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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 20-F
 
 (Mark One)
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 Commission file number: 001-33398
 Simcere Pharmaceutical Group
 
  N/A
 
  Cayman Islands
 
  No. 699-18 Xuan Wu Avenue
Xuan Wu District, Nanjing
Jiangsu Province 210042
Peoples Republic of China
 
  Yushan Wan
Acting Chief Financial Officer
No. 699-18 Xuan Wu Avenue
Xuan Wu District, Nanjing
Jiangsu Province 210042
Peoples Republic of China
Tel: (86) 25 8556 6666 x 8818
Fax: (86) 25 8547 7666
E-mail: wanyushan@simcere.com
 
  Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Title of Each Securities
    
    Name of Each Exchange on Which RegisteredAmerican Depositary Shares, each representing two 
ordinary shares, par value $0.01 per share
    
    New York Stock Exchange
 Securities registered or to be registered pursuant to Section 12(g) of the Act:
  
  Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
 None
 
  106,789,522 ordinary shares, par
value $0.01 per share
 o þ
 o þ
 þ o
 o o
  Large accelerated filer o   
    Accelerated filer þ
    Non-accelerated filer o
    Smaller reporting company o(Do not check if a smaller reporting company)
  þ
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Table of Contents
 INTRODUCTIONPART IItem 1. Identity of Directors, Senior Management and Advisers
    
    
    4Item 2. Offer Statistics And Expected Timetable
    
    
    4Item 3. Key Information
    
    
    4Item 4. Information on the Company
    
    
    27Item 4A. Unresolved Staff Comments
    
    
    46Item 5. Operating and Financial Review and Prospects
    
    
    47Item 6. Directors, Senior Management and Employees
    
    
    71Item 7. Major Shareholders and Related Party Transactions
    
    
    81Item 8. Financial Information
    
    
    82Item 9. The Offer and Listing
    
    
    83Item 10. Additional Information
    
    
    84Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    89Item 12. Description of Securities Other Than Equity Securities
    
    
    90PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    92Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    92Item 15. Controls and Procedures
    
    
    92Item 16. [Reserved]
    
    
    94Item 16A. Audit Committee Financial Expert
    
    
    94Item 16B. Code of Ethics
    
    
    94Item 16C. Principal Accountant Fees and Services
    
    
    94Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    94Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    94Item 16F. Change in Registrants Certifying Accountant
    
    
    95Item 16G. Corporate Governance
    
    
    95PART IIIItem 17. Financial StatementsItem 18. Financial StatementsItem 19. ExhibitsEX-8.1EX-12.1EX-12.2EX-13.1EX-13.2EX-15.1




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INTRODUCTION
  
    
    $ and U.S. dollars refer to the legal currency of the United States;
    
    ADRs refer to the American depositary receipts, which, if issued, evidence our ADSs;
    
    ADSs refer to our American depositary shares, each of which represents two ordinary shares;
    
    China and the PRC refer to the Peoples Republic of China, excluding, for the purpose of
this annual report on Form 20-F only, Taiwan and the special administrative regions of Hong
Kong and Macau;
    
    ordinary shares refer to our ordinary shares, par value $0.01 per share;
    
    RMB and Renminbi refer to the legal currency of China; and
    
    we, us, our company and our refer to Simcere Pharmaceutical Group, its predecessor
entities and its consolidated subsidiaries.




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PART I
 
 Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
  
 Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 Item 3. KEY INFORMATION
 A. Selected Financial Data
  Year Ended December 31,2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB
    
    $(in thousands, except share and ADS data)Selected
Consolidated
Statement of Income
DataRevenue
    
    
    950,606
    
    
    
    1,368,748
    
    
    
    1,741,143
    
    
    
    1,857,071
    
    
    
    2,141,098
    
    
    
    324,409Gross profit
    
    
    760,046
    
    
    
    1,127,667
    
    
    
    1,420,261
    
    
    
    1,536,126
    
    
    
    1,799,311
    
    
    
    272,623Operating expenses
(other than
impairment loss on
goodwill)
    
    
    (575,295
    )
    
    
    (863,805
    )
    
    
    (1,063,282
    )
    
    
    (1,357,518
    )
    
    
    (1,581,393
    )
    
    
    (239,605
    )Impairment loss on
goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,398
    )
    
    
    
    
    
    
    Income from
operations
    
    
    184,751
    
    
    
    263,862
    
    
    
    356,979
    
    
    
    102,210
    
    
    
    217,918
    
    
    
    33,018Foreign currency
exchange gains, net
    
    
    
    
    
    
    24,670
    
    
    
    39,879
    
    
    
    382
    
    
    
    5,511
    
    
    
    835Other income (1)
    
    
    
    
    
    
    20,526
    
    
    
    1,104
    
    
    
    2,971
    
    
    
    2,286
    
    
    
    346Equity in losses of
equity method
affiliated
companies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56,532
    )
    
    
    (14,716
    )
    
    
    (2,230
    )Net income
attributable to
Simcere
Pharmaceutical
Group (2)
    
    
    172,258
    
    
    
    301,261
    
    
    
    350,151
    
    
    
    26,428
    
    
    
    172,411
    
    
    
    26,122Earnings per share
 basic
    
    
    1.86
    
    
    
    2.56
    
    
    
    2.80
    
    
    
    0.23
    
    
    
    1.59
    
    
    
    0.24Earnings per share
 diluted
    
    
    1.86
    
    
    
    2.48
    
    
    
    2.80
    
    
    
    0.23
    
    
    
    1.55
    
    
    
    0.23Earnings per ADS 
basic
    
    
    3.72
    
    
    
    5.13
    
    
    
    5.61
    
    
    
    0.46
    
    
    
    3.18
    
    
    
    0.48
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Year Ended December 31,2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB
    
    $(in thousands, except share and ADS data)Earnings per ADS 
diluted
    
    
    3.72
    
    
    
    4.95
    
    
    
    5.60
    
    
    
    0.45
    
    
    
    3.10
    
    
    
    0.47Basic weighted
average number of
shares
    
    
    92,695,890
    
    
    
    117,534,566
    
    
    
    124,921,934
    
    
    
    115,099,258
    
    
    
    108,321,562
    
    
    
    108,321,562Diluted weighted
average number of
shares
    
    
    92,695,890
    
    
    
    121,667,507
    
    
    
    125,005,803
    
    
    
    116,604,919
    
    
    
    111,357,796
    
    
    
    111,357,796
 
 (1)
    
    In 2007, 2008, 2009 and 2010, other income included the incentive payment received from our depositary in
connection with the establishment of the ADR program following our initial public offering.(2)
    
    Certain of our PRC operating subsidiaries were entitled to a tax holiday. The effect of the tax holiday increased
our net income for 2006, 2007, 2008, 2009 and 2010 by RMB38.8 million, RMB63.5 million, RMB56.4 million, RMB23.5
million and RMB29.9 million ($4.5 million) respectively, or RMB0.42, RMB0.54, RMB0.45, RMB0.20 and RMB0.28
($0.04) on the per share basis, respectively. Prior to 2006, none of our PRC operating subsidiaries were entitled
to the tax holiday. Year Ended December 31,2006
    
    2007
    
    2008
    
    2009
    
    2010(in percentages)Other Consolidated Financial DataGross margin (1)
    
    
    80.0
    
    
    
    82.4
    
    
    
    81.6
    
    
    
    82.7
    
    
    
    84.0Operating margin (1)
    
    
    19.5
    
    
    
    19.3
    
    
    
    20.5
    
    
    
    5.5
    
    
    
    10.1Net margin (1)
    
    
    18.2
    
    
    
    22.0
    
    
    
    20.1
    
    
    
    1.4
    
    
    
    8.1
 
 (1)
    
    Gross margin, operating margin and net margin represent gross
profit, operating profit and net income attributable to our
company divided by revenue, respectively. As of December 31,2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB
    
    $(in thousands)Selected
Consolidated Balance
Sheet DataCash and cash equivalents
    
    
    106,027
    
    
    
    497,352
    
    
    
    812,814
    
    
    
    442,488
    
    
    
    273,583
    
    
    
    41,452Held-to-maturity
investment securities
    
    
    
    
    
    
    470,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts and bills
receivables, net
    
    
    162,781
    
    
    
    488,374
    
    
    
    748,997
    
    
    
    704,321
    
    
    
    884,738
    
    
    
    134,052Inventories
    
    
    39,483
    
    
    
    65,241
    
    
    
    95,948
    
    
    
    106,655
    
    
    
    89,732
    
    
    
    13,596Total current assets
    
    
    411,429
    
    
    
    1,557,153
    
    
    
    1,707,759
    
    
    
    1,371,864
    
    
    
    1,388,487
    
    
    
    210,378Property, plant and
equipment, net
    
    
    267,054
    
    
    
    374,058
    
    
    
    463,059
    
    
    
    744,713
    
    
    
    836,291
    
    
    
    126,710Goodwill and intangible
assets, net
    
    
    263,782
    
    
    
    412,717
    
    
    
    453,455
    
    
    
    695,267
    
    
    
    658,139
    
    
    
    99,718Total assets
    
    
    1,034,547
    
    
    
    2,472,208
    
    
    
    2,778,222
    
    
    
    3,137,902
    
    
    
    3,218,252
    
    
    
    487,614Accounts and bills
payables
    
    
    20,089
    
    
    
    23,711
    
    
    
    25,219
    
    
    
    152,249
    
    
    
    49,638
    
    
    
    7,521Short-term borrowings
and current portion of
long-term borrowings
    
    
    333,000
    
    
    
    29,000
    
    
    
    6,000
    
    
    
    76,000
    
    
    
    360,000
    
    
    
    54,545Total current liabilities
    
    
    568,173
    
    
    
    342,637
    
    
    
    335,013
    
    
    
    692,865
    
    
    
    1,005,846
    
    
    
    152,401
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As of December 31,2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    RMB
    
    RMB
    
    $(in thousands)Long-term borrowings,
excluding current
portion
    
    
    
    
    
    
    52,000
    
    
    
    62,000
    
    
    
    122,685
    
    
    
    19,306
    
    
    
    2,925Total shareholders
equity
    
    
    442,740
    
    
    
    1,995,953
    
    
    
    2,301,322
    
    
    
    2,207,683
    
    
    
    2,054,243
    
    
    
    311,249
 Exchange Rate Information
   RMB per U.S. Dollar Exchange RatePeriodEnd
    
    Average (1)
    
    Low
    
    High(RMB per $1.00)2006
    
    
    7.8041
    
    
    
    7.9579
    
    
    
    8.0702
    
    
    
    7.80412007
    
    
    7.2946
    
    
    
    7.5806
    
    
    
    7.8127
    
    
    
    7.29462008
    
    
    6.8225
    
    
    
    6.9193
    
    
    
    7.2946
    
    
    
    6.78002009
    
    
    6.8259
    
    
    
    6.8307
    
    
    
    6.8470
    
    
    
    6.81762010
    
    
    6.6000
    
    
    
    6.7603
    
    
    
    6.8330
    
    
    
    6.60002010November
    
    
    6.6670
    
    
    
    6.6538
    
    
    
    6.6892
    
    
    
    6.6330December
    
    
    6.6000
    
    
    
    6.6497
    
    
    
    6.6745
    
    
    
    6.60002011January
    
    
    6.6017
    
    
    
    6.5964
    
    
    
    6.6364
    
    
    
    6.5809February
    
    
    6.5713
    
    
    
    6.5761
    
    
    
    6.5965
    
    
    
    6.5520March
    
    
    6.5483
    
    
    
    6.5645
    
    
    
    6.5743
    
    
    
    6.5483April
    
    
    6.4900
    
    
    
    6.5267
    
    
    
    6.5477
    
    
    
    6.4900
 
 (1)
    
    Annual averages are calculated from month-end rates. Monthly
averages are calculated using the average of the daily rates
during the relevant period. B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
 Risks Related to Our Company
 Our products and product candidates may not achieve or maintain widespread market acceptance.
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
    
    the perceived advantages of our products over competing products and the availability and success of
competing products;
    
    the effectiveness of our sales and marketing efforts;
    
    the safety and efficacy of our products and the prevalence and severity of adverse side effects, if any;
 
    
    our product pricing and cost effectiveness;
    
    publicity concerning our products, product candidates or competing products;
    
    whether or not patients routinely use our products, refill prescriptions and purchase additional products;
    
    our ability to respond to changes in healthcare practitioner and patient preferences; and
    
    the continued inclusion of our products in the national and provincial medical insurance catalogs or in
the national essential drug list, collectively, the Essential Drug List and Reimbursement List.
  The penalties imposed on Jiangsu Quanyi could have a material adverse effect on our business,
financial condition and results of operations and damage our reputation.
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We may be involved in litigation, arbitration or other legal proceedings from time to time that
require extensive management attention and resources and may be expensive, time-consuming and
disruptive.
    Our trademarks, patents and other non-patented intellectual property are valuable assets and if we
are unable to protect them from infringement, our business prospects may be harmed.
   
    
    we might not have been the first to make the inventions covered by each of our pending patent
applications and issued patents;
    
    we might not have been the first to file patent applications for these inventions;
    
    others may independently develop similar or alternative technologies or duplicate our technologies
without infringing our intellectual property rights;
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
    
    one or more of our pending patent applications may not result in issued patents;
    
    our issued patents may not provide a basis for commercially viable products, may not provide us with
any competitive advantages, or may be challenged and invalidated by third parties;
    
    we may not develop additional proprietary technologies or product candidates that are patentable; and
    
    the patents of others may prevent us from developing or commercializing our product candidates.
   The existence of a patent may not necessarily protect us from competition as our patent may be
challenged, invalidated or held unenforceable. We may also be found to infringe the patents of
others.
   Litigation to protect our intellectual property rights or defend against third-party allegations of
infringement may be costly.
  
    
    pay monetary damages to settle the results of such adverse
determination, which could adversely affect our business,
financial condition and results of operations;
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
    
    cease selling, incorporating or using any of our products
that incorporate the challenged intellectual property,
which would adversely affect our revenues or costs, or
both;
    
    obtain a license from the holder of the infringed
intellectual property right, which might be costly or might
not be available on reasonable terms, or at all; or
    
    redesign our products to make them non-infringing, which
would be costly and time-consuming and may require
additional clinical trials, or may not be possible at all.
  Most of our products are branded generics that can be manufactured and sold by other pharmaceutical
manufacturers in China once the relevant protection or monitoring periods, if any, elapse.
  We may be subject to damages resulting from claims that we or our employees have wrongfully used or
disclosed alleged trade secrets of their former employers.
  Our future research and development projects may not be successful.
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We rely on certain domestic and overseas research institutions and universities for the research
and development of new products and any failure of our research partners to meet our timing and
quality standards or our failure to continue such collaboration or enter into such new arrangements
could adversely affect our ability to develop new pharmaceuticals and our overall business
prospects.
  We may not be able to obtain regulatory approval for any of the products resulting from our
development efforts and failure to obtain these approvals could materially harm our business.
  Our marketing activities are critical to the success of our products, and if we fail to grow our
marketing capabilities or maintain adequate spending on marketing activities, the market share of
our products and our brand name and product reputation would be materially adversely affected.
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We may not be successful in competing with other manufacturers of pharmaceuticals in the tender
processes for the purchase of medicines by state-owned and state-controlled hospitals.
  We may not be able to successfully identify and acquire new products or businesses.
   
    
    failure to obtain regulatory approval for any newly acquired product candidates;
    
    the integration of the acquired businesses, operations, services and personnel with our existing
business and operations;
    
    the infringement of third parties intellectual property rights or intellectual property right
challenges as to the acquired pharmaceuticals;
    
    unforeseen or hidden liabilities;
    
    the diversion of resources from our existing businesses and technologies;
    
    our inability to generate sufficient revenues to recover costs and expenses of the acquisitions; and
    
    potential loss of, or harm to, relationships with employees or customers, any of which could
significantly disrupt our ability to manage our business and materially and adversely affect our
business, financial condition and results of operations.
 We depend on distributors for a substantial portion of our revenues and failure to maintain
relationships with our distributors or to otherwise expand our distribution network would
materially and adversely affect our business.
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We may not be able to effectively manage our employees, distribution network and third-party
marketing firms, and our reputation, business, prospects and brand may be materially and adversely
affected by actions taken by our distributors.
  
    
    sell our products outside their designated territory, possibly in violation of
the exclusive distribution rights of other distributors;
    
    fail to adequately promote our products; or
    
    violate the anti-corruption laws of China, the United States or other countries.
    There is no assurance that our existing products will continue to be included or new products
developed by us will be included in the Essential Drug List and Reimbursement List.
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We have limited insurance coverage and may incur losses resulting from product liability claims or
business interruptions.
  Our revenues depend and will likely continue to depend on a limited number of product lines.
  Our limited operating history may not serve as an adequate basis to judge our future prospects and
results of operations.
  
    
    retain and acquire customers;
    
    diversify our revenue sources by successfully developing and selling new products;
    
    effectively manage our business as it expands;
    
    respond to changes in our regulatory environment;
    
    manage risks associated with intellectual property rights;
    
    maintain effective control of our costs and expenses;
    
    raise sufficient capital to sustain and expand our business; and
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
    
    attract, retain and motivate qualified personnel.
  We may not be able to manage our expansion of operations effectively.
  We have no control over Hong Kong Medgenn or the development and sale of Endu outside of the PRC.
Our brand and reputation may be adversely affected if the development and sale of Endu outside of
the PRC violate the intellectual property rights of any third parties.
  Our business depends substantially on the continuing efforts of our executive officers, research
personnel and other key personnel, and our business may be severely disrupted if we lose their
services.
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Delays in production due to regulatory restrictions or other factors could have a material adverse
impact on our business.
    Our operating results may fluctuate considerably on a quarterly basis. These fluctuations could
have an adverse effect on the price of our shares and ADSs.
  
    
    the seasonal fluctuations in demand for our products, especially our antibiotics, such as Zailin and Anqi;
    
    timing of research and development expenses;
    
    regulatory events;
    
    new product introductions by us or our competitors;
    
    variations in the demand for products we may introduce;
    
    litigation involving patents, licenses or other intellectual property; and
    
    product liability lawsuits.
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Our future liquidity needs are uncertain and we may need to raise additional funds in the future.
  
    
    we determine to devote significant amount of financial resources to the research and
development of projects that we believe to have significant commercialization potential;
    
    we determine to acquire or license rights to additional product candidates or new technologies;
    
    some or all of our product candidates fail in clinical trials or pre-clinical studies or prove
to be not as commercially promising as we expect and we are forced to develop or acquire
additional product candidates;
 
    
    our product candidates require more extensive clinical or
pre-clinical testing or clinical trials of these product
candidates take longer to complete than we currently
expect; or
    
    we determine or are required to conduct more
high-throughput screening than expected against current or
additional disease targets to develop additional product
candidates.Our ability to raise additional funds in the future is subject to a variety of uncertainties,
including:
 
    
    our future financial condition, results of operations and cash flows;
    
    general market conditions for capital-raising activities by pharmaceutical companies; and
    
    economic, political and other conditions in China and elsewhere.
  A significant amount of intangible assets and goodwill are recorded on our balance sheet. Future
impairment of our intangible assets or goodwill could have a material adverse impact on our
financial condition and results of operations.
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Our non-public shareholders have substantial influence over our company and their interests may not
be aligned with the interests of our other shareholders.
  Our production activities involve the controlled use of potentially harmful biological materials as
well as hazardous materials and chemicals.
  Labor laws in the PRC may adversely affect our results of operations.
  If we grant additional employee share options, restricted shares or other share-based compensation
in the future, our net income could be adversely affected.
  CompensationStock Compensation
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Counterfeit pharmaceuticals in China could negatively impact our revenues, brand reputation,
business and results of operations.
  Inappropriate use of our trade names by other entities could negatively affect our business.
  We may be classified as a passive foreign investment company, which could result in adverse U.S.
federal income tax consequences to U.S. holders.
  If a poll is not demanded at our shareholder meetings, voting will be by show of hands and shares
will not be proportionately represented. Shareholder resolutions may be passed without the presence
of the majority of our shareholders in person or by proxy.
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Risks Related to Our Industry
 Changes in economic conditions and consumer confidence in China may influence consumer preferences
and spending patterns, and accordingly, our results of operations.
  We face intense competition that may prevent us from maintaining or increasing market share for our
existing products and gaining market acceptance for our future products. Our competitors may
develop or commercialize products before us or more successfully than us.
    The retail prices of certain of our products are subject to control, including periodic downward
adjustment, by PRC government authorities.
  - 20 -




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Pharmaceutical companies in China require a number of permits and licenses in order to carry on
their business.
     Risks Related to Doing Business in China
 Uncertainties with respect to the PRC legal system could have a material adverse effect on us.
  - 21 -




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Adverse changes in political and economic policies of the PRC government could have a material
adverse effect on the overall economic growth of China, which could reduce the demand for our
products and materially and adversely affect our competitive position.
  
    
    the degree of government involvement;
    
    the level of development;
    
    the growth rate;
    
    the control of foreign exchange;
    
    access to financing; and
    
    the allocation of resources.
   We rely on dividends paid by our subsidiaries for our cash needs, and any limitation on the ability
of our subsidiaries to make payments to us could have a material adverse effect on our ability to
conduct our business.
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Recent PRC regulations relating to the establishment of offshore special purpose companies by PRC
residents may subject our PRC resident shareholders to personal liability, limit our ability to
inject capital into our PRC subsidiaries, limit our PRC subsidiaries ability to distribute profits
to us, or otherwise adversely affect us.
  Our financial results benefit from tax concessions granted by the PRC government, the change to or
expiration of which would materially change our results of operations.
   Dividends we receive from our operating subsidiaries located in the PRC may be subject to PRC
withholding tax.
  - 23 -




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##### Table of Contents



We may be deemed a PRC resident enterprise under the new CIT law and be subject to the PRC taxation
on our worldwide income.
  Dividends payable by us to our foreign investors and gain on the sale of our ADSs or ordinary
shares may become subject to taxes under PRC tax laws.
  Fluctuation in the value of the Renminbi may have a material adverse effect on your investment.
   Governmental control of currency conversion may affect the value of your investment.
  - 24 -




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##### Table of Contents



We face risks related to health epidemics and other outbreaks of contagious diseases, including
avian flu, SARS, and swine flu.
  Risks Related to Our ADSs
 The market price for our ADSs may be volatile.
  
    
    announcements of technological or competitive developments;
    
    regulatory developments in China affecting us, our customers or our competitors;
    
    announcements regarding patent litigation or the issuance of patents to us or our competitors;
    
    actual or anticipated fluctuations in our quarterly operating results;
    
    changes in financial estimates by securities research analysts;
    
    changes in the economic performance or market valuations of other pharmaceutical companies;
    
    addition or departure of our executive officers and key research personnel;
    
    release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and
    
    sales or perceived sales of additional ordinary shares or ADSs.
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##### Table of Contents



Substantial future sales or perceived sales of our ADSs in the public market could cause the price
of our ADSs to decline.
   Our articles of association contain anti-takeover provisions that could discourage a third party
from acquiring us, which could limit our shareholders opportunity to sell their shares, including
ordinary shares represented by our ADSs, at a premium.
   Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise
those rights.
   You may be subject to limitations on transfers of your ADSs.
  Your right to participate in any future rights offerings may be limited, which may cause dilution
to your holdings and you may not receive cash dividends if it is impractical to make them available
to you.
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We are a Cayman Islands company and, because judicial precedent regarding the rights of
shareholders is more limited under Cayman Islands law than that under U.S. law, you may have less
protection for your shareholder rights than you would under U.S. law.
   You may have difficulty enforcing judgments obtained against us.
  
 Item 4. INFORMATION ON THE COMPANY
 A. History and Development of the Company
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##### Table of Contents



B. Business Overview
     Our Products
   NumberofProduct Category
    
    Products
    
    Major Products
    
    BrandsAntibacterial and Antiviral
    
    
    16
    
    
    Amoxicillin
granules, capsules
and tablets;
amoxicillin with
clavulanate
potassium granules,
tablets and
injection; biapenem
injection; cefaclor
dry suspension;
azithromycin
granules; and
ribavirin
dispersible tablets
    
    Zailin, Anqi,
Anxin, Zaike, Zaiqi
and NanyuanAnti-cancer
    
    
    6
    
    
    Recombinant human
endostatin
injection;
nedaplatin
injection;
pemetrexed disodium
for injection and
    
    Endu, Jiebaishu,
Jiebaili and
Sinofuan and Lowvo
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NumberofProduct Category
    
    Products
    
    Major Products
    
    Brandsfluorouracil
implants; and
palonosetron
hydrochloride
injectionAnti-Allergic
    
    
    2
    
    
    Clemastine fumarate
capsules and
clemastine fumarate
dry suspension
    
    Langjing
 NumberofProduct Category
    
    Products
    
    Major Products
    
    BrandsAnti-Osteoporosis
    
    
    2
    
    
    Alfacalcidol soft capsules
    
    FanengCardiovascular and
Cerebrovascular
    
    
    8
    
    
    Edaravone injection; amlodipine
maleate tablets; sumatriptan
succinate tablets; levamlodipine
besylate tablets; and rosuvastatin
calcium tablets
    
    Bicun, Yidasheng,
Ningliping, Youshu,
Xinta and ShufutanDigestive Conditions
    
    
    4
    
    
    Smectite powder; and aldioxa tablets
    
    Biqi and OdijiaNon-Steroidal 
Anti-Inflammatory
    
    
    3
    
    
    Diclofenac sodium sustained-release
capsules and gelatin
    
    YingtaiqingRespiratory System
    
    
    6
    
    
    Herbal medicine used for the
treatment of cough in liquids and
tablets; artificial cowbezoar and
chlorphenamine maleate granules
compound paracetamol and amantadine
hydrochloride tablets; compound
zinc gluconate; and pediatric
paracetamol
    
    Simcere
Kechuanning,
Zaikang, Boke,
Aiersi and BotingUrinary Conditions
    
    
    1
    
    
    Naftopidil tablets
    
    ZaichangVaccines
    
    
    
    
    
    H1N1 Influenza A Vaccine (Split
Virion), Inactivated; Influenza
Vaccine (Split Virion), InactivatedOthers
    
    
    3
    
    
    Various herbal oral solutions
    
    Chengyuan and Shibo
 Our Innovative Pharmaceutical Endu (Recombinant Human Endostatin Injection)
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Our Principal Branded Generic Pharmaceuticals
  
    
    Bicun (edaravone injection);
    
    Zailin (amoxicillin capsules, dispersible tablets, granules and injection);
    
    Yingtaiqing (diclofenac sodium sustained-release capsules and gelatin);
    
    Yidasheng (edaravone injection); and
    
    Sinofuan (anti-tumor implants).
 Bicun
 Zailin.
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Yingtaiqing.
 Yidasheng.
 Sinofuan.
 Other Branded Generic Pharmaceutical Products
  
    
    Biqi (smectite powder);
    
    Anqi (amoxicillin with clavulanate potassium granules);
    
    Zaike (cefaclor dry suspension); and
    
    Simcere Kechuanning (herbal medicine used for the treatment of cough in liquids and tablets).
 Biqi
 Anqi
 Zaike
 Simcere Kechuanning
 Marketing and Distribution
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Our Marketing Strategy
   Aftershock
  Distribution
     Manufacturing, Quality Control and Supplies
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Pharmaceutical AgentProduction Unit
    
    Delivery Form
    
    2010 CapacityHainan SimcerePenicillin family
    
    Granules
    
    630,000,000 packsPenicillin family
    
    Capsules
    
    288,000,000 pillsCefaclor family
    
    Granules
    
    240,000,000 packsCefaclor family
    
    Capsules
    
    60,000,000 pills
 Pharmaceutical AgentProduction Unit
    
    Delivery Form
    
    2010 CapacityCefaclor family
    
    Dry suspension
    
    240,000,000 packsGeneral
    
    Tablets
    
    200,000,000 pillsGeneral
    
    Granules
    
    240,000,000 packsGeneral
    
    Gelatin
    
    6,000,000 tubesGeneral
    
    Powder
    
    160,000,000 packsGeneral
    
    Capsules
    
    60,000,000 pillsGeneral
    
    Soft capsules
    
    120,000,000 pillsNanjing SimcerePenicillin family
    
    Powder injection
    
    6,600,000 vialsPenicillin family
    
    Granules
    
    40,000,000 packsPenicillin family
    
    Tablets
    
    70,000,000 pillsGeneral
    
    After equipment changing
    
    50,000,000 bottlesBefore equipment changing
    
    30,000,000 bottlesGeneral
    
    After equipment changing
    
    27,000,000 vialsBefore equipment changing
    
    19,000,000 vialsGeneral
    
    Tablets
    
    48,000,000 pillsGeneral
    
    Dry suspension
    
    40,000,000 packsGeneral
    
    Capsules
    
    38,000,000 pillsGeneral
    
    Granules
    
    29,000,000 packsGeneral
    
    Powder injection
    
    2,700,000 vialsGeneral
    
    Frozen-dry powder
    
    3,200,000 vialsSterile active
pharmaceutical
ingredients, or APIs
    
    400 kgExtract liquid
    
    21,000,000 vialsShandong SimcereRecombinant human endostatin
    
    Injection
    
    1,000,000 vialsNanjing Tung ChitNedaplatin injection
    
    Frozen-dry powder injection
    
    700,000 bottlesAnti-cancer Powder for Injection
    
    After equipment changing
    
    1,650,000 vialsBefore equipment changing
    
    825,000 vialsJilin BodaEdavarone injection
    
    Low-dose injection
    
    20,000,000 vialsGeneral
    
    Tablets
    
    3,000,000,000 pillsGeneral
    
    Capsules
    
    50,000,000 pillsGeneral
    
    Granules
    
    10,000,000 packsAPIs
    
    Phenytoinum Natricum
    
    80,000 kgAPIs
    
    Moroxydine
    
    900000kgAPIs
    
    Edaravone
    
    4,000 kgSimcere Zhong RenFluorouracil implant
    
    Implant
    
    600,000 vialsJiangsu QuanyiH1N1 Influenza A Vaccine (Split
Virion), Inactivated
    
    Injection
    
    10,000,000 vialsInfluenza Vaccine (Split
Virion), Inactivated
    
    Injection
    
    3,500,000 vials
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Quality Control
  Raw Materials
    Competition
    - 34 -




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Environmental Matters
  Insurance
  Regulations on Pharmaceutical Products
  Pharmaceutical Product Manufacturing
 Permits and Licenses for Pharmaceutical Manufacturers
  - 35 -




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Good Manufacturing Practices
   Certification By Facilities
    
    Coverage
    
    Issue Date
    
    Expiration DateHainan SimcereTablets (Including Cephalosporins), Granules, Capsules,
Dry Suspensions
(Including Cephalosporins, Penicillin), Soft
Capsules, Powders, Gelatin
    
    August 30, 2006
    
    August 29, 2011Bulk Drug (Montmorillonite, Aluminium,
Dihydroxyallan-toninate, Levamlodipine Besylate,
Pamidronate Disodium, Valaciclovir Hydrochloride and
Benazepril Hydrochloride)
    
    January 8, 2007
    
    January 7, 2012Bulk Drug (Sumatriptan Succinate, Meloxicam,
Naftopidil, Edaravone and Sibutramine Hydrochloride)
    
    November 26, 2008
    
    November 25, 2013Bulk Drug (Naftopidil, amlodipine maleate)
    
    February 2, 2009
    
    February 1, 2014Nanjing SimcereSmall Volume Parenteral Solutions
    
    December 3, 2008
    
    December 2, 2013Mixture, Oral Solution
    
    October 27,2008
    
    October 26, 2013Powder for Injection
    
    August 6, 2008
    
    August 5, 2013Sterile Bulk (Biapenem)
    
    July 21, 2008
    
    July 20, 2013Tablets, Hard Capsules, Granules, Dry Suspensions,
Bulk drug (Palonosetron Hydrochloride)
    
    October 11, 2010
    
    October 10, 2015Powder for Injection (Penicillin)
    
    December 28, 2010
    
    December 27, 2015Tablets, Capsules, Dry Suspensions(Penicillin)
    
    May 6,2008
    
    May 5, 2013Bulk Drug (Zanamivir), Powder
    
    April 9,2010
    
    April 8, 2015Nanjing Tung ChitFrozen-Dry Powder Injection (Anti-Cancer Drug)
    
    June 16,2009
    
    June 15, 2014Bulk Drug (Nedaplatin)
    
    June 19,2009
    
    June 18, 2014Bulk Drug (Oxaliplatin)
    
    December 28,2009
    
    December 27, 2014Shandong SimcereRecombinant Human
Endostatin Injection
(Anti-cancer Drugs)
    
    August 18, 2009
    
    August 17, 2014Simcere Zhong RenAnti-cancer Implants
    
    May 18, 2009
    
    May 17, 2014Jilin BodaSmall Volume Parenteral
Solutions, Edaravone
Injection
    
    February 23, 2009
    
    February 22, 2014Bulk Drug (Edaravone,
Phenytoinum Natricum,
Moroxydine Hydrochloride)
    
    May 18, 2010
    
    May 17, 2015Tablets, Capsules, Granules
    
    November 28, 2008
    
    November 27, 2013
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Approval and Registration of Pharmaceutical Products
     - 37 -




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Pre-clinical Research and Clinical Trials
   
    
    Phase I  preliminary trial of clinical pharmacology and
human safety evaluation studies. The primary objective is
to observe the pharmacokinetics and the tolerance level of
the human body to the new medicine as a basis for
ascertaining the appropriate methods of dosage.
    
    Phase II  preliminary exploration on the therapeutic
efficacy. The purpose is to assess preliminarily the
efficacy and safety of pharmaceutical products on patients
within the target indication of the pharmaceutical products
and to provide the basis for the design research and dosage
tests for Phase III. The design and methodology of research
in this phase generally adopts double-blind and random
methods with limited sample sizes.
    
    Phase III  confirm the therapeutic efficacy. The
objective is to further verify the efficacy and safety of
pharmaceutical products on patients within the target
indication of the pharmaceutical products, to evaluate the
benefits and risks and finally to provide sufficient
experimental proven evidence to support the registration
application of the pharmaceutical products. In general, the
trial should adopt double-blind, random methods with
sufficient sample sizes.
    
    Phase IV  stage of application with research conducted by
the applicants themselves after the launch of a new
pharmaceutical. The objective is to observe the efficacy
and adverse reaction of pharmaceutical products under
extensive use, to perform an evaluation of the benefits and
risks of the application among ordinary or special group of
patients, and to ascertain and improve the appropriate
dosage volume for application.
 Continuing SFDA Regulation
   Regulations on Vaccine Products
 Classification of Vaccine
  - 38 -




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Quality of Vaccine Products
   Pricing Policy
  Other National and Local Laws and Regulations
   Distribution
 Pharmaceutical Distribution
  Vaccine Distribution
  - 39 -




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Restrictions on Foreign Ownership of Pharmaceutical Wholesale and Retail Businesses in China
  Good Supply Practices
   Product Liability and Consumer Protection
     Price Controls
  - 40 -




---



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Tendering System for Medicines Purchased by Healthcare Institutions
  Reimbursement Under the National Medical Insurance Program
  PRC Patent Law
  - 41 -




---



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Patent Prosecution
  Patent Enforcement
  Compulsory License
  International Patent Treaties
   - 42 -




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PRC
Trademark Law
   
    
    use of a trademark that is identical with or similar to a registered trademark in respect of
the same or similar commodities without the authorization of the trademark registrant;
    
    sale of commodities infringing upon the exclusive right to use the trademark;
    
    counterfeiting or making, without authorization, representations of a registered trademark of
another person, or sale of such representations of a registered trademark;
    
    changing a registered trademark and selling products on which the changed registered
trademark is used without the consent of the trademark registrant; and
    
    otherwise infringing upon the exclusive right of another person to use a registered trademark.
  
    
    The trademark owner can provide his trademark registration
certificate and other relevant evidence to the State or
local Administration for Industry and Commerce, or AIC,
which can, at its discretion, launch an investigation. The
AIC may take such actions as: order the infringer to
immediately cease the infringing behavior, seize and
destroy any infringing products and representations of the
trademark in question, close the facilities used to
manufacture the infringing products or impose a fine. If
the trademark owner is dissatisfied with the State AICs
decision, he may, within 15 days of receiving the AICs
decision, institute civil proceedings in court.
    
    The trademark owner may institute civil proceedings
directly in court. Civil redress for trademark infringement
includes:
 
    
    injunctions;
    
    requiring the infringer to take steps to mitigate the damage (i.e. print notices in newspapers); and
 
    
    damages (i.e. compensation for the economic loss and injury to
reputation as a result of trademark infringement suffered by the
trademark holder).
  
    
    If the case is so serious as to constitute a crime, the trademark
owner may lodge a complaint with the relevant public security organ
and the infringer is subject to investigation for criminal
responsibility in accordance with PRC law.
  Foreign Exchange Regulation
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Dividend Distribution Regulation
  C. Organizational Structure
  - 44 -




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
    
    Simcere Pharmaceutical Co., Ltd., or Hainan Simcere, is
our wholly owned subsidiary that engages in the
manufacturing of pharmaceutical products. Hainan Simcere
is currently authorized to manufacture 64 pharmaceutical
products.
    
    Nanjing Simcere Dongyuan Pharmaceutical Co., Ltd., or
Nanjing Simcere, is our wholly owned subsidiary that
engages in the manufacturing of pharmaceutical products.
Nanjing Simcere is currently authorized to manufacture
87 pharmaceutical products.
    
    Nanjing Tung Chit Pharmaceutical Company Limited, or
Nanjing Tung Chit, engages in the manufacturing of
pharmaceutical products. We completed the acquisition of
85.7% of the equity interest of Nanjing Tung Chit in
November 2007. We acquired the remaining 14.3% of the
equity interest in Nanjing Tung Chit in April 2010.
Since then, Nanjing Tung Chit has been our wholly owned
subsidiary. Nanjing Simcere merged with Nanjing Tung
Chit on March 21, 2011.
    
    Jiangsu Simcere Pharmaceutical Co., Ltd., or Jiangsu
Simcere, and Shanghai Simcere Pharmaceutical Co., Ltd.,
or Shanghai Simcere, are both our wholly owned
subsidiaries that engage in the marketing, sale and
distribution of pharmaceutical products.
    
    Jiangsu Simcere Vaxtec Bio-Pharmaceutical R&D Co., Ltd.,
or Simcere Research, is our wholly owned subsidiary that
engages in the research and development of
pharmaceutical products.
 
    
    Sichuan Zigong Yirong Industrial Co., Ltd., or Sichuan
Simcere, is our wholly owned subsidiary that owns the
mining right to a smectite mine in Sichuan Province and
engages in the extraction of smectite, a raw material used
for the manufacturing of one of our pharmaceutical
products.
    
    Hainan Qitian Pharmaceutical Co., Ltd., or Qitian Simcere,
is our wholly owned subsidiary that engages in the processing and refinement of smectite.
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
    
    Shandong Simcere Medgenn Bio-Pharmaceutical Co., Ltd., or
Shandong Simcere, formerly known as Yantai Medgenn Co.,
Ltd., is our wholly owned subsidiary that engages in the
manufacturing of Endu in China. We completed the
acquisition of 80.0% of the equity interest of Shandong
Simcere in September 2006 and an additional 10.0% of the
equity interest in Shandong Simcere in June 2007. In
January 2009, we acquired the remaining 10.0% of the equity
interest in Shandong Simcere, which is now our wholly owned
subsidiary. In addition, Shandong Simcere owns a 40.0%
equity interest in Medgenn (Hong Kong) Co., Ltd., or Hong
Kong Medgenn, which was acquired for no cash consideration.
Hong Kong Medgenn has the exclusive right to engage in the
development and sale of Endu in any jurisdiction outside of
the PRC until February 10, 2015. Hong Kong Medgenn has not
conducted any operations to date.
    
    Jilin Boda Pharmaceutical Co., Ltd., or Jilin Boda, is our
90.2% owned subsidiary that engages in the manufacturing
and sale of pharmaceutical products. Prior to July 2010, we
owned 51.0% of the equity interest in Jilin Boda. In June
2010, we entered into a series of agreements to further
acquire approximately 39.2% of the equity interest in Jilin
Boda and completed this acquisition on July 4, 2010. Since
then, we have held approximately 90.2% of the equity
interest in Jilin Boda.
    
    Wuhu Simcere Zhong Ren Pharmaceutical Co., Ltd., or Simcere
Zhong Ren, is our 70.0% owned subsidiary that engages in
the manufacturing and sale of pharmaceutical products. We
completed the acquisition of the 70.0% equity interest in
Simcere Zhong Ren in April 2008.
    
    Jiangsu Quanyi Biological Technology Stock Co., Ltd., or
Jiangsu Quanyi, engages in the manufacturing and sale of
vaccines. In May 2009, we acquired 37.5% equity interest of
Jiangsu Quanyi. In December 2009, we acquired the 100.0%
stake in ChinaVax, a Cayman Islands investment holding
company, that held 15.0% of the equity interest in Jiangsu
Quanyi. Since then, we have held 52.5% of the equity
interest in Jiangsu Quanyi.
 D. Property, Plant and Equipment
     
 Item 4A. UNRESOLVED STAFF COMMENTS
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Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 You should read the following discussion and analysis of our financial condition and results
of operations in conjunction with our consolidated financial statements included elsewhere in this
annual report on Form 20-F . This discussion may contain forward-looking statements based upon
current expectations that involve risks and uncertainties. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of various factors,
including those set forth under Item 3. Key InformationD. Risk Factors or in other parts of
this annual report on Form 20-F .
 A. Operating Results
 Overview
    
    
    the growth of the pharmaceutical market in China;
    
    our ability to successfully develop, acquire and launch first-to-market branded generic and
innovative pharmaceuticals;
    
    the extent of inclusion of our pharmaceuticals in the Essential Drug List and Reimbursement List;
    
    our ability to compete in the tender processes for purchase of medicines by state-owned and
state-controlled Chinese hospitals; and
    
    product pricing and price controls.
 The Growth of the Pharmaceutical Market in China
  Our Ability to Successfully Develop, Acquire and Launch First-to-Market Generic and Innovative
Pharmaceuticals
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##### Table of Contents



The Extent of Inclusion of Our Pharmaceuticals in the Essential Drug List and Reimbursement List
    Our Ability to Compete In the Tender Processes for Purchase of Medicines by State-Owned and
State-Controlled Chinese Hospitals
  Product Pricing and Price Controls
  - 48 -




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Acquisitions
       - 49 -




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Revenues
   - 50 -




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Year Ended December 31,2008
    
    2009
    
    2010(in
    
    
    
    
    
    (in
    
    
    
    
    
    (inthousands of
    
    (% of
    
    thousands of
    
    (% of
    
    thousands of
    
    (% ofRMB)
    
    revenues)
    
    RMB)
    
    revenues)
    
    RMB)
    
    revenues)Bicun
    
    
    570,584
    
    
    
    32.8
    
    
    
    619,340
    
    
    
    33.3
    
    
    
    667,669
    
    
    
    31.2Zailin
    
    
    290,215
    
    
    
    16.7
    
    
    
    279,631
    
    
    
    15.0
    
    
    
    320,833
    
    
    
    15.0Yingtaiqing
    
    
    146,660
    
    
    
    8.4
    
    
    
    151,378
    
    
    
    8.2
    
    
    
    175,296
    
    
    
    8.2Sinofuan
    
    
    41,400
    
    
    
    2.4
    
    
    
    126,297
    
    
    
    6.8
    
    
    
    151,829
    
    
    
    7.1Yidasheng
    
    
    80,580
    
    
    
    4.6
    
    
    
    126,038
    
    
    
    6.8
    
    
    
    124,178
    
    
    
    5.8Endu
    
    
    239,439
    
    
    
    13.7
    
    
    
    124,186
    
    
    
    6.7
    
    
    
    223,090
    
    
    
    10.4
      Cost of Materials and Production and Operating Expenses
  Year Ended December 31,2008
    
    2009
    
    2010(in percentages)Cost of materials and production
    
    
    18.4
    
    
    
    17.3
    
    
    
    16.0
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Year Ended December 31,2008
    
    2009
    
    2010(in percentages)Operating expensesResearch and development expenses
    
    
    4.9
    
    
    
    7.2
    
    
    
    5.9Sales, marketing and distribution expenses
    
    
    45.0
    
    
    
    53.9
    
    
    
    55.4General and administrative expenses
    
    
    11.2
    
    
    
    12.0
    
    
    
    12.6Impairment loss on goodwill
    
    
    
    
    
    
    4.1
    
    
    
    Total operating expenses
    
    
    61.1
    
    
    
    77.2
    
    
    
    73.9
   Cost of Materials and Production
  
    
    costs of the pharmaceuticals in which we are the exclusive distributors of;
    
    costs of the necessary active ingredients and supporting ingredients of
pharmaceuticals we manufacture and various types of packaging materials;
    
    salaries and benefits for personnel directly involved in production activities;
    
    overhead costs, including utility, maintenance of production equipment and
other support expenses associated with the production of our products; and
    
    depreciation of property, plant and equipment used for production purposes.
Depreciation of property, plant and equipment attributable to production
activities is capitalized as part of inventory, and expensed as cost of
materials and production when products are sold.
  Research and Development Expenses
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
    
    the delay in research and development of certain projects
preventing us to focus our resources on more promising
product candidates;
    
    the intended use of a product candidate, which affects the
length and timing of the research and development projects;
    
    the number of patients who participate in the clinical trials;
    
    the number of sites included in clinical trials;
 
    
    the length of time required to enroll clinical trial participants;
    
    the duration of patient treatment and follow-up during clinical trials;
    
    the costs of producing supplies of the product candidates needed for clinical trials; and
    
    the requirement and timing of SFDA approvals.
    - 53 -




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Sales, Marketing and Distribution Expenses
  General and Administrative Expenses
  Share-Based Compensation Expenses
   - 54 -




---



##### Table of Contents



Taxation and Incentives
     - 55 -




---



##### Table of Contents



Critical Accounting Policies and the Use of Estimates
   Acquisitions
 Business Combinations
 - 56 -




---



##### Table of Contents



Allowance for Doubtful Accounts
   Year Ended December 31,2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    $(in thousands)Beginning allowance for doubtful accounts
    
    
    6,635
    
    
    
    6,995
    
    
    
    6,749
    
    
    
    1,022Additions charged to bad debt expense
    
    
    1,576
    
    
    
    101
    
    
    
    843
    
    
    
    128Write-off of accounts receivable
    
    
    (1,216
    )
    
    
    (347
    )
    
    
    (117
    )
    
    
    (18
    )Ending allowance for doubtful accounts
    
    
    6,995
    
    
    
    6,749
    
    
    
    7,475
    
    
    
    1,132
 Inventories
   - 57 -




---



##### Table of Contents



Depreciation and Amortization
   Impairment of Long-Lived Assets and Goodwill
      - 58 -




---



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- 59 -




---



##### Table of Contents



Share-based Compensation
     Year ended December 31,2008
    
    2009
    
    2010Valuation assumptionsExpected term (in years)
    
    
    5.19-5.35
    
    
    
    
    
    
    
    5.5Expected volatility
    
    
    59%-74
    %
    
    
    
    
    
    
    64.73
    %Expected dividend
    
    
    0
    %
    
    
    
    
    
    
    0
    %Risk-free rate
    
    
    1.54%-3.69
    %
    
    
    
    
    
    
    0.75%-1.41
    %
  Income tax uncertainties and realization of deferred tax assets
   - 60 -




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##### Table of Contents



Results of Operations
  Year Ended December 31,2008
    
    2009
    
    2010% of Total
    
    
    
    
    
    % of Total
    
    
    
    
    
    % of TotalRMB
    
    Revenues
    
    RMB
    
    Revenues
    
    RMB
    
    Revenues(in thousands, except percentages)Revenue
    
    
    1,741,143
    
    
    
    100.0
    
    
    
    1,857,071
    
    
    
    100.0
    
    
    
    2,141,098
    
    
    
    100.0Cost of materials and
production
    
    
    (320,882
    )
    
    
    (18.4
    )
    
    
    (320,945
    )
    
    
    (17.3
    )
    
    
    (341,787
    )
    
    
    (16.0
    )Gross profit
    
    
    1,420,261
    
    
    
    81.6
    
    
    
    1,536,126
    
    
    
    82.7
    
    
    
    1,799,311
    
    
    
    84.0Operating expenses:Research and development
    
    
    (86,089
    )
    
    
    (4.9
    )
    
    
    (132,981
    )
    
    
    (7.2
    )
    
    
    (125,737
    )
    
    
    (5.9
    )Sales, marketing and
distribution
    
    
    (782,960
    )
    
    
    (45.0
    )
    
    
    (1,002,419
    )
    
    
    (53.9
    )
    
    
    (1,186,144
    )
    
    
    (55.4
    )General and administrative
    
    
    (194,233
    )
    
    
    (11.2
    )
    
    
    (222,118
    )
    
    
    (12.0
    )
    
    
    (269,512
    )
    
    
    (12.6
    )Impairment loss on goodwill
    
    
    
    
    
    
    
    
    
    
    (76,398
    )
    
    
    (4.1
    )
    
    
    
    
    
    
    Total operating
expenses
    
    
    (1,063,282
    )
    
    
    (61.1
    )
    
    
    (1,433,916
    )
    
    
    (77.2
    )
    
    
    (1,581,393
    )
    
    
    (73.9
    )Income from operations
    
    
    356,979
    
    
    
    20.5
    
    
    
    102,210
    
    
    
    5.5
    
    
    
    217,918
    
    
    
    10.1Interest income
    
    
    34,302
    
    
    
    2.0
    
    
    
    8,861
    
    
    
    0.5
    
    
    
    4,214
    
    
    
    0.2Interest expense
    
    
    (4,693
    )
    
    
    (0.3
    )
    
    
    (12,126
    )
    
    
    (0.7
    )
    
    
    (19,920
    )
    
    
    (0.9
    )Foreign currency exchange
gains, net
    
    
    39,879
    
    
    
    2.3
    
    
    
    382
    
    
    
    0.0
    
    
    
    5,511
    
    
    
    0.3Other income (1)
    
    
    1,104
    
    
    
    0.1
    
    
    
    2,971
    
    
    
    0.2
    
    
    
    2,286
    
    
    
    0.1Equity in losses of equity
method affiliated
companies
    
    
    
    
    
    
    
    
    
    
    (56,532
    )
    
    
    (3.0
    )
    
    
    (14,716
    )
    
    
    (0.7
    )Earnings before
income taxes
    
    
    427,571
    
    
    
    24.6
    
    
    
    45,766
    
    
    
    2.5
    
    
    
    195,293
    
    
    
    9.1
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##### Table of Contents



Year Ended December 31,2008
    
    2009
    
    2010% of Total
    
    
    
    
    
    % of Total
    
    
    
    
    
    % of TotalRMB
    
    Revenues
    
    RMB
    
    Revenues
    
    RMB
    
    Revenues(in thousands, except percentages)Income tax expense
    
    
    (49,285
    )
    
    
    (2.8
    )
    
    
    (16,897
    )
    
    
    (0.9
    )
    
    
    (10,640
    )
    
    
    (0.5
    )Net income
    
    
    378,286
    
    
    
    21.8
    
    
    
    28,869
    
    
    
    1.6
    
    
    
    184,653
    
    
    
    8.6Less: net income
attributable to the
noncontrolling interest
    
    
    (28,135
    )
    
    
    (1.7
    )
    
    
    (2,441
    )
    
    
    (0.2
    )
    
    
    (12,242
    )
    
    
    (0.5
    )Net income
attributable to Simcere
Pharmaceutical Group
(1)(2)
    
    
    350,151
    
    
    
    20.1
    
    
    
    26,428
    
    
    
    1.4
    
    
    
    172,411
    
    
    
    8.1
 
 (1)
    
    In 2008, 2009 and 2010, other income included the incentive
payment received from our depositary in connection with the
establishment of the ADR program following our initial public
offering.(2)
    
    Certain of our PRC operating subsidiaries were entitled to a tax
holiday. The effect of the tax holiday increase our net income
for 2008, 2009 and 2010 by RMB56.4 million, RMB23.5 million and
RMB29.9 million ($4.5 million), respectively, or RMB0.45, RMB0.20
and RMB0.28 ($0.04) on the per share basis, respectively. Comparison of Years Ended December 31, 2009 and December 31, 2010
 Revenues
 Gross Profit and Gross Margin
 Operating Expenses
 
    
    Research and Development Expenses. Our research and
development expenses decreased to RMB125.7 million ($19.1
million) in 2010 from RMB133.0 million in 2009. Research
and development expenses as percentage of our revenues
decreased to 5.9% in 2010 from 7.2% in 2009. The decrease
in research and development expenses was primarily due to
increases in government research and innovation subsidies
recognized from RMB0.5 million in 2009 to RMB 5.7 million
(US$0.9 million) in 2010 and significant initial payments
for technology know-how acquired from pharmaceutical
companies and universities in 2009.
 - 62 -




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##### Table of Contents




    
    Sales, Marketing and Distribution Expenses. Our sales,
marketing and distribution expenses increased by 18.3% to
RMB1,186.1 million ($179.7 million) in 2010 from RMB1,002.4
million in 2009. The increase was mainly attributable to
the expansion of our sales team together with higher
promotion and advertisement costs. Sales, marketing and
distribution expenses as a percentage of our revenues
increased to 55.4% in 2010 from 53.9% in 2009.
    
    General and Administrative Expenses. Our general and
administrative expenses increased by 21.3% to RMB269.5
million ($40.8 million) in 2010 from RMB222.1 million in
2009. The increase was primarily related to depreciation
expenses and staff costs. General and administrative
expenses as a percentage of our revenues increased to 12.6%
in 2010 from 12.0% in 2009.
 Interest Income
 Interest Expense
 Foreign Currency Exchange Gains, Net
 Other Income
 Equity in Losses of Equity Method Affiliated Companies .
 Income Tax Expense
 Noncontrolling Interests
 Net Income Attributable to Simcere Pharmaceutical Group
 Comparison of Years Ended December 31, 2008 and December 31, 2009
 Revenues
 - 63 -




---



##### Table of Contents



Gross Profit and Gross Margin
 Operating Expenses
 
    
    Research and Development Expenses. Our research and
development expenses increased to RMB133.0 million in 2009
from RMB86.1 million in 2008. Research and development
expenses as percentage of our revenues increased to 7.2% in
2009 from 4.9% in 2008. The increase was primarily due to
the launch of new research and development projects and
increased research and development headcount as a result of
the our continued expansion of its research and development
activities.
    
    Sales, Marketing and Distribution Expenses. Our sales,
marketing and distribution expenses increased by 28.0% to
RMB1,002.4 million in 2009 from RMB783.0 million in 2008.
The increase was mainly attributable to the increased
marketing service fees paid to professional marketing
companies for the promotion of our products. Sales,
marketing and distribution expenses as a percentage of our
revenues increased to 53.9% in 2009 from 45.0% in 2008.
    
    General and Administrative Expenses. Our general and
administrative expenses increased by 14.4% to RMB222.1
million in 2009 from RMB194.2 million in 2008. The increase
was primarily related to depreciation expenses and staff
costs. General and administrative expenses as a percentage
of our revenues increased to 12.0% in 2009 from 11.2% in
2008.
 Interest Income
 Interest Expense
 Foreign Currency Exchange Gains, Net
 Other Income
 Equity in Losses of Equity Method Affiliated Companies .
 Income Tax Expense
 Noncontrolling Interests
 Net Income Attributable to Simcere Pharmaceutical Group
 Inflation
  - 64 -




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##### Table of Contents



B. Liquidity and Capital Resources
 Liquidity and Capital Resources
  Year Ended December 31,2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    $(in thousands)Net cash provided by operating activities
    
    
    147,103
    
    
    
    418,314
    
    
    
    132,260
    
    
    
    20,039Net cash provided by (used in) investing
activities
    
    
    252,668
    
    
    
    (457,672
    )
    
    
    (202,205
    )
    
    
    (30,637
    )Net cash used in financing activities
    
    
    (80,068
    )
    
    
    (330,851
    )
    
    
    (97,738
    )
    
    
    (14,809
    )Effect of exchange rate changes on cash and
cash equivalents
    
    
    (4,241
    )
    
    
    (117
    )
    
    
    (1,222
    )
    
    
    (185
    )Net increase (decrease) in cash and cash
equivalents
    
    
    315,462
    
    
    
    (370,326
    )
    
    
    (168,905
    )
    
    
    (25,592
    )Cash and cash equivalents at beginning of year
    
    
    497,352
    
    
    
    812,814
    
    
    
    442,488
    
    
    
    67,044Cash and cash equivalents at end of year
    
    
    812,814
    
    
    
    442,488
    
    
    
    273,583
    
    
    
    41,452
  Operating Activities
    Investing Activities
   Financing Activities
  - 65 -




---



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Capital expenditures
  C. Research and Development, Patents and Licenses, etc.
 Our Strategy
  Our Capability
  Collaborative Research
  - 66 -




---



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®
    - 67 -




---



##### Table of Contents



Product Candidates
   Therapeutic Effects and
    
    
    
    
    
    PotentialScope of
    
    
    
    
    
    MonitoringProduct Candidate
    
    Applications
    
    Status
    
    Patentable
    
    PeriodIguratimod tablets
    
    Treatment of
osteoarthritis and
rheumatoid arthritis
    
    New drug application
    
    No
    
    5 years
 Iguratimod Tablets
 Intellectual Property
    - 68 -




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##### Table of Contents



D. Trend Information
  E. Off-Balance Sheet Arrangements
  F. Tabular Disclosure of Contractual Obligations
  Contractual ObligationsLess than
    
    
    
    
    
    
    
    
    
    
    More than1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    TotalRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB(in thousands)Short-term borrowings and
current portion of
long-term borrowings
    
    
    360,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    360,000Interest payments
    
    
    12,086
    
    
    
    535
    
    
    
    
    
    
    
    
    
    
    
    12,621
 - 69 -




---



##### Table of Contents



Contractual ObligationsLess than
    
    
    
    
    
    
    
    
    
    
    More than1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 Years
    
    
    TotalRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB(in thousands)Payable for acquisitions
    
    
    26,153
    
    
    
    
    
    
    
    
    
    
    
    29,875
    
    
    
    56,028Long-term debts excluding
current portion
    
    
    
    
    
    
    19,306
    
    
    
    
    
    
    
    
    
    
    
    19,306Liabilities for uncertain
tax position
    
    
    
    
    
    
    22,593
    
    
    
    
    
    
    
    
    
    
    
    22,593Operating lease commitments
    
    
    1,362
    
    
    
    98
    
    
    
    6
    
    
    
    27
    
    
    
    1,493Research and development
projects
    
    
    4,767
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,767Capital commitments
    
    
    28,709
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,709Purchase commitments
    
    
    11,723
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,723Total
    
    
    444,800
    
    
    
    42,532
    
    
    
    6
    
    
    
    29,902
    
    
    
    517,240
 G. Safe Harbor
   
    
    our anticipated growth strategies;
    
    our future business development, results of operations and financial condition;
    
    market acceptance of our products and product candidates;
    
    our ability to effectively protect our intellectual property and trade secrets
and not infringe on the intellectual property and trade secrets of others;
    
    the sufficiency of our existing and future intellectual property right protections;
    
    our ability to obtain regulatory approval for products that we develop;
    
    our ability to successfully develop and improve products;
    
    changes in the healthcare industry in China, including increased availability of
funding for medical insurance coverage and the inclusion of additional medicines
in the Essential Drug List and Reimbursement List;
    
    our ability to manage our expansion of operations;
    
    environmental compliance costs and liabilities;
    
    competition from other manufacturers of pharmaceutical products;
    
    the expected growth for the pharmaceutical industry in China;
 - 70 -




---



##### Table of Contents




    
    our ability to obtain permits and licenses to carry on our business; and
    
    fluctuations in general economic and business conditions in China.
  
 Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 A. Directors and Senior Management
 Directors and Executive Officers
  Name
    
    Age
    
    Position/ TitleJinsheng Ren
    
    
    49
    
    
    Chairman of the board of directors and chief executive officerGuoqiang Lin (1)(3)
    
    
    67
    
    
    Independent directorHongquan Liu (1)(2)(3)
    
    
    51
    
    
    Independent directorGary Siu Kwan Sik (1)(2)
    
    
    43
    
    
    Independent directorJohn Huan Zhao
    
    
    47
    
    
    DirectorYehong Zhang
    
    
    48
    
    
    PresidentHong Zhao
    
    
    48
    
    
    Executive vice presidentJindong Zhou
    
    
    49
    
    
    Executive vice presidentXiaojin Yin
    
    
    52
    
    
    Senior vice president of research and developmentYushan Wan
    
    
    41
    
    
    Acting chief financial officerQuanfu Feng
    
    
    46
    
    
    Vice president of marketingJialun Tian
    
    
    46
    
    
    Vice president of hospital salesZhengliang Shi
    
    
    47
    
    
    Vice president of hospital sales
 Name
    
    Age
    
    Position/ TitlePeng Wang
    
    
    52
    
    
    Chief scientific officerHaibo Qian
    
    
    48
    
    
    Secretary to the board of directors and company secretary
 
 (1)
    
    Audit committee members.(2)
    
    Compensation committee members.(3)
    
    Corporate governance and nominating committee members. Mr. Jinsheng Ren
 Professor Guoqiang Lin
 - 71 -




---



##### Table of Contents



Mr. Hongquan Liu
 Mr. Gary Siu Kwan Sik
 Mr. John Huan Zhao
 Mr. Yehong Zhang
 Mr. Hong Zhao
 Mr. Jindong Zhou
 Mr. Xiaojin Yin
 Mr. Yushan Wan
 - 72 -




---



##### Table of Contents



Mr. Quanfu Feng
 Mr. Jialun Tian
 Mr. Zhengliang Shi
 Dr. Peng Wang
 Dr. Haibo Qian
  B. Compensation
 Compensation of Directors and Executive Officers
  2006 Share Incentive Plan
  Termination of Awards
 - 73 -




---



##### Table of Contents



Administration.
 Option Exercise.
 Third-party Acquisition
 Amendment and Termination of Plan
      Number ofRestrictedShares
    
    Date of Grant of
    
    Date of Grant of
    
    End of VestingName
    
    Granted
    
    Restricted Shares
    
    Cancelled Option
    
    PeriodJinsheng Ren
    
    
    2,665,988
    
    
    May 7, 2009
    
    November 15, 2006
    
    November 14, 2011Yehong Zhang
    
    
    *
    (1)
    
    March 9, 2010
    
    n/a
    
    March 9, 2013Yushan Wan
    
    
    *
    (1)
    
    May 7, 2009
    
    November 15, 2006
    
    November 14, 2011
 - 74 -




---



##### Table of Contents



Number ofRestrictedShares
    
    Date of Grant of
    
    Date of Grant of
    
    End of VestingName
    
    Granted
    
    Restricted Shares
    
    Cancelled Option
    
    PeriodJindong Zhou
    
    
    *
    (1)
    
    May 7, 2009
    
    November 15, 2006
    
    November 14, 2011Xiaojin Yin
    
    
    *
    (1)
    
    May 7, 2009
    
    November 15, 2006
    
    November 14, 2011Jialun Tian
    
    
    *
    (1)
    
    May 7, 2009
    
    November 15, 2006
    
    November 14, 2011Quanfu Feng
    
    
    *
    (1)
    
    May 7, 2009
    
    November 15, 2006
    
    November 14, 2011Zhengliang Shi
    
    
    *
    (1)
    
    May 7, 2009
    
    November 15, 2006
    
    November 14, 2011Guoqiang Lin
    
    
    *
    (1)
    
    May 7, 2009
    
    March 29, 2007
    
    March 28, 2012March 9, 2010
    
    n/a
    
    March 9, 2012Hongquan Liu
    
    
    *
    (1)
    
    May 7, 2009
    
    March 29, 2007
    
    March 28, 2012March 9, 2010
    
    n/a
    
    March 9, 2012Gary Siu Kwan Sik
    
    
    *
    (1)
    
    May 7, 2009
    
    March 29, 2007
    
    March 28, 2012March 9, 2010
    
    n/a
    
    March 9, 2012Peng Wang
    
    
    *
    (1)
    
    October 14, 2009
    
    n/a
    
    October 14, 2014Other employees as a group(2)
    
    
    1,392,426
    
    
    May 7, 2009
    
    November 15, 2006
    
    November 14, 2011Other employees as a group(2)
    
    
    12,024
    
    
    May 7, 2009
    
    March 29, 2007
    
    March 28, 2012Other employees as a group(2)
    
    
    188,414
    
    
    May 7, 2009
    
    May 5, 2008
    
    March 8, 2013Other employees as a group(2)
    
    
    63,372
    
    
    May 7, 2009
    
    December 24, 2008
    
    August 31, 2013Other employees as a group(2)
    
    
    100,000
    
    
    October 14, 2009
    
    n/a
    
    October 14, 2014Other employees as a group(2)
    
    
    40,000
    
    
    December 4, 2009
    
    n/a
    
    December 4, 2014Other employees as a group(2)
    
    
    10,000
    
    
    January 10, 2010
    
    n/a
    
    January 10, 2015Other employees as a group(2)
    
    
    40,000
    
    
    February 26, 2010
    
    n/a
    
    February 26, 2015Other employees as a group(2)
    
    
    100,000
    
    
    April 16, 2010
    
    n/a
    
    April 16, 2015Other employees as a group(2)
    
    
    40,000
    
    
    July 1, 2010
    
    n/a
    
    July 1, 2015Other employees as a group(2)
    
    
    40,000
    
    
    July 26, 2010
    
    n/a
    
    July 26, 2015Other employees as a group(2)
    
    
    20,000
    
    
    August 16, 2010
    
    n/a
    
    August 16, 2015Other employees as a group(2)
    
    
    40,000
    
    
    September 1, 2010
    
    n/a
    
    September 1, 2015Other employees as a group(2)
    
    
    40,000
    
    
    October 1, 2010
    
    n/a
    
    October 1, 2015Other employees as a group(2)
    
    
    20,000
    
    
    October 18, 2010
    
    n/a
    
    October 18, 2015Other employees as a group(2)
    
    
    30,000
    
    
    November 1, 2010
    
    n/a
    
    November 1, 2013Other employees as a group(2)
    
    
    10,000
    
    
    November 17, 2010
    
    n/a
    
    November 17, 2013
  Ordinary SharesUnderlying
    
    Exercise PriceName
    
    Options Granted
    
    ($/Share)
    
    Date of Grant
    
    Date of ExpirationYushan Wan
    
    
    *
    (1)
    
    $
    4.545
    
    
    September 1, 2010
    
    September 1, 2015Jialun Tian
    
    
    *
    (1)
    
    $
    4.545
    
    
    September 1, 2010
    
    September 1, 2015Quanfu Feng
    
    
    *
    (1)
    
    $
    4.545
    
    
    September 1, 2010
    
    September 1, 2015Zhengliang Shi
    
    
    *
    (1)
    
    $
    4.545
    
    
    September 1, 2010
    
    September 1, 2015Other employees as a group(2)
    
    
    956,000
    
    
    $
    4.545
    
    
    September 1, 2010
    
    September 1, 2015
 
 (1)
    
    Beneficially own less than 1.0% of our outstanding ordinary shares.(2)
    
    None of these employees is our director or executive officer. - 75 -




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##### Table of Contents



2008 Share Incentive Plan
  Termination of Awards
 Administration
 Option Exercise
 Third-party Acquisition
 Amendment and Termination of Plan
  Employee Pension and Other Retirement Benefits
  C. Board Practices
 Duties of Directors
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
    
    convening shareholders annual general meetings and reporting its work to shareholders at such meetings;
    
    declaring dividends and distributions;
    
    appointing officers and determining the term of office of officers;
    
    exercising the borrowing powers of our company and mortgaging the property of our company; and
    
    approving the transfer of shares of our company, including the registering of such shares in our share register.
  Audit Committee
  
    
    selecting our independent registered public accounting firm and pre-approving
all auditing and non-auditing services permitted to be performed by our
independent registered public accounting firm;
    
    reviewing with our independent registered public accounting firm any audit
problems or difficulties and managements response;
    
    reviewing and approving all proposed related-party transactions, as defined in
Item 404 of Regulation S-K under the Securities Act;
    
    discussing the annual audited financial statements with management and our
independent registered public accounting firm;
    
    reviewing major issues as to the adequacy of our internal controls and any
special audit steps adopted in light of significant control deficiencies;
    
    annually reviewing and reassessing the adequacy of our audit committee charter;
    
    such other matters that are specifically delegated to our audit committee by
our board of directors from time to time; and
    
    meeting separately and periodically with management and our internal auditor
and independent registered public accounting firm.
 Compensation Committee
  
    
    approving and overseeing the compensation package for our executive officers;
    
    reviewing and making recommendations to the board with respect to the compensation of our directors; and
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
    
    reviewing periodically any long-term incentive compensation or equity plans, programs or similar
arrangements, annual bonuses, employee pension and welfare benefit plans and granting our executive
officers awards under such plans.
 Corporate Governance and Nominating Committee
  
    
    identifying and recommending to the board nominees for
election or re-election to the board, or for appointment to
fill any vacancy;
    
    reviewing annually with the board the current composition
of the board in light of the characteristics of
independence, age, skills, experience and availability of
service to us;
    
    advising the board periodically with respect to significant
developments in the law and practice of corporate
governance as well as our compliance with applicable laws
and regulations, and making recommendations to the board on
all matters of corporate governance and on any corrective
action to be taken; and
    
    monitoring compliance with our code of business conduct and
ethics, including reviewing the adequacy and effectiveness
of our procedures to ensure proper compliance.
 Terms of Directors and Executive Officers
  Employment Agreements
   Interested Transactions
  Remuneration and Borrowing
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##### Table of Contents



D. Employees
  Number of
    
    PercentageEmployees
    
    of totalMarketing and brand management
    
    
    1,805
    
    
    
    44.6
    %Manufacturing and quality control
    
    
    1,284
    
    
    
    31.7
    %General and administration
    
    
    662
    
    
    
    16.4
    %Research and development
    
    
    295
    
    
    
    7.3
    %Total
    
    
    4,046
    
    
    
    100
    %
   E. Share Ownership
  
    
    each of our directors and executive officers; and
    
    each person known to us to own beneficially more than 5.0% of our ordinary shares.
 Shares Beneficially Owned (1)(2)Number
    
    %Directors and Executive Officers:Jinsheng Ren (3)
    
    
    41,653,136
    
    
    
    38.6Guoqiang Lin
    
    
    *
    
    
    
    *Hongquan Liu
    
    
    *
    
    
    
    *Gary Siu Kwan Sik
    
    
    *
    
    
    
    *John Huan Zhao (4)
    
    
    17,924,692
    
    
    
    16.6Yehong ZhangJindong Zhou
    
    
    *
    
    
    
    *Xiaojin Yin
    
    
    *
    
    
    
    *Yushan Wan
    
    
    *
    
    
    
    *Qingsen Li
    
    
    *
    
    
    
    *Jialun Tian
    
    
    *
    
    
    
    *Zhengliang Shi
    
    
    *
    
    
    
    *Xiaohua Yang
    
    
    *
    
    
    
    *Huaping Fu
    
    
    *
    
    
    
    *Peng Wang
    
    
    *
    
    
    
    *Haibo Qian
    
    
    *
    
    
    
    *All directors and executive officers as a group
    
    
    59,577,828
    
    
    
    55.3Principal Shareholders:New Good Management Limited (5)
    
    
    39,520,320
    
    
    
    36.7Assure Ahead Investments Limited (6)
    
    
    17,924,692
    
    
    
    16.6King View Development International Limited (7)
    
    
    11,820,000
    
    
    
    11.0
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##### Table of Contents



*
    
    Upon exercise of all options granted, would beneficially own less
than 1.0% of our outstanding ordinary shares.(1)
    
    Beneficial ownership is determined in accordance with Rule 13d-3
of the General Rules and Regulations under the Exchange Act, and
includes voting or investment power with respect to the
securities.(2)
    
    The number of shares outstanding in calculating the percentages
for each listed person includes, as applicable, (i) the ordinary
shares underlying share options exercisable by such person, and
(ii) restricted shares awarded to such person that are vested but
yet to be duly registered or that can be vested, in each case
within 60 days of the date of this annual report. Percentage of
beneficial ownership of each listed person is based on
107,808,420 ordinary shares outstanding as of May 6, 2011 and, as
applicable, (i) the ordinary shares underlying share options
exercisable by such person and (ii) restricted shares awarded to
such person that are vested but yet to be duly registered or that
can be vested, in each case within 60 days of the date of this
annual report.(3)
    
    Includes 39,520,320 ordinary shares directly held by New Good
Management Limited, a British Virgin Islands company, which is
controlled by Mr. Ren, and 2,132,816 restricted shares that have
vested as of the date hereof. Mr. Ren is the chairman of the
board of directors and the controlling shareholder of New Good
Management Limited.(4)
    
    Represents 17,924,692 ordinary shares directly held by Assure
Ahead Investments Limited. Mr. Zhao, a director of Assure Ahead
Investments Limited, disclaims beneficial ownership of shares
held by Assure Ahead Investments Limited except to the extent of
his pecuniary interests in those shares.(5)
    
    New Good Management Limited is a British Virgin Islands company
that is controlled by Mr. Jinsheng Ren and beneficially owned by
Messrs. Jinsheng Ren, Jindong Zhou, Feifei Gao, Xiaoxia Chen,
Weidong Ren, Xiaojin Yin, Haibo Qian, Suqin Peng and Yong Ren.
Mr. Ren is the chairman of the board of directors and the
controlling shareholder of New Good Management Limited. The
address of New Good Management Limited is at the offices of
Offshore Incorporations Limited, P.O. Box 957, Offshore
Incorporations Centre, Road Town, Tortola, and British Virgin
Islands.(6)
    
    Assure Ahead Investments Limited is a British Virgin Islands
company that is 100.0% owned by Hony Capital II, L.P., an
exempted limited partnership formed under the laws of the Cayman
Islands; Hony Capital II, L.P.s general partner is Hony Capital
II GP Ltd., which is wholly owned by Legend Holdings Limited, an
investment holding company incorporated in the PRC. Legend
Holdings Limited is 65.0% owned by the Chinese Academy of
Sciences, a national academic and research institution owned and
controlled by the PRC government. The address for Assure Ahead
Investments Limited is at the offices of Offshore Incorporations
Limited, P.O. Box 957, Offshore Incorporations Centre, Road Town,
Tortola, and British Virgin Islands. The directors of Assure
Ahead Investments Limited, Messrs. John Huan Zhao, Shunlong Wang
and Yonggang Cao have voting and investment power over the shares
that this shareholder beneficially owns.(7)
    
    King View Development International Limited is a British Virgin
Islands company and a wholly owned subsidiary of Trustbridge
Partners II, L.P., a limited partnership whose general partner is
TB Partners GP2, L.P. The general partner of TB Partners GP2,
L.P. is TB Partners GP Limited. The address of King View
Development International Limited is 2701B, Azia Center, 1233
Lujiazui Ring Road, Shanghai, Peoples Republic of China. The
investment committee of Trustbridge Partners II, L.P. has voting
and investment power over the shares that this shareholder
beneficially owns.   - 80 -




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##### Table of Contents



Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. Major Shareholders
  B. Related Party Transactions
 Transactions with Companies in Which a Major Shareholder had Equity Interests
   Transactions with a Minority Shareholder
   Transaction with a Company with a Director who is also a Director of our Company
  Share Incentives
  Registration Rights Agreements
  
    
    Demand Registration Rights. At any time commencing the
earlier of November 20, 2008 or six months after our
initial public offering, shares held by Assure Ahead
Investments Limited or its transferees and assignees have
the right to demand that we file a registration statement
under the Securities Act covering the offer and sale of
their securities, so long as the aggregate amount of
securities to be sold under the registration statement
exceeds $20.0 million. We are obligated under the
registration rights agreement to use our best efforts to
register our ordinary shares for resale if Assure Ahead
Investments Limited makes such request. However, we are not
required to provide for any payment or transfer any other
consideration to Assure Ahead Investments Limited in the
event of non-performance. We have the ability to delay or
withdraw the filing of a registration statement for up to
90 days if we furnish to Assure Ahead Investments Limited
or their transferees and assignees a certificate signed by
our chief executive officer or our chairman of the board of
directors stating that, board of directors determines it
would be seriously detrimental to us or our shareholders
for a registration statement to be filed in the near
future. We are not obligated to affect such demand
registrations on more than two occasions.
 - 81 -




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
    
    Form F-3 or S-3 Registration Rights. Upon our company
becoming eligible for use of Form F-3 or S-3, Assure Ahead
Investments Limited or their transferees and assignees have
the right to request that we file a registration statement
under Form F-3 or S-3, so long as the aggregate amount of
securities to be sold under the registration statement
exceeds $1.0 million. Such requests for registrations are
not counted as demand registrations.
    
    Piggyback Registration Rights. If we propose to file a
registration statement with respect to an offering for our
own account or for the account of any person that is not
Assure Ahead Investments Limited or their transferees and
assignees, we must offer Assure Ahead Investments Limited
or their transferees and assignees the opportunity to
include their securities in the registration statement. We
must use our reasonable best efforts to cause the
underwriters in any underwritten offering to permit any
such shareholder who so requests to include their
securities on the same terms and conditions as the
securities of our company.
    
    Expenses of Registration . We will pay all expenses
relating to any demand or piggyback registration, whether
or not such registrations become effective, except that
shareholders shall bear the expense of any brokers
commission or underwriters discount or commission relating
to registration and sale of their securities.
  
    
    Pursuant to the registration rights agreement entered into among us,
New Good Management and King View Development International Limited on
May 12, 2008, we agree to file as promptly as practicable but in any
event no later than thirty (30) days after the earlier of (i) June 30,
2008 and (ii) the date on which we file our annual report on Form 20-F
for the fiscal year ended December 31, 2007 with the SEC, a shelf
registration statement for an offering to be made on a delayed or
continuous basis pursuant to Rule 415 registering the resale from time
to time by holders of all of the registrable securities. New Good
Management will bear all costs associated with the filing of such
registration statements.
   C. Interests of Experts and Counsel
  
 Item 8. FINANCIAL INFORMATION
 A. Consolidated Statements and Other Financial Information
  Legal and Administrative Proceedings
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##### Table of Contents



Dividend Policy
    B. Significant Changes
  
 Item 9. THE OFFER AND LISTING
 A. Offering and Listing Details
   Sales PriceHigh
    
    Low2007(from April 20, 2007)
    
    $
    19.30
    
    
    $
    10.812008
    
    $
    15.88
    
    
    $
    4.412009
    
    $
    10.03
    
    
    $
    4.762010
    
    $
    12.98
    
    
    $
    7.44Quarterly Highs and LowsFirst Quarter 2009
    
    $
    9.13
    
    
    $
    4.76Second Quarter 2009
    
    $
    8.81
    
    
    $
    5.05
 - 83 -




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##### Table of Contents



Sales PriceHigh
    
    LowThird Quarter 2009
    
    $
    9.98
    
    
    $
    6.72Fourth Quarter 2009
    
    $
    10.03
    
    
    $
    6.77First Quarter 2010
    
    $
    9.94
    
    
    $
    8.06Second Quarter 2010
    
    $
    8.92
    
    
    $
    7.44Third Quarter 2010
    
    $
    10.44
    
    
    $
    7.95Fourth Quarter 2010
    
    $
    12.98
    
    
    $
    8.14Monthly Highs and LowsNovember 2010
    
    $
    12.86
    
    
    $
    8.72December 2010
    
    $
    12.98
    
    
    $
    11.11January 2011
    
    $
    13.75
    
    
    $
    11.32February 2011
    
    $
    13.72
    
    
    $
    11.79March 2011
    
    $
    13.50
    
    
    $
    12.00April 2011
    
    $
    13.48
    
    
    $
    12.41May 2011 (through May 6)
    
    $
    12.70
    
    
    $
    11.40
 B. Plan of Distribution
  C. Markets
  D. Selling Shareholders
  E. Dilution
  F. Expenses of the Issue
  
 Item 10. ADDITIONAL INFORMATION
 A. Share Capital
  B. Memorandum and Articles of Association
  C. Material Contracts
  D. Exchange Controls
 Foreign Currency Exchange
  
    
    Foreign Currency Administration Rules (1996), as amended, or the Exchange Rules; and
    
    Administration Rules of the Settlement, Sale and Payment of Foreign Exchange
(1996), or the Administration Rules;
 - 84 -




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##### Table of Contents



E. Taxation
 Cayman Islands Taxation
  Peoples Republic of China Taxation
   United States Federal Income Taxation
   
    
    an individual citizen or resident of the United States;
    
    a corporation (or other entity treated as a corporation for United States federal income tax purposes)
created or organized in or under the laws of the United States, any state thereof or the District of
Columbia;
    
    an estate the income of which is subject to United States federal income taxation regardless of its source; or
    
    a trust that (1) is subject to the primary supervision of a court within the United States and one or more
U.S. persons control all substantial decisions of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a U.S. person.
 - 85 -




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##### Table of Contents




    
    a dealer in securities or currencies;
    
    certain financial institutions;
    
    insurance companies;
    
    regulated investment companies;
    
    real estate investment trusts;
    
    broker dealers;
    
    U.S. expatriates;
    
    traders that elect to mark to market;
    
    tax-exempt entities;
    
    persons liable for alternative minimum tax;
    
    persons holding an ADS or ordinary share as part of a straddle, constructive
sale, hedging, conversion or integrated transaction;
    
    persons whose functional currency is not the U.S. dollar; or
    
    persons that actually or constructively own 10.0% or more of our voting stock.
    Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares
  - 86 -




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##### Table of Contents



Taxation of Disposition of ADSs or Ordinary Shares
  Passive Foreign Investment Company
   
    
    at least 75% of its gross income is passive income; or
    
    at least 50% of the value of its assets (based on an
average of the quarterly values of the assets during a
taxable year) is attributable to assets that produce or are
held for the production of passive income.
   - 87 -




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##### Table of Contents




    
    the excess distribution or gain will be allocated ratably over your holding period for the ADSs or ordinary shares;
    
    the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we
became a PFIC, will be treated as ordinary income; and
    
    the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the
interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to
each such year.
       Information Reporting and Backup Withholding
   - 88 -




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##### Table of Contents



F. Dividends and Paying Agents
  G. Statement by Experts
  H. Documents on Display
       I. Subsidiary Information
  
 Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Exchange Risk
    - 89 -




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##### Table of Contents



Interest Rate Risk
  Credit Risk with Financial Institutions
  
 Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
 A. Debt Securities
  B. Warrants and Rights
  C. Other Securities
  D. American Depositary Shares
  - 90 -




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##### Table of Contents



Persons depositing or withdrawing shares must pay:
    
    For:$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
    
    
    
    Issuance of ADSs, including
issuances resulting from a
distribution of shares or
rights or other property;
or
    
    Cancellation of ADSs for
the purpose of withdrawal,
including if the deposit
agreement terminates$.02 (or less) per ADS
    
    
    
    Any cash distribution to youA fee equivalent to the fee that would be payable if
securities distributed to you had been shares and the
shares had been deposited for issuance of ADSs
    
    
    
    Distribution of securities
distributed to holders of
deposited securities that
are distributed by the
depositary to ADS holders$.02 (or less) per ADSs per calendar year
    
    
    
    Depositary servicesRegistration or transfer fees
    
    
    
    Transfer and registration
of shares on our share
register to or from the
name of the depositary or
its agent when you deposit
or withdraw shares
 Persons depositing or withdrawing shares must pay:
    
    For:Expenses of the depositary
    
    
    
    Cable, telex and facsimile transmissions
(when expressly provided in the deposit
agreement); or
    
    Converting foreign currency to U.S. dollarsTaxes and other governmental charges the depositary
or the custodian have to pay on any ADS or share
underlying an ADS, for example, stock transfer taxes,
stamp duty or withholding taxes
    
    
    
    As necessaryAny charges incurred by the depositary or its agents 
for servicing the deposited securities
    
    
    
    As necessary
   - 91 -




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##### Table of Contents



PART II
 
 Item 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 Item 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    approximately RMB6.3 million ($1.0 million) for the acquisition of an additional 14.3% of the equity
interest in Nanjing Tung Chit;
    
    approximately RMB144.0 million ($21.8 million) for the acquisition of an additional 39.2% of the
equity interest in Jilin Boda;
    
    approximately RMB131.4 million ($19.9 million) to fund our research and development efforts; and
    
    approximately RMB127.5 million ($19.3 million) for repurchases and retirement of our ordinary shares.
 
 Item 15.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
    - 92 -




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  Report of Independent Registered Public Accounting Firm
 The Board of Directors
 Simcere Pharmaceutical Group:
       /s/ KPMG

Hong Kong, ChinaMay 9, 2011
 - 93 -




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##### Table of Contents



Item 16.
    
    [RESERVED]
 
 Item 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
  
 Item 16B.
    
    CODE OF ETHICS
  
 Item 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Year Ended December 31,2008
    
    
    2009
    
    
    2010Audit fees (1)
    
    $
    1,929
    
    
    $
    1,181
    
    
    $
    1,586Audit-related fees (2)
    
    
    163
    
    
    
    146
    
    
    
    126Tax fees
    
    
    
    
    
    
    
    
    
    
    Other fees
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    2,092
    
    
    $
    1,327
    
    
    $
    1,712
 
 (1)
    
    Audit fees represent the aggregate fees billed for each of the
fiscal years listed for professional services rendered by our
principal auditors for the audit of our annual financial
statements or services that are normally provided by the auditors
in connection with statutory and regulatory filings or
engagements.(2)
    
    Audit-related fees represent the aggregate fees billed in each
of the fiscal years listed for assurance and related services by
our principal auditors for services rendered that are reasonably
related to the performance of the audit or review of our
consolidated financial statements and are not reported under
Audit fees. Services comprising the fees disclosed under the
category of Audit-related fees in 2010 involve principally
limited reviews performed on our consolidated financial
statements.  
 Item 16D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
  
 Item 16E.
    
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
  - 94 -




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##### Table of Contents



Totalnumber ofADSs purchased
    
    Approximate dollar valueTotal
    
    
    
    
    
    
    
    
    
    as part of
    
    ofnumber of
    
    
    
    
    
    
    
    
    
    publicly
    
    ADSs that may yet beADSs
    
    Average price
    
    announced
    
    purchasedPeriod
    
    purchased
    
    paid per ADS (1)
    
    program
    
    under the programUS$
    
    RMB (2)
    
    
    
    US$
    
    RMB (1)November 10,
2008 to September
29, 2009
    
    
    7,216,920
    
    
    
    6.93
    
    
    
    45.74
    
    
    
    7,216,920
    
    
    
    
    
    
    
    November 18, 2009
to November 12,
2010
    
    
    2,483,470
    
    
    
    8.70
    
    
    
    57.42
    
    
    
    2,483,470
    
    
    
    
    
    
    
    
 
 (1)
    
    The average price paid per ADS is calculated using the execution
price for each repurchase excluding commissions paid to brokers.(2)
    
    The translations of U.S. dollar amounts into Renminbi amounts
have been made at the noon buying rate in effect on December 30,
2010, which was US$1.00 to RMB6.6000. See Introduction and
Part I.  Item 3. Key Information  Selected Financial Data 
Exchange Rate Information. 
 Item 16F.
    
    CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
  
 Item 16G.
    
    CORPORATE GOVERNANCE
  
    
    The New York Stock Exchange standards for domestic companies require
that non-management directors meet at regularly scheduled executive
sessions without management. Our non-management directors have not met
in executive sessions without management, and there is no requirement
under the laws of the Cayman Islands that our non-management directors
meet in executive sessions.
 - 95 -




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##### Table of Contents



PART III
 
 Item 17.
    
    FINANCIAL STATEMENTS
  
 Item 18.
    
    FINANCIAL STATEMENTS
  INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2009 and 2010
    
    
    F-3Consolidated Statements of Income for the years ended December 31, 2008, 2009 and 2010
    
    
    F-4Consolidated Statements of Shareholders Equity and Comprehensive Income for the years
ended December 31, 2008, 2009 and 2010
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2009 .and 2010
    
    
    F-6Notes to the Consolidated Financial Statements
    
    
    F-9
 
 Item 19.
    
    EXHIBITS
 ExhibitNumber
    
    Description of Document1.1
    
    
    Second Amended and Restated Memorandum and Articles of Association of the Registrant2.1
    
    
    Registrants Form of American Depositary Receipt2.2
    
    
    Registrants Specimen Certificate for Ordinary Shares2.3
    
    
    Form of Deposit Agreement among the Registrant, the depositary and Owners and
Beneficial Owners of the American Depositary Shares issued thereunder2.4
    
    
    Registration Rights Agreement among Simcere Pharmaceutical Group, New Good
Management Limited and Assure Ahead Investments Limited, dated November 20, 20062.5
    
    
    Share Purchase Agreement among Luo Yongzhang, Zhou Bing and State Good Group
Limited, dated May 28, 20062.6
    
    
    Share Purchase Agreement among Yantai Rongchang Pharmaceutic Co., Ltd., Beijing
Scientific Town Development Co., Ltd., Yantai Ruikang Biochemical Drugs LLC and
Simcere Pharmaceutical Company Limited, dated May 28, 20062.7
    
    
    Registration Rights Agreement among Simcere Pharmaceutical Group, New Good
Management Limited and King View Development International Limited, dated May 12,
20084.1
    
    
    Form of Indemnification Agreement with the Registrants directors4.2
    
    
    Form of Employment Agreement of senior executive officers4.3
    
    
    Form of Non-Disclosure, Non-Competition and Proprietary Information Agreement4.4
    
    
    2006 Share Incentive Plan adopted as of November 13, 20064.5
    
    
    Cooperation Agreement on the Incorporation of Medgenn (Hong Kong) Ltd. entered into
between Bestspeed Investments Limited (BVI) and Yantai Medgenn Co., Ltd., dated
February 10, 20054.6
    
    
    Implementation Rules of Supplementary Agreement on Cooperation Agreement on the
Incorporation of Medgenn (Hong Kong) Ltd. entered into between Yantai Medgenn Co.,
Ltd. and Medgenn (Hong Kong) Co., Ltd., dated August 6, 20054.7
    
    
    Joint Research Agreement on Anti-Tumor Drug AL6802 entered into between Jiangsu
Simcere Pharmaceutical R&D Co., Ltd. and Advenchen Laboratories LLC, dated January
8, 20078.1
    *
    
    Subsidiaries of the Registrant11.1
    
    
    Code of Business Conduct and Ethics12.1
    *
    
    CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2
    *
    
    CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1
    *
    
    CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2
    *
    
    CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1
    *
    
    Consent of KPMG
 
 *
    
    Filed herewith.




---



##### Table of Contents



SIGNATURES
  Simcere Pharmaceutical GroupBy:
    /s/ Jinsheng RenName:
    Jinsheng RenTitle:
    Chief Executive Officer




---



##### Table of Contents



SIMCERE PHARMACEUTICAL GROUP AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 SIMCERE PHARMACEUTICAL GROUP AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Contents
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets as of December 31, 2009 and 2010
    
    
    F-3Consolidated Statements of Income for the years ended December 31, 2008, 2009 and 2010
    
    
    F-4Consolidated Statements of Shareholders Equity and Comprehensive Income for the years
ended December 31, 2008, 2009 and 2010
    
    
    F-5Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2009 and 2010
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-9
 F-1




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 The Board of Directors
Simcere Pharmaceutical Group:
     Internal Control  Integrated Framework
 
 F-2




---



##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
 
 Consolidated Balance Sheets
 (Amounts expressed in thousands, except share data)
 December 31,Note
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    US$AssetsCurrent assetsCash and cash equivalents
    
    
    
    
    
    
    442,488
    
    
    
    273,583
    
    
    
    41,452Pledged bank deposits
    
    
    
    
    
    
    15,657
    
    
    
    5,133
    
    
    
    778Accounts and bills receivables, net
    
    
    4
    
    
    
    704,321
    
    
    
    884,738
    
    
    
    134,052Inventories
    
    
    5
    
    
    
    106,655
    
    
    
    89,732
    
    
    
    13,596Other current assets
    
    
    
    
    
    
    102,743
    
    
    
    135,301
    
    
    
    20,500Total current assets
    
    
    
    
    
    
    1,371,864
    
    
    
    1,388,487
    
    
    
    210,378Property, plant and equipment, net
    
    
    6
    
    
    
    758,246
    
    
    
    866,262
    
    
    
    131,251Land use rights
    
    
    7
    
    
    
    146,158
    
    
    
    142,910
    
    
    
    21,653Intangible assets, net
    
    
    8
    
    
    
    385,331
    
    
    
    348,203
    
    
    
    52,758Goodwill
    
    
    8
    
    
    
    309,936
    
    
    
    309,936
    
    
    
    46,960Investments in and advances to an affiliated company
    
    
    8, 20
    
    
    
    121,865
    
    
    
    121,220
    
    
    
    18,366Other non-current assets
    
    
    
    
    
    
    44,502
    
    
    
    41,234
    
    
    
    6,248Total assets
    
    
    
    
    
    
    3,137,902
    
    
    
    3,218,252
    
    
    
    487,614LiabilitiesCurrent liabilitiesShort-term borrowings and current portion of long-term borrowings
    
    
    9
    
    
    
    76,000
    
    
    
    360,000
    
    
    
    54,545Accounts and bills payables
    
    
    
    
    
    
    152,249
    
    
    
    49,638
    
    
    
    7,521Accrued payroll and employee benefits
    
    
    
    
    
    
    50,668
    
    
    
    55,559
    
    
    
    8,418Other current liabilities
    
    
    12
    
    
    
    413,948
    
    
    
    540,649
    
    
    
    81,917Total current liabilities
    
    
    
    
    
    
    692,865
    
    
    
    1,005,846
    
    
    
    152,401Long-term borrowings, excluding current portion
    
    
    10
    
    
    
    122,685
    
    
    
    19,306
    
    
    
    2,925Deferred tax liabilities
    
    
    11
    (d)
    
    
    93,108
    
    
    
    68,811
    
    
    
    10,426Other liabilities
    
    
    11
    (b)
    
    
    21,561
    
    
    
    22,593
    
    
    
    3,423Total liabilities
    
    
    
    
    
    
    930,219
    
    
    
    1,116,556
    
    
    
    169,175Redeemable Noncontrolling Interest and Shareholders EquityRedeemable noncontrolling interest
    
    
    8
    
    
    
    
    
    
    
    47,453
    
    
    
    7,190Ordinary shares:Par value: US$0.01Authorized: 500,000,000 shares authorized
Issued and outstanding: 110,534,932 and
106,789,522 as of December 31, 2009 and 2010
    
    
    3,19
    
    
    
    8,851
    
    
    
    8,597
    
    
    
    1,303Additional paid-in capital
    
    
    3
    
    
    
    1,218,214
    
    
    
    948,469
    
    
    
    143,707Accumulated other comprehensive loss
    
    
    3
    
    
    
    (91,548
    )
    
    
    (97,512
    )
    
    
    (14,775
    )Retained earnings
    
    
    
    
    
    
    846,707
    
    
    
    1,019,118
    
    
    
    154,412Total equity attributable to Simcere Pharmaceutical Group
    
    
    
    
    
    
    1,982,224
    
    
    
    1,878,672
    
    
    
    284,647Noncontrolling interest
    
    
    
    
    
    
    225,459
    
    
    
    175,571
    
    
    
    26,602Total shareholders equity
    
    
    
    
    
    
    2,207,683
    
    
    
    2,054,243
    
    
    
    311,249Commitments and contingencies
    
    
    15Total liabilities, redeemable noncontrolling and
shareholders equity
    
    
    
    
    
    
    3,137,902
    
    
    
    3,218,252
    
    
    
    487,614
  F-3




---



##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
 
 Consolidated Statements of Income
 (Amounts expressed in thousands, except share data)
 Year ended December 31,Note
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Revenue
    
    
    17, 20
    
    
    
    1,741,143
    
    
    
    1,857,071
    
    
    
    2,141,098
    
    
    
    324,409Cost of materials and production
    
    
    20
    
    
    
    (320,882
    )
    
    
    (320,945
    )
    
    
    (341,787
    )
    
    
    (51,786
    )Gross profit
    
    
    
    
    
    
    1,420,261
    
    
    
    1,536,126
    
    
    
    1,799,311
    
    
    
    272,623Operating expenses:Research and development
    
    
    
    
    
    
    (86,089
    )
    
    
    (132,981
    )
    
    
    (125,737
    )
    
    
    (19,051
    )Sales, marketing and distribution
    
    
    
    
    
    
    (782,960
    )
    
    
    (1,002,419
    )
    
    
    (1,186,144
    )
    
    
    (179,719
    )General and administrative
    
    
    
    
    
    
    (194,233
    )
    
    
    (222,118
    )
    
    
    (269,512
    )
    
    
    (40,835
    )Impairment loss on goodwill
    
    
    8
    
    
    
    
    
    
    
    (76,398
    )
    
    
    
    
    
    
    Income from operations
    
    
    
    
    
    
    356,979
    
    
    
    102,210
    
    
    
    217,918
    
    
    
    33,018Interest income
    
    
    
    
    
    
    34,302
    
    
    
    8,861
    
    
    
    4,214
    
    
    
    638Interest expense
    
    
    6
    
    
    
    (4,693
    )
    
    
    (12,126
    )
    
    
    (19,920
    )
    
    
    (3,018
    )Foreign currency exchange gains, net
    
    
    
    
    
    
    39,879
    
    
    
    382
    
    
    
    5,511
    
    
    
    835Other income
    
    
    
    
    
    
    1,104
    
    
    
    2,971
    
    
    
    2,286
    
    
    
    346Equity in losses of equity method affiliated company
    
    
    
    
    
    
    
    
    
    
    (56,532
    )
    
    
    (14,716
    )
    
    
    (2,230
    )Earnings before income taxes
    
    
    
    
    
    
    427,571
    
    
    
    45,766
    
    
    
    195,293
    
    
    
    29,589Income tax expense
    
    
    11
    (a)
    
    
    (49,285
    )
    
    
    (16,897
    )
    
    
    (10,640
    )
    
    
    (1,612
    )Net income
    
    
    
    
    
    
    378,286
    
    
    
    28,869
    
    
    
    184,653
    
    
    
    27,977Less: net income attributable to the redeemable
noncontrolling interest and noncontrolling interest
    
    
    
    
    
    
    (28,135
    )
    
    
    (2,441
    )
    
    
    (12,242
    )
    
    
    (1,855
    )Net income attributable to Simcere
Pharmaceutical Group
    
    
    
    
    
    
    350,151
    
    
    
    26,428
    
    
    
    172,411
    
    
    
    26,122Earnings per share:
    
    
    16Basic
    
    
    
    
    
    
    2.80
    
    
    
    0.23
    
    
    
    1.59
    
    
    
    0.24Diluted
    
    
    
    
    
    
    2.80
    
    
    
    0.23
    
    
    
    1.55
    
    
    
    0.23
  F-4




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
 
 Consolidated Statements of Shareholders Equity and Comprehensive Income
  Equity
    
    
    
    
    
    
    
    
    
    
    Comprehensive Income (Loss)Accumulated
    
    
    
    
    
    
    attributable
    
    
    
    
    
    
    Total
    
    
    Attributable
    
    
    
    
    
    
    AttributableNumber of
    
    
    
    
    
    
    Additional
    
    
    other
    
    
    
    
    
    
    to Simcere
    
    
    Non-
    
    
    shareholders
    
    
    to Simcere
    
    
    Attributable to
    
    
    to redeemableordinary
    
    
    
    
    
    
    paid-in
    
    
    comprehensive
    
    
    Retained
    
    
    Pharmaceutical
    
    
    controlling
    
    
    equity
    
    
    Pharmaceutical
    
    
    noncontrolling
    
    
    noncontrollingNote
    
    
    shares
    
    
    Par value
    
    
    capital
    
    
    loss
    
    
    earnings
    
    
    Group
    
    
    interests
    
    
    (note 13)
    
    
    Group
    
    
    interests
    
    
    interests
    
    
    Total
    
    
    TotalRMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Balance as of January 1, 2008
    
    
    
    
    
    
    125,006,200
    
    
    
    9,840
    
    
    
    1,550,697
    
    
    
    (46,849
    )
    
    
    470,128
    
    
    
    1,983,816
    
    
    
    12,137
    
    
    
    1,995,953Share-based compensation
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    25,536
    
    
    
    
    
    
    
    
    
    
    
    25,536
    
    
    
    
    
    
    
    25,536Issuance of ordinary shares upon
exercise of share options
    
    
    18
    
    
    
    198,000
    
    
    
    14
    
    
    
    5,722
    
    
    
    
    
    
    
    
    
    
    
    5,736
    
    
    
    
    
    
    
    5,736Repurchase and retirement of ordinary shares
    
    
    3,19
    
    
    
    (2,976,882
    )
    
    
    (204
    )
    
    
    (67,951
    )
    
    
    
    
    
    
    
    
    
    
    (68,155
    )
    
    
    
    
    
    
    (68,155
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350,151
    
    
    
    350,151
    
    
    
    28,135
    
    
    
    378,286
    
    
    
    350,151
    
    
    
    28,135
    
    
    
    
    
    
    
    378,286Foreign currency translation
adjustments, net of nil tax
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (44,059
    )
    
    
    
    
    
    
    (44,059
    )
    
    
    
    
    
    
    (44,059
    )
    
    
    (44,059
    )
    
    
    
    
    
    
    
    
    
    
    (44,059
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    306,092
    
    
    
    28,135
    
    
    
    
    
    
    
    334,227Acquisition of Simcere Zhong Ren
    
    
    8
    (c)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,674
    
    
    
    8,674Dividends declared by subsidiary to
noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (649
    )
    
    
    (649
    )Balance as of December 31, 2008
    
    
    
    
    
    
    122,227,318
    
    
    
    9,650
    
    
    
    1,514,004
    
    
    
    (90,908
    )
    
    
    820,279
    
    
    
    2,253,025
    
    
    
    48,297
    
    
    
    2,301,322Share-based compensation
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    23,677
    
    
    
    
    
    
    
    
    
    
    
    23,677
    
    
    
    
    
    
    
    23,677Issuance of ordinary shares upon
exercise of non-vested shares
    
    
    18
    
    
    
    467,780
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    32Repurchase and retirement of ordinary shares
    
    
    3,19
    
    
    
    (12,160,166
    )
    
    
    (831
    )
    
    
    (296,961
    )
    
    
    
    
    
    
    
    
    
    
    (297,792
    )
    
    
    
    
    
    
    (297,792
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,428
    
    
    
    26,428
    
    
    
    2,441
    
    
    
    28,869
    
    
    
    26,428
    
    
    
    2,441
    
    
    
    
    
    
    
    28,869Foreign currency translation
adjustments, net of nil tax
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (640
    )
    
    
    
    
    
    
    (640
    )
    
    
    
    
    
    
    (640
    )
    
    
    (640
    )
    
    
    
    
    
    
    
    
    
    
    (640
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,788
    
    
    
    2,441
    
    
    
    
    
    
    
    28,229Acquisition of Shandong
Simceres shares from
noncontrolling interests
    
    
    8
    (b)
    
    
    
    
    
    
    
    
    
    
    (22,506
    )
    
    
    
    
    
    
    
    
    
    
    (22,506
    )
    
    
    (7,622
    )
    
    
    (30,128
    )Acquisition of Jiangsu Yanshen
    
    
    8
    (b)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182,343
    
    
    
    182,343Balance as of December 31, 2009
    
    
    
    
    
    
    110,534,932
    
    
    
    8,851
    
    
    
    1,218,214
    
    
    
    (91,548
    )
    
    
    846,707
    
    
    
    1,982,224
    
    
    
    225,459
    
    
    
    2,207,683Share-based compensation
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    31,099
    
    
    
    
    
    
    
    
    
    
    
    31,099
    
    
    
    
    
    
    
    31,099Issuance of ordinary shares upon
exercise of non-vested shares
    
    
    18
    
    
    
    518,322
    
    
    
    35
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    
    
    
    
    35Repurchase and retirement of ordinary shares
    
    
    19
    
    
    
    (4,263,732
    )
    
    
    (289
    )
    
    
    (127,210
    )
    
    
    
    
    
    
    
    
    
    
    (127,499
    )
    
    
    
    
    
    
    (127,499
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172,411
    
    
    
    172,411
    
    
    
    10,466
    
    
    
    182,877
    
    
    
    172,411
    
    
    
    10,466
    
    
    
    1,776
    
    
    
    184,653
    
    
    
    27,977Foreign currency translation
adjustments, net of nil tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,964
    )
    
    
    
    
    
    
    (5,964
    )
    
    
    
    
    
    
    (5,964
    )
    
    
    (5,964
    )
    
    
    
    
    
    
    
    
    
    
    (5,964
    )
    
    
    (903
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    166,447
    
    
    
    10,466
    
    
    
    1,776
    
    
    
    178,689
    
    
    
    27,074Acquisition of Tung Chits
shares from noncontrolling interests
    
    
    8
    (a)
    
    
    
    
    
    
    
    
    
    
    (6,019
    )
    
    
    
    
    
    
    
    
    
    
    (6,019
    )
    
    
    (261
    )
    
    
    (6,280
    )Acquisition of Bodas shares
from noncontrolling interests
    
    
    8
    (a)
    
    
    
    
    
    
    
    
    
    
    (126,110
    )
    
    
    
    
    
    
    
    
    
    
    (126,110
    )
    
    
    (48,075
    )
    
    
    (174,185
    )Dividend declared by subsidiary to
noncontrolling interest
    
    
    8
    (a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,846
    )
    
    
    (7,846
    )Deemed acquisition of
redeemable noncontrolling
interest of Boda
    
    
    8
    (a)
    
    
    
    
    
    
    
    
    
    
    (41,505
    )
    
    
    
    
    
    
    
    
    
    
    (41,505
    )
    
    
    (4,172
    )
    
    
    (45,677
    )Balance as of December 31, 2010
    
    
    
    
    
    
    106,789,522
    
    
    
    8,597
    
    
    
    948,469
    
    
    
    (97,512
    )
    
    
    1,019,118
    
    
    
    1,878,672
    
    
    
    175,571
    
    
    
    2,054,243Balance as of December 31 2010 - US$
    
    
    
    
    
    
    
    
    
    
    1,303
    
    
    
    143,707
    
    
    
    (14,775
    )
    
    
    154,412
    
    
    
    284,647
    
    
    
    26,602
    
    
    
    311,249
  F-5




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
 
 Consolidated Cash Flow Statements
 (Amounts expressed in thousands, except share data)
 Year ended December 31,Note
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Operating activities:Net income
    
    
    
    
    
    
    378,286
    
    
    
    28,869
    
    
    
    184,653
    
    
    
    27,977Adjustments to reconcile net income to
net cash provided by operating
activities:Bad debt expense
    
    
    
    
    
    
    1,576
    
    
    
    101
    
    
    
    843
    
    
    
    128Inventory write-downs
    
    
    
    
    
    
    3,000
    
    
    
    2,855
    
    
    
    4,846
    
    
    
    734Depreciation of property, plant and
equipment
    
    
    
    
    
    
    39,791
    
    
    
    55,405
    
    
    
    76,976
    
    
    
    11,663Amortization of intangible assets
    
    
    
    
    
    
    29,433
    
    
    
    29,413
    
    
    
    37,128
    
    
    
    5,625Land use right expense
    
    
    
    
    
    
    2,486
    
    
    
    2,538
    
    
    
    3,203
    
    
    
    485Impairment loss on goodwill
    
    
    8
    
    
    
    
    
    
    
    76,398
    
    
    
    
    
    
    
    Equity in losses of equity method
affiliated companies
    
    
    
    
    
    
    
    
    
    
    56,532
    
    
    
    14,716
    
    
    
    2,230Gain on disposal of property, plant and
equipment
    
    
    
    
    
    
    (21
    )
    
    
    (1,289
    )
    
    
    (1,463
    )
    
    
    (222
    )Deferred tax benefit
    
    
    
    
    
    
    (2,770
    )
    
    
    (21,366
    )
    
    
    (27,722
    )
    
    
    (4,200
    )Share-based compensation expense
    
    
    
    
    
    
    25,536
    
    
    
    23,677
    
    
    
    31,099
    
    
    
    4,712Unrealized foreign currency exchange
(gains) losses
    
    
    3
    
    
    
    (39,818
    )
    
    
    (523
    )
    
    
    (4,742
    )
    
    
    (718
    )Changes in assets and liabilities, net of
effects from acquisitionsAccounts and bills receivables
    
    
    
    
    
    
    (257,135
    )
    
    
    87,799
    
    
    
    (181,260
    )
    
    
    (27,464
    )Inventories
    
    
    
    
    
    
    (32,648
    )
    
    
    5,876
    
    
    
    12,077
    
    
    
    1,830Other current assets
    
    
    
    
    
    
    (15,241
    )
    
    
    14,013
    
    
    
    (950
    )
    
    
    (144
    )Amounts due from related parties
    
    
    
    
    
    
    3,138
    
    
    
    (324
    )
    
    
    1,443
    
    
    
    219Accounts and bills payables
    
    
    
    
    
    
    1,275
    
    
    
    99,231
    
    
    
    (102,611
    )
    
    
    (15,547
    )Accrued payroll and employee benefits
    
    
    
    
    
    
    (1,424
    )
    
    
    13,851
    
    
    
    4,891
    
    
    
    741Other current liabilities
    
    
    
    
    
    
    11,639
    
    
    
    (54,742
    )
    
    
    79,023
    
    
    
    11,973Amounts due to related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110
    
    
    
    17Net cash provided by operating activities
    
    
    
    
    
    
    147,103
    
    
    
    418,314
    
    
    
    132,260
    
    
    
    20,039Investing activities:Payment for purchase of land use rights
    
    
    
    
    
    
    (926
    )
    
    
    
    
    
    
    
    
    
    
    Payment for purchase of intangible assets
    
    
    
    
    
    
    (2,554
    )
    
    
    
    
    
    
    
    
    
    
    Payment for purchase of property, plant
and equipment
    
    
    
    
    
    
    (117,541
    )
    
    
    (120,795
    )
    
    
    (172,390
    )
    
    
    (26,120
    )Payment of deposits for purchase of
property, plant and equipment and
intangible assets
    
    
    
    
    
    
    (15,791
    )
    
    
    (20,533
    )
    
    
    (16,438
    )
    
    
    (2,491
    )Proceeds from disposal of property, plant
and equipment and land use right
    
    
    
    
    
    
    1,942
    
    
    
    4,780
    
    
    
    
    
    
    
    Payment for acquisition of subsidiaries,
net of cash acquired
    
    
    8
    
    
    
    (62,420
    )
    
    
    (175,058
    )
    
    
    (9,830
    )
    
    
    (1,489
    )Payment for acquisition of affiliated
companies
    
    
    8
    (b)
    
    
    
    
    
    
    (110,000
    )
    
    
    
    
    
    
    Decrease in held-to-maturity investment
securities
    
    
    
    
    
    
    470,000
    
    
    
    
    
    
    
    
    
    
    
    Decrease (increase) in pledged bank
deposits
    
    
    
    
    
    
    (42
    )
    
    
    (14,705
    )
    
    
    10,524
    
    
    
    1,595
 F-6




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries


Consolidated Cash Flow Statements


(Amounts expressed in thousands, except share data)


Year ended December 31,Note
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Advances made to an affiliated company
    
    
    20
    
    
    
    
    
    
    
    (19,761
    )
    
    
    (14,071
    )
    
    
    (2,132
    )Loans and advances made to related parties
    
    
    20
    
    
    
    (20,000
    )
    
    
    (1,600
    )
    
    
    
    
    
    
    Net cash provided by (used in) investing
activities
    
    
    
    
    
    
    252,668
    
    
    
    (457,672
    )
    
    
    (202,205
    )
    
    
    (30,637
    )Financing activities:Proceeds from exercise of share options
    
    
    
    
    
    
    5,736
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from exercise of non-vested
shares
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    35
    
    
    
    5Payments for repurchase and retirement of
ordinary shares
    
    
    3
    
    
    
    (68,155
    )
    
    
    (297,792
    )
    
    
    (127,499
    )
    
    
    (19,318
    )Proceeds from short term bank loans and
other borrowings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    350,000
    
    
    
    53,030Principal repayment of bank loans and
other borrowings
    
    
    
    
    
    
    (17,000
    )
    
    
    (2,963
    )
    
    
    (170,000
    )
    
    
    (25,757
    )Payment for acquisition of additional
noncontrolling interests
    
    
    8
    
    
    
    
    
    
    
    (30,128
    )
    
    
    (150,274
    )
    
    
    (22,769
    )Distribution by a subsidiary to its
noncontrolling shareholder
    
    
    
    
    
    
    (649
    )
    
    
    
    
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    
    
    
    
    (80,068
    )
    
    
    (330,851
    )
    
    
    (97,738
    )
    
    
    (14,809
    )
  F-7




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Consolidated Cash Flow Statements
(Amounts expressed in thousands, except share data)
 Year ended December 31,2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Effect of exchange rate changes on cash and cash
equivalents
    
    
    
    
    
    
    (4,241
    )
    
    
    (117
    )
    
    
    (1,222
    )
    
    
    (185
    )Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    315,462
    
    
    
    (370,326
    )
    
    
    (168,905
    )
    
    
    (25,592
    )Cash and cash equivalents at beginning of year
    
    
    
    
    
    
    497,352
    
    
    
    812,814
    
    
    
    442,488
    
    
    
    67,044Cash and cash equivalents at end of year
    
    
    
    
    
    
    812,814
    
    
    
    442,488
    
    
    
    273,583
    
    
    
    41,452(a) Supplemental cash flow and non-cash information:Cash and cash equivalents paid during the period for:Income taxes
    
    
    
    
    
    
    40,401
    
    
    
    40,404
    
    
    
    37,528
    
    
    
    5,686Interest, net of capitalized interest
    
    
    
    
    
    
    4,693
    
    
    
    12,126
    
    
    
    19,920
    
    
    
    3,018Non-cash investing and financing
transactions:Payable and accruals for
acquisition of property, plant
and equipment and land use right
    
    
    
    
    
    
    32,890
    
    
    
    54,360
    
    
    
    78,791
    
    
    
    11,938Payable for acquisition of
Jiangsu Yanshen
    
    
    
    
    
    
    
    
    
    
    30,801
    
    
    
    29,875
    
    
    
    4,511Payable for acquisition of
noncontrolling interest of Boda
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,153
    
    
    
    3,963Assets transfer out for
acquisition of Boda
    
    
    8
    (a)
    
    
    
    
    
    
    
    
    
    
    4,038
    
    
    
    612(b) Analysis of net cash outflow
in respect of acquisitions is as
follow:i) Acquisition of Simcere Zhong
Ren in 2008Cash consideration paid
    
    
    8
    (c)
    
    
    (65,090
    )Cash and cash equivalents acquired
    
    
    
    
    
    
    2,670Net cash outflow in respect of
acquisition of Simcere Zhong Ren
    
    
    
    
    
    
    (62,420
    )ii) Acquisition of 52.5% equity
interest in Jiangsu Yanshen in
2009Cash consideration paid
    
    
    8
    (b)
    
    
    
    
    
    
    (267,398
    )Cash and cash equivalents acquired
    
    
    
    
    
    
    
    
    
    
    92,340Net cash outflow in respect of
acquisition of Jiangsu Yanshen
    
    
    
    
    
    
    
    
    
    
    (175,058
    )iii) Acquisition of Shandong
Simcere in 2006Cash consideration paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,830
    )
    
    
    (1,489
    )
  F-8




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
 
 Notes to Consolidated Financial Statements
 (Amounts expressed in thousands, except share data)
 1
    
    Principal activities, significant concentrations and risks, and basis of presentation
 (a)
    
    Principal activities
 Simcere Pharmaceutical Group (the Company) and its subsidiaries (collectively the
Group), are principally engaged in the research, development, manufacture and distribution
of pharmaceutical products in the Peoples Republic of China (the PRC).
 (b)
    
    Significant concentrations and risks
 Revenue concentrationsThe Group sells its products to pharmaceutical distributors and the PRC government. Sales to
distributors account for substantially all of the Groups revenues. The Group does not have
long-term distribution agreements and competes for desired distributors with other
pharmaceutical and vaccine manufacturers. Consequently, maintaining relationships with
existing distributors and replacing distributors may be costly, difficult and
time-consuming. Any disruption of the Groups distribution network, including the failure to
renew existing distribution agreements with desired distributors, could negatively affect
the Groups ability to effectively sell its products and could materially and adversely
affect its business, financial condition and results of operations. As of and for the years
ended December 31, 2008, 2009 and 2010, no single customer contributed 10% or more of the
Groups total revenues or gross accounts and bills receivables.The Group derives a substantial portion of revenue from the sales of six products, namely
Bicun, Zailin, Yingtaiqing, Sinofuan, Yidasheng and Endu of which revenues were over
RMB100,000 (US$15,152) individually for the year ended December 31, 2010. Aggregate sales of
these products accounted for 78.6%, 76.8% and 77.7% of the Groups revenue for the years
ended December 31, 2008, 2009 and 2010, respectively. As the Group expects the sales of
these products to continue to comprise a substantial portion of revenues in the future, any
factors adversely affecting the sales of any of these products will have a material adverse
effect on the Groups business, financial condition and results of operations.Price control by PRC government authoritiesThe retail prices of certain pharmaceuticals sold in China, primarily those included in the
Chinas national drug reimbursement list, the essential drug list and the national and
provincial medical insurance catalogs, issued by Chinas Ministry of Human Resources and
Social Security and those pharmaceuticals whose production or trading are deemed to
constitute monopolies, are subject to price controls in the form of fixed prices or price
ceilings. Manufacturers and distributors cannot set the retail price for any given
price-controlled product above the price ceilings or deviate from the fixed price imposed by
the government. The prices of medicines that are not subject to price controls are
determined freely, subject to notification to the provincial pricing authorities.Certain of the Groups products are subject to such price controls and accordingly, the
price of such products could not be increased at the Groups discretion above the relevant
controlled price ceiling without prior governmental approval. In addition, the price of such
products may also be adjusted downward by the relevant government authorities in the future.
Such price control, especially downward price adjustment, may negatively affect the Groups
revenue and profitability. For the years ended December 31, 2008, 2009 and 2010, 72%, 76%
and 73%, respectively of the Groups revenue were from products that were subject to
government pricing controls.Concentration of suppliersThe Group sources raw materials, as well as packaging materials, from various suppliers
in the PRC. Historically, the majority of the Groups raw materials have been readily
available. The Group generally maintains two vendors for each major raw material in order to
diversify its vendor base and to ensure a reliable supply of raw materials at reasonable
prices. For the years ended December 31, 2008, 2009 and 2010, the

Group purchased 40.3%, 37.6% and 36.9%, respectively, of its total supply of raw
materials from its five largest suppliers.
 F-9




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 
 (c)
    
    Basis of presentation
 The accompanying consolidated financial statements have been prepared in accordance with
U.S. generally accepted accounting principles (U.S. GAAP).
 2
    
    Summary of significant accounting policies
 (a)
    
    Consolidation
 The accompanying consolidated financial statements include the financial statements of the
Company and its majority-owned subsidiaries. For consolidated subsidiaries where the
Companys ownership is less than 100%, the outside shareholders interests are shown as
noncontrolling interests. All significant intercompany balances and transactions have been
eliminated upon consolidation. The Company has no involvement with variable interest
entities.
 (b)
    
    Use of estimates
 The preparation of the consolidated financial statements in conformity with U.S. GAAP
requires management of the Group to make a number of estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant items subject to such
estimates and assumptions include recoverability of the carrying amount of property, plant
and equipment, goodwill and intangible assets (including acquired in-process research and
development (IPR&D) assets in a business combination); the allocation of the purchase
price for the Groups acquisitions; allowances for doubtful receivables and deferred tax
assets; depreciation and amortizable lives; realizablility of inventories; and amounts
recognized for contingencies. These estimates are often based on complex judgments and
assumptions that management believes to be reasonable but are inherently uncertain and
unpredictable. Actual results could differ from those estimates.
 (c)
    
    Foreign currency transactions and translation
 The reporting currency of the Group is the Renminbi (RMB).The functional currency of the Companys PRC subsidiaries is the RMB. RMB is not a fully
convertible currency. All foreign exchange transactions involving RMB must take place either
through the Peoples Bank of China (PBOC) or other institutions authorized to buy and sell
foreign exchange. The exchange rates adopted for the foreign exchange transactions are the
rates of exchange quoted by the PBOC.Transactions dominated in currencies other than the functional currency are translated into
the functional currency at the exchange rate at the date of the transactions. Monetary
assets and liabilities denominated in foreign currencies are translated into the functional
currency at the applicable exchange rate at the balance sheet date. The resulting exchange
differences are recognized in the consolidated statements of income.Assets and liabilities of subsidiaries, whose functional currency is not the RMB, are
translated into RMB at the exchange rate at the balance sheet date. Income and expense items
are translated at the average rates of exchange prevailing during the period. The adjustment
resulting from translating the financial statements of such entities is reflected as a
component of accumulated other comprehensive loss within shareholders equity.
 F-10




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 For the convenience of the readers, the December 31, 2010 RMB amounts included in the
accompanying consolidated financial statements have been translated into U.S. dollars at the
rate of US$1.00=RMB6.6000, being the noon buying rate for U.S. dollars in the City of New
York on December 30, 2010 for cable transfers in RMB per U.S. dollar as certified for
customs purposes by the Federal Reserve Bank of New York. No representation is made that
the RMB amounts could have been, or could be, converted into U.S. dollars at that rate or at
any other rate on December 30, 2010 or at any other date.
 (d)
    
    Cash and cash equivalents and pledged bank deposits
 Cash and cash equivalents consist of cash on hand, cash in bank accounts, interest-bearing
savings accounts, money market funds, time deposits and short-term fixed income investments
with original maturities of three months or less at the date of purchase. As of December
31, 2009 and 2010, RMB419,680 and RMB258,184 (US$39,119), respectively, in cash and cash
equivalents was held in major financial institutions located in the PRC. Management
believes that these financial institutions have high credit rating.Cash that is restricted as to withdrawal for use or pledged as security is disclosed
separately on the face of the balance sheet, and is not included in the cash and cash
equivalents total in the consolidated statements of cash flows. The pledged bank deposits
include cash granted from the National Finance Bureau maintained at a bank which is
restricted for use for R&D projects conducted by the Group. Any withdrawal of fund from the
account requires an approval from the National Finance Bureau. The pledged bank deposits
also include cash maintained at a bank as security for short-term bills payable issued by
the subsidiaries of the Company to third party suppliers, which are restricted as to
withdrawal or use by the subsidiaries as long as the related short-term bills payable are
outstanding. Upon maturity of the bills payable which generally ranges from three to six
months, the cash is available for use by the Group.
 (e)
    
    Accounts receivable and bills receivable
 Accounts receivable are recognized at the invoiced amount and do not bear interest. The
Group maintains an allowance for doubtful accounts for estimated losses resulting from
inability of its customers to make required payments. The allowance for doubtful accounts is
based on a review of specifically identified accounts, aging data and historical write-off
experience. Judgments are made with respect to the collectibility of accounts receivable
based on historical experience, customer specific facts and current economic conditions.
Account balances are charged off against the allowance after all means of collection have
been exhausted and the potential for recovery is considered remote. Apart from those
disclosed in note 15(d), the Group does not have any off-balance-sheet credit exposure
related to accounts receivable.To reduce the Groups credit risk, the Group has required certain customers to pay for the
sale of the Groups products by bills receivable. A bill receivable primarily represents a
short-term note receivable issued by a financial institution that entitles the Group to
receive the full face amount from the financial institution at maturity, which generally
ranges from 3 to 6 months from the date of issuance. Historically, the Group has not
experienced any collection losses on bills receivable and therefore no allowance for
doubtful accounts has been provided.
 (f)
    
    Inventories
 Inventories are stated at the lower of cost or market value. Cost is determined using the
weighted average cost method. Costs of work-in-progress and finished goods comprise direct
materials, direct labor and related manufacturing overhead based on normal operating
capacity.
 (g)
    
    Investment in and advances to an affiliated company
 The investment in entity where the Group does not have a controlling financial interest, but
has the ability to exercise significant influence over the operating and financial policies
of the investee, is accounted for using the equity method of accounting. Under the equity method of accounting, the Groups share of
the investees results of operations is included in the consolidated statements of income.
 F-11




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 The Group recognizes a loss when there is a loss in value of an equity method investment
which is other than a temporary decline. The process of assessing and determining whether an
impairment on a particular equity investment is other than temporary requires a significant
amount of judgment. To determine whether an impairment is other-than-temporary, management
considers whether the Group has the ability and intent to hold the investment until recovery
and whether evidence indicating the carrying value of the investment is recoverable
outweighs evidence to the contrary. Evidence considered in this assessment includes the
reasons for the impairment, the severity and duration of the decline in value, any change in
value subsequent to year end, and forecasted performance of the investee. There was no
impairment charges related to the investment in the affiliated company for any of the years
presented.
 (h)
    
    Long-lived assets
 Property, plant and equipmentProperty, plant, and equipment are stated at cost. Depreciation is provided over the
estimated useful lives of the assets, using the straight-line method. When items are retired
or otherwise disposed of, income is charged or credited for the difference between net book
value and proceeds realized thereon. Ordinary maintenance and repairs are charged to expense
as incurred, and replacements and betterments are capitalized. The estimated useful lives of
property, plant and equipment are as follows:
 Building and leasehold improvements
    
    20  50 yearsMachinery and equipment
    
    3  10 yearsMotor vehicles
    
    3  8 yearsFurniture, fixtures and office equipment
    
    3  5 years
 No depreciation expense is provided in respect of construction-in-progress.Depreciation of property, plant and equipment attributable to manufacturing activities is
capitalized as part of the cost of inventory, and expensed to cost of materials and
production when the inventory is sold.Goodwill and other intangible assetsGoodwill represents the excess of the Companys acquisition cost over the fair value of the
net assets acquired. Goodwill is not amortized but instead is tested for impairment at least
annually.Intangible assets with finite lives are amortized on a straight-line basis over the
estimated useful lives of the respective assets. The Groups intangible assets and their
respective estimated useful lives are as follows:
 Customer relationships
    
    4  11 yearsDeveloped technology
    
    7  16 yearsProduct trademarks
    
    6  10 yearsManufacturing and supply licenses
    
    1  5 years
 F-12




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 IPR&D represents the fair value assigned to incomplete research projects that the Group
acquires through business combinations, which at the time of acquisition, have not reached
technological feasibility. For business combinations for which the acquisition date is
before January 1, 2009, the fair value of IPR&D projects was expensed upon acquisition. For
acquisition date that is on or after January 1, 2009, the fair value of IPR&D projects is
recognized as intangible asset on the consolidated balance sheet rather than expensed. The
amounts capitalized are accounted for as indefinite-lived intangible assets, subject to
impairment testing until completion or abandonment of the projects. Upon successful
completion of each project, the Group will make a determination as to the useful life of the
intangible asset and begin amortization.The Group tests indefinite-lived intangibles, including IPR&D, for impairment at least
annually and whenever impairment indicators are present. The impairment test consists of a
comparison of the fair value of the IPR&D with its carrying amount. If the carrying amount
of an IPR&D exceeds its fair value, an impairment loss is recognized in an amount equal to
that excess.Impairment of long-lived assetsLong-lived assets including property, plant and equipment, and intangible assets with
definitive lives are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of are reported at the lower of carrying amount or fair
value less costs to sell, and are no longer depreciated. No impairment loss of intangible
assets was recognized in 2008, 2009 and 2010.Goodwill is tested annually for impairment, and is tested for impairment more frequently if
events and circumstances indicate that the asset might be impaired. This determination is
made at the reporting unit level and consists of two steps. The first step of the impairment
test involves comparing the fair value of the reporting unit with its carrying amount,
including goodwill. Second, if the carrying amount of a reporting unit exceeds its fair
value, an impairment loss is recognized for any excess of the carrying amount of the
reporting units goodwill over the implied fair value of that goodwill. The implied fair
value of goodwill is determined by allocating the fair value of the reporting unit in a
manner similar to a purchase price allocation. The residual fair value after this allocation
is the implied fair value of the reporting unit goodwill.For the years ended December 31, 2008, management determined that the Group was the
reporting unit for the purposes of goodwill impairment testing. The Group used its market
capitalization based on the quoted market price of its ordinary shares in determining the
fair value of the reporting unit. No impairment loss of goodwill was recognized in 2008.Following the acquisition of Jiangsu Yanshen in 2009, management evaluated and determined
that there are two components below the Groups operating segment: pharmaceutical business
and vaccines business. The pharmaceutical business and vaccines business have dissimilar
economic characteristics and they each manufacture, distribute and sell distinct products
which require different technologies and marketing strategies. As such, management
determined that the Group has two reporting units, a pharmaceutical reporting unit and a
vaccine reporting unit, for goodwill impairment testing for the years ended December 31,
2009 and 2010. The Group used a discounted cash flow analysis to determine the fair value of
its reporting units. For the year ended December 31, 2009, the Group recognized an
impairment loss on goodwill of RMB76,398. No impairment loss of goodwill was recognized in
2010.
 (i)
    
    Land use rights
 A land use right in the PRC represents an exclusive right to occupy, use, develop, lease,
transfer a piece of land during the contractual term of the land use right. Land use rights
are usually paid in one lump sum at the date the right is granted. The payment usually
covers the entire duration period of the land use right. The lump sum
advance payments are capitalized as land use right assets and then charged to expenses on a
straight-line basis over the respective periods of the rights of 24-75 years.
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 (j)
    
    Income taxes
 Income taxes are accounted for under the asset and liability method. Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and tax loss and tax credit carryforwards. A
valuation allowance is provided to reduce the amount of deferred tax assets if it is
considered more likely than not that some portion or all of the deferred tax assets will not
be realized. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in consolidated statements of income in the period that
includes the enactment date.The Companys management determines whether it is more likely than not that a tax position
will be sustained upon examination, including resolution of any related appeals or
litigation processes, based solely on the technical merits of the position. In evaluating
whether a tax position has met the more-likely-than-not recognition threshold, it is
presumed that the position will be examined by the appropriate taxing authority that has
full knowledge of all relevant information. In addition, a tax position that meets the
more-likely-than-not recognition threshold is measured to determine the amount of benefit to
recognize in the financial statements. A recognized income tax position is measured at the
largest amount of benefit that is greater than 50 percent likely of being realized. The tax
positions are regularly reevaluated based on the results of the examination of income tax
filings, statute of limitations expirations and changes in tax law that would either
increase or decrease the technical merits of a position relative to the more-likely-than-not
recognition threshold. The Groups policy is to accrue interest and penalties related to
unrecognized tax benefits as a component of income tax expense.
 (k)
    
    Revenues
 Sales of pharmaceutical and vaccine products represent the invoiced value of products sold,
net of value added taxes (VAT).The Group recognizes revenue from the sale of products when the following criteria are met:
1) persuasive evidence of an arrangement exits (sales agreements and customer purchase
orders are used to determine the existence of an arrangement); 2) delivery of the product
has occurred and risks and benefits of ownership have been transferred, which is when the
product is received by the customer at its or a designated location in accordance with the
sales terms; 3) the sales price is fixed or determinable; and 4) collectibility is
reasonably assured. The Groups sales agreements do not provide the customer the right of
return, unless the products are defective in which case the Group allows for an exchange of
products or return. For the periods presented, defective product returns were immaterial.
 (l)
    
    Government grants
 Government grants are recognized when there is reasonable assurance that the Group will
comply with the conditions attaching to them, and the grants are receivable. Grants that
compensate research and development expenses are recognized as a reduction to the related
research and development expenses. Grants that compensate the Group for the cost of
property, plant and equipment and land use rights are recognized as a reduction of the cost
of the related asset and are recognized over the useful life of the asset by way of reduced
depreciation expense or lease expense.For the years ended December 31, 2008, 2009 and 2010, RMB2,697, RMB500 and RMB5,755
(US$872), respectively, have been recognized as a reduction of research and development
expenses.
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 (m)
    
    Research and development
 Research and development costs are expensed as incurred. These expenses include the costs of
the Groups internal research and development activities and the costs of research and
development conducted by others on behalf of the Group, such as through third-party
collaboration arrangements. Research and development costs in connection with third-party
collaboration arrangements prior to regulatory approval are expensed when the research and
development activities are performed. Once a regulatory approval is obtained, subsequent
payments are recognized as intangible assets and, unless the assets are determined to have
an indefinite life, amortized over the remaining agreement terms or the expected product
life cycle, whichever is shorter.The costs of acquired technology know-how (drugs in a development stage) that are purchased
from others for a particular research and development project either individually, or as
part of a group of assets, and that have no alternative future uses (in other research and
development projects or otherwise), are expensed as research and development costs.
Management has determined that for an acquired technology know-how to have an alternative
future use, it should be (a) reasonably expected that the Group will use the technology in
an alternative manner for an economic benefit and (b) the Groups use of the technology is
not contingent on further development subsequent to acquisition (that is, it can be used in
an alternative manner at the acquisition date). None of the Groups acquired technology
know-how during the periods presented was determined to have an alternative future use at
the acquisition date since technological feasibility was not established and regulatory
approval from the State Food and Drug Administration of China (SFDA) was not obtained.
Further subsequent development, including additional clinical testing, was required to
obtain the necessary regulatory approval before the products could be launched onto the
market for sale.
 (n)
    
    Advertising costs
 Advertising costs are expensed as incurred and included in sales, marketing and distribution
expenses. Advertising costs for the years ended December 31, 2008, 2009 and 2010 amounted to
RMB41,816, RMB51,914 and RMB106,708 (US$16,168), respectively.
 (o)
    
    Shipping and handling fees and costs
 Costs incurred by the Group for shipping and handling to transport and deliver products to
customers, are included in sales, marketing and distribution expenses. Shipping and handling
fees and costs for the years ended December 31, 2008, 2009 and 2010 amounted to RMB12,408,
RMB12,491 and RMB16,339 (US$2,476), respectively.
 (p)
    
    Retirement and other postretirement benefits
 Contributions to defined contribution retirement plans are charged to the consolidated
statements of income as and when the related employee service is provided. The Group does
not have any defined benefit retirement plans.
 (q)
    
    Share-based payment
 The Company measures the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award and recognizes that cost
on a straight-line basis over the requisite service period.
 (r)
    
    Commitments and contingencies
 In the normal course of business, the Group is subject to loss contingencies, such as legal
proceedings and claims arising out of its business, that cover a wide range of matters,
including, among others, government investigations, shareholder lawsuits, product and
environmental liability. The Group records accruals for such loss contingencies when it is probable that a liability has been incurred and the amount of
loss can be reasonably estimated. Historically, the Group has experienced no product
liability claims.
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 (s)
    
    Earnings per share
 Basic earnings per share is computed by dividing net income by the weighted average number
of ordinary shares outstanding during the period. Diluted earnings per share is computed by
dividing net income by the weighted average number of ordinary shares and dilutive ordinary
equivalent shares outstanding during the period. Dilutive ordinary equivalent shares consist
of the ordinary shares issuable upon the exercise of outstanding share options and
non-vested shares by applying the treasury stock method. Dilutive ordinary equivalent shares
in the diluted earnings per share computation are excluded to the extent that their effect
is anti-dilutive.
 (t)
    
    Segment reporting
 For the years ended December 31, 2008, 2009 and 2010, management determined that the Group
as a whole is the only operating segment as the Groups chief operating decision maker
regularly receives and reviews the financial information on a consolidated group basis for
purposes of making decisions about resource allocation and assessing performance. All of
the Groups operations and customers are located in the PRC. Consequently, no geographic
information is presented.
 (u)
    
    Fair value measurement
 The Group utilizes valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs to the extent possible. The Group determines fair
value based on assumptions that market participants would use in pricing an asset or
liability in the principal or most advantageous market. When considering market participant
assumptions in fair value measurements, the following fair value hierarchy distinguishes
between observable and unobservable inputs, which are categorized in one of the following
levels:
 
    
    Level 1 Inputs: Unadjusted quoted prices in active markets for identical
assets or liabilities accessible to the reporting entity at the measurement date.
    
    Level 2 Inputs: Other than quoted prices included in Level 1 inputs that
are observable for the asset or liability, either directly or indirectly, for
substantially the full term of the asset or liability.
    
    Level 3 Inputs: Unobservable inputs for the asset or liability used to
measure fair value to the extent that observable inputs are not available, thereby
allowing for situations in which there is little, if any, market activity for the asset
or liability at measurement date.
 See note 22 to the Consolidated Financial Statements.
 3
    
    Revision of financial statements
 The accompanying consolidated financial statements of the Company as of and for the years
ended December 31, 2008 and 2009 have been revised from previously issued financial
statements to correct errors in the consolidated statements of shareholders equity and
comprehensive income and cash flow statements in respect of the repurchase and retirement of
ordinary shares. The revisions are summarized below:
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 For the Consolidated Statements of Shareholders Equity and Comprehensive Income
 December 31, 2008As previouslyreported
    
    Correction
    
    As revisedRMB
    
    RMB
    
    RMBOrdinary shares
    
    
    9,624
    
    
    
    26
    
    
    
    9,650Additional paid-in capital
    
    
    1,505,252
    
    
    
    8,752
    
    
    
    1,514,004Accumulated other comprehensive loss
    
    
    (82,130
    )
    
    
    (8,778
    )
    
    
    (90,908
    )Retained earnings
    
    
    820,279
    
    
    
    
    
    
    
    820,279Total equity attributable to
Simcere Pharmaceutical Group
    
    
    2,253,025
    
    
    
    
    
    
    
    2,253,025
 December 31, 2008As previouslyreported
    
    Correction
    
    As revisedRMB
    
    RMB
    
    RMBTotal comprehensive income
    
    
    343,005
    
    
    
    (8,778
    )
    
    
    334,227
 December 31, 2009As previouslyreported
    
    Correction
    
    As revisedRMB
    
    RMB
    
    RMBOrdinary shares
    
    
    8,716
    
    
    
    135
    
    
    
    8,851Additional paid-in capital
    
    
    1,170,687
    
    
    
    47,527
    
    
    
    1,218,214Accumulated other comprehensive loss
    
    
    (43,886
    )
    
    
    (47,662
    )
    
    
    (91,548
    )Retained earnings
    
    
    846,707
    
    
    
    
    
    
    
    846,707Total equity attributable to
Simcere Pharmaceutical Group
    
    
    1,982,224
    
    
    
    
    
    
    
    1,982,224
 December 31, 2009As previouslyreported
    
    Correction
    
    As revisedRMB
    
    RMB
    
    RMBTotal comprehensive income
    
    
    67,113
    
    
    
    (38,884
    )
    
    
    28,229
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 For the Consolidated Cash Flow Statements
 December 31, 2008As previouslyreported
    
    Correction
    
    As revisedRMB
    
    RMB
    
    RMBNet cash provided by operating activities
    
    
    147,158
    
    
    
    (55
    )
    
    
    147,103Net cash provided by investing activities
    
    
    252,668
    
    
    
    
    
    
    
    252,668Net cash used in financing activities
    
    
    (88,846
    )
    
    
    8,778
    
    
    
    (80,068
    )Effect of exchange rate changes on cash
and cash equivalents
    
    
    4,482
    
    
    
    (8,723
    )
    
    
    (4,241
    )Net increase in cash and cash equivalents
    
    
    315,462
    
    
    
    
    
    
    
    315,462
 December 31, 2009As previouslyreported
    
    Correction
    
    As revisedRMB
    
    RMB
    
    RMBNet cash provided by operating activities
    
    
    456,964
    
    
    
    (38,650
    )
    
    
    418,314Net cash used in investing activities
    
    
    (457,672
    )
    
    
    
    
    
    
    (457,672
    )Net cash used in financing activities
    
    
    (369,735
    )
    
    
    38,884
    
    
    
    (330,851
    )Effect of exchange rate changes on cash
and cash equivalents
    
    
    117
    
    
    
    (234
    )
    
    
    (117
    )Net decrease in cash and cash equivalents
    
    
    (370,326
    )
    
    
    
    
    
    
    (370,326
    )
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 4
    
    Accounts and bills receivables, net
 Accounts and bills receivables, net are summarized as follows:
 December 31,2009
    
    2010
    
    2010RMB
    
    RMB
    
    US$Accounts receivable
    
    
    303,255
    
    
    
    315,256
    
    
    
    47,766Less: allowance for doubtful accounts
    
    
    (6,749
    )
    
    
    (7,475
    )
    
    
    (1,132
    )Accounts receivable, net
    
    
    296,506
    
    
    
    307,781
    
    
    
    46,634Bills receivable
    
    
    407,815
    
    
    
    576,957
    
    
    
    87,418Total accounts and bills receivables, net
    
    
    704,321
    
    
    
    884,738
    
    
    
    134,052
 The movements of the allowance for doubtful accounts are as follows:
 Year ended December 31,2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    US$Beginning allowance for doubtful accounts
    
    
    6,635
    
    
    
    6,995
    
    
    
    6,749
    
    
    
    1,022Additions charged to bad debt expense
    
    
    1,576
    
    
    
    101
    
    
    
    843
    
    
    
    128Write-off of accounts receivable
    
    
    (1,216
    )
    
    
    (347
    )
    
    
    (117
    )
    
    
    (18
    )Ending allowance for doubtful accounts
    
    
    6,995
    
    
    
    6,749
    
    
    
    7,475
    
    
    
    1,132
 As part of its ongoing control procedures, management monitors the creditworthiness of its
customers to which it grants credit terms in the normal course of business. Credit terms are
normally 30 to 90 days from the date of billing. The Group does not require collateral or
other security to support credit sales.Several subsidiaries of the Company sold bills receivable with recourse to third party
financial institutions. Under this arrangement, control over the transferred bills
receivable is surrendered and the subsidiaries do not retain beneficial interests in the
transferred bills receivables. All of the transferred bills receivables were accounted for
as sales and derecognized upon transfer.For the years ended December 31, 2008, 2009 and 2010, the Group received proceeds from the
sale of bills receivable of RMB274,183, RMB1,038,053 and RMB991,385 (US$150,210),
respectively. The Group recognized discounts of RMB2,993, RMB7,392 and RMB12,620 (US$1,912)
in respect of bills receivable sold for the years ended December 31, 2008, 2009 and 2010,
respectively, which have been included in interest expense.As of December 31, 2010, bills receivable of RMB85,967 (US$13,025) were pledged to banks as
collateral for long-term bank loans of RMB69,306 (US$10,501). No bills receivable were
pledged to banks as of December 31, 2009.
 5
    
    Inventories
 Inventories by major categories are summarized as follows:
 December 31,2009
    
    2010
    
    2010RMB
    
    RMB
    
    US$Raw materials
    
    
    21,801
    
    
    
    19,059
    
    
    
    2,888Consumables and packaging materials
    
    
    9,890
    
    
    
    11,946
    
    
    
    1,810Work-in-progress
    
    
    21,888
    
    
    
    14,528
    
    
    
    2,201Finished goods
    
    
    53,076
    
    
    
    44,199
    
    
    
    6,697Total inventories
    
    
    106,655
    
    
    
    89,732
    
    
    
    13,596
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 Inventory write-downs of RMB3,000, RMB2,855 and RMB4,846 (US$734) were recognized in cost of
materials and production in the consolidated statements of income during the years ended
December 31, 2008, 2009 and 2010, respectively.
 6
    
    Property, plant and equipment, net
 Property, plant and equipment, net consist of the following:
 December 31,2009
    
    2010
    
    2010RMB
    
    RMB
    
    US$Buildings and leasehold improvements
    
    
    441,970
    
    
    
    511,071
    
    
    
    77,435Machinery and equipment
    
    
    307,230
    
    
    
    338,584
    
    
    
    51,300Motor vehicles
    
    
    40,709
    
    
    
    41,972
    
    
    
    6,359Furniture, fixtures and office equipment
    
    
    51,315
    
    
    
    61,315
    
    
    
    9,290Construction-in-progress
    
    
    147,280
    
    
    
    186,377
    
    
    
    28,239988,504
    
    
    
    1,139,319
    
    
    
    172,623Less: accumulated depreciation and amortization
    
    
    (243,791
    )
    
    
    (303,028
    )
    
    
    (45,913
    )744,713
    
    
    
    836,291
    
    
    
    126,710Deposits for purchase of property, plant and equipment
    
    
    13,533
    
    
    
    29,971
    
    
    
    4,541Property, plant and equipment, net
    
    
    758,246
    
    
    
    866,262
    
    
    
    131,251
 The Group capitalizes interest cost as a component of the cost of construction in progress.
Interest incurred consists of the following:
 Year ended December 31,2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    US$Interest cost capitalized
    
    
    2,133
    
    
    
    137
    
    
    
    4,468
    
    
    
    677Interest cost charged to income
    
    
    4,693
    
    
    
    12,126
    
    
    
    19,920
    
    
    
    3,018Total interest cost incurred
    
    
    6,826
    
    
    
    12,263
    
    
    
    24,388
    
    
    
    3,695
 As of December 31, 2010, buildings with carrying value of RMB29,325 (US$4,443) were
pledged to banks as collateral for long-term bank loans of RMB69,306 (US$10,501). No
building were pledged to banks as of December 31, 2009.
 7
    
    Land use rights
 Land use rights consist of the following items:
 December 31,2009
    
    2010
    
    2010RMB
    
    RMB
    
    US$Land use rights:- non-current portion
    
    
    146,158
    
    
    
    142,910
    
    
    
    21,653- current portion
    
    
    3,200
    
    
    
    3,197
    
    
    
    484Total land use rights
    
    
    149,358
    
    
    
    146,107
    
    
    
    22,137
 As of December 31, 2009, land use rights with carrying value of RMB 26,154 were pledged to
banks as collateral for long-term bank loans of RMB20,000. As of December 31, 2010, land use
rights with carrying
value of RMB34,011 (US$5,153) were pledged to banks as collateral for long-term bank loans
of RMB69,306 (US$10,501).
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 8
    
    Acquisitions, goodwill and intangible assets
 (a)
    
    2010 acquisitions
 Acquisition of a 14.29% equity interest in Tung ChitOn April 2, 2010, the Group acquired 14.29% equity interest in Nanjing Tung Chit
Pharmaceutical Co., Ltd (Tung Chit) for cash consideration of RMB6,280 (US$952). As a
result of the acquisition of the additional 14.29% equity interest, Tung Chit became a
wholly owned subsidiary of the Group. The additional purchase of equity interest in Tung
Chit did not constitute a change in control. The noncontrolling interest was reduced by
RMB261 (US$40) and the Group recognized RMB6,019 (US$912) as a reduction to additional
paid-in-capital which represents the difference between the fair value of the consideration
and the carrying amount of the 14.29% noncontrolling interest acquired as of the purchase
date.Acquisition of an additional 39.19% equity interest in BodaIn June 2010, the Group entered into a series of transactions to: i) acquire approximately
39.19% of the equity interest in Jilin Boda Pharmaceutical Co., Ltd. (Boda) through an
acquisition of 80% equity interest in Nanjing Xiangao Investments management Co., Ltd.
(Xiangao), an investment holding company which holds 48.99% of the equity interest in
Boda; ii) enter into a put and call arrangement for the obligation and the option to acquire
the remaining 20% equity interest in Xiangao (effectively approximately 9.80% equity
interest in Boda).As a result of the acquisition of the additional 39.19% equity interest, the Group holds
effectively 90% equity interest in Boda. The additional purchase of equity interest in Boda
did not constitute a change in control. The series of transactions were completed on July 4,
2010. The total purchase consideration was RMB174,185 (US$26,392) consisting of i) cash
consideration of RMB 170,147 (of which RMB143,994 was paid in 2010 and RMB 26,153 is
included in other current liabilities in the consolidated balance sheet) and ii) the
difference between the fair value of buildings, machinery and equipment of RMB30,430
(US$4,611) transferred to the selling shareholder and RMB 26,392 consideration receivable
from the selling shareholder (included in other current assets in the consolidated balance
sheet) for the transfer of such assets and equity interest. The noncontrolling interest was
reduced by RMB48,075 (US$7,284) upon the completion of this acquisition. The Group
recognized RMB126,110 (US$19,108) as a reduction to additional paid in capital which
represents the difference between the fair value of the consideration and the carrying
amount of the 39.19% noncontrolling interest acquired as of the purchase date.The put and call options are exercisable after 1 year from the date of acquisition of the
39.19% equity interest in Boda. The exercise prices for the call and the put options of the
9.80% equity interest in Boda held by Xiangao are the same and equal to RMB43,600 plus 9.80%
of the net profit attributable to Boda for the period beginning January 1, 2010 to the date
of the exercise. Accordingly, the noncontrolling interest was recorded outside of permanent
equity on the consolidated balance sheet and initially recorded at the fair value of
RMB45,677 (US$6,921) on July 4, 2010. The Group recognized RMB41,505 (US$6,289) as a
reduction to additional paid-in-capital which represented the difference between the fair
value and the carrying amount of the noncontrolling interest. In December 2010, Boda
declared a dividend of RMB7,846 (US$1,188) to the noncontrolling interest in respect of
retained earnings prior to January 1, 2010. Subsequently, the noncontrolling interest is
carried at the higher of (1) the initial carrying amount, increased or decreased for the
noncontrolling interests share of net income or loss or (2) the expected redemption value.
The change of the carrying amounts of the redeemable noncontrolling interest is recognized
as net income attributable to noncontrolling interest in the consolidated statements of
income.
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 RedeemableNoncontrollinginterestRMBBalance as of December 31, 2009
    
    
    Recognition of redeemable noncontrolling interest on July 4, 2010
    
    
    45,677Income attributable to the redeemable noncontrolling interest
    
    
    1,776Balance as of December 31, 2010
    
    
    47,453
 (b)
    
    2009 acquisitions
 Acquisition of a 10% equity interest in Shandong SimcereOn January 6, 2009, the Group acquired 10% equity interest in Shandong Simcere Medgenn
Bio-Pharmaceutical Co., Ltd. (Shandong Simcere) for cash consideration of RMB30,128. As a
result of the acquisition of the additional 10% equity interest, Shandong Simcere became a
wholly owned subsidiary of the Group. The additional purchase of equity interest in Shandong
Simcere did not constitute a change in control. The noncontrolling interest was reduced by
RMB7,622 and the Group recognized RMB22,506 as a reduction to additional paid-in-capital
which represents the difference between the fair value of the consideration and the carrying
amount of the 10% noncontrolling interest acquired as of the purchase date.Acquisition of a 52.5% equity interest in Jiangsu YanshenThe Group acquired 37.5% equity interest in Jiangsu Yanshen, a China-based developer and
manufacturer of human vaccines, for cash consideration of RMB195,540. The 37.5% equity
interest acquisition was completed on May 22, 2009 and the Group commenced accounting for
its equity interest of 37.5% under the equity method on that date. The purchase
consideration was paid in full in July 2009.In October and November, 2009, the Group entered into share purchase agreements to acquire
100% equity interest in ChinaVax for aggregate cash consideration of US$15,039 (RMB102,654
translated at the exchange rate on December 31, 2009) . ChinaVax is a Cayman Islands
investment holding company which then held 15% equity interest in Jiangsu Yanshen. As of
December 31, 2009 and 2010, 70% of the cash consideration relating to the acquisition of
China Vax, or US$10,528 (RMB71,858 translated at the exchange rate on December 31, 2009),
was paid and the remaining 30% of the cash consideration of US$4,511 (RMB29,875 translated
at the exchange rate on December 31, 2010) was not paid, which is included in other current
liabilities in the consolidated balance sheet. In October 2010, the former shareholders of
ChinaVax filed a claim against the Group for RMB29,875 (the amount of consideration not
paid) plus interest at an annual rate of 5.0% from February 4, 2010. Management believes
that it is not probable to pay the interest RMB1,353 (US $205) on the unpaid cash
consideration claimed by the former shareholders of ChinaVax due to the misrepresentation of
the former shareholders of ChinaVax during the acquisition of Jiangsu Yanshen,As a result, the Group obtained 100% controlling interest in ChinaVax and therefore,
combined with its previous 37.5% equity interest held in Jiangsu Yanshen, the Group holds
52.5% controlling interest in Jiangsu Yanshen.The Group ceased using the equity method and began consolidating Jiangsu Yanshen on December
9, 2009, the date the Group obtained a 52.5% controlling interest in Jiangsu Yanshen through
the acquisition of China Vax. The acquisition of Jiangsu Yanshen was accounted for by the
Group as a business combination. Accordingly, the Group remeasured its previously held
equity interest of 37.5% in Jiangsu Yanshen which was determined to be RMB143,956 and
recognized a resulting loss of RMB55,587 in equity in losses of equity method affiliated
companies for the year ended December 31, 2009. The remeasurement of the previously held
equity interest of 37.5% resulted in a loss because the fair value of the equity interest in
Jiangsu Yanshen on the date of remeasurement was less than its carrying value. The decline in the fair value was due to
reduced estimated future cash flows as a result of the SFDA investigation on Jiangsu
Yanshens sales of human use rabies vaccines and its subsequent resolution (see note 8(e)).
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 The acquisition of the 52.5% equity interest in Jiangsu Yanshen resulted in the recognition
of goodwill of RMB208,123 which has been allocated to the vaccines reporting unit and
intangible assets of RMB139,500. Goodwill and the amortization of intangible assets arising
from the acquisition are not deductible for tax purposes. The following table summarizes the
purchase price allocation of the assets acquired and liabilities assumed at the date of
acquisition. Contingent liabilities were recognized to the extent the amounts were probable
and reasonably estimable.
 AmountRMBCash and cash equivalents
    
    
    92,340Other current assets
    
    
    97,863Deferred tax assets
    
    
    25,463Property, plant and equipment
    
    
    203,287Developed technology
    
    
    41,200Manufacturing licenses
    
    
    5,200In-process research and development
    
    
    93,100Land use right
    
    
    34,800Goodwill
    
    
    208,123Total assets acquired
    
    
    801,376Current liabilities
    
    
    (264,135
    )Deferred tax liabilities
    
    
    (39,482
    )Other long term liabilities, primarily long term loans
    
    
    (68,804
    )Net assets acquired
    
    
    428,955
 In connection with the acquisition of Jiangsu Yanshen, the Group recognized in-process
research and development projects at their fair value of RMB93,100, which at the time of the
acquisition, had not reached technological feasibility. The IPR&D of RMB93,100 is comprised
of RMB66,300 of the Hepatitis A vaccine IPR&D project and RMB26,800 of the rabies vaccines
IPR&D project.The estimated useful lives of the identifiable intangible assets acquired in the acquisition
are 7.1 years for developed technology and 0.5 years for manufacturing licenses. At the date
of acquisition, the intangible assets acquired have a weighted-average useful life of 6.4
years and the developed technology acquired have a weighted-average useful life of 7.1
years.The acquisition broadens the Groups product portfolio. The goodwill recognized as part of
the acquisition of Jiangsu Yanshen consists primarily of the opportunity to enter into the
vaccines market in the PRC and the expected synergies and other benefits that will result
from combining the sales and distribution network.
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 Unaudited proforma financial informationThe following unaudited pro forma financial information represents the results of operations
of the Group as if the acquisition of Jiangsu Yanshen had occurred as of the beginning of
2008 and 2009. The unaudited pro forma financial information is not necessarily indicative
of what the Companys consolidated results of operations actually would have been had it
completed the acquisition at the beginning of 2008 and 2009. In addition, the unaudited pro
forma financial information does not attempt to project the future results of operations of
the combined entity.
 Year ended December 312008
    
    
    2009RMB
    
    
    RMB(unaudited)
    
    
    (unaudited)Product revenues
    
    
    1,861,526
    
    
    
    2,013,505Income (loss) from operations
    
    
    241,862
    
    
    
    102,687Net income attributable to
Simcere Pharmaceutical Group
    
    
    300,775
    
    
    
    18,951Earnings per share attributable
to Simcere Pharmaceutical GroupBasic
    
    
    2.41
    
    
    
    0.16Diluted
    
    
    2.41
    
    
    
    0.16
 Acquisition of an approximately 35% equity interest in Shanghai CelgenOn August 21, 2009, the Group acquired approximately 35% equity interest in Shanghai Celgen
Bio-Pharmaceutical Co., Ltd. (Shanghai Celgen) for cash consideration of RMB110,000
through the 100% acquisition of Pearl Ocean. Pearl Ocean holds approximately 47% of the
equity interest in Kanda Biotech Holdings Ltd. (Kanda Biotech), which in turn holds 75% of
the equity interest in Shanghai Celgen. Pearl Ocean and Kanda Biotech are holding companies
with no substantive operations. The Group accounts for its investment in Shanghai Celgen
using the equity method of accounting.Under the terms of the share purchase agreement, the Group has the option (the put option)
to sell 100% equity interest in Pearl Ocean to the original selling shareholders for the
same consideration paid by the Group plus accrued interest if i) Shanghai Celgens major
biogeneric drug candidate is not approved by the SFDA within 24 months from the date of
agreement; or ii) anytime within 24 months from the date of agreement when Shanghai Celgen
determines that it would be unable to obtain the SFDA approval for the biogeneric drug
candidate.The purchase consideration was allocated between the equity investment and the put option
based on a relative fair value model at inception. Management determined the fair value of
the put option based on Black-Scholes model and allocated RMB2,950 of the purchase
consideration to the put option at inception. The put option is amortized over its estimated
economic useful life of 2 years.The excess of cost over the Groups share of net assets of the equity method investees was
RMB35,595 as of December 31, 2009. In accordance with ASC 350, the investment is analyzed
for impairment in accordance with FASB ASC 323, Investments  Equity Method and Joint
Ventures.
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 (c)
    
    2008 acquisition
 Acquisition of a 70% equity interest in Simcere Zhong RenOn May 5, 2008, the Group completed the acquisition of 70% of the outstanding equity
interest in Wuhu Simcere Zhong Ren Pharmaceutical Co., Ltd. (Simcere Zhong Ren), a PRC
company based in Wuhu, for cash consideration of RMB65,090. Simcere Zhong Ren is a PRC-based
drug manufacturer that specializes in the production of a 5-FU sustained release anti-tumor
implant, Sinofuan. Sinofuan is the sustained release anti-tumor implant approved by the
SFDA. The acquisition furthers the Groups growth strategy, enhances the offerings in the
anti-tumor drug market and creates synergies with Endu, the Groups anti-tumor drug. In
particular, it is aimed to achieve economies of scales through increased utilization of the
Groups existing distribution channels. The acquisition of Simcere Zhong Ren was accounted
for as a business combination and the purchase price was allocated to the assets acquired
and liabilities assumed on the basis of their respective estimated fair values on the
acquisition date. The financial results of Simcere Zhong Ren have been consolidated and
included in the Companys consolidated financial statements from May 1, 2008 onwards.The following table summarizes the purchase price allocation of the assets acquired and
liabilities assumed at the date of acquisition:
 AmountRMBCash and cash equivalents
    
    
    1,869Other current assets
    
    
    5,808Deferred tax assets
    
    
    2,415Property, plant and equipment
    
    
    6,985Developed technology
    
    
    45,542Manufacturing license
    
    
    763Other non-current assets, primarily land use right
    
    
    154Goodwill
    
    
    16,715Total assets acquired
    
    
    80,251Current liabilities
    
    
    (5,783
    )Deferred tax liabilities
    
    
    (9,378
    )Net assets acquired
    
    
    65,090
 The estimated useful lives of the identifiable intangible assets acquired in the acquisition
of Simcere Zhong Ren are 12 years for developed technology, and 1.1 years for manufacturing
license. The intangible assets acquired have a weighted-average useful life of 11.8 years
from the date of acquisition. Goodwill and the amortization of these intangibles assets
are not deductible for tax purposes.
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 (d)
    
    Intangible assets
 The Groups intangible assets related to the Groups acquisitions consisted of the
following:
 December 31, 2009GrossAmortization
    
    carrying
    
    Accumulated
    
    Net carryingperiod
    
    amount
    
    amortization
    
    amountYears
    
    RMB
    
    RMB
    
    RMBCustomer relationships
    
    
    4-11
    
    
    
    37,418
    
    
    
    (18,323
    )
    
    
    19,095Developed technologies
    
    
    7-16
    
    
    
    323,640
    
    
    
    (56,933
    )
    
    
    266,707Product trademarks
    
    
    6-10
    
    
    
    4,303
    
    
    
    (2,547
    )
    
    
    1,756Manufacturing and supply licenses
    
    
    1-5
    
    
    
    9,544
    
    
    
    (4,871
    )
    
    
    4,673In-process research and development
    
    
    
    
    
    
    93,100
    
    
    
    
    
    
    
    93,100Total intangible assets
    
    
    
    
    
    
    468,005
    
    
    
    (82,674
    )
    
    
    385,331
 December 31, 2010GrossAmortization
    
    carrying
    
    Accumulated
    
    Net carryingperiod
    
    amount
    
    amortization
    
    amountYears
    
    RMB
    
    RMB
    
    RMBCustomer relationships
    
    
    4-11
    
    
    
    37,418
    
    
    
    (23,748
    )
    
    
    13,670Developed technologies
    
    
    7-16
    
    
    
    323,640
    
    
    
    (83,566
    )
    
    
    240,074Product trademarks
    
    
    6-10
    
    
    
    4,303
    
    
    
    (3,017
    )
    
    
    1,286Manufacturing and supply licenses
    
    
    1-5
    
    
    
    9,544
    
    
    
    (9,471
    )
    
    
    73In-progress research and
development
    
    
    
    
    
    
    93,100
    
    
    
    
    
    
    
    93,100Total intangible assets
    
    
    
    
    
    
    468,005
    
    
    
    (119,802
    )
    
    
    348,203Total  US$
    
    
    
    
    
    
    70,910
    
    
    
    (18,152
    )
    
    
    52,758
 Amortization expense of customer relationships is recognized in sales, marketing and
distribution expenses and amortization expense for developed technology, product trademarks
and manufacturing and supply licenses is recognized in cost of materials and production. The
amortization expense for the years ended December 31, 2008, 2009 and 2010 is as follows
 Year ended December 31,2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    US $Costs of materials and production
    
    
    24,009
    
    
    
    23,990
    
    
    
    31,703
    
    
    
    4,803Sales, marketing and distribution
    
    
    5,424
    
    
    
    5,423
    
    
    
    5,425
    
    
    
    822Total amortization expense
    
    
    29,433
    
    
    
    29,413
    
    
    
    37,128
    
    
    
    5,625
 The estimated amortization expense of the Groups intangible assets with definite lives for
the years ended December 31 is as follows:
 RMB2011
    
    
    32,4102012
    
    
    30,9882013
    
    
    27,9372014
    
    
    26,7462015
    
    
    26,457
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 (e)
    
    Goodwill
 The changes in the carrying amount of goodwill for the years ended December 31, 2009 and
2010 are as follows:
 Year ended December 31,2009
    
    2010
    
    2010RMB
    
    RMB
    
    US$Balance at the beginning of the year
    
    
    178,211
    
    
    
    309,936
    
    
    
    46,960Acquisition of Jiangsu Yanshen
    
    
    208,123
    
    
    
    
    
    
    
    Impairment loss
    
    
    (76,398
    )
    
    
    
    
    
    
    Balance at the end of year
    
    
    309,936
    
    
    
    309,936
    
    
    
    46,960
 During the course of the Groups acquisition of the additional 15% equity interest in
Jiangsu Yanshen from China Vax, the SFDA issued a public notice announcing the initiation of
a comprehensive investigation into the quality controls on the production of human use
rabies vaccines and ordered Jiangsu Yanshen to halt marketing and production of all
products, including human use rabies vaccines. Four batches of human use rabies vaccines
manufactured by Jiangsu Yanshen between July and October 2008 were found to have quality
problems based on preliminary investigation by the SFDA. In May 2010, upon the completion of
the SFDA investigation, Jiangsu Yanshen was fined RMB25,638 for sale of substandard human
use rabies vaccines; Jiangsu Yanshen was required to bear the cost of patient
re-vaccinations of up to RMB23,034; Jiangsu Yanshen had its GMP license for the production
of human use rabies vaccines revoked and; certain of Jiangsu Yanshens employees were
prohibited to engage in the production and marketing of pharmaceutical products for a period
of ten years. Such employees are also subject to a criminal investigation.As of December 31, 2009, the Group had recognized an accrual of RMB50,300 for the matter
described in this note, representing the fine of RMB25,638 by Changzhou Food and Drug
Administration, RMB23,034 for the cost for re-vaccinations and a penalty of RMB1,628 levied
by the Peoples Court of Tianning district, Changzhou. Management determined that the
contingency that existed at December 31, 2009, being the SFDA investigation which was based
on events and facts and circumstances that existed at the acquisition date, and the
resolution of the contingency subsequent to December 31, 2009 provided an indication that
the fair value of the reporting unit was below its carrying amount as of December 31, 2009.Therefore, management performed impairment testing for the goodwill of the vaccines
reporting unit as of December 31, 2009. Based on such impairment testing, the carrying
amount of the vaccine reporting unit as of December 31, 2009 was greater than the fair value
of the vaccine reporting unit as determined using the present value of expected future
flows, and the carrying amount of the vaccine reporting unit goodwill as of December 31,
2009 exceeded the implied fair value of that goodwill. As a result, the Group recognized a
goodwill impairment charge of RMB76,398 as of December 31, 2009 to reduce the vaccine
reporting unit goodwill to its implied fair value.On January 24, 2011, the criminal investigation of Jiangsu Yanshen in respect of sale of
substandard human use rabies vaccines was completed. According to the final judgment by the
Intermediate Peoples Court of Changzhou City, Jiangsu Province, in addition to the
RMB50,300 described above, an additional penalty of RMB3,000 (US$454) was imposed on the
Group. During the year ended December 31, 2010, RMB10,266 (US$1,555) of penalty was paid and
as of December 31, 2010, RMB43,034 (US$6,520) remains unpaid, (which is included in other
current liabilities in the consolidated balance sheet). Management does not expect any
further claims and charges, individually or in aggregate will have a material adverse impact
on the financial position, results of operations, or cash flows of the Group.Jiangsu Yanshen applied for a GMP license for manufacturing of Influenza vaccine in March
2011, and expects to recommence the production and sales of Influenza vaccine in the second
half year of 2011. Based on goodwill impairment testing as of December 31, 2010, no further
impairment loss was recognized in 2010.
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 9
    
    Short-term borrowings
 Short-term borrowings and current portion of long-term borrowings consist of the
following:
 December 31,2009
    
    2010
    
    2010RMB
    
    RMB
    
    US$Unsecured government loan
    
    
    3,000
    
    
    
    3,000
    
    
    
    455Unsecured bank loans
    
    
    65,000
    
    
    
    300,000
    
    
    
    45,454Current portion of long-term government loan
    
    
    8,000
    
    
    
    7,000
    
    
    
    1,060Current portion of long-term bank loan
    
    
    
    
    
    
    50,000
    
    
    
    7,576Total
    
    
    76,000
    
    
    
    360,000
    
    
    
    54,545
 Short-term unsecured bank loans bear fixed interest rates ranging from 4.37% to 5.50% and
ranging from 4.86% to 5.56%, per annum in 2009 and 2010, respectively. The weighted average
effective interest rates on short-term borrowings outstanding as of December 31, 2009 and
2010 were 4.76% and 5.29% per annum, respectively.As of December 31, 2009 and 2010, the Group had unutilized banking facilities of RMB800,000
and RMB530,000 (US$80,303), respectively.
 10
    
    Long-term borrowings
 Long-term borrowings consist of the following:
 December 31,2009
    
    2010
    
    2010RMB
    
    RMB
    
    US$Unsecured bank loans, interest at
floating rate equal to RMB benchmark
lending rate of financial institutions
multiplied by 105%, payable in
semiannual installments from 2011 to
2012
    
    
    48,685
    
    
    
    
    
    
    
    Secured bank loans, interest at
floating rate equal to RMB benchmark
lending rate of financial institutions
multiplied by 105%, payable in
semiannual installments from 2011 to
2012
    
    
    20,000
    
    
    
    69,306
    
    
    
    10,500Unsecured government loan, interest at
floating rate, payable in annual
installments from 2010 to 2020
    
    
    52,000
    
    
    
    
    
    
    
    Secured government loan, interest at
fixed rate of 5.40%, payable in annual
installments from 2010 to 2011
    
    
    10,000
    
    
    
    7,000
    
    
    
    1,061Total long-term borrowings
    
    
    130,685
    
    
    
    76,306
    
    
    
    11,561Less: current portion (note 9)
    
    
    (8,000
    )
    
    
    (57,000
    )
    
    
    (8,636
    )Long-term borrowings, excluding
current portion
    
    
    122,685
    
    
    
    19,306
    
    
    
    2,925
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 The weighted-average effective interest rates on long-term loans outstanding as of December
31, 2009 and 2010 were 5.85% and 5.99% per annum, respectively. None of the short-term and
long-term loans contain any financial covenants or subjective acceleration clauses.As of December 31, 2009, land use rights with carrying value of RMB 26,154 were pledged to
banks as collateral for the secured bank loans of RMB20,000. As of December 31, 2010, land
use rights with carrying value of RMB34,011 (US$5,153) and bills receivable of RMB85,967
(US$13,025) were pledged to banks as collateral for the secured bank loans of RMB69,306
(US$10,501).The aggregate maturities of long-term borrowings for each of the five years subsequent to
December 31, 2010 are as follows:
 December 31RMB2011
    
    
    57,0002012
    
    
    19,3062013
    
    
    2014
    
    
    2015
    
    
    
 11
    
    Income tax
 Cayman Islands and British Virgin IslandsUnder the current laws of the Cayman Islands and British Virgins Islands, the Company and
State Good Group Limited (SGG) are not subject to tax on their income or capital gains. In
addition, upon any payment or dividend paid by these companies, no Cayman Islands or British
Virgins Islands withholding tax is imposed.Peoples Republic of ChinaThe Companys subsidiaries incorporated in the PRC file separate income tax returns.Prior to January 1, 2008, under the then effective tax laws and regulations, subsidiaries
that were production-oriented foreign investment enterprises were each entitled to a tax
holiday of a two-year 100% exemption followed by a three-year 50% exemption commencing from
the first profit-making year after offsetting accumulated tax losses (2+3 tax holiday),
and subsidiaries located in Special Economic Zones or Economic and Technological Development
Zones were subject to a preferential tax rate of 15%.On March 16, 2007, the National Peoples Congress passed the Corporate Income Tax Law of the
PRC (CIT law), which was effective on January 1, 2008. The statutory income tax rate under
the CIT law is 25%.The CIT law and its relevant regulations provide a five-year transition period for those
enterprises which were established before March 16, 2007 and which were entitled to a
preferential income tax rate of 15% under the then effective tax laws and regulations, and
also grandfather the 2+3 tax holidays until they expire. The transitional tax rates are 18%,
20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011 and 2012 onwards, respectively.Under the CIT law and its relevant regulations, entities that qualify as Advanced and New
Technology Enterprises (ANTEs) are entitled to a preferential ANTE income tax rate of
15%.Based on the above, the Companys PRC subsidiaries are subject to income tax at 25%, except
for the following:
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Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 
    
    Simcere Pharmaceutical Co., Ltd. (Hainan Simcere) is subject to income tax at 9%,
10%, 11%, 24% and 25% for 2008, 2009, 2010, 2011 and 2012 onwards, respectively.
    
    Shandong Simcere is subject to income tax at 0%, 10%, 11%, 12% and 25% for 2008,
2009, 2010, 2011 and 2012 onwards, respectively.
    
    Nanjing Simcere Dongyuan Pharmaceutical Co., Ltd. (Nanjing Simcere) and Tung Chit
are subject to income tax at 12.5% from 2008 to 2010, 15% for 2011 and 25% from 2012
onwards.
    
    Shanghai Simcere Pharmaceutical Co., Ltd. (Shanghai Simcere) is subject to income
tax at 18%, 20%, 22%, 24% and 25% for 2008, 2009, 2010, 2011 and 2012 onwards,
respectively.
    
    Boda is subject to income tax rate at 15% from 2008 to 2010 and 25% from 2011
onwards.
    
    Simcere Zhong Ren is subject to income tax at 25% for 2008, 15% for 2009 to 2010 and
25% from 2011 onwards.
    
    Jiangsu Yanshen is subject to income tax at 15% for 2009 and 2010 and 25% from 2011
onwards.
 The CIT law and its relevant regulations impose a withholding tax at 10%, unless reduced by
a tax treaty or agreement, for dividends distributed by a PRC-resident enterprise to its
non-PRC-resident corporate investor for earnings generated beginning on January 1, 2008.
Undistributed earnings generated prior to January 1, 2008 are exempt from such withholding
tax. As of December 31, 2010, the Group has not recognized a deferred tax liability of
RMB82,088 (US$12,438) for undistributed earnings of RMB820,877 (US$124,375) generated by the
PRC subsidiaries for 2008 to 2010 since the Group plans to indefinitely reinvest these
earnings in the PRC.The components of earnings (losses) before income taxes and noncontrolling interests are as
follows:
 Year ended December 31,2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    US$Cayman Islands
    
    
    (30,377
    )
    
    
    (49,348
    )
    
    
    (34,040
    )
    
    
    (5,158
    )British Virgin Islands
    
    
    (1,080
    )
    
    
    (6,865
    )
    
    
    (18,287
    )
    
    
    (2,771
    )PRC
    
    
    459,028
    
    
    
    101,979
    
    
    
    247,620
    
    
    
    37,518Total
    
    
    427,571
    
    
    
    45,766
    
    
    
    195,293
    
    
    
    29,589
 (a)
    
    Income taxes
 Income tax expense (benefit) consists of the following:
 Year ended December 31,2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    US$PRCCurrent
    
    
    52,055
    
    
    
    38,263
    
    
    
    38,362
    
    
    
    5,812Deferred
    
    
    (2,770
    )
    
    
    (21,366
    )
    
    
    (27,722
    )
    
    
    (4,200
    )Total income tax expense
    
    
    49,285
    
    
    
    16,897
    
    
    
    10,640
    
    
    
    1,612
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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 (b)
    
    Income tax contingencies
 The following table summarizes the movement of unrecognized tax benefits:
 2008
    
    2009
    
    2010RMB
    
    RMB
    
    RMBBalance at January 1
    
    
    19,928
    
    
    
    19,928
    
    
    
    19,928Increase related to current year tax positions
    
    
    
    
    
    
    
    
    
    
    Balance at December 31
    
    
    19,928
    
    
    
    19,928
    
    
    
    19,928Balance at December 31  US$
    
    
    
    
    
    
    
    
    
    
    3,019
 The balance of total unrecognized tax benefits as of each year end, if recognized, would
affect the Groups effective income tax rate. For the years ended December 31, 2008, 2009
and 2010, the Group accrued interest of RMB601, RMB1,032 and RMB1,032 (US$156) respectively,
related to unrecognized tax benefits. As of December 31, 2008, 2009 and 2010, total
recognized cumulative interest related to unrecognized tax benefit was RMB601, RMB1,633 and
RMB2,665 (US$404) respectively. The Group did not recognise any penalty related to
unrecognized tax benefit. Management does not expect that the total amount of unrecognized
tax benefits as of December 31, 2010 will significantly change over the next twelve months.According to the PRC Tax Administration and Collection Law, the statute of limitation is
three years if the underpayment of taxes is due to computational errors made by the taxpayer
or the withholding agent. The statute of limitation is extended to five years under special
circumstances where the underpayment of taxes is more than RMB100 (US$15). In the case of
transfer pricing issues, the statute of limitation is ten years. There is no statute of
limitation in the case of tax evasion. The income tax returns of the Companys PRC
subsidiaries for the tax years beginning from 2000 are open to examination by the PRC state
and local tax authorities.
 (c)
    
    Reconciliation of expected income tax to actual income tax expense
 The actual income tax expense reported in the consolidated statements of income differs from
the amounts computed by applying the PRC statutory income tax rate at 25% to earnings before
income taxes as a result of the following:
 Year ended December 31,Note
    
    2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    US$Computed expected income tax expense
    
    
    
    
    
    
    106,893
    
    
    
    11,441
    
    
    
    48,823
    
    
    
    7,397Non-deductible expenseEntertainment expense
    
    
    
    
    
    
    860
    
    
    
    1,587
    
    
    
    2,373
    
    
    
    360Research and development
    
    
    
    
    
    
    1,509
    
    
    
    
    
    
    
    
    
    
    
    Share based compensation cost
    
    
    
    
    
    
    6,384
    
    
    
    5,919
    
    
    
    7,775
    
    
    
    1,178Remeasurement loss of previously held
equity interest in Jiangsu Yanshen
    
    
    
    
    
    
    
    
    
    
    13,878
    
    
    
    
    
    
    
    Impairment on goodwill
    
    
    
    
    
    
    
    
    
    
    13,643
    
    
    
    
    
    
    
    Deemed income for free samples
    
    
    
    
    
    
    640
    
    
    
    5,046
    
    
    
    7,437
    
    
    
    1,127Non-taxable income
    
    
    
    
    
    
    (252
    )
    
    
    (4,741
    )
    
    
    (2,101
    )
    
    
    (318
    )Tax rate differential
    
    
    
    
    
    
    (23,980
    )
    
    
    (20,653
    )
    
    
    (24,200
    )
    
    
    (3,666
    )Effect of tax holiday
    
    
    (a
    )
    
    
    (56,407
    )
    
    
    (23,500
    )
    
    
    (29,942
    )
    
    
    (4,537
    )Non-PRC entities not subject to income tax
    
    
    
    
    
    
    1,480
    
    
    
    7,153
    
    
    
    5,307
    
    
    
    804Change in valuation allowance
    
    
    
    
    
    
    13,111
    
    
    
    9,148
    
    
    
    (6,855
    )
    
    
    (1,039
    )Tax credit for purchase of domestic equipment
    
    
    
    
    
    
    (4,255
    )
    
    
    
    
    
    
    
    
    
    
    Interest for unrecognized tax benefits
    
    
    
    
    
    
    601
    
    
    
    1,032
    
    
    
    1,032
    
    
    
    156Others
    
    
    
    
    
    
    3,850
    
    
    
    1,376
    
    
    
    991
    
    
    
    150Change in enacted tax rates or tax status
    
    
    
    
    
    
    (1,149
    )
    
    
    (4,432
    )
    
    
    
    
    
    
    Actual income tax expense
    
    
    
    
    
    
    49,285
    
    
    
    16,897
    
    
    
    10,640
    
    
    
    1,612
 F-31




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 
 Notes:(a)
    
    The effect of tax holiday increased the Groups net income by RMB56,407,
RMB23,500 and RMB29,942 (US$4,537) for the years ended December 31, 2008, 2009 and
2010, respectively. Consequently, the effect of the tax holiday also increased the
Groups basic and diluted earnings per share for such periods as follows: Year ended December 31,2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    US$Increase in earnings per share:Basic
    
    
    0.45
    
    
    
    0.20
    
    
    
    0.28
    
    
    
    0.04Diluted
    
    
    0.45
    
    
    
    0.20
    
    
    
    0.27
    
    
    
    0.04
 (d)
    
    Deferred taxes
 The tax effects of the Groups temporary differences that give rise to significant portions
of the deferred tax asset and liabilities are as follows:
 December 31,2009
    
    2010
    
    2010RMB
    
    RMB
    
    US$Deferred tax assets:Property, plant and equipment
    
    
    5,366
    
    
    
    7,294
    
    
    
    1,105Intangible assets
    
    
    2,147
    
    
    
    3,170
    
    
    
    480Accounts receivable
    
    
    14,474
    
    
    
    10,385
    
    
    
    1,573Inventories
    
    
    4,927
    
    
    
    1,660
    
    
    
    252Tax loss carryforwards
    
    
    18,427
    
    
    
    36,791
    
    
    
    5,574Accruals
    
    
    40,136
    
    
    
    38,147
    
    
    
    5,780Others
    
    
    1,232
    
    
    
    2,860
    
    
    
    434Total gross deferred tax assets
    
    
    86,709
    
    
    
    100,307
    
    
    
    15,198Valuation allowance
    
    
    (33,629
    )
    
    
    (26,774
    )
    
    
    (4,057
    )Net deferred tax assets
    
    
    53,080
    
    
    
    73,533
    
    
    
    11,141Deferred tax liabilitiesIntangible assets and land use right
    
    
    (94,479
    )
    
    
    (87,544
    )
    
    
    (13,264
    )Property, plant and equipment
    
    
    (6,050
    )
    
    
    (5,716
    )
    
    
    (866
    )(100,529
    )
    
    
    (93,260
    )
    
    
    (14,130
    )Net deferred tax liabilities
    
    
    (47,449
    )
    
    
    (19,727
    )
    
    
    (2,989
    )Classification on consolidated balance sheetsCurrent (included in other current assets):
    
    
    31,932
    
    
    
    38,424
    
    
    
    5,822Non-current (included in other non-current
assets):
    
    
    13,727
    
    
    
    10,660
    
    
    
    1,615Deferred tax liabilities:Non-current portion
    
    
    (93,108
    )
    
    
    (68,811
    )
    
    
    (10,426
    )
 In assessing the realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become
deductible and tax loss carryforwards are utilized. Management considers the scheduled
reversal of deferred tax liabilities (including the impact of available carryforward
periods), projected future taxable income, and tax planning strategies in making this
assessment.
 F-32




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 The increase (decrease) in the valuation allowance during the years ended December 31, 2009
and 2010 were RMB9,148 and (RMB6,855)((US$1,039)), respectively. As of December 31, 2009
and 2010, valuation allowances were provided against the deferred tax assets of Jiangsu
Simcere and Sichuan Yirong, which were at cumulative loss positions. The decrease in
valuation allowance in 2010 was mainly due to Jiangsu Simcere generated taxable income
during 2010 and the expectation to generate further taxable income in 2011.Management believes it is more likely than not that the Group will realize the benefits of
its deferred tax assets, net of the valuation allowance. The amount of the deferred tax
assets considered realizable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced.Tax loss carryforwards of the Groups PRC subsidiaries amounted to RMB147,309 (US$22,320) as
of December 31, 2010, of which RMB4,306, RMB18,558, RMB9,893,RMB12,590 and RMB101,962 will
expire if unused by December 31, 2011, 2012, 2013, 2014 and 2015, respectively.
 12
    
    Other current liabilities
 Other current liabilities consist of the following:
 December 31,2009
    
    2010
    
    2010RMB
    
    RMB
    
    US$Accrued marketing, traveling and
conference expenses
    
    
    82,059
    
    
    
    136,709
    
    
    
    20,714Accrued construction costs and payable
for acquisition of property, plant and
equipment and land use right
    
    
    54,360
    
    
    
    78,791
    
    
    
    11,938VAT payable
    
    
    50,640
    
    
    
    56,117
    
    
    
    8,503Provision for rabies vaccine
re-inoculation cost and penalty (note
8(e))
    
    
    50,300
    
    
    
    43,034
    
    
    
    6,520Government grants (note (a))
    
    
    41,969
    
    
    
    58,420
    
    
    
    8,852Payable for acquisitions (note (b))
    
    
    40,631
    
    
    
    56,028
    
    
    
    8,489Security deposits from employees and
agents (note (c))
    
    
    23,345
    
    
    
    23,491
    
    
    
    3,559Customer receipts in advance
    
    
    4,965
    
    
    
    4,565
    
    
    
    692Accrued research and development expenses
    
    
    4,003
    
    
    
    4,348
    
    
    
    659Accrued legal and professional fees
    
    
    2,916
    
    
    
    2,089
    
    
    
    317Other accrued liabilities (note (d))
    
    
    34,918
    
    
    
    40,354
    
    
    
    6,114Income taxes payable (note 11)
    
    
    23,842
    
    
    
    28,747
    
    
    
    4,356Dividends payable (note (e))
    
    
    
    
    
    
    7,846
    
    
    
    1,188Amount due to related party
    
    
    
    
    
    
    110
    
    
    
    16Total other current liabilities
    
    
    413,948
    
    
    
    540,649
    
    
    
    81,917
 
 Notes:(a)
    
    The amounts represent the deferred portion of conditional and refundable government grants
received but not recognized since the conditions are subject to future events.(b)
    
    As of December 31, 2009, the outstanding balance includes RMB9,830, of unpaid consideration
related to the acquisition of 80% of Shandong Simcere which was to be paid upon completion of
the trial period of certain quality control procedures in relation to Endu, which are
procedural in nature. The amount was fully paid in May 2010. The outstanding balance as of
December 31, 2009 and 2010 includes unpaid consideration payable of US$4,511 (RMB30,801) and
US$4,511 (RMB29,875) for the acquisition of the additional 15% equity interest in Jiangsu
Yanshen. The outstanding balance as of December 31, 2010, also includes unpaid consideration
payable of RMB26,153(US$3,963) for the acquisition of the additional 39.19% equity interest in
Boda, which is expected to be paid upon the completion of the transfer of buildings, machinery
and equipment to the selling shareholder(c)
    
    The amounts represent refundable cash security deposits received from certain employees and
from third party marketing agents.(d)
    
    Other accrued liabilities relate to accruals for purchase of technology know-how, other
taxes, utilities expenses and other miscellaneous expenses.(e)
    
    The amount represents the dividend declared by Boda in 2010 attributable to the
noncontrolling interest of Boda. F-33




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 13
    
    Statutory reserves
  Statutory surplus reserve
    14
    
    Pension and other postretirement benefits
  15
    
    Commitments and contingencies
 (a)
    
    Operating lease commitments
  December 31,2010RMB2011
    
    
    1,3622012
    
    
    952013
    
    
    32014
    
    
    32015
    
    
    3Thereafter
    
    
    27Total
    
    
    1,493
 F-34




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 (b)
    
    Commitments
   (c)
    
    Depositary receipt facility
  (d)
    
    Sales of bills receivable commitments
  16
    
    Earnings per share
  Year ended December 31,2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    US$Numerator for basic and diluted earnings per share:Net income attributable to Simcere Pharmaceutical Group
    
    
    350,151
    
    
    
    26,428
    
    
    
    172,411
    
    
    
    26,122Denominator:Basic weighted average number of ordinary shares outstanding
    
    
    124,921,934
    
    
    
    115,099,258
    
    
    
    108,321,562
    
    
    
    108,321,562Effect of dilutive options and non-vested shares
    
    
    83,869
    
    
    
    1,505,661
    
    
    
    3,036,234
    
    
    
    3,036,234Diluted weighted average number of ordinary shares outstanding
    
    
    125,005,803
    
    
    
    116,604,919
    
    
    
    111,357,796
    
    
    
    111,357,796Basic earnings per share
    
    
    2.80
    
    
    
    0.23
    
    
    
    1.59
    
    
    
    0.24Diluted earnings per share
    
    
    2.80
    
    
    
    0.23
    
    
    
    1.55
    
    
    
    0.23
  F-35




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 17
    
    Revenue
  Year ended December 31,2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    US$Anti-stroke medication
    
    
    651,164
    
    
    
    745,469
    
    
    
    800,979
    
    
    
    121,360Antibiotics
    
    
    395,721
    
    
    
    389,478
    
    
    
    435,797
    
    
    
    66,030Anti-cancer
    
    
    322,862
    
    
    
    302,710
    
    
    
    417,199
    
    
    
    63,212Anti-inflammatory drugs
    
    
    147,765
    
    
    
    151,396
    
    
    
    219,550
    
    
    
    33,265Vaccine
    
    
    
    
    
    
    56,785
    
    
    
    62,947
    
    
    
    9,537Other medicines
    
    
    223,631
    
    
    
    211,233
    
    
    
    204,626
    
    
    
    31,005Total revenue
    
    
    1,741,143
    
    
    
    1,857,071
    
    
    
    2,141,098
    
    
    
    324,409
 18
    
    Share-based compensation
 (a)
    
    2006 Share Incentive Plan
  Share options
  Year ended December 31,2008
    
    2009
    
    2010Total number of share options granted
    
    
    500,000
    
    
    
    
    
    
    
    978,000Weighted average exercise price per share (US$/share)
    
    US$
    6.093
    
    
    
    
    
    
    US$
    4.545Weighted average vesting period (in years)
    
    
    4.82
    
    
    
    
    
    
    
    5.00Weighted average contractual life (in years)
    
    
    5.82
    
    
    
    
    
    
    
    6.00
   Year ended December 31,2008
    
    2009
    
    2010Valuation assumptionsExpected term (in years)
    
    
    5.19-5.35
    
    
    
    
    
    
    
    5.5Expected volatility
    
    
    59%-74
    %
    
    
    
    
    
    
    64.73
    %Expected dividend
    
    
    0
    %
    
    
    
    
    
    
    0
    %Risk-free rate
    
    
    1.54%-3.69
    %
    
    
    
    
    
    
    0.75%-1.41
    %
 F-36




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
  Compensation- Stock Compensation
  WeightedWeighted
    
    averageaverage
    
    remaining
    
    AggregateNumber of
    
    exercise
    
    contractual
    
    intrinsicoptions
    
    price
    
    term
    
    valueUS$
    
    Years
    
    US$Balance as of January 1, 2008
    
    
    10,997,800
    
    
    
    4.44Granted
    
    
    500,000
    
    
    
    6.09Exercised
    
    
    (198,000
    )
    
    
    4.20Forfeited
    
    
    (1,361,800
    )
    
    
    5.91Balance as of December 31, 2008
    
    
    9,938,000
    
    
    
    4.33Forfeited
    
    
    (135,600
    )
    
    
    4.22Cancelled
    
    
    (9,802,400
    )
    
    
    4.33Balance as of December 31, 2009
    
    
    
    
    
    
    Granted
    
    
    978,000
    
    
    
    4.55Balance as of December 31, 2010
    
    
    978,000
    
    
    
    4.55
    
    
    
    4.67
    
    
    
    1,134Exercisable as of December 31, 2010
    
    
    978,000
    
    
    
    4.55
    
    
    
    4.67
    
    
    
    1,134
   Non-vested shares
   F-37




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
    Number of
    
    Weightednon-vested
    
    average grant-shares
    
    date fair valueUS$Balance as of January 1, 2009
    
    
    
    
    
    
    Replacement awards granted on May 7, 2009
    
    
    2,916,028
    
    
    
    3.38Granted
    
    
    240,000
    
    
    
    3.91Vested
    
    
    (885,656
    )
    
    
    3.38Forfeited
    
    
    (213,542
    )
    
    
    3.38Balance as of December 31, 2009
    
    
    2,056,830
    
    
    
    3.44Granted
    
    
    870,000
    
    
    
    4.48Vested
    
    
    (993,068
    )
    
    
    3.47Forfeited
    
    
    (13,336
    )
    
    
    3.38Balance as of December 31, 2010
    
    
    1,920,426
    
    
    
    3.90
    Year ended December 31,2008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    US$Research and development expenses
    
    
    1,512
    
    
    
    1,772
    
    
    
    3,599
    
    
    
    545Sales, marketing and distribution expenses
    
    
    2,665
    
    
    
    2,058
    
    
    
    3,810
    
    
    
    577General and administrative expenses
    
    
    21,359
    
    
    
    19,847
    
    
    
    23,690
    
    
    
    3,590Total share-based compensation
    
    
    25,536
    
    
    
    23,677
    
    
    
    31,099
    
    
    
    4,712
 (b)
    
    2008 Share Incentive Plan
  F-38




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 19
    
    Share repurchases
   20
    
    Related party transactions
  Year ended December 312008
    
    2009
    
    2010
    
    2010RMB
    
    RMB
    
    RMB
    
    US$Purchase of packaging and raw materials from
related parties (note (a))
    
    
    109
    
    
    
    364
    
    
    
    23
    
    
    
    3Purchase of products from a related party (note (b))
    
    
    
    
    
    
    2,108
    
    
    
    
    
    
    
    Sales of products to related parties (note (c))
    
    
    6,775
    
    
    
    4,596
    
    
    
    6,158
    
    
    
    933Professional fee paid to a related party (note (d))
    
    
    
    
    
    
    2,000
    
    
    
    
    
    
    
    Interest income from loan due to a related party
(note (e))
    
    
    1,108
    
    
    
    1,192
    
    
    
    1,274
    
    
    
    193Interest income from advances to an affiliated
company (note (f))
    
    
    
    
    
    
    908
    
    
    
    1,485
    
    
    
    225Advance to an affiliated company (note (f))
    
    
    
    
    
    
    19,500
    
    
    
    12,600
    
    
    
    1,909
 December 31,2009
    
    2010
    
    2010RMB
    
    RMB
    
    US$Due from related parties:Current portion
    
    
    3,989
    
    
    
    1,272
    
    
    
    193Non-current portion
    
    
    22,300
    
    
    
    23,574
    
    
    
    3,572Due from related parties (note (e))
    
    
    26,289
    
    
    
    24,846
    
    
    
    3,765Advances to an affiliated company (note (f))
    
    
    19,762
    
    
    
    33,833
    
    
    
    5,126Due to related parties
    
    
    
    
    
    
    110
    
    
    
    17
 
  (a)
    
    The Company purchased packaging and raw materials from companies in which a major shareholder
of the Company has an equity interest.(b)
    
    The Company purchased pharmaceutical products from a company in which a noncontrolling
shareholder of a subsidiary has an equity interest.(c)
    
    The Company sold pharmaceutical products to the companies in which a major shareholder has an
equity interest. F-39




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 
 (d)
    
    The Company paid professional service fee to an entity for corporate consultancy service. The
Group and this entity have common directors.(e)
    
    The non-current portion of amounts due from related parties represented a RMB21,600 secured
loan. The loan was provided to a noncontrolling shareholder of a subsidiary with a principal
of RMB20,000 on June 30, 2008. The loan together with the accumulated interest of RMB1,600 was
renewed on July 1, 2009 for 1 year. On July 1, 2010, the loan was renewed for another 1 year
and repayable on June 30, 2011. The secured loan bears a floating interest rate equal to RMB
benchmark lending rates of financial institutions multiplied by 110% and is secured by
noncontrolling shareholders entire equity interest in the subsidiary. The secured loan was
classified as non-current as of December 31, 2009 and 2010 because management expects the loan
to be renewed and extended beyond 12 months from the balance sheet date.The remaining balance of the non-current portion of amount due from related parties as of
December 31,2009 and 2010 represented the accrued loan interest. The accrued interest was
classified as non-current as of December 31, 2009 and 2010 due to the same basis as the
secured loan mentioned above.The current portion of amounts due from related parties related to transactions described
in note (c) above as of December 31, 2009 and 2010 were RMB2,873 and RMB 140 (US$21),
respectively. These amounts were interest-free, unsecured and repayable on demand. The
current portion as of December 31, 2009 and 2010 also included an advance payment of
RMB1,116 and RMB1,132 (US$172) to a related party and the amount is interest-free,
unsecured and repayable on demand.(f)
    
    The amounts included a RMB19,500 loan in 2009 and an additional loan of RMB 12,600(US$1,909)
in 2010 made by the Company to its affiliated company and the related accrued interest of
RMB262 as of December 31, 2009 and RMB1,733 (US$263) as of December 31, 2010, respectively.
The loan has a one-year term, bears a fixed interest rate at 5.31% per annum and is guaranteed
by a shareholder of the affiliated company. 21
    
    Collaborative arrangements
     F-40




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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 22      Fair value measurements
  
    
    Short-term financial instruments (cash equivalents, pledged bank deposits,
trade accounts receivable, bills receivable and other receivables, amounts due from
related parties, short-term borrowings, trade accounts payable, amounts due to related
parties, and other payables and accrued liabilities)  their carrying amounts
approximated their respective fair values because of the short maturity period.
    
    Long-term loans and long-term loan receivable  their fair values are
based on the amount of future cash flows associated with these instruments discounted
at the borrowing and lending rates currently available for similar instruments of
comparable terms. Their carrying values of the long-term loans and long-term receivable
approximated their fair values as all these instruments carry variable interest rates
which approximated rates currently offered by the Groups financial institutions for
similar instruments of comparable maturities.
    
    The fair value of goodwill is determined by estimating the expected
present value of future cash flows without reference to observable market transactions.
 23
    
    Simcere Pharmaceutical Group (parent company)
     Condensed Balance Sheets
 December 312009
    
    2010
    
    2010RMB
    
    RMB
    
    US$Cash
    
    
    19,917
    
    
    
    14,063
    
    
    
    2,131Due from subsidiaries
    
    
    764,709
    
    
    
    621,521
    
    
    
    94,170Other current assets
    
    
    2,949
    
    
    
    1,885
    
    
    
    286Investment in unconsolidated subsidiaries
    
    
    1,219,970
    
    
    
    1,266,876
    
    
    
    191,950Total assets
    
    
    2,007,545
    
    
    
    1,904,345
    
    
    
    288,537Due to subsidiaries
    
    
    24,515
    
    
    
    24,094
    
    
    
    3,651Other current liability
    
    
    806
    
    
    
    1,579
    
    
    
    239Total shareholders equity
    
    
    1,982,224
    
    
    
    1,878,672
    
    
    
    284,647Total liabilities and equity
    
    
    2,007,545
    
    
    
    1,904,345
    
    
    
    288,537
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##### Table of Contents



Simcere Pharmaceutical Group and Subsidiaries
Notes to Consolidated Financial Statements
(Amounts expressed in thousands, except share data)
 Condensed Statements of operations
 Year ended December 31,2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Equity in earnings of unconsolidated subsidiaries
    
    
    380,529
    
    
    
    53,947
    
    
    
    206,451
    
    
    
    31,280Operating expense
    
    
    (30,659
    )
    
    
    (28,619
    )
    
    
    (34,797
    )
    
    
    (5,272
    )Interest income
    
    
    58
    
    
    
    18
    
    
    
    1
    
    
    
    Foreign currency exchange loss, net
    
    
    (880
    )
    
    
    (9
    )
    
    
    (327
    )
    
    
    (50
    )Other income
    
    
    1,103
    
    
    
    1,091
    
    
    
    1,083
    
    
    
    164Earnings before income taxes
    
    
    350,151
    
    
    
    26,428
    
    
    
    172,411
    
    
    
    26,122Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    350,151
    
    
    
    26,428
    
    
    
    172,411
    
    
    
    26,122
 Condensed Statements of Cash Flows (continued)
 Year ended December 31,2008
    
    
    2009
    
    
    2010
    
    
    2010RMB
    
    
    RMB
    
    
    RMB
    
    
    US$Net cash used in operating activities
    
    
    (3,453
    )
    
    
    (6,345
    )
    
    
    (786
    )
    
    
    (119
    )Net cash provided by (used in) financing activities
    
    
    33,958
    
    
    
    (10,688
    )
    
    
    (4,582
    )
    
    
    (694
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    (367
    )
    
    
    (41
    )
    
    
    (486
    )
    
    
    (74
    )Net increase (decrease ) in cash and cash equivalent
    
    
    30,138
    
    
    
    (17,074
    )
    
    
    (5,854
    )
    
    
    (887
    )Cash and cash equivalents at the beginning of the
year
    
    
    6,853
    
    
    
    36,991
    
    
    
    19,917
    
    
    
    3,018Cash and cash equivalents at the end of the year
    
    
    36,991
    
    
    
    19,917
    
    
    
    14,063
    
    
    
    2,131
 F-42