( incorporated in the Cayman Islands with limited liability ) ( Stock Code: 0775 ) ANNUAL REPORT 2008 ANNUAL REPORT 2 Dai Fu Street, Tai Po Industrial Estate, Hong Kong Tel: (852) 2126 1212 Fax: (852) 2126 1211 www.ck-lifesciences.com This annual report 2008 (“Annual Report”) is available in both English and ABOUT CK LIFE SCIENCES Chinese versions. Shareholders who have received either the English or the Chinese version of the Annual Report may request a copy in the other CK Life Sciences Int’l., (Holdings) Inc. is listed on language by writing to the Company c/o the Company’s Branch Share Registrar, Computershare Hong Kong Investor Services Limited, at The Stock Exchange of Hong Kong Limited. Bearing Rooms 1806 – 1807, 18th Floor, Hopewell Centre, 183 Queen’s Road East, the mission of improving the quality of life, Hong Kong or by email at [email protected]. CK Life Sciences is engaged in the business of The Annual Report (in both English and Chinese versions) has been posted research and development, commercialisation, on the Company’s website at http://www.ck-lifesciences.com. Shareholders who have chosen (or are deemed to have consented) to read the Company’s marketing and sale of biotechnology products. corporate communications (including but not limited to annual reports, Products developed by CK Life Sciences are summary financial reports (where applicable), interim reports, summary interim reports (where applicable), notices of meetings, listing documents, circulars and categorised into the areas of human health proxy forms) published on the Company’s website in place of receiving printed and environmental sustainability. A number of copies thereof may request the printed copy of the Annual Report. inventions have been granted patents by the Shareholders who have chosen (or are deemed to have consented) to receive US Patent and Trademark Office. CK Life Sciences is the corporate communications using electronic means through the Company’s website and who for any reason have difficulty in receiving or gaining access a member of the Cheung Kong Group. to the Annual Report posted on the Company’s website will upon request in writing or by email at [email protected] promptly be sent the Annual Report in printed form free of charge. Shareholders may at any time choose to change your choice as to the means of receipt (i.e. in printed form or by electronic means through the Company’s website) and/or the language of the Company’s corporate communications by reasonable prior notice in writing or sending a notice to [email protected] to the Company c/o the Company’s Branch Share Registrar, Computershare Hong Kong Investor Services Limited, at Rooms 1806 – 1807, 18th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong. CONTENTS 2 Global Business Scope 4 Chairman’s Statement 8 Business Review P HARMACEUTICALS N UTRACEUTICALS A GRICULTURE 20 Directors and Senior Management 29 Financial Summary 30 Financial Review 32 Risk Factors 36 Report of the Directors 50 Corporate Governance Report 100 Independent Auditor’s Report 102 Consolidated Income Statement 103 Consolidated Balance Sheet 105 Consolidated Statement of Changes in Equity 106 Consolidated Cash Flow Statement 108 Notes to the Financial Statements 159 Principal Subsidiaries 162 Principal Associates 163 Corporate Information and Key Dates G LOBAL BUSINESS SCOPE WEX PHARMA Canada Pain management product research POLYNOMA United States Melanoma vaccine research PHARMACEUTICALS CK LIFE SCIENCES Hong Kong HQ SANTÉ NATURELLE A.G. Canada Bestselling Québec nutraceutical brand VITAQUEST United States Custom contract manufacturer 2 CK LIFE SCIENCES INT’L., (HOLDINGS) INC. CK CANCER INSTITUTE AGRICULTURE Hong Kong Cancer treatment R&D ACCENSI Australia GREEN VISION Toll manufacturer of crop protection China products Fertiliser business ECOFERTILISER GROUP Australia Eco-fertiliser businesses NUTRACEUTICALS VITAQUEST LIPA United States Australia Custom contract Custom contract manufacturer manufacturer ANNUAL REPORT 2008 3 C HAIRMAN’S STATEMENT 2008 has been an unprecedented year in recent financial history. We have witnessed a global economic crisis of such a magnitude that many businesses, regardless of market or industry, have been affected. CK Life Sciences Int’l., (Holdings) Inc. (“CK Life Sciences” or the “Company”) is no exception. Our 2008 performance has been substantially affected by external economic factors. Despite a satisfactory operational performance, profitability has been adversely impacted by our treasury investments and by adverse fair value changes in financial instruments. FINANCIAL HIGHLIGHTS HK$ Million 2008 2007 Variation • Turnover 2,992 2,092 +43% - Health 1,961 1,488 +32% - Agriculture-related 1,017 511 +99% - Investment 14 93 -85% • EBIT* before treasury items 59 (63) N/A • Treasury items, including fair value changes on financial instruments (316) 132 N/A • Profit/(loss) attributable to shareholders (352) 117 N/A * Earnings Before Interest and Tax 4 CK LIFE SCIENCES INT’L., (HOLDINGS) INC. Turnover investment loss incurred in the year under review, a Turnover increased by 43% over last year to reach cumulative treasury income gain of over HK$600 million HK$2,992 million. was generated as at year end 2008. These treasury investment returns have been necessary to help fund Our business operations in the pharmaceutical, business activities and R&D initiatives. As our business nutraceutical and agriculture-related sectors all operations grew and started to contribute to the performed well in 2008. In spite of the challenging Company’s profitability, our strategy has been to reduce macro-economic environment, progress was achieved the proportion and amount of treasury investments in overall operational performance. and channel resources into various global operations. EBIT* Before Treasury Items The investment pool balance had therefore decreased from over HK$2,200 million at the beginning of 2004 EBIT* before treasury items increased to HK$59 million to around HK$380 million at the end of 2008. Future as compared to a loss of HK$63 million in 2007. This exposure to treasury investments is therefore very reflects the improvement in the Company’s operational much reduced. performance over the past year. Net Debt to Equity Ratio Treasury Items, Including Fair Value Changes The Company’s net debt to equity ratio is at a on Financial Instruments conservative level of 16.54% as at 31 December 2008. Due to the negative impact of the global financial crisis, treasury investments suffered a loss of HK$316 million Profit/(Loss) Attributable to Shareholders in 2008, of which a substantial portion were adverse fair Impacted by substantial treasury losses incurred during value changes in financial instruments. It is worth noting the year, the Company recorded a loss attributable to though that the reduction in valuation of financial shareholders of HK$352 million. This compares with a instruments represents an accounting entry and has no profit of HK$117 million in 2007. immediate cashflow impact. Dividends At this juncture, it is appropriate to explain the role The Board of Directors does not recommend the of treasury income for biotech companies such as payment of a final dividend for the year ended CK Life Sciences. Over the last six years since listing 31 December 2008. in 2002, treasury income had represented an important revenue stream for the Company. Despite the treasury ANNUAL REPORT 2008 5 C HAIRMAN’S STATEMENT (CONT’D) OPERATIONAL HIGHLIGHTS Health – Pharmaceuticals Health – Nutraceuticals CK Life Sciences has a strong pharmaceutical portfolio In 2008, CK Life Sciences’ nutraceutical businesses in the pipeline, with a number of products in various generated sales of nearly HK$2 billion, an increase of stages of development. We are very excited about the 32% as compared to approximately HK$1.5 billion last progress made by our pharmaceutical R&D initiatives year. Our portfolio of revenue contributors comprises during the course of the year. To reach the final stage, Santé Naturelle A.G. Ltée (“SNAG”) in Canada, Phase III, of clinical trials is a significant milestone for a Vitaquest International Holdings LLC (“Vitaquest”) in the biotech company. The Company is very proud to have United States and Lipa Pharmaceuticals Limited (“Lipa”) one product in advanced Phase III trials in Canada and in Australia. another in the preparation stage to commence Phase III In spite of the softening of the consumer market, SNAG trials in the United States. was able to maintain its market share and leadership Our pain management product based on tetrodotoxin is position in Québec, Canada. With a portfolio of over at an advanced stage of development. This drug, which 150 natural health products, SNAG continues to is developed as a remedy for alleviating cancer-related dedicate ongoing efforts in enhancing its product range pain, has reached the pivotal milestone of Phase III for customers, targeting growing health segments for clinical trials under Health Canada. Good progress has the maintenance, prevention or solution of specific been made to date. health conditions. In the oncology area, we are developing a therapeutic Vitaquest’s performance represented an improvement vaccine for the treatment of melanoma in the United over last year. In addition to developing new products States. R&D for this product is also at an advanced to increase customer choice, Vitaquest has also invested stage. A pre-Investigational New Drug meeting was in innovative delivery technologies to further enhance successfully held with the US FDA last year. We are its advantages in product development. Improvement aggressively working towards the commencement of works are underway at its facilities to streamline Phase III clinical trials. production processes, expedite throughput, increase storage capacity and reduce costs. At the pre-clinical stage, two promising cancer projects have been identified for further development. Pre-clinical In 2008, Lipa delivered a strong first full year of profit studies are ongoing in collaboration with Cedars-Sinai contribution.