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
– 265 –
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
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.
– 266 –
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
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 –
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
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
– 268 –
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
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
– 269 –
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
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
– 270 –
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
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.
– 271 –
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
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
– 272 –
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
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 –
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
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 –
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
DE
SCR
IPT
ION
OF
CE
RT
AIN
CO
MB
INE
DST
AT
EM
EN
TS
OF
PR
OF
ITO
RL
OSS
AN
DO
TH
ER
CO
MP
RE
HE
NSI
VE
INC
OM
EIT
EM
S
The
follo
win
gta
ble
sets
fort
ha
sum
mar
yof
our
com
bine
dst
atem
ents
ofpr
ofit
orlo
ssan
dot
her
com
preh
ensi
vein
com
efo
rth
epe
riod
sin
dica
ted.
Our
hist
oric
alre
sults
pres
ente
dbe
low
are
notn
eces
sari
lyin
dica
tive
ofth
ere
sults
that
may
beex
pect
edfo
ran
yfu
ture
peri
od.
For
the
year
ende
dD
ecem
ber
31,
For
the
six
mon
ths
ende
dJu
ne30
,
2017
2018
2019
2019
2020
RM
B’0
00(e
xcep
tpe
rcen
tage
s)(u
naud
ited
)R
even
ue..
....
....
....
....
....
....
....
....
....
....
1,78
6,93
810
0.0%
1,47
8,13
310
0.0%
1,87
4,87
910
0.0%
828,
124
100.
0%59
4,78
410
0.0%
Cos
tof
sale
s..
....
....
....
....
....
....
....
....
....
.(1
,182
,377
)(6
6.2%
)(9
39,9
28)
(63.
6%)
(1,0
14,0
15)
(54.
1%)
(498
,819
)(6
0.2%
)(2
56,0
97)
(43.
1%)
Gro
sspr
ofit
....
....
....
....
....
....
....
....
....
...
604,
561
33.8
%53
8,20
536
.4%
860,
864
45.9
%32
9,30
539
.8%
338,
687
56.9
%O
ther
inco
me
and
gain
s..
....
....
....
....
....
....
....
11,5
630.
6%41
,905
2.8%
304,
194
16.2
%2,
785
0.3%
5,13
20.
9%Se
lling
and
dist
ribu
tion
expe
nses
....
....
....
....
....
..(4
31,5
79)
(24.
2%)
(444
,353
)(3
0.1%
)(3
82,1
39)
(20.
4%)
(178
,069
)(2
1.5%
)(1
73,2
76)
(29.
1%)
Adm
inis
trat
ive
expe
nses
....
....
....
....
....
....
....
.(1
16,4
58)
(6.5
%)
(137
,468
)(9
.3%
)(1
85,0
17)
(9.9
%)
(68,
287)
(8.2
%)
(79,
155)
(13.
3%)
Res
earc
han
dde
velo
pmen
texp
ense
s..
....
....
....
....
..(1
7,10
3)(1
.0%
)(2
3,93
5)(1
.6%
)(2
7,47
5)(1
.5%
)(1
1,66
7)(1
.4%
)(2
5,47
1)(4
.3%
)Im
pair
men
tlos
ses
onfi
nanc
iala
sset
s,ne
t..
....
....
....
..16
,541
0.9%
1,65
40.
1%30
1–
(359
)–
(581
)(0
.1%
)O
ther
expe
nses
....
....
....
....
....
....
....
....
....
.(2
5,63
7)(1
.4%
)(4
9,73
0)(3
.4%
)(1
56,6
95)
(8.4
%)
(63,
611)
(7.7
%)
(38,
703)
(6.5
%)
Fina
nce
cost
s..
....
....
....
....
....
....
....
....
....
(63,
445)
(3.4
%)
(115
,984
)(7
.7%
)(2
15,0
31)
(11.
3%)
(89,
158)
(10.
8%)
(43,
929)
(7.4
%)
(Los
s)/P
rofi
tbe
fore
tax
....
....
....
....
....
....
....
.(2
1,55
7)(1
.2%
)(1
89,7
06)
(12.
8%)
199,
002
10.6
%(7
9,06
1)(9
.5%
)(1
7,29
6)(2
.9%
)In
com
eta
xex
pens
e..
....
....
....
....
....
....
....
...
(16,
981)
(1.0
%)
(25,
733)
(1.7
%)
(26,
138)
(1.4
%)
(12,
674)
(1.5
%)
(9,2
21)
(1.6
%)
(Los
s)/P
rofi
tan
dto
talc
ompr
ehen
sive
inco
me
for
the
year
/per
iod
....
....
....
....
....
....
....
....
....
.(3
8,53
8)(2
.2%
)(2
15,4
39)
(14.
6%)
172,
864
9.2%
(91,
735)
(11.
0%)
(26,
517)
(4.5
%)
Attr
ibut
able
to:
Ow
ners
ofth
epa
rent
....
....
....
....
....
....
....
..(3
8,09
4)(2
.2%
)(1
26,2
77)
(8.6
%)
151,
442
8.1%
(86,
275)
(10.
4%)
(19,
534)
(3.3
%)
Non
-con
trol
ling
inte
rest
s..
....
....
....
....
....
....
.(4
44)
–(8
9,16
2)(6
.0%
)21
,422
1.1%
(5,4
60)
(0.6
%)
(6,9
83)
(1.2
%)
Oth
erco
mpr
ehen
sive
(los
s)/in
com
eth
atm
aybe
recl
assi
fied
topr
ofit
orlo
ssin
subs
eque
ntpe
riod
s:E
xcha
nge
diff
eren
ces
ontr
ansl
atio
nof
fore
ign
oper
atio
ns..
.(1
1,02
3)(0
.6%
)2,
158
0.1%
5,92
80.
3%12
,100
1.5%
29,1
014.
9%N
etot
her
com
preh
ensi
ve(l
oss)
/inco
me
that
may
bere
clas
sifi
edto
prof
itor
loss
insu
bseq
uent
peri
ods
....
...
(11,
023)
(0.6
%)
2,15
80.
1%5,
928
0.3%
12,1
001.
5%29
,101
4.9%
Oth
erco
mpr
ehen
sive
(los
s)/in
com
efo
rth
eye
ar/p
erio
d,ne
tof
tax
....
....
....
....
....
....
....
....
....
...
(11,
023)
(0.6
%)
2,15
80.
1%5,
928
0.3%
12,1
001.
5%29
,101
4.9%
– 275 –
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
For
the
year
ende
dD
ecem
ber
31,
For
the
six
mon
ths
ende
dJu
ne30
,
2017
2018
2019
2019
2020
RM
B’0
00(e
xcep
tpe
rcen
tage
s)(u
naud
ited
)T
otal
com
preh
ensi
ve(l
oss)
/inco
me
for
the
year
/per
iod
...
(49,
561)
(2.8
%)
(213
,281
)(1
4.4%
)17
8,79
29.
5%(7
9,63
5)(9
.6%
)2,
584
0.4%
Attr
ibut
able
to:
Ow
ners
ofth
epa
rent
....
....
....
....
....
....
....
..(5
0,84
0)(2
.8%
)(1
22,3
03)
(8.3
%)
158,
173
8.4%
(73,
131)
(8.8
%)
10,2
951.
7%N
on-c
ontr
ollin
gin
tere
sts
....
....
....
....
....
....
...
1,27
9–
(90,
978)
(6.1
%)
20,6
191.
1%(6
,504
)(0
.8%
)(7
,711
)(1
.3%
)
– 276 –
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
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 –
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
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
RMB’000 (except percentages)(unaudited)
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:
For the year ended December 31,For the six months ended
June 30,
2017 2018 2019 2019 2020
RMB’000 (except percentages)(unaudited)
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 –
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
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 –
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
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:
For the year ended December 31,For the six months ended
June 30,
2017 2018 2019 2019 2020
RMB’000 (except percentages)(unaudited)
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:
For the year ended December 31,For the six months ended
June 30,
2017 2018 2019 2019 2020
RMB’000 (except percentages)(unaudited)
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 –
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
(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 –
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
The following table sets forth the breakdown of our other expenses for the periods indicated:
For the year ended December 31, For the six months ended June 30,
2017 2018 2019 2019 2020
RMB’000(unaudited)
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:
For the year ended December 31, For the six months ended June 30,
2017 2018 2019 2019 2020
RMB’000(unaudited)
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
– 282 –
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
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.
Gross Profit and Gross Profit Margin
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.
– 283 –
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
Other Income and Gains
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.
Selling and Distribution Expenses
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.
Administrative Expenses
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.
Research and Development Expenses
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.
Impairment Losses on Financial Assets
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.
– 284 –
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
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.
Gross Profit and Gross Profit Margin
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.
– 285 –
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
Other Income and Gains
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.
Selling and Distribution Expenses
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.
Administrative Expenses
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.
Research and Development Expenses
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.
Impairment Losses on Financial Assets
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
December 31, 2018 to RMB156.7 million for the year ended December 31, 2019, primarily because
(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
– 286 –
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
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
December 31, 2017 to RMB939.9 million for the year ended December 31, 2018, primarily because
costs relating to core commercialized products and other products decreased in line with a decrease in
sales of such products.
Gross Profit and Gross Profit Margin
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
– 287 –
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
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.
Other Income and Gains
Our other income, gains increased significantly from RMB11.6 million for the year ended
December 31, 2017 to RMB41.9 million for the year ended December 31, 2018, primarily due to
(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.”
Selling and Distribution Expenses
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.
Administrative Expenses
Our administrative expenses increased by 18.0% from RMB116.5 million for the year ended
December 31, 2017 to RMB137.5 million for the year ended December 31, 2018, primarily due to
(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.
Research and Development Expenses
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.
Impairment Losses on Financial Assets
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
December 31, 2017 to RMB49.7 million for the year ended December 31, 2018, primarily because
– 288 –
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
(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 –
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
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,
– 290 –
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
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:
As of December 31,As of
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
– 291 –
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
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
– 292 –
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
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,
As of/for thesix months
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 –
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
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:
As of December 31,As of
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
– 294 –
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
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,
As of/for thesix months
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 –
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
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:
As of December 31,As of
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 –
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
“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 –
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
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:
As of December 31,As of
June 30,2020
As ofJuly 31,
20202017 2018 2019
RMB’000(unaudited)
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 –
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
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
RMB’000(unaudited)
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
– 299 –
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
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
non-cash and non-operating items and income taxes paid. Adjustments for non-cash and non-operating
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
non-cash and non-operating items and income taxes paid. Adjustments for non-cash and non-operating
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 –
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
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.
– 301 –
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
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
As of December 31, 2018
Effectiveinterest rate Maturity Amount
(%) (RMB’000)Current
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
As of December 31, 2019
Effectiveinterest rate Maturity Amount
(%) (RMB’000)Current
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
– 302 –
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
As of June 30, 2020
Effectiveinterest rate Maturity Amount
(%) (RMB’000)Current
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
Effectiveinterest rate Maturity Amount
(%) (RMB’000)Current
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
– 303 –
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
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
– 304 –
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
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 –
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
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:
As of December 31, As of June 30,
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 –
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
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 –
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
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 –
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
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:
As of December 31, As of June 30,
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 –
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
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]
– 310 –
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
[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 –