According to information from the WHO and national statistics the total expenditure on health care by the WHO’s 192 member nations amounted to approximately US$3,536 billion in 2004. In that year, expenditures by the largest (the US) and the top ten nations amounted to approximately US$1,689 billion and US$2,887 billion respectively, accounting for approximately 48% and 82% of total members’ expenditures respectively.

Notwithstanding its high total expenditure among WHO member nations, China’s per capita expenditure on health care remained low but is growing quickly. According to the data from the WHO, Euromonitor, and China 2005 Statistical Book, the PRC ranked the lowest in terms of per capita expenditure on health care among the top ten spending countries listed above and 107th among all listed nations in 2004. However, in terms of growth rate in per capita expenditure on health care between 2000 and 2004, China ranked the highest among the top ten spending nations listed.

The pharmaceutical market in China has grown rapidly in recent years. According to Access Asia from trade sources and National Statistics, expenditure on medicine, including western pharmaceuticals and traditional Chinese medicine, or TCM, is expected to reach approximately RMB300 billion, equivalent to approximately US$36.4 billion, by the end of 2005, representing a growth rate of 142.7% since 1998.

Expenditure on western pharmaceuticals remains higher than those from TCM due to the higher prices western pharmaceuticals tend to command. For the year ended December 31, 2005, expenditure on western pharmaceuticals are expected to reach RMB179.5 billion, representing 59.6% of total expenditure on medicine. During the same period, expenditure on TCM is expected to reach RMB121.8 billion, representing 40.4% of total expenditure on medicine.

Launched in 1998, EPIAO is an injectable recombinant human erythropoietin, or EPO, that is used to stimulate the production of red blood cells in patients with anemia and to reduce the need for blood transfusions. Anemia is a condition in which insufficient oxygen is delivered to the body’s organs and tissues.

The Company plans to initiate in 2008 clinical trials for NuPIAO, its second-generation EPIAO product candidate. NuPIAO is designed to have a longer half-life relative to the Company’s first-generation EPIAO. In addition, the Company is in late-stage clinical trials for a concentrated high dose (36,000 IU/vial) formulation of EPIAO, which is designed to allow for less frequent administration, benefiting both patients and doctors.

The Company launched TPIAO, its newest internally developed protein-based therapeutic product, in January 2006. This product is a recombinant human thrombopoietin, or TPO, indicated for the treatment of chemotherapy-induced thrombocytopenia, a deficiency of platelets.

In addition to EPIAO and TPIAO, the Company markets two other protein-based therapeutics.

Intefen is the Company’s recombinant interferon alpha-2a product. Intefen is indicated for the treatment of carcinomas of the lymphatic or hematopoietic system, such as lymphoma and leukemia, and viral infectious diseases, such as hepatitis C.

Inleusin is the Company’s recombinant human interleukin-2, or IL-2, product. Inleusin is indicated for the treatment of renal cell carcinoma, the most common form of kidney cancer, metastatic melanoma, a type of skin cancer, and thoratic fluid build-up caused by cancer and tuberculosis. Inleusin is designed to stimulate the immune system in order to fight cancer and infectious diseases.

Costs of net revenues were RMB12.7 million and RMB8.8 million for the nine months ended September 30, 2005 and September 30, 2006.

Total operating expenses were RMB46.8 million and RMB56.0 million for the nine months ended September 30, 2005 and 2006.

Net income increased by RMB10.5 million or 81.4%, from RMB12.9 million for the nine months ended September 30, 2005 to RMB23.4 million for the nine months ended September 30, 2006.