Sihuan Pharmaceutical Holdings Group Ltd. 四環醫藥控股集團有限公司

Stock Code : 0460

2011 Annual Results Presentation

1

Disclaimer

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Today’s presentation team

Dr. Che Fengsheng Chairman & Chief Executive Officer

Mr. Choi Yiau Chong Chief Financial Officer

Ms. Jia Zhongxin Chief Operating Officer

3

Financial Review

III

Agenda

Business Review

II

I Results Highlights

Growth Strategy

IV Q&A

V

Dr. Che Fengsheng, Chairman & Chief Executive Officer

Ms. Jia Zhongxin, Chief Operating Officer

Mr. Choi Yiau Chong, Chief Financial Officer

Dr. Che Fengsheng, Chairman & Chief Executive Officer

Section 1 Results Highlights

5

2011 Major Achievements

♦ Maintained fast growth for the 11th consecutive year ♦ Solidified position as largest CCV franchise and 9th largest pharmaceutical company in

China’s prescription drug market

♦ Revenue and net profit soared 116.2% and 57.8% respectively amid a challenging environment, outpacing industry average

♦ Market share of Sihuan’s CCV drugs for hospital purchase increased to 9.4%

♦ Achieved breakthroughs in innovative and generic drug R&D

♦ Improved quality control of key products and upgraded newly acquired production facilities ♦ API production base in Hebei passed new GMP standard ♦ TCM and other products plants are expected to finish upgrade by the end of 2013

♦ Successful integration with new subsidiaries, generated synergies with sales of newly acquired products exceeding one-third of total sales

1

2

3

4

5

6

♦ 3 Existing Products Recorded Steady Sales Growth

Successful Integration & Diversification of Products

Significant R&D Progress Production Upgrade

♦ CCV products continued to be the dominant business segment (accounting for 90.1% of sales)

♦ Revenues from Kelinao and Anjieli increased by 16.1% and 77.5% respectively

♦ Revenue from GM1 soared 117.1% while sales of Qingtong rose by 27.7%

♦ Newly acquired products accounted for over 1/3 of sales ♦ Fast growth of 3 of our newly acquired drugs, including

Oudimei, Yuanzhijiu and Yimaining, among which Oudimei has become another flagship product

♦ Entered China’s TCM market by acquiring Jilin Sichang ♦ Established cooperation with Shandong Buchang, a

leader in China’s TCM market, through the disposal of 50% interest in Jilin Sichang

♦ Construction of new Beijing plant expected to complete in 2013

♦ API production base in Hebei commenced production and passed new GMP standards

♦ Upgrading production facilities in North China to meet new GMP standards

♦ Breakthroughs by our innovative and generic drug teams ♦ Innovative drug team has 10 patented drugs at various

stages of development, including Category I Innovative Drugs Apapenem (艾帕培南) and Tylerdipine Hydrochloride (盐酸泰乐地平)

♦ Generic drugs team received approval for the clinical trial of exclusive Category IV new drug Cinepazide Mesilate (甲磺酸桂哌齐特); over five cases pending approval for production licenses, including first-to-market generic drug Roxatidine Injection (罗沙替丁) and Nalmefene Hydrochloride (盐酸纳美芬)

♦ Commenced 20 new projects, bringing the total number of R&D projects to over 70

Key Highlights for 2011

Section 2 Business Review

8

Key Business Highlights

Market overview 1

Organic production development 3

Sales and marketing model 5

Product sales overview

Acquisitions

2

4

R&D 6

9

152 203

257

313

366

2007 2008 2009 2010 2011

Market Share (%)

Product 2009 2010 2011 Sihuan 7.4 7.5 9.4

Sanofi-Aventis 6.2 6.8 6.6

Pfizer 4.9 4.6 4.6

Shangdong Qilu 4.5 4.6 4.7

Novartis 3.6 3.4 3.0

Market Overview

Source: IMS

Consistently Ranked No.1 in China’s CCV Market

China’s Hospital Pharmaceutical Purchases of CCV Drugs (RMB Bln)

17.2 23.4

30.4

37.9

46.3

2007 2008 2009 2010 2011

China’s Hospital Pharmaceutical Purchases (RMB Bln)

♦ Growth of CCV drugs outpaced industry growth rate

10

Rank Corporation Shares in hospital market(%)

1 PFIZER GROUP 2.20% 2 ASTRAZENECA GROUP 1.85% 3 SANOFI GROUP 1.78% 4 BHC GROUP 1.67% 5 JS.YANGZIJIANG FTY 1.53% 6 KE LUN GROUP 1.41% 7 SHANDONG QILU FTY 1.41% 8 ROCHE GROUP 1.38% 9 SIHUAN PHARM 1.19% 10 JS.L.Y.G. HENGRUI 1.19% 11 NOVARTIS GROUP 1.12% 12 M.S.D. GROUP 1.11% 13 NOVO NORDISK GROUP 1.05% 14 GLAXOSMITHKL GROUP 1.00% 15 SHANDONG RUIYANG 0.94% 16 HLJ.HAERBIN PHARM. 0.93% 17 SHANDONG LUOXIN PH 0.92% 18 C.T-TIANQING GP. 0.79% 19 HLJ.HEB.SANLIAN PH 0.76% 20 JIANGSU HANSOH 0.74%

Top 20 Corporations in China’s Pharmaceutical Market

Source: IMS

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CCV Product Contribution Breakdown

Kelinao 47.24%

Anjieli 16.48%

Chuanqing 13.21%

Qu’Ao 8.81%

GM1 6.26%

Qingtong 3.70%

Aisenao 2.23%

Others 2.07%

Kelinao

Anjieli

Chuanqing

Qu'ao

Aogan

Qingtong

Aisen'ao

Others

Qu’Ao

Aisenao

GM1

Qu’Ao

Aisenao

GM1

CCV Product Contribution by Hospital Purchase Data

2011

Kelinao 28.57%

Oudimei 12.80%

Anjieli 11.12%

Chuanqing 7.85%

Qu’Ao 7.75%

GM1 13.19%

Qingtong 5.79%

Yimaining 4.72%

Aoliankang 3.36%

Yuanzhijiu 2.68%

Aisenao 1.07% Others

1.09%

Kelinao

Oudimei

Anjieli

Chuanqing

Qu'Ao

GM1

Qingtong

Yimaining

Aoliankang

Yuanzhijiu

Aisenao

Others

2010

Source: IMS

♦ Product with contribution less than 1% were not displayed

12

Market Overview: Key Non-exclusive Sihuan Product

16.3%

19.0%53.8%

2.7% 8.2%

* including Changchun Xiangtong Pharmaceutical

60.3%28.0%

3.6%

2.3% 5.9%

26.4%

33.4%

18.1%

4.6%

17.5% Sihuan

Yunnan Mengsheng

(雲南盟生藥業)

Shanxi Pude (山西普德)

Tongyong Tongmeng (通用同盟)

Others

Pingguang Pharma (平光製藥)

Fujian Mindong (福建閩東)

Changchun GuoAo (長春國奧藥業) Others

Harbin Medical University

(哈爾濱醫大藥業)

Qilu (山東齊魯)

Sihuan* TRB Pharma (TRB 製藥廠)

Others

Sihuan

Share of Sihuan’s GM1 in GM1 market in 2011

Share of Sihuan’s Chuanqing in Ligustrazine market in 2011

Share of Sihuan’s Qu’Ao in Cerebroprotein Hydrolysate

market in 2011

(2010: 16.3%)

(2010: 55.1%)

(2010: 21.9%)

Source: IMS

13

Excellent Sales Performance

(RMB million)

Revenue of CCV Products

Existing Products

2011

(RMB ‘000) 2010

(RMB ‘000) Change

(%)

Kelinao 529,430 456,102 +16.1

Anjieli 202,187 113,878 +77.5

GM1 143,627 66,170 +117.1

Chuanqing 82,709 82,917 -0.2

Qu’Ao 68,227 59,059 +15.5

Qingtong 45,713 35,786 +27.7

Others 53,432 19,970 +167.5

Newly Acquired Products

2011

(RMB ‘000) 2010

(RMB ‘000) Change

(%)

Oudimei 654,859 N/A N/A

Aoliankang 93,870 N/A N/A

Yuanzhijiu 83,236 N/A N/A

Yimaining 62,410 3,678 +1,596.6

For the year ended 31 December

For the year ended 31 December

833.9

1,125.3

3.7

894.4

0

300

600

900

1,200

1,500

1,800

2,100

2010 2011

Mature Products Newly Acquired Products

2,019.7

837.7

For the year ended 31 December

14

15

Production Upgrade

♦ Operates 6 chemical medicine production lines

Chemical Drugs Production Base in Tongzhou District, Beijing

♦ New production and R&D centre in Zhangwan Development Zone of Tongzhou District commenced construction in 2011

♦ The centre, with a total site area of 175 mu, is expected to commence production in August 2013

Ensuring quality control of all facilities are well-managed and

in compliance with the new GMP standard

♦ For active pharmaceutical ingredient (“API”) manufacturing and pharmaceutical intermediates

API and Intermediates Production Base in Langfang, Hebei

♦ Commenced production in 1H 2011 and passed the new GMP standards in 2011

♦ Finished verification for and commenced production of major APIs such as Cinepazide Maleate (马来酸桂哌齐特), Naloxone Hydrochloride (盐酸纳络酮), Oxcarbaxepine (奥卡西平), etc.

♦ Production bases included Jilin Sihuan and Changchun Xiangtong plants and Jilin Sichang Pharmaceutical

TCM and Other Products Production Base In Jilin

♦ To be upgraded to boost the overall production capacity

♦ Expected to finish upgrades by the end of 2013, the plants will be in compliance with the new GMP standards

16

Production Upgrade (cont.)

New Production and

R&D Centre in Beijing

17

Production Upgrade (cont.)

TCM and Other Products

Production Base

in North China

18

Successful Acquisitions form a Balanced Product Portfolio

Acquisition of Dupromise in January 2011

Acquisition of Changchun Xiangtong

Pharmaceutical in January 2011

Acquisition of Jinlin Sichang in June 2011

Disposal of 50% Interest in Jilin Sichang to

Shandong Buchang in July 2011

♦ Obtained 3 exclusive products and various exclusive formulations, mainly covering CCV diseases and other therapeutic areas

♦ Oudimei became another flagship product and a key contributor to Sihuan’s revenue

♦ Tap into the vast TCM market for CCV drugs ♦ Acquired 4 TCM CCV products with vast market potential ♦ Began sales of 2 key TCM products in November 2011

♦ Sold 50% interest to Shandong Buchang, a leader in China’s TCM market, at a premium consideration

♦ Joint efforts to develop the 4 key TCM products ♦ Synergies in terms of production, research and development

and distribution

♦ Secured a stable supply of API for Sihuan‘s GM1 and reduced cost

♦ Sihuan’s GM1, with a market share of 16.3%, is the third best-selling product of its kind in China

19

Extensive Nationwide Distribution Network We have an extensive and well managed distribution network who promote and sell our products to hospitals and medical institutions throughout China

♦ Existing products have reached additional

clinical departments in hospitals already

covered in our distribution network

♦ Newly acquired products have reached

around 4,000 hospitals

♦ Penetrated most of the Class III hospitals,

and will further penetrate into Class I and

class II hospitals, as well as medical

institutions in the PRC

Revenue of RMB15 – 30 million

Revenue below RMB15 million

Revenue of over RMB30 million

Xinjiang

Sichuan

Gansu

Heilongjiang

Jilin

Taiwan

Jiangsu

Hunan

Hainan

Qinghai

Tibet

Chongqing

Shaanxi Henan

Shanxi

Guangdong

Hubei

Ningxia

Fujian

Zhejiang Anhui

Jiangxi

Guangxi

Inner Mongolia

Beijing Liaoning

Shanghai

Shandong

Hebei

Guizhou

Tianjin

Yunnan

Shenzhen

20

Proven Successful Sales Model Managed and supported by our in-house dedicated sales and product managers, who ensure the efficiency, productivity and stability of our distribution network

Our unique sales model has proven to be highly successful and cost-efficient, resulting in rapid and deep market penetration

♦ In-house sales and product managers

– majority of them have professional qualifications in medicine and pharmacy

– work with over 3,000 distributors representatives to rapidly penetrate hospital markets

– Added over 200 sales and marketing staff and established 12 new sales offices in 2011

♦ We closely manage our contract sales

representatives through:

– devising marketing strategies – organizing national and provincial

conferences – selecting distributors with deep knowledge

and understanding of their local markets and the ones with established sales channels to local hospitals and physicians

– assigning distributors to hospitals and setting sales targets

– providing sales training programs for distributors

– closely monitoring distributors' performance

Our Group

Product managers

Contract Sales Representative

Patients

Contract Sales Representative

Contract Sales Representative

Contract Sales Representative

• • •

Hospitals and physicians

Product and marketing support Select and manage distributors

Sales managers

• • •

Product, marketing and promotional support; distributor selection and management

Organizing and supporting medical/pharmaceutical conferences

21

Research and Development Strategy O p t i m i z e d T e m p l a t e f o r M i c r o s o f t P o w e r P o i n t 2 0 0 3

Overview ♦ Continuous investments in R&D

♦ One of the largest drug R&D teams in China

♦ R&D teams, around 360 personnel, has 20 PhDs and over 160 master degree holders

♦ Currently over 70 drugs under various development stages, including 10 innovative patented drugs

Primarily focuses in Innovative Patent Drugs and First-to-market Generic Drugs

Generic Drug R&D Team

Innovative Drug R&D Team ♦ About 299 personnel led by 7 key research scientists

– Focuses in discovery and development of new chemical entities as novel therapeutic agents

– Key research scientists have on average over 10 years of drug R&D experience from their tenures at multinational pharmaceutical companies

♦ About 59 personnel ♦ Focuses on first-to-market generic drugs ♦ Potential to result in intellectual property rights in

relation to formulation, production process, improved chemical attributes or drug delivery system

22

Project Product Characteristics Project Progress Innovative Drugs R&D Team

Apapenem (艾帕培南)

Beta-lactam anti-infective with the widest antibacterial spectrum and the strongest antibiotic activity

A Category I Innovative Drug Received approval for the clinical trial

Tylerdipine Hydrochloride (鹽酸泰樂地平)

CCV drug for treating hypertension while protecting important organs such as the heart and kidneys

A Category I Innovative Drug Completed the pre-clinical study. Applied to conduct clinical trials with SFDA.

Phencynonate Hydrochloride (左旋鹽酸苯環壬酯)

CCV drug for treatment of vertigo symptoms caused by vertebrobasilar ischemia and other diseases

A Category I Innovative Drug Will soon complete Phase II of its clinical trials.

Generic Drugs R&D Team

Cinepazide Mesilate (甲磺酸桂哌齊特)

CCV drug for improving the ischemic tissue blood supply and protecting the ischemic tissue. Widely used in the treatments of cardiovascular and cerebrovascular and peripheral vascular diseases

An exclusive Category IV New Drug Completed Phase I and will soon commence Phase II of clinical trials

Roxatidine injection (羅沙替丁)

Digestive drug for the treatment of severe stomach acidity and other stomach illnesses

A Category III first-to-market generic drug Pending approval for production licenses

Nalmefene Hydrochloride (鹽酸納美芬)

Drug to prevent and reverse the effects of opioids, including respiratory depression, sedation and hypotension

Pending approval for production licenses

Research and Development: 2011 Updates

Overview ♦ Newly filed 56 patent applications (including 6 PCT); granted more than 75 patent rights

♦ Two products won national awards: Apapenem (艾帕培南) awarded as “Major Innovative Drug in the 12th Five-Year Plan” (“十二五”重大新藥創製專項) Cinepazide (桂哌齊特) as “Important Technical Advancement of Major Innovative Drug Type in the 12th Five-Year Plan” (“十二五”重大創製大品種技術改造)

♦ 2 of the Company’s key scientists were included in the “One-thousand-talent Scheme” and “Ten-thousand-talent Scheme”

Leading R&D capabilities and strong product pipeline drive sustainable growth

Section 3 Financial Review

24

2011 Annual Results Highlights

Key Income Statement Items 2011

(RMB’000) 2010

(RMB’000) Change

Revenue 2,242,063 1,036,881 +116.2%

Gross Profit 1,714,464 744,743 +130.2%

Operating Profit 990,348 613,313 +61.5%

Profit Attributable to Equity Holders of the Company 824,048 522,065 +57.8%

Key Financial Ratios 2011

(RMB’000) 2010

(RMB’000)

Gross Profit Margin (%) 76.5% 71.8%

Net Profit Margin (%) 36.8% 50.3%

Basic EPS (RMB Cents) 15.90 13.03

Receivable Turnover (days) 24 2

Inventory Turnover (days) 38 59

Proposed Final Dividend Per Share (RMB Cents) 2.5 N/A

Proposed Second Special Dividend Per Share (RMB Cents) 7.2 N/A

For the year ended 31 December

25

709

1,037

2,242

0

400

800

1,200

1,600

2,000

2,400

2009 2010 2011

Sustained Business Growth Momentum

Revenue by Segment:

CCV: RMB 2,019.7 million

Non-CCV: RMB 212.1 million

(RMB million)

90.1%

9.5%0.4%

CCVNon-CCVOthers

For the year ended 31 December

Revenue

♦ Revenue grew by a record 116.2% to RMB2,242.1 million, mainly driven by newly acquired CCV

products

♦ Sales of CCV products soared by 141.1% to RMB2,019.7 million, attributable to:

– Strong growth of newly acquired products such as Oudimei, Yuanzhijiu and Yimaining

– Deeper geographical penetration

♦ Sales of Non-CCV products posted a growth of 7.6%, due to:

– Stronger sales and marketing capabilities

– Successful tendering

26

Cost Breakdown Distribution Costs Administrative Expenses

(RMB million) (RMB million)

49 57

632

6.9% 5.5%

28.2%

0%

10%

20%

30%

40%

0

100

200

300

400

500

600

700

2009 2010 2011

Distribution Costs % of Revenue

63

79

129

201

0

50

100

150

200

2009 2010 2011

♦ Distribution cost to total revenue increased to 28.2% due to:

– Marketing cost related to sales of our newly acquired subsidiaries

– Employed a larger sales force and conducted intensive marketing activities

♦ Administrative expenses increased by 56.1% to RMB201.1 million, mainly due to:

– Increase in administrative expenses related to the growth and expansion of the Group

– Integration-related expenses incurred for after the acquisitions during the year

For the year ended 31 December

For the year ended 31 December

27

517.0

744.7

1,714.5

72.9% 71.8%76.5%

0%

20%

40%

60%

80%

100%

0.0

400.0

800.0

1,200.0

1,600.0

2,000.0

2009 2010 2011

Solid Profitability

Gross profit (RMB million)

♦ Overall gross profit margin improved to 76.5% due to:

– Increase in sales proportion of newly acquired products carrying higher margin

For the year ended 31 December

28

56.7

107.8 114.5 8.3

35.1

97.5

3.7

49.2

0

50

100

150

200

250

300

2009 2010 2011

Property, Plant &Equipment

Intangible Assets

Land use rights

Capital Expenditure

(RMB million)

For the year ended 31 December

261

145

69

29

Sound Financial Position

2011 (RMB’000)

2010 (RMB’000)

Net cash generated from operating activities 712,934 380,101

Net cash used in investing activities (2,862,712) (363,682)

Net cash (used in)/generated from financing activities (548,447) 5,222,101

Net (decrease)/ increase in cash and cash equivalents (2,698,225) 5,238,520

Cash and cash equivalents at beginning of the year 5,851,379 612,859

Cash and cash equivalents at the end of the year 3,153,154 5,851,379

For the year ended 31 December

Section 4 Growth Strategy

31

Well-planned Strategies to Drive Sustainable Growth

• Description of the contents

Optimize product portfolio

Enhance sales and marketing strategies

Seek strategic M&A and collaboration opportunities

Enhance R&D and production capabilities

♦ Maintain steady growth of existing products ♦ Support fast-growing products which are set to outpace growth of industry ♦ Promote newly acquired products with high-market potential ♦ Invest in robust product pipeline with two key products set for launch in 2012

♦ Refine proven sales and marketing model ♦ Expand sales and marketing teams ♦ Further penetration in tier 3 and 4 cities and market saturation in existing areas ♦ Secure tenders of existing and new drugs in more regions at stable prices ♦ Further strengthen academic promotion to raise brand awareness

♦ Identify M&A and collaborative opportunities that are in line with market trends and demand ♦ Engage companies with products complementary for further diversification and optimization of product

portfolio ♦ Explore local and international cooperation opportunities in high-growth potential areas such as

biotechnology and other therapeutic areas such as oncology and CMS

♦ Commenced construction of new R&D center in Tongzhou ♦ Continue substantial investment in R&D ♦ Continue to upgrade existing and newly acquired facilities in compliance with new GMP standards

♦ Utilize proven sales and marketing model and robust network to further expand market share in China ♦ Leverage local knowledge and expertise of sales and marketing team to deepen market penetration ♦ Consolidate leading position in CCV market ♦ Expand market share in non-CCV market

Expand market share