China Cord Blood Corp (CO)

[MinnieM]

From prospectus Supplement:

http://www.sec.gov/Archives/edgar/data/1467808/000114420410058004/v201175_424b3.htm

We are the leading provider of cord blood banking services in China. We provide cord blood storage services for expectant parents interested in capturing the opportunities made available by evolving medical treatments and technologies such as cord blood transplants. We also preserve cord blood units donated by the public, provide matching services on such donated units and deliver matching units to patients in need of transplants. Our Beijing-based subsidiary, Beijing Jiachenhong Biological Technologies Co., Ltd., or Jiachenhong, was the operator of the first licensed cord blood bank in China. As a matter of policy, the PRC government only grants one cord blood banking license per province or municipality. According to a policy paper published by China’s Ministry of Health in December 2005, the PRC government intends to authorize up to ten cord blood banks. To date, it has authorized seven such licenses. Our operations currently benefit from multiple exclusive cord blood banking licenses issued in China, including our licenses for Beijing and Guangdong, and we have entered into a framework agreement to form and obtain 90% ownership in a non-wholly owned subsidiary that will become the operator of the Zhejiang Cord Blood Bank, the sole licensed cord blood bank in Zhejiang province. We also have an investment in a 19.9% equity interest in Qilu Stem Cells Engineering Company Limited, the operator of the exclusive licensed cord blood bank in Shandong province.

Our cord blood banking network is the largest in China. The aggregate number of births in Beijing, Guangdong, Zhejiang and Shandong provinces was estimated to be 2.8 million in 2008, accounting for approximately 73% of the total newborn population in the seven provinces and municipalities that have been authorized or issued cord blood banking licenses to date, according to the National Bureau of Statistics of China. We believe our leading market position and track record of growing our subscriber base position us well to continue to expand our presence in China. With a newborn population of 18.7 million in 2009, China had the second largest newborn population in the world, according to the CIA World Factbook. Cord blood banking as a precautionary healthcare measure is still a relatively new concept in China, with penetration rates that we estimate to be less than 1% of China’s overall newborn population. We expect the demand for cord blood banking services will grow significantly due to factors such as rapidly rising disposable income in the PRC, China’s one-child policy, and increasing public awareness of the benefits of cord blood and haematopoietic stem cell related therapies. Furthermore, our position as the single largest shareholder with 19.1% equity interest in CordLife Limited, or CordLife, the largest cord blood banking operator in Southeast Asia, provides the foundation for further expansion into attractive markets such as India, Indonesia and the other countries in Southeast Asia.

We have developed a highly effective sales and marketing platform that has enabled us to consistently grow our cord blood subscriber base in the markets we serve. Our 297-person sales team has direct access to expectant parents through exclusive collaboration with 220 hospitals in Beijing and Guangdong. We also cooperate with local government family planning agencies and utilize a variety of marketing programs, including media advertising, seminars and pre-natal classes, to further educate expectant parents on the benefits of cord blood banking. Our subscriber base has grown from 10,975 in March 2006 to 141,492 in June 2010.

We generate substantially all of our revenues from subscription fees. The standard payment arrangement for our services consists of processing fees payable at the time of subscription and storage fees payable by our subscribers on an annual basis for as long as the contracts remain effective, which typically have a contract period of 18 years. The contracts can be terminated early by the parents at each anniversary of the contract or further extended, at the option of the children, after reaching adulthood. This payment structure provides us with a steady stream of recurring revenue and cash flow. The proportion of our storage fee revenue increased