With approximately one-fifth of the world’s population and a fast-growing gross domestic product, China presents significant potential for the pharmaceutical industry. According to the Freedonia Group, pharmaceutical demand in China reached RMB198.0 billion ($25.4 billion) in 2005, representing a growth of 12.1% annually since 2000. The Freedonia Group expects the total pharmaceutical expenditure in China to grow at 13.6% annually between 2005 and 2010. Such growth rate is significantly higher as compared to the rest of the world, where growth of the pharmaceutical industry is projected to be at a CAGR of 5.0% to 8.0% between 2004 and 2009 according to IMS Health.

As of 2005, the top five categories of pharmaceuticals by therapeutic group included anti-infective agents, gastrointestinal agents, cardiovascular agents, hormones and related agents and biological agents and vaccines, with each category constituting approximately 23.2%, 14.0%, 12.5%, 11.9% and 9.2%, respectively, of the total pharmaceutical demand. The increase in pharmaceutical demand in China is expected to extend into most of these therapeutic groups. According to the Freedonia Group, anti-infective agents will continue to post the largest share of sales based on the widespread need to upgrade and expand infection prevention standards in rural communities and poorer urban areas.

According to the China Statistical Yearbook 2006, from 2001 to 2005, the average per capita annual disposable income of China’s urban residents increased from approximately RMB6,859.6 ($879.0) to RMB10,493 ($1,344.5), representing a CAGR of approximately 11.2%. China’s economy is expected to continue to grow, and the gross domestic product is projected to grow from RMB17.9 trillion in 2005 to RMB29.2 trillion ($3.7 trillion) in 2010, according to the Freedonia Group.

The Company’s innovative pharmaceutical Endu, or recombinant human endostatin, has been granted an invention patent in China and was the first recombinant human endostatin injection approved for manufacture and sale in China and has been approved for the treatment of NSCLC.

The Company currently sells five principal branded generic pharmaceutical products: Bicun (edaravone injection); Zailin (amoxicillin capsules, dispersible tablets, granules and injection); Anqi (amoxicillin with clavulanate potassium granules, tablets and injection); Yingtaiqing (diclofenac sodium sustained-release capsules and gelatin); and Biqi (smectite powder).

Bicun is the Company’s prescription edaravone injection pharmaceutical for the treatment of strokes. Edaravone protects the brain by eliminating excessive free radicals, which are highly reactive molecules occurring in the human body as a result of stroke, an excessive number of which could result in cell damage.

Zailin is the brand name for the Company’s line of generic prescription amoxicillin antibiotics, which includes capsules, dispersible tablets, granules and injection.

Anqi is the brand name for the Company’s line of generic prescription amoxicillin with clavulanate potassium antibiotics, which includes granules, tablets and injection.

Yingtaiqing is the Company’s brand name for its generic diclofenac sodium in sustained-release capsules and gelatin dosage format, which is an anti-inflammatory pain reliever and analgesic drug used to treat rheumatoid arthritis and osteoarthritis.

Biqi smectite powder is the Company’s generic OTC anti-diarrhea pharmaceutical. Regulatory approval to manufacture and sell Biqi was obtained in November 1999.

Gross profit increased by 34.3% to RMB760.0 million ($97.4 million) in 2006 from RMB565.9 million in 2005.

Operating expenses increased by 38.3% to RMB575.3 million ($73.7 million) in 2006 from 415.9 million in 2005.

Interest income increased by 203.3% to RMB2.8 million ($0.4 million) in 2006 from RMB0.9 million in 2005.

Interest expense decreased by 28.6% to RMB10.7 million ($1.4 million) in 2006 from RMB15.0 million in 2005.

Net income in 2006 increased by 67.8% to RMB172.3 million ($22.1 million), or RMB1.86 ($0.24) per share, from RMB102.7 million, or RMB1.49 per share, in 2005.