genomma are more profitable than personal care products, we believe this new product line should be accretive to Genomma s consolidated margins. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

4 Genomma Lab: A Prescription for Growth; Increasing YE2010 Target Price JV WITH TELEVISA TO ENTER THE U.S. AND PUERTO RICO In late August, Genomma Lab announced that had it signed a strategic alliance agreement with Grupo Televisa to sell and distribute personal care products and OTC pharmaceuticals in the U.S. and Puerto Rico markets. The alliance will operate through a company called Televisa Consumer Products (TCP), owned 51% by Televisa and 49% by Genomma Lab. The sale and distribution of Genomma s products will be an integral part of the activities of this new company. As part of the alliance, TCP will enter into a product supply agreement with Genomma Lab. Televisa will make available to TCP its different media platforms in the U.S. and Puerto Rico, thus providing Genomma Lab s brands with advertising in the targeted markets. According to management, this should make Genomma one of the top five advertisers in the U.S. for the Hispanic market. The total initial capital contribution will be US$4 million, of which Genomma will contribute slightly less than US$2 million. We believe TCP could replicate Genomma s successful business model in these markets just by setting up a small post-production office in order to regionalize and better target the advertisements. TCP will launch Genomma s top-selling brands in Puerto Rico and in U.S. states with a large Hispanic population, such as California, Florida, Texas, Arizona, and Illinois, among others. According to management, this alliance will enable Genomma Lab to expand its brands by accessing an Hispanic market of approximately 50 million consumers with purchasing power in excess of US$870 billion annually (almost equivalent to our estimated GDP for Mexico in 2009). Televisa and Genomma expect to close the transaction in the coming months and launch operations in early Genomma, given its minority ownership, will not consolidate TCP, but will recognize the results in its financial statements using the equity method. However, the sales made from Genomma to TCP will be recorded in the international sales category of Genomma s top line. Genomma management expects the JV will sell some 20 of Genomma s most successful brands, encompassing about 80 different SKUs. The company has provided no guidance in terms of how TCP could contribute to Genomma s results (in terms of sales, EBIT and net income considering the 49% stake in the JV). For 2010, we expect sales of M$140 million from Genomma to TCP or 3% of Genomma s consolidated revenues, jumping to almost M$430 million in 2011, or 6% of Genomma s consolidated revenues. Our estimates assume a gradual launching of 20 brands (average operating brands in 2011 would be roughly three, involving 12 SKUs), with annual sales of US$11 million per brand. The expected impact on Genomma s margins is more challenging to analyze. We believe Genomma will sell its products at some discount to TCP. While this might pressure Genomma s consolidated gross margin, it will not likely affect the EBIT margin, given that this operation will not involve advertising production, which is Genomma s main expense. Moreover, if we calculate an adjusted EBIT margin for the operation by adding back the 49% stake in TCP, this would likely be positive to Genomma s EBIT margin. ENTERING BRAZIL 4 Starting in 2010, Genomma plans to launch operations in Brazil. This is consistent with the company s international operations strategy (focused on the Americas, considering the JV with Televisa, and given that in 2008, it closed its operations in Spain) and opens the door to one of the largest markets in the world for personal care products, as well as a sizeable medicine market. According to ABIHPEC/Sipatesp, (Brazil s Association for the Personal Hygiene, Perfumes and

5 Comestics Industry) the CFT (Cosmetics, Toiletries and Fragrances) market (a good reference for Genomma s personal care portfolio) is roughly US$7 billion per year. In addition, based on IMS health data, the OTC medicine market in Brazil over the last 12 months reached US$4 billion, offering Genomma what we consider major growth opportunities through its existing product portfolio. While about 65% of Genomma s Mexican sales derive from OTC medicines, with the remaining 35% attributed to personal care products, in its international operations, only 15% of sales correspond to OTC drugs. In Brazil, we expect it will be similar to that of other international operations, and the company will start operations with its most successful personal care brands. Management expects a fairly fast learning curve in Brazil, in terms of sales. In this regard, management cites its success ratio in terms of launching its international operations is of about 90%, while in Mexico, it is approximately 70%. In our view, this reflects the fact that the products launched internationally are already successful in Mexico. Our estimates assume that in 2010, sales in Brazil could reach M$100 million (2% of consolidated revenues), climbing to M$500 million in 2011 (7% of consolidated revenues). Assuming that Genomma operates in the personal care business only, this would represent market share of just 0.5%. As we have seen no erosion in consolidated gross margins for Genomma during the development of other international operations, we have no reason to believe that operations in Brazil would be otherwise. Competition in Brazil is tough and Genomma will face difficult competitors including door-to-door product selling companies such as Natura or Avon. However, we believe that Genomma s differentiated business model (vertically integrated in advertising, outsourced manufacturing) gives the company a competitive advantage that should facilitate achieving our targeted market share estimate. JOCKEY CLUB AND SANBORNS BRANDS Last June, Genomma announced the acquisition of several brands in Mexico. One of the brands acquired was Jockey Club, which specializes in personal care products for men and comprises 31 SKUs. Jockey Club had net sales for M$32.6 million in 2008, and Genomma paid M$42.4 million for it in cash. Genomma also announced the acquisition of the brands Flor de Naranja (lotions), Teatrical (facial and body creams), and Henna (hair dyers) from Grupo Sanborns, as well as the right for using the Sanborns name in these brands for 99 years. These three brands encompass 19 SKUs and had sales of M$110.3 million in the last 12 months. Genomma paid M$300 million for the Sanborns brands, of which 50% was paid upfront and the remaining 50% will be paid in ten annual installments. Our earnings model assumes that these four brands will be launched in the last two months of We estimate 2009 sales of M$24 million (M$18 million from the Sanborns brands and M$5 million from Jockey Club), or some 0.7% of our estimated consolidated sales. For 2010, we expect sales from Jockey Club will jump to M$34 million and those of the Sanborns brands will reach M$116 millions, implying that both lines will sell some 5% more than their annual sales in 2008 before being acquired by Genomma. This implies that the incremental revenues of these four brands for 2010 will be some 3% of the company s consolidated sales. ORGANIC EXPANSION In terms of organic growth in Mexico, the ongoing product launches will continue to be the main engine for growth. We are factoring into our model the launching of 49 new products (including brands and line extensions) in 2009, in line with management guidance, of which, the company has already launched 18 as of 1H09. We expect some 40 product launches in 2010 and U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

6 Genomma Lab: A Prescription for Growth; Increasing YE2010 Target Price 60 for 2011, excluding the launches that could be related to recent acquisitions. The relatively low market share of Genomma in both the OTC medicines (some 4%) and personal care products markets (some 1%) should allow for the rapid increase in the product portfolio. The international operation continues performing much better than expected, with sales having grown above 200% in the first half of the year. We expect these growth rates to normalize in 2H09 as basis for comparison will be higher, but still to grow above 100% in 2009, and about 10% in the next two years (excluding Brazil). Figure 1. Genomma Estimates by Division, E (in Millions of Nominal Pesos) and New Product Launches (Includes New Brands and Line Extensions) 2008 % 2009E % 2010E % 2011E % Total Sales 2, % 3, % 4, % 6, % Growth % 40.4% 35.7% 40.0% 37.3% Domestic 2, % 3, % 4, % 5, % Growth % 33.2% 28.9% 36.9% 26.5% Base , % 2, % Growth % 26.9% 11.1% Launch % % Growth % 100.0% Base , , % 3, % Growth % 15.4% 41.0% Launch % % Growth % 40.0% Base , % 4, % 5, % Growth % 40.9% 22.6% Launch % % Growth % 60.0% Base , % 5, % Growth % 23.7% Launch % Growth % Base , % Acquisitions Curr, Yr Acquisitions Prev. Yr. Products YE Net Product Launch New Brands International % % % 1, % Growth % 212.1% 105.0% 60.0% 96.2% LATAM Ex - Brazil % % % % Growth % 310.6% 105.0% 10.0% 10.0% Brazil % % Growth % 400.0% US and Puerto Rico % % Growth % 205.0% Sources: Company reports and Santander estimates. 6

7 Figure 2. Genomma Lab Revenue Forecast Breakdown 2008A 2011E (Figures in Millions of Current Mexican Pesos) 7,500 6,750 6,000 5,250 4,500 3,750 3,000 2,250 1, A 2009E 2010E 2011E Mexico OTC and Personal Care Mexico Prescription Drugs Latin America ex-brazil Brazil US and Puerto Rico Source: Genomma Lab, Santander estimates. REVISED ESTIMATES We are significantly increasing our sales estimates both in U.S. dollars and in local currency across the board for 2009, 2010 and 2011, on the back of (1) the incorporation into our model of the company s launching its new line of prescription generic interchangeable drugs, (2) the factoring of the new alliance with Televisa in the U.S and Puerto Rico, (3) the start-up of the operations in Brazil and (4) the better-than-expected performance in 1H09 of most of the company s revenue lines. However we are reducing our EBIT margin estimates for 2009 and 2010 due to the incorporation of the advertising expenses related to the launching of Primer Nivel, Jockey s and Sanborns brands, and the start-up of the operations in Brazil The fact that the increase in EPS is lower than that of EBIT is due to the assumption of a higher consolidated tax rate. Figure 3. Genomma Lab Estimate Revisions, 2009E 2011E (Mexican Pesos in Millions*) 2009E 2010E 2011E Previous Current Change Previous Current Change Previous Current Change Revenue 3,170 3,568 13% 4,014 4,995 24% 4,957 6,857 38% Op. Profit % 996 1,203 21% 1,275 1,796 41% Op. Margin 23.1% 23.0% -0.1% 24.8% 24.1% -0.7% 25.7% 26.2% 0.5% EBITDA % 1,043 1,250 20% 1,331 1,863 40% Net Income % % 979 1,302 33% EPS % % % *Except per share data. Sources: Company reports and Santander estimates. Figure 4. Genomma Lab Estimate Revisions, 2009E 2011E (U.S. Dollars in Millions*) 2009E 2010E 2011E Previous Current Change Previous Current Change Previous Current Change Revenue % % % Op. Profit % % % Op. Margin 23.1% 23.0% -0.1% 24.8% 24.1% -0.7% 25.7% 26.2% 0% EBITDA % % % Net Income % % % EPS % % % *Except per share data. Sources: Company reports and Santander estimates. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

8 Genomma Lab: A Prescription for Growth; Increasing YE2010 Target Price OPERATING OUTLOOK We are now expecting revenue growth rates in local currency of 36%, 40% and 37% for 2009, 2010 and 2011, respectively, supported by the growth in sales through the five fronts explained above. We note that our revenue growth estimate for 2009 is in line with management s guidance of 35% to 38% growth. While management expects EBITDA margin to drop 130 basis points in 2009 to 25% from 2008 (26.3%), we are expecting a drop of 250 basis points to 23.8%. The explanation for this decrease stems from the depreciation of the FX rate, an increase over the cost of last year s launches as seen in 2Q09 results, higher reserves for returns, as well as increased advertising expenses due to the launching in 2H09 of Primer Nivel Para tu Salud, Jockey Club and the three Sanborns brands. Still, the EBITDA growth for 2009 would be 23%. For 2010 and 2011 we expect the EBITDA margin to expand to 25.0% and 27.2%, respectively, as a result of better margins in Primer Nivel Para tu Salud, the accretion to margins from the company s operations in Colombia, the full consolidation of the other recent acquisitions and possibly lower advertising efforts within a healthier economic environment. As a result, we expect the EBITDA to grow 47% in local currency in 2010 and 49% in For the bottom line, we anticipate growth rates in local currency of 11%, 51% and 50% for 2009, 2010 and 2011, respectively. Figure 5. Genomma Lab Gross Margin and EBITDA, 2007A 2011E 75% 74% 24.6% 26.3% 23.8% 25.0% 27.2% 29.0% 27.0% 25.0% 73% 72% 71% 73.4% 74.8% 72.7% 73.0% 73.3% 23.0% 21.0% 19.0% 17.0% 70% E 2010E 2011E Gross Margin EBITDA Margin 15.0% Sources: Company reports and Santander estimates. 8

9 Figure 6. Genomma Lab, Net Profit Margin, E 25.0% 20.0% 19.6% 16.1% 17.3% 19.0% 15.0% 10.0% 5.0% 0.0% E 2010E 2011E Sources: Company reports and Santander estimates. VALUATION We reached a year-end 2010 target price of M$30.00 (US$2.30) per share through a DCF analysis. We calculated a WACC of 11.3%, which coincides with the cost of equity. We assumed a risk-free rate of 5.9%, an equity risk premium of 6.5%, and a beta of We assumed a capital structure of 100% equity. The perpetuity growth rate used is 2.5%. For perpetuity, we assumed an EBITDA margin of 26.9%, which seems feasible when looking at international peers (the average of OTC drugs and personal care companies is above 30%). Note that capex is low as the company outsources its manufacturing. Actually, the largest use of resources is in working capital investment, mainly in terms of inventories. In Figure 7 we see how during 2011, 2012 and 1013, when we still expect fast top-line growth, working capital funding requirements are high, and then when we normalize revenue growth starting in 2014, they lower significantly. Genomma s balance sheet strength and solid cash flow generation make us believe the company will not have to issue equity or debt to finance the growth we project. Figure 7. Genomma Lab Free Cash Flows, 2011E 2020E (U.S. Dollars in Millions) 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E EBIT Tax Rate 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% NOPLAT Depreciation Changes in WC CAPEX Deferred Liabilities FCF WC: Working Capital. Source: Santander estimates. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

10 Genomma Lab: A Prescription for Growth; Increasing YE2010 Target Price Figure 8. Genomma Lab DCF, 2011E 2020E (U.S. Dollars in Millions a ) 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Residual WACC 11.3% 11.3% 11.3% 11.3% 11.3% 11.3% 11.3% 11.3% 11.3% 11.3% 11.3% Discounted CFs NPV of CFs 611 Additions 80 Deductions 0 Target Mkt Cap 1,214 Current Mkt Cap 679 Target Price 2.30 a Except for per share prices. Additions include cash and non-consolidated subsidiaries. Deductions include debt and minorities. Source: Santander estimates. On a 2010E EV/EBITDA basis, Genomma shares currently are trading at 6.3 times, or at a 13% discount to international OTC product and personal-care-related companies. We believe the discount is relatively large, considering Genomma s higher earnings growth potential over the medium term. Our YE10 price target implies a target EV/EBITDA of 7.8x. From a P/E perspective, Genomma s shares are trading at 10.4x on a 2010E basis, basically in line with international peers. However, we emphasize Genomma s higher earnings growth potential. In fact, if we look at it on a 2011 perspective Genomma trades at a P/E of 7.0x showing a 28% discount to international peers. Our YE10 target price implies a 2011E P/E of 12.5x, compared to the 10.5x 2010E P/E at which the shares are currently trading. Figure 9. Global Pharmaceuticals, Personal Care Products Producers and OTC Retailers Valuation, Prices as of September 28, 2009, in U.S. Dollars (Market Cap in Millions of U.S. Dollars) Company OTC/PC Curr. Price Market Cap. FV/EBITDA P/E 9/28/ E 2010E 2009E 2010E Global Pharmaceuticals Pfizer OTC & PD , Merck & Co. OTC & PD , Eli Lilly and Co. OTC & PD , Bristol Myers Squibb OTC & PD , Schering-Plough OTC & PD , Astrazeneca OTC & PD , Sanofi-Aventis OTC & PD , Glaxo SmithKline OTC & PD , Novartis OTC & PD , Novo Nordisk OTC & PD , Total Pharmaceuticals 724, OTC and Personal Care Companies 0.0 Perrigo OTC , Chattem OTC & PC , Prestige Brands OTC & PC Pharmstandard OTC , Hypermarcas OTC & PC , Johnson & Johnson (J&J) PC , Church & Dwight PC , Omega Pharma OTC & PC , Bare Escentuals PC , Atrium Innovations OTC & PC Total OTC & PC 185, Total OTC & PC Ex J&J 17, TOTAL 910, Genomma Lab OTC, PC & PD OTC: Over-the-counter medicines, PD: Prescription drugs, PC: Personal Care. Sources: Bloomberg consensus estimates and Santander. 10

11 RISKS Risks include: (1) lower-than-expected sales of existing product base: (2) a lower level of success than expected from new launches/ventures (3) stronger-than-expected competition on both sectors the company operates: (4) the possibility of not obtaining renewal on the registration of some of its OTC pharmaceutical products by COFEPRIS (starting in 2010); (5) stronger regulations in the sectors in which the company operates; (6) potential temporary stock overhang as Nexxus (private equity fund owning 22% of the shares) might eventually to look for monetizing its investment in Genomma, and (7) potential fiscal changes involving VAT. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

12 Genomma Lab: A Prescription for Growth; Increasing YE2010 Target Price FINANCIAL STATEMENTS 12 Figure 10. Genomma Lab Income Statement, Balance Sheet, and CF Statement, E (U.S. Dollars in Millions) Income Statement 2008 % 2009E % 2010E % 2011E % Sales Cost of Sales Gross Profit Oper. and Adm. Expenses Operating Profit Depreciation EBITDA Financing Costs Interest Paid Interest Earned Monetary Gain/Loss FX Gain/Loss Other Financial Operations Profit before Taxes Tax Provision Profit after Taxes Subsidiaries Extraordinary Items Minority Interest Net Profit Balance Sheet 2008 % 2009E % 2010E % 2011E % Assets Short-Term Assets Cash and Equivalents Accounts Receivable Inventories Other Short-Term Assets Long-Term Assets Fixed Assets Deferred Assets Other Assets Liabilities Short-T. Liabilities Suppliers Short-Term Loans Other ST Liabilities Long-Term Loans Deferred Liabilities Other Liabilities Majority Net Worth Net Worth Minority Interest Cash Flow E 2010E 2011E Net Majority Earnings Non-Cash Items Changes in Working Capital Capital Increases/Dividends Change in Debt Capital Expenditures Net Cash Flow Beginning Treasury Ending Treasury Sources: Company reports and Santander estimates.

13 Figure 11. Genomma Lab Income Statement, Balance Sheet, and CF Statement, E (Millions of Nominal Mexican Pesos) Income Statement 2008 % 2009E % 2010E % 2011E % Sales 2, , , , Cost of Sales , , Gross Profit 1, , , , Oper. and Adm. Expenses -1, , , , Operating Profit , , Depreciation EBITDA , , Financing Costs Interest Paid Interest Earned Monetary Gain/Loss FX Gain/Loss Other Financial Operations Profit before Taxes , , Tax Provision Profit after Taxes , Subsidiaries Extraordinary Items Minority Interest Net Profit , Balance Sheet 2008 % 2009E % 2010E % 2011E % Assets 2, , , , Short-Term Assets 2, , , , Cash and Equivalents 1, , , Accounts Receivable , , , Inventories , , Other Short-Term Assets Long-Term Assets Fixed Assets Deferred Assets Other Assets Liabilities , , Short-T. Liabilities , , Suppliers , Short-Term Loans Other ST Liabilities Long-Term Loans Deferred Liabilities Other Liabilities Majority Net Worth 2, , , , Net Worth 2, , , , Minority Interest Cash Flow E 2010E 2011E Net Majority Earnings ,302.1 Non-Cash Items Changes in Working Capital Capital Increases/Dividends 1, Change in Debt Capital Expenditures Net Cash Flow 1, Beginning Treasury , ,060.5 Ending Treasury 1, , ,681.6 Sources: Company reports and Santander estimates. U.S. investors inquiries should be directed to Santander Investment Securities Inc. at (212) /(212)

14 Genomma Lab: A Prescription for Growth; Increasing YE2010 Target Price IMPORTANT DISCLOSURES Genomma Lab 12-Month Relative Performance (U.S. Dollars) IPC LAB Sep-08 Nov-08 Dec-08 Jan-09 Mar-09 Apr-09 May-09 Jun-09 Aug-09 Sep-09 Sources: Bloomberg and Santander. Genomma Lab Three-Year Stock Performance (U.S. Dollars) B $2.00 8/27/08* *Initiation of Coverage B $ /1/08 B $1.20 4/6/09 B $1.45 6/15/ J-08 A-08 S-08 O-08 D-08 J-09 M-09 A-09 J-09 J-09 S-09 3,500 3,000 2,500 2,000 1,500 1, Analyst Recommendations and Price Objectives SB: Strong Buy B: Buy H: Hold UP: Underperform S: Sell UR: Under Review Genomma (L Axis) IPC (R Axis) Source: Santander. 14

15 Key to Investment Codes IMPORTANT DISCLOSURES Rating Definition % of Companies Covered with This Rating % of Companies Provided Investment Banking Services in the Past 12 Months Buy Expected to outperform the local market benchmark by more than 10% % 60.00% Hold Expected to perform within a range of 0% to 10% above the local market benchmark % 36.00% Underperform/Sell Expected to underperform the local market benchmark % 4.00% Under review 1.05% The numbers above reflect our Latin American universe as of Monday, September 14, For a discussion, if applicable, of the valuation methods used to determine the price targets included in this report and the risks to achieving these targets, please refer to the latest published research on these stocks. Research is available through your sales representative and other electronic systems. Target prices are 2009 year-end unless otherwise specified. Recommendations are based on a total return basis (expected share price appreciation + prospective dividend yield) unless otherwise specified. Stock price charts and rating histories for companies discussed in this report are also available by written request to Santander Investment Securities Inc., 45 East 53 rd Street, 17 th Floor (Attn: Research Disclosures), New York, NY USA. Ratings are established when the firm sets a target price and/or when maintaining or reiterating the rating. Ratings may not coincide with the above methodology due to price volatility. Management reserves the right to maintain or to modify ratings on any specific stock and will disclose this in the report when it occurs. Valuation methodologies vary from stock to stock, analyst to analyst, and country to country. Any investment in Latin American equities is, by its nature, risky. A full discussion of valuation methodology and risks related to achieving the target price of the subject security is included in the body of this report. The benchmark used for local market performance is the country risk of each country plus the 1-year U.S. Treasury yield plus 6.5% of equity risk premium, unless otherwise specified. The benchmark plus the 10.0% differential used to determine the rating is time adjusted to make it comparable with the total return of the stock over the same period. For additional information about our rating methodology, please call (212) This research report ( report ) has been prepared by Santander Investment Securities Inc. ("SIS"; SIS is a subsidiary of Santander Investment I, S.A. which is wholly owned by Banco Santander, S.A. ["Santander"]) on behalf of itself and its affiliates (collectively, Grupo Santander) and is provided for information purposes only. This report must not be considered as an offer to sell or a solicitation of an offer to buy any relevant securities (i.e., securities mentioned herein or of the same issuer and/or options, warrants, or rights with respect to or interests in any such securities). Any decision by the recipient to buy or to sell should be based on publicly available information on the related security and, where appropriate, should take into account the content of the related prospectus filed with and available from the entity governing the related market and the company issuing the security. This report is issued in Spain by Santander Investment Bolsa, Sociedad de Valores, S.A. ( Santander Investment Bolsa ) and in the United Kingdom by Banco Santander, S.A., London Branch. Santander London is authorized by the Bank of Spain. This report is not being issued to private customers. SIS, Santander London and Santander Investment Bolsa are members of Grupo Santander. The following analysts hereby certify that their views about the companies and their securities discussed in this report are accurately expressed, that their recommendations reflect solely and exclusively their personal opinions, and that such opinions were prepared in an independent and autonomous manner, including as regards the institution to which they are linked, and that they have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report, since their compensation and the compensation system applying to Grupo Santander and any of its affiliates is not pegged to the pricing of any of the securities issued by the companies evaluated in the report, or to the income arising from the businesses and financial transactions carried out by Grupo Santander and any of its affiliates: Joaquin Ley*, Daniel Gewehr*, Roberto Liaño*. *Employed by a non-us affiliate of Santander Investment Securities Inc. and not registered/qualified as a research analyst under FINRA rules, and is not an associated person of the member firm, and, therefore, may not be subject to the FINRA Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances, and trading securities held by a research analyst account. As per the requirements of the Brazilian CVM, the following analysts hereby certify that I do not maintain a relationship with any individual working for the companies whose securities were evaluated in the disclosed report. That I do not own, directly or indirectly, securities issued by the company evaluated. That I am not involved in the acquisition, disposal and intermediation of such securities on the market: Daniel Gewehr. Within the past 12 months, Grupo Santander has managed or co-managed a public offering of securities of Genomma Lab. Within the past 12 months, Grupo Santander has received compensation for investment banking services from Genomma Lab. In the next three months, Grupo Santander expects to receive or intends to seek compensation for investment banking services from Genomma Lab. Santander or its affiliates and the securities investment clubs, portfolios and funds managed by them do not have any direct or indirect ownership interest equal to or higher than one percent (1%) of the capital stock of any of the companies whose securities were evaluated in this report and are not involved in the acquisition, disposal and intermediation of such securities on the market. The information contained within this report has been compiled from sources believed to be reliable. Although all reasonable care has been taken to ensure the information contained within these reports is not untrue or misleading, we make no representation that such information is accurate or complete and it should not be relied upon as such. All opinions and estimates included within this report constitute our judgment as of the date of the report and are subject to change without notice. From time to time, Grupo Santander and/or any of its officers or directors may have a long or short position in, or otherwise be directly or indirectly interested in, the securities, options, rights or warrants of companies mentioned herein. Any U.S. recipient of this report (other than a registered broker-dealer or a bank acting in a broker-dealer capacity) that would like to effect any transaction in any security discussed herein should contact and place orders in the United States with SIS, which, without in any way limiting the foregoing, accepts responsibility (solely for purposes of and within the meaning of Rule 15a-6 under the U.S. Securities Exchange Act of 1934) for this report and its dissemination in the United States by Santander Investment Securities Inc. All Rights Reserved. 2009