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 blue followed by our replies in black.

Rgds,
The Management Team
AsiaPharm Group Limited

Dear Bryce, you wrote:

Dear management team:

1. Through 2005 the company has announced various tie-ups with overseas scientific houses. Over what time frame do we expect to see tangible benefits from these?

The slew of recent strategic alliances that AsiaPharm has formed with various renowned corporations around the world is a conscious move in line with the Group's long-term objective to become an international pharmaceutical group equipped with world-class R&D capabilities. The various tie-ups, which will enhance or synergise with AsiaPharm's strength in R&D, by providing the following: a stable supply of raw materials, exclusive rights for distribution of drugs, technical knowledge of FDA application procedures as well as access to advanced R&D technology. Due to the different nature of these tie-ups, we expect to see results in medium to long term.

2. The company's continuing value-add comes from its R&D capabilities. Would you provide us some idea of the strengths and composition of our R&D team?

Our R&D team comprises of about 120 staff, many with post-graduate qualification and each specialises in different areas/focus such as Pharmacology, Medicine Chemistry, Formulation Technology, Drug Analysis, Safety Evaluation, Natural Research Center and Others. We have also set up a Pharmaceutical College with Yantai University in 2004 to enable us to continue to attract high quality staff while at the same time, collaborate with the University in R&D projects.

The availability of advanced facilities and equipment also allows us to carry out all aspects of pre-clinical evaluation including pharmaceutical & pharmacology research, drug safety evaluation and clinical trials.

Our R&D efforts have also won us the recognition as a "Shandong Natural Drug Engineering Research & Development Centre". To date, more than 50 drugs have already been developed or are currently under development and we will continue with our Company's strategy to launch 1 to 2 new products each year.

3. Would you let us have an idea on the rate of staff turnover of our R&D team, and our approach towards the protection of the company's intellectual property?

Our staff turnover rate is very low as we are one of the leading R&D facilities specialising in Natural Drugs. We are able to protect the Company's intellectual property through confidentiality agreements signed by all staff, including the R&D personnel as well as registration of Intellectual Properties through the relevant authorities.

Thanks
The Management Team
AsiaPharm Group Ltd

Dear Parry, you wrote:

Can the management shed some light on the reduced COGS?

The reduction of the COGS is mainly due to the change in our sales mix as COGS for Pharmaceutical drugs are much lower. Typically, pharmaceutical drugs have a much higher margin as compared with export sales of active ingredients as well as the distribution sales of our companies' drugs.

What is the goodwill of RMB5m with regards to?

The goodwill of RMB 5 million arises from the acquisition of the minority interests for Shandong Luye Pharmaceuticals Co., Ltd. ("SLP"). With the acquisition, SLP is now a wholly-owned subsidiary of our Group.

What is the client mix of your revenue base? i.e. hospitals or private clinics, etc?

All our drugs are prescription drugs which are sold to hospitals which cannot be purchased without prescription. Currently, our drugs are sold to about 1,500 hospitals.

There has been substantial increase on investing activities, can the management share more details with investors?

The increase in the investing activities is a result of the Group's strategy to maximise the shareholders' returns through investment in existing subsidiaries or new opportunities.

What do you mean by "Sale of R&D results"?

"Sales of R&D results" is one of AsiaPharm's main businesses whereby research results/patents of the new drugs which are not in line with our core business or business strategy are sold to other pharmaceutical companies. Also included in the sales of R&D results is revenue from contract research services to other pharmaceutical manufacturers.

In HY05, sales of R&D results contribute about 9% of our total revenue.

Sorry some more questions...

- How long (period) is your collaboration with Temasek for the R&D tie-up? Who gets to the own the research findings?

The collaboration of our alliance with Temasek life Sciences Laboratory is an ongoing collaboration, which started before our IPO on SGX.

The research findings and costs will be owned by both parties in accordance to the terms of the agreements.

Contributions from "Active Ingredients" and "Distribution" segment is down heavily. Is it a planned move?

Yes, as disclosed previously and again in the 1HFY2005 announcement, it is the management's intention to focus more on pharmaceutical drugs sales as well as sales of R&D results. The main reason behind this strategic change is the low margins for export sales of active ingredients and distribution sales.

The management strongly believes that this strategic move will be beneficial to our Group. In fact, our gross margin for 1HFY2005 has improved significantly due to this strategic decision.

Your R&D brings in RMB 14 mil in 1H2005. Can you refresh us on how do you capture sales on R&D?

"Sales of R&D results" is one of AsiaPharm's main businesses whereby research results/patents of the new drugs which are not in line with our specialisation or business strategy are sold to other pharmaceutical companies. Also included in the sales of R&D results is revenue from contract research services to other pharmaceutical manufacturers.

R&D revenue is recognised mainly based on the percentage of completion method in accordance to the terms of agreements.

Thanks
The Management Team
AsiaPharm Group Ltd

Dear Tony, you wrote:

I have two main questions pertaining to marketing of AsiaPharm's products:

1. The alliances that were announced to date has been primarily on the supply of active ingredients to AsiaPharm or on joint development of future drugs or to market the partners products in PRC and Asia.

Is there a strategy to market AsiaPharm's products globally?

Or are the products like Maitongna, Elcatonin, Nuosen, Lutingnuo and others good enough or suitable for the world market?

If yes, is AsiaPharm actively putting effort to strike alliance globally to market these products overseas or to get the necessary approval from the various authorities in other countries to allow its products to penetrate the global market.

If not, why not?

We've formed strategic alliances or signed agreements with the following companies, each with an edge that can synergise with AsiaPharm's strengths to help the Group achieve its long-term objective of becoming a leading international pharmaceutical company.

1. Formed Strategic Alliance with Biomedica Foscama, leading Italian pharmaceutical, signed on 11th Jan 05 to jointly develop, manufacture & distribute BF's drug in Asia and Europe

2. Signed Exclusive Supply Agreement with Dr. Reddy Laboratories Limited, Indian company, 4th Apr 05 to import Pantoprazole Sodium API into the PRC

3. Formed Alliance with (USA) Napo Pharmaceuticals, Inc, on 26th May 05 whereby Napo grants exclusive rights to develop, market and distribute products derived from Crofelemer in PRC. Also, Napo will provide the technical support & guidance to AsiaPharm in the FDA application procedure.

4. Signed Agreement with Swiss Pharmaceutical Sochinaz SA on 27th Jun 05 which provides exclusive supply of MT 103-1 to Shandong Luye upon approval of its application of Import Drug License.

5. Signed Collaborative Agreement with Temasek Life Sciences Laboratory to make use of TLL's proprietary transgenic zebrafish drug screening technology, combined with Shandong Luye's library of compounds from TCM, to identify innovative high-value drugs for the Chinese and international markets.

The partnership with these companies will align our Group with international standards and elevate our R&D technologies to a higher platform, which we will draw on in future to penetrate international markets.

2. For the last 6 months, we have been told that: "increasing the number of hospitals we serve from 1,500 currently to 2,000 by end of FY2005". Six months ago, it was "1,500 currently", now it is still "1500 currently". Such information is not useful. Can the management provide a honest and accurate figure update every quarterly? We do not want a bombshell to be dropped for the final quarter to Dec 05 with another "still serving 1,500 currently". Please give us an accurate figure to date.

Thanks.

As stated in the Annual Report for FY2004, we have quoted the number of hospitals currently served by AsiaPharm as 1,500, which has remained as a conservative figure that we used in the results of 1HFY2005. It is our aim to increase the penetration of hospitals in the PRC with the target of 2,000 hospitals by the end of FY2005.

Thanks
The Management Team
AsiaPharm Group Ltd

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