UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

(Mark One)

     ¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

     x 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

     ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

     ¨ 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                     

For the transition period from                      to                     .

Commission file number: 001-33623

WuXi PharmaTech (Cayman) Inc.

(Exact name of Registrant as specified in its charter)

Not applicable

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

288 Fute Zhong Road Waigaoqiao Free Trade Zone Shanghai 200131

(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class	Name of each exchange on which registered
American Depositary Shares, each representing eight ordinary shares, par value U.S.$0.02 per share	New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 560,972,080

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    x  Yes    ¨  No

If this report is an annual or transaction report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ¨  Yes    x  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    ¨  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  x                 Accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

US GAAP  x International Financial Reporting Standards as issued by the International Accounting Standards Board  ¨

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.  ¨ Item 17  ¨ Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨  Yes    x  No

WuXi PharmaTech (Cayman) Inc.

TABLE OF CONTENTS

		Page
INTRODUCTION			1
FORWARD-LOOKING STATEMENTS			2
PART I.
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS		3
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE		3
ITEM 3.	KEY INFORMATION		3
ITEM 4.	INFORMATION ON THE COMPANY		24
ITEM 4A.	UNRESOLVED STAFF COMMENTS		42
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		42
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		60
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		70
ITEM 8.	FINANCIAL INFORMATION		71
ITEM 9.	THE OFFER AND LISTING		73
ITEM 10.	ADDITIONAL INFORMATION		73
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		80
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		82
PART II.
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.		83
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS		83
ITEM 15.	CONTROLS AND PROCEDURES		83
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT		84
ITEM 16B.	CODE OF ETHICS		84
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES		84
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES		85
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS		85
ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT		85
ITEM 16G.	CORPORATE GOVERNANCE		85
PART III.
ITEM 17.	FINANCIAL STATEMENTS		85
ITEM 18.	FINANCIAL STATEMENTS		85
ITEM 19.	EXHIBITS		86

1

INTRODUCTION

Except where the context otherwise requires and for purposes of this annual report on Form 20-F only:

• “we,” “us,” “our company” and “our” refer to WuXi PharmaTech (Cayman) Inc., or WuXi, and its consolidated subsidiaries, including WuXi AppTec (BVI) Inc., or WXAT BVI; WuXi AppTec Co., Ltd., or WXAT; WuXi AppTec (Shanghai) Co., Ltd., or WASH; Shanghai SynTheAll Pharmaceutical Co., Ltd., or STA; WUXIAPPTEC (Tianjin) Co., Ltd., or WATJ; WuXi AppTec (Suzhou) Co., Ltd., or WASZ; WuXi AppTec Holding Company, Inc.; WuXi AppTec, Inc., or AppTec; WX (BVI) Limited; Kaipara Enterprises Ltd.; Klivia Investments Sp. z o.o.; Klivia Investments Sp. z o. o. Luxembourg Branch; WuXi AppTec Biopharmaceuticals Co., Ltd., or WABIO; WuXi AppTec (Wuhan) Co., Ltd., or WAWH; and Shanghai AppTec (HK) Co., Limited;

• “China” or “PRC” refers to the People’s Republic of China, excluding, for purposes of this annual report on Form 20-F only, Taiwan and the special administrative regions of Hong Kong and Macau;

• all references to “Renminbi,” or “RMB,” are to the legal currency of China; all references to “U.S. dollars,” “dollars” or “$” are to the legal currency of the United States;

• “ordinary shares” refers to our ordinary shares, par value $0.02 per share;

• “ADSs” refers to our American depositary shares, each of which represents eight ordinary shares;

• “ADRs” refers to American depositary receipts, which, if issued, evidence our ADSs;

• “discontinued operations” refers to the biologics manufacturing operations in Philadelphia, Pennsylvania, which we decided to close on December 2, 2008; and

• unless otherwise indicated, all historical share and per-share data contained in this annual report on Form 20-F have been restated to give retroactive effect to a one-for-fifty forward share split that became effective on July 27, 2007.

This annual report on Form 20-F includes our audited consolidated statements of operations for the years ended December 31, 2008, 2009 and 2010 and audited consolidated balance sheets as of December 31, 2009 and 2010. We acquired AppTec on January 31, 2008, with AppTec’s financial results consolidated on and after the acquisition.

We and certain of our shareholders completed the initial public offering of 15,167,326 ADSs, each representing eight ordinary shares, in August 2007. Our ADSs are listed on the New York Stock Exchange, or NYSE, under the symbol WX.

1

FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements based on our current expectations, assumptions, estimates and projections about us and our industry. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. In some cases, these forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. The forward-looking statements included in this annual report on Form 20-F relate to, among other things:

• our goals and strategies;

• our future business development, financial condition and results of operations;

• general economic and business conditions, particularly in China and the United States;

• the effects of the global macroeconomic conditions on our business, financial condition and results of operations;

• the effects of the continuation of Renminbi appreciation and labor inflation in China;

• the expected growth in research and development, or R&D, spending by the pharmaceutical, biotechnology and medical device industries;

• the expected growth of the pharmaceutical, biotechnology and medical device R&D outsourcing industry in China and internationally;

• competition in the pharmaceutical, biotechnology and medical device R&D outsourcing industry;

• our expectations regarding market acceptance of, or demand for, our services;

• our ability to stay abreast of market trends and technological advances;

• our ability to effectively protect our intellectual-property rights and not infringe on the intellectual-property rights of others; and

• governmental policies and regulations in China and the United States relating to the pharmaceutical, biotechnology and medical device industries and R&D outsourcing industry.

The forward-looking statements made in this annual report on Form 20-F relate only to events or information as of the date on which the statements are made in this annual report. All forward-looking statements included herein attributable to us or other parties or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.

2

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

Selected Consolidated Financial Data

The following selected consolidated income statement data for the years ended December 31, 2008, 2009 and 2010, and the selected consolidated balance sheet data as of December 31, 2009 and 2010 have been derived from our audited consolidated financial statements included elsewhere in this annual report on Form 20-F, which have been audited by Deloitte Touche Tohmatsu CPA Ltd., an independent registered public accounting firm. Our selected consolidated income statement data for the years ended December 31, 2006 and 2007 and selected consolidated balance sheet data as of December 31, 2006, 2007 and 2008 were derived from our audited consolidated financial statements, which are not included in this annual report on Form 20-F. You should read the selected consolidated financial data in conjunction with our audited financial statements and the accompanying notes included elsewhere in this annual report on Form 20-F and Item 5, “Operating and Financial Review and Prospects.” Our audited consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Our historical results are not necessarily indicative of our future results.

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	Year Ended December 31,
	2006			2007			2008			2009			2010
	(in millions of U.S. dollars, except share data)
WuXi Consolidated Income Statement Data
Net revenues
Laboratory services	$	59.8		$	102.4		$	205.0		$	249.9		$	294.9
Manufacturing services		10.1			32.8			48.5			20.1			39.2
Total		69.9			135.2			253.5			270.0			334.1
Cost of revenues
Laboratory services		(26.5	)		(52.4	)		(124.7	)		(145.2	)		(175.1	)
Manufacturing services		(9.1	)		(19.9	)		(32.4	)		(16.5	)		(31.4	)
Total		(35.6	)		(72.3	)		(157.1	)		(161.7	)		(206.5	)
Gross profit		34.3			62.9			96.4			108.3			127.6
Operating expenses:
Selling and marketing expenses		(1.9	)		(2.4	)		(7.4	)		(7.5	)		(9.1	)
General and administrative expenses		(22.3	)		(30.3	)		(49.4	)		(48.8	)		(47.0	)
Impairment charges		—			—			(60.5	)		—			—
Total		(24.2	)		(32.7	)		(117.3	)		(56.3	)		(56.1	)
Operating income (loss)		10.1			30.2			(20.9	)		52.0			71.5
Other income, net		*			2.4			1.1			6.8			28.4
Interest expense		(1.1	)		(1.2	)		(1.4	)		(1.0	)		(0.4	)
Interest income		0.3			4.0			2.3			1.1			1.5
Income (loss) from continuing operations before income taxes		9.3			35.4			(18.9	)		58.9			101.0
Income tax (expense) benefit		(0.4	)		(1.5	)		4.0			(5.5	)		(10.2	)
Net income (loss) from continuing operations(1)	$	8.9		$	33.9		$	(14.9	)	$	53.4		$	90.8
Income (loss) on discontinued operations		—			—			(49.3	)		(0.5	)		—
Net income (loss)	$	8.9		$	33.9		$	(64.2	)	$	52.9		$	90.8
Basic earnings (loss) per share from continuing operations	$	(0.15	)	$	0.07		$	(0.03	)	$	0.10		$	0.16
Basic loss per share on discontinued operations—net of tax		—			—		$	(0.10	)	$	0.00		$	—
Basic earnings (loss) per share	$	(0.15	)	$	0.07		$	(0.13	)	$	0.10		$	0.16
Diluted earnings (loss) per share from continuing operations	$	(0.15	)	$	0.05		$	(0.03	)	$	0.09		$	0.15
Diluted loss per share on discontinued operations—net of tax		—			—		$	(0.10	)	$	0.00		$	—
Diluted earnings (loss) per share	$	(0.15	)	$	0.05		$	(0.13	)	$	0.09		$	0.15
Dividends declared per ordinary share	$	(0.02	)		—			—			—			—

* Less than $50,000

⁽¹⁾  Includes share-based compensation charges of $8.4 million, $10.7 million, $13.0 million , $10.2 million and $10.1 million in 2006, 2007, 2008, 2009 and 2010, respectively, allocated as follows:

	Year Ended December 31,
	2006		2007		2008		2009		2010
	(in millions of U.S. dollars)
Cost of revenues	$	0.5	$	2.1	$	3.0	$	2.7	$	3.7
Selling and marketing expenses		—		—		—		0.1		0.1
General and administrative expenses		7.9		8.6		10.0		7.4		6.3

4

	2006			2007		2008		2009		2010
WuXi Consolidated Balance Sheet Data
Cash and cash equivalents	$	9.7		$	213.6	$	56.6	$	80.5	$	115.4
Total current assets		36.7			261.9		129.8		174.2		244.9
Property, plant and equipment, net		42.8			73.6		152.7		181.8		205.5
Total assets		85.7			343.8		336.4		407.3		498.1
Short-term bank borrowings, including current portion of long-term debt		9.6			—		7.6		34.4		0.3
Total current liabilities		30.6			45.6		58.8		80.3		59.6
Long-term debt, excluding current portion		5.8			4.1		2.3		2.1		1.9
Convertible notes		—			41.0		35.9		35.9		35.9
Total liabilities		37.5			92.4		105.5		127.2		105.3
Mezzanine equity		49.1			—		—		—		—
Total equity (deficit)		(0.9	)		251.4		230.9		280.1		392.8
Total liabilities, mezzanine equity and equity		85.7			343.8		336.4		407.3		498.1

Exchange Rate Information

A majority of our business is conducted in China, and some of our net revenues and expenses are denominated in Renminbi. We use U.S. dollars as our reporting currency in our financial statements and in this annual report. Monetary assets and liabilities denominated in Renminbi are translated into U.S. dollars at the rates of exchange as of the balance sheet date; equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the year as published by the People’s Bank of China. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the statement of changes in equity. In other parts of this annual report, any Renminbi denominated amounts are accompanied by translations. Transactions in Renminbi are recorded at the rates of exchange prevailing when the transactions occur. With respect to amounts not recorded in our consolidated financial statements included elsewhere in this annual report, all transactions from Renminbi into U.S. dollars and from U.S. dollars to Renminbi in this annual report on Form 20-F were made at a rate of RMB 6.6000 to $1.00, the noon buying rate set forth in the H.10 statistical release of the Federal Reserve Board on December 31, 2010. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The Chinese government imposes control over its foreign-currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. See Item 3.D, “Key Information—Risk Factors—Risks Relating to China—Fluctuations in exchange rates have resulted in, and are expected to continue to result in, foreign-exchange losses and to adversely impact our profitability.” On April 15, 2011, the noon buying rate set forth in the H.10 statistical release of the Federal Reserve Board was RMB 6.5317 to $1.00.

The following table sets forth information concerning exchange rates between the Renminbi and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this annual report on Form 20-F or will use in the preparation of our periodic reports or any other information to be provided to you.

	Exchange Rate
Period	Period-End		Average(1)		Low		High
2006		7.8041		7.9579		8.0702		7.8041
2007		7.2946		7.5806		7.8127		7.2946
2008		6.8225		6.9193		7.2946		6.7800
2009		6.8259		6.8295		6.8470		6.8176
2010		6.6000		6.7603		6.8330		6.6000
October 2010		6.6707		6.6678		6.6912		6.6397
November 2010		6.6670		6.6538		6.6892		6.6330
December 2010		6.6000		6.6497		6.6745		6.6000
January 2011		6.6017		6.5964		6.6364		6.5809
February 2011		6.5713		6.5761		6.5965		6.5520
March 2011		6.5483		6.5645		6.5743		6.5483
April 2011 (through April 15, 2011)		6.5317		6.5382		6.5477		6.5310

5

Source: Exchange rate supplied by the Federal Reserve Bank of New York for the years from 2006 to 2008 and by the H.10 Statistical Release of the Federal Reserve Board from 2009 to 2011.

⁽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

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Risks Relating to Our Business and Industry

The trend toward greater outsourcing of R&D services by pharmaceutical, biotechnology and medical device companies may slow or reverse, which could adversely affect our business, including its financial condition, results of operations, cash flows and prospects.

The success of our business depends primarily on the number and size of contracts that we obtain from pharmaceutical, biotechnology and medical device companies. Over the past several years, our business has benefited from increased levels of outsourcing of R&D activities by these companies. A slowing or reversal of this trend could adversely affect our business, including its financial condition, results of operations, cash flows and prospects.

A reduction in R&D budgets at pharmaceutical, biotechnology and medical device companies may result in a reduction or discontinuation of our services, which may adversely affect our business.

Our business could be adversely affected by any significant decrease in R&D expenditures by pharmaceutical, biotechnology and medical device companies. Fluctuations in the R&D budgets of pharmaceutical, biotechnology and medical device companies could have a significant effect on the demand for our services. R&D budgets fluctuate due to sales performance of these companies, changes in their available resources, their decisions to consolidate, their spending priorities and their budgetary policies and practices.

The global economic downturn adversely affected, and could continue to adversely affect, our business, financial condition and results of operations.

The global economic downtown affected certain areas of our business, particularly the biotechnology R&D outsourcing markets. Disruptions in orderly financial markets resulted from, among other factors, severely diminished liquidity, reduced credit availability, volatile and declining valuations of securities and other investments, reduced business and consumer confidence and increased unemployment. These factors, along with the interconnectedness and interdependence of international economies, created and may continue to create a global downturn in economic activity. The economic downturn adversely affected, and a future economic weakening in the United States or globally would adversely affect, our business in several ways, including:

• Reduced demand for our services. In a period of economic uncertainty, customers may adopt a strategy to defer spending for global pharmaceutical, biotechnology and medical device R&D outsourcing services to later periods. For example, customers who must finance their capital and other expenditures through various forms of debt may find financing unavailable to them, thereby reducing their ability and willingness to purchase our services.

6

• Increased pricing pressure and lower margins. If growth of our potential markets slows due to the global economic downturn, competition in the global pharmaceutical, biotechnology and medical device R&D outsourcing markets may become more intense, which could require us to offer or accept less favorable pricing and payment or other terms to remain competitive. For example, we anticipate that pricing pressures will reduce our gross margins in 2011. In some cases, we may be unwilling or unable to compete for business where competitive pressures make a potential opportunity unprofitable to us.

• Renminbi appreciation. If the RMB continues to appreciate in relation to the U.S. dollar, our profitability may be negatively impacted. We receive a significant portion of our revenues in U.S. dollars and pay a majority of our expenses in RMB. Further appreciation of the RMB will increase the value of RMB expenses in relation to revenues denominated in dollars, euros, and yen to the extent that we do not, or are unable to, mitigate this appreciation through the purchase of foreign-exchange forward contracts.

• Greater difficulty in collecting accounts receivable. The failure of any of our customers to make timely payments could require us to write off accounts receivable or increase provisions made against our accounts receivable, events that could adversely affect our cash flows and profitability.

• Additional restructuring and impairment charges. If we cannot generate the level of revenues, profits and cash flow contemplated by our business plan, management may be forced to take further action to refocus our business activities and realign our cost structure with anticipated revenues.

The generally uncertain economic conditions in the U.S. and globally could adversely affect our business and results of operations.

A limited number of our customers have accounted for, and are expected to continue to account for, a high percentage of our revenues. The loss of, or significant reduction in, orders from any of these customers could significantly reduce our revenues and have a material adverse effect on our financial condition, results of operations, cash flows and prospects. The recent trend of increased merger activity in the pharmaceutical industry increases this risk.

We generated a large majority of our total net revenues from sales to customers headquartered in the United States. Our top ten customers accounted for 59.7% of our total 2010 revenues. Any of our existing customers may not continue to generate significant revenues for us once our current engagements with them conclude, and our relationships with them may not present further business opportunities. In addition, the recent mergers between large pharmaceutical companies, some of which are our customers, have resulted in reduced business. For example, at the end of 2009, two of our major customers completed a business combination with each other, which has produced a moderate reduction in business volume. This trend toward consolidation could adversely affect our financial condition. Similar business combinations could result in:

• the reduction, delay or cancellation of orders or contracts by one or more of our significant customers;

• the decision by one or more of our significant customers to award orders or contracts to our competitors; and

• the substantial reduction in the price that one or more of our significant customers is willing to pay for our services and products.

Furthermore, if we fail to build relationships with new customers or fail to sustain or expand relationships with existing customers, we may be unable to maintain or increase our revenues.

Our ability to execute projects; to maintain, expand or renew existing customer engagements and to obtain new customers depends largely on our ability to attract, train, motivate and retain highly skilled scientists and mid-level personnel.

Our success largely depends on the breadth and depth of our team of scientists and mid-level personnel and their capabilities and efforts for our customers on behalf of our company, including their ability to keep pace with continuing changes in pharmaceutical and medical device R&D technologies and methodologies. In particular, our customers value Western-trained scientists with experience at large pharmaceutical and/or biotechnology companies. Any inability to attract, motivate and retain qualified scientists and mid-level personnel and to train them in the latest developments in their fields of expertise may have a material adverse effect on our business, including its financial condition, results of operations, cash flows and prospects.

7

We face challenges in attracting and retaining consistently high-quality employees. We compete vigorously with pharmaceutical, biotechnology, medical device and contract research companies and academic and research institutions for qualified and experienced scientists, particularly in our laboratory services in chemistry and biology and in our manufacturing services. To compete effectively, we may be required to offer higher compensation and other benefits, which could materially and adversely affect our financial condition and results of operations. We paid company-wide merit increases in 2010 and 2011. Despite these company-wide merit increases in China, where about 90% of our workers are employed, we may be unable to hire and retain enough skilled and experienced scientists at current wage rates. In addition, we may be unable to redeploy and retrain our professionals to keep pace with changing customer needs, technological changes and performance standards.

We face increasingly intense competition. If we do not compete successfully against new and existing competitors, some of whom subject us to increasing pricing pressure, demand for our services and related revenues may decrease.

The global pharmaceutical, biotechnology and medical device R&D outsourcing markets are highly competitive, and we expect competition to intensify. We face competition based on several factors, including:

• quality of services;

• breadth of service offerings;

• ability to protect intellectual property or other confidential information;

• timeliness of delivery;

• maintenance of standards of good laboratory practices, or GLP, and good manufacturing practices, or GMP;

• depth of customer relationships;

• price; and

• geography.

We compete with contract research organizations, or CROs, contract manufacturing organizations and research and academic institutions, typically in specific service areas. For example, we compete with Covance Inc., or Covance, in the preclinical services area in China. We compete with ShangPharma Corporation, or ShangPharma, in the discovery chemistry area. As a result of the AppTec acquisition, we compete with BioReliance Corporation, or BioReliance, in the biologics testing area, and with NAMSA and Toxicon Corporation, or Toxicon, in the medical device testing area. However, we believe that we do not compete with any single company across the entire breadth of our service offerings. We expect to increasingly compete against multinational companies, both domestically and internationally, as we continue to offer more complex and sophisticated broad-based laboratory and manufacturing services. Several major pharmaceutical, biotechnology and medical device companies have made in-house research investments in China, and we expect this trend to continue. In addition, U.S.-based CROs have made investments in China-based CROs that are our competitors. For example, in 2009 Pharmaceutical Product Development, Inc., or PPD, acquired BioDuro, L.L.C., or BioDuro. These investments may reduce demand for our services and result in increased competition for qualified personnel.

Some of our larger competitors may have:

• greater financial, research and other resources;

• a broader scope of services;

• greater pricing flexibility;

• more extensive technical capabilities; and

• greater name recognition.

8

We also expect increased competition as new companies enter our market and as more advanced technologies become available. Our competitors’ existing or new technologies or business approaches may be more effective than our own. Furthermore, increased competition creates pricing pressure on our services, which could reduce our profitability.

New technologies or methodologies may be developed, validated and used in the global pharmaceutical, biotechnology and medical device R&D outsourcing industry that could reduce demand for some of our services.

The global pharmaceutical, biotechnology and medical device R&D outsourcing industry is constantly evolving, and we must keep pace with new technologies and methodologies to maintain our competitive position. For example, a new drug discovery method, known as a “genome-to-drug-lead” approach, in which molecules can be virtually screened against computer-predicted protein targets, could offer a way to reduce labor requirements for chemists who experimentally search for drug leads, one of the most significant obstacles to drug discovery. The method may also allow chemists to better exploit the extensive availability of drug targets at the gene level and may ultimately improve the success of moving discoveries from the laboratory to patients.

As a result, we must continue to invest significant amounts of human and capital resources in R&D to enhance technologies that allow us to introduce new and better services. However, we may be unsuccessful in adapting to or commercializing these new technologies, if developed. New technologies could decrease the need for our existing technologies, and we may not be able to develop new services or technologies effectively or in a timely manner. Our failure to develop, enhance or adapt to new technologies and methodologies could significantly reduce demand for our services and harm our business and prospects.

If we fail to effectively manage our anticipated growth and execute on our growth strategies, our business, financial condition, results of operations and prospects could suffer.

Pursuing our growth strategies, including integrating and expanding our facilities and service offerings to meet our customers’ needs, has resulted in, and will continue to result in, substantial demands on our resources and management’s time. Managing this growth and our growth strategies will require, among other things:

• continued enhancement of our pharmaceutical and medical device R&D capabilities;

• effective coordination and integration of our research facilities and teams, particularly those located in different facilities, including newly opened sites;

• successful hiring and training of personnel;

• effective management of a business geographically distributed in the United States and China;

• effective cost control;

• sufficient liquidity;

• effective and efficient financial and management control;

• increased marketing and sales-support activities;

• effective quality control; and

• management of our suppliers to leverage our purchasing power.

Any failure to effectively manage our anticipated growth and execute on our growth strategies could adversely affect our business, including its financial condition, results of operations, cash flows and prospects.

We may be unable to expand our capacity and scale up our operations within the timeframe or budgeted costs that we anticipate, possibly resulting in material delay in preparing facilities for service, increased costs and lost business opportunities.

We are engaged in a substantial expansion of our capabilities and capacity. For example, we are constructing and preparing to operate a new laboratory space in Wuhan to house discovery chemistry services. We expect part of this new space to open in 2012. We are also constructing a facility in WuXi to house pilot-scale cGMP manufacturing of biological products for preclinical and clinical trials. We expect this facility to be operational in 2012. Preparing these facilities for full operation, including introduction of our initial services and development of new services, may take longer than we plan. Any material delay or unforeseen cost increase in preparing these facilities for operation could result in lost business opportunities and could materially and adversely affect our business, including our financial condition, results of operations, cash flows and prospects.

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We are making significant capital investments to scale up our services to meet our customers’ needs, and, as a result, we depend on the success of our customers’ projects and their continued business.

We expanded our Jinshan manufacturing facility primarily to serve current and potential future customers for the commercial manufacturing of advanced intermediates and active pharmaceutical ingredients, or APIs. We depend on our customers’ success in advancing products through development, regulatory approval and commercial launch. None of the products we expect to manufacture for commercial use are currently approved by any regulatory authorities in the United States or Europe. Any delay or non-approval may have a material impact on our manufacturing business. Consequently, we may be required to reallocate our resources, which could cause delays in our service offerings and result in lower than expected revenues. As we develop our commercial-scale manufacturing capabilities, which inherently rely on producing larger volumes of fewer drug candidates than our current clinical-trial-scale manufacturing services, we will become more dependent on the success of a small number of drug candidates in development.

Because many of our fee-for-service contracts are contingent on successful completion of a project and often have a fixed price, we may bear financial risk.

A significant portion of our net revenues, including a significant portion of our laboratory services revenues and all of our manufacturing services revenues, are based on fee-for-service contracts, which are contingent on successful completion of a project and often have a fixed price. In 2010, fee-for-service contracts accounted for more than 50% of our total revenues. If we do not deliver a service in a timely manner or otherwise as specified in the contract, if we incur cost overruns or if we intentionally price these contracts below our cost estimate because of competitive pressures, there could be a material adverse effect on our business, including its financial condition, results of operations, cash flows and prospects.

We may fail to effectively develop and market new services, which may harm our growth opportunities and prospects, possibly resulting in losses.

We intend to continue to expand beyond our core discovery chemistry, process research and clinical-trial-scale manufacturing services. Over the past few years, we have established new services in discovery biology; DMPK/ADME; core analytical services; formulation; analytical development services; bioanalytical services; and other areas. We are in the early stages of launching new services in preclinical toxicology and large-scale manufacturing. To develop and/or market our new services successfully, we must:

• accurately assess and meet customer needs;

• make significant capital expenditures;

• optimize our pharmaceutical and medical device discovery, development and manufacturing processes to predict and control costs;

• hire, train and retain the necessary personnel;

• obtain required regulatory clearances or approvals;

• increase customer awareness and acceptance of our services;

• provide services of a high quality and in a timely manner;

• price our services competitively;

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• compete effectively with other R&D outsourcing providers; and

• effectively integrate customer feedback into our business planning.

If we fail to effectively develop new services and create demand for them, our future business, including results of operations, financial condition, cash flows and prospects, could be materially and adversely affected.

The loss of services of our senior management and key scientific personnel could severely disrupt our business and growth.

Our success significantly depends upon the continued service of our senior management and key scientific personnel. In particular, we are highly dependent on Dr. Ge Li, our Chairman and Chief Executive Officer, who has managed our business, operations and sales and marketing activities and maintained personal and direct relationships with our major customers since our inception; Edward Hu, our Chief Operating Officer and Chief Financial Officer; Dr. Shuhui Chen, our Chief Scientific Officer; Dr. Suhan Tang, our Chief Manufacturing Officer; Xiaozhong Liu, our Executive Vice President and other senior management members and key scientific personnel. The loss of any of them, and in particular Dr. Li, could have a material adverse effect on our business and operations. Although each member of our senior management and key scientific personnel has signed a noncompete agreement with us, we may be unable to successfully enforce these provisions in the event of a dispute. If we lose the services of any senior management members or key scientific personnel, we may be unable to locate and retain suitable qualified replacements and may incur additional expenses to recruit and train new personnel, which could severely disrupt our business and its growth.

Changes in government regulation or in practices relating to the pharmaceutical, biotechnology and medical device industries, including healthcare reform, could decrease the need for the services we provide.

Governmental agencies throughout the world, particularly in the United States, strictly regulate the pharmaceutical, biotechnology and medical device R&D process. Changes in regulations, such as a relaxation in regulatory requirements, the introduction of simplified drug approval procedures or an increase in regulatory requirements that we may have difficulty satisfying or that may make our services less competitive could eliminate or substantially reduce the demand for our services.

The Patient Protection and Affordable Care Act, a comprehensive healthcare reform law in the United States, was enacted on March 23, 2010, and was amended by subsequent legislation. The new law will implement healthcare system reforms including, but not limited to, (i) expansion of access to health insurance coverage, (ii) expansion of the Medicaid program, (iii) enactment of an industry fee on pharmaceutical companies, and (iv) imposition of an excise tax on the sale of medical devices. A primary objective of the healthcare reform is to control growing healthcare costs. For example, if health insurers were to change their practices with respect to reimbursements for pharmaceutical products, our customers may spend less or reduce their growth in spending on R&D, which could reduce business opportunities available to us. In addition, new laws or regulations may increase our risk of liability, increase our costs or limit our service offerings. Our business, financial condition and results of operations could be adversely affected.

Similar reform movements have occurred in Europe and Asia. For example, in late 2010 the Chinese government announced significant price reductions for many pharmaceutical products. Any significant healthcare reforms that substantially change the financing and regulation of the healthcare industry could reduce our sales and profitability and have a material adverse effect on our business, financial condition and results of operations.

Our customer agreements contain provisions that run counter to our interests or expose us to potential liability.

Our customers’ agreements generally provide that the customers can terminate the agreements or reduce the scope of services with little or no notice. A majority of our customer agreements allow customers to unilaterally terminate for convenience upon prior notice ranging from 30 to 90 days. If a customer terminates a contract with us, under the terms of the contract we are only entitled to receive revenues earned up to the date of termination. Therefore, cancellation or modification of one large contract, or proximate cancellation or modification of multiple smaller contracts, could materially and adversely affect our business, including its financial condition, results of operations, cash flows and prospects.

In addition, in some of our customer contracts, we agree not to compete with the customer, either alone or together with third parties. We are required to seek the customer’s prior written consent before making compounds for other customers chemically similar to those made for the customer. For some customers, our noncompete obligation is broad. For example, with one of our customers we have agreed that, for up to ten years after termination of the agreement, any employee who has worked on the customer’s projects may not work on any other project whereby the knowledge gained from such customer’s projects would be relevant. Complying with these noncompete obligations may restrict our ability to expand certain service offerings, and failure to comply could significantly harm our business and reputation, as well as expose us to liability for breach of contract.

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We depend on a limited number of international supply sources in providing our service offerings, which, if interrupted, could cause disruption or delay to our services, reduce our sales and force us to use more expensive supply sources.

We depend on a limited number of international sources for our supply of certain reagents and other chemicals required in our product and service offerings, particularly in connection with our manufacturing services. Disruptions or delays to their continued supply may arise from health problems, export or import restrictions, embargoes, political or economic instability, severe weather conditions, disruptions to the air-travel system, contract disputes or other causes. If the supply of certain materials were interrupted, our services would be delayed. We also may not be able to secure alternative supply sources in a timely or cost-effective manner. If we cannot obtain adequate supplies of required materials that meet our standards or are sold at acceptable costs, our ability to accept and fulfill customer orders in the required quality and quantity and at the required time could be restricted, which in turn could harm our reputation, reduce our sales, cause us to lose market share, force us to use more expensive sources of supply and materially and adversely affect our business, including its financial condition, results of operations, cash flows and prospects.

Any failure by us to meet our customers’ or regulatory authorities’ standards in audits and inspections could harm our reputation.

Our customers and various regulatory authorities routinely audit and inspect our facilities, processes and practices to ensure that our services are meeting their standards in the pharmaceutical and medical device product development process. To date, we have passed all such audits and inspections. However, failure to pass these audits or inspections to our customers’ and regulators’ satisfaction could significantly harm our reputation and could materially and adversely affect our business, including its financial condition, results of operations, cash flows and prospects.

If we fail to protect our customers’ intellectual property rights, we may be subject to liability for breach of contract and may suffer damage to our reputation.

Protection of customers’ intellectual property, or IP, associated with pharmaceutical and medical device R&D services is critical to their success. Our customers generally retain ownership of all associated IP, including both IP that they provide to us and IP that we created and provided as part of our services. Our success therefore depends in substantial part on our ability to protect the proprietary rights of our customers. This is particularly important for us because a large part of our operation is based in China, and China and Chinese companies have not traditionally enforced IP protection to the same extent as the United States and U.S. companies. Despite measures we take to protect our customers’ or our own IP, unauthorized parties may attempt to obtain and use information that we regard as proprietary. In some of our customer agreements, we have assumed indemnification obligations for IP infringement to the extent that we create the infringing aspect in deliverables by our customers. Our liability is usually not capped under these agreements. As a result, if any aspect of deliverables to our customers that we create infringes a third party’s IP rights, and particularly if such deliverable ultimately becomes a commercially successful product, we could be exposed to substantial liability. Any unauthorized disclosure of our customers’ IP could subject us to liability for breach of contract, as well as significant damage to our reputation, which could materially harm our business, including its financial condition, results of operations, cash flows and prospects.

We may undertake acquisitions that may have a material adverse effect on our ability to manage our business and may end up being unsuccessful.

Our growth strategy may involve acquisitions of new technologies, businesses, products or services or the creation of strategic alliances in areas where we do not currently operate. If we are presented with appropriate opportunities, we may acquire additional businesses that are complementary to our existing businesses. Future acquisitions will likely present challenges and could require that our management develop expertise in new areas, manage new business relationships and attract new types of customers. The diversion of our management’s attention and any difficulties encountered in the integration of acquired businesses could have an adverse effect on our ability to effectively manage our business. Completed acquisitions may also expose us to potential risks, including risks associated with unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, and our inability to generate sufficient revenues to offset the expenses related to the acquisitions and potential loss of, or harm to, relationships with employees or customers as a result of our integration of new businesses, any of which could significantly disrupt our ability to manage our business.

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Any failure to comply with existing regulations and industry standards could harm our reputation and our business, including our financial condition, results of operations, cash flows and prospects.

A number of governmental agencies or industry regulatory bodies in China, the United States, Europe and Japan impose strict rules, regulations and industry standards on how we and our customers conduct pharmaceutical and medical device R&D. We may need to obtain clearance from the U.S. Food and Drug Administration, or FDA, or other regulatory authorities in the event that our customers’ preclinical trials are filed as part of an Investigational New Drug application or their clinical trials are filed as part of a New Drug Application, Biologic License Application or other filing to seek marketing approval. All facilities and processes used to manufacture pharmaceuticals and biologics in the United States, Europe and Japan must conform to standards established by the appropriate regulatory authority. These authorities may conduct scheduled periodic inspections of our facilities to monitor our regulatory compliance. China’s State Food and Drug Administration, or SFDA, published the revised 2010 edition of Good Manufacturing Practices, or GMP, for Pharmaceutical Products, which went into effect on March 1, 2011. This revised version of GMP follows the concepts of quality risk management and whole process control of drug manufacturing and attaches greater importance to certain areas for consistency with GMP standards as defined by the World Health Organization. We may not obtain clearance from the regulatory authorities in the event that we are inspected, either immediately or over time. Further, any failure to comply with existing regulations and industry standards could result in fines or other actions against us or our customers, the termination of ongoing research and the disqualification of data for submission to regulatory authorities, or we may no longer be able to offer our services to our customers. As a result, we may be unable to fulfill our contractual obligations. This could harm our reputation, our prospects for future work and our operating results. For example, if we were to treat research animals inhumanely and not in accordance with international standards set out by the Association for Assessment and Accreditation of Laboratory Animal Care (AAALAC), that organization could revoke accreditation and the accuracy of our animal research data could be questioned. Any material violation by us of GLP or GMP standards, as determined by the FDA or other regulatory authorities, could cause our customers to terminate their contracts with us. Any adverse action by the regulatory authorities would have a material and adverse impact on our reputation and our business, including its financial condition, results of operations, cash flows and prospects.

We may need additional capital that we may be unable to obtain in a timely manner on acceptable terms.

In order to expand our capacity, develop new services and remain competitive, we may require additional capital. Financing may be unavailable in amounts or on terms acceptable to us. Our ability to obtain additional capital 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 life science and related companies; and

• economic, political and other conditions in China, the United States and other countries.

The sale of additional equity or equity-linked securities could result in dilution to the shares held by our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants restricting our operations or our ability to pay shareholder dividends.

We have limited insurance coverage, and any claims beyond our insurance coverage may result in our incurring substantial costs and a diversion of resources.

We maintain property insurance policies covering physical damage to, or loss of, our buildings and their improvements, equipment, office furniture and inventory. We hold employer’s liability insurance generally covering death or work-related injury of employees. We maintain product liability and professional errors and omissions insurance covering product liability claims arising from the use, consumption or operation of our small-molecule compounds and biologics and claims arising from negligence in connection with our services to customers. We hold public liability insurance covering certain incidents involving third parties that occur on or in the premises of the company. We hold directors and officers liability insurance. We do not maintain key-man life insurance on any of our senior management or key personnel. Our insurance coverage may be insufficient to cover any claim for product liability, damage to our fixed assets or employee injuries. Insurance companies in China offer limited business insurance products and, to our knowledge, do not offer business liability insurance. While business interruption insurance is available to a limited extent in China, we have determined that the cost of this insurance and the difficulties associated with acquiring it on commercially reasonable terms make doing so impractical. As a result, we do not have any business liability, disruption or litigation insurance coverage for our China operations. Any business disruption or litigation, or any liability or damage to, or caused by, our facilities or our personnel beyond our insurance coverage may result in our incurring substantial costs and a diversion of resources.

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Our principal laboratory and manufacturing facilities may be vulnerable to natural disasters or other unforeseen catastrophic events.

We conduct our primary R&D activities at our headquarters located in the Shanghai Waigaoqiao Free Trade Zone. We also conduct or plan to conduct R&D and/or manufacturing activities at six other facilities in China located in the Jinshan area of Shanghai, Tianjin, Suzhou, Wuhan, Changzhou and Wuxi respectively, and at our three United States facilities in St. Paul, Minnesota; Philadelphia, Pennsylvania and Atlanta, Georgia. We depend on these facilities for continued business operations. Natural disasters or other unanticipated catastrophic events, including power interruptions, water shortages, storms, fires, earthquakes, terrorist attacks and wars, could significantly impair our ability to operate our business in its ordinary course. Our facilities and certain equipment located in these facilities would be difficult to replace in any such event and could require substantial replacement lead time. The occurrence of any such event could materially and adversely affect our business, including its financial condition, results of operations, cash flows and prospects.

We may be liable for contamination or other harm caused by hazardous materials that we use.

Our pharmaceutical and medical device R&D processes involve the use of highly toxic and hazardous materials. Any failure by us to control the use or discharge of hazardous substances could subject us to potentially significant monetary damages and fines or suspensions in our business operations. We are subject to national, state, provincial and local regulations governing the manufacture, handling or other use, storage and disposal of hazardous materials. We cannot fully eliminate the risk of contamination or injury resulting from hazardous materials, and we may incur liability as a result of any contamination or injury, which could have a material adverse impact on our business, including its financial condition, results of operations, cash flows and prospects.

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 of our ADSs or ordinary shares.

Depending upon the value of our ADSs or ordinary shares and the nature of our assets and income over time, we could be classified as a passive foreign investment company, or PFIC, for U.S. federal income tax purposes. We will be classified as a PFIC in any taxable year if either (a) the average quarterly value of our gross assets that produce passive income or are held for the production of passive income is at least 50% of the average quarterly value of our total gross assets, or (b) 75% or more of our gross income for the taxable year is passive income. According to these technical rules, we would likely become a PFIC for a given taxable year if our market capitalization were to decrease significantly while we hold substantial cash and cash equivalents in that year.

Based in part on our estimate of the composition of our income and our estimates of the value of our assets, we do not expect to be a PFIC for U.S. federal income tax purposes for our taxable year ended December 31, 2010. However, PFIC status is tested each year and will depend on the composition of our assets and income and the value of our assets from time to time (including, among others, goodwill and equity investments in less-than-25%-owned entities). Because we expect to hold a substantial amount of cash and other passive assets, and because the value of our assets is likely to be determined in large part by reference to the market price of our ADSs, which fluctuates, we may be a PFIC for any taxable year. If we are treated as a PFIC for any taxable year during which a U.S. investor holds our ADSs or ordinary shares, certain adverse U.S. federal income tax consequences would apply to the U.S. investor. For more information on the U.S. tax consequences to U.S. holders that would result from our classification as a PFIC, please see Item 10.E, “Taxation—U.S. Federal Income Taxation—Passive Foreign Investment Company.”

We may be unable to maintain an effective system of internal control over financial reporting, and as a result we may be unable to accurately report our financial results or prevent fraud.

We are subject to provisions of the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires that we include a report from management on our internal control over financial reporting in our annual reports on Form 20-F. In addition, our independent registered public accounting firm must attest to, and report on, the effectiveness of our internal control over financial reporting. While our management concluded that our internal control over financial reporting was effective as of December 31, 2010, our management may later conclude that our internal control is not effective. Moreover, even if our management concludes in the future that our internal control over financial reporting is effective, our independent registered public accounting firm may disagree. If our independent registered public accounting firm is not satisfied with our internal control over financial reporting or the level at which our internal control over financial reporting is designed, documented, operated or reviewed, or if they interpret the requirements, rules or regulations differently from the way we do, then they may issue an adverse or qualified opinion.

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Any of these outcomes could result in a loss of investor confidence in the reliability of our audited consolidated financial statements, which could materially and adversely affect the trading price of our ADSs. Our reporting obligations as a public company will continue to place a significant strain on our managerial, operational and financial resources and systems for the foreseeable future.

Restrictions on our operations contained in convertible notes and bank loans may limit how we conduct our business, including the payment of dividends to our shareholders.

On February 9, 2007, we issued $40 million in convertible notes to a consortium of investors. As of the date of this annual report on Form 20-F, $35.9 million in convertible notes (including principal and accrued interest) are outstanding. These notes contain restrictions on our major corporate actions that may limit the manner in which we conduct our business, including the payment of shareholder dividends. As long as at least 50% of the initial principal amount of all of the notes is outstanding, we may not take any of the following actions without the prior written consent of a majority in interest of the noteholders:

• redeem any of our equity securities if the amount of such redemptions, when aggregated with all other redemptions of equity securities during the period from the date of the issuance of the notes to the date of such redemption, exceeds $2.5 million;

• pay, in whole or in part, any indebtedness for borrowed money other than all present and future bank and purchase money loans, equipment financings and equipment leases; or

• declare or pay any dividends or other distributions to any equity securities other than the declaration and payment of (a) a cash dividend in any fiscal year that, when aggregated with all other cash dividends declared during such fiscal year, does not exceed 50% of our audited consolidated net income for our most recently completed fiscal year, calculated in accordance with U.S. GAAP, or (b) any dividend for which an adjustment is made in accordance with the terms of the notes.

We entered into a facility agreement with JPMorgan Chase on January 8, 2009, in the amount of $20.0 million, which included a $4.0 million U.S. dollar-denominated short-term loan facility and a $16.0 million U.S. dollar-denominated revolving loan facility. On January 28, 2010, we amended the abovementioned agreement to convert the original facility to a $20.0 million short-term revolving line of credit. On January 24, 2011, we entered into another amendment to extend this $20.0 million line of credit for another twelve months. According to the renewal agreement, we shall pay a management fee at the rate of 0.2% per annum for the undrawn amount under the facility. All loan agreements contain covenants on our major corporate actions that may limit the manner in which we conduct our business, including covenants that:

• we maintain several debt-related financial ratios beyond certain thresholds;

• each loan is payable on demand by JPMorgan Chase;

• dividend payout by us to our shareholders cannot exceed 35% of our total net income for the year in which the dividend payout is made; and

• the amount of new PRC and non-PRC loans entered into by us is limited.

We are a Cayman Islands company, and because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, shareholders may have fewer shareholder rights than they would have under U.S. law.

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Our corporate affairs are governed by our amended and restated memorandum and articles of association (as may be amended from time to time), the Cayman Islands Companies Law (2010 Revision), or the Companies Law, and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors are to a large extent governed by the common law of the Cayman Islands. The common law is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities law than the United States. In addition, some states in the United States, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

Moreover, as a non-U.S. company with foreign private-issuer status, we have been exempted from, and you may not be provided with the benefits of, some of the NYSE corporate-governance requirements applicable to U.S. companies, including that:

• a majority of our board of directors must be independent directors;

• the compensation of our chief executive officer must be determined or recommended by a majority of the independent directors or a compensation committee comprised solely of independent directors; and

• our director nominees must be selected or recommended by a majority of the independent directors or a nomination committee comprised solely of independent directors.

The Companies (Amendment) Law, 2010 became effective on July 19, 2010. Under the new revision, the surviving company or consolidated company will continue to be a Cayman Islands company for mergers and consolidations. Under the new revision, dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed to by the parties, will be determined by the Cayman Islands court) if they follow the required procedures, subject to certain exceptions. However, these rights have not yet been tested before the Cayman Islands court, and, as a result, they may not be comparable to the appraisal rights that would ordinarily be available to dissenting shareholders of a U.S. company.

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a U.S. company.

Certain judgments obtained against us by our shareholders may be unenforceable.

We are a Cayman Islands company, and the majority of our assets and a large part of our operations are located outside of the United States. A substantial portion of our current operations are conducted, and a substantial portion of our operating assets are located, in the PRC. In addition, many of our directors and officers are nationals and/or residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil-liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not resident in the United States and the substantial majority of whose assets are located outside of the United States. Even if you are successful in bringing an action of this kind, the courts of the Cayman Islands or the PRC may not recognize or enforce judgments of U.S. courts against us or such persons predicated upon the civil-liability provisions of the securities laws of the United States or any state. In addition, such Cayman Islands or PRC courts may not be competent to hear original actions brought in the Cayman Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any U.S. state.

Compliance with environmental regulations can be expensive, and noncompliance with these regulations may result in adverse publicity and potentially significant monetary damages and fines.

As our pharmaceutical, biotechnology and medical device R&D processes generate wastewater, toxic and hazardous substances and other industrial wastes, we must comply with all national and local environmental regulations in China and the United States. Because the requirements imposed by environmental laws and regulations may change and more stringent regulations may be adopted in the future, we may be unable to comply with, or to accurately predict the potentially substantial cost of complying with, these laws and regulations. If we fail to comply with present or future environmental regulations, we may be required to pay substantial fines, suspend production or cease operations. In addition, we cannot eliminate the risk of accidental contamination or injury from these hazardous materials. If we fail to prevent contamination or injury, we could be liable for any resulting damages, which could have a material and adverse impact on our business, including its financial condition, results of operations, cash flows and prospects.

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Negative attention from special interest groups may impair our ability to operate our business efficiently.

Some of our current services involve testing pharmaceuticals and medical devices in laboratory animals. As we expand our service biology offerings into toxicology, we anticipate that we will work extensively with large animals, including non-human primates. Although the testing of pharmaceuticals in animals is almost universally mandated by law, certain special interest groups categorically object to the use of animals for these research purposes. Any threats directed against our animal research activities or negative media attention could impair our ability to operate our business efficiently. In addition, if regulatory authorities were to mandate a significant reduction in safety testing procedures that utilize laboratory animals, as has been advocated by certain groups, our business could be materially and adversely affected.

In providing our pharmaceutical, biotechnology and medical device R&D outsourcing services, we face health and safety liability and product liability risks.

In providing our pharmaceutical development services, we face a range of potential liabilities. For example, animals serving as disease models and animals infected with diseases for research purposes may be harmful, or even lethal, to humans despite preventive measures we take for animal quarantine and handling.

We also face product liability risks if the pharmaceuticals and medical devices we help to develop and manufacture are subject to product liability claims. We provide services in the development, testing and manufacturing of pharmaceuticals and medical devices that may ultimately be used by humans, including biologic products to be tested in human clinical trials, although we do not commercially market or sell the products to end users. If any of these pharmaceuticals or medical devices harms people, we may be subject to litigation and may be required to pay damages to those persons. Damages awarded in a product liability action could be substantial and could have a material and adverse impact on our business, including its financial condition, results of operations, cash flows and prospects. Although we currently maintain product liability and professional errors and omissions insurance, our insurance coverage may be inadequate or may become unavailable on terms acceptable to us.

Risks Relating to China

The discontinuation of any of the preferential tax treatments currently available to us in the PRC or imposition of any additional PRC taxes on us could adversely affect our financial condition and results of operations.

China enacted a new Enterprise Income Tax Law, or the New EIT Law, and its implementing rules effective January 1, 2008. The New EIT Law significantly curtails tax incentives granted to foreign-invested enterprises, or FIEs, under its predecessor. The New EIT Law, however, (a) reduces the statutory rate of enterprise income tax, or EIT, from 33% to 25%, (b) permits companies established before March 16, 2007, that were eligible for preferential tax rates according to then-effective tax laws and regulations to continue to enjoy their existing tax incentives, adjusted by certain transitional phase-out rules, and gradually to transit to the uniform 25% EIT rate by January 1, 2013, and (c) introduces new tax incentives, subject to various qualification criteria. Therefore, as enterprises established prior to the promulgation of the New EIT Law, WASH, STA, WATJ and WASZ are still entitled to their preferential tax treatment, which shall also be subject to the transitional phase-out rules. In addition, based on the New EIT Law, an enterprise that is entitled to preferential treatment in the form of EIT reduction or a tax holiday exemption but has not been profitable and, therefore, has not enjoyed such preferential treatment was required to begin its tax holiday exemption in 2008. As such, certain subsidiaries have begun their tax holiday exemption in 2008, even though they were not yet cumulatively profitable at that time.

The New EIT Law and its implementing rules permit certain “high and new technology enterprises,” or HNTEs, to enjoy a reduced 15% EIT rate subject to certain general factors described in the New EIT Law and the related regulations. In the fourth quarter of 2008, our PRC subsidiaries WXAT, WASH, WATJ and STA were recognized by the local provincial level Municipal Science and Technology Commission, Finance Bureau and State and Local Tax Bureaus as HNTEs under the New EIT Law. Therefore WXAT, WASH, WATJ and STA are eligible to enjoy a preferential tax rate of 15% as long as they maintain their qualification as an HNTE. However, WASH, STA and WATJ will not adopt the HNTE policy until the transitional periods of the New EIT Law expire. As of December 31, 2010, the applicable transitional period tax rate in WASH, STA and WATJ are all under 15%. WXAT started to enjoy the HNTE policy from 2008. The HNTE qualification of our PRC subsidiaries WXAT, WASH, WATJ and STA will be valid for three years starting from calendar year 2008 through 2010. The continued qualification of HNTE status is subject to annual evaluation by the relevant PRC government authorities. In addition, WXAT, WASH, WATJ and STA will need to apply for an additional three-year extension upon the expiration of the current HNTE qualification. Our computation of deferred tax is based on enacted tax rates that do not factor in the extension of the HNTE status. If any or all of them fail to maintain the HNTE qualification, their applicable EIT rate may increase to up to 25%, which could have a material adverse effect on our results of operations.

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In addition to the HNTE preferential tax policy, according to relevant PRC tax laws and regulations, qualified Advanced Technology Service Enterprises, or ATSEs, can also enjoy a reduced 15% EIT rate during the period from 2009 through 2013. It was unknown whether such policy will extend after 2013. In 2009 and 2010, our PRC subsidiaries WASH and WASZ were recognized as ATSEs. Therefore, each is eligible to enjoy a preferential tax rate of 15% for five years (i.e., from 2009 to 2013) as long as it maintains its qualification as an ATSE. However, WASH and WASZ chose to continue using the transitional period tax rate until expiration in 2010 and 2012, respectively. If WASH still qualifies as an ATSE, it will be subject to EIT at 15% for 2011 to 2013. WASZ could enjoy a 15% rate as an ATSE in 2013 if ATSE qualification is still met. Since the company’s ability to continue to qualify for ATSE status is subject to the tax authority’s discretion, for the years following the company’s approved incentive period the statutory tax rate of 25% should be used to calculate deferred taxes until such approval is granted.

Preferential tax treatment granted to our subsidiaries by the local governmental authorities is subject to review and may be adjusted or revoked at any time. The discontinuation of any preferential tax treatment currently available to us and our wholly owned subsidiaries will cause our effective tax rate to increase, which could have a material adverse effect on our results of operations. We cannot assure you that we will be able to maintain our current effective tax rate in the future.

Under China’s New EIT Law, we may be classified as a “resident enterprise” of China. This classification could result in unfavorable tax consequences to us and our non-PRC shareholders.

Under China’s New EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for EIT purposes. A tax circular issued by the PRC State Administration of Taxation on April 22, 2009, regarding the standards used to classify certain Chinese-invested enterprises controlled by Chinese enterprises or Chinese group enterprises and established outside of China as resident enterprises clarified that dividends paid by such resident enterprises and other income paid by such resident enterprises will be considered to be PRC source income, subject to PRC withholding tax, currently at a rate of 10%, when received or recognized by non-PRC resident enterprise shareholders. This circular also subjects such resident enterprises to various reporting requirements with the PRC tax authorities. The implementing rules of the New EIT Law define “de facto management bodies” as “management bodies that exercise substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise. In addition, the tax circular mentioned above specifies that certain China-invested enterprises controlled by Chinese enterprises or Chinese group enterprises will be classified as resident enterprises if the following are located or resident in China: senior management personnel and departments that are responsible for daily production, operation and management; financial and personnel decision-making bodies; key properties, accounting books, company seal, and minutes of board meetings and shareholders’ meetings; and half or more of senior management or directors having voting rights. Currently no further official interpretation or application of this new resident enterprise classification is available; therefore it is unclear how tax authorities will determine tax residency based on the facts of each case.

If the PRC tax authorities determine that our Cayman Islands holding company is a resident enterprise for PRC EIT purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to EIT at a rate of 25% on our worldwide taxable income, as well as to PRC EIT reporting obligations. Second, although under the New EIT Law and its implementing rules dividend income between qualified resident enterprises is exempted income, we cannot assure you that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC EIT purposes. Finally, the New EIT Law and its implementing rules issued by PRC tax authorities suggest that dividends paid by us to our non-PRC shareholders and, while less clear, capital gains recognized by them with respect to the sale of our stock may be subject to a withholding tax of 10% for non-PRC enterprise shareholders and potentially 20% for non-PRC individual shareholders. Similarly, these unfavorable consequences could apply to our BVI holding company if it is classified as a PRC resident enterprise.

The discontinuation of any of the financial incentives currently available to us in the PRC could adversely affect our results of operations and prospects.

Since inception, we have benefited from either exemptions or subsidies with respect to income tax and sales tax. Our eligibility to receive these financial incentives requires that we continue to qualify for these financial incentives. The incentives are subject to the discretion of the central government or relevant local government authorities, who could determine at any time to immediately eliminate or reduce these financial incentives, generally with prospective effect. Since our receipt of the financial incentives is subject to periodic time lags and inconsistent government practice, for as long as we continue to receive these financial incentives, our net income in a particular period may be higher or lower relative to other periods based on the potential changes in these financial incentives in addition to any business or operational factors that we may otherwise experience. For example, we expect downward pressure on future margins on goods manufactured for export due to changes in China’s value added tax, or VAT, system, reducing the potential VAT export refund on certain categories of goods from 13% to 5%.

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On November 5, 2008, the State Council of China approved the amendments to the Provisional Regulations of the PRC on Value Added Tax, or Amended VAT Regulations. The key change is a shift from a production-based to a consumption-based VAT regime. Under the old regime, the recovery of input VAT incurred on the purchase of fixed assets is disallowed. The Amended VAT Regulations will allow general VAT payers to recover input VAT incurred on the purchase of certain fixed assets. The new VAT treatment of fixed assets applies to equipment purchased on or after January 1, 2009. Equipment for this purpose includes machinery, means of transportation and other equipment and tools related to production and operation. Before December 31, 2008, there was a policy of VAT exemption on imported equipment. This preferential VAT policy was abolished as of January 1, 2009. Because of the different business activities and locations of our PRC subsidiaries, the Amended VAT Regulations have different impacts on each of these entities. The Amended VAT Regulations will allow STA, our manufacturing entity and a VAT tax payer, to credit input VAT on qualified equipment purchases (both imported and domestic). Our other subsidiaries, including WXAT, WATJ, WASZ, WAWH and WABIO, cannot continue to enjoy the VAT exemption on imported equipment. Also, these subsidiaries cannot credit input VAT on qualified equipment purchases because their primary income is from service fees that are subject to business tax rather than VAT. Therefore the VAT reform will increase the cost of imported equipment purchased by WXAT, WATJ, WASZ, WAWH and WABIO. Though WASH is of a similar nature to WXAT, WATJ, WASZ, WXWH and WABIO and therefore cannot enjoy the credit input VAT on qualified equipment purchases, it will continue to enjoy the VAT exemption on its imported equipment because it is located in the Waigaoqiao Free Trade Zone of Shanghai.

Fluctuations in exchange rates have resulted in, and are expected to continue to result in, foreign-exchange losses and to adversely impact our profitability.

Since July 2005, the Renminbi has no longer been pegged to the U.S. dollar. As a result, from July 21, 2005 to April 8, 2011, the Renminbi appreciated approximately 6.6% against the U.S. dollar. In 2010, approximately 94.6% of our net revenues were generated from sales denominated in U.S. dollars, and a significant portion of our operating costs and expenses were denominated in Renminbi. As a result, when the Renminbi appreciates against the dollar, our margins are pressured. Although currently the Renminbi exchange rate versus the U.S. dollar is restricted to a rise or fall of no more than 0.5% per day, and the People’s Bank of China regularly intervenes in the foreign-exchange market to prevent significant short-term fluctuations in the exchange rate, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future Chinese authorities may lift restrictions on fluctuations in the Renminbi-dollar exchange rate and lessen intervention in the foreign-exchange market. Fluctuations in the exchange rate will also affect the relative value of any dividend we pay. More recently, the PRC government has indicated a willingness to allow the Renminbi to appreciate against the U.S. dollar.

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. We periodically purchase derivative financial instruments such as foreign-exchange forward contracts to manage our exposure to Renminbi-dollar exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.

Changes in China’s economic, political and social conditions could adversely affect our business, financial condition, results of operations and prospects.

We conduct a significant portion of our business operations in China. Accordingly, our business, financial condition, results of operations and prospects are affected to a significant degree by economic, political and social conditions in China. The PRC economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. The PRC government has implemented various measures to encourage, but also to control, economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy but may also have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by changes in tax regulations. Furthermore, the PRC government, through the People’s Bank of China, continues to implement interest rate increases to control the pace of economic growth. These measures may cause decreased economic activity in China, which in turn could adversely affect our business, financial condition, results of operations and prospects.

The PRC legal system embodies uncertainties that could limit the legal protections available to you and us.

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The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have limited precedential value. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing general economic matters. The overall effect of legislation over the past three decades has significantly increased the protections afforded to various forms of foreign investment in China. Our PRC operating subsidiaries are FIEs and are subject to laws and regulations applicable to foreign investment in China as well as laws and regulations applicable to FIEs. These laws and regulations change frequently, and their interpretation and enforcement involve uncertainties. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently applied by other government authorities, including local government authorities, thus making strict compliance with all regulatory requirements impractical or, in some circumstances, impossible. For example, we may have to resort to administrative and court proceedings to enforce the legal protections that we benefit from either by law or contract. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may also impede our ability to enforce the contracts we have entered into. By way of further example, although required by PRC law, many FIEs, including our PRC subsidiaries, have not historically obtained approvals from the National Development and Reform Commission, or NDRC, or its counterparts before receiving approval from the Ministry of Commerce or its counterparts for their establishment. The NDRC has recently reiterated its position that the establishment of FIEs is subject to the NDRC’s approval, in addition to any other required PRC government approvals. However, the legal consequence for failure by those FIEs, including our PRC subsidiaries, to obtain NDRC approval is not prescribed under the current PRC law. As a result, these uncertainties, together with any development or interpretation of the PRC law that is adverse to us, could materially and adversely affect our business, financial condition, results of operations and prospects.

Our failure to obtain the prior approval of the China Securities Regulatory Commission, or the CSRC, of the listing and trading of our ADSs on the NYSE could have a material adverse effect on our business, results of operations and reputation and the trading price of our ADSs.

On August 8, 2006, six PRC regulatory agencies, including the CSRC, promulgated a regulation that became effective on September 8, 2006. This regulation, among other things, has provisions that purport to require that an offshore special purpose vehicle, or SPV, formed for listing purposes and controlled directly or indirectly by PRC companies or individuals obtain the approval of the CSRC prior to the listing and trading of such SPV’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings.

We completed the initial listing and trading of our ADSs on the NYSE in August 2007. We did not seek CSRC approval in connection with our initial public offering. However, the application of this PRC regulation remains unclear, with no consensus currently existing among the leading PRC law firms regarding the scope and applicability of the CSRC approval requirement.

Our PRC counsel, Commerce & Finance Law Offices, advised us that because we completed our restructuring for the initial public offering before September 8, 2006, the effective date of the new regulation, it was not necessary for us to submit the application to the CSRC for its approval, and the listing and trading of our ADSs on the NYSE did not require CSRC approval. A copy of Commerce & Finance Law Offices’ legal opinion regarding this PRC regulation is filed as an exhibit to our registration statement on Form F-1 in connection with our initial public offering, which is available at the SEC website at www.sec.gov.

If the CSRC or another PRC regulatory agency subsequently determines that CSRC approval was required for the initial public offering, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from our initial public offering into the PRC or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs.

If the CSRC later requires that we obtain its approval, we may be unable to obtain a waiver of the CSRC approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and negative publicity regarding this CSRC approval requirement could have a material adverse effect on the trading price of our ADSs.

PRC regulations relating to offshore investment activities by PRC residents may increase the administrative burden we face and create regulatory uncertainties. A failure by our shareholders who are PRC residents to complete any required applications and filings pursuant to such regulations may prevent us from distributing profits and could expose us and our PRC resident shareholders to liability under PRC law.

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The State Administration of Foreign Exchange, or SAFE, has promulgated several regulations that require PRC residents to register with and/or obtain approvals from branches of SAFE in connection with their direct or indirect offshore investment activities. On October 21, 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-Raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice 75, which became effective as of November 1, 2005. Notice 75, requires (a) PRC residents to register with the local SAFE branch before establishing or controlling any offshore company, referred to as an “offshore special purpose company,” for the purpose of acquiring any assets or equities of PRC companies and raising funds from overseas, (b) any PRC resident who is a shareholder of an offshore special purpose company to amend such shareholder’s SAFE registration with the relevant SAFE branch with respect to such company in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment or creation of any security interest over any assets located in China, and (c) registration by March 31, 2006, of direct or indirect investments previously made by PRC residents in such companies. In November 2005 and May 2007, SAFE promulgated implementing rules with respect to Notice 75.

We previously notified and urged our shareholders who are PRC residents to make the necessary registrations and filings as required under these regulations, and these shareholders have made efforts to register their investments in our company with the local SAFE branch in Wuxi, China. However, the local SAFE branch in Wuxi declared that registrations under Notice 75 were not required from these shareholders. As Notice 75 Implementing Rules are relatively new, it remains unclear how Notice 75, and any future PRC legislation concerning offshore or cross-border transactions, will be interpreted and implemented by the relevant PRC government authorities, and whether the local SAFE branch in Wuxi correctly interpreted Notice 75 as to its application to certain of our shareholders. Therefore, we cannot assure you that all relevant shareholders have made or will make and obtain all applicable registrations or filings required by these regulations or other related legislation. Our PRC counsel has advised us that if any of our PRC shareholders fails to make any required SAFE registrations and amendments thereto, our ability to inject capital into our PRC subsidiaries may be limited, and our PRC subsidiaries may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to us. Moreover, the failure to comply with SAFE registration and amendment requirements described above could result in liability under PRC laws for evasion of applicable foreign-exchange restrictions.

We rely principally on dividends and other distributions on equity paid by our operating subsidiaries to fund cash and financing requirements. Limitations on the ability of our operating subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business.

We are a holding company, and we rely principally on dividends and other distributions on equity paid by our subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. If any of our seven subsidiaries in China incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Furthermore, relevant PRC laws and regulations permit payments of dividends by the subsidiary only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC laws and regulations, each of our operating subsidiaries in China is required to set aside a portion of its net income each year to fund specific reserve funds. These reserves are not distributable as cash dividends. A wholly foreign-owned enterprise is required to set aside at least 10% of its after-tax profits of the preceding year as its reserve funds. It may stop contributing if the aggregate amount of the reserve funds has already accounted for more than 50% of its registered capital. Moreover, upon a board resolution, it may set aside certain amounts from its after-tax profits of the preceding year as bonus and welfare funds for staff and workers. An equity joint-venture enterprise is required to set aside reserve funds, bonus and welfare funds for staff and workers and development funds, the percentage of which shall be determined by the board. As a result of these PRC laws and regulations, each of the operating subsidiaries in China is restricted in its ability to transfer a portion of its net assets to us whether in the form of dividends, loans or advances. As of December 31, 2010, the restricted portion of their net assets totaled $163.6 million, which is composed of the registered capital and the statutory reserve of the PRC subsidiaries. Limitations on the ability of our operating subsidiaries in China to pay dividends to us could materially and adversely limit our ability to grow, make investments or acquisitions, pay dividends or otherwise fund and conduct our business.

Restrictions on currency exchange may limit our ability to utilize our revenues effectively.

Under China’s existing foreign-exchange regulations, each of our subsidiaries in China is able to pay dividends in foreign currencies, without prior approval from SAFE or its local counterparts, by complying with certain procedural requirements. However, the PRC government may take further measures in the future to restrict access to foreign currencies for current account transactions.

Foreign-exchange transactions by our subsidiaries under capital accounts continue to be subject to significant foreign-exchange controls and require the approval of, or registration with, PRC governmental authorities. In particular, if one subsidiary borrows foreign currency loans from us or other foreign lenders, these loans must be registered with SAFE or its local counterparts. If we finance such subsidiary by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the Ministry of Commerce or its local counterparts. These limitations could affect the ability of our subsidiaries to obtain foreign exchange through debt or equity financing.

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Any future outbreak of severe acute respiratory syndrome or avian flu in China or similar epidemics or pandemics may severely disrupt our business and operations.

Epidemics or pandemics could disrupt businesses and the national economy of China and other countries where we do business. From December 2002 to June 2003, China and other countries experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health Organization declared that the SARS outbreak had been contained. However, a number of isolated new cases of SARS were subsequently reported, most recently in central China in April 2004. During May and June of 2003, many businesses in China were closed by the PRC government to prevent transmission of SARS. In April 2009, an outbreak of the H1N1 strain of influenza occurred in Mexico and the United States, and human cases of swine flu were, and continue to be, discovered in China and Hong Kong. In 2010, the head of the World Health Organization declared that the H1N1 pandemic to be over but warned that the swine flu virus would continue to circulate as part of seasonal influenza for years to come. In early 2010, several cases were reported in some provinces of China. We are unable to predict the effect, if any, that influenza may have on our business. Any future outbreak of SARS, H1N1 or similar epidemics or pandemics may, among other things, significantly disrupt our ability to adequately staff our business, restrict the level of economic activity in affected areas and have a material adverse effect on our business, financial condition, results of operations and prospects.

Our contractual arrangements with our consolidated affiliated entities in China may be subject to audit or challenge by the PRC tax authorities, and a finding that our PRC subsidiary or our affiliated entity owes additional taxes could substantially reduce our net income and the value of our shareholders’ investment.

Under PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We would be subject to adverse tax consequences if the PRC tax authorities were to determine that the contracts between our subsidiaries were not executed on an arm’s length basis, and as a result the PRC tax authorities could require that our PRC subsidiaries adjust their taxable income upward for PRC tax purposes. Such a pricing adjustment could adversely affect us by increasing our tax expenses.

Risks Relating to Our ADSs

Our quarterly revenues and operating results are difficult to predict and could fall below investors’ expectations, which could cause the market price of our ADSs to decline.

Our quarterly revenues and operating results have fluctuated in the past and may continue to fluctuate depending upon numerous factors, including:

• the beginning, completion or cancellation of large contracts;

• the progress of ongoing contracts;

• impairment charges and charges related to discontinued operations;

• general economic conditions in China, the United States, Europe, Japan, and globally;

• acquisitions, dispositions or discontinuances of businesses and any associated charges;

• our customers’ requirements for delivery of services, including timing of delivery, particularly our manufacturing services;

• changes in the mix of our revenues from our laboratory service and manufacturing services businesses, including the portion of services performed on a fee-for-service or full-time-equivalent basis;

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• changes in the R&D outsourcing industry’s operating environment; and

• changes in government policies or regulations or their enforcement.

Many of these factors are beyond our control, making our quarterly results difficult to predict, which could cause the trading price of our ADSs to decline below investor expectations.

The trading prices of our ADSs have been, and are likely to continue to be, volatile, which could result in substantial losses to investors.

Between January 1, 2010 and March 1, 2011, the trading price of our ADSs on the NYSE ranged from $14.38 to $20.13 per ADS, and the last reported sale price on April 26, 2011 was $17.55 per ADS. The trading prices of our ADSs could fluctuate widely in response to factors beyond our control. Broad market and industry factors may significantly affect the market price and volatility of our ADSs, regardless of our actual operating performance.

In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for specific business reasons. In particular, factors such as variations in our revenues, earnings and cash flow and announcements of new investments or acquisitions could cause the trading price of our ADSs to change substantially. Any of these factors may result in large and sudden changes in the volume and trading price of our ADSs. In the past, following periods of volatility in the trading price of a company’s securities, shareholders have often instituted securities class action litigation against that company. If we were involved in a class action suit, it could divert the attention of senior management, and, if adversely determined, could have a material adverse effect on our financial condition and results of operations.

The voting rights of holders of ADSs are limited in several significant ways by the terms of the deposit agreement.

Holders of our ADSs may only exercise their voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Upon receipt of voting instructions from a holder of ADSs in the manner set forth in the deposit agreement, the depositary will attempt to vote the underlying ordinary shares in accordance with these instructions. Under our amended and restated memorandum and articles of association, the minimum notice period required for convening a general meeting is ten clear days. When a general meeting is convened, holders of our ADSs may not receive sufficient notice of a shareholders’ meeting to permit the holder to withdraw the ordinary shares to allow the holder to cast his or her vote with respect to any specific matter at the meeting. In addition, the depositary and its agents may not be able to send voting instructions to the holder or carry out the holder’s voting instructions in a timely manner. We make all reasonable efforts to cause the depositary to extend voting rights to holders of our ADSs in a timely manner, but holders may not receive the voting materials in time to ensure that the holder can instruct the depositary to vote his or her shares. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, holders of our ADSs may not be able to exercise the right to vote and may lack recourse if the holder’s ordinary shares are not voted as requested.

Anti-takeover provisions in our charter documents may discourage our acquisition by a third party, which could limit our shareholders’ opportunity to sell their shares, including ordinary shares represented by our ADSs, at a premium.

Our amended and restated memorandum and articles of association include provisions that could limit the ability of others to acquire control of our company, could modify our structure or could cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares, including ordinary shares represented by ADSs, at a premium over prevailing market prices by discouraging third parties from seeking to obtain control in a tender offer or similar transaction.

For example, our board of directors has the authority, without further action by our shareholders, to issue preference shares in one or more series and to fix the powers and rights of these shares, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares. Preference shares could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. In addition, if our board of directors authorizes the issuance of preference shares, the market price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares may be materially and adversely affected.

Because our directors are divided into three classes with staggered terms of three years each, shareholders can only elect or remove a limited number of our directors in any given year. The length of these terms could present an obstacle to certain actions, such as a merger or other change of control, that could be in the interest of our shareholders.

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Holders of ADSs may not receive distributions on our ordinary shares or any value for them if it is illegal or impractical to make them available to the holders.

The depositary of our ADSs has agreed to pay holders of our ADSs cash dividends or other distributions that it or the custodian of our ADSs receives on our ordinary shares or other deposited securities after deducting its fees and expenses. Holders of our ADSs will receive these distributions in proportion to the number of our ordinary shares the holder’s ADSs represent. However, the depositary is not responsible if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if the securities being distributed require registration under the Securities Act but are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary. We have no obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that holders of our ADSs may not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to the holders. These restrictions may have a material and adverse effect on the value of the holder’s ADSs. We intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash dividends directly on our ordinary shares, or indirectly on our ADSs, in the foreseeable future.

Holders of our ADSs may not be able to participate in rights offerings and may experience dilution of their holdings.

From time to time, we may distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

Holders of our ADSs may be subject to limitations on transfer of their ADSs.

To the extent holders of our ADSs hold certificated ADRs rather than holding ADSs through their bank, broker or other nominee through the Depositary Trust Company, the ADSs represented by ADRs will be transferable on the books of the depositary. However, the depositary may close its books at any time that it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies and will close its books on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or any government or governmental body, or under any provision of, or circumstance permitted by, the deposit agreement.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

Our principal executive offices are located at 288 Fute Zhong Road, Waigaoqiao Free Trade Zone, Shanghai 200131, People’s Republic of China. Our telephone number is 86-(21) 5046-1111. Our website address is www.wuxiapptec.com. The information on our website does not form a part of this annual report on Form 20-F. Our agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, 13th Floor, New York, NY 10011.

We conduct substantially all of our business through seven operating subsidiaries in China and one operating subsidiary in the United States. We own, directly or indirectly, 100% of the equity of all of our operating subsidiaries. We own the equity of our seven operating subsidiaries in China, directly or indirectly, through WXAT BVI, an intermediate holding company incorporated in the British Virgin Islands on June 3, 2004, under the name WuXi PharmaTech (BVI) Inc., with no significant assets and/or operations of its own. Substantially all of our business conducted in the PRC is through our primary operating subsidiary, WXAT, which was established in December 2000 under the name WuXi PharmaTech Co., Ltd.

We commenced operations and began offering our pharmaceutical and biotechnology R&D outsourcing services in 2001. In connection with our initial public offering, we incorporated WuXi PharmaTech (Cayman) Inc., a holding company, in the Cayman Islands on March 16, 2007. We and certain of our shareholders completed the initial public offering of 15,176,326 ADSs, each representing eight ordinary shares, on August 14, 2007.

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In December 2007, in connection with our acquisition of AppTec, we incorporated two U.S. subsidiaries: (a) Paul (US) Holdco, Inc., or Holdco, a Delaware corporation wholly owned by us, and (b) Paul Acquisition Corporation, or PAC, a Delaware corporation wholly owned by Holdco. In January 2008, we completed the acquisition of AppTec, whereby PAC merged with and into AppTec Laboratory Services, Inc., or ALS, a Delaware corporation, with ALS continuing as the surviving corporation. In the second half of 2008, the global economy suffered a serious downturn, including a significant deterioration in credit markets. As a result, some AppTec customers, including small biotechnology companies, had considerable difficulty in obtaining credit or in raising capital and consequently cut back on their spending for our services, particularly in biologics manufacturing. After conducting a thorough review of the marketplace, we concluded that the prospect of a recovery in the foreseeable future was unlikely and therefore we discontinued our biologics manufacturing operations in December 2008.

In 2009 and 2010, we made capital expenditures of $55.3 million and $49.4 million, respectively, primarily to expand and upgrade the laboratory facilities in Shanghai and Tianjin. These capital expenditures were funded from our operating cash flow. We anticipate that our 2011 capital expenditures will also be funded from our operating cash flow. For additional information, see Item 5.B, “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Expenditures.”

For additional information on our organizational structure, see Item 4.C, “—Organizational Structure.”

B. Business Overview

Industry Background and Market Opportunities

CROs arose in the United States, Europe and Japan in the 1990s to meet the needs of life science companies to improve their R&D productivity. The CRO model allows independent companies to offer specialized services to a range of life science customers, thereby competing with the traditional model of vertical integration of such services within pharmaceutical companies. Under the CRO model, both pharmaceutical companies and suppliers of R&D services can operate more flexibly as independent entities contracting with multiple business partners.

CROs aim to achieve scale and technical expertise that allow them to offer services that reduce their pharmaceutical customers’ product development costs. As a result, pharmaceutical companies can reduce their fixed costs, including scientific staff and laboratory facilities, and operate on a more variable-cost basis. We believe that CROs have been increasingly offering other benefits in addition to cost reduction, such as improved quality of product candidates; improved quality of data about product candidates to allow earlier and more cost-effective decision making; process enhancement to speed product development, including industrialization of processes to achieve economies of scale and integration of services; and technical expertise.

While the CRO industry has focused, and continues to focus, on conducting human clinical trials, the final stage of drug development, outsourcing also benefits earlier stages of pharmaceutical R&D. Compound synthesis and other discovery chemistry services, which can involve substantial labor inputs, are well suited to increased outsourcing. We are a leader in providing such discovery chemistry services and are among the largest employers of chemists in the worldwide pharmaceutical industry.

The CRO industry began in the United States, Europe and Japan, but companies in developing countries now add substantial value based on their unique capabilities. China offers highly educated, trained, and productive scientists at relatively reasonable prices. We believe we have been successful in establishing operations in China that provide high-quality discovery and preclinical services to pharmaceutical companies efficiently and cost-effectively.

We believe the share of pharmaceutical R&D spending that is being outsourced is increasing and will continue to increase.

Company Overview

We are a leading pharmaceutical, biotechnology and medical device R&D outsourcing company, with operations in China and the United States. We provide a broad and integrated portfolio of laboratory and manufacturing services throughout the R&D process to our customers, which include many of the world’s premier pharmaceutical, biotechnology and medical device companies. Our services are designed to assist our global customers in shortening the time and lowering the cost of pharmaceutical and medical device R&D by providing cost-effective and efficient outsourcing solutions. We have more than 1,000 customers, including most of the largest pharmaceutical companies by revenues, many of whom have presented us with awards for our performance and continue to come back to us for additional and larger projects, including integrated projects.

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Since our founding in 2001, our core business has been to provide discovery chemistry services to synthesize small molecules at the beginning of the drug discovery process. Discovery chemistry continues to represent a large majority of revenues for our China-based laboratory services segment. In recent years, we have added other services, including discovery biology, safety pharmacology, DMPK, bioanalytical services, manufacturing process R&D, clinical-trial-scale manufacturing, formulation, toxicology and commercial-scale manufacturing. The AppTec acquisition expanded our capabilities beyond small molecules to large-molecule biologics and medical devices. We continue to broaden customer relationships with our expanded capabilities and integrated services.

We are well-positioned to capitalize on the global trend of R&D outsourcing by emphasizing our experience, capabilities, quality, responsiveness, protection of customer intellectual property and reliability. Our primary China-based facilities include a 1,292,000 square-foot facility in the Waigaoqiao Free Trade Zone in Shanghai used for discovery chemistry, bio-analytical services, service biology, process research, and other services; a 157,000 square-foot small-scale cGMP clinical manufacturing facility and a 222,000 square-foot large-scale cGMP commercial manufacturing plant in the Jinshan area of Shanghai; a 576,000 square-foot R&D center focused on discovery chemistry in Tianjin; and a 314,000 square-foot preclinical toxicology facility in Suzhou. A portion of the toxicology facility began operations in the second half of 2009, and the remaining area is expected to be opened later based on business demand. Our large-scale cGMP manufacturing plant opened in the first half of 2010. We are constructing a 99,100 square-foot biologics manufacturing facility in Wuxi and a 106,000 square-foot discovery chemistry facility in Wuhan. We expect both facilities to be operational in 2012. Our acquisition of AppTec provides us with a U.S. presence and with know-how in biologics and medical device testing, including three FDA-registered facilities. These U.S. facilities include an 83,000 square-foot R&D and manufacturing facility in St. Paul, Minnesota, used for in vitro and in vivo biocompatibility testing, toxicology, and processing for tissue-based products; a 50,000 square-foot testing facility in Atlanta, Georgia used for microbiology, medical-device chemistry, sterilization validations, and package testing; and a 76,000 square-foot biologics testing facility in Philadelphia, Pennsylvania.

Our net revenues increased from $253.5 million in 2008 to $270.0 million in 2009 and $334.1 million in 2010, representing year-over-year growth of 7% and 24%, respectively. Net revenues in 2008 included $57.7 million from AppTec, acquired on January 31, 2008. These 2008 revenue numbers exclude revenues from our biologics manufacturing operation, which we discontinued in December 2008. We generated most of our revenues in each of the prior three years from customers headquartered in the United States. Our historical growth rate is attributable primarily to an increased customer base and a greater number of projects that resulted from our expanded capacity and increased service offerings, including a focus on obtaining long-term, integrated R&D contracts. We recorded a net loss of $64.2 million in 2008, which included pretax impairment charges of $60.5 million relating to the continuing AppTec business and a pretax loss from discontinued AppTec operations of $61.7 million ($49.3 million after tax). In contrast, we have not recorded any impairment charge related to our long-lived assets or goodwill in 2009 or 2010. We recorded net income of $52.9 million in 2009 and $90.8 million in 2010, representing year-over-year growth of 72%.

Our Strategy

Our mission is to provide fully integrated R&D services to life science companies to improve the success of their research and to shorten the time of their new-product development. We believe we have established technologically advanced operations both in China, where we have access to high-quality human talent and facilities to provide drug discovery and development services at lower costs than in the United States and Europe, and in the United States, where we have strong capabilities in the testing of biologics and medical devices. With these operations, we believe we are well positioned to provide considerable value to the world’s life science companies.

Our Competitive Strengths

Since the date of our incorporation in December 2000, we have become a major international CRO. We are the largest CRO headquartered in China. Our competitive advantages include:

An integrated R&D service platform. We have built a broad range of contiguous services that, when used together, offer the opportunity for efficient advancement of product candidates through the drug discovery and development value chain.

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An experienced international management team. Many of our senior management are professionals educated at major universities in the United States and China, with extensive work experience in leading pharmaceutical, biotechnology and medical device companies, including many that are our current customers.

A highly educated and trained workforce. As of December 31, 2010, we had 4,465 employees, including 3,139 scientists. More than 70% of our scientists have obtained master’s degrees and above. We successfully recruit recent graduates from universities in China and have an extensive proprietary training program. About 90% of our employees and scientists work in China.

Operational excellence. We have developed operating procedures that meet the high quality standards of the world’s leading life science companies.

Broad technical expertise. Our scientists have technical backgrounds in most of the functions necessary for pharmaceutical, biotechnology and medical-device discovery operations.

World-class facilities in China and the United States. Our laboratories and manufacturing facilities and the equipment with which they are furnished meet international standards.

An intense focus on a diversified, high-quality customer base. Most of the world’s largest pharmaceutical companies by revenue and many other pharmaceutical, biotechnology and medical device companies are our current customers. We have successfully obtained repeat business from all of our top ten customers over the past four years. Our projects have grown in size, and our working relationships with our customers have become more strategic based on the trust earned through working experience.

Strong protection of customers’ intellectual property (IP). We have stringent procedures for insuring that the confidentiality of customers’ IP is preserved. There have been no known breaches of IP confidentiality in our history.

China cost advantage. Costs of labor, materials, supplies, facilities and other business resources are significantly lower in China than in the United States and Europe and are expected to remain significantly lower for the foreseeable future.

Our Services

We group our operations into two segments:

• Laboratory services for pharmaceutical, biotechnology and medical device companies. China-based laboratory services for pharmaceutical and biotech companies include discovery and medicinal chemistry, analytical chemistry, discovery biology, safety pharmacology, DMPK/ADME, bioanalytical services, process research, formulation and toxicology. U.S.-based laboratory services include testing services for biologics, medical devices, and combination products.

• Manufacturing services for producing advanced intermediates and APIs for use by pharmaceutical companies in preclinical and clinical trials of small-molecule products and for producing advanced intermediates as ingredients in a small-molecule commercial product undergoing regulatory review.

Net revenues from our laboratory services segment increased from $205.0 million in 2008 to $249.9 million in 2009 and $294.9 million in 2010, or 21.9% and 17.9% growth, respectively. Net revenues from our manufacturing services segment decreased from $48.5 million in 2008 to $20.1 million in 2009 and increased to $39.2 million in 2010, or year-over-year changes of (58.6%) and 95.0%, respectively.

Laboratory Services Segment

Pharmaceuticals

We provide a broad and integrated portfolio of pharmaceutical services that consist of the following:

Discovery Chemistry. Historically, our core services have been in discovery chemistry, where we have established broad competencies in several areas of custom chemical synthesis, including the synthesis of intermediates, benchmark compounds, analogs for the support of medicinal chemistry programs and compound libraries. Our capabilities in discovery chemistry allow us to produce more than one million compounds annually, which are individually synthesized, greater than 85% pure and produced in quantities of at least 20 milligrams. These services include the design and synthesis of focused libraries and custom analogues based on computational models and structure-based drug design.

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Analytical Chemistry. After synthesis, we purify compounds in a scalable purification lab, which simplifies an otherwise cumbersome process, lowers cost and shortens time to market. Our analytical chemistry group provides purification and separation services to support discovery and process chemistry. Services include chiral separation, large-scale chromatography separation, high-throughout purification, natural product purification, high-throughput physical property determination and isolation and analysis of impurities.

Discovery Biology. Our discovery biology services include reagent generation; development of molecular and cellular assays to examine the activity of small-molecule compounds at receptors, enzymes, ion channels, and signal transaction pathways; screening; biomarker research; custom monoclonal antibody generation; stable line development; and biosafety and adventitious virus testing.

Medicinal Chemistry. After synthesized compounds are screened in biological assays, our integrated services in medicinal chemistry utilize hit-to-lead generation and lead optimization principles to design and synthesize analogs and focused libraries in collaboration with our clients’ medicinal chemistry team. We optimize leads by altering a molecule’s structure to improve its potency, selectivity, pharmacokinetics, efficacy and safety. Through an integrated collaboration of medicinal chemistry, computational biology, in vivo pharmacology, DMPK, and toxicology, we efficiently and cost-effectively advance our clients’ drug discovery projects to candidate nomination, preclinical development, and creation of an Investigational New Drug, or IND, application.

DMPK/ADME. We perform drug metabolism and pharmacokinetics, or DMPK, and absorption, distribution, metabolism, and excretion, or ADME, services to gain information about how the human body changes a pharmaceutical physically and impacts its action, including its efficacy and toxicity. We offer in vivo pharmacokinetic studies in small and large mammals by measuring drug concentrations in a range of biological matrices, including blood, urine, bile, cerebrospinal fluid and tissues. We have capabilities to administer drugs using a variety of dosing routes and to provide results in a rapid turnaround time. Our in vitro ADME profiling services include analyzing the metabolic stability and permeability of drug candidates, interactions with transporters, drug-drug interactions and plasma protein binding. Our metabolite identification services include metabolite profiling, characterization and structure elucidation; bulk metabolite isolation and purification; synthesis of authentic standards of metabolites and pharmacokinetic evaluation of parent compounds and metabolites in preclinical and clinical samples. We also perform pharmacokinetic/pharmacodynamic modeling studies in various rodent efficacy models, including cancer, central nervous system disorders and metabolic diseases.

Safety Pharmacology. Our safety pharmacology services help to identify toxicity issues in drug compounds at the discovery stage, before preclinical and clinical testing. Our electrophysiology testing of hERG and other cardiac ion channels identifies issues of cardiosafety for compounds in various stages of discovery and development. Our in vitro biochemical and cell-based assays provide useful information on compounds’ pharmacology. Our toxicology testing during lead optimization provides an early warning of potential genotoxicity.

Bioanalytical Services. Our bioanalytical services include quantitative and qualitative sample analyses to support preclinical and clinical studies of pharmocokinetics, toxicokinetics, phamacodynamics and immunogenicity. We analyze small-molecule drugs using liquid chromatography/mass spectroscopy and measure biomarker/biologics and antibody immunogenicity using immunochemistry. We passed an FDA GLP inspection of our bioanalytical testing laboratory in Shanghai in March 2009, with no major observations or issuance of a Form 483 for non-compliance issues.

Process Research and Development. Our cGMP-quality kilo-lab and pilot plant help our customers to develop processes to manufacture pharmaceuticals in larger quantities, from laboratory quantities measured in milligrams and grams to scale-up quantities measured in kilograms, to process optimization quantities measured in hundreds of kilograms, to commercial quantities measured in metric tons. By selecting the most efficient methods of compound synthesis, our chemists reduce the cost of synthesis. Efficiency can be improved by reducing the number of products used in synthesis, improving the yield of the desired compound and accelerating the time needed for synthesis. Our process development services are fully integrated with our analytical development, formulation development and cGMP manufacturing of APIs. Many of our manufacturing projects involve compounds for which we developed the scale-up methodology in process R&D. We offer process safety evaluations as part of this service.

Analytical Development. We provide a range of analytical services to assist customers in drug development. We develop and validate methods of analyzing APIs and formulated products for properties such as potency, purity and solubility. We also offer compound stability tests and tests necessary for the release of APIs and clinical test material. We deliver services related to regulatory compliance with chemistry, manufacturing and controls, or CMC, requirements, including creation of a readiness testing package for an Investigational New Drug, or IND, filing and development of a full CMC package. We also offer a range of biologics analysis and stability studies. The analytical development function supports our process R&D and manufacturing functions.

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Formulation Services. We offer a full range of services to convert optimized lead compounds into formulated drugs suitable for preclinical and clinical testing and to assist in preparation of regulatory filings. Preformulation services include studies to identify the intrinsic physicochemical properties of compounds, to select an appropriate salt form, to characterize the particle size and flow properties of powders and to determine the compatibility of drug excipients. Formulation services include early safety studies, stability studies, compound manufacturing for preclinical toxicity studies or clinical trials, and product registration services. Our capabilities cover both solid oral and liquid oral dosage forms. To support this group, in 2008 we completed construction of a 22,000 square-foot cGMP-quality pilot lab in the Waigaoqiao Free Trade Zone in Shanghai focused on formulation projects for Phase I and II clinical trials.

Toxicology. We offer in vivo and in vitro non-clinical safety evaluation, or toxicology, programs. We began offering our toxicology services in China in 2007 with a 13,000 square-foot temporary leased facility and have partnered with another company to secure a supply of laboratory animals and access to a breeding facility.

In mid-2009, we opened a 314,000 square-foot facility in Suzhou. Its 108 study rooms are being introduced in two stages. We have built out, validated and begun to use 62 study rooms as part of Stage 1. The remaining 46 study rooms will be brought on line later based on business demand. We received Good Laboratory Practice, or GLP, certifications from both the SFDA and the Organization of Economic Cooperation and Development in 2010. We are the only company in China to have received both certifications. We have provided non-GLP exploratory toxicology services as well as GLP toxicology services starting from mid-2010. We offer a wide range of services in clinical pathology and anatomical pathology. Our services include a wide selection of animal models and routes of administration.

The AppTec acquisition extended the scope of our capabilities to include GLP and non-GLP toxicology services in the United States, including general toxicology. Our St. Paul facility has 40,000 square feet dedicated to in vivo toxicology services for the medical device industry. The staffs include the specialists necessary for a GLP facility, including board-certified toxicologists, pathologists, veterinarians, histologists and study directors. The facility is FDA-registered, ISO 17025 certified, accredited by AAALAC and the American Association for Laboratory Animal Science and licensed by the U.S. Department of Agriculture, or USDA, and the U.S. Drug Enforcement Administration.

Biologics

We offer a comprehensive array of development, testing, and manufacturing services for biologic products.

Biologics Development Services. Our biologics development services cover cell line engineering and construction, assay development, and technology transfer.

We offer comprehensive cell line development capabilities that start when clients provide the cDNA and transfection vector for subsequent molecular cloning. After transfection into a client-specified protein expression cell line, we determine the appropriate number of clones to analyze in order to find high-expressing product clones. Identification and selection of high-producing stable clones can be subjected to additional rounds of subcloning or further analysis such as short or long stability studies and product analysis/characterization. The top selected clones can be transitioned to our cell culture process development team for media and cell culture optimization studies as well as GMP cell banking and cell line characterization activities.

We have developed over 3,000 assays for various types of analytical or biosafety purposes. Custom assays can be transferred from clients and optimized and validated or we can develop new assays by utilizing the technical expertise of our analytical, cell biology, virology, molecular biology, and microbiology laboratory staff. Assays are developed and validated for in-process analysis and for bulk and final product lot release (biosafety, purity, potency, identity, and concentration). Using forced degradation experimental designs, stability-indicating methods can be identified for use in stability studies.

Our operation facilitates the efficient transfer of sponsor methods, assays and processes. The transfer of information and initial methods verification provides both us and the sponsor with a defined baseline upon which to measure effects of operating procedures, raw materials, manufacturing scale-up, process optimization, protein characterization and product release criteria.

Biologics Testing Services. We provide biologics testing services that include product characterization, cell line characterization, lot release testing, inactivation/clearance validation studies, and stability studies.

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Product characterization. Product or reference standard analytical characterization is provided under R&D, GLP or GMP guidelines. A wide range of analytical and compendial methodologies are available. Client-specific assays for product identification, purity and potency could be transferred, developed and further optimized and validated as part of the product characterization program.

Cell line characterization. We provide clients with the appropriate testing methodology to meet specific cell line testing needs. These services are available for complete biosafety, identification and characterization assessment of cell banks and cells at the limit of in vitro cell age under FDA and ICH guidelines. The comprehensive battery of test methodologies, including genetic stability analysis required for most species (hamster, murine, human, insect, avian and simian) can be conducted following GLP and, if appropriate, GMP protocols. These services can be provided for various biological products that use mammalian cell culture production systems at every phase of clinical development.

Lot release testing. We offer safety testing programs designed to expedite commercial product lot release. Thousands of commercial product lots have been released with our virus and mycoplasma detection assays. Comprehensive release programs that include safety, potency and analytical assays have been achieved for worldwide regulatory acceptance for hundreds of products.

Inactivation/clearance validation studies. We offer custom studies to validate removal, inactivation, or cleaning processes for viruses, bacteria, and mycoplasma agents, with studies performed to R&D, GLP or GMP standards, as needed. Our scientific and quality teams have comprehensive expertise in virology, microbiology, infectivity and quantitative PCR assays, process development, and international regulatory considerations for early- and late-stage products with capabilities that meet client needs for Phase 1-3 clinical testing and for BLA and 510K submissions.

Stability studies. We can design and implement comprehensive stability testing and storage programs for any type of biopharmaceutical (proteins/peptides, virus, nucleic acid).

Biologics Manufacturing Services. Our biologic manufacturing services include cell banking and cGMP manufacture of cellular therapeutics. We maintain five individually monitored suites for GMP manufacture of cell banks grown to client specifications, under exacting standards and QA oversight, in a highly monitored, secure and controlled environment. As a GMP/GTP/GLP contract manufacturing and testing company, we offer a single-source, fully integrated approach for cellular therapeutics.

Medical Devices

We offer testing and development services to ensure that a medical device is manufactured, packaged and sterilized in accordance with GMP guidelines. Our in vivo and in vitro toxicology testing includes biocompatibility/safety testing; orthopedic, cardiovascular and custom implant studies; histology and pathology services; analytical chemistry and chemical/physical testing; raw material verification; lot release testing; sterilization validation; microbial identifications; process change validation; inactivation/clearance validation; package integrity testing; cleaning/sterilization validation for reusable devices; and controlled environment monitoring.

Combination Products

We offer specialized programs in support of product development, regulatory submission and marketing claims for combination products, including devices, tissue products, biologics and pharmaceuticals. We offer testing services of combination products in antimicrobial efficacy, biocompatibility/safety, microbiology, orthobiology and toxicology. Our manufacturing services include cGMP processing services for combination, device and tissue products that require processing in a controlled environment.

Manufacturing Services Segment

We began offering manufacturing process development services to meet the growing customer demand to scale up production of advanced intermediates and APIs for drug candidates to be tested in late-stage clinical trials. As a logical extension of this process development service, we then developed our own clinical-trial manufacturing services, which allow us to be the commercial manufacturer of these clinical-trial product candidates or key ingredients if and when the candidates complete clinical trials and receive regulatory approval. As with our laboratory services, our manufacturing services are intended to reduce our customers’ product development time and cost.

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We have a cGMP-quality manufacturing facility in the Jinshan Chemical Industry Development Zone of Shanghai, which covers both research manufacturing and commercial-scale manufacturing. The research-manufacturing plant, which was established in 2004, complies with SFDA standards and is certified to both ISO 9001:2000 and ISO 14001:2004 standards. It has approximately 157,000 square feet and has 38 reactors with volumes ranging from 50 to 3,000 liters each, for total volume of 50,950 liters. In January 2007, we began building a large-scale and commercial-scale manufacturing facility. This 222,000 square-foot facility has 28 reactors ranging in volume from 3,000 to 20,000 liters each, or 223,500 liters of total reactor volume. The new facility offers advanced process automation for control of temperature, agitation and other parameters and has high-pressure, high-temperature, cryogenic, and hydrogenation capabilities. The facility was opened in early 2010 and began producing advanced intermediates in the second half of 2010.

Sales and Marketing

We market our services directly to customers through meetings with the senior management of pharmaceutical, biotechnology and medical device companies; maintenance of extensive Internet websites and participation in trade conferences and shows and scientific conferences. We also receive a significant amount of business from customer referrals. Since our inception, our senior management has been actively involved in managing our sales and marketing activities and maintaining direct relationships with our major customers.

A new customer typically first assigns us a small-scale project to test our capabilities. After we successfully complete the assignment, the customer often increases the size and duration of the next contract and hires us for more types of assignments. We aim to increase our customer base by targeting pharmaceutical, biotechnology and medical device companies who recognize the cost-effectiveness of outsourcing to us or who lack in-house discovery and development capabilities and view outsourcing as an attractive option to achieve their objectives.

We have field forces strategically located in key geographic locations, including the United States and Europe. A sales support group based in St. Paul, Minnesota, assists these sales forces. Our field sales representatives generate sales leads and work closely with technical experts to prepare quotes and to secure customer orders.

Customers

In 2010, our China-based operations provided services to 260 pharmaceutical and biotechnology customers, and our U.S.-based operations serviced about approximately 800 medical device, biotechnology, and pharmaceutical companies. A large majority of our total net revenues over the past several years was generated from sales to customers headquartered in the United States. We have received numerous awards from our customers, including awards in 2010 from Eli Lilly & Co., Merck & Co., Inc., or Merck, AstraZeneca plc, Novartis AG, and Vertex Pharmaceuticals Incorporated. Most of our customers return to us for more projects, particularly integrated programs, and each of our top ten customers over the last four years continues to be our customer today. As a result, our customer base has been stable, with growing average revenue per customer.

The table below sets forth information regarding our historical customer base:

	For the year ended December 31,
	2008			2009			2010
Top ten customer concentration (recognized as a percentage of total revenues)		54	%		53	%		60	%
Retention of top ten customers (repeat percentage)		100	%		100	%		100	%
Average revenues per top ten customer (millions of U.S. dollars)	$	13.8		$	14.4		$	19.9

For certain major customers, we provide not only dedicated teams of scientists, but also dedicated laboratory facilities, analytical support and independent information technology and security services. This physical and operational separation of customer projects ensures enhanced security and protection of our customers’ intellectual property. The laboratory configuration and setup, research plan, operating procedures, information technology and security protocols all can be tailored to our customers’ specifications.

In 2010, revenue from Merck, our largest customer, accounted for 18.4% of our net revenues. See Item 3.D, “Key Information—Risk Factors—Risks Relating to Our Business—A limited number of our customers have accounted for, and are expected to continue to account for, a high percentage of our revenues. The loss of, or significant reduction in, orders from any of these customers could significantly reduce our revenues and have a material adverse effect on our financial condition, results of operations, cash flows and prospects. The prospect of merger activity in the pharmaceutical industry would increase this risk.”

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Project Management and Customer Support

We believe that we have an established reputation among our customers for high productivity, rapid turnaround times and comprehensive customer support. We generally assume full project-management responsibility in each of our service offerings. We strictly adhere to our internal quality and project management processes. We believe our processes, methodologies and knowledge management systems and tools reduce the overall cost to the customer and enhance the quality and speed of delivery. We have developed a project-management methodology to ensure timely, consistent and accurate delivery of quality services. To facilitate project management, we developed an online system allowing a customer’s project manager to monitor and report on the progress of its projects through a secure encrypted website. Additionally, our project team interacts with the customer’s project-management team through daily emails, bi-weekly reports and regular conference calls. Our project management involves strict adherence to our strategic imperative to protect our customers’ confidentiality and IP. See “—Intellectual Property” below.

We conduct frequent customer satisfaction surveys with several of our significant customers, measuring key performance indicators to improve our planning, execution, evaluation and support. Internally, we focus on operational improvement and innovation to achieve lower direct costs, better use of assets, faster development time, increased accuracy, greater customization or precision of data, more added value and simplified processes. Our customer support department focuses on sales support and relationship management with our customers and is dedicated to improving responsiveness to our customers’ needs and inquiries. Less-than-satisfactory marks and comments are scrutinized for root causes to continuously improve operations and services.

Seasonality

Occasionally, our first-quarter revenues for our China-based services business are sometimes lower than the preceding fourth-quarter revenues, as certain customers are in the process of planning out new projects in the first quarter following the approval of their budgets. Otherwise, our revenues generally are not subject to significant seasonal fluctuations because our customers’ needs are relatively continuous.

Intellectual Property (IP)

Protection of IP associated with R&D is critical to all of our pharmaceutical, biotechnology and medical device customers. Our customers generally retain ownership of all associated IP, including both IP they provide to us and that arising from the services we provide. Our success depends in substantial part on our ability to protect the proprietary rights of our customers, and we have made this a priority since our inception. This is particularly important for us because a substantial part of our operation is based in China, and China and Chinese companies have not traditionally enforced IP protection to the same extent that the United States and U.S. companies have.

We take all necessary precautions to protect the IP of our customers. As one aspect of our system of protecting IP rights, including both our customers’ and our own, we enter into agreements with all of our employees under which they disown all IP they create during their employment and waive all relevant IP rights or claims. All our employees are also bound by confidentiality obligations and have agreed to disclose and assign to us all inventions conceived by them during their term of employment. Furthermore, our service agreements provide that all IP generated during the course of a project is exclusively the property of the customer for whom we are conducting the project.

As another aspect of our IP-protection system, we have established documentation procedures, powered by the industry standard Laboratory Information Management System, or LIMS, licensed by Thermo Watson, to control information access on a need-to-know basis and to restrict system access in connection with our DMPK studies in drug discovery and development. A typical bioanalytical laboratory generates hundreds or even thousands of test results daily, which must be securely stored for long periods. LIMS is designed for tracking individual samples and the information obtained on them with various analytical tools. Only after the results of all bioanalytical techniques have been reviewed in LIMS is a product released or rejected. We believe that our LIMS complies with all FDA requirements regarding security, including data integrity, compatibility and audit-trail generation.

We have also created an IP-protection process in China whereby we periodically scan signed and dated notebooks of every scientist onto diskettes and then engage the notary public office to notarize the records. Notebooks are critical to the drug and medical device R&D process, as scientists’ notes are often used as original data in support of patent applications and disputes. Our process preserves the documentation necessary to establish IP ownership should any disputes arise in the future. This process not only significantly enhances the protection of key original information, but also increases customers’ confidence and trust in our company. Furthermore, each customer project has dedicated laboratory space equipped with key-card access control systems. Furthermore, we strictly forbid our scientists from displaying chemical structures in any form in communal analytical laboratories. Most laboratory computers are not connected to the Internet and have restricted data-transfer capabilities.

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We do not believe that our own proprietary technology and IP is material to our business. Although our own IP rights are important to our results of operations, we believe that the technical expertise, knowledge, ability and experience of our employees are more important, and that these technological capabilities provide significant benefits to our customers.

Despite measures we have taken to protect our own and our customers’ IP, unauthorized parties may attempt to obtain and use information that we regard as proprietary. See Item 3.D, “Key Information—Risk Factors—Risk Relating to Our Business—If we fail to protect our customers’ intellectual property rights, we may be subject to liability for breach of contract and may suffer damage to our reputation.” To date, we are not aware of any such breaches. We have five trademarks registered in China and are pursuing registration of these trademarks in the United States. Our service creed, “We Are Determined to Serve You Better,” is registered with the U.S. Patent and Trademark Office.

Competition

We compete with other CROs, contract manufacturing organizations and research and academic institutions. We anticipate that we will face increased competition in the future as new companies enter the market and advanced technologies become available. See Item 3.D, “Key Information—Risk Factors—Risk Relating to Our Business—We face increasingly intense competition. If we do not compete successfully against new and existing competitors, some of whom subject us to increasing pricing pressure, demand for our services and related revenues may decrease.”

The pharmaceutical and biotechnology R&D outsourcing market remains highly fragmented. We compete with industry players in particular service areas—for example with Charles River, which has partnered with Shanghai BioExplorer Co., Ltd., in the preclinical services area, with Covance in the preclinical services area, and with ShangPharma and BioDuro, a PPD company, in discovery chemistry and other laboratory services. We now also compete with companies in the biologics area, including BioReliance, and in medical device testing area, such as NAMSA and Toxicon. We believe that we do not compete with any single company across the breadth of our service offerings.

We believe we compete primarily on the basis of the relative quality of our technical performance, the quality of our customer service, responsiveness, efficiency, compliance with GLP and GMP quality standards, turnaround time, resources, strategic emphasis in protecting customer IP, and price. Our retention of our top ten customers for the last four years has led to a steady and increasing revenue stream. However, many of our current or future competitors may have longer operating histories, better name recognition, greater levels of consumer trust, stronger management capabilities, better supplier relationships, larger technical staff and sales force and greater financial, technical or marketing resources than we have.

We believe that the successful recruitment and retention of scientists with Ph.D.s and master’s degrees are key elements in achieving our strategic goals. We believe that as competitive pressures in the pharmaceutical and medical device R&D industry increase, the recruitment and retention of scientists will become increasingly competitive. To meet this challenge, we actively recruit scientists at colleges and universities and through other means. We believe the sophisticated pharmaceutical and medical device R&D services performed in the course of our business and our reputation as the leading CRO headquartered in China help us in attracting and retaining qualified scientists. We offer what we believe are competitive salaries and benefits as a means to recruit and retain highly skilled scientists.

Insurance

We maintain property insurance policies covering physical damage to, or loss of, our buildings and their improvements, equipment, office furniture, and inventory; employer’s liability insurance generally covering death or work injury of employees; product liability and professional errors and omissions insurance covering product liability claims arising from the use or operation of our small-molecule compounds and claims arising from negligence in connection with our services to customers; public liability insurance covering certain incidents involving third parties that occur on the premises of the company and directors and officers liability insurance. While we believe that our insurance coverage is comparable to that held by similarly situated companies with property in China and the United States, it may be insufficient to cover all claims for product liability or damage to our fixed assets. We do not maintain life insurance for any members of our senior management or other key personnel.

Insurance companies in China offer limited business insurance products. While business disruption insurance is available to a limited extent in China, we have determined that the cost of this insurance, the difficulties associated with acquiring it on commercially reasonable terms and the relatively low risk of disruption make carrying this insurance impractical. As a result, we do not have any business disruption insurance coverage for our China operations. See Item 3.D, “Key Information—Risk Factors—We have limited insurance coverage, and any claims beyond our insurance coverage may result in our incurring substantial costs and a diversion of resources.”

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Chinese Government Regulations

We operate in a legal environment with little formalized regulation over several of our activities. The following laws, regulations and regulatory authorities are relevant to our business.

State Food and Drug Administration (SFDA)

In the PRC, the SFDA is the authority that monitors and supervises the administration of pharmaceutical products and medical devices and equipment as well as food and cosmetics. The SFDA’s predecessor, the State Drug Administration, or the SDA, was established in August 1998 as an organization under the State Council to assume the responsibilities previously handled by the Ministry of Health of the PRC, or the MOH, the State Pharmaceutical Administration Bureau of the PRC and the State Administration of Traditional Chinese Medicine of the PRC. The SFDA was founded in March 2003 to replace the SDA.

The SFDA’s primary responsibilities include:

• monitoring and supervising the administration of pharmaceutical products, medical devices and equipment as well as food and cosmetics in the PRC;

• formulating administrative rules and policies concerning the supervision and administration of food, health food, cosmetics and pharmaceuticals;

• evaluating, registering and approving new drugs, generic drugs, imported drugs and traditional Chinese medicines;

• approving and issuing permits for the manufacture, export and import of pharmaceutical products and medical appliances and equipment and approving the establishment of enterprises for pharmaceutical manufacture and distribution; and

• examining and evaluating the safety of food and cosmetics and handling significant accidents involving these products.

We are currently not involved in the business of providing drug-development services in the Chinese market that are subject to the SFDA approval process, or of manufacturing or marketing any drug to be sold in China. Our customers, who are principally located in the United States, are developing drugs for the United States and other major international markets. The primary regulatory authority that impacts our business is the FDA. Although we voluntarily comply with certain SFDA standards, except in the following instance we are not currently, and are not likely to become, subject to SFDA regulation:

• In order to use the term “pharmaceutical” in its company name, our PRC manufacturing subsidiary in Jinshan was required by the relevant local government to obtain, and has obtained, a pharmaceutical manufacturing certificate from the Shanghai branch of the SFDA.

Blood and Reagent Import/Export

According to the Circular on Strengthening Administration on Entry and Exit Inspection and Quarantine of Special Articles for Medical Use, import or export of special medical articles, including blood and reagents, must be inspected by the relevant inspection and quarantine authorities and be approved by the MOH or its local counterparts or other authorities.

Pharmaceutical Research

The PRC Drug Administration Law, as promulgated by the Standing Committee of the National People’s Congress in 1984, and the Implementing Measures of the PRC Drug Administration Law, as promulgated by the MOH in 1989, have set forth the legal framework for the establishment of pharmaceutical manufacturing enterprises and pharmaceutical trading enterprises and for the administration of pharmaceutical products, including the development, research and manufacturing of new drugs and medical preparations by medical institutions. The PRC Drug Administration Law also regulates the packaging, trademarks and advertisements of pharmaceutical products in the PRC.

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Certain revisions to the PRC Drug Administration Law took effect in December 2001. They were formulated to strengthen the supervision and administration of pharmaceutical products and to ensure the quality and safety of pharmaceutical products for human use. The revised PRC Drug Administration Law applies to entities and individuals engaged in the development, production, trade, application, supervision and administration of pharmaceutical products. It regulates and prescribes a framework for the administration of pharmaceutical manufacturers, pharmaceutical trading companies, medical preparations of medical institutions and the development, research, manufacturing, distribution, packaging, pricing and advertisement of pharmaceutical products.

The PRC Drug Administration Implementing Rules promulgated by the State Council took effect in September 2002 to provide detailed implementing regulations for the revised PRC Drug Administration Law.

Safety, Health and Environmental Matters

Our operations and properties are subject to extensive environmental protection and health and safety laws and regulations. These laws and regulations govern, among other things, the generation, storage, handling, use and transportation of hazardous materials and the handling and disposal of hazardous and biohazardous waste generated at our facilities.

These laws and regulations generally impose liability regardless of the negligence or fault of a responsible party, unless it has legally defined immunities. These laws and regulations also require us to obtain permits from governmental authorities for certain operations. If we fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators. Under certain environmental laws and regulations, we could also be held responsible for all of the costs relating to any contamination at our past or present facilities and at third-party waste-disposal sites.

Although we believe that our costs of complying with current and future environmental laws and our liabilities arising from past or future releases of, or exposure to, hazardous substances will not materially adversely affect our business, results of operations or financial conditions, they may do so. We do not expect to incur material costs to comply with relevant environmental laws and regulations. Because the requirements imposed by these laws and regulations may change, however, we may be unable to accurately predict the cost of complying with these laws and regulations. In addition, although we believe that we currently comply with the standards prescribed by these laws and regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In that event, we could be liable for any resulting damages, which could exceed our resources and adversely impact our results of operations.

PRC Patent Law

The PRC Patent Law was first promulgated in 1984 and has since been amended three times, in 1992, 2000 and 2008. The third amendment to the PRC Patent Law became effective on October 1, 2009. One notable change in the latest amendment is the requirement of confidential examination for inventions completed in China. Under the pre-existing PRC Patent Law, for inventions completed in China, Chinese companies and individuals must make China patent filings first before they can make foreign filings (the so-called “first-file-in-China” rule). The amended Article 20 of the Amended Patent Law now provides that, for an invention or utility model completed in China, any applicant (not just Chinese companies and individuals), before filing a patent application outside of China, must first submit it to the State Intellectual Property Office, or SIPO, for a confidential examination. Failure to comply with this requirement will result in the denial of any Chinese patent for the subject invention. This added requirement of confidential examination by the SIPO draws concerns from foreign companies with R&D activities in China or outsourcing R&D activities to service providers in China.

Trade Secrets

According to the Anti-Unfair Competition Law of the PRC, the term “trade secrets” refers to technical information and business information that is unknown to the public, that has utility and may create business interest or profit for its legal owners or holders and that is maintained as secret by its legal owners or holders.

Under this law, business persons are prohibited from employing the following methods to infringe trade secrets: (a) to obtain the trade secrets from the legal owners or holders by any unfair methods such as stealing, solicitation or coercion; (b) to disclose, use or permit others to use the trade secrets obtained illegally under item (a) above; or (c) to disclose, use or permit others to use the trade secrets in violation of any contractual agreements or any requirements of the legal owners or holders to keep such trade secrets in confidence. If a third party knows or should have known of the above-mentioned illegal conduct but nevertheless obtains, uses or discloses such trade secrets of others, it may be deemed to have committed a misappropriation of others’ trade secrets. The parties being misappropriated may petition for administrative corrections, and competent regulatory authorities may stop any illegal activities and may fine infringing parties in the amount of RMB 10,000-200,000. Alternatively, persons whose trade secrets are being misappropriated may file lawsuits in a competent PRC court for damages caused by the misappropriation.

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The measures to protect trade secrets include oral or written agreements or other reasonable measures to require the employees of, or persons in business contact with, legal owners or holders to keep such trade secrets confidential. As soon as the legal owners or holders request others to keep the trade secrets confidential and adopt reasonable protection measures, the requested persons shall bear the responsibility for keeping the trade secrets confidential.

Foreign-Exchange Control and Administration

Foreign exchange in China is primarily regulated by:

• The Foreign Currency Administration Rules (1996), as amended; and

• The Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

Under the Foreign Currency Administration Rules, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments, and trade and service-related foreign-exchange transactions. Conversion of Renminbi into foreign currency for capital account items, such as direct investment, loans, investment in securities and repatriation of funds, however, is still subject to the approval of SAFE or its local counterparts. Under the Administration Rules, FIEs may only buy, sell and/or remit foreign currencies at banks authorized to conduct foreign-exchange transactions after providing valid commercial documents and, in the case of capital account transactions, only after obtaining approval from SAFE or its local counterparts. Capital investments directed outside of China by FIEs are also subject to restrictions, which include approvals by the PRC Ministry of Commerce, SAFE or its local counterparts and the PRC State Reform and Development Commission. Under our current structure, our income will be primarily derived from dividend payments from our operating subsidiaries in China.

The value of the Renminbi in relation to the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi will be permitted to fluctuate within a band against a basket of foreign currencies. Significant international pressure continues to be applied on the PRC government to adopt a substantial liberalization of its currency policy, which could result in a further and more significant appreciation in the value of the Renminbi against the U.S. dollar. More recently, the PRC government has indicated a willingness to allow the Renminbi to appreciate against the U.S. dollar.

Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions

On October 21, 2005, SAFE issued Notice 75, which became effective as of November 1, 2005. According to Notice 75:

• prior to establishing or assuming control of an offshore company for the purpose of financing that company with assets or equity interests in an onshore enterprise in the PRC, each PRC resident who is an ultimate controller, whether a natural or legal person, must complete the overseas investment foreign-exchange registration procedures with the relevant local SAFE branch;

• an amendment to the registration with the local SAFE branch is required to be filed by any PRC resident that directly or indirectly holds interests in that offshore company upon either (1) the injection of equity interests or assets of an onshore enterprise to the offshore company or (2) the completion of any overseas fund raising by such offshore company; and

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• an amendment to the registration with the local SAFE branch is also required to be filed by such PRC resident when there is any material change involving a change in the capital of the offshore company, such as (1) an increase or decrease in its capital, (2) a transfer or swap of shares, (3) a merger or division, (4) a long-term equity or debt investment or (5) the creation of any security interests over the relevant assets located in China.

Moreover, Notice 75 applies retroactively. As a result, PRC residents who had established or acquired control of offshore companies that have made onshore reverse investments in the PRC in the past were required to complete the relevant overseas investment foreign-exchange registration procedures by March 31, 2007. Under the relevant rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions being imposed on the foreign-exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entity, and may also subject relevant PRC residents to penalties under PRC foreign-exchange administration regulations.

As a Cayman Islands company and therefore a foreign entity, if we purchase the assets or equity interest of a PRC company owned by PRC residents in exchange for our equity interests, such PRC residents will be subject to the registration procedures described in Notice 75. Moreover, PRC residents who are beneficial holders of our shares are required to register with SAFE or its local counterparts in connection with their investment in us. If any PRC shareholder of our offshore company fails to make the required SAFE registration and amendment registration, the six PRC subsidiaries of our offshore company may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to the offshore company. In addition, failure to comply with the SAFE registration and amendment registration requirements described above could result in liability under the PRC laws for evasion of applicable foreign-exchange restrictions. We require all our shareholders who are PRC residents to comply with any SAFE registration requirements, but we have no control over either our shareholders or the outcome of such registration procedures. Such uncertainties may restrict our ability to implement our acquisition strategy and materially and adversely affect our business and prospects.

Dividend Distributions

Pursuant to the Foreign Currency Administration Rules promulgated in 1996 and amended in 1997 and various regulations issued by SAFE or its local counterparts and other relevant PRC government authorities, the PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China.

The principal regulations governing the distribution of dividends paid by Sino-foreign equity joint-venture enterprises and wholly foreign-owned enterprises include:

• The Sino-Foreign Equity Joint Venture Enterprise Law (1979), or EJV Law, as amended;

• The Sino-Foreign Equity Joint Venture Enterprise Law Implementing Rules (1983), or EJV Rules, as amended;

• The Wholly Foreign Owned Enterprise Law (1986), or WFOE Law, as amended; and

• The Wholly Foreign Owned Enterprise Law Implementing Rules (1990), or WFOE Rules, as amended.

Under these laws and regulations, Sino-foreign equity joint-venture enterprises and wholly foreign-owned enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. WXAT, being a wholly foreign-owned enterprise, is required to set aside at least 10% of its after-tax profits of the preceding year as its reserve funds. It may stop such setting aside if the aggregate amount of the reserve funds has already accounted for more than 50% of its registered capital. Moreover, upon a board resolution, it may set aside a certain amount from its after-tax profits of the preceding year as bonus and welfare funds for staff and workers. The other six operating subsidiaries in China are equity joint ventures that are required to set aside reserve funds, bonus and welfare funds for staff and workers and development funds, a percentage of which shall be determined by the board.

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Regulations on Employee Stock Incentive Plan

According to the Administration Measures on Individual Foreign Exchange Control issued by the People’s Bank of China, or PBOC, on December 25, 2006, and its Implementation Rules issued by SAFE on January 5, 2007, both of which took effect on February 1, 2007, collectively known as the Forex Measures, employee stock-ownership plans or stock-option plans of overseas-listed companies in which PRC individuals participate shall be approved by SAFE or its authorized branch before foreign-exchange matters involving these plans can be settled.

On March 28, 2007, SAFE released detailed registration procedures for employee stock-ownership plans or share-option plans to be established by overseas-listed companies and for individual plan participants, known as Option Plan Registration Rules. Any failure to comply with the Option Plan Registration Rules may affect the effectiveness of the employee stock-ownership plans or stock-option plans and subject the plan participants, the company offering the plans or the relevant intermediaries to penalties under the PRC foreign-exchange regime.

Because we are listed on the NYSE, we may be subject to the Forex Measures and Option Plan Registration Rules and we need to be in compliance with the procedures provided therein.

Regulation of Overseas Listings

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce and the CSRC, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006. The New M&A Rule, among other things, purports to require an SPV formed for the purpose of listing the SPV’s securities on an offshore securities exchange and controlled directly or indirectly by PRC companies or individuals to obtain the approval of the CSRC prior to such offshore listing and trading. On September 21, 2006, the CSRC published on its official website procedures specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings. However, substantial uncertainty remains regarding the scope and applicability of the New M&A Rule to overseas listings of offshore SPVs.

Our PRC counsel, Commerce & Finance Law Offices, advised us that, based on its understanding of the current PRC laws, regulations and rules, it was not necessary for us to obtain the CSRC’s approval for our initial public offering because we obtained approval from relevant authorities for the acquisition of our operating subsidiaries in the PRC before September 8, 2006, the effective date of the New M&A Rule. A copy of Commerce & Finance’s legal opinion regarding the New M&A Rule is filed as an exhibit to our initial public offering registration statement on Form F-1.

Company Law

In October 2005, the Standing Committee of the National People’s Congress adopted amendments to the PRC Company Law that substantially overhauled the PRC company law system and removed a number of legal restrictions and hurdles on the management and operations of limited-liability companies and companies limited by shares.

WXAT is governed by both the PRC Company Law and the WFOE Law and its implementation rules, and the other six operating subsidiaries are governed by both the PRC Company Law and the EJV Law and its implementation rules. The Amended PRC Company Law eliminates a restriction that limits the amount of equity investments that a company could make to a maximum of 50% of such company’s net assets. With the removal of such a restriction, our operating subsidiaries in China may have more flexibility in making equity investments or planning potential acquisitions. In addition, the amended PRC Company Law now permits the establishment of single-shareholder limited-liability companies. As a result, subject to industry limitations, WXAT may acquire 100% of the equity interest in a PRC limited-liability company and become the sole shareholder of such a limited-liability company. The amended PRC Company Law includes requirements about the establishment of a supervisory committee.

Other National and Provincial Laws and Regulations in China

We are subject to evolving laws and regulations administered by PRC governmental authorities at the national, provincial and city levels, some of which are, or may be, applicable to our business. We must comply with numerous state and local laws relating to matters such as safe working conditions, manufacturing practices, environmental protection and fire-hazard control. We believe we are currently in compliance with these laws and regulations in all material respects. We may be required to incur significant costs to comply with these laws and regulations. Unanticipated changes in existing regulatory requirements or adoption of new requirements could have a material adverse effect on our business, financial condition, cash flows and results of operations.

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Regulations in the United States and Other Jurisdictions

The services that we perform are subject to various regulatory requirements in the United States and other countries designed to ensure the safety, effectiveness, quality and integrity of healthcare products, including pharmaceuticals, medical devices, biologics and human cell and tissue products, or HCT/Ps. In the United States, the regulations are primarily the Federal Food, Drug and Cosmetic Act and associated regulations regarding GLP, GMP and good tissue practice, or GTP, which are administered by the FDA in accordance with current industry standards. These regulations apply to all phases of pharmaceutical, medical device, biologic and HCT/P testing, manufacturing and record keeping, including personnel; facilities; equipment; control of materials, processes and laboratories; and the packaging, labeling, storage and distribution of products. Noncompliance with GLPs or GMPs by us in a project could result in disqualification of data that we collected or of the associated product. A material violation of GLP, GMP and GTP requirements could result in additional regulatory sanctions, imposition of fines and, in severe cases, a mandated closing of our facilities, which could have a material adverse effect on our business, including its financial condition, results of operations, cash flows and prospects.

Our laboratories and facilities in the United States are subject to regulation under federal, state and local laws relating to the handling, storage and disposal of laboratory specimens, hazardous waste and radioactive materials; the surface and air transportation of laboratory specimens and the safety and health of employees. Although we believe that we are currently in compliance in all material aspects with such federal, state and local laws, failure to comply could subject us to denial of the right to conduct business, fines, criminal penalties and other enforcement actions.

The United States Animal Welfare Act, or AWA, governs the care and use of certain species of animals used for research. The U.S. Congress has passed legislation that excludes the use in research of laboratory rats, mice and chickens from regulation under the AWA. As a result, some of our animal-model activities in the United States are not subject to regulation under the AWA. For regulated species, the AWA and attendant animal-care regulations require producers and users of regulated species to provide veterinary care and to utilize specific husbandry practices relating to cage size, shipping conditions, and sanitation and environmental enrichment to assure the welfare of these animals. Although we believe that we comply with licensing and registration standards set by the USDA for the care and use of regulated species, failure to comply could subject us to denial of the right to conduct business, fines, penalties and other enforcement actions.

C. Organizational Structure

We are a Cayman Islands holding company and conduct substantially all of our business through seven operating subsidiaries in China and one operating subsidiary in the United States. We own, directly or indirectly, 100% of the equity of all of our operating subsidiaries. We own the equity of our seven operating subsidiaries in China, directly or indirectly, through WXAT BVI, an intermediate holding company incorporated in the British Virgin Islands on June 3, 2004, under the name WuXi PharmaTech (BVI) Inc., with no significant assets or operations of its own. Our corporate structure reflects common practice for companies with operations in the PRC where separate legal entities are often required or advisable for purposes of obtaining relevant tax and other incentives in such jurisdictions. Our holding-company structure allows our management and shareholders to take significant corporate actions without having to submit these actions for the approval of the administrative agencies in every country where we have significant operations. Moreover, our choice of the Cayman Islands as the jurisdiction of incorporation of our ultimate holding company was motivated in part by its relatively well-developed body of corporate law, various tax and other incentives and this location’s wide acceptance among internationally recognized securities exchanges as a jurisdiction for companies seeking to list securities.

Substantially all of our business conducted in the PRC is through WXAT, which was established in December 2000 under the name WuXi PharmaTech Co., Ltd., in Wuxi, China. We have six other operating subsidiaries in China in which we hold a combined 100% equity interest, directly and indirectly. In 2002 and 2003, WXAT established two domestic subsidiaries, WASH and STA. WXAT held a 90% equity interest in both WASH (with the remaining 10% equity interest held by Wuxi Century Biology Company) and STA (with the remaining 10% equity interest held by WASH). Through a series of restructurings in 2006, WXAT BVI then acquired a 30% equity interest in both WASH (with the remaining 70% equity interest held by WXAT) and STA (with the remaining 70% equity interest held by WASH), respectively. As a result, WASH and STA were converted from purely domestic companies to equity joint ventures. Following a capital increase in 2008, WXAT BVI’s holdings increased to 48.32% of the equity interest of WASH and 45% of the equity interest of STA, and WXAT’s holdings decreased to 51.68% of the equity interest of WASH and 55% of the equity interest of STA. WXAT BVI wholly owns, directly or indirectly, two additional subsidiaries: (a) WATJ, located in Tianjin, which was established in June 2006 under the name Tianjin PharmaTech Co., Ltd., and in which WXAT BVI and WXAT hold 45% and 55% equity interests, respectively, and (b) WASZ, located in Suzhou, which was established in October 2006 under the name Suzhou PharmaTech Co., Ltd., and in which WXAT BVI and WXAT hold 45.71% and 54.29% equity interests, respectively. We previously had an additional subsidiary in China, Shanghai PharmaTech Chemical Technology Co., Ltd., or SHCT, located in Shanghai. However, SHCT was dissolved in November 2007 due to inactivity.

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We undertook a separate restructuring in anticipation of our initial public offering involving a holding company we incorporated in the Cayman Islands on March 16, 2007. This holding company became our ultimate holding company upon completion of a one-for-one share exchange with the existing shareholders of WXAT BVI on June 15, 2007. The exchange was for all shares of equivalent classes that these shareholders previously held in WXAT BVI.

In December 2007, in connection with our acquisition of AppTec, we incorporated two U.S. subsidiaries: (a) Holdco, a Delaware corporation wholly owned by us, and (b) PAC, a Delaware corporation wholly owned by Holdco. In January 2008, we completed the acquisition of AppTec, whereby PAC merged with and into ALS, a Delaware corporation, with ALS continuing as the surviving corporation. Following the acquisition, we changed the name of ALS to WuXi AppTec, Inc., the name of Holdco to WuXi AppTec Holding Company, Inc., the name of WXAT BVI, which was originally WuXi PharmaTech (BVI) Inc., to WuXi AppTec (BVI) Inc., and the name of WXAT, which was originally WuXi PharmaTech Co., Ltd., to WuXi AppTec Co., Ltd.

In 2008, we established four new entities to restructure a loan advanced by WuXi Pharmatech (Cayman) Co. Ltd. as lender to WuXi AppTec Holding Company, Inc., or WXAT Holding, as borrower. All of the entities are directly or indirectly wholly owned by us through WX (BVI) Limited, or WX (BVI), which was incorporated on July 4, 2008. On July 14, 2008, WX (BVI) acquired Kaipara Enterprises Limited, or Kaipara, which was an intermediate holding company incorporated in Cyprus. On July 31, 2008, Kaipara acquired Klivia Investments Sp. z o.o., or Klivia, which was an intermediate holding company incorporated in Poland. On September 16, 2008, Klivia formed Klivia Investments Sp. z o.o., Luxembourg Branch, or Luxembourg Branch. We assigned the loan receivables, including the principal amount of approximately $75 million and all the interests under the promissory note by and between WuXi Pharmatech (Cayman) Co. Ltd. and WXAT Holding, dated as of January 28, 2008, down through WX (BVI), Kaipara, Klivia and finally allocated to Luxembourg Branch.

In 2009, WXAT increased the registered capital in WASZ. Following a capital increase in 2009, WXAT’s holdings increased to 50.77% of the equity interest of WASZ, and WXAT BVI’s holdings decreased to 49.23% of the equity interest of WASZ.

In 2010, WXAT and WXAT BVI established two equity joint ventures, WABIO and WuXi AppTec (Wuhan) Co., Ltd., or WAWH. WXAT held a 70% equity interest in WABIO (with the remaining 30% equity interest held by WXAT BVI) and held a 60% equity interest in WXWH (with the remaining 40% equity interest held by WXAT BVI). Both companies are in start-up phase.

In 2010, WXAT increased the registered capital in WASZ. Following the capital increase, WXAT’s holdings increased to 54.29% of the equity interest of WASZ, and WXAT BVI’s holdings decreased to 45.71% of the equity interest of WASZ.

In 2010, WASH established Shanghai AppTec (HK) Limited in Hong Kong for purpose of business development, R&D and foreign investments.

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The following diagram illustrates our corporate structure and the place of formation and affiliation of each of our subsidiaries as of the date of this annual report on Form 20-F:

D. Property, Plant and Equipment

We currently conduct most of our laboratory and manufacturing activities at these sites, which are operational or under construction:

• A 1,292,000 square-foot R&D center at the Waigaoqiao Free Trade Zone in Shanghai, primarily for laboratory services. We own approximately 400,000 square feet of facilities at Waigaoqiao, part of which was financed with a RMB 30 million three-year mortgage loan that was repaid in full in April 2009. We lease the remaining facilities in Waigaoqiao under several leases with varying terms, the most recent of which include 146,000 square-foot and 140,000 square-foot facilities leased in December 2010 and January 2011, respectively. We expect to use these new facilities for laboratory services in the second quarter of 2011. Our 1,292,000 square-foot R&D center includes a 32,000 square-foot cGMP pilot laboratory facility focused on formulation development and pharmaceutical manufacturing for Phase 1 and Phase 2 clinical trials.

• A 576,000 square-foot R&D facility in Tianjin, mainly focused on our discovery chemistry services. This facility consists of (1) a 320,000 square-foot facility at Tianjin Economic-Technological Development Area that we own and that we began constructing in December 2010; (2) a leased, 136,000 square-foot facility, the lease for which expires in 2017; and (3) a leased 120,000 square-foot facility, the lease for which expires in 2012. We plan to replace the two leased facilities with the new owned facility.

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• A 379,000 square-foot manufacturing plant, which we own, in the Jinshan Chemical Industry Development Zone of Shanghai, mainly focused on producing advanced intermediates and APIs. The plant includes (1) a 157,000 square-foot development-stage small-scale manufacturing facility and (2) a 222,000 square-foot large-scale manufacturing facility. We are currently constructing an additional 86,000 square-foot small-scale manufacturing facility, which we expect to open in 2012.

• A leased, 13,000 square-foot preclinical drug safety evaluation facility in Suzhou, the lease for which expires in 2011. We continue to use this facility for non-GLP toxicology services.

• A 314,000 square-foot GLP safety evaluation center in Suzhou. This facility, which we own, focuses primarily on non-clinical toxicology research. Opened in 2009, this facility provides non-GLP toxicology services and GLP validation studies.

• A leased, 99,100 square-foot manufacturing plant in Wuxi, mainly focused on bioprocess development. The construction began in December 2010 and is expected to be completed by the first quarter of 2012. The lease for this plant will expire in 2022.

• A leased, 106,000 square-foot R&D facility in Wuhan. We expect to complete the construction of this facility by the end of 2011 and to use it for laboratory services. The lease for this plant will expire in 2021.

• A leased, 83,000 square-foot FDA-registered and AAALAC-accredited R&D and manufacturing center in St. Paul, Minnesota, mainly focused on in vitro and in vivo biocompatibility, toxicology and process development services and cGMP manufacturing for tissue-based products for medical device companies. The lease for this facility expires in 2019.

• A leased, 76,000 square-foot FDA-registered R&D and testing center in Philadelphia, Pennsylvania, mainly focused on cell biology, cell therapy, cell banking, molecular biology, virology, analytical services and viral-clearance studies. Approximately 19,000 square feet had been used in the biologics manufacturing operation, which was discontinued in December 2008. The space is available for future growth. The lease for this facility expires in 2020.

• A leased, 50,000 square-foot FDA-registered testing center in Atlanta, Georgia, mainly focused on microbiology, medical device chemistry, sterilization validation and package testing. The lease covering 35,000 square feet of this facility expires in 2013, while the lease covering the remaining 15,000 square feet expires in 2014.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

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 Item 3.A, “Key Information—Selected Financial Data” and our audited financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion contains forward-looking statements that involve risks and uncertainties. See “Introduction—Forward-Looking Statements.” Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Item 3.D, “Key Information—Risk Factors.” We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.

A. Operating Results

Overview

We are a leading pharmaceutical, biotechnology and medical device R&D outsourcing company, with operations in China and the United States. We provide a broad and integrated portfolio of laboratory and manufacturing services throughout the R&D process to our customers, which include many of the world’s premier pharmaceutical, biotechnology and medical device companies. Our services are designed to assist our global customers in shortening the time and lowering the cost of pharmaceutical and medical device R&D by providing cost-effective and efficient outsourcing solutions.

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We group our operations into two segments: laboratory services and manufacturing services. Until January 2008, our laboratory services segment focused entirely on helping our customers to discover and develop small-molecule pharmaceuticals through our discovery chemistry, medicinal chemistry, service biology, toxicology, formulation and bioanalytical and analytical services. Our manufacturing services segment focused on producing advanced intermediates and APIs for small-molecule pharmaceuticals used by our customers in clinical testing. With the AppTec acquisition in January 2008, we expanded our laboratory services segment to include biopharmaceutical and medical device testing, and we expanded our manufacturing services segment to include biologics manufacturing. In December 2008, we discontinued our biologics manufacturing operation because the global financial downturn and resulting deterioration in credit markets negatively impacted our biotechnology customers’ ability to obtain financing, leading them to conserve their cash and substantially curtail their manufacturing activities. Our biologics-manufacturing operations were not profitable in 2008 and had no reasonable prospects for becoming profitable in the foreseeable future. We present the biologics-manufacturing operations as discontinued operations in our consolidated statements of operations located elsewhere in this annual report on Form 20-F.

In 2010, the majority of our laboratory services revenues came from discovery chemistry operations and we continued to achieve strong revenue growth in discovery chemistry. Newer services that occur later in the drug development process than discovery chemistry, such as service biology, DMPK/ADME, bioanalytical services, process R&D, formulation and analytical-development services, while representing a minority of laboratory services revenues, also achieved strong revenue growth. We expanded our capabilities and developed a broader and more integrated range of services throughout the drug R&D process. Customers for our more established chemistry services were offered with our newer, downstream services. We saw increasing demand from both existing and new customers for integrated services. Relationships with our customers continued to evolve from single transactions to preferred-provider relationships, partnerships and strategic alliances.

Our current customers include most of the world’s largest pharmaceutical companies as measured by revenue, as well as other large and small pharmaceutical, biotechnology and medical device companies. In 2010, we provided services to more than 1,000 pharmaceutical, biotechnology and medical device customers, many of whom have presented us with performance awards and continue to contract with us to do R&D projects with broader scope. Each of our top ten customers over the last five years continues to be a customer. The AppTec acquisition expanded our customer base with more than 700 biotechnology and medical device companies.

The pharmaceutical industry is undergoing transformational change and is adopting a more collaborative and networked model. Outsourcing of R&D is one of the key elements of this industry transformation. We believe that growth in offshore outsourcing and in China’s domestic pharmaceutical market will drive more and more R&D to China. To be prepared for this industry transformation, we will continue our focus on expanding our service offerings to drive business growth, particularly in laboratory services, including toxicology and manufacturing services.

Our capital expenditures totaled $64.0 million in 2008 and were mainly incurred to construct a large-scale GMP manufacturing facility in Jinshan and a toxicology facility in Suzhou. This large-scale GMP manufacturing facility contributed to our manufacturing revenue growth in 2010. We expect the toxicology facility to generate meaningful revenue in 2011. Our capital expenditures were $55.3 million and $49.4 million in 2009 and 2010, respectively, and were mainly incurred to update and expand our laboratory service facilities and equipment. We expect to make $50 to $60 million of capital expenditures in 2011, mainly to upgrade and expand our laboratory services facilities and equipment and to build and equip new chemistry facilities in Wuhan and a new pilot-scale biologics manufacturing facility in WuXi. We plan to continue increasing our headcount to meet expected growth in demand.

Our net revenues increased from $270.0 million in 2009 to $334.1 million in 2010, or 23.9% growth. Our revenue growth is attributable primarily to new capabilities, a larger customer base, more revenue per customer and an increasing number of long-term, integrated customer-service contracts. This revenue growth was broad-based, with 18% growth in both China-based and U.S.-based laboratory services and 95% growth in manufacturing services.

Our gross profit increased from $96.4 million in 2008 to $108.3 million in 2009, or 12.3% growth, and to $127.6 million in 2010, or 17.7% growth. Our gross margins were 38.0% in 2008, 40.1% in 2009 and 38.2% in 2010. The 2009 gross margin improvement was mainly attributable to business mix due to high revenue growth in laboratory services, which has higher gross margins, and improved profitability of newer laboratory services. The 2010 gross margin decline was also attributable to business mix, as our highest rate of revenue growth occurred in our relatively lower-margin manufacturing services business. In 2010, gross margin in manufacturing services, which was lower than that in laboratory services, improved year over year to 20.0% from 18.1% due to strong revenue growth and improved capacity utilization in our large-scale manufacturing facility. Gross margin in laboratory services in 2010 decreased year over year to 40.6% from 41.9% due to the higher depreciation expenses from our investments in new capabilities and capacity expansion and the negative impact from appreciation of the Renminbi relative to the U.S. dollar. We expect our gross margin to decline slightly by about 1% in 2011 due to possible appreciation of the Renminbi relative to the U.S. dollar and labor cost inflation, partially offset by gross margin improvements in our manufacturing services and toxicology businesses.

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We expect our core chemistry operations, other laboratory services such as DMPK/ADME, bioanalytical services, formulation and analytical development services, and our newer large-scale manufacturing and toxicology services to contribute significantly to our growth in revenue, gross profit and net income in the coming years. We expect revenue growth in chemistry, other laboratory services, and large-scale manufacturing in 2011. We expect revenue growth from laboratory services to be broad-based. In large-scale manufacturing, we have begun to manufacture advanced intermediates for a product with very large revenue potential that is currently undergoing regulatory review in the United States. Large-scale manufacturing will operate downstream from, and attempt to attract customers from, our existing clinical-trial manufacturing business. We expect revenues in our toxicology business to grow gradually and to benefit from our growing capabilities and a cost advantage compared to competing operations in the United States and Europe. We expect our toxicology business to gain customers who are already receiving WuXi services upstream from toxicology. We have signed long-term contracts in toxicology with two large pharmaceutical companies, and we expect revenues with our customers to increase substantially after we have an established track record of performance.

Our net income increased from $52.9 million in 2009 to $90.8 million in 2010, or 70%, benefitting from strong revenue growth, restraint in operational expenses, and a $30.0 million fee received from Charles River for termination of the proposed business transaction, partially offset by slightly lower gross margins and from expenses relating to the proposed acquisition by Charles River.

Components of Revenue and Expenses

Net Revenues

Our net revenues represent our total revenues from operations, less sales taxes. We generated most of our net revenues over the last three years from U.S.-headquartered customers, with most of the remaining revenues coming from customers based in Europe and Japan. We generated very limited revenues from customers based in China. Most of our revenues came from pharmaceutical companies, with the remainder mainly coming from biotechnology and medical device companies. We expect the composition of this customer base to continue in 2011.

Laboratory Services Segment

Laboratory services are composed of discovery chemistry and newer small-molecule services downstream from discovery chemistry—discovery biology, DMPK/ADME, toxicology, process R&D, formulation, bioanalytical services—as well as from testing of large-molecule biologics and testing and development of medical devices. The large majority of laboratory services segment revenues in 2010 were derived from discovery chemistry. We achieved strong revenue growth in 2010 in both discovery chemistry and in the newer services downstream from discovery chemistry.

Manufacturing Services Segment

We derive our manufacturing services revenues from two sources: China-based manufacturing of advanced intermediates and APIs for use by our customers in clinical trials and China-based manufacturing of advanced intermediates for the commercial supply of a product currently undergoing regulatory review. Manufacturing services revenues increased significantly from 2009 to 2010 in both areas. We generate all of our manufacturing services revenues on a fee-for-service basis. Our manufacturing services revenues tend to be highly variable due to the relatively small size of this segment, the varying size of projects, the unpredictable delivery requirements of our customers and changing economic conditions. We expect manufacturing services revenues to increase by 50% to 60% in 2011, mainly due to increasing demand for our commercial-manufacturing services.

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Cost of Revenues

Laboratory Services Segment

Cost of laboratory services segment revenues consists primarily of (a) labor costs, including salaries, bonuses, an allocation of share-based compensation charges, and other benefits, for employees who provide laboratory services; (b) raw material costs, including catalysts, reagents, solvents, animals, biological products and laboratory supplies; and (c) overhead, including fixed-asset depreciation, intangible-asset amortization, utilities, employee salaries, bonuses, an allocation of share-based compensation charges, and benefits and expenses associated with support functions, such as health, safety, environmental protection, quality assurance and logistics.

We expect headcount to increase approximately in proportion to our revenue growth as we expand to meet anticipated growth. In 2011, we expect revenue growth of 17-21% and headcount growth of 18-22%. We also expect that rising per-capita labor costs in China will increase our near-term labor costs as a percentage of laboratory services segment net revenues, partially offset by improved employee efficiency and operating efficiency. We expect raw-material costs to increase in absolute terms due to higher prices and possible Renminbi appreciation. However, we expect near-term raw-material costs as a percentage of laboratory services segment net revenues to remain relatively stable due to steps we are taking to control raw-materials costs, such as improving raw-material usage efficiencies and taking advantage of economies of scale. We expect near-term overhead costs to increase substantially in absolute terms as we expand our facilities, purchase new equipment and increase the size of our supporting staff to satisfy future business needs. However, we expect the near term overhead costs as a percentage of laboratory services net revenues to be stable with the leverage of improved facility utilization and economies of scale to partially offset overhead expense increases.

In 2009, we opened the first stage of Suzhou toxicology facility, at which we incurred significant expenses with little revenues in 2010. The facility has a total capacity of 108 rooms, of which we have built out 62 rooms in the initial stage. We expect meaningful toxicology revenues and reduced operating losses from this facility in 2011. Labor, material and overhead expenses will grow over time at this facility as we open larger sections based on demand.

Manufacturing Services Segment

Cost of manufacturing services revenues consists primarily of (a) labor costs, including salaries, bonuses and other benefits for employees who provide manufacturing services; (b) the cost of raw materials used in manufacturing; and (c) overhead, consisting primarily of facility depreciation and the costs of our quality control, quality assurance and R&D departments. We expect the cost of manufacturing services revenues to increase as demand for clinical-trial and commercial-manufacturing services grows. We opened the large-scale manufacturing facilities in stages beginning in the first half of 2010 and recorded depreciation in accordance with the staged opening. We expect a significant increase in manufacturing revenue and profitability in 2011 driven by strong demand for commercial manufacturing. With more commercial-manufacturing orders coming in, we expect to hire more people and to have higher raw-material and utility costs. Cost of manufacturing services revenues also includes an allocation of our share-based compensation charges based on the nature of work that certain employees were assigned to perform. See “—Critical Accounting Policies—Share-Based Compensation Expense.”

Gross Profit and Gross Margin

Gross profit is equal to net revenues less cost of revenues. Gross margin is equal to gross profit divided by net revenues. Periodic changes in our gross profit and gross margin are primarily driven by our service mix, pricing, costs, and exchange-rate fluctuations. Gross profit and gross margin increased in 2009 due to the decreased depreciation and amortization expenses related to the impairment charges recognized on acquired intangible assets at the end of 2008, as well as cost-control efforts, growth in higher-margin businesses, increased capacity utilization at our facilities and continued improvement in operational efficiencies. These positive effects were adversely impacted by investments in new staff for the laboratory services, toxicology and large-scale manufacturing businesses. In 2010, gross profit increased 18% as compared to 2009, primarily attributable to revenue growth in laboratory services and both revenue growth and margin improvement in manufacturing services. Gross margin in 2010 decreased slightly, mainly due to higher revenue growth of our lower-margin manufacturing services business and decreased margins in our laboratory services business. The gross margins of laboratory services and manufacturing services were both adversely affected by labor cost inflation, overhead and depreciation expenses associated with the new facilities, and $3.1 million of employee bonuses paid after the termination of the business combination transaction with Charles River. The gross margin of manufacturing services increased due to the significant increase in revenues and improved capacity utilization in large-scale manufacturing.

Operating Expenses

Our operating expenses consist of selling and marketing expenses, general and administrative expenses and impairment charges.

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Selling and Marketing Expenses

Selling and marketing expenses consist primarily of salaries, bonuses, commissions and other benefits of our sales and business-development personnel and promotional activities and tradeshow expenses. We expect that selling and marketing expenses will grow from our efforts to increase market penetration and will drive revenue growth in the years to come.

General and Administrative Expenses

General and administrative expenses consist primarily of (a) salaries, bonuses and other benefits for senior management and all employees in our administrative departments, including finance, human resources, the executive office, site administration, legal, information technology and public/investor relations and (b) external legal, consulting and auditing fees. In certain periods, general and administrative expenses are partially offset by government cash subsidies for our general use that are awarded at the discretion of local Chinese authorities. General and administrative expenses also include an allocation of our share-based compensation charges based on the nature of work that certain employees are assigned to perform. See “—Critical Accounting Policies—Share-Based Compensation Expense.”

In recent years, general and administrative expense increased as we hired additional senior executives to manage an expanding business. Also, since our initial public offering, we have incurred costs related to compliance with U.S. securities law reporting, including compliance with Section 404 of the Sarbanes-Oxley Act. However, general and administrative expenses as a percentage of revenues have decreased due to cost control and economies of scale.

We expect the ratio of operating expenses to revenues to remain relatively flat during 2011 due to the need to invest in our selling and marketing organization to drive revenue growth.

Impairment Charges

We test the carrying amounts of goodwill, acquired intangible assets and other long-lived assets in accordance with relevant guidance. See “—Critical Accounting Policies—Goodwill and Impairment of Long-lived Assets.” We recorded impairment charges of $60.5 million in 2008 related to goodwill and acquired intangibles of the continuing AppTec operations and zero in 2009 and 2010. Impairment charges of goodwill, fixed assets and acquired intangibles associated with discontinued AppTec operations were $49.6 million in 2008, $0.6 million in 2009 and zero in 2010.

Other Income, Net

Other income, net consists primarily of government subsidies, rental income derived from leasing excess office space, net foreign-exchange gains or losses and gains or losses recognized on foreign-exchange forward contracts. In 2010, we recorded $25.0 million of the termination fee related to the proposed business combination transaction with Charles River as other income (we recorded the remaining $5.0 million as expense reimbursement in general and administrative expenses).

Interest Expense

Interest expense consists of interest on bank borrowings.

Interest Income

Interest income consists of income earned on cash and cash equivalents, restricted cash and short-term investments.

Taxes and Incentives

Cayman Islands

We are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.

British Virgin Islands

Our intermediate offshore holding company, WXAT BVI, was incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, WXAT BVI is not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the British Virgin Islands.

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United States

WXAT Holding and AppTec are registered in Delaware. They are subject to a U.S. federal corporate marginal income tax rate of 34%. Their subsidiaries operate in several states and are subject to state tax rates ranging from approximately 5% to 10%. As of December 31, 2010, AppTec had gross federal and state net operating losses of $29.3 million and $39.1 million, respectively, which we expect to be available to offset future U.S. taxable income.

China

All of our PRC subsidiaries were FIEs that were eligible to receive preferential tax treatment in the form of reduced tax rates and/or tax holidays pursuant to certain PRC tax laws and regulations effective before January 1, 2008. WXAT was an FIE engaged in the manufacturing business with a business term of over ten years and located in the Wuxi Taihu National Tourist Resort Zone. As such, its head office was granted a two-year exemption from EIT beginning from its first profitable year and a 12% EIT rate for the subsequent three years, followed by a three-year 12% tax rate as long as it continues to qualify as an “advanced technology enterprise with foreign investment.” The Shanghai branch of WXAT located in Shanghai Waigaoqiao Free Trade Zone was granted a two-year exemption from EIT beginning from its first profitable year and a 7.5% EIT rate for the subsequent three years, followed by a three-year 10% tax rate as long as WXAT continues to qualify as an “advanced technology enterprise with foreign investment.” WASH was an FIE engaged in the manufacturing business with a business term of over ten years and located in the Shanghai Waigaoqiao Free Trade Zone. As such, it is entitled to a two-year exemption from EIT beginning from its first profitable year and a 7.5% EIT rate for the subsequent three years. Subject to confirmation by local tax bureaus, STA, WATJ and WASZ are entitled to reduced tax rates and/or tax holidays.

China promulgated the New EIT Law and its implementing rules, both of which became effective on January 1, 2008. The New EIT Law significantly curtails tax incentives granted to FIEs under its predecessor law. The New EIT Law, however, (a) reduces the statutory rate of EIT from 33% to 25%; (b) permits companies established before March 16, 2007, to continue to enjoy their existing tax incentives, adjusted by certain transitional phase-out rules; and (c) introduces new tax incentives, subject to various qualification criteria. Therefore, as enterprises established prior to the promulgation of the New EIT Law, WASH, STA, WATJ and WASZ are still entitled to their preferential tax treatment, which shall also be subject to the transitional phase-out rules. In addition, based on the new tax law, an enterprise that is entitled to preferential treatment in the form of enterprise income-tax reduction or a tax-holiday exemption, but that has not been profitable and, therefore, has not enjoyed such preferential treatment, was required to begin its tax-holiday exemption in the same year that the new tax law goes into effect, i.e., 2008. As such, certain subsidiaries began their tax-holiday exemption in 2008 even though they were not yet cumulatively profitable at that time.

The New EIT Law and its implementing rules permit certain HNTEs to enjoy a reduced 15% EIT rate subject to certain general factors described in the EIT Law and the related regulations. In the fourth quarter of 2008, our PRC subsidiaries WXAT, WASH, WATJ and STA were recognized by the local provincial Municipal Science and Technology Commission, Finance Bureau and State and Local Tax Bureaus as HNTEs under the New EIT Law. Therefore, WXAT, WASH, WATJ and STA are eligible to enjoy a preferential tax rate of 15% as long as they maintain their qualification as HNTEs. However, WASH, STA and WATJ will not adopt the HNTE policy until the transitional periods of the New EIT Law expire. Currently the applicable transitional period tax rate in WASH, STA and WATJ are all less than 15%. WXAT started to benefit from the HNTE policy from 2008. It is uncertain whether WASH, STA and WATJ can choose to benefit from the preferential income tax rate of 15% as an HNTE once the transitional periods of the new EIT law expire. In addition, the continued qualification of an HNTE is subject to annual evaluation and a three-year review by the relevant government authority in China. WASH ended its last transitional year in 2010 and is expected to adopt the HNTE policy beginning in 2011. WATJ and STA will end their transitional periods in 2012. According to the three-year review schedule regulated by the relevant government authority, WXAT, WASH, WATJ and STA will apply the first three-year review of their HNTE qualification in 2011. It is uncertain whether all these four entities can pass the review. Our computation of deferred taxes is based on the enacted tax rate, which does not factor into the extension of the HNTE status. If either or all of them fail to maintain the HNTE qualification, their applicable EIT rate may increase up to 25%, which could have a material adverse effect on our results of operations.

In addition to the HNTE preferential tax policy, according to relevant PRC tax laws and regulations, a qualified Advanced Technology Service Enterprise, or ATSE, can also enjoy a reduced 15% EIT rate during the period from 2009 through 2013. It is unknown whether such policy will extend after 2013. Our PRC subsidiaries WASH was recognized as an ATSE in 2009 and WASZ was recognized as an ATSE in 2010. Therefore, they are eligible to enjoy a preferential tax rate of 15% for five years (i.e., 2009 to 2013) as long as they maintain their qualification as ATSEs. However, WASH and WASZ chose to continue using the transitional period tax rate until expiration in 2010 and 2012, respectively. If WASH still qualifies as an ATSE, it will be subject to EIT at 15% for 2011 to 2013. WASZ could enjoy a 15% rate as an ATSE in 2013 if qualification is still met. Since the company’s ability to continue to qualify for ATSE status is subject to the tax authority’s discretion, for the years following the company’s approved incentive period the statutory tax rate of 25% will be used to calculate deferred taxes until such approval is granted.

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Because we are a Cayman Islands holding company, substantially all of our income may be derived from dividends we receive from our PRC operating subsidiaries described above. The New EIT Law and its implementing rules generally provide that a 10% withholding tax applies to China-sourced income derived by non-resident enterprises for purposes of PRC EIT, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding tax arrangement. We expect that this 10% withholding tax will apply to dividends paid to us by our PRC subsidiaries, but this treatment will depend on our status as a non-resident enterprise. For a detailed discussion of PRC tax issues related to resident enterprise status, see Item 3.D, “Key Information—Risk Factors—Risks Relating to China—Under China’s New EIT Law, we may be classified as a ‘resident enterprise’ of China. This classification could result in unfavorable tax consequences to us and our non-PRC shareholders.” We do not intend to declare dividends for the foreseeable future.

Since the company’s inception, we have benefited from either exemptions or subsidies with respect to income tax and sales tax. Our eligibility to receive these financial incentives requires that we continue to qualify for them and is subject to the discretion of the central government or relevant local government authorities, who could determine at any time to immediately eliminate or reduce these financial incentives, generally with prospective effect. Since our receipt of the financial incentives is subject to periodic time lags and inconsistent government practice, for as long as we continue to receive these financial incentives our net income in a particular period may be higher or lower relative to other periods based on the potential changes in these financial incentives. See Item 3.D, “Key Information—Risk Factors—Risks Relating to China—The discontinuation of any of the financial incentives currently available to us in the PRC could adversely affect our results of operations and prospects.”

Our effective tax rate was 21.2%, 8.9% and 10.1% in 2008, 2009 and 2010, respectively. In 2011, we expect our effective tax rate to increase to 17-18%, primarily due to a significant increase in the statutory tax rate of certain of our Chinese subsidiaries.

Results of Operations

The following table presents a summary of our consolidated results of operations by amount and as a percentage of our total net revenues for the years ended December 31, 2008, 2009 and 2010. You should read this information together with our audited consolidated financial statements and related notes included elsewhere in this annual report on Form 20-F. Our historical operating results are not necessarily indicative of our future results.

	Year Ended December 31,
	2008						2009						2010
	Amount			% of Net Revenues			Amount			% of Net Revenues			Amount			% of Net Revenues
	(in millions of U.S. dollars)
Net revenues	$	253.5			100.0	%	$	270.0			100	%	$	334.1			100	%
Cost of revenues		(157.1	)		(62.0	)		(161.7	)		(59.9	)		(206.5	)		(61.8	)
Gross profit		96.4			38.0			108.3			40.1			127.6			38.2
Operating expenses:
Selling and marketing expenses		(7.4	)		(2.9	)		(7.5	)		(2.7	)		(9.1	)		(2.7	)
General and administrative expenses		(49.4	)		(19.5	)		(48.8	)		(18.1	)		(47.0	)		(14.1	)
Impairment charges		(60.5	)		(23.9	)		—			0.0			—			0.0
Total operating expenses		(117.3	)		(46.3	)		(56.3	)		(20.8	)		(56.1	)		(16.8	)
Other income, net		1.1			0.4			6.8			2.5			28.4			8.5
Interest expense		(1.4	)		(0.5	)		(1.0	)		(0.4	)		(0.4	)		(0.1	)
Interest income		2.3			0.9			1.1			0.4			1.5			0.4
Income tax (expense) benefit		4.0			1.6			(5.5	)		(2.0	)		(10.2	)		(3.1	)
Net income (loss)(1) from continuing operations		(14.9	)		(5.9	)		53.4			19.8			90.8			27.1
Loss from discontinued operations, net of tax		(49.3	)		(19.4	)		(0.5	)		(0.2	)		—			0.0
Net income (loss)	$	(64.2	)		(25.3	)%	$	52.9			19.6	%	$	90.8			27.1	%

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⁽¹⁾  Includes total share-based compensation charges of $13.0 million in 2008, $10.2 million in 2009 and $10.1 million in 2010 and amortization of intangible assets acquired in the AppTec acquisition of $11.2 million in 2008, $3.1 million in 2009 and $2.9 million in 2010.

Comparison of 2009 and 2010 Financial Results

Net Revenues

The following table presents our net revenues by segment for 2009 and 2010:

	Year Ended December 31,
	2009					2010
	Net Revenues		% of Net Revenues			Net Revenues		% of Net Revenues
	(in millions of U.S. dollars)
Segment Data:
Laboratory services	$	249.9		92.6	%	$	294.9		88.3	%
Manufacturing services		20.1		7.4			39.2		11.7
Total net revenues	$	270.0		100.0	%	$	334.1		100.0	%

Our net revenues increased from $270.0 million in 2009 to $334.1 million in 2010, or 24%. This strong growth was primarily due to an increase in the number of customers and the scope of services we provided in our laboratory services segment and from higher demand for small-scale manufacturing and initial revenues from commercial manufacturing in 2010. Our average revenue per top ten customers increased from $14.4 million in 2009 to $19.9 million in 2010.

Laboratory Services Segment Net Revenues

Net revenues from our laboratory services segment increased from $249.9 million in 2009 to $294.9 million in 2010, or 17.9%. Laboratory services segment revenue growth in 2010 was attributable to continued growth in discovery-chemistry services and newer laboratory services, such as discovery biology, DMPK/ADME, formulation, and analytical development services, which reflected the stronger demand for our broad-based and integrated drug discovery and development services. This growth was geographically diverse.

Manufacturing Services Segment Net Revenues

Net revenues from our manufacturing services segment increased from $20.1 million in 2009 to $39.2 million in 2010, or 95.0%. The increase in manufacturing services revenues in 2010 was mainly due to an increase in demand for our small-scale manufacturing services and initial revenues from commercial manufacturing.

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Cost of Revenues

The following table presents cost of revenues by segment for 2009 and 2010:

	Year Ended December 31,
	2009					2010
	Cost of Revenues		% of Cost of Revenues			Cost of Revenues		% of Cost of Revenues
	(in millions of U.S. dollars)
Segment Data:
Laboratory services	$	145.2		89.8	%	$	175.1		84.8	%
Manufacturing services		16.5		10.2			31.4		15.2
Total cost of revenues	$	161.7		100.0	%	$	206.5		100.0	%

Our total cost of revenues increased by 27.7%, from $161.7 million in 2009 to $206.5 million in 2010.

Laboratory Services Segment Cost of Revenues

Cost of revenues for the laboratory services segment increased by 20.6%, from $145.2 million in 2009 to $175.1 million in 2010, in line with the strong revenue growth in both discovery chemistry and newer businesses, such as discovery biology, DMPK/ADME, formulation, and analytical development services. Cost of revenues as a percentage of net revenues was 58.1% in 2009 and 59.4% in 2010. Cost of revenues increased as a percentage of net revenues in 2010 compared to 2009 primarily due to increases in labor costs, overhead/depreciation expenses of new pharmacology/DMPK/chemistry laboratories in Shanghai and the toxicology facility in Suzhou and the negative impact from the appreciation of the Renminbi relative to the U.S. dollar. In addition, cost of revenues for the laboratory services segment increased by $2.9 million, or 1% as a percentage of net revenue, as a result of the employee bonuses paid after the termination of the proposed business combination transaction with Charles River.

Manufacturing Services Segment Cost of Revenues

Cost of revenues for the manufacturing services segment increased by 90.3%, from $16.5 million in 2009 to $31.4 million in 2010, primarily due to net revenue growth in 2010. Cost of revenues as a percentage of net revenues was 81.9% in 2009 and 80.0% in 2010, respectively. The decrease in cost of revenues as a percentage of net revenues in 2010 compared to 2009 was due to project mix, higher volume in the small-scale manufacturing business and improved capacity utilization in our large-scale manufacturing business. These factors more than offset the negative impact of higher depreciation expenses.

Gross Profit and Gross Margin

Our gross profit increased by 17.8% from $108.3 million in 2009 to $127.6 million in 2010, due to revenue growth in laboratory services and both revenue growth and margin improvement in manufacturing services. Overall gross margin decreased from 40.1% in 2009 to 38.2% in 2010, due to higher revenue growth of our lower-margin manufacturing services business and lower margins in our laboratory services business. Gross margin for our laboratory services segment decreased from 41.9% in 2009 to 40.6% in 2010 as a result of the increases in labor costs and overhead/depreciation expenses of the new pharmacology/DMPK/chemistry laboratories in Shanghai and the toxicology facility in Suzhou. Gross margin for our manufacturing services segment increased from 18.1% in 2009 to 20.0% in 2010, primarily caused by a significant increase in revenues and improved capacity utilization in large-scale manufacturing, which more than offset the negative impact of higher depreciation expenses. In addition, total gross profit was reduced by $3.1 million, and gross margin was reduced by 0.9 percentage points, due to transaction-related bonuses paid to scientist employees after the termination of the proposed business combination transaction with Charles River.

Operating Expenses

Total operating expenses decreased by 0.4% from $56.3 million in 2009 and to $56.1 million in 2010. Operating margin increased from 19.3% in 2009 to 21.4% in 2010. The slight decrease in operating expenses in 2010 as compared to 2009 was primarily due to cost-control efforts, which combined with significant revenue growth produced the reduction in operating margin.

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Selling and Marketing Expenses

Our selling and marketing expenses increased from $7.5 million in 2009 to $9.1 million in 2010. Selling and marketing expenses as a percentage of net revenues were 2.7% in both years.

General and Administrative Expenses

Our general and administrative expenses decreased by 3.7% from $48.8 million in 2009 to $47.0 million in 2010. The decrease was primarily due to the reduction of share-based compensation allocated to general and administrative expenses from $7.4 million in 2009 to $6.3 million in 2010. We incurred $4.9 million in deal costs related to the proposed business combination transaction with Charles River, which was offset by our recording of $5.0 million of the termination fee for the proposed business combination transaction with Charles River as expense reimbursement in general and administrative expenses (we recorded the remaining $25.0 million as other income). General and administrative expenses as a percentage of net revenues decreased from 18.1% in 2009 to 14.1% in 2010, as we achieved economies of scale.

Impairment Charges

We recorded no impairment charges in 2009 and 2010. See “—Critical Accounting Policies—Impairment of Long-Lived Assets and Goodwill.”

Other Income, Net

Other income, net, increased from $6.8 million in 2009 to $28.4 million in 2010, primarily due to the $25 million termination fee related to the proposed business combination transaction with Charles River being recorded as other income (we recorded the remaining $5.0 million as expense reimbursement in general and administrative expenses).

Interest Expense

Interest expense decreased from $1.0 million in 2009 to $0.4 million in 2010, mainly due to lower levels of borrowing.

Interest Income

Interest income increased from $1.1 million in 2009 to $1.5 million in 2010, mainly due to increased bank deposit balances.

Income Tax (Expense) Benefit

Income tax expense increased from $5.5 million in 2009 to $10.2 million in 2010. The increase was due to the higher 2010 pretax income, driven by strong sales growth, and higher tax rates. Our effective tax rate increased from 8.9% in 2009 to 10.1% in 2010. The significantly increased effective tax rate in 2010 resulted from higher pretax income from U.S.-based laboratory services and the progressively higher statutory tax rates in China.

Income (Loss) from Continuing Operations

Income from continuing operations was $53.4 million in 2009 and $90.8 million in 2010. These numbers included total share-based compensation charges of $10.2 million in 2009 and $10.1 million in 2010.

Loss from Discontinued Operations

On December 2, 2008, we announced the discontinuation of our biologics manufacturing operation. As a result, we reflect biologics manufacturing as a discontinued operation in our financial statements for all periods presented.

In 2009, we recorded a net loss from discontinued operations of $0.6 million, which represented further impairment charges on the assets held for sale and a tax benefit of $0.4 million. We recorded no results from discontinued operations in 2010.

Net Income (Loss)

As a result of the foregoing, we realized net income of $52.9 million in 2009 and $90.8 million in 2010.

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Comparison of 2008 and 2009 Financial Results

Net Revenues

The following table presents our net revenues by segment for 2008 and 2009:

	Year Ended December 31,
	2008					2009
	Net Revenues		% of Net Revenues			Net Revenues		% of Net Revenues
	(in millions of U.S. dollars)
Segment Data:
Laboratory services	$	205.0		80.9	%	$	249.9		92.6	%
Manufacturing services		48.5		19.1			20.1		7.4
Total net revenues	$	253.5		100.0	%	$	270.0		100.0	%

Our net revenues increased from $253.5 million in 2008 to $270.0 million in 2009, or 7%, primarily due to an increase in the number of customers and the scope of services we provided, particularly in our laboratory services segment, from both organic growth and the AppTec acquisition. Our average revenues per top ten customers increased from $13.8 million in 2008 to $14.4 million in 2009. The 2008 revenue excludes AppTec’s revenue prior to the acquisition on January 31, 2008, and revenue of its discontinued biologics-manufacturing operation.

Laboratory Services Segment Net Revenues

Net revenues from our laboratory services segment increased from $205.0 million in 2008 to $249.9 million in 2009, or 21.9%. Laboratory services revenue growth for both FTE-based and FFS-based business in 2008 was primarily attributable to the AppTec acquisition; organic growth in our discovery-chemistry services, which represented the majority of laboratory services segment revenues; and rapid growth in newer services such as DMPK/ADME, bioanalytical services and process R&D.

Manufacturing Services Segment Net Revenues

Net revenues from our manufacturing services segment decreased by 58.0% from $48.5 million in 2008 to $20.1 million in 2009. The decrease from 2008 to 2009 was mainly due to the nonrecurrence of a single project that accounted for more than one-third of manufacturing services segment revenues in 2008, as well as the global economic downturn.

Cost of Revenues

The following table presents cost of revenues by segment for 2008 and 2009:

	Year Ended December 31,
	2008					2009
	Cost of Revenues		% of Cost of Revenues			Cost of Revenues		% of Cost of Revenues
	(in millions of U.S. dollars)
Segment Data:
Laboratory services	$	124.7		79.4	%	$	145.2		89.8	%
Manufacturing services		32.4		20.6			16.5		10.2
Total cost of revenues	$	157.1		100.0	%	$	161.7		100.0	%

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Our total cost of revenues increased from $157.1 million in 2008 to $161.7 million in 2009, or 2.8% growth.

Laboratory Services Segment Cost of Revenues

Cost of revenues for the laboratory services segment increased from $124.7 million in 2008 to $145.2 million in 2009, or 16.4%, driven by strong revenue growth in discovery chemistry, DMPK/ADME, bioanalytical services and formulation. Cost of revenues as a percentage of net revenues decreased from 60.8% in 2008 to 58.1% in 2009. The decrease was due to reduced intangible amortization following the AppTec-related impairment charge recorded in December 2008.

Manufacturing Services Segment Cost of Revenues

Cost of revenues for the manufacturing services segment decreased 49.2% from $32.4 million in 2008 to $16.5 million in 2009, driven by a revenue decline in 2009. Cost of revenues as a percentage of net revenues increased from 66.8% in 2008 to 81.9% in 2009. The increase was primarily due to project mix and lower volume in the small-scale manufacturing business and by investments in the large-scale manufacturing businesses, including increased staff and overhead costs.

Gross Profit and Gross Margin

Our gross profit increased from $96.4 million in 2008 to $108.3 million in 2009, or 12.3% growth. The increase was due to increased revenues for the laboratory services segment. Overall gross margin increased from 38.0% in 2008 to 40.1% in 2009.

Gross margin for our laboratory services segment increased from 39.2% in 2008 to 41.9% in 2009, due primarily to lower amortization of acquired intangible assets as a result of the significant impairment charges taken in fourth-quarter 2008, revenue growth in the higher-margin laboratory services business and improved profitability of newer laboratory services.

Gross margin for our manufacturing services segment decreased from 33.1% in 2008 to 18.1% in 2009, primarily due to project mix and lower volume in the small-scale manufacturing business and by investments in the large-scale manufacturing business, including increased staff and overhead costs.

Operating Expenses

Our total operating expenses decreased 52.0% from $117.3 million in 2008 to $56.3 million in 2009. Operating expenses as a percentage of net revenues decreased from 46.3% in 2008 to 20.8% in 2009. Both decreases were due primarily to nonrecurrence of a $60.5 million impairment charge in 2008 related to continuing AppTec operations.

Selling and Marketing Expenses

Our selling and marketing expenses increased from $7.4 million in 2008 to $7.5 million in 2009. Selling and marketing expenses as a percentage of net revenues declined from 2.9% in 2008 to 2.7% in 2009.

General and Administrative Expenses

Our general and administrative expenses decreased 1.2% from $49.4 million in 2008 to $48.8 million in 2009, primarily due to the decrease in share-based compensation allocated to general and administrative expenses from $10.0 million in 2008 to $7.4 million in 2009. General and administrative expenses as a percentage of net revenues decreased from 19.5% in 2008 to 18.1% in 2009, as we achieved economies of scale.

Impairment Charges

In December 2008, we recorded impairment charges of $60.5 million related to goodwill and acquired intangibles of the continuing AppTec operations, and we recorded no impairment charges in 2009. See “—Critical Accounting Policies—Impairment of Long-Lived Assets and Goodwill.”

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Other Income, Net

Other income, net, increased from $1.1 million in 2008 to $6.8 million in 2009, primarily due to gains from foreign-exchange forward contracts for hedging purposes.

Interest Expense

Interest expense was $1.4 million in 2008 and $1.0 million in 2009. Interest expense in 2008 was primarily related to the AppTec acquisition, as we assumed that entity’s bank borrowings and revolving lines of credit. Interest expense in 2009 was primarily related to short-term borrowings.

Interest Income

Interest income decreased from $2.3 million in 2008 to $1.1 million in 2009, due to decreased bank deposit balances.

Income Tax (Expense) Benefit

Income tax expense was $5.5 million in 2009, compared to an income tax benefit of $4.0 million in 2008. The tax benefit in 2008 mainly related to the pretax loss largely attributable to impairment charges relating to continuing AppTec operations. The increased tax expense in 2009 related to higher pretax income driven by strong sales growth. Our effective tax rate decreased from 21.2% in 2008 to 8.9% in 2009. The higher effective tax rate in 2008 was also primarily due to the income tax benefit associated with the impairment charge, where a relatively high U.S. income tax rate was applied.

Income (Loss) from Continuing Operations

Income from continuing operations was $53.4 million in 2009 and a loss of $14.9 million in 2008. These numbers included total share-based compensation charges of $13.0 million in 2008 and $10.2 million in 2009.

Loss from Discontinued Operations

On December 2, 2008, we announced the discontinuation of our biologics manufacturing operation. As a result, we reflected biologics manufacturing as a discontinued operation in our financial statements for all periods presented. We recorded a net loss from discontinued operations of $49.3 million in 2008. This included: (a) revenues of $8.3 million; (b) cost of revenues of $19.6 million, which included $3.8 million of inventory write-offs, $2.4 million of amortization expenses related to intangible assets, $1.6 million of severance costs, and $11.8 million of cost of labor, facilities and manufacturing overhead; (c) operating expenses of $50.4 million, which included a pre-tax impairment charge of $49.6 million; and (d) a tax benefit of $12.4 million.

In 2009, we recorded a net loss from discontinued operations of $0.6 million, which represented further impairment charges on the assets held for sale and a tax benefit of $0.4 million.

Net Income (Loss)

As a result of the foregoing, we realized net income of $52.9 million in 2009 compared to a net loss of $64.2 million in 2008.

Critical Accounting Policies

We prepare our financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect our reporting of assets and liabilities, contingent assets and liabilities and net revenues and expenses, among other things. We periodically evaluate these estimates and assumptions based on available information, our historical experience and other factors that we deem to be relevant. As our financial reporting process inherently relies on the use of estimates and assumptions, our actual results could differ from our expectations. This is especially true with accounting policies that require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our audited consolidated financial statements because they involve the greatest reliance on our management’s judgment.

Business combination

Our consolidated financial statements reflect the results of an acquired business after the completion of the acquisition. We account for business combinations using the purchase method of accounting, which requires that most assets acquired and liabilities assumed be recorded at the date of acquisition at their fair values. Any excess of the purchase price over the assigned values of the net assets acquired is recorded as goodwill.

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The judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations. There are several methods that can be used to determine fair value. For intangible assets, we typically use the income method. This method starts with our forecast of all of the expected future net cash flows. These cash flows are then adjusted to present value by applying an appropriate discount rate that reflects the risk factors associated with the cash-flow streams. Some of the more significant estimates and assumptions inherent in the income method or other methods include:

• amount and timing of projected future cash flows;

• amount and timing of projected costs to develop commercially viable products and services;

• discount rate selected to measure the risks inherent in the future cash flows; and

• assessment of the asset’s life cycle and the competitive trends impacting the asset, including consideration of (1) any technical, legal, regulatory or economic barriers to entry and (2) expected changes in standards of practice for indications addressed by the asset.

Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives and certain assets may even be considered to have indefinite useful lives.

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired at the date of acquisition. We perform an annual goodwill impairment test comprised of two steps. The first step compares the fair value of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying amount of a reporting unit’s goodwill. We determined the fair value of each reporting unit, with reference to a third-party valuation, using the expected present value of future cash flows. The key assumptions used in the calculation included the long-term rates of sales and cost growth, expected profitability, working-capital requirements and discount rates. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination, with the allocation of the assessed fair value (determined in the first step) to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. We perform our annual impairment test on November 30.

We determined that an indication of potential goodwill impairment existed as a result of a significant decrease in our market capitalization during the fourth quarter of 2008, due in large part to the general economic downturn and its negative impact on the future of our biologics manufacturing and biologics and medical device testing services business. We re-evaluated the long-term cash flow projections of these businesses in light of the significant decline in new sales orders beginning in the fourth quarter of 2008. As a result of the analysis, in November 2008 our board of directors approved the closure of the Philadelphia biologics-manufacturing operation due to this business’s poor outlook and in order to prioritize resources to other areas of our global businesses. These global strategic decisions in the fourth quarter of 2008 further impacted the future cash flow projection of our biologic and medical device testing services. Therefore, we recognized a goodwill impairment of $71.6 million in the fourth quarter of 2008, of which $42.0 million related to the continuing operations of AppTec and $29.6 million related to the discontinued biologics-manufacturing operations. No goodwill impairment was recognized during the year ended December 31, 2009 and 2010, after we performed an annual goodwill impairment test. Fair value of goodwill exceeded carrying value as of November 30, 2010, by 45%. As of November 30, 2010, the carrying value of goodwill was attributable to a single reporting unit.

Impairment of Long-Lived Assets

We review our long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of its carrying amounts to the future undiscounted cash flows that the assets are expected to generate. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, we would recognize an impairment loss equal to the amount by which the carrying value of the asset exceeds its fair value. Our estimates of undiscounted cash flows are based on the current regulatory, social and economic climates where we conduct our operations as well as recent operating information and budgets for our business. These estimates could be negatively impacted by changes in laws and regulations, economic downturns, or other events affecting our business.

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As of December 2008, for the reason stated above in “—Critical Accounting Policies—Goodwill,” we performed a recoverability test of our long-lived assets. The fair value of the long-lived intangible assets was determined by the Company based on the excess earnings method, a method within the income approach whereby the value of an intangible asset is captured by discounting to present value the earnings generated by the asset that remains after a deduction for a return on other contributory assets. These assets normally include working capital, fixed assets and other intangible assets. After a fair return on tangible and other intangible assets is subtracted, the remaining “excess” cash flow (or net cash flow) is attributed to the intangible asset being valued. The excess earnings approach explicitly recognizes that the current value of an investment is premised upon the expected receipt of future economic benefits. In the valuation of an intangible asset, an indication of value is developed by discounting excess cash flows attributed to the asset to present value at a rate that reflects the current return requirements of the market. Fair value of the long-lived tangible assets was determined based on estimated selling price less cost to sell. Based on our analysis, we recorded an impairment of acquired intangibles related to continuing operations of $18.5 million and an impairment of $20.0 million related to discontinued operations, of which $5.8 million was for acquired intangible assets and $14.1 million was for property, plant and equipment. We did not recognize an impairment charge on our long-lived assets for the years ended December 31, 2009 and 2010.

Revenue Recognition

Revenues are recognized when persuasive evidence of an arrangement exists, the sales price is fixed or determinable, delivery of the product or performance of the service has occurred and there is reasonable assurance of collection of the sales proceeds. For laboratory services provided on a fee-for-service or project basis, we recognize revenues upon finalization of the project terms and delivery and acceptance of the final product, which is generally in the form of a technical laboratory report. Revenue for long-term projects is recognized ratably over the expected term of the project. For laboratory services provided on a full-time-equivalent basis, the customer pays a fixed rate per FTE and we recognize revenues as the services are provided. FTE contracts do not require acceptance by the customer of fixed deliverables from us. We provide manufacturing services to our customers that involve the manufacture of advanced intermediates and APIs for R&D use. Revenues from the sale of manufactured products are recognized upon delivery and acceptance by the customer when title and risk of loss has been transferred, assuming all other revenue recognition criteria have been met. We record deferred revenues for payments received from the customer prior to the delivery of the products.

Income Taxes

We account for income taxes using the assets and liability method. Under this method, the change in the net deferred tax asset or liability is included in the computation of net income. Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net operating loss carryforwards and credits by applying enacted statutory tax rates applicable to the years in which the temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that some or all of the deferred tax assets will not be realized. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on the characteristics of the underlying assets and liabilities.

We consider positive and negative evidence when determining whether a portion or all of our deferred tax assets will more likely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with tax attributes expiring unused, and our tax planning strategies. The ultimate realization of deferred tax assets is dependent upon our ability to generate sufficient future taxable income within the carryforward periods provided for in the tax law and during the periods in which the temporary differences become deductible. When assessing the realization of deferred tax assets, we have considered possible sources of taxable income including (i) future reversals of existing taxable temporary differences, (ii) future taxable income exclusive of reversing temporary differences and carry forwards, (iii) future taxable income arising from implementing tax planning strategies, and (iv) specific known trend of profits expected to be reflected for a company operating in the hotel industry. We believe it is more likely than not that we will realize the benefits of these deductible differences as of December 31, 2008, 2009 and 2010. 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 carry forward periods are reduced.

We recognize a tax benefit associated with an uncertain tax position when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. Our liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. Our effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management. We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense.

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Share-Based Compensation Expense

We measure share-based compensation based on the grant-date fair value of the awards and recognize the compensation expense, net of estimated forfeitures, in the statement of operations over the requisite service period. The share-based compensation expense have been recorded in cost of revenues, selling and marketing expenses or general and administrative expenses, depending on the job function of the grantee, as shown in the table below:

	Year Ended December 31,
	2008		2009		2010
	(in millions of U.S. dollars)
Cost of revenues	$	3.0	$	2.7	$	3.7
Selling and marketing expenses		—		0.1		0.1
General and administrative expenses		10.0		7.4		6.3
Total	$	13.0	$	10.2	$	10.1

With respect to options granted prior to May 18, 2007, we determined the fair value of our ordinary shares by considering a number of factors, including the result of a third-party appraisal and an equity transaction of our company, while taking into account standard valuation methods and the achievement of certain events. Because we were a private company at the time, we determined the fair value of our ordinary shares in connection with our share or option grants on each grant date with the assistance of American Appraisal China Limited, an independent appraiser. The valuation used was based on a combination of the market approach and the income approach. The market approach focuses on comparing our company to comparable publicly traded companies. In applying this method, valuation multiples are (a) derived from historical operating data of comparable companies, (b) evaluated and adjusted, if necessary, based on the strengths and weaknesses of our company relative to the selected guideline companies, and (c) applied to the appropriate historical and projected financial data of our company to arrive at an indication of the fair market value of our equity. In the income approach, equity value is dependent on the present value of future economic benefits such as cost savings, periodic income or revenues. Indications of equity value are developed by discounting future net cash flows to their present value at a discount rate that reflects both the current return requirements of the market and the risks inherent in the specific investment. A discount rate is the expected rate of return that an investor would theoretically need to give up by investing in our company instead of in available alternative investments that are comparable in terms of risk and other investment characteristics. In most circumstances, the discount rate is the weighted-average cost of capital, which takes into account the cost of equity and the cost of debt. Our cost of equity was derived using the capital asset pricing model, which takes into account the risk-free interest rate and a required risk premium. Our required risk premium takes into account the equity risk premium, a small share premium and a country risk premium for China.

The valuation model then allocated the equity value between our ordinary shares and our preference shares. The fair value of the equity interest allocated to the preference shares was calculated using the option pricing method. The fair value of the ordinary shares was calculated as the residual, or the total equity value less the fair value of the preference shares. Under the option pricing method, we treated the preference shares as a call option on our equity value, with the exercise price based on the liquidation preference of the preference shares. Because a call option is used, the option pricing method commonly used is the Black-Scholes model, which takes into account the expected life of the option, a risk-free interest rate, any dividend yield and a measure of volatility. Because we were a private company on May 18, 2007, we approximated volatility using the historical volatility of comparable publicly traded companies.

With respect to options granted after May 18, 2007, we estimated the fair value of share options granted using the Black-Scholes option pricing model, which requires the input of highly subjective assumptions, including the expected life of the share options, estimated forfeitures and the price volatility of the underlying shares. The assumptions used in calculating the fair value of share options represent management’s best estimates. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future. In addition, we estimate our expected forfeiture rate and recognize the expense only for those shares expected to vest. These estimations are based on past employee-retention rates. We will prospectively revise our estimated forfeiture rates based on actual history. Our compensation expense may change based on changes to our actual forfeitures of these share options. Based on share options and nonvested restricted stock units granted and outstanding as of December 31, 2010, and assuming no change in the estimated forfeiture rates, we expect total share-based compensation expense of $7.8 million, $3.6 million, $1.3 million, $0.4 million and zero in 2011, 2012, 2013, 2014 and 2015, respectively.

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B. Liquidity and Capital Resources

Our primary sources of liquidity for our business have been cash generated from operating and financing activities, including positive operating cash flow and bank borrowings. As of December 31, 2010, we had $115.4 million in cash and cash equivalents and $38.1 million in short-term investments. Our cash and cash equivalents consist of cash on hand and bank deposits. Our cash needs include primarily the working capital for our daily operations, equipment purchases, expansion of existing facilities, and construction of our new biologic manufacturing facility in Wuxi and discovery chemistry facility in Wuhan. We believe that our cash and cash equivalents and anticipated cash flows from operations will be sufficient to meet our anticipated cash needs for the foreseeable future, including purchases of equipment and the remaining capital expenditures needed for capacity expansion. The following table presents a summary of our cash flows for the periods indicated:

	Year Ended December 31,
	2008			2009			2010
	(in millions of U.S. dollars)
Cash and cash equivalents	$	56.6	(1)	$	80.5	(1)	$	115.4
Net cash provided by operating activities		60.7			69.8			125.7	(2)
Net cash used in investing activities		(215.2	)(1)		(73.8	)(1)		(61.8	)
Net cash provided by (used in) financing activities		(5.5	)		28.0			(32.3	)

⁽¹⁾  We spent $151.3 million of our cash and cash equivalents in the AppTec acquisition, including $137.3 million (exclusive of acquisition-related expenses of $5.0 million) as the purchase price in 2008 and $13.5 million for settlement of escrow shares on April 30, 2009.

⁽²⁾  We incurred $4.9 million of deal costs and received a $30.0 million termination fee relating to the termination of the proposed business combination transaction with Charles River.

Operating Activities

Net cash provided by operating activities consists primarily of net income increased by non-cash adjustments such as share-based compensation charges, impairment charges for goodwill and acquired intangible assets, amortization of acquired intangible assets and depreciation of property, plant and equipment, as well as changes in assets and liabilities such as accounts receivable, accounts payable and inventories. Net cash provided by operating activities was $60.7 million, $69.8 million and $125.7 million for the years ended December 31, 2008, 2009 and 2010, respectively. The increase in net cash provided by operations in 2009 was primarily driven by the increase in net income, partially offset by an increase in accounts receivables and inventories. The increase in net cash provided by operations in 2010 was primarily caused by the $25.0 million net cash inflow related to the terminated business combination transaction with Charles River, the increase in net income of $12.9 million and a reduction in working capital of $14.9 million.

Investing Activities

Net cash used in investing activities largely reflects our AppTec acquisition and capital expenditures, which consisted of purchases of property, plant and equipment made in connection with the expansion and upgrade of our laboratory and manufacturing facilities and purchase of prepaid land use rights. In 2008 and 2009, we spent $137.3 million and $13.5 million, respectively, of our cash and cash equivalents on the AppTec acquisition, exclusive of acquisition-related expenses of $5.0 million in 2008. Our capital expenditures were $64.0 million, $55.3 million and $49.4 million in 2008, 2009 and 2010, respectively. The decreases in capital expenditures in 2009 and 2010 were primarily due to the completion of the construction of our Jinshan and Suzhou facilities in mid-2009. We expect to continue to invest heavily in laboratory equipment and laboratory space expansion in 2011. See “—Capital Expenditures.”

Financing Activities

Net cash provided by (used in) financing activities was $(5.5) million, $28.0 million and $(32.3) million for the years ended December 31, 2008, 2009 and 2010, respectively. Net cash provided by financing activities in 2009 was primarily attributable to net proceeds from bank borrowings of $26.6 million. Net cash used in financing activities in 2010 was primarily due to repayments of bank borrowings of $34.6 million.

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As of December 31, 2010, we had long-term bank debt (including current portion) of $2.1 million. The weighted-average interest rates on the long-term bank debt were 4.98% and 3.95% in 2009 and 2010, respectively. We entered into a facility agreement with JPMorgan Chase on January 8, 2009, in the amount of $20.0 million, which included a $4.0 million U.S. dollar-denominated short-term loan facility and a $16.0 million U.S. dollar-denominated revolving loan facility. On January 28, 2010, we amended the abovementioned agreement to convert the original facility to a $20.0 million short-term revolving line of credit. On January 24, 2011, we entered into another amendment to extend this $20.0 million line of credit for another twelve months. According to this amendment, we will pay a management fee computed at the rate of 0.2% per annum on the unused facility for the available period. As of December 31, 2009 and 2010, we have not withdrawn any funds under the revolving line of credit. We are in compliance with all financial covenants contained in our debt and bank borrowing facilities. For information on bank borrowings, please see Note 9 to Consolidated Financial Statements.

As of December 31, 2008, 2009 and 2010, our convertible notes totaled $35.9 million. Our convertible notes are contingently convertible, in whole or in part, into our ordinary shares at the option of the note holders at any time. The notes are convertible into our ordinary shares at a conversion price of $1.575 per ordinary share, which is equal to $12.60 per ADS. The notes contain restrictions on major corporate actions that may limit how we conduct our business, including the payment of dividends to our shareholders. As long as at least $20.0 million of notes is outstanding, we may not, without the prior written consent of a majority in interest of the note holders, pay, in whole or in part, any indebtedness for borrowed money other than all present and future bank and purchase money loans, equipment financings and equipment leases, or declare or pay any dividends or other distributions to any equity securities, other than the declaration and payment of (a) a cash dividend in any fiscal year that, when aggregated with all other cash dividends declared during such fiscal year, does not exceed 50% of our audited consolidated net income for our most recently completed fiscal year, calculated in accordance with U.S. GAAP, or (b) any dividend for which an adjustment to the conversion ratio is made in accordance with the terms of the notes. The notes are recorded as a long-term liability without any substantial premium or discount.

Legal Restrictions on the Ability of Subsidiaries to Transfer Funds

For a discussion of the limitations on the ability of our operating subsidiaries to pay dividends to us, see Item 8.A, “Financial Information—Dividend Policy.”

Capital Expenditures

We incur capital expenditures primarily in connection with purchases of property, plant and equipment; construction of facilities; leasehold improvements; and investment in equipment, technology and operating systems. Our capital expenditures were $64.0 million, $55.3 million and $49.4 in 2008, 2009 and 2010, respectively. Most of these capital expenditures were used to expand laboratories and purchase related equipment, construct a large-scale cGMP manufacturing facility in Jinshan, build a preclinical drug safety evaluation center in Suzhou, and equip the new pharmacology/DMPK/chemistry laboratories in Shanghai. We currently plan to make $50-$60 million of capital expenditures in 2011, mainly to upgrade and expand our laboratory services facilities and equipment, build a biologic manufacturing facility and double our cGMP research manufacturing capacity.

The Jinshan large-scale manufacturing facility was constructed in 2009 with a total investment of approximately $39 million. This facility was opened in early 2010. It has started to generate meaningful revenue and is expected to continuously contribute to our revenue growth. We are now planning to build a new plant for research-scale manufacturing on our Jinshan site. The new 86,000 square-foot building under construction will have 28 reactors, ranging from 500 to 5000 liters each, with total reactor volume of 59,500 liters.

The total investment in the Suzhou toxicology facility was budgeted at approximately $40 million. The facility provides space for 108 animal rooms, of which we have built out, equipped, and validated 62 rooms at a cost of approximately $35 million. We began operations in the third quarter of 2009. We will build out the remaining 46 rooms based on business demand.

In 2010, we leased and equipped two new laboratory buildings in the Waigaoqiao Free Trade Zone, with a total capital expenditure of $10.9 million. We expanded our laboratory services capacity in pharmacology, DMPK, and discovery chemistry after the new laboratories were put into use in mid-2010.

At year end 2010 we leased two additional buildings in the Waigaoqiao Free Trade Zone to further expand our laboratory services capacity. We are currently budgeting approximately $12 million of the leasehold improvements for these buildings. The new facility will open in mid-2011.

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C. Research and Development

For a discussion of our activities related to research and development, see Item 5.A, “—Operating Results,” which we hereby incorporate by reference.

D. Trend Information

Other than as disclosed elsewhere in this annual report on Form 20-F, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2008 to December 31, 2010 that are reasonably likely to have a material adverse effect on our revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information not necessarily to be indicative of future operating results or financial conditions.

E. Off-Balance-Sheet Arrangements

We do not have any outstanding off-balance-sheet commitments or arrangements. We do not engage in trading activities involving non-exchange-traded contracts. In our ongoing business, we do not enter into transactions involving, or otherwise form relationships with, unconsolidated entities or financial partnerships that are established for the purpose of facilitating off-balance-sheet arrangements or other contractually narrow or limited purposes.

F. Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations and commercial commitments as of December 31, 2010:

	Total		2011		2012		2013		2014		2015 and thereafter
	(in millions of U.S. dollars)
Operating lease obligations	$	55.4	$	8.5	$	7.0	$	6.2	$	6.2	$	27.5
Debt obligations(1)		2.5		0.3		0.3		0.3		0.3		1.3
Capital commitments		10.2		10.2		—		—		—		—
Convertible notes(1) (2)		35.9		—		35.9		—		—		—
Total	$	104.0	$	19.0	$	43.2	$	6.5	$	6.5	$	28.8

⁽¹⁾  Includes both our expected principal and interest obligations. Our calculations of expected interest payments incorporate only current-period assumptions for interest rates. (See Note 9 to Consolidated Financial Statements.)

⁽²⁾  Assumes that the holders of convertible notes do not exercise the conversion option.

G. Safe Harbor

This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. See “Introduction—Forward-Looking Statements.”

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

The following table sets forth certain information relating to our directors and executive officers as of the date of this annual report on Form 20-F.

Name	Age		Position
Ge Li, Ph.D(1)(2)		44	Chairman, Chief Executive Officer and Founder
Xiaozhong Liu		47	Executive Vice President, Director and Founder
Zhaohui Zhang		41	Vice President of Domestic Marketing, Director and Founder
Edward Hu		48	Chief Operating Officer and Chief Financial Officer
Shuhui Chen, Ph.D.		47	Chief Scientific Officer
Suhan Tang, Ph.D.		45	Chief Manufacturing Officer
Yifeng Shi		44	Vice President of Operations, Head of Waigaoqiao Site
Kian-Wee Seah(2)(3)(4)		48	Director
Cuong Viet Do(1)(2)(3)(4)		45	Director
Xuesong (Jeff) Leng(2)		41	Director
Ying Han(3)(4)		57	Director
Stewart Hen(1)(2)		44	Director
Ning Zhao, Ph.D.		44	Director

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⁽¹⁾ Member, strategy committee

⁽²⁾ Member, compensation committee

⁽³⁾ Member, corporate governance and nominations committee

⁽⁴⁾ Member, audit committee

Dr. Ge Li has served as our Chief Executive Officer since the Company was founded in 2000 and as Chairman since early 2004. Dr. Li is one of our founders and a core member of the senior management of our company. He is responsible for operations, strategic planning and business development. Dr. Li was one of the founding scientists of Pharmacopeia, Inc. Dr. Li received a bachelor’s degree in chemistry from Peking University and a master’s degree and a Ph.D. in organic chemistry from Columbia University. Dr. Li’s wife, Dr. Ning Zhao, serves as a director of the Company.

Xiaozhong Liu has served as our Executive Vice President since 2001 and as a director since 2005. Mr. Liu is one of our founders and a core member of the senior management of our company. Mr. Liu is responsible for our project and engineering departments. Mr. Liu received a bachelor’s degree from Peking University and an EMBA from China Europe International Business School.

Zhaohui Zhang has served as our Vice President of Domestic Marketing since 2002 and a director since 2005. Mr. Zhang is one of our founders and a core member of the senior management of our company. Mr. Zhang is responsible for business development. Prior to joining our company, Mr. Zhang worked for Jiangsu Silver Bell Group as an Assistant to the General Manager and later as a Vice President of American Silver Bell Company responsible for government procurement. Mr. Zhang received a bachelor’s degree in mechanical and electrical engineering from Jiangnan University.

Edward Hu has served as our Chief Operating Officer since January 2008. Mr. Hu joined our company in August 2007 and served as Executive Vice President of Operations before becoming Chief Operating Officer. He served as our acting Chief Financial Officer from February 2009 to April 2010. In August 2010, he was reappointed as our Chief Financial Officer. From October 2000 to July 2007, Mr. Hu worked for Tanox, Inc., where he served in various positions including Senior Vice President and Chief Operating Officer, Vice President of Operations, Vice President—Financial Planning, Project and Portfolio Management, Director of Finance and Associate Director of Financial Planning and Analysis. From 1998 to 2000, Mr. Hu worked for Biogen (now known as Biogen Idec) as Manager of Financial Planning and Analysis. From 1996 to 1998, he worked at Merck as a Senior Financial Analyst. Mr. Hu received his MBA and completed his Ph.D. work, except for his dissertation, in biophysics and biochemistry at Carnegie Mellon University.

Dr. Shuhui Chen has served as our Chief Scientific Officer since 2004. Dr. Chen’s main responsibilities include overseeing our laboratory services segment in China. From 1998 to 2004, Dr. Chen worked for Eli Lilly as a Research Advisor. From 1995 to 1997, Dr. Chen worked for Vion Pharmaceuticals as a Group Leader and later as an Associate Director of Chemistry on several anti-cancer and anti-viral projects. From 1990 to 1995, Dr. Chen worked for Bristol-Myers Squibb as a Research Investigator and later as a Senior Research Investigator. Dr. Chen received a bachelor’s degree in chemistry from Fudan University and a Ph.D. in organic chemistry from Yale University.

Dr. Suhan Tang has served as our Chief Manufacturing Officer since 2007. Dr. Tang’s main responsibilities include overseeing our manufacturing services segment. From 2003 to 2006, Dr. Tang was our Vice President of Process Research and Development. From 1996 to 2003, Dr. Tang worked for Schering-Plough as a Principal Scientist. Dr. Tang received a bachelor’s degree in chemistry from Jilin University and a master’s degree and a Ph.D. in organic chemistry from Columbia University.

Yifeng Shi has served as our Vice President of Operations and Head of Waigaoqiao Site since August 2009. Mr. Shi joined the Company in 2002 and has served as Director, Senior Director and Executive Director of Chemistry. He has 19 years of experience in organic synthesis. From 1989 to 1998, Mr. Shi worked at Shanghai Institute of Organic Chemistry as a Scientist. From 1998 to 2002, Mr. Shi worked at GL Synthesis as a Research Scientist. Mr. Shi received a bachelor’s degree in chemistry from Shanghai University of Science and Technology.

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Kian-Wee Seah has served as a director since 2005. Mr. Seah joined UOB Venture Management Pte. Ltd. in 1997 and currently holds the position of Managing Director. He chairs the investment committees of several private equity funds that focus on growth companies in China and ASEAN. He is a Chartered Financial Analyst. Mr. Seah received a bachelor’s degree in engineering from National University of Singapore, a master’s degree from the University of California at Los Angeles and an EMBA from Tsinghua University.

Cuong Viet Do has served as a director since 2007. Mr. Do is currently Senior Vice President of Corporate Strategy and Business Development at Tyco Electronics. From December 2006 through April 2009, he served as the Chief Strategy Officer of Lenovo. Previously he worked for 17 years at McKinsey & Company, where he was Director and Senior Partner. Mr. Do helped build the healthcare, high technology, marketing and corporate finance practices at McKinsey. He has also advised hospitals and governments on healthcare policy. Mr. Do has a bachelor’s degree in biochemistry and economics from Dartmouth College and an MBA from the Amos Tuck School of Business Administration at Dartmouth College, where he now serves on the MBA Board.

Xuesong (Jeff) Leng has served as a director since October 2008. Mr. Leng joined General Atlantic LLC, a global growth investor, as Managing Director in 2007. From June 1999 to September 2007, he served as a Managing Director, Vice President and Associate at Warburg Pincus. Mr. Leng holds a bachelor’s degree from the business school of Jiao Tong University in Shanghai and an MBA from the Wharton School of the University of Pennsylvania.

Ying Han has served as a director since November 2008. From 1998 to 2006, Ms. Han worked for Asiainfo as Chief Financial Officer and Executive Vice President. Previously, she worked for 10 years at Hewlett Packard (China), where she was Chief Controller and Business Development Director. Ms. Han is currently an advisor to Warburg Pincus. She received a bachelor’s degree in accounting from Xiamen University.

Stewart Hen has served as a director since February 2009. Since August 2010, he has been Managing Partner of Serrado Capital LLC, a healthcare investment firm based in New York. Previously, he was a Managing Director at Warburg Pincus LLC where he focused on investments in biotechnology and pharmaceuticals. Mr. Hen has more than 18 years of experience in the life sciences industry. Prior to joining Warburg Pincus in 2000, he was a consultant at McKinsey & Company serving the pharmaceutical industry. From 1990 to 1994, he worked at Merck in both research and development and manufacturing. He received an MBA from the Wharton School of the University of Pennsylvania and a master’s degree in chemical engineering from the Massachusetts Institute of Technology.

Dr. Ning Zhao has served as a director since February 2009. Dr. Zhao, one of our co-founders, is currently lead advisor to our analytical services operations and Corporate Head of Human Resources. She was Vice President of our analytical services department from 2004 to 2008 and also established its bioanalytical services, core analytical services and analytical development services departments. She previously worked for Wyeth as a Senior Research Scientist, for Pharmacopeia as a Group Leader for the high-throughput analysis of combinatorial libraries and for Bristol-Myers Squibb as a Site Leader in the discovery analytical sciences department. Dr. Zhao received a bachelor’s degree in chemistry from Peking University and a Ph.D. in chemistry from Columbia University. She is married to our Chairman and Chief Executive Officer, Dr. Ge Li.

Hao Zhou resigned from his position as Vice President of Finance and Chief Financial Officer, effective September 16, 2010.

10b5-1 Trading Plans

Our Insider Trading Policy allows directors, officers and other employees covered under the policy to establish, under limited circumstances contemplated by Rule 10b5-1 under the Securities Exchange Act of 1934, written programs that permit automatic trading of our stock or trading of our stock by an independent person (such as an investment bank) who is not aware of material inside information at the time of the trade. From time to time, certain of our directors, executive officers and employees have adopted Rule 10b5-1 trading plans. We believe in many cases that these plans have been, or will be, adopted to ensure the exercise of previously granted options while avoiding adverse tax consequences to the individual under Section 409A of the U.S. Internal Revenue Code, and were amended to provide for fixed exercise dates.

B. Compensation

Compensation of Directors and Executive Officers

In 2010, we paid cash compensation of $5.3 million to our directors and executive officers as a group. We do not pay or set aside any amounts for pension, retirement or other benefits for our officers and directors. Our executive officers are eligible for performance bonuses.

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Pursuant to our employee share incentive plans, our board of directors previously authorized the issuance of an aggregate of up to 105,855,112 ordinary shares upon exercise of stock options and non-vested restricted stock units granted from 2004 to 2010. As of April 8, 2011, stock options and non-vested restricted stock units covering a total of 25,484,707 ordinary shares are outstanding and 7,554,928 shares are reserved for future issuance. All future option grants will be made under our 2007 Employee Share Incentive Plan described below.

As of December 31, 2010, our officers and executive directors held, in the aggregate, options and restricted stock units with respect to 11,437,920 ordinary shares. These options and restricted stock units have a weighted-average exercise price of $0.53. Of these options, 1,496,000 shares were granted before July 24, 2006, and have no expiration date; 53,000 expire on July 15, 2017; 750,000 expire on August 8, 2017; 667,216 expire on December 31, 2017; 750,000 expire on January 3, 2018; 80,000 expire on February 11, 2018; 735,072 expire on March 22, 2018; 12,600 expire on May 13, 2018; 264,000 expire on October 13, 2018; 1,867,360 expire on March 11, 2019; 64,000 expire on March 30, 2019; 1,440,000 expire on June 1, 2019; 106,672 expire on June 8, 2019; 1,616,000 expire on March 18, 2020; 416,000 expire on August 5, 2020; 1,040,000 expire on November 10, 2020 and 80,000 expire on December 9, 2020.

2007 Employee Share Incentive Plan

Our 2007 Employee Share Incentive Plan was adopted by our board of directors in July 2007. The 2007 Employee Share Incentive Plan is intended to promote our success and to increase shareholder value by providing an additional means to attract, motivate, retain and reward selected directors, officers, employees and third-party consultants and advisors. In 2010 the Board determined to increase the number of ordinary shares authorized to be issued pursuant to the 2007 Employee Share Incentive Plan, as well as the limit on the total number of ordinary shares that may be delivered pursuant to options qualified as incentive stock options granted under the 2007 Employee Share Incentive Plan, by 36,000,000 ordinary shares so that the aggregate number of ordinary shares authorized to be issued under the 2007 Employee Share Incentive Plan will be 82,044,400.

Our compensation committee, which administers our option plan, has wide discretion to award options. Subject to the provisions of our option plan, our compensation committee determines who will be granted options, the type and timing of options to be granted, vesting schedules and other terms and conditions of options, including the exercise price. Any of our employees may be granted options. The number of options awarded to a person, if any, is based on the person’s ability to contribute to our success, the person’s position with us and other factors chosen by our board of directors. The number of options that vest for an employee in any given year is subject to performance requirements and evaluated by our human resources department. Options generally do not vest unless the grantee remains under our employment or in service with us on the given vesting date.

Generally, to the extent that an outstanding option granted under our option plan has not vested on the date the grantee’s employment by, or service with, us terminates, the unvested portion of the option will terminate and become unexercisable. However, in circumstances where there is a death or disability of the grantee or, for certain option holders, a change in control of our company, the vesting of options will be accelerated to permit immediate exercise of all options granted to a grantee.

Our board of directors may amend, alter, suspend or terminate our option plan at any time, provided that to increase the limit on issuable options from the current limit, our board of directors must first seek the approval of our shareholders and, if such amendment, alteration, suspension or termination would adversely affect the rights of an optionee under any option granted prior to that date, the approval of such optionee. Without further action by our board of directors, the 2007 Employee Share Incentive Plan will terminate in 2017.

Employment Agreements

On June 1, 2006, we entered into executive employment agreements with our founders Dr. Ge Li, Xiaozhong Liu, Tao Lin and Zhaohui Zhang. Under these agreements, each of our founders was employed for an initial term of four years. Tao Lin left the Company in early 2009, and in June 2009 we entered into a new agreement to secure Dr. Ge Li’s services through June 2012.

The board of directors may terminate employment of a founder for cause at any time in accordance with PRC labor laws, or without cause with three months’ prior written notice. In the event of a dismissal without cause, the founder is entitled to receive an amount equal to 12-18 months’ compensation, depending on the individual, and is entitled to be vested in all granted options. No annual bonus is payable upon such termination.

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A founder may terminate his employment at any time for good reason, including if (a) there is a significant change in his position with our company or change to his duties or responsibilities that materially reduces his level of responsibility, (b) his principal place of employment in the PRC is changed to a place where the city size and/or the residents’ average living standards declines by 10% or (c) we fail to perform the executive employment agreement, violate the relevant labor laws or regulations or infringe upon any of his rights or interests. When a founder terminates his executive employment agreement for good reason, he is entitled to receive an amount equal to 12-18 months’ compensation, depending on the individual, and is also entitled to vesting of all granted options. A founder may also terminate his employment other than for good reason with six months’ prior written notice. Under such circumstances, the founder is entitled to receive an amount equal to 6-12 months’ compensation, depending on the individual, and is also entitled to exercise all vested options held, and any unvested options will lapse and terminate. Each founder is fully indemnified by our company against all costs, charges, losses, expenses and liabilities incurred by him in the execution and discharge of the duties of his office, including circumstances under which the directors and officers insurance policies maintained by us are insufficient to cover the founder’s loss.

Each founder has agreed that during the term of the executive employment agreement and for a period of three years after the termination thereof, he will not use, exploit or divulge to any person any trade secrets, confidential knowledge or information or any financial, marketing or trading information or know-how relating to us and other shareholders of us, and will not make any announcement on any matter concerning the executive employment agreement. In addition, each founder has agreed that he will not compete with us by taking up any executive position in any company other than us and will commit most of his efforts toward the development of our business and operations while he is employed by us.

We have also entered into an employment agreement with each of our other executive officers. Under these agreements, we may terminate their employment at any time without notice if they commit a serious breach of any of the provisions of the agreement, are found guilty of grave misconduct or willful neglect in the discharge of their employment duties or are convicted of a criminal offense other than one that, in our reasonable opinion, does not affect their position as an employee. These agreements generally include a covenant that prohibits such officers from engaging in any activities that compete with our business for a period of one year after the termination of their employment contracts with us. It may be difficult or costly for us to seek to enforce the provisions of these agreements.

C. Board Practices

Duties of Directors

Under Cayman Islands law, our directors have a duty of loyalty to act honestly and in good faith with a view to our best interests. Our directors also have a duty to exercise the care, diligence and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated memorandum and articles of association, as may be amended from time to time. Our articles of association govern the way our company is operated and the authority granted to the directors to manage the daily affairs of our company. A shareholder has the right to seek damages if a duty owed by our directors is breached.

Terms of Directors and Executive Officers

We have a classified board of nine directors, consisting of three classes of three directors each, serving staggered terms. The terms of office of Xiaozhong Liu, Ying Han and Kian-Wee Seah expire at our 2011 annual meeting, the terms of office of Xuesong (Jeff) Leng, Zhaohui Zhang and Ning Zhao expire at our 2012 annual meeting, and the terms of office of Dr. Ge Li, Stewart Hen and Cuong Viet Do expire at our 2013 annual meeting. Pursuant to our amended and restated memorandum and articles of association, while holding office, our Chief Executive Officer’s term as a director will not expire and the Chief Executive Officer is not subject to retirement or taken into account in determining the number of directors whose terms expire in any given year.

Our directors hold office until their term of office expires or until such time as they resign or are removed from office by special resolution of our shareholders. A director will be removed from office automatically if, among other things, the director (a) becomes bankrupt or suspends payments to his creditors, (b) dies or (c) becomes of unsound mind. Our executive officers are elected by, and serve at the discretion of, our board of directors.

Board Committees

Five of our nine board members—Kian-Wee Seah, Cuong Viet Do, Xuesong (Jeff) Leng, Ying Han and Stewart Hen—satisfy the independence requirements of the New York Stock Exchange Listed Company Manual, or NYSE Manual, Section 303A.02. Our board of directors has established an audit committee, a compensation committee, a corporate governance and nominations committee and a strategy committee.

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Audit Committee

Our audit committee currently consists of Ying Han, Kian-Wee Seah and Cuong Viet Do. Our board of directors has determined that each is an “independent director” within the meaning of NYSE Manual, Section 303A.02, and meets the criteria for independence set forth in Section 10A(m)(3) of the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act. Ying Han is the chairman of our audit committee and meets the criteria of an audit committee financial expert, as set forth under the applicable rules of the SEC.

Our audit committee is responsible for, among other things:

• recommending to our shareholders, if appropriate, the annual re-appointment of our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;

• annually reviewing an independent auditors’ report describing the auditing firm’s internal quality-control procedures, any material issues raised by the most recent internal quality-control review or peer review of the independent auditors and all relationships between the independent auditors and our company;

• setting clear hiring policies for employees or former employees of the independent auditors;

• reviewing with the independent auditors 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 promulgated by the SEC;

• discussing the annual audited financial statements with management and the independent auditors;

• discussing with management and the independent auditors major issues regarding accounting principles and financial statement presentations;

• reviewing reports prepared by management or the independent auditors relating to significant financial reporting issues and judgments;

• reviewing with management and the independent auditors the effect of regulatory and accounting initiatives, as well as off-balance-sheet structures, on our financial statements;

• discussing policies with respect to risk assessment and risk management;

• reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;

• reviewing reports from the independent auditors regarding all critical accounting policies and practices to be used by our company, all alternative treatments of financial information within U.S. GAAP that have been discussed with management and all other material written communications between the independent auditors and management;

• establishing procedures for the receipt, retention and treatment of complaints received from our employees regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;

• annually reviewing and reassessing the adequacy of our audit committee charter;

• handling such other matters that are specifically delegated to our audit committee by our board of directors from time to time;

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• meeting, separately and periodically, with management, the internal auditors and the independent auditors; and

• reporting regularly to the full board of directors.

Compensation Committee

Our current compensation committee consists of Dr. Ge Li, Cuong Viet Do, Kian-Wee Seah, Xuesong (Jeff) Leng and Stewart Hen. Kian-Wee Seah is the chairman of our compensation committee. Our board of directors has determined that Cuong Viet Do, Kian-Wee Seah, Xuesong (Jeff) Leng and Stewart Hen each are “independent directors” within the meaning of NYSE Manual Section 303A.02.

Our compensation committee is responsible for:

• reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer, evaluating the performance of our Chief Executive Officer in light of those goals and objectives, and setting the compensation level of our Chief Executive Officer based on this evaluation;

• reviewing and making recommendations to our board of directors regarding our compensation policies and forms of compensation provided to our directors and officers;

• reviewing and determining bonuses for our officers;

• reviewing and determining share-based compensation for our directors and officers;

• administering our equity incentive plans and any profit-sharing or bonus plans in accordance with the terms thereof; and

• handling such other matters that are specifically delegated to the compensation committee by our board of directors from time to time.

Corporate Governance and Nominations Committee

Our corporate governance and nominations committee currently consists of Cuong Viet Do, Ying Han and Kian-Wee Seah. Kian-Wee Seah is the chairman of our corporate governance and nominations committee. Our board of directors has determined that each member of this committee is an “independent director” within the meaning of NYSE Manual Section 303A.02.

Our corporate governance and nominations committee is responsible for, among other things,

• selecting and recommending the appointment of new directors to our board of directors;

• developing and recommending to the board a set of corporate governance guidelines applicable to the company; and

• overseeing the evaluation of the board and management.

Strategy Committee

Our strategy committee consists of Dr. Ge Li, Stewart Hen and Cuong Viet Do. Cuong Viet Do is the chairman of our strategy committee. Our strategy committee is responsible for, among other things, oversight of our strategic plan. The strategy committee will maintain a cooperative, interactive strategic-planning process with management, including the identification and setting of strategic goals and expectations and the review of potential acquisitions, joint ventures and strategic alliances.

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Corporate Governance

Our board of directors has adopted a code of business conduct and ethics, which is applicable to all of our directors, officers and employees. Our code of business conduct and ethics is publicly available on our website.

In addition, our board of directors has adopted a set of corporate governance guidelines. The guidelines reflect certain guiding principles with respect to the structure of our board of directors, procedures and committees. These guidelines are not intended to change or interpret any law or our amended and restated memorandum and articles of association.

Interested Transactions

A director may vote with respect to any contract or transaction in which he or she is interested, provided that the nature of the interest of any director in such contract or transaction is disclosed by him or her at or prior to its consideration and any vote in that matter.

Remuneration and Borrowing

The directors may determine remuneration to be paid to the directors. The compensation committee will assist the directors in reviewing and approving the compensation structure for the directors. The directors may exercise all the powers of our company to borrow money and to mortgage or charge its undertaking, property and uncalled capital and to issue debentures or other securities, whether outright or as security for any debt obligations of our company or of any third party.

Qualification

There is no shareholding qualification for directors.

Summary of Corporate Governance Differences

As a foreign private issuer with shares listed on the NYSE, we are required by Section 303A.11 of the NYSE Manual to disclose any significant ways in which our corporate governance practices differ from those followed by U.S. domestic companies under NYSE listing standards. A summary of the differences between our current corporate governance practices and the NYSE corporate governance requirements applicable to domestic U.S. companies can be found on our website at www.wuxiapptec.com under Investor Relations. For additional information, see Item 16G, “Corporate Governance.”

D. Employees

As of December 31, 2010, we had 4,465 employees, of which 4,022 were based in China and 443 were based in the United States. Among our employees, approximately 3,139 were science professionals with advanced degrees, including approximately 259 with Ph.D.s and 1,670 with master’s degrees. As of March 31, 2011, we had 4,522 employees, 4,082 based in China and 440 based in the United States.

We offer our employees both a base salary and a performance-based bonus and rewards for exceptional performance. As required by PRC regulations, our China-based employees participate in various employee benefit plans that are organized by municipal and provincial governments, including benefit plans relating to pensions, work-related injury benefits, maternity insurance, medical insurance and unemployment. We are required under PRC law to make contributions to the employee benefit plans for our China employees at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time.

E. Share Ownership

The following table and related footnotes set forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our ordinary shares as of April 8, 2011 for:

• each of our directors and executive officers; and

• each person known to us to own beneficially more than 5% of our ordinary shares.

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Name	Shares beneficially owned as of April 8, 2011**
	Number		Percent
Directors and Executive Officers
Ge Li(1)		17,006,167		3.0	%
Xiaozhong Liu(2)		7,673,564		1.4
Zhaohui Zhang(3)		11,289,420		2.0
Edward Hu		*		*
Shuhui Chen		*		*
Suhan Tang		*		*
Yifeng Shi		*		*
Kian-Wee Seah		—		—
Cuong Viet Do		*		*
Xuesong (Jeff) Leng		—		—
Ying Han		*		*
Ning Zhao(4)		10,123,509		1.8
Stewart Hen		—		—
Principal Shareholders
FMR LLC(5)		83,828,712		14.8
Investment entities affiliated with General Atlantic LLC(6)		32,968,402		5.8
Investment entities affiliated with Kylin Fund LP(7)		33,266,336		5.9

* Upon exercise of all options granted, the individual or the entity would beneficially own less than 1% of our outstanding ordinary shares.

** Unless otherwise indicated.

Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, and includes voting or investment power with respect to the securities. Except as indicated in the table above and subject to applicable community-property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them.

The number of ordinary shares outstanding in calculating the percentages for each listed person includes the ordinary shares underlying unexercised options held by such person. The percentage of beneficial ownership of each listed person is based on 565,969,248 ordinary shares outstanding as of April 8, 2011, as well as, where applicable, ordinary shares underlying stock options exercisable within 60 days. The calculation does not include up to an aggregate of 22,771,002 ordinary shares reserved for issuance pursuant to outstanding convertible notes issued on February 9, 2007, and 7,554,928 shares reserved for issuance in connection with our Employee Share Incentive Plan.

⁽¹⁾  Includes (i) 528,000 ordinary shares issuable upon exercise of restricted stock units within 60 days of April 8, 2011; (ii) 4 ordinary shares and 817,469 ADSs representing 6,539,752 ordinary shares held directly by Dr. Li; and (iii) 9,179,291 ordinary shares and 94,890 ADSs representing 759,120 ordinary shares held by J.P. Morgan Trust Company of Delaware as Trustee of NGM Family 2006 Irrevocable Trust, or Family Trust, for which Dr. Li is the investment advisor and exercises dispositive and voting power. The Family Trust is an irrevocable trust constituted under the laws of Delaware. The business address for Dr. Li is 288 Fute Zhong Road, Waigaoqiao Free Trade Zone, Shanghai 200131, People’s Republic of China.

⁽²⁾  Includes 24,000 ordinary shares issuable upon exercise of restricted stock units within 60 days of April 8, 2011; and (ii) 5,927,748 ordinary shares and 215,227 ADSs representing 1,721,816 ordinary shares held by I-Invest World Ltd., a British Virgin Islands company, which is wholly owned and controlled by Heng Yu Ltd., a Bahamian company. Heng Yu Ltd. is in turn wholly owned by Credit Suisse Trust Ltd. as Trustee of the Heng Yu Foundation, which is an irrevocable trust constituted under the laws of Singapore, with Mr. Liu as the settlor and Mr. Liu’s family members as the beneficiaries. Mr. Liu is the investment manager of the trust. The business address of I-Invest World Ltd. is c/o Portcullis TrustNet (BVI) Ltd., Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands.

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⁽³⁾  Includes (i) 1,300 ordinary shares issuable upon exercise of restricted stock units within 60 days of April 8, 2011 and (ii) 10,747,320 ordinary shares and 67,600 ADSs representing 540,800 ordinary shares held by i-growth Ltd., a British Virgin Islands company, which is wholly owned and controlled by Tri-Z Lynn Ltd., a Bahamian company. Tri-Z Lynn Ltd. is in turn wholly owned by Credit Suisse Trust Ltd. as Trustee of the 3ZLynn Foundation, which is an irrevocable trust constituted under the laws of Singapore, with Mr. Zhang as the settlor and Mr. Zhang’s family members as the beneficiaries. Mr. Zhang is the investment manager of the trust. The business address of i-growth Ltd. is c/o Portcullis TrustNet (BVI) Limited, Portcullis TrustNet Chambers, P.O. Box 3444, Road Town, Tortola, British Virgin Islands.

⁽⁴⁾  Includes (i) 48,000 ordinary shares issuable upon exercise of restricted stock units within 60 days of April 8, 2011; (ii) 3 ordinary shares and 817,469 ADSs representing 6,539,752 ordinary shares held directly by Ning Zhao; and (iii) 2 ordinary shares and 441,969 ADSs representing 3,535,752 ordinary shares held by J.P. Morgan Trust Company of Delaware as Trustee of the Li Children’s 2006 Irrevocable Trust, or Children’s Trust, for which Ning Zhao is the investment advisor and exercises dispositive and voting power. The Children’s Trust is an irrevocable trust constituted under the laws of Delaware. The business address for Ning Zhao is 288 Fute Zhong Road, Waigaoqiao Free Trade Zone, Shanghai 200131, People’s Republic of China.

⁽⁵⁾  Represents shares that may be deemed beneficially owned by FMR LLC and its wholly owned subsidiaries Fidelity Management and Research Corporation, an investment adviser registered under the Investment Company Act of 1940; Pyramis Global Advisors, LLC, an investment advisor registered under Section 203 of the Investment Advisors Act of 1940 and various investment funds, including FIL Limited. The address of FMR LLC is 82 Devonshire Street, Boston, MA 02109. The number of shares beneficially owned by FMR LLC and the information provided in this footnote is as of December 31, 2010 and is based on a Schedule 13G/A filed with the SEC by FMR LLC on February 14, 2011.

⁽⁶⁾  Includes (i) 6,701,058 ordinary shares held by, and 14,963,576 ordinary shares issuable upon conversion of convertible notes owned by, General Atlantic Partners (Bermuda), L.P.; (ii) 2,549,350 ordinary shares held by, and 5,692,751 ordinary shares issuable upon convertible notes owned by GAP-W International, LP; (iii) 152,958 ordinary shares held by, and 341,565 ordinary shares issuable upon convertible notes owned by, GapStar, LLC; (iv) 610,288 ordinary shares held by, and 1,362,799 ordinary shares issuable upon convertible notes owned by, GAP Coinvestments III, LLC; (v) 142,856 ordinary shares held by, and 318,999 ordinary shares issuable upon convertible notes owned by, GAP Coinvestments IV, LLC; (vi) 12,750 ordinary shares held by, and 28,464 ordinary shares issuable upon convertible notes owned by, GAP Coinvestments CDA, L.P.; and (vii) 28,140 ordinary shares held by, and 62,848 ordinary shares issuable upon convertible notes owned by, GAPCO GmbH & Co. KG. General Atlantic Partners (Bermuda), L.P. is a Bermuda limited partnership, GAP-W International, LP is a Bermuda limited partnership, GapStar, LLC is a Delaware limited liability company, GAP Coinvestments III, LLC is a Delaware limited liability company, GAP Coinvestments IV, LLC is a Delaware limited liability company, GAP Coinvestments CDA, L.P. is a Delaware limited partnership and GAPCO GmbH & Co. KG is a German limited partnership. These investment entities purchased an aggregate of $35 million of convertible notes from us on February 9, 2007, which are convertible into 22,771,002 of our ordinary shares and are reflected in the number of shares beneficially owned. General Atlantic GenPar (Bermuda), L.P. is the general partner of General Atlantic Partners (Bermuda), L.P. and GAP-W International, LP. GAP (Bermuda) Limited is the general partner of General Atlantic GenPar (Bermuda), L.P. General Atlantic LLC is the general partner of GAP Coinvestments CDA, L.P. GAPCO Management GmbH is the general partner of GAPCO GmbH & Co. KG. There are 27 Managing Directors of General Atlantic LLC. The managing members of GAP Coinvestments III, LLC and GAP Coinvestments IV, LLC are Managing Directors of General Atlantic LLC. The members of GapStar, LLC are certain Managing Directors of General Atlantic LLC. The Managing Directors of General Atlantic LLC are the executive officers and directors of GAP (Bermuda) Limited. The Managing Directors of General Atlantic LLC make voting and investment decisions with respect to GAPCO Management GmbH and GAPCO GmbH & Co. KG. As a result, the Managing Directors of General Atlantic LLC make voting and investment decisions with respect to all shares owned by General Atlantic Partners (Bermuda), L.P.; GAP-W International, LP; GapStar, LLC; GAP Coinvestments III, LLC; GAP Coinvestments IV, LLC; GAP Coinvestments CDA, L.P. and GAPCO GmbH & Co. KG. The address of General Atlantic Partners (Bermuda), L.P. and GAP-W International, LP is Clarendon House, Church Street, Hamilton HM 11, Bermuda. The address of General Atlantic LLC; GapStar, LLC; GAP Coinvestments III, LLC; GAP Coinvestments IV, LLC and GAP Coinvestments CDA, L.P. is c/o General Atlantic Service Company, LLC, 3 Pickwick Plaza, Greenwich, CT 06830, USA. The address of GAPCO GmbH & Co. KG and GAPCO Management GmbH is Koenigsallee 62, 40212 Duesseldorf, Germany.

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⁽⁷⁾  Includes (i) 1,216,442 ADSs, representing 9,731,536 ordinary shares, owned by Kylin Fund LP, a Delaware limited partnership, or Onshore Fund; (ii) 2,436,000 ADSs, representing 19,488,000 ordinary shares, owned by Kylin Offshore Master Fund Ltd., a Cayman Islands limited company, or Offshore Funds, and (iii) 505,850 ADSs, representing 4,046,800 ordinary shares, owned by other accounts managed by Kylin Management LLC, a Delaware limited liability company, or Kylin Management. Each of Onshore Fund, Offshore Fund, Kylin Management, and Ted Kang (collectively, the “Kylin Reporting Persons”) may be deemed to beneficially own and have shared voting and dispositive power over 4,158,292 shares. Kylin Management is the investment manager of Onshore Fund and Offshore Fund and other accounts separately management by it. Mr. Kang is the manager of Kylin Management. The address of the Kylin Reporting Persons is 288 Fute Zhong Road, Waigaoqiao Free Trade Zone, Shanghai, China 200131. The number of shares beneficially owned by the Kylin Reporting Persons and the information provided in this footnote is as of December 31, 2010 and is based on a Schedule 13G/A filed with the SEC by the Kylin Reporting Persons on February 14, 2011.

JPMorgan Chase Bank, N.A. has advised us that, as of April 8, 2011, 68,165,355 ADSs, representing 545,322,840 underlying ordinary shares, were held of record by Cede & Co., (DTC) and 2,174 ADSs, representing 17,394 underlying ordinary shares, were held by five registered shareholders domiciled in the United States. To our knowledge, we are not owned or controlled, directly or indirectly, by another corporation, by any foreign government or by any other natural or legal persons, severally or jointly. None of our shareholders has different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Please refer to Item 6.E, “Directors, Senior Management and Employees—Share Ownership.”

B. Related Party Transactions

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Registration Rights Agreement

In connection with our issuance of convertible notes, we granted many of our shareholders customary registration rights, including demand, piggyback and Form F-3 registration rights, under certain circumstances. We are obligated to pay all expenses relating to any demand, piggyback or Form F-3 registration, whether or not such registrations become effective, except underwriting discounts and commissions of the selling shareholders.

Transactions with Certain Directors, Executive Officers, Shareholders and Affiliates

Export Agent Arrangements

Historically, we have relied on export agents to sell our manufactured products. During the period from January 1, 2005, to December 31, 2008, we entered into export agent agreements with Shanghai Lechen International Trade Co., Ltd., or Shanghai Lechen, and Shanxi Lechen International Trade Co., Ltd., or Shanxi Lechen, for exporting advanced intermediates and APIs. Both companies are owned by the parents of Dr. Ning Zhao, our director and the wife of Dr. Ge Li, our Chairman and Chief Executive Officer. In connection with these arrangements, we paid agency service fees of $155,205 to Shanghai Lechen in 2008. On January 1, 2007, we entered into a new export agent arrangement with Shanghai Lechen, superseding the prior agreement, pursuant to which Shanghai Lechen was entitled to receive a 1.1% commission on the exported amounts during 2008, 1.0% during 2009 and 0.8% during 2010. In connection with this arrangement, we paid $155,205, $130,868, and $145,279 to Shanghai Lechen in 2008, 2009 and 2010, respectively. The arrangement had an initial term of one year and is automatically renewable for one year thereafter. We terminated the arrangements with Shanxi Lechen as of January 1, 2007. We are currently reviewing our internal resources and expertise to evaluate the option of handling the export transactions directly. Until then, we will continue to engage an export agent for these transactions.

Employment Agreements

See Item 6.B, “Directors, Senior Management and Employees—Compensation—Employment Agreements.”

Share Options

See Item 6.B, “Directors, Senior Management and Employees—Compensation—Compensation of Directors and Officers.”

C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

We have appended consolidated financial statements filed as part of this annual report on Form 20-F. See Item 18, “Financial Statements.”

Legal Proceedings

None of our legal entities have been involved in any legal action in which claimed amounts exceed $500,000. From time to time, we may be subject to various claims and legal actions arising in the ordinary course of business.

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Dividend Policy

We intend to retain all available funds and any future earnings of the company for use in the operation and expansion of our business and do not anticipate paying any cash dividends directly on our ordinary shares, or indirectly on our ADSs, for the foreseeable future. Future cash dividends, if any, will be paid at the discretion of our board of directors and will depend upon our future operations and earnings, capital requirements and surplus, general financial conditions, shareholders’ interests, contractual restrictions and other factors as our board of directors may deem relevant. We can pay dividends only out of profits or other distributable reserves.

In addition, our ability to pay dividends depends substantially on the payment of dividends to us by our operating subsidiary in the United States and our seven operating subsidiaries in China, namely WXAT, WASH, STA, WATJ, WASZ, WAWH and WABIO. Each of these operating subsidiaries in China may pay dividends only out of its accumulated distributable profits, if any, determined in accordance with its articles of association and the accounting standards and regulations in China. WXAT, being a wholly owned foreign enterprise, is required to set aside at least 10% of its after-tax profits of the preceding year as its reserve funds. It may stop such setting aside if the aggregate amount of the reserve funds has already accounted for more than 50% of its registered capital. Moreover, upon a board resolution, it may set aside certain amounts from its after-tax profits of the preceding year as bonus and welfare funds for staff and workers. The other six operating subsidiaries in China are equity joint ventures that are required to set aside reserve funds, bonus and welfare funds for staff and workers and development funds, the percentage of which shall be determined by the board. Further, if any subsidiary incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Any limitation on the payment of dividends by our subsidiaries could materially and adversely limit our ability to grow, make investments or undertake acquisitions that could benefit our businesses, allow us to pay dividends and otherwise fund and conduct our businesses. See Item 3.D, “Key Information—Risk Factors—Risks Relating to China—We rely principally on dividends and other distributions on equity paid by our operating subsidiaries to fund cash and financing requirements, and limitations on the ability of our operating subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business.”

Furthermore, our outstanding convertible notes contain restrictions on our major corporate actions that may limit how we conduct our business, including the payment of dividends to our shareholders. For as long as at least 50% of the initial principal amount of all of the notes is outstanding, we may not, without the prior written consent of a majority in interest of the note holders, declare or pay any dividends or other distributions to any equity securities, other than the declaration and payment of (a) a cash dividend in any fiscal year that, when aggregated with all other cash dividends declared during such fiscal year, does not exceed 50% of our audited consolidated net income for our most recently completed fiscal year, calculated in accordance with U.S. GAAP or (b) any dividend for which an adjustment is made in accordance with the terms of the notes. See Item 3.D, “Key Information—Risk Factors—Risks Relating to Our Business—Restrictions on our operations contained in convertible notes may limit how we conduct our business, including the payment of dividends to our shareholders.”

Under the New EIT Law and its implementation rules issued by the PRC State Council, both of which became effective on January 1, 2008, dividends from our PRC subsidiaries to us may be subject to a 10% withholding tax if such dividend is derived from profits generated after January 1, 2008. If we are deemed to be a PRC resident enterprise, the withholding tax may be exempted, but we will be subject to a 25% tax on our global income, and our non-PRC investors may be subject to PRC income tax withholding at a rate of 10% or 20%. See Item 10.E, “Additional Information—Taxation—People’s Republic of China Taxation.”

We neither declared nor paid any dividends in 2008, 2009 or 2010 to our shareholders, nor do we have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. See Item 5.B, “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Financing Activities.”

B. Significant Changes

Except as disclosed elsewhere in this annual report on Form 20-F, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report on Form 20-F.

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ITEM 9. THE OFFER AND LISTING

A. Offering and Listing Details

Price Range of Our ADSs

Our ADSs are listed for trading on the NYSE under the symbol WX and have been listed since August 9, 2007. The following table sets forth the high and low closing trading prices of our ADSs on the NYSE for the periods indicated:

	Price per ADS ($)
	High		Low
Annual
2007(1)		41.28		19.11
2008		30.30		4.52
2009		17.30		3.76
2010		19.41		14.04
Quarterly
First Quarter 2009		9.35		3.76
Second Quarter 2009		9.44		4.68
Third Quarter 2009		12.77		8.00
Fourth Quarter 2009		17.43		11.26
First Quarter 2010		17.69		14.04
Second Quarter 2010		19.41		15.16
Third Quarter 2010		17.23		14.25
Fourth Quarter 2010		17.72		16.05
First Quarter 2011		18.49		15.07
Monthly:
November 2010		17.72		16.25
December 2010		17.22		16.05
January 2011		18.49		16.49
February 2011		16.86		15.20
March 2011		16.93		15.07
April 2011 (through April 15, 2011)		16.73		16.16

⁽¹⁾  Our ADSs began trading on the NYSE on August 9, 2007.

B. Plan of Distribution

Not applicable.

C. Markets

See Item 9.A above.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

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B. Memorandum and Articles of Association

We incorporate by reference into this annual report on Form 20-F the description of our amended and restated memorandum and articles of association contained in our F-1 registration statement (File No. 333-144806) originally filed with the SEC on July 24, 2007, as amended. On September 10, 2008, our shareholders amended our second amended and restated memorandum and articles of association by special resolution amending Article 80(1) to specify that the number of directors of the company is, and always has been, up to ten. Prior to that amendment being made, the number of directors was fixed at nine. On August 7, 2009, our shareholders amended our second amended and restated memorandum and articles of association by special resolution amending Article 82, such that the language “in each case, only where prior Special Resolution has been obtained” was deleted from such Article.

C. Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in Item 4, “Information on the Company,” and elsewhere in this annual report on Form 20-F.

D. Exchange Controls

Foreign exchange in China is primarily regulated by:

• the Foreign Currency Administration Rules (1996), as amended, and

• the Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

Under the Foreign Currency Administration Rules, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments and trade and service-related foreign-exchange transactions. However, conversion of Renminbi into foreign currency for capital account items, such as direct investment, loans, investment in securities and repatriation of funds, is still subject to the approval of SAFE or its local counterparts. Under the Administration Rules, FIEs may only buy, sell and/or remit foreign currencies at banks authorized to conduct foreign-exchange transactions after providing valid commercial documents and, in the case of capital account item transactions, only after obtaining approval from SAFE or its local counterparts. Capital investments directed outside of China by FIEs are also subject to restrictions, which include approvals by the PRC Ministry of Commerce, SAFE or its local counterparts and the PRC State Reform and Development Commission. Under our current structure, our income will be primarily derived from dividend payments from our operating subsidiaries in China.

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar and began allowing modest appreciation of the Renminbi versus the U.S. dollar. However, the Renminbi is restricted to a rise or fall of no more than 0.5% per day versus the U.S. dollar, and the People’s Bank of China continues to intervene in the foreign-exchange market to prevent significant short-term fluctuations in the Renminbi-dollar exchange rate. Nevertheless, under China’s current exchange-rate regime, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. The Renminbi appreciated 25.4% versus the U.S. dollar from July 21, 2005 to December 31, 2010. Significant international pressure continues to be placed on the PRC government to adopt a substantial liberalization of its currency policy, which could result in a further and more significant appreciation in the value of the Renminbi against the U.S. dollar.

Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions

On October 21, 2005, SAFE issued Notice 75, which became effective as of November 1, 2005. According to Notice 75:

• prior to establishing or assuming control of an offshore company for the purpose of financing that offshore company with assets or equity interests in an onshore enterprise in the PRC, each PRC resident who is an ultimate controller, whether a natural or legal person, must complete the overseas investment foreign-exchange registration procedures with the relevant local SAFE branch;

• an amendment to the registration with the local SAFE branch is required to be filed by any PRC resident that directly or indirectly holds interests in that offshore company upon either (1) the injection of equity interests or assets of an onshore enterprise to the offshore company or (2) the completion of any overseas fund raising by such offshore company, and

• an amendment to the registration with the local SAFE branch is also required to be filed by such PRC resident when there is any material change involving a change in the capital of the offshore company, such as (1) an increase or decrease in its capital, (2) a transfer or swap of shares, (3) a merger or division, (4) a long-term equity or debt investment or (5) the creation of any security interests over the relevant assets located in China.

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Moreover, Notice 75 applies retroactively. As a result, PRC residents who have established or acquired control of offshore companies that have made onshore reverse investments in the PRC in the past were required to complete the relevant overseas investment foreign-exchange registration procedures by March 31, 2006. Under the relevant rules, failure to comply with the registration procedures set forth in Notice 75 may result in restrictions being imposed on the foreign-exchange activities of the relevant onshore company, including the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from the offshore entity, and may also subject relevant PRC residents to penalties under PRC foreign-exchange administration regulations.

As a Cayman Islands company and therefore a foreign entity, if we purchase the assets or equity interest of a PRC company owned by PRC residents in exchange for our equity interests, such PRC residents will be subject to the registration procedures described in Notice 75. Moreover, PRC residents who are beneficial holders of our shares are required to register with SAFE or its local counterparts in connection with their investment in us. If any PRC shareholder of our offshore company fails to make the required SAFE registration and amendment registration, the seven PRC subsidiaries of our offshore company may be prohibited from distributing their profits and proceeds from any reduction in capital, share transfer or liquidation to the offshore company. In addition, failure to comply with the SAFE registration and amendment registration requirements described above could result in liability under the PRC laws for evasion of applicable foreign-exchange restrictions. We require all of our shareholders who are PRC residents to comply with any SAFE registration requirements, but we have no control over either our shareholders or the outcome of such registration procedures. Such uncertainties may restrict our ability to implement our acquisition strategy and materially and adversely affect our business and prospects.

Dividend Distributions

Pursuant to the Foreign Currency Administration Rules promulgated in 1996 and amended in 1997 and various regulations issued by SAFE or its local counterparts, and other relevant PRC government authorities, the PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China.

The principal regulations governing the distribution of dividends paid by Sino-foreign equity joint-venture enterprises and wholly foreign-owned enterprises include:

• the EJV Law, as amended;

• the EJV Rules, as amended;

• the WFOE Law, as amended; and

• the WFOE Rules, as amended.

Under these laws and regulations, Sino-foreign equity joint-venture enterprises and wholly foreign-owned enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. WXAT, being a wholly foreign-owned enterprise, is required to set aside at least 10% of its after-tax profits of the preceding year as its reserve funds. It may stop such setting aside if the aggregate amount of the reserve funds has already accounted for more than 50% of its registered capital. Moreover, upon a board resolution, it may set aside a certain amount from its after-tax profits of the preceding year as bonus and welfare funds for staff and workers. The other six operating subsidiaries in China are equity joint ventures, which are required to set aside reserve funds, bonus and welfare funds for staff and workers and development funds, a percentage of which shall be determined by the board.

E. Taxation

The following is a general summary of the material Cayman Islands, PRC and U.S. federal income tax consequences relevant to an investment in our ADSs and ordinary shares. The discussion is based on laws and relevant interpretations thereof in effect as of the date of this report, all of which are subject to change or different interpretations, possibly with retroactive effect. The discussion does not address U.S. state or local tax laws, or tax laws of jurisdictions other than the Cayman Islands, PRC and the United States.

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Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no inheritance tax or estate duty or withholding tax applicable to us or to any holder of our ADSs and ordinary shares. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties, which may be applicable on instruments executed in, or after execution brought within, the jurisdiction of the Cayman Islands. No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those that hold interests in land in the Cayman Islands. The Cayman Islands is not party to any double-tax treaties. There are no exchange-control regulations or currency restrictions in the Cayman Islands.

We have obtained an undertaking from the Governor in Cabinet of the Cayman Islands that, in accordance with section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, for a period of 20 years from March 27, 2007, the date of the undertaking, no law that is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to us or our operations and, in addition, no tax to be levied on profits, income, gains or appreciations that is in the nature of estate duty or inheritance tax shall be payable (a) on or in respect of our shares, debentures or other obligations or (b) by way of the withholding in whole or in part of any relevant payment as defined in section 6(3) of the Tax Concessions Law (1999 Revision).

People’s Republic of China Taxation

China promulgated the New EIT Law and its implementing rules, both of which became effective on January 1, 2008. The New EIT Law created a new “resident enterprise” classification, which, if applied to us, will treat our Cayman Islands holding company in a manner similar to a Chinese enterprise for EIT purposes. The consequences of such treatment include a withholding tax applicable to our non-PRC shareholders. Specifically, if the PRC tax authorities determine that our Cayman Islands holding company is a “resident enterprise” for PRC EIT purposes, a 10% or 20% withholding tax will be imposed on dividends payable to our non-PRC enterprise or individual shareholders respectively and with respect to gains derived by our non-PRC shareholders from disposition of our shares or ADSs, if such dividends or gains are determined to be derived from sources within China. The New EIT Law and its implementing rules are unclear as to how to determine whether such dividends or gains are derived from sources within China.

If we are not deemed to be a resident enterprise, then dividends payable to our non-PRC shareholders and gains from disposition of our shares of ADSs by our non-PRC shareholders will not be subject to PRC income tax withholding.

U.S. Federal Income Taxation

This discussion describes certain material U.S. federal income tax consequences to U.S. holders (as defined below) of the purchase, ownership and disposition of our ADSs and ordinary shares. This discussion does not address any aspect of U.S. federal gift or estate tax, or the state, local or non-U.S. tax consequences of an investment in our ADSs and ordinary shares. This discussion does not apply to U.S. holders who are members of a class of holders subject to special rules, such as:

• dealers in securities or currencies;

• traders in securities that elect to use a mark-to-market method of accounting for securities holdings;

• banks or certain financial institutions;

• insurance companies;

• tax-exempt organizations;

• partnerships or other entities treated as partnerships or other pass-through entities for U.S. federal income-tax purposes or persons holding ADSs or ordinary shares through any such entities;

• regulated investment companies or real estate investment trusts;

• persons that hold ADSs or ordinary shares as part of a hedge, straddle, constructive sale, conversion transaction or other integrated investment;

• persons whose functional currency for tax purposes is not the U.S. dollar;

• persons liable for alternative minimum tax; or

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• persons who own ADSs or ordinary shares and who actually or constructively own 10% or more of the total combined voting power of all classes of our shares entitled to vote.

This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, which we refer to in this discussion as the Code, its legislative history, existing and proposed regulations promulgated thereunder, published rulings and court decisions, all as of the date hereof. These laws are subject to change, possibly on a retroactive basis. In addition, this discussion relies on our assumptions regarding the value of our ADSs and ordinary shares and the nature of our business over time.

Prospective purchasers are urged to consult their own tax advisor concerning the particular U.S. federal income tax consequences to them of the purchase, ownership and disposition of our ADSs and ordinary shares, as well as the consequences to them arising under the laws of any other taxing jurisdiction.

For purposes of the U.S. federal income tax discussion below, you are a “U.S. Holder” if you beneficially own ADSs or ordinary shares as capital assets for U.S. federal income tax purposes and are:

• a citizen or resident of the United States for U.S. federal income tax purposes;

• a corporation, or other entity taxable as a corporation, that was created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

• an estate the income of which is subject to U.S. federal income tax, regardless of its source; or

• a trust if (a) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect to be treated as a U.S. person.

For U.S. federal income tax purposes, income earned through a U.S. or non-U.S. partnership or other flow-through entity is attributed to its owners. Accordingly, if a partnership or other flow-through entity holds ADSs or ordinary shares, the tax treatment of the holder will generally depend on the status of the partner or other owner and the activities of the partnership or other flow-through entity.

Dividends on ADSs and Ordinary Shares

We do not anticipate paying dividends on our ADSs and ordinary shares in the foreseeable future. See Item 8.A, “Financial Information—Dividend Policy.”

Subject to the “Passive Foreign Investment Company” discussion below, if we do make distributions and you are a U.S. Holder, the gross amount of any distributions with respect to your ADSs and ordinary shares (including the amount of any taxes withheld therefrom) will generally be includible in your gross income on the day you actually or constructively receive such income as dividend income if the distributions are made from our current or accumulated earnings and profits, calculated according to U.S. federal income tax principles. With respect to non-corporate U.S. Holders, certain dividends received in taxable years beginning before January 1, 2011 from a qualified foreign corporation may be subject to a reduced rate of taxation. A non-U.S. corporation is treated as a qualified foreign corporation with respect to dividends from that corporation on shares (or ADSs backed by such shares) that are readily tradable on an established securities market in the United States. U.S. Treasury Department guidance indicates that our ADSs, which are listed on the NYSE, but not our ordinary shares, will be readily tradable on an established securities market in the United States. You should consult your own tax advisor as to the rate of tax that will apply to you with respect to dividend distributions, if any, you receive from us.

Newly enacted legislation requires certain U.S. Holders that are individuals, estates or trusts to pay an additional 3.8% tax on, among other things, dividends on our ADSs or ordinary shares for taxable years beginning after December 31, 2012. You should consult your tax advisor regarding the effect, if any, of this legislation on your ownership of the ADSs or ordinary shares.

Subject to the “Passive Foreign Investment Company” discussion below, to the extent, if any, that the amount of any distribution by us on ADSs and ordinary shares exceeds our current and accumulated earnings and profits as determined under U.S. federal income-tax principles, it will be treated first as a tax-free return of the U.S. Holder’s adjusted tax basis in the ADSs and ordinary shares and thereafter as capital gain. However, we do not intend to calculate our earnings and profits according to U.S. federal income tax principles. Accordingly, distributions on our ADSs and ordinary shares, if any, will generally be reported to you as dividend distributions for U.S. tax purposes. Corporations will not be entitled to claim a dividends-received deduction with respect to distributions made by us. Dividends generally will constitute foreign source passive income for purposes of the U.S. foreign tax credit rules. You should consult your own advisor as to your ability, and the various limitations on your ability, to claim foreign tax credits in connection with the receipt of dividends.

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Sales and Other Dispositions of ADSs or Ordinary Shares

Subject to the “Passive Foreign Investment Company” discussion below, when you sell or otherwise dispose of ADSs or ordinary shares, you will generally recognize a capital gain or loss in an amount equal to the difference between the amount realized on the sale or other disposition and your adjusted tax basis in the ADSs or ordinary shares. Your adjusted tax basis will generally equal the amount you paid for the ADSs or ordinary shares. Any gain or loss you recognize will be a long-term capital gain or loss if your holding period in our ADSs or ordinary shares is more than one year at the time of disposition. If you are a non-corporate U.S. Holder, including an individual, any such long-term capital gain will be taxed at preferential rates (generally 15% for a capital gain recognized before January 1, 2011). Your ability to deduct capital losses will be subject to various limitations.

Newly enacted legislation requires certain U.S. Holders that are individuals, estates or trusts to pay an additional 3.8% tax on, among other things, capital gains from the sale or other disposition of our ADSs or ordinary shares for taxable years beginning after December 31, 2012. You should consult your tax advisor regarding the effect, if any, of this legislation on your ownership and disposition of the ADSs or ordinary shares.

Passive Foreign Investment Company

We believe that we were not a PFIC for U.S. federal income tax purposes for our taxable year ended December 31, 2010, and we do not expect to be a PFIC in any future taxable year. However, PFIC status is tested each year and depends on the composition of our assets and income and the value of our assets from time to time. Because we currently hold, and expect to continue to hold, a substantial amount of cash and other passive assets, and because the value of our assets is to be determined in large part by reference to the market prices of our ADSs and ordinary shares, which is likely to fluctuate over time, there can be no assurance that we will not be a PFIC for 2011 or any future taxable year.

In general, we will be classified as a PFIC in any taxable year if either (a) the average quarterly value of our gross assets that produce passive income or are held for the production of passive income is at least 50% of the average quarterly value of our total gross assets (the “asset test”) or (b) 75% or more of our gross income for the taxable year is passive income (such as certain dividends, interest or royalties). For this purpose, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. For purposes of the asset test, (a) any cash and cash invested in short-term, interest-bearing debt instruments or bank deposits that are readily convertible into cash will generally count as producing passive income or held for the production of passive income and (b) the total value of our assets is calculated based on our market capitalization.

If we were a PFIC for any taxable year during which you held ADSs or ordinary shares, certain adverse U.S. federal income-tax rules would apply. You would generally be subject to additional taxes and interest charges on certain “excess distributions” we make and on any gain realized on the disposition, or deemed disposition, of your ADSs or ordinary shares, regardless of whether we continue to be a PFIC in the year in which you receive an “excess distribution” or dispose of, or are deemed to dispose of, your ADSs or ordinary shares. Distributions in respect of your ADSs or ordinary shares during a taxable year would generally constitute “excess distributions” if, in the aggregate, they exceed 125% of the average amount of distributions with respect to your ADSs or ordinary shares over the three preceding taxable years or, if shorter, the portion of your holding period before such taxable year.

To compute the tax on “excess distributions” or any gain, (a) the “excess distribution” or the gain would be allocated ratably to each day in your holding period, (b) the amount allocated to the current year and any tax year prior to the first taxable year in which we were a PFIC would be taxed as ordinary income in the current year, (c) the amount allocated to other taxable years would be taxable at the highest applicable marginal rate in effect for that year and (d) an interest charge at the rate for underpayment of taxes for any period described under (c) above would be imposed with respect to any portion of the “excess distribution” or gain that is allocated to such period. In addition, if we were a PFIC, no distribution that you receive from us would qualify for taxation at the preferential rate discussed in the “—Dividends on ADSs and Ordinary Shares” section above.

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Under certain attribution rules, if we are a PFIC, you will be deemed to own your proportionate share of lower-tier PFICs and will be subject to U.S. federal income tax on (a) a distribution on the shares of a lower-tier PFIC and (b) a disposition of shares of a lower-tier PFIC, both as if you directly held the shares of such lower-tier PFIC.

If we were a PFIC in any year, as a U.S. Holder, you would be required to file an annual return on IRS Form 8621 regarding your ADSs and ordinary shares. You should consult with your own tax advisor regarding reporting requirements with regard to your ADSs and ordinary shares.

If we were a PFIC in any year, you would generally be able to avoid the “excess distribution” rules described above by making a timely “mark-to-market” election with respect to your ADSs and ordinary shares, provided our ADSs or ordinary shares are “marketable.” Our ADSs or ordinary shares will be “marketable” as long as they remain regularly traded on a national securities exchange, such as the NYSE. If you made this election in a timely fashion, you would generally recognize as ordinary income or ordinary loss the difference between the fair market value of your ADSs or ordinary shares on the first day of any taxable year and their value on the last day of that taxable year. Any ordinary income resulting from this election would generally be taxed at ordinary income rates and would not be eligible for the reduced rate of tax applicable to qualified dividend income. Any ordinary losses would be limited to the extent of the net amount of previously included income as a result of the mark-to-market election, if any. Your basis in the ADSs or ordinary shares would be adjusted to reflect any such income or loss. You should consult with your own tax advisor regarding potential advantages and disadvantages to you of making a “mark-to-market” election with respect to your ADSs or ordinary shares. The mark-to-market election will not be available for any lower-tier PFIC that is deemed owned pursuant to the attribution rules discussed above. We do not intend to provide you with the information you would need to make or maintain a “Qualified Electing Fund” election, and you will therefore not be able to make or maintain such an election with respect to your ADSs and ordinary shares.

In addition to any other information reporting requirements that may apply, under newly enacted legislation, unless otherwise provided by the U.S. Treasury, each U.S. shareholder of a PFIC is required to file an annual report containing such information as the U.S. Treasury may require. If we are or become a PFIC, you should consult your tax advisor regarding any reporting requirements that may apply to you.

U.S. Information Reporting and Backup Withholding Rules

Dividend payments with respect to the ADSs and ordinary shares and the proceeds received on the sale or other disposition of ADSs and ordinary shares may be subject to information reporting to the IRS and to backup withholding (currently imposed at a rate of 28%). Backup withholding will not apply, however, if you (a) are a corporation or come within certain other exempt categories and, when required, can demonstrate that fact or (b) provide a taxpayer identification number, certify as to no loss of exemption from backup withholding and otherwise comply with the applicable backup withholding rules. To establish your status as an exempt person, you will generally be required to provide certification on IRS Form W-9. Any amounts withheld from payments to you under the backup withholding rules that exceed your U.S. federal income tax liability will be allowed as a refund or a credit against your U.S. federal income tax liability, provided that you furnish the required information to the IRS. Under newly enacted legislation, certain individuals holding the ADSs or ordinary shares other than in an account at a financial institution may be subject to additional information reporting requirements.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

We previously filed with the Securities and Exchange Commission our registration statement on Form F-1 (File No. 333-144806), as amended, and our registration statement on Form F-3 (File No. 333-161757).

We have filed this annual report on Form 20-F with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Statements made in this annual report on Form 20-F as to the contents of any document referred to are not necessarily complete. With respect to each such document filed as an exhibit to this annual report on Form 20-F, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.

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We are subject to the information requirements of the Exchange Act and file reports and other information with the Securities and Exchange Commission. Reports and other information that the Company filed with the Securities and Exchange Commission, including this annual report on Form 20-F, may be inspected and copied at the public reference room of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington D.C. 20549.

You can also obtain copies of this annual report on Form 20-F by mail from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. Additionally, copies of this material may be obtained from the Securities and Exchange Commission’s Internet site at http://www.sec.gov. The Commission’s telephone number is 1-800-SEC-0330.

I. Subsidiaries Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures about Market Risk

Foreign-Exchange Risk

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar and began allowing modest appreciation of the Renminbi versus the U.S. dollar. However, the Renminbi is restricted to a rise or fall of no more than 0.5% per day versus the U.S. dollar, and the People’s Bank of China continues to intervene in the foreign-exchange market to prevent significant short-term fluctuations in the Renminbi-dollar exchange rate. Nevertheless, under China’s current exchange-rate regime, the Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. The Renminbi appreciated 25.4% versus the U.S. dollar from July 21, 2005 to December 31, 2010. Significant international pressure continues to be placed on the PRC government to adopt a substantial liberalization of its currency policy, which could result in a further and more significant appreciation in the value of the Renminbi against the U.S. dollar. More recently, the PRC government has indicated a willingness to allow the Renminbi to appreciate against the U.S. dollar.

We use the U.S. dollar as our functional and reporting currency for our financial statements. All transactions in currencies other than the U.S. dollar during the year are re-measured at the exchange rates prevailing on the respective relevant dates of such transactions. Monetary assets and liabilities existing at the balance sheet date denominated in currencies other than the U.S. dollar are re-measured at the exchange rates prevailing on such date. Exchange differences are recorded in our consolidated income statement. The financial records of our subsidiaries are maintained in local currency, the Renminbi, which is the functional currency. Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of accumulated other comprehensive income in the statement of changes in equity (deficit) and comprehensive income. Transaction gains and losses are recognized in the statements of operations in other income, net.

Fluctuations in exchange rates directly affect our cost of revenues and net income and have a significant impact on fluctuations in our operating margins, because our net revenues were primarily generated from sales denominated in U.S. dollars, and a majority of our operating costs and expenses were denominated in Renminbi. Fluctuations in exchange rates also affect our balance sheet. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount that we receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of paying dividends on our ordinary shares or ADSs or for other business purposes, appreciation of those U.S. dollars in relation to the Renminbi would have a negative effect on the corresponding U.S. dollar amount available to us. Considering the amount of our cash and cash equivalents as of December 31, 2010, a 1.0% change in the exchange rates between the Renminbi and the U.S. dollar would result in an increase or decrease of $0.8 million to our total cash and cash equivalents.

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We periodically purchase derivative financial instruments, such as foreign-exchange forward contracts, to manage our exposure to Renminbi-dollar currency-exchange risk. The counterparty for these contracts is generally a bank. The maturity periods of these contracts range from one to 12 months. We recorded gains (losses) of $(0.2) million, $3.6 million and $2.8 million on foreign-exchange forward contracts in 2008, 2009 and 2010, respectively. Our accounting policy requires us to mark to market at the end of each reporting period and to recognize the change in fair value in earnings immediately. We held foreign-exchange forward contracts with an aggregate notional amount of $197.0 million as of December 31, 2010. As of December 31, 2010, the forward contracts had a fair value of $2.5 million.

Interest-Rate Risk

Our exposure to interest-rate risk primarily relates to the interest rates for our outstanding debt and convertible notes and the interest income generated by excess cash invested in liquid investments with original maturities of three months or less. As of December 31, 2010, our total outstanding loans amounted to $2.1 million, with a weighted-average rate of 3.96%. Each of our loans is subject to a variable interest rate. A 1.0% increase in each applicable interest rate would add $0.02 million to our interest expense in 2011. We have not used any derivative financial instruments to manage our interest-risk exposure. Interest-earning instruments carry a degree of interest-rate risk. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. However, our future interest income may be lower than expected due to changes in market interest rates.

Inflation

Inflation in China has not materially impacted our results of operations in recent years. According to the National Bureau of Statistics of China, the change in the consumer price index in China was 5.9%, (0.7)% and 3.3% in 2008, 2009 and 2010, respectively.

Recently Issued Accounting Pronouncements

In April 2010, the Emerging Issues Task Force, or EITF, reached a final consensus on milestone method of revenue recognition and published Accounting Standards Update, or ASU, 2010-17, Revenue Recognition – Milestone Method (Topic 605). The scope of this ASU is limited to arrangements that include milestones relating to research or development deliverables. The consensus specifies guidance that must be met for a vendor to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The guidance applies to milestones in arrangements within the scope of this consensus regardless of whether the arrangement is determined to have single or multiple deliverables or units of accounting. The final consensus will be effective for fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early application is permitted. We are currently evaluating the impact on our consolidated financial statements of adopting this guidance.

In December 2010, the Financial Accounting Standards Board, or FASB, issued ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” This ASU amends guidance for Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for fiscal years and interim periods beginning after December 15, 2010, with early adoption not permitted. We do not expect that the adoption of ASU 2010-28 will have a material impact on our financial position, results of operations, or cash flows.

In December 2010, the FASB issued ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations.” This ASU specifies that if a public company presents comparative financial statements, the entity should only disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The adoption of ASU 2010-29 is not expected to impact our financial position, results of operations, or cash flows, as its requirements only pertain to financial statement footnote disclosure.

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

D. American Depositary Shares

Fees Payable by ADS Holders

According to our Deposit Agreement with JPMorgan Chase Bank, N.A., or the depositary, holders of our ADSs may have to pay to the depositary, either directly or indirectly, fees or charges as set forth below:

Category	Depositary actions	Associated Fee
Depositing or substituting underlying shares	Issuances of ADSs, including, but not limited to, issuances against deposits of ordinary shares and in respect of: —Share distributions —Stock dividends —Stock splits —Issuance of stock rights —Mergers —Exchanges of shares or any other transaction or events or other distributions affecting the ADSs or the deposited securities	$5.00 for each 100 ADSs (or portion thereof)
Withdrawing underlying shares	Acceptance of ADSs surrendered for withdrawal of deposited securities or if ADSs are cancelled or reduced for any reason	$5.00 for each 100 ADSs (or portion thereof)
Cash distributions	Cash distributions pursuant to the deposit agreement	$0.02 or less per ADS (or portion thereof)
Distributions (or sales in connection with a distribution)	Distribution of securities (or sale in connection with a distribution of securities)	A fee equivalent to the fee for the execution and delivery of ADSs that would have been charged as a result of the deposit of such securities, but which securities or the net cash proceeds from the sale are instead distributed by the depositary to those holders entitled to a distribution
Transferring, splitting or grouping receipts	Transferring, combining or grouping of certificated or direct registration ADSs	$1.50 per ADS (or portion thereof)
General depositary services	Administering the ADR program	$0.02 per ADS (or portion thereof) per calendar year
Expenses of the depositary	Expenses incurred on behalf of holders in connection with: —delivery of the deposited securities —compliance with foreign-exchange control regulations or any law or regulation relating to foreign investment —compliance with applicable law, rule or regulation. —stock transfer or other taxes and other governmental charges —cable, telex and facsimile transmission and delivery —the conversion of foreign currency into U.S. dollars —transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities —any other charge payable by any of the depositary or its agents	The amount of expenses incurred on behalf of holders

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The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services and expenses incurred by the depositary on behalf of holders by deduction from cash dividends or other cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide services to any holder until the fees and expenses owing by such holder for those services or otherwise are paid.

Fees Payable by the Depositary to the Issuer

The depositary has agreed to reimburse us for certain expenses we incur that are related to establishment and maintenance of the ADR program, including investor relations expenses and exchange application and listing fees. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not related to the amounts of fees the depositary collects from investors. From January 1, 2010 to April 15, 2011, we received from the depositary one payment in the amount of $227,510 for costs related to investor relations services and waived costs of $150,000 for costs related to the depositary’s ongoing maintenance service fees.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS

The rights of securities holders have not been materially modified.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2010. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective and designed to ensure that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules, regulations and forms and to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted accounting principles and includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of a company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

As required by Section 404 of the Sarbanes-Oxley Act and related rules as promulgated by the SEC, our management assessed the effectiveness of the internal control over financial reporting as of December 31, 2010 using criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, our management has concluded that the internal control over financial reporting was effective as of December 31, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Attestation Report of the Independent Registered Public Accounting Firm

The effectiveness of internal control over financial reporting as of December 31, 2010 has been audited by Deloitte Touche Tohmatsu CPA Ltd., an independent registered public accounting firm, who has also audited our consolidated financial statements for the year ended December 31, 2010. The attestation report issued by Deloitte Touche Tohmatsu CPA Ltd. can be found on page F-3 of this annual report.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our audit committee consists of Ying Han, who serves as the chairman, Kian-Wee Seah and Cuong Viet Do. Our board of directors has determined that each is an “independent director” within the meaning of NYSE Manual Section 303A(2) and meets the criteria for independence set forth in Section 10A(m)(3) of the Securities Exchange Act of 1934. The board of directors has determined that Ying Han meets the definition of “audit committee financial expert,” as defined by the SEC.

ITEM 16B. CODE OF ETHICS

Our board of directors has adopted a code of business conduct and ethics, which is applicable to our directors, officers and employees. Our code of business conduct and ethics is publicly available on our website, www.wuxiapptec.com, and each is filed as an exhibit to our registration statement on Form F-1 (No. 333-144806). You may request a copy of our code of business conduct and ethics free of charge by writing to Legal Department, WuXi AppTec Co. Ltd., 288 Fute Zhong Road, Waigaoqiao Free Trade Zone, Shanghai 200131, People’s Republic of China.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Deloitte Touche Tohmatsu CPA Ltd., our principal external auditors, for the periods indicated. We did not pay other fees to our auditors during the periods indicated below.

	2009		2010
Audit fees(1)	$	1,643,400	$	1,273,733
Audit-related fees(2)	$	29,285	$	202,093
Tax fees(3)	$	84,686	$	52,277
All other fees(4)	$	—	$	—

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⁽¹⁾ “Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for the audit of our annual financial statements.

⁽²⁾ “Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our principal auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees.”

⁽³⁾ “Tax fees” means the aggregated fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for tax compliance, tax advice and tax planning.

⁽⁴⁾ “All other fees” means the aggregate fees billed for all other services provided by Deloitte Touche Tohmatsu CPA Ltd., other than those services covered in footnotes (1) to (3) above.

The policy of our audit committee or our board of directors is to pre-approve all auditing services and permitted non-audit services to be performed for us by our independent auditor, Deloitte Touche Tohmatsu CPA Ltd., including the fees and terms thereof for audit services, audit-related services, tax services and other non-audit services as described in Section 10A(i)(l)(B) of the Exchange Act, other than those for de minimis services, which are approved by the audit committee or our board of directors prior to the completion of the audit.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

None.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

As a foreign private issuer with shares listed on the NYSE, we are subject to corporate governance requirements imposed by the NYSE. Under Section 303A of the NYSE Manual, in general NYSE-listed non-U.S. companies may follow their home-country corporate governance practices in lieu of some of the NYSE corporate governance requirements. We are committed to a high standard of corporate governance. As such, we strive to comply with most of the NYSE corporate governance practices. However, the following are the ways in which our current corporate governance practices differ from NYSE corporate governance requirements because the laws of Cayman Islands do not require such compliance:

• We are not required to obtain shareholder approval for the adoption of, or material revisions to, our equity-compensation plans when our directors consider it in the best interests of the company to do so and when the issue price of shares issued pursuant to such plans is otherwise fair.

• Our compensation committee of our board of directors is not comprised entirely of independent directors.

We may determine to voluntarily comply with one or more of the foregoing provisions as required by the NYSE Manual.

PART III

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS

Our consolidated financial statements are included at the end of this annual report on Form 20-F.

85

ITEM 19. EXHIBITS

INDEX TO EXHIBITS

Number	Description
1.1††	Second Amended and Restated Memorandum and Articles of Association of WuXi PharmaTech (Cayman) Inc. reflecting the September 10, 2008 amendment, and the August 7, 2009 amendment.
2.1*	Specimen American Depositary Receipt.
2.2*	Specimen Certificate for Ordinary Shares.
2.3*	Form of Deposit Agreement among the Registrant, JPMorgan Chase Bank, N.A., and holders of the American Depositary Receipts.
4.1*	Share Subscription Agreement among WuXi PharmaTech (BVI) Inc. and the parties named therein, dated January 26, 2007.
4.2*	Note Purchase Agreement among WuXi PharmaTech (BVI) Inc. and the several note purchasers named therein, dated January 26, 2007.
4.3****	Form of Convertible Note Agreement between WuXi PharmaTech (BVI) Inc. and convertible note purchasers.
4.4*	Second Amended and Restated Joint Venture Agreement between WuXi PharmaTech (BVI) Inc. and the parties named therein, dated February 9, 2007.
4.5*	Registration Rights Agreement among the Registrant and the several shareholders named therein dated June 4, 2007.
4.6*	Share Exchange Agreement Relating to WuXi PharmaTech (BVI) Inc., dated June 4, 2007, by and among the Registrant and the vendors named therein.
4.7*	2007 Employee Share Incentive Plan.
4.8*	Form of Option Agreement.
4.9*	Form of Indemnification Agreement between the Registrant and its directors.
4.10*	Form of Employment Agreement between WuXi PharmaTech Co., Ltd. and its other executive officers.
4.11**	Agreement and Plan of Merger by and among AppTec Laboratory Services, Inc., Paul Acquisition Corporation, Paul (US) Holdco, Inc., and WuXi PharmaTech (Cayman) Inc., dated as of January 3, 2008. Schedules and similar attachments have been omitted from this filing. The Registrant agrees to furnish supplementally a copy of any omitted schedule upon request.
4.12**	First Amendment to Agreement and Plan of Merger, dated as of January 30, 2008, to the Agreement and Plan of Merger by and among AppTec Laboratory Services, Inc., Paul Acquisition Corporation, Paul (US) Holdco, Inc., and WuXi PharmaTech (Cayman) Inc., dated as of January 3, 2008. Schedules and similar attachments have been omitted from this filing. The Registrant agrees to furnish supplementally a copy of any omitted schedule upon request.

86

Number	Description
4.13***	Office and Industrial Lease Agreement by and between Liberty Property Philadelphia Limited Partnership V and AppTec Laboratory Services, LLC, dated as of December 3, 2002.
4.14****	Second Amendment to Office and Industrial Lease Agreement by and between Liberty Property Philadelphia Limited Partnership V and WuXi AppTec Inc., dated December 30, 2008.
4.15***	Lease Agreement by and between Highwoods Realty Limited Partnership and AppTec Laboratory Services, Inc., dated as of February 28, 2003 and First Amendment dated as of April 4, 2005 and Second Amendment dated as of April 30, 2008.
4.16****	Second Amendment to Lease Agreement by and between Alpha Exchange, LLC, formerly known as Highwoods Realty Limited Partnership and WuXi AppTec Inc. dated as of April 30, 2008.
4.17***	Lease Agreement by and between 1201 Northland Drive LLC and AppTec Laboratory Services, LLC, dated as of August 31, 2007.
4.18****	First Amendment to Lease Agreement by and between 1201 Northland Drive LLC and WuXi AppTec, Inc., dated as of June 10, 2008.
4.19***	Lease Agreement by and among Popefield North, LLC, formerly known as Lonnie Pope, AppTec Laboratory Services, Inc., formerly known as ViroMed Laboratories doing business as Axios, Inc., Bryant & Associates and Cushman & Wakefield of Georgia, Inc., dated as of March 18, 1997, and First Amendment dated as of June 27, 2002, Second Amendment dated as of March 28, 2005, Third Amendment dated as of June 29, 2007, and Fourth Amendment dated as of November 14, 2007.
4.20*†	Fulltime Equivalents Agreement for Services, dated October 1, 2007, by and between Merck & Co., Inc. and WuXi PharmaTech Co., Ltd.
4.21*†	Custom Synthesis Agreement, dated December 1, 2002, by and between Merck & Co., Inc. and WuXi PharmaTech Co., Ltd.
4.22*†	Master Chemistry Service Agreement, dated December 1, 2005, by and between Pfizer Inc. and WuXi PharmaTech Co., Ltd.
4.23*†	Master Chemistry Service Agreement, dated January 2, 2007, by and between Pfizer Inc. and WuXi PharmaTech Co., Ltd.
4.24*†	Master Starting Material Manufacturing (China) Agreement, dated March 30, 2007, by and between Pfizer Inc. and WuXi PharmaTech Co., Ltd.
4.25*†	Service Contract, dated March 15, 2007, by and between Pfizer Inc. and WuXi PharmaTech Co., Ltd.
4.26*†	Contract Services Agreement, dated May 18, 2005, by and between Vertex Pharmaceutical Incorporated and WuXi PharmaTech Co., Ltd.
4.27†††	Termination Agreement, dated July 29, 2010, by and between Charles River Laboratories International, Inc. and WuXi PharmaTech (Cayman) Inc.
8.1	List of Subsidiaries.
11.1*	Code of Business Conduct and Ethics.
12.1	Certification.
12.2	Certification.
13.1	Certification.
13.2	Certification.
23.1	Consent of Commerce & Finance Law Offices.
23.2	Consent of Deloitte Touche Tohmatsu CPA Ltd.
101	Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of December 31, 2010 and 2009; (ii) Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008; (iii) Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008; (iv) Consolidated Statements of Changes in Equity for the years ended December 31, 2010, 2009 and 2008; (v) Notes to Consolidated Financial Statements, tagged as blocks of text; and (vi) Schedule I - Condensed Financial Information Of Registrant.

* Previously filed with the Registrant’s registration statement on Form F-1 (File No. 333-144806), as amended, initially filed with the SEC on July 24, 2007.

** Previously filed with the Registrant’s registration statement on Form F-1 (File No. 333-150076), as amended, initially filed with the SEC on April 4, 2008.

*** Previously filed with the Registrant’s annual report on Form 20-F, filed with the SEC on June 16, 2008.

**** Previously filed with the Registrant’s annual report on Form 20-F, filed with the SEC on June 25, 2009.

† Confidential treatment has been requested and granted with respect to certain portions of this exhibit. A complete copy of the agreement, including the redacted portions, has been filed separately with the Commission.

†† Previously filed with the Registrant’s report on Form 6-K, filed with the SEC on August 10, 2009.

††† Previously filed with the Registrant’s report on Form 6-K, filed with the SEC on July 30, 2010.

87

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Date: April 27, 2011	WuXi PharmaTech (Cayman), Inc.
	/s/ Edward Hu
	Name:	Edward Hu
	Title:	Chief Financial Officer and Chief Operating Officer

88

WUXI PHARMATECH (CAYMAN) INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

Reports of Independent Registered Public Accounting Firm	F-2
Consolidated balance sheets as of December 31, 2009 and 2010	F-4
Consolidated statements of operations for the years ended December 31, 2008, 2009 and 2010	F-6
Consolidated statements of changes in equity and comprehensive income (loss) for the years ended December 31, 2008, 2009 and 2010	F-8
Consolidated statements of cash flows for the years ended December 31, 2008, 2009 and 2010	F-9
Notes to the consolidated financial statements	F-11
Schedule 1—WuXi PharmaTech (Cayman) Inc. condensed financial statements as of December  31, 2009 and 2010, and for the years ended December 31, 2008, 2009 and 2010	F-45

F - 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

WuXi PharmaTech (Cayman) Inc.:

We have audited the accompanying consolidated balance sheets of Wuxi PharmaTech (Cayman) Inc. and its subsidiaries (the “Company”) as of December 31, 2009 and 2010, and the related consolidated statements of operations, changes in equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2010 and the related financial statement schedule. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Wuxi PharmaTech (Cayman) Inc. and its subsidiaries as of December 31, 2009 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 26, 2011, expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Shanghai, China

April 26, 2011

F - 2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

WuXi PharmaTech (Cayman) Inc.:

We have audited the internal control over financial reporting of Wuxi PharmaTech (Cayman) Inc. and its subsidiaries (the “Company”) as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2010 of the Company and our report dated April 26, 2011 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ Deloitte Touche Tohmatsu CPA Ltd.

Shanghai, China

April 26, 2011

F - 3

WUXI PHARMATECH (CAYMAN) INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share and per share data, unless otherwise stated)

	December 31,
	2009		2010
Assets
Current assets:
Cash and cash equivalents		80,510		115,401
Restricted cash		1,358		1,989
Short-term investments		22,083		38,084
Accounts receivable, net of allowance of $625 and $590 for 2009 and 2010, respectively		45,817		57,041
Inventories		14,276		17,277
Other current assets		6,032		12,145
Deferred tax assets		4,093		2,979
Total current assets		174,169		244,916
Non-current assets:
Goodwill		23,956		23,956
Property, plant and equipment, net		181,830		205,547
Intangible assets, net		6,634		4,254
Prepaid land use rights		5,308		5,352
Deferred tax assets		9,514		10,887
Other non-current assets		5,890		3,221
Total non-current assets		233,132		253,217
Total assets		407,301		498,133
Liabilities and equity
Current liabilities:
Short-term bank borrowings, including current portion of long-term debt		34,415		263
Accounts payable		14,356		14,800
Accrued liabilities		17,072		20,548
Deferred revenue		4,554		8,816
Advanced subsidies		2,800		4,460
Other taxes payable		2,901		2,790
Income tax payable		1,901		2,764
Other current liabilities		2,338		5,127
Total current liabilities		80,337		59,568

F - 4

WUXI PHARMATECH (CAYMAN) INC.

CONSOLIDATED BALANCE SHEETS—(Continued)

(Dollars in thousands, except share and per share data, unless otherwise stated)

	December 31,
	2009			2010
Non-current liabilities:
Long-term debt, excluding current portion		2,115			1,852
Advanced subsidies		1,420			2,934
Convertible notes		35,864			35,864
Other non-current liabilities		7,432			5,085
Total non-current liabilities		46,831			45,735
Total liabilities		127,168			105,303
Commitments and contingencies (Note 16)
Equity:
Ordinary shares ($0.02 par value: 5,002,500,000 shares authorized as of December 31, 2009 and 2010; 550,609,256 and 560,972,080 issued and outstanding as of December 31, 2009 and 2010, respectively)		11,012			11,219
Additional paid-in capital		320,672			332,913
Accumulated earnings (deficit)		(68,631	)		22,180
Accumulated other comprehensive income		17,080			26,518
Total equity		280,133			392,830
Total liabilities and equity		407,301			498,133

The accompanying notes are an integral part of these consolidated financial statements.

F - 5

WUXI PHARMATECH (CAYMAN) INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share data, unless otherwise stated)

	Year Ended December 31,
	2008			2009			2010
Net revenues:
Laboratory services		205,027			249,909			294,856
Manufacturing services		48,458			20,110			39,205
		253,485			270,019			334,061
Cost of revenues:
Laboratory services		(124,723	)		(145,153	)		(175,116	)
Manufacturing services		(32,420	)		(16,461	)		(31,353	)
		(157,143	)		(161,614	)		(206,469	)
Gross profit		96,342			108,405			127,592
Operating expenses:
Selling and marketing expenses		(7,370	)		(7,447	)		(9,086	)
General and administrative expenses		(49,401	)		(48,829	)		(47,008	)
Impairment charges		(60,497			—			—
Total operating expenses		(117,268	)		(56,276	)		(56,094	)
Operating income (loss)		(20,926	)		52,129			71,498
Other income, net		1,045			6,776			28,410
Interest expense		(1,394	)		(1,068	)		(436	)
Interest income		2,308			1,125			1,583
Income (loss) from continuing operations before income taxes		(18,967	)		58,962			101,055
Income tax (expense) benefit		4,016			(5,530	)		(10,244	)
Income (loss) from continuing operations		(14,951	)		53,432			90,811
Loss from discontinued operations before income taxes		(61,665	)		(944	)		—
Income tax benefit		12,413			386			—
Loss from discontinued operations		(49,252	)		(558	)		—
Net income (loss)		(64,203	)		52,874			90,811

F - 6

WUXI PHARMATECH (CAYMAN) INC.

CONSOLIDATED STATEMENTS OF OPERATIONS—(Continued)

(Dollars in thousands, except share and per share data, unless otherwise stated)

	Year Ended December 31,
	2008			2009			2010
Income (loss) attributable to holders of ordinary shares
Basic		(64,203	)		52,874			90,811
Diluted		(64,203	)		52,874			90,811
Earnings (loss) per ordinary share from continuing operations
Basic		(0.03	)		0.10			0.16
Diluted		(0.03	)		0.09			0.15
Earnings (loss) per ordinary share from discontinued operations
Basic		(0.10	)		(0.00	)		—
Diluted		(0.10	)		(0.00	)		—
Earnings (loss) per ordinary share
Basic		(0.13	)		0.10			0.16
Diluted		(0.13	)		0.09			0.15
Shares used in calculating basic earnings (loss) per share		510,201,761			543,891,797			556,338,146
Shares used in calculating diluted earnings (loss) per share		510,201,761			589,237,676			597,522,573

The accompanying notes are an integral part of these consolidated financial statements.

F - 7

WUXI PHARMATECH (CAYMAN) INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

AND COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands, except share and per share data, unless otherwise stated)

	Ordinary						Additional paid-in capital			Accumulated earnings (deficit)			Accumulated other comprehensive income			Total equity			Comprehensive income (loss)
	Shares			Amount
Balance as of January 1, 2008		492,226,776			9,845			291,020			(57,302	)		7,835			251,398
Issuance of ordinary shares held in escrow in connection with acquisition		4,120,526			82			15,090			—			—			15,172
Shares issued upon conversion of convertible notes		3,253,000			65			5,059			—			—			5,124
Issuance of ordinary shares pursuant to share option plan		29,785,288			596			414			—			—			1,010
Share-based compensation expense		—			—			13,046			—			—			13,046
Cumulative translation adjustment		—			—			—			—			9,329			9,329			9,329
Net loss		—			—			—			(64,203	)		—			(64,203	)		(64,203	)
Balance as of December 31, 2008		529,385,590			10,588			324,629			(121,505	)		17,164			230,876			(54,874	)
Cancellation of ordinary shares held in escrow in connection with acquisition		(4,120,526	)		(82	)		(15,090	)		—			—			(15,172	)
Issuance of ordinary shares pursuant to share option plan		25,344,192			506			913			—			—			1,419
Share-based compensation expense		—			—			10,220			—			—			10,220
Cumulative translation adjustment		—			—			—			—			(84	)		(84	)		(84	)
Net income		—			—			—			52,874			—			52,874			52,874
Balance as of December 31, 2009		550,609,256			11,012			320,672			(68,631	)		17,080			280,133			52,790
Issuance of ordinary shares pursuant to share option plan		10,362,824			207			2,156			—			—			2,363
Share-based compensation expense		—			—			10,085			—			—			10,085
Cumulative translation adjustment		—			—			—			—			9,438			9,438			9,438
Net income		—			—			—			90,811			—			90,811			90,811
Balance as of December 31, 2010		560,972,080			11,219			332,913			22,180			26,518			392,830			100,249

The accompanying notes are an integral part of these consolidated financial statements.

F - 8

WUXI PHARMATECH (CAYMAN) INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands, except share and per share data, unless otherwise stated)

	Year Ended December 31,
	2008			2009			2010
Operating activities:
Net income (loss)		(64,203	)		52,874			90,811
Adjustment to reconcile net income (loss) to net cash provided by operating activities:
Share-based compensation		13,046			10,220			10,085
Depreciation and amortization expense		31,036			23,973			29,208
Provision for (recovery of) doubtful receivables		(665	)		1,606			10
Inventory write down		4,697			413			272
Loss on disposal of long-lived assets		125			666			1,384
Property, plant and equipment impairment		14,139			944			—
Intangible assets impairment		24,333			—			—
Goodwill impairment		71,606			—			—
Loss (gain) on forward contracts marked to market		2,722			(481	)		(2,258	)
Gain from settlement of escrow shares		—			(1,672	)		—
Changes in assets and liabilities, net of effect of acquisition:
Accounts receivable		(7,202	)		(10,622	)		(11,497	)
Inventories		7,877			(7,754	)		(2,820	)
Other current assets		253			1,317			(3,737	)
Other non-current assets		245			6			2,888
Accounts payable		(5,290	)		(905	)		1,950
Accrued liabilities		(818	)		2,781			3,006
Other taxes payable		2,150			(2,843	)		(157	)
Other current liabilities		3,218			1,837			780
Deferred revenue		(14,683	)		1,180			4,083
Amount due to related parties		(2	)		—			—
Advanced subsidies		1,477			(564	)		1,499
Deferred taxes		(23,401	)		(3,205	)		147
Net cash provided by operating activities		60,660			69,771			125,654
Investing activities:
Acquisition of businesses, net of cash acquired		(142,257	)		(13,500	)		—
Purchase of property, plant and equipment		(63,250	)		(54,994	)		(48,876	)
Proceeds from sales of property, plant and equipment		177			7			28
Purchase of intangible assets		(748	)		(271	)		(543	)
Change in restricted cash		4,704			(19	)		(607	)
Purchase of short-term investment		(14,393	)		(54,165	)		(118,177	)
Sales of short-term investment		—			46,845			103,405
Advanced subsidy received for construction		602			2,321			2,968
Net cash used in investing activities		(215,165	)		(73,776	)		(61,802	)

F - 9

WUXI PHARMATECH (CAYMAN) INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(Dollars in thousands, except share and per share data, unless otherwise stated)

	Year Ended December 31,
	2008			2009			2010
Financing activities:
Repayment of long-term debt		(5,690	)		(297	)		(251	)
Repayment of short-term bank borrowings		(74,747	)		(59,579	)		(34,374	)
Proceeds from short-term bank borrowings		73,878			80,443			—
Borrowings, net of repayments, under short-term revolving line of credit		—			6,000			—
Proceeds from exercise of share options		1,010			1,419			2,363
Net cash provided by (used in) financing activities		(5,549	)		27,986			(32,262	)
Effect of exchange rate changes on cash and cash equivalents		3,093			(95	)		3,301
Net increase (decrease) in cash and cash equivalents		(156,961	)		23,886			34,891
Cash and cash equivalents at beginning of year		213,585			56,624			80,510
Cash and cash equivalents at end of year		56,624			80,510			115,401
Supplemental disclosure of cash flow information:
Cash paid for interest		(1,062	)		(1,736	)		(768	)
Cash paid for taxes		(5,286	)		(6,090	)		(9,263	)
Non-cash investing and financing activities:
Accounts payable for purchase of property, plant and equipment		10,434			6,850			5,144
Conversion of convertible notes		5,123			—			—
New share issuance for AppTec acquisition held in escrow		15,172			—			—

The accompanying notes are an integral part of these consolidated financial statements.

F - 10

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

WuXi PharmaTech (Cayman) Inc. (“the Company”) was incorporated under the laws of the Cayman Islands on March 16, 2007. As of December 31, 2010, the Company operated primarily through the following subsidiaries:

Name of company	Place and date of Incorporation / establishment	Attributable equity interest held			Principal activity
WuXi AppTec (BVI) Inc. (“WXAT BVI”)	British Virgin Islands June 3, 2004		100	%	Holding company of PRC subsidiaries
WuXi AppTec Co., Ltd. (“WXAT”)	People’s Republic of China June, 2005		100	%	Laboratory services to pharmaceutical and biotechnology industries
WuXi AppTec (Shanghai) Co., Ltd. (“WASH”)	People’s Republic of China April 2, 2002		100	%	Laboratory services to pharmaceutical and biotechnology industries
Shanghai SynTheAll PharmaTech Co., Ltd. (“STA”)	People’s Republic of China January 23, 2003		100	%	Pharmaceutical manufacturing
WuXi AppTec (Suzhou) Co., Ltd. (“WASZ”)	People’s Republic of China October 8, 2006		100	%	Laboratory services to pharmaceutical and biotechnology industries
WuXi AppTec (Tianjin) Co., Ltd (“WATJ”)	People’s Republic of China June 5, 2006		100	%	Laboratory services to pharmaceutical and biotechnology industries
WuXi AppTec Holding Company, Inc.	United States January 3, 2008		100	%	Holding company of U.S. subsidiaries
WuXi AppTec, Inc. (“AppTec”)	United States January 3, 2008		100	%	Laboratory services to biotechnology and medical device industries
WX (BVI), Limited.	British Virgin Islands July 4, 2008		100	%	Holding company of European subsidiaries
Kaipara Enterprises Ltd.	Cyprus July 14, 2008		100	%	Shell company
Klivia Investments Sp. Z o.o.	Poland July 31, 2008		100	%	Intermediate holding company
WuXi AppTec Biotechnology Co., Ltd. (“WABIO”)	People’s Republic of China May 25, 2010		100	%	Laboratory services to pharmaceutical and biotechnology industries
WuXi AppTec (Wuhan) Co., Ltd (“WAWH”)	People’s Republic of China November 30, 2010		100	%	Laboratory services to pharmaceutical and biotechnology industries
Shanghai AppTec(HK) Limited	Hong Kong December 10, 2010		100	%	Shell company

On February 25 and February 28, 2008, the Company renamed its People’s Republic of China (“PRC”) subsidiaries and BVI holding company, respectively, after the acquisition of AppTec.

The Company, together with its subsidiaries, is principally engaged in providing laboratory and manufacturing services to support research and development for pharmaceutical, biotechnology and medical device companies.

F - 11

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation and principles of consolidation

The consolidated financial statements of the Company are prepared and presented in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the financial statements of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated on consolidation.

(b) Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and of revenues and expenses in the financial statements and accompanying notes. The significant estimates included in the accompanying consolidated financial statements include assumptions regarding the valuation of goodwill and other long-lived assets, the estimated useful lives of long-lived assets, valuation of deferred tax assets, provision for uncertain tax positions and certain assumptions used in the computation of share-based compensation expense. Actual results may vary from these estimates.

(c) Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and highly liquid investments that are unrestricted as to withdrawal and use and that have original maturities of three months or less from the date of purchase.

(d) Restricted cash

Restricted cash represents cash held (i) as cash deposited for forward contracts and (ii) collateral for letters of credit issued primarily for equipment purchases. The classification is based on the expected expiration of the underlying letters of credit and forward contracts.

(e) Short-term investments

Short-term investments represent held-to-maturity securities and are measured at amortized cost in the statement of financial position. The Company classifies investments with maturities of more than three months and less than twelve months as short-term investments.

(f) Inventories

Inventories are stated at the lower of cost or market. To determine market value, the Company considers various factors, including estimated selling price in the ordinary course of business, predictable costs of completion and disposal, and an allowance for an approximately normal profit margin. The Company determines cost on a weighted-average basis. Cost is comprised of direct materials and, where applicable, direct labor and overhead costs that have been incurred in bringing the inventories to their present location and condition.

F - 12

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—continued

(g) Property, plant and equipment, net

Property, plant and equipment are carried at cost less accumulated depreciation. Cost includes the prices paid to acquire or construct the assets, interest capitalized during the construction period and any expenditure that substantially extends the useful life of an existing asset. Interest capitalized into property, plant and equipment was $0, $178, and $0 in 2008, 2009 and 2010, respectively. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. The Company expenses repair and maintenance costs when they are incurred.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Buildings	20 years
Vehicles	5 years
Fixtures and equipment	1 to 15 years
Building improvement	3 to 11 years

(h) Prepaid land use rights

All land in the PRC is owned by the PRC government, who, according to PRC law, may sell the right to use the land for a specified period of time. Prepaid land use rights are recognized ratably over the life of the 50-year land lease.

(i) Intangible assets, net

Intangible assets consist primarily of acquired software licenses and customer relationships. They are recorded at cost less accumulated amortization. Customer relationships are amortized on an accelerated basis of between three and four years, while all the other intangible assets are amortized on a straight-line basis over their expected useful lives ranging from 2 to 10 years.

(j) Goodwill

Goodwill represents the cost in excess of the fair value of net tangible and identifiable intangible assets acquired in business combinations. The Company performs an annual goodwill impairment test comprised of two steps. The first step compares the fair value of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying amount of a reporting unit’s goodwill. The fair value of each reporting unit was determined by the Company, using the expected present value of future cash flows. The key assumptions used in the calculation include the long-term rates of sales and cost growth, expected profitability, working-capital requirements and discount rates. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination, with the allocation of the assessed fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. This allocation process is only performed for purposes of evaluating goodwill impairment and does not result in an entry to adjust the value of any assets or liabilities. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. Management has selected November 30 to perform its annual impairment test.

No goodwill impairment was recognized during the year ended December 31, 2009 and 2010.

F - 13

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—continued

(j) Goodwill —continued

The Company determined that an indication of potential goodwill and long-lived asset impairment existed as a result of a significant decrease in the market capitalization during the fourth quarter of 2008, due in large part to the general economic downturn and its negative impact on the future of the Company’s biologics manufacturing and biologics and medical device testing services businesses. The Company re-evaluated the long-term cash flow projections of these businesses in light of a significant decline in new sales orders beginning in the fourth quarter of 2008. As a result of the analysis, in November 2008 the board of directors approved the closure of the Philadelphia biologics manufacturing operation due to this business’s poor outlook and in order to prioritize resources to other areas of the Company’s global businesses. These global strategic decisions in the fourth quarter of 2008 further impacted the future cash flow projection of the Company’s biologic and medical device testing services. Therefore, the Company recognized a goodwill impairment of $71.6 million for the period ended December 31, 2008.

A rollforward of goodwill by segments is as follows:

	Laboratory Services			Manufacturing Services			Total
Balance as of January 1, 2008	$	—		$	—		$	—
Goodwill arising from the acquisition of AppTec		65,938			29,624			95,562
Impairment recognized in 2008		(41,982	)		(29,624	)		(71,606	)
Balance as of December 31,2008, 2009 and 2010	$	23,956		$	—		$	23,956

All of the goodwill impairment associated with the manufacturing services segment has been recorded as a component of discontinued operations in the consolidated statements of operations.

(k) Impairment of long-lived assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of its carrying amounts to the future undiscounted cash flows that the assets are expected to generate. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss equal to the amount by which the carrying value of the asset exceeds its fair value.

No impairment charge was recognized during the years ended December 31, 2009 and 2010.

As of December 31, 2008, for the reason stated in Note 2(j), the Company performed a recoverability test of its long-lived assets and recognized an impairment of acquired intangibles of $18.5 million related to its continuing operations, and an impairment of $20.0 million related to its discontinued operations, of which $5.9 million was for acquired intangible assets and $14.1 million was for property, plant and equipment.

Fair value of the long-lived intangible assets was determined by the Company, based on the excess earnings method, a method within the income approach whereby the value of an intangible asset is captured by discounting to present value the earnings generated by the asset that remains after a deduction for a return on other contributory assets. These assets normally include working capital, fixed assets and other intangible assets. After a fair return on tangible and other intangible assets is subtracted, the remaining “excess” cash flow (or net cash flow) is attributed to the intangible asset being valued. The excess-earnings approach explicitly recognizes that the current value of an investment is premised upon the expected receipt of future economic benefits. In the valuation of an intangible asset, an indication of value is developed by discounting excess cash flows attributed to the asset to present value at a rate that reflects the current return requirements of the market. Fair value of the long-lived tangible assets was determined based on estimated selling price less cost to sell.

F - 14

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—continued

(l) Revenue recognition

Revenues are recognized when persuasive evidence of an arrangement exists, the sales price is fixed or determinable, delivery of the product or performance of the service has occurred and there is reasonable assurance of collection of the sales proceeds. Revenue is recognized net of sales-related taxes of $179, $142 and $99 for the years ended December 31, 2008, 2009 and 2010, respectively.

For laboratory services provided on a fee-for-service or project basis, the Company recognizes revenues upon finalization of the project terms and delivery and acceptance of the final product, which is generally in the form of a technical laboratory report. Revenue for long-term projects is recognized ratably over the expected term of the project.

For laboratory services provided under a full time equivalent (“FTE”) basis, the customer pays a fixed rate per FTE and the Company recognizes revenue as the services are provided. FTE contracts do not require acceptance by the customer of fixed deliverables from the Company.

The Company provides manufacturing services to its customers, which involve the manufacture of advanced intermediates and active pharmaceutical ingredients for use in preclinical and clinical trials. Revenues from the sale of manufactured products are recognized upon delivery and acceptance by the customer when title and risk of loss have been transferred, assuming all other revenue recognition criteria have been met. The Company records deferred revenues for payments received from the customer prior to the delivery of the products.

(m) Shipping and handling costs

Shipping and handling costs relating to the delivery of technical reports or products are included in selling expenses and were $643, $295 and $76 for the years ended December 31, 2008, 2009 and 2010, respectively.

(n) Government subsidies

Government subsidies are initially recorded as advanced subsidies and are recognized as reduction of general and administrative expenses, or as other income, or as reduction of cost of assets acquired when the associated obligations for earning such subsidies have been met. The Company received government subsidies of $4.9 million, $6.2 million and $8.6 million during the years ended December 31, 2008, 2009 and 2010. The Company recognized government subsidies for general corporate purposes of $2.3 million, $4.4 million and $4.1 million as either a reduction of general and administrative expenses or as other income and $0.3 million, $2.4 million and $1.5 million as reductions of the cost of assets acquired during the years ended December 31, 2008, 2009 and 2010, respectively.

As of December 31, 2009 and 2010, the Company had recorded $4.2 million and $7.4 million of advanced subsidies.

(o) Operating leases

Leases where substantially all of the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Operating leases expense is charged to the consolidated statement of operations on a straight-line basis over the lease period.

The Company has obtained certain deferred lease credits, which represent leasehold improvements made directly by the Company that are to be reimbursed by the landlord. Deferred lease credits are amortized using the straight-line method over the related lease term, beginning with the lease commencement date, and recorded as a component of lease expense.

F - 15

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—continued

(p) Advertising expenses

The Company expenses advertising costs as incurred. Advertising expenses were $269, $253 and $511 for the years ended December 31, 2008, 2009 and 2010, respectively, and are classified as selling and marketing expenses.

(q) Share-based compensation

Share-based awards are recognized as compensation expenses, net of estimated forfeitures, in the consolidated statement of operations based on the fair value of equity awards on the date of the grant, with the compensation expense recognized over the service period. Share-based compensation expenses have been recorded in either cost of revenues, selling and marketing expenses, or general and administrative expenses, depending on the job functions of the grantees. The Company recognized share-based compensation expenses of $13.0 million, $10.2 million and $10.1 million for the years ended December 31, 2008, 2009 and 2010, respectively (see Note 11).

Share-based compensation has been recorded as follows:

	Year Ended December 31,
	2008		2009		2010
Cost of revenues		3,020		2,685		3,636
Selling and marketing expenses		—		131		121
General and administrative expenses		10,026		7,404		6,328
Total		13,046		10,220		10,085

(r) Income taxes

The Company accounts for income taxes using the asset and liability method whereby it calculates a deferred tax asset or liability using current tax laws and enacted rates expected to apply to taxable income in which temporary differences are expected to be received or settled. The Company establishes valuation allowances, when necessary, to reduce deferred tax assets to the extent it is more likely than not that such deferred tax assets will not be realized. The Company does not provide deferred taxes related to the U.S. GAAP basis in excess of the U.S. tax basis in the investment in the Company’s foreign subsidiaries to the extent such amounts relate to permanently reinvested earnings and profits of such foreign subsidiaries.

Income tax expense includes (i) deferred tax expense, which generally represents the net change in the deferred tax asset or liability balance during the year plus any change in valuation allowances and (ii) current tax expense, which represents the amount of tax currently payable to or receivable from a taxing authority. The Company only recognizes tax benefits related to uncertain tax positions when such positions are more likely than not of being sustained upon examination. For such positions, the amount of tax benefit that the Company recognizes is the largest amount of tax benefit that is more than fifty percent likely to be sustained upon the ultimate settlement of such uncertain position.

(s) Earnings (loss) per share

Basic earnings (loss) per share is computed by dividing income (loss) attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the year. Diluted earnings (loss) per ordinary share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares and is calculated using the treasury stock method for stock options and the if-converted method for convertible notes. Ordinary share equivalents are excluded from the computation in loss years as their effects would be anti-dilutive.

F - 16

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—continued

(t) Foreign currency translation

The reporting currency of the Company is the U.S. dollar. Monetary assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the exchange rate at the balance sheet date. Transactions in currencies other than the U.S. dollar during the year are converted into U.S. dollars at the applicable rates of exchange prevailing on the date the transaction occurred. Transaction gains and losses are recognized in the statements of operations.

The financial records of the Company’s PRC subsidiaries are maintained in local currency. Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates, and revenues, expenses, gains and losses are translated using the average rate for the year. Cumulative translation adjustments are shown as a separate component of accumulated other comprehensive income in the statement of changes in equity and comprehensive income (loss). Transaction gains and losses are recognized in the statements of operations in other income, net.

The Renminbi (“RMB”), the local currency of the Company’s PRC subsidiaries, is not a freely convertible currency. The PRC State Administration of Foreign Exchange, under the authority of the People’s Bank of China, controls the conversion of RMB into foreign currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in China’s foreign exchange trading system market. The Company’s cash and cash equivalents and restricted cash denominated in RMB amounted to $64.0 million and $70.9 million as of December 31, 2009 and 2010, respectively.

(u) Derivative instruments

From time to time, the Company enters into deliverable and non-deliverable foreign-exchange forward contracts with financial institutions to protect against volatility of future cash flows caused by the changes in foreign exchange rates associated with outstanding accounts receivable. The Company does not apply hedge accounting to the instruments and, as such, they are marked to market at each reporting date, with changes in fair value recognized in the statements of operations.

The gains (losses) from foreign-exchange forward contracts were ($0.2) million, $3.6 million and $2.8 million for the years ended December 31, 2008, 2009 and 2010, respectively, and have been included in other income, net.

(v) Comprehensive income (loss)

Comprehensive income (loss) includes all changes in equity except for those resulting from investments by owners and distributions to owners and is comprised of net income and foreign-currency translation adjustments. The Company discloses this information on its statement of changes in equity and comprehensive income (loss).

(w) Concentration of credit risks

Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. The Company places its cash and cash equivalents with financial institutions with high credit ratings and quality.

The Company does not require collateral or other security to support financial instruments subject to credit risks. The Company establishes an allowance for doubtful receivables primarily based upon the age of receivables and factors surrounding the credit risk of specific customers.

F - 17

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—continued

(x) New accounting pronouncements

In April 2010, the Emerging Issues Task Force (“EITF”) reached a final consensus on the milestone method of revenue recognition and published Accounting Standards Update (“ASU”) 2010-17, “Revenue Recognition—Milestone Method (Topic 605).” The scope of this ASU is limited to arrangements that include milestones relating to research or development deliverables. The consensus specifies guidance that must be met for a vendor to recognize consideration that is contingent upon achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. The guidance applies to milestones in arrangements within the scope of this consensus regardless of whether the arrangement is determined to have single or multiple deliverables or units of accounting. The final consensus will be effective for fiscal years and interim periods within those years, beginning on or after June 15, 2010. Early application is permitted. We are currently evaluating the impact on our consolidated financial statements of adopting this guidance.

In December 2010, Financial Accounting Standards Board (“FASB”) issued ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” This ASU amends guidance for Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for fiscal years and interim periods beginning after December 15, 2010, with early adoption not permitted. The Company does not expect that the adoption of ASU 2010-28 will have a material impact on its financial position, results of operations, or cash flows.

In December 2010, the FASB issued ASU 2010-29, “Disclosure of Supplementary Pro Forma Information for Business Combinations.” This ASU specifies that if a public company presents comparative financial statements, the entity should only disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. The adoption of ASU 2010-29 is not expected to impact the Company’s financial position, results of operations, or cash flows, as its requirements only pertain to financial statement footnote disclosure.

F - 18

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

3. ACQUISITION

AppTec

On January 31, 2008, the Company acquired AppTec, a U.S.-based service provider for the biopharmaceutical and medical device industries that offered testing, contract research and development and cGMP biologics manufacturing services. As a result of the acquisition, the Company brings together complementary service offerings and expertise to create a broad service covering both chemistry and biologics to provide value-added services to its customers.

The results of acquired entities for the period in which a business combination occurs are included in the consolidated statement of operations after the date of acquisition.

The purchase price included the following:

Cash	$	137,300
Debt assumed		11,700
Fair value of ordinary shares issued and held in escrow		15,172
Acquisition-related transaction costs		4,963
Total purchase price	$	169,135

The Company issued 4,120,526 of its ordinary shares for the acquisition. These shares were required to be held for a 15-month period in escrow through April 30, 2009 to cover potential indemnities. The fair value of the ordinary shares of $15.2 million was calculated as the average market price of the Company’s common shares over the two-day period before and after the terms of the acquisition were agreed to and announced.

The acquisition was recorded using the purchase method of accounting and, accordingly, the acquired assets and liabilities were recorded at their fair value at the date of acquisition as follows:

	Amount			Amortization Period
Current assets	$	20,040
Property, plant and equipment		33,820			1-14 years
Intangible asset-sales backlog		193			1 year
Intangible asset-customer relationship		46,452			2-4 years
Other non-current assets		5,995
Current liabilities		(17,764	)
Long-term debt		(15,163	)
Goodwill		95,562
Total net assets acquired	$	169,135

The $95.6 million of goodwill was assigned to the laboratory services and manufacturing services segments in the amounts of $66.0 million and $29.6 million, respectively.

F - 19

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

3. ACQUISITION—continued

The valuations of the customer relationship and sales backlog were calculated based on the excess earnings method, a method within the income approach whereby the value of an intangible asset is captured by discounting to present value the earnings generated by the asset that remains after a deduction for a return on other contributory assets. These assets normally include working capital, fixed assets and other intangible assets. After a fair return on tangible and other intangible assets is subtracted, the remaining “excess” cash flow (or net cash flow) is attributed to the intangible asset being valued. The excess-earnings method explicitly recognizes that the current value of an investment is premised upon the expected receipt of future economic benefits. In the valuation of an intangible asset, an indication of value is developed by discounting excess cash flows attributed to the asset to present value at a rate that reflects the current return requirements of the market.

In 2009, the Company paid $13.5 million instead of issuing equity shares. Therefore the 4,120,526 ordinary shares held in escrow were returned to, and subsequently cancelled by the Company.

Pro forma results of operations (unaudited)

The following table summarizes unaudited pro forma result of operation for the year ended December 31, 2008 as if the acquisition had occurred as of January 1, 2008. This pro forma result has been prepared for informational purposes only based on the Company’s best estimate and is not indicative of the result of operation that would have been achieved had the acquisition occurred as of January 1, 2008.

	2008
Revenues from continuing operations	$	258,520
Net income (loss)	$	(61,659	)
—from continuing operations		(11,622	)
—from discontinued operations		(50,037	)
Income (loss) per ordinary share from continuing operations
Basic	$	(0.02	)
Diluted	$	(0.02	)
Loss per ordinary share from discontinued operations
Basic	$	(0.10	)
Diluted	$	(0.10	)
Income (loss) per ordinary share
Basic	$	(0.12	)
Diluted	$	(0.12	)

The operating results of the U.S. biologics manufacturing operations were disclosed as discontinued operations for the years ended December 31, 2008 and 2009.

Charles River Laboratories International Inc. (“Charles River”)

On April 26, 2010, the Company and Charles River, a Boston-based contract research organization, entered into an Agreement and Plan of Arrangement, referred to as an acquisition agreement. On July 29, 2010, the Company signed a termination agreement with Charles River to terminate the previously proposed acquisition agreement. In accordance with the terms of the termination agreement, on July 29, 2010, the Company received a payment of a $30 million termination fee from Charles River for full satisfaction of the parties’ obligations under the acquisition agreement. The termination agreement also included mutual releases of any claims and liabilities arising out of or relating to the acquisition agreement. Of the $30 million termination fee, $5 million was used to offset the merger-related costs in general and administrative expenses and the remaining $25 million of the termination fee was recorded in other income.

F - 20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

4. DISCONTINUED OPERATIONS

The Company closed its U.S. biologics manufacturing operation located in Philadelphia on December 2, 2008. This decision was made amid the rapid deterioration of the Company’s biologics manufacturing business as the worsening economic condition in the U.S. continued to have a significant negative impact on small biotechnology companies who are the primary customers for biologics manufacturing. The Company determined that the downturn in biologics manufacturing would not be short-lived and therefore made the decision to better align Company resources to other profitable businesses. The Company ceased accepting any new business, completed production of all remaining orders and ancillary operations and closed both the plant and associated offices by December 31, 2008. The Company has not had any continuing involvement with respect to such operations. As a result, the Company reported the results of the Philadelphia biologics manufacturing operations as discontinued operations in the consolidated statements of operations.

The closure of the operations required the Company to record severance and other employee-related charges of $1.6 million, and impairment charges for long-lived assets and goodwill of $20.0 million and $29.6 million, respectively. The resulting loss of $49.6 million has been reflected in loss on discontinued operations for the year ended December 31, 2008.

The employee-related charges of $1.6 million include severance pay, employee benefits and vacation pay. Approximately $0.5 million and $1.1 million were paid in 2008 and 2009, respectively.

Summarized operating results from discontinued operations are as follows:

	Year Ended December 31, 2008			Year Ended December 31, 2009
Net revenues	$	8,349		$	—
Cost of revenues		(19,627	)		—
General and administrative expenses		(515	)		—
Selling and marketing expenses		(291	)		—
Impairment expenses		(49,581	)		(944	)
Loss before income taxes		(61,665	)		(944	)
Income taxes		12,413			386
Loss from discontinued operations	$	(49,252	)	$	(558	)

F - 21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

5. FAIR VALUE MEASUREMENT

The Company does not have any nonfinancial assets or nonfinancial liabilities that it recognizes or discloses at fair value in its financial statements on a recurring basis.

Financial assets and liabilities that are recorded at fair value on a recurring basis reflect fair value at the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability. The Company applies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:

• Level 1 — Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

• Level 2 — Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

• Level 3 — Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

When available, the Company uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Company measures fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates.

F - 22

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

5. FAIR VALUE MEASUREMENT—continued

As of December 31, 2009 and 2010, information about inputs into the fair value measurements of the Company’s assets and liabilities that are measured at fair value on a recurring basis in periods subsequent to their initial recognition is as follows:

Description	Year Ended December 31, 2009		Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivatives not designated as hedging instruments: Foreign-exchange forward contracts — recorded in other current assets	$	276	$	—	$	276	$	—
Description	Year Ended December 31, 2010		Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Derivatives not designated as hedging instruments: Foreign-exchange forward contracts — recorded in other current assets	$	2,533	$	—	$	2,533	$	—

F - 23

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

5. FAIR VALUE MEASUREMENT—continued

The following tables present the amounts related to derivative instruments affecting the Company’s consolidated statements of operations for the years ended December 31, 2008, 2009 and 2010:

	Amount of Gain (Loss) on Derivatives Recognized in  Income
Derivative Type	2008			2009		2010
Derivatives not designated as hedging instruments:
Foreign-exchange forward contracts—recorded in other income, net	$	(184	)	$	3,636	$	2,773

The Company held deliverable foreign-exchange forward contracts with a total notional value of $115.0 million and $101.0 million as of December 31, 2009 and 2010, respectively. These contracts mature in one to eleven months. In 2009 and 2010, the Company entered into non-deliverable foreign-exchange forward contracts with a well-known financial institution. Under such contracts, parties agree to exchange two currencies at pre-determined rate at a specified date in the future without physical delivery of the two currencies. A non-deliverable forward currency contract is an illiquid instrument that is not transferrable or tradable. As such, the Company will hold the instruments until the settlement date. The Company held non-deliverable forward contracts with notional value of $10.0 million and $66.0 million as of December 31, 2009 and 2010, respectively, and non-deliverable forward contract options with notional values of $50.0 million and $30.0 million as of December 31, 2009 and 2010, respectively. These contracts mature in one to twelve months.

F - 24

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

5. FAIR VALUE MEASUREMENT—continued

Date	Financial instrument	Notional value		Fair value
As of December 31, 2009	Deliverable foreign-exchange forward contract	$	115,000	$	5
As of December 31, 2009	Non-deliverable foreign-exchange forward contract and option	$	60,000	$	271
As of December 31, 2010	Deliverable foreign-exchange forward contract	$	100,970	$	1,518
As of December 31, 2010	Non-deliverable foreign-exchange forward contract and option	$	96,000	$	1,015

The Company used the Black-Scholes option pricing model in valuing the non-deliverable foreign exchange forward contract options. The Black-Scholes model requires the inputs including the spot, forward and interest rates and market-implied volatility, which were loaded from external sources.

For the remainder of the derivative financial instruments, the Company used a discounted cash flow methodology, which requires inputs such as interest-rate yield curves and foreign exchange rates.

The significant inputs used in the aforementioned models are either directly observable or can be corroborated with market observable data and therefore the fair value measurements are classified as Level 2.

The estimated fair value of the Company’s financial instruments, including short-term investments, accounts receivables, advances to suppliers, accounts payable, income tax payable, accrued liabilities and short-term borrowings, approximates their carrying value due to their short-term nature. The fair value of long-term borrowing were $2.2 million and $2.0 million as of December 31, 2009 and 2010, respectively, which were estimated based on discount cash flow at prevalent market rates on each valuation date. The convertible notes had a carrying value of $35.9 million as of December 31, 2009 and 2010, and fair value of $49.9 million and $46.8 million as of December 31, 2009 and 2010, respectively, which was comprised of the present value of the loan feature and the fair value of the conversion feature computed using the Black-Scholes model.

F - 25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

6. INVENTORIES

Inventories consisted of the following:

	As of December 31,
	2009		2010
Raw materials	$	4,095	$	7,233
Work-in-progress		4,588		7,752
Finished goods		5,593		2,292
Total	$	14,276	$	17,277

For the years ended December 31, 2008, 2009 and 2010, inventory was written down by $4.7 million, $0.4 million and $0.3 million, respectively, to reflect the lower of cost or market.

7. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following:

	As of December 31,
	2009			2010
Buildings	$	44,092		$	64,715
Vehicles		1,840			2,008
Fixtures and equipment		107,657			146,097
Building improvements		34,464			42,465
Total		188,053			255,285
Less: Accumulated depreciation		(49,744	)		(71,902	)
Subtotal		138,309			183,383
Construction in progress		43,521			22,164
Property, plant and equipment, net	$	181,830		$	205,547

Depreciation expense was $16.4 million, $20.4 million and $25.9 million for the years ended December 31, 2008, 2009 and 2010, respectively.

Impairment charges for property, plant and equipment were $14.1 million, $0 and $0 for the years ended December 31, 2008, 2009 and 2010, respectively.

As of December 31, 2009 and 2010, the Company did not have any pledged property, plant and equipment to secure banking facilities granted to the Company.

F - 26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

8. INTANGIBLE ASSETS, NET

As of December 31, 2009 and 2010, the Company had the following amounts related to amortizable intangible assets:

	As of December 31,
	2009			2010
Cost:
Customer relationships	$	9,381		$	9,463
Software		4,626			3,269
Total	$	14,007		$	12,732
Accumulated amortization:
Customer relationships		(3,587	)		(6,648	)
Software		(3,786	)		(1,830	)
Total	$	(7,373	)	$	(8,478	)
Intangible assets, net	$	6,634		$	4,254

The Company recorded amortization expense of $14.7 million, $3.6 million and $3.3 million for the years ended December 31, 2008, 2009 and 2010, respectively.

Impairment charges for intangible assets were $24.3 million, $0 and $0 for the years ended December 31, 2008, 2009 and 2010, respectively.

The following table presents the total estimated amortization expense for intangible assets for the following succeeding years:

Year	Total
2011		1,814
2012		1,628
2013		148
2014		120
2015		91
Thereafter		453
Total		4,254

F - 27

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

9. BORROWINGS

The Company’s borrowings consisted of the following:

	As of December 31,
	2009		2010
PRC
Short-term bank borrowings	$	24,164	$	—
PRC subtotal	$	24,164	$	—
Cayman
Short-term bank borrowing	$	10,000		—
U.S.
Senior debt—borrowings under term note		2,208		2,115
Subordinated debt		158		—
U.S. subtotal	$	2,366	$	2,115
Grand total	$	36,530	$	2,115
Analysis as:
Short-term bank borrowings	$	34,164	$	—
Long-term debt, current portion		251		263
Sub-total, current portion		34,415		263
Long-term debt, non-current portion		2,115		1,852
Total	$	36,530	$	2,115

The Company’s PRC subsidiaries had long-term bank borrowings of $4.4 million as of December 31, 2008, which was fully repaid in 2009. The average interest rate on the borrowings was 6.90% and 7.18% per annum for the years ended December 31, 2008 and 2009, respectively.

As of December 31, 2009, the Company’s PRC subsidiaries had short-term bank borrowings of $24.2 million from various financial institutions, bearing interest ranging from 4.37% to 5.32%, which were fully repaid in 2010. The borrowings contain a financial covenant that prohibits outstanding debt of the Company’s subsidiaries from exceeding the subsidiaries’ net assets. The average interest rate was 4.96% and 4.95% for the years ended December 31, 2009 and 2010, respectively.

F - 28

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

9. BORROWINGS—continued

On January 8, 2009, the Company entered into a facility agreement in the amount of $20.0 million, which includes a $4.0 million U.S.-dollar-denominated short-term loan facility and a $16.0 million U.S.-dollar-denominated revolving loan facility. Interest is computed at the London Interbank Offered Rate (“Libor”) of similar duration as the borrowings plus 4%. No fee is charged on undrawn balances. As of December 31, 2009, the Company had drawn $4.0 million and $6.0 million under the short-term and revolving credit facilities, respectively. The $6.0 million revolving loan facility had an original maturity of three months. The amount drawn down in 2009 was fully repaid in 2010. The average interest rates on the borrowings were 5.49% and 3.26% for the years ended December 31, 2009 and 2010, respectively. The facility agreement contains financial covenants that require the Company to meet certain ratios for debt to equity; debt to earnings before interest, tax, depreciation and amortization (“EBITDA”); interest coverage ratios. In addition, the Company is required to maintain a balance of total assets less goodwill, intangible assets and total liabilities greater than $225.1 million. Dividend payout by the Company to its shareholders cannot exceed 35% of the total net income for the year in which the dividend payout is made. The agreement also limited the amount of new loans entered into by the Company.

On January 28, 2010, the Company converted the credit facility into a one-year revolving line of credit of $20.0 million. The interest rate for each drawn down was based on the Libor rate for the corresponding period on draw-down date plus 2.5%. The revolving line of credit facility requires the Company to meet certain ratios and maintain the minimum balance of total assets less goodwill, intangible assets and total liabilities of $150 million. As of December 31, 2010, the Company had drawn $0 under the one-year revolving line of credit.

On January 24, 2011, the Company renewed the revolving line of credit for another one year. According to the renewal agreement, the Company shall pay a management fee at the rate of 20 base points per annum for undrawn amount under the facility.

AppTec entered into a credit and security agreement in July 2007 and subsequently amended the agreement in July 2008. The agreement provided a revolving line of credit of $8.0 million through July 14, 2010. The total draw down of $2.9 million in 2008 was fully repaid in February 2009. $0 was drawn in 2009 and 2010. The weighted-average interest rates for the drawn down were 5.09% and 4.57% for the years ended December 31, 2008 and 2009, respectively.

AppTec entered into a term note with a principal amount of $3.8 million on February 13, 2003, which is payable in 180 consecutive monthly payments of principal and interest totaling $28. The term note bears interest at a fixed rate of 4% per annum. As of December 31, 2010, the outstanding balance of the term note is $2.1 million.

On February 28, 2003, AppTec obtained a machinery and equipment loan fund agreement (“MELF”) for $500. The MELF is payable in 84 consecutive monthly payments of principal and interest totaling approximately $7 and bears interest at a fixed rate of 3% per annum. The balance of subordinated debt was $0 as of December 31, 2010.

The schedule of future payments as of December 31, 2010 is as follows:

2011	$	263
2012		211
2013		209
2014		220
2015		231
Thereafter		981
Total	$	2,115

F - 29

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

10. CONVERTIBLE NOTES

On February 9, 2007, the Company entered into a convertible note agreement with a group of third-party investors pursuant to which the investors lent the Company $40.0 million. The key terms of the notes are as follows:

Maturity date

The convertible notes mature on the earliest to occur of (i) February 9, 2012, (ii) the consummation of a sale transaction such as a merger or tender offer or (iii) when declared due and payable by the note holders upon default.

Interest

The note holders shall be entitled to interest at the rate of 5% per annum (“interest rate”) on the principal amount of the note unless a qualifying IPO does not occur. A qualifying IPO is defined as an initial public offering (“IPO”) of ordinary shares on any internationally recognized stock exchange in which the net price per share (after underwriting, discounts and commissions) issued by the Company equals at least $1.086 (subject to anti-dilution adjustment for share splits, share dividends, bonus issues, reorganizations, recapitalizations and similar events) prior to January 1, 2008. Prospectively, interest will cease to accrue. If a qualifying IPO does not occur, the interest rate on the notes will be retroactively reset to 12% per annum. Interest is payable semi-annually in arrears.

The Company accrued interest at 12% per annum on the principal amount of the notes prior to the occurrence of the qualified IPO. The Company reset accrued interest to 5% on August 9, 2007, the date of a qualifying IPO and ceased to accrue interest subsequently.

Default interest

If the Company fails to pay any sum in respect of the notes when the same becomes due and payable, interest shall accrue on the overdue sum at an additional 5% interest rate penalty on top of the stated 5% interest rate for an aggregated 10% per annum from the due date.

Contingent conversion

At any time after an IPO or a sale transaction occurs, the note holders shall have the right, but not the obligation, to convert in whole or in part the outstanding principal amount plus all accrued and unpaid interest thereon to the date of such conversion into such number of fully paid ordinary shares of the Company.

Contingent conversion price

The notes become convertible into ordinary shares at a conversion price equal to 90% of either:

(i) The final offering price per share in the case of an IPO, or

(ii) The price per share offered for ordinary shares in a sale transaction.

Redemption and Call Option

The notes previously contained contingent put and call options, both of which lapsed on August 9, 2007, the qualified IPO date.

Based on the final IPO offering price, the conversion price is $1.575 per share and the notes are convertible into 26,024,002 ordinary shares, if converted.

On February 15, 2008, one of the investors converted its $5.0 million note plus accrued interest of $123 into 3,253,000 ordinary shares of the Company.

F - 30

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

Details of the carrying value of the convertible notes as of December 31, 2009 and 2010 are as follows:

Principal of convertible notes	$	35,000
Interest accrued		864
Convertible notes as of December 31, 2009 and 2010	$	35,864

11. SHARE-BASED COMPENSATION EXPENSE

The Company measures share-based compensation as the grant date fair value of the award and recognizes this amount as an expense over the grant recipients’ requisite service period.

The following table presents the Company’s share-based compensation expense by type of award:

	Years Ended December 31,
	2008		2009		2010
Share options	$	5,574	$	2,934	$	1,240
Restricted stock units		7,472		7,286		8,845
Total share-based compensation expense	$	13,046	$	10,220	$	10,085

F - 31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

11. SHARE-BASED COMPENSATION EXPENSE—continued

On June 1, 2006, the shareholders of the Company approved and reserved an aggregate of 74,044,450 ordinary shares for the issuance of options granted on July 18, 2005 and for options granted in 2006 and 2007. In 2007, the Company granted an aggregate of 10,416,950 share options. These options generally vest in two to four years.

On July 15, 2008, the Company adopted the 2007 Employee Share Incentive Plan (the “Plan”), which was approved by the Board of Directors. The Plan provides for the issuance of share-based awards such as share options and nonvested restricted stock units of 46,044,400 ordinary shares. On November 12, 2010, the Company’s shareholders approved an increase of the number of shares in shares-based awards under the Plan to 82,044,400 as of December 31, 2010. The award terms are generally granted at the fair market value of the ordinary shares at the date of grant and generally vest in one to five years. The maximum term of each share option expires ten years from the grant date. As of December 31, 2010, the Company granted 14,601,138 share options and 26,692,024 nonvested restricted stock units under the Plan.

The Company recognizes the share-based compensation expense using a graded vesting attribution model for each separately vesting portion of the share-based awards.

Share options

The fair value of each share option awarded is estimated on the date of grant using the Black-Scholes option pricing model with the following significant assumptions:

	2008			2009			2010
Risk-free interest rate		1.67 to 3.60	%		2.11 to 3.50	%		1.84 to 3.03	%
Expected life (in years)		5.00 to 7.00			6.00 to 6.50			5.50 to 6.25
Expected volatility		28.48 to 38.24	%		33.14 to 46.93	%		43.50 to 45.20	%
Expected dividends		—			—			—

The weighted-average grant-date fair value of options granted for the years ended December 31, 2008, 2009 and 2010 was $0.99, $0.53 and $0.94, respectively.

The measure of expected volatility is based on the average historical volatility of the Company and comparable companies over a time period commensurate with the expected life of the option. The Company uses available data to estimate the timing of option exercises and employee terminations within the pricing formula. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury note yield.

F - 32

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

11. SHARE-BASED COMPENSATION EXPENSE—continued

Share options—continued

The following summarizes the Company’s share option activity as of and for the year ended December 31, 2010:

	Number of options			Weighted- average exercise price		Weighted- average remaining contractual term		Aggregate intrinsic  value
Outstanding at January 1, 2010		17,694,536		$	1.05		8.23 years	$	16,668
Granted		1,499,200			2.02
Forfeited		(2,181,504	)		1.75
Exercised		(5,719,584	)		0.41
Outstanding at December 31, 2010		11,292,648			1.34		7.98 years	$	10,042
Vested or expected to vest at December 31, 2010		10,893,799		$	1.33		7.94 years	$	9,871
Exercisable at December 31, 2010		4,477,976		$	1.19		6.24 years	$	5,111

The calculation of the weighted-average remaining contractual term above does not include 54,145,000 options granted prior to July 24, 2006 and 1,000,000 options granted on August 1, 2007, which do not have a stated expiration date.

As of December 31, 2010, there was $1.6 million of total unrecognized compensation expense related to unvested share options granted under the Plan, which is expected to be recognized over a weighted-average period of 1.44 years.

Nonvested Restricted Stock Units

The fair value of each nonvested restricted stock unit is based on the fair market value of the underlying ordinary shares on the date of grant.

A summary of nonvested restricted stock unit activity under the Plan for the year ended December 31, 2010 is presented below:

Nonvested Restricted Stock Units	Number of nonvested restricted stock units			Weighted  average grant-date fair value
Nonvested restricted stock units at January 1, 2010		15,916,488		$	1.34
Granted		7,334,400			1.92
Forfeited		(2,594,504	)		1.23
Vested		(4,643,240	)		1.67
Nonvested restricted stock units at December 31, 2010		16,013,144		$	1.47

F - 33

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

11. SHARE-BASED COMPENSATION EXPENSE—continued

Nonvested Restricted Stock Units—continued

As of December 31, 2010, there was $11.4 million of total unrecognized compensation expense related to nonvested restricted stock units under the plan, which is expected to be recognized over a weighted-average period of 2.63 years.

The total fair value of nonvested restricted stock units vested in 2008, 2009 and 2010 was $0.8 million, $6.0 million and $7.8 million, respectively.

12. INCOME TAXES

Cayman Islands Taxation

The Company is incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, the Company is not subject to income tax.

British Virgin Islands Taxation

The Company’s intermediate offshore holding company, WXAT BVI and WX (BVI) Limited, are incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, WXAT BVI and WX (BVI) Limited are not subject to income tax.

Hong Kong Taxation

The Company’s intermediate offshore holding company, Shanghai AppTec (HK) Limited is subject to Hong Kong profit tax at a rate of 16.5% in 2010. No Hong Kong profit tax has been provided as Shanghai AppTec (HK) Limited has not had assessable profit that was earned in or derived from Hong Kong during 2010.

PRC Taxation

The Company’s subsidiaries are registered in the PRC as manufacturing foreign invested enterprises or Foreign-Invested Enterprises (“FIEs”), which allow them to qualify for certain preferential tax treatment.

Under China’s Unified Enterprise Income Tax Law (“New EIT Law”), FIEs and domestic companies are subject to a uniform tax rate of 25% effective from January 1, 2008. The New EIT Law provides a five-year transition period from its effective date for those enterprises that were established before the promulgation of the new tax law and that were entitled to a preferential lower tax rate under the then-effective tax laws or regulations. In addition, according to the New EIT Law, entities that qualify as high and new-technology enterprises or HNTE especially supported by the PRC government are expected to benefit from a tax rate of 15% as compared to the uniform tax rate of 25%.

WXAT is an FIE engaged in manufacturing with a business term of over ten years and is registered in the Wuxi Taihu National Tourist Resort Zone. Effective January 1, 2008, it is entitled to enjoy a 15% preferential tax rate as an HNTE. The Shanghai branch of WXAT, located in the Shanghai Waigaoqiao Free Trade Zone, is subject to the same income tax rate as WXAT.

WASH, a manufacturing FIE located in the Shanghai Waigaoqiao Free Trade Zone, began its transition periods in accordance with the New EIT Law resulting in income tax rates of 9%, 10%, and 11% for year ended December 31, 2008, 2009 and 2010, respectively. In 2009, WASH was recognized as Advanced Technology Service Enterprise (“ATSE”), eligible to enjoy a preferential income tax rate of 15% from 2009 to 2013. However, WASH chose to continue using the transitional period tax rate until expiration in 2010 according to relevant transitional rule to the New EIT Law.

F - 34

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

12. INCOME TAXES—continued

PRC Taxation—continued

STA is an FIE located in Jinshan, Shanghai, that is engaged in manufacturing. It is entitled to the 2+3 tax holiday under the old Foreign Enterprise Income Tax Law (“FEIT”) which began in 2008. As such STA is subject to an income tax rate of 0%, 0% 12.5%, 12.5%, 12.5% and 25% for 2008, 2009, 2010, 2011, 2012, 2013 and thereafter, respectively.

WATJ is an FIE engaged in discovery chemistry services. It is located in Tianjin, and is subject to the five-year transition period rates. WATJ is entitled to the 2+3 tax holiday under the old FEIT Law which began in 2008. As such, WATJ is subject to an income tax rate of 0%, 0%, 11%, 12%, 12.5% and 25% for 2008, 2009, 2010, 2011, 2012, 2013 and thereafter.

WASZ, located in Suzhou, is a manufacturing FIE engaged in toxicology services. WASZ is entitled to the 2+3 tax holiday under the old FEIT Law which began in 2008. As such, WASZ is subject to an income tax rate of 0%, 0%,12.5%, 12.5%,12.5% and 25% for 2008, 2009, 2010, 2011, 2012, 2013 and thereafter. In 2010, WASZ was recognized as an ATSE and was eligible to enjoy a preferential income tax rate of 15% from 2010 to 2013. However, WASZ chose to continue using the transitional period tax rate until its expiration in 2012 according to the relevant transitional rule to the New EIT Law.

WAWH, located in Wuhan, was incorporated in November 2010 and is subject to the uniform tax rate of 25% for the year ended December 31, 2010 and thereafter.

WABIO, located in Wuxi, was incorporated in May 2010 and is subject to the uniform tax rate of 25% for the year ended December 31, 2010 and thereafter.

United States Taxation

WuXi AppTec Holding Company, Inc. and WuXi AppTec, Inc. are registered in Delaware. They are subject to a U.S. federal corporate marginal income tax rate of 34%. Their subsidiaries operate in several states and are subject to state tax rates ranging from approximately 5% to 10%.

The provision for income taxes is comprised of the following:

	Year Ended December 31,
	2008			2009			2010
Current tax expense
China	$	6,195		$	8,290		$	9,991
United States		5			5			67
Other		786			54			39
Deferred tax expense (benefit)
China		(235	)		(1,923	)		(1,651	)
United States		(10,768	)		(1,282	)		1,795
Other		1			—			3
Income tax expense (benefit)	$	(4,016	)	$	5,144		$	10,244

F - 35

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

12. INCOME TAXES—continued

The principal components of the deferred income tax assets/liabilities are as follows:

	As of December 31,
	2009			2010
Current deferred tax assets:
Inventory write down	$	1,608			201
Prepaid expenses and accruals		(259	)		(69	)
Target bonus accrual		996			1,646
Accrued intercompany interest payable		740			—
Other		1,008			1,201
Subtotal	$	4,093		$	2,979
Noncurrent deferred tax assets:
Net operating loss carry-forward		12,237			12,520
Deferred lease credit and deferred rent		1,394			1,340
Fixed asset basis difference		(2,299	)		(2,347	)
Intangible asset basis difference		(2,176	)		(1,038	)
Other		358			412
Subtotal	$	9,514		$	10,887
Total deferred tax assets	$	13,607		$	13,866
Current deferred tax liabilities:
Unrealized foreign exchange gains and losses	$	—		$	228
Subtotal	$	—		$	228
Noncurrent deferred tax liabilities:
Fixed asset basis difference		104			105
Intangible asset basis difference		23			14
Others		1			80
Subtotal	$	128		$	199
Total deferred tax liabilities	$	128		$	427

F - 36

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

12. INCOME TAXES—continued

A reconciliation between total income tax expense and the amount computed by applying the statutory income tax rate to income before taxes is as follows:

	Year Ended December 31,
	2008			2009			2010
PRC enterprise income tax rate		25.0	%		25.0	%		25.0	%
Effect of different tax rates in other jurisdictions		0.0			4.4	%		(4.6	)%
Expenses not deductible for tax purposes
Entertainment expenses		(0.9	)%		0.1	%		0.1	%
Goodwill impairment		(55.3	)%		—			—
Other expenses		1.1	%		(1.8	)%		(0.8	)%
Valuation allowance impact		(6.6	)%		—			—
Effect of the uncertainty in income taxes		(5.6	)%		—			—
Tax exemption and tax relief
Tax exemptions granted to the group		8.1	%		(1.3	)%		—
Reduced tax rate impact		48.7	%		(15.7	)%		(10.8	)%
Deferred tax effect due to tax rate change		6.7	%		(1.5	)%		1.4	%
Tax true-up		—			(0.3	)%		(0.2	)%
Effective tax rate		21.2	%		8.9	%		10.1	%

The aggregate amount and per share effect of the tax holidays are as follows:

	Year Ended December 31,
	2008		2009		2010
Aggregate dollar effect		1,541		745		—
Per share effect—basic		0.003		0.001		—
Per share effect—diluted		0.003		0.001		—

The Company has made its assessment of the level of tax authority for each tax position (including the potential application of interest and penalties) based on the technical merits. As of December 31, 2009 and 2010, the Company had recorded approximately $1.1 million of unrecognized tax benefits, all of which would favorably impact its effective tax rate if recognized.

The Company classifies interest and penalties related to income tax matters in income tax expense. As of December 31, 2010, the amount of interest and penalties related to uncertain tax positions is immaterial. The Company does not anticipate any significant changes to its liability for unrecognized tax benefits within the next 12 months.

F - 37

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

12. INCOME TAXES—continued

The following table is a roll-forward of the unrecognized tax benefits from December 31, 2009 to December 31, 2010:

(in U.S. dollars )
Balance at January 1, 2009	$	1,071
Decrease due to the change of tax rate		(1	)
Balance at December 31, 2009 and 2010	$	1,070

The New EIT Law provides that a 10% withholding tax applies to China-sourced income derived by non-resident enterprises for PRC enterprise income tax purposes. The Company expects that such 10% withholding tax will apply to dividends paid to the Company by the PRC subsidiaries, but this treatment will depend on the Company’s status as a non-resident enterprise. The Company does not intend to declare dividends for the foreseeable future.

As of December 31, 2010, the Company’s PRC subsidiaries had approximately $224.8 million of undistributed earnings, which were considered to be indefinitely reinvested, and accordingly, no provision for income taxes has been provided thereon. Upon distribution of those earnings generated after January 1, 2008 in the form of dividends or otherwise, the Company would be subject to a 10% withholding tax. Distributions of earnings generated before January 1, 2008 are exempt from PRC dividend withholding tax.

As of December 31, 2010, the Company’s PRC subsidiary, WASZ had a combined net operating loss carryforward of $8.9 million, of which $0.4 million, $0.1 million, $3.2 million and $5.2 million will expire in 2012, 2013, 2014 and 2015, respectively if not used.

As of December 31, 2010, the Company’s U.S. subsidiaries had federal and state gross operating loss carryforwards of $29.3 million and $39.1 million, respectively, which expire between 2011 and 2029.

According to the PRC Tax Administration and Collection Law, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or withholding agent. The statute of limitations will be extended five years under special circumstances, which are not clearly defined, but an underpayment of tax liability exceeding RMB 0.1 million is specifically listed as a special circumstance. In the case of a transfer pricing adjustment, the statute of limitations is ten years. There is no statute of limitations in the case of tax evasion. The Company’s PRC subsidiaries are therefore subject to examination by the PRC tax authorities from 2005 through 2010 on non-transfer pricing matters, and from inception through 2010 on transfer pricing matters.

The U.S. subsidiary’s federal income tax returns are subject to examination from 2005 and subsequent years. Currently the Internal Revenue Service (“IRS”) is conducting an examination of our 2008 Federal tax return, and management does not expect the tax audit to significantly impact our consolidated financial statements in 2008, 2009 and 2010. State income tax returns are generally subject to examination for a period of three to four years after filing the respective return.

F - 38

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

13. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings (loss) per share for the years indicated:

	Year Ended December 31,
	2008			2009			2010
Net income (loss) from continuing operations	$	(14,951	)	$	53,432		$	90,811
Income (loss) from continuing operations attributable to holders of ordinary shares—basic	$	(14,951	)	$	53,432		$	90,811
Loss from discontinued operations—net of tax		(49,252	)		(558	)		—
Income (loss) attributable to holders of ordinary shares—basic		(64,203	)		52,874			90,811
Income (loss) attributable to holders of ordinary shares—diluted	$	(64,203	)	$	52,874		$	90,811
Weighted-average ordinary shares outstanding used in computing basic earnings per share		510,201,761			543,891,797			556,338,146
Plus: Shares from convertible notes, if converted		—			22,771,002			22,771,002
Incremental weighted-average ordinary shares from assumed exercise of share options and nonvested restricted stock units		—			22,574,877			18,413,425
Shares used in calculating diluted earnings per share		510,201,761			589,237,676			597,522,573
Basic earnings (loss) per share from continuing operations	$	(0.03	)	$	0.10		$	0.16
Diluted earnings (loss) per share from continuing operations	$	(0.03	)	$	0.09		$	0.15
Basic loss per share from discontinued operations	$	(0.10	)	$	(0.00	)	$	—
Diluted loss per share from discontinued operations	$	(0.10	)	$	(0.00	)	$	—
Basic earnings (loss) per share	$	(0.13	)	$	0.10		$	0.16
Diluted earnings (loss) per share	$	(0.13	)	$	0.09		$	0.15

F - 39

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

13. EARNINGS PER SHARE—continued

For the years ended December 31, 2008, 2009 and 2010, the following outstanding securities were excluded from the calculation of diluted earnings per share because their effect would be anti-dilutive:

	Year Ended December 31,
	2008		2009		2010
Convertible notes		22,771,002		—		—
Share options and nonvested restricted stock units granted		78,059,352		14,906,552		6,462,924
		100,830,354		14,906,552		6,462,924

14. DISTRIBUTION OF PROFITS

As stipulated by the relevant laws and regulations applicable to China’s FIEs, the Company’s PRC subsidiaries are required to make appropriations from net income as determined under accounting principles generally accepted in the PRC (“PRC GAAP”) to non-distributable reserves, which represent a general reserve. Wholly owned PRC subsidiaries are required to make appropriations to the general reserve of not less than 10% of the profit after tax as determined under PRC GAAP. The appropriations to statutory surplus reserve are required until the balance reaches 50% of the subsidiaries’ registered capital. Subsidiaries that are joint-venture companies are required to make appropriations to the general reserve from the profit after tax as determined under PRC GAAP at a percentage subject to the discretion of their boards of directors.

The general reserve is used to offset future extraordinary losses. Upon a resolution passed by the shareholders and an approval by the original approval authority, the subsidiaries may convert the general reserve into capital. These reserves represent appropriations of the retained earnings determined in accordance with Chinese law. Appropriations to general reserves by the Company’s PRC subsidiaries totaled $22.6 million, $27.8 million and $28.9 million as of December 31, 2008, 2009 and 2010, respectively. Accordingly, these amounts are not available for distribution to the Company.

As a result of these PRC laws and regulations, the Company is restricted in its ability to transfer the registered net assets to the Company in the form of dividends, loans or advances. The restricted portion amounted to $163.6 million as of December 31, 2010.

15. EMPLOYEE RETIREMENT BENEFIT PLAN

As stipulated under the rules and regulations in the PRC, the Company’s PRC subsidiaries are required to contribute a certain percentage of payroll costs of its employees to state-managed retirement plans operated by the local governments for its employees in the PRC. After the contribution, the Company has no further obligation for actual payment of the retirement benefits.

The cost of the Company’s contributions to the staff retirement plans in the PRC amounted to $3.4 million, $2.9 million and $4.2 million for the years ended December 31, 2008, 2009 and 2010, respectively.

F - 40

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

16. COMMITMENTS AND CONTINGENCIES

a) Operating lease commitments

The Company has operating lease agreements principally for its office properties in the PRC and U.S. rental expenses were $4.2 million, $6.2 million and $8.2 million for the years ended December 31, 2008, 2009 and 2010, respectively.

Future minimum lease payments under non-cancelable operating lease agreements at December 31, 2010 were as follows:

Year Ending December 31,
2011	$	8,525
2012		6,935
2013		6,223
2014		6,217
2015 and thereafter		27,495

b) Contingencies

The Company is subject to claims and legal proceedings that arise in the ordinary course of its business operations. Each of these matters is subject to various uncertainties, and it is possible that as these matters arise some may be decided unfavorably for the Company. Currently, the Company does not have any claims or legal proceedings that are expected to have a significant impact on its business or operations.

The Company issues indemnifications for intellectual property compliance and warranties on the manufacture of APIs in certain instances in the ordinary course of business with its customers. Historically, the Company has incurred no costs to settle claims related to these indemnifications and warranties.

c) Capital commitments

As of December 31, 2010, the Company had capital commitments of $10.2 million, which relate to new construction projects and laboratory facility improvements in the PRC. No capital commitments are due in 2011 and thereafter.

17. CONCENTRATION OF CREDIT RISK

The Company’s customers include pharmaceutical, biotechnology and medical device companies. In the majority of circumstances, the Company has agreements in force with these customers that provide for continued involvement in present research projects. However, it is possible that the Company will have no further association with these customers once the present projects conclude.

The following table summarizes customers that contributed greater than 10% of net revenues:

	Year Ended December 31,
Name of Customer	2008		2009			2010
Customer A		*		14.4	%		18.4	%
Customer B		*		10.9	%		*

* Less than 10%

F - 41

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

17. CONCENTRATION OF CREDIT RISK—continued

The Company did not have accounts receivable greater than 10% of total outstanding accounts receivable with any individual customer as of December 31, 2009 and 2010.

18. SEGMENT REPORTING

Operating segments are components of an enterprise for which separate financial information is available and is regularly evaluated by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

The Company has two reportable segments based on its major lines of businesses: laboratory services and manufacturing services. Laboratory segment provides services for pharmaceutical, biotechnology and medical device companies. Manufacturing segment produces advances intermediates and Active Pharmaceutical ingredients (“APIs”) for use by pharmaceutical companies. Each operating segment derives its revenues from the sale of services or products, and each is the responsibility of a member of the senior management of the Company who has knowledge of product- and service-specific operational risks and opportunities. The Company’s chief operating decision makers have been identified as the Board of Directors, who review the results of the two operating segments when making decisions about allocating resources and assessing performance of the Company.

The following table summarizes the selected revenue and expense information for each reportable segment:

Years ended December 31:
2008:	Laboratory Services			Manufacturing Services			Total
Net revenues from external customers	$	205,027		$	48,458		$	253,485
Cost of revenues		(124,723	)		(32,420	)		(157,143	)
Gross profit	$	80,304		$	16,038		$	96,342
2009:	Laboratory Services			Manufacturing Services			Total
Net revenues from external customers	$	249,909		$	20,110		$	270,019
Cost of revenues		(145,153	)		(16,461	)		(161,614	)
Gross profit	$	104,756		$	3,649		$	108,405
2010:	Laboratory Services			Manufacturing Services			Total
Net revenues from external customers	$	294,856			39,205			334,061
Cost of revenues		(175,116	)		(31,353	)		(206,469	)
Gross profit	$	119,740			7,852			127,592

F - 42

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

18. SEGMENT REPORTING—continued

For the years ended December 31, 2008, 2009 and 2010, respectively, the net revenues of laboratory services and manufacturing services were principally derived from discovery chemistry services and from the sale of advanced intermediates and APIs, respectively.

The Company’s revenues by geographic region determined according to the location of the customers were as follows:

	Year Ended December 31,
	2008			2009			2010
United States	$	202,726		$	209,579		$	239,028
Europe		31,019			31,801			42,167
Other countries		19,919			28,781			52,965
Gross revenues	$	253,664		$	270,161		$	334,160
Sales tax		(179	)		(142	)		(99	)
Net revenues	$	253,485		$	270,019		$	334,061

The Company’s long-lived assets by geographic region determined according to the location of the assets were as follows:

	December 31,
	2009		2010
China	$	164,468	$	188,863
United States		17,362		16,684
Total	$	181,830	$	205,547

19. RELATED PARTY TRANSACTIONS

Beginning January 1, 2005, the Company entered into export agent agreements with Shanghai Lechen International Trade Co., Ltd. (“Shanghai Lechen”) for exporting advanced intermediates and APIs. Shanghai Lechen is owned by the parents of Dr. Ning Zhao, Lead Advisor of Analytical Services, Corporate Head of Human Resources, and a director of the Company. Agency service fees paid to Shanghai Lechen by the Company for the years ended December 31, 2008, 2009 and 2010 were $155, $131 and $154, respectively.

20. SUBSEQUENT EVENTS

On January 5, 2011, the Company entered into a revolving loan facility agreement under which the Company could borrow up to $7.5 million denominated in U.S. dollar and solely used for operations, The interest rate for each drawdown is based on Libor rates of the corresponding period of draw-down plus 2.5%. or a market rate mutually agreed. The revolving loan facility will be reviewed at least annually. No fee is charged on undrawn balances. As of April 19, 2011, the Company has fully drawn down the revolving loan facility of $7.5 million at interest rates of 3.19%-3.60% with terms of six months for each draw-down respectively.

F - 43

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

20. SUBSEQUENT EVENTS—continued

On March 30, 2011, the Company entered into a Share Purchase Agreement to acquire Chemdepo, Inc., a U.S.- based service provider for the pharmaceutical industry. Chemdepo primarily offers radioactive chemistry compound synthesis services. The total purchase price was $1.35 million including $1.15 million in cash and 12,821 ADSs of the Company’s restricted common stock valued at approximately $0.2 million. The restricted common stocks will vest over the four-year period following the acquisition. Through the acquisition, the Company is expanding its capability in serving our customers in this particular area. The acquisition will be included in the Company’s laboratory services segment.

F - 44

SCHEDULE 1—WUXI PHARMATECH (CAYMAN) INC.

CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

WUXI PHARMATECH (CAYMAN) INC.

BALANCE SHEETS

	December 31,
	2009			2010
Assets
Current assets:
Cash and cash equivalents		3,909			5,461
Dividends receivable		8,151			8,404
Other current assets		2,226			1,128
Total current assets		14,286			14,993
Non-current assets:
Investment in subsidiaries		314,749			415,271
Other non-current assets		263			189
Total assets		329,298			430,453
Liabilities and equity
Current liabilities:
Short-term borrowings		10,000			—
Accrued liabilities		1,878			762
Other tax payable		651			227
Other current liabilities		772			770
Total current liabilities		13,301			1,759
Non-current liabilities:
Convertible notes		35,864			35,864
Total liabilities		49,165			37,623
Equity:
Ordinary shares ($0.02 par value: 5,002,500,000 shares authorized as of December 31, 2009 and 2010; 550,609,256 and 560,972,080 issued and outstanding as of December 31, 2009 and 2010, respectively)		11,012			11,219
Additional paid-in capital		320,672			332,913
Accumulated deficit		(68,631	)		22,180
Accumulated other comprehensive income		17,080			26,518
Total equity		280,133			392,830
Total liabilities and equity		329,298			430,453

F - 45

SCHEDULE 1—WUXI PHARMATECH (CAYMAN) INC.

CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

WUXI PHARMATECH (CAYMAN) INC.

STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2008			2009			2010
Operating expenses:
Selling and marketing expenses		(3	)		—			(75	)
General and administrative expenses(1)		(18,654	)		(15,561	)		(10,449	)
Operating loss		(18,657	)		(15,561	)		(10,524	)
Equity in earnings (loss) of subsidiaries		(49,058	)		63,929			75,287
Other income, net		1,267			5,261			26,298
Interest expense		(—	)		(756	)		(250	)
Interest income		3,015			1			—
Income (loss) before income taxes		(63,433	)		52,874			90,811
Income tax expense		(770	)		—			—
Net income (loss)		(64,203	)		52,874			90,811

Note⁽¹⁾: General and administrative expenses include $3.0 million, $2.6 million and $3.5 million of share-based compensation expense for the years ended December 31, 2008, 2009 and 2010, respectively. These amounts have been classified as cost of revenues in the consolidated statements of operations for WuXi Pharmatech (Cayman) Inc.

F - 46

SCHEDULE 1—WUXI PHARMATECH (CAYMAN) INC.

CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

WUXI PHARMATECH (CAYMAN) INC.

EQUITY (DEFICIT) AND COMPREHENSIVE INCOME (LOSS)

	Ordinary						Additional paid-in capital			Retained earnings (deficit)			Accumulated other comprehensive income			Total Equity			Comprehensive Income (loss)
	Shares			Amount
Balance as of January 1, 2008		492,226,776			9,845			291,020			(57,302	)		7,835			251,398
Issuance of ordinary shares held in escrow in connection with acquisition		4,120,526			82			15,090			—			—			15,172
Shares issued upon conversion of convertible notes		3,253,000			65			5,058			—			—			5,123
Issuance of ordinary shares pursuant to share option plan		29,785,288			596			414			—			—			1,010
Share-based compensation expense		—			—			13,047			—			—			13,047
Cumulative translation adjustment		—			—			—			—			9,329			9,329			9,329
Net loss		—			—			—			(64,203	)		—			(64,203	)		(64,203	)
Balance as of December 31, 2008		529,385,590			10,588			324,629			(121,505	)		17,164			230,876			(54,874	)
Cancellation of ordinary shares held in escrow in connection with acquisition		(4,120,526	)		(82	)		(15,090	)		—			—			(15,172	)
Issuance of ordinary shares pursuant to share option plan		25,344,192			506			913			—			—			1,419
Share-based compensation expense		—			—			10,220			—			—			10,220
Cumulative translation adjustment		—			—			—			—			(84	)		(84	)		(84	)
Net income		—			—			—			52,874			—			52,874			52,874
Balance as of December 31, 2009		550,609,256			11,012			320,672			(68,631	)		17,080			280,133			52,790
Issuance of ordinary shares pursuant to share option plan		10,362,824			207			2,156			—			—			2,363
Share-based compensation expense		—			—			10,085			—			—			10,085
Cumulative translation adjustment		—			—			—			—			9,438			9,438			9,438
Net income		—			—			—			90,811			—			90,811			90,811
Balance as of December 31, 2010		560,972,080			11,219			332,913			22,180			26,518			392,830			100,249

F - 47

SCHEDULE 1—WUXI PHARMATECH (CAYMAN) INC.

CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

WUXI PHARMATECH (CAYMAN) INC.

CASH FLOW STATEMENTS

	Year Ended December 31,
	2008			2009			2010
Operating activities:
Net income (loss)		(64,203	)		52,874			90,811
Adjustment to reconcile net income to net cash used in operating activities:
Share-based compensation expense		13,046			9,292			9,210
Equity in earnings of subsidiaries		49,058			(63,929	)		(75,287	)
Loss (gain) on forward contracts marked to market		418			(689	)		(745	)
Gain from settlement of escrow shares		—			(1,672	)		—
Changes in assets and liabilities:
Amount due to related parties		(2	)		—			—
Other current assets		482			525			670
Other non-current assets		419			74			74
Other current liabilities		769			1			(1	)
Other taxes payable		624			28			(425	)
Accrued liabilities		347			526			(1,115	)
Net cash provided by (used in) operating activities		958			(2,970	)		23,192
Investing activities:
Long-term investment in subsidiaries		(165,840	)		(22,432	)		(14,003	)
Dividends received from subsidiaries		17,059			13,754			—
Net cash used in investing activities		(148,781	)		(8,678	)		(14,003	)
Financing activities:
Repayment of short-term bank borrowings		—			(10,000	)		(10,000	)
Proceeds from short-term bank borrowings		—			14,000			—
Net proceeds/payment from revolving line of credit		—			6,000			—
Proceeds from exercise of share options		1,010			1,419			2,363
Net cash provided by (used in) financing activities		1,010			11,419			(7,637	)

F - 48

SCHEDULE 1—WUXI PHARMATECH (CAYMAN) INC.

CONDENSED FINANCIAL STATEMENTS —(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

WUXI PHARMATECH (CAYMAN) INC.

CASH FLOW STATEMENTS —(Continued)

	Year Ended December 31,
	2008			2009			2010
Net increase (decrease) in cash and cash equivalents		(146,813	)		(229	)		1,552
Cash and cash equivalents at beginning of period		150,951			4,138			3,909
Cash and cash equivalents at end of period		4,138			3,909			5,461
Non-cash investing and financing activities:
Dividend declared not collected		14,140			—			—
Conversion of convertible notes		5,123			—			—
New share issuance for AppTec acquisition held in escrow		15,172			—			—

F - 49

SCHEDULE 1—WUXI PHARMATECH (CAYMAN) INC.

CONDENSED FINANCIAL STATEMENTS —(Continued)

FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010

(Dollars in thousands, except share and per share data, unless otherwise stated)

Note to Schedule 1

1) Schedule 1 has been provided pursuant to the requirements of Rule 12-04(a) and 4-08(e)(3) of Regulation S-X, which require condensed financial information as to the financial position, changes in financial position and results of operations of a parent company as of the same dates and for the same periods for which audited consolidated financial statements have been presented when the restricted net assets of consolidated and unconsolidated subsidiaries together exceed 25% of consolidated net assets as of the end of the most recently completed fiscal year.

2) The condensed financial information has been prepared using the same accounting policies as set out in the accompanying consolidated financial statements except that the equity method has been used to account for investments in its subsidiaries.

3) Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Company.

4) As of December 31, 2008, 2009 and 2010, there were no material contingencies, significant provision of long-term obligations, mandatory dividend or redemption requirements of redeemable stocks or guarantees of the Company, except for those which have been separately disclosed in the consolidated financial statement.

5) For the year ended December 31, 2008, $17.1 million in cash dividends were paid to the Company by WXAT. For the year ended December 31, 2009, $7.7 million and $6.0 million in cash dividends were paid to the Company by WXAT and WASH, respectively. For the year ended December 31, 2010, no cash dividend was paid to the Company by its subsidiaries.

* * * * *

F - 50