Dragon and Oriental Wave Announce the Signing of Definitive Agreement to Create a Competitive and Growth Oriented Pharmaceutical Company (Part 1 of 2)

News

Dragon Pharmaceutical Inc. (TSX: DDD, OTCBB: DRUG) (“Dragon”) and Oriental Wave Holding Limited (“Oriental Wave”), the holding company of Shanxi Weiqida Pharmaceutical Co., Ltd., are pleased to announce today that they have signed a definitive agreement providing for a business combination of the two companies.

TRANSACTION SUMMARY

Under the terms of the definitive agreement, Dragon will issue approximately 44.4 million shares to Oriental Wave shareholders to acquire all of the shares outstanding of Oriental Wave Holding Limited, which will become a wholly owned subsidiary of Dragon assuming the transaction is consummated. As a result of the transaction, Oriental Wave’s shareholders will own approximately 68.35% of Dragon on a fully-diluted basis. The new Board of Directors of Dragon, after the transaction, will consist of two existing directors of Dragon and three appointed directors from Oriental Wave. Dragon intends to hold its annual meeting of shareholders during the third quarter of 2004 to seek approval to issue the shares in connection with the business combination, along with the election of directors and ratification of independent accountant proposals. In addition, because Dragon does not, at this time, have a sufficient number of authorized common stock, it will seek shareholder approval to increase the number of authorized shares of common stock at the annual meeting.

The Boards of Directors of both companies have approved the definitive agreement. The transaction is subject to approval by Dragon shareholders and regulatory authorities, and the satisfaction of other customary closing conditions. Subject to the satisfaction of these conditions, the transaction is expected to close by the end of the third quarter of 2004.

The business combination brings together Dragon and Oriental Wave with similar business strategies of capturing the market potential of the generic drug sector by producing pharmaceutical products competitively in China, achieving material access to the Chinese market and, at the same time, targeting international market opportunities.

“The combining of the strengths and competitive advantages of both companies without any fundamental change in strategies comes as a natural transformation except that the combined company now has better vision for growth, more diverse and proven product lines, expanded production facilities and operations in China, and stronger revenues and earnings, all of which position the combined company better to deliver shareholder value based on the critical mass achieved” said Dr. Alexander Wick, President and CEO of Dragon. “To Dragon’s shareholders, this transaction is expected to be accretive and represents an exciting opportunity to participate in a pharmaceutical company positioned for further growth captured under the Pharma, Chemical and Biotech divisions of the combined company. We expect that these businesses will drive revenue and profitability growth and increase the value of the combined company beyond what could be achieved separately.”

Commenting on the transaction, Mr. Yanlin Han, Chairman of Oriental Wave said, “We are extremely excited about this transaction which, we believe, represents an important step to strengthen the combined company’s position to become a competitive player in the global pharmaceutical industry. Oriental Wave and its subsidiary has been an active participant in the consolidation of the Pharmaceutical industry in China in the past and have, therefore, accumulated substantial experience and expertise in making sure the transition of this business combination goes smoothly in order to realize the expected benefits and synergies as planned.”

KEY BENEFITS FROM THE BUSINESS COMBINATION

Enhanced Financial Position and Achievement of Critical Mass to Better Compete in the Global Pharmaceutical Industry
Based on the pro-forma financial statement prepared by Dragon’s management, assuming the transaction occurred at the beginning of 2003, the combined company would have 2003 pro-forma revenues of $29.7 million and a net profit of $5.6 million (or $0.09 per share based on 64.9 million shares), which is significantly enhanced from revenues of $3.7 million and a net loss of $2.0 million (or ($0.10) per share calculated based on 20.3 million shares) for Dragon as a stand alone company. The combination not only enhances Dragon’s value by creating a company with stronger fundamental and growth potential than Dragon alone but also allows the company to achieve the critical mass to better compete in the global pharmaceutical industry.

Complementary Product Offerings
The combined company will offer a diversified and proven product line of 40 key pharmaceutical, chemical and biotech products. In addition, after the transaction, the combined company will have a portfolio of 293 product permits from the Chinese State Food and Drug Administration (“SFDA?, including the in-licensed G-CSF. We believe the breadth and complementary nature of the product portfolio not only mitigates the combined company’s overall business risk profile as a result of diversification but also enables the company to focus on near-term and long-term revenue and earnings growth.

Complementary Sales Platform
Combining the Oriental Wave’s comprehensive sales network with over 1,200 sales representatives in China and Dragon’s strong international licensing networks covering 130 countries will enable the combined company to have a strong sales presence in both Chinese and international markets.

Complementary Management Expertise
Following the Transaction, we will combine the management teams of Oriental Wave, which has extensive experience in pharmaceutical product manufacturing operation and sales and marketing in China, and those of Dragon, which has extensive experience in international regulatory affairs and international market development for pharmaceutical products from China.

Revenue and Cost Synergies
Immediate revenue synergy includes cross selling Dragon’s EPO in China through Oriental Wave’s sales network of over 1,200 sales representatives while mid-term and long-term opportunities include selling Oriental Wave’s Chemical products and Pharma products through Dragon’s international licensing network. We expect that the cross-selling of each other’s products will achieve additional revenues without incurring proportional selling expenses. In addition, we believe that the combined company will achieve other cost synergies through combining and unifying certain corporate management functions and responsibilities, the sales and marketing network in China as well as the operations management of the three business divisions.

Capturing Multiple Growth Opportunities
The generic drug and chemical sectors of the pharmaceutical industry are characterized by the competitiveness of the producers from developing countries, especially China and India, due to their respective advantages, such as lower production and environmental costs. The combination of Dragon and Oriental Wave fits in the current industry trend of accessing global opportunities in the growing generic drug and chemical sectors with businesses based in the cost competitive jurisdictions.