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Wiekang Biotech Investor Presentation, June 2010


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Weikang Bio-Technology Group Co., Inc. is principally engaged in developing, manufacturing and distributing Traditional Chinese Medicine (TCM), and health and nutritional supplements in China, in compliance with requisite Chinese licenses and approvals. The Company is also expanding its business scope to develop, manufacture and distribute Chinese herbal extract products and GMP certified western prescription and OTC pharmaceuticals through its acquisition of Tianfang. For more information, please visit

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Wiekang Biotech Investor Presentation, June 2010

  2. 2. Safe Harbor Statement In accordance with the 1995 Securities Litigation Reform Act of the "exemption" meaning, this statement documents contain "forward-looking statements". This statement related to understand and unknown risks, uncertainties and other factors will cause the company’s statement not match by the results, in which including sales and regional economic conditions and competitive conditions, customer relation Changes, access to capital, the difficulty of promoting new products, existing products market conditions, customers for the existing and new product awareness and other factors. Relevantly, the company believed that the results is reasonable in this forward-looking statements , but can not guarantee that the forecast entirely correct. There is no duty that company to update the forward-looking information contained in this statements. 2
  3. 3. Company Overview Weikang Bio-Technology Group is a leading developer, Weikang Bio-Technology Group is a leading developer, manufacturer and marketer of manufacturer and marketer of Traditional Chinese Medicine (TCM) Traditional Chinese Medicine (TCM) Western prescription and OTC pharmaceuticals Western prescription and OTC pharmaceuticals Other health and nutritional products Other health and nutritional products It has two subsidiaries: Heilongjiang WeiKang Chinese herbal-based health and nutritional supplements and therapeutics Brand name "Rongrun" Founded in 2005 210 employees Guizhou TianFang Develops, manufactures and distributes Chinese herbal extract products and GMP certified western drugs 300 employees Acquired in 2008, founded in 1998 3
  4. 4. Financial Snapshot Revenue (m) OTCBB: WKBT 270% y/y increase $47.48 Price (as of 6/3/2010) - $3.25 38.1% y/y increase Shares outstanding - 27.4 M $12.85 $13.96 $10.11 Market capitalization - $88.9 M 2008 2009 3 months 2009 3 months 2010 TTM revenue - $51.3 million TTM net income* - $17.2 million 115% y/y increase $15.64 Net Income (m) TTM fully diluted EPS* - $0.66 41.5% y/y increase $7.30 Insider ownership 88% $3.85 $5.45 2008 2009 3 months 2009 3 months 2010* * Proforma – excluding non-cash expense of $912,000 4
  5. 5. Investment Highlights Rapid revenue and net income growth Expanding portfolio of high margin, original SFDA approved products Strong R&D capability and investment ensure a strong pipeline - targeting launching 2-3 new products a year GMP-certified manufacturing lines scalable up to $107 million in annual production Acquisition strategy enhances growth opportunity Managed by pharmaceutical industry experts Attractive valuation 5
  6. 6. Attractive Industry Dynamics China’s pharmaceutical market is currently the 5th largest in the world Expected to grow to the 2nd largest by 2020 and the largest by 2050 Medical expenditure ranks the 3rd after food and education* Government stimulus package expands New Rural Cooperative Medical System Investing USD $124 billion (2009-2011) with earmarks to improve insurance coverage Building 30,000 township hospitals and 700,000 village clinics with estimated annual increase in supply purchase of 42% from these over the next 5 years Fragmented industry, dominated by local enterprises, creates opportunity for consolidation Approximately 70% of the market supply is provided by small, local pharmaceutical companies** *DOH Survey, 12/2/2004 **Economy Watch 6
  7. 7. Preventative Healthcare Preventative medicine is the primary source of medical care for 700 million rural Chinese who cannot afford adequate healthcare* Patients generally have to pay 50% - 60% of healthcare expense out-of- pocket Out-of-pocket healthcare expenditures increased from 25% in 1990 to 58% in 2006** Middle class consumers risk spending all of life savings on medical expenses Private health insurance uncommon Preventative care will remain important as universal coverage to be implemented in 2011 will only cover basic medical services The best doctor treats the problem before The best doctor treats the problem before the problem becomes the disease ~~ the problem becomes the disease *, April 2010 ** China’s Ministry of Health Old Chinese medical proverb Old Chinese medical proverb
  8. 8. Weikang’s Target Market Consumers 60 years old and above Approximately 170 million Chinese over 60 years old Aging population regularly takes supplements to improve health condition Population with regular / chronic health problems 70% of the population estimated to have some degree of health problems Increasing health problems associated with modern industrial life including diseases related to stress and obesity Consumers interested in preventative health care 8
  9. 9. High Margin Portfolio TianFang Product portfolio of Western medicine and TCM Eight products in the market Seven SFDA approved drugs Average gross margin 48.5% Two SFDA approved product expected to be launched Q3 and Q4 WeiKang Product portfolio of TCM Seven SFDA approved nutrient medicines on the market Seven SFDA approved product expected to be launched Q3 and Q4 Three drugs in pipeline Average gross margin 66.1% WeiKang, 28.13% Tiangfang, 71.87% % Sales by subsidiaries (2009) 9
  10. 10. TianFang’s Product Portfolio % of 2009 Gross Product Main Function Revenue Margin Ferrous Fumarate Treats iron deficiency anemia 24.24% 51.28-54.39% Granule Eucommia Nourishes the liver and kidney Ulmoides Oliv 23.26% 46.25-49.03% Strengthens muscles and bones Granule Tinidazole Vaginal Effervescent Tablet Treats bacterial infections in the female 14.87% 39.76-43.55% reproductive system Nourishes the liver and kidney Bushen Qiangshen Enriches yin, strengthens yang 7.85% 63.37% Tablet Enhances health and brain function Intended to treat duodenal ulcers, gastric Ranitidine ulcer, reflux esophagitis, Zollinger-Ellison Hydrochloride 1.66% 11.24% syndrome, and other symptoms with gastric Capsules acid overproduction 10
  11. 11. WeiKang’s Product Portfolio % of 2009 Gross Product Main Function Revenue Margin Promotes the restoration of the natural Rongrun Youth balance of female hormones during 3.78% 66.55% Keeping Capsules menopause Reduces free radicals and oxidative stress Rongrun Energy Intended to reduce the risk of 3.75% 66.55% Keeping Capsules cardiovascular disease Reduces the onset of cardiovascular Rongrun Vitamin Sugar disease and fatigue for diabetics 4.11% 64.43% Capsules Promotes healthy aging Lowers blood lipid levels in order to reduce Rongrun Intestine the likelihood of brain and heart vessel related diseases 3.84% 66.55% Cleansing Capsules Strengthens immune system Reduces cholesterol level in arteries Rongrun Artery Promotes healthier heart and brain 3.95% 65.74% Cleansing Capsules functions Rongrun Royal Jelly Immuno-regulatory 4.63% 61.73% Extract anti-cancer properties Rongrun Kidney Boost Strengthen and promotes a healthy kidney 4.06% 71.93% Tonic 11
  12. 12. Strong Pipeline Ten drugs in various stages of approval from the SFDA Top R&D projects include Has anti-cancer properties and is used in the treatment of radiation 10-HDA sickness and angiocardiopathy Received SFDA approval and expected to launch in 3Q 2010 ShuangBaoGu ( a Provides several health benefits including the prevention and treatment of variety of mushroom cardiovascular disease grown on a salty land) Production expected to begin by end of 2010 Used to treat atrial fibrillation (irregular heartbeats) Dofetilide Approved for clinical test Develop therapeutic properties of glycyrrhize acid Licorice Flavonoid Treated conditions and afflictions includes allergies, hepatitis, Project inflammation and swelling, including peptic ulcers hypertension, excessive potassium in the body, skin conditions, viral infections, tumor formation and cancer, specifically breast cancer, weight loss KangYuan A herbal based medicine effective in treating depression Antidepressant Has passed several stages of testing and ready for clinical trials Capsules Estimated R&D expenditure $71,000 12
  13. 13. Extensive Distribution Network Total sales network covers almost the whole country via two modes of distribution: exclusive distributors and wholesale drug trading firms WeiKang’s products are sold in five provinces and Beijing through six distributors TianFang’s products are sold nationwide through over 60 dedicated sales agents, based in 33 cities Integrating TianFang’s distribution channels and logistics with WeiKang to achieve synergy and economies of scale Plans to build a national logistic chain system for medicine distribution by 2012 13
  14. 14. Sales and Distribution Distribution channels: Clinical, through doctors and hospitals mostly prescription and OTC drugs Retail pharmacies, mostly OTC drugs Supermarkets, food and nutrition stores, mostly TCM based therapeutics Third party sales outlets, such as rural medical centers Conference sales and Internet orders WaiKang plans to expand the distribution to 3 northeast provinces and to south and southwest provinces Consolidate and share the channels for both WeiKang and TianFang products Open bidding for new dealerships from potential distributors 14
  15. 15. Sales and Marketing Strategies Direct mail pamphlets to seniors Includes consultation information Emails to younger and busy urban residents Provides information on company products and web based ordering platform Free delivery services in northern cities during winter season Strong brand name advertising for TianFang OTC drugs Partnership with wholesalers Regular promotions Product information forums Incentive schemes Plans for future acquisitions that can expand sales channels 15
  16. 16. Production Facilities WeiKang has six production lines TianFang has three production lines Highest quality equipment with national GMP certification Unique technology synthesizes raw materials Ensures quality and effectiveness of therapeutics Helps reduce costs and enhance gross margins Scalable production lines Up to USD $107 million of potential annual production capacity WeiKang & Tianfang production rate at 35% & 50% of total capacity, respectively Production capabilities Capsule Oral liquid Granules Gel and soft paste Tablets Powder 16
  17. 17. R&D Capabilities Dr. Zhengbin Xu, M.D head of R&D Over 40 years of clinical and research experience in TCM Published 56 articles in international and domestic journals Professional affiliations with The China Medicine Research Institute Heilongjiang Chinese Medicine Co., Ltd. The Chinese Medical Association R&D team composed of 16 industry experts Received 4 national awards Advanced R&D done in collaboration with Northeastern Forestry University and Tianjin University Two drug testing facilities Shuangcheng, 246 Sq Meters, GMP compliant Guizhou TianFang, GMP certified 17
  18. 18. Growth Strategy Organic Committed to R&D of new products and improving existing product portfolio to secure and expand market share Diversify vertically into growing herbal and other raw materials to secure supply and lower cost Increase spending for advertising and continue building brand Acquisition Target companies that broaden product portfolio and expands distribution network TianFang acquisition expanded distribution network nationwide Expand and improve product portfolio with TCM, WM, therapeutics and nutraceuticals 18
  19. 19. Experienced Management Team Yi Wang – CEO and Chairman, Founder Weikang CEO since 2002 Physician of over 30 years with extensive clinical experience and bio-medical research experience Served as Director of Harbin Geriatric Hospital and Harbin Chinese Medical Hospital MBA from Beijing University Master in Medical Science, Harbin Medical University Yanhua Liu – CFO CFO of WeiKang since July, 2005 and a China CPA 20 years of experience of Finance and Accounting Bachelor in Finance, Heilongjiang Agricultural and Mechanical College Zhengbin Xu – Chief Technology Officer CTO of Weikang since July 2007 40 years of clinical and research experience on Traditional Chinese Medicine and Nutrition Publish 56 research papers on international and domestic journals Graduate of Northwest University of China. Vice President of China Medical Association. Bing Wei - Chief Marketing Director Joined in Weikang in 2005 Bachelor’s degree from Harbin Commerce University 19
  20. 20. Increasing Revenue $47.48 $12.85 $13.96 $10.11 $0.82 2007 2008 2009 3 months 2009 3 months 2010 $m 20
  21. 21. Strong Gross Margin $30 80% $25.84 64.3% 54.4% 55.9% 59.6% $20 52.6% 40% $10 $8.27 $8.32 $5.65 $0.43 $0 0% 2007 2008 2009 3 months 2009 3 months 2010 Gross Profit Gross Margin $m 21
  22. 22. Increasing Net Income $18 80.0% $15.64 56.6% $12 39.0% 40.0% 32.9% 38.1% $7.30 $5.45 $6 $3.85 0.0% -$0.45 $0 -40.0% 2007 2008 2009 3 months 2009 3 months 2010 -54.7% -$6 -80.0% $m Net Income Profit Margin 22
  23. 23. Balance Sheet Highlights USD in millions Dec. 31 2009 Mar. 31 2010 Cash and Equivalents $11.4 $18.1 Current Assets 11.7 19.5 Current Liabilities 10.5 10.8 Long-Term Debt 0.0 0.0 Shareholder's Equity 23.4 31.1 23
  24. 24. Attractive Valuation Ticker Price Market Cap Revenues Net Income Y/Y Net Y/Y PE Company (Exch) (6/8/10) (mm) 2009 (mm) 2009 (mm) Income % revenue % (TTM) Weikang Bio- WKBT $2.79 $76.45 $47.4 $15.6 116.67% 270.31% 4.5 Technology (OTCBB) Biostar BSPM $3.23 $83.42 $53.3 $10.5 56.95% 57.24% 9.8 Pharmaceuticals (OTCBB) Renhuang RHGP $2.00 $74.47 $43.4 $14.8 43.69% 3.67% 4.7 Pharmaceutical (OTCBB) American Oriental AOB $2.72 $213.18 $296.1 $41.4 -13.39% 11.90% 5.1 Bioengineering (NYSE) CSKI China SkyOne Medical $11.33 $190.23 $130.1 $34.4 19.40% 41.72% 5.5 (NASDAQ) Tianyin Pharmaceutical TPI $2.67 $71.67 $42.8 $7.9 32.50% 28.18% 7.9 Company (AMEX) CPHI China Pharma $2.67 $115.58 $61.7 $20.3 13.46% 21.05% 5.6 (AMEX) Simcere SCR $8.13 $447.27 $270.9 $17.5 -65.89% 6.24% 22.0 Pharmaceuticals (NYSE) Average 12.4% 24.3% 6.4 24
  25. 25. Investment Summary Attractive industry dynamics supports long-term growth Strong R&D capability ensures high margin pipelines Competitive advantage with solid portfolio of proprietary SFDA approved therapeutics Expanding multi-channel distribution network to increase market penetration Established quality brand name Fragmented industry creates opportunities for acquisitions 25
  26. 26. Contact Information Company: Investor Relations: Ren Hu Elite IR VP of Finance John Marco Weikang Bio-Technology Group Phone: (310) 819-2948 Phone: (201) 887 0415 Email: Email: Legal Counsel: Auditor: The Crone Law Group Ahmed Mohidin, Partner Wayne Chiang Goldman Parks Kurland Mohidin, LLP 101 Montgomery Street 16133 Ventura Blvd. Suite 1950, Suite 880 San Francisco, CA 94104 Encino, CA 91436 Phone: (415) 955-8900 Phone: (818) 784-9000 Email: Email: 26