Management Q&A

Dear Investors,

Thank you very much for the questions and the opportunities to clarify them. We hope you have a better understanding of our business through this online exchange.

Your questions will be reposted in black followed by our replies in blue italics.

Rgds,
The Management Team
AsiaPharm Group Limited

Yellowcard88, you wrote:

1. With the resurgence of SARS in China, how will this impact the business?

Dear Yellowcard88, thank you for your questions.

We do not foresee any significant impact in the event of resurgence of SARS as our products are mainly used in hospitals and not for outpatients who may defer visit hospitals during SARS period.n any case, our main product, Sodium Aescinate (Maitongna), is an anti-inflammatory and anti-swelling drug, which was used in the treatment of SARS in 2003 to treat the symptoms of SARS, effectively reduce inflammation and swelling of the lungs area.

2. Can you tell us more about your pharmaceutical products…are they largely OTC or hospital drugs?

Our pharmaceutical products are mainly prescriptive drugs sold to hospitals. Sale and distribution of pharmaceutical drugs constitutes approximately 61.8% of our turnover for FY2003. We supply to approximately 1,300 hospitals directly and through approximately 250 distributors throughout the PRC.

Rgds,
The Management Team
AsiaPharm Group Limited

Dave Poh Choon Kee, you wrote:

Recently a lot of talks about China economy overheating and the government trying to come out with dampening measures. Can you please kindly highlight if your company will be affected adversely by such possible measures, if so, how?

Dear Dave Poh Choon Kee, thank you for your question.

Control measures to control China economy from overheating will only affect certain sectors such as the construction, property and raw material. As AsiaPharm is in the specialty pharmaceutical industry, we are not affected by the control measures.

Rgds,
The Management Team
AsiaPharm Group Limited

Qber, you wrote:

1. The group is in the pharmaceutical industry where there is a high level of barrier of entry because of the high R&D cost. How does the management foresee that they will continue to grow in this unpredictable industry?

Dear Qber, thank you for your questions.

We have established ourselves as one of the leading specialty pharmaceutical groups in the PRC.

Besides being responsible for our Group's R&D, our R&D centre also sells our R&D results and/or patents to other organizations as well as provide contract research services to other pharmaceutical manufacturers. As at 31 December 2003, our R&D centre employs 89 researchers, 17 Masters degree holders and four holding doctorates degrees. The remaining personnel have medical or pharmaceutical qualifications. Our R&D centre is equipped with advanced facilities and equipment. We have the ability and capacity to carry out in-house all aspects of pre-clinical evaluation, from pharmaceutical research to pharmacology research and drug safety evaluation as well as oversee clinical trials. Since the establishment of our R&D centre, we have developed five drugs which have obtained the New Drug certification and are in the process of developing 28 new drugs, seven are currently undergoing clinical trials and we are applying for SFDA approval for the other six which pre-clinical evaluation has been completed. The remaining 15 new drugs are currently undergoing research.

We will continue to strengthen our R&D capabilities, increase our product offering, expand our market and production capacity.

2. May I ask what is the breakdown of revenue from the group's 3 core business units?

Breakdown of revenue into different business segments: Pharmaceutical Drugs: 61.8%, Active Ingredients: 32.1%, R&D Sales: 6.1% (for the financial year ended 31 December 2003)

3. Noted that there is a high level of trade debtors faced by the group, does the management foresee that this will become a major (bad debts) problem in the future?

Trade and notes receivables increased from FY2002 to FY2003 mainly due to the increase in current debtors as a result of increased sales in FY2003.

We do not foresee any major bad debt problems as we have implemented very stringent credit control policy. We have stringent credit terms and sales contracts. In determining the credit terms to be granted to customers, we will take into account certain criteria, including the length of our business relationship, settlement history and monthly order volume. Our normal credit terms are 30 to 180 days, to be reviewed on a bi-monthly basis by our Sales and Marketing Division managers.

Our trade receivable days were 97 days, 109 days and 97 days for FY2001, FY2002 and FY2003 respectively. These are within the industrial average.

4. What will be the management future plans for the growth of the group with the IPO proceeds of S$21.4m?

We intend to use the net proceeds of S$21.4 million as follows:

• approximately S$6.2 million to increase its commitment towards R&D;
• approximately S$6.2 million to finance the acquisition of new equipment and the construction of additional production lines and ancillary facilities;
• approximately S$4.1 million for market expansion including expanding its distribution network and increasing its marketing activities;
• approximately S$2.1 million for the repayment of bank loans; and
• the balance of S$2.8 million for its working capital requirements.

5. How does the management intend to position the group in this competitive industry?

In the past 10 years, we have established ourselves as one of the leading groups in the specialty pharmaceutical industry. We will continue to focus on our areas of specialisation: orthopaedics, neurology, gastroenterology and hepatology.


Rgds,
The Management Team
AsiaPharm Group Limited

Tay Chek Foo, you wrote:

Does your company has a dividend policy i.e do you intend to pay dividends after first year?

Dear Tay Chek Foo, thank you for your question.

We do not have a fixed dividend policy. However, we will keep a lookout for ways to reward our loyal shareholders for their support and commitment.

Rgds,
The Management Team
AsiaPharm Group Limited

Rizal M, you wrote:

1. Can you advise how long it takes to get any of your brand new products approved by the Chinese health authorities? Please advise what is the procedure like as well?

Dear Rizal M, thank you for your questions.

The length of time taken to get the required approval will vary from case to case. It typically includes three stages of approval: Pre-clinical trial, Clinical trial and New Pharmaceutical Drug Certification.

2. Any chance of AsiaPharm bringing and marketing your products outside China (eg Singapore?) What are the regulatory restrictions on you doing that, I assume that need all the local authorities to approve your products before you can start selling them in overseas? (Find out how scalable your business is outside China?)

Although our primary business is in China, but we have started our overseas expansion in 2000 to North America and Western Europe. We plan to build up our customer base through export of active ingredients and increase base of overseas customers to gain entry into the international market.

We plan to expand to the Southeast Asia region through distribution of our OTC drugs first, as the approval period for OTC drugs are generally shorter.

Rgds,
The Management Team
AsiaPharm Group Limited

Soedarto, you wrote:

Can you ask the management if the company is insulated from any patient's claim or legal suits if a patient has reasons to believe that your pharmaceutical failed to perform as it has claimed? Investors likely to fear such uncertainties, I think.

Dear Soedarto, thank you for your question.

We have not received any complaints or health issues. With our strict implementation of quality management system in place, we have full confidence that our products will be able to meet and even exceed our customers' requirements. Besides we do not know of such insurance policy available in the market. Furthermore, it is not an industry practice to procure insurance coverage for product liabilities arising from the manufacture or sale of drugs in the PRC.

Rgds,
The Management Team
AsiaPharm Group Limited

Philip, you wrote:

What is the difference between AsiaPharm and Tianjin Zhongxin, good for the management to differentiate, if not, most of us will lump you both together.

Dear Philip, thank you for your questions

We extract our active ingredients mainly from plants and with advanced technologies, we are able to develop and manufacture speciality pharmaceutical drugs mainly for hospital use. We are focused in specialty pharmaceutical drugs used mainly in hospitals in the PRC. Our core areas are in orthopaedics, neurology, gastroenterology and hepatology. Whereas Tianjin Zhongxin produces and sells traditional Chinese medicine, western medicine, heath products and healthcare instruments.

Rgds,
The Management Team
AsiaPharm Group Limited

Dear Investors,

Thank you for all your questions and the interest in AsiaPharm Group Limited. We have come to the end of this Q&A session.

We have enjoyed and learnt much from your questions and we hope that you have a better insight of our Company and know more about our operations.

Rgds,
The Management Team
AsiaPharm Group Limited