Shanghai Pharmaceuticals Acquires 100% Stake in Kony Pharma to Optimize Industry Chain and Create Synergy

Shanghai Pharmaceuticals Acquires 100% Stake in Kony Pharma to Optimize Industry Chain and Create Synergy

HONG KONG, Feb. 6, 2012 /PRNewswire-Asia/ -- Shanghai Pharmaceuticals Holding Co. Ltd., ("Shanghai Pharmaceuticals" or the "Company" and, together with its subsidiaries, the "Group; stock code: 601607.SH; 02607.HK), is pleased to announce that 2012 marks a year that Shanghai Pharmaceuticals uses the proceeds from its H-share listing to step up M&A efforts. Subsequent to its purchase of a 51% equity stake in Jinhe Bio-Technology in January this year, Shanghai Pharmaceuticals has decided to acquire 70% stake in Changzhou Kony Pharm Co., Ltd. ("Kony Pharma") and the remaining 30% in the following two years in a bid to increase investment in special active pharmaceutical ingredients (APIs), optimize the pharmaceutical industry full value chain and achieve synergy.

The global generic drug market has seen a growth higher than the average of the pharmaceutical industry and doubles that of proprietary medicines in recent years. IMS Health gives an estimate of 9% to 12% growth in the global generic drug market over the next five years. Such growth in generic drugs is expected to rapidly boost the demand for special APIs from the pharmaceutical sector and presents a great opportunity for the development of the special API companies. Producing new generation, low-polluting special APIs with high gross margin and high added value relies on techniques, quality control, environment, health and safety (EHS) management system, and experience in international certification. Shanghai Pharmaceuticals was one of the first Chinese companies to export APIs to Europe and the U.S markets. Shanghai Zhongxi Sunve Pharmaceutical Co., Ltd., a wholly owned subsidiary of Shanghai Pharmaceuticals, passed the FDA certification in 1990 as well as the subsequent on-site checks.

Engaged in special APIs and intermediary businesses, Kony Pharma focuses on anti-virus and cardiovascular areas. Its major products, including valaciclovir and valsartan, are technologically advanced, cost effective with high gross margin and market share. They also meet international quality standards. 50% of Kony Pharma's products are exported and will see great potential in the global market once they pass CEP and FDA certifications. After the acquisition, Shanghai Pharmaceuticals can help Kony Pharma enhance its EHS management system and step up its efforts in international certification. Kony Pharma, on the other hand, can leverage on extensive relationships between Shanghai Pharmaceuticals and its multinational peers to open up sales channels for existing products. The deal will also enrich anti-virus and cardiovascular product offerings of Shanghai Pharmaceuticals, increasing its competitiveness in these areas.

As a vertically integrated pharmaceutical group, Shanghai Pharmaceuticals has an advantage in reducing the overall costs to raise competitiveness, with a focus on the development of APIs as well as preparations. APIs cannot be sold to the public without preparations, while preparations would have no source without APIs. Their relationship is like water without a source, a tree without roots. That is why both APIs and preparations are needed for the development of new products. In recent years, Shanghai Pharmaceuticals has made incremental investment in R&D. Some of the products under development are undergoing pilot trials and commercialization. Shanghai Pharmaceuticals will need a special API production base with advanced facilities, professional teams and stronger commercialization ability to accelerate the pace of new product launch. In addition to the Shanghai Xinghuo base and the Jiangsu Rudong base, Kony Pharma is expected to become one of the key API pilot trial and commercialization bases for Shanghai Pharmaceuticals.

Kony Pharma recorded revenue of RMB62.93 million for the sales of special APIs in the first half of 2011, with the net profit reached RMB17.25 million. The revenue for 2011 is expected to reach RMB115 million and Kony Pharma is expected to maintain a rapid growth in the future. Both parties agree that, subsequent to the first stage acquisition of 70% stake purchase, the remaining 30% will be acquired in the following two years at an agreed price subject to financial results and business growth.

Mr. Lu Mingfang, Executive Director and Chairman of Shanghai Pharmaceuticals, said, "We have strived to boost our overall competitiveness, enhance our position in the pharmaceutical industry and gradually increase our market share. We believe that after our acquisition of Jinhe Bio-Technology, the takeover of Kony Pharma will help us optimize the pharmaceutical industry chain and achieve synergy, which will in turn drive our business growth as well as profitability and create greater value for shareholders and investors. We will also continue to seek M&A deals which facilitate our development and accelerate our moves to develop nationwide presence."

About Shanghai Pharmaceticals Holding Co., Ltd.

Shanghai Pharmaceuticals is the only integrated pharmaceutical company in the PRC that has leading positions in both pharmaceutical product and distribution markets. It was China's second-largest pharmaceutical distributor and third-largest pharmaceutical producer. The Group adopts an integrated vertical business model and provides solutions in pharmaceutical manufacturing, distribution, logistics storage and retail. The Group currently offers more than 400 pharmaceutical products as well as pharmaceutical distribution and supply chain solutions to more than 7,600 hospitals and medical institutions in China. The Group also operates approximately 1,700 self-operated and franchise stores nationwide.


This Press Release is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of Shanghai Pharmaceuticals.

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Fax: +852-3150-6728

SOURCE Shanghai Pharmaceticals Holding Co., Ltd.