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Chairman's Message

* Extracted from Annual Report 2016

Dear Shareholders,

FINANCIAL PERFORMANCE

For the financial year ended 31 December 2016, the Group continued to face a challenging industry environment mainly due to the Chinese government's regulatory controls on drug prices. The national restriction on antimicrobial drugs and regional bidding price limit have affected sales, resulting in a financial performance that was below expectations.

As our three key product segments saw decline in sales, Group revenue fell 32% from RMB90.2 million in FY2015 to RMB61.7 million. Gross profit decreased 29% to RMB21.4 million mainly due to lower demand for other specialized drugs and antibiotics, which were the top two largest revenue contributors in FY2016. Consequently, the Group's net profit attributable to equity holders decreased 57% to RMB2.6 million in FY2016.

DEVELOPMENTS IN 2016

Amidst tough market conditions, the Group continued with its relentless push for innovation and better risk management. The Group sought to optimize its production through the implementation of GMP transformation projects to reduce production costs and improve risk management and control capabilities. In addition, the Group strengthened its marketing model by fine-tuning the marketing strategy and integrating sales channels, and at the same time, expanded the market outreach of exclusive proprietary Chinese medicine products.

On the Research & Development (R&D) front, the Group obtained the clinical approval of raw materials and preparation s new drug product of Azilsartan (chemical medicine registration classification 3). We have also completed the CDE supplement of Acetylcysteine Solution for Inhalation of the first generic drugs (chemical medicine registration classification 4), and we expect to secure the production approval from State Food and Drug Administration (SFDA) within 2 years. We have also started two consistency evaluations of quality and efficacy of chemical generic drugs.

To support the supply chain of Chinese medicine production, we set up a traditional Chinese medicine extraction out-plant workshop in Hunan so as to meet the requirements for the Group's proprietary production capacity.

In 2016, the Group secured the GMP certification inspection of traditional Chinese medicine extraction (Hunan out-plant workshop) as well as the GMP tracking inspection of Food and Drug Administration of Hainan province.

ON THE HORIZON

Having invested efforts to overcome market challenges and strengthen our business foundation in recent years, the Group is expecting to reap the fruits of its hard work. The Group expects to commence production of a new product, Acetylcysteine Solution for Inhalation, once approval is obtained from SFDA, as well as to complete the GMP re-certification of the relevant injection workshop.

We will also continue to develop new products through our R&D efforts to meet changing market needs. Currently, there are 14 on-going R&D projects in progress. Therefore, we expect our continuous investments in R&D to bear fruit soon. With a strong product pipeline, coupled with aggressive business development initiatives to expand domestic sales and capture growth opportunities internally and externally, we are optimistic of delivering a better performance in the future.

WELCOME TO NEW BOARD MEMBER

On behalf of the Board, I wish to welcome Mr. Wang Qi who was appointed as Executive Director on 1 March 2017, following the resignation of Mr. Gu Yan. The Board would like to express our appreciation to Mr. Gu for his contributions.

A NOTE OF APPRECIATION

Last but not least, I would like to express my gratitude to our management, staff, business partners and associates for their unstinting dedication and hard work, as well as shareholders for their unswerving support to the Group.

XU ZHI BIN

Executive Chairman

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