The major acquisition of Belgian firm, Docpharma by Matrix will significantly boost its international operations in near future. The combined entity will integrate Matrix's considerable manufacturing capacity with Docpharma's strong marketing and distribution platform in key growing markets within southern Europe, making it one of a select few generic pharmaceutical companies in its key markets with the ability to compete on the basis of cost advantage as well as marketing differentiation.

Post transaction, two-thirds of the combined entity's revenues will be generated in the regulated markets, with around half of total revenues being generated in Europe alone. This will make the combined entity a leader amongst the Indian pharmaceutical companies with significant European sales.

The acquisition of Docpharma will be accretive to Matrix's earnings while significantly enhancing growth trends. Docpharma's revenues and EBITDA for the nine months ending 31st March 2005 have grown at 43 per cent and 46 per cent year-on-year, respectively, with potential for similar level of growth in future.

Docpharma generates a majority of its pharmaceutical sales from the Belgian market, where, according to IMS statistics, it was the second largest generic company in 2004 with a market share in number of prescriptions of 16.8 per cent. Generic drugs account for less than 5 per cent of the USD 4.4 billion Belgian pharmaceutical market.

Additionally, Docpharma also derives revenues from operations in the Netherlands and Italy, which represent a combined USD 2.9 billion generics market which is estimated to be growing at approximately 30 per cent annually.

Docpharma has plans in place to enter the USD 2.5 billion French generics market which is estimated to be growing at 29 per cent annually.

In the long run, the opportunity to vertically integrate Docpharma's product portfolio will yield significant synergies for the combined entity. In the short term, Matrix believes that it can reduce costs through more efficient product sourcing within Matrix's existing network in India.

Management believes that it can grow revenues even faster by broadening Docpharma's product portfolio with new products; and leveraging Docpharma's relationships to supply Matrix APIs and finished formulations to Pharmaceutical companies in European markets.

Docpharma and Matrix's operations are extremely complementary with very limited overlap in their respective businesses. Docpharma does not have any manufacturing operations that would require integration or rationalization within the new organization, while its marketing & distribution platform represents an entirely new avenue of revenue generation for Matrix.

The combined entity will have in excess of 100 pharmaceutical products and the product portfolio would double within the next few years. For fiscal year 2004-05, on a pro-forma combined basis, Matrix's reliance on its two key product categories, citalopram and anti-retrovirals, would have declined from half to less than a quarter of total sales.

Additionally, the combined entity will also generate approximately one-fifth of its revenues from Docpharma's hospital division, which is largely targeted at the Belgian hospital market. In addition to having attractive operating margins, this division serves as a strategic springboard for Docpharma to cross-sell generic injectible pharmaceutical products into the currently under-penetrated USD 1-billion hospital pharmacy segment in Belgium.

Docpharma founded in 1999 initially focused on the Belgian market where the company has quickly become the number 3 generics company in value terms behind Stada and Merck Generics and the number 2 generics company in number of prescriptions, with a current market share of 16.8 per cent and a wide portfolio of over 50 molecules. In the past 3 years, the company has also executed key acquisitions in the Netherlands and Italy to obtain a base from which to launch its strong development pipeline.

In addition to the focus on prescription generics, Docpharma has also strategically positioned itself as a potential first mover in the Belgian hospital generics market. Hospital pharmacies account for approximately 25 per cent of total pharmaceutical expenditures in Belgium, however, virtually none of these sales are for generic products. Docpharma's management believes that this will change when the government begins to encourage generic sales as a means to reduce overall healthcare costs. Docpharma today is a leading supplier to hospitals in the Belgian market with annual supplies to hospitals exceeding USD 50 million. The company intends to leverage its current relationships to cross sell a basket of injectible generics into this potentially lucrative segment of the market.