Chairman's Message

Dear Shareholders,

Fiscal year ended March 31, 2006 ("FY 06") was instrumental in establishing important groundwork in support of our roadmap for the future. Like an athlete training for the eventual Olympics meet, we are improving our skills and preparing to successfully launch our flagship drug-eluting stent ("DES"), BioMatrix.

I remember that during our initial public offering last year, many asked if we had the experience to effectively execute commercialization of our BioMatrix product line. Frankly, we are confident of our capability but no amount of theory can help us prepare ourselves unless we have had the chance to exercise our skills in supplying DES, handling logistics management, and establishing the dedicated distribution network specific to DES sales. This is similar to an athlete who must participate in smaller-scale competitions with the intent to hone his skills to gain competitive experience. A win in this competition is a bonus, but the biggest gains are the experience and the opportunity to test one's skills, minimise the imperfections, and be ready to win a competition in the Olympics.

Our goal is the same. After we received the CE Mark approval for Axxion, we launched the product and leveraged this introduction to strengthen our skills and management of DES logistics. We have established more than 50 distributors and are continuing to enhance our sales and marketing infrastructure to support the BioMatrix launch. We have also built and continuously upgraded our internal infrastructure including the scale-up of our manufacturing and quality operations to ensure adequate supply of high quality products. While Axxion has contributed sales revenue, we remain focused on the launch of BioMatrix which will be the key revenue driver for us going forward.

We have internally developed the technology to address each key component of a DES system. These include our unique stent design, our proprietary, anti-restenotic drug and our unique bioresorbable polymer coating for the stent. The latter, in particular, differentiates our product offering from current commercially-available DES products, which utilize durable polymer coatings.

In our industry, we need to invest aggressively in R&D and clinical trials. These are to us what stamina is to athletes - to win the race, we need to look ahead and be ahead.

Over the years, we have invested and will continue to invest in additional clinical trials and activities relating to BioMatrix and other new products. The results of some of our earlier clinical trials, along with those relating to products of our partners' such as Devax Inc., Xtent Inc. and Terumo Corporation were presented and discussed at recent international cardiology conferences at TCT in Washington D.C. and EURO PCR in Paris, amongst others. As a result of these presentations on our BioMatrix, the associated biodegradable polymer technology, and our unique anti-restenotic drug, Biolimus A9, we are now highly regarded by world-renowned cardiologists. This is particularly more pronounced since cardiologists now have escalating concerns over long-term complications associated with DES with durable (non-erodible) polymers. Cardiologists at these conferences have highlighted that DES with biodegradable polymers are potentially attractive alternatives.

Comparatively, Axxion does not have as much clinically-based data, primarily because we did not focus our investments on such activities for this product. We believe such investments in Axxion will not yield an adequate return since we do not have proprietary ownership of the Glycocalix coating or the Paclitaxel drug used in Axxion compared to investing in products using our biodegradable polymer and Biolimus A9 drug used in BioMatrix with strong proprietary positions.

R&D expenses, excluding share-based compensation expenses, increased by US$9.6 million in FY 06 to US$19.2 million compared to US$9.6 million in FY 05. This was primarily due to increased investments in clinical trials. The R&D investment also funded development work on a fully biodegradable, polymer-free DES.

Another area in which we invested significantly was in the sales and marketing infrastructure. Compared to US$5.5 million in FY 05 and excluding share-based compensation expenses, we spent US$9.4 million this fiscal year with the increase primarily due to expenses incurred for participation in international cardiology conferences as well as brand-building activities.

For this fiscal year, our product revenue was US$28.6 million compared with US$20.9 million in the prior fiscal year. Licensing revenue of US$9.3 million for FY 06 was lower than the prior fiscal year, consistent with our expectations and earlier guidance.

Due to our increases in spending in R&D, in sales and marketing, and in general and administrative expenses relating to operating as a public company, we reported a loss after taxation of US$22.5 million in FY 06. This compared to a profit after taxation of US$20.0 million for the prior fiscal year.

Just as a long-distance runner cannot constantly focus on short-term leads over his competitors, as a medical device company, we also cannot be distraught over short-term projected non-profitability as long as we know that our current spending will further enhance and support attainment of our future goals. We are akin a long-distance runner who should plan the race and store sufficient energy with consistent practice to condition the muscles to take on the challenge. If we do not do that, we will not be able to complete and eventually win the race.

I am confident that we are well-positioned and are conditioning ourselves, harnessing our strengths, and honing our skills to reach the eventual goal of becoming a leading drug-eluting stent company. We are also very focused on a highly disciplined cost management program to ensure that our spending is continually aimed at enhancing our internal infrastructure and reducing our unit manufacturing costs. I am proud of your participation as our shareholders and am confident that with your consistent support we will reach our goals.

Yoh-Chie Lu
Chairman & CEO