PAZ Pharmazen Limited

Chairman's report

14 March 2007

PHARMAZEN RATIONALISATION PUTS COMPANY BACK IN BLACK

Biotechnology company PharmaZen has signalled it is back on track, posting an operating profit of $799,613 on improved turnover of $6.29 million for the year ended October 31, 2006. The result is before tax of $210,968 and non-recurring expenses of $992,364 resulting from the closure of the company’s Dunedin operation and associated stock write off. During 2006, PharmaZen closed its Dunedin production plant and quit development of its animal remedy products, which are now manufactured under contract and traded via the Waitaki Biosciences divisional infrastructure.

Post tax and non-recurring expenses resulted in a net loss of $92,898 (deficit of $182,724 in the previous corresponding year). Craig McIntosh, chief executive of PharmaZen, said directors were pleased with the result, which was achieved in trading conditions made difficult by the ongoing strength of the dollar and problems associated with recovering sales lost in plant problems at Christchurch in 2005.

During the period under review, the Waitaki Biosciences plant at Christchurch was upgraded, significantly increasing the company’s capacity. Waitaki manufactures several powder products extracted from a wide range of animal and marine sources. The range includes green-lipped mussel, shark cartilage, natural calcium and Chondroitin Sulphate. The products are used by other companies as a base for animal and human health products, mainly in the areas of bone and joint health, along with immune and digestive support.

“The additional capacity now allows us to not only increase volumes but to broaden the width anddepth of both our customers and product ranges,” McIntosh said. “Lack of capacity was a major issue for business as it not only prevented growth but, by limiting the depth of the customer base, made us more susceptible to changes in fortune of individual customers. “The 2007 focus is continued sales growth through strengthening the international distribution network and adding new products. We have been making progress in both areas with the appointment of distributors in Switzerland, France, Austria and Italy – new markets for us.”

“The 2006 result was a significant step forward for the company. We go into 2007 with a much improved balance sheet and a production facility, which not only provides the opportunity for substantial growth, but has made the company more cost competitive,” McIntosh said. He cautioned that growth was not a given and, while the board and management were extremely optimistic about the mid to long term opportunities for the company, there remained plenty of short term challenges. “Our commitment is to long term sustainable growth – the manufacturing platform is in place – but growing sales in a competitive market on a high dollar is a time consuming and challenging task.

He said closure of PharmaZen’s Dunedin plant was necessary because of continued poor sales and high overheads. The decision to manufacture the core product range under contract was successful. PharmaZen’s annual general meeting will be held on Monday, April 30, in Dunedin.

Further information:

Craig McIntosh, 03 337 6096

Prepared by Claire Bennett, Durning PR, (03) 353 6161; 027 271 493

v2 Report - Additional Information Supplement PAZ Pharmazen Limited	IPOs and Investment Opportunities
Press releases PHARMAZEN DOUBLES CAPACITY TO KEEP UP WITH DEMAND Thursday, November 2 Biotechnology company PharmaZen has just invested $1m in plant and machinery which will double the company¹s potential turnover from $7 million to $14 million per year. With demand outstripping supply for the company¹s animal and human health products, the cost of the new plant will be recovered very quickly. Shares in PharmaZen are traded through the unregistered securities trading facility. PharmaZen chief executive, Craig McIntosh, said the investment has predominantly been in milling and drying while other efficiencies had also been gained on the operational side with a significant investment in a heat recovery system. The Company¹s most notable investment has been in a purpose designed vacuum drying system which can also be operated as a wet processing unit. We had looked around for an off the shelf solution which would enable us to wet process product and then continue through into a drying stage without the need to transfer product to another vessel (traditional technology). When we couldn¹t find a suitable solution we looked at the feasibility of having one designed and built, which is what we did.² The unit was finally commissioned in October and the company is extremely happy with the results, reporting not only the anticipated increase in throughput but an improvement in product yield due to reduced handling losses. There were a lot of teething problems which were always to be expected on such an innovative project and overall it took a lot longer than anticipated to have it up and running but in terms of performance it is better than we could have hoped for.² The plant upgrade is scheduled for completion early next month. The new plant has been installed in PharmaZen¹s wholly-owned Waitaki Biosciences International unit in Christchurch where it manufactures a range of powder products extracted from a wide range of animal and marine sources. The range includes green-lipped mussel, shark cartilage, natural calcium and Chondroitin Sulphate. The products are used by other companies as a base for health products, mainly in the areas of bone health, joint health, immune and digestive support. We have always struggled to keep up with demand. Our level of efficiency was poor but that has increased markedly over the last 12 months and now we have the capacity to go to a new level,² he said. The company reported a loss of $183,000 on turnover of $5.58 million for the 2005 year. It anticipates turnover of $6 million for 2006 with a significant lift in profit. Further information: Craig McIntosh, ph 337-4852; 021-372-069
Chairman's report 14 March 2007 PHARMAZEN RATIONALISATION PUTS COMPANY BACK IN BLACK Biotechnology company PharmaZen has signalled it is back on track, posting an operating profit of $799,613 on improved turnover of $6.29 million for the year ended October 31, 2006. The result is before tax of $210,968 and non-recurring expenses of $992,364 resulting from the closure of the company’s Dunedin operation and associated stock write off. During 2006, PharmaZen closed its Dunedin production plant and quit development of its animal remedy products, which are now manufactured under contract and traded via the Waitaki Biosciences divisional infrastructure. Post tax and non-recurring expenses resulted in a net loss of $92,898 (deficit of $182,724 in the previous corresponding year). Craig McIntosh, chief executive of PharmaZen, said directors were pleased with the result, which was achieved in trading conditions made difficult by the ongoing strength of the dollar and problems associated with recovering sales lost in plant problems at Christchurch in 2005. During the period under review, the Waitaki Biosciences plant at Christchurch was upgraded, significantly increasing the company’s capacity. Waitaki manufactures several powder products extracted from a wide range of animal and marine sources. The range includes green-lipped mussel, shark cartilage, natural calcium and Chondroitin Sulphate. The products are used by other companies as a base for animal and human health products, mainly in the areas of bone and joint health, along with immune and digestive support. “The additional capacity now allows us to not only increase volumes but to broaden the width anddepth of both our customers and product ranges,” McIntosh said. “Lack of capacity was a major issue for business as it not only prevented growth but, by limiting the depth of the customer base, made us more susceptible to changes in fortune of individual customers. “The 2007 focus is continued sales growth through strengthening the international distribution network and adding new products. We have been making progress in both areas with the appointment of distributors in Switzerland, France, Austria and Italy – new markets for us.” “The 2006 result was a significant step forward for the company. We go into 2007 with a much improved balance sheet and a production facility, which not only provides the opportunity for substantial growth, but has made the company more cost competitive,” McIntosh said. He cautioned that growth was not a given and, while the board and management were extremely optimistic about the mid to long term opportunities for the company, there remained plenty of short term challenges. “Our commitment is to long term sustainable growth – the manufacturing platform is in place – but growing sales in a competitive market on a high dollar is a time consuming and challenging task. He said closure of PharmaZen’s Dunedin plant was necessary because of continued poor sales and high overheads. The decision to manufacture the core product range under contract was successful. PharmaZen’s annual general meeting will be held on Monday, April 30, in Dunedin. Further information: Craig McIntosh, 03 337 6096 Prepared by Claire Bennett, Durning PR, (03) 353 6161; 027 271 493
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