Industry Prospect

Market potential of Natural Drugs

Our Directors believe that the worldwide demand for natural drugs is increasing with the public perception of higher safety and lower side effects of natural drugs as compared to chemical drugs. To the best of our Directors’ knowledge, the current worldwide annual sales of natural drugs amount to approximately US$16 billion and such sales volume is expected to grow at approximately 10% per annum for the next two years.

Prospects for drugs with new formulations

The development of new drugs with new chemical compounds require substantial investment. Accordingly, in the recent years, attention has been focused on the research of drugs with new formulations as the development expenses incurred are only approximately one tenth of that for new drugs.

The Directors believe that the R&D of drugs with new formulations is becoming a major trend in the global pharmaceutical industry, particularly in the fields of advanced drug delivery technologies such as sustained release system and controlled release drug delivery system. To the best of our Directors’ knowledge, the global revenue of pharmaceutical products which utilise advanced drug delivery technology reached US$38 billion in 2002. The Directors estimate that this market will grow at an average rate of 28% per annum between 2003 and 2007.

Potential for the PRC pharmaceutical industry

Medical advances and technological development coupled with an increased public awareness of the importance of healthcare have led to a steady growth of the PRC pharmaceutical market. This has created considerable opportunities for the pharmaceutical industry in the PRC. Going forward, our Directors estimate that between 2001 and 2005, the demand for pharmaceutical drugs in the PRC will grow at an average rate of 12% annually, reaching RMB218 billion by 2005.

Our Directors believe that the following will be the main factors which will sustain the expected growth of the pharmaceutical industry in the PRC:

1. An ageing population and an improvement in living standards from the last 20 years of economic reforms leading to an increase in demand for high quality medical products;
   
   
2. Following the PRC government’s promotion of health insurance reform, the number of people covered by health insurance is expected to increase from the current 80 million to 300 million in 2005. This will create a substantial demand for medical products.
   
   
3. The requirement by SFDA for pharmaceutical manufacturers to obtain GMP certification by 30 June 2004 or 31 December 2004 for manufacturers who have commenced application by end December 2003 and have reported to the SFDA that they are unable to complete the certification by 30 June 2004. Failing which, their Pharmaceutical Production Enterprise Permits will not be renewed and production of the relevant products will be suspended. Our Directors believe this move will help to sustain the healthy growth of the PRC pharmaceutical industry as this measure will improve the quality of drugs manufactured by PRC pharmaceutical companies, leading to an increase in demand for their products.