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ADVANCES FOR PURCHASES OF INTANGIBLE ASSETS. | 12 Months Ended
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Dec. 31, 2012
ADVANCES FOR PURCHASES OF INTANGIBLE ASSETS. |
ADVANCES FOR PURCHASES OF INTANGIBLE ASSETS. | NOTE 5 – ADVANCES FOR PURCHASES OF INTANGIBLE ASSETS. In order to expand the number of medicines manufactured and marketed by the Company, it has entered into contracts with independent laboratories and others for the purchase of medical formulas. Although SFDA approval had not been obtained for these medical formulas at the dates of the contracts, the objective of the contracts is for the Company to obtain SFDA-approved medical formulas once the SFDA approval process is completed. The Company received the title to two patents that relate to medical formulas currently in the SFDA approval process at December 31, 2012. The related patents have not expired. Prior to entering into the contracts, the laboratories typically have completed all required research and development to determine the medical formula for and the method of production of the generic medicine. The application to the SFDA for production approval must be made by the production facility that will produce the related product. As a result, a contract typically provides that the Company buys the medical formula from the laboratory and the laboratory is required to assist the Company in applying for and obtaining the production approval from the SFDA. A typical SFDA approval process for the production of a generic medical product involves a number of steps that generally requires three to five years. If the medical formula is purchased at the point when the generic medical product receives the SFDA’s approval for a clinical study, which is very typical for the Company, the clinical study that follows will usually take from one and a half to three years to complete. After the clinical study is completed, the results are submitted to the SFDA and a production approval application is filed with the SFDA. In most cases, it will take between eight to eighteen months to prepare and submit the production approval application and obtain SFDA approval. Upon approving the generic medical product, the SFDA issues a production certificate and the Company can produce and sell the generic medical product. As a result of this process, SFDA approval is expected to be received in approximately two to five years from the dates of the medical formula contracts. Under the terms of the contracts, the laboratories are required to assist the Company in obtaining production approval for the medical formulas from the SFDA. Management monitors the status of each medical formula on a regular basis in order to assess whether the laboratories are performing adequately under the contracts. If a medical product is not approved by the SFDA, as evidenced by their issuance of a denial letter, or if the laboratory breaches the contract, the laboratory is required under the contract to provide a refund to the Company of the full amount of the payments made to the laboratory for that formula, or the Company can require the application of those payments to another medical formula with the same laboratory. As a result of the refund right, the Company is ultimately purchasing an approved medical product. Accordingly, payments made prior to the issuance of production approval by the SFDA are recorded as advances for purchases of intangible assets. To date, no formula has failed to receive SFDA production approval nor has the Company been informed or become aware of any formula that may fail to receive such approval. However, there is no assurance that the medical products will receive production approval and if the Company does not receive such approval, it will enforce its contractual rights to receive the refund from the laboratory or have the payments applied to another medical formula with the same laboratory. At December 31, 2012, the Company was obligated to pay laboratories and others approximately $6,476,000 upon completion of the various phases of contracts to provide SFDA production approval of medical formulas.

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