复星医药：H股--英文招股书
IMPORTANT
If you are in any doubt about any of the contents of this prospectus, you should obtain independent professional advice.
上 海 �� 星 �t �（ 集 �F ）股 份 有 限 公 司
Shanghai Fosun Pharmaceutical (Group) Co., Ltd.*
(a joint stock limited company incorporated in the People’s Republic of China with limited liability)
GLOBAL OFFERING
Number of Offer Shares : 336,070,000 H Shares (subject to the
Over-allotment Option)
Number of Hong Kong Offer Shares : 33,607,000 H Shares (subject to adjustment)
Number of International Offer Shares : 302,463,000 H Shares (subject to adjustment
and the Over-allotment Option)
Maximum Offer Price : HK$13.68 per Offer Share plus brokerage
of 1%, SFC transaction levy of 0.003% and
Hong Kong Stock Exchange trading fee
of 0.005% (payable in full on application,
subject to refund)
Nominal value : RMB1.00 per H Share
Stock code : 02196
Joint Sponsors, Joint Global Coordinators, Joint Bookrunners and Joint Lead Managers
Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the
contents of this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or
in reliance upon the whole or any part of the contents of this prospectus.
A copy of this prospectus, having attached thereto the documents specified in the paragraph headed ‘‘Documents delivered to the Companies Registry’’ in ‘‘Appendix IX ―
Documents Delivered to the Companies Registry and Available for Inspection’’ to this prospectus, has been registered by the Registrar of Companies in Hong Kong as
required by section 342C of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission and the Registrar of Companies in
Hong Kong take no responsibility for the contents of this prospectus or any other document referred to above.
We are incorporated, and substantially all of our businesses are located, in the PRC. Potential investors should be aware of the differences in legal, economic and financial
systems between the PRC and Hong Kong and that there are different risk factors relating to investment in PRC-incorporated companies. Potential investors should also be
aware that the regulatory framework in the PRC is different from the regulatory framework in Hong Kong and should take into consideration the different market nature of our
Shares. Such differences and risk factors are set out in the sections headed ‘‘Risk Factors’’ and in ‘‘Appendix VI ― Summary of Principal Legal and Regulatory Provisions’’
and ‘‘Appendix VII ― Summary of Articles of Association’’ in this prospectus. Potential investors should consider carefully all the information set out in this prospectus and,
in particular, the matters discussed in the abovementioned sections.
The Offer Price is expected to be fixed by agreement between the Joint Global Coordinators (on behalf of the Underwriters) and us (for ourselves) on the Price Determination
Date. The Price Determination Date is expected to be on or around Tuesday, 23 October 2012 and, in any event, not later than Friday, 26 October 2012. The Offer Price will
not be more than HK$13.68 and is currently expected to be not less than HK$11.80. Investors applying for Hong Kong Offer Shares must pay, on application, the maximum
Offer Price of HK$13.68 for each Share together with a brokerage of 1%, SFC transaction levy of 0.003% and Hong Kong Stock Exchange trading fee of 0.005%.
The Joint Global Coordinators, on behalf of the Underwriters, may, with our consent, reduce the number of Offer Shares and/or the indicative Offer Price range below that
stated in this prospectus (which is HK$11.80 to HK$13.68 per Offer Share) at any time on or prior to the morning of the last day for lodging applications under the Hong
Kong Public Offering. In such case, notices of the reduction in the number of Offer Shares and/or the indicative Offer Price range will be published on the Hong Kong Stock
Exchange at www.hkexnews.hk and our website at www.fosunpharma.com not later than the morning of the last day for lodging applications under the Hong Kong Public
Offering. If applications for the Hong Kong Offer Shares have been submitted prior to the last day for lodging applications under the Hong Kong Public Offering, then even if
the number of Offer Shares and/or the indicative Offer Price range is so reduced, such applications cannot be subsequently withdrawn.
If, for any reason, the Joint Global Coordinators (on behalf of the Underwriters) and we (for ourselves) are unable to reach an agreement on the Offer Price by Friday, 26
October 2012, the Global Offering will not become unconditional and will lapse immediately.
The obligations of the Hong Kong Underwriters under the Hong Kong Underwriting Agreement to subscribe for, and to procure subscribers for, the Hong Kong Offer Shares,
are subject to termination by the Joint Global Coordinators (on behalf of the Underwriters) if certain events shall occur prior to 8:00 a.m. on Tuesday, 30 October 2012. Such
grounds are set out in the section headed ‘‘Underwriting’’ in this prospectus. It is important that you refer to that section for further details.
The Offer Shares have not been, and will not be, registered under the US Securities Act or any state securities law in the United States and may be offered and sold only (a) in
the United States to ‘‘Qualified Institutional Buyers’’ in reliance on Rule 144A under the US Securities Act or another exemption from, or in a transaction not subject to,
registration under the US Securities Act and (b) outside the United States in an offshore transaction in accordance with Regulation S under the US Securities Act.
* For identification purposes only
17 October 2012
EXPECTED TIMETABLE (i)
Latest time to complete electronic applications under
HK eIPO White Form service through the designated
website at www.hkeipo.hk(ii) . . . . . . . . . . . . . . . . . . . . . . . 11:30 a.m. on Monday, 22 October 2012
Application lists open(iii) . . . . . . . . . . . . . . . . . . . . . . . . . . 11:45 a.m. on Monday, 22 October 2012
Latest time to lodge WHITE and YELLOW
Application Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Monday, 22 October 2012
Latest time to give electronic application instructions
to HKSCC(iv) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Monday, 22 October 2012
Latest time to complete payment for HK eIPO White Form
applications by effecting internet banking transfer(s) or
PPS payment transfer(s) . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Monday, 22 October 2012
Application lists close . . . . . . . . . . . . . . . . . . . . . . . . . . . 12:00 noon on Monday, 22 October 2012
Expected Price Determination Date (v) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 23 October 2012
Announcement of:
. the Offer Price;
. the level of indications of interest in the International Offering;
. the level of applications in the Hong Kong Public Offering; and
. the basis of allocation under the Hong Kong Public Offering
will be published (a) on the website of the Hong Kong
Stock Exchange at www.hkexnews.hk and (b) on
our website at www.fosunpharma.com (vi) on or before . . . . . . . . . . . . . Monday, 29 October 2012
Results of allocations in the Hong Kong Public Offering
(with successful applicants’ identification document numbers or
business registration numbers, where appropriate) to be available
through a variety of channels (see ‘‘How to apply for
Hong Kong Offer Shares’’ in this prospectus) from . . . . . . . . . . . . . . . . . . Monday, 29 October 2012
Results of allocations in the Hong Kong Public Offering
will be available at www.tricor.com.hk/ipo/result with
a ‘‘search by ID’’ function . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 29 October 2012
�Ci�C
EXPECTED TIMETABLE (i)
H Shares certificates in respect of wholly or
partially successful applications will be despatched or
deposited into CCASS on or before (vii) and (viii) . . . . . . . . . . . . . . . . . . . . . Monday, 29 October 2012
e-Auto Refund payment instructions/refund cheques in respect
of wholly or partially unsuccessful or wholly successful
(if applicable) applications on or before (vi) . . . . . . . . . . . . . . . . . . . . . . . . Monday, 29 October 2012
Dealings in H Shares on the Hong Kong Stock Exchange
expected to commence on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 30 October 2012
(i) All dates and times refer to Hong Kong local time and dates, except as otherwise stated.
(ii) You will not be permitted to submit your application to the designated HK eIPO White Form Service Provider through the
designated website at www.hkeipo.hk after 11:30 a.m. on the last day for submitting applications. If you have already
submitted your application and obtained an application reference number from the designated website prior to 11:30 a.m.,
you will be permitted to continue the application process (by completing payment of application monies) until 12:00 noon
on the last day for submitting applications, when the application lists close.
(iii) If there is a ‘‘black’’ rainstorm warning or a tropical cyclone warning signal number 8 or above in force at any time between
9:00 a.m. and 12:00 noon on Monday, 22 October 2012, the application lists will not open on that day. Further information
is set out in ‘‘How to Apply for Hong Kong Offer Shares ― Effect of Bad Weather on the Opening of the Application
Lists’’ in this prospectus.
(iv) Applicants who apply for Hong Kong Offer Shares by giving electronic application instructions to HKSCC should refer to
‘‘How to Apply for Hong Kong Offer Shares ― Applying by Giving Electronic Application Instructions to HKSCC’’.
(v) The Price Determination Date, being the date on which the Offer Price is to be determined, is expected to be on or about
Tuesday, 23 October 2012 and, in any event, not later than Friday, 26 October 2012. If, for any reason, the Offer Price is
not agreed by Friday, 26 October 2012, the Global Offering (including the Hong Kong Public Offering) will not proceed
and will lapse.
(vi) Neither our Company’s website nor any of the information contained on our Company’s website forms part of this
prospectus.
(vii) H Share certificates will only become valid certificates of title provided that the Hong Kong Public Offering has become
unconditional in all respects and neither of the Underwriting Agreements has been terminated in accordance with its terms.
Investors who trade H Shares on the basis of publicly available allocation details prior to the receipt of their H Share
certificates or prior to the H Share certificates becoming valid certificates of title do so entirely at their own risk.
(viii) Applicants who apply for 1,000,000 or more Hong Kong Offer Shares and have indicated in their Application Forms that
they wish to collect share certificates (if applicable) and refund cheques (if applicable) in person may do so from our H
Share Registrar, Tricor Investor Services Limited, at 26/F Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong
from 9:00 a.m. to 1:00 p.m. on Monday, 29 October 2012 or any other date notified by our Company in the newspapers as
the date of dispatch of share certificates/refund cheques. Applicants being individuals who opt for personal collection must
not authorize any other person to make their collection on their behalf. Applicants being corporations who opt for personal
collection must attend by sending their authorized representatives each bearing a letter of authorization from his corporation
stamped with the corporation’s chop. Both individuals and authorized representatives (if applicable) must produce, at the
time of collection, evidence of identity acceptable to our H Share Registrar. Uncollected share certificates and refund
cheques will be dispatched by ordinary post to the addressees specified in the relevant Application Forms at the applicants’
own risk. Further information is set out in ‘‘How to Apply for Hong Kong Offer Shares’’.
�C ii �C
EXPECTED TIMETABLE (i)
(ix) e-Auto Refund payment instructions or refund cheques will be issued in respect of wholly or partially unsuccessful
applications and also in respect of successful applications in the event that the Offer Price is less than the initial price per
Hong Kong Offer Share payable on application. Part of your Hong Kong Identity Card number/passport number, or, if you
are joint applicants, part of the Hong Kong Identity Card number/passport number of the first-named applicant, provided by
you may be printed on your refund cheque, if any. Such data would also be transferred to a third party to facilitate your
refund. Your banker may require verification of your Hong Kong Identity Card number/passport number before encashment
of your refund cheque. Inaccurate completion of your Hong Kong Identity Card number/passport number may lead to delay
in encashment of your refund cheque or may invalidate your refund cheque.
Details of the structure of the Global Offering, including its conditions, are set out in ‘‘Structure of the
Global Offering’’. For further details in relation to the Hong Kong Public Offering, see the section
headed ‘‘How to Apply for Hong Kong Offer Shares’’ in this prospectus.
�C iii �C
CONTENTS
IMPORTANT NOTICE TO INVESTORS
This prospectus is issued by us solely in connection with the Hong Kong Public Offering and the
Hong Kong Offer Shares and does not constitute an offer to sell, or a solicitation of an offer to
subscribe for or buy, any security other than the Hong Kong Offer Shares. This prospectus may
not be used for the purpose of, and does not constitute, an offer to sell, or a solicitation of an
offer to subscribe for or buy, any security in any other jurisdiction or in any other
circumstances. No action has been taken to permit a public offering of the Offer Shares, or the
distribution of this prospectus, in any jurisdiction other than Hong Kong. The distribution of
this prospectus and the offering and sale of the Offer Shares in other jurisdictions are subject to
restrictions and may not be made except as permitted under the applicable securities laws of
such jurisdictions pursuant to registration with or authorization by the relevant securities
regulatory authorities or an exemption therefrom.
You should rely only on the information contained in this prospectus and the Application Forms
to make your investment decision. We have not authorized anyone to provide you with
information that is different from what is contained in this prospectus. Any information or
representation not made in this prospectus and the Application Forms must not be relied on by
you as having been authorized by us, the Joint Global Coordinators, the Joint Sponsors, the
Underwriters, any of their respective directors or any other persons or parties involved in the
Global Offering.
Page
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Glossary of Technical Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Waivers from Strict Compliance with the Hong Kong Listing Rules
and the Companies Ordinance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Information about this Prospectus and the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Directors, Supervisors and Parties Involved in the Global Offering . . . . . . . . . . . . . . . . . . . . 96
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Regulatory Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
�C iv �C
CONTENTS
Page
History and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153
Directors, Supervisors, Senior Management and Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
Relationship with Controlling Shareholders and Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257
Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287
Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
Cornerstone Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
Future Plans and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374
Structure of the Global Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
How to Apply for Hong Kong Offer Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 391
Appendix I ― Accountants’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1
Appendix II ― Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . . . . . . . . . . II-1
Appendix III ― Profit Forecast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
Appendix IV ― Property Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
Appendix V ― Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1
Appendix VI ― Summary of Principal Legal and Regulatory Provisions . . . . . . . . . . . . . VI-1
Appendix VII ― Summary of Articles of Association . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VII-1
Appendix VIII ― Statutory and General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VIII-1
Appendix IX ― Documents Delivered to the Companies Registry
and Available for Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IX-1
�Cv�C
SUMMARY
This summary aims to give you an overview of the information contained in this prospectus. As
this is a summary, it does not contain all the information that may be important to you. You
should read the entire document before you decide to invest in the Offer Shares.
There are risks associated with any investment. Some of the particular risks in investing in the
Offer Shares are set out in the section headed ‘‘Risk Factors’’ in this prospectus. You should
read that section carefully before you decide to invest in the Offer Shares.
OVERVIEW
We are a leading healthcare company in the PRC with business operations strategically covering
multiple important segments in the healthcare industry value chain. We are one of the top five domestic
pharmaceutical companies(1) in the PRC by revenue from the pharmaceutical manufacturing segment in
2011, according to IMS (2) . Our business segments include pharmaceutical manufacturing, pharmaceutical
distribution and retail, healthcare services (3), and diagnostic products and medical devices. We are a
public company in the PRC with our headquarters located in Shanghai. Our A Shares have been listed
on the Shanghai Stock Exchange since August 1998. As at the Latest Practicable Date, our market
capitalization was RMB20,834.1 million.
The following table sets forth the external segment revenue and the external segment gross profit
generated from each of our business segments and as a percentage of our total revenue and total gross
profit for the periods indicated:
Year ended 31 December Six months ended 30 June
2009 2010 2011 2011 2012
External External External External External
External segment % External segment % External segment % External segment % External segment %
segment % gross total segment % gross total segment % gross total segment % gross total segment % gross total
revenue total profit gross revenue total profit gross revenue total profit gross revenue total profit gross revenue total profit gross
(RMB) revenue (RMB) profit (RMB) revenue (RMB) profit (RMB) revenue (RMB) profit (RMB) revenue (RMB) profit (RMB) revenue (RMB) profit
(unaudited)
(in millions, except for percentage)
Pharmaceutical manufacturing . . . . . . . . . . . . 2,307.1 59.9 968.5 78.1 2,837.9 62.7 1,234.3 79.9 3,830.8 59.6 1,815.8 74.4 1,771.8 57.5 756.4 72.1 2,175.9 62.8 1,179.3 77.1
Pharmaceutical distribution and retail . . . . . . . 1,054.0 27.4 111.9 9.0 1,146.4 25.3 115.7 7.5 1,436.0 22.3 197.1 8.1 738.8 24.0 90.7 8.6 692.7 20.0 101.5 6.6
Healthcare services (i) . . . . . . . . . . . . . . . . . ― ― ― ― ― ― ― ― 11.3 0.2 2.9 0.1 ― ― ― ― 77.9 2.2 20.5 1.4
Diagnostic products and medical devices . . . . . 315.5 8.2 145.3 11.7 392.4 8.7 176.8 11.5 1,049.3 16.3 419.2 17.2 516.7 16.8 195.4 18.6 511.0 14.8 226.7 14.8
Other business operations (ii) . . . . . . . . . . . . . 173.7 4.5 13.9 1.2 152.1 3.3 17.4 1.1 105.2 1.6 6.4 0.2 52.4 1.7 6.6 0.6 6.6 0.2 1.3 0.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 3,850.3 100.0 1,239.6 100.0 4,528.8 100.0 1,544.2 100.0 6,432.6 100.0 2,441.4 100.0 3,079.7 100.0 1,049.1 100.0 3,464.1 100.0 1,529.3 100.0
(i) As at the Latest Practicable Date, we beneficially held an 18.52% equity interest in Chindex. Chindex’s financial accounts
are not consolidated into our Group’s financial statements. We have acquired a 70% equity interest in Jimin Cancer
Hospital, and its accounts have been consolidated into our Group’s financial statements since 31 October 2011. As at the
Latest Practicable Date, we also beneficially held a 55% equity interest in Guangji Hospital, whose accounts have been
consolidated into our Group’s financial statements since 31 December 2011.
(ii) Revenue from other business operations is mainly generated from our other non-core business operations, such as exports of
non-pharmaceutical products through Science & Technology Imp. & Exp. We disposed of our equity interest in Science &
Technology Imp. & Exp. in November 2011.
Notes:
(1) Includes only companies that are actually controlled by PRC citizens or entities.
(2) IMS data reflects purchases of drugs by hospitals with more than 100 beds at hospital purchase price (representing
approximately 60% of the overall hospital market in terms of revenue according to IMS) instead of consumption by
individual patients at retail prices. IMS data is projected for the market based on statistical analysis and actual data from
hospitals on its panel.
(3) We participated in the healthcare services business through investment in Chindex prior to October 2011 and through our
subsidiaries and our investment in Chindex since October 2011.
�C1�C
SUMMARY
Pharmaceutical Manufacturing
Overview
As at 30 June 2012, we had obtained manufacturing permits for 1,002 (4) pharmaceutical products, and
currently produce 625 drugs. As at 30 June 2012, 477 of our pharmaceutical products, including all 19
of our major prescription drugs, were included in the National Medical Insurance Drugs Catalog, and an
additional 122 of them are included in the Provincial Medical Insurance Drugs Catalogs. In terms of
sales in 2011, a number of our pharmaceutical products in various therapeutic areas, including
metabolism and alimentary tract, cardiovascular system, central nervous system, blood system and anti-
infection, enjoyed leading positions in their respective market segments in the PRC. For the years ended
31 December 2009, 2010 and 2011 and the six months ended 30 June 2012, revenue from our 22 major
products (5) , including the aforementioned 19 major prescription drugs, contributed 65.8%, 70.4%, 73.7%
and 76.2%, respectively, of the external revenue of our pharmaceutical manufacturing segment for the
respective periods. See the table from page 171 to page 174 in the section ‘‘Business ― Our Business
Segments ― Pharmaceutical Manufacturing ― Products’’ for details.
Research and development
Our research and development activities focus primarily on innovative drugs, biopharmaceutical generic
drugs and first-to-market chemical generic drugs in a number of major therapeutic areas, including
metabolism and alimentary tract, cardiovascular system, oncology, central nervous system and anti-
infection. We have built a strong research and development team. As at 30 June 2012, our research and
development team had a total of 584 research and development personnel, including engineers,
pharmacists and other professionals with diversified educational backgrounds and experiences. We
believe we have one of the largest research and development teams among pharmaceutical companies in
China. As at 30 June 2012, we had over 100 pipeline products. A part of our research and development
efforts and investments is focused on generic products, from which the majority of our revenue in the
pharmaceutical manufacturing segment is derived. We expend significant investment and effort on the
development of new prescriptions and production techniques for generic drugs. Our research and
development activities on generic drugs focus on conducting clinical studies to test the effectiveness of
the drugs as well as pharmaceutical manufacturing techniques and operational improvements. For the
years ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012, sales of our
generic drugs accounted for 59.1%, 61.5%, 63.9% and 71.8%, respectively, of the external segment
revenue of our pharmaceutical manufacturing segment. During the Track Record Period, our internally
developed major products, namely, Atomolan tablets, Ke Yuan, Bang Tan, Bang Zhi, You Di Er, Eluzer
and Shaduolika, accounted for 11.3%, 10.4%, 8.8% and 11.4% of our revenue from major products for
the years ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012,
respectively. During the Track Record Period, our research and development expenditures, which
include research and development expenses and capital expenditure to improve production capacity and
efficiency, on average accounted for 8% to 10% of the external revenue of our pharmaceutical
manufacturing segment. See ‘‘Business ― Our Business Segments ― Pharmaceutical Manufacturing ―
Research and Development’’ from page 183 to page 190 for details of our research and development
team and activities.
Notes:
(4) Due to differences in dosage and specification, one product may have multiple manufacturing permits.
(5) We use a set of criteria in selecting our major products, which include sales contribution, market potential and brand
reputation.
�C2�C
SUMMARY
Distribution of pharmaceutical products
As at 30 June 2012, our sales team comprised over 1,500 sales representatives. Our pharmaceutical
products were also distributed through over 2,000 distributors in the PRC. We generally enter into
annual distribution agreements with our third party distributors. These distributors are generally liable
for any breach by them of the relevant distribution agreements and are responsible for indemnifying us
for damages as a result of any such breach. We may reduce or terminate price discounts and other
preferential treatment given to distributors who fail to meet our sales volume targets, or terminate such
distributors’ appointment if they continue to fail to meet the targets, though our distribution agreements
do not contain terms that impose any fine or penalty in respect of any such failure. However, during the
Track Record Period, we did not impose any material reduction on price discounts or other preferential
treatment, nor did we terminate any price discounts or other preferential treatment given to any
distributors, nor did we terminate any distribution agreement due to the failure of any distributor to meet
the sales volume targets under its distribution agreement, where the result of such action might have had
a negative material impact on our financial condition or results of operations. See ‘‘Business ― Our
Business Segments ― Pharmaceutical Manufacturing ― Sales and Marketing’’ from page 193 to page
196 for the salient terms of the distribution agreements. Our standard distribution agreements entitle us
to terminate the distribution right of our distributors if the distributor sells outside its designated
geographic areas.
Nevertheless, we have limited control over these third party distributors. See ‘‘Risk Factors ― Risks
Relating to Our Businesses and Industries ― We sell our pharmaceutical, diagnostic products and
medical devices primarily through third parties and have limited control over their practices’’ from page
60 to page 61 in this prospectus for further information. In addition to sales in the PRC, we also export
certain of our finished products, APIs and intermediate products to overseas markets, including the U.S.,
Europe, and certain African countries.
Production standards
For the pharmaceutical products manufactured by our pharmaceutical manufacturing segment and sold in
the PRC markets, we are only required to obtain, and we have obtained, GMP certifications in
accordance with the standards set forth under the Law of the People’s Republic of China on the
Administration of Pharmaceuticals 《中�A人民共和���品管理法》). For the pharmaceutical products
(
manufactured by our pharmaceutical manufacturing segment and sold in the international markets, we
are required to obtain, and we have obtained, the GMP certifications required under the regulations and
standards in such markets. See ‘‘Business ― Quality Control ― Pharmaceutical Manufacturing’’ from
page 219 to page 223 for details on a comparison of the GMP standards in the PRC and certain
international markets and how we comply with key aspects of these standards.
Procurement of supplies
The principal raw materials used for the production of our pharmaceutical products are the necessary
active ingredients mainly sourced from suppliers from the PRC. We generally do not have long-term
contracts with our major suppliers for our pharmaceutical business operations.
Product liability insurance
From 2009 to 2011, we maintained product liability insurance for all products manufactured or sold by
our subsidiaries Shine Star, Huaiyin Medical, Carelife Pharma and Guilin Pharma. The product liability
insurance covers personal injuries, diseases, death and loss of property resulting from the use,
consumption or operation of the products of these subsidiaries globally. We significantly expanded the
�C3�C
SUMMARY
scope of our product liability insurance coverage in 2012. Our product liability insurance policy is now
more product-oriented, and it now covers a significant portion of our major products. See ‘‘Business ―
Insurance’’ from page 232 to page 233 for details of the scope of our product liability insurance
coverage. For the years ended 31 December 2009, 2010 and 2011 and the six months ended 30 June
2012, revenue generated from the pharmaceutical products covered by product liability insurance for the
same periods accounted for 42.3%, 36.2%, 33.3% and 51.7%, respectively, of the external revenue of
our pharmaceutical manufacturing segment. Save as disclosed in this prospectus, during the Track
Record Period and up to the Latest Practicable Date, we did not experience any material safety and
quality problems with our products that were reported by our customers or relevant government
authorities, and we were not subject to any material product liability or legal claims due to the quality of
our pharmaceutical products. However, if any of our products are alleged to be harmful, we may
experience reduced sales of the products manufactured or distributed by us and may have to recall these
products from the market. Any claims against us or any product recalls, regardless of merit, may strain
our financial resources and consume the time and attention of our management. If any claims against us
are successful, we may incur monetary liabilities, and our reputation may be severely damaged. See
‘‘Risk Factors ― Risks Relating to Our Businesses and Industries ― We may incur losses resulting
from product liability claims or product recalls.’’ from page 70 to page 71 for more details.
Production facilities
As at 30 June 2012, we had a total of 148 production lines at our 18 production facilities throughout
China, which were located in Shanghai, Chongqing, Liaoning, Hubei, Guangxi, Hunan, Guangdong,
Jiangsu, Hebei and Sichuan. As at 31 December 2011, our designed production capacities for tablets and
capsules, injections and small volume parenteral solutions, powder injections and API and intermediate
products were 14.7 billion units, 160.3 million units, 284.4 million units and 106.3 thousand tonnes,
respectively, and our utilization rates for these product forms were 50.3%, 84.7%, 63.7% and 97.1%,
respectively.
Pharmaceutical Distribution and Retail
Our pharmaceutical distribution and retail business is conducted primarily through our interest in our
associated company, Sinopharm, and through our network of retail pharmacies which we operate directly
or by franchise.
Our interest in Sinopharm
In January 2003, Shanghai Fosun Industrial Investment and CNPGC jointly established Sinopharm, with
49% and 51% equity interests, respectively. In May 2004, Shanghai Fosun Industrial Investment
transferred its 49% equity interest in Sinopharm to our Group. As at the Latest Practicable Date, we
beneficially held a 32.1% equity interest in Sinopharm(6) . Sinopharm has experienced significant growth
since its establishment. According to public information released by Sinopharm, it was the largest
pharmaceutical distributor in China in 2011 in terms of the market share and geographical coverage of
its distribution network. Sinopharm is listed on the Hong Kong Stock Exchange. As at the Latest
Practicable Date, Sinopharm’s market capitalization was RMB51,669.7 million.
Notes:
(6) Sinopharm’s financial accounts have not been consolidated into our Group’s financial statements and we have accounted for
our equity investments in Sinopharm using the equity method of accounting.
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SUMMARY
The sales of our pharmaceutical products that were distributed through Sinopharm’s distribution network
amounted to RMB67.8 million, RMB165.9 million, RMB297.4 million and RMB199.1 million in 2009,
2010 and 2011 and the six months ended 30 June 2012, respectively. This represented 2.9%, 5.8%, 7.8%
and 9.2% of our external revenue of the pharmaceutical manufacturing segment in 2009, 2010 and 2011
and the six months ended 30 June 2012, respectively. We expect this percentage to continue to increase
as our business cooperation with Sinopharm further strengthens.
In addition, as the second largest beneficial shareholder of Sinopharm, we have shared Sinopharm’s
rapidly growing profits. Our net profits generated from our share of profits in Sinopharm Investment, the
controlling shareholder of Sinopharm, amounted to RMB352.7 million, RMB390.3 million, RMB509.2
million and RMB305.9 million in the years ended 31 December 2009, 2010 and 2011 and the six
months ended 30 June 2012, respectively.
Pharmaceutical retail
We have also developed a network of retail pharmacies, which we operate either directly or by franchise
under the names ‘‘Golden Elephant Pharmacy’’, primarily in Beijing, and ‘‘For Me Pharmacy’’ in
Shanghai. As at 30 June 2012, our retail pharmacy network included a total of 670 retail pharmacies, of
which we directly operated 146 pharmacies and our franchisees operated 524 pharmacies. Our franchise
agreements typically last for three to five years, but can be extended or renewed by mutual agreement.
Distribution and retail standards
We adopt and implement quality control measures for our pharmaceutical distribution and retail business
by strictly following the Law of the People’s Republic of China on the Administration of
Pharmaceuticals 《中�A人民共和���品管理法》) and the State GSP Standards under the Administrative
(
Measures for Certification of Good Supply Practices 《�品��I�|量管理���J�C管理�k法》). See
(
‘‘Business ― Quality Control ― Pharmaceutical distribution and retail’’ on page 227 for details on the
PRC GSP standards and how we comply with the key aspects of these standards.
Healthcare Services
As the first step to enter the premium healthcare services market, we acquired an equity interest in
Chindex, which focuses on providing premium healthcare services in China. Chindex primarily
operates the United Family Hospitals, which provide premium healthcare services in Beijing,
Shanghai, Tianjin and Guangzhou. As at the Latest Practicable Date, we held an 18.52% equity
interest in Chindex and was its single largest shareholder. We entered the specialty healthcare
services market by establishing Jimin Hospital Management in July 2011. We held a 70% equity
interest in Jimin Hospital Management as at the Latest Practicable Date. Through Jimin Hospital
Management, we manage Jimin Cancer Hospital, an oncology hospital located in Hefei, Anhui
Province, which had 200 beds as at 30 June 2012. We also acquired a 70% equity interest in Jimin
Cancer Hospital in October 2011. For the year ended 31 December 2011, Jimin Cancer Hospital
recorded revenue of RMB48.8 million and net profit of RMB8.9 million, and its facility utilization
rate was 96.7% (7) . Since December 2011, we have further operated a general hospital, Guangji
Hospital, which is located in Yueyang, Hunan province.
Notes:
(7) The utilization rate is calculated by using the following formula: number of patients per year/((30 days per month/average
number of days a patient stays in our hospital) x number of beds x 12 months) = 5,800/((30/12) x 200 x 12) = 96.7%. The
number of patients per year and average number of days a patient stays in our hospital are assumptions we made based on
operating statistics.
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SUMMARY
Diagnostic Products and Medical Devices
Diagnostic products
We engage in the research and development, manufacturing, and sales and marketing of diagnostic
reagents and equipment. As at 30 June 2012, we manufactured a total of 130 types of diagnostic
reagents and equipment, including those for biological, immune system, molecular and microbiological
diagnostic purposes.
Our production facilities for diagnostic products are located in Shanghai and Shenzhen. As at the Latest
Practicable Date, our annual production capacities for diagnostic products consist of (i) 123.70 million
units of biochemical and immunologic diagnostic reagents comprising 94 million units of biochemical
diagnostic reagents and 29.70 million units of immunologic diagnostic reagents; (ii) 3.7 million units of
BIOFOSUN microbe identification and drug sensitivity testing systems; and (iii) equipment such as
22.40 million units of PCR microbial diagnosis reagent boxes and 4,690 sets of high power
microscopes. For the years ended 31 December 2009, 2010 and 2011, the utilization rate of our
production facilities for diagnostic products was 86.2%, 90.8% and 86.8%, respectively. We primarily
distribute our diagnostic reagents and equipment in China through an extensive nationwide network of
Independent Third Party wholesale distributors covering 20 provinces, autonomous regions and
municipalities in China.
Medical devices and consumables
We engage in the research and development, manufacturing, and sales and marketing of blood
transfusion equipment and surgical consumables, as well as the distribution of imported high-end
medical equipment.
We have two production facilities located in Shanghai and Jiangsu Province, with two production lines
for the manufacturing of blood transfusion equipment and consumables and surgical instrument
consumables. As at 30 June 2012, our annual production capacity of surgical blades was 130 million
units, our annual production capacity of suture kits was approximately over 56 million units and our
annual production capacity of blood transfusion consumables was five million units.
We sell our medical consumable products in the PRC primarily through Independent Third Party
distributors, who then distribute our products to hospitals and blood centers through their own sales
teams (including delivery of products and collection of payments).
In December 2010, we acquired a 51% equity interest in CML. The remaining 49% equity interest in
CML is held by Chindex. CML is primarily engaged in the production and sale of medical devices and
consumables and the distribution of high-end medical equipment. As at the Latest Practicable Date, we
were the head regional distributor in China for various high-end imported medical equipment, such as
those of Intuitive Surgical’s da Vinci Surgical System.
Acquisitions and strategic investments
During the Track Record Period, we expanded rapidly through organic growth, acquisitions and strategic
investments. We acquired and consolidated Fuji Medical in 2009, Hexin Pharma, Yaneng Bioscience,
Moluodan Pharma, Golden Elephant Pharmacy, Shenyang Hongqi Pharma and CML in 2010 and
Aohong Pharma, Dalian Aleph, Jimin Cancer Hospital and Guangji Hospital in 2011. Meanwhile, as part
of our strategy to streamline our pharmaceutical distribution business, we disposed of our equity
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SUMMARY
interests in Zhejiang Fosun to Sinopharm in June 2011. In order to focus on the healthcare industry, we
disposed of our equity interests in Science & Technology Imp. & Exp. to an Independent Third Party in
November 2011.
Our strategic investments refer to our holding of minority interests in a number of companies, which
include Sinopharm. While we generally prefer to acquire a majority stake in target companies with an
aim to integrate the acquired companies into our own business operations, we also consider acquiring a
minority stake in target companies when circumstances do not permit an immediate take-over of these
companies. Nonetheless, we have in the past invested in companies in other industries that we
considered to have sound financial performance and/or attractive valuations.
There are a number of investment criteria we take into consideration in general, including but not
limited to: (i) whether the investment target is in a promising industry with favorable fundamentals
under the prevailing macroeconomic environment, (ii) whether the investment target is able to
demonstrate a sound operating and financial track record or prove its growth potential, and (iii) whether
the valuation of the investment target is attractive compared with the industry average or meets the
minimum internal rate of return as stipulated by our investment management committee. During the
Track Record Period, we endeavored to dispose of equity investments that are not related to our core
businesses. Going forward, we plan to continue to focus on investments in the pharmaceutical,
healthcare services and other healthcare-related industries. As a shift in our business strategies, we no
longer intend to make any significant equity investments in companies of unrelated industries and
instead will focus solely on acquisitions in the healthcare and related industries. For the years ended 31
December 2009, 2010 and 2011 and the six months ended 30 June 2012, we recorded a share of profits
of associates of RMB436.8 million, RMB546.3 million, RMB633.2 million and RMB378.7 million,
respectively, which accounted for 17.5%, 63.3%, 54.3% and 54.0% of our net profits attributable to
owners of the parent, respectively. As part of our business strategy, we actively seek to accelerate our
growth through acquisitions and strategic investments. We plan to continue to acquire equity interests in
companies in the pharmaceutical industry with excellent operational track records to capitalize on
opportunities resulting from such business expansion. Due to these reasons, we may continue to derive
revenue from acquired businesses in the future.
Acquisitions and investments expose us to a number of risks. See ‘‘Risk Factors ― Risks Relating to
Our Businesses and Industries ― We may not be able to successfully identify acquisition targets or
complete acquisitions or integrate the acquired businesses’’ from page 62 to page 63 in this prospectus
for further information.
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SUMMARY
The following table sets forth our revenue, gross profit and gross profit margin from our organic growth,
from acquired businesses and from disposed businesses for the periods indicated:
Year ended 31 December Six months ended 30 June
2009 2010 2011 2011 2012
(unaudited)
(in thousands of RMB, except percentages)
Revenue* . . . . . . . . . . . . . . . . . . . 3,850,312 4,528,773 6,432,589 3,079,680 3,464,107
From organic growth . . . . . . . . . . 3,432,947 3,980,259 4,525,012 2,207,651 2,415,109
From acquired businesses . . . . . . . 17,863 136,826 1,696,601 707,574 1,048,998
From disposed businesses . . . . . . . 399,502 411,688 210,976 164,455 ―
Cost of sales . . . . . . . . . . . . . . . . . 2,610,665 2,984,561 3,991,147 2,030,534 1,934,832
From organic growth . . . . . . . . . . 2,224,879 2,521,101 2,785,923 1,390,847 1,400,851
From acquired businesses . . . . . . . 14,288 83,395 1,009,739 487,430 533,981
From disposed businesses . . . . . . . 371,498 380,065 195,485 152,257 ―
Gross profit . . . . . . . . . . . . . . . . . . 1,239,647 1,544,212 2,441,442 1,049,146 1,529,275
From organic growth . . . . . . . . . . 1,208,068 1,459,158 1,739,089 816,804 1,014,258
From acquired businesses . . . . . . . 3,575 53,431 686,862 220,144 515,017
From disposed businesses . . . . . . . 28,004 31,623 15,491 12,198 ―
Gross profit margin . . . . . . . . . . . . . 32.2% 34.1% 38.0% 34.1% 44.1%
From organic growth . . . . . . . . . . 35.2% 36.7% 38.4% 37.0% 42.0%
From acquired business . . . . . . . . 20.0% 39.1% 40.5% 31.1% 49.1%
From disposed business . . . . . . . . 7.0% 7.7% 7.3% 7.4% ―
* Revenue from acquired businesses included revenue from businesses that we acquired during the Track Record Period,
which include Fuji Medical, Hexin Pharma, Yaneng Bioscience, Moluodan Pharma, Golden Elephant Pharmacy, Shenyang
Hongqi Pharma, CML, Aohong Pharma, Dalian Aleph, Jimin Cancer Hospital and Guangji Hospital. Revenue from disposed
businesses included revenue from businesses that we disposed of during the Track Record Period, which include Zhejiang
Fosun and Science & Technology Imp. & Exp. Revenue from organic growth is the revenue from businesses other than
those acquired or disposed of by us during the Track Record Period.
For details of the acquired businesses, see ‘‘History and Development ― Our Business Development’’
from page 144 to page 146 in this prospectus.
Price Controls
A substantial portion of the pharmaceutical products manufactured by us are included in the National
Medical Insurance Drugs Catalog and are subject to retail price controls imposed by the PRC
government in the form of fixed prices or maximum retail prices. In addition, products included in the
Provincial Medical Insurance Drugs Catalogs are also subject to governmental price controls in the
relevant provinces.
In the PRC, eligible participants in the governmental basic medical insurance program who purchase
drugs listed in the National Medical Insurance Drugs Catalog and/or the Provincial Medical Insurance
Drugs Catalogs are entitled to reimbursement from the social medical insurance fund. This
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SUMMARY
reimbursement is up to the entire cost of medicines that are included in such catalogs, and for this
reason, hospitals in China frequently order medicines included in the catalogs for their patients. As a
result, a pharmaceutical product included in the National Medical Insurance Drug Catalog and/or the
Provincial Medical Insurance Drug Catalogs is generally more attractive to hospitals and end customers,
and it is critical for a pharmaceutical producer in China to have its products included in these catalogs.
The hospital purchase prices and our selling prices to distributors of such pharmaceutical products are
directly or indirectly affected by the retail price controls.
Our revenue and profitability may be materially and adversely affected by price controls. See ‘‘Risk
Factors ― Risks Relating to Our Businesses and Industries ― Each of our business segments, including
a substantial proportion of the pharmaceutical products manufactured and distributed by us, is subject to
government price controls or other price restrictions in the PRC’’ from page 55 to page 56 and
‘‘Regulatory Overview ― Price Controls’’ from page 129 to page 132 in this prospectus for additional
information.
We expect the proportion of revenue contributed from such pharmaceutical products subject to price
controls to remain relatively stable in the foreseeable future because we will continue to manufacture
products that we expect to have high growth potential, and which may or may not be subject to price
controls. Pharmaceutical products that are not subject to price controls may have higher gross profit
margins, but they may not be as popular among hospitals and end customers as similar or substitutable
drugs that are subject to price controls because they are not subject to reimbursement by the social
medical insurance fund.
Other than pharmaceutical products, the PRC government maintains a high level of involvement in the
determination of prices of diagnostic products and medical devices, and public hospitals and healthcare
institutions in China are required to purchase high value medical equipment and other supplies at prices
determined through a periodic tender process.
The following table illustrates the impact of price controls on each of our business segments:
Current Impact Description of Impact
Pharmaceutical Yes . Revenue from our pharmaceutical products subject to price controls under
Manufacturing the National and Provincial Medical Insurance Drugs Catalogs accounted
for 38.8%, 42.4%, 42.3% and 48.2% of our total revenue for the years
ended 31 December 2009, 2010 and 2011 and the six months ended 30 June
2012, respectively.
During the Track Record Period and up to the Latest Practicable Date, the
prices of our pharmaceutical products have been subject to the following
government stipulated changes:
. In March 2011, the NDRC lowered the maximum retail prices of certain
pharmaceutical products, affecting 11 of our products, including three
major products, Xin Xian An, Bang Tan and Xi Chang. Revenue from
the sale of the three major products collectively accounted for 2.6%,
6.5%, 5.0% and 5.2% of our total revenue for the years ended 31
December 2009, 2010 and 2011 and the six months ended 30 June 2012,
respectively.
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SUMMARY
Current Impact Description of Impact
. In August 2011, the NDRC lowered the maximum retail prices of certain
pharmaceutical products, affecting five of our products, including one
major product, Wan Su Ping, which collectively accounted for 2.4%,
2.3%, 2.1% and 1.9% of our total revenue for the years ended 31
December 2009, 2010 and 2011 and the six months ended 30 June 2012,
respectively.
. In March 2012, the NDRC lowered the maximum retail prices of certain
pharmaceutical products, affecting one of our major products, Atomolan
which accounted for 7.8%, 8.7%, 7.5% and 7.9% of our total revenue
for the years ended 31 December 2009, 2010 and 2011 and the six
months ended 30 June 2012, respectively.
. In September 2012, the NDRC lowered the maximum retail prices of
certain pharmaceutical products, affecting ten of our products, including
three major products, Bang Ting, Su Ke Nuo and Yi Bao. Revenue from
the sale of the three major products collectively accounted for 2.1%,
3.3%, 3.7% and 5.7% of our total revenue for the years ended 31
December 2009, 2010 and 2011 and the six months ended 30 June 2012,
respectively. See ‘‘Regulatory Overview’’ starting on page 121 for
details.
. The above adjustments had limited impact on our revenue and gross
profit margin because during the Track Record Period and up to the
Latest Practicable Date for most of our products affected by the
abovementioned NDRC price adjustments, the revised maximum retail
prices and the implied maximum hospital purchase prices were still
higher than our actual successful bid prices during the statutory tender
process at the time.
Pharmaceutical Distribution Yes . Fosun Pharmaceutical may not sell drugs that are subject to price controls
and Retail to third party customers at prices higher than the government stipulated
maximum prices, and the profit margins of these drugs may be relatively
lower than those that are not subject to price controls.
. Our retail pharmacies under the ‘‘Golden Elephant Pharmacy’’ and ‘‘For Me
Pharmacy’’ brands may only sell drugs that are subject to price controls to
end customers at prices that are lower than the government stipulated
maximum prices.
Healthcare Services Yes . Our own hospitals may not procure and sell drugs, diagnostic products and
medical devices under price control to end customers at prices that are
higher than the maximum prices.
Diagnostic Products and No . The diagnostic products and medical devices that we currently manufacture
Medical Devices are mainly diagnostic reagents and equipment, blood transfusion equipment
and surgical consumables, which are not included in the National and
Provincial Insurance Drugs Catalogs and therefore are not subject to price
control.
. Nevertheless, in case we produce other diagnostic products and medical
devices that may be subject to price control, price control could affect our
diagnostic products and medical devices segment as well.
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SUMMARY
We seek to further mitigate the impact of the price reductions through technological innovation,
expansion of production to achieve economies of scale, adjustment of product portfolio, and research
and development of new higher-end products.
Business Operation Flow Chart
The following chart illustrates the product and revenue flows of our business segments in the healthcare
industry value chain. See ‘‘Business ― Our Business Strategies’’ starting on page 164 for disclosure of
our future business integration plans.
(i) The vast majority of our pharmaceutical products are distributed through third party distributors. Sales from pharmaceutical
manufacturing subsidiaries to Fosun Pharmaceutical (accounted for as inter-segment sales and eliminated on consolidation)
are limited. Fosun Pharmaceutical procures most of its products from third parties. See ‘‘Business ― Our Business
Segments ― Pharmaceutical Distribution and Retail’’ on page 167 in this prospectus for additional information.
(ii) The sale of our pharmaceutical products that were distributed through Sinopharm’s distribution network represented 2.9%,
5.8%, 7.8% and 9.2% of the external revenue of our pharmaceutical manufacturing segment in 2009, 2010 and 2011 and the
six months ended 30 June 2012, respectively. We expect this percentage to continue to increase as our business cooperation
with Sinopharm further strengthens.
(iii) Other hospitals include United Family Hospitals, operated by Chindex in which we had an 18.52% equity interest as at the
Latest Practicable Date.
(iv) Our hospitals include hospitals in which we hold a majority equity interest, such as Jimin Cancer Hospital and Guangji
Hospital.
�C 11 �C
SUMMARY
OCCURRENCES OF SIDE EFFECTS OF SHADUOLIKA
In August and September 2012, we recalled certain batches of Shaduolika, one of our major products (8) ,
due to reported occurrences of side effects experienced by certain patients in several hospitals in Anhui
and Jiangsu provinces and Guangxi Zhuang Autonomous Region. The recall was due to the fact that
after receiving injections of these batches of Shaduolika, a total of 32 patients experienced shivering,
allergy-like reactions, fever and other mild symptoms of side effects. We had also voluntarily suspended
the production of Shaduolika and are currently conducting our own investigation into the production of
Shaduolika. Based on our investigations, we will ensure that any production problems that may have
caused a quality issue with our Shaduolika products are identified and fully rectified and that the safety
of this product is thoroughly tested and verified prior to resuming the production and sale of Shaduolika.
On 25 September 2012, we received an administrative penalty decision issued by the Chongqing branch
of SFDA. The decision indicated that a batch of Shaduolika product that were reported to have caused
side effects contains excessive level of bacterial endotoxins and therefore failed to meet the applicable
quality requirements. Pursuant to the administrative penalty decision, the government authorities
disgorged our revenue of RMB9,282 from the sale of the defective batch of Shaduolika products,
confiscated all of our recalled Shaduolika products from this defective batch, and imposed a fine of
RMB280,730.90, which was equivalent to the value of the defective batch of Shaduolika products, on
Yao Pharma, the manufacturer of Shaduolika. To the best knowledge of our Company, as at the Latest
Practicable Date, the 32 patients that experienced side effects arising from receiving the injections of
Shaduolika have either fully recovered or shown symptoms from the side effects alleviated and no
product liability claims had been brought against us for damages in connection with any occurrence of
side effects of Shaduolika. In addition, as at the Latest Practicable Date, we had not received any
notification from any of the hospitals that reported the occurrences of side effects of Shaduolika that
product liability claims were brought against any of these hospitals. We do not maintain product liability
insurance for Shaduolika. The foregoing occurrences and the related negative publicity may adversely
affect our business reputation and the sale of our Shaduolika or other pharmaceutical products.
Considering the revenue contribution of our Shaduolika products, which accounted for approximately
2.9%, 2.7%, 2.1% and 2.9% of our external revenue of the pharmaceutical manufacturing segment for
the three years ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012,
respectively, we do not expect that the foregoing occurrences will have a material adverse impact on our
financial results. See ‘‘Risk Factors ― Risks Relating to Our Businesses and Industries ― We may
incur losses and our reputation may be adversely affected by potential product liabilities relating to
certain products that we manufactured’’ from page 68 to page 69 and ‘‘Business ― Quality Control ―
Pharmaceutical manufacturing’’ from page 219 to page 223 for more details.
Notes:
(8) We use a set of criteria in selecting our major products, which include sales contribution, market potential and brand
reputation.
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SUMMARY
RELATIONSHIP WITH SINOPHARM
As at the Latest Practicable Date, we beneficially held a 32.1% equity interest in Sinopharm and had
four representatives, all of whom are non-executive directors, on Sinopharm’s board of directors. These
non-executive directors were (i) Mr. Chen Qiyu, our executive Director and chairman, (ii) Mr. Wang
Qunbin, our non-executive Director, (iii) Mr. Liu Hailiang, our chief Supervisor, and (iv) Mr. Fan
Banghan, our senior deputy general manager.
In distribution, our subsidiary Fosun Pharmaceutical is the exclusive pharmaceutical distributor for our
For Me Pharmacy, which operates in the Shanghai area. Fosun Pharmaceutical also distributes products
to other third party pharmacies in Shanghai and thus competes against Sinopharm’s distribution business,
even though it does not distribute any products outside the Shanghai area. Our competition with
Sinopharm in pharmaceutical distribution in Shanghai is limited because the scale of Fosun
Pharmaceutical’s distribution operation is insignificant as compared to that of Sinopharm. For the six
months ended 30 June 2012, Fosun Pharmaceutical’s revenue from its external sales to third parties was
RMB324.5 million, which was equal to only 0.5% of Sinopharm’s revenue from pharmaceutical
distribution operations of RMB62,889.4 million for the same period in 2012.
In retail, Sinopharm operates retail pharmacies in Shanghai and Beijing and these pharmacies compete
against our For Me Pharmacy and Golden Elephant Pharmacy. As at 30 June 2012, according to data
from the Beijing Municipal Drug Administration, our Golden Elephant Pharmacy was the largest single
brand retail pharmacy in Beijing by number of stores. As at 30 June 2012, according to data from the
Shanghai Municipal Drug Administrative Bureau, our For Me Pharmacy was the largest single brand
retail pharmacy in Shanghai by number of stores. Our competition with Sinopharm in retail is limited
because local governments in the PRC have regulations and guidance on retail pharmacies maintaining
minimal distances from each other. As retail pharmacies derive most of their revenue from local
residents, these laws and regulations have restricted and reduced the competition between our retail
pharmacy network and Sinopharm’s retail pharmacy network.
As a part of our strategy, we have adopted the practice of using Sinopharm’s strong nation-wide
distribution network and leveraging on third party distributors’ strength in certain therapeutic or
geographical areas to distribute pharmaceutical products efficiently across the country. We also plan to
make sure Fosun Pharmaceutical, as the sole supplier of For Me Pharmacy retail chain stores, which in
turn is its biggest customer, continues to focus on and strengthen its business of distribution of
pharmaceutical products in Shanghai. As such, we consider the competition between our business and
Sinopharm’s business is insignificant.
OUR STRENGTHS
We believe the following competitive strengths contribute to our success:
. Competitive advantages in multiple segments;
. Market leading position in pharmaceutical manufacturing focusing on the largest and fastest
growing therapeutic areas;
. Strong research and development capabilities with a product pipeline that is focused on generic
biopharmaceutical drugs;
. Strategic partnership with Sinopharm;
. First-mover in premium, specialty and general healthcare;
�C 13 �C
SUMMARY
. Significant experience in the acquisition and integration of pharmaceutical businesses; and
. Experienced management team.
OUR BUSINESS STRATEGIES
Our business strategies include the following:
. Expand our product portfolio through internal research and development, acquisitions and strategic
alliances.
. Continue to expand and consolidate our sales and distribution network in order to realize the
market potential of our products.
. Accelerate our business growth through acquisitions, strategic alliances and effective business
integration.
. Further implement our global strategy to develop international resources and markets as an
additional growth driver for our business.
. Continue to support the development of Sinopharm to further strengthen its leadership position in
the pharmaceutical distribution industry.
. Strengthen presence and actively develop our healthcare services business.
. Continue to cultivate and recruit talented employees who are essential to our businesses, including
those in sales and marketing, research and development, manufacturing, business development and
corporate management.
DIVIDEND POLICY
We declared and paid approximately RMB123.8 million, RMB190.4 million and RMB190.4 million as
dividends for the years ended 31 December 2009, 2010 and 2011, respectively. All these declared
dividends had been settled as at the Latest Practicable Date. Our Board of Directors will determine the
payment of future dividends, if any, with respect to our Shares on a per Share basis. Any dividend shall
be subject to shareholders’ approval. Under the PRC Company Law and our Articles of Association, all
of our shareholders have equal rights to dividends and distribution. Subject to the factors discussed from
page 366 to page 367 of ‘‘Financial Information ― Dividend Policy’’, we may distribute dividend in
cash or in stock for the 2012 financial year. If in cash, the dividend will be no less than 10% of the then
distributable profits attributable to shareholders of the Company. The specific plan of dividend
distribution will be determined at the general meeting of our Shareholders based on our actual operating
results.
You should refer to ‘‘Financial Information ― Dividend Policy’’ starting on page 366 for a detailed
description of our dividend information and consider the assumptions underlying our forecast contained
in ‘‘Appendix III ― Profit Forecast’’ to this prospectus, the risk factors affecting our Company
contained in the section headed ‘‘Risk Factors’’ starting on page 55 and the cautionary notice regarding
forward-looking statements contained in the section headed ‘‘Forward-looking Statements’’ starting on
page 53 in this prospectus.
�C 14 �C
SUMMARY
SUMMARY OF HISTORICAL FINANCIAL INFORMATION
Summary Consolidated Statements of Comprehensive Income Data
Year ended 31 December Six months ended 30 June
2009 2010 2011 2011 2012
(unaudited)
(in thousands of RMB)
REVENUE . . . . . . . . . . . . . . . . . . . . . . . 3,850,312 4,528,773 6,432,589 3,079,680 3,464,107
GROSS PROFIT . . . . . . . . . . . . . . . . . . . 1,239,647 1,544,212 2,441,442 1,049,146 1,529,275
Other gains (i) . . . . . . . . . . . . . . . . . . . . . . 2,793,543 680,618 1,101,638 976,343 464,710
Share of profits and losses of:
Jointly-controlled entities . . . . . . . . . . . . (1,034) (713) (189) (173) (250)
Associates (ii) . . . . . . . . . . . . . . . . . . . . 436,833 546,310 633,168 323,220 378,717
PROFIT FOR THE YEAR/PERIOD . . . . . 2,567,081 1,000,344 1,385,419 987,826 857,769
Attributable to:
Owners of the parent . . . . . . . . . . . . . . . 2,501,010 863,654 1,166,184 867,279 701,767
Non-controlling interests . . . . . . . . . . . . 66,071 136,690 219,235 120,547 156,002
2,567,081 1,000,344 1,385,419 987,826 857,769
(i) See ‘‘Summary ― Profits generated from associated companies and one-off gains’’ from page 16 to page 17 and ‘‘Financial
Information ― Selected Components of Our Income Statements ― Other Gains’’ from page 318 to page 320 for an analysis
of other gains.
(ii) Our net profits generated from the share of profits of Sinopharm Investment, the controlling shareholder of Sinopharm,
amounted to RMB352.7 million, RMB390.3 million, RMB509.2 million and RMB305.9 million in the years ended 31
December 2009, 2010 and 2011 and the six months ended 30 June 2012, respectively. See ‘‘Financial Information ―
Selected Components of Our Income Statements ― Share of Profits and Losses of Jointly Controlled Entities and Share of
Profits and Losses of Associates’’ from page 321 to page 322 for an analysis of profits from jointly controlled entities and
associates.
Summary Consolidated Statement of Financial Position Data
As at 31 December As at 30 June
2009 2010 2011 2012
(in thousands of RMB)
Non-current Assets . . . . . . . . . . . . . 8,163,382 10,896,067 16,184,825 16,980,802
Current Assets . . . . . . . . . . . . . . . . 3,306,877 5,879,987 6,049,106 5,284,467
Total Assets . . . . . . . . . . . . . . . . . . 11,470,259 16,776,054 22,233,931 22,265,269
Current Liabilities . . . . . . . . . . . . . . 2,498,342 3,697,693 4,991,726 3,994,706
Non-current Liabilities . . . . . . . . . . . 2,076,774 3,723,363 5,928,264 6,579,063
Total Liabilities. . . . . . . . . . . . . . . . 4,575,116 7,421,056 10,919,990 10,573,769
Total Equity . . . . . . . . . . . . . . . . . . 6,895,143 9,354,998 11,313,941 11,691,500
Total Liabilities and Equity. . . . . . . . 11,470,259 16,776,054 22,233,931 22,265,269
Net current assets . . . . . . . . . . . . . . 808,535 2,182,294 1,057,380 1,289,761
Total Assets Less Current Liabilities . 8,971,917 13,078,361 17,242,205 18,270,563
�C 15 �C
SUMMARY
For details of the acquired businesses, see ‘‘History and Development ― Our Business Development’’
from page 144 to page 146 in this prospectus.
Profits Generated from Associated Companies and One-off Gains
We generate a portion of our profits from our associated companies and one-off gains. The following
table illustrates our adjusted net profit attributable to owners of the parent after excluding one-off gains,
share of profits and losses of jointly-controlled entities and associates, headquarters finance costs, and
one-off other expenses:
Year ended 31 December Six months ended 30 June
2009 2010 2011 2011 2012
(unaudited)
(in thousands of RMB)
Net profit attributable to owners of
the parent . . . . . . . . . . . . . . . . . . . . 2,501,010 863,654 1,166,184 867,279 701,767
Finance costs related to one-off gains and
share of profits and losses of jointly-
controlled entities and associates (i) . . . . 24,517 48,996 125,684 55,383 43,187
One-off gains . . . . . . . . . . . . . . . . . . . . (2,783,705) (665,874) (1,082,086) (968,288) (460,912)
One-off other expenses (ii) . . . . . . . . . . . . 51,119 81,298 172,990 112,638 10,009
Share of profits and losses of jointly-
controlled entities and associates . . . . . (435,799) (545,597) (632,979) (323,047) (378,467)
Including: share of profits and losses
of jointly-controlled entities and
associates related to our Group’s
core business . . . . . . . . . . . . . . . (410,084) (525,890) (621,877) (314,067) (377,237)
Taxation attributable(iii) . . . . . . . . . . . . . 687,190 186,423 239,471 214,178 113,844
Amount of adjusted items above
attributable to non-controlling interests . 4,317 51,486 77,896 68,648 44,028
Adjusted net profit attributable to owners
of the parent . . . . . . . . . . . . . . . . . . . 48,649 20,386 67,160 26,791 73,456
(i) Finance costs related to one-off gains and share of profits and losses of jointly-controlled entities and associates represent
the difference of the total finance costs of our Company and Fosun Industrial subtracting finance costs related to operating
activities of these two companies. These costs are mainly attributable to the generation of one-off gains and share of profits
and losses of jointly-controlled entities and associates during the Track Record Period.
(ii) One-off other expenses include provision for impairment of available-for-sale investment at cost, provision for impairment
of other non-current assets, provision for impairment of other current asset and fair value loss on equity investments at fair
value through profit or loss, which are related to one-off gains.
(iii) Taxation attribution is the product of the adjusted items which are subject to income tax and the tax rates applicable to each
entity.
�C 16 �C
SUMMARY
The adjusted net profit attributable to owners of the parent above is not adjusted for all expenses related
to our Group’s investment activities in general. It is only adjusted for the finance costs related to
investment activities that directly generated the one-off gains during the Track Record Period, because
the majority of the headquarters related expenses, such as headquarters administrative expenses and
headquarters finance expenses, cannot be clearly identified as related to investment activities that
directly generate one-off gains and share of profit from jointly-controlled entities and associates. The net
profit attributable to owners of the parent adjusted for all investment related expenses in the following
table is fully adjusted for all expenses related to our Group’s general investment activities, which also
generated the one-off gains and share of profits and losses of jointly-controlled entities and associates
during the Track Record Period.
Year ended 31 December Six months ended 30 June
2009 2010 2011 2011 2012
(unaudited)
(in thousands of RMB)
Adjusted net profit attributable to owners
of the parent . . . . . . . . . . . . . . . . . . . 48,649 20,386 67,160 26,791 73,456
Other headquarters finance costs(i) . . . . . . 78,786 56,719 125,010 63,789 108,753
Headquarters administrative expenses (ii) . . 96,134 124,528 177,850 80,407 103,748
Taxation attributable(iii) . . . . . . . . . . . . . (24,525) (23,063) (45,996) (21,636) (37,276)
Amount of adjusted items above
attributable to non-controlling interests . (98) (300) (268) (114) (150)
Net profit attributable to owners of the
parent adjusted for all headquarters
related expenses . . . . . . . . . . . . . . . . . 198,947 178,270 323,756 149,237 248,531
(i) Other headquarters finance costs were headquarters finance costs minus finance costs related to one-off gains and share of
profits and losses of jointly-controlled entities and associates, which were mainly attributable to our Group’s investment
activities.
(ii) Headquarters administrative expenses represent the administrative expenses mainly attributable to our Group’s investment
activities. However, certain expenses related to investment activities cannot be clearly separated from other general
administrative expenses.
(iii) Taxation attribution is the product of the adjusted items which are subject to income tax and the tax rates applicable to each
entity.
We cannot assure you that the one-off gains will recur in the future, or that the sizes of such one-off
gains will be comparable to those we recognized during the Track Record Period. In addition, as we do
not have adequate control over these associated companies, if their performance deteriorates, our results
of operations may be materially and adversely affected as well. See ‘‘Risk Factors ― Risks Relating to
Our Businesses and Industries ― We generate a portion of our net profits from our associated
companies’’ on page 59 and ‘‘Risk Factors ― Risks Relating to Our Businesses and Industries ― We
generate a portion of our net profits from one-off gains’’ on page 58 in this prospectus for additional
information.
�C 17 �C
SUMMARY
PROFIT FORECAST FOR THE YEAR ENDING 31 DECEMBER 2012
We believe that on the bases and assumptions as set out in ‘‘Appendix III ― Profit Forecast’’ to this
prospectus and in the absence of unforeseen circumstances, our forecast consolidated profit attributable
to owners of our Company for the year ending 31 December 2012 is expected to be not less than
RMB1,490.0 million under HKFRS. Our forecast is based on the following key assumptions:
. Revenue and profit from our core pharmaceutical manufacturing business continue to grow.
. The two subsidiaries we acquired in the second half of 2011, namely Aohong Pharma and Dalian
Aleph will make more contributions to our revenue and gross profits in 2012.
. The contribution of profits from Sinopharm will also increase in 2012 due to the continued growth
of Sinopharm’s business.
. We will continue to derive a portion of our profit from gains from the disposal of available-for-
sale investments, the amount of which is forecasted based on disposals of our listed available-for-
sale investments at their lowest trading prices in the last five years.
On a pro forma basis, and on the assumption that a total of 2,240,462,364 Shares were issued and
outstanding (and not taking into account any H Shares that may be issued pursuant to exercise of the
Over-allotment Option) during the entire year, the forecast basic earnings per Share for 2012 on a pro
forma basis would be RMB0.67 (HK$0.81).
Recent Operating Environment
Subsequent to 30 June 2012 and as at 31 August 2012, our operational and financial performance are in
line with expectations. Our revenue and gross profit margin both increased for the two months ended
31 August 2012 as compared to the same period in 2011. The increases in revenue and gross profit
margin were due to the continued growth of our core businesses, the increase in revenue contribution
from sale of products with higher profit margins, as well as the acquisitions we made since 31 August
2011. In September 2012, the NDRC lowered the maximum retail prices of certain pharmaceutical
products, affecting ten of our products. See page 129 to page 132 in ‘‘Regulatory Overview ― Price
controls’’ in this section of the prospectus. Our Directors are of the view that we had not experienced
any material and adverse change subsequent to 30 June 2012 and up to the date of this prospectus.
GLOBAL OFFERING STATISTICS
Based on an
Offer Price of HK$12.74
Market capitalization of our H Shares (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$4,281.5 million
Unaudited pro forma adjusted net tangible
asset per Share (ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$5.78
(RMB4.73)
(i) The calculation of market capitalization is based on 336,070,000 H Shares expected to be in issue immediately following
completion of the Global Offering.
(ii) The unaudited pro forma adjusted net tangible asset per Share is arrived at after making the adjustments referred to in
‘‘Unaudited Pro Forma Financial Information’’ included in Appendix II to this prospectus and on the basis of a total of
2,240,462,364 Shares expected to be in issue immediately following completion of the Global Offering.
�C 18 �C
SUMMARY
USE OF PROCEEDS
We estimate that the aggregate net proceeds we will receive (after deducting underwriting fees and
estimated expenses, assuming the Over-allotment Option is not exercised) from the Global Offering,
assuming an Offer Price of approximately HK$12.74 per Offer Share, being the mid-point of the
indicative offer price range set out in this prospectus, will be approximately HK$4,071.4 million (or if
the Over-allotment Option is exercised in full, approximately HK$4,695.6 million, assuming an Offer
Price of approximately HK$12.74 per Offer Share, being the mid-point of the indicative Offer Price
range set out in this prospectus). We adopt article 32 of the Hong Kong Accounting Standards for the
accounting treatment of transaction costs, in which we assess the nature of each category of the listing
expenses, and those incremental costs directly attributable to the proposed Global Offering will be
accounted for as a deduction from the share premium of the newly issued shares following the Global
Offering. Therefore, we expect that the listing expenses that should be charged to the income statement
are insignificant.
As compared to the use of proceeds for our fundraising activities in the PRC, proceeds of the Global
Offering will be used for more diverse purposes, which include research and development focusing on
generic drugs with limited competition and generic drugs with high barriers-to-entry in the PRC and
overseas, domestic and international acquisitions, and repayment of the principal and interest of interest-
bearing liabilities. Unlike the previous fundraising activities in the PRC, part of the proceeds of the
Global Offering will be used for activities outside of the PRC. We intend to use the net proceeds we
receive from the Global Offering as follows:
Usage Proportion Description
Acquisitions and consolidation in the 48% In the PRC, we plan to acquire domestic pharmaceutical
areas of pharmaceutical or companies that offer technologies, products or business lines
manufacturing, pharmaceutical HK$1,954.3 million that complement our existing portfolio. We also plan to
distribution and retail, healthcare acquire pharmaceutical companies in therapeutic areas that
services and diagnostic products have high growth prospects and/or those that have leading
and medical devices market positions in their respective areas. As we do not have
a definite plan of acquisition to the Latest Practicable Date,
we are open to any therapeutic area with high growth and a
large customer base.
Internationally, we plan to acquire (i) pharmaceutical
companies that have a large presence or great potential in the
PRC market, or (ii) those that have unique product portfolios,
strong research and development capabilities as well as sales
networks in the U.S. or Europe. Such overseas pharmaceutical
companies are expected to help us to diversify product lines
and increase our sales in the PRC and overseas. Our
international acquisitions and expansion may expose us to
additional risks. See ‘‘Risk Factors ― Risks Relating to Our
Businesses and Industries ― We may not be able to
successfully identify acquisition targets or complete
acquisitions or integrate the acquired businesses’’ from pages
62 to page 63.
We currently do not have any specific acquisition plans or
targets and have not entered into any definitive agreements
with any potential targets.
�C 19 �C
SUMMARY
Usage Proportion Description
Funding for existing research and 19% We will continue to focus on the research and development of
development projects, expansion or innovative drugs, generic drugs with limited competition and
of our research and development HK$773.6 million generic drugs with high barriers-to-entry. These drugs require
team and acquisition of new substantial technical know-how and research and development
research and development projects capabilities for a company to develop, heavy capital
investment in new facilities for the manufacturing of such
products as well as proficient technological expertise and
skilled employees for the managing and operations of the
manufacturing process. The research and development
expenses for these generic drugs will primarily be spent on
clinical studies to test the effectiveness of the drugs. We will
also increase investment in the research and development of
innovative drugs to support our long-term growth. Similarly,
we will invest in the expansion of our research and
development team and acquisition of new research and
development projects if suitable targets are identified.
Repayment of a portion of our 23% We expect to use the proceeds to repay the principal and
Group’s principal and interest of or interest of interest-bearing liabilities, which include loan
interest-bearing liabilities HK$936.4 million facilities, mid-term notes and corporate bonds. Within one
year prior to our Listing in October 2012, we issued corporate
bonds of RMB1,500.0 million in April 2012, the proceeds of
which are used to repay outstanding loan facilities and to
supplement our general working capital.
As at 30 June 2012, interest rates of the PRC domestic
interest-bearing debts to be repaid range from 4.76% to 7.22%
per annum, and the maturity dates of these liabilities range
from the second half of 2012 to September 2018.
We may also use the proceeds to repay the principal and
interest of certain short-term commercial paper, in respect of
which we are in the process of obtaining relevant government
approvals, and which is expected to be issued before the end
of 2012.
Supplementing our Group’s general 10% We will use the proceeds to consolidate our leading position
working capital or in the healthcare industry and build up our Group’s core
HK$407.1 million market competitiveness by expanding our Group’s business
operations and strengthening our Group’s marketing
capabilities.
See ‘‘Future Plans and Use of Proceeds’’ starting on page 371 for details of our use of the proceeds from
the Global Offering.
Fund Raising Activities
During the Track Record Period and as at the Latest Practicable Date, other than the Global Offering,
we have completed or are in the process of completing the following fund raising activities: (i) we
completed RMB1,000.0 million and RMB1,600.0 million offerings of mid-term notes in November 2010
and March 2011, respectively, and used most of the proceeds to repay outstanding loan facilities in the
PRC and partially to supplement our general working capital; (ii) we completed a RMB635.4 million
private placement of new A Shares in May 2010, and used the proceeds for the construction of new
facilities to produce certain new pharmaceutical products such as recombinant human insulin, artesunate
series and certain diagnostic products; and (iii) we had obtained CSRC approval dated 18 November
�C 20 �C
SUMMARY
2011 on 23 November 2011 for issuing no more than RMB3,000.0 million of corporate bonds in various
tranches and in April 2012, we issued the first tranche of corporate bonds in an aggregate principal
amount of RMB1,500.0 million with a term of five years and an interest rate of 5.53% per annum. Part
of the proceeds from the issuance may be used to repay outstanding loan facilities in the PRC and to
supplement our general working capital. See ‘‘Future Plans and Use of Proceeds’’ starting on page 371
for more details of these fundraising activities.
As compared with the use of proceeds of the Global Offering, proceeds from these other fundraising
activities are used mostly for construction of new production facilities and capacity expansion,
repayment of loan facilities in the PRC and supplementing working capital.
RISK FACTORS
There are certain risks involved in our operations and many of these risks are beyond our control. These
risks can be characterized as: (i) risks relating to our businesses and industries; (ii) risks relating to the
People’s Republic of China; and (iii) risks relating to the Global Offering. For further details, please
refer to the section headed ‘‘Risk Factors’’ from page 55 to page 87 of this prospectus.
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
As at the Latest Practicable Date, our Company is held as to approximately 48.20% by Fosun High
Tech, whose entire registered capital is held by Fosun International. Fosun International is held as to
approximately 79.08% by Fosun Holdings. Fosun Holdings is a direct wholly-owned subsidiary of
Fosun International Holdings, which is in turn held as to 58%, 22%, 10% and 10% by Messrs. Guo
Guangchang, Liang Xinjun, Wang Qunbin and Fan Wei, respectively. Each of Messrs. Guo Guangchang,
Liang Xinjun, Wang Qunbin and Fan Wei, Fosun International Holdings, Fosun Holdings, Fosun
International and Fosun High Tech is a Controlling Shareholder of our Company. Several of our
Directors hold position within the Fosun Group. For details, please refer to the section headed
‘‘Relationship with Controlling Shareholders and Directors’’ from page 257 to page 268 of this
prospectus.
Save for Fosun International’s indirect interest in Shanghai Yuyuan, an insignificant part of the business
of which is, among others, the manufacturing, wholesale and retail of modern Chinese medicines,
Chinese herbal medicines, nutrition and healthcare supplements in the PRC, there is a clear business
delineation between Fosun International and our Company. Fosun International is a large conglomerate
with operations in the pharmaceuticals and healthcare, property, steel and mining sectors. Fosun
International also participates in China’s fast growing industries, including retail, services and financial
industries through investments. As a subsidiary of Fosun International, our Company is the operational
platform for the pharmaceuticals and healthcare business of Fosun International.
During the Track Record Period, we entered into a number of transactions with counterparties who will
become Connected Persons of our Company immediately upon the Listing. Such transactions would
constitute connected transactions and would continue after the Listing. For details of these transactions,
please refer to the section headed ‘‘Connected Transactions’’ from page 269 to page 286 of this
prospectus.
�C 21 �C
DEFINITIONS
In this prospectus, unless the context otherwise requires, the following terms shall have the
meanings set out below. Certain other terms are explained in the section headed ‘‘Glossary of
Technical Terms.’’
‘‘2008 EIT Law’’ the PRC Enterprise Income Tax Law 《中�A人民共和��企�I所得
(
�法》) issued on 16 March 2007 and its implementation rules
issued on 6 December 2007, both becoming effective on 1
January 2008
‘‘A Share(s)’’ domestic share(s) of our Company with a nominal value of
RMB1.0 each, which are listed on the Shanghai Stock Exchange
and traded in RMB
‘‘A Share Offering’’ the offer for subscription of 50,000,000 A Shares by our
Company to the public in the PRC, which was completed on 7
August 1998
‘‘Anhui Shanhe Medical’’ Anhui Shanhe Medical Accessories Company Limited (安徽山河
�用�o料股份有限公司), a company limited by shares established
in the PRC on 27 April 2001, and an associated company of our
Group
‘‘Aohong Pharma’’ Jinzhou Aohong Pharmaceutical Company Limited (�\州�W����I
有限�任公司), a limited liability company established in the PRC
on 28 January 2002, and a 70% owned subsidiary of Fosun
Pharmaceutical Industrial
‘‘Application Form(s)’’ WHITE application form(s), YELLOW application form(s) and
GREEN application form(s), or where the context so requires,
any of them, relating to the Hong Kong Public Offering
‘‘Articles’’ or ‘‘Articles of the articles of association of our Company conditionally adopted
Association’’ on 6 August 2012 to take effect on the Listing Date, as amended
or supplemented from time to time
‘‘associates’’ has the meaning given to it under the Hong Kong Listing Rules
‘‘Baotou Jinxiang’’ Baotou Jinxiang Pharmaceutical Company Limited (包�^市金象
��I有限�任公司), a limited liability company established in the
PRC on 12 April 2010, and a wholly-owned subsidiary of Golden
Elephant Pharmacy
‘‘Beijing Golte’’ Beijing Golte Property Management Company Limited (北京高地
物�I管理有限公司), a limited liability company established in the
PRC on 23 May 2005, and a wholly-owned subsidiary of Golte
Assets
�C 22 �C
DEFINITIONS
‘‘Board’’ or ‘‘Board of Directors’’ the board of Directors of our Company
‘‘business day’’ a day (other than a Saturday, Sunday or public holiday in Hong
Kong) on which banks in Hong Kong are open for general
banking business
‘‘CAGR’’ compound annual growth rate
‘‘Carelife Pharma’’ Chongqing Carelife Pharmaceutical Company Limited (重�c�P林
�u�有限公司), a limited liability company established in the
PRC on 10 July 2000, and a wholly-owned subsidiary of Yao
Pharma
‘‘CCASS’’ the Central Clearing and Settlement System established and
operated by HKSCC
‘‘CCASS Clearing Participant’’ a person admitted to participate in CCASS as a direct clearing
participant or general clearing participant
‘‘CCASS Custodian Participant’’ a person admitted to participate in CCASS as a custodian
participant
‘‘CCASS Investor Participant’’ a person admitted to participate in CCASS as an investor
participant who may be an individual or joint individuals or a
corporation
‘‘CCASS Participant’’ a CCASS Clearing Participant, a CCASS Custodian Participant or
a CCASS Investor Participant
‘‘Chemo Biopharma’’ Shanghai Chemo Biopharma Company Limited (上海�P茂生物�t
�有限公司), a limited liability company established in the PRC
on 19 November 2008, and a 70% owned subsidiary of Wanbang
Pharma
‘‘Chindex’’ Chindex International, Inc., a company incorporated in the United
States in 1981 and listed on the NASDAQ Stock Market
(NASDAQ: CHDX), in which our Group holds an 18.52% equity
interest as at the Latest Practicable Date
‘‘Chindex (Beijing)’’ Chindex (Beijing) International Trade Company Limited (美中互
利 (北京) ���H�Q易有限公司), a limited liability company
established in the PRC on 26 December 2001, and an indirect
wholly-owned subsidiary of CML
‘‘CICC’’ China International Capital Corporation Hong Kong Securities
Limited
�C 23 �C
DEFINITIONS
‘‘CML’’ Chindex Medical Limited (美中互利�t��有限公司), a limited
liability company established in Hong Kong on 15 November
2010, and a 51% owned subsidiary of our Group
‘‘Companies Ordinance’’ the Companies Ordinance, Chapter 32 of the Laws of Hong Kong,
as amended, supplemented or otherwise modified from time to
time
‘‘Company’’ or ‘‘Fosun Pharma’’ Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (上海�托轻t
�(集�F)股份有限公司), a joint stock company re-registered in
the PRC on 13 July 1998, and its predecessor, whose A Shares
have been listed on the Shanghai Stock Exchange since 7 August
1998 (Stock Code: 600196)
‘‘Connected Person(s)’’ has the meaning given to it under the Hong Kong Listing Rules
‘‘Controlling Shareholder(s)’’ has the meaning given to it under the Hong Kong Listing Rules
and in the context of our Company, means Messrs. Guo
Guangchang, Liang Xinjun, Wang Qunbin, Fan Wei, Fosun
International Holdings, Fosun Holdings, Fosun International and
Fosun High Tech
‘‘Conversion Scheme’’ the scheme undertaken by our Company in April 2006 to convert
the non-tradable A Shares of our Company into tradable A Shares
pursuant to the ‘‘Administrative Measures on the Split Share
Structure Reform of Listed Companies’’ 《上市公司股�喾种酶�
(
革管理�k法》) promulgated by the CSRC on 4 September 2005,
as further described in the section headed ‘‘History and
Development’’ in this prospectus
‘‘CNPGC’’ China National Pharmaceutical Group Corporation (中���t�集�F
�公司), a limited liability company established in the PRC on 26
November 1998, and an enterprise owned by the PRC government
established in the PRC and the controlling shareholder of
Sinopharm
‘‘CSRC’’ China Securities Regulatory Commission (中���C券�O督管理委
�T��), a regulatory body responsible for the supervision and
regulation of the PRC national securities markets
‘‘Dalian Aleph’’ Dalian Aleph Biomedical Company Limited (大�B雅立峰生物�u
�有限公司), a limited liability company established in the PRC
on 28 February 2002, and a 75% indirectly owned subsidiary of
our Company
‘‘Deed of Non-Competition’’ the deed of non-competition undertakings dated 13 October 2012
and executed by our Controlling Shareholders in favor of our
Company (for ourselves and as trustee of our subsidiaries from
time to time)
�C 24 �C
DEFINITIONS
‘‘Deutsche Bank’’ Deutsche Bank AG, Hong Kong Branch
‘‘Director(s)’’ director(s) of our Company
‘‘Espicom’’ Espicom Business Intelligence, a provider of business intelligence
services focused on the global pharmaceutical and medical device
sectors, which is an Independent Third Party
‘‘Financial Services Agreement’’ the financial services agreement dated 10 December 2011 entered
into between our Company and Fosun Finance as referred to in
the section headed ‘‘Connected Transactions’’ in this prospectus
‘‘Fochon Pharma’’ Chongqing Fochon Pharmaceutical Research Company Limited
(重�c����t�研究有限公司), a limited liability company
established in the PRC on 18 March 2009, and a 70% indirectly
owned subsidiary of our Company
‘‘For Me Pharmacy’’ Shanghai For Me Yixing Pharmacy Chain-Store Company
Limited (上海�兔酪嫘谴笏�房�B�i有限公司), a limited liability
company established in the PRC on 21 March 2001, and a 92%
owned subsidiary of Pharmaceutical Investment
‘‘Forte’’ Shanghai Forte Land Company Limited (�偷�(集�F)股份有限公
司), a company limited by shares established in the PRC on 13
August 1998, and a 99.05% indirectly owned subsidiary of Fosun
International
‘‘Forte Investment and Shanghai Forte Investment and Management Company Limited
Management’’ (上海�偷赝顿Y管理有限公司), a limited liability company
established in the PRC on 21 July 2006, and a wholly-owned
subsidiary of Forte
‘‘Fosun Biolog Biotech’’ Shanghai Fosun Biolog Biotech Company Limited (上海�托前坨�
生物技�g有限公司), a limited liability company established in the
PRC on 5 December 2002, and a 75% owned subsidiary of Fosun
Long March
‘‘Fosun Chemical’’ Shanghai Fosun Chemical Pharmaceutical Investment Company
Limited (上海�托腔�工�t����I投�Y有限公司), a limited
liability company established in the PRC on 23 December 2003,
and a 96% owned subsidiary of our Company
‘‘Fosun Finance’’ Fosun Group Finance Corporation Limited (上海�托歉呖萍技��F
��沼邢薰�司), a limited liability company established in the
PRC on 7 July 2011, and an 82% owned subsidiary of Fosun
High Tech
�C 25 �C
DEFINITIONS
‘‘Fosun Group’’ Fosun International Holdings and its subsidiaries, other than our
Group
‘‘Fosun High Tech’’ Shanghai Fosun High Technology (Group) Company Limited (上
海�托歉呖萍�(集�F)有限公司), a limited liability company
established in the PRC on 17 November 1994, and a direct
wholly-owned subsidiary of Fosun International and our
Controlling Shareholder
‘‘Fosun Holdings’’ Fosun Holdings Limited (�托强毓捎邢薰�司), a limited liability
company established in Hong Kong on 18 February 2005, and a
direct wholly-owned subsidiary of Fosun International Holdings
and our Controlling Shareholder
‘‘Fosun Industrial’’ Fosun Industrial Company Limited (�托���I(香港)有限公司), a
company incorporated in Hong Kong on 22 September 2004, and
a wholly-owned subsidiary of our Company
‘‘Fosun International’’ Fosun International Limited (�托���H有限公司), a company
incorporated in Hong Kong on 24 December 2004, the shares of
which are listed on the Main Board of the Hong Kong Stock
Exchange (Stock Code: 00656), and which is an indirect
subsidiary of Fosun International Holdings and our Controlling
Shareholder
‘‘Fosun International Holdings’’ Fosun International Holdings Limited (�托���H控股有限公司), a
limited liability company established in the British Virgin Islands
on 9 September 2004, which is held as to 58%, 22%, 10% and
10% by Messrs. Guo Guangchang, Liang Xinjun, Wang Qunbin
and Fan Wei, respectively, and our Controlling Shareholder
‘‘Fosun Long March’’ Shanghai Fosun Long March Medical Science Company Limited
(上海�托情L征�t�W科�W有限公司), a limited liability company
established in the PRC on 9 February 1989, and a wholly-owned
subsidiary of our Company
‘‘Fosun Med-tech Development’’ Shanghai Fosun Med-tech Development Company Limited (上海
�托轻t�W科技�l展有限公司), a limited liability company
established in the PRC on 30 May 1994, and a wholly-owned
subsidiary of our Company
‘‘Fosun Pharmaceutical’’ Shanghai Fosun Pharmaceutical Company Limited (上海�托撬��I
有限公司), a limited liability company established in the PRC on
28 July 1993, and a 97% owned subsidiary of Pharmaceutical
Investment
�C 26 �C
DEFINITIONS
‘‘Fosun Pharmaceutical Industrial’’ Shanghai Fosun Pharmaceutical Industrial Development
Company Limited (上海�托轻t��a�I�l展有限公司), a limited
liability company established in the PRC on 27 November 2001,
and a wholly-owned subsidiary of our Company
‘‘Frost & Sullivan’’ Frost & Sullivan, a global provider of market research and
analysis, growth strategy consulting, and corporate training
services, which is an Independent Third Party
‘‘Fuji Medical’’ Shanghai Fuji Medical Instrument Company Limited (上海�图坚t
��器械有限公司), a limited liability company established in the
PRC on 4 June 2001, and a 90% owned subsidiary of Technology
Innovation
‘‘Fusheng Pharma’’ Shanghai Fusheng Pharmaceutical Technology Development
Company Limited (上海�褪⑨t�科技�l展有限公司), a limited
liability company established in the PRC on 2 November 2010,
and a wholly-owned subsidiary of Fosun Pharmaceutical
Industrial
‘‘GDP’’ gross domestic product
‘‘Global Offering’’ the Hong Kong Public Offering and the International Offering
‘‘Golden Elephant Pharmacy’’ Beijing Golden Elephant Pharmacy Medicine Chain Company
Limited (北京金象大�房�t��B�i有限�任公司), a limited
liability company established in the PRC on 7 March 2000, and a
55% owned subsidiary of Pharmaceutical Investment
‘‘Golte Assets’’ Shanghai Golte Assets Management Company Limited (上海高地
�Y�a��I管理有限公司), a limited liability company established
in the PRC on 31 May 2004, and a wholly-owned subsidiary of
Forte
‘‘GREEN application form(s)’’ the application form(s) to be completed by the HK eIPO White
Form Service Provider
‘‘Group’’, ‘‘we’’ or ‘‘us’’ our Company and its subsidiaries (or our Company and any one
or more of its subsidiaries, as the context may require), or where
the context so requires, in respect of the period before our
Company became the holding company of its present subsidiaries,
such subsidiaries as if they were subsidiaries of our Company at
the relevant time
‘‘Guangji Hospital’’ Yueyang Guangji Hospital Company Limited (岳��V���t院有限
公司), a limited liability company established in the PRC on 3
December 2004, and a 55% owned subsidiary of Yicheng
Management
�C 27 �C
DEFINITIONS
‘‘Guilin Pharma’’ Guilin South Pharma Company Limited (桂林南�股份有限公
司), a company limited by shares established in the PRC on 22
June 2001, and a 94.25% owned subsidiary of Fosun
Pharmaceutical Industrial
‘‘Guilin Pharmaceutical’’ Guilin Pharmaceutical Company Limited (桂林�u�有限�任公
司), a limited liability company established in the PRC on 11
December 1989, and an 89.9% owned subsidiary of Fosun
Pharmaceutical Industrial, which was merged with and absorbed
by Guilin Pharma in December 2010. Guilin Pharmaceutical was
de-registered on 17 May 2011
‘‘H Share Registrar’’ Tricor Investor Services Limited
‘‘H Share(s)’’ overseas listed foreign share(s) in our ordinary share capital, with
a nominal value of RMB1.0 each, which are to be listed on the
Hong Kong Stock Exchange and traded in Hong Kong dollars
‘‘Haisiman Pharma’’ Chongqing Haisiman Pharmaceutical Company Limited (重�c海
斯曼��I有限�任公司), a limited liability company established
in the PRC on 21 June 2007, and a wholly-owned subsidiary of
Yao Pharma
‘‘Hexin Pharma’’ Sichuan Hexin Pharmaceutical Company Limited (四川合信��I
有限�任公司), a limited liability company established in the
PRC on 8 November 2002, and a wholly-owned subsidiary of
Yao Pharma
‘‘HK eIPO White Form’’ the application for the Hong Kong Offer Shares to be issued in
the applicant’s own name by submitting applications online
through the designated website at www.hkeipo.hk
‘‘HK eIPO White Form Service The Bank of East Asia, Limited
Provider’’
‘‘HKFRS’’ the Hong Kong Financial Reporting Standards
‘‘HKSCC’’ Hong Kong Securities Clearing Company Limited
‘‘HKSCC Nominees’’ HKSCC Nominees Limited
‘‘Hong Kong’’ or ‘‘HK’’ the Hong Kong Special Administrative Region of the PRC
‘‘Hong Kong dollars’’, Hong Kong dollars, the lawful currency of Hong Kong
‘‘HK dollars’’ or ‘‘HK$’’
‘‘Hong Kong Listing Rules’’ the Rules Governing the Listing of Securities on the Hong Kong
Stock Exchange
�C 28 �C
DEFINITIONS
‘‘Hong Kong Offer Shares’’ 33,607,000 new H Shares being initially offered by our Company
for subscription at the Offer Price pursuant to the Hong Kong
Public Offering (subject to adjustment as described in the section
headed ‘‘Structure of the Global Offering’’ in this prospectus)
‘‘Hong Kong Public Offering’’ the offer by our Company of the Hong Kong Offer Shares for
subscription by the public in Hong Kong (subject to adjustment
as described in the section headed ‘‘Structure of the Global
Offering’’ in this prospectus) at the Offer Price, on the terms and
subject to the conditions set out in this prospectus and the
Application Forms
‘‘Hong Kong Stock Exchange’’ The Stock Exchange of Hong Kong Limited
‘‘Hong Kong Underwriters’’ the underwriters of the Hong Kong Public Offering whose names
are set out in the section headed ‘‘Underwriting ― Hong Kong
Underwriters’’ in this prospectus
‘‘Hong Kong Underwriting the underwriting agreement dated 16 October 2012 relating to the
Agreement’’ Hong Kong Public Offering and entered into by, among others,
the Joint Global Coordinators, the Joint Sponsors, the Hong Kong
Underwriters, and us, as further described in the section headed
‘‘Underwriting’’ in this prospectus
‘‘Huaiyin Medical’’ Huaiyin Medical Instruments Company Limited (淮��t��器械有
限公司), a limited liability company established in the PRC on 7
June 1999, and a wholly-owned subsidiary of Technology
Innovation
‘‘Hunan Guangji’’ Hunan Province Guangji Real Estate Company Limited (湖南省�V
��置�I有限公司), a limited liability company established in the
PRC on 29 September 2007, and a 55% owned subsidiary of
Yicheng Management
‘‘IMS’’ IMS Health Incorporated, a global provider of market intelligence
to the pharmaceutical and healthcare industries, which is an
Independent Third Party
‘‘Independent Third Part(ies)’’ a person or persons or a company or companies that is not or are
not our Connected Person(s)
‘‘Industry Experts’’ Industry Experts is a multi-industry focused market research firm,
which is an Independent Third Party
�C 29 �C
DEFINITIONS
‘‘International Offer Shares’’ 302,463,000 H Shares being initially offered under the
International Offering together, where relevant, with any
additional H Shares to be issued pursuant to the exercise of the
Over-allotment Option, the number of which is further subject to
adjustment as described in the section headed ‘‘Structure of the
Global Offering’’ in this prospectus
‘‘International Offering’’ the offering of the International Offer Shares at the Offer Price
outside the United States in accordance with Regulation S, and in
the United States only to QIBs in reliance on Rule 144A or
another available exemption from registration requirement of the
US Securities Act, as further described in the section headed
‘‘Structure of the Global Offering’’ in this prospectus
‘‘International Purchase the international purchase agreement relating to the International
Agreement’’ Offering to be entered into on or about the Price Determination
Date by, among others, the Joint Global Coordinators, the
International Purchasers, and us, as further described in the
section headed ‘‘Structure of the Global Offering ― The
International Offering’’ in this prospectus
‘‘International Purchasers’’ the underwriters of the International Offering which are expected
to enter into the International Purchase Agreement as initial
purchasers on or around the Price Determination Date
‘‘Jimin Hospital Management’’ Anhui Jimin Hospital Management Company Limited (安徽��民
�t院��I管理有限公司), a limited liability company established
in the PRC on 20 July 2011, and a 70% owned subsidiary of
Yicheng Management
‘‘Jimin Cancer Hospital’’ Anhui Jimin Cancer Hospital (安徽��民�[瘤�t院), a people run
non-enterprise unit (民�k非企�I�挝�) established in the PRC on
16 August 2010, and a 70% owned subsidiary of Yicheng
Management
‘‘Jincheng Medical’’ Shandong Jincheng Pharmaceutical and Medical Company
Limited (山�|金城�t�化工股份有限公司), a company limited
by shares established in the PRC on 28 February 2008, and an
associated company of our Group, the shares of which are listed
on the Shenzhen Stock Exchange on 22 June 2011
‘‘Jinxiang Fosun’’ Beijing Jinxiang Fosun Pharmaceuticals Joint Stock Company
Limited (北京金象�托轻t�股份有限公司), a company limited
by shares established in the PRC on 12 December 1992, and an
associated company of our Group
�C 30 �C
DEFINITIONS
‘‘Joint Bookrunners’’ in relation to the Hong Kong Public Offering, UBS, CICC, J.P.
Morgan Asia Pacific and Deutsche Bank being the joint
bookrunners; in relation to the International Offering, UBS, CICC,
J.P. Morgan and Deutsche Bank being the joint bookrunners
‘‘Joint Global Coordinators’’ UBS, CICC, J.P. Morgan Asia Pacific and Deutsche Bank
‘‘Joint Lead Managers’’ in relation to the Hong Kong Public Offering, UBS, CICC, J.P.
Morgan Asia Pacific and Deutsche Bank being the joint lead
managers; in relation to the International Offering, UBS, CICC,
J.P. Morgan and Deutsche Bank being the joint lead managers
‘‘Joint Sponsors’’ UBSS HK, CICC, J.P. Morgan Securities (Far East) Limited and
Deutsche Bank, being the joint sponsors of the Global Offering
‘‘J.P. Morgan’’ J.P. Morgan Securities plc
‘‘J.P. Morgan Asia Pacific’’ J.P. Morgan Securities (Asia Pacific) Limited
‘‘Latest Practicable Date’’ 11 October 2012, being the latest practicable date for the purpose
of ascertaining certain information contained in this prospectus
prior to its publication
‘‘Listing’’ the listing of the Offer Shares on the Main Board of the Hong
Kong Stock Exchange
‘‘Listing Committee’’ the listing committee of the Hong Kong Stock Exchange
‘‘Listing Date’’ the date, expected to be on or around 30 October 2012, on which
our H Shares are listed on the Hong Kong Stock Exchange and
from which dealings in our H Shares are permitted to take place
on the Hong Kong Stock Exchange
‘‘Mandatory Provisions’’ the Mandatory Provisions for Articles of Association of
Companies to be Listed Overseas (到境外上市公司章程必��l
款), for inclusion in the articles of association of companies
incorporated in the PRC to be listed overseas, which were
promulgated by the PRC Securities Commission, the predecessor
of the CSRC, and the State Restructuring Commission on 27
August 1994, as amended and supplemented from time to time
‘‘Markets & Markets’’ a full service market research company and consulting firm,
which is an Independent Third Party
‘‘Master Agreements’’ the Master Leases and the Master Property Management Services
Agreements
�C 31 �C
DEFINITIONS
‘‘Master Lease A’’ the master lease entered into between Chindex (Beijing) and Forte
Investment and Management, as referred to in the section headed
‘‘Connected Transactions’’ in this prospectus
‘‘Master Lease B’’ the master lease entered into between Fosun Pharmaceutical
Industrial and Forte Investment and Management, as referred to in
the section headed ‘‘Connected Transactions’’ in this prospectus
‘‘Master Lease C’’ the master lease entered into between Yao Pharma and Forte
Investment and Management, as referred to in the section headed
‘‘Connected Transactions’’ in this prospectus
‘‘Master Lease D’’ the master lease entered into between Wanbang Pharma and Forte
Investment and Management, as referred to in the section headed
‘‘Connected Transactions’’ in this prospectus
‘‘Master Lease E’’ the master lease entered into between our Company and Shanghai
Fosun Property Management, as referred to in the section headed
‘‘Connected Transactions’’ in this prospectus
‘‘Master Lease F’’ the master lease entered into between Shanghai ClonBiotech and
Shanghai Fosun Property Management, as referred to in the
section headed ‘‘Connected Transactions’’ in this prospectus
‘‘Master Lease G’’ the master lease entered into between Shanghai ClonBiotech and
Forte, as referred to in the section headed ‘‘Connected
Transactions’’ in this prospectus
‘‘Master Lease H’’ the master lease entered into between Shanghai ClonBiotech and
Fosun High Tech, as referred to in the section headed ‘‘Connected
Transactions’’ in this prospectus
‘‘Master Leases’’ the Master Lease A, the Master Lease B, the Master Lease C, the
Master Lease D, the Master Lease E, the Master Lease F, the
Master Lease G and the Master Lease H
‘‘Master Property Management the master property management services agreement entered into
Services Agreement A’’ between our Company and Shanghai Furui, as referred to in the
section headed ‘‘Connected Transactions’’ in this prospectus
‘‘Master Property Management the master property management services agreement entered into
Services Agreement B’’ between Shanghai Furui and Shanghai ClonBiotech, as referred to
in the section headed ‘‘Connected Transactions’’ in this
prospectus
�C 32 �C
DEFINITIONS
‘‘Master Property Management the master property management services agreement entered into
Services Agreement C’’ between Shanghai ClonBiotech and Shanghai Golte, as referred to
in the section headed ‘‘Connected Transactions’’ in this
prospectus
‘‘Master Property Management the master property management services agreement entered into
Services Agreement D’’ between Chindex (Beijing) and Beijing Golte, as referred to in the
section headed ‘‘Connected Transactions’’ in this prospectus
‘‘Master Property Management the master property management services agreement entered into
Services Agreement E’’ between Fosun Pharmaceutical Industrial and Beijing Golte, as
referred to in the section headed ‘‘Connected Transactions’’ in
this prospectus
‘‘Master Property Management the master property management services agreement entered into
Services Agreement F’’ between Yao Pharma and Beijing Golte, as referred to in the
section headed ‘‘Connected Transactions’’ in this prospectus
‘‘Master Property Management the master property management services agreement entered into
Services Agreement G’’ between Wanbang Pharma and Beijing Golte, as referred to in the
section headed ‘‘Connected Transactions’’ in this prospectus
‘‘Master Property Management the Master Property Management Services Agreement A, the
Services Agreements’’ Master Property Management Services Agreement B, the Master
Property Management Services Agreement C, the Master Property
Management Services Agreement D, the Master Property
Management Services Agreement E, the Master Property
Management Services Agreement F and the Master Property
Management Services Agreement G
‘‘MOH’’ the Ministry of Health of the People’s Republic of China (中�A人
民共和���l生部)
‘‘Moluodan Pharma’’ Handan Moluodan Pharmaceutical Company Limited (邯�摩�_丹
��I股份有限公司), a company limited by shares established in
the PRC on 4 December 1998, and a 60.7% owned subsidiary of
Fosun Pharmaceutical Industrial
‘‘NDRC’’ the National Development and Reform Commission of the PRC
(中�A人民共和����家�l展和改革委�T��)
‘‘New Medicine Research’’ Shanghai Fosun New Medicine Research Company Limited (上海
�托切滤�研究有限公司), a limited liability company established
in the PRC on 12 September 2008, and a wholly-owned
subsidiary of Fosun Pharmaceutical Industrial
‘‘New Rural Co-Op Insurance’’ the New Rural Cooperative Medical Insurance Scheme (新型�r村
合作�t��保�U)
�C 33 �C
DEFINITIONS
‘‘NFS’’ SFDA South Medicine Economic Research Institute (SFDA 南方
�t����研究所)
‘‘NFS MENET’’ China Medical and Pharmaceutical Economic Information
Network, which operates the only authorized website of NFS
‘‘Offer Price’’ the final offer price per Offer Share (exclusive of brokerage of
1%, SFC transaction levy of 0.003% and Hong Kong Stock
Exchange trading fee of 0.005%) at which the Hong Kong Offer
Shares are to be subscribed under the Hong Kong Public Offering
to be determined as described in the section headed ‘‘Structure of
the Global Offering ― Determination of the Offer Price’’ in this
prospectus
‘‘Offer Shares’’ the Hong Kong Offer Shares and the International Offer Shares
‘‘Over-allotment Option’’ the option expected to be granted by our Company to the
International Purchasers exercisable by the Joint Global
Coordinators on behalf of the International Purchasers under the
International Purchase Agreement
‘‘PBOC’’ the People’s Bank of China, the central bank of the PRC
‘‘Pharmaceutical Investment’’ Shanghai Fosun Pharmaceutical Investment Company Limited
(上海�托轻t�投�Y有限公司), a limited liability company
established in the PRC on 1 September 2000, and a wholly-
owned subsidiary of our Company
‘‘Pharmaceutical Research Chongqing Pharmaceutical Research Institute Company Limited
Institute’’ (重�c�t�工�I研究院有限�任公司), a limited liability company
established in the PRC on 17 December 1991, and a 56.89%
owned subsidiary of Fosun Pharmaceutical Industrial
‘‘Phoenix Jiangshan’’ Fenghuang County Jiangshan Technology Development Company
Limited (�P凰�h江山科技�l展有限公司), a limited liability
company established in the PRC on 19 May 2004, and a 65%
owned subsidiary of Guilin Pharma
‘‘Pingyao Investment’’ Shanghai Fosun Pingyao Investment Management Company
Limited (上海�托瞧揭�投�Y管理有限公司), a limited liability
company established in the PRC on 21 March 2007, and a
wholly-owned subsidiary of our Company
‘‘PRC’’ or ‘‘China’’ the People’s Republic of China, and ‘‘Chinese’’ shall be construed
accordingly. References in this prospectus to the PRC or China,
for geographical reference only, exclude Hong Kong, the Macau
Special Administrative Region of the PRC and Taiwan
�C 34 �C
DEFINITIONS
‘‘PRC Company Law’’ the Company Law of the PRC 《中�A人民共和��公司法》), as
(
enacted by the Standing Committee of the Eighth National
People’s Congress on 29 December 1993 and effective on 1 July
1994, as amended, supplemented or otherwise modified from time
to time
‘‘PRC GAAP’’ generally accepted accounting principles in the PRC, including
the Accounting Standards for Business Enterprises
‘‘PRC government’’ or ‘‘Chinese central government of the PRC, including all governmental sub-
government’’ divisions (including provincial, municipal and other regional or
local government entities)
‘‘Price Determination Date’’ the date, expected to be on or around Tuesday, 23 October 2012
and, in any event, not later than Friday, 26 October 2012, on
which the Offer Price is to be fixed by agreement between our
Company (for ourselves) and the Joint Global Coordinators (on
behalf of the Underwriters) to determine the Offer Price
‘‘Promoters’’ or ‘‘Promoter’’ Fosun High Tech, Shanghai Guangxin Technology Development
Company Limited, Shanghai Yingfu Information Development
Company Limited, Shanghai Shenxin Industry (Group) Limited
Company and Shanghai Xidatang Science and Technology
Investment Company Limited; a Promoter means any one of the
Promoters
‘‘Property Valuation Report’’ the summary of valuation and valuation certificates prepared by
Jones Lang LaSalle Corporate Appraisal and Advisory Limited as
set out in ‘‘Appendix IV ― Property Valuation’’ to this
prospectus
‘‘QIBs’’ or ‘‘Qualified Institutional qualified institutional buyers as defined in Rule 144A
Buyers’’
‘‘Qidong Jinxiang’’ Tianjin Qidong Jinxiang Pharmacy Medicine Chain Co., Ltd.
(天津市��|金象大�房�t��B�i有限公司), a limited liability
company established in the PRC on 28 December 2001, and a
subsidiary of Golden Elephant Pharmacy
‘‘Qiguang Investment’’ Shanghai Qiguang Investment Management Company Limited
(上海�R�V投�Y管理有限公司), a limited liability company
established in the PRC on 24 April 2007, and a wholly-owned
subsidiary of Pingyao Investment
‘‘Regulation S’’ Regulation S under the US Securities Act
‘‘RMB’’ or ‘‘Renminbi’’ the lawful currency of the PRC
�C 35 �C
DEFINITIONS
‘‘Rule 144A’’ Rule 144A under the US Securities Act
‘‘SAFE’’ the State Administration of Foreign Exchange of the PRC (中�A
人民共和����家外�R管理局)
‘‘SAIC’’ the State Administration for Industry and Commerce of the PRC
(中�A人民共和����家工商行政管理�局)
‘‘Science & Technology Imp. & Shanghai Science & Technology Imp. & Exp. Company Limited
Exp.’’ (上海科技�M出口有限公司), a limited liability company
established in the PRC on 22 November 1994, and a wholly-
owned subsidiary of Pingyao Investment which was disposed of
in February 2012
‘‘SFC’’ the Securities and Futures Commission of Hong Kong
‘‘SFDA’’ the State Food and Drug Administration (中�A人民共和����家食
品�品�O督管理局), the PRC governmental authority responsible
for the regulation of food and drugs
‘‘SFO’’ the Securities and Futures Ordinance, Chapter 571 of the Laws of
Hong Kong, as amended, supplemented or otherwise modified
from time to time
‘‘Shanghai ClonBiotech’’ Shanghai ClonBiotech Company Limited (上海克隆生物高技�g
有限公司), a limited liability company established in the PRC on
5 December 1996, and a wholly-owned subsidiary of Fosun
Pharmaceutical Industrial
‘‘Shanghai Fosun Industrial Shanghai Fosun Industrial Investment Co., Limited (上海�托钱a
Investment’’ �I投�Y有限公司), a limited liability company established in the
PRC on 22 November 2001, and an indirect wholly-owned
subsidiary of Fosun International
‘‘Shanghai Fosun Property Shanghai Fosun Property Management Company Limited (上海��
Management’’ 星物�I管理有限公司), a limited liability company established in
the PRC on 20 October 2006, and a wholly-owned subsidiary of
Fosun High Tech
‘‘Shanghai Furui’’ Shanghai Furui Property Management Company Limited (上海��
瑞物�I管理有限公司), a limited liability company established in
the PRC on 7 October 1997, and a 49% owned subsidiary of
Golte Assets
‘‘Shanghai Golte’’ Shanghai Golte Property Management Company Limited (上海高
地物�I管理有限公司), a limited liability company established in
the PRC on 27 September 2006, and a 60% owned subsidiary of
Golte Assets
�C 36 �C
DEFINITIONS
‘‘Shanghai Henlius’’ Shanghai Henlius Biotech Company Limited (上海�秃�h霖生物
技�g有限公司), a limited liability company established in the
PRC on 24 February 2010, and a 74% owned subsidiary of New
Medicine Research
‘‘Shanghai Listing Rules’’ the Stock Listing Rules of the Shanghai Stock Exchange 《上海
(
�C券交易所股票上市��t》)
‘‘Shanghai Pharma’’ Shanghai Pharmaceuticals Holding Company Limited (上海�t�
集�F股份有限公司), a company listed on the Shanghai Stock
Exchange (stock code: 601607) and the Hong Kong Stock
Exchange (stock code: 2607)
‘‘Shanghai Stock Exchange’’ the Shanghai Stock Exchange (上海�C券交易所)
‘‘Shanghai Yuyuan’’ Shanghai Yuyuan Tourist Mart Company Limited (上海豫�@旅�[
商城股份有限公司), a company limited by shares established in
the PRC on 25 November 1987, and a company listed on the
Shanghai Stock Exchange (stock code: 600655)
‘‘Shanghai Yuyuan Group’’ Shanghai Yuyuan, together with its subsidiaries
‘‘Shareholders’’ holders of our Shares
‘‘Shares’’ ordinary shares in the capital of our Company with a nominal
value of RMB1.00 each, comprising A Shares and H Shares
‘‘Shenyang Hongqi Pharma’’ Shenyang Hongqi Pharmaceutical Company Limited (�c��t
旗�u�有限公司), a limited liability company established in
the PRC on 30 October 1998, and a 74% owned subsidiary
of Fosun Pharmaceutical Industrial
‘‘Shine Star’’ Shine Star (Hubei) Biological Engineering Company Limited (湖
北新生源生物工程股份有限公司), a company limited by shares
established in the PRC on 10 December 2001, and a 51% owned
subsidiary of Fosun Pharmaceutical Industrial
‘‘Sinopharm’’ Sinopharm Group Co. Ltd. (���控股股份有限公司), a company
limited by shares established in the PRC on 8 January 2003, the
shares of which are listed on the main board of the Hong Kong
Stock Exchange (stock code: 01099), and an associated company
of our Group
‘‘Sinopharm Investment’’ Sinopharm Industrial Investment Company Limited (����a�I投
�Y有限公司), a limited liability company established in the PRC
on 6 May 2008, the controlling shareholder of Sinopharm and an
associated company of our Group
�C 37 �C
DEFINITIONS
‘‘SIPO’’ the State Intellectual Property Office of the PRC (中�A人民共和
����家知�R�a�嗑�)
‘‘Special Regulations’’ the Special Regulations of the State Council on the Overseas
Offering and Listing of Shares by Joint Stock Limited Companies
issued by the State Council of the PRC on 4 August 1994, as
amended, supplemented or otherwise modified from time to time
‘‘Stabilizing Manager’’ CICC
‘‘State Council’’ the State Council of the PRC (中�A人民共和�����赵�)
‘‘substantial shareholder(s)’’ has the meaning given to it under the Hong Kong Listing Rules
‘‘Supervisors’’ the members of the Supervisory Committee
‘‘Supervisory Committee’’ the supervisory committee of our Company
‘‘Takeovers Code’’ the Codes on Takeovers and Mergers and Share Repurchases
‘‘Technology Innovation’’ Shanghai Technology Innovation Company Limited (上海��新科
技有限公司), a limited liability company established in the PRC
on 5 February 1993, and an indirect wholly-owned subsidiary of
CML
‘‘Tianjin Pharma’’ Tianjin Pharmaceuticals Group Company Limited (天津��I集�F
有限公司), a limited liability company established in the PRC on
9 July 1988, and an associated company of our Group
‘‘Track Record Period’’ the period comprising the three years ended 31 December 2009,
2010 and 2011 and the six months ended 30 June 2012
‘‘Trademark Office’’ Trademark Office of the SAIC
‘‘Transfusion Technology’’ Shanghai Transfusion Technology Company Limited (上海�血技
�g有限公司), a limited liability company established in the PRC
on 28 August 1992, and a wholly-owned subsidiary of
Technology Innovation
‘‘UBS’’ UBS AG, Hong Kong Branch
‘‘UBSS HK’’ UBS Securities Hong Kong Limited
‘‘Underwriters’’ the Hong Kong Underwriters and the International Purchasers
‘‘Underwriting Agreements’’ the Hong Kong Underwriting Agreement and the International
Purchase Agreement
�C 38 �C
DEFINITIONS
‘‘Urban Resident Program’’ the Urban Resident Basic Medical Insurance Program (城�居民
基本�t��保�U���)
‘‘Urban Worker Program’’ the Urban Worker Basic Medical Insurance Program (城��工基
本�t��保�U���)
‘‘U.S.’’ or ‘‘United States’’ United States of America, its territories and possessions, any
State of the United States and the District of Columbia
‘‘US dollars’’, ‘‘USD’’ or ‘‘US$’’ United States dollars, the lawful currency of the United States
‘‘US Securities Act’’ United States Securities Act of 1933, as amended from time to
time
‘‘Wanbang Business’’ Jiangsu Wanbang Pharmaceutical Marketing & Distribution
Company Limited (江�K�f邦�t��I�N有限公司), a limited
liability company established in the PRC on 1 August 2008, and
a wholly-owned subsidiary of Wanbang Pharma
‘‘Wanbang Fulin’’ Hebei Wanbang Fulin Pharmaceutical Company Limited (河北�f
邦�团R��I有限公司), a limited liability company established in
the PRC on 24 April 2004, and an 85% owned subsidiary of
Wanbang Pharma
‘‘Wanbang Jinqiao’’ Xuzhou Wanbang Jinqiao Pharmaceutical Company Limited (徐
州�f邦金�蜓u�有限公司), a limited liability company
established in the PRC on 27 September 2006, and a 58.0%
owned subsidiary of Wanbang Pharma
‘‘Wanbang Pharma’’ Jiangsu Wanbang Biopharmaceutical Company Limited (江�K�f
邦生化�t�股份有限公司), a company limited by shares
established in the PRC on 30 December 1998, and a 97.8%
owned subsidiary of Fosun Pharmaceutical Industrial
‘‘WHO’’ the World Health Organization (世界�l生�M�)
‘‘Yaneng Bioscience’’ Yaneng Bioscience (Shenzhen) Company Limited (��能生物技
�g(深圳)有限公司), a limited liability company established in the
PRC on 18 July 2001, and a 51% owned subsidiary of Fosun
Long March
‘‘Yao Pharma’’ Chongqing Yao Pharmaceutical Company Limited (重�c�友�u�
有限�任公司), a limited liability company established in the
PRC on 21 July 1997, and a 51% owned subsidiary of Fosun
Pharmaceutical Industrial
�C 39 �C
DEFINITIONS
‘‘Yicheng Management’’ Shanghai Yicheng Hospital Investment Management Company
Limited (上海�t�\�t院投�Y管理有限公司), a limited liability
company established in the PRC on 28 December 2010, and a
wholly-owned subsidiary of our Company
‘‘Zhejiang Fosun’’ Zhejiang Fosun Pharmaceutical Co., Ltd. (浙江�托轻t�有限公
司), a limited liability company established in the PRC on 14
August 1978, and a 68.6% owned subsidiary of Pharmaceutical
Investment, which was sold to Sinopharm in September 2011
In this prospectus, if there is any inconsistency between the Chinese names of the entities, authorities,
organisations, institutions or enterprises established in China or the awards or certificates given in
China and their English translations, the Chinese version shall prevail.
�C 40 �C
GLOSSARY OF TECHNICAL TERMS
This glossary contains definitions of certain terms used in this prospectus in connection with our
business. Some of these terms may not correspond to standard industry definitions.
‘‘acid-reflux disorder’’ a chronic symptom of mucosal damage caused by stomach acid
coming up from the stomach into the esophagus
‘‘active ingredient(s)’’ or the biologically active substance in a pharmaceutical product,
‘‘active pharmaceutical responsible for the therapeutic effect of a drug
ingredient(s)’’ or ‘‘API(s)’’
‘‘adjuvant’’ a pharmacological or immunological agent that helps and
enhances the pharmacological effect of a drug or increases the
ability of an antigen to stimulate the immune system
‘‘agkistrodon’’ a genus of venomous pit vipers commonly known as moccasins,
copperheads and cantils
‘‘alimentary tract’’ the tubular passage extending from the mouth to the anus,
through which food is passed and digested
‘‘anemia’’ a decrease in number of red blood cells or less than the normal
quantity of hemoglobin in the blood
‘‘angina’’ a disease which repeatedly causes sudden strong pains in the
chest because blood containing oxygen is prevented from
reaching the heart muscle by blocked arteries
‘‘angiotensin II antagonist’’ a group of pharmaceuticals which modulate the renin-angiotensin-
aldosterone system. Their main uses are in the treatment of
hypertension (high blood pressure), diabetic nephropathy (kidney
damage due to diabetes) and congestive heart failure
‘‘anorexia’’ an eating disorder often resulting in dangerous weight loss, in
which a person does not eat, or eats too little, because of fear of
gaining weight
‘‘anti-infective’’ chemicals produced by living organisms synthesized or created in
laboratories for the purpose of killing other disease-causing
organisms
‘‘anti-metabolite’’ a chemical that inhibits the use of a metabolite, a chemical that is
part of normal metabolism. Such substances are often similar in
structure to the metabolite that they interfere with
�C 41 �C
GLOSSARY OF TECHNICAL TERMS
‘‘antibiotics’’ a chemical substance produced by a microorganism which has the
capacity, in dilute solutions, to inhibit the growth of or to kill
other microorganisms
‘‘antimicrobial’’ substance that kills or inhibits the growth of microorganisms such
as bacteria, fungi, or protozoans. Antimicrobial drugs either kill
microbes (microbiocidal) or prevent the growth of microbes
‘‘antithrombotic’’ preventing or interfering with the formation of a thrombus or
blood clotting
‘‘arrhythmia’’ variation from the normal rhythm of the heartbeat, encompassing
abnormalities of rate, regularity, site of impulse origin, and
sequence of activation
‘‘atherosclerotic plaque’’ deposit of fat and other substances that accumulate in the lining
of the artery wall causing the condition in which an artery wall
thickens
‘‘atrophic gastritis’’ chronic gastritis with infiltration of the lamina propria, involving
the entire mucosal thickness, by inflammatory cells
‘‘bactericidal antibiotic’’ a chemical substance produced by a microorganism that has the
capacity, in dilute solutions, to kill or inhibit the growth of
bacterias
‘‘batroxobin’’ a serine protease derived from the venom of Bothrops atrox
snakes
‘‘benign prostatic hyperplasia’’ the increase in size of the prostate in middle-aged and elderly
men due to the formation of large, fairly discrete nodules in the
periurethral region of the prostate
‘‘blood transfusion’’ the process of receiving blood products into one’s circulation
intravenously. Transfusions are used in a variety of medical
conditions to replace lost components of the blood, such as red
blood cells, white blood cells, plasma, clotting factors and
platelets
‘‘blood viscosity’’ a measure of the resistance of blood to flow, which is being
deformed by either shear or extensional strain
‘‘branded generic drugs’’ generic drugs which are sold under a specific brand name rather
than the generic molecule name
�C 42 �C
GLOSSARY OF TECHNICAL TERMS
‘‘capsules’’ a formulation in which medicines may be delivered for oral
ingestion, produced by mixing extracted active pharmaceutical
ingredients with supplemental materials which are sealed in a
gelatin capsule
‘‘cardiomyopathy’’ deterioration of the function of heart muscle leading to arrhythmia
and heart failure
‘‘cardiovascular disease’’ any abnormal condition characterized by dysfunction of the heart
and blood vessels
‘‘cardiovascular system’’ the network of anatomic structures, including the heart and blood
vessels, that circulate blood throughout the body. The system
includes thousands of kilometers of vessels that deliver nutrients
and other essential materials to the fluids surrounding the cells
and that remove waste products and convey them to excretory
organs
‘‘cefmetazole’’ a second generation cephalosporin antibiotic
‘‘central nervous system’’ part of the nervous system consisting of the brain and spinal cord.
The brain is the center of higher processes, such as thought and
emotion and is responsible for the coordination and control of
bodily activities and the interpretation of information from the
senses. The spinal cord links the brain to the peripheral nervous
system
‘‘cerebral ischemia’’ a condition in which there is insufficient blood flow to the brain
to meet metabolic demand due to functional constriction or actual
obstruction of a blood vessel
‘‘cerebral vasospasm’’ a sudden constriction of a blood vessel that reduces the blood
flow to the brain that may arise in the context of subarachnoid
hemorrhage
‘‘cerebrovascular disease’’ a group of brain dysfunctions related to disease of the blood
vessels supplying the brain
‘‘chemotherapy’’ the treatment of cancer with anticancer drugs with the main
purpose of killing off cancer cells
�C 43 �C
GLOSSARY OF TECHNICAL TERMS
‘‘Chinese medicines’’ medicines whose clinical function and application are expressed
in terms of Chinese medicine theories originated from traditional
medical practices in China and which are applied in accordance
with Chinese medicine theories
‘‘class-one hospitals’’ local hospitals with relatively limited capacity designated as
class-one hospitals by the MOH hospital classification system that
provide one community with elementary medical services
‘‘class-three hospitals’’ highest ranked regional hospitals in China designated as class-
three hospitals by the MOH hospital classification system that
provide multiple regions with high-quality professional medical
services and undertake higher education and scientific research
initiatives
‘‘class-two hospitals’’ regional hospitals designated as class-two hospitals by the MOH
hospital classification system that provide multiple communities
with integrated medical services and engage in certain educational
and scientific research missions
‘‘controlled-release tablets’’ a drug that is designed to deliver a dose of a medication over an
extended period. The most common device for this purpose is a
soft, soluble capsule containing minute pellets of the drug for
release at different rates in the digestive tract
‘‘coronary heart disease’’ a group of acute or chronic cardiac disabilities resulting from
insufficient supply of oxygenated blood to the heart
‘‘coronary vessels’’ the coronary arteries and coronary veins that supply the muscles
of the heart
‘‘cytoplasm’’ a small gel-like substance residing between the cell membrane
holding all the cell’s internal sub-structures, except for the
nucleus
‘‘deep vein thrombosis’’ the formation of a blood clot in a deep vein which normally
affects the large veins in the lower leg and thigh. The clot can
block blood flow and cause swelling and pain
‘‘deproteinized’’ the process of removing protein from a substance or mixture
‘‘diabetes’’ the metabolic disorders disease that is acquired due to absolute or
comparative insufficiency of insulin or excessive glucagon of
antagonistic insulin
�C 44 �C
GLOSSARY OF TECHNICAL TERMS
‘‘dihydrofolate reductase’’ a substance that helps regenerate folic acid into its reduced form
tetrahydrofolate, which is necessary for the survival of bacteria,
Plasmodia and normal and cancerous human cells. Inhibitors of
dihydrofolate reductase have antibiotic, antimalarial and
antineoplastic properties
‘‘emulsion’’ a mixture of two or more liquids that are normally immiscible
(un-blendable), one being dispersed throughout the other in small
droplets
‘‘erectile dysfunction’’ the inability to achieve or maintain an erection long enough to
engage in sexual intercourse
‘‘eructation’’ liberation of gas in the upper gastrointestinal tract via the
oesophagus
‘‘erythropoietin’’ a hormone produced by the kidney that promotes the formation of
red blood cells by bone marrow
‘‘esomeprazole’’ a proton pump inhibitor used in the treatment of dyspepsia, peptic
ulcer disease, gastroesophageal reflux disease and Zollinger-
Ellison syndrome
‘‘ethambutol hydrochloride’’ a tuberculostatic antibiotic generally prescribed in the treatment
of pulmonary tuberculosis in combination with other drugs
‘‘felodipine’’ a calcium channel blocker used as a vasodilator in the treatment
of hypertension
‘‘first-to-market generic drug’’ the first generic drug that receives approval to be launched,
following the expiry of the patent of an innovative drug
‘‘flatulence’’ the presence of an excessive amount of air or gas in the stomach
and intestinal tract, causing distension of the organs and in some
cases mild to moderate pain
‘‘free radical’’ an unstable molecule that causes oxidative damage by stealing
electrons from surrounding molecules, thereby disrupting activity
in the body’s cells
‘‘gastralgia’’ pain in the stomach or abdomen
‘‘gastritis’’ inflammation of the lining of the stomach causing a variety of
symptoms including burning or discomfort feeling
‘‘gastrointestinal’’ the digestive organs and structures, including the stomach and
intestines
�C 45 �C
GLOSSARY OF TECHNICAL TERMS
‘‘generic drugs’’ drugs which use the same active ingredients as the original
products and are generally available in the same strengths and
dosage forms as the original
‘‘glipizide’’ an oral antidiabetic drug prescribed as an adjunct to diet and
exercise to lower blood glucose levels of patients with type 2
diabetes mellitus
‘‘glycinamide ribonucleotide a drug that blocks DNA synthesis and may prevent tumor growth
formyltransferase’’
‘‘glycoge’’ a macromolecule composed mainly of glucose which serves as the
storage form of glucose that is not immediately needed by the
body
‘‘glycoprotein’’ one of a group of conjugated proteins formed by a protein and a
carbohydrate, the most important being the mucins (as found in
the lens capsule and vitreous humour) and mucoids (as found in
bones, cartilage and tendons)
‘‘GMP’’ or ‘‘Good Manufacturing guidelines and regulations issued from time to time pursuant to
Practices’’ the Law of the People’s Republic of China on the Administration
of Pharmaceuticals 《中�A人民共和���品管理法》) and to
(
provide quality assurance and ensure that pharmaceutical
products subject to the guidelines and regulations are consistently
produced and controlled to the quality and standards appropriate
for their intended uses
‘‘gout’’ a form of acute arthritis that causes severe pain and swelling in
the joints. It most commonly affects the big toe, but may also
affect the heel, ankle, hand, wrist, or elbow. It affects the spine
and often causes back pain
‘‘granules’’ a form in which medicines may be delivered for oral ingestion,
produced by mixing extracted active pharmaceutical ingredients
with supplemental materials or powdered medicines and formed
into dry granules
‘‘GSP’’ or ‘‘Good Supply guidelines and regulations issued from time to time pursuant to
Practices’’ the Law of the People’s Republic of China on the Administration
of Pharmaceuticals 《中�A人民共和���品管理法》) to provide
(
quality assurance and ensure that pharmaceutical distribution
enterprises distribute pharmaceutical products in compliance with
the guidelines and regulations
‘‘hematopoietic’’ the formation of blood or blood cells in the body
�C 46 �C
GLOSSARY OF TECHNICAL TERMS
‘‘heparin’’ a highly sulfated glycosaminoglycan, which is widely used as an
injectable anticoagulant and has the highest negative charge
density of any known biological molecule
‘‘hyperammonemia’’ a metabolic disturbance marked by elevated levels of ammonia in
the blood
‘‘hypercholesterolemia’’ a metabolic derangement causing the presence of high levels of
cholesterol in the blood
‘‘hyperplasia’’ abnormal increase in the number of normal cells in an organ or
tissue, which increases its volume
‘‘hypertension’’ a cardiac chronic medical condition in which the systemic arterial
blood pressure is elevated
‘‘hyperuricemia’’ excessively high levels of uric acid in the blood, often leading to
gout
‘‘hypoxanthine’’ an intermediate product of uric acid synthesis, formed during uric
acid synthesis
‘‘immune system’’ a system of biological structures and processes within an
organism that protects against disease. In order to function
properly, an immune system must detect a wide variety of agents,
from viruses to parasitic worms, and distinguish them from the
organism’s own healthy tissue
‘‘influenza’’ highly infectious respiratory disease. The disease is caused by
certain strains of the influenza virus. When the virus is inhaled, it
attacks cells in the upper respiratory tract, causing typical flu
symptoms such as fatigue, fever and chills, a hacking cough, and
body aches
‘‘innovative drugs’’ new chemical or biochemical drugs that are different from
existing drugs or therapies to treat diseases
‘‘in-vitro diagnostic products’’ diagnostic products used outside the human body
‘‘in-vivo diagnostic products’’ diagnostic products used inside the human body
‘‘iron-deficiency anemia’’ a form characterized by low or absent iron stores, low serum iron
concentration, low transferrin saturation, elevated transferrin
(iron-binding capacity), low hemoglobin concentration or
hematocrit, and hypochromic, microcytic red blood corpuscles,
and thrombocytosis
�C 47 �C
GLOSSARY OF TECHNICAL TERMS
‘‘ischemic’’ an inadequate supply of blood to a part of the body, caused by
partial or total blockage of an artery
‘‘ISO9001’’ ISO9001:2000 specifies requirements for a quality management
system where an organization: (1) needs to demonstrate its ability
to consistently provide products that meet applicable customer
and regulatory requirements; or (2) aims to enhance customer
satisfaction through the effective application of the system,
including processes for continual improvement of the system and
the assurance of conformity to applicable customer and regulatory
requirements
‘‘isoniazid’’ a tuberculostatic antibacterial prescribed for prophylaxis for those
who have been exposed to tuberculosis and used in combination
with other agents in the treatment of tuberculosis caused by
mycobacteria sensitive to the drug
‘‘leukemia’’ also known as blood cancer; it is a progressive, malignant disease
of the blood-forming organs, marked by distorted proliferation
and development of leukocytes and their precursors in the blood
and bone marrow
‘‘lipid’’ a broad group of naturally occurring molecules that include fats,
waxes, sterols, fat-soluble vitamins (such as vitamins A, D, E, and
K), monoglycerides, diglycerides, triglycerides, phospholipids, and
others
‘‘lyophilized’’ a process for preserving substances such as blood or serum by
freeze-drying in a high vacuum
‘‘malaria’’ a serious infectious disease spread by certain mosquitoes. It is
most common in tropical climates. It is characterized by recurrent
symptoms of chills, fever and an enlarged spleen
‘‘meningitis’’ a serious inflammation of the meninges, the thin, membranous
covering of the brain and the spinal cord. Meningitis is most
commonly caused by infection by bacteria, viruses or fungi
‘‘mesothelioma’’ an uncommon disease that causes malignant cancer cells to form
within the lining of the chest, abdomen, or around the heart. Its
primary cause is believed to be exposure to asbestos
‘‘microbe’’ a microscopic living organism, such as a bacterium, fungus,
protozoan or virus
�C 48 �C
GLOSSARY OF TECHNICAL TERMS
‘‘modern Chinese medicines’’ a modernization of traditional Chinese medicines, employing
modern technology to, inter alia, analyze the effectiveness of the
medicinal qualities of plants and other natural substance extracts
and improve the classification and selection/prescription of
formulae based on traditional Chinese medicines
‘‘monitoring period’’ a period of no more than five years imposed by the SFDA after a
medicine is approved by it as a new drug. During this period, the
SFDA monitors the safety of the new drug, and does not accept
new drug certificate registrations for an identical medicine or
approve the production or import of an identical medicine by any
other pharmaceutical company
‘‘monoclonal antibody’’ a class of highly specific antibodies produced by the clones of a
single hybrid cell formed in the laboratory by the fusion of a B
cell with a tumor cell and widely used in medical and biological
research
‘‘myocardial infarction’’ commonly known as a heart attack, a myocardial infarction is an
episode in which some of the heart’s blood supply is severely cut
off or restricted, causing the heart muscle to suffer and die from
lack of oxygen
‘‘myocardial ischemia’’ an imbalance between oxygen supply and demand in the heart
‘‘myocarditis’’ an inflammatory condition of the myocardium due to fungal,
viral, or bacterial infection. It can also be related to a collagen
disease, serum sickness, chemical agent or rheumatic fever
‘‘National List of Essential Drugs’’ a list of drugs promulgated by MOH to promote essential
medicines to be sold to consumers at fair prices and to ensure
equal access to basic drugs by the general public
‘‘National Medical Insurance Drugs a catalog of the list of pharmaceutical products under the National
Catalog’’ Basic Medical Insurance, Work-Related Injury Insurance and
Maternity Insurance of the PRC 《��家基本�t��保�U、工��保�U
(
和生育保�U�品目�》) as determined by the PRC central
government authorities for general application throughout the
PRC, as amended, supplemented or otherwise modified from time
to time
‘‘nifedipine’’ a coronary vasodilator and calcium-channel blocking agent that
reduces calcium ions available to heart and smooth muscle, used
in the treatment of angina pectoris
�C 49 �C
GLOSSARY OF TECHNICAL TERMS
‘‘non-Hodgkin’s lymphoma’’ cancer that originates in the lymphatic system and typically
spreads throughout the body
‘‘non-small-cell-lung-cancer’’ the most common type of lung cancer. It usually grows and
spreads more slowly than small cell lung cancer
‘‘oncology’’ a substance that inhibits or prevents the development of
neoplasms and combats the maturation and proliferation of
malignant cancer cells
‘‘over-the-counter medicines’’ pharmaceutical products which may, upon receiving SFDA
approval, be sold over the counter in pharmacies or other retail
outlets without requiring a prescription by a medical practitioner
‘‘PCR’’ polymerase chain reaction
‘‘peptic ulcer disease’’ a stomach disorder marked by corrosion of the stomach lining due
to the acid in the digestive juices
‘‘peptides’’ short polymers of amino acid monomers linked by peptide bonds.
They are distinguished from proteins on the basis of size,
typically containing less than 50 monomer units. The shortest
peptides are dipeptides, consisting of two amino acids joined by a
single peptide bond. There are also tripeptides, tetrapeptides, etc
‘‘platelet’’ an irregularly shaped cell-like particle in the blood that is an
important part of blood clotting. Platelets are activated when an
injury causes a blood vessel to break. They change shape from
round to spiny, ‘‘sticking’’ to the broken vessel wall and to each
other to begin the clotting process
‘‘pneumonia’’ an acute or chronic disease marked by inflammation of the lungs
and caused by viruses, bacteria, or other microorganisms and
sometimes by physical and chemical irritants
‘‘prescription medicines’’ medicines which may only be prescribed by qualified medical
practitioners
‘‘prophylaxis’’ the prevention of or protection against disease, often involving
the use of a biologic, chemical, or mechanical agent to destroy or
prevent the entry of infectious organisms
‘‘protamine zinc insulin injection’’ a type of insulin combined with zinc and protamine to slow the
release of the insulin into bodily tissue
�C 50 �C
GLOSSARY OF TECHNICAL TERMS
‘‘Provincial Medical Insurance the basic medical insurance, work injury insurance and maternity
Drugs Catalog’’ insurance drugs catalog, issued by the local agency of human
resources and social security of a province, municipality or
autonomous region
‘‘pyrazinamide’’ an antimycobacteria generally prescribed in combination
chemotherapy in the treatment of tuberculosis of hospitalized
patients who fail to respond to other medications
‘‘pyrosis’’ a burning feeling in the stomach and esophagus, sometimes
accompanied by the belching of acid fluid; also commonly known
as heartburn
‘‘recombinant’’ a material produced by genetic engineering
‘‘retinopathy’’ a form of non-inflammatory damage to the retina of the eye
‘‘rifampicin’’ a derivative of rifamycin; an antibacterial and antifungal agent
used in the treatment of mycobacterial infections, actinomycosis
and histoplasmosis
‘‘schizophrenia’’ a psychotic disorder (or a group of disorders) marked by severely
impaired thinking, emotions and behaviors
‘‘sick sinus syndrome’’ a group of abnormal heart rhythms (arrhythmias) presumably
caused by a malfunction of the sinus node, the heart’s primary
pacemaker
‘‘State Protected Chinese medicines listed under the Catalog of National Protected Chinese
Medicine’’ Medicines 《��家中�保�o品�N目�》), as amended from time to
(
time by the SFDA
‘‘subarachnoid hemorrhage’’ bleeding into the subarachnoid space, which is the area between
the arachnoid membrane and the pia mater surrounding the brain
‘‘sustained release tablets’’ tables that are designed to release a drug at a predetermined rate
by maintaining a constant drug level for a specific period of time
with minimum side effects
‘‘tablets’’ a formulation in which medicines may be delivered for oral
ingestion, produced by mixing extracted active medicinal
ingredients with supplemental materials or powdered medicines
�C 51 �C
GLOSSARY OF TECHNICAL TERMS
‘‘thromboxane’’ a vasoconstrictor and a potent hypertensive agent, and it
facilitates platelet aggregation
‘‘thrombus’’ a blood clot that is located within a blood vessel in the body or
within the heart
‘‘thymidylate synthase’’ a protein that is found in all organisms that have DNA. It is
involved in generating thymidine, one of the nucleic acids used in
the biosynthesis and repair of DNA
‘‘tuberculosis’’ a common, and in many cases lethal, infectious disease caused by
various strains of mycobacteria, usually Mycobacterium
tuberculosis. Tuberculosis usually attacks the lungs but can also
affect other parts of the body. It is spread through the air when
people who have an active infection cough, sneeze, or otherwise
transmit their saliva through the air
‘‘TUV’’ certain German organizations that work to validate the safety of
products of all kinds to protect humans and the environment
against hazards
‘‘vaccines’’ a biological preparation that improves immunity to a particular
disease. A vaccine typically contains an agent that resembles a
disease-causing microorganism, and is often made from weakened
or killed forms of the microbe or its toxins. The agent stimulates
the body’s immune system to recognize the agent as foreign,
destroy it, and ‘‘remember’’ it, so that the immune system can
more easily recognize and destroy any of these microorganisms
that it later encounters
‘‘venlafaxine’’ an antidepressant of the serotonin-norepinephrine reuptake
inhibitor class. It is licensed for the treatment of major depressive
disorder, as a treatment for generalized anxiety disorder, and
comorbid indications in certain anxiety disorders with depression
‘‘viral upper respiratory infection’’ a viral infection of the upper respiratory system, including the
nose, throat, sinuses, eustachian tubes, trachea, larynx and
bronchial tubes
‘‘western drug/medicine’’ the type of drug/medical treatment that is standard in Europe and
North America, as opposed to alternative medicine, such as
traditional Chinese medicine
‘‘xanthine’’ A yellowish-white, crystalline purine base that is a precursor of
uric acid and is found in blood, urine, muscle tissue, and certain
plants. Generally used medicinally to treat asthma and other
respiratory conditions
�C 52 �C
FORWARD-LOOKING STATEMENTS
In this prospectus, statements of or references to our intentions or that of any of our Directors are made
as at the date of this prospectus. Any such intentions may change in light of future developments.
This prospectus contains forward-looking statements that state our intentions, beliefs, expectations or
predictions for the future that are, by their nature, subject to significant known or unknown risks,
uncertainties and other factors, some of which are beyond our control, which may cause our actual
results, performance or achievements, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking statements. These
forward-looking statements include, without limitation, statements relating to:
. our operations and business prospects;
. future developments, trends and conditions in the pharmaceutical manufacturing, pharmaceutical
distribution and retail, healthcare services, and diagnostic products and medical devices industries
in China and other countries where we operate or sell our products;
. countries into which we intend to develop our operations;
. our strategies, plans, objectives and goals;
. the regulatory environment and industry outlook in general for the industries discussed herein;
. general political and economic conditions in China;
. our dividend policy;
. projects under development;
. our future capital needs and capital expenditure plans;
. the amount and nature of, and potential for, future development of our business;
. capital markets developments;
. the competitive markets for our products and the actions and developments of our competitors;
. volumes, operations, margins, overall market trends, risk management and exchange rates;
. exchange rate fluctuations and developing legal system, in each case pertaining to the PRC and the
industries and markets in which we operate;
. financial condition and performance;
. regulations and restrictions, including tariffs and environmental regulations;
. macroeconomic measures taken by the PRC to manage economic growth;
. other statements in this prospectus that are not historical fact; and
. other factors beyond our control.
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FORWARD-LOOKING STATEMENTS
The words ‘‘aim,’’ ‘‘anticipate,’’ ‘‘believe,’’ ‘‘could,’’ ‘‘continue,’’ ‘‘expect,’’ ‘‘going forward,’’ ‘‘intend,’’
‘‘may,’’ ‘‘plan,’’ ‘‘predict,’’ ‘‘potential,’’ ‘‘seek,’’ ‘‘will,’’ ‘‘would’’ and similar expressions, as they relate
to us, are intended to identify a number of these forward-looking statements. Such statements reflect the
current views of our management with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in this prospectus. Should one or
more of these risks or uncertainties materialize, or should the underlying assumptions prove to be
incorrect, our results of operations and financial condition may be adversely affected and may vary
materially from those described herein as anticipated, believed or expected. Accordingly, such
statements are not a guarantee of future performance and you should not place undue reliance on such
forward-looking information. Moreover, the inclusion of forward-looking statements should not be
regarded as representations by us that our plans and objectives will be achieved or realized. We
undertake no obligation to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur. All forward-looking statements
contained in this prospectus are qualified by reference to the cautionary statements set out in this
section.
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RISK FACTORS
You should carefully consider all of the information in this prospectus including the risks and
uncertainties described below before making an investment in our H Shares. Our operations
involve certain risks, many of which are beyond our control. You should pay particular
attention to the fact that we are a PRC company, our business is mainly located in China and
we are governed by a legal and regulatory environment that may differ from that which
prevails in other countries and jurisdictions. Our business, financial condition or results of
operations could be materially and adversely affected by any of these risks. The trading price of
our H Shares could decline due to any of these risks, and you may lose all or part of your
investment.
There are certain risks involved in our operations and many of these risks are beyond our control. These
risks can be characterized as: (i) risks relating to our businesses and industries; (ii) risks relating to the
People’s Republic of China; and (iii) risks relating to the Global Offering. Additional risks and
uncertainties not presently known to us, or not expressed or implied below, or that we deem immaterial,
could also harm our business, financial condition and results of operations.
RISKS RELATING TO OUR BUSINESSES AND INDUSTRIES
Each of our business segments, including a substantial proportion of the pharmaceutical products
manufactured and distributed by us, is subject to government price controls or other price
restrictions in the PRC.
A substantial portion of pharmaceutical products manufactured by us are included in the National
Medical Insurance Drugs Catalog and the Provincial Medical Insurance Drugs Catalogs, and the
maximum retail prices of such products are subject to government price controls in the form of fixed
retail prices or retail price ceilings. See the section headed ‘‘Regulatory Overview ― Price Controls’’
from page 129 to page 132 in this prospectus for additional information. As at 30 June 2012, of the 625
pharmaceutical products that we currently manufacture, 477 are included in the National Medical
Insurance Drugs Catalog, including all of our 19 major prescription drugs, and an additional 122 of
them are included in the Provincial Medical Insurance Drugs Catalogs. In addition, the fixed or
maximum retail prices of such products that are included in the National and Provincial Medical
Insurance Drugs Catalogs are subject to periodic downward adjustments as the PRC government
authorities aim to make pharmaceutical products more affordable to the general public. Consequently,
the hospital purchase prices and our selling prices to distributors of such pharmaceutical products are
directly or indirectly affected by the retail price controls.
For the years ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012, sales of
our pharmaceutical products subject to price controls under the National and Provincial Medical
Insurance Drugs Catalogs accounted for 38.8%, 42.4%, 42.3% and 48.2%, respectively, of our total
revenue. In March 2011, the NDRC lowered the maximum retail prices of certain antibiotics and
circulatory system pharmaceutical products, affecting 11 of our products, including three major products,
Xin Xian An, Bang Tan and Xi Chang. Revenue from the sales of the three major products collectively
accounted for 2.6%, 6.5%, 5.0% and 5.2% of our total revenue for the years ended 31 December 2009,
2010 and 2011 and the six months ended 30 June 2012, respectively. In August 2011, the NDRC
lowered the maximum retail prices of certain pharmaceutical products, affecting five of our products,
including one major product, Wan Su Ping, which collectively accounted for 2.4%, 2.3%, 2.1% and
1.9% of our total revenue for the years ended 31 December 2009, 2010 and 2011 and the six months
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ended 30 June 2012, respectively. In March 2012, the NDRC lowered the maximum retail prices of
certain pharmaceutical products, affecting one of our major products, Atomolan, which accounted for
7.8%, 8.7%, 7.5% and 7.9% of our total revenue for the years ended 31 December 2009, 2010 and 2011
and the six months ended 30 June 2012, respectively. In September 2012, the NDRC again lowered the
maximum retail prices of certain pharmaceutical products, affecting ten of our products, including three
major products, Bang Ting, Su Ke Nuo and Yi Bao. Revenue from the sales of the three major products
collectively accounted for 2.1%, 3.3%, 3.7% and 5.7% of our total revenue for the years ended 31
December 2009, 2010 and 2011 and the six months ended 30 June 2012, respectively.
During the Track Record Period, for most of our products affected by the aforesaid NDRC price
adjustments, the revised maximum retail prices and the implied maximum hospital purchase prices were
still higher than our actual successful bid prices during the statutory tender process at that time.
Consequently the adjustments had limited impact on our revenue and the gross profit margin of the
products affected by such controlled price changes. Although there is no control over the prices at which
pharmaceutical manufacturers in the PRC must sell their products to distributors or hospitals, should the
PRC government significantly reduce the fixed retail prices or the retail price ceilings applicable to our
products and hospitals and our distributors are not able to entirely absorb such downward pricing
pressures, we may have to reduce the prices at which we sell these products. In such an event, our
revenue and profitability may be materially reduced. Moreover, although we have not discontinued the
manufacturing of any pharmaceutical product due to its fixed or maximum retail price set by the
government preventing us from gaining an appropriate margin, we cannot assure you that it will not
occur in the future.
Other than pharmaceutical products, the PRC government maintains a high level of involvement in the
determination of prices of diagnostic products and medical devices, and public hospital and healthcare
institutions in China are required to purchase high value medical equipment and other supplies at prices
through a periodic tender process. The diagnostic products and medical devices that we currently
manufacture are mainly diagnostic reagents and equipment, blood transfusion equipment and surgical
consumables, which are not included in the National and Provincial Insurance Drugs Catalogs and
therefore are not currently subject to price controls. Nevertheless, if we ever produce other diagnostic
products and medical devices that may be subject to price controls, such price controls could affect our
revenue and gross profit margin of the affected diagnostic products and medical devices.
In November 2009, NDRC, MOH and the Ministry of Human Resources and Social Welfare of the PRC
jointly issued the Notice of Opinion on Reform of Pricing System of Pharmaceuticals and Medical
Services 《改革�品和�t��服��r格形成�C制的意�》), pursuant to which NDRC indicated that it
(
would strengthen its intervention in the pricing of pharmaceutical products and medical devices, improve
the monitoring system of pharmaceutical products and announce market price information on
pharmaceutical products. As a result, our ability in setting prices for products in our pharmaceutical
manufacturing segment, pharmaceutical distribution and retail segment, diagnostic products and medical
devices segment is significantly limited. If there are additional price controls or government-mandated
price regulations with respect to any of the existing or future products we manufacture or distribute, or
the PRC government takes actions to further tighten the tender requirements, our business, financial
condition and results of operations could be materially and adversely affected.
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Our pharmaceutical products may be removed or excluded from the National Medical Insurance
Drugs Catalog or the Provincial Medical Insurance Drugs Catalogs.
In the PRC, eligible participants in the governmental basic medical insurance program who purchase
drugs listed in the National Medical Insurance Drugs Catalog and/or the Provincial Medical Insurance
Drugs Catalogs are entitled to reimbursement from the social medical insurance fund. As a result, it is
critical for a pharmaceutical producer in China to have its products included in the National Medical
Insurance Drugs Catalog and/or the Provincial Medical Insurance Drugs Catalogs. This reimbursement is
up to the entire cost of medicines that are included in such catalogs, and for this reason, hospitals in
China frequently order medicines included in the catalogs for their patients. The PRC central and
provincial governmental authorities select medicines for the catalogs based on a variety of factors
including treatment requirements, frequency of use, effectiveness and price, and they may also from time
to time review the catalogs and adjust medicines included the National Medical Insurance Drugs Catalog
and the Provincial Medical Insurance Drugs Catalogs. See the section headed ‘‘Regulatory Overview ―
Reimbursement under the National Medical Insurance Program’’ from page 132 to page 134 in this
prospectus for additional information. As at 30 June 2012, of the 625 pharmaceutical products that we
currently manufacture, 477 were included in the National Medical Insurance Drugs Catalog, including
all of our 19 major prescription drugs. We also have an additional 122 products included in the
Provincial Medical Insurance Drugs Catalogs. If any of our existing major pharmaceutical products are
removed from any of the catalogs or new major products we launch in the future are not included in the
catalogs, our business, financial condition and results of operations may be adversely affected.
We may fail to sufficiently and promptly respond to rapid changes in government regulation,
treatment of diseases and customer preferences in our industries.
The pharmaceutical manufacturing, pharmaceutical distribution and retail, healthcare services, diagnostic
products and medical devices industries in China are subject to extensive government regulation and
supervision. In recent years, the PRC government has implemented a variety of regulatory measures and
announced plans to implement additional rules and regulations with respect to the aforesaid industries,
including those relating to:
. the manufacturing, distribution or pricing of pharmaceutical products, diagnostic products and
medical devices;
. additional quality control, licensing and certification requirements;
. the pricing, procurement, prescription and dispensing of essential and other medicines by public
hospitals and other healthcare institutions; and
. governmental funding for individual healthcare and medical services.
These measures may lead to significant changes in the PRC pharmaceutical manufacturing,
pharmaceutical distribution and retail, healthcare services, and diagnostic products and medical devices
industries, and could result in increased costs and lowered profit margins for manufacturers, distributors
and retailers of pharmaceutical products, medical devices and medical diagnostic products as well as for
healthcare service providers. These measures could also lead to a decrease in the amount of products
and services purchased by our customers and/or the price of our products and services.
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In addition, we cannot assure you that the PRC government will continue to adopt policies supporting
the pharmaceutical manufacturing, pharmaceutical distribution and retail, healthcare services, and
diagnostic products and medical devices industries.
The PRC pharmaceutical manufacturing, healthcare services, diagnostic products and medical devices
industries are characterized by rapid advances in science and technology and continuous emergence of
new diseases. Our future success depends on our ability to launch new products and services that meet
evolving market demands, in particular, new pharmaceutical products, diagnostic products and medical
devices that are effective in treating and/or diagnosing new diseases and illnesses. We cannot assure you
that we will be able to respond to emerging trends by improving our product portfolio and services in a
timely manner, or at all.
In addition to regulatory and industry changes, the preferences and purchasing patterns of our customers
with regard to pharmaceutical products, healthcare services, diagnostic products and medical devices can
change rapidly. Our success depends on our ability to anticipate product and service offering lead-time
and demand, identify customer preferences and adapt our products and services to these preferences. We
must adjust our research and development plan, production scale and schedule, product portfolio, service
offering and inventory levels based on customer demand, sales trends and other market conditions. We
cannot assure you that we will be able to sufficiently and promptly respond to changes in customer
preferences and purchasing patterns in the future, and such failure may have a material and adverse
effect on our business, financial condition, results of operations and profitability.
We generate a portion of our net profits from one-off gains.
A portion of our net profits is derived from one-off gains which primarily comprise gains on disposal or
deemed disposal of associates, gains on disposal of non-current assets held for sale and gains on
disposal of available-for-sale investments. For the years ended 31 December 2009, 2010 and 2011 and
the six months ended 30 June 2012, we recorded one-off gains of RMB2,783.7 million, RMB665.9
million, RMB1,082.1 million and RMB460.9 million, respectively. Our adjusted net profit attributable to
owners of the parent after excluding share of profits and losses of jointly-controlled entities and
associates, one-off gains, finance costs related to one-off gains and share of profits and losses of jointly-
controlled entities and associates, one-off other expenses, taxation attributable and amount of adjusted
items attributable to non-controlling interests was RMB48.6 million, RMB20.4 million, RMB67.2
million and RMB73.5 million for the years ended 31 December 2009, 2010 and 2011 and the six months
ended 30 June 2012, respectively. Our net profit attributable to owners of the parent adjusted for all
headquarters related expenses was RMB198.9 million, RMB178.3 million, RMB323.8 million and
RMB248.5 million for the years ended 31 December 2009, 2010 and 2011 and the six months ended 30
June 2012, respectively.
We cannot assure you that such one-off gains will recur in the future, or that the sizes of such one-off
gains will be comparable to those we recognized during the Track Record Period. If such one-off gains
do not recur in the future, our results of operations may be materially and adversely affected. See
‘‘Profits generated from associated companies and one-off gains’’ from page 16 to page 17 of the
Summary section and pages 326 and 327 of the Financial Information section, and ‘‘Financial
Information ― Selected Components of Our Income Statements ― Other Gains’’ from page 318 to page
320 for further details.
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We generate a portion of our net profits from our associated companies.
For the years ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012, we
recorded share of profits of associates of RMB436.8 million, RMB546.3 million, RMB633.2 million and
RMB378.7 million, respectively. Of such profits, contributions from the operation of Sinopharm
Investment, the controlling shareholder of Sinopharm, for the same periods were RMB352.7 million,
RMB390.3 million, RMB509.2 million and RMB305.9 million, respectively. Our adjusted net profit
attributable to owners of the parent after excluding share of profits and losses of jointly-controlled
entities and associates, one-off gains, finance costs related to one-off gains and share of profits and
losses of jointly-controlled entities and associates, one-off other expenses, taxation attributable and
amount of adjusted items attributable to non-controlling interests was RMB48.6 million, RMB20.4
million, RMB67.2 million and RMB73.5 million for the years ended 31 December 2009, 2010 and 2011
and the six months ended 30 June 2012, respectively. Our adjusted net profit attributable to owners of
the parent adjusted for all headquarters related expenses was RMB198.9 million, RMB178.3 million,
RMB323.8 million and RMB248.5 million for the years ended 31 December 2009, 2010 and 2011 and
the six months ended 30 June 2012, respectively.
If the performance of our associated companies deteriorates, our results of operations may be materially
and adversely affected as well. See ‘‘Profits generated from associated companies and one-off gains’’
from page 16 to page 17 of the Summary section and pages 326 and 327 of the Financial Information
section, and ‘‘Financial Information ― Selected Components of Our Income Statements ― Share of
profits and losses of jointly controlled entities and share of profits and losses of associates’’ from page
321 to page 322 for further details.
We may not have the ability to compel our non-wholly-owned subsidiaries and associated
companies to take all actions which we believe would be most beneficial for us, and disputes with
our joint venture and other business partners may materially and adversely affect our business.
In the course of our business, we have in the past formed, and will in the future continue to form, joint
ventures or other cooperative relationships with other parties to jointly conduct certain business
operations, undertake research and development projects and/or engage in other business activities. For
example, our medical device business is operated by a joint venture in which we hold a 51% equity
interest and our joint venture partner Chindex holds the remaining 49% equity interest. We also have,
and expect to maintain in the future, interests in non-wholly-owned subsidiaries and associated
companies in connection with our business operations. Please see ‘‘Appendix I ― Accountants’ Report’’
for a description of these entities. Some of these joint ventures, non-wholly-owned subsidiaries and
associated companies account for a significant portion of our revenue and profits. We may have limited
control over the proposed strategies, policies or objectives of our associated companies. As a result, our
ability to control the decisions of these businesses depends on a number of factors, including reaching
agreement with our business partners, our rights under any shareholder agreements as well as the
decision-making process applicable to those non-wholly-owned subsidiaries and associated companies.
In addition, we are subject to risks associated with such joint venture or other cooperative relationships.
Our joint venture and other business partners may:
. have economic or business interests or goals that are inconsistent with ours;
. take actions contrary to our policies, instructions or requests;
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. be unable or unwilling to fulfill their obligations under the relevant joint venture agreements or
other cooperative arrangements; or
. have financial or other difficulties.
We cannot assure you that we will be able to prevent our joint ventures and associated companies from
engaging in activities or pursuing strategic objectives that conflict with our own interests or strategic
objectives. In addition, a serious dispute with our joint venture or other business partners may cause
disruption to or termination of the relevant business ventures or other cooperative projects. Although we
have not had a serious dispute with any joint venture or other business partners and we are not aware of
any action taken by any of these businesses that were materially adverse to us during the Track Record
Period, we cannot assure you that all disputes with our joint venture or other business partners may be
resolved satisfactorily or in our favor. Such disputes may also give rise to litigation or other legal
proceedings, which will divert our management’s attention and other resources, and if a verdict or award
is rendered against us, we could be required to pay significant monetary damages, assume other
liabilities, and suspend or terminate the related business ventures or projects. Consequently, our
business, financial condition and results of operations may be materially and adversely affected.
Our employees, distributors or third-party sales representatives could engage in corrupt practices
or other improper conduct that could harm our reputation and business.
In each of our business segments, we are subject to PRC laws and regulations relating to healthcare
fraud and abuse. We are subject to risks in relation to actions taken by us, our employees or our
affiliates that constitute violations of the PRC anti-corruption and other related laws. Our failure to
comply with these laws, or effectively manage our employees and affiliates in this regard, could have a
material adverse effect on our reputation, results of operations and business prospects.
In the pharmaceutical industry, corrupt practices include, among others, acceptance of kickbacks, bribes
or other illegal gains or benefits by pharmacies, hospitals and medical practitioners from pharmaceutical
manufacturers and distributors in connection with the prescription of certain pharmaceutical products. If
we, our employees or affiliates violate these laws, rules or regulations, we could be fined. In the case of
our pharmaceutical manufacturing business, our pharmaceutical distribution and retail business, and our
diagnostic products and medical devices business, the government authorities may seize the products
involved in the illegal or improper conduct, and suspend our operations or, in the case of our retail
pharmacy operations, outstanding claims to local government social security bureaus for reimbursements
of purchases paid with medical insurance cards could be rejected. Any of the consequences resulting
from corrupt practices by us, our employees or affiliates could materially and adversely affect our
business, financial condition and results of operations. Actions by PRC regulatory authorities or the
courts to provide an interpretation of PRC laws and regulations that differs from our own or to adopt
additional anti-corruption laws and regulations could also require us to make changes to our operations.
Our reputation, results of operations and business prospects could be adversely affected if we become
the target of any negative publicity as a result of actions taken by us, our employees or affiliates.
We sell our pharmaceutical, diagnostic products and medical devices primarily through third
parties and have limited control over their practices.
In our pharmaceutical, diagnostic products and medical devices businesses, we rely on various channels
to sell our products in China. In particular, our non-prescription pharmaceutical products are distributed
to consumers mainly through retail pharmacies. Our prescription pharmaceutical products are sold
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through distributors to hospitals, which then sell the products to patients. Our diagnostic products and
medical devices are mainly sold to hospitals through third party distributors. We cannot assure you that
we will be able to maintain a sufficiently diversified sales network for our products in our
pharmaceutical, diagnostic products and medical devices businesses. Nor can we assure you that we
will be able to renew the contracts with our distributors on the same terms and conditions. Furthermore,
we have limited ability to control and manage the activities of these third-party sales channels. If any
third party in our sales channels treats our competitors’ products more favorably than ours, or stops
selling our products, and we are unable to find appropriate substitutes, our business, financial condition
and results of operations may be adversely affected. Save as disclosed in the paragraphs under
‘‘Business ― Internal control’’, we require our distributors to undertake that they will comply with all
applicable laws and regulations in the distribution agreements.
We rely on a stable supply of quality raw materials to manufacture our pharmaceutical products.
Our principal raw materials used are APIs. Raw material costs account for a significant portion of the total
costs for our pharmaceutical products. For the years ended 31 December 2009, 2010 and 2011 and the six
months ended 30 June 2012, raw material costs accounted for approximately 66.5%, 72.9%, 75.3% and
77.2%, respectively, of the total cost of sales for our pharmaceutical manufacturing segment. Although raw
material price fluctuations did not have a material impact on the gross profit margins of our
pharmaceutical manufacturing segment during the Track Record Period primarily because the prices of
most major raw materials for the segment were generally stable throughout the period, if there is a
significant increase in prices of any principal raw material and we cannot pass on such increase to
customers due to governmental price controls or for other reasons, the profitability of our
pharmaceutical manufacturing business may be materially and adversely affected. Some of our
pharmaceutical products require raw materials that are not readily available or are only manufactured by
a limited number of suppliers. We do not have long-term supply agreements with most of these
suppliers. We cannot assure you that our existing suppliers will continue to supply materials to us at
prices and on terms and conditions acceptable to us in the future. The availability and market prices of
these materials may be adversely affected by factors beyond our control, such as weather conditions,
natural disasters or a sudden surge in demand. Any of the foregoing factors can affect the supply of such
materials or increase raw material costs for our pharmaceutical manufacturing segment. If the supply of
raw materials is disrupted, or we fail to procure raw materials of the required quality, our
pharmaceutical manufacturing business may be adversely affected.
If the quality of any raw materials fails to meet our standards or any raw materials contain defects or
harmful substances and we fail to detect such failures in our quality control process, our pharmaceutical
manufacturing business can be adversely affected. For example, excessive levels of chromium, an
industrial gelatin, have been detected in capsules (‘‘Chromium Tainted Capsules’’) manufactured by
some pharmaceutical manufacturing enterprises in China in April 2012. Chromium Tainted Capsules
may cause cancer and pose risks to human health. The PRC government has suspended the sales of a
number of capsules which contain excessive levels of chromium. To the best knowledge of our
Directors, we have not used Chromium Tainted Capsules in our products, which is in violation of
applicable PRC laws and regulations and none of our suppliers has been involved in the production of
Chromium Tainted Capsules. Nevertheless, we cannot assure you that similar quality problems with raw
materials and packaging materials will not occur in the future, which could result in regulatory or legal
actions being taken against us and could adversely affect our reputation, business, financial condition
and results of operations.
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We may experience difficulty in implementing our growth strategies and achieving future growth.
During the Track Record Period, we have expanded rapidly through organic growth, acquisitions and
strategic investments. We acquired and consolidated Fuji Medical in 2009, Hexin Pharma, Yaneng
Bioscience, Moluodan Pharma, Golden Elephant Pharmacy, Shenyang Hongqi Pharma and CML in 2010
and Aohong Pharma, Dalian Aleph, Jimin Cancer Hospital and Guangji Hospital in 2011. For the years
ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012, our revenue from the
acquired businesses was RMB17.9 million, RMB136.8 million, RMB1,696.6 million and RMB1,049.0
million, respectively. Our gross profit from acquired businesses for the same periods was RMB3.6
million, RMB53.4 million, RMB686.9 million and RMB515.0 million, respectively. We aim to continue
our growth organically and through selective acquisitions. Managing our growth has required, and will
continue to require substantial demands on our management, operational and other resources. To manage
the potential growth of our operations, we will be required to, among other things:
. control operating expenses and achieve a high level of efficiency;
. enhance our information technology systems;
. strengthen our operational, financial and management systems, procedures and controls;
. maintain and expand our relationships with suppliers, hospitals, distributors, retail pharmacies and
other third-party business partners;
. control procurement costs and optimize product and service offerings and prices;
. increase marketing, sales and sales support activities;
. expand, train and manage our growing personnel resources;
. allot the appropriate management personnel and staff to the acquired businesses; and
. integrate the acquired businesses into our existing business platforms.
Our current and planned operations, personnel, systems, internal procedures and controls may not be
adequate to support our future growth. If we are unable to manage our growth effectively, we may not
be able to take advantage of market opportunities, or execute our business strategies.
We may not be able to successfully identify acquisition targets or complete acquisitions or
integrate the acquired businesses.
One of our business strategies is to take advantage of the trend of consolidation in the highly
fragmented PRC healthcare industry by undertaking merger and acquisition activities. Further, we intend
to use part of the net proceeds that we receive from the Global Offering to acquire domestic and
overseas healthcare businesses. Through selective mergers and acquisitions, we aim to obtain advanced
technologies, new products and other resources for our pharmaceutical manufacturing business,
diagnostic products and medical devices businesses, enter and expand our operations in the premium,
specialty and general healthcare service markets in selected large cities in China, and expand the
coverage and network of our retail pharmacies in our existing and future target markets in China.
Internationally, we plan to primarily acquire overseas generic drug manufacturing companies or specialty
pharmaceutical companies with strong product portfolios, research and development capabilities and/or
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significant presences in China. These overseas pharmaceutical companies are expected to help us further
expand our product lines and increase the sales of our products in the PRC and the international
markets. In addition, we may continue to identify, pursue and consummate joint venture projects in the
future.
Acquisitions in general involve numerous risks and uncertainties, including but not limited to:
. the suitability of the acquisition targets or our ability to complete acquisitions on acceptable terms;
. the availability, terms and costs of any financing required to make an acquisition;
. delays in securing or inability to secure necessary governmental approval and third-party consents;
. potential negative effects on our liquidity position;
. the diversion of resources and management attention from our existing businesses;
. potential ongoing financial obligations and unforeseen or hidden liabilities of our acquisition
targets;
. the costs of and difficulties in integrating acquired businesses, managing enlarged business
operations and operating in new markets, regulatory environments and geographic regions;
. our failure to deliver the expected synergies, to achieve the intended objectives or benefits, or to
generate sufficient revenue to recover the costs and expenses of an acquisition; and
. dilution of our earnings per share or decrease in our margins due to the lower profitability of an
acquired business.
In addition, international acquisitions involve takeovers, mergers and acquisitions, anti-trust and other
laws and regulations of other jurisdictions. Our failure to comply with these foreign laws and regulations
may result in failure to complete the transactions, foreign regulatory actions, litigation and other
consequences that materially and negatively impact us. Our efforts to comply with these laws and
regulations may also require us to incur high costs and/or commit more resources. Our failure to address
these risks successfully may have a material adverse effect on our business, financial condition, results
of operations and growth prospects.
We relied on external debt financing to fund our investment activities and thus generated
significant finance costs in connection with our investment activities.
We have historically relied on external debt financing to fund our operating and investment activities,
and thus generated significant finance costs in connection with our investment activities, including
strategic investments in other companies and purchases of available-for-sale investments. For the years
ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012, our finance costs
related to investment activities, including finance costs related to one-off gains and share of profits and
losses of jointly-controlled entities and associates and other headquarters finance costs, amounted to
RMB103.3 million, RMB105.7 million, RMB250.7 million and RMB151.9 million, representing 78.0%,
65.1%, 79.8% and 76.7% of our total finance costs for the same periods, respectively. While our
investment activities may or may not generate income or cash flows, the finance costs related to these
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investment activities that we incurred are often irrecoverable and the debt we have incurred in relation
to the investment activities needs to be paid down or refinanced upon maturity. Although we will mainly
focus on our core businesses, including research and development, manufacturing, marketing and sales
of pharmaceutical products, pharmaceutical retail and distribution, medical devices and diagnostics
business and healthcare services, we may still in the future make other investments in the healthcare
sectors, which may be wholly or partially funded by external debt financing and would further increase
our leverage. If the income or cash flows from these investment activities are not sufficient to offset the
finance costs incurred, or our finance costs significantly increase in the future, our financial condition
and results of operations may be adversely affected.
If we fail to win the statutory tender process, or fail to secure orders from hospitals or other
medical institutions, our pharmaceutical manufacturing business may be adversely affected.
During the Track Record Period, a substantial portion of revenue from our pharmaceutical
manufacturing segment was derived from sales to hospitals and other medical institutions in the PRC.
The purchase of pharmaceutical products by government owned or controlled hospitals is generally
subject to an annual statutory tender process run by the relevant local governments. With the recent
introduction of a more centralized statutory tender system for essential drugs, which may lead to
increasing competition among suppliers of essential drugs, the PRC government is expected to apply
further downward pricing pressure on pharmaceutical product manufacturers. See the section headed
‘‘Regulatory Overview ― Tendering Requirements for Hospital Purchases of Medicines’’ for details of
such statutory requirements. We may fail to win the statutory tender process if our prices are not
competitive, our pharmaceutical products fail to meet certain quality requirements or are less effective
clinically than competing products, our reputation is adversely affected by unforeseen events, our
service quality or any other aspect of our operation fails to meet the relevant requirements, or for other
reasons. If we fail to win orders from hospitals or other medical institutions through the statutory tender
process, we will not be able to sell our products to them and our pharmaceutical manufacturing business
will be adversely impacted. On the other hand, even if we win the statutory tender process, we may have
to share the orders with other co-winners, resulting in a decrease in our share in the relevant market.
Our research and development efforts may not result in the production of commercially successful
pharmaceutical products or otherwise generate desirable results.
An important element of our business strategy is to focus on the research and development of innovative
drugs, biopharmaceutical generic drugs and first-to-market chemical generic drugs. For the years ended
31 December 2009, 2010 and 2011 and the six months ended 30 June 2012, our research and
development expenses, excluding capitalized research and development costs, amounted to RMB71.4
million, RMB119.9 million, RMB189.4 million and RMB101.7 million, respectively, which represented
3.1%, 4.2%, 4.9% and 4.7% of total external revenue for our pharmaceutical manufacturing segment for
the same periods. However, the development process is complex, uncertain, time-consuming and costly.
We cannot assure you that our research and development efforts will result in the development of
commercially successful products, or that any such research projects will generate expected benefits. In
particular, relatively few medical research and development programs successfully developed
commercially viable products. In addition, a product candidate that appears promising at the early
phases of development may fail to reach the market for a number of reasons, such as:
. failure to demonstrate safety and efficacy in preclinical and clinical trials;
. lack of proprietary rights, such as patent rights for product candidates;
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. inability to acquire or license such rights on commercially reasonable terms, or at all; and
. failure to obtain approvals for the intended use from relevant regulatory bodies, such as the SFDA.
Delays in any part of the development process or inability to obtain regulatory approval of our products
could have a material adverse effect on our business, financial condition, results of operations and
prospects.
Even if we successfully develop and launch a new product, we cannot assure you that it will be
commercially accepted in the market. The primary factors which may affect the commercial viability of
our products include, among other things:
. our reputation and brand image;
. the safety and effectiveness profile of the product;
. the product’s perceived advantages and disadvantages as compared to competitors’ products;
. the product’s cost-effectiveness; and
. the effectiveness of our marketing efforts.
If any of our new products is not well accepted by the market, we may not be able to recoup our
investment in the research and development process. Moreover, even if we successfully commercialize
new products, these products may serve markets that are currently being served by our existing products
and may result in cannibalization of our existing products. If our research and development efforts fail
to attain our projected sales levels, our business, financial condition, results of operations and prospects
may be materially and adversely affected.
We may from time to time become a party to litigation, legal disputes, claims or administrative
proceedings that may materially and adversely affect us.
As a large publicly listed company, we may from time to time become a party to various litigation, legal
disputes, claims or administrative proceedings arising in the ordinary course of our business. Such
negative publicity may damage our reputation and adversely affect the image of our brands and
products. In addition, ongoing litigation, legal disputes, claims or administrative proceedings may
distract our management’s attention and consume our time and other resources. Furthermore, any
litigation, legal disputes, claims or administrative proceedings which are not of material importance may
escalate due to the various factors involved, such as the facts and circumstances of the cases, the
likelihood of winning or losing, the monetary amount at stake, and the parties concerned continue to
evolve in the future, and such factors may result in these cases becoming of material importance to us.
Finally, if any verdict or award is rendered against us, we could be required to pay significant monetary
damages, assume other liabilities, and suspend or terminate the related business ventures or projects.
Consequently, our business, financial condition and results of operations may be materially and
adversely affected. See ‘‘Business ― Legal and Regulatory Matters’’ for more details.
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Substantially all of our pharmaceutical products must undergo a clinical trial process before they
can be introduced into the market for commercial sale. The process is expensive, lengthy and
uncertain.
Generally, we have to provide regulatory authorities with clinical data that demonstrates the safety and
effectiveness of our pharmaceutical products in order to obtain approval for their commercial sale. The
clinical trial process, which involves preclinical testing and clinical development, can take several years
to complete and the outcome of such process is uncertain.
Product testing can fail at any stage of the clinical trial. Success in preclinical testing and early clinical
trials does not ensure that later clinical trials will be successful, and interim results of trials do not
necessarily predict final results. It is not unusual for companies to suffer significant setbacks in
advanced clinical trials, even after promising results in earlier trials. Preclinical and clinical data can be
interpreted in different ways, which could delay, limit or prevent further testing or regulatory approval.
Further, the duration of a clinical trial generally varies substantially with the type, complexity, novelty
and intended use of the product. Clinical trials may be delayed or need to be repeated for many reasons,
such as negative or inconclusive results, adverse medical events, ineffectiveness of the study compound,
inability to manufacture sufficient quantities of the compound for use in clinical trials and failure of the
regulatory authority to approve our clinical trial protocols. Our clinical trials may be suspended at any
time if we or the regulatory authorities believe the patients participating in our studies are exposed to
unacceptable health risks.
We do not know whether planned clinical trials will begin on time or whether any of our clinical trials
will be completed on schedule, or at all. Our product development costs would likely increase if we
encounter delays in testing or obtaining approvals or if we need to perform more or larger clinical trials
than planned. If the delays are significant, the commercial prospects for some of our pharmaceutical
products will be harmed, which will adversely affect the results of operations in our pharmaceuticals
business. Our pharmaceuticals business may also be adversely affected if after we devote significant
time and expense on the clinical trial process, the product under development fails to achieve approval
for commercial sale.
We rely on third parties for the development, clinical testing and marketing of certain
pharmaceutical products outside China.
In order to leverage on the network and brand name of research institutions in developed countries, we
have entered into research agreements with certain such institutions with respect to the development of
specific products or production processes. We also contract with research organizations and other third
parties in developed countries to manage the clinical trials of some of our pharmaceutical products and
invest in joint ventures to develop and commercialize new products.
We cannot assure you that we will be able to enter into similar collaborative relationships with third
parties for additional research and development, preclinical and clinical testing and marketing. Our
inability to maintain or develop such relationships could limit the growth of our pharmaceutical
products’ sales.
Collaborative relationships may create obligations on our part, such as confidentiality, non-competition
and exclusivity in the procurement of raw materials or distribution of end products. These obligations
may place restrictions on our operations and our ability to procure or use certain external resources. If
the parties collaborating with us fail to perform under their relevant agreements with us or fail to meet
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regulatory standards, clinical testing of the relevant products may be delayed or prematurely terminated.
Moreover, these parties may gain access to our patents, trademarks, know-how, trade secrets and/or
other intellectual properties through collaboration with us. Even though the collaboration agreements
generally have confidentiality provisions, we cannot assure you that the parties collaborating with us
will not knowingly or unknowingly misuse, infringe or violate our intellectual properties to their
advantage and that the relevant agreements can offer us meaningful protection against such misuse,
infringement or violation. These parties could also pursue alternative technologies as a means of
developing or marketing products for the diseases targeted by our collaborative programs.
We operate in highly competitive industries, and our business, financial condition and results of
operations may be adversely affected if we are not able to compete effectively.
Each of the pharmaceutical manufacturing, pharmaceutical distribution and retail, healthcare services,
and diagnostic products and medical devices industries is highly competitive, and we face intense
competition in each of our business segments. Our pharmaceutical products may lose their market appeal
as lower-priced products become available, as similar or new products are introduced or as other
technological advances and developments render our products obsolete or less effective. In particular,
the majority of revenue in our pharmaceutical manufacturing business was derived from sales of generic
drugs during the Track Record Period. For the years ended 31 December 2009, 2010 and 2011 and the
six months ended 30 June 2012, sales of our generic drugs accounted for 59.1%, 61.5%, 63.9% and
71.8%, respectively, of external segment revenue of our pharmaceutical manufacturing segment. Since
we do not have intellectual property rights in these products or enjoy any administrative protection in
respect of their production, we cannot preclude any third party from offering the same products at more
competitive prices. Partly as a result of their non-proprietary nature, competition in the market segment
for many of these products is intense. Our key competitors are multinational pharmaceutical companies
as well as large domestic pharmaceutical companies, whose products have similar curative effects and
can be used as substitutes for our products. See the section headed ‘‘Business ― Competition’’ from
page 217 to page 219 in this prospectus for additional information.
In our pharmaceutical distribution and retail business, our key competitors are regional pharmaceutical
distributors, large retail pharmacy chains, independent pharmacies, supermarkets and convenience chains
in our target markets. As we further expand our healthcare service operations, we expect to face strong
competition from other premium or specialized healthcare service providers in our target markets in
China. In our diagnostic products and medical devices business, we compete with both large
multinational companies and domestic diagnostic products and medical devices manufacturers.
We cannot assure you that we will be able to remain competitive by distinguishing our products or
services from our competitors, or by expanding our production capacity, sales forces, retail pharmacy
network or healthcare service operations, nor can we assure you that we will be able to maintain or
increase our existing market share in any of our business segments. Our competitors in each of our
business segments may have more financial resources, better research and development resources,
manufacturing techniques, marketing capability and experience than we do and may choose to invest
more in the product and technology development, service offering, facilities and equipment, or sales and
marketing, as the case may be. As a result, our competitors in the pharmaceutical manufacturing,
diagnostic products and medical devices industries may succeed in developing products that are more
effective, less costly or with a shorter time-to-market than ours, our competitors in the pharmaceutical
distribution and retail business may be able to offer products that are more popular in the
pharmaceutical retail market than ours, and our competitors in the healthcare service business may be
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able to deliver healthcare services that are more effective and less costly than ours. We must
continuously keep abreast of the latest developments in our industries in order to remain competitive.
Furthermore, new competitors may enter the markets in which we currently operate. If we are unable to
compete effectively against our existing or new competitors, our business, financial condition and results
of operations may be materially and adversely affected.
We may fail to obtain sufficient capital resources for future growth and other operational needs.
We require additional capital resources to pursue our growth strategy through organic expansion as well
as strategic investments and acquisitions and to remain competitive by responding in a timely manner to
technological changes or market demand. In particular, we require significant capital to build, maintain,
operate and expand our production facilities, engage in research and development activities, broaden our
retail pharmacy network, develop our healthcare services business, and to make new acquisitions in each
of our business segments.
We expect to meet our funding needs through cash flows from operations, securities offerings, bank
borrowings and other external financing sources. Our ability to obtain additional financing will depend
on a number of factors, including our financial condition, results of operations and cash flows, China’s
economic condition, costs of financing including changes in interest rates, prevailing conditions in the
capital markets and regulatory requirements. In 2011, the PBOC had increased the benchmark interest
rates and the statutory deposit reserve ratio a number of times in order to combat inflation. For instance,
the one-year benchmark loan interest rate was raised from 5.81% in January 2011 to 6.56% in July
2011. The increase in the interest rates and statutory deposit reserve ratios tightened credit and
negatively affected the abilities of many companies to borrow from financial institutions. If we cannot
obtain sufficient funding on acceptable terms or, to the extent required, receive necessary approvals for
our financing plans from the regulatory authorities, we may not be able to successfully implement our
business strategy, and our prospects could be materially and adversely affected.
We may incur losses and our reputation may be adversely affected by potential product liabilities
relating to certain products that we manufactured.
In August and September 2012, Yao Pharma, one of our subsidiaries, was notified by the Chongqing
branch of SFDA that certain hospitals in Anhui and Jiangsu provinces and Guangxi Zhuang Autonomous
Region reported a number of occurrences of side effects in patients after their being administered
Shaduolika from two different batches. Shaduolika, one of our major products (1) , is used to treat viral
pneumonia and viral upper respiratory infections. After receiving injections of Shaduolika, a total of 32
patients experienced shivering, allergy-like reactions, fever and other mild symptoms of side effects. As
disclosed in Shaduolika’s product information leaflet, which has been approved by the SFDA, shivering,
allergy-like reactions, fever and other mild symptoms experienced by these patients are listed as side
effects associated with the use of this medication.
Upon being notified of these occurrences, Yao Pharma immediately activated voluntary recall
procedures for the two batches of Shaduolika products involved in the occurrences of side effects as
well as 14 other batches which were manufactured around the same time as the abovementioned two
batches. The production cost for the recalled Shaduolika products amounted to approximately RMB1.4
million. We had also voluntarily suspended the production of Shaduolika and are currently conducting
Note:
(1) We use a set of criteria in selecting our major products, and such criteria include sales contribution, market potential and
brand reputation.
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our own investigation into the production of Shaduolika, including the examination of our procurement,
manufacturing, quality control and product evaluation procedures for Shaduolika. Based on our
investigations, we will ensure that any production problems that may have caused a quality issue with
our Shaduolika products are identified and fully rectified and that the safety of this product is
thoroughly tested and verified prior to resuming the production and sales of Shaduolika.
Additionally, quality of pharmaceutical products may also be affected by various other factors after
production. Also see ‘‘Risk Factors ― Risks Relating to Our Businesses and Industries ― We are
subject to risks associated with quality issues that may arise on our pharmaceutical products during post
production processes’’ on page 70.
On 25 September 2012, we received an administrative penalty decision issued by the Chongqing branch
of SFDA. The decision indicates that a batch of Shaduolika product that were reported to have caused
cases of side effect in Jiangsu province contains excessive level of bacterial endotoxins and therefore
failed to meet the applicable quality requirements, according to the examination conducted by the
Jiangsu Changzhou branch of SFDA. Pursuant to the administrative penalty decision, the government
authorities disgorged our revenue of RMB9,282 from sales of the defective batch of Shaduolika
products, confiscated all of our recalled Shaduolika products from this defective batch, and imposed a
fine of RMB280,730.90, which was equivalent to the value of the defective batch of Shaduolika
products, on Yao Pharma. As at the Latest Practicable Date, the defective batch of Shaduolika had been
successfully recalled.
We understand that the relevant government authorities have conducted random inspections and sample
tests of other batches of Shaduolika. Our PRC legal adviser Chen & Co Law Firm confirms that the
statutory period of limitation for legal claims against pharmaceutical manufacturers or hospitals from
patients is generally two years from the moment patients discover or should have discovered that their
rights have been infringed upon. However, in particular, if patients file claims for compensation of
personal injuries or initiate litigations against sales of substandard goods without prior notice, the
statutory period of limitation is one year from the moment patients discover or should have discovered
that their rights have been infringed upon. We do not maintain product liability insurance for
Shaduolika. Our revenue generated from Shaduolika was RMB67.2 million, RMB77.6 million, RMB80.1
million and RMB62.9 million for the years ended 31 December 2009, 2010 and 2011 and the six months
ended 30 June 2012, respectively. After taking into consideration the costs of the product recall,
inspection fees, transportation expenses, consultation fees, contingent liabilities for potential litigations,
potential compensation payments and other expenses, our Directors expect to incur no more than
RMB3.3 million in expenses in relation to these occurrences of side effects.
We cannot assure you that similar or more serious incidents relating to our product quality will not arise
in the future, including but not limited to quality issues arising from raw materials procurement,
manufacturing, storage and transportation. Any claims against us, regardless of their merit, could
materially and adversely affect our financial condition, because litigation related to these claims could
strain our financial resources in addition to consuming the time and attention of our management. If any
claims against us were to prevail, we may incur monetary liabilities, and our reputation could be
adversely affected, which in turn would have a material and adverse impact on our business, financial
condition and results of operations. Also see ‘‘Risk Factors ― Risks Relating to Our Businesses and
Industries ― We may incur losses resulting from product liability claims or product recalls’’ from page
70 to page 71.
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We are subject to risks associated with quality issues that may arise on our pharmaceutical
products during post-production processes.
The quality of our pharmaceutical products may be affected during certain post-production processes
including transportation, storage, warehousing and usage. We generally rely on transport operators for
delivery of our products. Delivery disruptions for various reasons beyond our control, including weather
conditions, political turmoil, social unrest and strikes could lead to delayed deliveries. The nature of
pharmaceutical products may also mean that poor handling by pharmacies, hospitals or transport
operators could result in damage to our products, including contamination or degeneration. Some of
these processes are managed by third parties, which we have limited control over. Product liability
claims may arise if any of our pharmaceutical products are deemed or proven to be unsafe, ineffective,
defective or contaminated. Under certain circumstances, we may be required to recall products. Even if a
situation does not necessitate a product recall, we cannot assure you that product liability claims will not
be asserted against us as a result. Any claims relating to the quality of our pharmaceutical products,
regardless of their merit, could adversely affect our reputation, divert our time, resources and attention
of our management, and result in material and adverse impact on our business, financial condition and
results of operations. Also see ‘‘Risk Factors ― Risks Relating to Our Businesses and Industries ― We
may incur losses and our reputation may be adversely affected by potential product liabilities relating to
certain products that we manufactured’’ from page 68 to page 69.
We may incur losses resulting from product liability claims or product recalls.
We are subject to product liability claims with respect to the pharmaceutical products, diagnostic
products and medical devices we manufacture, distribute and/or sell. Such claims may arise if any of our
products are deemed or proven to be unsafe, ineffective, defective or contaminated or when we are
alleged to have engaged in practices such as improper filling of prescriptions, insufficient or improper
labeling of products, provided inadequate warnings or insufficient or misleading disclosures of side
effects, or unintentionally distributed counterfeit medicines. In the event that the use or misuse of any
product manufactured and/or distributed by us results in personal injury or death, product liability and/or
indemnity claims may be brought against us. We may be subject to product recalls, and the relevant
regulatory authorities in the PRC may close down some of our related operations and take other
administrative actions against us. In addition, as pharmaceutical manufacturers are responsible for all
consequences arising from clinical trials of their new products in China, we could be subject to claims
and expenses arising from any professional malpractice of medical practitioners or researchers with
whom we contract for clinical trials. We may also be held responsible for professional malpractice by
medical practitioners or researchers with whom we contract for clinical trials in other countries, such as
the United States. Moreover, we may be subject to malpractice or other claims for injuries or wrongful
death claims in our healthcare service business.
We cannot guarantee that such claims will not be filed against us in the future. A substantial claim or a
substantial number of claims against us, if successful, would have a material adverse effect on our
reputation, business, financial condition and results of operations. We do not have product liability
insurance for all of the products manufactured or sold by us. From 2009 to 2011, we maintained product
liability insurance for all products manufactured or sold by our subsidiaries Shine Star, Huaiyin Medical,
Carelife Pharma and Guilin Pharma. The product liability insurance covers personal injuries, diseases,
death and loss of property resulting from the use, consumption or operation of the products of these
subsidiaries globally. We significantly expanded the scope of our product liability insurance coverage in
2012. Our product liability insurance policy is now more product-oriented, and it now covers a
significant portion of of our major products. See ‘‘Business ― Insurance’’ from page 232 to page 233
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for details of the scope of our product liability insurance coverage. For the years ended 31 December
2009, 2010 and 2011 and the six months ended 30 June 2012, revenue generated by the pharmaceutical
products covered by product liability insurance for the same periods accounted for 42.3%, 36.2%, 33.3%
and 51.7% respectively, of the external revenue of our pharmaceutical manufacturing segment. For the
products for which we have insurance, our coverage may not be sufficient to cover the amount of
damages. If any of our products are alleged to be harmful, we may experience reduced sales of the
products manufactured or distributed by us and may have to recall these products from the market. Any
claims against us or any product recalls, regardless of merit, can strain our financial resources and
consume the time and attention of our management. If any claims against us are successful, we may
incur monetary liabilities, and our reputation may be severely damaged.
Moreover, applicable laws, rules and regulations require our in-store retail pharmacists to offer advice,
without additional charge, to our customers regarding medication, dosage, common side effects and
other information deemed significant by these pharmacists. Our in-store pharmacists may be legally
required to warn customers regarding any potential negative effects of a prescription medicine. We may
be liable for claims arising from such advice or the failure to adhere to such advice given by our in-store
pharmacists, and our business, financial condition and results of operations, as well as reputation, could
be materially and adversely affected.
We are subject to risks associated with our international businesses and operations.
We have operations overseas, such as in the United States, Germany, Ghana and Hong Kong. We also
derive a portion of our revenue from international sales. For the years ended 31 December 2009, 2010
and 2011 and the six months ended 30 June 2012, our revenue from sales of our overseas subsidiaries
amounted to RMB0.2 million, RMB2.8 million, RMB559.9 million and RMB210.4 million, representing
nil, 0.1%, 8.7% and 6.1% of our total revenue for the same periods, respectively. For the same periods,
our revenue from our sales to customers outside China amounted to RMB673.1 million, RMB628.2
million, RMB756.9 million and RMB384.0 million, representing 17.5%, 13.9%, 11.8% and 11.1% of
our total revenue, respectively. We aim to expand our international operations and we will continue our
international sales. As a result, we are subject to a variety of risks and uncertainties associated with
international operations and sales, including:
. compliance with foreign laws, regulatory requirements and local industry standards, in particular,
those related to pharmaceutical products, diagnostic products and medical devices;
. exposure to increased litigation risks outside China;
. political and economic instabilities;
. foreign exchange rate exposure;
. unfamiliarity with local operating and market conditions;
. cultural and language difficulties;
. competition from local companies;
. foreign taxes;
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. stringent environment, safety and labor standards; and
. potential disputes with foreign partners and difficulty in managing relationships with foreign
customers.
Any of the foregoing and other risks and uncertainties could adversely affect our international operations
and result in reduced revenue from our international operations and sales, which in turn could adversely
affect our financial condition and results of operations.
We may not be able to maintain proper inventory levels for our operations.
We consider a number of factors when we manage the inventory levels for our manufacturing,
distribution and retail operations, including costs of holding inventory, our product portfolio, the
preferences and purchasing trends of our customers, and our goal of prompt delivery of products in
sufficient quantity in response to customers’ requests. For the years ended 31 December 2009, 2010 and
2011 and the six months ended 30 June 2012, our inventory turnover days were 78.9, 93.6, 94.0 and
111.0, respectively. The volatile economic environment and fast-changing demands and preferences of
our customers have made accurate projection of inventory levels increasingly challenging. Inventory
levels in excess of customer demand may result in inventory write-downs, expiration of products or an
increase in inventory holding costs. Conversely, if we underestimate customer demand for our products
or if our suppliers fail to provide supplies to us in a timely manner, we may experience inventory
shortages. Such inventory shortages might result in unfilled customer orders and have a negative impact
on customer relationships. We cannot assure you that we will be able to maintain proper inventory
levels for our operations and such failure may have an adverse effect on our business, financial
condition, results of operations and profitability.
Third parties may infringe upon our intellectual property rights and other forms of protection
under PRC law.
Our success depends, to a large degree, upon obtaining and maintaining intellectual property rights and
other forms of protection afforded to our products and services under PRC law, and defending these
rights against third-party challenges. Under PRC law, we generally have the exclusive right to use a
trademark for products and services for which such trademark has been registered with the Trademark
Office by us. As at 30 June 2012, we had registered 643 trademarks with the Trademark Office, such as
�托� (Fosun), �f邦 (Wanbang), and �f�K平 (Wan Su Ping), which were used in our business. In
addition, as at 30 June 2012, we had 106 invention patents, 35 utility models patents and 79 design
patents registered with the SIPO. Our competitors may independently develop proprietary technology
similar to ours, introduce counterfeits of our products, misappropriate our proprietary information or
processes, infringe on our patents, brand name and trademarks, or produce similar products that do not
infringe on our patents or successfully challenge our patents. Our efforts to defend our patents,
trademarks and other intellectual property rights may be unsuccessful against competitors or other
violating entities, we may be unable to identify any unauthorized use of our patents, trademarks and
other intellectual property rights and may not be afforded adequate remedies for any breach. In
particular, in the event that our registered patents and our applications do not adequately describe,
enable or otherwise provide coverage of our technologies, samples and products, we would not be able
to exclude others from developing or commercializing these technologies, samples and products.
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In addition, we rely on trade secrets and proprietary know-how to protect our intellectual property. We
have generally entered into confidentiality agreements (which include, in the case of employees, non-
competition provisions and intellectual property right ownership provisions) with our key research and
development personnel. These agreements provide that all confidential information developed or made
known to the individual during the course of the individual’s relationship with us is to be kept
confidential and not disclosed to third parties except in circumstances specified in the agreements. In the
case of employees, the agreements provide that all of the technology which is conceived by the
individual during the course of employment is our exclusive property. However, these agreements may
not provide meaningful protection or adequate remedies in the event of unauthorized use or disclosure of
our proprietary information. In addition, it is possible that third parties could independently develop
information and techniques substantially similar to ours or otherwise gain access to our trade secrets.
In the event that any misappropriation or infringement of our intellectual property occurs in the future,
we may need to protect our intellectual property or other proprietary rights through litigation. Litigation
may divert our management’s attention from our business operations and possibly result in significant
legal costs, and the outcome of any litigation is uncertain. In addition, infringement of our intellectual
property rights may impair the market value and share of our products, damage our reputation and
adversely affect our business, financial condition and results of operations.
We may face intellectual property infringement claims initiated by third parties.
Third parties, including our competitors, may make claims or initiate litigation seeking to establish their
patent, trademark, copyright and other intellectual property rights in respect of products, technologies,
trade names and company names relevant to our business. The risk of being subject to intellectual
property infringement claims will increase as we continue to expand our operations and diversify our
product lines. Because of the confidential nature of PRC patent applications and the numerous patent
applications currently under review in China, we may be unable to determine whether any of our
products, processes and other related matters infringe upon the rights of others. Specifically, under PRC
patent law, the term of patent protection starts from the date the patent was filed, instead of the date it
was issued. Therefore, our priority in any PRC patents may be defeated by third-party patents issued on
a later date if the applications for such patents were filed prior to our own, and the technologies
underlying such patents are the same as or substantially similar to ours. In such a case, a third party
with an earlier application may force us to pay to license its patented technology, sue us for patent
infringement and/or challenge the validity of our patents. Regardless of their merit, any claims would
divert management’s attention and result in possibly significant legal costs. If such claims are successful,
we may be required to obtain licenses from, or pay compensation to, the claimants to continue
producing or selling such products or using such trademarks, trade names and company names or incur
additional costs in reformulating the product to bypass the patent. Such licenses, however, may not be
available on commercially reasonable terms or at all. In addition, we may be forced to discontinue
production of the relevant products and may be required to compensate the claimant for any
infringement.
Registration of our Group’s logos as trademarks in Hong Kong is still pending approval.
We submitted our applications to the Trade Marks Registry of the Intellectual Property Department of
the Government of Hong Kong for registration of our Company’s logos included on the cover of this
prospectus as trademarks on 23 December 2011. As at the Latest Practicable Date, the registration of
such trademarks had not yet been approved by the Trade Marks Registry. There is no assurance that we
will not receive any objection to the pending trademark applications in Hong Kong. In addition, there
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can be no assurance that the use of such logos by our Company will not infringe the intellectual
property rights of any third party or otherwise violate any laws of Hong Kong. Any liability claim in
relation to the use of such logo by our Company, made or threatened to be made against us in the
future, regardless of its merits, could result in costly litigation and strain our administrative and financial
resources.
The existence of counterfeit pharmaceutical products in the PRC pharmaceutical market may
damage our brand and reputation and have a material adverse effect on our business, financial
condition, results of operations and prospects.
Certain pharmaceutical products distributed or sold in the PRC pharmaceutical market may be
counterfeit, as these pharmaceuticals were manufactured without proper licenses or approvals and
fraudulently mislabeled with respect to their content and/or manufacturer. Such counterfeit
pharmaceutical products are generally sold at lower prices than authentic pharmaceutical products due
to their lower production costs, and in some cases are very similar in appearance to the authentic
pharmaceutical products. Counterfeit pharmaceutical products may or may not have the same chemical
content as their authentic counterparts. The regulatory control and enforcement system with respect to
counterfeit pharmaceutical products in China is not able to completely eliminate the production and
sales of counterfeit pharmaceutical products. Any illegal sale of counterfeit pharmaceuticals by others
under our brand names with respect to pharmaceuticals, in-vitro diagnostic products or medical devices
in our manufacturing operations, use of counterfeit pharmaceutical products, diagnostic products or
medical devices in our healthcare services business, or unintentional sale of counterfeit pharmaceutical
products by us in our pharmaceutical distribution and retail operations may subject us to negative
publicity, reputational damage, fines and other administrative penalties or even result in litigation
against us. Moreover, the appearance of counterfeit pharmaceutical products, products of inferior quality
and other unqualified products in the healthcare markets in China in recent years from time to time may
reinforce the negative image in general of all pharmaceutical, diagnostic products and medical devices
manufacturers, distributors and retailers among consumers in China, and may severely harm the
reputation and brand names of companies like us.
Furthermore, consumers may buy counterfeit pharmaceuticals that are in direct competition with our
pharmaceuticals or with the pharmaceuticals of our suppliers that we sell or distribute to in our
pharmaceutical distribution and retail operations. As a result of these factors, the continued proliferation
of counterfeit pharmaceutical products in China could have a material adverse effect on our business,
financial condition, results of operations and prospects.
Our success and business operations are largely dependent on our senior management team and
our ability to attract and retain talented personnel.
Our success depends on the continued service of our senior management team, as identified in the
section headed ‘‘Directors, Supervisors, Senior Management and Employees’’ in this prospectus. The
expertise, industry experience and contributions of our executive Directors and other members of our
senior management are crucial to our success. We will need an increasing number of experienced and
competent executives and other members of our senior management team in the future to implement our
business strategies and growth plans. If we lose any of our key management members, including any of
our Directors and senior officers, and are unable to recruit and retain replacement personnel with
equivalent qualifications or talents in a timely manner, the growth of our business could be adversely
affected.
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RISK FACTORS
Our success also depends on our ability to attract and retain qualified and skilled managerial, technical,
research and development, sales and marketing, healthcare service and other personnel. We cannot
assure you that we will be able to attract, hire and retain sufficient numbers of qualified and skilled
personnel to continue to develop and grow our business. The inability to attract and retain a sufficient
number of such skilled personnel could limit our ability to maintain our existing product portfolio and
distribution channels, develop new products or distribution channels, or open additional pharmacies. In
addition, competition for these individuals could cause us to offer higher compensation and other
benefits in order to attract and retain them and consequently affect our financial condition and results of
operations.
We rely on information systems in managing our operations and any system failures or deficiencies
of our information systems may have an adverse effect on our business, financial condition and
results of operations.
We make use of information systems to rapidly obtain, process, analyze and manage data. We use these
systems to, among other things, monitor the daily operations of our business and maintain operating and
financial data for compilation of management and financial reports. We may use our computer hardware
and network for the storage, delivery and transmission of the data for our distribution and retail systems.
Any damage by unforeseen events or system failure which cause interruptions to the input, retrieval and
transmission of data or increase in the service time could disrupt our normal operations. We cannot
assure you that we can effectively carry out our disaster recovery plan to handle the failure of our
information systems, or that we will be able to restore our operational capacity in a timely manner to
avoid disrupting our business. The occurrence of any of these events could have a material adverse
effect on our business, financial condition and results of operations. In addition, if the capacity of our
information systems fails to meet the increasing needs of our expanding operations, our ability to
expand may be constrained.
Our Controlling Shareholders have substantial influence over our Company and their interests
may not be aligned with the interests of our other shareholders.
Our Controlling Shareholders have substantial influence over our business, including matters relating to
our management and policies and decisions regarding mergers, expansion plans, business consolidation,
the sale of all or substantially all of our assets, election of directors, dividend or other distributions and
other significant corporate actions. Three of our non-executive Directors are at the same time directors
or members of senior management of the companies which constitute our Controlling Shareholders. The
concentration of ownership interests and the substantial influence of our Controlling Shareholders over
us may discourage, delay or prevent a change in control of our Company, which could deprive other
shareholders of an opportunity to receive a premium for their Shares as part of a sale of our Company
and reduce the price of our Shares. In addition, the interests of our Controlling Shareholders may differ
from the interests of our other shareholders. Subject to our Articles of Association and applicable laws
and regulations, our Controlling Shareholders will continue to have the ability to exercise their
substantial influence over us and to cause us to enter into transactions or take, or fail to take, actions or
make decisions which conflict with the best interests of our other shareholders.
Our historical dividends may not be indicative of our future dividend policy.
We declared and paid RMB123.8 million, RMB190.4 million and RMB190.4 million in cash dividends
for the years ended 31 December 2009, 2010 and 2011, respectively. Subject to the factors discussed
from page 366 to page 367 of ‘‘Financial Information ― Dividend Policy’’, we may distribute dividend
in cash or in stock for the 2012 financial year. If in cash, the dividend will be no less than 10% of the
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distributable profits attributable to shareholders of our Company for the financial year. The specific plan
of dividend distribution will be determined at the general meeting of our Shareholders based on our
actual operating results. However, we cannot guarantee whether and when any dividends will be paid in
the future, and the amount of dividends that we may have declared historically is not indicative of our
Company’s future profit or the amount of dividends that we may pay in the future. For further
information on our dividend policy after completion of the Global Offering, please see the section
headed ‘‘Financial Information ― Dividend Policy’’ in this prospectus. The plans on declaration,
payment and the amount of any future dividends will be made at the discretion of our Board and will
depend upon general business conditions and strategies, our financial results and capital requirements,
our shareholders’ interests, contractual restrictions on the payment of dividends by us to our
shareholders or by our subsidiaries to us, taxation considerations, possible effects on our
creditworthiness, statutory and regulatory restrictions and other factors that our Board may deem
relevant. Our dividend distribution plans are also subject to the approval of our shareholders.
Our business operations may be materially and adversely affected by present or future
environmental regulations or enforcement and we deal with potentially hazardous materials that
may cause environmental contamination or injury to others.
We are subject to PRC laws, rules and regulations concerning the discharge of effluent water and solid
waste during our manufacturing processes. In addition, we are required to obtain clearances and
authorizations from government authorities for the treatment and disposal of such discharge. We cannot
assure you that we will be able to comply fully at all times with applicable environmental regulations.
Any violation of these regulations may result in substantial fines, criminal sanctions, revocations of
operating permits, shutdown of our facilities and obligations to take corrective measures. Furthermore,
the cost of complying with current and future environmental protection laws, rules and regulations and
the liabilities which may potentially arise from the discharge of effluent water and solid waste may
materially increase our costs as well as materially decrease our profit.
Our research and development programs, clinical trials and manufacturing operations may involve the
use of hazardous materials. In particular, the risk of accidental contamination to the environment or
injury to our employees or others from the use, manufacture, storage, handling or disposal of these
materials may not be completely eliminated. In the event of contamination or injury, we could be held
liable for any resulting damages, which could exceed our resources or any insurance coverage we may
have. Furthermore, governmental agencies could initiate investigations against us, which may result in
fines, sanctions, revocations of operating permits, suspension of our operations, closure of our facilities
or other penalties. Our reputation may be harmed as well.
Moreover, the PRC government may take steps towards the adoption of more stringent environmental
regulations. Due to the possibility of unanticipated regulatory or other developments, the amount and
timing of future environmental expenditures may vary substantially from those currently anticipated. If
there is any change in the environmental regulations, we may need to incur substantial capital
expenditures to install, replace, upgrade or supplement our pollution control equipment, take additional
protective and other measures against potential contamination or injury caused by hazardous materials,
or make operational changes to limit any adverse impact or potential adverse impact on the environment.
If these costs become significantly more expensive, we may be forced to cease certain of our
pharmaceutical manufacturing business. In addition, environmental liability insurance is not commonly
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RISK FACTORS
available in the PRC. Consequently, any significant environmental liability claims, if successfully
brought against us, could have a material adverse effect on our business, financial condition and results
of operations.
Our right to occupy and use some of our land and buildings is subject to legal uncertainties.
We face several legal uncertainties in our continued occupation of some of the properties we currently
use. First, as at 31 July 2012, we did not have valid title certificates, such as land use right certificates
(or LURCs), building ownership certificates (or BOCs) or real estate title certificates (or RECs), for 69
properties which had an aggregate gross floor area of approximately 42,157.80 square meters,
representing approximately 6.72% of the aggregate gross floor area we owned and occupied as at that
date. Our rights in relation to such properties and land, including the rights of occupation, utilization,
profit and disposal, may not be recognized and protected under PRC law until we obtain the relevant
title certificates. We are in the process of applying for the relevant title certificate for 20 of these
properties and land. We cannot assure you that we will be able to obtain all necessary title certificates
for each of these properties and land.
Second, as at 31 July 2012, we had not obtained the required governmental approvals to occupy certain
parcels of land of the 69 properties referred to above. Our PRC counsel has advised us that according to
the PRC Land Administration Law 《中�A人民共和��土地管理法》) and the Regulations on the
(
Implementation of the PRC Land Administration Law 《中�A人民共和��土地管理法��施�l例》), we
(
may be required to return the land to its previous owner, demolish and remove buildings constructed on
the land, restore the land to its original condition, or turn over the buildings to the government, and we
may be fined an amount up to RMB30 per square meter.
Third, as at 31 July 2012, we did not have the planning permits for some of the 69 properties. Our PRC
counsel has advised us that we may be fined an amount of up to 10% of the consideration paid for the
relevant construction and we may be required to demolish and remove buildings constructed, according
to the PRC City and Village Planning Law 《中�A人民共和��城�l���法》). In addition, we did not
(
have the construction permits for some of the 69 properties. Our PRC counsel has advised us that we
may be fined an amount of up to 2% of the consideration paid under the relevant construction contracts,
according to the PRC Construction Law 《中�A人民共和��建�B法》) and the Regulations on Quality
(
Management of Construction Projects 《建�O工程�|量管理�l例》).
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Fourth, as at 31 July 2012, there were 13 properties occupied and leased by us for which the lessors had
not provided us with the relevant BOCs or documentary evidence of the property owners’ consent to
sublease, as a result of which the leases had not been registered with the relevant government authority.
These properties represented approximately 1.97% of the aggregate gross floor area we owned and
occupied in the PRC as at that date. Such leases may be deemed invalid and unenforceable under PRC
law. In addition, we cannot assure you that we will be able to renew our leases on terms acceptable to
us upon their expiration. If any of our leases were to be terminated as a result of challenges by third
parties or our lessors’ refusal to renew them upon expiration of such leases, we may be forced to
relocate some of our manufacturing operations or offices and incur losses or additional costs associated
therewith.
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RISK FACTORS
Our pharmaceutical products may not receive international accreditation.
We seek to increase our export of certain pharmaceutical products. Local governmental approvals are
required before we may develop, market and sell our pharmaceutical products in a particular country or
region. In most countries and regions, obtaining government approval to develop, market and sell new
drugs is time-consuming and expensive, and clinical studies conducted outside of any particular country
may not be accepted by that country and the approval of a pharmaceutical product in one country does
not assure that the product will be approved in another country. In addition, governmental approvals
might not be obtained in a timely manner, if at all, and we and our collaborative partners might not be
able to meet other regulatory requirements for our pharmaceutical products. Even if we are successful in
obtaining all required approvals to market and sell a new drug, our failure to comply with
pharmaceutical-marketing requirements and other regulations could result in suspensions or limitations
of relevant government approvals.
In the case of exports to a developed country or region, our growth and success in such a market will
depend upon acceptance by local physicians, laboratories and health insurance providers of our
pharmaceutical products. This requires acceptance of our pharmaceutical products as clinically useful
and cost-effective alternatives to other competing products. Furthermore, our growth and success in any
country or region will depend, in part, on the extent to which companies, governmental bodies and other
organizations in such country or region provide insurance or comparable coverage for using our
pharmaceutical products. These third party players are increasingly challenging the price of medical
procedures and services and establishing guidelines that may place limitations on the selections of
products and procedures. We also cannot predict the effect of any current or future policies relating to
bulk purchases of pharmaceutical products by companies and other organizations in any country or
region we target to market and sell our pharmaceutical products to, which may have more stringent
criteria than the official standards for pharmaceutical products. Our failure to meet the standards of these
third party players and the bulk procurement policies of such companies and other organizations may
adversely affect our products’ ability to gain accreditation or acceptance in the relevant countries or
regions.
Our operations are subject to hazards and natural disasters that may affect our operations and
may not be fully covered by our insurance policies.
Our pharmaceutical, healthcare services, diagnostic products and medical devices businesses involve the
use of complex equipment and facilities and therefore may be disrupted by equipment or facility failures
or production safety accidents due to human errors or other non-human causes. Our business operations
may also be disrupted due to the occurrence of power or water outage accidents, natural disasters or
similar events. In particular, our pharmaceutical manufacturing business involves the production or
handling of various industrial chemicals, harmful biological or other hazardous materials which may
cause contamination, injury or other harm. We cannot assure you that all claims under our insurance
policies will be honored fully or on time or be sufficient to cover any damage. We do not carry any
business interruption insurance or third-party liability insurance for personal injury or environmental
damage arising from accidents at our facilities. In addition, there are certain types of losses, such as
those resulting from war, acts of terrorism, or natural disasters, for which we cannot obtain insurance at
a reasonable cost or at all. Should an accident, natural disaster or terrorist act occur, or should an
uninsured loss or a loss in excess of insured limits occur, we could suffer from financial losses, as well
as damage to our reputation, or lose all or a portion of future revenues anticipated to be derived from
the relevant facilities. Any material loss not covered by our insurance could materially and adversely
affect our business, financial condition and results of operations.
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RISK FACTORS
Each of the PRC pharmaceutical manufacturing, pharmaceutical distribution and retail,
healthcare services, and diagnostic products and medical devices industries is highly regulated, and
the regulatory framework, requirements and enforcement trends may constantly change.
Each of the PRC pharmaceutical manufacturing, pharmaceutical distribution and retail, healthcare
services, diagnostic products and medical devices industries in China is highly regulated. We are
governed by various local, regional and national regulatory regimes in all aspects of our operations,
including licensing and certification requirements and procedures for manufacturers, distributors and
retailers of pharmaceutical and healthcare products, operating and safety standards, and environmental
protection. We cannot assure you that the legal framework, licensing and certification requirements and
enforcement trends in our industries will not change, or that we will be successful in responding to such
changes. Such changes may result in increased costs of compliance, which would adversely affect our
business, financial condition and results of operations.
All pharmaceutical, diagnostic products and medical device manufacturers and pharmaceutical retail and
other distribution companies in China are required to obtain certain permits and licenses from various
PRC governmental authorities. We have obtained permits and licenses required for the manufacturing of
our pharmaceutical products and diagnostic products and medical devices in all material aspects. In
addition, we have obtained permits and licenses for the wholesale and retail distribution of our products
in all material aspects. These permits and licenses held by us are generally valid for a maximum period
of five years and subject to periodic renewal and/or reassessment by the relevant PRC governmental
authorities. The reassessment criteria are subject to reviews and may change from time to time and the
standards are increasingly stringent. We intend to apply for the renewal of these permits, licenses and
certifications when required by applicable laws and regulations. Any failure by us to obtain and
maintain all licenses, permits and certifications necessary to carry on our business at any time could
have a material adverse effect on our business, financial condition and results of operations.
In addition, any inability to renew these permits, licenses and certifications could severely disrupt our
business, and prevent us from continuing to carry on our business. Any changes in the standards used by
governmental authorities in considering whether to renew or reassess our business licenses, permits and
certifications, as well as any enactment of new regulations that may restrict the conduct of our business,
may also decrease our revenue and/or increase our costs, which in turn could materially and adversely
affect our profitability and prospects. Furthermore, if the interpretation or implementation of existing
laws and regulations changes, or new regulations come into effect, so as to require us to obtain any
additional permits, licenses or certifications that were previously not required to operate our existing
businesses, we cannot assure you that we may successfully obtain such permits, licenses or
certifications.
We are subject to regular inspections, examinations, inquiries or audits by the regulatory authorities as
part of the process of our maintaining or renewing the permits, licenses and certificates required for the
manufacturing and distribution of our pharmaceutical products, diagnostic products and medical devices
and the provision of healthcare services. In the event that any of our products or facilities fails such
inspections, our business, profitability and reputation in the relevant industries may be adversely
affected.
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RISK FACTORS
In addition, many initiatives taken, or to be taken, by the PRC government under the ongoing healthcare
reform plan are expected to significantly contribute to the growth of the healthcare industry. For
example, a significant portion of the government investment under the ongoing healthcare reform plan
will be applied towards subsidizing patients’ purchases of drugs. We cannot assure you, however, that
the relevant PRC government authorities will continue to introduce favorable policies. On the other
hand, the relevant PRC government authorities may also introduce policies that are unfavorable to the
healthcare industry. Termination of or material alterations to any favorable policies, or introduction of
any unfavorable policies, could have a material adverse effect on our business, financial condition,
results of operations and prospects.
RISKS RELATING TO THE PEOPLE’S REPUBLIC OF CHINA
Substantially all of our assets are located in China and most of our revenue is sourced from China.
Accordingly, our business, results of operations, financial condition and prospects are to a
significant degree subject to economic, political and legal developments in China.
Political, economic and social conditions, laws, regulations and policies in China could affect our
businesses and results of operations.
China’s economy differs from the economies of most developed countries in many respects, including
but not limited to structure, level of government involvement, level of development, growth rate, control
of foreign exchange, and allocation of resources.
China’s economy has been transitioning from a planned economy to a more market-oriented economy.
For the past three decades, the PRC government has implemented economic reform measures to
emphasize the utilization of market forces in economic development. We cannot predict whether changes
in China’s political, economic and social conditions, as well as its laws, regulations and policies, will
have any material adverse effect on our current or future business, financial condition and results of
operations.
Changes in foreign exchange regulations and future movements in the exchange rate of the
Renminbi may adversely affect our financial condition and results of operations and our ability to
pay dividends.
Current foreign exchange regulations have reduced the PRC government’s foreign exchange control on
routine transactions under the current account, including trade and service-related foreign exchange
transactions and payment of dividends. Under the existing foreign exchange regulations in the PRC,
following completion of the Global Offering, we will be able to pay dividends in foreign currencies
without prior approval from the SAFE by complying with certain procedural requirements. However, we
cannot assure you that these foreign exchange policies regarding payment of dividends in foreign
currencies will continue in the future. In addition, foreign currency transactions under our capital
account, including principal payments in respect of foreign currency-denominated obligations, continue
to be subject to significant foreign exchange controls and require the approval of the SAFE. These
limitations could affect our ability to obtain foreign exchange through debt or equity financing, or to
obtain foreign exchange for capital expenditures.
We receive a certain amount of revenue in foreign currency in relation to our international sales. For the
year ended 31 December 2011, such foreign currency-denominated revenue accounted for approximately
11.8% of our revenue. We also purchase equipment and spare parts for our equipment from overseas
equipment suppliers in foreign currencies, mainly U.S. dollars. As a result, our operations are exposed
�C 80 �C
RISK FACTORS
to fluctuation, in exchange rates of the RMB against these foreign currencies. The value of the Renminbi
may fluctuate due to a number of factors. In 2005, the PRC government changed its policy of pegging
the value of the RMB to the U.S. dollar. Under the current policy, the RMB is pegged against a basket
of currencies, determined by the People’s Bank of China, against which it can rise or fall by as much as
1% each day. There remains significant international pressure on the PRC government to adopt a more
flexible currency policy, which could result in a further appreciation of the RMB against the U.S. dollar
or other foreign currency. However, we cannot predict if or when any further reforms of China’s
exchange rate system will occur. Fluctuation of the Renminbi value will affect the amount of our non-
Renminbi debt service, if any, in Renminbi terms since we will have to convert Renminbi into non-
Renminbi currencies to service our foreign debt, if any. Since our income and profits are denominated in
Renminbi, any appreciation of Renminbi will also increase the value of, and any dividends payable on,
our H Shares in foreign currency terms. Conversely, any depreciation of Renminbi will decrease the
value of, and any dividends payable on, our H Shares in foreign currency terms.
The PRC legal system is still evolving and has inherent uncertainties that could limit the legal
protections available to you.
As we are a company incorporated under PRC law and substantially all of our businesses are conducted
in China, our operations are principally governed by PRC laws and regulations. The PRC legal system is
based on written statutes, and prior court decisions can only be cited as reference. Since 1979, the PRC
government has promulgated laws and regulations in relation to economic matters such as foreign
investment, corporate organization and governance, commerce, taxation and trade, with the aim of
developing a comprehensive system of commercial laws. However, because these laws and regulations
are still evolving, and because of the limited volume of published cases and their non-binding nature,
the interpretation of PRC laws and regulations still involves a degree of uncertainty.
Substantial amendments to the PRC Company Law and the PRC Securities Law came into effect on 1
January 2006. As a result, the State Council and the CSRC may revise the Special Regulations and the
Mandatory Provisions and adopt new rules and regulations to implement and reflect the amendments to
the PRC Company Law and the PRC Securities Law. We cannot assure you that any revision of the
current rules and regulations or the adoption of new rules and regulations by the State Council and the
CSRC will not have a material adverse effect on the rights of holders of H Shares.
As a PRC company offering and listing its H Shares outside the PRC, we are subject to the Special
Regulations and the Mandatory Provisions. Upon the listing of the H Shares on the Hong Kong Stock
Exchange, the Hong Kong Listing Rules will become the principal basis for the protection of the rights
of holders of H Shares. The Hong Kong Listing Rules impose particular standards of conduct and
disclosure on our Company, our Directors and the Controlling Shareholders of our Company. As far as
we are aware, China has not published any case report that involves a request by a holder of H shares of
a PRC company to exercise his or her rights under any constitutional document of a PRC joint stock
limited liability company, the PRC Company Law or any regulatory provisions of the PRC applicable to
PRC joint stock limited liability companies.
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RISK FACTORS
It may be difficult to effect service of process upon us or our Directors or executive officers that
reside in the PRC or to enforce against them or us in the PRC any judgments obtained from non-
PRC courts.
The legal framework to which our Company is subject is materially different from the Companies
Ordinance or corporate law in the United States and other jurisdictions with respect to certain areas,
including the protection of minority shareholders. In addition, the mechanisms for enforcement of rights
under the corporate governance framework to which our Company is subject are also relatively
undeveloped and untested. However, according to the PRC Company Law, shareholders may commence
a derivative action against the directors, supervisors, officers or any third party on behalf of a company
under certain circumstances.
On 14 July 2006, the Supreme People’s Court of the PRC and the Government of Hong Kong signed the
Arrangement on Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial
Matters by the Courts of the Mainland and of the Hong Kong Special Administrative Region Pursuant to
Choice of Court Agreements between Parties Concerned 《�P於�鹊嘏c香港特�e行政�^法院相互�J可和
(
�绦挟�事人�f�h管�的民商事案件判�Q的安排》). Under such an arrangement, where any designated
people’s court in the PRC or any designated Hong Kong court has made an enforceable final judgment
requiring payment of money in a civil and commercial case pursuant to a choice of court agreement in
writing by the parties, any party concerned may apply to the relevant people’s court in the PRC or Hong
Kong court for recognition and enforcement of the judgment. Although this arrangement became
effective on 1 August 2008, the outcome and effectiveness of any action brought under the arrangement
may still be uncertain.
Our Articles of Association provide that disputes between holders of H Shares and our Company, our
Directors, Supervisors or officers or holders of A Shares, arising out of the Articles of Association or
any rights or obligations conferred or imposed upon by the PRC Company Law and related regulations
concerning its affairs, such as the transfer of our Shares, are to be resolved through arbitration by
arbitral committees in China or the Hong Kong International Arbitration Center (香港���H仲裁中心),
rather than by a court of law. In addition, on 18 June 1999, the Supreme People’s Court of the PRC
and the Government of Hong Kong signed the Arrangement Concerning Mutual Enforcement of
Arbitral Awards between the Mainland and Hong Kong Special Administrative Region 《�P於�鹊嘏c
(
香港特�e行政�^法院相互�绦兄俨貌门械陌才拧�). This arrangement, made in accordance with the
spirit of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards,
was approved by the Supreme People’s Court of the PRC and the Hong Kong Legislative Council and
became effective on 1 February 2000. Under the arrangement, awards that are made by the PRC
arbitral authorities recognized under the Arbitration Ordinance of Hong Kong can be enforced in Hong
Kong, and awards made by Hong Kong arbitral authorities are also enforceable in the PRC. However,
so far as we are aware, there has not been any published report of judicial enforcement in the PRC by
a holder of H shares to enforce an arbitral award made by the PRC arbitral authorities or Hong Kong
arbitral authorities, and there are uncertainties as to the outcome of any action brought in the PRC to
enforce an arbitral award made in favor of a holder of H shares. Accordingly, we are unable to predict
the outcome of any such action.
In addition, PRC laws, rules and regulations applicable to companies listed overseas do not distinguish
among minority and controlling shareholders in terms of their rights and protections and our minority
shareholders may not have the same protections afforded to them by companies incorporated under the
laws of the United States and certain other jurisdictions.
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RISK FACTORS
Substantially all of our Directors, Supervisors and executive officers reside within the PRC.
Substantially all of our assets and substantially all of the assets of our Directors, Supervisors and
executive officers are located within the PRC. The PRC does not have treaties providing for the
reciprocal recognition and enforcement of judgments of courts with the United States, the United
Kingdom, Japan and many other countries. Therefore, it may not be possible for investors to effect
service of process upon us or those persons in the PRC or to enforce against them or us in the PRC any
judgments obtained from non-PRC courts. In addition, recognition and enforcement in the PRC of
judgments of a court of any other jurisdiction in relation to any matter not subject to a binding
arbitration provision may be difficult or impossible.
Foreign individual holders of our H Shares are subject to PRC income tax and there are
uncertainties as to the PRC tax obligations of foreign enterprises that are holders of our H Shares.
Under current PRC tax laws, regulations and rules, foreign individuals and foreign enterprises that are
not PRC residents are subject to different tax obligations with respect to the dividends paid by us or the
gains realized upon the sale or other disposition of H Shares.
Foreign individuals who are not PRC residents are required to pay PRC individual income tax at 20%
rate under the PRC Individual Income Tax Law 《中�A人民共和����人所得�法》). Accordingly, we are
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required to withhold such tax from dividend payments, unless applicable tax treaties between China and
the jurisdictions in which the foreign individuals reside reduce or provide an exemption for the relevant
tax obligations. Generally, a convenient tax rate of 10% shall apply to the dividends paid by our
Company listed in Hong Kong to foreign individuals without application according to the treaties. When
a tax rate of 10% is not applicable, the withholding company shall: (i) return the excessive tax amount
pursuant to due procedures if the applicable tax rate is lower than 10%; (ii) withhold such foreign
individual income tax at the applicable tax rate if the applicable tax rate is between 10% and 20%; and
(iii) withhold such foreign individual income tax at a rate of 20% if no double taxation treaty is
applicable.
For foreign enterprises that do not have offices or establishments in the PRC, or have offices or
establishments in the PRC but to which their income is not related, under the 2008 EIT Law and its
implementation rules, dividends paid by us and the gains realized by such foreign enterprises upon the
sale or other disposition of H Shares are ordinarily subject to PRC enterprise income tax at a rate of
10%, subject to a further reduction under a special arrangement or applicable treaty between the PRC
and the jurisdiction of the relevant foreign enterprise’s residence. In accordance with the Notice of the
State Administration of Taxation on the Issues Concerning Withholding the Enterprise Income Tax on
the Dividends Paid by Chinese Resident Enterprises to H-share Holders Which Are Overseas Non-
resident Enterprises (Guo Shui Han [2008] No. 897) 《�P於中��居民企�I向境外H股非居民企�I股�|派
(
�l股息代�U企�I所得�有�P���}的通知》���函[2008]897�》) which became effective from 6
November 2008, 10% withholding tax shall be imposed on dividends paid by Chinese resident
enterprises to holders of H Shares that are overseas non-resident enterprises. These holders of H Shares
may apply for tax refunds in accordance with applicable tax treaties or arrangements, if any. In addition,
the PRC tax laws, rules and regulations may also change from time to time. If the tax rates stipulated in
the 2008 EIT Law and the related implementation rules are amended, the value of your investment in
our H Shares could be materially and adversely affected.
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RISK FACTORS
In addition, it is also unclear whether and how the PRC individual income tax and enterprise income tax
on gains realized by non-resident holders of H shares through the sale, or transfer by other means, of H
shares will be collected by the PRC tax authorities in the future, although such tax has not been
collected by the PRC tax authorities in practice. Considering these uncertainties, non-resident holders of
our H Shares should be aware that they may be obligated to pay PRC income tax on the dividends and
gains realized through sale or transfers of the H Shares. For additional information, please see
‘‘Appendix V ― Taxation’’ to this prospectus.
Natural disasters and health and public security hazards in the PRC may severely disrupt our
business and operations and may have a material adverse effect on our financial condition and
results of operations.
Our business operations may be disrupted due to the occurrence of typhoons, earthquakes, floods, fire,
acts of terror, epidemics or other natural disasters or similar events. For example, in May 2008, a major
earthquake registering 8.0 on the Richter scale struck Sichuan Province and certain other parts of the
PRC, devastating much of the affected areas and causing tens of thousands of deaths and widespread
injuries. In addition, in early 2008, parts of the PRC, in particular its southern, central and eastern
regions, experienced what was reportedly the most severe winter weather in the country in half a
century, which resulted in significant and extensive damage to factories, power lines, homes,
automobiles, crops and other properties, blackouts, transportation and communications disruptions and
other losses in the affected areas. Moreover, certain countries and regions, including the PRC, have
encountered incidents of the H1N1 strain of bird flu, or avian flu, as well as SARS, over the past ten
years and, more recently in 2009, the outbreak of influenza A (H1N1). We are unable to predict the
effect, if any, that any future natural disasters and health and public security hazards may have on our
business. Any future natural disasters and health and public security hazards may, among other things,
significantly disrupt our ability to adequately staff our business, distribute our products and may
generally disrupt our operations and services. Furthermore, such natural disasters and health and public
security hazards may severely restrict the level of economic activity in affected areas, which may in turn
materially and adversely affect our business and prospects.
Inflation in the PRC could negatively affect our profitability and growth.
Economic growth in the PRC has, in the past, been accompanied by periods of high inflation, and the
PRC government has implemented various policies from time to time to control inflation. For example,
the PRC government introduced measures in certain sectors to avoid overheating of the economy,
including tighter bank lending policies and increases in bank interest rates. The effects of the stimulus
measures implemented by the PRC government since the global economic crisis that unfolded in 2008
may have contributed to the occurrence of, and continuing increase, in inflation in China. If such
inflation is allowed to proceed without mitigating measures by the PRC government, our cost of sales
would likely increase, and our profitability would be materially reduced, as there is no assurance that we
would be able to pass any cost increases onto our customers. If the PRC government implements new
measures to control inflation, these measures may also slow economic activity and reduce demand for
our products and services and severely hamper our growth.
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RISK FACTORS
RISKS RELATING TO THE GLOBAL OFFERING
There has been no prior public market for our H Shares. The liquidity and market price of our H
Shares following the Global Offering may be volatile.
Prior to the Global Offering, there has been no public market for our H Shares. The initial Offer Price
range issued to the public for our H Shares was the result of negotiations between our Company and the
Underwriters, and the Offer Price may differ significantly from the market price for our H Shares
following the Global Offering. We have applied to list and deal in our H Shares on the Hong Kong
Stock Exchange. We cannot assure you that the Global Offering will result in the development of an
active, liquid public trading market for our H Shares. In addition, the price and trading volumes of our
H Shares may be volatile. Factors such as variations in our revenue, earnings and cash flows or other
developments in our business or industries or the financial markets may affect the volume and price at
which our H Shares will trade.
Since there will be a gap of several days between pricing and trading of our Offer Shares, holders
of our Offer Shares are subject to the risk that the price of our Offer Shares could fall during the
period before trading of our Offer Shares begins.
The Offer Price of our H Shares is expected to be determined on the Price Determination Date.
However, our H Shares will not commence trading on the Hong Kong Stock Exchange until they are
delivered, which is expected to be five Hong Kong business days after the pricing date. As a result,
investors may not be able to sell or otherwise deal in our H Shares during that period. Accordingly,
holders of our H Shares are subject to the risk that the price of our H Shares could fall before trading
begins as a result of adverse market conditions or other adverse developments, such as a decline in our
A Share price, that could occur between the time of sale and the time trading begins.
Because the Offer Price is higher than the net tangible book value per share of our Company, the
holders of our H Shares will incur immediate dilution.
The initial public offering price of our H Shares is higher than the net tangible asset value per share of
the outstanding shares issued to our existing shareholders. Therefore, purchasers of our H Shares in the
Global Offering will experience an immediate dilution in net tangible asset value of HK$6.96 per H
Share (assuming an Offer Price of HK$12.74 per H Share, being the mid-point of the indicative Offer
Price range in the Global Offering, and assuming the Over-allotment Option is not exercised), and our
existing shareholders will receive an increase in the pro forma adjusted consolidated net tangible asset
value per share of their shares. In addition, holders of our H Shares may experience a dilution of their
proportional interest in our Company if we raise additional capital in the future.
Future sales or perceived sales of substantial amounts of our securities in the public market could
have a material and adverse effect on the prevailing market price of our H Shares and our ability
to raise capital in the future and may result in dilution of your shareholding in our Company.
The market price of our H Shares could decline as a result of future sales of substantial amounts of our
H Shares or other securities relating to our H Shares in the public market or the issuance of new H
Shares or other securities, or the perception that such sales or issuances may occur. Future sales, or
perceived sales, of substantial amounts of our securities, including any future offerings, could also
materially and adversely affect our ability to raise capital in the future at a time and at a price we deem
appropriate. In addition, our shareholders may experience dilution in their holdings to the extent we
issue additional securities in future offerings.
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RISK FACTORS
Certain amounts of our Shares currently outstanding are and/or will be subject to contractual and/or
legal restrictions on resale for a period of time after completion of the Global Offering. See
the section headed ‘‘Underwriting ― The Hong Kong Public Offering’’ from page 374 to page 381 for
details. After these restrictions lapse or if they are waived or breached, future sales, or perceived sales,
of substantial amounts of our Shares could negatively impact the market price of our H Shares and our
ability to raise capital in the future.
Subject to the approval of the securities regulatory authority under the State Council, holders of our
domestic A Shares may transfer their domestic A Shares to overseas investors, and such transferred A
Shares may be listed or traded on an overseas stock exchange. Any listing or trading of the transferred
A Shares on an overseas stock exchange shall also comply with the regulatory procedures, rules and
requirements of such stock exchange. No class shareholder voting is required for the listing and trading
of the transferred A Shares on an overseas stock exchange. Therefore, subject to receiving the requisite
approval and upon the expiration of the applicable contractual and/or legal restrictions on share
transfers, holders of our domestic A Shares may transfer their domestic A Shares to overseas investors,
which A Shares may then trade on the Hong Kong Stock Exchange as H Shares. This could further
increase the supply of our H Shares in the market and could negatively impact the market price of our H
Shares.
Our A Shares are listed and traded on the Shanghai Stock Exchange, and the characteristics of the
A share and H share markets are different.
Our A Shares have been listed and have traded on the Shanghai Stock Exchange since 7 August 1998.
As at Latest Practicable Date, there were a total of 1,904,392,364 A Shares outstanding, representing
approximately 85% of our total issued and outstanding shares immediately following the completion of
the Global Offering, assuming no exercise of the H Share Over-Allotment Option. Following the Global
Offering, our A Shares will continue to be traded on the Shanghai Stock Exchange and our H Shares
will be traded on the Hong Kong Stock Exchange.
Under current laws and regulations, our H Shares and A Shares are neither interchangeable nor fungible,
and there is no trading or settlement between the H share and A share markets. The H share and A share
markets have different characteristics, including different trading volume and liquidity, and investor
bases, including different levels of retail and institutional participation. As a result of these differences,
the trading prices of our H Shares and A Shares may not be the same.
Fluctuations in the price of our A Shares may adversely affect the price of our H Shares, and vice versa.
Due to the different characteristics of the A share and H share markets, the historical prices of our A
Shares may not be indicative of the performance of our H Shares. You should therefore not place undue
reliance on the prior trading history of our A Shares when evaluating an investment in our H Shares.
We cannot guarantee the accuracy of official government facts, forecasts and other statistics with
respect to China, the Chinese economy and China’s pharmaceutical and healthcare industries
contained in this prospectus.
Official government facts, forecasts and other statistics in this prospectus relating to China, the Chinese
economy and China’s pharmaceutical and healthcare industries have been derived from official
government publications. We believe that the sources of such information are appropriate sources, and
we have taken reasonable care in extracting and reproducing such information. We have no reason to
believe that such information is false or misleading or that any fact has been omitted that would render
such information false or misleading. The information has not been independently verified by us, the
Joint Sponsors, the Underwriters or any other party involved in the Global Offering, and no
�C 86 �C
RISK FACTORS
representation is given as to its accuracy. In all cases, investors should give consideration as to how
much weight or importance they should attach to or place on such official government facts, forecasts or
statistics.
You should read the entire prospectus carefully and we strongly caution you not to place any
reliance on any information contained in press articles and/or other media regarding us, our
business, our industries and the Global Offering.
There has been prior to the publication of this prospectus, and there may be subsequent to the date of
this prospectus but prior to the completion of the Global Offering, press and/or media regarding us, our
business, our industries and the Global Offering. You should rely solely upon the information contained
in this prospectus in making your investment decisions regarding our H Shares. None of us, the Joint
Global Coordinators, the Joint Bookrunners, the Joint Sponsors, the Underwriters or any other person
involved in the Global Offering have authorized the disclosure of any such information in the press or
media and none of these parties accept any responsibility for the accuracy or completeness of the
information contained in such press articles and/or other media or the fairness or appropriateness of any
forecasts, views or opinions expressed by the press and/or other media regarding our H Shares, the
Global Offering, our business, our industries or us. We make no representation as to the appropriateness,
accuracy, completeness or reliability of any such information, forecasts, views or opinions expressed or
any such publications. To the extent that such statements, forecasts, views or opinions are inconsistent
or conflict with the information contained in this prospectus, we disclaim them. Accordingly,
prospective investors are cautioned to make their investment decisions on the basis of the information
contained in this prospectus only and should not rely on any other information.
�C 87 �C
WAIVERS FROM STRICT COMPLIANCE WITH
THE HONG KONG LISTING RULES AND THE COMPANIES ORDINANCE
MANAGEMENT PRESENCE IN HONG KONG
Rules 8.12 and 19A.15 of the Hong Kong Listing Rules require that an issuer must have sufficient
management presence in Hong Kong and, in normal circumstances, at least two of the issuer’s executive
directors must be ordinarily resident in Hong Kong. Currently, all of our executive Directors reside in
China. As most of our operations are in China, we will not, after Listing or in the foreseeable future,
have sufficient management presence in Hong Kong. We have applied to the Hong Kong Stock
Exchange for, and the Hong Kong Stock Exchange has granted, a waiver from strict compliance with
Rules 8.12 and 19A.15 of the Hong Kong Listing Rules.
The arrangements proposed by us for maintaining regular communication with the Hong Kong Stock
Exchange for the purpose of Rules 8.12 and 19A.15 of the Hong Kong Listing Rules are as follows:
a. our Company will appoint two authorised representatives pursuant to Rule 3.05 of the Hong Kong
Listing Rules who will act as our Company’s principal communication channel with the Hong
Kong Stock Exchange and will ensure that they comply with the Hong Kong Listing Rules at all
times. The two authorised representatives to be appointed are Mr. Chen Qiyu (���宇), a PRC
resident, and Ms. Lo Yee Har Susan (�R�_霞), an ordinarily resident in Hong Kong. Although one
of them resides in the PRC, Mr. Chen Qiyu (���宇) has valid travel documents and is able to
renew such travel documents when they expire in order to visit Hong Kong. Each of the two
authorised representatives has been duly authorised to communicate on behalf of our Company
with the Hong Kong Stock Exchange and each of them will be readily available to meet with the
Hong Kong Stock Exchange in Hong Kong within a reasonable time frame upon request and will
be readily contactable by mobile or telephone, facsimile or email;
b. both the authorised representatives have means to contact all members of the Board of Directors
promptly at all times as and when the Hong Kong Stock Exchange wishes to contact the Board of
Directors on any matters;
c. our Company has implemented a policy whereby (i) each Director will provide his or her
respective mobile phone number, residential phone number, fax number and email address to the
authorised representatives; (ii) each Director will provide valid phone numbers or means of
communication to the authorised representatives when he or she travels; and (iii) each Director and
authorised representative has provided his or her mobile phone number, office phone number, fax
number and email address to the Hong Kong Stock Exchange;
d. all Directors who are not ordinarily resident in Hong Kong have confirmed that they hold valid
travel documents to visit Hong Kong and will be able to meet with the Hong Kong Stock
Exchange in Hong Kong upon reasonable notice, when required; and
e. our Company has appointed Haitong International Capital Limited as compliance adviser who will
have access at all times to our Company’s authorised representatives, Directors and other officers
and will serve as our Company’s additional communication channel with the Hong Kong Stock
Exchange. The compliance adviser will advise our Company on on-going compliance requirements
and other issues arising under the Hong Kong Listing Rules for the period commencing on the
Listing Date and ending on the date on which our Company distributes the annual report for the
first full financial year after the listing of its H Shares.
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WAIVERS FROM STRICT COMPLIANCE WITH
THE HONG KONG LISTING RULES AND THE COMPANIES ORDINANCE
APPOINTMENT OF JOINT COMPANY SECRETARIES
Rule 8.17
According to Rule 8.17 of the Hong Kong Listing Rules, the company must appoint a company
secretary who satisfies Rule 3.28 of the Hong Kong Listing Rules.
Rule 3.28
Rule 3.28 of the Hong Kong Listing Rules specifies that, the company secretary must be an individual
who, by virtue of his academic or professional qualifications or relevant experience, is, in the opinion of
the Hong Kong Stock Exchange, capable of discharging the functions of company secretary.
The Hong Kong Stock Exchange considers the following academic or professional qualifications to be
acceptable:
(a) a member of The Hong Kong Institute of Chartered Secretaries;
(b) a solicitor or barrister (as defined in the Legal Practitioners Ordinance); and
(c) a certified public accountant (as defined in the Professional Accountants Ordinance).
In assessing ‘‘relevant experience’’, the Hong Kong Stock Exchange will consider the individual’s:
(a) length of employment with the issuer and other issuers and the roles he played;
(b) familiarity with the Hong Kong Listing Rules and other relevant law and regulations including the
SFO, the Companies Ordinance, and the Takeovers Code;
(c) relevant training taken and/or to be taken in addition to the 15 hours minimum requirement under
Rule 3.29 of the Hong Kong Listing Rules; and
(d) professional qualifications in other jurisdictions.
Dr. Qiao Zhicheng (�讨境�) does not possess the specified qualifications required by Rule 3.28 of the
Hong Kong Listing Rules although he has held various senior positions as indicated in his biography,
and he may not possess the relevant experience as required by the Hong Kong Stock Exchange in terms
of his familiarity with the Hong Kong Listing Rules. Given the important role of the company secretary
in the corporate governance of a listed issuer, particularly in assisting the listed issuer as well as its
directors in complying with the Hong Kong Listing Rules and other relevant laws and regulations, we
have the following arrangements:
. Dr. Qiao Zhicheng (�讨境�) will endeavor to attend relevant training courses including briefings
on the latest changes to the applicable Hong Kong laws and regulations and the Hong Kong
Listing Rules organized by our Company’s Hong Kong legal advisers on an invitation basis and
seminars organized by the Hong Kong Stock Exchange for PRC issuers from time to time.
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WAIVERS FROM STRICT COMPLIANCE WITH
THE HONG KONG LISTING RULES AND THE COMPANIES ORDINANCE
. Our Company has appointed Ms. Lo Yee Har Susan (�R�_霞) who meets the requirements under
Rule 3.28 of the Hong Kong Listing Rules, as a joint company secretary to assist Dr. Qiao
Zhicheng (�讨境�) so as to enable him to acquire the relevant experience (as required under Rule
3.28 of the Hong Kong Listing Rules) to discharge the duties and responsibilities as company
secretary of our Company.
. Ms. Lo Yee Har Susan (�R�_霞), who will familiarize herself with the affairs of our Company, will
communicate regularly with Dr. Qiao Zhicheng (�讨境�) on matters relating to corporate
governance, the Hong Kong Listing Rules as well as other laws and regulations which are relevant
to us and our other affairs. Ms. Lo Yee Har Susan (�R�_霞) will work closely with, and provide
assistance to, Dr. Qiao Zhicheng (�讨境�) in the discharge of his duties as a joint company
secretary, including organizing our Company’s board meetings and Shareholders’ meetings.
. Dr. Qiao Zhicheng (�讨境�) will be appointed for an initial period of one full financial year (i.e.
from the Listing Date to 31 December 2013), provided that he will be assisted by Ms. Lo Yee Har
Susan (�R�_霞). Upon expiry of the one full financial year period, a further evaluation of the
qualifications and experience of Dr. Qiao Zhicheng (�讨境�) and the need for on-going assistance
would be made.
Our Company has applied to the Hong Kong Stock Exchange for, and has been granted, a waiver from
strict compliance with the requirements of Rule 8.17 of the Hong Kong Listing Rules. Upon the expiry
of the initial one full financial year period, the Hong Kong Stock Exchange will revisit the qualification
and experience of Dr. Qiao Zhicheng (�讨境�) to determine whether the requirements as stipulated in
Rule 8.17 of the Hong Kong Listing Rules can be satisfied. In the event that Dr. Qiao Zhicheng (�讨�
城) has obtained relevant experience under Rule 3.28 of the Hong Kong Listing Rules at the end of the
said period, the above joint company secretaries arrangement will no longer be required by our
Company.
WAIVER FROM RULE 10.04 AND PARAGRAPH 5(2) OF APPENDIX 6 TO THE HONG KONG
LISTING RULES
Rule 10.04 of the Hong Kong Listing Rules provides that a person who is an existing shareholder of the
issuer may only subscribe for or purchase securities for which listing is sought if no securities will be
offered to them on a preferential basis and no preferential treatment will be given to them in the
allocation of the securities. Paragraph 5(2) of Appendix 6 to the Hong Kong Listing Rules provides,
among other things, that without the prior written consent of the Hong Kong Stock Exchange, no
allocations will be permitted to existing shareholders or their associates, whether in their own names or
through nominees, unless certain conditions are fulfilled.
Prior to the H Share Listing, our Company’s share capital consisted entirely of A Shares listed on the
Shanghai Stock Exchange (stock code: 600196). Our Company’s A Shares were widely held and
actively traded. Other than our Controlling Shareholders, no other single public shareholder held more
than 4% of the total outstanding A Shares of our Company as at the Latest Practicable Date.
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WAIVERS FROM STRICT COMPLIANCE WITH
THE HONG KONG LISTING RULES AND THE COMPANIES ORDINANCE
We have applied to the Hong Kong Stock Exchange for, and the Hong Kong Stock Exchange has
granted to us, a waiver from strict compliance with the requirements under Rule 10.04 and Paragraph
5(2) of Appendix 6 to the Hong Kong Listing Rules to permit certain investors who hold our A Shares
(‘‘A Share Holder’’) or their associates to receive allocation of the H Shares in the International
Offering as part of the Global Offering, subject to the following conditions:
(a) our Directors, Supervisors and senior management confirm that they will not participate directly or
indirectly in the Global Offering;
(b) our Directors confirm that none of the A Share Holders or their associates for which the above
waiver is granted:
(i) individually holds more than 4% of our Company’s issued A Shares capital immediately prior
to the completion of the Global Offering; or
(ii) exerts any influence over our Company’s allocation of H Shares in the Global Offering; or
(iii) has board representation in our Company; or
(iv) has been or would be a connected person or an associate of a connected person of our
Company;
(c) each of the A Share Holders and their associates will be subject to the same book-building and
allocation process as with other investors in the International Offering, and no preferential
treatment will be given to each of the A Share Holders or their associates in the allocation;
(d) the H Shares acquired by the A Share Holders and/or their associates in the International Offering
tranche will rank pari passu with the same rights and benefits as other H Shares issued under the
Global Offering;
(e) the grant of the above waiver would not negatively impact our Company’s ability to meet the
minimum public float requirement of our Company as granted by the Hong Kong Stock Exchange
under the public float requirements waiver above; and
(f) the relevant information will be fully disclosed in the prospectus.
NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS
Members of our Group have entered into, and are expected to continue after the Listing, certain
transactions, which will constitute non-exempt continuing connected transactions under the Hong Kong
Listing Rules upon Listing. Our Company has applied to the Hong Kong Stock Exchange for a waiver
from strict compliance with the requirements regarding the announcements and independent
shareholders’ approval in respect of such non-exempt continuing connected transactions under Chapter
14A of the Hong Kong Listing Rules, details of which are set out in the section headed ‘‘Connected
Transactions’’ in this prospectus.
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INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS
This prospectus, for which our Directors collectively and individually accept full responsibility, includes
particulars given in compliance with the Companies Ordinance, the Securities and Futures (Stock Market
Listing) Rules (Chapter 571 V of the Laws of Hong Kong) and the Hong Kong Listing Rules for the
purpose of giving information with regard to our Group. Our Directors, having made all reasonable
enquiries, confirm that to the best of their knowledge and belief the information contained in this
prospectus is accurate and complete in all material respects and not misleading or deceptive, and there
are no other matters the omission of which would make any statement in this prospectus misleading.
INFORMATION ON THE GLOBAL OFFERING
The Offer Shares are offered solely on the basis of the information contained and representations made
in this prospectus and the Application Forms and on the terms and subject to the conditions set out
herein and therein. No person is authorized to give any information in connection with the Global
Offering or to make any representation not contained in this prospectus, and any information or
representation not contained herein must not be relied upon as having been authorized by us, the Joint
Global Coordinators, the Joint Bookrunners, Joint Lead Mangers, the Joint Sponsors, the Underwriters,
any of our or their respective directors, agents, employees or advisers or any other party involved in the
Global Offering.
Neither the delivery of this prospectus nor any offering, sale or delivery made in connection with the
Offer Shares should, under any circumstances, constitute a representation that there has been no change
or development reasonably likely to involve a change in our affairs since the date of this prospectus or
imply that the information contained in this prospectus is correct as at any date subsequent to the date of
this prospectus.
Details of the structure of the Global Offering, including its conditions, are set out in ‘‘Structure of the
Global Offering’’ and the procedures for applying for Hong Kong Offer Shares are set out in ‘‘How to
Apply for Hong Kong Offer Shares’’ and in the relevant Application Forms.
CSRC APPROVAL
The CSRC has given us its approval for the filing of our application to list the H Shares on the Hong
Kong Stock Exchange and the Global Offering on 5 April 2012. In granting this approval, the CSRC
does not accept responsibility for the financial soundness of our Company, or for the accuracy of any of
the statements made or opinions expressed in this prospectus and the Application Forms.
UNDERWRITING
This prospectus is published solely in connection with the Hong Kong Public Offering which forms part
of the Global Offering. For applicants applying under the Hong Kong Public Offering, this prospectus
and the Application Forms contain the terms and conditions of the Hong Kong Public Offering.
The Listing of the Offer Shares on the Hong Kong Stock Exchange is sponsored by the Joint Sponsors.
The Global Offering is managed by the Joint Global Coordinators. The Hong Kong Public Offering is
fully underwritten by the Hong Kong Underwriters pursuant to the Hong Kong Underwriting Agreement.
The International Purchase Agreement relating to the International Offering is expected to be entered
into on or about the Price Determination Date, subject to determination of the pricing of the Offer
Shares. If, for any reason, the Offer Price is not agreed among us and the Joint Global Coordinators (on
�C 92 �C
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
behalf of the Underwriters) by Friday, 26 October 2012, the Global Offering (including the Hong Kong
Public Offering) will not proceed and will lapse. Further details about the Underwriters and the
underwriting arrangements are contained in the section headed ‘‘Underwriting’’ in this prospectus.
RESTRICTIONS ON OFFER AND SALE OF THE OFFER SHARES
Each person acquiring the Hong Kong Offer Shares under the Hong Kong Public Offering will be
required to, or be deemed by his, her or its acquisition of the Hong Kong Offer Shares to, confirm that
he, she or it is aware of the restrictions on offers of the Hong Kong Offer Shares described in this
prospectus.
No action has been taken to permit a public offering of the Hong Kong Offer Shares in any jurisdiction
other than Hong Kong, or the distribution of this prospectus in any jurisdiction other than Hong Kong.
Accordingly, this prospectus may not be used for the purpose of, and does not constitute, an offer or
invitation in any jurisdiction or in any circumstances in which such an offer or invitation is not
authorized or to any person to whom it is unlawful to make such an offer or invitation. The distribution
of this prospectus, and the offering and sale of the Offer Shares, in other jurisdictions are subject to
restrictions and may not be made except as permitted under the applicable securities laws of such
jurisdictions pursuant to registration with or authorization by the relevant securities regulatory
authorities or an exemption therefrom.
APPLICATION FOR LISTING OF THE OFFER SHARES ON THE HONG KONG STOCK
EXCHANGE
We have applied to the Listing Committee of the Hong Kong Stock Exchange for the listing of, and
permission to deal in, our Offer Shares to be issued pursuant to the Global Offering. Except for the A
Shares of our Company that have been listed on the Shanghai Stock Exchange and pending application
to the Hong Kong Stock Exchange for listing of, and permission to deal in, the H Shares, no part of the
Shares or loan capital of our Company is listed on or dealt in on any other stock exchange and no such
listing or permission to list is being or is proposed to be sought in the near future.
H SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
Subject to the granting of listing of, and permission to deal in, our Offer Shares on the Hong Kong
Stock Exchange and the compliance with the stock admission requirements of HKSCC, the H Shares
will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with
effect from the Listing Date or on any other date HKSCC chooses. Settlement of transactions between
participants of the Hong Kong Stock Exchange is required to take place in CCASS on the second
Business Day after any trading day. All activities under CCASS are subject to the General Rules of
CCASS and CCASS Operational Procedures in effect from time to time. All necessary arrangements
have been made for the H Shares to be admitted into CCASS.
Investors should seek the advice of their stockbrokers or other professional advisers for details of the
settlement arrangements that may affect their rights and interests.
HONG KONG SHARE REGISTER AND STAMP DUTY
All of the H Shares issued pursuant to applications made in the Hong Kong Public Offering will be
registered on our H Share register of members to be maintained in Hong Kong. Our principal register of
members will be maintained by us at our head office in the PRC.
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INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
Dealings in the H Shares registered in our H Share register of members will be subject to the Hong
Kong stamp duty. See ‘‘Appendix V ― Taxation’’.
DIVIDENDS PAYABLE TO HOLDERS OF H SHARES
Unless determined otherwise by our Company, dividends payable in Hong Kong dollars in respect of H
Shares will be paid to Shareholders as recorded in our H Share register, and sent by ordinary post, at the
Shareholders’ own risk, to the registered address of each Shareholder.
REGISTRATION OF SUBSCRIPTION, PURCHASE AND TRANSFER OF H SHARES
We have instructed Tricor Investor Services Limited, our H Share Registrar, and our H Share Registrar
has agreed, not to register the subscription, purchase or transfer of any H Shares in the name of any
particular holder unless and until such holder delivers a signed form to our H Share Registrar in respect
of those H Shares bearing statements to the effect that the holder:
(i) agrees with us and each of our Shareholders, and we agree with each Shareholder, to observe and
comply with the PRC Company Law, the Special Regulations and our Articles of Association;
(ii) agrees with us, each of our Shareholders, Directors, Supervisors, managers and officers, and we
acting for ourselves and for each of our Directors, Supervisors, managers and officers agree with
each of our Shareholders, to refer all differences and claims arising from our Articles of
Association or any rights or obligations conferred or imposed by the PRC Company Law or other
relevant laws and administrative regulations concerning our affairs to arbitration in accordance
with our Articles of Association, and any reference to arbitration shall be deemed to authorize the
arbitration tribunal to conduct hearings in open session and to publish its award, which arbitration
shall be final and conclusive. See ‘‘Appendix VI ― Summary of Principal Legal and Regulatory
Provisions’’ and ‘‘Appendix VII ― Summary of Articles of Association’’;
(iii) agrees with us and each of our Shareholders that the H Shares are freely transferable by the
holders thereof; and
(iv) authorizes us to enter into a contract on his behalf with each of our Directors, Supervisors,
managers and officers whereby such Directors, Supervisors, managers and officers undertake to
observe and comply with their obligations to our Shareholders as stipulated in our Articles of
Association.
Persons applying for or purchasing H Shares under the Global Offering are deemed, by their making an
application or purchase, to have represented that they are not Associates of any of the Directors of our
Company or an existing shareholder of our Company or a nominee of any of the foregoing.
PROCEDURE FOR APPLICATION FOR HONG KONG OFFER SHARES
The procedure for applying for Hong Kong Offer Shares is set out in the section headed ‘‘How to Apply
for Hong Kong Offer Shares’’ in this prospectus and in the Application Forms.
STRUCTURE OF THE GLOBAL OFFERING
Details of the structure of the Global Offering, including its conditions, are set out in the section headed
‘‘Structure of the Global Offering’’ in this prospectus.
�C 94 �C
INFORMATION ABOUT THIS PROSPECTUS AND THE GLOBAL OFFERING
OVER-ALLOTMENT AND STABILIZATION
Details of the arrangements relating to the Over-allotment Option and stabilization are set out in the
section headed ‘‘Underwriting’’ in this prospectus.
PROFESSIONAL TAX ADVICE RECOMMENDED
Potential investors in the Global Offering are recommended to consult their professional advisers if they
are in any doubt as to the taxation implications of subscribing to, purchasing, holding or disposing of,
and/or dealing in the H Shares (or exercising rights attached thereto). None of us, the Joint Sponsors,
the Underwriters, any of our or their respective directors, agents, employees or advisers or any other
person or party involved in the Global Offering accepts responsibility for any tax effects on, or
liabilities of, any person resulting from the subscription to, purchase, holding or disposal of, dealing in,
or the exercise of any rights in relation to, the H Shares.
EXCHANGE RATE CONVERSION
Unless otherwise specified, this prospectus contains certain translations for the convenience of the reader
at the following rates: Renminbi into HK dollars at the rate of RMB0.8177 to HK$1.0 and HK dollars
into US dollars at the rate of HK$7.7521 to US$1.0. The RMB to HK$ exchange rate is quoted by the
PBOC for foreign exchange transactions prevailing on the Last Practicable Date. The US$ to HK$
exchange rate is set forth in the H.10 weekly statistical release of the Federal Reserve Board of the
United States on 9 October 2012. These translations are provided for reference and convenience only,
and no representation is made, and no representation should be construed as being made, that any
amounts in RMB, HK$ or US$ can be or could have been at the relevant dates converted at the above
rates or any other rates or at all.
ROUNDING
Any discrepancies in any table between totals and sums of amounts listed therein are due to rounding.
TRANSLATION
If there is any inconsistency between this prospectus and the Chinese translation of this prospectus, this
prospectus shall prevail. Translated English names of Chinese laws and regulations, governmental
authorities, institutions, natural persons or other entities included in this prospectus for which no official
English translation exists are unofficial translation and for reference only.
MARKET SHARE DATA CONVENTION
The statistical and market share information contained in this prospectus has been derived from official
government publications and other sources, including information or data provided by IMS, NFS
MENET and Frost & Sullivan. Unless otherwise indicated, the information has not been verified by us
independently. This statistical information may not be consistent with other statistical information from
other sources within or outside the PRC. While reasonable caution has been made in the process of
reproducing the data and statistics extracted from such official government publications or other sources,
the Joint Sponsors and our Company, or any of their directors, employees, agents, and representatives
make no representation to the appropriateness, accuracy, completeness or reliability of any such
statistical and market share information.
SEGMENT REVENUE AND EXTERNAL REVENUE
Unless otherwise indicated, the term ‘‘segment revenue’’ used in this prospectus refers to the revenue of
a business segment before elimination of inter-segment revenue and ‘‘external revenue’’ of a business
segment refers to the revenue after such inter-segment elimination.
�C 95 �C
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
DIRECTORS
Name Address Nationality
Executive Directors
Mr. Chen Qiyu (��⒂�) Room 8D Chinese
(Chairman) No. 98 Guangyuan Road West
Shanghai, China
Mr. Yao Fang (姚方) Room 805, No. 2 Chinese
Lane 1166 Xiuyan Road
Shanghai, China
Non-executive Directors
Mr. Guo Guangchang (郭�V昌) Room 24B, No. 55 Chinese
Lane 800 Zhongshan Road West
Shanghai, China
Mr. Wang Qunbin (汪群斌) Room 201, No. 11 Chinese
Lane 240 Zhengtong Road
Shanghai, China
Mr. Zhang Guozheng (章��政) Room 601, No. 8 Chinese
Lane 655 Yixian Road
Shanghai, China
Independent Non-executive Directors
Mr. Guan Yimin (管一民) No. 76 Chinese
Lane 1125 Yinggang Road East
Shanghai, China
Mr. Han Jiong (�n炯) Room 401, No. 17 Chinese
Lane 55 Changyi Road
Shanghai, China
Dr. Zhang Weijiong (���S炯) Room 1101, No. 16 Chinese
Lane 100 Yinxiao Road
Shanghai, China
Mr. Li Man-kiu Adrian David 5/F, May Tower II British
(李民��) 5 May Road
Mid-levels, Hong Kong
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DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
Name Address Nationality
Supervisors
Mr. Liu Hailiang (柳海良) Block 27C Chinese
No. 1046 Jiangning Road
Shanghai, China
Mr. Wang Pinliang (王品良) Room 701, No. 18 Chinese
Sublane 28
Lane 1518 Hongxing Road
Shanghai, China
Mr. Cao Genxing (曹根�d) Room 401, No. 52 Chinese
Lane 1180 Hualing Road
Shanghai, China
PARTIES INVOLVED
Joint Global Coordinators UBS AG, Hong Kong Branch
52/F, Two International Finance Centre
8 Finance Street
Central
Hong Kong
China International Capital Corporation
Hong Kong Securities Limited
29/F, One International Finance Centre
1 Harbor View Street
Central
Hong Kong
J.P. Morgan Securities (Asia Pacific) Limited
28th Floor, Chater House
8 Connaught Road Central
Central
Hong Kong
Deutsche Bank AG, Hong Kong Branch
Level 52, International Commerce Centre
1 Austin Road West, Kowloon
Hong Kong
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DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
Joint Sponsors UBS Securities Hong Kong Limited
42/F, One Exchange Square
8 Connaught Place
Central
Hong Kong
China International Capital Corporation
Hong Kong Securities Limited
29/F, One International Finance Centre
1 Harbor View Street
Central
Hong Kong
J.P. Morgan Securities (Far East) Limited
28th Floor, Chater House
8 Connaught Road Central
Central
Hong Kong
Deutsche Bank AG, Hong Kong Branch
Level 52, International Commerce Centre
1 Austin Road West, Kowloon
Hong Kong
Joint Bookrunners and in relation to the Hong Kong Public Offering:
Joint Lead Managers
UBS AG, Hong Kong Branch
52/F, Two International Finance Centre
8 Finance Street
Central
Hong Kong
China International Capital Corporation
Hong Kong Securities Limited
29/F, One International Finance Centre
1 Harbor View Street
Central
Hong Kong
J.P. Morgan Securities (Asia Pacific) Limited
28th Floor, Chater House
8 Connaught Road Central
Central
Hong Kong
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DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
Deutsche Bank AG, Hong Kong Branch
Level 52, International Commerce Centre
1 Austin Road West, Kowloon
Hong Kong
in relation to the International Offering:
UBS AG, Hong Kong Branch
52/F, Two International Finance Centre
8 Finance Street
Central
Hong Kong
China International Capital Corporation
Hong Kong Securities Limited
29/F, One International Finance Center
1 Harbor View Street
Central
Hong Kong
J.P. Morgan Securities plc
25 Bank Street
Canary Wharf
London E14 5JP
United Kingdom
Deutsche Bank AG, Hong Kong Branch
Level 52, International Commerce Center
1 Austin Road West
Kowloon
Hong Kong
Auditors and reporting accountants Ernst & Young
Certified Public Accountants
22/F, CITIC Tower
1 Tim Mei Avenue
Central
Hong Kong
Legal advisers to our Company as to Hong Kong and United States laws:
Morrison & Foerster
33/F, Edinburgh Tower, The Landmark
15 Queen’s Road Central
Hong Kong
�C 99 �C
DIRECTORS, SUPERVISORS AND PARTIES INVOLVED IN THE GLOBAL OFFERING
as to PRC law:
Chen & Co. Law Firm
Suite 1901, North Tower
Shanghai Stock Exchange Building
528 Pudong Nan Road
Shanghai
China
Legal advisers to the Underwriters as to Hong Kong and United States laws:
Herbert Smith Freehills
23/F Gloucester Tower
15 Queen’s Road Central
Hong Kong
as to PRC law:
Grandall Law Firm (Shanghai)
45/F, Nanzheng Building
580 Nanjing Road West
Shanghai
China
Property valuer Jones Lang LaSalle Corporate Appraisal and Advisory Limited
6/F, Three Pacific Place
1 Queen’s Road East
Hong Kong
Receiving banks Bank of Communications Co., Ltd. Hong Kong Branch
20 Pedder Street
Central
Hong Kong
Standard Chartered Bank (Hong Kong) Limited
15/F, Standard Chartered Tower
388 Kwun Tong Road
Kwun Tong
Hong Kong
Wing Lung Bank Limited
45 Des Voeux Road Central
Central
Hong Kong
�C 100 �C
CORPORATE INFORMATION
Registered office 9th Floor, No. 510 Caoyang Road
Putuo District
Shanghai, 200063, China
Headquarters Fosun Commercial Building
No. 2 Fuxing Road (East)
Huangpu District
Shanghai, 200010, China
Principal place of business Level 28
in Hong Kong Three Pacific Place
1 Queen’s Road East
Hong Kong
Company’s website www.fosunpharma.com
(information on the website does not form part of this prospectus)
Joint company secretaries Dr. Qiao Zhicheng (�讨境�)
Ms. Lo Yee Har Susan (�R�_霞) (FCS (PE), FCIS)
Authorized representatives Mr. Chen Qiyu (���宇)
Room 8D
No. 98 Guangyuan Road West
Shanghai, China
Ms. Lo Yee Har Susan (�R�_霞)
Level 28
Three Pacific Place
1 Queen’s Road East
Hong Kong
Strategic committee Mr. Chen Qiyu (��⒂�) (chairman)
Mr. Guo Guangchang (郭�V昌)
Mr. Wang Qunbin (汪群斌)
Dr. Zhang Weijiong (���S炯)
Mr. Han Jiong (�n炯)
Audit committee Mr. Guan Yimin (管一民) (chairman)
Mr. Han Jiong (�n炯)
Mr. Zhang Guozheng (章��政)
Nomination committee Mr. Han Jiong (�n炯) (chairman)
Mr. Guan Yimin (管一民)
Mr. Guo Guangchang (郭�V昌)
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CORPORATE INFORMATION
Remuneration and appraisal Dr. Zhang Weijiong (���S炯) (chairman)
committee Mr. Guan Yimin (管一民)
Mr. Wang Qunbin (汪群斌)
Compliance adviser Haitong International Capital Limited
25/F, New World Tower
16�C18 Queen’s Road Central
Hong Kong
Principal banks China Merchants Bank
Shanghai Jiangwan Sub-branch
No.1 Feng Zhen Road
Hongkou District
Shanghai
PRC
Bank of Beijing
Shanghai Branch
No. 16 Henan Road South
Huangpu District
Shanghai
PRC
Bank of Communications
Shanghai Zhabei Sub-branch
No. 211 Heng Tong Road
Zhabei District
Shanghai
PRC
H Share Registrar and Tricor Investor Services Limited
Transfer Office in Hong Kong 26/F Tesbury Centre
28 Queen’s Road East, Wanchai
Hong Kong
�C 102 �C
INDUSTRY OVERVIEW
This and other sections of this prospectus contain information relating to the PRC economy and
the PRC and international pharmaceutical manufacturing, pharmaceutical distribution and
retail, healthcare services, and diagnostic products and medical devices industries. Certain
information contained herein has been derived from official government publications or other
public sources. Neither we nor the Underwriters or any of their respective affiliates or advisers
have independently verified the information directly or indirectly derived from these sources,
and such information may not be consistent with other information compiled within or outside
China. We have reproduced the data and statistics extracted from such official government
publications and public sources in a reasonably cautious manner. We make no representation as
to the completeness, accuracy or fairness of such information, and accordingly, such
information should not be unduly relied upon.
OVERVIEW
The PRC healthcare industry has been experiencing rapid and significant growth in recent years, driven
by a combination of favourable socioeconomic factors, including active PRC government support,
increasing disposable income and health awareness, an increasing aging population and increased life
expectancy, increasing coverage of social medical insurance and increasing access to healthcare in rural
areas in China. We expect these factors to continually present significant growth potential for each of
our business segments.
Primary Growth Drivers of the PRC Healthcare Industry
Increasing disposable income and health awareness
The PRC economy is one of the world’s fastest growing economies. China has recently surpassed Japan
to become the second largest economy in the world. According to China National Bureau of Statistics,
the nominal GDP of China grew at a CAGR of 16.9% from 2006 to 2011, and its per capita nominal
GDP grew from RMB16,456 in 2006 to approximately RMB34,999 in 2011, representing a CAGR of
16.3%. The following chart illustrates the growth of China’s per capita nominal GDP in the periods
indicated:
Nominal GDP per capita in China
Source: China National Bureau of Statistics
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INDUSTRY OVERVIEW
Economic growth and increase in per capita GDP have resulted in a higher level of disposable income in
the corresponding period. According to China National Bureau of Statistics, the average per capita
annual disposable income of China’s urban residents increased from RMB11,759.5 in 2006 to
RMB21,810.0 in 2011, representing a CAGR of approximately 13.1%, and the average per capita annual
net income of China’s rural residents increased from approximately RMB3,587 in 2006 to RMB6,977 in
2011, representing a CAGR of approximately 14.2%.
With rising living standards and increasing disposable income, the general public in China has become
more health-conscious and is able to afford more healthcare products and services. These developments
have resulted in a higher level of spending on healthcare by both Chinese urban and rural residents in
terms of absolute expenditure levels. According to China National Bureau of Statistics, consumer
expenditures on healthcare in China’s urban areas increased from approximately RMB600.9 per person
in 2005 to approximately RMB872.0 per person in 2010 representing a CAGR of approximately 7.7%.
Aging population, increased life expectancy and lifestyle changes
The aging population of China is expected to drive demand for healthcare products and services in
China. According to China National Bureau of Statistics, the proportion of the population aged 65 or
above in China has increased from approximately 7.7%, or approximately 100.6 million people, in 2005,
to 8.9%, or approximately 118.9 million people, in 2010. The growth trend of China’s population aged
65 and above is expected to continue. Rising life expectancy is also expected to contribute to the growth
of China’s aging population, both as an absolute number and as a percentage of the total population.
Over the past 25 years, there has been an increase in the prevalence of diseases in China associated with
increased life expectancy, including, for example, cancer, metabolic diseases, and cardiovascular
diseases. There also has been an increase in the prevalence of diseases related to lifestyles, such as
diabetes, as the social and economic developments have resulted in significant changes in the lifestyles
of the general public in China, including, for example, dietary patterns, consumption of tobacco and
alcohol, physical exercise and work schedule. These trends are expected to drive up the demands for
relevant drugs, medical products and services in China.
Active PRC government support
As part of its Eleventh Five-Year Plan (2006�C2010) for the National Economic and Social Development
of the PRC (中�A人民共和����民���和社���l展第十一��五年����V要), the PRC government has
actively supported the domestic healthcare industry by providing a number of incentives and endorsing a
series of programs, including increased funding for building hospitals, research centers and other
healthcare facilities, enacting healthcare reforms and standards and subsidizing healthcare services for
citizens. In its Twelfth Five-Year Plan (2011�C2015) for the National Economic and Social Development
of the PRC (中�A人民共和����民���和社���l展第十二��五年����V要), the PRC government has
reiterated its policies to actively promote and support the development of the PRC healthcare industry
and increase spending on healthcare programs from 2011 to 2015. In particular, it intends to improve the
social medical insurance program, increase benefits under such program, continue to implement the
essential drugs program, as well as increase the number of community healthcare centers and clinics,
which will significantly bolster the PRC healthcare market. In 2009, the PRC government announced
that it planned to invest RMB850.0 billion between 2009 and 2011 to implement a series of programs
under the healthcare reform plan. These programs included the expansion of the coverage of the social
medical insurance, the adoption of the national essential drugs program and the expansion of community
healthcare centers and clinics. These programs were aimed at lowering the cost of healthcare to the
�C 104 �C
INDUSTRY OVERVIEW
general public in China, reducing patient congestion at hospitals and increasing the availability and
accessibility of healthcare services. In August 2012, the Ministry of Finance announced that actual
spending between 2009 and 2011 for these healthcare reform plans amounted to RMB1,522.8 billion.
Increasing coverage of social medical insurance in China
The social medical insurance programs run by the PRC government primarily consist of three programs:
the Urban Worker Program, a mandatory scheme covering urban workers; the Urban Resident Program,
a mandatory program that covers the rest of the urban residents not covered by the Urban Worker
Program; and the New Rural Co-Op Insurance, a mandatory scheme that provides medical coverage for
the rural population. Of these three schemes, the funds of the latter two schemes are mainly subsidized
by the PRC government while the individuals covered under such schemes only bear a small amount of
fund contribution. As at the end of 2011, the social medical insurance programs collectively covered
over 95% of the PRC population.
In order to maximize the effectiveness of the social medical insurance programs, the PRC government
has expanded both the coverage and the benefits under the social medical insurance programs. Under the
new insurance programs, the maximum amount of benefits to be paid will reach six times of average
local annual salary, annual disposable income per capita and annual net income per capita under the
Urban Worker Program, Urban Resident Program and the New Rural Co-Op Insurance Program
respectively. The PRC government subsidizes the insurance costs, and the amount of such subsidy for
New Rural Co-Op Insurance Program and Urban Residcat Program has increased from RMB120 per
person in 2010 to RMB200 per person in 2011 and is expected to further increase to RMB360 in 2015.
Increasing access to healthcare in rural areas
At the fifth meeting of the tenth National People’s Congress meeting held in March 2007, the PRC
government announced its goal to accelerate the reform and development of healthcare services in the
PRC and to focus on building a basic healthcare system that covers not only urban but also rural areas.
The PRC government’s plans include providing expanded healthcare services for its rural citizens and
establishing general community healthcare service centers that would provide basic medical treatments
and pharmaceutical services, as well as upgrading existing class-two hospitals and state-owned medical
facilities. The public healthcare service centers would be established in rural areas according to the
apportionment of the PRC government based on demand and population.
In addition, the PRC government has actively promoted the implementation of the New Rural Co-Op
Insurance, which seeks to reduce the overburdened healthcare service expenses to the individual
residents in vast rural areas of China. The program extends to cover approximately 2,716 counties in the
PRC, which account for 95% of the total number of counties in the PRC. In addition, the program
covers approximately 835 million rural residents, which account for approximately 96.3% of the total
population engaged in farming and other agricultural activities in China in 2010.
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INDUSTRY OVERVIEW
Healthcare Spending in China
According to the statistics of Frost & Sullivan, China ranked fifth globally in terms of healthcare
expenditures in 2011. Healthcare expenditures in China experienced significant growth, increasing from
US$123.5 billion in 2006 to US$299.0 billion in 2011, representing a CAGR of 19.3%. The following
chart sets forth the total expenditures of the top ten healthcare markets in 2011.
Total healthcare expenditure in 2011
Source: Frost & Sullivan report
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INDUSTRY OVERVIEW
With one-fifth of the world’s population, China’s per capita healthcare expenditures, despite growing at
a CAGR of 18.8% from 2006 to 2011, remains relatively low. China’s per capita healthcare expenditures
was US$222 in 2011, the lowest among the top ten markets. The following table sets forth per capita
healthcare expenditure information for the ten largest healthcare markets in the world.
Healthcare Expenditures
Total Per Capita
2011 2006 2011 CAGR (2006�C2011)
(US$ bn) (US$) (US$) (%)
Country
United States . . . . . 2,704 7,063 8,686 4.2
Japan . . . . . . . . . . . 447 2,759 3,497 4.9
Germany . . . . . . . . 385 3,739 4,710 4.7
France . . . . . . . . . . 304 4,075 4,838 3.5
China . . . . . . . . . . 299 94 222 18.8
United Kingdom . . . 208 3,393 3,356 �C0.2
Italy . . . . . . . . . . . 206 2,853 3,410 3.6
Canada . . . . . . . . . 177 4,091 5,205 4.9
Spain . . . . . . . . . . . 138 2,321 2,902 4.6
Brazil . . . . . . . . . . 135 430 668 9.2
Source: Frost & Sullivan report
China’s total healthcare expenditures accounted for approximately 4.6% of GDP in 2011, compared to
11.1% for France and 17.3% for the United States. According to the WHO, the healthcare spending of
most developed nations generally accounts for 7% to 9% of GDP. The following chart sets forth the
total healthcare spending as a percentage of GDP of selected countries in 2011:
Healthcare spending as a percentage of GDP in 2011
Source: Frost & Sullivan report
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INDUSTRY OVERVIEW
We believe that China’s total healthcare expenditures will continue increasing rapidly as a result of a
combination of favourable factors, including the fast-growing economy of China, increasing disposable
income and health awareness, an increasing aging population, increased life expectancy and active PRC
government support. According to the statistics of Frost & Sullivan, total healthcare expenditure in
China will grow at a CAGR of 17.8% from 2012 to 2016, and reach US$668.1 billion in 2016.
Total healthcare expenditure in China
Source: Frost & Sullivan report
Healthcare Reform Plan
In September 2008, the PRC government published a draft plan to increase availability and lower the
costs of healthcare services for PRC citizens. On 17 March 2009, the PRC government issued the
Opinion on Deepening the Healthcare System Reform 《中共中央���赵宏P於深化�t��l生�w制改革的
(
意�》). Subsequently, the PRC government released the Notice on Important Implementing Plans for the
Healthcare System Reform 2009�C2011 《���赵宏P於印�l�t��l生�w制改革近期重�c��施方案(2009�C
(
2011)的通知》). The goal of the healthcare reform plan is to establish a basic, universal healthcare
framework to provide Chinese citizens with safe, efficient, convenient and affordable healthcare
services.
To fulfill the above healthcare reform plan, new funding for the healthcare industry is estimated to be
RMB850.0 billion, of which RMB331.8 billion is to be subsidized directly by the PRC central
government. In August 2012, the Ministry of Finance announced that the actual spending between 2009
and 2011 for these healthcare reform plans amounted to RMB1,522.8 billion, of which RMB450.6
billion was subsidized directly by the PRC central government. The reform plan aims to establish the
following four fundamental healthcare systems in China:
. The public health services system. As a complementary medical service system fully funded by
the PRC government, this system focuses on preventing public diseases and promoting preventive
healthcare as an alternative to medical treatment. The public health services system will provide
�C 108 �C
INDUSTRY OVERVIEW
services such as immunizations, regular physical check-ups (for senior citizens over 65 years of
age and children under three years of age), pre-natal and post-natal check-ups for women,
prevention of infectious or chronic diseases, and other preventive and fitness activities.
. The public medical insurance system. This system covers drugs and medical treatments for the
majority of the population. Under the healthcare reform plan, the framework of the current public
medical insurance schemes under the national medical insurance program will be retained, but
these schemes will expand to cover more of the population and medical treatments, and raise the
cap and percentage of claim payments.
. The basic healthcare security system. One of the primary goals of the healthcare reform plan is to
build more healthcare facilities and to improve the training of healthcare professionals in China.
The healthcare reform plan also aims to achieve the goal that there are at least a medical clinic in
every village and a hospital in every county in China by 2011. In addition, the PRC government
will encourage private investors to establish public non-profit hospitals.
. The drug supply system. This system regulates the pricing of drugs and how drugs will be
procured, prescribed and dispensed in healthcare institutions. The healthcare reform plan will focus
on pricing, procurement, prescription and dispensing of essential drugs.
According to the Implementation Plan for the Recent Priorities of the Healthcare System Reform (2009-
2011), to implement the series of programs outlined in the healthcare reform plan, two-thirds of the
estimated funding of RMB850.0 billion would be used for the healthcare service users and the rest
would be used for the healthcare service providers.
As part of the ongoing reform, in August 2012, the PRC Ministry of Health released a new report with
an updated plan called ‘‘Healthy China 2020’’, which is designed specifically to provide a strategic
reform roadmap for the PRC healthcare industry. The ‘‘Healthy China 2020’’ report sets forth 10
specific targets to be achieved before 2020:
. Further improvement in the key health indicators for the PRC population, that by 2020, the
average life expectancy of the PRC population should reach 77 years, the mortality rate of children
less than five years old should be below 1.3%, and the mortality rate for women during pregnancy
should be less than 0.02%. In addition, the regional gap in health conditions among people living
in different parts of the PRC should be further narrowed;
. The healthcare system should be improved, whereby the standards and accessibility of healthcare
services should be increased;
. The medical insurance system should be enhanced and the economic burden of treatment for health
problems should be reduced;
. Health risks should be better managed and the spread of chronic diseases and health hazards
should be effectively controlled, reduced or eliminated;
. Strengthen the control of infectious and endemic diseases, and reduce the hazards of infectious
diseases;
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INDUSTRY OVERVIEW
. Strengthen monitoring and supervision measures to ensure the safety of food and drugs;
. Leverage on advancements in advance and adapt to the developments in medical science; shift
focus from the diagnosis and treatment of diseases to the prevention of diseases;
. Encourage the further development of innovative Traditional Chinese Medicine to enhance its
influence in China’s healthcare market;
. Further develop the healthcare industry to satisfy the diverse demand for healthcare services from
various segments of the population; and
. Continue to fulfill the government’s responsibilities and further boost investments in the healthcare
industry, so that by 2020, healthcare expenditure should account for up to 6.5%�C7.0% of the total
GDP of the PRC to ensure the strategic targets set under ‘‘Healthy China 2020’’ can be realized.
Key measures mentioned in the ‘‘Healthy China 2020’’ strategy report to promote the development of
the PRC healthcare industry include the following:
. Shifting the focus of healthcare services from the diagnosis and treatment of diseases to the
prevention of diseases and the integration of diseases prevention and treatment services;
. Establishing a fiscal spending policy and system for healthcare that is appropriate for the level of
national economic and social developments and lowering the percentage of per capita spending on
healthcare services to per capita income to less than 30% through increased government
investments and social planning;
. Continuing to improve the medical insurance system and further enhance insurance policies by
increasing the compensation ratio under the basic medical insurance system; and continue to
integrate the medical insurance systems in urban and rural areas by integrating the management of
these systems;
. Encouraging the development of Traditional Chinese Medicine products by further promoting
innovation within this industry;
. Actively promoting international exchange of ideas and collaborations;
Hospitals and Retail Pharmacies
In China, retail pharmaceutical and other healthcare related products could be purchased at either
hospital pharmacies or retail pharmacies, including independent pharmacies and retail pharmacy chains.
Historically, sales by hospital pharmacies accounted for a larger percentage of retail sales of
pharmaceutical products in China. This is because out-patients typically purchase their prescription
medicines at hospital pharmacies in accordance with physicians’ prescriptions. However, if a medical
condition could be treated with over-the-counter medicines, it is also common for the PRC patients to
purchase over-the-counter medicines from retail pharmacies instead of seeing a doctor in a hospital for
prescription medicines.
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INDUSTRY OVERVIEW
Hospitals
Traditionally, out-patients in China typically filled their prescriptions at hospital pharmacies, unlike in
the United States and other developed countries, where patients typically fill their prescriptions at
pharmacies unaffiliated with hospitals. Although the latest healthcare reform plan aims to reduce
patients’ reliance on sales from hospital pharmacies, out-patients still primarily fill their prescriptions at
hospital pharmacies. Beginning from 2010, drug consumption prescribed at the outpatient clinics grew
rapidly due to the coordinated implementation of the social medical insurance funds used at the
outpatient clinics.
According to MOH, as at 31 December 2011, there were approximately 21,979 hospitals, 32,860
community healthcare centers and 37,295 township healthcare institutes in China. Hospitals owned and
operated by the government in China are classified under MOH-administered hospital classification
system into three classes based upon a number of factors, including reputation, the number of doctors
and nurses, total number of in-patient beds, equipment and expertise. The best and largest hospitals are
designated as ‘‘class-three hospitals’’, and the second and third tiers as ‘‘class-two hospitals’’ and ‘‘class-
one hospitals’’, respectively. According to MOH, as at 31 December 2011, hospitals in China included
approximately 1,399 class-three hospitals, approximately 6,468 class-two hospitals and approximately
5,636 class-one hospitals and the rest were non-classified.
Substantially all of the hospitals in China are owned and operated by government bodies, and these
government-owned hospitals enjoy an increasingly high degree of operating autonomy. Instead of
receiving the bulk of their funding from government sources, they are generally expected to generate
enough revenues to cover 70% to 90% of their operating expenses. Although the local healthcare
administrative bureau sets staff salaries and determines patient charges for hospital services, including
treatment prices for most services, its decisions are usually based on the recommendations of hospital
administrators in the region. In addition, hospital administrators have the authority to make decisions on
equipment purchases and staff bonus payments.
Hospitals at or above county level, which usually have 100 or more beds and are reasonably adequately
staffed and well-equipped, tend to get more and better equipment since they have the resources and
expertise needed to attract higher revenues from patients. Hospitals that are below county level tend to
be small, relatively poorly staffed and under-funded. These hospitals are expected to receive additional
funding from the government under the current reform plan.
Retail pharmacies
While out-patients in China generally fill their prescriptions at hospital pharmacies, they primarily
purchase over-the-counter medicines from retail channels. To the extent that a medical condition can be
treated with an over-the-counter medicine, many PRC patients choose to purchase over-the-counter
medicines instead of seeing doctors for prescription medicines.
The retail pharmacy sector in China is highly fragmented. Retail channels in China include pharmacy
chain stores, individual pharmacies, and over-the-counter medicine counters in supermarkets.
A small portion of retail pharmacies in China is authorized under the National Medical Insurance
Program. A patient that participates in this program may be reimbursed for the cost of a medicine
included in the Provincial Medical Insurance Drugs Catalog only if he or she purchases that medicine
from an authorized retail pharmacy.
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PHARMACEUTICAL INDUSTRY IN CHINA
Overview
The pharmaceutical market in the PRC has grown rapidly in recent years. According to the statistics of
Espicom and ISI Emerging Markets, the PRC pharmaceutical market grew from US$17.8 billion in 2006
to US$58.0 billion in 2011, representing a CAGR of 26.6%. Growth in the PRC pharmaceutical market
has been partly driven by the favorable macro environment in terms of GDP growth and an increase in
healthcare expenditure in the PRC. As a result of increasing urbanization, increasing disposable income
and health awareness, aging population and the prevalence of chronic health problems, and government
initiatives relating to the healthcare industry, the PRC pharmaceutical market is projected to continue to
experience significant growth in the future, reaching US$136.0 billion in 2016. The following chart
shows the historical and projected size of the PRC pharmaceutical market from 2006 to 2016.
Pharmaceutical market size in China (at retail price)
Source: The Medical Market: China, Espicom Business Intelligence, 2012; ISI Emerging Markets
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Global country rankings based on total spending on pharmaceuticals
Rank 2006 2011 2016E
1 United States United States United States
2 Japan Japan China
3 France China Japan
4 Germany Germany Brazil
5 China France Germany
6 Italy Brazil France
7 Spain Italy Italy
8 UK Spain India
9 Canada Canada Russia
10 Brazil UK Canada
Source: IMS
According to the statistics of IMS, in terms of total spending on pharmaceuticals, China was ranked as
the fifth and third largest pharmaceuticals market globally in 2006 and 2011, respectively. Spending on
pharmaceuticals in China is expected to continue to growth rapidly and by 2016, China is expected to be
the second largest pharmaceuticals market globally.
General Description of the PRC Pharmaceutical Industry
Fragmentation of the PRC Pharmaceutical Industry
The pharmaceutical industry in the PRC is highly fragmented and competitive, with more than 8,412
pharmaceutical manufacturers in 2012 according to SFDA. According to IMS, the top 20 pharmaceutical
manufacturers in terms of sales in 2011 accounted for only 24.8% of the total PRC pharmaceutical
market, while the largest five pharmaceutical manufacturers only accounted for 9.0%. Since most local
pharmaceutical manufacturers lack scale, nationwide sales capabilities and product breadth, we believe
that pharmaceutical manufacturers with well-developed nationwide distribution networks, strong existing
product portfolios and effective strategy to expand product portfolio are well-positioned to capture the
opportunities to expand and consolidate their businesses and become industry leaders in the PRC.
Generic and Innovative Drugs
Pharmaceutical products are categorized as innovative drugs and generic drugs. Innovative drugs refer to
drugs with active ingredients that are new chemical or biochemical entities, while generic drugs refer to
drugs with the same active ingredients as, and are considered equivalent to, an innovative drug. The
pharmaceutical market in the PRC has been dominated by generic drugs, and innovative drugs only
make up a relatively small portion of the PRC pharmaceutical market. Most domestic pharmaceutical
companies in the PRC manufacture and sell generic drugs including branded generic drugs, while drugs
sold by multinational pharmaceutical companies are mostly innovative drugs, including those that have
come off patent.
First-to-market generic drugs are entitled to pricing advantage in the PRC. Sales volume of first-to-
market generic drugs in the PRC continues to grow and their prices either remain relatively stable or do
not decrease significantly until many competing generic equivalents are introduced to the market. This
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life cycle pattern can be partly explained by drug pricing policy, medical insurance coverage and
prescription practices in the PRC. The PRC government allows premium pricing for first-to-market
generic drugs over other competing generic drugs to encourage innovation in the pharmaceutical
industry and as reimbursements under PRC medical insurance programs do not differentiate between
first-to-market generic drugs and other competing generic drugs, the price premium of first-to-market
generic drugs will be covered by these insurance programs. These practices allow sales volume of first-
to-market generic drugs in the PRC to continue to grow even after competing generic equivalents were
introduced. A same life cycle pattern applies to innovative drugs in the PRC.
Pharmaceutical Market in China by Therapeutic Area
According to NFS MENET, the following five therapeutic areas accounted for 76.4% of the
pharmaceutical market in China in 2011:
(i) systemic anti-infective drugs;
(ii) oncology and immunomodulating agents;
(iii) cardiovascular system drugs;
(iv) alimentary tract and metabolism drugs; and
(v) blood and blood forming organs.
The following table sets forth market share data and growth forecast of the pharmaceutical market in
China by therapeutic area.
Percentage
of the PRC Market
Pharmaceutical growth CAGR
Market in 2011 2009�C2014F
(%) (%)
Systemic Anti-infectives.. . . . . . . . . . . . . . . . . . . . . . . . . 21.2 21.5
Oncology and Immunomodulating Agents . . . . . . . . . . . . . 17.4 25.5
Cardiovascular System . . . . . . . . . . . . . . . . . . . . . . . . . . 13.4 20.9
Alimentary Tract and Metabolism . . . . . . . . . . . . . . . . . . 13.2 25.1
Blood and Blood Forming Organs.. . . . . . . . . . . . . . . . . . 11.2 22.3
Nervous System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.7 23.7
Musculo-Skeletal System . . . . . . . . . . . . . . . . . . . . . . . . 3.2 22.9
Respiratory System . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 23.4
Genito-Urinary Tract and Sex Hormones. . . . . . . . . . . . . . 1.3 24.4
Dermatologicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8 21.4
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.7 N.A.
Sources: NFS MENET; IMS
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GLOBAL ACTIVE PHARMACEUTICAL INGREDIENTS MARKET
An active pharmaceutical ingredient (API) is the biologically active chemical substance in a
pharmaceutical product. The global API market has been growing steadily in recent years and is
expected to experience stable growth in the future. According to the statistics of Frost & Sullivan, the
competitive structure of the global Active Pharmaceutical Ingredients Market can be characterized by
three main types of competitors ― large integrated specialty chemical manufacturers, active
pharmaceutical ingredient and intermediate vendors as well as niche participants manufacturing high-
potency APIs and biologicals. Competition on the global market is driven by factors including product
quality, customer relationships, technological prowess and time-to-market. The following chart shows
the historical and projected size of the global API markets for the periods indicated.
2009�C2011 2011�C2016
2009A 2010A 2011A 2016E CAGR CAGR
(US$ billion)
Global API market size . . . . 94.0 101.1 108.8 159.1 7.6% 7.9%
Source: Markets and Markets
The following charts set forth the breakdown of the global API market by regions in 2011 and 2016:
2011 2016E
Source: Markets and Markets
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PHARMACEUTICAL DISTRIBUTION AND RETAIL IN CHINA
Pharmaceutical Distribution
The pharmaceutical distribution industry is an essential part of the healthcare industry value chain,
linking pharmaceutical manufacturers and pharmaceutical dispensers, including hospitals, pharmacy
chain stores, independent pharmacies and other points of sale retail outlets. Pharmaceutical distributors
leverage their economies of scale and operational expertise to ensure the prompt delivery of a wide
range of products from thousands of manufacturers to numerous and dispersed retailers, effectively
reducing the overall supply chain costs.
Pharmaceutical distributors enter into agreements with manufacturers to purchase certain types of
pharmaceutical products for onward delivery to hospitals and retailers. Often such agreements can be on
an exclusive basis. Pharmaceutical distributors resell the purchased pharmaceutical products to
downstream hospitals and retailers, and also provide relevant value-added services, such as logistics
services, electronic purchase orders confirmation, tailored packaging, repackaging and reprocessing
services, product insurance brokerage, payment collection, inventory tracking and import services.
Pharmaceutical distributors in China generally do not engage in the promotion of medicines, which is
typically undertaken by sales representatives from pharmaceutical manufacturers.
The pharmaceutical distribution industry in China is highly fragmented, with more than 13,000
pharmaceutical distributors as at 31 December 2010 according to SFDA. In terms of sales, the three
largest pharmaceutical distributors in China accounted for approximately 22.8% of the market share of
the pharmaceutical distribution industry in China in 2011 according to published information from
MOFCOM. We believe that fragmentation of the pharmaceutical distribution industry results in under-
utilization of supply chain resources. As competition intensifies, we foresee further consolidation in the
pharmaceutical distribution industry and large distributors with effective nationwide distribution
capabilities, value-added supply chain services and large-scale operations will benefit from such industry
trends.
Pharmaceutical Retail
Medicine sales in China include mainly sales of prescription medicines and over-the-counter medicines.
Sales of prescription medicines are the principal component of pharmaceutical expenditures in China and
are mostly made through hospitals, with a small portion through prescription medicine counters in retail
pharmacies. Sales of over-the-counter medicines are mainly made through retail pharmacies. According
to MOH, as at 31 December 2011, there were approximately 21,979 hospitals, 32,860 community
healthcare centers and 37,295 township healthcare institutes in China. According to SFDA, as at 31
December 2010, there were 399,069 pharmaceutical retail pharmacies in China, including both retail
chain pharmacies and independent pharmacies. Please refer to ‘‘― Overview ― Hospitals and Retail
Pharmacies’’ for additional information on hospitals and the retail pharmacy sector in China.
Out-patients in China typically fill their prescriptions at hospital pharmacies, unlike in the United States
and other developed countries, where out-patients typically fill their prescriptions at pharmacies
unaffiliated with hospitals. In China, to the extent that a symptom can be treated with an over-the-
counter medicine, it is also common that the PRC patients choose to purchase over-the-counter
medicines from retail pharmacies, instead of seeking medical consultation for prescription medicines.
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HEALTHCARE SERVICES IN CHINA
In November 2010, the PRC government issued the Opinions on Further Encouraging and Guiding the
Establishment of Medical Institutions by Social Capital 《�P於�M一步鼓�詈鸵���社���Y本�e�k�t���C
(
��的意�》), which permits foreign medical institutions or enterprises to establish medical institutions in
China through joint venture or other cooperative arrangements with Chinese medical institutions or
enterprises and simplifies the procedures for establishing medical institutions with private capital, thus
improving the business environment for medical institutions funded with private capital.
As the economy of China grows rapidly, the general public’s awareness of healthcare, together with a
middle class with high spending power, rises quickly in China, and it is expected that the market
demand for medical services, in particular, high-end services and specialty services, will grow rapidly in
the future.
Currently, only special care wards in class-three hospitals, sino-foreign equity joint venture and sino-
foreign cooperative joint venture medical institutions, and a few private hospitals can provide premium
medical services. With the implementation of the new policies, hospitals funded by private capitals are
expected to grow quickly, meeting the growing demand of premium and specialty healthcare services in
China.
DIAGNOSTIC PRODUCTS AND MEDICAL DEVICES IN CHINA
Overview of the In-vitro Diagnostic Products Market in China
The diagnostic products market in China includes in-vitro and in-vivo diagnostic products, of which in-
vitro diagnostic products are more widely used. According to the statistics of Industry Experts, in China,
the in-vitro diagnostic products market was dominated by four major segments in 2011: clinical
chemistry (31.9%), immunoassay (19.3%), diabetes testing (18.2%), and blood testing (12.4%). The
chart below sets forth the breakdown of China’s in-vitro diagnostic products market by revenues of
segments in 2011:
Total In-vitro Diagnostic Products Market: Percentage of Revenues by Segments (China), 2011
Source: Industry Experts
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The in-vitro diagnostic products market in China has been growing rapidly in the past few years, and it
is expected to grow steadily in the next few years, with major growth potential in segments such as
infectious disease testing, chronic disease testing, and diagnosis in early stages of diseases.
The main growth drivers for the in-vitro diagnostic products market include:
. Great growth potential in rural areas stimulated by the healthcare reform plan;
. Aging population and increasing demand for diagnostic products;
. Increasing demand from the middle class for high-end products; and
. An increase in the number of private hospitals and independent testing laboratories.
According to Industry Experts, demand for in-vitro diagnostic products in China will grow from
US$2,046 million in 2011 to US$4,460 million in 2016 at a CAGR of 16.9%.
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Overview of the Medical Device Industry in China
According to the statistics of The Medical Market: China Espicom Business Intelligence, 2012, the total
market size of medical devices in China increased from US$4,751.8 million in 2007 to US$8,939.8
million in 2011 at a CAGR of 17.1%. In particular, diagnostic imaging devices grew from US$2,171.6
million in 2007 to US$3,648.9 million in 2011 at a CAGR of 13.9%, consumables grew from US$704.8
million in 2007 to US$1,491.0 million in 2011 at a CAGR of 20.6%, and dental products grew from
US$111.0 million in 2007 to US$264.4 million in 2011 at a CAGR of 24.2%.
2006 2007 2008 2009 2010 2011
US$ millions
CONSUMABLES . . . . . . . . . . . . . . 575.1 704.8 956.0 1,147.5 1,287.4 1,491.0
Woundcare Products . . . . . . . . . . . . 171.7 206.0 272.1 305.8 345.7 403.4
Syringes, Needles and Catheters . . . . 370.5 441.6 610.4 759.7 847.4 975.5
Others . . . . . . . . . . . . . . . . . . . . . . 32.8 57.1 73.5 82.0 94.4 112.1
DIAGNOSTIC IMAGING. . . . . . . . 1,803.3 2,171.6 2,495.3 2,914.4 3,209.5 3,648.9
Electrodiagnostic Apparatus . . . . . . . 694.8 804.9 1,034.9 1,176.4 1,274.7 1,425.5
Radiation Apparatus . . . . . . . . . . . . 621.3 767.5 698.8 945.6 1,039.4 1,179.3
Imaging Parts and Accessories . . . . . 487.2 599.2 761.5 792.4 895.3 1,044.2
DENTAL PRODUCTS . . . . . . . . . . 84.4 111.0 150.4 191.9 221.6 264.4
Dental Capital Equipment . . . . . . . . . 18.4 27.5 34.9 73.2 87.2 107.3
Dental Instruments and Supplies . . . . 66.0 83.5 115.4 118.7 134.4 157.1
ORTHOPAEDIC PRODUCTS . . . . 183.9 234.0 311.3 358.6 406.4 475.7
Splints and Other Fracture Apps . . . . 58.9 76.7 110.8 142.1 163.6 194.4
Artificial Joints . . . . . . . . . . . . . . . . 52.0 65.2 55.5 76.5 83.0 92.9
Other Artificial Body Parts . . . . . . . . 73.0 92.1 145.0 140.0 159.9 188.4
PATIENT AIDS . . . . . . . . . . . . . . . 654.4 702.9 886.9 1,078.9 1,196.6 1,370.0
Portable Aids . . . . . . . . . . . . . . . . . 337.6 373.9 481.4 591.8 665.0 771.3
Therapeutic Appliances . . . . . . . . . . 316.8 329.0 405.6 487.0 531.5 598.7
OTHERS . . . . . . . . . . . . . . . . . . . . 735.5 827.5 1,083.5 1,354.4 1,489.1 1,689.8
TOTAL . . . . . . . . . . . . . . . . . . . . . 4,036.5 4,751.8 5,883.4 7,045.7 7,810.6 8,939.8
Source: The Medical Market: China, Espicom Business Intelligence, 2012
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The medical device industry in China has experienced significant growth in the past few years due to
increasing demand for medical equipment and consumables in both urban and underdeveloped rural
areas. The main growth drivers of the medical device industry in China include:
. Development of China’s medical systems to increase healthcare coverage and expansion of the
cooperative medical systems in China’s rural areas;
. Aging population and increasing health awareness of the general public;
. Upgrading of existing medical equipment and other devices in hospitals; and
. Increased government funding designated for developing healthcare infrastructure.
Below is the breakdown of the medical device market by product category in 2011:
Medical Device Market by Product Category in 2011
Source: The Medical Market: China, Espicom Business Intelligence, 2012
SOURCE OF INFORMATION
The information and statistics set out in this section have been extracted or derived from public and
private publications of certain information providers, including Industry Experts, Markets & Markets,
NFS MENET, IMS, Espicom, Frost & Sullivan and ISI Emerging Markets. All of these information
providers are Independent Third Parties and the reports and sources used by such information providers
have not been commissioned by us.
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REGULATORY FRAMEWORK
Our products are subject to regulatory controls governing pharmaceutical products and medical
appliances and equipment. Thus we are subject to regulation and oversight by different levels of the
food and drug administration in the PRC, in particular, the SFDA. The Law of the People’s Republic of
China on the Administration of Pharmaceuticals 《中�A人民共和���品管理法》), as amended on 28
(
February 2001, together with its implementation regulations, provides the legal framework for the
administration of the production and sale of pharmaceutical products in the PRC and covers the
manufacturing, distributing, packaging, pricing and advertising of pharmaceutical products in the PRC.
We are also subject to other PRC laws and regulations that regulate the manufacturing, distribution of
pharmaceutical products and medical devices, as well as commercial franchising activities.
Principal Administrative Authorities
As the competent authority of the pharmaceutical and healthcare industries, the SFDA is responsible for
administrative supervision and technical supervision over the research, production, circulation and usage
of drugs, including Chinese medicines. The local drug administrative authorities at the level of
provinces, autonomous regions and municipalities directly under the PRC central government are
responsible for supervision and administration of drugs within their respective administrative regions.
MOH is a ministerial department under the direct supervision of the State Council. MOH focuses
primarily on public healthcare matters that are not directly related to the pharmaceutical industry. MOH
also performs a variety of regulatory roles in relation to drug administration, including, without
limitation, carrying out healthcare system reform, formulating and implementing the National Essential
Drugs System, formulating the National Drug Code and the National List of Essential Drugs, proposing
pricing policies for National Essential Drugs, and supervising healthcare institutions. Meanwhile, MOH
is responsible for supervising and overseeing the SFDA.
The Ministry of Commerce of PRC is the competent authority of the pharmaceutical wholesale sector in
China. It is responsible for:
. formulating plans, policies and standards concerning the development of the pharmaceutical
distribution industry;
. enhancing the structure readjustment of the pharmaceutical distribution industry;
. guiding the reform of the pharmaceutical distribution industry; and
. promoting the development of a modern pharmaceutical distribution industry in China.
The NDRC is responsible for the macro-guidance and management of the healthcare industry’s
development planning, technological upgrading, approval of investment programs and the economic
operation status of the medical enterprises, the supervision and management over the price of medicines
and formulating the national unified retail price for certain drugs falling under the National Medical
Insurance Drugs Catalog and for drugs the production and distribution of which are monopolized.
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In accordance with the state laws, rules, regulations and policies relating to health and drugs and in light
of the characteristics of the traditional Chinese medicine industry, the State Administration of
Traditional Chinese Medicine is responsible for the guidance and implementation of fundamental works
such as guidelines, policies, development strategies, qualification management and techniques of the
Chinese medicine industry.
MANUFACTURING OF PHARMACEUTICAL PRODUCTS
A manufacturer of pharmaceutical products must obtain a variety of special permits and licenses before
commencing operations. These include a pharmaceutical manufacturing permit, a GMP certification(s)
and a medicine approval document(s).
Pharmaceutical Manufacturing Permit
A manufacturer of pharmaceutical products must obtain a pharmaceutical manufacturing permit and a
business license from the relevant provincial food and drug administration authority in the PRC. The
grant of such permit is subject to an inspection of the manufacturing facilities, and a finding that their
sanitary condition, quality assurance systems, management structure and equipment meet the required
standards. According to the Regulations of Implementation of the Law of the People’s Republic of China
on the Administration of Pharmaceuticals 《中�A人民共和���品管理法��施�l例》), which became
(
effective on 15 September 2002, and the Measures on the Supervision and Administration of the
Manufacture of Pharmaceuticals 《�品生�a�O督管理�k法》), which became effective on 5 August 2004,
(
a pharmaceutical manufacturing permit is valid for five years and may be renewed at least six months
prior to its expiration date upon a re-examination by the relevant authority.
Good Manufacturing Practices
A manufacturer of pharmaceutical products and pharmaceutical materials must obtain GMP certification
for production of such products and materials in the PRC. GMP comprises a set of detailed guidelines
on practices governing the production of pharmaceutical products. GMP certification criteria include
those related to institution and staff qualifications, production premises and facilities, equipment,
hygiene conditions, production management, quality controls, product operation, maintenance of sales
records and manner of handling customer complaints and adverse reaction reports. A GMP certificate is
generally valid for five years. The certificate may be renewed at least six months prior to the expiry
date.
Formulated by the WHO, the guidelines embodied in GMP were designed to protect consumers by
minimizing production errors and the possibility of contamination. The concept of GMP was introduced
in the PRC in 1982 and was published in the Guidelines on the Implementation of GMP Standards 《�
(
品生�a�|量管理����施指南》) in 1985. In 1988, MOH promulgated the first version of GMP
standards, which was subsequently amended in 1992, 1999 and 2010. On 17 January 2011, SFDA
published the current version of GMP standards (2010 revised edition), which became effective on 1
March 2011.
Approval and Registration of Pharmaceutical Products
In accordance with the Measures for the Administration of Drug Registration 《�品�]�怨芾磙k法》),
(
which became effective on 1 October 2007, a medicine must be registered with and approved by the
SFDA before it can be manufactured. The registration and approval process requires the manufacturer to
submit to the SFDA a registration application containing detailed information concerning the efficacy
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REGULATORY OVERVIEW
and quality of the medicine and the manufacturing process and the production facilities the manufacturer
expects to use for production of such medicine. This process generally takes at least a few months and
could be longer, depending on the nature of the medicine under review, the quality of the data provided
and the workload of the SFDA. To obtain SFDA registration and approval necessary for commencing
production, the manufacturer is also required to conduct pre-clinical trials, apply to the SFDA for
permission to conduct clinical trials, and, after the clinical trials are completed, file clinical data with the
SFDA for approval. In January 2009, the SFDA issued the Provisions on Special Approval for the
Registration of New Drugs 《新��]�蕴厥��批管理�定》) that created a fast track review process for
(
the approval of certain new drugs.
If a medicine is approved by the SFDA as a new drug, the SFDA will issue a new drug certificate to the
manufacturer and may impose a monitoring period of not more than five years. During the monitoring
period, the SFDA will monitor the safety of the new drug, and will not accept new drug certificate
registrations for an identical medicine by another pharmaceutical company, nor approve the production
or import of an identical medicine by other pharmaceutical companies.
Continuing SFDA Regulation
A manufacturer of pharmaceutical products is subject to periodic inspection and safety monitoring by
the SFDA to determine the manufacturer’s compliance with regulatory requirements. The SFDA has a
variety of enforcement actions available to enforce its regulations and rules, such as fines and
injunctions, recalls or seizure of products, imposition of operating restrictions, partial suspension or
complete shutdown of production, and referring non-compliance to the relevant authority for criminal
investigation.
DISTRIBUTION OF PHARMACEUTICAL PRODUCTS
Pharmaceutical Operation Permit
The establishment of a wholesale pharmaceutical distribution company requires the approval of the food
and drug administration of the people’s government of the province, autonomous region or municipality
directly under the PRC Central Government. Upon approval, the authority will grant a pharmaceutical
operation permit. The establishment of a retail pharmacy requires the approval of the local food and
drug administration at or above the county level. Upon approval, the authority will grant a
pharmaceutical operation permit. Once these permits are received, the wholesale and retail
pharmaceutical company shall be registered with the relevant administration for industry and commerce.
The grant of such permit is subject to an inspection of the operator’s facilities, warehouse, hygienic
environment, quality control systems, personnel (including of whether pharmacists and other
professionals have the relevant qualifications) and equipment. Under the Measures for the
Administration of Pharmaceutical Operation Permit 《�品��I�S可�C管理�k法》), which became
(
effective on 1 April 2004, the pharmaceutical operation permit is valid for five years. Each operation
permit holder must apply for an extension of the permit six months prior to its expiration, and extension
is granted only after a re-examination of the permit holder by the authority which issued the permit. In
addition, a pharmaceutical operator must obtain license from the relevant administration for industry and
commerce prior to commencing its business.
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Good Supply Practices
Each retail or wholesale operator of pharmaceutical products is required to obtain a GSP certificate from
relevant food and drug administration prior to commencing its business. GSP standards, which comprise
a set of quality guidelines for operations related to pharmaceutical products, regulate pharmaceutical
wholesale and retail operators to ensure the quality of pharmaceutical products in the PRC. The current
applicable GSP standards require pharmaceutical operators to implement strict controls on the operation
of pharmaceutical products, including standards regarding staff qualifications, premises, warehouses,
inspection equipment and facilities, management and quality control. Under The Administrative
Measures for Certification of Good Supply Practices 《�品��I�|量管理���J�C管理�k法》) issued
(
on 24 April 2003 by SFDA, the GSP certificate is valid for five years and may be extended three
months’ prior to its expiration upon a re-examination by the relevant authority.
Supervision and Management of Drug Distribution
To strengthen drug supervision and management, and maintain orderly circulation and qualities, the
SFDA issued the Method of Supervision and Management of Drug Distribution 《�品流通�O督管理�k
(
法》) on 31 January 2007, which became effective from 1 May 2007. Detailed provisions are imposed on
a variety of matters such as the purchase, sale, transportation and storage of medicines by
pharmaceutical production and operation enterprises as well as the purchase and storage of medicines
by pharmaceutical institutions.
Distance between retail pharmacies
The PRC central government has not published rules on the distance between the retail pharmacies.
However, for reasonable arrangement of pharmacy resources, the local governments have published
some local regulations and guidance on the distance between the retail pharmacies. The following are
examples of the relevant rules of the major locations of our retail pharmacies.
Beijing
Under article 5 of the Regulation Regarding Opening Retail Pharmacies in Beijing 《北京市�_�k�品零
(
售企�I�盒幸�定》), the opening of retail pharmacies should be in accordance with the principle of
‘‘reasonable layout and convenience to the masses’’.
The newly opened retail pharmacies should keep a traveling distance above 350 meters with existing
pharmacies:
(1) There is no distance restriction on the directly operated retail pharmacies which are not legal
persons and are operated by the same chain enterprise.
(2) There is neither distance restriction on, while opened in the same shopping mall, the directly
operated retail pharmacies which are not legal persons, nor the retail enterprises which focus on
type B non-prescription drugs.
Shanghai
Under article 3 of Shanghai’s Guidance For Administrative Licensing of Drug Retail Enterprises 2011
Edition 《上海市�品零售企�I行政�S可指南》(2011版)), the opening of retail pharmacies should be in
(
accordance with the principle of ‘‘reasonable layout and convenience to the masses’’. And it should also
meets the requirements for commercial network layout and development plan in the area where the
�C 124 �C
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pharmacies are located. The law prevents new retail pharmacies gathering together in the city which its
population is concentrated, but encourage the new retail pharmacies open in newly established
residential areas, remote suburban and rural areas.
The newly opened (include relocation) retail pharmacies should keep a distance of more than 300 meters
(include 300 meters) with existing pharmacies. The regulation cannot be changed even the retail
pharmacy reach an agreement of the distance with the adjacent retail store.
For newly opened retail pharmacies, if there are more than 7,000 (include 7,000) residents (including
household population and floating population) in this area, then there should be at least one retail
pharmacy. But this is not applicable in rural areas.
Tianjin
Under article 6 of Tianjin’s Regulation Of Implementation Of Business License For Drug Retail
Enterprises 《天津市�品零售企�I�品��I�S可�C管理��施��t》), the opening of retail pharmacies
(
should be in accordance with the principle of ‘‘reasonable layout and convenience to the masses’’. The
newly opened retail pharmacies should keep a distance of more than 100 meters with existing
pharmacies.
EXPORT OF APIS AND INTERMEDIATE PRODUCTS TO OVERSEAS MARKETS
The APIs and intermediate products exported to overseas markets must be registered with and approved
by both the SFDA and the local food and drug administrative authorities of the importing countries. In
order to register with the local food and drug administrative authorities of the importing countries, (i)
the APIs and the intermediate products are generally required to meet the quality standards of those
countries, such as those set out in the United States Pharmacopeia and the European Pharmacopoeia; (ii)
the production facilities are required to pass the GMP on-site inspection; and (iii) the samples extracted
during the on-site inspection are required to pass the inspection as well. In addition to the above, the
exported APIs and intermediate products are also subject to the import tariff related regulations of the
importing countries. The developed economies that import our APIs, such as the U.S. and the European
Union, have implemented the WTO agreement on pharmaceutical products in 1993, which eliminated
import tariffs for finished products, active ingredients and some chemical intermediates, and in many
countries tariffs are zero or close to zero. However, certain major developing economies, such as China,
India, Russia, and the ASEAN countries still have import tariffs for active ingredients and finished
products. Normally the importers of our API products bear all taxes and fees that arise after the goods
reached the port of the importing countries. Products that are exported to the U.S. must meet the
regulatory requirements under the U.S. Food and Drug Administration, while the product specification
and standards are based on the customers’ specific requirements. Products that are exported to the
European Union must meet the regulatory requirements under the GMP standards.
COMMERCIAL FRANCHISE REGULATIONS
The PRC State Council promulgated the Regulations on the Administration of Commercial Franchises
《商�I特�S��I管理�l例》) (the ‘‘Franchise Regulations’’) on 6 February 2007. The Franchise
(
Regulations, which became effective on 1 May 2007, are intended to further liberalize the regime
governing commercial franchising activities in the PRC. In addition to the Franchise Regulations, the
Ministry of Commerce has promulgated two implementing regulations, namely, the Administrative
Measures for Archival Filing of Commercial Franchises 《商�I特�S��I�浒腹芾磙k法》) (the ‘‘Archival
(
Filing Measures’’), which was amended on 12 December 2011, and the Administrative Measures on
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Information Disclosure Requirements for Commercial Franchises 《商�I特�S��I信息披露管理�k法》)
(
(the ‘‘Disclosure Measures’’) which was amended on 23 February 2012. The Franchise Regulations,
Archival Filing Measures and Disclosure Measures form the basic legal framework for the regulation of
PRC franchise operations, and address the requirements, fees, qualifications, administrative reporting
and compliance procedures, and other issues related to commercial franchising.
MANUFACTURING AND DISTRIBUTION OF MEDICAL DEVICES
Medical Devices Manufacturing Permit
In accordance with the Regulations on the Supervision and Administration of Medical Devices 《�t��器
(
械�O督管理�l例》), which became effective on 1 April 2000, manufacturing of class II and/or class III
medical devices is subject to inspection and approval by the local drug administrative authority of the
provinces, autonomous regions and municipalities and the manufacturer of such medical devices is
required to obtain the Medical Device Manufacturing Enterprise License 《�t��器械生�a企�I�S可�C》).
(
The list of each class of medical devices is set forth in the Medical Device Product Catalog 《�t��器械
(
分�目�》), which is promulgated and updated by the SFDA from time to time. The term of the validity
of the Medical Device Manufacturing Enterprise License is five years. Re-inspection is required for the
renewal of the license.
Registration of Medical Devices Manufacturing
In accordance with the Regulations on the Supervision and Administration of Medical Devices 《�t��器
(
械�O督管理�l例》), a product registration system for manufacturing medical devices was implemented.
Under this product registration system, class I medical devices shall be inspected, approved and issued a
registration certificate by the local drug administrative authority, class II medical devices shall be
inspected, approved and issued registration certificates by the drug regulatory agency of provinces,
autonomous regions and municipalities, and class III medical devices shall be inspected, approved and
issued registration certificates by the drug regulatory agency directly under the State Council. The term
of validity for the registration certificate of medical devices is four years, which must be renewed within
six months prior to expiration. The registration certificate shall be invalidated if the production has been
terminated for more than two consecutive years.
Medical Device Operation Permit
In accordance with the Regulations on the Supervision and Administration of Medical Devices 《�t��器
(
械�O督管理�l例》), which became effective on 1 April 2000, and the Measures for the Administration of
Permits for Medical Devices Operation Enterprises 《�t��器械��I企�I�S可�C管理�k法》), which
(
became effective on 9 August 2004, an enterprise engaged in wholesale or retail of medical devices
must obtain an operation permit from the provincial level food and drug administration before
commencing the distribution of class II and class III medical devices. An exemption from this
requirement exists in the case of a distributor of a small number of Class II medical devices where the
distributor is able to guarantee the safety and effectiveness of the medical devices. An operation permit
is valid for five years and is renewable upon expiration. To renew an operation permit, a distributor
needs to submit an application to the provincial level food and drug administration, along with required
information six months before the expiration of the permit.
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In December 2008, the SFDA and MOH jointly released the Measures on Monitoring and Re-Evaluation
of the Adverse Events Involving Medical Devices (Trial) 《�t��器械不良事件�O�y和再�u�r管理�k
(
法(�行)》), which specify the process and timeline for reporting, monitoring and investigating adverse
incidents involving medical devices.
REGISTRATION OF NEW PHARMACEUTICAL PRODUCTS
According to the Measures on the Administration of Pharmaceutical Products Registration 《�品�]�怨�
(
理�k法》), which was promulgated by the SFDA in 2007, new pharmaceutical products refer to those
products which have not been launched in the PRC market. Pharmaceutical products taking different
dosage forms or route of administration or having curative effects for additional diseases are treated as
new pharmaceutical products. All new pharmaceutical products must undergo four phases before the
launching: pre-clinical research, application for clinical trials, clinical trials and approval of production.
Upon the completion of pre-clinical research, pharmaceutical product manufacturers are required to
obtain approval from the SFDA prior to commencement of clinical trials of any new pharmaceutical
product. Application materials, including relevant pre-clinical research information, must first be
submitted to the provincial drug administrative authorities. The provincial drug administrative authorities
will conduct production site visits. For biological products, the SFDA will collect three sets of drug
samples for examination. The SFDA will consolidate the review opinions, on-site inspection report, drug
inspection report (if any) and pre-clinical research information from the provincial authorities, and then
organize an expert committee made up of pharmaceutical experts and other specialists to conduct
technical assessments of the new pharmaceutical product to consider whether an approval for clinical
trials should be granted.
Pharmaceutical manufacturers may conduct clinical trials after obtaining approval to do so. Clinical
trials comprise four phases: phase I (preliminary pharmacology and human safety trials), phase II
(preliminary assessment on efficacy), phase III (confirmation of efficacy) and phase IV (research on
applications after launching of new pharmaceutical products). The number of tested cases of clinical
trials shall accord with the aim of each phase of clinical trials and relevant statistical requirements, and
shall not be less than the minimum number of clinical trial cases set forth in the Measures on the
Administration of Pharmaceutical Products Registration. In the case of rare diseases, special diseases
and other exceptional circumstances, application for reducing the number of clinical trial cases or
exemption from clinical trials may be submitted to SFDA for approval. Upon the completion of clinical
trials, the applicant must also apply for an approval to manufacture the new pharmaceutical product.
Application materials, including relevant clinical trial information and raw material samples, must be
submitted to the provincial drug administrative authorities and the drug inspection bureau. The
provincial SFDA will then review the application materials and conduct production site visits. Three
consecutive production batches of drug samples will be collected from the applicant’s production site for
examination by the drug inspection bureau. After their investigation and assessment of the application,
the provincial drug administrative authorities and the drug inspection bureau will report to the
assessment center of the SFDA, which will conduct a final assessment.
If the new pharmaceutical product passes the technical assessment, the assessment center of the SFDA
would notify the applicant to apply for on-site examination of production and inform the certification
center of the SFDA. The certification center of the SFDA will conduct an on-site inspection, within 30
days after receipt of the application, on the process of bulk production of samples and confirm the
feasibility of the assessed production process. One set of samples will be delivered to another drug
inspection bureau to re-examine the standard of the pharmaceutical product, and the results will be
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reported to the assessment center of the SDFA. The assessment center will then consolidate the results
from the on-site examination and sample examination to form an opinion to report to the SDFA. The
SDFA will then consider whether an approval for registration of the new product should be granted. If
approved, the applicant will be granted a certificate of new drug and an approved pharmaceutical
number. The manufacturer may then commence mass production of the new pharmaceutical product. The
SFDA may stipulate a monitoring period of up to five years in respect of any new pharmaceutical
product approved for production to monitor the safety of such new pharmaceutical product on an
ongoing basis. The SFDA will not approve the production, change and import of such new
pharmaceutical product by other enterprises during the monitoring period. No applications for the
registration of similar pharmaceutical products by other applicants shall be accepted after the
commencement of the monitoring period for such new pharmaceutical product. Applications for the
registration of pharmaceutical products of similar products by other applicants that have been accepted
but have not been approved to begin clinical trials shall be returned. Upon the expiration of the
monitoring period of such new pharmaceutical products, applicants may file an application in respect of
their generic pharmaceutical products or for the import of similar pharmaceutical products.
According to the Measures on the Administration of Pharmaceutical Products Registration (�品�]�怨�
理�k法), the approval number for medicine approved by SFDA, the certificate of imported medicines
and registration certificate of medicines are valid for five years. The certificates should be renewed
within six months prior to expiration.
On 7 January 2009, the SFDA promulgated the Administrative Measures on the Special Examination
and Approval of New Pharmaceutical Products Registration 《新��]�蕴厥��批管理�定》), which
(
provided that certain types of new pharmaceutical products may apply to go through the special
examination and approval process when submitting the application for clinical trials or the application of
production. Under the special examination and approval process, the new pharmaceutical products which
fulfil the prescribed criteria will enjoy priorities such as accelerated approval and additional
supplementary information submission channels with respect to the registration.
CHINESE MEDICINE PROTECTION
According to the Regulations on the Protection of Chinese Medicines 《中�品�N保�o�l例》), which was
(
promulgated by the State Council on 14 October 1992 and became effective from 1 January 1993, for
the purposes of improving the quality and promoting the development of traditional Chinese medicines,
as well as protecting their manufacturers’ legitimate rights and interests, protections are granted with
respect to a variety of domestically manufactured traditional Chinese medicines which have fulfilled
national medicine standards ingredients. Different provisions have been stipulated for the prescription
composition, production techniques and their overseas transfers.
PRESCRIPTION MEDICINES AND OVER-THE-COUNTER MEDICINES
In order to promote safety, efficacy and convenience in the use of pharmaceutical products, the SDA,
the predecessor of the SFDA, published the Trial Administrative Measures regarding the Classification
of Prescription Medicines and Over-the-Counter Medicines 《�方��c非�方�分�管理�k法(�行)》)
(
in June 1999, which were implemented with effect from 1 January 2000. These administrative measures
divide drugs according to their type, specification, the relevant disease or ailment which they are
designed to treat, dosage and method of administration. Prescription medicines relate to those whose
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prescription, purchase and intake require prescription by practicing doctors or assistant doctors. Over-
the-counter medicines relate to those whose prescription, purchase and intake do not require prescription
by practicing doctors or assistant doctors.
The SFDA is responsible for the selection, approval, publication and revision of the State Non-
Prescription Medicine Catalog 《��家非�方�目�》). Depending on the safety of the relevant drug,
(
over-the-counter medicines are further subdivided into type A and type B and administered separately.
Manufacturers of both prescription and over-the-counter medicines are required to obtain a
Pharmaceutical Manufacturing Permit and to obtain production approvals for the relevant drugs.
Retailers and wholesalers of prescription medicines and over-the-counter medicines and retail outlets
selling prescription medicines and type A over-the-counter medicines are required to obtain a
Pharmaceutical Operation Permit. Retail outlets selling type B over-the-counter medicines require
approval from the provincial food and drug administration or other designated authorities. In addition,
retail outlets selling type B over-the-counter medicines are required to have professionally trained and
suitably qualified staff before engaging in the sale of type B over-the-counter medicines. Retail outlets
are required to source their drugs from qualified manufacturers and operators holding the requisite
permits and approvals.
NATIONAL LIST OF ESSENTIAL DRUGS
On 18 August 2009, MOH and other eight ministries and commissions in the PRC issued the Provisional
Measures on the Administration of National List of Essential Drugs 《��家基本�物目�管理�k法(��
(
行)》), or the Measures, and the Guidelines on the Implementation of the National List of Essential
Drugs System 《�P於建立��家基本�物制度的��施意�》), or the Essential Drugs Guidelines, that aim
(
to promote essential medicines sold to consumers at fair prices in the PRC and ensure that the general
public in the PRC have equal access to the drugs contained in the National List of Essential Drugs. On
the same day, MOH promulgated the National List of Essential Drugs (Catalog for the Basic Healthcare
Institutions) (2009 Edition) 《��家基本�物目�(基�俞t���l生�C��配�涫褂貌糠�)》(2009版)), which
(
applies only to basic healthcare institutions.
Basic healthcare institutions primarily include county-level hospitals, county-level Chinese medicine
hospitals, rural clinics and community clinics. Pharmaceutical sales from basic healthcare institutions
account for a small portion of the pharmaceutical market in the PRC.
PRICE CONTROLS
Pursuant to the Opinion of the Bureau of State Planning Commission regarding Reforms on Price
Administration of Pharmaceutical Products 《��家�委�P於改革�品�r格管理的意�》) issued by Bureau
(
of State Planning Commission, the predecessor of the National Development and Reform Commission, on
20 July 2000, and the Circular of the National Development and Reform Commission on Issue of Price-
controlled Pharmaceutical Products Catalog of National Development and Reform Commission 《��家�l
(
展改革委�T���P於印�l〈��家�l展改革委定�r�品目�〉的通知》), which became effective on 1
August 2005, prices of pharmaceutical products are either determined by the PRC government or based
on market conditions. On 5 March 2010, the NDRC issued the Circular of the National Development and
Reform Commission on adjustment of Price-controlled Pharmaceutical Products Catalog of National
Development and Reform Commission 《��家�l展改革委�P於�{整〈��家�l展改革委定�r�品目�〉等
(
有�P���}的通知》), which has adjusted the Price-controlled Pharmaceutical Products Catalog issued in
2005. The prices of certain pharmaceutical products sold in the PRC, primarily those included in the
national and Provincial Medical Insurance Drugs Catalogs are subject to price controls mainly in the form
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of fixed prices or price ceilings. Manufacturers and operators cannot set the actual price for any given
price-controlled product above the price ceiling or deviate from the fixed price imposed by the
government. The prices of medicines that are not subject to price controls are determined freely at the
discretion of the relevant pharmaceutical companies. Sales of pharmaceutical products by pharmaceutical
manufacturers in the PRC to overseas markets are not subject to any price control by the PRC
government.
NDRC issued the Notice on the Guiding Retail Price of National Essential Drugs 《��家�l展改革委�P
(
於公���家基本�物零售指��r格的通知》) in September 2009, which sets ceiling prices for the
national essential drugs. As a result, all kinds of medical institutions, retail pharmacies and other
pharmaceutical manufacturers and distributors at all levels should not sell the national essential drugs at
the prices which exceed the prices listed in this notice.
The prices of medicines that are subject to price controls are administered by the NDRC and provincial
and regional price control authorities. From time to time, the NDRC publishes and updates a list of
medicines that are subject to price controls. On 5 March 2010, the NDRC promulgated the Circular of
the National Development and Reform Commission on adjustment of Price-controlled Pharmaceutical
Products Catalog of National Development and Reform Commission 《��家�l展改革委�T���P於�{整
(
〈��家�l展改革委定�r�品目�〉等有�P���}的通知》), which revised the Catalog of Medicines subject
to NDRC Price Control issued in 2005 (��家�l改委定�r�品目�). The latest price reductions occurred
in September 2012 when the NDRC promulgated the Notice for Adjustment of the Prices of Medicines
for certain immunomodulating agents, oncology and blood systems medications, setting out the ceiling
prices for certain medicines within these therapeutic areas.
Fixed prices and price ceilings on medicines are determined based on profit margins that the relevant
government authorities deem reasonable, the type and quality of the medicine, average production costs,
and the prices of substitute medicines. The NDRC directly regulates the price of a portion of the
medicines on the list, and delegates to provincial and regional price control authorities the authority to
regulate the pricing of the rest of the medicines on the list.
Further, pursuant to the Notice Regarding Further Improvement of the Order of Market Price of
Pharmaceutical Products and Medical Services 《�P於�M一步整�D�品和�t��服�帐��r格秩序的意
(
�》) jointly issued by the NDRC, the State Council Legislative Affairs Office and the State Council
Office for Rectifying, the MOH, the SFDA, the Ministry of Commerce, the Ministry of Finance and the
Ministry of Labor and Social Security on 19 May 2006, the PRC government exercises price control
over pharmaceutical products included in the National Medical Insurance Drugs Catalog and Provincial
Medical Insurance Drugs Catalog, and made an overall adjustment of their prices by reducing the retail
price of certain overpriced pharmaceutical products and increased the retail price of certain underpriced
pharmaceutical products in demand for clinical use but that have not been produced in large quantities
by manufacturers due to their low retail price levels. In particular, the retail price charged by hospitals at
the county level or above may not exceed 115% of the procurement cost of the relevant pharmaceutical
products or 125% for certain Chinese medicine products.
On 9 November 2009, the NDRC, the MOH and the Ministry of Human Resources and Social Security
jointly promulgated the Notice on Issuing Opinions on Reforming the Price Formation System of
Medicine and Medical Services 《�P於印�l改革�品和�t��服��r格形成�C制的意�的通知》).
(
According to this Notice, in addition to drugs included in the National Medical Insurance Drugs
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Catalog, Provincial Medical Insurance Drugs Catalog and certain drugs whose production or trading tend
to create monopolies, drugs listed in the National List of Essential Drugs are subject to PRC government
price control. The prices of other drugs are determined by the market conditions and are not subject to
PRC government price control.
The manufacturer of a medicine or the distributor of an imported medicine may apply for an increase in
the price of the medicine and it must either apply to the provincial price control authorities in the
province where it is incorporated, if the medicine is provincially regulated, or to the NDRC, if the
medicine is regulated at the central government level. For a provincially regulated medicine, in cases
where provincial price control authorities approve an application, the provincial price control authorities
must file the new approved price with the NDRC for record and make an announcement to the public
through designated media.
In addition, if a particular pharmaceutical product is significantly superior to comparable products in
terms of effectiveness, safety, treatment cycle and costs of treatment, its manufacturer or operator may
apply for an approval for separate pricing, subject to approval of NDRC.
With respect to pharmaceutical products whose prices are determined by market conditions, the
pharmaceutical manufacturers are able to determine the retail price of their products based on their
production cost and market demand and supply for the relevant product. Wholesalers and retailers of
such products are permitted to determine the actual retail price to the end customers, provided that such
price does not exceed the retail price determined by the manufacturers. The pharmaceutical
manufacturers are required to adjust the retail prices from time to time based on their production cost
and the market demand and supply for the relevant product.
Under the Measures on the Investigation of Ex-Factory Prices of Drugs (Trial Implementation) 《�品出
�S�r格�{查�k法(�行)》) issued on 9 November 2011 and the Notice on Enforcement of Investigation
and Survey of Ex-Factory Prices of Drugs 《��家�l展改革委�k公�d�P於加���品出�S�r格�{查和�O�y
(
工作的通知》) issued on 26 March 2012 by NDRC, the government will have the authority to conduct
investigation on the ex-factory prices on medicines produced in China or imported from overseas but
distributed in China. The pharmaceutical manufacturers should provide certain documents required by
NDRC. The investigators are required to check the retail prices of these pharmaceutical products
according to the pricing documents issued by the price authority or the pharmaceutical manufacturers.
Once the measures are implemented, the government will be able to use the results of the investigation
to set the ex-factory prices for the pharmaceutical products.
According to the Notice of Investigation of Ex-factory Prices on Certain Medicines issued by NDRC
《��家�l展改革委�k公�d�P於�Σ糠炙�品�M行出�S�r格�{查的通知》) on 1 July 2010, a survey of the
(
wholesale prices of approximately 900 pharmaceutical products and the operations of the relevant
pharmaceutical manufacturers will be conducted to understand the pricing structure of the selected
pharmaceutical products, which may lead to further downward adjustments in the maximum retail prices
of these pharmaceutical products based on the results of the survey.
According to the Notice on Inspection of National Medical Healthy Service 《�P於�_展全���t��l生服
(
��r格大�z查的通知》) which was issued in March 2011, NDRC and other related authorities will
inspect the rates of medical institutions, disease control and prevention centers, blood stations, medical
organizations which conduct centralized procurement, and units engaged in medical service as at 1
January 2010.
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Under the Circular of Regulating the Price of Medical Service and Related Items 《�P於���t��服��r
(
格管理及有�P���}的通知》) issued on 4 May 2012, NDRC, MOH and National Administration of
Traditional Chinese Medicine revised the Standard of National Price for Medical Service 2012 《全���t
(
��服��r格�目��（二零一二年版）》). The newly revised Standard of National Price for Medical
Service 2012 comprehensively standardizes the prices of medical services, and strictly controls the
prices of newly added medical services. Prices fixed for medical services published in the national
standard are basis for charges of medical services in non-profit hospitals at various levels. The fee
charging items which not listed in the national standard should be canceled in principle. The items
which need to be preserved, should be submitted to the NDRC and MOH for approval before the end of
May 2013. The charging items can exist during the approval period.
ENCOURAGEMENT ON THE ENTRY OF PRIVATE INVESTMENT INTO THE
HEALTHCARE INDUSTRY
Under the Guiding Opinions of the State Council On Encouraging and Guiding the Healthy
Development of the Private Investment 《���赵宏P於鼓�詈鸵���民�g投�Y健康�l展的若干意�》)
(
issued on 7 May 2010, and the Circular of the State Council on Issue of the Cooperation of the
Departments to Encourage and Guide the Healthy Development of the Private Investment 《���赵恨k公
(
�d�P於鼓�詈鸵���民�g投�Y健康�l展重�c工作分工的通知》) issued on 22 July 2010, the State Council
requests the governments at all levels to promote the healthcare reform by encouraging and guiding the
private investment to participate in the development of the healthcare industry. The PRC government
should guide the private investment as an important supplement to the investment by the government,
and speed up the establishment of a public healthcare service system in which the government
investment plays a dominant role and the private investment plays an ancillary role. The government
should support the private investment to operate hospitals, community healthcare service centers,
nursing homes, outpatient department and clinics. It should also support the private investment to take
part in the establishment of public hospitals. The private medical institutions are encouraged to provide
public health service, basic healthcare service and specified service of medical insurance. The State
Council requires the government at all levels to provide a favourable environment to the private
investment in the healthcare industry with governmental financial support, financial institutions’
financing and simplified procedures for government approvals.
Under the Opinions of Priority Areas of Work on Deepening the Economic System Reform in 2012 《�P (
於2012年深化����w制改革重�c工作意�的通知》) approved by State Council on 18 March 2012, the
State Council requires the governments at all levels to advance pilot reforms of public hospitals at the
county level and urban public hospital, and speed up to form an open, diversified medical service model
to deepen healthcare system reform.
REIMBURSEMENT UNDER THE NATIONAL MEDICAL INSURANCE PROGRAM
Urban Resident Program
Pharmaceutical products listed in the National Medical Insurance Drugs Catalog, are covered by the
national medical insurance program. The national medical insurance program was adopted pursuant to
the Decision of the State Council on the Establishment of Basic Medical Insurance System for Urban
Employees 《���赵宏P於建立城��工基本�t��保�U制度的�Q定》) issued by the State Council on 14
(
December 1998, under which all employers in urban cities are required to enroll their employees in the
basic medical insurance program and the insurance premium is jointly contributed by the employers and
employees.
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Participants of the national medical insurance program and their employers are required to contribute to
the payment of insurance premium on a monthly basis. The Notice Regarding the Tentative Measures for
the Administration of the Scope of Medical Insurance Coverage for Pharmaceutical Products for Urban
Worker (�P於印�l城��工基本�t��保�U用����管理�盒修k法的通知), jointly issued by several
authorities including the Ministry of Labor and Social Security and the Ministry of Finance, among
others, on 12 May 1999, further requires that a pharmaceutical product included in the National Medical
Insurance Drugs Catalog must be clinically needed, safe, effective, reasonably priced, user-friendly and
available in the market and must also meet the following requirements:
. it is set forth in the Pharmacopoeia of the PRC;
. it meets standards promulgated by the State Drug Administration (the predecessor of SFDA); and
. it is approved by the State Drug Administration for import.
The national medical insurance drugs, industrial injury insurance drugs and maternity insurance
drugs catalog
On 27 November 2009, the Ministry of Human Resources and Social Security of the PRC published the
Circuit of the National Medical Insurance Drugs, Industrial Injury Insurance Drugs and Maternity
Insurance Drugs Catalog 《��家基本�t��保�U、工��保�U和生育保�U�品目� (二零零九年版)》 to
(
renew the National Medical Insurance Drugs Catalog, and requested the provinces, autonomous regions
and municipalities throughout the PRC to issue the provincial catalogs on 31 March 2010. More medical
products were included in this Catalog. The Catalog will be modified from time to time.
The Catalog can be divided into three types: western medicine, traditional Chinese medicine patent
prescription and Chinese herbal pieces. When the patients who take part in the insurance purchase the
western medicine, traditional Chinese medicine patent prescription which are included in the Catalog
and Chinese herbal pieces which are not included in the Catalog, they will get reimbursement according
to the rules of national medical insurance drugs, industrial injury insurance drugs and maternity
insurance drugs insurance funds.
The medical insurance drugs catalog is divided into two parts, namely Part A and Part B. The National
Essential Drugs are all included in part A of the Catalog. And Industrial Injury Insurance and Maternity
Insurance are not divided into any parts. The drugs included in Part A are determined by the PRC
government for general application and local authorities may not alter the list of drugs in Part A.
Patients purchasing drugs included in Part A of the Catalog are entitled to reimbursement of the entire
amount of the purchase price.
The drugs in Part B are determined by the PRC government and local authorities at the provincial level
may, based on local economic development, medical demand and medical treatment habit, the number of
Part B drugs, but the total number altered may not exceed 243 kinds of drugs. As a result, the contents
of Part B in the Catalog may differ from region to region in the PRC. Patients purchasing drugs
included in Part B of the National Medical Insurance Drugs Catalog are required to pay a deductible and
obtain reimbursement for the remainder of the purchase price. The amount of the deductible differs from
region to region in the PRC.
�C 133 �C
REGULATORY OVERVIEW
Medical Subsidy to Residents in Rural Areas
As part of the medical treatment and healthcare reform, the PRC central government has implemented
plans for the PRC central and local governments to share the costs of subsidizing the medical expenses
of rural residents since 2003. On 13 January 2004, the State Council circulated the Guiding Opinions
regarding the Further Improvement of Cooperative Medical Care in New Type Rural Areas on a Trial
Basis 《���赵恨k公�d�D�l�l生部等部�T�P於�M一步做好新型�r村合作�t����c工作指�б庖�的通知》),
(
which was formulated by ten PRC government agencies including MOH, pursuant to which every rural
resident in the middle and western regions of the PRC participating in this new rural cooperative
medical care plan on a voluntary basis receives medical subsidies in the amount of RMB10.0 (equivalent
to approximately US$1.5) per year from the PRC central government. In addition, local governments in
the middle and western regions of the PRC are required to subsidize no less than RMB10.0 per person
per year and those in the eastern regions of the PRC are encouraged to aim to subsidize up to RMB20.0
(equivalent to approximately US$3.0) per person per year. The actual amount of subsidy contributed by
local governments is dependent on the financial condition of the relevant local government.
The PRC central government further increased the amount of subsidy in 2006. On 10 January 2006,
MOH, NDRC and five other ministries and bureaus jointly promulgated the Notice Regarding
Acceleration of Implementation of Cooperative Medical Care in New Type Rural Areas on a Trial Basis
《�P於加快推�M新型�r村合作�t����c工作的通知》), pursuant to which the PRC central government
(
increased the amount of subsidy for the rural residents in middle and western regions of the PRC, from
RMB10.0 per person per year to RMB20.0 per person per year. In addition, local governments were
required to increase the amount of subsidy by an additional RMB10.0 per person per year.
Urban Residents Basic Medical Insurance
Pursuant to the Guiding Opinion of the State Council on Developing Pilot Programs of Urban Residents
Basic Medical Insurance 《���赵宏P於�_展城�居民基本�t��保�U��c的指�б庖�》), promulgated by
(
the State Council on 10 July 2007, in order to achieve the objective of establishing a medical security
system basically covering all urban and rural residents, the State Council has decided to launch pilot
programs of urban resident basic medical insurance, so as to cover the unemployed urban residents who
have not been covered by any arrangements under the medical security system. The opinion provides
that urban resident basic medical insurance premiums shall be mainly paid by households with
appropriate subsidies of governments. The urban resident basic medical insurance fund will first be used
for payment of the inpatient fees and outpatient fees of participating residents who have serious illness.
Safety and Credibility Rating
In order to increase the awareness of pharmaceutical product manufacturers and research institutions
about the safety and credibility of pharmaceutical products and medical equipment, the SFDA
promulgated the Tentative Regulations Regarding the Safety and Credibility Rating of Pharmaceutical
Products 《�品安全信用分�管理�盒幸�定》) on 13 September 2004, pursuant to which the SFDA at
(
the county level or above regulates the safety and credibility rating of the pharmaceutical product
manufacturers and research institutions in their jurisdiction by establishment of an information system
through which the relevant pharmaceutical product manufacturers and research institutions may be rated
and rewarded accordingly.
�C 134 �C
REGULATORY OVERVIEW
TENDERING REQUIREMENTS FOR HOSPITAL PURCHASES OF MEDICINES
The Guiding Opinions concerning the Urban Medical and Health System Reform 《�P於城��t��l生�w
(
制改革的指�б庖�》), which was promulgated on 21 February 2000 by the State Commission for
Restructuring Economic Systems and seven other ministries and commissions in the PRC, require public
hospitals and healthcare institutions to purchase medicines through a centralized tendering process.
MOH and other relevant government authorities have promulgated a series of regulations and releases in
order to implement the tendering requirements. On 12 November 2001, MOH and five other ministries
and commissions jointly promulgated the Working Regulations of Medical Institutions for Purchase of
Medicines by Centralized Tendering and Price Negotiations (Trial) 《�t���C���品集中招��褓�和集
(
中�h�r�褓�工作��(�行)》), or the Working Regulations, to implement the tendering process
requirements and ensure the requirements are followed uniformly throughout the country. In November
2001, MOH also promulgated the Sample Document for Medical Institutions for Purchase of Medicines
by Centralized Tendering and Price Negotiations (Trial) 《�t���C���品集中�褓�和集中�h�r�褓�文件
(
�本(�行)》), or the Sample Document, as the operational document of the Working Regulations. The
Working Regulations and the Sample Document provide rules for the tendering process and negotiations
of the prices of pharmaceutical products, operational procedures, a code of conduct and standards or
measures of evaluating bids and negotiating prices. On 23 September 2004 and 17 January 2009, MOH
and the other relevant government authorities promulgated the Provisions on Further Regulating
Purchase of Medicines by Medical Institutions through Centralized Tendering 《�P於�M一步���t���C
(
���品集中招��褓�的若干�定》) and the Opinions concerning Further Regulating Purchase of
Medicines by Medical Institutions through Centralized Tendering 《�P於�M一步���t���C���品集中
(
�褓�工作的意�》), respectively, to modify and improve the tendering process system.
In accordance with Notice on Issuing Certain Regulations on the Trial Implementation of Centralized
Procurement of Pharmaceutical Products by Medical Organizations 《�P於印�l�t���C���品集中招��
(
�褓���c工作若干�定的通知》) promulgated on 7 July 2000 and the Notice on Further Improvement
on the Implementation of Centralized Procurement of Pharmaceutical Products by Medical Organizations
《�P於�M一步做好�t���C���品集中招��褓�工作的通知》) promulgated on 8 August 2001, non-profit
(
medical institutions established by the PRC government at the county level or above are required to
implement a centralized tender system for the procurement of pharmaceutical products. Public hospitals
and healthcare institutions at the county level or above must comply with the centralized tendering
process requirements. The tendering process is operated and organized by provincial and municipal
government agencies such as provincial or municipal health departments. The centralized tendering
process is conducted at most twice every year in the relevant province or city in the PRC. With the
exception of medicines included in the National List of Essential Drugs and certain other special
medicines, public hospitals and healthcare institutions that participate in the tendering process in
principle shall use medicines included in the provincial medicine purchasing catalogs, as formulated by
the relevant provincial and municipal government authorities. These public hospitals and healthcare
institutions must only purchase these medicines through a public tender, online price bids, centralized
price negotiations and direct online price listings, including through implementation of government-
mandated price controls. The Sample Document must be included in the tendering documents prepared
in relation to the centralized tendering process and may not be modified. To increase the transparency of
medicine purchases, public hospitals and healthcare institutions are required to make their purchases of
medicines through an online platform established by each provincial and municipal government
authority.
�C 135 �C
REGULATORY OVERVIEW
The manufacturers of medicines that are on the medical institutions’ formularies and are otherwise in
demand by these hospitals are invited to bid and participate in the centralized tender process, which they
must do directly by themselves. These manufacturers may, however, be advised by pharmaceutical
distribution companies and they may use pharmaceutical distribution companies to distribute the
medicines to the hospitals and healthcare institutions. A duly organized bid-evaluation committee, which
is composed of pharmaceutical experts and clinical medical experts who will be randomly selected from
a database of experts established by the relevant competent government authority, is responsible for bid
evaluations. The selection is based on a number of factors, including bid price, quality, clinical
effectiveness, and manufacturer’s reputation and service quality.
ADVERTISING RESTRICTIONS
Pursuant to the Law on the Administration of Pharmaceuticals Products of the PRC 《中�A人民共和��
(
�品管理法》), which was promulgated on 28 February 2001 and became effective from 1 December
2001, and the Measures on the Examination of Pharmaceutical Products Advertisement 《�品�V告��查
(
�k法》), which was promulgated on 13 March 2007 and became effective from 1 May 2007, an
enterprise seeking to advertise its pharmaceutical products must apply for an advertising approval code.
The code is issued by the relevant local administrative authority.
HEALTHCARE FRAUD AND ABUSE
According to Anti Unfair Competition Law of the People’s Republic of China (中�A人民共和��反不正
�����法) (effective on 1 December 1993), business operator who bribes by giving properties or using
any other method in order to sell or purchase the commodities in violation of the Criminal Law of PRC,
shall be investigated in accordance with the Criminal Law; even if the acts mentioned above do not
constitute violation of the Criminal Law, the business operator may be subject to a fine in an amount
from more than RMB10,000 to less than RMB200,000 in accordance with the facts and the illegal
income should be confiscated.
The Interim Provisions on Banning Commercial Bribery 《�P於禁止商�I�V�T行�榈�盒幸�定》)
(
(‘‘Interim Provisions’’) (effective on 15 November 1996) provides a detailed scope of ‘‘properties or
using any other method.’’ As defined in the Interim Provisions, the term ‘‘property’’ refers to cash and
material objects, including property given by a business operator to another entity or individual in the
form of promotion fees, publicity fees, sponsorship fees, research fees, service charges, consulting fees,
commissions or reimbursements, in order to sell or purchase commodities, and the term ‘‘other means’’
refers to any means other than giving property, such as offering domestic or international tours or site
visits in various forms. In addition, the Interim Provisions also made it clear that commercial bribery
committed by any employee of a business operator for selling or purchasing commodities for the
operator shall be regarded as the operator’s act. According to Criminal Law of the People’s Republic of
China (effective on 1 October 1997) and the Opinions of the Supreme People’s Court and the Supreme
People’s Procuratorate on Issues Concerning the Application of Law in the Handling of Criminal Cases
of Commercial Briberies 《最高人民法院、最高人民�z察院�P於�k理商�I�V�T刑事案件�m用法律
(
若干���}的意�》) (effective on 20 November 2008), business operators in the healthcare industry
may be prosecuted with several charges due to commercial briberies, and these charges include: crime of
acceptance of bribes by a non-governmental functionary, crime of offering bribes to a non-governmental
functionary, crime of acceptance of bribes, crime of acceptance of bribes by an entity, crime of offering
bribes, crime of offering bribes to an entity, crime of bribing as an intermediary and crime of offering
bribes by an entity. If found guilty, such operator may be punished by sentence of a fixed term of
imprisonment, life sentence or even death sentence.
�C 136 �C
REGULATORY OVERVIEW
CLASSIFICATION OF HOSPITALS
According to the Interim Measures of Assessment of Hospitals 《�t院�u���盒修k法》) promulgated by
(
the MOH on 21 September 2011 and the Measures for Hospitals Classification (Trial) 《�t院分�管理
(
�k法(�行)》) promulgated by the MOH on 29 November 1989, hospitals in the PRC are classified into
three classes according to competent authorities’ assessment. Each of the three classes is further divided.
The highest class and rank is Rank I of Class III.
MOH regulates and is responsible for the assessment of all hospitals. The MOH and its Hospital
Assessment Committee are responsible for conducting all hospital assessments in the PRC. Under the
MOH, each healthcare administrative department at the provincial level has hospital assessment teams to
assess hospitals in its jurisdiction.
MOH had also promulgated a number of regulations with regard to hospitals assessments, including the
Standard of Assessment of Class III General Hospitals 2011 《三��C合�t院�u�����(2011年版)》) and
(
the Standard of Assessment of Class II General Hospitals 2012 《二��C合�t院�u�����(2012年版)》).
(
Under the relevant regulations, each hospital is assessed once in every four years. Based on the
assessment results, the hospital may be classified as Rank I or Rank II within its class, with Rank I
being the highest, or it may be demoted to a lower class.
ENVIRONMENTAL PROTECTION
The Ministry of Environmental Protection of the PRC is responsible for overall supervision and control
of environmental protection in the PRC. It formulates national environmental quality and discharge
standards and monitors China’s environmental system. Environmental protection bureaus at the county
level and above are responsible for environmental protection within their areas of jurisdiction.
Pursuant to the Environmental Protection Law of the People’s Republic of China 《中�A人民共和���h境
(
保�o法》), or the Environmental Protection Law, which was promulgated and became effective on 26
December 1989, the environmental protection department of the State Council is in charge of
promulgating national standards for environmental protection. The provincial governments and the local
governments in autonomous regions and municipalities directly under the PRC Central Government may
also promulgate local standards for environmental protection on matters not specified under national
standards, provided that local governments must report such standards to the relevant department of
environmental protection administration under the State Council for record.
Pursuant to the Law on Environmental Impact Evaluation of the People’s Republic of China 《中�A人民
(
共和���h境影��u�r法》), which was promulgated on 28 October 2002 and became effective on 1
September 2003, manufacturers must prepare and file an environmental impact report setting forth the
impact that the proposed construction project may have on the environment and the measures to prevent
or mitigate the impact for approval by the relevant government authority prior to commencement of
construction of the relevant project. New facilities built pursuant to this approval are not permitted to
operate until the relevant environmental bureau has performed an inspection and is satisfied that the
facilities are in compliance with environmental standards.
�C 137 �C
REGULATORY OVERVIEW
The Environmental Protection Law requires any facility that produces pollutants or other hazards to
incorporate environmental protection measures in its operations and establish an environmental
protection responsibility system. Such system shall include effective measures to control and properly
dispose of waste gases, waste water, waste residue, dust or other waste materials. Any entity that
discharges pollutants must register with the relevant environmental protection authority.
Remedial measures for breaches of the Environmental Protection Law include a warning, payment of
damages or imposition of a fine. Any entity undertaking a construction project that fails to install
pollution prevention and control facilities in compliance with environmental standards for a construction
project may be ordered to suspend production or operations and may be fined. Criminal liability may be
imposed for a material violation of environmental laws and regulations that causes loss of property or
personal injuries or death.
Pursuant to the Air Pollution Prevention Law of the PRC 《中�A人民共和��大�馕廴痉乐畏ā�), which
(
was promulgated by the National People’s Congress on 5 September 1987, and most recently amended
on 29 April 2000 and became effective from 1 September 2000, the environmental protection authorities
above the county level are in charge of unified supervision and administration of prevention and control
of air pollution. Manufacturers discharging polluted air must comply with applicable national and local
standards and pay polluted air discharging fees. If a manufacturer emits polluted air at a level exceeding
national or local standards, it must take correction actions during a prescribed period of time and may be
subject to penalties.
Pursuant to the Water Pollution Prevention Law of the PRC 《中�A人民共和��水污染防治法》), which
(
was promulgated by the National People’s Congress on 11 May 1984, and amended on 15 May 1996
and 28 February 2008 and became effective from 1 June 2008, manufacturers must discharge water
pollutants in accordance with national and local standards. If the water pollutants discharged exceed
national or local standards, the manufacturer would be subject to fines amounting to two to five times
the water pollution, treatment fees. In addition, the environmental protection authority has the power to
order such manufacturer to correct their actions by reducing the amount of discharge during a stipulated
period of time by restricting or suspending their operations. If the manufacturer fails to correct its action
by the end of the stipulated period, the environmental protection authority may, subject to approval by
the relevant level of the PRC government, shut down the facilities of the manufacturer.
OCCUPATIONAL HEALTH AND SAFETY
Pursuant to the Labor Law of the People’s Republic of China 《中�A人民共和����臃ā�) effective on 1
(
January 1995, employers must establish a comprehensive management system to protect the rights of
their employees, including a system governing occupational health and safety to provide employees with
occupational training to prevent occupational injury.
Pursuant to the Law of Manufacturing Safety of the People’s Republic of China 《中�A人民共和��安全
(
生�a法》), which became effective on 1 November 2002, manufacturers must establish a comprehensive
management system to ensure manufacturing safety in accordance with applicable laws and regulations.
Manufacturers not meeting relevant legal requirements are not permitted to commence their
manufacturing activities.
�C 138 �C
REGULATORY OVERVIEW
Pursuant to the Labor Contract Law of the PRC 《中�A人民共和����雍贤�法》) promulgated by the
(
Standing Committee of the National People’s Congress on 29 June 2007 and effective from 1 January
2008, employers are required, when employing labor, to truthfully inform prospective employees of the
job description, working conditions, location, occupational hazards and status of safe production as well
as remuneration and other conditions as requested by the Labor Contract Law of the PRC.
Pursuant to the Administrative Measures Governing the Production Quality of Pharmaceutical Products
(2010 revised edition) 《�品生�a�|量管理��(二零一零年修�)》), effective from 1 March 2011
(
manufacturers of pharmaceutical products are required to establish production safety and labor
protection measures in connection with the operation of their manufacturing equipment and
manufacturing process.
PRODUCT LIABILITY AND PROTECTION OF CONSUMERS
Product liability claims may arise if the products sold have any harmful effect on consumers. The
injured party can claim for damages or compensation. The General Principles of the Civil Law of the
People’s Republic of China 《中�A人民共和��民法通�t》), which became effective on 1 January 1987,
(
states that manufacturers and sellers of defective products causing property damage or injury shall bear
civil liabilities.
The Product Quality Law of the People’s Republic of China 《中�A人民共和���a品�|量法》), which was
(
enacted in 1993 and amended in 2000, aims to strengthen quality control of products and protect
consumers’ rights. Under this law, manufacturers and operators who produce and sell defective products
may be subject to confiscation of earnings from such sales, the revocation of business licenses and
imposition of fines, and in severe circumstances, may be subject to criminal liability.
The Law of the People’s Republic of China on the Protection of the Rights and Interests of Consumers
《中�A人民共和��消�M者�嘁姹Ｗo法》), which was promulgated on 31 October 1993 and became
(
effective from 1 January 1994, protects consumers’ rights when they purchase or use goods and accept
services. All business operators must comply with this law when they manufacture or sell goods and/or
provide services to customers. In extreme situations, pharmaceutical manufacturers and operators may be
subject to criminal liability if their goods or services lead to the death or injuries of customers or other
third parties.
On 26 December 2009, the Standing Committee of the National People’s Congress of the PRC
promulgated the PRC Tort Liability Law 《中�A人民共和��侵�嘭�任法》), which became effective from
(
1 July 2010. With respect to the environment, the PRC Tort Liability Law highlighted the principle that
polluters are to assume liability in respect of harm caused by their environmental pollution, irrespective
of whether they have breached national environmental protection regulations.
PRC PATENT LAW
The PRC government first provided proprietary rights with patent protection as set forth in the People’s
Republic of China Patent Law, or Patent Law, 《中�A人民共和���＠�法》), which became effective in
(
1985 and most lately amended on 27 December 2008. Pharmaceutical inventions became patentable after
the Patent Law was amended on 1 January 1993. Patents relating to pharmaceutical inventions are
effective for 20 years from the initial date the patent application was filed. Patents relating to utility
model patents and design patents are effective for ten years from the initial date the patent application
was filed.
�C 139 �C
REGULATORY OVERVIEW
Patent Prosecution
The patent system in the PRC, like most countries other than the United States, adopts the principle of
‘‘first to file’’. This means that, where more than one person files a patent application for the same
invention, a patent will be granted to the person who first filed the application. The United States uses a
principle of first to invent to determine the granting of patents. In the PRC, a patent must possess
novelty, innovation and practical application. Under the Patent Law, novelty means that before a patent
application is filed, no identical invention or utility model has been publicly disclosed in any publication
in the PRC or abroad or has been publicly used or made known to the public by any other means,
whether in or outside of China, nor has any other person filed with the patent authority an application
which describes an identical invention or utility model and is published after the filing date. Patents
issued in the PRC are not enforceable in Hong Kong, Taiwan or Macao, each of which has independent
patent system. Patents in the PRC are filed at the SIPO in Beijing. Normally, the SIPO publishes an
application for a pharmaceutical invention 18 months after the application is filed, which may be
shortened upon request by the applicant. The applicant shall apply to the SIPO for a substantive
examination within three years from the date the application is filed.
Patent Enforcement
When a dispute arises as a result of infringement of the patent holder’s patent right, PRC law requires
that the parties first attempt to settle the dispute through consultation between the respective parties.
However, if the dispute cannot be settled through consultation, the patent holder or an interested party
who believes the patent is being infringed may either file a civil legal suit or file an administrative
complaint with the relevant patent administration authority under the SIPO. A PRC court may issue a
preliminary injunction upon the patent holder’s or an interested party’s request before instituting any
legal proceedings or during the proceedings. Damages for infringement are calculated as either the loss
suffered by the patent holder arising from the infringement or the benefit gained by the infringer from
the infringement. If it is difficult to ascertain damages in this manner, damages may be determined by
using a reasonable multiple of the license fee under a contractual license. As in other jurisdictions, with
one notable exception, the patent holder in the PRC has the burden of proving that the patent is being
infringed. However, if the holder of a manufacturing process patent alleges infringement of such patent,
the alleged infringing party has the burden of proving that there has been no infringement.
Compulsory License
According to the Patent Law, the SIPO may grant a person who is not the patent holder a compulsory
license under certain circumstances, where, for example, a person possesses the means to utilize a
patented technology, but such person cannot obtain a license from the patent holder on reasonable terms
and in a reasonable period of time, or where a national emergency or any extraordinary state of affairs
occurs or where the public interest so requires.
International Patent Treaties
The PRC is also a signatory to all major intellectual property conventions, including the Paris
Convention for the Protection of Industrial Property, Madrid Agreement concerning the International
Registration of Marks and Madrid Protocol, Patent Cooperation Treaty, Budapest Treaty on the
International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure and
the Agreement on Trade-Related Aspects of Intellectual Property Rights.
�C 140 �C
REGULATORY OVERVIEW
Although patent rights are national rights, there is also a large degree of international co-operation under
the Patent Cooperation Treaty, to which China is a signatory. Under the Patent Cooperation Treaty,
applicants in one country can seek patent protection for an invention simultaneously in a number of
other member countries by filing a single international patent application. The fact that a patent
application is pending is no guarantee that a patent will be granted, and even if granted, the scope of a
patent may not be as broad as the subject of the initial application.
TRADEMARKS
The People’s Republic of China Trademark Law 《中�A人民共和��商�朔ā�) was promulgated in 1982
(
(later amended on 27 October 2001) and the People’s Republic of China Trademark Implementing
Regulations 《中�A人民共和��商�朔��施�l例》) was promulgated on 3 August 2002. These laws
(
provide the basic legal framework for the regulation of trademarks in the PRC. The Trademark Office is
responsible for the registration and administration of trademarks throughout the country. Like patents,
the PRC has adopted a ‘‘first-to-file’’ principle with respect to trademarks.
PRC law provides that the following acts constitute infringement of the exclusive right to use a
registered trademark:
. use of a trademark that is identical with or similar to a registered trademark in respect of the same
kind of or similar commodities without the authorization of the trademark registrant;
. sale of commodities infringing upon the exclusive right to use the registered trademark;
. counterfeiting or making, without authorization, representations of a registered trademark of
another person, or sale of such representations of a registered trademark;
. changing a registered trademark and selling products on which the changed registered trademark is
used without the consent of the trademark registrant; and
. otherwise infringing upon the exclusive right of another person to use a registered trademark.
In the PRC, a registered trademark owner who believes the registered trademark is being infringed has
three options:
. The registered trademark owner can provide his trademark registration certificate and other
relevant evidence to the administration for industry and commerce at the central or local
government level, which can, at its discretion, launch an investigation. The Administration for
Industry and Commerce may take various actions, such as ordering the infringer to immediately
cease the infringing actions, seizing and destroying any infringing products and trademark in
question, closing down the facilities used to manufacture the infringing products or imposing a
fine. If the registered trademark owner is dissatisfied with the Administration for Industry and
Commerce’s decision, he may, within 15 days of receiving the Administration for Industry and
Commerce’s decision, institute administrative proceedings in court.
�C 141 �C
REGULATORY OVERVIEW
. The registered trademark owner may institute civil proceedings directly in court. Civil redress for
trademark infringement includes:
― injunctions;
― requiring the infringer to take steps to mitigate the damage (i.e., print notices in newspapers);
and
― damages (i.e. compensation for the economic loss and injury to reputation as a result of
trademark infringement suffered by the trademark holder).
The amount of compensation is calculated according to either the gains acquired by the infringer
from the infringement during the infringement, or the loss suffered by the registered trademark
owner, including expenses incurred by the trademark holder to deter such infringement. If it is
difficult to determine the gains acquired by the infringer from the infringement, or the loss
suffered by the trademark owner, the court may elect to award compensation of not more than
RMB500,000.
. If a crime is suspected to be committed, the case shall be promptly referred to the judicial
departments for handling according to law.
�C 142 �C
HISTORY AND DEVELOPMENT
OUR CORPORATE HISTORY
We were established in the PRC as a joint stock cooperative enterprise (股份合作制企�I) under the
laws of the PRC on 14 January 1994 under the name of Shanghai Fosun Industries Company (上海�托�
���I公司). On 20 December 1994, our Company was converted to a limited liability company in the
PRC under the name of Shanghai Fosun Industries Company Limited (上海�托���I有限公司). On 13
July 1998, our Company was restructured by our Promoters to a joint stock limited company in the PRC
under the name of Shanghai Fosun Industrial Company Limited (上海�托���I股份有限公司). On 27
December 2004, we changed our name to Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (上海�托�
�t�(集�F)股份有限公司).
On 7 August 1998, our A Shares were listed on the Shanghai Stock Exchange and trading of our A
Shares on the Shanghai Stock Exchange commenced under the stock code 600196. Upon completion of
the A Share Offering, our Company had a registered capital of RMB150,700,000, divided into
150,700,000 A Shares, among which 100,700,000 A Shares and 50,000,000 A Shares were held by our
Promoters and the public Shareholders, respectively.
In September 2000, as approved by the CSRC, our Company placed a total of 22,500,000 additional A
Shares through a public follow-on offering, raising net proceeds of approximately RMB434.3 million.
In October 2003, our Company issued convertible bonds (the ‘‘Convertible Bonds’’) with a term of five
years and an aggregate nominal value of RMB950.0 million. The Convertible Bonds were listed on the
Shanghai Stock Exchange on 17 November 2003 and have been convertible into our A Shares since 28
April 2004.
In April 2006, our Company completed the Conversion Scheme, pursuant to which all non-tradable A
Shares held by our Promoters were converted to tradable A Shares with certain trading restrictions,
which expired in April 2011.
In July 2006, our Company redeemed all of the outstanding Convertible Bonds at a total consideration
of approximately RMB2.6 million. The Convertible Bonds were delisted from the Shanghai Stock
Exchange on 24 July 2006.
In May 2010, as approved by the CSRC, our Company issued 31,820,000 new A Shares to Fosun High
Tech and six other domestic institutional investors, namely Western Securities Company Limited (西部
�C券股份有限公司), North Industries Group Finance Company Limited (兵器��沼邢挢�任公司), China
Asset Management Company Limited (�A夏基金管理有限公司), Beijing SL Pharmaceutical Company
Limited (北京�p����I股份有限公司), Bainian Cosmetic Care Products Company Limited (百年化�y�o
理品有限公司) and Huatai Asset Management Company Limited (�A泰�Y�a管理有限公司), all of which
are Independent Third Parties, raising net proceeds of approximately RMB635.4 million. Upon
completion of such private placing, our registered capital increased to approximately RMB1,269.6
million. The A Shares subscribed by Fosun High Tech and the six other domestic institutional investors
under such private placing were subject to lock-up periods of 36 months and 12 months, respectively.
In April 2012, our Company issued corporate bonds (‘‘Corporate Bonds’’) with a term of five years and
an aggregate amount of RMB1,500.0 million. The Corporate Bonds were listed on the Shanghai Stock
Exchange on 29 May 2012 (stock code: 122136) with a credit rating of AA+.
�C 143 �C
HISTORY AND DEVELOPMENT
OUR BUSINESS DEVELOPMENT
The following events are our major business development since establishment:
1994 Our Company was established in January 1994.
1998 Our A Shares were listed on the Shanghai Stock Exchange and trading of our A Shares
on the Shanghai Stock Exchange commenced on 7 August 1998 under the stock code
600196.
1999 In August 1999, we acquired a 34% equity interest in Fosun Long March(1) , which
engaged in the manufacturing and sale of diagnostic products.
In June 1999, our Company was recognized as a high-tech enterprise at the national
level.
2000 We acquired an additional 22% and 19% equity interest in Fosun Long March(1) in
April 2000 and December 2000, respectively.
2002 In May 2002, we acquired a 51% equity interest in Yao Pharma, which engaged in
manufacturing and trading of generic medicines, and thus diversified our pharmaceutical
products in the pharmaceutical manufacturing segment.
In May 2002, we acquired a 56.89% equity interest in Pharmaceutical Research
Institute, which mainly engaged in medical research.
2003 In January 2003, Shanghai Fosun Industrial Investment and CNPGC jointly established
Sinopharm and each party then held a 49% and 51% shareholding interest, respectively.
In May 2004, Shanghai Fosun Industrial Investment transferred a 49% equity interest in
Sinopharm to our Group. As at the Latest Practicable Date, we beneficially held a
32.1% equity interest in Sinopharm.
2004 In March 2004, we acquired a 60% equity interest in Guilin Pharmaceutical, through
which we held a 94.48% equity interest in Guilin Pharma(2) , a producer of, among other
things, anti-malarial medicine, in the PRC.
In December 2004, we acquired a 75.2% equity interest in Wanbang Pharma (3), a
pharmaceutical enterprise engaged in the research and development, manufacturing,
sales and marketing of insulin and diabetes drugs in the PRC.
Notes:
(1) As at the Latest Practicable Date, we beneficially held a 100% equity interest in Fosun Long March.
(2) As at the Latest Practicable Date, we, through Fosun Pharmaceutical Industrial, beneficially held a 94.25% equity interest in
Guilin Pharma.
(3) As at the Latest Practicable Date, we, through Fosun Pharmaceutical Industrial, beneficially held a 97.8% equity interest in
Wanbang Pharma.
�C 144 �C
HISTORY AND DEVELOPMENT
In December 2004, we changed our name from Shanghai Fosun Industrial Company
Limited (上海�托���I股份有限公司) to Shanghai Fosun Pharmaceutical (Group) Co.,
Ltd. (上海�托轻t�(集�F)股份有限公司).
2005 In April 2005, our Company was among the first group of Chinese A Share listed
companies to be included in the Shanghai and Shenzhen 300 Index.
In October 2005, our research center was nominated as a national-level research center.
In December 2005, our artesunate drug obtained WHO’s accreditation and Guilin
Pharma was recognised as a qualified supplier by the WHO.
2006 In April 2006, our Company completed the Conversion Scheme.
In September 2006, we acquired a 51% equity interest in Shine Star, a manufacturer of
amino acid products in the PRC.
In September 2006, we and CNPGC, through subscribing for the newly increased
registered capital of Sinopharm, increased our shareholdings in Sinopharm on a pro-rata
basis.
2007 In June 2007, we established Haisiman Pharma, which engaged in the sale of
pharmaceutical products.
In August 2007, our artesunate combination treatment was recognized by the WHO.
2008 In April 2008, our Company was awarded the ‘‘Most Socially Responsible Corporate
Award ― Golden Bee Award’’.
In July 2008, our A Shares were included in the Shanghai Stock Exchange Governance
Index.
In August 2008, we established Wanbang Business, which engaged in the sale of
pharmaceutical products.
2009 In March 2009, we, together with an Independent Third Party, jointly established
Fochon Pharma to conduct research and development for small molecule chemical
drugs.
On 23 September 2009, Sinopharm was listed on the Hong Kong Stock Exchange.
2010 In February 2010, we acquired Hexin Pharma, a company engaged in the manufacturing
and sale of anti-infection medicine.
In February 2010, we, together with four other shareholders, established Shanghai
Henlius to conduct the research and development of monoclonal antibody drugs.
�C 145 �C
HISTORY AND DEVELOPMENT
In June 2010, we entered into a stock purchase agreement with Chindex, pursuant to
which Chindex agreed to issue to Fosun Pharma a total of 1,990,447 shares of its
common stock for an aggregate consideration of approximately US$30 million.
In August 2010, we acquired a 60.68% equity interest in Moluodan Pharma, a drug
manufacturing enterprise in the PRC focusing on traditional Chinese stomach medicine.
In September 2010, we acquired a 51% equity interest in Yaneng Bioscience, which
engaged in the research and development of diagnostic products.
In September 2010, our Company was designated as ‘‘Initial Sample Stock of China
Low Carbon Index’’.
In December 2010, we acquired a 70% equity interest in Shenyang Hongqi Pharma, an
anti-tubercular products manufacturer in the PRC, mainly engaged in the manufacturing
and sales of anti-tuberclous drugs and related APIs.
In December 2010, we consolidated Chindex’s distribution business of high-end medical
devices in the PRC through our investment in CML.
2011 In January 2011(4) , we acquired an additional 50% equity interest in Golden Elephant
Pharmacy, the largest single brand retail pharmacy in Beijing according to the number
of stores.
In September 2011, we acquired a 75% equity interest in Dalian Aleph, a company
engaged in the research and development and production of vaccine.
In September 2011, we acquired a 70% equity interest in Aohong Pharma, whose major
products are Bang Ting and Ao De Jin.
In December 2011 (5) , we completed the acquisition of a total of 70% equity interest in
Jimin Cancer Hospital, a privately operated hospital specializing in oncology and is
located in Hefei, Anhui Province, PRC.
2012 In July 2012, we established Gulin Pharma Afrique Francophone, a company designated
for the development and manufacturing of anti-infection medicine for sales in western
African countries.
In July 2012, we completed the acquisition of a total of 55% equity interest in both
Guangji Hospital, a general hospital located in Yueyang, Hunan Province, PRC, and
Hunan Guangji, a company which holds the property titles of Guangji Hospital.
In August 2012, we, together with an Independent Third Party, jointly established
Shanghai Lonza Fosun Pharmaceutical Technology Development Company Limited to
collaborate on the development of generic drugs with high barriers-to-entry.
Notes:
(4) We acquired and consolidated Golden Elephant Pharmacy in December 2010. The acquisition was completed in January
2011.
(5) We acquired and consolidated Jimin Cancer Hospital in October 2011. The acquisition was completed in December 2011.
�C 146 �C
HISTORY AND DEVELOPMENT
ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES
Acquisitions
During the Track Record Period, we completed eleven acquisitions. The total cash consideration for the
acquisitions as set forth below was approximately RMB2,970,949,503 (2) .
Date(1) and description
of transaction Vendor Amount of consideration How and when consideration was settled Reasons for transaction
In September 2009, Technology Innovation Independent Third Parties RMB4,953,000 Settled in cash in July 2009 To strengthen the business of our medical
acquired a 90% equity interest in Fuji devices business segment
Medical, which engaged in the
manufacturing and sale of medical
devices
In February 2010, Yao Pharma acquired the Independent Third Parties RMB68,000,000 Settled in cash in March 2010 To strengthen our pharmaceutical
entire equity interest in Hexin Pharma, manufacturing segment and enhance our
which engaged in the manufacturing and core competitiveness
sale of anti-infection medicine
In August 2010, Fosun Pharmaceutical Independent Third Parties RMB135,586,000 Settled in cash in September 2010 To strengthen our pharmaceutical
Industrial and Wanbang Pharma, acquired manufacturing segment and enhance our
a total of 60.68% equity interest in core competitiveness
Moluodan Pharma, a stomach disorder
medicine manufacturer in the PRC
In September 2010, Fosun Long March Independent Third Parties RMB53,040,000 Settled in cash in November 2010 To strengthen the development of our
acquired a 51% equity interest in Yaneng diagnostic business and enhance our core
Bioscience, which engaged in the competitiveness
research, development, production,
marketing and distribution of diagnostic
reagent
In December 2010, Fosun Pharmaceutical Independent Third Parties RMB322,133,000 Settled in cash in April 2011 for the 70% To strengthen our pharmaceutical
Industrial initially acquired a 70% equity for the 70% equity interest equity interest and in May 2011 for the manufacturing segment and enhance our
interest in Shenyang Hongqi Pharma, and RMB19,730,603 for 4% equity interest core competitiveness
which engaged in the manufacturing and the 4% equity interest
trading of anti-tuberclous drug
Fosun Pharmaceutical Industrial acquired
an additional 4% equity interest in
Shenyang Hongqi Pharma in July 2011
In December 2010, Ample Up Limited Chindex, a company in 49% equity interest in Settled by way of the transfer of shares in As part of our Group’s strategy to accelerate
acquired a 51% equity interest in CML, which we then held a Technology Innovation Technology Innovation which was the development of our medical devices
which engaged in the research, minority interest with a fair value of completed on 24 June 2011 business and expand our market share in
development and manufacturing of RMB119,323,000 based on the medical device industry
medical devices the valuation by an
Independent Third Party
Notes:
(1) The date as shown on the notice of approval of the change (准予�更登�通知��) issued by the PRC government authority
following the completion of the transaction.
(2) This is the capped amount as the cash considerations of certain transactions are subject to adjustment.
�C 147 �C
HISTORY AND DEVELOPMENT
Date(1) and description
of transaction Vendor Amount of consideration How and when consideration was settled Reasons for transaction
In January 2011, Pharmaceutical Investment Following the capital RMB122,222,000 Settled in cash in December 2010 To further expand our pharmaceutical
acquired a 50% equity interest in Golden injection in January distribution and retail business
Elephant Pharmacy(3) by way of capital 2011, Golden Elephant
injection Pharmacy was owned
as to 55% by
Pharmaceutical
Investment, 42.632%
by Jinxiang Fosun and
2.368% by Beijing
Huafang
In September 2011, Fosun Pharmaceutical Independent Third Parties RMB675,000,000 We have settled RMB420,000,000 in cash. To strengthen our pharmaceutical
Industrial and Fosun Industrial acquired a (could be reduced to manufacturing segment and enhance our
75% equity interest in Dalian Aleph, RMB420,000,000 if The remaining RMB255,000,000 cash core competitiveness
which engaged in the research, certain conditions consideration would be payable if certain
development and production of influenza could not be fulfilled conditions could be fulfilled by 30
vaccine by certain dates) December 2012 or no later than 30
December 2014 in certain cases as agreed
by the parties, and is expected to be
financed by funds generated from our
operations and we may also consider to
raise additional capital, if deemed
necessary and appropriate at the time
when the consideration fall due, taking
into account the financial resources of
our Group as well as the market
conditions.
In September 2011, Fosun Pharmaceutical Independent Third Parties Not exceeding We have settled RMB630,630,000 in cash in To strengthen our pharmaceutical
Industrial acquired a 70% equity interest RMB1,365,000,000 2011 and RMB388,570,000 in 2012 being manufacturing business and enhance our
in Aohong Pharma, whose major products the first, second and third instalments, core competitiveness
include Bang Ting and Ao De Jin equivalent to 80% of RMB1,146,600,000,
the estimated consideration which was
tentatively agreed between the parties.
The remaining cash consideration shall be
paid in three additional instalments. The
fourth and fifth instalments would amount
to 6% and 7% of the total consideration
in the financial year 2013 and 2014,
respectively, subject to adjustments based
on the actual operating profits of Aohong
Pharma for the corresponding financial
years according to the pre-agreed terms
and conditions, with the final instalment
being the remaining balance of the total
consideration. The total consideration is
capped at RMB1,365,000,000. The
remaining funds for the Aohong Pharma
acquisition will be financed by funds
generated from our operations and we
may also consider to raise additional
capital, if deemed necessary and
appropriate at the time when the
consideration fall due, taking into account
the financial resources of our Group as
well as the market conditions.
Note:
(3) Golden Elephant Pharmacy, which was then known as Beijing Xicheng Jinxiang Pharmaceutical Chain Store (北京西城金象�t
��B�i�店) (‘‘Beijing Xicheng Store’’) was founded by Beijing Xicheng Medical Corporation (北京市西城�t��公司)
(‘‘Beijing Xicheng Founder’’) in March 2000. To venture into the pharmaceutical distribution and retail business, we
participated in the restructuring of Beijing Xicheng Store in August 2001, as a result of which Beijing Xicheng Store was
renamed as Golden Elephant Pharmacy, converted into a limited liability company and owned as to 90% by the Beijing
Xicheng Founder (now known as Jinxiang Fosun), 5% by Pharmaceutical Investment and 5% by Beijing Huafang Investment
Company Limited (北京�A方投�Y有限公司) (‘‘Beijing Huafang’’), a state-owned enterprise principally engaged in the
management and investment of state-owned assets.
�C 148 �C
HISTORY AND DEVELOPMENT
Date(1) and description
of transaction Vendor Amount of consideration How and when consideration was settled Reasons for transaction
In December 2011, Yicheng Management Independent Third Parties RMB85,964,900 Settled in cash in November 2011. To expand into the healthcare services
completed the acquisition of a total of business segment
70% equity interest in Jimin Cancer
Hospital, a privately operated hospital
specializing in oncology
In July 2012, Yicheng Management completed Independent Third Parties RMB34,320,000 (for the Settled in cash in June 2012. To expand into the healthcare services
the acquisition of a total of 55% equity acquisition) and business segment
interest in both Guangji Hospital, a RMB85,000,000 (for the
general hospital located in Yueyang, First Capital Injection and
Hunan Province, PRC, with an utilization the Second Capital
rate of 98%, and Hunan Guangji, a Injection)
company which holds the property titles
of Guangji Hospital.
A 26% equity interest in each of the
Guangji Hospital and Hunan Guangji was
initially acquired from 11 individuals
(‘‘Guangji Founders’’).
Following such acquisition, Yicheng
Management acquired a further 23% (the
‘‘First Capital Injection’’) and 6% (the
‘‘Second Capital Injection’’) equity
interest in both Guangji Hospital and
Hunan Guangji by way of capital
injections. Upon completion of the
aforesaid capital injections, Guangji
Hospital and Hunan Guangji are owned
as to 55% by Yicheng Management.
To enable Yicheng Management to
exercise immediate control over Guangji
Hospital and Hunan Guangji, the Guangji
Founders have granted Yicheng
Management the rights to exercise their
29% voting rights (out of their remaining
74% voting rights) since 28 December
2011, which, together with our 26%
voting rights, allow us to have effective
control over 55% of the voting rights in
Guangji Hospital and Hunan Guangji, and
as a result, their accounts have been
consolidated into our Group’s financial
statements since 31 December 2011.
The consideration of the various acquisitions was determined based on arm’s length negotiations among
the parties, with reference to, among others, (i) past financial performance of the target; (ii) future
earning capacity of the target; and/or (iii) publicly available data from transactions involving comparable
companies within the same or similar industry as the target. For further information on these
acquisitions, see Note 42 to the Accountants’ Report of our Company in Appendix I to this prospectus.
�C 149 �C
HISTORY AND DEVELOPMENT
Disposals
During the Track Record Period, we disposed of our equity interests in four subsidiaries. The total
consideration received from the disposals as set forth below, was approximately RMB104,173,900:
How and when
Date (4) and description of transaction Purchaser Amount of consideration consideration was settled Reasons for transaction
In December 2009, we sold all our Shanghai Fosun Enterprise RMB59,400,000 Paid to us in cash in To optimize our resources allocation and
interest in Shanghai Fosun Purun Investment Management December 2009 focus on the healthcare industry
Investment Partnership Enterprise (上 Company Limited (上海
海�托亲V��股�嗤顿Y企�I(有限合伙)), �托���I投�Y管理有限
a company principally engaged in 公司), a subsidiary of
equity investment in non- Fosun High Tech
pharmaceutical assets
In March 2011, we sold 35% equity Ni Yungeng, the then non- RMB2,100,000 RMB1,260,000 was paid To optimise our resources allocation
interest in Suzhou Qitian Blood controlling shareholder to us in cash in
Transfusion Technology Company of Suzhou Qitian Blood March 2011.
Limited (�K州奇天�血技�g有限公 Transfusion Technology
司), a company principally engaged Company Limited (�K州 The balance of the
in the manufacturing and sales of 奇天�血技�g有限公司) consideration to be
medical devices settled by the end of
2012.
In September 2011 (5), we sold all our Sinopharm Group Company RMB36,666,000 Paid to us in cash in To optimise our resources allocation
interest in Zhejiang Fosun, a Limited, a subsidiary of December 2011
company principally engaged in the Sinopharm Investment
distribution and retail of medicine
In February 2012 (6), we sold all our Independent Third Party RMB6,007,900 Paid to us in cash in To focus on the healthcare industry
interest in Science & Technology March 2012
Imp. & Exp., a company principally
engaged in the export of non-
pharmaceutical products
The consideration of the various disposals was determined based on arm’s length negotiations among the
parties, with reference to, among others, (i) past financial performance of the target; (ii) future
profitability of the target; and/or (iii) publicly available data from transactions involving comparable
companies within the same or similar industry as the target. For further information on these disposals,
see Note 43 to the Accountants’ Report of our Company in Appendix I to this prospectus.
For each of the acquisitions and disposals, no contingent liability was assumed or retained by our
Company. No goodwill provision or assets write-off was required.
Merger of Guilin Pharmaceutical by Guilin Pharma
On 22 December 2010, two of our subsidiaries, Guilin Pharma and Guilin Pharmaceutical, entered into a
merger agreement, pursuant to which the parties agreed that Guilin Pharma shall merge with Guilin
Pharmaceutical to centralize management resources. Guilin Pharmaceutical was de-registered on 17 May
2011.
Notes:
(4) The date as shown on the Notice of Approval of the Change (准予�更登�通知��) issued by the PRC government
authority following the completion of the transaction.
(5) The transaction was completed in June 2011 for accounting treatment purposes.
(6) The transaction was completed in November 2011 for accounting treatment purposes.
�C 150 �C
HISTORY AND DEVELOPMENT
OUR CORPORATE STRUCTURE
Prior to the Global Offering
As at the Latest Practicable Date, we had issued 1,904,392,364 A Shares and had a registered share
capital of RMB1,904,392,364.
Immediately prior to completion of the Global Offering, Fosun High Tech holds approximately 48.20%
of the total issued share capital of our Company. The entire issued share capital of Fosun High Tech is
held by Fosun International, the shares of which have been listed on the Main Board of the Hong Kong
Stock Exchange since 16 July 2007. Fosun International was held as to approximately 79.08% by Fosun
Holdings, a direct wholly owned subsidiary of Fosun International Holdings, which was in turn held as
to 58%, 22%, 10% and 10% by Messrs. Guo Guangchang, Liang Xinjun, Wang Qunbin and Fan Wei,
respectively.
Prior to Completion of the Global Offering
The following chart sets forth our simplified corporate structure as at the Latest Practicable Date,
immediately prior to the completion of the Global Offering:
(i) As at the Latest Practicable Date, Mr. Guo Guangchang, our non-executive Director and Controlling Shareholder, held
114,075 A Shares in our Company.
(ii) As at the Latest Practicable Date, Mr. Wang Qunbin, our non-executive Director and Controlling Shareholder, held 114,075
A Shares in our Company.
(iii) Please refer to the section headed ‘‘Statutory and General Information ― Subsidiaries’’ in Appendix VIII to this prospectus
for the details of our subsidiaries.
�C 151 �C
HISTORY AND DEVELOPMENT
Immediately Following Completion of the Global Offering
Immediately following completion of the Global Offering and assuming that the Over-allotment Option
is not exercised, Fosun High Tech will hold approximately 40.97% of the enlarged issued share capital
of our Company (or approximately 40.07% if the Over-allotment Option is exercised in full). Each of
Messrs. Guo Guangchang, Liang Xinjun, Wang Qunbin and Fan Wei, as well as Fosun International
Holdings, Fosun Holdings, Fosun International and Fosun High Tech, will continue to be a Controlling
Shareholder of our Company.
The following chart sets forth our simplified corporate structure immediately following completion of
the Global Offering, assuming no exercise of the Over-allotment Option and no change in shareholding
by each of our Shareholders listed below subsequent to the Latest Practicable Date:
Guo Guangchang Liang Xinjun Wang Qunbin Fan Wei
58% 22% 10% 10%
Fosun International Holdings
(BVI)
100%
Fosun Holdings
(Hong Kong)
79.08%
Fosun International
(Hong Kong)
100%
Guo Guangchang(i) Fosun High Tech
Wang Qunbin(ii) A Share Public Shareholders H Share Public Shareholders
(PRC)
40.97% 44.03% 15%
Our Company
(PRC)
Subsidiaries of our Company(iii)
(i) As at the Latest Practicable Date, Mr. Guo Guangchang, our non-executive Director and Controlling Shareholder, held
114,075 A Shares in our Company.
(ii) As at the Latest Practicable Date, Mr. Wang Qunbin, our non-executive Director and Controlling Shareholder, held 114,075
A Shares in our Company.
(iii) Please refer to the section headed ‘‘Statutory and General Information ― Subsidiaries’’ in Appendix VIII to this prospectus
for the details of our subsidiaries.
�C 152 �C
BUSINESS
OVERVIEW
We are a leading healthcare company in the PRC with business operations strategically covering
multiple important segments in the healthcare industry value chain. We have expanded rapidly through
organic growth, acquisitions and strategic investments. We have gained significant experience through
integrating acquired businesses and assisting our associates in strengthening and expanding their
operations. Our business segments include pharmaceutical manufacturing, pharmaceutical distribution
and retail, healthcare services (1) , and diagnostic products and medical devices. We believe we have
established competitive advantages in each of these segments.
Our core business is the research and development, manufacturing, and sales and marketing of
pharmaceutical products. Our pharmaceutical manufacturing business has grown rapidly since we
entered the segment in 2002. According to IMS (2), we are one of the top five domestic pharmaceutical
companies (3) in the PRC by revenue from the pharmaceutical manufacturing segment in 2011, and one
of the youngest among the top five companies.
In January 2003, Shanghai Fosun Industrial Investment and CNPGC jointly established Sinopharm with
49% and 51% shareholding, respectively. In May 2004, Shanghai Fosun Industrial Investment
transferred its 49% equity interest in Sinopharm to our Group. As at the Latest Practicable Date, we
beneficially held a 32.1% equity interest in Sinopharm(4) . Sinopharm has experienced significant growth
since its establishment. According to public information released by Sinopharm, it is the largest
distributor and a leading provider of supply chain services for pharmaceutical and healthcare products in
China in terms of its market share and the geographical coverage of its distribution network and operates
the largest pharmaceutical distribution network in China in 2011.
Since 2009, our strategic plans have included entering the premium, specialty and general healthcare
services markets in the PRC. We currently participate in the premium healthcare services market through
our investment in Chindex, in which we held an 18.52% equity interest as at the Latest Practicable Date,
and have begun providing quality services in the specialty and general healthcare market through the
acquisition and operation of hospitals.
We have the following business segments in the PRC:
. Pharmaceutical manufacturing. We engage in the research and development, manufacturing, and
sales and marketing of pharmaceutical products. For the year ended 31 December 2011 and the six
months ended 30 June 2012, the external revenue of our pharmaceutical manufacturing segment
was RMB3,830.8 million and RMB2,175.9 million, respectively, representing 59.6% and 62.8%,
respectively, of our total revenue for the same periods.
Notes:
(1) We participated in the healthcare services business through our investment in Chindex prior to October 2011 and through the
operations of our subsidiaries and our investment in Chindex since October 2011.
(2) IMS data reflects purchases of drugs by hospitals with more than 100 beds at hospital purchase price (representing
approximately 60% of the overall hospital market in terms of revenue according to IMS) instead of consumption by individual
patients at retail prices. IMS data is projected for the market based on statistical analysis and actual data from hospitals on its
panel.
(3) Includes only companies that are actually controlled by PRC citizens or entities.
(4) Sinopharm’s financial accounts are not consolidated into our Group’s financial statements and we have accounted for our
equity investments in Sinopharm using the equity method of accounting.
�C 153 �C
BUSINESS
. Pharmaceutical distribution and retail. We participate in the pharmaceutical distribution industry
in the PRC primarily through our strategic partnership with CNPGC, with whom we founded
Sinopharm. We also have developed a network of retail pharmacies which we operate directly or
through franchisees mainly in Beijing and Shanghai. As at 30 June 2012, we had a total of 670
retail pharmacies, of which we directly operated 146 pharmacies and our franchisees operated 524
pharmacies.
. Healthcare services. We participate in the premium, specialty and general healthcare services
markets in the PRC through the United Family hospitals of Chindex, and operation of healthcare
institutions such as Jimin Cancer Hospital and Guangji Hospital.
. Diagnostic products and medical devices. We engage in the research and development,
manufacturing, and sales and marketing of diagnostic reagents and equipment, blood transfusion
equipment and surgical consumables, as well as in the distribution of imported high-end medical
equipment.
We are a public company in the PRC with our headquarters located in Shanghai. Our A Shares have
been listed on the Shanghai Stock Exchange since August 1998. As at the Latest Practicable Date, our
market capitalization was RMB20,834.1 million. Benefiting from the rapidly growing PRC economy and
our strong capability in operation and integration, we have strategically expanded our business and
operating results through organic growth, acquisitions and strategic investments. During the Track
Record Period, our revenue increased from RMB3,850.3 million in 2009 to RMB4,528.8 million in
2010, and further to RMB6,432.6 million in 2011. Our net profit, defined as after tax profit attributable
to owners of our Company, amounted to RMB2,501.0 million, RMB863.7 million and RMB1,166.2
million in 2009, 2010 and 2011, respectively. For the six months ended 30 June 2012, our revenue was
RMB3,464.1 million and our net profit was RMB701.8 million.
Pharmaceutical Manufacturing
We are one of the top five domestic pharmaceutical companies in the PRC by revenue from the
pharmaceutical manufacturing segment in 2011, according to IMS (5) . As at 30 June 2012, we had
obtained manufacturing permits for 1,002 pharmaceutical products, including 913 finished products and
89 APIs. Of the 913 manufacturing permits (6) for finished products, we currently produce 625 drugs,
which include 9 biopharmaceutical drugs, 458 chemical drugs and 158 modern Chinese medicines. As at
30 June 2012, 477 of our finished products, including all 19 of our major prescription drugs, were
included in the National Medical Insurance Drugs Catalog and an additional 122 of them were included
in the Provincial Medical Insurance Drugs Catalogs.
Notes:
(5) IMS data reflects purchases of drugs by hospitals with more than 100 beds at hospital purchase price (representing
approximately 60% of the overall hospital market in terms of revenue according to IMS) instead of consumption by individual
patients at retail prices. IMS data is projected for the market based on statistical analysis and actual data from hospitals on its
panel.
(6) Due to the difference in dosage and specification, one product may have multiple manufacturing permits.
�C 154 �C
BUSINESS
A number of our pharmaceutical products in various therapeutic areas, including metabolism and
alimentary tract, cardiovascular system, central nervous system, blood system and anti-infection, enjoyed
leading positions in terms of sales in their respective market segments in the PRC in 2011. Our key
pharmaceutical products with sales of over RMB100 million in 2011 include Atomolan, Wan Su Ping,
Wan Su Lin, Mo Luo Dan, Su Ke Nuo, Ao De Jin, Bang Ting, anti-tuberculosis series and Xi Chang(7) .
As at 30 June 2012, our sales team for the pharmaceutical manufacturing segment, which comprised
over 1,500 sales representatives, marketed our pharmaceutical products to hospitals in 29 provinces,
autonomous regions and municipalities throughout the PRC. Our products were also distributed through
over 2,000 distributors in the PRC. In addition to sales in the PRC, we also export certain finished
products, APIs and intermediate products to overseas markets, including the U.S., Europe, and certain
African countries. For the year ended 31 December 2011 and the six months ended 30 June 2012, our
revenue from exports of finished products, APIs and intermediate products amounted to RMB756.9
million and RMB384.0 million, respectively.
We have significant competitive strengths in the research and development of pharmaceutical products
in China. Our research and development activities focus primarily on innovative drugs,
biopharmaceutical generic drugs and first-to-market chemical generic drugs in a number of major
therapeutic areas, including metabolism and alimentary tract, cardiovascular system, oncology, central
nervous system and anti-infection. We have established specialized research and development platforms
and have built an international research and development team with operations in Shanghai, Chongqing
and the U.S.. Our U.S. operations are dedicated to the research and development of small molecule
chemical drugs and large molecule biopharmaceutical drugs such as monoclonal antibodies. During the
Track Record Period, we successfully developed and obtained manufacturing permits for 39 products in
China, and we also obtained new drug certificates for some of these products, including You Di Er,
Bang Zhi, compound artesunate series, and ethambutol hydrochloride, pyrazinamide rifampicin and
isoniazid tablets. As at 30 June 2012, we had over 100 pipeline products. These pipeline products
include 16 products that are pending approval for production, five products that are at various stages of
clinical trials, and 13 products that are pending approvals to enter clinical trials. We also have several
monoclonal antibody products under development. During the Track Record Period, our internally
developed major products, namely, Atomolan tablets, Ke Yuan, Bang Tan, Bang Zhi, You Di Er, Eluzer
and Shaduolika, accounted for 11.3%, 10.4%, 8.8% and 11.4% of our revenue from major products
(which are set out in the table starting on page 171 in this section of the prospectus) for the years ended
31 December 2009, 2010 and 2011 and the six months ended 30 June 2012, respectively. During the
Track Record Period, our research and development expenditure, which include research and
development expenses and capital expenditure to improve production capacity and efficiency, on
average accounted for 8% to 10% of the external revenue of our pharmaceutical manufacturing segment.
We have a research center that is recognized as a ‘‘National Recognized Enterprise Technology Center’’
(��家�企�I技�g中心), and are qualified or recognized as a ‘‘National Key High and New Technology
Enterprise’’ (��家重�c高新技�g企�I), a ‘‘National Patent Pilot Enterprise’’ (全��企事�I�＠�示��挝�),
an ‘‘Enterprise-based Post-doctoral Scientific Research Workstation’’ (企�I博士後科研工作站), and a
‘‘National Innovative Enterprise’’ (��家���新型企�I).
Notes:
(7) We completed the acquisition of Aohong Pharma in September 2011. Ao De Jin and Bang Ting subsequently became two of
our major products.
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As at 30 June 2012, we had a total of 148 production lines at our 18 production facilities throughout
China, which are located in Shanghai, Chongqing, Liaoning, Hubei, Guangxi, Hunan, Guangdong,
Jiangsu, Hebei and Sichuan. All of the pharmaceutical production lines had obtained the PRC GMP
certification, five API production lines had received certifications of the food and drug administrative
agencies of the U.S. and the European Union, one production line of solid dosage drugs and one
production line of injection products had received prequalification suppliers certification of the WHO,
and one production line of solid dosage drugs had passed GMP on-site inspection and received
certification of Canada’s pharmaceutical regulatory agency.
Pharmaceutical Distribution and Retail
We participate in the pharmaceutical distribution industry in the PRC primarily through our strategic
partnership with CNPGC, with whom we founded Sinopharm. We also have developed a network of
retail pharmacies which we operate directly or through franchisees mainly in Beijing and Shanghai. As
at 30 June 2012, we had a total of 670 retail pharmacies, of which we directly operated 146 pharmacies
and our franchisees operated 524 pharmacies.
In January 2003, Shanghai Fosun Industrial Investment and CNPGC jointly established Sinopharm with
49% and 51% shareholding interest, respectively. In May 2004, Shanghai Fosun Industrial Investment
transferred its 49% equity interest in Sinopharm to our Group. As at the Latest Practicable Date, we
beneficially held a 32.1% equity interest in Sinopharm(8) . Sinopharm has experienced significant growth
since its establishment. According to public information released by Sinopharm, it is the largest
pharmaceutical distributor in China in terms of its market share and the geographical coverage of its
distribution network in 2011. Sinopharm is listed on the Hong Kong Stock Exchange. As at the Latest
Practicable Date, Sinopharm’s market capitalization was RMB51,669.7 million. As at 30 June 2012, it
provided products and services to customers nationwide through its 50 distribution centers (secondary
distribution companies) spanning across 30 provinces, autonomous regions and municipalities in China.
According to public information released by Sinopharm, as at 30 June 2012, its direct customers
included approximately 74.0% of all hospitals in China and 93.8% of all class-three hospitals in China.
For the years ended 31 December 2009, 2010 and 2011, Sinopharm’s revenue was RMB52,688.2
million, RMB69,233.7 million, and RMB102,224.8 million, respectively, representing a CAGR of
39.3%. For the six months ended 30 June 2012, the revenue of Sinopharm was RMB66,562.3 million,
an increase of 38.7% as compared to RMB48,000.1 million for the same period in 2011, and its profit
attributable to owners of our Company was RMB959.1 million, an increase of 22.3% as compared to
RMB784.5 million for the same period in 2011.
We have also developed a network of retail pharmacies, which we operate either directly or by
franchising under the names of ‘‘Golden Elephant Pharmacy’’, primarily in Beijing, and ‘‘For Me
Pharmacy’’ in Shanghai. As at 30 June 2012, according to data from the Beijing Municipal Drug
Administration, our Golden Elephant Pharmacy was the largest single brand retail pharmacy in terms of
number of stores in Beijing. As at 30 June 2012, according to data from the Shanghai Municipal Drug
Administrative Bureau, our For Me Pharmacy was the largest single brand pharmacy in Shanghai in
Notes:
(8) Sinopharm’s financial accounts have not been consolidated into our Group’s financial statements and we have accounted for
our equity investments in Sinopharm using the equity method of accounting.
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terms of number of stores. As at 30 June 2012, our retail pharmacy network included a total of 670
retail pharmacies, among which we directly operated 146 pharmacies and our franchisees operated 524
pharmacies.
Healthcare Services
The fast developing PRC economy and increasing demand for quality healthcare services have provided
significant growth opportunities in the premium, specialty and general healthcare services markets. To
seize these growth opportunities, we have been actively seeking to invest in or operate healthcare
service institutions since 2009. As a first step in entering the premium healthcare services market, we
acquired an equity interest in Chindex, which focuses on providing premium healthcare services in
China. Chindex primarily operates the United Family hospitals, which provide premium healthcare
services in Beijing, Shanghai, Tianjin and Guangzhou. As at the Latest Practicable Date, we held an
18.52% equity interest in Chindex, which is listed on the NASDAQ Stock Market, and we were its
single largest shareholder. As a first step to enter the specialty healthcare services market, we
established Jimin Hospital Management in July 2011, in which we hold a 70% equity interest. Through
Jimin Hospital Management, we manage Jimin Cancer Hospital, an oncology hospital located in Hefei,
Anhui Province. We also acquired a 70% equity interest in Jimin Cancer Hospital in October 2011.
Since December 2011, we have also operated a general hospital, Guangji Hospital, which is located in
Yueyang, Hunan province.
Diagnostic Products and Medical Devices
We engage in the research and development, manufacturing, and sales and marketing of diagnostic
reagents and equipment, blood transfusion equipment, and surgical consumables, as well as the
distribution of imported high-end medical equipment. As at 30 June 2012, we manufactured a total of
130 types of diagnostic reagents and equipment in 14 different series, including those for biological,
immune system, molecular and microbiological diagnostic purposes, as well as a total of 23 types of
blood transfusion equipment and surgical consumables in four different series. As at 30 June 2012, we
were the head regional distributor in China for various high-end imported medical equipment, such as
those of Intuitive Surgical’s G.C. da Vinci Surgical System.
OUR STRENGTHS
We believe the following competitive strengths contribute to our success and distinguish us from our
competitors:
We are a leading healthcare company in the PRC and we have established competitive advantages
in multiple important segments of the healthcare industry value chain.
As a leading healthcare company in China, we believe we are well-positioned to benefit from the strong
growth, regulatory reform and market consolidation currently underway in the PRC healthcare industry.
The PRC healthcare market is one of the fastest-growing healthcare markets in the world, with growth
driven by China’s rapidly growing economy and its aging population. According to Espicom and ISI
Emerging Markets, the size of the PRC pharmaceutical market is forecasted to grow from US$58.0
billion in 2011 to US$136.0 billion in 2016, representing a CAGR of 18.6%. In addition, the PRC
government has in recent years issued a number of policies and measures to support the development of
the pharmaceutical and healthcare industries, which has further fueled the growth in total healthcare
spending in the PRC.
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We focus on the most attractive business segments in the healthcare industry, including the
pharmaceutical manufacturing, pharmaceutical distribution and retail, and healthcare services. Currently,
we hold a market leading position in the pharmaceutical manufacturing sector, which is our core
business. At the same time, we intend to continue our active support of Sinopharm to further strengthen
its position as the largest pharmaceutical distributor in the PRC. We have also begun to actively
establish our presence in the premium, specialty and general healthcare services markets.
We believe our extensive value chain coverage and strategic insights in the healthcare industry enable us
to identify and take advantage of the most attractive growth opportunities, which is exemplified by our
co-founding of Sinopharm with CNPGC in 2003. Our diversified business scope allows us to anticipate
and quickly adapt to regulatory changes and explore inter-segment synergies to enhance competitiveness
in the healthcare industry in the PRC. Our deep understanding of the healthcare industry value chain and
our position as a successful operator in various key segments allow us to identify opportunities for
consolidation and effectively execute them. Despite being a young company, we are among the top five
domestic pharmaceutical manufacturers by revenue in the PRC, according to IMS (9) . We believe we are
well-positioned to capture the most attractive business opportunities resulting from the ongoing
healthcare reforms in China.
We enjoy a market leading position in the pharmaceutical manufacturing sector and focus on the
largest and fastest growing therapeutic areas in the PRC.
We are one of the top five domestic pharmaceutical companies in the PRC as measured in terms of
revenue from the pharmaceutical manufacturing sector in 2011, according to IMS. Our pharmaceutical
products are primarily focused on five of the largest therapeutic areas in the PRC, namely metabolism
and alimentary tract, cardiovascular system, oncology, central nervous system, and anti-infection.
According to NFS MENET, sales of pharmaceutical products in these five areas accounted for more than
76.4% of the total sales of pharmaceutical products in the PRC in 2011.
We engage in the research and development, manufacturing, and sales and marketing of pharmaceutical
products in our pharmaceutical manufacturing segment. A significant number of our pharmaceutical
products enjoy leading positions within their respective market segments. Based on data from IMS and
NFS MENET, in 2011, our products that ranked among the top three in terms of sales revenue in their
respective market segments in the PRC included: Atomolan, Wan Su Lin, Wan Su Ping, Xin Xian An,
Ke Yuan, Su Ke Nuo, Ao De Jin, Bang Ting (10) , Xi Chang, Yi’an Series, Shaduolika, Li Fu Series and
V Jialin. According to the SFDA, as at 30 June 2012, we were the sole manufacturer of a new anti-
tuberculosis medicine, ethambutol hydrochloride, pyrazinamide, rifampicin and isoniazid tablets, which
is a compound formulation of ethambutol hydrochloride, pyrazinamide, rifampicin and isoniazid. We are
a leading manufacturer of anti-malaria medicines in the PRC, and our artesunate products are endorsed
by the WHO and have been widely used in many countries. According to the SFDA, we were the sole
manufacturer in the PRC of artesunate for injection as at 30 June 2012. According to data from the
relevant PRC government authorities, we are the leading manufacturer of amino acids and the largest
exporter of hydrolyzed amino acids in the PRC. We have also established a solid foundation for the
Notes:
(9) IMS data reflects purchases of drugs by hospitals with more than 100 beds at hospital purchase price (representing
approximately 60% of the overall hospital market in terms of revenue according to IMS) instead of consumption by
individual patients at retail prices. IMS data is projected for the market based on statistical analysis and actual data from
hospitals on its panel.
(10) We completed the acquisition of Aohong Pharma in September 2011, and Ao De Jin and Bang Ting subsequently became
two of our major products.
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manufacturing of biopharmaceutical drugs. As at the Latest Practicable Date, the principal
biopharmaceutical drugs that we manufactured and sold included Wan Su Lin, Yi Bao, Su Ke Nuo, Ao
De Jin and Bang Ting. In addition, we are currently the sole producer of certain State-Protected Chinese
Medicine such as compound aloe capsules and Mo Luo Dan.
The following table sets forth detailed information on some of our market leading pharmaceutical
products:
Market
Ranking
Brand Name Chemical Name Therapeutic Areas in 2011*
Atomolan . . . . . . reduced glutathione metabolism and alimentary tract 1
Wan Su Lin . . . . animal insulin metabolism and alimentary tract 1
Wan Su Ping . . . glimepiride metabolism and alimentary tract 2
Xin Xian An. . . . meglumine adenosine cyclophosphate cardiovascular system 1
Ke Yuan . . . . . . calcium dobesilate cardiovascular system 1
Su Ke Nuo . . . . . heparin sodium cardiovascular system 3
Ao De Jin . . . . . deproteinised calf blood injection central nervous system 1
Bang Ting . . . . . hemocoagulase for injection blood system 1
Xi Chang . . . . . . cefmetazole sodium anti-infection 1
Yi’an Series . . . . ethambutol anti-infection 1
Shaduolika . . . . . potassium sodium anti-infection 2
dehydroandrographolide succinate
Li Fu Series . . . . rifampicin anti-infection 3
V Jialin . . . . . . . water-soluble vitamin for injection nutrition 1
Source: IMS and NFS MENET
* In terms of revenue from sales to hospitals
We follow stringent quality control standards and procedures in manufacturing pharmaceutical products,
and continue to improve our standards and procedures to follow the latest international standards. As at
30 June 2012, all of our manufacturing facilities had obtained PRC GMP certification. In addition, in
order to export some of our products to various target countries, five API production lines had received
certification from the food and drug administrative agencies of the U.S. and the European Union, one of
our production lines for solid dosage drugs and one of our production lines for injection products had
received the prequalification suppliers certification of the WHO, and one of our production lines of solid
dosage drugs had passed the GMP on-site inspection by, and received the certification of, Canada’s
pharmaceutical regulatory agency.
We have established an efficient sales network with coverage nationwide in the PRC to drive the growth
of our pharmaceutical manufacturing business. As at 30 June 2012, our nationwide sales and marketing
team comprised over 1,500 sales representatives in 29 provinces, autonomous regions and
municipalities. In addition, we are seeking to further expand our sales and marketing team in line with
the development of our business. We have also adopted targeted sales and marketing strategies for each
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of our product lines, including using our own sales teams to conduct academic detailing based on each
product’s clinical information or actively managing and using third-party distributors to promote and sell
our products. We believe these strategies can assist us in penetrating the market effectively.
We have strong capabilities in research and development with a proven track record and a robust
product pipeline that is focused on generic biopharmaceutical drugs.
We have maintained a strong focus on the research and development of pharmaceutical products. During
the Track Record Period, our research and development expenditures, which include research and
development expenses and capital expenditure to improve production capacity and efficiency, on average
accounted for 8% to 10% of the external revenue of our pharmaceutical manufacturing segment. We
have a highly efficient research and development team. During the Track Record Period, we successfully
developed and obtained manufacturing permits for 39 pharmaceutical products. We also obtained new
drug certificates for some of these products, including You Di Er, Bang Zhi, compound artesunate
series, rifampicin and isoniazid tablets and ethambutol hydrochloride, pyrazinamide, rifampicin and
isoniazid tablets. As at 30 June 2012, we had over 100 pipeline products, including 16 pipeline products
pending approval for production, five pipeline products at various stages of clinical trials and 13
pipeline products pending approval to enter clinical trials.
Our research and development efforts are principally focused on the pharmaceutical products for
therapeutic areas relating to metabolism and alimentary tract, cardiovascular system, oncology, central
nervous system and anti-infection. We have established four research and development platforms
dedicated to small molecule chemical drugs and large molecule biopharmaceutical drugs, including
monoclonal antibodies. We have built an international research and development team with operations in
Shanghai, Chongqing and the U.S. Our overseas research and development operations enable us to gain
access to, and utilize new technological development in the global pharmaceutical industry, while our
domestic research and development operations enable us to develop new pharmaceutical products
quickly and at a low cost.
In addition to the research and development of products for the PRC market, we have established a
group to focus on the research and development of generic drugs that we believe have relatively high
technological barriers-to-entry and substantial sales potential in the U.S. market in order to expand our
business overseas. In 2010, we submitted an Abbreviative New Drug Application (‘‘ANDA’’) to the U.S.
Food and Drug Administration for our venlafaxine, which is used for treatment of central nervous
system diseases, and the application is currently pending onsite inspection.
As at 30 June 2012, we had a total of 584 personnel on our research and development team, including
engineers, pharmacists and other professionals with diversified educational backgrounds and
experiences, which we believe is one of the largest research and development teams among
pharmaceutical companies in the PRC. We have participated in or undertaken a number of government-
sponsored pharmaceutical research and development programs, which demonstrates that our research and
development capabilities are well recognized in the industry and by the PRC government. We have a
research center that is recognized as a ‘‘National Recognized Enterprise Technology Center’’ (��家�企
�I技�g中心), and are qualified or recognized as a ‘‘State Key High and New Technology Enterprise’’
(��家重�c高新技�g企�I), a ‘‘National Patent Pilot Enterprise’’ (全��企事�I�＠�示��挝�), an
‘‘Enterprise-based Post-doctoral Scientific Research Workstation’’ (企�I博士後科研工作站) and a
‘‘National Innovative Enterprise’’ (��家���新型企�I).
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In addition to in-house research and development, we also add new products for further development
through acquisitions and international collaboration. For instance, we jointly established Shanghai Lonza
Fosun Pharmaceutical Technology Development Co., Ltd. in August 2012 with a subsidiary of Lonza
Group, which is a life sciences group based in Switzerland, to collaborate on the development of generic
drugs with high barriers-to-entry.
Through our strategic partnership with CNPGC to co-found Sinopharm, the largest
pharmaceutical distributor in China, we have established a strong presence in the pharmaceutical
distribution industry and strengthened the distribution network of our pharmaceutical
manufacturing business.
We recognized early on that pharmaceutical distribution presented great potential for growth and
consolidation in China’s healthcare sector. Consequently, we became a participant in the pharmaceutical
distribution industry in the PRC through our strategic partnership with CNPGC to co-found Sinopharm
in 2003. As at the Latest Practicable Date, we are the second largest beneficial shareholder of
Sinopharm and have four representatives on its board. Three of these directors are on the board’s
strategy and investment committee, which is primarily responsible for Sinopharm’s long-term
development strategies and major investment decisions. The committee is also authorized by
Sinopharm’s board to supervise and monitor the implementation of its annual operational plans and
investment proposals. As such, we have assisted Sinopharm in setting and executing its development
strategies.
We collaborate closely with Sinopharm and are able to benefit from Sinopharm’s extensive
pharmaceutical distribution network, well-established brand name and full range of logistical services.
The sales of our pharmaceutical products that were distributed through Sinopharm’s distribution network
accounted for RMB67.8 million, RMB165.9 million, RMB297.4 million and RMB199.1 million in 2009,
2010 and 2011 and the six months ended 30 June 2012, respectively. This represented 2.9%, 5.8%, 7.8%
and 9.2% of the external revenue of our pharmaceutical manufacturing segment in 2009, 2010 and 2011
and the six months ended 30 June 2012, respectively. We expect this percentage to continue to increase
as our business cooperation with Sinopharm further strengthens. In addition, as the second largest
beneficial shareholder of Sinopharm, we share Sinopharm’s rapidly growing profits. Our net profits
generated from our share of profits in Sinopharm Investment, the controlling shareholder of Sinopharm,
amounted to RMB352.7 million, RMB390.3 million, RMB509.2 million and RMB305.9 million in 2009,
2010 and 2011 and the six months ended 30 June 2012, respectively.
We believe we are one of the early-movers in the development of the premium, specialty and
general healthcare services industry in China.
We believe we are one of the early-movers among the leading healthcare enterprises in the PRC to enter
the healthcare services industry. Due to the fast-growing economy of China and the increasing
healthcare awareness of its general public, we expect the demand for healthcare services, especially
premium services and specialty services, to increase rapidly in the future. Currently, public hospitals are
the predominant healthcare service providers in the PRC, and they have not been able to satisfy medical
needs that are becoming increasingly sophisticated. As part of its efforts to address such problems, the
PRC government has issued a number of policies, including the Opinions on Further Encouraging and
Guiding the Establishment of Healthcare Institutions by Social Capital 《�P於�M一步鼓�詈鸵���社���Y
(
本�e�k�t���C��的意�》) in November 2010, to encourage the private establishment and operation of
healthcare institutions, lower the capital requirements for healthcare institutions, and improve the overall
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environment for private investment in the healthcare services industry. We expect that these measures
will stimulate rapid growth of the private healthcare services market in China and create significant
business opportunities to first-movers in that market.
We believe we were among the first to enter the PRC premium, specialty and general healthcare services
market and we have strategically planned our market entry. We have entered into the premium
healthcare services market through our investment in Chindex, in which we held an 18.52% equity
interest as at the Latest Practicable Date. We have begun to provide high quality services in the
specialty healthcare market by managing local specialty hospitals. For instance, we established Jimin
Hospital Management, in which we hold a 70% equity interest. Through Jimin Hospital Management,
we manage the Jimin Cancer Hospital, an oncology hospital located in Hefei, Anhui Province. Since
December 2011, we have also operated a general hospital, Guangji Hospital, which is located in
Yueyang, Hunan Province. Leveraging our market position and brand name as well as our first-mover
advantage among the leading healthcare enterprises in the PRC, we believe we can efficiently manage
our hospitals, allocate resources, and achieve significant economies of scale for our healthcare services
business to capture the growth opportunities in China’s healthcare services markets.
We have grown our business through acquisitions and strategic alliances in the pharmaceutical
industry, and possess significant experience in identifying appropriate targets and subsequently
integrating acquired companies.
While focusing on organic growth, we continue to accelerate our expansion through acquisitions and
business integrations. We have been focusing on acquiring companies which have complementary
technologies, products or business lines or are market participants that enjoy or have the potential to
achieve market leading positions in their respective areas. We have developed a strong ability to
systematically identify and acquire target companies with high growth potential. To integrate acquired
companies, we share with them our extensive industry experience and advanced business models, help
them to implement more efficient management systems, and improve their corporate governance
structures and remuneration systems to better incentivize their management and employees.
For example, we acquired Yao Pharma in 2002, and helped it adjust its development and operational
strategies and build more experienced and professional management and operational teams. In 2005, we
acquired Carelife Pharma and turned it into the API production platform for Yao Pharma, and this
transformed Yao Pharma into a vertically integrated company. Yao Pharma acquired Hexin Pharma in
2010. The acquisition allowed Yao Pharma to become an important API producer in the PRC and
internationally, and it has also significantly expanded Yao Pharma’s product portfolio, enhanced its
economies of scale and the efficiency of its sales team, and strengthened its overall competitiveness. In
addition, in order to expand its business overseas, in 2010, Yao Pharma submitted an Abbreviative New
Drug Application to the U.S. Food and Drug Administration for venlafaxine, which is used for treatment
of central nervous system diseases, and the application is currently pending onsite inspection. Wanbang
Pharma is another example that illustrates our success in integrating and developing our acquired
businesses. Since we acquired Wanbang Pharma in 2004, we have strengthened its sales team and
utilized Wanbang Pharma as a platform to integrate our business relating to metabolism and
cardiovascular systems so that similar products in these therapeutic areas could be marketed and sold
through Wanbang Pharma’s distribution channels. As a result of our efforts in improving and integrating
Wanbang Pharma’s business operations, our sales of Yi Bao increased significantly, achieving a CAGR
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of 39.6% from 2009 to 2011. We believe our strong capabilities and proven track record in acquisition,
integration, and consolidation will help us to capture more business opportunities and to continue to
expand the scale of our operations.
Furthermore, we have also developed and expanded our businesses through strategic investments.
During the Track Record Period, we acquired equity interests in a number of healthcare companies that
had excellent operational track records, to benefit from their growth and capitalize on new business
opportunities. These companies include: (i) Tianjin Pharma; (ii) Jincheng Medical, a PRC A-share listed
company, stock code: 300233.SZ); (iii) Zhejiang Di’an Diagnostics Company Limited (浙江迪安�\�嗉�
�g股份有限公司, a PRC A-share listed company, stock code: 300244.SZ); (iv) Hunan Hansen
Pharmaceutical Company Limited (湖南�h森�u�股份有限公司, a PRC A-share listed company, stock
code: 002412.SZ); (v) Chengde Jing Fu Kang Pharmaceutical Group Company Limited (承德�i�涂邓�
�I集�F有限公司); (vi) Asia Pharmaceutical Group (Hainan) (海南��洲�u�集�F), which produces
‘‘Kuai Ke’’, a branded flu and cold medicine in the PRC; and (vii) Anhui Shanhe Medical.
We have an experienced Board and senior management team as well as a well-organized corporate
governance structure.
Our Board and senior management team have established a proven track record of operating a successful
healthcare company and they have extensive experience in various segments of the healthcare industry
value chain. Our directors and members of our senior management team possess an average of 15 years
of healthcare industry-related or professional management experience. Many of our directors and
members of our senior management team hold key positions in various major healthcare industry and
trade organizations in China, such as the China Chemical Pharmaceutical Industry Association (中��化
�W�u�工�I�f��), the China Biopharmaceutical Technology Association (中���t�生物技�g�f��) and
the Shanghai Pharmaceutical Industry Association (上海�t�行�I�f��). Our strong management team
has extensive experience in mergers and acquisitions in the healthcare industry, and has been active in
capturing market opportunities, forming and implementing successful business strategies, assessing and
managing risks, guiding our expansion into high growth areas, and increasing our Group’s overall
profitability.
As a public company that has been listed on the Shanghai Stock Exchange for over ten years, we have
established a transparent corporate governance structure and implemented a set of corporate governance
standards and mechanisms to ensure the proper and effective execution of our business strategies. We
believe that we will be able to continue to capitalize on the industry expertise, professional management
skills and strong execution capability of our Board and senior management team and successfully
formulate and implement our development strategies in the fast-growing PRC pharmaceutical and
healthcare industries.
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OUR BUSINESS STRATEGIES
Our principal objectives are to consolidate and further enhance our position as a leading healthcare
company in the PRC, increase our market share in the pharmaceutical and other business segments in
the PRC market, while gradually entering or expanding our presence in certain attractive international
markets, such as the U.S. Ultimately, we intend to become a globally competitive healthcare company
by pursuing a growth strategy that combines both organic growth and growth by acquisitions. We aim to
achieve these objectives through the following strategies:
Expand our product portfolio through internal research and development, acquisitions and
strategic alliances.
We manage and develop our product portfolio based on a comprehensive assessment of market demand,
growth potential and government policies. We plan to continue to invest heavily in in-house research
and development, expand our research and development team, identify and evaluate new research and
development projects, and systematically manage the progress of existing projects in order to maintain a
pipeline of products for our growth. We will also continue to emphasize the use of acquisitions, strategic
alliances, and production licensing to expand our product portfolio. We aim to build a product portfolio
consisting of a broad range of products in major therapeutic areas, including metabolism and alimentary
tract, cardiovascular system, oncology, central nervous system and anti-infection. Our current research
and development will continue to focus on first-to-market generic drugs or branded generic drugs that
have high technological production barriers-to-entry. In addition, we plan to continue to invest in
innovative drugs, which we believe will support our medium to long-term growth.
Furthermore, we believe the market for biopharmaceutical drugs has great growth potential and we will
continue to invest significant resources in developing biopharmaceutical drugs and vaccines in
therapeutic areas such as metabolism and alimentary tract, oncology and immunology.
We believe that despite the downward pressure on drug prices as a result of the ongoing healthcare
reforms in the PRC, we will be able to maintain, or even improve, the overall profitability of our
pharmaceutical manufacturing business through optimizing internal allocation of resources and
continuously adjusting and expanding our product portfolio.
In addition to in-house research and development, we will also add new products for development
through acquisitions and international collaboration. For instance, we established a joint venture in
August 2012 with a subsidiary of Lonza Group, which is a life sciences group based in Switzerland, to
collaborate on the development of generic drugs with high barriers-to-entry. Save as disclosed in this
prospectus, we currently do not have any specific acquisition plans or targets and have not entered into
any definitive agreements with any potential targets.
Continue to expand and consolidate our sales and distribution network in order to realize the
market potential of our products.
We intend to expand our sales team for our pharmaceutical manufacturing segment in order to support
our continued efforts in launching new products and expanding our product portfolio. In addition to
strengthening our efforts to recruit more qualified sales personnel, we intend to expand our sales team
by acquiring and integrating the sales teams of target companies. We will also continue to divide and
operate our sales team according to therapeutic areas, specialties and product lines, so as to strengthen
our management and coverage of end customers. Within each therapeutic area, we will further
strengthen the management and effectiveness of our sales team by reducing the geographic area to be
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covered by each subgroup to ensure better and more frequent customer coverage. We also plan to
continue to strengthen our marketing efforts, expand our marketing team, and adopt centralized national
marketing plans tailored to each particular therapeutic area as well as each major product and product
line so as to facilitate growth in our sales.
We plan to continue to leverage our integrated and multi-segment business platform in order to improve
the efficiency of our sales and marketing operations, maximize the benefits arising from the synergy of
our pharmaceutical manufacturing, distribution and retail businesses, and enhance the market penetration
of our pharmaceutical products. We also plan to increase our utilization of Sinopharm’s extensive
distribution network to expand sales of our products. The sales of our pharmaceutical products that were
distributed through Sinopharm’s distribution network represented 2.9%, 5.8%, 7.8% and 9.2% of our
external revenue from the pharmaceutical manufacturing segment for the years ended 31 December
2009, 2010 and 2011 and the six months ended 30 June 2012, respectively. We expect this percentage to
continue to increase in the next few years as our collaboration with Sinopharm further strengthens.
Accelerate our business growth through acquisitions, strategic alliances and effective business
integration.
We believe there are significant acquisition and consolidation opportunities in the fragmented PRC
healthcare industry for industry leaders. We will continue to accelerate our growth through acquisitions
and strategic alliances. We currently intend to focus our acquisition and consolidation efforts mainly on
the pharmaceutical industry while also exploring potential opportunities in the healthcare services
industry. We intend to continue to pursue opportunities both internationally and domestically. In the
PRC, we will continue to acquire domestic pharmaceutical companies with complementary technologies,
products and/or business lines, as well as those that have already established or have the potential to
establish market leading positions in their respective areas. Internationally, we will primarily seek to
acquire overseas generic drug manufacturing companies or specialty pharmaceutical companies with
strong product portfolios, research and development capabilities and/or significant presence in China.
These overseas pharmaceutical companies will help us further expand our product lines and increase the
sales of our products in the PRC and the international markets. Although we currently do not have any
specific acquisition plans or targets and have not entered into any definitive agreements with any
potential targets, we believe we will be able to identify attractive acquisition targets that complement
our existing capabilities and businesses and allow us to continue to grow.
We plan to continue to focus on effectively integrating and enhancing the businesses of our acquired
companies by strengthening their management and marketing systems. We also intend to enhance the
performance of the acquired companies by sharing our extensive industry experience, implementing our
advanced operation models, and reorganizing their corporate governance structure to help them integrate
into our operations, as well as establishing a competitive and flexible remuneration system.
Further implement our global strategy to develop international resources and markets as an
additional growth driver for our business.
By leveraging our strong presence in the PRC market, as well as our resources and cost competitiveness,
we intend to establish an international sales network for our pharmaceutical products and facilitate the
integration of our international pharmaceutical operations and resources, through drug manufacturing
overseas, international cooperation on research and development, product exports, and overseas mergers
and acquisitions.
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To expand globally, we plan to specifically invest in research and development in order to obtain drug
production licenses in the U.S. and Europe. Our research programs include a number of pipeline
products specifically intended to obtain the ANDA approval in the U.S. They include felodipine long-
acting sustained release tablets, which are used for treatments relating to the cardiovascular system, and
glipizide controlled-release tablets, which are used for treatments relating to the alimentary tract. In
2010, we submitted an ANDA to the United States Food and Drug Administration for our product
venlafaxine, which is used for treatments relating to the central nervous system. That application is
currently pending onsite inspection. In addition, we aim to continue the research and development of
products that have high growth potential in international markets and have high technological barriers-
to-entry, such as products with specialized drug delivery systems. We intend to further penetrate into
our existing international markets as well as enter new markets. In particular, we plan to expand sales of
our chemical generic drugs to the U.S., and will expand sales of certain products in developing
countries.
To further our expansion into international markets, we will continue to upgrade our manufacturing
facilities and endeavor to obtain international certifications and other qualifications by the relevant
international food and drug administrative agencies for a greater number of our major pharmaceutical
manufacturing subsidiaries. As at 30 June 2012, five of our API production lines had received
certifications from the food and drug administrative agencies of the U.S. and the European Union, one
of our production lines for solid dosage drugs and one of our production lines for injection products had
received the prequalification supplier certification of the WHO, and one of our production lines for solid
dosage drugs had passed the GMP on-site inspection and received certification of Canada’s
pharmaceutical regulatory agency.
As an integral part of our global strategy, we will continue to adopt international best practices in
managing our business operations and productions. We also intend to recruit additional managerial and
technical personnel who have the relevant educational background and work experience in the U.S. or
other developed countries to support our international expansion.
Continue to support the development of Sinopharm to further strengthen its leadership position in
the pharmaceutical distribution industry.
As at the Latest Practicable Date, we were the second largest beneficial shareholder of Sinopharm (11)
and had four representatives on its board. We plan to continue to apply our strategic vision, industry
expertise and information channels, which cover the entire healthcare industry value chain, to assist
Sinopharm in setting strategic direction so it can continue to further expand its market shares,
consolidate the PRC pharmaceutical distribution industry and further strengthen its leadership position in
pharmaceutical distribution.
In addition to our core pharmaceutical manufacturing segment, we will develop our other business
segments, particularly our healthcare services business.
While continuing to focus on growing our core pharmaceutical manufacturing segment, we will also
seek growth opportunities for our other business segments, particularly our healthcare services business.
As a first mover among the leading pharmaceutical and healthcare enterprises in the PRC to enter the
Note:
(11) As at the Latest Practicable Date, we beneficially held a 32.1% equity interest in Sinopharm. Sinopharm’s financial accounts
are not consolidated into our Group’s financial statements and we have accounted for our equity investments in Sinopharm
under the equity method of accounting.
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healthcare services industry, we plan to continue to seize on business opportunities arising from the
implementation of the PRC government’s policies to encourage and support private investments in the
healthcare services industry. We intend to continue to focus on the acquisition and operation of high-end
integrated hospitals that service target customers such as foreign expatriates in the PRC and upper and
middle class domestic residents, as well as the specialty hospitals and general hospitals in prefecture-
level cities that have advanced technologies, equipment and experienced medical specialists. In terms of
hospital specialities, we primarily focus on oncology, and will also explore opportunities in
cardiovascular system and orthopedics. Through providing premium healthcare services, we expect to
not only capture market opportunities in the PRC healthcare services industry, but also to strengthen our
market position in the overall PRC healthcare industry.
Continue to cultivate and recruit talented employees who are essential to our businesses, including
those in sales and marketing, research and development, manufacturing, business development and
corporate management.
The contribution of our experienced senior management and professional employees is critical to our
success. We plan to continue to attract and train talented employees, including those in sales, marketing,
research and development, manufacturing, business development and corporate management. We intend
to continue to provide our managerial personnel and other key employees, particularly those in our sales
and marketing team, as well as those in our research and development team, with compensation
packages that we believe to be competitive in our industries. We intend to provide our talented and
promising employees who have management potential with training and rotation programs to help them
develop professionally and enhance their work experience so they can become competent managers. We
intend to continue to provide a series of training programs for our employees. With a continued focus on
the development of our human resources, we believe we will be successful in retaining and motivating
our managerial, technical and other personnel and continue to attract more talented individuals.
OUR BUSINESS SEGMENTS
We are a leading healthcare company in the PRC with our business operations strategically covering
multiple important segments in the healthcare industry value chain, including the pharmaceutical
manufacturing, pharmaceutical distribution and retail, healthcare services, and diagnostic products and
medical devices segments.
We have the following business segments in the PRC:
. Pharmaceutical manufacturing. We engage in the research and development, manufacturing, and
sales and marketing of pharmaceutical products. For the year ended 31 December 2011 and the six
months ended 30 June 2012, external segment revenue of our pharmaceutical manufacturing
business was RMB3,830.8 million and RMB2,175.9 million, respectively, representing 59.6% and
62.8%, respectively, of our total revenue.
. Pharmaceutical distribution and retail. We participate in the pharmaceutical distribution industry
in the PRC primarily through our strategic partnership with CNPGC, with whom we founded
Sinopharm. We also have developed a network of retail pharmacies under two separate brands,
which we operate directly or through franchisees, primarily located in Beijing and Shanghai. As at
30 June 2012, we had a total of 670 retail pharmacies, of which 146 were operated by us and 524
were operated by franchisees.
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. Healthcare services. We participate in the premium, specialty and general healthcare services
markets in the PRC through the United Family hospitals of Chindex, and operation of healthcare
institutions such as Jimin Cancer Hospital and Guangji Hospital.
. Diagnostic products and medical devices. We engage in the research and development,
manufacturing, and sales and marketing of diagnostic reagents and equipment, blood transfusion
equipment and surgical consumables, as well as in the distribution of imported high-end medical
equipment.
The following table sets forth the external segment revenue and the external segment gross profit
generated from each of our business segments and as a percentage of our total revenue and total gross
profit for the periods indicated:
Year ended 31 December
2009 2010 2011
External % External % External % External % External % External %
External % segment total segment total External % segment total segment total External % segment total segment total
segment total cost of cost of gross gross segment total cost of cost of gross gross segment total cost of cost of gross gross
revenue revenue sales sales profit profit revenue revenue sales sales profit profit revenue revenue sales sales profit profit
(RMB) (RMB) (RMB) (RMB) (RMB) (RMB) (RMB) (RMB) (RMB)
(in millions, except for percentage)
Pharmaceutical
manufacturing 2,307.1 59.9 1,338.6 51.3 968.5 78.1 2,837.9 62.7 1,603.6 53.7 1,234.3 79.9 3,830.8 59.6 2,015 50.5 1,815.8 74.4
Pharmaceutical
distribution
and retail . . 1,054.0 27.4 942.1 36.1 111.9 9.0 1,146.4 25.3 1,030.7 34.5 115.7 7.5 1,436.0 22.3 1,238.9 31.0 197.1 8.1
Healthcare
services (i) . . ― ― ― ― ― ― ― ― ― ― ― ― 11.3 0.2 8.4 0.2 2.9 0.1
Diagnostic
products
and medical
devices . . . 315.5 8.2 170.2 6.5 145.3 11.7 392.4 8.7 215.6 7.2 176.8 11.5 1,049.3 16.3 630.1 15.8 419.2 17.2
Other business
operations (ii) 173.7 4.5 159.8 6.1 13.9 1.2 152.1 3.3 134.7 4.6 17.4 1.1 105.2 1.6 98.8 2.5 6.4 0.2
Total . . . . . . . 3,850.3 100.0 2,610.7 100.0 1,239.6 100.0 4,528.8 100.0 2,984.6 100.0 1,544.2 100.0 6,432.6 100.0 3,991.2 100.0 2,441.4 100.0
Six months ended 30 June
2011 2012
External % External % External % External %
External % segment total segment total External % segment total segment total
segment total cost of cost of gross gross segment total cost of cost of gross gross
revenue revenue sales sales profit profit revenue revenue sales sales profit profit
(RMB) (RMB) (RMB) (RMB) (RMB) (RMB)
(unaudited)
(in millions, except for percentage)
Pharmaceutical manufacturing . . . . . ....................... 1,771.8 57.5 1,015.4 50.5 756.4 72.1 2,175.9 62.8 996.6 51.5 1,179.3 77.1
Pharmaceutical distribution and retail ....................... 738.8 24.0 648.1 31.9 90.7 8.6 692.7 20.0 591.2 30.6 101.5 6.6
Healthcare services(i) . . . . . . . . . . ....................... ― ― ― ― ― ― 77.9 2.2 57.4 3.0 20.5 1.4
Diagnostic products
and medical devices . . . . . . . . ....................... 516.7 16.8 321.3 15.8 195.4 18.6 511.0 14.8 284.3 14.7 226.7 14.8
Other business operations (ii) . . . . . ....................... 52.4 1.7 45.8 2.3 6.6 0.6 6.6 0.2 5.3 0.3 1.3 0.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,079.7 100.0 2,030.6 100.0 1,049.1 100.0 3,464.1 100.0 1,934.8 100.0 1,529.3 100.0
(i) As at the Latest Practicable Date, we beneficially held an 18.52% equity interest in Chindex. Chindex’s financial accounts
are not consolidated into our Group’s financial statements. We have acquired a 70% equity interest in Jimin Cancer
Hospital, and its accounts have been consolidated into our Group’s financial statements since October 2011. As at the Latest
Practicable Date, we also beneficially held a 55% equity interest in Guangji Hospital, whose accounts have been
consolidated into our Group’s financial statements since December 2011.
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(ii) Revenue from other business operations is mainly generated from our other non-core business operations, such as exports of
non-pharmaceutical products through Science & Technology Imp. & Exp.. We disposed of our equity interests in Science &
Technology Imp. & Exp. in November 2011.
Pharmaceutical Manufacturing
Our core business is the research and development, manufacturing, and sales and marketing of
pharmaceutical products. We are one of the top five domestic pharmaceutical companies (12) in the PRC
in terms of revenue from the pharmaceutical manufacturing segment in 2011, according to IMS (13) . As at
30 June 2012, we had obtained the manufacturing permits for 1,002 pharmaceutical products. In terms
of market share based on sales volume, a number of our products in several therapeutic areas, including
metabolism and alimentary tract, cardiovascular system, central nervous system, blood system and anti-
infection, have leading positions in their respective market segments in the PRC.
As at 30 June 2012, our pharmaceutical products were sold in 29 provinces, autonomous regions and
municipalities through over 2,000 distributors in the PRC. In addition to sales in the PRC, certain of our
finished products, APIs and intermediate products are also exported to overseas markets such as the
United States, Europe, and certain African countries. For the year ended 31 December 2011 and the six
months ended 30 June 2012, our revenue from exports of finished products, APIs and intermediate
products amounted to RMB756.9 million and RMB384.0 million, respectively. More than 70% of our
sales to overseas markets were for APIs and intermediate products.
Products
As at 30 June 2012, we had obtained manufacturing permits for 1,002 pharmaceutical products,
including 913 finished products and 89 APIs. Of the 913 manufacturing permits for finished products,
we produced 625 drugs(14) , which included 9 biopharmaceutical drugs, 458 chemical drugs and 158
modern Chinese medicines. We had 13 patented pharmaceutical products and 665 non-patented generic
pharmaceutical products, most of which are prescription drugs. The principal therapeutic areas of our
products are metabolism and alimentary tract, cardiovascular system, oncology, central nervous system
and anti-infection.
As the pharmaceutical market in the PRC continues to evolve, we examine and adjust our product
portfolio and manufacturing and marketing resources from time to time to adapt to changing consumer
demand. We focus on products with greater market potential and demand, higher profit margins and
higher barriers-to-entry. These barriers include advanced technological know-how and intensive capital
investment for biopharmaceutical drugs, administrative protection in the form of the ‘‘monitoring
period’’ for first-to-market generic drugs, patent protection for innovative drugs and high start-up costs
for certain other types of drugs. As at the Latest Practicable Date, we had 22 products which we
classified as major products, including 19 prescription drugs, one vaccine and two APIs and
intermediate products. All of our 19 major prescription drugs are included in the National Medical
Insurance Drugs Catalog and are subject to price control. We use a set of criteria in selecting our major
products, which include sales contribution, market potential and brand reputation.
Notes:
(12) Includes only companies that are actually controlled by PRC persons or entities.
(13) IMS data reflects purchases of drugs by hospitals with more than 100 beds at hospital purchase price (representing
approximately 60% of the overall hospital market in terms of revenue according to IMS) instead of consumption by
individual patients at retail prices. IMS data is projected for the market based on statistical analysis and actual data from
hospitals on its panel.
(14) Due to the difference in dosage and specification, the same product may have multiple manufacturing permits.
�C 169 �C
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Several of our major products such as Atomolan, Wan Su Lin, Yi Bao and artesunate series were
developed and launched through our in-house research and development efforts. Most of our major
pipeline products, including small molecular innovative drugs, monoclonal antibodies, and generic drugs
with high barriers-to-entry are also developed through our in-house research and development efforts.
The validity periods of the invention patents are 20 years from the date of filing; utility model and
design patents are 10 years from the date of filing. However, because launching a product generally
takes three to five years after the submission of a patent application, the effective validity period for a
invention patent is usually less than 17 years, and for utility model and design patents usually less than
7 years after the product is launched on the market. The validity period for a manufacturing permit is
five years, and under PRC law, we are required to re-register the manufacturing permit for each of our
products every five years after it is launched on the market. We do not foresee any difficulty in re-
registering the manufacturing permits for any of our major products.
For the years ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012, revenue
generated from our major products totaled 65.8%, 70.4%, 73.7% and 76.2%, respectively, of the external
revenue of our pharmaceutical manufacturing segment. There has been no material fluctuation in the
selling price of most of our major products for the pharmaceutical manufacturing segment during the
Track Record Period.
�C 170 �C
The following table sets forth our major products in our pharmaceutical manufacturing sector, a breakdown of their respective revenue for the periods
indicated, how each of our major products was developed, the validity of its patent protection, and the expiry date of its manufacturing permit:
Year ended 31 December Six months ended 30 June
2009 2010 2011 2011 2012
% of % of % of % of % of
external external external external external Expiry Dates
segment segment segment segment segment Patent Validity Manufacturing of the Manufacturing
RMB revenue RMB revenue RMB revenue RMB revenue RMB revenue Patent Number Period Permit Number Permit
(in millions, except for percentages)
Major Products from Organic Growth
Metabolic and alimentary tract drugs
Reduced glutathione (Atomolan) . . . . . . . . . . 299.8 13.0 393.7 13.9 481.8 12.6 213.0 12.0 272.7 12.5 ZL200530011668.8 2015.11.01 H20050667 2015.09.01
ZL200830256930.9 2018.12.01 H19991067 2015.09.27
H19991068 2015.09.27
H20040435 2015.09.27
H20040434 2015.09.27
H20051599 2015.09.27
H20051600 2015.09.27
H20067129 2015.09.27
Glimepiride (Wan Su Ping). . . . . . . . . . . . . 90.8 3.9 105.3 3.7 132.7 3.5 63.5 3.6 65.3 3.0 Nil H20031079 2015.09.28
H20010575 2015.09.28
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Animal insulin series 163.1 7.1 174.9 6.2 189.0 4.9 89.4 5.0 97.1 4.5 ZL200510030396.5 2025.10.10 H20060845 2015.09.28
(Wan Su Lin) . . . . . . . . . . . . . . . . . . ZL200510330397.X 2025.10.10 H10970284 2015.09.28
H32024565 2015.09.29
H20050782 2015.09.29
H20050783 2015.09.29
H32020614 2015.09.28
H20043335 2015.09.28
H20033636 2015.09.28
H10890001 2015.09.28
Recombinant human erythropoietin (Yi Bao) . . . 39.0 1.7 60.5 2.1 76.0 2.0 34.6 2.0 46.1 2.1 ZL200820152658.4 2018.09.02 S19991024 2015.08.03
S19991023 2015.07.15
S19980080 2015.08.03
Compound aloe capsules . . . . . . . . . . . . . . 62.4 2.7 63.5 2.2 84.9 2.2 42.3 2.4 15.8 0.7 ZL200810085002.X 2028.03.12 Z13020306 2015.09.28
ZL200510111259.4 2025.12.07
ZL200610028944.5 2026.07.13
ZL200810085001.5 2028.03.12
Year ended 31 December Six months ended 30 June
2009 2010 2011 2011 2012
% of % of % of % of % of
external external external external external Expiry Dates
segment segment segment segment segment Patent Validity Manufacturing of the Manufacturing
RMB revenue RMB revenue RMB revenue RMB revenue RMB revenue Patent Number Period Permit Number Permit
(in millions, except for percentages)
Cardiovascular system drugs
Heparin sodium (Su Ke Nuo) . . . . . . . . . . . 41.4 1.8 88.0 3.1 101.1 2.6 44.6 2.5 54.7 2.5 ZL200510030396.5 2025.10.10 H32023409 2015.09.29
H32020612 2015.09.29
H20020247 2015.09.29
H20020179 2015.09.29
Meglumine adenosine cyclophosphate (Xin Xian 82.0 3.6 82.5 2.9 87.5 2.3 44.7 2.5 50.0 2.3 Nil H20044331 2016.03.23
An). . . . . . . . . . . . . . . . . . . . . . . . H20044332 2016.03.23
H20003530 2015.09.29
H20050478 2015.09.29
Calcium dobesilate (Ke Yuan) . . . . . . . . . . . 37.9 1.6 38.3 1.3 50.0 1.3 23.6 1.3 25.9 1.2 ZL200510110019.2 2025.11.02 H20030088 2015.02.23
Telmisartan (Bang Tan) . . . . . . . . . . . . . . . 17.1 0.7 18.6 0.7 25.6 0.7 11.6 0.7 16.1 0.8 ZL200710173431.8 2027.12.26 H20052540 2015.07.22
H20050715 2015.08.19
Pitavastatin (Bang Zhi (i) ) . . . . . . . . . . . . . . ― ― ― ― ― ― ― ― 0.2 ― Nil H20110050 2016.05.30
H20110051 2016.05.30
�C 172 �C
Alprostadil dried emulsion ― ― 0.6 ― 11.5 0.3 3.9 0.2 18.5 0.9 ZL200630012819.6 2016.11.20 H50021393 2015.09.29
BUSINESS
(You Di Er(ii)) . . . . . . . . . . . . . . . . . ZL200610095305.0 2026.12.17
ZL201001168597.2 2030.05.10 H50021394 2015.09.29
H50021598 2015.09.29
H50021597 2015.09.29
H20057824 2015.09.29
Oncology drugs
Pemetrexed disodium (Eluzer) . . . . . . . . . . . 6.8 0.3 15.0 0.5 17.3 0.5 8.7 0.5 11.4 0.5 ZL200410097283.2 2024.11.24 H20080210 2015.07.14
ZL200830275847.6 2018.12.28
Year ended 31 December Six months ended 30 June
2009 2010 2011 2011 2012
% of % of % of % of % of
external external external external external Expiry Dates
segment segment segment segment segment Patent Validity Manufacturing of the Manufacturing
RMB revenue RMB revenue RMB revenue RMB revenue RMB revenue Patent Number Period Permit Number Permit
(in millions, except for percentages)
Anti-infective drugs
Artesunate series . . . . . . . . . . . . . . . . . . . 98.4 4.3 48.0 1.7 65.6 1.7 20.9 1.2 51.3 2.4 ZL200630031162.8 2016.11.14 H10880057 2015.08.11
ZL200430051985.8 2014.08.13 H10880055 2015.08.11
ZL200730303201.X 2017.10.15 H10930097 2015.08.11
ZL200730303202.4 2017.10.15
ZL200730303203.9 2017.10.15
ZL200730303204.3 2017.10.15
ZL200510057349.X 2025.10.25
Potassium sodium dehydroandrographolide 67.2 2.9 77.6 2.7 80.1 2.1 45.3 2.6 62.9 2.9 Nil H50021641 2015.09.27
succinate (Shaduolika) . . . . . . . . . . . . . H50021629 2015.09.29
H50021627 2015.09.27
H50021628 2015.11.07
H20060062 2015.12.07
APIs and intermediate products
Amino acid series . . . . . . . . . . . . . . . . . . 436.1 18.9 524.6 18.5 640.3 16.7 328.4 18.5 306.8 14.1 ZL200510019915.8 2025.11.24 Nil
ZL200710168711.X 2027.12.06
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ZL200710053040.2 2027.08.23
BUSINESS
ZL200820192808.4 2018.11.17
Clindamycin hydrochloride . . . . . . . . . . . . . 75.7 3.3 82.1 2.9 84.7 2.2 47.3 2.7 43.7 2.0 ZL200510057440.1 2025.12.13 H20030434 2015.05.30
Sub-total . . . . . . . . . . . . . . . . . . . . . . . 1,517.7 65.8 1,773.2 62.4 2,128.1 55.6 1,021.8 57.7 1,138.6 52.4
Year ended 31 December Six months ended 30 June
2009 2010 2011 2011 2012
% of % of % of % of % of
external external external external external Expiry Dates
segment segment segment segment segment Patent Validity Manufacturing of the Manufacturing
RMB revenue RMB revenue RMB revenue RMB revenue RMB revenue Patent Number Period Permit Number Permit
(in millions, except for percentages)
Acquired Products
Metabolic and alimentary
tract drugs
Mo Luo Dan(iii) . . . . . . . . . . . . . . . . . . . ― ― 33.3 1.2 103.5 2.7 41.5 2.3 44.4 2.0 ZL03121887.3 2023.04.16 Z13021325 2015.09.24
ZL200710120838.4 2027.08.26 Z20090013 2014.01.03
ZL200730106828.6 2017.04.04
Central nervous system drugs
Deproteinized Calf Blood Injection (Ao De ― ― ― ― 106.6 2.8 ― ― 204.1 9.4 ZL200610080520.3 2026.05.14 H20041127 2015.09.29
Jin (iv) ) . . . . . . . . . . . . . . . . . . . . . . ZL200710119155.7 2027.07.16 H20010762 2015.09.29
ZL200810094486.4 2028.05.03 H20000202 2015.09.29
Blood system drugs
Hemocoagulase for Injection ― ― ― ― 59.7 1.6 ― ― 96.6 4.4 ZL200710099163.X 2027.05.14 H20041730 2015.09.29
(Bang Ting (iv) ) . . . . . . . . . . . . . . . . . ZL0313131420.1 2023.05.12
Anti-infective drugs
Anti-tuberculosis series(v) . . . . . . . . . . . . . . ― ― ― ― 138.9 3.6 51.9 2.9 59.5 2.7 ZL200920203737.8 2019.09.28 H21023360 2015.08.29
ZL200830010775.2 2018.07.07 H20090223 2014.05.21
ZL200830010776.7 2018.07.07 H20090219 2014.05.21
ZL200830010777.1 2018.07.07 H20080078 2013.03.02
ZL200930010570.9 2019.06.24
ZL200930010568.1 2020.06.24
�C 174 �C
ZL200930010573.2 2019.06.24
ZL200930010569.6 2019.06.24
BUSINESS
ZL200930010571.3 2019.06.24
ZL200930010572.8 2019.06.24
Cefmetazole sodium (Xi Chang (vi) ) . . . . . . . . ― ― 191.5 6.8 206.8 5.4 100.9 5.7 114.2 5.3 ZL200510057324.X 2025.10.16 H20070024 2015.10.17
H20070025 2015.10.17
H20061300 2015.10.17
H20052069 2015.10.17
Vaccines
Flu vaccines(vii) . . . . . . . . . . . . . . . . . . . ― ― ― ― 78.5 2.0 ― ― 0.1 ― Nil S20090025 2014.11.09
S20090026 2014.11.09
S20053091 2015.08.29
Sub-total . . . . . . . . . . . . . . . . . . . . . . . ― ― 224.8 7.9 694.0 18.1 194.3 10.9 518.8 23.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . 1,517.7 65.8 1,998.0 70.4 2,822.1 73.7 1,216.1 68.6 1,657.4 76.2
(i) Bang Zhi is our new product launched in October 2011.
(ii) You Di Er is our new product launched in June 2010.
(iii) We completed the acquisition of Moluodan Pharma in August 2010, and Mo Luo Dan subsequently became one of our major products. Revenue from the sales of Mo Luo Dan for the year ended 31 December 2010 shown in the table above reflected the revenue for the period from August
to December 2010.
(iv) We completed the acquisition of Aohong Pharma in September 2011, and Bang Ting and Ao De Jin subsequently became two of our major products. Revenue from the sales of Bang Ting and Ao De Jin for the year ended 31 December 2011 shown in the table above reflected the revenue
for the period from September to December 2011. For your reference and for illustrative purposes, revenue from the sales of Bang Ting and Ao De Jin for the year ended 31 December 2011 was RMB140.8 million and RMB215.1 million, respectively.
(v) We completed the acquisition of Shenyang Hongqi Pharma on 31 December 2010, and the anti-tuberculosis series subsequently became one of our major products.
(vi) We completed the acquisition of Hexin Pharma in February 2010, and Xi Chang subsequently became one of our major products. Revenue from the sales of Xi Chang for the year ended 31 December 2010 shown in the table above reflected the revenue for the period from February to
December 2010.
(vii) We completed the acquisition of Dalian Aleph in September 2011, and the flu vaccine subsequently became one of our major products. Revenue from the sales of the flu vaccine for the year ended 31 December 2011 shown in the table above reflected the revenue for the period from
September to December 2011. For your reference and for illustrative purposes, revenue from the sales of flu vaccines for the year ended 31 December 2011 was RMB89.7 million. The sales of flu vaccines for the six months ended 30 June 2012 was relatively lower as the peak season of
its sales is typically in the second half of the year.
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The following table sets forth our approximate revenue contribution from patented major products that
will expire in each relevant year for the periods indicated:
Year ended 31 December Six months ended 30 June
2009 2010 2011 2012
% of % of % of % of
external external external external
Revenue segment Revenue segment Revenue segment Revenue segment
contribution revenue contribution revenue contribution revenue contribution revenue
*
Patent Expiry Year (in millions, except for percentage)
2014
Artesunate series 98.4 4.3 48.0 1.7 65.6 1.7 51.3 2.4
2015
Reduced glutathione
(Atomolan) 299.8 13.0 393.7 13.9 481.8 12.6 272.7 12.5
2016
Alprostadil dried emulsion
(You Di Er) ― ― 0.6 ― 11.5 0.3 18.5 0.9
2017
Mo Luo Dan ― ― 33.3 1.2 103.5 2.7 44.4 2.0
2018
Recombinant human
erythropoietin (Yi Bao) 39.0 1.7 60.5 2.1 76.0 2.0 46.1 2.1
Pemetrexed disodium
(Eluzer) 6.8 0.3 15.0 0.5 17.3 0.5 11.4 0.5
Amino acid series 436.1 18.9 524.6 18.5 640.3 16.7 306.8 14.1
Anti-tuberculosis series ― ― ― ― 138.9 3.6 59.5 2.7
Subtotal 481.9 20.9 600.1 21.1 872.5 22.8 423.8 19.4
2023
Hemocoagulase for Injection
(Bang Ting) ― ― ― ― 59.7 1.6 96.6 4.4
2025
Animal insulin series
(Wan Su Lin) 163.1 7.1 174.9 6.2 189.0 4.9 97.1 4.5
Compound aloe capsules 62.4 2.7 63.5 2.2 84.9 2.2 15.8 0.7
Heparin sodium (Su Ke Nuo) 41.4 1.8 88.0 3.1 101.1 2.6 54.7 2.5
Calcium dobesilate
(Ke Yuan) 37.9 1.6 38.3 1.3 50.0 1.3 25.9 1.2
Clindamycin hydrochloride 75.7 3.3 82.1 2.9 84.7 2.2 43.7 2.0
Cefmetazole sodium
(Xi Chang) ― ― 191.5 6.8 206.8 5.4 114.2 5.3
Subtotal 380.5 16.5 638.3 22.5 716.5 18.6 351.4 16.2
2026
Deproteinized Calf Blood
Injection (Ao De Jin) ― ― ― ― 106.6 2.8 204.1 9.4
2027
Telmisartan (Bang Tan) 17.1 0.7 18.6 0.7 25.6 0.7 16.1 0.8
Total 1,277.7 55.4 1,732.6 61.1 2,443.3 63.8 1,478.9 68.0
* One product may have multiple patents. Revenue contribution from such product in this table is accounted for in the year in
which its earliest patent expires.
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Metabolic and alimentary tract drugs
Reduced glutathione (Atomolan)
Atomolan is a branded generic drug whose active ingredient is reduced glutathione. Reduced glutathione
is widely used for liver disease related treatments, including the protection of the liver’s protein
synthesis function, hormone detoxification and inactivation, and the treatment of hepatitis B. Reduced
glutathione is a type of tripeptide naturally synthesized in the cytoplasm of human body cells and is
composed of glutamic acid, cysteine and the residue of glycine. It plays important roles in anti-oxidation
processes in the human body. Through the combination of sulfenyl with free radicals in the human body,
reduced glutathione can be converted into an acid which can be easily metabolized, and thus accelerate
the excretion of free radicals. In damaged liver cells, the level of reduced glutathione decreases
significantly. Therefore consumption of reduced glutathione can help restore certain liver functions.
According to IMS, the PRC oral and injection reduced glutathione market grew at a CAGR of 18.8%
from 2009 to 2011.
According to IMS, our Atomolan is the best-selling oral and injection reduced glutathione product in the
PRC, with its sales accounting for approximately 37.3% of the total sales of oral and injection reduced
glutathione products in the PRC in 2011. We obtained the manufacturing permits for our injection
reduced glutathione products in 1999, and commercially launched the product in the PRC market in the
same year. Our Atomolan generated sales of RMB299.8 million, RMB393.7 million and RMB481.8
million in 2009, 2010 and 2011, respectively, representing a CAGR of 26.8%. For the six months ended
30 June 2012, sales of our Atomolan amounted to RMB272.7 million, an increase of 28.0% as compared
to the same period in 2011. In 2003, our injection reduced glutathione products were recognized by the
Social Survey Institute of China (中��社���{查所) as a ‘‘Well-known Product of China’’ (「 中��公�J名
牌�a品」). We continued to upgrade these products, and obtained the manufacturing permits for our oral
reduced glutathione products in 2005. We commercially launched the products in the PRC market in the
same year. Due to the convenience of their intake, sales of our oral reduced glutathione products have
increased rapidly since their commercial launch in the PRC market, generating sales of RMB42.9
million, RMB58.1 million and RMB85.2 million in 2009, 2010 and 2011, respectively, representing a
CAGR of 40.9%. For the six months ended 30 June 2012, sales of our oral reduced glutathione products
amounted to RMB53.1 million, an increase of 45.5% as compared to the same period in 2011. We
expect the oral reduced glutathione to be the main growth driver for our reduced glutathione product in
the future.
Glimepiride (Wan Su Ping)
Wan Su Ping is a glimepiride branded generic drug. Glimepiride is an oral anti-diabetic drug mainly
used for the treatment of type II diabetes, the most common form of diabetes. According to IMS, the
PRC glimepiride market grew at a CAGR of 31.3% from 2009 to 2011. According to IMS, Wan Su Ping
is the second best-selling glimepiride product in the PRC in terms of market share, and accounted for
approximately 15.8% of the glimepiride products sold in the PRC in 2011. We obtained the
manufacturing permit for Wan Su Ping in 2001, and commercially launched the product in the PRC
market in the same year. Our Wan Su Ping generated sales of RMB90.8 million, RMB105.3 million and
RMB132.7 million in 2009, 2010 and 2011, respectively, representing a CAGR of 20.9%. For the six
months ended 30 June 2012, sales of our Wan Su Ping amounted to RMB65.3 million.
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Animal insulin series (Wan Su Lin)
Animal insulin series medicines are mainly used for the treatment of metabolic disorders, such as
diabetes. The major function of animal insulin products is to reduce blood glucose and to act on
metabolism and deposit of glucose, protein and fat. Animal insulin products are included in the National
Medical Insurance Drugs Catalog in 2009, and are the only type of insulin product on the catalog that
treat metabolic disorders. Although animal insulin products are relatively more mature in terms of
product life cycle than other insulin products, demand for animal insulin products remains strong in the
middle- to low-end market segments in the PRC due to their affordability. According to IMS, the PRC
animal insulin products market grew at a CAGR of 7.0% from 2009 to 2011.
According to IMS, in 2011, our animal insulin series had a market share of approximately 84.7% of the
animal insulin products market in the PRC. We obtained the manufacturing permits for our first animal
insulin product in 1982, and commercially launched the product in the PRC market in the same year.
Our animal insulin series generated sales of RMB163.1 million, RMB174.9 million, RMB189.0 million
and RMB97.1 million in 2009, 2010 and 2011 and the six months ended 30 June 2012, respectively. We
continued to upgrade this product, and obtained the manufacturing permit for our protamine zinc insulin
injection (30R) in 2005. This product is more slowly absorbed by the body in comparison with regular
animal insulin products and is therefore longer lasting, which reduces the number of injections needed.
Sales of our protamine zinc insulin injection (30R) product have increased rapidly since its commercial
launch in the PRC market. It generated sales of RMB35.8 million, RMB47.9 million and RMB59.7
million in 2009, 2010 and 2011, respectively, representing a CAGR of 29.1%. For the six months ended
30 June 2012, sales of our protamine zinc insulin injection (30R) products amounted to RMB29.6
million, an increase of 8.0% as compared to RMB27.4 million for the same period in 2011.
Recombinant human erythropoietin (Yi Bao)
Yi Bao is a recombinant human erythropoietin biopharmaceutical generic drug. Recombinant human
erythropoietin is an active glycoprotein that acts on the formation of red blood cells. It is excreted by
the kidney and stimulates the reproduction and multiplication of erythroid hematopoietic cells in bone
marrow. According to IMS, the recombinant human erythropoietin market grew at a CAGR of 20.9%
from 2009 to 2011.
According to IMS, in terms of market share, Yi Bao is the fourth-ranking human erythropoietin product,
with sales accounting for 6.4% of the total sales of human erythropoietin products in the PRC in 2011.
We obtained a new drug certificate and manufacturing permit for Yi Bao in 1998, and commercially
launched the product in the PRC market in the same year. The sales of our Yi Bao grew at a CAGR of
39.6% from 2009 to 2011. For the six months ended 30 June 2012, sales of our Yi Bao amounted to
RMB46.1 million, an increase of 33.2% as compared to RMB34.6 million for the same period in 2011.
Compound aloe capsules
Compound aloe capsule is a gastrointestinal modern Chinese medicine primarily used for the treatment
of customary constipation, stool hardness and dryness, or the abdominal distention and pain caused by
constipation.
We obtained the manufacturing permit to produce compound aloe capsules in 1985, and commercially
launched the product in the PRC market in the same year. We are currently the sole producer of this
product in the PRC. We have registered a patent for the production of compound aloe capsules in the
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PRC, and the patent will expire in March 2028. In 1995, our compound aloe capsule was recognized as
a Class Two State Protected Chinese Medicine (��家二�中�保�o品�N). The sales of our compound
aloe capsules grew at a CAGR of 16.6% from 2009 to 2011.
Mo Luo Dan
Mo Luo Dan is a modern Chinese medicine primarily used for the treatment of stomach problems,
including chronic atrophic gastritis, gastralgia, flatulence, mass in the abdomen, anorexia, eructation and
pyrosis. We completed the acquisition of Moluodan Pharma in August 2010, and Mo Luo Dan has
subsequently become one of our major products. Our Mo Luo Dan generated sales of RMB103.5 million
and RMB44.4 million in 2011 and the six months ended 30 June 2012, respectively.
Moluodan Pharma obtained the manufacturing permit for Mo Luo Dan in 1985, and commercially
launched the product in the PRC market in the same year. Moluodan Pharma has obtained patent
registration in the PRC for Mo Luo Dan’s quality standards and methods of quality testing, which will
expire in August 2027. Mo Luo Dan was recognized as a State Protected Chinese Medicine in 1994. Our
concentrated form of Mo Luo Dan product is popular in the PRC market due to its small size and
convenient intake. We expect the concentrated form of Mo Luo Dan to be a significant growth driver for
this product in the future.
Cardiovascular system drugs
Heparin sodium (Su Ke Nuo)
Su Ke Nuo is a heparin biopharmaceutical generic drug. Su Ke Nuo is an antithrombotic drug that
prevents the formation of thrombus inside or outside the body, or in veins and arteries. According to
IMS, the PRC heparin sodium market grew at a CAGR of 5.5% from 2009 to 2011.
According to IMS, in terms of sales in 2011, Su Ke Nuo had a market share of 9.9% in the PRC
dalteparin products market. We obtained the manufacturing permit for Su Ke Nuo in 2002, and
commercially launched the product in the PRC market in the same year. Due to our increased
promotional efforts for Su Ke Nuo, sales have increased rapidly in recent years. Our Su Ke Nuo
generated sales of RMB41.4 million, RMB88.0 million and RMB101.1 million in 2009, 2010 and 2011,
respectively, representing a CAGR of 56.3% from 2009 to 2011. For the six months ended 30 June
2012, sales of our Su Ke Nuo amounted to RMB54.7 million, an increase of 22.6% as compared to the
same period in 2011.
Meglumine adenosine cyclophosphate (Xin Xian An)
Xin Xian An is a meglumine adenosine cyclophosphate branded generic drug. It is a kind of cardiac
stimulant, which is used primarily in the treatment of heart failure, myocarditis, sick sinus syndrome,
coronary heart disease and cardiomyopathy, and also for supporting the treatment of arrhythmia. It is
clinically proven to be effective in enhancing myocardial contractility, improving cardiac pump function,
dilating blood vessels and reducing myocardial oxygen consumption, and being able to improve the
metabolism of myocardial cells so as to prevent myocardial ischemia and myocardial hypoxia and the
function of sinus node P cells. According to IMS, the PRC meglumine adenosine cyclophosphate market
grew at a CAGR of 11.0% from 2009 to 2011.
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According to IMS, Xin Xian An has the largest market share in the meglumine adenosine
cyclophosphate by injection products market in the PRC, accounting for approximately 38.0% of the
meglumine adenosine cyclophosphate by injection products sold in the PRC in 2011. We obtained the
manufacturing permit for Xin Xian An in 2003, and commercially launched the product in the PRC
market in the same year.
Calcium dobesilate (Ke Yuan)
Ke Yuan is a calcium dobesilate branded generic drug. It is a kind of blood vessel protective drug,
which is used primarily in the prevention and treatment of various diseases caused by micro-vascular
circulatory disturbance, retinopathy caused by diabetes, and cardio, cerebral and kidney diseases caused
by micro-circulation disturbance, including glomerular atherosclerosis and decreasing blood viscosity.
According to IMS, the PRC calcium dobesilate market grew at a CAGR of 18.4% from 2009 to 2011.
According to IMS, Ke Yuan ranks first in the calcium dobesilate product market in the PRC in terms of
market share, and its sales accounted for approximately 21.0% of the total sales of the calcium
dobesilate products in the PRC in 2011. We obtained the manufacturing permit for Ke Yuan in 2003,
and commercially launched the product in the PRC market in the same year.
Telmisartan (Bang Tan)
Bang Tan is a telmisartan branded generic drug. Bang Tan is primarily used for the oral treatment of
hypertension either alone or in combination with other anti-hypertension medicines. Telmisartan belongs
to the type of hypertension drug called angiotensin II antagonist. According to IMS, the PRC telmisartan
market grew at a CAGR of 22.6% from 2009 to 2011.
According to IMS, Bang Tan accounted for 3.5% of the total sales of the telmisartan products in the
PRC in 2011. We obtained the manufacturing permit for Bang Tan in 2005, and commercially launched
the product in the PRC market in the same year.
Pitavastatin (Bang Zhi)
Pitavastatin has a notable medical effect in controlling low density lipoprotein cholesterol (LDL-C). It is
primarily used for treatment of hypercholesterolemia and familial hypercholesterolemia. It belongs to the
statin family of cholesterol-lowering drugs and has good effectiveness and safety profile. According to
IMS, in 2011, statin products had an estimated market size of RMB3,119.5 million in the PRC.
Pitavastatin is a relatively new type of statin product in the PRC market. According to IMS, pitavastatin
only became available in the PRC market in the fourth quarter of 2009. Currently, we are one of only
two companies in China that are engaged in the manufacture and sales of pitavastatin.
We obtained the new drug certificate and manufacturing permit for Bang Zhi in 2011 and commercially
launched the product in the PRC market in the same year. We have applied for an innovation patent
related to our pitavastatin product in the PRC.
Alprostadil dried emulsion (You Di Er)
Alprostadil is a synthetic derivative of prostaglandin, a naturally-occurring hormone in the human body.
It can effectively inhibit the aggregation of platelets, the generation of thromboxane A2, and the
formation of atherosclerotic plaque. It can also expand the peripheral and coronary vessels and it can be
used for treatment of cerebrovascular disease, chronic gastritis, diabetes complication and erectile
dysfunction. We have developed an alprostadil dried emulsion formulation, which has overcome certain
disadvantages of the injection type alprostadil products on the market, such as poor water solubility,
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tendency to produce degradation impurities after heating, and causing strong irritations to blood vessels.
Our product uses lipids as a carrier, and is produced into a lyophilized powder which can be
reconstitued to an emulsion by injection. This effective and stable formulation reduces side effects and
improves convenience of use for doctors and patients. According to IMS, the size of the PRC alprostadil
dried emulsion market is estimated to be RMB2,193.5 million in 2011 as compared to RMB875.1
million in 2009, representing a CAGR of 58.3% over this period.
We obtained the new drug certificate and manufacturing permit for You Di Er in 2010, and
commercially launched the product in the PRC market in the same year. We have applied for two
innovation patents related to our alprostadil products. For the six months ended 30 June 2012, sales of
our You Di Er amounted to RMB18.5 million, an increase of 374.4% as compared to RMB3.9 million
for the same period in 2011.
Oncology drugs
Pemetrexed disodium (Eluzer)
Eluzer is a type of folate anti-metabolite that inhibits the survival and growth of cancer cells. It is used
primarily, in combination with another commonly used oncology drug, for the treatment of several types
of cancers including malignant pleural mesothelioma and non-small-cell-lung-cancer. Pemetrexed
disodium can destroy the normal folate-dependent metabolic process, inhibit cell replication, and thus
inhibit tumor growth. In vitro studies have shown that pemetrexed inhibits thymidylate synthase,
dihydrofolate reductase, and glycinamide ribonucleotide formyltransferase and it is clinically proven to
be effective to inhibit the in vitro growth of mesothelioma cell lines. According to IMS, the PRC
pemetrexed disodium market grew at a CAGR of 81% from 2009 to 2011.
We obtained the new drug certificate and manufacturing permit for Eluzer in 2008, and commercially
launched the product in the PRC market in the same year. The sales of our Eluzer grew at a CAGR of
59.5% from 2009 to 2011. We are the first manufacturer in China to expand our Eluzer’s indication to
include the treatment of non-small-cell lung cancer. We have obtained a patent in the PRC for a new
crystal type of pemetrexed disodium and its method of preparation, which will expire in November
2024.
Central nervous system drugs
Deproteinized Calf Blood Injection (Ao De Jin)
Ao De Jin is a generic neurological protection drug. It facilitates cellular uptake and utilization of
glucose and oxygen, and is used to improve blood circulation and treat neurological deficits caused by
nutritional disorders, peripheral arterial and venous circulatory disturbances and the resulting symptoms.
According to IMS, the PRC deproteinized calf blood injection market grew at a CAGR of 42.6% from
2009 to 2011. We completed the acquisition of Aohong Pharma in September 2011, and Ao De Jin has
subsequently become one of our major products.
According to IMS, Ao De Jin is the best-selling deproteinized calf blood injection product in the PRC
and its sales accounted for 58.8% of the total sales of the deproteinized calf blood injection products in
the PRC in 2011. Aohong Pharma obtained the manufacturing permit for Ao De Jin in 2000, and
commercially launched the product in the PRC in the same year.
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Blood system drugs
Hemocoagulase for Injection (Bang Ting)
Bang Ting is one of the batroxobin for injection generic drugs. Bang Ting is produced by extracting
agkistrodon batroxobin from the poison of copperhead vipers in the Chang Bai Mountain region in
Northeast China, and is widely used to reduce or stop bleeding that occurs in various medical
conditions, or to prevent bleeding. According to IMS, the PRC batroxobin market grew at a CAGR of
26.5% from 2009 to 2011. Bang Ting has become one of our major products upon our acquisition of
Aohong Pharma.
According to IMS, Bang Ting is the best-selling batroxobin product in the PRC, with its sales
accounting for 28.5% of the total sales of the batroxobin for injection products in the PRC in 2011.
Aohong Pharma obtained the manufacturing permit for Bang Ting in 2004, and commercially launched
the product in the PRC in the same year.
Anti-infection drugs
Anti-tuberculosis series
According to the SFDA, as at 30 June 2012, we were the sole manufacturer of a new anti-tuberculosis
medicine, ethambutol hydrochloride, pyrazinamide, rifampicin and isoniazid tablets in the PRC, which is
a compound formulation of ethambutol hydrochloride, pyrazinamide, rifampicin and isoniazid. We have
also won bids to supply anti-tuberculosis drugs for a variety of domestic and international tuberculosis
control projects during the past few years, such as the Anti-tuberculosis Drugs and Devices Project of
the MOH, and the anti-tuberculosis project supported by the World Bank and the Government of the
United Kingdom to control tuberculosis in China.
We produce a number of anti-tuberculosis products and related compound drugs. We expect compound
series products to be the main growth driver in the anti-tuberculosis market. We completed the
acquisition of Shenyang Hongqi Pharma, a leading anti-tubercular products manufacturer in the PRC, in
December 2010, and anti-tuberculosis products have subsequently become one of our major products.
Our anti-tuberculosis products generated sales of RMB138.9 million in 2011.
Among our anti-tuberculosis series, rifampicin is a type of bactericidal antibiotic primarily used to treat
tuberculosis and non-active meningitis. According to NFS MENET, the PRC rifampicin products market
grew at a CAGR of over 14.8% from 2009 to 2011. According to NFS MENET, our rifampicin products
are the third-ranking rifampicin products in the PRC in terms of market share, with its sales accounting
for 5.1% of the total sales of the rifampicin products in the PRC in 2011.
Ethambutol hydrochloride is one of the synthetic anti-bacterial anti-tuberculosis products primarily used
with other anti-tuberculosis drugs to treat tuberculosis. It can also be used to treat tubercular meningitis
and atypical mycobaterial infection. According to IMS, the PRC ethambutol market grew at a CAGR of
over 15.0% from 2009 to 2011. According to IMS, our ethambutol product was the best selling
ethambutol product in the PRC, with its sales accounting for 49.6% of the total sales of the ethambutol
products in the PRC in 2011.
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Artesunate series
Artesunate is part of the artemisinin group of drugs that is mainly used to treat malaria. According to
the WHO Malaria Treatment Guideline, artesunate is a uniquely effective derivative of arteannuin, which
can be made into water soluble drugs. Artesunate is mainly used in the treatment of various malarial
diseases, especially multiple drug resistant malignant malaria.
According to the catalog of prequalified drugs on the WHO website, as at 30 June 2012, we were one of
the suppliers of anti-malaria medicines for the PRC Government’s aid to Africa, and we also supply a
substantial quantity of anti-malaria medicines for various international organizations, such as the WHO,
the United Nations Children’s Fund and the International Red Cross. Our artesunate has been endorsed
as an anti-malaria medicine by the WHO and is widely used in many countries. According to the SFDA,
as at 30 June 2012, we were the sole manufacturer of artesunate for injection. For the six months ended
30 June 2012, sales of our artesunate amounted to RMB51.3 million, an increase of 145.5% as
compared to RMB20.9 million for the same period in 2011.
Cefmetazole sodium (Xi Chang)
Xi Chang is one of our cefmetazole sodium branded generic drugs. Xi Chang is a type of semisynthetic
cephem antibiotic, which is used for the treatment of various infections caused by microorganisms.
According to IMS, the PRC cefmetazole sodium market grew at a CAGR of 12.7% from 2009 to 2011.
We completed the acquisition of Hexin Pharma in February 2010, and Xi Chang has subsequently
become one of our major products. Our Xi Chang generated sales of RMB206.8 million and RMB114.2
million in 2011 and the six months ended 30 June 2012, respectively.
According to IMS, Xi Chang is the best selling cefmetazole sodium products in the PRC in terms of
market share, with its sales accounting for approximately 50.7% of the total sales of the cefmetazole
sodium products in the PRC in 2011. Hexin Pharma obtained the manufacturing permit for Xi Chang in
2005, and commercially launched the product in the PRC market in the same year.
Potassium sodium dehydroandrographolide succinate (Shaduolika)
Shaduolika is a type of potassium sodium dehydroandrographolide succinate for injection, which is used
primarily in the treatment of viral pneumonia and viral upper respiratory infection. It has been clinically
proven to be able to dilate blood vessels and inhibit the aggregation of blood platelets, and is effective
in stabilizing liver cell membrane and improving liver function. According to IMS, the PRC potassium
sodium dehydroandrographolide market grew at a CAGR of 15.5% from 2009 to 2011.
According to IMS, Shaduolika is the second-ranked potassium sodium dehydroandrographolide succinate
product in the PRC in terms of market share, with its sales accounting for approximately 22.3% of the
total sales of the potassium sodium dehydroandrographolide succinate products in the PRC in 2011. We
obtained the medicine manufacturing permit for Shaduolika in 2002, and commercially launched the
product in the PRC market in the same year. For the six months ended 30 June 2012, sales of our
Shaduolika amounted to RMB62.9 million, an increase of 38.9% as compared to RMB45.3 million for
the same period in 2011.
In August and September 2012, we voluntarily recalled certain batches of Shaduolika product due to
reported occurrences of side effects in certain hospitals in Anhui and Jiangsu provinces and Guangxi
Zhuang Autonomous Region. See ‘‘Risk Factors ― We may incur losses and our reputation may be
adversely affected by potential product liabilities relating to certain products that we manufactured’’ and
‘‘Business ― Quality Control ― Pharmaceutical manufacturing’’ for more details.
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Vaccines
Flu vaccines
The flu vaccine produced by Dalian Aleph became one of our major products upon the completion of
our acquisition in September 2011. The flu vaccine is primarily used for the prevention of influenza. A
recipient of this vaccine will have immunity against infection by influenza virus.
APIs and intermediate products
Our APIs and intermediate pharmaceutical products include but not limited to the amino acid series used
in a number of pharmaceutical, health products and other industries, and the clindamycin hydrochloride
series, which is used as an ingredient for the production of a broad spectrum of antimicrobial drugs. We
are the leading producer of amino acids in the PRC. We export several types of amino acids to Europe,
the United States, Japan and other overseas markets.
Research and Development
We believe that research and development is critically important to the sustainable growth of our
pharmaceutical manufacturing business and we have maintained significant focus on the research and
development of pharmaceutical products. During the Track Record Period, our research and development
expenditure, which includes research and development expenses and capital expenditure to improve
production capacity and efficiency, on average accounted for 8% to 10% of the external revenue of our
pharmaceutical manufacturing segment. Our research and development activities focus primarily on
innovative drugs, biopharmaceutical generic drugs and first-to-market chemical generic drugs as follows:
. Innovative drug research. We develop innovative drugs to address major unmet medical needs
through in-house research and collaboration with third parties, including research institutes,
universities and other pharmaceutical companies. As at the Latest Practicable Date, we were
engaged in the research and development of certain small molecule innovative drugs; and
. Generic drug development. We develop biopharmaceutical generic drugs and first-to-market
chemical generic drugs with high barriers-to-entry in major therapeutic areas, such as
cardiovascular system, central nervous system and anti-infection.
As at 30 June 2012, we had over 100 pipeline products, including 11 innovative drugs, 30 chemical
drugs (Class III registered chemical drugs) that are available in the overseas markets but not yet
available in the PRC market, and 61 other generic drugs. We generally focus our research and
development efforts on the major therapeutic areas, including metabolism and alimentary tract,
cardiovascular system, oncology, central nervous system and anti-infection. As at 30 June 2012, our
research and development programs included 17 programs for metabolism and alimentary tract
medicines, 21 programs for cardiovascular system medicines, 15 programs for oncology medicines, 10
programs for central nervous system and alimentary track medicines, 23 programs on anti-infection,
three programs on vaccines and over 20 programs on other therapeutic areas.
In addition, as part of our research and development activities, we engage in product upgrades by
improving the production techniques of our products in order to improve product quality and therapeutic
effects, reduce side effects, enhance output yields and lower production costs. In this regard, we focus
primarily on products for which there is significant demand and market potential, and which are
relatively new in their respective therapeutic areas. Product upgrading by pharmaceutical companies is
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also strongly supported by the PRC government, which established a ‘‘Technological Upgrading of
Major Pharmaceutical Products’’ project in its Twelfth Five-Year Plan in 2010 to support the
development of pharmaceutical enterprises.
Our research and development activities are primarily conducted by our in-house research and
development team, and we also collaborate with third parties, including research institutes, universities
and other pharmaceutical companies. We also cooperate with foreign pharmaceutical companies in
conducting research and development. For instance, we jointly established Shanghai Lonza Fosun
Pharmaceutical Technology Development Co., Ltd. in August 2012 with a subsidiary of Lonza Group,
which is a life sciences group based in Switzerland, to collaborate on the development of generic drugs
with high barriers-to-entry in China.
We have established specialized research and development platforms and have built an international
research and development team with operations in Shanghai, Chongqing and the U.S. dedicated to small
molecule chemical drugs and large molecule biopharmaceutical drugs such as monoclonal antibodies.
Our overseas research and development operations enable us to gain access to, and utilize new
technological developments in the global pharmaceutical industry, while our domestic research and
development operations enable us to develop new pharmaceutical products quickly and at a low cost.
During the Track Record Period, we have successfully developed 39 pharmaceutical products for which
we have obtained manufacturing permits. The pharmaceutical products developed by our research and
development team during the Track Record Period include You Di Er, Bang Zhi, compound artesunate
series, compound pemetrexed disodium and flucloxacillin sodium (API and powder injections). We have
also obtained new drug certificates for some of these products, such as You Di Er, Bang Zhi, compound
artesunate series, rifampicin and isoniazid tablets and flucloxacillin sodium for injection. As at 30 June
2012, we had over 100 pipeline products, including 16 pipeline products pending approval for
production, five pipeline products at various stages of clinical trials, 13 pipeline products pending
approval to enter clinical trials and several monoclonal antibody products. During the Track Record
Period, our internally developed major products, namely, Atomolan tablets, Ke Yuan, Bang Tan, Bang
Zhi, You Di Er, Eluzer and Shaduolika, accounted for 11.3%, 10.4%, 8.8% and 11.4% of our revenue
from major products for the years ended 31 December 2009, 2010 and 2011 and the six months ended
30 June 2012, respectively. During the Track Record Period, our research and development
expenditures, which include research and development expenses and capital expenditure to improve
production capacity and efficiency, on average accounted for 8% to 10% of the external revenue of our
pharmaceutical manufacturing segment.
In order to expand our operations overseas, we intend to submit ANDAs in the United States for highly
sophisticated generic drugs that have relatively high sales potential in the U.S. market. In 2010, we
submitted an ANDA to the United States Food and Drug Administration for our venlafaxine, which is
used in the central nervous system therapeutic area, and the application is currently pending onsite
inspection. Our other projects that focus on the submission of ANDAs in the United States primarily fall
into the following two categories: (i) felodipine long-acting sustained release tablets, nifedipine long-
acting sustained release tablets, nifedipine controlled-release tablets and nisoldipine long-acting
sustained release tablets, which are used in the cardiovascular system therapeutic area; and (ii) glipizide
controlled-release tablets and esomeprazole magnesium enteric-coated capsules, which are used in the
metabolism and alimentary tract therapeutic area. As at the Latest Practicable Date, all of our ANDA
projects are still in the research and development process.
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We have built a strong research and development team. As at 30 June 2012, our research and
development team had a total of 584 research and development personnel, which we believe is one of
the largest research and development teams among pharmaceutical companies in China. As at 30 June
2012, we had 252 research and development personnel in Chongqing, 96 in Shanghai, 84 in Jiangsu, 51
in Liaoning, 31 in Guangxi, 36 in Guangdong, 12 in Hebei, 12 in Hubei and ten in the U.S. Within the
research and development team, there are 6 chief senior engineers, 50 senior engineers, 113 engineers,
121 assistant engineers, 1 chief pharmacist, 4 practicing pharmacists, 8 pharmacists and other
professionals. 36 of our research and development personnel have doctorate degrees and 304 of them
have master degrees in fields such as medical and pharmaceutical science. As at 30 June 2012, over 150
of our 584 research and development personnel had over 10 years of healthcare industry-related research
and development experience. Among the 584 research and development personnel, 467 were engaged in
research and development and patent application, 22 were engaged in technology services, 68 were
engineers and technicians and the other 27 were supporting staff. We have participated in or undertaken
a number of government sponsored pharmaceutical research and development projects, which
demonstrate that our research and development capabilities are well recognized in our industry and by
the PRC government. We have a ‘‘National Recognized Enterprise Technology Center’’ (��家�企�I技
�g中心), and are qualified or recognized as a ‘‘National Key High and New Technology Enterprise’’ (��
家重�c高新技�g企�I), a ‘‘National Patent Pilot Enterprise’’ (全��企事�I�＠�示��挝�), an
‘‘Enterprise-based Post-doctoral Scientific Research Workstation’’ (企�I博士後科研工作站), and a
‘‘National Innovative Enterprise’’ (��家���新型企�I).
We manage our research and development expenses through budgeting and internal auditing. We
organize three rounds of internal discussion every year on each subsidiary’s research and development
projects, progress made and detailed budgets for research and development expenses. Our chairman,
chief executive officer, and the heads of the strategic development department, finance department,
marketing department, research and development department, human resources department and
administrative department participate in these internal discussions. We also assess the research and
development performance of each subsidiary through internal audits. Our internal approval policies for
research and development projects classify a project as an ‘‘important project’’ or a ‘‘normal project’’
according to the size of the expected investment in such a project. An ‘‘important project’’ is a project
with a research investment budget of RMB5 million or above. Such project can only proceed after its
study report is reviewed and approved by the subsidiary and the Group and its budget is assessed
through internal discussion. A ‘‘normal project’’ is one that has a research investment budget of less
than RMB5 million, and it can proceed after it is approved by the relevant departments in a subsidiary
and the necessary filings are made at our Group level. The ‘‘important projects’’ need to first go through
review and approval by the heads of our marketing department, research and development department,
finance department, chief executive officer and enterprise technology center, and then by a meeting
among the marketing department, quality safety department and finance department. The ‘‘normal
projects’’ are reviewed and approved by the heads of our marketing department, research and
development department, finance department and chief executive officer.
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For the years ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012, our
research and development expenses, excluding capitalized research and development costs, amounted to
RMB71.4 million, RMB119.9 million, RMB189.4 million and RMB101.7 million, respectively, which
represented 3.1%, 4.2%, 4.9% and 4.7% of total external revenue for our pharmaceutical manufacturing
segment for the same periods. Our research and development expenditures, which include research and
development expenses and capital expenditure to improve production capacity and efficiency, on average
accounted for 8% to 10% of the external revenue of our pharmaceutical manufacturing segment. We
plan to focus on pipeline products such as recombinant human insulin, Feibusita and human rabies
vaccine, as further described below.
During the Track Record Period, although our revenue from new products had been increasing, revenue
contribution from our new products was relatively immaterial primarily because the development of new
products is time-consuming and uncertain, and new products take time to successfully commercialize
after they are successfully developed. For instance, it takes time for a new product to be approved by
government authorities and included in the National or Provincial Medical Insurance Drug Catalogs
before they can be sold to mass consumers. In addition, local governments generally have a cycle of at
least two years for the tendering process, and as a result, our newly commercialized products may not be
launched in time to join the tenders. These factors therefore limited the ability of new products to
generate significant revenue for us during the Track Record Period.
The following table shows our major pipeline products being developed by our research and
development team and their development stages as at the Latest Practicable Date.
Therapeutic
Areas Product Indications Status
Metabolism Recombinant Human Insulin Treatment of diabetes mellitus New drug certificate and
drugs manufacturing permit obtained and
facility for its commercial
production is under construction.
Feibusita Treatment of hyperuricemia and gout Completed phase III clinical trial
Lispro Insulin Treatment of diabetes mellitus Pending clinical approval
W0903 Treatment of diabetes mellitus Pre-clinical stage
W1005 Treatment of iron-deficiency anemia Under research and development(i)
Methyhaaltrexone Bromide Treatment of opioid-induced Pending clinical approval
constipation
P0905 Treatment of acid-reflux disorders, Under research and development
peptic ulcer disease and H. pylori (US ANDA project)(i)
eradication
Glipizide Controlled-Release Treatment of mild and moderate Under research and development (US
Tablets non-insulin-dependent diabetes ANDA project)
mellitus which cannot be
effectively controlled through
alimentary control
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Therapeutic
Areas Product Indications Status
Cardiovascular Y0802 Prevention and treatment of cardiac Under research and development(i)
system drugs or cerebral arterial circulation
problem due to platelet
aggregation
Y0803 Treatment of hypertension Pending approval for launch
Fasudil Hydrochloride and its Prevention and reduction of the risk Pending approval for launch
injection in cerebral vasospasm and
cerebral ischemia associated with
the surgery of subarachnoid
hemorrhage
P0901 Treatment of angina pectoris, variant Under research and development
angina, chronic stable angina and (US ANDA project)(i)
hypertension
P0903 Treatment of hypertension, coronary Under research and development
heart disease, angina pectoris and (US ANDA project)(i)
variant angina
W1004 Prophylaxis of deep vein thrombosis, Pre-clinical stage
ischemic complications of
unstable angina and myocardial
infarction
Felodipine Long-Acting Sustained Treatment of hypertension Under research and development
Release Tablets (US ANDA project)
Nifedipine Controlled-Release Treatment of hypertension Under research and development
Tablets (US ANDA project)
Oncology drugs HLX-01 Treatment of Non-Hodgkin’s Pending clinical approval
Lymphoma and chronic
lymphocytic leukemia
HLX-02 Treatment of breast cancer Pre-clinical stage
Z1001 Treatment of breast cancer and rectal Under research and development(i)
cancer
Palonosetron and its injection Prevention of acute and delayed Pending approval for launch
nausea and vomiting associated
with emetogenic cancer
chemotherapy as well as
prevention of postoperative
nausea and vomiting
Central Nervous Domperidone and its tablets Treatment of schizophrenia Pending clinical approval
System drugs
Venlafaxine Treatment of major depression, Pending approval for launch (US
generalized anxiety disorder, ANDA project)
social anxiety disorder (social
phobia) and panic disorder
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Therapeutic
Areas Product Indications Status
Anti-infection GL001 Treatment of malaria Undergoing clinical trial ― BE test
drugs
GL002 Treatment of malaria Pre-clinical stage
GL003 Treatment of malaria Pending clinical approval
G0802 Treatment of various infectious Undergoing phase II clinical trial
diseases caused by bacteria
Cefcapene Pivoxil Treatment of various infectious Undergoing phase II clinical trial
diseases caused by bacteria
Amoxicillin Controlled-Release Treatment of various infectious Pending clinical approval
Tablets diseases caused by bacteria
Entecavir Treatment of chronic hepatitis B Pending approval for launch
virus infection in adults
Vaccines Rabies Purified Vaccine for Prevention of rabies Pending approval for launch
Human Use
Pandemic Infleuenza Split Vaccine Prevention of pandemic influenza Pending clinical approval
Sub-unit Influenza Virus Vaccine Prevention of influenza Pending clinical approval
Other drugs Arginine (API) Treatment of hepatic coma and other Pending approval for launch
mental illness due to
hyperammonemia
Acetylcysteine (API) Early treatment of hepatic failure Pending approval for launch
and treatment of infections of
respiratory tract
Y0805 Treatment of nutritional deficiency Under research and development(i)
diseases
C1009 Treatment of benign prostatic Pre-clinical stage
hyperplasia
Mesalazine Enteric-coated Treatment of active ulcerative Pre-clinical stage
Sustained-Release Tablets proctitis
(i) Such research programs do not require clinical trial data.
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Below is a description of our selected major pipeline products.
Recombinant human insulin
Recombinant human insulin is produced by using DNA recombination technology. It has the same
structure and functions as natural insulin, and can be used to regulate the metabolism of sugar, and
facilitate the absorption and utilization of glucose by the liver, bones and adipose tissues through
converting glucose to glycogen, which is stored in the muscle and the liver. It also prevents the
abnormal increase of glycogen and thus reduces the blood sugar level in the body. According to IMS, in
2011, the estimated size of the PRC recombinant human insulin market was RMB4,718.7 million as
compared to RMB3,056.5 million in 2009, representing a CAGR of 24.3% over this period. Currently
over 90% of the PRC recombinant insulin market is occupied by large international pharmaceutical
corporations.
We have obtained the new drug certificate and manufacturing permit for our recombinant human insulin
product, and the facility for its commercial production is under construction. We have filed a patent
application on the method of preparation for recombinant human insulin.
Feibusita
Feibusita is a type of xanthine oxidase inhibitor, which can be used to inhibit the conversion of
hypoxanthine into xanthine and the conversion of xanthine into uric acid, and is used for the long-term
treatment of hyperuricemia with ventilization symptoms. Feibusita has functions that are similar to those
of allopurinal, which is the standard drug for the treatment of gout, but it is more effective and specific
than allopurinal. No PRC pharmaceutical company is currently producing or selling this pharmaceutical
product. According to IMS, in 2011, feibusita products had an estimated market size of RMB1,499.0
million worldwide. Currently feibusita is not sold in the PRC market.
We have completed clinical trials and are summarizing the results of the trials. We have submitted an
application for the manufacturing and sale of this product in September 2011. We expect to obtain the
manufacturing permit for feibusita in 2012, and commercially launch the product in the PRC market in
the same year. We have registered five patents of innovation for Feibusita.
Human rabies vaccine
We completed the acquisition of Dalian Aleph in September 2011, and human rabies vaccine has
subsequently become one of our ongoing research programs. Human rabies vaccine is produced by
infecting primary Vero cells with fixed rabies virus, then collecting, condensing, refining, purifying the
virus fluid from the cell culture and mixing it with an aluminum hydroxide adjuvant. It is used for
rabies prevention by allowing the human body to become immune against the rabies virus. We have
completed clinical research on this product and are preparing the application to the regulatory authorities
for approval to manufacture and sell this product. We currently expect to obtain the manufacturing
permit for human rabies vaccine in 2014 and commercially launch the product in the PRC market in the
same year.
Entecavir
Entecavir is a guanine nucleotide analogue that inhibits hepatitis B polymerase. These medicines are
used for the treatment of chronic adult hepatitis B that demonstrates symptoms of active viral
replication, persistent elevations in serum aminotransferases or liver histology showing active lesions,
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and are the primary medicines for resisting the hepatitis virus. According to IMS, in 2011, the entecavir
APIs and tablets had an estimated market size of RMB1,080.6 million in the PRC as compared to
RMB511.9 million in 2009, representing a CAGR of 45.3% over this period.
We have submitted an application to the SFDA for the manufacturing and sale of entecavir in 2010. We
currently expect to obtain the manufacturing permit in 2013, and commercially launch the products in
the PRC market in the same year.
HLX-01
HLX-01 is a monoclonal antibody used for the treatment of B-cell lymphoma and non-Hodgkin’s
lymphoma. Monoclonal antibody has the properties of simple biological activity and strong antigen-
binding specificity, and it represents the development trends of personalized treatment in the cancer
treatment field. According to IMS, in 2011, the estimated size of the PRC market for the product was
RMB590.6 million as compared to RMB351.0 million in 2009, representing a CAGR of 29.7% over this
period.
We are conducting pre-clinical studies for HLX-01, and are developing a manufacturing technology for
large scale production of this product with low cost and high efficiency. We plan to submit an
application for the manufacturing and sale of HLX-01 in 2015. We currently expect to obtain the
manufacturing permit for the product in 2016, and commercially launch it in 2016.
Manufacturing
As at 30 June 2012, we had a total of 148 production lines at our 18 production facilities in China,
which are located in Shanghai, Chongqing, Liaoning, Hubei, Guangxi, Hunan, Guangdong, Jiangsu,
Hebei and Sichuan. As at 30 June 2012, we operated manufacturing facilities occupying over 200,000
square meters of land and with a total gross floor area of over 100,000 square meters of buildings and
units. All of our pharmaceutical production facilities have obtained the relevant PRC production
approvals and permits, which primarily include the manufacturing permits, the GMP certificates and
other required production approvals. See ‘‘Regulatory Overview ― Manufacturing of Pharmaceutical
Products’’. We have obtained requisite licenses or permits for the sale of our manufactured
pharmaceutical products from the SFDA at the national level that authorize our manufactured
pharmaceutical products to be sold nationwide in China. We adhere to stringent and closely monitored
quality assurance and safety control processes in the manufacturing of our products. In order to obtain
export qualifications, of our 148 production lines, as at 30 June 2012, five API production lines of drugs
had received certifications from the food and drug administrations of the United States and the European
Union, one solid dosage drugs production line and one production line for injection products had passed
the PQ supplier certification of the WHO and one production line for solid dosage drugs had passed the
GMP on-site certification of Canada’s pharmaceutical regulatory agency.
As at 30 June 2012, we had more than 9,000 employees in our pharmaceutical manufacturing segment,
of which 149 employees were given senior-level professional titles, 516 employees were given mid-level
professional titles, and 844 employees were given elementary-level professional titles.
We manufacture our pharmaceutical products in various forms, including tablets, capsules, granules,
powder for injection and liquid for injection.
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We believe our manufacturing expertise and efficiency enable us to produce quality products cost-
effectively and to sell such products at competitive prices. During the Track Record Period, we reduced
the production of certain tablets and capsules that have low profit margins. The following table sets
forth information on the designed capacity, actual production volume and utilization rates of our
pharmaceutical manufacturing facilities for the periods indicated:
Year ended 31 December Six months ended 30 June
2009 2010 2011 2012
Utilization Utilization Utilization Utilization
Designed Production Rate(ii) Designed Production Rate(ii) Designed Production Rate(ii) Designed Production Rate(ii)
(i) (i) (i) (i)
Product Form Unit Capacity Volume (%) Capacity Volume (%) Capacity Volume (%) Capacity Volume (%)
Tablets and capsules. . . . . . . Billions of units 13.5 6.8 50.3 13.5 7.6 56.2 14.7 7.4 50.3 14.8 4.2 57.2
Injections and small volume Millions of units 160.3 91.6 57.1 160.3 99.9 62.3 160.3 135.8 84.7 217.3 71.6 65.9
parenteral solution . . . . .
Powder injections . . . . . . . . Millions of units 284.4 99.6 35.0 284.4 104.4 36.7 284.4 181.2 63.7 313.4 120.5 76.9
API and intermediate products . Thousands of Tonnes 106.3 104.5 98.3 106.3 104.9 98.7 106.3 103.2 97.1 43.3(iii) 16.9 78.1
(i) The designed annual capacity of each product form for the indicated period is measured by the production capacities
approved by the environmental protection authorities.
(ii) Equal to the percentage of actual production volume over the approved production capacity for the indicated period.
(iii) Due to the relocation of Shine Star in 2012, our production capacity for API and intermediate products decreased by 63,000
tonnes in the first half of 2012. Such production capacity will increase upon the expected completion of the relocation by
the end of 2012.
We have made certain capital commitments to expand our manufacturing facilities. We are expanding
our subsidiary Shine Star’s facility for the production of amino acid series products, which is expected
to be completed by the end of 2012. We are also constructing a new facility for our subsidiary Wanbang
Pharma for the production of recombinant human insulin products, which is expected to be completed
by the end of 2015. The total investment required for Shine Star’s expansion project is expected to be
approximately RMB100 million and the new facility is expected to enhance the annual production
capacity of Shine Star’s amino acid series products to more than 13,000 tonnes. The total investment
required for Wanbang Pharma’s new facility is expected to be approximately RMB500 million and the
new facility is expected to increase annual production capacity by 32 million units of recombinant
human insulin injection products. The expansion and construction are funded by bank borrowings and
cash generated from our operations.
Raw materials and suppliers
The principal raw materials used for our pharmaceutical products are the necessary active ingredients.
We source raw materials, as well as packaging materials and supplemental materials, from various third-
party suppliers in China. When we source raw materials from third parties, the purchase price for the
relevant raw materials is based on the prevailing market price for such materials of similar quality. We
generally keep a raw material supply that ranges from approximately 30 to 90 days for raw materials
used in pharmaceutical products, and keep higher levels of inventory for raw materials that are harder to
procure, whose levels can be up to a year in some rare instances. We generally pay a down payment,
which can be full or partial payment for the goods procured, to our suppliers before the goods are
delivered. We are normally granted a credit period of up to 120 days by our suppliers for any remaining
outstanding payment.
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We carefully screen our suppliers for our pharmaceutical manufacturing operations. We have established
and maintained a stringent supplier evaluation system to ensure the raw materials comply with
applicable regulatory requirements, meet our quality standards and satisfy our technological
requirements for pharmaceutical manufacturing operations. We require that our suppliers provide us
with evidence that they have all licenses and permits necessary to conduct their operations, which may
include business licenses, manufacturing permits, import registration certificates, GMP or other relevant
licenses and any other related documents. Under the GMP standards, we select suppliers by assessing
the quality of their products as well as their quality control systems. We also order raw material samples
from major suppliers, conduct trial production using such samples and test the stability of the trial
products. We are required to file the list of qualified API suppliers to the provincial pharmaceutical
regulatory authorities from time to time. We classify our key suppliers and evaluate them periodically.
At the end of each financial year, we will review our suppliers and evaluate the selected suppliers
comprehensively.
We usually purchase our raw materials and other supplies from various suppliers to enhance our
bargaining power and to avoid excessive reliance on one single supplier. Under the PRC GMP
standards, major raw material suppliers of pharmaceutical products are required to be registered with the
provincial branches of the SFDA. We generally engage more than two registered suppliers for each
major raw material of most of our pharmaceutical products (including all of its major products). We also
engage more than two suppliers for each of our accessories and packaging materials. In very limited
cases, we purchase raw materials exclusively from one supplier. For example, Guilin Pharma purchased
raw materials for its josamycin tablets exclusively from the Yamanouchi Pharmaceutical Company. We
generally enter into long-term supply agreements with these exclusive suppliers to secure the stable
supply of these raw materials. Guilin Pharma had not encountered any shortage of supply of raw
materials for its josamycin tablets since it commenced production of this product. We select qualified
suppliers based on their advanced production facilities, quality consistency and application of
environmentally friendly technology. We generally do not have long-term contracts with our major
suppliers for our pharmaceutical manufacturing operations. However, the majority of our raw material
supplies have been sufficient for our business operations. We believe that alternative raw material
suppliers for almost all of our products are readily available and the loss of any single supplier would
not have a material impact on our operations. Under our product return policies, we may return raw
materials to suppliers if the raw materials are contaminated or damaged, the raw materials fail to meet
our specified quality standards, or their effective dates have expired. During the Track Record Period
and as at the Latest Practicable Date, we had not experienced any major interruptions in the supply of
raw materials and other supplies or made any material return of supplies due to quality problems for our
pharmaceutical manufacturing operations. During the Track Record Period, we had over 1,500 suppliers
for this segment each year. Most of the major suppliers for this segment except Sinopharm are
Independent Third Parties suppliers of chemical and pharmaceutical materials and ingredients. We
believe that we have maintained good relationships with our suppliers, which enables us to procure raw
materials and supplies used for our manufacturing operations in a reliable manner. In addition, we
generally have alternative sources of supply for each type of our raw materials, and therefore we do not
anticipate significant difficulties in sourcing them.
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Sales and marketing
We sell substantially all of our prescription drugs to pharmaceutical distributors in China, which in turn
distribute these pharmaceutical products to hospitals, clinics, retail pharmacies and secondary
distributors. Our sales of over-the-counter medicines mainly focus on retail pharmacies in China,
through which we sell our medicines to the end customers. The following chart illustrates the product
and revenue flows of our business segments in the healthcare industry value chain:
(i) The vast majority of our pharmaceutical products are distributed through third party distributors. Sales from pharmaceutical
manufacturing subsidiaries to Fosun Pharmaceutical (accounted as intersegment sales and eliminated on consolidation) are
limited. Fosun Pharmaceutical procures most of its products from third parties. See ‘‘Business ― Our Business Segments ―
Pharmaceutical Distribution and Retail’’ in this prospectus for additional information.
(ii) The sales of our pharmaceutical products that were distributed through Sinopharm’s distribution network represented 2.9%,
5.8%, 7.8% and 9.2% of the external revenue of our pharmaceutical manufacturing segment in 2009, 2010 and 2011 and the
six months ended 30 June 2012, respectively. We expect this percentage to continue to increase as our business cooperation
with Sinopharm further strengthens.
(iii) Other hospitals include United Family Hospitals, operated by Chindex in which we had an 18.52% equity interest as at the
Latest Practicable Date.
(iv) Our hospitals include hospitals in which we hold a majority equity interest, such as Jimin Cancer Hospital and Guangji
Hospital.
In addition to our sales in the PRC, we also export certain of our finished products, APIs and
intermediate products, such as the clindamycin API and the artesunate series, to overseas markets,
including the United States, Europe, and certain African countries. For the year ended 31 December
2011 and the six months ended 30 June 2012, our revenue from exports of finished products, APIs and
intermediate products amounted to RMB756.9 million and RMB384.0 million, respectively.
We have established an extensive sales and marketing network and increased coverage of end customers
by placing sales representatives in all major markets where our products are sold. Historically, we have
primarily used third party sales and marketing companies and agencies to promote and sell our products
to more customers in different regions. We use a set of criteria, which include scale of operation,
reputation, network coverage, quality of sales personnel and financial conditions, in selecting third party
sales teams. We also have specific personnel or departments to manage and provide support and
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services, which include setting sales targets, personnel training, inspection and supervision, and
performance analysis, to these third party sales teams to safeguard our reputation and quality of services.
We divide our sales team essentially according to therapeutic areas and product lines.
As our pharmaceutical manufacturing business further develops, we have realized that our own sales
team is more effective in conducting academic promotion of our pharmaceutical products to end
customers such as hospitals and pharmacies. Consequently, we decided to strengthen our sales primarily
by expanding our sales team. We currently decide whether to use our own marketing teams or third
party sales teams based on our products, geographical reach and marketing needs. We have
comprehensive policies to manage our sales personnel, including but not limited to guidelines on the
sales personnel’s behaviors, and policies on sales management, product distribution, and on management
of receipts and accounts receivables. Our sales and marketing team is responsible for implementing our
overall marketing strategy, promoting our brands and conducting market research. Our sales
representatives are primarily responsible for promoting our products to target hospitals and other
medical institutions. Our sales representatives are able to update doctors with the latest information on
our products through regular visits and marketing activities. As at 30 June 2012, our sales and marketing
department had over 1,500 sales and marketing representatives, with responsibilities for product sales
and the provision of after-sales services. We plan to continue the expansion of our sales team to support
revenue growth. To expand our sales team, we plan to strengthen recruitment of qualified personnel,
consolidate the sales teams of acquired companies, and acquire third party sales teams. In addition, we
use third party sales teams to promote our products.
Furthermore, we continually strengthen our marketing capabilities by improving product knowledge and
sales skills. Although our manufacturing subsidiaries generally market and sell their own products, we
are in the process of consolidating the sales and marketing operations for our major products. We plan
to strengthen marketing, expand the marketing team, and devise centralized national marketing plans
according to therapeutic areas and major products or product lines to drive the sales growth of our
products.
We have over 2,000 distributors as at 30 June 2012, and we do not rely on any single distributor for the
distribution of our pharmaceutical products. We select our distributors after reviewing and ensuring that
the distributors adhere to the relevant GSP regulations and standards for pharmaceutical products and
implement stringent controls on its operations, including standards regarding staff qualifications,
premises, warehouses, inspection equipment and facilities, management and quality control. For our
environment and temperature sensitive pharmaceutical products, we also assess our distributors based on
their ability to satisfy the conditions required during distribution of these products under GSP
regulations, for example, their abilities in fulfilling certain temperature, humidity, handling, storage and
transportation requirements that are specific to these products. We also select our distributors based on a
number of other criteria, including credit records, financial conditions, customer portfolio, distribution
networks and market position. During the Track Record Period, our relationships with certain
distributors were terminated primarily due to the market consolidation in the PRC pharmaceutical
distribution industry, as a result of which some of our distributors were acquired by or merged with
other distributors. In addition, we terminated relationships with some distributors due to their poor or
unsatisfactory performances. In the event that we decide to terminate a distributor, in order to ensure the
proper sales of the remaining inventory of this distributor, we normally assist in allocating this
distributor’s remaining inventory to other distributors in the same area who have good relationships with
us and have additional sales capacity for such inventory to avoid any potential reputational risk. We also
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request the terminated distributor to settle any outstanding balances with us as soon as possible. We
continue to add new distributors to expand our sales network. Due to the large number of our
distributors, the impact of a certain distributor’s termination and replacement is very limited.
The following table sets forth the changes in the number of our distributors for the periods indicated:
Six months
Year ended 31 December ended 30 June
2009 2010 2011 2012
As at the beginning of the period. . . . . . . . . . 2,462 2,030 2,007 2,323
Addition of new distributors. . . . . . . . . . . . . 678 561 855 187
Termination of existing distributors. . . . . . . . . 1,110 584 539 425
Net increase (decrease) in distributors. . . . . . . (432) (23) 316 (238)
As at the end of the period. . . . . . . . . . . . . . 2,030 2,007 2,323 2,085
In addition, we benefit from Sinopharm’s extensive pharmaceutical distribution network, well-known
reputation and comprehensive logistical services. In 2009, 2010 and 2011, in terms of sales, RMB67.8
million, RMB165.9 million and RMB297.4 million, respectively, of our pharmaceutical products were
distributed through Sinopharm’s distribution network, which accounted 2.9%, 5.8% and 7.8% of our
external revenue of the pharmaceutical manufacturing segment representing a CAGR of 109.4% over the
period. For the six months ended 30 June 2012, 9.2% of our external revenue from our pharmaceutical
manufacturing segment was derived from the sale of our products through Sinopharm’s distribution
network. We expect this ratio to continue to increase as our cooperation with Sinopharm strengthens.
We generally enter into distribution agreements with our distributors. A typical distribution agreement
may set the sales volume target and price of our products, though the agreement does not contain terms
that impose any fine or penalty against the failure to meet this target. During the Track Record Period,
we did not impose any material reduction on price discounts or other preferential treatment, nor did we
cease granting, any price discounts or other preferential treatment to any distributors nor did we
terminate any distribution agreement due to the failure of any distributor to meet the sales volume
targets under the distribution agreement, where the result of such action would have had a negative
material impact on our financial condition or results of operations. We may reduce or eliminate price
discounts and other preferential treatments to distributors who fail to meet the sales volume targets, or
terminate such distributors if they consistently fail to meet the targets. In most cases, the distribution
agreements do not prohibit the distributors from distributing competing products. The distributors are
liable for any breach by them of the relevant distribution agreements and are responsible for
indemnifying us for damages as a result of such breach.
Our standard distribution agreements entitle us to terminate the distribution right of our distributors if it
is discovered that the distributor sells beyond designated geographic areas. During the Track Record
Period, we were not aware of any material breaches of distribution agreements by any distributor. The
distribution agreements may be renewed by mutual agreement among the parties. We also enter into
sales agreements with some of our distributors, which only set forth the sales price, quantity and
logistics details for the delivery of our products and do not have sales targets.
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We generally collect a down payment, which can be full or partial payment for the goods sold, from our
distributors before delivering goods to them. We normally grant a credit period of up to 30 to 60 days to
our distributors for any remaining outstanding payment. We generally only accept sales returns for
defective products. During the Track Record Period, we did not encounter any material sales returns.
Our sales representatives also regularly communicate with hospitals as part of our efforts to assess the
performance of our distributors. Our distributors generally have strong credit records and steady cash
flow, and we have not experienced any material delays of payment by our distributors. Other than
Sinopharm and Fosun Pharmaceutical, to the best knowledge of our Directors, all our distributors are
Independent Third Party pharmaceutical distribution companies.
The following table sets forth the breakdown of our pharmaceutical manufacturing segmental revenue:
Six months
Year ended 31 December ended 30 June
2009 2010 2011 2012
(in thousands of RMB)
Intersegment revenue
― From Fosun Pharmaceutical . . . . . . . . . 2,034 255 549 188
― From other subsidiaries. . . . . . . . . . . . . 4,608 565 63 726
Total internal revenue . . . . . . . . . . . . . . . 6,642 820 612 914
External revenue
― From sales of APIs . . . . . . . . . . . . . . . 812,009 917,856 1,102,654 502,871
― From sales to Sinopharm . . . . . . . . . . . 67,817 165,905 297,392 199,140
― From sales to third party distributors
and third party retail pharmacies . . . . . 1,427,265 1,754,169 2,430,778 1,473,865
Total external revenue . . . . . . . . . . . . . . . 2,307,091 2,837,930 3,830,824 2,175,876
Total segment revenue . . . . . . . . . . . . . . . . 2,313,733 2,838,750 3,831,436 2,176,790
Product Pricing
As at 30 June 2012, of the 625 pharmaceutical products that we manufactured, 477 or 76.3% were
included in the National Insurance Drugs Catalog, including all of our 19 major prescription drugs and
an additional 122 of our pharmaceutical products were included in the Provincial Medical Insurance
Drugs Catalogs. These catalogued pharmaceutical products are subject to retail price controls imposed
by the PRC government or the relevant provincial governments in the form of fixed retail prices or
maximum retail prices. The rest of our products are generally not subject to retail price controls. We set
the retail prices of products that are not subject to price controls by referring to a number of factors,
including market trends, changes in the levels of supply and demand, product costs and the prices of
competing products available in the market.
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Our products are sold at wholesale prices to our distributors, who in turn sell them to hospitals and
medical institutions in the PRC. The PRC government authorities do not impose restrictions over the
wholesale prices at which pharmaceutical manufacturers, such as ourselves, sell products to distributors.
However, controls over and adjustments to the retail price of a pharmaceutical product, if significant,
could have a corresponding impact on its wholesale price at which we sell our products to distributors.
In March 2011, the NDRC lowered the maximum retail prices of certain pharmaceutical products,
affecting 11 of our products, including three major products, Xin Xian An, Bang Tan and Xi Chang.
Revenue from the sales of the three major products collectively accounted for 2.6%, 6.5%, 5.0% and
5.2% of our total revenue for the years ended 31 December 2009, 2010 and 2011 and the six months
ended 30 June 2012, respectively. In August 2011, the NDRC lowered the maximum retail prices of
certain pharmaceutical products, affecting five of our products, including one major product Wan Su
Ping, which collectively accounted for 2.4%, 2.3%, 2.1% and 1.9% of our total revenue for the years
ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012, respectively. In
March 2012, the NDRC lowered the maximum retail prices of certain pharmaceutical products, affecting
one of our major products, Atomolan, which accounted for 7.8%, 8.7%, 7.5% and 7.9% of our total
revenue for the years ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012,
respectively. In September 2012, the NDRC again lowered the maximum retail prices of certain
pharmaceutical products, affecting ten of our products, including three major products, Bang Ting, Su
Ke Nuo and Yi Bao. Revenue from the sales of the three major products collectively accounted for
2.1%, 3.3%, 3.7% and 5.7% of our total revenue for the years ended 31 December 2009, 2010 and 2011
and the six months ended 30 June 2012, respectively.
Generally, we sell our manufactured pharmaceutical products to distributors at prices that are lower than
the implied maximum hospital purchase price, while the maximum hospital purchase prices are lower
than the maximum retail prices under the price controls. As a result, our pharmaceutical products’
selling prices to distributors and the maximum hospital purchase prices never exceed the maximum retail
prices allowed under the price controls. During the Track Record Period, for most of our products
affected by the aforesaid NDRC price adjustments, the revised maximum retail prices and the implied
maximum hospital purchase prices were still higher than our actual successful bid prices during the
statutory tender process at that time. Consequently the adjustments had limited impact on our revenue
and the gross profit margin of the products affected by such controlled price changes. As at the Latest
Practicable Date, except for the March 2011, August 2011, March 2012 and September 2012
adjustments, the NDRC has not lowered the maximum retail price of our major products since 1 January
2009. See ‘‘Risk Factors ― Risks Relating to Our Businesses and Industries ― Each of our business
segments, including a substantial proportion of the pharmaceutical products manufactured and
distributed by us, is subject to government price controls or other price restrictions in the PRC’’ from
page 55 to page 56 and ‘‘Regulatory Overview ― Price Controls’’ from page 129 to page 132 in this
prospectus for additional information.
We seek to mitigate this impact through technological innovation, expansion of production to achieve
economies of scale, adjustment of product portfolio, and research and development of higher-end new
products that are not listed on the insurance drug catalogs. As the PRC government encourages
pharmaceutical research and development, the government imposed prices for innovative drugs and first
to market generic drugs tend to be higher than regular generic drugs, resulting in higher profit margins
for these new products. Expansion of production allows us to achieve greater economies of scale and
reduce the average costs of our pharmaceutical products. We also adjust our product portfolio to focus
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on production of higher margin pharmaceutical products and eliminate products that are less profitable
due to effects of the price controls. Wholesale prices for our products sold to our own distribution
network are not different from those sold to third party distributors.
Substantially all procurement of pharmaceutical products by public hospitals and medical institutions is
subject to the statutory tender process that involves bidding by manufacturers of these products. The
bidding process is organized by the national or provincial governments and is normally held twice a
year. A duly organized bid-evaluation committee, which is composed of pharmaceutical experts and
clinical medical experts who will be randomly selected from a database of experts established by the
relevant government authority, is responsible for bid evaluations. The selection is based on a number of
criteria, including bid price, quality, clinical effectiveness, and manufacturer’s reputation and service
quality. We participate in such statutory tender processes with or through our distributors regularly. We
have an internal process to identify, evaluate and select which pharmaceutical products to submit tenders
for. For those statutory tender processes that we have participated, our total success rate had been higher
than 70% during the Track Record Period. We work with our distributors during the statutory tender
processes and seek to improve our overall bidding position and number of successful bids by utilizing
our industry expertise, market sensitivity and product quality. The successful bidding prices are the
hospital procurement prices at which distributors sell the products to the hospitals, and in part this
determines the prices at which we sell the products to distributors. After the tender process, our
distributors distribute our products upon receiving purchase orders provided by the hospitals, which
specify the brand, volume and types of pharmaceutical products.
PHARMACEUTICAL DISTRIBUTION AND RETAIL
Pharmaceutical distribution
Sinopharm
In January 2003, Shanghai Fosun Industrial Investment and CNPGC jointly established Sinopharm with
49% and 51% shareholding interest, respectively. In May 2004, Shanghai Fosun Industrial Investment
transferred its 49% equity interest in Sinopharm to our Group. As at the Latest Practicable Date, we
were the second largest beneficial shareholder of Sinopharm and had four representatives on its board.
According to published information from Sinopharm, it operates the largest pharmaceutical distribution
network in China in 2011.
According to published information from Sinopharm, as at 30 June 2012, Sinopharm primarily
distributed a full line of prescription and over-the-counter medicines, consisting of branded and generic
Western and Chinese medicines, as well as healthcare products and medical supplies through a
geographically diverse distribution network of 50 distribution centers (secondary distribution companies)
spanning 30 provinces, autonomous regions and municipalities in China. Sinopharm’s direct customers
accounted for 74.0% of all hospitals in China, including 93.8% of the most highly ranked class-three
hospitals. Sinopharm also distributes prescription and over-the-counter pharmaceutical and healthcare
products through its distribution network to other distributors, retail pharmacies and other customers,
including retail chain stores, independent pharmacies, community clinics and other healthcare
institutions according to the published information from Sinopharm.
We benefit from Sinopharm’s extensive pharmaceutical distribution network, well-known reputation and
comprehensive logistical services. In 2009, 2010 and 2011, in terms of sales, RMB67.8 million,
RMB165.9 million and RMB297.4 million, respectively, of our pharmaceutical products were distributed
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through Sinopharm’s distribution network, which accounted 2.9%, 5.8% and 7.8% of our external
revenue of the pharmaceutical manufacturing segment representing a CAGR of 109.4% over the period.
For the six months ended 30 June 2012, 9.2% of our external revenue from our pharmaceutical
manufacturing segment was derived from the sale of our products through Sinopharm’s distribution
network. We expect this percentage to continue to increase as our cooperation with Sinopharm
strengthens. In addition, as the second largest beneficial shareholder of Sinopharm, we also share in
Sinopharm’s rapidly growing profits. Our net profits generated from our share of profits in Sinopharm
Investment, the controlling shareholder of Sinopharm, amounted to RMB352.7 million, RMB390.3
million, RMB509.2 million and RMB305.9 million in 2009, 2010 and 2011 and the six months ended 30
June 2012, respectively.
Our pharmaceutical distribution business
We distribute pharmaceutical and healthcare products through our own distribution network operated by
Fosun Pharmaceutical. Fosun Pharmaceutical is the sole supplier of our For Me Pharmacy and also a
supplier to other retail pharmacies, healthcare institutions and pharmaceutical distributors primarily in
Shanghai. During the Track Record Period, we also distributed pharmaceutical and healthcare products
through Zhejiang Fosun. For the years ended 31 December 2009, 2010 and 2011, our revenue from
Zhejiang Fosun was RMB235.6 million, RMB263.3 million and RMB118.5 million, respectively,
representing 6.1%, 5.8% and 1.8%, respectively, of our external revenue for the same periods. We
disposed of our equity interests in Zhejiang Fosun to Sinopharm in June 2011 as part of our strategy to
consolidate our distribution operation. The cash consideration from the disposal of Zhejiang Fosun was
RMB36.7 million and was calculated based on valuation by an Independent Third Party agency.
Retail pharmacy
We engage in the retail pharmacy business primarily through the operations of For Me Pharmacy and
Golden Elephant Pharmacy, and have successfully established a leading position in the retail pharmacy
market in Shanghai and Beijing. As at 30 June 2012, according to data from the Beijing Municipal Drug
Administrative Bureau, our Golden Elephant Pharmacy was the largest single brand retail pharmacy in
Beijing by number of stores. As at 30 June 2012, according to data from the Shanghai Municipal Drug
Administrative Bureau, our For Me Pharmacy was the largest single brand retail pharmacy in Shanghai
by number of stores. We established the For Me Pharmacy in 2001 with the aim to venture into the
pharmaceutical retail business. Over the years For Me Pharmacy has become a leading brand for retail
pharmacy in Shanghai and expanded its network to 470 drug stores as at 30 June 2012. Golden Elephant
Pharmacy was originally a state-owned retail pharmacy chain, which had businesses and operations
primarily in Beijing and had established itself as a leading local retail pharmacy brand. We participated
in Golden Elephant’s restructuring in 2001 and Golden Elephant Pharmacy became our associated
company after the restructuring. We acquired and consolidated Golden Elephant Pharmacy in December
2010. Thereafter, Golden Elephant Pharmacy continued to focus on the Beijing market for its retail
pharmacy business and retained its brand name Golden Elephant. As For Me Pharmacy and Golden
Elephant Pharmacy have separate geographical focuses, distribution and logistics systems, as well as
managerial structures, these two brands do not directly compete with each other or cannibalize each
other’s market shares.
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Retail network
We operate a retail network in Beijing, Shanghai, Tianjin, Sichuan, Hebei, Shanxi, Shandong and Inner
Mongolia. As at 30 June 2012, our retail pharmacy network consisted of 670 retail pharmacies, among
which 146 were directly operated retail pharmacies and 524 were franchised pharmacies. The following
table sets forth the number of our directly operated retail pharmacies and franchised pharmacies as at the
dates indicated:
As at 31 December As at 30 June
2009 2010 2011 2012
Directly Directly Directly Directly
operated operated operated operated
retail Franchised retail Franchised retail Franchised retail Franchised
Province pharmacies pharmacies Total pharmacies pharmacies Total pharmacies pharmacies Total pharmacies pharmacies Total
Shanghai. . . . . . . . . 65 302 367 70 323 393 71 380 451 75 395 470
Beijing . . . . . . . . . . 64 108 172 60 101 161 56 103 159 55 108 163
Other regions . . . . . . 25 8 33 16 7 23 18 23 41 16 21 37
Total . . . . . . . . . . . 154 418 572 146 431 577 145 506 651 146 524 670
(i) The number of stores included retail pharmacies under Golden Elephant Pharmacy, in which we had acquired a majority
stake in December 2010.
We believe the continuing growth and success of our retail business depends on whether we can
continue to establish new retail pharmacies. Our retail pharmacy expansion plan focuses on adding retail
pharmacies within existing markets and actively expanding into new markets at the same time. We plan
to use the Golden Elephant Pharmacy as the base to expand our retail pharmacy coverage in the
Northern China market, and use the For Me Pharmacy as the basis to expand our retail pharmacy
coverage in the Yangtze River Delta market. During the Track Record Period, the number of our retail
pharmacies increased primarily due to the increase of franchised pharmacies. The number of directly
operated retail pharmacies slightly decreased over the Track Record Period primarily due to the decrease
in the number of retail pharmacies under the Golden Elephant brand as it closed down a number of
directly operated retail pharmacies outside of Beijing. We consolidated Golden Elephant Pharmacy in
December 2010. Our expansion strategy focuses on the overall growth of our entire retail pharmacy
network and on the growth of pharmacies that perform well. We particularly focus on the growth of the
number of franchised pharmacies. We evaluate store performances and effectively manage our franchised
pharmacies with respect to their service quality and compliance with the terms of the franchise
agreement. We believe that adding new pharmacies in appropriate regional markets and the continued
optimization and adjustment of store locations are essential strategies for competing effectively in the
current environment and maintaining our leading positions in the retail pharmacy markets in areas where
we operate our retail pharmacies.
Directly operated retail pharmacies
As at 30 June 2012, we had 146 directly operated retail pharmacies, most of which were located in
Shanghai and Beijing. The For Me Pharmacies are mainly concentrated in Shanghai, while the Golden
Elephant Pharmacies are mainly concentrated in Beijing and the adjacent areas. We carefully select our
store locations with a view towards maximizing consumer traffic, store visibility and convenience for
our customers. Substantially all of our retail pharmacies are located in well-developed urban residential
communities and prime retail locations.
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Franchised pharmacies
As at 30 June 2012, we had 524 franchised pharmacies, most of which were located in Shanghai and
Beijing. We typically grant our franchised pharmacies the right to operate under our retail brands for a
one-time franchise fee and subsequent annual management fees. In addition, our franchised pharmacies
use our centralized information technology system to monitor inventory flow and manage store
operations, and the maintenance fee of the system is included in the annual management fee that we
charge.
The table below sets out the movement of franchisee stores during the Track Record Period:
Six months
ended
Year ended 31 December 30 June
2009 2010 2011 2012
At commencement of the year/period . . . . . . . 394 418 431 506
Addition of new franchisees . . . . . . . . . . . . . 35 37 91 25
Termination of existing franchisees . . . . . . . . (11) (24) (16) (7)
Net increase of franchisees . . . . . . . . . . . . . . 24 13 75 18
At end of the year/period . . . . . . . . . . . . . . . 418 431 506 524
We regularly review and evaluate the performance of our franchisee stores by examining factors such as
the level of sales, service quality and their compliance with the terms of the franchise agreement. We
may choose to terminate certain franchisees’ stores in the event that the results of such reviews are not
satisfactory.
Under the terms of our franchise agreements, we require our franchisees to fulfill a number of
obligations, including: (i) operating under our retail pharmacy brand; (ii) sourcing products from us; (iii)
maintaining all necessary permits and licenses for operations and store facilities; (iv) recruiting qualified
professionals and employees; and (v) maintaining our uniform store design.
Pursuant to the franchise agreements, we provide various services for our franchisees to ensure the sale
of our products, including management and employee training programs, advertising and marketing
initiatives. We also inspect our franchised pharmacies on a regular basis to maintain our quality
standards and brand reputation. Franchised pharmacies of the For Me Pharmacy currently source all their
products from us. We supply products to these franchised pharmacies and monitor their quality. Other
than to source products from us, franchised pharmacies of the Golden Elephant Pharmacy also sourced
products from other suppliers during the Track Record Period. We do not have minimum purchase
requirements for franchised pharmacies under the franchise agreements. Our franchise agreements
typically expire three to five years from the dates of the agreements, but can be extended or renewed
upon mutual consent. We charge each franchisee a one-time franchise fee upon joining our retail
networks under the For Me Pharmacy or the Golden Elephant Pharmacy. Such a one-time franchise fee
is determined by taking into account factors such as market demand, the reputation and market positions
of our retail brand names, and the prevailing market rates in Shanghai or Beijing for joining retail
pharmaceutical networks.
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Under the relevant regulations, we normally establish only one retail pharmacy in every retail district.
As a retail pharmacy serves mainly local residents, each of our directly operated stores and our
franchised stores are located distantly enough from one another so that the level of competition and
market cannibalization among these stores are limited. In addition, we have strict internal pricing control
policies for our pharmaceutical retail networks so that pharmaceutical products are priced uniformly
across our retail networks, whether directly operated or franchised.
During the Track Record Period, the number of our For Me Pharmacy stores increased primarily due to
the openings of our new directly owned stores and franchised stores, and the number of our Golden
Elephant Pharmacy stores decreased, primarily due to the closing of some existing stores. After we
acquired Golden Elephant Pharmacy in December 2010, we consolidated its operation and closed some
stores that did not meet our performance standards or our strategic needs. We closed down some directly
operated stores and terminated some franchisees under both brands due to their failure to meet our
business performance standards, which included revenue generation capability, service quality,
profitability levels, as well as compliance with our internal guidelines or franchise agreements. The
following table sets forth the changes in the number of our retail drug stores during the Track Record
Period:
Golden Elephant Pharmacy
Six months
Year ended 31 December ended 30 June
2009 2010 2011 2012
At commencement of the year/period . . . . . . . . 213 205 184 200
Additions of new retail drug stores . . . . . . . . . 5 2 27 6
Termination of existing retail drug stores . . . . . (13) (23) (11) (6)
Net increase/(decrease) in retail drug stores. . . . (8) (21) 16 0
At end of the year/period . . . . . . . . . . . . . . . . 205 184 200 200
For Me Pharmacy
Six months
Year ended 31 December ended 30 June
2009 2010 2011 2012
At commencement of the year/period . . . . . . . . 333 367 393 451
Additions of new retail drug stores . . . . . . . . . 36 43 75 24
Termination of existing retail drug stores . . . . . (2) (17) (17) (5)
Net increase in retail drug stores . . . . . . . . . . . 34 26 58 19
At end of the year/period . . . . . . . . . . . . . . . . 367 393 451 470
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Store operations
We have developed a uniform and distinct color scheme and design specifications, which promote the
corporate image of our retail pharmacies. Each of our retail pharmacies is staffed with a qualified in-
store pharmacist, who primarily provides consultancy services to customers and assists with the
dispensing of prescription drugs. In addition, we regularly carry out training programs on medical
information, nutritional information and sales and customer interaction skills for our store staff and
pharmacists, as well as management training for our regional and senior managers and management
officers.
We operate two online pharmaceutical retail platforms, namely, Golden Elephant Online (金象在�,
www.jxdyf.com) by Golden Elephant Pharmacy, which was awarded as the ‘‘Exemplary E-commerce
Enterprises’’ by the Ministry of Commerce of PRC in 2011, and DaoYao Net (����W,
www.daoyao.com) by For Me Pharmacy. Our online platforms procure pharmaceutical products from
our pharmaceutical manufacturing segment as well as third party distributors and sell over 9,000 types
of products to customers mainly in the Beijing area and Shanghai area. Through these online platforms,
we sell mainly over-the-counter drugs as well as healthcare products. We engage third parties to provide
logistics services to deliver their pharmaceutical products to end customers. As at the Latest Practicable
Date, we have secured all necessary licenses and permits for selling pharmaceutical products online,
including the qualification certificate for online pharmaceutical operation and the qualification certificate
for delivering public available drug information services over the Internet.
Products and services
We provide our customers with convenient and professional pharmacy services and a variety of
healthcare products. Our merchandise can be broadly classified into the following categories:
. Prescription medicines. We only dispense prescription medicines based on prescriptions from
physicians and other licensed healthcare services workers. Our qualified in-store pharmacists verify
the validity, accuracy and completeness of all prescription orders.
. Over-the-counter medicines. They primarily include Western medicines and Chinese medicines,
for treatment of common diseases.
. Healthcare and personal care products. They primarily include a variety of healthcare
supplements, vitamins, minerals and dietary products, skin care, hair growth, beauty products and
cosmetics and seasonal merchandise.
The development of our store operations depends significantly upon our ability to offer consumers a
broad selection of high-quality pharmaceutical products. As a result, our success in our retail pharmacy
operations is dependent upon maintaining beneficial and stable supplier relationships. We purchase our
retail merchandise directly or indirectly through our own distribution business, including Sinopharm,
various third party manufacturers and distributors. In addition, we also source products from our own
pharmaceutical manufacturing segment.
We believe that alternative suppliers or products are readily available for substantially all of the
products we stock, and the loss of any one supplier would not have a material effect on our operations.
Although we generally do not have long-term written contracts with our major suppliers, we have not
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experienced significant difficulty in maintaining reliable sources of supplies or any material return of
supplies due to quality problems during the Track Record Period, and we generally expect to be able to
maintain adequate sources of supply of pharmaceutical and other products sold in our retail pharmacies.
Marketing and promotion
Marketing activities for our store operations have been primarily conducted by our head office, which
allows us to centralize our marketing efforts. We also grant each retail store a certain degree of
autonomy to carry out its own marketing activities. We run advertisements periodically in selected
newspapers as well as on billboards and seating areas of public transportation systems to promote our
brand. In addition, for healthcare and personal care products, we have joint marketing and promotion
programs with our product suppliers and manufacturers, which primarily include customised product
packaging featuring our logos, in-store product promotion and displays and periodic special discounts.
RELATIONSHIP WITH SINOPHARM
As at the Latest Practicable Date, we beneficially held a 32.1% equity interest in Sinopharm and had
four representatives, all of whom are non-executive directors, on Sinopharm’s board of directors. These
non-executive directors were (i) Mr. Chen Qiyu, our executive Director and chairman, (ii) Mr. Wang
Qunbin, our non-executive Director, (iii) Mr. Liu Hailiang, our chief Supervisor, and (iv) Mr. Fan
Banghan, our senior deputy general manager.
In distribution, our subsidiary Fosun Pharmaceutical is the exclusive pharmaceutical distributor for our
For Me Pharmacy, which operates in the Shanghai area. Fosun Pharmaceutical also distributes products
to other third party pharmacies in Shanghai and thus competes against Sinopharm’s distribution business
in Shanghai, even though it does not distribute any products outside the Shanghai area. Our competition
with Sinopharm in pharmaceutical distribution in Shanghai is limited because the scale of Fosun
Pharmaceutical’s distribution operation is insignificant as compared to that of Sinopharm. For the six
months ended 30 June 2012, Fosun Pharmaceutical’s revenue from its external sales to third parties was
RMB324.5 million, which amounted to only 0.5% of Sinopharm’s revenue from pharmaceutical
distribution operation of RMB62,889.4 million for the same period in 2012.
In retail, Sinopharm operates retail pharmacies in Shanghai and Beijing and these pharmacies compete
against our For Me Pharmacy and Golden Elephant Pharmacy. As at 30 June 2012, according to data
from the Beijing Municipal Drug Administrative Bureau, our Golden Elephant Pharmacy was the largest
single brand retail pharmacy in Beijing by number of stores. As at 30 June 2012, according to data from
the Shanghai Municipal Drug Administrative Bureau, our For Me Pharmacy was the largest single brand
retail pharmacy in Shanghai by number of stores. Our competition with Sinopharm in retail is limited
because local governments in the PRC have regulations and guidance on retail pharmacies maintaining
minimal distances from each other. As retail pharmacies derive most of their revenue from local
residents, these laws and regulations have restricted and reduced the competition between our retail
pharmacy network and Sinopharm’s retail pharmacy network.
As a part of our strategy, we have adopted the practice of using Sinopharm’s strong nation-wide
distribution network and leveraging on third party distributors’ strength in certain therapeutic or
geographical areas to distribute pharmaceutical products efficiently across the country. We also plan to
ensure Fosun Pharmaceutical, as the sole supplier of the For Me Pharmacy retail chain stores, which in
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turn is its biggest customer, will currently continue to focus on and strengthen its business of
distribution of pharmaceutical products in Shanghai. As such, we consider the competition between our
business and Sinopharm’s business insignificant.
HEALTHCARE SERVICES
As the PRC economy develops, demand for quality healthcare service increases, which leads to
significant growth opportunities in the premium, specialty and general healthcare services markets. To
seize these growth opportunities, we have been actively seeking to invest in or operate healthcare
service institutions since 2009. We currently participate in premium healthcare services through United
Family Healthcare, the premium healthcare services operation under Chindex, in which we hold an
18.52% equity interest as at Latest Practicable Date. According to Chindex’s annual and interim reports,
for the years ended 31 March 2009 and 2010, the nine months ended 31 December 2010 and the year
ended 31 December 2011, its revenue was US$171.4 million, US$171.2 million, US$136.7 million and
US$114.4 million, respectively, and its net income was US$5.0 million, US$8.2 million, US$5.8 million
and US$3.2 million, respectively. Under our agreement with Chindex, subject to certain conditions, we
are allowed to nominate two representatives for election to Chindex’s board of directors, which will be
increased to nine directors, if the persons nominated by us meet the requisite criteria and are approved
by Chindex’s nomination and governance committee of the board of directors. These criteria include
possessing sufficient private industry experience, general acceptance of Chindex’s mission and strategy,
qualifying as ‘‘independent’’ under the Nasdaq rules and the requirements under U.S. securities law, and
other policies under Chindex’s ethics and compliance program. This hospital network provides premium
healthcare services primarily to foreign expatriates in the PRC as well as a growing number of upper
and middle class PRC customers in Beijing, Shanghai, Tianjin and Guangzhou.
In addition, we provide specialized cancer treatment services through Jimin Cancer Hospital, which is
located in Hefei, Anhui province. Since December 2011, we have also operated a general hospital,
Guangji Hospital, which is located in Yueyang, Hunan province. Our healthcare services team has the
requisite professional expertise and substantial experience in healthcare services investment and
management. We seek to establish distinctive advantages in the overall healthcare industry through
specialization in the healthcare services market to occupy competitive niches. We will concentrate our
existing healthcare technology, management, human and capital resources to accelerate the research and
development of new healthcare technologies, standardize management, expand our presence and achieve
economies of scale in this segment. We believe that our strategic investment in premium and specialized
healthcare services business and the continued optimization of healthcare service resources will not only
help us capture the substantial growth opportunities in China’s fast-growing healthcare services market,
but also further expand our coverage of the healthcare industry value chain in the PRC, synergize the
brand effects of our pharmaceutical production and distribution operations, and consequently enhance
our position in the healthcare industry.
United Family Healthcare
United Family Healthcare is the brand of premium healthcare services operation under Chindex, which
targets foreign expatriates in the PRC and upper and middle class PRC customers. Emphasizing the need
for wellness care (routine visits in the absence of illness) and patient-centered care (involving the patient
in healthcare decisions), United Family Healthcare offers a full range of premium quality healthcare
services, including 24/7 emergency rooms, intensive care units and neonatal intensive care units, and
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radiology and blood banking services through a network of private primary care hospitals and affiliated
ambulatory clinics. United Family Healthcare hospitals and clinics are staffed with many renowned
domestic and foreign physicians.
United Family Healthcare provides premium healthcare services in Beijing, Shanghai, Tianjin and
Guangzhou. Beijing United Family Hospital commenced operations in 1997. It has opened the United
Family New Hope Oncology Center in 2011, which is the first healthcare institution in the PRC built
according to U.S. Leadership in Energy and Environmental Design (‘‘LEED’’) standards that enable
cancer treatment under the multidisciplinary group therapy in a unique and relaxed setting. In Shanghai,
apart from the operations of Shanghai United Family Hospital, United Family Healthcare also manages
the International Division at Huashan Pudong Hospital. The Tianjin United Family Hospital commenced
operations in December 2011. In Guangzhou, United Family Healthcare opened a clinic in 2008 and
plans to complete the construction of the main hospital facility and start operations in 2013. United
Family Healthcare also expects to expand the managed clinics in Pudong, Shanghai, to open a new
affiliated clinic in Puxi, Shanghai and to offer additional services in its existing facilities.
The long-term expansion plans of United Family Healthcare include adding affiliated hospitals in
affluent or densely populated cities such as Chengdu, as well as in markets including Beijing, Shanghai,
Guangzhou and Tianjin. Its plans also include the continued expansion of services in existing facilities
and the opening of additional affiliated satellite clinics and hospitals.
Jimin Cancer Hospital
We have been seeking opportunities through strategic investment in and operation of health services
institutions. As a first step to enter the specialty healthcare services market, we established Jimin
Hospital Management in July 2011, in which we hold a 70% equity interest. Jimin Hospital Management
established an onsite team of specialists, which provides management and marketing support. In return
for the provision of the aforesaid services, Jimin Hospital Management is entitled to receive a
management fee, the amount of which is to be determined by the board of directors of Jimin Cancer
Hospital. Such arrangement is in line with industry practice. We have appointed four directors in Jimin
Hospital Management. In addition, we have also acquired a 70% equity interest in Jimin Cancer
Hospital. For the year ended 31 December 2011, Jimin Cancer Hospital recorded revenue of RMB48.8
million and net profit of RMB8.9 million, and its facility utilization rate was 96.7% (15) . We are entitled
to receive management fees of RMB3.9 million from Jimin Cancer Hospital for the services provided
from August 2011 to December 2011.
Note:
(15) The utilization rate is calculated by the following formula: number of patients per year/((30 days per month/average number
of days a patient stays in our hospital) x number of beds x 12 months) = 5,800/((30/12) x 200 x 12) = 96.7%. The number of
patients per year and average number of days a patient stays in our hospital are assumptions we made based on operating
statistics.
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Jimin Cancer Hospital is located in Hefei, the provincial capital of Anhui Province. It was established in
2003 and had 200 beds as at 30 June 2012. It plans to expand to 700 beds by 2013. The total capital
expenditure required to complete this expansion is expected to be RMB95.0 million. The expansion was
funded by Jimin Cancer Hospital itself, which had paid RMB66.7 million for the project prior to its
acquisition by us. We had been funding the expansion since the acquisition, and planned to complete the
expansion using our own operational funds. The hospital focuses on the diagnosis and treatment of
various types of cancer, including lung cancer, colon cancer and breast cancer. It has advanced medical
technologies such as precise radiotherapy and tumor intervention therapy, and is collaborating with
distinguished cancer research institutions such as McGill University and Montreal University in Canada.
The following is a description of the major terms of Jimin Cancer Hospital’s cooperation agreements
with some of these distinguished research institutions
. McGill University. The hospital has appointed a distinguished professor from the university to be
the director of cancer research at the hospital. It will grant McGill University access to cancer
patients, pathological samples, and its research facilities, while McGill University will help the
hospital build a cancer research center and provide technical support on genetics, biochemistry,
cell and molecular biology related to cancer research. The two parties will also engage in academic
exchanges in medical and scientific research. All data, reagents, papers and intellectual property
generated from the cooperation will be jointly written and owned by the two parties.
. Montreal University. The hospital has entered into an agreement with the research center of
Montreal University Medical Center to collaborate generally in the fields of cancer treatment,
tissue banking, target and drug discovery, clinical trial and immunotherapies.
Currently, Jimin Cancer Hospital is the only non-profit hospital in our healthcare services segment.
Jimin Hospital Management had entered into an agreement with Jimin Cancer Hospital in order to
benefit from its operation. Under the agreement, Jimin Hospital Management is the exclusive provider of
management and consulting services to Jimin Cancer Hospital. These services include enterprise
management consulting, administrative services, human resources services, medical equipment leasing
management, technology licensing and technical consulting services. In return, Jimin Cancer Hospital
pays a management services fee that amounts to 5% to 25% of the hospital’s yearly operational income
to Jimin Hospital Management. The board of directors of Jimin Hospital Management has the right to
adjust the percentages based on the operational conditions of the hospital, and the hospital will also
reimburse Jimin Hospital Management all expenses related to its provision of services. Our PRC legal
adviser, Chen & Co Law Firm, is of the view that the terms of the agreement do not violate the current
PRC laws.
Guangji Hospital
Since December 2011, we have also operated a general hospital, Guangji Hospital, in which we
beneficially own a 55% equity interest. We have appointed four directors to Guangji Hospital’s board,
which has a total of seven directors. The accounts of Guangji Hospital have been consolidated into our
Group’s financial statements since December 2011. Guangji Hospital is located in Yueyang, Hunan
Province. It was established in 2004 and had about 500 beds as at 30 June 2012.
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During the Track Record Period and as at the Latest Practicable Date, we had not received any material
complaints or claims of professional negligence against any of our hospitals. Our Directors are of the
view that our staff has obtained the required professional qualification and licenses for their scope of
services to be provided to patients.
Under the relevant regulations, a non-profit-making medical institution is a medical institution
established to provide public social benefits and does not have profit-making as one of its objectives.
Income from its operation can only be used for its own development, such as improving its operational
conditions, acquiring new technologies, and providing new healthcare services. The basic healthcare
services provided by a non-profit-making institution are subject to government price controls, though
other healthcare services are not. Due to these regulations, the ability of non-profit-making medical
institutions to distribute dividends is limited.
DIAGNOSTIC PRODUCTS AND MEDICAL DEVICES
Diagnostic Products
We engage in the research and development, manufacturing, and sales and marketing of diagnostic
reagents and equipment. We are a major producer of biochemical diagnostic products and molecular
diagnostic products in the PRC. As at 30 June 2012, we produced a total of 130 diagnostic products.
Products
Our products include various types of diagnostic reagents and devices in connection with biochemical
diagnosis, immunologic diagnosis, molecular diagnosis and microbial diagnosis. These products are
widely used in clinical chemistry, clinical immunology, molecular diagnosis clinical microbiology, and
the technology of clinical diagnosis gene chip and other fields. Among these products, the gene chip
technology of Yaneng Bioscience is one of the earlier in the PRC to be commercialized, and the sales of
gene chips has grown rapidly in recent years, making it the fastest growing diagnostic product of our
Group.
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Our main diagnostic reagents and equipment and their applications are as shown in the following table:
Products Applications
Biochemical diagnosis . . . . . . . . . These systems are used to determine the changes in biochemical
indices for purposes of diagnosing common diseases. The major
existing products include a liver function series, a kidney function
series, a blood-fat series, a myocardial enzyme series, a
pancreatitis series, an ion series, an immunoturbidimetric (latex-
enhanced) series, an immunoturbidimetric analysis series, a
blood-gas and electrolyte analyzer supporting series, and a fully
automatic biochemical analyzer series.
Immunologic diagnosis. . . . . . . . . These systems are used for extensive purposes, including
infectious disease, endocrine, tumor and drug detection and blood
identification. The existing products include an ELISA series,
HIV antibody detection (colloid gold) assays and ELISA reaction
accelerometers.
Molecular diagnosis . . . . . . . . . . . These systems are used for hepatitis, sexual disease, infectious
pulmonary disease, prepotency, genetic disease-causing gene and
tumor detection. The major existing products include a hepatitis B
virus (HBV) detection series, a tuberculosis (TB) detection series,
a human papilloma virus (HPV) detection series and a sexual
disease (CT/UU/NG) detection series.
Microbial diagnosis . . . . . . . . . . . These systems are used on microbe identification and drug
sensitivity testing devices for microbe variety detection and drug
sensitivity testing. They may be used to identify more than 2,000
varieties of bacteria and fungi.
Others . . . . . . . . . . . . . . . . . . . . Ultramicroscopic diagnosis systems and series of biosafety
cabinets.
We have provided diagnostic reagents and equipment to many PRC hospitals and other healthcare
institutions, and have established a firm market position in the PRC.
Manufacturing
As at 30 June 2012, our diagnostic products segment employed more than 600 personnel. We have
obtained all the relevant approvals and permits for our production facilities as well as the production and
sales of our diagnostic reagents and equipment. These approvals and permits include the manufacturing
permit and other required production approvals. We follow stringent and closely monitored quality
assurance and safety control processes in the manufacturing of our diagnostic products. Our
manufacturing of diagnostic products has passed the examinations for our quality management systems
of extrinsic diagnostic reagents by the SFDA, and obtained ISO9001 certification and ISO13485
certification for quality management systems.
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Production facilities and capacities
We manufacture diagnostic reagents and equipment mainly through our subsidiaries, Fosun Long March,
Fosun Med-tech Development, Fosun Biolog Biotech and Yaneng Bioscience. In order to meet the
growing demand for diagnostic products in the PRC market, we completed construction of a new facility
in Shanghai, in December 2011. As at the Latest Practicable Date, four companies currently have annual
production capacities of (i) 123.70 million units of biochemical and immunologic diagnostic reagents
comprising 94 million units of biochemical diagnostic reagents and 29.70 million units of immunologic
diagnostic reagents; (ii) 3.7 million units of BIOFOSUN microbe identification and drug sensitivity
testing systems; (iii) equipment such as 22.40 million units of PCR microbial diagnosis reagent boxes
and 4,690 sets of high power microscope. Our production facilities for diagnostic products are located in
Shanghai and Shenzhen. For the years ended 31 December 2009, 2010 and 2011, the utilization rate of
production facilities for diagnostic products was 86.2%, 90.8% and 86.8%, respectively. Due to the
recent completion of our production capacity expansion, the utilization rate of production facilities for
diagnostic products for the six months ended 30 June 2012 reached 48.2%. We expect such utilization
rate will increase going forward.
Raw materials and suppliers
The principal raw materials used for our diagnostic reagents and equipment are nylon membrane,
enzyme and nucleic acid. We source our raw materials from Independent Third Party suppliers by
placing orders to purchase the materials from them based on our operational needs. We had over 180
suppliers for this segment each year during the Track Record Period. All of our major suppliers for this
segment are Independent Third Parties engaging in the manufacturing, distribution or import of various
materials that we use to manufacture diagnostic products. We have internal guidelines that set out our
pricing of supplies and the suppliers’ bidding processes, and we select suppliers based on their relevant
qualifications and licenses, prices and quality of the supplies, time of delivery and after-sale services.
We may return products to suppliers if their products have quality problems, passed the expiration dates
or do not meet our specifications. Although we do not enter into long-term contracts with our suppliers,
we have not experienced any supply shortages nor made any material return of supplies due to quality
problems during the Track Record Period, and do not anticipate any difficulties obtaining the raw
materials essential to our diagnostic product operations.
Distribution, sales and marketing
We primarily distribute our diagnostic reagents and equipment in China through an extensive nationwide
network consisting of Independent Third Party wholesale distributors. This multi-level sales network
comprises regional distributors and franchised distributors, covering 20 provinces, autonomous regions
and municipalities in China. We also bundle the sales of diagnostic reagents and equipment to increase
the market shares of reagents. Sales of certain diagnostic products are also subject to a statutory tender
process similar to that for pharmaceutical products, but we only sold a few of such products during the
Track Record Period to customers. During the Track Record Period, we terminated certain distributors
for this segment due to their unsatisfactory performance.
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The following table sets forth the changes in the number of our distributors for the periods indicated:
Six months
Year ended 31 December ended 30 June
2009 2010 2011 2012
As at the beginning of the period. . . . . . . . . . . 949 788 794 945
Addition of new distributors. . . . . . . . . . . . . . 364 271 348 518
Termination of existing distributors. . . . . . . . . . (525) (265) (197) (586)
Net increase (decrease) in distributors. . . . . . . . (161) 6 151 (68)
As at the end of the period. . . . . . . . . . . . . . . 788 794 945 877
Customers
The customers of our diagnostic products are third-party wholesale distributors, who then sell our
products directly or indirectly through sub-distributors, to hospitals, disease control and prevention
centers, and independent clinical laboratories in China.
Medical Devices and Consumables
We engage in the research and development, manufacturing, and sales and marketing of blood
transfusion equipment and surgical consumables, as well as the distribution of imported high-end
medical equipment. In December 2010, we acquired 51% equity interest in CML and the remaining 49%
is held by Chindex. CML primarily engaged in the production and sales of medical devices and
consumables and distributes high-end medical equipment. Through the operation of this joint venture,
we have effectively integrated our businesses of producing and selling medical devices and consumables
in the PRC and Chindex’s business of distribution of high-end medical equipment. We intend to further
develop our medical devices business by combining Chindex’s and our product portfolios, nationwide
customer networks and global suppliers networks and our thorough understanding of the local markets.
Products
Our medical devices and consumable products include blood transfusion equipment and consumables,
surgical instrument consumables and dental consumables. The following table provides details of our
medical devices and consumable products:
Product Category Product/Brand Description Certification
Blood transfusion GT three types of medical ISO9001
equipment and devices; and
consumables consumables for blood
transfusion equipment
Surgical instrument Mei Yi (美翼) Surgical blades CE Certificate
consumables by TUV from
Germany
Ma Rui Ke (��瑞克) Suture needlework
Dental equipment and BEGO Steel skeleton, embedded ―
apparatus materials
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In addition, as at 30 June 2012, we are also the sole distributor of certain high-end imported medical
equipment in the PRC, including the Intuitive Surgical’s da Vinci Surgical System. Other than the
distribution of the imported equipment, we also provide technical support and maintenance services to
customers who have purchased these equipment, and charge fees according to the value of the medical
equipment and the type of technical support and maintenance services provided.
Manufacturing
We have approximately 1,000 employees in our medical devices operations as at 30 June 2012. We have
obtained all relevant approvals and permits for our production facilities for our medical devices and the
requisite licenses or permits for the sale of our manufactured medical devices that authorize our
manufactured pharmaceutical products to be sold nationwide in China. These approvals and permits
primarily include the medical devices enterprise manufacturing permit, pharmaceutical enterprise
manufacturing permit, medical devices registration certificate and other required production approvals.
See ‘‘Regulatory Overview ― Manufacturing and Distribution of Medical Devices’’. We follow stringent
and closely monitored quality assurance and safety control processes in the manufacturing of our
products. Our manufacturing of medical devices has passed the certifications of ISO9001.
Production facilities and capacity
We manufacture medical consumables mainly through our subsidiaries. Currently, we have two
production facilities located in Shanghai and Jiangsu Province, with two production lines for the
manufacturing of blood transfusion equipment and consumables and surgical instrument consumables.
As at 30 June 2012, we possessed 23 Registration Certificates for Medical Devices (�t��器械�]�宰C)
for our medical devices operation. During the Track Record Period, our annual production capacity of
surgical blades was 130 million units, the annual production capacity of suture kits was 55 million units
and the annual production capacity of blood transfusion consumables was five million units.
Raw materials and suppliers
We source our raw materials from Independent Third Party suppliers by placing orders to purchase the
materials from them based on our operational needs. Although we do not enter into long-term contracts
with our suppliers, we have not experienced any supply shortages nor made any material return of
supplies due to quality problems during the Track Record Period, and do not anticipate any difficulties
obtaining the raw materials essential to the manufacturing of our medical consumables.
We source a majority of our principal raw materials from suppliers in the PRC, and partially from
international markets, including Europe, the United States and Hong Kong. Our packaging materials are
primarily procured from PRC suppliers. We had over 200 suppliers for this segment each year during
the Track Record Period. All of our major suppliers for this segment are Independent Third Parties that
engage in the manufacturing, distribution or import of various materials which we use to manufacture
medical devices. Our internal guidelines set out the relevant criteria for selecting suppliers, which
include relevant qualifications and licenses of the suppliers, prices and quality of the supplies, time of
delivery and after-sale services. We may return products to suppliers if their products have quality
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problems, passed the expiration dates or do not meet our specifications. We usually purchase our raw
materials and supplies from various suppliers to enhance our bargaining power and to avoid over-
reliance on a single supplier.
Our imported medical equipment are sourced from various international medical equipment
manufacturers. We enter into PRC distribution agreements with such suppliers, which allow us to
effectively control the amount of procurement.
Distribution, sales and marketing
We sell our medical consumable products in the PRC primarily through Independent Third Party
distributors, who then resell our products to hospitals through their own sales teams (including delivery
of products and collection of payments). Sales of certain medical devices are also subject to a statutory
tender process similar to that for pharmaceutical products, but we only sold a few of such products
during the Track Record Period to customers. Our sales and marketing teams focus on continuously
interacting with industry experts and physicians to cultivate them as long-term users of our medical
devices products. During the Track Record Period, we terminated certain distributors for this segment
due to their unsatisfactory performances.
With respect to the distribution of imported medical products, we directly market our imported products
to the hospitals, including hospital administrators and the doctors who are the end customers of the
products. We also conduct marketing through the attendance of a variety of trade shows throughout
China, advertisements in leading Chinese industrial, trade, and clinical journals, production of Chinese
language product literature for dissemination to the potential customers, as well as methods such as
direct mail and telemarketing campaigns. We also have a technical service department, which operates
service centers in a number of provinces, autonomous regions and municipalities to support our
distribution activities. We are responsible for the technical support of virtually all the medical equipment
that we sell. This technical service department maintains spare parts inventory and employs factory-
trained technicians in our service centers nationwide.
The following table sets forth the changes in the number of our distributors for the periods indicated:
Six months
Year ended 31 December ended 30 June
2009 2010 2011 2012
As at the beginning of the period. . . . . . . . . . . 534 576 602 614
Addition of new distributors. . . . . . . . . . . . . . 47 111 105 14
Termination of existing distributors. . . . . . . . . . (5) (85) (93) (12)
Net increase in distributors. . . . . . . . . . . . . . . 42 26 12 2
As at the end of the period. . . . . . . . . . . . . . . 576 602 614 616
Customers
Our direct customers in our medical devices segment consist primarily of third-party wholesale
distributors. Our distributors then sell our products directly or indirectly through sub-distributors, to
hospitals, blood centers and other healthcare institutions in China.
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INVENTORY
We actively manage and maintain our inventories to ensure cost-efficiency, quality control and the
timely distribution, sale and manufacturing of our products. Our senior management is actively involved
in setting inventory standards, and is continually seeking ways to further improve our inventory control.
Pharmaceutical manufacturing
We maintain and carefully monitor our stocks of raw materials and finished products. We maintain a
database of our inventory to monitor changes and inventory levels in a timely fashion so as to ensure a
suitable level of raw material requirements and finished product stock. We generally keep the raw
material inventories for our major products at a level of one to three times the average monthly demand
for production, and the inventory of major finished medicines at a level of one to six times the average
monthly sales volume.
Pharmaceutical distribution and retail
We manage our inventory to minimize inventory holding costs, ensure timely delivery of merchandise
and maintain a variety of merchandise in our retail pharmacies. We establish an inventory management
target every year by reviewing our performance for past years and by taking into consideration our data
projections and market demographics. We perform monthly and ad hoc inventory counts in our retail
pharmacies and distribution centers, as well as performing daily inventory counts in retail pharmacies
for expensive merchandise. We monitor the shelf life of our pharmaceutical products by conducting a
review six months prior to the expiration date of each pharmaceutical product in our retail pharmacies.
We utilize the data compiled to generate a monthly inventory analysis report, which is used to assess
our inventory control measures and costs. We require that our store managers follow up on any
inventory discrepancies discovered during each inventory count and report such results to the relevant
operating subsidiaries.
To this end, we have installed at each of our directly operated retail pharmacies and franchised
pharmacies under For Me Pharmacy and Golden Elephant Pharmacy, a computer terminal that is
connected to our centralized information management system via the Internet. The information system
can generate daily sales reports at both individual store and headquarters levels, which enable us to
quickly collect sales information, track and analyze inventory levels and sales trends and optimize retail
store stock levels. We also use this system to facilitate our category management decisions, fine-tune
retail product selection and determine pricing, shelf space allocation and store replenishment triggers.
Diagnostic products and medical devices
We maintain a database for our inventory of raw materials, packaging materials and finished products.
We carefully monitor our inventory levels to ensure adequate levels of raw materials and finished
products are maintained.
The primary inventory of our imported medical equipment is spare parts. Large medical equipment is
normally directly delivered to the customers.
CUSTOMERS
For the years ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012, sales to
our five largest customers accounted for approximately 9.6%, 12.0%, 9.7% and 11.9% of our total sales,
respectively. In the same periods, sales to our single largest customer overall accounted for
approximately 2.5%, 4.0%, 4.9% and 6.0% of our total revenue, respectively.
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None of our Directors, Supervisors or their associates or any person who to the knowledge of our
Directors owned 5% or more of our issued share capital as at the Latest Practicable Date had any
interest in any of our five largest customers for the Track Record Period.
SUPPLIERS
For the years ended 31 December 2009, 2010 and 2011 and the six months ended 30 June 2012,
purchases from our five largest suppliers accounted for approximately 11.9%, 12.9%, 15.5% and 15.8%
of our total cost of sales, respectively. Purchases from our single largest supplier accounted for
approximately 3.5%, 4.0%, 6.3% and 4.5% of our total cost of sales in these periods. During the Track
Record Period, purchases from the five largest suppliers for the pharmaceutical manufacturing segment
generally accounted for 15% to 25% of the segmental cost of sales. During the same period, purchases
from the five largest suppliers for the pharmaceutical distribution and retail segment generally accounted
for 15% to 30% of the segmental cost of sales, while purchases from the five largest suppliers for the
diagnostic products and medical devices segment accounted generally for 20% to 70% of the segmental
cost of sales.
Two of our major suppliers, Chongqing Saili Junan Pharmaceutical Co., Ltd. (“Saili Junan”) and
Sinopharm, were also our major customers during the Track Record Period. Saili Junan primarily
engages in the distribution, import and export of medicines, chemical ingredients and medical devices.
Our subsidiary Yao Pharma procures certain chemical ingredients from Saili Junan to manufacture
products such as Atomolan, some of which are then distributed to customers through Saili Junan.
Similarly, we also procure a number of chemical and APIs from Sinopharm and distribute many of our
pharmaceutical products such as the drugs manufactured by Yao Pharma, Wanbang Pharma and Guilin
Pharma through Sinopharm.
To the knowledge of our Directors, none of our Directors, Supervisors or their associates or any person
who owned 5% or more of our issued share capital as at the Latest Practicable Date had any interest in
any of our five largest suppliers for the Track Record Period.
Price Controls
A substantial portion of the pharmaceutical products manufactured by us are included in the National
Medical Insurance Drugs Catalog and are subject to retail price control imposed by the PRC
government in the form of fixed prices or maximum retail prices. In addition, products included in the
Provincial Medical Insurance Drugs Catalogs are also subject to governmental price control in the
relevant province.
In the PRC, eligible participants in the governmental basic medical insurance program who purchased
drugs listed in the National Medical Insurance Drugs Catalog and/or the Provincial Medical Insurance
Drugs Catalogs are entitled to reimbursement from the social medical insurance fund. This
reimbursement is up to the entire cost of medicines that are included in such catalogs, and for this
reason, hospitals in China frequently order medicines included in the catalog for their patients. As a
result, a pharmaceutical product is generally more attractive to hospitals and end customers if it is
included into the National Medical Insurance Drug Catalog and/or the Provincial Medical Insurance
Drug Catalogs, and it is critical for a pharmaceutical producer in China to have its products included in
these catalogs. The hospital purchase prices and our selling prices to distributors of such pharmaceutical
products are directly or indirectly affected by the retail price controls.
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Our revenue and profitability may be materially and adversely affected by price controls. See ‘‘Risk
Factors ― Risks Relating to Our Businesses and Industries ― Each of our business segment, including
a substantial proportion of the pharmaceutical products manufactured and distributed by us, is subject to
government price controls or other price restrictions in the PRC’’ from page 55 to page 56 and
‘‘Regulatory Overview ― Price Controls’’ from page 129 to page 132 in this prospectus for additional
information.
We expect the proportion of revenue contributed from such pharmaceutical products subject to price
controls to remain relatively stable in the foreseeable future because we will continue to manufacture
products that we expect to have high growth potential, and which may or may not be subject to price
control. Pharmaceutical products that are not subject to price controls may have higher gross profit
margins, but they may not be as popular among hospitals and end customers as similar or substitutable
drugs that are subject to price controls because they are not subject to reimbursement by the social
medical insurance fund.
Other than pharmaceutical products, the PRC government maintains a high level of involvement in the
determination of prices of diagnostic products and medical devices, and public hospital and healthcare
institutions in China are required to purchase high value medical equipment and other supplies at prices
determined through a periodic tender process.
The following table illustrates the impact of price controls on each of our business segments:
Current Impact Description of Impact
Pharmaceutical Manufacturing Yes . Revenue from our pharmaceutical products subject to price controls
under the National and Provincial Medical Insurance Drugs Catalogs
accounted for 38.8%, 42.4%, 42.3% and 48.2% of our total revenue
for the years ended 31 December 2009, 2010 and 2011 and the six
months ended 30 June 2012, respectively.
During the Track Record Period and up to the Latest Practicable
Date, the prices of our pharmaceutical products have been subject to
the following government stipulated changes:
. In March 2011, the NDRC lowered the maximum retail prices of
certain pharmaceutical products, affecting 11 of our products,
including three major products, Xin Xian An, Bang Tan and Xi
Chang. Revenue from the sales of the three major products
collectively accounted for 2.6%, 6.5%, 5.0% and 5.2% of our
total revenue for the years ended 31 December 2009, 2010 and
2011 and the six months ended 30 June 2012, respectively.
. In August 2011, the NDRC lowered the maximum retail prices of
certain pharmaceutical products, affecting five of our products,
including one major product Wan Su Ping, which collectively
accounted for 2.4%, 2.3%, 2.1% and 1.9% of our total revenue
for the years ended 31 December 2009, 2010 and 2011 and the
six months ended 30 June 2012, respectively.
. In March 2012, the NDRC lowered the maximum retail prices of
certain pharmaceutical products, affecting one of our major
products, Atomolan, which accounted for 7.8%, 8.7%, 7.5% and
7.9% of our total revenue for the years ended 31 December 2009,
2010 and 2011 and the six months ended 30 June 2012,
respectively.
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Current Impact Description of Impact
. In September 2012, the NDRC again lowered the maximum retail
prices of certain pharmaceutical products, affecting ten of our
products, including three major products, Bang Ting, Su Ke Nuo
and Yi Bao. Revenue from the sales of the three major products
collectively accounted for 2.1%, 3.3%, 3.7% and 5.7% of our
total revenue for the years ended 31 December 2009, 2010 and
2011 and the six months ended 30 June 2012, respectively.
. The above adjustments had limited impact on our revenue and
gross profit margin because during the Track Record Period and
up to the Latest Practicable Date for most of our products
affected by the abovementioned NDRC price adjustments, the
revised maximum retail prices and the implied maximum hospital
purchase prices were still higher than are actual successful bid
prices during the statutory tender process at the time.
Pharmaceutical Distribution Yes . Fosun Pharmaceutical may not sell drugs that are subject to price
and Retail controls to third party customers at prices higher than the
government stipulated maximum prices, and the profit margins of
which may be relatively lower than those that are not subject to price
controls.
. Our retail pharmacies under the ‘‘Golden Elephant Pharmacy’’ and
‘‘For Me Pharmacy’’ brands may only sell drugs that are subject to
price controls to end customers at prices that are lower than the
government stipulated maximum prices.
Healthcare Services Yes . Our own hospitals may not procure and sell drugs, diagnostic
products and medical devices under price control to end customers at
prices that are higher than the maximum prices.
Diagnostic Products and No . The diagnostic products and medical devices that we currently
Medical Devices manufacture are mainly diagnostic reagents and equipment, blood
transfusion equipment and surgical consumables, which are not
included in the National and Provincial Insurance Drugs Catalogs
and therefore is not subject to price control.
. Nevertheless, in case we produce other diagnostic products and
medical devices that may be subject to price control, price control
could affect our diagnostic products and medical devices segment as
well.
We seek to further mitigate the impact of the price reductions through technological innovation,
expansion of production to achieve economies of scale, adjustment of product portfolio, and research
and development of new higher-end products that are not listed on the National and Provincial Medical
Insurance Drugs Catalogs.
COMPETITION
The pharmaceutical manufacturing, pharmaceutical distribution and retail, healthcare services and
diagnostic products and medical devices industries are highly competitive. We compete with domestic
and foreign competitors, which vary widely by region and size of operations.
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Pharmaceutical manufacturing
The pharmaceutical market in China is highly competitive and is characterized by a number of
established, large pharmaceutical companies, as well as a number of smaller emerging pharmaceutical
companies. Our products compete with a number of similar products manufactured and marketed by
large specialty pharmaceutical companies and generic manufacturers in China. The identities of our key
competitors vary by product and, in certain cases, different competitors may have greater or lesser
market shares by region in China. We compete primarily on the basis of brand recognition, product
efficacy, safety, reliability, availability and price.
We believe our continued success will depend on our following capabilities: (i) the capability to develop
innovative products and advanced technologies; (ii) the capability to apply technologies to all
production lines; (iii) the capability to develop an extensive self-owned product portfolio; (iv) the
capability to maintain a highly efficient operational model; (v) the capability to attract and retain
talented technology development personnel; (vi) the capability to maintain high quality standards; (vii)
the capability to obtain and maintain regulatory approvals; and (viii) the capability to effectively
promote products.
Pharmaceutical distribution and retail
In Beijing and Shanghai, our retail operation competes with large retail pharmacy chains, as well as
independent pharmacies, supermarket and convenience chains. We compete principally in terms of store
location and convenience, merchandise selection, customer service and satisfaction, including practices
such as offering customers the ability to pay by medical insurance card, private-label product offerings,
prices and our brand name. We believe that the continued consolidation of the retail pharmacy market
and continued new store openings by chain store operators will further increase the competitive pressure
in this market. Although the geographical coverage of our retail pharmacies enables us to reduce the
fluctuations in our results of operations as a result of the competitive conditions in individual markets,
we believe that more new store openings in cities such as Shanghai and Beijing may gradually intensify
competition. Local regulations in such targeted cities may prohibit the opening of new retail pharmacies
within certain distances of an existing store, and where competitors have occupied many prime
locations, we expect to face additional competition in terms of finding suitable new store locations if we
expand in these cities.
Our pharmaceutical distribution operation operated by Fosun Pharmaceutical competes with regional
pharmaceutical distributors primarily in Shanghai to the extent that the products are distributed to retail
pharmacies other than those under For Me Pharmacy, healthcare institutions and other pharmaceutical
distributors.
Healthcare services
Historically the PRC healthcare services sector had been dominated by the public healthcare system. The
Chinese government had issued policies in recent years to encourage the private sector to enter into the
healthcare services market, which we believe will create tremendous opportunities for this industry. Our
healthcare services business primarily targets the premium and specialty healthcare markets. Our
targeted customers in the premium healthcare market include foreign expatriates in the PRC and upper
and middle class customers in the PRC. The main factors affecting competition include the types and
quality of services, brands, geographic locations, facilities and healthcare specialists. In the specialty
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healthcare market, we primarily compete in terms of the professional expertise of the healthcare service
personnel, the technology and equipment of diagnosis and treatment, the range and quality of services
and brands.
Diagnostic products and medical devices
The diagnostic products and medical devices market in which we compete is characterized by rapid
changes resulting from technological advances and scientific discoveries. In addition, it is subject to
changes in China’s overall healthcare industry. Several of our competitors have significant financial,
research and development and other resources and enjoy high brand name recognition in China. Our
competitors dedicate, and we believe they will continue to dedicate, significant resources to promote
their products aggressively.
QUALITY CONTROL
We maintain a highly stringent quality control system and devote a significant focus on quality control
in our pharmaceutical, pharmaceutical distribution and retail, diagnostic products and medical devices
operations. We have established a comprehensive quality control system that provides quality standards
and operating procedures covering stages of the healthcare value chain, from research and development
to manufacturing, distribution and retail. Our comprehensive quality control system is designed
according to the GMP and GSP requirements and with reference to certain standard designs
recommended by the International Conference on Harmonization of Technical Requirements for
Registration of Pharmaceuticals for Human Use.
Our quality control team is also responsible for implementing quality control procedures, conducting
periodic quality control audits and quality risk assessment as well as formulating and implementing
remedial quality control measures. Our senior management is also actively involved in setting quality
control policies and managing internal and external quality performances to ensure that we are in
compliance with all applicable regulations, standards and internal policies.
Pharmaceutical manufacturing
In our pharmaceutical manufacturing segment, we have established quality control systems in
accordance with the relevant PRC laws and regulations. Our quality control measures cover all aspects
of our pharmaceutical manufacturing operations including the design and construction of manufacturing
plants and facilities, the installation of manufacturing equipment, maintenance of manufacturing
equipment, procurement of raw materials and packaging materials, quality checks of raw materials,
work-in-progress and finished products, monitoring adverse drug reactions and verification of
documentation. We have more than 800 detailed quality control policies for this segment, and have at
least one quality control policy for each product. A product may have two or more quality control
policies if it has more than one specification. Each quality control policy is based on the manufacturing
permit and the applicable GMP standards for that product. All of the stipulated procedures and
methodologies are based on the GMP standards, ISO9001, the PRC Pharmacopoeia and other applicable
domestic and international standards.
For the pharmaceutical products manufactured by our pharmaceutical manufacturing segment and sold in
the PRC markets, we are only required to obtain, and we have obtained, GMP certifications in
accordance with the standards set forth under the Law of the People’s Republic of China on the
Administration of Pharmaceuticals 《中�A人民共和���品管理法》). For the pharmaceutical products
(
manufactured by our pharmaceutical manufacturing segment and sold in the international markets, we
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are required to obtain and we have obtained the GMP certifications required under the regulations and
standards in such markets. We export certain finished products, APIs and intermediate products to
overseas markets, including the U.S., Europe, and certain African countries. For the year ended 31
December 2009, 2010 and 2011 and the six months ended 30 June 2012, our revenue from exports of
finished products, APIs and intermediate products accounted for 17.5%, 13.9%, 11.8% and 11.1%,
respectively, of our total revenue. The latest version of the GMP standards of the PRC, which was
issued by the SFDA in January 2011, tracks substantially the equivalent standards of the United States,
the European and the WHO. Our Company understands that differences exist among these standards,
some of which are set out below:
(1) The GMP standards of the European Union, the United States and the WHO require mandatory
certification of computerized systems under certain specific standards. Such certification is
recommended but not required under the PRC GMP standards. In practice, we also encourage, but
do not strictly require, our subsidiaries which currently do not have product sales in the
international markets to obtain such certification under the European Union and the United States
GMP standards. Our subsidiaries currently with sales in international markets have obtained the
certification under the European Union and the United States standards, and other subsidiaries have
established or will upgrade their computerized systems generally in line with the relevant European
Union and the United States GMP standards. We expect all of our subsidiaries to obtain such
certification of computerized systems by the end of 2015.
(2) In terms of laboratory monitoring and control standards, the types of chemical substances used for
sterilization process under the PRC GMP standards are different from those under the GMP
standards of the European Union, the United States and the WHO, even though the methods of
monitoring sterile conditions is similar among these standards. To the best knowledge of our
Company, none of the chemical substances used for the sterilization process under the PRC GMP
standards are banned for use under the GMP standards of the European Union, the United States
and the WHO. In practice, we strictly adhere to the PRC GMP standards. For the drugs that we
export overseas, we also refer to the GMP standards of the relevant international markets to make
sure our products comply with those standards.
(3) In terms of product quality control, the GMP standards of the European Union and the United
States grant greater authority to the manufacturers’ quality control personnel, who can
independently decide whether or not a product meets the GMP standards without the approval
from the senior management of the manufacturer. In the PRC, such quality authorization personnel
is authorized by the manufacturer’s legal representative. We strictly follow the PRC GMP
standards in this area.
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The following table sets forth certain requirements under PRC GMP standards and how our operations
comply with such standards:
Requirements under PRC GMP standards Measures taken by our subsidiaries
Quality Management:
Enterprises should establish quality objectives that meet the Each of our member companies has established standard quality
requirements of pharmaceutical product quality management control objectives according to the GMP, such as ensuring
standards. All drug registration requirements concerning the safety of drug use by patients, that the process of drug
safety, effectiveness and quality control shall be manufacturing meets the GMP standards, and that the drugs
implemented systematically into the entire process of manufactured meet the registration requirements at all times.
production, quality control, release, storage and shipping of These quality objectives are set out in various quality control
the products to ensure that the product is qualified to be related documents, such as pharmaceutical technical
used for its intended purposes and meets the registration guidelines, drug quality standards, quality assurance systems
requirements. (such as annual product quality reviews, deviation
processing procedures, change of control procedures, testing
failure investigation procedures, risk management
procedures, rectification and prevention management
systems, product complaints and recall management systems,
and product release procedures).
Quality control includes aspects such as responsible The quality control authorities of each member company have
organizations, documentation systems, as well as sampling set up corresponding departments according to the GMP
and inspection procedures to ensure the quality of materials standards. Each member company has a quality inspection
or products meets the relevant requirements prior to release. department and a quality assurance department. Each
position established in such departments has clear
delineation of responsibilities. Key positions are staffed with
sufficient professional technical management personnel, and
the quality control authorities in each member company are
independent of the production departments and are able to
independently perform their duties.
Each member company has established comprehensive
management systems and standardized procedures for
sampling, monitoring and releasing raw materials,
intermediate products and finished products. Specific quality
standards have been established for each raw material,
packaging material, intermediate product and finished
product, and may not be released for use unless it has passed
the quality test of the quality control authorities.
Organization and Personnel:
Enterprises should establish independent quality management Each member company has established a comprehensive
departments to perform the duties of quality assurance and organizational structure according to the GMP standards,
quality control. The quality management department can be including separate departments of production, quality,
set up separately as quality assurance department and quality procurement, logistics, engineering, research and
control department. development and sales. The quality department usually
includes a quality assurance department and a quality control
department. The two quality departments of each member
company are completely independent of the production
departments.
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Requirements under PRC GMP standards Measures taken by our subsidiaries
Plants and Facilities:
The siting, design, layout, construction, renovation and We have implemented internal guidelines and procedures to
maintenance plants must comply with the requirements of ensure all member companies in the pharmaceutical
pharmaceutical production. Measures shall be taken to be manufacturing segment meet the siting, design, layout,
able to avoid, to the best extent, contamination, cross- construction, renovation and maintenance of PRC GMP
contamination, mix-ups and errors, and the environment standards for their plants at all times. For example, under
needs to be convenient to clean, operate and maintain. our existing guidelines, there must not be any polluting
factories such as those in the chemical, metallurgical, or
mining industries within a one kilometer radius of our
production facilities. In addition, our production facilities
must maintain a suitable distance away from schools,
hospitals and residential areas. As a result, we normally
locate our production facilities in industrial development
zones with relatively good environmental conditions. In
addition, under our guidelines, we only engage designing
institutes with pharmaceutical expertise to help design our
production facilities. These member companies have
undertaken the plant upgrading projects or the construction
of new facilities with the view to meeting the new GMP
requirements and we expect all our plants to meet the new
GMP requirements by the end of December 2015
The key of GMP management is to avoid contamination and
cross-contamination in the pharmaceutical manufacturing
process, and to prevent the occurrence of mix-ups and errors.
Each of our pharmaceutical manufacturing subsidiary is
investing heavily in upgrading its facilities, especially in
aseptic pharmaceutical production facilities. We plan to
complete such upgrading and make all sterile pharmaceutical
production facilities comply with new GMP requirements by
the end of 2013. Production facilities for other forms of
dosage drugs should be upgraded to meet the new GMP
requirements by the end of December 2015.
Equipments:
Documents and records regarding equipment procurement, Each member company has been managing the entire life cycle
installation and confirmation shall be created and kept. of each piece of production equipment according to such
requirements. Management systems are established to
manage all phases such as equipment user needs, tendering,
design validation, procurement, factory acceptance, site
acceptance, installation, tooling, installation confirmation,
operation confirmation, performance confirmation, usage,
preventive maintenance, repair and retirement. The activities
of each phase are documented, recorded and archived.
Materials and Products:
Handling procedures of materials and products shall be To prevent materials and products from contamination and
established to ensure that the materials and products are cross-contamination, mix-ups and errors, each member
properly received, stored, distributed and delivered in order company has established management systems and
to prevent contamination, cross-contamination, mix-ups and operational procedures to ensure that the materials and
errors. products are properly received, stored, distributed and
delivered. Corresponding records documenting activities
carried out in each stage of manufacturing have been kept.
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Requirements under PRC GMP standards Measures taken by our subsidiaries
Confirmation and Verification:
Before adopting new production prescriptions or techniques, the The guidelines of production techniques of each member
enterprises shall verify their applicability in regular company have been registered or re-registered with SFDA;
production. The production technique adopted shall be able the production technique guidelines of each product include
to manufacture products that meet the intended purposes and raw materials standards, the model of equipment used,
registration requirements if the required raw materials and product standards, the prescription and the production
equipment are used. process; each member company manufactures products in
strict compliance with the production technique details and
each production technique has to pass at least three rounds
of strict technical verification to ensure consistency and
stability of the product quality and the production process;
and each member company has established a verification
management system, which requires that any new production
technique or any change to existing production techniques
must be strictly verified.
Documents Management:
Each batch of products shall have a corresponding batch Each member company has established a template for the
production record that allows one to trace the product production process of each product batch, recording the
batch’s production history and quality-related information. details of the key information in each production step to
ensure the traceability of the production process for each
product, such as date, product name, batch number, the
operating person, the verifying person, production
procedures, serial number of the production equipment used,
batch numbers of the raw materials and specifications, key
technical indicators, the quality indicators of the intermediate
products in various phases and quality indicators of the
finished products.
Manufacturing Management:
After completion of each stage of production of each batch of Each member company has established cleanup management
drugs, the production site must be cleared up by the systems and product cleaning operating procedures to require
production operator, and the clearing record shall be filled clearing up and cleaning of the production site after the
out. completion of each stage of production of each batch of
drugs, and that clearing up and cleaning records are filled
out after the cleaning works are completed. Personnel from
the quality departments should inspect the sites to check the
effect of cleaning, and the sites can only be put back to
operation after the personnel believe the cleaning fulfills the
relevant requirements.
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Product recalls
In August and September 2012, Yao Pharma, one of our subsidiaries was notified by the Chongqing
branch of SFDA that certain hospitals in Anhui and Jiangsu provinces and Guangxi Zhuang Autonomous
Region reported a number of occurrences of side effects in patients after being administered with
Shaduolika from two different batches. Shaduolika, one of our major products (16), is used to treat viral
pneumonia and viral upper respiratory infections. After receiving injections of Shaduolika, a total of 32
patients experienced shivering, allergy-like reactions, fever and other mild symptoms of side effects. As
disclosed in Shaduolika’s product information leaflet, which has been approved by the SFDA, shivering,
allergy-like reactions, fever and other mild symptoms are listed as side effects associated with the use of
this medication.
Upon being notified of these occurrences, Yao Pharma immediately activated voluntary recall
procedures for the two batches of Shaduolika products involved in the occurrences of side effects as
well as 14 other batches which were manufactured around the same time as the abovementioned two
batches. The production cost for the recalled Shaduolika products amounted to approximately RMB1.4
million. We had also voluntarily suspended the production of Shaduolika and are currently conducting
our own investigation into the production of Shaduolika, including the examination of our procurement,
manufacturing, quality control and product evaluation procedures for Shaduolika. Based on our
investigations, we will ensure that any production problems that may have caused a quality issue with
our Shaduolika products are identified and fully rectified and that the safety of this product is
thoroughly tested and verified prior to resuming the production and sales of Shaduolika. Additionally,
quality of pharmaceutical products may also be affected by various other factors after production
including transportation, warehousing, storage and usage etc. Also see ‘‘Risk Factors ― Risks Relating
to our Businesses and Industries ― We are subject to risks associated with quality issues that may arise
on our pharmaceutical products during post production processes’’ on page 70 in this prospectus.
On 25 September 2012, we received an administrative penalty decision issued by the Chongqing branch
of SFDA. The decision indicates that a batch of Shaduolika product that were reported to have caused
cases of side effect in Jiangsu province contains excessive level of bacterial endotoxins and therefore
failed to meet the applicable quality requirements, according to the examination conducted by the
Jiangsu Changzhou branch of SFDA. Pursuant to the administrative penalty decision, the government
authorities disgorged our revenue of RMB9,282 from sales of the defective batch of Shaduolika
products, confiscated all of our recalled Shaduolika products from this defective batch, and imposed a
fine of RMB280,730.90, which was equivalent to the value of the defective batch of Shaduolika
products, on Yao Pharma. As at the Latest Practicable Date, the defective batch of Shaduolika had been
successfully recalled.
Note:
(16) We use a set of criteria in selecting our major products, and such criteria include sales contribution, market potential and
brand reputation.
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We understand that the relevant government authorities have conducted random inspections and sample
tests of other batches of Shaduolika. Other than the defective batch of Shaduolika products, as at the
Latest Practicable Date, we had not received any other formal notifications from the relevant
government authorities on any quality issue from their random inspections and sample tests of other
batches of Shaduolika. To the best knowledge of our Company, as at the Latest Practicable Date, the 32
patients that experienced side effects arising from receiving the injections of Shaduolika have either
fully recovered or their symptoms from the side effects have been alleviated, and no product liability
claims had been brought against us for damages in connection with any occurrence of side effects of
Shaduolika. In addition, as at the Latest Practicable Date, we had not received any notification from any
of the hospitals that reported the occurrences of side effects of Shaduolika that product liability claims
were brought against any of these hospitals. Our PRC legal adviser, Chen & Co Law Firm, confirms that
the statutory period of limitation for legal claims against pharmaceutical manufacturers or hospitals from
patients is generally two years from the moment patients discover or should have discovered that their
rights have been infringed upon. However, in particular, if patients file claims for compensation of
personal injuries or initiate litigations against sales of substandard goods without prior notice, the
statutory period of limitation is one year from the moment patients discover or should have discovered
that their rights have been infringed upon. We do not maintain product liability insurance for
Shaduolika. The foregoing occurrences and the related negative publicity may adversely affect our
business reputation and the sales of our Shaduolika or other pharmaceutical products. See ‘‘Risk Factors
― We may incur losses and our reputation may be adversely affected by potential product liabilities
relating to certain products that we manufactured’’. Considering the revenue contribution of our
Shaduolika products which accounted for approximately 2.9%, 2.7%, 2.1% and 2.9% of our external
revenue of the pharmaceutical manufacturing segment for the three years ended 31 December 2009,
2010 and 2011 and the six months ended 30 June 2012 respectively, we do not expect that the foregoing
occurrences will have a material adverse impact on our financial results. Additionally, after taking into
consideration the costs of the product recall, inspection fees, transportation expenses, consultation fees,
contingent liabilities for potential litigations, potential compensation payments and other expenses, our
Directors expect to incur a maximum of RMB3.3 million in expenses.
We will continue to strictly adhere to the PRC GMP standards in our manufacturing processes, and
adopt high standards in procurement, production and quality control to control the quality of our
products to ensure they can be safely used by our customers. Pursuant to this occurrence, we are
currently conducting our own investigation into the production of Shaduolika, including the examination
of our procurement, manufacturing, quality control and product evaluation procedures for Shaduolika.
Furthermore, we are taking additional steps to evaluate the ongoing compliance of our suppliers,
distributors and logistics service providers for Shaduolika and are working closely with them to ensure
that they continue to strictly adhere to the relevant standards to ensure the safety of our Shaduolika
products.
The abovementioned occurrences of side effects for Shaduolika were isolated events. Other than our
voluntary recall of certain batches of and the suspension of production of Shaduolika products as
disclosed in this prospectus, and other than for reasons arising out of the ordinary course of business,
such as relocation of certain production facilities and short-term insufficient market demand, during the
Track Record Period and up to the Latest Practicable Date, we had not experienced any material safety
and quality problems with our products reported by our customers or relevant government authorities or
any material product liability or legal claims due to the quality of our pharmaceutical products, nor did
we close or suspend production at our production facilities or any other pharmaceutical operation. None
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of such suspension or closure of our production facilities arising out of the ordinary course of business
had any material adverse impact on our operational or financial results, and we were not subject to any
material adverse findings in any investigation or audit by any government authority. Additionally, to the
best knowledge of our Directors, no government authorities are currently investigating our other
pharmaceutical products due to quality related issues.
In relation to the occurrences of side effects involving our Shaduolika products, we are in the process of
implementing the following measures for our pharmaceutical manufacturing segment to ensure continued
strict adherence to product quality standards as required by the GMP certification process as well as
other relevant regulations:
(1) Accelerate our Company’s ongoing plans to implement internal quality requirements beyond what
is required by current regulations. For example, we are accelerating the introduction of higher
soluble rate requirements for certain of our products, which in turn enhances the absorption rate of
these products by the human body, and we are in the process of setting lower maximum residue
limits for certain products and hence, further reducing the impurity levels of these products.
(2) Further review and improve our Company’s quality control systems, including introducing an
updated guideline for employees in charge of quality control, by increasing the amount of relevant
experience these employees are required to have before being appointed, as well as the provision
of greater authorities and autonomy to these employees to ensure that they can carry out their
duties more effectively. We intend to complete this review and implement the relevant
improvement procedures by December 2012.
(3) Further strengthening our Company’s monitoring and reporting system, including improving the
Company’s product monitoring system for post-production processes and improvements to the
Company’s adverse reaction reporting system. For example, the Company is in the process of
creating a list of products that may be susceptible to cases of side effects and will work closely
with distributors to tighten the monitoring system for these products in the post production
processes to ensure stricter monitoring and more stringent quality controls of these products. We
intend to complete the implementation of such improvements by December 2013.
(4) Further reviewing our testing procedures to enhance the efficiency of these procedures, and
implement improvement measures that include expanding the sample test size of our products
during production quality control processes beyond the minimum requirements under GMP
standards. We intend to complete this review and implement the necessary improvements by
December 2013.
In January 2011, the PRC government issued a new set of GMP standards, under which a
pharmaceutical manufacturer is required to complete the upgrade of productions lines for sterile drugs
by the end of 2013 and the upgrade of other productions lines is required to be completed by the end of
2015. We are in the process of upgrading our existing production facilities to comply with these
standards. We are also in the process of revising our quality management policies and guidelines,
providing training to our staff and conducting various verification and testing to ensure compliance with
the new standards. We expect to complete the upgrade of our production lines before the relevant
deadlines.
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According to the Administrative Measures on Pharmaceutical Products Recall issued by the SFDA in
December 2007, pharmaceutical manufacturers are required to report their product recalls to the
provincial branches of the SFDA and inform their distributors and other customers to cease using the
products involved and to return them to the manufacturers. The reporting and notice time requirements
range from 24 hours to 72 hours depending on the seriousness of the potential harm to the users. If the
potential harm is serious and permanent, the reporting and notice must be completed within 24 hours. If
the potential harm is temporary or reversible, the reporting and notice must be completed in 48 hours. If
there is no potential harm but the product still needs to be recalled for other reasons, the reporting and
notice can be completed in 72 hours. We have established a product recall system according to such
requirements. Save as disclosed above, to the best knowledge of our Directors, during the Track Record
Period and up to the Latest Practicable Date, none of our products had been subject to any recall due to
product quality issues.
Excessive levels of chromium, an industrial gelatin, have been detected in capsules (the ‘‘Chromium
Tainted Capsules’’) manufactured by some pharmaceutical manufacturing enterprises in China in April
2012. Chromium Tainted Capsules may cause cancer and pose risks to human health. The PRC
government has suspended the sales and consumption of a number of capsules which contain excessive
levels of chromium. In light of the incident, we have conducted internal investigations and confirm that
(i) none of our subsidiaries is involved in the production of empty capsules; (ii) none of the capsules
manufactures identified in the incident is on the list of suppliers of our Group; and (iii) none of the
members of our Group were ordered by the SFDA to remove products from shelves. If any of the
capsules manufactured by us are detected to be Chromium Tainted Capsules, we will activate our
product recall system by reporting the product and the related circumstances to the provincial branch of
the SFDA and informing our distributors and other customers within 24 hours to cease using the
products involved and to return them to us.
So far as our Directors are aware, based on the best of their knowledge, during the Track Record Period
and up to the Latest Practicable Date, we had not used Chromium Tainted Capsules in our products,
which is in violation of applicable PRC laws and regulations and none of our suppliers has been
involved in the production of the Chromium Tainted Capsules. Under our quality control procedures, all
empty capsules are required to be examined in accordance with the guidelines set out in the PRC
Pharmacopoeia, including the testing of the level of chromium in two ways: (i) internal testing, and (ii)
external testing conducted by an independent drug testing agency. To the best knowledge of our
Directors, during the Track Record Period and up to the Latest Practicable Date, none of the capsules
manufactured by us had been subject to any adverse findings in any testing investigation or audit by any
government authority, in any internal testing conducted by us, or in any external testing conducted by
independent third parties. See ‘‘Risk Factors ― Risks Relating to our Businesses and Industries ― We
rely on a stable supply of quality raw materials to manufacture our pharmaceutical products’’ on page 61
in this prospectus.
Pharmaceutical distribution and retail
In our retail pharmacy operations, our quality control starts with procurement. We conduct spot quality
inspections of each batch of products that we receive. We promptly replace our suppliers if they fail to
pass our quality inspections. Since we maintain an extensive network of suppliers and standby suppliers,
we believe that we will not incur a material interruption to our business and operations if we choose to
discontinue our cooperation with certain suppliers due to their unsatisfactory quality control record.
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We place strong emphasis on the quality of the services rendered by our employees at all levels,
including in-store pharmacists and store staff who directly interact with our customers. We regularly
dispatch quality control inspectors to our retail pharmacies to monitor the service quality of our staff.
We take into account the feedback received during these inspections when determining employee
promotions or bonuses.
We adopt and implement quality control measures for our pharmaceutical distribution and retail by
strictly following the Law of the People’s Republic of China on the Administration of Pharmaceuticals
《中�A人民共和���品管理法》) and the State GSP standards under The Administrative Measures for
(
Certification of Good Supply Practices 《�品��I�|量管理���J�C管理�k法》). All of our
(
subsidiaries engaging in the wholesale and retail of pharmaceutical products in the PRC markets have
obtained GSP certifications in accordance with the standards set forth under the applicable PRC laws.
Our quality control team for our pharmaceutical retail operation comprises a chief quality control officer
and designated quality control persons in the business departments, including procurement, sales and
warehousing. Our quality control measures for the segment sets out our quality control goals and
objectives, review of the quality control systems, allocation of responsibility among different
departments, organizations and persons, information management, quality testing, management of
accidents, customer inquiries and complaints, as well as staff education and training. All members of our
quality control team for the segment possess the relevant industry expertise as stipulated under the GSP
standards, which are established to regulate companies engaging in the wholesale and retail businesses
in the PRC to ensure the quality of pharmaceutical products distributed in the PRC. Many of them have
obtained the relevant qualifications as practicing pharmacists or pharmaceutical engineers. We have
established a product recall system according to the requirements under the PRC GSP standards. Under
this system, once a product defect is detected or reported by the SFDA or its local branches or by the
news media, by other pharmaceutical manufacturing companies, by the customers or by ourselves, and
the defect is confirmed, we will recall the defective product in accordance with our product recall
system. For any products categorized as under special supervision of the SFDA, we will report to the
local branches of the SFDA for their further handling. For other products, we will either return the
defective products to our suppliers if such defects are due to their quality control failures, or ask a
qualified third party to destroy them if they are our responsibility. We promote and sell pharmaceutical
products in overseas markets through third-party distributors. Therefore, in accordance with relevant
local laws and regulations, we are not required to obtain supply-related certifications in these markets.
During the Track Record Period and up to the Latest Practicable Date, we did not experience any
material claim, litigation and arbitration or adverse findings in investigation or audit by government
authorities with respect to product liability, personal injury, wrongful death or negligent advice by our
in-store pharmacists for our retail operations, did not close or suspend operation of our pharmaceutical
distribution and retail businesses due to non-compliance with GSP standards or any other problems, and
did not make any product recall that had a material impact on us.
Diagnostics products and medical devices
In our in-vitro diagnostic products operations, we have established quality control systems in accordance
with relevant national or industry guidelines. We have over 100 detailed policies and guidelines
covering each major aspect of quality control, including the overall system, quality of raw materials,
monitoring of the production process, storage and warehousing, and product sampling and testing. These
policies and guidelines set out the specific procedures we take to ensure the quality of products, such as
examining the level of bacteria in the production environment, the purity of water to be used in
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production and the proper storage of hazardous materials. All of the stipulated procedures and
methodologies are based on ISO9001 as well as the applicable domestic and international standards. Our
quality control team for the segment primarily comprises professional doctors, pharmacists and engineers
who have obtained master and/or bachelor degrees from renowned colleges and universities in the PRC
and/or abroad. We constantly inspect the raw materials and supplies used in our manufacturing process,
and inspect and test internally manufactured products. We can replace any supplier that fails to pass
such inspections.
In our medical devices operations, we have established quality control systems in accordance with the
relevant PRC laws and regulations, and have obtained ISO9001 certification and CE Certificate by TUV
from Germany for the design, development, production and distribution of all the products we currently
offer. In addition, our quality control team is also responsible for ensuring that we are in compliance
with all applicable regulations, standards and internal policies. Our senior management is actively
involved in setting quality policies and managing internal and external quality performance. We have
more than 20 detailed policies and guidelines setting out quality control in each major stage of
production, including but not limited to procurement, production monitoring, record-keeping, sampling
and testing and sanitization procedures. All of the stipulated procedures and methodologies are based on
ISO9001 as well as the applicable domestic and international standards. Our quality control team for the
segment primarily comprises professional doctors, pharmacists and engineers who have obtained master
and/or bachelor degrees from renowned colleges and universities in the PRC and/or abroad.
During the Track Record Period and as at the Latest Practicable Date, our diagnostic products and
medical devices had not been subject to any material complaints, claims, litigation or investigation due
to product liability or otherwise, and none of our major products had been subject to any recall that had
a material impact on us.
ACQUISITIONS AND STRATEGIC INVESTMENTS
During the Track Record Period, we expanded rapidly through organic growth, acquisitions and strategic
investments. We acquired and consolidated Fuji Medical in 2009, Hexin Pharma, Yaneng Bioscience,
Moluodan Pharma, Golden Elephant Pharmacy, Shenyang Hongqi Pharma and CML in 2010 and
Aohong Pharma, Dalian Aleph, Jimin Cancer Hospital and Guangji Hospital in 2011. Meanwhile, as part
of our strategy to streamline our pharmaceutical distribution business, we disposed of our equity
interests in Zhejiang Fosun to Sinopharm in June 2011. In order to focus on the healthcare industry, we
disposed of our equity interests in Science & Technology Imp. & Exp. to an Independent Third Party in
November 2011.
Our strategic investments refer to our holding of minority interests in a number of companies, which
include Sinopharm. While we generally prefer to acquire a majority stake in target companies with an
aim of integrating the acquired companies into our own business operations, we will also consider
acquiring a minority stake in target companies when circumstances do not permit the acquisition of a
majority interest. Nonetheless, we have in the past invested in companies in other industries that we
considered had sound financial performance and/or attractive valuations.
There are a number of investment criteria we take into consideration in general, including but not
limited to: (i) the investment target is in a promising industry with favorable fundamentals under the
prevailing macroeconomic environment, (ii) the investment target is able to demonstrate a sound
operating and financial track record or prove its growth potential, and (iii) the valuation of the
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investment target is attractive compared with the industry average or meets the minimum internal rate of
return as stipulated by our investment management committee. During the Track Record Period, we
endeavored to dispose of equity investments unrelated to our core businesses. Going forward, we plan to
continue to focus on investments in the pharmaceutical, healthcare services and other healthcare related
industries. As a shift in our business strategies, we no longer intend to make any significant equity
investment in companies of unrelated industries and instead focus solely on acquisitions in the
healthcare and related industries. For the years ended 31 December 2009, 2010 and 2011 and the six
months ended 30 June 2012, we recorded a share of profits of associates of RMB436.8 million,
RMB546.3 million, RMB633.2 million and RMB378.7 million, respectively, which accounted for
17.5%, 63.3%, 54.3% and 54.0% of our net profits attributable to owners of the parent, respectively. As
part of our business strategy, we actively seek to accelerate our growth through acquisitions and
strategic investments. We plan to continue to acquire equity interests in companies in the pharmaceutical
industry with excellent operational track records. Due to these reasons, we may continue to derive
revenue from acquired businesses from time to time in the future.
Acquisitions and investments expose us to a number of risks. See ‘‘Risk Factors ― Risks Relating to
Our Businesses and Industries ― We may not be able to successfully identify acquisition targets or
complete acquisitions or integrate the acquired businesses’’ from page 62 to page 63 in this prospectus
for further information.
DISCONTINUED OPERATION
During the Track Record Period, our Group’s subsidiary, Science & Technology Imp. & Exp., was
engaged in the business of export of bedding products. We disposed of our equity interests in Science &
Technology Imp. & Exp. to an Independent Third Party in November 2011 in order to focus on the
healthcare industry.
OCCUPATIONAL HEALTH AND SAFETY
The PRC government imposes a number of regulatory requirements on pharmaceutical companies with
regard to employee safety. See ‘‘Regulatory Overview ― Occupational Health and Safety’’ for a
discussion of these requirements. We regard occupational health and safety as an important social
responsibility and have implemented safety measures at our production facilities to ensure compliance
with applicable regulatory requirements. We have established a safety supervision department at each of
our operating business entities. These safety supervision departments conduct periodic inspections of
operating facilities and processes to ensure that our pharmaceutical manufacturing, pharmaceutical
distribution and retail, diagnostic products and medical devices operations are in compliance with
existing laws and regulations.
We have adopted emergency spray equipment and volume controls to minimize the risk of injury at our
distribution centers, production facilities, warehouses and laboratories. Some of the products and
chemicals we distribute or manufacture are inherently dangerous, and we have adopted strict policies in
accordance with relevant national standards when handling such products. We have installed a safety
monitoring system in each of our distribution centers, production facilities, warehouses and laboratories
to regularly supervise our employees’ activities.
We have also adopted a safe production and accident prevention policy, which provides comprehensive
guidelines on occupational health and safety. Among other things, the policy: (i) identifies the personnel
and department responsible for accident prevention; (ii) details each employee’s responsibility to prevent
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accidents and promote safety awareness; and (iii) requires safety performance reports on a regular basis.
Our safety supervision departments conduct regular training sessions for employees on accident
prevention and management.
However, some of our business operations involve certain risks and hazards that are inherent in such
activities and may not be completely eliminated by safety measures. These risks and hazards could result
in damage to, or destruction of, properties or facilities, personal injury, environmental damage, business
interruption and possible legal liability. See ‘‘Risk Factors ― Risks Relating to Our Businesses and
Industries ― Our operations are subject to hazards and nature disasters that may affect our operations
and may not be fully covered by our insurance policies’’.
ENVIRONMENTAL MATTERS
Our pharmaceutical manufacturing, pharmaceutical distribution and retail, diagnostic products and
medical devices operations are primarily governed by general environmental protection laws and related
regulations. We must comply with relevant provisions governing environmental protection and
appraising of environmental impact as well as national and provincial standards of environmental
quality established by various government authorities.
Our pharmaceutical manufacturing operations are governed by national, provincial and local
environmental laws and regulations. The relevant laws and regulations applicable to pharmaceutical
manufacturers in China include provisions governing air emissions, water discharge, prevention and
treatment of sewage and exhaust fumes and the management and disposal of hazardous substances and
waste. Manufacturers are also required to conduct an environmental impact assessment before engaging
in new construction projects to ensure that the production processes meet the required environmental
standards to treat wastes before the wastes are discharged. The primary forms of waste generated from
our pharmaceutical manufacturing processes are air emissions, waste water, alcohol and organic waste,
which are generated in compliance with all applicable environmental rules and regulations in all material
aspects. PRC national and local environmental protection laws and regulations impose fees for the
discharge of pollutants and, in cases where the pollutants have not been properly treated, fines for such
discharge. The relevant environmental laws and regulations empower certain governmental authorities to
close any enterprise that violates such laws and regulations through the discharge of pollutants.
During the Track Record Period, we carried out the relevant environmental impact assessments before
commencing construction of our production facilities in all material aspects and have obtained all the
material permits and environmental approvals for our production facilities. To ensure compliance with
relevant laws and regulations on pollution control, we have established wastewater treatment and waste
management facilities at our pharmaceuticals site to meet the requirements of the Emission Standards of
Water Pollutants for Pharmaceutical Manufacturers, which became effective on 1 August 2008. In
addition, our production facilities comply with all relevant environmental and manufacturing standards
required by the GMP certification system. For the three years ended 31 December 2008, 2009 and 2010,
our total capital expenditure incurred for compliance with PRC environmental protection laws and
regulations was approximately RMB24.7 million. Our annual cost of compliance with environmental
laws and regulations in 2011 was approximately RMB9.6 million.
To ensure our manufacturing enterprises are in line with the requirements and standards of the
regulations of environmental protection, we have established an Environmental, Safety and Quality
Management Committee. The Committee directly reports to the president of our Group and is composed
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of a manufacture management department and functional departments which act as our functional
institution to implement the management on environmental protection. We have formulated a Reporting
and Investigation System for Environmental Protection Condition, under which, the person in charge of
environmental protection in each manufacturing enterprise is required to submit a statement of
environmental protection condition to our headquarters quarterly. We have also formulated a Spot Check
System for Environmental Protection Management, which is adopted as an important supplementary
means for safety management to the quality of the drugs. According to the results from Spot Check
System for environmental protection to each manufacturing enterprise, each manufacturing enterprise
can strictly follow the requirements of environmental protection to manufacture.
We believe we are currently in compliance with applicable national, provincial and municipal
environmental laws and regulations in all material respects and we have obtained all the relevant
government approvals in relation to our operations in all material aspects. As at the Latest Practicable
Date, we had not been the subject of any environmental complaint or administrative penalties with
respect to environmental violations, which would have a material impact on our business. In this regard,
our PRC legal adviser, Chen & Co. Law Firm, have confirmed that, during the Track Record Period, we
complied with all applicable environmental laws and regulations in all material respects.
Our compliance with existing environmental laws and regulations has not had a material adverse effect
on our financial condition and results of operations, and our management does not believe it will have
such an impact in the future. We are not aware of any pending litigation or significant financial
obligations arising from our current or past environmental practices that are likely to have a material
adverse effect on our financial position. However, we cannot predict the impact that unforeseeable
environmental contingencies or new or amended laws or regulations may have on us or our production
facilities. In this regard, as PRC environmental compliance requirements continue to evolve, we may be
required to make significant expenditures in order to comply with environmental laws and regulations
that may be adopted or imposed in the future. While we are not able to predict our annual cost of
compliance with respect to the environmental laws and regulations that may be adopted or imposed in
the future, we will endeavor to comply with all such applicable laws and regulations. For further
information on the environmental laws and regulations governing our operations, see ‘‘Regulatory
Overview ― Environmental Protection’’.
Our plans to address potential environmental laws, rules and regulations that may be adopted in the
future comprise the following: (i) designating our legal and industrial departments to oversee and
maintain our compliance with environmental protection policies; (ii) providing annual training to our
staff regarding compliance with PRC environmental laws, rules and regulations, and more frequent
training, as required upon adoption of new environmental laws, rules and regulations, and encouraging
our staff to also attend environmental protection training sessions organized by the local environmental
protection authorities; (iii) conducting weekly on-site inspections of our facilities; (iv) immediately
reporting to our general manager any violation of PRC environmental protection laws, rules and
regulations; and (v) immediately reporting to and coordinating.
INSURANCE
We maintain property insurance policies covering our inventories, equipment and facilities in accordance
with customary industry practice. We maintain product liability insurance for certain of our products as
we believe having such insurance is a good and prudent corporate practice. Nonetheless, we do not
maintain product liability insurance for all of our products or insurance covering potential liability
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relating to the release of hazardous substances in the course of production as we are not required to
maintain such insurance under PRC laws, and we believe maintaining such insurance is not a common
practice for our industries in China. For the years ended 31 December 2009, 2010 and 2011, we
maintained product liability insurance for all products manufactured or sold by our subsidiaries, Shine
Star, Huaiyin Medical, Carelife Pharma and Guilin Pharma. The product liability insurance covers
personal injuries, diseases, death and loss of property resulting from the use, consumption or operation
of the products of these subsidiaries globally. Revenue generated by the pharmaceutical products
covered by product liability insurance for the same periods totaled 42.3%, 36.2% and 33.3%,
respectively, of the external revenue of our pharmaceutical manufacturing segment. The total premium
paid was RMB0.3 million, RMB0.3 million and RMB0.3 million, respectively, for the years ended 31
December 2009, 2010 and 2011.
We significantly expanded the scope of product liability insurance coverage in 2012. Our product
liability insurance policy in 2012 is now more product-oriented, and it now covers the vast majority of
our major products, including (i) reduced glutathione of Yao Pharma; (ii) animal insulin series,
meglumine adenosine cyclophosphate for injection and heparin sodium series of Wanbang Pharma; (iii)
recombinant human erythropoietin and pemetrexed disodium of Chemo Biopharma; (iv) Mo Luo Dan of
Moluodan Pharma; (v) glimepiride, clindamycin hydrochloride, clindamycin phosphate, granisetron
hydrochloride, mitoxantrone hydrochloride, clindamycin palmitate hydrochloride, lysine acetylsalicylate
and epinastine hydrochloride of Carelife Pharma; (vi) artesunate series of Guilin Pharma; (vii)
cefmetazole sodium of Hexin Pharma; (viii) flu vaccine of Dalian Aleph; (ix) amino acid series of Shine
Star; and (x) all products of Huaiyin Medical. Revenue generated by our pharmaceutical products
covered by product liability insurance for the six months ended 30 June 2012 totaled 51.7% of the
revenue of our pharmaceutical manufacturing segment for the period. The total premium paid was
RMB0.4 million for the year ending 31 December 2012. Our criteria in selecting products to be covered
by product liability insurance includes factors such as whether the products are exported overseas, brand
reputation, financial contribution and safety profile. We plan to further expand the scope of product
liability insurance coverage in the future. Given the overall scope of insurance coverage described
above, our Directors are of the view that the insurance coverage of our Company is in line with industry
norm. See ‘‘Risk Factors ― Risks Relating to our Businesses and Industries ― We may incur losses
resulting from product liability claims or product recalls’’ from page 70 to page 71 in this prospectus.
During the Track Record Period and up to the Latest Practicable Date, to the best knowledge of our
Directors, there was no incident involving release of hazardous materials that have a material impact on
our Company. Further, we do not maintain business interruption insurance or key-employee insurance
for our Directors as we believe it is not the normal practice for our industries in China to maintain such
insurance. We carry occupational injury, medical, pension, maternity and unemployment insurance for
our employees, in compliance with applicable regulations in all material aspects, and other types of
insurance, which we consider to be adequate.
INTELLECTUAL PROPERTY
We recognize the importance of intellectual property rights to our business and are committed to their
development and protection. We rely on a combination of patents, trademarks and trade secrets as well
as employee and third-party confidentiality agreements to safeguard our intellectual property. Details of
the intellectual property rights that are material to our business are set out in the paragraph headed
‘‘Further information about our business ― Intellectual Property Rights’’ in Appendix VIII to this
prospectus.
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We own and have applied for patents to protect the technologies, inventions and improvements we
believe are significant to our business. As at 30 June 2012, we held a total of 220 patents in China, of
which 106 are invention patents, 35 are utility models and 79 are design patents. As at 30 June 2012,
we had 120 patent applications filed in China and pending the approval of the competent patent
regulatory authority. As at 30 June 2012, the remaining protection periods for our patents range from
one to 18 years. Generally, a patent holder enjoys the exclusive right to exclude others from using,
licensing and otherwise exploiting the patent in the country that issued the relevant patent. However,
there is no assurance our patents will not be challenged, which could be costly to defend and could
divert our management from their normal responsibilities.
We also rely on trademarks to protect our non-patented products. As at 30 June 2012, we maintained
643 trademark registrations in China, and own a number of trademarks recognized as Well-known
Trademarks, including �托� (Fosun), �f邦 (Wanbang) and �f�K平 (Wan Su Ping). Under applicable
PRC law, we generally have the exclusive right to use a trademark for products and services for which
such trademark has been registered with the Trademark Office. Trademark registration in the PRC is
valid for 10 years, starting from the day the registration is approved. We have also applied for the
registration of two trademarks in Hong Kong. If we believe a third party has infringed upon the
exclusive right of our registered trademark, we may, through appropriate administrative and civil
procedures, institute proceedings to request an injunction from the relevant authority or resolution of the
infringement through consultation. The relevant authority could also impose fines, or confiscate or
destroy the infringing products or equipment used to manufacture the infringing products. Our Directors,
to their best knowledge, were not aware of any past incident of infringement of our intellectual property
or counterfeiting of our products by any third party that have a material impact on our Company during
the Track Record Period and as at the Latest Practicable Date.
We regularly submit patent applications for products and technologies that we have developed in order
to actively protect our intellectual property rights. We also possess unregistered trade secrets,
technologies, know-how, processes and other intellectual property rights. Some elements of our
pharmaceutical composition, formulation and delivery, as well as manufacturing methods or processes,
involve unpatented, proprietary technology, processes, know-how or data. With respect to such
proprietary know-how that is not patentable and processes for which patents are difficult to enforce, we
rely on trade secret protection in order to safeguard our interests.
In addition to protecting our own intellectual property, our success also depends on our ability to
minimize the risk that any of our products or operations infringes on the intellectual property rights of
others. In each of our business segments, we follow a procedure under which our internal trademark
team will conduct a trademark clearance search before filing an application for the registration of a
trademark. Similarly, we follow a procedure under which our internal patent team will conduct a patent
clearance search for each product at the beginning of the product development process, and product
development is only approved if the conclusion is that the proposed product would not infringe any
third-party intellectual property rights covered in our searches. We also follow procedures to ensure that
we are not engaged in the sales of counterfeit pharmaceuticals. Our quality control department is
responsible for checking the completeness of the certification and documentation provided by our
suppliers before purchasing pharmaceutical products, and we will report to our senior management as
well as the relevant local authorities if we discover any counterfeit pharmaceuticals. We believe the risk
of infringing third-party intellectual property can be effectively reduced by our vigorous adherence to
these procedures. To date, we have not been sued on the basis of and have not undergone arbitration in
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respect of, nor have we received any notification from third parties claiming any infringement of
intellectual property or sales of counterfeit pharmaceuticals. Further, to date, we have not been the
subject of any adverse finding in an investigation or audit by any governmental authorities in respect of
any infringement of intellectual property of third parties or sales of counterfeit pharmaceuticals.
However, despite our internal control procedures, the risk of infringing on third-party intellectual
property cannot be eliminated entirely. See ‘‘Risk Factors ― Risks Relating to Our Businesses and
Industries ― We may face intellectual property infringement claims initiated by third parties’’ on page
73 and ‘‘Risk Factors ― Risks Relating to Our Businesses and Industries ― The existence of counterfeit
pharmaceutical products in the PRC pharmaceutical market may damage our brand and reputation and
have a material adverse effect on our business, financial condition, results of operations and prospects’’
on page 74 in this prospectus.
PROPERTIES
Owned properties
Buildings and units
As at 31 July 2012, we owned 395 buildings and units in the PRC, with an aggregate gross floor area of
543,612.23 square meters. The carrying value of the property interests of our Company is below 15% of
the total assets of our Company. We have obtained the relevant title certificates for 326 buildings and
units with an aggregate gross floor area of 501,454.43 square meters, among which:
. 320 buildings and units with an aggregate gross floor area of 500,552.36 square meters have
transfer type land use rights and building ownership certificates;
. Six buildings and units with an aggregate gross floor area of 902.07 square meters are built on
land with allocation type land use rights, which we have obtained the relevant approvals to
possess, use, generate income, lease, pledge and, subject to the approval from competent
government authorities, to transfer or otherwise dispose of them along with the land use rights of
parcels of land thereon. However, if we intend to transfer the properties, we are required to
complete land transfer procedures with the relevant land administration authority and pay to such
authority a land grant fee or land premium in accordance with the relevant regulations; if we lease
the properties, we are required to pay to the authority a part of the rent that is equal to the
proceeds arising from the allotted land; if we pledge the properties, we are required to pay to the
authority an amount equal to land grant fee from the proceeds generating from the properties
auction after the property is foreclosed.
We have not obtained the relevant building ownership certificates or transfer type land use rights
certificates for 69 other buildings and units with an aggregate gross floor area of 42,157.80 square
meters, representing 6.72% of the aggregate gross floor area we owned and occupied as at 31 July 2012.
There is no legal impediment for 56 of these buildings and units to obtain the relevant land use right or
building ownership certificate upon completion of the proper procedures, and we expect to obtain some
of these certificates before the end of 2012. For the remaining 13 properties, we are unable to obtain
relevant certificates due to reasons such as disputed historical errors on the old certificates with third
parties and third parties’ failure to perform their obligations, which resulted in our non-compliance. Of
these 69 defective properties, 25 buildings and units with an aggregate gross floor area of 23,425.92
square meters, which represents 3.73% of the aggregate gross floor area we owned and occupied as at
31 July 2012, are used for production purposes. The remaining defective properties are used for
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administrative, warehousing and other ancillary purposes. Given the purposes and relatively small
percentage of defective properties, and that our Company is in the process of curing these defects by
applying for the relevant certificates, our Directors are of the view that these defective properties are not
crucial to our Company. Likewise, our Directors are not aware of any safety concern for the buildings
without construction permits as the properties are still regularly used and frequently inspected by our
staff and employees.
Our PRC counsel has advised that according to the PRC Land Administration Law 《中�A人民共和��土
(
地管理法》) and the Regulations on the Implementation of the PRC Land Administration Law 《中�A人 (
民共和��土地管理法��施�l例》), for lands that we occupy without obtaining necessary approvals from
the government, we may be required to return the land to its previous owner, demolish and remove
buildings constructed on the land, restore the land to its original condition, or turn over the buildings to
the government, and we may be fined an amount up to RMB30 per square meter. For properties without
programming rights, we may be fined an amount of up to 10% of the consideration paid for the relevant
construction and we may be required to demolish and remove buildings constructed, according to the
PRC City and Village Programming Law 《中�A人民共和��城�l���法》). Programming rights (建�O工
(
程����S可�C) refer to the right to construct buildings in accordance with the government’s rural and
urban plans under the PRC Urban and Rural Planning Law 《中�A人民共和��城�l���法》). For
(
properties without construction permits, we may be fined an amount of up to 2% of the consideration
paid under the relevant construction contracts, according to the PRC Construction Law 《中�A人民共和
(
��建�B法》) and the Regulations on Quality Management of Construction Projects 《建�O工程�|量管理
(
�l例》). The maximum potential liability for our property non-compliance is no more than RMB1.91
million. None of our production plants are affected by any of the property defects and therefore the non-
compliance has no impact on our production capacity. The construction cost for the buildings that may
be required to be relocated or demolished as at 31 July 2012 is RMB12.58 million. We have already
relocated approximately 19,954.32 square meters of defective properties to alternative locations. For the
remaining defective properties, the expected costs of relocation if we are required to do so is no more
than RMB0.3 million. We have taken actions or will take actions to relocate some of the affected
properties to alternative locations, and find suitable alternative properties for the remaining affected
properties and confirm there will be no major problems if we are required to relocate them. Our
business, financial condition and results of operations may be affected due to the relocation costs
incurred, the time involved, the loss of expected revenue and profits and the construction costs for
replacement buildings. See ‘‘Risk Factors ― Risks Relating to Our Businesses and Industries ― Our
right to occupy and use some of our land and buildings is subject to legal uncertainties’’ on page 77 in
this prospectus for more details.
Buildings under construction
As at 31 July 2012, we had 44 buildings, with an aggregate planned gross floor area of approximately
331,062.94 square meters currently under construction. We have obtained the land use right certificate
for the land occupied and the relevant construction approvals and permits for those buildings. According
to our PRC legal adviser, Chen & Co. Law Firm, there is no legal impediment in obtaining building
ownership certificates upon the completion of the construction and all inspection proceedings of these
buildings.
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Vacant land
As at 31 July 2012, we occupied five parcels of vacant land with a total site area of 110,107.39 square
meters. They are planned to be used for warehousing, staff housing and production purposes. We have
obtained transfer type land use rights certificates for those parcels of land with a total site area of
110,107.39 square meters.
Leased properties
As at 31 July 2012, we also leased from third parties 174 buildings and units, with an aggregate gross
floor area of approximately 83,803.92 square meters, in the PRC. The lessors have provided the building
ownership certificates or confirmed filing of lease registrations with competent local authorities for 161
building and units with an aggregate gross floor area of approximately 71,443.36 square meters. For the
remaining 13 buildings and units with an aggregate gross floor area of 12,360.56 square meters, the
lessors have not provided the relevant title ownership certificates or documents evidencing that the
relevant lessors have requisite titles or rights to lease the properties to us. We leased 41 properties
buildings and units with an aggregate gross floor area of 43,342.86 square meters to third parties as at
31 July 2012.
A lessor’s failure to duly obtain title to the property it has leased to us may affect the usage right of
these lease properties, we may encounter difficulties in continuing to lease and use the properties. As at
the Latest Practicable Date, our business operations have not been disrupted due to our lessors’ lack of
relevant title ownership certificates or lease right certificates or documents or the lessors’ registration
default or failure to register the lease in relation to the relevant lease agreements. In addition, the lessors
of six properties with an aggregate gross floor area of 493.50 square meters have issued confirmation
letters by which they undertake to indemnify any loss suffered by us that may result from such
deficiency of title. Our Directors therefore do not expect any of these defects in title relating to our
leased property would materially and adversely affect our business, and if necessary, can be replaced by
comparable premises without a material adverse effect on our business, results of operations and
financial condition.
Material Property Analysis
According to the investigation of Jones Lang LaSalle Corporate Appraisal and Advisory Limited, an
independent valuer, the proportion of carrying amount of all the properties held by our Group is small as
compared to the total assets of our Group. Moreover, none of each property contributes a significant
portion of revenue to our Group. Jones Lang LaSalle Corporate Appraisal and Advisory Limited also has
not found any encumbrances, liens, pledges, mortgages against the property or use of the property that
may impact the operations of our Group. Jones Lang LaSalle Corporate Appraisal and Advisory Limited
is of the view that there is no material property held by our Group.
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The table below shows a summary of the property interests rented and occupied by our Group which are
not covered in ‘‘Appendix IV ― Property Valuation’’.
Brief description of Gross floor area/ Terms of tenure
Business segment properties leasable area Usage (year of leasehold expiry) Average effective rent
Pharmaceutical 15 leased properties in 24,886.77 sq.m. Production, office, Expiry dates between Average daily rent of
manufacturing the PRC storage, residential 9 November 2012 and approximately
segment and ancillary 31 July 2020 RMB0.58 per sq.m.
2 leased properties in 666.19 sq.m. Office and lab for Expiry dates on Average daily rent of
the United States research and 31 August 2013 and approximately
development 31 May 2014 RMB1.58 per sq.m.
1 leased property in 400 sq.m. Office and residential Expiry date on Average daily rent of
Ghana 16 May 2014 approximately
RMB0.79 per sq.m.
1 leased property in 90 sq.m. Office Expiry date on Average daily rent of
Ivory Coast 10 August 2015 approximately
RMB3.52 per sq.m.
Diagnostic products 14 leased properties in 12,711.1 sq.m. Production, office and Expiry dates between Average daily rent of
and medical the PRC storage 31 July 2012 and approximately
devices segment 29 February 2016 RMB2.0 per sq.m.
1 leased property in 198.06 sq.m. Office Expiry date on Average daily rent of
Hong Kong 8 February 2015 approximately
RMB5.36 per sq.m.
Pharmaceutical 137 leased properties 39,205.64 sq.m. Retail and storage Expiry dates between Average daily rent of
distribution and in the PRC 31 December 2011 and approximately
retail segment 31 August 2025 RMB1.89 per sq.m.
(exclusive of profit
sharing part)
Others 8 leased properties in 7,000.41 sq.m. Office Expiry dates between 9 Average daily rent of
the PRC October 2012 and 30 approximately
November 2014 RMB3.55 per sq.m.
As at the Latest Practicable Date, among the above leased properties, the lease agreements of 13
properties are expired. As confirmed by our Company, these properties are still occupied and used by
our Group. The relevant lease renewals are under processing.
Property Valuation
Jones Lang LaSalle Corporate Appraisal and Advisory Limited, an independent property valuer, valued
the capital value of our real property interests attributable to our Company at approximately RMB2,129
million as at 31 July 2012. The text of the letter and the valuation certificates issued by Jones Lang
LaSalle Corporate Appraisal and Advisory Limited in connection with its valuations are set out in
‘‘Appendix IV ― Property Valuation’’ to this prospectus.
INTERNAL CONTROL
As a public company listed on the Shanghai Stock Exchange, in order to fulfill the internal control
requirements imposed by CSRC, Shanghai Stock Exchange and other government authorities, we have
established internal control systems such as organizational framework, policies and procedures that are
designed to monitor and control potential risks areas relevant to our business operations. Such policies
and procedures include, but are not limited to, anti-fraud policy which became effective in 2006 and
other required policies in compliance with all the relevant regulations. Our Company has formulated the
Provisional Regulations of Shanghai Fosun Pharmaceutical (Group) Co., Ltd. Relating to the
Prohibition of Commercial Briberies (上海�托轻t�(集�F)股份有限公司�P於禁止商�I�V�T�盒幸�定)
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in 2006, and established the Action Plan of Shanghai Fosun Pharmaceutical (Group) Co., Ltd. for Anti-
commercial Briberies (上海�托轻t�(集�F)股份有限公司反商�I�V�T行�臃桨�) , and has issued the
Notice Relating to Legal Aspect of Strengthening Enterprises in the Work of Anti-commercial Briberies
(�P於法��l�加��企�I反商�I�V�T工作的通知) to all of our subsidiaries in November 2011, with a
view to continuously improve our internal control measures. Our anti-bribery management committee is
responsible for the overall supervision and coordination of our anti-bribery activities. The committee is
chaired by our chief executive officer and its members include senior officers in each of our business
segments. Under the anti-bribery management committee, we have an anti-bribery task force, which is
responsible for the daily execution of anti-bribery related works. The anti-bribery task force is led by the
head of the legal department and its members include the heads of our finance department, internal
auditing department and brand and public relationship department. The anti-bribery task force reviews
internal bribery-related allegations and reports, and conducts investigations and/or undertakes
rectification actions accordingly. In addition, we have provided and will continue to provide anti-
corruption compliance training periodically to our employees and distributors to enhance their
compliance with applicable laws and regulations. To prevent our distributors from engaging in
corruption, bribery, or other improper conduct, we require our distributors to undertake that they will
comply with all applicable laws and regulations in the distribution agreements, and we also plan to ask
our distributors to enter into separate anti-bribery agreements with us and/or sign undertakings of
integrity by the first half of 2013. Each of our business segments has designated at least one officer
responsible for enforcing the anti-corruption rules. Such officer shall report to its immediate parent
company upon discovery of any corruption case or misconduct and report to the regulatory authority
where appropriate.
To enhance the internal control of our Group, our Company has engaged an independent internal control
consultant to review the internal control of our Company and our subsidiaries. The internal control
consultant was of the view that no significant deficiency of internal control was identified during the
period of evaluation. The internal control consultant has provided recommendations for all findings,
which our Company has adopted or has undertaken to adopt to remedy the issues identified in the
findings. For example, at the suggestion of the internal control consultant, our Company formulated the
Anti-fraud Regulations and Reporting System of Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (��
星�t�集�F反舞弊�e�笾贫�) and published that internally to our subsidiaries in September 2011.
During the Track Record Period and up to the Latest Practicable Date, our Directors, to their best
knowledge, were not aware of any past incidents involving our employees or distributors engaging in
corruption or other improper conducts that had a material impact on our Company, and believe that we
were in compliance in all material respects with the laws and regulations disclosed under the
‘‘Regulatory Overview’’ section starting on page 121 of this prospectus. Our Company will also continue
to implement and enforce the proper internal control procedures to ensure ongoing compliance with all
applicable laws and regulations, including the prevention of our employees or affiliates engaging in any
corruption, bribery, health fraud and abuse or improper conduct and other incidents of non-compliance.
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PERMITS, LICENSES AND APPROVALS
For each of our business segments, we are required to obtain certain permits, licenses and approvals.
During the Track Record Period and up to the Latest Practicable Date, we had obtained all requisite
permits, licenses and approvals for our business operations. The following is a description of the validity
periods of the significant approvals:
Pharmaceutical Manufacturing
Pharmaceutical Manufacturing Permit
Our pharmaceutical manufacturing permits are valid for five years and may be renewed at least six
months prior to its expiration date upon a re-examination by the relevant authority.
Good Manufacturing Practices
Our GMP certificates are generally valid for five years. The certificates may be renewed at least six
months prior to its expiration.
Approval and Registration of Pharmaceutical Products
Our registration certificate of medicines are valid for five years. The certificates should be renewed
within six months prior to expiration.
Pharmaceutical Distribution
Pharmaceutical Operation Permit
Our pharmaceutical operation permits are valid for five years. We need to apply for an extension of the
permit six months prior to its expiration, and extension will be granted only after a re-examination of
the permit holder by the authority which issued the permit.
Good Supply Practices
Our GSP certificates are valid for five years and may be extended three months’ prior to its expiration
upon a re-examination by the relevant authority.
Manufacturing and Distribution of Medical Devices
Medical Devices Manufacturing Permit
Our medical device manufacturing enterprise licenses are valid for five years. Re-inspection is required
for the renewal of the license.
Registration of Medical Devices Manufacturing
Our registration certificates of medical devices are valid for four years, which must be renewed within
six months prior to expiration. The registration certificate can be invalidated if the production has been
terminated for more than two consecutive years.
Medical Device Operation Permit
Our medical device operation permits are valid for five years and is renewable upon expiration.
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Online Pharmaceutical Operation Permit
Our qualification certificate for online pharmaceutical operation is valid for five years and may be
renewed by filing for an extension at least six months prior to its expiration date and undergoing a
reexamination by the relevant authority. Our qualification certificate for delivering public available drug
information services over the internet is valid for five years and may be renewed by filing for an
extension at least six months prior to its expiration date and undergoing a reexamination by the relevant
authority.
See the section headed ‘‘Regulatory Overview’’ section starting on page 121 for further information on
permits, licenses and approvals applicable to our operations.
LEGAL AND REGULATORY MATTERS
During the Track Record Period and as at the Latest Practicable Date, we were not a party to any actual
or pending litigation, legal dispute, claim or administrative proceedings of material importance to which
our Company or any of its subsidiaries is a party, and we are not aware of any threatened material
litigation, legal dispute, claim or administrative proceedings against our Company or any of our
subsidiaries. We may from time to time become a party to various litigations, legal disputes, claims or
administrative proceedings arising in the ordinary course of our business. In reviewing each of these
litigations, legal disputes, claims or administrative proceedings, our Directors take into consideration
various factors, including but not limited to opinions and advice from our professional legal and/or other
advisers and specific facts and circumstances of each case, in forming a view of whether such case will
be of material importance to our Company. We have not disclosed litigations, legal disputes, claims or
administrative proceedings arising in the ordinary course of our business that are not considered of
material importance in this prospectus. When forming a view of whether a particular litigation, legal
dispute, claim or administrative proceeding will be of material importance to our Company, our
Directors take into consideration various factors, including but not limited to opinions and advice from
our professional legal and/or other advisers and specific facts and circumstances of each case. Opinions
and advice from our professional legal and/or other advisers on a particular litigation, legal dispute,
claim or administrative proceeding may include views on whether a particular litigation, legal dispute,
claim or administrative proceeding has any legal basis.
During the Track Record Period and as at the Latest Practicable Date, there were no material personal
injury, death or product liability claims that were brought against us for damages in connection with our
business operations.
Our subsidiaries, Phoenix Jiangshan and Baotou Jinxiang, did not open social insurance accounts for
their employees as required by the PRC laws and regulations. According to our PRC legal adviser, Chen
& Co. Law Firm, the maximum amount of possible fines to be imposed on our Group for the non-
compliance is three times the amount of the outstanding social insurance premiums. Phoenix Jiangshan
is now in the process of applying for opening social insurance accounts for its employees. Upon the
completion of application processes, Phoenix Jiangshan will make the social insurance contributions for
its employees in compliance with the relevant PRC laws and regulations. Baotou Jinxiang is in the
process of liquidation. Our subsidiaries Phoenix Jiangshan, Baotou Jinxiang and Pengkang Pharma did
not pay the social insurance premiums for their employees and Wanbang Fulin did not pay the maternity
insurance, which is a part of the social insurance required by the PRC laws and regulations, during the
Track Record Period. The total amount of outstanding social insurance premiums during the Track
Record Period was RMB318,000. According to our PRC legal adviser, Chen & Co. Law Firm, we could
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BUSINESS
be ordered to pay such premiums due within a specified period of time and imposed a late payment fine
at the rate of 0.05% per day from the date of delinquency, and if we still fail to make the payment
during the specified period of time, the maximum amount of possible fines to be imposed on us for the
non-compliance is three times the amount of the outstanding social insurance premiums. The maximum
penalty we face for the non-compliance during the Track Record Period is RMB954,000. Pengkang
Pharma and Wanbang Fulin had started to pay the relevant social insurance premiums for its employees
as required by the PRC laws and regulations since July 2011 and January 2012, respectively. As
Phoenix Jiangshan, Baotou Jinxiang, Pengkang Pharma and Wanbang Fulin have few employees and the
outstanding social insurance premiums are limited, we believe that the impact of the non-compliance
limited. Moreover, we believe that even if any member of our Group is required to pay the outstanding
amount of social insurance premiums and that fines are imposed against us for the non-compliance, our
business and operating results will not be adversely impacted in any material respect.
Our subsidiaries, Phoenix Jiangshan, Jimin Cancer Hospital and Baotou Jinxiang, did not open housing
fund accounts for its employees as required by the PRC laws and regulations. According to our PRC
legal adviser, Chen & Co. Law Firm, the maximum amount of possible fines to be imposed on Phoenix
Jiangshan for the non-compliance is RMB0.05 million. Phoenix Jiangshan and Jimin Cancer Hospital are
now in the process of applying for opening housing fund accounts for its employees. Upon the
completion of application processes, Phoenix Jiangshan and Jimin Cancer Hospital will make the
housing fund contributions for its employees in compliance with the relevant PRC laws and regulations.
Baotou Jinxiang is in the process of liquidation. Our subsidiaries, Wanbang Fulin, Phoenix Jiangshan,
Yaneng Bioscience, Aohong Pharma, Pengkang Pharma, Qidong Jinxiang, Baotou Jinxiang and Jimin
Cancer Hospital, did not make housing fund contributions for their employees as required by the PRC
laws and regulations during the Track Record Period or prior to their acquisitions by us. The total
amount of outstanding housing fund contribution during the Track Record Period was approximately
RMB1,954,500. According to our PRC legal advisers, Chen & Co. Law Firm, we could be ordered to
make such contributions. Other than making the contributions, we do not face any other fine or penalty
as a result of the non-compliance according to the Regulations for Housing Fund Administration.
Aohong Pharma, Yaneng Bioscience, Pengkang Pharma, Wanbang Fulin and Qidong Jinxiang started to
pay the housing funds for their employees as required by the PRC laws and regulations since July 2009,
December 2010, July 2011, January 2012 and April 2012, respectively.
We acquired Yaneng Bioscience in September 2010, Aohong Pharma in September 2011 and Jimin
Cancer Hospital in December 2011. We have the right to ask the transferors to indemnify us for all
amounts payable in respect of the outstanding payments and for all fines, penalties, damages and
liabilities which are or may become payable by us as a result of the non-compliance prior to the
acquisitions as mentioned above. In light of the above and given the few number of employees in
Pengkang Pharma, Wanbang Fulin, Baotou Jinxiang, Qidong Jinxiang and Phoenix Jiangshan, we
believe that the impact of the non-compliance is limited. Moreover, we believe that even if any member
of our Group is required to make the outstanding housing fund contributions and that fines are imposed
against us for the non-compliance, our business and operating results will not be adversely impacted in
any material respect.
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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
GENERAL
The management and affairs of our business are supervised by our Board, which consists of nine
Directors: two executive Directors, three non-executive Directors and four independent non-executive
Directors upon Listing. Our Directors were all elected by our Shareholders for a term of three years,
which is renewable upon re-election and re-appointment.
Our board of Supervisors currently consists of three members. Except for the chief Supervisor who was
elected by employees, our Supervisors were elected by our Shareholders for a term of three years, which
is renewable upon re-election and re-appointment.
Save as disclosed in this prospectus, each of our Directors, Supervisors and members of our senior
management has not been a director of any public company the securities of which are listed on any
securities market in Hong Kong or overseas in the three years immediately preceding the date of this
prospectus.
As at the Latest Practicable Date, neither our Company nor our Directors has committed any breach, or
been a subject of investigation for any breach or suspected breach, of any listing rules or relevant
regulations since the listing of our A Shares on the Shanghai Stock Exchange.
DIRECTORS
The following table sets forth information regarding our Directors:
Name Age Position Appointment Date Roles and Responsibilities
Mr. Chen Qiyu (��⒂�) . . . . . 40 Executive Director and 10 May 2005 Responsible for the overall development and strategic
chairman planning of our Group
Mr. Yao Fang (姚方). . . . . . . . 43 Executive Director, 9 June 2010 Responsible for the daily operations of our Group
vice chairman
and general manager
Mr. Guo Guangchang (郭�V昌) . 45 Non-executive Director 31 May 1995 Responsible for giving strategic advice and
recommendations on the operations of our Group
Mr. Wang Qunbin (汪群斌) . . . 43 Non-executive Director 31 May 1995 Responsible for giving strategic advice and guidance
on the business and operations of our Group
Mr. Zhang Guozheng (章��政) . 47 Non-executive Director 26 May 2008 Responsible for giving strategic advice and guidance
on the business and operations of our Group
Mr. Guan Yimin (管一民) . . . . 62 Independent non- 28 May 2007 Responsible for providing guidance and supervision
executive Director regarding the financial management of our Group
Mr. Han Jiong (�n炯) . . . . . . . 43 Independent non- 23 April 2009 Responsible for giving strategic advice and guidance
executive Director on the business and operations of our Group
Dr. Zhang Weijiong (���S炯) . . 59 Independent non- 9 June 2010 Responsible for giving strategic advice and guidance
executive Director on the business and operations of our Group
Mr. Li Man-kiu Adrian David 39 Independent non- 30 October 2012 Responsible for giving strategic advice and guidance
(李民��) . . . . . . . . . . . . . . executive Director on the business and operations of our Group
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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
Executive Directors
Mr. Chen Qiyu (��⒂�), aged 40, is our executive Director and chairman of the Board. Mr. Chen
joined our Group in April 1994 and was appointed a Director on 10 May 2005. Mr. Chen is responsible
for the overall development and strategic planning of our Group. Prior to joining our Group, Mr. Chen
worked at Shanghai RAAS Blood Product Corporation (上海�R士血�u品有限公司), now known as
Shanghai RAAS Blood Product Company Limited (上海�R士血液�u品股份有限公司), a company listed
on the growth enterprise board of the Shenzhen Stock Exchange (stock code: 002252) from July 1993 to
March 1994. Mr. Chen is a non-executive director of Sinopharm, a company listed on the Hong Kong
Stock Exchange (stock code: 01099), a director of Zhejiang D.A. Diagnostic Company Limited (浙江迪
安�\�嗉夹g股份有限公司), a company listed on the growth enterprise board of the Shenzhen Stock
Exchange (stock code: 300244), and was a non-executive director of Forte, a company delisted from the
Hong Kong Stock Exchange in May 2011. Mr. Chen is the president of China Pharmaceutical Industry
Research and Development Association (中���t�工�I科研�_�l促�M��), vice council chairman of the
Fourth Council of China Medicinal Biotechnology Association (中���t�生物技�g�f��), vice president
of the Eighth Council of China Pharmaceutical Industry Association (中��化�W�u�工�I�f��), chairman
of the Shanghai Biopharmaceutical Industry Association (上海生物�t�行�I�f��) and council member
of the Shanghai Society of Genetics (上海市�z��W��). Mr. Chen obtained a bachelor’s degree in
genetics from Fudan University (�偷┐�W) in July 1993 and a master of business administration from
China Europe International Business School (中�W���H工商�W院) (‘‘CEIBS’’) in September 2005.
Mr. Yao Fang (姚方), aged 43, is our executive Director, vice chairman of the Board and general
manager. Mr. Yao joined our Group in April 2010 and was appointed a Director on 9 June 2010. Mr.
Yao is mainly responsible for the daily operations of our Group. Prior to joining our Group, from 1993
to 2009, Mr. Yao was successively the assistant general manager of the international business
department of Shanghai Wanguo Securities Company Limited, now known as Shenyin & Wanguo
Securities Company Limited (申�y�f���C券股份有限公司), general manager of Shanghai Industrial
Assets Management Company Limited (上海上���Y�a��I有限公司), general manager of Shanghai
Industrial Management (Shanghai) Company Limited (上��管理(上海)有限公司), managing director of
Shanghai Industrial Pharmaceutical Investment Company Limited (上海���I�t�投�Y股份有限公司), a
company delisted from the Shanghai Stock Exchange on 12 February 2010, chairman of Shanghai
Overseas Company (上海海外公司), non-executive director of Lianhua Supermarket Holdings Company
Limited (��A超市股份有限公司), a company listed on the Hong Kong Stock Exchange (stock code:
00980), and executive director of Shanghai Industrial Holdings Limited (上海���I控股有限公司), a
company listed on the Hong Kong Stock Exchange (stock code: 00363). Mr. Yao is currently a non-
executive director of BioSino Bio-Technology and Science Incorporation (中生北控生物科技股份有限
公司), a company listed on the Hong Kong Stock Exchange (stock code: 08247), and chief supervisor of
Sinopharm, a company listed on the Hong Kong Stock Exchange (stock code: 01099). Mr. Yao is a vice
chairman of the Shanghai Pharmaceutical Industry Association (上海�t�行�I�f��) since June 2010.
Mr. Yao obtained a bachelor of economics from Fudan University (�偷┐�W) in July 1989 and a master
of business administration from The Chinese University of Hong Kong in December 1993.
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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
Non-executive Directors
Mr. Guo Guangchang (郭�V昌), aged 45, is our non-executive Director. Mr. Guo joined our Group in
January 1994 and was appointed a Director on 31 May 1995. Mr. Guo was chairman of the Board from
July 1995 to October 2007. Mr. Guo is the executive director and chairman of Fosun International, a
company listed on the Hong Kong Stock Exchange (stock code: 00656), the director of Club
Méditerranée SA, a company listed on the NYSE Euronext Paris, and a director of Forte, a company
delisted from the Hong Kong Stock Exchange in May 2011. Mr. Guo was a non-executive director of
Sinopharm, a company listed on the Hong Kong Stock Exchange (stock code: 01099). Mr. Guo is the
vice president of the Shanghai Federation of Industry and Commerce (上海市工商�I�合��(商��)),
honorary chairman of the Zhejiang Chamber of Commerce in Shanghai (上海市浙江商��) and a deputy
to the National People’s Congress of the PRC. Mr. Guo was the recipient of the Directors of the Year
Awards 2010 (Non Hang Seng Index Constituents) awarded by The Hong Kong Institute of Directors in
November 2010. Mr. Guo obtained a bachelor of philosophy and a master of business administration
from Fudan University (�偷┐�W) in July 1989 and July 1999, respectively.
Mr. Wang Qunbin (汪群斌), aged 43, is our non-executive Director. Mr. Wang joined our Group in
January 1994, and was appointed a Director on 31 May 1995. Mr. Wang has served as our Director and
general manager from 1995 to 2007 and was the chairman of the Board from October 2007 to June
2010. Prior to joining our Group, Mr. Wang was a lecturer at the Genetic Research Institute of Fudan
University (�偷┐�W) from September 1991 to September 1993. Mr. Wang is an executive director and
president of Fosun International, a company listed on the Hong Kong Stock Exchange (stock code:
00656), a non-executive director of Sinopharm, a company listed on the Hong Kong Stock Exchange
(stock code: 01099), a director of Henan Lingrui Pharmaceutical Company Limited (河南羚�J�u�股份
有限公司), a company listed on the Shanghai Stock Exchange (stock code: 600285), and a director of
Forte, a company delisted from the Hong Kong Stock Exchange in May 2011. Mr. Wang was a director
of Shanghai Friendship Group Co., Ltd. (上海友�x集�F股份有限公司), a company listed on the
Shanghai Stock Exchange (stock code: 600827). Mr. Wang is the vice chairman of China Chamber of
International Commerce (中�����H商��) and chairman of the Huzhou Chamber of Commerce in
Shanghai (上海湖州商��). Mr. Wang was named a ‘‘China’s Top 10 Professional Manager’’ in the
pharmaceuticals sector in 2004. Mr. Wang obtained a bachelor of science from Fudan University (�偷�
大�W) in July 1991.
Mr. Zhang Guozheng (章��政), aged 47, is our non-executive Director. Mr. Zhang joined our Group in
January 2007 and was our deputy general manager and chief financial officer until May 2009. Mr.
Zhang was appointed a Director on 26 May 2008. Prior to joining our Group, Mr. Zhang was a teaching
assistant at Shanghai University of Finance and Economics (上海��大�W) (‘‘SUFE’’) from September
1987 to April 1993 and was the chief audit officer and chief financial officer of Bright Dairy and Food
Co., Ltd. (光明乳�I股份有限公司), a company listed on the Shanghai Stock Exchange (stock code:
600597), from May 2001 to December 2006. Currently, Mr. Zhang is a director of Fosun Finance, senior
assistant to the president as well as deputy general manager of the finance division of Fosun High Tech,
and chairman of Tebon Securities Company Limited. Mr. Zhang was a supervisor of Forte, a company
delisted from the Hong Kong Stock Exchange in May 2011. Mr. Zhang obtained a bachelor of
economics from Xiamen University (�B�T大�W) in July 1987 and a master of professional accountancy
from The Chinese University of Hong Kong (香港中文大�W) in December 2004. Mr. Zhang qualified as
a certified public accountant in the PRC in June 2000.
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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
Independent non-executive Directors
Mr. Guan Yimin (管一民), aged 62, was appointed as an independent non-executive Director on 28
May 2007. Mr. Guan is a professor at the Shanghai National Accounting Institute (上海��家����W院)
(‘‘SNAI’’). Mr. Guan taught at SUFE from January 1983 to September 2000 and was a professor in the
accounting department and associate dean and assistant to the president in the adult education school
before joining SNAI as vice president in September 2000. Mr. Guan has solid work experience in
accounting and financial management. Mr. Guan is an independent non-executive director of Bank of
Shanghai (上海�y行股份有限公司), China Haisum Engineering Company Limited (中��海�\工程科技
股份有限公司), a company listed on the Shenzhen Stock Exchange (stock code: 002116) and Shanghai
Jiahua United Company Limited (上海家化�合股份有限公司), a company listed on the Shanghai Stock
Exchange (stock code: 600315). Mr. Guan also serves as the chairman of the audit committee of these
companies in which he is required to review and analyse the audited financial statements of the relevant
companies. In addition, Mr. Guan has experience in reviewing and monitoring the adoption of internal
control measures. Mr. Guan obtained a bachelor of accounting from SUFE in January 1983.
Mr. Han Jiong (�n炯), aged 43, was appointed as an independent non-executive Director on 23 April
2009. Mr. Han co-founded Llinks Law Offices (通力律��事�账�) in September 1998 and is currently its
managing partner. Prior to that, Mr. Han was a paralegal and an associate at Shanghai Jinmao Law Firm
(上海金茂律��事�账�) from July 1992 to September 1998. Mr. Han was a member of the Seventh and
Eighth CSRC Public Offering Review Committee from January 2005 to April 2007, was appointed by
the Ministry of Human Resources and Social Security of the PRC (中�A人民共和��人力�Y源和社��保
障部) as a member of the First and Second Review Committee for the Enterprise Annuity Fund
Management Association (企�I年金基金管理�C���u��委�T��) from June 2005 to August 2009, and is a
council member of the Shanghai Bar Association (上海市律���f��) since April 2008. Mr. Han obtained
a bachelor of laws from East China University of Political Science and Law (�A�|政法大�W) in July
1992. Mr. Han qualified as a lawyer in the PRC in February 1993.
Dr. Zhang Weijiong (���S炯), aged 59, was appointed as an independent non-executive Director on 9
June 2010. Dr. Zhang joined CEIBS in 1997 and serves as professor of management, director of EMBA
program, president (Chinese affairs), co-dean and the director of the Centre of Chinese Private
Enterprises in CEIBS. Prior to joining CEIBS, Dr. Zhang was associate dean and associate professor at
the Management School of Shanghai Jiao Tong University (上海交通大�W) (‘‘SJTU’’) from 1982 to
1997. Dr. Zhang is currently a director of Shanghai Automatic Industry Corporation (Group) (�A域汽�
系�y股份有限公司), a company listed on the Shanghai Stock Exchange (stock code: 600741), and an
independent non-executive director of Springland International Holdings Limited (�A地���H控股有限公
司), a company listed on the Hong Kong Stock Exchange (stock code: 01700). Dr. Zhang obtained a
bachelor of engineering from SJTU in March 1982. Dr. Zhang received a master of science in business
administration and a doctoral degree in philosophy from the University of British Columbia, Canada in
May 1989 and May 1997, respectively.
Mr. Li Man-kiu Adrian David (李民��), JP, aged 39, was appointed as an independent non-executive
Director at our Company’s general meeting held on 17 April 2012 and his appointment is effective upon
Listing. Mr. Li joined The Bank of East Asia, Limited (‘‘BEA’’), a company listed on the Hong Kong
Stock Exchange (stock code: 00023) in August 2000. Mr. Li currently serves as the deputy chief
executive of BEA and is responsible for the overall management of BEA’s business activities in Hong
Kong. Mr. Li is also an independent non-executive director of the following companies listed on the
Hong Kong Stock Exchange: Sino Land Company Limited (stock code: 00083), Tsim Sha Tsui
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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
Properties Limited (stock code: 00247), Sino Hotels (Holdings) Limited (stock code: 01221), China
State Construction International Holdings Limited (stock code: 03311), and COSCO Pacific Limited
(stock code: 01199), and an alternate independent non-executive director of San Miguel Brewery Hong
Kong Limited (stock code: 00236). In addition, Mr. Li is an alternate director of AFFIN Holdings
Berhad, a company listed on the Bursa Malaysia Securities Berhad. Mr. Li is currently a member of the
Guangdong Provincial Committee of the Chinese People’s Political Consultative Conference, a member
of the All-China Youth Federation, deputy chairman of the Beijing Youth Federation, a counsellor of the
Hong Kong United Youth Association, a board member of The Community Chest of Hong Kong,
chairman of the Vocational Training Council’s Banking and Finance Industry Training Board, a member
of the MPF Industry Schemes Committee of the Mandatory Provident Fund Schemes Authority, an
advisory committee member of the Hong Kong Baptist University’s School of Business, and a vice
president of the council of The Hong Kong Institute of Bankers. Mr. Li obtained a bachelor of arts and a
master of arts in law from the University of Cambridge in July 1995 and May 1999, respectively, and a
master of management from Kellogg School of Management, Northwestern University in June 2000. Mr.
Li was admitted as a solicitor of the Supreme Court of England and Wales and the High Court of Hong
Kong in September 1998 and February 1999, respectively.
Save as disclosed herein, to the best of the knowledge information and belief of our Directors having
made all reasonable enquiries, there are no other matters with respect to the appointments of our
Directors and there is no information relating to our Directors that should be disclosed pursuant to Rule
13.51(2) of the Hong Kong Listing Rules.
SUPERVISORS
The following table sets forth information regarding our Supervisors:
Name Age Position Appointment Date Roles and Responsibilities
Mr. Liu Hailiang (柳海良) . . . . . . 63 Chief Supervisor 28 May 2004 Responsible for overseeing the Board
Mr. Wang Pinliang (王品良) . . . . . 43 Supervisor 9 June 2010 Responsible for overseeing the Board
Mr. Cao Genxing (曹根�d) . . . . . . 65 Supervisor 26 May 2008 Responsible for overseeing the Board
Mr. Liu Hailiang (柳海良), aged 63, was appointed as our Supervisor on 28 May 2004 and has served
as our chief Supervisor since 26 May 2008. Mr. Liu joined our Group in March 2000 and served as the
assistant to general manager and personnel director of our Company. Prior to joining our Group, Mr. Liu
worked in Shanghai RAAS Blood Products Corporation (上海�R士血�u品有限公司), now known as
Shanghai RAAS Blood Products Company Limited (上海�R士血液�u品股份有限公司), a company listed
on the growth enterprise board of the Shenzhen Stock Exchange (stock code: 002252), as a human
resources manager from November 1989 to March 1995. Mr. Liu was the human resources manager of
Johnson & Johnson China Limited from March 1995 to March 2000. Currently, Mr. Liu is a non-
executive director of Sinopharm, a company listed on the Hong Kong Stock Exchange (stock code:
01099). Mr. Liu completed an associate education in business administration from Shanghai
Construction Institute (上海市建�B�？�W校) in September 1986.
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Mr. Wang Pinliang (王品良), aged 43, was appointed as our Supervisor on 9 June 2010. Mr. Wang
joined our Group in July 2000, and served as the deputy general manager, vice president and chief
accountant in the finance department of our Company from July 2000 to February 2009. Prior to joining
our Group, Mr. Wang worked for Sinopec Shanghai Petrochemical Company Limited (上海石油化工股
份有限公司) from July 1991 to July 2000. Mr. Wang is the deputy general financial officer, general
manager of the financial and accounting department and the general manager of the financial analysis
department of Fosun High Tech and was a director of Shanghai Yuyuan, a company listed on the
Shanghai Stock Exchange (stock code: 600655) from September 2009 to December 2010. Mr. Wang
obtained a bachelor of accounting from SUFE in July 1991 and a master of accounting from The
Chinese University of Hong Kong in December 2007. Mr. Wang qualified as a certified public
accountant in the PRC in May 1996.
Mr. Cao Genxing (曹根�d), aged 65, was appointed as our Supervisor on 26 May 2008. Mr. Cao
currently serves as the secretary to the president of Dahua Group Limited (大�A(集�F)有限公司) and
assistant to the chairman of Shanghai Shenxin Group Limited (上海申新(集�F)有限公司). Mr. Cao
graduated from Central Agricultural Broadcasting and Television School (中央�r�I�V播���W校) with
a diploma in agricultural science in December 1985. Mr. Cao graduated from Shanghai Baoshan District
Vocational University (上海��山�^�I�N大�W) with a diploma in party and government management in
January 1991.
SENIOR MANAGEMENT
The following table sets forth information regarding our senior management:
Name Age Position
Mr. Fan Banghan (范邦翰) . . . . . . . . . . . 59 Senior deputy general manager
Mr. Li Xianlin (李�@林) . . . . . . . . . . . . . 57 Senior deputy general manager
Dr. Qiao Zhicheng (�讨境�) . . . . . . . . . . 40 Senior deputy general manager, secretary
to the Board and chief financial officer
Dr. Zhang Xinmin (��新民) . . . . . . . . . . 46 Senior deputy general manager
Mr. Zhou Wenyue (周文岳) . . . . . . . . . . 52 Senior deputy general manager
Mr. Li Dongjiu (李�|久) . . . . . . . . . . . . 47 Senior deputy general manager
Mr. Wang Cheng (汪�\) . . . . . . . . . . . . . 49 Senior deputy general manager
Mr. Fu Jiemin (傅��民) . . . . . . . . . . . . . 60 Deputy general manager
Mr. Cui Zhiping (崔志平). . . . . . . . . . . . 49 Deputy general manager
Mr. Ding Xiaojun (丁�攒�). . . . . . . . . . . 48 Deputy general manager
Mr. Zhu Yaoyi (朱耀毅). . . . . . . . . . . . . 50 Deputy general manager
Mr. Wang Kexin (王可心) . . . . . . . . . . . 50 Deputy general manager
Mr. Hu Jianglin (胡江林) . . . . . . . . . . . . 42 Deputy general manager
Mr. Ni Xiaowei (倪小��) . . . . . . . . . . . . 49 Deputy general manager
Mr. Fan Banghan (范邦翰), aged 59, joined our Group in 2000. Mr. Fan is our senior deputy general
manager and is mainly responsible for the strategic planning of the pharmaceutical distribution and retail
division. Prior to joining our Group, Mr. Fan worked for Shanghai Pharmaceuticals Co., Ltd. (上海市�t
�股份有限公司), now known as Shanghai Pharma, as deputy general manager from January 1998 to
March 2000. Mr. Fan served as a supervisor of China National Medicines Corporation Limited (���集
�F��I股份有限公司), a company listed on the Shanghai Stock Exchange (stock code: 600511),
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between December 2005 to May 2009 and is its director since May 2009. Mr. Fan is a non-executive
director of Sinopharm, a company listed on the Hong Kong Stock Exchange (stock code: 01099). Mr.
Fan is currently the vice chairman of the Shanghai Pharmaceutical Commerce Association (上海�t�商
�I行�I�f��). Mr. Fan obtained an associate degree from Shanghai Education Institute (上海教育�W院分
院), majoring in politics and education, in July 1984.
Mr. Li Xianlin (李�@林), aged 57, joined our Group in 2004. Mr. Li is our senior deputy general
manager and is mainly responsible for the strategic planning and management of the pharmaceutical
manufacturing and research and development divisions. Mr. Li joined Xuzhou Biopharmaceuticals
Manufactures Plant (徐州生物化�W�u��S) in August 1982, now known as Wanbang Pharma, and was
head of the plant since June 1993. Mr. Li obtained a bachelor of pharmacy from Nanjing Pharmaceutical
College (南京��W院), now known as China Pharmaceutical University (中���科大�W), in July 1982
and a master of business administration from CEIBS in June 2008.
Dr. Qiao Zhicheng (�讨境�), aged 40, joined our Group in February 2011. Dr. Qiao is our senior
deputy general manager, chief financial officer and secretary to the Board and is mainly responsible for
the overall management of our financial and securities affairs. Prior to joining our Group, Dr. Qiao
worked in Youngjin Group (�ソ鸺��F) from 1998 to 2003. Dr. Qiao joined Zhuzhou Qianjin Pharmacy
Company Limited (株洲千金��I股份有限公司), a company listed on the Shanghai Stock Exchange
(stock code: 600479), in 2004 as the chief investment officer, and was its general manager from
December 2004 to August 2010 and its vice chairman from July 2009 to August 2010. Dr. Qiao is a
non-executive director of BioSino Bio-Technology and Science Incorporation (中生北控生物科技股份
有限公司), a company listed on the Hong Kong Stock Exchange (stock code: 08247). Dr. Qiao obtained
a bachelor of engineering and a master of engineering from Tsinghua University (清�A大�W) in June
1996 and June 1998, respectively. Dr. Qiao obtained a doctoral degree in economics from Peking
University (北京大�W) in January 2007.
Dr. Zhang Xinmin (��新民), aged 46, joined our Group in 2010. Dr. Zhang is our senior deputy
general manager and is mainly responsible for the daily management of the medical service division.
Prior to joining our Group, Dr. Zhang worked for the anti-epidemic station, Huaiyin city, Jiangsu
province, PRC from July 1989 to August 1991, and the Department of Health Education of the Shanghai
Municipal Government from July 1994 to May 1995. Dr. Zhang joined the Shanghai Social Medical
Insurance Bureau (上海市�t��保�U局) in September 1999 and served as its deputy office director from
March 2009 to December 2009. Dr. Zhang worked in Shanghai Xingye Investment Development
Limited Company (上海�d�I投�Y�l展有限公司) as vice president from December 2009 to May 2010.
Dr. Zhang obtained a bachelor of medicine and a master of medicine from Shanghai Medical University
(上海�t科大�W), now known as Shanghai Medical College of Fudan University (�偷┐�W上海�t�W院)
(‘‘SMC’’), in July 1989 and July 1994, respectively. Dr. Zhang obtained a doctoral degree in
management from Fudan University (�偷┐�W) in January 2008.
Mr. Zhou Wenyue (周文岳), aged 52, joined our Group in 2007. Mr. Zhou is our senior deputy general
manager and is mainly responsible for the human resources and administrative management. Prior to
joining our Group, Mr. Zhou was a director of the human resources department of CEIBS from October
1997 to June 2000, deputy general manager of Shanghai Huadong Computing Group Company Limited
(上海�A�|��X股份有限公司), a company listed on the Shanghai Stock Exchange (stock code: 600850),
from September 2000 to June 2003 and deputy director of the human resources department of Fosun
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High Tech from May 2003 to December 2006. Mr. Zhou obtained a bachelor of engineering from
University of Science and Technology of China (中��科�W技�g大�W) in July 1983 and a master of
business administration from CEIBS in April 1997.
Mr. Li Dongjiu (李�|久), aged 47, joined our Group in 2009. Mr. Li is our senior deputy general
manager and is mainly responsible for the daily operations of the pharmaceutical manufacturing
division. Prior to joining our Group, Mr. Li worked for North China Pharmaceutical Group Corporation
(�A北�u�股份有限公司), a company listed on the Shanghai Stock Exchange (stock code: 600812),
from July 1987 to December 2009. Mr. Li obtained a bachelor of engineering from Dalian Engineering
College (大�B工�W院), now known as Dalian University of Technology (大�B理工大�W), in July 1987, a
master of management from Wuhan University of Technology (武�h交通科技大�W), now known as
Wuhan University of Technology (武�h理工大�W), in July 1999, and a master of arts from the Flinders
University of South Australia in October 2005.
Mr. Wang Cheng (汪�\), aged 49, joined our Group in 2011. Mr. Wang is our senior deputy general
manager and is mainly responsible for the management of the pharmaceutical manufacturing and
research and development divisions. Prior to joining our Group, Mr. Wang worked as a department
manager in Shenzhen Changli Silk Product Company Limited (深圳昌利�z�I有限公司) from October
1990 to March 1994. Mr. Wang then worked for Holley Group Company Limited (�A立集�F股份有限公
司) from July 1994 to September 2010 and was a director, head of the financial department, president
and chairman of the board of Holley Share Company Limited (重�c�A立控股股份有限公司), a company
listed on the Shenzhen Stock Exchange (stock code: 000607), from October 1999 to October 2006. Mr.
Wang was the vice president and chairman of the board of Kunming Pharmaceutical Group Corporation
Limited (昆明�u�集�F股份有限公司) (‘‘KPC’’), a company listed on the Shanghai Stock Exchange
(stock code: 600422) (‘‘KPC’’), from November 2002 to October 2006. Mr. Wang was the chairman of
the board of Wuhan Jianmin Pharmaceutical Groups Corporation Limited (武�h健民��I集�F股份有限
公司), a company listed on the Shanghai Stock Exchange (stock code: 600976), from October 2009 to
September 2010. Mr. Wang obtained a bachelor’s degree in literature in July 1988 and a master of
business administration in July 1998 from Hangzhou University (杭州大�W), now known as Zhejiang
University (浙江大�W).
Mr. Fu Jiemin (傅��民), aged 60, joined our Group in 2005. Mr. Fu is our deputy general manager and
is mainly responsible for the pharmaceutical research and development. Prior to joining our Group, Mr.
Fu was the dean of the Pharmacology Office of Chongqing Pharmaceutical Research Institute (重�c�t�
工�I研究院). Mr. Fu obtained a master of medicine from Inner Mongolia Medical College (�让晒裴t�W
院) in July 1987.
Mr. Cui Zhiping (崔志平), aged 49, joined our Group in 2006. Mr. Cui is our deputy general manager
and is mainly responsible for the international business of our Company. Prior to joining our Group, Mr.
Cui worked for Shanghai Pharma from 2001 to 2005. Mr. Cui obtained a bachelor of pharmacy from
SMC in July 1986 and a master of business administration from La Trobe University in March 2002.
Mr. Ding Xiaojun (丁�攒�), aged 48, joined our Group in 1999. Mr. Ding is our deputy general
manager and the general manager of the medical device division and is mainly responsible for the
strategic planning and daily operations of the medical device division. Mr. Ding was an engineer at the
Innovative and High Technology Branch of Science and Technology Commission of Shanghai
Municipality (上海市科�W技�g委�T��) responsible for the management of the biotechnology programs,
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and was the general manager of Technology Innovation from September 1992 to September 1998. Mr.
Ding obtained a bachelor of engineering from East China College of Chemical (�A�|化工�W院), now
known as East China University of Science and Technology (�A�|理工大�W), in July 1985 and a master
of business administration from Touro University International, now known as TUI University, in
November 2002.
Mr. Zhu Yaoyi (朱耀毅), aged 50, joined our Group in 2003. Mr. Zhu is our deputy general manager
and the general manager of the medical diagnostic division and is mainly responsible for the strategic
planning and daily operations of the medical diagnostic division. Prior to joining our Group, Mr. Zhu
was a lecturer at Shanghai University of Engineering Science (上海工程技�g大�W) from July 1987 to
January 1991. Mr. Zhu was a manager of Beckman Coulter Commercial Enterprise Company Limited,
responsible for marketing activities in Eastern China, from February 1991 to April 1999. Mr. Zhu
obtained a bachelor of engineering and a master of engineering from Shanghai Machinery College (上海
�C械�W院), now known as Shanghai Polytechnic University (上海理工大�W), in July 1984 and July
1987, respectively.
Mr. Wang Kexin (王可心), aged 50, joined our Group in 2010. Mr. Wang is our deputy general
manager and is mainly responsible for the investment business of our pharmaceutical manufacturing
segment. Prior to joining our Group, Mr. Wang was the deputy general manager of Sea Rainbow
Holding Corporation (海虹控股�t��子商�沼邢薰�司) from January 2001 to November 2002,
marketing director of KPC and general manager of Kunming Pharmaceutical Retail Company Limited
(昆明�u��品�N售有限公司) from November 2002 to January 2004, general manager of Beijing Huali
Jiuzhou Medical Company Limited (北京�A立九州�t�有限公司) from January 2004 to January 2009,
vice-president of Chongqing Huali Pharmaceutical Industry Company Limited (重�c�A立��I股份有限
公司), a company listed on the Shenzhen Stock Exchange (stock code: 000607), from January 2007 to
January 2009, and chairman of Beijing Tianren Hexin Pharmaceutical Company Limited (北京天仁合信
�t���I有限�任公司) from February 2009 to March 2010. Mr. Wang obtained a bachelor of medicine
from Shenyang Medical College (�c��t�W院) in July 1988.
Mr. Hu Jianglin (胡江林), aged 42, joined our Group in 2011. Mr. Hu is our deputy general manager
and is mainly responsible for the investment in consumer products. Prior to joining our Group, Mr. Hu
was an assistant professor at SJTU from August 1992 to June 1994. Mr. Hu joined Shanghai Jiao Da
Onlly Company Limited (上海交大昂立股份有限公司), a company listed on the Shanghai Stock
Exchange (stock code: 600530), in July 1994 and was its vice president from January 2005 to June
2011. Mr. Hu worked in Shanghai Jiaotong University Industrial Investment & Management Company
Limited (上海交大�a�I投�Y管理(集�F)有限公司) from June 2011 to August 2011. Mr. Hu obtained a
bachelor of engineering from SJTU in July 1992 and a master of business administration from CEIBS in
September 2005.
Mr. Ni Xiaowei (倪小��), aged 49, joined our Group in 2011. Mr. Ni is our deputy general manager
and is mainly responsible for the strategic planning and daily operations of the investment division.
Prior to joining our Group, Mr. Ni held various position with Shanghai Zhongxin Telecommunications
Plant (上海中�d�o���S) from 1982 to 1990. Mr. Ni worked in the human resources department, and
subsequently as the general manager of the retail pharmaceutical department of Shanghai Pharma and
general manager of Putong Medicine Corporation (浦�|�t�公司) from 1990 to 1998. Mr. Ni was the
general manager of the investment business division and the retail pharmaceutical department of our
Company from 1998 to 2001. Mr. Ni was successively the general manager of the retail pharmaceutical
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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
department of China Huayuan Group Limited (中���A源集�F有限公司), deputy general manager of
Beijing Pharmaceutical Group Company Limited (北京�t�集�F), director and deputy general manager
of China Huayuan Group Company Limited (中���A源生命�a�I有限公司) from 2002 to 2008. Mr. Ni
was the chairman of Xian Xinxibei Shuanghe Pharmaceutical Company Limited (西安新西北�p�Q�t�
有限公司) and Kunshan Shuanghe Pharmaceutical Company Limited (昆山�p�Q�t�有限公司) from
2008 to June 2011. Mr. Ni obtained an associate degree in mathematics from Shanghai Normal
University (上海���大�W) in September 1982 and a master of business administration from Monash
University in May 1998.
JOINT COMPANY SECRETARIES
Dr. Qiao Zhicheng (�讨境�), one of the joint company secretaries, is also our deputy general manager,
chief financial officer and secretary to the Board. Please refer to the sub-section headed ‘‘Senior
Management’’ of this section in the prospectus for his biography.
Ms. Lo Yee Har Susan (�R�_霞), aged 53, is one of the joint company secretaries. Ms. Lo is a director
of Corporate Services at Tricor Services Limited (‘‘Tricor’’) and serves as head of the professional
development and training at Tricor. Prior to joining Tricor, Ms. Lo served as director of the company
secretarial department of Tricor Tengis Limited and Ernst & Young in Hong Kong. Ms. Lo has
experience in a diversified range of corporate services and has been providing professional secretarial
services for over 30 years. Ms. Lo is currently the company secretary to four Hong Kong listed
companies. Ms. Lo is a fellow member of both The Institute of Chartered Secretaries and Administrators
in United Kingdom and The Hong Kong Institute of Chartered Secretaries. Ms. Lo graduated from The
Hong Kong Polytechnic, now known as The Hong Kong Polytechnic University.
Dr. Qiao Zhicheng has been appointed as the contact person in our Company to Ms. Lo Yee Har Susan
in compliance with paragraph F1.1 of Appendix 14 of the Hong Kong Listing Rules.
BOARD COMMITTEES
The Board delegates certain responsibilities to various committees. In accordance with the relevant PRC
laws and regulations and the corporate governance practices prescribed in the Hong Kong Listing Rules,
our Company has formed four board committees, including a strategic committee, an audit committee, a
nomination committee, and a remuneration and appraisal committee.
Strategic Committee
Our strategic committee consists of five Directors: Mr. Chen Qiyu, Mr. Guo Guangchang, Mr. Wang
Qunbin, Dr. Zhang Weijiong and Mr. Han Jiong. Mr. Chen Qiyu currently serves as the chairman of our
strategic committee.
The primary responsibilities of our strategic committee are to develop and evaluate our operational
targets and long term development strategies and formulate our development strategies and plans, which
include, among other things:
. understanding and mastering the overall operations of our Company, the international and domestic
market trends and the relevant governmental policies;
. researching and advising on the short-term, medium-term and long-term development strategies of
our Company and major investment decisions; and
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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
. reviewing and approving research reports on development strategy.
Audit Committee
Our audit committee consists of three Directors: Mr. Guan Yimin, Mr. Han Jiong and Mr. Zhang
Guozheng. Mr. Guan Yimin currently serves as the chairman of our audit committee.
The primary responsibilities of our audit committee are to supervise our internal control, financial
information disclosure and internal audit matters, which include, among other things:
. proposing appointment or replacement of external auditors;
. overseeing and reviewing the internal control and internal audit systems of our Company and their
implementation; and
. enhancing the communication between internal audit and external audit.
Nomination Committee
Our nomination committee consists of three Directors: Mr. Han Jiong, Mr. Guan Yimin and Mr. Guo
Guangchang. Mr. Han Jiong currently serves as the chairman of our nomination committee.
The primary responsibilities of our nomination committee include, among other things:
. formulating the nomination procedures and standards for candidates for Directors and senior
management; and
. conducting review of the qualifications and credentials of the candidates for Directors and senior
management and making recommendations.
Remuneration and Appraisal Committee
Our remuneration and appraisal committee consists of three Directors: Dr. Zhang Weijiong, Mr. Guan
Yimin and Mr. Wang Qunbin. Dr. Zhang Weijiong currently serves as the chairman of our remuneration
and appraisal committee.
The primary responsibilities of our remuneration and appraisal committee include:
. formulating performance appraisal system, competitive remuneration package and reward and
punishment measures;
. reviewing and evaluating the performance of our Directors and our senior management; and
. monitoring the implementation of the compensation system of our Company.
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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
DIRECTORS’ AND SUPERVISORS’ REMUNERATION
The aggregate amount of fees, salaries, bonuses, housing allowances, other allowances, benefits in kind
and contributions to pension schemes we paid to our Directors and Supervisors for each of the three
years ended 31 December 2011 and the six months ended 30 June 2012 was approximately RMB2.8
million, RMB3.8 million, RMB6.2 million and RMB5.4 million, respectively. Further information on the
remuneration of each of our Directors and Supervisors during the Track Record Period is set out in Note
10 of section II of the Accountants’ Report as set out in Appendix I to this prospectus.
During the Track Record Period, no remuneration was paid to our Directors and Supervisors as an
inducement to join or upon joining our Group. No compensation was paid to, or receivable by, our
Directors, past Directors, Supervisors and past Supervisors during the Track Record Period for the loss
of office as director or supervisor of any member of our Group or of any other office in connection with
the management of the affairs of any member of our Group. None of our Directors or Supervisors
waived any emoluments during the Track Record Period.
The aggregate amount of fees, salaries, bonuses, housing allowances, other allowances, benefits in kind
and contributions to pension schemes to the five highest paid individuals by our Group for each of the
three years ended 31 December 2011 and the six months ended 30 June 2012 was approximately
RMB4.8 million, RMB6.5 million, RMB9.1 million and RMB8.9 million, respectively. The five highest
paid individuals of our Group included one, two, two and two Directors for each of the three years
ended 31 December 2011 and the six months ended 30 June 2012, respectively, whose remunerations
are included in the aggregate amount of fees, salaries, bonuses, housing allowances, other allowances,
benefits in kind and contributions to pension schemes we paid to our Directors and Supervisors set out
above.
During the Track Record Period, no remuneration was paid to the five highest paid individuals of our
Group as an inducement to join or upon joining our Group. No compensation was paid to or receivable
by such individuals during the Track Record Period for the loss of any office in connection with the
management of the affairs of any member of our Group.
Save as disclosed, no other payments have been paid or are payable in respect of the Track Record
Period to our Directors or Supervisors by our Group.
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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
EMPLOYEES
As at 30 June 2012, we had 13,722 full-time employees. The table below sets forth a breakdown of our
employees by function:
Number of
Function Employees
Operation and management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591
Research and development (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,612
Manufacturing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,077
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,432
Finance and accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325
Administration and support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 759
Medical staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 577
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 349
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,722
Our Company has implemented a number of initiatives in recent years to enhance the productivity of our
employees, whom we hire through a competitive process. We conduct periodic performance reviews for
our employees, and their salaries and bonuses are performance based. In addition, we have implemented
training programs for employees at various positions. We believe that these initiatives have increased
employee productivity.
The remuneration package for our employees generally includes salary and bonuses. Employees also
receive welfare benefits including medical care, housing subsidies, pension, occupational injury
insurance and other miscellaneous benefits. As required by applicable PRC regulations, we participate in
various employee benefit plans that are organized by municipal and provincial governments, including
housing funds, pension, medical, maternity and unemployment benefit plans. We are required under
PRC law to make contributions to the employee benefit plans at specified percentages of the salaries,
bonuses and certain allowances of our employees, up to a maximum amount specified by the respective
local government authorities where we operate our businesses from time to time. We also provide post-
employment benefits to certain of our retired employees.
The total amount of our employee benefit expenses for the years ended 31 December 2009, 2010 and
2011 and the six months ended 30 June 2012 was approximately RMB456.1 million, RMB604.4 million,
RMB648.8 million and RMB418.5 million, respectively.
We provide extensive training for employees. The training is designed to strengthen staff commitment to
qualify and improve staff knowledge in a number of important areas of our services, such as knowledge
about our Company, products and customers service skills.
Note:
(1) Including research and development and quality control personnel.
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DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES
COMPLIANCE ADVISER
Pursuant to Rule 3A.19 of the Hong Kong Listing Rules, we have appointed Haitong International
Capital Limited as our compliance adviser to advise us on the following matters in accordance with Rule
3A.23 of the Hong Kong Listing Rules:
(a) before the publication of any regulatory announcement, circular or financial report;
(b) where a transaction, which might be a notifiable or connected transaction, is contemplated
including share issues and share repurchases;
(c) where we propose to use the proceeds we receive from the Global Offering in a manner different
from that detailed in this prospectus or where the business activities, developments or results of
our Company deviate from any forecast, estimate or other information in this prospectus; and
(d) where the Hong Kong Stock Exchange makes an inquiry of our Company under Rule 13.10 of the
Hong Kong Listing Rules.
The term of the appointment will commence on the Listing Date and end on the date on which we send
our financial results as required under Rule 13.46 of the Listing Rues for the first full financial year
commencing after the Listing Date.
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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS AND DIRECTORS
I. RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
Background
Immediately following completion of the Global Offering and assuming that the Over-allotment Option
is not exercised, Fosun High Tech will hold approximately 40.97% of the enlarged issued share capital
of our Company. The entire issued share capital of Fosun High Tech is held by Fosun International, the
shares of which are listed on the Main Board of the Hong Kong Stock Exchange. As at the Latest
Practicable Date, Fosun International is held as to approximately 79.08% by Fosun Holdings. Fosun
Holdings is a direct wholly-owned subsidiary of Fosun International Holdings, which is in turn held as
to 58%, 22%, 10% and 10% by Messrs. Guo Guangchang, Liang Xinjun, Wang Qunbin and Fan Wei,
respectively. Each of Messrs. Guo Guangchange, Liang Xinjun, Wang Qunbin and Fan Wei, Fosun
International Holdings, Fosun Holdings, Fosun International and Fosun High Tech is a Controlling
Shareholder of our Company.
The Fosun Group is a large conglomerate with operations in the pharmaceuticals and healthcare,
property, steel and mining sectors and is also engaged in retail, services and other investments. The
Fosun Group operates the pharmaceutical business and healthcare business through our Company. The A
Shares of our Company are listed on the Shanghai Stock Exchange and trading of our A Shares on the
Shanghai Stock Exchange commenced on 7 August 1998. The business operations of our Group are
independent from the business operations of the Fosun Group and our Controlling Shareholders.
Independence from Our Controlling Shareholders
Having considered the following factors, our Directors believe that we can carry on our business
independent of and without reliance on our Controlling Shareholders (and their associates) following the
Listing.
Management Independence
Our Company has a Board and senior management that function effectively and independently. Upon
Listing, our management team consists of nine Directors, comprising two executive Directors, three non-
executive Directors, four independent non-executive Directors and 14 members of the senior
management.
Pursuant to the Articles, the current Board may, by majority, nominate and resolve to approve the
appointment of Directors for the next term. Fosun International, as our Controlling Shareholder, has
control over our Board. Fosun International is expected to continue to have control over our Company,
the operating results of our Company is expected to be consolidated in the financial statements of Fosun
International immediately upon Listing. Our Company has maintained and will continue to maintain our
management independence, with full rights to make all decisions on, and to carry out, our own business
operations independently.
�C 257 �C
RELATIONSHIP WITH CONTROLLING SHAREHOLDERS AND DIRECTORS
The following table sets forth a summary of the positions held by our Directors and members of our
senior management team within our Company and the Fosun Group as at the Latest Practicable Date:
Positions held within Positions held
Name our Company Positions held within the Fosun Group within Sinopharm
Mr. Chen Qiyu . . . Executive Director and 1. Vice president of Fosun International 1. Non-executive
chairman of the Board director
2. Vice president of Fosun High Tech
3. Chairman of Tibet Fosun Investment Management
Company Limited
(西藏�托峭顿Y管理有限公司)
4. Chairman of Shanghai Fosun Chuangye
Investment Management Company Limited
(上海�托���I投�Y管理有限公司)
Mr. Yao Fang . . . . Executive Director, vice Nil 1. Chief
chairman and general supervisor
manager
Mr. Guo Non-executive Director 1. Director of Fosun International Holdings Nil
Guangchang . . . . .
2. Director of Fosun Holdings
3. Chairman and executive director of Fosun
International
4. Chairman of Fosun High Tech
5. Director of Forte
6. Director of Fosun Gold Holdings Limited
(�托屈S金控股有限公司)
7. Director of Fosun Industrial Holdings Limited
(�托钱a�I控股有限公司)
8. Director of Fosun Property Holdings Limited
(�托堑禺a控股有限公司)
9. Chairman of Shanghai Fosun Industrial
Investment
10. Vice chairman of Nanjing Nangang Iron & Steel
United Company Limited
(南京南���F�合有限公司)
11. Vice chairman of Nanjing Iron & Steel United
Company Limited
(南京��F�合有限公司)
12. Chairman of Shanghai Fosun Industrial
Technology Development Company Limited
(上海�托枪�I技�g�l展有限公司)
�C 258 �C
RELATIONSHIP WITH CONTROLLING SHAREHOLDERS AND DIRECTORS
Positions held within Positions held
Name our Company Positions held within the Fosun Group within Sinopharm
13. Chairman of Shanghai Fosun Metallurgy
Technology Company Limited
(上海�托且苯鸺夹g有限公司)
14. Chairman of Hainan Fosun Mining Company
Limited
(海南�托堑V�I有限公司)
15. Director of Shanghai Beidesi Software
Development Company Limited
(上海�得斯�件�_�l有限公司)
16. Director of Shanghai Zhenyuan Information
Technology Company Limited
(上海臻元信息技�g有限公司)
17. Director of Shanghai Yousai Software
Development Company Limited
(上海����件�_�l有限公司)
18. Director of Shanghai Disheng Software
Development Company Limited
(上海蒂晟�件�_�l有限公司)
19. Director of Shanghai Guanyang Software
Company Limited
(上海冠�P�件有限公司)
20. Director of Shanghai Lilai Electronic Technology
Company Limited
(上海��齐�子科技有限公司)
21. Director of Shanghai Sijie Building Hardware
Company Limited
(上海司�芙êB五金有限公司)
22. Director of Shanghai Fujie Computer System
Company Limited
(上海福�苡�算�C系�y有限公司)
23. Director of Fuke Technology (Suzhou)
Company Limited
(�涂瓶萍�(�K州)有限公司)
24. Director of Fushang Trading (Suzhou)
Company Limited
(�蜕躺藤Q(�K州)有限公司)
25. Director of Fuson Technology (Nanning)
Company Limited
(�托强萍�(南��)有限公司)
26. Director of Fuke Technology (Xi’an)
Company Limited
(�涂瓶萍�(西安)有限公司)
27. Director of Fosun Investment
Holdings Limited
(�托峭顿Y控股有限公司)
�C 259 �C
RELATIONSHIP WITH CONTROLLING SHAREHOLDERS AND DIRECTORS
Positions held within Positions held
Name our Company Positions held within the Fosun Group within Sinopharm
28. Director of Fosun Finance
Holdings Limited
(�托墙鹑诳毓捎邢薰�司)
29. Director of Jiantu Investment
Company Limited
(建�D投�Y有限公司)
30. Director of Peak Reinsurance
Holdings Limited
31. Director of Peak Reinsurance
Company Limited
32. Director of Shanghai Haizhimen Real Estate
Investment Management Company Limited
(上海海之�T房地�a投�Y管理有限公司)
33. Director of Shanghai Zhengda Waitan
International Finance Service Centre Real Estate
Company Limited
(上海�^大外����H金融服�罩行闹�I有限公司)
34. Director of Shanghai Fosun Chuangye
Investment Management Company Limited
(上海�托���I投�Y管理有限公司)
�C 260 �C
RELATIONSHIP WITH CONTROLLING SHAREHOLDERS AND DIRECTORS
Positions held within Positions held
Name our Company Positions held within the Fosun Group within Sinopharm
Mr. Wang Qunbin . Non-executive Director 1. President and executive director of Fosun 1. Non-executive
International director
2. President and director of Fosun High Tech
3. Director of Nanjing Nangang Iron & Steel United
Company Limited (南京南���F�合有限公司)
4. Director of Nanjing Iron & Steel United Company
Limited (南京��F�合有限公司)
5. Director of Shanghai Haizhimen Real Estate
Investment Management Company Limited
(上海海之�T房地�a投�Y管理有限公司)
6. Director of Shanghai Zhengda Waitan
International Finance Service Centre Real Estate
Company Limited
(上海�^大外����H金融服�罩行闹�I有限公司)
7. Director of Forte
8. Director of Peak Reinsurance Holdings Limited
9. Director of Peak Reinsurance Company Limited
10. Director of Shanghai Fosun Chuangfu
Investment Management Company Limited
(上海�托��富投�Y管理有限公司)
11. Director of Shanghai Fosun Chuangye
Investment Management Company Limited
(上海�托���I投�Y管理有限公司)
12. Director of Tibet Fosun Investment Management
Company Limited
(西藏�托峭顿Y管理有限公司)
Mr. Zhang Non-executive Director 1. Senior assistant to the president and deputy Nil
Guozheng . . . . . . . general manager of the finance division of Fosun
High Tech
Mr. Guan Yimin . . Independent non-executive Nil Nil
Director
Mr. Han Jiong. . . . Independent non-executive Nil Nil
Director
Dr. Zhang Weijiong Independent non-executive Nil Nil
Director
Mr. Li Man-kiu Independent non-executive Nil Nil
Adrian David . . . . Director
�C 261 �C
RELATIONSHIP WITH CONTROLLING SHAREHOLDERS AND DIRECTORS
Positions held within Positions held
Name our Company Positions held within the Fosun Group within Sinopharm
Mr. Liu Hailiang . . Supervisor Nil 1. Non-executive
director
Mr. Wang Pinliang Supervisor 1. Deputy general financial officer, general manager Nil
of the finance and accounting department and the
general manager of the financial analysis
department of Fosun High Tech
Mr. Cao Genxing . Supervisor Nil Nil
14 members of our Senior management Nil 1. Mr. Fan
senior management Banghan is a
team . . . . . . . . . . non-executive
director of
Sinopharm
Eight of our 23 member management team, namely, Messrs. Chen Qiyu, Yao Fang, Guo Guangchang,
Wang Qunbin, Zhang Guozheng, Liu Hailiang, Wang Pinliang and Fan Banghan, hold positions in the
Fosun Group and/or Sinopharm. Our Board is of the view that their roles with the Fosun Group and/or
Sinopharm are beneficial to our Company, as their presence with our Company will ensure the
continuity and stability of our operations and their individual expertise and experience are valuable to
the strategic development of our Company. For more details of the relevant experience of our
overlapping Directors (the ‘‘Overlapping Directors’’), please refer to the section headed ‘‘Directors,
Supervisors, Senior Management and Employees’’ in this prospectus.
Our Board believes that the positions held by Messrs. Chen Qiyu, Yao Fang, Guo Guangchang, Wang
Qunbin, Zhang Guozheng, Liu Hailiang, Wang Pinliang and Fan Banghan in the Fosun Group and/or
Sinopharm will not affect their abilities to discharge their fiduciary duties and duties of skill, care and
diligence to our Company, on the basis that:
Mr. Chen Qiyu: Mr. Chen is an executive Director and chairman of our Company. Mr. Chen expects to
spend more than 80% of his time managing the business operations of our Company. He will abstain
from voting on resolutions regarding any transactions proposed to be entered into between our Company
and the Fosun Group and/or any other connected companies. Mr. Chen is not involved in the daily
operations of the Fosun Group but will attend its board meetings to provide strategic advice and
guidance. Mr. Chen is also a vice president of Fosun International, which is a company listed on the
Hong Kong Stock Exchange. His management focus is confined to the pharmaceutical sector and is not
involved in the daily management and business operations of Fosun International. In view of his limited
involvement in the management at the Fosun Group, Mr. Chen will continue to devote most of his time
to the management of our Company. Mr. Chen is also a non-executive director of Sinopharm and does
not have executive functions in Sinopharm and is not involved in its daily operations.
�C 262 �C
RELATIONSHIP WITH CONTROLLING SHAREHOLDERS AND DIRECTORS
Mr. Yao Fang: Mr. Yao is an executive Director and vice chairman and general manager of our
Company. Mr. Yao is mainly responsible for the daily operations of our Group. Mr. Yao is also the
chief supervisor of Sinopharm and does not have executive functions in Sinopharm and is not involved
in its daily operations.
Mr. Guo Guangchang: Mr. Guo is a non-executive Director of our Company. Mr. Guo is responsible
for giving strategic advice and recommendations on the operations of our Company. Mr. Guo does not
have executive functions in our Company and is not involved in our daily operations. Mr. Guo believes
he will devote sufficient time to discharge his duties in our Group.
Mr. Wang Qunbin: Mr. Wang is a non-executive Director of our Company. Mr. Wang is responsib
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