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Dear shareholders:
First and foremost, thank you for your continued support. As Chairman andCEO of China Medicine, I would like to take this opportunity to share myopinion with you on the global capital markets crisis, which has resulted indownward pressure on stock prices.
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We believe that the current financial turmoil is a once-in-a-centuryglobal crisis. It is inevitable that bubbles in the economy, such as the onethat we have witnessed with housing prices in the United States, willeventually burst. However, the economy eventually begins to find a path torecovery, especially in an era when the economies of many countries areinterconnected. As one analyst has observed, the whole world has been trappedby the breakdown of "Wall Street's alchemy." Nevertheless, the real economy ofthe United States has for a long time been ranked among the best in the world.We believe this will continue to be the case.
Despite the global financial crisis, China Medicine's operations andperformance have not been directly affected by current events. In the secondquarter of 2008, we reported strong financial results, and we are maintainingour strategy of increasing profitability by including higher-margin productsin our portfolio. Most importantly, our strong cash flows will work to ouradvantage as we weather the difficult financial climate.
I would like to point out that the tightening of China's credit policy andthe lack of loans available to local Chinese companies have caused cash flowproblems for many companies. As a result, our business results will beslightly affected in third quarter of 2008 for several reasons:
However, we are convinced that these problems are only temporary. Thoughwe now expect revenue growth for fiscal 2008 to be below our original guidanceof 25%-35%, we expect to exceed our net income estimates of 20%-22% growth forthe year. Overall, we believe that our strong cash flows, extensivedistribution network, exclusive and provincial distribution rights, highermargin products, and progress in developing rADTZ will only serve tostrengthen our position as a leading pharmaceutical distributor and specialtydrug developer in China.
We also have an expansion plan in place to include a manufacturingfacility to complement our pharmaceutical distribution business. The facilityshould contribute to China Medicine's growth and future returns. In addition,it should also facilitate the manufacturing of both our pharmaceuticalproducts and rADTZ. In the long run, we believe our expansion plan will helpbring down our overall cost ratios by reducing energy consumption andeliminating redundant spending on fixed assets.
Food safety in China has been in the spotlight, and China Medicinebelieves that the commercialization of rADTZ will play an important role inthe animal feed, food, food inspection, pharmaceutical, and transgenicagriculture industries. China Medicine remains focused on thecommercialization of rADTZ for the remainder of the year. We are currentlyconstructing a manufacturing facility exclusively for rADTZ production and arecommitted to launching rADTZ trial sales for the animal feed industry in thefirst quarter of 2009. In China, 120 million metric tons of animal feed issold yearly. Based on a pricing strategy of 70 RMB to treat one metric tons ofanimal feed, the potential market for rADTZ is estimated to reachapproximately RMB 8.4 billion ($1.23 billion). Based on our projections, netmargin for rADTZ is expected to be at least 60%. As a result, China Medicinebelieves that the successful launch of rADTZ, or licensing of rATDZ technology,has the potential to contribute substantially to our revenue and profit.
In conclusion, we believe that China's economy has very solid fundamentalsand that the impact from the worldwide financial crisis should be less severedomestically. China's population of 1.3 billion ensures that strong internalconsumption will help to support the domestic economy. We remain confidentabout China Medicine's ability to weather these challenging market conditions,and will continue to keep you informed about our recent activities.
I would like to thank all of our shareholders for their continued supportas we look forward to a successful future.
About China Medicine Corporation
China Medicine Corporation is a leading pharmaceutical company whichdiscovers and develops medical formulations and distributes over 2,200pharmaceutical products in China including prescription and over-the-counterdrugs, traditional Chinese medicine products, herbs and dietary supplements.The Company distributes the products to wholesale distributors in 28 provincesand to more than 300 hospitals, 500 medicine companies, and 1,788 drug storesthroughout China. The Company actively develops a number of proprietaryproducts for many uses including oncology, high blood pressure and the removalof toxins from food and animal feed. For more information visit the Company'swebsite at http://www.chinamedicinecorp.com .
Cautionary Statement
This press release contains forward-looking statements concerning theCompany's business and products. The Company's actual results may differmaterially depending on a number of risk factors including, but not limited to,the following: general economic and business conditions, obtaining regulatoryapproval for new products, the expected contribution of higher margin products,government support for rural health care, competition from existing and newcompetitors, changes in technology, and various other factors beyond itscontrol. All forward-looking statements are expressly qualified in theirentirety by this Cautionary Statement and the risk factors detailed in theCompany's reports filed with the Securities and Exchange Commission. ChinaMedicine Corporation undertakes no duty to revise or update any forward-looking statements to reflect events or circumstances after the date of thisrelease.1. Various suppliers and factories are facing cash flow problems and the distribution chain has been struggling. 2. As a result of the Sichuan earthquake, provincial government spending in other provinces has decreased as funds have been used to help earthquake victims in Sichuan. 3. Due to the Beijing 2008 Olympics Games, the Chinese government mandated that all tests and experiments involving toxic substances be temporarily halted during the Olympics, which delayed our trial sales of recombinant aflatoxin-detoxifizyme (rADTZ) 4. The Guangdong Sunshine Bidding process, which has been postponed to September 1st, has resulted in collection delays from some hospitals.
SOURCE China Medicine Corporation
