Increasing awareness of the importance of medical and health care in the PRC

The rapid economic growth and social development in the PRC has led to the improvement of the living standards of the general population as the average disposable household income increases. This, in turn, has led to a greater public awareness of the importance of medical and health care in the PRC, as well as, a greater willingness to spend on effective and quality pharmaceutical products. As such, the standard of medical care has also improved in tandem with the above factors.

As the PRC economy continues to grow and develop, our Directors believe that demand for effective and quality pharmaceutical products will grow in tandem with the growing affluence of the PRC population and the increase in living and medical standards in the PRC.

Increasing rate of illnesses, including cardiocerebral vascular diseases in the PRC and demand for cardiocerebral drugs due to changes in lifestyle and ageing population

The change in dietary habits, a quicker pace of life and greater work pressure are effects of the rapid economic growth and development in the PRC. These lifestyle changes have led to an increase in illnesses and medical problems. The aging population in the PRC has also contributed to the rise in the illness incidence rates, particularly for cardiocerebral vascular diseases. In tandem with the increase in incidence of cardiocerebral vascular diseases, the demand for cardiocerebral vascular drugs in the PRC has been on an increasing trend.

As our Group focuses on the development and sale of cardiocerebral vascular drugs, our Directors believe we are well-poised to tap the potential of the market for cardiocerebral vascular drugs.

Strong market potential for Modern Chinese Medicines ("MCM")

There is now a trend towards the development of Traditional Chinese Medicines ("TCM"), using modern technology. MCM, which is the modernization of TCM, employs the precision of modern technology to determine and evaluate the exact combination of the effective ingredients in TCM. The proven track record of the curative properties and lower side effects of TCM established over thousands of years reduces the risks in the R&D of MCM. In view of the above, our Directors believe that MCM are becoming more acceptable worldwide.

With the aim of developing the PRC pharmaceutical market, the PRC government is promoting the development and use of natural products and MCMs. According to information released by the Ministry of Labour and Social Security of the PRC on 16 September 2006, the number of natural or Chinese medicines listed in the National Medicine Catalogue has increased from 415 in 2000 to 823 in 2004, representing an increase of 98%. The promotion of the use of natural or Chinese medicines in the national insurance is likely to result in greater accessibility and affordability to a wider population, hence leading to an increase in demand for such products.

Promotion of medical and health care by the PRC government through medical reforms

The PRC government has been instituting medical reforms to promote the level of medical and health care among the population to improve their standard of living. Such reforms include increasing the amount of health insurance coverage and the number of people who are covered by the State Basic Medical Insurance Scheme. Due to the increase in insurance coverage, the amount paid out under the State Basic Medical Insurance Scheme has reached RMB108 billion in 2005, according to statistics released jointly by the Ministry of Labour and Social Security of the PRC and the National Bureau of Statistics of the PRC in June 2006.

According to the Statistical Communique on the National Economic and Social Development of the PRC in 2005, as at the end of September 2005, 671 cities in the PRC have commenced the experimental implementation of the Rural Area Co-operation Medical Insurance Scheme, with about 177 million farming villagers participating.

Our Directors believe that the increase in health insurance coverage in the PRC will make basic medical care more accessible to a wider population, thereby leading to an increase in demand for pharmaceutical drugs.