SHANGPHARMA (NYSE:SHP)

Second Quarter 2012 Highlights

• Net revenues increased by 15.7% year-over-year to $31.8 million.
• GAAP gross margin was 27.8%, compared with 33.3% in the second quarter of 2011. Non-GAAP gross margin was 29.0%, compared with 34.7% in the second quarter of 2011.
• GAAP operating margin was 2.4%, compared with 10.3% in the second quarter of 2011. Non-GAAP operating margin was 7.6% compared with 15.2% in the second quarter of 2011.
• Diluted earnings per ADS were $0.02, which compares with $0.18 in the second quarter of 2011.
• Non-GAAP diluted earnings per ADS were $0.11, which compares with $0.25 in the second quarter of 2011.

Management Comment

"I am pleased to report that during a challenging second quarter, ShangPharma made excellent progress on several key strategic goals, including increasing revenue from biologics and shifting more of our work to FTE-based services," said Michael Xin Hui, founder and Chief Executive Officer of ShangPharma. "It is a testament to the strength of our offering that global leading pharmaceutical and biotech companies continued to expand their relationships with us."

Mr. Hui continued, "Our previously discussed investments helped us to win additional business, but also placed pressure on our margins this quarter. The increased competition that we saw in more mature service offerings in the second quarter strengthened our confidence in our long-term strategy to invest in capabilities, facilities and staff, allowing us to move up the research value chain. Our continuous investment in key areas such as integrated drug discovery, biologics, biology, process development and research manufacturing, and translational and clinical science, will be critical for strengthening our offering at the higher end of the research value chain. We believe this positions us well for long-term growth."

William Dai, Chief Financial Officer, added, "Despite industry headwinds, we succeeded in increasing the percentage of revenues generated by FTE-based services, which have better visibility, as well as expanding our integrated drug discovery service offering to many of our larger customers. While margins were impacted by annual pay raises and benefit increases effective from April, we believe that these costs will remain relatively stable over the next several quarters. We have already begun to take a series of measures to reduce costs through improving operational efficiency."

To help management and investors gain a better understanding of ShangPharma's operating performance, the Company presents certain non-GAAP measures, each of which excludes expenses relating to or the effect of share-based compensation. See "About Non-GAAP Financial Measures" and "Reconciliation of Unaudited GAAP to Non-GAAP Financial Data" below for more information about the non-GAAP financial measures included in this press release.

Beginning in the first quarter 2012, in accordance with Accounting Standards Update 2011-05, the Company is presenting other comprehensive income and its components in the unaudited condensed consolidated statement of comprehensive income. Other comprehensive income mainly consists of currency translation adjustments relating to translating some of our subsidiaries' financial statements from their functional currency to our reporting currency, which is in the United States dollar. The functional currency of our main subsidiaries inChina is the RMB.

SHANGHAI, August 3, 2012 /PRNewswire-Asia/ -- ShangPharma Corporation (NYSE: SHP) ("ShangPharma" or the "Company"), a leading China-based pharmaceutical and biotechnology research and development outsourcing company, today announced that the independent committee of the Company's board of directors (the "Independent Committee"), consisting of three of the Company's independent directors, Mr. Yuk Lam Lo, Mr. Julian Ralph Worley and Mr. Benson Tsang, has retained J.P. Morgan Securities (Asia Pacific) Limited ("J.P. Morgan") as its financial advisor.

As the Independent Committee's financial advisor, J.P. Morgan will, together with O'Melveny & Myers LLP ("O'Melveny"), the Independent Committee's legal advisor, assist the Independent Committee in reviewing and evaluating the July 6, 2012 non-binding proposal from the Company's Chairman and Chief Executive Officer, Mr. Michael Xin Hui, and entities affiliated with him (collectively, the "Founder") and TPG Star Charisma Limited and its affiliates (collectively, "TPG") to acquire all of the outstanding shares of ShangPharma not currently owned by the Founder or TPG (the "Proposal"). J.P. Morgan and O'Melveny will also assist the Independent Committee in reviewing and evaluating any additional proposals that may be made by the Founder, TPG or other parties, if any.

The Independent Committee is continuing its evaluation of the Proposal. There can be no assurance that any definitive offer will be made, that any definitive agreement will be executed, that the Independent Committee will recommend the Proposal or that this or any other transaction will be consummated.

SHANGHAI, July 17, 2012 /PRNewswire-Asia/ -- ShangPharma Corporation (NYSE: SHP) ("ShangPharma" or the "Company"), a leading China-based pharmaceutical and biotechnology research and development outsourcing company, today announced that Mr. Yuk Lam Lo has been appointed as the chairman of the independent committee of the Company's board of directors (the "Independent Committee"). In addition, the Independent Committee has appointed O'Melveny & Myers LLP as its legal advisor.

As previously announced, the Company's board of directors formed the Independent Committee to review and evaluate the July 6, 2012 non-binding proposal from its Chairman and Chief Executive Officer, Mr. Michael Xin Hui, and entities affiliated with him (collectively, "Founder") and TPG Star Charisma Limited and its affiliates (collectively, "TPG") to acquire all of the outstanding shares of ShangPharma not currently owned by Founder or TPG (the "Proposal").

The Independent Committee also intends to retain independent financial advisors to assist it in evaluating the Proposal and any additional proposals that may be made by Founder, TPG or other parties, if any. Although the Independent Committee has begun preliminary work, it has not set a definitive timetable for the completion of its evaluation of the Proposal or any other strategic alternatives and does not currently intend to announce developments unless and until an agreement has been reached. There can be no assurance that any definitive offer will be made, that any agreement will be executed, that the Independent Committee will recommend the Proposal or that this or any other transaction will be consummated.

SHANGHAI, July 6, 2012 /PRNewswire-Asia/ -- ShangPharma Corporation (NYSE: SHP) ("ShangPharma" or the "Company"), a leading China-based pharmaceutical and biotechnology research and development outsourcing company, today announced that its Board of Directors has received a non-binding proposal letter dated July 6, 2012 from its Chairman and Chief Executive Officer, Mr. Michael Xin Hui, and entities affiliated with him (collectively, "Founder"), and TPG Star Charisma Limited and its affiliates (collectively, "TPG") to acquire all of the outstanding shares of ShangPharma not currently owned by Founder or TPG in a going private transaction for between $8.50 and $9.50 per American Depositary Share ("ADS", each ADS representing 18 ordinary shares of the Company) in cash, subject to certain conditions.

Founder and TPG currently own approximately 54% and 11% of ShangPharma's ordinary shares, respectively. According to the proposal letter, the acquisition is intended to be financed through a combination of debt and equity capital, with definitive commitments for the required debt and equity funding expected to be in place, subject to the terms and conditions set forth therein, when the definitive agreements with respect to the acquisition and related transactions are signed.

ShangPharma's Board of Directors has formed a special committee of independent directors (the "Independent Committee") consisting of three independent directors, Mr. Julian Ralph Worley, Mr. Yuk Lam Lo and Mr. Benson Tsang, to consider this proposal. The Independent Committee will retain a financial advisor and legal counsel to assist it in its work. The Board of Directors cautions the Company's shareholders and others considering trading in its securities that the Board just received the non-binding proposal from Founder and TPG and no decisions have been made by the Independent Committee with respect to ShangPharma's response to the proposal. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated.

SHANGHAI, May 29, 2012 /PRNewswire-Asia/ -- ShangPharma Corporation (NYSE: SHP) ("ShangPharma" or the "Company"), a leading China-based pharmaceutical and biotechnology research and development outsourcing company, today issued a statement to clarify potential market confusion between the name of the Company and Shanghai Pharmaceuticals Holdings Co., Ltd. (2607.HK, 601607.SH).

"To clarify any confusion in the market, ShangPharma has no affiliation with Shanghai Pharmaceuticals Holdings Co., Ltd.," the Company stated. "While the names are similar in English, the Chinese character 'Shang' in ShangPharma is different than the character in 'Shanghai Pharmaceuticals Holdings Co., Ltd. '"

First Quarter 2012 Highlights

• Net revenues increased by 24.1% year-over-year to $30.8 million.
• Net revenues from the Company's top-10 customers increased by 33.3% year-over-year to $20.2 million, representing approximately 65.7% of total net revenues.
• Net revenues from full-time-equivalent ("FTE")-based services increased by 30.3% year-over-year to $23.6 million.
• GAAP gross margin was 30.2%, compared with 32.3% in the first quarter of 2011. Non-GAAP gross margin was 31.1%, compared with 34.7% in the first quarter of 2011.
• GAAP operating margin was 5.2%, compared with 10.0% in the first quarter of 2011. Non-GAAP operating margin was 9.7% compared with 15.5% in the first quarter of 2011.
• Net revenue per employee increased 8.3% year-over-year.

Management Comment

"Our long-term strategy of robust investment has resulted in significant upgrades in the quality and scope of our service offerings. This has helped produce strong Q1 top-line performance, driven by increased revenue from our top-ten customers, including in key areas such as biologics," said Michael Xin Hui, founder and Chief Executive Officer of ShangPharma. "While this investment strategy has created anticipated short-term margin pressure, we believe that we are now in a highly competitive position to capitalize on the future growth of the Chinese CRO market."

Mr. Hui continued, "We believe that the recent investments we made in our service offerings will lead to more integrated discovery projects. These projects typically take longer to come online, but draw on more sophisticated capabilities and thus offer the potential for significant net revenue growth."

William Dai, Chief Financial Officer, added, "We were pleased to see strong top-line growth this quarter as our customers, particularly the larger ones, expanded their business with us. While costs associated with our recent critical investments placed pressure on margins, we anticipate some improvement in the latter part of the year."

Full Year 2012 Guidance

The Company reconfirms its guidance for the full year 2012. The Company expects:

• Net revenues to be approximately $131.7 - $136.2 million, which represents growth of approximately 18.0% - 22.0% compared with the full year of 2011.
• Non-GAAP gross margin to be approximately 31.5% - 33.5%, which is slightly lower than non-GAAP gross margin of 34.3% in 2011, based on the consideration of the increased costs related to our expanded facilities such as rental, utility and depreciation, and continued appreciation of the RMB.
• Capital expenditures to be approximately $20.0 - $24.0 million.

Fourth Quarter 2011 Results

• Net revenues increased by 19.0% year-over-year to $30.5 million.
• Net revenues from China-based customers increased by 208.7% year-over-year to $4.0 million, accounting for 13.0% of total revenues, up from $1.3 million in the fourth quarter of 2010.
• GAAP gross margin was 32.7%, compared with 32.3% in the fourth quarter of 2010. Non-GAAP gross margin was 34.4%, remaining stable from the fourth quarter of 2010.
• GAAP operating margin was 7.5%, compared with 3.6% in the fourth quarter of 2010. Non-GAAP operating margin was 13.1% compared with 16.7% in the fourth quarter of 2010, primarily due to higher listed-company related professional fees and increased operating costs related to our expanded facilities.
• Revenue per employee increased 8.8% year-over-year.
• Non-GAAP diluted earnings per ADS were $0.21, which compares with $0.32 in the fourth quarter of 2010.

"I am pleased to report that ShangPharma maintained steady top-line growth in the fourth quarter of 2011," said Michael Xin Hui, founder and Chief Executive Officer of ShangPharma. "Our strategic investments in facilities and service quality in 2011 should improve ShangPharma's competitiveness going forward and position us to take a market-leading position in areas such as biologics, biology and integrated drug discovery services projects."

Mr. Hui continued, "During the year, we continued to diversify our revenue base, with China-based customers growing particularly rapidly. As we expand our offering, we look forward to broadening our existing relationships with multinational clients through cross-selling opportunities. In addition, upgrades to our facilities and staff should help us to win more higher value-added projects."

William Dai, Chief Financial Officer, added, "While the investments we made in 2011 to upgrade ShangPharma's services offering will bring increased facility related expenses in the near term, greater employee productivity should help reduce pressure on margins. These investments are critical for our strategy to position ShangPharma at the center of China's burgeoning CRO market for the long term, and in 2012, our focus on managing costs and lowering capital expenditures should help ensure positive free cash flow for the full year."

Full Year 2012 Guidance

For the full year 2012, the Company expects:

• Net revenues to be approximately $131.7 - $136.2 million, which represents growth of approximately 18.0% - 22.0% compared with full year 2011.
• Non-GAAP gross margin to be approximately 31.5% - 33.5%, which is slightly lower than non-GAAP gross margin of 34.3% in 2011, based on the consideration of the increased costs related to our expanded facilities such as rental, utility and depreciation, and continued appreciation of the Renminbi.
• Capital expenditures to be $20.0 - $24.0 million.

Third Quarter 2011 Results

• Net revenues increased by 24.7% year-over-year to $28.8 million.
• Net revenues from China-based customers increased by 105.9% year-over-year to $3.1 million.
• GAAP gross margin was 31.2%, compared with 32.5% in the third quarter of 2010. Non-GAAP gross margin was 33.4% compared with 33.3% in the third quarter of 2010.
• Non-GAAP EPS was $0.24 for both third quarter 2011 and 2010

We experienced robust top-line growth in Q3, as increasing customer appreciation of ShangPharma's integrated service platform and upgrades to our facilities and service quality have enabled us to improve our pricing structure for some projects," said Michael Xin Hui, founder and Chief Executive Officer of ShangPharma. "During the third quarter, we made a critical investment in a new facility, which is fully dedicated to one of our top customers. We expect the near-term margin pressure from this investment to be offset by rapid utilization and additional revenue beginning from 2012."

Mr. Hui continued, "We saw excellent revenue growth from our biggest multinational pharmaceutical and biotechnology customers, which expanded at a year-on-year rate of 24.3%. Based on our current pipeline of projects, we expect to experience continued strong growth in 2012. We also saw highly encouraging growth from our China-based customers, which more than doubled from the third quarter of 2010. Our success on these two fronts demonstrates strong execution on our strategy to expand cooperation with large multinationals, while diversifying our customer base at the same time."

William Dai, Chief Financial Officer, added, "In the third quarter, ShangPharma did an excellent job of managing our costs, while also experiencing 15.4% revenue per employee productivity gains. Excluding costs associated with the new facility for one of our largest customers, non-GAAP operating margins remained largely stable year-on-year."

Full Year 2011 Guidance

The Company reconfirms its guidance for full year 2011.  The Company expects:

• Net revenues to be approximately $111.1 – $115.6 million, which represents growth of approximately 23.0% – 28.0% compared with full year 2010.  
• Non-GAAP gross margin to be approximately 33.5% – 35.5%, which is within the same range as non-GAAP gross margin of 34.5% in 2010.
• Capital expenditure to be $28 - $32 million, including $6 million rolling payment lag impact carried forward from 2010.

Second Quarter 2011 Results

• Net revenues increased by 26.0% year-over-year to $27.5 million.
• Non-GAAP net income increased by 9.0% year-over-year to $4.7 million. Non-GAAP diluted earnings per ADS were $0.25, compared with $0.28 in the second quarter of 2010

Michael Xin Hui, founder and Chief Executive Officer of ShangPharma, commented, "We are pleased to deliver another quarter of broad-based solid results. Our business lines grew as a result of our strategy to expand our technology platforms and customer base in different geographical areas to respond to the demands of our clients.

"Our expanded integrated service offerings are allowing us to penetrate deeper into our existing customer base. We are successfully attracting new customers in the Chinese pharmaceutical industry, which is a nascent, but rapidly growing industry. Revenues from our China-based customers rose by 202.7% year-over-year, and included a mix of both local pharmaceutical companies and smaller domestic laboratories, as well as major multi-national biotech and pharmaceutical companies' R&D centers in China, representing a great improvement on the diversification of our customer base. Revenue from China-based customers increased to near 10% of total revenues due to strong demand from the local market. There is tremendous growth opportunity for our services in China, and we plan to further increase our China business while simultaneously increasing penetration to developed pharmaceutical markets. We continue to do very well in terms of generating revenues from our top customers, which are largely major global pharmaceutical and biotechnology companies. We have continued to benefit from the trend that big major global pharmaceutical companies are increasing their outsourcing needs to China.

"We are especially encouraged by the recent significant growth in our biologics services. We are expecting a strong performance for our biologics services in the coming third and fourth quarters. These recent developments coupled with our growing reputation are helping to enhance our increasingly close partnerships with leading global and domestic companies, which will support our future growth."

William Dai, Chief Financial Officer, added, "We achieved our second quarter objectives despite continued pressures from wage inflation, higher material costs and the appreciation of the Renminbi. Despite these headwinds, we managed our expenses exceptionally well and continue to improve employee productivity. We generated sales growth of 26% year-over-year and 11% quarter-over-quarter while our headcount remained flat compared to the first quarter of 2011. We are also seeing benefits from investments we made into managerial and supporting infrastructure in 2010, while progress at our new facilities in Fengxian continues, and construction remains on schedule. We will focus on managing our costs in the second half of the year, and are confident that we will meet our financial guidance for 2011."

Full Year 2011 Guidance 

The Company reconfirms its guidance for full year 2011. The Company expects:

• Net revenues to be approximately $111.1 - $115.6 million, which represents growth of approximately 23.0% - 28.0% compared with full year 2010.
• Non-GAAP gross margin to be approximately 33.5% - 35.5%, which is within the same range as non-GAAP gross margin of 34.5% in 2010.
• Capital expenditure to be $28 - $32 million, including $6 million rolling payment lag impact carried forward from 2010.

We require cash to fund our ongoing business needs, particularly salary and benefits and material costs and expenses. Other cash needs include primarily the working capital for our daily operations, expenditures related to our manufacturing facility and laboratory services building in Fengxian, Shanghai, and purchase of equipment for our laboratory services. We believe that our cash (including the net proceeds from our initial public offering), anticipated cash flow from operations and proceeds from our bank credit facilities will be sufficient to meet our anticipated cash needs for the next 12 months, including the completion of construction of our manufacturing facility and the construction of our laboratory services building in Fengxian, Shanghai.

First Quarter Results:

• Net revenues increased by 25.6% year-over-year to $24.8 million, driven by an 18.1% increase in full-time-equivalent ("FTE") services and a 51.3% increase in fee-for service-based services.
• The total number of customers increased to 282 from 237 as of December 31, 2010, mainly due to an increase in China-based customers.
• China-based net revenues increased 185.9% year-over-year to $2.3 million
• GAAP gross profit increased by 15.3% year-over-year to $8.0 million. GAAP gross margin was 32.3%, compared with 35.2% in the first quarter of 2010, primarily due to higher share-based compensation expenses.
• Non-GAAP gross profit increased by 21.7% year-over-year to $8.6 million. Non-GAAP gross margin was 34.7% compared with 35.8% in the first quarter of 2010, and 34.5% for the full year of 2010.
• GAAP net income increased by 10.2% year-over-year to $3.0 million. GAAP diluted earnings per ADS were $0.16, compared with $0.18 in the first quarter of 2010, primarily due to higher share-based compensation expenses.
• Non-GAAP net income increased by 50.7% year-over-year to $4.4 million.  Non-GAAP diluted earnings per ADS were $0.23, compared with $0.19 in the first quarter of 2010.

The Company reconfirms its guidance for the full year of 2011.

Michael Xin Hui, founder and Chief Executive Officer of ShangPharma, commented, "We are pleased to report our first quarter 2011 results, which came in line with our expectations. We saw strong growth across all of our businesses, especially from discovery biology and preclinical development services as well as biologics services as we continue to expand our integrated service platform and add new capabilities. During the quarter, in particular, we saw strong revenue growth from customers based in China.  The 185.9% year-on-year increase from these customers validates a continuing and encouraging trend in China-based outsourcing needs moving forward."

The Company reconfirms its guidance for full year 2011.  The Company expects:

• Net revenues to be approximately $111.1 – $115.6 million, which represents growth of approximately 23.0% – 28.0% compared with full year 2010.  
• Non-GAAP gross margin to be approximately 33.5% – 35.5%, which is within the same range as non-GAAP gross margin of 34.5% in 2010.
• Capital expenditure to be $28 - $32 million, including $6 million rolling payment lag impact carried forward from 2010.

 

　

Fourth Quarter Highlights:

• Net revenues were $25.6 million, an increase of 29.4% from $19.8 million in the fourth quarter of 2009
• Gross profit was $8.3 million, an increase of 28.1% from $6.5 million in the fourth quarter of 2009
• Non-GAAP net income was $5.9 million, an increase of 126.2% from $2.6 million in the fourth quarter of 2009
• Non-GAAP diluted earnings per ADS were $0.32, an increase of 88.2% from $0.17 in the fourth quarter of 2009.

William Dai, Chief Financial Officer, added, "We achieved excellent profit growth for the quarter and the year just completed due to an acceleration in sequential revenue growth and our continued focus on improving operational efficiency.  Our internal efforts to drive significant margin expansion on a non-GAAP basis helped mitigate the continued appreciation of the Renminbi and wage inflation.  In 2011, we expect to continue to benefit from our efficiency programs to offset these rising costs and preserve margins."

For the full year 2011, the Company expects:

Net revenues to be approximately $111.1 – $115.6 million, which represents growth of approximately 23.0% – 28.0% compared with full year 2010.  

Non-GAAP gross margin to be approximately 33.5% – 35.5%, which is within the same range as non-GAAP gross margin of 34.5% in 2010.

Capital expenditure to be $28 - $32 million, including $6 million rolling payment lag impact carried forward from 2010.

Third Quarter 2010 Highlights

• Net revenues increased by 16.6% year-over-year to $23.1 million.
• GAAP diluted earnings per ADS increased by 28.3% year-over-year to $0.22.
• Non-GAAP diluted earnings per ADS, increased by 34.5% year-over-year to $0.24.

Full Year 2010 Guidance

For the full year 2010¹, the Company expects:

• Net revenues to be approximately $89.6 – $91.1 million, which represents growth of approximately 24% – 26% compared with full year 2009.
• GAAP gross profit to be approximately $29.6 – $30.5 million, which represents growth of approximately 24% – 28% compared with full year 2009.
• Non-GAAP gross profit to be approximately $30.8 – $31.7 million, which represents growth of approximately 28% – 32% compared with full year 2009.
• Non-GAAP gross margin to be approximately 34.4% – 34.8%, which represents an increase of approximately one to two percentage points from non-GAAP gross margin of 33.2% in 2009. The increase is expected to be driven by favorable service mix, better labor cost control, efficient material usage and improved operational efficiency.

Management Comment

Michael Xin Hui, founder and Chief Executive Officer of ShangPharma, commented, “We are very pleased with our third quarter financial results as we achieved record quarterly revenues, which was a direct result of strong customer demand and high customer satisfaction. Today, we work with the majority of the top 20 global pharmaceutical companies as well as many biotechnology and specialty pharmaceutical companies around the world. As a leading China-based contract research organization, we are well positioned to be a significant participant in the rapid growth of the global outsourcing market.”

“We achieved double-digit year-over-year revenue and EPS growth driven by strong performance across all of our business divisions. We are expanding our platform of integrated services to help our customers achieve efficiency and deliver good results in their research and development activities. Consequently, we are seeing strong new customer acquisition and increased revenues from our top customers. The solid third quarter performance gives us confidence that we will achieve our 2010 full year targets for revenue growth and gross margin improvement.”

“Lastly, we are also making good progress in building our capabilities in research manufacturing and biologics services. With regard to research manufacturing services, we are on target to open our cGMP-quality multi-purpose facility in Fengxian, Shanghai, during the first quarter of 2011. With regard to biologics services, we have already initiated customer services this year and we are seeing strong demand for such services going forward.”

Kevin Chen, Chief Financial Officer and Chief Operating Officer of ShangPharma, added, “We achieved solid top-line growth and stable gross margin for the third quarter of 2010. Moreover, we successfully completed several high margin projects at the end of September 2010. The revenues for these projects were recorded in October 2010 due to changes in delivery schedules initiated by customers and delays in customer acceptance of our deliverables. As a result, we expect to see acceleration in revenue growth in the fourth quarter, and are well on our way to deliver year-over-year revenue growth of approximately 26% – 33% in the fourth quarter of 2010.”

“We are also confident that we will achieve significant non-GAAP gross margin expansion of approximately one to one and half percentage points for the full year 2010 compared with 2009 as a result of favorable service mix, better labor cost control, efficient material usage and improved operational efficiency.”

ShangPharma plans for Initial Public Offering.

Company Snapshot:

China-based pharmaceutical and biotechnology research and development, or R&D, outsourcing company.

Industry Snapshot:

• The global contract research organization, or CRO, industry has grown significantly in recent years and is expected to continue to expand, driven primarily by the ability of CROs to contain costs, provide increased flexibility, deliver a broad service platform and reduce time to market.
  
• Outsourcing to emerging countries such as China has increased in recent years. According to Frost & Sullivan, the Chinese CRO market grew at a CAGR of 27.2% from $380 million in 2007 to $615 million in 2009, and is projected to grow at a CAGR of 20.7% to $1.3 billion in 2013. The principal growth drivers include lower-cost and high-quality services, a large talent pool, the increasing breath of R&D service offerings, a large supply of treatment naive patients, a growing domestic pharmaceutical market and strong government support.

Use Of proceeds:

Our net proceeds from this offering are expected to be approximately $42.8 million. We anticipate using the proceeds as follows:

• approximately $15.0 million for the construction of our manufacturing facility and laboratory services building in Fengxian, Shanghai
  
• approximately $17.0 million for the purchase of equipment
  
• approximately $5.0 million for the expansion of our service offerings
  
• approximately $5.0 million for working capital needs
  
• the balance for other general corporate purposes, including potential acquisitions

Underwriter:

• Citi J.P.
• Morgan
• William Blair & Company
• Oppenheimer & Co.

Proposed offering price: $$14.50 and $16.50 per ADS

Post IPO Share Calculation: (Using a 18 to 1 Ordinary to ADS conversion ratio)

• 15,444,444: Pre IPO fully diluted share count used in EPS calculation
•   3,200,000: Newly issued ADS shares
•   2,600,000: Newly issued ADS shares sold by selling shareholder (does not increase share count)
•      870,000: Over-allotments ADS shares available to underwriters

GeoTeam® best effort calculation of total post IPO ADS count to be used in EPS calculations, assuming full conversions and a Ordinary to ADS conversion ratio of 18 to 1:  19,514,444

Financial Snapshot:

Our net revenues

• Increased from $34.7 million in 2007 to $60.5 million in 2008 and $72.3 million in 2009, representing a compound annual growth rate, or CAGR, of 44.4%.
  
• Increased by 27.2% from $32.7 million in the six months ended June 30, 2009 to $41.6 million in the six months ended June 30, 2010.

Our net income

• Increased from $7.5 million in 2007 to $9.1 million in 2008 and $9.8 million in 2009.
  
• Increased from $4.6 million in the six months ended June 30, 2009 to $6.9 million in the six months ended June 30, 2010.

The number of our customers increased from 71 in 2007 to 99 in 2008, 134 in 2009 and 151 in the six months ended June 30, 2010.