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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THE INFORMATION MUSTBE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT

FINANCIAL INFORMATION

You should read the following discussion and analysis in conjunction with our audited

combined financial statements included in “Appendix I—Accountants’ Report” to this

document, together with the accompanying notes. Our combined financial information has

been prepared in accordance with HKFRSs, which may differ in material aspects from

generally accepted accounting principles in other jurisdictions. You should read the entire

Accountants’ Report and not merely rely on the information contained in this section.

The following discussion and analysis contain forward-looking statements that reflect the

current views with respect to future events and financial performance. These statements are

based on assumptions and analysis made by us in light of our experience and perception of

historical trends, current conditions and expected future developments, as well as other factors

that we believe are appropriate under the circumstances. However, whether the actual outcome

and developments will meet our expectations and predictions depends on a number of risks and

uncertainties over which we do not have control. For details, see “Forward-looking

Statements” and “Risk Factors.”

OVERVIEW

We are a leading integrated pharmaceutical company in China. Our vision is to become a

leading “GLOCAL” pharmaceutical company focusing on three core therapeutic areas, namely anti-

infectives, CVD and respiratory system, by leveraging our market-tested full value chain capabilities.

We believe our proven drug asset sourcing track record, world-class manufacturing facility, global

supply chain management capabilities, global-standard business operations and MNC-caliber senior

management team, together with our in-depth local market insights, scaled local commercial platform,

localized manufacturing facilities and local operation track record, position us well to further

strengthen our market leadership in the pharmaceutical industry in China.

KEY FACTORS AFFECTING OUR RESULTS OF OPERATIONS

We believe that the most significant factors affecting our results of operations and financial

condition include the following:

Demand and Sales of Our Products

Our financial performance and future growth depend on the growth of the pharmaceutical

market in our core therapeutic areas, namely, anti-infectives, CVD and respiratory system, in China.

Details of the markets for these therapeutic areas are as follows:

• Anti-infectives was the second largest therapeutic area in China in 2019. Anti-bacterial

drugs accounted for over 70% of China’s anti-infectives market with a market size of

RMB166.2 billion in 2019. MRSA infection treatments and pediatric anti-bacterial drugs

are major sub-segments of the anti-bacterial drug market.

• MRSA infection treatment. Driven by increased hospitalization and diagnosis for

MRSA infections, most cases of which occur in hospitalized patients in China, the

MRSA infection treatment market has increased from RMB2.8 billion in 2015 to

RMB4.1 billion in 2019 at a 10.2% CAGR and will continue to increase to

RMB6.8 billion in 2024 at a 10.4% CAGR from 2019 and RMB10.4 billion in 2030

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at a 7.4% CAGR from 2024. Vancomycin is the only first-line treatment among

major therapies for the treatment of MRSA infections on the NRDL, and Vancocin is

the market leader with a 60.2% market share of the vancomycin hydrochloride drug

market in 2019.

• Pediatric anti-bacterial drugs. The pediatric anti-bacterial market size increased

from RMB2.9 billion in 2015 to RMB4.2 billion in 2019 at a 9.6% CAGR, and is

expected to increase to RMB6.5 billion in 2024 at a 9.0% CAGR from 2019 and

RMB10.2 billion in 2030 at a 7.7% CAGR from 2024, mainly driven by a high

prevalence for respiratory infections and urinary tract infections, and increasing

diagnosis of skin and soft tissue infections among children. Originator-branded drugs

dominate the pediatric anti-bacterial market with a significant market share of 27.2%

in 2019. Our Ceclor Sachet is one of only two originator-branded anti-bacterial drugs

for pediatric use currently marketed in China.

• Cardiovascular disease (CVD) was the fourth largest therapeutic area in China with more

than 290 million CVD patients in 2019. Lipid-regulating, which treats dyslipidemia (a

major cause of CVD), is a huge and fast-growing segment of CVD with a market size of

RMB28.0 million in 2019. Statin therapy, the mainstay for CV risk reduction, leaves

significant persistent CV risk of approximately 65% to 75%, with unmet medical needs.

High triglyceride levels are important markers of CV risk. Icosapent ethyl (the generic

name of Vascepa) is the first and only drug approved by the FDA as an adjunct to

maximally tolerated statin therapy for reducing persistent CV risk in targeted high-risk

patients, and has no competitors for its indication of CV risk reduction in China.

• Respiratory system is one of the fastest-growing and emerging therapeutic areas in China.

Asthma and COPD have a high prevalence in China, with 63.6 million and over

100 million patients, respectively, in China in 2019, and are significantly under-diagnosed

and under-treated in China. ICS nebulizers are the most effective controller of asthma and

COPD, with only three types of products currently available in China, including our FPN.

The ICS nebulizer market size grew from RMB4.9 billion in 2015 to RMB8.9 billion in

2019 in China at a 16.2% CAGR and is expected to increase to RMB10.7 billion in 2024 at

a 3.8% CAGR from 2019 and RMB12.2 billion in 2030 at a 2.2% CAGR from 2024.

LABAs, which are inhaled medications for asthma and COPD, can be used in combination

with ICS to enhance effectiveness, and the ICS/LABA combination drug market size grew

from RMB2.1 billion in 2015 to RMB3.8 billion in 2019 at a 16.4% CAGR, and is

expected to increase to RMB8.1 billion in 2024 at a 16.3% CAGR from 2019 and

RMB11.8 billion at a 6.5% CAGR from 2024.

Our three core commercialized products include two anti-infectives, namely, Ceclor and

Vancocin, and one respiratory drug, namely, FPN. Our future results of operations will depend in part

on our focus on these products, as well as other products and pipeline products, such as Vascepa and

Mulpleta. For example, we began to offer FPN and generated revenue of RMB12.9 million from sales

of FPN for the six months ended June 30, 2020. As we gradually increase sales and expand market

coverage of FPN, we expect to generate more revenue from this product. Our revenue is also affected

by sales rebates we recognize in each period, which we estimate and are sensitive to changes in

circumstances and our past experience regarding returns.

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Our Cost Structure

Our cost structure primarily included (i) cost of sales, (ii) selling and distribution expenses, and

(iii) administrative expenses. Our profitability has benefited from our control of costs and expenses

and our ability to improve operational efficiency. Our acquisition of Ceclor and Vancocin in October

2019 enabled us to optimize cost structure through increased control of the global supply chain. Our

cost of sales generally fluctuated in line with the sales volume of products during the Track Record

Period.

Our ability to effectively manage our operating expenses, such as selling and distribution

expenses and administrative expenses, will also impact our profitability. Our selling and distribution

expenses primarily include staff costs for our sales and marketing team, conference fees and

marketing service fees. Our staff costs generally decreased from 2017 to 2019 as we decreased

headcount to streamline our team and enhance efficiency. Conference fees and marketing service fees

fluctuated based on our marketing activities for our products. Our administrative expenses primarily

include staff costs for administrative personnel, which generally increased as we expanded our

business, and third-party professional service fees. For details, see “—Results of Operations.” We

expect our cost structure to continue to evolve as we expand our business, increase our manufacturing

capabilities, develop and launch new products and optimize our cost structure in the future.

Product Mix

Our diverse portfolio of products across our core therapeutic areas enables us to ensure strong

financial performance and provides us with more flexibility and agility with respect to market and

regulatory changes. Our profitability is affected by our product mix, as the sales volume, selling prices

and gross profit margin of different products in our portfolio vary from period to period. The margin

profiles of our core products, which had and is expected to have a significant contribution to our

results of operations, has had and will continue to have a large impact on our overall margins. For

example, Ceclor and Vancocin, which are two of our core commercialized products, experienced an

increase in gross profit margin since our acquisition in 2019 as we were able to optimize cost

structure, and drove the growth in our overall margin from the six months ended June 30, 2019 to the

six months ended June 30, 2020. As we continue to develop and commercialize new products, our

product mix will continue to change and have an impact on our profitability.

Our Acquisition of Ceclor and Vancocin

In October 2019, we completed the acquisition of the marketing authorizations (“MAs”) and

other assets for Vancocin and Ceclor from Eli Lilly for a combined total consideration of US$360.5

million and RMB489.6 million pursuant to a series of acquisition arrangements. For more details of

the acquisition, see “History, Development and Corporate Structure—Major Acquisitions, Disposals

and Mergers—Eli Lilly Acquisitions.”

We partially financed the acquisition through (i) a loan of US$110 million, which has an interest rate

per annum equal to 3-month LIBOR plus a margin (i.e. 4.75% for the first year, 5.25% for the second year

and 5.75% for the third year) and a term of three years, (ii) a bridge loan, which was subsequently refinanced

with a loan of US$220 million, which has an interest rate per annum equal to 3-month LIBOR plus a 2.75%

margin and which shall be repaid in installments over a three-year term, and (iii) a RMB150 million loan,

– 267 –



which has an interest rate of 5.85-6.00% per annum and which shall be repaid in installments over a five-year

term. The remainder was financed through cash flows from operations. As of December 31, 2019, our

debt-to-equity ratio was 1.86, which was significantly affected by this acquisition. Our net current liabilities as

of the same date was RMB1,055.2 million. We intend to apply [REDACTED] of the [REDACTED] from

the [REDACTED] to repay these loans.

Upon the acquisition, we have become the manufacturer of Ceclor that procures raw materials

from suppliers and no longer buy finished products of Ceclor from Eli Lilly. As we have more control

over the global supply chain for Ceclor and Vancocin, we have been able to optimize our cost

structure. As a result, our gross profit margin for Ceclor increased from 38.2% to 54.4% from the six

months ended June 30, 2019 to the six months ended June 30, 2020, and our gross profit margin for

Vancocin increased from 46.4% to 62.9% from the six months ended June 30, 2019 to the six months

ended June 30, 2020.

Moreover, we began to record raw materials, work in progress and spare parts for the

manufacture of Ceclor in our inventories, which amounted to RMB117.8 million and RMB168.9

million as of December 31, 2019 and June 30, 2020, respectively. Our trade and bills payable

decreased to RMB434.9 million as of December 31, 2019 and further to RMB201.4 million as of

June 30, 2020 because we no longer procured Ceclor and Vancocin from Eli Lilly following our

acquisition in October 2019, resulting in a decrease in related payables. The know-how licenses and

trademarks for Ceclor and Vancocin in the amount of RMB2,561.2 million was recorded under the

line item other intangible assets. Our property, plant and equipment as of December 31, 2019

increased by RMB129.3 million and our goodwill increased by RMB112.1 million in relation to the

acquisition.

Our Ability to Develop and Commercialize New Products

The continued advancement of our pipeline products through clinical trials and regulatory

approvals towards commercialization is crucial to our sustained business growth. As of the Latest

Practicable Date, we had a total of five pipeline products, including three core pipeline products

Vascepa, Mulpleta and EDP 125, which we in-licensed from leading MNCs for development and

commercialization. Vascepa and Mulpleta are high-value late-stage product candidates in the

therapeutic areas of CV and hematology, respectively. EDP 125 is a high potential CNS product

candidate. We initiated the Phase III clinical trial in August 2017 for Vascepa for the treatment of

severe (≥500 mg/dL and ≤2000 mg/dL) hypertriglyceridemia. We expect to submit NDA to the

NMPA by the end of 2020 and aim to launch Vascepa in China in 2022. We plan to continue to

advance Vascepa’s clinical trials in China with an aim of making Vascepa the first NMPA-approved

drug for reducing CV events beyond cholesterol-lowering therapy in targeted high CV risk patients in

China. We are conducting the Phase III clinical trial for Mulpleta indicated for the treatment of TCP in

adult patients with CLD who are scheduled to undergo invasive procedures in China and file NDA

with the NMPA in 2021. We also plan to initiate a Phase III clinical trial indicated for CIT in China.

We have submitted a pre-IND communication meeting application to NMPA and expect to file the

IND for a Phase III clinical trial for EDP 125 for the treatment of ADHA in children and adolescents

in 2020. For details, see “Business—Our Business Strategies.” Our results of operations in the coming

years will be affected by the timing of clinical trials, regulatory approval and commercial launch of

these products. See “Risk Factors—Risks Relating to Our Business and Industry—Risks Relating to

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the Sales and Distribution of Our Products—If we fail to commercialize any pipeline products, our

business prospects could be adversely affected.”

Healthcare Policies, Regulations and Reimbursement

The regulatory framework for the pharmaceutical industry in China is constantly evolving, and

we expect it will continue to evolve. In recent years, the healthcare regulatory framework in China has

undergone significant changes, which may affect our financial condition and results of operations. We

expect that the market acceptance and sales volume of our commercialized and pipeline products will

depend in part on the level of government spending on healthcare and the coverage of our product

portfolio under government medical reimbursement schemes. For example, we expect the PRC to be

the major market for our products. In line with the overall growth in pharmaceutical industry and

increasing healthcare investment in China, the PRC government in the last several years has enacted

various policies and to healthcare services.

In April 2017, the PRC Government announced a pilot program in certain provinces in China to

implement the “two-invoice” system, which generally limits the network of distributors to a single

layer of distributors for sale of pharmaceutical products from manufacturers to hospitals. For details,

see “Regulations—Regulations in Relation to the Distribution of Drugs—Two-invoice System.” We

began to provide marketing and promotion services to certain pharmaceutical companies for certain of

their products, instead of conducting product sales, as a result of the two invoice system. We operate a

service fee revenue model for our marketing and promotion services. As of the Latest Practicable

Date, we only provided marketing and promotion services for one non-core product. As the

implementation of the “two-invoice system” is still at an early stage, and interpretations and

enforcement of this system continue to evolve, the actual effect of the “two-invoice” system on our

future results of operations is subject to change. We will continue to actively review and adjust our

product and business strategies accordingly based on the continued implementation of the “two-

invoice” system.

In particular, growth in population coverage and funding for public medical insurance programs

have significantly improved patients’ ability to pay for medical treatment, resulting in considerable

growth in both patient enrollment and average spending. At the same time, PRC regulations and

medical insurance plans also exert significant influence over drug pricing, such as, for example, by

imposing reimbursement caps, which could affect patients’ access to our products as well as our

profitability. The inclusion of our products in the NRDL or other government-sponsored medical

insurance programs may significantly increase the demand for such products. During the Track

Record Period, substantially all of our products were included in the NRDL.

In light of the PRC government’s key policy objective to regulate pricing in the healthcare

industry, legislations have been proposed or enacted. One of such efforts is the public tender processes

that we are responsible for participating in under regional centralized procurement regimes for the

right to sell our products to many public hospitals and other not-for-profit medical institutions within a

particular region. The inclusion of our products under centralized procurement regimes may have an

effect on our product prices. In November 2018, the PRC government launched the centralized drug

procurement pilot scheme for tendering a limited number of drugs with target procurement quantities

in “4+7” cities in China, and subsequently the drug and geographic coverage under the scheme in

2019 and 2020, which affected our Zinacef Tablet and Cefaclor Capsules products as of the Latest

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Practicable Date. For details of risks relating to such regulations and policies, see “Risk Factors—

Risks Relating to Our Business and Industry—Risks Relating to the Sales and Distribution of Our

Products.”

BASIS OF PRESENTATION AND PREPARATION

The Pre-[REDACTED] Reorganization, as more fully explained in “History, Development and

Corporate Structure—Pre-[REDACTED] Reorganization” in this document, was completed on

July 31, 2020. The historical financial information has been prepared on a combined basis by applying

the principles of merger accounting as if the Pre-[REDACTED] Reorganization had been completed

and the principal activities of the Company’s subsidiaries (the “Relevant Businesses”) had been

transferred to the existing group at the beginning of the Track Record Period. As certain inactive or

dormant entities that are legally owned by Eddingpharm Group (Cayman) Holdings Limited (the

“Disposed Subsidiaries”) took part in the Relevant Businesses throughout the Track Record Period, its

financial information has been combined into our historical financial information up to the date when

the existing group was formed which was deemed to be the disposal of the Disposed Subsidiaries. No

adjustments are made to reflect fair values or recognize any new assets or liabilities as a result of the

Pre-[REDACTED] Reorganization. Equity interests held by parties other than the same shareholder

group, and changes therein, prior to the Reorganization are presented as non-controlling interests in

equity in applying the principles of merger accounting.

The combined financial information has been prepared in accordance with HKFRSs issued by

the HKICPA and accounting principles generally accepted in Hong Kong. All HKFRSs effective for

the accounting period commencing from January 1, 2020, together with the relevant transitional

provisions, have been early adopted by our Group in the preparation of the combined financial

information throughout the Track Record Period and are consistently applied throughout the Track

Record Period.

SIGNIFICANT ACCOUNTING POLICIES, JUDGEMENTS AND ESTIMATES

The preparation of our Group’s financial statements requires management to make judgements,

estimates and assumptions that affect the reported amounts of revenues, expenses, assets and

liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty

about these assumptions and estimates could result in outcomes that could require a material

adjustment to the carrying amounts of the assets or liabilities affected in the future. Our significant

accounting policies, judgments and estimates are set forth in detail in note 2.5 and note 3 to the

Accountants’ Report set out in Appendix I to this document. Set out below are the significant

accounting policies which we believe are most important for an understanding of our financial

condition and results of operations.

Revenue Recognition

Sale of Pharmaceutical Products

Revenue from the sale of pharmaceutical products is recognized at the point in time when

control of the asset is transferred to the customer, generally on delivery of the pharmaceutical

products. For details of our recognition of sales to our distributors, please see “Business—Sales and

Marketing—Sales and Distributorship—Management of Distributors.” Some contracts for the sale of

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industrial products provide customers with sales rebates. The rebates give rise to variable

consideration.

We estimate variable consideration to be included in the transaction price for the sale of

pharmaceutical products with variable rebates.

We applied a statistical model for estimating expected sales rebates for contracts with more than

one volume threshold. The model uses the historical purchasing patterns and rebate entitlement of

customers to determine the expected rebate percentages and the expected value of the variable

consideration. Any significant changes in experience as compared to historical purchasing patterns

and rebate entitlements of customers will impact the expected rebate percentages estimated by the

Group.

We update our assessment of expected sales rebates annually and the refund liabilities are

adjusted accordingly. Estimates of expected sales rebates are sensitive to changes in circumstances

and our past experience regarding returns and rebate entitlements may not be representative of

customers’ actual returns and rebate entitlements in the future. As of December 31, 2017, 2018, 2019,

and June 30, 2020, the amounts recognized as refund liabilities were RMB74,364,000,

RMB98,547,000, RMB132,398,000 and RMB136,259,000 for the expected sales rebates,

respectively.

Sales Rebates

Retrospective sales rebates may be provided to certain customers according to terms specified in

the contract. Rebates are offset against amounts payable by the customer. To estimate the variable

consideration for the expected future rebates, the most likely amount method is used for contracts with

a single-volume threshold and the expected value method for contracts with more than one volume

threshold. The selected method that best predicts the amount of variable consideration is primarily

driven by the number of volume thresholds contained in the contract. The requirements on

constraining estimates of variable consideration are applied and a refund liability for the expected

future rebates is recognized.

Rendering of Promotion Services

Revenue from rendering of promotion services is recognized over the scheduled period on a

straight-line basis because the customer simultaneously receives and consumes the benefits provided

by us.

Provision for Expected Credit Losses on Trade and Bills Receivables

We use a provision matrix to calculate expected credit losses (“ECLs”) for trade and bills

receivables. The provision rates are based on the customers’ credit rating.

The provision matrix is initially based on our Group’s historical observed default rates. Our

Group will calibrate the matrix to adjust the historical credit loss experience with forward-looking

information. For instance, if forecast economic conditions (i.e., gross domestic product) are expected

to deteriorate over the next year which can lead to an increased number of defaults in the

manufacturing sector, the historical default rates are adjusted. At each reporting date, the historical

observed default rates are updated and changes in the forward-looking estimates are analyzed.

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The assessment of the correlation among historical observed default rates, forecast economic

conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in

circumstances and forecast economic conditions. Our Group’s historical credit loss experience and

forecast of economic conditions may also not be representative of a customer’s actual default in the

future. The information about the ECLs on our Group’s trade and bill receivables cost is disclosed in

note 20 to the Accountants’ Report set out in Appendix I to this document.

Tax-related Accounts

Deferred tax assets are recognized for deductible temporary differences to the extent that it is

probable that taxable profit will be available against which the deductible temporary differences can

be utilized. Significant management judgement is required to determine the amount of deferred tax

assets that can be recognized, based upon the likely timing and level of future taxable profits together

with future tax planning strategies. Further details are contained in note 18 to the Accountants’ Report

set out in Appendix I of this document. Our Group’s operations are subject to different tax

jurisdictions and the management is required to make assessment and evaluation on the corresponding

tax impacts.

Share-based Payment

We have engaged an independent appraiser to assist in determining the fair value of share-based

payment. The determination of fair value was made after consideration of a number of factors

including but not limited to: our Group’s financial and operating results, the global economic outlook

in general and the specific economic and competitive factors affecting the Group’s business, the

nature and prospects of the PRC pharmaceutical market, our business plan and prospect, business risks

our Group faces and market yields and return volatility of comparable corporate bonds. This

conclusion of value was based on generally accepted valuation procedures and practices that rely

extensively on the use of numerous assumptions and the consideration of many uncertainties, not all

of which can be easily quantified or ascertained.

Leases — Estimating the Incremental Borrowing Rate

We cannot readily determine the interest rate implicit in a lease, and therefore, we use an

incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the rate of interest that we

would have to pay to borrow over a similar term, and with a similar security, the funds necessary to

obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR

therefore reflects what we “would have to pay”, which requires estimation when no observable rates

are available (such as for subsidiaries that do not enter into financing transactions) or when it needs to

be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the

subsidiary’s functional currency). We estimate the IBR using observable inputs (such as market

interest rates) when available and is required to make certain entity-specific estimates (such as the

subsidiary’s stand-alone credit rating).

Business Combination

On December 31, 2019, we acquired approximately 100% equity interests in Suzhou Ceclor

Pharmaceutical Co., Ltd. at a total consideration of RMB489,568,000 and it has been accounted for as

our subsidiary since the acquisition date. The residual portion of the purchase consideration was

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allocated as goodwill, which represents the balance of the purchase consideration over the fair value

of identifiable net assets acquired by us. The purchase price allocation has involved significant

management judgement and estimation, such as the valuation methodologies, estimated revenue and

profit margins, the discount rate adopted and the estimation of useful life of the intangible asset.

Further details are given in note 35 to the Accountants’ Report set out in Appendix I to this document.

Impairment of Goodwill

We determine whether goodwill is impaired at least on an annual basis. This requires an

estimation of the value in use of the cash-generating units to which the goodwill is allocated.

Estimating the value in use requires us to make an estimate of the expected future cash flows from the

cash-generating units and also to choose a suitable discount rate in order to calculate the present value

of those cash flows. The carrying amount of goodwill as of December 31, 2019 and June 30, 2020 was

RMB112,055,000 and RMB112,055,000, respectively. Further details are given in note 16 to the

Accountants’ Report set out in Appendix I to this document.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the

moving weighted average method and, in the case of work in progress and finished goods, comprises

direct materials, direct labor and an appropriate proportion of overheads. Net realizable value is based

on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Impairment of Non-financial Assets (Other Than Goodwill)

We assess whether there are any indicators of impairment for all non-financial assets at the end

of each reporting period. Indefinite life intangible assets are tested for impairment annually and at

other times when such an indicator exists. Other non-financial assets are tested for impairment when

there are indicators that the carrying amounts may not be recoverable. An impairment exists when the

carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the

higher of its fair value less costs to sell and its value-in-use. The calculation of the fair value less costs

to sell is based on available data from binding sales transactions in an arm’s length transaction of

similar assets or observable market prices less incremental costs for disposing of the asset. When

value in use calculations are undertaken, management must estimate the expected future cash flows

from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the

present value of those cash flows.

Useful Lives of Intangible Assets

We determine the estimated useful lives for its intangible assets. This estimate is based on the

historical experience of the actual useful lives of intangible assets of similar nature and functions. It

could change significantly as a result of technical innovations, or competitor actions in response to

severe industry cycles. Management will increase the amortization charge where useful lives are less

than previously estimated lives, or it will write off or write down technically obsolete or non-strategic

assets that have been abandoned or sold.

– 273 –



SEGMENT INFORMATION

For management purposes, our business is organized in two reporting operating segments,

namely, (i) manufacturing and distribution of pharmaceutical products, and (ii) research and

development of new drugs. Our management monitors the results of our operating segments

separately for the purpose of making decisions on resource allocation and performance assessment.

All of our revenue generated during the Track Record Period were recorded in our manufacturing and

distribution segment. For details of our operating segments, see note 4 set out in “Appendix I—

Accountants’ Report.”

– 274 –



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– 275 –



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– 276 –



Revenue

Our revenue was RMB1,786.9 million, RMB1,478.1 million, RMB1,874.9 million, RMB828.1

million and RMB594.8 million for the years ended December 31, 2017, 2018 and 2019 and the six

months ended June 30, 2019 and 2020, respectively. Our revenue is stated as gross revenue from sale

of pharmaceutical products and rendering of promotional services, net of sales rebates and sales tax.

For details of accounting policies relating to sales rebates, see “—Significant Accounting Policies,

Judgments and Estimates—Revenue Recognition—Sales of Pharmaceutical Products—Sales

Rebates.”

Revenue by Business

During the Track Record Period, we primarily generated revenue from sales of pharmaceutical

products. For a description of our products, see “Business—Our Product Portfolio.” Starting in 2017,

we provided marketing and promotion services to certain pharmaceutical companies for certain of

their products and operate a service fee revenue model for these services.

For the year ended December 31, For the six months ended June 30,

2017 2018 2019 2019 2020

RMB’000 (except percentages)(unaudited)

Sale of pharmaceutical products . . . . .1,740,872 97.4% 1,251,525 84.7% 1,684,091 89.8% 713,672 86.2% 563,198 94.7%Rendering of promotion service . . . . . 46,066 2.6% 226,608 15.3% 190,788 10.2% 114,452 13.8% 31,586 5.3%

Total . . . . . . . . . . . . . . . . . . . . . . . . . .1,786,938 100.0% 1,478,133 100.0% 1,874,879 100.0% 828,124 100.0% 594,784 100.0%

Revenue by Product Type

During the Track Record Period, we primarily generated revenue from our core commercialized

products. Revenue from these products in aggregate amounted to RMB1,259.7 million, RMB1,040.3

million, RMB1,007.1 million, RMB388.4 million and RMB530.8 million for the years ended

December 31, 2017, 2018 and 2019 and the six months ended June 30, 2019 and 2020, respectively,

accounting for 70.5%, 70.4%, 53.7%, 46.9% and 89.2% of our total revenue for the same periods.

To a lesser extent, we also generated revenue from other (i) non-core commercialized products,

such as Zinacef and Fortum, (ii) products that we have ceased selling, such as Clenil and Foster, due

to the termination of our partnership with a joint venture partner in 2019, and (iii) rendering of

promotion services for Tykerb, which significantly decreased in the first half of 2020. Revenue

generated from these products in aggregate amounted to RMB723.5 million, RMB563.7 million,

RMB1,035.9 million, RMB513.9 million and RMB77.8 million for the years ended December 31,

2017, 2018 and 2019 and the six months ended June 30, 2019 and 2020, respectively, accounting for

40.5%, 38.1%, 55.3%, 62.1% and 13.1% of our total revenue for the same periods. For details of our

recognition of sales to our distributors for Clenil and Foster from 2018 to 2019, please see

“Business—Sales and Marketing—Sales and Distributorship—Management of Distributors.”

– 277 –



The following table sets forth the breakdown of our revenue by products for the periods

indicated:

For the year ended December 31,For the six months ended

June 30,

2017 2018 2019 2019 2020


Core commercialized productsCeclor

Sale of products . . . . . . . . . . . . . . . . 377,290 21.1% 197,343 13.4% 235,220 12.5% 87,751 10.6% 152,098 25.6%Rendering of promotion service . . . 12,496 0.7% 47,770 3.2% 45,278 2.4% 26,928 3.2% – –

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . 389,786 21.8% 245,113 16.6% 280,498 14.9% 114,679 13.8% 152,098 25.6%Vancocin . . . . . . . . . . . . . . . . . . . . . . . 869,946 48.7% 795,226 53.8% 726,575 38.8% 273,701 33.1% 365,844 61.4%FPN . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – – – – – – 12,879 2.2%

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . 1,259,732 70.5% 1,040,339 70.4% 1,007,073 53.7% 388,380 46.9% 530,821 89.2%

Other productsSale of products . . . . . . . . . . . . . . . . 689,885 38.6% 384,902 26.0% 890,371 47.5% 426,343 51.5% 46,203 7.8%Rendering of promotion service . . . 33,570 1.9% 178,838 12.1% 145,510 7.8% 87,524 10.6% 31,586 5.3%

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . 723,455 40.5% 563,740 38.1% 1,035,881 55.3% 513,867 62.1% 77,789 13.1%Less:

Rebates . . . . . . . . . . . . . . . . . . . . . . (194,037) (10.9%) (122,423) (8.3%) (163,193) (8.7%) (71,091) (8.6%) (12,408) (2.1%)Sales tax . . . . . . . . . . . . . . . . . . . . . . (2,212) (0.1%) (3,523) (0.2%) (4,882) (0.3%) (3,032) (0.4%) (1,418) (0.2%)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . 1,786,938 100.0% 1,478,133 100.0% 1,874,879 100.0% 828,124 100.0% 594,784 100.0%

Cost of Sales

Prior to our Ceclor and Vancocin acquisition in October 2019, our cost of sales from inventories

sold primarily represented costs of finished products we procured from our pharmaceutical company

suppliers. After the acquisition, we began to manufacture Ceclor in-house and had costs for raw

material procurement, manufacturing-related labor, depreciation and amortization and other overhead

costs. Our cost of sales also included costs relating to the promotion services we provided, which were

primarily labor costs for operational personnel that provided such services. The following table sets

forth the breakdown of our cost of sales by nature for the periods indicated:


June 30,

2017 2018 2019 2019 2020


Cost of inventories sold . . . . 1,155,922 97.8% 862,232 91.7% 933,818 92.1% 461,105 92.4% 249,948 97.6%

Cost of services provided . . . 26,455 2.2% 77,696 8.3% 80,197 7.9% 37,714 7.6% 6,149 2.4%

Total . . . . . . . . . . . . . . . . . . . 1,182,377 100.0% 939,928 100.0% 1,014,015 100.0% 498,819 100.0% 256,097 100.0%

Gross Profit and Gross Profit Margin

Our gross profit amounted to RMB604.6 million, RMB538.2 million, RMB860.9 million,

RMB329.3 million and RMB338.7 million for the years ended December 31, 2017, 2018 and 2019

and the six months ended June 30, 2019 and 2020, respectively. Our gross profit margin was 33.8%,

36.4%, 45.9%, 39.8% and 56.9% for the same periods, respectively.

– 278 –



Other Income and Gains

Our other income primarily consist of (i) various government grants we recorded from local

PRC governments, and (ii) bank interest income. Our other gains primarily include (i) net gain arising

from a transaction with a non-controlling shareholder of RMB247.7 million in 2019, representing the

minority interest of a joint venture partner that we acquired upon the termination of our partnership in

2019 (see note 34 to “Appendix I—Accountants’ Report” for details), (ii) gain on derecognition of

other intangible assets of RMB44.4 million in 2019, representing the exclusive distribution rights in

relation to Ceclor and Vancocin, which was recorded as a disposal upon our acquisition of the drug

rights of these products, (iii) compensation for early termination of drug rights of RMB13.1 million in

2018, representing amounts paid to us by a collaboration partner after the termination of such

partnership, and (iv) gain on fair value change of derivative financial instruments, primarily

representing the fair value changes in relation to the Old ABAX Warrants we issued. The following

table sets forth the breakdown of our other income and gains for the periods indicated:

For the year endedDecember 31,

For the six monthsended June 30,

2017 2018 2019 2019 2020

RMB’000(unaudited)

Other incomeBank interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,774 595 1,348 556 828Government grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,475 12,044 9,244 2,206 4,211Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 21 183 23 93

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,311 12,660 10,775 2,785 5,132

Other gainsForeign exchange differences, net . . . . . . . . . . . . . . . . . . . . . 2,441 – – – –Write-off of trade and bills payables . . . . . . . . . . . . . . . . . . . – 4,316 – – –Compensation for early termination of drug rights . . . . . . . . – 13,108 – – –Gain on disposal of a subsidiary . . . . . . . . . . . . . . . . . . . . . . . – – 1,349 – –Gain on derecognition of other intangible assets . . . . . . . . . . – – 44,355 – –Gain on fair value change of derivative financial

instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,811 11,821 – – –Net gain arising from a transaction with a non-controlling

shareholder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 247,715 – –

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,252 29,245 293,419 – –

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,563 41,905 304,194 2,785 5,132

– 279 –



Selling and Distribution Expenses

Our selling and distribution expenses primarily consist of staff costs for our sales and marketing

personnel and conference expenses that we attend and host to promote our products. In addition, we

also incurred (i) business development, travel and communication costs, (ii) depreciation and

amortization for our intangible assets, right-of-use assets and fixed assets, (iii) marketing service fees

we paid to third parties for product promotion, and (iv) VAT and related surcharges not deductible

relating to cross-border service charges. The following table sets forth the breakdown of our selling

and distribution expenses for the periods indicated:


June 30,

2017 2018 2019 2019 2020


Staff costs . . . . . . . . . . . . . . . . . . 242,394 56.2% 161,840 36.4% 155,942 40.8% 75,175 42.2% 90,317 52.1%Conference expenses . . . . . . . . . 90,110 20.9% 122,971 27.7% 109,441 28.6% 38,652 21.7% 23,726 13.7%Business development, travel

and communicationexpenses . . . . . . . . . . . . . . . . . 39,831 9.2% 44,790 10.1% 33,503 8.8% 21,772 12.2% 16,107 9.3%

Depreciation andamortization . . . . . . . . . . . . . . 15,962 3.7% 31,297 7.0% 22,996 6.0% 12,362 6.9% 15,911 9.2%

Marketing service fees . . . . . . . . 10,186 2.4% 51,782 11.7% 40,243 10.5% 23,251 13.1% 12,751 7.4%Taxes not deductible relating to

cross-border servicecharges . . . . . . . . . . . . . . . . . . 22,411 5.2% 20,648 4.6% 9,064 2.4% 2,851 1.6% 7,200 4.2%

Others(1) . . . . . . . . . . . . . . . . . . . 10,685 2.4% 11,025 2.5% 10,950 2.9% 4,006 2.3% 7,264 4.1%

Total 431,579 100.0% 444,353 100.0% 382,139 100.0% 178,069 100.0% 173,276 100.0%

(1) Others include logistics fees and other miscellaneous expenses.

Administrative Expenses

Our administrative expenses primarily consist of staff costs for our management and

administrative personnel and professional service fees, which represent fees paid to professional third

parties. We also incurred (i) depreciation and amortization for intangible assets, right-of-use assets and

fixed assets, (ii) rent, business development, travel and communication expenses, (iii) share-based

compensation expenses, and (iv) bank charges. The following table sets forth the breakdown of our

administrative expenses for the periods indicated:


June 30,

2017 2018 2019 2019 2020


Staff costs . . . . . . . . . . . . . . . . . . . . 44,869 38.5% 52,944 38.5% 77,412 41.8% 31,075 45.5% 37,611 47.5%Professional service fees . . . . . . . . . 36,274 31.1% 43,668 31.8% 80,275 43.4% 20,992 30.7% 29,562 37.3%Depreciation and amortization . . . . 16,627 14.3% 16,174 11.8% 13,538 7.3% 6,844 10.0% 6,872 8.7%Rent, business development, travel

and communication expenses . . . 11,963 10.3% 11,715 8.5% 9,416 5.1% 3,510 5.1% 2,634 3.3%Share-based compensation

expenses . . . . . . . . . . . . . . . . . . . 427 0.4% 4,707 3.4% (574) (0.3%) 3,807 5.6% 1,035 1.3%Bank charges . . . . . . . . . . . . . . . . . 4,255 3.7% 4,357 3.2% 3,109 1.7% 1,187 1.7% 396 0.5%Others(1) . . . . . . . . . . . . . . . . . . . . . 2,043 1.7% 3,903 2.8% 1,841 1.0% 872 1.4% 1,045 1.4%

Total . . . . . . . . . . . . . . . . . . . . . . . . 116,458 100.0% 137,468 100.0% 185,017 100.0% 68,287 100.0% 79,155 100.0%

– 280 –



(1) Others primarily represent fees relating to IT services, insurance and other miscellaneous items.

Research and Development Expenses

Our research and development expenses primarily consist of staff costs for our R&D personnel,

depreciation and amortization, and third party contracting costs incurred in relation to the research and

development of our in-house developed products, and amounted to RMB17.1 million, RMB23.9

million, RMB27.5 million, RMB11.7 million and RMB25.5 million for the years ended December 31,

2017, 2018 and 2019 and the six months ended June 30, 2019 and 2020.

Impairment Losses on Financial Assets

Our net impairment losses on financial assets primarily represents provisions we recorded for

certain trade receivables, and amounted to RMB16.5 million, RMB1.7 million, RMB0.3 million and

RMB(0.6) million for the years ended December 31, 2017, 2018 and 2019 and the six months ended

June 30, 2020.

Other Expenses

Our other expenses primarily included:

• Foreign exchange losses, net, which primarily represents foreign exchange losses due to

exchange rate fluctuations between the Renminbi on the one hand, and the US dollar and

Euro, on the other hand.

• Provision for the right of return, which represents the product recalls of Lipoplus and

NuTRIflex, which we marketed and sold in China, in 2017 due to manufacturing and

quality control issues of their manufacturers. For details, see “Business—Quality

Management, Manufacturing and Global Supply Chain Management—“6Ms” Quality

Management Systems—Materials and Finished Products.”

• Impairment of inventory, which primarily represented impairment of finished products of

Ceclor in our inventory. In 2018, the RMB29.8 million primarily represented unsold

products that were near expiration date, for which we recognized an impairment charge. In

2019, the RMB34.6 million primarily related to a one-off decrease in price for shipments

of certain products.

• Loss on fair value change, which primarily represented fair value changes of our derivative

financial instruments.

• Settlement fees, primarily represented settlement fees and expenses we incurred for a

lawsuit, which has been closed as of the Latest Practicable Date.

– 281 –



The following table sets forth the breakdown of our other expenses for the periods indicated:


2017 2018 2019 2019 2020


Provision of right of return . . . . . . . . 20,307 – – – –Donation expenses . . . . . . . . . . . . . . 3,145 72 – – 6,181Loss on disposal of property, plant

and equipment . . . . . . . . . . . . . . . . 574 88 93 – 178Impairment of inventory . . . . . . . . . . 913 29,807 34,594 9,708 3,366Loss on fair value change . . . . . . . . . – – 70,020 17,507 1,793Foreign exchange losses, net . . . . . . . – 18,268 37,856 22,278 26,520Write-off of bad debt . . . . . . . . . . . . . 355 – – – –Settlement fees . . . . . . . . . . . . . . . . . – – 14,000 14,000 –Others . . . . . . . . . . . . . . . . . . . . . . . . 343 1,495 132 118 665

Total . . . . . . . . . . . . . . . . . . . . . . . . . 25,637 49,730 156,695 63,611 38,703

Finance Costs

Our finance costs primarily consist of (i) interests and modification gain on interest-bearing bank

loans and other borrowings, (ii) interests on a liability component of the redeemable ordinary shares

we issued to certain Pre-[REDACTED] Investors, (iii) interests on discounted bills in relation to

certain products sold to importers, (iv) interests on lease liabilities, and (v) cash discounts that we

offered from time to time as part of our strategy to increase accounts receivable settlement by

customers. For details of the redeemable ordinary shares we issued to Pre-[REDACTED] Investors,

see “History, Development and Corporate Structure — Major Corporate Development and

Shareholding Changes of Our Group.” The following table sets forth the breakdown of our finance

costs for the periods indicated:


2017 2018 2019 2019 2020


Interests and modification gain oninterest-bearing bank loans andother borrowings . . . . . . . . . . . . . . 30,328 75,236 72,595 21,952 36,887

Interests on discounted bills . . . . . . . 6,408 11,344 19,651 5,234 5,158Cash discounts . . . . . . . . . . . . . . . . . . – – 845 – 1,274Interests on lease liabilities . . . . . . . . 2,073 2,846 2,268 1,323 610Interests on a liability component of

redeemable ordinary shares . . . . . . 24,145 26,518 119,672 60,649 –Interests on other long-term

payables . . . . . . . . . . . . . . . . . . . . . 491 40 – – –

Total . . . . . . . . . . . . . . . . . . . . . . . . . 63,445 115,984 215,031 89,158 43,929

Income Tax Expenses

Our income tax expenses amounted to RMB17.0 million, RMB25.7 million, RMB26.1 million and

RMB9.2 million for the years ended December 31, 2017, 2018 and 2019 and the six months ended

June 30, 2020, respectively. Our effective income tax rates, which represent income tax expenses divided

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by loss/profit before tax, were (78.8%), (13.6%), 13.1% and (53.3%) for the years ended December 31,

2017, 2018 and 2019 and the six months ended June 30, 2020, respectively.

Pursuant to the rules and regulations of the Cayman Islands, the Company is not subject to any

income tax in the Cayman Islands. We currently conduct our business mainly through our subsidiaries

in the PRC, which has a statutory rate of 25% of the assessable profits under the EIT Law. We also

have subsidiaries in Macau, Malaysia and Hong Kong. Taxes on profits assessable in such

jurisdictions are calculated at the tax rates prevailing or applicable in such jurisdictions.

RESULTS OF OPERATIONS

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Revenue

Our revenue decreased by 28.2% from RMB828.1 million for the six months ended June 30,

2019 to RMB594.8 million for the six months ended June 30, 2020, reflecting a decrease in sales from

our other products, primarily because (i) certain of our drug sales were affected by the COVID-19

pandemic due to a temporary decrease in surgeries and medical treatments and limited hospital

services in China, (ii) we ceased to sell or procure certain drugs in 2020 and generated revenue from

such products in the first half of 2019, and (iii) sales of certain drugs decreased temporarily during a

transition of importers.

This decrease was partially offset by an increase in revenue from sales of our core

commercialized products, including Ceclor and Vancocin. We acquired Ceclor and Vancocin in

October 2019. Our revenue from Ceclor and Vancocin increased by RMB37.4 million and RMB92.1

million, respectively, from the six months ended June 30, 2019 to the six months ended June 30, 2020,

primarily because our sales of Vancocin were relatively low in the first half of 2019 as we were in the

process of renewing our import drug license (“IDL license”) for this product and because, upon our

acquisition of Ceclor, we generated all of our revenue from Ceclor through product sales instead of

partially through service fees. In addition, we began to offer FPN and generated revenue of RMB12.9

million from sales of FPN for the six months ended June 30, 2020.

Cost of Sales

Our cost of sales decreased by 48.7% from RMB498.8 million for the six months ended June 30,

2019 to RMB256.1 million for the six months ended June 30, 2020, primarily reflecting (i) the

decrease in revenue, (ii) a change in our cost structure upon our acquisition of Ceclor and Vancocin,

which we were able to optimize through increased control of our global supply chain.


Our gross profit increased by 2.9% from RMB329.3 million for the six months ended June 30,

2019 to RMB338.7 million for the six months ended June 30, 2020, primarily because gross profit of

our core commercialized products increased, reflecting a revenue increase from these products,

partially offset by a decrease in gross profit from our other products in line with the revenue decrease.

Our gross profit margin increased from 39.8% to 56.9% during these periods, primarily because we

were able to increase gross profit margins for Ceclor and Vancocin upon our acquisition by optimizing

our cost structure through increased control of the global supply chain.

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Our other income and gains increased by 82.1% from RMB2.8 million for the six months ended

June 30, 2019 to RMB5.1 million for the six months ended June 30, 2020, primarily due to an increase

in government grants by RMB2.0 million relating to grants from local governments in support of our

business growth.


Our selling and distribution expenses decreased by 2.7% from RMB178.1 million for the six

months ended June 30, 2019 to RMB173.3 million for the six months ended June 30, 2020, primarily

due to (i) a RMB15.0 million decrease in conference expenses, and (ii) a RMB10.5 million decrease in

marketing service fees, because we had fewer conferences and marketing activities in the first half of

2020 due to the COVID-19 pandemic. This decrease was primarily offset by a RMB15.1 million

increase in staff costs as we had increased headcount in anticipation of our business growth.


Our administrative expenses increased by 16.0% from RMB68.3 million for the six months

ended June 30, 2019 to RMB79.2 million for the six months ended June 30, 2020, primarily because

(i) our professional service fees increased by RMB8.6 million as we made payments to professional

third parties, and (ii) our staff costs increased by RMB6.5 million as we increased headcount and

expanded our business.


Our research and development expenses increased by 117.9% from RMB11.7 million for the six

months ended June 30, 2019 to RMB25.5 million for the six months ended June 30, 2020, primarily

because we had increased research and development activities and recruited more research and

development staff for our ERC 301 and ERC 302 drug candidates.


Our impairment losses on financial assets was RMB0.4 million for the six months ended

June 30, 2019 and RMB0.6 million for the six months ended June 30, 2020, based on our assessment

of the recoverability of certain trade receivables.

Other Expenses

Our other expenses decreased by 39.2% from RMB63.6 million for the six months ended

June 30, 2019 to RMB38.7 million for the six months ended June 30, 2020, primarily because (i) loss

on fair value change of our derivative financial instruments decreased from RMB17.5 million to

RMB1.8 million, and (ii) we recorded settlement fees of RMB14.0 million for the six months ended

June 30, 2019 in relation to a lawsuit that has been closed in the same year, which we did not have in

the six months ended June 30, 2020. This decrease was partially offset by the donation expenses of

RMB6.2 million we recorded in the six months ended June 30, 2020, which we did not have in the six

months ended June 30, 2019.

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Finance Costs

Our finance costs decreased by 50.8% from RMB89.2 million for the six months ended June 30,

2019 to RMB43.9 million for the six months ended June 30, 2020, primarily because the redemption

rights attached to ordinary shares we issued to certain Pre-[REDACTED] Investors, for which we

recorded certain interest expenses in the six months ended June 30, 2019, were terminated in October

2019, and we no longer recorded interest expenses for such shares in the six months ended June 30,

2020.

Income Tax Expenses

Our income tax expenses decreased by 27.6% from RMB12.7 million for the six months ended

June 30, 2019 to RMB9.2 million for the six months ended June 30, 2020 and our effective income

tax rate decreased from (16.0%) for the six months ended June 30, 2019 to (53.3%) for the six months

ended June 30, 2020, primarily reflecting the lower losses before tax and higher expenses not

deductible for tax we recorded in the six months ended June 30, 2020.

Loss for the Period

For the reasons discussed above, our loss for the period decreased from RMB91.7 million for the

six months ended June 30, 2019 to RMB26.5 million for the six months ended June 30, 2020.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

Revenue

Our revenue increased by 26.8% from RMB1,478.1 million for the year ended December 31,

2018 to RMB1,874.9 million for the year ended December 31, 2019, reflecting an increase in revenue

from sale of other products, mainly certain respiratory and anti-infective products. The increase was

partially offset by a slight decrease in revenue from our core commercialized products, primarily

because we accelerated sales of Vancocin in 2018 in anticipation of renewing our IDL license for this

product towards the end of 2018 and in the first half of 2019.

Cost of Sales

Our cost of sales increased by 7.9% from RMB939.9 million for the year ended December 31,

2018 to RMB1,014.0 million for the year ended December 31, 2019, primarily because costs for other

products increased from RMB263.3 million to RMB533.9 million, reflecting the increase in sales of

certain other products, partially offset by a decrease in costs for Ceclor and Vancocin, primarily

because we were able to optimize our cost structure for Ceclor and Vancocin upon our acquisition

through increased control of the global supply chain.


Our gross profit increased by 60.0% from RMB538.2 million for the year ended December 31,

2018 to RMB860.9 million for the year ended December 31, 2019, primarily reflecting the increase in

sales from other products. Our gross profit margin increased from 36.4% to 45.9%, primarily

reflecting an increase in gross profit margin of Ceclor and Vancocin because we were able to optimize

our cost structure for these products upon our acquisition through increased control of the global

supply chain.

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Our other income, gains increased significantly from RMB41.9 million for the year ended

December 31, 2018 to RMB304.2 million for the year ended December 31, 2019, primarily because

(i) we had net gain arising from a transaction with a non-controlling shareholder of RMB247.7 million

in 2019 in relation to the minority interest of a joint venture partner that we acquired upon the

termination of our partnership in 2019 and as a result, we discontinued the sale of Clenil and Foster

(see note 34 to “Appendix I—Accountants’ Report” for details), and (ii) we had gain on derecognition

of other intangible assets of RMB44.4 million in 2019 in relation to the exclusive distribution rights

for Ceclor and Vancocin, which was recorded as a disposal upon our acquisition of the drug rights of

these products.


Our selling and distribution expenses decreased by 14.0% from RMB444.4 million for the year

ended December 31, 2018 to RMB382.1 million for the year ended December 31, 2019, primarily due to

(i) a RMB13.6 million decrease in conference expenses because of a decrease in certain marketing

activities as we fine-tuned our marketing strategy, (ii) a RMB11.5 million decrease in VAT and related

surcharges not deductible relating to cross-border service charges, and (iii) a RMB11.3 million decrease

in business development, travel and communications expenses because we took certain cost-saving

measures to improve efficiency.


Our administrative expenses increased by 34.5% from RMB137.5 million for the year ended

December 31, 2018 to RMB185.0 million for the year ended December 31, 2019, primarily due to

(i) a RMB36.6 million increase in professional service fees, and (ii) a RMB24.5 million increase in

staff costs as we increased headcount of senior level personnel and expanded our business.


Our research and development expenses increased by 15.1% from RMB23.9 million for the year

ended December 31, 2018 to RMB27.5 million for the year ended December 31, 2019, primarily due

to an increase in staff costs as we recruited more research and development staff to develop a number

of our pipeline products.


We recorded a reversal on impairment losses on financial assets of RMB1.7 million for the year

ended December 31, 2018, and a reversal on impairment losses on financial assets of RMB0.3 million

for the year ended December 31, 2019, based on our assessment of the recoverability of certain trade

receivables.

Other Expenses

Our other expenses increased significantly from RMB49.7 million for the year ended


(i) we recorded loss from fair value changes of RMB70.0 million in 2019, (ii) we recorded an increase

of RMB19.6 million in net losses from foreign exchange due to the exchange rate fluctuation between

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Renminbi and US dollars, and (iii) we recorded settlement fees of RMB14.0 million in 2019 in

relation to a lawsuit that was closed in the same year, while we did not have such expenses in 2018.

Finance Costs

Our finance costs increased by 85.3% from RMB116.0 million for the year ended December 31,

2018 to RMB215.0 million for the year ended December 31, 2019, primarily due to an increase of

RMB93.2 million in interests on a liability component of redeemable ordinary shares, reflecting the

new redeemable ordinary shares we issued to certain Pre-[REDACTED] Investors in 2019.

Income Tax Expenses

Our income tax expenses increased by 1.6% from RMB25.7 million for the year ended

December 31, 2018 to RMB26.1 million for the year ended December 31, 2019 and our effective tax

rate increased from (13.6%) in 2018 to 13.1% in 2019. Although we recorded losses before tax in

2018, our tax at PRC statutory tax rate in 2018 was adjusted for tax losses not recognized of

RMB45.7 million and lower tax rates for certain subsidiaries of RMB21.8 million, which resulted in

tax expenses of RMB25.7 million in that year. In 2019, we recorded profit before tax of

RMB199.0 million, and our income tax expenses amounted to RMB26.1 million.

(Loss)/Profit for the Year

For the reasons discussed above, our loss for the year was RMB215.4 million for the year ended

December 31, 2018 and our profit for the year was RMB172.9 million for the year ended

December 31, 2019.

Year Ended December 31, 2018 Compared to Year Ended December 31, 2017

Revenue

Our revenue decreased by 17.3% from RMB1,786.9 million for the year ended December 31,

2017 to RMB1,478.1 million for the year ended December 31, 2018, reflecting a decrease in revenue

from core commercialized products and other products. Our revenue from core commercialized

products decreased from RMB1,259.7 million to RMB1,040.3 million, primarily because we took

over and sold a significant amount of Ceclor and Vancocin inventories from Eli Lilly when we

became the exclusive distributor in China in 2017, and reflecting the full impact of the promotion

services in 2018 as we provided such services starting in 2017. Our revenue from other products

decreased from RMB723.5 million to RMB563.7 million, primarily due to a decrease in sales from

certain products that we no longer sell.

Cost of Sales

Our cost of sales decreased by 20.5% from RMB1,182.4 million for the year ended


costs relating to core commercialized products and other products decreased in line with a decrease in

sales of such products.


Our gross profit decreased by 11.0% from RMB604.6 million for the year ended December 31,

2017 to RMB538.2 million for the year ended December 31, 2018, primarily because our gross profit

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from other products decreased in line with the decrease in sales of these products. Our gross profit

margin increased from 33.8% for the year ended December 31, 2017 to 36.4% for the year ended

December 31, 2018, primarily reflecting the full impact of the promotion services in 2018 as we

provided such services starting in 2017.


Our other income, gains increased significantly from RMB11.6 million for the year ended


(i) we recorded RMB13.1 million in 2018, representing one-off compensation for early termination of

drug rights, and (ii) an increase of RMB10.0 million in the gain on fair value change of derivative

financial instruments, primarily in relation to the Old ABAX Warrants we issued. For details, see

“History, Development and Corporate Structure—Major Corporate Development and Shareholding

Changes of Our Group—Warrant Instrument.”


Our selling and distribution expenses increased by 3.0% from RMB431.6 million for the year

ended December 31, 2017 to RMB444.4 million for the year ended December 31, 2018, primarily due

to (i) a RMB41.6 million increase in marketing service fees, and (ii) a RMB32.9 million increase in

conference expenses, both due to increasing sales and marketing activities for our products. This

increase was partially offset by a RMB80.6 million decrease in staff costs, which was because certain

staff costs were recorded as labor costs under cost of sales in 2018 instead of selling and marketing

costs in relation to the promotion services we increasingly provided starting in 2017.


Our administrative expenses increased by 18.0% from RMB116.5 million for the year ended


(i) a RMB8.0 million increase in staff costs as we expand our business, and (ii) a RMB7.4 million

increase in professional service fees in relation to ongoing drug asset acquisitions.


Our research and development expenses increased by 39.8% from RMB17.1 million for the year

ended December 31, 2017 to RMB23.9 million for the year ended December 31, 2018, primarily

because our staff costs increased as we expanded our research and development team and our

depreciation and amortization costs increased as we procured more equipment for our research and

development facilities.


Our reversal of impairment losses on financial assets decreased significantly from

RMB16.5 million for the year ended December 31, 2017 to RMB1.7 million for the year ended

December 31, 2018, primarily reflecting our assessment of the recoverability of certain trade

receivables.

Other Expenses

Our other expenses increased significantly from RMB25.6 million for the year ended


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(i) our impairment for inventory increased by RMB28.9 million as we recorded impairment for certain

unsold products that were near expiration date, and (ii) we recorded RMB18.3 million in net losses

from foreign exchange due to exchange rate fluctuations. The increase is partially offset by the

decrease in provision for right of return, which we recorded in the amount of RMB20.3 million in

2017 for the one-time product recall of Lipoplus and NuTRIflex, whereas we did not have such

provision in 2018.

Finance Costs

Our finance costs increased by 83.0% from RMB63.4 million for the year ended December 31,

2017 to RMB116.0 million for the year ended December 31, 2018, primarily due to an increase of

RMB44.9 million in interest on interest-bearing bank loans and other borrowings, primarily reflecting

the level of borrowings we had in 2018.

Income Tax Expenses

Our income tax expenses increased from RMB17.0 million for the year ended December 31,

2017 to RMB25.7 million for the year ended December 31, 2018, and our effective income tax rate

increased from (78.8%) in 2017 to (13.6%) in 2018, primarily because (i) our tax losses not

recognized increased from RMB20.7 million in 2017 to RMB45.7 million in 2018, (ii) a RMB21.8

million tax impact in relation to the lower tax rates applicable to certain subsidiaries in 2018, (iii) our

adjustments in respect of current tax of previous periods increased from RMB1.2 million to

RMB15.7 million, and (iv) our assessable profits in subsidiaries in jurisdictions with lower tax rates

increased.

Loss for the Year

For the reasons discussed above, our loss for the year increased from RMB38.5 million for the

year ended December 31, 2017 to RMB215.4 million for the year ended December 31, 2018.

– 289 –



DESCRIPTION OF CERTAIN COMBINED STATEMENT OF FINANCIAL POSITIONITEMS

The following table sets forth a summary of our combined statement of financial position as of

the dates indicated:

As of December 31,As of

June 30,20202017 2018 2019

RMB’000Non-current assetsProperty, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,239 78,140 230,975 230,543Prepayments, other receivables and other assets . . . . . . . . . . . . . . . 155,789 173,254 219,773 266,582Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,765 – 14,942 19,756Right-of-use assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,356 20,606 24,883 21,562Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 112,055 112,055Other intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,891 142,132 2,570,303 2,970,758

Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,040 414,132 3,172,931 3,621,256

Current assetsInventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,406 295,830 336,890 569,207Trade and bills receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269,932 245,433 430,290 448,578Prepayments, other receivables and other assets . . . . . . . . . . . . . . . 190,660 96,635 114,795 145,229Due from related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,078 70,105 178,076 11,611Pledged deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,539 10,000 175,254 19,176Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191,210 112,724 662,002 132,751

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 928,825 830,727 1,897,307 1,326,552

Current liabilitiesTrade and bills payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327,216 577,213 434,935 201,376Other payables and accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,630 351,100 502,148 201,369Refund liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,364 98,547 132,398 136,259Interest-bearing bank and other borrowings . . . . . . . . . . . . . . . . . . . 251,718 92,168 1,688,394 516,477Due to related parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,643 44,603 114,715 186,328Derivative financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 26,141 30,817Tax payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,623 21,547 44,179 13,861Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,022 11,602 9,623 4,624

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,189,216 1,196,780 2,952,533 1,291,111

Net current (liabilities)/assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . (260,391) (366,053) (1,055,226) 35,441

Total assets less current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 89,649 48,079 2,117,705 3,656,697Non-current liabilitiesInterest-bearing bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . 126,946 279,480 740,198 2,212,112Derivative financial instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,087 5,551 68,408 84,969Liability component of redeemable ordinary shares . . . . . . . . . . . . 217,917 256,355 – –Other long-term payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,296 – – –Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,117 9,921 1,263 2,371

Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384,363 551,307 809,869 2,299,452

Net (liabilities)/assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (294,714) (503,228) 1,307,836 1,357,245

Property, Plant and Equipment

Our property, plant and equipment consist of buildings, leasehold improvements, plant and

machinery, office and other equipment, motor vehicles and construction in progress. Our property,

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plant and equipment increased from RMB50.2 million as of December 31, 2017 to RMB78.1 million

as of December 31, 2018 was primarily in relation to the construction of a research and development

facility for our in-house developed products, partially offset by depreciation costs. Our property, plant

and equipment increased significantly to RMB231.0 million as of December 31, 2019 was primarily

related to the acquisition of fixed assets in relation to Ceclor. Our property, plant and equipment

decreased slightly to RMB230.5 million as of June 30, 2020 primarily due to depreciation.

Prepayments, Other Receivables and Other Assets

Our prepayments, other receivables and other assets primarily consist of (i) prepayments for

exclusive rights on new drugs, which represent our development and commercialization rights for

in-licensed drugs, such as Vascepa and Mulpleta, (ii) prepayments for marketing expenses, (iii) other

receivables, which represent purchase rebates issued to us from suppliers, and (iv) deposits. The

following table sets forth the details of our prepayments, other receivables and other assets as of the

dates indicated:


June 30,20202017 2018 2019

RMB’000Non-current portion

Prepayments for exclusive rights on new drugs . . . . . . . . . . 120,639 134,375 219,773 266,407Prepayments for marketing expense . . . . . . . . . . . . . . . . . . 35,150 38,879 – –Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 175

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,789 173,254 219,773 266,582

Current portionPrepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,386 19,762 23,077 24,345Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,475 7,163 5,602 3,062Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,063 55,943 36,052 52,023Deductible input tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,611 14,360 50,325 65,901

Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191,535 97,228 115,056 145,331

Less: Impairment allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . (875) (593) (261) (102)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346,449 269,889 334,568 411,811

Our prepayments, other receivables and other assets decreased from RMB346.4 million as of

December 31, 2017 to RMB269.9 million as of December 31, 2018 primarily due to a decrease in

other receivables, reflecting our redemption of purchase rebates from Eli Lilly. As of December 31,

2019, our prepayments, other receivables and other assets increased to RMB334.6 million primarily

due to the increase in prepayments for the exclusive rights on new drugs of Mulpleta and FPN. Our

prepayments, other receivables and other assets further increased to RMB411.8 million as of June 30,

2020 due to an increase in prepayments for the exclusive rights on new drugs of EDP 125.

Right-of-use Assets

We recognize right-of-use assets for leases of land and office premises. Our right-of-use assets

increased from RMB15.4 million as of December 31, 2017 to RMB20.6 million as of December 31,

2018, and to RMB24.9 million as of December 31, 2019, primarily due to an increase in number of

leases we entered into as our business expanded and reflecting our acquisition of the Ceclor

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manufacturing facility, partially offset by depreciation costs. Our right-of-use assets decreased slightly

to RMB21.6 million as of June 30, 2020 primarily due to depreciation.

Other Intangible Assets

Our other intangible assets represent our exclusive distribution rights for certain drugs, software

used to design our products, trademarks and our know-how licenses. Our other intangible assets

increased from RMB122.9 million as of December 31, 2017 to RMB142.1 million as of December 31,

2018, primarily because we obtained the exclusive rights relating to certain drugs. Our other

intangible assets increased significantly to RMB2,570.3 million as of December 31, 2019, primarily

because we acquired the trademarks and know-how in relation to Ceclor and Vancocin from Eli Lilly,

offset by amortization costs. As of June 30, 2020, our other intangible assets increased to RMB2,970.8

million due to our acquisition of know-how licenses for FPN.

Goodwill

We recorded goodwill of RMB112.1 million as of December 31, 2019 and June 30, 2020

primarily in relation to our acquisition of Ceclor.

Inventories

Our inventories consist of raw materials, spare parts, work-in-progress and finished goods. Prior

to 2019, we only maintained finished goods of drugs that we marketed and sold. Upon the acquisition

of the Ceclor manufacturing facility in October 2019, we commenced in-house manufacturing and

maintained raw materials, spare parts, work-in-progress as well as finished goods. The following table

sets forth the details of our inventories as of the dates indicated and inventory turnover days for the

periods indicated:

As of/for the year ended December 31,

As of/for thesix months

ended June 30,20202017 2018 2019

RMB’000Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 149,151 130,415Spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 8,857 14,214Work-in-progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 28,915 40,722Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,319 326,698 191,196 410,197Less: impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . (913) (30,868) (41,229) (26,341)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,406 295,830 336,890 569,207

Inventory turnover days(1) . . . . . . . . . . . . . . . . . . . . . 26 89 114 320

(1) The inventories turnover days are calculated by dividing the arithmetic mean of the opening and ending balance ofinventories in that period by cost of inventories for the corresponding period and then multiplying by 365 or 181 days(as applicable).

Our inventories increased from RMB163.4 million as of December 31, 2017 to RMB295.8

million as of December 31, 2018, primarily because we had several large shipments of certain

products at 2018 year end, offset by an increase in impairment relating to certain unsold Ceclor

products that were near expiration date, for which we recognized an impairment charge. Our

inventories increased to RMB336.9 million as of December 31, 2019 as we began to manufacture

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Ceclor in-house in late 2019 upon our acquisition and began to maintain more raw materials and

work-in-progress in our inventory. Our inventories further increased to RMB569.2 million as of

June 30, 2020, primarily because certain of our drug sales were affected by the COVID-19 pandemic

and sales of certain drugs decreased temporarily during a transition of importers. Our inventory

turnover days increased from 26 days in 2017 to 89 days in 2018, and further to 114 days in 2019 and

320 days as of June 30, 2020, primarily due to the increasing inventory levels.

As of July 31, 2020, RMB22.7 million, or 4.0%, of our inventories as of June 30, 2020 has been

consumed.

Trade and Bills Receivables

Our trade and bills receivables represent outstanding amounts due from our customers. During

the Track Record Period, we generally granted a credit period of 30 to 90 days to regional distributors,

and we generally required importers to deliver letters of credit due in 90 to 180 days. The following

table sets forth the details of our trade and bills receivables as of the dates indicated and trade and bill

receivables turnover days for the periods indicated:

As of/for the year ended December 31,


ended June 30,20202017 2018 2019

RMB’000Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236,591 236,838 292,698 444,109Bill receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,155 10,037 139,065 5,720Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,814) (1,442) (1,473) (1,251)

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269,932 245,433 430,290 448,578

Trade and bill receivable turnover days(1) . . . . . . . . . . . . . . 47 64 66 134

(1) The trade and bill receivable turnover days are calculated by dividing the arithmetic mean of the opening and endingbalance of trade and bill receivables in that period by revenue for the corresponding period and then multiplying by 365or 181 days (as applicable).

Trade and bill receivables decreased from RMB269.9 million as of December 31, 2017 to

RMB245.4 million as of December 31, 2018, primarily reflecting the lower levels of bill receivables

we recorded as of year end 2018. Our trade and bill receivables increased significantly to

RMB430.3 million as of December 31, 2019 due to a significant increase in bill receivables recorded

at year end from importer customers. Our trade and bills receivables remained at relatively similar

levels of RMB448.6 million as of June 30, 2020, with more trade receivables and less bill receivables

based on the change in mix of settlement methods of our customers. Our trade and bill receivable

turnover days increased from 47 in 2017 to 64 in 2018, primarily reflecting a decrease in our 2018

revenue. Our trade and bill receivable turnover days remained relatively stable at 66 in 2019. Our

trade and bill receivable turnover days increased to 134 for the six months ended June 30, 2020,

primarily reflecting the increase in trade receivables while revenue as of June 30, 2020 was relatively

lower on a pro rata basis.

As of July 31, 2020, RMB134.4 million, or 30.0%, of our trade and bill receivables as of June

30, 2020 were subsequently settled.

– 293 –



We have established a credit control department to minimize our credit risk and maintain control

over our outstanding receivables. Our senior management regularly review our overdue balance, and

we follow up with customers with past due trade receivables. We perform an impairment analysis at

the end of each financial year using a provision matrix to measure expected credit losses and assess

our credit risk exposure. As of December 31, 2017, 2018, 2019 and June 30, 2020, we recorded

impairment of RMB2.8 million, RMB1.4 million, RMB1.5 million and RMB1.3 million, respectively.

The following table sets forth an aging analysis, based on the invoice date and net of loss

allowance, of our trade receivables as of the dates indicated:

As of December 31, As of June 30,20202017 2018 2019

RMB’000Within 90 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,512 226,858 196,869 300,45891 to 180 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124,265 6,034 92,498 142,400181 to 360 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 553 – –Over 360 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 1,951 1,858 –

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,777 235,396 291,225 442,858

Pledged Deposits

Our pledged deposits consist of (i) pledged deposits for bank accepted drafts and letters of

credit, and (ii) pledged deposits for short term bank loans. As of December 31, 2017, 2018, 2019 and

June 30, 2020, we had pledged deposits of RMB58.5 million, RMB10.0 million, RMB175.3 million

and RMB19.2 million, respectively. The significant increase as of December 31, 2019 was primarily

in relation to bridge loans we obtained for the acquisition of Ceclor and Vancocin.

Cash and Cash Equivalents

Our cash and cash equivalents primarily consist of cash at bank and cash on hand. Most of our

cash and cash equivalents were denominated in Renminbi or US dollars during the Track Record

Period. The following table sets forth a breakdown of our cash and cash equivalents as of the dates

indicated:


June 30,20202017 2018 2019

RMB’000Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 24 24 –Cash at banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249,717 122,700 837,232 151,927

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249,749 122,724 837,256 151,927

Less:Pledged deposits for bank accepted drafts and letters of credit . . . . . . . . . . . 17,709 – 13,953 17,343Pledged deposits for short term bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . 40,830 10,000 161,301 1,833

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191,210 112,724 662,002 132,751

Our cash and cash equivalents decreased from RMB191.2 million as of December 31, 2017 to

RMB112.7 million as of December 31, 2018 due to cash spending for our operations. Our cash and

cash equivalents increased to RMB662.0 million as of December 31, 2019 primarily reflecting the

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loans we obtained for the acquisition of Ceclor and Vancocin and proceeds from the redeemable

ordinary shares we issued. As of June 30, 2020, our cash and cash equivalents decreased to

RMB132.8 million primarily because we paid the consideration for the acquisition of Ceclor,

Vancocin and FPN and had cash spending for our operations.

Trade and Bills Payables

Our trade and bills payables primarily represent payments due to our suppliers, including drug

manufacturers and raw material suppliers. Our trade and bills payables are normally settled on terms

of one to six months. The following table sets forth a breakdown of trade and bills payables as of the

dates indicated and our trade and bills payable turnover days for the periods indicated:

As of/for the year endedDecember 31,


endedJune 30,

20202017 2018 2019

RMB’000Trade payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,332 577,213 434,935 201,376Bills payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,884 – – –

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327,216 577,213 434,935 201,376

Trade and bills payable turnover days(1) . . . . . . . . . . . . . . . . . . . . . . . . . 75 176 182 225

(1) Calculated by dividing the arithmetic mean of the opening and ending balance of trade and bills payables in that periodby cost of sales for the corresponding period and then multiplying by 365 or 181 days (as applicable).

Our trade and bills payables increased from RMB327.2 million as of December 31, 2017 to

RMB577.2 million as of December 31, 2018, primarily reflecting an extension of trade and bills

payables credit period granted to us by Eli Lilly. Our trade and bills payable decreased to RMB434.9

million as of December 31, 2019 and further to RMB201.4 million as of June 30, 2020 because we no

longer procured Ceclor and Vancocin from Eli Lilly following our acquisition in October 2019,

resulting in a decrease in related payables. Our trade and bills payable turnover days increased from

75 in 2017 to 176 in 2018 primarily reflecting the increase in our trade and bills payable as of 2018

year end. Our trade and bills payable turnover days increased to 182 in 2019 and 225 for the six

months ended June 30, 2020 because we had longer settlement periods due to the COVID-19

pandemic.

As of July 31, 2020, RMB125.2 million, or 62.2%, of our trade and bills payable as of June 30,

2020 were subsequently settled.

– 295 –



Other Payables and Accruals

Our other payables and accruals primarily consist of (i) other payables which mainly represent

reimbursement for travel and other expenses, deposits and payables for other intangible assets,

(ii) payroll payables, (iii) accruals, which consists of accrued operating expenses and third party

service fees, (iv) contract liabilities, which represents short-term advances received from customers,

and (v) other taxes payables. The following table sets forth the details of our other payables and

accruals as of the dates indicated:


June 30,20202017 2018 2019

RMB’000Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,130 194,038 353,607 97,669Payroll payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67,114 52,331 66,853 52,887Accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,400 88,048 66,322 47,437Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,661 1,729 2,248 1,794Other taxes payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,325 14,954 13,118 1,582

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,630 351,100 502,148 201,369

Our other payables and accruals decreased from RMB409.6 million as of December 2017 to

RMB351.1 million as of December 31, 2018, primarily due to a RMB81.1 million decrease in other

payables because we had settled certain payables in relation to the product recalls in 2017, partially

offset by a RMB49.6 million increase in accruals due to an increase in marketing service fees. Our

other payables and accruals increased to RMB502.1 million as of December 31, 2019, primarily due

to a RMB159.6 million increase in other payables in relation to the Eli Lilly Acquisitions. Our other

payables decreased to RMB201.4 million as of June 30, 2020, primarily due to a RMB255.9 million

decrease in other payables, reflecting our settlement of certain payables in relation to the Eli Lilly

Acquisition and the settlement of certain sales rebates.

Refund Liabilities

Our refund liabilities represent sales rebates we offered to certain customers which have not

been redeemed. Our refund liabilities increased from RMB74.4 million as of December 31, 2017 to

RMB98.5 million as of December 31, 2018, and further to RMB132.4 million as of December 31,

2019 and further to RMB136.3 million as of June 30, 2020, primarily reflecting the higher levels of

sales rebates we granted to customers to promote our products.

Tax Payable

Our tax payable as of the balance sheet dates reflects the level of payables at the time. Our tax

payable decreased from RMB24.6 million as of December 31, 2017 to RMB21.5 million as of

December 31, 2018, and increased to RMB44.2 million as of December 31, 2019 and decreased to

RMB13.9 million as of June 30, 2020.

Derivative Financial Instruments

Our derivative financial instruments represent the balance of derivatives that are built in to the

Old ABAX Warrant, the New ABAX Warrants and the CS Mezzanine Warrants. For details, see

– 296 –



“History, Development and Corporate Structure—Major Corporate Development and Shareholding

Changes of Our Group—Warrant Instrument.” As of December 31, 2017, 2018 and 2019 and June 30,

2020, our derivative financial instruments amounted to RMB16.1 million, RMB5.6 million, RMB94.5

million and RMB115.8 million, respectively.

Liability Component of Redeemable Ordinary Shares

The liability component of redeemable ordinary shares represent the discounted value of

expected redemption consideration for the redeemable ordinary shares we issued to certain

Pre-[REDACTED] Investors. For details, see “History, Development and Corporate Structure—

Major Corporate Development and Shareholding Changes of Our Group.” The liability component of

redeemable ordinary shares amounted to RMB217.9 million and RMB256.4 million as of

December 31, 2017 and 2018, respectively. Such redemption rights were terminated in October 2019.

Lease Liabilities

Our lease liabilities are in relation to our office premises and manufacturing facilities. Under

HKFRS 16, we recognize a lease liability with respect to all leases, except for short term leases and

leases of low value assets. As of December 31, 2017, 2018 and 2019 and June 30, 2020, we recorded

lease liabilities of RMB16.1 million, RMB21.5 million, RMB10.9 million and RMB7.0 million,

respectively.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital

Our primary uses of cash during the Track Record Period were to fund our working capital,

expand of our product portfolio and repay bank loans. During the Track Record Period, we primarily

funded our working capital requirement from our operating cash flow, bank loans and equity

financing. As of July 31, 2020, being the latest practicable date for determining our indebtedness, we

had capital resources of RMB359.7 million, consisting of cash and cash equivalents of RMB154.7

million and unused bank and other facilities of approximately RMB205.0 million. We monitor our

uses of cash and cash flows on a regular basis and strive to maintain an optimum liquidity that can

meet our working capital needs.

Although we had net current liabilities as of December 31, 2017, 2018 and 2019, our Directors

believe that the working capital available to us is sufficient at present and for at least the next 12

months from the date of this document, considering that we recorded a net current asset position of

RMB35.4 million as of June 30, 2020 and taking into account the financial resources available to us,

including internally generated funds, the [REDACTED] from the [REDACTED] and the available

banking and other facilities. Details of these factors are set out below:

• Cash flow generated from operations. In 2017 and 2018, we had net cash flow generated

from operating activities in the amount of RMB152.6 million and RMB78.6 million,

respectively. In 2019, we recorded net cash flow used in operating activities of RMB12.1

million. For the six months ended June 30, 2020, we recorded net cash flow used in

operating activities of RMB446.2 million in large part due to the temporary effects of the

COVID-19 pandemic. As the COVID-19 situation in China gradually improves, and as we

– 297 –



expand our product portfolio and continue to grow our business, we expect to generate a

steady inflow of cash from operations, which will be applied to our working capital.

• One-time acquisition. We recorded relatively high net current liabilities of RMB1,055.2 million

as of December 31, 2019 primarily due to the short-term interest-bearing bank and other

borrowings we obtained to acquire long-term assets relating to Ceclor and Vancocin in October

2019. We repaid a portion of such borrowings as of the Latest Practicable Date, and expect to

repay a portion of the remainder using approximately [REDACTED] of the [REDACTED]from the [REDACTED], which is expected to improve our working capital position.

• Bank loans and facilities. Historically, we have been able to obtain our bank borrowings if

needed, and we do not foresee any impediment in continuing to do so in the future. As of

July 31, 2020, we had unused bank and other facilities of RMB205.0 million.

• [REDACTED] from the [REDACTED]. We expect to receive [REDACTED] from the

[REDACTED] of approximately [REDACTED] million based on the low end of the

[REDACTED] range set out in this document.

Net Current (Liabilities)/Assets

The following table sets forth a summary of our current assets and liabilities as of the dates

indicated:


June 30,2020

As ofJuly 31,

20202017 2018 2019


Current assetsInventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,406 295,830 336,890 569,207 640,964Trade and bills receivables . . . . . . . . . . . . . . . . . . 269,932 245,443 430,290 448,578 373,860Prepayments, other receivables and other

assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,660 96,635 114,795 145,229 156,203Due from related parties . . . . . . . . . . . . . . . . . . . . 55,078 70,105 178,076 11,611 11,611Pledged deposits . . . . . . . . . . . . . . . . . . . . . . . . . . 58,539 10,000 175,254 19,176 18,988Cash and cash equivalents . . . . . . . . . . . . . . . . . . 191,210 112,724 662,002 132,751 154,713

Total current assets . . . . . . . . . . . . . . . . . . . . . . . 928,825 830,727 1,897,307 1,326,552 1,356,339

Current liabilitiesTrade and bills payables . . . . . . . . . . . . . . . . . . . . 327,216 577,213 434,935 201,376 154,365Other payables and accruals . . . . . . . . . . . . . . . . . 409,630 351,100 502,148 201,369 206,096Refund liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 74,364 98,547 132,398 136,259 139,005Interest-bearing bank and other borrowings . . . . . 251,718 92,168 1,688,394 516,477 656,980Due to related parties . . . . . . . . . . . . . . . . . . . . . . 92,643 44,603 114,715 186,328 174,937Derivative financial instruments . . . . . . . . . . . . . . – – 26,141 30,817 30,817Tax payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,623 21,547 44,179 13,861 13,478Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,022 11,602 9,623 4,624 4,624

Total current liabilities . . . . . . . . . . . . . . . . . . . . 1,189,216 1,196,780 2,952,533 1,291,111 1,380,302

Net current (liabilities)/assets . . . . . . . . . . . . . . . (260,391) (366,053) (1,055,226) 35,441 (23,963)

Our net current liabilities increased from RMB260.4 million as of December 31, 2017 to RMB366.1

million as of December 31, 2018, primarily due to (i) an increase in RMB250.0 million in trade and bills

– 298 –



payables primarily reflecting an extension of trade and bills payables credit period granted to us by Eli

Lilly, and (ii) a decrease of RMB78.5 million in cash and cash equivalents, reflecting cash used in our

operations, partially offset by (i) a decrease of RMB159.6 million in interest-bearing bank and other

borrowings and (ii) an increase of RMB132.4 million in inventories because we had several large

shipments of certain products at 2018 year end.

Our net current liabilities increased from RMB366.1 million as of December 31, 2018 to

RMB1,055.2 million as of December 31, 2019, primarily due to (i) an increase of RMB1,596.2

million in interest-bearing bank and other borrowings for our acquisition of Ceclor and Vancocin, and

(ii) an increase of RMB151.0 million in other payables and accruals, which was primarily due to an

increase in other payables, partially offset by (i) an increase of RMB549.3 million in cash and cash

equivalents, primarily representing loans for the acquisition of Ceclor and Vancocin, and (ii) an

increase of RMB184.8 million in trade and bills receivables due to a significant increase in bill

receivables recorded at year end from importer customers.

We recorded a net current assets position of RMB35.4 million as of June 30, 2020 compared to a

net current liabilities position of RMB1,055.2 million as of December 31, 2019, primarily due to (i) a

decrease of RMB1,171.9 million in current interest-bearing bank and other borrowings, primarily

because we repaid certain of these short-term loans, (ii) a decrease of RMB300.8 million in other

payables and accruals due to a decrease in other payable, and (iii) a decrease in trade and bills payable of

RMB233.6 million because we no longer procured Ceclor and Vancocin from Eli Lilly following our

acquisition in October 2019, resulting in a decrease in related payables, partially offset by an increase of

RMB232.3 million of inventories because certain of our drug sales were affected by the COVID-19

pandemic and sales of certain drugs decreased temporarily during a transition of importers.

We recorded a net current liabilities position of RMB24.0 million as of July 31, 2020, primarily

due to an increase in our interest-bearing bank and other borrowings of RMB140.5 million, partially

offset by (i) an increase in inventories of RMB71.8 million as we procured more raw materials and

APIs in anticipation of increased product demand, (ii) a decrease in trade and bill payable of

RMB47.0 million, reflecting our trade payables settlement.

Cash Flows

The following table sets forth a summary of our combined cash flow statements for the periods

indicated:

For the year endedDecember 31,

For the six monthsended June 30,

2017 2018 2019 2019 2020


Net cash flows from/(used in) operating activities . . . . . 152,557 78,649 (12,084) (238,365) (446,197)Net cash flows from/(used in) investing activities . . . . . 87,240 (34,688) (2,624,388) (603,534) (544,145)Net cash flows (used in)/generated from financing

activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (153,857) (126,650) 3,182,116 958,156 456,814

Net increase/(decrease) in cash and cash equivalents . . 85,940 (82,689) 545,644 116,257 (533,528)Cash and cash equivalents at beginning of

year/period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,193 191,210 112,724 112,724 662,002Effect of foreign exchange rate changes, net . . . . . . . . . (4,923) 4,203 3,634 187 4,277

Cash and cash equivalents at end of year/period . . . . . . 191,210 112,724 662,002 229,168 132,751

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Operating Activities

For the sixth months ended June 30, 2020, we had net cash flows used in operating activities of

RMB446.2 million, primarily reflecting our loss before tax of RMB17.3 million, as adjusted for non-

cash and non-operating items and income taxes paid. Adjustments for non-cash and non-operating

items primarily include amortization of other intangible assets of RMB52.4 million, financial costs of

RMB43.9 million and depreciation of property, plant and equipment of RMB18.8 million. The amount

was further adjusted for negative working capital changes, including (i) an increase of RMB236.8

million in inventories; and (ii) a decrease of RMB234.8 in trade and bills payables, partially offset by

changes in amount due from/to related parties of RMB51.4 million.

For the year ended December 31, 2019, we had net cash flows used in operating activities of

RMB12.1 million, primarily reflecting our profit before tax of RMB199.0 million, as adjusted for

non-cash and non-operating items and income taxes paid. Adjustments for non-cash and non-operating

items primarily included finance costs of RMB215.0 million, net gain arising from a transaction with a

non-controlling shareholder of RMB247.7 million and exchange loss of RMB37.9 million. The

amount was further adjusted for negative working capital changes, including (i) an increase of

RMB167.0 million in trade and bills receivables; and (ii) a decrease in trade and bills payables of

RMB155.2 million, partially offset by (i) a decrease of RMB55.1 million in prepayments, other

receivables and other assets, and (ii) an increase of RMB33.9 million in refund liabilities.

For the year ended December 31, 2018, we had net cash flows from operating activities of

RMB78.6 million, primarily reflecting our loss before tax of RMB189.7 million, as adjusted for


items primarily included finance costs of RMB116.0 million, write-down of inventories to net

realizable value of RMB29.8 million and amortization of other intangible assets of RMB29.4 million.

The amount was further adjusted by positive changes in working capital, including (i) an increase of

RMB254.3 million in trade and bills payables; and (ii) a decrease of RMB80.5 million in

prepayments, other receivables and other assets, partially offset by (i) an increase of RMB162.4

million in inventories, (ii) a decrease of RMB80.7 million in other payables and accruals, and (iii)

changes in amount due to/from related parties of RMB63.1 million.

For the year ended December 31, 2017, we had net cash flows from operating activities of

RMB152.6 million, primarily reflecting our loss before tax of RMB21.6 million, as adjusted for


items primarily included finance costs of RMB63.4 million, net impairment of financial assets of

RMB16.5 million and amortization of other intangible assets of RMB15.0 million. The amount was

further adjusted by positive changes in working capital, including (i) an increase of RMB179.8 million

in other payables and accruals; and (ii) an increase of RMB170.9 million in trade and bills payables,

partially offset by (i) an increase of RMB156.5 million in inventories; and (ii) an increase of

RMB130.3 million in prepayments, other receivables and other assets.

Investing Activities

For the sixth months ended June 30, 2020, our net cash used in investing activities was

RMB544.1 million, primarily attributable to (i) the payment of RMB392.5 million for the acquisition

– 300 –



of other intangible assets, (ii) the payment of RMB204.9 million for the acquisition of a subsidiary,

partially offset by the redemption of pledged time deposits of RMB156.1 million.

For the year ended December 31, 2019, our net cash used in investing activities was

RMB2,624.4 million, primarily attributable to (i) the payment of RMB2,465.5 million in relation to

acquiring other intangible assets, (ii) the payment of RMB196.1 million for the acquisition of a

subsidiary, and (iii) an increase of RMB165.3 million in pledged time deposits, partially offset by the

proceeds from disposal of business of RMB316.3 million.

For the year ended December 31, 2018, our net cash used in investing activities was RMB34.7

million, primarily attributable to (i) payment for property, plant and equipment of RMB35.3 million,

(ii) additions to other long-term assets of RMB26.8 million, and (iii) the payment of RMB22.4 million

in relation to acquiring other intangible assets, partially offset by the redemption of pledged time

deposits of RMB48.5 million.

For the year ended December 31, 2017, our net cash generated from investing activities was

RMB87.2 million, primarily attributable to the redemption of pledged time deposits of RMB144.6

million, partially offset by the purchase of property, plant and equipment of RMB42.9 million.

Financing Activities

For the six months ended June 30, 2020, our net cash generated from financing activities was

RMB456.8 million, primarily attributable to new bank loans we obtained of RMB789.4 million,

partially offset by repayment of bank loans of RMB270.7 million and interest paid of

RMB53.7 million.

For the year ended December 31, 2019, our net cash generated from financing activities was

RMB3,182.1 million, primarily due to (i) new bank loans we obtained of RMB2,280.3 million; and

(ii) proceeds raised from issuance of new shares of RMB1,195.0 million, partially offset by the

repayment of bank loans of RMB220.7 million.

For the year ended December 31, 2018, our net cash used in financing activities was RMB126.7

million, primarily due to the repayment of bank loans of RMB278.9 million, partially offset by new

bank loans we obtained of RMB225.0 million.

For the year ended December 31, 2017, our net cash used in financing activities was RMB153.9

million, primarily due to the repayment of bank loans of RMB326.2 million, partially offset by new

bank loans we obtained of RMB215.5 million.

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INDEBTEDNESS

Our indebtedness primarily consisted of secured and unsecured bank loans and other

borrowings. Our bank loans and other borrowings were primarily used for our acquisitions of drug

assets and to supplement our working capital during the Track Record Period. The following tables set

forth the breakdown of our indebtedness as of the dates indicated.

As of December 31, 2017

Effectiveinterest rate Maturity Amount

(%) (RMB’000)Current

Bank loans — unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2018 12,260Bank loans — secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-8 2018 100,739Current portion of long-term bank loan-secured . . . . . . . . . . . . . . . . . . . 7 2018 10,000Current portion of long-term borrowings-secured . . . . . . . . . . . . . . . . . . 14 2018 128,719

Non-currentOther borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-15 2020 126,946

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,664




Bank loans — unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-5 2019 5,497Bank loans — secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-8 2019 81,671Current portion of long-term bank loan-secured . . . . . . . . . . . . . . . . . . 7 2019 5,000

Non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-20 2020-2021 279,480

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 371,648




Bank loans — unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-4 2020 75,071Bank loans — secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-20 2020 1,613,323

Non-current

Other borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2021 154,194Other secured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-11 2021-2024 586,004

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,428,592

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As of June 30, 2020



Bank loans — unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-6 2020-2021 436,477Bank loans — secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-6 2020-2021 75,000Current portion of long-term bank loan-secured . . . . . . . . . . . . . . . . . . 6 2021 5,000

Non-currentOther secured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-16 2021-2024 2,212,112

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,728,589

As of July 31, 2020



Bank loans — unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3-5 2020-2021 576,980Bank loans — secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-6 2020 75,000Current portion of long-term bank loan-secured . . . . . . . . . . . . . . . . . . 6 2021 5,000

Non-currentOther secured bank loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6-16 2021-2024 2,187,054

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,844,034

As of July 31, 2020, except as disclosed in this section, we did not have any outstanding

mortgages, charges, debentures, other issued debt capital, bank overdrafts, borrowings, liabilities

under acceptance or other similar indebtedness, any guarantees or other material contingent liabilities.

Since July 31, 2020, the latest practicable date for the purpose of the indebtedness statement, and up to

the date of this document, save as disclosed in this document, there had been no material adverse

change to our indebtedness.

Bank Borrowings

As of December 31, 2017, 2018 and 2019, certain of our interest-bearing bank borrowings of

RMB20,000,000, RMB40,000,000 and RMB20,000,000 were guaranteed by our Controlling

Shareholder and Independent Third Parties.

As of December 31, 2019, our interest-bearing bank borrowings of RMB20,000,000 were also

guaranteed by the total equity amounting to US$3,437,500 of Eddingpharm (China) Co., Ltd.

Shanghai Branch.

As of December 31, 2018, 2019 and June 30, 2020, certain of our interest-bearing bank

borrowings of RMB45,739,000, RMB9,500,000, RMB1,513,323,000 and RMB1,423,653,000 was

secured by our pledged deposits amounting to RMB40,830,000, RMB10,000,000, RMB161,301,000

and RMB1,833,000, respectively. See note 27 of the Accountants’ Report as set out in Appendix I to

this document.

As of December 31, 2018, 2019 and June 30, 2020, certain of our certain interest-bearing bank

borrowings of RMB40,000,000 and RMB32,171,000 were secured by a trade receivable of

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RMB137,024,000 and RMB72,000,000, respectively. See note 27 of the Accountants’ Report as set

out in Appendix I to this document.

We obtained a mezzanine loan from Credit Suisse AG, Singapore Branch, SPDB International

(Hong Kong) Limited and Ace City Venture Limited with a total principal amount of US$110 million

(US$80 million plus US$30 million from triggering a greenshoe mechanism). In connection with the

loan, we granted Credit Suisse AG, Singapore Branch, SPDB International (Hong Kong) Limited and

Ace City Venture Limited certain warrants. We treat the loan agreements with warrants as composite

financial instruments and bifurcate the warrants as a financial liability at fair value through profit or

loss. After the bifurcation, the effective interest rates of the remaining debt components per annum are

10.77% to 15.50%.

In October 2019, we entered into a one-year senior bridge loan agreement with Credit Suisse

AG, Singapore Branch with a principal amount of US$223 million. The loan was guaranteed by

Eddingpharm Group (Cayman) Holdings Limited, Eddingpharm Group Company Limited,

Eddingpharm (Asia) Co., Ltd. and Eddingpharm (Asia) Macao Commercial Offshore Limited, and

was pledged by our time deposits of US$22,372,000 as of December 31, 2019 under Maxi Vantage

Limited Security Agreement (fixed and floating charge), mortgages over all issued shares of

Eddingpharm Group Company Limited and Excellent Apex Group Limited, mortgages over all

present and future shares of Eddingpharm (Asia) Co., Ltd., a pledge over all of the shares of Vancocin

Halia S.r.L, a pledge over all of the equity interests in Maxi Vantage (Suzhou) Co., Ltd. and Ceclor

and Vancocin trademarks, each in favor of Credit Suisse AG, Singapore Branch as security agent. In

January 2020, we entered into a senior term loan agreement with Credit Suisse AG, Singapore Branch,

China Minsheng Banking Corp., Ltd. Shanghai Pilot Free Trade Zone Branch and Shanghai Pudong

Development Bank Co., Ltd. with a principal amount of US$200 million for a three-year term as a

refinancing of the loan borrowed in October 2019. Security arrangements remain substantially the

same. The difference of the principal and related interest were repaid in cash due to the refinancing

arrangement. On April 21, 2020, Maxi Vantage Limited, as borrower of the senior term loan, upsized

the loan to US$220 million.

In October 2019, we also entered into a loan agreement with SPD Bank Suzhou Branch with a

principal amount of RMB150 million with a period of one to three years. The loan was secured by the

real estate mortgage of Suzhou Ceclor Pharmaceutical Co., Ltd. and the equity pledge over all the

equity security in Suzhou Ceclor Pharmaceutical Co., Ltd. registered in the name of Shanghai

Eddingpharm Co., Ltd. Certain of such bank loans are jointly guaranteed by Eddingpharm (Suzhou)

Pharmaceutical Trading Co., Ltd. and Eddingpharm China Co., Ltd. Such guarantee was automatically

terminated upon completion of the filing and perfection process of the security arrangements.

Our bank borrowing agreements contain standard terms, conditions and covenants that are

customary for commercial bank loans. Our Directors confirm that we did not experience any default in

payment of bank borrowings during the Track Record Period and up to the Latest Practicable Date.

Given our credit history and our current credit status, we believe that we will not encounter any major

difficulties in obtaining additional bank borrowings in the future.

Other Borrowings

We entered into loan agreements with ABAX II, Shenzhen Xinhe Hongshi Investment

Consulting Co., Ltd. and ABAX Zhuhai to supplement our working capital or to raise capital for our

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acquisitions, including the Eli Lilly Acquisitions. For details of the guarantees and securities on these

loans, see note 27 of the Accountants’ Report set out in Appendix I of the document. In conjunction

with this, we granted ABAX II and ABAX Zhuhai certain warrants. For details, see “History,

Development and Corporate Structure.” The loans together with the warrants are composite financial

instruments, and the warrants are bifurcated as a financial liability at fair value through profit or loss.

After the bifurcation, the effective interest rates of these loans per annum were 16.82% to 19.81%.

CAPITAL EXPENDITURE

Our capital expenditure during the Track Record Period primarily related to construction and

upgrade of manufacturing facilities, procurement of equipment and machinery, as well as the

acquisition of fixed assets in relation to Ceclor in October 2019.

For the year ended December 31,For the six months

ended June 30,

2017 2018 2019 2020

RMB’000Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.815 30,695 30,516 18,446Motor vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 558 628 519 1,947Office and other equipment . . . . . . . . . . . . . . . . . . . . . . . . . 1,128 99 6,350 239Plant and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,376 2,104 69,707 –Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 56,149 –Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,028 1,735 186 –

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,905 35,261 163,427 20,632

We expect that our capital expenditure for 2020 and 2021 will to primarily be used for the

expansion of our Ceclor facility.

RELATED PARTY TRANSACTIONS

During the Track Record Period, we had a limited number of transactions with our related

parties, namely, our fellow subsidiaries, Controlling Shareholder and other shareholders. All of these

transactions were non-trade in nature, unsecure, interest-free and repayable on demand.

– 305 –



Due from Related Parties

Our amounts due from related parties includes amounts due from Eddingpharm International

Holding Co., Ltd., a fellow subsidiary, which were in connection with our Pre-[REDACTED]Reorganization and have been settled as of June 30, 2020. We also recorded amounts due from the

ultimate controlling shareholder, which has been settled as of June 30, 2020. We also recorded

RMB5.1 million from Taizhou EOC Pharma Co., Ltd. as of December 31, 2018, representing

temporary support we provided to supplement its working capital. We recorded RMB11.6 million

from ERC (Hong Kong) Limited as of June 30, 2020 in relation to the acquisition of non-controlling

interests in a joint venture entity, which has been settled as of August 31, 2020. The following table

sets forth details of our amounts due from related parties as of the dates indicated:

As of December 31, As of June 30,

2017 2018 2019 2020

RMB’000Taizhou EOC Pharma Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 5,100 – –Eddingpharm International Holding Co., Ltd . . . . . . . . . . . . . . . . . . . . . 48,785 56,117 154,149 –ERC (Hong Kong) Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 11,611Due from the ultimate controlling shareholder . . . . . . . . . . . . . . . . . . . . 6,293 8,888 23,927 –

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,078 70,105 178,076 11,611

Due to Related Parties

Our amounts due to related parties includes amounts due to Most Sunny Investment Limited and

Eddingpharm (China) Co., Ltd., which were related to the Pre-[REDACTED] Reorganization and

have been settled as of August 31, 2020. Our amounts due to EOC Pharma Limited and Taizhou EOC

Pharma Co., Ltd. represented temporary supplements to our working capital, all of which have been

terminated. The following table sets forth the details of our amounts due to related parties as of the

dates indicated:


2017 2018 2019 2020

RMB’000EOC Pharma Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – 292 4,692 –Taizhou EOC Pharma Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,041 20,000 – –Most Sunny Investment Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,602 24,311 110,023 –Eddingpharm (China) Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 186,328

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92,643 44,603 114,715 186,328

Our Directors are of the view that each of the related party transactions set out in note 41 to the

Accountants’ Report in Appendix I to this document was conducted in the ordinary course of business

on an arm’s-length basis and with normal commercial terms between the relevant parties. Our

Directors are also of the view that our related party transactions during the Track Record Period would

not distort our historical results or make our historical results not reflective of our future performance.

– 306 –



KEY FINANCIAL RATIOS

The following table set forth our key financial ratios as of the dates or for the periods indicated:

As of or for the year ended December 31,

As of or forthe six monthsended June 30,

2017 2018 2019 2020

Gross profit margin(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 33.8% 36.4% 45.9% 56.9%Net profit margin(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.2%) (14.6%) 9.2% (4.5%)Return on average equity(3) . . . . . . . . . . . . . . . . . . . . . . NM NM 43.0% (4.0%)Return on average asset(4) . . . . . . . . . . . . . . . . . . . . . . . (3.4%) (17.1%) 5.5% (1.1%)Current ratio(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.78 0.69 0.64 1.03Quick ratio(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.64 0.45 0.53 0.59Debt to equity ratio(7) . . . . . . . . . . . . . . . . . . . . . . . . . . (1.28) (0.74) 1.86 2.01

(1) Equals gross profit for the year/period divided by revenue for the year the year/period and multiplied by 100%.

(2) Equals profit for the year/period divided by revenue for the year/period and multiplied by 100%.

(3) Equals profit for the year/period divided by average balance of total equity at the beginning and the end of that year/period and multiplied by 100%. Return on average equity in 2017 and 2018 is not meaningful because our total equityas of December 31, 2017 and 2018 were negative.

(4) Equals profit for the year/period divided by average balance of total assets at the beginning and the end of that year/period and multiplied by 100%.

(5) Current ratio represents total current assets divided by total current liabilities as of the same date.

(6) Quick ratio represents total current assets less inventories and divided by total current liabilities as of the same date.

(7) Debt to equity ratio is calculated by the total borrowings divided by the total equity as at the end of each year/periodand multiplied by 100%.

(8) These ratios have been annualized by dividing profit for the period by 181 and multiplying by 365, then divided byaverage balance of total equity or total assets (as the case may be) at the beginning and the end of that year/period andmultiplied by 100%

Gross Profit Margin and Net Profit Margin

In 2017, 2018, 2019 and the six months ended June 30, 2020, our gross profit margin was

33.8%, 36.4%, 45.9% and 56.9% and our net profit margin was (2.2%), (14.6%), 9.2% and (4.5%).

For details, see “—Results of Operations.”

Return on Average Equity

Return on average equity in 2017 and 2018 is not meaningful because our total equity as of

December 31, 2017 and 2018 were negative. Our return on average equity was 43.0% in 2019,

primarily reflecting an increase in our total equity mainly due to contribution from shareholders. For

the six months ended June 30, 2020, our annualized return on average equity decreased to (4.0%)

primarily because we had loss for the period.

Return on Average Assets

Our return on average assets decreased from (3.4%) in 2017 to (17.1%) in 2018 primarily due to

an increase in loss for the year in 2018. Our return on average assets increased to 5.5% because we

– 307 –



recorded profit for the year in 2019 as opposed to loss for the year in 2018 and due to the significant

increase in our other intangible assets in relation to the acquisition of Ceclor and Vancocin and an

increase in our cash and cash equivalents. For the six months ended June 30, 2020, our return on

average assets decreased to (1.1%) due to a further increase in prepayments, other receivables and

other assets and inventories, and we had loss for the period.

Current Ratio

Our current ratio decreased from 0.78 as of December 31, 2017 to 0.69 as of December 31, 2018

primarily because of a decrease in current assets due to decreases in prepayments, other receivables

and other assets and cash and cash equivalents. Our current ratio remained relatively stable at 0.64 as

of December 31, 2019 and increased to 1.03 as of June 30, 2020 primarily due to a decrease in current

liabilities due to a decrease in interest-bearing bank and other borrowings, while the decrease in

current assets due to decreases in cash and cash equivalents was at a slower pace.

Quick Ratio

Our quick ratio decreased from 0.64 as of December 31, 2017 to 0.45 as of December 31, 2018

primarily because of a decrease in current assets due to decreases in prepayments, other receivables

and other assets and cash and cash equivalents. Our quick ratio increased to 0.53 as of December 31,

2019 primarily due to a significant increase in cash and cash equivalents and trade and bills

receivables, partially offset by an increase in interest-bearing bank and other borrowings. Our current

ratio further increased to 0.59 as of June 30, 2020 primarily due to a decrease in current liabilities due

to a decrease in interest-bearing bank and other borrowings, while the decrease in current assets due to

decreases in cash and cash equivalents was at a slower pace.

Debt-to-equity Ratio

Our debt-to-equity ratio increased from (1.28) as of December 31, 2017 to (0.74) as of

December 31, 2018 was mainly because of a decrease in our total equity, which is primarily due to

losses incurred in 2018. Our debt-to-equity ratio increased to 1.86 as of December 31, 2019, primarily

attributable to an increase of interest-bearing bank and other borrowings of RMB1,596.2 million

primarily for our acquisition of Ceclor and Vancocin, while our total equity increased. As of June 30,

2020, our debt-to-equity ratio increased to 2.01 mainly due to an increase in interest-bearing bank and

other borrowings.

– 308 –



CAPITAL COMMITMENTS

Our capital commitments during the Track Record Period primarily related to contractual

commitments for the procurement of equipment and machinery for our manufacturing and research

and development, and intangible assets, primarily representing the know-how licenses and trademarks

for Ceclor and Vancocin in October 2019. The following table sets forth our capital commitments as

of the dates indicated:


2017 2018 2019 2020

RMB’000Contracted, but not provided for:Plant and machinery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,396 10,529 18,110 23,644Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,462 5,389 411,755 3,422

Total 16,858 15,918 429,865 27,066

OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

As at the Latest Practicable Date, except as disclosed in this document, we had no material

off-balance sheet arrangements.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed to a variety of market risks, including foreign currency risk, credit risk and

liquidity risk as set out below. We manage and monitor these exposures to ensure appropriate

measures are implemented on a timely and effective manner. For further details, including relevant

sensitivity analysis, see note 44 in the Accountants’ Report set out in Appendix I to this document.

Foreign Currency Risk

We have transactional currency exposures. Such exposures arise from sales or purchases by

operating units and investing and financing activities by investment holding units in currencies other

than the units’ functional currencies.

For details and the sensitivity analysis of our profit before tax and our equity to a reasonably

possible change in the US$ exchange rate for each year during the Track Record Period, with all other

variables held constant, see note 44 in the Accountants’ Report set out in Appendix I to this document.

Credit Risk

We trade only with recognized and creditworthy third parties. It is the Group’s policy that all

customers who wish to trade on credit terms are subject to credit verification procedures. In addition,

receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not

significant.

For details and the analysis of credit quality and the maximum exposure to credit risk based on

our credit policy at the end of each year during the Track Record Period, see note 44 in the

Accountants’ Report set out in Appendix I to this document.

– 309 –



Liquidity Risk

Our objective is to maintain a balance between continuity of funding and flexibility through the

use of interest-bearing bank and other borrowings. For details and the maturity profile of our financial

liabilities as of the end of each year during the Track Record Period, see note 44 in the Accountants’

Report set out in Appendix I to this document.

DISTRIBUTABLE RESERVES

As of June 30, 2020, our Company had distributable reserves of nil.

DIVIDENDS

We did not declare or pay any dividend during the Track Record Period. The Company in

general meeting may from time to time declare any dividends to be paid to Shareholders. Any

declaration and payment as well as the amount of dividends will be subject to our constitutional

documents, the Companies Law and any contractual restrictions on the payment of dividends. Future

dividend payments will also depend upon the availability of dividends received from our subsidiaries

in China. PRC laws require that dividends be paid only out of net profits calculated according to PRC

accounting principles, which differ in many aspects from generally accepted accounting principles in

other jurisdictions, including HKFRSs. PRC laws also require foreign invested enterprises to set aside

part of their net profit as statutory reserves, which are not available for distribution as cash dividends.

Distributions from our subsidiaries may also be restricted if they incur debt or losses, or in accordance

with any restrictive covenants in bank credit facilities or other agreements that we or our subsidiaries

may enter into in the future. There can be no assurance that we will be able to declare or distribute any

dividend in the amount set out in any plan of the Board or at all. Currently, we do not have any

dividend policy or intention to declare or pay any dividends in the near future.

[REDACTED] EXPENSES

[REDACTED] expenses to be borne by us are estimated to be approximately [REDACTED](including [REDACTED]). We recognized [REDACTED] expenses of [REDACTED] in the six

months ended June 30, 2020. Of the remaining estimated [REDACTED] expenses, approximately

[REDACTED] is expected to be charged to our combined statements of profit or loss and other

comprehensive income, and approximately [REDACTED] is expected to be accounted for as a

deduction from equity upon the [REDACTED]. The [REDACTED] expenses above are the latest

practicable estimate for reference only, and the actual amount may differ from this estimate. Our

Directors do not expect such [REDACTED] expenses to have a material adverse impact on our

results of operations for the year ending December 31, 2020.

[REDACTED]

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[REDACTED]

MATERIAL ADVERSE CHANGE

Our Directors confirm that, save for the effects of the COVID-19 pandemic and the US$20

million loan we obtained from ABAX Asian Structured Private Credit Fund III, LP as detailed in

“Summary,” as far as they are aware, there had been no material adverse change in our financial,

trading position or prospects since June 30, 2020, being the date of our combined financial statements

as set out in “Appendix I—Accountants’ Report” of this document, up to the date of this document.

DISCLOSURE REQUIRED UNDER THE LISTING RULES

Our Directors have confirmed that, as of the Latest Practicable Date, they were not aware of any

circumstance that would give rise to a disclosure requirement under Rules 13.13 to 13.19 of the

Listing Rules.

– 311 –

this document is in draft form, incomplete and …€¦ · the market leader with a 60.2% market...

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