Shanghai Pharmaceuticals Announces Grand Opening of Joint Venture Shanghai Pharmaceuticals Shanhe Wuxi

Establishing Network in Suzhou, Wuxi and Changzhou

Increasing Competition in Suzhou Market

HONG KONG, Aug. 22, 2011 /PRNewswire-Asia/ -- Shanghai Pharmaceuticals Holding Co. Ltd., ("Shanghai Pharmaceuticals" or the "Company" and, together with its subsidiaries, the "Group; stock code: 601607.SH; 2607.HK), the only integrated pharmaceutical company in the PRC that has leading positions in both pharmaceutical product and distribution markets, invested RMB344 million to set up Shanghai Pharmaceuticals Shanhe Wuxi Holdings Co., Ltd ("Shanghai Pharmaceuticals Shanhe Wuxi"), a joint venture company, with Jiangsu Wuxi Shanhe Group. The grand opening ceremony was held today, which symbolizes a strategic move of Shanghai Pharmaceuticals to enhance its competitiveness in Jiangsu.

Mr. LU Mingfang, Chairman and Executive Director of Shanghai Pharmaceuticals, said, "Our shareholding in Wuxi Shanhe Pharmaceuticals will enable us to strategically develop our pharmaceutical distribution network in Jiangsu, lay a foundation for our integrated distribution model and raise our overall distribution capability in the province, thereby increasing our market share. In addition, with our advantages in distribution network and product offerings in the region, the investment will accelerate the integration of Jiangsu's pharmaceutical market and make Shanghai Pharmaceuticals a leading pharmaceutical distributor in Jiangsu Province, strengthening our leading position in eastern China."

With a population of more than 77 million, Jiangsu is one of the major provinces in the pharmaceutical manufacturing and consumption in the PRC. Suzhou, Wuxi and Changzhou are the most densely populated, highly urbanized areas in the affluent southern Jiangsu area with a higher-than-national amount of investment in urban and rural healthcare planning as well as the rural healthcare system. Last year the total pharmaceutical sales in Jiangsu Province exceeded RMB 27 billion, the fifth-highest in the PRC, while pharmaceutical sales in the southern Jiangsu region accounted for one third of the total sales in the province. Shanhe Pharmaceuticals is a leader in pharmaceutical distribution in the Wuxi area with total revenue of over RMB1.2 billion in 2010. Shanghai Pharmaceuticals' acquisition of an 80% equity interest in Shanhe Pharmaceuticals will bring synergy effect to its controlling pharmaceutical distribution companies in Suzhou and Changzhou, favoring its leading position of the Jiangsu Province.

Shanghai Pharmaceuticals beat many rivals in this acquisition and completed an integrated distribution network covering six provinces and one city in eastern China. The acquisition of Wuxi Shanhe will strengthen the leading position of the Group's distribution business in eastern China and at the same time, integrate the strategic network of the Group in other provinces including Zhejiang, Jiangxi and Anhui to penetrate into the southern and central southern parts of China. Furthermore, the collaboration provides huge potential for the consolidation of pharmaceutical manufacturing resources in Shanghai and realizes the gradient transfer of product offerings. This is part of the Group's major development strategy to consolidate resources in the industry, optimize its network and boost its core competitiveness.

About the pharmaceutical market in Jiangsu Province

In 2009, pharmaceutical distribution companies in Jiangsu Province achieved core business of RMB50.5 billion, the fourth-highest in the PRC, representing a 28.8% increase year-on-year; sales amounted to RMB27.7 billion, the fifth-highest in the PRC. The pharmaceutical sales revenue in Wuxi accounted for 8% of Jiangsu Province and was one of the top five in the province.

Wuxi has 1,981 health institutions, 28,000 technical workers, 24,000 beds for patients and 18,000 units of medical equipment. Currently, health institutions in the community have rich resources and the number of beds for patients has reached 3,334. The public community health service centers have a 100% coverage.

The local bio-pharmaceutical industry is relatively developed. Wuxi has about 300 biological and pharmaceutical manufacturing enterprises with over 20,000 employees. According to the industrial structure, there are 50 pharmaceutical manufacturers, 200 medical instrument and pharmaceutical packaging material producers, 29 pharmaceutical packaging material producers and a number of bio-medical research institutions. There are 12 companies whose annual sales exceed RMB100 million each, and 2 companies whose annual sales exceed RMB1 billion each. As such, the capacity of the pharmaceutical distribution market is relatively large. The surrounding areas of Suzhou and Changzhou are also more developed with higher level of pharmaceutical consumption, presenting enormous business opportunities.

About Shanghai Pharmaceuticals Holding Co., Ltd.

Shanghai Pharmaceuticals is the only integrated pharmaceutical company in the PRC that has leading positions in both pharmaceutical product and distribution markets. It was China's second-largest pharmaceutical distributor and third-largest pharmaceutical producer. The Group adopts an integrated vertical business model and provides solutions in pharmaceutical manufacturing, distribution, logistics storage and retail. The Group currently offers more than 400 pharmaceutical products as well as pharmaceutical distribution and supply chain solutions to more than 7,600 hospitals and medical institutions in China. The Group also operates approximately 1,700 self-operated and franchise stores nationwide.

About Jiangsu Wuxi Shanhe Group

A leading pharmaceutical distribution company in Wuxi, it was established in 1953 with 57 years of history and was formerly the Wuxi Pharmaceutical Procurement and Supply Station of Jiangsu Province. For more details, please visit http://www.shanhegroup.com.

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