We are principally engaged in the development, manufacture and marketing of pharmaceutical products for human use in connection with a variety of high-incidence and high-mortality diseases and medical conditions in the People's Republic of China (the "PRC"). All of our operations are conducted in the PRC, where our manufacturing facilities are located. We manufacture pharmaceutical products in the form of dry powder injectables, liquid injectables, tablets, capsules, oral solutions and granules. All of our pharmaceutical products are sold on a prescription basis and have been approved for at least one or more therapeutic indications by the China Food and Drug Administration (the "CFDA") based upon demonstrated safety and efficacy.

As of December 31, 2015, we manufactured 20 pharmaceutical products for a wide variety of diseases and medical indications, each of which may be classified into one of three general categories:

¢ Basic generic drug, which is a common drug in the PRC for which there is a very large market demand;

¢ First-to-market generic drug, which is a generic Western drug that is new to the PRC marketplace; or

¢ Modern Traditional Chinese Medicine, which generally is a non-synthetic, plant-based medicinal compound of the type that has been widely used in the PRC for thousands of years, to which we apply modern production techniques to produce a pharmaceutical product in different formulations, such as tablets, capsules or powders.

In selecting generic drugs to develop and manufacture, we consider several factors, including the number of other manufacturers currently producing the particular drug, the size of the market, the proposed or required method of distribution, the existing and expected pricing for the particular drug in the marketplace, the costs of manufacturing that drug, and the costs of acquiring or developing the formula for that drug. We believe we have historically selected generic drugs to manufacture that have large addressable markets and higher profit margins relative to other drugs being manufactured and distributed in the PRC.

In 2002, we built, and we currently own and operate an approximately 8,000-square-meter manufacturing facility in Haikou, Hainan Province. We implement quality control procedures in compliance with China's Good Manufacturing Practice, or GMP standards, and applicable CFDA regulations to ensure consistent quality in our products.

The CFDA promulgated Good Manufacturing Practices for Pharmaceutical Products (2010 revised version) (the "new GMP") on February 12, 2011, which became effective on March 1, 2011. The new GMP standards outline the basic principles and standards for the manufacturing of pharmaceutical products and the management of quality controls in the manufacturing process in the PRC. In 2014, we completed construction of a 20,000 square-meter new factory installed with four sterilization production lines (two liquid injectables and two dry powder injectables production lines) to meet the latest GMP standard. In November 2014 the CFDA completed their process of the GMP certification for our new facility and issued a GMP certificate to enable us to commence manufacturing at our two liquid injectables and two dry powder injectables production lines. In January and December 2015, we also completed upgrading and received new GMP certificates for the tablet and capsule production lines and cephalosporin production lines in our old factories, respectively.

We market and sell our products through 16 sales offices covering all major cities and provinces in the PRC. To comply with applicable Chinese law relating to sales of prescription drugs to certain hospitals and clinics, we also use a distribution system comprised of over 1,000 independent prefecture-level, city-level, and county-level distributors. With the deepening of Chinese healthcare reform, our sales system has further developed and expanded. Our 16 provincial offices deliver our products to basic health care institutions as well as tier two and tier three hospitals through the above mentioned distributors.



skonline 2006