PROSPECTUS

Biocon

Please read Section 60B of the Companies Act, 1956 Dated March 23, 2004 100% Book Building Issue

BIOCON LIMITED
(Previously known as Biocon India Limited, subsequently renamed Biocon Limited on November 17, 2003) (Our Company was incorporated on November 29, 1978 as a private limited company under the Companies Act, 1956. Our Company became a public limited company on June 18, 2001) Registered Office and Corporate Office: 20 th K.M. Hosur Road, Electronic City P.O., Bangalore 560 100 Tel: +91 80 2852 3434; Fax: +91 80 2852 3423 Website: www.biocon.com; Email: bioconipo@biocon.com

PUBLIC ISSUE OF EQUITY SHARES COMPRISING FRESH ISSUE OF 10,000,000 EQUITY SHARES OF RS. 5/- EACH AT A PRICE OF RS. 315 FOR CASH AGGREGATING RS. 3,150 MILLION (REFERRED TO AS THE ISSUE).
THE ISSUE WOULD CONSTITUTE 10% OF THE FULLY DILUTED POST ISSUE PAID-UP CAPITAL OF THE COMPANY.

PRICE BAND: RS. 270 TO RS. 315 PER EQUITY SHARE OF FACE VALUE RS. 5/In case of revision in the Price Band, the Bidding/Issue Period will be extended for three additional days after revision of Price Band. Any revision in the Price Band and the revised Bid/Issue Period, if applicable, will be widely disseminated by notification to the NSE and BSE, by issuing a press release, and also by indicating the change on the web site of the BRLMs and the CBRLM and at the terminals of the Syndicate. In terms of Rule 19(2)(b) of the SCRR, this being an Issue for less than 25% of the post issue capital, the Issue is being made through the 100% book building process with an allocation of 60% of the Issue size to Qualified Institutional Buyers, with a minimum of two million securities being offered to the Retail Bidder and the minimum Issue size being Rs. 1000 million. Further, not less than 15% of the Issue shall be available for allocation on a proportionate basis to Non-Institutional Bidders and not less than 25% of the Issue shall be available for allocation on a proportionate basis to Retail Bidders, subject to valid Bids being received at or above the Issue Price. RISK IN RELATION TO FIRST ISSUE This being the first issue of Equity Shares of the Company, there has been no formal market for the Equity Shares of the Compan y. The Issue Price (as determined by the Company, in consultation with the Book Running Lead Managers (BRLMs) and Co-Book Running Lead Manager (CBRLM), on the basis of assessment of market demand for the Equity Shares by way of book building) should not be taken to be indicative of the market price of the Equity Shares after the Equity Shares are listed. No assurance can be given regarding an active and/or sustained trading in the Equity Shares of the Company or regarding the price at which the Equity Shares will be traded after listing. GENERAL RISKS Investments in equity and equity-related securities involve a degree of risk and investors should not invest any funds in this Issue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this Issue. For taking an investment decision, investors must rely on their own examination of the Company and the Issue including the risks involved. The Equity Shares offered in the Issue have not been recommended or approved by the Securities and Exchange Board of India (SEBI), nor does SEBI guarantee the accuracy or adequacy of the contents of this Prospectus. Specific attention of the investors is invited to the summarized and detailed statements in Risk Factors beginning on page xi. COMPANYS ABSOLUTE RESPONSIBILITY Biocon Limited, having made all reasonable inquiries, accepts responsibility for and confirms that this Prospectus contains all information with regard to Biocon Limited and the Issue, which is material in the context of the Issue, that the information contained in this Prospectus is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this Prospectus as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. LISTING The Equity Shares offered through this Prospectus are proposed to be listed on The National Stock Exchange of India Limited (NSE) and The Stock Exchange, Mumbai (BSE). We have received in-principle approvals from these Stock Exchanges for the listing of our Equity Shares pursuant to letters both dated February 5, 2004. BOOK RUNNING LEAD MANAGERS

DSP Merrill Lynch Limited Mafatlal Centre, 10th Floor, Nariman Point, Mumbai 400 021 Tel: +91 22 5632 8000, Fax: +91 22 2204 8518 Email: biocon_ipo@ml.com
CO BOOK RUNNING LEAD MANAGER

Kotak Mahindra Capital Company Limited Bakhtawar, 3rd Floor, 229, Nariman Point, Mumbai 400 021 Tel: +91 22 5634 1100, Fax: +91 22 2284 0492 Email: biocon.ipo@kotak.com
REGISTRAR TO THE ISSUE

HSBC Securities and Capital Markets (India) Private Limited 52/60 Mahatma Gandhi Road, Fort, Mumbai 400 001 Tel: +91 22 2268 1284/5, Fax: +91 22 2263 1984 Email: biocon_ipo@hsbc.co.in

Karvy Consultants Limited Karvy House, 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad 500 034 Tel: +91 40 2331 2454, Fax: +91 40 2331 1968 Email: biocon@karvy.com ISSUE PROGRAM BID/ISSUE CLOSES ON MARCH 18, 2004

BID/ISSUE OPENS ON

MARCH 11, 2004

TABLE OF CONTENTS Definitions And Abbreviations ----------------------------------------------------------------------------------------------------Glossary Of Technical And Industry Terms ------------------------------------------------------------------------------------Certain Conventions; Use Of Market Data --------------------------------------------------------------------------------------Forward-Looking Statements ------------------------------------------------------------------------------------------------------Currency Of Presentation ---------------------------------------------------------------------------------------------------------Risk Factors --------------------------------------------------------------------------------------------------------------------------Summary ------------------------------------------------------------------------------------------------------------------------------The Issue ------------------------------------------------------------------------------------------------------------------------------Summary Financial Data -----------------------------------------------------------------------------------------------------------General Information -----------------------------------------------------------------------------------------------------------------Capital Structure --------------------------------------------------------------------------------------------------------------------Objects Of The Issue ----------------------------------------------------------------------------------------------------------------Industry Overview -------------------------------------------------------------------------------------------------------------------Business -------------------------------------------------------------------------------------------------------------------------------History And Certain Corporate Matters -----------------------------------------------------------------------------------------Management --------------------------------------------------------------------------------------------------------------------------Promoters -----------------------------------------------------------------------------------------------------------------------------Subsidiaries --------------------------------------------------------------------------------------------------------------------------Related Party Transactions --------------------------------------------------------------------------------------------------------Selected Financial Data (As Per Unconsolidated Financial Statements Under Indian GAAP) -------------------------Managements Discussion And Analysis Of Financial Condition And Results Of Operations ------------------------Regulations And Policies -----------------------------------------------------------------------------------------------------------Government Approvals --------------------------------------------------------------------------------------------------------------Outstanding Litigation --------------------------------------------------------------------------------------------------------------Material Developments --------------------------------------------------------------------------------------------------------------Dividend Policy -----------------------------------------------------------------------------------------------------------------------Other Regulatory Disclosures ----------------------------------------------------------------------------------------------------Terms Of The Issue -----------------------------------------------------------------------------------------------------------------Issue Structure ----------------------------------------------------------------------------------------------------------------------Issue Procedure ----------------------------------------------------------------------------------------------------------------------Basis For Issue Price ---------------------------------------------------------------------------------------------------------------Statutory And Other Information -------------------------------------------------------------------------------------------------Main Provisions Of Articles Of Association Of Biocon Limited ------------------------------------------------------------Material Contracts And Documents For Inspections --------------------------------------------------------------------------Financial Information ---------------------------------------------------------------------------------------------------------------Declaration ---------------------------------------------------------------------------------------------------------------------------i vi viii ix x xi 1 4 5 11 23 30 35 40 64 70 79 81 84 86 92 118 123 129 138 139 140 141 143 144 159 162 168 178 180 352

Biocon
DEFINITIONS AND ABBREVIATIONS Definitions
Term Biocon, the Company, our Company, Biocon Group, our Group, we, us or Biocon and its subsidiaries Description Unless the context otherwise requires, refers to, Biocon Limited, a public limited company incorporated under the Companies Act, together with Syngene, Clinigene and BBPL.

Issue Related Terms and Abbreviations Term

AGM AG Allocation Amount AIG AOF or Investor

Description
Annual General Meeting Accountant General of Karnataka The amount payable by a Bidder on or prior to the Pay-in Date after deducting any Bid Amounts that may already have been paid by such Bidder AOF HS Mauritius Ltd (previously known as Albacore Investments Limited), a company established under the laws of Mauritius with its registered office at 3rd Floor, Les Cascades, Edith Cavell Street, Port Louis, Mauritius and duly registered as a FVCI, which is a wholly owned subsidiary of AIG Asian Opportunity Fund L.P., a Cayman Islands limited partnership Articles of Association of Biocon Limited Accounting Standards as issued by the Institute of Chartered Accountants of India Statutory auditors of the Biocon Group being, S.R. Batliboi & Associates, Chartered Accountants for Indian GAAP and Ernst & Young auditors for US GAAP. The auditors commenced their audit engagements with the Biocon Group in fiscal 2003. ABN Amro Bank N.V., Kotak Mahindra Bank Limited, The Hongkong and Shanghai Banking Corporation Limited, HDFC Bank Limited and Canara Bank Biochemizyme India Limited, a company incorporated under the Companies Act with its registered office at 20th KM Hosur Road, Electronics City P.O., Bangalore 560 100, which was merged into Biocon Limited with effect from April 1, 1999 Biocon Biopharmaceuticals Private Limited, a company incorporated under the Companies Act with its registered office at 20th K.M. Hosur Road, Electronic City P.O., Bangalore 560 100, which is a joint venture between our Company and CIMAB An offer made during the Bidding Period by a prospective investor to subscribe to the Equity Shares of the Company at a price within the Price Band, including all revisions and modifications thereto The highest value of the optional Bids indicated in the Bid cum Application Form and payable by the Bidder on submission of the Bid in the Issue The date after which the Syndicate will not accept any Bids for the Issue, which shall be notified in a widely circulated English national newspaper, a Hindi national newspaper and a Kannada newspaper The form in terms of which the Bidder shall make an offer to purchase Equity Shares of our Company in terms of this Prospectus The date on which the Syndicate shall start accepting Bids for the Issue, which shall be the date notified in a widely circulated English national newspaper, a Hindi national newspaper and a Kannada newspaper Any prospective investor who makes a Bid pursuant to the terms of this Prospectus The period between the Bid/ Issue Opening Date and the Bid/ Issue Closing Date inclusive of both days and during which prospective Bidders can submit their Bids

Articles/ Articles of Association AS Auditors

Banker(s) to the Issue BCZ

BBPL/Biocon Biopharmaceuticals Bid Bid Amount Bid / Issue Closing Date Bid cum Application Form Bid / Issue Opening Date Bidder Bidding Period/ Issue Period

Biocon
Term BIFR Board of Directors/ Board Book Building Process/ Method BQIL Description Board for Industrial and Financial Reconstruction The Board of Directors of Biocon Limited or a committee thereof Book building route as provided in Chapter XI of the SEBI Guidelines, in terms of which this Issue is being made Biocon Bioproducts India Limited (previously known as Biocon Quest India Limited), a company incorporated under the Companies Act with its registered office at 20th K.M. Hosur Road, Electronic City P.O., Bangalore 560 100, which was merged into Biocon Limited with effect from April 1, 1999 Book Running Lead Managers to the Issue, in this case being DSP Merrill Lynch Limited and Kotak Mahindra Capital Company Limited The Stock Exchange, Mumbai Bangalore Water Supply and Sewerage Board Means the note or advice or intimation of allocation of Equity Shares sent to the Bidders who have been allocated Equity Shares after discovery of the Issue Price in accordance with the Book Building Process Co-Book Running Lead Manager to the Issue, in this case being HSBC Securities and Capital Markets (India) Private Limited Central Depository Services (India) Limited CIMAB S.A, a company organised and existing under the laws of Cuba with its principal office at 206, St., 1926 between 19 and 21 Playa, Havana City, Cuba Clinigene International Private Limited, a wholly owned subsidiary of the Company incorporated under the provisions of the Companies Act and with its registered office at 20th K.M. Hosur Road, Electronic City P.O., Bangalore 560 100 The Companies Act, 1956, as amended from time to time CRISIL Limited (previously known as The Credit Rating Information Services of India Limited) with its registered office at CRISIL House, Plot No. 121/122, Andheri Kurla Road, Andheri (East), Mumbai - 400 093. Cochin Special Economic Zone The Issue Price finalised by the Company in consultation with the BRLMs and CBRLM The Depositories Act, 1996, as amended from time to time A depository registered with SEBI under the SEBI (Depositories and Participant) Regulations, 1996, as amended from time to time A depository participant as defined under the Depositories Act The date on which funds are transferred from the Escrow Account to the Public Issue Account after the Prospectus is filed with the RoC, following which the Board of Directors shall allot Equity Shares to successful Bidders NSE The directors of Biocon Limited from time to time DSP Merrill Lynch Limited Extraordinary General Meeting Earnings per Equity Share Equity shares of the Company of face value of Rs. 5/- each unless otherwise specified in the context thereof

BRLMs BSE BWSSB CAN/ Confirmation of Allocation Note CBRLM CDSL CIMAB Clinigene

Companies Act CRISIL

CSEZ Cut-off Price Depositories Act Depository Depository Participant Designated Date

Designated Stock Exchange Directors DSPML EGM EPS Equity Shares

ii

Biocon
Term Escrow Account Escrow Agreement Description Account opened with Escrow Collection Bank(s) and in whose favour the Bidder will issue cheques or drafts in respect of the Bid Amount when submitting a Bid and the Allocation Amount paid thereafter Agreement entered into by the Company, the Registrar, BRLMs, CBRLM, the Syndicate Members and the Escrow Collection Bank(s) for collection of the Bid Amounts and where applicable refunds of the amounts collected to the Bidders The banks which are clearing members and registered with SEBI as Banker to the Issue with whom the Escrow Account for the Issue will be opened The Biocon India Limited Employee Stock Option Plan 2000 as adopted by the resolution of the Board of Directors of the Company on July 27, 2001 and formulated by the Company The trust by the name of Biocon India Limited Employees Welfare Trust established by Ms. Kiran Mazumdar Shaw as the Settlor and Mr. John Shaw, Mr. Murali Krishnan K.N. and Dr. Arun Chandavarkar on May 18, 2001 for the purpose of implementing the ESOP Scheme Foreign Currency Non Resident Account Foreign Exchange Management Act, 1999, as amended from time to time, and the regulations framed thereunder Foreign Exchange Regulation Act, 1973, now repealed Foreign institutional investor (as defined under SEBI (Foreign Institutional Investors) Regulations, 1995) registered with SEBI under applicable laws in India The twelve months ended March 31 of a particular year Foreign Investment Promotion Board, Ministry of Finance, Government of India The Bidder whose name appears first in the Bid cum Application Form or Revision Form Foreign venture capital investor, registered with SEBI under the SEBI (Foreign Venture Capital Investor) Regulations, 2000 General Index Registry Number Glentec International (previously known as Rosemont Investments Limited), a company established under the laws of Mauritius with its registered office at 10, Frere Felix de Valois Street, Port Louis, Mauritius Helix Biotech Limited, a company incorporated under the Companies Act with its registered office at 20th KM, Hosur Road, Electronic City P.O., Bangalore 560 100, which was merged into Biocon Limited with effect from April 1, 1999 HSBC Securities and Capital Markets (India) Private Limited Hindu Undivided Family Imperial Chemical Industries Plc and its affiliate ICI Omicron B.V., a company established under the laws of Netherlands with its registered office at Merseyweg 10, 3197 KG Botlek, Rotterdam, The Netherlands Collectively AIG AOF, a wholly owned subsidiary of AIG Asian Opportunity Fund L.P. and the Promoters Generally accepted accounting principles in India Initial public issue/offering A committee of the Board of Directors of our Company comprising Ms. Kiran Mazumdar-Shaw, Mr. John Shaw, Mr. Suresh Talwar and Mr. Santosh Senapati (as alternate Director to Ms. Ada K.H.Tse) appointed for the purpose of carrying out various actions in relation to the Issue Internal rate of return

Escrow Collection Bank(s) ESOP Scheme ESOP Trust

FCNR Account FEMA FERA FII/ Foreign Institutional Investor Financial year/fiscal/FY FIPB First Bidder FVCI GIR Number Glentec International

HLX

HSBC HUF ICI

Identified Shareholders Indian GAAP IPO IPO Committee

IRR

iii

Biocon
Term Issue Issue Price Description The fresh issue of 10,000,000 new Equity Shares of Rs. 5/- each at the Issue Price by the Company under this Prospectus The final price at which Equity Shares will be issued and allotted in terms of the Prospectus. The Issue Price will be decided by the Company in consultation with the BRLMs and CBRLM on the Pricing Date The Income-Tax Act, 1961, as amended from time to time, except as stated otherwise India Value Fund Trustee Company Private Limited, a company established under the Companies Act with its registered office at 12 Technopolis Park, Mahakali Caves Road, Andheri (West), Mumbai-400 093, a duly registered VCF managed by GW Capital Private Limited with its registered office at 12 Technopolis Park, Mahakali Caves Road, Andheri (West), Mumbai -400 093 Karnataka Industrial Areas Development Board Kotak Mahindra Capital Company Limited Karnataka Power Transmission Corporation Limited The amount paid by the Bidder at the time of submission of his/her Bid, being 0% to 100% of the Bid Amount The Memorandum of Association of our Company Net Asset Value All Bidders that are not QIBs or Retail Bidders and who have Bid for Equity Shares for an amount more than Rs. 50,000 The portion of the Issue being 1,500,000 Equity Shares of Rs. 5/- each available for allocation to Non Institutional Bidders All Bidders who are not NRIs or FIIs and are not persons resident in India Non Resident External Account A person resident outside India, as defined in FEMA and who is a citizen of India or a Person of Indian Origin, and as defined under FEMA (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 National Securities Depository Limited National Stock Exchange of India Limited Original Suit number allotted when a civil suit is first filed in an Indian court having original jurisdiction Permanent Account Number Bid Closing Date or the last date specified in the CAN sent to Bidders, as applicable This term means (i) with respect to Bidders whose payment has not been waived by the Syndicate and are therefore required to pay the maximum Bid Amount into the Escrow Account, the period commencing on the Bid/Issue Opening Date and extending until the Bid/Issue Closing Date, and (ii) with respect to Bidders whose payment has been initially waived by the Syndicate and are therefore not required to pay the Bid Amount into the Escrow Account on or prior to the Bid/Issue Closing Date, the period commencing on the Bid/Issue Opening Date and extending until the closure of the Pay-in Date Price band of a minimum price (floor of the price band) of Rs. 270 and the maximum price (cap of the price band) of Rs. 315 and includes revisions thereof The date on which Company in consultation with the BRLMs and CBRLM finalizes the Issue Price Ms. Kiran Mazumdar-Shaw, Mr. John Shaw and Glentec International The Prospectus to be filed with the RoC containing, inter alia, the Issue Price that is determined at the end of the Book Building process, the size of the Issue and certain other information Account opened with the Bankers to the Issue to receive monies from the Escrow Account for the Issue on the Designated Date

I.T. Act IVF

KIADB KMCC KPTCL Margin Amount Memorandum/ Memorandum of Association NAV Non Institutional Bidders Non Institutional Portion Non Residents NRE Account NRI/ Non Resident Indian

NSDL NSE O.S. No. PAN Pay-in Date Pay-in-Period

Price Band Pricing Date Promoters or Sponsors Prospectus Public Issue Account

iv

Biocon
Term Qualified Institutional Buyers or QIBs Description Public financial institutions as specified in Section 4A of the Companies Act, FIIs registered with SEBI, scheduled commercial banks, mutual funds registered with SEBI, multilateral and bilateral development financial institutions, venture capital funds registered with SEBI, foreign venture capital investors registered with SEBI, state industrial development corporations, insurance companies registered with Insurance Regulatory and Development Authority, provident funds with minimum corpus of Rs. 250 million and pension funds with minimum corpus of Rs. 250 million The portion of the Issue being 6,000,000 Equity Shares of Rs. 5/- each available for allocation to QIBs Reserve Bank of India The Red Herring Prospectus which will be filed with RoC at least 3 days before the Bid/ Issue Opening Date 20th K.M. Hosur Road, Electronic City P.O., Bangalore 560 100 Registrar to the Issue, in this case being Karvy Consultants Limited having its registered office as indicated on the cover page of this Prospectus Individual Bidders (including HUFs and NRIs) who have not Bid for Equity Shares for an amount more than or equal to Rs. 50,000, in any of the bidding options in the Issue The portion of the Issue being 2,500,000 Equity Shares of Rs. 5/- each available for allocation to Retail Bidder(s) The form used by the Bidders to modify the quantity of Equity Shares or the Bid Price in any of their Bid cum Application Forms or any previous Revision Form(s) Registrar of Companies, Karnataka at Bangalore Securities Contracts (Regulation) Act, 1956, as amended from time to time Securities Contracts (Regulation) Rules, 1957, as amended from time to time The Securities and Exchange Board of India constituted under the SEBI Act Securities and Exchange Board of India Act, 1992, as amended from time to time SEBI (Guidelines for Disclosure and Investor Protection) 2000 issued by SEBI effective from January 27, 2000, as amended, including instructions and clarifications issued by SEBI from time to time NSE and BSE The BRLMs, the CBRLM and the Syndicate Members Agreement between the Syndicate, and the Company Kotak Securities Limited and Karvy Stock Broking Limited Syngene International Private Limited, a subsidiary of the Company incorporated under the provisions of the Companies Act with its registered office at 20th K.M. Hosur Road, Electronic City P.O., Bangalore 560 100 The slip or document issued by the Syndicate to the Bidder as proof of registration of the Bid The BRLMs, the CBRLM and Syndicate Members The Agreement between the Underwriters and our Company to be entered into on the Pricing Date Unilever Overseas Holding B.V., a company established under the laws of Netherlands with its registered office at Weena 455, 3013 Al Rotterdam, The Netherlands and an affiliate of the Unilever Group Generally accepted accounting principles in the United States Venture capital fund, registered with SEBI under the SEBI (Venture Capital) Regulations, 1996 The trust by the name of The Biocon India Limited Welfare Trust established by Ms. Kiran Mazumdar Shaw as the Settlor and Mr. John Shaw, Mr. Murali Krishnan K.N. and Dr. Arun Chandavarkar on April 28, 2003 for the purpose of administering the shares granted to the Welfare Trust transferred from the Promoters. v

QIB Portion RBI RHP or Red Herring Prospectus Registered Office of our Company Registrar to the Issue Retail Bidder(s) Retail Portion Revision Form RoC SCRA SCRR SEBI SEBI Act SEBI Guidelines Stock Exchanges Syndicate Syndicate Agreement Syndicate Members Syngene

TRS/ Transaction Registration Slip Underwriters Underwriting Agreement Unilever US GAAP VCF Welfare Trust

Biocon
GLOSSARY OF TECHNICAL AND INDUSTRY TERMS
Term ANDA API BE/BA CAGR CAP CDSCO CENVAT CGMP CoS CRO DCGI DBT DMF DNA DPCO EDMF EDQM EMEA EOU EPCG EP EPO EU FTE GCP GCSF GDP GEAC HR3 ICMR ICRA IMS INDA kl MPA MMF Description Abbreviated New Drug Application Active Pharmaceutical Ingredient Bio Equivalence and Bio Availability Compounded Annual Growth Rate College of American Pathologists Central Drug Standard Control Organisation Central Value Added Tax Current Good Manufacturing Practice Certificate of Suitability Contract Research Organisation Drugs Controller General of India Department of Biotechnology, Ministry of Science & Technology, Government of India Drug Master File Deoxyribose Nucleic Acid Drugs (Prices Control) Order, 1995 European Drug Master File European Directorate for the Quality of Medicines European Agency for the Evaluation of Medicinal Products Export Oriented Unit Export Promotion of Capital Goods Scheme prescribed under the Indian Export Import Policy of 20022007 European Patent Recombinant Erythropoetin European Union Full Time Equivalent Good Clinical Practice Granulocite Colony Stimulating Factor Gross Domestic Product Genetic Engineering Approval Committee Thera CIM hR3 Ant-egf Monoclonal Antibody Indian Council of Medical Research Investment Information and Credit Rating Agency IMS Health Incorporated Investigational New Drug Application Kilolitre Mycophenolic Acid Mycophenolate Mofetil

vi

Biocon
Term NDA NPPA OTC PCT RCGM RWTUV rDNA R&D SKO TRIPs US FDA WHO WIPO WTO Description New Drug Application National Pharmaceutical Pricing Authority Over-the-counter Patent Cooperation Treaty Review Committee on Genetic Manipulation RWTUV Systems GmbH; for ISO Certification Recombinant DNA Research and Development Super Kerosene Oil Trade-related Aspects of Intellectual Property Rights United States Food and Drug Administration World Health Organisation World Intellectual Property Organisation World Trade Organisation

vii

Biocon
CERTAIN CONVENTIONS; USE OF MARKET DATA Unless stated otherwise, the financial data in this Prospectus is derived from our unconsolidated financial statements prepared in accordance with Indian GAAP included elsewhere in this Prospectus. Unless stated otherwise, references to consolidated financial information is to the consolidated financial information under Indian GAAP. Our fiscal year commences on April 1 and ends on March 31. In this Prospectus, any discrepancies in any table between the total and the sums of the amounts listed are due to rounding. All references to India contained in this Prospectus are to the Republic of India, all references to the US or the U.S. or the USA, or the United States are to the United States of America, and all references to UK are to the United Kingdom. All references to Rupees or Rs. are to Indian Rupees, the official currency of the Republic of India. All references to US$, U.S. Dollar or US Dollars are to United States Dollars, the official currency of the United States of America. For additional definitions, please refer to the section entitled Definitions and Abbreviations on page i of this Prospectus. Industry data used throughout this Prospectus has been obtained from industry publications. Industry publications generally state that the information contained in those publications has been obtained from sources believed to be reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured. Although we believe industry data used in this Prospectus is reliable, it has not been independently verified.

viii

Biocon
FORWARD-LOOKING STATEMENTS This Prospectus contains certain forward-looking statements. These forward looking statements can generally be identified by words or phrases such as aim, anticipate, believe, expect, estimate, intend, objective, plan, project, shall, will, will continue, will pursue or other words or phrases of similar import. Similarly, statements that describe our objectives, plans or goals also are forward-looking statements. All forward looking statements are subject to risks, uncertainties and assumptions about us that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include, among others:
s s

General economic and business conditions in India; Our ability to successfully implement our strategy, our research and development efforts, our growth and expansion plans and technological changes; Changes in the value of the Rupee and other currency changes; Changes in the Indian and international interest rates; Changes in laws and regulations that apply to the Indian and global biotechnology and pharmaceuticals industries; Increasing competition in and the conditions of the Indian biotechnology and pharmaceuticals industries; Changes in political conditions in India; and Changes in the foreign exchange control regulations in India.

s s s s s s

For further discussion of factors that could cause our actual results to differ, please refer to the section entitled Risk Factors beginning on page xi of this Prospectus. By their nature, certain market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. Neither our Company, our Directors, any member of the Syndicate nor any of their respective affiliates have any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. In accordance with SEBI requirements, our Company and the BRLMs and CBRLM will ensure that investors in India are informed of material developments until such time as the grant of listing and trading permission by the Stock Exchanges.

ix

Biocon
CURRENCY OF PRESENTATION This Prospectus contains translations of some Rupee amounts into U.S. Dollars which should not be construed as a representation that those Rupee or U.S. Dollar amounts could have been, or could be, converted into U.S. Dollars or Indian Rupees, as the case may be, at any particular rate, the rates stated below, or at all. Except as otherwise stated in this Prospectus, all translations from Indian Rupees to U.S. Dollars contained in this Prospectus have been based on the noon buying rate in the City of New York on December 31, 2003 for cable transfers in Rupees as certified for customs purposes by the Federal Reserve Bank of New York. The noon buying rate on February 18, 2004 was Rs. 45.24 per US$ 1.0. The following table sets forth, for each period indicated, information concerning the number of Rupees for which one U.S. Dollar could be exchanged at the noon buying rate in the City of New York on the last business day of the particular period for cable transfers in Rupees as certified for customs purposes by the Federal Reserve Bank of New York. The row titled average in the table below is the average of the daily noon buying rate for each day in the period.
Year ended March 31, 2001 Period End Average Low High Rs. 46.85 Rs. 45.74 Rs. 47.47 Rs. 43.63 Year ended March 31, 2002 Rs. 48.83 Rs. 47.71 Rs. 48.91 Rs. 46.58 Year ended March 31, 2003 Rs. 47.53 Rs. 48.43 Rs. 49.07 Rs. 47.53 Nine months ended Dec. 31, 2003 Rs. 45.55 Rs. 46.20 Rs. 47.46 Rs. 45.29

Biocon
RISK FACTORS An investment in equity shares involves a high degree of risk. You should carefully consider all of the information in this Prospectus, including the risks and uncertainties described below, before making an investment in our Equity Shares. If any of the following risks actually occur, our business, results of operations and financial condition could suffer, the trading price of our Equity Shares could decline, and you may lose all or part of your investment. Unless specified or quantified in the relevant risk factors mentioned below, we are not in a position to ascertain the financial and other implications of any of the other risks mentioned below Internal Risk Factors Our portfolio of statins contribute to over half of our consolidated total income; any decline in the overall sales of our statins would reduce our profitability. In fiscal 2003 and the first nine months of fiscal 2004, our sales of active pharmaceutical ingredients, or APIs, for the popular cholesterol-lowering drugs lovastatin, simvastatin, pravastatin and atorvastatin accounted for 42.7% and 54.5% of our total consolidated operating income respectively. Because our business is currently highly focussed on statins, a reduction in revenue from sales of statins would have a significant impact on our overall profitability. The introduction of other drugs or alternative medical treatments, or an increase in the number of global suppliers of statins, could each have an adverse impact on the revenue and profits we derive from statin sales. Any inability to manage our growth could adversely affect our business prospects and reduce our profitability. We have grown significantly in recent years. From the beginning of fiscal 2001 through December 31, 2003, the number of our full-time employees has grown from 385 to 854. In addition, we have and continue to undertake major capital expenditure plans. We expect our growth to place significant demands on our management and other resources. It will require us to continue to develop and enhance our operational, financial and other internal controls. Inability to manage growth would adversely affect our business prospects and results of operations. We have significant planned capital expenditures; our capital expenditure plans may not yield the benefits intended. Our operations, especially our biopharmaceuticals business, require significant capital expenditures to increase capacity. We have commenced a Rs. 4,134.0 million capital expenditure plan aimed at significantly increasing our fermentation and synthetic conversion capacities to meet the growing demand for our portfolio of statins and other APIs. We also have other planned capital expenditures. Please refer to the section entitled Business Future Manufacturing Facilities beginning on page 60 and the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources Capital Expenditure beginning on page 113. The figures in our capital expenditure plans are based on management estimates and have not been appraised by any bank, financial institution or other independent organisation. In addition, our capital expenditure plans are subject to a number of variables, including possible cost overruns; construction/ development delays or defects; receipt of critical governmental approvals including approvals of drug regulators in our target markets; availability of financing on acceptable terms; and changes in managements views of the desirability of current plans, among others. In view of the reasons stated above, we cannot assure you that we will be able to execute our capital expenditure plans as contemplated. If we experience significant delays or mishaps in the implementation of our capital expenditure plans or if there are significant cost overruns, then the overall benefit of such plans to our revenues and profitability may decline. To the extent that completed capital expenditure does not produce anticipated or desired revenue or cost-reduction outcomes, our profitability and financial condition will be negatively affected. Biocon Limited is responsible for the financing of Biocon Biopharmaceuticals proposed production facilities for biologicals. In this regard, Biocon Limited is required to make a US$5.1 million equity investment in Biocon Biopharmaceuticals and arrange or guarantee debt financing for Biocon Biopharmaceuticals for the balance of the investment. We have not yet determined the capital expenditure requirements of this company, although Biocons board of directors has given preliminary approval for financing capital expenditures of up to Rs. 850.0 million for the joint venture. Capital expenditure requirements of Biocon Biopharmaceuticals may vary significantly from amounts currently approved by Biocons board of directors and are subject to the same variables described above.
xi

Biocon
We face growing and new competition that may adversely affect our competitive position and our profitability. We operate in a highly competitive environment. Much of our recent revenue growth is the result of growth in the sales of statins in the US and European markets. Significant additional competition in the markets where we sell our statins and other APIs will likely erode our market shares and result in reduced prices and thereby negatively affect our revenues and profitability. Competitors from countries such as China may enjoy many of the same advantages that we do in biopharmaceuticals and may even have lower cost structures, enabling them to compete vigorously on the basis of price. In our enzyme export markets, global producers are significantly larger than us and have significantly stronger market positions, production capacities and greater financial resources than we do. We must differentiate ourselves by developing novel enzyme products and products with enhanced or unique characteristics to differentiate our products from those of our competitors. In custom and clinical research, we face significant competition from both Indian and foreign players. These market participants include other small, limited-service providers and a number of full-service global drug development companies. The larger competitors have a much broader portfolio of business, greater resources and more experience than smaller companies such as Syngene and Clinigene. Generally, the industry has few financial barriers to entry, and hence newer, smaller entities with specialty focuses, such as those aligned to a specific disease or therapeutic area, are also able to compete for clients. The growth in demand for our statins has required us to increasingly rely on outsourcing of intermediates for our API production, which has significantly increased our raw materials costs in respect of important products. On account of the strong growth in demand for our statins, since January 2003 we have faced growing capacity constraints, which have resulted in increased outsourcing of intermediates in the production of biopharmaceuticals. As a result, raw materials costs with respect to these products have increased over the corresponding period. Our capital expenditure plans are aimed at expansion of our fermentation and synthetic conversion capacities, principally for statins. However, due to the growing demand for statins, we cannot assure you that planned capacity expansion will enable us to reduce the outsourcing of intermediates in API production and thereby reduce our raw materials costs. If we become subject to significant legal action, we may incur substantial costs related to litigation. We currently carry no products liability insurance. The pharmaceuticals industry has been subject to significant product liability, intellectual property and other litigation. Many of these actions involve large claims and significant defence costs. A growing portion of our API sales are to the United States market, where standards of care are very high and products liability and other claims can be relatively easy to pursue. We currently carry no products liability insurance with respect to our API and other businesses. Claims made against us could result in substantial liability, which would have a material adverse effect on our results of operations, cash flows and financial condition. We may also face significant liability for injuries incurred in connection with Clinigenes human clinical trials. We may not be able to develop economical non-infringing processes for new APIs, which would prevent us from selling those products. In addition to patents on pharmaceutical products, many drug innovators and others make proprietary claims with respect to the processes for the manufacture of pharmaceutical products. In order to sell our APIs into markets where process patents have been issued or sought, we must develop non-infringing processes for their manufacture or an existing process must come off patent or be determined to be non-patentable. We cannot assure you that we will be able to develop economical processes that are non-infringing in the key markets of new target APIs. Failure to do so would prevent us from selling those target APIs in the key markets, which could have a material adverse effect on our business prospects. A limited number of customers and clients account for a large percentage of our operating revenues, and the loss of one or more of them could significantly affect our revenues and profitability or the revenues and profitability of our individual businesses. We have historically earned, and believe that in the future we will continue to earn, a significant portion of our revenues from a limited number of customers and clients. The following table sets forth certain information on the contribution of our top customers to our revenues:
xii

Biocon
% contribution of top 10 customers/clients to total consolidated operating income (for all businesses) Business Biopharmaceuticals Enzymes Custom Research Fiscal 2003 33.8% 8.2 7.5 First Nine Months of Fiscal 2004 45.9% 5.2 5.1 % contribution of top 10 customers/clients to consolidated operating income of each business Fiscal 2003 47.4% 43.9 79.4 First Nine Months of Fiscal 2004 56.5% 42.9 76.5

In addition, our top two biopharmaceuticals customers accounted for 12.2% and 6.0% of fiscal 2003 total consolidated operating income, and 13.4% and 10.3% of total consolidated operating income in the first nine months of fiscal 2004. There are a number of factors, other than our performance, that could cause the loss of a customer or client and that may not be predictable. In biopharmaceuticals, there is the risk that significant customers that are generic drug producers may lose necessary regulatory approvals in key markets with respect to products, which use our APIs. This would likely result in a significant reduction in orders from them for such APIs. If we were to lose one or more of our major customers or clients or if they significantly reduce their business with us, our revenues and profitability or the revenues and profitability of our individual business lines could be affected adversely and significantly. We plan to enter the domestic Indian market for recombinant human insulin with our own branded formulation in the first half of calendar year 2004, which would be our first branded pharmaceutical product. To succeed in selling recombinant human insulin with our own branded formulation and certain other drugs we may develop as branded formulations, we will have to develop a domestic sales capability for these products and will have to support the products brand and image among hospitals, clinics, doctors and patients. These are new activities for us and we cannot assure you that we will succeed in them. Our strategy to eventually develop and commercialise novel drugs will subject us to significantly greater risks than our current pharmaceuticals business. The development of novel drugs is significantly more uncertain, lengthy and costly and dependent on more factors outside our control than the development of the active pharmaceutical ingredients we currently sell, all of which were discovered by other companies. Products that appear promising in the early phases of development may fail to reach the market for numerous reasons, including, but not limited to the following:
s s s s

products may fail to receive necessary regulatory approvals; products may turn out to be uneconomical to commercialise because of manufacturing costs or other factors; products may be found to be ineffective or to have harmful side effects in preclinical or clinical testing; and we may not successfully complete clinical trials for our products within any specific time period, or at all, for a variety of reasons, such as our inability to attract a sufficient number of investigators, our inability to enrol and maintain a sufficient number of patients in the clinical trials and suspension of the trials by regulatory authorities.

These factors may also lead to gaps in the product development pipeline and delays between the approval of one product and approval of the next new product. We cannot assure you that we will be able to develop proprietary products on a profitable basis or otherwise. The success of our innovative processes and products depends on the effectiveness of our patents and confidentiality agreements to defend our intellectual property rights. Our success with our innovative processes and products depends, in part, on our ability to protect our current and future innovations and to defend our intellectual property rights. If we fail to adequately protect our intellectual property, competitors may manufacture and market products similar to ours. We have been issued several patents covering our innovative processes and products, and have filed, and expect to continue to file, patent applications seeking to protect newly developed technologies and products in various countries, including the United States. Any existing or future patents issued to or licensed by us may not provide us with any competitive advantages for our processes or products or may even be challenged, invalidated or circumvented by competitors. In addition, such patent rights may not prevent our competitors from developing,
xiii

Biocon
using or commercialising processes or products that are similar or functionally equivalent to our innovations. We also rely on trade secrets, unpatented proprietary know-how and continuing technological innovation that we seek to protect, in part, by confidentiality agreements with licensees, suppliers, employees and consultants. It is possible that these agreements will be breached, and we may not have adequate remedies for any such breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, our trade secrets and proprietary technology may otherwise become known or be independently developed by our competitors in full or in part. Following Indias adoption of product patents for pharmaceuticals, we would lose certain advantages associated with commercialising production processes before expiry of product patents. Currently, because India does not grant or recognize pharmaceutical product patents, we are able to develop and sell APIs while those products remain on patent in other countries. Selling products in unregulated markets, prior to product patent expiry in the regulated markets, allows us to defray our development costs and introduce products into regulated markets soon after patent expiry or invalidation. The advantages we currently enjoy in developing processes for pharmaceutical products patented in the United States and the European Union will begin to wane following Indias adoption of pharmaceutical product patents at the beginning of 2005. Please refer to the section entitled Business Intellectual Property beginning on page 56. From that time, we will not be able to sell in India or elsewhere pharmaceuticals whose patents are recognized in India, unless and until these patents expire or are invalidated. If we choose to develop these pharmaceuticals for the generics markets, our development costs in respect of these products will be higher and our time to market will likely be longer. If we are unable to enrol suitable participants for the clinical trials of our clients, our clinical development business may suffer. The clinical research business of our subsidiary Clinigene is dependent upon our ability to enrol participants for the clinical trials we are managing. These clinical trials rely upon the ready accessibility and willing participation of volunteer subjects. These subjects generally include volunteers from the communities in which the studies are conducted. Although to date these communities have provided a substantial pool of potential subjects for research studies, there may not be a sufficient number of participants available with the traits necessary to conduct our clinical trials in the future. If multiple organizations are conducting similar trials and competing for participants, it could also make our recruitment efforts more difficult. If we are unable to enrol suitable and willing participants on a consistent basis, it would have an adverse effect on the trials being managed by our clinical development business, which in turn could have a material adverse effect on our business. Our custom and clinical research businesses are subject to some additional risks. Our custom and clinical research businesses are subject to the following additional risks:
s

Our contracts are generally terminable on short or no notice. Termination of a large contract for services or multiple contracts for services could adversely affect our revenue and profitability. In addition, our clients generally retain us on an engagement-by-engagement basis. After we complete a project for a client we do not know whether the same client will retain us in the future for additional projects. A client that accounts for a significant portion of our revenues in a given period may not generate a similar amount of revenues, if any, in subsequent periods. Since our operating expenses are relatively fixed and cannot be reduced on short notice to compensate for unanticipated variations in the number or size of engagements in progress, we may continue to incur costs and expenses based on our expectations of future revenues. In some of our contracts, we are not paid unless we achieve certain goals or milestones. This can result in the incurrence of costs without corresponding revenue generation.

If we improperly handle any of the dangerous materials used in our business and accidents result, we could face significant liabilities that would lower our profits. We handle explosive and combustible materials. If improperly handled or subjected to the unsuitable conditions, these materials could hurt our employees and other persons, cause damage to our properties and harm the environment. This, in turn, could subject us to significant disruption in our business, legal or regulatory action, which could lower our profits.

xiv

Biocon
We depend on our senior management team, and the loss of team members may adversely affect our business. If one or more members of our senior management team were unable or unwilling to continue in their present positions, those persons could be difficult to replace and our business could be adversely affected. If some of our key employees were to join a competitor or to form a competing company, some of our customers or clients might choose to do business with that competitor or new company. Furthermore, customers, clients or other companies seeking to develop in-house capabilities may hire away some of our senior management or key employees. A subsidiary of AIG Asian Opportunity Fund L.P., AOF HS Mauritius Limited, our largest minority shareholder, has rights under our Articles of Association and a shareholders agreement that enable it to exercise some control over us. Under our Articles of Association and a shareholders agreement, a subsidiary of AIG Asian Opportunity Fund L.P., AOF HS Mauritius Limited, or AIG AOF, has the right for the next three years to appoint one director to our Board of Directors and this director has a veto right with respect to certain important board actions, including without limitation the issue of equity shares, mergers and acquisitions, sale or other disposition of subsidiary shares or a material part of Biocons or a subsidiarys assets and any amendment to Biocons or a subsidiarys Memorandum and Articles of Association. There can be no assurance that AIG AOFs interests will not conflict with the interests of other shareholders or with us or that they will be able to agree with our promoters in critical matters affecting us. Any such disagreements may adversely affect our ability to execute our business strategy or to operate our business. This may also result in a delay or prevention of significant corporate actions that could be beneficial for our shareholders or us. After giving effect to the Issue, our promoters will collectively own 61.5% of our Equity Shares and will continue to control us. After giving effect to the Issue, our promoters, a group that consists of our founder and Chairman, Ms. Kiran MazumdarShaw, her husband, Mr. John Shaw (our Vice Chairman) and Glentec International, a company controlled by Mr. Shaw, will collectively own 61.5% of our Equity Shares (on a fully diluted basis). As a result, our promoters will have the ability to appoint all but one of the members of our Board of Directors and determine the outcome of all actions requiring the approval of our shareholders, other than those actions requiring supermajority votes. The interests of our promoters may conflict with the interests of our other investors, and you may not agree with actions they take. We may acquire businesses, technologies and products, but we may fail to realize the anticipated benefits of such acquisitions and we may incur costs that could significantly negatively impact our profitability. In the future, we may acquire other businesses, technologies and products that we believe are a strategic fit with our business. If we undertake any transaction of this sort, we may not be able to successfully integrate any businesses, products, technologies or personnel that we might acquire without a significant expenditure of operating, financial and management resources, if at all. Further, we may fail to realize the anticipated benefits of any acquisition. Future acquisitions could dilute our shareholders interest in us and could cause us to incur substantial debt, expose us to contingent liabilities and could negatively impact our profitability. We have not entered into any definitive agreements to utilise the proceeds of the Issue. We intend to use the proceeds of the Issue for the capital expenditures described in section Objects of the Issue beginning on page 30 of this Prospectus. We have not entered into any definitive agreements to utilise such proceeds. We are yet to place orders for the value of approximately Rs. 3,235.6 million constituting 78.3% of our estimated requirement for the projects described in Objects of the Issue on page 30 of this Prospectus. Pending any use of the proceeds of the Issue we intend to invest the funds in liquid instruments. We intend to rely on our internal systems and controls to monitor the use of such proceeds. Some of the equipment we intend to deploy is expected to be imported and must be paid for in foreign currency. Changes in foreign exchange rates adversely affecting the value of the Rupee may adversely affect the cost of the project. Future sales by current shareholders could cause the price of our Equity Shares to decline. If our existing shareholders sell a substantial number of our Equity Shares in the public market, the market price of our Equity Shares could fall. Indian securities laws permit venture capital funds and foreign venture capital investors registered with SEBI as well as employees other than promoters holding Equity Shares pursuant to employee stock option schemes to dispose

xv

Biocon
of their Equity Shares (totalling 12,834,782 Equity Shares, or 12.8% of our total Equity Shares post-Issue (on a fully diluted basis)) immediately following the Issue. The remaining pre-Issue Equity Shares, other than 20,000,000 Equity Shares, are subject to a lock-in of 12 months following the date of allotment in the Issue. The 20,000,000 Equity Shares, or 20.0% of our total Equity Shares post-Issue (on a fully diluted basis), are part of the Equity Shares held by our promoters and are subject to a lock-in of 36 months following the date of allotment in the Issue. Sales or distributions of substantial amounts of our Equity Shares by existing holders, or the perception that such sales or distributions could occur, could adversely affect prevailing market prices for our Equity Shares. Our subsidiary, Clinigene and our joint venture Biocon Biopharmaceuticals have accumulated negative net worth, which may require additional funds from our other businesses or external sources and may continue to adversely affect our consolidated results of operations and financial condition. As of December 31, 2003, our subsidiary, Clinigene, had accumulated losses of Rs. 22.9 million and a negative net worth of Rs. 21.4 million. This is because Clinigene is in the process of developing its clinical research capabilities, including the establishment of a human pharmacology unit in association with a leading hospital in India and the hiring of employees. Clinigene may require additional funds from our other businesses or external sources to develop its businesses and may not become profitable. Until Clinigene becomes profitable, it will continue to adversely affect our consolidated results of operations and financial condition. Our joint venture company, Biocon Biopharmaceuticals, is in its development stage and has not yet commenced revenue generating operations. As of December 31, 2003, Biocon Biopharmaceuticals had accumulated losses of Rs. 3.2 million and a negative net worth of Rs. 3.0 million. Biocon Biopharmaceuticals is in the process of setting up its facilities. Biocon Limited is required to make a US$ 5.1 million equity investment and provide or guarantee the remaining debt financing for the full capital expenditure requirements of Biocon Biopharmaceuticals. We have not yet determined the capital expenditure requirements of this company, although Biocons board of directors has given preliminary approval for financing capital expenditures of up to Rs. 850.0 million for the joint venture. To the extent Biocon Limited is not able to recoup its investments in and advances to Clinigene and Biocon Biopharmaceuticals, Biocon Limited will have losses. Please refer to the section entitled We have significant planned capital expenditures; our capital expenditure plans may not yield the benefits intended on page xi of this Prospectus. The income and profits of our promoter, Glentec International in the years ended December 2000 to 2002 have been subject to fluctuation. The income of our promoter, Glentec International has fluctuated from US$ 4,264.0 in calendar year 2000 to US$ 65,295.0 in calendar year 2001 and thereafter to US$ 16.0 in calendar year 2002. The profits of Glentec International have fluctuated from US$ 2,145,647.0 in calendar year 2000 to US$ 37,973.0 in calendar year 2001 and thereafter to US$ 589,078.0 in calendar year 2002. The gain on disposal of investments for Glentec International has been US$ 2,163,282.0 for calendar year 2000, nil for the calendar year 2001 and US$ 614,885.0 for the calendar year 2002. There are restrictive covenants in agreements we have entered into with certain banks and financial institutions for short term loans and long term borrowings. We have entered into agreements with certain banks and financial institutions for short term loans and long term borrowings. Some of these agreements contain certain restrictive covenants in their agreements. These restrictive covenants, some of which require the prior permission of the said banks/financial institutions, inter alia pertain to the declaration of dividends, alteration of the capital structure, expenditure in new projects, transfer change in the key personnel, change in the constitutional documents of Biocon Limited and the right to appoint a nominee director on the Board of Biocon Limited. Some portions of the land on which the Company is establishing its new facility are not registered in its own name. The land pertaining to our planned new facility situated at Plot No. 2 & 3, IV Phase, Bommasandra-Jigani Link Road, Bangalore is allotted to us by KIADB on a lease cum sale basis on payment of the initial deposit/premium. At the end of six years, subject to the satisfaction of certain conditions, KIADB would sell the land to us at a value that may be fixed by KIADB and communicated to us. Any amount that we have paid towards the premium and earnest money deposit shall be adjusted towards the balance of the value of the property as fixed by KIADB, and all costs in connection with the sale shall be borne
xvi

Biocon
by us. In the event that we are unable to satisfy any of the conditions stipulated by KIADB, the land may not be transferred and registered in our name. We may lose certain benefits from payment of customs duty on machinery and equipment if we fail to meet our export obligations. We have availed of customs duty benefits in respect of import of machinery under the EPCG schemes. Under these schemes, we have export obligations of US$ 37.5 million over the next seven years, which is based on the formula provided by the notifications or orders issued by the relevant authorities. The consequence of not meeting the above commitments would be a retroactive levy of customs duty on items previously imported duty free for these units. Additionally, the appropriate authorities have the right to levy penalties on any defaults on a case-by-case basis. We are involved in certain legal proceedings and claims against us. We are involved in certain legal proceedings and claims against us in relation to certain contractual, employment, taxation and other civil matters. There have been 25 cases have been filed against Biocon Limited in relation to civil matters, labour disputes, excise, customs and service tax claims. These claims amount to approximately Rs. 4.7 million. There are no proceedings initiated for any economic/civil/any other offenses against our subsidiaries. In addition, we have received demand notices from Indian income tax authorities in respect of assessments made in the years 1994-95 to 2001-02 wherein the aggregate income-tax payable as assessed by the authorities was Rs. 40.7 million as of December 31, 2003. While we have appealed these assessments, Rs. 33.0 million has been provided for in our books of account. Biocon Limited has filed 19 cases in relation to civil matters, excise claims, proceedings for winding-up and criminal cases for dishonour of cheques, which may be quantified at approximately Rs. 18.2 million. We are aware of eight potential claims/disputes against Biocon Limited that may arise in relation to civil claims and others miscellaneous matters, which approximately amount to Rs. 2.8 million. There are seven other potential claims/disputes which may be initiated by our Company in relation to civil claims and proceedings for winding up, which approximately amounts to Rs. 3.2 million. Based on legal advice regarding the merits of our cases, we have not established reserves in our financial statements to cover the entire amounts of potential liability. Should any new developments arise, such as a change in Indian law or a ruling against us by appellate courts or tribunals, we may need to establish reserves in our financial statements, which could increase our expenses and our current liabilities. Furthermore, if a claim is determined against us and we are required to pay all or a portion of the disputed amount, it could have a material adverse effect on our results of operations. However, it may be noted that some of the above claims are currently not quantifiable in terms of monetary compensation. All of the legal proceedings/claims are pending at different levels of adjudication before various courts, tribunals, enquiry officers, and appellate tribunals. For more information regarding litigation, please refer to the section entitled Outstanding Litigation beginning on page 129 of this Prospectus. There are two suits filed for dishonor of cheques against an independent director of Biocon Limited in his capacity as director on the board of another company, not related to Biocon Limited or its subsidiaries. As at December 31, 2003, we had contingent liabilities as disclosed in our consolidated statement of assets and liabilities under Indian GAAP. As at December 31, 2003, our contingent liabilities as disclosed in our consolidated statement of assets and liabilities, as restated, under Indian GAAP, were as follows:
s

s s

Corporate guarantees in favour of the Customs and Excise Department, or CED, in respect of certain performance obligations of our Company and Syngene totalling Rs. 245.0 million; Tax matters under appeal involving amounts totalling Rs. 7.6 million; and Other claims against us not acknowledged as debts totalling Rs. 2.3 million.

The last two points are discussed above under the section entitled We are involved in certain legal proceedings and claims against us.

xvii

Biocon
We are yet to apply for and receive certain statutory approvals required in the ordinary course of business. We are yet to receive the following approval and renewals: s Renewal of Form 37 approval No. KTK/37/8/97 (Ref: QA/DRUG/BIL/00/139) dated December 30, 2002 submitted by us to the Drug Controller, Karnataka for our premises at Plot No.113 C2, Bommasandra Industrial Areas, Bangalore. s Renewal of Form 25 drug license No. KTK/25/407/98 (Ref: QA/DRUG/BIL/00/138) dated December 30, 2002 submitted by us to the Drug Controller, Karnataka for our premises at Plot No.113 C2, Bommasandra Industrial Areas, Bangalore. s Application for renewal of license to import and store petroleum in installation Form XIII (Licence No. P-12 (SC) MYS 4320) dated December 9, 2003 submitted by us to the Joint Chief Controller of Explosives, Chennai. s Renewal of factory license No: MYB: 11742 (Ref.ADMIN/INSP/BIL/2003-04) dated October 31, 2003 for Syngene submitted by us to the Inspector of Factories, Bangalore. In relation to our new facility at Plot No. 2 and 3, IV Phase, Bommasandra-Jigani Link Road, Bangalore, we will be applying to various statutory authorities for their approvals and consents at the relevant stage. Failure to obtain these approvals or renewals, which have been regularly obtained in the past, would adversely affect our business. External Risk Factors Our performance is highly dependent upon demand from and regulatory policies of the United States and Europe. Since the largest and fastest growing component of our revenue comes from product exports and services to developed country markets, principally the United States and the European Union, our performance is highly dependent upon demand from and regulatory policies adopted in these markets. Demand in these markets is often driven by reimbursement policies of large health insurers and government benefits providers. As part of an effort to contain health care costs, governments and private insurers have sought to reduce the costs of prescription drugs. This effort may reduce the profitability of drug sales in developed country markets and the level of research and development undertaken by pharmaceutical companies that service those markets. These developments, in turn, could have a material adverse effect on our product sales and custom and clinical research businesses. Policy decisions by major developed country regulators, such as the US FDA and EDQM, that have the effect of making it more difficult for producers and service providers from developing countries such as India to provide products into their markets or research services for other companies that service their markets, would have a material adverse effect on our businesses. Such policies could include limitations on outsourcing to developing countries, extension of product patent rights and limitations on the importation of active pharmaceutical ingredients. In addition, our ability to export recombinant human insulin to major developed country markets such as the United States and European Union in the medium term depends upon a decision by regulators in those markets yet to be made to approve this product through a streamlined process that is closer to that required for generic drugs rather than newly discovered ones. One of the difficulties in establishing a process for biologicals that is similar to that for generics is that biologicals are generally much more complicated substances in respect of which bio-equivalence is difficult to establish. In the absence of a streamlined approval process, our recombinant human insulin might have to undergo the same process that drug innovators must undergo to introduce new drug molecules into the market. If recombinant human insulin is treated as a newly discovered drug requiring a full set of clinical trials, then it will be more difficult and costly and take substantially longer to obtain approval, and we may therefore choose not to seek approvals to enter those markets. Governmental regulations may restrict our ability to sell our products, which could result in a loss of revenues. Our research, preclinical testing, clinical trials, facilities, manufacturing, labelling, pricing, and sales and marketing are subject to extensive regulation by numerous governmental authorities, including authorities in India and the European Union, as well as governmental authorities in the United States, such as the US FDA. Our research and development activities are subject to laws regulating such things as laboratory practices and the use and disposal of potentially hazardous materials. We are also required to obtain and maintain regulatory approval to market products for approved indications in India, the United States, the European Union, Japan and other markets. Even when we are able to obtain regulatory approval for our products, both our manufacturing processes and our marketed products are subject to continued review. Subsequent discovery of
xviii

Biocon
previously unknown problems with the safety or efficacy of our products or manufacturing processes may result in restrictions on these products or processes, including withdrawal of the products from the market or suspension of our manufacturing operations. Drug formulation and drug discovery will subject us to new and potentially more stringent regulations, especially in the areas of drug safety and efficacy. We cannot assure you that we will be successful in meeting applicable regulatory requirements with respect to drug formulation or drug discovery or any other new business area we seek to enter. If changes in technology or therapeutic preferences make our products obsolete, our product sales and revenues will decline. Pharmaceutical and biotechnology development is characterized by significant and rapid technological change and sometimes significant shifts in therapeutic preferences. Research and discoveries by others, including developments of which we are not currently aware, may make our products obsolete. If changes in technology or therapeutic preferences make our products obsolete, doctors will be less likely to prescribe our or our customers products, and sales of our products will be reduced. If sales of our products are reduced, our results of operations could be adversely affected. Increasing employee compensation in India may erode some of our competitive advantage and may reduce our profit margins. Employee compensation in India has historically been significantly lower than employee compensation in the United States and Western Europe for comparably skilled professionals, which has been one of our competitive strengths. However, compensation increases in India may erode some of this competitive advantage and may negatively affect our profit margins. Employee compensation in India is increasing at a faster rate than in the United States and Western Europe, which could result in increased costs relating to scientists and engineers, managers and other mid-level professionals. We may need to continue to increase the levels of our employee compensation to remain competitive and manage attrition. Compensation increases may have a material adverse effect on our business, results of operation and financial condition. If we fail to comply with environmental laws and regulations or face environmental litigation, our results of operation may be adversely affected. We may incur substantial costs to comply with requirements of environmental laws and regulations. In addition, we may discover currently unknown environmental problems or conditions. We are subject to significant national and state environmental laws and regulations, which govern the discharge, emission, storage, handling and disposal of a variety of substances that may be used in or result from our operations. Environmental laws and regulations in India have been increasing in stringency and it is possible that they will become significantly more stringent in the future. If any of our plants or the operations of such plants are shut down, we will continue to incur costs in complying with regulations, appealing any decision to close our facilities, maintaining production at our existing facilities and continuing to pay labour and other costs which continue even if the facility is closed. As a result, our overall operating expenses will increase and our profits will decrease. Our profitability would decrease if the Government of India or the State of Karnataka reduced or withdrew tax benefits and other incentives it currently provides to us. The statutory corporate income tax rate inclusive of surcharge in India is currently 35.9%. We cannot assure you that the tax rate will not be increased in the future. We currently take advantage of various income tax exemptions and deductions, which are applicable to companies engaged in export and R&D activities. Specifically, we avail of benefits under Section 10B, Section 35(2AB) and Section 80HHC of the Income Tax Act, 1961. For details, please refer to the section entitled Statement of Possible Tax Benefits Available to Biocon Limited, Its Subsidiaries and Its Shareholders on page 264 of this Prospectus. Accordingly, our effective tax rates (provision for taxation/profit before tax, extraordinary items and adjustments on a consolidated basis) for fiscal 2003 and first nine months of 2004 were 25.4% and 18.7%, respectively. The Government of India has announced the gradual elimination of some of these benefits. For details, please refer to the section entitled Statement of Possible Tax Benefits Available to Biocon Limited, Its Subsidiaries and Its Shareholders on page 264 of this Prospectus. The loss or unavailability of these benefits would likely increase our income tax obligations and have a material adverse effect on our profits and cash flow. We are also entitled to certain other benefits and concessions in relation to customs duty from the Government of India and also to certain sales tax benefits from the State of Karnataka. For details of the sales tax deferrals, please refer to the section entitled Statement of Possible Tax Benefits Available to Biocon Limited, Its Subsidiaries and Its Shareholders on page 264
xix

Biocon
of this Prospectus. Any reduction in the availability or amount of these tax benefits could have a material adverse effect on our profits and cash flow. Our pharmaceutical products currently consist of APIs, whose prices can fluctuate dramatically. Prices of our APIs can fluctuate dramatically, depending on, among other factors, the number of producers and their production volumes and changes in demand in the principal drug markets. Because APIs have become the most significant component of our consolidated total income and may continue to grow as a percentage of our consolidated total income, our revenue is significantly and increasingly dependent upon factors affecting API prices factors that we cannot control. In addition, our API sales into the regulated markets occur typically after the expiration or invalidation of product patents related to those products. During this time prices typically decline significantly and often rapidly, resulting in lower profit margins with respect to sales of these APIs in the regulated markets over time. Much of our raw materials and fuel costs are linked to global commodity prices, which are outside our control. Raw material costs are to some extent dependent on global petrochemical prices, which in turn often track global oil prices. This is because our API and enzyme production processes involve the use of many petrochemicals, especially solvents such as ethyl acetate, methanol and acetone. As global petrochemical prices increase, our petrochemical input costs also increase. Our fuel costs relate principally to the purchase of diesel and super kerosene oil, which are used in our power generators. Our fuel costs are linked to global oil prices. As global oil prices increase, our fuel costs increase. Further adverse movements in global petrochemical or oil prices would further increase our raw materials and/or fuel costs, which may have a material adverse effect on our profitability. The movements of commodity prices are outside our control. The location of our facilities is concentrated and disruption affecting our sites could have a material adverse effect on our business, financial position and results of operations. Substantially all of our manufacturing and research facilities and our corporate offices are located on our 20th K.M. Hosur Road site in the greater Bangalore area. In addition, we are planning to develop our future facilities on another site approximately 5 km away. A significant disruption at 20th K.M. Hosur Road site or in the greater Bangalore area, even on a short-term basis, could impair our ability to produce and ship products on a timely basis and continue our research projects, which could have a material adverse effect on our business, financial position and results of operations. In addition, our production processes require significant amounts of water. Droughts or other factors that may impact our ability to access water from pipelines or groundwater sources could have a material adverse effect on our business operations. Our clinical trials may be disrupted by controversies involving human rights groups and social activists. The use of patients in developing countries such as India to conduct clinical trials for pharmaceuticals developed for sale to foreign countries has become subject to controversy. Such activities have been and may continue to be targeted by human rights groups and social activists in and outside India, which could disrupt our clinical trial business. We are subject to risks arising from exchange rate fluctuations. The exchange rate between the Rupee and the U.S. Dollar has changed substantially in recent years and may continue to fluctuate substantially in the future. From December 31, 1999 to May 31, 2002, the value of the Rupee declined by 12.8%. From May 31, 2002 to December 31, 2003, the value of the Rupee against the U.S. Dollar rose by approximately 7.7%. We expect that a majority of our revenues will continue to be generated in U.S. Dollars for the foreseeable future and that a significant portion of our expenses, including personnel costs as well as capital and operating expenditures, will continue to be denominated in Rupees. While we enter into forward contracts to minimize the impact of fluctuating exchange rates, we cannot assure you that we will be able to effectively mitigate the adverse impact of currency fluctuations on our results of operations. Terrorist attacks and other acts of violence or war involving India, the United States, and other countries could adversely affect the financial markets, result in a loss of business confidence and adversely affect our business, results of operations and financial condition. Terrorist attacks, such as the ones that occurred in New York and Washington, D.C., on September 11, 2001 and New Delhi
xx

Biocon
on December 13, 2001, and other acts of violence or war, including those involving India, the United States or other countries, may adversely affect Indian and worldwide financial markets. These acts may also result in a loss of business confidence and have other consequences that could adversely affect our business, results of operations and financial condition. Travel restrictions as a result of such attacks may have an adverse impact on our ability to operate effectively. Increased volatility in the financial markets can have an adverse impact on the economies of India and other countries, including economic recession. Regional conflicts in South Asia could adversely affect the Indian economy, disrupt our operations and cause our business to suffer. South Asia has from time to time experienced instances of civil unrest and hostilities among neighbouring countries, such as between India and Pakistan. In recent years there have been military confrontations along the India-Pakistan border. Military activity or terrorist attacks in the future could influence the Indian economy by disrupting communications and making travel and transportation more difficult. Such political tensions could create a greater perception that investments in Indian companies involve a higher degree of risk. This, in turn, could have a material adverse effect on the market for securities of Indian companies, including our Equity Shares and on the market for our services. Our performance is linked to the stability of policies and the political situation in India. The role of the Indian central and state governments in the Indian economy on producers, consumers and regulators has remained significant over the years. Since 1991, the Government of India has pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. The Indian parliament was recently dissolved and general elections are expected in the next few months. The most recent Government of India, which was formed in October 1999, adopted policies and took initiatives that supported the continued economic liberalization policies that had been pursued by the previous governments. We cannot assure you that these liberalization policies will continue in the future. Protests against privatisation could slowdown the pace of liberalization and deregulation. The rate of economic liberalization could change, and specific laws and policies affecting technology companies, foreign investment, currency exchange rates and other matters affecting investment in our securities could change as well. A significant change in Indias economic liberalization and deregulation policies could disrupt business and economic conditions in India and thereby affect our business. The last Indian government was a coalition of several parties. The withdrawal of one or more of these parties from a coalition government can result in political instability. Any political instability could delay the reform of the Indian economy and could have a material adverse effect on the market for our Equity Shares and on the market for our services. After this Issue, the price of our Equity Shares may be highly volatile, or an active trading market for our Equity Shares may not develop. The prices of our Equity Shares on the Indian stock exchanges may fluctuate after this Issue as a result of several factors, including:
s s s

volatility in the Indian and global securities market or in the Rupees value relative to the U.S. dollar, the Euro or the Yen; our results of operations and performance; perceptions about our future performance or the performance of Indian biotechnology and pharmaceutical companies generally; performance of our competitors in the Indian biotechnology and pharmaceuticals industries and the perception in the market about investments in the biotechnology and pharmaceuticals sectors; significant developments in the regulation of pharmaceuticals and biotechnology in our key markets; adverse media reports on the Company or the Indian biotechnology or pharmaceuticals industry; changes in the estimates of our performance or recommendations by financial analysts; significant developments in Indias economic liberalisation and deregulation policies; and significant developments in Indias fiscal and environmental regulations.

s s s s s

xxi

Biocon
There has been no public market for our Equity Shares and the prices of our Equity Shares may fluctuate after this Issue. There can be no assurance that an active trading market for our Equity Shares will develop or be sustained after this Issue, or that the prices at which our Equity Shares are initially traded will correspond to the prices at which our Equity Shares will trade in the market subsequent to this Issue. Our share price is likely to be volatile and may decline. Note to Risk Factors
s

On November 11, 2003 the Companys Board of Directors approved a sub division of equity shares of Rs. 10/- each into 2 equity shares of Rs. 5/- each. Accordingly, earnings per share and weighted average number of shares outstanding are presented on a pre-split and post-split basis. The NAV and EPS have declined post the subdivision of the equity shares. The shareholders, at the EGM held on November 11, 2003 approved the issue of 86,324,700 Equity shares of Rs. 5 each as bonus shares in the ratio of approximately 23.5 Equity shares for every Equity share held in the Company. These shares were allotted on November 28, 2003. All numbers presented have been adjusted on a post-bonus basis. The bonus had been fixed to (i) capitalise the reserves of the Company (ii) to meet the issuance and listing guidelines and (iii) to encourage retail participation in the Issue. The book value per Equity Share of Rs. 5 each was Rs. 13.9 and Rs. 23.6 as at March 31, 2003 and as at December 31, 2003, respectively, as per our restated unconsolidated financial statements under Indian GAAP. The net worth of our Company was Rs. 1,247.3 million and Rs. 2,120.0 million as at March 31, 2003 and as at December 31, 2003, respectively, as per our restated unconsolidated financial statements under Indian GAAP. Public issue of 10,000,000 Equity Shares of Rs. 5/- each, all of which is a fresh Issue, at a price of Rs. 315 for cash aggregating Rs. 3,150 million. The average cost of acquisition of our Equity Shares by our promoters, Ms. Kiran Mazumdar-Shaw, Mr. John Shaw and Glentec International is Re. 0.55, Rs. 9.65 and Rs. 8.89, respectively. For related party transactions, please refer to the section entitled Related Party Transactions on page 84 of this Prospectus. Investors may note that in case of over-subscription in the Issue, allotment to Non Institutional Bidders and Retail Bidders shall be on a proportionate basis. For more information, please refer to the section entitled Basis of Allotment on page 162 of this Prospectus. For any clarification or information relating to the Issue, investors are free to contact the BRLMs, who will be obliged to provide the same to the investors. Investors may contact the BRLMs, CBRLM and the Syndicate Members for any complaints pertaining to the Issue. Investors are advised to refer to the section entitled Basis for Issue Price on page 159 of this Prospectus.

s s

xxii

Biocon
SUMMARY
Overview Over the past 25 years, Biocon has emerged as an integrated biotechnology enterprise with presence in biopharmaceuticals, enzymes, custom research and clinical research. Biocon was Indias largest biotechnology company in terms of fiscal 2003 revenues, according to Indias Association of Biotechnology Led Enterprises. Our core expertise lies in fermentation, and a substantial majority of our current biopharmaceutical and enzyme products are produced through fermentation techniques. Fermentation is the breakdown of complex molecules in a natural process which may be employed as a manufacturing process. A number of our current products are also manufactured using synthetic chemistry techniques either entirely or in combination with fermentation techniques. Our growth strategy has been and continues to be driven by innovation in both our biopharmaceutical business, where we develop non-infringing processes for the manufacture of our focus products, and our enzymes business, where we develop novel enzymes and customised applications. Biocon was established in 1978 to form a joint venture with Biocon Biochemicals Limited, a company based in Ireland, to manufacture and export certain enzymes for the brewing industry. Unilever eventually acquired our joint venture partner. The joint venture terminated in 1999 when our promoters exercised their right of first refusal to purchase Unilevers 23.1% interest in us, after Unilever agreed to sell its speciality chemicals business, including its interest in us, to Imperial Chemical Industries, or ICI. Currently, our promoters own 68.4% of our Equity Shares (on a fully diluted basis) and after giving effect to the Issue, they will own 61.5% of our Equity Shares (on a fully diluted basis). Our headquarters and production facilities are located in the greater Bangalore area, enabling us to access that citys highly skilled human resource base and technology infrastructure. Our total consolidated operating income and net profit were Rs. 2,819.9 million and Rs. 422.3 million, respectively, in fiscal 2003. In the first nine months of fiscal 2004, our total consolidated operating income and net profit were Rs. 3,977.4 million and Rs. 949.4 million, respectively. The following shows the income from operations of Biocon, Syngene and Clinigene and their percentages of total operating income of those companies from fiscal 2001 through the first nine months of fiscal 2004:
Fiscal Period 2001 Revenue (Rs. in millions) Biopharmaceuticals (Biocon) Enzymes (Biocon) Research Services Custom Research (Syngene) Custom Research (Biocon) Clinical Research (Clinigene) Total Operating Income(1) Biopharmaceuticals and Enzyme Sales Exports Domestic
(1)

% 60.7% 30.1

2002 Revenue (Rs. in millions) Rs. 1,142.9 463.3

% 63.9% 25.9

2003 Revenue (Rs. in millions) Rs. 2,010.0 532.4

% 71.3% 18.9

First Nine Months 2004 Revenue (Rs. in millions) % Rs. 3,228.3 484.0 81.1% 12.2

Rs. 817.8 405.3

109.0 8.1 10.7 0.8 3.5 0.3 Rs. 1,346.3 100.0%

147.0 8.2 9.8 0.5 26.7 1.5 Rs. 1,789.7 100.0%

261.2 9.3 5.2 0.1 11.1 0.4 Rs. 2,819.9 100.0%

258.0 6.6 5.7 0.1 1.4 0.0 Rs. 3,977.4 100.0%

Rs. 268.0 955.1

19.9% 70.9

Rs. 465.7 1,140.5

26.0% 63.7

Rs. 1,100.8 1,441.6

39.0% 51.1

Rs. 2,083.6 1,628.7

52.4% 40.9

This number does not represent a consolidated or combined figure under Indian or US GAAP, but rather is the sum of the operating income of Biocon, Syngene and Clinigene. There were no intercompany operating income items during any of the periods presented.

Biopharmaceuticals. In biopharmaceuticals, we focus on the manufacture and marketing of APIs that require advanced fermentation and other skills and that offer large market potential in the regulated markets once the products are off patent. APIs are the core materials in the formulation of final dosage form drugs. Our largest and fastest growing products are statins, a group of popular cholesterol-lowering drugs, including lovastatin, simvastatin, pravastatin and atorvastatin. We have patented processes relating to the manufacture of lovastatin and simvastatin, our principal statin products. We have also applied for process patents in respect of our other statin products, pravastatin and atorvastatin.

Biocon
We currently export lovastatin to the United States and lovastatin and simvastatin to key European markets. We are in the process of qualifying our simvastatin and pravastatin production processes and facilities with the US FDA, so that we can sell into the United States when those products go off patent there (expected to be 2006), and are also seeking US FDA approval for an additional lovastatin production process/facility. We recently received a Certificate of Suitability from the EDQM for our pravastatin production, to enable us to sell pravastatin in key European markets when it goes off patent (expected to be 2004-2006), and also one for the additional lovastatin production process/facility. Our other biopharmaceutical products include APIs for immunosuppressants and anti-diabetic drugs, including mycophenolate mofetil, or MMF, tacrolimus, pioglitazone, repaglinide and nateglinide. Our internally developed recombinant human insulin is currently undergoing clinical trials in India, and we plan to introduce this product as a formulation under the brand name InsugenTM in the Indian market in the first half of calendar year 2004, subject to receiving all regulatory approvals. This would be our first pharmaceutical product sold as a branded formulation. We also seek to export recombinant human insulin in bulk form. Biocon and Bristol-Myers Squibb Company signed a letter of intent in September 2003 under which the two parties are to negotiate an agreement for supply by Biocon of recombinant human insulin to Bristol-Myers Squibb. The letter of intent contemplates supply at established prices of quantities of product to be agreed upon by the parties from time to time. Export of our recombinant human insulin would be subject to regulatory approval in the target markets. Through our newly formed joint venture company, Biocon Biopharmaceuticals, we plan to manufacture and sell into the Indian market the biologicals erythropoetin, or EPO, and granulocite colony stimulating factor, or GCSF, and plan to manufacture and sell into India and other South Asian countries a new monoclonal antibody currently undergoing Phase II clinical trials in Canada, if and when it is approved for use in the treatment of head and neck cancers. Having begun sales in fiscal 1998, our biopharmaceuticals business has since grown to constitute 71.3% and 81.1% of our total operating income in fiscal 2003 and in the first nine months of fiscal 2004, respectively. From fiscal 2001 to 2003, the compound annual growth rate of biopharmaceuticals sales was 72.4%. Biopharmaceuticals sales in the first nine months of fiscal 2004 were 160.6% of fiscal 2003s whole-year biopharmaceuticals sales. Enzymes. In enzymes, we focus on the production of speciality enzymes and the development of new enzyme applications for different industries, including food and beverages, animal feed, starch processing, textiles, pulp and paper and leather. Sales of enzymes constituted 18.9% and 12.2% of our total operating income in fiscal 2003 and in the first nine months of fiscal 2004, respectively. From fiscal 2001 to 2003, the compound annual growth rate of enzymes sales was 16.7%. Enzymes sales in the first nine months of fiscal 2004 were 90.9% of fiscal 2003s whole-year enzymes sales. Research Services. We provide custom and clinical research services principally through our subsidiaries Syngene and Clinigene. Custom Research. We provide custom research services principally through Syngene, our 99.99%-owned subsidiary. Established in 1994, Syngene designs and manages research projects typically for overseas pharmaceutical and biotechnology companies pursuing pre-clinical research for new drug discovery. Syngenes principal areas of research are:
s s s

Synthetic chemistry; Molecular biology; and Custom synthesis.

As an experienced custom research services provider in a low-cost environment, Syngene, we believe, is well placed to provide its services to innovator companies in developed markets that seek to bring out new proprietary products while reducing research and development costs. In fiscal 2003 and in the first nine months of fiscal 2004, income from custom research constituted 9.3% and 6.6% of our total operating income, respectively. From fiscal 2001 to 2003, the compound annual growth rate of custom research income was 56.3%. Custom research income in the first nine months of fiscal 2004 was 99.0% of fiscal 2003s whole-year custom research income. Clinical Research. We provide clinical research services through Clinigene, a wholly owned subsidiary. Clinigene was established in 2000 to undertake:
2

Biocon
s

Phase I to Phase III clinical trials for new drug molecules (please refer to the section entitled Biopharmaceuticals on page 118 of this Prospectus for an explanation of these phases); Clinical studies, including bio-equivalence and bio-availability, or BE/BA, studies; Clinical research aimed at identifying new biomarkers for diseases, including Type II diabetes; Clinical research aimed at discovering new indications for existing drugs; and Clinical laboratory tests for other pharmaceutical companies and contract research organisations, or CROs.

s s s s

We believe Clinigenes laboratory was the first and remains one of the few labs in India to have received certification from the College of American Pathologists, or CAP, which is required by many large pharmaceutical companies to provide clinical research services to them. In both fiscal 2003 and in the first nine months of fiscal 2004, revenue from clinical research constituted less than 1.0% of our total operating income. Competitive Strengths The following are our key strengths that enable us to compete in our principal markets: Competencies and Skills
s s s s s

R&D Focus. Proven Fermentation Skills. Synthetic Chemistry Skills. Diverse and Growing Capabilities. Biodiversity Collection. Scale-up Skills and Yield Improvement. Flexible Manufacturing Infrastructure. High Quality Manufacturing Processes and Facilities.

Manufacturing
s s s

Marketing s Strong Customer Relationships. Organisation

s

Strong Management; Continuity of Management.

s Ability to Attract Talent. Our Strategy

We seek to further expand and integrate our operations across biopharmaceuticals, enzymes, custom research and clinical research to become an integrated biotechnology enterprise with increasing emphasis on biopharmaceuticals and discovery of new drug molecules. The following are the key elements of our strategy:
s s s s s s s s

Continue to Target APIs for High-Value Drugs. Realize Synergies Through Integration of Different Businesses. Significantly Expand Capacity. Develop Biologicals Business. Expand Capabilities in Drug Discovery and Develop Proprietary Technologies and Products. Leverage Our Position in Export Markets. Launch Branded Formulations in the Domestic Market. Grow Our Business Through Strategic Partnerships and Mergers and Acquisitions.
3

Biocon
THE ISSUE Equity Shares offered Fresh Issue Of which: Qualified Institutional Buyers portion 6,000,000 Equity Shares, constituting 60% of the Issue (Allocation on a discretionary basis) Non Institutional portion At least 1,500,000 Equity Shares, constituting 15% of the Issue (Allocation on a proportionate basis) Retail portion At least 2,500,000 Equity Shares, constituting 25% of the Issue (Allocation on a proportionate basis) Equity Shares outstanding prior to the Issue Equity Shares outstanding after the Issue Objects of the Issue 90,000,000 Equity Shares 100,000,000 Equity Shares The proceeds of the Issue would be used for setting up new facilities to augment our submerged fermentation and chemical synthesis operations. For more information, please refer to the section entitled Objects of the Issue on page 30 of this Prospectus. 10,000,000 Equity Shares, constituting 10% of the fully diluted post Issue paid-up capital of the Company

Biocon
SUMMARY FINANCIAL DATA The statutory financial statements of the Company prepared in accordance with Indian GAAP for the years ended March 31, 2002 and 2001 were audited by Arthur Andersen & Associates, Chartered Accountants, (a member firm of Andersen Worldwide, a affiliation of accounting firms which has ceased operations) and those for the years ended March 31, 2000 and 1999 were audited by M/s. S. Madhavan & Co., Chartered Accountants, who resigned in the normal course. S.R. Batliboi & Associates are our current auditors and have audited our statutory financial statements for the year ended March 31, 2003 and the financial statements for the period ended December 31, 2003. Summary Unconsolidated Financial Data Under Indian GAAP The following summary unconsolidated financial data has been extracted from our audited unconsolidated financial statements prepared in accordance with Indian GAAP, the Companies Act and SEBI Guidelines, and restated as described in the Auditors Report of S.R. Batliboi & Associates dated 17 January 2004 in the section entitled Unconsolidated Financial Statements under Indian GAAP (including Subsidiaries). You should read this summary unconsolidated data in conjunction with our audited unconsolidated financial statements for the years ended March 31, 1999, March 31, 2000, March 31, 2001, March 31, 2002 and March 31, 2003 and for the nine months ended December 31, 2003, including the significant accounting policies and notes thereto and the reports thereon and the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations (as per Unconsolidated Financial Statements under Indian GAAP) included in this Prospectus. Unconsolidated financial statements prepared in accordance with Indian GAAP differ in certain significant respects from consolidated financial statements prepared under Indian GAAP and financial statements prepared under U.S. GAAP. Biocon Summary of Profits and Losses, as Restated
(Rs. in million) Year ended March 31, 1999 Total Income Net Profit, as restated 316.6 13.2 Year ended March 31, 2000 742.0 55.3 Year ended March 31, 2001 1,235.9 145.2 Year ended March 31, 2002 1,649.3 214.9 Year ended March 31, 2003 2,552.2 353.1 Nine months period ended Dec. 31, 2003 3,724.5 861.1

The increases in the total income as well as the net profits of the Company can largely be attributed to increase in exports and growth in sales of biopharmaceuticals, particularly statins. Please refer to the section entitled Managements Discussion and Analysis of Financial Condition and Results of Operations beginning on page 92 of this Prospectus for more details. Summary of Assets and Liabilities, as Restated
(Rs. in million) As at March 31, 1999 Fixed assets Investments Current assets, loans and advances Total Assets Loan funds Deferred tax liability Current liabilities and provisions Total liabilities and provisions Net worth 54.5 80.9 149.2 284.6 75.4 4.4 109.7 189.5 95.1 As at March 31, 2000 565.7 0.1 457.0 1,022.8 320.0 34.4 253.5 607.9 414.9 As at March 31, 2001 627.8 0.6 669.3 1,297.7 381.9 70.8 284.9 737.6 560.1 As at March 31, 2002 1,040.5 84.8 960.9 2,086.2 665.3 93.0 467.8 1,226.1 860.1 As at March 31, 2003 1,266.2 84.8 1,372.3 2,723.3 685.6 140.0 650.4 1,476.0 1,247.3 As at Dec. 31, 2003 1,712.7 84.9 2,238.6 4,036.2 650.3 153.8 1,112.1 1,916.2 2,120.0

Biocon
Accounting Ratios
Year ended March 31, 1999 Earnings per Share (Rs.) Pre Split Post Split Return on Net Worth Pre Split Post Split Net Asset Value per Equity Share Pre Split Post Split Weighted average number of equity shares outstanding during the year/period Pre Split Post Split Total number of shares outstanding at the end of the year/period Pre Split Post Split
(1) (2)
(1)

Year ended March 31, 2000 3.2 1.6

Year ended March 31, 2001 4.0 2.0

Year ended March 31, 2002 5.6 2.8

Year ended March 31, 2003 7.8 3.9

Nine months period ended Dec. 31, 2003 19.1 9.6

0.9 0.5

14% 14% 6.7 3.3

13% 13% 11.3 5.7

26% 26% 15.3 7.6

25% 25% 19.3 9.6

28% 28% 27.7 13.9

41% 41% 47.1 23.6

14,251,898 28,503,796

17,073,354 34,146,707

36,662,328 73,324,656

38,110,196 76,220,392

44,958,476 89,916,952

45,000,000 90,000,000

14,251,898 28,503,796

36,648,927 73,297,853

36,669,741 73,339,482

44,611,379 89,222,757

45,000,000 90,000,000

45,000,000 90,000,000

On November 11, 2003 the Companys Board of Directors approved a sub division of equity shares of Rs. 10/- each into 2 equity shares of Rs. 5/- each. Accordingly, earnings per share and weighted average number of shares outstanding are presented on a pre-split and post-split basis. The shareholders, at the EGM held on November 11, 2003 approved the issue of 86,324,700 Equity shares of Rs. 5 each as bonus shares in the ratio of approximately 23.5 Equity shares for every Equity share held in the Company. These shares were allotted on November 28, 2003. All numbers presented above have been adjusted on a post-bonus basis.

Syngene The restated unconsolidated operating results of Syngene Limited for the financial years 1999, 2000, 2001, 2002, 2003 and the nine months ended December 31, 2003 under Indian GAAP are set forth below: Summary of Profits and Losses, as Restated
(Rs. in million) Year ended March 31, 1999 Total income Net Profit, as restated 30.1 9.0 Year ended March 31, 2000 59.9 13.0 Year ended March 31, 2001 111.0 33.4 Year ended March 31, 2002 153.0 28.2 Year ended March 31, 2003 261.8 74.8 Nine months period ended Dec. 31, 2003 261.8 108.1

Biocon
Summary of Assets and Liabilities, as Restated
(Rs. in million) As at March 31, 1999 Fixed assets Investments Current assets, loans and advances Total Assets Loan funds Current liabilities and provisions Deferred tax (asset)/liability Total liabilities and provisions Net worth Earnings per Equity Share (Rs.) Book Value per Equity Share (Rs.) 24.4 0.1 14.0 38.5 3.0 14.4 (0.6) 16.8 21.7 18.0 37.7 As at March 31, 2000 65.0 0.1 12.6 77.7 7.7 34.5 (0.8) 41.4 36.3 21.0 12.7 As at March 31, 2001 70.6 0.1 48.9 119.6 4.8 33.3 1.0 39.1 80.5 11.6 28.0 As at March 31, 2002 88.0 47.6 135.6 2.8 46.5 0.6 49.9 85.7 9.8 29.8 As at March 31, 2003 131.0 50.0 43.1 224.1 62.7 0.3 63.0 161.1 26.0 56.0 As at Dec. 31, 2003 164.3 142.1 50.8 357.2 87.4 87.4 269.8 37.6 93.8

Clinigene The restated unconsolidated operating results of Clinigene Limited for the financial years 2001, 2002 and 2003 and the nine months ended December 31, 2003 under Indian GAAP are set forth below: Summary of Profits and Losses, as Restated
(Rs. in million) August 4, 2000 to March 31, 2001 Total income Net Profit/(Loss), as restated 3.7 (0.2) Year ended March 31, 2002 26.7 8.4 Year ended March 31, 2003 11.1 (5.6) Nine months period ended Dec. 31, 2003 1.4 (19.0)

Summary of Assets and Liabilities, as Restated

(Rs. in million) As at March 31, 2001 Fixed assets Current assets, loans and advances Total Assets Current liabilities and provisions Deferred tax liability/(asset) Total Liabilities Net worth Earnings/(Loss) per Equity Share (Rs.) Book Value per Equity Share (Rs.) 6.4 1.2 7.6 7.4 (0.1) 7.3 0.3 (460.3) 6.2 As at March 31, 2002 5.9 9.0 14.9 11.2 0.5 11.7 3.2 168.1 64.1 As at March 31, 2003 7.8 7.3 15.1 17.4 17.4 (2.3) (111.3) (47.2) As at Dec. 31, 2003 17.6 3.3 20.9 42.3 42.3 (21.4) (380.2) (427.5)

Biocon
BBPL The restated unconsolidated operating results of BBPL for the financial year 2003 and the nine months ended December 31, 2003 under Indian GAAP are set forth below:
(Rs. in million) June 17, 2002 to March 31, 2003 Total income Net Profit/(Loss), as restated Equity capital (par value Rs. 10/- per share) Reserves and Surplus Earning/(Loss) per Equity Share (Rs.) Book Value per Equity Share (Rs.) (1.6) 0.1 (1.6) (163.0) (153.0) Nine months ended Dec. 31, 2003 (1.6) 0.2 (3.2) (83.4) (152.2)

Summary Consolidated Financial Data Under Indian GAAP The following summary consolidated financial data has been extracted from our audited consolidated financial statements prepared in accordance with Indian GAAP and SEBI Guidelines, and restated as described in the Auditors Report of S.R. Batliboi & Associates dated 17 January, 2004 in the section Consolidated Financial Statements under Indian GAAP (including Subsidiaries). You should read this summary consolidated data in conjunction with our audited consolidated financial statements for the year ended March 31, 2003 and for the nine months ended December 31, 2003, including the significant accounting policies and notes thereto and the reports thereon. Consolidated financial statements prepared in accordance with Indian GAAP differ in certain significant respects from consolidated financial statements prepared under Indian GAAP and financial statements prepared under U.S. GAAP. Summary Consolidated Profits and Losses, as Restated
(Rs. in million) Year ended March 31, 2003 Income Sales Contract Research Fees Other income Total Income Manufacturing, research, selling and administrative expenses Interest Depreciation Total Expenditure Profit before taxation Provision for current tax Provision for deferred tax/ (deferred tax credit) Profit for the year Minority Interest Net profit for the year, as restated 2,542.4 277.5 6.2 2,826.1 2,076.5 49.9 133.3 2,259.7 566.4 97.0 47.1 422.3 0.004 422.3 3,712.3 265.1 9.2 3,986.6 2,692.6 12.4 114.3 2,819.3 1,167.3 203.8 14.1 949.4 0.006 949.4 Nine months ended Dec. 31, 2003

Biocon
Summary Consolidated Assets and Liabilities, as Restated
(Rs. in million) As at March 31, 2003 Fixed assets Investments Current assets, loans and advances Total Assets Loan funds Current liabilities and provisions Deferred tax liability Total liabilities and provisions Net worth 1,405.0 50.0 1,410.5 2,865.5 685.7 719.7 140.4 1,545.8 1,319.7 As at Dec. 31, 2003 1,895.4 142.1 2,256.6 4,294.1 650.3 1,209.3 153.9 2,013.5 2,280.6

Accounting Ratios
Year ended March 31, 2003 Earnings per Share (Rs.) Basic Pre Split Post Split Diluted Pre Split Post Split Return on Net Worth Pre Split Post Split Net Asset Value per Equity Share Pre Split Post Split Weighted average number of equity shares outstanding during the year/period Basic Pre Split Post Split Diluted Pre Split Post Split Total number of shares outstanding at the end of the year/period Pre Split Post Split
(1)
(1)

Nine months period ended Dec. 31, 2003

10.1 5.0 9.8 4.9 32.0% 32.0% 29.4 14.7

22.7 11.3 22.0 11.0 42.0% 42.0% 50.7 25.4

41,987,463 83,974,925 41,300,792 86,601,584 45,000,000 90,000,000

41,909,407 83,818,814 43,176,830 86,353,660 45,000,000 90,000,000

On November 11, 2003 the Companys Board of Directors approved a sub division of equity shares of Rs. 10/- each into 2 equity shares of Rs. 5/- each. Accordingly, earnings per share and weighted average number of shares outstanding are presented on a pre-split and post-split basis.

Biocon
Summary Consolidated Financial Data Under U.S. GAAP You should read the following summary consolidated financial data in conjunction with our consolidated financial statements prepared under U.S. GAAP and the related notes included elsewhere in this Prospectus. The summary consolidated financial data as at, and for the year ended March 31, 2003 and for the nine month period ended December 31, 2003 are derived from our audited consolidated financial statements under U.S. GAAP included elsewhere in this Prospectus. Summary Consolidated Statements of Income
Year ended March 31, 2003 (in Rs. million) Revenue Sale of products Contract research services Total revenues Cost of revenues (excluding depreciation shown separately below) Gross profit Operating expenses Depreciation Income from operations Interest expense Interest income Other (income) / expense, net Share of losses in joint venture Income before income taxes and minority interest Income taxes expense, net Net income before minority interest Minority interest Net income 2,542.4 277.5 2,819.9 1,662.0 1,157.9 412.9 134.0 611.0 50.7 (2.8) (4.3) 567.4 123.1 444.3 444.3 3,712.3 265.0 3,977.3 2,315.5 1,661.8 365.8 115.0 1,181.0 12.4 (0.9) (10.4) 1.7 1,178.2 248.0 930.2 930.2 81.5 5.8 87.3 50.8 36.5 8.1 2.5 25.9 0.3 (0.0) (0.2) 25.8 5.4 20.4 20.4 Nine Months ended Dec. 31, 2003 (in Rs. million) Nine Months ended Dec. 31, 2003 (in US$ million)

Summary Consolidated Balance Sheet

As at March 31, 2003 (in Rs. million) Assets Current Assets Non-Current Assets Total Assets Liabilities and Stockholders Equity Current Liabilities Non-Current Liabilities Total Liabilities Total Shareholders Equity Total Liabilities and Stockholders Equity 1,145.4 413.6 1,559.0 1,322.1 2,881.1 1,620.9 429.0 2,049.9 2,264.0 4,313.9 35.6 9.4 45.0 49.7 94.7 1,438.6 1,442.5 2,881.1 2.391.8 1,922.1 4,313.9 52.5 42.2 94.7 As at Dec. 31, 2003 (in Rs. million) As at Dec. 31, 2003 (in US$ million)

10

Biocon
GENERAL INFORMATION Authority for the Issue The Issue has been authorized by a special resolution adopted pursuant to Section 81(1A) of the Companies Act, at the extraordinary general meeting of the shareholders of our Company held on December 24, 2003. The Board of Directors has pursuant to a resolution dated October 18, 2003 authorized a committee of its Directors referred to as the IPO Committee to take decisions on behalf of the Board in relation to the Issue. The IPO Committee pursuant to its resolution dated November 28, 2003 has authorized the Issue. Prohibition by SEBI Our Company, our Directors, our Promoters, the directors and persons in control of our Promoters, our subsidiaries, our group companies, other companies promoted by our Promoters and companies with which our Companys Directors are associated as directors have not been prohibited from accessing or operating in the capital markets or restrained from buying, selling or dealing in securities under any order or direction passed by SEBI. Eligibility for the Issue Our Company is eligible for the Issue in accordance with Clause 2.2.1 of the SEBI Guidelines as explained under, with the eligibility criteria calculated in accordance with unconsolidated financial statements under Indian GAAP:
s

Our Company has net tangible assets of at least Rs. 30 million in each of the preceding three full years of which not more than 50% is held in monetary assets and is compliant with Clause 2.2.1(a) of the SEBI Guidelines; Our Company has a track record of distributable profits in accordance with Section 205 of Companies Act, for at least three of the immediately preceding five years and is compliant with Clause 2.2.1(b) of the SEBI Guidelines; Our Company has a net worth of at least Rs. 10 million in each of the three preceding full years and is compliant with Clause 2.2.1(c) of the SEBI Guidelines; Though our Company changed its name within the last one year (from Biocon India Limited to Biocon Limited on November 17, 2003) more than 50% of the revenue for the preceding full year is earned from the activity suggested by our new name, which is compliant with Clause 2.2.1(d) of the SEBI Guidelines; and The aggregate of the proposed Issue size and all previous issues made in the same financial year in terms of size (i.e. offer through the offer document + firm allotment + promoters contribution through the offer document) is not expected to exceed five times the pre-Issue net worth of our Company as per the audited balance sheet of the last financial year and is compliant with Clause 2.2.1(e) of the SEBI Guidelines.

Our net profit, dividend, net worth, net tangible assets and monetary assets derived from the auditors report included in this Prospectus under the section Summary Unconsolidated Financial Data under Indian GAAP, as at, and for the last five years ended March 31, 2003 and the nine months ended December 31, 2003, is set forth below:
(Rs. in million) Year ended March 31, 1999 Net tangible assets(1) Monetary assets (2) Net profits, as restated Net worth, as restated
(1) (2)

Year ended March 31, 2000 769.3 9.7 55.3 414.9

Year ended March 31, 2001 1,012.9 0.1 145.2 560.1

Year ended March 31, 2002 1,618.4 1.0 214.9 860.1

Year ended March 31, 2003 2,073.0 10.2 353.1 1,247.3

Nine months ended Dec. 31, 2003 2,924.1 11.4 861.1 2,120.0

174.9 0.7 13.2 95.1

Net tangible assets is defined as the sum of fixed assets (including capital work in progress and excluding revaluation reserves), trade investments, current assets (excluding deferred tax assets) less current liabilities (excluding deferred tax liabilities and long term liabilities) Monetary assets include cash on hand and bank and quoted investments

11

Biocon
For a complete explanation of the above figures please refer to the section entitled Selected Financial Data (as per Unconsolidated Financial Statements under Indian GAAP) on page 86 of this Prospectus. Further, the Issue is subject to the fulfilment of the following conditions as required by the SCRR:
s

A minimum 2,000,000 equity shares (excluding reservations, firm allotments and promoters contribution) are offered to the public; The Issue size, which is the Issue Price multiplied by the number of equity shares offered to the public, is a minimum of Rs. 1,000 million; and

The Issue is made through the book building method with allocation of 60% of the Issue size to QIBs as specified by SEBI. Disclaimer Clause
s

AS REQUIRED, A COPY OF THE PROSPECTUS HAS BEEN SUBMITTED TO SEBI. IT IS TO BE DISTINCTLY UNDERSTOOD THAT SUBMISSION OF THE PROSPECTUS TO SEBI SHOULD NOT, IN ANY WAY, BE DEEMED OR CONSTRUED TO MEAN THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANY RESPONSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR THE PROJECT FOR WHICH THE ISSUE IS PROPOSED TO BE MADE OR FOR THE CORRECTNESS OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THE PROSPECTUS. THE BOOK RUNNING LEAD MANAGERS, DSP MERRILL LYNCH LIMITED AND KOTAK MAHINDRA CAPITAL COMPANY LIMITED, AND THE CO-BOOK RUNNING LEAD MANAGER HSBC SECURITIES AND CAPITAL MARKETS (INDIA) PRIVATE LIMITED HAVE CERTIFIED THAT THE DISCLOSURES MADE IN THE PROSPECTUS ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI (DISCLOSURE AND INVESTOR PROTECTION) GUIDELINES AS FOR THE TIME BEING IN FORCE. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE AN INFORMED DECISION FOR MAKING AN INVESTMENT IN THE PROPOSED ISSUE. IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE COMPANY IS PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE PROSPECTUS, THE BOOK RUNNING LEAD MANAGERS ARE EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE ISSUER COMPANY DISCHARGES ITS RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE, BOOK RUNNING LEAD MANAGERS, DSP MERRILL LYNCH LIMITED AND KOTAK MAHINDRA CAPITAL COMPANY LIMITED, AND CO-BOOK RUNNING LEAD MANAGER HSBC SECURITIES AND CAPITAL MARKETS (INDIA) PRIVATE LIMITED HAVE FURNISHED TO SEBI, A DUE DILIGENCE CERTIFICATE DATED JANUARY 23, 2004, FEBRUARY 24, 2004 AND MARCH 23, 2004 IN ACCORDANCE WITH THE SEBI (MERCHANT BANKERS) REGULATIONS, 1992, WHICH READS AS FOLLOWS: WE HAVE EXAMINED VARIOUS DOCUMENTS INCLUDING THOSE RELATING TO LITIGATION LIKE COMMERCIAL DISPUTES, PATENT DISPUTES, DISPUTES WITH COLLABORATORS, ETC. AND OTHER MATERIALS IN CONNECTION WITH THE FINALISATION OF THE PROSPECTUS PERTAINING TO THE SAID ISSUE. ON THE BASIS OF SUCH EXAMINATION AND THE DISCUSSIONS WITH THE COMPANY, ITS DIRECTORS AND OTHER OFFICERS, OTHER AGENCIES, INDEPENDENT VERIFICATION OF THE STATEMENTS CONCERNING THE OBJECTS OF THE ISSUE, PROJECTED PROFITABILITY, PRICE JUSTIFICATION AND THE CONTENTS OF THE DOCUMENTS MENTIONED IN THE ANNEXURE AND OTHER PAPERS FURNISHED BY THE COMPANY. WE CONFIRM THAT: (A) THE PROSPECTUS FORWARDED TO SEBI IS IN CONFORMITY WITH THE DOCUMENTS, MATERIALS AND PAPERS RELEVANT TO THE ISSUE; (B) ALL THE LEGAL REQUIREMENTS CONNECTED WITH THE SAID ISSUE AS ALSO THE GUIDELINES, INSTRUCTIONS, ETC. ISSUED BY SEBI, THE GOVERNMENT AND ANY OTHER COMPETENT AUTHORITY IN THIS BEHALF HAVE BEEN DULY COMPLIED WITH; AND (C) THE DISCLOSURES MADE IN THE PROSPECTUS ARE TRUE, FAIR AND ADEQUATE TO ENABLE THE INVESTORS TO MAKE A WELL-INFORMED DECISION AS TO THE INVESTMENT IN THE PROPOSED ISSUE;

12

Biocon
(D) WE CONFIRM THAT BESIDES OURSELVES, ALL THE INTERMEDIARIES NAMED IN THE PROSPECTUS ARE REGISTERED WITH SEBI AND THAT TILL DATE SUCH REGISTRATIONS ARE VALID; AND (E) WE HAVE SATISFIED OURSELVES ABOUT THE NET WORTH OF THE UNDERWRITERS TO FULFIL THEIR UNDERWRITING COMMITMENTS. WE CERTIFY THAT WRITTEN CONSENT FROM PROMOTERS HAS BEEN OBTAINED FOR INCLUSION OF THEIR SECURITIES AS PART OF PROMOTERS CONTRIBUTION SUBJECT TO LOCK-IN AND THE SECURITIES PROPOSED TO FORM PART OF THE PROMOTERS CONTRIBUTION SUBJECT TO LOCK-IN, WILL NOT BE DISPOSED/SOLD/ TRANSFERRED BY THE PROMOTERS DURING THE PERIOD STARTING FROM THE DATE OF FILING THE PROSPECTUS WITH SEBI TILL THE DATE OF COMMENCEMENT OF LOCK-IN PERIOD AS STATED IN THE PROSPECTUS. ALL LEGAL REQUIREMENTS PERTAINING TO THE ISSUE WILL BE COMPLIED WITH AT THE TIME OF FILING OF THE PROSPECTUS WITH THE REGISTRAR OF COMPANIES, BANGALORE, KARNATAKA, IN TERMS OF SECTION 56, SECTION 60 AND SECTION 60B OF THE COMPANIES ACT. THE FILING OF THE PROSPECTUS DOES NOT, HOWEVER, ABSOLVE THE COMPANY FROM ANY LIABILITIES UNDER SECTION 63 OR SECTION 68 OF THE COMPANIES ACT OR FROM THE REQUIREMENT OF OBTAINING SUCH STATUTORY AND/OR OTHER CLEARANCES AS MAY BE REQUIRED FOR THE PURPOSE OF THE PROPOSED ISSUE. SEBI FURTHER RESERVES THE RIGHT TO TAKE UP AT ANY POINT OF TIME, WITH THE BOOK RUNNING LEAD MANAGERS, ANY IRREGULARITIES OR LAPSES IN THE PROSPECTUS. Caution Our Company, our Directors, the BRLMs and the CBRLM accept no responsibility for statements made otherwise than in this Prospectus or in the advertisements or any other material issued by or at our instance and anyone placing reliance on any other source of information, including our web site, www.biocon.com, would be doing so at his or her own risk. The BRLMs and the CBRLM accept no responsibility, save to the limited extent as provided in the Memorandum of Understanding entered into between the BRLMs, the CBRLM and us and the Underwriting Agreement to be entered into between the Underwriters and us. All information shall be made available by us, the BRLMs and the CBRLM to the public and investors at large and no selective or additional information would be available for a section of the investors in any manner whatsoever including at road show presentations, in research or sales reports, at bidding centers or elsewhere. Disclaimer in Respect of Jurisdiction This Issue is being made in India to persons resident in India including Indian nationals resident in India who are not minors, Hindu Undivided Families (HUFs), companies, corporate bodies and societies registered under the applicable laws in India and authorized to invest in shares, Indian mutual funds registered with SEBI, Indian financial institutions, commercial banks, regional rural banks, co-operative banks (subject to RBI permission), Trusts registered under the Societies Registration Act, 1860, as amended from time to time, or any other trust law and who are authorized under their constitution to hold and invest in shares, permitted insurance companies and pension funds and to non-residents including NRIs and FIIs. This Prospectus does not, however, constitute an offer to sell or an invitation to subscribe to Equity Shares offered hereby in any other jurisdiction to any person to whom it is unlawful to make an offer or invitation in such jurisdiction. Any person into whose possession this Prospectus comes is required to inform himself or herself about, and to observe, any such restrictions. Any dispute arising out of this Issue will be subject to the jurisdiction of appropriate court(s) in Bangalore, India only. No action has been or will be taken to permit a public offering in any jurisdiction where action would be required for that purpose, except that this Prospectus has been submitted to the SEBI. Accordingly, the Equity Shares represented thereby may not be offered or sold, directly or indirectly, and this Prospectus may not be distributed, in any jurisdiction, except in accordance with the legal requirements applicable in such jurisdiction. Neither the delivery of this Prospectus nor any sale hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of our Company since the date hereof or that the information contained herein is correct as of any time subsequent to this date.
13

Biocon
Disclaimer Clause of the NSE As required, a copy of this Draft Red Herring Prospectus has been submitted to NSE. NSE has given vide its letter dated February 5, 2004, permission to the Company to use the NSEs name in this Draft Red Herring Prospectus as one of the stock exchanges on which this Companys securities are proposed to be listed, subject to the Company fulfilling the various criteria for listing including the one related to the paid-up capital and market capitalization (i.e. the paid up capital shall not be l ess than Rs. 10 crores and market capitalization shall not be less that Rs. 25 crores at the time of listing). The NSE has scrutinized this Draft Red Herring Prospectus for its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Company. It is to be distinctly understood that the aforesaid permission given by NSE should not in any way be deemed or construed to mean that this Draft Red Herring Prospectus has been cleared or approved by NSE; nor does it in any manner warrant, certify or endorse the correctness or completeness of any of the contents of this Draft Red Herring Prospectus; nor does it warrant that this Companys securities will be listed or will continue to be listed on the NSE; nor does it take any responsibility for the financial or other soundness of this Company, its promoters, its management or any scheme or project of this Company. Every person who desires to apply for or otherwise acquires any securities of the Company may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against the NSE whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated herein or any other reason whatsoever. Disclaimer Clause of BSE As required, a copy of this Draft Red Herring Prospectus has been submitted to BSE. BSE has given vide its letter dated February 5, 2004, permission to this Company to use BSEs name in this Draft Red Herring Prospectus as one of the stock exchanges on which this Companys securities are proposed to be listed. BSE has scrutinized this Draft Red Herring Prospectus for its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Company. BSE does not in any manner:
s

warrant, certify or endorse the correctness or completeness of any of the contents of this Draft Red Herring Prospectus; or warrant that this Companys securities will be listed or will continue to be listed on BSE; or take any responsibility for the financial or other soundness of this Company, its promoters, its management or any scheme or project of this Company;

s s

and it should not for any reason be deemed or construed to mean that this Draft Red Herring Prospectus has been cleared or approved by BSE. Every person who desires to apply for or otherwise acquires any securities of this Company may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against BSE whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever. Filing A copy of the Prospectus, along with the documents required to be filed under Section 60B of the Companies Act, would be delivered for registration to the RoC. A copy of this Prospectus has been filed with the Corporate Finance Department of SEBI at Ground Floor, Mittal Court, A Wing, Nariman Point, Mumbai 400 021. Listing Applications have been made to the NSE and BSE for permission to deal in and for an official quotation of our Equity Shares. NSE will be the Designated Stock Exchange.

14

Biocon
If the permissions to deal in and for an official quotation of our Equity Shares are not granted by any of the Stock Exchanges mentioned above, our Company will forthwith repay, without interest, all moneys received from the applicants in pursuance of this Prospectus. If such money is not repaid within 8 days after our Company become liable to repay it, i.e. from the date of refusal or within 70 days from the Bid/Issue Closing Date, whichever is earlier, then the Company, and every Director of the Company who is an officer in default shall, on and from such expiry of 8 days, be liable to repay the money, with interest at the rate of 15% per annum on application money, as prescribed under Section 73 of the Companies Act. Our Company shall ensure that all steps for the completion of the necessary formalities for listing and commencement of trading at all the Stock Exchanges mentioned above are taken within 7 working days of finalization of the Basis of Allotment for the Issue. Impersonation Attention of the applicants is specifically drawn to the provisions of sub-section (1) of Section 68A of the Companies Act, which is reproduced below: Any person who: (a) makes in a fictitious name, an application to a company for acquiring or subscribing for, any shares therein, or (b) otherwise induces a company to allot, or register any transfer of shares, therein to him, or any other person in a fictitious name, shall be punishable with imprisonment for a term which may extend to five years. Minimum Subscription If our Company does not receive the minimum subscription of 90% of the net offer to public, including devolvement of underwriters within 60 days from the Bid/Issue Closing Date, our Company shall forthwith refund the entire subscription amount received. If there is a delay beyond 8 days after our Company becomes liable to pay the amount, our Company shall pay interest prescribed under Section 73 of the Companies Act. Withdrawal of the Issue Our Company, in consultation with the BRLMs and the CBRLM, reserves the right not to proceed with the Issue anytime after the Bid/Issue Opening Date without assigning any reason therefore. Letters of Allotment or Refund Orders We shall give credit to the beneficiary account with depository participants within 2 working days of finalization of the basis of allotment of Equity Shares. We shall dispatch refund orders, if any, of value up to Rs. 1,500, by Under Certificate of Posting, and will dispatch refund orders above Rs. 1,500, if any, by registered post or speed post at the sole or first Bidders sole risk within 15 days of the Bid/Issue Closing Date. In accordance with the Companies Act, the requirements of the Stock Exchanges and the SEBI Guidelines, we further undertake that:
l l l

Allotment of Equity Shares will be made only in dematerialized form within 15 days from the Bid/Issue Closing Date; Dispatch of refund orders will be done within 15 days from the Bid/Issue Closing Date; and We shall pay interest at 15% per annum (for any delay beyond the 15 day time period as mentioned above), if allotment is not made, refund orders are not dispatched and/or demat credits are not made to investors within the 15 day time prescribed above.

We will provide adequate funds required for dispatch of refund orders or allotment advice to the Registrar to the Issue. Refunds will be made by cheques, pay-orders or demand drafts drawn on a bank appointed by us, as an Escrow Collection Bank and payable at par at places where Bids are received. Bank charges, if any, for encashing such cheques, pay orders or demand drafts at other centers will be payable by the Bidders.

15

Biocon
Issue Program BID/ISSUE OPENS ON BID/ISSUE CLOSES ON : : MARCH 11, 2004 MARCH 18, 2004

Bids and any revision in Bids shall be accepted only between 10 a.m. and 3 p.m. (Indian Standard Time) during the Bidding Period as mentioned above at the bidding centres mentioned on the Bid cum Application Form except that on the Bid/Issue Closing Date, the Bids shall be accepted only between 10 a.m. and 1 p.m. (Indian Standard Time) or uploaded till such time as may be permitted by the NSE and BSE on the Bid/Issue Closing Date. In case of revision in the Price Band, the Bidding/Issue Period will be extended for three additional days after revision of Price Band. Any revision in the Price Band and the revised Bid/Issue Period, if applicable, will be widely disseminated by notification to the NSE and BSE, by issuing a press release, and also by indicating the change on the web site of the BRLMs and the CBRLM and at the terminals of the Syndicate. Book Running Lead Managers DSP Merrill Lynch Limited Mafatlal Centre, 10th Floor Nariman Point Mumbai 400 021 Tel: +91 22 5632 8000 Fax: +91 22 2204 8518 Email: biocon_ipo@ml.com Co Book Running Lead Manager HSBC Securities and Capital Markets (India) Private Limited 52/60 Mahatma Gandhi Road, Fort, Mumbai 400 001 India Tel: +91 22 2268 1284/5 Fax: +91 22 2263 1984 Email: biocon_ipo@hsbc.co.in Syndicate Members Kotak Securities Limited Bakhtawar, 1st Floor 229, Nariman Point Mumbai 400 021 Tel: +91 22 5634 1100 Fax: +91 22 5630 3927 Email: biocon.ipo@kotak.com Karvy Stock Broking Limited 529, Road No. 4, Banjara Hills Hyderabad 500 034 Tel: +91 40 2331 2454 Fax: +91 40 2331 1968 Email: biocon@karvy.com Kotak Mahindra Capital Company Limited Bakhtawar, 3rd Floor 229, Nariman Point Mumbai 400 021 Tel: +91 22 5634 1100 Fax: +91 22 2284 0492 Email: biocon.ipo@kotak.com

16

Biocon
Statement of Inter-Se Allocation of Responsibility The responsibilities and co-ordination for various activities in this Issue have been distributed between the BRLMs and the CBRLM as under:
Sr. No. 1. Activities Capital structuring with the relative components and formalities such as type of instruments etc. Due diligence of our Companys operations/ management/ business plans/ legal etc. Drafting and design of the Red Herring Prospectus and of statutory advertisement including memorandum containing salient features of the Prospectus. The BRLM shall ensure compliance with stipulated requirements and completion of prescribed formalities with the Stock Exchanges, RoC and SEBI including finalization of Prospectus and RoC filing of the same. Drafting and approval of all publicity material other than statutory advertisement as mentioned in (2) above including corporate advertisement, brochure, roadshow presentations, FAQs, corporate films etc. Appointment of other intermediaries viz. Registrar, Printers, Advertising Agency and Bankers to the Issue. Institutional Marketing of the Issue, which will cover, inter alia, Finalize the list and division of investors for one to one meetings; and Finalize roadshow schedule and investor meeting schedules. Non-Institutional and Retail Marketing of the Issue, which will cover, inter alia, Formulating marketing strategies, preparation of publicity budget; Finalise Media & PR strategy; Finalise centers for holding conferences for brokers etc.; Finalise collection centers; and Follow-up on distribution of publicity and issue material including form, prospectus and deciding on the quantum of the Issue material. Deciding pricing and institutional allocation in consultation with the Company. Responsibility DSPML, KMCC HSBC DSPML, KMCC HSBC Co-ordinator KMCC

2.

DSPML

3.

DSPML, KMCC HSBC

KMCC

4.

DSPML, KMCC HSBC DSPML, KMCC HSBC

KMCC

5.

DSPML

6.

DSPML, KMCC HSBC

KMCC

7.

DSPML, KMCC HSBC DSPML, KMCC HSBC

DSPML

8.

The post bidding activities including management of escrow accounts, coordinate non-institutional allocation, intimation of allocation and dispatch of refunds to Bidders etc. The post issue activities will involve essential follow-up steps, which include the finalisation of listing of instruments and dispatch of certificates and demat delivery of shares, with the various agencies connected with the work such as the Registrar to the Issue and Bankers to the Issue and the bank handling refund business. The merchant banker shall be responsible for ensuring that these agencies fulfil their functions and enable it to discharge this responsibility through suitable agreements with the Company.

DSPML

The Selection of various agencies like Registrars to the Issue, Bankers to the Issue, Bank Collection Centres, Legal Advisors to the Issue, Underwriters to the Issue, Advertising Agencies, Public Relations Agencies etc. has been finalised by the Company in consultation with the BRLMs and CBRLM.

17

Biocon
Registered Office and Corporate Office of the Company 20th K.M. Hosur Road, Electronic City P.O. Bangalore 560 100 Tel: +91 80 2852 3434 Fax: +91 80 2852 3423 Company Secretary Mr. Ashok Bhandarkar 20th K.M. Hosur Road, Electronic City P.O. Bangalore 560 100 Tel: +91 80 2852 3434 Fax: +91 80 2852 3423 Email: ashok.bhandarkar@biocon.com Compliance Officer Mr. Murali Krishnan K.N. President-Group Finance 20th K.M. Hosur Road Electronic City P.O. Bangalore 560 100 Tel: +91 80 2852 3434 Fax: +91 80 2852 3423 Email: murali.krishnan@biocon.com Financial Advisors to the Company Allegro Capital Advisors Pvt. Ltd. C Block, Silicon Terraces, 30/1 Hosur Main Road, Koramangala, Bangalore 560 030 Tel: +91 80 5667 0201 Fax: +91 80 5667 0215 Registrar to the Issue Karvy Consultants Limited Karvy House, 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad 500 034 Tel: +91 40 2331 2454 Fax: +91 40 2331 1968 Email: biocon@karvy.com Investors can contact the Compliance Officer or the Registrar to the Issue in case of any pre-Issue or post-Issue related problems such as non-receipt of letters of allotment, credit of allotted shares in the respective beneficiary accounts, refund orders etc. Legal Counsel to the Underwriters Domestic Counsel Amarchand & Mangaldas & Suresh A. Shroff & Co. 201, Midford House, Midford Garden, M.G. Road, Bangalore 560 001 Tel: +91 80 2558 4870 Fax: +91 80 2558 4266

18

Biocon
International Counsel Skadden, Arps, Slate, Meagher & Flom (International) Suntec Tower Two Suite #29-01 9 Temasek Boulevard Singapore 038989 Tel: +65 6434 2900 Fax: +65 6434 2988 Legal Counsel to the Company Crawford Bayley & Co. State Bank Building, 4th Floor, N.G.N.Vaidya Marg, Mumbai 400 023 Tel: +91 22 2266 0277/ 3713 Fax: +91 22 2266 0355 Auditors to the Company S.R. Batliboi & Associates Divyasree Chambers, A Wing, 2nd Floor, Langford Road, Bangalore 560 025 Tel: +91 80 2224 5646 Fax: +91 80 2224 0695 U.S. GAAP Auditors Ernst & Young Ernst & Young Towers, B-26, Qutub Institutional Area, New Delhi 110 016 Tel: +91 11 2661 1004 Fax: +91 11 2661 1012 Bankers to the Issue and Escrow Collection Banks ABN Amro Bank NV Sakhar Bhavan, 4th Floor, Nariman Point, Mumbai 400 021 Tel : + 9122 5637 2500 Fax : + 9122 5637 2403 Kotak Mahindra Bank Limited 2nd Floor, Bakhtawar, Nariman Point, Mumbai 400 021 Tel : + 9122 5698 6022 Fax : + 9122 2281 7527

19

Biocon
The Hongkong and Shanghai Banking Corporation Limited 52/60, Mahatma Gandhi Road, Mumbai 400 021 Tel : + 9122 2267 4921 Fax : + 9122 2262 3890 HDFC Bank Limited Trade World New Building 2nd Floor, Kamala Mills, Senapati Bapat Marg, Lower Parel, Mumbai 400 013 Tel : + 91 22 2498 8484 Fax : + 91 22 2496 3871 Canara Bank Overseas Branch Centenary Building 28, M. G. Road Bangalore 560 001 Tel : +91 80 2559 1979 Fax: +91 80 2558 7143 Bankers to the Issuer The Hongkong and Shanghai Banking Corporation Limited 7, M.G. Road, Bangalore 560001 Tel: +91 80 2558 5444 Fax: +91 80 2558 4411 State Bank of India (Overseas Branch) 87, M.G. Road, Bangalore 560 001 Tel: +91 80 2558 8000 Fax: +91 80 2558 8348 Canara Bank Overseas Branch 28, M.G. Road Bangalore 560001 Tel: +91 80 2558 4340 Fax: +91 80 2558 7143 Credit Rating As this is an issue of Equity Shares, there is no credit rating for this Issue. Trustees As this is an issue of Equity Shares, the appointment of Trustees is not required.

20

Biocon
Book Building Process Book building refers to the collection of Bids from investors, which is based on the Price Band, with the Issue Price being finalized after the Bid/Issue Closing Date. The principal parties involved in the Book Building Process are: 1. 2. 3. 4. The Company; Book Running Lead Managers; Co Book Running Lead Manager; and Syndicate Members who are intermediaries registered with SEBI or registered as brokers with the Stock Exchange(s) and eligible to act as underwriters. The BRLMs and the CBRLM to appoint Syndicate Members.

The SEBI Guidelines has permitted an issue of securities to the public through the 100% Book Building Process, wherein 60% of the Issue shall be allocated on a discretionary basis to QIBs. Further, not less than 15% of the Issue shall be available for allotment on a proportionate basis to Non Institutional Bidders and not less than 25% of the Issue shall be available for allotment on a proportionate basis to Retail Bidders, subject to valid Bids being received at or above the Issue Price. We will comply with the SEBI Guidelines for this Issue. In this regard, we have appointed the BRLMs and the CBRLM to procure subscriptions to the Issue. The process of book building, under SEBI Guidelines, is relatively new and the investors are advised to make their own judgment about investment through this process prior to making a Bid in the Issue. Pursuant to recent amendments to SEBI Guidelines, QIBs are not allowed to withdraw their Bid after the Bid/Issue Closing Date. Please refer to the section entitled Terms of the Issue on page 141 of this Prospectus for more details. Steps to be taken by the Bidders for bidding:
l l l

Check whether he/she is eligible for bidding; Bidder necessarily needs to have a demat account; and Ensure that the Bid cum Application Form is duly completed as per instructions given in this Prospectus and in the Bid cum Application Form.

Underwriting Agreement After the determination of the Issue Price and prior to filing of the Prospectus with RoC, we will enter into an Underwriting Agreement with the Underwriters for the Equity Shares proposed to be offered through the Issue. It is proposed that pursuant to the terms of the Underwriting Agreement, the BRLMs and the CBRLM shall be responsible for bringing in the amount devolved in the event that the Syndicate Members do not fulfill their underwriting obligations. The Underwriters have indicated their intention to underwrite the following number of Equity Shares:
Name and Address of the Underwriters Indicated Number of Equity Shares to be Underwritten 3,999,920 3,999,920 1,999,960 Amount Underwritten (Rs. in million) 1,260.0 1,260.0 630.0

DSP MERRILL LYNCH LIMITED Mafatlal Centre, 10th Floor, Nariman Point, Mumbai 400 021 KOTAK MAHINDRA CAPITAL COMPANY LIMITED Bakhtawar, 3rd Floor, 229 Nariman Point, Mumbai 400 021 HSBC SECURITIES AND CAPITAL MARKETS (INDIA) PRIVATE LIMITED 52/60 Mahatma Gandhi Road, Fort, Mumbai 400 001 KOTAK SECURITIES LIMITED Bakhtawar, 1 st Floor, 229 Nariman Point, Mumbai 400 021 KARVY STOCK BROKING LIMITED 529, Road no. 4, Banjara Hills, Hyderabad - 500 034.

100 100

0.0 0.0

The above Underwriting Agreement is dated March 20, 2004.

21

Biocon
In the opinion of our Board of Directors (based on a certificate given by the Underwriters), the resources of all the above mentioned Underwriters are sufficient to enable them to discharge their respective underwriting obligations in full. All the above-mentioned Underwriters are registered with SEBI under Section 12(1) of the SEBI Act or registered as brokers with the Stock Exchange(s). Our IPO Committee, at their meeting held on March 20, 2004, have accepted and entered into the Underwriting Agreement mentioned above on behalf of our Company. Allocation among Underwriters may not necessarily be in proportion to their underwriting commitments. Notwithstanding the above table, the BRLMs, the CBRLM and the Syndicate Members shall be responsible for ensuring payment with respect to Equity Shares allocated to investors procured by them. In the event of any default in payment, the respective Underwriter, in addition to other obligations defined in the Underwriting Agreement, will also be required to procure/subscribe to the extent of the defaulted amount. In terms of Rule 19(2)(b) of the SCRR, this being an Issue for less than 25% of the post issue capital, the Issue is being made through the 100% book building process with an allocation of minimum 60% of the Issue size to Qualified Institutional Buyers, with a minimum of two million securities being offered to the Retail Bidder and the minimum Issue size being Rs. 1000 million. Allotment to QIBs is discretionary as per the terms of this Prospectus and may not be proportionate in any way and the patterns of allotment to the QIBs could be different for the various Underwriters. The allocation to the QIBs shall be determined by the Bookrunners based on prior commitment, investor quality, price aggression, earliness of bids, etc.

22

Biocon
CAPITAL STRUCTURE Financial data presented in this Section is derived from our Unconsolidated Financial Statements prepared in accordance with Indian GAAP. Share capital as at the date of filing of Prospectus with SEBI (before and after the Issue) is set forth below:
(Rs. in million, except share data) Aggregate nominal value A. B. Authorised Capital 120,000,000 Equity Shares of Rs. 5/- each Issued, Subscribed and Paid-up Capital before the Issue 90,000,000 Equity Shares of Rs. 5/- each fully paid-up C. D. Net Public Offer in terms of this Prospectus 10,000,000 Equity Shares of Rs. 5/- each fully paid-up Equity Capital after the Issue 100,000,000 Equity Shares of Rs. 5/- each fully paid-up E. Share Premium Account - Before the Issue - After the Issue 339.9 3,439.9 500.0 50.0 3,150.0 450.0 600.0 Aggregate value at Issue Price

a)

A share split was approved at the extra ordinary general meeting held on February 25, 2002 resulting in each equity share of Rs. 100 each being subdivided into 10 equity shares of Rs. 10 each.

b) A share split was approved at the extra ordinary general meeting held on November 11, 2003 resulting in each equity share of Rs. 10 being subdivided into 2 equity shares of Rs. 5 each. c) The authorised share capital of our Company was increased from Rs. 20,000,000 divided into 4,000,000 equity shares of Rs. 5/- each to Rs. 600,000,000 divided into 120,000,000 equity shares of Rs. 5 each through special resolution passed at its extra ordinary general meeting held on November 11, 2003.

d) The shareholders, at the EGM held on November 11, 2003 approved the issue of 86,324,700 Equity Shares of Rs. 5 each as bonus shares in the ratio of approximately 23.5 Equity Shares for every Equity Share held in the Company. These shares were allotted on November 28, 2003. The bonus had been fixed to (i) capitalise the reserves of the Company (ii) to meet the issuance and listing guidelines and (iii) to encourage retail participation in the Issue. Notes to the Capital Structure 1. Share Capital History of our Company:
Date of Allotment (1) 29.11.1978 01.04.1979 26.12.1979 26.11.1980 07.11.1981 22.07.1982 27.11.1982 18.02.1983 19.12.1983 05.08.1985 21.02.1986 04.12.1989 Number of Equity Shares 50 650 800 500 1,000 2,000 2,000 1,500 700 3,500 2,300 300 Face Value (Rs.) 100 100 100 100 100 100 100 100 100 100 100 100 Issue Price (Rs.) 100 100 100 100 100 100 100 100 100 100 100 100 Nature of payment of Consideration Cash Cash Cash Cash Cash Cash Cash Cash Cash Cash Cash Cash Reasons for Allotment Subscription to Memorandum of Association Further issue of shares Further issue of shares Further issue of shares Further issue of shares Further issue of shares Further issue of shares Further issue of shares Further issue of shares Further issue of shares Further issue of shares Further issue of shares Cumulative Paid-up Capital (Rs.) 5,000 70,000 150,000 200,000 300,000 500,000 700,000 850,000 920,000 1,270,000 1,500,000 1,530,000 Cumulative Share Premium (Rs. in million) Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil

23

Biocon
Date of Allotment (1) 27.07.1994 19.12.1996 Number of Equity Shares 100 30,800 Face Value (Rs.) 100 100 Issue Price (Rs.) 100 Nil Nature of payment of Consideration Cash Bonus shares Reasons for Allotment Further issue of shares Bonus share in the ratio of 2 equity shares for every 1 equity share held in Biocon Conversion of FCD to Equity Shares Further issue of shares Consideration for acquisition of equity shares of BCZ, HLX and BQIL(2) Allotment to ICICI Structured Products Fund, TCW/ICICI Private Equity AMP Fund LLC, TCW/ICICI Private Equity Fund LLCI Further issue of shares Further issue of shares Consideration for swapping equity shares of Syngene for equity shares of Biocon(3) Further issue of shares Bonus shares in the ratio of approximately 23.5 Equity Shares for every 1 Equity Share of Biocon Cumulative Paid -up Capital (Rs.) 1,540,000 4,620,000 Cumulative Share Premium (Rs. in million) Nil Nil

28.09.1998 03.01.2000 24.03.2000 30.03.2000

12,000 45,000 23,471 22,991

100 100 100 100

100 100 4,782.0 6,524.3

Cash Cash Consideration other than cash Cash

5,820,000 10,320,000 12,667,100 14,966,200

Nil Nil 109.9 257.6

08.08.2000 08.10.2001 30.03.2002 30.03.2002

85 12,153 Sub-division 202,780

100 5000 Cash 100 100 Cash in to Rs. 10/- per share 10 413.8 Consideration other than cash Cash Bonus shares

14,974,700 16,190,000 18,217,800

258.0 258.0 339.9

09.05.2002 28.11.2003 28.11.2003

10 10 Sub-division in to Rs. 5/- per share 86,324,700 5 Nil

15,870

18,376,500 450,000,000

339.9 339.9

(1)

All allotted shares have been fully paid up from the date of allotment, i.e. the date of allotment and the date on which the equity shares were fully paid up are the same. Our Company acquired the entire shareholding of BCZ, BQIL and HLX from Glentec International, Ms. Kiran Mazumdar Shaw and others in exchange for issue of shares by our Company. The shareholders to whom consideration other than cash has been paid for acquisition of equity shares of BCZ, HLX and BQIL are Ms. Kiran Mazumdar Shaw, Mr. Murali Krishnan K N, Mr. Ajay Bhardwaj, Mr. Shrikumar Suryanarayan, Dr. Arun Chandavarkar, Dr. Goutam Das, Mr. Sunil Kumar Alagh, Mrs. Maya Alagh, Ms. Sanvari Alagh, Ms. Anjori Alagh, Mr. Siraj & Ms. Renu Hasan, Ms. Nilima Rovshen, Mr. R. Gopala Krishnan, Ms. Monica Makan, Mrs. Tania Sant, Mr. S.N. Talwar, Mr. Ravi Mazumdar, Mrs. Catherine P Rosenberg, Mr. S M A Lecchini, Dr. Neville C Bain & Mrs. Bain, Prof. Charles Cooney, Mr. Declan Mcfadden, Mr. J M M Shaw and M/s. Glentec International. Our Company acquired 99.99% of Syngene from its other shareholders, including ICICI Venture and its affiliate funds, which divested their entire stake in Syngene in exchange for issue of shares by our Company. The shareholders to whom consideration other than cash has been paid for acquisition of equity shares of Syngene are Ms. Kiran Mazumdar-Shaw, Ms. Kumud Sampath, Dr, Arun Chandavarkar, Mr. Shrikumar Suryanarayan, Mr. Ajay Bhardwaj, Mr. Murali Krishnan K.N., Dr. Goutam Das, Dr. K Prasad, Mr. N. Rajagopal, Prof. J. Ramachandran, Mr. Parag Saxena, Prof. Ravi Mazumdar, Dr. Anand Kumar, Prof. Suresh Subramani, Mr. Dev Mazumdar, Prof. Sune Rosell, Prof. Catherine Rosenberg, Mr. L. Auchincloss, Mr. Fredric Rosenberg, Dr. Joseph Dunne, Mr. Declan Mcfadden, Prof. Charles Cooney, Mr. Shashidhar, Dr. S. Ganesh, Ms. Nilima Rovshen, Dr. M. C. Srinivasan, Mr. Sunil Kumar Alagh, Ms. Maya Alagh, Mr. J.M.M. Shaw, Glentec International, Dr. Nita Roy, ICICI Trusteeship Services Ltd, (ICICI Equity Fund), TCW/ICIC India Pvt. Equity AMP Fund, L.L.C, TCW/ICICI India Pvt. Equity Fund, Mrs. Joan E. Schouten

(2)

(3)

2.

Promoters Contribution and Lock-in: Details of Promoters Contribution locked in for 3 years
Number of Equity Shares subject to lock-in for 3 years (of Rs. 5 each) 12,884,000 Date of Allotment of shares subject to lock-in for 3 years(1) 28.11.2003

Name of Promoter

Total Number of shares held

Face value (Rs.) 5

Issue Price (Rs.) Nil

Consideration Bonus Shares

Percentage of Pre Issue paid-up Capital (%) 14.32%

Percentage of Post Issue paid-up Capital (%) 12.88%

Lock-in period 3 years

Ms Kiran 39,643,782 Mazumdar Shaw Mr John Shaw 703,779 Glentec International 21,192,718 Total
(1)

5 5

Nil Nil

229,000 6,887,000 20,000,000

28.11.2003 28.11.2003

Bonus Shares Bonus Shares Bonus Shares

0.25% 7.65% 22.22%

0.23% 6.89% 20.00%

3 years 3 years

61,540,279

All allotted shares have been fully paid up from the date of allotment, i.e. the date of allotment and the date on which the equity shares were fully paid up are the same.

24

Biocon
Other than the above shares which are locked in for three years, the Equity Shares held by venture capital funds and foreign venture capital investors registered with SEBI, Equity Shares held by employees other than promoter and Equity Shares held by the ESOP Trust (only to the extent of allotment/transfer of such Equity Shares to employees in respect of options already granted) and issued under the SEBI compliant ESOP scheme which are exempt from lock in, our entire pre-Issue share capital, shall be locked in for the period of one year from the date of allotment of this Issue including the following shares held by the Promoters Details of Promoters Contribution locked in for 1 year:
Name of Promoter Ms Kiran Mazumdar Shaw Mr John Shaw Glentec International Total Total Number of shares held 39,643,782 703,779 21,192,718 61,540,279 Face value (Rs.) 5 5 5 Number of Equity Shares subject to lock-in for 1 year (of Rs. 5 each) 26,759,782 474,779 14,305,718 41,540,279 Percentage of Pre Issue paidup Capital (%) 29.73% 0.53% 15.90% 46.16% Percentage of Post Issue paid-up Capital (%) 26.76% 0.47% 14.31% 41.54% Lock-in period 1 year 1 year 1 year

3.

Shareholding pattern of our Company before and after the Issue:

Pre-Issue (as on March 19, 2004) Post-Issue Number of Equity Shares (Rs. 5/- each) 39,643,782 703,779 21,192,718 61,540,279 594,074 25,957 97,951 717,982 Number of Equity Shares (Rs. 5/- each) 39,643,782 703,779 21,192,718 61,540,279 594,074 25,957 97,951 717,982

Shareholder(s) Promoters Ms. Kiran Mazumdar-Shaw Mr. John Shaw Glentec International Total holding of Promoter Relatives of the Promoters (i) Prof. Ravi Mazumdar (ii) Mr. Dev Mazumdar (iii) Ms. Yamini Mazumdar Total holding of relatives of the Promoters Others AIG AOF, a wholly owned subsidiary of AIG Asian Opportunity Fund L.P. India Value Fund Trustee Co. Pvt. Ltd. Held by Trustees of the ESOP Trust Held by Trustees of the Welfare Trust Employees Mr. Suresh Talwar, Director Dr. Neville Bain, Director Prof. Charles Cooney, Director Prof. Catherine Rosenberg, Director Total holding of Directors Resident Individuals NRIs Foreign Individuals Trustees of the Neville Bain Trust Equity Shares allotted pursuant to the Issue Total

Percentage 44.05 0.78 23.55 68.38 0.66 0.03 0.11 0.80

Percentage 39.64 0.70 21.19 61.53 0.60 0.03 0.10 0.72

9,000,000 2,112,268 6,181,186 1,022,727 7,031,453 4,898 48,976 212,835 34,283 300,992 528,010 342,120 522,632 700,351 90,000,000

10.00 2.35 6.87 1.14 7.81 0.01 0.05 0.24 0.04 0.33 0.59 0.38 0.58 0.78 100.00

9,000,000 2,112,268 6,181,186 1,022,727 7,031,453 4,898 48,976 212,835 34,283 300,992 528,010 342,120 522,632 700,351 10,000,000 100,000,000

9.00 2.11 6.18 1.02 7.03 0.01 0.05 0.21 0.03 0.30 0.53 0.34 0.52 0.70 10.00 100.00

25

Biocon
4. Our top ten shareholders and the number of Equity Shares of Rs. 5 each held by them 10 days prior to date of filing and on the date of filing this Prospectus with SEBI is as follows:
Name of Shareholders Ms. Kiran Mazumdar-Shaw Glentec International AIG AOF Mauritius Ltd., a wholly owned subsidiary of AIG Asian Opportunity Fund L.P. Trustees of the ESOP Trust India Value Fund Trustee Co Pvt Ltd Mr. Murali Krishnan K.N Mr. Ajay Bhardwaj Mr. Shrikumar Suryanarayan Dr. Arun Chandavarkar Trustees of the Welfare Trust As at date of filing with the SEBI 39,643,782 21,192,718 Percentage shareholding 44.05 23.55 10 days prior to date of filing 39,643,782 21,192,718 Percentage shareholding 44.05 23.55 Sl. No. 1. 2. 3.

4. 5. 6. 7. 8. 9. 10.

9,000,000 6,181,186 2,112,268 1,095,584 1,095,584 1,095,584 1,095,584 1,022,727

10.00 6.87 2.35 1.22 1.22 1.22 1.22 1.14

9,000,000 6,181,186 2,112,268 1,095,584 1,095,584 1,095,584 1,095,584 1,022,727

10.00 6.87 2.35 1.22 1.22 1.22 1.22 1.02

5.

Our top ten shareholders and the number of equity shares held by them two years prior to date of filing of this Prospectus with SEBI is as follows:
Name of Shareholders
(a)

Sl. No.

Number of Equity Shares of Percentage Rs. 100/- each shareholding (as on March 19, 2002) (as on March 19, 2002) 77,335 32,692 12,503 9,657 8,919 3,785 1,925 1,925 1,925 1,925 47.76 20.19 7.72 5.96 5.50 2.33 1.18 1.18 1.18 1.18

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Ms. Kiran Mazumdar-Shaw Glentec International Trustees of the ESOP Trust ICICI Ltd- ICICI Structured Products Fund TCW / ICICI Private Equity Fund LLC TCW/ ICICI Private Equity AMP Fund LLC Mr. Murali Krishnan K.N. Mr. Ajay Bhardwaj Mr. Shrikumar Suryanarayan Dr Arun Chandavarkar

Note: The total number of equity shares of our Company as on December 31, 2001 was 161,900 of Rs. 100 each. The shares were subdivided into the shares of face value of Rs. 10 each on February 25, 2002 and these were further sub divided into shares of face value of Rs. 5 each on November 11, 2003.

6. 7.

There are no outstanding warrants, options or rights to convert debentures, loans or other instruments in our Equity Shares. None of our Promoters, members of our promoter group or our Directors have purchased or sold any Equity Shares, during a period of six months preceding the date on which this Prospectus is filed with SEBI, except as stated below:
Number of Equity Shares (of Rs. 10 each before split and bonus) 4,300 Number of Equity Shares (of Rs. 5 each post split and bonus) 210,595

Sl. No. 1.

Date of Transfer July 18, 2003

Transferor Glentec International

Transferee Held by Trustee on behalf of Neville Bain Trust Ms. Yamini Mazumdar

2.

September 15, 2003

Mr. B.K.Venkatraj

2,000

97,951

Our Company, our Directors, the BRLMs and the CBRLM have not entered into any buy-back and/or standby arrangements for purchase of Equity Shares of our Company from any person, save as described in the section entitled AIG AOF Shareholders Agreement on page 67 and IVF Shareholders Agreement on page 69 of this Prospectus.

26

Biocon
8. On September 27, 2001 our shareholders adopted the ESOP Scheme. Under the ESOP Scheme 12,153 Equity Shares of Rs. 100 each representing 7.51% of the issued and paid-up share capital of the Company were issued to the ESOP Trust for the benefit of eligible employees and Directors of the Company and its subsidiaries. In addition to this, the ESOP Trust also acquired shares from certain other shareholders. The ESOP Trust has on May 9, 2002 granted options in respect of 69,010 Equity Shares of Rs. 10 each (being the First Grant (before Equity Share split and bonus)) representing 3.76% of the issued and paid-up share capital of the Company to eligible employees and Directors of the Company and its subsidiaries. On November 11, 2003 each equity share of Rs. 10 each of our Company subdivided into 2 Equity Shares of Rs. 5 each. On November 28, 2003 our Company granted all its shareholders, bonus shares in the ratio of approximately 23.5 Equity Shares of Rs. 5 each for every 1 Equity Share held by them. This grant of shares is referred to in the table below as the First Grant (Post Equity Share split and bonus). As on December 31, 2003, the ESOP Trust holds 6,181,186 Equity Shares of Rs. 5 each representing 6.87% of the issued and paid up share capital of the Company. The ESOP Trust has on January 16, 2004 approved the grant of options in respect of 142,100 Equity Shares of Rs. 5 each (being the Second Grant (Post Equity Share split and Bonus)) representing 0.16% of the issued and paid-up share capital of the Company to eligible employees of the Company. No employee has received more than 5% of the total number of options during the year 2002-2003. The ESOP is administered by our Remuneration Committee, which shall determine the terms and conditions of the stock options granted from time to time. Since the ESOP Trust holds the Equity Shares in respect of the employee stock options, there will be no change in the quantum of the issued and paid-up share capital of the Company upon exercise of the options by eligible employees or Directors of the Company or its subsidiaries. Pursuant to the initial grant, the ESOP Trust has issued the following options:
First Grant (before Equity Share split and bonus)(1) 69,010 Rs. 10 each 17,253 17,190 17,190 63 None Rs. 171,900 51,757 Rs. 171,900 2,534,846 142,100 First Grant (Post Equity Share split and bonus)(2) 3,379,821 Re. 0.2 844,975 841,914 841,914 3,061 Second Grant (Post Equity Share Split and Bonus) 142,100 Rs. 5 each -

Particulars

a. b. c. d. e. f. g. h. i. j.

Options Granted (net of options cancelled) Exercise price Options vested Options exercised The total number of Equity Shares to be transferred by the ESOP Trust as a result of exercise of options Options lapsed Variation of terms of options Money realized by exercise of options Total number of options in force Person-wise details of options granted to: i. Directors and key managerial employees

Please see Table (1) below for details regarding options granted to Directors and key managerial employees

No options have been granted

ii

any other employee who received a grant in any one year of options amounting to 5% or more of option granted during that year

Nil

Nil

Nil

iii.

k.

identified employees who are granted options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant Diluted Earning Per Share (EPS) pursuant to issue of shares on exercise of options (for the unconsolidated financial statement of the Company)

Nil

Nil

Nil

Not applicable since shares will be transferred by the ESOP Trust upon exercise of the option and the Company will not be required to issue any shares

Not applicable since shares will be transferred by the ESOP Trust upon exercise of the option and the Company will not be required to issue any shares

Not applicable since shares will be transferred by the ESOP Trust upon exercise of the option and the Company will not berequired to issue any shares

27

Biocon
Particulars First Grant (before Equity Share split and bonus)(1) 25% each in April of 2003, 2004, 2005 and 2006. All the options as of April 2003 have been fully vested. No lock-in, subject to a minimum vesting period of 1 year. First Grant (Post Equity Share split and bonus)(2) 25% each in April of 2003, 2004, 2005 and 2006. All the options as of April 2003 have been fully vested. No lock-in, subject to a minimum vesting period of 1 year. Second Grant (Post Equity Share Split and Bonus) 25% each in January of 2005, 2006, 2007 and 2008.

l.

Vesting schedule

m.

Lock-in

No lock-in, subject to a minimum vesting period of 1 year.

(1) (2)

Prior to the subdivision of the Equity Shares and the issue of bonus shares, 1 stock option was equal to 1 equity share of R s. 10 each. Subsequent to the subdivision of the Equity Shares and the issue of bonus shares, 1 stock option is now equal to approximate ly 49 Equity Shares of Rs. 5 each

Table (1) details regarding options granted to Directors and key managerial employees are set forth below:
Sl. No. Name of Director or key managerial personnel Number of Equity Shares of Rs. 10 each entitled at the time of first grant of option Number of Equity Shares of Rs. 5 each issuable upon exercise of options (post equity Share split and bonus) 195,902 195,902

Directors 1. 2. Dr. Neville Bain Prof. Charles Cooney 4,000 4,000

Key managerial employees 3. 4. 5. 6. 7. Mr. Ajay Bhardwaj Dr. Arun Chandavarkar Mr. Shrikumar Suryanarayan Mr. Murali Krishnan K N Dr. Goutam Das 4,000 4,000 4,000 4,000 4,000 195,902 195,902 195,902 195,902 195,902

9.

In addition as on March 19, 2004, 1,022,727 Equity Shares representing 1.14 % of the pre-issued and paid-up share capital of the Company are held by another trust being the Welfare Trust.

10. We have adopted the Employee Stock Option Plan 2004 (ESOP 2004) after receiving approval of the Board at its meeting held on January 17, 2004 and approval of the shareholders at the Extra Ordinary General Meeting held on February 19, 2004. The remuneration committee on March 18, 2004 approved the grant of 500 options under the Employee Stock Option Plan 2004 to eligible employees of the Company at the same price at which the Equity Shares in this Issue are priced. 11. (a) As on December 31, 2003 there are 87 employees and 2 Directors holding Equity Shares allotted as per the vesting schedule of the ESOP Scheme, arise out of options exercised before and/or after the date of the Issue. None of the holders of shares allotted on exercise of option granted under the ESOP, currently intend to sell any of their shares within 3 months from the date of listing of the Equity Shares under the Issue.

(b) Currently none of the Directors, senior managerial personnel and employees hold Equity Shares arising out of the ESOP Scheme amounting to more than 1% of the issued capital. There are no other persons who hold Equity Shares arising out of the ESOP Scheme amounting to more than 1% of the issued capital. 12. Our Company has received approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) of the Foreign Investment Promotion Board dated January 15, 2004 for the issue of Equity Shares to eligible Non Residents. The allotment of Equity Shares to Non-residents, NRIs and FIIs shall be subject to the conditions as may be prescribed by the FIPB while granting such approvals. 13. In this Issue, in case of over-subscription in all categories, 60% of the Net Public Offer shall be allocated on a discretionary basis to Qualified Institutional Buyers, a minimum of 15% of the Net Public Offer shall be available for allocation on a
28

Biocon
proportionate basis to Non Institutional Bidders and a minimum of 25% of the Net Public Offer shall be available for allocation on a proportionate basis to Retail Bidders, subject to valid Bids being received at or above the Issue Price. Under-subscription, if any, in any category would be met with spill over from other categories at the sole discretion of our Company in consultation with the BRLMs and the CBRLM. 14. A Bidder cannot make a Bid for more than the number of Equity Shares offered through the Issue, subject to the maximum limit of investment prescribed under relevant laws applicable to each category of investor. 15. There would be no further issue of capital whether by way of issue of bonus shares, preferential allotment, rights issue, exercise of employee stock options or in any other manner during the period commencing from submission of this Prospectus with SEBI until the Equity Shares issued have been listed. 16. We presently do not intend or propose to alter our capital structure for a period of six months from the date of opening of the Issue, by way of split or consolidation of the denomination of Equity Shares or further issue of Equity Shares (including issue of securities convertible into or exchangeable, directly or indirectly for Equity Shares) whether preferential or otherwise, except that we may issue options to our employees pursuant to a new employee stock option plan or, if we enter into acquisitions or joint ventures, we may consider raising additional capital to fund such activity or use Equity Shares as currency for acquisition or participation in such joint ventures. 17. There shall be only one denomination of the Equity Shares of our Company, unless otherwise permitted by law. We shall comply with such disclosure and accounting norms as may be specified by SEBI from time to time. 18. We are party to a shareholders agreement with the Promoters and AIG AOF, a wholly owned subsidiary of AIG Asian Opportunity Fund L.P. This agreement relates to the management of our Company and the rights and obligations of the Promoters and AIG AOF including in relation to transfer of shares. We are also party to a shareholders agreement with Ms. Kiran Mazumdar-Shaw and IVF. This agreement relates to the rights and obligations of Ms. Kiran Mazumdar-Shaw and IVF including in relation to transfer of shares. For details on the agreements mentioned above, please refer to the section entitled History and Certain Corporate Matters on page 64 of this Prospectus. 19. As on December 31, 2003 the total number of holders of Equity Shares in our Company is 148. 20. An over-subscription to the extent of 10% of the Issue can be retained for the purposes of rounding off to the nearest multiple of 50 Equity Shares while finalising the basis of allotment.

29

Biocon
OBJECTS OF THE ISSUE The objectives of the Issue are to achieve the benefits of listing and raising capital for financing the Project as referred to below. We believe that listing of our Equity Shares will enhance our brand name and provide liquidity to our shareholders. The proceeds of the Issue will be used for setting up new facilities to augment our capacities for submerged fermentation and chemical synthesis operations (collectively referred to as the Project). Enhanced capacities of submerged fermentation and chemical synthesis operations will support our growth objectives and consolidate our position in the markets for these products. The main objects clause of our Memorandum of Association and the objects incidental or ancillary to the main objects enable us to undertake our existing activities and the activities for which the funds are being raised by us in the Issue. The total estimated funds requirement for our Project through March 31, 2006 is Rs. 4,134 million. The means of financing the fund requirements is as follows:
Sr. No. 1. 2. Particulars Proceeds of this Issue Internal Accruals Total Amount of Funding Required (in Rs. Millions) 3,150.0 984.0 4,134.0

Project Description Fermentation and Synthesis Facility We propose to set up a new fermentation and chemical synthesis facility, or new facility, initially for manufacture of statins, our key API product in the biopharmaceuticals segment, at our new site at Plot No. 2 & 3, IV Phase, Bommasandra-Jigani Link Road, Bangalore, which is at a distance of approximately 5 kilometres from our existing facility at 20th KM Hosur Road, Bangalore. The significant growth in sales between fiscal year 2003 and first half of fiscal 2004 has resulted in full utilization of capacity in the existing manufacturing facilities. A number of generic companies who are in the process of registering their formulations with regulatory authorities in US and Europe for sale (upon expiry of patents) have expressed interest to use our statins. We have filed 9 DMFs with US FDA for our various products and 7 DMFs in Europe for our various products in this regard. To cater to the anticipated increased demand for our statins post product patent expiry and owing to the lack of sufficient capacity in our existing manufacturing facility (which includes 30x4 kl submerged fermentation facility), we are setting up the new facility (which includes 4x100 kl submerged fermentation facility) at a total cost of Rs. 4,134.0 million. In addition to the production of statins, the new facility is capable of manufacturing other products involving fermentation and synthetic conversion processes, including products such as mycophenolate mofetil, human insulin, pioglitazone, serratio peptidase and enzymes. The new facility has a modular design and contains provision for adding further capacity when required. Description of new facility The estimated funds requirement to set up this new facility is set forth below:
Sr. No. 1. 2. 3. 4. Particulars Land Buildings Plant and Machinery (including machinery and equipment under erection) Other Assets Total Amount of Funding Required (in Rs. Millions) 184.0 1,200.0 2,600.0 150.0 4,134.0

30

Biocon
We estimate our funds requirement in a phased manner to be as follows:
Sr. No. 1. 2. 3. Fiscal year ended Up to March 31, 2004 (1) March 31, 2005 March 31, 2006 Total
(1) This includes an amount of Rs. 64.2 million spent in fiscal year ended March 31, 2003

Amount of Funding Required (in Rs. Millions) 564.0 3,170.0 400.0 4,134.0

Out of this, we have already incurred expenditure of Rs. 217.7 million for the new facility as of January 15, 2004 as certified by our auditors S. R. Batliboi & Associates. The project conceptualisation and pre-engineering for the new facility was completed in June 2003 and detailed engineering was initiated from July 2003. Construction commenced from August 2003 and the project is scheduled for completion in December 2004. We intend to place orders in respect of key equipment by the end of January 2004. The building is scheduled to be completed in stages commencing with the fermentation block in April 2004. Delivery of the main equipment is expected to be completed by September 2004 and commissioning is scheduled to be completed by December 2004. We estimate trial production to commence from January 2005 and commercialisation to commence from April 2005. We have planned that the facility, which will have a built-up area of approximately 500,000 square feet, will comprise of fermentation blocks, primary extraction facility, chemical synthesis facility, warehousing and other utilities for power and water. The architects and project consultants for the project are Venkatraman and Associates. We have already entered into contracts with BL Kashyap & Co and Gina Engineering Company Ltd for construction of the new facility. The design of the new facility provides for installing additional capacity when required and also flexibility to use it for manufacture of products other than statins that involve a fermentation process and/or synthetic conversion processes. We propose to house process equipment in the facility such as (i) production fermenters (4x100 kl) along with seed fermenters, media vessel and other related instrumentation and controls, (ii) extraction equipment such as broth separation centrifuge supported by vessels and control systems and (iii) chemical synthesis equipment such as reactor assembly and filtration equipment. We propose to source the principal equipment from domestic suppliers such as Alfa Laval India Limited, IDMC, GMM Foulder and international suppliers such as Alfa Laval Sweden, Krausmaffei, Henkel, Chemineer and Lightnin. For the status of contracts in relation to principal suppliers, please refer to the section entitled Status of new facility on page 32 of this Prospectus. Our plan for the new facility includes utilities for power, water and steam. We propose to set up a captive power plant with a capacity of 8 MW, with dual fuel capabilities of gas and diesel. In addition, we are proposing to obtain stand-by power of 4 MW from KPTCL. The water requirement of 3,300 CMD (cubic metre per day) is proposed to be met through different sources such as recycled water, our own ground water resources being tube wells and through river water supply obtained from the BWSSB. We propose to request the BWSSB to extend the river water pipeline from our existing facility at 20th KM, Hosur Road, Bangalore to our new facility. In addition to these utilities, we intend to set up facilities for co-generation of steam, for obtaining chilled water and for compressed air, all of which are required for the proper functioning of the facility. The facility will have an effluent treatment plant and a scrap yard. The effluent treatment plant will have a capacity to process 2000 metric cubes per day, and will also house incinerators having capacities of 60 tons per hour. The consultants for the utility area, effluent treatment plant, solvent storage and recovery and piping are Tata Consulting Engineers. In addition to the above, we plan to have a storage for bulk raw materials with a capacity of 30,000 square feet, solvent and fuel storage tanks with a capacity of 3,150 cubic metres, material handling equipment, weighing scales and other related equipment. The key raw materials required in the new facility include base level fermentation media and nutrients such as sugar like dextrose mono hydrate, flour, caustic, hydrochloric acid and solvents required for downstream processing and chemical synthesis like acetone, ethyl acetate, methanol, iso propyl alcohol, pyrollidine and n-butyl lithium. These raw materials are commonly available and we do not depend on any single supplier for any such raw material.
31

Biocon
Status of new facility Our new facility will be located on the land situated at Plot No. 2 & 3, IV phase, Bommasandra-Jigani Link Road, Bangalore. We have entered into an agreement with KIADB to purchase 68.0 acres of land at a price of Rs. 2,400,000 per acre. The details of the land acquisition is provided below:
Sl. No. 1. Land Area 26.75 acres Status Allotted by KIADB to our Company. Lease agreement executed and possession obtained. This land shall be sold by KIADB to our Company upon the satisfaction of certain conditions set forth in the lease agreement. Purchase consideration of Rs. 64.2 million paid to KIADB in December 2002 Land allotted by KIADB to our Company. Lease agreement yet to be executed. Purchase Consideration of Rs. 48.2 million paid to KIADB in July 2003 As per the agreed schedule with KIADB, our Company is to exercise the option to purchase the land by 30th April, 2004 failing which the Company will have to pay cancellation charges of Rs. 12.8 million, equivalent to 25% of the land value. 68.0 acres

2. 3.

20.00 acres 21.25 acres

Total

As per the terms of allotment, the land is allotted to us by KIADB on a lease cum sale basis on payment of the initial deposit/ premium. At the end of 6 years, subject to the satisfaction of certain conditions, KIADB would sell the land to us at a value that may be fixed by KIADB and communicated to us. Any amount we have paid towards the premium and earnest money deposit shall be adjusted towards the balance of the value of the property as fixed by KIADB, and all costs in connection with the sale shall be borne by us. The land allotted to us by KIADB is free from all encumbrances. KIADB has specified that this land be used only for the purpose of research and development and to set up a fermentation facility. Accordingly, we intend to use this land to set up our new facility. In order to retain the land, our existing shareholders must continue to hold at least 51% of the shareholding in our Company. We have been permitted to mortgage the premises only in favour of select government/financial institutions. Out of the 46.75 acres of land that has already been made available, we have earmarked 36.75 acres of land for the new facility and other related plants. We have also obtained permission for leasing 5.0 acres to Syngene and the balance 5.0 acres to BBPL for establishment of their facilities. The balance land of 21.25 acres, upon completion of the acquisition, is available for future expansion needs. The entities from which the aforesaid land has been acquired are not related to our Promoters and/or Directors. The new facility will be set up as a 100% EOU and will thereby enjoy certain customs duty and income tax benefits. For details regarding tax benefits, please refer to the section entitled Statement of possible tax benefits available to Biocon Limited, its subsidiaries and its shareholders on page 264 of this Prospectus. Necessary approval from CSEZ for setting up the unit has been received. We have applied to the State Level Single Window Agency of the Government of Karnataka in relation to the new facility. Our application is pending consideration by the Government of Karnataka. The principal products proposed to be commercialised in the new facility are already being produced at our existing facility at 20th KM Hosur Road, Bangalore and for some products we have received US FDA acceptance/ CoS for manufacture at its current facilities. We have already entered into firm arrangements of Rs. 898.4 million for acquisition of land, construction of buildings and for procurement of some of the plant and machinery in relation to our new facility. The arrangements finalised where values are in excess of Rs. 50 million as of December 31, 2003 are set forth below:

32

Biocon
Particulars Buildings Plant & machinery Plant & machinery Plant & machinery Cost (Rs. million) 144.7 107.0 61.6 50.4 Name of suppliers/ contractors B.L. Kashyap & Sons Ltd. Alfa Laval India Limited Krauss Maffei Process Technology AG, Germany Heinkel AG, Germany Date of order September to October, 2003 August to December, 2003 December, 2003 December, 2003 Scope Civil Construction Supply of Fermenter Vessels Supply of Centrifuge Supply of Centrifuge Date/ expected date of supply April 2004 Starting February 2004 Starting June 2004 Starting May 2004

Orders have not been placed for 83.5% of the total estimated plant and machinery cost of Rs. 2,600.0 million and for 75.9% of the estimated building cost of Rs. 1,200.0 million. For the estimates of plant & machinery costs, where the orders are yet to be placed we have relied on quotations received over the past six months and on our past experience. Total Funds Requirement and Funds Deployed Total Funds Requirement The total funds requirement for our Project through March 31, 2006 is Rs. 4,134.0 million. We plan to fund the Project through a combination of Issue proceeds and internal accruals. In the event of the internal accruals being inadequate, we have received revocable sanctions from the banks, which we can accept and fund the Project. Please refer to section entitled New Term Loans on page 114 of this Prospectus. In view of this, 75% of the estimated fund requirements, after excluding the Issue proceeds has been tied up in compliance with Clause 2.8 of the SEBI Guidelines. We have made firm arrangements to meet the entire estimated fund requirements, excluding the Issue proceeds though a combination of internal accruals and debt. Total Funds Deployed The expenditure incurred by us up to January 15, 2004, as certified by our auditors S.R. Batliboi & Associates, in their certificates dated January 17, 2004 was approximately Rs. 217.7 million. We have financed these funds through internal accruals. To the extent of these amounts which have already been spent in relation to the Project, the proceeds of this Issue will be utilised to first replenish the spend from internal accruals and thereafter for future deployment in relation to the Project. No part of the proceeds of the Issue is to be paid as consideration to our promoters, Directors, key managerial personnel, associate and/or group companies. Working Capital The proceeds of the Issue will not be used to meet our working capital requirements as we expect sufficient internal accruals to meet our existing working capital requirements. The details of our net working capital for fiscal 2001, 2002 and 2003 and as at the end of the nine month period ended December 31, 2003 as per our audited restated unconsolidated financial statements are as follows:
(in Rs. Million) As at March 31, 2001 Current Assets Current Liabilities and Provisions Net working capital (excess of current assets over current liabilities and provisions) 669.3 284.9 384.4 As at March 31, 2002 960.9 467.8 493.1 As at March 31, 2003 1,372.3 650.4 721.9 As at December 31, 2003 2,238.6 1,112.1 1,126.5

We enjoy lines of credit with The Hongkong and Shanghai Banking Corporation Limited, Canara Bank and Exim Bank for an amount of Rs. 841.7 million and we are currently negotiating an increase in such limits. In addition, we would retain approximately Rs. 200.0 million towards performance obligation of suppliers to the new facility, which would be available for a period of 1 year from date of commissioning.
33

Biocon
Interim Use of Proceeds The management, in accordance with the policies set up by the Board, will have flexibility in deploying the proceeds received by us from the Issue. Pending utilisation for the purposes described above, we intend to temporarily invest the funds in high quality, interest/dividend bearing liquid instruments including money market mutual funds, deposits with banks for the necessary duration. Such investments would be in accordance with investment policies approved by the Board from time to time. We also intend to apply part of the proceeds of the Issue, pending utilisation for the purposes described above, to temporarily reduce our working capital borrowings from banks and financial institutions. Issue Related Expenses The total expenses of the Issue is estimated to be approximately Rs. 165.0 million. The Issue related expenses include, among others, underwriting and issue management fees, selling commission, printing and distribution expenses, legal fees, advertisement expenses, registrar and depository fees and listing fees. All expenses with respect to the Issue will be borne by our Company out of its internal accruals.

34

Biocon
INDUSTRY OVERVIEW Biotechnology is technology that utilizes biological processes and/or biological materials. Over the past few decades, scientific and technological advances have enabled biotechnology to use of some of the smallest parts of organisms, including their cells and genetic material, for a number of commercial and scientific applications. Nevertheless, biotechnology is still considered to be in its infancy, and many companies remain at a development stage. Biocon was Indias largest biotechnology company in terms of fiscal 2003 revenue, according to Indias Association of Biotechnology Led Enterprises. We have leveraged our biotechnology expertise to operate in biopharmaceutical, enzyme and research services industries. Biopharmaceuticals are pharmaceuticals produced through biotechnology. Fermentation technologies are employed to produce many of the top selling pharmaceuticals worldwide. Global Pharmaceuticals Industry According to data from IMS Health Incorporated, or IMS, total global audited pharmaceutical sales in calendar 2002 were US$400.6 billion, reflecting a 10.0% increase over sales of US$364.2 billion in 2001. The following table sets forth the global audited pharmaceutical sales by region:
(US$ in billion) Calendar Year Region North America Europe Japan Rest of World Total Source: IMS World Review 2000, 2001 and 2002 Note: Sales cover direct and indirect pharmaceutical channel purchases in US dollars from pharmaceutical wholesalers and manufacturers. The figures above represent 52 weeks of sales data, and include prescription and certain OTC data and represent manufacturer prices. 2000 US$152.8 75.8 51.5 37.6 US$317.2 2001 US$181.8 88.0 47.6 46.8 US$364.2 2002 US$203.6 101.9 46.9 48.1 US$400.6 CAGR 2000-2002 15.4% 15.9 (4.6) 27.9 12.4%

North America accounted for 50.8% of the audited worldwide pharmaceutical sales in 2002 and grew at the fastest rate of 12.0% at constant dollar rate compared to 2001. Ageing populations and ongoing demand for innovative therapies are expected to effectively sustain pharmaceutical growth in 2003 and beyond. The United States, which is the worlds largest pharmaceuticals market, accounts for a substantial majority of North Americas sales. The global pharmaceuticals market can also be broadly divided into the regulated and unregulated/semi-regulated markets. The regulated markets have more intellectual property protection, including product patent recognition. As a result, the regulated markets offer a premium for intellectual property protection, quality and regulatory compliance, along with greater stability for both volumes and prices. The United States is a highly regulated market and only products manufactured to stringent quality standards may be sold there. The US FDA also requires that a companys manufacturing methods conform to cGMP. On account of the higher prices for patented drugs in the regulated markets and the larger overall size of these markets in terms of revenue, the top selling drugs globally are generally patented pharmaceuticals sold in regulated markets. The bestselling drugs generally reflect the demographics and, consumer preferences and needs of the regulated markets, the most important of which are all developed countries that have relatively older and more urban/suburban populations. For example two of the top five selling drugs in 2002, namely Lipitor (atorvastatin) and Zocor (simvastatin), address the cholesterol and triglyceride reducing segment. The unregulated/semi-regulated markets, which include many developing countries such as India, have minimal entry barriers in terms of regulatory requirements with respect to the qualification process and intellectual property rights. These markets generally do not recognise product patents and are often highly competitive, resulting in much lower prices and profit margins for producers.
35

Biocon
Generic Pharmaceuticals Industry The generic drugs market refers to regulated markets for drugs whose patents have expired or been invalidated. The expiration or invalidation of product patents typically leads to the entry of generic, or non-branded, formulations in the regulated markets, resulting in increased competition and leading to a decline in price and margin of drugs. According IMS data, the global generics market was estimated to be US$ 38 billion in calendar 2000, with the United States, the worlds largest generic market, accounting for an estimated US$ 9-10 billion. The generics industry has witnessed growth in recent years, and is expected to grow significantly in the near-to-medium term. Patents on a number of significant pharmaceutical products are expected to expire in the next several years. In addition, governments, insurers and healthcare organizations in developed countries are increasingly promoting generics to reduce public expenditure on healthcare. Also, according to IMS, stringent new drug approval regimes in developed countries have eroded the effective patent life of many new products, as a larger portion of a drugs patent life expires during the approval process. Another key factor in the development of the generics industry is the increased sourcing of drugs from lower cost producers like India and China. Indian Pharmaceuticals Industry India is a net exporter of pharmaceuticals. Pharmaceuticals exports touched Rs. 97.5 billion in fiscal 2002, according to an ICRA report published in June 2003. The industry posted a CAGR of 22.5% from 1992 to 2002, with export growth outpacing the growth of domestic sales. Indias exports are sold in more than 200 countries, including the regulated markets of United States, Europe and Japan. Indian companies are targeting sales in the lucrative regulated markets. Of the 180 DMFs filed with the US FDA in the period between April 1, 2003 and December 15, 2003, Indian companies filed 33, or 18.3%. DMFs are filed by manufacturers of APIs to qualify their facilities and processes so that drug formulators selling into the United States can purchase from them. We believe export-led growth of the Indian pharmaceuticals industry is largely attributable to the following factors:
s s s s

Growth of the global generics market; Ability to develop efficient non-infringing processes for drugs which are under patent protection in key regulated markets; Availability of scientists, engineers and medical professionals at relatively low costs; and Indian governmental policies favouring liberalisation and globalisation.

Our Focus Products We target APIs for drugs that have large markets and strong pricing and margin characteristics while on patent and which require sophisticated production techniques. We believe that these products, once off patent in regulated markets, continue to offer attractive pricing and margins for some time, as the entry of competitors is often delayed by the difficulties in developing non-infringing production processes. In line with this strategy we have commercialised the production of the top four statins (for treatment of cardiovascular disease, which is the second largest therapeutic category for drugs globally) and have commercialised or are developing certain immunosuppressants and anti-diabetics. We are also developing recombinant human insulin. All of these products require sophisticated fermentation and synthetic chemistry technologies. Please refer to the section entitled Business-Competition beginning on page 54 of this Prospectus for an overview of the key players.

36

Biocon
The following table sets forth the global pharmaceutical sales of drugs that we are currently focussed on:
(US$in million) Period Focus Drugs Category: Cardiovascular disease Lovastatin Simvastatin Pravastatin Atorvastatin Category: Immunosuppressants Mycophenolate Mofetil Tacrolimus Sirolimus Category: Anti-diabetes Recombinant Human Insulin Pioglitazone Repaglinide Nateglinide
Source: IMS

Year ended Sept. 30, 2002 US$329.6 6,233.8 3,513.0 8,403.8 US$634.3 731.6 102.1 US$3,948.1 1,464.2 196.1 141.2

Year ended Sept. 30, 2003 US$411.1 7,024.0 4,091.3 9,985.5 US$818.1 962.8 151.7 US$4,876.5 1,798.9 231.7 186.5

Percentage growth 24.7% 12.7 16.5 18.8 29.0% 31.6 48.5 23.5% 22.9 18.2 32.1

Statins The following table sets forth the geographical sales of statins that we sell in generic markets:
(US$ in million) Period Product Lovastatin North America Western Europe Rest of the World Total Simvastatin North America Western Europe Rest of the World Total Pravastatin North America Western Europe Rest of the World Total Atorvastatin North America Western Europe Rest of the World Total
Source: IMS (1) Expiry date refers to the patents that cover the active pharmaceutical ingredient or the process for making the active pharm aceutical ingredient. There are additional patents that cover formulations and methods of treatment using active ingredients that are not being referred to in this chart.

Year ended Sept. 30, 2002 US$206.6 67.0 56.0 US$329.6 US$4,098.3 1,265.9 869.4 US$6,233.8 US$1,742.2 802.2 968.5 US$3,513.0 US$6,112.3 1,404.2 887.1 US$8,403.8

Year ended Sept. 30, 2003 US$278.9 67.5 64.6 US$411.1 US$4,322.0 1,713.7 988.4 US$7,024.0 US$1,991.4 1,072.0 1,027.8 US$4,091.3 US$6,865.0 1,942.8 1,177.7 US$9,985.5

Expected Patent Expiry (1)

US - Expired 2001 UK - Expired 2000; France - No Patent; Germany - Expired 2003

US - 2006 UK and Germany Expired 2003; France - 2005

US - 2006 UK - 2004; Germany 2004; France 2006

US - 2011 UK and Germany 2010

37

Biocon
Insulin The World Health Organisation, or WHO, has estimated that by 2025 there will be 324 million diabetics worldwide. Currently, India is believed to have the worlds largest population of diabetics. Type I diabetics suffer from insufficient production by the body of insulin, which is required by the human body for cellular absorption of glucose. Treatment of Type I diabetes typically requires the administration of doses of insulin from an outside source to the patient. Type II diabetics suffer insulin resistance rather than a true deficiency of insulin. In this case, the levels of insulin in the blood are similar or even a little higher than in normal, non-diabetic individuals. However, many cells of Type II diabetics respond sluggishly to the insulin they make and therefore their cells cannot absorb the sugar molecules well. This leads to blood sugar levels, which run higher than normal. Occasionally Type II diabetics will need insulin shots but most of the time other methods of treatment, including other anti-diabetics, are employed. The insulin market began in the 1950s with the introduction of porcine and bovine insulin. In the 1980s and 1990s, recombinant human insulin began to replace animal insulin products. Recently, innovations in the insulin market have included insulin analogues and novel delivery systems to replace syringe delivery, including less painful pen devices which now dominate the European market. Some major pharmaceutical companies are developing oral insulin, to do away with the need of any delivery devices. Although insulin is a biological and not a patentable product, only three significant producers of human insulin, Novo Nordisk A/S, Eli Lilly and Company and Aventis S.A., have emerged globally. In India, Wockhardt Limited recently launched its own branded recombinant human insulin. Enzymes Enzymes are proteins produced by living organisms, which are used as biocatalysts in chemical processes. Enzymes can be grouped into three functional categories: Enzymes that break down protein, enzymes that break down starch and enzymes that break down cellulose. Enzymes are generally marketed to industrial, consumer and agricultural markets. Researchers are currently working to develop new enzymes and enzyme applications for use in alternative fuels, bioplastics and waste treatment, among other areas. Many enzymes are commodity products that are manufactured in large-scale production facilities. Production of these enzymes is dominated by a small number of large companies, including Novozymes A/S, Genencor International, Inc., AB Enzymes GmbH, DSM Group and Danisco A/S. We are focused on producing niche enzyme products, often with enhanced or unique characteristics. Other niche manufacturers in the international markets include Amano Enzyme Inc., Shin Nihon Chemical Company, Ltd. and LYVEN. The Indian enzyme market has a small number of players including some of the global enzyme companies, such as Novozymes A/S, Burns Philip Food Inc. and Danisco A/S, as well as some small domestic manufacturers such as Advanced Biochemicals Limited and Maps India Limited. Research Services Globally, innovator companies are under pressure to reduce research and development costs. As per a report published by Pharmaceutical Research and Manufacturers of America in 2003, out of every 5,000 to 10,000 screened compounds, only 250 enter pre-clinical testing, five enter clinical testing and only one is approved by the US FDA. Also, due to larger clinical trials required by the US FDA, researching, developing and introducing a new drug now costs three and a half times more than it did 15 years ago. Because of this large and increasing cost of bringing a new drug to market, full commercial success is becoming possible for fewer products. Increasing commercial compulsions for drug developers to reduce R&D costs while shortening product evaluation times are providing opportunities for outsourcing of research services. Typically, contract research organisations (CROs) are contracted for their ability to specialize in certain aspects of drug evaluation and add scientific and technological expertise that drug developers do not possess internally, at a lower cost. Traditionally, the research outsourcing companies were based out of the United States and Europe, in proximity to research oriented clients. In recent times, the research outsourcing business opportunity has been migrating to lower cost research areas such as India, Eastern Europe, Latin America and China.

38

Biocon
Clinical trials represent one of the expensive and time consuming parts of the development process. The information generated during these trials is critical for gaining marketing approval from the US FDA and other regulatory agencies and market acceptance by clinicians and patients. Requirement of larger clinical trials (at higher costs) in developed countries has provided a market opportunity for outsourcing of clinical trial work. These firms typically provide clinical trial design, investigator recruitment, patient enrolment, study monitoring, data collection and data management services. They also monitor clinical trials for adherence to good clinical practices, or GCP. Clinical trials, the bulk of whose cost is related to patient compensation, have grown more expensive in North America and Western Europe. This is pushing clinical development that would otherwise be conducted in North America and Western Europe into India, China, Eastern Europe and Asia. Indian firms are currently focussing on providing bio-equivalence and bio-availability, or BE/BA, studies, although some are beginning to offer services in clinical trials. Indias competitive strengths in research services include English-language competency, availability of low cost skilled doctors and scientists, large patient population with diverse disease characteristics (for clinical trials) and the existence of companies that follow international quality standards.

39

Biocon
BUSINESS Overview Over the past 25 years, Biocon has emerged as an integrated biotechnology enterprise with presence in biopharmaceuticals, enzymes, custom research and clinical research. Biocon was Indias largest biotechnology company in terms of fiscal 2003 revenues, according to Indias Association of Biotechnology Led Enterprises. Our core expertise lies in fermentation, and a substantial majority of our current biopharmaceutical and enzyme products are produced through fermentation techniques. A number of our current products are also manufactured using synthetic chemistry techniques either entirely or in combination with fermentation techniques. Our growth strategy has been and continues to be driven by innovation in both our biopharmaceutical business, where we develop non-infringing processes for the manufacture of our focus products, and our enzymes business, where we develop novel enzymes and customised applications. Biocon was established in 1978 to form a joint venture with Biocon Biochemicals Limited, a company based in Ireland, to manufacture and export certain enzymes for the brewing industry. Unilever eventually acquired our joint venture partner. The joint venture terminated in 1999 when our promoters exercised their right of first refusal to purchase Unilevers 23.1% interest in us, after Unilever agreed to sell its speciality chemicals business, including its interest in us, to Imperial Chemical Industries, or ICI. Currently, our promoters own 68.4% of our Equity Shares (on a fully diluted basis) and after giving effect to the Issue, they will own 61.5% of our Equity Shares (on a fully diluted basis). Our headquarters and production facilities are located in the greater Bangalore area, enabling us to access that citys highly skilled human resource base and technology infrastructure. Our total consolidated operating income and net profit were Rs. 2,819.9 million and Rs. 422.3 million, respectively, in fiscal 2003. In the first nine months of fiscal 2004, our total consolidated operating income and net profit were Rs. 3,977.4 million and Rs. 949.4 million, respectively. The following shows the income from operations of Biocon, Syngene and Clinigene and their percentages of total operating income of those companies from fiscal 2001 through the first nine months of fiscal 2004:
Fiscal Period 2001 Revenue (Rs. in millions) Biopharmaceuticals (Biocon) Enzymes (Biocon) Research Services Custom Research (Syngene) Custom Research (Biocon) Clinical Research (Clinigene) Total Operating Income (1) Biopharmaceuticals and Enzyme Sales Exports Domestic Rs. 268.0 955.1 19.9% 70.9 Rs. 465.7 1,140.5 26.0% 63.7 Rs. 1,100.8 1,441.6 39.0% 51.1 Rs. 2,083.6 1,628.7 52.4% 40.9 109.0 10.7 3.5 Rs. 1,346.3 8.1 0.8 0.3 100.0% 147.0 9.8 26.7 Rs. 1,789.7 8.2 0.5 1.5 100.0% 261.2 5.2 11.1 9.3 0.1 0.4 258.0 5.7 1.4 Rs. 3,977.4 6.6 0.1 0.0 100.0% Rs. 817.8 405.3 2002 Revenue (Rs. in millions) Rs. 1,142.9 463.3 2003 Revenue (Rs. in millions) Rs. 2,010.0 532.4 First Nine Months 2004 Revenue (Rs. in % millions) Rs. 3,228.3 484.0 81.1% 12.2

% 60.7% 30.1

% 63.9% 25.9

% 71.3% 18.9

Rs. 2,819.9 100.0%

(1) This number does not represent a consolidated or combined figure under Indian or US GAAP, but rather is the sum of the operating income of Biocon, Syngene and Clinigene. There were no intercompany operating income items during any of the periods presented.

Biopharmaceuticals. In biopharmaceuticals, we focus on the manufacture and marketing of APIs that require advanced fermentation and other skills and that offer large market potential in the regulated markets once the products are off patent. Our largest and fastest growing products are statins, a group of popular cholesterol-lowering drugs, including lovastatin, simvastatin, pravastatin and atorvastatin. We have patented processes relating to the manufacture of lovastatin and simvastatin, our principal statin products. We have also applied for process patents in respect of our other statin products, pravastatin and atorvastatin.
40

Biocon
We currently export lovastatin to the United States and lovastatin and simvastatin to key European markets. We are in the process of qualifying our simvastatin and pravastatin production processes and facilities with the US FDA, so that we can sell into the United States when those products go off patent there (expected to be 2006), and are also seeking US FDA approval for an additional lovastatin production process/facility. We recently received a Certificate of Suitability from the EDQM for our pravastatin production, to enable us to sell pravastatin in key European markets when it goes off patent (expected to be 2004-2006), and also one for the additional lovastatin production process/facility. Our other biopharmaceutical products include APIs for immunosuppressants and anti-diabetic drugs, including mycophenolate mofetil, or MMF, tacrolimus, pioglitazone, repaglinide and nateglinide. Our internally developed recombinant human insulin is currently undergoing clinical trials in India, and we plan to introduce this product as a formulation under the brand name InsugenTM in the Indian market in the first half of calendar year 2004. This would be our first pharmaceutical product sold as a branded formulation. We also seek to export recombinant human insulin in bulk form. Biocon and Bristol-Myers Squibb Company signed a letter of intent in September 2003 under which the two parties are to negotiate an agreement for supply by Biocon of recombinant human insulin to Bristol-Myers Squibb. The letter of intent contemplates supply at established prices of quantities of product to be agreed upon by the parties from time to time. Export of our recombinant human insulin would be subject to regulatory approval in the target markets. Through our newly formed joint venture company, Biocon Biopharmaceuticals, we plan to manufacture and sell into the Indian market the biologicals erythropoietin, or EPO, and granulocite colony stimulating factor, or GCSF, and plan to manufacture and sell into India and other South Asian countries a new monoclonal antibody currently undergoing Phase II clinical trials in Canada, if and when it is approved for use in the treatment of head and neck cancers. Having begun sales in fiscal 1998, our biopharmaceuticals business has since grown to constitute 71.3% and 81.1% of our total operating income in fiscal 2003 and in the first nine months of fiscal 2004, respectively. From fiscal 2001 to 2003, the compound annual growth rate of biopharmaceuticals sales was 72.4%. Biopharmaceuticals sales in the first nine months of fiscal 2004 were 160.6% of fiscal 2003s whole-year biopharmaceuticals sales. Enzymes. In enzymes, we focus on the production of speciality enzymes and the development of new enzyme applications for different industries, including food and beverages, animal feed, starch processing, textiles, pulp and paper and leather. Sales of enzymes constituted 18.9% and 12.2% of our total operating income in fiscal 2003 and in the first nine months of fiscal 2004, respectively. From fiscal 2001 to 2003, the compound annual growth rate of enzymes sales was 16.7%. Enzymes sales in the first nine months of fiscal 2004 were 90.9% of fiscal 2003s whole-year enzymes sales. Research Services. We provide custom and clinical research services principally through our subsidiaries Syngene and Clinigene. Custom Research. We provide custom research services principally through Syngene, our 99.99%-owned subsidiary. Established in 1994, Syngene designs and manages research projects typically for overseas pharmaceutical and biotechnology companies pursuing pre-clinical research for new drug discovery. Syngenes principal areas of research are:
l l l

Synthetic chemistry; Molecular biology; and Custom synthesis.

As an experienced custom research services provider in a low-cost environment, Syngene, we believe, is well placed to provide its services to innovator companies in developed markets that seek to bring out new proprietary products while reducing research and development costs. In fiscal 2003 and in the first nine months of fiscal 2004, income from custom research constituted 9.3% and 6.6% of our total operating income, respectively. From fiscal 2001 to 2003, the compound annual growth rate of custom research income was 56.3%. Custom research income in the first nine months of fiscal 2004 was 99.0% of fiscal 2003s whole-year custom research income. Clinical Research. We provide clinical research services through Clinigene, a wholly owned subsidiary. Clinigene was established in 2000 to undertake:

41

Biocon
l l l l l

Phase I to Phase III clinical trials for new drug molecules (please refer to the section entitled Biopharmaceuticals on page 118 of this Prospectus for an explanation of these phases); Clinical studies, including bio-equivalence and bio-availability, or BE/BA, studies; Clinical research aimed at identifying new biomarkers for diseases, including Type II diabetes; Clinical research aimed at discovering new indications for existing drugs; and Clinical laboratory tests for other pharmaceutical companies and contract research organisations, or CROs.

We believe Clinigenes laboratory was the first and remains one of the few labs in India to have received certification from the College of American Pathologists, or CAP, which is required by many large pharmaceutical companies to provide clinical research services to them. In both fiscal 2003 and in the first nine months of fiscal 2004, revenue from clinical research constituted less than 1.0% of our total operating income. Competitive Strengths The following are our key strengths that enable us to compete in our principal markets: Competencies and Skills R&D Focus. Our emphasis on research and development has enabled us to devise our own process technologies and expand our scientific and engineering capabilities. We believe that continued focus on R&D will enable us to further develop new processes and products and novel applications for existing products, possibly enter new lines of business and deepen our intellectual property base. Also, by developing our own technologies instead of licensing or entering into technology-sharing arrangements, we are able to reduce our costs and avoid restrictions on technology usage. In addition to our R&D team, we have a Scientific Advisory Board of biotechnology experts, biotechnology entrepreneurs and innovators which assists us in evaluating scientific and technical opportunities and issues. Since 1999, we have filed 117 patent applications. To date, we have been granted a total of 14 patents in various jurisdictions, and 25 of our PCT applications have been published. Proven Fermentation Skills. Fermentation is recognized as one of the key enabling technologies in the manufacture of pharmaceutical products. We have advanced capabilities in microbial (i.e., bacteria, yeast and fungus) fermentation utilising both submerged and solid state fermentation technologies. We have also developed a patented hybrid fermentation process that we have named PlaFractorTM. The PlaFractor technology can be used to manufacture drugs like immunosuppressants that require contained and highly controlled conditions. Our fermentation skills have enabled us to develop novel processes for several of our principal biopharmaceutical products, including lovastatin and pravastatin, as well as for many of our enzyme products. Synthetic Chemistry Skills. In addition to fermentation, several of our biopharmaceutical products require strong synthetic chemistry skills. Our synthetic chemistry skills enabled us to develop our own processes for simvastatin, atorvastatin and pioglitazone, among other products. Diverse and Growing Capabilities. Our Syngene and Clinigene businesses, in addition to their role as independent revenue generators, have significantly increased our overall capabilities. We believe that our growing capabilities in custom and clinical research will continue to offer important synergies as we increase the complexity and scope of our own R&D and manufacturing operations, especially as they pertain to new product discovery and development. We are building capabilities in recombinant technologies to develop new products. Recombinant human insulin, our first recombinant product, is currently undergoing clinical trials in India and is a result of our integrated skills across fermentation, synthetic chemistry and clinical research. Other target recombinant products include streptokinase and reteplase and, through our Biocon Biopharmaceuticals joint venture, GCSF and EPO. In addition, Biocon Biopharmaceuticals intends to manufacture a new monoclonal antibody developed by our joint venture partner CIMAB, if and when it is approved for the treatment of head and neck cancers. Through Biocon Biopharmaceuticals, we intend to gain expertise in fermentation involving mammalian cell culture. Biodiversity Collection. We launched our biodiversity program in 1995. Our biodiversity program encompasses the collection, cataloguing and conservation of indigenously available rare and diverse species of bacteria, yeast and fungi, including
42

Biocon
myxobacteria and marine fungi. New organisms discovered through our biodiversity collection help us to develop novel enzymes, as well as new processes for our target APIs and enzymatic conversions, or bioconversions, to substitute for synthetic conversion processes. To date, we have identified and characterised over 3,000 unique microorganisms, several of which have demonstrated novel traits. We believe that our biodiversity collection will be a valuable tool in aid of new product discovery. Manufacturing Scale-up Skills and Yield Improvement. We have significant process expertise in scaling up production levels from lab scale quantities to large fermentation batches at commercially viable yield levels. This enables us to increase production quantities and productivity and reduce time to market. In addition, we seek to continue to improve production yields in our fermentation processes even after scale-up, to allow us to improve margins or preserve margin while prices decline. For example, from April 2002 to December 2003, we were able to improve the yield in our solid state fermentation process for lovastatin production by 44.1% and in our submerged fermentation process for lovastatin production by 10.9%. Flexible Manufacturing Infrastructure. Our fermentation and synthetic conversion facilities is not product specific and can be used to manufacture a range of biopharmaceutical and enzyme products. Flexible manufacturing infrastructure helps us to change our product mix in response to changes in customer demand with less new facility investment. For example, we are able to produce lovastatin, pravastatin, compactin, human insulin, mycophenolate mofetil and enzymes in the same submerged fermentation facility. High Quality Manufacturing Processes and Facilities. Currently, several of our manufacturing facilities satisfy the cGMP requirements for product sales to regulated markets. Our process and facilities for solid state fermentation production of lovastatin have been approved by the US FDA and have received a Certificate of Suitability from the EDQM for sale into the European Union. Our process and facility for synthetic conversion for simvastatin and our submerged fermentation processes and facilities for pravastatin and lovastatin have received Certificates of Suitability from the EDQM. Our simvastatin production was also inspected by the US FDA in December 2003, along with the submerged fermentation processes and facilities for lovastatin and pravastatin production and a synthesis facility for the production of pioglitazone. We intend to continue to seek US FDA approval and Certificates of Suitability from the EDQM for our manufacturing processes/facilities to enable us to sell our products into the U.S. and European markets. Marketing Strong Customer Relationships. We have built significant relationships with several large generic players in developed country markets. This has enabled us to be the primary or secondary supplier for certain APIs to several generic players, many of whom have filed their Abbreviated New Drug Applications, or ANDAs, with our DMFs for products like lovastatin and simvastatin. We aim to extend these relationships across product categories. We believe that the fact that we do not make generic formulations makes us a valued partner of major generic companies, as we are not perceived as a competitor. In addition, over the years we have built valuable relationships with major enzyme customers, including many of the large multinational enzyme manufacturers. Organisation Strong Management; Continuity of Management. Our senior management team consists of experienced individuals with diverse skills in manufacturing, research and development, custom research, international business and finance. A majority of our senior management team has been with us for a period of 10 to 15 years and lends stability and continuity to our operations. Ability to Attract Talent. As Indias largest biotechnology company in terms of fiscal 2003 revenues and with strengths in fermentation, synthetic chemistry, custom research and clinical research, we have been able to attract talent from reputed educational institutes worldwide, including the Massachussetts Institute of Technology (MIT) and the Indian Institute of Technology (IIT). Our Strategy We seek to further expand and integrate our operations across biopharmaceuticals, enzymes, custom research and clinical
43

Biocon
research to become an integrated biotechnology enterprise with increasing emphasis on biopharmaceuticals and discovery of new drug molecules. Our business strategy to emerge as a leading biopharmaceuticals enterprise is depicted below:
Biocon
Microbial Technologies Pharmaceutical Manufacturing Marketing

m Co

er y

m liz cia er

Di sc ov

n io at

Syngene
Molecular Biology Synthetic Chemistry Research & Development

Clinigene Development
Clinical Research Clinical Development Clinical Trials

The following are the key elements of our strategy: Continue to Target APIs for High-Value Drugs. We intend to continue to focus on the development of APIs that require advanced fermentation and synthetic chemistry skills and that offer large market potential in the regulated markets once the products are off patent. While fermentation skills will continue to be central to our future development and manufacturing plans, we also seek to broaden our skills and expertise into other sophisticated biotechnology and synthetic chemical processes. Realize Synergies Through Integration of Different Businesses. As we deepen our expertise in custom and clinical research and in manufacturing processes, we intend to leverage expertise gained in one area to benefit our other R&D and business initiatives. For example, our own R&D teams have and will continue to leverage our growing expertise in custom research involving molecular biology and synthetic chemistry for their own projects. Such synergies have enabled us to develop and commercialise our own formulation in human insulin, which we plan to launch in India in 2004, subject to receiving all regulatory approvals. We will endeavour to realise similar synergies in other product areas. Significantly Expand Capacity. Our capital expenditure plans include significant planned expenditures on capacity expansion aimed at increasing our production capacity with respect to our statins and other existing pharmaceutical products, developing production capacity for new pharmaceuticals and expanding laboratory facilities for Syngene. The capacity expansion in statins, we believe, will enable us to meet expected rapid growth in demand for these products in the regulated markets as more statins come off patent there. Develop Biologicals Business. We are currently developing for commercial production several biologicals (pharmaceuticals derived from proteins, hormones and other substances produced naturally in humans or animals), including recombinant human insulin, GCSF and EPO. Our Biocon Biopharmaceuticals joint venture is enabling us to gain fermentation technologies, including mammalian cell expression, that are critical to the development of many biologicals. In addition, Biocon Biopharmaceuticals intends to manufacture a new monoclonal antibody developed by our joint venture partner CIMAB, if and when it is approved for the treatment of head and neck cancers. We believe biologicals will become an increasingly important source of therapeutics as biotechnology advances and intend to continue to develop our capabilities in this area. Expand Capabilities in Drug Discovery and Develop Proprietary Technologies and Products. Through our manufacturing and R&D skills, combined with skills developed in our custom research and clinical research businesses, we are beginning to expand our capabilities in drug discovery with a view towards developing our own proprietary products in the future. We believe that we are well placed to enter new drug discovery, especially with respect to drugs requiring advanced fermentation processes. In addition, we have and intend to continue to emphasize in-house development of novel and proprietary production processes.
44

Biocon
Leverage Our Position in Export Markets. Since inception, we have had a strong export orientation and seek to further develop our export sales, particularly to developed country markets, which generally offer higher profit margins than domestic markets, and we seek to further develop our sales to developed country and other profitable export markets. Our marketing team maintains direct contact with our principal foreign customers from our headquarters in Bangalore, as well as our overseas sales office located in the United States. Launch Branded Formulations in the Domestic Market. We seek to introduce into the domestic market our own branded formulations, including recombinant human insulin in the first half of calendar 2004, subject to receiving all regulatory approvals. We are in the process of developing a sales and marketing infrastructure for the domestic market to sell our branded formulations. Grow Our Business Through Strategic Partnerships and Mergers and Acquisitions. We may enter into strategic partnerships with leading global and domestic players in sales and marketing and joint discovery of new drug molecules. In addition, we evaluate on a case-by-case basis potential acquisition targets that offer an opportunity to grow our business and/or expand our capabilities or geographical reach. We would likely pursue only those transactions that are related to our key strengths and have manageable integration risks. Biopharmaceuticals In biopharmaceuticals, we continue to target the development of APIs that require advanced fermentation and other skills and that offer large market potential in the regulated markets once the products are off patent. Our principal products in biopharmaceuticals are currently statins (therapeutic category: cardiovascular drugs) and immunosuppressants (therapeutic category: transplantation). During fiscal 2003 and the first nine months of fiscal 2004, our total revenue from biopharmaceuticals was Rs. 2,010.0 million and Rs. 3,228.3 million, respectively. Statins Statins are cholesterol-lowering agents used to treat and prevent coronary disease and are among the largest selling drugs worldwide. We sell statins in several countries, including the United States, EU countries and Japan. The following shows our revenues and percentage of total biopharmaceuticals sales for our statins from fiscal 2001 through the first nine months of fiscal 2004.
Fiscal Period 2001 Revenue (Rs. in millions) Lovastatin Simvastatin Atorvastatin Pravastatin Total Domestic Exports Rs. 69.5 197.5 64.7 10.9 Rs. 342.6 Rs. 264.8 77.8 2002 Revenue (Rs. in millions) Rs. 127.3 150.0 117.8 112.5 Rs. 507.6 Rs. 270.5 237.1 2003 Revenue (Rs. in millions) Rs. 306.2 681.4 159.5 55.7 Rs. 1,202.8 Rs. 391.8 811.0 First Nine Months 2004 Revenue (Rs. in % millions) Rs. 509.0 1,467.7 99.5 91.5 Rs. 2,167.7 Rs. 382.8 1,784.9 15.8% 45.5 3.0 2.8 67.1% 11.9 55.2

% 8.5% 24.1 8.0 1.3 41.9% 32.4% 9.5

% 11.2% 13.1 10.3 9.8 44.4% 23.7% 20.7

% 15.2% 33.9 7.9 2.8 59.8% 19.5% 40.3

Our statins currently consist of lovastatin, simvastatin, pravastatin and atorvastatin. Our strategy for statins has been to develop non-infringing manufacturing processes that would enable sale of our products in regulated markets on expiry of product patents in those markets. The following table provides the product patent expiry dates in the United States and key markets in Europe for our statins:

45

Biocon
Statin Lovastatin Simvastatin Pravastatin Atorvastatin
Source: IMS Health Incorporated (1) (2) Expiry date refers to the patents that cover the active pharmaceutical ingredient or the process for making the active pharmaceutical ingredient. There are additional patents that cover formulations and methods of treatment using active pharmaceutical ingredients that are not being referred to in the chart. Key markets in Europe are the United Kingdom, France and Germany.

Expected Patent Expiry United States (1) Expired 2001 2006 2006 2011

Expected Patent Expiry Key Markets in Europe (1)(2) Expired 2000-2003 2003-2005 2004-2006 Beyond 2010

First year of commercial production by Biocon 1998 1999 2001 2000

Currently, demand for our statins exceeds our production capacity. In addition, we expect demand for statins coming off patent in the regulated markets to increase significantly. To increase our production volumes prior to capacity expansion, we have increased our use of outsourced intermediates in our production processes. As the purchase cost of outsourced intermediates is generally significantly higher than our own cost of producing them, outsourcing of intermediates has the effect of reducing our margins in the relevant products. To meet our current demand and expected growth in demand and to reduce our reliance on outsourced intermediates, we have initiated a Rs. 4,134.0 million capacity expansion plan to significantly increase our lovastatin, simvastatin, pravastatin and atorvastatin production. We expect this capacity to be available in the first quarter of 2005. Until then, we intend to increase production volumes through outsourced intermediates but believe that impact on overall margins will be offset by increased regulated market sales of pravastatin and simvastatin, which are coming off-patent in key European markets. Lovastatin Lovastatin has come off product patent in the United States and European Union, and we are currently selling into each of these markets, among others. Lovastatin is manufactured through fermentation. Lovastatin is sold independently as well as a key intermediate for the manufacture of simvastatin. We commenced supply of lovastatin to the United States following US FDA approval of one of our solid state fermentation facilities for the production of lovastatin in 2001. This process for the manufacture of lovastatin includes patented solid state fermentation process technology. In addition, we recently received a Certificate of Suitability from the EDQM for our submerged fermentation facility and an extraction facility for the production of lovastatin, and the US FDA inspected these facilities in December 2003. During the first nine months of fiscal 2004, our lovastatin sales were Rs. 509.0 million as compared to Rs. 306.2 million in fiscal 2003. Growth in lovastatin sales has primarily been due to exports to regulated markets, especially the United States and key EU markets. In addition to exports to regulated markets, we supply lovastatin to unregulated export markets including South America, Poland, Syria, Thailand as well as the domestic market. Simvastatin Simvastatin is manufactured through synthetic chemistry techniques using lovastatin as a key intermediate. Our process for the manufacture of simvastatin includes patented process technology. During the first nine months of fiscal 2004, our simvastatin sales were Rs. 1,467.7 million as compared to Rs. 681.4 million in fiscal year 2003. Recent growth in simvastatin sales has primarily been due to the commencement of supply to Germany, the United Kingdom and Canada, following the expiration of the product patents there at the beginning of 2003. We also sell simvastatin into the Japanese market, as well as several unregulated markets, including the domestic market. We expect that the French market will come off patent in 2005. Our process and facilities for synthetic conversion for simvastatin production have received a Certificate of Suitability from the EDQM. We plan to sell simvastatin into the U.S. market after the expected expiry of the product patent there in 2006. To prepare for sales to the United States, we have filed a simvastatin DMF with the US FDA, and in connection with that DMF, the US FDA inspected our synthetic conversion facility for production of simvastatin in December 2003. In addition, our solid state production process for lovastatin, a key intermediate of simvastatin, was approved by the US FDA in 2001 and our submerged lovastatin process was inspected by the US FDA in December 2003. To date we have issued five letters of access to generic
46

Biocon
drug manufacturers to enable them to refer our DMF for the simvastatin API in their ANDAs filed in the United States for generic simvastatin. Pravastatin Pravastatin requires highly developed fermentation skills as it is manufactured through a double fermentation process in which the key intermediate, compactin, and the final product are produced through fermentation. We believe that we have developed a non-infringing process to manufacture pravastatin and have filed PCT applications to protect certain aspects of our process. Currently, we supply pravastatin to unregulated export markets of South America as well as the domestic market. We aim to sell pravastatin to the U.S. and European markets following the expiry of the patents there. To prepare for sales to the United States, we have filed a pravastatin DMF with the US FDA, and in connection with that DMF, our submerged fermentation facility was inspected by the US FDA in December 2003 for production of pravastatin. To date we have issued two letters of access to generic drug manufacturers to enable them to refer our DMF for the pravastatin API in their ANDAs filed in the United States for generic pravastatin. We have also received a Certificate of Suitability from the EDQM in respect of our submerged fermentation process/facility for the production of pravastatin and have received approval of our EDMF (under mutual recognition procedures applicable to 12 countries) in respect of our pravastatin production. Atorvastatin Atorvastatin is the largest selling drug in the world according to IMS data. Atorvastatin is manufactured using chemical synthesis processes. Chemical synthesis is a manufacturing process involving a series of chemical reactions to produce the final product. We believe that we have developed a non-infringing process to manufacture atorvastatin and have filed PCT applications to protect certain aspects of our process. Currently, we supply atorvastatin to unregulated export markets and the domestic market. Our new fermentation and synthesis facility is intended to augment our capacities for atorvastatin. Immunosuppressants Immunosuppressants are used in organ transplant therapies to prevent organ and tissue rejection. Manufacture of immunosuppressants requires high-quality production facilities, process containment and a high degree of process control because even low levels of contamination of these products cannot be tolerated. Our current immunosuppressants are mycophenolate mofetil, or MMF and tacrolimus. We also received approval from the DCGI to manufacture and market mycophenolic acid sodium, or MPA sodium. We employ fermentation processes in the production of each of these APIs. Our production process for MMF and MPA sodium includes patented process technology based on our PlaFractorTM fermentation platform which is well suited for the manufacture of immunosuppressants given PlaFactors unique containment features. We commenced commercial production of MMF in 2000 and tacrolimus in 2003. We are also developing processes for the production of other immunosuppressants. MMF, MPA sodium and tacrolimus are expected to remain under patent protection in the key regulated markets for some time. We are therefore currently selling MMF and tacrolimus to the domestic market and the unregulated export markets. To date we have issued one letter of access to a generic drug manufacturer to enable it to refer to our DMF for the MPA API in its ANDA filed in the United States for generic MPA. We are in the process of setting up a new immunosuppressants facility to augment our immunosuppressants production capacity. The following table shows our immunosuppressant sales in domestic and export markets and as a percentage of total biopharmaceutical sales for the last three fiscal years and the first nine months of fiscal 2004.

47

Biocon
Fiscal Period 2001 Revenue (Rs. in millions) Domestic Exports Total Rs. 1.4 Rs. 1.4 2002 Revenue (Rs. in millions) Rs. 28.2 1.1 Rs. 29.3 2003 Revenue (Rs. in millions) Rs. 35.2 2.1 Rs. 37.3 First Nine Months 2004 Revenue (Rs. in % millions) Rs. 99.6 9.6 Rs.109.2 3.1% 0.3 3.4%

% 0.2% 0.2%

% 2.5% 0.1 2.6%

% 1.8% 0.1 1.9%

Others We also produce several other biopharmaceuticals, including serratio peptidase, an anti-inflammatory product; iron polymaltose complex, or IPC, an iron supplement; and compactin, an intermediate in the production of pravastatin. Both these products are over-the-counter, or OTC, products. Serratio peptidase is manufactured using fermentation technology while iron polymaltose complex is a synthetic chemistry product. Before we began manufacturing this product ourselves, serratio peptidase was sold by us as a blended bulk formulation. We outsource production of certain bulk formulations for sales principally into the domestic market, either as blends with one or more of our own products or as a purely traded product. Some of the products that are currently in this category include anti-diabetics, neutraceuticals, gynaecological products, anti-osteoporosis products, anti-arthritics, animal health products and digestive aids. A break up of bulk formulation revenues during fiscal 2003 and the first nine months of fiscal 2004 is given below:
Fiscal 2003 Revenue (Rs. in millions) Anti Diabetics Neutraceuticals Gynaecological Products Anti-osteoporosis Products Animal Health Products Digestive Aids Others Total Rs. 87.4 36.4 56.1 43.6 93.5 70.1 257.8 Rs. 644.9 First Nine Months 2004 Revenue (Rs. in millions) Rs. 171.2 74.5 77.1 46.7 85.1 66.4 293.7 Rs. 814.7

The following table shows sales of all the other products in domestic and export markets and as a percentage of total biopharmaceutical sales for the last three fiscal years and the first nine months of fiscal 2004:
Fiscal Period 2001 Revenue (Rs. in millions) Domestic Exports Total Rs. 466.6 7.2 Rs. 473.8 2002 Revenue (Rs. in millions) Rs. 572.9 33.2 Rs. 606.1 2003 Revenue (Rs. in millions) Rs. 689.6 80.2 Rs. 769.8 First Nine Months 2004 Revenue (Rs. in % millions) Rs. 859.7 91.7 Rs. 951.4 26.6% 2.6 29.2%

% 57.1% 0.9 58.0%

% 50.1% 2.9 53.0%

% 34.3% 4.0 38.3%

Upcoming Biopharmaceutical Products Recombinant Human Insulin. Our recombinant human insulin, which is produced from a Pichia pastoris yeast expression system in a submerged fermentation process, is currently undergoing clinical trials in India (through Clinigene), and we plan to begin sale of recombinant human insulin in the Indian market under our own InsugenTM brand name in the first half of calendar 2004, subject to receiving all regulatory approvals. We have already developed a commercial-scale production process for this product and are completing a new Rs. 305.0 million dedicated production facility.
48

Biocon
We also seek to export recombinant human insulin in bulk form to regulated markets, including the United States and Europe. Biocon and Bristol-Myers Squibb Company signed a letter of intent in September 2003 under which the two parties are to negotiate an agreement for supply by Biocon of recombinant human insulin to Bristol-Myers Squibb. The letter of intent contemplates supply at established prices of quantities of product to be agreed upon by the parties from time to time. Export of our recombinant human insulin would be subject to regulatory approval in the target markets. Please refer to the section entitled Regulation on page 118 of this Prospectus. Other Anti-Diabetics. Our other principal target products in the anti-diabetes market are pioglitazone, repaglinide, nateglinide and roziglitazone. We began commercial production of pioglitazone and repaglinide in 2001 and have been selling small quantities of these APIs into the domestic market and unregulated export markets. We have developed what we believe are non-infringing processes for the manufacture of pioglitazone, nateglinide, and repaglinide, and have filed PCT applications in respect of certain aspects of these processes. We are pursuing several opportunities for sales of our anti-diabetics. The US FDA inspected one of our synthetic chemistry facilities for pioglitazone production in December 2003. To date we have issued one letter of access to a generic drug manufacturer to enable it to refer to our DMF for the pioglitazone API in its ANDA filed in the United States for generic pioglitazone. Immunosuppressants. We intend to continue to develop and commercialise new immunosuppressants, including sirolimus. Sirolimus has application in medical devices (stents) for prevention of restinosis. We believe sirolimus will complement our current portfolio of immunosuppressants. Orlistat. We are currently in the process of developing orlistat, an anti-obesity drug which is currently under product patent protection in the US and European markets. Orlistat is manufactured using a combination of fermentation and synthetic chemistry techniques. Products to be Introduced by Our New Biologicals Joint Venture. As discussed under the section entitled Joint Venture for Biologicals on page 52 of this Prospectus, we aim to produce for the domestic Indian market certain new biologicals through our new joint venture with CIMAB S.A. of Cuba. We currently intend to produce EPO and GCSF. We also intend to produce a new monoclonal antibody currently undergoing Phase II clinical trials in Canada, if and when it is approved for use in the treatment of head and neck cancers. Our joint venture partner CIMAB developed this monoclonal antibody. Biocon Biopharmaceuticals has marketing rights with respect to this product in India and elsewhere in South Asia. Enzymes We commenced our enzymes business as a producer of papain for export. Currently, we develop, manufacture and market a variety of industrial and speciality enzymes for a broad range of industries, including food and beverages, animal feed, starch processing, textiles, pulp and paper, and leather. We have a number of proprietary fermentation techniques for the production of our enzymes, and we focus on the manufacturing and marketing of high value, low volume enzymes which serve to complement the existing product portfolio of large global enzyme manufacturers. In enzymes, our focus is on the development of customised enzyme products and enzyme applications, which helps us to reduce our dependence on any particular industry application. Our customised enzyme products and applications often play a crucial role in the manufacturing of several products in our target industry segments, principally in the brewery, distillery and food industries where the appearance and taste specifications of the final product are highly specific. We work closely with key players in these industry segments to create new and customised enzymes that meet their specific requirements. Our close interaction and co-development approach with customers has resulted in long-standing business relationships. We manufacture enzymes in our solid state and submerged state fermentation facilities. We have also entered into strategic tie-ups to source industrial enzymes for customisation. These customized industrial enzymes are sold in the domestic market and certain nearby export markets like South East Asia and the Middle East. The following table shows the principal industry segments that we service, and the key enzymes supplied to our customers in these industry segments.

49

Biocon
Industry Category Beverage production Industrial (incl. textiles, pulp and paper, and leather) Food processing Grain processing Enzymes Supplied Pectinase, amylase, hemicellulase, tannase, isinglass, papain, cellulase, glucanase, protease Cellulase, xylanase, amylase, pectinase, protease Protease, amylase, hemicellulase, xylanase, Amylase, amyloglucosidase

The following table provides a revenue breakdown of our enzyme sales for the last three fiscal years and the first nine months of fiscal 2004, by the industry category of our end use customers:
Fiscal Period 2001 Revenue (Rs. in millions) Beverages Industrial Enzymes Food Ingredients Grain Processing Total Domestic Exports Rs. 168.5 120.2 82.1 34.5 Rs. 405.3 Rs. 222.2 183.1 2002 Revenue (Rs. in millions) Rs. 197.7 130.0 85.6 50.0 Rs. 463.3 Rs. 269.0 194.3 2003 Revenue (Rs. in millions) Rs. 213.3 154.4 102.4 62.3 Rs. 324.9 207.5 First Nine Months 2004 Revenue (Rs. in % millions) Rs. 195.4 128.2 86.9 73.5 Rs. 484.0 Rs. 286.6 197.4 40.4% 26.5 18.0 15.1 100.0% 59.2% 40.8

% 41.6% 29.6 20.3 8.5

% 42.7% 28.0 18.5 10.8 100.0% 58.1% 41.9

% 40.1% 29.0 19.2 11.7 61.0% 39.0

100.0% 54.8% 45.2

Rs. 532.4 100.0%

Pectinase is our largest enzyme product, contributing 20.9% and 24.4% of total enzyme sales in fiscal 2003 and the first nine months of fiscal 2004. New Enzyme Products We continue to work on developing novel enzymes or enzyme applications for various industries. We are developing the following new enzyme products:
s s s s

Fermzyme: An enzyme used in the production of ethanol, targeted at the distilling industry; Cellulase: An enzyme with applications in the brewing and baking industries, targeted at the export market; Phytase: An enzyme with applications in the animal feeds industry; and Dextranase: An enzyme used in the extraction of sugar from cane.

Research Services Our custom research and clinical research businesses are primarily conducted through our subsidiaries Syngene and Clinigene, respectively, with some enzyme-related custom research being performed by Biocon Limited itself. Custom Research Syngene, which became our subsidiary with effect from March 31, 2002, designs and manages research projects mainly for multinational pharmaceutical and biotechnology companies engaged in pre-clinical research in the area of new drug discovery. Syngene works in three main research areas: synthetic chemistry, molecular biology and custom synthesis. The company has developed skills and expertise in organometalics, boron chemistry, peptide synthesis and heterologus protein production. We believe demand for custom research services is increasing as large pharmaceutical companies face growing pressure to introduce new drugs into the market rapidly and at lower development costs. Syngenes solution is to provide these companies with efficient, high-quality, cost-effective R&D services focussed on niche research strengths. We believe that Syngenes success and growing expertise yield additional benefits to our other businesses, as we are able to increasingly rely upon Syngene to undertake sophisticated in-house research projects, including development of new biopharmaceuticals and enzymes.
50

Biocon
The following table shows the contribution of each of Syngenes lines of business to the overall operating income of Syngene:
Fiscal Period 2001 Revenue (Rs. in millions) Synthetic Chemistry Molecular Biology Custom Synthesis Others Total Operating Income Rs. 82.7 21.1 2.9 2.1 Rs. 109.0 2002 Revenue (Rs. in millions) Rs. 109.8 25.7 10.5 1.0 Rs. 147.0 2003 Revenue (Rs. in millions) Rs. 200.6 22.2 36.8 1.6 First Nine Months 2004 Revenue (Rs. in % millions) Rs. 196.4 16.4 45.2 Rs. 258.0 76.1% 6.4 17.5 100.0%

% 75.9% 19.4 2.7 2.0

% 74.6% 17.5 7.1 0.8 100.0%

% 76.8% 8.5 14.1 0.6

100.0%

Rs. 261.2 100.0%

Synthetic Chemistry The synthetic organic chemistry group of Syngene has developed from producing custom synthesised building blocks (peptides or small molecules) for the construction of combinatorial libraries to developing and scaling up complex chemical and biochemical processes for the synthesis of organic molecules, typically in support of drug discovery efforts. The synthetic chemistry group is principally engaged in developing novel processes for the synthesis of APIs and their intermediates. As of December 31, 2003, Syngenes synthetic chemistry group had 186 scientists, of whom 17 held PhDs. Syngenes synthetic chemistry services include:
s s s s

Novel process development for APIs and intermediates; Synthesis and characterisation of impurities and reference compounds; Production of pharmaceutical molecules for biostudies; and Development of analogues and polymorphs of pharmaceutical molecules.

Molecular Biology Syngene has expertise in providing a variety of molecular biology services to meet diverse project requirements. Syngenes molecular biology activities include:
s s s

Identification and validation of microbial drug targets using molecular genetics; Development of clones to express protein families involving a proteomics platform; and Construction of DNA libraries of bacteria, yeasts and fungi.

The molecular biology group is currently focusing on building capabilities in production of biopharmaceuticals using rDNA technologies including microbial, yeast and mammalian host systems. Recombinant DNA technology is a technique whereby genetic material of an organism is modified to create a similar non-natural entity, which may be used to produce useful biotechnology products. As of December 31, 2003, Syngenes molecular biology group had 20 scientists, of whom three held PhDs. Custom Synthesis Our custom synthesis business involves the development of chemical compounds in accordance with customer specifications. Compounds developed by Syngene include boronic acids, hetrocycles and amino acid derivatives. The development processes involved in our custom synthesis business are at a pilot plant scale and the product quantities are generally relatively small. Billing In synthetic chemistry and molecular biology, Syngene generally charges its clients on a full time equivalent, or FTE, basis. Under this system, clients are billed on the basis of an agreed researcher utilisation level, typically measured in man-years, regardless of progress achieved on the project. We seek to transition some of Syngenes work from the FTE system to a milestone-based system where clients are charged on achieving specific milestones in the contracted research activities. We
51

Biocon
believe this system may be more lucrative and may offer greater flexibility in terms of personnel utilisation. In custom synthesis, we generally bill on successful development and supply of synthesised compounds. Clinical Research Clinigene was established in 2000 to develop outsourcing capabilities for clinical research and related activities. We believe Clinigenes laboratory was the first and remains one of the few labs in India to have received certification from the College of American Pathologists, or CAP, which is required by many large pharmaceutical companies to provide clinical research services to them. Clinigenes laboratory is a reference lab for several large pharmaceutical and clinical research companies. This laboratory is dedicated exclusively to supporting clinical trials and meets international standards for clinical chemistry, clinical pathology, hematology, microbiology and histology. Clinigene is currently building its capabilities in Phase I-III clinical trials and is setting up a 26-bed human pharmacology unit with Sagar Apollo Hospital in Bangalore to conduct Phase I trials and bio-equivalence and bio-availability, or BE/BA studies. Bio-equivalence refers to pharmaceutically equivalent drug products where the rates/extents of bio-availability of the active constituents are not significantly different under suitable test conditions. In other words, this is a comparison of two or more products with respect to their bio-availability. Bio-availability refers to the extent to which a drug reaches its site of action or a biological fluid such as blood that has access to its site of action. Bio-availability and bio-equivalence are assessed when approval for new versions of existing drug products is sought. Biocon is currently using Clinigene to conduct its clinical trials for recombinant human insulin and intends to use it for future trials, including planned trials for biologicals to be produced by the Biocon Biopharmaceuticals joint venture. Clinigene adheres to International Conference on Harmonisation, or ICH, standards for good clinical practice, or GCP. Clinigene is collaborating with the Curie Centre of Oncology at St. Johns Medical College and Hospital (Bangalore) to create a cancer patient registry to facilitate the establishment of future clinical trials. In 2000 Clinigene and Surromed Corporation of the United States launched an extensive longitudinal study of Type II diabetes patients in India in an effort to identify new disease biomarkers. Biomarkers are statistically significant physical indicators identifiable in laboratory tests that signal the onset or an aspect of a disease. Biomarkers are useful in the development of diagnostic techniques and identifying new targets for drug discovery in a particular disease segment. The Type II diabetes study currently involves over 400 patients on whom 70 laboratory tests are conducted every three months. Clinigene is currently conducting this study on its own, although it is in discussions with Surromed regarding Surromeds return to the study. Clinigene is currently collaborating with Strand Genomics of Bangalore and the Indian Institute of Science on the analysis and processing of the data obtained from this longitudinal study. Clinigenes operating revenues were Rs. 3.5 million, Rs. 26.7 million, Rs. 11.1 million and Rs. 1.4 million in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. Joint Venture for Biologicals In 2002 we established a joint venture company, Biocon Biopharmaceuticals Private Limited, with CIMAB S.A., a Cuban biotechnology company, to produce and sell certain biologicals developed by CIMAB, including EPO and GCSF, into the Indian market. EPO is a hormone produced by the kidneys to stimulate red blood cell production. EPO is used to treat anaemia, including anaemia induced by kidney failure, cancer or chemotherapy. GCSF is used to stimulate the production of neutrophils from bone marrow, which improves the bodys ability to fight infection. The joint venture also intends to produce a new monoclonal antibody developed by CIMAB, if and when it is approved for use in the treatment of head and neck cancers. This product is currently undergoing Phase II trials in Canada, and we plan to initiate (through Clinigene) Phase II trials on this product in India in the first half of calendar year 2004. Biocon Biopharmaceuticals has the right to market this monoclonal antibody in India, Sri Lanka, Pakistan, Bangladesh, Nepal, Bhutan. The joint venture allows us to utilize CIMABs experience and expertise in developing and manufacturing these products, which to date are largely imported into India. In addition to sales of these products into India, our agreement with CIMAB also contemplates that through Biocon Biopharmaceuticals, we will collaborate with CIMAB in research and development activities. Biocon Biopharmaceuticals is in development stage. We are in the process of planning production facilities for the JV at our new site at Bommasandra in greater Bangalore, approximately 5 km from our 20th K.M. Hosur Road site. Please refer to the
52

Biocon
section entitled Manufacturing and Facilities Future Facilities on page 60 of this Prospectus. We seek to commence commercial production during fiscal 2006. Biocon Biopharmaceuticals may import EPO and GCSF from CIMAB for sale into India prior to the commencement of production at the new JV production facilities. We have a 51% interest in Biocon Biopharmaceuticals, while CIMAB owns the remaining 49%. Biocon and CIMAB each have the same number of nominees on Biocon Biopharmaceuticals board of directors, and in important decisions regarding the joint venture, we share control with CIMAB. To date, our investment in this joint venture has been nominal. Biocon Limited is responsible for the financing of Biocon Biopharmaceuticals proposed production facilities. In this regard, Biocon Limited is required to make a US$5.1 million equity investment in Biocon Biopharmaceuticals and arrange or guarantee debt financing for Biocon Biopharmaceuticals for the balance of the investment. We have not yet determined the capital expenditure requirements of this company, although Biocons board of directors has given preliminary approval for financing capital expenditures of up to Rs. 850.0 million for the joint venture. Sales and Marketing Our sales are through a combination of direct selling and channel sales. In our direct sales, orders are sourced by us or through commission agents. Our channel sales are made directly to selling agents on a non-returnable basis. In fiscal 2003 and the first nine months of fiscal 2004, direct sales in which commissions were paid accounted for 19.3% and 17.0%, respectively, of our total biopharmaceuticals and enzymes sales. Typically, such sales commissions range from 0.5% to 12%. We maintain a marketing office in New Jersey to support our U.S. sales. In the domestic market, we have regional marketing offices in Mumbai, Delhi and Kolkata. As of December 31, 2003, we had 56 employees in our marketing team. Biopharmaceuticals Currently, we supply our biopharmaceutical products to many of the largest pharmaceutical companies in the world, including several of the largest generic formulators. We generally establish relationships with our customers at several levels, including manufacturing, quality control, R&D and senior management. In biopharmaceuticals, our top 10 customers accounted for approximately 49.8%, 43.4%, 47.4% and 56.5% of total biopharmaceuticals revenue in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. Our largest single biopharmaceuticals customer accounted for approximately 14.6%, 8.7%, 17.1% and 16.5% of total biopharmaceuticals revenue in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. Our second largest biopharmaceuticals customer accounted for approximately 7.1%, 6.3%, 8.5% and 12.7% of total biopharmaceuticals revenue in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. We are in the process of establishing a marketing infrastructure to sell our InsugenTM brand recombinant human insulin in India. Our goal is to eventually utilize this marketing infrastructure to sell additional formulations, including other anti-diabetics, under our brand names. We plan to initially target the cities of South, West and North India through a distribution policy and a group of marketing employees in the field. We expect that our initial marketing infrastructure for recombinant human insulin will require an additional 70 employees in our marketing department. Enzymes In enzymes, other large enzyme companies purchase much of our exported product. In the domestic market, large food/beverage companies , breweries, distilleries and textile manufacturers are among our largest customers. In enzymes, our top 10 customers accounted for approximately 52.5%, 46.7%, 43.9% and 42.9% of total enzyme revenue in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. Our largest single enzymes customer accounted for approximately 26.9%, 20.3%, 12.5% and 14.1% of total biopharmaceuticals revenue in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. Until March 2001, we were required to export food and beverages enzymes exclusively to our former Unilever group joint venture partner, Quest International, until 1999, under an exclusive marketing arrangement. That joint venture partner remained our largest single enzymes customer from fiscal 2001 through fiscal 2003. Custom & Clinical Research Syngene and Clinigene rely largely upon direct marketing by our marketing team, their senior scientists and client references to generate new project work.
53

Biocon
Syngenes clients include a number of pharmaceutical and biotechnology companies in the United States and the European Union. Syngenes top 10 clients accounted for approximately 82.8%, 84.9%, 79.4% and 76.5% of total custom research revenue in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. Our largest single custom research client accounted for approximately 24.3%, 17.6%, 13.0% and 13.1% of total custom research revenue in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. Competition In view of the fact that we are unable to rely on any factual data which may be considered as authentic and that is independently verifiable, it has not been possible for us to accurately represent our market share in this discussion. Biopharmaceuticals Our biopharmaceutical products currently compete in the global API market. The global pharmaceuticals market can broadly be divided into the regulated and unregulated/semi-regulated markets. The unregulated/semi-regulated markets, which include many developing countries such as India, have minimal entry barriers in terms of regulatory requirements with respect to the qualification process and intellectual property rights. These markets are often highly competitive. The regulated markets, including the United States, the European Union and Japan, on the other hand, have more intellectual property protection, including product patent recognition, and generally higher regulatory entry barriers in terms of cGMP and US FDA approved facilities. As a result, there is a premium for intellectual property protection and quality and regulatory compliance along with greater stability for both volumes and prices. The main competitors in the API export market are Teva Pharmaceutical Industries Limited, Ranbaxy Laboratories Limited and Zhejiang Hisun Pharmaceutical Co., Ltd. The API business in India is a mature business and hence intensely competitive. The business is highly fragmented with numerous small players. We compete with a number of large and medium size manufacturers. Our main competitors in India are Lupin Limited, Krebs Biochemicals & Industries Limited, Ind-Swift Laboratories Limited, Zydus Cadila Limited, Glenmark Pharmaceuticals, Wockhardt Limited and Dr. Reddys Laboratories Limited. We have chosen to limit our participation in the API markets in India and other semi/ unregulated markets by developing only high-demand biopharmaceutical products that:
s s s

utilize our experience and expertise in fermentation; provide an opportunity to enter regulated markets at a time when pricing is still relatively firm; and are relatively more difficult to manufacture or scale up in a cost-effective manner.

As a result, we often experience relatively lower levels of competition in our API product markets. Our strategy is to focus on API markets that offer attractive profit margins and opportunities for rapid growth in sales. Enzymes We are a relatively small enzyme manufacturer in the global market. The largest companies in this segment, including Novozymes A/S, Genencor International, Inc., AB Enzymes GmbH, DSM Group and Danisco A/S all have significantly stronger market positions and greater financial resources than we do. We differentiate ourselves by seeking to develop niche enzyme products and products with enhanced or unique characteristics to differentiate our products from those of our competitors. Other niche manufacturers in the international markets include Amano Enzyme Inc., Shin Nihon Chemical Company, Ltd. and LYVEN. The domestic enzyme market is characterized by limited competition, principally from some of the global enzyme companies, such as Novozymes A/S, Burns Philip Food Inc. and Danisco A/S, as well as some small domestic manufacturers such as Advanced Biochemicals Limited and Maps India Limited. Our competition with the small domestic companies is based largely on product quality and differentiation. Custom Research The drug-related research outsourcing industry consists of numerous other small, limited-service providers and a number of full-service global drug development companies. The industry continues to experience consolidation and, in recent years, a group of large, full-service competitors has emerged. These larger competitors have a much broader portfolio of business,
54

Biocon
greater resources and more experience than companies such as Syngene. In addition to competing with a number of global, full-service companies and smaller providers, we also face competition from in-house research and development departments of pharmaceutical and biotechnology companies, as well as universities and teaching hospitals. Newer, smaller entities with specialty focuses, such as those aligned to a specific disease or therapeutic area, compete aggressively for clients. In India, Syngene faces competition from several laboratories including Aurigene Discovery Technologies (a subsidiary of Dr. Reddys Laboratories Limited), Sanmar Speciality Chemicals Limited, Chembiotek Research International and others. Syngene has chosen to focus on its key strengths in the areas of molecular biology and synthetic chemistry custom research. Syngene believes it competes with other companies operating in these areas on, among other bases, the following:
s s s s s

Reputation for on-time quality performance; Expertise and experience in niche areas; Ability to execute more complex or otherwise difficult projects; Low cost environment; and High-quality facilities and advanced information technology.

Clinical Research Clinigene benefits not only from Indias relatively low cost pool of highly talented medical and scientific personnel, which allows us to provide high-quality clinical research services at very attractive prices, but also from the countrys large population, which facilitates rapid establishment of trial groups. In addition, Indias large range of diseases and diverse population offer opportunities to establish unique and potentially valuable databases to facilitate the discovery of new biomarkers, among other things. We believe that Clinigenes ability to make use of these factors will enable it to compete favourably on the basis of quality, timeliness, scale/complexity, price and unique knowledge/expertise. Further, we believe Clinigenes CAP accreditation will enable it to effectively market its clinical research services to international pharmaceutical companies. Research and Development In-house research and development activity is central to our business. Through our research and development initiatives, we produce new products, innovate and enhance fermentation and other manufacturing techniques and continually expand our general scientific and engineering capabilities. Our aggregate in-house research and development expenditures were Rs. 38.7 million, Rs. 75.5 million, Rs. 114.2 million and Rs. 126.7 million, in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004. As of December 31, 2003, our dedicated in-house R&D team consisted of 98 employees, of whom 17 had doctorates and 61 were postgraduates, in each case, in science or engineering. We have filed 28 patent applications in fiscal 2003 and 50 more since then. We established our R&D division in 1984. Our initial R&D efforts were focused on the development of solid-state fermentation technology to develop new enzymes, which was commercialised in 1992 through our first solid-state fermentation plant. Subsequent research efforts focused on the development of submerged fermentation technology resulting in the commercialisation of our submerged fermentation plant in 2000. We combined our skills in solid state and submerged state fermentation technologies to create a unique bioreactor for fermentation, which we named PlaFractorTM. The PlaFractor platform enables solid state fermentation and extraction in the same vessel resulting in a unique containment feature that can be effectively utilised for the manufacture of highly contamination-sensitive products like immunosuppressants. Our PlaFractor technology received a U.S. patent in 2001. We have set up a facility based on PlaFractor technology for the manufacture of MMF. Our R&D capabilities now cover many important areas, including:
s s s

Enzymology, protein purification and application studies; Microbiology and strain improvement; Fermentation development solid state, submerged and PlaFractorTM;
55

Biocon
s s s s s s s s

Microbial biotransformations; Synthetic organic chemistry; Process scale-up; Downstream process development enzymes, biologicals and small molecules; Biodiversity and natural product chemistry; Biochemical engineering; Gene cloning and expression; and Informatics.

In developing biopharmaceutical and enzyme manufacturing processes, our R&D team works closely with the manufacturing team to scale up production processes to achieve commercially viable yields and further enhance those yields to improve profit margins. In addition, our R&D team works to achieve further and continuous yield improvement even after commercial scale production has been achieved. The research and development group has developed a formal electronic documentation and communication system that is accessible by all R&D employees. This interactive software system allows for free communication among our innovators and idea generation at any level of seniority. Biodiversity Program We launched our biodiversity program in 1995. Our biodiversity program encompasses the collection, cataloguing and conservation of indigenously available rare and diverse species of bacteria, yeast and fungi, including myxobacteria and marine fungi. New organisms discovered through our biodiversity collection help us to develop novel enzymes, new processes for our target APIs and enzymatic conversions, or bioconversions, to substitute for synthetic conversion processes. To date, we have identified and characterised over 3,000 unique microorganisms, several of which have demonstrated novel traits. We believe that our biodiversity collection will be a valuable tool in aid of new product discovery. In our enzymes business, our biodiversity program has enabled us to identify and isolate enzymes from micro-organisms and develop novel applications of these enzymes. Our biodiversity program also assists us in identifying microorganisms for enzymatic bioconversions, aimed at substituting synthetic conversions with novel enzymatic routes. Intellectual Property We have sought to develop and protect significant intellectual property, principally patents and trade secrets (confidential business information), with respect to both our manufacturing processes as well as certain of our products, principally enzymes. Prior to the termination of our joint venture with the Unilever group in 1999, we were not permitted to file patent applications independently. Since 1999, we have filed 117 patent applications. We have filed for patents in various jurisdictions including India, the United States, Western Europe, Canada, Japan, Australia, the Czech Republic, Mexico, Brazil, the Russian Federation and have pending patent applications. We filed 28 patent applications in fiscal 2003 and 50 since then. To date we have been granted a total of 14 patents in various jurisdictions, and 25 of our PCT applications have been published. Many of our process patents relate to biopharmaceutical and enzyme production technologies.

56

Biocon
The following table shows our patents and patent filings by jurisdiction:
Fermentation process India filed India granted United States filed United States granted EP filed(1) EP granted (1) PCT filed(2) PCT published ROW filed ROW granted
(2)

Enzymes 8 1 1 4 3

Synthetic chemistry process 14 5 7 6 3 46 15 9

9 2 2 2 12 4 4

(1) EP means European Patent. (2) PCT means the Patent Cooperation Treaty, an international treaty that facilitates foreign patent filings for residents of member countries when obtaining patents in other member countries.

We also rely on trade secrets, non-patented proprietary know-how and continuing technological innovation that we seek to protect, in part, by confidentiality agreements with licensees, suppliers, employees and consultants. To date we have not encountered significant difficulties protecting our intellectual property and have not initiated or been named as a defendant in any patent-related litigation anywhere. Custom Research In custom research projects, we typically agree to transfer all intellectual property developed in connection with the project to the client and to maintain the confidentiality of all proprietary information relating to or arising out of the project. We also maintain strict internal separation between our own in-house research activities and those of our custom research clients. Clinical Research As part of this relatively new business line, we are seeking to develop proprietary databases of Indias population, including longitudinal studies, disease demographics and seek to discover novel biomarkers to enhance disease detection, especially at earlier stages. We seek to protect much of this work as proprietary information principally through our confidentiality and non-compete arrangements with clients, employees, consultants and others. TRIPs Agreement In accordance with the Trade-related Aspects of Intellectual Property Rights, or TRIPs, agreement, World Trade Organization (WTO)-member states, including India, are expected to recognize pharmaceutical product patents effective January 1, 2005. This is expected to lead to increased worldwide convergence of patent law regarding pharmaceutical products and an erosion of the distinction between regulated markets and unregulated/semi-regulated markets. In addition, as a result of the introduction of pharmaceutical product patents in India, the advantage we and other Indian pharmaceutical companies currently enjoy in developing processes for pharmaceutical products patented in the United States and the European Union will begin to wane, as we will no longer be able to develop and sell, in India or elsewhere, pharmaceutical products under patent protection in the United States or the European Union, if they also have patent protection in India. From that time, we will not be able to sell in India or elsewhere pharmaceuticals whose patents are recognized in India, unless and until these patents expire or are invalidated. If we choose to develop these pharmaceuticals for the generics markets, our development costs in respect of these products will be higher and our time to market will likely be longer. In addition, in 1998 India created a black box for patent applications to be filed for recognition beginning 2005, until their normal date of expiration, which under current Indian law is 20 years from filing.

57

Biocon
Manufacturing and Facilities Properties and Facilities Our first solid state fermentation facility was set up in 1984. Since then, our manufacturing facilities have grown significantly to accommodate with growth in our businesses. With the exception of one synthesis plant located on a 0.7-acre plot nearby in Bommasandra, all our facilities are currently located on a 25-acre site at 20th K. M. Hosur Road, near Electronic City in the greater Bangalore area. The following table describes Biocons principal manufacturing facilities:
Manufacturing Facility Solid Substrate Fermentation I Solid Substrate Fermentation II Submerged Fermentation II (incl. four 30 kl fermenters) Synthetic Conversion I Extraction I Extraction II, Synthetic Conversion II, PlaFractor TM Bulk Formulation Principal Products Manufactured Enzymes for food and beverage Enzymes for food and beverages, lovastatin Compactin, pravastatin, lovastatin, serratio peptidase, neutral protease Pioglitazone and other anti-diabetic products, atorvastatin Lovastatin Simvastatin, pravastatin, mycophenolate mofetil Mycophenolate mofetil, tacrolimus Various blended products Date of commissioning 1992 1996 1999 (1) 1998 2000 2002 2001 2002 Size (square feet) 7,205 13,044 31,581 2,657 1,991 16,847 2,864 14,271

(1) In 2002, two of this facilitys four 30 kl fermenters were commissioned.

Among the more important equipment in our facilities are fermenters (tanks used in submerged fermentation), extraction vessels, cookers, fermentation chambers, seed fermenters, purification equipment, filtration equipment, reactors and vacuum dryers. We source these items largely from Indian and European manufacturers. Our 20th K.M. Hosur Road site also houses the corporate offices of the Biocon Group, the R&D labs of Biocon and the research labs of Syngene and Clinigene. As of December 31, 2003, Syngenes facilities covered 23,600 square feet. We have modern, well equipped laboratories which features sophisticated research and instrumentation equipment including two nuclear magnetic resonance spectrometers (300 MHz and 400 MHz), two liquid chromatograph mass spectrometers (including one quadrupole), one high-throughput liquid handling system, one oligonucleotide synthesiser, two DNA sequencers, two protein purification platforms, fluorimeters, ELISA readers, haemotology analyser and lab fermeters, which are largely sourced from Europe and the United States. We own each of the 20th K.M. Hosur Road site and the developed Bommasandra site and the facilities located thereon. In addition to the two developed sites, we are in the process of completing the purchase of 46.75 acres at a new site in Bommasandra, approximately 5 km from 20th K. M. Hosur Road, to accommodate our planned future growth. Please refer to the section entitled Future Facilities on page 60 of this Prospectus and the section entitled Objects of the Issue on page 30 of this Prospectus. Raw Materials Substantially all of our manufacturing processes currently centre on submerged, solid state and PlaFractorTM fermentation systems and synthetic conversion facilities. The principal inputs into our fermentation processes are carbohydrate sources, water, solvents and certain other chemicals. Several microorganisms used in our fermentation processes, including microbial strains, are developed through our own biodiversity program. We use solvents such as ethyl acetate, methanol and acetone, which are used in the separation of the desired enzymes or other products from fermented batches. Other important chemicals include n-butyl lithium, used in the production of simvastatin and atorvastatin; pyrollidine, used in the production of simvastatin; and methyl iodide, used in the production of simvastatin. To increase our production volumes prior to capacity expansion, we have increased our use of outsourced intermediates including lovastatin for the production of simvastatin and compactin for the production of pravastatin in our production processes. Please refer to the section entitled Biopharmaceuticals - Statins on page 45 of this Prospectus. For blended products, we also use enzymes and other additives sourced from third parties for blending with one or more of our products.
58

Biocon
Utilities and Others Utilities. We have captive power generation facilities diesel generator sets with a current aggregate capacity of 4 MW which are adequate to meet our current power requirements. We currently use diesel fuel and super kerosene oil in these generator sets. We will continue to augment our captive power generation capacities as and when required. We also receive power from the Karnataka state electricity board (connected load: 800kVA), which we use to power non-production facilities and which also serves as a back-up power supply. Our fermentation processes are water intensive. Water required for our fermentation processes is sourced from the state owned water utility through a pipeline and from tube wells on our properties. Our water supplies are adequate to meet current usage requirements and planned expansion. Effluent Treatment. We aim to create a production system that minimises effluents and reuses synthetic chemicals and solvents and much of our water. All of our used water is treated, with much of it returned to our manufacturing process and the remainder used as garden and lawn water on our premises. The unusable portion of our fermentation batches and other biomass are converted to compost, which is either used in our own gardens or lawns or sold as fertilizer to farmers in the region. Certain by products of our manufacturing processes and research and development activities that cannot be reused or reformulated are incinerated. Certain Certifications and Approvals The table below describes some of the important approvals and certifications that our manufacturing facilities and production processes have received:
Approval/Certification US FDA approval EDQM Certificate of Suitability EDQM Certificate of Suitability EDQM Certificate of Suitability EDQM Certificate of Suitability Approval of EDMF under mutual recognition procedures (applicable to 10 countries in Europe) Approval of EDMF under mutual recognition procedures (applicable to two countries in Europe) Approval of EDMF under mutual recognition procedures (applicable to two countries in Europe) Canadian Health Authorities Canadian Health Authorities RWTUV Purpose Quality of production of lovastatin at Solid State Fermentation Facility II and Extraction Facility I Quality of production of lovastatin at Solid State Fermentation Facility II and Extraction Facility I Quality of production of simvastatin at Synthetic Conversion Facility II Quality of production of lovastatin at Submerged Fermentation Facility I and Extraction Facility - II Quality of production of pravastatin at Submerged Fermentation Facility I and Extraction Facility II Quality of production of simvastatin at Synthetic Conversion Facility II From Year 2001 2003 2003 2004 2004 2002

Quality of production of lovastatin at Solid State Fermentation Facility II and Extraction Facility I Quality of production of pravastatin at Submerged Fermentation Facility I and Extraction Facility II Quality of production of lovastatin at Solid State Fermentation Facility II and Extraction Facility I Quality of production of simvastatin at Synthetic Conversion Facility II ISO 9001 for Biocon ISO 9001 2000 for Biocon ISO 9001 2000 for Syngene WHO-cGMP certification for manufacturing facilities Laboratory accreditation for the Quality Assurance Testing Laboratory Certificate of pharmaceutical product (WHO cGMP certificates) for 33 products CAP certification for Clinigene laboratory For Clinigene pathology, haematology and biochemistry laboratories

2003

2003

2001 2003 1993 2003 2003 2003 2001 2003 2002 2003

DCGI DCGI DCGI CAP (College of American Pathologists) NABL (National Accreditation board for testing and calibration laboratories) Export Inspection Council of India Manchester Beth Din

For processing of dried fish maws for export to all countries, including EU countries Kosher certificate for certain enzymes

2003 1994

59

Biocon
During December 2003, our submerged fermentation facility and our second extraction/synthetic conversion facility were inspected by the US FDA for production of lovastatin, simvastatin and pravastatin. At that time, our first synthetic conversion facility was also inspected by the US FDA for production of pioglitazone. The following additional approvals/certifications are also currently in process:
Approval/Certification ISO 14001 ISO 18001 Purpose Environment Management System Occupational Health and Safety

Future Facilities We have begun developing several new facilities that we plan to complete over the next three years. Some of the new facilities are being built at our new Bommasandra site, approximately 5 km from our existing complex at 20th K.M. Hosur Road. The figures for planned capital expenditures are based on management estimates and have not been appraised by an independent organisation. In addition, our capital expenditure plans are subject to a number of variables, including possible cost overruns; construction/development delays or defects; receipt of critical governmental approvals including approvals of drug regulators in our target markets; availability of financing on acceptable terms; and changes in managements views of the desirability of current plans, among others. New Submerged Fermentation and Synthesis Facilities, Principally for Statins Production In order to meet the growing demand for statins, we are augmenting our fermentation, extraction and synthetic conversion capacities. These new facilities are being designed to house four 100 kl fermenters and synthetic conversion and extraction units. We have commenced construction of this facility and expect to commence commercial production by the first quarter of 2005. This facility is being built with a significantly higher level of automation as compared to our existing facilities. We intend to seek US FDA approval for the manufacture of lovastatin, simvastatin and pravastatin at this facility. The facility has been designed to house captive power generation units and effluent treatment plants. We plan to spend Rs. 499.8 million, Rs. 3,170.0 million and Rs. 400.0 million to develop this facility in fiscal 2004, fiscal 2005 and fiscal 2006, respectively. Prior to fiscal 2004, we spent a total of Rs. 64.2 million on this project. New Purification Facility for Recombinant Human Insulin Production Manufacture of recombinant human insulin requires upstream investments in fermentation capacity and downstream investments in a purification facility. We plan to dedicate one of our existing 30 kl fermenters at our 20th K.M. Hosur Road complex for the manufacture of recombinant human insulin and are developing a new facility for the downstream purification. As of December 31, 2003, we had completed Rs. 282.6 million of our planned Rs. 305.0 million investment in the new downstream facility. Our recombinant human insulin is currently undergoing clinical trials in India, and we plan to introduce this product in the domestic markets as a branded formulation in the first half of calendar 2004, subject to receiving all regulatory approvals. New Facility for Immunosuppressants In order to meet the growing demand for immunosuppressants, we are augmenting our fermentation facilities. The new facility will have fermentation capacity of 30 kl and will be supported by necessary utility and downstream equipment. We have commenced construction of this facility and expect to commence commercial production by October 2004. This facility will be designed to process about 1.5 tonnes of finished product, which may vary based on the product mix. We plan to spend Rs. 40.0 million and Rs. 160.0 million to develop this facility in fiscal 2004 and 2005 respectively. Custom Research Facility We have commenced work on a new 65,000-square foot Syngene laboratory to meet anticipated growth in demand for its custom research services. We expect to complete construction by mid-2004.

60

Biocon
We plan to spend Rs. 90.0 million in fiscal 2004 and Rs. 210.0 million in fiscal 2005 to develop this new facility. We plan to utilize Syngenes own internal accruals to finance this project. New Facility for Biologicals Joint Venture We are in the process of planning production facilities for Biocon Biopharmaceuticals. Please refer to the section entitled Joint Venture for Biologicals on page 52 of this Prospectus. We seek to commence commercial production of biologicals at these facilities during fiscal 2006. Insurance We maintain property insurance with Royal Sundaram Alliance Insurance Company Limited, National Insurance Company Limited and United India Insurance Company Limited to cover our assets, stocks (i.e., raw materials, finished goods, semifinished goods, packaging material) at locations within our premises as well as outside as specified in the insurance policy. Our property insurance covers accidental physical loss, destruction or damage up to a sum insured of Rs. 2,365.1 million on a replacement value basis. We maintain transit insurance policies with United India Insurance Company Limited to cover our imports, inland purchase and sales and exports. Our transit insurance covers safety of our goods in transit. Our insurance policies are for one year, and we intend to renew these policies upon expiration. We currently do not have business interruption, products liability, directors and officers liability or key personnel insurance. Quality Division Quality control, quality assurance and regulatory compliance are central to our success as a biotechnology company. Our 67member Quality Division has primary responsibility for these areas. Quality Control. Under the quality control function, the Quality Division is engaged in comprehensive sampling, testing and investigation of the quality of our products, prior to dispatch to our customers. The division also provides customer support. The Quality Division is also engaged in the qualification and calibration of testing equipment and the development of analytical methods for the testing of our products. Quality Assurance. Under quality assurance, the divisions main areas of activity include annual product reviews, validation of processes, investigation of deviations and batch failures, internal audits with respect to cGMP and quality systems, external audits with respect to regulators and customers and documentation and data control. The division notifies and co-ordinates with senior management on regulatory inspections as well as cGMP compliance. Regulatory Compliance. The Quality Division has the overall responsibility for our compliance with domestic and international regulatory requirements, submission of DMFs and technical dossiers and licensing from drug authorities. The division is also involved in technical interactions with international customers with respect to regulatory filings and registrations. Human Resources As of December 31, 2003, we had 854 full-time employees, of whom 31 were members of management. Of these employees, 98 were engaged in in-house research and development activities and 242 were engaged in custom research and clinical research activities. As of December 31, 2003, 50 of our employees held doctorates and 326 were postgraduates, in each case, typically in science, medicine, engineering or business/finance. The total number of our full-time employees has grown from 468 at the end of fiscal 2001, to 596 at the end of fiscal 2002 and to 730 at the end of fiscal 2003.

61

Biocon
The table below breaks down our full-time employees as of December 31, 2003 by qualification and company:
Doctorate (1) Biocon Syngene Clinigene Biocon Biopharmaceuticals Total
1) 2) 3) 4) Ph.D. and M.D. M. Sc., M.Phil., M.B.B.S., M.B.A, M.Tech, M.C.A., L.L.B. and C.A. B.Sc, B.Com and B.A. Includes Diploma holders

Post Graduates (2) 155 164 6 1 326

Graduates (3) 232 25 4 1 262

Others (4) 200 10 6 216

Total 610 220 22 2 854

23 21 6 50

To date, we have not experienced difficulty filling vacancies with qualified personnel. In fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, our attrition rates calculated as the number of employee departures in a period divided by the average of the period-beginning number of employees and the period-end number of employees were 14.5%, 7.9%, 8.9% and 5.4%, respectively. None of our workforce is currently unionised, there have been no strikes, lockouts or other general employee unrest, and we believe our relations with our employees are good. We seek to adopt a very open culture and a participative management style, to enable us to benefit most from the knowledge and skills of our management and research/technical professionals. We have also linked remuneration to performance, with about a third of the total salary of management and research/technical professionals being earned as variable pay. In addition to our full-time employees, as of December 31, 2003, we had 195 temporary staff members, who are hired as independent contractors, not employees and three full-time consultants. We also maintain an internship program that has attracted students from leading universities, including the Massachusetts Institute of Technology, the Indian Institutes of Technology and Harvard University. Regulation Our products, facilities, manufacturing, research, preclinical testing, clinical trials, labelling, pricing, and sales and marketing are all subject to extensive regulation by numerous governmental authorities, including authorities in India and the European Union, as well as governmental authorities in the United States, such as the US FDA. To date we have not encountered any material compliance issues and believe that our operations, facilities and products are all materially compliant with applicable regulations. We are required to obtain and maintain regulatory approval to market pharmaceutical products for approved indications in India, the United States, the European Union, Japan and other markets. For example, we can sell our APIs in the United States only after submission of a drug master file, or DMF. In the United States, any drug for which an Abbreviated New Drug Application, or ANDA, is being filed (a category which includes generic drugs sold into the United States) must have a DMF in place with respect to a particular supplier supplying the underlying active pharmaceutical ingredient. For European markets, we obtain a European DMF, or EDMF, and/or a Certificate of Suitability, or CoS. We currently have nine DMFs on file in the United States, including DMFs for lovastatin, simvastatin, pravastatin, recombinant human insulin and pioglitazone. For each of these, we are either already supplying the product in the United States or are waiting to supply the product when it comes off patent. With respect to our facilities and manufacturing, the regulatory requirements in the international markets demand current Good Manufacturing Practices, or cGMP, from early stages of technology development. Our facilities have been approved by the Drugs Controller General of India, or DCGI. In addition, certain of our facilities have been approved by the US FDA and European regulators for the manufacture of certain products for sale into their markets. The DCGI and US FDA conduct site inspections as part of their approval processes. As we seek to sell new products and existing products through new production processes, we will need to obtain additional approvals with respect to our facilities and processes.

62

Biocon
With respect to our enzymes business, our products are generally subject to regulation under food and drug and product safety laws of India and the countries to which we export those products. We are required to obtain annual environmental clearances with respect air and water pollution from the pollution control board of Karnataka, the state in which all of our facilities are located, and have obtained all such certificates. We are also committed to maintaining high standards in the areas of environment and health and safety. After we obtain regulatory approval for our products, both our manufacturing processes and our marketed products are subject to continued review and approvals can be revoked if regulators believe standards have not been maintained. Our research and development activities are subject to Indian laws regulating such things as laboratory practices and the use and disposal of potentially hazardous materials. Our clinical laboratory testing activities are subject to Indian laws relating to human trials, animal welfare and bioethics. Furthermore, to the extent that we are contracting with drug manufacturers to perform clinical trials on drugs that require approval in a particular country, our trials must conform to the specifications established by that country. For example, to meet US FDA requirements, clinical trials must include a placebo or other control group and must be conducted in accordance with good clinical practice, or GCP. Our clinical research activities comply with ICH GCP. If and when we decide to enter foreign markets with our own generic formulations of existing drugs, our products would be subject to additional drug safety and related laws and regulations in the countries where we produce, market, sell and perform clinical research in respect of such products. For example, generic drug companies must file an ANDA to apply for approval to market a generic version of a drug in the United States. An ANDA applicant must undertake a patent review with respect to its proposed generic and may end up challenging any then-claimed patents, in order to sell its generic version. Such challenges may result in litigation with a party claiming to hold patents that would be infringed by the ANDA applicant. If and when we decide to enter the drug discovery business and market and sell novel products, we will be subject to significantly more stringent drug safety regulation. For example, novel drug formulations in the United States must undergo pre-clinical trials involving animals and three phases of clinical trials before approval can be granted by the US FDA. This process is expensive and lengthy and can range from three to 10 years or more, depending on the nature of trials required, and there can be no assurance that the data collected will be in compliance with GCP regulations, will demonstrate that the product is safe or effective, or, in the case of a biological, pure and potent, or will provide sufficient data to support US FDA approval of the product. The US FDA may place clinical trials on hold at any point in this process if, among other reasons, it concludes that clinical subjects are being exposed to an unacceptable health risk. Trials may also be terminated by institutional review boards, which must review and approve all research involving human subjects. Side effects or adverse events that are reported during clinical trials can delay, impede, or prevent marketing authorization. We intend to produce and market a branded formulation of human insulin in the Indian market in the first half of calendar 2004, subject to receiving all regulatory approvals. We are currently performing a single set of clinical trials in India on this product in accordance with the specifications of the DCGI. We also seek to export recombinant human insulin in bulk form to regulated markets, including the United States and Europe. American and European regulators have not established a streamlined process for approval of existing biologicals developed by new producers. We believe that the US FDA and EU regulators may consider developing such a streamlined process similar to that developed for generics for products such as recombinant human insulin that have already been introduced into the market. One of the difficulties in establishing a process for biologicals that is similar to that for generics is that biologicals are generally much more complicated substances in respect of which bio-equivalence is difficult to establish. In the absence of a streamlined approval process, our recombinant human insulin might have to undergo the same process that drug innovators must undergo to introduce new drug molecules into the market. If recombinant human insulin is treated as a newly discovered drug requiring a full set of clinical trials, then it will more difficult and costly and take substantially longer to seek approval, and we may therefore choose not to seek approvals to enter those markets.

63

Biocon
HISTORY AND CERTAIN CORPORATE MATTERS Our Company was incorporated as Biocon India Private Limited on November 29, 1978 under the Companies Act. The word Private was deleted from our name under the provisions of Section 43A(2) of the Companies Act with effect from July 1, 1995. Thereafter our Company was converted to a private limited company under the provisions of Section 43(2A) of the Companies Act with effect from December 21, 2000. It was reconverted into a public limited company on June 18, 2001. The name of our Company was changed from Biocon India Limited to Biocon Limited and a fresh certificate of incorporation consequent on change of name was issued by the RoC on November 19, 2003. Our Corporate Structure Our existing corporate structure is as under:

Biocon Limited

Syngene International Private Limited (99.99%)

Clinigene International Private Limited (100.00%)

Biocon Biopharmaceuticals Private Limited (51.00%)

Main Objects of the Company Our main objects as contained in our Memorandum of Association are:
s

To carry on the business of manufacturing, processing, distilling, compounding, formulating, acquiring, buying, selling, importing, exporting and dealing in all enzyme products from animal, microbial, plant sources, products from fish sources, vegetable and herb extracts, agricultural products including cattle feed, and all chemicals heavy or fine, organic, inorganic, biological or any other formulations, derivatives and compounds thereof from mineral origin or from other chemicals or from by-products or waste products of other trades and industries and other branded preparations and compounds, derivatives and formulations thereof and consumers products based thereon, pharmaceutical specialities, surgical specialities, cosmetics, germicides, detergents and acids. To establish and run an extraction plant for the extraction of oils, colouring matters, crude drugs and other extracts from seeds, barks, cakes, flowers, plants in all forms for the production of natural colourants, alkaloids, steroids, other drugs and medicines and other products. To cultivate, crush, utilise, buy sell and deal in seeds, substances, and plants of every description.

The main objects clause and the objects incidental or ancillary to the main objects of the Memorandum of Association of our Company enable us to undertake our existing activities and the activities for which the funds are being raised through this Issue.

64

Biocon
Changes in Memorandum of Association Since our incorporation, the following changes have been made to our Memorandum of Association: Date of shareholder approval October 23, 1980 February 11, 1985 September 17, 1996 June 9, 1997 December 24, 1999 December 30, 2000 February 25, 2002 Changes Increase of authorised share capital from Rs. 500,000 to Rs. 1,000,000 by creation of 5000 further equity shares of Rs. 100 each. Increase of authorised share capital from Rs. 1,000,000 to Rs. 2,000,000. Increase of authorised share capital from Rs. 2,000,000 divided into 20,000 equity shares of Rs. 100 each to Rs. 5,000,000 divided into 50,000 equity shares of Rs. 100 each. Increase of authorised share capital from Rs. 5,000,000 to Rs. 7,500,000. Increase of authorised share capital from Rs. 7,500,000 divided into 75,000 equity shares of Rs. 100 each to Rs. 15,000,000 divided into 150,000 equity shares of Rs. 100 each. Increase of authorised share capital from Rs. 15,000,000 divided into 150,000 equity shares of Rs. 100 each to Rs. 20,000,000 divided into 200,000 equity shares of Rs. 100 each. Sub division of every existing equity share of face value Rs. 100 into 10 equity shares of Rs. 10 each. The authorised share capital altered to Rs. 20,000,000 divided into 200,000 equity shares of Rs. 10 each. Sub division of every existing equity share of face value of Rs. 10 each into 2 equity shares of Rs. 5 each. from Rs. 10/- each to Rs. 5/- each Increase of authorised share capital from Rs. 20,000,000 divided into 4,000,000 equity shares of Rs. 5 each to Rs. 600,000,000 divided into 120,000,000 equity shares of Rs. 5 each. The details of the capital raised by our Company are given in the section entitled Capital Structure on page 23 of this Prospectus. History and Major Events The chronology of events since our Company was incorporated in 1978 is as follows: Year November 1978 Key Events, Milestones and Achievements Our Company commenced operations as a joint venture between our promoter Ms. Kiran Mazumdar-Shaw and Biocon Biochemicals Limited, an Ireland based multinational. Our Company began the manufacture and export of Papain, a plant enzyme, and Isinglass, a marine hydrocolloid, which are key products for the brewing industry BCZ was incorporated to focus on research and development in relation to enzymes. Our Company began focussing on research and development, to develop novel enzymes for the Biocon group worldwide through solid-state fermentation process technology referred to as koji technology. HLX was incorporated as a pharmaceutical biotechnology company, which later diversified into pharmaceutical bulk activities. Our Company along with Unit Trust of India/Technology Development and Investment Corporation of India (UTI/TDICI), Biocon Biochemicals Limited, Ireland and others invested in BCZ. UTI/TDICI transferred their entire shareholding in BCZ to Biocon Limited, Ireland. BCZ commenced operations. Our Company received ISO 9001 accreditation from RWTUV, Germany

November 11, 2003

July 1982 1984

April 1989 July 1989

November 1992 January 1993

65

Biocon
Year November 1993 Key Events, Milestones and Achievements Syngene was incorporated as a CRO to conduct research for third party clients in the area of drug discovery and development. Syngenes skill set in the areas of molecular biology and synthetic chemistry are complementary to our expertise in the areas of fermentation and microbial genetics. Unilever acquired 50% of the shares in BCZ by acquiring the entire shareholding of Biocon Biochemicals Limited, Ireland and Biocon Limited, Ireland. Unilever also acquired shares in Biocon from Biocon Biochemicals Limited, Ireland and Biocon Limited, Ireland and others BQIL was established with our Company and Unilever acquiring around 50% stake each. BQIL commenced manufacturing operations from August 1996 HLX commenced manufacturing operations Glentec International acquired the entire shareholding of Unilever in BCZ, BQIL and our Company. Our Company acquired the entire shareholding of BCZ, BQIL & HLX from Glentec International, Ms. Kiran Mazumdar-Shaw and others in exchange for issue of shares by our Company. Glentec International acquired a majority stake (approx 64%) in Syngene as part of a fresh issue of shares. ICICI Ventures and its affiliate funds were inducted as shareholders of our Company by way of subscription to 15.35% of the share capital of our Company. ICICI Ventures, and its affiliate funds also acquired 10% in Syngene from Glentec International. Our proprietary bioreactor christened PlafractorTM based on solid matrix fermentation received a U.S. patent Clinigene was incorporated to conduct longitudinal clinical studies in select disease segments as a wholly owned subsidiary of our Company. As part of a court based restructuring, BCZ, BQIL and HLX were amalgamated into our Company, with effect from April 1, 1999. Our Lovastatin facility was approved by the US FDA Our Company acquired 99.99% of Syngene from its other shareholders, including ICICI Venture and its affiliate funds, which divested their entire stake in Syngene in exchange for issue of shares by our Company. Syngene was made a 99.99% subsidiary of Biocon Limited. BBPL was incorporated to manufacture and market a select range of biotechnology based life saving drugs as a 51:49 joint venture with CIMAB and our Company ICICI Ventures along with its affiliate funds divested its shareholder interests in our Company in favour of other private equity funds, being AIG AOF, a wholly owned subsidiary of AIG Asian Opportunity Fund L.P. and IVF and also to the Welfare Trust.

February 1995

December 1995 February 1998 June 1999 March 2000

March 2000 May 2000 May 2000 December 2000 January 2001

March 2002

June 2002 May-September 2003

Credit Rating On March 12, 2003, our Company received a credit rating of P1+ from CRISIL for its short-term debt program of Rs. 200 million. The rating is valid for a period of one year from the date of issue. CRISIL has reviewed the rating in December 2003 and has reaffirmed its rating of P1+ through its letter dated December 22, 2003. The rating is subject to certain conditions specified by CRISIL. Shareholder Agreements Two of our shareholders, AIG AOF, a wholly owned subsidiary of AIG Asian Opportunity Fund L.P. and IVF have entered into separate Shareholders Agreement with our Company and the Promoters.
66

Biocon
AIG AOF Shareholders Agreement AIG AOF, a wholly owned subsidiary of AIG Asian Opportunity Fund L.P. entered into a Shareholders Agreement with our Company and its Promoters on April 30, 2003 (the AIG AOF SHA). The AIG AOF SHA is valid until the earlier of (i) the date on which the shares held by AIG AOF is less than 2% of the total number of shares of our Company, and (ii) the date which is 3 years after the date of the IPO. The principal provisions of the AIG AOF SHA that apply after an initial public offering of Equity Shares are as follows: Board of Directors and Management
s

Ms. Kiran Mazumdar-Shaw is entitled to nominate the majority of Directors of the Board. AIG AOF is entitled to nominate one Director. The Board is required to appoint such number of independent Directors as it deems fit within the maximum permissible number of Directors specified under the applicable law and the Articles. AIG AOF also has the right to nominate one director of each of the subsidiaries in which our Company owns or controls 75% or more of the voting rights attaching to the shares in such subsidiary. Ms. Kiran Mazumdar-Shaw shall be the Chairman of our Company. The quorum for any Board meeting shall comprise of the Director nominated by AIG AOF and such other number of Directors as is required to form a quorum under the Companies Act. The AIG AOF SHA contains detailed provisions dealing with the process to be followed in case of lack of quorum at any Board meeting. Our Company and each of the Promoters and AIG AOF shall exercise all rights and powers available to it to, procure that none of the Reserve Board Matters (listed below) shall occur with respect to our Company or with respect to any subsidiary, unless it has first been approved by Super-Majority Resolution, which is a resolution passed at a duly convened and quorate meeting of the Board approved by: (i) a majority of the Directors present at such meeting; and (ii) the Director nominated by AIG AOF: A. Any of the following matters with respect to our Company or any 75% Subsidiary: 1. Material acquisition, development or expansion of, or other investment in, any companies, businesses, plants or facilities outside the ordinary course of our business. Sale or disposal of assets outside the ordinary course of our business. Any issuance of new equity or equity-linked securities either as a public offering or as a private sale or issue or any action which would alter or change the rights or privileges or obligations or liabilities of any Identified Shareholder with respect to its Shares or dilute the respective percentage of ownership of any Identified Shareholder except as specifically provided under the AIG AOF SHA. Any merger, amalgamation, demerger or reorganisation of our Company or any subsidiary. In the case of our Company, any sale, transfer, lease, licence or disposal of the shares in any of the other group companies or, in the case of our Company or any subsidiary, the sale of any material part of the assets and undertaking of our Company or that subsidiary other than in the ordinary course of business. Any material change in the nature, activities or scope of the business. Any amendment of the Memorandum and Articles of Association of our Company or the memorandum and/or articles of association of any other subsidiary. Winding up or liquidation or the appointment of receivers or administrators over any of the Companys assets or undertaking.

s s

2.

3. 4.

5. 6. 7.

B. Any of the following matters with respect to any companies in which our Company owns, directly or indirectly, less than 75% of the issued and paid up equity share capital or the voting rights attached to the shares in such company: 1. Any matters requiring Shareholders approval where such matter falls within the items 1 to 7 enumerated in A above.

67

Biocon
2. 3.
s

Any action which may result in the dilution of our Companys direct or indirect shareholding or control in such company. Items 3 to 7 enumerated in A above.

If at any time after 18 months after completion of the acquisition of shares by AIG AOF, the Board is unable to arrive at a decision on any Reserved Board Matter which has been submitted to Super-Majority Resolution at not less than 2 duly convened meetings, the same shall constitute a deadlock. If, after reasonable efforts to resolve such deadlock between senior executives of AIG AOF and the Promoters, the deadlock cannot be resolved within 21 days, then any or all the Promoters can require AIG AOF to transfer all of the shares held by it to the Promoters at the higher of a fair valuation determined by an investment banker and an IRR on the total cost of acquisition of 25% per annum. The AIG AOF SHA contains certain restrictions regarding transfer of shares. Any transfer of shares by a Promoter or AIG AOF, or the granting of any encumbrance, in breach of the AIG AOF SHA shall be null and void ab initio subject to applicable laws. The transfer restrictions are as follows:
q

Transfer of Shares
s

The Promoters shall not dilute their shareholding in our Company below 51% except in certain other circumstances specified in the AIG AOF SHA; The Promoters or AIG AOF are permitted to transfer shares to its affiliates provided that such Promoters or AIG AOF is jointly and severally liable with the affiliate for performance of obligations under the AIG AOF SHA, that the affiliate continues to be affiliated to the selling shareholder and the affiliate executes a deed of accession prior to transfer of shares; AIG AOF has tag-along rights whereby in case the Promoter wishes to transfer shares in the Company, then AIG AOF has the option to require the Promoter to include in the sale a proportionate number of shares held by AIG AOF in such sale at the same price that the Promoter is selling shares; AIG AOF may transfer shares to any other person provided that it has served a written notice on the Promoters granting them the right of first refusal to purchase such shares. The AIG AOF SHA contains the detailed terms and conditions regarding the manner in which such right of first refusal may be exercised by the Promoters and the consequences of non-exercise thereof.

Certain other Covenants

s

Under the AIG AOF SHA, where AIG AOF sells its shares and realises proceeds equivalent to a minimum IRR (which represents the total cost of acquisition of such shares plus an IRR of 25% per annum in US Dollar terms), then AIG AOF is required to either transfer 50% of the balance shares (i.e. over and above the shares required to achieve the minimum IRR) to Glentec International, or alternatively, to pay 50% of the net sales proceeds realised by AIG AOF on any subsequent sale of shares after having achieved the minimum IRR. The AIG AOF SHA contains detailed provisions regarding information, accounting records, audit, access, tax status and dividend policy. The Promoters have provided a non-compete covenant to AIG AOF in the areas of research and development into and manufacture and marketing of products, processes and services across the entire biotechnology spectrum and more specifically in fermentation, industrial and healthcare applications for the time being and including but not limited to: (i) development of novel processes and applications relating to, and manufacturing and marketing of, enzymes; (ii) development, manufacturing and marketing of pharmaceutical and bio-pharmaceutical APIs and formulations; (iii) contract research and custom synthesis; (iv) contract manufacturing; (v) clinical research and clinical trials; and (vi) bio-informatics.

Non-Compete by Promoters
s

68

Biocon
IVF Shareholders Agreement IVF entered into a Shareholders Agreement with our Company and Ms. Kiran Mazumdar-Shaw on March 15, 2003 (the IVF SHA). The principal provisions of the IVF SHA are as follows:
s

Our Company shall not transfer or create any encumbrance on any of the shares held by it in the subsidiaries without the prior written consent of IVF, except in relation to the borrowings of our Company and our subsidiaries Under the IVF SHA, where IVF sells its shares and realises proceeds equivalent to a minimum IRR (which represents the total cost of acquisition of such shares plus an IRR of 27.5% per annum in rupee terms), then Ms. Kiran Mazumdar-Shaw shall have the option to either require IVF to transfer 57.5% of the balance shares (i.e. over and above the shares required to achieve the minimum IRR) to her, or alternatively, to require IVF to pay Ms. Kiran Mazumdar-Shaw for 57.5% of the net sales proceeds realised by IVF on any subsequent sale of shares after having achieved the minimum IRR in rupee terms.

69

Biocon
MANAGEMENT Board of Directors Our Chairman and Managing Director, Ms. Kiran Mazumdar-Shaw manages our day-to-day operations under the overall supervision, direction and control of our Board of Directors. As per our Articles of Association, we cannot have less than 3 nor more than 12 Directors. We currently have 7 Directors. The following table sets forth details regarding our Board of Directors as at the date of this Prospectus:
Name, Designation, Fathers Name, Address, Occupation and Term Ms. Kiran Mazumdar-Shaw Chairman & Managing Director (Daughter of late Mr. R.I. Mazumdar) Glenmore Hoskur Gate, 20th K.M. Hosur Road, Bangalore 560 100 Business Whole time retiring Liable to retire by rotation Mr. John Shaw Vice Chairman (Son of Mr. Shaw Sr.) Glenmore Hoskur Gate, 20th K.M. Hosur Road, Bangalore 560 100 Business Whole time retiring Liable to retire by rotation Dr. Neville Bain Independent Director (Son of late Mr. C.A. Bain) High Trees, Cavendish Road, Weybridge, Surrey KT 13 OJX, United Kingdom Business Part time retiring Liable to retire by rotation Prof. Charles L. Cooney Independent Director (Son of late Mr. Leland E. Cooney) No. 35, Chestnut Place, Brookline MA, USA Professor of Chemical & Biochemical Engineering Part time retiring Liable to retire by rotation Mr. Suresh Talwar Independent Director (Son of late Mr. Narsappa Talwar) Crawford Bayley & Co., 4th Floor, State Bank Building, N.G.N. Vaidya Marg, Mumbai 400 020 India 65 20th Century Fox Corporation India Pvt. Ltd.
(Chairman) AC Neilson ORG Marg Pvt. Ltd

National of India

Age (years) 50

Other Directorships in Indian companies Syngene International Pvt Ltd. Clinigene International Pvt. Ltd. Biocon Biopharmaceuticals Pvt. Ltd.

United Kingdom

54

Syngene International Pvt. Ltd. Clinigene International Pvt. Ltd. Biocon Biopharmaceuticals Pvt. Ltd.

United Kingdom

63

United Breweries Limited Mcdowell Alcobev Ltd. Syngene International Pvt. Ltd.

United States of America

59

Syngene International Pvt. Ltd.

Albright & Wilson Chemicals India Ltd Aon Global Insurance Services Pvt Ltd Armstrong World Industries (India) Pvt. Ltd (Chairman & Alternate Director) Beck India Ltd.

70

Biocon
Name, Designation, Fathers Name, Address, Occupation and Term Legal Counsel Part time retiring Liable to retire by rotation National of Age (years) Other Directorships in Indian companies Birla Sun Life Insurance Co. Ltd. Blue Star Ltd. Bluestar Infotech Ltd. BPL Communications Ltd. Burroughs Wellcome (India) Ltd. Cadbury India Ltd. Carborandum Universal Ltd. Cholamandalam MS General Insurance Co. Ltd. Chowgule & Co. Ltd. Decagon Investments Pvt. Ltd. Emerson Process Management (India) Pvt. Ltd. FCI OEN Connectors Ltd. (Chairman and Alternate Director) Garware Walropes Ltd. Greaves Morganite Crucible Ltd. HGC Foundation Ltd. India Value Fund Trustee Company Pvt. Ltd. J M Morgan Stanley Retail Services Pvt. Ltd. J M Morgan Stanley Securities Pvt. Ltd. John Fowler (India) Ltd. Johnson & Johnson Ltd. Madura Coats Ltd. Merck Ltd. Chairman Moly Colloids Pvt. Ltd. (Chairman) PZ Cussons India Pvt. Ltd. (Chairman and Alternate Director) RCI India Pvt. Ltd. Redifussion Dentsu, Young & Rubicam Pvt. Ltd. Refco (India) Pvt. Ltd. Renfro India Pvt. Ltd. Reva Electric Car Co. Pvt. Ltd. Rishabh Instruments Pvt. Ltd. Romil Finance & Investment Pvt. Ltd. (Chairman) S&M Logistics Pvt. Ltd. (Chairman) Sandvik Asia Ltd. Schenectady (India) Holdings Pvt. Ltd. Schenectady Herdillia Ltd. Shrenuj & Co. Ltd. Sidham Finance & Investments Pvt. Ltd. (Chairman) Solvay Pharma India Ltd. Sonata Software Ltd. Swiss Re Shared Services (India) Pvt. Ltd. Timbron India Pvt. Ltd. Trans Warranty Finance Ltd. (Chairman and Alternate Director) Uhde India Ltd. Wyeth Limited Canada 48 Syngene International Pvt. Ltd. (Alternate Director)

Prof. Ravi Mazumdar Director (Son of late Mr. R.I. Mazumdar) 706, Carlton Boulevard, West Lafayette, IN 47907, USA

71

Biocon
Name, Designation, Fathers Name, Address, Occupation and Term Professor of Electrical & Computer Engineering Part time retiring Liable to retire by rotation Ms. Ada K. H. Tse Director (Daughter of Mr. Tse Edmund Szewing) AIG Global Investment Group Suite 3601, One Pacific Place 88 Queensway Hong Kong Investment Manager Part time non-retiring United Kingdom 37 Amalgamated Bean Coffee Trading Company Limited Ambuja Cement India Limited National of Age (years) Other Directorships in Indian companies

Brief Biography of our Directors Ms. Kiran Mazumdar-Shaw, 50 years, Chairman and Managing Director, is a first generation entrepreneur with more than 25 years experience in the field of biotechnology. After graduating in B.Sc. (Zoology Hons.) from Bangalore University in 1973, she completed her post-graduate degree in malting and brewing from Ballarat College, Melbourne University in 1975. She is a founder promoter and has led our Company since its inception in 1978. She is currently the Chairman and Director of Syngene and Clinigene and Director of BBPL. She was previously a consultant with Jupiter Breweries Limited. She is the wife of Mr. John Shaw. She is the recipient of several awards, the most noteworthy being the Padmashri Award (one of the highest civilian awards in India) in 1989 conferred by the President of India, the Ernst & Young Entrepreneur of the Year Award in 2002 for the Healthcare & Lifesciences category and more recently in 2003 the BioSpectrum Person of the Year Award. She heads several biotechnology task forces including the Karnataka Vision Group on Biotechnology, an initiative by the Government of Karnataka and the National Taskforce on Biotechnology for the Confederation of Indian Industry (CII). Her remuneration for the year ended March 31, 2003 was Rs. 10,186,766. Mr. John Shaw, 54 years, Vice Chairman and an Executive Director, is the controlling shareholder and director of Glentec International, one of the substantial shareholders of our Company. He is the husband of Ms. Kiran Mazumdar-Shaw. He completed his M.A. (Economic Hons.) in History and Political Economy from Glasgow University, U.K. in 1970. He has 32 years experience with Coats Viyella plc. in various capacities including finance and general administration before he came on the Board of our Company in 1999. He has served as Finance Director of Coats Viyella group companies in various locations around the world. His remuneration for the year ended March 31, 2003 was Rs. 9,216,800. Dr. Neville Bain, 63 years, has vast experience in the field of finance and general management. He graduated from Otago University, New Zealand, with a Master of Commerce (Hons) degree and a double Bachelor degrees in Accounting and Economics. He has also been awarded the degree of Doctor of Law, is a Fellow Chartered Accountant, a Fellow Cost and Management Accountant, a Fellow Chartered Secretary and a Fellow of the Institute of Directors. He spent 27 years with the Cadbury Schweppes group, having responsibility for the world-wide confectionery business and then as Deputy Chief Executive and Finance Director. This was followed by a six-year term as Chief Executive Officer of Coats Viyella plc, and then as Chairman and Director of various organisations. He is the Chairman of Hogg Robinson plc and also a board member of Scottish Newcastle plc. He has published books on Corporate Governance, Strategy, and the effective utilisation of people in organisations. Prof. Charles L. Cooney, 59 years, is the Professor of Chemical & Biochemical Engineering, Faculty Director of the Deshpande Center for Technological Innovation and Co-Director of the Program on the Pharmaceutical Industry at the Massachusetts Institute of Technology (MIT), Cambridge, U.S.A. He obtained his Bachelors degree in Chemical Engineering from the University of Pennsylvania in 1966, his Masters degree and his Ph.D in Biochemical Engineering are from MIT in 1967 and 1970 respectively. His research interests span topics in biochemical engineering and pharmaceutical manufacturing. He is a recipient of several prestigious awards, including Gold Medal of the Institute of Biotechnology Studies (London), the Food, Pharmaceutical and Bioengineering Award from the American Institute of Chemical Engineers and the James Van Lanen Distinguished Service Award from the American Chemical Society and elected to the American Institute of Medical and
72

Biocon
Biochemical Engineers. He serves as a consultant to and/or director of a number of biotech and pharmaceutical companies globally and is on the editorial boards of several professional journals. Mr. Suresh Talwar, 65 years, is a partner of Crawford Bayley & Co., an Indian law firm of repute. He completed his B.Com from the University of Bombay in 1959, his LL.B. from the Government Law College, Bombay in 1961 and a solicitor of the Incorporated Law Society, Mumbai in 1966. His area of professional specialisation is in corporate law and other related matters. He has been the legal counsel to numerous Indian companies, multinational corporations as well as Indian and foreign banks. He is also a director of several leading companies in India. Prof. Ravi Mazumdar, 48 years, completed his Ph.D from the University of California, Los Angeles, USA in 1983. Prior to this, he obtained his Masters in Science from the Imperial College of Science, London in 1978 and his B.Tech from the Indian Institute of Technology, Bombay in 1977. He has been a professor in several prestigious universities including Purdue University, U.S.A, Columbia University, U.S.A., University of Essex, U.K., Mc Gill University, Canada and the Indian Institute of Science, Bangalore. He has over 100 refereed publications in international journals in the area of applied probability and stochastic processes, non-linear dynamical systems, statistical signal processing, queuing theory and in the control and design of high-speed networks. He has been a member of several advisory committees and working groups, including the US Congress Sub-Committee on Science and Technology. He is a Fellow of the Royal Statistical Society and a senior member of the Institute of Electrical and Electronics Engineers, Inc. He is the younger brother of Ms. Kiran Mazumdar-Shaw. Ms. Ada K.H. Tse, 37 years, has a BA in Applied Mathematics from Harvard University, a JD from Harvard Law School and is an alumna of the Stanford Business School Executive Program. She is presently Managing Director, Direct Investment at AIG Global Investment Corporation (Asia) Limited. She previously worked with Morgan Stanley in New York and Hong Kong in financial advisory services and equity capital markets, and before that, was an attorney with Sullivan & Cromwell in New York. She has been nominated by AIG AOF as a Director pursuant to the provisions of the AIG AOF SHA. In accordance with our Articles of Association, the Board can appoint an alternate Director pursuant to the provisions of the Companies Act. Prof. Catherine Rosenberg is presently the alternate Director to Prof. Ravi Mazumdar and Mr. Santosh Senapati is presently the alternate Director to Ms. Ada K.H. Tse. Compensation of Our Directors For details of compensation of Ms. Kiran Mazumdar-Shaw, our Chairman and Managing Director and Mr. John Shaw, our Vice Chairman, please refer to the section entitled Statutory and Other Information on page 162 of this Prospectus. Shareholding of Our Directors in our Company Our Articles of Association do not require our Directors to hold any Equity Shares in our Company. The following table details the shareholding of our Directors in their personal capacity and either as sole or first holder, as at the date of this Prospectus.
Name of Directors Ms. Kiran Mazumdar-Shaw Mr. John Shaw Dr. Neville Bain Prof. Ravi Mazumdar Prof. Charles Cooney Prof. Catherine Rosenberg Mr. Suresh Talwar Number of Equity Shares (Pre-Issue) 39,643,782 703,779 48,976 594,074 212,835 34,283 4,898 Number of Equity Shares (Post-Issue) 39,643,782 703,779 48,976 594,074 212,835 34,283 4,898

Term of Office In accordance with the Companies Act and our Articles of Association, all our Directors except Ms. Ada K.H. Tse, nominee Director of AIG AOF are required to retire by rotation. For details of the terms of appointment of the above Directors, please refer to the section entitled Statutory and Other Information on page 162 of this Prospectus.
73

Biocon
Changes in Our Board of Directors during the last three years Changes to our Board of Directors during the last 3 years are as follows:
Name Mr. Nitin Deshmukh Prof. Charles Cooney Dr. Neville Bain Prof. Ravi Mazumdar Ms. Renuka Ramnath Mr. Suresh N Talwar Mr. Santosh Senapati Ms. Ada K.H.Tse Mr. Santosh Senapati Prof. Catherine Rosenberg Mr. Santosh Senapati Prof. Catherine Rosenberg Date of Appointment 24.03.2000 19.01.2001 08.08.2000 08.08.2000 27.07.2001 17.05.2003 12.08.2003 18.10.2003 19.10.2003 19.10.2003 19.01.2004 19.01.2004 Date of Cessation 29.05.01 12.08.2003 18.10.2003 17.01.2004 17.01.2004 Reason Withdrawal of nomination from ICICI Venture Capital Management Co. Ltd. Withdrawal of nomination from ICICI Venture Capital Management Co. Ltd. Appointed as Alternate Director for Ms. Ada K.H.Tse Appointed as Alternate Director for Prof. Ravi Mazumdar Appointed as Alternate Director for Ms. Ada K.H.Tse Appointed as Alternate Director for Prof. Ravi Mazumdar

Corporate Governance The provisions of the listing agreement to be entered into with the Stock Exchanges with respect to corporate governance will be applicable to us immediately upon the listing of our Equity Shares on the Stock Exchanges. We intend to comply with such provisions, including with respect to the appointment of independent Directors to our Board and the constitution of the Investor Grievances Committee. We undertake to adopt the Corporate Governance Code in accordance with Clause 49 of the listing agreement to be entered into with the Stock Exchanges prior to listing. Audit Committee The terms of the Audit Committee comply with the requirements of Clause 49 of the listing agreement to be entered into with the Stock Exchanges. The committee consists of only non-executive Directors, with the majority being independent Directors. The committee currently comprises Dr. Neville Bain, Prof. Charles Cooney and Mr. Suresh Talwar, with the Chairman of the committee being Dr. Neville Bain. The principal functions of the committee are to:
s s

review our Companys financial statements, before submission to, and approval by, the Board; review our Companys procedures for detecting fraud and whistle blowing and ensure that arrangements are in place by which staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting, financial control or other matters; review managements and the internal auditors reports on the effectiveness of the systems for internal financial control, financial reporting and risk management; monitor the integrity of our Companys internal financial controls; assess the scope and effectiveness of the systems established by management to identify, assess, manage and monitor financial and non-financial risks; review the internal audit program and ensure that the internal audit function is adequately resourced and has appropriate standing within our Company; receive a report on the results of the internal auditors work on a periodic basis;

s s

74

Biocon
s s

review and monitor managements responsiveness to the internal auditors findings and recommendations; and monitor and assess the role and effectiveness of the internal audit function in the overall context of our Companys risk management system.

Remuneration Committee The Remuneration Committee (earlier known as the Compensation Committee) constituted on April 16, 2001 consists of nonexecutive Directors, with the Chairman being an independent Director. The Committee currently comprises Prof. Charles Cooney and Dr. Neville Bain, with the Chairman of the Committee being Prof. Charles Cooney. The Committee determines the grant of stock option and also reviews the overall compensation structure including managerial remuneration and related policies aimed at attracting, motivating and retaining personnel. The Committee has the authority to determine the compensation packages of executive Directors and senior management and determine the parameters and supervise the operation of the bonus schemes of our Company. The Committee will review recommendations made to it by our Company and others and is authorized to investigate any activity within its terms of reference, seek any information from any employee of our Company and obtain independent professional advice. The Committee has been empowered to do so on its own or through direct superintendence of the committees appointed under the Employee Trust. Investors Grievances Committee The Investor Grievances Committee constituted by our Board on January 17, 2004 comprises Dr. Neville Bain as its chairman and Ms. Kiran Mazumdar Shaw and Mr. John Shaw as members. The Investor Grievances Committee will look into redressal of shareholder and investor complaints, issue of duplicate/ consolidated share certificates, allotment and listing of shares and review of cases for refusal of transfer/ transmission of shares and debentures and reference to statutory and regulatory authorities. Scientific Advisory Board The main objectives of our Scientific Advisory Board are to review and advise on various research programs, to evaluate the intellectual property generated and to identify and encourage research partnerships with other organisations in relation to the Biocon Group. The Scientific Advisory Board currently comprises of the following persons:
Name Prof. Charles L. Cooney, Chairman Prof. C. N. R. Rao Dr. Sam Pasternack Dr. Bala Manian Background Professor of Chemical & Biochemical Engineering, MIT, USA Linus Pauling Research Professor Honorary President, Jawaharlal Nehru Centre for Advanced Scientific Research, India PhD in Aeronautics from Stanford University, USA Partner, Choate, Hall & Stewart Patent Attorneys, USA Chairman and Co-Founder, Reametrix, Inc. Chairman, Entigen Co-Founder, Quantum Dot Corporation and Surromed Corporation, USA Director, ICICI Knowledge Park, Hyderabad, India Director, Wipro, India Retired Worldwide Director of R&D, Unilever plc. Distinguished Scientist at Surromed Corporation, USA Former Vice President Research, Syntex Corporation Co-inventor of Morpholinoethylesters of Mycophenolic Acid and pharmaceutical compositions Chairman & Managing Director, Biocon Limited Board Member of Science Foundation, Ireland

Dr. Ashok Ganguly

Dr. Anthony Allison

Ms. Kiran Mazumdar-Shaw

The terms of the members of the Scientific Advisory Board is for a period of three years, renewable thereafter.

75

Biocon
Key Managerial Personnel The details of our key managerial personnel are as follows: Ms. Kiran Mazumdar-Shaw, the Chairman & Managing Director promoted our Company on December 1, 1978, please refer to the section entitled Brief Biography of the Directors on page 72 of the Prospectus. Mr. John Shaw, the Vice Chairman joined our Company on April 1, 1999, please refer to the section entitled Brief Biography of the Directors on page 72 of the Prospectus. Mr. Ajay Bhardwaj, 43 years, is the President (Group Marketing) for our Group. He has completed his B.Tech. in Chemical Engineering from Indian Institute of Technology, Delhi in 1983 and his M.S. in Chemical Engineering from University of Louisiana in 1984. He has nearly 20 years of experience in direct marketing, sales and strategy. Prior to joining us, he served as Project Engineer at Max India Limited, New Delhi. He joined us on January 1, 1986 and has been responsible for our marketing functions. His remuneration for the year ended March 31, 2003 was Rs. 10,009,270. Dr. Arun Chandavarkar, 42 years, is the President (Group Manufacturing) for our Group. He has completed his B.Tech. in Chemical Engineering from Indian Institute of Technology, Bombay in 1984, his M.S. and his Ph.D. in Chemical Engineering from the Massachusetts Institute of Technology in 1986 and 1990 respectively. He has also done a Program in Finance from the Sloan School of Management, USA. He has won several awards, including the P.C. Ray Award from the Indian Institute of Chemical Engineers for the best bachelors thesis in chemical engineering in 1984 and the W.H. Peterson Award for best student presentation at the 198th National Meeting of the American Chemical Society (MBTD Division), USA in 1989. He joined us on November 8, 1990 and has over 13 years of experience in the manufacture and scale up of fermentation processes, projects, maintenance and quality assurance. His remuneration for the year ended March 31, 2003 was Rs. 9,637,973. Mr. Shrikumar Suryanarayan, 43 years, is the President (Research and Development) for our Group. He has completed his B-Tech Chemical Engineering from the Indian Institute of Technology, Madras in 1982 and his M.Tech. in Bio-chemical Engineering from the Indian Institute of Technology, Delhi in 1984. He began his career with us on May 2, 1984 and has nearly 20 years of experience in research of fermentation based manufacturing techniques. He is responsible for our research and development functions. His remuneration for the year ended March 31, 2003 was Rs. 9,312,529. Mr. Murali Krishnan K.N., 47 years, is the President (Group Finance) for our Group. He completed his Bachelors degree in Commerce from Bangalore University with top ranks in 1975. He began his career with us on November 9, 1981 and has over 22 years experience in planning, finance, cost accounting, MIS and taxation related issues. His remuneration for the year ended March 31, 2003 was Rs. 9,367,377. Key Managerial Personnel for our subsidiary Syngene Dr. Goutam Das, 48 years, is the Chief Operating Officer of Syngene. He did his Ph.D. in Biophysics from the Indian Institute of Chemical Biology, India in 1982 and later completed his Post Doctoral fellowship at the University of Rochester, USA in 1988. He has won several honours, including the R.D. Birla Memorial Fellowship and the Lady Tata Memorial Fellowship. He has more than 20 publications and 4 patents to his name. He has 15 years experience in research and development. Prior to joining us, he served as Senior Scientist and Project Leader at the Astra Research Centre, India. He joined Syngene on August 1, 1994 and has been with us since its inception. He has been responsible for the operations of Syngene. His remuneration for the year ended March 31, 2003 was Rs. 7,222,760. All the abovementioned key managerial personnel are permanent employees of our Company, except Dr. Goutam Das who is a permanent employee of Syngene. The remuneration of each of our key personnel is as per the statement pursuant to Section 217(2A) of the Companies Act, 1956 and the Companies (Particulars of Employees) Rules, 1975. The organisation structure of the senior management in the various departments of Biocon, including the Presidents/Vice Presidents, Senior Managers, Managers, Deputy Managers, Executives and Junior Executives is:

76

Biocon
Board of Directors

Kiran Mazumdar Shaw

Chairman & Managing Director

John Shaw
Director

Shrikumar S President - R&D Dr. Kedarnath R&D Enzymes Dr. Gururaj R&D Healthcare Dr. Anuj Goel Process Development Harish Iyer Biologicals

Ajay Bhardwaj President - Group Mktg Rakesh Bamzai Marketing - Phama Malay Barua Marketing - Enzymes Anusuya Y M Sales Rajul Verma Safety Health & Envn

Dr. Chandravarkar President - Technical Harish V Production Enzymes Ravindra C Production Healthcare Dr. Tara Jayaram Quality Systems Lourd Raj Joseph Maintenance & Engg Madhava Raj Sirsi Projects

Murali Krishnan K N President - Finance Chinappa M B Finance & MIS Ashok Bhandarkar Company Secretary Dinesh Charak Legal Radhakrishnan G Information Systems Shailaja / Rupesh Purchase & Sourcing

Dr. Anandiya Sircar Patents & IPR Dr. Nirupa Bareja Human Resources

Interest of Promoters, Directors and Key Managerial Personnel Except as stated in Related Party Transactions on page 84 of this Prospectus, and to the extent of shareholding in our Company, the Promoters do not have any other interest in our business. Our Promoters have significant rights in our Company under the terms of our Articles of Association. For additional information, please refer to the section entitled Main Provisions of Articles of Association of Biocon Limited on page 168 of this Prospectus. Except to the extent of their compensation and to the extent of ESOP, if any, as mentioned on page 165 of this Prospectus, and their shareholding or shareholding of companies they represent, the Directors, other than Promoter Directors, do not have any other interest in our Company. Our Director, Mr. John Shaw is the husband of our Chairman & Managing Director, Ms. Kiran Mazumdar-Shaw. Our Director, Prof. Ravi Mazumdar is the brother of our Chairman & Managing Director, Ms. Kiran Mazumdar-Shaw. Our alternate Director, Prof. Catherine Rosenberg is the sister-in-law of our Chairman & Managing Director, Ms. Kiran Mazumdar-Shaw. The key managerial personnel of our Company do not have any interest in our Company other than to the extent of the remuneration or benefits to which they are entitled to as per their terms of appointment and reimbursement of expenses incurred by them during the ordinary course of business and to the extent of the Equity Shares held by them in the Company, if any, and options granted to them under the ESOP.

77

Biocon
For the year 2002-2003, we granted options to our Directors and senior management as follows:
No. of shares entitled (as on Dec. 31, 2003) 195,902 195,902 195,902 195,902 195,902 195,902 195,902 Number of Equity Shares vested and exercised (as on Dec. 31, 2003) 48,976 48,976 48,976 48,976 48,976 48,976 48,976

Name Dr. Neville Bain Prof. Charles Cooney Mr. Ajay Bhardwaj Dr. Arun Chandavarkar Mr. Shrikumar Suryanarayan Mr. Murali Krishnan K.N. Dr. Goutam Das

No. of options 4,000 4,000 4,000 4,000 4,000 4,000 4,000

Except as stated otherwise in this Prospectus, we have not entered into any contract, agreement or arrangement during the preceding 2 years from the date of this Prospectus in which the Directors are interested directly or indirectly and no payments have been made to them in respect of these contracts, agreements or arrangements or are proposed to be made to them. Our Articles provide that our Directors and officers shall be indemnified by our Company against loss in defending any proceeding brought against Directors and officers in their capacity as such, if the indemnified Director or officer receives judgement in his favour or is acquitted in such proceeding. We currently do not have any directors and officers insurance policy. Changes in our Key Managerial Employees during the last three years There have been no changes in our key managerial personnel during the last 3 years.

78

Biocon
PROMOTERS
The Promoters of the Company are Ms. Kiran Mazumdar-Shaw, Mr. John Shaw and Glentec International. Ms. Kiran Mazumdar-Shaw, a national of India, 50 years, Chairman and Managing Director, is a first generation entrepreneur with more than 25 years experience in the field of biotechnology. After graduating in B.Sc. (Zoology Hons.) from Bangalore University in 1973, she completed her postgraduate degree in malting and brewing from Melbourne University, Australia in 1975. She is a founder Promoter and has led our Company since its inception in 1978. She is currently the Chairman and Director of Syngene, Clinigene and BBPL. She was previously a consultant with Jupiter Breweries Limited. She is the wife of Mr. John Shaw. She is the recipient of several awards, the most noteworthy being the Padmashri Award (one of the highest civilian awards in India) in 1989 conferred by the President of India, the Ernst & Young Entrepreneur of the Year Award in 2002 for the Healthcare & Lifesciences category and more recently in 2003 the BioSpectrum Person of the Year Award. She heads several biotechnology task forces including the Karnataka Vision Group on Biotechnology, an initiative by the Government of Karnataka and the National Taskforce on Biotechnology for the Confederation of Indian Industry (CII). She is also a Board member of the Science foundation, Ireland. She currently does not possess a voter ID or driving licence. Mr. John Shaw, a national of the United Kingdom, 54 years, Vice Chairman and an Executive Director, is the controlling shareholder and director of Glentec International, one of the substantial shareholders of our Company. He is the husband of Ms. Kiran Mazumdar-Shaw. He completed his M.A. (Economic Hons.) in History and Political Economy from Glasgow University, U.K. in 1970. He has 32 years experience with Coats Viyella plc. Before he came on the Board of our Company in 1999. He has served as Finance Director of Coats Viyella group companies in various locations around the world. He currently does not possess an Indian voter ID or driving licence. We confirm that the Permanent Account Number, Bank Account Number and Passport Number of the Promoters have been submitted to NSE and BSE at the time of filing the Red Herring Prospectus with them. Glentec International Glentec International (previously known as Rosemonts Investments Ltd), a company incorporated in Mauritius on June 29, 1998, is an investment company owned 99% by Mr. John Shaw and 1% by Prof. Ravi Mazumdar. The principal activity of the Company is to hold investments in biotechnology and other high-technology driven companies and property in India, Europe and North America. The company is also engaged in consultancy in finance and biotechnology areas. The share capital of Glentec International comprises 100 shares of US$ 1 each. Board of Directors The board of directors of Glentec International comprises Prof. Ravi Mazumdar, Mr. John Shaw, Mr. Louis Emmanuel Ng Cheong Tin and Mr. Uday Kumar Gujadhur.

79

Biocon
Financial Performance The operating results of Glentec International for 2000, 2001 and 2002 as per International Accounting Standards are set forth below: Balance Sheet
(in US$) Year ended December 2000 Assets Non-current assets Property, plant and equipment Investments in subsidiary Investments in associated company Current assets Trade and other receivables Cash at bank Total assets Equity and Liabilities Capital and reserves Share capital Retained earnings Non-current liabilities Borrowings Current liabilities Current tax liabilities Trade and other payables Total equity and liabilities 100 2,124,171 2,304,168 100 2,162,144 2,338,513 100 2,751,222 2,283,513 944,034 358,033 3,195,046 16,506 4,513,619 958,146 358,033 3,195,046 55,000 21,172 4,587,397 937,913 4,087,994 Year ended December 2001 Year ended December 2002

17,358 5,043,265

85,180 4,513,619

86,640 4,587,397

8,430 5,043,265

Income Statement
(in US$) Year ended December 2000 Income Expenses Gain on disposal of investments Taxation Profit for the year 4,264 21,899 2,163,282 2,145,647 Year ended December 2001 65,295 27,322 37,973 Year ended December 2002 16 25,823 614,885 589,078

Group Companies Our Promoters do not have any group companies in terms of the SEBI Guidelines. Our Company does not have any group companies other than Syngene, Clinigene and BBPL.

80

Biocon
SUBSIDIARIES The Company currently has two subsidiaries, comprising Syngene, Clinigene and a joint venture (in which our Company has a 51% shareholding). In this section, financial data for the subsidiaries has been derived from their financial statements prepared in accordance with Indian GAAP. The details of our subsidiaries are set forth below: Syngene International Private Limited Syngene is a 99.99% owned subsidiary of Biocon Limited. Syngene was incorporated on November 18, 1993 with an authorised share capital of Rs. 5,000,000. Syngene designs and manages research projects mainly for multinational pharmaceutical and biotechnology companies engaged in pre-clinical research in the area of new drug discovery. Syngene works in two main research areas: synthetic chemistry and molecular biology. The synthetic chemistry group is principally engaged in developing novel processes for the synthesis of APIs and their intermediates. Syngene is also involved in custom chemical synthesis. The company has developed skills and expertise in organometalics, boron chemistry, peptide synthesis and heterologus protein production. Syngene was granted 100% Export Oriented Unit, or EOU, status by the Government of India in 1998. The shareholding in Syngene was initially held by a group of persons comprising Ms. Kiran Mazumdar and a few other scientists. In 2000, ICICI Ventures and its affiliate funds acquired 10% in Syngene from Glentec International. By way of a restructuring, 99.9% of the shares in Syngene were transferred to our Company in consideration for the issue of shares by our Company to the shareholders of Syngene. This restructuring was made effective on March 31, 2002. Board of Directors The directors on the board of Syngene as on December 31, 2003 are: 1. 2. 3. 4. 5. Ms. Kiran Mazumdar-Shaw Mr. John Shaw Dr. Neville Bain Prof. Charles Cooney Prof. Catherine Rosenberg

The board of directors of Syngene has appointed Prof Ravi Mazumdar as alternate director to Prof. Catherine Rosenberg. AIG AOF has a right to appoint a nominee director on the Board of Syngene pursuant to the provisions of the AIG AOF SHA. They have not yet exercised this right. Financial Performance The restated operating results of Syngene Limited for the years ended March 31, 1999, 2000, 2001, 2002 and 2003 and the nine months ended December 31, 2003, as per Indian GAAP, are set forth below:
(Rs. in million) Year ended March 31, 1999 Sales and other income Profit after tax (after adjustments) Equity capital (par value Rs. 10/- per share) Reserves and Surplus Earnings per Equity Share (Rs.) Book Value per Equity Share (Rs.) 30.1 9.0 5.8 15.9 18.3 37.7 Year ended March 31, 2000 59.9 13.0 8.0 28.0 21.0 12.7 Year ended March 31, 2001 111.0 33.4 28.8 51.7 11.6 28.0 Year ended March 31, 2002 153.0 28.2 28.8 56.9 9.8 29.8 Year ended March 31, 2003 261.8 74.8 28.8 132.3 26.0 56.0 Nine months period ended Dec. 31, 2003 261.8 108.1 28.8 241.0 37.6 93.8

81

Biocon
Clinigene International Private Limited Clinigene is a 100% owned subsidiary of Biocon Limited. Clinigene was incorporated on August 4, 2000 with an authorised share capital of Rs. 5,000,000. Clinigene was established to undertake clinical and other trials and validation for drugs and pharmaceuticals and to conduct research in the area of medical sciences for development of new and improve upon existing medical diagnostic, surgical and therapeutic techniques in general and specifically for diagnosis, treatment and prevention of diseases, using all available techniques including recombinant Deoxyribose Nucleic Acid technology, genetic microbiology and all other related techniques and disciplines. As of December 31, 2003, our subsidiary, Clinigene, had accumulated losses of Rs. 22.9 million and a negative net worth of Rs. 21.4 million. This is because Clinigene is in the process of developing its clinical research capabilities, including the establishment of a human pharmacology unit in association with a leading hospital in India and the hiring of employees. Clinigene may require additional funds from our other businesses or external sources to develop its businesses and may not become profitable. Until Clinigene becomes profitable, it will continue to adversely affect our consolidated results of operations and financial condition. To the extent Biocon Limited is not able to recoup these investments in and advances to Clinigene, Biocon Limited will have losses. Board of Directors The directors on the board of Clinigene as on December 31, 2003 are: 1. 2. Ms. Kiran Mazumdar-Shaw Mr. John Shaw

AIG AOF has a right to appoint a nominee director on the Board of Clinigene pursuant to the provisions of the AIG AOF SHA. They have not yet exercised this right. Financial Performance The restated operating results of Clinigene Limited for the years ended March 31, 2001, 2002 and 2003 and the nine months ended December 31, 2003, as per Indian GAAP, are set forth below:
(Rs. million) August 4, 2000 to March 31, 2001 Sales and other income Profit after tax (after adjustments) Equity capital (par value Rs. 10/- per share) Reserves and Surplus Earnings per Equity Share (Rs.) Book Value per Equity Share (Rs.) 3.7 (0.2) 0.5 (0.2) (460.3) 6.2 Year ended March 31, 2002 26.7 8.4 0.5 2.7 168.1 64.1 Year ended March 31, 2003 11.1 (5.6) 0.5 (2.8) (111.3) (47.2) Nine months period ended Dec. , 2003 1.4 (19.0) 0.5 (21.9) (380.2) (427.5)

The net worth of Clinigene has been entirely eroded. As of December 31, 2003, Clinigene, had accumulated losses of Rs. 22.9 million and a negative net worth of Rs. 21.4 million. However, the board of directors of Clinigene are not required to make a reference to the BIFR as the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 are not applicable to it. Further, our Company intends to infuse further funds or to grant other forms of financial assistance to Clinigene as may be required. Biocon Biopharmaceutical Private Limited BBPL is a joint venture company and currently 51% of its shares are held by our Company and the balance 49% by our partner CIMAB. BBPL was incorporated on June 17, 2002 with an authorised share capital of Rs. 500,000. BBPL has been established to produce and sell certain biologicals developed by CIMAB, including EPO and GCSF, into the Indian market. BBPL proposes to develop (i) TheraCIM hR3 humanised Monoclonal Antibody for the treatment of head and neck cancers, (ii) Granulocite Colony Stimulating Factor for treating blood disorder most commonly associated with cancer patients undergoing chemotherapy, and (iii) Human Recombinant Erythropoietin for stimulating production of red blood corpuscles.
82

Biocon
Board of Directors The directors on the board of BBPL as on December 31, 2003 are: 1. 2. 3. 4. Ms. Kiran Mazumdar-Shaw Mr. John Shaw Ms. Patricia DeLa Asuncion Sierra Blazquze Dr. Joaquin Manuel Villan Guerra

Financial Performance The restated operating results of BBPL for FY03 and the nine months ended December 31, 2003, as per Indian GAAP, are set forth below:
(Rs. in million) June 17, 2002 to March 31, 2003 Sales and other income Profit after tax (after adjustments) Equity capital (par value Rs. 10/- per share) Reserves and Surplus Loss per Equity Share (Rs.) Book Value per Equity Share (Rs.) 0 (1.6) 0.1 (1.6) 163 (153) Nine months ended Dec. 31, 2003 0 (1.6) 0.2 (3.2) 83.4 (152.2)

As of December 31, 2003, BBPL had accumulated losses of Rs. 3.2 million and a negative net worth of Rs. 3.0 million. Joint Venture Agreement Our Company has entered into a joint venture agreement dated February 22, 2002 in relation to BBPL. The agreement envisages that BBPL will be the joint venture company for the manufacture and marketing of certain bio-pharmaceutical and biotechnology products. The agreement governs matters pertaining to funding of BBPL, restrictions on transfer of shares, management and other related aspects. The board of directors of BBPL shall have equal number of directors nominated by our Company and CIMAB. Currently, out of a board strength of 4 directors, our Company has nominated 2 directors and CIMAB has nominated the other 2 directors. The agreement contemplates that CIMAB will transfer specific technology to BBPL and also supervise the engineering and construction of the biotechnology plant. The joint venture agreement has a term of 25 years unless terminated earlier in accordance with its terms. Our joint venture company, Biocon Biopharmaceuticals, is in its development stage and has not yet commenced revenue generating operations. As of December 31, 2003, Biocon Biopharmaceuticals had accumulated losses of Rs. 3.2 million and a negative net worth of Rs. 3.0 million. Biocon Biopharmaceuticals is in the process of setting up its facilities. Biocon Limited is required to make a US$5.1 million equity investment and provide or guarantee the remaining debt financing for the full capital expenditure requirements of Biocon Biopharmaceuticals. We have not yet determined the capital expenditure requirements of this company, although Biocons board of directors has given preliminary approval for financing capital expenditures of up to Rs. 850.0 million for the joint venture. To the extent Biocon Limited is not able to recoup these investments in and advances to Biocon Biopharmaceuticals, Biocon Limited will have losses.

83

Biocon
RELATED PARTY TRANSACTIONS Our Company has various transactions with related parties, including the following:
s s s

Our subsidiaries Syngene and Clinigene and joint venture BBPL; Our shareholders; and Our Promoters, Directors and employees, including their relatives.

The related party transactions over the last 3 years are set forth below: Ms. Kiran Mazumdar-Shaw As per our Company policies, Ms. Kiran Mazumdar-Shaw is entitled to receive compensation for her services as the Chairman and Managing Director of our Company. Her remuneration for the year ended March 31, 2003 was Rs. 10,186,766. In addition, we had leased immovable property of an area of 11.8 acres at our site at 20th KM Hosur Road, Electronic City P.O., Bangalore 560 100 from Ms. Kiran Mazumdar-Shaw who is the owner of the property. Under the lease, we have paid a lease deposit of Rs. 9,600,000 which was fully repaid during the year. We were required to pay a monthly rent of Rs. 80,000. The lease was valid till 2011. We have, on December 23, 2003, acquired the above-mentioned land of 11.8 acres of land located at 20 th KM Hosur Road, Electronic City P. O., Bangalore 560 100 from Ms. Kiran Mazumdar-Shaw at a price of Rs. 2,200,000 per acre and at an aggregate price of Rs. 24,926,000. This price is lower than the price of Rs. 2,400,000 per acre that our Company has contracted with KIADB for the acquisition of the land, at a site that is at Plot No.113 C2, Bommasandra Industrial Areas, Bangalore, as described in the section entitled Objects of the Issue on page 30 of this Prospectus. We do not intend to purchase any more land from Ms. Kiran Mazumdar Shaw. Mr. John Shaw As per our Company policies, Mr. John Shaw is entitled to receive compensation for his services as the Vice-Chairman of our Company. His remuneration for the year ended March 31, 2003 was Rs. 9,216,800. Syngene Syngene was an associate company of our Company until March 31, 2002 after which it became a subsidiary of our Company. We have leased land and building to Syngene, the details of which are set out below. Our Company charges Syngene for power based on actual units consumed at year-end. Our Company has given guarantees to customs and excise department on behalf of Syngene to the extent of Rs. 80,000,000 as on December 31, 2003. Similarly, Syngene has given guarantees to customs and excise department on behalf of our Company to the extent of Rs. 165,000,000. Also, Syngene receives assistance from Biocon in the areas of general administration, accounting and senior management assistance in respect of which no charges have been levied.
Property Building Land Building Area 3,856.5 sq.ft. 21,208 sq.ft. 3,500 sq.ft. Lease Period 31 st March 2003 to 30 th March 2013 1 April 1999 to 31 March 2010 1st April 2001 to 31 st March 2011
st st

Deposit Rs. 600,000/-

Rental Rs. 50,000/ p.m. Rs. 20,000/- p.m. Rs. 25,000/- p.m.

Clinigene Our Company has leased building to Clinigene of an area of 3,200 square feet. The lease is valid till March 31, 2008. Under the lease, our Company is entitled to a monthly lease rental of Rs. 20,000. Our Company also charges Clinigene for power based on actual units consumed at year-end. As at December 31, 2003, Clinigene owes Biocon Rs. 32,616,803 on current account for which Biocon has levied no interest. Also, Clinigene receives assistance from Biocon in the areas of general administration, accounting and senior management assistance in respect of which no charges have been levied. Clinigene has provided assistance to our Company in some of their projects in respect of which no charges have been levied.

84

Biocon
BBPL Our Company entered into a collaboration agreement with CIMAB SA, Cuba on February 22, 2002 to set up a joint venture company to carry on the business of research, development, manufacturing and marketing of biopharmaceuticals. The equity participation by the Company and CIMAB is 51 per cent and 49 per cent respectively. BBPL is in the development stage and is yet to enter into any financing arrangements with banks or other financial institutions. It is supported in its financing by us as agreed upon in the joint venture agreement up to setting up the plant and commencement of operations. ESOP Trust The administration of the ESOP Trust is undertaken by the trustees, being Ms. Kiran Mazumdar-Shaw, Mr. John Shaw, Dr. Arun Chandavarkar and Mr. Murali Krishnan K.N. who are key managerial personnel of our Company. In addition, we have provided a loan to the ESOP Trust on which an amount of Rs. 1,258,700 is currently outstanding as on December 31, 2003. Our Shareholders We have entered into Shareholders Agreements with our Promoters and AIG AOF and IVF pursuant to which certain significant rights have been granted to them. For details of the Shareholders Agreements please refer to the section entitled History and Certain Corporate Matters on page 64 of this Prospectus. Apart from the above, our Company renders administrative and management assistance to its subsidiaries Syngene and Clinigene in respect of which no charges are being made by our Company. Our Company has incurred Rs. 14.2 million towards employee compensation cost for stock options granted to employees of Syngene. The corresponding compensation cost amortized between April 1, 2002 and December 31, 2003 is Rs. 10.3 million. Our Company has not charged this amortization to Syngene. For more detailed information on our related party transactions, please refer to note 21 to our audited unconsolidated financial statements under Indian GAAP on page 199 of this Prospectus.

85

Biocon
SELECTED FINANCIAL DATA (AS PER UNCONSOLIDATED FINANCIAL STATEMENTS UNDER INDIAN GAAP, AS RESTATED) The statutory financial statements of the Company prepared in accordance with Indian GAAP for the years ended March 31, 2002 and 2001 were audited by Arthur Andersen & Associates, Chartered Accountants, (a member firm of Andersen Worldwide, an affiliation of accounting firms which has ceased operations) and those for the years ended March 31, 2000 and 1999 were audited by M/s. S. Madhavan & Co., Chartered Accountants, who resigned in the normal course. S.R. Batliboi & Associates are our current auditors and have audited our statutory financial statements for the year ended March 31, 2003 and the financial statements for the period ended December 31, 2003. Biocon Statement of Profits and Losses, as Restated
(Rs. in million) Year ended March 31, 1999 Income Sales - Of products manufactured - Of products traded Contract Research Fees Other income Total income Expenditure Production costs Other Manufacturing costs Employee costs Research, Selling & Administrative Expenses Interest Depreciation Total expenditure Net profit before taxation Current tax Deferred tax Net Profit after Tax Profit and loss account, beginning of the year Balance available for appropriation, as restated Appropriations Transfer to general reserve Issue on bonus shares Balance carried forward as restated 284.2 18.6 5.0 8.8 316.6 200.5 5.5 25.7 46.0 11.7 8.3 297.7 18.9 4.7 1.0 13.2 (6.6) 6.6 11.7 (5.1) 698.8 27.9 11.0 4.3 742.0 391.4 43.4 84.5 89.6 32.0 31.9 672.8 69.2 (3.2) 17.1 55.3 (5.1) 50.2 57.5 (7.3) 1,199.4 23.7 10.7 2.1 1,235.9 586.9 112.0 126.2 85.9 45.6 62.0 1,018.6 217.3 35.6 36.5 145.2 (7.3) 137.9 200.0 (62.1) 1,587.0 19.2 9.8 33.3 1,649.3 828.2 111.4 196.5 113.0 46.9 75.9 1,371.9 277.4 40.4 22.1 214.9 (62.1) 152.8 152.8 2,529.4 13.0 5.2 7.6 2,555.2 1,202.3 177.5 297.0 223.1 49.0 117.1 2,066.0 489.2 89.0 47.1 353.1 152.8 505.9 505.9 3,708.8 3.4 5.7 6.6 3,724.5 1,896.1 176.1 257.5 208.0 12.1 98.1 2,647.9 1,076.6 201.7 13.8 861.1 505.9 1,367.0 431.6 935.4 Year ended March 31, 2000 Year ended March 31, 2001 Year ended March 31, 2002 Year ended March 31, 2003 Nine months period ended Dec. 31, 2003

86

Biocon
Statement of Assets and Liabilities, as Restated
(Rs. in million) As at March 31, 1999 Application Of Funds Fixed Assets Less : Accumulated depreciation Net Block Less: Revaluation Reserve Net block after adjustment for Revaluation Reserve Capital work in progress Total Investments Current Assets Inventories Sundry debtors Cash and bank balances Loans and advances Total Liabilities and Provisions Secured loans Unsecured loans Current liabilities and provisions Deferred tax liability Total Networth Represented by Share capital Advance share application money Reserves and Surplus Less: Revaluation reserve Reserves (Net of Revaluation Reserves) Net worth 118.1 39.4 78.7 26.2 52.5 2.0 54.5 80.9 53.5 73.3 0.7 21.7 149.2 58.2 17.2 109.7 4.4 189.5 95.1 5.8 115.5 26.2 89.3 95.1 677.2 109.5 567.7 21.2 546.5 19.2 565.7 0.1 134.3 242.2 9.7 70.8 457.0 320.0 253.5 34.4 607.9 414.9 15.0 0.4 420.7 21.2 399.5 414.9 786.7 164.1 622.6 20.0 602.6 25.2 627.8 0.6 217.6 391.7 0.1 59.9 669.3 343.0 38.9 284.9 70.8 737.6 560.1 15.0 565.1 20.0 545.1 560.1 1,262.8 240.6 1,022.2 18.8 1,003.4 37.1 1,040.5 84.8 233.3 624.7 1.0 101.9 960.9 559.3 106.0 467.8 93.0 1,226.1 860.1 18.2 860.7 18.8 841.9 860.1 1,561.9 358.9 1,203.0 16.6 1,186.4 79.8 1,266.2 84.8 466.6 737.8 10.2 157.7 1,372.3 582.1 103.5 650.4 140.0 1,476.0 1,247.3 18.4 1,245.5 16.6 1,228.9 1,247.3 1,789.4 452.9 1,336.5 14.8 1,321.7 391.0 1,712.7 84.9 689.0 1,370.1 11.4 168.1 2,238.6 487.0 163.3 1,112.1 153.8 1,916.2 2,120.0 450.0 1,684.8 14.8 1,670.0 2,120.0 As at March As at March As at March As at March 31, 2000 31, 2001 31, 2002 31, 2003 As at Dec. 31, 2003

Accounting Ratios
Year ended March 31, 1999 Earnings per Share (Rs.) (1) Pre Split Post Split Return on Net Worth Pre Split Post Split Net Asset Value per Equity Share Pre Split Post Split Weighted average number of equity shares outstanding during the year/period Pre Split Post Split Total number of share outstanding at the end of the year/.period Pre Split Post Split
(1)

Year ended March 31, 2000 3.2 1.6 13% 13% 11.3 5.7

Year ended March 31, 2001 4.0 2.0 26% 26% 15.3 7.7

Year ended March 31, 2002 5.6 2.8 25% 25% 19.3 9.6

Year ended March 31, 2003 7.9 3.9 28% 28% 27.7 13.9

Nine months period ended Dec. 31, 2003 19.1 9.6 41% 41% 47.1 23.6

0.9 0.5 14% 14% 6.7 3.3

14,251,898 28,503,796

17,073,354 34,146,707

36,662,328 73,324,656

38,110,196 76,220,392

44,958,476 89,916,952

45,000,000 90,000,000

14,251,898 28,503,796

36,648,927 73,297,853

36,669,741 73,339,482

44,611,379 89,222,757

45.000.000 90,000,000

45,000,000 90,000,000

On November 11, 2003, our shareholders approved a sub division of one equity share of Rs. 10/- each into two equity shares of Rs. 5/- each. Accordingly, earnings per share and weighted average number of shares outstanding are presented on a pre-split and post-split basis.

87

Biocon
Syngene Statement of Profits and Losses, as Restated
(Rs. in million) Year ended March 31, 1999 Income Contract research fees Sale of compounds Other Income Total Income Expenditure Chemicals and reagents Staff cost Other contract research and operating expenses Interest Depreciation Total Expenditure Net profit before taxation Current tax charge/(credit) Deferred tax charge/(credit) Net profit after tax Profit and loss account, beginning of the year/period Profit available for appropriation Transfer to general reserve Dividend Corporate tax on proposed dividend Balance carried forward, as restated 8.1 6.2 3.7 0.5 1.9 20.4 9.7 0.6 0.1 9.0 7.6 16.6 (0.9) (1.2) (0.1) 14.4 21.5 13.3 7.6 0.4 3.3 46.1 13.8 0.5 0.3 13.0 14.4 27.4 (18.9) (1.2) (0.3) 7.0 28.0 26.5 15.4 0.8 7.8 78.5 32.5 0.9 (1.8) 33.4 7.0 40.4 (25.0) (5.8) (0.6) 9.0 41.9 48.4 21.1 0.9 10.2 122.5 30.5 2.0 0.3 28.2 9.0 37.2 (2.2) (21.6) (2.9) 10.5 67.5 71.8 22.6 1.3 15.4 178.6 83.2 8.0 0.4 74.8 10.5 85.3 85.3 52.7 66.6 16.7 0.3 14.9 151.2 110.6 2.2 0.3 108.1 85.3 193.4 193.4 29.7 0.3 0.1 30.1 56.3 2.5 1.1 59.9 106.0 2.9 2.1 111.0 136.6 10.5 5.9 153.0 225.2 36.1 0.5 261.8 213.7 44.2 3.9 261.8 Year ended March 31, 2000 Year ended March 31, 2001 Year ended March 31, 2002 Year ended March 31, 2003 Nine months period ended Dec. 31, 2003

88

Biocon
Statement of Assets and Liabilities, as Restated
(Rs. in million) As at March 31, 1999 Application Of Funds Fixed assets Less : Accumulated depreciation Net Block Capital work in progress Total Investments Current assets Inventories Sundry debtors Cash and bank balances Loans and advances Total Liabilities and provisions Secured loans Unsecured loans Deferred tax liability/(asset) Current liabilities and provisions Total Net worth Represented by Share capital Advance share application money Reserves and surplus Net worth 26.4 4.4 22.0 2.4 24.4 0.1 5.9 1.2 0.0 6.9 14.0 3.0 (0.6) 14.4 16.8 21.7 5.8 15.9 21.7 As at March As at March As at March As at March 31, 2000 31, 2001 31, 2002 31, 2003 72.3 7.8 64.5 0.5 65.0 0.1 5.0 4.3 0.0 3.3 12.6 4.1 3.6 (0.8) 34.5 41.4 36.3 8.0 0.3 28.0 36.3 86.3 15.7 70.6 70.6 0.1 6.6 15.7 0.8 25.8 48.9 4.8 1.0 33.3 39.1 80.5 28.8 51.7 80.5 102.4 25.7 76.7 11.3 88.0 0.0 8.1 15.6 17.7 6.2 47.6 2.8 0.6 46.5 49.9 85.7 28.8 56.9 85.7 171.1 40.1 131.0 0.0 131.0 50.0 12.1 10.7 16.1 4.2 43.1 0.3 62.7 63.0 161.1 28.8 132.3 161.1 As at Dec. 31, 2003 190.6 55.1 135.5 28.8 164.3 142.1 12.2 24.8 9.8 4.0 50.8 0.0 87.4 87.4 269.8 28.8 241.0 269.8

Clinigene Statement of Profits and Losses, as Restated

(Rs. in million) August 4, 2000 to March 31, 2001 Net Sales Other Income Total Income Expenditure Research material costs Staff cost Other contract research expenses Other expenses Interest Depreciation Total Expenditure Net profit before taxation Current tax charge/(credit) Deferred tax charge/(credit) Net Profit as per audited statement of accounts Appropriations Transfer to general reserve Dividend Corporate tax on proposed dividend Balance carried forward, as restated 3.5 0.2 3.7 0.6 0.2 1.6 1.4 0.0 0.2 4.0 (0.3) (0.1) (0.2) (0.2) Year ended March 31, 2002 26.7 26.7 3.5 0.7 6.3 1.4 0.4 0.9 13.2 13.5 4.5 0.6 8.4 0.9 5.0 0.5 2.0 Year ended March 31, 2003 11.1 11.1 2.5 3.0 7.6 2.7 0.4 0.9 17.1 (6.1) (0.5) (5.6) (5.6) Nine months period ended Dec. 31, 2003 1.4 0.0 1.4 3.2 6.7 6.1 3.3 0.0 1.1 20.4 (19.0) (19.0) (19.0)

89

Biocon
Statement of Assets and Liabilities, as Restated
(Rs. in million) As at March 31, 2001 Application Of Funds Fixed assets Less : Accumulated depreciation Net block Capital work in progress Total Current assets Inventories Sundry debtors Cash and bank balances Loans and advances Total Current liabilities and provisions Current liabilities and provisions Deferred tax liability Total Net worth Represented by Share capital Accumulated losses 5.8 0.1 5.7 0.7 6.4 0.0 1.2 1.2 7.4 (0.1) 7.3 0.3 0.5 (0.2) As at March 31, 2002 6.9 1.0 5.9 5.9 0.7 8.3 0.0 0.0 9.0 11.2 0.5 11.7 3.2 0.5 2.7 As at March 31, 2003 9.6 1.8 7.8 7.8 5.1 0.0 2.2 7.3 17.4 17.4 (2.3) 0.5 (2.8) As at Dec. 31, 2003 11.8 3.0 8.8 8.8 17.6 1.5 0.0 1.8 3.3 42.3 42.3 (21.4) 0.5 (21.9)

Biocon Biopharmaceuticals Statement of Profits and Losses, as Restated

(Rs. in million) June 17, 2002 to March 31, 2003 Net Sales Other Income Total Income Expenditure Staff cost Other expenses Interest Depreciation Total Expenditure Loss for the period Loss beginning of the period Loss end of the period 1.6 1.6 1.6 1.6 Nine months period ended Dec. 31, 2003 0.5 1.0 0.1 1.6 1.6 1.6 3.2

90

Biocon
Statement of Assets and Liabilities, as Restated
(Rs. in million) As at March 31, 2003 Application Of Funds Fixed assets Less : Accumulated depreciation Net block Capital advances Total Current assets Cash balances Total Liabilities and provision Current Liabilities and provision Total Net worth Represented by Share capital Reserves & surplus 0.1 0.1 1.6 1.6 (1.5) 0.1 (1.6) As at Dec. 31, 2003 0.1 0.1 1.5 1.6 4.6 4.6 (3.0) 0.2 (3.2)

91

Biocon
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion of our financial condition and results of operations together with our audited/ examined unconsolidated and consolidated financial statements under Indian GAAP including the schedules, annexure and notes thereto and the reports thereon, which appear elsewhere in this Prospectus beginning on page 180. We have also prepared audited financial statements under US GAAP, which, together with the notes thereto and the report thereon, appear elsewhere in this Prospectus beginning on page 306. Indian GAAP and US GAAP differ in certain material respects. For more information on these differences, please refer to the section entitled Financial Information Summary of Significant Differences Between Indian GAAP and US GAAP beginning on page 345 of this Prospectus. Unless otherwise stated, the financial information used in this section is derived from our audited unconsolidated financial statements under Indian GAAP, as restated. Our fiscal year ends on March 31 of each year, so all references to a particular fiscal year are to the 12-month period ended March 31 of that year. In this section, references to the Biocon Group, we, us or our refer to Biocon, Syngene, Clinigene and Biocon Biopharmaceuticals Private Limited and references to Biocon or the Company are to Biocon Limited on an unconsolidated basis. OVERVIEW Over the past 25 years, we have emerged as an integrated biotechnology enterprise with presence in biopharmaceuticals, enzymes, custom research and clinical research. We were Indias largest biotechnology company in terms of fiscal 2003 revenues, according to Indias Association of Biotechnology Led Enterprises. Our core expertise lies in our fermentation and we have patented a novel technology, PlaFractorTM, for developing some of the products in our portfolio requiring highly controlled production conditions. We develop what we believe to be non-infringing processes for the manufacture of products targeted at the therapeutic categories of cardiovascular, immunosuppressants, anti-diabetics and oncology. Our total operating income from fiscal year 2001 through the first nine months of fiscal 2004 has grown from Rs. 1,346.3 million to Rs. 3,977.4 million. In the first nine months of fiscal 2004, our total consolidated net profit was Rs. 949.4 million, compared with fiscal 2003s whole-year total of Rs. 422.3 million. From fiscal year 2001 through the first nine months of fiscal 2004, our revenue from biopharmaceuticals has grown from 60.7% to 81.1% of our total operating income. Revenues from exports of biopharmaceuticals and enzymes have increased from 19.9% of total operating income in fiscal year 2001 to 52.4% in the first nine months of 2004. Several factors have affected our results of operations, financial condition and cash flow significantly over the past three years. These factors include:
s

Introduction of our APIs into regulated markets upon expiration or invalidity of API product patents there significantly, introduction of our lovastatin API into key regulated markets, including the United States upon patent expiry in 2001, the United Kingdom upon patent expiry in 2000 and Germany upon patent expiry in 2003, and introduction of our simvastatin in the United Kingdom and Germany upon patent expiry in 2003; Strong worldwide demand for statins statins are among the best selling drugs in the global markets; The increasing share of exports to regulated markets in our sales mix; Capital expenditures, including for capacity expansion; Yield improvement in our fermentation processes; Improved utilization of our manufacturing facilities; Growing demand for production and research outsourcing in the global pharmaceuticals industry; Capacity constraints principally affecting API production; Competition from Indian and non-Indian biopharmaceuticals producers, especially the effect of such competition on pricing of our products and services; Availability of tax exemptions;

s s s s s s s s

92

Biocon
s s s s

Increasing employee compensation in India; Changes in market prices for petroleum and petrochemical products; Reduction in interest rates; and Foreign exchange rate fluctuations.

These factors and a number of future developments may affect our results of operations, financial condition and cash flow in future periods. We believe that the following future developments may affect our future results of operations, financial condition and cash flow:
s s

Additional capital expenditures and related financings, if any, including for capacity expansion; Introduction into regulated markets, principally the United States and Europe, of existing products, such as simvastatin and pravastatin, once those products are off-patent and permitted to be sold by us under applicable laws and regulations significantly, planned introduction of pravastatin in key European markets upon expiry of API patents there beginning in 2004 and planned introduction of simvastatin and pravastatin in the United States upon expiry of API patents there beginning in 2006; Introduction of new products, such as recombinant human insulin, in the domestic and international markets; Commencement of operation of the new joint venture, Biocon Biopharmaceuticals, and the expected launch of new biologicals into the Indian market through this joint venture; Changes in global demand for key products, including statins; Gain or loss of significant customers or clients; Recognition in the key unregulated markets, including India, of pharmaceutical product patents from the beginning of 2005; Adoption of or changes in price controls in major drug markets; Changes in the levels of government economic assistance with respect to pharmaceutical purchases in major drug markets; Increase in emphasis on new drug discovery and commercialisation of proprietary products; New strategic partnerships or mergers/acquisitions; Adoption of milestone-based pricing in our custom research business; and Changes in the strategic plans of our current and potential customers and clients regarding outsourcing.

s s

s s s

s s s s s s

For more information on these and other factors/developments which have or may affect us financially, please refer to the other parts of this Managements Discussion and Analysis of Financial Condition and Results of Operations section, as well as the section entitled Risk Factors section beginning on page xi and the section entitled Business section beginning on page 40 of this Prospectus. SIGNIFICANT ACCOUNTING POLICIES Preparation of financial statements in accordance with Indian generally accepted accounting principles, the applicable accounting standards issued by the Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956, require our management to make judgments, estimates and assumptions regarding uncertainties that affect the reported amounts of our assets and liabilities, disclosures of contingent liabilities and the reported amounts of revenues and expenses. These judgments, assumptions and estimates are reflected in our accounting policies, which are more fully described in the auditors report appearing elsewhere in this prospectus. Certain of our accounting policies are particularly important to the portrayal of our financial position and results of operations and require the application of significant assumptions and estimates of our management. We refer to these accounting policies as our significant accounting policies. Our management uses its historical experience and analyses, the terms of existing contracts, historical cost convention, industry trends, information provided by our agents and information available from

93

Biocon
other outside sources, as appropriate, when forming its assumptions and estimates. However, this task is inexact because our management is making assumptions and providing estimates on matters that are inherently uncertain. While we believe that all aspects of our financial statements should be studied and understood in assessing our current and expected financial condition and results, we believe that the following critical accounting policies warrant additional attention: Fixed Assets and Depreciation Fixed assets are stated at cost, except for revalued freehold land and buildings, which are shown at estimated replacement cost as determined by valuers, less accumulated depreciation. We capitalise all costs relating to the acquisition and installation of fixed assets. Fixed assets, other than freehold land, but including revalued buildings, are depreciated pro rata to the period of use, on the straight line method based on the estimated useful lives.
Rate Buildings Plant and machinery Research and development equipment Furniture and fixtures Vehicles 4.00% 9.09 - 33.33 11.11 16.67 16.67

Goodwill is amortised over a period of five years and assessed for impairment at each balance sheet date. Leasehold land, other that those on a lease-cum-sale basis, is depreciated over the lease period. Leasehold land on a leasecum-sale basis is capitalised at the allotment rates currently charged by the Municipal Authorities. The depreciation charge over and above the depreciation calculation on the original cost of the revalued assets is transferred from the revaluation reserve to the profit and loss account. Assets costing less than Rs. 5,000 are fully depreciated in the year of purchase. Inventories Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first-in-first-out basis and includes all applicable overheads in bringing the inventories to their present location and condition. Excise duty arising on finished goods and customs duty on imported raw materials in stock (excluding stocks in the bonded warehouse) are treated as part of the cost of inventories. Revenue Recognition With respect to sales of pharmaceuticals, enzymes and compounds, sales are recognised on despatch of goods to customers and are recorded net of excise duty, sales tax and other levies. For the purpose of disclosure sales are reflected gross and net of excise duty in the consolidated profit and loss account. With respect to contract/clinical research agreements, the Group enters into two basic types of contract research agreements, and the revenues therefrom are recognised on the following basis:
s

For contracts based on time and material management, revenues are recognised as services are rendered, in accordance with contractual agreements; and For fixed price arrangements, revenues are recognised based on the percentage of completion method.

Investments Long term investments are stated at cost. Provision, where necessary, is made to recognise a decline, other than temporary, in the value of investments. Current investments are stated at the lower of cost and fair market value.

94

Biocon
Retirement Benefits We have schemes of retirement benefits for provident fund, gratuity and superannuation, in respect of which, our contributions are charged to the statement of profit and loss. The contributions towards provident fund are made to statutory authorities. The gratuity and superannuation fund benefits are administered by a trust formed for this purpose through the group gratuity and superannuation scheme with Birla Sun Life Insurance Company Limited. In respect of gratuity and superannuation, the adequacy of the accumulated fund available with Birla Sun Life has been confirmed on the basis of an actuarial valuation made at period end. Leave Encashment Liability for leave encashment is in accordance with the rules of the Group and is provided on the basis of an actuarial valuation performed by an independent actuary. Foreign Currency Transactions Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing on the date of the balance sheet. Where we have entered into foreign exchange contracts, the difference between the forward rates and the spot rates at the date of the transaction is recognised in the statement of profit and loss over the life of the contract. All exchange differences are dealt with in the statement of profit and loss, except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets. Research and Development Costs Research and development costs, including technical know-how fees, incurred for development of products are expensed as incurred, except for development costs which relate to the design and testing of new or improved materials, products or processes which are recognised as an asset to the extent that it is expected that such assets will generate future economic benefits. Research and development expenditure of a capital nature is added to fixed assets. Income Tax Provision for tax is made for both current and deferred taxes. Provision for current income tax is made on the current tax rates based on assessable income. We provide for deferred tax based on the tax effect of timing differences resulting from the recognition of items in the financial statements and in estimating its current tax provision. Deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. The effect on deferred taxes of a change in tax rates is recognised in income in the period in which the change is substantially enacted. The provision for current tax is based on the earnings for the period from April 1, 2003 to December 31, 2003, and our actual tax liability will be determined on the basis of the earnings for the period from April 1, 2003 to March 31, 2004. Borrowing Costs Borrowing costs that are attributable to the acquisition and construction of a qualifying asset are capitalised as a part of the cost of the asset. Other borrowing costs are recognised as an expense in the period in which they are incurred. Deferred Employee Stock Compensation Costs Deferred employee stock compensation costs for stock options are recognised on the basis of generally accepted accounting principles and are measured as the excess of the fair value of Biocons stock on the stock options grant date over the amount an employee must pay to acquire Biocons Equity Shares and recognised in a graded manner on the basis of weighted period of services over the vesting period of Equity Shares. The fair value of the options is currently measured on the basis of an independent valuation performed in respect of stock options granted. In fiscal 2002, the last time options were valued for accounting purposes, option value was based on a valuation of Biocon of Rs. 1.7 billion. Following the Issue, the fair value of the options will be measured on the basis of the market price of the Equity Shares.
95

Biocon
Earnings Per Share Net profit after tax in a particular reporting period is used as the earnings figure for the purposes of calculating earnings per share. The number of shares used in computing the basic earnings per share is the weighted average number of shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average number of shares considered for deriving basic earnings per share, and also the weighted average number of shares, if any which would have been issued on the conversion of all dilutive potential equity shares. The number of shares and potentially dilutive equity shares are adjusted for the bonus shares and sub-division of shares. For the purposes of consolidated reporting, the shares issued to the ESOP Trust have been considered as outstanding for basic earnings per share purposes, to the extent these shares have been allocated to the employees pursuant to the ESOP scheme and are eligible for exercise. For dilutive EPS purpose, the shares, which are not yet eligible for exercise, have been considered as dilutive potential equity shares. Operating Lease As Lessee: Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term. As Lessor: Assets subject to operating leases are included in fixed assets. Lease income is recognised on a straight line basis over the lease term. Costs, including depreciation, are recognised as an expense. Initial direct costs such as legal costs, brokerage costs, etc. are recognised immediately. BIOCON RESULTS OF OPERATIONS Income Biocons total income has four components: s Sales of products manufactured by Biocon; s Sales of products traded by Biocon; s Research and development fees; and s Other income. The following table sets out the contribution of each of these components of Biocons income expressed as a percentage of Biocons total income for fiscal years 2001, 2002 and 2003, and the first nine months of fiscal 2004:
Fiscal Year 2001 Sales Products Manufactured by Biocon Biopharmaceuticals (1) Enzymes (1) Products Traded by Biocon Biopharmaceuticals (1) Enzymes (1) Research and Development Fees Other Income Total Income (1) Net of inter-segment sales 64.7% 32.3 1.5 0.4 0.9 0.2 100.0% 68.4% 27.9 0.9 0.2 0.6 2.0 100.0% 78.3% 20.7 0.3 0.2 0.2 0.3 100.0% 86.7% 12.9 0.0 0.1 0.1 0.2 100.0% 2002 2003 First Nine Months of Fiscal Year 2004

Products Manufactured by Biocon Income from sales of products manufactured by Biocon comprises sales of biopharmaceuticals and enzymes. Biocons sales of biopharmaceuticals, in particular statins, have been increasing significantly from the beginning of fiscal 2001 through the first nine months of fiscal 2004, both in absolute terms and as a percentage of total income. Sales of statins contributed 27.7%, 30.8%, 47.1% and 58.2% of Biocons total income for the fiscal years ended 2001, 2002, 2003 and the first nine months of fiscal 2004, respectively.
96

Biocon
Throughout the period from the beginning of fiscal 2001 through the first nine months of fiscal 2004, the contribution of exports in the total sales mix has also been increasing as a percentage of total income. The following table sets out domestic and export sales of biopharmaceuticals and enzymes as a percentage of Biocons total income:
Fiscal Year 2001 Products Manufactured by Biocon Biopharmaceuticals Domestic (1) Exports Subtotal Enzymes Domestic (1) Exports Subtotal Total Domestic (1) Exports Total Sales
(1) Net of inter-segment sales

First Nine Months of Fiscal Year 2003 2004

2002

57.8% 6.9 64.7% 17.6% 14.8 32.4% 75.4% 21.7 97.1%

52.8% 16.5 69.3% 16.3% 11.8 28.1% 69.1% 28.3 97.4%

43.4% 35.0 78.4% 12.5% 8.1 20.6% 55.9% 43.1 99.0%

36.0% 50.7 86.7% 7.6% 5.3 12.9% 43.6% 56.0 99.6%

Statins constitute the largest component of our biopharmaceuticals sales. The following table sets out domestic and export sales of Biocons statins as a percentage of Biocons total income:
Fiscal Year 2001 Statin Sales Domestic (1) Lovastatin Simvastatin Pravastatin Atorvastatin Total Statins Domestic Statin Sales Exports Lovastatin Simvastatin Pravastatin Atorvastatin Total Statins Export Statin Sales Total Lovastatin Simvastatin Pravastatin Atorvastatin Total Statins Sales
(1) Net of inter-segment sales

First Nine Months of Fiscal Year 2003 3.2% 5.5 1.0 5.6 15.3% 8.8% 21.2 1.2 0.6 31.8% 12.0% 26.7 2.2 6.2 47.1% 2004 6.2% 1.4 0.9 1.8 10.3% 7.5% 38.0 1.5 0.9 47.9% 13.7% 39.4 2.4 2.7 58.2%

2002 1.3% 7.3 0.9 6.9 16.4% 6.4% 1.8 5.9 0.3 14.4% 7.7% 9.1 6.8 7.2 30.8%

1.5% 14.6 0.1 5.2 21.4% 4.1% 1.4 0.8 0.0 6.3% 5.6% 16.0 0.9 5.2 27.7%

97

Biocon
Export sales are generally more profitable than domestic sales. With respect to biopharmaceuticals, this is primarily the result of generally better pricing in the regulated markets, sales to which are growing as a percentage of total API export sales. With respect to enzyme sales, this is the result of generally stronger pricing in our major export markets. Generally, after we develop an API, we introduce it into the unregulated markets first, and sell into regulated markets once the product goes off patent. Because unregulated markets are generally the most competitive, Biocons average price of a product increases once it is able introduce it into regulated markets. However, regulated market product prices tend to decline significantly and often rapidly following expiry or invalidation of patent. In addition, prices of our APIs can fluctuate dramatically, depending on, among other factors, the number of producers and their production volumes and changes in demand in the principal drug markets. Because APIs have become the most significant component of our consolidated total income and may continue to grow as a percentage of our consolidated total income, our revenue is significantly and increasingly dependent upon factors affecting API prices factors that we cannot control. As exports are principally denominated in U.S. dollars, our income from export sales is subject to changes in the Rupee/U.S. dollar exchange rate. If the Rupee appreciates against the U.S. dollar between the time a sale is booked and the time payment is received, the Company will recognize a foreign exchange loss. If, on the other hand, the Rupee depreciates against the U.S. dollar between the time a sale is booked and the time payment is received, the Company will recognize a foreign exchange gain. Generally, payment terms on the Companys products sale range from 30 to 120 days. From May 2, 2002 to December 31, 2003, the Rupee has appreciated 7.7% against the U.S. dollar, while prior to that period the Rupee had generally been declining against the U.S. dollar. For more information on the Companys exchange rate risks and hedging policies, please refer to the section entitled Quantitative and Qualitative Disclosure About Market Risk below on page 115 of this Prospectus. Sales of Products Traded by Biocon Sales of traded products comprise income from biopharmaceuticals and enzymes, which are sourced from third-party suppliers and then resold to our customers without alteration of the product. Research and Development Fees Research and development fees comprise fees received from clients and customers for research activities on enzymes. Research activities are based on contracts that specify the nature of the activity to be carried out, basis of billing, manner of payments and are typically in the nature of time and material contracts. Research and development fees are recognised on a monthly basis as services are rendered in accordance with the terms of the applicable contracts. Other Income Other income consists primarily of interest income, dividend income, gain on fixed assets sold or discarded, miscellaneous income. Other income as a percentage of total income was 0.2%, 2.0%, 0.3% and 0.2% in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004, respectively. The increase in fiscal 2002 was the result of a Rs. 26.6 million dividend paid by Syngene to Biocon.

98

Biocon
Expenses The following table sets out Biocons expenses as a percentage of its total income for the fiscal years ended March 31, 2001, 2002 and 2003 and the nine months ended December 31, 2003:
Fiscal Year 2001 Production Cost Consumption of Raw Materials and Traded Goods Increase (Decrease) in Stocks Sub Total Other Manufacturing Expenses Power and Fuel Repairs and Maintenance Plant and Machinery Buildings Sub Total Staff Cost Salaries, Wages, Allowances and Bonus Contribution to Provident Fund Contribution to Superannuation, Gratuity, Leave Encashment Welfare Expenses Directors Sitting Fees ESOP cost Sub Total R&D, Selling and Distribution Expenses Depreciation Interest and Finance Charges Interest Charges Bank Charges Sub Total Taxes Provision for Current Tax Provision for Deferred Tax Sub Total Total Expenses 50.9% (3.4) 47.5% 6.0% 2.3 0.7 9.0% 8.0% 0.4 1.0 0.8 0.0 0.0 10.2% 7.0% 5.0 3.2 0.4 3.6% 2.9% 3.0 5.9% 88.4% 50.9% (0.7) 50.2% 5.5% 1.2 0.1 6.8% 9.7% 0.4 1.0 0.8 0.0 0.0 11.9% 6.9% 4.6 2.6 0.3 2.9% 2.4% 1.3 3.7% 87.0% 51.0% (4.0) 47.1% 5.0% 1.6 0.4 7.0% 8.1% 0.3 1.1 0.8 0.0 1.3 11.6% 8.7% 4.6 1.6 0.3 1.9% 3.5% 1.8 5.3% 86.2% 50.6% 0.4% 51.0% 3.3% 1.1 0.4 4.8% 5.1% 0.2 0.8 0.5 0.0 0.3 6.9% 5.6% 2.6 0.1 0.2 0.3% 5.4% 0.4 5.8% 77.0% 2002 2003 First Nine Months of Fiscal 2004

Increases in statins sales and growth in the share of exports in Biocons total sales mix has resulted in higher margins and profitability. This has reduced the proportion of many expense items relative to total income. On account of the strong growth in demand for our statins, since January 2003 Biocon faced growing capacity constraints, which have resulted in increased outsourcing of intermediates in the production of biopharmaceuticals. As a result, raw materials costs with respect to these products have increased over the corresponding period. Our capital expenditure plans are aimed at expansion of our fermentation and synthetic conversion capacities, principally for statins. However, due to the growing demand for statins, planned capacity expansion may not enable us to reduce the outsourcing of intermediates in API production and thereby reduce our raw materials costs. We expect that capacity expansion that supplants use of outsourced

99

Biocon
intermediates in our production will lead to increases in both the absolute level of many of our expense line items and their percentages of total income, other than raw material costs (which are explained below under the section entitled Production Costs). In addition, we expect that depreciation costs will rise significantly with the completion of the new facilities contemplated in our capital expenditure plan. Production Costs Production costs includes Biocons consumption of raw materials and traded goods and increases or decreases in stock. Because of the strong growth in demand for statins, Biocon has faced growing capacity constraints since the beginning of this fiscal year, which have resulted in the Companys increasing reliance on outsourced intermediates in the production of statins and other biopharmaceuticals. As a result, raw materials costs with respect to these products have increased over the corresponding period. However, the raw materials costs as a percentage of total income over this period has not increased due to the growing share of higher margin biopharmaceuticals (especially statins) and exports in Biocons sales mix. If, as a result of capacity expansion, Biocon is able to reduce reliance on outsourced intermediates in biopharmaceutical production, then we expect Biocons per unit raw material costs in biopharmaceuticals to decrease. Raw material costs are to a lesser extent dependent on global petrochemical prices, which in turn often track global oil prices. This is because our biopharmaceutical and enzyme production processes involve the use of many petrochemicals, especially solvents such as ethyl acetate, methyl iodide and acetone. Other Manufacturing Expenses Other manufacturing expenses comprise power and fuel costs and repairs and maintenance to plant, machinery and buildings. Biocons fuel costs relate principally to the purchase of diesel, super kerosene oil and furnace oil, which are used for power and steam generation. Fuel costs are linked to global oil prices. The effect of oil price increases has been somewhat offset by changes in the mix of the type of fuel used. However, on account of increased power usage in line with increases in production our power and fuel costs increased significantly over that period as well, from Rs. 74.8 million in fiscal 2001 to Rs. 128.0 million in fiscal 2003. For the first nine months of fiscal 2004, our power and fuel costs were Rs. 121.6 million. Staff Cost Staff cost comprises:
s s s s

salaries, wages, allowances and bonuses; contributions to provident fund; contributions to superannuation, gratuity and leave encashment; welfare expenses (including employee insurance schemes, school tuition program and other miscellaneous employee benefits); and directors sitting fees.

Employee compensation in India has historically been significantly lower than employee compensation in the United States and Europe for comparably skilled professionals. However, compensation in India is increasing rapidly, which has resulted in increased costs for scientists and engineers, managers and other mid-level professionals. Staff costs were Rs. 126.2 million, Rs. 196.5 million, Rs. 297.0 million and Rs. 257.6 million for the fiscal years ended 2001, 2002, 2003 and the first nine months of fiscal 2004, respectively. The number of our full-time employees grew from 322 at the beginning of fiscal 2001 to 610 at December 31, 2003. We may need to continue to increase the levels of our employee compensation to remain competitive and manage attrition. Please refer to the section entitled Risk Factors External Risk Factors on page xviii of this Prospectus. Research and Development, Selling and General Expenses Research and development, selling and general expenses comprise: Royalty and technical know-how fees; rent; travelling and conveyance; communication; professional charges; patent fees; consumables; repairs and maintenance; general expenses; freight outwards; sales promotion; commissions; bad debts write off; provisions for bad and doubtful debts; printing and stationary; insurance; rates, taxes and fees; and losses on sales of assets.

100

Biocon
Depreciation For more information on our depreciation policies, please refer to the section entitled Significant Accounting Policies above on page 93 of this Prospectus. Generally, depreciation costs increase when new facilities are added. We expect our depreciation costs to rise significantly with the completion of the new facilities contemplated in our capital expenditure plan. Please refer to the section entitled Capital Expenditure below on page 113 of this Prospectus. Interest and Finance Charges Our borrowing costs have generally been declining since the beginning of fiscal 2001. Interest and finance charges in fiscal 2001, fiscal 2002, fiscal 2003 and the first nine months of fiscal 2004 were Rs. 45.6 million, Rs. 46.9 million, Rs. 49.0 million, and Rs. 12.1 million while total debt at the end of those fiscal periods was Rs. 381.8 million, Rs. 665.3 million, Rs. 685.7 million and Rs. 650.3 million, respectively. Taxes We have been and continue to be eligible for several important tax benefits, including:
s

Under Section 10B of the Indian Income Tax Act, 1961, we are eligible for 100% deduction of profits earned from 100% Export Oriented Units, EOUs; we have enjoyed this benefit for one of our enzyme units from fiscal year 2002 and one our statins manufacturing facilities since August 2003, and we expect this benefit to expire in fiscal year 2009; and Partial deduction of profits earned from non-EOU exports and 150% weighted deduction on R&D expenditure under section 80HHC and Section 35 (2AB) of the Indian Income Tax Act, 1961, respectively. We expect to enjoy benefits under section 80HHC up to fiscal year 2004 and benefits under section 35 (2AB) up to fiscal year 2005.

While the statutory tax rates applicable in each fiscal year from 2001 to 2003 and the first nine months of fiscal 2004 were 39.6%, 35.7%, 36.8% and 35.9%, respectively, our effective tax rates in those periods were 33.2%, 22.5%, 27.8% and 20.0%, respectively. Please refer to the section entitled Statement of Possible Benefits Available to Biocon Limited, Its Subsidiaries and Its Shareholders beginning on page 264 of this Prospectus for more details on tax benefits. Net Profit, As Restated Net profit, as restated, consists of the profit after tax as per the audited statements, adjusted to reflect any extraordinary items and adjusted on account of (1) changes in accounting policies and (2) the impact of material adjustments and prior period items. Adjustments are mainly on account of change in depreciation policy and leave encashment and accounting of deferred tax with effect from fiscal 2002. Expense items discussed below and elsewhere in this section reflect the restatement items. Biocon Results of Operations First Nine Months of Fiscal Year 2004 Income Biocons total income in the first nine months of fiscal 2004 was Rs. 3,724.5 million, 45.8% higher than fiscal 2003s wholeyear total income of Rs. 2,555.2 million. Growth in sales was led by an increase in sales of biopharmaceuticals, in particular statins. Sales of statins contributed Rs. 2,167.7 million, or 58.2%, of total income in the first nine months of fiscal 2004, compared with Rs. 1,202.8 million, or 47.1%, in fiscal 2003. Biopharmaceuticals and enzyme exports contributed Rs. 1,886.2 million, or 50.7%, and Rs. 197.4 million, or 5.3%, respectively of total income in the first nine months of fiscal 2004, compared with Rs. 893.3 million, or 35.0%, and Rs. 207.5 million, or 8.1%, in fiscal 2003. The growth in volumes and the improved sales mix were partially offset by the reduction in selling prices of key products. Expenses Expenses in the first nine months of fiscal 2004 were Rs. 2,863.5 million, or 76.9%, of total income, compared with 86.2% of total income in fiscal 2003.

101

Biocon
Production Cost Production costs in the first nine months of fiscal 2004 were Rs. 1,896.1 million, or 51.0% of total income, from 47.1% in the fiscal ended March 31, 2003, primarily due to our increasing use of outsourced intermediates in our statin and other API production processes in light of capacity constraints and the reduction in average selling price of key products, offset partially by improved sales mix and reduction in average purchase price of certain raw materials. Other Manufacturing Expenses Other manufacturing expenses in the first nine months of fiscal 2004 amounted to Rs. 176.1 million, or 4.8% of total income, compared with 7.0% of total income in fiscal 2003. Power and fuel costs in the first nine months of fiscal 2004 amounted to Rs. 121.6 million, or 3.3% of total income, compared with 5.0% of total income in fiscal 2003. The fuel cost in absolute terms has been increasing, principally on account of increased usage, partially set off by lower costs per unit of fuel due to changes in the mix of fuel inputs. Repairs and maintenance costs amounted to Rs. 54.6 million, or 1.5% of the total income, compared to 2.0% in fiscal 2003. Staff Cost Staff cost in the first nine months of fiscal 2004 amounted to Rs. 257.6 million, or 6.9% of total income, compared with 11.6% of total income in fiscal 2003. Staff cost as a percentage of total income declined mainly due to growth in sales without corresponding facilities expansion. The number of employees increased from 468 at the beginning of fiscal 2003 to 538 at the end of fiscal 2003 and 610 at the end of the first nine months of fiscal 2004. Staff cost per employee did not change significantly, as increments in salaries were offset by lower incidence of ESOP costs. Research and Development, Selling and General Expenses Research and development, selling and general expenditures in the first nine months of fiscal 2004 were Rs. 208.1 million, or 5.6% of total income, compared with 8.7% of total income in fiscal 2003. While R&D and selling and general expenses continue to rise, these costs as a percentage of total income declined mainly due to the growth of sales. Interest and Finance Charges Interest and finance charges in the first nine months of fiscal 2004 were Rs. 12.1 million, or 0.3% of total income 1.9% for the fiscal 2003. Our interest cost declined mainly due to reduced borrowings and lower borrowing costs. Depreciation Depreciation in the first nine months of fiscal 2004 was Rs. 98.1 million, or 2.6% of total income, compared with 4.6% of total income in fiscal 2003. While absolute depreciation has been increasing, this cost as a percentage of total income declined mainly due to growth in sales without corresponding facilities expansion. Provision for Taxes Provision for current and deferred taxes in the nine months ended December 31, 2003 was Rs. 215.4 million, or 5.8% of total income, compared with 5.3% of total income in fiscal 2003. The reduction in the effective rate from 27.8% of profit before tax in fiscal 2003 to 20.0% of profit before tax in the nine months ended December 31, 2003 is on account of increased effect of tax benefits received on account of export income and R&D expenditure. Net Profit, As Restated Net profit, as restated, in the first nine months of fiscal 2004 was Rs. 861.1 million, or 23.1% of total income, compared with 13.8% of total income in fiscal 2003. Biocon Results of Operations Fiscal Year 2003 Compared to Fiscal Year 2002 Income Biocons total income increased by 54.9% to Rs. 2,555.2 million in fiscal 2003 from Rs. 1,649.3 million in fiscal 2002. Sales of products manufactured and traded by Biocon increased by 58.3% to Rs. 2,542.4 million in fiscal 2003 from Rs. 1,606.2 million in fiscal 2002. This increase was due primarily to:
102

Biocon
s

a 75.9% increase in income from biopharmaceuticals sales from Rs. 1,142.9 million in fiscal 2002 to Rs. 2,010.0 million in fiscal 2003; and a 14.9% increase in income from enzyme sales from Rs. 463.3 million in fiscal 2002 to Rs. 532.4 million in fiscal 2003.

Export sales increased 136.4% from Rs. 465.7 million in fiscal 2002 to Rs. 1,100.8 million in fiscal 2003. This increase resulted mostly from a 246.0% increase in export of statins from Rs. 237.1 million in fiscal 2002 to Rs. 811.0 million in fiscal 2003. The growth in statin sales was led by the commencement of sale of simvastatin in key European markets following the expiration of the simvastatin patent there in the middle of 2003. Exports of simvastatin grew from Rs. 29.3 million in fiscal 2002 to Rs. 541.8 million in fiscal 2003. The overall growth in volumes and the improved sales mix offset the reduction in selling prices of key products. Other income decreased by 77.2% to Rs. 7.6 million in fiscal 2003 from Rs. 33.3 million in fiscal 2002 primarily because Biocon did not receive any dividend income in fiscal 2003 from Syngene and Clinigene. Expenses Production Cost Production cost increased by 45.2% to Rs. 1,202.3 million in fiscal 2003 from Rs. 828.2 million in fiscal 2002 mainly on account of increase in production volumes. As a percentage of total income, production cost decreased from 50.2% in fiscal 2002 to 47.1% in fiscal 2003. The reduction in production cost as a percentage to total income was primarily on account of improved sales mix, yield improvement and lower raw material prices. Other Manufacturing Expenses Biocons other manufacturing expenses increased 59.2% to Rs. 177.4 million in fiscal 2003 from Rs. 111.4 million in fiscal 2002. This increase reflected increased power and fuel costs as well as increase in repairs and maintenance of plant, machinery and buildings. Higher power and fuel costs were largely due to increased power usage and higher diesel and SKO prices, partially offset by increased use of cheaper SKO. Staff Cost Biocons staff cost increased by 51.1% to Rs. 297.0 million in fiscal 2003 from Rs. 196.5 million in fiscal 2002. This increase was largely due to an increase in the number of employees, increase in provision for employee retirement benefits, general increase in wages and benefits and amortisation of the employee stock option cost. The amortisation cost amounted to Rs. 33.9 million in fiscal 2003 compared to Rs. 0.0 million in fiscal 2002. The number of employees increased from 365 at the beginning of fiscal 2002 to 468 at the end of fiscal 2002 and 538 at the end of fiscal 2003. Research and Development, Selling and General Expenses Research and development, selling and general expenses increased by 97.4% to Rs. 223.1 million in fiscal 2003 from Rs. 113.0 million in fiscal 2002 mainly due to the following:
s

a Rs. 37.4 million increase in royalty and technical know how fees primarily due to the Company expensing off certain bought-out technology were there was uncertainty regarding the feasibility of such technology for future use; a Rs. 12.1 million increase in sales promotion expenses resulting primarily from increased vendor discounts; a Rs. 12.8 million increase in general expenses due primarily due to increase in R&D related expenses and social welfare expenses; a Rs. 8.0 million increase in travelling and conveyance cost, resulting primarily from an increase in marketing efforts in international markets; a Rs. 7.2 million increase in commissions corresponding to the increase in sales; and a Rs. 7.3 million increase in lab consumables on account of increase in research activities.

s s

s s

103

Biocon
Interest and Finance Charges Interest and finance charges increased by 4.5% to Rs. 49.0 million in fiscal 2003 from Rs. 46.9 million in the prior fiscal. This increase reflected an increase in Biocons borrowings and higher bank charges partially offset by lower borrowing costs. Depreciation Depreciation increased by 54.3% to Rs. 117.1 million in fiscal 2003 from Rs. 75.9 million in fiscal 2002. The increase in depreciation was primarily due to the effect of full-year depreciation in fiscal year 2003 on the new capacities commissioned in January 2002. Provision for Taxes Provision for taxes increased by 117.8% to Rs. 136.1 million in fiscal 2003 from Rs. 62.5 million in fiscal 2002, reflecting higher provisions for both current and deferred taxes. This increase was due principally to an increase in assessable income. The effective rate of tax also increased from 22.5% of profits before tax to 27.8% primarily on account of the tax free dividend income in fiscal 2002 and increase in the statutory corporate income tax rate. Net Profit, As Restated Net profit, as restated, increased by 64.3% to Rs. 353.1 million, or 13.8% of total income, in fiscal 2003, from Rs. 214.9 million, or 13.0% of total income, in fiscal 2002. Biocon Results of Operations Fiscal Year 2002 Compared to Fiscal Year 2001 Income Biocons total income increased by 33.4% to Rs. 1,649.3 million in fiscal 2002 from Rs. 1,236.0 million in fiscal 2001. Sales of products manufactured and traded by Biocon increased by 31.3% to Rs. 1,606.2 million in fiscal 2002 from Rs. 1,223.1 million in fiscal 2001. This increase was due primarily to:
s

a 39.7% increase in income from biopharmaceutical sales from Rs. 817.8 million in fiscal 2001 to Rs. 1,142.9 million in fiscal 2002; and a 14.3% increase in income from enzyme sales from Rs. 405.3 million in fiscal 2001 to Rs. 463.3 million in fiscal 2002.

Export sales increased 73.8% from Rs. 268.0 million in fiscal 2001 to Rs. 465.7 million in fiscal 2002. This increase resulted mostly from a 204.8% increase in statins exports from Rs. 77.8 million in fiscal 2001 to Rs. 237.1 million in fiscal 2002. Much of this growth in statins exports is attributable to increase in sales of lovastatin to the regulated markets, particularly the United States, following the expiration of the product patents there and, to a lesser extent, sales of pravastatin to unregulated markets. Other Income Other income increased by more than 1,485.7% to Rs. 33.3 million in fiscal 2002 from Rs. 2.1 million in fiscal 2001 primarily because Biocon received a Rs. 26.6 million dividend payment in fiscal 2002 from Syngene and Clinigene. Expenses Production Cost Production costs increased by 41.1% to Rs. 828.2 million in fiscal 2002 from Rs. 586.9 million in fiscal 2001 primarily due to an increase in consumption of raw materials and traded goods, as well as a decrease in stocks. As a percentage of total income, production costs increased from 47.5% to 50.2%. This is primarily on account of decreases in selling price, partially offset by decreased raw material prices, the Syngene dividend payment, improved yields and improved sales mix. Other Manufacturing Expenses Biocons other manufacturing expenses decreased by 0.5% to Rs. 111.4 million in fiscal 2002 from Rs. 112.0 million in fiscal 2001. This decrease reflected decreases in repairs and maintenance of plant, machinery and buildings partially offset by increase in power and fuel costs from Rs. 74.8 million to Rs. 91.1 million.

104

Biocon
Staff Cost Biocons staff cost increased by 55.7% to Rs. 196.5 million in the fiscal 2002 from Rs. 126.2 million in fiscal 2001. This increase was largely due to a significant increase in wages and benefits and an increase in the number of employees from 322 at the beginning of fiscal 2001 to 365 at the end of fiscal 2001 and 468 at the end of fiscal 2002. Research and Development, Selling and General Expenses Research and development, selling and general expenses increased by 31.4% to Rs. 113.0 million in fiscal 2002 from Rs. 86.0 million in fiscal 2001 due principally to the following:
s

a Rs. 9.3 million increase in travel and conveyance expense, resulting from increased marketing efforts in international markets; a Rs. 6.3 million increase in freight outwards, sales promotion expenses ad commission charges on account of increased sales; and a Rs. 1.3 million increase in lab consumables on account of an increase in research activities.

Interest and Finance Charges Interest and finance charges increased by 2.9% to Rs. 46.9 million in fiscal 2002 from Rs. 45.6 million in fiscal 2001. This increase reflected lower borrowing costs offsetting a significant increase in Biocons borrowings. Depreciation Depreciation increased by 22.4% to Rs. 75.9 million in fiscal 2002 from Rs. 62.0 million in fiscal 2001. The increase in depreciation was primarily due to depreciation on new assets capitalised in fiscal year 2002 and the full-year effect of depreciation on assets capitalised in fiscal 2001. Provision for Taxes Provisions for taxes decreased by 13.3% from Rs. 72.1 million in fiscal 2001 to Rs. 62.5 million in fiscal 2002. The effective tax rate decreased from 33.2% of profit before tax to 22.5% of profit before tax, primarily on account of the tax free dividend income in fiscal 2002 and reduction in the statutory corporate income tax rate. Net Profit, As Restated Net profit, as restated, increased by 48.0% to Rs. 214.9 million, or 13.0% of total income, in fiscal 2002 from Rs. 145.2, or 11.8% of total income, in fiscal 2001. SYNGENE RESULTS OF OPERATIONS Total Income The following table sets forth the contribution of each component of Syngenes income expressed as a percentage of Syngenes total income for fiscal years 2001, 2002 and 2003 and the first nine months of fiscal 2004:
Fiscal Year 2001 Net Sales Contract Research Services Sales of Compounds Other Income Total Income 95.4% 2.6 2.0 100.0% 89.3% 6.8 3.9 100.0% 86.0% 13.8 0.2 100.0% 81.6% 16.9 1.5 100.0% 2002 2003 First Nine Months of Fiscal Year 2004

The substantial majority of Syngenes total income consists of net sales from contract research services, with the remainder consisting largely of net sales of compounds developed in synthetic chemistry processes in accordance with customer specifications. Substantially all of Syngenes contracts are based on time and material management. Revenue from these

105

Biocon
contracts is recognized as services are rendered, in accordance with the terms of the contracts. Average FTE rates have increased steadily from fiscal 2001 through the first nine months of fiscal 2004, with aggregate growth over that period of 38.4% (in U.S. dollar terms). Growth in Syngenes sales has also been the result of growth in the number of Syngenes volume of business as measured in the number of billable man-years. Substantially all of Syngenes research services and compound sales are priced in U.S. dollars and are therefore subject to changes in the Rupee/U.S. dollar exchange rate. If the Rupee appreciates against the U.S. dollar between the time a revenue is booked and the time payment is received, Syngene will recognize a foreign exchange loss. If, on the other hand, the Rupee depreciates against the U.S. dollar between the time revenue is booked and the time payment is received, Syngene will recognize a foreign exchange gain. From May 31, 2002 to December 31, 2003, the Rupee has appreciated 7.7% against the U.S. dollar, while prior to that period the Rupee had generally been declining against the U.S. dollar. Expenses The following table sets out Syngenes expenses as a percentage of its total income for the fiscal years 2002, 2001 and 2003 and the first nine months of fiscal 2004:
Fiscal Year 2001 Contract Research Cost Raw Material Consumed Increase/Decrease in Stocks Sub Total Staff Cost Salaries, Wages, Allowances and Bonus Contribution to Provident Fund Contribution to Superannuation, Gratuity, Leave Encashment Welfare Expenses Directors Sitting Fees Sub Total Other Contract Research Expenses Other Selling and General Expenses Rent Travelling and Conveyance Communication Professional Charges Repairs and Maintenance Others Sub Total Depreciation Interest and Finance Charges Interest Charges Bank Charges Sub Total Taxes Provision for Current Tax Provision for Deferred Tax (Credit) Sub Total Total Expenses 0.8% (1.6) (0.8)% 70.0% 1.3% 0.2 1.5% 81.4% 3.1% 0.1 3.2% 71.3% 0.8% 0.1 0.9% 58.6% 0.4% 0.3 0.7% 0.2% 0.4 0.6% 0.2% 0.2 0.4% 0.0% 0.1 0.1% 0.8% 2.6 1.7 0.5 2.7 2.8 11.1% 7.1% 0.6% 1.9 1.3 0.4 1.3 1.8 7.3% 6.6% 0.3% 1.8 0.4 0.3 1.0 1.3 5.1% 5.9% 0.3% 1.3 0.3 0.2 0.9 1.0 4.0% 5.7% 20.3% 1.0 1.6 1.0 0.0 23.9% 2.8% 27.0% 1.3 2.3 0.9 0.0 31.5% 6.5% 22.8% 1.0 2.9 0.7 0.0 27.4% 3.5% 21.8% 0.9 1.9 0.8 0.0 25.4% 2.4% 25.2% 0.0 25.2% 27.4% 0.0 27.4% 25.8% 0.0 25.8% 20.1% 0.0 20.1% 2002 2003 First Nine Months of Fiscal Year 2004

106

Biocon
Most of Syngenes expenses are comprised of raw materials costs and staff costs. Raw material costs consist of lab consumables used for research. Syngenes staff costs increase in direct proportion to billings adjusted for increase/decrease in average billings per employee and increase in staff cost per employee for the same reasons that Biocons are. Please refer to the section entitled Biocon Results of Operations Expenses Staff Costs above on page 102 of this Prospectus. Other contract research expenses are largely power costs billed by Biocon to Syngene and repairs and maintenance. Net Profit, As Restated Net profit, as restated, consists of the profit after tax as per the audited statements, adjusted to reflect any extraordinary items and adjusted on account of (1) changes in accounting policies and (2) the impact of material adjustments and prior period items. These restatement items mainly pertain to depreciation and staff costs. Expense items discussed below and elsewhere reflect the restatement items. Syngene Results of Operations First Nine Months of Fiscal Year 2004 Total Income Syngenes total income in the nine months ended December 31, 2003 was Rs. 261.8 million. Sales of contract research services totalled Rs. 213.8 million, or 81.6% of total income, and sales of compounds totalled Rs. 44.2 million, or 16.9% of total income, in the first nine months of fiscal 2004, compared with 86.0% and 13.8%, respectively, in fiscal 2003. Expenses Consumption of Raw Materials Consumption of raw materials in the first nine months of fiscal 2004 was Rs. 52.7 million, or 20.1% of total income, compared with 25.8% of total income in fiscal 2003. This percentage decrease was primarily due to higher income realisation on a per scientist basis and better project management. Staff Cost In the first nine months of fiscal 2004, staff cost amounted to Rs. 66.6 million, or 25.4% of Syngenes total income, compared with 27.4% of total income in fiscal 2003. This percentage decrease was primarily due to higher realisation per scientist. The number of employees increased from 124 at the beginning of fiscal 2003 to 182 at the end of fiscal 2003 to 220 at the end of the first nine months of fiscal 2004. Other Contract Research Expenses In the first nine months of fiscal 2004, other contract research expenses amounted to Rs. 6.3 million, or 2.4% of Syngenes total income, compared with 3.5% of total income in fiscal 2003. This cost as a percentage of total income declined due to a disproportionate increase in revenues. Other Selling and General Expenses Other selling and general expenses in the first nine months of fiscal 2004 was Rs. 10.3 million, or 4.0% of Syngenes total income, compared with 5.1% of total income in fiscal 2003. This percentage decrease was primarily due to lower:
s s s s

travelling and conveyance costs; repairs and maintenance; communications expenses; and miscellaneous expenses;

which were slightly offset by higher insurance costs and rates, taxes and fees. Interest and Finance Charges Interest and finance charges in the first nine months of fiscal 2004 were Rs. 0.3 million, or 0.1% of Syngenes total income, compared to 0.5% of total income in fiscal 2003. This decrease is on account of lower borrowings and the decline in interest rates.
107

Biocon
Depreciation Depreciation in the first nine months of fiscal 2004 was Rs. 15.0 million, or 5.7% of Syngenes total income, compared to 5.9% of total income in fiscal 2003. Provision for Taxes Provision for current and deferred taxes in the first nine months of fiscal 2004 was Rs. 2.4 million. As a percentage of total income, these provisions decreased to 0.9% in the first nine months of fiscal 2004 from 3.2% for fiscal 2003, primarily because of higher sales to the domestic tariff area in fiscal 2003, on which tax is applicable. Net Profit, As Restated Net profit, as restated, in the first nine months of fiscal 2004 was Rs. 108.1 million. This figure as a percentage of total income increased to 41.3% in the first nine months of fiscal 2004 from 28.6% in fiscal 2003. Syngene Results of Operations Fiscal Year 2003 Compared to Fiscal Year 2002 Income Syngenes total income in fiscal 2003 increased by 71.1% to Rs. 261.8 million from Rs. 153.0 million in fiscal 2002, primarily due to a Rs. 88.6 million increase in net sales from contract research activities and a Rs. 25.6 million increase in net sales of compounds. At the same time, other income declined from Rs. 5.9 million to Rs. 0.6 million primarily due to lower interest income. During this period Syngene established a new facility, increased the number of its clients, the number of its researchers and its average realisation per researcher. Expenses Consumption of Raw Materials Consumption of raw materials increased by 61.0% from Rs. 41.9 million in fiscal 2002 to Rs. 67.5 million in fiscal 2003, primarily due to the increase in sales. Consumption of raw materials, however, declined as a percentage of revenues from 27.4% of total income in fiscal 2002 to 25.8% in fiscal 2003 primarily due to higher income realisation on a per researcher basis and better project management. Staff Cost Staff cost increased by 48.3% to Rs. 71.8 million in fiscal 2003 from Rs. 48.4 million in fiscal 2002, largely due to an increase in the number of employees from 101 at the beginning of fiscal 2002 to 124 at the end of fiscal 2002 to 182 at the end of fiscal 2003, increase in provision for employee retirement benefits and general increases in wages and benefits. However, staff cost as a percentage of total income declined from 31.6% in fiscal 2002 to 27.4% in fiscal 2003. This percentage decrease was primarily due to the increase in realisation per researcher. Other Contract Research Expenses Other contract research expenses decreased by 7.0% to Rs. 9.2 million in fiscal 2003 from Rs. 9.9 million in fiscal 2002 primarily due to a decrease in maintenance costs of plant, machinery and, to a lesser extent, buildings, which offset an increase in power and fuel costs. Other Selling and General Expenses Other selling and general expenses increased by 19.6% to Rs. 13.4 million in fiscal 2003 from Rs. 11.2 million in fiscal 2002, primarily due to higher:
s s s

travelling and conveyance expense; repairs and maintenance; and freight outwards

which were partially offset by lower communication expense.

108

Biocon
Interest and Finance Charges Interest and finance charges in fiscal 2003 increased by 44.4% to Rs. 1.3 million from Rs. 0.9 million in fiscal 2002 largely as a result of an increase in bank charges. Depreciation Depreciation in fiscal 2003 increased by 52.5% to Rs. 15.4 million from Rs. 10.1 million in fiscal 2002, primarily due to depreciation for full year on additions of Rs. 16.4 million to gross block in 2002 and part year depreciation on additions of Rs. 71.3 million in fiscal 2003. Provision for Taxes Provision for current and deferred taxes in fiscal 2003 increased to Rs. 8.4 million from Rs. 2.3 million in fiscal 2002, primarily on account of higher sales to the domestic tariff area in fiscal 2003, on which tax is applicable. Net Profit, As Restated Net profit, as restated, in fiscal 2003 increased by 165.2% to Rs. 74.8 million from Rs. 28.2 million in fiscal 2002. This figure as a percentage of total income increased to 28.6% in fiscal 2003 from 18.4% in fiscal 2002. Syngene Results of Operations Fiscal Year 2002 Compared to Fiscal Year 2001 Income Syngenes total income in fiscal 2002 increased by 37.7% to Rs. 153.0 million from Rs. 111.1 million in fiscal 2001, due to a Rs. 30.6 million increase in net sales from contract research activities, a Rs. 7.5 million increase in net sales of compounds and a Rs. 3.8 million increase in interest and other income. Expenses Consumption of Raw Materials Consumption of raw materials increased by 49.6% to Rs. 41.9 million in fiscal 2002 from Rs. 28.0 million in fiscal 2001 primarily due to the increase in sales. In addition, consumption of raw materials as a percentage of net revenues increased from 25.2% to 27.4% mainly on account of expansion of operations and the establishment of a new laboratory resulting in increased expenditure on consumables. Staff Cost Staff cost increased by 82.6% to Rs. 48.4 million in fiscal 2002 from Rs. 26.5 million in fiscal 2001, largely due to an increase in the number of employees from 63 at the beginning of fiscal 2001 to 101 at the end of fiscal 2001 to 124 at the end of fiscal 2002 and a significant increase in wages and benefits. Other Contract Research Expenses Other contract research expenses increased by 219.4% to Rs. 9.9 million in fiscal 2002 from Rs. 3.1 million in fiscal 2001 primarily due to increase in power and fuel costs. Power and fuel had earlier been charged on an ad hoc basis but began to be charged on the basis of actual consumption of units from fiscal 2002 resulting in a Rs. 3 million increase in power and fuel costs in fiscal 2002 over fiscal 2001. Maintenance costs of plant and machinery increased from Rs. 1.2 million in fiscal 2001 to Rs. 5.4 million in fiscal 2002. Other Selling and General Expenses Other selling and general expenses decreased by 8.9% to Rs. 11.2 million in fiscal 2002 from Rs. 12.3 million in fiscal 2001, primarily due to lower:
s s

repairs and maintenance - others; and miscellaneous expenses

which were offset by smaller increases in a number of other selling and general expenses.

109

Biocon
Interest and Finance Charges Interest and finance charges in fiscal 2002 increased slightly to Rs. 0.9 million from Rs. 0.8 million in fiscal 2001, primarily on account of an increase in bank charges in line with the growth of the business. Depreciation Depreciation in fiscal 2002 increased by 27.8% to Rs. 10.1 million from Rs. 7.9 million in fiscal 2001, primarily due to depreciation of Rs. 1.4 million on additional gross block of Rs. 16.4 million during fiscal 2002. Provision for Taxes Provision for current and deferred taxes in fiscal 2002 increased to Rs. 2.3 million from negative Rs. 0.9 million in fiscal 2001, primarily on account of the tax impact of higher other income in fiscal 2002. Net Profit, As Restated Profit after tax in fiscal 2002 decreased by 15.6% to Rs. 28.2 million from Rs. 33.4 million in fiscal 2001. Profit after tax as a percentage of total income decreased to 18.4% in fiscal 2002 from 30.0% in fiscal 2001. CLINIGENE RESULTS OF OPERATIONS Income Clinigenes total income principally consists of net sales from clinical research fees. Clinigene enters into either time and material management contract arrangements and/or fixed price arrangements. Revenues from time and material management type contracts are recognized on a monthly basis as services are rendered in accordance with the terms of the applicable contracts. Revenues from fixed price contracts are recognized based on the percentage completion method. Until August 2002, most of Clinigenes revenue came from its contract with Surromed Corporation of the United States to conduct an extensive longitudinal study of Type II diabetes patients in India in an effort to identify new disease biomarkers. This contract was terminated in August 2002. Expenses Clinigenes expenses comprise: Research material costs; staff cost; other contract research expenses; other expenses; interest; depreciation; and provisions for current and deferred taxes. Clinigene Results of Operations First Nine Months of Fiscal Year 2004 Income Income from contract research fees recorded as net sales in the nine months ended December 31, 2003 was Rs. 1.4 million and accounted for over 99.6% of Clinigenes total income. Expenses For the nine months ended December 31, 2003, Clinigenes total expenses (including interest, depreciation and tax provisions) amounted to Rs. 20.4 million. The two largest components of Clinigenes expenses were:
s

Staff cost, which accounted for 32.8% of total expenses in this period, up from 17.9% in fiscal 2003, reflecting an increase in the number of employees from 4 at the beginning of fiscal 2003 to 10 at the end of fiscal 2003 to 22 at the end of the first nine months of fiscal 2004; and Other contract research expenses (primarily consultancy fees), which accounted for 29.7% of total expenses in the first nine months of fiscal 2004 as compared to 45.8% of expenses in fiscal 2003.

Loss After Tax Loss after tax in the first nine months of fiscal 2004 was Rs. 19.0 million.

110

Biocon
Clinigene Results of Operations Fiscal Year 2003 Compared to Fiscal Year 2002 Income Clinigenes total income in fiscal 2003 declined by 58.4% to Rs. 11.1 million from Rs. 26.7 million in fiscal 2002, primarily due to the termination of the Surromed contract in August 2002. Expenses Clinigenes total expenses decreased by 9.3% to Rs. 16.6 million in fiscal 2003 from 18.3 million in fiscal 2002, primarily due to decreases in research material costs and provision for current taxes, which were only partially offset by increased consultancy fees and staff costs. Loss After Tax Loss after tax in fiscal 2003 was Rs. 5.6 million as compared to an after tax profit of Rs. 8.4 million in fiscal 2002. Clinigene Results of Operations Fiscal Year 2002 Compared to Fiscal Year 2001 (From Commencement of Reporting on August 4, 2001) Income Clinigenes total income in fiscal 2002 increased by 621.6% to Rs. 26.7 million from Rs. 3.7 million during the period August 4, 2000 to March 31, 2001, primarily because of the full year effect of billing in fiscal 2002 as against fiscal 2001 and increase in the fees from the Surromed contract in fiscal 2002. Expenses Clinigenes total expenses increased by 357.5% to Rs. 18.3 million in fiscal 2002 from 3.8 million during the period August 4, 2000 to March 31, 2001, primarily because of increases in research material costs, consultancy fees, staff costs and various other expenses (including professional charges and repairs and maintenance), which were partially offset by decreases in travel and other miscellaneous expenses. Also, fiscal 2002 reflected full year operations. Profit After Tax In fiscal 2002, Clinigene recorded a profit after tax of Rs. 8.4 million as compared to a loss after tax of Rs. 0.2 million for the period August 4, 2000 to March 31, 2001. BIOCON BIOPHARMACEUTICALS PRIVATE LIMITED Biocon Pharmaceuticals Private Limited was incorporated in India on June 17, 2002 by Biocon and its joint venture partner, CIMAB S.A., a Cuban biotechnology company, to develop, produce and sell into the Indian market certain biologicals, including erythropoietin, granulocite colony stimulating factor and a monoclonal antibody for the treatment of head and neck cancers, and to conduct research and development activities. Biocon owns a 51% interest in Biocon Biopharmaceuticals, while CIMAB owns the remaining 49%. To date, Biocon Pharmaceuticals remains in a development stage, and is currently in the process of establishing production facilities in Bommasandra, Bangalore. Biocon has acquired land at Bommasandra, part of which may be used by Biocon Pharmaceuticals. Biocon Pharmaceuticals seeks to commence production during fiscal 2006. Please refer to the section entitled Capital Expenditure below on page 113 and the section entitled Business Manufacturing and Facilities Future Facilities on page 60 of this Prospectus. To date, our investment in this joint venture has been nominal. Biocon Limited is responsible for the full financing of Biocon Biopharmaceuticals proposed production facilities. In this regard, Biocon Limited is required to make a US$5.1 million equity investment in Biocon Biopharmaceuticals and arrange or guarantee debt financing for Biocon Biopharmaceuticals for the balance of the investment. We have not yet determined the capital expenditure requirements of this company, although Biocons board of directors has given preliminary approval for financing capital expenditures of up to Rs. 850.0 million for the joint venture. In our consolidated financial statements under Indian GAAP, Biocon Biopharmaceuticals is consolidated using the proportionate consolidation method, while in our consolidated financial statements under US GAAP, Biocon Biopharmaceuticals is accounted for using the equity method.
111

Biocon
SEASONALITY, INFLATION AND INTERCOMPANY ITEMS Seasonality has not had a significant impact on the results of operations of any of Biocon, Syngene or Clinigene. During fiscal years 2002, 2003 and from the period March 31, 2003 to July 31, 2003, the All India Wholesale Price Index (all commodities) increased by 3.6%, 3.4% and 4.0% respectively. Inflation has not had a significant effect on our results of operations to date. During the period from the beginning of fiscal 2001 through the first nine months of fiscal 2004, other than the Rs. 26.6 million dividend paid by Syngene to Biocon in 2002, intercompany items involving Biocon, Syngene, Clinigene and/or Biocon Biopharmaceuticals which would be eliminated in a consolidation of the companies were not significant. LIQUIDITY AND CAPITAL RESOURCES Our primary liquidity needs have been to finance our working capital requirements and our capital expenditures. To fund these costs, we have relied principally on cash flows from operations and short-term and long-term borrowings. Net Working Capital As of March 31, 2003 and December 31, 2003, our consolidated restated net working capital, defined as the difference between current assets and current liabilities, under Indian GAAP was Rs. 690.8 million and Rs. 1,047.3, respectively. Cash Flows The table below summarizes our consolidated cash flows under Indian GAAP for fiscal 2002 and 2003 and the first nine months of fiscal 2004:
Fiscal Year 2003 (Rs. million) Net Cash Generated from Operating Activities Net Cash Used for Investing Activities Net Cash Generated from (Used in) Financing Activities Net Increase/(Decrease) in Cash and Cash Equivalents Rs. 495.7 (453.4) (34.6) Rs. 7.7 First Nine Months of Fiscal Year 2004 (Rs. million) Rs. 774.2 (718.4) (61.0) Rs. (5.2)

As of December 31, 2003, consolidated cash and cash equivalents amounted to Rs. 21.2 million. The principal sources of consolidated cash and cash equivalents in the first nine months of fiscal 2004 were cash flows from operations amounting to Rs. 774.2 million and drawings under short term borrowings from banks of Rs. 113.4 million and deferred sales tax credit of Rs. 59.8 million. These funds were used principally for purchases of fixed assets of Rs. 640.2 million, repayments of secured debt of Rs. 208.6 million and net purchases of investments of Rs. 92.1 million. As of March 31, 2003, consolidated cash and cash equivalents amounted to Rs. 26.3 million. The principal sources of consolidated cash and cash equivalents in fiscal 2003 were cash flows from operations amounting to Rs. 495.7 million, drawings under secured loans of Rs. 52.6 million and deferred sales tax credits of Rs. 47.5 million. These funds were used principally for purchases of fixed assets of Rs. 407.6 million, purchases of investments of Rs. 50 million, repayment of unsecured debt of Rs. 50 million and payments of interest of Rs. 50.2 million. Operating Activities On a consolidated basis under Indian GAAP, net cash flows from operating activities for the nine months ended December 31, 2003 exceeded net cash flows from operating activities for the whole of fiscal 2003 by Rs. 278.5 million, or 56.2%. Our increasing consolidated cash flows from operations largely reflect the strong growth in sales of our highly profitable biopharmaceuticals, especially statins, the growing share of exports, which are generally more profitable, in Biocons sales mix. Investing Activities On a consolidated basis under Indian GAAP, during the first nine months of fiscal 2004, consolidated net cash used in investing activities amounted to Rs. 718.4 million, as compared to Rs. 453.4 million for the fiscal 2003. During the first nine months of fiscal 2004, consolidated cash used in investing activities was used primarily for Biocons purchase of Rs. 570.5 million of fixed assets and Syngenes net purchase of Rs. 92.1 million of investments. Similarly, during fiscal 2003, consolidated cash flows used in investing activities were used primarily to fund Biocon purchases of fixed assets and Syngene investment purchases.
112

Biocon
Financing Activities On a consolidated basis under Indian GAAP, during the first nine months of fiscal 2004, we used net cash of Rs. 61.0 million for financing activities, primarily by Biocon. During this period Biocon used net cash of Rs. 60.8 million for financing activities, reflecting repayments of Rs. 208.6 million of higher cost long-term secured debt and interest payments of Rs. 25.4 million that were partially offset by drawings of Rs. 113.4 million of short-term debt and Rs. 59.8 million of deferred sales tax credit. During fiscal 2003, net cash used for financing activities on a consolidated basis under Indian GAAP amounted to Rs. 34.6 million, reflecting repayment of significant amounts of long and short-term borrowings facilitated by increased cash flow from operations. Capital Expenditure Our operations, especially Biocons biopharmaceuticals and enzymes businesses, require significant capital expenditures to maintain and increase capacity. Our consolidated capital expenditures for fiscal 2003 and the first nine months of fiscal 2004 were Rs. 403.3 million and Rs. 606.0 million, respectively. These expenditure were in line with our plans for those periods. In connection with the planned facilities expansions described under Business Manufacturing and Facilities Future Facilities as well as other planned expenditures, Biocons board of directors has approved Group capital expenditures totalling Rs. 1,200.0 million in fiscal 2004, Rs. 4,200.0 million in fiscal 2005 and Rs. 1,100.0 million in fiscal 2006. As of December 31, 2003, we had already spent Rs. 202.5 million on the new facilities for statins production and Rs. 282.6 million on the new purification facility for human recombinant insulin. We intend to fund our capital expenditures in the next three years from a combination of our existing cash, cash flows from operations, proceeds from the Issue, drawings under our new term loans and, possibly, other debt. The figures in our capital expenditure plans are based on management estimates and have not been appraised by an independent organisation. In addition, our capital expenditure plans are subject to a number of variables, including possible cost overruns; construction/development delays or defects; receipt of critical governmental approvals including approvals of drug regulators in our target markets; availability of financing on acceptable terms; and changes in managements views of the desirability of current plans, among others. We cannot assure you that we will be able to execute our capital expenditure plans as contemplated. Contractual Obligations, Including Long-term Debt The following table discloses our contractual and other obligations that were outstanding as of December 31, 2003:
Payments Due By Period (Rs. millions) Total Long-term Debt Obligations Capital Lease Obligations Operating Lease Obligations Purchase Obligations Not Recorded as Liabilities(1) Other Long-term Liabilities (2) Total
(1) (2)

Within 1 year 21.6

2-3 years 43.2

4-5 years 32.2

After 5 years 163.3

260.3

3.7 1,424.8 32.4 Rs. 1,721.2

1.1 1,424.8

2.2

0.4 32.4

Rs. 1,448.1

Rs. 46.6

Rs. 30.8

Rs. 195.7

These purchase obligations relate to purchases of raw materials, consumables and capital goods, for items not yet received. Excludes deferred income tax

Debt Obligations and Facilities Key terms of our outstanding indebtedness facilities are as follows: Secured Loans Short-Term and Working Capital Loan Facilities On January 16, 2002, Biocon renewed Rs. 130,000,000 of rupee and foreign currency denominated fund based working capital facilities with State Bank of India. These facilities are repayable on demand, secured by the hypothecation of inventories and receivables and carry an interest rate of 2.1% p.a. for foreign currency denominated loans and 7.5% p.a. to 12.25% p.a. for rupee loans. There were no amounts outstanding under these facilities as of December 31, 2003. This facility is pending of renewal.
113

Biocon
On January 21, 2004, Biocon renewed its total rupee and foreign currency denominated working capital facilities with HSBC for Rs. 395,000,000. These facilities are repayable on demand, secured by the hypothecation of inventories and book debt and carry an interest rate of 2% p.a. for foreign currency denominated loans and 6% p.a. to 15% p.a. for rupee loans. Biocon had utilised Rs 171.2 million as of December 31, 2003, inclusive of foreign currency denominated loans of Rs. 100.3 million (US$ 2.2 million). On February 25, 2003, Biocon renewed a Rs. 130,000,000 working capital facility with Canara Bank. Foreign currency denominated loans under this facility carry an interest rate of LIBOR plus 0.75% per annum and Rupee loans carry and interest rate of 8% to 11.75%. The interest rate payable on amounts drawn is fixed on the date of drawdown and are subject to reset on rollover/ renewal dates. Amounts outstanding under this facility are repayable on demand and are secured by the hypothecation of Biocons inventories, book debt. As of December 31, 2003 Rs. 127.7 million was outstanding under this facility, of which Rs. 127.6 million was denominated in US Dollars. This facility falls due for renewal in February 2004. On June 30, 2003, Biocon entered into a US$ 2.0 million revolving working capital facility with Exim Import Bank of India (EXIM Bank). Amounts drawn under this facility carry an interest rate of LIBOR plus 0.75% or plus 1.00% and are repayable on demand. This facility is secured by a hypothecation of all of Biocons present and future current assets. As of December 31, 2003, US$ 2.0 million was outstanding under this facility. This facility falls due for renewal in June 2004. On January 30, 2004, Biocon has also accepted an additional revolving working capital facility for US$ 5.0 million with EXIM Bank, secured by hypothecation of all of Biocons present and future current assets. Secured Loans Long-Term Loan Facilities On July 3, 2002, Biocon entered into a Rs. 100,000,000 term loan facility with the Technology Development Board to fund Biocons acquisition of the PlaFractor TM plant. Loans drawn under this facility are repayable in nine equal instalments commencing from February 2004. These loans carry an interest rate of 5% per annum and are secured by a first priority pari passu charge on all of Biocons fixed assets and a personal guarantee of Biocons Managing Director. As of December 31, 2003, Biocon had drawn Rs. 97.0 million under the above facility. Unsecured Loans and Liabilities for Deferred Payments On November 18, 2000 Biocon obtained an order from Karnataka Sales Tax Authority under the Agro Food Processing Industrial Policy of the Government of Karnataka allowing it to defer payment of sales tax (including turnover tax) for a period of up to 12 years from February 9, 2000 without interest with respect to sales from its Hebbagodi manufacturing facility. Under the Order, the amount of sales tax that may be deferred is not to exceed Rs. 648,938,000. As of December 31, 2003, Biocon had utilized Rs. 162.4 million of this amount. On November 18, 2000, Biocon obtained an order from Karnataka Sales Tax Authority under the Industrial Policy of the Government of Karnataka allowing it to defer payment of sales tax (including turnover tax) for a period of up to eight years from February 4, 1998 without interest with respect to sales from its Bommasandra manufacturing facility. Under the Order, the amount of sales tax that may be deferred is not to exceed Rs. 24,375,000. As of December 31, 2003 Biocon had utilised Rs. 0.9 million of this amount. On May 29, 2003 Biocon entered into a Rs. 50,000,000 Project Agreement financed by ICICI Bank Limited under the Sponsored Research and Development Program to fund Biocons research into the production of recombinant human insulin on a commercial scale. Amounts drawn under the facility carry an interest rate of 6% and are repayable in 10 semi-annual instalments beginning April 1, 2004. As of December 31, 2003, we had not yet drawn down on this facility. New Term Loans We have received a revocable sanction from ABN AMRO Bank N.V., The Hong Kong and Shanghai Banking Corporation Limited and Rabo India for a new 4-1/2-year US$ 20,000,000 term loan within the next two months. The loan, which we may use for capital expenditure, would be repayable in seven equal semi-annual instalments beginning 18 months from the date the loan is funded. The loan would bear interest at LIBOR plus 1.40% and contain covenants, including, financial covenants. This loan would be secured by a first priority pari passu mortgage and charge on all of Biocons fixed assets. This loan would constitute an External Commercial Borrowing, or ECB, for RBI purposes.

114

Biocon
We have received a revocable sanction from Canara Bank for a Rs. 500,000,000 five-year term loan. If we decided to take this loan, we could use the funds for capital expenditure for capacity expansion. The loan would bear interest at applicable six month LIBOR plus 2.25%. We expect that there would be a payment moratorium on the loan for the first 18 months, after which quarterly payments would be required. This loan would be secured by a first priority pari passu mortgage and charge on all of Biocons fixed assets. OFF-BALANCE SHEET ARRANGEMENTS As of December 31, 2003, we were not a financial guarantor of obligations of any unconsolidated entity, and we were not a party to any similar off-balance sheet obligation or arrangement. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We are exposed to market risk from changes in foreign exchange rates, interest rates and certain commodity prices. The following discussion is based on our consolidated financial statements under Indian GAAP. Exchange Rate Risk We face exchange rate risk to the extent that our income and expenses are denominated in currencies other than Indian rupees. In the first nine months of fiscal 2004 and in fiscal 2003 we had foreign exchange income equivalent to Rs. 2,303.2 million and Rs. 1,354.9 million, respectively, and foreign exchange expenditure equivalent to Rs. 1,557.9 million and Rs. 876.4 million, respectively. Substantially all of our export sales, as well as Syngenes and Clinigenes income, are denominated in U.S. dollars, while a substantial portion of our capital expenditures, raw material, and fuel costs and certain of our indebtedness are denominated in US dollars. Some of our raw materials and capital expenditures are also priced in Euro. We also typically have borrowings denominated in US dollars. As of December 31, 2003 and March 31, 2003, our consolidated US dollardenominated debt was US$ 7.0 million and US$ 6.7 million, respectively. Appreciation or depreciation of the Indian rupee relative to the U.S. dollar can cause us to recognize foreign exchange losses. As exports are principally denominated in U.S. dollars, our income from export sales is subject to changes in the Rupee/U.S. dollar exchange rate. From May 31, 2002 to December 31, 2003, the Rupee has appreciated 7.7% against the U.S. dollars, while prior to that period the Rupee had been declining against the U.S. dollar. If the Rupee appreciates against the U.S. dollar between the time a sale is booked and the time payment is received, we will recognize a foreign exchange loss. In accordance with our exchange rate hedging policy, which permits us to maintain up to US$20 million of unhedged exposure to US dollars, we enter into Rupee forward purchase contracts to mitigate the risk of changes in foreign exchange rates on accounts receivable. Generally, the counterparty to these contracts is a bank. As of December 31, 2003, we had entered into Rupee forward purchase contracts (sell U.S. dollars) aggregating Rs. 589.3 million at an average rate of Rs. 45.69 per U.S. dollar. All of these contracts mature before March 2004. Interest Rate Risk We bear interest rate risk to the extent our indebtedness accrues interest at fluctuating rates. As of December 31, 2003, we had no floating rate long-term debt outstanding. Commodity Price Risk We are subject to market risk with respect to commodity prices because prices of our biopharmaceuticals largely commodity products can fluctuate dramatically, depending on, among other factors, the number of producers and their production volumes and changes in demand in the principal drug markets. In addition, our biopharmaceuticals sales into the regulated markets occur typically after the expiration or invalidation of product patents related to those products. During this time prices typically decline significantly and often rapidly, resulting in lower profit margins over time. Because biopharmaceuticals have become the most significant component of our consolidated total income and continue to grow as a percentage of our consolidated total income, our revenue is significantly and increasingly dependent upon factors affecting biopharmaceutical prices. We also purchase biopharmaceuticals and certain intermediates as inputs in our biopharmaceutical production processes. Prices of these biopharmaceuticals and intermediates are also subject to commodity price risk.

115

Biocon
In addition, our raw material costs are to a certain extent dependent on global petrochemical prices, which in turn often track global oil prices. Our biopharmaceutical and enzyme production processes involve the use of many petrochemicals, especially solvents such as ethyl acetate, methanol and acetone. As global petrochemical prices increase, our petrochemical input costs also increase. Our fuel costs, which relate principally to the purchase of diesel and super kerosene oil for use in our power generators, are linked to global oil prices. As global oil prices increase, our fuel costs increase. In the normal course of business, we purchase these petrochemical and oil products under spot supply contracts based on prevailing market conditions. Certain of our other raw materials and other costs are subject to fluctuation based on commodity prices. We do not use any derivative financial instruments or futures contracts to hedge our exposure to fluctuations in commodities prices. EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS Annexure III to our restated unconsolidated and restated consolidated financial statements under Indian GAAP describe recent accounting pronouncements that have already had a significant effect on our financial reporting. The following are accounting pronouncements that are yet to take effect: Accounting for Impairment of Assets On May 30, 2002, the Institute of Chartered Accountants of India (the ICAI) issued Accounting Standard 28, on Impairment of Assets (AS 28) which prescribes the procedures that an enterprise should apply to ensure that its assets, other than inventories, assets arising from construction contracts, financial assets and deferred tax assets, which are dealt in separate accounting standards, are carried at no more than their recoverable amount. An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset is described as impaired and this Standard requires the enterprise to recognise an impairment loss. This Standard also specifies when an enterprise should reverse an impairment loss/under statement. AS 28 comes into effect for various different categories of enterprises on a staggered basis effective from the fiscal year beginning from April 1, 2004 through to April 1, 2008 and is mandatory in nature from the effective date. AS 28 shall be effective for the Biocon Group from the fiscal year beginning April 1, 2004. Based on our assets as of December 31, 2003, we do not believe that this accounting standard would have a material impact on our financial statements. Accounting for the Effects of Changes in Foreign Exchange Rates On February 21, 2003, the ICAI revised its existing standard on accounting for effects of changes in foreign exchange rates by issuance of Accounting Standard 11 (Revised 2003), on The Effects of Changes in Foreign Exchange Rates (AS-11 Revised). AS-11 Revised prescribes accounting for transactions in foreign currency and translating the financial statements of foreign operations. The standard also deals with the accounting for foreign currency transactions and foreign operations and to determine the exchange rate to be used and the recognition of such effect of changes in exchange rates in the financial statements. One of the key revisions based on the AS-11 Revised is to carry on non monetary assets at the exchange rate as of the transaction date, thus no capitalisation of exchange difference on account of purchase of non monetary assets. AS-11 Revised comes into effect from the fiscal year beginning from April 1, 2004 and shall be mandatory for the Company from the effective date. This change in accounting standard would not have a material impact on our December 31, 2003 financial statements. Accounting for Provisions, Contingent Liabilities and Contingent Assets On November 6, 2003, the ICAI issued Accounting Standard 29, on Provisions, Contingent Liabilities and Contingent Assets (AS 29) which prescribes appropriate recognition criteria and measurement bases to be applied for provisions and contingent liabilities. AS 29 requires that an enterprise should disclose sufficient information to enable users to understand their nature, timing and amount.

116

Biocon
AS 29 comes into effect from the fiscal year beginning from April 1, 2004 and shall be mandatory for the Company from the effective date. Effective April 1, 2004, the standard included in Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date, that deal with contingencies stand withdrawn. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INDIAN GAAP AND US GAAP We prepare our financial statements in accordance with Indian GAAP and US GAAP, which differ in certain significant respects. For more information on these differences, please refer to the section entitled Financial Information Summary of Significant Differences Between Indian GAAP and US GAAP beginning on page 345 of this Prospectus. SIGNIFICANT DEVELOPMENTS AFTER DECEMBER 31, 2003 THAT MAY AFFECT THE FUTURE OF OUR OPERATIONS Except as stated elsewhere in this Prospectus and in compliance with AS4, to our knowledge no circumstances have arisen since the date of the last financial statements as disclosed in the Prospectus which materially and adversely affect or are likely to affect, the trading and profitability of the Company and its subsidiaries (taken as a whole), or the value of the consolidated assets or their ability to pay their material liabilities within the next 12 months. Except as stated elsewhere in this Prospectus, there are no subsequent developments after the date of the Auditors report dated January 17, 2004 which we believe are expected to have material impact on the reserves, profits, earnings per share or book value of the Company and its subsidiaries (taken as a whole).

117

Biocon
REGULATIONS AND POLICIES The research and development, testing, manufacture and marketing of biotechnology and biopharmaceutical products is governed by various regulatory authorities and requires compliance with several legislations, established standards and guidelines. Regulatory Regime India In India, the biotechnology and biopharmaceutical industry is regulated by various authorities/bodies that have been set up under different ministries of the Government of India, as illustrated below:

Government of India

Ministry of Science & Technology

Ministry of Health & Family Welfare

Ministry of Chemicals & Fertilizers

Ministry of Environment & Forest

Department of Biotechnology

Department of Health

ICMR

Department of Chemicals & Petrochemicals

GEAC

Directorate General of Health Services

NPPA RCGM DCGI CDSCO

The regulations, guidelines and standards applicable to the biotechnology and biopharmaceutical industry address aspects pertaining to the manufacture, storage and marketing of biopharmaceuticals enzymes and research services including clinical research. Biopharmaceuticals Matters pertaining to drug formulations, biologicals and APIs are governed by the Drugs and Cosmetics Act, 1940 and rules made thereunder, which regulate the import, manufacture, distribution and sale of drugs and APIs as well as aspects relating to labeling, packing and testing.. The Drug Controller General of India, or DCGI, is responsible for the implementation of this Act. The Central Drugs Standard Control Organization, or CDSCO, is responsible for testing and approving APIs and formulations in consultation with the DCGI. Before commercial manufacture, all drugs have to first undergo the process of clinical trials. Human clinical trials are typically conducted in four sequential phases that may overlap under some circumstances:

118

Biocon
s

Phase I: The drug or treatment is introduced into a small group of healthy human beings (20-80 persons) to evaluate its safety, determine a safe dosage range and identify its side effects. Phase II: This phase involves studies on a selected group of patients (100-300 persons) to identify possible adverse effects and risks, to determine the efficacy of the product for specific targeted diseases and to further evaluate its safety. Phase III: Upon Phase II evaluations demonstrating that a dosage range of the product is effective and has an acceptable safety profile, Phase III trials are undertaken on larger groups of patients (1000-3000 persons) to confirm its effectiveness, monitor side effects, compare it to commonly used treatments and collect information that will allow the drug or treatment to be used safely. Phase IV: In this phase a study of post marketing information with regard to the drugs risks, benefits and optimal use is carried out.

The approval process for conducting clinical trials, manufacturing and marketing of a drug depends on whether the drug is a new chemical entity or an rDNA product. In the case of new chemical entities, the DCGI is the approving authority. For rDNA products, the application is required to be submitted to the Department of Biotechnology, or DBT, after which it is processed and examined for scientific, safety and efficacy issues by an Advisory Committee comprising of the DBT, Chairman of Review Committee on Genetic Manipulation, DCGI, Ministry of Health and Family Welfare, and 3-4 other area experts. If the Advisory Committee is satisfied, it recommends the proposal to DCGI who then clears the proposal for Phase I clinical trials. The DCGI reviews the clinical data after every phase based on which he grants approval for entering into the next phase. The Phase III clinical data is examined by the DCGI in consultation with the Genetic Engineering Advisory Committee, or GEAC. Thereafter, the DCGI grants the final approval for manufacturing and marketing the product. The pricing of certain bulk drugs and formulations is controlled by the Drugs (Price Control) Order, 1995, or DPCO, promulgated under the Essential Commodities Act, 1955. The National Pharmaceutical Pricing Authority, or NPPA, established under the DPCO, is responsible for this pricing structure. Enzymes Within the biotechnology industry, the production of enzymes which are used as components in foods is regulated by the Prevention of Food Adulteration Act, 1954 which prohibits a person from manufacturing for sale, or storing, any adulterated or misbranded food. Additionally, the food components that are exported are required to comply with international standards as contained in the Joint FAO/WHO Food Standards Program issued by the Codex Alimentarius Commission. Clinical Research Clinical trials are required to comply with the Guidelines on Clinical Trials for Import and Manufacture of New Drug as contained in Schedule Y of the Drugs and Cosmetics Rules as well as the guidelines for good clinical practices for clinical research in India issued by the Ministry of Health and Family Welfare. Additionally, the guidelines on Generating Pre-clinical and Clinical Data for rDNA based vaccines, diagnostics and other biologicals have been prescribed by the Department of Biotechnology. For details on the different phases of clinical trials and the regulations governing these, please refer to the section entitled Biopharmaceuticals on page 118 of the Prospectus. Ethical issues arising from the conduct of clinical trials on human subjects including obtaining the informed consent of the subjects and safeguarding the rights, safety, and well-being of the subjects is governed by the Ethical Guidelines for Biomedical Research on Human Subjects, 2000 prescribed by the ICMR. These guidelines are based on the internationally recognised Good Clinical Practices of the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use. The ICMR Guidelines propose the setting up of an Institutional Ethics Committee within the establishment to ensure that standard operating procedures such as those relating to obtaining informed consent are complied with. For bio-medical wastes produced from research activities or from the testing of biologicals, the Biomedical Waste (Management and Handling) Rules, 1998 requires the setting up of requisite bio-medical waste treatment facilities and adherence with certain procedures for the disposal of this waste.
119

Biocon
United States In the United States, the USFDA, established under the Department of Health and Human Services, regulates medicines through its Center for Drug Evaluation and Research. For biological products, the Center for Biologics Evaluation and Research, also under the USFDA, is responsible for ensuring the safety and efficacy of such products. The USFDA has issued guidelines relating to good clinical practice and clinical trials that are to be followed even by manufacturers of APIs outside the US. The USFDA mandates drugs to be manufactured in conformity with the cGMP. The facilities, within or outside US, in which the APIs or drugs are manufactured require USFDA approval. USFDA approval is also required for the manufacture and marketing of new drug compounds, new formulations for existing drug compounds and generic drugs. To obtain USFDA approval for a new drug to be used in a clinical investigation, an Investigational New Drug Application, or INDA, has to be filed along with data and information relating to pre-clinical laboratory and animal toxicology tests, methods of manufacture of the product, quality control testing, etc. Thereafter, for the sale and marketing of a new pharmaceutical product or new formulations for existing drug compounds in the US, a New Drug Application, or NDA, has to be made. As regards a generic drug manufacturer, the relevant application for approval is the Abbreviated New Drug Application, or ANDA. This application has its basis in the Hatch-Waxman Act, 1984, which permits generic versions of previously, approved innovator drugs to be approved by submission of bioequivalency data without the need for complete reports of pre-clinical and clinical studies. An ANDA is required to include certifications of invalidity or non-infringement of any patents relating to certain listed drugs, by the generic drug applied for (paragraph IV certification). The Hatch-Waxman Act provides an incentive of 180 days of market exclusivity to the first generic applicant who challenges a patented drug by filing a paragraph IV certification. For a bulk supplier of APIs to a US Company, the Drug Master Files, or DMF, assumes importance. The DMF contains confidential, detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of the APIs. This DMF supports the INDA, NDA or ANDA, as the case may be, and is submitted by the supplier of the API. Upon submission of an INDA, NDA or ANDA by the US Company for the finished product, the USFDA examines the DMF in the course of reviewing the INDA, NDA or ANDA. Increasingly, the USFDA is adopting the format contained in the Common Technical Document for submission of technical data to regulatory authorities. Europe In Europe, EDQM grants the Certificate of Suitability of the Monographs of the European Pharmacopoeia, which certifies that the quality of the pharmaceutical product for which it is granted is in compliance with the European Pharmacopoeia. Further, the marketing authorisations for pharmaceutical products in Europe are obtained by submitting the marketing authorisation applications to either the centralized European Agency for the Evaluation of Medicinal Products, the EMEA, or to national authorities. The EMEA/national authorities while considering the applications for marketing authorisation review European DMFs submitted by API suppliers. Patent regime India The Patents Act, 1970, governs the patent regime in India. Historically, India granted patents only for processes and not products. However, as a signatory to the Trade Related Agreement on Intellectual Property Rights, or TRIPs, India is required to ensure that its patent laws are in compliance with the TRIPs by January 1, 2005. By virtue of this requirement, India would have to grant patents for products as well as processes. Presently, the Patent Act provides that a product patent cannot be granted for:
s s

inventions claiming substances intended for use, or capable of being used, as food or as medicine or drug, or substances prepared or produced by chemical processes, where chemical process includes biochemical, biotechnological and microbiological processes.

120

Biocon
Also, from the perspective of a biotechnology and biopharmaceutical industry, it is relevant to note that the Patents Act excludes the following inventions from patentability:
s s

s s

discovery of any living thing or non-living substance occurring in nature, any process for the medicinal, surgical, curative, prophylactic, diagnostic, or therapeutic or other treatment of human beings to render them free from disease, plants and animals in whole or any part thereof other than micro-organisms, an invention which, in effect, is traditional knowledge or which is an aggregation or duplication of known properties of rationally known component or components.

Pursuant to the TRIPs, during the transitional phase until products patents are recognised in India, India has in place a mailbox facility, which allows the filing of product patent claims on or after January 1, 1995. The mailbox shall be opened on January 1, 2005 and all the applications contained therein shall be reviewed for the purpose of grant of a patent retrospectively from the date of filing of the patent application. Exclusive marketing rights may be granted for a maximum period of five years for mailbox applications based on whether the invention is patentable and subject to satisfaction of certain conditions relating to the date of filing of the application and the grant of marketing approval. United States The US patent regime provides that a person who invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent. The US patent regime follows the first to invent as opposed to the first to file followed in other jurisdictions and consequently, the patent could be granted to the inventor who proves priority of invention, regardless of him filing the patent application. The patent application must be filed in the US Patent and Trademark Office within one year of any public disclosure. Any inventor, regardless of citizenship, may apply for a patent on the same basis as a US citizen. All US patent applications must be made, or authorised to be made, by the inventor. This differs from the practice in most countries where application is usually filed in the name of the owner of the patent. European Community The European Patent Convention, administered by the European Patent Office, creates a single European procedure for the grant of patent, which is recognised in all the member countries. Moreover, European patents can be granted on the basis of an international application filed in accordance with the Patent Co-operation Treaty, as outlined below, for all member countries of the European Patent Convention. International treaties Since the rights granted by a national patent are recognised only in that country, an inventor who desires patent protection in other countries must apply for a patent in each of the other countries. To avoid the filing of a multiplicity of patents applications, international patent treaties are often resorted to. Once such treaty which enables patent protection simultaneously in many countries by filing a single international patent application, is the Patent Co-operation Treaty, 1970, or PCT. The advantage of the PCT process is that the filing of a single application is treated as the effective filing of a separate application in each designated PCT country. The procedure for an international application under the PCT is briefly set out below: 1. The application may be filed by one who is a national or resident of a contracting state at the patent office of the contracting state, the Receiving Office, or with the International Bureau of WIPO in Geneva. At this stage, the applicant indicates those contracting states in which he wishes his application to have effect. 2. The application undergoes an international search carried out by a major patent office of the applicants choice. This generates an international search report, which contains a listing of citations of such published documents that might affect the patentability of the invention.
121

Biocon
3. The international search report along with a written opinion, known as the International Preliminary Report on Patentability, or IPRP, is communicated to the applicant who has the option to withdraw his application. If the application is not withdrawn, it is published in the International Bureau along with the international search report and communicated to the patent office in each designated country. The applicant is permitted to wait until the end of the 30th month from the priority date (except when the application will be eventually filed in Brazil, Switzerland, Finland, Luxembourg, Norway, Sweden, Singapore, Tanzania, Uganda, Serbia and Montenegro or Zambia), to commence the national phase before each designated office which entails payment of the requisite fees depending on the national law of the country. Where the applicant wishes to follow the procedure under Chapter II of the PCT, before entering the national phase, the applicant may request for an international preliminary examination which generates an IPRP setting forth the examiners position regarding the patentability of the claimed invention. This report aids the designated offices during the national phase. The application enters the national phase wherein the claimed invention is examined by the national patent offices of the designated countries for grant of the patent.

4.

5.

6.

Another international treaty governing patent protection is the Paris Convention for the Protection of Industrial Property, 1883 that requires member countries to guarantee to the citizens of the other countries the same rights in patent and trademark matters that it gives to its own citizens. Further, this treaty grants a right of priority to the applicant which means that the applicant who has filed an application in any contracting states, may apply for protection in any other contracting states within 12 months and claim priority over other applications which have been filed by other applicants during the said 12 month period.

122

Biocon
GOVERNMENT APPROVALS In view of the approvals listed below, we can undertake this Issue and our current business activities and no further major approvals from any Government authority/ RBI are required to continue those activities. Biocon RBI/FIPB 1. Approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) dated January 15, 2004 from FIPB to our Company approving (i) the transfer of 6,000 equity shares of Rs. 5 each of our Company from Welfare Trust to specified non-resident individuals subject to certain conditions, (ii) the manufacture of chemicals and chemical products in the field of biotechnology and manufacture of human insulin using recombinant DNA technology (iii) foreign equity participation (in foreign exchange) upto 60% of the paid up capital of Biocon and (iv) noting the change in the name of the Company from M/s. Biocon India Limited to M/s. Biocon Limited. Approval (Ref. No. FC.II.121(2000)/93(2000)) dated March 10, 2000 issued by the Department of Industrial Policy and Promotion for foreign equity investment of 43.60% amounting to Rs. 2,214,200 in the paid up capital of our Company in the manner specified by way of acquisition of the shareholding of Glentec International, Mauritius in BBPL, BCZ and HLX. Approval (Ref. No. FC.II.121(2000)/93(2000)-Amend No. 2) dated March 21, 2002 issued by the Department of Industrial Policy and Promotion to our Company to acquire 73.64% (representing 2,117,170 equity shares) of the shareholding in Syngene from non-resident shareholders for a consideration of Rs. 61,778,170 which will be discharged by Biocon on a swap basis by issuing 14,930 shares of Rs. 100 each to the non-resident shareholders of Syngene. Approval (Ref. No. FC.II.121(2000)/93(2000)-Amend No. 3) dated March 11, 2003 from FIPB to our Company permitting the Neville Bain Trust to acquire 4300 equity shares of Rs. 10 each (representing 0.23% of the equity capital) of our Company from Glentec International, Mauritius. Approval (Ref. No. FC.II.121(2000)/93(2000)-Amend) dated June 11, 2003 from FIPB to our Company permitting Albacore Investments Ltd., Mauritius to acquire shares in our Company from TCW/ICICI Private Equity Fund LLC Mauritius, TCW/ ICICI Private Equity AMP Fund LLC Mauritius and ICICI Trusteeship Services Limited, A/C ICICI Emerging Sectors Fund. Letter (Ref. No. FC.II.121(2000)/93(2000)-Amend No. 4) dated July 8, 2003 from FIPB to our Company noting the change in name of Albacore Investments Ltd, Mauritius to AOF HS Mauritius Ltd. Approval (Ref. No. EC.CO.FID(I)4793/10.1.07.02.200(3)VOL XIII/98-99 dated May 5, 1999 from RBI under Section 29(1)(b) of FERA for transfer of equity shares of our Company, BQIL and BCZ from Unilever Overseas Holdings BV to Glentec International, Mauritius for acquiring equity shares as provided. Approval (Ref. No. CO.FID(I) /10.1.07.02.200(385)/99-2000) dated February 4, 2000 from RBI under Section 19(5) of FERA to Glentec International, Mauritius for transferring their holding of 2,000,000 equity shares of Rs. 10 each and 35,000 equity shares of Rs. 100 each in BBPL and BCZ in favour of our Company for a total consideration of Rs. 70,410,000 and Rs. 25,457,000 respectively. Approval also granted for Mr. John Shaw, UK transferring his entire holding of 651,000 equity shares of Rs. 10 each of HLX in favour of our Company for a total consideration of Rs. 6,234,026. Approval (Ref. No. CO.FID(I)2414/10.1.07.02.200(385)/99-2000) dated February 21, 2000 from RBI under Section 19(5)of FERA to the specified non-residents (being Mr. Ravi Mazumdar, Ms. Catherine Rosenberg, Mr. Charles Cooney, Dr. Neville Bain and Mrs. Bain, Mr. Declan Mcfadden and Mr. SMA Lecchini) to transfer their entire shareholding of 394,000 equity shares of Rs. 10 each in HLX in favour of our Company at a price of Rs. 9.57 per share.

2.

3.

4.

5.

6. 7.

8.

9.

10. Letter (Ref. No. EC.BG.FID No. 7633/21.03.184/2000-01) dated March 14, 2001 from RBI confirming that it has taken on record the issue of 34931 equity shares to foreign companies/national/non-resident Indian by allotting Registration No. FC-2001 BGR-0045 in terms of FEMA Notification No. 20/RB-2000 dated May 3, 2000.

123

Biocon
11. Approval (Ref. No. EC.BG.FID No.480HD/13.01.09/2001-2002) dated March 27, 2002 from RBI to our Company to acquire 2,117,170 equity shares of Rs. 10 each held by non-resident shareholders in Syngene for a consideration of Rs. 61,778,170 which is to be discharged by our Company on a swap basis by issuing 14,930 shares as per Government of India letter No. FC II.121(2000)/93 (2000) - Amend dated March 21, 2002. 12. Approval (Ref. No. EC.CO.FID (I) 1843/10.1.02.07.200(616)/2003-2004) dated August 29, 2003 from RBI to AOF HS Mauritius Ltd under Regulation 10A(b) Notification No. FEMA 20/2000-R dated May 3, 2000 permitting ICICI Trusteeship Services Ltd to transfer 48,669 equity shares of our Company to AOF HS Mauritius Ltd at a price of Rs. 2002.56 per share and for AOF HS Mauritius Ltd to acquire the same. 13. Approval (Ref. No. FC.II.121(2000)/93(2000)-Amend) dated November 18, 2003 from FIPB to our Company for the transfer 4000 equity shares of Rs. 10 each of our Company by Biocon India Limited Employees Welfare Trust to each of our nonresident directors, being Prof. Charles L. Cooney and Dr. Neville Bain. Regulatory 14. Form 25 License (license no. NB-135/82) issued by the Drugs Controller, Karnataka to manufacture, for sale or distribution of certain drugs at our premises located at 20 KM Hosur Road, valid till December 31, 2007. 15. Form 28 license (license no. KTK/28/320/2001) issued by Drugs Control, Karnataka for the manufacture for sale of certain drugs at our premises located at 20 KM Hosur Road, valid from January 1, 2003 till December 31, 2007. 16. Form 20-B and 21-B license (license no. KA/BNG/R/20B/21 and KA/BNG/R/21B/15) granted to our Company on November 13, 1996 by Assistant Drugs Controller and Licensing Authority, Bangalore Division to sell, stock or exhibit for sale or distribute by wholesale all drugs other than certain scheduled drugs at Sy. No. 44/4B, Shop No. G1, 20 KM, Hosur Road, Hebbagodi, Bangalore renewed till December 31, 2006. 17. Form 20-B and 21-B license (license no. KA/BNG/R/20B/68 and. KA/BNG/R/21B/58) granted to our Company on February 28, 2000 by Assistant Drugs Controller and Licensing Authority, Bangalore Division to sell, stock or exhibit for sale or distribute by wholesale all drugs other than certain scheduled drugs at Sy No. 44/4B, Shop No. 3, Hosur Road, Hebbagodi, Bangalore renewed till December 31, 2007. 18. Free Sale Certificates (Ref. No.DCD/CR/43/SP-CL/2000-2001 dated May 21, 2001, DCD/CR/76/SP-CL/2000-2001 dated July 6, 2000, DCD/CR/387/SP-CL/2001-2002 dated February 18, 2002, DCD/CR/66/SP-CL/2001-2002 dated June 6, 2001, DCD/ CR/400/SP-CL/2002-2003 dated April 25, 2003, DCD/CR/402/SP-CL/2001-2002 dated February 15, 2002 and DCD/CR/362/ SP-CL/2002-2003 dated April 4, 2003) issued by the Drugs Controller, Karnataka certifying that our Company is permitted to export the products as therein provided, subject to the laws of the importing country. 19. Form 29 License (Ref. No. KTK/29/738/2003) dated August 26, 2003 issued by the Licensing Authority, Karnataka to manufacture Human Insulin (Recombinant) for purposes of examination, test or analysis at our premises, valid for one year from the date of issue. 20. Essentiality Certificate (Ref. No. DCD/EPS/13/2003-04) dated September 6, 2003 issued by the Drugs Controller, Karnataka certifying that ethanol (15,000 litres) is essential for the manufacture of the formulation being human insulin. 21. Essentiality Certificate (Ref. No. DCD/EPS/14/2003-04) dated September 15, 2003 issued by the Drugs Controller, Karnataka certifying that ethanol (20,000 litres) is essential for the manufacture of bulk drug being Pravastatin Sodium. 22. Approval (Ref. No. F. No. 12-52/2001) dated September 2, 2003 granted by the DCGI to our Company for conducting clinical trials for indigenously developed r-human insulin injection, subject to approval from RCGM. 23. Office Memorandum (Ref. No. BT/17/12/98-PID) dated December 12, 2003 received from RCGM by our Company, permitting the Company to approach competent authority, for conducting human clinical trials on r-human insulin. 24. Approval (Ref. No. 10/44/2000-CS) dated March 20, 2003 granted by GEAC to our Company for conducting large scale process optimization studies of r-human insulin for R&D purpose only.

124

Biocon
25. DMFs for various products of ours such as Human Insulin Bulk rDNA Origin, Compactin, Mycophenolate Mofetil, Mycophenolic acid, Pravastatin Sodium, Pioglitazone Hydrocloride, Simvastatin, Simvastatin USP, Lovastatin, Lovastatin USP, Atorvastatin calcium, Iron (III) Hydroxide Polymaltose complex, Drotaverine Hydrochloride, have been submitted to the relevant authorities in Canada, Sweden, Norway, Switzerland, Ireland, Spain, United Kingdom, New Zealand, Greece, Belgium, Finland, Australia, Denmark, Germany, United States, The Netherlands. Taxes 26. Certificate of Registration (No. 1005013.9) bearing KST No. 1000013.6 dated April 27, 2001 issued to our Company and godown and branch certifying that it has been registered under Section 10(1) of the Karnataka Sales Tax Act, 1957 valid from December 2, 1978 until cancelled. 27. Central Excise Registration Certificates (Regn.No.AAACB7461R XD 001, Regn.No.AAACB7461R XM 001 and Regn.No.AAACB7461R XM 002) dated December 3, 2001 issued by the Superintendent of Central Excise, Hebbagodi Range, Bangalore III Division, Bangalore I Commissionerate, Bangalore for dealing and manufacturing of enzymes, pharmaceuticals ingredients respectively. 28. Certificate of registration Form ST-2 (under Section 69 of the Finance Act, 1994) (Regn. No. S&T/BG-I/41/BIOCON/2002) dated December 31, 2002 issued by the Superintendent of Central Excise, Service Tax Cell, B-I Commissionerate for payment of service tax on the services of scientific and technical consultancy, technical testing and analysis, technical inspection. EOU 29. Green Card No. 515 dated December 26, 2003 for 100% Export Oriented Unit / issued by the Assistant Development Commissioner, Cochin Special Economic Zone (CSEZ), valid up to August 3, 2004 for the manufacture of Neopectinase, Pectinases, Glucoamylase, Ark Con, Gammapect, Industrial Enzymes, etc. 30. Green Card No. 709 dated December 26, 2003 for 100% Export Oriented Unit issued by the Assistant Development Commissioner, Cochin Special Economic Zone (CSEZ), valid up to July 29, 2006 for the manufacture of all types of Statins including Lovastatin, Pravastatin, Simvastatin and Atorvastatin and other enzymes. Corporate 31. Public records filing for new business entity in the State of New Jersey in the name of our Company with its registered office in 50 Hwy 9N, Suite #108, Morganville, NJ 07751 to promote sales and presence in USA from June 21, 2001 perpetual with the registered agent being Kumar Majmudar. 32. Fax message dated October 3, 2001 from the Department of Treasury, Internal Revenue Service, Philadelphia Service Center addressed to Kumar Majmudar containing the employer identification number 98-0357084. Labour 33. License Form VI (license no. ALCB4/CLA/C-161/2000-2001 and ALCB-4/CLA/C-209/2000-2001) under Section 12(1) of the Contract Labour (Regulation and Abolition) Act, 1970 dated January 6, 1999 and March 13, 2001 issued by the Assistant Labor Commissioner, Bangalore Division III and IV, Bangalore to R. Narasimha Reddy and Captain S. Ravi for doing the work of security, gardening, housekeeping, loading and unloading at our premises, valid till January 5, 2005 and March 12, 2005 respectively. 34. Certificate of Registration Form II (Regn. No. ALCB-4/CLA/P44/2000-2001) under Section 7 (2), Contract Labor (Registration and Abolition) Act, 1970 dated June 6, 1999 issued by the Assistant Labor Commissioner, Bangalore Division III, Bangalore to R. Narasimha Reddy for doing security service, gardening, housekeeping, loading and unloading at our premises. Environment 35. Form XV consent (No. 14/KSPCB/EO/BNG (S)/IND/AEO-2/WPC/2003-2004/991) for existing discharge of sewage and/or trade effluents under Section 25/26 of the Water (Prevention and Control of Pollution) Act, 1974 dated August 11, 2003 issued by the Environmental Officer, Bangalore (South), Region II, Karnataka State Pollution Control Board authorizing us to continue discharge of sewage and trade effluents from our premises located at Plot. No. 113 C2, Bommasandra Industrial Area, Bangalore, subject to the consent order No. 548/KSPCB/WPC/IND/B-S/DEO TC/AEO-2/2002-03/1082, valid till June 30, 2004.
125

Biocon
36. Form XV consent (No. KSPCB/SEO-4/DEO/AEO/WPC/2003-04/244) for existing discharge of sewage and trade effluents Form XV under Section 25/26 of the Water (Prevention and Control of Pollution) Act, 1974 dated November 19, 2003 issued by the Karnataka State Pollution Control Board authorizing us to continue discharge of sewage and trade effluents from our premises located at 20 KM, Hosur Road, subject to the consent order No. 588/KSPCB/WPC/TC/DEO/AEO/ 2002-03, valid till June 30, 2004. 37. Consent for operation of the plant under Section 21 of the Air (Prevention and Control of Pollution) Act, 1981 (No. 16/ KSPCB/EO/BNG (S)/IND/AEO-2/APC/2003-2004/992) dated August 11, 2003 issued by the Environmental Officer, Bangalore (South), Region II, Karnataka State Pollution Control Board authorizing us to operate our industrial plant located at Plot. No. 113 C2, Bommasandra Industrial Area, Bangalore, and to continue to make existing discharge of emissions from the chimneys subject to the consent order No. 517/KSPCB/BNG/IND/ DEO-TC/AEO-2/2002-03/1050, valid till June 30, 2004. 38. Consent for operation of the plant under Section 21 of the Air (Prevention and Control of Pollution) Act, 1981 (No. KSPCB/APC/SEO-4/DEO/AEO/2002-03/243) dated November 19, 2003 issued by the Karnataka State Pollution Control Board authorizing us to operate our industrial plant located at 20 KM, Hosur Road subject to the consent order No. 586/ KSPCB/ TC/APC/DEO/AEO/ 2002-03/1176, valid till June 30, 2004. 39. Form 2 for grant of authorization for occupier handling hazardous wastes (Ref. No. KSPCB/HWM/AEO-1/DFO-3/SEO-1/ 2000-2001/306) dated May 31, 2001 issued by the Member Secretary, Karnataka State Pollution Control Board to operate our facility located at 20 KM, Hosur Road for generation, collection, storage and disposal of specified hazardous waste under the Hazardous Waste (Management and Handling) Amendment Rules, 2000, valid for 5 years from date of issue. 40. Form 2 for grant of authorisation for occupier handling hazardous wastes (Ref. No. KSPCB/HWMC/AEO-1/DEO-3/SEO1/2000-2001/767) dated August 16, 2001 issued by the Member Secretary, Karnataka State Pollution Control Board to operate our facility located at Plot. No. 113 C2, Bommasandra Industrial Area, Bangalore for generation, collection, storage and disposal of specified hazardous waste under the Hazardous Waste (Management and Handling) Amendment Rules, 2000, valid for 5 years from date of issue. 41. Consent (Ref. No. KSPCB/BO/CFE-CELL/DEO/AEO-2/A-2/2002-03) dated April 23, 2002 issued by Member Secretary, Karnataka State Pollution Control Board for expansion/diversification of industry for enhancement of production of certain products without water and air pollution. Miscellaneous 42. Factory licence (No. MYB 6083) granted for our facility located at 20th KM, Hosur Road valid upto December 31, 2004. 43. Factory licence (No. MYB10506) for our facility located at Plot. No. 113 C2, Bommasandra Industrial Area, Bangalore valid upto December 31, 2004. 44. Approval (Ref. No. IADB/DO-2/14518/B-J Link Road/2003-04/1741) dated September 23, 2003 issued by the Development Officer II, Karnataka Industrial Areas Development Board of drawings of proposed factory building to be constructed at our premises, valid till August 15, 2005. 45. Approval (Ref. No. EIB/DEI(S)/AEI(3)/411-13/96-97) dated June 13, 1996 issued by the Electrical Inspector, Bangalore Division to run 2 * 320 KVA generator resets and connected equipment. 46. License to import and store petroleum in installation Form XIII (P-12 (22) 1580/ MYS 4303 dated January 6, 1998) under the Petroleum Act, 1934 issued by Joint Chief Controller of Explosives, Chennai for importing 327.815 kl of petroleum and storage at designated place, valid till December 31, 2004. 47. Lift operating license Form C (license no. M. V. P10812-13, ref. no. 4545/04/02) dated August 28, 2002 issued by the Chief Power Inspector, Energy Department, Karnataka to our Company to operate the lifts installed, subject to the conditions in the Karnataka Lifts Rules, 1976. 48. Approval (Ref. No. EIB/AEI (0)/3768-70/2002-2003/) under Rule 47-A of the Indian Electricity Rules, 1956 dated November 30, 2002 issued by Electrical Inspectorate, Government of Karnataka in respect of our premises to commission 1*320 KVA additional generator set and connected equipment.
126

Biocon
49. Certificate for use of Boiler (Ref. Nos. IBB/BLR/KTK 2232/CFN-77/03-04 dated August 11, 2003, IBB/BLR/KTK 2263/ CFN-75/03-04 dated August 18, 2003 and IBB/BLR/KTK 2447/CFN-35/03-04 dated June 6, 2003) under Sections 7/8 of the Indian Boiler Act, 1923 issued by Inspector of Boilers, Bangalore certifying that the boilers described are permitted to be worked at a maximum pressure of 10.54 kg to the square cm., and valid for a year from the date of issue. 50. Letter (Ref. No. ID.HLC.10.E3.BIOCON.03-04) dated February 19, 2004 issued by the Department of Industries and Commerce, Government of Karnataka approving Biocons proposal to set up an expansion project for manufacturing speciality enzymes for food and pharmaceutical industry pursuant to the decision of the 93 rd High Level Committee on January 24, 2004. Formal government order in this regard to be issued shortly. Syngene Environment 51. Consent (Ref. No. 12KSPCB/BNG(S)/EO/AEO-2/IND/CFE/2003-2004/990) dated August 11, 2003 issued by the Environmental Officer, Karnataka State Pollution Control Board to Syngene for setting up a new industry at our premises, valid for a period of two years from date of receipt of the order. 52. Consent for establishment (Ref. Nos. 12KSPCB/BNG(S)/EO/AEO-2/IND/CFE/2003-2004/990) dated August 11, 2003 issued by the Environmental Officer, Karnataka State Pollution Control Board to Syngene for setting up a new research and development laboratory, valid for a period of two years from date of receipt of the order. 53. Form XV Consent (No. 65/KSPCB/EO/BNG (S)/IND/AEO-2/WPC/2003-2004/993) dated August 11, 2003 under Section 21 of the Water (Prevention and Control of Pollution) Act, 1974 issued by the Environmental Officer, Karnataka State Pollution Control Board to Syngene authorizing it to continue discharge of sewage and trade effluents into our common effluent treatment of our Company subject to the consent order No. 439/KSPCB/DEO TC/WPC/AEO-4/2002-03/868 dated November 20, 2002, valid till September 30, 2004. EOU 54. Green Card No. 541 and 516 dated December 11, 2000 valid till December 10, 2004 and September 5, 2001 valid till August 23, 2004 respectively, issued by the Assistant Development Commissioner, Ministry of Commerce and Industry, Government of India, Bangalore to Syngene as a 100% Export Oriented Unit doing research and development in biotechnology projects for novel compounds for new drugs and fine organic compounds. Taxes 55. Registration Certificate (Reg. Nos. 11874405 dated June 27, 1994 and 11824402 dated June 14, 1994) issued by the Assistant Commissioner of Commercial Taxes, District IV Circle, Bangalore to Syngene under Section 7(1) 7(2) of the Central Sales Tax Act, 1956, classes specified for the purpose of Section 8(1) and (3) of the Central Sales Tax Act and Section 10(1) of the Karnataka Sales Tax Act, 1957 respectively, valid till cancelled. The branch at Plot No.113 C2, Bommasandra Industrial Areas, Bangalore has been recorded as an extra place of business with effect from March 28, 2002. 56. Branch Certificate Form 2 (Reg. No. 11824402 dated June 27, 1994) issued by the Assistant Commissioner of Commercial Taxes, Bangalore Division, Bangalore to Syngene under Section 10(1) of the Karnataka Sales Tax Act, 1957, valid till cancelled. The branch at Plot No.113 C2, Bommasandra Industrial Areas, Bangalore has been recorded as an extra place of business with effect from March 28, 2002. Clinigene Environment 57. Consent for establishment (13KSPCB/BNG(S)/EO/AEO-2/IND/CFE/2003-2004/989) dated August 11, 2003 issued by the Environmental Officer, Karnataka State Pollution Control Board to Clinigene for setting up a new research and development laboratory, valid for a period of two years from date of receipt of the order. Tax 58. Registration Certificate Form 2 (Reg. No. 11825510 and 11875513) dated December 18, 2000 issued by the Assistant Commissioner of Commercial Taxes, Bangalore Division, Bangalore to Clinigene under Section 10(1) of the Karnataka Sales Tax Act, 1957 and Section 7(1) 7(2) of the Central Sales Tax Act, 1956 and classes specified for the purpose of Section 8(1) and (3) of the Central Sales Tax Act respectively, valid till cancelled.
127

Biocon
59. Letter (Ref. No. KN/BN/CIRCLE9/SAOBMS/ENF42/2003; Code No. KN/34346) dated May 26, 2003 from Assistant Provident Fund Commissioner, Sub Accounts Officer, Bangalore to Clinigene confirming the applicability of the Employees Provident Fund & Miscellaneous Provisions Act, 1952 and the Scheme framed thereunder with effect from April 1, 2003. 60. Registration Certificate of Establishment Form C (Reg. No. KA/VA.SUM/8574/2003) dated May 30, 2003 issued to Clinigene certifying that it has been registered as a commercial establishment under the Karnataka Shops and Commercial Establishments Act, 1961 on the date of issue. Biocon Biopharmaceuticals RBI/FIPB 61. Approval (No. FC.II.:35(2003)/501(2002)) dated February 26, 2003 from the FIPB granted to BBPL for foreign collaboration, in relation to SIA Regn. No. FC.I.501 dated December 4, 2002 to collaborate with M/s Cimab S.A., Cuba to manufacture certain products at Bommasandra Industrial Area, IV Phase, Bangalore (Urban) for 49% amounting to Rs. 245 million in lieu of technology transferred, in the paid up capital of Rs. 500 million. Regulatory 62. Form 20-B and 21-B license (license no. KA/BNG-IV/R/20B/101 and KA/BNG-IV/R/21B/86) granted to BBPL on October 10, 2002 by the Assistant Drugs Controller and Licensing Authority, Bangalore Division to sell, stock or exhibit for sale or distribute by wholesale all drugs other than certain scheduled drugs at Shop No. 2, House list No. 308, S-No 44-4B, Hosur Road, Bangalore valid till October 9, 2007. Miscellaneous 63. Letter (Ref. No. ID.HLC.09.E3.BIOpharma.03-04) dated February 19, 2004 issued by the Department of Industries and Commerce, Government of Karnataka approving BBPLs proposal to set up a biopharma manufacturing unit pursuant to the decision of the 93rd High Level Committee on January 24, 2004. Formal government order in this regard to be issued shortly. We have made applications for renewal of the following approvals: 1. Application for renewal of Form 37 approval No. KTK/37/8/97 (Ref: QA/DRUG/BIL/00/139) dated December 30, 2002 submitted by us to the Drug Controller, Karnataka for our premises at Plot No.113 C2, Bommasandra Industrial Areas, Bangalore. Application for renewal of drug license Form 25 No. KTK/25/407/98 (Ref: QA/DRUG/BIL/00/138) dated December 30, 2002 submitted by us to the Drug Controller, Karnataka for our premises at Plot No.113 C2, Bommasandra Industrial Areas, Bangalore. Application for renewal of license to import and store petroleum in installation Form XIII (Licence No. P-12 (SC) MYS 4320) dated December 9, 2003 submitted by us to the Joint Chief Controller of Explosives, Chennai. Application for renewal of factory license No: MYB: 11742 (Ref.ADMIN/INSP/BIL/2003-04) dated October 31, 2003 for Syngene submitted by us to the Inspector of Factories, Bangalore.

2.

3. 4.

128

Biocon
OUTSTANDING LITIGATION Except as stated herein there is no outstanding or pending litigation, suit, criminal or civil prosecution, proceeding initiated for offence (irrespective of whether specified in paragraph (I) of Part 1 of Schedule XIII of the Companies Act) or litigation for tax liabilities against the Company, its Subsidiaries, Promoters or Directors and there are no defaults, non payment or overdues of statutory dues, institutional or bank dues or dues towards holders of debentures, bonds and fixed deposits and arrears of preference shares, other than unclaimed liabilities of the Company or its Subsidiaries and no disciplinary action has been taken by SEBI or any stock exchanges against the Company, its Subsidiaries, Promoters or Directors. Claims against our Company 1. Civil disputes (i) Societatea Commerciala M.I.B.-TH, or SCMIB, has filed a suit (O.S. No. 784/2003) on December 12, 2003 in the court of the Civil Judge (Senior Division), Bangalore Rural District, Bangalore against our Company claiming that a technology transfer agreement was concluded between the parties, although not signed by our Company, consequent to which SCMIB transferred strains/technology to Biocon for the manufacture of Lovastatin. Based on this alleged agreement, SCMIB contends that Biocon is liable to pay it a consideration of US$ 50,000 (along with interest @ 9% p.a.). SCMIB has prayed for an order of temporary and permanent injunction restraining Biocon from manufacturing Lovastatin using the strains/technology transferred or acquired by it from SCMIB, along with a prayer for an adinterim order of temporary injunction restraining Biocon from alienating its premises at 20 KM, Hosur Road, Bangalore, and its plant and machinery and other assets. An application for attachment before judgment of the above mentioned properties has also been made. Our Company maintains that since the technology proposed to be transferred was commercially unviable, we did not sign the technology transfer agreement and consequently, the technology was never and is not being used by us. However, our Company has disclosed the same as contingent liability of US$ 50,000 in its books of account. The case is posted for hearing on February 23, 2004. (ii) Biocon (amongst others) has been named as a garnishee in suit (O.S No. 16294/2003) filed in the court of the Additional City Civil Judge, Bangalore by Fresh and Honest Caf Ltd against Lakshmi Brooke and others. Fresh and Honest Caf claimed an amount of Rs. 2,661,646.37 from Lakshmi Brooke on account of dealings between the parties. Biocon owes Lakshmi Brooke a sum of Rs. 87,030. Fresh and Honest Caf has filed an application on November 16, 2003 for grant of an order of temporary injunction restraining the garnishees (including Biocon) from paying any monies due from them to Lakshmi Brooke pending disposal of the suit. No order restraining our Company from making payments to Lakshmi Brooke has been passed as yet. The case is posted for April 6, 2004. (iii) A suit (O. S. No. 935/2002) for mandatory injunction has been filed Mr. V. Munireddy in the court of the Civil Judge (Senior Division), Bangalore, claiming that the compound wall built by our Company encroaches on his adjoining property being Sy. No. 45/1A Hebbagodi, Anekal Taluk. Our Company contests the claim on the ground that it has not encroached on the said property and has merely extended the height of an existing compound wall. The case is posted for hearing on May 26, 2004. (iv) A suit (Special Civil Suit No. 78/2002) has been filed in the court of the Civil Judge (Senior Division), Thane by M/s. Advanced Biochemicals Ltd against both our Company and Mr. Rajkamal Gyanprakash Varshney, an employee of our Company, claiming that our Company is liable to pay an amount of Rs. 50,000 plus interest for causing loss to the petitioner by allegedly inducing Mr. Varshney to terminate his employment with the petitioner and join the services of our Company (so as to benefit from the know-how which Mr. Varshney had access to in the course of his employment with Advanced Biochemicals) in breach of the confidentiality and non-compete undertakings contained in the employment contract between the petitioner and Mr. Varshney. Our Company has denied the claims of the petitioner. The case has been posted for hearing on March 17, 2004. (v) Our Company has learnt that a suit (No. MS 11/2003) has been filed before the Civil Judge Senior Division, Morigaon by M/s. Hindustan Paper Corporation Ltd. against M/s. L. M. Marketing and our Company. Our Company has been given to understand that Hindustan Paper Corporation Ltd. is suing L. M. Marketing on the grounds that L. M.

129

Biocon
Marketing, who was awarded a tender to supply certain enzymes to Hindustan Paper Corporation Ltd. supplied the same at price which was much higher than the price at which the said enzymes were sold to L. M. Marketing by our Company. Our Company has initiated steps to defend the suit. (vi) A Civil Writ Petition (No. 91 of 2004) with an Interlocutory Application (No. 1 of 2004) has been filed on February 17, 2004 against the Company and other respondents in the Supreme Court of India by Aadar Destitute and Old People Home. The other respondents are Union of India, DBT, RCGM, GEAC and Shantha Biotechnics Private Limited. The petitioner has alleged that the Company in violation of the Rules for Manufacture, Use, Import, Export and Storage of Hazardous Micro-organisms Genetically Engineered Organisms or Cells, 1989 as well as the RCGM directive (to approach the GEAC for obtaining clearance for conducting trials on human subjects), has been conducting human clinical trials of its r-human insulin since November 2003. The petitioner has alleged that the Union of India, DBT, RCGM and GEAC have failed and/or neglected to take any steps or actions to stop these dangerous clinical trials on human subjects and have purportedly condoned the regulatory lapse. The petitioner has inter-alia sought a writ of mandamus to prevent the Company from conducting any human clinical trials with its product r-human insulin. The Supreme Court has till date refused to grant any interim relief to the petitioner. The Company has been asked to enter appearance on the matter. The petition has not yet been posted for hearing in the Supreme Court. 2. Labour disputes (i) A complaint (WCA 80/2000) has been filed by a contract labourer, Mr. R. Saji, in the court of the Commissioner for Workmen Compensation, Bangalore under Section 22 of the Workmens Compensation Act for allegedly suffering burns and 20% permanent physical disability in the course of carrying out electrical work on the premises of our Company which injury is alleged to be attributable to the negligent upkeep of the electrical lines by our Company. The complainant has claimed a compensation of Rs. 800,000 payable, jointly and severally, by our Company, Mr. Sajis principal contractors and sub-contractors. Our company has contested this claim on the grounds that the injury was caused due to the negligence of the complainant. Our Company has retained Rs. 1,000,000 from the money payable to the concerned contractor towards indemnity against any decree being passed against the Company. The case has been reserved for orders. (ii) A claim statement (Ref. No. 118/1996) has been filed by Mrs. Marie T. Fernandes (and referred by the Government of India) before the Presiding Officer, II Additional Labour Court, contesting alleged termination of her services, without cause, from April 9, 1996, as secretary to the Managing Director and seeking reinstatement and back wages on grounds of violation of Section 25F and Chapter VA and B of the Industrial Disputes Act, 1947 by our Company. The case is posted for February 23, 2004. A writ petition (No. 39347/2000) has also been filed by Mrs. Fernandes in the High Court of Karnataka against the Regional Provident Fund Commissioner and our Company seeking closure of her provident fund account and release of amount of provident fund owed to her pursuant to her alleged illegal termination of employment by our Company. Our Company has been included as a party pursuant to its refusal to attest the petitioners form for provident fund claims due to certain alleged untruths being contained therein. The case is to come up for hearing in due course. (iii) A claim statement application (ID 25/2002) has been filed by Ms. C. Mary before the II Additional Labour Court, Bangalore under the Industrial Disputes Act on ground of termination of her employment without sufficient cause for which she has sought reinstatement and full back wages. Biocon has contended that the applicant is an employee of a contractor engaged by Biocon and not an employee of Biocon. The case has been posted forApril 15, 2004. (iv) A claim application (I.D.No.122/2001) has been filed by Mr. Nagaraja Shetty before the II Additional Labour Court, Bangalore under Section 10 (4-A) of the Industrial Disputes (Karnataka Amendment) Act, 1987 for termination of his services without cause by our Company. The applicant, claiming to be a workman (and not a contract labourer) of our Company, has alleged violation of Section 25F and 25N, Industrial Disputes Act for which he has sought reinstatement with full back wages and an entitlement to benefits such as provident fund accruing to such a workman. The matter has been reserved for orders. (v) A claim petition (No. WCA/NFC/CR 47/2002) has been filed before the Labour Officer and Commissioner under Workmen Compensation Division, Bangalore by a former employee, Mr. Sudhakaru under Section 23 of the Workmens

130

Biocon
Compensation Act claiming compensation for alleged total permanent disablement caused to him in the course of his work. Our company has denied such a payment to the applicant on the ground that the provisions of the Employees State Insurance Act, 1948, cover the applicant. The case is scheduled for hearing on March 5, 2004. 3. Excise, customs and service tax disputes (i) Our Companys refund application dated September 13, 1993 for an amount of Rs. 30,528.36 claiming MODVAT credit on certain rejected goods on grounds that the duty has been paid twice was rejected by the Commissioner of Central Excise, Bangalore (order No. 110/97 dated April 9, 1997). On appeal to the CEGAT, the matter was remanded to the Deputy Commissioner (Order No. 1540/2001 dated September 20, 2001). Presently, the matter is pending before the Deputy Commissioner. (ii) Our Company has been directed to pay an amount of Rs. 9,725 by the Superintendent of Central Excise, Bangalore vide letter dated November 21, 2003 on the ground that while reversing an amount equal to 8% on the sale price of exempted goods, Biocon has not considered the amount of freight and insurance which allegedly forms part of the sale price of exempted goods. It is claimed that this non-inclusion has resulted in short reversal of Rs. 9,725 during the period from March 6, 2003 to September 30, 2003 which Biocon is liable to pay. Our Company is contesting this claim. (iii) A demand has been raised on our Company by the Assistant Commissioner of Central Excise for Rs. 17,000 as differential duty arising as a consequence of reclassification of a certain goods, on the basis of a show cause notice dated March 15, 1996 that was confirmed by an order (Order No. 180/97) of the Assistant Commissioner. On appeal filed by our Company, the Commissioner of Appeals remanded the case to the Assistant Commissioner. The Assistant Commissioner, in Order No. 23/2001 dated June 12, 2001 decided to drop the proceedings against our Company. Subsequently, a refund application dated November 22, 2001 was filed by our Company for refund of an amount of Rs. 55,250 (representing Rs. 17,000 plus Rs. 38,250 being the additional duty paid under protest in respect of goods consequent to Order No. 180/97). The Deputy Commissioner of Central Excise rejected this refund application on certain procedural grounds including non-furnishing of certain materials evidencing payment and issued a show cause notice dated January 24, 2002 to which our Company has filed its reply on February 5, 2002. The matter is pending adjudication. (iv) A demand on December 17, 2002 was made on our Company from the Superintendent of Central Excise for the reserve credit of the amount of Rs. 722,311 that our Company had availed on certain capital goods. After a series of correspondence, on April 30, 2003 our Company reversed the CENVAT credit of Rs. 261,172 under protest, as directed by the Superintendent. (v) Our Company has filed an appeal to the CEGAT against the order (Order No. C3/338/D/2000 dated August 25, 2000) granted by the Commissioner of Customs (Appeals) relating to the demand of additional duty of Rs. 131,801 claimed by the Custom House, Chennai on account of re-classification of certain imported goods. The goods were originally classified under heading 3003.90 of Customs Tariff Act, 1975 with Nil C.V.D. but were subsequently re-classified under heading 29.42 of Customs Tariff Act, which attracted an additional CVD @16%. In accordance with the stay order (Stay Order No. 286/2001) passed by the CEGAT, Biocon made a pre-deposit of the aforesaid amount with Commissioner of Customs. The matter is pending final adjudication. (vi) Our Company received a letter dated February 19, 2002 from the Superintendent of Central Excise, Bangalore stating that for the period from October 2000 to January 2001, insurance charges amounting to Rs. 24,915 paid for transportation of the goods had not been included in the assessable value of the goods in terms of Section 4, Central Excise Act. Thus, a demand of Rs. 3,986 was made on our Company. Our Company has contested this demand vide letter dated March 4, 2002. (vii) Our Company was served a show cause notice dated December 19, 1994 from the Assistant Collector of Central Excise wherein our Company was directed to change the classification of certain products and consequently to pay a differential duty of Rs. 580,793. The Assistant Collector in his order (Order No 134/95 dated November 30, 1995) ordered the Company to pay a sum of Rs. 633,417. Our Company appealed this order before the Commissioner of Appeals who upheld the same (in his Order No. 514/97 dated December 9, 1997). The appeal before the CEGAT that was subsequently filed by our Company was disposed of (vide Order No. 1059 and 1060 dated June 12, 2001) and the matter was remanded to the Assistant Collector of Central Excise for de novo adjudication to re-determine the
131

Biocon
classification. The matter is pending final adjudication. (viii) The Superintendent of Service Tax Range III, Bangalore I has issued a letter dated December 2, 2003 to Biocon informing it that it was liable to pay service tax from July 7, 1997 for the technical know-how services that it has availed from Heber Biotec and SCMIB. Biocon is required to provide the relevant agreements and details of lump sum and royalty payments made by it to the foreign companies. Our Company intends to contest this demand. 4. Income tax cases Our Company has income tax cases relating to the assessment years, as detailed below. These cases involve issues relating to our Companys claims for deduction for research and development fees under Section 80 HHC, I. T. Act amortization of expenditure incurred on leasehold property and deduction of research and development fees on gross receipts under Section 80-O, I.T. Act.
Sr. No. Assessment year Total amount demanded (Rs.) 3,776,607 Amount provided in our books (Rs.) 3,011,000 Status of case

1.

1994-95

Order has been passed by the ITAT. Our Company is in the process of filing a miscellaneous petition seeking rectification of certain errors in the order.

2.

1995-96

6,934,354

5,581,000

Order has been passed by the ITAT. Our Company is in the process of filing a miscellaneous petition seeking rectification of certain errors in the order.

3.

1996-97

7,951,633

6,948,000

Order has been passed by the ITAT. Our Company is in the process of filing a miscellaneous petition seeking rectification of certain errors in the order.

4. 5. 6. 7.
(1)

1997-98 1998-99 2000-01 2001-02

7,278,830 14,724,518 Nil (1) Not yet determined.

5,399,000 12,096,000 Nil Nil

Case referred by CIT (Appeals) to assessing officer for re computing the tax payable. Case referred by CIT (Appeals) to assessing officer for re computing the tax payable. Case pending before the CIT (Appeals). Assessment order of the assessment officer is pending.

No amount is demanded as our Company has filed a returned loss for this assessment year.

Claims made by our Company 1. Civil disputes (i) A suit (O.S. No. 5058/2001) has been filed by our Company in the court of the City Civil Judge, Bangalore against six of our former employees and Transcorp Technologies Ltd., whose employment the said employees have joined after resigning from our Company. Our Company has alleged that Transcorp induced these employees, who had access to our Companys proprietary knowledge, to join the employment of Transcorp. Our Company has further contended that these employees have disclosed this proprietary confidential information during the discharge of their duties at Transcorp and in doing so have violated their obligations of non-disclosure, as undertaken in their appointment letters and separation undertakings. Our Company has prayed for an injunction against Transcorp restraining it from inducing employees of our Company from breaching obligations owed to our Company. Our Company has been granted an ex-parte temporary injunction in its favour. The next hearing is scheduled for March 4, 2004. (ii) A suit (O.S. No. 1183/2000) has been filed by our Company in the court of the City Civil Judge, Bangalore against Advanced Biochemicals Ltd under Section 106 of the Trade and Merchandise Marks Act alleging infringement of its mark SPEEDO X used for a certain enzyme. Our Company has alleged that usage of the deceptively similar mark SPEEDOX by Advanced Biochemicals for a similar product amounts to an action of passing off for which it has prayed for a permanent injunction restraining Advanced Biochemicals from using the mark SPEEDOX in relation to any of its products, and for damages to the tune of Rs. 10,000. On 11 January, 2000, a temporary injunction was passed by the VIII Additional City Civil and Sessions Judge, Bangalore restraining Advanced Biochemicals from
132

Biocon
using the abovementioned mark in relation to any of its products. Further, in an application filed by our Company for disobedience/breach of injunction by Advanced Biochemicals on the ground that Advanced Biochemicals has continued to advertise their products under the name SPEEDOX on their web site. The hearing has been posted for February 28, 2004. (iii) Our Company has filed a suit (C.S. 662/2003) filed in the High Court of Madras against Basarass Biocon India Private Ltd under Section 106 of the Trade and Merchandise Marks Act for permanent injunction restraining Basarass from using the name Biocon as part of its corporate name or on any of its products as this allegedly results in an infringement of our Companys rights in the said name and moreover, amounts to an act of passing off by Basarass. An order dated October 7, 2003 of interim injunction has been passed restraining Basarass from (a) using the trade name and mark Biocon in connection with the label on any of its products so as to pass them off as those of our Company, (b) using the trade name Biocon as part of its corporate name, and (c) infringing our Companys copyright in the name Biocon. The case isposted for March 12, 2004. (iv) Our Company has filed a suit (O.S. No 6786/2001) in the court of the City Civil Judge, Bangalore against Greenways Shipping Agencies Pvt. Ltd., Evergreen Belgium Shipping Agency, Bhavishyath Forwarders and Cargill B V. Subsequent to the filing of the suit, our Company made an application for deletion of Cargill B.V as a party to the suit. Our Company has claimed refund of the sum of Rs. 239,618.50 paid by it towards demurrage and other charges. The next hearing is scheduled for July 1 , 2004. (v) Our Company has filed a suit (O. S. No. 6/2001B) filed in the court of the XII Additional District Judge, Indore for recovery of Rs. 2,333,488.50 (plus interest at 18% p.a.) which M/s. Kedia Distilleries Limited owes our Company for supplies made by our Company. The case is still pending. 2. Winding up cases Our Company has initiated winding up proceedings against several companies. The details of such proceedings initiated by our Company are set forth below:
Sr. No. 1. Party involved M/s. Bredfoods Private Limited Details of case CP 204/2001 in the High Court of Karnataka Amount claimed Rs. 140,020, + interest @ 24% p.a. Status Advertisement of petition for winding up appeared in the newspapers on August 5, 2002. Bredfoods has made a payment of Rs. 60,000 in instalments but has defaulted in making payments thereafter. Consequently, the outstanding balance owed by Bredfoods is Rs. 80,020. Advertisement of petition for winding up appeared in the newspapers on September 20, 2003. Deccan Healthcare has agreed to repay the principal sum along with interest, in instalments. 3. M/s. Apple Laboratories Limited CP 63/2003 in the High Court of Andhra Pradesh Rs. 184,749 + interest @ 24% p.a. Advertisement of petition for winding up appeared in the newspapers on September 20, 2003. Apple Laboratories has agreed to repay the principal sum along with interest, in instalments. 4. 5. M/s. Kedia Liquor Limited M/s. Associated Alcohols and Breweries Ltd M/s. Kedia Great Galeon Limited In the High Court of Madhya Pradesh In the High Court of Madhya Pradesh In the High Court of Madhya Pradesh Rs. 40,660 Rs. 249,485 This case is pending. This case is pending.

2.

M/s. Deccan Healthcare Limited

CP 62/2003 in the High Court of Andhra Pradesh

Rs. 248,470 + interest @ 24% p.a.

6.

Rs. 2,215,822.50

This case is pending.

133

Biocon
3. Criminal cases Several suits for dishonour of cheques under Section 138 of the Negotiable Instruments Act have been filed by our Company.
Sr. No. 1. Party involved M/s. Crips Laboratories Ltd, its MD and chairman Details of the case PCR 2590/2000 in the court of the XIV Additional Metropolitan Magistrate, Bangalore Details of dishonoured Cheque Cheque No. 478892 dated November 2, 1999 drawn on State Bank of India, Overseas Branch, Visakhapatnam for Rs. 40,000. Status The case is posted for February 18, 2004.

2.

M/s. GranHeal Pharma Ltd and its director

CC 26681/2001 in the court Cheque No. 027984 of the XIV Additional dated June 23, 2000 Metropolitan Magistrate drawn on Development Credit Bank Limited, Mumbai for Rs. 50,819. PCR 1597/2001 in the court Cheque bearing No. 847794 of the XIV Additional dated November 25, 2000 Metropolitan Magistrate, drawn on Andhra Bank, Bangalore Hyderabad for Rs. 332,440 CC 2989/1/2003 in the court of the Additional Chief Metropolitan Magistrate, New Delhi. CC 1853/1/03 in the court of the Additional Chief Metropolitan Magistrate, New Delhi. CC 2184/01/2911/2003 in the court of the Additional Chief Metropolitan Magistrate, New Delhi. Cheque bearing No. 211702 dated July 31, 2003 drawn on Punjab National Bank for Rs. 2,500,000 Cheque bearing No. 211703 dated August 31, 2003 drawn on Punjab National Bank for Rs. 3,000,000 Cheque bearing No. 211704 dated September 30, 2003 drawn on Punjab National Bank for Rs. 4,000,000

The case has been posted for February 21, 2004.

3.

M/s. Ontime Pharma Ltd and its managing director

Summons has been served and the next hearing has been posted for March 8, 2004. Summons has been issued for hearing on February 21, 2004. Summons has been issued for hearing scheduled on November 25, 2004. Summons has been issued for hearing scheduled on January 7, 2005.

4.

M/s. Morepen Laboratories Ltd, and its directors M/s. Morepen Laboratories Ltd, and its directors M/s. Morepen Laboratories Ltd., and its directors

5.

6.

4.

Excise claims (i) Our Company has submitted an application dated November 2, 1999 to the Assistant Commissioner of Central Excise for refund of excise duty of Rs. 6,720 due to return of part of the goods of value Rs. 42,000 by the customer, Gujarat Ambuja Exports Ltd. (ii) Our company has submitted an application dated September 17, 1999 to the Assistant Commissioner of Central Excise for refund of excise duty for sum of Rs. 8,100 due to return of the goods by the customer, M/s. Niche Marketing, New Delhi.

Claims involving amounts owed to small-scale undertakings The details of the small-scale undertakings to whom our Company owes a sum exceeding Rs. 100,000 and which has been outstanding for more than 30 days, as on March 31, 2003, are as follows:
Sr. No. 1 2. 3. 4. 5. 6. 7. 8. 9. Name of small scale undertaking Acme Synthetic Chemicals Anil Agro Products Private Limited Avani Enterprise Bangalore Genei Private Limited Eskay Fine Chemicals Gorwara Chemical Industries Millenium Chem Pharma Private Limited Quantum Drugs & Chemicals Senthil Papai and Food Products Limited Total Amount owed (in Rs.) 486,720 1,296,920 505,440 318,567 3,525,704 150,016 117,088 464,456 769,600 7,634,511

134

Biocon
Potential Disputes or Claims A. Potential disputes or claims against the Company 1. Civil claims (i) In October 2001, Ranbaxy made allegations that our Companys process for manufacture of Simvastatin and Lovastatin and the intermediates produced during the process likely infringes certain patents owned by Ranbaxy being US patent No. 5,763,646, US Patent No. 5,763,653, European Patent Nos. EP 864569 B1 and European Patent No. EP 864560 A1. Ranbaxy called upon our Company to stop practising this process in US and Europe and to stop selling products manufactured using such processes in the US or Europe. Upon our Companys denial of these allegations, on March 18, 2003 Ranbaxy requested settlement of the dispute between the parties through mediation within one month, which period was extended to a date no later than June 15, 2003 by Ranbaxy. No further action has been taken by Ranbaxy in this regard. Meanwhile, our Company has obtained three process patents in the United States for the alleged infringing processes related to manufacture of simvastatin and novel intermediaries (being Patent No. 6,573,392 B1 granted on June 3, 2003, Patent No. 6,573,385 B1 granted on June 3, 2003 and Patent No. 6,603,022 B1 granted on August 5, 2003). (ii) Our Company and Shantha Biotechnics Pvt Ltd, or Shantha, entered into a joint venture agreement on October 31, 2001 for forming a joint venture company for manufacturing and marketing human insulin. Execution of the joint venture company was based on certain mutual understandings. Since substantial deviations from the original understanding became necessary, the joint venture company was not incorporated. The parties are currently negotiating to finalise a supply agreement. (iii) Geomans Limited claims to own land adjacent to our Companys premises at 20 KM Hosur Road, Hebbagodi, and has alleged that the compound wall constructed by our Company encroaches upon the land owned by Geomans Ltd. Geomans Ltd is also claiming alleged damages of Rs. 2,831,400. Our Company has contested these claims as being baseless. (iv) A notification (No. BDA/COMMR/LAO/60/2003-2004) dated August 11, 2003 was issued by the Bangalore Development Authority to our Company for acquisition of certain lands owned by our Company located at Survey No. 89 at Dokkakanelli village, Varthur Hobli along with other properties in the area. Our Company has filed its objections to the notice for acquisition and was granted a personal hearing on October 22, 2003.The property under reference is situated within a fully developed residential enclave with sanctioned facilities for water and electricity supply. The decision of the Bangalore Development Authority on the acquisition of the said property is pending. Statutory claims (i) Legal Notice dated October 23, 2003 on behalf of Sri. N. Mohan, residing in the area neighbouring our Companys premises, has been issued against our Company under Section 43(1)(b) Air (Prevention and Control of Pollution) Act, 1981 complaining of a foul smell in the air in the locality and alleging the causing of pollution of air and underground water in violation of the Air (Prevention and Control of Pollution) Act, 1981 and the Chapter X (B) of the Criminal Procedure Code. It has been herein threatened that further action may be taken by way of proceedings before the court or the Pollution Control Board. Our Company has replied to the said notice and has denied these allegations against it. (ii) Summons (No.T-3/Exp/207/BZ/03(AD-KP)/M9/4087) dated November 4, 2003 were issued to the Managing Director of our Company by the Directorate of Enforcement in connection with proceedings under the Foreign Exchange Management Act, 1999 whereby our Company was required to furnish information relating to inter alia export bills pending realisation for more than six months. Pursuant to this, the Company has furnished certificates from banks certifying that there are no export bills outstanding for more than 6 months apart from an amount of US$ 9000 from Goldshield Plc. and an amount of US$ 3775 from Hayat Pharmaceutical Industries Co. Ltd. It is relevant to note that the aforesaid amount of US$ 9000 from Goldshield Plc. was given as a discount by Biocon by way of a credit note dated July 10, 2003 due to delay in shipments of supply, and this change was not reflected in the bank account of the concerned bank. Our Company has since received (on December 4, 2003) the outstanding payment of US$ 3775 from Hayat Pharmaceuticals. Further, as required by the enforcement officer, our Company has verified receipt of payments on export bills contained in the list provided by the Enforcement Officer, which is based on information received from the RBI.
135

2.

Biocon
3. Others (i) Our Company has purchased stamp paper from a M/s. Sri. Sai Agencies, an A class stamp vendor. Subsequently, pursuant to the police investigation of the fake stamp paper scam involving Mr. Abdul Karim Telgi, it was alleged that this agency was dealing with fake stamp paper. Statements of our Companys personnel were recorded and we were given to understand that these personnel may be called upon to give evidence in ensuing legal proceedings. However, currently no charges have been initiated against our Company or its personnel (ii) A legal notice dated September 13, 2003 has been issued on behalf of M/s. Textan Chemicals (P) Ltd stating that in a Certificate of analysis prepared by one of our Companys Senior Manager - Quality Assurance, damaging statements had been against Textans product. Wockhardt has vide letter dated October 20, 2003, in its capacity as the marketers and owners of the trademark CAPLIX-L of the said product which is manufactured by Textan, raised a similar claim. Our Company has suitably replied to both the abovementioned letters. B. Potential disputes or claims by the Company 1. Civil claims (i) Our Company entered into a technology transfer agreement dated June 3, 2002 with SCMIB, for transfer by SCMIB of technology for manufacturing the product, tetrahydrolipstatin which was to manufactured and marketed by our Company on a commercial scale. In this agreement, SCMIB guaranteed that use of the technology by our Company will not infringe any patent and further, SCMIB agreed to indemnify our Company against third party intellectual property infringement claims filed against our Company. Subsequently, patents bearing Nos. EP 0 803 576 B1 and US 2002/0110873 A1 were granted to Hoffmann La Roche Inc. for the process for production of Lipstatin and Tetrahydrolipstatin which, as claimed by our Company, covers the technology transferred by SCMIB. Legal notice dated April 11, 2003 was sent on behalf of our Company to SCMIB alleging violation of the technology transfer agreement by SCMIB and demanding that, in light of possible third party intellectual property infringement claims, unless SCMIB provided evidence to our Company that the transferred technology would not constitute an infringement on third partys intellectual property rights, our Company would stop further payment to SCMIB under the agreement. SCMIB has replied in legal notice dated November 10, 2003 inter alia denying that its technology infringes upon any patent rights of third parties and stating that, SCMIB is not responsible for any loss, damage or cost arising out of its technology infringing upon third party technology. Our Company has issued a suitable reply. (ii) Our Company has issued a legal notice dated July 11, 2003 to Atul Agro Care for recovery of a sum of Rs. 325,668 along with interest @ 18% p.a for supplies made. (iii) Our Company has sent a letter dated December 24, 2003 to M/s. Hima Food Additives and its proprietor claiming a sum of Rs. 527,201 from them. Biocon has threatened to take legal action against Hima Food Additives if it does not furnish the amount owed by it to Biocon (along with interest @12% p.a.). Hima Food Additives has since made a part payment of Rs. 150,000. 2. Winding up cases Our Company has issued notices against certain entities for non-payment of certain amounts (owed to our Company, wherein it has threatened to initiate winding up proceedings against these entities on their failure to furnish the amounts owed by them:

136

Biocon
Sr. No. 1. 2. Party involved M/s. Dolphin Laboratories Ltd M/s. Drakt Pharmaceutical Pvt Ltd Amount Rs. 330,049 + interest @ 24% p.a Rs. 60,322 + interest @ 18% p.a. Date Of Notice And Remarks May 17, 2003 September 11, 2003 Drakt has agreed to pay the amount in letter dated September 24, 2003. 3. M/s. Empee Distilleries Limited Rs. 885,072 + interest @ 24% p.a. Out of this, a sum of Rs. 180,000 has already been paid in instalments. Rs. 1,251,441 + interest @ 24% p.a. April 26, 2003 Empee vide letter dated May 19, 2003 has agreed to pay the amount in instalments. July 4, 2003 Gayatri Starchkem has claimed that they owe only Rs. 73,326 as they have already paid our Company Rs. 1,178,115. It further claims that the company has been referred to the BIFR. Our Company has responded stating that they have not received monies alleged to have been paid to them.

4.

M/s. Gayatri Starchkem Ltd

Claims involving the Companys subsidiaries There are no contingent liabilities which require provisioning in the books, outstanding litigation, disputes, non payment of statutory dues, overdues to banks/financial institutions, defaults against banks/financial institutions, defaults in dues towards instrument holders like debenture holders, fixed deposits and arrears on cumulative preference shares issued by the company, defaults in creation of full security as per terms of issue/other liabilities, proceedings initiated for any economic/civil/ any other offences against our Subsidiaries. Claims against our Directors and Promoters There are no contingent liabilities which require provisioning in the accounts, outstanding litigation, disputes, non-payment of statutory dues, overdues to banks/financial institutions or proceedings initiated for any economic/civil/criminal/any other offences against any of our Directors or Promoters, other than the following suits for dishonour of cheques filed under Section 138 and 141 of the Negotiable Instruments Act:
s

Case (CC 1157/02) filed by M/s. Electronica Leasing and Finance Co. against Jog Engineering Ltd and others including one of our Directors, Mr. Suresh Talwar, in his capacity as director of Jog Engineering Ltd at the time of issue of the cheque by Jog Engineering. The suit has been filed in the court of the Judicial Magistrate First Class (A.C. Court) Pune on June 24, 2002. The last hearing of the case took place on January 31, 2004. Case (CC 1524/02) filed by M/s. Pam-Pac Machines Pvt. Ltd. against Jog Engineering Ltd and others including Mr. Suresh Talwar, in his capacity as director of Jog Engineering Ltd. at the time of issue of the cheque by Jog Engineering. The suit has been filed in the court of the Judicial Magistrate First Class at Vadgaon Maval, District Pune on August 20, 2002. The last hearing of the case took place on January 27, 2004.

Claims involving group companies There are no claims involving any of the group companies of our Company, i.e. Syngene, Clinigene and BBPL. Our Promoters do not have any group companies.

137

Biocon
MATERIAL DEVELOPMENTS To the knowledge of the Board of Directors of our Company, there have not arisen, since the date of the last financial statements disclosed in this Prospectus, any circumstances that materially or adversely affect or are likely to affect the profitability of the Company or the value of its assets or its ability to pay its liabilities within the next twelve months.

138

Biocon
DIVIDEND POLICY The declaration and payment of dividends will be recommended by our Board of Directors and our shareholders, in their discretion, and will depend on a number of factors, including but not limited to our earnings, capital requirements and overall financial condition. The dividends paid by our Company during the last five fiscal years are presented below:
Class of shares Face Value Year ended March 31, 1999 Nil Nil Nil Nil Year ended March 31, 2000 Nil Nil Nil Nil Year ended March 31, 2001 Nil Nil Nil Nil Year ended March 31, 2002 Nil Nil Nil Nil Year ended March 31, 2003 Nil Nil Nil Nil Nine months period ended Dec. 31, 2003 Nil Nil Nil Nil

Equity Shares - Interim - Final Total

On November 11, 2003, an issue of 86,324,700 Equity Shares was approved by our Company to its shareholders by way of bonus in the ratio of 23.5 Equity Shares for every 1 Equity Share held by way of capitalisation of our profits and reserves. The amounts paid as dividend or bonus in the past is not indicative of our dividend policy in the future.

139

Biocon
OTHER REGULATORY DISCLOSURES Stock Market Data for our Equity Shares This being an initial public issue of our Company, the Equity Shares of our Company are not listed on any stock exchange. Particulars Regarding Public Issues during the Last Five Years We have not made any public issues during the last five years. Companies Under the Same Management There are no companies under the same management within the meaning of erstwhile Section 370(1B) of the Companies Act, other than the subsidiaries and group companies, details of which are provided in the section entitled Subsidiaries on page 81 of this Prospectus. Mechanism for Redressal of Investor Grievances The agreement between the Registrar to the Issue and us will provide for retention of records with the Registrar to the Issue for a period of at least one year from the last date of despatch of the letters of allotment, demat credit and refund orders to enable the investors to approach the Registrar to the Issue for redressal of their grievances. All grievances relating to the Issue may be addressed to the Registrar to the Issue, giving full details such as name, address of the applicant, number of Equity Shares applied for, amount paid on application and the bank branch or collection center where the application was submitted. We estimate that the average time required by us or the Registrar to the Issue for the redressal of routine investor grievances will be seven business days from the date of receipt of the complaint. In case of non-routine complaints and complaints where external agencies are involved, we will seek to redress these complaints as expeditiously as possible. We have appointed an Investor Grievance Committee on January 17, 2004 chaired by Dr. Neville Bain and with Ms. Kiran Mazumdar-Shaw and Mr. John Shaw as members. We are also appointing Mr. Murali Krishnan K.N. as the Compliance Officer for this Issue. Details of borrowings in our Company Please refer to the section entitled Debt Obligationson page 113 of this Prospectus for details of borrowings in our Company as specified in Annexure XII to the report on our unconsolidated financial statements under Indian GAAP.

140

Biocon
TERMS OF THE ISSUE The Equity Shares being issued are subject to the provisions of the Companies Act, our Memorandum and Articles, conditions of the FIPB approval as may be applicable, the terms of this Prospectus, Bid cum Application Form, the Revision Form, the CAN and other terms and conditions as may be incorporated in the allotment advices and other documents/ certificates that may be executed in respect of the Issue. The Equity Shares shall also be subject to laws, guidelines, notifications and regulations relating to the issue of capital and listing of securities issued from time to time by SEBI, Government of India, Stock Exchanges, RBI, Registrar of Companies and/or other authorities, as in force on the date of the Issue and to the extent applicable. Authority for the Issue The Issue has been authorised by a special resolution adopted pursuant to Section 81(1A) of the Companies Act, at the extraordinary general meeting of the shareholders of the Company held on December 24, 2003. The Board of Directors has pursuant to a resolution dated October 18, 2003 authorized the IPO Committee to take decisions on behalf of the Board in relation to the Issue. The IPO Committee pursuant to its resolution dated November 28, 2003 has authorized the Issue. Ranking of Equity Shares The Equity Shares being issued shall be subject to the provisions of our Memorandum and Articles and shall rank paripassu with the existing Equity Shares of our Company. Shareholders subscribing to our Equity Shares under this Issue will be entitled to dividends and other corporate benefits, if any, declared by our Company after the date of allotment. Face Value and Issue Price The Equity Shares with a face value of Rs. 5 each are being sold in the Issue at a total price of Rs. 315 per share. At any given point of time there shall be only one denomination for the Equity Shares. Rights of the Equity Shareholder Subject to applicable laws, the equity shareholders shall have the following rights:
s s s s s s s

Right to receive dividend, if declared; Right to attend general meetings and exercise voting powers, unless prohibited by law; Right to vote on a poll either in person or by proxy; Right to receive offers for rights shares and be allotted bonus shares, if announced; Right to receive surplus on liquidation; Right of free transferability; and Such other rights, as may be available to a shareholder of a listed public company under the Companies Act and the Companys Memorandum and Articles.

For a detailed description of the main provisions of our Articles relating to voting rights, dividend, forfeiture and lien and/or consolidation/splitting, please refer to the section entitled Main Provisions of Articles of Association of the Company on page 168 in this Prospectus. Market Lot In terms of Section 68B of the Companies Act, the Equity Shares of our Company shall be allotted only in dematerialised form. As per existing SEBI Guidelines, the trading of our Equity Shares shall only be in dematerialised form. Since trading of our Equity Shares is in dematerialised form, the tradable lot is one Equity Share. Transfer of the Equity Shares upon allocation will be done only in electronic form in lots of 50 Equity Shares. Jurisdiction Exclusive jurisdiction for the purpose of this Issue is with the competent courts/authorities in Bangalore, India.

141

Biocon
Nomination Facility to Investor In accordance with Section 109A of the Companies Act, the sole or first Bidder, along with other joint Bidders, may nominate any one person in whom, in the event of the death of sole Bidder or in case of joint Bidders, death of all the Bidders, as the case may be, the Equity Shares allotted, if any, shall vest. A person, being a nominee, entitled to the Equity Shares by reason of the death of the original holder(s), shall in accordance with Section 109A of the Companies Act, be entitled to the same advantages to which he or she would be entitled if he or she were the registered holder of the equity share(s). Where the nominee is a minor, the holder(s) may make a nomination to appoint, in the prescribed manner, any person to become entitled to equity share(s) in the event of his or her death during the minority. A nomination shall stand rescinded upon a sale of equity share(s) by the person nominating. A buyer will be entitled to make a fresh nomination in the manner prescribed. Fresh nomination can be made only on the prescribed form available on request at the Registered Office of our Company or to the Registrar and Transfer Agents of our Company. In accordance with Section 109B of the Companies Act, any person who becomes a nominee by virtue of the provisions of Section 109A of the Companies Act, shall upon the production of such evidence as may be required by the Board, elect either:
s s

to register himself or herself as the holder of the Equity Shares; or to make such transfer of the Equity Shares, as the deceased holder could have made.

Further, the Board may at any time give notice requiring any nominee to choose either to be registered himself or herself or to transfer the Equity Shares, and if the notice is not complied with within a period of ninety days, the Board may thereafter withhold payment of all dividends, bonuses or other moneys payable in respect of the Equity Shares, until the requirements of the notice have been complied with. Since the allotment of Equity Shares in the Issue will be made only in dematerialised form, there is no need to make a separate nomination with us. Nominations registered with respective depository participant of the applicant would prevail. If the investors require to change the nomination, they are requested to inform their respective depository participant. Application by Non Residents/NRIs/FIIs Our Company has received approval from the Government of India, Ministry of Finance and Company Affairs (Department of Economic Affairs) pursuant to its Approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) dated January 15, 2004 for the issue of Equity Shares in this Issue to eligible Non Residents, NRIs, FIIs and Foreign Venture Capital Funds with repatriation benefits. However it is to be distinctly understood that there is no reservation for Non Residents, NRIs, FIIs and Foreign Venture Capital Funds and all Non Residents, NRI, FII and Foreign Venture Capital Fund applicants will be treated on the same basis with other categories for the purpose of allocation. The allotment of Equity Shares to Non-residents shall be subject to the conditions as may be prescribed by the Government of India, Ministry of Finance and Company Affairs (Department of Economic Affairs) while granting such permissions. As per the policy of the RBI, Overseas Corporate Bodies cannot participate in this Issue. The Equity Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the Securities Act) or any state securities laws in the United States and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S of the Securities Act), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Equity Shares will be offered and sold only (i) in the United States to qualified institutional buyers, as defined in Rule 144A of the Securities Act, and (ii) outside the United States in compliance with Regulation S and the applicable laws of the jurisdiction where those offers and sales occur.

142

Biocon
ISSUE STRUCTURE The present issue of 10,000,000 Equity Shares of Rs. 5 each for cash at a premium of Rs. 310 per Equity Share aggregating total consideration of Rs. 3,150 million is being made through a 100% book building process.
QIBs Number of Equity Shares
(1)

Non Institutional Bidders 1,500,000 Minimum 15% or Issue size less allocation to QIBs and Retail Portion Proportionate

Retail 2,500,000 Minimum 25% or Issue size less allocation to QIBs and Non Institutional Portion Proportionate

6,000,000 Higher of 60% or Issue size less allocation to Non Institutional Portion and Retail Portion Discretionary

Percentage of Issue size available for allocation Basis of Allocation or Allotment if respective category is oversubscribed Minimum Bid

Such number of Equity Shares and in multiples of 50 Equity Shares thereafter, that the Bid Amount exceeds Rs. 50,000 Not exceeding the size of the Issue subject to applicable limits Compulsory in Dematerialised form 1 Equity Share 50 Equity Shares Public financial institutions as specified in Section 4A of the Companies Act, FIIs registered with SEBI, scheduled commercial banks, mutual funds registered with SEBI, multilateral and bilateral development financial institutions, venture capital funds registered with SEBI, foreign venture capital investors registered with SEBI, state industrial development corporations, insurance companies registered with Insurance Regulatory and Development Authority, provident funds with minimum corpus of Rs. 250 million and pension funds with minimum corpus of Rs. 250 million. Margin Amount applicable to QIB Bidders at the time of submission of Bid cum Application Form to the members of the Syndicate

Such number of Equity Shares Such number of Equity Shares and in and in multiples of 50 Equity multiples of 50 Equity Shares Shares thereafter, that the thereafter Bid Amount exceeds Rs. 50,000 Not exceeding the size of the Issue Compulsory in Dematerialised form 1 Equity Share 50 Equity Shares Resident Indian individuals, HUF (in the name of Karta), companies, corporate bodies, NRIs, scientific institutions, societies and trusts. Such number of Equity Shares whereby the Bid Amount does not exceed Rs. 50,000 Compulsory in Dematerialised form 1 Equity Share 50 Equity Shares Individuals (including NRIs and HUFs) applying for an amount up to Rs. 50,000

Maximum Bid

Allotment Mode Trading Lot Market lot/Bidding lot Who can Apply

Terms of Payment

Margin Amount applicable to Non Institutional Bidders at the time of submission of Bid cum Application Form to the members of the Syndicate

Margin Amount applicable to Retail Bidders at the time of submission of Bid cum Application Form to the members of the Syndicate

(1)

Subject to valid Bids being received at or above the Issue Price. Under subscription, if any, in any of the categories, would be allowed to be met with spill over from any of the other categories, at the discretion of the Company, in consultation with the BRLMs.

143

Biocon
ISSUE PROCEDURE Book Building Procedure The Issue is being made through the 100% book-building scheme wherein 60% of the Issue shall be allocated on a discretionary basis to Qualified Institutional Buyers. Further, not less than 15% of the Issue shall be available for allocation on a proportionate basis to Non Institutional Bidders and not less than 25% of the Issue shall be available for allocation on a proportionate basis to Retail Bidders, subject to valid Bids being received at or above the Issue Price. Bidders are required to submit their Bids through the Syndicate. Our Company, in consultation with the BRLMs and the CBRLM, reserves the right to reject any Bid procured by any or all members of the Syndicate without assigning any reasons therefore in case of QIBs. In case of Non Institutional Bidders and Retail Bidders, our Company would have a right to reject the Bids only on technical grounds. Investors should note that Equity Shares would be allotted to all successful Bidders only in dematerialised form. Bid cum Application Form Bidders shall only use the Bid cum Application Form bearing the stamp of a member of the Syndicate for the purpose of making a Bid in terms of this Prospectus. The Bidder shall have the option to make a maximum of three Bids in the Bid cum Application Form and such options shall not be considered as multiple Bids. Upon the allocation of Equity Shares, dispatch of the CAN and filing of the Prospectus with the RoC, the Bid cum Application Form shall be considered as the Application Form. Upon completing and submitting the Bid cum Application Form to a member of the Syndicate, the Bidder is deemed to have authorised our Company to make the necessary changes in this Prospectus and the Bid cum Application Form as would be required for filing the Prospectus with the RoC and as would be required by the RoC after such filing, without prior or subsequent notice of such changes to the Bidder. The prescribed colour of the Bid cum Application Form for various categories, is as follows: Category Indian Public or NRIs applying on a non-repatriation basis Non-residents including NRIs or FIIs applying on a repatriation basis Colour of Bid cum Application Form White Blue

Who Can Bid? n Indian nationals resident in India who are majors, in single or joint names (not more than three); n Hindu undivided families or HUFs, in the individual name of the Karta. The Bidder should specify that the Bid is being made in the name of the HUF in the Bid cum Application Form as follows: Name of Sole or First Bidder: XYZ Hindu Undivided Family applying through XYZ, where XYZ is the name of the Karta. Bids by HUFs would be considered at par with those from individuals; n Companies, corporate bodies and societies registered under the applicable laws in India and authorised to invest in Equity Shares; n Indian mutual funds registered with SEBI; n Indian financial institutions, commercial banks, regional rural banks, co-operative banks (subject to RBI permission, as applicable); n Venture capital funds registered with SEBI; n Foreign venture capital investors registered with SEBI; n State Industrial Development Corporations; n Insurance companies registered with Insurance Regulatory and Development Authority; n Provident funds with minimum corpus of Rs. 250 million and who are authorised under their constitution to invest in Equity Shares; n Pension funds with minimum corpus of Rs. 250 million and who are authorised under their constitution to invest in Equity Shares;
144

Biocon
n n n n

Multilateral and bilateral development financial institutions; Trusts registered under the Societies Registration Act, 1860, as amended, or under any other law relating to Trusts and who are authorised under their constitution to hold and invest in Equity Shares; Eligible Non-residents including NRIs and FIIs on a repatriation basis or a non-repatriation basis subject to applicable laws; and Scientific and/or industrial research organisations authorised under their constitution to invest in Equity Shares.

Note: The members of the Syndicate and any associate of the members of the Syndicate (except asset management companies on behalf of mutual funds, Indian financial institutions and public sector banks) cannot participate in that portion of the Issue where allocation is discretionary. Further, the BRLMs, the CBRLM and the Syndicate Members shall not be entitled to subscribe to this Issue in any manner except towards fulfilling their underwriting obligation. Bidders are advised to ensure that any single Bid from them does not exceed the investment limits or maximum number of Equity Shares that can be held by them under applicable law. In accordance with the current regulations, the following restrictions are applicable for investments by mutual funds: No mutual fund scheme shall invest more than 10% of its net asset value in the Equity Shares or equity related instruments of any company provided that the limit of 10% shall not be applicable for investments by index funds or sector or industry specific funds. No mutual fund under all its schemes should own more than 10% of any companys paid-up capital carrying voting rights. In accordance with the current regulations, the following restrictions are applicable for investments by FIIs: The issue of Equity Shares to a single FII should not exceed 10% of the post-Issue issued capital of the Company (i.e. 10% of 100,000,000 Equity Shares). In respect of an FII investing in our Equity Shares on behalf of its sub-accounts, the investment on behalf of each sub-account shall not exceed 10% of our total issued capital or 5% of our total issued capital in case such sub-account is a foreign corporate or an individual. As of now, the aggregate FII holding in the Company cannot exceed 24% of our total issued capital. With the approval of the Board and the shareholders by way of a special resolution and as specified in the FIPB approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) dated January 15, 2004, the aggregate FII holding can go up to 60%; however, till date, no such resolution has been recommended for adoption. In accordance with the current regulations, the following restrictions are applicable for investments by SEBI registered VCFs and FVCIs: The SEBI (Venture Capital) Regulations, 1996 and the SEBI (Foreign Venture Capital Investor) Regulations, 2000 prescribe investment restrictions on venture capital funds and foreign venture capital investors registered with SEBI. Accordingly, the holding by any VCF or FVCI should not exceed 25% of the Companys paid-up capital. The aggregate holdings of VCFs and FVCIs could, however as specified in the FIPB approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) dated January 15, 2004, go up to 60% of the Companys paid-up equity capital. The above information is given for the benefit of the Bidders. Our Company and the BRLMs and the CBRLM are not liable for any amendments or modification or changes in applicable laws or regulations, which may occur after the date of this Prospectus. Bidders are advised to make their independent investigations and ensure that their number of Equity Shares Bid for do not exceed the applicable limits under laws or regulations. Maximum and Minimum Bid Size For Retail Bidders The Bid must be for such number of Equity Shares and in multiples of 50 Equity Shares thereafter, that the Bid Amount is not less than Rs. 2,000. In case of revision of Bids, the Retail Bidders have to ensure that the Bid Amount does not exceed Rs. 50,000. In case the Bid Amount is over Rs. 50,000 due to revision or on exercise of Cut-off option, the Bid would be considered for allocation under the Non Institutional Bidders category. The Cut-off option is an option given only to the Retail Bidders indicating their agreement to bid and purchase at the final Issue Price as determined at the end of the Book Building Process.

145

Biocon
For Non Institutional and QIB Bidders The Bid must be for a minimum of such number of Equity Shares and in multiples of 50 Equity Shares thereafter, that the Bid Amount exceeds Rs. 50,000. A Bid cannot be submitted for more than the size of the Issue. However, the maximum Bid by a QIB investor should not exceed the investment limits prescribed for them by applicable laws. Under existing SEBI guidelines, a QIB Bidder cannot withdraw its Bid after the Bid/Issue Closing Date. In case of revision in Bids, the Non Institutional Bidders who are individuals have to ensure that the Bid Amount is greater than Rs. 50,000. In case the Bid Amount reduces to Rs. 50,000 or less due to a revision in Bids, the same would be considered for allocation under the Retail Portion. Information for the Bidders 1. 2. 3. 4. Our Company has filed the Prospectus with the RoC. The Syndicate will circulate copies of the Prospectus along with the Bid cum Application Form to potential investors. Any investor who would like to obtain the Prospectus along with the Bid cum Application Form can obtain the same from our corporate office or from any of the members of the Syndicate. The Bids should be submitted on the prescribed Bid cum Application Form only. Bid cum Application Forms should bear the stamp of the members of the Syndicate. Bid cum Application Forms that do not bear the stamp of the members of the Syndicate will be rejected.

Method and Process of bidding 1. Our Company and the BRLMs and the CBRLM shall declare the Bid/Issue Opening Date, Bid/Issue Closing Date and Price Band in the Prospectus filed with RoC and publish the same in two national newspapers (one each in English and Hindi) and a regional newspaper (Kannada). This advertisement shall contain the salient features of the Prospectus as specified under Form 2A of the Companies Act, the method and process of bidding and the names and addresses of the members of the Syndicate. The members of the Syndicate shall accept Bids from the Bidders during the Issue Period. Investors who are interested in subscribing for our Companys Equity Shares should approach any of the members of the Syndicate or their authorised agent(s) to register their Bid. The Bidding Period shall be open for at least 5 days and not more than 10 days. In case the Price Band is revised, the revised Price Band and the Bidding Period will be published in two national newspapers (one each in English and Hindi) and one regional newspaper (Kannada) and the Bidding Period shall be extended for a further period of three days, subject to the total Bidding Period not exceeding thirteen days. During the Bidding Period, the Bidders may approach the Syndicate to submit their Bid. Every member of the Syndicate shall accept Bids from all clients/investors who place orders through them and shall have the right to vet the Bids. Each Bid cum Application Form will give the Bidder the choice to bid for up to three optional prices (for details refer to the paragraph entitled Bids at Different Price Levels on page 147 of this Prospectus) within the Price Band and specify the demand (i.e., the number of Equity Shares bid for). The price and demand options submitted by the Bidder in the Bid cum Application Form will be treated as optional demands from the Bidder and will not be cumulated. After determination of the Issue Price, the maximum number of Equity Shares bid for by a Bidder at or above the Issue Price will be considered for allocation and the rest of the Bid(s), irrespective of the Bid price, will become automatically invalid. The Bidder cannot bid on another Bid cum Application Form after Bids on one Bid cum Application Form have been submitted to any member of the Syndicate. Submission of a second Bid cum Application Form to either the same or to another member of the Syndicate will be treated as multiple bidding and is liable to be rejected either before entering the Bid into the electronic bidding system, or at any point of time prior to the allotment of Equity Shares in this Issue. However, the Bidder can revise the Bid through the Revision Form, the procedure for which is detailed in the paragraph

2. 3.

4. 5.

6.

146

Biocon
Build up of the Book and Revision of Bids on page 149 of this Prospectus. 7. The members of the Syndicate will enter each option into the electronic bidding system as a separate Bid and generate a Transaction Registration Slip (TRS), for each price and demand option and give the same to the Bidder. Therefore, a Bidder can receive up to three TRSs for each Bid cum Application Form. Along with the Bid cum Application Form, all Bidders will make payment in the manner described under the paragraph Terms of Payment and Payment into Escrow Account on page 148 of the Prospectus. The Price Band has been fixed at Rs. 270 to Rs. 315 per Equity Share, Rs. 270 being the floor of the Price Band and Rs. 315 being the cap of the Price Band. The Bidders can bid at any price within the Price Band, in multiples of Re. l. Our Company, in consultation with the BRLMs and the CBRLM, can revise the Price Band during the Bidding Period, in which case the Bidding Period shall be extended further for a period of three days, subject to the total Bidding Period not exceeding thirteen days. The cap on the Price Band should not be more than 20% of the floor of the Price Band. Subject to compliance with the immediately preceding sentence, the floor of Price Band can move up or down to the extent of 20% of the floor of the Price Band disclosed in this Prospectus. Any revision in the Price Band will be widely disseminated by informing the stock exchanges, by issuing a public notice in two national newspapers (one each in English and Hindi), and one regional newspaper (Kannada) and also indicating the change on the web site of the BRLMs and the CBRLM and at the terminals of the Syndicate. Our Company, in consultation with the BRLMs and the CBRLM, can finalise the Issue Price within the Price Band without the prior approval of, or intimation, to the Bidders. The Bidder can bid at any price within the Price Band. The Bidder has to bid for the desired number of Equity Shares at a specific price. Retail Bidders may bid at Cut-off. However, bidding at Cut-off is prohibited for QIB or Non Institutional Bidders and such Bids from QIBs and Non Institutional Bidders shall be rejected. Retail Bidders who bid at the Cut-Off agree that they shall purchase the Equity Shares at the Issue Price, as finally determined which will be a price within the Price Band. Retail Bidders bidding at Cut-Off shall deposit in the Escrow Account the Bid Amount based on cap of the Price Band. In the event the Bid Amount is higher than the Allocation Amount payable by the Retail Bidders (i.e., the total number of Equity Shares allocated in the Issue multiplied by the Issue Price), Retail Bidders shall receive the refund of the excess amounts from the Escrow Account. In case of an upward revision in the Price Band announced as above, Retail Bidders who had bid at Cut-Off could either (i) revise their Bid or (ii) make additional payment based on the Cap of the Revised Price Band, with the member of the Syndicate to whom the original Bid was submitted. In case the total amount (i.e. original Bid Amount plus additional payment) exceeds Rs. 50,000, the Bid will be considered for allocation under the Non Institutional category in terms of this Prospectus. If, however, the Bidder does not either revise the Bid or make additional payment and the Issue Price is higher than the Cap of the Price Band prior to revision, the number of Equity Shares bid for shall be adjusted for the purpose of allocation, such that the no additional payment would be required from the Bidder. In case of a downward revision in the Price Band, announced as above, Retail Bidders who have bid at Cut-off could either revise their Bid or the excess amount paid at the time of bidding would be refunded from the Escrow Account.

8.

Bids at Different Price Levels 1. 2.

3.

4 5.

6.

7.

8.

Escrow Mechanism Our Company and the Syndicate shall open Escrow Accounts with one or more Escrow Collection Banks in whose favour the Bidders shall make out the cheque or demand draft in respect of his or her Bid and/or revision of the Bid. Cheques or demand drafts received for the full Bid amount from Bidders in a certain category would be deposited in the Escrow Account for the Issue. The Escrow Collection Banks will act in terms of the Prospectus and an Escrow Agreement. The monies in the Escrow Account for the Issue shall be maintained by the Escrow Collection Bank(s) for and on behalf of the Bidders. The Escrow Collection Bank(s) shall not exercise any lien whatsoever over the monies deposited therein and shall hold the monies therein in trust for the Bidders. On the Designated Date, the Escrow Collection Banks shall transfer the monies from the Escrow Account to the Public Issue Account as per the terms of the Escrow Agreement with the Company.
147

Biocon
Payments of refund to the Bidders shall also be made from the Escrow Collection Banks as per the terms of the Escrow Agreement and this Prospectus. The Bidders should note that the escrow mechanism is not prescribed by SEBI and has been established as an arrangement between our Company, the Syndicate, the Escrow Collection Bank(s) and the Registrar to the Issue to facilitate collections from the Bidders. Terms of Payment and Payment into the Escrow Account Each Bidder shall, with the submission of the Bid cum Application Form draw a cheque or demand draft for the maximum amount of the Bid in favour of the Escrow Account of the Escrow Collection Bank (for details refer to the paragraph Payment Instructions on page 154 of this Prospectus) and submit the same to the member of the Syndicate with whom the Bid is being deposited. Bid cum Application Forms accompanied by cash shall not be accepted. The maximum Bid price has to be paid at the time of submission of the Bid cum Application Form based on the highest bidding option of the Bidder. The members of the Syndicate shall deposit the cheque or, demand draft with the Escrow Collection Bank. The Escrow Collection Bank will hold all monies collected for the benefit of the Bidders until the Designated Date. On the Designated Date, the Escrow Collection Bank shall transfer the funds in respect of those Bidders whose Bids have been accessed from the Escrow Account, as per the terms of the Escrow Agreement, into the Public Issue Account. The balance amounts after the transfer to the Public Issue Account, lying credited with the Escrow Collection Banks shall be held for the benefit of the Bidders who are entitled to a refund. No later than 15 days from the Bid/Issue Closing Date, the Escrow Collection Bank shall also refund all amounts payable to unsuccessful Bidders and also the excess amount paid on bidding, if any, after adjustment for allocation, to the Bidders. Each category of Bidders (i.e., QIBs, Non Institutional Bidders and Retail Bidders) would be required to pay their applicable Margin Amount at the time of the submission of the Bid-cum-Application Form. The details of the Margin Amount payable is mentioned under the section entitled Issue Structure on page 143 of this Prospectus and will be available with the Syndicate and will be as per the Syndicate Agreement. Where the Margin Amount applicable to the Bidder is less than 100% of the Bid Amount, any difference between the amount payable by the Bidder for Equity Shares allocated at the Issue Price and the Margin Amount paid at the time of Bidding, shall be payable by the Bidder no later than the Pay-in-Date, which shall be a minimum period of 2 days from the date of communication of the allocation list to the Syndicate Members by the BRLMs and the CBRLM. If the payment is not made favouring the Escrow Account within the time stipulated above, the Bid of the Bidder is liable to be cancelled. However, if the applicable Margin Rate for Bidders is 100%, the full amount of payment has to be made at the time of submission of the Bid Form. Where the Bidder has been allocated lesser number of Equity Shares than they had bid for, the excess amount paid on bidding, if any, after adjustment for allocation, will be refunded to such Bidder within 15 days from the Bid/Issue Closing Date. Electronic Registration of Bids 1. 2. The members of the Syndicate will register the Bids using the on-line facilities of NSE and BSE. There will be at least one on-line connectivity in each city where a stock exchange centre is located in India, and where Bids are accepted. NSE and BSE will offer a screen-based facility for registering Bids for the Issue. This facility will be available on the terminals of the members of the Syndicate and their authorised agents during the Bidding Period. Members of the Syndicate can also set up facilities for off-line electronic registration of Bids subject to the condition that they will subsequently upload the off-line data file into the on-line facilities for book building on a half hourly basis. On the Bid Closing Date, the members of the Syndicate will upload the Bids until such time as permitted by the Stock Exchanges. The aggregate demand and price for Bids registered on each of the electronic facilities of NSE and BSE will be uploaded on an hourly basis and consolidated. A graphical representation of consolidated demand and price would be made available at the bidding centres during the Bidding Period.

3.

148

Biocon
4. At the time of registering each Bid, the members of the Syndicate shall enter the following details of the investor in the on-line system:
n n n n n n n

Name of the investor; Investor Category Individual, Corporate, NRI, FII, or Mutual Funds, etc.; Numbers of Equity Shares bid for; Bid price; Bid cum Application Form number; Whether payment is made upon submission of Bid cum Application Form; and Depository participant Identification number and Client Identification number of the demat account of the Bidder.

5.

6.

7.

8.

A system generated TRS will be given to the Bidder as a proof of the registration of each of the bidding options. It is the Bidders responsibility to obtain the TRS from the members of the Syndicate. The registration of the Bid by the member of the Syndicate does not guarantee that the Equity Shares shall be allocated either by the members of the Syndicate or the Company. Such TRS will be non-negotiable and by itself will not create any obligation of any kind. Consequently, a member of the Syndicate also has the right to accept or reject a Bid without assigning any reasons in case of QIBs. In case of Non Institutional Bidders and Retail Bidders, their Bids shall not be rejected except on the technical grounds listed elsewhere in this Prospectus. It is to be distinctly understood that the permission given by NSE and BSE to use their network and software of the online IPO system should not in any way be deemed or construed that the compliance with various statutory and other requirements by our Company or the BRLMs or the CBRLM are cleared or approved by NSE or BSE; nor does it in any manner warrant, certify or endorse the correctness or completeness of any of the compliance with the statutory and other requirements nor does it take any responsibility for the financial or other soundness of our Company, Promoters, management or any scheme or our project. It is also to be distinctly understood that the approval given by NSE and BSE should not in any way be deemed or construed that this Prospectus has been cleared or approved by NSE or BSE; nor does it in any manner warrant, certify or endorse the correctness or completeness of any of the contents of this Prospectus; nor does it warrant that the Equity Shares will be listed or will continue to be listed on the NSE and BSE.

Build Up of the Book and Revision of Bids 1. Bids registered by various Bidders through the members of the Syndicate shall be electronically transmitted to the NSE or BSE mainframe on an on-line basis. Data would be uploaded on a half hourly basis. 2. The Price Band can be revised during the Bidding Period, in which case the Bidding Period shall be extended further for a period of three days, subject to the total Bidding Period not exceeding thirteen days. The cap on the Price Band should not be more than 20% of the floor of the Price Band. Subject to compliance with the immediately preceding sentence, the floor of Price Band can move up or down to the extent of 20% of the floor of the Price Band disclosed in this Prospectus. 3. Any revision in the Price Band will be widely disseminated by informing the stock exchanges, by issuing a public notice in two national newspapers (one each in English and Hindi) and one regional newspaper (Kannada) and also indicating the change on the web site of the BRLMs and the CBRLM and at the terminals of the members of the Syndicate. 4. During the Bidding Period, any Bidder who has registered an interest in the Equity Shares at a particular price level is free to revise the Bid within the Price Band using the printed Revision Form that is a part of the Bid cum Application Form. 5. Revisions can be made in both the desired number of Equity Shares and the Bid price by using the Revision Form. The Bidder must complete the details of all the options in the Bid cum Application Form or earlier Revision Form and revisions for all the options as per the Bid cum Application Form or earlier Revision Form. For example, if a Bidder has bid for three options in the Bid cum Application Form or the earlier Revision Form and is changing only one of the options in the Revision Form, the Bidder must still complete the details of the other two options that are not being revised in the Revision Form. Incomplete or inaccurate Revision Forms will not be accepted by the members of the Syndicate.

149

Biocon
6. The Bidder can make this revision any number of times during the Bidding Period. However, for any revision(s) in the earlier Bid, the Bidders will have to use the services of the same member of the Syndicate through whom the original Bid was placed. Bidders are advised to retain copies of the blank Revision Form and the revised Bid must only be made on that Revision Form. Any revision of the Bid shall be accompanied by payment in the form of cheque or demand draft for the incremental amount, if any, to be paid on account of the upward revision of the Bid. The excess amount, if any, resulting from downward revision of the Bid would be returned to the Bidder at the time of refund in accordance with the terms of this Prospectus. In case of QIBs, the members of the Syndicate may at their sole discretion waive the payment requirement at the time of one or more revisions by the QIB Bidder. When a Bidder revises a Bid, the Bidder shall surrender the earlier TRS and get a revised TRS from the member of the Syndicate. It is the responsibility of the Bidder to request for and obtain the revised TRS, which will act as proof of having revised the Bid. In case of discrepancy of data between the electronic book and the physical book, the decision of the BRLMs and the CBRLM shall be final and binding on all concerned. After the Bid/Issue Closing Date, the BRLMs and the CBRLM shall analyse the demand generated at various price levels and discuss pricing strategy with our Company. Our Company, in consultation with the BRLMs and the CBRLM, shall finalize the Issue Price and the number of Equity Shares to be allotted and the allocation to successful QIB Bidders. The allocation to QIBs will be decided based on the quality of the QIB Bidder determined broadly by the size, price and date of the Bid. The allocation to QIBs of 60% of the Issue Size would be discretionary. The allocation to Non Institutional Bidders and Retail Bidders of not less than 15% and not less than 25% of the Issue Size, respectively, would be on a proportionate basis, in consultation with the Designated Stock Exchange and subject to valid Bids being received at or above the Issue Price. Under subscription, if any, in any category other than in the QIB category, would be allowed to be met with spill over from any of the other categories, at the sole discretion of our Company, in consultation with the BRLMs and the CBRLM. Allocation to eligible Non Residents, NRIs, FIIs or Foreign Venture Capital Funds registered with SEBI applying on repatriation basis will be subject to the terms and conditions stipulated by the FIPB while granting permission for Issue of Equity Shares to them. The BRLMs, the CBRLM and our Company, shall notify the members of the Syndicate of the Issue Price and allocations to their respective Bidders where the full Bid Amount has not been collected from the Bidders. Our Company reserves the right to cancel the Issue any time after the Bid/Issue Opening Date without assigning any reason therefore, but before allotment. QIB Bidders shall not be allowed to withdraw their Bid after Bid/Issue Closing Date.

7.

8.

9.

Price Discovery and Allocation 1. 2.

3.

4. 5.

6. 7. 8.

Signing of Underwriting Agreement and RoC Filing 1. 2. Our Company, the BRLMs, CBRLM and the other members of the Syndicate shall enter into an Underwriting Agreement on reaching agreement upon the Issue Price and allocation(s) to the Bidders. After the Underwriting Agreement is signed among our Company, the BRLMs, CBRLM and the other members of the Syndicate, we will file the Prospectus with RoC, which then would be termed Prospectus. The Prospectus would have details of the Issue Price, size of the Issue, underwriting arrangements and would be complete in all material respects.

150

Biocon
Advertisement regarding Issue Price and Prospectus A statutory advertisement will be issued by us after the filing of the Prospectus with the RoC. This advertisement, in addition to the information that has to be set out in the statutory advertisement, shall indicate the Issue Price. Any material updates between the Red Herring Prospectus and the Prospectus will be included in such statutory advertisement. Issuance of Confirmation of Allocation Note 1. 2. The BRLMs, the CBRLM or Registrar to the Issue shall send to the members of the Syndicate a list of their Bidders who have been allocated Equity Shares in the Issue. The Members of the Syndicate would then send the CAN to their Bidders who have been allocated Equity Shares in the Issue. The despatch of a CAN shall be deemed a valid, binding and irrevocable contract for the Bidder to pay the entire Issue Price for all the Equity Shares allocated to such Bidder. Those Bidders who have not paid the full Bid Amount into the Escrow Account on or prior to the time of bidding shall pay the full amount into the Escrow Account on or prior to the Pay-in Date specified in the CAN. Bidders who have been allocated Equity Shares and who have already paid the full Bid Amount into the Escrow Account at the time of bidding shall directly receive the CAN from the Registrar to the Issue subject, however, to realisation of their cheque or demand draft paid into the Escrow Account. The despatch of a CAN shall be deemed to be a valid, binding and irrevocable contract for the Bidder to pay the entire Issue Price for all the Equity Shares allotted to such Bidder.

3.

Designated Date and Transfer of Funds to Public Issue Account Successful Bidders will receive credit for the Equity Shares directly in their depository account. Equity shares will be allotted only in the dematerialised form to the allottees. Successful Bidders will have the option to re-materialise the Equity Shares so allotted, if they so desire, as per the provisions of the Companies Act and the Depositories Act. Our Company will ensure the allotment of Equity Shares within 15 days of the Bid/Issue Closing Date. After the funds are transferred from the Escrow Account to the Public Issue Account on the Designated Date, our Company would ensure that credit is given to the successful Bidders depository accounts within two working days from the date of allotment. General Instructions Dos:
n n

n n

Check if you are eligible to apply; Read all the instructions carefully and complete the Resident Bid cum Application Form (white in colour) or Non-Resident Bid cum Application Form (blue in colour), as the case may be; Ensure that you Bid only in the Price Band; Ensure that the details about depository participant and beneficiary account are correct as there will be no allotment of Equity Shares in physical form; Ensure that the Bids are submitted at the bidding centres only on forms bearing the stamp of a member of the Syndicate; Ensure that you have collected a TRS for all your Bid options; and Submit Revised Bids to the same member of the Syndicate through whom the original Bid was placed and obtain a revised TRS. Do not Bid for lower than the minimum Bid size; Do not Bid/ revise the Bid to a price that is less than the floor of the Price Band or higher than the cap of the Price Band; Do not Bid on another Bid cum Application Form after you have submitted the Bid to the members of the Syndicate; Do not pay the Bid Amount in cash; Do not send Bid cum Application Forms by post; instead hand them over to a member of the Syndicate only;
151

n n n

Donts:
n n n n n

Biocon
n n

Do not Bid at Cut-off price (for Non Institutional and QIB Bidders); Do not fill up the Bid cum Application Form for an amount that exceeds the investment limit or maximum number of Equity Shares that can be held by a Bidder under applicable law.

Instructions for Completing the Bid cum Application Form Bidders can obtain Bid cum Application Forms and / or Revision Forms from the members of the Syndicate. Bids and Revision of Bids Bids and revision of Bids must be: 1. 2. Made only in the prescribed Bid cum Application Form or Revision Form, as applicable (white colour for Resident Indians and NRIs applying on non-repatriation basis and blue colour for NRIs or FIIs applying on repatriation basis). Completed in full, in BLOCK LETTERS in ENGLISH and in accordance with the instructions contained herein, in the Bid cum Application Form or in the Revision Form. Incomplete Bid cum Application Forms or Revision Forms are liable to be rejected. For Retail Bidders, the Bids must be for a minimum of 50 Equity Shares and in multiples of 50 thereafter subject to a maximum Bid Amount of Rs. 50,000. For Non Institutional and QIB Bidders, Bids must be for a minimum of such number of Equity Shares that the Bid Amount exceeds Rs. 50,000 and in multiples of 50 Equity Shares thereafter. Bids cannot be made for more than the size of the Issue. Bidders are advised to ensure that a single Bid from them should not exceed the investment limits or maximum number of Equity Shares that can be held by them under applicable laws. In single name or in joint names (not more than three). Thumb impressions and signatures other than in the languages specified in the Eight Schedule of the Constitution of India must be attested by a Magistrate or a Notary Public or a Special Executive Magistrate under official seal.

3. 4.

5. 6.

Bidders Bank Details The name of the sole or first Bidders bank, branch, type of account and account numbers must be mandatorily completed in the Bid cum Application Form. This is required for the Bidders own safety so that these details can be printed on the refund orders. Refund orders will either be printed with these bank account details or as per the bank account details mentioned as per the bidders depository account. Bid cum Application Forms without these details are liable to be rejected. Bidders Depository Account Details Equity Shares shall be allotted only in dematerialised form. All Bidders should mention their depository participants name, depository participant-identification number and beneficiary account number in the Bid cum Application Form. Please ensure that in case of joint names, the names stated in the Bid cum Application Form should be the same and in the same order as the names stated in the Bidders depository account. It is the Bidders responsibility to ensure that the details of the Bidders depository account are correct. Bids under Power of Attorney In case of Bids made pursuant to a Power of Attorney or by limited companies, corporate bodies, registered societies, a certified copy of the Power of Attorney or the relevant resolution or authority, as the case may be, along with a certified copy of the Memorandum and Articles of Association and/or bye laws must be submitted with the Bid cum Application Form. Failing this, we reserve the right to accept or reject any Bid in whole or in part, in either case, without assigning any reason therefor. In case of Bids made pursuant to a Power of Attorney by FIIs, a certified copy of the Power of Attorney or the relevant resolution or authority, as the case may be, along with a certified copy of their SEBI registration certificate must be submitted with the Bid cum Application Form. Failing this, our Company reserves the right to accept or reject any Bid in whole or in part, in either case, without assigning any reason therefor. In case of Bids made by Insurance Companies registered with the Insurance Regulatory and Development Authority, a certified
152

Biocon
copy of certificate of registration issued by Insurance Regulatory and Development Authority must be lodged along with the Bid-cum-Application Form. Failing this, our Company reserves the right to accept or reject any Bid in whole or in part, in either case without assigning any reason therefor. In case of Bids made by provident funds with minimum corpus of Rs. 250 million and pension funds with minimum corpus of Rs. 250 million, a certified copy of certificate from a chartered accountant certifying the corpus of the provident fund/pension fund must be lodged along with the Bid-cum-Application Form. Failing this, our Company reserves the right to accept or reject any Bid in whole or in part, in either case, without assigning any reason therefor. We, in our absolute discretion, reserve the right to relax the above condition of simultaneous lodging of the Power of Attorney along with the Bid cum Application form, subject to such terms and conditions as we may deem fit. Bids by NRIs NRI Bidders to comply with the following: 1. 2. Individual NRI Bidders can obtain the Bid cum Application Forms from our registered office at 20th K.M. Hosur Road, Electronic City P.O., Bangalore 560 100, the BRLMs, the CBRLM, members of the Syndicate or the Registrar to the Issue. NRI Bidders may please note that only such Bids as are accompanied by payment in free foreign exchange shall be considered for allotment. NRIs who intend to make payment through Non-Resident Ordinary (NRO) accounts shall use the Bid Cum Application form meant for Resident Indians (white in colour).

Bids by Non Residents, NRIs, FIIs and Foreign Venture Capital Funds registered with SEBI on a repatriation basis Bids and revision to Bids must be made: 1. 2. 3. On the Bid cum Application Form or the Revision Form, as applicable (blue in colour), and completed in full in BLOCK LETTERS in ENGLISH in accordance with the instructions contained therein. In a single name or joint names (not more than three). By NRIs - Bids for a Bid Amount of up to Rs. 50,000 would be considered under the Retail Bidders Portion for the purposes of allocation and Bids for a Bid Amount of more than Rs. 50,000 would be considered under Non Institutional Bidder Portion for the purposes of allocation; By FIIs for a minimum of such number of Equity Shares and in multiples of 50 thereafter that the Bid Amount exceeds Rs. 50,000. For further details please refer to the section entitled Issue Procedure - Maximum and Minimum Bid Size on page 145 of this Prospectus. In the names of individuals, or in the names of FIIs but not in the names of minors, OCBs, firms or partnerships, foreign nationals or their nominees.

4.

Refunds, dividends and other distributions, if any, will be payable in Indian Rupees only and net of bank charges and / or commission. In case of Bidders who remit money through Indian Rupee drafts purchased abroad, such payments in Indian Rupees will be converted into U.S. Dollars or any other freely convertible currency as may be permitted by the RBI at the rate of exchange prevailing at the time of remittance and will be dispatched by registered post or if the Bidders so desire, will be credited to their NRE accounts, details of which should be furnished in the space provided for this purpose in the Bid cum Application Form. We will not be responsible for loss, if any, incurred by the Bidder on account of conversion of foreign currency. Our Company has received approval from the Government of India, Ministry of Finance and Company Affairs (Department of Economic Affairs) pursuant to its Approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) dated January 15, 2004 for the issue of Equity Shares in this Issue to eligible Non Residents, NRIs, FIIs and Foreign Venture Capital Funds with repatriation benefits. However it is to be distinctly understood that there is no reservation for Non Residents, NRIs, FIIs and Foreign Venture Capital Funds and all Non Residents, NRI, FII and Foreign Venture Capital Funds applicants will be treated on the same basis with other categories for the purpose of allocation. The allotment of Equity Shares to Non-residents shall be subject to the conditions as may be prescribed by the Government of India, Ministry of Finance and Company Affairs (Department of Economic Affairs) while granting such permissions.

153

Biocon
Payment Instructions Our Company and members of the Syndicate shall open Escrow Account(s) with the Escrow Collection Banks for the collection of the Bid Amounts payable upon submission of the Bid cum Application Form pursuant to allocation in the Issue. Each Bidder shall draw a cheque or demand draft for the amount payable on the Bid and/or on allocation as per the following terms: Payment into Escrow Account to the Issue: 1. The Bidders who have paid the Bid Amount on application shall draw a payment instrument for the Bid Amount in favour of the Escrow Account and submit the same to the members of the Syndicate along with the Bid cum Application Form. In case the above margin amount paid by the Bidders during the Bidding Period is less than the Issue Price multiplied by the Equity Shares allocated to the Bidder, the balance amount shall be paid by the Bidders into the Escrow Account within the period specified in the CAN which shall be subject to a minimum period of two days from the date of communication of the allocation list to the members of the Syndicate by the BRLMs and the CBRLM. In case the payment of the Bid Amount has been waived by a member of the Syndicate during the Bidding Period, on receipt of the CAN, an amount equal to the Issue Price multiplied by the Equity Shares allocated to the Bidder, shall be paid by the Bidders into the Escrow Account within the period specified in the CAN which shall be a minimum period of two days from the date of communications of the allocation list to the members of the Syndicate by the BRLMs and the CBRLM. The payment instruments for payment into the Escrow Account should be drawn in favour of: (a) In case of Resident Bidders: Escrow Account Biocon Public Issue (b) In case of Non Resident Bidders: Escrow Account Biocon Public Issue - NR
n

2.

3.

4.

In case of Bids by NRIs applying on repatriation basis, the payments must be made through Indian Rupee Drafts purchased abroad or cheques or bank drafts, for the amount payable on application remitted through normal banking channels or out of funds held in Non-Resident External (NRE) Accounts or Foreign Currency Non-Resident (FCNR) Accounts, maintained with banks authorised to deal in foreign exchange in India, along with documentary evidence in support of the remittance. Payment will not be accepted out of a Non-Resident Ordinary (NRO) Account of a Non-Resident Bidder bidding on a repatriation basis. Payment by drafts should be accompanied by a bank certificate confirming that the draft has been issued by debiting an NRE or FCNR Account. In case of Bids by FIIs, the payment should be made out of funds held in a Special Rupee Account along with documentary evidence in support of the remittance. Payment by drafts should be accompanied by a bank certificate confirming that the draft has been issued by debiting the Special Rupee Account.

5.

Where a Bidder has been allocated a lesser number of Equity Shares than the Bidder has Bid for, the excess amount, if any, paid on bidding, after adjustment towards the balance amount payable on the Equity Shares allocated, will be refunded to the Bidder from the Escrow Account. The monies deposited in the Escrow Account will be held for the benefit of the Bidders till the Designated Date. On the Designated Date, the Escrow Collection Banks shall transfer the funds from the Escrow Account as per the terms of the Escrow Agreement into the Public Issue Account with the Bankers to the Issue. No later than 15 days from the Bid/Issue Closing Date, the Escrow Collection Bank shall refund all amounts payable to unsuccessful Bidders and also the excess amount paid on Bidding, if any, after adjusting for allocation to the Bidders.

6. 7. 8.

Payment by Stockinvest In terms of RBI Circular DBOD No. FSC BC 42/24.47.00/2003-04 dated November 5, 2003, the Stockinvest Scheme has been withdrawn with immediate effect. Hence, payment through stockinvest would not be accepted in this Issue.
154

Biocon
Submission of Bid cum Application Form All Bid cum Application Forms or Revision Forms duly completed and accompanied by account payee cheques or drafts shall be submitted to the members of the Syndicate at the time of submission of the Bid cum Application Form unless waived by a member of the Syndicate at its sole discretion. The collection center of the members of the Syndicate will acknowledge the receipt of the Bid cum Application Forms or Revision Forms by stamping and returning to the Bidder the acknowledgement slip. This acknowledgement slip will serve as the duplicate of the Bid cum Application Form for the records of the Bidder. No separate receipts shall be issued for the money paid on the submission of Bid cum Application Form or Revision Form. Other Instructions Joint Bids in the case of Individuals Individuals may make bids in single or joint names (not more than three). In the case of joint Bids, all refund amounts will be made only in favour of the Bidder whose name appears first in the Bid cum Application Form or Revision Form (First Bidder). All communications will be addressed to the First Bidder and will be despatched to his or her address. Multiple Bids A Bidder should submit only one Bid (and not more than one) for the total number of Equity Shares required. Two or more Bids will be deemed to be multiple Bids if the sole or First Bidder is one and the same. In case of a mutual fund, a separate Bid can be made in respect of each scheme of the mutual fund registered with SEBI and such Bids in respect of more than one scheme of the mutual fund will not be treated as multiple Bids provided that the Bids clearly indicate the scheme concerned for which the Bid has been made. We reserve the right to reject, in our absolute discretion, all or any multiple Bids in all or any categories. PAN or GIR Number Where the maximum Bid for Equity Shares by a Bidder is for a total value of Rs. 50,000 or more, i.e., the actual numbers of Equity Shares Bid for multiplied by the Bid Amount is Rs. 50,000 or more, the Bidder or, in the case of a Bid in joint names, each of the Bidders should mention his or her Permanent Account Number (PAN) allotted under the Income Tax Act, 1961, as amended or where the same has not been allotted, the General Index Register (GIR) Number and the Income-Tax Circle, Ward or District. In case neither the PAN nor the GIR number has been allotted, the Bidders must mention Not allotted in the appropriate place. Bid cum Application Forms without this information will be considered incomplete and are liable to be rejected. Our Right to Reject Bids Our Company and the members of the Syndicate reserve the right to reject any Bid without assigning any reason therefore in case of QIBs. In case of Non Institutional Bidders and Retail Bidders, our Company would have the right to reject Bids only on technical grounds. Consequent refunds shall be made by cheque or pay order or draft and will be sent to the Bidders address at the Bidders risk. Grounds for Technical Rejections Bidders are advised to note that Bids are liable to be rejected on technical grounds, including the following: 1. 2. 3. 4. 5. 6. Amount paid does not tally with the amount payable for the highest value of Equity Shares bid for; Bank account details (for refund) are not given; Age of First Bidder not given; Bids by minors; PAN or GIR Number not given if Bid is for Rs. 50,000 or more; Bids for lower number of Equity Shares than specified for that category of investor;

155

Biocon
7. 8. 9. Bids at a price less than the floor of the Price Band and higher than the cap of the Price Band; Bids at cut-off price by a QIB or a Non Institutional Bidder; Bids for number of Equity Shares, which are not multiples of 50;

10. Category not ticked; 11. Multiple Bids; 12. In case of Bid under power of attorney or by limited companies, corporate, trust, etc., relevant documents are not submitted; 13. Bid cum Application Form does not have the stamp of a member of the Syndicate; 14. Bid cum Application Form does not have the Bidders depository account details, including as specified below; 15. Bid cum Application Forms are not submitted by the Bidders within the time prescribed as per the Bid cum Application Form, Bid/Issue Opening Date advertisement and this Prospectus and as per the instructions in this Prospectus and the Bid cum Application Form; 16. Bids for amounts greater than the maximum permissible amounts prescribed by the regulations please refer to the details regarding the same at page 145 of this Prospectus; 17. Bids not duly signed by the sole/joint Bidders; 18. Bids by OCBs; or 19. Bids accompanied by stockinvest. Equity Shares in Dematerialized Form with NSDL or CDSL In terms of Section 68B of the Companies Act, the Equity Shares in this Issue shall be allotted only in dematerialised form (i.e., not in the form of physical certificates but be fungible and be represented by the statement issued through electronic mode). In this context, two tripartite agreement have been signed between the Registrar to the Issue, the Depositories and the Company: 1. 2. An agreement dated February 12, 2004 among NSDL, the Company and Registrar to the Issue; and An agreement dated February 13, 2004 between CDSL, the Company and Registrar to the Issue.

Bids from any Bidder without the following details of his or her depository account are liable to be rejected. 1. A Bidder applying for Equity Shares must have at least one beneficiary account with either of the depository participants of NSDL or CDSL prior to making the Bid. 2. 3. 4. The Bidder must necessarily fill in the details (including the beneficiary account number and depository participants identification number) appearing in the Bid cum Application Form or Revision Form. Equity Shares allotted to a Bidder will be credited in electronic form directly to the beneficiary account (with the depository participant) of the Bidder. Names in the Bid cum Application Form or Revision Form should be identical to those appearing in the account details in the depository. In case of joint holders, the names should necessarily be in the same sequence as they appear in the depository account of the Bidder(s). If incomplete or incorrect details are given under the heading Bidders Depository Account Details in the Bid cum Application Form or Revision Form. The Bidder is responsible for the correctness of his or her demographic details given in the Bid cum Application Form vis--vis those with his or her depository participant. It may be noted that Equity Shares in electronic form can be traded only on the stock exchanges having electronic connectivity with NSDL or CDSL. All the stock exchanges where our Equity Shares are proposed to be listed are connected to NSDL and CDSL. The trading of our Equity Shares would only be in dematerialised form for all investors.
156

5. 6. 7.

8.

Biocon
Communications All future communications in connection with Bids made in the Issue should be addressed to the Registrar to the Issue quoting the full name of the sole or First Bidder, Bid cum Application Form number, number of Equity Shares applied for, date of Bid form, name and address of the member of the Syndicate where the Bid was submitted and cheque or draft number and issuing bank thereof. Undertaking by our Company The Company undertakes as follows:
n n

that the complaints received in respect of this Issue shall be attended to by us expeditiously; that we shall take all steps for the completion of the necessary formalities for listing and commencement of trading at all the stock exchanges where the Equity Shares are to be listed within seven working days of finalisation of the basis of allotment; that the funds required for despatch of refund orders or allotment advice by registered post or speed post shall be made available to the Registrar to the Issue by us; that the refund orders and/or allotment advice to NRIs or FIIs shall be dispatched within specified time; and that no further offer of Equity Shares shall be made until the Equity Shares offered through this Prospectus are listed or until the Bid moneys are refunded on account of non-listing, under-subscription, etc.

n n

Utilization of Issue Proceeds The Board of Directors of the Company certify that
n

all monies received out of the Issue shall be transferred to a separate bank account other than the bank account referred to in sub-section (3) of Section 73 of the Companies Act; details of all monies utilised out of Issue referred above shall be disclosed under an appropriate separate head in the balance sheet of the Company indicating the purpose for which such monies have been utilised; and details of all unutilised monies out of the Issue, if any shall be disclosed under the appropriate separate head in the balance sheet of the Company indicating the form in which such unutilised monies have been invested.

Procedure and Time Schedule for Allotment of Equity Shares Our Company reserves, at our absolute and uncontrolled discretion and without assigning any reason thereof, the right to accept or reject any Bid in whole or in part. In the case of Retail and Non-Institutional Bidders, the rejection of any Bid is only on grounds of technical non-compliance with the specified procedure. In case a Bid is rejected in full, the whole of the Bid Amount will be refunded to the Bidder within 15 days of the Bid/Issue Closing Date. In case a Bid is rejected in part, the excess Bid Amount will be refunded to the Bidder within 15 days of the Bid/Issue Closing Date. We will ensure the allotment of the Equity Shares within 15 days from the Bid/Issue Closing Date. Our Company shall pay interest at the rate of 15% per annum (for any delay beyond the periods as mentioned above), if allotment is not made, refund orders are not dispatched and or demat credits are not made to investors within two working days from the date of allotment. Disposal of Applications and Application Money We shall ensure dispatch of allotment advice or refund orders and giving of benefit to the beneficiary account with depository participants and submission of the allotment and listing documents to the Stock Exchanges within two working days of finalisation of the basis of allotment of Equity Shares. Our Company shall ensure the dispatch of refund orders, if any, of value up to Rs. 1,500, Under Certificate of Posting, and dispatch of refund orders above Rs. 1,500, if any, by Registered Post or Speed Post at the sole or First Bidders sole risk. We shall use best efforts to ensure that all steps for completion of the necessary formalities for listing and commencement of trading at all the Stock Exchanges where the Equity Shares are proposed to be listed are taken within seven working days of finalisation of the basis of allotment.

157

Biocon
In accordance with the Companies Act, the requirements of the stock exchanges and SEBI Guidelines, the Company, further undertakes that:
n n n

Allotment of Equity Shares shall be made only in dematerialised form within 15 days of the Bid/Issue Closing Date; Our Company would ensure despatch of refund orders within 15 days of the Bid/Issue Closing Date; and Our Company shall pay interest at 15% per annum (for any delay beyond the 15 day time period as mentioned above), if allotment is not made, refund orders are not dispatched and/or demat credits are not made to investors within the 15 day time prescribed above.

Our Company will provide adequate funds required to the Registrar to the Issue for dispatch of refund orders or allotment advice. Refunds will be made by cheques, pay orders or demand drafts drawn on a bank appointed by us as a refund banker and payable at par at places where Bids are received. Bank charges, if any, for cashing such cheques, pay orders or demand drafts at other centres will be payable by the Bidders. Interest on Refund of excess Bid Amount Our Company shall pay interest at the rate of 15% per annum on the excess Bid Amount received by us if refund orders are not dispatched within 15 days from the Bid/Issue Closing Date as per the Guidelines issued by the GoI, Ministry of Finance pursuant to their letter no. F-8/6/SE/79 dated July 21, 1983, as amended by their letter no. F/14/SE/85 dated September 27, 1985, addressed to the stock exchanges, and as further modified by SEBIs Clarification XXI dated October 27, 1997, with respect to the SEBI Guidelines. Restrictions on Foreign Ownership of Indian Securities Foreign investment in Indian securities is regulated through the Industrial Policy, 1991 of the GoI and FEMA. While the Industrial Policy, 1991 prescribes the limits and the conditions subject to which foreign investment can be made in different sectors of the Indian economy, FEMA regulates the precise manner in which such investment may be made. Under the Industrial Policy, unless specifically restricted, foreign investment is freely permitted in all sectors of Indian economy up to any extent and without any prior approvals, but the foreign investor is required to follow certain prescribed procedures for making such investment. As per current foreign investment policies, foreign investment in the drugs and pharmaceuticals industry is permitted up to 100% under the automatic route. However, foreign investment in relation to industries involving (i) manufacture of drugs and pharmaceuticals that attract compulsory licensing, (ii) bulk drugs produced by recombinant DNA technology and (iii) specific cell/tissue targeted formulations, the automatic route is not available and prior Government/FIPB approval will be required. By way of Circular No. 53 dated December 17, 2003, the RBI has permitted FIIs to subscribe to shares of an Indian company in a public offer without prior RBI approval, so long as the price of equity shares to be issued is not less than the price at which equity shares are issued to residents. Further, the RBI has clarified in its Press Release dated February 4, 1998 that Indian companies that have obtained approval of the FIPB need not obtain RBI approval for issue of equity shares to foreign investors. Our Company has received approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) of the Foreign Investment Promotion Board dated January 15, 2004 to issue shares to nonresidents under this Issue.

158

Biocon
BASIS FOR ISSUE PRICE Qualitative Factors R&D Focus. Our emphasis on research and development has enabled us to devise our own process technologies and expand our scientific and engineering capabilities. We believe that continued focus on R&D will enable us to further develop new processes and products and novel applications for existing products, possibly enter new lines of business and deepen our intellectual property base. Since 1999, we have filed 117 patent applications. To date, we have been granted a total of 14 patents in various jurisdictions, and 25 of our PCT applications have been published. Proven Fermentation Skills. Fermentation is recognized as one of the key enabling technologies in the manufacture of pharmaceutical products. We have advanced capabilities in microbial (i.e., bacteria, yeast and fungus) fermentation utilising both submerged and solid-state fermentation technologies. We have also developed a patented hybrid fermentation process that we have named PlaFractorTM. Synthetic Chemistry Skills. In addition to fermentation, several of our biopharmaceutical products require strong synthetic chemistry skills. Our synthetic chemistry skills enabled us to develop our own processes for simvastatin, atorvastatin and pioglitazone, among other products. Biodiversity Collection. We launched our biodiversity program in 1995. We believe that our biodiversity collection will be a valuable tool in aid of new product discovery. Diverse and Growing Capabilities. Our Syngene and Clinigene businesses, in addition to their role as independent revenue generators, have significantly increased our overall capabilities in biotechnology. We believe that our growing capabilities in custom and clinical research will continue to offer important synergies as we increase the complexity and scope of our own R&D and manufacturing operations, especially as they pertain to new product discovery and development. We are building capabilities in recombinant technologies to develop new products. Scale-up Skills. We have significant process expertise in scaling up production levels from lab scale quantities to large fermentation batches at commercially viable yield levels. This enables us to increase production quantities and productivity and reduce time to market. For example, from April 2002 to December 2003, we were able to improve the yield in our solid state fermentation process for lovastatin production by 44.1% and in our submerged fermentation process for lovastatin productin by 10.9%. Flexible Manufacturing Infrastructure. Our fermentation and synthetic conversion facilities is not product specific and can be used to manufacture a range of biopharmaceutical and enzyme products. Flexible manufacturing infrastructure helps us to change our product mix in response to changes in customer demand with less new facility investment. For example, we are able to produce lovastatin, pravastatin, compactin, human insulin, mycophenolate mofetil and enzymes in the same submerged fermentation facility. High Quality Manufacturing Processes. Currently, several of our manufacturing facilities satisfy the cGMP requirements for product sales to regulated markets. Strong Customer Relationships. We have built significant relationships with several large generic players in developed country markets. This has enabled us to be the primary or secondary supplier for certain APIs to several generic players, many of whom have filed their Abbreviated New Drug Applications, or ANDAs, with our DMFs for products like lovastatin and simvastatin. Strong Management; Continuity of Management. Our senior management team consists of experienced individuals with diverse skills in manufacturing, research and development, custom research, international business and finance. Ability to Attract and Retain Talent. As Indias largest biotechnology company in terms of revenues and with strengths in fermentation, synthetic chemistry, custom research and clinical research, we have been able to attract and retain talent from reputed educational institutes worldwide, including the Massachussetts Institute of Technology (MIT) and the Indian Institute of Technology (IIT).

159

Biocon
Quantitative Factors Information presented in this section is derived from our unconsolidated financial statements prepared in accordance with Indian GAAP. 1. Adjusted earning per share (EPS)
Pre-Split Rupees Year ended March 31, 2001 Year ended March 31, 2002 Year ended March 31, 2003 Nine months ended Dec. 31, 2003 (annualised) Weighted Average
(1) (2)

Post-Split We i g h t 1 2 3 4 Rupees 2.0 2.8 3.9 12.8 7.0 We i g h t 1 2 3 4

4.0 5.6 7.9 25.5 14.1

The earning per share has been computed on the basis of adjusted profits & losses for the respective years/ periods after considering the impact of accounting policy changes and prior period adjustments/ regroupings pertaining to earlier years. The denominator considered for the purpose of calculating earning per share is the weighted average number of Equity Shares outstanding during the period.

2.

Price/Earning (P/E) ratio in relation to Issue Price of Rs. 315 per share a. b. c. Based on nine months ended December 31, 2003 EPS (post-split, annualised) is Rs. 12.8 P/E based on EPS for nine months ended December 31, 2003 (annualised) is 24.7 Industry P/E(1)
i) ii) iii)
(1)

Highest Lowest Industry Composite

27.2 3.9 14.3

Compiled from Capital Market data; for companies with year ending on March 31, 9 months ended December 31, 2003, EPS data has been annualised; for companies with year ending December 31, 2003, full year EPS has been used

3.

Average Return on Net Worth

Sr. No. 1. 2. 3. 4. Year ended March 31, 2001 Year ended March 31, 2002 Year ended March 31, 2003 Nine months ended December 31, 2003 (annualised) Weighted Average
(1)

% 25.6 24.8 27.9 53.9 37.5

We i g h t 1 2 3 4

The average return on net worth has been computed on the basis of adjusted profits & losses for the respective year/ period after considering the impact of accounting policy changes and prior period adjustments/ regroupings pertaining to earlier years.

4.

Minimum Return on Increased Net Worth Required to Maintain Pre-Issue EPS The minimum return on increased net worth required to maintain pre-Issue EPS is 24.2%(1)
(1) Increased networth is computed as restated networth of the Company as at December 31, 2003 increased by expected proceeds from the current Issue of 10 million equity shares of Rs. 5 each at price of Rs. 315 per equity share.

5.

Net Asset Value per Equity Share as at December 31, 2003 - Pre Split Rs. 47.1, Post Split Rs. 23.6 Net Asset Value per Equity Share (post-split) represents shareholders equity less miscellaneous expenses as divided by weighted average number of Equity Shares.

160

Biocon
6. Net Asset Value per Equity Share after Issue The net asset value per Equity Share after the Issue is Rs. 52.7(1) Issue Price per Equity Share: Rs. 315
(1) The net asset value after the Issue is computed on the basis of net asset value as of December 31, 2003 of the Company, together with the proceeds from the Issue of 10 million equity shares of Rs. 5 each at a price of Rs. 315 per equity share, divided by the total number of equity shares after the Issue.

7.

Comparison of Accounting Ratios

EPS(1) Biocon Industry Data (3) Category: Pharmaceutical Indian Bulk Drugs and Formulations Peer Group Ranbaxy Dr Reddy Wockhardt Cipla Peer Group Average
(1) (2) (3)

P/E(1) 24.7 14.3

RONW (2) 27.9%

NAV(2) Rs. 13.9

12.8

42.2 47.5 36.8 47.1

27.2 26.6 21.8 24.9 25.1

35.9% 24.0% 31.5% 25.6% 29.3%

101.0 236.1 101.9 176.7

Compiled from Capital Market data; For companies with year ending on March 31, 9 months ended December 31, 2003, EPS data has been annualised; for companies with year ending December 31 2003, full year EPS has been used For the year ended March 31, 2003; Source for other companies: Capital Market Volume XVIII/22 dated January 5, 2004 to January 18, 2004 for the Category: Pharmaceutical - Indian Bulk Drugs & Formulations. Compiled from Capital Market data; For companies with year ending on March 31, 9 months ended December 31 2003, EPS data has been annualised; for companies with year ending December 31, 2003, full year EPS has been used

161

Biocon
STATUTORY AND OTHER INFORMATION Consents Consents in writing of: (a) the Directors, the Company Secretary and Compliance Officer, the Auditors, Legal Advisors, Bankers to the Company and Bankers to the Issue; and (b) Book Running Lead Managers to the Issue, Co Book Running Lead Manager to the Issue and Syndicate Members, Escrow Collection Bankers, Registrar to the Issue and Legal Advisors to the Underwriters, to act in their respective capacities, have been obtained and filed along with a copy of the Prospectus with the Registrar of Companies, Karnataka located at Bangalore, as required under Sections 60 and 60B of the Companies Act and such consents have not been withdrawn up to the time of delivery of this Prospectus for registration with the RoC. S. R. Batliboi & Associates, chartered accountants, and our statutory auditors have given their written consent to the inclusion of their report in the form and context in which it appears in this Prospectus and such consent and report has not been withdrawn up to the time of delivery of this Prospectus for registration with the RoC. Ernst and Young, our U.S. GAAP auditors, have given their written consent to the inclusion of their report in the form and context in which it appears in this Prospectus and such consent and report has not been withdrawn up to the time of delivery of this Prospectus for registration with the RoC. S. R. Batliboi & Associates, chartered accountants, have given their written consent to the tax benefits accruing to our Company and its members in the form and context in which it appears in this Prospectus and has not withdrawn such consent up to the time of delivery of this Prospectus for registration with the RoC. Minimum Subscription If the Company does not receive the minimum subscription of 90% of the Issue amount including devolvement of the members of the Syndicate, if any, within 60 days from the Bid Closing Date, the Company shall forthwith refund the entire subscription amount received. If there is a delay beyond 8 days after the Company becomes liable to pay the amount, the Company shall pay interest as per Section 73 of the Companies Act. Expert Opinion Except as stated elsewhere in this Prospectus, we have not obtained any expert opinions. There have been no changes of the auditors in the last three years except as detailed below:
Name of Auditor S.R. Batliboi & Associates Arthur Andersen & Associates Arthur Andersen & Associates Date of Appointment June 27, 2002 September 27, 2001 July 27, 2000 June 27, 2002 September 27, 2001 Date of resignation Reasons for change Current Resigned as statutory auditors Resigned as statutory auditors, reappointed

Basis of Allotment A. For Retail Bidders

n

Bids received from the Retail Bidders at or above the Issue Price shall be grouped together to determine the total demand under this category. The allotment to all the successful Retail Bidders will be made at the Issue Price. The Issue size less allotment to Non Institutional and QIB Bidders shall be available for allotment to Retail Bidders who have bid in the Issue at a price that is equal to or greater than the Issue Price. If the aggregate demand in this category is less than or equal to 2,500,000 Equity Shares at or above the Issue Price, full allotment shall be made to the Retail Bidders to the extent of their demand. If the aggregate demand in this category is greater than 2,500,000 Equity Shares at or above the Issue Price, the allotment shall be made on a proportionate basis up to a minimum of 50 Equity Shares. For the method of proportionate basis of allotment, refer below.

162

Biocon
B. For Non Institutional Bidders
n

Bids received from Non Institutional Bidders at or above the Issue Price shall be grouped together to determine the total demand under this category. The allotment to all successful Non Institutional Bidders will be made at the Issue Price. The Issue size less allotment to QIBs and Retail Portion shall be available for allotment to Non Institutional Bidders who have bid in the Issue at a price that is equal to or greater than the Issue Price. If the aggregate demand in this category is less than or equal to 1,500,000 Equity Shares at or above the Issue Price, full allotment shall be made to Non Institutional Bidders to the extent of their demand. In case the aggregate demand in this category is greater than 1,500,000 Equity Shares at or above the Issue Price, allotment shall be made on a proportionate basis up to a minimum of 50 Equity Shares. For the method of proportionate basis of allotment refer below.

The aggregate allotment to Retail and Non Institutional Bidders shall not exceed 4,000,000 Equity Shares. C. For QIBs
n

Bids received from the QIB Bidders at or above the Issue Price shall be grouped together to determine the total demand under this category. The allotment to all the QIBs will be made at the Issue Price. The Issue size less allotment to Non Institutional Portion and Retail Portion shall be available for allotment to QIBs who have bid in the Issue at a price that is equal to or greater than the Issue Price. The allotment would be decided by the Company in consultation with the BRLMs and the CBRLM and would be at their sole discretion, based on various factors, such as quality of the Bidder, size, price and date of the Bid.

The aggregate allotment to QIB Bidders shall not be less than 6,000,000 Equity Shares. Method of Proportionate Basis of Allotment In the event of the Issue being over-subscribed, the basis of allotment to Retail and Non Institutional Bidders shall be finalized by us in consultation with the Designated Stock Exchange. The Executive Director or Managing Director (or any other senior official nominated by them) of the Designated Stock Exchange along with the BRLMs and CBRLM and the Registrar to the Issue shall be responsible for ensuring that the basis of allotment is finalized in a fair and proper manner. The allotment shall be made in marketable lots, on a proportionate basis as explained below: a) Bidders will be categorized according to the number of Equity Shares applied for. b) The total number of Equity Shares to be allotted to each category as a whole shall be arrived at on a proportionate basis, which is the total number of Equity Shares applied for in that category (number of Bidders in the category multiplied by the number of Equity Shares applied for) multiplied by the inverse of the over-subscription ratio. c) Number of Equity Shares to be allotted to the successful Bidders will be arrived at on a proportionate basis, which is total number of Equity Shares applied for by each Bidder in that category multiplied by the inverse of the over-subscription ratio.

d) In all Bids where the proportionate allotment is less than 50 Equity Shares per Bidder, the allotment shall be made as follows:
n n

Each successful Bidder shall be allotted a minimum of 50 Equity Shares; and

e)

The successful Bidders out of the total Bidders for a category shall be determined by draw of lots in a manner such that the total number of Equity Shares allotted in that category is equal to the number of Equity Shares calculated in accordance with (b) above. If the proportionate allotment to a Bidder is a number that is more than 25 but is not a multiple of 50 (which is the marketable lot), the number in excess of the multiple of 50 would be rounded off to the higher multiple of 50 if that number is 25 or higher. If that number is lower than 25 it would be rounded off to the lower multiple of 50. All Bidders in such categories would be allotted Equity Shares arrived at after such rounding off.
163

Biocon
f) If the Equity Shares allocated on a proportionate basis to any category are more than the Equity Shares allotted to the Bidders in that category, the remaining Equity Shares available for allotment shall be first adjusted against any other category, where the allotted shares are not sufficient for proportionate allotment to the successful Bidders in that category. The balance Equity Shares, if any, remaining after such adjustment will be added to the category comprising Bidders applying for minimum number of Equity Shares.

Expenses of the Issue The estimated Issue expenses are as under:

(in Rs. million) Sl. No. 1. 2. 3. Expenses Marketing costs (Advertising expenses, roadshows) Printing, Registrar costs, stamp duty, listing and Depository costs Fees payable to BRLMs, CBRLM, domestic and international legal counsel to the underwriters and domestic legal counsel to the Company, auditors and financial advisors Approx. cost 24.2 27.7 113.1

The total expenses of the Issue is estimated to be approximately Rs. 165.0 million. The expenses of this Issue include, among others, underwriting and management fees, selling commission, printing and distribution expenses, legal fees, statutory advertisement expenses and listing fees. All expenses with respect to the Issue would be borne by the Company. Fees Payable to the BRLMs and the CBRLM The total fees payable to the Book Running Lead Managers and Co-Book Running Lead Managers will be as per the letter of appointment dated January 12, 2004 issued by our Company, a copy of which is available for inspection at our corporate office. Fees Payable to the Registrar to the Issue The fees payable to the Registrar to the Issue will be as per the letter of appointment dated January 16, 2004, a copy of which is available for inspection at our corporate office. Adequate funds will be provided to the Registrar to the Issue to enable them to send refund orders or allotment advice by registered post. Fees Payable to Financial Advisors to the Company The total fees payable to the Financial Advisors to the Company will be as per the letter of appointment dated May 27, 2003 issued by our Company, a copy of which is available for inspection at our corporate office. Commission and Brokerage on Previous Issues No sum has been paid or is payable as commission or brokerage for subscribing to or procuring or agreeing to procure subscription for any of our Equity Shares since our inception. Previous Rights and Public Issues We have not made any previous rights and public issues except as stated in the section entitled Capital Structure on page 23 of this Prospectus. Outstanding Debentures or Bond Issues or Preference Shares We have no outstanding debentures or bond issues. Capitalization of Reserves or Profits We have not capitalized our reserves or profits at any time, except as stated in the section entitled Capital Structure on page 23 of this Prospectus.

164

Biocon
Issues otherwise than for Cash Except as stated in the section entitled Capital Structure on page 23 of this Prospectus, we have not issued any Equity Shares for consideration otherwise than for cash. Application in Issue Equity Shares being issued through this Prospectus can be applied for in the dematerialized form only. Purchase of Property Except as stated in the section entitled Status of New Facility on page 32 of this Prospectus, there is no property which we have purchased or acquired or propose to purchase or acquire which is to be paid for wholly, or in part, from the proceeds of the present Issue or the purchase or acquisition of which has not been completed on the date of this Prospectus, other than property in respect of which:
n

the contracts for the purchase or acquisition were entered into in the ordinary course of the business, and the contracts were not entered into in contemplation of the Issue nor is the Issue contemplated in consequence of the contracts; or the amount of the purchase money is not material; or disclosure has been made earlier in this Prospectus

n n

Except as stated in the section entitled Related Party Transactions on page 84 of this Prospectus, we have not purchased any property in which any of our Promoters and Directors, have any direct or indirect interest in any payment made thereof. Remuneration of CEO/Executive Directors Ms Kiran Mazumdar-Shaw, Chairman & Managing Director Ms. Kiran Mazumdar-Shaw is entitled to receive compensation for her services as the Chairman and Managing Director of our Company. Her remuneration for the year ended March 31, 2003 was Rs. 10,186,766. The present terms of employment of Ms. Kiran Mazumdar-Shaw with effect from April 1, 2003 until March 31, 2004 have been fixed at the meeting of the Board of Directors of our Company held on May 17, 2003, pursuant to the provisions of Sections 198, 269, 309, 310 and other applicable provisions of the Companies Act and is subject to the approval of the shareholders at the general meeting and the Central Government (if required). The terms of employment are as follows: Salary
n n n n n

Basic Salary House Rent Allowance Flexi Allowance Leave Travel Allowance Medical Reimbursement

: : : : :

Rs. 2,57,000 per month Rs. 1,02,800 per month Rs. 1,02,800 per month Rs. 25,700 per month Rs. 25,700 per month

Payment towards perquisites (evaluated as per Income Tax Rules, wherever applicable and actual cost to our Company in other cases) include the following:
n n n n n n

Electricity and water charges Club fees Medical reimbursement Use of car and telephone 26 days leave with pay for every year of service Contribution to Provident fund, Superannuation fund and Gratuity fund in accordance with the Act(s)/Scheme(s), as applicable to the other employees of our Company, from time to time.

165

Biocon
n

Encashment of leave is permissible, as applicable to the other employees of our Company, from time to time and the same will not be included in the computation of the ceiling of perquisites. Group Medical Insurance and Personal Accident Insurance coverage as applicable to the other employees of our Company, from time to time.

Performance bonus shall be as per the Performance Bonus Scheme applicable to the other employees of our Company or such percentage of net profits of our Company as determined by our Board of Directors, subject to the condition that the total remuneration does not exceed 5% of the net profits of our Company computed as per the provisions of Section 349 and 350 of the Companies Act. In the event of absence or inadequacy of net profits in any financial year, the salary and perquisites referred above shall be treated as the minimum remuneration payable to Ms. Kiran Mazumdar-Shaw. Mr. John Shaw, Vice Chairman Mr. John Shaw is entitled to receive compensation for his services as the Vice Chairman of our Company. His remuneration for the year ended March 31, 2003 was Rs. 9,216,800. The present terms of employment of Mr. John Shaw with effect from April 1, 2003 until March 31, 2004 have been fixed at the meeting of the Board of Directors of our Company held on May 17, 2003, pursuant to the provisions of Section 198, 269, 309, 310 and other applicable provisions of the Companies Act and is subject to the approval of the shareholders at the general meeting and the Central Government (if required). The terms of employment are as follows: Salary
n n n n n

Basic Salary House Rent Allowance Flexi Allowance Leave Travel Allowance Medical Reimbursement

: : : : :

Rs. 2,57,000 per month Rs. 1,02,800 per month Rs. 1,02,800 per month Rs. 25,700 per month Rs. 25,700 per month

Payment towards perquisites (evaluated as per Income Tax Rules, wherever applicable and actual cost to our Company in other cases) include the following:
n n n n n n

Electricity and water charges Club fees Medical reimbursement Use of car and telephone 26 days leave with pay for every year of service Contribution to Provident fund, Superannuation fund and Gratuity fund in accordance with the Act(s)/Scheme(s), as applicable to the other employees of our Company, from time to time. Encashment of leave is permissible, as applicable to the other employees of our Company, from time to time and the same will not be included in the computation of the ceiling of perquisites. Group Medical Insurance and Personal Accident Insurance coverage as applicable to the other employees of our Company, from time to time.

Performance bonus shall be as per the Performance Bonus Scheme applicable to the other employees of our Company or such percentage of net profits of our Company as determined by our Board of Directors, subject to the condition that the total remuneration does not exceed 5% of the net profits of our Company computed as per the provisions of Section 349 and 350 of the Companies Act. In the event of absence or inadequacy of net profits in any financial year, the salary and perquisites referred above shall be treated as the minimum remuneration payable to Mr. John Shaw.
166

Biocon
Remuneration of other Directors Apart from Ms. Kiran Mazumdar Shaw and Mr. John Shaw, the other directors of our Company are entitled to sitting fees of Rs. 3,000.0 for every meeting that they attend. With effect from January 17, 2004 the sitting fees for the Directors has been enhanced to Rs. 20,000.0 for every meeting that they attend. In addition, the non-executive directors of our Company are entitled to employee stock options under the ESOP Scheme. Revaluation of Assets We have revalued some of our assets in 1994. The total revaluation reserve of Rs. 17.0 million as at December 31, 2003 has been adjusted and the reserve as reflected in the restated financial statements is net of the adjustment for revaluation. Classes of Shares Our authorized capital is Rs. 600 million, which is divided into 120 million Equity Shares of Rs. 5 each. Payment or Benefit to Promoters or Officers of our Company Except as stated otherwise in this Prospectus, no amount or benefit has been paid or given within the two preceding years or is intended to be paid or given to any of our Promoters or officers except the normal remuneration for services rendered as Directors, officers or employees.

167

Biocon
MAIN PROVISIONS OF ARTICLES OF ASSOCIATION OF BIOCON LIMITED Capitalized terms used in this section have the meaning that has been given to such terms in the Articles of Association of the Company. The regulations contained in Table A of Schedule I to the Companies Act (Act I of 1956) shall apply only in so far as the same are not provided for or are not inconsistent with these Articles and the regulations for the management of the Company and for observance of the members thereof and their representatives shall, subject to any exercise of the statutory powers of the Company with reference to repeal or alteration of or addition to, its regulations by Special Resolution, as prescribed by the Companies Act, 1956, be such as are contained in these Articles. Pursuant to Schedule II of the Companies Act and the SEBI Guidelines, the main provisions of the Articles of Association of Biocon are detailed below: Article 4: Company not to give financial assistance to purchase its own Shares: Save as permitted by section 77 of the Act, the Company shall not give, whether directly or indirectly, any financial assistance, whether by way of loan, guarantee, the provision of security or otherwise for the purpose of or in connection with any purchase of or subscription for Shares in the Company. Power of Company to Purchase its own Shares: Subject to the provisions of section 77A and 77B of the Act, the Company may purchase its own Shares (hereinafter referred to as buy back) out of:(i) its free reserves; or (ii) the Share premium account; or (iii) the proceeds of any Shares Provided that no buy back of any kind of Shares shall be made out of the proceeds of an earlier issue of the same kind of Shares. Power to Issue Sweat Equity Shares: The Company may issue Equity Shares to employees or directors at a price as approved by the Shareholders subject to the conditions specified in section 79A of the Act. Power to increase capital: The Board may with the sanction of the Company in General Meeting by way of a special resolution increase the Share capital by such sum, to be divided into Shares of such amount, as the resolution shall prescribe. On what condition new Shares may be issued: New Shares shall be issued upon such terms and conditions and with such rights and privileges annexed thereto as the General Meeting may resolve by a special resolution upon the creation thereof shall direct and if no direction be given as the Board shall determine. How far new Shares to rank with existing Shares: Except so far as otherwise provided by the conditions of issue or by these Articles, any capital raised by the creation of new Shares shall be considered part of the original capital and shall be subject to the provisions herein contained with reference to the payment of calls and instalments, transfer and transmission, forfeiture, lien and otherwise. Reduction of Capital: Subject to the provisions of Section 100 to 105 of the Act, the Company may, from time to time by special resolution reduce its capital by paying off capital or cancelling capital which has been lost or is un-represented by available assets or is superfluous or by reducing the liability on the Shares or otherwise as may seem expedient, and capital may be paid off upon the footing that it may be called up again or otherwise and the Directors may subject to the provisions of the Act, accept surrender of Shares. Sub-division, consolidation and cancellation of Shares: The Company may, by ordinary resolution: a) b) consolidate and divide all or any of its Share capital into Shares of larger amount than its existing Shares; sub-divide its existing Shares or any of them into Shares of smaller amount than is fixed by the Memorandum of Association, subject, nevertheless, to the provisions of clause (d) of sub-section (1) of section 94 of the Act;
168

Article 5:

Article 6:

Increase, Reduction And Alteration Of Capital Article 20:

Article 21:

Article 22:

Article 23:

Article 24:

Biocon
c) cancel any Shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any Person, and diminish the amount of its Share capital by the amount of the Shares so cancelled.

Article 25:

Modification of Rights: If at any time, the capital of the Company, by reason of the issue of Preference Shares or otherwise, is divided into different classes of Shares, all or any of the rights and privileges attached to each class may subject to the provisions of Sections 106 and 107 of the Act be modified, abrogated or dealt with by agreement between the Company and any Person purporting to contract on behalf of that class, provided such agreement is (a) ratified in writing by the holders of at least three-fourths of the nominal value of the issued Shares of that class or (b) confirmed by special resolution passed at a separate General Meeting of the holders of Shares of that class. Notwithstanding anything contained in these Articles, the Company shall be entitled to dematerialise its existing Shares, debentures and other securities, rematerialise its Shares, debentures and other securities held in the depositories and/or offer its fresh Shares, debentures and securities in a dematerialised form pursuant to the Depositories Act 1996 and the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996. The provisions in relation to transfer of shares and stated in these Articles and as permitted under law to the extent permissible shall apply to Shares in dematerialised form. Powers of the Board on Transfer of Securities: Subject to the provisions of Sections 111 and 111-A of the Act and Section 22A of the Securities Contracts (Regulation) Act, 1956, the Directors may, at their own absolute and uncontrolled discretion and by giving reasons, decline to register or acknowledge any transfer of Shares/ Debentures which is not in accordance with these Articles, whether fully paid or not and the right of refusal, shall not be affected by the circumstances that the proposed transferee is already a Member but in such cases, the Directors shall within two months from the date on which the instrument of transfer was lodged with the Company, send to the transferee and transferor notice of the refusal to register such transfer provided that registration of transfer shall not be refused on the ground of the transferor being either alone or jointly within any other Person or Persons indebted to the Company on any account whatsoever except when the Company has a lien on the Shares/debentures. Transfer of Shares / Debentures in whatever lot shall not be refused. No Pledging of Investors Shares: The Investor shall not be required to nor shall, on its own, pledge or otherwise encumber its Shares in favour of, or provide any other support to, any third party dealing with the Company or any other Group Company including, without limitation, lenders to the Company or any other Group Company. Non-disposal by Sponsors: a) Subject to the provisions of these Articles and so long as the aggregate number of Shares owned by the Investor and its Affiliates is not less than 2% of the total number of issued Shares in the capital of the Company or the date which is three years after the date of the IPO, whichever is earlier, and except as otherwise expressly agreed in writing by the Investor, there shall be no Dilution either (including Dilution by any of the Sponsors of any Shares which it owns from time to time) except that a Sponsor may dispose of its Shares subject to the Sponsors at all times continuing to own legally and beneficially not less than fifty-one percent (51%) of the total number of Shares, provided that the provisions of Article 36 shall apply to any sale of Shares by the Sponsors. Subject to Article 34 (d), the Sponsors may transfer any or all of their Shares to a Sponsor Affiliate if and only if the Investor has given its prior written consent to such transfer, in which case Article 35 shall apply. Provided that the Sponsors shall not be required to obtain the prior written consent of the Investor in respect of any transfer of Shares which does not result in the aggregate Shareholding
169

Dematerialisation Of Securities Article 26:

Transfer Of Shares Article 27:

Article 33:

Article 34:

b)

Biocon
Percentage of all the Sponsors falling to less than 51%, of the total number of Shares and provided that neither the Company or any Sponsor is in breach of any material provision of these Articles. c) In the case of any permitted disposal under Article 34 (a) or where the Investor has given its prior written approval for any Sponsor to dispose of all or part of its Shares, Article 36 shall apply unless such disposal is to a Sponsor Affiliate, in which case Article 35 shall apply.

Article 35:

Transfers to Affiliates: Subject to Article 34, an Identified Shareholder may transfer Shares to any of its Affiliates provided that: a) the Identified Shareholder shall be jointly and severally liable with any such Affiliate for the performance by that Affiliate of its obligations under these Articles and in respect of any breach thereof by that Affiliate and in the case of any subsequent transfer of Shares by any Affiliate to any other Affiliate, the Identified Shareholder shall be liable for the performance by each Affiliate which holds Shares of its obligations under these Articles. All rights under these Articles shall be exercised jointly by the Identified Shareholder and its Affiliate(s) holding Shares; the Identified Shareholder shall procure that, for so long as any Affiliate holds any Shares, it shall not cease to be an Affiliate of that Identified Shareholder; and each of the Identified Shareholders shall procure that the Affiliate executes a Deed of Accession prior to any such transfer of Shares

b) c) Article 36:

Tag-along rights: Any transfer of Shares by a Sponsor to a Person other than a Sponsor Affiliate which is expressly permitted under these Articles or made with the prior written approval of the Investor shall comply with the following: a) before transferring or disposing of any of its Shares to any Person, the Sponsor which owns Shares (a Seller) shall give a written notice (a Transfer Notice) to the Investor which specifies: (i) (ii) the number of Shares (the Sale Shares) which it wishes to transfer; and details of the offer to purchase the Sale Shares received from such Person (the Purchaser) including the name of the Purchaser, the price per Share offered by the Purchaser for the Sale Shares (including, where such price comprises non-cash consideration, the Sellers certification of the cash value thereof) (the Purchase Price) and the other terms of the transfer (including payment terms);

b)

the Seller shall not be entitled to transfer the Sale Shares to the Purchaser unless the Seller complies with, and procures that the Purchaser complies with, the following provisions: (i) the Investor shall have the option, exercisable by notice in writing to the Seller within twentyeight (28) days of the date of receipt of the Transfer Notice to require that the Seller includes in the sale to the Purchaser, at the Purchase Price, a specified number of the Investors Shares (which may include Shares owned by the Investors Affiliates) not in excess of the Threshold Amount; and if the Investor delivers a notice under paragraph (i) above, the Seller shall not be entitled to complete the transfer of the Sale Shares to the Purchaser unless the Purchaser also concurrently completes the purchase from the Investor (or its Affiliates, if relevant) of such number of Shares as were required to be included in the sale of the Sale Shares to the Purchaser in accordance with paragraph (i); and

(ii)

c)

for the purpose of this Article 36, Threshold Amount is the aggregate number of Shares owned by the Investor and its Affiliates multiplied by a fraction with a numerator comprising the number of Sale Shares and a denominator comprising the total number of Shares owned by all of the Sponsors and any Sponsor Affiliates:

170

Biocon
(i) (ii) the Shares to be transferred by the Sellers are less than 1% of the total issued share capital of the Company at the time of the proposed transfer; and the total number of Shares already transferred by the Sellers in the relevant calendar year together with the number of Shares to be transferred in (i) above is less than 3% of the total issued share capital of the Company.

Article 37:

Survival: Notwithstanding any other provision of these Articles, Articles 34 to 36 shall remain in force until the earlier of the date on which the Investor and its Affiliates have ceased to own any Shares and the date which is three (3) years after the date of the IPO. Share transfers by Investor: The following provisions shall apply to transfers of Shares by the Investor or any of its Affiliates: a) subject to the provisions under this Article 38, the Investor may transfer any of its Shares to any other Person after the first IPO by the Company, if the Investor proposes to transfer Shares (Negotiated Sale Shares) to a Person (other than to its Affiliates) (i) (ii) pursuant to a negotiated sale; and where the proposed sale price (Negotiated Sale Offer Price) is lower than 95% of the market listed price for the Negotiated Sale Shares at the time of the proposed transfer, then the Sponsors may, within two (2) days of the Investor informing the Sponsors of such a proposed transfer, indicate whether they wish to purchase all (but not some) of the Negotiated Sale Shares at a price no lower than the Negotiated Sale Offer Price, in which case the Sponsors shall make payment for the Negotiated Sale Shares within the timing provided for by the stock exchange where the Shares are listed.

Article 38:

b)

For the purposes of this Article any change of control, or proposed change of control, of the Investor or any of its Affiliates which owns Shares shall be deemed to be a transfer or proposed transfer (as the case may be) of such number of Shares as is owned by the Investor or that Affiliate and the provisions of this Article shall apply thereto mutatis mutandis. For the purposes of this Article 39(b), control has the meaning given to it in sub-paragraph (a) of the definition of Affiliate.

General Meetings Article 45: Reserved Board Matters: Each of the Identified Shareholders shall exercise all rights and powers available to it, including the exercise of voting rights, to ensure that the necessary general meeting resolutions of the Company or any Subsidiary are passed to give effect to any Reserved Board Matter which has been approved by Super-Majority Resolution with respect to the Company or that Subsidiary (as the case may be). It is further agreed that in the case of the Company and any Subsidiary, no general meeting resolution shall be passed with respect to any Reserved Board Matter unless that Reserved Board Matter has first been approved by Super-Majority Resolution. Chairman of General Meeting: The Chairman of the Board for the time being shall be entitled to take the Chair at every General Meeting. If there be no such Chairman, or if at any meeting he shall not be present within fifteen minutes after the time appointed for holding such meeting or is unwilling to act, the Members present shall choose another Director as Chairman, and if no Director be present, or if all the Directors present decline to take the chair, then the Members present shall on a show of hands or on a poll if properly demanded, elect one of their number to be the Chairman. Votes of Members: Upon a show of hands every Member present in Person or by proxy or by duly authorised representative shall have one vote, and upon a poll, every Member present in Person or by proxy or by duly authorised representative, shall have one vote for every Share held by him.
171

Proceedings At General Meetings Article 50:

Votes Of Members Article 59:

Biocon
Board Of Directors Article 72: Article 73: Article 74: Number of Directors: The Company shall not have less than three and more than twelve Directors on the Board. Qualification Shares: The Directors are not required to hold any qualification Shares. Composition of the Board of Directors: a) Notwithstanding anything contained in these Articles including clause (b) hereof, so long as the Sponsors holds 26 % or more of the total issued and paid up capital of the Company, Ms. Kiran Mazumdar-Shaw shall have the right to nominate for appointment the majority of Directors of the Board; b) So long as the aggregate number of Shares owned by the Investor and its Affiliates is not less than 2% of the total issued and paid up capital of the Company or the date which is three years after the date of the IPO, whichever is earlier, the Investor shall have the right to nominate for appointment one Director who shall not be liable to retire by rotation (hereinafter called the Investor Director), and the Investor shall be entitled to remove the Investor Director so nominated on the Board of the Company and to appoint any other individual in his/her place. c) d) The Board shall appoint such number of independent Directors as it deems fit within the maximum permissible number of Directors specified under the applicable law and these Articles. The Board may appoint an Alternate Director to act for a non-resident Director or for a Director (hereinafter called the Original Director) during his absence for a period of three months from the state in which the meetings of the Board are ordinarily held. An Alternate Director appointed under this Article shall be a Person recommended for such appointment by the Original Director. An Alternate Director appointed shall not hold office for a period longer than that permissible to the Original Director in whose place he has been appointed and shall vacate office if and when the Original Director returns to the State. If the term of office of the Original Director ends before he so returns to that State, any provision for the automatic re-appointment of retiring Directors in default of another appointment shall apply to the Original Director and not to the Alternate Director; So long as the aggregate number of Shares owned by the Investor and its Affiliates is not less than 2% of the total number of issued shares in the capital of the Company or the date which is three years after the date of the initial public offering, whichever is earlier, the Investor shall have the right, but not the obligation, to nominate one (1) director of each of the 75% Subsidiaries.

e)

Proceedings Of The Board Article 77: Chairman: Notwithstanding anything contained in these Articles, so long as the Sponsors holds 26% or more of the total issued and paid up equity capital of the Company, Kiran Mazumdar-Shaw shall be the Chairman. Where the Chairman is not present at any meeting of the Board, the Directors nominated by Kiran MazumdarShaw present at that meeting shall appoint a chairman for that meeting which chairman shall hold office for that meeting alone. Board meetings: a) Board meetings shall be held at least once in every three months and at least four times every year. The meetings shall ordinarily be held in India. However, Board meetings may be held at any place other than in India as may be agreed in writing by all the Directors. For the avoidance of doubt, subject to compliance with the notice procedures specified in these Articles Board meetings may take place on a Saturday or Sunday; The date for Board meetings shall normally be fixed at the preceding Board meeting. Where such date of the Board Meeting has not been fixed, notice in writing of every meeting of the Board shall be given to every Director for the time being in India, and at his usual address in India to every other Director. However, not less than 21 days prior written notice of each meeting (or such shorter period as may be agreed in writing by all the Directors) shall be given to each Director of each meeting setting out the
172

Article 78:

b)

Biocon
agenda for the meeting in reasonable detail and attaching all reasonably available data and information relating to matters to be discussed at the meeting except as otherwise agreed in writing by all of the Directors whether resident in India or outside India; c) d) e) Subject to sub clause (e) and (j) of this Article, the quorum for any meeting shall be the Director nominated by the Investor and such other numbers of Directors as is required to form a quorum under the Act; Each Director is entitled to cast one (1) vote; Except for any decisions which require a Super-Majority Resolution under these Articles and subject to applicable provisions of the Act, decisions of the Board shall be made on the basis of a simple majority vote. Provided that where, despite due notice of the meeting being provided to the Investor Director, if the Investor Director is not present at the Board meeting at the appointed time specified in the notice, all decisions (other than those relating to any matter which requires approval by Super-Majority Resolution) shall be valid if passed by a simple majority of the Board provided that no other items may be considered at such meeting which were not on the agenda for such meeting; When permitted under applicable laws, any Director may participate in and vote at a meeting of the Board by means of a telephone, video conferencing or similar communications equipment which allows all Persons participating in the meeting to hear each other and record the deliberations. Where any Director participates in a meeting of the Board by any of the means described hereinabove, the Company shall ensure that that Director is provided with a copy of all documents referred to during such Board meeting before the Board meeting commences; A circular resolution in writing, signed by all of the Directors, shall, subject to the Act, constitute a valid decision of the Board provided that a draft of such resolution was sent to all of the Directors then in India and to all other Directors at their usual address together with a copy of all supporting papers and provided further that resolutions concerning any Reserved Board Matters may be passed by a circular resolution if all the Directors so consent in writing. Directors are not entitled to be paid for acting as Directors, other than sitting fees as prescribed by the Act, but they are entitled to be paid by the Company for all reasonable traveling, hotel and other expenses properly incurred by them in attending meetings and discharging their duties; and In any case where the resolutions being considered at any meeting of the Board include any Reserved Board Matters, if no quorum is present within thirty (30) minutes from the appointed time for any meeting of the Board, the meeting shall stand adjourned to the same day in the next week (or such other later date as the Chairman may decide) at the same time and place and the Directors present at such adjourned meeting shall constitute a quorum provided that: (i) written notice of the adjournment was given to each Director at his usual address for service of notices of Board meetings not less than five (5) days before the date of the adjourned meeting; and no agenda items may be considered at the adjourned meeting which were not on the agenda for the meeting which was adjourned and any decision made in relation to any such Reserved Board Matter strictly in accordance with this Article 78 (j) shall be deemed to have been made by SuperMajority Resolution.

f)

g)

h)

i)

(ii)

Article 79:

Board Committees: Subject to the provisions of the Act, these Articles, the Board may delegate any of its powers to committees consisting of such Member or Members of its body as it thinks fit provided that: a) b) any committee so formed shall, in exercise of the powers so delegated conform to any regulations that may be imposed on it by the Board; and the Investor shall have the right to nominate a representative (who shall be the Director or the Alternate Director nominated by the Investor) on any such committees of the Board.
173

Biocon
For the avoidance of doubt, notwithstanding anything that may be contained in these Articles, any decision taken at any such committee (or at any other management committee of the Company), which relates to a Reserved Board Matter shall not be valid unless it is ratified and approved by a Super-Majority Resolution. The meeting and proceedings of any such Committee shall be governed by the provisions herein contained for regulating the meeting and proceedings of the Board so far as the same are applicable thereto, and are not superseded by any regulations made by the Board under this Article. Article 80: Senior Management: The appointment of any senior management of the Company shall require the prior approval of the Board. For the purpose of this Article, any Person occupying a position in the Company who reports directly to the Chief Executive Officer or the Board shall be deemed senior management. Managing Director: Subject to the provisions of the Act and these Articles the Board may from time to time appoint one or more of their body to the office of Managing Director for such period and on such terms as they think fit and subject to the terms of any agreement entered into in any particular case may revoke such appointment. Subject to the provisions of the Act and these Articles the Managing Director shall receive such remuneration (whether by way of salary, commission or participation in profits or partly in one and partly in another) as the Board may determine from time to time. Subject to the provisions of the Act and these Articles the Board may entrust to or confer upon the Managing Director any of the powers excisable by the Board upon such terms and conditions and with such restrictions as the Board may think fit, either collaterally with or to the exclusion of its own powers, and may from time to time revoke, withdraw, alter or vary any such powers. Powers Of The Board Article 85: General powers of the Board: (1) Subject to the provision of the Act, the Board shall be entitled to exercise all such powers, and to do all such acts and things, as the Company is authorised to exercise and do Provided that the Board shall not exercise any powers or do any act or thing which is directed or required by any law for the time being in force or by the Memorandum of Association of the Company or otherwise, to be exercised or done by the Company in General Meeting. Provided further that in exercising any such power or doing any such act or thing the Board shall be subject to the provisions contained in that behalf in the Act, or in any regulation not inconsistent therewith and duly made thereunder, including regulations made by the Company in General Meeting. (2) Article 87: No regulation made by the Company in General Meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made.

Article 81:

Annual Business Plan and others: So long as the aggregate number of Shares owned by the Investor and its Affiliates is not less than 2% of the issued and paid-up capital of the Company or the date which is three years after the date of the IPO, whichever is earlier, the following shall be complied with: (a) Subject to Article 88, the Annual Business Plan for, and certain items listed in Article 87(c) below relating to, the Company and the 75% Subsidiaries shall be tabled to the Board and approved by a majority of the Board. Provided always that, if the Investor so requests within fourteen days after the receipt of the agenda which either (i) attaches the draft Annual Business Plan and/or (ii) includes such item, such Annual Business Plan or item will require the approval of a majority of the Board including, at least half of the total number of independent Directors present and voting. If the Investor has not requested for the Annual Business Plan to be approved by the independent Directors as aforesaid, the Annual Business Plan may be approved by a simple majority of the Board.

174

Biocon
(b) Any: (i) (ii) material change or deviation to the Annual Business Plan; or items in the Annual Business Plan specified in Article 87 (c) below which was not included in the original Annual Business Plan previously approved,

shall also be tabled to the Board and approved in the same manner as stated in Article 87 (a) above. (c) The items to be approved as provided in Article 87 (a) above shall be: (i) the Annual Business Plan, which shall include but not be limited to: (aa) capital expenditure; (bb) long term borrowing; (cc) the making of any loans to wholly owned Subsidiaries and related guarantees or security; (dd) any guarantees or indemnities; (ee) debt-equity ratio; and (ff) (ii) Research and Development Expenditure, entry into, amendment or termination of any contract of the Company which is material to the Business. Without prejudice to the generality of the foregoing, a contract shall be deemed to be material if it has a value of 10% or greater of the annual operating revenue in the then current Annual Business Plan of the Company; and granting of, amendment or termination of any license of Intellectual Property Rights of any of the Group Companies which are material to the Business. The Company shall, and each of the Sponsors shall exercise all rights and powers available to it to procure that the Company shall, notify the Board of any grant, amendment or termination of any license of Intellectual Property Rights which are not material to the Business.

(iii)

Article 88:

Super-Majority Resolutions: (a) The Company shall exercise all rights and powers available to it, to procure that none of the Reserved Board Matters shall occur with respect to the Company or with respect to any Subsidiary, unless it has first been approved by a Super-Majority Resolution. In the case of any Company or other Person in which the Company has any direct or indirect ownership interest which is not a Subsidiary, the Company shall not, exercise any rights or powers which the Company may have with respect to that Company or Person to approve, or withhold approval for, any matter which would constitute a Reserved Board Matter as per sub clause B herein, in relation to that Company or Person without the prior approval of the Board by Super-Majority Resolution: A. Any of the following matters with respect to the Company or any 75% Subsidiary: 1. Material acquisition, development or expansion of, or other investment in, any companies, businesses, plants or facilities outside the ordinary course of its business. Sale or disposal of assets outside the ordinary course of its business. Any issuance of new equity or equity-linked securities either as a public offering or as a private sale or issue or any action which would alter or change the rights or privileges or obligations or liabilities of Sponsors or Investor with respect to its Shares or dilute the respective percentage of ownership of any of the above except as specifically provided under these Articles. Any merger, amalgamation, demerger or reorganisation of the Company or any Subsidiary.

(b)

2.

3.

175

Biocon
4. In the case of the Company, any sale, transfer, lease, licence or disposal of the Shares in any of the other Group Companies or, in the case of the Company or any Subsidiary, the sale of any material part of the assets and undertaking of the Company or that Subsidiary other than in the ordinary course of business. Any material change in the nature, activities or scope of the Business. Any amendment of the Memorandum of Association of the Company or these Articles or the memorandum and/or articles of association of any other Subsidiary. Winding up or liquidation or the appointment of receivers or administrators over any of its assets or undertaking.

5. 6. 7. B.

Any of the following matters with respect to any companies in which the Company owns, directly or indirectly, less than 75% of the issued and paid up capital or the voting rights attached to the Shares in such Company: 1. 2. 3. Any matters requiring Shareholders approval where such matter falls within the items enumerated in 1 to 7 of sub clause (b) A of this Article. Any action which may result in the dilution of the Companys direct or indirect shareholding or control in such Company. Items 3 to 7 enumerated in sub clause (b) A of this Article.

Article 89:

Estoppel: For the avoidance of doubt, the Investor shall not be entitled to challenge any actions or seek any remedies in respect of actions taken by the Company or any Subsidiary to implement any matter which has been approved by, or deemed to have been approved by, Super-Majority Resolution provided that the implementation of such matters is done in accordance with such Super-Majority Resolution. Dividends: The profits of the Company available for payment of dividend subject to any special rights relating thereto created or authorised to be created by these presents and subject to the provisions of these presents as to the reserve fund, shall be divisible amongst the Members in proportion to the amount of capital held by them respectively provided always that (subject as aforesaid) any capital paid upon a Share during the period in respect of which a dividend is declared shall only entitle the holder of such Share to an apportioned amount of such dividend as from the date of payment. Powers of Directors to create reserve fund: Subject to the provisions of the Act Directors may, before recommending any dividend, set aside out of the profits of the Company, such sums as they think proper as a reserve fund, to meet contingencies or for equalizing dividends or for special dividends, or for repairing, improving and maintaining any of the property of the Company and for such other purpose as Directors shall in their absolute discretion think conducive to the interest of the Company, and may invest the several sums so set aside upon such investment (other than Shares of the Company) as they may think fit from time to time, deal with and vary such investments, and dispose of all or any part thereof for the benefit of the Company, and may divide the reserve funds into such special funds as they think fit and employ the reserve funds or any part thereof in the business of the Company and that without being bound to keep the same separate from the other assets. The Seal: The Seal of the Company shall not be affixed to any instrument except by the authority of a resolution of the Board and except in the presence of at least one Director or such other Person as the Board may appoint for the purpose; and the said Director or the Person aforesaid shall sign every instrument to which the seal of the Company is so affixed in his presence. Secrecy: (a) Every Director, manager, Auditor, trustee, Member of a committee, officer, servant, agent, accountant, or
176

Dividends And Reserve Article 99:

Article 114:

Article 136:

Article 137:

Biocon
other Person employed in the business of the Company shall, if so required by the Board before entering upon his duties, sign a declaration pledging himself to observe strict secrecy respecting all transactions of the Company with its customers and the state of accounts with individuals and not to reveal any of the matter which may come to his knowledge in the discharge of his duties except when required to do so by the Board or by any meeting or by a court of law and except so far as may be necessary in order to comply with any of the provisions in these presents contained. (b) No Member or other Person (unless he is a Director or other Person in management of the affairs of the Company or the authorized representative of such Director / Person) shall be entitled to enter the premises of the Company or to inspect or examine the Companys premises without the permission of the Board or officers authorized by the Board for the time being, or to require discovery of or any information respecting any details, of the Companys trading or any matter which is or may be in the nature of a trade secret, mystery of trade or secret process or of any matter whatsoever which may relate to the conduct of the business of the Company and which in the opinion of the Board or officers authorized by the Board it will be inexpedient in the interest of the Members of the Company to communicate. Subject to the provisions of the Act and these Articles if the Company shall be wound up, the liquidator, may, with the sanction of a special resolution of the Company and any other sanction required by the Act, divide amongst the Members in specie or kind the whole or any part of the assets of the Company whether they shall consist of property of the same kind or not. Subject to the provisions of the Act and these Articles the liquidator may set value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be called out as between the Members or different classes of Members. Subject to the provisions of the Act and these Articles the liquidator may with the like sanction vest the whole or any part of such assets in trust for the benefit of the contributors as the liquidators think fit, but no Member shall be compelled to accept any Shares or other securities whereon there is any liability. Subject to the provisions of Section 201 of the Act and these Articles, every Director or manager, Company Secretary and other officer or employee of the Company shall be indemnified by the Company against costs, losses and expenses (including travelling expenses) which any such Director, manager, Company Secretary, officer or employee may incur on becoming liable by reason of any contract entered into or act or deed done by him as such Director, manager, Company Secretary, officer or employee or in any way in the discharge of his duties. Subject to the provisions of the Act and these Articles, no Director, manager, Company Secretary or other officer of the Company shall be liable for acts, receipts, neglect or defaults of any other Director, manager, Company Secretary, or other officer, or for other acts of nonconformity, or for any loss or expenses happening to the Company through insufficiency or deficiency of title to any property acquired by order of the Directors for or on behalf of the Company or for the insufficiency or deficiency of any security in or upon which any of the moneys of the Company shall be invested or for any loss or damage arising from the bankruptcy, insolvency or tortuous act of any Person with whom any moneys or securities shall be entrusted or deposited or for any loss occasioned by any error of judgement or oversight on his part, or any other loss, or damage or misfortune in the execution of the duties of his office or in relation thereto unless any of the aforesaid should happen through his own fraud, negligence or dishonesty.

Article 138:

Winding Up: (a)

(b)

(c)

Article 139:

Indemnity and Responsibility: (a)

(b)

177

Biocon
MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTIONS The following Contracts (not being contracts entered into in the ordinary course of business carried on by our Company or entered into more than two years before the date of this Prospectus) which are or may be deemed material have been entered or to be entered into by our Company. These Contracts, copies of which have been attached to the copy of this Prospectus, delivered to the Registrar of Companies, Karnataka at Bangalore for registration and also the documents for inspection referred to hereunder, may be inspected at the corporate office of our Company situated at 20th KM Hosur Road, Electronic City P.O., Bangalore 560 100 from 10.00 am to 4.00 pm on working days from the date of the Red Herring Prospectus until the Bid/Issue Closing Date. Material Contracts 1. Letter of appointment dated January 12, 2004 to DSP Merrill Lynch Limited, Kotak Mahindra Capital Company Limited from Biocon appointing them as BRLMs and letter of appointment dated January 12, 2004 to HSBC Securities and Capital Markets (India) Private Limited from Biocon appointing them as the CBRLM. Memorandum of Understanding amongst our Company, BRLMs and CBRLM. Memorandum of Understanding/ Agreements executed by our Company with Bankers to the Issue, Registrar to the Issue, etc. Escrow Agreement dated March 8, 2004 between the Company, the BRLMs, the CBRLM, ABN Amro Bank N.V., Kotak Mahindra Bank Limited, The Hongkong and Shanghai Banking Corporation Limited, HDFC Bank Limited, Canara Bank, Kotak Securities Limited, Karvy Stock Broking Limited and the Registrar to the Issue. Syndicate Agreement dated March 8, 2004 between the Company, the BRLMs, the CBRLM and Syndicate Members. Underwriting Agreement dated March 20, 2004 between the Company, the BRLMs, the CBRLM and Syndicate Members. Our Memorandum and Articles of Association as amended from time to time Our certification of incorporation dated November 29, 1978, June 18, 2001 and November 19, 2003 (consequent on change of name) Our certificates in relation to change of names dated July 1, 1995, December 21, 2000 and November 19, 2003 Shareholders Agreement dated April 30, 2003 amongst our Company, the Promoters and AIG AOF Shareholders Agreement dated March 15, 2003 amongst our Company, Ms. Kiran Mazumdar-Shaw and IVF Shareholders resolutions in relation to this Issue and other related matters such as appointment of auditors, formation and revision of Audit, Remuneration and other committees Resolutions of the IPO Committee Data obtained from IMS Health Incorporated Present terms of employment between our Company and Ms. Kiran Mazumdar-Shaw fixed by way of board meeting of Biocon Limited dated May 17, 2003

2. 3. 4.

5. 6. 1. 2. 3. 4. 5. 6. 7. 8. 9.

Material Documents

10. Present terms of employment fixed between our Company and Mr. John Shaw by way of board meeting of Biocon Limited dated May 17, 2003 11. Report of the statutory auditors, S.R. Batliboi & Associates dated January 17, 2004 prepared as per Indian GAAP and mentioned in the Prospectus 12. Report of the auditors Ernst & Young dated January 17, 2004 prepared as per US GAAP and mentioned in the Prospectus 13. Copies of annual reports of our Company, Syngene and Clinigene for the years ended March 31, 1999, 2000, 2001, 2002 and 2003, as applicable and for BBPL for the year ended March 31, 2003

178

Biocon
14. Consent of the Auditors being S.R.Batliboi & Associates and Ernst & Young for inclusion of their report on accounts in the form and context in which they appear in the Prospectus 15. General Power of Attorney executed by the Directors of our Company in favour of person(s) for signing and making necessary changes to the Prospectus and other related documents 16. Consents of Auditors, Bankers to the Company, BRLMs, CBRLM, Syndicate Members, Registrar to the Issue, Escrow Collection Bank(s), Banker to the Issue, domestic legal counsel to the Managers/Underwriters, US legal counsel to the Managers/Underwriters, Legal Counsel to the Company, Directors of the Company, Company Secretary and Compliance Officer, as referred to, in their respective capacities 17. Initial listing applications dated January 23, 2004 and January 23, 2004 filed with NSE and BSE respectively 18. In-principle listing approval dated February 5, 2004 and February 5, 2004 from NSE and BSE respectively 19. Approval (Ref. No. FC.II: 121(2000)/93(2000)-Amend) of the Foreign Investment Promotion Board dated January 15, 2004 20. Tripartite Agreement between NSDL, our Company and the Registrar to the Issue dated February 12, 2004 21. Tripartite Agreement between CDSL, our Company and the Registrar to the Issue dated February 13, 2004 22. Due diligence certificate dated January 23, 2004 to SEBI from DSP Merrill Lynch Limited, Kotak Mahindra Capital Company Limited and HSBC Securities and Capital Markets (India) Private Limited 23. SEBI observation letter No. CFD/DIL/UR/3493/2004 dated February 19, 2004, letter No. CFD/DIL/UR/4376/2004 dated March 3, 2004, letter No. CFD/DIL/UR/4697/2004 dated March 8, 2004 and letter No. CFD/DIL/UR/4904/2004 dated March 10, 2004 24. Approval (Ref. No. F. No. 12-52/2001) dated September 2, 2003 granted by DCGI 25. Office Memorandum (Ref. No. BT/17/12/98-PID) dated December 12, 2003 received from RCGM 26. Approval (Ref. No. 10/44/2000-CS) dated March 20, 2003 granted by GEAC Any of the contracts or documents mentioned in this Prospectus may be amended or modified at any time if so required in the interest of the Company or if required by the other parties, without reference to the shareholders subject to compliance of the provisions contained in the Companies Act and other relevant statutes.

179

Biocon
FINANCIAL INFORMATION 1. 2. 3. 4. 5. Unconsolidated Financial Statements of Biocon Limited as at and for the months ended December 31, 2003 Unconsolidated Financial Statements of Syngene as at and for the months ended December 31, 2003 Unconsolidated Financial Statements of Clinigene as at and for the months ended December 31, 2003 Unconsolidated Financial Statements of BBPL as at and for the nine months ended December 31, 2003 Unconsolidated Statements of Assets and Liabilities and Profits and Losses, as Restated, under Indian GAAP for the years ended March 31, 1999, 2000, 2001, 2002 and 2003 and for the nine months ended December 31, 2003 for Biocon Limited, Syngene, Clinigene and BBPL. Consolidated financial statements (as per Indian GAAP) for the year ended March 31, 2003 and nine months ended December 31, 2003. Consolidated financial statements (as per US GAAP) for the year ended March 31, 2003 and the nine months ended December 31, 2003. Consolidated restated financial statements (as per Indian GAAP) for the year ended March 31, 2003 and the nine months ended December 31, 2003 Statement of Differences between Indian GAAP and US GAAP

6. 7. 8. 9.

180

Biocon

BIOCON LIMITED (formerly BIOCON INDIA LIMITED) FINANCIAL STATEMENTS DECEMBER 31, 2003 TOGETHER WITH AUDITORS REPORT

181

Biocon
Auditors Report To the Board of Directors of Biocon Limited (formerly Biocon India Limited); 1. We have examined the accompanying Balance Sheet of BIOCON LIMITED (formerly Biocon India Limited) as at December 31, 2003, the Profit and Loss account and Statement of Cash Flows for the nine-month period then ended annexed thereto, prepared in accordance with accounting principles generally accepted in India. These financial statements are the responsibility of the BIOCON LIMITEDs management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying financial statements have been prepared by the Company in accordance with the requirements of Accounting Standard (AS) 25, Interim Financial Reporting, issued by the Institute of Chartered Accountants of India. On the basis of the information and explanations given to us, we are of the opinion that these financial statements give a true and fair view in conformity with the accounting principles generally accepted in India: i) ii) in the case of the Balance Sheet, of the state of affairs of BIOCON LIMITED as at December 31, 2003; in the case of the Profit and Loss account of the results of operations of BIOCON LIMITED for the nine-month period then ended; and

2.

3. 4.

iii) in the case of the Cash Flow Statement, of the cash flows of BIOCON LIMITED for the nine month period then ended. For S.R. BATLIBOI & ASSOCIATES Chartered Accountants per Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

182

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) BALANCE SHEET DECEMBER 31, 2003
(All amounts in Indian Rupees) Notes December 31, 2003 March 31, 2003 (Note 26) SOURCES OF FUNDS SHAREHOLDERS FUNDS Share capital Reserves and surplus LOAN FUNDS Secured loans Unsecured loans DEFERRED TAX LIABILITY APPLICATION OF FUNDS FIXED ASSETS Cost Less: Accumulated depreciation Net book value Capital work-in-progress [including capital advances of Rs. 103,747,834 (March 31, 2003 Rs. 12,798,834)] 2(a), 2(h), 2(j), 8 & 17 1,787,435,239 437,657,791 1,349,777,448 391,007,957 1,740,785,405 LONG TERM INVESTMENTS CURRENT ASSETS, LOANS AND ADVANCES Inventories Sundry debtors Cash and bank balances Loans and advances LESS: CURRENT LIABILITIES AND PROVISIONS NET CURRENT ASSETS 2(b) & 10 11 12 13 2(e), 2(f), 2(i) & 14 1,111,996,359 1,126,498,643 2,952,220,129 The accompanying notes 1 to 26 form an integral part of this balance sheet. As per our report of even date S.R. BATLIBOI & ASSOCIATES Chartered Accountants Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004 For and on behalf of the Board of Directors Kiran Mazumdar Shaw Managing Director Bangalore January 17, 2004 JMM Shaw Director 660,245,882 711,237,483 2,095,808,580 688,990,632 1,370,061,974 11,382,222 168,060,174 2,238,495,002 466,961,589 737,466,588 10,217,256 156,837,932 1,371,483,365 2(d) & 9 84,936,081 1,555,461,850 335,563,459 1,219,898,391 79,843,625 1,299,742,016 84,829,081 3 2(k) & 4 450,000,000 1,692,360,063 2,142,360,063 5 6 2(i) & 7 487,019,313 163,329,812 650,349,125 159,510,941 2,952,220,129 18,376,500 1,248,721,368 1,267,097,868 582,108,708 103,545,391 685,654,099 143,056,613 2,095,808,580

183

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees) Notes INCOME Gross sales Less: Excise duty Net sales Contract research fees Other income 2(c), 2(g) & 22 2(c), 2(g) & 22 15 3,945,346,984 233,069,444 3,712,277,540 5,681,716 6,940,165 3,724,899,421 EXPENDITURE Manufacturing and other expenses Interest and finance charges 2(e), 2(f), 2(h) 2(k), 16 & 22 2(j) & 18 12,086,343 2,539,484,453 PROFIT BEFORE DEPRECIATION AND TAXES Depreciation Less: Amount transferred from revaluation reserve 2(a) & 8 2(a) & 4 1,185,414,968 102,700,873 1,255,967 101,444,906 PROFIT BEFORE TAXES Provision for income-tax Current taxes Deferred taxes NET PROFIT FOR THE PERIOD/YEAR Earnings per share Basic and diluted (in Rs.) Weighted average number of shares used in computing earnings per share Basic and diluted 90,000,000 89,916,952 2(l) 9.62 3.99 2(i) & 20 2(i) & 7 201,640,234 16,454,328 865,875,500 75,806,254 42,726,157 358,733,568 1,083,970,062 48,919,767 1,958,577,561 597,436,976 121,838,008 1,667,011 120,170,997 477,265,979 2,527,398,110 1,909,657,794 2,750,614,744 208,215,613 2,542,399,131 5,192,833 8,422,573 2,556,014,537 April 1, 2003 to December 31, 2003 April 1, 2002 to March 31, 2003 (Note 26)

The accompanying notes 1 to 26 form an integral part of this account. As per our report of even date S.R. BATLIBOI & ASSOCIATES Chartered Accountants Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004 For and on behalf of the Board of Directors Kiran Mazumdar Shaw Managing Director Bangalore January 17, 2004 JMM Shaw Director

184

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees) April 1, 2003 to December 31, 2003 I CASH FLOWS FROM OPERATING ACTIVITIES : Net profit before tax Adjustments for Less: Non cash item/items required to be disclosed separately: Depreciation Amortisation of employee compensation cost Provision for bad and doubtful debts Interest expense Interest income (gross) Gain on sale of investment Loss/(gain) on assets sold etc. Changes in working capital and other provisions Inventories Sundry debtors Loans and advances Current liabilities and provisions April 1, 2002 to March 31, 2003 (Note 26) 1,083,970,062 101,444,906 11,520,137 5,390,875 18,114,888 (6,428,288) 368,674 130,411,192 (222,029,043) (637,986,261) (12,817,032) 432,843,844 (439,988,492) (309,577,290) 774,392,762 (148,902,396) 625,490,366 477,265,979 120,170,997 33,863,779 4,609,125 52,161,331 (4,534,810) (6,987) (1,704,985) 204,558,450 (233,118,718) (118,567,220) (55,124,768) 198,111,226 (208,699,480) (4,141,030) 473,124,949 (91,621,751) 381,503,198

II

III

IV V VI

Cash generated from operations Tax paid (net of refunds) Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES : Fixed assets Purchase Sale Interest received Sale of investment Purchase of investment Net cash (used) for investing activities CASH FLOWS FROM FINANCING ACTIVITIES : Proceeds from issuance of share capital Short term borrowings from banks, net Repayment of secured loans Receipt of secured loans Deferred sales tax credit Repayment of unsecured loans Interest paid Net cash provided/(used) for financing activities NET CHANGE IN CASH AND CASH EQUIVALENTS ( I+II+III) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD/YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD/YEAR (IV + V)

(570,544,244) 91,351 7,009,532 (107,000) (563,550,361) 113,483,227 (240,572,622) 32,000,000 59,784,421 (25,470,065) (60,775,039) 1,164,966 10,217,256 11,382,222 For and on behalf of the Board of Directors Kiran Mazumdar Shaw Managing Director Bangalore January 17, 2004

(348,408,965) 2,067,750 2,286,881 12,968 (344,041,366) 158,700 (29,118,220) (403,945,610) 456,542,326 47,512,013 (50,000,000) (49,346,662) (28,197,453) 9,264,379 952,877 10,217,256

S.R. BATLIBOI & ASSOCIATES Chartered Accountants Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

JMM Shaw Director

185

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees)

1.

Background Biocon Limited (formerly Biocon India Limited) (Biocon), promoted by Ms Kiran Mazumdar Shaw (KMZ), was incorporated at Bangalore in 1978 for manufacture of biotechnology products. On November 17, 2003, the name of the Company was changed from Biocon India Limited to Biocon Limited. As at December 31, 2003, 69.2 per cent of the shareholding of Biocon was held by KMZ and Glentec International, Mauritius together with associated persons, 10 per cent by AOF HS Mauritius Limited (pursuant to a share transfer agreement with ICICI Ventures, promoters and the Company dated April 30, 2003), 6.9 per cent by Biocon India Limited Employees Welfare Trust (the ESOP Trust), 1.2 per cent by the Biocon India Welfare Trust, 2.4 per cent by India Value Fund Trustee Company Private Limited and the balance by employees and others. The Company has its facilities at Hebbagodi and Bommasandra, Bangalore district, Karnataka and is engaged in manufacturing biotechnological products in the pharmaceutical and enzyme sectors through fermentation based technology. Further, in March 2002, the Company acquired 99.99 per cent of the share capital of Syngene International Private Limited (Syngene), a contract research company. Syngene was also promoted and controlled by Ms Kiran Mazumdar Shaw and the consideration for such acquisition was the issue of 202,780 equity shares of Biocon of Rs. 10 each, determined on the basis of fair values as approved by the statutory authorities. Also, the Company has another 100 per cent subsidiary, Clinigene International Private Limited (Clinigene), which was acquired by the Company on March 31, 2001 and undertakes clinical research activities. Biocon entered into an Agreement on February 22, 2002 to set up a Joint Venture Company, with CIMAB SA (CIMAB), a company organised and existing under the laws of Cuba and engaged in research, development, manufacturing and marketing of Biopharmaceuticals, to manufacture and market products using technology and to carry out research activities. Accordingly, Biocon Biopharmaceuticals Private Limited (BBPL) was set up on June 17, 2002 and, on April 18, 2003, Biocon acquired a 51 per cent shareholding in BBPL.

2.

Summary of significant accounting policies The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and to comply in all material respects with the mandatory accounting standards issued by the Institute of Chartered Accountants of India. Further, the financial statements are presented in the general format specified in Schedule VI to the Companies Act, 1956 (the Act). However, as these financial statements are not statutory financial statements, full compliance with the above Act is not required and so they do not reflect all the disclosure requirements of the Act. The significant accounting policies are as follows: a. Fixed assets and depreciation Fixed assets are stated at cost, except for revalued freehold land and buildings, which are shown at, estimated replacement cost as determined by valuers, less accumulated depreciation. The Company capitalises all costs relating to the acquisition and installation of fixed assets. Fixed assets, other than freehold land, but including revalued buildings, are depreciated pro rata to the period of use, on the straight line method at the annual rates based on the estimated useful lives.

186

Biocon
Per cent Buildings Plant and machinery Research and development equipment Furniture and fixtures Vehicles 4.00 9.09 - 33.33 11.11 16.67 16.67

Leasehold land, other than those on a lease-cum-sale basis, are depreciated over the lease period. Leasehold land on a lease-cum-sale basis are capitalised at the allotment rates currently charged by the Municipal Authorities. The depreciation charge over and above the depreciation calculation on the original cost of the revalued assets is transferred from the revaluation reserve to the profit and loss account. Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase. b. Inventories Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first-in-first-out basis and includes all applicable overheads in bringing the inventories to their present location and condition. Excise duty arising on finished goods and customs duty on imported raw materials in stock (excluding stocks in the bonded warehouse) are treated as part of the cost of inventories. c. Revenue recognition (i) Sales are recognised on despatch of goods to customers and are recorded net of excise duty, sales tax and other levies. For the purposes of disclosure in these financial statements, sales is reflected gross and net of excise duty in the profit and loss account. (ii) Contract research fees are recognised as services are rendered, in accordance with the terms of the contracts. d. Investments Long term investments are stated at cost. Provision, where necessary, is made to recognise a decline, other than temporary, in the value of investments. e. Retirement benefits The Company has schemes of retirement benefits for provident fund, gratuity and superannuation, in respect of which, the Companys contributions are charged to the profit and loss account. The contributions towards provident fund are made to statutory authorities. The gratuity and superannuation fund benefits of the Company are administered by a trust formed for this purpose through the group gratuity and superannuation scheme with Birla Sun Life Insurance Company Limited (Birla Sunlife). In respect of gratuity, the Company has accrued for the liability based on an independent actuarial valuation at the period-end. In respect of superannuation, the Company has accrued for the liability based on the schemes of the Company. f. Leave encashment Liability for leave encashment is in accordance with the rules of the Company and is provided on the basis of an actuarial valuation performed by an independent actuary. Upto March 31, 2003, the Company provided for leave encashment on a full liability basis. Had the Company followed its earlier accounting policy, the profit before tax for the period would have been lower by Rs. 617,340. g. Foreign currency transactions Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing on the date of the balance sheet. Where the Company has entered into foreign exchange contracts,

187

Biocon
the difference between the forward rates and the spot rates at the date of the transaction is recognised in the profit and loss account over the life of the contract. All exchange differences are dealt with in the profit and loss account, except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets. h. Research and development costs Research and development costs, including technical know-how fees, incurred for development of products are expensed as incurred, except for development costs which relate to the design and testing of new or improved materials, products or processes which are recognised as an asset to the extent that it is expected that such assets will generate future economic benefits. Research and development expenditure of a capital nature is added to fixed assets. i. Income tax Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the current tax rates based on assessable income. The Company provides for deferred tax based on the tax effect of timing differences resulting from the recognition of items in the financial statements and in estimating its current tax provision. Deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. The effect on deferred taxes of a change in tax rates is recognised in income in the period in which the change is substantially enacted. The provision for current tax is based on the earnings for the period from April 1, 2003 to December 31, 2003 and the actual tax liability of the Company will be determined on the basis of the earnings for the period from April 1, 2003 to March 31, 2004. j. Borrowing costs Borrowing costs that are attributable to the acquisition and construction of a qualifying asset are capitalised as a part of the cost of the asset. Other borrowing costs are recognised as an expense in the period in which they are incurred. k. Deferred employee stock compensation costs Deferred employee stock compensation costs for stock options are recognised on the basis of generally accepted accounting principles and are measured as the excess of the fair value of the Companys stock on the stock options grant date over the amount an employee must pay to acquire the stock and recognised in a graded manner on the basis of weighted period of services over the vesting period of equity shares. The fair value of the options is measured on the basis of an independent valuation performed in respect of stock options granted. l. Earnings per share The earnings considered in ascertaining the Companys earnings per share comprise of the net profit after tax. The number of shares used in computing the basic earnings per share is the weighted average number of shares outstanding during the period and are adjusted for bonus shares and sub-division of shares for all periods/years presented in these financial statements. The number of shares used in computing diluted earnings per share comprises the weighted average share considered for deriving basic earnings per share, and also the weighted average number of shares, if any which would have been issued on the conversion of all dilutive potential equity shares. m. Operating lease Where the Company is a Lessee: Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term.

188

Biocon
Where the Company is a Lessor: Assets subject to operating leases are included in fixed assets. Lease income are recognised on a straight line basis over the lease term. Costs, including depreciation are recognised as an expense. Initial direct costs such as legal costs, brokerage costs, etc. are recognised immediately. n. Finance lease The cash value of fixed assets acquired on finance lease contracts is capitalised and depreciated in accordance with the fixed assets and depreciation policy of the Company. Interest payable under finance lease contracts, is charged on the diminishing balance method to the profit and loss account over the period of the finance lease contracts. 3. Share capital
December 31, 2003 Authorised: 120,000,000 (March 31, 2003 2,000,000 equity shares of Rs. 10 each) equity shares of Rs. 5 each Issued, subscribed and paid-up: 90,000,000 (March 31, 2003 1,837,650 equity shares of Rs. 10 each, fully paid) equity shares of Rs. 5 each, fully paid (a) Of the above equity shares: i) ii) iii) iv) 30,800 equity shares of Rs. 100 each were allotted as fully paid bonus shares by capitalisation of general reserve in the year ended March 31, 1997. 23,471 equity shares of Rs. 100 each were allotted as fully paid-up shares in the year ended March 31, 2000 pursuant to a contract for consideration other than cash. On October 8, 2001, the Company issued 12,153 equity shares of Rs. 100 each to the ESOP Trust under an Employee Stock Option Plan (ESOP Plan) and the Trust acquired 350 equity shares of Rs. 100 each from certain individuals. On March 30, 2002, the Company acquired 99.9 per cent equity in Syngene through the issue of 202,780 equity shares of Rs. 10 each. The consideration was determined on the basis of a fair valuation, as approved by the statutory authorities in India. The related share premium at Rs. 403.8 per equity share has been credited to share premium account. On May 9, 2002 the Company has further issued 15,870 equity shares of Rs. 10 each to the Trust under the ESOP Plan. The Trust on October 20, 2003 acquired 2,500 equity shares of Rs. 10 each from certain individuals. The Trust at December 31, 2003 holds 7,023,100 equity shares of Rs. 5 each of which grants have been made for 3,511,020 equity shares of the Company under the ESOP Plan. 450,000,000 18,376,500 600,000,000 20,000,000 March 31, 2003

v)

(b)

The shareholders at the Extraordinary General Meeting (EGM) of the Company held on February 25, 2002, approved the sub-division of equity shares of face value of Rs. 100 each into ten equity shares of face value of Rs. 10 each. The Board of Directors in their meeting held on March 30, 2002 passed a resolution for effecting the sub-division. Subsequent to this sub-division, the authorised equity share capital of Rs. 20,000,000 has been divided into 2,000,000 equity shares of Rs. 10 each and the then issued, subscribed and paid-up capital of Rs. 18,217,800 as at March 31, 2002 was divided into 1,821,780 equity shares of Rs. 10 each. The shareholders at the EGM of the Company held on November 11, 2003, approved the sub-division of equity shares of face value of Rs. 10 each into 2 equity shares of Rs. 5 each and increase the authorised capital from Rs. 20,000,000 to Rs. 600,000,000. Subsequent to this sub-division, the authorised equity share capital of Rs. 20,000,000 has been divided into 4,000,000 equity shares of Rs. 5 each and the issued, subscribed and paid-up capital of Rs. 18,376,500 has been divided into 3,675,300 shares of Rs. 5 each. Further, the shareholders at the EGM of the Company held on November 11, 2003 approved the allotment of 86,324,700 equity shares of Rs. 5 each as bonus shares in the ratio of 1 : 23.4877958 to the shareholders existing as on November 11, 2003, which was the approved record date for this purpose, by capitalisation of the balance in the profit and loss account of Rs. 431,623,500.

(c)

(d)

189

Biocon
4. Reserves and surplus
December 31, 2003 Revaluation reserve Balance, beginning of the period/year Less: Transfer on sale and disposal of land Less: Transfer to profit and loss account Share premium General reserve Stock compensation adjustment [see Note 2(k) & 19] Stock options outstanding Additions during the period/year Deletions during the period/year 19,127,038 877,475 1,255,967 16,993,596 339,889,570 265,059,851 65,291,222 (2,602,648) 62,688,574 Less: Deferred employee stock compensation expense Opening balance in profit and loss account Less: Issue of bonus shares Add: Profit for the period/year (17,304,658) 45,383,916 590,781,130 (431,623,500) 865,875,500 1,025,033,130 1,692,360,063 (i) March 31, 2003 21,809,784 1,015,735 1,667,011 19,127,038 339,889,570 265,059,851 65,291,222 65,291,222 (31,427,443) 33,863,779 232,047,562 358,733,568 590,781,130 1,248,721,368

Share premium includes an amount of Rs. 81,880,535 received on the allotment of 202,780 equity shares of Rs. 10 each on March 30, 2002 at a premium of Rs. 403.8 per equity share. December 31, 2003 March 31, 2003

(ii) Deferred employee stock compensation expense (see Note 19): Stock compensation expense outstanding Stock options forfeited during the year Stock compensation expense amortised during the period/year Closing balance of deferred employee stock compensation expense 31,427,443 (2,602,648) (11,520,137) 17,304,658 65,291,222 (33,863,779) (31,427,443)

(iii) The Company issued 86,324,700 bonus shares of Rs. 5 each through capitalisation of the balance in the profit and loss account to the extent of Rs. 431,623,500. [See note 3(d)] December 31, 2003 March 31, 2003

5.

Secured loans
From banks Cash credit, packing credit, etc. Term loans Payable within one year Others 21,600,000 75,400,000 487,019,313 139,233,867 166,338,755 582,108,708 390,019,313 276,536,086

190

Biocon
(a) Cash credit, packing credit, etc (i) On January 16, 2002, the Company renewed its total rupee and foreign currency denominated fund based working capital facilities with State Bank of India (SBI) of Rs. 130,000,000 (March 31, 2003 Rs. 130,000,000). These facilities are repayable on demand, secured by the hypothecation of inventories and book debts and carry an interest rate of 2.1 per cent per annum for foreign currency denominated loans and 7.5 to 12.25 per cent per annum for rupee loans. The amount outstanding as on December 31, 2003 is Rs. Nil (March 31, 2003 Rs. 39,650,178) inclusive of foreign currency denominated loans of Rs. Nil [March 31, 2003 Rs. 39,596,571 (US$ 834,051)]. (ii) On February 7, 2003, the Company renewed its total rupee and foreign currency denominated working capital facilities with Hongkong and Shanghai Banking Corporation (HSBC) for Rs. 175,000,000 (March 31, 2003 Rs. 175,000,000). These facilities are repayable on demand, secured by the hypothecation of inventories and book debt and carry an interest rate of 2 per cent per annum for foreign currency denominated loans and 6 to 15 per cent per annum for rupee loans. The Company has utilised Rs. 171,223,491 (March 31, 2003 Rs. 115,580,186) as of December 31, 2003 inclusive of foreign currency denominated loans of Rs. 100,319,990 (US$ 2,200,000) [March 31, 2003 Rs. 90,255,512 (US$ 1,902,387)]. (iii) On February 25, 2003, the Company renewed its working capital facilities with Canara Bank (CB) for Rs. 130,000,000 (March 31, 2003 Rs. 130,000,000). These facilities are repayable on demand, secured by the hypothecation of inventories and book debt and carry an interest rate of 2.1 per cent for foreign currency denominated loans and 8 to 11.75 per cent per annum for rupee loans. The Company has utilised Rs. 127,692,147 (March 31, 2003 Rs. 121,305,722) as of December 31, 2003 inclusive of foreign currency denominated loans of Rs. 127,626,362 (US$ 2,798,824) [March 31, 2003 Rs. 117,435,931 (US$ 2,473,637)]. The above working capital loans, are further secured by the personal guarantee of the managing director. (iv) On June 30, 2003, the Company entered into a working capital facility with Export Import Bank ( EXIM Bank) for Rs. 92,860,000 (US$ 2,000,000 ) (March 31, 2003 Rs. Nil). These facilities are repayable on demand, secured by the hypothecation of inventories and book debt and carry an interest rate of 2.2 per cent. The Company has utilised Rs. 91,103,675 (US$ 1,997,888) (March 31, 2003 Rs. Nil) as of December 31, 2003. (b) Term loans (i) On April 9, 1999, the Company entered into a term loan facility with EXIM bank for Rs. 126,001,000 for funding its fixed asset acquisitions of the Submerged Fermentation Plant. These loans are repayable in 9 equal half yearly instalments commencing from December 10, 2000, and are secured by a first pari passu mortgage and charge on the fixed assets of the Company and carry an interest rate of 10.5 per cent per annum. The Company had a balance of Rs. 42,001,000 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003. (ii) On November 5, 1999, the Company entered into a term loan facility with EXIM bank of India for Rs. 46,730,706 for funding its fixed assets acquisitions of the Plafractor Plant. These loans are repayable in 10 equal half yearly instalments commencing from December 10, 2000, secured by a charge on the fixed assets of the Company and carry an interest rate of 7 per cent per annum. The Company had a balance of Rs. 22,737,706 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003. (iii) On May 5, 1999, the Company entered into a term loan facility with SBI for Rs. 50,000,000 for funding its fixed asset acquisitions of the Submerged Fermentation Plant. These loans are repayable in 60 equal monthly instalments commencing from December 2000, are secured by a first pari passu mortgage and charge on the fixed assets of the Company and carry an interest rate of 2.99 per cent per annum for foreign currency denominated loan and 13 per cent per annum for the rupee loan. The Company had a balance of Rs. 26,667,250 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003. (iv) On February 7, 2003, the Company renewed its rupee and foreign currency denominated term loan facility with HSBC for Rs. 170,000,000 (March 31, 2003 Rs. 170,000,000) for funding its fixed asset acquisitions during the year and fully utilised this facility. The instalments commencing from November 2002, are secured by a pari passu charge over the fixed assets of the Company and loan is repayable in 44 monthly carry an interest rate of 2.77 per cent per annum for foreign

191

Biocon
currency denominated loans and 6.6 per cent per annum for rupee loans. The Company had a balance of Rs. 149,166,666 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003. (v) On July 3, 2002, the Company entered into a term loan facility with Technology Development Board (TDB) for Rs.. 100,000,000 for funding its fixed asset acquisitions of the PlaFractor plant. These loans are repayable in half yearly instalments commencing from February 2004, are secured by a first pari passu mortgage and charge on the fixed assets of the Company and carry an interest rate of 5 per cent per annum. At December 31, 2003, the Company had drawn Rs. 97,000,000 (March 31, 2003 Rs. 65,000,000) from the above facility. The above term loans are further secured by the personal guarantee of the Managing Director. 6. Unsecured loans
December 31, 2003 Deferred payment liability 163,329,812 March 31, 2003 103,545,391

(i) Under the Industrial Policy of the Government of Karnataka, the Company on November 18, 2000 obtained an order from Karnataka Sales Tax Authority for allowing deferment of sales tax (including turnover tax) for a period upto 8 years with respect to sales from its Bommasandra manufacturing facility of the Company. Under the Order, the deferment amount should not exceed Rs 24,375,000, of which at December 31, 2003, the Company had utilised Rs 872,329 (March 31, 2003 Rs 863,624). (ii) Under the Agro Food Processing Industrial Policy of the Government of Karnataka, the Company on November 18, 2000 obtained an order from Karnataka Sales Tax Authority for allowing deferment of sales tax (including turnover tax) for a period upto 12 years with respect to sales from Hebbagodi manufacturing facility of the Company. Under the order, the deferment amount should not exceed Rs. 648,938,000 of which at December 31, 2003, the Company had utilised Rs. 162,457,483 (March 31, 2003 Rs. 102,681,767). 7. Deferred tax liability
Deferred tax (asset)/ liability as at April 1, 2003 Depreciation Employee retirement benefits Disallowance under section 43B Others 155,944,370 (5,989,536) (5,509,541) (1,388,680) 143,056,613 Current period charge / (credit) 18,112,500 (718,392) 131,180 (1,070,960) 16,454,328 Deferred tax (asset) / liability as at December 31, 2003 174,056,870 (6,707,928) (5,378,361) (2,459,640) 159,510,941

The Company effective August 26, 2003 received approval from the Cochin Special Economic Zone for the setting up of a 100 per cent Export Oriented Unit for the manufacture and export of all types of statins on which, the Company claims exemption under section 10B of the Income-tax Act, 1961 (IT Act). In accordance with the provisions of section 10B of the IT Act, effective August 26, 2003, the Company can avail of a tax deduction in respect of 100 per cent of all export income derived from the export sales arising out from that unit. Accordingly, the Company, has not recognised any additional deferred tax liability for this EOU as it expects the timing differences originating in this period to reverse out during the tax holiday period.

192

Biocon
8. Fixed assets
Balance, beginning of the period Cost/Valuation Land Freehold (revalued) Freehold (others) Leasehold Buildings (revalued) Buildings (others) Plant and machinery Research and development equipment Furniture and fixtures Vehicles Accumulated depreciation Leasehold land Buildings (revalued) Buildings (others) Plant and machinery Research and development equipment Furniture and fixtures Vehicles Additions/charge (Deletion / Adjustments) Balance, end of the period

9,843,735 13,700,842 66,723,443 17,575,359 288,064,668 1,004,867,084 133,102,901 14,759,682 6,824,136 1,555,461,850 2,384,950 8,292,056 34,585,116 248,525,024 33,376,592 6,086,058 2,313,663 335,563,459

27,404,993 54,397,270 33,985,887 66,775,389 42,721,705 8,632,186 233,917,430 1,255,967 9,500,575 77,071,490 12,105,500 1,975,166 792,175 102,700,873

877,475 460,025 606,541 1,944,041 606,541 606,541

8,966,260 40,645,810 121,120,713 17,575,359 322,050,555 1,071,642,473 175,824,606 23,391,868 6,217,595 1,787,435,239 2,384,950 9,548,023 44,085,691 325,596,514 45,482,092 8,061,224 2,499,297 437,657,791

Net book value Land Freehold (revalued) Freehold (others) Leasehold Buildings (revalued) Buildings (others) Plant and machinery Research and development equipment Furniture and fixtures Vehicles 9,843,735 13,700,842 64,338,493 9,283,303 253,479,552 756,342,060 99,726,309 8,673,624 4,510,473 1,219,898,391 Notes : (a) Certain freehold land and buildings were revalued on November 1, 1994, based on the estimated replacement cost after conside ring depreciation upto that date, as per valuers reports and the resultant surplus of Rs. 34,528,673 was credited to revaluation reserve. Of this reserve, Rs. 17,535,077 (March 31, 2003 Rs. 15,401,635) has been transferred to the profit and loss account for depreciation on these assets or adjusted on the sale of these assets. The Company has capitalised net foreign exchange losses of Rs. 538,060 (March 31, 2003 Rs. 102,010) during the period/year and adjusted net foreign exchange gain amount to Rs. 1,698,739 (March 31, 2003 Rs. Nil) in capital work-in-progress. During the period, the Company has capitalised borrowing costs identifiable to qualifying assets of Rs. 5,996,000 (March 31, 2003 Rs. 1,664,479), currently reflected as capital work-in-progress. On December 5, 2002, Karnataka Industrial Areas Development Board (KIADB) allotted land aggregating 26.75 acres to the Company for Rs. 64,200,000 on a lease-cum sale basis for a period of 6 years. Further, during the period the Company has acquired an additional 20 acres of land for Rs. 48,202,350 from KIADB. The same is reflected at the current allotment rate, the final amount to be determined 8,966,260 40,645,810 118,735,763 8,027,336 277,964,864 746,045,959 130,342,514 15,330,644 3,718,298 1,349,777,448

(b) (c) (d)

193

Biocon
by KIADB on the completion of six years on fulfilment of certain conditions. One of the key conditions include commencement of commercial operations by the Company within 24 months of possession i.e. December 2002. The Company is confident of fulfilling this condition. (e) As per the Retirement Benefit Scheme framed by the Company for senior executives, certain employees completing 12 years of service have an option to buy the Companys apartments for a consideration to be fixed by the Company. During the period, the Company h as not transferred any of the Company apartment to any of the employees. During the period, the Company has acquired 11.8 acres of freehold land from Kiran Mazumdar Shaw, the Managing Director, which was earlier leased to the Company, at an aggregate cost of Rs. 26,749,888. December 31, 2003 March 31, 2003

(f)

9. Long term investments (At cost)

Long term Investments Non trade: Unquoted 1,000 (March 31, 2003 1000) equity shares of Rs. 100 each of Xcyton Diagnostics Limited, fully paid up Less: Provision for other than temporary diminution in value

100,000 99,999 1

100,000 99,999 1 1,200 1,201

National savings certificates In subsidiary companies: Unquoted and fully paid up 50,000 (March 31, 2003 50,000) equity shares of Rs. 10 each of Clinigene 2,874,830 (March 31, 2003 2,874,830) equity shares of Rs. 10 each of Syngene In Joint Venture Company: Unquoted and fully paid up 10,200 (March 31, 2003 Nil) equity shares of Rs. 10 each of Biocon Biopharmaceuticals Private Limited

6,200 6,201

500,000 84,327,880

500,000 84,327,880

102,000 84,929,880 84,936,081

84,827,880 84,829,081

(i)

Clinigene, incorporated on August 4, 2000, is engaged in undertaking clinical research activities and has entered into contracts with domestic and international companies to undertake research activities with respect to chronic diseases such as diabetes, osteoporosis, asthma etc and became a 100 per cent subsidiary of the Company on March 31, 2001. In the current period, Clinigene has incurred significant losses of Rs. 19,011,111 resulting in a negative net worth of Rs. 21,372,552 and a working capital deficiency of Rs. 38,966,834 at December 31, 2003. The management of Clinigene is making aggressive marketing efforts to sell clinical research and is in the process of setting up a human pharmacology unit in association with a leading hospital in India to expand its clinical research activities and has hired certain employees in this connection, and is confident of generating profits in its immediate future. The Company, therefore, believes that this diminution in the value of its investment is only temporary and, accordingly, no provision is made in these financial statements.

(ii) BBPL is a joint venture between the Company and CIMAB SA, engaged in research, development, manufacturing and marketing of Biopharmaceuticals. The aggregate amount of Biocons interest in the assets and liabilities of BBPL is Rs. 788,072 and Rs. 2,335,338 respectively. Biocons share in the accumulated loss of BBPL aggregates Rs. 1,654,300. During the period, Biocon has funded the operations of BBPL and charged interest on all such funding. (See Note 21)

194

Biocon
December 31, 2003 March 31, 2003 238,010,561 16,803,012 1,446,064 198,608,203 12,093,749 466,961,589

10. Inventories
Raw materials Goods-in-transit Packing materials Work-in-progress Finished goods 471,546,012 15,556,434 2,241,293 188,931,141 10,715,752 688,990,632

11. Sundry debtors (unsecured)

Debts outstanding for a period exceeding six-months Considered good Considered doubtful Other debts Considered good Less: Provision for doubtful debts 19,731,261 10,000,000 1,350,330,713 1,380,061,974 10,000,000 1,370,061,974 32,639,883 4,609,125 704,826,705 742,075,713 4,609,125 737,466,588 179,149 28,051 10,056 10,000,000 10,217,256 57,264,400 18,650,152 78,496,135 1,413,700 1,013,545 156,837,932

12. Cash and bank balances

Cash on hand Balances with scheduled banks: In current accounts In exchange earners foreign currency account In deposit accounts 292,214 1,089,971 37 10,000,000 11,382,222

13. Loans and advances (Unsecured and considered good)

Advances recoverable in cash or in kind or for value to be received Deposits Balances with Customs and Excise Authorities Loan to Biocon India Limited Employee Welfare Trust Advance income-tax, net of provision 85,214,287 13,929,020 67,658,167 1,258,700 168,060,174 (a) Included under advances recoverable in cash or in kind or for value to be received are amounts due from: (i) Subsidiary company Clinigene 32,616,803 (ii) Joint Venture Company Biocon Biopharmaceuticals Private Limited 4,248,244 (iii) Ms Kiran Mazumdar Shaw (Managing Director) -

9,793,779 1,557,319 9,600,000

14. Current liabilities and provisions

Sundry creditors Advances from customers Interest accrued but not due Other liabilities Provision for employee retirement benefits Provision for leave encashment Provision for taxation, net of advance tax 879,901,778 6,185,212 4,908,995 124,705,961 1,015,701,946 17,002,017 27,568,103 51,724,293 1,111,996,359 534,034,198 9,650,699 6,268,172 84,572,854 634,525,923 1,151,856 24,568,103 660,245,882

Other liabilities include Rs. 573,161 (March 31, 2003 Rs. 970,443) due to Ms Kiran Mazumdar Shaw, Managing Director and Rs. Nil (March 31, 2003 Rs. 686,836) to JMM Shaw, Director and deposits from Syngene of Rs. 600,000 (March 31, 2003 Rs. 600,000) towards the security deposit for the use of land.

195

Biocon
April 1, 2003 to December 31, 2003 April 1, 2002 to March 31, 2003

15. Other Income

Interest income from investments [Gross of tax deducted at source Rs. 100,886 (March 31, 2003 Rs. 237,069)] Gain on fixed assets sold, net Miscellaneous income 399,743 6,540,422 6,940,165 2,957,725 1,704,985 3,759,863 8,422,573

16. Manufacturing and other expenses

Raw materials consumed, net of duty drawback of Rs. 37,493,940 (March 31, 2003 Rs. 18,199,657) Purchase of goods for resale Employee costs Salaries, wages, bonus, etc Contribution to provident fund Gratuity, superannuation, leave encashment Employee stock compensation expense (See Note 4 & 19) Directors sitting fees Welfare expenses Operating and other expenses: Royalty and technical know-how fees Rent Communication Travelling and conveyance Professional charges Power and fuel, net of recoveries of Rs. 3,960,000 (March 31, 2003 Rs. 5,580,924) Insurance Rates, taxes and fees Lab consumables Repairs and maintenance Plant and machinery Buildings Others Selling expenses Freight outwards and clearing charges Sales promotion Commission Bad debts written off Provision for bad and doubtful debts Loss on disposal of asset, net Printing and stationery Miscellaneous expenses 1,880,655,075 3,973,149 192,190,315 7,854,237 18,850,161 11,520,137 21,000 17,116,546 247,552,396 1,958,627 12,039,235 27,055,215 19,485,440 121,557,143 12,472,804 7,518,140 18,504,745 41,078,550 13,479,696 18,157,811 18,280,419 16,489,248 19,913,656 197,085 5,390,875 368,674 5,886,542 24,328,526 384,162,431 1,291,347,931 11,266,792 206,474,301 8,613,456 36,994,775 33,863,779 24,000 20,988,810 306,959,121 38,458,273 2,610,264 12,762,000 33,241,628 14,364,140 128,007,141 8,564,661 3,090,781 10,869,176 40,192,458 9,185,990 16,381,765 14,850,093 16,894,662 17,917,825 4,609,125 7,491,507 21,794,347 401,285,836

196

Biocon
(Increase)/decrease in inventories of finished goods and work-in-progress: Opening inventories: Finished goods 12,093,749 Work-in-progress 198,608,203 210,701,952 Closing inventories: Finished goods 10,715,752 Work-in-progress 188,931,141 199,646,893 11,055,059 2,527,398,110 9,293,945 100,206,121 109,500,066 12,093,749 198,608,203 210,701,952 (101,201,886) 1,909,657,794

17. Research and development expenses Research and development expenses aggregating Rs. 126,715,434 (March 31, 2003 Rs. 114,241,332) including Rs. 42,721,705 (March 31, 2003 Rs. 34,282,059) on capital account have been incurred by the Company which have been disclosed under the appropriate account heads.
April 1, 2003 to December 31, 2003 April 1, 2002 to March 31, 2003

18. Interest and finance charges

Interest paid on : Term loans Others 11,668,160 5,742,004 17,410,164 Less : Interest received from suppliers Less : Interest Capitalised [See Note 2 (j) & 8(c)] Bank charges (6,028,545) (5,996,000) 5,385,619 6,700,724 12,086,343 26,701,866 19,044,187 45,746,053 (1,577,085) (1,664,479) 42,504,489 6,415,278 48,919,767

19. Employee stock compensation On September 27, 2001, the Board of Directors approved the Biocon Employee Stock Option Plan (ESOP Plan 2000) for the grant of stock options to the employees of the Company. A compensation committee has been constituted to administer the plan through the ESOP Trust. The Trust purchases equity shares of Biocon using the proceeds from the loan obtained from Biocon and will subscribe to such number of shares as is necessary for transferring to the employees. The total number of equity shares transferred to the Trust shall not exceed 250,000 equity shares (pre-bonus and pre-split) of Rs. 10 each and shares transferred to each employee will not exceed 10,000 equity shares (pre-bonus and pre-split) of Rs. 10 each. The Compensation Committee shall determine the exercise price which will not be less than the face value of the shares. The Compensation Committee has granted 71,510 options under the ESOP Plan 2000 to be exercised at a grant price of Rs. 10 (pre-bonus and pre-split). The options will vest with the employees equally over a four year period from the grant date. In case the employee resigns from employment, the rights relating to shares, which are eligible for exercise, may be purchased by payment of the exercise price whereas, the balance shares shall be forfeited in favour of the ESOP Trust.

197

Biocon
The Trust had 6,181,186 equity shares of Rs. 5 each (March 31, 2003 140,900 equity shares of Rs. 10 each) as at December 31, 2003 and a summary of the activity of the Trust is as follows:
Particulars April 1, 2003 to December 31, 2003 (Equity shares of Rs. 5 each post subdivision and bonus issue) 3,398,402 122,438 125,500 3,646,340 841,914 2,534,846 62,688,574 Year ended March 31, 2003 (Equity shares of Rs. 10 each) 125,030 15,870 (71,510) 69,390 17,878 53,632 65,291,222

Opening balance of equity shares not granted to employees and available with the Trust Add: Acquired by the Trust Less: Options granted during the period/year Add: Options cancelled and lapsed Closing balance of shares not granted to employees and available with the Trust Options granted and exercised at period/year end Options granted and eligible for exercise at period/year end Options granted but not eligible for exercise at period/year end Total employee stock compensation cost as at period/year end Vesting period of options Primarily progressively over four years

Employee stock compensation expense Amortised during the period/year 11,520,137 33,863,779

The estimated fair values of the equity shares have been determined by management on the date of the grant (April 1, 2002), based on a valuation by an independent appraiser. 20. Current taxes The tax charge of Rs. 201,640,234 (March 31, 2003 Rs. 75,806,254) is based on the earnings for the nine-month period ended December 31, 2003.

198

Biocon
21. Related party transactions
Sl. No. Name of the related party Relationship Description April 1, 2003 to December 31, 2003 Balance as at December 31, 2003 (Payable)/ receivable (240,000) (333,161) April 1, 2002 to March 31, 2003 Balance as at March 31, 2003 (Payable)/ receivable 9,600,000 (970,443) (686,836) -

Kiran Mazumdar Shaw

Managing Director

Rent expense Lease deposit paid/ (received) Salary and perquisites Land purchased Salary and perquisites Interest income on current account transactions Current account: Due to Syngene Due from Syngene Purchase of fixed assets Rent income Rent deposit received Power charges received Communication expenses paid Power charges Rent income Interest income on current account transactions Current account: Due from Clinigene Interest income on current account transactions Current account: Due from BBPL Administration of the ESOP plan Loan to the Trust/(repaid)

720,000 (9,600,000) 8,833,498 26,749,888 8,351,031 -

960,000 10,186,766 9,216,800 406,412

2 3

JMM Shaw Syngene International Private Limited

Director Subsidiary company

3,156,459 855,000 3,600,000 360,000 180,000 -

(600,000) -

425,000 19,057,487 1,547,751 1,140,000 5,100,924 1,000,000 480,000 350,502

(600,000) 276,896

Clinigene International Private Limited

Subsidiary company

23,099,920 103,905

32,616,803 -

9,869,346 -

9,516,883 -

Biocon Biopharmaceuticals [Joint venture company, from April 18, 2003]

Joint venture company

4,144,339

4,248,244

Biocon India Limited Employee Welfare Trust

ESOP Trust

(155,000)

1,258,700

158,700

1,413,700

(a)

Apart from the related party transactions disclosed above, the Company renders administrative and management assistance to its subsidiaries Syngene and Clinigene and joint venture BBPL, in respect of which no charges have been made by the Company. Also, during the period/ year, certain employees of the Clinigene have provided assistance to the Company in some of their projects in respect of which no charges have been levied to Biocon. The total compensation cost as at the end of the period/year include Rs. 14,238,414 (March 31, 2003 Rs. 14,420,259) incurred towards employee compensation cost for options granted to employees of Syngene. The corresponding compensation cost amortised during the nine months/year is Rs. 2,892,178 (March 31, 2003 Rs. 7,415,841). The Company has not charged this amortisation to Syngene. The Company has given corporate guarantees of Rs. 80,000,000 (March 31, 2003 Rs. 80,000,000) to the Customs and Excise department (CED) on behalf of Syngene and Syngene has furnished a corporate guarantee of Rs. 165,000,000 (March 31, 2003 Rs. 15,000,000) on behalf of the Company to the CED.

(b)

(c)

199

Biocon
22. Foreign exchange differences The Company enters into a significant amount of transactions to export products and for the import of raw materials. Foreign exchange gains of Rs. 33,746,089 (March 31, 2003 Rs. 8,681,931) included in the net profit is reflected in the respective account captions in the statement of profit and loss. December 31, 2003 23. Commitments (a) Capital commitments Estimated amount of contracts remaining to be executed on capital account and not provided for, net of advances (b) Operating lease commitments Where the Company is a lessee: (i) Rent The Company had entered into a lease agreement for land. Gross rental expenses for the period ended December 31, 2003 aggregated to Rs. 720,000 (March 31, 2003 Rs. 960,000). However, the Company has on December 23, 2003 acquired the land and there are no committed lease rentals in future towards the lease of such land. (ii) Vehicles The Company has taken vehicles for certain employees under operating leases, which expire in August 2007. Gross rental expenses for the period ended December 31, 2003 aggregated to Rs. 928,999 (March 31, 2003 Rs. 220,060). The committed lease rental in the future are: Not later than one year Later than one year and not later than five years Where the Company is a Lessor: (i) Rent The Company has leased out certain parts of its building on an operating lease, which expire over a period ranging from 2004 to 2011. Gross rental income for the period ended December 31, 2003 aggregated to Rs. 1,035,000 (March 31, 2003 Rs. 1,140,000). There are no uncollectible minimum lease payments at the balance sheet date. Future minimum lease receipts under operating lease is as follows: December 31, 2003 Not later than one year Later than one year and not later than five years Later than five years 24. Contingent liabilities (a) Taxation matters under appeal (b) Corporate guarantee given in favour of the CED in respect of certain performance obligations of Syngene. The Company is informed that the necessary terms and conditions have been complied with and no liability has arisen (c) Claims against the Company not acknowledged as debts 7,630,942 7,630,942 930,000 2,940,000 975,000 March 31, 2003 1,410,000 3,120,000 1,380,000 1,097,805 2,558,695 477,911 1,516,986 869,336,007 257,730,301 March 31, 2003

80,000,000 2,280,000

80,000,000 2,373,750

200

Biocon
25. Segmental Information Business segments The primary reporting of the Company has been performed on the basis of business segment. The Company is organised into two business segments, enzymes and active pharmaceutical ingredients (Pharma). Segments have been identified and reported based on the nature of the products, the risks and returns, the organisation structure and the internal financial reporting systems.
April 1, 2003 to December 31, 2003 Particulars Revenues External sales, net Inter-segment transfers Total revenues Costs Segment costs Inter-segment transfers Result Segment result Corporate expenses Other income Interest income Operating profit Depreciation Interest expense Income taxes - Current and deferred Net profit Other information Segment assets Unallocated corporate assets Total assets Segment liabilities Unallocated corporate liabilities Total liabilities Capital expenditure 19,453,388 12,650,709 201,813,333 115,661,598 977,635,887 828,558,939 512,771,441 2,943,225,538 608,219,509 3,455,996,979 608,219,509 4,064,216,488 1,093,297,486 828,558,939 1,921,856,425 233,917,430 (13,844,723) (47,121,173) (3,553,288) (40,479,010) (8,533,055) (218,094,562) 210,229,093 1,340,584,677 (365,934,340) 12,222,138 399,743 1,550,813,771 (365,934,340) 12,222,138 399,743 1,197,501,311 (101,444,906) (12,086,343) (218,094,562) 865,875,500 483,889,561 31,709,959 515,599,520 (305,370,427) (1,856,093,343) (31,709,959) 31,709,959 (2,161,463,770) 3,228,387,979 3,228,387,979 (31,709,959) (31,709,959) 3,712,277,540 3,712,277,540 Enzyme Pharma Unallocated Eliminations Total

201

Biocon
April 1, 2002 to March 31, 2003 Particulars Revenues External sales Inter-segment transfers Total revenues Costs Segment costs Inter-segment transfers Result Segment result Corporate expenses Other income Interest income Operating profit Depreciation Interest expense Income taxes Current and deferred (118,532,411) (118,532,411) 358,733,568 479,692,430 6,437,726 1,827,844,623 326,722,194 448,517,409 1,155,796,674 2,307,537,053 448,517,409 2,756,054,462 333,159,920 1,155,796,674 1,488,956,594 63,719,838 111,552,245 125,160,034 300,432,117 Net profit Other information Segment assets Unallocated corporate assets Total assets Segment liabilities Unallocated corporate liabilities Total liabilities Capital expenditure (17,971,112) (59,949,046) (15,096,700) (42,250,839) (33,823,067) 231,568,436 817,565,761 (416,392,860) 10,657,681 2,957,725 1,049,134,197 (416,392,860) 10,657,681 2,957,725 646,356,743 (120,170,997) (48,919,767) 532,448,085 55,497,389 587,945,474 (356,377,038) 2,009,951,046 2,009,951,046 (1,136,887,896) (55,497,389) (55,497,389) (55,497,389) 55,497,389 (1,493,264,934) 2,542,399,131 2,542,399,131 Enzyme Pharma Unallocated Eliminations Total

Geographical segments Secondary segmental reporting is performed on the basis of the geographical location of customers. The operations of the Company comprise exports contributing to approximately 56 percent (March 31, 2003 43 per cent). The management views the Indian market and export markets as distinct geographical segments. The following is the distribution of the Companys sale by geographical markets
Revenues, net India Exports Total April 1, 2003 to December 31, 2003 1,629,980,964 2,087,978,292 3,717,959,256 April 1, 2002 to March 31, 2003 1,462,327,001 1,085,264,963 2,547,591,964

202

Biocon
Assets and additions to fixed assets by geographical area - The following is the carrying amount of segment assets and additions to fixed assets by geographical area in which the assets are located :
Carrying amount of segment assets December 31, 2003 March 31, 2003 India Outside India 3,512,994,714 551,221,774 4,064,216,488 2,510,771,545 245,282,917 2,756,054,462

Carrying amount of segment assets outside India represents receivables from export debtors and export benefits recoverable. Segment revenue and result The expenses that are not directly attributable and that cannot be allocated to a business segment on a reasonable basis are shown as unallocated corporate expenses. Inter-segment transfers Segment revenue, segment costs and results include transfers between business segments. Such transfers have been made at cost. The inter-segment transfers have been eliminated on consolidation. Segment assets and liabilities Segment assets include all operating assets used by the business segment and consist principally of fixed assets, investments, receivables and inventories. Segment liabilities comprise of long term debts which can be identified directly against the respect segment assets and liabilities. Assets and liabilities that have not been allocated between segments are shown as part of unallocated corporate assets and liabilities respectively. 26. Prior period comparatives This is the first time that the Company has prepared audited financial statements for nine months, accordingly no comparatives are provided for the prior period. The management believes that it is impracticable to generate the financial results of the preceding period, as the necessary cut-offs were not taken as at December 31, 2002 and for the nine months then ended. However, comparatives for the year ended March 31, 2003 have been provided by the management and have been reclassified, where necessary, to conform to the current period classification.

203

Biocon

SYNGENE INTERNATIONAL PRIVATE LIMITED FINANCIAL STATEMENTS DECEMBER 31, 2003 TOGETHER WITH AUDITORS REPORT

204

Biocon
Auditors Report To the Board of Directors of Syngene International Private Limited 1. We have examined the accompanying Balance Sheet of SYNGENE INTERNATIONAL PRIVATE LIMITED as at December 31, 2003, the Profit and Loss Account and the Cash Flow Statement for the nine-month period then ended annexed thereto, prepared in accordance with accounting principles generally accepted in India. These financial statements are the responsibility of the SYNGENE INTERNATIONAL PRIVATE LIMITEDs management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying financial statements have been prepared by the Company in accordance with the requirements of Accounting Standard (AS) 25, Interim Financial Reporting, issued by the Institute of Chartered Accountants of India. On the basis of the information and explanations given to us, we are of the opinion that these financial statements give a true and fair view in conformity with the accounting principles generally accepted in India: i. ii. in the case of the Balance Sheet, of the state of affairs of SYNGENE INTERNATIONAL PRIVATE LIMITED as at December 31, 2003; in the case of the Profit and Loss account of the results of operations SYNGENE INTERNATIONAL PRIVATE LIMITED for the nine-month period then ended; and

2.

3. 4.

iii. in the case of the Cash Flow Statement, of the cash flows of SYNGENE INTERNATIONAL PRIVATE LIMITED for the nine-month period then ended. For S.R. BATLIBOI & ASSOCIATES Chartered Accountants

per Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

205

Biocon
SYNGENE INTERNATIONAL PRIVATE LIMITED BALANCE SHEET - DECEMBER 31, 2003
(All amounts in Indian Rupees) Notes December 31, 2003 March 31, 2003 (Note 19) SOURCES OF FUNDS SHAREHOLDERS FUNDS Share capital Reserves and surplus 3 4 28,750,000 240,775,366 269,525,366 APPLICATION OF FUNDS FIXED ASSETS Cost Accumulated depreciation Net book value Capital work-in-progress [including capital advances of Rs. 7,952,129 (March 31, 2003 Rs. Nil)] 2(a) & 5 190,632,843 55,388,072 135,244,771 28,820,810 164,065,581 INVESTMENTS CURRENT ASSETS, LOANS AND ADVANCES Inventories Sundry debtors Cash and bank balances Loans and advances LESS: CURRENT LIABILITIES AND PROVISIONS NET CURRENT LIABILITIES 2(e), 2(f), 2(h) & 11 87,411,827 36,596,998 269,525,366 The accompanying notes 1 to 19 form an integral part of this balance sheet. As per our report of even date S.R. BATLIBOI & ASSOCIATES Chartered Accountants For and on behalf of the Board of Directors 62,746,469 19,591,409 161,852,440 2(c) & 7 8 9 10 12,274,865 24,766,688 9,779,332 3,993,944 50,814,829 12,093,433 10,696,798 16,120,180 4,244,649 43,155,060 2(b) & 6 142,056,783 171,076,087 39,641,072 131,435,015 8,833 131,443,848 50,000,001 28,750,000 133,102,440 161,852,440

Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

Kiran Mazumdar Shaw Director Bangalore January 17, 2004

JMM Shaw Director

206

Biocon
SYNGENE INTERNATIONAL PRIVATE LIMITED PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees) Notes INCOME Contract research fees Sale of compounds Interest income [gross of tax deducted at source - Rs. 134,937 (March 31, 2003 Rs. 80,675)] Dividend income 3,229,001 261,787,850 EXPENDITURE Contract research and other operating expenses Interest and finance charges PROFIT BEFORE DEPRECIATION AND TAX Depreciation PROFIT BEFORE TAX Provision for taxation Current Deferred NET PROFIT FOR THE PERIOD/YEAR Balance brought forward from previous year BALANCE, END OF THE PERIOD/YEAR Earnings per share (equity shares, par value Rs. 10 each) Basic and diluted (in Rs.) Weighted average number of shares used in computing earnings per share, basic and diluted The accompanying notes 1 to 19 form an integral part of this account. As per our report of even date S.R. BATLIBOI & ASSOCIATES Chartered Accountants For and on behalf of the Board of Directors 2(i) 37.45 2,875,000 28.52 2,875,000 2(h) & 12 2(h) & 12 2,162,872 107,672,927 87,309,086 194,982,013 8,039,454 (7,840,795) 81,986,920 5,322,166 87,309,086 2(a) & 5 2(e), 2(f), 2(j) & 13 14 135,879,080 325,971 136,205,051 125,582,799 15,747,000 109,835,799 161,948,289 1,292,903 163,241,192 98,556,336 16,370,757 82,185,579 261,797,528 2(d)(i) & 2(g) 2(d)(ii) & 2(g) 213,749,063 44,224,152 585,634 225,153,306 36,093,555 550,667 April 1, 2003 to December 31, 2003 April 1, 2002 to March 31, 2003 (Note 19)

Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

Kiran Mazumdar Shaw Director Bangalore January 17, 2004

JMM Shaw Director

207

Biocon
SYNGENE INTERNATIONAL PRIVATE LIMITED STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED DECEMBER 31, 2003 (All amounts in Indian Rupees)
April 1, 2003 to December 31, 2003 I CASH FLOWS FROM OPERATING ACTIVITIES : Net profit before tax Adjustments for Less: Non cash item/items required to be disclosed separately: Depreciation Interest and finance charges Interest income (gross) Gain on sale of investment Dividend income Changes in working capital and other provisions Inventories Sundry debtors Loans and advances Current liabilities and provisions Cash generated from operations Tax paid Current taxes Net cash provided by operating activities II CASH FLOWS FROM INVESTING ACTIVITIES : Fixed assets Purchase Sale Dividend received Interest received Purchase of investments Sale of investments Net cash (used) for investing activities CASH FLOWS FROM FINANCING ACTIVITIES : Repayments of secured loans Interest paid Corporate tax on dividend Net cash (used) for financing activities NET CHANGE IN CASH AND CASH EQUIVALENTS ( I+II+III) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD/YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD/YEAR (IV + V) April 1, 2002 to March 31, 2003 (Note 19) 109,835,799 82,185,579

15,747,000 325,971 (585,634) (9,654) (3,229,001) 12,248,682 (181,432) (14,069,890) (31,458) 25,472,723 11,189,943 133,274,424 (656,240) 132,618,184

16,370,757 1,292,903 (550,667) 17,112,993 (3,972,226) 4,936,064 996,440 15,299,187 17,259,465 116,558,037 (4,113,596) 112,444,441

(50,682,731) 3,229,001 867,797 (261,387,740) 169,340,612 (138,633,061) (325,971) (325,971) (6,340,848) 16,120,180 9,779,332 For and on behalf of the Board of Directors Kiran Mazumdar Shaw Director Bangalore January 17, 2004

(59,799,494) 1,547,752 550,667 (50,000,000) (107,701,075) (2,800,500) (1,292,903) (2,199,313) (6,292,716) (1,549,350) 17,669,530 16,120,180

III

IV V VI

S.R. BATLIBOI & ASSOCIATES Chartered Accountants Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

JMM Shaw Director

208

Biocon
SYNGENE INTERNATIONAL PRIVATE LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees)

1.

Background Syngene International Private Limited (Syngene or the Company) was promoted by Ms Kiran Mazumdar Shaw, a promoter of Biocon Limited (formerly Biocon India Limited) (Biocon), and was incorporated at Bangalore in 1993. At March 30, 2002, 99.9 per cent of the equity shares of the Company were transferred to Biocon and, resultantly, the Company became the subsidiary of Biocon. The Company was formed with an objective of providing contract research services to overseas customers in the field of synthetic chemistry and molecular biology. The Company sells products arising from research activities carried out on behalf of its customers. During the previous year ended March 31, 2003, the Company had expanded its operations by doubling its capacity for undertaking the contract research activities through commercializing its second 100 per cent Export Oriented Unit (approved by Cochin Export Processing Zone) at Bommasandra, Bangalore, Karnataka.

2.

Summary of significant accounting policies The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and to comply in all material respects with the mandatory accounting standards issued by The Institute of Chartered Accountants of India. Further, the financial statements are presented in the general format specified in Schedule VI to the Companies Act, 1956 (the Act). However, as these financial statements are not statutory financial statements, full compliance with the above Act is not required and so they do not reflect all the disclosure requirements of the Act. The significant accounting policies are as follows: a. Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation. The Company capitalises all costs relating to the acquisition and installation of fixed assets. Fixed assets are depreciated pro rata to the period of use, on the straight line method at the annual rates based on the estimated useful lives. Per cent Buildings Plant and machinery Furniture and fixtures Vehicles 4.00 11.11 - 33.33 16.67 16.67

Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase. b. Investments Investments that are readily realisable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long term investments. Current investments are carried at lower of cost and fair value and determined on an individual investment basis. Long term investments are carried at cost. However, provision for diminution in value is made to recognise a decline other than temporary in the value of the investments. c. Inventories Inventories comprise chemicals and reagents, and are valued at the lower of cost and net realisable value, on a first in first out basis.

209

Biocon
d. Revenue recognition (i) Contract research fee Contract research fees are recognized as services are rendered, in accordance with the terms of the contracts. (ii) Sale of compounds Sales are recognised on dispatch of goods to customers, and comprise amounts invoiced for goods sold. e. Retirement benefits The Company has schemes of retirement benefits for gratuity and superannuation, in respect of which, the Companys contributions are charged to the profit and loss account. The gratuity and superannuation fund benefits of the Company are administered by a trust formed for this purpose through the group gratuity and superannuation scheme with Birla Sun Life Insurance Company Limited (Birla Sunlife). In respect of gratuity, the Company has accrued for the liability based on an independent actuarial valuation at the period-end. In respect of superannuation, the Company has accrued for the liability based on the schemes of the Company. f. Leave encashment Liability for leave encashment is in accordance with the rules of the Company and is provided on the basis of an actuarial valuation performed by an independent actuary. Upto March 31, 2003, the Company provided for leave encashment on a full liability basis. The impact on net profit before taxes as a result of this change is not material. g. Foreign currency transactions Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing on the date of the balance sheet. Where the Company has entered into foreign exchange contracts, the difference between the forward rates and the spot rates at the date of the transaction is recognised in the profit and loss account over the life of the contract. All exchange differences are dealt with in the profit and loss account, except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets. h. Income tax Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the current tax rates based on assessable income. The Company provides for deferred tax based on the tax effect of timing differences resulting from the recognition of items in the financial statements and in estimating its current tax provision. Deferred tax assets are recognised and carried forward only to the extent that there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. The effect on deferred taxes of a change in tax rates is recognised in income in the period in which the change is substantially enacted. The provision for current tax is based on the earnings for the period from April 1, 2003 to December 31, 2003 and the actual tax liability of the Company will be determined on the basis of the earnings for the period from April 1, 2003 to March 31, 2004. i. Earnings per share The earnings considered in ascertaining the Companys earnings per share comprise of the net profit after tax. The number of shares used in computing the basic earnings per share is the weighted average number of shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average share considered for deriving basic earnings per share, and also the weighted average number of shares, which would have been issued on the conversion of dilutive potential equity shares, if any. j. Operating lease Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognized as an expense on a straight-line basis over the lease term.

210

Biocon
3. Share capital
December 31, 2003 Authorised: 3,500,000 (March 31, 2003 3,500,000) equity shares of Rs. 10 each Issued, subscribed and paid up: 2,875,000 (March 31, 2003 2,875,000) equity shares of Rs. 10 each fully paid 28,750,000 28,750,000 35,000,000 35,000,000 March 31, 2003

Of the above, 2,874,830 (March 31, 2003 2,874,830) equity shares are held by Biocon Limited.

4.

Reserves and surplus

General reserve Share premium account Balance in Profit and loss account 45,600,304 193,050 194,982,013 240,775,366 45,600,304 193,050 87,309,086 133,102,440

5.

Fixed assets
Balance, beginning of the period Cost Buildings Plant and machinery Furniture and fixtures Vehicles 16,556,851 144,092,518 8,673,954 1,752,764 171,076,087 Accumulated depreciation Buildings Plant and machinery Furniture and fixtures Vehicles 2,026,650 33,889,385 2,995,120 729,917 39,641,072 Net book value Buildings Plant and machinery Furniture and fixtures Vehicles 14,530,201 110,203,133 5,678,834 1,022,847 131,435,015 14,667,367 114,879,861 4,894,191 803,352 135,244,771 514,830 13,902,668 1,110,007 219,495 15,747,000 2,541,480 47,792,053 4,105,127 949,412 55,388,072 651,996 18,579,396 325,364 19,556,756 17,208,847 162,671,914 8,999,318 1,752,764 190,632,843 Additions/ charge Balance, end of the period

Note: The Company has capitalised foreign exchange losses of Rs. 71,282 (March 31, 2003 Rs. 370,476) during the period/year.

211

Biocon
6. Investments
December 31, 2003 Long term and non-trade Unquoted: 1,000 equity shares (March 31, 2003 1,000 equity shares) of Rs. 100 each of Xcyton Diagnostics Limited, fully paid Less: Provision for other than temporary dimunition in value Current and unquoted (at lower of cost and fair market value) Nil units (March 31, 2003 5,000,000) of Rs. 10 each in IL&FS Fixed Maturity Plan [Market Value Rs. Nil (March 31, 2003 Rs. 50,086,986 ) 1,462,790.522 units (March 31, 2003 Nil) of Rs. 10 each in Reliance Mutual Fund [Market Value Rs. 15,105,507 (March 31, 2003 Rs. Nil)] 4,000,000 units (March 31, 2003 Nil) of Rs. 10 each in Reliance Fixed Term Scheme [Market Value Rs. 40,115,600 (March 31, 2003 Rs. Nil)] 1,882,074.25 units (March 31, 2003 Nil) of Rs. 10 each in LIC Mutual Fund [Market Value Rs. 20,241,143.94 (March 31, 2003 Rs. Nil)] 3,534,209.399 units (March 31, 2003 Nil) of Rs. 10 each in JM Mutual Fund [Market Value Rs. 34,420,200.02 (March 31, 2003 Rs. Nil)] 1,358,550.091 units (March 31, 2003 Nil) of Rs. 10 each in TATA Mutual Fund [Market Value Rs. 15,106,938 (March 31, 2003 Rs. Nil)] 1,591,345.174 units (March 31, 2003 Nil) of Rs. 10 each in HSBC Mutual Fund [Market Value Rs. 16,212,624.63 (March 31, 2003 Rs. Nil)] 100,000 99,999 1 100,000 99,999 1 March 31, 2003

15,105,507 40,000,000 20,216,700 35,417,505 15,106,938 16,210,132 142,056,782

50,000,000 50,000,000 50,000,001 Sale

Aggregate amount of unquoted investments The following investments were purchased and sold during the period from April 1, 2003 to December 31, 2003: 7,409,340 units of Rs. 10 each in HSBC - Cash Fund 2,000,000 units of Rs. 10 each in Reliance Mutual Fund Purchase of 8,142.207 units of Rs. 1,244.429 each in Franklin Templeton Investment Fund (Sale of 8,142.207 units of Rs. 1,244.3650 each ) Purchase of 1,402,953.749 units of Rs. 10.7667 each in ING Vysya Mutual Fund (Sale of 1,402,953.749 units of Rs. 10.7740 each in ING Vysya Mutual Fund)

142,056,783 Purchase

74,093,400 20,000,000

74,093,312 20,000,000

10,132,395 15,105,163

10,131,877 15,115,423

7.

Inventories
December 31, 2003 Chemicals and reagents 12,274,865 March 31, 2003 12,093,433

8.

Sundry debtors (unsecured and considered good)

Debts outstanding for a period exceeding six-months Other debts 24,766,688 24,766,688 996,103 9,700,695 10,696,798

212

Biocon
9. Cash and bank balances
December 31, 2003 Cash on hand Balances with scheduled banks in: Cash credit account Current account Deposit account 19,077 9,740,585 9,779,332 12,706 1,100,483 15,000,000 16,120,180 19,670 March 31, 2003 6,991

Deposit account includes a deposit made of Rs. 10,000,000 (March 31, 2003 Rs. 10,000,000) under the flexi-deposit account allowing the Company to avail overdraft facility upto Rs. 10,000,000 (March 31, 2003 Rs. 10,000,000) at an interest rate of 2 per cent above fixed deposit rate. The Company has drawn Rs. 2,259,415 (March 31, 2003 Rs. Nil) against this facility as at December 31, 2003.

10. Loans and advances (unsecured and considered good)

Advances recoverable in cash or in kind or for value to be received Deposits 3,302,444 691,500 3,993,944 3,553,149 691,500 4,244,649

11. Current liabilities and provisions

Current liabilities: Sundry creditors Advances from customers Other liabilities 36,351,461 17,192,339 20,391,231 73,935,031 Provisions: For leave encashment For retirement benefits Taxation, net of advance tax 4,743,174 4,192,636 4,540,986 13,476,796 87,411,827 3,918,174 3,034,354 6,952,528 62,746,469 18,866,371 18,005,084 18,922,486 55,793,941

12. Taxation (a) Current tax The Company claims exemption under section 10B of the Act for a period of ten years from the date of set-up/approval by Cochin Export Processing Zone of its 100 per cent Export Oriented Units. (b) Deferred tax The Company, constituting two 100 per cent Export Oriented Units (approved by the Cochin Export Processing Zone on December 14, 1998 and the Cochin Special Economic Zone on August 24, 2001), claims exemption under section 10B of the Income-Tax Act, 1961 (the Act). On February 24, 2003, the Company obtained an approval from the Department of Scientific and Industrial Research for exemption of profits under section 80-IB (8A) of the Act. Based on the above, the Company, has not recognised any deferred tax liability/asset on account of timing differences as the Company expects it to reverse during the tax holiday/ tax deduction period.

213

Biocon
13. Contract research and other operating costs
April 1, 2003 to December 31, 2003 Research material costs Chemicals and reagents consumed Employee costs Salaries, wages, bonus and incentives Contribution to provident fund Gratuity, superannuation and leave encashment Welfare expenses Directors sitting fees Selling, general and administrative expenses Rent Communication [net of receipt of Rs. Nil (March 31, 2003 Rs. 1,000,000) from Biocon] Travelling and conveyance Professional charges Power Insurance Rates, taxes and fees Repairs and maintenance Plant and machinery Buildings Others Selling expenses Freight outwards and clearing charges Sales promotion Printing and stationery Miscellaneous expenses 1,035,252 135,447 542,248 387,378 135,879,080 974,005 223,339 600,542 995,977 161,948,289 2,396,798 303,939 2,413,854 3,265,479 823,081 2,661,190 855,000 665,303 3,480,097 464,150 3,600,000 303,446 74,019 900,000 1,153,798 4,793,181 842,567 5,100,924 253,609 42,067 57,044,739 2,399,169 5,017,636 2,084,068 18,000 59,803,612 2,567,735 7,562,397 1,846,212 24,000 52,658,537 67,514,574 April 1, 2002 to March 31, 2003

14. Interest and finance charges

Interest expense Bank charges 93,629 232,342 325,971 651,914 640,989 1,292,903

214

Biocon
15. Related party transactions
Sl No Name of the related party Biocon Limited (formerly Biocon India Limited) Relationship Description April 1, 2003 to December 31, 2003 Balance as at December 31, 2003 April 1, 2002 Balance as at to March 31, March 31, 2003 2003

(a)

Holding Company

Interest expense on current account transactions Current account: Due from Biocon Due to Biocon Rent expense Rent deposit paid Power charges paid Communication received expense

406,412

3,156,459 855,000 3,600,000 -

600,000 -

425,000 19,057,487 1,140,000 5,100,924 1,000,000 1,547,751 240,000

600,000 -

Sale of fixed assets (b) (c) Clinigene International Private Limited Associate company Rent income

Apart from the transactions specified above: (i) The Company receives assistance from its holding company, Biocon in the areas of senior management services in respect of which no charges have been made by Biocon.

(ii) Biocon has given corporate guarantees of Rs. 80,000,000 (March 31, 2003 Rs. 80,000,000) to the Customs and Excise department (CED) on behalf of the Company and the Company has furnished a corporate guarantee of Rs. 165,000,000 (March 31, 2003 Rs. 15,000,000) on behalf of Biocon to the CED. (iii) Biocon has given stock options in Biocon to certain employees of the Company in respect of which no charges have been made by Biocon. The corresponding compensation cost amortised during the nine months is Rs. 2,892,178 (March 31, 2003 Rs. 7,415,841), which is recorded in the books of Biocon.

16. Commitments
December 31, 2003 (a) Capital commitments Estimated amount of contracts remaining to be executed on capital account and not provided for, net of advances Operating lease commitments March 31, 2003

13,125,310

1,186,065

(b)

The Company has entered into a lease agreement which expires over a period ranging from 2004 to 2011. Gross rental expenses for the period ended December 31, 2003 aggregated to Rs. 855,000 (March 31, 2003 Rs. 1,140,000). The committed lease rental in the future are: December 31, 2003 Not later than one year Later than one year and not later than five years Later than five years 840,000 2,160,000 825,000 March 31, 2003 1,140,000 2,160,000 1,380,000

215

Biocon
17. Foreign exchange differences The Company enters into a significant amount of transactions to provide contract research services and for the import of inventory. Foreign exchange gains/(losses) of Rs. 1,648,585 [March 31, 2003 Rs. (383,605)] included in the net profit is reflected in the respective account captions in the statement of profit and loss. 18. Contingent liabilities The Company has given two corporate guarantees in favour of the CED in respect of certain performance obligations of Biocon aggregating to Rs. 165,000,000 (March 31, 2003 Rs. 15,000,000). The Company is informed that the necessary terms and conditions have been complied with and no liability has arisen till date (See Note 15). 19. Prior period comparatives This is the first time that the Company has prepared audited financial statements for nine months, accordingly no comparatives are provided for prior period. The management believes that it is impracticable to generate the financial results of the preceding period, as the necessary cut-offs were not taken as at December 31, 2002 and for the nine months then ended. However, comparatives for the year ended March 31, 2003 have been provided by the management and have been reclassified, where necessary, to conform to the current period classification.

216

Biocon

CLINIGENE INTERNATIONAL PRIVATE LIMITED FINANCIAL STATEMENTS - DECEMBER 31, 2003 TOGETHER WITH AUDITORS REPORT

217

Biocon
Auditors Report To the Board of Directors of Clinigene International Private Limited

1.

We have examined the accompanying Balance Sheet of CLINIGENE INTERNATIONAL PRIVATE LIMITED as at December 31, 2003, the Profit and Loss Account and the Cash Flow Statement for the nine-month period then ended annexed thereto, prepared in accordance with accounting principles generally accepted in India. These financial statements are the responsibility of the CLINIGENE INTERNATIONAL PRIVATE LIMITEDs management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying financial statements have been prepared by the Company in accordance with the requirements of Accounting Standard (AS) 25, Interim Financial Reporting, issued by the Institute of Chartered Accountants of India. On the basis of the information and explanations given to us, we are of the opinion that these financial statements give a true and fair view in conformity with the accounting principles generally accepted in India: i ii iii in the case of the Balance Sheet, of the state of affairs of CLINIGENE INTERNATIONAL PRIVATE LIMITED as at December 31, 2003; in the case of the Profit and Loss account of the results of operations CLINIGENE INTERNATIONAL PRIVATE LIMITED for the nine-month period then ended; and in the case of the Cash Flow Statement, of the cash flows of CLINIGENE INTERNATIONAL PRIVATE LIMITED for the nine-month period then ended.

2.

3. 4.

For S.R. BATLIBOI & ASSOCIATES Chartered Accountants per Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

218

Biocon
CLINIGENE INTERNATIONAL PRIVATE LIMITED BALANCE SHEET DECEMBER 31, 2003
(All amounts in Indian Rupees) Notes December 31, 2003 March 31, 2003 (Note 14) SOURCES OF FUNDS SHAREHOLDERS FUNDS Share capital Reserves and surplus 3 (a) 3 (b) 500,000 1,003,244 1,503,244 APPLICATION OF FUNDS FIXED ASSETS Cost Less: Accumulated depreciation Net book value Capital work-in-progress [including capital advance of Rs 760,950 (March 31, 2003 Rs Nil)] 8,812,657 17,594,282 CURRENT ASSETS, LOANS AND ADVANCES Sundry debtors Cash and bank balances Loans and advances 5 6 7 1,543,090 9,094 1,771,089 3,323,273 LESS: CURRENT LIABILITIES AND PROVISIONS NET CURRENT LIABILITIES PROFIT AND LOSS ACCOUNT 2(d), 2(e) & 8 42,290,107 38,966,834 22,875,796 1,503,244 17,443,907 10,156,744 3,864,685 1,503,244 5,138,679 858 2,147,626 7,287,163 7,795,303 2(a) & 4 11,779,499 2,997,874 8,781,625 9,639,578 1,844,275 7,795,303 500,000 1,003,244 1,503,244

The accompanying notes 1 to 14 form an integral part of this balance sheet.

As per our report of even date S.R. BATLIBOI & ASSOCIATES Chartered Accountants For and on behalf of the Board of Directors

Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

Kiran Mazumdar Shaw Director Bangalore January 17, 2004

JMM Shaw Director

219

Biocon
CLINIGENE INTERNATIONAL PRIVATE LIMITED PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees) Notes April 1, 2003 to December 31, 2003 April 1, 2002 to March 31, 2003 (Note 14) INCOME Contract research fees Other income EXPENDITURE Contract research and other operating expenses Interest and finance charges 2(d), 2(e), 2(f), 2(i) & 9 10 19,269,856 20,565 19,290,421 LOSS BEFORE DEPRECIATION AND TAXATION Depreciation LOSS FOR THE PERIOD/YEAR Provision for taxation Current Deferred LOSS AFTER TAXES Balance brought forward from previous year BALANCE, END OF THE PERIOD/YEAR Loss per share (equity shares, par value Rs. 10 each) Basic and diluted (in Rs.) Weighted average number of shares used in computing earnings per share, basic and diluted 2(h) 380.22 50,000 111.32 50,000 2(g) 2(g) 19,011,111 3,864,685 22,875,796 487,010 5,565,919 (1,701,234) 3,864,685 2(a) & 4 17,857,512 1,153,599 19,011,111 15,880,701 355,460 16,236,161 5,163,457 889,472 6,052,929 2(c) 1,427,180 5,729 1,432,909 11,072,704 11,072,704

The accompanying notes 1 to 14 form an integral part of this account. As per our report of even date S.R. BATLIBOI & ASSOCIATES Chartered Accountants Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004 For and on behalf of the Board of Directors Kiran Mazumdar Shaw Director Bangalore January 17, 2004 JMM Shaw Director

220

Biocon
CLINIGENE INTERNATIONAL PRIVATE LIMITED STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees) April 1, 2003 to December 31, 2003 I CASH FLOWS FROM OPERATING ACTIVITIES : Loss before tax Adjustments for Less: Non cash item/items required to be disclosed separately : Depreciation Interest and finance charges Other income (Increase)/decrease in working capital and other provisions: Inventories Sundry debtors Loans and advances Current liabilities and provisions 19,011,111 6,052,929 April 1, 2002 to March 31, 2003 (Note 14)

1,153,599 20,565 (5,729) 1,168,435 3,595,589 376,537 1,835,284 5,807,410 6,975,845

889,472 355,460 1,244,932 687,155 3,155,749 (2,103,593) (2,900,615) (1,161,304) 83,628 (5,969,301) (2,051,557) (8,020,858)

Cash (used) in operations Taxes paid Net cash used in operations II CASH FLOWS FROM INVESTING ACTIVITIES : Purchase of fixed assets Net cash used in investing activities III CASH FLOWS FROM FINANCING ACTIVITIES : Receipt of Inter-corporate loans, net Interest paid Coporate dividend tax Net cash provided by financing activities IV V VI NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (I+II+III) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD/YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD/YEAR (IV + V)

(12,035,266) (6,483) (12,041,749)

(10,752,474) (10,752,474)

(909,330) (909,330)

22,823,024 (20,565) 22,802,459 8,236 858 9,094

9,793,779 (355,460) (510,000) 8,928,319 (1,869) 2,727 858

S.R. BATLIBOI & ASSOCIATES Chartered Accountants Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

For and on behalf of the Board of Directors Kiran Mazumdar Shaw Director Bangalore January 17, 2004 JMM Shaw Director

221

Biocon
CLINIGENE INTERNATIONAL PRIVATE LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees)

1.

Background Clinigene International Private Limited (Clinigene or the Company) was incorporated on August 4, 2000 and became a subsidiary of Biocon Limited (formerly Biocon India Limited) (Biocon), on March 31, 2001. Prior to the acquisition of the controlling interest, the entire share capital of the Company was held by Ms Kiran Mazumdar Shaw and Mr JMM Shaw, the promoters of Biocon. The Company was formed to undertake clinical research activities on discovering new biomarkers and is extending its activity to discovering new diseases subsets and novel data based on pharmacogenomics. The Company has entered into contracts with domestic and international companies to undertake these activities with respect to chronic diseases such as diabetes, osteoporosis, asthma etc, and commenced commercial operations effective December 2000. The Company has incurred a loss of Rs. 19,011,111 (accumulated losses of Rs. 22,875,796) for the nine-month period ended December 31, 2003 resulting in a negative net worth of Rs. 21,372,552 and a working capital deficiency of Rs. 38,966,834 at December 31, 2003. The Company is making aggressive marketing efforts to sell clinical research and is in an advanced stage of setting up a human pharmacology unit in association with a leading hospital in India to expand its clinical research activities, has hired certain employees in this connection and is confident of generating profits in its immediate future. Further, the Company is engaged in research activities, the benefit of which is anticipated to be received after a period of two to three years. Biocon, the holding company, has committed to fund capital and operating expenditure requirements of the Company until the Company achieves its planned growth and is able to fund its own operations.

2.

Summary of significant accounting policies The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and to comply in all material respects with the mandatory accounting standards issued by The Institute of Chartered Accountants of India. Further, the financial statements are presented in the general format specified in Schedule VI to the Companies Act, 1956 (the Act). However, as these financial statements are not statutory financial statements, full compliance with the above Act is not required and so they do not reflect all the disclosure requirements of the Act. The significant accounting policies are as follows: a. Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation. The Company capitalises all costs relating to the acquisition and installation of fixed assets. Fixed assets are depreciated pro rata to the period of use, on the straight line method at the annual rates based on the estimated useful lives. Per cent Plant and machinery Air conditioners Furniture and fixtures Computers b. Inventories Inventories comprise of research material, and are valued at the lower of cost and net realisable value. 9.09 16.67 16.67 33.33

Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase.

222

Biocon
c. Revenue Recognition The Company enters into two types of contract research arrangements and the revenues therefrom are recognised on the following basis: (i) Time and material management Revenues are recognised as services are rendered, in accordance with contractual agreements. (ii) Fixed price arrangements Revenues relating to fixed price contracts are recognised based on the percentage of completion method. d. Retirement benefits The Company has schemes of retirement benefits for gratuity and superannuation, in respect of which, the Companys contributions are charged to the profit and loss account. The gratuity and superannuation fund benefits of the Company are administered by a trust formed for this purpose through the group gratuity and superannuation scheme with Birla Sun Life Insurance Company Limited (Birla Sunlife). In respect of gratuity, the Company has accrued for the liability based on an independent actuarial valuation at the period-end. In respect of superannuation, the Company has accrued for the liability based on the schemes of the Company. e. Leave encashment Liability for leave encashment is in accordance with the rules of the Company and is provided on the basis of an actuarial valuation performed by an independent actuary. Upto March 31, 2003, the Company provided for leave encashment on a full liability basis. The impact on the net loss as a result this of change is not material. f. Foreign currency transactions Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing on the date of the balance sheet. Where the Company has entered into foreign exchange contracts, the difference between the forward rates and the spot rates at the date of the transaction is recognised in the profit and loss account over the life of the contract. All exchange differences are dealt with in the profit and loss account, except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets. g. Income tax Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the current tax rates based on assessable income. The Company provides for deferred tax based on the tax effect of timing differences resulting from the recognition of items in the financial statements and in estimating its current tax provision. Deferred tax assets resulting from tax losses carried forward are recognised and carried forward only to the extent that there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. The effect on deferred taxes of a change in tax rates is recognised in income in the period in which the change is substantially enacted. h. Loss per share Loss considered in ascertaining the Companys loss per share comprise of the net loss after tax. The number of shares used in computing the basic earnings per share is the weighted average number of shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average share considered for deriving basic earnings per share, and also the weighted average number of shares, if any which would have been issued on the conversion of dilutive potential equity shares, if any. i. Operating lease Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term.
223

Biocon
3(a) Share capital
December 31, 2003 Authorised: 500,000 (March 31, 2003 500,000) equity shares of Rs. 10 each Issued, subscribed and paid-up: 50,000 (March 31, 2003 50,000) equity shares of Rs. 10 each, fully paid 500,000 500,000 At December 31, 2003, the entire share capital of the Company was held by Biocon, the holding Company and its nominee. 5,000,000 5,000,000 March 31, 2003

3(b) Reserves and surplus

General reserve 1,003,244 1,003,244

4.

Fixed assets
Balance, beginning of the period Cost Plant and machinery Air conditioners Furniture and fixtures Computers 8,088,871 231,570 806,317 512,820 9,639,578 Accumulated depreciation Plant and machinery Air conditioners Furniture and fixtures Computers 1,440,327 17,330 55,876 330,742 1,844,275 Net book value Plant and machinery Air conditioners Furniture and fixtures Computers 6,648,544 214,240 750,441 182,078 7,795,303 6,343,786 238,137 865,852 1,333,850 8,781,625 732,741 34,283 109,907 276,668 1,153,599 2,173,068 51,613 165,783 607,410 2,997,874 427,983 58,180 225,318 1,428,440 2,139,921 8,516,854 289,750 1,031,635 1,941,260 11,779,499 Additions / charge Balance, end of the period

The Company has capitalised foreign exchange losses of Rs. Nil (March 31, 2003 Rs. 6,316) during the period/year and foreign exchange losses included in Capital work-in-progress amount to Rs. 19,444 (March 31, 2003 Rs. Nil).

5.

Sundry debtors (unsecured, considered good)

December 31, 2003 Outstanding for more than six months Others 1,044,240 498,850 1,543,090 March 31, 2003 4,883,119 255,560 5,138,679

6.

Cash and bank balances

Cash on hand 9,094 858

224

Biocon
7. Loans and advances (unsecured, considered good)
December 31, 2003 Advances recoverable in cash or in kind or for value to be received Prepaid expenses Deposits 771,849 999,240 1,771,089 March 31, 2003 174,302 901,267 1,072,057 2,147,626

8.

Current liabilities and provisions

Current liabilities Sundry creditors Balance due to Biocon Balance in current account with bank represents book overdraft Other liabilities Provisions For leave encashment For retirement benefits Taxation, net of advance tax 2,601,153 32,616,803 2,345,623 1,874,714 39,438,293 141,687 435,919 2,274,208 2,851,814 2,601,798 9,793,779 352,144 2,334,743 15,082,464 75,023 2,286,420 2,361,443

42,290,107

17,443,907

9.

Contract research and other operating expenses

April 1, 2003 to December 31, 2003 Research Material Costs Chemicals and reagents consumed Consultancy fees Employee costs Salaries, wages, bonus, etc Contribution to provident fund Gratuity, superannuation and leave encashment Welfare expenses Power Rent Communication Travelling and conveyance Professional charges Insurance Rates and taxes Lease rentals Exchange differences Repairs and maintenance Buildings Others Sales promotion Printing and stationery Miscellaneous expenses 3,243,138 5,504,757 5,635,007 322,933 502,583 241,669 360,000 180,000 155,714 749,286 240,348 4,791 28,215 158,752 96,379 202,251 427,087 24,582 275,024 917,340 19,269,856 April 1, 2002 to March 31, 2003 2,544,559 7,124,440 2,717,665 227,947 27,728 480,000 300,000 224,224 453,773 493,475 9,034 14,004 163,400 31,242 19,530 335,182 38,511 94,187 581,800 15,880,701

225

Biocon
10. Interest and finance charges
April 1, 2003 to December 31, 2003 Interest expense Bank charges 20,565 20,565 April 1, 2002 to March 31, 2003 350,502 4,958 355,460

11. Income taxes During the nine-month period ended December 31, 2003, the Company has incurred losses of Rs. 19,011,111 resulting in a tax loss carry-forward situation. The Company has not recognized the net deferred tax asset resulting from the tax loss carry forward as at December 31, 2003, as currently, although the management is confident of achieving profitablility, there is no virtual certainty that it would reverse the tax loss carry forwards. 12. Related party transactions
Sl No Name of the related party Relationship Description April 1, 2003 to December 31, 2003 1 Biocon Limited (formerly Biocon India Limited) Holding company Interest expense on current account transactions Current account: Due to Rent paid Power charges paid 2 Syngene International Private Limited Associate Company Rent paid 23,099,920 180,000 360,000 32,616,803 9,869,346 480,000 240,000 9,516,883 Balance as at December 31, 2003 April 1, 2002 to March 31, 2003 350,502 Balance as at March 31, 2003 276,896

Apart from the transactions specified above, the Company receives assistance from its holding company, Biocon, in the areas of general administration, accounting and senior management assistance in respect of which no charges have been levied by Biocon. Also, during the period/year, certain employees of the Company in their spare time have provided assistance to Biocon, the holding company in some of their projects in respect of which no charges have been levied to Biocon.

13. Commitments
December 31, 2003 (a) Capital Commitments Estimated amount of contracts remaining to be executed on capital account and not provided for, net of advances (b) Operating lease commitments (i) Rent The Company has entered into a lease agreement which expires in 2008. Gross rental expenses for the period ended December 31, 2003 aggregated to Rs. 180,000 (March 31, 2003 Rs. 300,000). The committed lease rental in the future are: December 31, 2003 Not later than one year Later than one year and not later than five years 240,000 780,000 March 31, 2003 240,000 960,000 4,699,814 97,740 March 31, 2003

226

Biocon
(ii) Vehicles The Company had taken a vehicle for an employee under operating lease, which was to expire in November 2006. Gross rental expenses for the period ended December 31, 2003 aggregated to Rs. 158,752 (March 31, 2003 Rs. 163,400). There are no future committed lease rental payments at December 31, 2003 on account of foreclosure of the arrangement:
December 31, 2003 Not later than one year Later than one year and not later than five years March 31, 2003 238,126 635,002

14. Prior period comparatives This is the first time that the Company has prepared audited financial statements for nine months, accordingly no comparatives are provided for prior period. The management believes that it is impracticable to generate the financial results of the preceding period, as the necessary cut-offs were not taken as at December 31, 2002 and for the nine months then ended. However, comparatives for the year ended March 31, 2003 have been provided by the management and have been reclassified, where necessary, to conform to the current period classification.

227

Biocon

BIOCON BIOPHARMACEUTICALS PRIVATE LIMITED FINANCIAL STATEMENTS DECEMBER 31, 2003 TOGETHER WITH AUDITORS REPORT

228

Biocon
Auditors Report To the Board of Directors of Biocon Biopharmaceuticals Private Limited 1. We have examined the accompanying Balance Sheet of BIOCON BIOPHARMACEUTICALS PRIVATE LIMITED as at December 31, 2003 and the Profit and Loss account for the nine-month period then ended prepared in accordance with accounting principles generally accepted in India. These financial statements are the responsibility of the BIOCON BIOPHARMACEUTICALS PRIVATE LIMITEDs management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying financial statements have been prepared by the Company in accordance with the requirements of Accounting Standard (AS) 25, Interim Financial Reporting, issued by the Institute of Chartered Accountants of India. On the basis of the information and explanations given to us, we are of the opinion that these financial statements give a true and fair view in conformity with the accounting principles generally accepted in India: i. ii. in the case of the Balance Sheet, of the state of affairs of BIOCON BIOPHARMACEUTICALS PRIVATE LIMITED as at December 31, 2003; and in the case of the Profit and Loss account of the results of operations BIOCON BIOPHARMACEUTICALS PRIVATE LIMITED for the nine-month period then ended.

2.

3. 4.

For S.R. BATLIBOI & ASSOCIATES Chartered Accountants

per Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

229

Biocon
BIOCON BIOPHARMACEUTICALS PRIVATE LIMITED BALANCE SHEET DECEMBER 31, 2003
(All amounts in Indian Rupees) Notes December 31, 2003 March 31, 2003 (Note 9) SOURCES OF FUNDS SHAREHOLDERS FUNDS Share capital 3 200,000 200,000 APPLICATION OF FUNDS FIXED ASSETS Cost Less: Accumulated depreciation Net book value Capital advances CURRENT ASSETS, LOANS AND ADVANCES Cash and bank balances 4 9,870 9,870 LESS: CURRENT LIABILITIES AND PROVISIONS NET CURRENT LIABILITIES EXPENDITURE PENDING ALLOCATION PROFIT AND LOSS ACCOUNT 2(b)&6 5 4,588,965 4,579,095 3,243,726 200,000 The accompanying notes 1 to 9 form an integral part of this balance sheet. As per our report of even date S.R. BATLIBOI & ASSOCIATES Chartered Accountants Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004 For and on behalf of the Board of Directors Kiran Mazumdar Shaw Director Bangalore January 17, 2004 JMM Shaw Director 100,000 100,000 1,629,819 1,529,819 1,629,819 100,000 2(a)&2(d) 92,500 21,711 70,789 1,464,580 1,535,369 100,000 100,000

230

Biocon
BIOCON BIOPHARMACEUTICALS PRIVATE LIMITED PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees) Notes April 1, 2003 to December 31, 2003 June 17, 2002 to March 31, 2003 (Note 9) INCOME EXPENDITURE Travel and conveyance Rates and taxes Audit fees Employee costs Directors sitting fees Stationery charges Depreciation Interest [net of interest capitalised - Rs. 11,458 (March 31, 2003 Nil)] Miscellaneous expenses Loss for the period Loss, beginning of the period Adjustment for amortisation of expenditure pending allocation in accordance with the transitional provisions of AS 26 Loss, end of the period Loss per Share (equity shares, par value of Rs. 10 each) Basic and Diluted (in Rs.) 2(e) 83.43 19,345 10,000 2(b) 1,629,819 3,243,726 2(a) 2(d) 2(b) & 2(c) 455,664 347,750 187,500 457,101 20,000 27,811 21,711 92,577 3,793 1,613,907 1,613,907 -

Weighted Average number of shares in computing earnings per share Basic and Diluted

The accompanying notes 1 to 9 form an integral part of this account. As per our report of even date S.R. BATLIBOI & ASSOCIATES Chartered Accountants

For and on behalf of the Board of Directors

Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

Kiran Mazumdar Shaw Director Bangalore January 17, 2004

JMM Shaw Director

231

Biocon
BIOCON BIOPHARMACEUTICALS PRIVATE LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees)

1.

Background Biocon Biopharmaceuticals Private Limited (the Company) was incorporated in India on June 17, 2002 primarily to carry on the business of manufacture and marketing a select range of biopharmaceutical and biotechnology products. Biocon Limited (formerly Biocon India Limited) (Biocon), entered into a collaboration agreement with CIMAB SA, Cuba (CIMAB) on February 22, 2002 to set up a joint venture Company to carry on the business of research, development, manufacturing and marketing of biopharmaceuticals. The equity participation by Biocon and CIMAB was agreed to be 51 per cent and 49 per cent respectively. The Company received the approval from the Foreign Investment Promotion Board (FIPB), Government of India on February 26, 2003 for foreign equity participation of 49 per cent in the paid up capital of the Company in lieu of technology transferred to the Company. On April 18, 2003, Biocon acquired the shares from the subscribers to the memorandum and the Company issued further shares to Biocon and CIMAB resulting in equity participation of 51 per cent and 49 per cent, respectively. The Company is in the development stage and, as at December 31, 2003, is in the process of setting up production facilities at Bommasandra, Bangalore. Biocon has acquired land at Bommasandra, part of which is proposed to be used by the Company.

2.

Summary of significant accounting policies The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and to comply in all material respects with the mandatory accounting standards issued by The Institute of Chartered Accountants of India. Further, the financial statements are presented in the general format specified in Schedule VI to the Companies Act, 1956 (the Act). However, as these financial statements are not statutory financial statements, full compliance with the above Act is not required and so they do not reflect all the disclosure requirements of the Act. The significant accounting policies are as follows: a. Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation. The Company capitalises all costs relating to the acquisition and installation of fixed assets. Fixed assets are depreciated pro rata to the period of use, on the straight line method at the annual rates based on the estimated useful lives. Per cent Computers Assets costing less than Rs. 5,000 are fully depreciated in the year of purchase. b. Expenditure pending allocation Effective April 1, 2003, the Company has revised its accounting policy and has decided for an early adoption of Accounting Standard 26 Intangible Assets (AS 26) issued by the Institute of Chartered Accountants of India and accordingly has fully amortised the expenditure pending allocation at March 31, 2003. The change in the accounting policy has resulted in the expensing of Rs. 1,629,819 relating to expenditure pending allocation at March 31, 2003 and, consequently, in accordance with the transitional provisions of AS 26, adjusted this amount to the accumulated losses at April 1, 2003. 33.33

232

Biocon
c. Foreign currency transactions Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing on the date of the balance sheet. Where the Company has entered into foreign exchange contracts, the difference between the forward rates and the spot rates at the date of the transaction is recognised in the profit and loss account over the life of the contract. All exchange differences are dealt with in the profit and loss account, except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets. d. Borrowing costs Borrowing costs that are attributable to the acquisition and construction of a qualifying fixed asset are capitalised as a part of the cost of the asset. e. Loss per share Loss considered in ascertaining the Companys loss per share comprises of the net loss for the period. The number of shares used in computing the basic earnings per share is the weighted average number of shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average share considered for deriving basic earnings per share, and also the weighted average number of shares, if any which would have been issued on the conversion of dilutive potential equity shares, if any. 3. Share capital
December 31, 2003 Authorised: 50,000 (March 31, 2003 50,000) equity shares of Rs. 10 each Issued, subscribed and paid-up: 20,000 (March 31, 2003 10,000) equity shares of Rs. 10 each, fully paid Of the above equity shares:
(i) (ii) Biocon holds 10,200 equity shares and CIMAB, S.A. holds 9,800 equity shares of Rs. 10 each, respectively. On April 18, 2003, Ms. Kiran Mazumdar Shaw and Mr. JMM Shaw, the subscribers to the memorandum, transferred 5,000 equity shares each of Rs. 10 each to Biocon.

March 31, 2003 500,000

500,000

200,000

100,000

December 31, 2003

March 31, 2003

4.

Cash and bank balances

Cash on hand Balance with scheduled bank in: Current account 9,870 9,870 100,000 100,000

5.

Current liabilities and provisions

Accrued expenses Payable to Biocon 340,721 4,248,244 4,588,965 52,500 1,577,319 1,629,819

6.

Expenditure pending allocation

April 1, 2003 to December 31, 2003 Travel and conveyance Preliminary expenses Audit fees Miscellaneous expenses June 17, 2002 to March 31, 2003 1,534,165 33,520 52,500 9,634 1,629,819

233

Biocon
7. Related party transactions
Name of the related party Biocon Limited (formerly Biocon India Limited [Holding company, from April 18, 2003]) Description Interest expense on current account Transactions April 1, 2003 to December 31, 2003 103,905 Balance as at December 31, 2003 June 17, 2002 to March 31, 2003 Balance as at March 31, 2003 -

Current account: Due to Biocon 4,144,339 4,248,244 -

Apart from the transactions specified above, the Company receives assistance from Biocon, in the areas of general administration, accounting and senior management assistance in respect of which no charges have been levied by Biocon.

8.

Commitments
December 31, 2003 Capital Commitments Estimated amount of contracts remaining to be executed on capital account and not provided for, net of advances 7,746,878 March 31, 2003

9.

Prior-period comparatives The financial statements as at March 31, 2003, have been reclassified, where necessary, to conform with the current periods presentation. The financial statements for the prior period are from the date of incorporation (June 17, 2002) to March 31, 2003 and are not comparable with the current period.

234

Biocon

BIOCON LIMITED (formerly BIOCON INDIA LIMITED) UNCONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES AND PROFITS AND LOSSES, AS RESTATED, UNDER INDIAN GAAP (INCLUDING SUBSIDIARIES AND JOINT VENTURE) FOR THE YEARS ENDED MARCH 31, 1999, 2000, 2001, 2002 AND 2003 AND FOR THE NINE MONTHS PERIOD ENDED DECEMBER 31, 2003 INCLUDING AUDITORS REPORT AS REQUIRED BY PART II OF SCHEDULE II OF THE COMPANIES ACT, 1956

235

Biocon
UNCONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES AND PROFITS AND LOSSES, AS RESTATED, UNDER INDIAN GAAP (INCLUDING SUBSIDIARIES AND JOINT VENTURE) FOR THE YEARS ENDED MARCH 31, 1999, 2000, 2001, 2002 AND 2003 AND FOR THE NINE MONTHS PERIOD ENDED DECEMBER 31, 2003 Auditors report as required by Part II of Schedule II to the Companies Act, 1956 January 17, 2004 To The Board of Directors Biocon Limited 20th KM, Hosur Road, Electronic City P.O., Bangalore 560 100 Dear Sirs, We have examined the financial information of Biocon Limited (Biocon or the Company) (formerly Biocon India Limited) annexed to this report which have been prepared in accordance with the requirements of: a. b. paragraph B (1) of Part II of Schedule II to the Companies Act, 1956 (the Act); the Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines 2000 (the Guidelines) issued by the Securities and Exchange Board of India (SEBI) on January 19, 2000 in pursuance of Section 11 of the Securities and Exchange Board of India Act, 1992; and the terms of reference received from the Company, requesting us to carry out work, proposed to be included in the Offer document of the Company in connection with its proposed Initial Public Offer (IPO).

c.

The IPO will be for a fresh issue by the Company of 10,000,000 equity shares of Rs. 5 each, at such premium, by way of book building process, as may be decided by the Board of Directors (referred to as the Offer). The offer is being made through the 100 per cent book-building scheme. Financial information as per audited financial statements 1. We have examined the attached restated summary statement of assets and liabilities of the Company as at December 31, 2003, March 31, 2003, 2002, 2001, 2000 and 1999 and the attached restated summary statement of profit and loss for each of the period/years ended on those dates (summary statements) (see Annexure I and II) as prepared by the Company and approved by the Board of Directors. These profits have been arrived at after making such adjustments and regroupings as in our opinion are appropriate and more fully described in the notes appearing in Annexure III to this report. The financial statements of the Company for the years ended March 31, 1999 and 2000 have been audited and reported upon by M/s. S. Madhavan & Co., Chartered Accountants and those for the years ended March 31, 2001 and 2002 have been audited and reported upon by Arthur Andersen & Associates, Chartered Accountants (a member firm of Andersen Worldwide, an affiliation of accounting firms which has ceased operations). We have audited the financial statements of the Company for the year ended March 31, 2003 and for the nine months period ended December 31, 2003. Based on our examination of these summary statements, we confirm that:
n

The impact of changes in accounting policies adopted by the Company as at and for the nine months period ended December 31, 2003 have been adjusted with retrospective effect in the attached summary statements; The prior period items have been adjusted in the summary statements in the years to which they relate; The extraordinary items, which need to be disclosed separately in the summary statements, are appropriately disclosed; and There are no qualifications in the auditors reports, which require any adjustments to the summary statements.

n n

236

Biocon
2. 3. The summary of significant accounting policies adopted by the Company together with the notes pertaining to the audited financial statements for the nine months period ended December 31, 2003 are enclosed as Annexure IV to this report. The financial statements of the Companys subsidiary, Syngene International Private Limited (Syngene) for the nine months period ended December 31, 2003 and years ended March 31, 2003, 2002, 2001, 2000 and 1999 have not been consolidated into the attached summary statements. We have audited the financial statements of Syngene for the nine months period ended December 31, 2003 and year ended March 31, 2003. The financial statements of Syngene for the years ended March 31, 1999 and 2000 have been audited and reported by M/s. S. Madhavan & Co., Chartered Accountants and those for the years ended March 31, 2001 and 2002 have been audited and reported by Arthur Andersen & Associates, Chartered Accountants (a member firm of Andersen Worldwide, an affiliation of accounting firms which has ceased operations). The restated summary financial statements of Syngene for the nine months period ended December 31, 2003 and for the years ended March 31, 2003, 2002, 2001, 2000 and 1999 are enclosed in Annexure V to this report. The financial statements of the Companys wholly owned subsidiary, Clinigene International Private Limited (Clinigene) for the period from August 4, 2000 (date of incorporation) to March 31, 2001; years ended March 31, 2002 and 2003 and for the nine months period ended December 31, 2003 have not been consolidated into the attached summary statements. We have audited the financial statements of Clinigene for the nine months period ended December 31, 2003 and year ended March 31, 2003. The financial statements of Clinigene for the period from August 4, 2000 (date of incorporation) to March 31, 2001 and for the year ended March 31, 2002 have been audited and reported by Arthur Andersen & Associates, Chartered Accountants (a member firm of Andersen Worldwide, an affiliation of accounting firms which has ceased operations). The restated summary financial statements of Clinigene for the nine months period ended December 31, 2003 and for the year ended March 31, 2003, 2002 and the period ended March 31, 2001 are enclosed in Annexure VI to this report. The financial statements of the Companys joint venture, Biocon Biopharmaceuticals Private Limited (BBPL), in which the Company has an equity participation of 51 per cent, which was acquired on April 18, 2003 have not been consolidated into the attached summary statements. The financial statements of BBPL are enclosed in Annexure VII to this report. We have examined the following unconsolidated financial information of the Company proposed to be included in the Offer Document as approved by you and annexed to this report: i. ii. Accounting ratios based on the restated profits relating to earnings per share, net asset value and return on net worth is enclosed in Annexure VIII; Capitalisation statement as at December 31, 2003 is enclosed in Annexure IX;

4.

5.

Other financial information 6.

iii. Statement of tax shelters is enclosed in Annexure X; iv. Statement of possible tax benefits available to the Company, its subsidiaries and shareholders is enclosed in Annexure XI; v. Details of loans as appearing in Annexure XII to the report; and vi. Details of other income as appearing in Annexure XIII to the report. The Company has not declared any dividend on equity shares for the period ended December 31, 2003 and years ended March 31, 2003, 2002, 2001, 2000 and 1999. 7. In respect of the financial information as per the audited financial statements and other financial information contained in this report, we have relied upon the audited financial statements for the years ended March 31, 1999, 2000, 2001 and 2002 which were audited by a firm of Chartered Accountants other than us, as referred to in paragraph 1, 3 and 4 above. In our view, the financial information as per audited financial statements and other financial information mentioned above have been prepared in accordance with Part II of Schedule II of the Act and the Guidelines.

8.

237

Biocon
9. This report is intended solely for your information and for inclusion in the Offer Document in connection with the proposed IPO of the Company and is not to be used, referred to or distributed for any other purpose without our prior written consent.

S.R. Batliboi & Associates Chartered Accountants

per Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

238

Biocon
Annexure I: Summary statement of profits and losses, as restated
(All amounts in Indian Rupees)
Nine months ended December 31, 2003 Income Sales Of products manufactured Of products traded Contract research fees Other income Total Income Expenditure Consumption of raw materials and traded goods Employee costs Manufacturing, research, selling and administrative expenses Interest Depreciation (Increase)/decrease in work-inprogress and finished goods Total Expenditure Net profit before taxation and effect of changes in depreciation policy Current tax Deferred tax Net profit after tax Effect of changes in depreciation policy Net profit before adjustments Adjustments Increase/(decrease) in net profits Impact of changes in accounting policies: Depreciation (Refer Note 4a on Annexure III) Lease assets (Refer Note 4b on Annexure III) Leave encashment (Refer Note 4c on Annexure III) Duty drawback (Refer Note 4d on Annexure III) Deferred tax (Refer Note 4e on Annexure III) Others (Refer Note 4f on Annexure III) Other adjustments: Current tax (short)/excess provision for tax (Refer Note 5a and 5b on Annexure III) Bad debts (Refer Note 5c on Annexure III) Total impact of adjustments Tax impact of adjustments (Refer Note 6 on Annexure III) Total of adjustments after tax impact Net Profit, as restated Profit and loss account, beginning of the year Balance available for appropriation, as restated Appropriations Transfer to general reserve Issue of bonus shares Balance carried forward, as restated Year ended March 31, 2003 Year ended March 31, 2002 Year ended March 31, 2001 Year ended March 31, 2000 Year ended March 31, 1999

3,708,848,336 3,429,204 5,681,716 6,940,165 3,724,899,421 1,884,628,224 247,552,396 384,162,431 12,086,343 101,444,906 11,055,059 2,640,929,359 1,083,970,062

2,529,353,053 13,046,078 5,192,833 8,422,573 2,556,014,537 1,302,614,722 306,959,121 401,285,836 48,919,767 120,170,997 (101,201,886) 2,078,748,557 477,265,980

1,587,037,615 19,167,465 9,762,624 34,412,243 1,650,379,947 839,360,329 196,517,131 226,528,607 46,686,880 77,796,594 (10,487,295) 1,376,402,246 273,977,701

1,199,399,694 23,701,351 10,721,148 1,880,029 1,235,702,222 629,094,541 126,208,978 204,192,699 45,060,787 72,680,126 (42,189,159) 1,035,047,972 200,654,250

698,815,701 27,860,645 11,011,287 4,309,286 741,996,919 401,342,194 84,503,337 138,963,193 31,308,067 36,796,566 (11,706,803) 681,206,554 60,790,365

284,232,733 18,563,064 4,952,338 8,852,367 316,600,502 200,405,990 25,733,453 54,997,433 11,128,444 5,433,443 (180,409) 297,518,354 19,082,148

201,640,234 16,454,328 865,875,500 865,875,500

75,806,254 42,726,157 358,733,569 358,733,569

50,000,000 20,882,253 203,095,448 203,095,448

38,000,000 162,654,250 66,053,563 228,707,813

3,056,669 57,733,696 57,733,696

7,506,110 11,576,038 11,576,038

3,332,881 (9,916,299) (818,001) 373,889

4,494,441 (740,876) 9,916,299 (1,058,972) 148,168

3,749,652 33,737 (327,836) 1,016,826

(53,093,075) 403,308 74,782 (56,001,346) 897,697

7,914,150 551,228 (242,746) (13,906,833) 226,394

(48,781) 68,270 (249,415) (1,016,794) -

(378,070) (7,405,600) 2,656,758 (4,748,842) 861,126,658 505,913,097 1,367,039,755 431,623,500 935,416,255

(13,149,604) (827,026) (1,217,570) (4,385,022) (5,602,592) 353,130,977 152,782,120 505,913,097 505,913,097

9,624,057 (1,106,327) 12,990,109 (1,201,681) 11,788,428 214,883,876 (62,101,756) 152,782,120 152,782,120

2,391,706 2,311,423 (103,015,505) 19,540,019 (83,475,486) 145,232,327 (7,334,083) 137,898,244 200,000,000 (62,101,756)

6,276,383 818,576 (3,252,875) (2,434,299) 55,299,397 (5,133,480) 50,165,917 57,500,000 (7,334,083)

2,806,110 1,559,390 80,475 1,639,865 13,215,903 (6,649,383) 6,566,520 11,700,000 (5,133,480)

The above statement should be read with notes to the Summary statement of Profits and losses and Assets and Liabilities, as restated, appearing in Annexure III and the significant accounting policies appearing in Annexure IV.

239

Biocon
Annexure II : Summary statement of assets and liabilities, as restated
(All amounts in Indian Rupees)
As at December 31, 2003 Fixed Assets Gross block Less : Accumulated depreciation Net block Less: Revaluation Reserve [Refer Note 7d on Annexure III] Net block after adjustment for Revaluation reserve Capital work in progress Total Investments Current assets Inventories Sundry debtors Cash and bank balances Loans and advances Total Liabilities and provisions Secured loans Unsecured loans Current liabilities and provisions Deferred tax liability Total Networth Represented by Share capital Advance share application money Reserves and surplus Less: Revaluation reserve [Refer Note 7d on Annexure III] Reserves (Net of revaluation reserves) Net worth 450,000,000 1,684,767,281 14,817,070 1,669,950,211 2,119,950,211 18,376,500 1,245,526,895 16,599,979 1,228,926,916 1,247,303,416 18,217,800 860,749,633 18,817,472 841,932,161 860,149,961 14,974,700 565,186,979 20,019,230 545,167,749 560,142,449 14,966,200 425,000 420,739,909 21,220,988 399,518,921 414,910,121 5,820,000 115,434,708 26,198,006 89,236,702 95,056,702 487,019,313 163,329,812 1,111,996,359 153,840,312 1,916,185,796 2,119,950,211 582,108,708 103,545,391 650,329,583 140,042,742 1,476,026,424 1,247,303,416 559,285,393 106,033,378 467,813,426 92,931,563 1,226,063,760 860,149,961 342,973,888 38,909,146 284,854,322 70,847,630 737,584,986 560,142,449 319,972,077 253,537,093 34,386,304 607,895,474 414,910,121 58,219,504 17,175,325 109,691,783 4,444,305 189,530,917 95,056,702 688,990,632 1,370,061,974 11,382,222 168,060,173 2,238,495,001 466,587,700 737,844,658 10,217,256 157,655,933 1,372,305,547 233,320,814 624,713,589 952,877 101,905,745 960,893,025 217,619,660 391,717,505 123,701 59,879,023 669,339,889 134,279,155 242,182,488 9,715,015 70,778,655 456,955,313 53,458,026 73,349,036 654,802 21,722,559 149,184,423 1,321,696,967 391,007,958 1,712,704,925 84,936,081 1,186,351,587 79,843,625 1,266,195,212 84,829,081 1,003,354,848 37,130,787 1,040,485,635 84,835,061 602,540,315 25,240,051 627,780,366 607,180 546,531,612 19,211,490 565,743,102 107,180 52,438,582 2,046,634 54,485,216 80,917,980 1,789,435,239 452,921,202 1,336,514,037 14,817,070 1,561,884,067 358,932,501 1,202,951,566 16,599,979 1,262,830,450 240,658,130 1,022,172,320 18,817,472 786,691,569 164,132,024 622,559,545 20,019,230 677,220,597 109,467,997 567,752,600 21,220,988 118,066,172 39,429,584 78,636,588 26,198,006 As at March 31, 2003 As at March 31, 2002 As at March 31, 2001 As at As at March 31, 2000 March 31, 1999

The above statement should be read with notes to the Summary statement of Profits and Losses and Assets and Liabilities, as restated, appearing in Annexure III and the significant accounting policies appearing in Annexure IV.

240

Biocon
Annexure III: Notes to the summary statement of profits and losses and assets and liabilities, as restated 1. Background Biocon Limited (Biocon or the Company) (formerly Biocon India Limited), promoted by Ms Kiran Mazumdar Shaw (KMZ), was incorporated at Bangalore in 1978 for manufacture of biotechnology products. Syngene International Private Limited (Syngene) promoted by KMZ, was incorporated at Bangalore in 1993. At March 30, 2002, Biocon acquired 99.99 per cent of the equity shares of Syngene and, resultantly, the Company became the subsidiary of Biocon. Clinigene International Private Limited (Clinigene) was incorporated on August 4, 2000 and became a wholly owned subsidiary of Biocon on March 31, 2001. Biocon entered into an Agreement on February 22, 2002 to set up a Joint Venture Company, Biocon Biopharmaceuticlas Private Limited (BBPL) an Indian Company incorporated on June 17, 2002 with CIMAB SA (CIMAB), a company organised and existing under the laws of Cuba and engaged in research, development, manufacturing and marketing of Biopharmaceuticals, to manufacture and market products using technology and to carry out research activities. On April 18, 2003, Biocon acquired 10,200 shares for an equity participation of 51 per cent in the BBPL. 2. Amalgamation Helix Biotech Limited (Helix), Biocon Bioproducts India Limited (BBIL), BioChemizyme India (BCZ) were amalgamated with the Company on and from April 1, 1999, pursuant to the scheme of amalgamation approved by the shareholders on March 24, 2000 and sanctioned by the Honble High Court of Karnataka under sections 391 and 394 of the Companies Act, 1956 (the Act) vide order dated January 1, 2001 read with the Order dated January 19, 2001. Pursuant to this scheme, the assets and liabilities of the Helix, BBIL and BCZ became vested with the Company with effect from April 1, 1999. The turnover for the year ended March 31, 1999 as per the unaudited proforma information provided by the management of Helix, BBIL and BCZ are Rs. 120,902,763, Rs. 56,459,697 and Rs. 41,686,979, respectively; and the net profit Rs. 7,790,385, Rs. 19,829,787 and Rs. 8,997,083, respectively. Consequently, the restated profit of Biocon for the year ended March 31, 1999, are not comparable with that of the succeeding years. Prior to the amalgamation with Helix, BBIL and BCZ, the operations of the Company essentially entailed only production of enzymes. With the amalgamation, the Company continued and expanded the operations in the pharmaceuticals business which was essentially operated by Helix. 3. Summary restated financial statements Accounting Standard 21, Consolidated Financial Statements (AS 21) issued by the Institute of Chartered Accountants of India (ICAI) comes into effect in respect of accounting periods commencing on or after April 1, 2001. The ICAI has also issued Accounting Standard 23, Accounting for Investments in Associates in Consolidated Financial Statements (AS 23) and Accounting Standard 27, Financial Reporting of Interests in Joint Ventures (AS 27) which are effective for accounting periods commencing on or after April 1, 2002. However, AS 21, AS 23 and AS 27 are currently not applicable to the Company since it is not required to prepare consolidated financial statements under any law. Accordingly, the results of the subsidiaries and joint ventures companies have not been accounted for in these summary restated financial statements. 4. Adjustments resulting from changes in Accounting Policies a. Depreciation For and upto the year ended March 31, 2000, the Company had been providing depreciation on its assets on the written down value method based on the rates specified under schedule XIV of the Act. Further, upto March 31, 1999, the Company computed depreciation on additions from the first day of the month of the additions. Effective April 1, 2000, the Company revised its policy to depreciate assets based on the estimated useful lives of its assets on the basis of a technical evaluation and also changed the method of providing depreciation to the straightline method.
241

Biocon
Accordingly, depreciation on fixed assets has been recomputed based on the straight line method at the revised estimated useful lives for the year ended March 31, 1999 and 2000 for the Company. Also, depreciation on fixed assets has been recomputed based on the straight line method at the revised estimated useful lives for the year ended March 31, 1999 for Helix, BCZ and BBIL and the differential depreciation has resulted in a lower goodwill which is adjusted in capital reserve. In addition, depreciation for the nine-month period ended December 31, 2003, and years ended March 31, 2003, 2002 and 2001 have been recomputed by applying the rates based on the revised estimated useful lives retroactively. Further, reserves as at April 1, 1998 have been adjusted to reflect the impact of change pertaining to prior years. b. Lease assets Accounting Standard 19, Accounting for Leases (AS 19) issued by the ICAI is mandatory in respect of accounting periods commencing on or after April 1, 2001. The Company adopted AS 19 for the first time in preparing its financial statements for the year ended March 31, 2002. Accordingly, for the purpose of this statement, the assets for which finance lease rentals were paid during the year ended March 31, 1999, 2000 and 2001 have been capitalized and depreciated over the economic useful life of the assets in accordance with AS 19. c. Leave encashment Hitherto, the Company accrued for the liability for encashment of unavailed leave payable on retirement of employees on the basis of current employee compensation rates for the entire unavailed leave balance standing to the credit of the employees at the year-end. During the period ended December 31, 2003, the Company changed its accounting policy in respect of leave encashment and accrued for the liability based on an actuarial valuation for the unavailed leave balance standing to the credit of the employees at period-end. Accordingly, the liability for the year ended March 31, 2003 has been recomputed in accordance with the revised accounting policy. During the years ended March 31, 1999, 2000, 2001 and 2002 the Company had valued its leave pay liability on actuarial basis, hence it is not recomputed. d. Duty drawback Effective April 1, 2003, the Company changed its policy for recognizing duty drawback income on an accrual basis i.e. as and when the eligible export sales are affected, from it being on filing basis for the years ended March 31, 1999, 2000, 2001, 2002 and 2003. During the year ended March 31, 1998, the Company accounted for duty drawbacks on a cash basis. Also, during the nine-months period ended December 31, 2003, the Company disclosed raw material cost net of duty drawback, whereas in the earlier years the duty drawback income was disclosed as Other income. Accordingly, duty drawback income has been recognized on an accrual basis for the years ended March 31, 1999, 2000, 2001, 2002 and 2003 and has been adjusted against raw material cost. e. Deferred tax The Company adopted Accounting Standard 22, Accounting for taxes on income (AS 22) issued by ICAI for the first time in preparing its financial statements for the year ended March 31, 2002. Accordingly, for the purpose of this statement, the deferred tax asset/liability has been recognised in the respective years of origination with a corresponding effect to the summary statement of profit and loss, as restated, with a corresponding adjustment to general reserve as at March 31, 2002. Also, the deferred tax asset/liability for Helix, BCZ and BBIL as at March 31, 1999 has been recognised and adjusted in the computation of capital reserves. f. Other adjustments Other adjustments include change in the valuation of work-in-progress, finished goods and loss on sale of assets, for the respective years, arisen consequent to the change in the accounting policy of depreciation, as discussed in paragraph 4(a) above.

242

Biocon
5. Other material adjustments a. Current tax During the year ended March 31, 2003, the Company received an approval from the Department of Scientific and Industrial Research (DSIR) to claim a weighted deduction on the expenditure incurred on scientific research or inhouse research and development facility under section 35(2AB) of the Income-tax Act, 1961, retroactively. Consequently, the current tax charge for the year ended March 31, 2003 was after considering a write back of tax relating to the prior years. Accordingly, for the purpose of this statement the resultant write-back of tax has been adjusted in the respective years. b. c. Short/excess provision for income tax Provision for current tax has been restated to the respective year, where there was a shortfall in the provision for tax. Bad debts The bad debts written off in the earlier years, which have been subsequently recovered have been adjusted in the financial statements of such years when these amounts were written off. 6. Tax impact of adjustments Tax impact of adjustments pertain to tax effect on restatement adjustments, other than adjustments arising for the matter discussed in paragraph 4e, 5a and 5b, above, at the tax rates applicable in the respective years. 7. Non Adjustments /Regrouping a. Manufacturing expenses Consumption of raw material and traded goods, Employee costs and Increase/(Decrease) in work-in-progress and finished goods have been regrouped and were included as part of Manufacturing and other expenses in the audited financial statements for the nine-months period ended December 31, 2003, years ended March 31, 2003, 2002, 2001, 2000 and 1999. b. Duty drawback The Company has reclassified duty drawback (previously grouped as other income) [Refer Note 4d above], excise duty expense on certain special sales (previously grouped as Manufacturing and other expenses) and entry tax expense on raw material procured (previously grouped as Manufacturing and other expenses) as a part of raw material consumed for the years ended March 31, 2003, 2002, 2001, 2000 and 1999. c. Inventory valuation For and up to the accounting year ended March 31, 1999, the Company had been including interest costs in the valuation of inventory. The Company adopted the method of valuation prescribed by Accounting Standard 2, Valuation of Inventories (AS 2) issued by ICAI for the year ended March 31, 2000 and consequently excluded interest costs in the valuation of inventory. No adjustment has been made in the financial statements for the year ended March 31, 1999, resulting in valuation of inventories as at April 1, 1998 and March 31, 1999, in the absence of availability of related information. d. Revaluation reserve In accordance with clause 6.18.7(b)(v) of the SEBI Guidelines, the statement of assets and liabilities as restated has been prepared after deducting the revaluation reserve balance from both fixed assets and reserves.

243

Biocon
8. Restated profit and loss account a.
Restatement of profit and loss account of Biocon, as at April 1, 1998 Profit and loss account as at April 1, 1998, as per audited financial statements Increase/(decrease) in the accumulated profit at April 1, 1998 as a result of: Depreciation Leased assets Duty drawback Deferred tax Provision for tax Tax effect of adjustments Profit and loss account as at April 1, 1998, as restated b. 2,366,165 (315,666) 2,622,188 (1,878,086) (7,948,652) (1,629,900) (6,649,383) 134,567

The restated net losses carried forward for the years ended March 31, 1999, 2000 and 2001 have been adjusted against the balance of reserves in the statement of assets and liabilities as at the respective year end.

Annexure IV: Significant accounting policies 1.1 Basis of preparation of financial statements The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and to comply in all material respects with the mandatory accounting standards issued by the Institute of Chartered Accountants of India. As mentioned in Note 7d in Annexure III, the revaluation reserve has been deducted from both fixed assets and reserves, in the statement of assets and liabilities, as restated. The significant accounting policies are as follows: 1.2 Fixed assets and depreciation Fixed assets are stated at cost, except for revalued freehold land and buildings, which are shown at, estimated replacement cost as determined by valuers, less accumulated depreciation. The Company capitalises all costs relating to the acquisition and installation of fixed assets. Fixed assets, other than freehold land, but including revalued buildings, are depreciated pro rata to the period of use, on the straight line method at the annual rates based on the estimated useful lives. Per cent Buildings Plant and machinery Research and development equipment Furniture and fixtures Vehicles 4.00 9.09 - 33.33 11.11 16.67 16.67

Leasehold land, other than those on a lease-cum-sale basis, are depreciated over the lease period. Leasehold land on a lease-cum-sale basis are capitalised at the allotment rates currently charged by the Municipal Authorities. The depreciation charge over and above the depreciation calculation on the original cost of the revalued assets is transferred from the revaluation reserve to the profit and loss account. Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase. 1.3 Inventories Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first-in-first-out basis and includes all applicable overheads in bringing the inventories to their present location and condition. Excise duty arising on finished goods and customs duty on imported raw materials in stock (excluding stocks in the bonded warehouse) are treated as part of the cost of inventories.
244

Biocon
1.4 Revenue recognition (i) Sales are recognised on despatch of goods to customers and are recorded net of excise duty, sales tax and other levies. For the purposes of disclosure in the financial statements, sales is reflected gross and net of excise duty in the profit and loss account. (ii) Contract research fees are recognised as services are rendered, in accordance with the terms of the contracts. 1.5 Investments Long term investments are stated at cost. Provision, where necessary, is made to recognise a decline, other than temporary, in the value of investments. 1.6 Retirement benefits The Company has schemes of retirement benefits for provident fund, gratuity and superannuation, in respect of which, the Companys contributions are charged to the profit and loss account. The contributions towards provident fund are made to statutory authorities. The gratuity and superannuation fund benefits of the Company are administered by a trust formed for this purpose through the group gratuity and superannuation scheme with Birla Sun Life Insurance Company Limited (Birla Sunlife). In respect of gratuity, the Company has accrued for the liability based on an independent actuarial valuation at the period-end. In respect of superannuation, the Company has accrued for the liability based on the schemes of the Company. 1.7 Leave encashment Liability for leave encashment is in accordance with the rules of the Company and is provided on the basis of an actuarial valuation performed by an independent actuary. Upto March 31, 2003, the Company provided for leave encashment on a full liability basis. Had the Company followed its earlier accounting policy, the profit before tax for the nine month period ended December 31, 2003 would have been lower by Rs. 617,340. 1.8 Foreign currency transactions Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing on the date of the balance sheet. Where the Company has entered into foreign exchange contracts, the difference between the forward rates and the spot rates at the date of the transaction is recognised in the profit and loss account over the life of the contract. All exchange differences are dealt with in the statement of profit and loss, except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets. 1.9 Research and development costs Research and development costs, including technical know-how fees, incurred for development of products are expensed as incurred, except for development costs which relate to the design and testing of new or improved materials, products or processes which are recognised as an asset to the extent that it is expected that such assets will generate future economic benefits. Research and development expenditure of a capital nature is added to fixed assets. 1.10 Income tax Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the current tax rates based on assessable income. The Company provides for deferred tax based on the tax effect of timing differences resulting from the recognition of items in the financial statements and in estimating its current tax provision. Deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. The effect on deferred taxes of a change in tax rates is recognised in income in the period in which the change is substantially enacted. The provision for current tax is based on the earnings for the period from April 1, 2003 to December 31, 2003 and the actual tax liability of the Company will be determined on the basis of the earnings for the period from April 1, 2003 to March 31, 2004.

245

Biocon
1.11 Borrowing costs Borrowing costs that are attributable to the acquisition and construction of a qualifying asset are capitalised as a part of the cost of the asset. Other borrowing costs are recognised as an expense in the period in which they are incurred. 1.12 Deferred employee stock compensation costs Deferred employee stock compensation costs for stock options are recognised on the basis of generally accepted accounting principles and are measured as the excess of the fair value of the Companys stock on the stock options grant date over the amount an employee must pay to acquire the stock and recognised in a graded manner on the basis of weighted period of services over the vesting period of equity shares. The fair value of the options is measured on the basis of an independent valuation performed in respect of stock options granted. 1.13 Earnings per share The earnings considered in ascertaining the Companys earnings per share comprise of the net profit after tax. The number of shares used in computing the basic earnings per share is the weighted average number of shares outstanding during the period and are adjusted for bonus shares and sub-division of shares for all periods/years presented in the financial statements. The number of shares used in computing diluted earnings per share comprises the weighted average share considered for deriving basic earnings per share, and also the weighted average number of shares, if any which would have been issued on the conversion of all dilutive potential equity shares. 1.14 Operating lease Where the Company is a Lessee: Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term. Where the Company is a Lessor: Assets subject to operating leases are included in fixed assets. Lease income are recognised on a straight line basis over the lease term. Costs, including depreciation are recognised as an expense. Initial direct costs such as legal costs, brokerage costs, etc. are recognised immediately. 1.15 Finance lease The cash value of fixed assets acquired on finance lease contracts is capitalised and depreciated in accordance with the fixed assets and depreciation policy of the Company. Interest payable under finance lease contracts, is charged on the diminishing balance method to the profit and loss account over the period of the finance lease contracts.

246

Biocon
Annexure V: Syngene International Private Limited A: Summary statements of profits and losses, as restated
(All amounts in Indian Rupees) Nine months ended December 31, 2003 Income Contract research fees Sale of compounds Other Income Total Income Expenditure Chemicals and reagents consumed Employee cost Other contract research and operating expenses Interest Depreciation Total Expenditure Net profit before taxation Current tax charge Deferred tax charge/(credit) Net profit after tax Effect of changes in depreciation policy Net profit before adjustments Adjustments Increase/(decrease) in Net profits Impact of changes in accounting policies: Depreciation (Refer Note 1a on Annexure V C) Other adjustments: Deferred tax (Refer Note 1c on Annexure V C) Current tax (Refer Note 2a on Annexure V C) Total impact of adjustments Tax impact of adjustments Total of adjustments after tax impact Net Profit, as restated Profit and Loss account, beginning of the year/period Profit available for appropriation, as restated Appropriations Dividends Corporate dividend tax Transfer to general reserve Balance carried forward, as restated 727,779 970,377 975,827 (4,503,697) 664,614 214,500 213,749,063 44,224,152 3,814,635 261,787,850 52,658,537 66,563,612 16,656,929 325,971 15,747,000 151,952,049 109,835,801 2,162,872 107,672,929 107,672,929 Year ended March 31, 2003 225,153,306 36,093,555 550,667 261,797,528 67,514,574 71,803,956 22,629,759 1,292,903 16,370,757 179,611,949 82,185,579 8,039,454 (7,840,795) 81,986,920 81,986,920 Year ended March 31, 2002 136,563,698 10,464,853 5,936,477 152,965,028 41,928,001 48,355,003 21,102,442 943,542 11,119,136 123,448,124 29,516,904 1,955,468 387,695 27,173,741 27,173,741 Year ended March 31, 2001 106,048,738 2,920,953 2,148,517 111,118,208 28,048,240 26,509,732 15,421,945 755,522 9,289,713 80,025,152 31,093,056 850,000 30,243,056 5,868,543 36,111,599 Year ended March 31, 2000 56,264,080 2,516,536 1,148,889 59,929,505 21,457,089 13,289,791 7,562,870 375,749 4,138,684 46,824,183 13,105,322 869,094 12,236,228 12,236,228 Year ended March 31, 1999 29,657,154 252,581 191,865 30,101,600 8,144,802 6,224,672 3,742,176 499,431 2,030,467 20,641,548 9,460,052 206,654 9,253,398 9,253,398

727,779 (261,089) 466,690 108,139,619 85,474,354 193,613,973 193,613,973

(7,840,795) (6,870,418) (356,614) (7,227,032) 74,759,888 10,714,466 85,474,354 85,474,354

387,695 1,363,522 (348,371) 1,015,151 28,188,892 9,187,449 37,376,341 (21,562,500) (2,900,000) (2,199,375) 10,714,466

(4,503,697) 1,781,211 (2,722,486) 33,389,113 7,134,836 40,523,949 (5,750,000) (586,500) (25,000,000) 9,187,449

397,094 1,061,708 (255,875) 805,833 13,042,061 14,395,775 27,437,836 (1,150,000) (253,000) (18,900,000) 7,134,836

(397,094) (182,594) (75,075) (257,669) 8,995,729 7,602,551 16,598,280 (1,150,000) (126,500) (926,005) 14,395,775

The above statement should be read with notes to summary statement of Profits and Losses and Assets and Liabilities, as restated and significant accounting policies appearing in this Annexure.

247

Biocon
Annexure V: Syngene International Private Limited B: Summary statements of assets and liabilities, as restated
(All amounts in Indian Rupees) As at December 31, 2003 Fixed assets Gross Block Less : Accumulated depreciation Net Block Capital work in progress Total Investments Current assets Inventories Sundry debtors Cash and bank balances Loans and advances Miscellaneous expenditure Total Liabilities and provisions Secured loans Unsecured loans Current liabilities and provisions Deferred tax (asset)/liability Total Networth Represented by Share capital Advance share application money Reserves and surplus Networth 28,750,000 240,993,077 269,743,077 28,750,000 132,331,282 161,081,282 28,750,000 56,858,166 85,608,166 51,734,407 80,484,407 28,750,000 8,048,000 258,886 28,051,166 36,358,052 5,750,000 15,900,356 21,650,356 87,411,827 55,762 87,467,589 269,743,077 62,746,469 316,851 63,063,320 161,081,282 2,800,500 46,481,402 673,465 49,955,367 85,608,166 4,769,964 33,283,147 1,021,836 39,074,947 80,484,407 4,092,487 3,571,151 34,461,921 (759,375) 41,366,184 36,358,052 3,042,416 14,413,603 (503,500) 16,952,519 21,650,356 12,274,865 24,766,688 9,779,332 3,993,943 50,814,828 12,093,432 10,696,798 16,120,180 4,244,650 43,155,060 8,121,207 15,632,862 17,669,530 6,132,593 47,556,192 6,607,373 15,700,146 769,490 25,804,365 48,881,374 5,028,842 4,318,723 7,960 3,341,132 12,696,657 5,900,243 1,201,319 66,723 6,918,828 15,560 14,102,673 190,632,843 55,114,600 135,518,243 28,820,812 164,339,055 142,056,783 171,076,086 40,095,379 130,980,707 8,834 130,989,541 50,000,001 102,374,940 25,701,539 76,673,401 11,333,939 88,007,340 1 86,335,634 15,757,654 70,577,980 70,577,980 100,000 72,250,807 7,832,787 64,418,020 509,559 64,927,579 100,000 26,375,475 4,373,619 22,001,856 2,398,346 24,400,202 100,000 As at March 31, 2003 As at March 31, 2002 As at March 31, 2001 As at March 31, 2000 As at March 31, 1999

The above statement should be read with notes to summary statement of Profits and Losses and Assets and Liabilities, as restated and significant accounting policies appearing in this Annexure.

248

Biocon
Annexure V: Syngene International Private Limited C: Notes to the statement of profits and losses and assets and liabilities, as restated 1. Adjustments resulting from changes in Accounting Policies a. Depreciation For and upto the accounting year ended March 31, 2000, Syngene International Private Limited (Syngene) had been providing depreciation on its assets on the written down value method based on the rates specified under schedule XIV of the Companies Act, 1956 (the Act). Further, upto March 31, 1999, the Company computed depreciation on additions from the first day of the month of the additions. Effective April 1, 2000, Syngene revised its policy to depreciate assets based on the estimated useful lives of its assets on the basis of a technical evaluation and also changed the method of providing depreciation to the straight-line method. Accordingly, depreciation on fixed assets has been recomputed based on the straight line method at the revised estimated useful lives for the year ended March 31, 1999 and 2000. In addition, depreciation for the nine-month period ended December 31, 2003, March 31, 2003, 2002 and 2001 have been recomputed by applying the rates based on the revised estimated useful lives retroactively. Further, reserves as at April 1, 1998 have been adjusted to reflect the impact of change pertaining to prior years. b. Leave encashment Hitherto, Syngene accrued for the liability for encashment of unavailed leave payable on retirement of employees on the basis of current employee compensation rates for the entire unavailed leave balance standing to the credit of the employees at the year-end. During the period ended December 31, 2003 Syngene changed its accounting policy in respect of leave encashment and accrued for the liability based on an actuarial valuation for the unavailed leave balance standing to the credit of the employees at period-end. Accordingly, the liability for the year ended March 31, 2003 has been recomputed in accordance with the revised accounting policy. During the year ended March 31, 2002, Syngene had valued its leave pay liability on actuarial basis, hence it is not recomputed. c. Deferred tax The Company adopted Accounting Standard 22, Accounting for taxes on income (AS 22) issued by ICAI for the first time in preparing its financial statements for the year ended March 31, 2002. Accordingly, for the purpose of this statement, the deferred tax asset/liability has been recognised in the respective years of origination with a corresponding effect to the statement of profits, as restated, with a corresponding adjustment to general reserve as at March 31, 2002. Syngene, constituting two 100 per cent Export Oriented Units (approved by the Cochin Export Processing Zone on December 14, 1998 and the Cochin Special Economic Zone on August 24, 2001), claims exemption under section 10B of the Income-Tax Act, 1961 (the Act). Syngene had created a deferred tax liability as at March 31, 2002, as the timing difference was expected to reverse after the respective tax holiday periods. Further, during the year ended March 31, 2003, Syngene received an approval from the Department of Scientific and Industrial Research (DSIR) for exemption of profits under section 80-IB (8A) of the Income-tax Act, 1961. Consequently, Syngene did not recognize any deferred tax liability/asset on account of timing differences, during the year ended March 31, 2003, as Syngene expects it to reverse during the tax holiday/tax deduction period. Accordingly, deferred tax asset/liability pertaining to the earlier years have been retroactively adjusted. 2. a. Other material adjustments Short/excess provision for income tax Refunds received for advance tax paid has been adjusted to the respective years to which it pertains. Provision for current tax has been restated to the respective year, where there was a shortfall in the provision for tax.

249

Biocon
3. Tax impact of adjustments Tax impact of adjustments pertain to tax effect on restatement adjustments other than adjustments arising for the matter discussed in paragraph 1(c) and 2(a) above, at the respective tax rates. 4. Non Adjustments /Regrouping Chemicals and reagents consumed, Employee costs and Other contract research and operating expenses have been regrouped and was included as part of Contract research and other operating expenses in the financial statements for the nine-months period ended December 31, 2003 and for the years ended March 31, 2003, 2002, 2001, 2000 and 1999.

250

Biocon
Annexure V: Syngene International Private Limited D: Significant accounting policies 1.1 Basis of preparation of financial statements The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and to comply in all material respects with the mandatory accounting standards issued by the Institute of Chartered Accountants of India. The significant accounting policies are as follows: 1.2 Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation. Syngene International Private Limited (Syngene) capitalises all costs relating to the acquisition and installation of fixed assets. Fixed assets are depreciated pro rata to the period of use, on the straight line method at the annual rates based on the estimated useful lives. Per cent Buildings Plant and machinery Furniture and fixtures Vehicles Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase. 1.3 Investments Investments that are readily realisable and intended to be held for not more than a year are classified as current investments. All other investments are classified as long term investments. Current investments are carried at lower of cost and fair value and determined on an individual investment basis. Long term investments are carried at cost. However, provision for diminution in value is made to recognise a decline other than temporary in the value of the investments. 1.4 Inventories Inventories comprise chemicals and reagents, and are valued at the lower of cost and net realisable value, on a first in first out basis. 1.5 Revenue recognition (i) Contract research fee Contract research fees are recognized as services are rendered, in accordance with the terms of the contracts. (ii) Sale of compounds Sales are recognised on dispatch of goods to customers, and comprise amounts invoiced for goods sold. 1.6 Retirement benefits Syngene has schemes of retirement benefits for gratuity and superannuation, in respect of which, Syngenes contributions are charged to the profit and loss account. The gratuity and superannuation fund benefits of Syngene are administered by a trust formed for this purpose through the group gratuity and superannuation scheme with Birla Sun Life Insurance Company Limited (Birla Sunlife). In respect of gratuity the liability is based on an independent actuarial valuation at the period-end. In respect of superannuation the liability is based on the schemes of Syngene. 1.7 Leave encashment Liability for leave encashment is in accordance with the rules of Syngene and is provided on the basis of an actuarial valuation performed by an independent actuary. Upto March 31, 2003, Syngene provided for leave encashment on a full liability basis. The impact on net profit before taxes for the nine month period ended December 31, 2003 as a result of this change is not material.
251

4.00 11.11 - 33.33 16.67 16.67

Biocon
1.8 Foreign currency transactions Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing on the date of the balance sheet. Syngene has entered into foreign exchange contracts, the difference between the forward rates and the spot rates at the date of the transaction is recognised in the profit and loss account over the life of the contract. All exchange differences are dealt with in the statement of profit and loss, except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets. 1.9 Income tax Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the current tax rates based on assessable income. Syngene provides for deferred tax based on the tax effect of timing differences resulting from the recognition of items in the financial statements and in estimating its current tax provision. Deferred tax assets are recognised and carried forward only to the extent that there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. The effect on deferred taxes of a change in tax rates is recognised in income in the period in which the change is substantially enacted. The provision for current tax is based on the earnings for the period from April 1, 2003 to December 31, 2003 and the actual tax liability of Syngene will be determined on the basis of the earnings for the period from April 1, 2003 to March 31, 2004. 1.10 Earnings per share The earnings considered in ascertaining Syngenes earnings per share comprise of the net profit after tax. The number of shares used in computing the basic earnings per share is the weighted average number of shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average share considered for deriving basic earnings per share, and also the weighted average number of shares, which would have been issued on the conversion of dilutive potential equity shares, if any. 1.11Operating lease Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognized as an expense on a straight-line basis over the lease term.

252

Biocon
Annexure VI: Clinigene International Private Limited A: Summary statements of profits and losses, as restated
(All amounts in Indian Rupees) Nine months ended December 31, 2003 Year ended March 31, 2003 Year ended March 31, 2002 August 4, 2000 (the date of incorporation) to March 31, 2001

Income Contract research fees Other Income Total Expenditure Contract research and other operating expenses Employee cost Interest Depreciation Total Net profit/(loss) before taxation and extraordinary items Current tax charge Deferred tax charge/(credit) Net profit/(loss) after tax before adjustments Increase/(decrease) in net profits: Impact of changes in accounting policies: Deferred tax (Refer Note 1a on Annexure VI C) Total impact of adjustments Net profit/(loss), as restated Appropriations Dividends - on equity shares, interim Corporate dividend tax Transfer to general reserve Balance carried forward, as restated (19,011,111) (5,565,919) 5,000,000 510,000 880,000 2,012,850 (188,370) (19,011,111) (5,565,919) 8,402,850 123,245 123,245 (188,370) 12,567,664 6,702,192 20,565 1,153,599 20,444,020 (19,011,111) (19,011,111) 12,907,361 2,973,340 355,460 889,472 17,125,633 (6,052,929) (487,010) (5,565,919) 11,259,015 703,098 400,488 840,655 13,203,256 13,494,046 4,480,942 610,254 8,402,850 3,647,773 168,055 32,729 114,148 3,962,705 (311,615) (311,615) 1,427,180 5,729 1,432,909 11,072,704 11,072,704 26,697,302 26,697,302 3,473,813 177,277 3,651,090

The above statement should be read with notes to summary statement of Profits and Losses and Assets and Liabilities, as restated and significant accounting policies appearing in this Annexure.

253

Biocon
Annexure VI: Clinigene International Private Limited B: Summary statements of assets and liabilities, as restated
(All amounts in Indian Rupees) As at Fixed Assets Gross Block Less : Accumulated depreciation Net Block Capital work in progress Total Current Assets Inventories Sundry debtors Cash and bank balances Loans and advances Total Liabilities and Provisions Current liabilities and provisions Deferred tax liability/(asset) Total Networth Represented by Share capital Reserves and surplus Networth 500,000 (21,872,552) (21,372,552) 500,000 (2,861,441) (2,361,441) 500,000 2,704,478 3,204,478 500,000 (188,370) 311,630 42,290,107 42,290,107 (21,372,552) 17,443,907 17,443,907 (2,361,441) 11,227,804 487,010 11,714,814 3,204,478 7,421,645 (123,245) 7,298,400 311,630 1,543,090 9,094 1,771,089 3,323,273 5,138,679 858 2,147,626 7,287,163 687,156 8,294,428 2,727 44,033 9,028,344 934 1,236,651 1,237,585 11,779,499 2,997,874 8,781,625 8,812,657 17,594,282 9,639,578 1,844,275 7,795,303 7,795,303 6,845,751 954,803 5,890,948 5,890,948 5,766,899 114,148 5,652,751 719,694 6,372,445 December 31, 2003 March 31, 2003 March 31, 2002 March 31, 2001

The above statement should be read with notes to summary statement of Profits and Losses and Assets and Liabilities, as restated and significant accounting policies appearing in this Annexure.

254

Biocon
Annexure VI: Clinigene International Private Limited C: Notes to the statement of profits and losses and assets and liabilities, as restated 1. Adjustments resulting from changes in Accounting Policies a. Deferred tax Clinigene International Private Limited (Clinigene) adopted Accounting Standard 22, Accounting for taxes on income (AS 22) issued by ICAI for the first time in preparing its financial statements for the year ended March 31, 2002. Accordingly, for the purpose of this statement, the deferred tax asset/liability has been recognised in the respective years of origination with a corresponding effect to the statement of profits, as restated, with a corresponding adjustment to general reserve during the year ended March 31, 2002. 2. Regroupings Employee costs have been regrouped and was included as part of Contract research and other operating expenses and in the financial statements for the nine-months period ended December 31, 2003 and for the years ended March 31, 2003, 2002 and 2001.

255

Biocon
Annexure VI: Clinigene International Private Limited D: Significant accounting policies 1.1 Basis of preparation of financial statements The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and to comply in all material respects with the mandatory accounting standards issued by the Institute of Chartered Accountants of India. The significant accounting policies are as follows: 1.2 Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation. Clinigene International Private Limited (Clinigene) capitalises all costs relating to the acquisition and installation of fixed assets. Fixed assets are depreciated pro rata to the period of use, on the straight line method at the annual rates based on the estimated useful lives. Per cent Plant and machinery Air conditioners Furniture and fixtures Computers Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase. 1.3 Inventories Inventories comprise of research material, and are valued at the lower of cost and net realisable value. 1.4 Revenue recognition Clinigene enters into two types of contract research arrangements and the revenues therefrom are recognised on the following basis: (i) Time and material management Revenues are recognised as services are rendered, in accordance with contractual agreements. (ii) Fixed price arrangements Revenues relating to fixed price contracts are recognised based on the percentage of completion method. 1.5 Retirement benefits Clinigene has schemes of retirement benefits for gratuity and superannuation, in respect of which, Clinigenes contributions are charged to the profit and loss account. The gratuity and superannuation fund benefits of Clinigene are administered by a trust formed for this purpose through the group gratuity and superannuation scheme with Birla Sun Life Insurance Company Limited (Birla Sunlife). In respect of gratuity, Clinigene has accrued for the liability based on an independent actuarial valuation at the period-end. In respect of superannuation, the liability is based on the schemes of the Clinigene. 1.6 Leave encashment Liability for leave encashment is in accordance with the rules of Clinigene and is provided on the basis of an actuarial valuation performed by an independent actuary. Upto March 31, 2003, Clinigene provided for leave encashment on a full liability basis. The impact on the net loss for the nine month period ended December 31, 2003 as a result this of change is not material. 1.7 Foreign currency transactions Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing on the date of the balance sheet. Where Clinigene has entered into foreign exchange contracts, the difference between the 9.09 16.67 16.67 33.33

256

Biocon
forward rates and the spot rates at the date of the transaction is recognised in the profit and loss account over the life of the contract. All exchange differences are dealt with in the statement of profit and loss, except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets. 1.8 Income tax Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the current tax rates based on assessable income. Clinigene provides for deferred tax based on the tax effect of timing differences resulting from the recognition of items in the financial statements and in estimating its current tax provision. Deferred tax assets resulting from tax losses carried forward are recognised and carried forward only to the extent that there is virtual certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. The effect on deferred taxes of a change in tax rates is recognised in income in the period in which the change is substantially enacted. 1.9 Loss per share Loss considered in ascertaining the Clinigenes loss per share comprise of the net loss after tax. The number of shares used in computing the basic earnings per share is the weighted average number of shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average share considered for deriving basic earnings per share, and also the weighted average number of shares, if any which would have been issued on the conversion of dilutive potential equity shares, if any. 1.10 Operating lease Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term.

257

Biocon
Annexure VII: Biocon Biopharmaceuticals Private Limited A: Summary statements of Profits and Losses, as restated
(All amounts in Indian Rupees) Nine months period ended December 31, 2003 Income Expenditure Travel and conveyance Rates and taxes Audit fees Employee costs Depreciation Interest Miscellaneous expenses Loss for the period Adjustments Decrease in Net loss Impact of changes in accounting policies: Amortisation of expenditure pending allocation (Refer Note 1.3 on Annexure VII C) Total impact of adjustments Net loss, as restated Profit and Loss account, beginning of the year Profit and Loss account, as restated The above statement should be read with the significant accounting policies attached hereto 1,613,908 1,629,819 3,243,727 1,629,819 1,629,819 1,629,819 1,629,819 455,664 347,750 187,500 477,101 21,711 92,577 31,605 1,613,908 1,613,908 June 17, 2002 (the date of incorporation) to March 31, 2003 -

258

Biocon
Annexure VII: Biocon Biopharmaceuticals Private Limited B. Summary statements of assets and liabilities, as restated
(All amounts in Indian Rupees) As at December 31, 2003 Fixed assets Gross Block Less : Accumulated depreciation Net Block Capital advances Total Current assets Cash and bank balances Total Liabilities and provisions Current liabilities and provisions Total Networth Represented by Share capital Reserves and surplus Networth The above statement should be read with the significant accounting policies attached hereto. 200,000 (3,243,726) (3,043,726) 100,000 (1,629,819) (1,529,819) 4,588,965 4,588,965 (3,043,726) 1,629,819 1,629,819 (1,529,819) 9,870 9,870 100,000 100,000 92,500 21,711 70,789 1,464,580 1,535,369 As at March 31, 2003

Annexure VII: Biocon Biopharmaceuticals Private Limited C: Significant accounting policies 1.1 Basis of preparation of financial statements The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and to comply in all material respects with the mandatory accounting standards issued by the Institute of Chartered Accountants of India. The significant accounting policies are as follows: 1.2 Fixed assets and depreciation Fixed assets are stated at cost less accumulated depreciation. Biocon Biopharmaceuticals Private Limited capitalises all costs relating to the acquisition and installation of fixed assets. Fixed assets are depreciated pro rata to the period of use, on the straight line method at the annual rates based on the estimated useful lives. Per cent Computers Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase. 33.33

259

Biocon
1.3 Expenditure pending allocation Effective April 1, 2003, Biocon Biopharmaceuticals Private Limited has revised its accounting policy and has decided for an early adoption of Accounting Standard 26 Intangible Assets (AS 26) issued by the Institute of Chartered Accountants of India and accordingly has fully amortised the expenditure pending allocation at March 31, 2003. The change in the accounting policy has resulted in the expensing of Rs. 1,629,819 relating to expenditure pending allocation at March 31, 2003 and, consequently, in accordance with the transitional provisions of AS 26 adjusted this amount to the accumulated losses at April 1, 2003. 1.4 Foreign currency transactions Foreign currency transactions during the period are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing on the date of the balance sheet. Where Biocon Biopharamceuticals Private Limited has entered into foreign exchange contracts, the difference between the forward rates and the spot rates at the date of the transaction is recognised in the profit and loss account over the life of the contract. All exchange differences are dealt with in the profit and loss account, except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets. 1.5 Borrowing costs Borrowing costs that are attributable to the acquisition and construction of a qualifying fixed asset are capitalised as a part of the cost of the asset. 1.6 Loss per share Loss considered in ascertaining Biocon Biopharmaceuticals Private Limiteds loss per share comprises of the net loss for the period. The number of shares used in computing the basic earnings per share is the weighted average number of shares outstanding during the period. The number of shares used in computing diluted earnings per share comprises the weighted average share considered for deriving basic earnings per share, and also the weighted average number of shares, if any which would have been issued on the conversion of dilutive potential equity shares, if any.

260

Annexure VIII: Accounting Ratios

Nine months ended December 31, 2003 Pre Split * Earnings per share (Rs) Return on net worth % Net asset value per equity share (Rs.) Weighted average number of equity shares outstanding during the year/period Total number of shares outstanding at the end of the year/period 19.14 41% 47.11 Post Split 9.57 41% 23.56 Year ended March 31, 2003 Pre Split 7.85 28% 27.72 Post Split 3.93 28% 13.86 Year ended March 31, 2002 Pre Split 5.64 25% 19.28 38,110,196 44,611,379 Post Split 2.82 25% 9.64 76,220,392 89,222,757 Year ended March 31, 2001 Pre Split 3.96 26% 15.28 36,662,328 36,669,741 Post Split 1.98 26% 7.64 73,324,656 73,339,482 Year ended March 31, 2000 Pre Split 3.24 13% 11.32 Post Split 1.62 13% 5.66 Year ended March 31, 1999 Pre Split 0.93 14% 6.67 Post Split 0.46 14% 3.33

45,000,000 90,000,000 44,958,476 89,916,952 45,000,000 90,000,000 45,000,000 90,000,000

17,073,354 34,146,707 36,648,927 73,297,853

14,251,898 28,503,796 14,251,898 28,503,796

Notes: 1. The ratios have been computed as below: Earnings per share (Rs.) Net profit, as restated attributable to equity shareholders Weighted average number of equity shares outstanding during the year/period Return on net worth (%) Net profit after tax, as restated Net worth excluding revaluation reserve at the end of the year/period Net asset value per equity share (Rs.) Net worth excluding revaluation reserve at the end of the year/period Number of equity shares outstanding at the end of the year/period 2. 3. Net profit, as restated as appearing in the Statement of profits and losses, as restated has been considered for the purpose of computing the above ratios. These ratios are computed on the basis of the standalone (unconsolidated) restated financial statements. The shareholders at the Extraordinary General Meeting (EGM) of the Company held on November 11, 2003, approved the sub-division of equity shares of face value of Rs. 10 each into 2 equity shares of Rs. 5 each and increase in authorised capital from Rs. 20,000,000 to Rs. 600,000,000. The Board of Directors in their meeting held on November 28, 2003 passed a resolution for effecting the sub-division. Subsequent to this sub-division, the authorised equity share capital of Rs. 20,000,000 has been divided into 4,000,000 equity shares of Rs. 5 each and the issued, subscribed and paid-up capital of Rs. 18,376,500 has been divided into 3,675,300 shares of Rs. 5 each. Further, the shareholders at the EGM of the Company held on November 11, 2003 approved the allotment of 86,324,700 equity shares of Rs. 5 each as bonus shares in the ratio of 1:23.48779580 to the shareholders existing as on November 11, 2003, which was the approved record date for this purpose, by capitalisation of the balance in the profit and loss account of Rs. 431,623,500. Earnings per share calculations are done in accordance with Accounting Standard 20 Earnings Per Share issued by the Institute of Chartered Accountants of India, accordingly, share split and bonus shares issued are adjusted and disclosed for all the earlier financial years Earnings per share for nine months period ended December 31, 2003 are not comparable with that of other financial years presented above.

261

4.

5. 6.

* The stock split was effected before December 31, 2003 and has been included here for comparative purposes.

Biocon

Biocon
Annexure IX: Capitalisation statement as at December 31, 2003
Pre issue Short term debt Long term debt Total debt Shareholders funds Share capital Reserves (excluding revaluation reserve), as restated 450,000,000 1,669,950,211 2,119,950,211 0.12 390,019,313 260,329,812 650,349,125 Post issue *

Total shareholders funds Long term debt/equity Notes:

* Share capital and reserves and surplus post issue can be calculated only on the conclusion of the book building process.

Note:
1. Long term debt includes current portion of long term debt payable over the next twelve months and deferred sales tax payment benefit available to the Company.

262

Biocon
Annexure X: Statement of tax shelters
(All amounts in Indian Rupees) Nine months ended December 31, 2003 Profit before current and deferred taxes, as restated Tax rate (%) E Tax impact F Adjustments Permanent Differences Impact in respect of units exempt u/s 10 B of Income Tax Act, 1961 (the Act) Deduction u/s 80 HHC of the Act Deduction u/s 80 O of the Act Deduction u/s 80G of the Act Deduction u/s 35 (2AB) of the Act Expenses disallowed Long-term capital gain charged at lower rate of tax Dividend exempt u/s 10 (33) of the Act Others Total A Temporary Differences Difference between book depreciation and tax depreciation Provision for doubtful debts and advances Provision for retirement benefits Unabsorbed depreciation Technical know how Others Total B Net Adjustment C=A+B Tax saving thereon D=C*E Net impact G=F+D MAT credit utilised Interest u/s 234 of the Act Prior years short/(excess) provision rectified Taxable income as per MAT Tax as per MAT Additional MAT provision in financial statements Restated tax provision for the year Tax effect of adjustments Provision for current tax as per the books of accounts 1,076,564,463 35.875% 386,217,501 Year ended March 31, 2003 489,198,015 36.75% 179,780,271 Year ended March 31, 2002 277,343,754 35.70% 99,011,720 Year ended March 31, 2001 217,301,948 39.55% 85,942,920 Year ended Year ended March 31, March 31, 2000 1999 69,239,391 38.50% 26,657,166 18,852,223 35.00% 6,598,278

(366,726,617) (75,467,232) (47,440,589) 13,593,462 (476,040,976)

(48,305,398) (56,170,665) (366,425) (49,126,020) 33,863,779 (1,704,985) (121,809,714)

(23,002) (31,277,486) (2,106,590) (26,562,507) (80,000) (60,049,585)

(26,548,742) (3,477,808) (5,000) (1,282) 176,847 (29,855,985)

(34,777,275)

- (1,449,964) - (1,876,169) (275,782) 3,935,233 (31,117,824) (3,326,133)

(59,877,044) (118,462,734)

(94,227,842) (110,604,060)

(68,400,352) (5,520,472) 4,628,072 1,090,902 3,990,601 29,465,399 3,543,438 (675,234) (29,672,541) (2,205,105) (60,790,365) (5,531,238) (23,404,291) (1,935,934) 3,252,875 4,662,344 (42,819) 7,487,740 2,882,780 217,220 6,352,875 3,252,875 3,100,000 4,619,525 (80,475) 4,700,000

5,390,875 4,609,125 (9,386,868) 7,558,231 (16,017,954) 14,994,890 7,281,298 - (33,285,893) 12,462,188 1,062,215 (313,455) (1,473,421) 2,322,496 (45,865,723) (117,722,830) (80,706,373) (143,673,027) (521,906,699) (239,532,544) (140,755,958) (173,529,012) (187,234,025) (87,670,163) (50,249,877) (68,630,723) 198,983,476 92,110,107 48,761,843 17,312,197 (2,882,780) 1,230,773 2,439,838 1,281,164 - (13,149,604) 2,749,400 198,983,476 (2,656,758) 201,640,234 80,191,276 4,385,022 75,806,254 51,201,681 1,201,681 50,000,000 18,459,981 (19,540,019) 38,000,000

263

Biocon
Annexure XI: STATEMENT OF POSSIBLE BENEFITS AVAILABLE TO BIOCON LIMITED, ITS SUBSIDIARIES AND ITS SHAREHOLDERS 1. Benefits available to the Company 1.1.1 Tax holiday under section 10B of the Act As per the provisions of section 10B of the Act, the Company is eligible to claim a deduction of the profits derived by its export oriented undertaking/s from the export of articles or things or computer software for a period of ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking/s begin to manufacture or produce such articles or things or computer software. The profits derived from the export of articles or things or computer software shall be the amount, which bears to the profits of the undertaking/s the same proportion as the export turnover of the undertaking/s bears to the total turnover of the undertaking/s. For the assessment year 2003-2004, the tax holiday under section 10B of the Act has been limited to 90 percent of the eligible profits instead of 100 percent of such profits. The benefit is available subject to fulfillment of conditions prescribed by section 10B and no benefit under this section shall be allowed with respect to any such undertaking for the assessment year beginning on the 1st day of April 2010 and subsequent years. 1.1.2 Deduction under section 80HHC of the Act As per the provisions of section 80HHC, an Indian company engaged in the business of export out of India of any goods or merchandise to which the section applies can claim a deduction under the section. In case of the export of goods or merchandise manufactured by the Company, the profits eligible for deduction shall be the amount, which bears to the profits of the business the same proportion as the export turnover bears to the total turnover of the business. The deduction under this section is gradually being phased out as under: Relevant Years For the year ended 31 March 2001 For the year ended 31 March 2002 For the year ended 31 March 2003 For the year ended 31 March 2004 Deduction as percentage of eligible profits 80 per cent 70 per cent 50 per cent 30 per cent 1.1 Under the Income-tax Act, 1961 (the Act)

No deduction shall be allowed under this section for the year ended March 31, 2005 and onwards. Once a tax benefit under this section is claimed, no further tax deduction is allowed to be claimed under any other provisions of the Act. In the event, the Company becomes ineligible for claiming the benefits under section 10B in respect of any of its undertakings due to noncompliance with the conditions of section 10B, it could claim a deduction under section 80HHC of the Act up to the financial year 2003-2004, provided the conditions specified in the said section are fulfilled. 1.1.3 Deduction under section 80-O of the Act As per the provisions of section 80-O of the Act, where an Indian company receives income as a consideration for the use outside India of any patent, invention, design or registered trademark, it can claim a deduction of the prescribed percentage of the income so received.

264

Biocon
The deduction under this section is gradually being phased out as under: Relevant Years For the year ended 31 March 2001 For the year ended 31 March 2002 For the year ended 31 March 2003 For the year ended 31 March 2004 1.1.4 Weighted deduction under section 35(2AB) of the Act As per the provisions of section 35(2AB) of the Act, any company engaged in the business of bio-technology or in the business of manufacture or production of, inter-alia, any drugs or pharmaceuticals can avail a weighted deduction to the extent of 1.5 times of expenditure on scientific research incurred by it in-house research and development facility approved by the prescribed authority. The expenditure may be capital or revenue in nature (other than expenditure on the cost of land and building). The authority prescribed for this purpose is the Department of Scientific and Industrial Research. No deduction shall be allowed under this section in respect of expenditure incurred after March 31, 2005 and onwards. 1.1.5 Dividends exempt under section 10(34) of the Act Dividends received by the Company from its subsidiaries (whether interim or final) which is declared, distributed or paid by the subsidiaries on or after April 1, 2003 would be exempt in the hands of the Company as per the provisions of section 10(34) of the Act. 1.1.6 Computation of capital gains Capital assets may be categorised into short term capital assets and long term capital assets based on the period of holding. All capital assets (except shares held in a Company or any other listed securities or units of UTI or Mutual Fund units) are considered to be long term capital assets if they are held for a period in excess of 36 months. Shares held in a company, any other listed securities, units of UTI and Mutual Fund units are considered as long term capital assets if these are held for a period exceeding 12 months. Consequently, capital gains arising on sale of shares held in a company or any other listed securities or units of UTI or Mutual Fund units held for more than 12 months are considered as long term capital gains. Section 48 of the Act, which prescribes the mode of computation of capital gains, provides for deduction of cost of acquisition / improvement and expenses incurred in connection with the transfer of a capital asset, from the sale consideration to arrive at the amount of capital gains. However, in respect of long term capital gains, it offers a benefit by permitting substitution of cost of acquisition / improvement with the indexed cost of acquisition / improvement, which adjusts the cost of acquisition / improvement by a cost inflation index, as prescribed from time to time. As per the provisions of section 112(1)(b) of the Act, long term capital gains as computed above would be subject to tax at a rate of 20 percent (plus applicable surcharge). However, as per the proviso to section 112(1), if the long term capital gains resulting on transfer of listed securities or units, calculated at the rate of 20 percent with indexation benefit exceeds the gains computed at the rate of 10 percent without indexation benefit, then such gains are chargeable to tax at the rate of 10 percent without indexation benefit (plus applicable surcharge). 1.1.7 Exemption of capital gain from income tax
n

Deduction as percentage of income so received 40 per cent 30 per cent 20 per cent 10 per cent

No deduction shall be allowed under this section for the year ended March 31, 2005 and onwards.

Long term capital gain arising from transfer of an eligible equity share in a company purchased during the period March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or more are exempt from tax under section 10(36) of the Act. Eligible equity share means:
265

Biocon
-

any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as on March 1, 2003 and the transactions of purchase and sale of such equity shares are entered into on a recognised stock exchange in India; or any equity share in a company allotted through a public issue on or after March 1, 2003 and listed on a recognised stock exchange in India before March 1, 2004 and the transaction of sale of such equity shares is entered into on a recognised stock exchange in India.

The Central Board of Direct Taxes (CBDT) has clarified vide Circular number 7/2003 dated September 5, 2003, that public issue shall include the offer of equity shares in a company to the public through a prospectus, whether by the company or by the existing shareholders of the company.
n

As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capital gains arising to the Company on transfer of a long term capital asset shall not be chargeable to tax to the extent such capital gains are invested in certain notified bonds within six months from the date of transfer. However, if the Company transfers or converts the notified bonds into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capital gains in the year in which the bonds are transferred or converted into money. As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capital gains arising from transfer of long term assets, being listed securities or units shall not be chargeable to tax to the extent such gains are invested in acquiring equity shares forming part of an eligible issue of share capital within six months from the date of transfer of the long term assets. Eligible issue of share capital has been defined as an issue of equity shares which satisfies the following conditions the issue is made by a public company formed and registered in India; and the shares forming part of the issue are offered for subscription to the public.

1.2 Benefits available under Indirect Tax Laws 1.2.1 Customs duty Benefits available to Export Oriented Unit The Company has two units registered as Export Oriented Units (EOU). Under the EXIM Policy, specified goods imported by the EOUs are exempt from customs duty, subject to satisfaction of the specified conditions and the unit(s) meeting the prescribed export obligations. Other benefits available The Company is, subject to the satisfaction of the specified conditions, eligible for the benefits under the various export promotion schemes such as Advance License, duty drawbacks, Export Promotion Capital Goods (EPCG) Scheme, etc. However, these benefits are dependent on meeting the prescribed export obligations and other conditions prescribed. 1.2.2 Excise duty Benefits available to the EOUs Subject to satisfaction of the specified conditions, specified goods procured by the EOUs from local manufacturers are exempt from excise duty. Exports made by the EOU are not liable to Excise duty. Other benefits available The Company is not eligible to any other exemptions/concessions under the excise laws for the time being in force. 1.2.3 Sales tax Benefits available to the EOUs

266

Biocon
Export sales made by the EOU are not liable to sales tax. The Central sales tax paid by the EOUs on inputs can be claimed as a reimbursement, subject to fulfillment of the conditions prescribed. Local sales tax exemptions would be available on inputs based on the policies of the applicable Karnataka Sales tax laws from time to time. Other benefits available The Company is availing the benefit of deferring its sales tax liability for its manufacturing facilities in Bommasandra and Hebbagodi, in accordance with the Agro Food Processing Industrial Policy of the Government of Karnataka, for a period of 8 years and 12 years respectively. 1.2.4 Service tax No service tax will be leviable on the taxable services if the proceeds are received in convertible foreign exchange in India and the same are not repatriated outside India. 2. Benefits available to subsidiaries 2.1.1 Tax holiday under section 10B of the Act As per the provisions of section 10B of the Act, Syngene is eligible to claim a deduction of the profits derived by its export oriented undertaking/s from the export of articles or things or computer software for a period of ten consecutive assessment years, beginning with the assessment year relevant to the previous year in which the undertaking/s begin to manufacture or produce such articles or things or computer software. The profits derived from the export of articles or things or computer software shall be the amount, which bears to the profits of the undertaking/s the same proportion as the export turnover of the undertaking/s bears to the total turnover of the undertaking/s. For the assessment year 2003-2004, the tax holiday under section 10B of the Act has been limited to 90 percent of the eligible profits instead of 100 percent of such profits. The benefit is available subject to fulfillment of conditions prescribed by section 10B and no benefit under this section shall be allowed with respect to any such undertaking for the assessment year beginning on the 1st day of April 2010 and subsequent years. 2.1.2 Deduction under section 80HHC of the Act As per the provisions of section 80HHC, an Indian company engaged in the business of export out of India of any goods or merchandise to which the section applies can claim a deduction under the section. In case of the export of goods or merchandise manufactured by the Company, the profits eligible for deduction shall be the amount, which bears to the profits of the business the same proportion as the export turnover bears to the total turnover of the business. The deduction under this section is gradually being phased out as under: Relevant Years For the year ended 31 March 2001 For the year ended 31 March 2002 For the year ended 31 March 2003 For the year ended 31 March 2004 Deduction as percentage of eligible profits 80 per cent 70 per cent 50 per cent 30 per cent 2.1 Syngene International Private Limited (Syngene)

No deduction shall be allowed under this section for the year ended March 31, 2005 and onwards. Once a tax benefit under this section is claimed, no further tax deduction is allowed to be claimed under any other provisions of the Act. In the event, Syngene becomes ineligible for claiming the benefits under section 10B in respect of any of its undertakings due to non-compliance with the conditions of section 10B, it could claim a deduction under section 80HHC of the Act up to the financial year 2003-2004, provided the conditions specified in the said section are fulfilled.
267

Biocon
2.1.3 Deduction under section 80-IB(8-A) of the Act As per the provision of section 80-IB(8-A) of the Act, an Indian company, whose main object is the carrying on of scientific and industrial research and development can avail of a deduction of 100 percent of the profits and gains of such business for a period of 10 consecutive assessment years. This deduction is available subject to the satisfaction of the prescribed conditions including obtaining an approval from the prescribed authority, being the Department of Scientific and Industrial Research. 2.1.4 Computation of capital gains Capital assets may be categorised into short term capital assets and long term capital assets based on the period of holding. All capital assets (except shares held in a Company or any other listed securities or units of UTI or Mutual Fund units) are considered to be long term capital assets if they are held for a period in excess of 36 months. Shares held in a company, any other listed securities, units of UTI and Mutual Fund units are considered as long term capital assets if these are held for a period exceeding 12 months. Consequently, capital gains arising on sale of shares held in a company or any other listed securities or units of UTI or Mutual Fund units held for more than 12 months are considered as long term capital gains. Section 48 of the Act, which prescribes the mode of computation of capital gains, provides for deduction of cost of acquisition / improvement and expenses incurred in connection with the transfer of a capital asset, from the sale consideration to arrive at the amount of capital gains. However, in respect of long term capital gains, it offers a benefit by permitting substitution of cost of acquisition / improvement with the indexed cost of acquisition / improvement, which adjusts the cost of acquisition / improvement by a cost inflation index, as prescribed from time to time. As per the provisions of section 112(1)(b) of the Act, long term gains as computed above would be subject to tax at a rate of 20 percent (plus applicable surcharge). However, as per the proviso to section 112(1), if the long term capital gains resulting on transfer of listed securities or units, calculated at the rate of 20 percent with indexation benefit exceeds the gains computed at the rate of 10 percent without indexation benefit, then such gains are chargeable to tax at the rate of 10 percent without indexation benefit (plus applicable surcharge). 2.1.5 Exemption of capital gains
n

Long term capital gain arising from transfer of an eligible equity share in a company purchased during the period March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or more are exempt from tax under section 10(36) of the Act. Eligible equity share means:
-

any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as on 1 March 2003 and the transactions of purchase and sale of such equity share are entered into on a recognised stock exchange in India; or any equity share in a company allotted through a public issue on or after 1 March, 2003 and listed on a recognised stock exchange in India before 1 March, 2004 and the transaction of sale of such equity share is entered into on a recognised stock exchange in India.

The CBDT has clarified vide Circular number 7/2003 dated September 5, 2003, that public issue shall include the offer of equity shares in a company to the public through a prospectus, whether by the company or by the existing shareholders of the company.
n

As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capital gains arising to the Company on transfer of a long term capital asset shall not be chargeable to tax to the extent such capital gains are invested in certain notified bonds within six months from the date of transfer. However, if the Company transfers or converts the notified bonds into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capital gains in the year in which the bonds are transferred or converted into money.

268

Biocon
n

As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capital gains arising from transfer of long term capital assets, being listed securities or units shall not be chargeable to tax to the extent such gains are invested in acquiring equity shares forming part of an eligible issue of share capital within six months from the date of transfer of the long term capital assets. Eligible issue of share capital has been defined as an issue of equity shares which satisfies the following conditions the issue is made by a public company formed and registered in India; and the shares forming part of the issue are offered for subscription to the public.

2.1.6 Benefits available under Indirect Tax Laws Syngene has two units registered as Export Oriented Units (EOU). The Key benefits that could be available under the indirect tax laws to EOUs, subject to satisfaction of the specified conditions, are as under : Customs duty Under the EXIM Policy, specified goods imported by these EOUs are exempt from customs duty, subject to satisfaction of the specified conditions and the unit(s) meeting the prescribed export obligations. Excise duty Subject to satisfaction of the specified conditions, specified goods procured by the EOUs of Syngene from local manufacturers are exempt from excise duty. Exports made by the EOUs are not liable to Excise duty. Sales tax Export sales made by the EOUs are not liable to sales tax. The Central sales tax paid by these units on inputs can be claimed as a reimbursement subject to fulfillment of the conditions prescribed. Local sales tax exemptions on inputs would be available based on the policies of the applicable Karnataka Sales tax laws from time to time. Service tax No service tax will be leviable on the taxable services if the proceeds are received in convertible foreign exchange in India and the same are not repatriated outside India. 2.2 Clinigene International Private Limited (Clinigene) 2.2.1 Computation of capital gains Capital assets may be categorised into short term capital assets and long term capital assets based on the period of holding. All capital assets (except shares held in a Company or any other listed securities or units of UTI or Mutual Fund units) are considered to be long term capital assets if they are held for a period in excess of 36 months. Shares held in a Company, any other listed securities, units of UTI and Mutual Fund units are considered as long term capital assets if these are held for a period exceeding 12 months. Consequently, capital gains arising on sale of Shares held in a Company or any other listed securities or units of UTI or Mutual Fund units held for more than 12 months are considered as long term capital gains. Section 48 of the Act, which prescribes the mode of computation of capital gains, provides for deduction of cost of acquisition / improvement and expenses incurred in connection with the transfer of a capital asset, from the sale consideration to arrive at the amount of capital gains. However, in respect of long term capital gains, it offers a benefit by permitting substitution of cost of acquisition / improvement with the indexed cost of acquisition / improvement, which adjusts the cost of acquisition / improvement by a cost inflation index, as prescribed from time to time. As per the provisions of section 112(1)(b) of the Act, long-term gains as computed above would be subject to tax at a rate of 20 percent (plus applicable surcharge). However, as per the proviso to section 112(1), if the long term capital gains resulting on transfer of listed securities or units, calculated at the rate of 20 percent with indexation benefit exceeds the gains computed at the rate of 10 percent without indexation benefit, then such gains are chargeable to tax at the rate of 10 percent without indexation benefit (plus applicable surcharge).
269

Biocon
2.2.2 Exemption of capital gains
n

Long term capital gain arising from transfer of an eligible equity share in a company purchased during the period March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or more are exempt from tax under section 10(36) of the Act. Eligible equity share means:
-

any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as on March 1, 2003 and the transactions of purchase and sale of such equity share are entered into on a recognised stock exchange in India; or any equity share in a company allotted through a public issue on or after March 1, 2003 and listed on a recognised stock exchange in India before March 1, 2004 and the transaction of sale of such equity share is entered into on a recognised stock exchange in India.

The CBDT has clarified vide Circular number 7/2003 dated September 5, 2003, that public issue shall include the offer of equity shares in a company to the public through a prospectus, whether by the company or by the existing shareholders of the company.
n

As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capital gains arising to the Company on transfer of a long term capital asset shall not be chargeable to tax to the extent such capital gains are invested in certain notified bonds within six months from the date of transfer. However, if the Company transfers or converts the notified bonds into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capital gains in the year in which the bonds are transferred or converted into money. As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capital gains arising from transfer of long term assets, being listed securities or units shall not be chargeable to tax to the extent such gains are invested in acquiring equity shares forming part of an eligible issue of share capital within six months from the date of transfer of the long term assets. Eligible issue of share capital has been defined as an issue of equity shares which satisfies the following conditions
-

the issue is made by a public company formed and registered in India; and the shares forming part of the issue are offered for subscription to the public.

2.2.3 Unabsorbed depreciation and business losses As per the provisions of section 32(2) of the Act, where full allowance cannot be given to the depreciation allowance in any year, the same can be carried forward and claimed in the subsequent years. Further, as per the provisions of section 72 of the Act, unabsorbed business losses which is not set off in any previous year can be carried forward and set off against the business profits of the subsequent assessment years, subject to a maximum of eight assessment years. However, the carry forward and set off of the unabsorbed depreciation and business losses are subject to provisions of section 79 of the Act dealing with carry forward and set off of losses in case of companies in which a change in shareholding has taken place and section 80 of the Act dealing with submission of returns for losses. 2.2.4 Benefits available under Indirect Tax Laws Most of the Indirect Tax benefits are available to entities earning export revenues. However, since Clinigene does not have any export oriented undertaking nor has substantial export revenues, it is not eligible to any special benefits under the indirect tax laws. 3. Benefits available to resident shareholders Under section 10(32) of the Act, any income of minor children clubbed in the total income of the parent under section 64(1A) of the Act will be exempt from tax to the extent of Rs. 1,500 per minor child. 3.1 Income of a minor exempt up to certain limit

270

Biocon
3.2 Dividends exempt under section 10(34) of the Act Dividends received (whether interim or final) which is declared, distributed or paid by the subsidiaries on or after April 1, 2003 would be exempt in the hands of shareholders as per the provisions of section 10(34) of the Act. 3.3 Computation of capital gains Capital assets may be categorised into short term capital assets and long term capital assets based on the period of holding. All capital assets (except shares held in a Company or any other listed securities or units of UTI or Mutual Fund units) are considered to be long term capital assets if they are held for a period in excess of 36 months. Shares held in a Company, any other listed securities, units of UTI and Mutual Fund units are considered as long term capital assets if these are held for a period exceeding 12 months. Consequently, capital gains arising on sale of Shares held in a Company or any other listed securities or units of UTI or Mutual Fund units held for more than 12 months are considered as long term capital gains. Section 48 of the Act, which prescribes the mode of computation of capital gains, provides for deduction of cost of acquisition / improvement and expenses incurred in connection with the transfer of a capital asset, from the sale consideration to arrive at the amount of capital gains. However, in respect of long term capital gains, it offers a benefit by permitting substitution of cost of acquisition / improvement with the indexed cost of acquisition / improvement, which adjusts the cost of acquisition / improvement by a cost inflation index as prescribed from time to time. As per the provisions of section 112(1)(b) of the Act, long term capital gains as computed above would be subject to tax at a rate of 20 percent (plus applicable surcharge). However, as per the proviso to section 112(1), if the long term capital gains resulting on transfer of listed securities or units, calculated at the rate of 20 percent with indexation benefit exceeds the gains computed at the rate of 10 percent without indexation benefit, then such gains are chargeable to tax at a concessional rate of 10 percent (plus applicable surcharge). 3.4 Exemption of capital gain from income tax
n

Long-term capital gain arising from transfer of an eligible equity share in a company, purchased during the period March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or more, are exempt from tax under section 10(36) of the Act. Eligible equity share means:
-

any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as on March 1, 2003 and the transactions of purchase and sale of such equity share are entered into on a recognised stock exchange in India; or any equity share in a company allotted through a public issue on or after March 1, 2003 and listed on a recognised stock exchange in India before March 1, 2004 and the transaction of sale of such equity share is entered into on a recognised stock exchange in India.

The CBDT has clarified vide Circular number 7/2003 dated September 5, 2003, that public issue shall include the offer of equity shares in a company to the public through a prospectus, whether by the company or by the existing shareholders of the company.
n

As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capital gains arising to an assessee on transfer of a long term capital asset shall not be chargeable to tax to the extent such capital gains are invested in certain notified bonds within six months from the date of transfer. However, if the assessee transfers or converts the notified bonds into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capital gains in the year in which the bonds are transferred or converted into money. As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capital gains arising from transfer of long term assets, being listed securities or units shall not be chargeable to tax to the extent such gains are invested in acquiring equity shares forming part of an eligible issue of share capital within six months from the date of transfer of the long term assets. Eligible issue of share capital has been defined as an issue of equity shares which satisfies the following conditions 271

Biocon
n

the issue is made by a public company formed and registered in India; and the shares forming part of the issue are offered for subscription to the public.

As per the provisions of section 54F of the Act and subject to the conditions specified therein, in the case of an individual or a Hindu Undivided Family (HUF), gains arising on transfer of a long term capital asset (not being a residential house) are not chargeable to tax if the entire net consideration received on such transfer is invested within the prescribed period in a residential house. If part of such net consideration is invested within the prescribed period in a residential house, then such gains would not be chargeable to tax on a proportionate basis. For this purpose, net consideration means full value of the consideration received or accrued as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. Further, if the residential house in which the investment has been made is transferred within a period of three years from the date of its purchase or construction, the amount of capital gains tax exempted earlier would become chargeable to tax as long term capital gains in the year in which such residential house is transferred.

4.

Benefits available to Non-Resident Indian shareholders Under section 10(32) of the Act, any income of minor children clubbed in the total income of the parent under section 64(1A) of the Act will be exempt from tax to the extent of Rs. 1,500 per minor child.

4.1 Income of a minor exempt up to certain limit

4.2 Dividends exempt under section 10(34) of the Act Dividends received (whether interim or final) which is declared, distributed or paid by the subsidiaries on or after April 1, 2003 would be exempt in the hands of the shareholders as per the provisions of section 10(34) of the Act. 4.3 Computation of capital gains Capital assets may be categorised into short term capital assets and long term capital assets based on the period of holding. All capital assets (except shares held in a Company or any other listed securities or units of UTI or Mutual Fund units) are considered to be long term capital assets if they are held for a period in excess of 36 months. Shares held in a company, any other listed securities, units of UTI and Mutual Fund units are considered as long term capital assets if these are held for a period exceeding 12 months. Consequently, capital gains arising on sale of shares held in a company or any other listed securities or units of UTI or Mutual Fund units held for more than 12 months are considered as long term capital gains. Section 48 of the Act contains special provisions in relation to computation of long term capital gains on transfer of an Indian companys shares by non-residents. Computation of long-term capital gains arising on transfer of shares in case of non-residents has to be done in the original foreign currency, which was used to acquire the shares. The capital gain (i.e., sale proceeds less cost of acquisition/ improvement) computed in the original foreign currency is then converted into Indian Rupees at the prevailing rate of exchange. 4.4 Capital gains tax - Options available under the Act (A) Where shares have been subscribed in convertible foreign exchange - Option of taxation under Chapter XII-A of the Act. Non-Resident Indians [as defined in section 115C(e) of the Act], being shareholders of an Indian Company, have the option of being governed by the provisions of Chapter XII-A of the Act, which inter alia entitles them to the following benefits in respect of income from shares of an Indian company acquired, purchased or subscribed to in convertible foreign exchange:
-

As per the provisions of section 115D read with section 115E of the Act and subject to the conditions specified therein, long term capital gains arising on transfer of an Indian companys shares, will be subject to tax at the rate of 10 percent (plus applicable surcharge), without indexation benefit.

272

Biocon
-

As per the provisions of section 115F of the Act and subject to the conditions specified therein, gains arising on transfer of a long term capital asset being shares in an Indian company shall not be chargeable to tax if the entire net consideration received on such transfer is invested within the prescribed period of six months in any specified asset or savings certificates referred to in section 10(4B) of the Act. If part of such net consideration is invested within the prescribed period of six months in any specified asset or savings certificates referred to in section 10(4B) of the Act then such gains would not be chargeable to tax on a proportionate basis. For this purpose, net consideration means full value of the consideration received or accrued as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. Further, if the specified asset or savings certificates in which the investment has been made is transferred within a period of three years from the date of investment, the amount of capital gains tax exempted earlier would become chargeable to tax as long term capital gains in the year in which such specified asset or savings certificates are transferred. As per the provisions of section 115G of the Act, Non-Resident Indians are not obliged to file a return of income under section 139(1) of the Act, if their only source of income is income from investments or long term capital gains earned on transfer of such investments or both, provided tax has been deducted at source from such income as per the provisions of Chapter XVII-B of the Act. Under section 115H of the Act, where the Non-Resident Indian becomes assessable as a resident in India, he may furnish a declaration in writing to the Assessing Officer, along with his return of income for that year under section 139 of the Act to the effect that the provisions of the Chapter XII-A shall continue to apply to him in relation to such investment income derived from the specified assets for that year and subsequent assessment years until such assets are converted into money. As per the provisions of section 115I of the Act, a Non-Resident Indian may elect not to be governed by the provisions of Chapter XII-A for any assessment year by furnishing his return of income for that assessment year under section 139 of the Act, declaring therein that the provisions of Chapter XII-A shall not apply to him for that assessment year and accordingly his total income for that assessment year will be computed in accordance with the other provisions of the Act. As per the provisions of section 112(1)(b) of the Act, long term capital gains as computed above would be subject to tax at a rate of 20 percent (plus applicable surcharge). However, as per the proviso to section 112(1), if the long term capital gains resulting on transfer of listed securities or units, calculated at the rate of 20 percent with indexation benefit exceeds the gains computed at the rate of 10 percent without indexation benefit, then such gains are chargeable to tax at a concessional rate of 10 percent (plus applicable surcharge).

(B)

Where the shares have been subscribed in Indian Rupees

n

4.5 Exemption of capital gain from income tax n Long term capital gain arising from transfer of an eligible equity share in a company, purchased during the period March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or more, are exempt from tax under section 10(36) of the Act. Eligible equity share means: n any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as on March 1, 2003 and the transactions of purchase and sale of such equity share are entered into on a recognised stock exchange in India; or n any equity share in a company allotted through a public issue on or after March 1, 2003 and listed on a recognised stock exchange in India before March 1, 2004 and the transaction of sale of such equity share is entered into on a recognised stock exchange in India. The CBDT has clarified vide Circular number 7/2003 dated September 5, 2003, that public issue shall include the offer of equity shares in a company to the public through a prospectus, whether by the company or by the existing shareholders of the company.
273

Biocon
-

As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capital gains arising to an assessee on transfer of a long term capital asset shall not be chargeable to tax to the extent such capital gains are invested in certain notified bonds within six months from the date of transfer. However, if the assessee transfers or converts the notified bonds into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capital gains in the year in which the bonds are transferred or converted into money. As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capital gains arising from transfer of long term assets, being listed securities or units shall not be chargeable to tax to the extent such gains are invested in acquiring equity shares forming part of an eligible issue of share capital within six months from the date of transfer of the long term assets. Eligible issue of share capital has been defined as an issue of equity shares which satisfies the following conditions
-

the issue is made by a public company formed and registered in India; and the shares forming part of the issue are offered for subscription to the public. As per the provisions of section 54F of the Act and subject to the conditions specified therein, in the case of an individual or a HUF, gains arising on transfer of a long term capital asset (not being a residential house) are not chargeable to tax if the entire net consideration received on such transfer is invested within the prescribed period in a residential house. If part of such net consideration is invested within the prescribed period in a residential house, then such gains would not be chargeable to tax on a proportionate basis. For this purpose, net consideration means full value of the consideration received or accrued as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer.

Further, if the residential house in which the investment has been made is transferred within a period of three years from the date of its purchase or construction, the amount of capital gains tax exempted earlier would become chargeable to tax as long term capital gains in the year in which such residential house is transferred. 4.6 Provisions of the Act vis--vis provisions of the tax treaty As per section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the tax treaty to the extent they are more beneficial to the non-resident. 5. Benefits available to other Non-Residents Under section 10(32) of the Act, any income of minor children clubbed in the total income of the parent under section 64(1A) of the Act will be exempt from tax to the extent of Rs. 1,500 per minor child. 5.2 Dividends exempt under section 10(34) of the Act Dividends received (whether interim or final) which is declared, distributed or paid by the subsidiaries on or after April 1, 2003 would be exempt in the hands of the shareholders as per the provisions of section 10(34) of the Act. 5.3 Computation of capital gains Capital assets may be categorised into short term capital assets and long term capital assets based on the period of holding. All capital assets (except shares held in a Company or any other listed securities or units of UTI or Mutual Fund units) are considered to be long term capital assets if they are held for a period in excess of 36 months. Shares held in a Company, any other listed securities, units of UTI and Mutual Fund units are considered as long term capital assets if these are held for a period exceeding 12 months. Consequently, capital gains arising on sale of shares held in a Company or any other listed securities or units of UTI or Mutual Fund units held for more than 12 months are considered as long term capital gains. Section 48 of the Act contains special provisions in relation to computation of long term capital gains on transfer of an Indian companys shares by non-residents. Computation of long-term capital gains arising on transfer of shares in case
274

5.1 Income of a minor exempt up to certain limit

Biocon
of non-residents has to be done in the original foreign currency, which was used to acquire the shares. The capital gain (i.e., sale proceeds less cost of acquisition/ improvement) computed in the original foreign currency is then converted into Indian Rupees at the prevailing rate of exchange. 5.4 Exemption of capital gains from income tax
n

Long term capital gain arising from transfer of an eligible equity share in a company, purchased during the period March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or more, are exempt from tax under section 10(36) of the Act. Eligible equity share means: any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as on March 1, 2003 and the transactions of purchase and sale of such equity share are entered into on a recognised stock exchange in India; or any equity share in a company allotted through a public issue on or after March 1, 2003 and listed on a recognised stock exchange in India before March 1, 2004 and the transaction of sale of such equity share is entered into on a recognised stock exchange in India.

The CBDT has clarified vide Circular number 7/2003 dated September 5, 2003, that public issue shall include the offer of equity shares in a company to the public through a prospectus, whether by the company or by the existing shareholders of the company.
n

As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capital gains arising to an assessee on transfer of a long term capital asset shall not be chargeable to tax to the extent such capital gains are invested in certain notified bonds within six months from the date of transfer. However, if the assessee transfers or converts the notified bonds into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capital gains in the year in which the bonds are transferred or converted into money. As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capital gains arising from transfer of long term assets, being listed securities or units shall not be chargeable to tax to the extent such gains are invested in acquiring equity shares forming part of an eligible issue of share capital within six months from the date of transfer of the long term assets. Eligible issue of share capital has been defined as an issue of equity shares which satisfies the following conditions the issue is made by a public company formed and registered in India; and the shares forming part of the issue are offered for subscription to the public.

As per the provisions of section 54F of the Act and subject to the conditions specified therein, in the case of an individual or a HUF, gains arising on transfer of a long term capital asset (not being a residential house) are not chargeable to tax if the entire net consideration received on such transfer is invested within the prescribed period in a residential house. If part of such net consideration is invested within the prescribed period in a residential house, then such gains would not be chargeable to tax on a proportionate basis. For this purpose, net consideration means full value of the consideration received or accrued as a result of the transfer of the capital asset as reduced by any expenditure incurred wholly and exclusively in connection with such transfer. Further, if the residential house in which the investment has been made is transferred within a period of three years from the date of its purchase or construction, the amount of capital gains tax exempted earlier would become chargeable to tax as long term capital gains in the year in which such residential house is transferred.

5.5 Provisions of the Act vis--vis provisions of the treaty As per section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the tax treaty to the extent they are more beneficial to the non-resident.

275

Biocon
6. Benefits available to Foreign Institutional Investors (FIIs)
n

6.1 Taxability of capital gains As per the provisions of section 115AD of the Act, FIIs will be taxed on the capital gains income at the following rates: Nature of income Long term capital gains Short term capital gains Rate of tax 10 percent 30 percent

The above tax rates would be increased by the applicable surcharge. The benefits of indexation and foreign currency fluctuation protection as provided by section 48 of the Act are not available to FIIs.
n

As per section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the tax treaty to the extent they are more beneficial to the non-resident. Long term capital gain arising from transfer of an eligible equity share in a company, purchased during the period March 1, 2003 to February 29, 2004 (both days inclusive) and held for a period of 12 months or more, are exempt from tax under section 10(36) of the Act. Eligible equity share means:
-

6.2 Exemption of capital gain from income tax

n

any equity share in a company being a constituent of BSE-500 Index of the Stock Exchange, Mumbai as on March 1, 2003 and the transactions of purchase and sale of such equity share are entered into on a recognised stock exchange in India; or any equity share in a company allotted through a public issue on or after March 1, 2003 and listed on a recognised stock exchange in India before March 1, 2004 and the transaction of sale of such equity share is entered into on a recognised stock exchange in India. The CBDT has clarified vide Circular number 7/2003 dated September 5, 2003, that public issue shall include the offer of equity shares in a company to the public through a prospectus, whether by the company or by the existing shareholders of the company.

As per the provisions of section 54EC of the Act and subject to the conditions specified therein, capital gains arising to an assessee on transfer of a long term capital asset shall not be chargeable to tax to the extent such capital gains are invested in certain notified bonds within six months from the date of transfer. However, if the assessee transfers or converts the notified bonds into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as long term capital gains in the year in which the bonds are transferred or converted into money. As per the provisions of section 54ED of the Act and subject to the conditions specified therein, capital gains arising from transfer of long term assets, being listed securities or units shall not be chargeable to tax to the extent such gains are invested in acquiring equity shares forming part of an eligible issue of share capital within six months from the date of transfer of the long term assets. Eligible issue of share capital has been defined as an issue of equity shares which satisfies the following conditions the issue is made by a public company formed and registered in India; and the shares forming part of the issue are offered for subscription to the public.

7.

Benefits available to Mutual Funds As per the provisions of section 10(23D) of the Act, any income of Mutual Funds registered under the Securities and Exchange Board of India Act, 1992 or Regulations made thereunder, Mutual Funds set up by public sector banks or public financial institutions and Mutual Funds authorised by the Reserve Bank of India would be exempt from income tax, subject to the conditions as the Central Government may by notification in the Official Gazette specify in this behalf.
276

Biocon
8. Benefits available to Venture Capital Companies / Funds As per the provisions of section 10(23FB) of the Act, any income of Venture Capital Companies / Funds registered with the Securities and Exchange Board of India, would be exempt from income tax, subject to the conditions specified. However, the income distributed by the Venture Capital Companies / Funds to its investors would be taxable in the hands of the recipients. 9. Benefits available under the Wealth Tax Act, 1957 Asset as defined under section 2(ea) of the Wealth Tax Act, 1957 does not include shares in companies and hence, shares are not liable to wealth tax. 10. Benefits available under the Gift-Tax Act Gift Tax is not leviable in respect of any gifts made on or after October 1, 1998. Therefore, any gift of shares will not attract gift tax.

277

Biocon
Annexure XII: Secured & Unsecured Loans
As at Secured loans Term loans Foreign currency term loans - From Banks Total Other term loans - From Banks - From Technology development board - From EXIM Bank Total Working capital facilities Cash credit, packing etc Lease obligation in relation to vehicles acquired under finance lease Total Interest accrued and due Grand Total Unsecured loans 390,019,313 276,536,086 305,654,306 127,009,998 77,560,441 53,873,618 97,000,000 97,000,000 102,668,491 65,000,000 64,738,706 232,407,197 100,163,800 116,335,906 216,499,706 59,160,000 153,933,106 213,093,106 66,230,000 170,196,000 236,426,000 73,165,425 73,165,425 36,476,200 36,476,200 December 31, 2003 March 31, 2003 March 31, 2002 March 31, 2001 March 31, 2000 March 31, 1999

390,019,313 487,019,314

276,536,086 582,108,708

655,181 306,309,487 559,285,393

2,496,324 129,506,322 374,460 342,973,888

5,192,814 82,753,255 792,822 319,972,077

4,345,886 58,219,504 58,219,504

As at

December 31, 2003 March 31, 2003 March 31, 2002 March 31, 2001 March 31, 2000 March 31, 1999

Deferred sales tax liability Short term loan Loans from promoter group: Subsidiary company Associate company Deferred payment liability Total

163,329,812 163,329,812

103,545,391 103,545,391

56,033,378 50,000,000 106,033,378

15,993,805 1,194,586 21,720,755 38,909,146

9,341,989 7,833,336 17,175,325

Term loans

a.

On April 9, 1999, the Company entered into a term loan facility with EXIM bank for Rs. 126,001,000 for funding its fixed asset acquisitions of the Submerged Fermentation Plant. These loans were repayable in 9 equal half yearly instalments commencing from December 10, 2000, and are secured by a first pari passu mortgage and charge on the fixed assets of the Company. The interest rate ranges from 7 to 10.5 per cent for the period/year ended December 31, 2003 and 2003 and 7 to 14 per cent per annum for the year ended 2002, 2001, 2000 respectively. The Company has repaid the loan in full during the nine-month period ended December 31, 2003. On November 5, 1999, the Company entered into a term loan facility with EXIM bank of India for Rs. 46,730,706 for funding its fixed assets acquisitions of the Plafractor Plant. These loans were repayable in 10 equal half yearly instalments
278

b.

Biocon
commencing from December 10, 2000, secured by a charge on the fixed assets of the Company. The interest rate ranges from 7 to 8.5 per annum for the year ended 2001 and 2000. The Company has repaid the loan in full during the ninemonth period ended December 31, 2003. c. On May 5, 1999, the Company entered into a term loan facility with SBI for Rs. 50,000,000 for funding its fixed asset acquisitions of the Submerged Fermentation Plant. These loans were repayable in 60 equal monthly instalments commencing from December 2000, are secured by a first pari passu mortgage and charge on the fixed assets of the Company. The foreign currency denominated loans carry an interest rate ranging from 2.75 to 3.5 per cent for the period/ year ended December 31, 2003 and 2003 and 5.75 to 7 per cent for the year ended 2002 and 2001 respectively. The Company has repaid the loan in full for the nine month period ended December 31, 2003. On November 26, 2001, the Company entered into a term loan facility with HSBC for Rs. 100,000,000 for funding its fixed asset acquisitions during the year, of which it has utilised Rs. 10,000,000 as of March 31, 2002. The loan is repayable in 24 monthly instalments commencing from November 2002, are secured by a pari passu charge over the fixed assets of the Company. On February 7, 2003, the Company renewed its rupee and foreign currency denominated term loan facility with HSBC for Rs. 170,000,000 for funding its fixed asset acquisitions during the year, of which it has utilised Rs. 170,000,000 as at March 31, 2003. The loan is secured by a pari passu charge over the fixed assets of the Company. The interest payable on rupee loans ranges from 6.6 to 13 per cent for the period/year ended December 31, 2003 and 2003, 9.1 to 13 per cent for the year ended 2002, 12.5 to 13 per cent for the year ended 2001 and 12.5 per cent to 14.26 per cent for the year 2000 respectively. The interest payable on foreign currency denominated loans ranges from 2.77 to 2.99 per cent for the period/ year ended December 31, 2003 and 2003. As at December 31, 2003 the Company has repaid the entire loan amount. e. On July 3, 2002, the Company entered into a term loan facility with Technology Development Board (TDB) for Rs. 100,000,000 for funding its fixed asset acquisitions of the PlaFractor plant. These loans are repayable in 9 half yearly instalments commencing from February 2004, are secured by a first pari passu mortgage and charge on the fixed assets of the Company and carry an interest rate of 5 per cent per annum. The Company has also obtained a term loan from Canara Bank aggregating Rs. 25,000,000, at an interest rate of 12.5 per cent per annum, repayable over 4 half yearly instalments commencing from the month of May 2000 and secured by the hypothecation of plant and machinery, accessories, tools and other fixed assets. The Company has repaid the loan in full during the nine month period ended December 31, 2003.

d.

f.

The above term loans were further secured by the personal guarantee of the Managing Director. Working capital loans The Company availed open cash credit, packing credit, post shipment credit and other working capital loans from SBI, Canara Bank and HSBC. These facilities are repayable on demand, secured by the hypothecation of inventories and book debts. The working capital requirements are availed in foreign currency denominated loans and rupee loans. The interest for the foreign currency loans ranges from 2 to 2.2 per cent for the period ended December 31, 2003 and 2 to 2.75 per cent for the year ended 2003 respectively. The interest for the rupee loans ranges from 6 to 15 per cent for the period ended December 31, 2003, 7.5 to 15 per cent for the year ended 2003, 12.5 to 16.5 per cent for the year ended 2002, 15 to 16.83 per cent for the year ended 2001 and 13.5 to 16.83 per cent for the year ended 2000 and 1999 respectively. Lease obligation in relation to vehicles acquired under finance lease The Company acquired vehicles under finance lease and paid interest of 10 - 22 per annum on its lease obligations.

279

Biocon
Annexure XIII: Details of other income
Nine months ended December 31, 2003 Year ended March 31, 2003 Year ended March 31, 2002 Year ended March 31, 2001 Year ended March 31, 2000 Year ended March 31, 1999

Other income, as restated Net profit before tax, as restated Percentage Nature

6,562,095 1,076,564,462 1%

7,595,547

33,305,916

2,148,580

4,309,286 69,239,391 6% Year ended March 31, 2000 459,256 275,782 2,147,767 660,000 766,481 4,309,286

8,852,367 18,852,223 47% Year ended March 31, 199 1,816 143,406 39,892 6,173,763 664,000 1,300,000 529,490 8,852,367

489,198,015 277,343,754 217,301,948 2% Year ended March 31, 2003 756,914 451,810 1,749,001 6,987 1,704,985 220,000 120,191 1,816,000 769,659 7,595,547 12% Year ended March 31, 2002 422,625 4,147 1,282 26,562,506 80,000 1,244,000 1,836,000 3,155,356 33,305,916 1% Year ended March 31, 2001 324,390 1,282 268,551 389,607 881,500 283,250 2,148,580

Nine months ended December 31, 2003 103,905 295,838 782,630 2,782,000 736,448 1,257,700 603,574 6,562,095

Interest received on Inter corporate deposits Bank deposits Income tax refund Recurring Recurring Non-recurring Recurring Non-recurring Non-recurring Non-recurring Non-recurring Recurring Non-recurring Non-recurring Non-recurring Recurring Non-recurring

Dividend received on trade investments Dividend received on non-trade investments Dividend received from subsidiaries Profit on sale of investments Profit on sale of fixed assets Processing charges Insurance claims Royalty Technical fees Rent income Miscellaneous income Total

280

Biocon

BIOCON LIMITED (formerly BIOCON INDIA LIMITED) CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003 TOGETHER WITH AUDITORS REPORT

281

Biocon
Auditors Report To the Board of Directors of Biocon Limited (formerly Biocon India Limited) 1. We have audited the attached consolidated balance sheet of Biocon Limited (formerly Biocon India Limited), its subsidiaries, Syngene International Private Limited and Clinigene International Private Limited and its joint venture, Biocon Biopharmaceuticals Private Limited [together referred to as the Group as described in Note 2 (a)] as at December 31, 2003, the consolidated profit and loss account and consolidated cash flow statement for the nine months period ended annexed thereto, prepared in accordance with accounting principles generally accepted in India. These consolidated financial statements are the responsibility of the Groups management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in India. These standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatements. An audit includes, examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We report that the consolidated financial statements have been prepared by the Groups management in accordance with the requirements of Accounting Standard (AS) 21, Consolidated Financial Statements, issued by the Institute of Chartered Accountants of India and on the basis of the separate financial statements of Biocon Limited (formerly Biocon India Limited), its aforesaid subsidiaries and joint venture included in the consolidated financial statements. In our opinion and to the best of our information and according to the explanations given to us, the consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India: a. b. c. the consolidated balance sheet gives a true and fair view of the consolidated state of affairs of the Group as at December 31, 2003; the consolidated profit and loss account gives a true and fair view of the consolidated results of operations of the Group for the period then ended; and the consolidated cash flow statement gives a true and fair view of the consolidated cash flows of the Group for the period then ended.

2.

3.

4.

For S.R. BATLIBOI & ASSOCIATES Chartered Accountants per Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004

282

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) CONSOLIDATED BALANCE SHEET DECEMBER 31 , 2003
(All amounts in Indian Rupees)

Notes SOURCES OF FUNDS SHAREHOLDERS FUNDS Share capital Reserves and surplus Less : Loan to Biocon India Limited Employee Welfare Trust (the ESOP Trust) MINORITY INTEREST LOAN FUNDS Secured loans Unsecured loans DEFERRED TAX LIABILITY

December 31, 2003

March 31, 2003 (Note 29)

3 2(a), 2(l) & 4 20 5 6 7 2(j) & 8

450,000,000 1,854,013,483 (1,258,700) 2,302,754,783 17,214 487,019,313 163,329,812 650,349,125 159,510,941 3,112,632,063

18,376,500 1,323,373,636 (1,413,700) 1,340,336,436 10,845 582,108,709 103,545,391 685,654,100 143,056,613 2,169,057,994

APPLICATION OF FUNDS FIXED ASSETS Cost Less: Accumulated depreciation Net book value Capital work-in-progress [including capital advances of Rs. 112,460,913 (March 31, 2003 Rs. 12,798,834)] INVESTMENTS CURRENT ASSETS, LOANS AND ADVANCES Inventories Sundry debtors Cash and bank balances Loans and advances LESS: CURRENT LIABILITIES AND PROVISIONS NET CURRENT ASSETS

2(b), 2(i), 2(k) & 9 1,992,044,114 498,204,173 1,493,839,941 429,388,362 1,923,228,303 142,062,984 1,737,495,665 378,366,962 1,359,128,703 79,852,448 1,438,981,151 50,001,202

2(e) & 10

2(c) & 11 12 13 14

701,265,497 1,396,371,752 21,175,682 137,783,110 2,256,596,041 1,209,255,265 1,047,340,776 3,112,632,063

479,055,022 753,302,064 26,338,294 151,009,201 1,409,704,581 729,628,940 680,075,641 2,169,057,994

2(f), 2(g) & 15

The accompanying notes 1 to 29 form an integral part of this account. As per our report of even date S.R. BATLIBOI & ASSOCIATES Chartered Accountants For and on behalf of the Board of Directors Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004 Kiran Mazumdar Shaw Director Bangalore January 17, 2004 JMM Shaw Director

283

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees)
April 1, 2003 to April 1, 2002 to

Notes INCOME Gross sales Less: Excise duty Net sales Contract research fees Other income EXPENDITURE Manufacturing, contract research and other expenses Interest and finance charges PROFIT BEFORE DEPRECIATION AND TAXES Depreciation Less: Amount transferred from revaluation reserve PROFIT BEFORE TAXES Provision for income-tax Current taxes Deferred taxes PROFIT FOR THE PERIOD/YEAR Minority interest NET PROFIT FOR THE PERIOD/YEAR Earnings per share Basic (in Rs.) Diluted (in Rs.) Weighted average number of shares used in computing Earnings per share Basic Earnings per share Diluted The accompanying notes 1 to 29 form an integral part of this account. As per our report of even date S.R. BATLIBOI & ASSOCIATES Chartered Accountants Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004 2(m) & 21 5 2(j) & 22 2(j) & 8 2(b) & 9 2(b) & 4 2(f), 2(g), 2(h), 2(l), 2(n), 17 & 24 2(k) & 19 2(d), 2(h) & 24 2(d), 2(h) & 24 16

December 31, 2003

March 31, 2003 (Note 29)

3,945,346,984 233,069,444 3,712,277,540 264,985,732 9,672,539 3,986,935,811 2,682,180,471 12,427,101 2,694,607,572 1,292,328,239 120,443,752 1,255,967 119,187,785 1,173,140,454 203,803,106 16,454,328 952,883,020 6,368 952,876,652 11.37 11.03 83,818,814 86,353,660

2,750,614,744 208,215,613 2,542,399,131 277,481,157 7,076,326 2,826,956,614 2,086,315,546 49,811,215 2,136,126,761 690,829,853 139,098,238 1,667,011 137,431,227 553,398,626 83,845,708 34,398,353 435,154,565 4,848 435,149,717 5.18 5.02 83,974,925 86,601,584

For and on behalf of the Board of Directors Kiran Mazumdar Shaw Director JMM Shaw Director

Bangalore January 17, 2004

284

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees) April 1, 2003 to December 31, 2003 I CASH FLOWS FROM OPERATING ACTIVITIES : Net profit before tax Adjustments for Less: Non cash item/items required to be disclosed separately: Depreciation 120,018,992 Amortisation of employee compensation cost 11,520,137 Provision for bad and doubtful debts 5,390,875 Interest expense 18,455,646 Interest income (gross) (6,960,930) Gain on sale of investment Loss/(gain) on assets sold, discarded etc. 368,674 Changes in working capital and other provisions Inventories Sundry debtors Loans and advances Current liabilities and provisions Cash generated from operations Tax paid (net of refunds) Net cash provided by operating activities II CASH FLOWS FROM INVESTING ACTIVITIES : Fixed assets Purchase Sale Interest received Sale of investment Purchase of investment Net cash used for investing activities III CASH FLOWS FROM FINANCING ACTIVITIES : Proceeds from issuance of share capital Proceeds from employees for share purchase through ESOP Trust Short term borrowings from banks, net Repayment of secured loans Receipt of secured loans Deferred sales tax credit Repayment of unsecured loans Interest paid Corporate dividend tax Net cash used for financing activities IV NET CHANGE IN CASH AND CASH EQUIVALENTS ( I+II+III) V CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD/YEAR VI CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD/YEAR (IV + V) S.R. BATLIBOI & ASSOCIATES Chartered Accountants Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004 (222,210,475) (648,460,563) 12,362,685 460,172,729 (398,135,624) (249,342,230) 923,798,223 (149,570,849) 774,227,374 (640,279,095) 91,351 13,852,882 169,330,959 (261,392,740) (718,396,643) 155,000 113,483,226 (240,572,622) 32,000,000 59,784,421 (25,843,368) (60,993,343) (5,162,612) 26,338,294 21,175,682 1,173,140,454 April 1, 2002 to March 31, 2003 (Note 29) 553,398,626 137,431,227 33,863,779 4,609,125 53,052,779 (4,328,563) (1,704,985) (6,987) 222,916,375 (236,403,790) (110,475,407) (46,438,160) 210,509,804 (182,807,553) 40,108,822 593,507,448 (97,786,904) 495,720,544 (407,570,018) 2,067,750 2,080,631 12,967 (50,000,000) (453,408,670) 158,700 (31,918,719) (403,945,610) 456,542,325 47,512,013 (50,000,000) (50,238,110) (2,709,313) (34,598,714) 7,713,160 18,625,134 26,338,294

148,793,394

For and on behalf of the Board of Directors Kiran Mazumdar Shaw Managing Director Bangalore January 17, 2004

JMM Shaw Director

285

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31, 2003
(All amounts in Indian Rupees)

1.

Background a. Incorporation and history Biocon Limited (formerly Biocon India Limited) (Biocon), promoted by Ms Kiran Mazumdar Shaw (KMZ), was incorporated at Bangalore in 1978 for manufacture of biotechnology products. On November 17, 2003, the name of the Company was changed from Biocon India Limited to Biocon Limited. As at December 31, 2003, 69.2 per cent of the shareholding of Biocon was held by KMZ and Glentec International, Mauritius together with associated persons, 10 per cent by AOF HS Mauritius Limited, (pursuant to a share transfer agreement with ICICI Ventures, promoters and the Company dated April 30, 2003), 6.9 per cent by Biocon India Limited Employees Welfare Trust (the ESOP Trust), 1.2 per cent by the Biocon India Welfare Trust, 2.4 per cent by India Value Fund Trustee Company Private Limited and the balance by employees and others. Syngene International Private Limited (Syngene) promoted by KMZ, was incorporated at Bangalore in 1993. At March 30, 2002, Biocon acquired 99.99 per cent of the equity shares of Syngene and, resultantly, the Company became the subsidiary of Biocon. Clinigene International Private Limited (Clinigene) was incorporated on August 4, 2000 at Bangalore and became a wholly owned subsidiary of Biocon on March 31, 2001. Biocon entered into an Agreement on February 22, 2002 to set up a Joint Venture Company, with CIMAB SA (CIMAB), a company organised and existing under the laws of Cuba and engaged in research, development, manufacturing and marketing of Biopharmaceuticals, to manufacture and market products using technology and to carry out research activities. Accordingly, Biocon Biopharmaceuticals Private Limited (BBPL) was set up on June 17, 2002 and, on April 18, 2003, Biocon acquired a 51 per cent shareholding in BBPL. Biocon, together with its subsidiaries, Syngene and Clinigene and the joint venture, BBPL hereinafter collectively referred to as the Group. b. Operations Biocon is engaged in the manufacture of biotechnology products in the pharmaceutical and enzyme sectors through fermentation based technology; Syngene is primarily engaged in providing contract research services to overseas customers in the field of synthetic chemistry and molecular biology, it also sells products arising from research activities carried out on behalf of its customers; and Clinigene undertakes clinical research activities on discovering new biomarkers and is extending its activity to discovering new diseases subsets and novel data based on pharmacogenomics. The Group has its facilities located at Hebbagodi and Bommasandra, Bangalore district, Karnataka. During the year ended March 31, 2003, the Group expanded its operations through Syngene by almost doubling its capacity for undertaking contract research activities by commercialising its second 100 per cent Export Oriented Unit (approved by Cochin Export Processing Zone) at Bommasandra, Bangalore. The Group is making aggressive marketing efforts through Clinigene to sell clinical research and is in an advance stage for setting up a human pharmacology unit in association with a leading hospital in India to expand its clinical research activities.

2.

Summary of significant accounting policies a. Basis of presentation and consolidation The financial statements are prepared under the historical cost convention, on the accrual basis of accounting and to comply in all material respects with the mandatory accounting standards issued by the Institute of Chartered

286

Biocon
Accountants of India to reflect the financial position and the results of operations of Biocon together with its subsidiary companies, Syngene and Clinigene and joint venture company, BBPL. Further, the financial statements are presented in the general format specified in Schedule VI to the Companies Act, 1956 (the Act). However, as these financial statements are not statutory financial statements, full compliance with the above Act is not required and so they do not reflect all the disclosure requirements of the Act. The consolidated financial statements of the Group have been prepared based on a line-by-line consolidation of the balance sheet, statement of profit and loss and cash flows of Biocon, Syngene, Clinigene and BBPL as at December 31, 2003. In respect of the joint venture company, the Group applies the proportionate consolidation method. All material inter-company transactions and balances between the entities included in the consolidated financial statements have been eliminated. In accordance with the Employee Stock Option Scheme and Stock Purchase Guidelines, 1999 (SEBI guidelines) issued by Securities and Exchange Board of India (SEBI), the Group has also consolidated the ESOP Trust. [Refer note 20]. The significant accounting policies adopted by the Group in respect of the consolidated financial statements are detailed as follows: b. Fixed assets and depreciation Fixed assets are stated at cost, except for revalued freehold land and buildings, which are shown at, estimated replacement cost as determined by valuers, less accumulated depreciation. The Group capitalises all costs relating to the acquisition and installation of fixed assets. Fixed assets, other than freehold land, but including revalued buildings, are depreciated pro rata to the period of use, on the straight line method at the annual rates based on the estimated useful lives. Per cent Buildings Plant and machinery Research and development equipment Furniture and fixtures Vehicles 4.00 9.09 - 33.33 11.11 16.67 16.67

Goodwill is amortised over a period of 5 years and assessed for impairment at each balance sheet date. Leasehold land, other than those on a lease-cum-sale basis, are depreciated over the lease period. Leasehold land on a lease-cum-sale basis are capitalised at the allotment rates currently charged by the Municipal Authorities. The depreciation charge over-and-above the depreciation calculation on the original cost of the revalued assets is transferred from the revaluation reserve to the consolidated profit and loss account. Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase. c. Inventories Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first-in-first-out basis and includes all applicable overheads in bringing the inventories to their present location and condition. Excise duty arising on finished goods and customs duty on imported raw materials in stock (excluding stocks in the bonded warehouse) are treated as part of the cost of inventories.

287

Biocon
d. Revenue recognition Sales are recognised on despatch of goods to customers and are recorded net of excise duty, sales tax and other levies. For the purpose of disclosure in these consolidated financial statements, sales is reflected gross and net of excise duty in the consolidated profit and loss account. (ii) Contract research agreements The Group enters into two basic types of contract research agreements and the revenues therefrom are recognised on the following basis: (a) Time and material management Revenues are recognised as services are rendered, in accordance with contractual agreements. (b) Fixed price arrangements Revenues relating to fixed price contracts are recognised based on the percentage of completion method. e. Investments Long-term investments are stated at cost. Provision, where necessary, is made to recognise a decline, other than temporary, in the value of investments. Current investments are stated at lower of cost and fair market value. f. Retirement benefits The Group has schemes of retirement benefits for provident fund, gratuity and superannuation, in respect of which, the Groups contributions are charged to the consolidated profit and loss account. The contributions towards provident fund are made to statutory authorities. The gratuity and superannuation fund benefits of the Group are administered by a trust formed for this purpose through the group gratuity and superannuation scheme with Birla Sun Life Insurance Company Limited (Birla Sunlife). In respect of gratuity, the Group has accrued for the liability based on an independent actuarial valuation at the period-end. In respect of superannuation, the Group has accrued for the liability based on the schemes of the Group. g. Leave encashment Liability for leave encashment is in accordance with the rules of the Group and is provided on the basis of an actuarial valuation performed by an independent actuary. Upto March 31, 2003, the Group provided for leave encashment on a full liability basis. Had the Group followed its earlier accounting policy, the profit before tax for the period would have been lower by Rs. 644,243. h. Foreign currency transactions Foreign currency transactions during the period/year are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing on the date of the balance sheet. Where the Group has entered into foreign exchange contracts, the difference between the forward rates and the spot rates at the date of the transaction is recognised in the consolidated profit and loss account over the life of the contract. All exchange differences are dealt with in the consolidated profit and loss account, except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets. i. Research and development costs Research and development costs, including technical know-how fees, incurred for development of products are expensed as incurred, except for development costs which relate to the design and testing of new or improved materials, products or processes which are recognised as an asset to the extent that it is expected that such assets will generate future economic benefits. Research and development expenditure of a capital nature is added to fixed assets. (i) Sale of pharmaceuticals, enzymes and compounds

288

Biocon
j. Income tax Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the current tax rates based on assessable income. The Group provides for deferred tax based on the tax effect of timing differences resulting from the recognition of items in the consolidated financial statements and in estimating its current tax provision. Deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. The effect on deferred taxes of a change in tax rates is recognised in income in the period in which the change is substantially enacted. The provision for current tax for each company in the Group is based on the earnings for the period from April 1, 2003 to December 31, 2003 and the actual tax liability for each company in the Group will be determined on the basis of the earnings for the period from April 1, 2003 to March 31, 2004. k. Borrowing costs Borrowing costs that are attributable to the acquisition and construction of a qualifying asset are capitalised as a part of the cost of the asset. Other borrowing costs are recognised as an expense in the year in which they are incurred. l. Deferred employee stock compensation costs Deferred employee stock compensation costs for stock options are recognised on the basis of generally accepted accounting principles and are measured as the excess of the fair value of Biocons stock on the stock options grant date over the amount an employee must pay to acquire the stock and recognised in a graded manner on the basis of weighted period of services over the vesting period of equity shares. The fair value of the options is measured on the basis of an independent valuation performed in respect of stock options granted. m. Earnings per share The earnings considered in ascertaining the Groups earnings per share comprise of the net profit after tax. The number of shares used in computing the basic earnings per share is the weighted average number of shares outstanding during the period/year and are adjusted for bonus shares and sub-division of shares for all periods/ years presented in these consolidated financial statements. The number of shares used in computing diluted earnings per share comprises the weighted average share considered for deriving basic earnings per share, and also the weighted average number of shares, if any which would have been issued on the conversion of all dilutive potential equity shares. The shares issued to the ESOP Trust have been considered as outstanding for basic earnings per share purposes, to the extent these shares have been allocated to the employees pursuant to the ESOP scheme and are eligible for exercise. For dilutive EPS purpose, the shares, which are not yet eligible for exercise, have been considered as dilutive potential equity shares. n. Operating lease Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term. o. Finance lease The cash value of fixed assets acquired on finance lease contracts is capitalised and depreciated in accordance with the fixed assets and depreciation policy of the Company. Interest payable under finance lease contracts, is charged on the diminishing balance method to the consolidated profit and loss account over the period of the finance lease contracts.

289

Biocon
3. Share capital
December 31, 2003 Authorised: 120,000,000 (March 31, 2003 2,000,000 equity shares of Rs. 10 each) equity shares of Rs. 5 each Issued, subscribed and paid-up: 90,000,000 (March 31, 2003 1,837,650 equity shares of Rs. 10 each, fully paid) equity shares of Rs. 5 each, fully paid 600,000,000 20,000,000 March 31, 2003

450,000,000

18,376,500

(a)

Of the above equity shares: (i) 30,800 equity shares of Rs. 100 each were allotted as fully paid bonus shares by capitalisation of general reserve in the year ended March 31, 1997.

(ii) 23,471 equity shares of Rs. 100 each were allotted as fully paid-up shares in the year ended March 31, 2000 pursuant to a contract for consideration other than cash. (iii) On October 8, 2001, Biocon issued 12,153 equity shares of Rs. 100 each to the ESOP Trust under an Employee Stock Option Plan (ESOP Plan) and the ESOP Trust acquired 350 equity shares of Rs 100 each from certain individuals. (iv) On March 30, 2002, Biocon acquired 99.9 per cent equity in Syngene through the issue of 202,780 equity shares of Rs. 10 each. The consideration was determined on the basis of a fair valuation, as approved by the statutory authorities in India. The related share premium at Rs. 403.8 per equity share has been credited to share premium account. (v) On May 9, 2002 Biocon has further issued 15,870 equity shares of Rs. 10 each to the ESOP Trust under the ESOP Plan. The ESOP Trust on October 20, 2003 acquired 2,500 equity shares of Rs. 10 each from certain individuals. The ESOP Trust at December 31, 2003 holds 7,023,100 equity shares of Rs. 5 each of which grants have been made for 3,511,020 equity shares of Biocon under the ESOP Plan (Refer Note 20). (b) The shareholders at the Extraordinary General Meeting (EGM) of Biocon held on February 25, 2002, approved the sub-division of equity shares of face value of Rs. 100 each into ten equity shares of face value of Rs. 10 each. The Board of Directors in their meeting held on March 30, 2002 passed a resolution for effecting the sub-division. Subsequent to this sub-division, the authorised equity share capital of Rs. 20,000,000 has been divided into 2,000,000 equity shares of Rs. 10 each and the then issued, subscribed and paid-up capital of Rs. 18,217,800 as at March 31, 2002 was divided into 1,821,780 equity shares of Rs. 10 each. The shareholders at the EGM of Biocon held on November 11, 2003, approved the sub-division of equity shares of face value of Rs 10 each into 2 equity shares of Rs 5 each and increase in authorised capital from Rs. 20,000,000 to Rs. 600,000,000. Subsequent to this sub-division, the authorised equity share capital of Rs. 20,000,000 has been divided into 4,000,000 equity shares of Rs. 5 each and the issued, subscribed and paid-up capital of Rs. 18,376,500 has been divided into 3,675,300 shares of Rs. 5 each. Further, the shareholders at the EGM of Biocon held on November 11, 2003 approved the allotment of 86,324,700 equity shares of Rs. 5 each as bonus shares in the ratio of 1 : 23.4877958 to the shareholders existing as on November 11, 2003, which was the approved record date for this purpose, by capitalisation of the balance in the profit and loss account of Rs. 431,623,500.

(c)

(d)

290

Biocon
4. Reserves and surplus
December 31, 2003 Capital Reserve Revaluation Reserve Balance, beginning of the period / year Less: Transfer on sale and disposal of land Less: Transfer to profit and loss account Share Premium General Reserve Stock compensation adjustment (See note 2(l) & 20) Stock options outstanding Additions during the period/year Less: Deferred employee stock compensation expense Opening balance in profit and loss account Less: Issue of bonus shares Add: Profit for the period/year Balance in profit and loss account 17,094,143 19,127,038 877,475 1,255,967 16,993,596 339,889,570 266,063,095 65,291,222 (2,602,648) (17,304,658) 45,383,916 647,336,011 (431,623,500) 952,876,652 1,168,589,163 1,854,013,483 March 31, 2003 17,094,143 21,809,784 1,015,735 1,667,011 19,127,038 339,889,570 266,063,095 65,291,222 (31,427,443) 33,863,779 212,186,294 435,149,717 647,336,011 1,323,373,636

(i)

Biocon acquired 99.99 per cent in Syngene on March 30, 2002, through the issue of 202,780 equity shares of Rs. 10 each. Biocons shares were fair valued at Rs. 907 at the transaction date. Further, as of March 30, 2002 the net assets of Syngene were Rs. 101,422,023 resulting in capital reserve of Rs. 17,094,143.

(ii) Share premium includes an amount of Rs. 81,880,535 received on the allotment of 202,780 equity shares of Rs. 10 each on March 30, 2002 at a premium of Rs. 403.8 per equity share. (iii) Deferred employee stock compensation expense (See Note 20): Stock compensation expense outstanding Stock options forfeited during the period/year Stock compensation expense amortised during the period/year Closing balance of deferred employee stock compensation expense 65,291,222 (2,602,648) (45,383,916) 17,304,658 65,291,222 (33,863,779) 31,427,443

(iv) Biocon issued 86,324,700 bonus shares of Rs. 5 each through capitalisation of the balance in the profit and loss account to the extent of Rs. 431,623,500. [See note 3(d)]

5.

Minority interest Minority interest represents that part of the net results of operations and of the net assets of Syngene to the extent of 170 shares (0.01 per cent), which are attributable to interests which are not owned, directly or indirectly by Biocon. The share of the net results of operations attributable to the minority shareholders is as follows:
December 31, 2003 As per last balance sheet Profit for the period/year 10,846 6,368 17,214 March 31, 2003 5,998 4,848 10,846

291

Biocon
6. Secured loans
December 31, 2003 From banks Cash credit, packing credit, etc. Term loans Payable within one year Others 390,019,313 21,600,000 75,400,000 487,019,313 (a) Cash credit, packing credit, etc. (i) On January 16, 2002, Biocon renewed its total rupee and foreign currency denominated fund based working capital facilities with State Bank of India (SBI) of Rs. 130,000,000 (March 31, 2003 Rs. 130,000,000). These facilities are repayable on demand, secured by the hypothecation of inventories and book debts and carry an interest rate of 2.1 per cent per annum for foreign currency denominated loans and 7.5 to 12.25 per cent per annum for rupee loans. The amount outstanding as on December 31, 2003 is Rs. Nil (March 31, 2003 Rs. 39,650,178) inclusive of foreign currency denominated loans of Rs. Nil [March 31, 2003 Rs. 39,596,571 (US$ 834,051)]. March 31, 2003 276,536,087 139,233,867 166,338,755 582,108,709

(ii) On February 7, 2003, Biocon renewed its total rupee and foreign currency denominated working capital facilities with Hongkong and Shanghai Banking Corporation (HSBC) for Rs. 175,000,000 (March 31, 2003 Rs. 175,000,000). These facilities are repayable on demand, secured by the hypothecation of inventories and book debt and carry an interest rate of 2 per cent per annum for foreign currency denominated loans and 6 to 15 per cent per annum for rupee loans. Biocon has utilised Rs. 171,223,491 (March 31, 2003 Rs. 115,580,186) as of December 31, 2003 inclusive of foreign currency denominated loans of Rs. 100,319,990 (US$ 2,200,000) [March 31, 2003 Rs. 90,255,512 (US$ 1,902,387)]. (iii) On February 25, 2003, Biocon renewed its working capital facilities with Canara Bank (CB) for Rs. 130,000,000 (March 31, 2003 Rs. 130,000,000). These facilities are repayable on demand, secured by the hypothecation of inventories and book debt and carry an interest rate of 2.1 per cent for foreign currency denominated loans and 8 to 11.75 per cent per annum for rupee loans. Biocon has utilised Rs. 127,692,147 (March 31, 2003 Rs. 121,305,722) as of December 31, 2003 inclusive of foreign currency denominated loans of Rs. 127,626,362 (US$ 2,798,824) [March 31, 2003 Rs. 117,435,931 (US$ 2,473,637)]. The above working capital loans, are further secured by the personal guarantee of the Managing Director. (iv) On June 30, 2003, Biocon entered into a working capital facility with Export Import Bank ( EXIM Bank) for Rs. 92,860,000 (US$ 2,000,000) (March 31, 2003 Rs. Nil). These facilities are repayable on demand, secured by the hypothecation of inventories and book debt and carry an interest rate of 2.2 per cent. Biocon has utilised Rs. 91,103,675 (US$ 1,997,888) (March 31, 2003 Rs. Nil) as of December 31, 2003. (b) Term loans (i) On April 9, 1999, Biocon entered into a term loan facility with EXIM bank for Rs. 126,001,000 for funding its fixed asset acquisitions of the Submerged Fermentation Plant. These loans are repayable in 9 equal half yearly instalments commencing from December 10, 2000, and are secured by a first pari passu mortgage and charge on the fixed assets of Biocon and carry an interest rate of 10.5 per cent per annum. Biocon had a balance of Rs. 42,001,000 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003.

(ii) On November 5, 1999, Biocon entered into a term loan facility with EXIM bank of India for Rs. 46,730,706 for funding its fixed assets acquisitions of the Plafractor Plant. These loans are repayable in 10 equal half yearly instalments commencing from December 10, 2000, secured by a charge on the fixed assets of Biocon and carry an interest rate of 7 per cent per annum. Biocon had a balance of Rs. 22,737,706 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003. (iii) On May 5, 1999, Biocon entered into a term loan facility with SBI for Rs. 50,000,000 for funding its fixed asset acquisitions of the Submerged Fermentation Plant. These loans are repayable in 60 equal monthly instalments commencing from December 2000, are secured by a first pari passu mortgage and charge on the fixed assets of Biocon and carry an interest rate of 2.99 per cent per annum for foreign currency denominated loan and 13 per cent per annum for the rupee loan. Biocon had a balance of Rs. 26,667,250 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003. (iv) On February 7, 2003, Biocon renewed its rupee and foreign currency denominated term loan facility with HSBC for Rs. 170,000,000 (March 31, 2003 Rs. 170,000,000) for funding its fixed asset acquisitions during the year and fully utilised this facility. T he instalments commencing from November 2002, are secured by a pari passu charge over the fixed assets of Biocon and loan is repayable in 44 monthly carry an interest rate of 2.77 per cent per annum for foreign currency denominated loans and 6.6 per cent per annum for rupee loans. Biocon had a balance of Rs. 149,166,666 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003.

292

Biocon
(v) On July 3, 2002, Biocon entered into a term loan facility with Technology Development Board (TDB) for Rs. 100,000,000 for funding its fixed asset acquisitions of the PlaFractor plant. These loans are repayable in 9 half yearly instalments commencing from February 2004, are secured by a first pari passu mortgage and charge on the fixed assets of Biocon and carry an interest rate of 5 per cent per annum. At December 31, 2003, Biocon had drawn Rs. 97,000,000 (March 31, 2003 Rs. 65,000,000) from the above facility. The above term loans are further secured by the personal guarantee of the Managing Director.

7.

Unsecured loans December 31, 2003 Deferred payment liability 163,329,812 March 31, 2003 103,545,391

(i) Under the Industrial Policy of the Government of Karnataka, Biocon on November 18, 2000 obtained an order from Karnataka Sales Tax Authority for allowing deferment of sales tax (including turnover tax) for a period upto 8 years with respect to sales from its Bommasandra manufacturing facility of Biocon. Under the Order, the deferment amount should not exceed Rs. 24,375,000, of which at December 31, 2003, Biocon had utilised Rs. 872,329 (March 31, 2003 Rs. 863,624). (ii) Under the Agro Food Processing Industrial Policy of the Government of Karnataka, Biocon on November 18, 2000 obtained an order from Karnataka Sales Tax Authority for allowing deferment of sales tax (including turnover tax) for a period upto 12 years with respect to sales from Hebbagodi manufacturing facility of Biocon. Under the order, the deferment amount should not exceed Rs. 648,938,000 of which at December 31, 2003, Biocon had utilised Rs. 162,457,483 (March 31, 2003 102,681,767). 8. Deferred tax liability
Deferred tax (asset)/liability as at April 1, 2003 Depreciation Employee retirement benefits Disallowance under section 43B Others 155,944,370 (5,989,536) (5,509,541) (1,388,680) 143,056,613 Current period charge/(credit) 18,112,500 (718,392) 131,180 (1,070,960) 16,454,328 Deferred tax (asset)/liability as at December 31, 2003 174,056,870 (6,707,928) (5,378,361) (2,459,640) 159,510,941

(i) On August 26, 2003 Biocon received approval from the Cochin Special Economic Zone for the setting up of a 100 per cent Export Oriented Unit for the manufacture and export of all types of statins on which, Biocon claims exemption under section 10B of the Income-tax Act, 1961 (IT Act). In accordance with the provisions of section 10B of the IT Act, Biocon can avail of a tax deduction in respect of 100 per cent of all export income derived from the export sales arising out from that unit. Accordingly, Biocon has not recognised any additional deferred tax liability for this EOU as it expects the timing differences originating in this period to reverse out during the tax holiday period. (ii) Syngene, constituting two 100 per cent Export Oriented Units (approved by the Cochin Export Processing Zone on December 14, 1998 and the Cochin Special Economic Zone on August 24, 2001), claims exemption under section 10B of the IT Act. Syngene had created a deferred tax liability in the previous year as the timing difference was expected to reverse after the respective tax holiday periods. On February 24, 2003, Syngene obtained an approval from the Department of Scientific and Industrial Research for exemption of profits under section 80-IB (8A) of the IT Act. Based on the above, Syngene has not recognised any deferred tax liability/asset on account of timing differences as Syngene expects it to reverse during the tax holiday/tax deduction period.

293

Biocon
9. Fixed assets
Balance, beginning of the period Cost/Valuation Goodwill Land Freehold (revalued) Freehold (others) Leasehold Buildings (revalued) Buildings (others) Plant and machinery Research and development equipment Furniture and fixtures Vehicles Accumulated depreciation Goodwill Leasehold land Buildings (revalued) Buildings (others) Plant and machinery Research and development equipment Furniture and fixtures Vehicles Net book value Goodwill Land Freehold (revalued) Freehold (others) Leasehold Buildings (revalued) Buildings (others) Plant and machinery Research and development equipment Furniture and fixtures Vehicles 9,843,735 13,700,842 64,338,493 9,283,303 268,009,753 873,590,053 99,726,309 15,102,898 5,533,317 1,359,128,703 Notes: (a) Biocon acquired 100 per cent shareholding in Clinigene on March 31, 2001, at a consideration of Rs. 500,000. As of March 31, 2001, the net assets of Clinigene were Rs. 188,385 resulting in a goodwill of Rs. 311,615. The goodwill was fully amortised during the year ended March 31, 2001. Biocon acquired 51 per cent shareholding in BBPL on April 18, 2003, at a consideration of Rs. 102,000. As of April 18, 2003, Biocons share of the negative net worth of BBPL was Rs. 729,207 resulting in a goodwill of Rs. 831,207. The goodwill was fully amortised during the period ended December 31, 2003. Certain freehold land and buildings were revalued on November 1, 1994, based on the estimated replacement cost after conside ring 8,966,260 40,645,810 118,597,101 8,027,336 292,770,893 868,877,694 130,342,515 21,090,685 4,521,647 1,493,839,941 311,615 2,384,950 8,292,056 37,308,007 284,513,106 33,376,592 9,137,055 3,043,581 378,366,962 831,207 138,662 1,255,967 9,876,744 92,028,922 12,105,500 3,195,080 1,011,670 120,443,752 606,541 606,541 1,142,822 2,523,612 9,548,023 47,184,751 376,542,028 45,482,092 12,332,135 3,448,710 498,204,173 9,843,735 13,700,842 66,723,443 17,575,359 305,317,760 1,158,103,159 133,102,901 24,239,953 8,576,898 1,737,495,665 27,404,993 54,397,270 34,637,884 87,316,563 42,721,706 9,182,867 256,492,490 606,541 1,944,041 877,475 460,025 8,966,260 40,645,810 121,120,713 17,575,359 339,955,644 1,245,419,722 175,824,607 33,422,820 7,970,357 1,992,044,114 311,615 831,207 1,142,822 Additions/charge Deletions/ Adjustments Balance, end of the period

(b)

(c)

294

Biocon
depreciation upto that date, as per valuers reports and the resultant surplus of Rs. 34,528,673 was credited to revaluation reserve. Of this reserve, Rs. 17,535,077 (March 31, 2003 Rs. 15,401,635) has been transferred to the profit and loss account for depreciation on these assets or adjusted on the sale of these assets. (d) (e) (f) The Group has capitalised net foreign exchange losses of Rs. 609,342 (March 31, 2003 Rs. 274,782) during the period/year and adjusted net foreign exchange gain amounting to Rs. 1,718,183 (March 31, 2003 Rs. Nil) in capital work-in-progress. During the period, the Group has capitalised borrowing costs identifiable to qualifying assets of Rs. 5,996,000 (March 31, 2003 Rs. 1,664,479), currently reflected as capital work in progress. On December 5, 2002, Karnataka Industrial Areas Development Board (KIADB) allotted land aggregating 26.75 acres to Biocon for Rs. 64,200,000 on a lease-cum-sale basis for a period of 6 years. Further, during the period, Biocon has acquired additional 20 acres of land for Rs. 48,202,350 from KIADB. The same is reflected at the current allotment rate; the final amount to be determined by KIADB on the completion of six years on fulfillment of certain conditions. One of the key conditions include commencement of commercial operations by Biocon within 24 months of possession ie December 2002. Biocon is confident of fulfilling this condition. As per the Retirement Benefit Scheme framed by Biocon for senior executives, certain employees completing 12 years of service have an option to buy Biocons apartment for a consideration to be fixed by Biocon. During the period, the Biocon has not transferred any of the Biocon apartments to any of the employees.

(g)

(h) During the period, Biocon has acquired 11.8 acres of freehold land from Kiran Mazumdar Shaw, the Managing Director, which was earlier leased to Biocon, at an aggregate cost of Rs. 26,749,888.

10. Investments (At cost)

December 31, 2003 Long term investments Non trade: Unquoted 2,000 (March 31, 2003 2000) equity shares of Rs 100 each of Xcyton Diagnostics Limited, fully paid Less: Provision for other than temporary dimiunition in value National Savings Certificates 199,998 2 6,200 6,202 Current and unquoted (at lower of cost and fair market value) 5,000,000 units (March 31, 2003 5,000,000) of Rs. 10 each in IL&FS Fixed Maturity Plan [Market Value Rs. 50,653,000 (March 31, 2003 Rs. 50,086,986 ) 1,462,790.522 units (March 31, 2003 Nil) of Rs. 10 each in Reliance Mutual Fund [Market Value Rs. 15,105,507 (March 31, 2003 Rs. Nil)] 4,000,000 units (March 31, 2003 Nil) of Rs. 10 each in Reliance Fixed Term Scheme [Market Value Rs. 40,115,600 (March 31, 2003 Rs. Nil)] 1,882,074.25 units (March 31, 2003 Nil) of Rs. 10 each in LIC Mutual Fund [Market Value Rs. 20,241,143.94 (March 31, 2003 Rs. Nil)] 3,534,209.399 units (March 31, 2003 Nil) of Rs. 10 each in JM Mutual Fund [Market Value Rs. 34,420,200.02 (March 31, 2003 Rs. Nil)] 1,358,550.091 units (March 31, 2003 Nil) of Rs. 10 each in TATA Mutual Fund [Market Value Rs. 15,106,938 (March 31, 2003 Rs. Nil)] 1,591,345.174 units (March 31, 2003 Nil) of Rs. 10 each in HSBC Mutual Fund [Market Value Rs. 16,212,624.63 (March 31, 2003 Rs. Nil)] Aggregate amount of unquoted investments 15,106,938 16,210,132 142,056,782 142,062,984 50,001,202 50,001,202 15,105,507 50,000,000 199,998 2 1,200 1,202 200,000 200,000 March 31, 2003

40,000,000 20,216,700 35,417,505

295

Biocon
The following investments were purchased and sold during the period from April 1, 2003 to December 31, 2003: 7,409,340 units of Rs. 10 each in HSBC - Cash Fund 2,000,000 units of Rs. 10 each in Reliance Mutual Fund Purchase of 8,142.207 units of Rs. 1,244.429 each in Franklin Templeton Investment Fund (Sale of 8,142.207 units of Rs. 1,244.365 each ) Purchase of 1,402,953.749 units of Rs. 10.7667 each in ING Vysya Mutual Fund (Sale of 1,402,953.749 units of Rs. 10.7740 each in ING Vysya Mutual Fund) 15,105,163 15,115,424 74,093,400 20,000,000 10,132,395 74,093,312 20,000,000 10,131,877 Purchase Sale

11. Inventories
Raw materials Goods-in-transit Packing materials Work-in-progress Finished goods 483,820,877 15,556,434 2,241,293 188,931,141 10,715,752 701,265,497 250,103,994 16,803,012 1,446,064 198,608,203 12,093,749 479,055,022

12. Sundry debtors (unsecured)

Debts outstanding for a period exceeding six months Considered good Considered doubtful Other debts Considered good Less: Provision for doubtful debts 1,375,596,251 1,406,371,752 10,000,000 1,396,371,752 714,782,959 757,911,189 4,609,125 753,302,064 20,775,501 10,000,000 38,519,105 4,609,125

13. Cash and bank balances

Cash on hand Balances with scheduled banks: In current accounts In exchange earners foreign currency account In deposit accounts 1,114,082 37 19,740,585 21,175,682 1,141,240 10,056 25,000,000 26,338,294 320,978 186,998

Syngene has made a deposit of Rs. 10,000,000 (March 31, 2003 Rs. 10,000,000) under the flexi-deposit account allowing Syngene to avail overdraft facility upto Rs 10,000,000 (March 31, 2003 Rs. 10,000,000) at an interest rate of 2 per cent above the fixed deposit rate. Syngene has drawn Rs. 2,259,415 (March 31, 2003 Rs. Nil) against this facility as at December 31, 2003.

14. Loans and advances (Unsecured and considered good)

December 31, 2003 Advances recoverable in cash or in kind or for value to be received Deposits Balances with Customs and Excise Authorities 54,505,183 15,619,760 67,658,167 137,783,110 for lease of land (Refer Note 23). March 31, 2003 52,099,357 20,413,709 78,496,135 151,009,201

Deposits include Rs. Nil (March 31, 2003 Rs. 9,600,000) paid to Ms Kiran Mazumdar Shaw, Managing Director, towards security deposit

296

Biocon
15. Current Liabilities and Provisions
December 31, 2003 Sundry creditors Advances from customers Balance in current account with bank represents book overdraft Interest accrued but not due Other liabilities Provision for employee retirement benefits Provision for leave encashment Provision for taxation, net of advance tax 918,879,768 23,377,551 2,345,623 4,908,995 147,120,305 1,096,632,242 21,630,572 32,452,964 58,539,487 112,623,023 1,209,255,265 March 31, 2003 555,502,372 27,655,783 352,144 6,268,172 105,830,083 695,608,554 1,151,856 28,561,300 4,307,230 34,020,386 729,628,940

Other liabilities include Rs. 573,161 (March 31, 2003 Rs. 970,443) due to Ms Kiran Mazumdar Shaw, Managing Director and Rs. Nil (March 31, 2003 Rs. 686,836) to JMM Shaw, Director (Refer Note 23). 16. Other income
April 1, 2003 to December 31, 2003 Interest income from investments (Gross) [tax deducted at source Rs. 235,823 (March 31, 2003 Rs. 317,744)] Gain on fixed assets sold, net Miscellaneous income 932,385 8,740,154 9,672,539 April 1, 2002 to March 31, 2003 2,751,478 1,704,985 2,619,863 7,076,326

17. Manufacturing, contract research and other expenses

Raw materials consumed, net of duty drawback of Rs. 37,493,940 (March 31, 2003 Rs. 18,199,657) Purchase of goods for resale Employee costs Salaries, wages, bonus, etc Companys contribution to provident fund Gratuity, superannuation, leave encashment Employee stock compensation expense (See Note 2(l), 4 & 20) Directors sitting fees Welfare expenses Operation and other expenses: Royalty and technical fees Rent Communication expenses Travelling and conveyance Professional charges Power and fuel Insurance Rates, taxes and fees Lab consumables Repairs and maintenance Plant and machinery Buildings Others 1,936,556,750 3,973,149 255,087,242 10,576,339 24,370,380 11,520,137 49,200 19,458,224 321,061,522 1,958,627 12,861,338 31,516,987 25,790,320 125,517,143 12,781,041 7,800,011 18,504,745 43,539,658 13,985,886 20,934,442 1,361,407,066 11,266,792 268,995,579 11,181,191 44,785,119 33,863,779 48,000 22,862,749 381,736,417 38,458,273 2,670,264 14,140,021 38,488,583 22,824,622 133,588,065 8,827,304 3,146,852 10,869,176 43,528,030 10,028,602 19,308,044

297

Biocon
Selling expenses Freight outwards and clearing charges Sales promotion expenses Commission and brokerage Bad debts written off Provision for bad and doubtful debts Loss on disposal of assets, net Printing and stationery Miscellaneous expenses (Increase)/decrease in inventories of finished goods and work-in-progress: Opening inventories: Finished goods Work-in-progress Closing inventories: Finished goods Work-in-progress 19,315,671 16,633,247 19,929,686 197,085 5,390,875 368,674 6,717,998 25,790,557 409,533,991 15,824,098 17,156,511 17,917,825 4,609,125 8,186,236 23,535,526 433,107,157

12,093,749 198,608,203 210,701,952 (10,715,752) (188,931,141) (199,646,893) 11,055,059 2,682,180,471

9,293,945 100,206,121 109,500,066 (12,093,749) (198,608,203) (210,701,952) (101,201,886) 2,086,315,546

18. Research and development expenses Research and development expenses aggregating Rs. 126,715,434 (March 31, 2003 Rs. 114,241,332) including Rs. 42,721,705 (March 31, 2003 Rs. 34,282,059) on capital account have been incurred by Biocon which have been disclosed under the appropriate account heads. 19. Interest and finance charges
April 1, 2003 to December 31, 2003 Interest paid on : Term loans Others 11,668,160 5,829,789 17,497,949 Less : Interest received from suppliers Less : Interest capitalised [See Note 2(k) & 9(e)] Bank charges (6,028,545) (5,996,000) 5,473,404 6,953,697 12,427,101 26,701,866 19,289,689 45,991,555 (1,577,085) (1,664,479) 42,749,991 7,061,224 49,811,215 April 1, 2002 to March 31, 2003

298

Biocon
20. Employee stock compensation On September 27, 2001, the Board of Directors approved the Biocon Employee Stock Option Plan (ESOP Plan 2000) for the grant of stock options to the employees of the Group. A compensation committee has been constituted to administer the plan through the ESOP Trust. The Trust purchases equity shares of Biocon using the proceeds from the loan obtained from Biocon and will subscribe to such number of shares as is necessary for transferring to the employees. The total number of equity shares transferred to the Trust shall not exceed 250,000 equity shares (pre-bonus and pre-split) of Rs. 10 each and shares transferred to each employee will not exceed 10,000 equity shares (pre-bonus and pre-split) of Rs. 10 each. The Compensation Committee shall determine the exercise price which will not be less than the face value of the shares. The Compensation Committee has granted 71,510 options under the ESOP Plan 2000 to be exercised at a grant price of Rs 10 (pre-bonus and pre-split). The options will vest with the employees equally over a four-year period from the grant date. In case the employee resigns from employment, the rights relating to shares, which are eligible for exercise, may be purchased by payment of the exercise price whereas, the balance shares shall be forfeited in favour of the ESOP Trust. The Securities and Exchange Board of India (SEBI) has issued the Employee Stock Option Scheme and Stock Purchase Guidelines, 1999 (SEBI guidelines) which are applicable to stock option schemes for employees of all listed companies. Biocon, though not listed has followed these guidelines for accounting of ESOP costs [Refer Note 2(l)]. In accordance with these guidelines, the excess of market price of the underlying equity shares on the date of the grant of the stock options over the exercise price of the options is to be recognised in the books of account and amortised over the vesting period. For basic EPS purposes, the shares outstanding including the options exercised by the employees have been considered [Refer Note 2(m)]. For diluted EPS purpose, the shares, which are not yet eligible for exercise, have also been considered as outstanding to the extent these shares are diluted. The loan granted to the ESOP trust has been presented as a separate component of shareholders funds. The Trust had 6,181,186 (March 31, 2003 140,900 equity shares of Rs. 10 each) equity shares of Rs. 5 each as at December 31, 2003 and a summary of the activity of the Trust is as follows:
Particulars April 1, 2003 to December 31, 2003 (Equity shares of Rs 5 each post subdivision and bonus issue) Opening balance of equity shares not granted to employees and available with the Trust Add: Acquired by the Trust Less: Options granted during the period/year Add: Options cancelled and lapsed Closing balance of shares not granted to employees and available with the Trust Options granted and exercised at period/year end Options granted and eligible for exercise at period/year end Options granted but not eligible for exercise at period/year end Total compensation cost as at period/year end Vesting period of options Primarily progressively over four years Compensation cost amortised during the period/year 11,520,137 33,863,779 3,398,402 122,438 125,500 3,646,340 841,914 2,534,846 62,688,574 April 1, 2002 to March 31, 2003 (Equity shares of Rs 10 each)

125,030 15,870 (71,510) 69,390 17,878 89,388 65,291,222

The estimated fair values of the equity shares have been determined by management on the date of the grant (April 1, 2002), based on a valuation by an independent appraiser.

299

Biocon
21. Reconciliation of basic and diluted shares used in computing earning per share
December 31, 2003 Basic weighted average shares outstanding Add: Effect of dilutive shares not eligible for exercise under ESOP Weighted average shares outstanding and potential shares outstanding 83,818,814 2,534,846 86,353,660 March 31, 2003 83,974,925 2,626,659 86,601,584

22. Current taxes The current tax charge of Rs. 203,803,106 (March 31, 2003 Rs. 83,845,708) is based on the earnings for the nine-month period ended December 31, 2003. 23. Related party transactions
Sl No Name of the related party Relationship Description April 1, 2003 to December 31, 2003 720,000 (9,600,000) 8,833,498 26,749,888 8,351,031 Balance as at December 31, 2003 (Payable/ receivable) (240,000) (333,161) April 1, 2002 to March 31, 2003 960,000 10,186,766 9,216,800 Balance as at March 31, 2003 (Payable/ receivable) 9,600,000 (970,443) (686,836)

Kiran Mazumdar Shaw

Managing Director

Rent expense Lease deposit paid/ (received) Salary and perquisites Land purchased

JMM Shaw

Director

Salary and perquisites

24. Foreign exchange differences The Company enters into a significant amount of transactions to export products and for contract research and for the import of raw materials. Foreign exchange gains of Rs. 32,001,069 (March 31, 2003 Rs. 9,034,294) included in the net profit is reflected in the respective account captions in the statement of profit and loss. 25. Commitments
December 31, 2003 (a) Capital commitments Estimated amount of contracts remaining to be executed on capital account and not provided for, net of advances (b) Operating lease commitments (i) Rent : Biocon had entered into a lease agreement for land. Gross rental expenses for the period ended December 31, 2003 aggregated to Rs. 720,000 (March 31, 2003 Rs. 960,000). However, Biocon has on December 23, 2003 acquired the land and there are no committed lease rentals in future towards the lease of such land. (ii) Vehicles : The Group has taken vehicles for certain employees under operating leases, which expire in March 2007. Gross rental expenses for the period ended December 31, 2003 aggregated to Rs. 1,087,751 (March 31, 2003 Rs. 383,460). The committed lease rental in the future are: Not later than one year Later than one year and not later than five years 1,097,805 2,558,695 716,037 2,151,988 891,112,038 259,014,106 March 31, 2003

300

Biocon
26. Contingent liabilities (a)
(b) Taxation matters under appeal Corporate guarantees (i) Corporate guarantee given by Biocon in favour of CED in respect of certain performance obligations of Syngene 80,000,000 165,000,000 245,000,000 The Group is informed that the necessary terms and conditions have been complied with and no liability has arisen. (c) Claims against the Group not acknowledged as debts 2,280,000 2,373,750 80,000,000 15,000,000 95,000,000 7,630,942 7,630,942

(ii) Corporate guarantee given by Syngene in favour of CED in respect of certain performance obligations of Biocon

301

Biocon
27. Segmental information Business segments The primary reporting of the Group has been performed on the basis of business segment. The Group is organised into three business segments, enzymes, active pharmaceutical ingredients (Pharma) and contract research services. Segments have been identified and reported based on the nature of the products, the risks and returns, the organisation structure and the internal financial reporting systems. April 1, 2003 to December 31, 2003
Particulars Revenues External sales Inter-segment transfers Total revenues Costs Segment costs Inter-segment transfers Result Segment result Corporate expenses Other income Interest income Operating profit Depreciation Interest expense Income taxes Current and deferred Minority Interest Net profit Other information Segment assets Unallocated corporate assets Total assets Segment liabilities Unallocated corporate liabilities Total liabilities Capital expenditure 19,453,388 12,650,709 21,696,677 47,175 202,644,541 115,661,598 977,635,887 97,085,138 2,340,372 826,392,335 512,771,441 2,943,225,538 377,854,750 788,073 487,247,525 3,834,639,802 487,247,525 4,321,887,327 1,192,722,996 826,392,335 (13,844,723) (47,121,173) (3,553,288) (16,900,599) (346,536) (11,073) (47,214) (41,310,217) (8,480,063) (220,257,434) (6,368) 210,229,093 1,340,584,677 110,968,177 (764,806) (365,934,340) 8,740,154 932,385 1,661,781,947 (366,699,146) 8,740,154 932,385 1,304,755,340 (119,187,785) (12,427,101) (220,257,434) (6,368) 952,876,652 (305,370,427) (1,856,093,343) (154,017,555) (31,709,959) 31,709,959 (2,315,481,325) 483,889,561 31,709,959 515,599,520 3,228,387,979 3,228,387,979 264,985,732 264,985,732 (31,709,959) (31,709,959) 3,977,263,272 3,977,263,272 Enzyme Pharma Contract Research Joint Venture Unallocated Eliminations Total

2,019,115,331 256,492,490

302

Biocon
April 1, 2002 to March 31, 2003
Particulars Revenues External sales Inter-segment transfers Total revenues Costs Segment costs Inter-segment transfers Result Segment result Corporate expenses Other income Interest income Operating profit Depreciation Interest expense Income taxes Current and deferred Minority interest Net profit (17,971,112) (59,949,046) (15,096,700) (17,260,230) (42,250,839) (34,714,516) (118,244,061) (4,848) 231,568,436 824,981,601 107,490,726 (430,476,021) 4,324,848 2,751,478 1,164,040,764 (430,476,021) 4,324,848 2,751,478 740,641,069 (137,431,227) (49,811,215) (118,244,061) (4,848) 435,149,717 (356,377,038) (1,129,472,056) (169,990,431) (55,497,389) 55,497,389 (1,655,839,524) 532,448,085 55,497,389 587,945,474 2,009,951,046 2,009,951,046 277,481,157 277,481,157 (55,497,389) (55,497,389) 2,819,880,288 2,819,880,288 Enzyme Pharma Contract Research Joint Venture Unallocated Eliminations Total

Other information Segment assets Unallocated corporate assets Total assets 479,692,430 1,827,844,623 173,560,336 419,003,245 2,481,097,389 419,003,245

2,900,100,634

Segment liabilities Unallocated corporate liabilities Total liabilities

6,437,726 -

326,722,194 -

64,723,678 -

1,160,456,055

397,883,598 1,160,456,055

1,558,339,653

Capital expenditure

63,719,838

111,552,245

74,049,263

123,612,281

372,933,627

303

Biocon
Geographical Segments Secondary segmental reporting is performed on the basis of the geographical location of customers. The operations of the Group comprise exports contributing to approximately 59 per cent (March 31, 2003 48 per cent). The management views the Indian market and export markets as distinct geographical segments. The following is the distribution of the Groups sale by geographical markets:
Revenues, net India Exports Total April 1, 2003 to December 31, 2003 1,631,311,765 2,345,951,507 3,977,263,272 April 1, 2002 to March 31, 2003 1,465,021,559 1,354,858,729 2,819,880,288

Assets and additions to fixed assets by geographical area - The following is the carrying amount of segment assets and additions to fixed assets by geographical area in which the assets are located:
Carrying amount of segment assets December 31, 2003 India Outside India 3,718,063,783 603,823,545 4,321,887,328 March 31, 2003 2,639,237,801 260,862,833 2,900,100,634

Carrying amount of segment assets outside India represents receivables from export debtors and export benefits recoverable. Segment revenue and result The expenses that are not directly attributable and that cannot be allocated to a business segment on a reasonable basis are shown as unallocated corporate expenses. Inter-segment transfers Segment revenue, segment costs and results include transfers between business segments. Such transfers have been made at cost. The inter-segment transfers have been eliminated on consolidation. Segment assets and liabilities Segment assets include all operating assets used by the business segment and consist principally of fixed assets, investments, receivables and inventories. Segment liabilities comprise of long term debts which can be identified directly against the respective segment assets and liabilities. Assets and liabilities that have not been allocated between segments are shown as part of unallocated corporate assets and liabilities respectively.

304

Biocon
28. Interest in Joint Venture Biocon has a 51 per cent interest in the assets, liabilities and expenses of BBPL, which is yet to commence operations. Biocons share of the assets and liabilities of the jointly controlled entity have been consolidated on a line by line basis. The summary of proportionate assets and liabilities consolidated with financial statements of the Group are as follows: Proportionate assets and liabilities
December 31, 2003 Fixed Assets Cost Less: Accumulated depreciation Net book value Capital advances Current assets, loans and advances Cash and bank balances Less: Current liabilities and provisions Net current liabilities Accumulated losses Share capital Current liabilities and provisions include Biocons share in advances given to BBPL aggregating Rs 2,166,604. Proportionate expenses for the period April 1, 2003 to December 31, 2003 Expenditure Manufacturing, contract research and other expenses Depreciation 812,020 11,073 823,093 5,035 5,035 (2,340,373) (2,335,338) 1,654,300 102,000 47,175 11,073 36,102 746,936 783,038

29. Prior period comparatives Since this is the first time that the Group has presented interim financial statements in accordance with Accounting Standard 25 Interim Financial Reporting issued by the Institute of Chartered Accountants of India in accordance with the transitional provisions contained therein, the Group has not presented comparative statements of profit and loss and cashflows for the comparable interim periods of the prior year. However, comparatives for the year ended March 31, 2003 have been provided by the management and have been reclassified, where necessary, to conform to the current period classification.

305

Biocon

CONSOLIDATED FINANCIAL STATEMENTS BIOCON LIMITED (formerly BIOCON INDIA LIMITED) AS OF DECEMBER 31, 2003 AND MARCH 31, 2003 WITH REPORT OF INDEPENDENT AUDITORS

306

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) Consolidated Financial Statements As of December 31, 2003 and March 31, 2003 Contents Report of Independent Auditors .............................................................................................................................................. 308 Consolidated Balance Sheets ................................................................................................................................................... 309 Consolidated Statements of Income ......................................................................................................................................... 311 Consolidated Statements of Changes in Stockholders Equity ............................................................................................... 312 Consolidated Statements of Cash Flows .................................................................................................................................. 313 Notes to the Consolidated Financial Statements ..................................................................................................................... 314

307

Biocon
REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of Biocon Limited (formerly Biocon India Limited): We have audited the accompanying consolidated balance sheets of Biocon Limited (formerly Biocon India Limited), a company incorporated in India, and its subsidiaries (collectively referred to as the Group) as of December 31, 2003 and March 31, 2003, and the consolidated statements of income, stockholders equity, and cash flows for the nine month period ended December 31, 2003 and for the year ended March 31, 2003. These financial statements are the responsibility of the Groups management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2003 and March 31, 2003, and the consolidated results of its operations and its cash flows for the nine month period ended December 31, 2003 and for the year ended March 31, 2003, respectively in conformity with accounting principles generally accepted in the United States of America. As discussed in Notes 2 and 3 to the consolidated financial statements, the Company adopted SFAS No. 142, Accounting for Goodwill and other Intangible Assets on April 1, 2002. Bangalore, India January 17, 2004

308

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) CONSOLIDATED BALANCE SHEETS
(Expressed in Indian rupees, except share data and unless otherwise stated) December 31, 2003 In US$ (Refer to Note 2.2) ASSETS Current assets Cash and cash equivalents Marketable securities Time deposits Restricted time deposits Trade receivables, net Employee receivables Inventories Deferred income taxes, net Other current assets Total current assets Non-current assets Goodwill Property, plant and equipment, net Due from related party Employee receivables Other non current assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS EQUITY Current liabilities Accounts payable Advance from customers Short term borrowings Current portion of long term debt Accrued employee benefits Income taxes payable Other current liabilities Total current liabilities Non-current liabilities Long term debt Deferred income taxes, net Deferred sales taxes liability TOTAL LIABILITIES 1,655,324 4,178,190 3,585,726 45,003,754 75,400,000 190,316,552 163,329,812 2,049,920,940 166,338,755 143,749,925 103,545,391 1,559,032,964 23,402,856 513,228 8,613,939 474,204 1,187,345 1,285,170 107,772 35,584,514 1,066,000,122 23,377,551 392,364,936 21,600,000 54,083,486 58,539,487 4,908,994 1,620,874,576 661,332,454 27,655,783 276,888,231 139,233,867 29,713,156 4,307,230 6,268,172 1,145,398,893 483,029 41,363,072 325,683 26,481 94,707,278 22,001,959 1,884,087,922 14,834,843 1,206,200 4,313,916,472 22,001,959 1,392,624,860 9,600,000 15,120,946 3,145,237 2,881,121,599 31,506 3,119,213 43,908 389,475 30,655,801 139,999 15,395,510 201,264 2,532,337 52,509,013 1,435,097 142,080,149 2,000,000 17,740,585 1,396,371,752 6,376,961 701,265,497 9,167,568 115,347,939 2,391,785,548 1,338,294 50,000,000 5,000,000 20,000,000 753,302,064 6,212,721 479,055,022 6,788,997 116,931,499 1,438,628,597 In Rs March 31, 2003 In Rs

309

Biocon
December 31, 2003 In US$ (Refer to Note 2.2) Stockholders equity (Refer to Note 16) Common stock (Authorised share capital 120,000,000 (March 31, 2003 12,000,000) equity shares of Rs. 5 each Additional paid-in capital Deferred compensation cost Loan to ESOP Trust Retained earnings Total stockholders equity TOTAL LIABILITIES & STOCKHOLDERS EQUITY 9,879,254 8,187,431 (379,905) (27,633) 32,044,377 49,703,524 94,707,278 450,000,000 372,937,499 (17,304,658) (1,258,700) 1,459,621,391 2,263,995,532 4,313,916,472 18,376,500 375,540,147 (31,427,443) (1,413,700) 961,013,131 1,322,088,635 2,881,121,599 In Rs March 31, 2003 In Rs

The accompanying notes are an integral part of these consolidated financial statements.

Kiran Mazumdar Shaw Managing Director Bangalore January 17, 2004

JMM Shaw Director

310

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) CONSOLIDATED STATEMENTS OF INCOME
(Expressed in Indian rupees, except share data and unless otherwise stated)

Nine months ended December 31, 2003 In US$ (Refer to Note 2.2) Revenues Sale of products, net of excise duty of Rs. 233,069,444 (March 31, 2003 Rs. 208,215,613) and sales tax of Rs. 73,555,090 (March 31, 2003 Rs. 63,077,156) Contract research services Total revenues Cost of revenues (excluding depreciation shown separately below) Cost of products sold Cost of contract research services Gross profit Operating expenses Research and development expenses Selling, general and administrative expenses Depreciation Income from operations Interest expense Interest income Other (income) / expense, net Share of losses in joint venture Income before income taxes and minority interest Provision for income taxes Net income Basic earnings per share Diluted earnings per share Weighted average number of common shares used in computing earnings per share (Refer to Note 16) Basic earnings per share Diluted earnings per share 83,818,814 86,353,660 1,843,990 6,188,415 2,523,675 25,926,508 272,823 (20,469) (228,747) 36,318 25,866,583 5,444,372 20,422,211 0.24 0.24 47,452,553 3,381,286 36,482,588 81,498,958 5,817,469 87,316,427

In Rs

Year ended March 31, 2003 In Rs (Refer to Note 2.2)

3,712,277,540 264,985,732 3,977,263,272

2,542,399,131 277,481,156 2,819,880,287

2,161,463,770 154,017,555 1,661,781,947

1,484,573,344 177,406,272 1,157,900,671

83,993,729 281,882,324 114,953,404 1,180,952,490 12,427,101 (932,385) (10,419,447) 1,654,300 1,178,222,921 247,991,161 930,231,760 11.10 10.77

79,957,119 332,927,726 133,958,105 611,057,721 50,689,648 (2,751,478) (4,324,847) 567,444,398 123,109,499 444,334,899 5.29 5.13

83,818,814 86,353,660

83,974,925 86,601,584

The accompanying notes are an integral part of these consolidated financial statements. Kiran Mazumdar Shaw Managing Director Bangalore January 17, 2004 JMM Shaw Director

311

BIOCON LIMITED (formerly BIOCON INDIA LIMITED) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(Expressed in Indian rupees, except share data and unless otherwise stated)

Biocon

PARTICULARS
Shares (Refer to Note 16) Balances as of March 31, 2002 Loan to ESOP Trust Common stock issued for cash Compensation related to stock option grants (Refer to Note 17) Amortisation of compensation costs Net income for the year Balances as of March 31, 2003 90,000,000 745,503 89,254,497

Common Stock Amount

Additional paid-in capital 310,248,925

Deferred compensation cost -

Loan to ESOP Trust

Retained earnings

Total

18,217,800

(1,215,300) (39,700)

516,678,232

843,929,657 (39,700) 33,863,779

158,700 65,291,222 (65,291,222) 33,863,779

(158,700)

444,334,899 18,376,500 375,540,147 (2,602,648) (31,427,443) 2,602,648 11,520,137 431,623,500 90,000,000 450,000,000 9,879,254 372,937,499 8,187,431 (17,304,658) (379,905) (431,623,500) 930,231,760 (1,258,700) 1,459,621,391 (27,633) 32,044,377 (1,413,700) 155,000 961,013,131

444,334,899 1,322,088,635 155,000 11,520,137 930,231,760 2,263,995,532 49,703,524

312

Repayment of loan by ESOP Trust Cancellation/forfeiture of stock options Amortisation of compensation costs Bonus shares issued (Refer to Note 16) Net income for the nine month period Balance as on December 31, 2003 In US $ (Refer to Note 2.2)

The accompanying notes are an integral part of these consolidated financial statements. Kiran Mazumdar Shaw Managing Director Bangalore January 17, 2004 JMM Shaw Director

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Indian rupees, except share data and unless otherwise stated) Nine months ended December 31, 2003 In US $ (Refer to Note 2.2) CASH FLOWS FROM OPERATING ACTIVITIES: Net income 20,422,211 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,523,675 Amortisation of stock compensation cost 252,912 Provision for doubtful receivables 118,351 Loss /(gain) on assets sold, net 8,094 Deferred tax expense, net 970,100 Changes in assets and liabilities: Trade receivables (14,236,236) Employee receivables 2,675 Inventories (4,878,386) Other current assets 76,823 Due from related parties 210,757 Current liabilities and non current liabilities 11,219,590 Net cash provided by operating activities 16,690,566 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of marketable securities (5,738,479) Sale of marketable securities 3,717,474 Investment in time deposits, net 65,862 Investment in restricted time deposits, net 49,603 Purchase of property, plant and equipment (14,056,992) Sale of property, plant and equipment 2,005 Net cash used in investing activities (15,960,527) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of share capital (Loan to)/Repayment from the ESOP Trust 3,403 Repayment of short-term borrowings Receipt of short-term borrowings 2,535,164 Repayment of long term debt (5,281,507) Receipt of long term debt 702,525 Payment of capital lease obligations Deferred sales tax liability 1,312,501 Cash dividends Net cash used for financing activities (727,914) Net change in cash and cash equivalents 2,125 Cash and cash equivalents at the beginning of the period/year 29,381 Cash and cash equivalents at the end of the period/year 31,506 SUPPLEMENTARY DISCLOSURE FOR CASH ACTIVITIES Cash paid for interest 567,363 Cash paid for income taxes 3,283,663 The accompanying notes are an integral part of these consolidated financial statements. Kiran Mazumdar Shaw Managing Director Bangalore January 17, 2004 JMM Shaw Director Year ended March 31, 2003 In Rs (Refer to Note 2.2) 444,334,899 133,958,105 33,863,779 4,609,125 (1,711,975) 39,263,792 (114,840,406) (6,304,746) (236,925,846) (45,070,042) 6,127,104 212,690,969 469,994,758 (50,000,000) 12,967 (5,000,000) (20,000,000) (407,570,017) 2,067,750 (480,489,300) 158,700 (198,400) (103,495,494) (403,945,610) 456,542,325 (655,181) 47,512,013 (2,710,651) (6,792,298) (17,286,840) 18,625,134 1,338,294 48,573,631 97,786,904

In Rs

930,231,760 114,953,404 11,520,137 5,390,875 368,674 44,188,055 (648,460,563) 121,863 (222,210,475) 3,499,231 9,600,000 511,052,332 760,255,293 (261,387,740) 169,330,958 3,000,000 2,259,415 (640,295,976) 91,349 (727,001,994) 155,000 115,476,705 (240,572,622) 32,000,000 59,784,421 (33,156,496) 96,803 1,338,294 1,435,097 25,843,368 149,570,849

313

Biocon
BIOCON LIMITED (formerly BIOCON INDIA LIMITED) Notes to Consolidated Financial Statements NINE MONTHS ENDED DECEMBER 31, 2003 AND YEAR ENDED MARCH 31, 2003 (Expressed in Indian rupees, except share data and as otherwise stated) 1. Company overview and description of business 1.1 Incorporation and history Biocon Limited (Biocon or the Company) [formerly Biocon India Limited] was incorporated in 1978 under the laws of India and controlled by Ms Kiran Mazumdar Shaw (KMZ), along with her husband Mr. John M Shaw (JMM) and her brother Mr. Ravi Mazumdar (RM) directly and through Glentec International Limited (Glentec), a company incorporated under the laws of Mauritius and controlled by the above persons. KMZ, JMM, RM and Glentec are collectively hereinafter referred to as the Control Group. The Company has its registered office at 20th KM, Hosur Road, Electronic City PO, Bangalore, India. As of December 31, 2003, the Company has a controlling interest in the following entities:
l

Syngene International Private Limited (Syngene), a 99.99 per cent owned subsidiary company incorporated in November 1993 under the laws of India by KMZ. The Company acquired its 73 per cent ownership in Syngene from the Control Group (which the Control Group acquired in March 2000) and an additional 27 per cent ownership interest from minority shareholders (Refer to Note 3), both transactions taking place on March 30, 2002. Clinigene International Private Limited (Clinigene), a 100 per cent owned subsidiary company incorporated in August 2000 under the laws of India by KMZ and JMM. Biocon acquired an ownership interest of 100 per cent in Clinigene in March 31, 2001 by way of a cash payment towards additional issuance of shares by Clinigene.

Biocon has entered into an Agreement on February 22, 2002 to set up a Joint Venture Company, Biocon Biopharmaceuticals Private Limited (BBPL) with CIMAB SA (CIMAB), a company organised and existing under the laws of Cuba and engaged in research, development, manufacturing and marketing of biopharmaceuticals, manufacture and market products using CIMAB technology and to carry out research activities. On April 18, 2003, Biocon acquired 10,200 shares for an equity participation of 51 per cent in BBPL. Biocon and CIMAB have equal participation rights, in the operations of BBPL, therefore the investment in the joint venture BBPL has been accounted based on the equity method. BBPL has not yet commenced revenue-generating operations. As of December 31, 2003, BBPL had accumulated losses of Rs 3,243,725. Biocon is required to arrange for financing of capital expenditure requirements of BBPL. It is expected that the joint venture partner will provide their share of the capital invested by Biocon in the form of technology transfers (an intangible asset). Biocon, together with its subsidiaries, Syngene and Clinigene are hereinafter collectively referred to as the Group. 1.2 Operations The Groups principal areas of operation are as follows: Pharmaceuticals The pharmaceuticals business comprises the manufacture and development of bulk drugs, with focus on products involving fermentation and/or synthetic conversion. The pharmaceuticals business primarily seeks to leverage off the expiry of product patents for Simvastatin, Lovastatin, Atorvastatin and Pravastatin (Statins) that expire between 2001 and 2009, through research capabilities and fermentation and synthetic chemistry skills that have been developed over the years within the Group. Enzymes The enzymes business comprises the development, manufacture and sale of single component enzymes, proprietary formulations and enzyme systems to cater to the demand of a number of diverse industries including food and beverages, textiles, starch, brewing, distilling etc.

314

Biocon
Contract research The Group provides contract research services to overseas and domestic customers and is primarily engaged in the following areas of such research:
l l l l

Molecular biology; Synthetic chemistry; Bio informatics; and Clinical research on well-defined and characterised patients suffering from chronic diseases such as, diabetes, osteoporosis, asthma etc.

SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements of the Group are prepared in conformity with accounting principles generally accepted in the United States of America (US GAAP) to reflect the financial position and the results of operations of the Group. All material transactions and balances between the Group entities have been eliminated. The Company accounts for investments in the joint venture, BBPL by the equity method of accounting as its joint venture partner has participating rights over the operating and financing policies of BBPL. The Company has recognised its share of the loss amounting to Rs 1,654,300 (March 31, 2003 Rs Nil) in these consolidated financial statements. The carrying value of the investment in BBPL as of December 31, 2003 was Rs Nil. The equity and net profit attributable to minority shareholders interest as of December 31, 2003 are Rs 17,214 (March 31, 2003 Rs 10,845) and Rs 6,368 (March 31, 2003 Rs 4,848), respectively. It has not been separately disclosed in the consolidated financial statements, as the amounts are insignificant.

2.1 Principles of consolidation

2.2. Basis of presentation For the convenience of readers, the balance sheet as of December 31, 2003 and the statement of income for the nine month period then ended have been translated into United States Dollars (US$) using the Federal Reserve Bank of New Yorks noon buying rate as confirmed by Hong Kong and Shanghai Banking Corporation (HSBC) as of December 31, 2003 which was 1US$ = Rs 45.55. The convenience translation should not be construed as a representation that the Rs amounts or the US$ amounts referred to in these financial statements have been, could have been, or could in the future be, converted into US$ or Rs, as the case may be, at this or at any other rate of exchange, or at all. In accordance with the resolution passed in the Board of Directors meeting held on March 30, 2002, the equity shares of Biocon with a par value of Rs 100 each has been spilt into 10 equity shares of par value of Rs 10 each. The shareholders at the EGM of the Company held on November 11, 2003, approved the sub-division of equity shares of face value of Rs 10 each into 2 equity shares of Rs. 5 each and increase the authorised capital from Rs. 20,000,000 to Rs. 600,000,000. Subsequent to this sub-division, the authorised equity share capital of Rs. 20,000,000 has been divided into 4,000,000 equity shares of Rs. 5 each and the issued, subscribed and paid -up capital of Rs. 18,376,500 has been divided into 3,675,300 shares of Rs. 5 each. Further, the shareholders at the EGM of the Company held on November 11, 2003 approved the allotment of 86,324,700 equity shares of Rs. 5 each as bonus shares in the ratio of 1:23.4877958 to the shareholders existing as on November 11, 2003, which was the approved record date for this purpose, by capitalisation of the balance in the profit and loss account of Rs. 431,623,500. The stock split and stock dividend has been retroactively reflected in the financial statements. The Group also separately prepares its consolidated financial statements for the same period in accordance with accounting principles generally accepted in India. The principle differences between Indian GAAP and US GAAP relate to the treatment of certain deferred tax items, the method of charging depreciation and the accounting for Biocons interest in the joint venture.

315

Biocon
The consolidated statements of income, stockholders equity, and cash flows presented for the nine month period ended December 31, 2003 are not directly comparable to the consolidated financial statements for the year ended March 31, 2003, which is for a twelve month period. 2.3 Use of estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management of the Group to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the results of operations during the reporting periods. Although these estimates are based upon managements best knowledge of current events and actions, actual results could differ from those estimates. 2.4 Foreign currency transactions Monetary assets and liabilities in foreign currencies are remeasured into functional currency at the rates of exchange prevailing at the balance sheet date. Transactions in foreign currencies are remeasured into functional currency at the rates of exchange prevailing at the date of the transaction. All foreign exchange gains and losses are recorded in the consolidated statements of income. The net foreign exchange gain recorded in the consolidated statements of income is Rs. 32,001,125 (March 31, 2003 Rs. 9,034,294). 2.5 Revenue recognition The Group has two revenue streams, the sale of products and contract research services. The respective accounting policies are as follows: (i) Revenue from sale of products Revenue is recognised when significant risks and rewards in respect of ownership of the products are transferred to the customer. Revenue is recognised when the following criteria are met: - Persuasive evidence of an arrangement exists; - The price to the buyer is fixed and determinable; and - Collectibility of the sales price is reasonably assured. Revenue from domestic sales is recognised on despatch of the products to customers, from the factories of the Company. Revenue from export sales is recognised on shipment of products. Revenues do not include shipping and handling charges collected from the customers amounting to Rs. 3,143,158 (March 31, 2003 Rs. 4,726,434) during the nine-month period ended December 31, 2003. (ii) Contract research revenues Revenues from contract research services comprise fees received for research activities carried out for customers in the fields of molecular biology and synthetic chemistry. Research activities are based on contracts that specify the nature of activity to be carried out, basis of billings, manner of payments and are typically in the nature of time and material contracts. Revenues are recognised on a monthly basis, as services are rendered, in accordance with the terms of the contracts. 2.6 Cost of revenues Cost of products sold comprises employee costs of direct labour, amortisation of deferred stock compensation, material costs and other direct costs incurred in producing bulk drugs and enzymes but excludes depreciation. Costs of contract research services comprise employee costs of direct labour, amortisation of deferred stock compensation, material costs and other direct costs related to the Groups research activities but excludes depreciation. 2.7 Research and development costs Research and development costs are expensed as incurred. Capital expenditure incurred on equipment and facilities acquired or constructed for research and development activities and having alternative future uses, are capitalised as property, plant and equipment and depreciated over their economic useful life. Cost of acquired technology/know-how having no alternate use are expensed as incurred.
316

Biocon
2.8 Cash and cash equivalents All highly liquid investments with original maturities of ninety days or less are considered to be cash equivalents. 2.9 Marketable securities Management determines the appropriate classification of marketable securities at the time of purchase and re-evaluates such designation at each balance sheet date. As of December 31, 2003, all marketable securities were classified as available-for-sale and consisted of units of highly liquid mutual funds. Available-for-sale securities are carried at fair market value with unrealised gains and losses recorded in other comprehensive income, which is a component of stockholders equity. Realised gains and losses, and decline in value judged to be other than temporary on available-for-sale securities are included in the consolidated statement of income. 2.10 Inventories Inventories are valued at the lower of cost or net realisable value. Cost is determined on a first in first out basis for all categories of inventories. Cost in the case of raw materials and packing materials comprises the purchase price and attributable direct costs, less trade discounts. Cost in the case of work-in-progress and finished goods comprises material costs, direct labour, and production overheads. Inventories are reviewed on a regular basis for identification of slow-moving and obsolete inventory, which are written down in the period of identification and are included in cost of products sold. 2.11 Property, plant and equipment Property, plant and equipment are stated at cost less accumulated depreciation. Equipment held under capital leases are stated at the present value of minimum lease payments at the inception of the leases. Advances paid towards acquisition of property and equipment and the cost of property and equipment not put to use before the balance sheet date are classified as capital work-in-progress. The interest cost incurred for funding an asset during its construction period is capitalised based on the actual investment in the asset and the average cost of funds. The capitalised interest is included in the cost of the relevant asset and is depreciated over the estimated useful life of the asset. Depreciation is computed using the straight-line method over the estimated useful lives of assets. Depreciation of equipment held under capital leases is computed using the straight-line method over the shorter of the assets estimated lives and the lease term. Costs of normal repairs and maintenance are charged to income as incurred. Major replacements or betterment of property, plant and equipment are capitalised. During the nine-month period the Group has incurred Rs 57,518,016 (March 31, 2003 Rs 53,556,632) towards normal repairs and maintenance. 2.12 Impairment of long-lived assets The Group reviews long-lived assets for impairment, whenever an event or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The carrying values of long-lived assets are assessed for recoverability by reference to the estimated future undiscounted cash flows associated with them. Where this assessment indicates a deficit, the assets are written down to market value. For assets, which do not have a readily determinable market value, the assets are written down to their estimated market value, calculated by reference to the estimated future discounted cash flows. Assets to be disposed are reported at the lower of the written down value or the fair value, less the cost to sell. 2.13 Goodwill Goodwill represents the excess of cost over the fair value of net tangible and identifiable intangible assets of acquired businesses. Effective April 1, 2002, the Group adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). Under SFAS No. 142, goodwill arising on business combinations consummated after June 30, 2001 will not be amortised to expense, but is instead subjected to a periodic impairment test at least annually.
317

Biocon
The impairment test is conducted at the reporting unit level by comparing the fair value of the reporting unit with its carrying value. Fair value is primarily determined by computing the future discounted cash flows expected to be generated by the reporting unit. If the carrying value exceeds the fair value, goodwill may be impaired. If this occurs, the fair value of the reporting unit is then allocated to its assets and liabilities in a manner similar to a purchase price allocation in order to determine the implied fair value of the reporting unit goodwill. This implied fair value is then compared with the carrying amount of the reporting unit goodwill, and if it were less, the Group would then recognise an impairment loss. No goodwill impairment losses have been recognised in any of the periods presented herein. (Refer to Note 3) 2.14 Operating leases Lease rental expenses on operating leases are charged to expense over the lease term as it becomes payable. Rental expense for these leases is being recognised on a straight-line basis over the lease term. 2.15 Employee benefits In accordance with Indian law, all employees of the Group, are entitled to receive benefits under the Provident Fund, a defined contribution plan in which both the employee and the Group, contribute monthly at a determined rate (currently 12 per cent of the employees base salary). These contributions are made to the Government Provident Fund. The Superannuation Plan is a defined contribution pension plan for all employees of the Group. The Group contributes to employees superannuation fund at 15 per cent of the employees base salary. The superannuation schemes of the Group are administered by a trust formed for this purpose through the superannuation scheme with Birla Sunlife Insurance Company Limited (Birla Sunlife). The Group has no further obligation under the Provident Fund or Superannuation Plan, beyond its contributions. Contributions to defined contribution plans are charged to income in the period in which they accrue. In accordance with Indian law, the Group provides for gratuity, a defined benefit retirement plan (the Gratuity Plan) covering all its employees. The Gratuity Plan provides a lump sum payment to vested employees on retirement or on termination of employment of an amount based on the respective employees salary and the years of employment with the Group. The gratuity plan fund benefits of the Group are administered by a trust formed for this purpose and managed by Birla Sunlife. Gratuity benefit cost for the period/year is calculated on an actuarial basis. Current service costs for the Gratuity Plan are accrued in the period/year to which they relate. Actuarial gains or losses or prior service costs, if any, resulting from amendments to the plans are recognised and amortised over the remaining period of service of the employees. Accrual for vacation pay is determined on the full liability method for the unavailed leave balance standing to the credit of the employees at period/year end at current encashable salary rates. 2.16 Income taxes The Group records income taxes in accordance with the liability method of accounting. The current charge for income taxes is calculated in accordance with the relevant tax regulations applicable to each entity in the Group. Deferred income taxes are recognised for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss carry forwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognised in income in the period that includes the enactment date. Deferred tax assets are recognised in full subject to a valuation allowance for any tax benefit, the future realisation of which is uncertain. 2.17 Comprehensive income SFAS No. 130, Reporting Comprehensive Income establishes rules for the reporting of comprehensive income and its components. Comprehensive income is defined as all changes in equity from non-owner sources. The unrealised gains on marketable securities for the year ended March 31, 2003 and the nine-month period ended December 31, 2003 were insignificant, and thus have been recorded as a component of operations.

318

Biocon
2.18 Stock-based compensation The Group accounts for stock-based compensation using the intrinsic value method prescribed in APB No. 25, Accounting for Stock Issued to Employees and related interpretations. Compensation cost for stock options is measured as the excess of the fair value of the Companys stock on the stock options grant date over the amount an employee must pay to acquire the stock and is recognised in a graded manner on the basis of weighted period of services. The fair value of the options is measured on the basis of an independent valuation performed in respect of stock options granted. SFAS No. 123, Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. The Group has elected its current method of accounting as described above, and has adopted the disclosure requirements of SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure, an amendment of SFAS No. 123. Had compensation cost for the Groups stock based compensation been determined based on the fair value at the grant dates for awards under those plans consistent with the method of FASB Statement 123, the impact on the Groups net income of Rs 930,231,760 for the nine month period ended December 31, 2003 and Rs 444,334,899 for the year ended March 31, 2003, would have been negligible. For purposes of applying SFAS No. 123, the estimated fair value of stock options granted during 2003 was Rs 18.58068. The fair value of options was estimated at the date of grant using the Black Scholes method with the following assumptions:
Expected volatility Expected dividend yield Risk-free interest rate Expected life 40% 0.0% 5.5% 2.5 years

2.19 Derivative instruments and hedging activities The Group enters into forward foreign exchange contracts where the counter party is generally a bank. The Group purchases forward foreign exchange contracts to mitigate the risk of changes in foreign exchange rates on accounts receivable. The Company has not designated these contracts as hedges in accordance with the requirements of SFAS 133. Accordingly, these instruments are recorded on the balance sheet at fair value with the difference being recognised in earnings immediately. The amount of open foreign currency contracts as of December 31, 2003 is US$ 12,900,000, which expire over the next two to three months. 2.20 Recent accounting pronouncements In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest Entities - an interpretation of Accounting Research Bulletin No. 51. FIN No. 46 is applicable to all variable interest entities created after January 31, 2003. In respect of variable interest entities created before February 1, 2003, FIN No. 46 will be applicable from fiscal periods beginning after June 15, 2003. The Company is evaluating the impact of adoption of SFAS No.149 on its consolidated financial statements. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement No. 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company is evaluating the impact of adoption of SFAS No.149 on its consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 requires that certain financial instruments, which under previous guidance were accounted for as equity, must now be accounted for as liabilities. The financial instruments affected include mandatory redeemable stock, certain financial instruments that require or may require the issuer to buy back some of its shares in exchange for cash or other assets and certain obligations that can be settled with shares of stock. SFAS No. 150 is
319

Biocon
effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The initial adoption of SFAS No. 150 on July 1, 2003 did not have any impact on the Companys consolidated financial statements. 3. ACQUISITION OF MINORITY INTEREST IN SYNGENE As of April 1, 2001 the Control Group had an effective ownership interest in Syngene of 73 per cent. In March 2002, the Control Group transferred its 73 per cent ownership interest in Syngene to Biocon in exchange for Biocon shares and the Company acquired the balance 27 per cent from the minority shareholders on March 30, 2002, in exchange of its 2,652,518 equity shares with a par value of Rs 5 each. The transaction was accounted for under the purchase method of accounting. The fair value of the purchase consideration based on the fair value of Biocon s equity shares was determined to be Rs. 49,123,120, based on a per share value of Rs 1.30677 per share which was higher than the fair value of the corresponding share of net assets acquired of Rs 27,121,161. This resulted in goodwill of Rs 22,001,959 being created as part of this acquisition. The Company has identified Syngenes contract research business as the reporting level unit and has assigned assets acquired and liabilities assumed to this unit. The fair value of the reporting unit is determined based on future cash flows of the business, discounted at the rate of 9 per cent per annum, for 4 years on an unleveraged basis, projecting a future likely growth rate of 10 per cent per annum. As of December 31, 2003, management believes that such goodwill is not impaired. 4. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash in hand and balances available in current accounts.
December 31, 2003 In US$ (Refer to Note 2.2) Cash in hand Bank balances 7,047 24,459 31,506 March 31, 2003 In Rs 320,978 1,114,119 1,435,097 In Rs

186,998 1,151,296 1,338,294

5.

RESTRICTED AND OTHER TIME DEPOSITS Restricted time deposits as of December 31, 2003 and March 31, 2003 includes Rs 20,000,000 maturing over the next 5 to 11 months used as a lien executed for availing an overdraft facility of Rs 20,000,000 to finance working capital, repayable on demand, carrying an interest rate of 2 per cent above the time deposit rate, per annum. The Group has utilised the facility during the period and the overdrawn balances as of December 31, 2003 and March 31, 2003 aggregate Rs 2,259,415 and Rs Nil respectively. Other time deposits include Rs 2,000,000 (March 31, 2003 Rs 5,000,000), which is held with HSBC, and will mature over the next 6 months.

6.

MARKETABLE SECURITIES The carrying value of mutual fund units as of December 31, 2003 aggregates Rs 142,080,149 (March 31, 2003 Rs 50,000,000).
December 31, 2003 Cost Fair value In Rs In Rs IL&FS Fixed Maturity Plan JM Mutual Fund LIC Mutual Fund TATA Mutual Fund Reliance Fixed Term Scheme Reliance Mutual Fund HSBC Mutual Fund 35,417,505 20,216,700 15,106,938 40,000,000 15,105,507 16,210,132 142,056,782 35,420,200 20,241,144 15,106,533 40,000,000 15,099,650 16,212,622 142,080,149 March 31, 2003 Cost Fair value In Rs In Rs 50,000,000 50,000,000 50,000,000 50,000,000

The gross realized gains on marketable securities for the nine-month period ended December 31, 2003 amounts to Rs 3,229,001 (March 31, 2003 Rs Nil) and has been included as a part of Other Income.
320

Biocon
7. TRADE RECEIVABLES, NET
December 31, 2003 In US$ (Refer to Note 2.2) Trade receivables Less: Provision for doubtful receivables 30,875,340 219,539 30,655,801 In Rs 1,406,371,752 10,000,000 1,396,371,752 March 31, 2003 In Rs 757,911,189 4,609,125 753,302,064

During the nine month period ended December 31, 2003, the Group had written off Rs 197,085 (March 31, 2003 Rs Nil) being irrecoverable amounts from identified customers. The provision for doubtful receivables of Rs 5,390,875 made during the nine-month period ended December 31, 2003 has been made on the basis of specific customer identification. 8. INVENTORIES
December 31, 2003 In US$ In Rs (Refer to Note 2.2) Raw materials Goods-in-transit Packing materials Work-in-process Finished goods 10,621,754 341,523 49,205 4,147,775 235,253 15,395,510 483,820,877 15,556,434 2,241,293 188,931,141 10,715,752 701,265,497 March 31, 2003 In Rs 250,103,994 16,803,012 1,446,064 198,608,203 12,093,749 479,055,022

During the nine-month period, the Company has written off Rs 10,426,044 (March 31, 2003 Rs 8,503,611) towards identified obsolete and slow moving inventory. 9. PROPERTY, PLANT AND EQUIPMENT, NET
Estimated useful life (In years) Land Advance paid towards acquisition of Land Buildings Plant, machinery and equipment Research and development equipment Furniture and fixtures Vehicles Capital work-in-progress 25 3 11 9 6 6 December 31, 2003 In US$ In Rs (Refer to Note 2.2) 942,339 2,603,672 7,402,960 27,467,999 3,812,455 729,556 229,798 9,463,615 52,652,394 Accumulated depreciation Property, plant and equipment, net (11,289,322) 41,363,072 42,923,535 118,597,270 337,204,839 1,251,167,338 173,657,356 33,231,271 10,467,277 431,067,661 2,398,316,547 (514,228,625) 1,884,087,922 March 31, 2003 In Rs 15,978,578 64,200,000 302,566,956 1,163,850,776 130,935,651 24,048,403 10,467,277 79,852,440 1,791,900,081 (399,275,221) 1,392,624,860

321

Biocon
Property, plant and equipment, net above includes the following assets held under capital leases:
December 31, 2003 In US$ In Rs (Refer to Note 2.2) Computers (included in plant, machinery and equipment) Vehicles Less: Accumulated depreciation 97,085 43,908 140,993 140,993 4,422,217 2,000,000 6,422,217 6,422,217 March 31, 2003 In Rs 4,422,217 2,000,000 6,422,217 6,422,217

During the nine month period, the Group has capitalised borrowing costs identifiable to property, plant and equipment of Rs. 5,996,000 (March 31, 2003 Rs. 1,664,479). On December 5, 2002, Karnataka Industrial Areas Development Board (KIADB) allotted land aggregating 26.75 acres to the Company for Rs 64,200,000 on a lease-cum-sale basis for a period of 6 years. Further, during the period the Company has acquired an additional 20 acres of land for Rs 48,202,350 from KIADB. The same is reflected at the current allotment rate, the final amount to be determined by KIADB on the completion of six years on fulfilment of certain conditions. The Company is required to comply with conditions as defined, which include a condition to commence commercial operations within 24 months of possession i.e. by December 2004 and the Group is confident of fulfilling all the defined conditions as per the agreement with KIADB and accordingly, the payment has been reflected as Advance paid towards acquisition of Land and included in property, plant and equipment above. During the nine-month period, Biocon has acquired 11.8 acres of freehold land from KMZ, the Managing Director, which was earlier leased to the Company, at an aggregate cost of Rs 26,749,888, which approximates the fair value of such land on the date of the acquisition. 10. FINANCIAL INSTRUMENTS 10.1 Fair Value of Financial instruments SFAS 107 requires the Group to disclose the fair value of all financial instruments in the financial statements. However, this does not change any requirements for recognition, measurement, or classification of the financial instruments in the financial statements. The fair values of the Groups current assets and current liabilities approximate their carrying values because of their short maturity. Such financial instruments are classified as current and are expected to be liquidated within the next twelve months. Long-term rental deposits, included under dues from related party for the year ended March 31, 2003 represent interest free deposits given for the factory premises taken on lease from the Managing Director. These deposits were refunded when the Company acquired such land during the nine month period ended December 31, 2003. (Refer to Note 9 and 19). Long-term employee receivables are loans given to employees to acquire assets such as property and cars. Such loans are repayable over fixed periods ranging from three to eight years and are interest-free in nature. The fair value, determined using market rates of interest, of loans to employees of Rs 14,834,843 (March 31, 2003 Rs 15,120,946) is Rs 12,210,588 (March 31, 2003 Rs 11,404,637). Long-term loan is repayable within five years. The Group pays interest on such loan at a rate, which closely approximates the market rate. Hence, the fair value of the long-term loan closely approximates its carrying value in the financial statements of Rs 75,400,000 (March 31, 2003 Rs 166,378,755). As more fully discussed in Note 15, deferred sales taxes liability represents deferment of the sales tax liability of the Company for a period of 8 to 12 years. These amounts are interest free in nature and are repayable over a 5 year term
322

Biocon
after the end of the deferment period. The fair value, determined using market rates of interest, of the amount of deferred sales tax, carried in the financial statements at Rs 163,329,812 (March 31, 2003 Rs 103,545,391), determined using market rates of interest is Rs 88,158,975 (March 31, 2003 Rs 39,967,690). 10.2 Concentration of credit risk Financial instruments that potentially subject the Group to concentrations of credit risk consist principally of cash equivalents, investments in mutual funds, time deposits and trade receivables. By their nature, all such financial instruments involve risk including the credit risk of non-performance by counter parties. The Groups cash equivalents and time deposits are invested with banks with high investment grade credit ratings. To reduce credit risk, investments are made in a diversified portfolio of mutual funds, as described in Note 6, which are periodically reviewed. Trade receivables are typically unsecured and are derived from revenues earned from customers. The Group monitors the credit worthiness of its customers to which it grants credit terms in the normal course of the business. The Company has a customer in China, Canada and India who individually accounted for 7, 4 and 13 per cent of the trade receivables respectively and 14, 11 and 8 per cent respectively of the total sale of products during the ninemonth period ended December 31, 2003. In managements opinion, as of December 31, 2003, there was no significant risk of loss in the event of nonperformance of the counter parties to these financial instruments, other than the amounts already provided for in the financial statements. 11. SHORT TERM BORROWINGS
December 31, 2003 In US$ In Rs (Refer to Note 2.2) Cash credit and packing credit from banks Book overdraft 8,562,444 51,495 8,613,939 Cash credit and packing credit from banks (i) Biocon has a total rupee and foreign currency denominated fund based working capital facilities with State Bank of India (SBI) of Rs 130,000,000. These facilities are repayable on demand, secured by the hypothecation of inventories and book debts and carry an interest rate of 2.1 per cent per annum for foreign currency denominated loans and 7.5 to 12.25 per cent per annum for rupee loans. The amount outstanding as on December 31, 2003 is Rs. Nil (March 31, 2003 Rs. 39,650,178) inclusive of foreign currency denominated loans of Rs. Nil [March 31, 2003 Rs. 39,596,571 (US$ 834,051)]. 390,019,313 2,345,623 392,364,936 March 31, 2003 In Rs 276,536,087 352,144 276,888,231

(ii) Biocon has a total rupee and foreign currency denominated working capital facilities with Hongkong and Shanghai Banking Corporation (HSBC) for Rs 175,000,000. These facilities are repayable on demand, secured by the hypothecation of inventories and book debt and carry an interest rate of 2 per cent per annum for foreign currency denominated loans and 6 to 15 per cent per annum for rupee loans. Biocon has utilised Rs 171,223,491 (March 31, 2003 Rs. 115,580,186) as of December 31, 2003 inclusive of foreign currency denominated loans of Rs 100,319,990 (US$ 2,200,000) [March 31, 2003 Rs. 90,255,512 (US$ 1,902,387)]. (iii) Biocon has a working capital facilities with Canara Bank (CB) for Rs 130,000,000. These facilities are repayable on demand, secured by the hypothecation of inventories and book debt and carry an interest rate of 2.1 per cent for foreign currency denominated loans and 8 to 11.75 per cent per annum for rupee loans. Biocon has utilised Rs. 127,692,147 (March 31, 2003 Rs. 121,305,722) as of December 31, 2003 inclusive of foreign currency denominated loans of Rs. 127,626,362 (US$ 2,798,824) [March 31, 2003 Rs. 117,435,931 (US$ 2,473,637)]. The above working capital loans are further secured by the personal guarantee of the Managing Director. (iv) During the nine-month period, Biocon entered into a working capital facility with Export Import Bank (EXIM Bank) for Rs 92,860,000 (US$ 2,000,000). These facilities are repayable on demand, secured by the hypothecation of inventories and book debt and carry an interest rate of 2.2 per cent. Biocon has utilised Rs 91,103,675 (US$ 1,997,888) [March 31, 2003 Rs Nil) as of December 31, 2003. The total interest expense incurred for the total short term borrowings for the nine month period ended December 31, 2003 aggregated Rs 12,783,486 (March 31, 2003 Rs 26,350,913) excluding interest received from suppliers amounting to Rs 6,028,545 (March 31, 2003 Rs 1,577,085) and interest capitalised amounting to Rs 5,996,000 (March 31, 2003 Rs 1,664,479).

323

Biocon
12. LONG TERM DEBT
December 31, 2003 In US$ In Rs (Refer to Note 2.2) Term Loans EXIM Bank loan SBI Bank loan HSBC Bank loan Technology Development Board 2,129,528 2,129,528 Less Current portion of long term debt (474,204) 1,655,324 97,000,000 97,000,000 (21,600,000) 75,400,000 64,738,706 26,667,250 149,166,666 65,000,000 305,572,622 (139,233,867) 166,338,755 March 31, 2003 In Rs

Term loans (i) On April 9, 1999, Biocon entered into a term loan facility with EXIM bank for Rs 126,001,000 for funding its fixed asset acquisitions of the Submerged Fermentation Plant. These loans are repayable in 9 equal half yearly instalments commencing from December 10, 2000, and are secured by a first pari passu mortgage and charge on the fixed assets of Biocon and carry an interest rate of 10.5 per cent per annum. Biocon had a balance of Rs 42,001,000 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003. (ii) On November 5, 1999, Biocon entered into a term loan facility with EXIM bank of India for Rs 46,730,706 for funding its fixed assets acquisitions of the PlaFractor Plant. These loans are repayable in 10 equal half yearly instalments commencing from December 10, 2000, secured by a charge on the fixed assets of Biocon and carry an interest rate of 7 per cent per annum. Biocon had a balance of Rs 22,737,706 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003. (iii) On May 5, 1999, Biocon entered into a term loan facility with SBI for Rs 50,000,000 for funding its fixed asset acquisitions of the Submerged Fermentation Plant. These loans are repayable in 60 equal monthly instalments commencing from December 2000, are secured by a first pari passu mortgage and charge on the fixed assets of Biocon and carry an interest rate of 2.99 per cent per annum for foreign currency denominated loan and 13 per cent per annum for the rupee loan. Biocon had a balance of Rs 26,667,250 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003. (iv) Biocon had obtained a rupee and foreign currency denominated term loan facility with HSBC for Rs 170,000,000 for funding its fixed asset acquisitions during the period and fully utilised this facility during the year ended March 31, 2003. The instalments commencing from November 2002, are secured by a pari passu charge over the fixed assets of Biocon and loan is repayable in 44 monthly carry an interest rate of 2.77 per cent per annum for foreign currency denominated loans and 6.6 per cent per annum for rupee loans. Biocon had a balance of Rs 149,166,666 drawn but not due as of March 31, 2003, which was paid off in full as of December 31, 2003. (v) On July 3, 2002, Biocon entered into a term loan facility with Technology Development Board (TDB) for Rs 100,000,000 for funding its fixed asset acquisitions of the PlaFractor plant. These loans are repayable in 9 equal half yearly instalments commencing from February 2004, are secured by a first pari passu mortgage and charge on the fixed assets of Biocon and carry an interest rate of 5 per cent per annum. As of December 31, 2003, Biocon had drawn Rs 97,000,000 (March 31, 2003 Rs 65,000,000) from the above facility. The above term loans are further secured by the personal guarantee of the Managing Director. The total interest expense incurred on the total long term borrowings for the nine month period ended December 31, 2003 aggregated Rs 11,668,160 (March 31, 2003 Rs 26,701,866) excluding interest received from suppliers amounting to Rs 6,028,545 (March 31, 2003 Rs 1,577,085) and interest capitalised amounting to Rs 5,996,000 (March 31, 2003 Rs 1,664,479).

The maturity profile of the long-term debt is as follows:

In US$ (Refer to Note 2.2) Period ending December 31, 2004 2005 2006 2007 2008 474,204 474,204 474,204 472,009 234,907 2,129,528 In Rs

21,600,000 21,600,000 21,600,000 21,500,000 10,700,000 97,000,000

324

Biocon
The significant loan covenants for the TDB loan are as follows:
(i) The project envisaged commissioning of 9 PlaFractor equipment for the manufacture of mycophenolate mofetil; (ii) In the event, the Company fails to commercialise the product/process within a period of 5 years from the date of the first disbursement, TDB shall be entitled to have the right to sell the technical know-how of the product/process developed under the project; (iii) The amount of the loan assistance is to be used strictly for the purpose of the project; (iv) The Company without the written permission of the TDB cannot declare dividend, undertake any merger, consolidation, revalue its assets; transfer, assign, dispose of, pledge, charge, hypothecate or create any lien or in anyway encumber on all its undertakings, properties and assets acquired for the project in favour of any person(s).

As of December 31, 2003, the Group has complied with all the above mentioned loan covenants. 13. EMPLOYEE BENEFIT PLANS The Group has employee benefit plans in the form of certain statutory and welfare schemes covering substantially all of its employees. The Groups cost related to defined contribution plans and vacation pay is as follows:
Nine months period ended December 31, 2003 In US$ In Rs (Refer to Note 2.2) Provident fund Superannuation Vacation pay 211,204 222,996 73,723 507,923 9,620,344 10,157,457 3,358,085 23,135,886 Year ended March 31, 2003 In Rs 10,316,139 11,986,840 7,202,042 29,505,021

The change in benefit obligation and funded status of the gratuity plan for the nine month period ended December 31, 2003 and for the year ended March 31, 2003 are as follows:
December 31, 2003 Change in benefit obligation Benefit obligation at the beginning of the period/year Service cost Interest cost Benefits paid Actuarial Loss Benefit obligation at the end of the period/year (A) Change in plan assets Fair value of plan assets at beginning of period/year Return on plan assets Actual contribution Benefits paid Fair value of plan assets at end of period/year (B) Funded status (A-B) Excess of actual over estimated return Accrued benefit cost 31,945,207 1,197,945 (754,615) 32,388,537 8,104,639 8,104,639 16,026,836 657,162 15,537,267 (276,058) 31,945,207 461,207 (304,448) 156,759 31,484,000 8,583,141 1,180,650 (754,615) 40,493,176 20,654,147 9,866,574 1,239,337 (276,058) 31,484,000 March 31, 2003

Net gratuity cost for the nine month period ended December 31, 2003 and year ended March 31, 2003 includes the following components:

325

Biocon
December 31, 2003 Components of net benefit cost Service cost Interest cost Return on planned assets Net gratuity cost (March 31, 2003 Rs 10,448,749) 8,583,141 1,180,650 (1,197,945) 8,565,846 9,866,574 1,239,337 (657,162) 10,448,749 March 31, 2003

The assumptions used in accounting for the gratuity plan for the nine-month period ended December 31, 2003 and year ended March 31, 2003 are below:
December 31, 2003 Discount rate Expected return on planned assets Rate of compensation increase The Group evaluates these assumptions based on its long-term plans of growth and industry standards. 5% 5% 6% March 31, 2003 6% 6% 6%

14. PROVISION FOR INCOME TAXES

Nine months period ended December 31, 2003 In US$ In Rs (Refer to Note 2.2) Current taxes Deferred taxes Provision for income tax 4,474,272 970,100 5,444,372 203,803,106 44,188,055 247,991,161 Year ended March 31, 2003 In Rs 83,845,707 39,263,792 123,109,499

The components of the deferred tax liability are as follows:

December 31, 2003 In US$ In Rs (Refer to Note 2.2) Deferred tax assets: Provision for employee benefits Technical know how fees Others Total deferred tax assets Deferred tax liabilities: Depreciation on property, plant and equipment Undistributed profit of subsidiary Total deferred tax liabilities Net deferred tax liability 3,747,812 548,454 4,296,266 3,976,926 170,712,843 24,982,070 195,694,913 181,148,984 149,848,686 149,848,686 136,960,928 147,265 98,152 73,923 319,340 6,707,928 4,470,810 3,367,191 14,545,929 5,989,536 4,470,810 2,427,412 12,887,758 March 31, 2003 In Rs

326

Biocon
The net deferred tax asset/(liability) is presented in the balance sheet as follows:
Particulars Net current deferred tax asset/(liability): Deferred tax asset Deferred tax liability Net non-current deferred tax asset/(liability): Deferred tax asset Deferred tax liability Net deferred tax liability 118,076 (4,296,266) (4,178,190) 3,976,926 5,378,361 (195,694,913) (190,316,552) 181,148,984 6,098,761 (149,848,686) (143,749,925) 136,960,928 201,264 201,264 9,167,568 9,167,568 7,283,694 (494,697) 6,788,997 December 31, 2003 In US$ In Rs (Refer to Note 2.2) March 31, 2003 In Rs

The following is a reconciliation of the income tax at the statutory tax rate under the Indian Income-tax Act, 1961 and the provision for income tax:
Nine month ended December 31, 2003 In US$ In Rs (Refer to Note 2.2) Net income before taxes Enacted tax rates in India Computed tax expense Undistributed profits of subsidiary Permanent Differences Non taxable export income Stock compensation costs Weighted deduction on research and development expenses Interest on delayed payment of tax Others Provision for income tax (4,068,071) 90,732 (373,640) (32,740) 5,444,372 (185,300,622) 4,132,849 (17,019,309) (1,491,300) 247,991,161 (69,040,377) 12,444,939 (29,234,434) 1,343,734 (940,179) 123,109,499 25,866,583 35.88% 9,279,637 548,454 1,178,222,921 35.88% 422,687,473 24,982,070 Year ended March 31, 2003 In Rs 567,444,398 36.75% 208,535,816 -

Biocon, Syngene and Clinigene file separate tax returns as per the applicable tax laws in India. On July 1, 2002, Biocon received an approval from the Department of Scientific and Industrial Research to claim a weighted deduction of 150 per cent on the expenditure incurred on scientific research or in-house research and development facility under section 35(2AB) of the Indian Income-tax Act, 1961 retroactively from financial year 1999-2000. Under the Indian Income-tax Act, 1961, the profits of Syngene and certain units of Biocon are exempt from income taxes being profits attributable to earnings from a 100 per cent export oriented unit. Under this tax holiday, Syngene can utilise the deduction for a period of 10 consecutive years starting from April 1, 1998. Syngene has opted for this exemption for the years ended March 31, 1999 to March 31, 2008. On February 24, 2003, Syngene obtained an approval from the Department of Scientific and Industrial Research for exemption of profits for further five year i.e. upto financial year 2013. Further, each of the constituent entities in the Group shall be able to utilise a deduction from Indian income taxes for profits attributable to export operations. During the year ended March 31, 2003, Biocon believed that it could transfer the undistributed profits of Syngene in a tax free manner and accordingly, did not recognise the deferred tax liability on the undistributed profits of Syngene. The
327

Biocon
accumulated profits of Syngene as of December 31, 2003 is available for distribution to Biocon (the holding company) at the applicable tax rate for dividend distribution. For the nine-month period ended December 31, 2003 the Company has recognised the deferred tax liability for the excess of the financial reporting basis over the tax basis of its investment in Syngene. Temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases arose due to difference in depreciation rates of property, plant and equipment and provision for gratuity and leave encashment which are allowable on a payment basis under the Indian Income-tax Act. Since export turnover of the Group qualifies for a deduction from taxable income, a substantial portion of the temporary differences would not have any tax consequences, as they will reverse within the tax holiday period. 15. DEFERRED SALES TAXES LIABILITY The Company has availed the benefit of deferring its sales tax liability for its manufacturing facilities in Bommasandra and Hebbagodi, to an extent of Rs 24,375,000 and Rs 648,938,000, in accordance with the Agro Food Processing Industrial Policy of the Government of Karnataka, for a period of 8 years and 12 years respectively. In accordance with the Government Order, the Group has deferred its sales tax liabilities aggregating Rs 163,629,812 (March 31, 2003 Rs 103,545,391). 16. STOCKHOLDERS EQUITY The Company has only one class of common stock referred to herein as equity shares and each holder of equity shares is entitled to one vote per share. Final dividends proposed by the Board of Directors are payable when formally approved by the shareholders, who have the right to decrease but not increase the amount of the dividend recommended by the Board of Directors. In the event of liquidation of the Company, the holders of equity shares shall be entitled to receive all of the remaining assets of the Company, after distribution of all preferential amounts, if any. Such amounts will be in proportion to the number of equity shares held by the shareholders. The Indian Companies Act, 1956, provides certain guidelines and restrictions on the amount of dividend, which a Company can declare to the stockholders. The stockholders in the Extraordinary General Meeting (EGM) of the Company held on November 11, 2003, approved the sub-division of equity shares of face value of Rs 10 each into 2 equity shares of Rs 5 each. Further, the stockholders in the EGM of the Company held on November 11, 2003, approved the allotment of 86,324,700 equity shares of Rs 5 each as bonus shares in the ratio of 1:23.48779580. The bonus shares have been issued by the capitalisation of retained earnings. Accordingly, the number of equity shares authorised and outstanding prior to the bonus issue have been restated to reflect the retroactive effect of the bonus issue from the beginning of the earliest period reported. Also, the earnings per share have been retroactively adjusted taking cognisance of the enhanced equity base due to the bonus issue.
December 31, 2003 In US$ In Rs (Refer to Note 2.2) Authorised: 120,000,000 equity shares of Rs 5 each (March 31, 2003 120,000,000 equity shares of Rs 5 each) Issued, subscribed and fully paid: 90,000,000 (March 31, 2003 90,000,000) equity shares of Rs 5 each, fully paid March 31, 2003 In Rs

13,172,338

600,000,000

600,000,000

9,879,254

450,000,000

450,000,000

17. EMPLOYEE STOCK OPTION PLAN (ESOP) On September 27, 2001, the Board of Directors approved the Biocon ESOP 2000 (the plan) for the grant of stock options to the employees of Biocon and its subsidiaries. A compensation committee has been constituted to administer the plan through the Biocon India Ltd Employee Welfare Trust (the Trust). The Trust purchases equity shares of Biocon using the proceeds from the loan obtained from Biocon and will subscribe

328

Biocon
to such number of shares as is necessary for transferring to the employees. The total number of equity shares transferred to the Trust shall not exceed 12,243,898 equity shares of Rs 0.2 each and shares transferred to each employee will not exceed 489,756 equity shares of Rs 0.2 each. The Compensation Committee shall determine the exercise price, which will not be less than the face value of the shares. The options will vest with the employees equally over a four-year period. In accordance with the plan during the year ended March 31, 2003, the Company had granted 3,502,260 options to the eligible employees of the Company and its subsidiaries at an exercise price of Rs 0.10209 per share. 25 per cent of the total options granted under the plan will vest to the eligible employees on the completion of 12, 24, 36 and 48 months and is subject to the continued employment of the employee with the Company or its subsidiaries. In case the employee resigns from employment, the rights relating to shares, which are eligible for exercise, may be purchased by payment of the exercise price whereas, the balance shares shall be forfeited in favour of the ESOP Trust. The Group applied APB Opinion 25 and related Interpretations in accounting for this plan. In accordance with APB Opinion 25, the compensation cost has been recognised for the differential between the exercise price and the fair value of value of the shares on the date of the grant, which was Rs 18.76445 per share. The compensation cost is recognized in the financial statements over the vesting period. The percentage to be recognized in each year is based on the aggregate percentage accrued to the employee at the end of each year. The Trust had 6,181,186 equity shares of Rs 5 each as of December 31, 2003 and a summary of the activity of the Trust is as follows:
Particulars Opening balance of unallocated shares Shares acquired by the Trust Shares allocated to employees Shares forfeited and expired Closing balance of unallocated shares Options granted and exercised at period/year end Options granted but not eligible for exercise at period/year end Options granted but not eligible for exercise at period/year end Weighted average exercise price December 31, 2003 3,398,402 122,438 125,500 3,646,340 (841,914) (2,534,846) (3,376,760) Rs 0.10209 March 31, 2003 6,123,418 777,229 (3,502,245) 3,398,402 (875,586) (2,626,674) (3,502,260) Rs 0.10209

The total stock compensation cost recognised in the statement of income for the nine-month period ended December 31, 2003 and year ended March 31, 2003 is as follows:
Nine months ended December 31, 2003 In US$ In Rs (Refer to Note 2.2) Cost of products sold Cost of contract research services Research and development expenses Selling, general and administrative expenses 78,809 63,495 26,227 84,381 252,912 3,589,750 2,892,178 1,194,662 3,843,547 11,520,137 Year ended March 31, 2003 In Rs 12,597,752 7,415,841 3,385,904 10,464,282 33,863,779

Shares allocated to the employees have been considered as outstanding for basic EPS to the extent they are vested. Shares held by the Trust, which have been allocated but not vested have been included for diluted EPS. The loan granted to the Trust has been presented as a separate component of equity and repayments of the loan, by way of exercise of the shares by the employees has been applied toward this loan in the equity statement.

329

Biocon
18. LEASES The Company had entered into an operating lease agreement for certain land for the factory (Refer to Note 19). Gross rental expenses for the nine-month period ended December 31, 2003 aggregated to Rs 720,000 (March 31, 2003 Rs 960,000). However, the Company has on December 23, 2003 acquired the land and hence, there are no further committed lease rentals in future towards the lease of such land. The Group has taken vehicles for certain employees under operating leases, which expire in March 2007. Gross rental expenses for the nine-month period ended December 31, 2003 aggregated to Rs 877,104 (March 31, 2003 Rs 383,460). The committed future minimum lease rental payments are:
December 31, 2003 In US$ (Refer to Note 2.2) Year ending December 31, 2004 2005 2006 2007 24,101 24,101 24,101 8,330 80,633 1,097,805 1,097,805 1,097,805 379,453 3,672,868 In Rs

19. RELATED PARTY TRANSACTIONS The Group had entered into transactions with the principal shareholder KMZ, for the lease of a portion of the factory land. The rental expense paid to KMZ for the lease of land amounts to Rs 720,000 (March 31, 2003 Rs 960,000). However, the Company has on December 23, 2003 acquired the land for a total consideration of Rs 26,749,888. In addition, the Company had given KMZ, a refundable deposit for such land, which has been fully refunded as of December 31, 2003. The remuneration paid to KMZ and JMM in accordance with the agreement entered into by them with the Company for the nine month period ended December 31, 2003 was Rs 17,184,529 (March 31, 2003 Rs 19,403,566). 20. COMMITMENTS AND CONTINGENCIES a) Capital commitments The Group had committed to spend approximately Rs 891,112,038 as of December 31, 2003 (March 31, 2003 Rs 259,014,106), under agreements to purchase property, plant and equipment. This amount is net of advances paid in respect of these purchases. The Company is committed to arrange capital investment and finance expenditure required by the joint venture, BBPL and as per the agreement has committed to finance upto U$5.1 million. b) Guarantees Guarantees provided by banks on behalf of the Group amounted to Rs 245,000,000 (March 31, 2003 Rs 95,000,000), which mature over periods upto September 2006. The guarantees are primarily in the nature of performance guarantees and were provided to Indian Government agencies. The Group has concluded that the risk of the guarantees being called is remote and accordingly no provision has been made. c) Claims against the Group The Group accounts for loss contingencies when the likelihood of the underlying adverse event occurring is probable and the loss can be reasonably estimated. (i) Taxation matters under appeal Biocon has received demand notices from the Income tax authorities in respect of assessments made in the years 1993 to 1998 aggregating Rs 7,629,192 till December 31, 2003 (March 31, 2003 Rs 7,629,192). Biocon has appealed these assessments and management does not anticipate incurring a liability in respect of these amounts. (ii) Other claims against the Group not acknowledged as debts amount to Rs 2,280,000 in December 31, 2003 (March 31, 2003 Rs 2,373,750).
330

Biocon
d) Other commitments The Groups operations are carried out from two units registered as a 100 per cent export oriented unit under the Special Economic Zone (SEZ) scheme. Under this scheme the registered units have export obligations, which are based on the formula provided by the notifications/circulars issued by the SEZ authorities from time to time. The consequence of not meeting the above commitments would be a retroactive levy of import duty on items previously imported duty free for these units. Additionally, the respective authorities have rights to levy penalties for any defaults on a case-by-case basis. Management believes that it would meet the required export obligations. 21 SEGMENTAL INFORMATION Business segments The primary reporting of the Group has been performed on the basis of business segments. The Group is organised into three business segments, enzymes, active pharmaceutical ingredients (Pharma) and contract research services. Segments have been identified and reported based on the nature of the products, the risks and returns, the organisation structure and the internal financial reporting systems. April 1, 2003 to December 31, 2003
Particulars Revenues External sales Inter-segment transfers Total revenues Costs Segment costs Inter-segment transfers Gross profit Segment result Corporate expenses Other income Interest income Operating profit Depreciation Interest expense Share of losses in BBPL Income taxes Current and deferred Net profit Other information Segment assets Unallocated corporate assets Total assets Segment liabilities Unallocated corporate liabilities Total liabilities Capital expenditure 19,453,388 12,650,709 21,696,677 202,691,716 115,661,598 977,635,887 97,085,138 859,538,316 512,771,441 2,943,225,538 377,854,750 480,064,743 3,833,851,729 480,064,743 4,313,916,472 1,190,382,624 859,538,316 2,049,920,940 256,492,490 (247,991,161) (247,991,161) 930,231,760 (13,844,723) (47,121,173) (3,553,288) (16,900,599) (346,536) (37,086,909) (8,527,277) (1,654,300) 208,525,783 1,324,304,251 113,285,551 (365,876,053) 10,419,447 932,385 1,661,781,947 (365,876,053) 10,419,447 932,385 1,307,257,726 (114,953,404) (12,427,101) (1,654,300) (305,370,427) (1,856,093,343) (31,709,959) (154,017,555) 31,709,959 (2,315,481,325) 483,889,561 31,709,959 513,896,210 3,228,387,979 3,212,107,553 264,985,732 267,303,106 (31,709,959) (31,709,959) 3,977,263,272 3,977,263,272 Enzyme Pharma Contract Research Unallocated Eliminations Total

331

Biocon
April 1, 2002 to March 31, 2003
Particulars Revenues External sales Inter-segment transfers Total revenues Costs Segment costs Inter-segment transfers Gross profit Segment result Corporate expenses Other income Interest income Operating profit Depreciation Interest expense Income taxes - Current and deferred Net profit Other information Segment assets Unallocated corporate assets Total assets Segment liabilities Unallocated corporate liabilities Total liabilities Capital expenditure 63,719,838 111,552,245 74,049,263 123,612,281 6,437,726 326,722,194 64,723,678 1,161,149,366 479,692,430 1,827,844,623 173,560,336 400,024,210 2,481,097,389 400,024,210 2,881,121,599 397,883,598 1,161,149,366 1,559,032,964 372,933,627 (12,491,675) (59,570,221) (15,096,700) (16,428,695) (45,467,514) (35,592,949) (123,109,499) 232,844,185 824,981,601 100,074,885 (412,884,845) 4,324,847 2,751,478 1,157,900,671 (412,884,845) 4,324,847 2,751,478 752,092,151 (133,958,105) (50,689,648) (123,109,499) 444,334,899 (355,101,288) (1,129,472,056) (55,497,389) (177,406,272) 55,497,389 (1,661,979,616) 532,448,084 55,497,389 587,945,473 2,009,951,046 2,009,951,046 277,481,157 277,481,157 (55,497,389) (55,497,389) 2,819,880,287 2,819,880,287 Enzyme Pharma Contract Research Unallocated Eliminations Total

Geographical segments Secondary segmental reporting is performed on the basis of the geographical location of customers. The operations of the Group comprise exports contributing to approximately 59 percent (March 31, 2003 48 per cent). The management views the Indian market and export markets as distinct geographical segments. The following is the distribution of the Groups sale by geographical markets
Revenues India Exports Total April 1, 2003 to December 31, 2003 1,631,311,765 2,345,951,507 3,977,263,272 April 1, 2002 to March 31, 2003 1,465,021,558 1,354,858,729 2,819,880,287

332

Biocon
Assets and additions to fixed assets by geographical area - The following is the carrying amount of segment assets and additions to fixed assets by geographical area in which the assets are located:
Carrying amount of segment assets December 31, 2003 India Outside India 3,710,092,928 603,823,545 4,313,916,473 March 31, 2003 2,620,258,766 260,862,833 2,881,121,599

Carrying amount of segment assets outside India represents receivables from export debtors and export benefits recoverable. Segment revenue and result The expenses that are not directly attributable and that cannot be allocated to a business segment on a reasonable basis are shown as unallocated corporate expenses. Inter-segment transfers Segment revenue, segment costs and results include transfers between business segments. Such transfers have been made at cost. The inter-segment transfers have been eliminated on consolidation. Segment assets and liabilities Segment assets include all operating assets used by the business segment and consist principally of fixed assets, investments, receivables and inventories. Segment liabilities comprise of long term debts which can be identified directly against the respective segment assets and liabilities. Assets and liabilities that have not been allocated between segments are shown as part of unallocated corporate assets and liabilities respectively.

333

Biocon

BIOCON LIMITED (formerly BIOCON INDIA LIMITED) CONSOLIDATED STATEMENTS OF ASSETS AND LFIABILITIES AND PROFITS AND LOSSES, AS RESTATED, UNDER INDIAN GAAP FOR THE YEAR ENDED MARCH 31, 2003 AND FOR THE NINE MONTHS PERIOD ENDED DECEMBER 31, 2003

334

Biocon
January 17, 2004 To The Board of Directors Biocon Limited 20th KM, Hosur Road, Electronic City P.O., Bangalore 560 100 Dear Sirs, 1. At your request, we have examined the attached restated consolidated summary statement of assets and liabilities of Biocon Limited (Biocon or the Company) (formerly Biocon India Limited) and its subsidiaries and its joint venture investment (collectively referred to as the Group) as at December 31, 2003 and March 31, 2003 and the attached restated summary statement of profit and loss for each of the period/year ended on those dates (Summary Statements) (see Annexure I and II) prepared by the Company and approved by the Board of Directors. These profits have been arrived at after making such adjustments and regroupings, more fully described in the notes appearing in Annexure III to this report and are in accordance with the: (i) the terms of reference received from the Company, requesting us to carry out work, proposed to be included in the Offer document of the Company in connection with its proposed Initial Public Offer (IPO); and (ii) Guidance Note on Reports in Company Prospectuses and Guidance Note on Audit Reports/Certificates on Financial Information in Offer Documents issued by the Institute of Chartered Accountants of India (ICAI). Based on our examination of these Summary Statements, we confirm that:
l l l l

The impact of changes in accounting policies adopted by the Company as at and for the period ended December 31, 2003 have been adjusted with retrospective effect in the attached Summary Statements; The prior period items have been adjusted in the Summary Statements in the period/year to which they relate; There are no extraordinary items, which need to be disclosed separately in the Summary Statements; and There are no qualifications in the auditors reports, which require any adjustments to the Summary Statements.

2. 3.

The summary of significant accounting policies adopted by the Group pertaining to the audited financial statements for the period ended December 31, 2003 are enclosed as Annexure IV to this report. We have also examined the statement of accounting ratios based on the restated profits relating to earnings per share, net asset value and return on net worth enclosed in Annexure V based on the consolidated financial information of the Group proposed to be included in the Offer Document as approved by you and annexed to this report. The sufficiency of the procedures performed, as set forth in the above paragraphs of this report, is the sole responsibility of the Company. Consequently, we make no representation regarding the sufficiency of the procedures described above either for the purposes for which this report has been requested or for any other purpose. This report is intended solely for your information and for inclusion in the Offer Document in connection with the specified IPO of the Company and is not to be used, referred to or distributed for any other purpose without our prior written consent.

4.

5.

S.R. Batliboi & Associates Chartered Accountants per Prashant Singhal Partner Membership No: 93283 Bangalore January 17, 2004
335

Biocon
Annexure I: Statement of Consolidated Profits and Losses, as restated
(All amounts in Indian Rupees) Nine months ended December 31, 2003 Income Sales Of products manufactured Of products traded Contract Research fees Other Income Total Income Expenditure Consumption of raw materials, chemical reagents and traded goods Employee costs Manufacturing, research, selling and administrative expenses Interest Depreciation (Increase)/decrease in work-in-progress and finished goods Total Expenditure Net profit before taxation Current tax Deferred tax Net profit after tax Minority interest Net profit before adjustments Adjustments Increase/(decrease) in net profits Impact of changes in accounting policies: Depreciation (Refer Note 2a on Annexure III) Lease assets (Refer Note 2b on Annexure III) Leave encashment (Refer Note 2c on Annexure III) Duty drawback (Refer Note 2d on Annexure III) Deferred tax (Refer Note 2e on Annexure III) Others (Refer Note 2f on Annexure III) Other adjustments: Current tax (short)/excess provision for tax (Refer Note 3a and 3b on Annexure III) Bad debts (Refer Note 3c on Annexure III) Total impact of adjustments Tax impact of adjustments (Refer Note 4 on Annexure III) Total of adjustments after tax impact Net Profit, as restated Profit and Loss account, beginning of the year Balance carried forward, as restated Year ended March 31, 2003

3,708,848,336 3,429,204 264,985,732 9,672,539 3,986,935,811 1,940,529,899 321,141,522 409,453,991 12,427,101 118,356,578 11,055,059 2,812,964,150 1,173,971,661 203,803,106 16,454,328 953,714,227 6,368 953,707,859

2,529,353,053 13,046,078 277,481,157 7,076,326 2,826,956,614 1,372,673,858 381,736,417 433,107,156 49,811,215 137,431,227 (101,201,886) 2,273,557,987 553,398,627 83,845,708 34,398,353 435,154,566 4,848 435,149,718

4,060,660 (9,916,299) (818,001) 373,886

5,464,818 (740,876) 9,916,299 (1,058,972) (7,840,795) 148,169

(378,070) (6,677,824) 2,395,669 (4,282,155) 949,425,704 776,027,123 1,725,452,827

(13,149,604) (827,026) (8,087,987) (4,741,636) (12,829,623) 422,320,095 353,707,028 776,027,123

The above statement should be read with notes to Statement of Profits and Losses and Assets and Liabilities, as restated, appearing in Annexure III and the significant accounting policies appearing in Annexure IV.

336

Biocon
Annexure II: Statement of Consolidated Assets and Liabilities, as restated
(All amounts in Indian Rupees) As at December 31, 2003 Fixed Assets Gross block Less : Accumulated depreciation Net Block Less:Revaluation Reserve [Refer Note 5c on Annexure III] Net block after adjustment for Revaluation Reserve Capital work in progress Total Investments Current Assets Inventories Sundry debtors Cash and bank balances Loans and advances Total Liabilities and Provisions Secured loans Unsecured loans Current Liabilities and Provisions Deferred tax liability Total Net worth Represented by Share capital Reserves and Surplus Less: Loan to the ESOP trust Less:Revaluation reserve [Refer Note 5c on Annexure III] Less: Revaluation reserve [Refer Note 5c on Annexure III] Reserves (Net of revaluation reserves) Minority interest Total 1,830,562,646 17,214 2,280,579,860 1,301,394,332 10,845 1,319,781,677 450,000,000 1,846,638,416 1,258,700 14,817,070 18,376,500 1,319,408,010 1,413,700 16,599,978 487,019,313 163,329,812 1,209,255,267 153,896,074 2,013,500,466 2,280,579,860 582,108,706 103,545,391 719,712,633 140,359,594 1,545,726,324 1,319,781,677 701,265,498 1,396,371,752 21,175,682 137,783,106 2,256,596,038 478,681,133 753,680,135 26,338,294 151,827,183 1,410,526,745 1,466,032,940 429,388,364 1,895,421,304 142,062,984 1,325,127,597 79,852,458 1,404,980,055 50,001,201 1,994,044,114 513,194,104 1,480,850,010 14,817,070 1,743,917,882 402,190,307 1,341,727,575 16,599,978 As at March 31, 2003

The above statement should be read with notes to Statement of Profits and Losses and Assets and Liabilities, as restated, appearing in Annexure III and the significant accounting policies appearing in Annexure IV.

337

Biocon
Annexure III: Notes to the consolidated statement of profits and losses and assets and liabilities, as restated 1. Background Biocon Limited (Biocon or the Company) (formerly Biocon India Limited), promoted by Ms Kiran Mazumdar Shaw (KMZ), was incorporated at Bangalore in 1978 for manufacture of biotechnology products. Syngene International Private Limited (Syngene) promoted by KMZ, was incorporated at Bangalore in 1993. At March 30, 2002, Biocon acquired 99.99 per cent of the equity shares of Syngene and, resultantly, became the subsidiary of Biocon. Clinigene International Private Limited (Clinigene) was incorporated on August 4, 2000 and became a wholly owned subsidiary of Biocon on March 31, 2001. Biocon entered into an Agreement on February 22, 2002 to set up a joint venture company, Biocon Biopharmaceuticals Private Limited (BBPL) with CIMAB SA (CIMAB), a company organised and existing under the laws of Cuba and engaged in research, development, manufacturing and marketing of Biopharmaceuticals, to manufacture and market products using technology and to carry out research activities. On April 18, 2003, Biocon acquired 10,200 equity shares for an equity participation of 51 per cent in the BBPL. Biocon together with its subsidiary companies, Syngene and Clinigene and joint venture company, BBPL is collectively hereinafter referred to as the Group. In accordance with the Employee Stock Option Scheme and Stock Purchase Guidelines, 1999 (SEBI guidelines) issued by Securities and Exchange Board of India (SEBI), the Group has also consolidated the ESOP Trust. 2. Adjustments resulting from changes in Accounting Policies a. Depreciation For and upto the accounting year ended March 31, 2000, Biocon and Syngene had been providing depreciation on its assets on the written down value method based on the rates specified under schedule XIV of the Companies Act, 1956 (the Act). Further, upto March 31, 1999, Biocon and Syngene computed depreciation on additions from the first day of the month of the additions. Effective April 1, 2000, Biocon and Syngene revised its policy to depreciate assets based on the estimated useful lives of its assets on the basis of a technical evaluation and also changed the method of providing depreciation to the straight-line method. Accordingly, depreciation on fixed assets has been recomputed based on the straight line method at the revised estimated useful lives for the year ended March 31, 1999 and 2000. In addition, depreciation for the nine-month period ended December 31, 2003 and March 31, 2003 have been recomputed by applying the rates based on the revised estimated useful lives retroactively. b. Leased assets Accounting Standard 19, Accounting for Leases (AS 19) issued by the Institute of Chartered Accountants of India (ICAI) is mandatory in respect of accounting periods commencing on or after April 1, 2001. Biocon adopted AS 19 for the first time in preparing its financial statements for the year ended March 31, 2002. Accordingly, for the purpose of this statement, the assets for which finance lease rentals were paid during the year ended March 31, 1999, 2000 and 2001 have been capitalized and depreciated over the economic useful life of the assets in accordance with AS 19. c. Leave encashment Hitherto, the Group accrued for the liability for encashment of unavailed leave payable on retirement of employees on the basis of current employee compensation rates for the entire unavailed leave balance standing to the credit of the employees at the year-end. During the period ended December 31, 2003 the Group changed its accounting policy in respect of leave encashment and accrued for the liability based on an actuarial valuation for the unavailed leave balance standing to the credit of the employees at period-end. Accordingly, the liability for the year ended March 31, 2003 has been recomputed in accordance with the revised accounting policy.
338

Biocon
d. Duty drawback Effective April 1, 2003, Biocon changed its policy for recognizing duty drawback income on an accrual basis i.e. as and when the eligible export sales are affected, from it being on filing basis for the year ended March 31, 2003. Also, during the nine months period ended December 31, 2003, the Biocon disclosed raw material cost net of duty drawback, whereas in the earlier years the duty drawback income was disclosed as Other income. Accordingly, duty drawback income has been recognized on an accrual basis for the year ended March 31, 2003 and has been adjusted against raw material cost. e. Deferred tax The Group adopted Accounting Standard 22, Accounting for taxes on income (AS 22) issued by ICAI for the first time in preparing its financial statements for the year ended March 31, 2002. Accordingly, for the purpose of this statement, the deferred tax asset/liability has been recognised in the respective years of origination with a corresponding effect to the statement of profits, as restated, with a corresponding adjustment to general reserve as at March 31, 2002. Syngene, constituting two 100 per cent Export Oriented Units (approved by the Cochin Export Processing Zone on December 14, 1998 and the Cochin Special Economic Zone on August 24, 2001), claims exemption under section 10B of the Income-Tax Act, 1961 (the Act). Syngene had created a deferred tax liability as at March 31, 2002, as the timing difference was expected to reverse after the respective tax holiday periods. Further, during the year ended March 31, 2003, Syngene received an approval from the Department of Scientific and Industrial Research (DSIR) for exemption of profits under section 80-IB (8A) of the Income-tax Act, 1961. Consequently, Syngene did not recognize any deferred tax liability/asset on account of timing differences, during the year ended March 31, 2003, as Syngene expects it to reverse during the tax holiday/tax deduction period. Accordingly, deferred tax asset/liability pertaining to the earlier years have been retroactively adjusted. f. Other adjustments Other adjustments include change in the valuation of work-in-progress, finished goods and loss on sale of assets, for the respective years, arisen consequent to the change in the accounting policy of depreciation, as discussed in paragraph 2(a) above. 3. Other material adjustments a. Current tax During the year ended March 31, 2003, Biocon received an approval from the Department of Scientific and Industrial Research (DSIR) to claim a weighted deduction on the expenditure incurred on scientific research or in-house research and development facility under section 35(2AB) of the Income-tax Act, 1961, retroactively. Consequently, the current tax charge for the year ended March 31, 2003 was after considering a write back of tax relating to the prior years. Accordingly, for the purpose of this statement the resultant write-back of tax has been adjusted in the respective years. b. Short/excess provision for income tax Refunds received for advance tax paid has been adjusted to the respective years to which it pertains. Provision for current tax has been restated to the respective year, where there was a shortfall in the provision for tax. c. Bad debts The bad debts written off in the earlier years, which have been subsequently recovered have been adjusted in the financial statements of such years when these amounts were written off. 4. Tax impact of adjustments Tax impact of adjustments pertain to tax effect on restatement adjustments, other than adjustments arising for the matter discussed in paragraph 2e, 3a and 3b, above, at the tax rates applicable in the respective years.

339

Biocon
5. Non Adjustments /Regrouping a. Manufacturing expenses Consumption of raw material, chemical and reagents and traded goods, Employee costs and Increase/(Decrease) in work-in-progress and finished goods have been regrouped and were included as part of Manufacturing and other expenses in the audited consolidated financial statements of the Group for the nine months period ended December 31, 2003 and year ended March 31, 2003. b. Duty drawback The Group has grouped duty drawback (previously grouped as other income) [Refer Note 2d above], excise duty expense on certain special sales (previously grouped as Manufacturing and other expenses) and entry tax expense on raw material procured (previously grouped as Manufacturing and other expenses) as a part of raw material consumed. c. Revaluation reserve In accordance with clause 6.18.7(b)(v) of the SEBI Guidelines, the statement of assets and liabilities as restated has been prepared after deducting the revaluation reserve balance from both fixed assets and reserves. 6. Restated consolidated profit and loss account Consolidated profit and loss account of the Group at April 1, 2002 has been restated to reflect the impact of adjustments in the prior years discussed in Notes 2, 3 and 4 above.

340

Biocon
Annexure IV: Significant accounting policies 1.1 Basis of preparation of financial statements The accompanying consolidated financial statements are prepared under the historical cost convention, on the accrual basis of accounting, in conformity with accounting principles generally accepted in India, to reflect the financial position and the results of operations of Biocon together with its subsidiary companies, Syngene and Clinigene and joint venture company, BBPL. The consolidated financial statements of the Group have been prepared based on a line-by-line consolidation of the balance sheet, profit and loss account and cash flows of Biocon, Syngene, Clinigene and BBPL as at December 31, 2003. In respect of the joint venture company, the Group applies the proportionate consolidation method. All material intercompany transactions and balances between the entities included in the consolidated financial statements have been eliminated. In accordance with the Employee Stock Option Scheme and Stock Purchase Guidelines, 1999 (SEBI guidelines) issued by Securities and Exchange Board of India (SEBI), the Group has also consolidated the ESOP Trust. Since this is the first year that the Group has presented interim financial statements in accordance with Accounting Standard 25 Interim Financial Reporting issued by the Institute of Chartered Accountants of India in accordance with the transitional provisions contained therein, the Group has not presented comparative profit and loss account and cash flows for the comparable interim periods of the prior year. The accounting policies have been consistently applied by the Group and are consistent with those used in the previous year. As mentioned in Note 5c in Annexure III, the revaluation reserve has been deducted from both fixed assets and reserves, in the statement of assets and liabilities, as restated. The significant accounting policies are as follows: 1.2 Fixed assets and depreciation Fixed assets are stated at cost, except for revalued freehold land and buildings, which are shown at, estimated replacement cost as determined by valuers, less accumulated depreciation. The Group capitalises all costs relating to the acquisition and installation of fixed assets. Fixed assets, other than freehold land, but including revalued buildings, are depreciated pro rata to the period of use, on the straight line method at the annual rates based on the estimated useful lives. Per cent Buildings Plant and machinery Research and development equipment Furniture and fixtures Vehicles Goodwill is amortised over a period of 5 years and assessed for impairment at each balance sheet date. Leasehold land, other than those on a lease-cum-sale basis, are depreciated over the lease period. Leasehold land on a lease-cum-sale basis are capitalised at the allotment rates currently charged by the Municipal Authorities. The depreciation charge over and above the depreciation calculation on the original cost of the revalued assets is transferred from the revaluation reserve to the profit and loss account. Assets individually costing less than Rs. 5,000 are fully depreciated in the year of purchase. 4.00 9.09 - 33.33 11.11 16.67 16.67

341

Biocon
1.3 Inventories Inventories are valued at the lower of cost and net realisable value. Cost is determined on a first-in-first-out basis and includes all applicable overheads in bringing the inventories to their present location and condition. Excise duty arising on finished goods and customs duty on imported raw materials in stock (excluding stocks in the bonded warehouse) are treated as part of the cost of inventories. 1.4 Revenue recognition (i) Sale of pharmaceuticals, enzymes and compounds Sales are recognised on despatch of goods to customers and are recorded net of excise duty, sales tax and other levies. For the purposes of disclosure in the financial statements, sales is reflected gross and net of excise duty in the profit and loss account. (ii) Contract research agreements The Group enters into two basic types of contract research agreements and the revenues therefrom are recognised on the following basis: (a) Time and material management Revenues are recognised as services are rendered, in accordance with contractual agreements. (b) Fixed price arrangements Revenues relating to fixed price contracts are recognised based on the percentage of completion method. 1.5 Investments Long-term investments are stated at cost. Provision, where necessary, is made to recognise a decline, other than temporary, in the value of investments. Current investments are stated at lower of cost and fair market value. 1.6 Retirement benefits The Group has schemes of retirement benefits for provident fund, gratuity and superannuation, in respect of which, the Groups contributions are charged to the profit and loss account. The contributions towards provident fund are made to statutory authorities. The gratuity and superannuation fund benefits of the Group are administered by a trust formed for this purpose through the group gratuity and superannuation scheme with Birla Sun Life Insurance Company Limited (Birla Sunlife). In respect of gratuity and superannuation, the adequacy of the accumulated fund available with Birla Sunlife has been confirmed on the basis of an independent actuarial valuation made at period-end. 1.7 Leave encashment Liability for leave encashment is in accordance with the rules of the Group and is provided on the basis of an actuarial valuation performed by an independent actuary. Upto March 31, 2003, the Group provided for leave encashment on a full liability basis. Had the Group followed its earlier accounting policy, the profit before tax for the nine month period ended December 31, 2003 would have been lower by Rs 644,243. 1.8 Foreign currency transactions Foreign currency transactions during the period/year are recorded at the exchange rate prevailing on the date of the transaction. Foreign currency denominated current assets and liabilities are translated into rupees at the exchange rate prevailing on the date of the balance sheet. Where the Group has entered into foreign exchange contracts, the difference between the forward rates and the spot rates at the date of the transaction is recognised in the profit and loss account over the life of the contract. All exchange differences are dealt with in the profit and loss account, except those relating to the acquisition of fixed assets, which are adjusted to the cost of the assets. 1.9 Research and development costs Research and development costs, including technical know-how fees, incurred for development of products are expensed as incurred, except for development costs which relate to the design and testing of new or improved materials, products
342

Biocon
or processes which are recognised as an asset to the extent that it is expected that such assets will generate future economic benefits. Research and development expenditure of a capital nature is added to fixed assets. 1.10 Income tax Provision for tax is made for both current and deferred taxes. Provisions for current income tax is made on the current tax rates based on assessable income. The Group provides for deferred tax based on the tax effect of timing differences resulting from the recognition of items in the financial statements and in estimating its current tax provision. Deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. The effect on deferred taxes of a change in tax rates is recognised in income in the period in which the change is substantially enacted. The provision for current tax for each company in the Group is based on the earnings for the period from April 1, 2003 to December 31, 2003 and the actual tax liability for each company in the Group will be determined on the basis of the earnings for the period from April 1, 2003 to March 31, 2004. 1.11 Borrowing costs Borrowing costs that are attributable to the acquisition and construction of a qualifying asset are capitalised as a part of the cost of the asset. Other borrowing costs are recognised as an expense in the year in which they are incurred. 1.12 Deferred employee stock compensation costs Deferred employee stock compensation costs for stock options are recognised on the basis of generally accepted accounting principles and are measured as the excess of the fair value of Biocons stock on the stock options grant date over the amount an employee must pay to acquire the stock and recognised in a graded manner on the basis of weighted period of services over the vesting period of equity shares. The fair value of the options is measured on the basis of an independent valuation performed in respect of stock options granted. 1.13 Earnings per share The earnings considered in ascertaining the Groups earnings per share comprise of the net profit after tax. The number of shares used in computing the basic earnings per share is the weighted average number of shares outstanding during the period/year and are adjusted for bonus shares and sub-division of shares for all periods/years presented in these financial statements. The number of shares used in computing diluted earnings per share comprises the weighted average share considered for deriving basic earnings per share, and also the weighted average number of shares, if any which would have been issued on the conversion of all dilutive potential equity shares. The shares issued to the ESOP Trust have been considered as outstanding for basic EPS purposes, to the extent these shares have been allocated to the employees pursuant to the ESOP scheme and are eligible for exercise. For dilutive EPS purpose, the shares, which are not yet eligible for exercise, have been considered as dilutive potential equity shares. 1.14 Operating lease Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term. 1.15 Finance lease The cash value of fixed assets acquired on finance lease contracts is capitalised and depreciated in accordance with the fixed assets and depreciation policy of the Company. Interest payable under finance lease contracts, is charged on the diminishing balance method to the profit and loss account over the period of the finance lease contracts.

343

Biocon
Annexure V: Accounting ratios
Nine months ended December 31, 2003 Pre Split * Earnings per share (Rs): Basic Diluted Return on net worth % Net asset value per equity share (Rs) Weighted average number of equity shares outstanding during the year/period Basic Diluted Total number of shares outstanding at the end of the year/period 41,909,407 43,176,830 45,000,000 83,818,814 86,353,660 90,000,000 41,987,463 43,300,792 45,000,000 83,974,925 86,601,584 90,000,000 22.65 21.99 42% 50.68 11.33 10.99 42% 25.34 10.06 9.75 32% 29.33 5.03 4.88 32% 14.66 Post Split Year ended March 31, 2003 Pre Split Post Split

Notes:
1. The ratios have been computed as below: Earnings per share (Rs) Net profit, as restated attributable to equity shareholders Weighted average number of equity shares outstanding during the year/period Return on net worth (%) Net profit after tax, as restated Net worth excluding revaluation reserve at the end of the year/period Net asset value per equity share (Rs) 2. 3. Net worth excluding revaluation reserve at the end of the year/period Number of equity shares outstanding at the end of the year/period Net profit, as restated as appearing in the Consolidated statement of profits and losses, as restated has been considered for the purpose of computing the above ratios. These ratios are computed on the basis of the consolidated restated financial statements. The shareholders at the EGM of Biocon held on November 11, 2003, approved the sub-division of equity shares of face value of Rs 10 each into 2 equity share capital of Rs 20,000,000 has been divided into 4,000,000 equity shares of Rs 5 each and the issued, subscribed and paid-up capital of Rs 18,376,500 has been divided into 3,675,300 shares of Rs 5 each. Further, the shareholders at the EGM of Biocon held on November 11, 2003 approved the allotment of 86,324,700 equity shares of Rs 5 each as bonus shares in the ratio of 1 : 23.4877958 to the shareholders existing as on November 11, 2003, which was the approved record date for this purpose, by capitalisation of the balance in the profit and loss account of Rs 431,623,500. Earnings per share calculations are done in accordance with Accounting Standard 20 Earnings Per Share issued by the Institute of Chartered Accountants of India, accordingly, share split and bonus shares issued are adjusted and disclosed for all the earlier financial years. Earnings per share for nine months period ended December 31, 2003 are not comparable with that of other financial years presented above. n The stock split was effected before December 31, 2003 and has been included here for comparative purposes

4.

5.

6.

344

Biocon
SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INDIAN GAAP AND US GAAP The consolidated and non-consolidated financial statements included in this Prospectus have been prepared in accordance with applicable Indian GAAP and the applicable provisions of the Companies Act, 1956 and the SEBI Guidelines. Indian GAAP differs in certain respects from US GAAP. The following table summarises certain differences between Indian GAAP and US GAAP and that could be significant to the presentation of our results of operations and financial position as of December 31, 2003. The following summary may not include all the differences that exist between US GAAP and Indian GAAP. US GAAP is generally more prescriptive and comprehensive than Indian GAAP regarding recognition and measurement of transactions, account classification and disclosure requirements. No attempt has been made to identify all disclosure, presentation or classification differences that would affect the manner in which transactions and events are presented in the financial statements and the notes thereto. Various US GAAP and Indian GAAP pronouncements, including guidance provided by the US Securities & Exchange Commission, have been issued for which the mandatory application date is later than December 31, 2003. These together with standards that are in the process of being developed in both jurisdictions could have a significant impact on future comparisons between US GAAP and Indian GAAP. Particulars 1. Indian GAAP US GAAP All companies are required to present balance sheets, statements of operations, statements of cash flows and statements of changes in stockholders equity for two years along with the relevant accounting policies and notes to accounts. Companies are required to present statements of operations, statements of cash flows and statements of changes in stockholders equity for three years. They need not present the balance sheet for the third year. Summary condensed financial information which is not part of the audited financial statements, is generally presented for a five year period 2. Changes in accounting policies Accounting treatment The effect of a change in accounting policy must be recorded in the income statement of the period in which the change is made except as specified in certain standards where the change resulting from adoption of the standard has to be adjusted against opening retained earnings. The effect of a change in accounting policy is generally included (net of taxes) in the current year income statement after extraordinary items. Pro-forma comparatives reflecting the impact of the change should be disclosed. There is a requirement to make retrospective adjustments for certain items. Contents of financial statements Companies are required to present Balance sheets and profit and loss accounts for two years along with the relevant accounting policies and notes. Additionally all listed companies (including companies in the process of getting listed), companies with turnover exceeding Rs.500 million and insurance companies are required to present cash flow statements. (Applicable for financial years beginning on April 1, 2001 for other than listed companies).

345

Biocon
3. Correction of errors The effect of correction of errors must be included in the current year income statement with appropriate disclosure. Applicable to all Listed Companies from April 1, 2001. Investment in associates should be accounted for in accordance with the equity method of accounting. In accordance with AS 27, Financial reporting of Interests in joint ventures the venturer recognises in its separate and consolidated financial statements its share of jointly controlled assets, any liabilities it has incurred, its share of any liabilities incurred jointly with other venturers in relation to the joint venture, any income from sale or use of its share of output of the joint venture, together with its share of expenses incurred by joint venture and any expenses which it has incurred in respect of interest in joint venture. Goodwill on Consolidation is computed based on the book value of assets taken over/acquired and either amortised over a period of 3-5 years and/or tested for impairment at each balance sheet date. 5. Intangible assets Capitalize intangible assets if specific criteria are met and amortize over useful life, generally not exceeding 10 years. The recoverable amount of an intangible asset that is not available for use or is being amortized over a period exceeding 10 years should be reviewed at least at each financial year-end even if there is no indication that the asset is impaired. Amortization should be based on the consumption pattern of the asset or on a straight line basis if a pattern is not determinable. During an acquisition, companies need to evaluate if certain intangible assets exist and allocate purchase price to such intangible. Intangibles that have an indefinite useful life are required to be tested, at least annually, for impairment. Intangible assets that have finite useful life are required to be amortized over their estimated useful lives. The correction of an error usually results in the restatement of relevant prior periods. Applicable to all Companies. As under Indian GAAP.

4.

Principles of Consolidation

Investment in Joint Ventures generally accounted for under the equity method of accounting. Goodwill acquired in business combinations initiated after June 30, 2001 shall not be amortized, . It is also required to stop amortizing the remaining balance of previously amortized goodwill. All goodwill will be allocated to a reporting unit, as defined, and subject to an annual impairment test.

346

Biocon
6. Negative Goodwill (i.e. the exces of the fair value of net assets acquired over the aggregate purchase consideration) Negative goodwill is computed based on the book value of assets (not the fair value) of assets taken over/ acquired and is credited to the capital reserve account, which is a component of stockholders equity. Expenditure incurred on research must be expensed off as incurred. Development costs can be capitalized and amortized only if stringent criteria are met. 8. Property, plant and equipment Fixed assets are recorded at the historical costs or revalued amounts. On revaluation, an entire class of assets is revalued, or a selection of assets for revaluation is made on a systematic basis. There is no restriction on the frequency of valuation. However, revaluation should not exceed the recoverable amount of assets. Foreign exchange differences relating to the procurement of property, plant and equipment can be capitalised as a part of the asset. 9. Depreciation Assets are depreciated over their estimated useful economic lives. The Indian Companies Act, 1956 prescribes the minimum statutory rates for minimum depreciation provision. 10. Impairment of assets Applicable for accounting periods beginning from April 1, 2004 onwards. If impairment is indicated, the assets must be written down to higher of net selling price and the value in use based on discounted cash flows. Long-term investments are carried at cost (with provision for other than temporary diminution in value). Current investments are carried at lower of cost or fair value determined on individual basis or by category of investment but not on overall (or global) basis.
347

7.

Research & Development Cost

Negative goodwill is allocated to reduce proportionately the value assigned to non-current assets. Any remaining excess is recorded in the income statement as extraordinary income. Research and development costs must be expensed as incurred. Certain software and websitedevelopment related costs need to be capitalized, if criteria met. Upward revaluation of fixed assets is not permitted under US GAAP. All foreign exchange differences relating to the procurement of property, plant and equipment are adjusted in the statement of income.

Assets are depreciated over their estimated useful economic lives.

The Impairment assessment is based on undiscounted cash flows at the lowest level of independent cash flows. If the undiscounted cash flows are less than the carrying amount the impairment loss must be measured using discounted cash flows. The treatment depends on the classification of the investmentsif held to maturity then investment is held at amortized cost, otherwise stated at fair value. Unrealized gains/ losses must be recognized to other comprehensive income or (if trading securities) to income statement.

11.

Investments in Marketable Securities

Biocon
12. Proposed Dividend Proposed dividends are recognized in the financial statements for the period to which they relate. Any proposed dividends declared after the balance sheet date is adjusted in the financial statements for the relevant year even if they are subject to shareholders approval. Deferred tax assets and liabilities are recognized for all timing differences subject to consideration of prudence in respect of deferred tax assets. Deferred tax assets from carry forward losses and unabsorbed depreciation are recognised only if there is convincing evidence of virtual certainty that such deferred tax assets can be realised against future taxable profits. Deferred tax assets and liabilities are measured using tax rates that have been enacted or substantively enacted by the balance sheet date. 14. Retirement Benefits The liability for defined benefit plans like gratuity and pension is determined as per actuarial valuation. There is no defined method of expense determination, the discount rate determination criteria, guidance for valuation of plan assets and the choice is left to the individual discretion of actuary. The actuarial gains or losses are recognized immediately in the statement of income. The liability for defined benefit schemes is determined using the projected unit credit actuarial method. The discount rate for obligations is based on market yields of high quality corporate bonds. The plan assets are measured using fair value or using discounted cash flows if market prices are unavailable. If at the beginning of the year, the actuarial gains or losses exceeds 10% of the greater of the projected benefit obligation or the market-related value of plan assets, then such amount is not recognized immediately, but amortised over the average remaining service period of active employees expected to receive benefits under the plan. A dividend is recorded when it has been declared and approved. Stock dividends should preferably be recorded as of the time of declaration if the approval is perfunctory.

13.

Deferred income taxes

Deferred taxes are recorded in accordance with the liability method. Deferred income taxes are recorded for future tax consequences of temporary differences. A valuation allowance is made against deferred tax assets if it is more likely than not that the asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates.

348

Biocon
15. Employee Stock Compensation There is no specific guidance on accounting for employee stock compensation under Indian GAAP. SEBI has issued the Employee Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999, which are effective for listed companies for all stock-option schemes established after 19 June, 1999. In accordance with these guidelines, the excess of the market price/fair valuation of underlying equity shares as of the date of grant of the options over the exercise price of the options, including up-front payments, if any, is to be recognized and amortized on a straight-line basis over the vesting period In the event of ESOP administered through a Trust, the guidelines mandate consolidation of Trust set up for administration of employee stock option plans. Requires recognition of the cost of shares/ options awarded to employees, whether conditional upon performance criteria or not, over the period to which the employees service relates. Entities have a choice of accounting methods for determining the costs of benefits arising from employees stock compensation plans. They may either follow an intrinsic value method or a fair value method. Under the intrinsic value method, the compensation cost is the difference between the market price of the stock at the measurement date and the price to be contributed by the employee (exercise price). The measurement date is typically the date of the grant, on which date, both the number of shares and the exercise price would be known. This method is widely used in practice. The fair value method is based on the fair value of the option at the grant date. This is estimated using an option-pricing model. If an entity chooses to follow the intrinsic value method, it must make pro-forma disclosures of net income and earnings per share as if the fair value method had been applied. All options given to non-employees have to follow the fair value method. An ESOP trusts assets and liabilities are included in the balance sheet of the sponsoring entity where the arrangements are such that the sponsoring entity has de facto control and bears the benefits and risks of the shares held by the ESOP trust.

349

Biocon
16. Derivatives and other financial instruments Measurement of derivative instruments and hedging activities The accounting for derivative instruments has not clearly emerged in the Indian context. Currently what is applicable is the Guidance Note on Accounting for Equity Index and Equity Stock Futures and Options are the pronouncements, which address the accounting for derivatives. However, the accounting treatment recommended in the guidance note is applicable to to all contracts entered into for Equity Derivative Instruments irrespective of the motive. The impact of derivative instruments are correlated with the movement of the underlying assets and liabilities and accounted pursuant to the principles of hedge accounting. The related amount receivable from and payable to the swap counter parties is included in the other assets or liabilities in the balance sheet. When there is no correlation of movements between derivative and the underlying asset or liability, or if the underlying asset or liability specifically related to the derivative instrument is matured, sold or terminated, the derivative instrument is closed out or marked to market as an element of non interest income on an outgoing basis. Derivatives and hedge instruments must be measured at fair value. The changes in fair value must be recognized in the income statement, except for effective cash flow hedges where the changes in face value must be deferred in equity until effect of the underlying transaction is recognized in the income statement. (No basis adjustment on cash flow hedges of future) Gains/losses on hedge instruments used to hedge forecast transactions are included in the cost of the asset/ liability. All derivatives, either assets or liabilities, are measured at fair value. Fair values for derivatives are based on quoted market prices, which take into account current market and contractual prices of the underlying instrument as well as time value underlying the positions. Derivatives that are not designated, as part of hedging relationship must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, the effective portion of the hedges change in fair value is either offset against the change in fair value of the hedged asset, liability or firm commitment through income or held in equity until the hedged item is recognised as income. The ineffective portion (i.e., not hedged) of a derivatives change in fair value is immediately recognized in income.

350

Biocon
17. Off-Balance Sheet Items There is no specific guidance for the accounting for off-balance sheet items under Indian GAAP. Schedule VI of the Companies Act, 1956 mandates the disclosure of amounts committed to be paid for the acquisition of fixed assets not provided for in the books of accounts. Accounting standards require specific disclosures for commitments and contingent liabilities. The US Securities and Exchange Commission requires the disclosure of material facts and circumstances that provide investors with a clear understanding of a registrants material off-balance sheet arrangements and their material effects in the financial statements. Further standards have been issued recently providing additional guidelines for the accounting and disclosures for Guarantees, including indirect guarantees of indebtedness of others and for consolidation of variable interest entities. Additionally existing accounting standards require disclosures of commitments made by an enterprise. Contingent gains / losses must be recognized or disclosed in the accounts provided certain conditions are met.

351

Biocon
DECLARATION
All the relevant provisions of the Companies Act, 1956, and the guidelines issued by the Government of India or the guidelines issued by the Securities and Exchange Board of India, established under Section 3 of the Securities and Exchange Board of India Act, 1992, as the case may be, have been complied with and no statement made in this Prospectus is contrary to the provisions of the Companies Act, 1956, the Securities and Exchange Board of India Act, 1992 or rules made thereunder or guidelines issued, as the case may be. We further certify that all the statements in this Prospectus are true and fair. SIGNED BY ALL THE DIRECTORS Ms. Kiran Mazumdar Shaw, Chairman & Managing Director Mr. John Shaw, Vice Chairman Dr. Neville Bain, Independent Director (Acting through his Constituted Attorney Ms. Kiran Mazumdar Shaw) Prof. Charles Cooney, Independent Director (Acting through his Constituted Attorney Ms. Kiran Mazumdar Shaw) Mr. Suresh Talwar, Independent Director (Acting through his Constituted Attorney Ms. Kiran Mazumdar Shaw) Prof. Ravi Mazumdar, Director (Acting through his Constituted Attorney Ms. Kiran Mazumdar Shaw) Ms. Ada K.H.Tse, Director (Nominee of AOF HS) (Acting through her Constituted Attorney Ms. Kiran Mazumdar Shaw) SIGNED BY THE CHIEF FINANCIAL OFFICER Mr. Murali Krishnan K.N., President (Group Finance) Date : 23 March 2004 Place : Bangalore

352

Biocon

This Page has been intentionally left blank

353

Biocon

This Page has been intentionally left blank

354