<p> <br/></p><p></p><p>Maxim group<br/>Dec 17, 2008</p><p>Equity research industry report (73 pages)</p><p>Contents<br/>EXECUTIVE SUMMARY AND OVERVIEW ............................................................................ 5<br/>Positive drivers are in place ........................................................................................................ 5<br/>Selection criteria are mainly fundamental driven ....................................................................... 5<br/>Detailed presentation about unique aspects and opportunities ................................................... 6<br/>INVESTMENT THESIS FOR CHINESE HEALTHCARE SECTOR.......................................... 7<br/>Three major themes should be considered.................................................................................. 7<br/>The Chinese healthcare sector is rapidly growing and has multiple positive macro-factors in<br/>place ........................................................................................................................................... 7<br/>Figure 1: Healthcare expenditures in China are lower than those of developed countries<br/>........................................................................................................................................ 7<br/>Figure 2: Recent medical expenditures as percentage of GDP in China have increased<br/>consistantly ..................................................................................................................... 8<br/>A defensive investment play at a challenging market environment ........................................... 9<br/>Figure 3: Drug and biotech indexes performed better than Nasdaq or S&P over the last<br/>12 months........................................................................................................................ 9<br/>A geographic hedge for the U.S. investors ................................................................................. 9<br/>Recent government financial stimulus package could be a tailwind for the growth of several<br/>healthcare sectors ...................................................................................................................... 10<br/>INVESTMENT SELECTION CRITERIA................................................................................... 12<br/>Sustainable top- and bottom-lines to build growth stories, supported by positive cash flows . 12<br/>Superior marketing and sales capabilities to generate positive cash flows .............................. 13<br/>Strong R&D capabilities to enhance pipeline through future product offerings ...................... 13<br/>Management competency in regards to M&A and post-M&A integration .............................. 13<br/>Proper assessments of the status of industry to determine appropriate investment strategies.. 14<br/>Favorable valuation................................................................................................................... 15<br/>SPECIFIC ASPECTS OF THE CHINESE HEALTHCARE INDUSTRY.................................. 16<br/>Positive Attributes..................................................................................................................... 16<br/>Robust Chinese economy growth propels healthcare expansion.............................................. 16<br/>Figure 4: Rapid Gross Domestic Product (GDP) growth in China over the last decade<br/>...................................................................................................................................... 17<br/>Figure 5: Chinese pharmaceuitcal market is projected to have continued growth ....... 17<br/>Growing middle class and increasing disposable income benefit many healthcare sectors ..... 17<br/>Figure 6: Urban per capita disposable income in China continues to grow ................ 18<br/>Aging population and increased urbanization expand healthcare usage .................................. 18<br/>Figure 7: Aging demographic in China favors the healthcare industry ........................ 18<br/>Continued significant government investment, including greater insurance coverage, should<br/>benefit certain sectors ............................................................................................................... 19<br/>Figure 8: National Medical Insurance Program coverage ............................................ 19<br/>Continued government support for domestic companies and less stringent regulatory standards<br/>facilitate greater product development...................................................................................... 20<br/>Negative Trends ........................................................................................................................ 20<br/>Continued price control puts pressure on pharmaceutical companies ...................................... 21<br/>The regulatory environment has not yet reached normalcy and could remain an overhang for<br/>the healthcare industry .............................................................................................................. 22<br/>Figure 9: Registration classification and clinical trial requirements ............................ 23<br/>Intensifying competition could continue to depress margins ................................................... 23<br/>Room for improvement still exists in intellectual property protection ..................................... 23<br/>An aging population and lifestyle changes create disease patterns similar to those of developed<br/>countries................................................................................................................................... 25<br/>Figure 10: Increase of the elderly population in China................................................. 25<br/>Multiple industry sectors are very fragmented ......................................................................... 25<br/>Figure 11: Chinese healthcare industry is fragmented across the board....................... 26<br/>Many companies, including numerous state-owned enterprises, (SOEs) are larger in sales and<br/>scope than U.S.-listed Chinese healthcare companies .............................................................. 27<br/>Comparable companies should include domestic and non-Chinese peer companies ............... 27<br/>Figure 12: U.S.-listed Chinese pharma company compares to the U.S. and China peer<br/>groups........................................................................................................................... 27<br/>Revealing the final version of the government healthcare reform in late 2008 or in 2009, in our<br/>opinion, could afford significant visibility into the development of multiple sectors .............. 28<br/>The pharmaceutical (Western-style medicine) sector is dominated by generic and branded<br/>medications ............................................................................................................................... 29<br/>Figure 13: Top ten pharmaceutical companies of 2007................................................ 29<br/>Figure 14: Top ten pharmaceutical distributors of 2007............................................... 30<br/>Hospital pharmacies, instead of retail pharmacies, are the mainstay for drug distribution ...... 30<br/>Figure 15: More than 70% of drugs are distributed through hospital pharmacies........ 31<br/>Figure 16: Breakdown of different hospitals in China.................................................. 31<br/>A separation between prescribing and dispensing drugs could take more time to accomplish, in<br/>our opinion............................................................................................................................... 31<br/>Traditional Chinese Medicine (TCM) continues to garner significant market share ............... 32<br/>Companies with export potential possess additional upside..................................................... 33<br/>Mini review of the plasma product market ............................................................................... 34<br/>Figure 17: Selected Chinese plasma product companies.............................................. 36<br/>Mini review of the vaccine market ........................................................................................... 36<br/>Figure 18: Vaccine distribution system in China before the change ............................ 37<br/>Figure 19: Vaccine distribution system in China after the change ............................... 37<br/>Figure 20: Selected Chinese vaccine companies .......................................................... 38<br/>Mini review of the medical device market ............................................................................... 38<br/>Figure 21: Growth of the Chinese medical device market .......................................... 39<br/>Figure 22: The highlighs of Chinese medical device imports and exports of 1H08..... 39<br/>COMPANY PROFILES............................................................................................................... 42<br/>Mindray Medical International (迈瑞公司).............................................................. 43<br/>Simcere (先声药业).................................................................................................. 45<br/>American Oriental Bioengineering (美国东方生物技术) ....................................... 47<br/>China Nepstar Chain Drugstore (海王星辰) ............................................................ 49<br/>China Medical Technologies, Inc. (中国医疗)......................................................... 51<br/>3SBio, Inc. (三生制药)............................................................................................. 53<br/>Sinovac Biotech (北京科兴生物制品)..................................................................... 55<br/>BMP Sunstone Corporation (美华太阳石) .............................................................. 57<br/>Tongjitang Chinese Medicines (同济堂).................................................................. 59<br/>WuXi PharmaTech (药明康德)................................................................................ 61<br/>Shengtai Pharmaceutical (潍坊盛泰药业) ............................................................... 63<br/>Lotus Pharmaceuticals, Inc. (美 時 化 學 製 藥) ..................................................... 65<br/>China Bio-Immunity (大 连 金 港 安 迪 生 物 制 品) .................................... 67<br/>DISCLOSURES........................................................................................................................... 70<br/>RISK RATINGS ........................................................................................................................... 71<br/>DISCLAIMERS........................................................................................................................... 72</p>

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