20-F 1 a2103938z20-f.htm 20-F

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TABLE OF CONTENTS
Item 18. Consolidated Financial Statements
EXHIBIT INDEX



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 20-F


o

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)              
OF THE SECURITIES EXCHANGE ACT OF 1934                
  OR                
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)             
OF THE SECURITIES EXCHANGE ACT OF 1934              
For the fiscal year ended December 31, 2002                
  OR                
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)             
OF THE SECURITIES EXCHANGE ACT OF 1934              
For the transition period from                            to                 

Commission file number: 1-18378


Aventis
(Exact name of Registrant as specified in its charter)

Not applicable
(Translation of Registrant's name into English)

  Republic of France
(Jurisdiction of incorporation or organization)

67917 Strasbourg cedex 9
France
(Address of principal executive offices)

        Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class:

  Name of each exchange on which registered
American Depositary Shares, each representing one Ordinary Share nominal value € 3.82 per share   New York Stock Exchange
Ordinary Shares, nominal value € 3.82 per share*   New York Stock Exchange
Guarantee of 81/8% Cumulative Preference Shares of Aventis Overseas Ltd   New York Stock Exchange

        Securities registered or to be registered pursuant to Section 12(g) of the Act:

        American Depositary Shares, each representing one quarter of a Participating Share Series A par value € 70.89 per share.**

        Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None


(*)
Listed not for trading or quotation purposes, but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

(**)
The American Depositary Shares representing Participating Shares Series A were removed from listing and registration on the New York Stock Exchange effective July 31, 1995.

        Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

        Ordinary Shares, nominal value € 3.82 per Share: 799,474,490

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes ý                        No o

        Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o                        Item 18 ý





PRESENTATION OF FINANCIAL AND OTHER INFORMATION

        Since January 1, 1999, we have published our Consolidated Financial Statements in euros. For periods prior to January 1, 1999, our Consolidated Financial Statements were originally prepared in French francs and subsequently translated into euro amounts at the fixed legal rate of € 1.00 = FF 6.55957. Our business combination partner Hoechst has also published its consolidated financial statements in euros since January 1, 1999. For periods prior to January 1, 1999, Hoechst's consolidated financial statements were originally prepared in German marks and subsequently translated into euro amounts at the fixed legal rate of € 1.00 = DM 1.95583. Solely for the convenience of the reader, this Annual Report contains translations of certain French franc, German mark and euro amounts into U.S. dollars at specified rates. We do not represent that the converted amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated or at any other rate. You should also not construe such translations to mean that translated euro amounts relating to the respective financial statements of Aventis and Hoechst for periods prior to January 1, 1999 are directly comparable.

        Unless otherwise stated, the translations into dollars have been made at the rate of € 1.00 = $1.0485, the Noon Buying Rate in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") on December 31, 2002. See "Exchange Rate Information" for information regarding the French franc/U.S. dollar exchange rate from January 1, 1998, to December 31, 1998, and the euro/U.S. dollar exchange rate since January 1, 1999.

        Unless otherwise indicated, the financial information relating to Aventis contained in this Annual Report has been prepared in accordance with accounting principles generally accepted in France (commonly known as French GAAP), which differs in certain significant respects from accounting principles generally accepted in the United States (commonly known as U.S. GAAP). See Note 34 to the Aventis Consolidated Financial Statements in this Annual Report for the years ended December 31, 2002, 2001 and 2000 included as part of Item 18 of this Annual Report for a description of the principal differences between French GAAP and U.S. GAAP as they relate to Aventis and its consolidated subsidiaries as well as a reconciliation to U.S. GAAP of net income and stockholders' equity.

        Unless the context requires otherwise (i) "Aventis" or "We" refers, for period prior to December 15, 1999, to Rhône-Poulenc and to Aventis and its consolidated subsidiaries for all periods beginning or subsequent to December 15, 1999, (ii) all references to Hoechst include Hoechst AG and its consolidated subsidiaries as of the relevant date, (iii) all references to "United States" or "U.S." are to the United States of America, references to "dollars" or "$" are to the currency of the United States. References to "France" are to the Republic of France and references to "French francs," "francs" or "FF" are to the currency of France prior to January 1, 1999. References to "euros" and "€" are to the currency of the 11 European Union member states (including France and Germany) participating in European Monetary Union.

        Social and environmental information included in the Management Board report to be presented to the 2003 Annual General Meeting, in accordance with French Commercial Law, are presented in the Aventis Sustainability Report for 2002, which we have included as Exhibit 99.1 to the present 2002 Aventis Annual Report on Form 20-F.


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

        The statements contained in this Annual Report that are not historical facts, including, without limitation, statements regarding management's expectations, targets or intentions, including for sales, earnings, earnings per share and synergies, constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Act of 1995, and are based on the current expectations and estimates of Aventis management. Investors are cautioned that such forward-looking statements involve risks and uncertainties, and that actual results may differ materially. Factors that could cause actual results to differ materially from those expressed or implied include, but are not limited to:

      failure to achieve sales goals due to competition or market acceptance of our products;

      successful introduction of generic competitors to any of our strategic brands;

      unexpected negative results from research and development or clinical trials of current product candidates;

      failure to obtain new product and therapeutic-indication regulatory approvals;

      failure to realize announced integration synergies due to labor, political or other issues;

      unfavorable exchange rate movements, particularly between the U.S. dollar and the euro;

i


      failure of holders of our exchangeable debt to exercise their exchange rights for shares of Clariant;

      delay in, or failure to achieve expected levels of net proceeds from, sales of assets;

      introduction of new or revised regulations or requirements pertaining to product approval, product safety, environmental protection or manufacturing processes;

      patent protection that proves ineffective;

      unexpected litigation costs or liabilities; and

      other risks and uncertainties that are difficult to predict.

        See "Item 3. Key Information—Risk Factors" for further information regarding risks and uncertainties that could cause actual results to differ materially from these forward-looking statements.


USE OF BRAND NAMES IN THIS REPORT

        Brand names appearing in italics throughout this Annual Report are trademarks of Aventis and/or its affiliates, with the exception of:

      trademarks used or that may be used under license by Aventis and/or its affiliates, such as Actonel and Optinate, trademarks of the Group Procter & Gamble Pharmaceuticals, Alvesco, a trademark of the Group Altana Pharma AG, Benet, a trademark of the Group Takeda Chemical Industries Ltd, Campto, a trademark of the Group Kabushiki Kaisha Yakult Honsha, Copaxone, a trademark of the Group Teva Pharmaceutical Industries, Dexlipotam, a trademark of the Group Viatris GmbH & Co. KG, DiaPep277, a trademark of Peptor Ltd, Exubera, a trademark of the Group Pfizer Products Inc., Genasense, a trademark of Genta Inc, Picovir, a trademark of the Group Sanofi-Synthelabo, Tavanic, a trademark of the Group Daiichi Pharmaceutical Co. Ltd., Stamaril and Mutagrip, trademarks of Institut Pasteur.

      trademarks sold by Aventis and/or its affiliates, such as Cardizem, a trademark of the Group Biovail only in the USA, Ionamin, a trademark of the Group Medeva Pharmaceutical Manufacturers Inc. except in Canada and Spain, SeedLink and StarLink, trademarks of the Group Bayer AG, Synercid, a trademark of King Pharmaceuticals.

      Arixtra, a trademark of Sanofi-Synthélabo, Cipro in the U.S. and Kogenate, trademarks of Bayer AG, Claritin, a trademark of Schering Corporation, Ivomec, Eprinex, Frontline, trademarks of Merial and Hexavac, Neorabies, Revaxis/Repevax, Tetravac and Viatim, trademarks of Aventis Pasteur MSD.

ii



TABLE OF CONTENTS

Items(*)

   
Item  3   Key Information
            Selected Financial Data
            Exchange Rate Information
            Risk Factors
Item  4   Information on the Company
            General
            Business Overview
            Organizational Structure
            Major Business Developments in 2002
            Key Marketed Products
            Research and Development
            Pipeline
            Geographic Markets
            Marketing and Distribution
            Property, Plant and Equipment
            Non-Core Businesses
Item  5   Operating and Financial Review and Prospects
            Results of Operations: 2002 compared to 2001
            Results of Operations: 2001 compared to 2000
            Other Material Financial Elements
Item  6   Directors, Senior Management and Employees
Item  7   Major Shareholders and Related-Party Transactions
Item  8   Financial Information
Item  9   The Offer and Listing
            Markets
            Trading Practices and Procedures
Item 10   Additional Information
            Share Capital and By-Laws
            Taxation
            Fees Paid to Auditors
Item 11   Quantitative and Qualitative Disclosure about Market Risk
Item 15   Controls and Procedures
Item 18   Consolidated Financial Statements
Item 19   Exhibits

(*)
Items 1, 2, 12, 16 and 17 are not required for this annual report on Form 20-F. Items 13 and 14 are not applicable to Aventis for the period covered by this report.

iii


iv



PART I

Item 1.    Identity of Directors, Senior Management and Advisers

        Not Applicable.


Item 2.    Offer Statistics and Expected Timetable

        Not Applicable.

1


2



Item 3.    Key Information

Selected Financial Data

        The tables below set forth selected consolidated financial data for Aventis (Rhône-Poulenc for periods prior to December 15, 1999) for each of the five years during the period ended December 31, 2002, prepared in accordance with generally accepted accounting principles in France. These financial data are derived from the Aventis Consolidated Financial Statements, which have been audited by PricewaterhouseCoopers, independent auditors. The selected consolidated financial data for 2000, 2001 and 2002 should be read in conjunction with the Aventis Consolidated Financial Statements and the related notes included elsewhere in this Annual Report. See "Item 18. Financial Statements" for further information.

        The generally accepted accounting principles in France (known as French GAAP) as applied by Aventis differ in significant respects from generally accepted accounting principles in the United States (U.S. GAAP). For a discussion of the principal differences as they relate to Aventis, and a reconciliation of net income and total stockholders' equity for the three years ended December 31, 2002, 2001 and 2000 to U.S. GAAP, see Note 34 to the Aventis Consolidated Financial Statements included in this Annual Report in "Item 18. Financial Statements."


Aventis Selected Consolidated Financial Data

 
  For the year ended and as of December 31,
 
 
  2002(1)
  2002
  2001
  2000
  1999(2)
  1998(2)(3)
 
 
  $

 

 

 

 

 

 
 
  (in millions, except for the number of ordinary shares,
which is in thousands, and the per share data)

 
Income statement data:                          
Net sales   21,622   20,622   22,941   22,304   12,598   13,232  
Operating income (loss)   2,967   2,830   3,639   617   (544 ) 969  
Income (loss) before taxes and minority interests   3,871   3,692   2,886   (25 ) (823 ) 1,138  
Provision for income taxes   (1,499 ) (1,430 ) (1,111 ) (60 ) 42   (343 )
Minority interests   (90 ) (86 ) (142 ) (85 ) (70 ) (9 )
Net income (loss) before preferred remuneration   2,282   2,176   1,633   (29 ) (851 ) 786  
Preferred remuneration(4)   (89 ) (85 ) (128 ) (118 ) (119 ) (142 )
Net income available for distribution to common shareholders or (loss)(5)   2,192   2,091   1,505   (147 ) (970 ) 644  
Basic earnings (loss) per ordinary share   2.77   2.64   1.91   (0.19 ) (2.49 ) 1.75  
Diluted earnings (loss) per ordinary share   2.74   2.61   1.89   (0.19 ) (2.49 ) 1.72  
Dividend per ordinary share(6)           0.58   0.50   0.45   0.60  
Average number of ordinary shares outstanding   793,412   793,412   787,554   780,546   390,148   367,752  

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Balance sheet data:

 

 

 

 

 

 

 

 

 

 

 

 

 
Working capital(7)   (872 ) (832 ) (1,154 ) (1,099 ) (2,913 ) (776 )
Property, plant and equipment, net   4,671   4,455   5,740   7,498   7,496   5,339  
Total assets   32,580   31,073   39,234   42,183   41,578   24,318  
Long-term debt(8)   1,874   1,787   4,652   8,216   6,437   3,868  
Other long-term liabilities   7,326   6,987   7,225   6,994   5,944   2,642  
Net debt(9)   3,619   3,452   9,195   13,133   12,270   6,172  
Minority interests in net assets of consolidated subsidiaries   167   159   913   1,029   1,460   1,028  
Amortizable preferred securities   93   89   200   272   325   339  
Stockholders' equity   11,885   11,335   12,021   10,561   10,371   7,750  
Capital stock(10)   4,088   3,899   3,917   3,880   3,869   2,659  

Other operating data:

 

 

 

 

 

 

 

 

 

 

 

 

 
Capital expenditures   1,049   1,000   1,245   1,570   746   776  
Research and development expenses   3,586   3,420   3,481   3,479   1,475   1,276  

(1)
Dollar amounts provided for convenience only and are translated at the Noon Buying Rate in effect on December 31, 2002 (€ 1.00 = $ 1.0485).
(2)
The Aventis consolidated Financial Statements consolidate Hoechst from December 15, 1999. The Aventis Consolidated Financial Statements for 1998 do not consolidate any contributions from Hoechst.
(3)
Euro amounts for dates and periods prior to January 1, 1999, are translated at the rate set on January 1, 1999, of € 1.00 = FF 6.55957.
(4)
Preferred remunerations consist of payments with respect to (a) Preferred Shares Series A, (b) Amortizable Preferred Securities, (c) Participating Shares Series A and (d) Capital Equity Notes.
(5)
Common shares consist of Ordinary Shares "A" and the Preferred Shares "B". In 1998, Rhône-Poulenc converted all 926,820 issued Preferred Shares "B" into Ordinary Shares "A" on a one-to-one basis.
(6)
The dividend for 2002 will be proposed at the Annual General Meeting in April 2003 and is subject to approval by shareholders.
(7)
Working capital is defined as total current assets minus total current liabilities.
(8)
Long-term debt includes the debt relating to capitalized leases but does not include the current portion of long-term debt.
(9)
Net debt is defined as bank overdrafts, current portion of long-term debt, short-term and long-term borrowings minus cash, short-term deposits and marketable securities.
(10)
Consisting of ordinary shares, capital equity notes, preference shares and participating shares. See Note 10 to the Aventis Consolidated Financial Statements included in this Annual Report.

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Exchange Rate Information

        Under the provisions of the Treaty on European Monetary Union negotiated at Maastricht in 1991 and signed by the then 12 member states of the European Union in early 1992, a European Monetary Union, known as EMU, was implemented on January 1, 1999, and a single European currency, known as the euro, was introduced. The following 11 member states participate in EMU and have adopted the euro as their national currency: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. Greece joined the EMU in January 2001. The legal rate of conversion between French francs and the euro was fixed on December 31, 1998, at € 1.00 = FF 6.55957.

        For your convenience, this Annual Report contains translations of certain euro amounts into U.S. dollars. Unless otherwise indicated, dollar amounts have been translated from euros at the rate of € 1.00 = $ 1.0485, the Noon Buying Rate for the euro on December 31, 2002. The "Noon Buying Rate" is the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. This does not mean that we actually converted these amounts into U.S. dollars at that rate, and you should not assume that they could have been converted at that or any other rate.

        Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar price of our American Depositary Shares (ADSs) on the New York Stock Exchange and the U.S. dollar value of any dividends we may declare.

        Since the euro did not exist prior to January 1, 1999, we cannot present exchange rates between the euro and the U.S. dollar with respect to financial information prior to this date discussed in this Annual Report. Our reporting currency during those periods was the French franc. The following table shows the French franc/U.S. dollar exchange rate for 1997 and 1998 based on the Noon Buying Rate expressed in French francs per U.S. dollar, and the euro/U.S. dollar exchange rate for 1999 through February 2003 based on the Noon Buying Rate expressed in euros per U.S. dollar.


Selected Exchange Rate Information

 
  Period-end
rate

  Average
rate(1)

  High
  Low
Month                
Euro/U.S. dollar(2)                
February 2003   €0.93   €0.93   €0.93   €0.92
January 2003   0.93   0.94   0.97   0.92
December 2002   0.95   0.98   1.01   0.95
November 2002   1.01   1.00   1.01   0.99
October 2002   1.01   1.02   1.03   1.01
September 2002   1.01   1.02   1.03   1.00

Year

 

 

 

 

 

 

 

 
Euro/U.S. dollar(2)                
2002   €0.95   €1.06   €1.16   €0.95
2001   1.12   1.12   1.19   1.05
2000   1.07   1.09   1.21   0.97
1999   0.99   0.94   1.00   0.85

French franc/U.S. dollar

 

 

 

 

 

 

 

 
1998   FF5.60   FF5.90   FF6.21   FF5.39

(1)
The average rate of the Noon Buying rate for French francs or euros, as the case may be, on the last business day of each month during the relevant period.
(2)
Originally published as U.S. dollar/euro.

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Risk Factors

        Important factors that could cause actual results to differ materially from our expectations are disclosed in this Annual Report, including without limitation those described under "Cautionary Statement Regarding Forward-Looking Statements" and the following risk factors.

    Risks Related to our Business

If research and development does not yield new products that achieve commercial success, we will not realize our business growth expectations.

        Like other major pharmaceutical companies, we devote substantial resources to research and development with the goal of maintaining a continuous flow of innovative products through our research and development pipeline to marketing approval. For a number of reasons, however, including the lengthy product development process, technological challenges, and intense competition, we cannot assure you that any of our products currently under development, or for which we may begin the development process, will be marketed and achieve substantial commercial success. For example, the process of developing a pharmaceutical product from discovery through testing, registration and initial product launch typically takes more than ten years and is conducted in several phases. During each such phase there is a substantial risk that the product will not perform according to our expectations, resulting in our abandonment of a product in which we have invested substantial resources. If we are not able to maintain a continuous flow of successful new products to replace sales that are lost as older products approach the end of their commercial life cycles or are displaced by competing products or therapies, we will not be able to maintain our current levels of sales or operating results.

Patent protection may prove ineffective. Loss of effective patent protection on one or more products could result in lost sales to competing products and negatively affect our sales and operating results.

        We own, have applied for, or are licensed under, numerous patents relating to our products. During the period in which a brand-name pharmaceutical product's active ingredient is subject to patent protection and any applicable period of regulatory exclusivity, the product may be subject to competition only from alternative therapies and alternative products using different active ingredients. Following expiration of patent protection for the active ingredient, however, a brand-name product is likely to face additional competition through the entry into the market of "generic" products containing the same active ingredient. In the United States, if such a product demonstrates "bioequivalence," or the ability to maintain blood levels of active ingredient equivalent to the brand-name product, it may be approved for marketing without the extensive development efforts and testing required for the original brand-name product, and thus without substantial barriers to market entry. The entry of a generic product into the market typically is followed by a substantial decline in the brand-name product's market share and sales revenues. The extent to which generic competition can be expected to affect sales and margins of the original brand-name product in a given market depends on such factors as whether demand for the therapy will support multiple producers, the time and expense involved in obtaining marketing approval for the generic, the relative ease or difficulty of manufacturing the product, and the ability of the brand-name product's manufacturer to develop new or different patented formulations with substantially improved characteristics, such as ease of administration.

        In the pharmaceutical industry, patent expirations may affect even relatively recently approved drugs, the active ingredients of which may have been discovered and patented long before the discovery and approval of their use for specific therapeutic indications. However, in addition to patents covering the active ingredient, our pharmaceutical products may be protected by other patents, including those covering different formulations used in treatment, specific methods of manufacture, methods of administration, and specific indications of use. Until their expiration, such patents may provide varying degrees of protection for a drug beyond the expiration of patents covering only its active ingredients, for example if an active ingredient or finished product is particularly difficult to manufacture or if more appealing formulations or methods of administration provide advantages over generic competitors. However, there can be no assurance that competitors will not be able to "design around" such patents, develop alternative methods of manufacture, or create non-infringing formulations that are at least as appealing.

        Sales and profitability of our patented products also may be adversely affected if any claims of a relevant patent are determined to be invalid, unassertable, or unenforceable, or if competing products are introduced that are therapeutically similar but that do not infringe our products' patents. If any such situation affected one of our best-selling products, it could have a substantial negative effect on our operating results, financial position and cash flows. Patent litigation is subject to substantial uncertainty,

6



and there is no assurance that any of the patents relating to our products, if challenged, will be found valid and enforceable in any or all respects. In addition, when we sue to enforce our patents, the defendants may assert counterclaims under antitrust or other laws, which could result in judgments against us for damages, including treble damages, that could have a material adverse effect on our operating results, financial position, and cash flows.

        The extent of patent protection also varies from country to country. In some countries, patent protection is significantly weaker than in the United States or the European Union. In particular, some countries may facilitate competition within their markets by requiring us to grant compulsory licenses to others to manufacture or distribute generic versions of our patented products in their countries, by permitting others to manufacture or distribute generic versions of our products in violation of our patent rights, or by having ineffective patent enforcement mechanisms.

        In the United States, the effectiveness of patent protection for prescription drugs (other than biologicals) is significantly influenced by the Hatch-Waxman Act of 1984, which provides that a newly approved drug or indication will receive a statutory period of marketing exclusivity (five years for a new drug and three years for a new indication for an existing drug) during which the U.S. Food and Drug Administration ("FDA") will not grant marketing approval to generic competitors, even in the absence of patent protection on the original product. The same Act, however, has greatly accelerated the approval process for generic competitors using the same active ingredients once the statutory exclusivity (also referred to as "data exclusivity") has expired and may actually encourage more aggressive legal challenges to the patent protection of brand-name products. In recent years, legislators and interest groups have made various proposals to amend the Hatch-Waxman Act to accelerate further the marketing of generic versions of brand-name pharmaceutical products. Should any such proposal be enacted into law, it could reduce the effectiveness of patent and regulatory protection afforded by current law and have a substantial negative effect on sales of our affected products.

        Our pharmaceutical products are subject to the limitations of patent protection and Hatch-Waxman exclusivity described above and may be subject to increased risk of competition from generics approved under the FDA's accelerated approval process thereafter. Loss of effective patent protection on one or more of our products could lead to significant losses of sales and negatively affect our future operating results. Currently, we are involved in litigation challenging the effectiveness of patents related to a number of products, and challenges to other products may be expected in the future. See "Item 4. Information on the Company — Marketing and Distribution — Intellectual Property" for a description of the U.S. patent and "data exclusivity" coverage of our principal products, including expected expirations for some strategic brands, and "Item 8. Financial Information — Information on Legal or Arbitration Proceedings" for a description of patent litigation relating to Allegra, a seasonal allergy drug and our top-selling product, and Rilutek, for the treatment of amyotrophic lateral sclerosis.

Claims of patent infringement against us may subject certain products to uncertainty, which could adversely affect our prospects for growth and negatively affect our operating results.

        In the course of discovering and developing new products or new indications, new formulations, and new methods of administration or other innovations, we may be subject to claims from third parties that we have infringed one or more of their patents. These claims may result in prolonged litigation, usually involving complex questions such as whether specific processes or materials may in fact be validly patented, whether the patents in question were validly granted, whether the individual claims of valid patents are enforceable, and whether the challenged product infringes enforceable claims of any valid patents. Defending such litigation is costly, and if a final judgment of infringement is rendered against us, we could be required to pay substantial money damages and/or become subject to substantial limitations or prohibitions regarding our rights to market or otherwise make use of a disputed product. Patent infringement claims may prevent or, even if successfully defended, substantially delay the approval and launch of products in our pipeline, which could adversely affect our ability to maintain revenue at current levels and our prospects for growth.

Changes in marketing status or competitive environment of Allegra or other strategic brands could adversely affect our operating results.

        Allegra, our biggest-selling product in 2002 accounting for approximately 10% and 11.5% of net sales of Aventis and the core pharmaceutical business respectively, may face competition from lower-priced generic or over-the-counter ("OTC") versions of Allegra as patent and regulatory exclusivity expire, as well as from generic or OTC versions of competitors' products. OTC and generic drugs generally are priced significantly

7



lower than brand-name prescription drugs. If Allegra or any of its principal competitors were to be sold as generic products or switched to OTC status, Allegra could face substantial additional competitive pressures, which could have a substantial, and possibly rapid, negative effect on our operating results. The U.S. patent covering the active ingredient in Allegra has expired. U.S. regulatory exclusivity for Allegra tablet formulations expires in the third quarter of 2003.

        In May 2001, a majority of the members of an FDA joint Advisory Committee recommended that Allegra and two competing drugs be "switched" from prescription to OTC status as requested in a citizen's petition filed by certain managed care organizations. The FDA has not publicly acted on the citizen's petition, and it is not possible to predict what action, if any, the FDA might take. However, in November 2002, the FDA approved a change from prescription to OTC status for one of these competing drugs, Claritin, at the request of its maker, and marketing of OTC versions of Claritin has begun. In addition, Aventis has been notified that five generic pharmaceutical companies are seeking FDA approval to market generic versions of Allegra products in the U.S. Aventis has filed patent infringement lawsuits against three of these companies, and is considering its legal options with respect to the others. See "Item 4. Information on the Company — Marketing and Distribution — Intellectual Property" and "Item 8. Financial Information — Information on Legal or Arbitration Proceedings — Allegra Marketing Status" for further information.

        Arava, which accounted for net sales of € 271 million in 2002, is the subject of a citizen's petition submitted to the FDA in March 2002, by Public Citizen, a U.S. advocacy organization, seeking removal of Arava from the market due to alleged serious side effects, primarily rare adverse liver events. Although cases of adverse events, including serious events, have been reported during treatment with Arava, many patients with rheumatoid arthritis take multiple drugs and have other serious medical conditions, which make it difficult to assess causality. The labeling for Arava has warned of the potential for adverse liver events for some time, and recommends periodic liver enzyme monitoring. We believe that Arava is safe and effective when used as directed. Nevertheless, if the FDA grants the petition, it could have a significant negative effect on our product sales. In March 2003, an FDA advisory committee that reviewed the safety profile of Arava agreed unanimously that Arava has a positive benefit-risk profile for its current indications.

        Other strategic brands, including Lovenox, Taxotere and Delix/Tritace, also may be subject to generic competition in the future. See "Item 4. Information on the Company — Marketing and Distribution — Intellectual Property" and "Item 5. Operating and Financial Review and Prospects — Aventis Core Business Financial Information and Analysis for 2002 and 2001" for further information.

Our planned dispositions of non-core businesses may not allow us to reduce debt and reposition Aventis in the time frame currently envisaged.

        A major component of our strategy to position Aventis as a pure pharmaceutical group involves the divestment of our remaining non-core and industrial activities, principally Aventis Behring and our remaining interests in Rhodia S.A. and Wacker-Chemie GmbH ("Wacker"). In 2002, we completed the sale of our stake in Aventis CropScience to Bayer AG and the sale of our animal nutrition business to CVC Capital Partners. In December 2000, we agreed to sell our stake in Wacker-Chemie GmbH to the Wacker family in two stages. The first stage was carried out in January 2001. We are currently attempting to reach agreement with the purchasers concerning the terms and the timing of the second stage of the transaction. However, we cannot assure you that the transaction will be consummated, or that it will be consummated on the terms or in the time frame currently envisaged. If the sale is not ultimately consummated, we can give no assurance as to the timing or financial terms of our disposal of our remaining interest in Wacker in later transactions. A reduction, or delay in the realization, of the related proceeds would delay our current debt reduction plans, prolong the period for which we consolidate the results of Wacker with those of our core business, and delay the repositioning of Aventis as a pure pharmaceutical group. We can also give no assurances as to the timing or financial terms of the disposal of our other remaining non-core businesses.

Use of biologically derived ingredients may face consumer resistance, which could negatively affect sales and cause us to incur substantial costs.

        In line with industry practice, we manufacture our therapeutic proteins, vaccines and many of our prescription pharmaceutical products with ingredients derived from human, animal or plant tissue. Most of these products cannot be made economically, if at all, with synthetic ingredients. We subject our products incorporating these ingredients to extensive tests and believe them to be safe. There have been instances in the past where the use of biologically derived ingredients by Aventis or our competitors has been alleged to be an actual or theoretical source of harm, including infection or allergic reaction. Such allegations have on occasion led to damage claims and increased consumer resistance to such ingredients generally.

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A substantial claim of harm caused by a product incorporating biologically derived ingredients may lead us to incur potentially substantial costs as a result of, among other things, litigation of claims, product recalls, adoption of additional safety measures, manufacturing delays, investment in consumer education, and development of synthetic substitutes for ingredients of biological origin. Such claims also could further increase consumer resistance, with a corresponding negative effect on sales.

Substantial product liability claims, if successful, could negatively affect financial results.

        Pharmaceutical companies historically have been subject to large claims for damages allegedly resulting from the use of their products. We are involved in litigation relating to a number of such claims. Awards of damages, settlement amounts, and fees and expenses resulting from such product liability claims, to the extent not covered by insurance, could have a material adverse effect on the operating results, cash flows and financial position of Aventis. See "Item 8. Financial Information — Information on Legal or Arbitration Proceedings" for further information on product liability claims involving Aventis.

Aventis may be responsible for any liabilities arising out of litigation and investigations by governmental authorities regarding antitrust and/or pricing and marketing practices.

        Aventis and certain of its subsidiaries are under investigation by various government entities, and are defendants in a number of lawsuits, relating to antitrust and/or pricing and marketing practices, including an investigation of alleged underpayment of rebates to U.S. federal health programs. Because many of these cases allege substantial unquantified damages, including treble damages, and seek significant punitive damages and penalties, it is possible that any final determination of liability could be material to the financial position, results of operations and cash flows of Aventis. It also is possible, in the worst case, that an adverse determination in the U.S. could result in Aventis' disqualification from participating in U.S. federal health programs.

        For further information regarding these matters, see "Item 8. Financial Information — Information on Legal or Arbitration Proceedings — Cardizem Antitrust Litigation," "— Cipro Litigation," "— Pharmaceutical Industry Antitrust Litigation," "— Brazilian Antitrust Claims," "— Vitamin Antitrust Litigation," "Methionine Antitrust Litigation," "— Government Investigations — Pricing and Marketing Practices" and "— Class Action Suits — Pricing and Marketing Practices."

Aventis has agreed to retain liability for claims concerning Aventis CropScience and StarLink corn, which could negatively affect our financial results and corporate image.

        As a result of reports that traces of the Cry9C protein associated with StarLink corn were discovered in products intended for human consumption, Aventis' former subsidiary Aventis CropScience has received claims and demands for indemnification and reimbursement of expenses and lost profits from growers, grain handlers, processors and food companies. In addition, in the United States a number of lawsuits – including several putative class actions – have been filed against Aventis CropScience, its affiliates and other defendants, asserting claims for compensatory damages and punitive damages relating to StarLink corn. See "Item 8. Financial Information — Information on Legal or Arbitration Proceedings — The StarLink Litigation" for more information regarding StarLink. In connection with the sale of Aventis CropScience to Bayer AG, Aventis agreed to retain all liability arising out of the StarLink situation, as well as the responsibility for managing and resolving all associated issues.

Aventis will be exposed to potential environmental liabilities related to its current and former businesses and facilities.

        We are exposed to potential environmental liabilities related both to our current and former businesses and facilities, including our former industrial businesses. Aventis and its subsidiaries have environmental liabilities at some currently or formerly owned, leased and third-party sites, including sites in the United States. Some Aventis subsidiaries have been named as "potentially responsible parties" or the equivalent under the U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (also known as "Superfund"), and similar statutes in the United States and elsewhere. As a matter of statutory or contractual obligation, Aventis and/or its subsidiaries will retain responsibility for certain environmental liabilities at its current sites and at some of the sites Aventis and its subsidiaries demerged, divested or may divest. There may also be environmental damage caused by our activities, including damage of which we currently are not aware. Environmental obligations, including the remediation of contaminated sites that may be required under environmental laws of various jurisdictions, could significantly negatively affect our operating results. In particular, our accruals for these obligations may be insufficient if the

9



assumptions underlying these accruals prove incorrect or if we are held responsible for additional, currently undiscovered contamination. In addition, environmental, safety and health laws and enforcement policies implemented in the future could create or increase liabilities related to our activities, including past activities undertaken by Aventis in compliance with then-current laws and regulations. Compliance with such laws could result in significant expenses and liabilities that could negatively affect our business and operating results.

Provisions for potential litigation and environmental liabilities may prove inadequate.

        Aventis establishes provisions to cover potential costs and liability related to certain litigation and environmental matters. We believe that such provisions (together with insurance proceeds in cases where our liability would be covered by insurance) are reasonably adequate to cover substantially all costs and damages against us in such cases, based on current facts and circumstances, our prior experience with similar matters, the number of claims, and the anticipated cost of administering, defending and, in some cases, settling such claims. Such provisions are reviewed regularly for adequacy, and may be revised if we believe that developments make it appropriate. Our provisions depend on our assumptions concerning the probability of loss and our ability to estimate likely damages. Additionally, even risks correctly assessed as remote may in fact materialize and cause substantial harm. As a result, we cannot assure you that our litigation and environmental provisions will be adequate or that we will fully recover claims under our insurance policies in connection with such matters.

Fluctuations in exchange rates, including significant devaluations, may affect our operating results and the value of our assets located outside of the euro zone.

        A substantial portion of our sales and costs are denominated in currencies other than the euro, our reporting currency. As a result, fluctuations between the value of the euro and other major currencies, in particular the U.S. dollar, the British pound and the Japanese yen, affect the operating results of Aventis. These effects might result from changes in the euro value of transactions effected in other currencies, or they could result from the fact that income and expense items related to a particular transaction or activity are denominated in different currencies.

    Risks Related to our Industry

Aventis faces intense competition and regulatory controls that may affect our ability to bring new products to market or limit or reduce the profitability of new or current products.

        The principal markets for the pharmaceutical products of Aventis are the countries of the European Union and the United States, with the Asia-Pacific region, in particular Japan, and Latin America representing most of the remaining sales. These markets are highly competitive and subject to demanding regulatory controls.

        Intense competition.    Aventis faces a highly competitive global environment characterized by intense competition from competitors' brand-name prescription products, lower-cost generic prescription products, and OTC products. Our principal competitors are major international corporations with substantial resources, whose research and development efforts may be better funded or more effective than ours, or whose products may be more effective or more effectively marketed and sold than our products. As new products enter the market and patent protection expires, our products may become obsolete or no longer price competitive. In recent years, the pharmaceutical industry has consolidated substantially as competitors seek to strengthen their market positions and respond to evolving market conditions. Competitive pricing and alternative products offered by competitors of Aventis can limit or reduce the market penetration and profitability of existing products and new products.

        Regulatory controls.    Like other pharmaceutical companies, Aventis must comply with a broad range of regulatory controls on the development, testing, approval, manufacturing and marketing of its products. For example, we must obtain and maintain an authorization from applicable regulatory authorities in order to market a pharmaceutical product in a particular jurisdiction or to manufacture it in a particular plant. In our principal markets, the process of obtaining such authorization is lengthy and expensive, and there are a variety of factors that could adversely affect our ability to obtain marketing authorization for a product or to successfully market or continue marketing a product once approved.

        Price controls.    In addition to normal price competition in the marketplace, pharmaceutical product prices are subject to a variety of government controls or pressure in many markets, which can limit our sales revenues and reduce the resources that are available for purposes such as research and development.

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Price controls for pharmaceutical products may arise from formal government intervention or because governments or major healthcare providers in a particular market are able to exert substantial pressure on prices. Price controls operate differently in different countries and can cause wide variations in prices between markets, limiting the financial benefits of growth and the introduction of new products in certain markets.

        Currently in the United States, there is substantial pressure for Congress to add an outpatient prescription drug benefit to current Medicare coverage. If any such benefit is enacted, the U.S. government could use its substantial purchasing power to obtain discounts from pharmaceutical companies, thereby creating de facto price controls. In Europe, many governments advocate price controls on prescription drugs as a way to curb increasing healthcare costs. In Japan, governmental price cut rounds generally are introduced biannually. Many governments and private medical care providers, such as HMOs, have instituted reimbursement schemes that favor the substitution of generic drugs for more expensive brand-name pharmaceuticals. In the U.S., generic substitution statutes have been enacted by virtually all states and permit or require dispensing pharmacists to substitute less expensive generic drugs for brand-name drugs. We cannot assure you that price controls and pressures on pricing will not have a substantial negative effect on our future profitability. See "Item 4. Information on the Company — Regulation" for further discussion of regulatory and price issues affecting Aventis.

Adverse treatment events may affect the marketing of approved and successfully marketed products

        After a product is approved and marketed successfully, it may be subject to regulatory action based on newly discovered facts about the safety or effectiveness of the product. Regulations in the U.S., the European Union, and other countries require that pharmaceutical companies and health care providers report to regulatory authorities any adverse treatment events associated with the use of marketed pharmaceuticals products. Regulatory reaction to such reports may adversely affect the marketing of a product. Among other things, regulators may require changes in a product's labeling to limit its use, or even withdraw regulatory approval for the product. Depending on the product involved, any such action could have a substantial negative impact on our sales and financial results.

    Risks Related to our Shares and ADSs

The price of our ADSs and the U.S. dollar value of any dividends will be affected by fluctuations in the U.S. dollar/euro exchange rate.

        Our American Depositary Shares ("ADSs") trade on the New York Stock Exchange in U.S. dollars. Since the principal trading market for the shares underlying the ADSs is the Premier Marché of the Paris-based stock exchange Euronext Paris, where the shares trade in euros, the value of the ADSs will be affected by fluctuations in the U.S. dollar/euro exchange rate. If the value of the euro decreases against the U.S. dollar, the price at which our ADSs trade may decrease. In addition, since any dividends that we may declare will be denominated in euros, exchange rate fluctuations will affect the U.S. dollar equivalent of dividends received by holders of ADSs. See "— Exchange Rate Information" above for further information. If the value of the euro decreases against the U.S. dollar, the value of the U.S. dollar equivalent of any dividend will decrease comparatively.

Holders of ADSs may not be able to exercise preemptive rights attached to shares underlying ADSs.

        Under French law, shareholders have preemptive rights (droits préférentiels de souscription) to subscribe for cash for issuances of new shares or other securities giving rights, directly or indirectly, to acquire additional shares on a pro rata basis. Shareholders may waive their preemptive rights specifically in respect of any offering, either individually or collectively, at an extraordinary general meeting of shareholders. Preemptive rights, if not previously waived, are transferable during the subscription period relating to a particular offering of shares and may be quoted on the Premier Marché. U.S. holders of ADSs may not be able to exercise the preemptive rights attached to the shares underlying their ADSs unless a registration statement under the U.S. Securities Act of 1933, as amended, is effective with respect to such rights and the related shares or an exemption from the registration requirements thereunder is available. We intend to evaluate at the time of any rights offering the costs and potential liabilities associated with any such registration statement, as well as the indirect benefits of enabling the exercise by the holders of ADSs of the preemptive rights associated with the shares underlying their ADSs, and any other factors we consider appropriate at the time, and then to make a decision as to whether to file such a registration statement. We cannot guarantee that any registration statement would be filed, or, if filed, that it would be declared effective. If preemptive rights cannot be exercised by an ADS holder, Citibank N.A., as depositary, will, if

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possible, sell such holder's preemptive rights and distribute the net proceeds of the sale to the holder. If the depositary determines, in its discretion, that such rights cannot be sold, the depositary may allow such rights to lapse. In either case, the interest of ADS holders in Aventis will be diluted and, if the depositary allows rights to lapse, holders of ADSs will not realize any value from the granting of preemptive rights.

Holders of ADSs may be subject to additional risks related to holding ADSs rather than Ordinary Shares.

        Because holders of ADSs do not hold their shares directly, they are subject to the following additional risks:

      In the event of a dividend or other distribution, if currency exchange rates fluctuate during any period of time when the depositary cannot convert a foreign currency into dollars, the ADS holder may lose some or all of the value of the distribution. There can be no assurances that the depositary will be able to convert any currency at a specified exchange rate or sell any property, rights, shares or other securities at a specified price, or that any of such transactions can be completed within a specified time period.

      In order to vote at shareholder meetings, ADS holders who are not registered on the books of the depositary are required to transfer their ADSs for a certain number of days before a shareholders meeting into a blocked account established for that purpose by the depositary. Any ADSs transferred to this blocked account will not be available for transfer during that time. ADS holders who are registered on the books of the depositary must give instructions to the depositary not to transfer their ADSs during this period before the shareholders meeting. ADS holders must therefore receive voting materials from the depositary sufficiently in advance in order to make these transfers or give these instructions. There can be no guarantee that ADS holders will receive voting materials in time to instruct the depositary to vote. It is possible that ADS holders, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote at all.

      ADS holders may not receive copies of all reports from us or the depositary. You may have to go to the depositary's offices to inspect any reports issued.

      We and the depositary may amend or terminate the deposit agreement without the consent of ADS holders in a manner that could prejudice ADS holders.

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Item 4.    Information on the Company

General

        Aventis is a stock corporation (société anonyme) organized under French Commercial Law. According to our by-laws, our corporate existence shall run through July 17, 2030 except in the event of earlier dissolution or extension by our shareholders. Formed in December 1999 through the business combination of former pharmaceutical-chemical conglomerates Hoechst of Germany and Rhône-Poulenc of France, Aventis today is a major pharmaceutical industry player that discovers, develops, manufactures and commercializes prescription drugs for important therapeutic areas such as oncology, cardiology, diabetes, respiratory/allergy, as well as human vaccines.

        Our registered office is at 67917 Strasbourg, France, cedex 9, our telephone number is +33 388 99 11 00. Our principal U.S. office is Aventis Pharmaceuticals Inc., 300 Somerset Corporate Boulevard, Bridgewater, NJ 08807-2854. Other principal operating subsidiaries include: Aventis Pharma S.A. in Antony, France, Aventis Pharma Deutschland GmbH in Bad Soden, Germany, and Aventis Pharma Ltd. in Tokyo, Japan. Our global human vaccines business Aventis Pasteur, is headquartered in Lyon, France. In western Europe, commercial operations of the human vaccines business are conducted by Aventis Pasteur MSD, a 50-50 joint venture with Merck & Co.

        In 2002, Aventis generated sales of € 17.59 billion, invested € 3.14 billion in research and development and employed approximately 71,000 people worldwide in its core business.

    Major corporate developments since the formation of Aventis in 1999

December 15, 1999

        Aventis is officially formed following an extraordinary meeting of Rhône-Poulenc shareholders who approved by an overwhelming majority (97.1%) the final steps to complete the business combination of Hoechst and Rhône-Poulenc. On December 20, Aventis shares begin trading under the symbol "AVE" on the Paris and Frankfurt stock exchanges and in the form of American Depositary Shares on the New York Stock Exchange (NYSE).

May 24, 2000

        Aventis holds its first Annual General Meeting, shareholders approve a dividend of € 0.45 per share.

June 23, 2000

        Aventis and Millennium Pharmaceuticals sign a major strategic agreement to jointly develop and commercialize anti-inflammatory drugs. As part of the alliance, Aventis agrees to purchase US$ 250 million in Millennium Pharmaceuticals stock and invest up to US$ 200 million in technology transfer agreements.

November 15, 2000

        Aventis announces plans to divest the agriculture segment to focus exclusively on pharmaceuticals.

May 2, 2001

        Sale of industrial gases affiliate Messer Griesheim GmbH closes.

May 21, 2001

        The Annual General Meeting of Shareholders approves € 0.50 per share dividend for fiscal 2000 and elects four employee representatives to the Supervisory Board.

February 20, 2002

        Aventis and Bayer AG sign a non-binding letter of intent to combine their respective global therapeutic proteins activities, Aventis Behring and Bayer Biological Products, in a new, jointly owned business.

April 3, 2002

        Sale of Aventis Animal Nutrition to CVC Capital Partners closes.

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May 14, 2002

        The third Annual General Meeting of Aventis shareholders approves changes in the corporate governance structure of Aventis. A new, seven-member Management Board is formed consisting of Igor Landau as Chairman, Richard J. Markham and Patrick Langlois as Vice Chairmen, Frank L. Douglas, Heinz-Werner Meier, Dirk Oldenburg and Thierry Soursac. Jürgen Dormann and Jean-René Fourtou are appointed Chairman and Vice Chairman, respectively, of the Aventis Supervisory Board. See "Item 6. Directors, Senior Management and Employees" for further information.

June 3, 2002

        Sale of Aventis CropScience to Bayer AG closes for an enterprise value of € 7.25 billion. Aventis received total consideration of around € 5.7 billion in cash and debt deconsolidation for its 76% interest in this business. See "—Non-Core Businesses—Aventis CropScience," below.

January 31, 2003

        Aventis and Bayer end negotiations concerning the formation of a therapeutic proteins joint venture.

February 18, 2003

        Aventis and CSL Limited enter into preliminary discussions on a potential acquisition of Aventis Behring.

        For information on our principal capital expenditures and divestitures, see "Item 5. Other Material Financial Elements."

        The net sales and operating income of Aventis broken down by business segment are presented in Note 26 of the Aventis Consolidated Financial Statements included in Item 18 of this report.

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Business Overview

        Aventis is a global pharmaceutical company that discovers, develops, manufactures and markets branded prescription drugs and human vaccines to protect and improve the health of patients around the world. Our therapeutic innovations rank among the leading treatments for lung and breast cancer, thrombosis, seasonal allergies, diabetes and hypertension.

        Our core business comprises our activities in branded prescription drugs and human vaccines as well as our 50% interest in the animal health joint venture Merial with Merck & Co., and corporate activities. We do not consolidate sales of Merial, however our 50% interest in its earnings is included under the equity method.

        As of 2002, the therapeutic proteins business Aventis Behring is no longer considered "core" as we intend to exit from this business. Other non-core businesses, i.e. those that we expect to divest in the near future, include Rhodia, Wacker and DyStar. The divestments of two former non-core businesses, Aventis Animal Nutrition and Aventis CropScience, closed in April and June of 2002, respectively. Both businesses have been deconsolidated as of their respective divestment closing dates.

    Strategy

        The vision to which Aventis aspires is to be recognized as a pharmaceutical industry leader – valued by patients and healthcare providers, sought after as an employer, and respected by the scientific community and by our competitors.

        The strategy that we are pursuing to realize this vision and create sustainable value for patients, healthcare professionals, shareholders and employees centers around products. We want to rapidly develop, launch and market innovative prescription drugs and human vaccines that not only satisfy unmet medical needs in large patient populations, but also help lower the overall cost of healthcare.

        Our strategic priorities have evolved from managing and effecting a successful integration to strengthening and focusing on the core pharmaceutical business and establishing a track record of achievability. Going forward, our strategic goal is to maintain this successful track record by delivering sustainable growth in a changing environment. In order to remain one of the fastest-growing multinational pharmaceutical companies, our strategic imperative is product leadership by discovering, developing and supplying those products that offer the greatest therapeutic benefit to patients.

        Our strategy to achieve our goal of product leadership includes:

      Focusing discovery efforts and development resources on core disease areas to introduce a steady stream of innovative and value-adding prescription drugs and vaccines

      Aggressively deploying a targeted in-licensing and alliance strategy to supplement organic growth and enhance our vigorous in-house R&D efforts with high-value, late-stage products

      Maximizing the value of existing and recently launched global brands through commercial investments and by continually expanding their utility through proactive life-cycle management

      Working to increase our share of sales in the United States and for key strategic brands

      Building an industry-leading position in the application of cutting-edge scientific tools

      Recruiting and retaining the best scientists with passion to discover and develop innovative therapies.

        As our financial results for 2002 show, our strategy for growth is working. We were one of the fastest-growing multinational pharmaceutical companies in terms of both sales and earnings in 2002. This is due not least to the performance of our strategic brands, which now account for 55% of prescription drug sales compared to 47% in 2001. Our sales in the U.S., the world's largest pharmaceutical market, grew 21% on an activity basis and now represent 39% of our global core business sales. We have succeeded in narrowing the profitability gap with our peers, having increased gross margin from 73.3% in 2001 to 74.1% in 2002. We intend to close this gap further by resolutely focusing on the significant remaining growth potential of our currently marketed products.

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The Organizational Structure of Aventis as of December 31, 2002

GRAPHIC


(1)
50% owned by Aventis, 50% owned by Merck & Co.
(2)
11.8% interest owned by Aventis.
(3)
35% interest owned by Aventis.
(4)
25.2% interest owned by Aventis.
(5)
49% interest owned by Aventis.

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Major Business Developments in 2002

January

        Actonel (2.5 mg once daily risedronate sodium tablets) is approved in Japan for the treatment of osteoporosis.

        Aventis Pharma Japan submits a New Drug Application (NDA) for the anti-infective Ketek (telithromycin) for use in adults.

        Ketek is launched in Italy and Spain.

March

        Aventis and Coley Pharmaceutical Group expand their existing collaboration to include a drug discovery program to screen and evaluate second-generation immunomodulatory CpG product candidates for the treatment of asthma and allergic rhinitis.

        Aventis Pasteur donates 88.5 million doses of smallpox vaccine to the U.S. government.

April

        Delix (ramipril) approved in Germany for use in stroke and heart attack prevention.

        Ketek is launched in Brazil.

        Allegra (60 mg twice daily) approved in Japan for the treatment of itching associated with dermatological diseases.

        Aventis joins forces with the Nelson Mandela Foundation to combat tuberculosis in South Africa in a five-year, € 15 million agreement.

        Aventis and Genta Inc. enter into a worldwide partnership to develop and commercialize Genasense, an oncology drug candidate in multiple phase II and phase III clinical trials.

        An NDA is submitted for Lantus (insulin glargine) in Japan.

        Aventis and Vertex announce plans to expand clinical development of the interleukin-1 beta converting enzyme inhibitor pralnacasan.

May

        Interim results of a landmark study reported at the Annual Meeting of the American Society of Clinical Oncology (ASCO) suggest the use of Taxotere in early-stage breast cancer.

        The U.S. Food and Drug Administration (FDA) rejects Picovir, for common colds, from ViroPharma and Aventis.

        The FDA approves Daptacel, a new acellular pertussis based combination vaccine from Aventis Pasteur.

        The FDA approves a new, 35 mg once-weekly dosage strength of Actonel for the prevention and treatment of postmenopausal osteoporosis.

        Actonel (2.5 mg once-daily risedronate sodium tablets) is launched in Japan.

June

        Aventis launches its second Horizon program, a worldwide stock purchase plan for employees.

        Third annual Aventis R&D Day is held in London and New York.

        A European mutual recognition procedure is successfully completed in 13 European countries for Repevax, a booster vaccine for adults.

July

        Aventis terminates enrollment in a global Phase III EXPEDITION study evaluating cariporide in coronary artery bypass graft surgery patients.

        Aventis and Peptor enter into a licensing, development and commercialization agreement for DiaPep277, for the prevention and treatment of latent autoimmune diabetes in adults and type 1 diabetes.

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        A European mutual recognition procedure is successfully completed in 16 European countries for Viatim, a vaccine that protects against hepatitis A and typhoid fever.

August

        The FDA accepts for filing the complete response to the agency's June 1, 2001 approvable letter for Ketek tablets (800 mg oral dose once daily) for the treatment of community-acquired pneumonia (CAP), acute bacterial exacerbation of chronic bronchitis (AECB), and acute bacterial sinusitis (ABS).

        A new ramipril production plant is inaugurated in Germany.

        Lantus is launched in the United Kingdom.

        Risedronate (Actonel/Optinate) is approved in Sweden for once-a-week use in treating and preventing postmenopausal osteoporosis. Sweden will now serve as the reference member state for a European Union mutual recognition procedure for risedronate once-a-week.

        A New Drug Application (NDA) is filed in Japan for an additional indication of Taxotere in esophageal cancer.

        The September 2001 agreement to co-develop and co-promote Picovir (pleconaril) with ViroPharma Incorporated is terminated by mutual decision of the parties.

        Based on the disappointing outcome of Phase II trials, clinical development of the ACE/NEP inhibitor M100,240 in hypertension is terminated.

September

        Ketek (telithromycin) is launched in France.

        Aventis announces plans to focus research programs to achieve leadership positions in key disease areas.

        The FDA approves Fluzone Preservative-free Pediatric Dose, an influenza virus vaccine from Aventis Pasteur.

October

        Aventis and Pfizer affirm commitment to Exubera, and an expanded clinical program is underway.

November

        Aventis launches a cash tender offer on all of its bonds exchangeable into Rhodia shares.

        Aventis discloses details of most extensive research program on Allegra.

        Aventis Pasteur announces plans to increase its industrial capacity with a US$ 150 million investment.

        A U.S. District Court grants final approval of a settlement agreement with a class of approximately 100 direct purchasers in the Cardizem CD antitrust multidistrict litigation.

December

        The U.S. FDA approves Taxotere in combination with cisplatin for first-line treatment of non-small-cell lung cancer.

        Lantus is granted marketing authorization by the European Commission (EC) for flexible administration at any time of day.

        Subsequent to a cash tender offer for all of its 45,211,662 outstanding 3.25% bonds exchangeable into shares of Rhodia, Aventis acquires 98.6% of the bonds initially issued.

        The EU Committee For Proprietary Medicinal Products (CPMP) issues a positive opinion for Lantus administration in children of six years or above with diabetes.

        Actonel 35 mg once-a-week dosing is approved in the EU.

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January 2003

        Taxotere receives European approval as first-line treatment for non-small cell lung cancer.

        Aventis receives an approvable letter from the U.S. Food and Drug Administration (FDA) for Ketek tablets for the treatment of acute exacerbations of chronic bronchitis, acute bacterial sinusitis and community-acquired pneumonia. In the approvable letter, the FDA has requested additional information and analysis but has not required additional clinical studies before considering further our application for marketing approval. The FDA will have up to six months to respond after we submit the requested information.

        Aventis exercises early redemption rights and acquires the remainder of its bonds exchangeable into shares of Rhodia.

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Key Marketed Products

Prescription Drugs

        The following table presents the strategic brands of our prescription drugs business:

Therapeutic area

  Strategic brand
  First
launch

  Main markets
served by
Aventis

  Sales 2002
(in € million)

  Country/Ranking/
Market Share(1)

Respiratory & Allergy   Allegra/Telfast
fexofenadine
  1996   U.S./Japan/Europe Latin America, Asia   2,030   U.S.: #2/23%
(
Allegra)
#5/6% (
Allegra-D)
Japan: #2/13.3%
(
Allegra)
   
    Nasacort
triamcinolone
acetonide
  1997   U.S., Canada, France, Germany and Italy   329   U.S.: #3/11%
(Nasacort AQ);
#5/3% (Nasacort)
France: #2/22%
Canada: #3/11%
(Nasacort AQ);
#5/3% (Nasacort)
   
Thrombosis/Cardiology   Lovenox/Clexane
enoxaparin sodium
  1987   96 countries worldwide   1,563   U.S.:#1/86%
France: #1/55%
Germany: #1/31%
   
    Delix/Tritace
ramipril
  1989   UK, Germany, France, Italy, Canada   923   Germany: #1/15%
Canada: #1/25%
UK: #2/19%
   
Oncology   Taxotere
docetaxel
  1995   U.S., Europe, Japan, Asia   1,261   U.S.: #1/24%
France: #2/23%
Japan: #3/12%
   
    Campto(2)
irinotecan
  1995   Europe, Asia   241   France: #2/36%
Germany: #2/35%
Italy: #2/36%
   
Metabolism/Diabetes   Amaryl
glimepiride
  1996   U.S., Europe   578   U.S: #8/4%
Germany:#1/25%
Japan: #4/7%
   
    Insuman
human insulin
  1999   Europe, Japan   172   Germany: 25%
France: 3%
Austria:17%
   
    Lantus
insulin glargine
  2000   U.S., Germany, UK   299   U.S.: 9%
Germany: 9%
UK: 3.2%
   
Arthritis/Osteoporosis   Actonel(3)
risedronate
  1999   U.S., Europe, Japan   539   U.S.: #4/10%
France: #1/29%
Germany: #2/22%
   
    Arava
leflunomide
  1998   U.S., Europe Latin America   271   Germany: 12%
U.S.: 9%
   
Anti-infectives   Targocid
teicoplanin
  1986   Italy, Japan, France, Germany, UK, Spain and Brazil   222   Italy: #1/84%
Japan: #3/15%
UK: #1/59%
   
    Tavanic(4)
levofloxacin
  1998   Europe, Middle East, Africa, Latin America   257   Germany: #3/4%
Italy: #9/3%
Spain: #8/3%
   
    Ketek
telithromycin
  2001   Europe, Latin America   52   Germany: #17/1.4%
Italy: #33/0.6%
France: #55/0.4%
   
Central nervous system   Copaxone(5)
glatiramer acetate
  1996   Europe   554   Germany: #4/12%
Canada: #3/20%
Australia: #2/28%
   

(1)
Market share percentages and ranking derived from sales figures (IMS Health), except for France (GERS). Data based on one moving annual total (MAT) ending September 2002.
(2)
Licensed from Yakult Honsha (not sold by Aventis in the United States or Japan).
(3)
Sold in cooperation with Procter & Gamble Pharmaceuticals; combined sales for Procter & Gamble and Aventis.
(4)
Licensed from Daiichi (not sold by Aventis in the United States or Japan).
(5)
Marketed in Europe together with Teva Pharmaceutical Industries.

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Respiratory/Allergy

        Allegra/Telfast (fexofenadine), the top-selling product of Aventis in 2002, is an effective, fast-acting, non-sedating prescription antihistamine for the treatment of seasonal allergic rhinitis (SAR or hay fever) and the skin condition chronic idiopathic urticaria (CIU or hives). Aventis also offers Allegra-D, a combination product with an extended release decongestant for effective non-drowsy relief of seasonal allergy symptoms, including nasal congestion. In April 2002, Allegra was approved in Japan for the treatment of itching associated with dermatological diseases. Allegra/Telfast is one of the world's most widely studied antihistamines, with more than four billion patient days of therapy recorded to date.

        Nasacort (triamcinolone acetonide) Nasal Inhaler is indicated for the nasal treatment of seasonal and perennial allergic rhinitis symptoms in adults and children six years of age and older. Nasacort AQ Nasal Spray is an unscented, water-based metered-dose pump spray formulation unit containing a microcrystalline suspension of triamcinolone acetonide in an aqueous medium. It is indicated for the treatment of the nasal symptoms of seasonal and perennial allergic rhinitis in adults and children six years of age and older.

Thrombosis/Cardiology

        Lovenox/Clexane (enoxaparin sodium) is the world's leading low-molecular-weight heparin (LMWH) and has the broadest range of indications of all anticoagulants. Sold as Lovenox in the United States and in France, and as Clexane in most countries in the rest of the world, this drug has been used to treat more than 108 million patients in 96 countries since its launch in 1987. Lovenox/Clexane is indicated for the prevention of post-surgical deep vein thrombosis (DVT), to treat and prevent DVT with or without pulmonary embolism, to treat unstable angina and non-Q-wave myocardial infarction, and to prevent DVT in critically ill medical patients. Lovenox/Clexane is the first LMWH marketed in the U.S. for unstable angina and non-Q-wave myocardial infarction. In March 2002, the 5,800 patient EXCLAIM trial began to study the safety and efficacy of prolonged administration of Lovenox/Clexane versus placebo in preventing blood clots in acutely ill medical patients. In May 2002, we announced the ExTRACT study to examine the safety and efficacy of Lovenox/Clexane versus unfractionated heparin in heart attack patients.

        Delix/Tritace (ramipril) is an ACE (angiotensin converting enzyme) inhibitor for the treatment of hypertension and congestive heart failure after myocardial infarction. Delix/Tritace is the best-selling ACE inhibitor outside the U.S. and Japan and is today recognized as one of the leading treatments in cardiovascular prevention beside statins and acetylsalicylic acid. Delix/Tritace is the only ACE inhibitor approved for the prevention of stroke, heart attack and cardiovascular death in people at high risk for cardiovascular events. The use of Delix/Tritace for prevention of cardiovascular events has increased dramatically since 2000 when results of the landmark HOPE study (Heart Outcomes Prevention Evaluation) were reported. According to a study published in the American Journal of Cardiology in November and data from over 50,000 heart attack patients included in the MITRA PLUS heart attack registry from 1992–2002, Delix/Tritace is superior to all other ACE inhibitors in preventing death after myocardial infarction. Delix/Tritace is the market leader in Germany, France, Italy and Canada. The U.S. rights were sold in 1998.

Oncology

        Taxotere (docetaxel) is a chemotherapy agent primarily used to treat metastatic breast cancer and non-small-cell lung cancer in over 86 countries. Launched in 1995, Taxotere is the foundation of our oncology franchise and a standard of care in the treatment of locally advanced or metastatic breast cancer. Results from the first planned interim analysis of the TAX 316 study presented at the Annual Meeting of the American Society of Clinical Oncology (ASCO) in May 2002 showed that a Taxotere-based treatment regimen improves survival and reduces the risk of breast cancer relapse in early-stage breast cancer. Taxotere was approved in early 2000 for second-line use in treating non-small cell lung cancer (NSCLC) in the U.S. and the EU. Taxotere is also indicated for the treatment of gastric, ovarian, and head and neck cancer in Japan. In August, a New Drug Application (NDA) was filed in Japan for esophageal cancer. In November, the FDA approved Taxotere for the first-line treatment of non-small-cell lung cancer in combination with cisplatin. In January 2003, Taxotere was approved for the same indication in the EU. Taxotere is thus the only drug indicated for previously treated non-small cell lung cancer as a single agent and for newly diagnosed non-small cell lung cancer in combination with cisplatin.

        Campto (irinotecan) is the current standard of treatment for advanced colorectal cancer. Indicated in first-line treatment of advanced colorectal cancer in combination with 5-fluorouracil (FU) and folinic acid (FA), Campto is also used as second-line treatment of colorectal cancer in monotherapy. Several studies are underway to evaluate the use of Campto in adjuvant chemotherapy in colorectal cancer, advanced gastric cancer, small cell lung cancer and non-small-cell lung cancer. Aventis markets Campto, which was first

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launched in 1995 under a license from Yakult Honsha, primarily in Europe, Africa and Asia. We do not market this product in the United States or Japan.

Diabetes

        Lantus (insulin glargine) is a once-daily long-acting human insulin analog for type 1 and type 2 diabetes. Lantus provides 24-hour basal insulin coverage, with no pronounced peak concentrations through a once-daily injection. The "treat-to-target" campaign is helping to position Lantus as one of the most effective ways to help patient achieve target A1C levels.

        A New Drug Application for Lantus was submitted in Japan in April. Lantus was launched in the UK and Ireland in August 2002 and the global roll-out of Lantus will continue in 2003. In May 2002, the results of a study were presented at the American Academy of Clinical Endocrinologists (AACE) annual meeting showing patients treated with Lantus achieved A1C control (< 7% A1C) with fewer episodes of hypoglycemic symptoms compared with NPH insulin, particularly nocturnal hypoglycemia. In September 2002, two further clinical studies presented at the annual meeting of the European Association for the Study of Diabetes (EASD) in Budapest supported previously reported studies in type 2 diabetes which demonstrated that patients uncontrolled with oral anti-diabetic agents achieved an A1C target below 7% while being associated with a reduced incidence of hypoglycemia versus NPH. In December 2002, Lantus was granted marketing authorization by the European Commission (EC) for flexible administration at any time of day.

        Amaryl (glimepiride) is a once-daily sulfonylurea for the oral treatment of type 2 diabetes as an adjunct to diet and exercise. Amaryl reduces the body's blood sugar level primarily by helping the body produce more insulin. According to a study presented at 2002 meeting of the American Diabetes Association (ADA), Amaryl is associated with a reduced risk of hypoglycaemia and less weight gain than other sulfonylureas. Amaryl is the first oral diabetes drug in its class to receive three indications: either as a monotherapy or in combination with insulin or metformin, another oral diabetes treatment, in all 15 EU countries, the U.S., and in more than 23 other countries around the world.

        Insuman (human insulin) is a biosynthetic insulin identical to that produced by the human body and is used for treatment of type 1 and type 2 diabetes. Insuman is marketed throughout Europe, with the largest markets in terms of sales being Germany and Austria. It was approved in August 2001 in Japan, where it is registered as Isuhuman. Aventis does not sell this product in the United States.

Arthritis/Osteoporosis

        Actonel (risedronate sodium) is a novel bisphosphonate approved for treatment and prevention of postmenopausal osteoporosis and for the treatment of glucocorticoid-induced osteoporosis. It is also approved for treatment of Paget's disease, a rare bone disorder. Actonel is the only bisphosphonate that has shown rapid clinical vertebral fracture reduction in just one year and has shown sustained fracture reduction of up to five years. Actonel is being co-developed and co-marketed in partnership with Procter & Gamble Pharmaceuticals through the Alliance for Better Bone Health. The 5 mg once-daily formulation received U.S. and EU approval in 2000 and is currently approved in 77 countries worldwide. In Japan, risedronate sodium was approved in January and launched for the treatment of osteoporosis in May. It is being marketed there jointly through two channels under two brand names, "Actonel 2.5 mg tablets" from Ajinomoto (manufacturer) and Aventis (distributor) and "Benet 2.5 mg tablets" from Takeda.

        Actonel was approved in a 35 mg once-weekly formulation in the U.S. in May and in the European Union in December. Once-a-week risedronate has also been approved in Argentina, Brazil, Egypt, Guatemala, New Zealand and Switzerland. New data presented at a meeting of the American Society for Bone and Mineral Research on September 20 showed that a 5 mg dose of Actonel daily significantly reduced moderate and severe vertebral fracture risk by 70% within one year of treatment in women with postmenopausal osteoporosis.

        Arava (leflunomide) is an oral disease-modifying anti-rheumatic drug (DMARD) for first-line treatment of rheumatoid arthritis. It is the first drug to be indicated to reduce the signs and symptoms of rheumatoid arthritis and to retard structural damage, such as erosions and joint-space narrowing, as evidenced by X-ray. Two studies presented at the American College of Rheumatology (ACR) 66th Annual Meeting in October 2002 demonstrate the consistent efficacy and safety of Arava in treating rheumatoid arthritis. Arava offers once-daily dosing and can be used in both early and late stages of the disease.

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Anti-Infectives

        Ketek (telithromycin), the first of a new class of antibiotics known as the ketolides, was designed to deliver an optimal spectrum of activity for the first line treatment of upper and lower respiratory tract infections including those caused by resistant pathogens – with less propensity to induce resistance – and a short treatment regimen.

        In Europe, Ketek was approved in July 2001 for the treatment of patients 18 years and older for community-acquired pneumonia (CAP), mild or moderate; acute exacerbation of chronic bronchitis (AECB); acute sinusitis; and tonsillitis/pharyngitis caused by Group A beta streptococci, as an alternative when beta lactam antibiotics are not appropriate, in patients 12 years and older. Ketek was launched in October 2001 in Germany. In 2002, Ketek was launched in Spain, Italy and France and in all the major markets of Latin America. Over one million patients worldwide have been treated with Ketek since its launch. A New Drug Application (NDA) was filed in January 2002 for Ketek in Japan, the second largest antibiotic market worldwide.

        In January 2003, the U.S. Food and Drug Administration (FDA) issued an approvable letter for Ketek for the treatment of acute exacerbations of chronic bronchitis, acute bacterial sinusitis and community-acquired pneumonia. The FDA has requested additional information and analysis but has not required additional clinical studies before considering further our application for marketing approval. The FDA will have up to six months to respond after we submit the requested information.

        Targocid (teicoplanin) is an injectable glycopeptide antibiotic for treatment of infections caused by susceptible Gram-positive bacteria, including those resistant to other antibiotics such as methicillin and cephalosporins.

        Tavanic (levofloxacin) is an IV/oral broad-spectrum fluoroquinolone antibiotic in-licensed from Daiichi. This fast-acting bactericidal antibiotic offers once-daily dosing for the treatment of community acquired pneumonia, acute exacerbations of chronic bronchitis, acute sinusitis, complicated urinary tract infections and skin and soft-tissue infections. We do not market Tavanic in Japan or the U.S.

Central Nervous System

        Copaxone (glatiramer acetate) is the first non-interferon, non-steroidal agent indicated for reduction of the frequency of relapses in patients with relapsing-remitting multiple sclerosis (MS). Copaxone has demonstrated continued efficacy in reducing relapse rates over eight years, and has shown a significant effect on Magnetic Resonance Imaging (MRI) monitored activity and burden of disease. Copaxone received marketing approval for all EU countries in August 2001. In September 2002, seven-day room temperature Copaxone was approved across sixteen European countries. In Europe, Copaxone is marketed by Teva Pharmaceutical Industries Ltd. and Aventis. In North America, Copaxone is marketed by Teva Neuroscience.

Human Vaccines

        Aventis Pasteur is a world leader in vaccines, offering the broadest range of products in the industry. With a heritage dating back to Louis Pasteur, our vaccines unit provided 1.4 billion doses of vaccines in 2002, protecting almost 500 million people against 20 serious diseases in 150 countries. In terms of sales, we account for nearly one-quarter of the global market for vaccines, which has enjoyed a compounded annual growth rate of 14% during the past 10 years.

        Aventis Pasteur contributed sales of € 1,580 million in 2002, an increase of 10.9% (+16.3% activity variance) over sales of € 1,425 million in 2001. The strong growth was due mainly to higher sales in the United States, particularly for pediatric combination vaccines and adult boosters (tetanus-diphtheria).

        Aventis Pasteur holds a leading position in most countries. In the United States, which accounts for 40% of the worldwide vaccines market, higher sales during the last two years have positioned Aventis Pasteur as one of the top two vaccine companies. In Europe, commercial operations are conducted by Aventis Pasteur MSD, a 50–50 joint venture between Aventis Pasteur and Merck & Co., providing vaccines to 19 countries. Aventis Pasteur MSD, which is accounted for using the equity method, had total net sales of € 577 million in 2002 compared to € 556 million in 2001. In emerging countries, which account for 80% of the world population, Aventis Pasteur has established a leading position, notably in Latin America and increasingly in Asia, where we have been expanding our presence. We are also very active in donors' markets such as UNICEF and Pan-American Health Organization.

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Leading Brands

        Influenza vaccines:    Our top-selling products are vaccines against influenza, a field in which we are the leader with nearly 50% of the world market. Immunization is considered one of the most cost-effective interventions available for preventing influenza. Our principal products are Vaxigrip, Fluzone and Mutagrip.

        Pediatric combination vaccines:    The components of these vaccines vary depending on needs in various parts of the world. Different combinations protect against up to six diseases: diphtheria, tetanus, pertussis (whooping cough), polio, hepatitis B and Haemophilus influenzae type b (Hib) to protect against meningitis. Our most innovative product is Hexavac, a new vaccine approved in 2000 in Europe and under registration in various international markets. Developed in cooperation with Merck & Co., it is the only fully liquid pediatric combination vaccine that protects against six diseases. Other principal combinations include Pentacel and Tetravac.

        Travelers/endemic area vaccines:    This range of products is intended for travelers going to endemic areas, meaning regions with a constant or periodic occurrence of a disease, as well as for the local populations living in the affected areas. Viatim/Vivaxim, a new combination vaccine against hepatitis A and typhoid fever, was launched in the United Kingdom in 2001 and is being introduced in other European countries. Other principal products include Typhim Vi, Avaxim, Verorab, JE-VAX, YF VAX and Stamaril.

        Meningitis vaccines:    We have three vaccines against meningitis caused by three different pathogens.

      The first is the ActHib vaccine protecting against Haemophilus influenzae type b. This vaccine belongs to our pediatric combination range.

      The second one, a polysaccharide AC vaccine, protects against strains of meningitis present in Africa.

      The third, Menomune, A/C/Y/W135, is a quadrivalent meningococcal combination vaccine that has become increasingly important as global epidemiology has changed for meningococcal disease over the past decade. This vaccine has been important in protecting U.S. college students against meningococcal C and Y, which are most common serogroups causing disease among adolescents and college students. Globally, Menomune has been used to vaccinate travelers such as pilgrims going to Mecca or to certain African regions/countries where an increase in serotype W135 has been observed over the past two years.

        Boosters:    The tetanus and diphtheria combination (Td) is the prime booster product used throughout the world to "boost" protection against these diseases. Repevax, commercialized in some European countries, is a booster product that includes an inactivated polio and pertussis vaccine along with tetanus and diphtheria. Both products can be used for different age groups, from children to adults, and are integrated into vaccine calendars according to national guidelines and recommendations.

        Polio vaccines:    Polio vaccines continue to be one of our major growth drivers. The worldwide polio eradication initiative from WHO and UNICEF has positioned Aventis Pasteur as a global preferred partner with the injectable/inactivated vaccines IPOL and Imovax Polio as well as the Oral Polio Vaccine (OPV), which is still being used in emerging countries. After eradication, the injectable form may be included in national immunization recommendations for polio vaccination for at least another decade, while the oral polio vaccine may be removed from immunization calendars. The injectable polio vaccine is becoming a pivotal antigen in new pediatric combinations that we offer.

Merial

        Merial, a 50–50 joint venture with Merck & Co. is the world's leading animal health company dedicated to providing products and solutions that enhance the health, well-being and performance of a wide variety of animals. The company is also a market leader in the development of poultry breeding stock. Operational headquarters are located in Duluth, Georgia, U.S. With approximately 6,500 employees in 150 countries, Merial offers a comprehensive line of veterinary pharmaceuticals and vaccines to prevent and treat a wide range of animal diseases.

        Merial's products help veterinarians, food producers, pet owners and governments worldwide to improve and maintain the health of animals and thereby of humans. In addition, the joint venture participates in the development and implementation of international agreements on animal health and is especially involved in the development and implementation of efficient epidemiological monitoring systems.

        The product range of Merial includes Frontline (fipronil), their number-one product and the world's best-selling topical anti-parasitic for the treatment and prevention of fleas and ticks in cats and dogs.

        Other significant products include avermectin-based products, led by the paraciticides Ivomec (ivermectin) and Eprinex (eprinomectin) for the treatment of beef and dairy cattle as well as sheep and swine.

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Research and Development

        As an innovation-driven supplier of prescription drugs and human vaccines, Aventis invests substantial human and financial resources in research and development. In 2002, our research and development spending on prescription drugs and human vaccines totaled € 3.14 billion.

    Prescription Drugs

        Research and development of branded prescription drugs is the responsibility of our Drug Innovation & Approval organization, which consists of approximately 5,700 people working at four main locations in France, Germany, Japan and the United States. The key objectives of the global Drug Innovation & Approval function are to:

      Deliver the pipeline

      Increase innovation and productivity and

      Optimize the value of our products

        The activities of Drug Innovation & Approval are organized around a value chain that performs time-critical activities in parallel instead of sequentially, and follows a network-centric approach. Drug discovery is conducted by sites in France, Germany and the U.S. The sites act as entrepreneurial units responsible for managing the project portfolio of the assigned disease groups from the exploratory stage to phase IIa clinical testing. This is achieved by the combined efforts of site-based disease groups and expertise from the global functions Lead Generation and Lead Optimization. Late-stage development and approval is conducted globally, and is managed out of the Global Drug Development Center in Bridgewater, New Jersey.

        The following global functions support site-based as well as global project teams:

      Lead Generation (LG) works with the disease groups to identify and validate targets, identify and modify leads, and generate early development compounds. LG is organized into five centers of expertise located at sites in France, Germany and the U.S. The technology provided by LG is critical to manage the portfolio through phase IIa.

      Lead Optimization (LO) bridges development from the preclinical to the clinical phase. The key objective of this function is to establish proof of concept in man so that the candidates with the greatest chance of success can be selected for phase IIb and phase III studies. LO comprises four centers of expertise and their scientists work in project teams at the four sites.

      Product Realization (PR) is responsible for managing late-stage clinical projects worldwide in phase IIb and phase III as well as optimizing the value of strategic brands by delivering new therapeutic indications and commercially attractive dosage forms. Clinical studies are conducted using state-of-the-art Web-based clinical trial management and reverse planning tools.

      Global Regulatory Approvals & Marketing Support (GRAMS) interfaces with regulatory agencies and directs simultaneous submissions of global dossiers to obtain approvals in major markets. State-of-the-art electronic document management technologies are used to bring drug candidates through the regulatory approval process. GRAMS also maintains these approvals and ensures surveillance of safety profiles for all Aventis compounds (both in development and marketed).

New disease area focus announced

        In September 2002, we announced plans to focus our research activities on certain key disease areas in which we intend to build leadership positions. We have decided to reinforce our efforts in the therapeutic areas of oncology, diabetes and thrombosis. In addition, we will focus our research efforts in areas such as Alzheimer's disease, asthma, coronary heart disease, multiple sclerosis, rheumatoid arthritis, schizophrenia and chronic viral infections, as we believe these areas will provide opportunities for us to leverage existing in-house scientific expertise, and to develop innovative therapies which address critical medical needs. In parallel, research will be focused on the vaccine and immunological approaches currently conducted at Aventis Pasteur. For the anti-bacterial and anti-fungal research activities, Aventis plans to create a partnership to leverage and further develop existing expertise in this area.

        In July, our bone research and development activities located at the Romainville site near Paris, France were transferred to ProSkelia, a newly created pharmaceutical research and development company

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specializing in bone diseases. ProSkelia's capital is held by U.S. venture capital firm Warburg Pincus (58%) and Aventis (42%). ProSkelia employs approximately 90 people.

        We plan to establish a Business and Technology Center at Romainville, which will be home to the new anti-infectives partnership and ProSkelia. The new center will provide technology companies with an attractive and competitive infrastructure that caters to their research and development needs and is expected to create new employment opportunities.

Reinforced alliance strategy

        In order to supplement our organic growth and support our principal goal of bringing innovative, new prescription drugs and human vaccines of high medical importance to the market, we are actively pursuing a targeted in-licensing and technology alliance strategy. We are also aiming to complement our strengths in select therapeutic areas by entering into co-development and co-commercialization agreements with biotechnology firms and other pharmaceutical companies. Several promising drug candidates for key therapeutic areas such as oncology, diabetes and asthma have been added to the portfolio during the last two years. They include:

        DiaPep277, a new diabetes therapy that has shown promising results in phase II clinical trials. DiaPep277 is being developed for the prevention and treatment of latent autoimmune diabetes in adults (LADA) and type 1 diabetes. We entered an exclusive worldwide license agreement with Peptor Ltd. for this new drug in July.

        Genasense, an antisense drug candidate currently in multiple phase II and phase III clinical trials to test its ability to enhance the effectiveness of chemotherapy in patients with both hematologic cancers and solid tumors. This compound is being developed and commercialized jointly by Aventis and Genta Inc.

        Alvesco (ciclesonide) is an inhaled corticosteroid for the treatment of asthma. Currently in phase III trials, Alvesco is demonstrating excellent efficacy without corticosteroid-associated systemic side effects. We are developing Alvesco in collaboration with Altana Pharma and will co-commercialize the product in the U.S.

Major strategic partnerships include:

Compound

  Partner

  Indication

Actonel   Procter & Gamble   Osteoporosis
Alvesco   Altana Pharma   Asthma
Anti-inflammatory compounds   Inflazyme   Asthma
AVE-8062   Ajinomoto   Cancer
Campto   Yakult   Cancer
CpG immunomodulators   Coley   Asthma and allergic rhinitis
Copaxone   Teva Pharmaceuticals   Multiple sclerosis
CRF-1 antagonists   Neurogen   Anxiety/depression
DiaPep277   Peptor   Diabetes
Dynepo   Transkaryotic Therapies   Anemia
Exubera   Pfizer   Diabetes
Genasense   Genta   Cancer
Nicotinic agonists   Targocept   Alzheimer's disease
Pralnacasan   Vertex   Arthritis (RA and OA)
SERM   ProSkelia   Bone diseases
Tavanic   Daiichi   Bacterial infections

        In order to increase the productivity of our in-house drug innovation and approval efforts, we leverage external know-how, technologies and innovation by collaborating on preclinical research, development and technology projects with biotechnology companies, other pharmaceutical companies and scientific institutions. We currently have more than 300 collaborations with academic institutions and biotechnology companies worldwide.

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Major technology alliances include:

Partner

  Area of collaboration

Affymetrix   Gene chips
Celera   Genomics data base and Cathepsin S for inflammatory diseases
Incyte Pharmaceuticals   Genomics data base
Millennium Pharmaceuticals   Inflammatory diseases and technology transfer
PPD Discovery   Cancer functional genomics
ProCorde   Cardiovascular functional genomics

Human Vaccines

        The research and development efforts of our human vaccines business Aventis Pasteur are focused on developing preventive and therapeutic vaccines, improving existing vaccines and simplifying administration methods.

        The research and development organization of Aventis Pasteur comprises approximately 1,000 scientists located at three research and development centers in Marcy l'Etoile, France, Toronto, Canada and Swiftwater, Pennsylvania, U.S. Aventis Pasteur devotes 17% of its sales to research and development of new vaccines.

        Research and development efforts at Aventis Pasteur are currently concentrated on six major programs:

      New pediatric combination vaccines: New combinations incorporating an acellular pertussis valence are in development to protect children against multiple diseases with a limited number of injections. We are also working on a vaccine protecting against five diseases (diphtheria, tetanus, polio, whooping cough and Hib meningitis) for the U.S. market called Pentacel.

      Booster vaccines: These vaccines offer a response to the growing needs of adolescents and adults by extending protection against diphtheria, tetanus, polio and pertussis, with an increasing incidence of pertussis being noticed in this population.

      Respiratory tract infections: New vaccines are being developed against respiratory viral infections (Respiratory Syncytial Virus, influenza, etc.) as well as bacterial infections (S. pneumoniae, etc.).

      Vaccines for travelers and for endemic zones: Phase I clinical trials are underway for the prevention of Dengue fever, a major public health problem in Asia and South America.

      Blood-borne diseases: ALVAC-HIV vaccine candidates are currently being developed in prophylactic and therapeutic approaches. In 2003, a prophylactic vaccine is scheduled to begin phase III trials in Thailand. A new approach with a recombined Tat toxoid protein is in phase I as a therapeutic vaccine.

      Therapeutic vaccines for certain types of cancer: Tumor-associated antigens are being used to elicit tumor- specific responses. The multi-antigen candidate vaccines are targeting melanomas and colorectal cancers (Phase I/II).

        In addition, we are developing the quadrivalent conjugate vaccine Menactra to protect adolescents and infants against meningitis caused by a broad range of serogroups of N. meningitidis.

        In support of research and development projects to improve the efficacy of its vaccines, Aventis Pasteur also develops new technologies, e.g. new adjuvants and administration methods, live vectors (viral and bacterial), and genomics-based approaches to identify target antigens. A number of other targets are being investigated through internal research and development and business development agreements, giving Aventis Pasteur a very promising pipeline.

Strong scientific and business alliances

        Aventis Pasteur has an established international network of collaborations:

      Cancer vaccines: Therion (U.S.), Aphton Corporation (U.S.), Ludwig Institute for Cancer Research (U.S.), National Cancer Institute (U.S.), Karolinska Institute (Sweden), Leiden University (the Netherlands), National Research Council (Canada).

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      Genomics approach: Incyte Pharmaceuticals, Inc. (U.S.), EOS Technologies, Inc. (U.S.), Millennium Pharmaceuticals, Inc. (U.S.).

      Dengue fever vaccine (hemorrhagic fever): Acambis (UK).

      New anti-bacterial vaccines based on lipopolysaccharides: National Research Council (Canada), Oxford University (UK), BioSynth (Italy), University of Stockholm (Sweden).

      AIDS vaccines: Pasteur Institute (France), ANRS (France), National Institutes of Health (U.S.), Walter Reed Institute (U.S.), Eurovac (EU).

      In addition to our relationship with Merck & Co., we have long-standing ties with the Pasteur Institute with respect to certain vaccine research programs.

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Pipeline

        We currently have more than 40 compounds in clinical development, including over 25 in early-stage clinical development and more than 15 in late-stage development. By taking early data-driven decisions, we want to optimize and prioritize our compound portfolio so as to increase the success potential and thus the value of our pipeline. In addition, we are actively pursuing attractive in-licensing opportunities and alliances to strengthen our leading positions in disease areas such as oncology, diabetes, thrombosis and vaccines.

        The following charts are a current snapshot of the Aventis pipeline, with the new products set out below having the highest priority among all our products currently in development. The nature of drug discovery and development is such that not all products can be expected to fulfill expectations or meet with favorable regulatory response, so it is possible that some projects in clinical development will not result in marketable products.


Key Compounds in Phase III Clinical Development

Project(1)

  Disease
  Status
  Planned submission(2)
Alvesco (ciclesonide)(3)   Asthma   Phase III   2003 (U.S.)
Cariporide   Coronary artery bypass graft surgery   Phase III   2003
Genasense(4)   Cancer   Phase III   2003
Glulisine (1964)   Type 1 and 2 diabetes   Phase III   2003
Menactra   Meningitis (vaccine)   Phase III   2004
Pentacel   Pediatric combination vaccine   Phase III   2004 (U.S.)
Exubera(5)   Type 1 and 2 diabetes   Phase III   Tbd

(1)
New chemical/biological entities (NCE/NBE) only.
(2)
United States and European Union (except as otherwise noted).
(3)
Cooperation with Altana Pharma.
(4)
Cooperation with Genta Inc.
(5)
Cooperation with Pfizer.

    Alvesco (ciclesonide) — An inhaled corticosteroid for the treatment of asthma, which Aventis is co-developing and co-promoting in the United States with Altana Pharma. Currently in Phase III trials, ciclesonide is a potentially important advance in asthma therapy due to its excellent efficacy, low side effects and long duration of action. Asthma is a growing market with about 20 million patients in the U.S. alone. Aventis is responsible for regulatory submission in the U.S., which is planned for the second half of 2003.

    Cariporide — A first-in-class heart muscle protectant targeted to reduce the incidence of heart attack and death in patients undergoing coronary artery bypass surgery. Enrollment in EXPEDITION, a phase III trial to determine the ability of cariporide to reduce death and myocardial infarction in patients undergoing coronary artery bypass surgery, was terminated in August 2002.

    Genasense is an antisense drug candidate currently in multiple phase II and phase III clinical trials to test its ability to enhance the effectiveness of chemotherapy in patients with both hematologic cancers and solid tumors. This compound is being developed and will be commercialized jointly by Aventis and Genta Inc.

    Glulisine — This fast-acting insulin analog for type 1 and type 2 diabetes is an important compound intended to broaden the Aventis diabetes portfolio. The international development program for glulisine is designed to achieve competitive labeling at launch, including flexible mealtime dosing and a pump application for continuous subcutaneous infusion. The product is on track for regulatory submissions in the U.S. and EU in 2003.

    Menactra — A quadrivalent conjugate vaccine against N. meningitis in adolescents and infants.

    Pentacel — A vaccine protecting against five diseases (diphtheria, tetanus, polio, whooping cough and Hib meningitis) for the U.S. market.

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      Exubera — A novel approach to delivering insulin in a dry powder formulation by inhalation. Exubera is being developed for patients with type 1 and type 2 diabetes through a collaboration with Pfizer. Phase III efficacy trials have been completed and additional studies are underway to strengthen the long-term safety data. Regulatory filings in the U.S. and in Europe are under review pending more comprehensive data analysis.

        Our early-stage pipeline (phase I/II) includes the following compounds:

Project
  Disease
New-generation taxoids   Cancer

Flavopiridol

 

Cancer

AVE-8062

 

Cancer

ALVAC-CEA vaccine

 

Colorectal tumors

ALVAC-gp100 vaccine

 

Melanoma

ALVAC-HIV vaccine

 

HIV

RSV vaccine

 

Respiratory viral infections

Pralnacasan

 

Arthritis

AVE-7688

 

Hypertension

HP-184

 

Spinal cord injury

NV1FGF

 

Peripheral vascular disease

Teriflunomide

 

Multiple sclerosis

Anti-inflammatory compounds

 

Asthma

DiaPep277

 

Diabetes

Antiobesics

 

Obesity

Guanylate cyclase activators

 

Angina

100,907

 

Sleep disorders

CRF-1 antagonists

 

Depression/anxiety

SERM 3471

 

Postmenopausal osteoporosis

Factor Xa inhibitors

 

Thrombosis
      Two new-generation taxoids acting as chemotherapy agents have demonstrated a broad spectrum of antitumor activity in taxoid-resistant tumor cell lines. The safety profile of these novel cytotoxics appears similar to that of Taxotere. Phase II studies are underway.

      Flavopiridol — This innovative chemotherapeutic agent inhibits cyclin-dependent kinases through cell cycle arrest and cell death. Flavopiridol has demonstrated synergistic effects in combination with other cytotoxic agents and has also shown antitumor activity in early clinical studies. Aventis is initiating combination trials for flavopiridol with the chemotherapy agents Taxotere targeting lung cancer and Campto targeting colon cancer.

      AVE-8062 is a novel compound for the treatment of cancer, which has demonstrated its potential efficacy in attacking tumor cells by cutting off a tumor's vital supply of blood. The worldwide rights to develop, manufacture and market AVE-8062 have been licensed to Aventis by Ajinomoto Co. Inc. of Japan.

      ALVAC-CEA, a therapeutic vaccine for colorectal cancer, is designed to induce T-cell and antibody responses directed against specific cancer cells bearing the tumor-associated antigen CEA. Phase I studies in patients with advanced colorectal cancer have demonstrated immune responses generated against CEA, and disease stabilization was observed in one-third of the patients studied over a two-year period. A second-generation vaccine is intended to target multiple antigens.

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      Pralnacasan, a novel anti-inflammatory drug candidate has completed a phase II proof-of-mechanism trial in rheumatoid arthritis which demonstrated its ability to inhibit key mediators of joint inflammation and destruction by a novel mechanism of action. It has advanced into phase IIb. Proof-of-concept studies in osteoarthrits began in late 2002. Pralnacasan is being developed in cooperation with Vertex Pharmaceuticals Inc.

      AVE-7688, a new compound for the treatment of hypertension and congestive heart failure is currently in phase I.

      HP-184 for improving function in chronic spinal cord injury. Data from preclinical trials have indicated improved nerve conduction and ambulation and Aventis expects that this compound will reduce neuropathic pain in patients.

      NV1FGF is a proprietary plasmid-based gene therapy that offers an innovative approach to induce the formation of new blood vessels. This compound is designed to help people who might otherwise face limb amputation due to lack of blood supply to the legs. Data from a phase I study demonstrated significant improvement in blood flow, healing of ulcerations, increasing skin oxygenation and pain reduction as well as formation of new blood vessels in arteriograms. Phase II trials are in progress.

      Teriflunomide is an orally active immunomodulator that is being developed for the treatment of multiple sclerosis.

      Anti-inflammatory compounds for asthma are currently in phase I/IIa, and have demonstrated high potency and a good pharmacokinetic profile. This new class of non-corticosteroid oral anti-inflammatory agents is being developed in cooperation with Inflazyme.

      Anti-obesity drug candidates are currently in phase I trials.

      Guanylate cyclase activators for the treatment of angina pectoris are currently in phase I to study their ability to relax blood vessels.

      100,907 is a novel therapy for treatment of sleep disorders. As a selective serotonin (5-HT2a) antagonist, 100,907 demonstrated benefit in a recently completed phase I study. While sleep-inducing drugs often lead to tolerance and "rebound" effects during the night, 100,907 could reduce the number of night-time awakenings. Phase IIa proof-of-concept studies are in progress.

      CRF-1 antagonists for the treatment of depression and anxiety are being developed in cooperation with Neurogen Corp.

      SERM 3471 is a selective estrogen receptor modulator for the treatment and prevention of post-menopausal osteoporosis in cooperation with ProSkelia.

      Factor Xa inhibitors are novel agents for the treatment and prevention of arterial and venous thrombosis that very selectively inhibit the plasma coagulation Factor Xa. This new generation of agents offers the potential to inhibit coagulation without the unwanted side effect of bleeding often observed with other antithrombotics.

        In addition to these primary development projects, several major line extensions are in clinical development. Line extensions are important elements of our growth, since many of our products are still in the early stages of their life cycle. We believe products such as Lovenox, Taxotere, Lantus and Actonel have significant growth potential ahead of them, and successful additional indications, formulations, market entries and line extensions would expand the breadth and depth of these products.

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Key Line Extensions in Clinical Development

Product
  Indication
  Planned submission
Allegra   Perennial allergic rhinitis   2003 (U.S.)

 

 

Allegra-D once-daily

 

2003 (U.S.)

 

 

Orally disintegrating tablet

 

2003 (U.S.)

 

 

Asthma

 

2004 (U.S.)

Campto

 

Gastric cancer

 

2003 (EU)

 

 

Colorectal cancer adjuvant

 

2004 (EU)

Ketek

 

Pediatric use

 

2004 (U.S./EU)

Lovenox

 

Deep vein thrombosis prophylaxis

 

2003 (Japan)

 

 

ST-elevated heart attack

 

2004 (U.S./EU)

Taxotere

 

Gastric cancer

 

2003 (U.S./EU)

 

 

Adjuvant breast cancer

 

2003 (U.S./EU)

 

 

Prostate cancer

 

2003 (U.S./EU)

 

 

Neoadjuvant head & neck cancer

 

2004 (U.S./EU)

Regulatory achievements in 2002/3

Product
  Indication
  Achievements
Actonel (NCE)   Osteoporosis   Approved in Japan (January)
Actonel (LE)   Once-a week dosing   Approved in the U.S. (May); EU (December)
Allegra (LE)   Skin disease   Approved in Japan (April)
    Pediatric tablets   Submitted in the UK (EU-RMS) (March)
    Pediatric exclusivity   Approved in the U.S. (January 2003)
Daptacel   Diphtheria, tetanus and pertussis vaccine   Approved in the U.S. (May)
Fluzone Preservative-free   Pediatric dose influenza vaccine   Approved in the U.S. (September)
Ketek (NCE)   Respiratory tract infections   Submitted in Japan (January); FDA approvable letter (January 2003)
Lantus (NCE)   Diabetes   Submitted in Japan (April)
Lantus (LE)   Flexible dosing   Submitted in the EU/U.S. (June); approved in the EU (December)
Lantus (LE)   Pediatrics   Submitted in the EU (June)
Taxotere (LE)   1st line NSCLC   Submitted in the EU/U.S. (February)
Approved in the U.S. (November) and the EU (January 2003)
    Esophageal cancer   Submitted in Japan (August)
Repevax   Diphtheria, tetanus, pertussis, polio vaccine   Approved in the EU (June)
Viatim   Typhoid fever and hepatitis A vaccine   Approved in the EU (July)

        EU-RMS = European Union Reference Member State for Mutual Recognition Procedure

        NCE = New Chemical Entity

        LE = Line Extension

        NSCLC = Non-small-cell lung cancer

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Geographic Markets

        We generate the majority of our sales in the world's four largest pharmaceutical markets – the United States, France, Germany and Japan. In 2002, these countries accounted for 63.5% of core business sales compared to 61.9% in 2001.

        The United States, which is the world's largest pharmaceutical market, accounted for 39% of our core business sales in 2002 versus 36% in 2001. In 2002, Aventis was the largest research-based pharmaceutical company in both France and Germany. In Japan, we are aiming to establish Aventis as one of the leading non-domestic pharmaceutical companies.

        With a presence in more than 100 countries, Aventis is well-positioned in other important areas of the world to meet the growing needs of patients for innovative therapeutic and preventive healthcare solutions.

      In Europe, which accounts for a 23% share of the global pharmaceutical market, Aventis is the third-largest pharmaceutical company. We have a very strong commercial, manufacturing and research presence in the region, particularly in France, Germany, the United Kingdom and Italy.

      Aventis has sales and production operations throughout Asia-Pacific. In Japan, which is the world's second-largest national pharmaceutical market, we are aiming to expand by pursuing key regulatory filings, new indications and line extension approvals for our strategic brands. In 2002, we submitted New Drug Applications for Ketek and Lantus. In addition, Taxotere was submitted for approval in esophageal cancer. Actonel was approved and launched in Japan in 2002 and Allegra was approved and launched for itching associated with certain skin diseases. In early 2003, Lovenox will be submitted in Japan for the prevention of deep-vein thrombosis.

      In Latin America, Aventis is structured into four geographic areas: Brazil, Mexico, Southern Cone and CANAM, which encompasses the Andean region, Central America, and Caribbean countries. The regional headquarters of Aventis in Latin America are in São Paulo, Brazil. Business is supported by industrial sites located in Mexico, Brazil, Argentina, Venezuela and Guatemala. In terms of sales, Mexico ranks seventh and Brazil tenth in the top ten Aventis countries.


Aventis Core Businesses – Sales by Country(1)

 
  YTD
2002

  YTD
2001

  Activity
variance(2)

  Structure
variance

 
 
  (in € million)

   
   
 
United States   6,859   5,964   21.4 %    
France   2,295   2,245   4.7 % -2.3 %
Germany   1,086   1,058   2.9 % -0.3 %
Japan   923   987   2.7 % –1.5 %
Italy   628   586   7.2 %    
United Kingdom   448   373   21.4 %    
Mexico   396   416   3.6 %    
Canada   387   371   11.4 %    
Spain   328   312   5.5 % -0.4 %
Brazil   287   349   4.3 %    
   
 
         
Subtotal   13,639   12,663   13.1 % -0.6 %
in % of total   77.5   76.4          
Other countries   3,952   3,912   6.9 % 1.8 %
   
 
         
Total Net Sales   17,591   16,576   11.6 %    
   
 
         

(1)
Unaudited.
(2)
On a comparable basis.

        For a comprehensive breakdown of our group sales by geographic region, we refer you to Note 26 to the Aventis Consolidated Financial Statements included at Item 18 of this report.

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Marketing and Distribution

        Aventis has a global sales force of nearly 20,000, including approximately 4,400 representatives in the United States. These representatives present the therapeutic and economic benefits of our products to physicians, pharmacists, hospitals, insurance groups, managed care organizations and other customers.

        During 2002, we successfully implemented initiatives to maximize the commercial value of our global strategic brands by fundamentally changing the way we manage their launch and life cycle. Cross-functional teams of business leaders from key countries jointly develop ambitious, locally driven global brand plan strategies aimed at achieving higher peak sales for our key strategic brands. By deploying more rigorous forecasting models based on data from systematic market research, we aim to proactively shape the market and our products.

        In order to enhance interactions between Aventis representatives and physicians, we are making use of virtual detailing and Web-enabled videoconferencing, for example via iPhysician.Net. Virtual detailing technologies are being deployed to increase the quality and efficacy of communications with physicians.

        In the United States, certain products such as the seasonal allergy drug Allegra and the flu vaccine Fluzone are also marketed directly to consumers by way of television, newspaper and magazine advertising.

        Aventis operates the e-commerce site VaccineShoppe (www.vaccineshoppe.com) in the U.S., which offers healthcare professionals the opportunity to go online for secure, automated product ordering. The site features immediate pricing confirmation and order-tracking functions as well as complete prescribing information for all Aventis vaccines and products.

        While seasonality does not impact the core pharmaceutical business significantly, sales of individual products such as the allergy drug Allegra/Telfast and flu vaccines may reflect seasonal fluctuations in demand. In the northern hemisphere, for example, approximately 80% to 85% of flu vaccine sales are generated between August and November.

        Although specific distribution patterns vary by country, Aventis generally sells its prescription drugs primarily to wholesale drug distributors, independent and chain retail drug outlets, physicians, hospitals, clinics, managed care organizations and government institutions.

        Aventis also pursues co-promotion/co-marketing opportunities with other companies when economically attractive. Major arrangements currently include an agreement with Procter & Gamble for the osteoporosis drug Actonel, with Teva Pharmaceuticals for the multiple sclerosis drug Copaxone, with Yakult for Campto, and with Daiichi for Tavanic.

    Competition

        Aventis operates in a global environment in which our pharmaceutical products compete primarily against other branded, patented drugs from large national and international competitors. However, we may also face competition, sometimes significant, from generic prescription products, which typically enter the market as patent protection and regulatory exclusivity expire, but they may also gain entry to the market through successfully challenging patents of the innovator company. Aventis also can be subject to competition from over-the-counter and behind-the-counter products, i.e. drugs available without a prescription but only dispensable by a trained pharmacist. This is often the case when, for example, a significant competing prescription drug switches to over-the-counter status, or a competing U.S. prescription product might be sold behind-the-counter in another country while our product is sold by prescription there.

        Another competitive issue facing pharmaceutical manufacturers is the increasing prevalence of parallel trade, which takes place when drugs sold abroad under the same trade name as in the domestic market are then imported into the home market by parallel traders, who repackage and resize the original branded product. The rationale for parallel imports lies in economic advantages arising from different prices for the drugs due to different sales costs, market conditions (e.g. intermediate trading stages) and tax rates or because of national price fixing arrangements. Although for the past few years parallel trade had been traditionally confined to some markets within the European Union, there are signs that it is now taking a foothold in several other regions including South Africa, the Philippines, India, Russia and Israel, and is expanding into eastern Europe under the EU Enlargement program.

        The global pharmaceutical industry, which is highly fragmented, is undergoing a process of consolidation worldwide, driven by rising research and development costs for new therapies, healthcare cost-containment efforts and the desire to achieve synergies and economies of scale. The ten leading

34



producers account for about 46% of the market, with no single company estimated to account for more than 8% of total global pharmaceutical sales in 2002. Individual companies may have much higher market shares in specific countries or within a targeted therapeutic area. Our principal competitors are other international research-based pharmaceutical companies, particularly AstraZeneca, Bristol Myers Squibb, Eli Lilly, GlaxoSmithKline, Merck & Co., Novartis, Pfizer, Pharmacia, Roche, Sanofi-Synthélabo and Wyeth. In the human vaccines business, four main players control approximately 85% of the vaccine market: Wyeth, GlaxoSmithKline, Merck & Co. and Aventis Pasteur, each of which holds a roughly equivalent market share.

    Regulation

        The pharmaceutical industry is highly regulated. Government laws and regulations control testing, approval, manufacturing, labeling and marketing. Significant clinical trials must be conducted to establish for the satisfaction of regulatory authorities that proposed new products are safe and effective. Monitoring of adverse reaction reports continues after approval to assess a drug's continued safety. Regulatory authorities in many countries establish prices for many products. These requirements – which vary according to product and the jurisdiction concerned – are significant factors in determining whether a compound can be developed into a marketable product and in which markets it can be sold.

Product Regulation

        Prescription pharmaceuticals must receive regulatory approval before they can be marketed in individual countries. The regulatory requirements follow stringent standards that vary among different countries. In general, before a drug can qualify for marketing approval, a registration dossier must be submitted to a regulatory authority for review and evaluation. The registration dossier principally contains detailed information about the safety and efficacy of a new medication. It also provides details about the manufacturing process, the proposed production facility and information to be provided to patients. The registration process can last from a few months to several years and depends, among other things, on the jurisdiction in which the review takes place, the nature of the medication under review, the quality of the submitted data and the efficiency of the review procedure.

        If a drug meets the approval requirements, a regulatory authority may grant a product license for marketing. After the product launch and during marketing, the manufacturer monitors for potential adverse reactions and reports information as appropriate to the relevant regulatory authorities.

        The process of developing a pharmaceutical product from discovery through testing, registration and initial product launch typically takes 10 to 15 years and, according to recent research by the Tufts Center for Drug Development, exceeds US$ 800 million. There are three phases to clinical testing of unapproved new compounds in humans:

      Phase I involves the first trial of a new compound in humans. The focus at this phase is an assessment of clinical safety, tolerability, and metabolic and pharmacologic properties. Testing generally is performed in a small number of human volunteers.

      Phase II trials are controlled clinical studies that test the safety and efficacy of the compound in several hundred patients with the targeted disease. The goals of this phase include determining the appropriate dose(s) for further testing and evaluating potential study endpoints, as well as identifying common side effects and risks that may be associated with the drug.

      Phase III trials establish safety and effectiveness for regulatory approval for indicated uses and to evaluate overall benefit-risk relationship. These studies usually include from several hundred to several thousand people.

        The results of these clinical trials are then submitted to appropriate regulatory authorities with the objective of obtaining approval to sell the drug. After approval and commercial launch, additional clinical trials may be conducted to further evaluate the safety and efficacy of the products in large patient groups and to investigate potential new applications.

        The principal regulatory authority in the United States is the Food and Drug Administration (FDA), which administers and executes requirements covering the testing, approval, safety, effectiveness,

35



manufacturing, labeling and marketing of prescription pharmaceuticals. Pharmaceutical companies and the FDA follow careful scientific procedures to evaluate drug safety at four distinct stages:

1.
Preclinical safety assessment

2.
Pre-approval safety assessment in humans (clinical trials)

3.
Safety assessment during FDA regulatory review (usually completed in 10 to 12 months)

4.
Postmarketing safety surveillance

        In the European Union, there are two procedures for granting marketing authorization:

      The centralized procedure is compulsory for medicinal products derived from biotechnology and is also available at the request of companies for other innovative products including all new active ingredients. In the centralized procedure the license application is submitted directly to the European Agency for the Evaluation of Medicinal Products (EMEA), in London. After assessing the application, as a rule within the stipulated 210 days the Committee for Proprietary Medicinal Products (CPMP) votes on its acceptance or rejection. Within a further 90 days the European Commission takes a final binding decision. During the decision-making process a Member State can oppose the decision. Approval via the centralized procedure is valid through the European Union without further action and the drug may be marketed within all EU member states.

      The Mutual Recognition Procedure operates by having one country carry out the primary evaluation of a new compound. The other EU member states then have 90 days to decide if they accept or reject the decision made by the reference member state. If the countries do not follow the decision of the reference country, then the process can be referred to the CPMP and will be reviewed there as in the centralized procedure. The European Commission makes the formal decision based on this evaluation. Taking into account the Commission's decision, each member state will individually make a decision with respect to the application, which may or may not be consistent with the Commission's decision.

        In Japan, although the Japanese regulatory authorities now recognize foreign clinical data developed outside of Japan, we still face two particular challenges that make the approval process sometimes difficult for drugs developed outside of Japan. First, the Japanese regulatory authorities request so-called "bridging studies" to verify that foreign clinical data is applicable to Japanese patients. Second, the Japanese authorities require the tests to determine appropriate dosages for Japanese patients be conducted on Japanese patient volunteers. Due to these requests, delays of two or three years in introducing a drug developed outside Japan to the Japanese market are possible.

        In recent years, efforts have been made between the European Union, the United States and Japan to achieve shorter development and registration times for medicinal products by harmonizing the individual requirements of the three regions. The process is called the International Conference on Harmonization. For the foreseeable future, however, approval must be obtained in each market.

Price Controls

        In most markets in which Aventis operates, governments exercise some degree of control over pharmaceutical prices. The nature of these controls and their effect on the pharmaceutical industry vary greatly from country to country. In recent years, national healthcare reimbursement policies have become more stringent in a number of countries in which we do business as part of an overall effort to reduce the cost of healthcare. Different methods are applied to both the demand and supply side to control pharmaceutical costs, such as reference pricing, patient co-payment requirements, reimbursement limitations and volume containment measures.

        We believe that the governments in markets important to our businesses will continue to enact measures in the future aimed at reducing the cost of pharmaceutical products to the public. It cannot be predicted with certainty what future effects the various pharmaceutical price control efforts will have on our pharmaceutical business. These efforts could have significant adverse consequences for the pharmaceutical industry as a whole and consequently, also for Aventis. Increasing budgeting and price controls, the inclusion of patent-protected drugs in fixed price systems and approved drug lists and other similar measures may continue to occur in the future.

        United States.    In the United States, Medicaid, Medicare and other healthcare programs govern provider reimbursement levels in many cases. The Medicaid program requires that pharmaceutical manufacturers pay

36



rebates to individual states on Medicaid reimbursed pharmaceutical products so that the Medicaid program receives the manufacturer's "Best price." U.S. federal and state governments are actively seeking ways to reduce the costs of pharmaceutical products paid for with federal and state funds. Further attempts to reform Medicaid/Medicare can be expected to shift public sector beneficiaries from traditional fee-for-service coverage into managed care plans.

        France.    In France, the government regulates prices on new prescription pharmaceutical products and price increases on existing drugs. In 2002, the French government introduced another new set of healthcare reforms known as the "Mattei Plan." This plan is aimed at redefining reimbursement conditions and criteria for the pricing of pharmaceutical products through the Drug Pricing Committee, and encouraging generic drug development. In June 2002, French doctors and health insurers reached an agreement under which doctors were given an incentive to prescribe by international non-proprietary names (INN). A new reference pricing system is to be introduced in France in July 2003 under which the government will reimburse off-patent products only up to a certain level with patients paying the remainder. In addition, the French health ministry has proposed to delist several hundreds products of "insufficient" medical benefit. In return, the government introduced the principle of a "fast-track" procedure to set prices and provide reimbursement for new innovative drugs. This measure could extend by many months the commercialization duration under patent.

        Japan.    The Ministry for Health, Labor and Welfare ("MHLW") controls the pricing of pharmaceutical products in Japan. The MHLW determines the drug reimbursement price paid by the National Health Institute ("NHI") to medical institutions. The NHI drug reimbursement price is determined for each prescription drug by the MHLW. The price of a new drug is based on the daily price of comparable drugs, with certain premiums added as necessary. Since the price at which medical institutions purchase drugs can be set at a price lower than the reimbursement price through negotiation with wholesalers, a gap may exist between the selling price and the NHI drug price. Periodically, the MHLW carries out a revision of drug reimbursement prices aimed at bringing NHI prices closer to the market prices.

        Germany.    Since the late 1980s the German government has imposed a wide range of supply- and demand-side restrictions intended to curb the level of overall spending on pharmaceuticals. A reference pricing system that requires patients to pay the difference between the actual price of the prescribed drug and the reference price has been in existence since 1989. In practice, patients are not generally willing to pay the difference. As a result, pharmaceutical companies face the decision either to adopt the reimbursement price or risk a substantial drop in prescriptions. Since 1993, all prescription drugs have been subject to patient co-payments that depend on the pack size. In order to restrict the prescribing practices of physicians, prescription drug budgets for physicians were in effect from 1993 through the end of 2001. Physicians were penalized if they exceeded their budgets. New legislation replacing these budgets requires the negotiation of pharmaceutical expenditures between the Institutes of Statutory Health Insurance (SHI) and the National Association of SHI-accredited Physicians, and individual prescription limits for physicians. The objectives of the legislation include an increase in the prescribing of generic and imported drugs. In addition, sickness funds and pharmacists have agreed on a quota for sales of imported pharmaceuticals (parallel imports) of 5.5% of the German market for 2002, which will increase to 7% in 2003. To encourage greater use of generics, generic substitution by pharmacists, commonly referred to as the aut-idem law, was introduced in February 2002. Under healthcare legislation that came into effect on January 1, 2003, pharmaceutical companies are required to provide a 6% rebate on innovative medicines which are not covered by pharmacy substitution or reference pricing but are reimbursed by the statutory health insurance.

        Italy.    A series of cost-cutting initiatives were introduced in Italy in 2002, including the introduction of a reference pricing system and a 5% pharmaceutical price cut. A new reimbursement system, which will set maximum reimbursement limits by therapeutic class, is expected to take effect in January 2003. Under the new system, government reimbursements will be set at a level determined by the Health Ministry's Pharmaceutical Committee (CUF) based on sales by defined daily dose for all active ingredients. Products priced at levels above the reference prices will no longer be reimbursed unless their prices are cut. The maximum price reduction per product has been set at 13%.

        United Kingdom.    The Department of Health has power, now contained in the Health Act 1999, to limit prices of pharmaceuticals and control the profits of pharmaceutical companies. Against this background, a voluntary agreement called the Pharmaceutical Price Regulation Scheme (PPRS) has been concluded between the industry association and the Department of Health. Within a framework relating to profit (as defined), manufacturers are free to set initial prices but restricted in making subsequent price changes. The current form of the PPRS runs from 1999 to 2004. The National Institute for Clinical Excellence (NICE) is empowered

37



to issue guidelines in relation to therapeutic areas and guidance on the clinical effectiveness and cost effectiveness of particular treatments. Guidance by NICE influences the extent to which supply of the product is financed within the National Health Service.

    Intellectual Property

        Aventis invested € 3.14 billion in core business R&D activities in 2002, and we are committed to rigorously protecting the value of the intellectual property associated with these activities.

        Intellectual property includes patents, trademarks, registered designs and copyrights as well as all of the inventions and innovations of significant commercial value which arise from our drug discovery, development, manufacturing, marketing and other business activities.

        Aventis has obtained patents covering our important pharmaceutical products in major markets and we intend to secure patent protection for products currently under development. We routinely monitor the activities of our competitors relating to our intellectual property, and we intend to enforce our intellectual property rights as necessary.

        In the United States, the Hatch-Waxman Act of 1984 significantly influences the effectiveness of regulatory protection for prescription drugs (other than biological products). This Act assures that a newly approved drug or indication benefits from a statutory period of exclusivity (five years for a new drug and three years for a new indication for an existing drug) during which the U.S. Food and Drug Administration (FDA) will not grant marketing approval to generic competitors, even in the absence of patent protection on the original product. However, the expiration of the five-year exclusivity period does not reduce any patent protection that may otherwise apply. The same Act, however, has greatly accelerated the approval process for generic competitors using the same active ingredients once the statutory exclusivity (also referred to as "data exclusivity") has expired. The Act may actually encourage more aggressive legal challenges to the patent protection of the original products.

        Our portfolio of strategic brands sold in the United States is subject to the overlapping provisions of patent protection and Hatch-Waxman "data exclusivity." These products may be subject to increased risk of competition from generics approved by the FDA. In particular, "data exclusivity" has expired with respect to a number of our products, including some strategic brands, and applications for approval of generic versions have been, or at any time can be, filed by third parties. The following is a description of U.S. patent and "data exclusivity" coverage of our strategic brands sold in the United States:

Actonel (risedronate sodium)

        Procter & Gamble holds the New Drug Application (NDA) for Actonel that was filed with the FDA. The U.S. patent claiming the active ingredient, risedronate sodium, as a compound expires in December 2013, and patents covering different formulations expire in 2017 and 2018. This drug has non-patent "data exclusivity" as a new chemical entity until March 2003 and non-patent "data exclusivity" covering various indications that expires in April 2003.

Allegra/Telfast (fexofenadine)

        Aventis Pharmaceuticals Inc., the U.S. pharmaceutical business of Aventis, filed patent infringement lawsuits against Barr Laboratories, Inc., in August and September of 2001 and in January 2002 after Barr filed Abbreviated New Drug Applications (ANDAs) seeking authorization to produce and market a generic version of fexofenadine HCl 60 mg capsules, 30, 60 and 180 mg tablets of fexofenadine HCl, and Allegra-D. In addition, Aventis Pharmaceuticals Inc. filed a patent infringement lawsuit against Impax Laboratories in March 2002 after Impax filed an ANDA for a generic version of Allegra-D. In the U.S., Aventis holds multiple method of use, formulation, process and composition patents with respect to Allegra. Under applicable federal law, marketing of FDA-approved generic fexofenadine HCl capsules or tablets or Allegra-D may not commence unless and until a decision favorable to a generic challenger is rendered in the patent litigation or until 30 months have elapsed, whichever comes first. Regulatory exclusivity for tablet formulations of Allegra expires in the third quarter of 2003. In late 2002 and early 2003, three other generic companies filed ANDAs for Allegra products. API has either brought a patent infringement lawsuit or is evaluating its legal options with respect to these additional filings.

Amaryl (glimepiride)

        Non-patent "data exclusivity" for Amaryl expired in November 2000, but the U.S. patent claiming the active ingredient, glimepiride, as a compound does not expire until April 2005.

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Arava (leflunomide)

        Arava has non-patent "data exclusivity" as a new chemical entity until September 2003.

Lantus (insulin glargine)

        Lantus has non-patent "data exclusivity" until October 2005 (extended from April 2005 due to pediatric exclusivity). The patent claiming the active ingredient, insulin glargine, as a compound does not expire until March 2015.

Lovenox/Clexane (enoxaparin sodium)

        Non-patent "data exclusivity" for Lovenox/Clexane as a new chemical entity expired in March 1998. This product currently has non-patent "data exclusivity" covering one indication that expires in late 2003. Aventis holds two U.S. patents relating to Lovenox/Clexane that expire in 2004 and 2012, respectively.

Nasacort (triamcinolone acetonide)

        Nasacort currently has a method of treatment patent expiring in 2007 and Nasacort AQ currently has two formulation patents expiring in 2016. At the present time, this product no longer benefits from non-patent "data exclusivity."

Taxotere (docetaxel)

        Non-patent "data exclusivity" for Taxotere as a new chemical entity expired in May 2001. The U.S. patent claiming the active ingredient, docetaxel, as a compound expires in May 2010, and a number of other U.S. patents covering this drug do not expire until between 2012 and 2013. In addition, non-patent "data exclusivity" covering one indication expired in December 2002.

Delix/Tritace (ramipril)

        Aventis does not market Delix/Tritace in the United States. In the largest markets for this drug, patents claiming the active ingredient, ramipril, as a compound expire in Germany and Great Britain in 2004, in France in 2006 and in Italy in 2010. Aventis holds other patents in certain of these countries that expire between 2005 and 2008. In Canada, the patent claiming the active ingredient as a compound expires in 2018. However, an application for a generic version of Delix/Tritace, which challenges this patent, has been submitted to Canadian regulatory authorities. In addition, an ANDA for a generic has been filed in the U.S., where Aventis manufactures ramipril for the U.S. marketer. If this or any other ANDA for a generic ramipril is approved in the U.S., it could negatively affect Aventis' revenues from manufacturing the product for U.S. distribution.

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Property, Plant & Equipment

        Our principal production plants and manufacturing facilities are located in France, Germany, the United States, the UK, Italy and Singapore.

        The global Industrial Operations function of Aventis, which supplies approximately 450 brands in 29,000 presentation forms, consists of a network of roughly 55 sites in about 30 countries.

        In 2002, Industrial Operations introduced several new initiatives to support the product leadership strategy of Aventis, to align its processes with those of DI&A and Commercial Operations and to differentiate and focus the plant network on strategic and non-strategic brands. As a result, a new product organization and site network structure have been established; the implementation of this site network concept began in 2002.

        Headquartered in Frankfurt, Germany, Industrial Operations comprises:

      Active Pharmaceutical Ingredient (API) Operations, which is responsible for global production, process development and bulk sales of active pharmaceutical ingredients. API employs around 6,500 people in nine countries. The products of API cover 80% of our global demand for active ingredients. API produces more than 300 different active ingredients. Currently, there are 13 Production sites and five Process Development sites.

      Drug Product (DP) Operations, which is responsible for global manufacturing of drug products. DP Operations is divided in the regions North America, France, Germany, North and South Europe, International, Japan and Latin America.

      Global Quality and EHS looks after quality issues at Industrial Operations as well as all environment safety and health issues of Aventis.

      Global Purchasing provides purchasing services for Aventis.

Our major Active Pharmaceutical Ingredient (API) sites are located in:

France

Vitry

        The Vitry site is dedicated to the production of pharmaceutical active ingredients for several therapeutic areas, such as oncology, cardiovascular diseases, anti-infectives, anti-inflammatories and neuroleptics. The area of the site is 210,000 m2 and is FDA-approved.

Vertolaye

        Production at this site, which covers an area of 200,000 m2, is dedicated to pharmaceutical active ingredients, most of them for human use, and a few for veterinary use. The site has been approved by the FDA since 1974. The site is well-equipped and experienced in final processing of active ingredients, including micronization.

Neuville

        The site area is about 300,000 m2 and includes all necessary resources for production, as well as process development. It is FDA approved since 1981.

        Smaller API sites are located in Elbeuf, Le Mans, Ploërmel, Romainville and Villeneuve.

Germany

Frankfurt-Höchst

        The site covers an area of around 4 km2 and is located in the suburb of Höchst, 10 km outside Frankfurt. Within API, seven production plants belong to the chemistry and another five to the biotechnology departments. The site is FDA approved.

Italy

Brindisi

        The Aventis site is dedicated to fermentation (one plant) and the corresponding chemical down-stream processing steps (two plants), covers 150,000 m2. The site is FDA approved.

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Garessio

        The Aventis site is exclusively dedicated to the chemical production of active ingredients and intermediates. It covers 280,000 m2 and is FDA approved.

Jurong, Singapore

        The Aventis site covers an area of 40,000 m2 and employs 100 people in two chemical plants. Aventis has reserved the right to lease an adjacent second plot of land (4,000 m2) which would allow for future expansion. The site mainly produces enoxaparin, the active ingredient of Lovenox. The site is FDA approved.

Ankleshwar, India

        API operates two multi-purpose chemical plants producing active ingredients for the region as well as intermediates for the global API network. The entire site, which is shared with Bayer CropScience, covers an area of 180,000 m2.

Drug Product Operations (DPO) has eight sites with a strategic brand focus:

Location

  Strategic brand
United Kingdom    
  Dagenham   Taxotere, Campto
  Holmes Chapel   Nasacort AQ

France

 

 
  Le Trait   Lovenox
  Maisons-Alfort   Lovenox

Germany

 

 
  Frankfurt-Höchst   Lantus, Insuman, insulin glulisine (1964)

United States

 

 
  Kansas City   Allegra, Amaryl, Tritace, Ketek

Italy

 

 
  Agnani   Targocid, Synercid
  Scoppito   Allegra, Amaryl, Tritace, Ketek

        Drug Product Operation sites with a non-strategic brand focus are also located in Compiegne, France; Kawagoe, Japan; Laval (Quebec), Canada; Suzano, Brazil; and Ocoyoacac, Mexico.

        The policy of Aventis is generally to acquire our own facilities or lease them under long-term leases. The net book value of our property, plant and equipment was € 4,455 million as of December 31, 2002. Our pharmaceutical production plants and manufacturing facilities are in full compliance and generally adequate to meet our needs for the foreseeable future. However, we conduct annual reviews of our production plants with regard to environment, health and safety issues, quality compliance and capacity utilization. Based on this review, we record, if necessary, impairment losses for the modernization, divestment or closing of specific production plants. We are not aware of any environmental issues that we believe could have a significant effect on the utilization of our industrial assets.

        The locations and size of our manufacturing facilities for human vaccines are as follows:

Marcy l'Etoile; 340,000 m2
Val de Reuil, France: 290,000 m2
Swiftwater, Pennsylvania U.S.A. 1,100,000 m2
Toronto, Canada: 210,000 m2

        For more information on our Property, Plant and Equipment, see "Item 5. Other Material Financial Elements" and Note 3 of the Aventis Consolidated Financial Statements included at Item 18 of this Annual Report.

        For a discussion of environmental factors related to our principal production plants and manufacturing facilities, we refer you to Exhibit 99.1, the "Aventis Sustainability Report for 2002," the portion of which under the caption "Environmental Performance" is incorporated herein by reference.

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Non-Core Businesses

    Aventis CropScience

        In October 2001, Aventis and partner Schering AG of Germany announced the intention to divest Aventis CropScience to Bayer AG in a sale assigning this business an enterprise value of approximately € 7.25 billion, including € 1.9 billion in debt. The transaction closed on June 3, 2002. Bayer is currently seeking a substantial post-closing price adjustment as permitted under Section 6 of the stock purchase agreement between us and Bayer. Bayer also has requested compensation for damages it claims to have suffered as a result of alleged inaccurancies in contractual representations and warranties. Aventis has recorded provisions that it believes will be sufficient to cover potential liability to Bayer. Up until its disposal in June 2002, Aventis CropScience generated consolidated sales for Aventis of € 1,831 million compared to € 4,303 million for all of 2001.

    Aventis Animal Nutrition

        In April 2002, we completed the sale of the animal nutrition business to CVC Capital Partners Ltd., a Europe-based financial private equity company. Up until its disposal in April 2002, the animal nutrition business generated consolidated sales for Aventis of € 143 million compared to € 572 million for all of 2001.

    Aventis Behring

        The therapeutic proteins business, Aventis Behring, is a global leader in the therapeutic protein and recombinant products industry, providing a wide range of innovative, high quality therapies and unique support services to patients worldwide. Sales in 2002 totaled € 1,068 million, which compares with € 1,129 million in 2001.

    Rhodia

        As of December 31, 2002, Aventis held a 25.2% equity stake in the specialty chemicals group Rhodia, which was formerly a unit of Rhône-Poulenc and was listed on the Paris stock exchange as well as the New York Stock Exchange in 1998. After the listing, Rhône-Poulenc continued to divest its interest in Rhodia through a secondary placement of Rhodia shares and an issuance of notes exchangeable into the remaining Rhodia shares held by Aventis. The notes had a principal amount of € 23.22 each and were exchangeable at the option of the holder into one share of Rhodia until October 2003 (subject to early redemption rights of Aventis). On November 29, Aventis launched a cash tender offer with respect to all of its 45,211,662 outstanding 3.25% exchangeable bonds due October 22, 2003, nominal value € 23.22 each. Following the five-day offer period that closed on December 5, 2002, almost all the bonds had been tendered, and Aventis acquired 98.6% of the bonds initially issued. This level was well above the 80% minimum acceptance threshold and Aventis has exercised its early redemption option on all the outstanding bonds. The early redemption was completed on January 17, 2003. This tender offer and redemption will provide Aventis with increased flexibility regarding the disposal of its stake in Rhodia. In connection with our 1999 business combination, we have committed to the European Commission that we will complete this disposal by April 2004.

    Wacker

        In December 2000, we agreed to sell our 50% stake in Wacker-Chemie GmbH, a 50-50 joint venture between Hoechst and the Wacker family trust, to the Wacker family in two stages. In the first stage carried out in January 2001, Alexander Wacker Familien GmbH, a holding company in which the remaining 50% stake in Wacker is held, acquired the majority of voting rights in Wacker via a capital increase, and gained management control over the group. Hoechst is currently in discussions with the Wacker family concerning the terms and the timing of the second stage of the transaction.

    DyStar

        Aventis, through its Hoechst subsidiary, holds a 35% stake in DyStar, a global leader in the textile dyes business. In October 2000, DyStar was enlarged to include the textile dyes business of BASF, a former principal competitor, from its prior status as a 50–50 joint venture between Hoechst and Bayer. Under the new structure, Hoechst and Bayer each hold a 35% stake and BASF holds 30%.

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    Dade Behring

        Dade Behring, a leading diagnostics company, was formed in 1997 through the combination of Hoechst's diagnostics business, Behring Diagnostics, with Dade International. We have classified our stake in Dade Behring as a non-strategic holding since January 1, 2001 and wrote off its book value in full in 2001.

        On August 1, 2002 Dade Behring filed for a voluntary reorganization under Chapter 11 of the U.S. bankruptcy law. On October 3, Dade Behring emerged from Chapter 11. At that point Aventis contributed its 51.8% stake and is now no longer a shareholder.

43


44



Item 5.    Operating and Financial Review and Prospects

        We have prepared the Aventis Consolidated Financial Statements included in this Annual Report at "Item 18" in accordance with French generally accepted accounting principles. The differences between these accounting principles and those generally accepted in the United States, commonly referred to as U.S. GAAP, that have a material impact on the Aventis Consolidated Financial Statements are described in Note 34 to the Aventis Consolidated Financial Statements included in this Annual Report, together with the reconciliation of our net income and selected other items to U.S. GAAP.


Aventis Results of Operations: 2002 compared to 2001

    Overview of 2002: Sustaining Growth as a Pure Pharmaceutical Company

        Having successfully completed the divestiture of the Aventis CropScience and Aventis Animal Nutrition businesses in 2002, we are achieving our goal of becoming a pure pharmaceutical company. However, other activities remain that we classify as non-core businesses. We intend to complete the divestiture of these activities in the near future.

    Core Business

        Our core business comprises activities that the Group considers to be strategic and intends to retain. It includes:

      Prescription drugs

      Human vaccines

      Our 50% equity interest in Merial (animal health) (accounted for using the equity method)

      Corporate activities (comprised mainly of parent and holding companies, financing and insurance entities).

        In May 2002, we set up a new captive insurance and reinsurance company, Carraig, which has an authorized share capital of € 500 million (of which € 200 million has been subscribed).

        Within our core business, we are concentrating on our strategic brands in order to maximize their commercial potential. At the same time, we are continuing to optimize our product and geographic mix. To support our goal of remaining among the fastest-growing multinationals in the pharmaceutical industry, we are leveraging the market potential of our key products and aiming to expand our sales base in the U.S. and other key markets. We are focusing our research activities on key therapeutic areas for which we anticipate strong growth potential to expand our franchises in selected disease areas. With our existing products, planned new products and improved financial flexibility, we believe that we are positioned to deliver sustainable growth for the years ahead.

    Non-Core Business

        The disposal of our non-core activities is nearing completion. During the first half of 2002, we finalized the divestiture of two major non-core activities, Aventis Animal Nutrition and Aventis CropScience. The sale of Aventis CropScience was completed, subject to a post-closing price adjustment clause on June 3, 2002 and the sale of Aventis Animal Nutrition was completed on April 2, 2002 (see "Item 4. Information on the Company—Non-Core Businesses"). These two divestitures contributed to the overall reduction of our Group net debt by € 5.7 billion and enhanced our financial flexibility, offering us the possibility to strengthen our pharmaceutical business through targeted acquisitions and in-licensing agreements. The statements of operations include the income of these activities until the date of their disposal, the result on disposal, as well as other charges related to divested activities, but incurred after the date of disposal.

        We have prepared pro forma condensed financial information for the year ended December 31, 2002 to reflect our disposal of the Aventis CropScience business and Aventis Animal Nutrition as if both of these divestitures had been completed on January 1, 2002, rather than on the actual dates of completion. This information is included in Note 30 to the Aventis Consolidated Financial Statements.

        In 2002 our management determined that the Aventis Behring therapeutic proteins business line would no longer be considered part of our core business. Negotiations are in process to divest this business.

        Our non-core business also includes our interests in the chemical companies Rhodia, Wacker and DyStar, which we account for using the equity method, as well as our 11.8% interest in the specialty

45



chemical company Clariant, which we account for as an investment. We have also entered into an agreement to sell our interests in Wacker (see "Item 4. Information on the Company — Non-Core Businesses — Wacker").

    Financial Information for 2002 and 2001

        Activity and Currency Variance:    We generally include an analysis of net sales in terms of activity variance, which measures the overall effect of changes in volumes and average price levels on our net sales, holding currency conversion effects and structural effects constant between the two periods being compared. As used in this report, currency variance measures the effect of changes in the rates of currency conversion on the nominal net sales amounts reported for the two periods being compared. The variance figures are coefficients and not absolute amounts, which means adding activity variance, structure variance and currency variance will not necessarily give total variance (although the results may coincide due to rounding). Percentages have been calculated before rounding the data.

        Definition of EBITA line as presented in statements of operations:    EBITA is an unaudited non-GAAP measure that we define as operating income (loss), excluding goodwill amortization, plus equity in earnings from affiliated companies. We have included EBITA information because it is one of the measurements we use to assess our financial performance. Our EBITA may not be comparable to EBITA as defined by other companies. We believe EBITA is a measure commonly used by financial analysts and others in the pharmaceutical industry.

        Definition of EBIT line as presented in statements of operations:    EBIT is an unaudited non-GAAP measure that we define as operating income (loss), plus equity in earnings from affiliated companies. We have included EBIT information because it is one of the measurements we use to assess our financial performance. Our EBIT may not be comparable to EBIT as defined by other companies. We believe EBIT is a measure commonly used by financial analysts and others in the pharmaceutical industry.

        Definition of Basic Earnings Per Share (EPS) before goodwill amortization:    Basic EPS before goodwill amortization is an unaudited non-GAAP measure that we define as basic earnings per share (EPS) excluding goodwill amortization. We have included basic EPS before goodwill amortization since we consider this measurement to be relevant to an understanding of the performance of our activities.

46



Aventis Financial Information and Analysis for 2002 and 2001


Statement of Operations

 
  Aventis Group
 
 
  2002
  2001
 
 
  (in € million, except per share information in €)

 
Net sales   20,622   22,941  
Production costs and expenses   (6,578 ) (7,943 )
Selling, general and administrative costs and other revenues – net   (6,705 ) (7,178 )
Research and development   (3,420 ) (3,481 )
Provisions for restructuring   (68 ) (50 )
Goodwill amortization   (1,021 ) (650 )
   
 
 
Operating income   2,830   3,639  
   
 
 
Equity in earnings of affiliated companies   51   85  
Interest expense – net   (309 ) (704 )
Miscellaneous non-operating income and expenses – net   1,120   (134 )
   
 
 
Income before taxes and minority interests   3,692   2,886  
   
 
 
Provision for income taxes   (1,430 ) (1,111 )
Minority interests   (86 ) (142 )
Preferred remuneration   (85 ) (128 )
   
 
 
Net income   2,091   1,505  
   
 
 
Average number of outstanding shares (in million shares)   793   788  
Basic earnings per share (EPS)   2.64   1.91  
Basic EPS before goodwill amortization(1)(2)   3.92   2.74  
EBITA(1)(3)   3,901   4,374  
EBIT(1)(4)   2,881   3,724  

(1)
These lines are unaudited and non-GAAP financial measures.
(2)
Please refer to the paragraph "— Definition of Basic Earnings Per Share (EPS) before goodwill amortization", above.
(3)
Please refer to the paragraph "— Definition of EBITA line as presented in statements of operations", above.
(4)
Please refer to the paragraph "— Definition of EBIT line as presented in statements of operations", above.


COMMENTS ON RESULTS OF OPERATIONS

        Consolidated net sales totaled € 20,622 million in 2002, a decrease of 10.1% from consolidated net sales of € 22,941 million in 2001. This decrease was primarily due to the divestiture of Aventis Animal Nutrition on April 2, 2002 and of Aventis CropScience on June 3, 2002, and was partially offset by growth in our core business. The increase in our core business sales amounted to 6.1% from 2001 with an activity growth of 11.6%. The currency translation effect, which reduced our reported net sales by approximately 5.5%, results mainly from the decline of the U.S. dollar and from Latin American currencies.

        Production costs and expenses totaled € 6,578 million in 2002, a decrease of 17.2% from € 7,943 million in 2001, due primarily to the above-mentioned divestitures.

        Selling, general and administrative costs and other revenues net decreased 6.6% to € 6,705 million from € 7,178 million in 2001, mostly as a result of the above-mentioned divestitures.

        Research and development spending totaled € 3,420 million, compared to € 3,481 million in 2001 and includes € 3,141 million spent on research and development in our core business. A total of € 2,872 million was spent on research and development for prescription drugs and € 269 million on human vaccines.

        Provisions for restructuring totaled € 68 million compared to € 50 million in 2001.

        Goodwill amortization totaled € 1,021 million compared to € 650 million in 2001. Despite the reduction in goodwill amortization related to the disposal of Aventis CropScience, amortization increased in 2002. This increase was mainly caused by the impairment of Aventis Behring goodwill, which amounted to € 448 million.

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        Operating income totaled € 2,830 million in 2002 against € 3,639 million in 2001. This decrease was mainly due to a lower sales base in 2002 as a result of the above-mentioned disposals (Aventis CropScience and Aventis Animal Nutrition) and due to the higher amortization of goodwill as compared to 2001.

        Equity in earnings of affiliated companies totaled € 51 million in 2002 compared to € 85 million in 2001. This decrease is mainly due to the prolonged decline in the market value of Rhodia in 2002. This decline led the Group to record an impairment to reduce the carrying value of its investment to its market value.

        EBITA totaled € 3,901 million in 2002 compared to € 4,374 million in 2001.

        Interest expensenet totaled an expense of € 309 million in 2002 compared to an expense of € 704 million in 2001, due primarily to a reduction in the net financial indebtedness of Aventis (principally as the result of the application to debt reduction of proceeds received on the disposal of businesses) and also due to a reduction in average interest rates.

        Miscellaneous non-operating income and (expenses) – net, totaled an income of € 1,120 million in 2002 compared to an expense of € 134 million in 2001. Gains on sale of assets were recorded under this caption both in 2001 and 2002. In 2002, the gains on sales of assets were € 1,917 million compared to € 545 million in 2001. This increase was due primarily to the gain made on the disposal of Aventis CropScience. The sale resulted in a gain of € 2.07 billion net of an increase of provisions for third party claims.

        Excluding the gains on sale of assets, miscellaneous non-operating income and (expenses) – net totaled an expense of € 797 million in 2002 compared to an expense of € 679 million in 2001.

        The net expense of € 797 million recorded in 2002 included mainly:

      provisions for risks and environmental settlements related to the indemnification agreements with other disposed businesses (mainly Rhodia, Nutrinova and InfraServ Höchst) of € 270 million,

      settlement costs for litigations pertaining to previously disposed products amounting to € 164 million, and

      provisions for various investments amounting to € 234 million (notably Millennium Pharmaceuticals for € 137 million).

        (See Note 23 to the Aventis Consolidated Financial Statements for further information).

        Income before taxes and minority interests was € 3,692 million in 2002 compared to € 2,886 million in 2001.

        Net income was € 2,091 million in 2002 compared to € 1,505 million in 2001.

        Basic Earnings Per Share (EPS) in 2002 were € 2.64 compared to € 1.91 in 2001.

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Condensed Balance Sheet

 
  Aventis Group
 
  2002
  2001
 
  (in € million)

Marketable securities, short-term deposits, cash   1,299   1,514
Other current assets   8,347   11,270
Investments and other assets   5,828   6,445
Property, plant and equipment   4,455   5,740
Intangible assets   11,144   14,264
   
 
Total assets   31,073   39,234
   
 
Other liabilities   14,500   15,106
Debt   4,752   10,710
Redeemable partnership interest   238   284
Minority interests   159   913
Amortizable preferred securities   89   200
Stockholders' equity   11,335   12,021
   
 
Total liabilities   31,073   39,234
   
 

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Consolidated Statements of Cash Flows

 
  2002
  2001
 
 
  (in € million)

 
OPERATING ACTIVITIES:          
Net income (loss) (after income tax and before preferred remuneration)   2,176   1,633  
   
 
 
Elimination of expenses and income without effect on cash:          
Depreciation and amortization of assets   2,216   2,075  
Provisions for losses on operating assets   72   8  
Change in other long-term provisions   981   (81 )
Net capital (gains) from sales of assets   (2,187 ) (545 )
Equity in earnings of affiliated companies, net of dividends received   114   89  
Unrealized exchange differences   (2 ) (111 )
Minority interests in net income of consolidated subsidiaries   86   142  
Deferred tax   143   40  
   
 
 
    1,423   1,617  
   
 
 
Increase/decrease in operating assets and liabilities (excluding net operating assets acquired):          
(Increase)/decrease in accounts receivable   (1,202 ) (372 )
(Increase)/decrease in inventories   (93 ) (38 )
Increase/(decrease) in accounts payable   (165 ) 78  
Change in other operating assets and liabilities   (280 ) 195  
   
 
 
    (1,740 ) (137 )
   
 
 
Net cash provided by operating activities   1,859   3,113  
   
 
 
INVESTING ACTIVITIES:          
Purchase of property, plant and equipment   (1,000 ) (1,245 )
Other capital expenditures   (459 ) (486 )
Proceeds from sales of assets   4,654   1,063  
Increase in loans and short-term investments of more than three months     (52 )
Decrease in loans and short-term investments of more than three months   44    
   
 
 
Net cash (used)/provided by investing activities   3,239   (720 )
   
 
 
FINANCING ACTIVITIES:          
New long-term borrowings   135   5,404  
Repayment of long-term borrowings   (2,931 ) (7,252 )
(Decrease)/Increase in bank overdrafts and short-term borrowings   (1,091 ) (284 )
Issuance of ordinary shares including additional paid-in capital   199   429  
Mandatorily redeemable partnership interest     279  
Repurchase of treasury shares   (383 ) (137 )
Amortization of amortizable preferred securities   (122 ) (85 )
(Purchase) of minority interest   (212 ) (5 )
Dividends paid by the Group   (490 ) (437 )
Preferred remuneration paid   (113 ) (109 )
   
 
 
Net cash (used) by financing activities   (5,008 ) (2,197 )
   
 
 
Net effect of exchange rate changes on cash   (60 ) 15  
   
 
 
Increase/(Decrease) in net cash and cash equivalents   30   211  
   
 
 
Cash and cash equivalents at beginning of year   814   661  
Net effect of consolidation changes on cash and cash equivalents   (88 ) (58 )
   
 
 
CASH AND CASH EQUIVALENTS AT END OF YEAR   756   814  
   
 
 

50



COMMENTS ON CONSOLIDATED CONDENSED BALANCE SHEET
AND CONSOLIDATED STATEMENTS OF CASH FLOWS

    Consolidated Condensed Balance Sheet

        Stockholders' equity before allocation of earnings totaled € 11,335 million as of December 31, 2002, compared to € 12,021 million as of December 31, 2001. The decrease of € 686 million resulted primarily from a reduction in the currency translation reserve, which was caused by the decline in the value of the U.S. dollar in comparison to the euro, and had a negative impact on the translation into euros of the net equity of our U.S. subsidiaries.

        Stockholders' equity plus other funds (including minority interests and amortizable preferred securities) totaled € 11,583 million as of December 31, 2002, compared to € 13,134 million as of December 31, 2001. The net decrease of € 1,551 million resulted primarily from the combined effect of the decrease of stockholders' equity before allocation of earnings and the decrease in minority interests due principally to our disposal of Aventis CropScience.

        Net debt (defined as bank overdrafts, short-term and long-term borrowings and debentures minus cash, short-term deposits and marketable securities) totaled € 3,452 million as of December 31, 2002, compared to € 9,196 million as of December 31, 2001, a decrease of € 5.7 billion principally as a consequence of the proceeds of € 4.2 billion generated by our sale of Aventis CropScience to Bayer, debt deconsolidation and cash flow generated by our core business.

        As of December 31, 2002, approximately € 1.8 billion (51.6%) of our total debt of € 3.5 billion was long-term in nature (excluding the current portion of long-term debt) compared to € 4.7 billion (50.7%) as of December 31, 2001.

      98.6% of the € 1 billion notes exchangeable into Rhodia shares with a nominal value of € 23.22 were repurchased by Aventis in December 2002 and replaced by short-term debt.

        Bonds with a value of approximately € 1 billion exchangeable into Clariant shares are due in July 2003 and are reported in the caption current portion of long-term debt as of December 31, 2002.

      Approximately 8% of our long-term debt instruments (€ 128 million in debentures and € 20 million in bank borrowings) will mature in 2004. Of our long-term debt outstanding as of December 31, 2002, approximately 97% was denominated in euros compared to approximately 95% at the end of 2001.

      Approximately 79% of our net debt at December 31, 2002 was at parent company, Aventis level, with the remainder held at the subsidiary level.

        Our overall net debt-to-equity plus other funds ratio was 0.30 as of December 31, 2002, compared to 0.70 as of December 31, 2001.

        Our self-financing capacity in 2003 is expected to be sufficient to cover our projected working capital needs. We have available unused short-, medium- and long-term multi-currency lines of credit totaling € 7,122 million as of December 31, 2002, compared to € 8,698 million as of December 31, 2001.

    Consolidated Statements of Cash Flow

        Our self-financing capacity (net income before preferred remuneration plus elimination of expenses and income which do not have a cash effect) totaled € 3,599 million in 2002 compared to € 3,250 million in 2001, reflecting principally the rise in net income.

        Net cash provided by operating activities totaled € 1,859 million in 2002 compared to € 3,113 million in 2001, a decrease of € 1,254 million. This decrease resulted principally from the significant scaling down of our asset securitization program, particularly in the United States, which had the effect of increasing accounts receivables while reducing net cash from operating activities. (See Note 8 to the Aventis Consolidated Financial Statements). Our disposal of Aventis CropScience and Aventis Animal Nutrition were also major contributing factors to the lower net cash provided by operating activities in 2002 compared to 2001.

        The performance of Aventis was driven by the core business, which generated a net cash from operating activities amounting to € 2,577 million in 2002.

51



Cash From Operating Activities by Business(1)

 
  12/31/02
Core

  12/31/02
Non-Core

  12/31/02
Group

 
 
  (in € million)

 
Net income (loss) before preferred remuneration   2,166   10   2,176  
Depreciation and amortization of assets   1,495   721   2,216  
Change in working capital   (618 ) (842 ) (1,460 )
Other operating items   (466 ) (607 ) (1,073 )
   
 
 
 
Net cash provided by operating activities   2,577   (718 ) 1,859  
   
 
 
 

(1)
Unaudited.

        In 2002, the core business invested € 864 million in Property, Plant and Equipment leading to a free cash flow (cash from operating activities, net of capital expenditures) of € 1,713 million. Other investments in strategic assets and proceeds largely offset each other.

        Investing activities provided cash inflow of € 3,239 million in 2002 compared to a cash outflow of € 720 million in 2001. Net cash provided by investing activities in 2002 included primarily:

      Capital expenditures totaling € 1,000 million in 2002 compared to € 1,245 million in 2001 for Property Plant and Equipment reflect reduced expenditures subsequent to the disposal of Aventis CropScience in June.

      Acquisitions (other than those we accounted for as capital expenditures) totaled € 459 million in 2002, compared to € 486 million in 2001.

      Cash proceeds from the sale of assets in 2002 totaled € 4,654 million and were primarily related to the disposal of Aventis CropScience, as well as Aventis Animal Nutrition and various other investments.

        Net cash used by financing activities totaled € 5,008 million in 2002 compared to a utilization of € 2,197 million in 2001. This variance is due mainly to our reduction of debt using disposal proceeds and internally generated cash. Reduction of long-term and short-term debt in 2002 accounted for € 2,931 million and € 1,091 million, respectively. The principal other financing activities using cash are payments of dividends and preferred remuneration as well as share repurchases, each of which increased in 2002 compared to 2001.


DISCLOSURE ABOUT LIQUIDITY AND CAPITAL RESOURCES INCLUDING OFF-BALANCE SHEET ARRANGEMENTS

    Transfer of receivables

        Certain subsidiaries of the Group in France, Germany and Japan regularly sell receivables within the framework of securitization programs implemented with several banks.

        Those assets are transferred to the bank on a monthly basis and are settled against a cash payment from the bank. The difference between the gross amount of receivables transferred and the amount funded by the bank is defined as deferred purchase price (retained by the bank) and is recorded in our balance sheet under Accounts and Notes Receivables and amounted to € 33 million in 2002 (€ 142 million in 2001).

        The programs have decreased significantly as a result of the divestiture of Aventis CropScience and a reduction of securitization in the prescription drugs segment. The U.S. program was closed at the time that Aventis CropScience was divested.

    Financial Guarantees

        As of December 31, 2002, Aventis had granted guarantees to third-party beneficiaries for a total amount of € 324 million (€ 139 million in 2001). Most of these guarantees have been granted in the course of disposals of certain businesses or assets (€ 177 million) or loan commitments related to businesses, which have been disposed of (Rhodia for € 76 million).

        These guarantees will mature in less than one year (€ 101 million), one to three years (€ 48 million), three to five years (€ 68 million) and over five years (€ 107 million).

52



        On the other hand the Group has received counter-guarantees amounting to € 84 million as of December 31, 2002 (€ 84 million in 2001) in respect of disposed activities.

    Obligations resulting from business divestitures

        Aventis and its subsidiaries have divested a variety of chemical and agro-chemical businesses in previous years with customary indemnification obligations regarding the state of the sold businesses and negotiated on a case-by-case basis, in particular with respect to environmental liabilities, taxes, legal cases and product liability cases.

        The obligations resulting from the main divestitures are disclosed in the Note 25 to the Aventis Consolidated Financial Statements.

    Carderm partnership

        In 2001, a third-party financial investor contributed US$ 250 million in cash to obtain a limited partnership interest in Carderm Capital L.L.P. This Partnership interest is reported in Aventis consolidated financial statements as a mandatory redeemable partnership.

        On or after March 10, 2007, the limited partner has the option to trigger a liquidation of the partnership. Then the Aventis partner has the option to buy out the limited partner's interests. If that occurs Aventis will face a cash outflow equivalent to the limited partner's interest of US$ 250 million.

    Capital expenditures

        Next year, we expect to have a cash outflow for capital expenditures roughly in line with our expenditures in 2002. For a discussion of our capital expenditures, see "— Other Material Financial Elements — Capital Expenditures," below.

    Restricted cash

        Usually cash can be transferred and used within the Group. Restriction on cash transfers is limited to a small number of cases. As of December 31, 2002, an amount of € 48 million was subject to certain restrictions such as insurance regulations and foreign exchange market for € 21 million, and third parties associated to certain subsidiaries for € 27 million.

    Contractual Obligations

 
  Payments due, by period
Contractual Obligations

  Total
  Less than
1 year

  1–3
years

  3–5
years

  More than 5 years
 
  (in € million)

Long-Term Debt   2,862   1,076   456   1,311   19
Capital Lease Obligation   5   3   2    
Operating Leases   1,280   172   324   278   506
Unconditional Purchase Obligations   129   129      
   
 
 
 
 
Total Contractual Obligations   4,276   1,380   782   1,589   525
   
 
 
 
 

53



ALLOCATION OF NET DEBT AND INTEREST EXPENSE: CORE BUSINESS/NON-CORE BUSINESS

        The table below sets forth the allocation of our historical consolidated net debt (centrally managed debt plus debt at subsidiary level) and interest expense to our core business and non-core business at and for the years ended December 31, 2002 and 2001.


Allocation of Net Debt and Interest Expense
Aventis Group*

 
  At and for the year ended December 31, 2002
  At and for the year ended December 31, 2001
Aventis Behring included in
Non-Core Business

  At and for the year ended December 31, 2001
Aventis Behring included in
Core Business(1)

 
  Consolidated
  Core
Business

  Non-Core
Business

  Consolidated
  Core
Business

  Non-Core
Business

  Consolidated
  Core
Business

  Non-Core
Business

 
  (in € million)

   
Net debt   3,452   1,952   1,500   9,196   2,295   6,901   9,196   3,295   5,901
Interest expense   309   148   161   704   228   476   704   280   424

*
Unaudited.
(1)
As originally reported.

        Most of our consolidated net debt and interest expense is currently borne by the Aventis parent company, Aventis, and is managed centrally. As of December 31, 2002 for the purposes of managing our net debt and interest expense, we have allocated our centrally managed net debt between our core business and our non-core business on the following basis:

      Non-core business: We have allocated to our non-core business the amount of Aventis debt which we expect to reimburse using the total cash proceeds we expect to receive through the disposal of our remaining non-core activities. The total amount of € 1,500 million represents the estimated total cash proceeds and anticipated net debt deconsolidation we would receive or perform through the divestiture of these businesses. Similarly, we have allocated to our non-core business, taking into account the disposal of some of our non-core activities, the amount of consolidated interest expense associated with the allocated net debt on a full year basis.

      Core business: We have allocated to our core business the balance of our consolidated net debt, as well as the balance of our consolidated interest expense.

        The reduction of net interest expenses in 2002 versus 2001 is due mainly to the divestiture of some of our non-core activities, the return on increased cash flow generated by our core business throughout the year and the decline in interest rates.

54



RECONCILIATION STATEMENTS OF OPERATIONS FOR MAJOR LINE ITEMS:
AVENTIS CORE, NON-CORE & AVENTIS GROUP*

        For individual segment financial information, see Note 26 to the Aventis Consolidated Financial Statements. We have transferred our therapeutic proteins business Aventis Behring from core to non-core business as of January 1, 2002, as we intend to exit this activity. Therefore, for comparison purposes, we have excluded the Aventis Behring statement of operations from the Aventis core business for 2001, and included it in the non-core statements of operations, to take into account the transfer of this business.


Net Sales by Business(*)

 
  Aventis Group
 
 
  2002
  2001
 
 
 
  %
 
  %
 
 
  (in € million, except percentages)

 
Core business(1) (total)   17,591   85 % 16,576   72 %
– Prescription drugs   16,026   78 % 15,168   66 %
– Human vaccines   1,580   8 % 1,425   6 %
– Eliminations   (16 )     (17 )    
Non-core business (total)   3,066   15 % 6,439   28 %
– Aventis CropScience   1,831   9 % 4,303   19 %
– Others   167   1 % 1,007   4 %
– Therapeutic Proteins   1,068   5 % 1,129   5 %
Eliminations (intragroup)(2)(3)   (35 )     (74 )    
   
 
 
 
 
Aventis (total)   20,622   100 % 22,941   100 %
   
 
 
 
 


Operating Income (Loss) by Business(*)

 
  Aventis Group
 
 
  2002
  2001
 
 
  (in € million)

 
Core business (total)(1)   3,754   3,004  
– Prescription Drugs   3,326   2,864  
– Human Vaccines   540   367  
– Corporate & Animal Health   (112 ) (227 )
Non-Core business (total)   (924 ) 635  
   
 
 
Aventis (total)   2,830   3,639  
   
 
 

(1)
Consists of our "Prescription Drugs", "Human Vaccines" and "Corporate" segments. Merial sales and operating income are not reflected since Merial is accounted for using the equity method.
(2)
Elimination of sales between core and non-core businesses.
(3)
In Note 26 to the Aventis Consolidated Financial Statements, the eliminations are not broken down between core and non-core business.

        The information by industry segment in Note 26 is disclosed as a contribution to the group result. The above table presents each business after reallocation of corporate services, such as foreign currency contract and insurance managed on behalf of the businesses.


Statements of Operations(*)

2002
   
  2001
Aventis Core

  Aventis Non-Core
  Intragroup
eliminations

  Aventis
Group

   
  Aventis Core
  Aventis Non-Core
  Intragroup
eliminations

  Aventis
Group

(in € million)

   
  (in € million)

17,591   3,066   (35 ) 20,622   Net sales   16,576   6,439   (74 ) 22,941
3,754   (924 )     2,830   Operating income   3,004   635       3,639
2,081   10       2,091   Net income   1,630   (125 )     1,505

*
Unaudited

55


Aventis Core Business Financial Information and Analysis for 2002 and 2001

        We define our core business as the combination of our activities in prescription drugs and human vaccines, together with our equity interest in the results of the Merial animal health joint venture as well as our corporate activities. We have set forth below the statement of operations for our core business for each of the years ended December 31, 2002 and 2001. This core business financial information reflects the sum of the relevant historical financial information from each of the accounting segments included in our core business, subject to the allocation between our core business and our non-core business of the historical centrally managed net debt and related interest expense, as explained above.


Statement of Operations*

 
  Aventis Core
 
 
  2002
  2001(1)
 
 
  (in € million, except per share information in €)

 
Net sales   17,591   16,576  
Production costs and expenses   (4,563 ) (4,418 )
Selling, general and administrative costs and other revenues – net   (5,541 ) (5,682 )
Research and development   (3,141 ) (2,891 )
Provisions for restructuring   (49 ) (16 )
Goodwill amortization   (543 ) (564 )
   
 
 
Operating income   3,754   3,004  
   
 
 
Equity in earnings of affiliated companies   208   214  
Interest expense – net   (148 ) (228 )
Miscellaneous non-operating income and expenses – net   (333 ) (52 )
   
 
 
Income before taxes and minority interests   3,481   2,938  
   
 
 
Provision for income taxes   (1,270 ) (1,131 )
Minority interests   (44 ) (48 )
Preferred remuneration   (85 ) (128 )
   
 
 
Net income   2,081   1,630  
   
 
 
Average number of outstanding shares (in million shares)   793   788  
Basic earnings per share (EPS)   2.62   2.07  
Basic EPS before goodwill amortization(2)(3)   3.31   2.79  
EBITA(2)(4)   4,505   3,783  
EBIT(2)(5)   3,962   3,218  

*
Unaudited
(1)
Aventis Core excluding Aventis Behring.
(2)
These lines are non-GAAP financial measures.
(3)
Please refer to the paragraph "— Definition of Basic Earnings Per Share (EPS) before goodwill amortization", above.
(4)
Please refer to the paragraph "— Definition of EBITA line as presented in statements of operations", above.
(5)
Please refer to the paragraph "— Definition of EBIT line as presented in statements of operations", above.


CORE BUSINESS SALES ANALYSIS

        As previously stated, we transferred our therapeutic proteins business Aventis Behring from core to non-core business at the beginning of 2002. Adjusting 2001 reported net sales to reflect this change in business perimeter, comparable net sales in 2001 totaled € 16,576 million compared to € 17,591 million in 2002. The activity variance for core business sales in 2002 was 11.6%.

      Prescription drugs accounted for 91% of total core business sales and recorded sales of € 16,026 million in 2002, up 5.7% over reported sales of € 15,168 million in 2001 (+11.1% activity variance).

      Human vaccines sales rose 10.9% to € 1,580 million from € 1,425 million in 2001 (+16.3% activity variance), due mainly to higher sales in the United States. Pediatric combinations were the main products driving growth.

56


    Prescription Drugs

        Prescription drugs sales contributed € 16,026 million to net sales in 2002. Sales activity rose 11.1%, and growth in 2002 was driven primarily by our strategic brands and by the good performance in the United States.

        Our prescription drugs portfolio includes a range of "strategic brands," or brand-name pharmaceuticals that we believe have significant commercial potential and on which our marketing efforts are focused. None of our strategic brands accounts for more than 12% of total core business sales, which limits our risk exposure to generic competition against any single product. Sales of strategic brands (excluding Actonel, which we co-market with Procter & Gamble Pharmaceuticals) increased 22.0% to € 8,751 million in 2002 from € 7,171 million in 2001 (+28.3% activity variance). These currently marketed products, some of which are in early stages of their life cycle, rank among the leading treatments in their respective therapeutic areas and we believe they have significant remaining growth potential. Synercid and Rilutek were no longer classified as strategic brands in 2002 since they were no longer part of our strategy to focus on key therapeutic areas. Strategic brands represented 54.6% of total prescription drug sales in 2002 compared to 47.3% in 2001 (excluding Synercid and Rilutek for both time periods).

        Among our strategic brands, top priority is given to the following brands:

      the allergy treatment Allegra/Telfast

      the antithrombotic agent Lovenox/Clexane

      the chemotherapy agent Taxotere

      the cardiovascular treatment Delix/Tritace

      the long-acting insulin Lantus

      the antibiotic Ketek

      the osteoporosis treatment Actonel (co-developed and co-marketed with Procter & Gamble Pharmaceuticals)

        Three flagship products – Allegra/Telfast, Lovenox/Clexane and Taxotere – achieved blockbuster status by generating sales of more than € 1 billion each in 2002, as was already the case for each of them in 2001.

57



Prescription Drug Sales by Therapeutic Area

Therapeutic
area/Product

  Key indications(1)
  2002
  2001
  Activity
variance
in %

  Total
variance
in %(2)

 
 
   
   
  (in € million, except percentages)

 
Total prescription drug sales           16,026   15,168   11.1 % 5.7 %
of which:                          

 
Respiratory/Allergy           2,794   2,575   14.8 % 8.5 %

 
Allegra/Telfast     Seasonal allergies   2,030   1,762   22.1 % 15.2 %
      Chronic idiopathic urticaria                  

 
Nasacort     Allergies   329   266   31.2 % 23.6 %

 
Cardiology/Thrombosis           3,435   3,325   8.2 % 3.3 %

 
Lovenox/Clexane     DVT prophylaxis in surgery and medically ill patients with restricted mobility   1,563   1,453   13.3 % 7.5 %
      DVT treatment                  
      Unstable angina/NSTEMI                  

 
Delix/Tritace family     Hypertension   923   709   34.2 % 30.2 %
      Congestive heart failure                  
      Prevention of cardiovascular events                  

 
Oncology           1,743   1,494   22.6 % 16.7 %

 
Taxotere     Breast and lung cancer   1,261   1,003   32.7 % 25.8 %

 
Campto(3)     Colorectal cancer   241   202   21.3 % 19.4 %

 
Metabolism/Diabetes           1,978   1,761   18.6 % 12.4 %

 
Amaryl     Type 2 diabetes   578   478   28.6 % 21.0 %

 
Insuman     Type 1 and type 2 diabetes   172   170   4.2 % 1.5 %

 
Lantus     Type 1 and type 2 diabetes   299   94   n.a.   n.a  

 
Arthritis/Osteoporosis           799   677   26.0 % 18.0 %

 
Arava     Rheumatoid arthritis   271   258   10.7 % 5.0 %

 
Anti-Infectives           1,560   1,546   5.4 % 0.9 %

 
Targocid     Infections   222   199   18.2 % 11.2 %

 
Tavanic(4)     Infections   257   192   38.9 % 33.6 %

 
Ketek     Infections   52   3   n.a.   n.a  

 
Central Nervous System           1,530   1,448   11.6 % 5.7 %

 
Copaxone(5)     Multiple sclerosis   554   383   51.5 % 44.8 %

 
Bulk & Toll Manufacturing           742   706   -3.8 % 5.0 %

 

(1)
The key indications in this table do not necessarily correspond to the exact indications registered in every country where the relevant pharmaceutical products are marketed and sold. The products in this table are only a selection of the total product offering of Aventis. Inclusion in this table does not imply that a given product is sold by Aventis in all of our principal markets. See "Item 4. Information on the Company" for additional information on our products.
(2)
Total variance combines activity variance, structural variance and currency variance.
(3)
Licensed from Yakult Honsha (not sold by Aventis in the United States or Japan).
(4)
Licensed from Daiichi (not sold by Aventis in the United States or Japan).
(5)
Marketed in Europe in cooperation with Teva Pharmaceutical Industries.

    Allegra/Telfast

        Allegra/Telfast was the world's fastest-growing non-sedating antihistamine in 2002. Allegra sales grew 22.1% on an activity basis. The vast majority of sales are generated in North America and Japan. In the U.S., Allegra became the market leader in the non-sedating prescription antihistamine category in September. In the U.S. Allegra sales grew by 15.7% (+ 22.2% activity variance) despite new competition, and the product achieved a monthly market share of total new prescriptions of 32.4% at the end of November 2002. U.S. sales growth was led by the continued strong performance of the 180 mg once-daily formulation launched in 2000 and strong market share growth of Allegra-D. U.S. sales were also driven by the product's favorable

58


efficacy and safety profile, increased promotional support, including direct-to-consumer (DTC) advertising and additional external sales force support.

        In Japan, the second-largest allergy market in the world after the U.S., sales of Allegra increased 25.9% over 2001 (+ 36.8% activity variance). In April, Allegra 60 mg twice daily was approved for the treatment of itching associated with dermatological diseases such as eczema, dermatitis, pruritus cutaneus and atopic dermatitis, thus expanding the potential for Allegra in this market, where allergic skin conditions represent approximately 40% of total antihistamine sales.

        Applications by competitors to market generic versions of Allegra currently are pending in the U.S., and Aventis has filed patent infringement lawsuits against the applicants. In addition, an FDA advisory committee has recommended that Allegra and two competing drugs be "switched" from prescription to OTC status, and one of these drugs, Claritin, switched to OTC status voluntarily in November 2002. Due to the Claritin OTC switch, the potential for generic competition, and the possibility that Allegra or another competitor also might be switched to OTC status, Allegra could face substantial additional competitive pressures, which could have a negative effect on future operating results. See "Item 8. Financial Information — Information on Legal or Arbitration Proceedings" and "Item 3. Key Information — Risk Factors — Changes in marketing status or competitive environment of Allegra could adversely affect our operating results" for further information.

    Lovenox/Clexane

        Lovenox/Clexane sales grew 13.3% on an activity basis. Lovenox advanced its leading position for two key indications in the U.S. Its share of patients for deep vein thrombosis (DVT) prophylaxis in medical patients with restricted mobility rose to 28% at the end of the second quarter compared to 24% in 2001. For the unstable angina/non-Q-wave myocardial infarction (UA/NQMI) indication, the share of patients increased to 39% from 34% during the same period.

        In early 2002, a warning introduced in the product labeling in the United States relating to the use of Lovenox in pregnant women with prosthetic heart valves created some concern in the healthcare community regarding the use of Lovenox in certain patient subpopulations. This labeling change led to a negative impact on the number of prescriptions in the arterial and medical indications beyond the subpopulation initially concerned by the warning. Some inventory changes at wholesaler and hospital levels also impacted the Lovenox growth rate. Since that label change, both Aventis and an outside consensus panel have reviewed the additional data regarding the use of Lovenox in patients with mechanical prosthetic heart valves. As a result, Aventis has submitted proposed labeling revisions to the U.S. FDA in October 2002. If the FDA approves any changes to the Lovenox prescribing information, Aventis will proactively communicate these changes to the medical community.

        Additionally in the U.S., we completed the expansion of our Lovenox sales force.

    Taxotere

        Taxotere sales were driven by strong performance in the U.S. and France. Global sales grew 32.7% on an activity basis. Market share gains were achieved in non-small-cell lung cancer (NSCLC) in the U.S. and breast cancer in France and the U.S. In the U.S., Taxotere is now the most widely used taxane, having exceeded paclitaxel usage. Taxotere is also becoming a drug of choice for combination therapies, with several new, targeted cytostatic agents in clinical trials for a variety of solid tumors. In addition, recent evidence presented at the 38th annual meeting of the American Society of Clinical Oncology (ASCO) in May 2002 indicated a significant role for Taxotere in the treatment of adjuvant breast cancer. More than 200 abstracts on Taxotere presented at ASCO created awareness within the medical community and helped fuel growth.

        Applications for regulatory approval for first-line therapy in NSCLC were filed in the U.S. and EU in January 2002. Approval for first-line therapy in NSCLC was granted by the FDA on November 27, 2002. Formal EU approval for this indication was granted on January 9, 2003.

    Delix/Tritace

        Sales of Delix/Tritace grew 34.2% on an activity basis. Sales were mainly driven in 2002 by new prescriptions in patients suffering from diabetes and/or hypertension and at least one cardiovascular risk, as well as by an increase in the average treatment dosage up to the worldwide recommended dose of 10 mg. In April 2002, Delix/Tritace was approved in Germany for prevention of stroke, heart attack and cardiovascular death in patients with diabetes or at high risk of cardiovascular disease. Enhanced sales force

59


support contributed to sales in this market. The use of Delix/Tritace in the diabetic population is strongly supported by recommendations of the American Heart Association that were issued in January 2003 and in patients at high cardiovascular risk by the guidelines of NICE (National Institute for Clinical Excellence) in the UK.

        Sales were also supported by HOPE (Heart Outcome Prevention Evaluation) sub-studies that support a direct anti-atherosclerotic mode of action of Delix/Tritace. These studies, published in the British Medical Journal (BMJ) in March 2002 showed that Delix/Tritace reduces the risk of stroke in high-risk cardiac patients. Data from a prospective sub-study of HOPE showed that Delix/Tritace is a cost-effective treatment for high-risk cardiovascular patients, and were published in the Journal of Internal Medicine in June 2002.

    Lantus

        Subsequent to successful launches in Germany in May 2000 and in the U.S. in May 2001, Lantus made significant market share gains in 2002 in both type 1 and 2 diabetes. Various studies support the treatment profile, resulting in quick market penetration of Lantus About 375,000 patients are currently using Lantus in these two markets. Sales almost tripled between 2001 and 2002.

        In the U.S., the addition of a dedicated sales force resulted in a rapid sales ramp-up. Lantus captured both existing U.S. insulin users (58% of total Lantus sales) and new insulin users (42% of total Lantus sales) after failure of oral therapies. This shows that physicians are using Lantus earlier in the disease progression of type 2 diabetes. In the U.S., Lantus has become the most successfully launched insulin brand, generating almost three times the number of new prescriptions as the previous best insulin launch. Lantus is now the number one insulin in newly insulinized type 2 patients and the most frequently prescribed basal insulin in newly diagnosed type 1 patients.

        In Germany, Lantus captured more than 30% of the basal insulin market by mid-2002. In addition, Lantus is gaining market share from mixed insulin products and is now the single largest basal insulin brand in the German market.

        Lantus was launched in the UK in August 2002. Production capacity has been secured for further launches in key markets.

    Ketek

        Following the initial launch of Ketek in Germany in October 2001, Ketek has been approved in all major EU and Latin American markets and has been launched in 15 countries so far, including France, Spain, Italy, Ireland, Mexico, and Brazil with good acceptance in all launch markets.

        Supporting sales was the position of Ketek as the first of a new class of antibiotics known as ketolides that were designed to deliver an optimal spectrum of activity for the first-line treatment of upper and lower respiratory tract infections, including those caused by resistant pathogens, with a low potential to induce resistance – and a short treatment regimen.

        In January 2002, an NDA was filed in Japan, the second largest antibiotic market worldwide.

        On January 24, 2003, the U.S. Food and Drug Administration (FDA) issued an approvable letter for Ketek tablets (800 mg oral dose once daily) for the treatment of acute exacerbations of chronic bronchitis (once a day for five days), acute sinusitis (once a day for five days), and community-acquired pneumonia (once a day for seven to 10 days). The FDA has requested additional information and analysis but has not required additional clinical studies before considering further our application for marketing approval. The FDA will have up to six months to respond after we submit the requested information.

    Actonel

        Actonel is being co-developed and co-marketed with Procter & Gamble Pharmaceuticals. Actonel generated combined sales for the two companies of € 539 million in 2002 compared to € 309 million in 2001. As per the alliance agreement with P&G Pharmaceuticals, Aventis consolidates only part of the combined worldwide sales.

        Actonel sales were driven by increasing recognition of the product's established benefits in offering both rapid and sustained vertebral fracture reduction and by the June 2002 launch of a once-a-week formulation in the U.S., where Actonel's share of new prescriptions increased by more than 50%. A 5 mg once-daily formulation was launched in Japan in May 2002. In the U.S., Actonel achieved a 17.5% share of new prescriptions at the end of December 2002. Actonel was approved for once-a-week dosing in July in Sweden,

60



the reference member state for the Mutual Recognition Procedure in Europe. The Mutual Recognition Procedure to register Actonel 35 mg once-a-week in Europe successfully ended on December 3, 2002 and all EU countries have recognized the marketing authorization granted by Sweden. Further launches of this new dosage form are planned for early 2003.

        The once-a-week formulation has also been approved in Argentina, Brazil, Egypt, Guatemala, New Zealand and Switzerland.

        Actonel's share of the total global oral bisphosphonate market now exceeds 10%.

    Human Vaccines

Sales of Human Vaccines by Product Family

 
  2002
  2001
  Activity
variance
in %

  Total
variance
in %

 
 
  (in € million, except percentages)

 
Human Vaccines Total   1,580   1,425   16.3 % 10.9 %
of which:                  
Product Family(1)                  
Pediatric combination vaccines(2)   495   422   21.1 % 17.4 %
Polio vaccines   304   284   11.9 % 7.1 %
Influenza vaccines   458   473   1.5 % -3.0 %
Travelers/endemic area range excluding meningitis   221   235   -3.0 % -5.7 %
Meningitis vaccines   103   98   8.5 % 4.3 %
Adult boosters   172   111   60.1 % 54.8 %

(1)
Product family sales figures indicate total sales of the specified products, whether generated by Aventis Pasteur or the Aventis Pasteur MSD joint venture. Because Aventis accounts for Aventis Pasteur MSD using the equity method, the contribution to the Aventis consolidated sales will in some cases be materially less than these figures.
(2)
Pediatric combination vaccines include Hepatitis B.

        Human vaccines contributed € 1,580 million to our consolidated sales in 2002, an increase of 10.9% from sales of € 1,425 million in 2001 (+16.3% activity variance). In the United States, adult booster vaccines benefited from a strong recovery in demand following an 18-month supply shortage, while the market share of pediatric combination vaccines increased sharply as a result of competitor supply issues.

        Polio vaccines sales continued to grow, with IPOL in the United States continuing to benefit from a 1999 CDC (Centers for Disease Control and Prevention) and American Academy of Pediatrics recommendation, while Oral Polio Vaccine (OPV) sales in the International area were supported by better supply availability.

        In Europe, vaccines are sold through Aventis Pasteur MSD, a 50–50 joint venture between Aventis Pasteur and Merck & Co. Aventis Pasteur MSD is accounted for using the equity method and generated sales of € 577 million in 2002 compared to € 556 million in 2001. The joint venture continued to report strong demand for Hexavac, following EU marketing approval in October 2000. However, its results were affected by supply restrictions by the two parent companies due to production issues, which limited activity growth.

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    Core Business Sales by Region

Core Business Sales by Region(1)

Country/Region

  2002
  2001(2)
  Activity
variance
in %

  Total
variance
in %

 
  (in € million, except percentages)

North America (United States and Canada)   7,246   6,336   20.8%   14.4%

France

 

2,295

 

2,245

 

4.7%

 

2.2%
Germany   1,086   1,058   2.9%   2.6%
Other Europe(3)   2,259   2,075   9.4%   8.9%
   
 
 
 
Total Europe   5,641   5,379   6.2%   4.9%

Latin America(4)

 

1,003

 

1,227

 

5.2%

 

-18.3%
Japan   923   987   2.7%   -6.5%
Rest of World   2,036   1,940   11.1%   4.9%
Bulk & Toll Manufacturing   742   706   -3.8%   5.0%
   
 
 
 
Total   17,591   16,576   11.6%   6.1%
   
 
 
 

(1)
Does not reflect the Merial animal health joint venture and the Aventis Pasteur MSD human vaccines joint venture, which are accounted for using the equity method.
(2)
Excluding Aventis Behring.
(3)
Principally other EU members, and members of the European Economic Area. Sales in Eastern Europe are included under Rest of World.
(4)
Our ability to recover payment and the level of future sales in certain Latin American countries may be affected by the current economic crisis in that region. While this crisis may materially affect our sales in Latin America, we do not expect them to materially affect our total consolidated financial results.

        In the United States, the world's largest pharmaceutical market, sales totaled € 6,859 million. This increase of 15.0% from € 5,964 million in 2001 (+21.4% activity variance) was primarily driven by the continued strong performance of our strategic brands. The U.S. accounted for 39.0% of total core business sales compared to 36.0% in 2001.

        Allegra sales increased 15.7% (+22.2% activity variance) to € 1,730 million thanks to increased promotional support, direct-to-consumer advertising and additional external sales force support.

        Lovenox sales rose 4.1% (+10.0% activity variance) to € 1,013 million in 2002. This increase was due to a doubling of the sales force to nearly 700 representatives by mid 2002 and the fact that Lovenox has the broadest range of approved indications among low-molecular-weight heparins (LMWHs). With more than a 90% share of the LMWH market based on sales, Lovenox was the market leader in the United States. Lovenox was increasingly used to prevent deep vein thrombosis (DVT) in medically ill patients with restricted mobility. On the other hand, a labeling change on the use in pregnant women with prosthetic heart valves negatively impacted sales growth for Lovenox in the United States that was lower than anticipated.

        Taxotere sales rose 29.5% (+36.8% activity variance) to € 701 million. The differentiation of this product from other cytotoxic agents continued to be the key growth driver. Taxotere sales benefited from its strong position in the treatment of patients with breast cancer, where it is the most commonly used first-line regimen in metastatic disease with a 37% market share at the end of October 2002. Taxotere has also become a leading agent in the management of patients with non-small cell lung cancer (NSCLC), both in second-line, where the brand has a leadership position (48% market share at the end of October 2002), and in first-line treatment of the disease where usage is growing. On November 27, the U.S. FDA approved Taxotere for first-line treatment of patients with NSCLC. Important clinical information on the use of Taxotere continues to be generated in the treatment of patients with early stage breast cancer, prostate cancer, ovarian cancer and gastric cancer.

        The Actonel franchise in the United States experienced impressive growth in 2002. During the same period, Actonel increased its total prescription share of the osteoporosis market from 8.7% to 15%.

        Lantus, launched in the United States in May 2001, performed well in 2002 with sales reaching € 239 million. This was achieved through a dedicated Lantus sales force. At the end of December 2002, Lantus had captured 34.6% of all new insulin vials dispensed in the country's long-acting insulin market.

62



        Dermik, our dermatology pharmaceutical products business based in the United States, achieved sales of € 391 million in 2002. The success of Benzaclin enabled Dermik to grow market share to 21% at the end of 2002 in the U.S. topical anti-acne market segment.

        Strong growth of human vaccines sales also contributed to the good performance in the U.S.


Sales of Strategic Brands in the United States

Strategic brand

  2002
  2001
  Activity
variance
in %

  Total
variance
in %

  Contribution
to total U.S.
2002 sales in %

 
  (in € million, except percentages)

Allegra/Telfast   1,730   1,495   22.2%   15.7%   25.2%
Lovenox/Clexane   1,013   973   10.0%   4.1%   14.8%
Taxotere   701   541   36.8%   29.5%   10.2%
Amaryl   200   168   25.9%   19.2%   2.9%
Lantus   239   58   n.a.     n.a.     3.5%
Copaxone(1)   434   330   39.0%   31.6%   6.3%
Nasacort   267   203   38.8%   31.5%   3.9%
Arava   185   187   4.9%   -0.7%   2.7%

(1)
Sold in cooperation with Teva Pharmaceuticals.

        In France, sales growth of prescription drugs was partly driven by the positive impact of a decision by the French health authorities to acquire additional antibiotics to build a safety stock as a precaution against potential acts of bioterrorism. Strategic brands drove sales growth as well, particularly Taxotere, which captured a significant share of the taxane market. Delix/Tritace sales continued to benefit from the results of the HOPE study and sales of the newly launched antibiotic Ketek also developed well. During the second half of 2002, sales of off-patent products were adversely impacted by an agreement between health insurers and physicians under which general practitioners are encouraged to prescribe more generics in return for increased fees.

        In Germany, sales growth of prescription drugs was only moderate due to various cost-containment measures: prescription targets for physicians caused a change in prescribing behavior towards lower quantities, less expensive drugs and more generics. The aut-idem regulation, which means that pharmacists are generally directed to substitute branded drugs with less expensive generics, had a negative impact on prices, especially in the second half of 2002. Significant parallel imports for some strategic brands were another reason for sales growth slowdown. Despite these negative factors, sales of Delix/Tritace showed solid growth, driven by enhanced sales force support, the approval for prevention of stroke, heart attack and cardiovascular death in high-risk patients, and continued impact of the positive results of the HOPE study. Sales of Lovenox/Clexane and Lantus also developed well. Copaxone, indicated for the treatment of relapsing-remitting multiple sclerosis, showed an excellent sales performance in the first full year after its launch in Germany.

        In Japan, several selected non-strategic brands with remaining sales growth potential were transferred to partners for co-promotion in order to shift resources to global strategic brands. Sales in Japan were driven by Allegra, which increased its share in the rhinitis and urticaria markets and for which the skin indication was launched in April. Other sales growth drivers included the good performance of Taxotere, which benefited from its broad indication base that includes gastric, ovarian and head and neck cancer, Amaryl, which became brand leader among sulfonylureas, Actonel, which was launched in May 2002 in Japan and is co-promoted by Eisai, and Targocid which increased its market share due to co-promotion with Fujisawa.


CORE BUSINESS PROFITABILITY ANALYSIS

        Aventis core business gross margin as a percentage of sales increased to 74.1% in 2002 from 73.3% in 2001. This increase was mainly driven by an improvement in the product mix with greater focus on strategic brands and by a higher percentage of sales achieved in the United States.

        Selling, general and administrative expenses and other revenues net declined 2.5% to € 5,541 million in 2002 from € 5,682 million in 2001. These costs include all corporate expenses. Additional promotional and advertising expenditures for our strategic brands, sales force scale-up in our key markets as well as investments in the launch of the antibiotic Ketek in various European markets were more than offset by reduced spending on non-strategic products, lower corporate expenses and some income linked to proceeds

63



from product divestitures (Synercid, Intal, Delursan and deflazacort). Part of the decrease is also related to the favorable impact of currency translation on U.S. dollar denominated expenses between 2001 and 2002. Selling, general and administrative expenses and other revenues net accounted for 31.5% of core business sales in 2002 compared with 34.3% in 2001.

        Research and development spending rose 8.6% to € 3,141 million, or 17.9% of 2002 core business sales, compared to € 2,891 million, or 17.4% of 2001 core business sales. The increase was due mainly to higher spending on clinical trials and new co-development/co-marketing agreements signed in 2002 to supplement our product pipeline, including the compounds Genasense from Genta for treatment of cancer and DiaPep277 from Peptor Ltd. for prevention and treatment of latent autoimmune diabetes in adults (LADA).

        Goodwill amortization decreased slightly to € 543 million in 2002 from € 564 million in 2001.

        Operating income increased to € 3,754 million in 2002 from € 3,004 million in 2001. Operating income for prescription drugs increased to € 3,326 million in 2002 from € 2,864 million in 2001 and was mainly driven by higher sales and higher gross margin. Human vaccines operating income rose to € 540 million in 2002 from € 367 million in 2001, mainly as a result of higher sales and lower selling, general and administrative expenses and other revenues net.

        Equity in earnings of affiliated companies amounted to € 208 million compared with € 214 million in 2001. The main reason for the decrease was a slightly lower contribution from the Merial animal health joint venture. Sales by this 50-50 joint venture with Merck & Co., which is accounted for using the equity method, amounted to € 1,825 million compared to € 1,853 million in 2001 (+4% activity variance).

        EBITA was € 4,505 million in 2002, an increase of 19.1% compared to € 3,783 million in 2001. EBITA as a percentage of sales rose 2.8 percentage points to 25.6% from 22.8% in 2001. We benefited from positive hedging results that were offset by negative currency translation effects.

        EBIT increased to € 3,962 million in 2002 from € 3,218 million in 2001.

        Interest expenses – net totaled € 148 million in 2002 compared to an expense of € 228 million in 2001. This decrease was mainly caused by the lower financial debt in 2002 as compared to 2001 as well as by the reduction in average interest rates.

        Net income increased to € 2,081 million in 2002 from € 1,630 million in 2001.

        Basic earnings per share (EPS) in 2002 were € 2.62 (+26.6%) compared to € 2.07 in 2001. Before amortization of goodwill, basic EPS increased to € 3.31 compared to € 2.79 in 2001.

Aventis Non-Core Business Financial Information and Analysis for 2002 and 2001

        During 2002, the perimeter of the Aventis non-core business changed as follows:

      In January 2002, the therapeutic proteins business Aventis Behring was transferred from the core to the non-core perimeter.

      During the first half of 2002, the divestitures of two major non-core activities were finalized:

      In April 2002, the sale of the Aventis Animal Nutrition business to CVC Capital Partners was completed.

      In June 2002, we sold our 76% interest in Aventis CropScience to Bayer AG.

64



NON-CORE BUSINESS PROFITABILITY ANALYSIS

Condensed Statement of Operations
Aventis Non-Core Business*

 
  2002(1)
  2001(1)(2)
 
 
  (in € million)

 
Net sales   3,066   6,439  
Production costs and expenses   (2,050 ) (3,599 )
Operating expenses   (1,940 ) (2,205 )
   
 
 
Operating (loss) income   (924 ) 635  
   
 
 
Equity in earnings of affiliated companies   (157 ) (129 )
Interest expense – net   (161 ) (476 )
Miscellaneous non-operating income and expenses – net   1,453   (82 )
   
 
 
Income before taxes and minority interests   211   (52 )
   
 
 
Provision for income taxes   (159 ) 20  
Minority interests   (42 ) (93 )
   
 
 
Net income   10   (125 )
   
 
 

*
Unaudited
(1)
Aventis Non-Core including Aventis Behring.
(2)
The statement of operations for 2001 includes Messer Griesheim, which was deconsolidated on April 1, 2001. Sales of Messer Griesheim until April 1, 2001 amounted to € 435 million.

        Net sales decreased from € 6,439 million in 2001 to € 3,066 million in 2002. Net sales in 2002 consolidate only approximately five months of sales of Aventis CropScience and three months of sales of Aventis Animal Nutrition due to the disposal of these businesses in June and April 2002, respectively.

        Operating income decreased to a loss of € 924 million in 2002 from a profit of € 635 million in 2001. The operating loss in 2002 is mainly due to various impairments recorded on Aventis Behring's long-lived assets and goodwill amounting to a total of € 727 million. The divestitures of Aventis CropScience and Aventis Animal Nutrition have also negatively impacted the evolution of operating income.

        Miscellaneous non-operating income and (expenses) – net, totaled an income of € 1,453 million in 2002 compared to an expense of € 82 million in 2001.

        In 2002, net results on sale of assets recorded under this caption are mainly related to the disposal of Aventis CropScience and Aventis Animal Nutrition.

        These net results were reduced by the recording of several provisions for risks related to businesses divested as well as some environmental exposures.

    Therapeutic Proteins

        Therapeutic proteins recorded sales of € 1,068 million, a decline of 5.4% compared to € 1,129 million in 2001 (-1.8% activity variance). The lower sales were due primarily to declining sales of albumins, Monoclate and Beriplast, partly offset by an increase in sales of Helixate FS/NexGen, for which the supply situation improved compared to the previous year.


Sales of Therapeutic Proteins by Product Family

 
  2002
  2001
  Activity
variance
in %

  Total
variance
in %

 
  (in € million, except percentages)

Therapeutic Proteins   1,068   1,129   -1.8%   -5.4%
of which:                
Product Family                
Coagulation therapies   471   484   -0.2%   -2.8%
Critical care treatments   274   300   -4.8%   -8.7%
Immune globulin products   225   229   2.7%   -1.7%
Wound healing agents   64   77   -10.8%   -16.5%

65


        The therapeutic proteins business generated an operating loss of € 689 million in 2002 versus operating income of € 60 in 2001. As of December 31, 2002, the carrying value of Aventis Behring's long-lived assets exceeded their undiscounted future cash flows and triggered the recognition of an impairment charge of € 727 million, based on discounted cash flows.

    Rhodia

        Net sales of the specialty chemicals group Rhodia, in which Aventis holds a 25.2% equity stake, were € 6,617 million in 2002, down 9.1% compared to € 7,279 million in 2001. Sales performance was influenced by a 3.8% decline due to structural changes and a 3.9% decrease due to currency translation effects. Excluding structural and currency effects, sales decreased by 1.5% (price impact -2.4% partially compensated by favorable volume & mix impact of +0.9%). Business conditions were still difficult in 2002, hampered by continuing sluggish economy and some manufacturing start-up issues.

        Considering the prolonged decline in the market value of Rhodia in 2002, we recorded a € 251 million impairment as of December 31, 2002 to reduce the carrying value of this investment to its market value. This is recorded under equity in earnings in affiliated companies.

        On November 29, 2002, we launched a cash tender offer on all of our bonds exchangeable into Rhodia S.A. shares. Following the five-day offering period that closed on December 5, 2002, 98.6% of the bonds had been tendered to us. We then exercised our early redemption option on all the outstanding bonds. The early redemption was completed on January 17, 2003 and none of our bonds exchangeable into Rhodia shares remain outstanding. This tender offer will provide Aventis with increased flexibility regarding the disposal of its stake in Rhodia. This transaction had no significant impact on the net debt or results of operations of Aventis.

    Aventis CropScience

        Total sales, consolidated by Aventis, amounted to € 1,831 million in 2002 versus € 4,303 million in 2001. This sharp decrease is due to the disposal of the business in June 2002.

        Operating income reached € 253 million in 2002 versus € 615 million in 2001, the deviation being mostly explained by the disposal of the business in June 2002.

    Aventis Animal Nutrition

        Total sales, consolidated by Aventis, reached € 144 million in 2002 versus € 572 million in 2001. This sharp decrease is due to the disposal of the activity in April 2002.

        The Animal Nutrition business generated a significant operating loss in 2002. This operating loss is mostly due to the recognition of provisions on product liabilities.

66



RECONCILIATION TABLE OF AVENTIS CORE 2001 INCLUDING AND EXCLUDING AVENTIS BEHRING

        As previously stated, Aventis Behring has been transferred from core to non-core business as of January 1, 2002. Therefore, we have set forth below a reconciliation table of 2001 Aventis Core statement of operations including and excluding Aventis Behring.


Reconciliation Table of Aventis Core Business 2001 including and excluding Aventis Behring*

 
  2001

  2001

  2001

  2001

 
 
  Excluding
Aventis Behring

  Eliminations(1)
  Aventis Behring(2)
  Including
Aventis Behring(3)

 
 
  (in € million)

 
Net sales   16,576   (31 ) 1,129   17,674  
Production costs and expenses   (4,418 ) 31   (697 ) (5,084 )
Selling, general and administrative costs and other revenues – net   (5,682 )     (268 ) (5,951 )
Research and development   (2,891 )     (86 ) (2,977 )
Provisions for restructuring   (16 )         (16 )
Goodwill amortization   (564 )     (18 ) (583 )
   
 
 
 
 
Operating income   3,004       60   3,064  
   
 
 
 
 
Equity in earnings of affiliated companies   214           214  
Interest expense – net   (228 ) 13   (65 ) (280 )
Miscellaneous non-operating income and expenses – net   (52 ) 17   (20 ) (55 )
Income before taxes and  
 
 
 
 
  minority interests   2,938   30   (25 ) 2,943  
   
 
 
 
 
Provision for income taxes   (1,131 ) 33   (35 ) (1,133 )
Minority interests   (48 )         (48 )
Preferred remuneration   (128 )         (128 )
   
 
 
 
 
Net income   1,630   62   (59 ) 1,633  
   
 
 
 
 
Average number of outstanding shares (in million shares)   788           788  
Basic earnings per share (EPS)   2.07           2.07  
Basic EPS before goodwill amortization(4)(5)   2.79           2.81  
EBITA(4)(6)   3,783       78   3,861  
EBIT(4)(7)   3,218       60   3,278  

*
Unaudited
(1)
Inter-company eliminations impacting Aventis Behring.
(2)
Aventis Behring statement of operations before any inter-company eliminations.
(3)
As originally reported.
(4)
These lines are non-GAAP financial measures.
(5)
Please refer to the paragraph "— Definition of Basic Earnings Per Share (EPS) before goodwill amortization", above.
(6)
Please refer to the paragraph "— Definition of EBITA line as presented in statements of operations", above.
(7)
Please refer to the paragraph "— Definition of EBIT line as presented in statements of operations", above.

67



Aventis Results of Operations: 2001 compared to 2000

    Overview of 2001: Sharpening Our Strategic Focus on Pharmaceuticals

        At the end of 2001, our core business comprised activities that we considered to be strategic in:

      Prescription drugs

      Human vaccines

      Therapeutic proteins (accounted for in our "Other activities" segment)

        The core business also included our 50% equity stake in the Merial animal health joint venture with Merck & Co. (accounted for in our "Corporate and Animal Health activities" segment) as well as our corporate activities, which comprise mainly parent companies and financing and self-insurance entities.

        In 2001, the non-core business comprised activities that we were divesting or intended to divest. These activities included Aventis CropScience, which was sold to Bayer AG in June 2002. In April 2002, we also completed the sale of Aventis Animal Nutrition. Our non-core business also included our interests in the diagnostics company Dade Behring and in the chemical companies Rhodia, Wacker and DyStar, which we account for using the equity method, as well as our 11.8% interest in the chemical company Clariant, which we account for as an investment. We have also entered into an agreement to sell our interests in Wacker. In April 2001, we sold our interests in Messer Griesheim.

    Financial Information for 2001 and 2000

    Allocation of Net Debt and Interest Expense

        Most of our consolidated net debt and interest expense is currently borne by the Aventis parent company, Aventis, and this debt is managed centrally. For the purposes of managing our net debt and interest expense, we had allocated our centrally managed net debt between our core business and our non-core business on the following basis:

      Non-Core business: We had allocated to our non-core business the amount of Aventis debt which we expected to reimburse using the total cash proceeds which we had received and expected to receive through the disposal of our non-core activities, less amounts to be set aside as reserves for contingent liabilities, as described below. Similarly, we had allocated to our non-core business the amount of consolidated interest expense associated with the allocated net debt.

      Core business: We had allocated to our core business the balance of our consolidated net debt, as well as the balance of our consolidated interest expense.

        The table below sets forth the allocation of our historical consolidated net debt (centrally managed debt plus debt at subsidiary level) and interest expense to our core business and non-core business at and for the years ended December 31, 2001 and 2000.

Allocation of Net Debt and Interest Expense

 
  At and for the year ended
December 31, 2001

  At and for the year ended
December 31, 2000

 
  Consolidated
  Core
Business

  Non-Core
Business

  Consolidated
  Core
Business

  Non-Core
Business

 
  (in € million)

Net debt   9,196   3,295   5,901   13,133   4,022   9,111
Interest expense   704   280   424   805   262   543

        The allocation set forth above of a portion of our historical consolidated net debt and interest expense to our non-core business reflected the following assumptions as of December 21, 2001.

    Assumption 1:    € 4,900 million in total cash proceeds; the table below sets forth the divestiture status of our non-core activities.

68


Divestiture Status

Entity

  Divestiture status

Messer Griesheim   Sale effected on April 1, 2001; consolidation of results terminated on this date.

Aventis CropScience

 

Sale agreement entered into in October 2001; divestiture anticipated in 2002 subject to closing conditions including regulatory approvals.

Aventis Animal Nutrition

 

Divestiture anticipated in early 2002.

Rhodia

 

Investment subject to exercise of exchangeable bonds.

Wacker

 

Sale agreement entered into in December 2000.

DyStar

 

Disposal options currently under review.

    Assumption 2:    We have deducted from the cash proceeds € 1,600 million of potential cash-out related to contingent liabilities in connection with the non-core business activities that we have sold or that we intend to sell.

        In the event that the actual net proceeds from disposals and reserves taken for related contingent liabilities differ from the above assumptions, the allocation of debt between core and non-core activities described in this Item 5 may not accurately reflect the amount of debt and interest expense that the core business will actually bear.

        As previously mentioned the disposal of Aventis CropScience was completed in June 2002 and the divestiture of Aventis Animal Nutrition was completed in April 2002.

69



Aventis Financial Information and Analysis for 2001 and 2000

Statement of Operations

 
  Aventis Group
 
 
  2001
  2000
 
 
  (in € million, except per share information in €)

 
Net sales   22,941   22,304  
Production costs and expenses   (7,943 ) (8,469 )
Selling, general and administrative costs and other revenues – net   (7,178 ) (8,138 )
Research and development   (3,481 ) (3,479 )
Provisions for restructuring   (50 ) (849 )
Goodwill amortization   (650 ) (752 )
   
 
 
Operating income   3,639   617  
   
 
 
Equity in earnings of affiliated companies   85   244  
Interest expense – net   (704 ) (805 )
Miscellaneous non-operating income and expenses – net   (134 ) (81 )
   
 
 
Income before taxes and minority interests   2,886   (25 )
   
 
 
Provision for income taxes   (1,111 ) (61 )
Minority interests   (142 ) 56  
Preferred remuneration   (128 ) (118 )
   
 
 
Net income   1,505   (147 )
   
 
 
Average number of outstanding shares (in miilion shares)   788   781  
Basic earnings per share (EPS)   1.91   (0.19 )
Basic EPS before goodwill amortization(1)(2)   2.74   0.77  
EBITA(1)(3)   4,374   1,613  
EBIT(1)(4)   3,724   861  

(1)
Non GAAP financial measure.
(2)
Please refer to the paragraph "— Definition of Basic Earnings Per Share (EPS) before goodwill amortization", above.
(3)
Please refer to the paragraph "— Definition of EBITA line as presented in statements of operations", above.
(4)
Please refer to the paragraph "— Definition of EBIT line as presented in statements of operations", above.

Net Sales by Business

 
  Aventis Group
 
 
  2001
  2000
 
 
 
  %
 
  %
 
 
  (in € million, except percentages)

 
Core business(1) (total)   17,674   77 % 16,091   72 %
– Prescription drugs   15,168   66 % 13,871   62 %
– Human vaccines   1,425   6 % 1,091   5 %
– Therapeutic proteins   1,129   5 % 1,151   5 %
– Eliminations   (48 )     (23 )    
Non-core business (total)   5,310   23 % 6,288   28 %
– CropScience   4,303   19 % 4,034   18 %
– Others   1,013   4 % 2,259   10 %
– Eliminations   (6 )     (5 )    
Eliminations (Intra-Group)(2)   (43 )     (74 )    
   
 
 
 
 
Aventis (total)   22,941   100 % 22,304   100 %
   
 
 
 
 

70


Operating Income (Loss) by Business(3)

 
  Aventis Group
 
 
  2001
  2000
 
 
  (in € million)

 
Core business(1)(4)   3,064   826  
Non-core business   575   (209 )
   
 
 
Aventis (total)   3,639   617  
   
 
 

(1)
Merial sales and operating income are not reflected since Merial is accounted for under the equity method.
(2)
Elimination of sales between core and non-core businesses.
(3)
Amounts for 2001 in this table include Aventis Behring in Core Business. Aventis Behring was transferred to our non-core business effective January 1, 2002. For a table describing the effect of this transfer on 2001 core and non-core financial information, see "— Reconciliation table of Aventis Core 2001 including and excluding Aventis Behring", above.
(4)
Includes corporate segment expenses.

        As previously stated, our therapeutic proteins business Aventis Behring has been transferred from core business to non-core business effective January 1, 2002. To ease the comparison over the 3 years, the information by industry segment for 2001 and 2000 has been restated to reflect this transfer.

        Both tables below present the restated information. However all analysis and comments for 2001 and 2000 have not been restated.

Net Sales by Business

 
  Aventis Group
 
 
  2001
  2000
 
 
 
  %
 
  %
 
 
  (in € million, except percentages)

 
Core business (total)   16,576   72 % 14,959   67 %
– Prescription drugs   15,168   66 % 13,871   62 %
– Human vaccines   1,425   6 % 1,091   5 %
– Eliminations   (17 )     (3 )    
Non-core business (total)   6,439   28 % 7,444   33 %
– CropScience   4,303   19 % 4,034   18 %
– Others   1,007   4 % 2,259   10 %
– Therapeutic Proteins   1,129   5 % 1,151   5 %
Eliminations (Intra-Group)   (74 )     (99 )    
   
 
 
 
 
Aventis (total)   22,941   100 % 22,304   100 %
   
 
 
 
 

Operating Income (Loss) by Business

 
  Aventis Group
 
 
  2001
  2000
 
 
  (in € million)

 
Core business   3,004   746  
Non-core business   635   (129 )
   
 
 
Aventis (total)   3,639   617  
   
 
 

71



COMMENTS ON RESULTS OF OPERATIONS

        Consolidated net sales totaled € 22,941 million in 2001, an increase of 2.9% from consolidated net sales of € 22,304 million in 2000. This increase was reduced by the deconsolidation of Messer Griesheim as of April 1, 2001, following the divestiture of this non-core business. The increase in our core business sales amounted to 9.8% from 2000 (see section below on core business sales).

        Production costs and expenses totaled € 7,943 million in 2001, a decrease of 6.2% from € 8,469 million in 2000 due primarily to the implementation of synergies resulting from the formation of Aventis and the deconsolidation of Messer Griesheim.

        Selling, general and administrative costs and other revenues net decreased 11.8% to € 7,178 million from € 8,138 million in 2000, also due to the implementation of synergies and the deconsolidation of Messer Griesheim.

        Research and development spending totaled € 3,481 million, including € 2,977 million spent on research in the core business compared to € 3,479 million in 2000. A total of € 2,620 million was spent on research for prescription drugs, € 243 million on human vaccines and € 87 million on therapeutic proteins.

        Provisions for restructuring totaled € 50 million compared to € 849 million in 2000. The restructuring actions taken as part of the formation of Aventis in December 1999 were recorded in 1999 and 2000.

        Goodwill amortization totaled € 650 million compared to € 752 million in 2000, which comprised € 94 million of non-recurring items.

        Operating income totaled € 3,639 million in 2001 against € 617 million in 2000. The increase was due mainly to improvements in the gross margin of our core business, which rose to 71.2% at the end of 2001 compared to 68.4% at the end of 2000 due to a better product mix and greater focus on our strategic pharmaceutical brands.

        Equity in earnings of affiliated companies totaled € 85 million in 2001 compared to € 244 million in 2000. The decline was due to losses at the chemical company Rhodia (a negative variance of € 169 million compared to 2000) and the lower profitability of Wacker.

        Excluding non-recurring items, EBITA totaled € 4,374 million in 2001 compared to € 3,789 million in 2000.

        EBIT was € 3,724 million in 2001 compared to € 861 million in 2000. EBIT in 2000 included non-recurring items totaling € 2,270 million, while no non-recurring items were taken in 2001. Amortization of goodwill amounted to € 650 million in 2001 compared to € 752 million in 2000.

        Interest expense – net totaled an expense of € 704 million in 2001 compared to an expense of € 805 million in 2000, due primarily to a reduction in the net financial indebtedness of Aventis due to the disposal of Messer Griesheim and an improvement in operating cash flows.

        Gains on sales of assets were € 545 million in 2001 compared to € 359 million in 2000. This increase was due primarily to the sale of non-strategic investments (Messer Griesheim) for € 133 million and the sale of intangible assets and product rights resulting from recurring transactions in our pharmaceutical business and realized in the frame of the restructuring of Group activities initiated in 1999 and 2000 for € 357 million.

        Miscellaneous non-operating income and (expenses) – net, excluding gains on sales of assets, totaled an expense of € 679 million in 2001 compared to an expense of € 440 million in 2000. This increase was due principally to a writedown taken for our investment in the diagnostics business Dade Behring, which is accounted for using the equity method. See Note 4 to our Consolidated Financial Statements for further information.

        Income before taxes and minority interests was € 2,886 million in 2001 compared to a loss of € 25 million in 2000.

        Net income was € 1,505 million in 2001 compared to a loss of € 147 million in 2000.

        Basic earnings per share (EPS) in 2001 were € 1.91 compared to a loss per share of € 0.19 in 2000.

72



Comments on Balance Sheet

Balance Sheet

 
  Aventis Group
 
  2001
  2000
 
  (in € million)

Intangible assets   14,264   14,822
Property, plant and equipment   5,740   7,498
Investments and other assets   6,445   5,851
Other current assets   11,270   12,733
Marketable securities, short term deposits, cash   1,514   1,279
   
 
Total assets   39,234   42,183
   
 

Stockholders' equity

 

12,021

 

10,561
Amortizable preferred securities   200   272
Minority interests   913   1,029
Redeemable partnership interest   284   0
Debt   10,710   14,412
Other liabilities   15,106   15,909
   
 
Total liabilities   39,234   42,183
   
 

        Stockholders' equity before allocation of earnings totaled € 12,021 million as of December 31, 2001, compared to € 10,561 million as of December 31, 2000, an increase of € 1,460 million. This increase resulted primarily from the net income and the issuance of ordinary shares following the exercise of warrants.

        Stockholders' equity plus other funds (including minority interests and amortizable preferred securities) totaled € 13,134 million as of December 31, 2001, compared to € 11,862 million as of December 31, 2000, a net increase of € 1,272 million, which resulted primarily from the combined effect of the increase of stockholders' equity before allocation of earnings and the decrease of minority interests.

        Net debt (defined as bank overdrafts, short-term and long-term borrowings and debentures minus cash, short-term deposits and marketable securities) totaled € 9,196 million as of December 31, 2001, compared to € 13,133 million as of December 31, 2000, a decrease of € 3,938 million as a consequence of treasury flows compared to the previous year and of the deconsolidation of the Messer Griesheim net debt for € 1.5 billion.

        As of December 31, 2001, approximately € 4.7 billion (50.7%) of our total debt of € 9.2 billion was long-term in nature (excluding the current portion of long-term debt) compared to € 8.2 billion (62.6%) as of December 31, 2000.

      Approximately € 1 billion of our long-term debt is accounted for by 31/4% notes having a nominal amount of € 23.22 each and exchangeable at the option of the noteholder into one share of Rhodia until October 2003 (subject to our early redemption rights) and represent 25.2% of the share capital of Rhodia.

      A further € 1 billion of our long-term debt is accounted for by bonds having a nominal amount of € 1,000 each, exchangeable at the option of the bondholders into shares representing 11.8% of the Clariant share capital until July 2003 (subject to our early redemption rights).

      Approximately 48% (€ 2,033 million in debentures and € 184 million in bank borrowings) of our long-term debt instruments come to term in 2003. Of our long-term debt held as of December 31, 2001, approximately 95% was denominated in euro compared to approximately 65% at the end of 2000.

      Approximately 75% of our net debt at December 31, 2001 was held by the parent company Aventis, with the remainder held at the subsidiary level.

73


        Our overall net debt-to-equity plus other funds ratio was 0.70 as of December 31, 2001, compared to 1.11 as of December 31, 2000.

        We have available unused amounts under short-, medium- and long-term multi-currency lines of credit totaling € 8,698 million as of December 31, 2001, compared to € 7,362 million as of December 31, 2000.


CONSOLIDATED STATEMENTS OF CASH FLOW

        Our self-financing capacity (net income before preferred remuneration plus elimination of expenses and benefits which do not have a cash effect) totaled € 3,250 million in 2001 compared to € 1,468 million in 2000, reflecting principally the rise in net income.

        Net cash provided by operating activities totaled € 3,113 million in 2001 compared to € 1,271 million in 2000, an increase of € 1,842 million mainly due to the core business. This variance primarily relates to the combined effect of the increase in net income and the reimbursement in 2001 of withholding taxes paid in 2000 by Aventis on dividends paid by Hoechst in 1999 (net cash effect of € 300 million).

        Net cash used by investing activities resulted in a net outflow of € 720 million in 2001 compared to € 1,441 million in 2000. Net cash used by investing activities in 2001 included primarily:

      Capital expenditures totaling € 1,245 million in 2001 compared to € 1,570 million in 2000 (the decrease in capital expenditures reflected the deconsolidation of Messer Griesheim as of April 1, 2001).

      Acquisitions (other than those accounted for as capital expenditures) were made totaling € 486 million in 2001, notably the acquisition of an additional equity interest in Millennium Pharmaceuticals, compared to € 932 million in 2000.

      Proceeds from the sale of assets in 2001 totaled € 1,063 million and were primarily related to the disposal of the Cardizem trademark to Biovail, to the disposal of Messer Griesheim and to the sale of the household insecticide business of Aventis CropScience.

        Net cash provided by financing activities totaled € 2,197 million in 2001 compared to a utilization of € 460 million in 2000. The variance is mainly due to the reduction of the debt.

74


Aventis Core Business Financial Information and Analysis for 2001 and 2000

        As stated before, we define in 2001 our core business as the combination of our activities in prescription drugs, human vaccines and therapeutic proteins, together with our equity interest in the results of the Merial animal health joint venture and our corporate activities. We have set forth below statement of operations and balance sheet information for our core business for each of the years ended December 31, 2001 and 2000. This core business financial information reflects the sum of the relevant historical financial information from each of the accounting segments included in our core business, subject to the allocation of the historical net debt managed centrally and related interest expense between our core business and our non-core business, as explained before. (For individual industry segment financial information, see Note 26 to the Aventis Consolidated Financial Statements.) In addition, concerning the core business statement of operations information for 2000, we have provided information both before and after non-recurring items, as explained further below.

    Before Non-Recurring Items

        In order to enable the core business statement of information for 2001 to be compared to comparable data for 2000, we have also set forth below core business financial information for 2000 before non-recurring items.

75


    Statement of Operations


Statement of Operations

 
  Aventis Core(1)
 
 
   
  before
non-recurring
items(2)

   
 
 
  2001
  2000
  2000
 
 
  (in € million, except per share information in €)

 
Net sales   17,674   16,091   16,091  
Production costs and expenses   (5,084 ) (5,086 ) (5,230 )
Selling, general and administrative costs and other revenues – net   (5,951 ) (5,351 ) (5,893 )
Research and development   (2,977 ) (2,759 ) (2,911 )
Provisions for restructuring   (16 ) 0   (654 )
Goodwill amortization   (583 ) (573 ) (576 )
   
 
 
 
Operating income   3,064   2,323   826  
   
 
 
 
Equity in earnings of affiliated companies   214   180   163  
Interest expense – net   (280 ) (262 ) (262 )
Miscellaneous non-operating income and expenses – net   (55 ) (11 ) 93  
   
 
 
 
Income before taxes and minority interests   2,943   2,229   819  
   
 
 
 
Provision for income taxes   (1,133 ) (905 ) (352 )
Minority interests   (48 ) (35 ) (21 )
Preferred remuneration   (128 ) (118 ) (118 )
   
 
 
 
Net income   1,633   1,171   328  
   
 
 
 
Average number of outstanding shares (in million shares)   788   781   781  
Basic earnings per share (EPS)   2.07   1.50   0.42  
Basic EPS before goodwill amortization(3)(4)   2.81   2.23   1.16  
EBITA(3)(5)   3,861   3,075   1,565  
EBIT(3)(6)   3,278   2,502   989  

(1)
Unaudited.
(2)
In the table above, the column "Before Non-Recurring Items" presents non GAAP financial information before deduction of the non-recurring items for the prescription drugs, human vaccines, therapeutic proteins, animal health and corporate segments.
(3)
These lines are non-GAAP financial measures.
(4)
Please refer to the paragraph "— Definition of Basic Earnings Per Share (EPS) before goodwill amortization", above.
(5)
Please refer to the paragraph "— Definition of EBITA line as presented in statements of operations", above.
(6)
Please refer to the paragraph "— Definition of EBIT line as presented in statements of operations", above.

76


    Balance Sheet


Balance Sheet

 
  Aventis Core(1)
 
  2001
  2000
 
  (in € million)

Intangible assets   13,581   13,962
Property, plant and equipment   4,714   4,279
Investments and other assets   5,003   4,064
Other current assets   7,726   8,657
Marketable securities, short term deposits, cash   1,035   839
   
 
Total assets   32,059   31,801
   
 

Stockholders' equity

 

13,372

 

12,817
Amortizable preferred securities   200   272
Minority interests   274   261
Redeemable partnership interest   284   0
Debt   4,329   4,861
Other liabilities   13,599   13,590
   
 
Total liabilities   32,059   31,801
   
 

(1)
Unaudited.

77



CORE BUSINESS ANALYSIS: 2001 COMPARED TO 2000

        Net sales were € 17,674 million in 2001, an increase of 9.8% over 2000 reported net sales of € 16,091 million. The following structural changes had a material impact on the comparable basis in 2000:

      The North American rights to the Cardizem family of cardiovascular products were licensed to Biovail Corporation in January 2001.

      A six-month minimum margin contract manufacturing agreement with Ajinomoto Co. Inc. ended in June 2000.

      The over-the-counter (OTC) business was divested in Canada.

      RP India was divested as of December 31, 2000, as part of the integration process to create Aventis in India.

        Adjusting 2000 reported net sales to reflect these and other minor changes in the scope of consolidation resulted in comparable net sales in 2000 of € 15,454 million. The core business sales activity variance was 15.3%.

      Prescription drugs, which represented 86% of total core business sales, recorded sales of € 15,168 million in 2001, up 9.4% over reported sales of € 13,871 million in 2000. Sales rose 15.9% on an activity basis, and growth in 2001 was driven primarily by our strategic brands – brand-name prescription drugs that we believe offer strong growth potential – and by increasing our focus on the key markets of the United States, France, Germany and Japan.

      Human vaccines sales rose 30.5% to € 1,425 million from € 1,091 million in 2000 (+28.2% activity variance), due mainly to higher sales in the United States, especially for the Fluzone influenza vaccine and the IPOL injectable polio vaccine.

      Therapeutic proteins sales fell 1.9% to € 1,129 million from € 1,151 million in 2000 (-1.7% activity variance), due mainly to supply-chain difficulties for Helixate FS/NexGen, the enhanced recombinant product for treatment of hemophilia A, which is manufactured by a third party.

    Prescription Drugs

        Prescription drugs sales contributed € 15,168 million in net sales in 2001, an increase of 9.4% over reported sales of € 13,871 million in 2000. Sales rose 15.9% on an activity basis. Prescription drugs are the principal products of Aventis, accounting for 86% of total core business sales in 2001 compared to 86% in 2000.

        Aventis has identified a group of leading products as being "strategic brands," brand-name pharmaceuticals that we believe have significant growth potential, that in total generated sales of € 7,322 million in 2001, a total increase of 38.3% over 2000 sales of € 5,295 million (+38.2% activity variance). Our strategic brands, which were expanded in 2001 to include the newly launched products Ketek and Lantus, represented 48.3% of total prescription drug sales compared to 38.1% in 2000.

        Within this group, a collection of "core" strategic brands are being given top priority:

      the allergy treatment Allegra/Telfast

      the anticoagulant agent Lovenox/Clexane

      the chemotherapy agent Taxotere

      the cardiovascular treatment Delix/Tritace

      the oral diabetes treatment Amaryl

      the long-acting insulin Lantus

      the antibiotic Ketek

        Three leading strategic brands – Allegra/Telfast, Lovenox/Clexane and Taxotere – achieved "blockbuster" status by generating sales of more than € 1 billion each in 2001.

        Allegra/Telfast sales rose due to increased promotional support, including direct-to-consumer advertising, and the continued success of line extensions and new indications introduced in the United States in 2000, particularly the 180 mg once-daily formulation. Sales figures also reflect a full year's sales of

78



Allegra in Japan, where it was launched in November 2000. Allegra increased market share and became the No. 2 antihistamine worldwide based on sales in 2001.

        Lovenox/Clexane sales benefited from the drug having the broadest range of indications among low-molecular-weight heparins (LMWHs) as well as from the launch of a new indication in the United States in the first quarter of 2001 for prevention of DVT (deep vein thrombosis) in medically ill patients with restricted mobility. Also supporting sales was the increasing use of this drug for treatment of various types of serious heart conditions, increased sales force efforts and the continued effect of positive clinical studies.

        Taxotere sales rose in 2001 due primarily to the results of several clinical trials in breast, lung and ovarian cancer published in 2001, which differentiated it from other therapies. Sales in the United States rose 43% despite the introduction of generic competition for the compound paclitaxel, a competing product. In Japan, sales rose following our acquisition of exclusive rights for this drug in the country after the end of a co-development and co-marketing agreement with Chugai Pharmaceuticals.

        Delix/Tritace sales were primarily supported by the HOPE (Heart Outcomes Prevention Evaluation) study, which was published in January 2000 in the New England Journal of Medicine, and from its status as the only ACE inhibitor with the indication of prevention of stroke, myocardial infarction and cardiovascular death in patients at risk for cardiovascular events. A follow-up analysis of the HOPE study published in 2001 showing that treatment with Delix/Tritace was associated with lower rates of new diagnoses of diabetes in high-risk patients also contributed to the higher sales.

        Amaryl sales were driven mainly by its status as the only oral treatment for type 2 diabetes with three dosage forms and three indications: monotherapy, combination therapy with insulin and combination therapy with metformin, another oral diabetes drug. Amaryl achieved its highest sales in the United States, and also posted significant sales growth in Japan.

        Lantus sales rose due to the launch of this long-acting basal insulin in the United States in May 2001 and further expansion in Germany, where it was introduced in June 2000. Lantus captured approximately 20% of the market for new vials dispensed in the long-acting insulin market in the United States following its launch, while Lantus gained more than 30% of the long-acting insulin market in Germany based on sales at the end of the year.

        Ketek was first launched in Germany in October 2001 and achieved an 8% share of the country's macrolide market within nine weeks of launch. Supporting sales was the position of this brand as the first in a new class of antibiotics called ketolides and its indication for treating respiratory tract infections, including those resistant to certain commonly used antibiotics.

        Actonel sales were supported by the publication of clinical data supporting the efficacy of this drug in reducing fractures among people with osteoporosis. Actonel also received a new EU indication in 2001 for the reduction of hip fracture risk in women with established postmenopausal osteoporosis. Further supporting sales was the growing acceptance of this drug in the United States, its primary market, as well as market launches in certain European countries. Actonel is being co-developed and co-marketed with Procter & Gamble Pharmaceuticals. Actonel generated combined sales for the two companies of € 309 million in 2001 compared to € 63 million in 2000.

79



Prescription Drugs Sales by Therapeutic Area

Therapeutic
area/Product

  Key indications(1)
  2001
  2000
  Activity
variance
in %(2)

  Total
variance
in %(3)

 
 
   
   
  (in € million, except percentages)

 
Total prescription drug sales           15,168   13,871   15.9 % 9.4 %
of which:                          

 
Respiratory/Allergy           2,575   2,055   24.4 % 25.3 %

 
Allegra/Telfast     Seasonal allergies   1,762   1,166   48.9 % 51.1 %
      Chronic idiopathic urticaria                  

 
Nasacort     Allergies   266   204   28.8 % 30.5 %

 
Cardiology/Thrombosis           3,325   3,193   15.3 % 4.1 %

 
Lovenox/Clexane     DVT prophylaxis in surgery and medically ill patients with restricted mobility   1,453   1,042   37.6 % 39.4 %
      DVT treatment                  
      Unstable angina/NSTEMI                  

 
Delix/Tritace family     Hypertension   709   530   36.8 % 33.8 %
      Congestive heart failure                  
      Prevention of cardiovascular events                  

 
Oncology           1,494   1,176   27.9 % 27.0 %

 
Taxotere     Breast and lung cancer   1,003   744   34.8 % 34.8 %

 
Campto     Colorectal cancer   202   151   36.4 % 33.3 %

 
Metabolism/Diabetes           1,761   1,648   8.5 % 6.8 %

 
Amaryl     Type 2 diabetes   478   377   29.6 % 26.8 %

 
Insuman     Type 1 and type 2 diabetes   170   156   8.9 % 8.8 %

 
Lantus     Type 1 and type 2 diabetes   94   10   N.A.   N.A.  

 
Arthritis/Osteoporosis           677   582   19.2 % 16.4 %

 
Arava     Rheumatoid arthritis   258   192   31.8 % 34.0 %

 
Anti-Infectives           1,546   1,690   -3.9 % -8.5 %

 
Targocid     Infections   199   190   12.6 % 4.6 %

 
Tavanic     Infections   192   137   48.8 % 40.4 %

 
Synercid     Infections   33   44   -25.6 % -23.9 %

 
Ketek     Infections   3       N.A.   N.A.  

 
Central Nervous System           1,448   1,374   7.2 % 5.4 %

 
Copaxone(4)     Multiple sclerosis   383   246   51.5 % 55.2 %

 
Rilutek     Amyotrophic Lateral Sclerosis   118   106   13.9 % 11.9 %

 
Bulk & Toll Manufacturing           706   683   9.0 % 3.5 %

 

(1)
The key indications in this chart do not necessarily correspond to the exact indications registered in every country where the relevant pharmaceutical products are marketed and sold. The products in this chart are only a selection of the total product offering of Aventis. Inclusion in this chart does not imply that a given product is sold by Aventis in all of our principal markets. See "Item 4. Information on the Company" for additional information on our products.
(2)
Activity variance for total prescription drugs sales and for the sales of each therapeutic area refers to the comparable basis in 2000. Activity variance for each brand-name product refers to reported sales in 2000.
(3)
Total variance combines activity variance, structure variance and currency variance.
(4)
Sold in cooperation with Teva Pharmaceuticals.

80


    Human Vaccines

        Human vaccines contributed sales of € 1,425 million to our consolidated sales in 2001, an increase of 30.5% from a contribution to sales of € 1,091 million in 2000 (+28.2% activity variance). In the United States, the IPOL injectable polio vaccine continued to benefit from a 1999 Centers for Disease Control and Prevention (CDC) and American Academy of Pediatrics recommendation to use injected polio vaccines instead of a mixed oral/ injected vaccine for routine childhood immunization. In all areas of the world, our influenza vaccines (Fluzone and Vaxigrip) were helped by greater awareness of the disease as well as earlier availability and value recognition of the product. In addition, in Europe, vaccines are sold through Aventis Pasteur MSD, a 50–50 joint venture between Aventis Pasteur and Merck & Co. Aventis Pasteur MSD is accounted for using the equity method and had sales of € 556 million in 2001 compared to € 588 million in 2000. The joint venture reported strong demand for Hexavac, the only fully liquid pediatric combination vaccine to offer protection for six infectious diseases that received EU marketing approval in October 2000.


Sales of Human Vaccines by Product Family

 
  2001
  2000
  Activity
variance
in %

  Total
variance
in %

 
 
  (in € million, except percentages)

 
Human Vaccines Total   1,425   1,091   28.2 % 30.5 %
of which:                  
Product Family(1)                  
Influenza vaccines   473   240   94.0 % 97.0 %
Pediatric combination vaccines   378   370   1.4 % 2.1 %
Travelers/Endemic range   327   280   15.7 % 16.8 %
Injectable polio vaccines   244   217   9.3 % 12.6 %
Hepatitis B products   74   118   -36.8 % -36.8 %

(1)
Product family sales figures indicate total sales of the specified products, whether generated by Aventis Pasteur or the Aventis Pasteur MSD joint venture. Because Aventis accounts for Aventis Pasteur MSD using the equity method, the contribution to the Aventis consolidated sales will in some cases be materially less than these figures.

    Therapeutic Proteins

        Therapeutic proteins recorded sales of € 1,129 million, a decline of 1.9% compared to € 1,151 million in 2000 (-1.7% activity variance). The lower sales were due primarily to third-party supply problems for Helixate FS/NexGen, an enhanced recombinant product for treatment of hemophilia A that received U.S. and EU marketing approval in mid-2000 and had sales of approximately € 200 million in 2000. Excluding sales of Helixate FS/NexGen in both periods, activity variance on a comparable basis of structure would have shown growth of 7.6% over 2000.


Sales of Therapeutic Proteins by Product Family

 
  2001
  2000
  Activity
variance
in %

  Total
variance
in %

 
 
  (in € million, except percentages)

 
Therapeutic Proteins   1,129   1,151   -1.7 % -1.9 %
of which:                  
Product Family                  
Coagulation therapies   484   553   -13.6 % -12.5 %
Critical care treatments   300   281   8.1 % 6.5 %
Immune globulin products   229   204   10.6 % 12.3 %
Wound healing agents   77   92   -9.3 % -16.4 %

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Core Business Sales by Region(1)

Country/Region

  2001
  2000
  Activity
variance
in %

  Total
variance
in %

 
 
  (in € million, except percentages)

 
North America (United States and Canada)   6,857   5,680   28.0 % 20.7 %

France(2)

 

2,255

 

2,219

 

4.3

%

1.6

%
Germany   1,248   1,194   4.6 % 4.6 %
Other Europe(3)   2,179   2,002   9.6 % 8.8 %
   
 
 
 
 
Total Europe   5,682   5,415   6.3 % 4.9 %
   
 
 
 
 
Latin America(4)   1,255   1,236   7.4 % 1.6 %
Japan   1,128   1,090   12.4 % 3.5 %
Rest of World   2,045   1,987   14.8 % 2.9 %
Bulk & Toll Manufacturing   706   683   9.0 % 3.5 %
   
 
 
 
 
Total   17,674   16,091   15.3 % 9.8 %
   
 
 
 
 

(1)
Does not reflect the Merial animal health joint venture and the Aventis Pasteur MSD human vaccines joint venture, which are accounted for using the equity method.
(2)
The activity variance of France excludes the effect of businesses that were divested in 2000.
(3)
Principally other EU members, and members of the European Economic Area. Sales to Eastern Europe are included under Rest of World.
(4)
Our ability to recover payment and the level of future sales in Argentina may be affected by the current economic crisis in that country. While this crisis may materially affect our sales in Latin America, we do not expect them to materially affect our total consolidated financial results.

        In the United States, the world's largest pharmaceutical market, sales reached € 6,477 million, an increase of 21.3% from € 5,341 million in 2000 (+27.7% activity variance), driven primarily by the ongoing strong performance of our strategic brands and reflecting our decision to shift resources toward these products. The U.S. accounted for 36.6% of total core business sales compared to 33.2% in 2000 as reported.

        Allegra sales rose 44.8% to € 1,495 million, due principally to the 180 mg once-daily formulation launched in 2000. Allegra-D, a formulation with a decongestant, continued to be a major contributor to Allegra family sales, supported by new clinical data regarding onset of action. Also supporting sales were increases in the size of the sales force for this product and in direct-to-consumer advertising for this product.

        Lovenox sales rose 50.5% to € 973 million in 2001, due primarily to its status as having the broadest range of approved indications among low-molecular-weight heparins (LMWHs). This brand was the market leader with more than a 90% share of the LMWH market based on sales in the United States. Lovenox gained momentum in 2001 amid increased use of this brand to prevent deep vein thrombosis ("DVT") in medically ill patients with restricted mobility, the brand's seventh FDA-approved indication.

        Taxotere sales rose 47.6% to € 541 million, as the differentiation of this product against the compound paclitaxel, a competitor, continued to be the key growth driver. Taxotere had market-leading positions in 2001, with a 25% share of sales of metastatic breast cancer treatments and 40% of sales of second-line non-small-cell lung cancer treatment. Important clinical data across a range of tumor types further supported sales.

        Lantus was launched in the United States in May 2001 and since then has had a strong performance as sales reached € 58 million. At the end of 2001, Lantus had captured 20% of all new insulin vials dispensed in the country's long-acting insulin market.

        Sales of Dermik, our dermatology pharmaceutical products business in the United States, rose 60% to € 401 million in 2001, up from € 244 million in 2000.

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Sales of Strategic Brand in the United States

Strategic brand

  2001
  2000
  Activity
variance
in %

  Total
variance
in %

  Contribution
to total U.S. 2001
sales in %

 
 
  (in € million, except percentages)

 
Allegra/Telfast   1,495   1,033   40.4 % 44.8 % 23.1 %
Lovenox/Clexane   973   647   45.9 % 50.5 % 15.0 %
Taxotere   541   367   43.2 % 47.6 % 8.4 %
Amaryl   168   151   8.2 % 11.6 % 2.6 %
Lantus   58               0.9 %
Copaxone(1)   330   222   44.4 % 48.9 % 5.1 %
Nasacort   203   149   32.4 % 36.5 % 3.1 %
Arava   187   149   21.9 % 25.7 % 2.9 %
Rilutek   35   34   -0.4 % 2.7 % 0.5 %
Synercid   29   42   -32.7 % -30.6 % 0.4 %

(1)
Sold in cooperation with Teva Pharmaceuticals.

        In France, strategic brands contributed significantly to the positive sales trend, particularly Taxotere, which captured a significant share of the taxane market. Delix/Tritace sales continued to benefit from the results of the HOPE study.

        In Germany, sales gains were due primarily to the continuous growth of strategic brands, which more than compensated for the loss of sales from older and over-the-counter drugs that no longer receive significant marketing support. Among the strongest strategic brands in the country during 2001 were the Delix/Tritace family, Lovenox/Clexane and Taxotere.

        In Japan, sales rose principally due to the introduction of Allegra in November 2000 and its acceptance as a treatment for seasonal allergies, gaining a market share in terms of sales of 10.2% in its first full year. Taxotere sales benefited from new indications for gastric, ovarian and head and neck cancer as well as the acquisition of exclusive rights for this drug in the country after the end of a co-development and co-marketing agreement with Chugai Pharmaceuticals. Further supporting growth were stronger sales of Amaryl.


CORE BUSINESS PROFITABILITY ANALYSIS*

        Aventis core business gross margin as a percentage of sales increased to 71.2% in 2001 from 68.4% in 2000 (before non-recurring items relating to cost of goods sold that amounted in 2000 to a charge of € 144 million) due principally to an improvement in the product mix and greater focus on strategic brands. The end of the minimum-margin Ajinomoto supply contract and the divestiture of less profitable products contributed approximately 0.6 percentage points to the improvement.

        Selling, general and administrative expenses and other revenues net rose 11.2% to € 5,951 million in 2001 from € 5,351 million in 2000 (before non-recurring items that amounted in 2000 to a charge of € 551 million). These costs include all corporate segment expenses. Additional promotional and advertising expenditures for our strategic brands as well as investments in the launch of the new insulin Lantus and the antibiotic Ketek were the primary reasons for the increase. SG&A and other revenues net remained largely unchanged at 33.8% of core business sales, as sales growth and cost savings realized through the implementation of integration synergy projects offset lower product divestiture income.

        Research and development spending rose 7.9% to € 2,977 million, or 16.8% of 2001 core business sales, compared to € 2,759 million, or 17.1% of 2000 core business sales (before non-recurring items which amounted in 2000 to a charge of € 153 million). The increase was due primarily to more phase III studies, costs incurred in defending patents and new co-development/co-marketing agreements signed in 2001 to supplement our product pipeline, including the compounds Picovir for the common cold, ciclesonide for asthma and dexlipotam for type 2 diabetes. Partially offsetting the higher R&D spending were cost savings realized through integration projects.

        Goodwill amortization increased only slightly to € 583 million in 2001 from € 573 million in 2000 (before non-recurring costs amounting to € 3 million in 2000).

        Operating income increased to € 3,064 million in 2001 from € 2,323 million in 2000 (before non-recurring costs amounting to € 1,497 million in 2000).

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        Equity in earnings of affiliated companies increased to € 214 million from € 180 million in 2000 (before non-recurring costs amounting to € 17 million in 2000). The main reason for the increase was the contribution of the Merial animal health joint venture. Sales of this 50-50 joint venture with Merck & Co., which is accounted for using the equity method, rose 6.4% to € 1,853 million from € 1,740 million in 2000, due mainly to higher sales of the flea and tick control product Frontline and vaccines for foot-and-mouth disease.

        EBITA (an unaudited non-GAAP measurement that we define as operating income before goodwill amortization plus equity in earnings from affiliated companies) was € 3,861 million in 2001 compared to € 1,565 million in 2000 after non-recurring items. Excluding non-recurring items in 2000, EBITA rose 25.6% from € 3,075 million in 2000. EBITA as a percentage of sales rose 2.7 percentage points to 21.8% from 19.1% in 2000.

        EBIT (an unaudited non-GAAP measurement that we define as operating income plus equity in earnings from affiliated companies) increased to € 3,278 million in 2001 from € 2,502 million in 2000 (before non-recurring costs amounting to € 1,514 million in 2000).

        Interest expense – net totaled an expense of € 280 million in 2001 compared to an expense of € 262 million in 2000.

        Net income was € 1,633 million in 2001 compared to € 328 million in 2000 after non-recurring items. Excluding non-recurring items in 2000, net income rose 39.5% from € 1,171 million.

        Earnings per share (EPS) in 2001 were € 2.07 compared to € 0.42 in 2000 after non-recurring items. Excluding non-recurring items in 2000, EPS rose 38.2% from € 1.50. Before amortization of goodwill and non-recurring items, EPS increased to € 2.81 from € 2.23 in 2000.


(*)
Unaudited.

Aventis Non-Core Business Analysis: 2001 Compared to 2000

        Non-core business net sales were € 5,310 million in 2001 compared to € 6,288 million in 2000. Excluding the sales of Messer Griesheim, which was divested on April 1, 2001, sales would have increased 5.6%.

        Aventis CropScience contributed € 4,303 million in net sales in 2001, an increase of 6.7% over reported sales of € 4,034 million in 2000. On a comparable basis of structure, taking into account the divestiture of the household insecticide business in June 2001, sales rose 7.9% on an activity basis. The sales increase was achieved despite difficult market conditions and overall declining markets in many regions, particularly North America (-4.0%), Western Europe (-4.3%) and Asia-Pacific (-4.5%). Herbicides remained the largest indication area for Aventis CropScience, posting an increase of 8.1% (+8.1% activity variance) despite a very competitive market for cereal herbicides and unfavorable weather in Europe. Insecticide sales rose 7.5% (+8.3% activity variance) due to favorable conditions in the rice, cereal and sugar cane markets. Fungicide sales were stagnant (+0.2% activity variance) due to cold weather in Europe, the main market for these products. Environmental Science product sales registered an increase of 12.8% in 2001 (+24.6% activity variance), due mainly to strong developments in North America driven by new products against termites and for the lawn business. BioScience product sales increased 8.6% (+8.6% activity variance) amid contrasting performances as vegetable and field seed sales were higher but income from biotechnology traits licenses declined due to non-recurring royalty payments in 2000.

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Sales of Aventis CropScience by Indication Area

Indication area

  2001
  % of
total

  2000
  % of
total

  Total
variance
in %

 
 
  (in € million, except percentages)

 
Herbicides   1,567   36 % 1,450   36 % 8.1 %
Insecticides   1,130   26 % 1,051   26 % 7.5 %
Fungicides   690   16 % 690   17 % 0 %
Other crop protection   278   7 % 270   7 % 3.0 %
Environmental Science   424   10 % 376   9 % 12.8 %
BioScience   214   5 % 197   5 % 8.6 %
   
 
 
 
 
 
Total   4,303   100 % 4,034   100 % 6.7 %
   
 
 
 
 
 

        Sales in the United States rose 3.0% (+1.8% activity variance) due primarily to the strong development in the Environmental Science business and despite reduced planting acreage, adverse weather conditions – especially during the second-quarter planting season in the Midwest – and excessive inventory for some basic agricultural commodities such as corns, soybeans, cereals and cotton. In France, sales rose due to higher sales for industrial crop products, particularly insecticides. Sales in Brazil benefited from higher sales of insecticides and herbicides.


Sales of Aventis CropScience by Country

Country

  2001
  2000
  Activity
variance
in %

  Total
variance
in %

 
 
  (in € million, except percentages)

 
United States   787   764   1.8 % 3.0 %
France   535   491   9.0 % 9.0 %
Brazil   475   409   13.0 % 16.1 %
Germany   235   243   -3.2 % -3.2 %
Japan   186   181   12.5 % 2.9 %
Other countries   2,085   1,946   9.0 % 7.1 %
   
 
 
 
 
Total   4,303   4,034   7.9 % 6.7 %
   
 
 
 
 

        Aventis Animal Nutrition net sales were € 572 million, a decrease of 0.9% (-1.3% activity variance) from € 577 million in 2000.

        Messer Griesheim was deconsolidated following our divestiture of this business on April 1, 2001. As a result, net sales of Messer Griesheim were consolidated for only the first quarter and contributed € 435 million to our consolidated net sales in 2001 compared to € 1,673 million in 2000.

        Non-core business operating income amounted to € 575 million in 2001 compared to € 494 million in 2000 (before non-recurring items that amounted to € 704 million in 2000).

        The increase of € 162 million in operating income for Aventis CropScience (+36%) was partly offset by the impact of unfavorable economic conditions in the global chemical industry and by the impairment of € 110 million of assets booked in Aventis Animal Nutrition prior to divestiture, which took place in April 2002.

        Non-core business equity in earnings of affiliated companies fell to a loss of € 129 million in 2001 from a profit of € 135 million in 2000 (before non-recurring items which amounted to € 53 million in 2000), due mainly to a negative variance of € 169 million for Rhodia and to a lower contribution from Wacker.

        Net sales of the specialty chemicals group Rhodia, in which we have a 25.2% equity stake, were € 7,279 million in 2001, down 1.9% compared to € 7,419 million in 2000. The sales performance was influenced by a 1.2 percentage-point gain due to structural changes and a 1.6 percentage-point increase in prices, but were offset by declines of 3.3 percentage points in volumes and 1.3 percentage points in exchange rates. Business conditions were very difficult in 2001, hampered by increased volatility in oil prices and an accelerated drop in economic activity following the September 11 attacks in the United States. As a result of these factors, Rhodia initiated a restructuring program, which is expected to be completed in 2002.

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Rhodia booked € 253 million for restructuring provisions, and € 50 million in goodwill impairments in 2001 for this program. Operating income declined € 16 million in 2001 compared to € 496 million in 2000. Rhodia reported a net loss of € 213 million in 2001 compared to net income of € 216 million in 2000.

2000 Non-Recurring Items

        The table below describes the non-recurring items taken by Aventis in 2000 and broken down by sector.


2000 Non-Recurring Items

 
  Pharma
  Agriculture
  Industrial,
Corporate
and Others

  Total
 
 
  (in € million)

 
Restructuring charges   (632 ) (164 ) (18 ) (814 )
Other costs   (724 ) (519 ) (143 ) (1,386 )
Impact on operating income   (1,356 ) (683 ) (161 ) (2,200 )
Equity in earnings of affiliates   (59 ) (11 )   (70 )
Miscellaneous non-operational items               68  
Impact on income before tax               (2,202 )
Impact on net income               (1,273 )

Restructuring

        In 2000, Aventis recorded a total of € 814 million as restructuring charges, of which € 632 million was recorded by the Aventis Pharma sector and € 164 million by the Aventis Agriculture sector. New restructuring measures at Aventis Pharma affected primarily France (€ 315 million), the United States (€ 166 million), Germany (€ 31 million), Japan (€ 8 million) and other countries (€ 70 million). At Aventis Agriculture, new restructuring measures affected primarily France (€ 66 million) relating to workforce-reduction measures and the closing of the Saint Aubin site, the U.K. (€ 25 million) for the closing of various production sites as well as research and development facilities, the United States (€ 16 million) and Germany (€ 8 million). We also recorded a total of € 18 million of restructuring charges in relation to our corporate structure.

Other Costs

        Other costs that we have included as non-recurring items in 2000 comprised charges we incurred in connection with our integration of Aventis Pharma and Aventis Agriculture sector activities following the business combination of Rhône-Poulenc and Hoechst. These non-recurring items were divided into three categories:

      Items having a treasury effect and tied to the integration of activities within Aventis.

      Items without treasury effect involving principally writeoffs and impairments of assets resulting from site closings or sales or from the reorganization of certain activities.

      Costs and provisions relating to selected lawsuits as well as the net product of asset dispositions.

        Of these exceptional items, € 724 million was incurred by Aventis Pharma, € 519 million was incurred by Aventis Agriculture and € 143 million was incurred at our corporate level:

      Items having a treasury effect, tied to the integration of activities and incurred by Aventis Pharma amounted to approximately € 200 million, while those incurred by Aventis Agriculture amounted to approximately € 150 million. These items related mainly to integration costs tied to transfers of activities, fees for reregistration of products, corporate communications expenses and recruiting costs.

      Items without treasury effect involving principally writeoffs and impairments of assets amounted to approximately € 320 million for Aventis Pharma and related principally to impairments and depreciation of assets resulting from the reorganization of production, commercial activities and research and development, which involved the closing or transfer of activities. For Aventis Agriculture, these items amounted to approximately € 140 million and related principally to the impairment of assets resulting from revised business strategy at our Seeds/Link range product lines.

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Other Material Financial Elements

    Disclosure of Critical Accounting Policies

    Impairment policy

        Long-lived assets are recorded at cost at the date of acquisition and are amortized over time in accordance with the usage of these assets.

        Assets or asset groups are reviewed at each reporting date or each time an event occurs that may suggest that an asset has been impaired (when the chances of recovering their carrying amount may be threatened). If there is an indication that an asset may be impaired, such as a negative change in the operating conditions, then this asset is to be tested for impairment.

        The application of our impairment policy involves significant management judgements and estimates, including determination of triggering events, evaluation of future cash flows, estimation of the future evolution of business conditions and development of alternative business scenarios. Actual facts and developments could differ from these judgments and estimates and therefore affect our impairment assessments.

    Assets to be held and used:

        To identify assets held and used for which an impairment in value may have occurred, we undertake a review of long-lived assets and intangible assets when certain events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

        Those assets are tested for recoverability using cash flows estimates based on the future net cash flows associated with the asset or assets group, excluding interest charges and including future capital expenditures necessary to maintain the existing service potential.

        If as a result of the test an asset is deemed to be impaired, the measurement of the impairment loss is determined as being the excess of the carrying amount over the fair value of the asset. The fair value of an asset or asset group is determined by using one of the three following methods:

      Quoted market prices in active markets.

      Estimates based on prices of similar assets.

      Estimates based on valuation techniques, such as discounted cash flows.

    Assets to be disposed of by sale or to be abandoned:

        Assets to be disposed of by sale must be recorded at the lower of the carrying amount or fair value less costs to sell. Fair value is determined in the same manner as it is determined for assets held and used including expected sale proceeds and scrap value if any. If an asset qualifies as "to be disposed of", the depreciation or amortization is stopped.

        As of December 31, 2002, Aventis had no asset or group of assets qualifying as assets to be disposed of.

    Impairment of Goodwill:

        We recognize and measure goodwill impairment based on discounted cash flows, which are compared to goodwill for each business in which an impairment indicator exists.

        For the purpose of testing goodwill, all goodwill acquired in business combinations as well as all acquired assets and liabilities have been assigned to reporting units which are for us: prescription drugs, human vaccines, therapeutic proteins, Merial and corporate activities.

        Testing goodwill for impairment is done at reporting unit level. The fair value of the overall reporting unit based on discounted cash flows is compared to its carrying amount (including goodwill), if the carrying amount of the reporting unit exceeds its fair value, an impairment is recorded equal to the difference between these two amounts.

        Goodwill is tested on an annual basis and whenever certain circumstances indicate that goodwill might be impaired.

        In 2002, we reviewed the value of therapeutic proteins' assets (including goodwill) on the basis of the updated projected cash flows related to these assets. An impairment charge has been recorded to adjust the

87



carrying value of these assets to their estimated fair value. (See Note 2 to the Aventis Consolidated Financial Statements.)

    Impairment of Investments:

        Investments are classified either as strategic investments or other investments.

        Strategic investments are valued according to the value-in-use model, which includes among other things, consideration of strategic aspects, derived economic benefits, share market price, long-term holding intention and ability, and restriction period.

        As of December 31, 2002, the carrying value of our investment in Millennium Pharmaceuticals exceeded its value-in-use and a write down has been recorded accordingly.

        Other investments are carried at the lower of cost or net realizable value. (See Note 5 to the Aventis Consolidated Financial Statements for additional information.)

    Environmental and Product Liabilities

        The group recognizes a loss contingency and accrues for a liability if available information indicates that a contingent loss is probable as of the balance sheet date and reasonably estimable. In the course of its business, the group is exposed in particular to environmental and product liabilities.

        In addition, Aventis and its subsidiaries have divested a variety of mostly chemicals and agro-chemicals businesses in 2002 or in previous years with customary indemnification obligations (notably environmental and product liabilities) regarding the state of the sold businesses and negotiated on a case-by-case basis.

        With respect to environmental liabilities, the Group generally estimates losses on a case-by-case basis and makes the best estimate it can, based on available information. In evaluating the potential liability the group is considering the two following criteria, on or before the date the balance sheet is issued (date of the Supervisory Board):

      Litigation has commenced or a claim has been asserted.

      Based on available information it is probable that the outcome of such litigation, claim or assessment will be unfavorable.

        With respect to product liabilities, other litigations and claims, the Group estimates contingency losses on the basis of current facts and circumstances, prior experience with similar matters, the number of claims and the anticipated cost of administering, defending and in some cases, settling such claims.

        If both conditions for the accrual of a loss contingency are met, an accrual for the estimated amount of pending or threatened litigation and actual or possible claims or assessments including the attorney's fees is required. Anticipated recoveries from third parties determined to be probable of occurrence are recorded as an asset.

        The evaluation of loss contingencies involves significant management judgments and estimates when assessing and recognizing the Group's exposures and likelihood of loss. Future events, such as changes in existing laws, new facts or conditions, as well as developments of currently in-process claims or litigation may result in actual losses differing from those recognized by us at year-end.

        (For additional information, please see Notes 16, 18 and 25 to the Aventis Consolidated Financial Statements).

    Acquisition Policy

        We review acquisition and investment opportunities in our core business markets on a continuing basis and normally pursue transactions, including any acquisition or investment that might be material in relation to our consolidated financial condition or results of operations, that are deemed essential to consolidating or preserving our strategic position in one of these markets.

    Divestiture Policy

        In the past, we have divested numerous non-strategic assets with the objective of focusing our business portfolio and reducing outstanding debt.

88


        In 2002, we successfully completed the disposals of Aventis CropScience and Aventis Animal Nutrition as announced in 2001. We intend to divest our activities classified as non-core business.

    Capital Expenditures

        The following table sets forth our capital expenditures for each of the three years during the period ended December 31, 2002.


Aventis Capital Expenditures

 
  2002
  2001(1)
  2000(1)
 
 
  (in € million, except percentages)

 
Core Business   864   998   933  
Non-Core Business   136   247   637  
   
 
 
 
Total capital expenditures   1,000   1,245   1,570  
   
 
 
 
Total capital expenditures as a % of consolidated net sales   4.8 % 5.4 % 7.0 %

(1)
Aventis Behring has been transferred to non-core business.

        Over the past years, capital expenditures have principally been devoted to the following objectives:

      capacity increases for new or existing products (notably Lantus and Lovenox)

      plant productivity improvements,

      compliance with safety and environmental regulations

      expansion in geographically important areas of economic growth, notably North America.

        Our level of capital expenditures for our core business shows no significant evolution over the three years under review. In the future, we intend to focus our investments to support our strategy to optimize our product and geographic mix. We are also concentrating our efforts to increase our capacity for new strategic brands.

        The geographical breakdown of the total capital expenditures is as follows:


Aventis Capital Expenditures

 
  2002
  2001(2)
  2000(2)
 
  (in € million)

France   146   171   187
United States   163   323   215
Germany   267   203   151
Rest of the World   122   154   263
   
 
 
Prescription drugs   698   851   816
Human vaccines   159   143   79
Corporate(1)   7   3   38
Total Core Business   864   998   933
Non-Core Business   136   247   637
   
 
 
Total capital expenditures   1,000   1,245   1,570
   
 
 

(1)
Capital expenditures for Corporate relate mainly to France.
(2)
Aventis Behring has been transferred to non-core business.

        For 2003, total capital expenditures for our core business are expected to amount to approximately € 1,000 million. A majority of this amount (approximately € 500 million) will be spent on Industrial Operations across our sites. The main investments relate to the facilities which manufacture our core strategic brands (Ketek, Lantus, Lovenox and Taxotere) in addition to the usual amount used to maintain the plants.

        Another significant amount of investment relates to our research and development activities in order to develop our laboratories and high-tech equipment and to support our R&D efforts.

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        Our human vaccines business will invest to increase production capacity in the U.S. and in France, as well as for new laboratories and GMP compliance.

        We currently expect to finance these capital expenditures through cash flow provided by operating activities.

    Effect of Exchange Rate Fluctuations

        The reporting currency used in our consolidated financial statements is the euro. Because a substantial portion of our assets, liabilities, sales and earnings are denominated in currencies other than the euro, we have a transaction and translation exposure to fluctuations in the values of these currencies against the euro. These currency fluctuations, especially the fluctuation of the value of the U.S. dollar against the euro, could have a material impact on our results of operations. For example, a weak value of the U.S. dollar against the euro will reduce the euro value of our sales and earnings made in the U.S. dollar and in dollar sensitive regions such as Latin America and reduce the competitiveness of our products produced in Europe against products exported from the United States.

        We engage in various foreign currency hedging activities to reduce our exposure to fluctuations in exchange rates. As a general policy, we do not specifically hedge transactions, but manage our exposure on a comprehensive basis. See Note 1(k) to the Consolidated Financial Statements included in this Annual Report.

      In 2002, the increase in the value of the euro compared to the U.S. dollar ($ 0.9456 average value in 2002 compared to $ 0.8956 average value in 2001) had a negative impact on our net sales. The strength of the euro resulted in a negative currency impact of 2.4% on sales of our Core Business.

      In 2001, the decrease in the value of the euro compared to the U.S. dollar ($ 0.8956 average value in 2001 compared to $ 0.924 average value in 2000) had a positive impact on our net sales, which was offset by negative variances from other currencies.

      In 2000, the decrease in the value of the euro compared to the U.S. dollar ($ 0.924 average value in 2000 compared to $ 1.066 average value in 1999) had a positive impact on our net sales.

    French Corporate Taxation Arrangements

        Under the provisions of the French Tax Code (Article 209 quinquies), we have obtained approval from the French tax authorities to file a worldwide, consolidated return. Accordingly, our French income taxes are computed on a worldwide, consolidated basis allowing us, within certain limits and subject to certain conditions, to offset taxable income of profitable subsidiaries against losses of other subsidiaries located in the same or different countries. The initial authorization for this arrangement expired on December 31, 1997. The Group has renewed this regime for the period 1998 to 2000, and for the period 2001 to 2003. Effective January 1, 1999, the scope of the worldwide tax policy was modified to exclude Rhodia companies and to include the Hoechst life science companies.

    Raw Materials

        Raw materials essential to our business are purchased in the normal course of business from numerous suppliers worldwide. In general, these materials are widely available from multiple sources. No serious shortages or delays were encountered in 2002 and none are expected in 2003.

    Environmental Product Liability and Antitrust Matters

        As of December 31, 2002, the amount of net liabilities accrued relating to environmental matters was approximately € 285 million, and the amount of liabilities accrued relating to product liability matters was approximately € 440 million. Environmental liabilities concern losses recognized for probable responsibility relating to past waste disposal practices (including designation of certain of our subsidiaries as a "potentially responsible party" under the U.S. Federal Comprehensive Environmental Response, Compensation and Liability Act (commonly known as "Superfund") and comparable designation under other applicable laws in the United States and other jurisdictions), tort claims relating to the release of chemicals into the environment and other environmental matters.

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        Aventis and/or its subsidiaries have been designated as a "potentially responsible party" or its equivalent under "Superfund" and similar laws in the United States and elsewhere, or may otherwise have potential responsibility for numerous sites, of which approximately 6 are undergoing active remediation by Aventis, and approximately 66 are undergoing active remediation under circumstances where third parties have primary responsibility for such remediation (through indemnification or otherwise). In 1998, Aventis entered into an Environmental Indemnification Agreement under which, subject to certain conditions, Rhodia may claim indemnification from Aventis with respect to costs that may arise from unanticipated environmental liabilities. On December 27, 2002, Aventis received an offer from Rhodia to settle all environmental claims in connection with the Environmental Indemnification Agreement, for an amount of € 88 million, of which € 26 million have been paid as of December 31, 2002. In addition, with respect to certain other business that Aventis and its subsidiaries have de-merged or divested, for example, Aventis Animal Nutrition, Aventis CropScience, Celanese, Infraserv Höchst, Messer Griesheim, and the specialty chemicals business sold to Clariant, the Group has retained responsibility for certain environmental liabilities. See Note 25 of the Aventis Consolidated Financial Statements included in this Annual Report for further information.

        Aventis and/or its subsidiaries are named as defendants in various product liability, antitrust and other actions. See "Item 8. Financial Information — Information on Legal or Arbitration Proceedings" and Note 25 of the Aventis Consolidated Financial Statements for further information.

        We recognize losses and accrue liabilities relating to environmental and product liability matters. Accordingly, we recognize a loss if available information indicates that the event of loss is "probable" and "reasonably estimable." If the event of loss is neither "probable" nor "reasonably estimable," but is "reasonably possible," we disclose this contingency in the notes to our consolidated financial statements if such contingency is material. If the event of loss is remote, we do not disclose this possibility. With respect to environmental liabilities, we generally estimate losses on a case-by-case basis and make the best estimate we can based on available information. With respect to product liabilities, we estimate losses on the basis of current facts and circumstances, prior experience with similar matters, the number of claims and the anticipated cost of administering, defending and, in some cases, settling such claims. Our policy is to record as an asset any anticipated recoveries from third parties (primarily, recoveries from insurance carriers) relating to environmental and product liability matters, the occurrence of which are determined to be probable on the basis of the status of current discussions with such third parties.

        Based on the information available to us, we do not believe that unrecognized and uninsured losses for environmental and product liability matters that are reasonably possible or remote would have a material adverse impact on our consolidated financial condition, results of operations or liquidity.

    Outlook

        For 2003 and beyond, we anticipate that the pharmaceutical industry will continue to face several challenges, such as additional healthcare cost-containment efforts and more demanding approval procedures for new products. However, we feel that the mid- to long-term growth trends for the industry are intact: there is a strong need for better therapies for serious, chronic or life-threatening diseases — such as cancer, cardiovascular conditions or diabetes — while new technologies and a better understanding of many diseases will enable us to offer patients better treatments.

        Our existing strategic brands and vaccines, which address critical medical needs, have significant potential for incremental growth. We additionally expect a number of new products in key therapeutic areas will also contribute substantially to our future performance. We therefore expect to continue to deliver strong earnings growth in 2003. For 2003, sales activity growth (excluding the impact of currency) for our core business is expected to be in the high single digits, while earnings per share for the core business are expected to achieve a growth rate in the mid to high teens after one-time costs generated by a productivity enhancement plan. For 2004, we currently expect a similar profile for sales growth as in 2003.

        Statements in this outlook, including but not limited to statements of or relating to financial projections, plans and objectives for future operations, predictions of future product sales or economic performance, and assumptions underlying or relating to any such statements, are forward-looking statements subject to risks and uncertainties. Actual results could differ materially depending on factors such as the availability of resources, the timing and effects of regulatory actions, the success of new products, the strength of competition, the success of research and development efforts, the outcome of significant litigation, the effectiveness of patent protection, the effects of currency exchange fluctuations, and other factors. Estimates of future product sales can be particularly subject to uncertainty due to the multitude of factors that could cause actual results to differ materially. Such factors include, but are not limited to,

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adverse outcomes in patent infringement litigation; entry into the market of new products, or of generic or over-the-counter versions of our products or of competing products; undesirable or untimely regulatory or legislative actions, such as forced conversion of prescription drugs to over-the-counter status; inability to obtain regulatory approval to market drugs for certain indications; and limitations on revenues imposed by volume purchasers, government entities, and by operation of law. We disclaim any obligation to revise or update any such forward-looking statement beyond those imposed by law.

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Item 6.    Directors, Senior Management and Employees

        Aventis is organized under French law as a stock corporation (société anonyme) with a Management Board (Directoire) and a Supervisory Board (Conseil de Surveillance). Aventis adopted its current two-tier board structure upon closing of the business combination on December 15, 1999, in execution of an amendment to its By-Laws. The two boards are separate and no individual may simultaneously serve as a member of both.

        Under French law, the Management Board has management responsibility for Aventis and broad authority to take actions in the name of Aventis, within the scope of the object and purposes of Aventis, and subject to the authority expressly reserved by law to the shareholders and the Supervisory Board.

        The corporate headquarters of Aventis is located in Strasbourg, France. The working language within Aventis is English.

        Aventis is following with interest the discussions concerning better corporate governance practices and is aided by the specialized committees of its Supervisory Board, see "Supervisory Board" below.

        Throughout its existence and in particular over the past decade, Aventis and its predecessor companies have consistently endeavored to use clear structures and to adhere to principles of integrity and transparency in the management of the company.

        Due to the listing of Aventis on Euronext Paris, the New York Stock Exchange (NYSE) and the Frankfurt Stock Exchange, Aventis has decided to implement – to the extent compatible with French law requirements to which Aventis as a French company is bound – the new legal and regulatory provisions on corporate governance which have been issued, as well as the new recommendations in France, Germany and in the U.S. Insofar as some of the new provisions are not yet applicable, a transitional period is planned. Therefore, Aventis will complete its implementation of the new provisions as they become final. The present Annual Report takes into consideration the provisions effective as of the filing date of this Annual Report.

        In light of the history of Aventis and its significant shareholdings in Germany, Aventis also strives for compliance with best practice for German Corporate Governance standards as evidenced by the "Deutscher Corporate Governance Kodex" (DCGK) which applies by law in effect only to German stock corporations. Aventis complies with almost all of the provisions of the DCGK. Where deviations exist, they result for the most part from different legal context and corporate culture in France.


Management Board

        The Management Board of Aventis is composed of seven members appointed for a five-year term, which will expire at the end of the Annual General Meeting called to approve the accounts for the year ended and held in the year 2004. They may be reelected. Notwithstanding the above, in the event the Supervisory Board creates a new position on the Management Board, the term of office of such new member will expire simultaneously with the term of office of the current members of the Management Board.

        No person may be appointed as a member of the Management Board if he/she is over the age of 65. The Supervisory Board appoints the Management Board members, including the Chairman and Vice Chairman. The mandates of members of the Management Board may be revoked at any time by the Supervisory Board.

        Management Board meetings may take place by personal attendance in France or abroad as well as by any means of telecommunication, in particular by videoconference or telephone conference call. For the decisions of the Management Board to be valid, a majority of its members must be present. The Management Board met 15 times in 2002.

        The Management Board is responsible for managing the business of Aventis and for acting in the name of the company, in particular for making decisions on general policy matters and determining the overall business and financial strategy of Aventis. Excluded are those powers that are granted to the Supervisory Board and the shareholders specifically by law or because they are of strategic importance to Aventis or likely to have a material effect on its financial condition. For information on actions requiring approval of the Supervisory Board, see "Supervisory Board" below.

        Following the Annual General Meeting held on May 14, 2002, the Supervisory Board elected a new Management Board. Igor Landau, already a member of the Management Board, was appointed Chairman of the Management Board.

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        The table below lists as of March 1, 2003, the names and ages of the Management Board members, their current position within the Aventis Group, the dates of their initial appointment, the year when their terms of office expire and their directorships in other public companies. The table also indicates for each Management Board member the number of Aventis ordinary shares held as of March 1, 2003.

Name

  Current Position
within Aventis

  Initially
Appointed

  Term
Expires

  Directorships in
other companies and in
Aventis Group
(as at March 1, 2003)

Igor Landau
Born on July 13, 1944
10,403 Aventis Ordinary Shares*
  Chairman of the Management Board

Member of the Management Board
  May 14, 2002



Dec 15, 1999
  2004



2004
  Director of CCF, Essilor, IDI (Institut de Développement Industriel), Thomson Multimedia

Aventis Group:
Chairman of the Supervisory Board of Aventis Pharma AG

Member of the Board of Directors of Rhône-Poulenc AGCO Ltd, Aventis Inc, Aventis Behring LLC

Patrick Langlois
Born on December 9, 1945
57,107 Aventis Ordinary Shares*

 

Vice Chairman of the Management Board

Chief Financial Officer

 

May 14, 2002

 

2004

 

Member of the Board of Directors of Rhodia


Aventis Group:
Chairman and CEO of Aventis Agriculture

Director of Aventis Agriculture, Aventis Behring LLC, Aventis Pharma Inv Ltd. Carraig, Fiac (Guernesey), Fisons Ltd, Merial Ltd, Rhône-Poulenc Pharma, Aventis Pharmaceuticals Inc.

Member of the Supervisory Board of Aventis Pharma AG

Permanent Representative of Aventis Pharma SA within the Board of Directors of Aventis Pasteur, Gencell SAS

Richard J. Markham
Born on September 26, 1950
300 Aventis Ordinary Shares*

 

Vice Chairman of the Management Board

Chief Operating Officer

 

May 14, 2002

 

2004

 

Member of the Board of Directors of Pharmaceuticals Research and Manufacturers Association; Trustee of the Health Care Institute

Aventis Group:
Member of the Board of Directors of Aventis Behring LLC, Aventis Pharmaceuticals Inc.

94



Frank Douglas
Born on April 30, 1943
400 Aventis Ordinary Shares*

 

Member of the Management Board

Executive Vice President for Drug Innovation and Approval

 

May 14, 2002

 

2004

 

Member of the Board of Directors of Medtronic Inc.

Aventis Group:
Member of the Board of Directors of Aventis Pharmaceuticals Inc, Aventis Behring LLC, Gencell SAS

Heinz-Werner Meier
Born on November 30, 1952
130 Aventis Ordinary Shares*

 

Member of the Management Board

Executive Vice President for Human Resources

 

May 14, 2002

 

2004

 

Aventis Group:
Member of the Management Board of Hoechst AG

Chairman and Managing Director of the Management Board of Aventis Pharma Deutschland GmbH

Dirk Oldenburg
Born on July 19, 1957
425 Aventis Ordinary Shares*

 

Member of the Management Board

Executive Vice President, General Counsel

 

May 14, 2002

 

2004

 

Member of the Supervisory Board of Wacker-Chemie GmbH

Aventis Group:
Chairman of the Board of Management of the Aventis Foundation (Germany), Chairman of the Supervisory Board of Aventis Pharma Deutschland GmbH, Managing Director of Aventis Pharma Holding GmbH, Member of the Management Board of Aventis Pharma AG, Hoechst AG

Thierry Soursac
Born on April 22, 1957
271 Aventis Ordinary Shares*

 

Member of the Management Board

Executive Vice President for Commercial Operations

 

May 14, 2002

 

2004

 

Aventis Group:
Chairman of the Supervisory
Board of Aventis Pharma SA
Member of the Board of
Directors of Aventis
Pharmaceuticals Inc.

*
Number of Aventis shares held in sole property.

95



Supervisory Board

        The Supervisory Board supervises the management of Aventis by the Management Board. In addition, it appoints the Management Board and its Chairman and, as the case may be, its Vice Chairman and the Managing Directors ("Directeurs Généraux"). The Supervisory Board may revoke the mandate of members of the Management Board, as well as the mandate of the Chairman, of the Vice Chairman and of the Managing Directors in accordance with the provisions of French Law. The Supervisory Board determines the remuneration of the members of the Management Board. The Supervisory Board presents its comments on the annual financial statements and management report of Aventis to the shareholders at the Annual General Meeting of Shareholders. French Law and the Aventis By-Laws require the Supervisory Board's approval of certain operations, notably any corporate action that is of major strategic importance to, or likely to have a material financial effect on, Aventis on a consolidated basis.

        Shareholders appoint the Supervisory Board members for a five-year term, which will expire at the end of the Annual General Meeting of Shareholders called to approve the accounts for the year just ended and held in the year during which the duties of the said members expire. Pursuant to French law and the Aventis By-Laws, each Supervisory Board member must hold at least one Aventis share. No more than one-third of the Supervisory Board members in office at any time may be age 75 or older.

        The Supervisory Board appoints its own Chairman and Vice Chairman. The Supervisory Board currently consists of 16 members, and in accordance with the Aventis By-Laws, the number may not exceed 16 members. The aggregate amount of compensation to be paid to the Supervisory Board is determined each year by the Annual General Meeting of Shareholders, and the Supervisory Board votes to allocate this amount among its members. No member of our Supervisory Board is party to a service contract with us or our subsidiaries providing for benefits upon termination of employment.

        Internal rules of the Supervisory Board define the role and powers vis-à-vis the Management Board, supplementing the existing legal provisions and our By-Laws. These internal rules also define the functioning of the Supervisory Board, the role and powers of the committees of the Supervisory Board and describe the main professional ethics rules and code of conduct.

        In addition, Aventis has put in place compliance rules presenting notably the procedures, guidelines and restrictions applicable to Aventis directors, officers and employees for trading in Aventis shares, including the prohibition of certain insider transactions during blackout periods in connection with the publication of financial results.

        The internal rules of the Supervisory Board and the compliance rules are available on the Aventis Web site (www.aventis.com).

        Supervisory Board meetings are held at least once every quarter. The Chairman of the Supervisory Board may convene meetings on his own initiative, at the request of one-third of the Supervisory Board members or at the request of any Management Board member.

        Decisions must be made by a simple majority of all members entitled to vote, whether or not present or represented. Voting by proxy is permitted.

        At the Annual General Meeting held on May 14, 2002, Jürgen Dormann, formerly Chairman of the Management Board, and Jean-René Fourtou, formerly Vice Chairman of the Management Board, were elected as members of the Supervisory Board. At its meeting immediately following the Annual General Meeting on May 14, 2002, the Supervisory Board appointed Jürgen Dormann as Chairman and Jean-René Fourtou as Vice Chairman of the Aventis Supervisory Board.

        Marc Viénot, formerly Chairman, and Martin Frühauf, formerly Vice Chairman of the Supervisory Board remain members of the Supervisory Board.

        The Supervisory Board held five meetings in 2002, with an attendance rate of 93%. It is scheduled to hold five meetings in 2003.

        The table below lists, as at March 1, 2003, the names and birthdates of the Supervisory Board members, their current positions within the Aventis Supervisory Board, the dates of their initial

96



appointment, the year when their terms expire and their principal occupations or employment. The table also indicates for each Supervisory Board member the number of Aventis shares held as at March 1, 2003.

Name

  Current Position
within Aventis

  Initially
Appointed

  Term
Expires

  Directorships in
other companies and
in Aventis Group
(as at March 1, 2003)

Jürgen Dormann
Born on January 12, 1940
3,550 Aventis Ordinary Shares*
  Chairman of the Supervisory Board

Member of the Supervisory Board

Chairman of the Strategy Committee
  May 14, 2002


May 14, 2002


May 14, 2002
  2007


2007


2007
  Chairman of the Board of Directors and CEO of ABB Ltd.

Chairman of the Supervisory Board of Lion Bioscience AG

Member of the Supervisory Board of Allianz AG

Member of the Board of Directors of IBM Corporation

Member of the Executive Committee of the "World Business Council for Sustainable Development" (& Vice President Europe)

Jean-René Fourtou
Born on June 20, 1939
39,702 Aventis Ordinary Shares*

 

Vice Chairman of the Supervisory Board

Member of the Supervisory Board

Member of the Strategy Committee

 

May 14, 2002


May 14, 2002


May 14, 2002

 

2007


2007


2007

 

Chairman of the Board of Directors and CEO of Vivendi Universal, Chairman of the Supervisory Board of Group Canal+, CEO of USI Entertainment Inc, Director of USA Interactive

Chairman of the Supervisory Board of Vivendi Environnement

Vice Chairman of the Supervisory Board of AXA, Vice Chairman of the Board of AXA Assurances IARD Mutuelle, AXA Assurances Vie Mutuelle, AXA Courtage Assurances Mutuelle, and member of the Board of AXA Financial Inc, The Equitable Life Assurance and AXA Millesime SAS

Member of the Board of Directors of Cap Gemini, EADS

President of ICC (International Chamber of Commerce)

 

 

 

 

 

 

 

 

 

97



Joachim Betz
Born on February 4, 1948
118 Aventis Ordinary Shares*

 

Member of the Supervisory Board

 

May 21, 2001

 

2006

 

Representative of employee interests, member of the Supervisory Board of Hoechst AG and Aventis Pharma Deutschland GmbH as representative of the senior executive personnel ("Leitende Angestellte")

Chairman of the Group Senior Executive Personnel Committee for Hoechst AG and Aventis Pharma Deutschland GmbH, of the Biosafety Committee of Aventis Pharma Deutschland GmbH

Vice Chairman of Association of Employed Academic Personnel (VAA) of the Chemical Industry, of the Deputy Assembly of Pensionskasse Hoechst Gruppe VvaG and of the Employee Shareholders Association of Aventis BAA e.v.

Werner Bischoff
Born on November 15, 1947
200 Aventis Ordinary Shares*

 

Member of the Supervisory Board

 

May 21, 2001

 

2006

 

Representative of employee interests, Vice Chairman of the Supervisory Board of Hoechst AG (as representative of trade unions), of Aventis Pharma Deutschland GmbH (as representative of trade unions), of Degussa AG (as representative of trade unions), of Gewerkschaftliche Beteiligungsgesellschaft AG

Managing Director of IG Bergbau, Chemie, Energie (IGBCE)

Member of the Parliament of the German federal state of Nordrhein-Westfalen

 

 

 

 

 

 

 

 

 

98



Jean-Marc Bruel
Born on February 18, 1936
6,478 Aventis Ordinary Shares*

 

Member of the Supervisory Board

Member of the Nomination and Compensation Committee

 

December 15, 1999


December 15, 1999

 

2004


2004

 

Chairman of the Foundation Villette-Entreprise, Firmenich

Director of V.E.V. SA, Ecole Centrale (Paris), Institut Curie, Rhodia

Alain Dorbais
Born on March 4, 1949
10 Aventis Ordinary Shares*

 

Member of the Supervisory Board

 

May 21, 2001

 

2006

 

Representative of employee interests, Secretary of the European Works Council of Aventis, of the relationship FCE-CFDT of Aventis

Martin Frühauf
Born on May 21, 1933
542 Aventis Ordinary Shares*

 

Member of the Supervisory Board

Chairman of the Finance and Audit Committee

 

December 15, 1999


December 15, 1999

 

2004


2004

 

Attorney-at-Law

Member of the Supervisory Board of Dresdner Bank AG

Member of the Board of Directors of Landesbank Hessen-Thüringen

Serge Kampf
Born on October 13, 1934
2,100 Aventis Ordinary Shares*

 

Member of the Supervisory Board

Chairman of the Nomination and Compensation Committee

 

December 15, 1999


December 15, 1999

 

2004


2004

 

Chairman of the Board of Directors and CEO of Cap Gemini SA Cap Gemini Service SA, Cap Sogeti SA, Cap Sogeti Com SA

Chairman of Cap Gemini (Suisse) SA

Director of Cap Gemini France SA, Cap Gemini Telecom SA, Cap Gemini Gouvieux SA, Cap Gemini America Inc (USA), Cap Gemini UK – PLC

Permanent representative of Cap Gemini SA at the Board of Cap Gemini Université SA

Managing Director of Cap Gemini Europe BV, Cap Gemini Benelux BV

Hubert Markl
Born on August 17, 1938
100 Aventis Ordinary Shares*

 

Member of the Supervisory Board

Member of the Nomination and Compensation Committee

 

December 15, 1999


December 15, 1999

 

2004


2004

 

Professor of Biology

Member of the Supervisory Board of BMW AG, Royal Dutch Shell, Münchener Rückversicherungs AG

 

 

 

 

 

 

 

 

 

99



Günter Metz
Born on April 29, 1935
2,026 Aventis Ordinary Shares*

 

Member of the Supervisory Board

Member of the Nomination and Compensation Committee

 

December 15, 1999


December 15, 1999

 

2004


2004

 

Chairman of the Supervisory Board of Celanese AG

Member of the Supervisory Board of Schenker AG, Zürich Beteiligungs AG

Christian Neveu
Born on August 19, 1944
43 Aventis Ordinary Shares*

 

Member of the Supervisory Board

 

May 21, 2001

 

2006

 

Representative of the employee interests

Coordinator of CGT for Aventis Group

Didier Pineau-Valencienne
Born on March 21, 1931
10, 911 Aventis Ordinary Shares*

 


Member of the Supervisory Board

Member of the Finance and Audit Committee

 


December 15, 1999


December 15, 1999

 


2004


2004

 


Honorary Chairman of Schneider Electric SA and of Square D

Vice President of Crédit Suisse First Boston

Member of the Supervisory Board of Lagardere

Director of Aon France, Fleury Michon SA,
Vivarte SA, Wendel Investissement SA

Seham Razzouqi
Born on March 17, 1950
200 Aventis Ordinary Shares*

 

Member of the Supervisory Board

Member of the Finance and Audit Committee

Member of the Strategy Committee

 

December 15, 1999


December 15, 1999



May 14, 2002

 

2004



2004


2004

 

Managing Director, Finance, Administration and International Relations of Kuwait Petroleum Corporation, Delegated Governor of Kuwait to OPEC

Member of the Board of Director of Kuwait Petroleum Corporation, Petrochemical Industries Holding Sarl, Petrochemical Resources Holding BV

Member of the Public Authority for industry, Public Authority for applied education and training

 

 

 

 

 

 

 

 

 

100



Michel Renault
Born on June 23, 1937
100 Aventis Ordinary Shares*

 

Member of the Supervisory Board

Member of the Finance and Audit Committee

 

December 15, 1999


December 15, 1999

 

2004


2004

 

Chairman of the "Conseil de Direction" of Groupement des Cartes Bancaires

Chairman of the Supervisory Board of D.M.C. SA

Chairman of the College of "Associés Gérants" of ARJIL & Associés Banque (Lagardère Group)

Director of Groupe FLO, Bolloré Investissement (Groupe Bolloré),
V.E.V. SA

Hans-Jürgen Schinzler
Born on October 12, 1940
50 Aventis Ordinary Shares*

 

Member of the Supervisory Board

 

December 15, 1999

 

2004

 

Chairman of the Management Board of Münchener Rückversicherungsgesellschaft

Chairman of the Supervisory Board of Ergo Versicherungsgruppe AG

Vice Chairman of the Supervisory Board of Man AG

Member of the Supervisory Board of Metro AG

Marc Viénot
Born on November 1, 1928
2,520 Aventis Ordinary Shares*

 

Member of the Supervisory Board

Member of the Strategy Committee

 

December 15, 1999


May 14, 2002

 

2004


2004

 

Chairman of Paris Europlace Honorary Chairman of Société Générale

Director of Afep-Agref, Alcatel Alsthom, Ciments Français, Société Générale

*
Number of Aventis shares held in sole property.

        On May 14, 2002, following the Annual General Meeting, the Supervisory Board resolved to create a Strategy Committee. This committee was established to further strengthen corporate governance alongside the Finance and Audit Committee and Nomination and Compensation Committee, which were formed on December 15, 1999 to support the work of the Supervisory Board.

    The Strategy Committee

     
Members:   Jürgen Dormann (Chairman)
Jean-René Fourtou
Seham Razzouqi
Marc Viénot

101


        The authority and responsibilities of the Committee are defined in the Internal Rules of the Strategy Committee.

        The Strategy Committee is responsible for:

      Examining the process of the strategy formulation including format and timetable;

      Discussing the economic and political environment, including technological, regulatory and competitive dynamics;

      Discussing and challenging the strategy presented by the management;

      Reviewing the product portfolio, including internal and external product development and licensing activities;

      Reviewing all major investments and divestments, mergers, alliances beyond € 500 million per transaction, and preparing respective proposals for the Supervisory Board.

        The Strategy Committee held two meetings in 2002 with an attendance rate of 88%.

        In 2002, the committee reviewed and discussed an extensive analysis, prepared by the Management Board, of the current and anticipated future trends in the global pharmaceutical industry and its regulatory and economic environment, the competitive position of Aventis, the opportunities and risks we are facing, and a series of scenarios and options how to respond in order to secure growth and value creation.

    The Finance and Audit Committee

     
  Members: Martin Frühauf (Chairman)
Didier Pineau-Valencienne
Seham Razzouqi
Michel Renault

        The authority and responsibilities of the Committee are defined in the Internal Rules of the Finance and Audit Committee.

        The Finance and Audit Committee is responsible for the following:

        As a Finance Committee, it examines the Company's annual and interim financial statements before they are presented to the Supervisory Board, as well as the financial documents published by the Company upon the closing of each reporting period. The Committee is involved in examining any contemplated financial transactions of material significance for the Group.

        The Committee is informed of the accounting rules applicable within the Aventis Group. It examines any proposed changes in the accounting standards or modifications of accounting methods and in particular keeps itself informed concerning accounting methods and standards at national and international levels.

        The Committee examines and issues an opinion on any proposed pledge of security, surety, grant of endorsements or guarantees in favor of third parties in amounts exceeding the powers delegated to the Management Board by the Supervisory Board.

        The Committee examines and issues an opinion on any of the following proposals made by the Management Board:

      Issuance of instruments giving direct or indirect access to the equity capital of the Company;

      Stock repurchase programs;

      Financing transactions that are likely to substantially alter the financial structure of the Company;

      Appropriation of earnings and dividend policy;

      Any project for the development of employee stock ownership.

        As an Audit Committee, it participates, in particular, in the review of the analysis of reports of external and internal auditors as well as internal risk management.

        The Committee is involved in the choice of the statutory auditors of the Company and of the companies directly or indirectly controlled by the Company. It verifies that they are independent. It examines and approves in their presence their audit plan, the results of their audits, their recommendations and the

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action taken upon those recommendations. It ensures that the same principles are applied in all companies of the Aventis Group.

        In consideration of the new rules of the SEC, which will enter into force in 2003, the Committee should be responsible for the selection process of the statutory auditors of the Company and the companies directly controlled by the Company and should make a binding recommendation to the Management Board, which in turn will propose the election of the external auditors to the General meeting of Shareholders. The Committee should make also binding recommendation to the Management Board as to remuneration of audit and permitted non-audit services.

        The Committee examines the Risk Management organization as well as audit programs; objectives and findings of the Risk Management organization and of the central Aventis Audit function as well as the reports provided by other internal Aventis audit teams or by external firms engaged for audits. It comments upon the relevance and quality of the methods and procedures used. It defines and then directs the auditors' work. It submits the results of its activities and their consequences to the Supervisory Board.

        The Head of the Audit Department and/or Risk Management, who has a direct functional reporting line to the Chairman of the Management Board, provides the Chairman of the Finance and Audit Committee with the same information concerning audit and risk management on a permanent basis.

        The Committee may request at any time a report from the Management Board, the statutory auditors, the head of the central Aventis Audit function or from the internal Risk Management function on the risk exposure of the Aventis Group.

        The Committee may request in its own discretion the performance of any internal or external audit or other action on any issue it considers relevant to its mission, direction and responsibility; in such case the Chairman of the Committee informs the Chairman of the Supervisory Board and the Chairman of the Management Board. The Chairman of the Management Board may request a formal decision of the Supervisory Board on the performance of the requested actions.

        The Committee held four meetings in 2002, with an attendance rate of 100%, always in connection with the meetings of the Supervisory Board to which it reported on a regular basis and which it supported by making proposals and recommendations. The Committee can hold separate meetings (with no member of the Management Board present) with external and internal auditors. It is scheduled to hold two separate meetings in 2003.

        During the four meetings of the Committee in 2002, the management was regularly represented by the Chairman of the Management Board, Chief Financial Officer, Head of Corporate Internal Auditing, Head of Corporate Controlling, Group General Counsel, Head of Risk Management as well as by the Head of Corporate Treasury. In the first meeting of the year, representatives of the external auditors PricewaterhouseCoopers and Salustro Reydel were present and gave their reports on the year 2001.

        On the basis of all necessary documentation distributed in a timely manner prior to the meetings, the Committee discussed during the year 2002 the following major items:

      Aventis financial statements and annual report including the auditors' report for the fiscal year 2001, including questions about pro forma, off-balance sheet items and non-consolidated companies;

      Proposed resolutions to the Annual General Meeting of Shareholders in May 2002;

      Aventis financials 2002 on a quarterly, half-year and full-year basis;

      Company budgets and objectives;

      Update on various divestitures or reorganizations, i.e. Aventis CropScience, Aventis Animal Nutrition, Wacker, Aventis Behring, Dade Behring;

      Financing topics, i.e. renewal of Eurobond; issue of U.S. Commercial Paper Program; review on possible issuance of convertible bond; share buybacks; debt evolution;

      Special items, i.e. status of Rhodia/Clariant exchangeable bonds including the tender offer for the Rhodia exchangeable bonds; new avoir fiscal regulation in connection with the Aventis dividend; dividend recommendation; litigation in particular concerning vitamins and methionine; issue and allocation of stock options; launch of employee stock purchase program (Horizon); accounting treatment of specific matters such as pension obligations/stock options;

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      authorizations to be given to the Management Board;

      Insurance (set-up of a supercaptive; coverage for damages/costs in connection with StarLink; renewal of Directors and Officers insurance);

      Set-up of pension trust for unfunded pension liabilities in Germany, i.e. Hoechst AG;

      Update on internal audit activities (discussion on necessity for follow-up on implementation of audit recommendations; approval of audit plan; review of audit activity and reports);

      Corporate Governance topics in connection with new U.S. and French rules and recommendations;

      Approval of non audit services and recommendations for the year 2003;

      Independence of Auditors and no improper influence.

        The Committee felt that management provided detailed and timely written and oral information on the issues and projects of significant importance falling within its competence. This information—in connection with the reports by the external and internal auditors – enabled the Committee to fulfill its duties and mission and to give appropriate comments and recommendations to the full Supervisory Board.

    The Nomination and Compensation Committee

     
  Members: Serge Kampf (Chairman)
Jean-Marc Bruel
Hubert Markl
Günter Metz

        The authority and responsibilities of the Committee are defined in the Internal Rules of the Nomination and Compensation Committee.

        The Nomination and Compensation Committee is responsible for the following:

        As a Nomination Committee, this body reviews and makes proposals to the Supervisory Board concerning:

      The nomination of members of the Supervisory Board, of the members of the Committees of the Supervisory Board;

      The nomination and dismissal of the Chairman of the Management Board, and in consultation with the Chairman of the Management Board, the other members of the Management Board;

      The definition of the criteria of the selection or of the replacement in case of vacancy including the development of succession plans for the said positions and for the Top 2 management levels.

        As a Compensation Committee, this body reviews and makes proposals to the Supervisory Board concerning:

      The amount of Supervisory Board members' fees to be proposed to the Annual General Meeting of Shareholders;

      The compensation for the members of the Supervisory Board, for members of Committees of the Supervisory Board and for serving as Chairman of a Committee;

      The compensation of the Chairman and Vice Chairman of the Supervisory Board;

      The compensation of the members of the Management Board;

      The granting of options to subscribe for or to purchase Company stock to the Management Board members;

      The granting of options to subscribe for or to purchase Company stock to employees of the Aventis Group, of which the list of grantees and the number of options granted shall be attached to the minutes of the Committee meeting;

      Guidelines for the Compensation Policy for the Aventis Group;

      The retirement and/or severance policy for the Management Board;

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      The pension policy for the Management Board;

      The talent management program.

        The Nomination and Compensation Committee held six meetings in 2002 with an attendance rate of 88%.

        The Nomination and Compensation Committee reviewed the Management Board members' 2001 variable compensation and the Management Board members' compensation policy for 2002, fixed salary and criteria for determination of the variable compensation.

        The Committee proposed a compensation policy aiming to be competitive with the compensation policy of Aventis key world pharmaceutical competitors, with a progressive alignment year after year in line with the practices of the U.S. pharma market. The cash compensation policy is composed of two elements: a fixed part and a variable part. The main criteria taken into account for the variable part are linked with the achievements of the key financial yearly objectives (sales growth, earnings per share (EPS), cash flow, inter alia), the share price evolution, R&D achievements and some specific personal objectives for each Management Board member.

        The Committee reviewed the proposed governance, which entered into force on May 14, 2002, the 2001 professional expenses of the Management Board members and the status of the new Chairman and Vice Chairman of the Supervisory Board.

        On November 12, 2002, the Committee reviewed the proposed 2002 stock option programs and recommended their approval.


Compensation

        Our compensation policy aims to be competitive with the leading companies in the pharmaceutical industry. The total compensation includes a fixed portion and a variable portion based on the company's performance objectives and on individual targets.

        The amount of fees distributed to the Supervisory Board members comprises a fixed portion and a variable portion which is calculated in consideration of the participation in Board meetings and some specific committees. A fixed sum is paid to the Chairman and Vice Chairman of the Supervisory Board.

        The aggregate total gross compensation (fixed, variable components, fees, benefits in kind and pensions) of the present Supervisory Board members (16 people) paid in 2002 (January 1, 2002 to December 31, 2002) by Aventis and by the controlled companies amounted to € 9,763,313.

        The aggregate total gross compensation (fixed, variable components, fees and benefits in kind) of the present Management Board members (seven people) paid in 2002 (January 1, 2002 to December 31, 2002) by Aventis and by the controlled companies amounted to € 9,431,968. The amount above does not include the total gross compensation paid to Horst Waesche, who was member of the Management Board between January 1 and March 13, 2002.

        The total gross compensation (fixed, variable components, fees, benefits in kind and pensions) received during 2002 (January 1, 2002 to December 31, 2002) by the present members of the Supervisory Board was: Jürgen Dormann € 4,344,717*, Jean-René Fourtou € 3,465,140*, Joachim Betz € 70,000, Werner Bischoff € 65,000, Jean-Marc Bruel € 426,448, Alain Dorbais € 70,000, Martin Frühauf € 327,896, Serge Kampf €105,000, Hubert Markl € 72,000, Günter Metz € 344,612, Christian Neveu € 70,000, Didier Pineau-Valencienne € 82,000, Seham Razzouqi € 88,000, Michel Renault € 82,000, Hans-Jürgen Schinzler € 65,000 and Marc Viénot € 85,500.


*
Jürgen Dormann and Jean-René Fourtou were respectively Chairman and Vice Chairman of the Management Board until May 14, 2002.

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        The total gross compensation (fixed, variable components, fees and benefits in kind)** received during 2002 (January 1, 2002 to December 31, 2002) by the present members of the Management Board was: Igor Landau € 2,007,404, Richard J. Markham US$ 2,477,341, Patrick Langlois € 1,273,497, Frank Douglas US$ 1,383,105, Heinz-Werner Meier € 587,422, Dirk Oldenburg € 712,710 and Thierry Soursac US$ 1,369,462.


**
Not included in the amounts indicated above were some exceptional items regarding gains on exercises of stock appreciation rights (such exercises are detailed in "Stock Options Plans" below) and regarding differences of taxes paid by Aventis for Richard J. Markham and Frank Douglas who were expatriated to Germany. Their expatriation ceased on June 30, 2002 for Richard J. Markham and August 31, 2002 for Frank Douglas).


Stock Options Plans

        Our stock options policy aims to be competitive with the leading companies in the pharmaceutical industry. It is necessary to issue stock options in order to recruit, retain and motivate the managers needed to ensure the development of our company.

        Under the last option plan issued by Aventis on November 12, 2002, a total of 10,030,908 options to subscribe a total of 10,030,908 Aventis ordinary shares were granted at a price of € 60.27 to 8,966 participants.

        In 2002, based on the plans as decided on March 6, 2002 and November 12, 2002, which were the only stock option plans issued in the Aventis Group in 2002, a total of 850,000 options to subscribe at a price of € 60.27 a total of 850,000 Aventis ordinary shares were granted to the present members of the Management Board and a total of 1,000,000 options at a price of € 81.97 were granted to Jürgen Dormann (500,000) and Jean-René Fourtou (500,000), who were members of the Management Board at that time.

        The options granted in 2002 to the present Management Board members were: Igor Landau 300,000, Patrick Langlois 150,000, Richard J. Markham 150,000, Frank Douglas 75,000, Heinz-Werner Meier 50,000, Dirk Oldenburg 50,000, and Thierry Soursac 75,000. Each option of the November 12, 2002 plan gives the right to subscribe one Aventis ordinary share at an exercise price of € 60.27 until November 12, 2012.

        As of December 31, 2002 the present members of our Management Board held a total of 3,240,866 options and the present members of our Supervisory Board held a total of 3,655,000 options.

        Also in 2002, a group of 13 managers received a total of 490,520 options to subscribe 490,520 Aventis ordinary shares at an average price of € 60.27. This corresponds to the ten highest levels of grant allocated in 2002 to managers who are not Board members.

        In 2002, the present Management Board and the present Supervisory Board members exercised a total of 382,378 options: Igor Landau exercised a total of 140,000 options: 65,000 options on Aventis ordinary shares at an exercise price of € 23.53 (stock option plan dated December 17, 1996) and 75,000 options on Aventis ordinary shares at an exercise price of € 37.75 (stock option plan dated December 16, 1997); Frank Douglas exercised a total of 110,767 options: 69,084 stock appreciation rights at an exercise price of € 42.01 (Stock Appreciation Rights plan dated September 30, 1998) and 41,683 stock appreciation rights at an exercise price of € 45.43 (Stock Appreciation Rights plan of September 9, 1997); Heinz-Werner Meier exercised a total of 15,611 options at an exercise price of € 42.01 (Hoechst stock options plan dated September 30, 1998 and Stock Appreciation Rights plan dated September 30, 1998). Jean-Marc Bruel exercised a total of 116,000 options (56,000 options on Aventis ordinary shares at an exercise price of € 23.53 (stock option plan dated December 17, 1996) and 60,000 options on Aventis ordinary shares at an exercise price of € 37.75 (stock option plan dated December 16, 1997). Mr. Horst Waesche exercised, when he was member of the Management Board, 17,604 stock appreciation rights at an exercise price of € 45.43 (Stock Appreciation Rights plan of September 30, 1997).

        In addition, a total of 627,674 shares were subscribed or purchased by the ten managers (non-members of the Supervisory Board or of the Management Board) who realized the largest exercises in 2002 at an average price of € 30.64.

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        The main characteristics of these options are described in the table below:

Date of Board Grant

  April 22, 1994
  February 7, 1995
  December 14, 1995
  December 17, 1996
  December 16, 1997
Date of Annual General Meeting of Shareholders Authorization   April 22, 1994   April 22, 1994   April 13, 1995   April 13, 1995   April 23, 1997
Number of Options initially granted   1,150,000   1,150,000   1,500,000   1,750,000   3,572,000
— Number of Beneficiaries   150   256   295   350   4,106
— Number of Shares to be subscribed by                    
  — Directors           210,000
  — Number of Directors           4
Vesting Date(1)   April 22, 1997   February 7, 1998   December 14, 1998   January 6, 2000   January 6, 2001
Expiration Date   April 21, 2004   February 7, 2005   December 14, 2005   December 17, 2006   December 16, 2007
Total Number of Options exercised as of December 31, 2002   1,006,100   986,020   1,105,506   952,020   968,791
Total Number of Ordinary Shares subject to Options as of December 31, 2002   36,900   101,730   305,894   747,980   2,157,943
Discount in relation to the Reference Price   10%   10%   5%   5%   5%
Exercise Price in €   19.81   17.66   15.40   23.53   37.75

(1)
Normal vesting date, except specific exercising conditions.

Date of Board Grant

  December 15, 1998
  December 15, 1999
  May 11, 2000
  November 14, 2000
  March 29, 2001
Date of Annual General Meeting of Shareholders Authorization   April 23, 1997   May 26, 1999   May 26, 1999   May 24, 2000   May 24, 2000
Number of Options initially granted   5,428,000   5,035,005   747,727   11,897,705   521,500
— Number of Beneficiaries   4,570   5,916   479   7,123   81
— Number of Shares to be subscribed by                    
  — Directors   763,966   631,500     2,090,000  
  — Number of Directors   4   7     9  
Vesting Date(1)   January 6, 2002   January 6, 2003   May 11, 2003   November 15, 2003   March 30, 2004
Expiration Date   December 15, 2008   December 15, 2009   May 11, 2010   November 14, 2010   March 29, 2011
Total Number of Options exercised as of December 31, 2002   502,201   104,960   540   1,800  
Total Number of Ordinary Shares subject to Options as of December 31, 2002   4,209,734   4,615,054   702,637   10,834,057   494,800
Discount in relation to the Reference Price   5%   5%   5%   5%   5%
Exercise Price in €   40.08   58.75   58.29   79.75   80.94
Date of Board Grant

  November 7, 2001
  March 6, 2002
  November 12, 2002
Date of Annual General Meeting of Shareholders Authorization   May 24, 2000   May 24, 2000   May 14, 2002
Number of Options initially granted   11,392,710   1,000,000   10,030,908
— Number of Beneficiaries   8,973   2   8,699
— Number of Shares to be subscribed by            
  — Directors   1,350,400   1,000,000   850,000
  — Number of Directors   9   2   7
Vesting Date(1)   November 8, 2004   March 7, 2005   November 13, 2005
Expiration Date   November 7, 2011   March 6, 2012   November 12, 2012
Total Number of Options exercised as of December 31, 2002      
Total Number of Ordinary Shares subject to Options as of December 31, 2002   10,547,452   1,000,000   10,030,908
Discount in relation to the Reference Price      
Exercise Price in €   83.81   81.97   60.27

(1)
Normal vesting date, except specific exercising conditions.

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        In 1997, in connection with the acquisition of the remaining minority interest in Rhône-Poulenc Rorer Inc., certain officers of the Group received from Rhône-Poulenc Rorer Inc. options to purchase Aventis ordinary shares in exchange for previously existing options to purchase shares of Rhône-Poulenc Rorer Inc., (as former members of the management of Rhône-Poulenc). As of December 31, 2002, a total of 2,068,846 non-exercised options to purchase Aventis ordinary shares were outstanding.

        Due to the formation of Aventis, participants in the Hoechst Group stock option continuity plan of 1998 and 1999 were offered options to purchase Aventis shares or an immediate cash-out (1998 plan only). As of December 31, 2002, a total of 2,245,686 non-exercised options to purchase Aventis ordinary shares were outstanding.

        As of December 31, 2002, a total of 50,099,621 options to subscribe or to purchase 50,099,621 Aventis ordinary shares were outstanding, of which 16,489,767 were exercisable. The exercise of all outstanding options on December 31, 2002, would trigger the issuance of 45,785,089 new Aventis shares.


Other Stock-Based Compensation Plans

        Since 1997, several stock appreciation rights plans were issued within Hoechst and now refer to the Aventis share price. As of December 31, 2002, the number of outstanding stock appreciation rights amounted to 237,241 at a weighted-average exercise price of € 42.01 and with a weighted-average remaining contractual life of nine months. As of December 31, 2002, the number of exercisable stock appreciation rights amounted to 237,241 at a weighted exercise price of € 42.01 and with a weighted-average remaining contractual life of nine months.

        In addition to existing stock appreciation rights and stock option plans, HMR Inc. (Hoechst Marion Roussel Inc.) introduced a value-appreciation sharing program in 1998. This program has a five-year term (starting on March 31, 1998) and a vesting period of two years. Between December 21, 1999, and January 31, 2000, participants were offered an immediate cash-out based on the average Hoechst share price during the last ten days of the exchange offer.


Global Employee Stock Purchase Program

        As part of our global employee stock ownership program, in summer 2002 we launched a plan called "Horizon 2002", which was authorized by Aventis shareholders at the Annual General Meeting of Shareholders on May 14, 2002. Aventis employees were entitled to purchase shares at the subscription price of € 64.35, up to a limit of 25% of their annual salary. Approximately 9,000 associates worldwide, or 13.1% of the staff eligible to participate, purchased 2.3 million newly issued shares under the plan, representing a total value of € 154 million.

        Aventis employees currently own approximately 3.5% of the company's outstanding shares. Aventis is part of the "SAM Employee Ownership Index," which was created in May 2001 and includes the leading European companies in terms of employee ownership.


Share Ownership

        The table below lists as of March 1, 2003, the total number of shares owned by the members of the Supervisory Board and the Management Board.

Identity of person or group

  Shares
  Percent of class
  Stock options
Members of the Supervisory Board, and Management Board
(23 people)
  137,686   0.02   6,895,866

        The individual amounts held by any member of this group is less than 1% of the Aventis share capital, including any shares held indirectly and assuming exercise of their options.

        For additional information with respect to our employees, we refer you to Exhibit 99.1, the "Aventis Sustainability Report for 2002," the portion of which under the caption "Employee-Related Policies and Programs" is incorporated herein by reference.

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Item 7.    Major Shareholders and Related-Party Transactions

Major Shareholders

        The voting share capital of Aventis consists of ordinary shares. As of December 31, 2002, there were 799,474,490 ordinary shares outstanding, each share entitling the holder to one voting right. None of our shareholders benefits from special voting rights. Also as of December 31, 2002, there were 32,126,988 American Depositary Shares issued and outstanding, representing approximately 4.02% of our share capital. In addition, based on reports filed with the U.S. Securities and Exchange Commission on Form 13-F, we believe that at least 2.5% of our share capital was held by approximately 125 U.S. institutional investment firms as of December 31, 2002.

        Under current French company law and the Aventis by-laws, there are no limitations on the right of non-resident or non-French persons to own or, where applicable, vote the ordinary shares, the Participating Share Series A (PSSAs) or preference shares (and the guarantee issued by Aventis with respect thereto). A French law dated February 14, 1996, abolished the requirement that a person who is not a resident of the European Union (EU) must obtain an authorization (autorisation préalable) prior to acquiring a controlling interest in a French company. However, both EU and non-EU residents must file an administrative notice (déclaration administrative) with French authorities in connection with the acquisition of a controlling interest in any French company.

        Under existing French administrative foreign direct investment regulations, ownership of 20% or more of a listed company's share capital or voting rights is regarded as a controlling interest, but a lower percentage might be held to be a controlling interest in certain circumstances (depending upon such factors as the acquiring party's intentions, its ability to elect directors or financial reliance by the French company on the acquiring party). The share capital of Aventis for these purposes would include the ordinary shares but would not include the PSSAs or the preference shares.

        The table below sets forth, as of December 31, 2002, and as of the same date in 2001 and 2000, the number of ordinary shares held by holders of more than 5% of Aventis ordinary shares and their percentage ownership:


Ownership of Voting Capital Stock

Shareholders

  December 31,
2002
Number of Shares

  December 31,
2002
% of total

  December 31,
2001
% of total

  December 31,
2000
% of total

Group Kuwait Petroleum   108,027,006   13.5   13.6   13.7


Related-Party Transactions

        In the ordinary course of business, Aventis purchases materials, supplies and services from numerous suppliers throughout the world, including from time to time companies with which members of our Management Board and Supervisory Board are affiliated by virtue of holding multiple directorships. Aventis does not consider the amounts involved in such transactions to be material to its business and believes that these amounts are not material to the business of the firms involved. See "Item 6. Directors, Senior Management and Employees" for information on the directorships of Management Board and Supervisory Board members.

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Item 8.    Financial Information

Dividends on Ordinary Shares

        Aventis has paid dividends on the ordinary shares for each year since 1984. The payment and amount of dividends on Aventis ordinary shares are subject to the proposal of the Aventis Management Board, review by the Supervisory Board and voting by the shareholders at the Annual General Meeting. The dividend policy of Aventis currently centers on a target payout level of approximately 30%, which is in line with our competitors in the pharmaceutical industry. Payment and amount of future dividends will depend on our results of operations, financial conditions and other factors.

        Dividends paid to U.S. holders of Share-ADSs or ordinary shares who are not residents of France will generally be subject to French withholding tax at a rate of 25% or, if such holders qualify for benefits under the applicable U.S./France tax treaty and comply with the procedures for claiming treaty benefits, a reduced rate of 15%. Certain U.S. holders of Share-ADSs or ordinary shares who are residents of the United States may be entitled to receive a subsequent payment representing the French avoir fiscal, less applicable French withholding tax at a rate of 15%. The French avoir fiscal is generally equal to 50% of the dividend paid for (i) individuals and (ii) companies which own at least 5% of the capital of the French distributing company and meet the conditions to qualify under the French parent-subsidiary regime or 15% or 10% of the dividends paid, depending on the date of use, for the other shareholders. Payment equivalent to the French avoir fiscal, less applicable French withholding tax, will generally be made by the French State only following receipt of a claim for such payment and, in any event, not before January 15 of the year following the calendar year in which the dividend is paid. Certain U.S. tax-exempt holders of Share-ADSs or ordinary shares will be entitled only to partial payments of the French avoir fiscal. See "Item 10. Additional Information" for a summary of these and other French and U.S. tax consequences to holders of Share-ADSs or ordinary shares. Holders of Share-ADSs or ordinary shares should consult their own tax advisors with respect to the tax consequences of an investment in the Share-ADSs or ordinary shares.

        The table below sets forth for the years indicated the amount of dividends paid by Aventis for the years 1998 to 2002 per ordinary share without including the French avoir fiscal (before deduction of applicable French withholding tax), the amount of dividends paid per ordinary share including the French avoir fiscal (before deduction of applicable French withholding tax), net income per ordinary share and the pay-out ratio. Such amounts (other than net income per ordinary share) have been translated in each case into U.S. dollars. An annual dividend is paid in each year in respect of the prior year.

Year to which dividend relates

  Dividend per Share-ADS(1)
  Dividend per Share-ADS including avoir fiscal(1)(2)
  Dividend per Ordinary Share
  Dividend per Ordinary Share including avoir fiscal(2)
  Net income per Ordinary Share
  Pay-out ratio(3)
 
2002(4)   $ 0.73   $ 1.10   € 0.70   € 1.05   € 2.64   27 %
2001   $ 0.55   $ 0.82   € 0.58   € 0.87   € 1.91   31 %
2000   $ 0.44   $ 0.66   € 0.50   € 0.75   € (0.19 ) (* )
1999   $ 0.43   $ 0.64   € 0.45   € 0.67   € (2.49 ) (* )
1998   $ 0.64   $ 0.96   FF 4.00   FF 6.00   FF 11.48   35 %

(1)
Translated solely for convenience into U.S. dollars at the Noon Buying Rates on the respective dividend payment dates, or on the following business day if such date was not a business day in France or the United States with the euro amount translated from francs at the conversion rate of € 1.00 = FF 6.55957 set on January 1, 1999. For the 2002 dividend, the Noon Buying Rate used was € 1.00 = $1.0485 on December 31, 2002. The actual amount paid is determined by the exchange rate on the payment date. Avoir fiscal amounts have been converted into dollars at the Noon Buying Rates on such dates although such amounts are paid subsequent to such payment dates. The Noon Buying Rate may differ from the rate that may be used by the Ordinary Share Depositary to convert euros to dollars for purposes of making payments to holders of Share-ADSs.
(2)
Avoir fiscal amounts calculated on the basis of avoir fiscal rates applicable to individuals.
(3)
The payout ratio is equal to the dividend per ordinary share, not including the French avoir fiscal, divided by net income per ordinary share.
(4)
Subject to approval of Aventis shareholders at the Annual General Meeting in April 2003.
(*)
Not applicable.


Annual Payments on PSSAs

        The table below sets forth, for the years indicated, the amount of dividends paid per PSSA (Participating Share Series A; see Item 9 for further details). The PSSAs are generally entitled to receive an annual payment determined according to a specific formula and subject to certain conditions. The annual payments on the

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PSSAs are equal to the sum of a fixed portion and a variable portion equal to the greater of 600% of the dividend per ordinary share or 150% of an amount calculated pursuant to a formula which takes into account the changes in consolidated sales and consolidated net income. Such amounts have been translated in each case into dollars and adjusted for the one-to-four ratio of PSSAs to PSSA-ADSs. Annual payments paid to holders of PSSA-ADSs will generally be exempt from French withholding tax. An annual payment is paid on August 15 of each year in respect of the prior year.

Year to which annual payment relates

  Annual payment per PSSA
  Annual payment per PSSA-ADS
2001   € 4.6234   $ 1.1312
2000   € 4.1434   $ 0.9305
1999   € 3.8434   $ 0.8692
1998   FF 31.50   $ 1.2687
1997   FF 30.00   $ 1.2532


Information on Legal or Arbitration Proceedings

        In addition to the legal proceedings described below, Aventis is involved from time to time in a number of legal proceedings incidental to the normal conduct of its business, including proceedings involving product liability claims, commercial claims, employment and wrongful discharge claims, patent infringement claims, competition claims, tax assessment claims, waste disposal claims and tort claims relating to the release of chemicals into the environment.

        Management does not believe, based on current information, accrued reserves and existing insurance policies, that these legal proceedings would have a material adverse effect on the business, financial condition of results of operations of Aventis if determined adversely. However, there can be no assurance that such proceedings will not have a material adverse effect on the financial condition and the results of operations of Aventis.

    Allegra Litigation

        In June 2001, Aventis Pharmaceuticals Inc. ("API") was notified that Barr Laboratories Inc. ("Barr") was seeking approval to market a generic version of Allegra 60 mg capsules in the United States and challenging certain of API's patents. In August 2001, API filed a patent infringement lawsuit against Barr in U.S. federal district court. API subsequently received similar notification relating to Allegra 30 mg, 60 mg and 180 mg tablets and Allegra-D and filed additional patent infringement lawsuits against Barr in U.S. federal district court. Trial has been scheduled for September 2004.

        In February 2002, API was notified that Impax Laboratories also was seeking approval to market a generic version of Allegra-D in the U.S. and challenging certain of API's patents. In March 2002, API filed a patent infringement lawsuit against Impax in U.S. federal district court.

        API has been notified of three additional ANDA filings related to Allegra products. API has filed a patent infringement lawsuit against one of the filers, and is considering its legal options with respect to the others.

    Allegra Marketing Status

        A majority of the members of a joint Advisory Committee of the U.S. Food and Drug Administration ("FDA") recommended in May 2001 that Allegra and two competing drugs be "switched" from prescription to over-the-counter status. The FDA has not publicly acted on the recommendation, and it is not possible to predict what action, if any, the FDA might take in response to the Advisory Committee recommendation.

    Pharmaceutical Industry Antitrust Litigation

        Approximately 140 cases remain pending of the hundreds of separate complaints that were filed in 1993 and early 1994 by retail pharmacies alleging that defendant pharmaceutical manufacturers and wholesale distributors, including Aventis predecessor companies, violated federal and state antitrust and unfair competition laws by conspiring among themselves to deny all pharmacies, including chains and buying groups, discounts off the list prices of brand-name drugs that the manufacturers sell to wholesalers and that the wholesalers in turn resell to the pharmacies. Most of the original federal complaints were disposed of by settlement of a federal class action in 1998. Other lawsuits filed by consumers and pharmacies on the state level also remain pending. A Court-ordered non-binding mediation of the federal

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cases took place on February 13–14, 2003. A trial of these Sherman Act claims is not likely until the third quarter of 2003, at the earliest.

    Government Investigations – Pricing and Marketing Practices

        API, Aventis Behring and Armour Pharmaceutical Company are responding to investigations by the U.S. Department of Justice, the U.S. Department of Health and Human Services ("HHS") and some U.S. states into certain pricing and marketing practices.

        The U.S. Centers for Medicare & Medicaid Services ("CMS") has indicated that it will seek repayment of amounts it alleges should have been included in rebates paid by API to the various states as part of the Medicaid program. CMS claims that sales of certain products to managed care organizations for distribution by such organizations should have been included in API's "best price" calculations, which are used to compute the rebates. In October 2000 API received a subpoena from the U.S. Attorney for the District of Massachusetts with regard to such sales and "best price" calculations.

        The Department of Justice separately is reviewing the merits of an action filed in 1995 in federal court in Florida, which alleges that the Average Wholesale Prices ("AWP") of certain pharmaceutical products, which are used to set Medicare reimbursement levels, were improperly used by various pharmaceutical manufacturers in the marketing of their products. API and Aventis Behring also received subpoenas from the states of California and Texas with respect to such issues in 2000. API received a similar subpoena from the state of Massachusetts in April 2001.

    Class Action Suits – Pricing and Marketing Practices

        API is a defendant in several U.S. lawsuits seeking damages on behalf of a class of individuals and entities that allegedly overpaid for certain pharmaceuticals as a result of the AWP pricing issue described under "— Government Investigations — Pricing and Marketing Practices" above. Cases filed in federal courts have been consolidated in the federal district court in Boston along with similar cases against other pharmaceutical companies. Five similar cases filed in state court in California have been removed to federal court and transferred, or proceedings are pending for transfer, to the federal court in Boston. Aventis Behring also is a defendant in some of these cases.

        The plaintiffs in the cases pending in the federal court in Boston have filed a consolidated complaint alleging violation of the U.S. Racketeer Influenced and Corrupt Organizations Act ("RICO") and the consumer fraud statutes of certain states. The consolidated complaint alleges that the defendants artificially inflated AWP, improperly used free samples, and engaged in hidden and improper inducements and price reductions. It is further alleged that health care insurers were injured by the use of AWP by pharmaceutical companies and pharmacy benefit managers to maintain high prices of brand name drugs. The defendants have filed a motion to dismiss the consolidated complaint.

        API also is a defendant in lawsuits brought by the states of Montana and Nevada for pricing issues described under "— Government Investigations — Pricing and Marketing Practices" above. These suits were filed in February and March 2002 and have been transferred to the federal district court in Boston and consolidated with the cases described above. Another suit was filed by the state of New York in February 2003. These suits allege violation of state trade practices and consumer protection and false claims statutes, breach of contract and Medicaid fraud.

    Vitamin Antitrust Litigation

        Aventis, some of its subsidiaries, and other vitamin manufacturers are defendants in a number of class actions and individual lawsuits in U.S. courts relating to alleged anticompetitive practices in the market for bulk vitamins. In 1999, Aventis and five other vitamin manufacturers settled the federal class action lawsuits brought by "direct purchasers". Aventis has subsequently settled with all but two of the plaintiffs that opted-out of the class action settlement to pursue individual claims. Settlement negotiations continue with these two plaintiffs, and trial has been set for March 2003 if no settlement is reached. Aventis and the five other manufacturers also have entered into a number of settlement agreements that have resolved the majority of the class actions in state courts, which were brought by "indirect purchasers". Legal proceedings continue with respect to claims that were not resolved by these settlements. A federal district court's dismissal of a lawsuit filed on behalf of a putative class of non-U.S. "direct purchasers" was overturned in January 2003 by a three-member panel of the U.S. court of appeals. Aventis and the other defendants intend to seek a rehearing of this decision before the entire appellate court. An Aventis subsidiary and the other five settling defendants entered into a judgment-sharing agreement, pursuant to which they agreed to

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allocate any judgment at trial among themselves according to the actual sales made by each of them. Regarding the same matter, civil litigation against Aventis and some of its subsidiaries has been initiated in Canada, Australia, New Zealand, the United Kingdom, and the Netherlands. Settlement negotiations with plaintiffs in the civil litigation in Canada, Australia, and New Zealand are underway. Investigations by antitrust authorities in Australia, Canada, the European Union, Japan, Mexico, New Zealand, Switzerland and the U.S. into vitamin sales practices in those countries have been completed, while investigations in Brazil and Korea are ongoing. In connection with the sale of its animal nutrition business to CVC Capital Partners, Aventis has agreed to retain liability arising out of these antitrust issues.

    Methionine Antitrust Litigation

        The European Commission recently concluded its investigation into alleged concerted practices in the market for methionine. Aventis had been granted full immunity from prosecution because of its cooperation with the Commission's investigation. In addition, Aventis and some of its subsidiaries, together with other methionine manufacturers, were named as defendants in federal and state class action and individual lawsuits in the U.S. and Canada. In 2002, Aventis settled certain U.S. federal class action claims, brought by direct purchasers of methionine, for US$ 25 million. Efforts to resolve through mediation the remaining claims of those direct purchaser plaintiffs who chose to opt-out of the U.S. class action are continuing. The other defendants settled with plaintiffs in these actions previously. Unless a settlement is reached, these remaining claims may proceed to trial in 2003. In connection with the sale of its animal nutrition business to CVC Capital Partners, Aventis has agreed to retain liability arising out of these antitrust issues.

    Aventis Pasteur Blood Products Litigation

        Aventis Pasteur faces criminal and civil actions in various courts in France and Argentina on behalf of individuals with hemophilia in Argentina, Iraq, Libya, and Tunisia alleging that they became infected with the Human Immunodeficiency Virus ("HIV") or Hepatitis C as a result of the administration of non-heat-treated anti-hemophilic factor ("AHF") manufactured in France in the early 1980s by a predecessor company.

    Aventis Pasteur Hepatitis B Vaccine Litigation

        More than 120 lawsuits have been filed in various French civil courts against Aventis Pasteur or its subsidiaries in which the plaintiffs allege that they suffer from a variety of neurological disorders and autoimmune diseases, including multiple sclerosis and/or Guillain-Barré syndrome as a result of receiving the hepatitis B vaccine. In June, 2000 the French Court of Appeals overturned a judgment against Aventis Pasteur in the first such case to go to trial and appointed four medical experts to evaluate the potential link between the vaccination and the injuries alleged. The Court of Appeals is expected to render its decision in May 2003 after considering the medical experts' report.

    Aventis Pasteur U.S. Thimerosal Litigation

        Aventis Pasteur is a defendant in 211 lawsuits in several federal and state courts in the U.S. alleging that serious personal injuries resulted from the presence of mercury in the preservative thimerosal, trace amounts of which are contained in vaccines manufactured by Aventis Pasteur. Several of the cases seek certification to proceed as class actions. Aventis Pasteur believes that all of these claims must be adjudicated first by the U.S. Court of Federal Claims under the U.S. National Childhood Vaccine Injury Act and the National Vaccine Injury Compensation Program before the claimants may bring direct actions against the company. Currently, all of these cases are either in the preliminary response stage, the early stages of the discovery process, have been stayed pending adjudication by the U.S. Court of Federal Claims, or have pending plaintiffs' requests for reconsideration of preliminary determinations to stay proceedings pending such adjudication.

    Aventis Pasteur Canadian Blood Products Litigation

        On September 30, 2002, judgment was issued and entered in the Ontario Superior Court of Justice dismissing all legal actions against Aventis Pasteur in which the lead plaintiff alleged that he contracted Hepatitis C from blood products that may have been fractionated by Aventis Pasteur. The Court had earlier approved an Amended Plan of Compromise and Arrangement concerning the Canadian Red Cross Society that included provisions for the creation of a settlement fund from which all amounts paid in settlement by Aventis Pasteur will be drawn.

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    Aventis Pasteur Canadian Thimerosal Litigation

        Two class action lawsuits have been filed against Aventis Pasteur, one in the Ontario Superior Court of Justice and one in the Supreme Court of British Columbia, alleging that personal injuries resulted from the presence of mercury in the preservative thimerosal contained in vaccines allegedly manufactured by Aventis Pasteur. The proposed class includes persons who were vaccinated with DTP, DT or Td vaccines before reaching two years of age. The total amount claimed for compensatory and punitive damages exceeds C$ 1.25 billion (€ 833 million). It is anticipated that a court will hear arguments and rule on whether to certify the class action in 2003.

    AHF Blood Products Litigation

        Legal proceedings remain pending in the U.S. and Ireland against Armour and certain other Aventis subsidiaries, in which individuals with hemophilia and infected with HIV or their representatives claim that such infection, and in some cases resulting illnesses or death therefrom, may have been caused by administration of plasma-derived AHF concentrates processed in the late 1970s to mid-1980s. Armour settled numerous AHF cases in the U.S., Canada and Ireland during the course of 2002 and previous years. Approximately 130 individuals opted out of a 1996 U.S. class action settlement with Armour and three other U.S. plasma fractionators, but have not filed suit against the Aventis subsidiaries that were defendants in the class action litigation.

        In November 2002, Canadian authorities filed criminal negligence charges against Armour and a former Armour employee alleging that Armour distributed AHF infected with HIV, as a result of which certain individuals became infected with HIV.

    Aventis Pasteur MMR Vaccine Litigation

        A group action filed in 1999 is pending in the United Kingdom against various manufacturers of MMR (measles – mumps – rubella) combination vaccines in which plaintiffs allege that such vaccines are the cause of autism, behavioral disorders and intestinal disorders in children. A subsidiary of Aventis Pasteur's 50% joint venture with Merck has been named in at least 112 of the claims included in the litigation. The claimants have been ordered by the court to plead a selection of "lead" claims. Pleadings are currently being exchanged and disclosure of documents and witness statements are currently being given by both parties in the lead claims involving the MMR vaccine manufactured by Aventis Pasteur. The action is proceeding to trial, which currently is scheduled to begin in April 2004.

    The StarLink Litigation

        As a result of reports that traces of the Cry9C protein associated with StarLink corn were discovered in products intended for human consumption, Aventis' former subsidiary Aventis CropScience has received claims and demands for indemnification and reimbursement of expenses and lost profits from growers, grain handlers, processors and food companies. In addition, a number of lawsuits – including several putative class actions – have been filed in the U.S. against Aventis CropScience, its affiliates, and other defendants, asserting claims for compensatory and punitive damages. Aventis CropScience agreed to indemnify and assume the defense of certain unrelated defendants for certain claims arising out of their sale and distribution of certain food products. While several of these lawsuits and claims have been settled and several have been the subject of recent settlement negotiations, a number are still proceeding and may not be settled. In February 2003, an agreement was reached to settle an action brought on behalf of a purported class of farmers who claim to have grown corn other than StarLink. The proposed settlement, which is subject to court approval, would provide for a payment of US$ 110 million, made on behalf of the defendants, including Aventis CropScience. The agreement is subject to a court approval process. Aventis recently completed agreements with its insurers that resolved disputes regarding certain claims submitted by Aventis for costs incurred to date and for unresolved claims. In connection with the sale of Aventis CropScience to Bayer AG ("Bayer"), Aventis agreed to retain all liability of Aventis CropScience arising out of the StarLink situation, as well as the responsibility for managing and resolving all associated issues. Based on information currently available relating to these claims, Aventis does not anticipate that it will incur material costs related to StarLink not covered by accrued reserves and insurance.

    Ionamin/Fen/phen Litigation

        Aventis subsidiary Fisons plc ("Fisons") and former subsidiary Rugby Laboratories ("Rugby") are involved in approximately 170 (as to Fisons) and 160 (as to Rugby) personal injury lawsuits, including class actions, in

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U.S. federal and state courts concerning the weight-loss drug phentermine (Fisons brand name Ionamin®). The lawsuits allege that the manufacturers of phentermine knew that its use, alone or in combination with other weight-loss drugs, could cause serious side effects, but failed to warn against those dangers. To date Fisons and Rugby have made no payment in settlement of any case and have been dismissed from or have dismissals pending in more than 5,000 and 1,800 cases, respectively. API is defending Rugby pursuant to the agreement by which Rugby was sold to Watson Pharmaceuticals.

    Rilutek Litigation

        In June 2002, Impax Laboratories, Inc. filed a complaint against API in U.S. federal district court seeking a declaratory judgment of patent invalidity and/or non-infringement with respect to API's U.S. patent for the use of the active ingredient in Rilutek (riluzole) for the treatment of amyotrophic lateral sclerosis. API has counterclaimed that marketing by Impax of a generic version of Rilutek prior to the expiration of Aventis' method of use patent would constitute infringement of Aventis' patent. In December 2002, the court granted Aventis' motion for a preliminary injunction preventing Impax from marketing a generic version of Rilutek until resolution of the patent litigation or until further ruling by the court.

    DDAVP Litigation

        In November 2002, API was notified by Barr Laboratories ("Barr") that Barr was seeking approval from the U.S. Food and Drug Administration ("FDA") to market a generic version of DDAVP tablets and was challenging certain patents covering DDAVP that are exclusively licensed to API by Ferring B.V. ("Ferring"). In December 2002, API and Ferring brought a patent infringement lawsuit against Barr in U.S. federal district court claiming that marketing of a generic version of DDAVP by Barr prior to the expiration of a certain Ferring patent would constitute infringement of that patent.

    Cipro Litigation

        API is a defendant in several related cases in U.S. state and federal courts alleging that API and certain other pharmaceutical manufacturers violated U.S. antitrust laws and various state laws by the manner in which they settled a patent dispute regarding the brand-name prescription drug Cipro®. Watson Pharmaceuticals and Rugby Laboratories are defendants in most of these cases. API has agreed to defend and indemnify both Watson and Rugby pursuant to the agreement by which Rugby was sold to Watson. Aventis believes that the potential damages that plaintiffs seek against Watson and Rugby are duplicative of the damages that plaintiffs seek against Aventis in those cases.

    Cardizem Antitrust Litigation

        API, Andrx Pharmaceuticals, and in some cases Hoechst AG, are defendants in a number of lawsuits, now consolidated in the U.S. District Court for the Eastern District of Michigan, alleging that API and Andrx engaged in anticompetitive practices and unfair methods of competition by entering into an agreement in partial settlement of patent infringement litigation relating to Cardizem CD. Plaintiffs include certain direct and indirect purchasers of Cardizem CD, as well as the Attorneys General of 28 states and the District of Columbia and four Blue Cross Blue Shield plans.

        On June 8, 2000 the court granted the plaintiffs' motion for partial summary judgment, ruling that the agreement between Andrx and API is a "per se" violation of U.S. antitrust laws. The defendants have appealed this ruling and await a decision by the appellate court. Damages issues were not addressed in the court's ruling. In the spring of 2001, the court certified a class of direct purchasers of Cardizem CD and a separate class of indirect purchasers. In November, 2002, the court approved a US$ 110 million settlement of claims brought by the class of direct purchasers against the Aventis parties and Andrx. API has also reached a settlement with the direct purchaser plaintiffs who opted out of the class settlement, agreeing to pay them US$ 38 million, and the Aventis parties have been dismissed from those plaintiffs' individual actions. Andrx was not a party to this settlement. In January 2003, API and Andrx reached a US$ 80 million settlement with the class of indirect purchasers, as well as the Attorneys General of all U.S. states and the District of Columbia. This settlement has received preliminary approval from the court, and is scheduled to be considered for final approval in October 2003.

    Methylglucamine Inquiry

        Aventis Pharma S.A. and Rhône-Poulenc Biochimie S.A. have received inquiries from the Commission of the European Communities, the U.S. Department of Justice, and the Canadian Competition Bureau with

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respect to alleged anticompetitive activities relating to sales of pharmaceutical grade methylglucamine, an intermediate chemical product for the synthesis of x-ray media, pharmaceuticals and colorings. Aventis is cooperating with all of these agencies. In November 2002, the Commission of the European Communities concluded that Aventis Pharma S.A. and Rhône-Poulenc Biochimie S.A. had unlawfully fixed prices of methylglucamine between 1990 and 1999, and fined the companies € 2.85 million. In February 2003, Rhône-Poulenc Biochimie S.A. pleaded guilty to a charge of agreeing with Merck KGaA to prevent or lessen competition in the Canadian methylglucamine market in violation of the Canadian Competition Act and agreed to pay a fine of C$ 500,000 in connection with the plea. The U.S. inquiry is continuing.

    Lovenox Antitrust Litigation

        On February 25, 2003, Organon Sanofi-Synthélabo LLC ("Sanofi"), which markets the anticoagulant drug Arixtra, filed a lawsuit in U.S. District Court in Florida against API alleging that API unlawfully monopolized the market for certain injectable anticoagulants. Specifically, the suit alleges that certain provisions in contracts for the sale of Lovenox to hospitals constitute an unlawful restraint of trade in violation of U.S. and Florida antitrust laws. The suit seeks substantial unquantified damages, including treble damages and attorneys' fees, as well as injunctive relief to prevent API from enforcing certain allegedly unlawful contract provisions. API has not yet responded to the complaint.

    MCAA Industry Litigation and Investigation

        A class action lawsuit in U.S. federal district court against Hoechst, Clariant (which acquired the Hoechst specialty chemicals business in 1997), and others regarding alleged anticompetitive practices in the market for monochloroacetic acid ("MCAA") was settled early in 2003. All other claims for compensation by purchasers of MCAA filed against Hoechst in the U.S. have now been settled with the exception of one case. A U.S. government investigation regarding this matter was concluded as to Hoechst when Hoechst agreed in January 2003 to plead guilty and pay a fine of US$ 12 million for participation in a conspiracy to suppress competition in world markets for MCAA from 1995 to 1997.

    PGS Arbitration

        Former shareholders of Plant Genetic Systems NV ("PGS"), which was acquired by a predecessor of Aventis CropScience in October 1996, initiated arbitration proceedings in the Netherlands against Aventis CropScience, seeking damages of approximately US$ 400 million (€ 401 million) based on alleged violations of a confidentiality agreement in connection with the process for the sale of PGS, which the claimants allege prevented them from obtaining a higher sale price. The parties submitted detailed filings in support of their respective positions.

    GA-EPO Patent Litigation

        In April 1997, Amgen Inc. filed an action in U.S. federal district court against Transkaryotic Therapies and API alleging that GA-EPO (gene activated erythropoietin, a drug for the treatment of anemia) and the processes for producing GA-EPO infringe certain U.S. patents of Amgen. On January 19, 2001 the court ruled that certain claims in three of the five patents asserted by Amgen were valid and enforceable, and would be infringed by the marketing of GA-EPO. API and Transkaryotic Therapies appealed the district court decision and the appellate hearing before a three-member panel of the federal court of appeals took place in May 2002. On January 6, 2003, the appellate panel, in a two-to-one decision, issued a ruling remanding the case to the district court for further rulings on invalidity and infringement. The majority opinion rejected Aventis' principal invalidity argument but suggested that there were nevertheless serious issues regarding potential invalidity of the Amgen patents. The minority opinion concluded that Amgen's patents should be invalidated. It is not clear how the district court would determine the case on remand. Aventis' request for a rehearing by the full 12-member court of appeals was denied.

        On April 11, 2001, in other litigation regarding whether Transkaryotic Therapies and API would infringe a Kirin-Amgen European patent, a trial court in the United Kingdom ruled that one of the four Kirin-Amgen patent claims was valid and would be infringed by the marketing of GA-EPO, while the other three claims were invalid. Transkaryotic Therapies and API appealed this decision. In July 2002, the UK Court of Appeal reversed the trial court and ruled that the Amgen patent was not infringed by GA-EPO, but that all claims of the patent are valid. Amgen petitioned the UK House of Lords for permission to appeal the infringement decision. Transkaryotic Therapies and API also petitioned the House of Lords for permission to appeal the decision regarding validity of the patent claims if Amgen's petition was granted. In February 2003, the House of Lords consented to hear the appeals.

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    Brazilian Antitrust Claims

        In Brazil, civil and administrative proceedings are pending before the Secretariat of Economic Law (the "SDE") against Aventis, Aventis Behring, and 19 other pharmaceutical companies alleging violations of Brazilian antitrust law during a meeting of representatives of the Brazilian Pharmaceutical Trade Association. The specific allegation is that member companies were conspiring to keep generic pharmaceutical products off the market. An employee of Aventis Behring Farmaceûtica Ltda. was present at the meeting. In the administrative proceeding, the parties are awaiting the issuance of a first legal opinion by the SDE. In the civil proceeding, the public prosecutor filed a civil public claim on November 27, 2001, but Aventis and Aventis Behring are still awaiting service of process.

    Sorbates Industry Investigation

        Hoechst, Nutrinova (a former subsidiary of Hoechst), and other sorbate manufacturers are defendants in two civil actions by purchasers of sorbates that are pending in the U.S. Settlement negotiations are underway. The European Commission also is investigating anticompetitive practices in the market of sorbates. The Attorneys General of Connecticut, Illinois, Nevada, New York, Ohio, and Utah also have filed lawsuits claiming damages on behalf of their citizens. Pursuant to the demerger agreement between Hoechst and Celanese AG in October 1999, Hoechst and Celanese agreed to split any further costs and expenses from this matter in a ratio of 80/20 between them.

    Scotts Arbitration

        Aventis and Aventis CropScience were respondents in an arbitration filed by The Scotts Company ("Scotts") with the International Chamber of Commerce. While other claims of Scotts, including alleged violation of non-compete obligations, were refused by the arbitration court, on February 19, 2002, the arbitration tribunal awarded Scotts approximately € 10.9 million in damages for insufficient disclosure by Aventis CropScience of the imminent Hoechst – Rhône-Poulenc transaction in 1999. Subsequently, costs and attorneys' fees have been allocated between the parties, and the matter is concluded.

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Item 9.    The Offer and Listing

Markets

    Aventis Ordinary Shares

        The ordinary shares of Aventis are traded through the Paris-based stock exchange Euronext Paris (known as ParisBourse S.A.) where the ordinary shares are listed on the Premier Marché. Aventis ordinary shares are also quoted on the Frankfurt Stock Exchange. In the United States, Aventis ordinary shares are traded in the form of American Depositary Shares ("Share-ADSs") issued by Citibank N.A., as depositary, each representing one ordinary share. The Share-ADSs are listed on the New York Stock Exchange (NYSE), where they are traded under the symbol "AVE."

        As of December 31, 2002, a total of 799,474,490 Aventis ordinary shares had been issued and were outstanding, of which 32,126,988 ordinary shares, or approximately 4.02%, were represented by Share-ADSs.

        Aventis ordinary shares are included in the CAC 40 Index, the principal index published by the ParisBourse S.A. This index is derived daily by comparing the total market capitalization of 40 stocks included in the Premier Marché on the ParisBourse S.A. Adjustments are made to allow for expansion of the sample due to new issues. The CAC 40 Index indicates trends in the French stock market as a whole and is one of the most widely followed stock price indexes in France. Aventis ordinary shares are also included in the Dow Jones EURO STOXX 50 index.

        The table below lists, for the periods indicated, the reported high and low sales prices in euros for Aventis ordinary shares on the ParisBourse S.A. and the high and low sales prices in dollars for the Share-ADSs on the NYSE (Source: Bloomberg). For all periods prior to December 20, 1999, Aventis ordinary shares were traded under the name "Rhône-Poulenc" and the symbol "RP."

Calendar period

  Paris Bourse price per share
high

  Paris Bourse price per share
low

  NYSE
price per Share-ADS
high

  NYSE
price per
Share-ADS
low

 
 

 

  $

  $

Monthly                
  February 2003   48.26   40.55   51.74   44.05
  January 2003   54.55   43.72   56.79   47.90
  December 2002   56.60   49.60   55.49   51.07
  November 2002   61.75   54.30   61.82   54.30
  October 2002   64.95   52.30   62.08   52.21
  September 2002   62.30   47.60   60.02   48.00
2002                
  First quarter   85.95   74.10   74.21   66.04
  Second quarter   80.25   62.75   72.06   62.59
  Third quarter   72.90   47.60   71.29   48.00
  Fourth quarter   64.95   49.60   62.08   51.07
  Full Year   85.95   47.60   74.21   48.00
2001                
  First quarter   93.00   75.10   86.44   69.51
  Second quarter   94.50   81.75   81.19   71.43
  Third quarter   94.75   65.20   79.00   64.05
  Fourth quarter   88.50   71.60   79.59   64.71
  Full Year   94.75   65.20   86.44   64.05
2000                
  Full year   95.40   47.28   87.50   45.50
1999                
  Full year   68.60   39.21   68.56   43.38
1998                
  Full year   53.65   29.99   58.63   35.81

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    Stock Options

        At the end of 2002, a total of 50,099,621 stock options were outstanding, of which 16,489,767 options were exercisable. The exercise of all outstanding options would result in the creation of 45,785,089 new Aventis ordinary shares.

        These stock option plans are described in "Item 6. Directors, Senior Management and Employees — Compensation — Stock Option Plans" and Note 31 of the Aventis Consolidated Financial Statements included in this Annual Report.

    Participating Shares Series A

        Aventis is not aware of any non-U.S. trading market for its Participating Shares Series A ("PSSAs"). In the United States, the PSSAs exist in the form of American Depositary Shares issued by The Bank of New York, as depositary, each representing one-quarter of a PSSA ("PSSA-ADSs"). Aventis is not aware of any U.S. trading market for the PSSA-ADSs since their suspension from trading on the NYSE on May 18, 1995, and their subsequent removal from listing on the NYSE on July 31, 1995. Prior to their delisting, the PSSA-ADSs traded on the NYSE under the symbol RP PrA.

        In the first stage of the privatization of Rhône-Poulenc S.A. in March 1993, Rhône-Poulenc S.A. made a public offer to exchange ordinary shares for PSSAs at an exchange rate of one ordinary share for each PSSA and 4,659,714 PSSAs, representing 98.52% of all PSSAs outstanding, were tendered and accepted for exchange by Rhône-Poulenc S.A. and subsequently canceled. In March 1995, Rhône-Poulenc S.A. made a tender offer to purchase for cash all of the outstanding PSSA-ADSs at $18.40 net per PSSA-ADS. In the tender offer, 54,836 PSSAs, representing 78% of all PSSAs outstanding were tendered and accepted for payment by Rhône-Poulenc and subsequently canceled. As a result, following the tender offer, there were only 15,380 PSSAs outstanding. Due to their small number, the NYSE suspended the remaining PSSA-ADSs from trading on the NYSE on May 18, 1995, and removed them from listing on July 31, 1995. Since such time, we have repurchased another 11,834 PSSAs in private transactions, leaving only 3,546 PSSAs outstanding as of December 31, 2002, of which substantially all were represented by PSSA-ADSs. In view of the small number of PSSAs that remain outstanding, at some time in the future, Aventis intends to terminate the Deposit Agreement for the PSSA-ADSs and apply to the U.S. Securities and Exchange Commission to terminate registration of the PSSAs and the PSSA-ADSs under the Securities Exchange Act of 1934, as amended.

    81/8% Cumulative Preference Shares, Series A

        The 81/8% Cumulative Preference Shares, Series A ("Preference Shares") were issued by Rhône-Poulenc Overseas Limited, a Cayman Islands company and wholly owned subsidiary of Aventis. The payment of dividends and payments on liquidation or redemption with respect to the Preference Shares are guaranteed by Aventis to a certain extent pursuant to the terms of a guarantee (the "Guarantee") executed and delivered by Aventis for the benefit of the holders from time to time of Preference Shares. The Preference Shares have been listed since July 13, 1993, on the NYSE where they trade under the symbol RPO/PA. Aventis is not aware of any non-U.S. trading market for the Preference Shares.

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        The table below sets forth, for the periods indicated, the reported high and low sales prices for the Preference Shares on the NYSE.

 
  NYSE
Calendar period

  High
  Low
 
  $

  $

Monthly        
  February 2003   25.90   25.51
  January 2003   25.90   25.30
  December 2002   25.90   25.10
  November 2002   25.95   25.61
  October 2002   26.00   25.30
  September 2002   26.00   25.22
2002        
  First quarter   26.40   25.10
  Second quarter   26.12   25.15
  Third quarter   26.00   25.00
  Fourth quarter   26.00   25.10
  Full year   26.40   25.00
2001        
  First quarter   25.53   24.06
  Second quarter   25.45   24.90
  Third quarter   26.15   24.75
  Fourth quarter   26.15   25.08
  Full year   26.15   24.06
2000        
  Full year   24.38   19.63
1999        
  Full year   27.13   19.00
1998        
  Full year   27.44   23.44

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Trading Practices and Procedures

    Euronext Paris

        On September 22, 2000, upon successful completion of an exchange offer, the ParisBourseSBF S.A. or the "SBF," the Amsterdam Exchanges and the Brussels Stock Exchanges merged to create Euronext, the first pan-European exchange. Through the exchange offer, all the shareholders of SBF, the Brussels Exchanges and the Amsterdam Exchanges contributed their shares to Euronext N.V., a Dutch holding company. Euronext is comprised of Euronext Paris, Euronext Amsterdam and Euronext Brussels. Following the creation of Euronext, the SBF changed its name to Euronext Paris S.A. ("Euronext Paris"). Securities quoted on exchanges participating in Euronext will be traded over a common Euronext platform, with central clearinghouse, settlement and custody structures. However, these securities will remain listed on their local exchanges. As part of Euronext, Euronext Paris retains responsibility for the admission of shares to Euronext Paris's trading markets as well as the regulation of those markets.

        Securities approved for listing on Euronext Paris are traded in one of three markets. The securities of most large public companies are listed on the Premier Marché, with the Second Marché available for small- and medium-sized companies. Trading on the Nouveau Marché was introduced in March 1996 to allow companies seeking development capital to access the stock market. In addition, securities of certain other companies are traded on a non-regulated over-the-counter market, the Marché Libre OTC.

The Premier Marché

        The Premier Marché is a regulated market managed and operated by Euronext Paris. Admission to the Premier Marché is subject to certain capital adequacy and liquidity requirements determined by Euronext Paris. In addition, companies applying for listing on the Premier Marché are required to publish comprehensive information regularly and to keep the public informed of events likely to affect the market price of their securities.

        Securities listed on the Premier Marché are officially traded through authorized financial institutions that are members of Euronext Paris. Trading takes place continuously on each business day from 9:00 a.m. to 5:25 p.m. (Paris time), with a pre-opening session from 7:15 a.m. to 9:00 a.m. (Paris time) and a pre-closing session from 5:25 p.m. to 5:30 p.m. (Paris time) during which transactions are recorded but not executed and a closing auction at 5:30 p.m (Paris time). Any trade of securities that occurs after a stock exchange session closes is recorded on the next business day at the previous session's closing price for that security. Euronext Paris publishes a daily official price list that includes, among things, price information on listed securities.

        Euronext Paris has announced new regulations under which, beginning in April 2001, Euronext Paris places securities listed on the Premier Marché in one of two categories, Continu or Fixing, depending on their trading volume. Our ordinary shares are placed in the category known as Continu, which includes the most actively traded securities.

        Euronext Paris may suspend trading in a security listed on the Premier Marché if the quoted price of the security exceeds certain price limits defined by the regulations of Euronext Paris. In particular, if the quoted price of a Continu security varies by more than 10% from the previous day's closing price, Euronext Paris may suspend trading in that security for four minutes. Once trading has recommenced, further suspensions of four minutes are also possible if the price again varies by more than 10% from the threshold at which the suspension was initiated. It may again suspend trading in that security for four minutes if the price varies by more than 2% from the last quoted price. Euronext Paris also may suspend trading of a security listed on the Premier Marché in certain other limited circumstances, including, for example, where there is unusual trading activity in the security. In addition, in certain exceptional cases, the Conseil des Marchés Financiers ("CMF"), the self-regulatory organization that has general regulatory authority over the French stock exchanges, may also suspend trading.

        Since September 25, 2000, trades of securities listed on the Premier Marché are settled on a cash basis. However, market intermediaries are also permitted to offer investors a deferred settlement service (Service de Réglement Différé or "SRD") for a fee. The deferred settlement service is only available for trades in securities which either (1) are a component of the Index SBF 120 or (2) have both a total market capitalization of at least € 1 billion and a daily average volume of trades of at least € 1 million. Investors in shares eligible to the SRD can elect on the determination date (date de liquidation), which is the fifth trading day before the end of the month, either to settle by the last trading day of the month or to pay an additional fee and postpone the settlement to the determination date of the following month. Aventis shares are eligible for the SRD.

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        Equity securities traded on a deferred settlement basis are considered to have been transferred only after they have been registered in the purchaser's account. Under French securities regulations, any sale of securities traded on a deferred settlement basis during the month of a dividend payment date is deemed to occur after the dividend has been paid. If the sale takes place before, but during the month of a dividend payment date, the purchaser's account will be credited with an amount equal to the dividend paid and the seller's account will be debited by the same amount.

        Prior to any transfer of securities held in registered form on the Premier Marché, the securities must be converted into bearer form and accordingly inscribed in an account maintained by an accredited intermediary with Euroclear France S.A., a registered clearing agency. Transactions in securities are initiated by the owner giving instruction (through an agent, if appropriate) to the relevant accredited intermediary. Trades of securities listed on the Premier Marché of Euronext Paris are cleared and settled through Euroclear France S.A. using a continuous net settlement system. A fee or commission is payable to the broker-dealer or other agent involved in the transaction.

    Frankfurt Stock Exchange

        The Frankfurt Stock Exchange, which is operated by Deutsche Börse AG ("Deutsche Börse"), is the most significant of the German stock exchanges and accounted for more than 85% of the turnover in exchange-traded shares in Germany in 2002. As of December 31, 2002, the equity securities of 5,768 corporations, including 4,901 foreign corporations, were traded on the Frankfurt Stock Exchange (Source: Deutsche Börse, Cash Market: Monthly Statistics – December 2002).

        Floor trading (Präsenzhandel) of the Frankfurt Stock Exchange begins every business day at 9:00 a.m. and ends at 8:00 p.m. Central European Time (Frankfurt time). Securities listed on the Frankfurt Stock Exchange are generally traded in the auction market, but such securities also change hands in interbank dealer markets. Prices are determined by Exchange Brokers (Skontroführer), who are members of the stock exchange. The prices of actively traded securities, including the shares of large corporations, are continuously traded at varying prices and quoted during trading hours (which includes our ordinary shares and the shares of our subsidiary Hoechst AG).

        Deutsche Börse also operates a computerized trading system known as Xetra. Banks and securities dealers who have been admitted to trading on at least one German stock exchange are permitted to conduct trading on Xetra. Trading of shares through the Xetra system takes place from 9:00 a.m. to 8:00 p.m. Central European Time (Frankfurt time), on each day on which the Frankfurt Stock Exchange is open for business. Xetra accounted for more than 90% of the turnover in exchange-traded shares of the Frankfurt Stock Exchange in 2002. Aventis ordinary shares and the shares of Hoechst AG are also traded through the Xetra system.

        The Frankfurt Stock Exchange publishes pricing information as well as certain other information for all traded securities on its Web site.

        Transactions on the Frankfurt Stock Exchange (including transactions through the Xetra system) are settled on the second business day following the trade. Pursuant to the German banks' standard terms and conditions for securities transactions (Sonderbedingungen für Wertpapiergeschäfte), customer orders for listed securities must be executed on a stock exchange unless the customer gives specific instructions to the contrary.

        The Frankfurt Stock Exchange can suspend a quotation if orderly trading is temporarily endangered or if a suspension is deemed to be necessary in order to protect the public. The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht) monitors trading activities on the German stock exchanges. Exchange trading at the Frankfurt Stock Exchange is also subject to oversight by the independent market surveillance (Handelsüberwachungsstelle) and the local State stock market supervisory authority (Hessisches Ministerium für Wirtschaft, Verkehr und Landesentwicklung).

    Purchase and Trading by Aventis in Own Shares

Purchase by Aventis of Own Shares

        Under French law, we may not subscribe our own shares but we may, either directly or through a financial intermediary acting on our behalf, purchase our shares for one of three purposes:

      (1)
      to reduce our share capital by canceling the shares we purchased with our shareholders' approval at an Extraordinary General Meeting;

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      (2)
      to provide shares to employees under a profit-sharing plan or stock option plan with our shareholders' approval at an Extraordinary General Meeting; or

      (3)
      to acquire up to 10% of our share capital in connection with a corporate share repurchase program, provided that our shares are listed on a regulated market (such as the Premier Marché, the Second Marché or the Nouveau Marché of Euronext Paris). To acquire our shares for this purpose, we must first file an information notice ("Note d'information") that has received the approval (visa) of the French Stock Exchange Commission (Commission des Opérations de Bourse – or "COB") and then obtain the approval of our shareholders at an Ordinary Meeting.

        Pursuant to authorization granted by our shareholders at the Combined Meeting of Shareholders on May 14, 2002, the shareholders authorized the Management Board to purchase at a price of not more than € 120 per share and to sell at a price of not less than € 70 per share up to 10% of total share capital outstanding. The authorization will expire on the date of next Annual General Meeting of Shareholders called to approve the accounts for the fiscal year ending December 31, 2002.

        The authorization envisages several possible purposes for this repurchase of our shares including, inter alia, in order of decreasing importance:

      a)
      Stabilizing the trading price of the Company's stock, through systematic action against the general trend,

      b)
      Granting shares to employees or directors and officers of the Company or its affiliates as defined in Article L. 225-180 of French Commercial Law,

      c)
      Holding such shares and, where applicable, transferring them by any means (including by means of repeat option transactions), in particular via their sale in the stock market or over the counter, the sale of blocks of shares, public purchase, exchange or sale offerings, or the purchase or the sale of buy or sell options,

      d)
      To use such shares in any lawful manner to optimize the management of the Stockholder's equity of the company and to effect transactions to further the external growth of the company,

      e)
      Cancelling the acquired shares.

        We may cancel the repurchased shares up to 10% of our outstanding share capital within any 24-month period. In addition, we may not repurchase under either (2) or (3) above an amount of shares that would result in our holding, directly or through a person acting on our behalf, more than 10% of our outstanding share capital, or if we have different classes of shares, 10% of the shares in each class.

        We must hold any shares that we repurchase in registered form. These shares must also be fully paid in. Shares repurchased by us are deemed outstanding under French law but are not entitled to dividends or voting rights, and, in case of an increase of our capital stock, we cannot exercise the preemptive subscription rights attached to them. Our shareholders at an Extraordinary General Meeting may decide not to take these shares into account in determining the preemptive subscription rights attached to the other shares. However, if our shareholders decide to take them into account, we must either sell the rights attached to these shares on the market before the end of the subscription period or distribute them to the other shareholders on a pro rata basis.

        The Management Board meeting held on May 15, 2002, under the conditions authorized by the fifth resolution of the Ordinary Meeting of Shareholders held on May 14, 2002, and by the summary statement issued by the COB, decided, in accordance with the provisions of articles L. 225-209 to L. 225-212 of the French Commercial Law, to acquire on the market or outside the market and by any other means, shares in the company amounting up to 10% of the share capital of the company.

Trading by Aventis in Own Shares

        Pursuant to Règlement no 90-04 of the Commission des Opérations de Bourse, as amended by its Règlement no 2000-06, we may not trade in our own shares for the purpose of manipulating the market. There are three requirements for trades by a company in its own shares to be considered valid. Specifically, in order to be valid:

      trades must be executed on behalf of the company by only one intermediary or, if the issuer uses its share repurchase program in part by way of derivatives, by two intermediaries

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        provided that the issuer is able to ensure an appropriate coordination between the intermediaries in each trading session;

      any block trades may not be made at a price above the current market price; and

      each trade must be made at a price that falls between the lowest and the highest trading price of the trading session during which it is executed.

        If a company's shares are continuously quoted (cotation en continu), as the shares of Aventis are, then a trade must meet the following requirements to be considered valid:

      the trade must not influence the determination of the quoted price before the opening of trading, at the opening of the trading or session, at the first trade of the shares, at the reopening of trading following a suspension or, as applicable, in the last half-hour of any trading session or at the fixing of the closing price;

      the trade must not be carried out in order to influence the price of a derivative instrument relating to the company's shares; and

      the trade must not account for more than 25% of the average total daily trading volume on the Premier Marché in the shares during the three trading days immediately preceding the trade. This last requirement applies only to trades in shares that are traded on the immediate settlement market and are eligible for the deferred settlement service.

        This requirement applies to neither (i) trades in blocks of shares nor (ii) trades executed on behalf of the issuer by an intermediary acting pursuant to a liquidity agreement (contrat de liquidité) complying with a charter of ethics approved by the COB. The first code of ethics was adopted by the "Association Française des Entreprises d'Investissement" ("AFEI") and approved by the COB on February 13, 2001.

        If a company's shares are quoted at fixings, then a trade must meet one further requirement to be considered as valid:

      the trade must not account for more than 25% of the average daily trading volume in the shares during the 15 trading days immediately preceding the trade. This requirement does not apply to trades executed on behalf of the issuer by an intermediary acting pursuant to a liquidity agreement ("contrat de liquidité") complying with the charter of ethics approved by the COB.

        However, there are two periods during which we are not permitted to trade in our own securities:

      the 15-day period before the date on which we make our consolidated or annual financial statements public; and

      the period beginning on the date at which we become aware of information that, if disclosed, would have a significant impact on the market price of our securities and ending on the date this information is made public.

        This requirement does not apply to trades executed on behalf of the issuer by an intermediary acting pursuant to a liquidity agreement ("contrat de liquidité") complying with a charter of ethics approved by the COB.

        After making an initial purchase of our own shares, we must file monthly reports with the COB and the CMF ("Conseil des Marchés Financiers") that contain specified information about subsequent transactions. The CMF makes this information available to the public.

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Item 10.    Additional Information

Share Capital and By-Laws

    Description of Aventis Share Capital

        We have previously filed a description of our share capital in a registration statement on Form F-4 filed October 13, 1999, (registration No. 333-11008) under the captions "Description of Aventis Share Capital" and "Comparison of the Rights of Shareholders of Hoechst and Aventis" found on pages 195-211 of the prospectus contained therein. Additionally, we have previously filed a description of our Share-ADSs (American Depositary Shares) in a registration statement on Form F-3 filed October 20, 1997, (registration No. 333-7730) under the caption "Description of Depositary Arrangements" found on pages U.S.2–U.S.9 of the prospectus contained therein. We incorporate by reference these three captions into the present report, to the extent not superseded by information contained herein.

    Organization and Register

        Aventis is a French stock corporation (société anonyme) with a Management Board and a Supervisory Board. Aventis is subject to the French Commercial Law and to its Decree no 67-236 of March 23, 1967. Aventis is registered with the Registry of Commerce and Companies of Strasbourg under number 542 064 308.

    Object and Purposes

        Article 2 of the By-Laws of Aventis states that the object and purposes of Aventis are to take by any means with no exceptions nor reservations, the holding in ownership or in mere possession, the management, as the case may be, the transfer by any means with no exceptions nor reservations of all or part of any minority or majority participations in any business field, in particular pertaining to "Life Sciences" comprising, inter alia, "pharma" (including pharmaceuticals, biologics, diagnostics and vaccines), "agro" (including crop sciences and animal nutrition) and "veterinary" activities and, more generally, of any participation in all companies or businesses whatsoever existing or to be created; to assist our subsidiaries and to participate in any matter notably administrative and financial; and generally, all industrial, commercial, financial, civil, personal property or real property operations directly or indirectly linked to either purpose set forth hereabove or to all similar or related purposes.

    Directors

        Pursuant to French law, Management Board members appointed by the Supervisory Board are responsible for actions taken by them that are contrary to the interests of Aventis and may be held liable for such actions both individually and jointly with the other Management Board members.

        Under French law, the Management Board and Supervisory Board members may not vote on items in which they have a personal interest. In no case may Aventis extend credit to such persons.

        See also "Item 6. Directors, Senior Management and Employees" for further information on the Supervisory Board and the Management Board.

    Ordinary Shares

        The share capital of Aventis consists of ordinary shares issued in registered or bearer form. Some of the most significant provisions under French law and By-Laws of Aventis relating to ordinary shares may be summarized as follows:

      Capital increases.    The share capital may be increased in consideration of contributions in cash or in property, or by establishing authorized capital or conditional capital. Capital increases require an amendment of the By-Laws approved by two-thirds of the votes of the shareholders at an extraordinary general meeting at which the increase is proposed. The By-Laws of Aventis do not contain conditions regarding changes in the share cap