Plot No. 2, Maitri Vihar, Ameerpet, Hyderabad - 500 038. www.aurobindo.com Delive ring on promises Annual Report 2005-2006 Concept, Research & Design - CAPRICORN Printed at Kala Jyothi, Ph : 040-27645539 A Glossary Some of the terms used in the annual report are briefly explained below: ANDA Abbreviated New Drug ERP Enterprise Resource Planning Application (to the %DA) %CCB %oreign Currency Convertible ANVISA Agência Nacional de Vigilância Bond Sanitária (National Health %D% %inished dosage form Surveillance Agency Brazil) HIV Human Immunodeficiency Virus API Active Pharmaceutical Ingredient IPR Intellectual Property Rights ARD Analytical Research Department MCC Medicines Control Council, South ART Antiretroviral Therapy (HIV) Africa ARV Antiretroviral MTCT Mother to child transmission Bioequivalence performs in the same manner as NDA New Drug Application the innovator drug PEP%AR President's Emergency Plan for CNS Central nervous system AIDs Relief CoS Certificate of Suitability QA/QC Quality assurance/Quality control CPD Clinical Pharmacology Department SSP Semi-synthetic penicillins CRD Chemical Research Department UK MHRA The Medicines and Healthcare CVS Cardiovascular system products Regulatory Agency, U.K. DM% Drug Master %ile UNICE% United Nations Children's %und EBIDTA Earnings before Interest, Taxes, UNDP United Nations Development Depreciation and Amortization Program EDQM European Directorate for the US %DA U. S. %ood and Drug Quality of Medicines Administration EHS Environmental Health and Safety USP United States Pharmacopeia EPS Earnings per Share WHO World Health Organization Contents o r w a r d L o o k i n g S t a t e m e n t s Message from the Chairman 2 Report on Corporate Governance 45 This communication contains statements that constitute forward looking statements including, without limitation, statements relating to the implementation of strategic initiatives and other %rom the desk of the Managing Director 6 Auditors Report 57 statements relating to our future business developments and economic performance. R&D interface makes the difference 10 Balance Sheet 62 While these forward looking statements represent our judgements and future expectations We kept our promises 12 Profit & Loss Account 63 concerning the development of our business, a number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. Growth is our Dharma 14 Cash %low Statement 64 These factors include, but are not limited to, general market, macro-economic, governmental and Chairman's address at the United Nations 16 Schedules 66 regulatory trends, movements in currency exchange and interest rates, competitive pressures, Board of Directors 18 Statement relating to subsidiary companies 95 technological developments, changes in the financial conditions of third parties dealing with us, legislative developments, and other key factors that we have indicated could adversely affect our Notice 19 Consolidated %inancial Statements 96 business and financial performance. Directors Report 29 Admission Slip / Proxy 131 Aurobindo undertakes no obligation to publicly revise any forward looking statements to reflect Management Discussion and Analysis 40 %orward Looking Statements IBC future events or circumstances. We have constructed a solid strategic foundation. The business is organised to remain close to the customers, sharing products, values and best practices. This is leveraged on high-level researchers and technology combined to provide world-class performance, unbeatable value for money and the ability to deliver large basket of products. This did not happen overnight. It came out of a commitment to excel at the best markets. They were not mere promises, but a passion to make an impact in the most competitive markets. Our businesses are performing well. We are working for strong growth, and shall sustain the momentum. We shall sharpen our focus on international expansion, even as we consolidate and build on the strengths of our base business in the domestic and emerging markets. Aurobindo is a high-energy pharmaceutical company and the vibrancy in the organisation gives confidence to make fresh commitment to deliver. To deliver the Earth for our customers, shareholders and in fact, all our stakeholders. Aurobindo Pharma Ltd. Annual Report 2006 1 Delive ring on promises Message from the Chairman Dear friends, We at Aurobindo have been actively creating a platform for growth. We pursued a well-laid road map and added to our marketing reach. In particular, we made a strategic entry into the regulated markets of US and Europe. We ensured that we had a marketing strategy and a large number of regulatory approved APIs and BOTH IN US AND EUROPE, WE HAVE STARTED formulations. EXECUTING REPEAT ORDERS. EQUALLY We made a good beginning and I SIGNIICANT WAS OUR BEING PART O THE am happy to report that many of the PRESTIGIOUS PEPAR PROGRAM. initiatives undertaken in the recent past to scale up the organization have through challenging circumstances that we have earned over many years. started to bear fruit. Both in US and and environment. Our endeavor is to retain this Europe, we have started executing Since we did a calibrated entry leadership position in the base repeat orders. Equally significant was into such markets, our learning cost business, and make inroads into the our being part of the prestigious and lag-time was lower. We had sized regulated markets. PEP+AR program initiated by the up the breadth and depth of the +Y06 was characterised by severe Government of USA. market, we are better positioned to competitive pressure, shortage of We had planned well; we knew deliver larger volume and service raw materials, higher input costs and our strengths; were clear on where we wider boundaries. challenges latent in entering some of wanted to go; what we wanted to Our Members are aware, that we the most quality conscious markets. deliver; were sure of our milestones at Aurobindo have been a dominant We needed to be better than market and the efforts that we needed to put player in the domestic API market expectations, and I am glad to share in to make things happen. We did as and a significant player in the less with you, that the professional team well as we planned and navigated regulated markets. This is a strength at Aurobindo anticipated and 2 Annual Report 2006 Aurobindo Pharma Ltd. AUROBINDO'S STRENGTHS ARE ITS ABILITY market, from our own experiences, TO OER WHAT THE CUSTOMERS WANT and in the process, have fine tuned AND BE THE LOWEST COST PRODUCER. our growth plans and momentum. I shall share a few pointers which worked to a game plan. We found it Aurobindo has some of the best have helped us gain clarity in our much easier to market our products, skills in the industry, especially in business. Some of the basic questions at affordable prices. critical functions such as research, that we ask ourselves include: Who are Aurobindo's strengths are its manufacturing and marketing. we competing? How would we ability to offer what the customers Going forward, the Company succeed in a market made of leaders want and be the lowest cost has the clarity of its future revenue in the industry? What should we do producer. We give them quality that flows and has the capability to to gain larger presence, market share, they want, service them especially protect and improve margins. We improved business mix and with delivery deadline, and meet the have mapped with milestones our sustainable long-term growth? needs of customers at prices that give future course of managing market We at Aurobindo believe that we them value. We see long-term needs and are progressively are not competing against MNCs, relationships, and plan to tie up with improving the presence of our innovators or other competitors. We some of the best names in the products. believe those equipped to deliver industry. Over the years, Aurobindo has better will demonstrate sustained It is a matter of pride for us that taken care to keep its commitments, long term growth. two of our ARV and deliver better than what was My colleagues and I believe, our We are working products coupled with earlier estimated. Our team has fight is against ailments, disease and towards revenues of the analytical methods gained strength and has converted ill-health. We work the same market half-a-billion in are becoming the basis challenges into opportunities. Seen in with other players, and together we Y07 and one for the USP perspective, we have delivered better are challenging the spread of billion in three monographs. A few to all our stakeholders. ailments such as HIV; providing years, designated in dollar terms. of our talented Often, we have deliberated within support to patients to recover from scientists have been the Company to take stock of our diabetes, migraine, cardiovascular recognised by awards and citations by progress, as well as on what need be ailments; and help them with our industry associations. Indeed, done. We have learnt from the drugs to control several lifestyle Aurobindo Pharma Ltd. Annual Report 2006 3 material as well. Aurobindo straddles the value chain. London We bring to the market, consistency of products, reliability of sources, ability to produce at shorter time-lag and cost effectiveness. We believe this competitive edge will be maintained and improved upon as we gain stronger foot-prints in the markets. Our endeavor as in the past, will WE BELIEVE THE WINNERS WILL BE THOSE WHO be to remain the most cost effective ARE EQUIPPED TO OER EECTIVE PRODUCTS producer of the best pharmaceutical AT PRICES THAT ARE COMPETITIVE. products, gain volume and market share and be a dependable resource disorders. We have a stake in patients products at prices that are for patients and medical fraternity. regaining their health. competitive. We believe our efforts will lead to While there are many players in This is where we are distinctive sustainable growth of the Company the same market, with similar and different.