TCM » Topics » C. Research and Development

This excerpt taken from the TCM 20-F filed Jun 30, 2008.

C. Research and Development

We acquired all our principal products, including Xianling Gubao, from third parties. We have also engaged in joint research efforts with our partners to improve our existing products and to develop new products. For example, we are in the process of jointly developing a new generation of Xianling Gubao with Beijing University of Traditional Chinese Medicine; and we are cooperating with Guiyang College of Traditional Chinese Medicine and certain individual scientists to develop new medicines for the treatment of hepatitis. We are collaborating with the Medical Herbs Research Center of the Chinese Medical Science Institute to improve our extraction technology. We also have jointly with Guiyang College of Traditional Chinese Medicine developed a new medicine for the treatment of the common cold, which is pending SFDA approval for clinical trial. Under our arrangements with our research partners, we are responsible for providing funding and research assistance, while our research partners are responsible for the research and clinical trials. Under our agreements with Beijing University of Traditional Chinese Medicine and the Medical Herbs Research Center of the Chinese Medical Science Institute, in each case, we and the research partner share the ownership of the research results, but we are exclusively entitled to the economic benefits of the research results without being required to pay royalties. Under our agreement with Guiyang College of Traditional Chinese Medicine, we have the sole ownership of, and the exclusive economic entitlement to, the research results. Under our agreements with those individual scientists, we have the preemptive rights to purchase the intellectual properties of the research results.

In 2005, 2006 and 2007, we received RMB0.5 million, RMB1.7 million and RMB3.6 million (US$0.5 million) in government research grants to support our research and development efforts, respectively. As of December 31, 2007, we had 11 product candidates that were in various stages of development. See “Item 4. Information on the Company—B. Business Overview—Products—Product Pipeline.”

Our research and development expenditures were RMB2.5 million, RMB4.7 million and RMB12.7 million (US$1.7 million) in 2005, 2006 and 2007, respectively, representing 0.7%, 1.0% and 2.1% of our net revenues, respectively. Our research and development expenditures were primarily spent on the acquisition of product candidates and our research partnerships and, to a lesser degree, on remunerations for our research and development personnel.

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