I took a look at your attachment and think I understand most, but not all, of the problem you are trying to solve (I don't understand the convection term in the PDE, for example).
My first thought was that you could use the pdepe function because it appears you have only one spatial variable, x. However, you have a non-diagonal "mass" matrix which pdepe can not handle.
I think that PDE Toolbox,
can probably solve this. You might want to start with this example:
Bill
