PharmEng International Inc., Toronto On, TSX .V : PII

CORPORATE OVERVIEW

PharmEng International Inc. wholly-owns:

• PharmEng USA, Inc.
• PharmEng China Inc.
• PharmEng Taiwan Inc.,
• PharmEng Technology Inc. (“PTI”), which in turn wholly owns Keata Pharma Inc.

PharmEng is engaged in two businesses:

• Contract pharmaceutical manufacturing business, Keata, serving primarily North American pharmaceutical customers.
• A broad-based pharmaceutical consulting business, PTI, that serves the pharmaceutical, biotechnology and medical device industries in North America and internationally.

Through Keata, the Company provides contract manufacturing services in drug formulation, manufacturing scale up, and commercial production of both solid and liquid pharmaceuticals.

Keata operates through two pharmaceutical manufacturing facilities - a newly constructed facility located in Sydney, Nova Scotia (46,400 sq. ft.) and a newly acquired facility located in Arnprior, just outside of Ottawa, Ontario (85,000 sq. ft.).

In these two facilities, Keata provides high quality services under current Good Manufacturing Practices in the following areas:

• Clinical supplies production and logistics management
• Formulation and process development
• Contract manufacturing of solid and liquid finished dosage pharmaceuticals, over-the-counter and nutraceutical products
• Analytical method development, validation and contract analytical laboratory services, including full stability program management
• Advanced fluid bed granulation technology

PTI is recognized as a respected consulting practice in the pharmaceutical, biotechnology and medical device sectors, and is emerging as a leader with its complete service offerings to assist clients in the rapid commercialization of new products, from strategic planning to process scale up.

PTI’s consulting services include regulatory audits and compliance, project management, engineering, quality systems development and audits, GMP (Good Manufacturing Practice) audits, SOP (Standard Operating Procedures) development, process validation, calibration, medical device investigative testing (clinical trials), medical device product licenses and establishment licenses, mandatory problem reporting and certified training in the medical device, pharmaceutical and biotechnology fields.

PTI is also active in delivering the Biotechnology and Pharmaceutical Technology Certificate Program in partnership with universities in Canada and abroad by providing course materials and instructors.

Recent Highlights

PharmEng will receive $3.0M over 3 years from the Atlantic Canada Opportunities Agency ("ACOA") for research and eventual commercialization of a daffodil derived extract for the treatment of Alzheimer's disease.

ACOA's Atlantic Innovation Fund will distribute the $3.0M based on the project meeting certain conditions that will include $1.0M of private sector financial participation.

The project involves formulation development, extraction of the active pharmaceutical ingredient (galanthamine), purification and final dosage finishing. Access to Government funding is expected as the project meets certain deliverables over the 3 year period.

Keata's pharmaceutical manufacturing facility located in Sydney, N.S. will provide the eventual commercial manufacturing for the North American market once research has been successfully completed and all the necessary regulatory approvals have been obtained, a process that could take 3 to 5 years.

STRATEGY AND OUTLOOK

PharmEng’s vision is to be a leader and preferred supplier to the pharmaceutical sector, offering a fully integrated suite of high-quality consulting services and commercial manufacturing, from strategic planning and process scale up to final production.

PharmEng’s strategy is to provide strategic benefits and advantages to its clients through access to comprehensive quality products and services. This strategy includes:

• Building the contract manufacturing business through internal growth and acquisition.
• Maximizing Keata’s competitive advantage in marketing and technical transfer capability resulting from the synergy between the consulting and manufacturing arms of PharmEng, so as to minimize costs, reduce time requirements, deal with regulatory issues, and provide a one stop shopping approach to new product location or transfer to a Keata facility.
• Continuing development and expansion of an established core consulting business providing business development synergies, engineering, validation, regulatory affairs and regulatory compliance solutions in the pharmaceutical and biotechnology sectors.
• Continuing the growth in core competencies that permit the rapid commercialization of science and research: from strategic planning and formulation development to process scale-up and contract manufacturing.
• Strengthening international operations to ensure PharmEng can provide worldwide regulatory, compliance and quality assurance to our clients wishing to export their products into global markets.
• Expanding operations in Asia to improve the sourcing of Active Pharmaceutical Ingredients (API’s) at reduced costs, both for our own manufacturing operations and for non-competing third party customers, while targeting partnership/acquisition opportunities by providing a full range of services for companies in Asia wanting to access the North American and European markets.
• Continuing to provide certification training programs in collaboration with Canada’s education institutions to pharmaceutical and biotechnology professionals.

The pursuit of this vision led the Company to a major acquisition of a Pfizer manufacturing facility located in Arnprior, Ontario. This acquisition was completed December 31, 2007

OVERVIEW OF THE PHARMACEUTICAL INDUSTRY

The global pharmaceutical industry comprises global, regional and national pharmaceutical manufactures, developers, distributors, biotechnology companies, and specialty companies in drug formulation, testing, clinical trials, engineering, and compliance.

There is a trend by major pharmaceutical companies towards outsourcing of drug development, commercial manufacturing, and consulting services to meet growing demand and bring products to market quickly. In addition, the growth of biotechnology companies, generic drug companies, and nutraceutical companies, whose principal focus is on efficient product development as opposed to incurring considerable investment for non-recurring resources and manufacturing.

PharmEng management believes that growth in pharmaceutical industry outsourcing will continue to :

• grow and will be driven by the following factors;
• Growth in the pharmaceutical industry due to the aging population;
• Global research and development are increasing;
• The number of pharmaceutical companies continues to expand;
• Consolidation in the sector, as companies focus on cost competitiveness;
• Competition from non traditional and low cost markets such as India and China
• Increasing regulatory compliance requirements to get products to market.

COMPETITORS

Pharmaceutical Consulting and Development

The pharmaceutical consulting and development market is composed of a number of small competitors who specialize in one or a few areas of the technical areas where PharmEng operates. With respect to drug development, there are small laboratories in most major centers that provide limited development services on a small scale. On the other hand there are competitors with much larger operations and geographic coverage. In most cases these larger competitors are not focused solely on the pharmaceutical sectors, and the pharmaceutical business only comprises a fraction of their overall consulting business. There are a few integrated companies that can provide the full complement of consulting services to develop and manufacture a wide range of pharmaceutical products.

Contract Manufacturing

The contract manufacturing organization (“CMO”) industry is fragmented, highly competitive with numerous private and public firms. Players range from small specialty companies to large diversified pharmaceutical manufacturers. CMO companies not only compete against one another, but also against major pharmaceutical companies, which have in-house manufacturing capabilities and seek to sell excess capacity on a contract basis.

Intellectual Properties Valuation

The Company has capitalized intellectual properties related to the development, formulation, and clinical and stability testing, for certain company owned pharmaceutical products referred to as drug identification numbers (DIN’s). The Company has received Health Canada approval for the manufacture and distribution of these products. These assets are considered to have indefinite lives and the Company tests these assets for impairment at least annually, to determine whether the carrying value exceeds its fair value. If it is determined that impairment exists, such impairment is recognized in net income at the time.