BEIJING, Feb. 5 /PRNewswire-Asia/ -- Lotus Pharmaceuticals, Inc. (OTC Bulletin Board: LTUS) ("Lotus" or the "Company"), a pharmaceutical products developer, manufacturer and distributor in the People’s Republic of China, today announced that its contractually controlled subsidiary Beijing Liang Fang Pharmaceutical Co., Ltd. (“Liang Fang”) completed paying RMB180 million (about $26.3 million) in December 2008 for land use rights to property in the Chahaer Industrial Park, located in Inner Mongolia. This was an important step towards achieving the Company’s long term growth plans.
Developing a New Facility and Pharmaceutical Park
The land use rights are for 1,000 mu (1mu = 667square meters) of land. Liang Fang plans to build a 50 mu (33,350 square meters) pharmaceutical products production, administration, storage and logistics facility on a 200 mu parcel of land. It plans to sell or rent the additional 800 mu of land to other pharmaceutical companies to create a Pharmaceutical Park of similar companies, a cluster of pharmaceutical companies which it hopes will find mutually beneficial ways of working together.
Liang Fang had its project proposal approved by the local Chayouqian county government before paying Chahaer Industrial Park for the land use rights. The Chayouqian county government has submitted Liang Fang’s final project proposal documents to the National Bureau of Land and Resources, which must issue a land use permit before construction may begin on the new facility. Liang Fang expects to receive that permit in March or April of 2009. If the project is not approved and a land use permit is not issued, the full amount that Liang Fang paid for land use rights will be refunded to Liang Fang.
Lotus generated the RMB180 million that it paid for land use rights by speeding up its collection of accounts receivable in 2008.
The cost of developing Lotus’ new facility and Pharmaceutical Park will require an estimated additional RMB400 million (about $58.5 million). Plans call for funding the estimated additional RMB400 million through a combination of internally generated cash, low interest local bank loans collateralized by the land, government grants distributed through China’s Western Region Development Policy and Technology Sponsorship Policy, the sale or rental of land use rights to the 800 mu of land which will not be used for its new facility or Pharmaceutical Park, and other financing means. Lotus recently submitted its feasibility study for development of its new facility and Pharmaceutical Park to the National Development and Reform Commission as part of its application for a government grant.
“As part of our long term plans for growth, we are pleased to have purchased the land use rights for property on which to develop a new facility and Pharmaceutical Park, and are excited by this opportunity to expand our business in Inner Mongolia,” said Dr. Zhongyi Liu, the CEO and Chairman of Lotus. “This important first step puts our plans for expansion during the next five years into action.”
Construction of the new facility is estimated to take three years.
Inner Mongolia Offers Cost Savings
Liang Fang’s Inner Mongolia branch, established in December 2008, has a business registration certificate from Inner Mongolia’s local government. Lotus’ wholesale business for the distribution of drugs is now conducted through Liang Fang’s Inner Mongolia branch, which anticipates that it may not have to pay any income taxes for an eight year period, and anticipates on paying income taxes at a reduced rate for the subsequent eight years.
“We expect to realize significant cost savings by expanding into Inner Mongolia. Once our new facility is completed and sales begin, we expect our new Inner Mongolia operations, like our wholesale distribution business, to be free from income taxes for eight years and pay income taxes at a reduced rate for the subsequent eight years. Also, we expect to enjoy a preferential VAT policy in Inner Mongolia, labor is less expensive, and the cost of utilities will be lower there,” said Dr. Liu.
Developing New Products
In its feasibility study for developing an Inner Mongolia facility, the Company highlights the huge market potential in China for domestically produced intravenous fluids. China consumes about seven billion bottles of intravenous fluids every year, and the top two intravenous fluids producers in China can produce less than 8% of the amount that is needed. The plant protein that is the main ingredient used in producing a blood plasma substitute, one kind of intravenous fluid among the many which the Company plans to produce, is extracted from corn, and the area around the Chahaer Industrial Park is one of the top corn producing areas in China. Lotus plans to produce 20,000 metric tons of medical-grade corn starch as raw material for its blood plasma substitute, and a total of 240 million bottles of blood plasma substitute and other kinds of intravenous fluids a year. In the realm of drug production, this type of production is categorized as agricultural deep processing, and is in compliance with China’s agricultural development policies. Byproducts from the processing of corn can be turned into animal feed.
Lotus will apply for production permits from the Chinese government for intravenous fluid products after the new Inner Mongolia facility is built and equipped.
Lotus will keep its research and development, retail drugstore management, clinical trial drug production facilities for Phase I, II and III testing, and production of its four current drugs in its current Beijing facilities even after the Inner Mongolia project is completed. Any new drugs which are approved for production and distribution before the new facility is built will first be produced in Beijing. Production and distribution of new drugs will eventually move to the new Inner Mongolia facility once the new facility is finished.
About the Chahaer Industrial Park
Creation of the Chahaer Industrial Park was approved by the State Council in 2003 as an important means of assisting the under-developed western regions. It consists of 10.41 square kilometers of land located in the county of Chayouqian of Wulanchabu City in Inner Mongolia, around two hours and thirty minutes driving time from Beijing. A number of the Chinese government’s preferential tax and operating subsidy policies automatically cover companies located in the park. About one third of the park is currently occupied. Information about Chahaer Industrial Park is available at: http://www.cyqq.gov.cn .
About Lotus Pharmaceuticals, Inc.
Lotus Pharmaceuticals, Inc. controls and operates Liang Fang Pharmaceutical, Ltd. ("Liang Fang") and Enze Jiashi Pharmaceutical, Ltd. ("Enze"), two pharmaceutical companies located in Beijing, China. Together, Liang Fang and Enze ("Lotus East") undertake the development, production, marketing and distribution of pharmaceutical products. Lotus East has some of the most advanced pharmaceutical production equipment in China and its manufacturing facilities meet national Good Manufacturing Practices (GMP). The Company distributes its own portfolio of drugs and pharmaceutical products produced by other manufacturers in the PRC through an extensive national distribution network. Lotus owns ten pharmacies in Beijing through which it directly sells over 5,000 western drugs, Traditional Chinese Medicines (TCM) and medical equipment items.
Safe Harbor Statement
This press release contains "forward-looking statements" within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including changes from anticipated levels of sales, future national or regional economic and competitive and regulatory conditions, changes in relationships with customers, access to capital, difficulties in developing and marketing new products, marketing existing products, customer acceptance of existing and new products, and other factors. Additional information regarding risks can be found in the Company’s Annual Report on Form 10K filed with the SEC. Accordingly, although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The Company has no obligation to update the forward-looking information contained in this press release.
