Dragon Announces Acquisition of Hepatitis B Vaccine Technology and First Quarter Financial Results

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Dragon Pharmaceuticals Inc. (“Dragon”) is pleased to announce that it has acquired the rights and technology relating to the production of a Hepatitis B vaccine from Alphatech Bioengineering Limited, a Hong Kong corporation.

The technology acquired from Alphatech involves the application of genetic techniques for the expression and purification of recombinant Hepatitis B vaccine protein using Chinese Hamster Ovary (CHO) cells. Dragon’s management believes that this technology will enable the company to develop a significantly higher yield and lower cost Hepatitis B production process compared to the processes used by competing producers of CHO-cell based Hepatitis B vaccines.

Under the terms of the acquisition agreement and a subsequent amendment, the purchase price for the rights and technology is USD 4 million. Rather than finalize development and commercial production of the vaccine in-house, Dragon intends to pursue potential joint venture development and/or commercial production partnerships. In the event that Dragon is unable to establish suitable partnerships by March 5, 2002, the agreement provides Alphatech and its principals the right to repurchase the project from Dragon at the original purchase price of USD 4 million. Alphatech is jointly owned by Dr. Longbin Liu and Mr. Philip Yuen, the President and Director of Dragon, respectively. The Hepatitis B project was initiated prior to the formation of Dragon and the purchase price represents the actual out-of-pocket development costs related to the project.

Hepatitis B is a viral disease that causes both acute and chronic hepatitis (inflammation of the liver). According to IMS data, the 1999 world market for Hepatitis B vaccine was $708 million – over 90% of which was accounted for by sales in North America and the European Union. Despite the high level of need in the developing regions of the world, these regions continue to account for less than 10% of world sales of Hepatitis B vaccine in large part due to the high cost of currently available products.

Dragon is pleased to announce Erythropoietin (EPO) sales of 116,190 doses (standard reference dosage of 2,000 IU) for the first quarter of 2001, representing an increase of 56% over sales of 74,354 doses during the first quarter of 2000. Revenues for the first quarter of 2001 were US$664,414 compared to US$661,785 for the same period last year. Revenues did not increase proportionately to sales volumes due to EPO price reductions in China over the past year.

The Company incurred a net loss of US$856,183 ($0.05 per common share) during the first quarter of 2001, compared with US$234,780 ($0.02 per common share) for the same quarter in 2000, as a result of increased production of EPO to build inventories for anticipated international sales orders. At the end of the first quarter, the Company’s cash and short-term investments totaled US$7,245,107 compared with US$8,078,166 at March 31, 2000.

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