Bohai Pharmaceuticals Publishes Annual Letter to Shareholders

Bohai Pharmaceuticals Group, Inc. (OTCBB/OTCQB: BOPH), a China-based pharmaceutical company engaged in the production, manufacturing and distribution of Traditional Chinese Medicine (TCM) in China, today published a letter to shareholders from Hongwei Qu, Bohai’s Chairman, President and Chief Executive Officer, providing investors with management’s year-end summary for 2010 and vision for 2011.

Dear Shareholders:

It is my pleasure to discuss Bohai’s various corporate developments to date, as well as our plans for the future as we enter the New Year in 2011.

First and foremost, we believe Bohai is very well positioned to capitalize on China’s rising demand for traditional pharmaceutical products. The Chinese government is expanding healthcare coverage to 900 million rural Chinese citizens, and we believe these favorable market conditions will enhance our ability to implement our marketing initiatives for our growing portfolio of TCM products.

Also, Bohai’s lead products continue to enjoy certain market protections, including several that enjoy exclusive “protected” status and a recently awarded patent for our Lung Nourishing Syrup, that we believe will help us generate growth in revenues and profits and, ultimately, increase shareholder value.

The key to our achievements to date, and what we expect will drive growth in the future, is our over-the-counter and prescription products, combined with our dedicated in-house sales team and marketing initiatives, which have generated record results for the past several years. For the 2010 fiscal year ended June 30, Bohai generated over $59.3 million in net revenue, $9.5 million in net income and an impressive earnings per share (EPS) of $0.57 on a fully-diluted basis. As an indicator of Bohai’s continued growth potential, our fiscal first quarter ended September 30, 2010 resulted in net revenue increasing by more than 22% to $17 million, and net income increasing 57% to $3.0 million compared to the same quarter in 2009 – resulting in our highest quarterly results on record.

Bohai’s impressive financial performance has been made possible through our focused growth strategy, which emphasizes quality products and aggressive sales and marketing efforts to leverage the “protected” manufacturing status and national insurance coverage for certain of our lead products. It is important to note that internal sales teams are a rarity among Chinese TCM companies, so with over 300 employees devoted to product sales, operating from 20 offices throughout China, Bohai is committed to meeting the greater demand for TCM and taking full advantage of the favorable market conditions.

A major growth driver for us is the favorable market conditions on the ground in China. China is undergoing a dramatic expansion of its national health insurance policies through the implementation of new government programs established in early 2009 that are seeking to extend health insurance coverage to previously uncovered Chinese citizens. With the government paying all, or nearly all, of the cost of certain pharmaceutical products, these policies are opening up the pharmaceutical industry in China to a target demographic of approximately 900 million rural Chinese, who for the most part, have not purchased medicines on a large scale due to their limited income. Market research firm IMS projects that China will become the second-largest healthcare market in the world by 2015.

The PRC’s Essential Drug List (or EDL) is designed to provide a limited number of approved products for these rural areas with up to 100% reimbursement. This is in addition to the PRC’s National Drug Reimbursement List (or NDRL), which was introduced in 2000 and has largely been targeted historically toward more urban consumers, and thus higher-margin pharmaceutical products.

In December 2010, the PRC government enacted pricing caps to the EDL in order to keep medicines appropriately positioned for the less affluent rural population. This policy targets certain products due to their high price structure such as foreign “generic” chemical products. Fortunately for Bohai, the price cap policy has very minimum effects to our current product line-up. In fact, at this time, there is only one product out of the 15 Bohai currently manufactures that is under EDL at the national level, with sales that account for approximately 1% of total revenue. Going forward, this creates an opportunity for Bohai as we can appropriately position our future EDL products at the national level (of which there are a total nine in the pipeline) and drive sales to an untapped market of 900 million rural Chinese with a low-price, but high volume marketing approach.

Bohai expects sales will continue to expand at a quickening pace as a result of our five new products launched in April and May of 2010, in addition to the ongoing strong sales of our leading “protected status” products, which are reimbursable under the urban-focused NDRL. As an important distinction, NDRL is not subject to the price caps enacted on EDL medicines in December and Bohai’s top three medicines on the NDRL represent over 75% of our total sales. As opposed to EDL products, these medicines clearly represent Bohai’s higher-margin products and can be priced accordingly. We expect that the full implementation of both EDL and NDRL by the Chinese government will drive increased sales growth in 2011 despite the price cap policy that, as mentioned, will have a minimum effect on our current product line.

Looking back at the past year, Bohai has experienced a number of significant events. In January 2010, Bohai became a U.S. listed operating company and raised $12 million. Using these funds, Bohai has been implementing a proactive strategy designed to significantly increase revenue on all the TCM products that Bohai currently sells, in addition to acquiring new products that management believes could significantly impact future sales growth. We were also able to attract high quality independent directors and an experienced chief financial officer with significant public company experience. These additions have proven to be very valuable as we continue the introduction of our company to U.S. investors and as we seek to become a model U.S.-listed Chinese company.

In April and May of 2010, Bohai introduced a total of five new products, increasing its total TCM offering from 10 to 15 products. In addition to these medicines, Bohai has the rights to produce a number of government-approved medicines that it is not currently manufacturing. Just a few weeks ago, in December 2010, Bohai entered into an agreement to acquire the rights to 14 additional approved TCM medicines bringing the total number of approved medicines in its portfolio from 29 to 43. Although Bohai produces only 15 of these medicines at this time, management believes the acquisition represents a tremendous opportunity for our future sales growth since four of the 14 new products are currently included on the EDL at the national level and five are included in the NDRL. This increases Bohai’s total number of EDL products to 10 and our NDRL products to 17, greatly expanding the amount of government reimbursable medicines in Bohai’s portfolio.

As we move into 2011, we expect to further increase the sales for our growing portfolio of approved TCM medicines, with a particular focus on our lead products: Tongbi Capsules and Tongbi Tablets, both formulated to treat various forms of arthritis, and Lung Nourishing Syrup, a liquid product used in the treatment of asthma and other common respiratory ailments.

Not only are Bohai’s three lead products reimbursable through the NDRL in China – and therefore not affected by the recent pricing caps – two of them are also partially sheltered from competition. Tongbi Capsules are an exclusively “protected” medicine in China, meaning Bohai is the only manufacturer permitted to sell the product, and Lung Nourishing Syrup was recently awarded a patent in China that lasts 20 years, allowing Bohai to sell these medicines at a premium.

While continuing to build shareholder value through strong sales and marketing initiatives, Bohai will also explore further growth through the careful evaluation of acquisition opportunities, focusing primarily on target companies in China with currently marketed products and profitable operations that are synergistic with Bohai’s comprehensive sales and marketing strategy.

As we’ve stated publicly in the past, in addition to our sales initiatives in China we also want to improve our standing in the US capital markets. In November, Bohai’s board of directors adopted a resolution to seek a listing on a senior U.S. stock exchange, such as NASDAQ or NYSE AMEX, and this process is underway and will hopefully be complete as soon as the company meets all applicable listing requirements. We believe this will provide greater exposure for the company, provide an opportunity to attract a broader base of investors, and be a major benefit to both Bohai and our valued shareholders.

On behalf of myself, our board of directors and our senior management team, I want to thank you for your support. Whether you are currently a Bohai shareholder or considering becoming one, we never lose sight of the fact that you have a vested interest in our success. We have built and positioned a great team of professionals in both China and the United States, which we believe will allow us to continue our proven track record of growth. While 2010 was unquestionably a year of major achievements for Bohai, we believe the best is yet to come. Thank you.

About Bohai Pharmaceuticals Group, Inc.

Based in the city of Yantai, Shandong Province, China, Bohai Pharmaceuticals Group, Inc. (OTCBB/OTCQB: BOPH) is engaged in the production, manufacturing and distribution of herbal pharmaceuticals based on Traditional Chinese Medicine in China. Bohai’s medicines address common health problems such as rheumatoid arthritis, viral infections, gynecological diseases, cardio vascular issues and respiratory diseases. Bohai’s products are sold either by prescription through hospitals or over-the-counter through local pharmacies and retail drug store chains. Bohai has approximately 600 employees, including approximately 300 sales representatives, operating from 20 offices throughout China. Bohai’s three lead products, Tongbi Capsules, Tongbi Tablets and Lung Nourishing Cream, are eligible for reimbursement under China’s National Medical Insurance Program.

For comprehensive investor relations material, including fact sheets, research reports, presentations and video, please follow the appropriate link: Research Report, Investor Fact Sheet and Overview Video.

For additional information, please visit Bohai’s corporate website: www.bohaipharma.com.

Additional Information Relating to Bohai’s Trading Data

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Cautionary Note Regarding Forward Looking Statements

This press release, the letter to shareholders referred to herein and the statements of representatives of Bohai Pharmaceuticals Group, Inc. (the “Company”) related thereto contain, or may contain, among other things, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact included herein are “forward-looking statements,” including any other statements of non-historical information. These forward-looking statements are subject to significant known and unknown risks and uncertainties and are often identified by the use of forward-looking terminology such as “guidance,” “projects,” “may,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “ultimately” or similar expressions. All forward-looking statements involve material assumptions, risks and uncertainties, and the expectations contained in such statements may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including factors and risks discussed in the periodic reports that the Company files with the Securities and Exchange Commission (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. The Company undertakes no duty to update these forward-looking statements except as required by law.