MATRIX LABORATORIES LIMITED
ANNUAL REPORT 2005-2006
Dear Fellow Shareholders,
At Matrix, we are proud to have reported another year of positive
divergence in 2005-06 - more than four per cent increase in gross turnover
and a 40 per cent growth in post-tax profit on a standalone basis, at a
time when generic prices have generally declined and industry margins are
under pressure. On a consolidated basis, we reported gross sales of Rs
11,861.51 million and a post-tax profit of Rs 1,992.05 million for the year
However, at Matrix, the biggest transformation has not been in our numbers;
it has been in our mindset. A mindset that emphasizes that we will source
material from wherever in the world it is cheapest, manufacture wherever it
is most economical and market wherever our products fetch the highest
Forces shaping the pharmaceutical industry
First-The global pharmaceutical industry is consolidating faster than ever
before. What used to he more than 13 global generic companies is now a mere
five; Teva bought out Ivax to create the largest generics prescription
company in the world, Novartis acquired Hexal and Sandoz acquired Durascan.
This growing consolidation is a bid to share resources and capabilities to
shrink time-to-market and grab a larger share of the market.
Second-Consumers are increasingly aware of global price differences
resulting from price controls imposed by foreign governments. They are more
willing to seek less expensive alternatives such as switching to generics
and sourcing medicines across national borders. The consequent pressure on
costs has resulted in pharma players preferring to establish a presence in
low-cost destinations and expanding their global presence to gain footprint
in a particular geography.
Third-Large investments in new drug research and development, the probable
risk of zero returns on some of these investments (should the product
fail to reach the market) and massing litigations are promoting the
'sharing risks and rewards' concept. As a densking strategy, corporates are
also building new services and capabilities.
Gearing ourselves towards transformation
At Matrix, we progressively de-risked our business through acquisitions or
alliances with six companies in 2005-06 in exchange for the following
One, geographic benefits For instance. a controlling stake in the Mchem
Group will help us leverage China's advantage in pharmaceutical
intermediates; we will source intermediates from that country, convert into
APIs at our facility in India for onward dispatch to our customers.
Two, our acquisitions in Docpharma will provide us with a robust marketing
and distribution platform for future products. resulting in a direct
presence in Europe and the generically under-penetrated Belgium,
Netherlands, France and Italy For instance. we have developed a number of
finished dosage forms and we will be able to leverage our Decpharma
acquisition to distribute these product across Europe.
Three, our interests in Concord, Fine Chemicals and Explore will enable us
to enter exciting, new and synergistic areas.
Going forward, these acquisitions will provide us with control across each
points of our value chain, sustainability in our business and
attractiveness in our revenues.
At Matrix, we are optimistic about our future for the following reasons:
- The demographics of developed countries indicate that since people are
living longer they will read effective remedies.
- A number of untreated patients in the developing countries within our
existing therapeutic categories indicate a large unmet need for HIV/ AIDS.
- Growth in Matrix's presence in the regulated and emerging markets
- Room to improve upon existing therapies and introduce treatments where
currently none exist.
- Global emphasis on the need to find solutions to difficult problems in
our healthcare system.
At Matrix, we are addressing these opportunities through the following
- Building a product portfolio intended to stabilise the volatility of
individual products or markets.
- Acquiring a number of companies globally that represents a neat and
synergistic fit with our business model.
- Pursuing a large number of new product launches.
In 2006-07 and beyond, we will continue to focus on cur customers,
implement the enunciated strategies and improve our technology, service,
quality and cost-effectiveness.
In doing so, we expect to make Matrix an even stronger Company over the