China healthcare business

In 2011, sales of its subsidiaries and JCEs of the China Healthcare Division grew 17% to $271.0 million (2010: $231.2m) primarily from organic growth of existing products as well as some growth from HBYS' new Good Supply Practice ("GSP") distribution subsidiary. Consolidated net profit attributable to Chi-Med equity holders from the Division increased 11% to $14.0 million (2010: $12.7m) or 13% excluding the $0.3 million one-time exchange gain from repayment of SHPL shareholder loans in 2010.

We view 2011 as a year of solid overall performance which again highlighted the diversified strength of our China Healthcare Division. Continued surging growth in our outstanding prescription drug business more than offset slightly slower growth in our OTC drug business caused by our aggressive price increases which were aimed at offsetting price increases on certain raw materials, and a drop in sales of our supplements business which resulted from our conscious decision to tighten working capital and reduce distributor inventories on HHL.

The China Healthcare Division has three operating entities – a prescription drug company, SHPL, which is a 50:50 joint venture with a wholly-owned subsidiary of Shanghai Pharmaceuticals Holding Co., Ltd. (SHA: 601607) ("SPG"); an OTC drug business, HBYS, which is a 50:50 joint venture with Guangzhou Baiyunshan Pharmaceutical Co., Ltd. (SHE: 000522) ("GBP"); and a wholly-owned nutritional supplements company, HHL.

The Division manufactures and sells two household name brands in the pharmaceutical industry in China, the OTC brand Bai Yun Shan (meaning "White Cloud Mountain", a famous scenic area in Guangzhou) and the Shang Yao brand (literally meaning "Shanghai Pharmaceuticals"). Our products have strong representation on the current Medicines Catalogue for the National Basic Medical Insurance, Labour Injury Insurance and Childbirth Insurance Systems ("NMC") as well as the current National Essential Medicines List ("Essential Medicines List") that mandates distribution of drugs in China. We focus mainly on products and brands that have leadership market shares in the Chinese cough-cold and cardiovascular drug markets.

The China Healthcare Division employs over 4,000 staff in two large-scale factories in Guangzhou and Shanghai, and in sales, marketing, and distribution operations across all of China.

Our product portfolio remains well diversified. While we own product licenses for over 200 drugs and registered health supplements in China, over 89% of our China Healthcare Division's sales in 2011 came from nine core products – six of them are OTC drugs, two prescription drugs, and one nutritional supplement.