Question-and-Answer Session
Operator
Thank you so much. (Operator instructions) We’ll take our first question from Katherine Lu with Oppenheimer & Company.
Katherine Lu – Oppenheimer & Company
Hi, good morning. Thank you for taking my question. The Xianling Gubao sales again came in lighter than expected, especially given you had a new advertisement for Xianling Gubao. I’m just wondering if you can comment on the cause of the weakness and maybe specifically talking about the price and volume trend for Xianling Gubao. In addition, could you also give some comments on Xianling Gubao’s raw material pricing as the gross margin was also lower than expected?
Eric Chan
(Interpreted) The cost of raw material for Xianling Gubao is barrenwort and the price of barrenwort has gone up by 3% over its price at the beginning of the year. So the slight increase in the price of barrenwort has affected our gross margin of Xianling Gubao.
Xiaochun Wang
(Interpreted) The new advertising campaign has had little impact in promoting the sales of Xianling Gubao. Primarily that is because we have found Chinese consumers do not respond very sensitively to TV or newspaper advertising. Also osteoporosis patients are not in an urgent need to cure and treat their illness and even if they see an advertisement on TV or in the newspaper, they won’t immediately go and buy our Xianling Gubao products.
The symptoms of osteoporosis are always hidden unlike the symptoms of cold. For a cold patient, they would immediately find they are ill. So right now, we are reviewing our marketing strategy for next year.
Katherine Lu – Oppenheimer & Company
Okay, thank you. I just want to follow-up with Mr. Wang on Xianling Gubao sales. I’m just wondering, when you would expect the turnaround of this trend type to come in six months, or in 12 months. The turnaround which means we should see a year-over-year increase on Xianling Gubao.
Xiaochun Wang
(Interpreted) During the second quarter and also in the beginning of the third quarter of this year, we have made a lot of changes to the OTC sales of Xianling Gubao. First, we restructured the OTC sales team and secondly, we have made changes to the sales model of Xianling Gubao. For example, we have set up dedicated counters for the sales of Xianling Gubao at number of pharmacies.
However, we have found that setting up such dedicated counter sales to stimulate the sales of Xianling Gubao and also right now in China a lot of the chain store, the retail chain stores require very high gross margins for our products and at the same time given that we are doing a new advertising campaign for Xianling Gubao and we also sell this product through other channels, we cannot guarantee a higher margins than what it is now to the retail channel.
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