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Dragon Pharmaceutical Announces Business Update


Dragon Pharmaceutical Inc. (TSX: DDD; OTC BB: DRUG; BBSE: DRP) today announced a business update and selected unaudited 2004 pro-forma financial data of the Company combined with Oriental Wave Holding Limited.

On January 12, 2005, Dragon completed the acquisition of Oriental Wave Holding Limited. As a result of the acquisition, Dragon has transformed itself into a diversified and growth oriented generic pharmaceutical company with three key business units: (1) Pharma division for 44 generic prescription, over-the-counter and sterilized bulk drugs; (2) Chemical division for bulk pharmaceutical chemicals and intermediates (Clavulanic Acid and 7-ACA, Abamectin); and (3) Biotech division for recombinant drugs (EPO and G-CSF). The Company, after the acquisition, has significantly increased the size of operations and now has four manufacturing facilities in China (three in Datong city and one in Nanjing city), approximately 1,800 employees, with over 1,200 sales representatives in China, and approximately 55 key products in 86 different dosages and presentations currently in the market.

The following is a discussion of the 2004 business highlights for both Dragon and Oriental Wave on a combined basis.

Business Highlights for 2004

Biotech Division:

  • Launched rh-Erythropoietin (“EPO”) product in Ecuador, Dominican Republic, Kosovo and Trinidad-Tobago in 2004 in addition to the earlier approved markets: China, India, Egypt, Peru and Brazil.
  • Announced the relocation from Nanjing city, China and construction of a brand new Biotech facility in Datong, China.
  • Entered into an agreement with Suzhou Zhongkai Bio-Pharmaceuticals Company Limited to in-license the exclusive right to commercialize its Recombinant Human Granulocyte Colony Stimulating Factor (“rhG-CSF”) product worldwide, excluding China.

Chemical Division:

  • Commenced operations of the brand new Clavulanic Acid and 7-ACA production facilities during the first and third quarters of 2004 respectively.
  • Received import permit for Clavulanic Acid from the Indian health authority during the third quarter of 2004.
  • Shipment of initial quantities of 7-ACA and 2 Clavulanic Acid products to Indian customers commenced during the fourth quarter of 2004.

Pharma Division:

  • Receipt of additional 21 additional generic drug approvals from Chinese State Food and Drug Administrator (“SFDA?, bringing the total number of drug approvals to 306.
  • Establishment of a new freeze-dry production line for temperature-sensitive products.

Divisional Business Review and Update:

Biotech Division

  • Relocation and building a brand new facility in Datong. As previously announced, the Company will build a brand new state-of-the-art EPO production facility in Datong city, China and relocate the EPO production from its current facility in Nanjing city. The Company will construct the new EPO production site adjacent to the campus of the Chemical division, which already includes the entire basic infrastructure such as power, steam, purified water supply and water treatment facilities. The relocation of the EPO production site to Datong will allow the Company to capitalize on the existing production infrastructure and the efficiency of unified operational management. In the new facility, the capacity for bulk EPO will be doubled and the capacity for sterile filing will be tripled.
  • Continued progress on International EPO market approval. The Company continues to achieve good progress by receiving four additional market approvals during the second half of 2004: Ecuador, Dominican Republic, Trinidad-Tobago and Kosovo in addition to the earlier approved markets of China, Brazil, India, Egypt & Peru. It is the Company’s intention to supply the product from this new facility to fulfill the demands of the Chinese and other developing markets which are currently supplied from our China facility in Nanjing. Dragon will use the EPO produced in Europe specifically for the European market as well as for new indication developments in the EPO field. Although the European patent for EPO expired in most European countries in December 2004, the European regulatory authority, EMEA, has not clearly indicated the approval process for the EPO from generic competitors. However, the Company expects that it will be among the early candidates to enter the market with the Company’s new European made EPO product.
  • In-licensed rhG-CSF for worldwide markets, excluding China. Dragon has entered into an agreement with Suzhou Zhongkai Bio-Pharmaceuticals Company Limited to in-license the exclusive right to commercialize its Recombinant Human Granulocyte Colony Stimulating Factor (“rhG-CSF? product worldwide, excluding the Chinese market. Dragon will leverage its regulatory approval knowledge and expertise from launching its EPO internationally and will also utilize its existing licensing partnerships developed over time around the world to bring this rhG-CSF product to the international market. This in-licensing deal will allow Dragon to capture better economic value without incurring significant risk in research and developing an in-house product and the high investment to bring the drug into the production.
  • Chemical Division. Commencement of the two Chemical Production Facilities; Receipt of Import License for 2 Clavulanic Acid Products from the Indian Health Authority; Initial Shipment of 7-ACA and 2 Clavulanic Acid Products to Indian Customers Started.

The approximately $45 million investment in the two Chemical Division facilities were completed during 2004 and the production of Clavulanic Acid and 7-ACA started during the first and the third quarter respectively. Since the commencement of operations, the Company has been supplying the products mainly to the Chinese market. However, during the third quarter of 2004, the Company received licenses from Drugs Controller General of India to sell two Chemical products, including clavulanate potassium and avecil (1:1) and clavulanate potassium and syloid (1:1) into the Indian market. During the fourth quarter of 2004, initial quantities of 7-ACA and both Clavulanic Acid products had already been shipped and delivered to customers in India.

Pharma Division

Establishment of a new freeze-dried production line
Concurrent to the relocation of the EPO production facility to Datong city, China and as previously announced in January 2005, the Company plans to build a new workshop for the freeze-drying of temperature sensitive pharmaceutical products. Among these products is Levofloxacin, a product marketed by the Company whose production is currently outsourced to a third party contract manufacturer. This new workshop will also be housed in an area adjacent to the Chemical division’s campus sharing the production infrastructure that was newly built for the Chemical division. The construction of this new workshop will not only allow the Company to improve its cost structure from Chemical division.

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