Exhibit 99.1

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this joint announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this joint announcement.

This joint announcement appears for information purposes only and is not intended to and does not constitute, or form part of, any offer to purchase or subscribe for or an invitation to purchase or subscribe for securities of the Offeror or the Company or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities of the Offeror or the Company in any jurisdiction in contravention of applicable law or regulation.

This joint announcement is not for release, publication or distribution, in whole or in part, in, into or from any jurisdiction where to do so would constitute a violation of the applicable laws or regulations of such jurisdiction.

廣東東陽光藥業股份有限公司 SUNSHINE LAKE PHARMA CO., LTD. (a company incorporated in the People’s Republic of China with limited liability)	宜昌東陽光長江藥業股份有限公司 YICHANG HEC CHANGJIANG PHARMACEUTICAL CO., LTD. (a joint stock limited company incorporated in the People’s Republic of China with limited liability) (Stock Code: 1558)

JOINT ANNOUNCEMENT

(1) PROPOSED PRE-CONDITIONAL PRIVATISATION OF

YICHANG HEC CHANGJIANG PHARMACEUTICAL CO., LTD.

BY SUNSHINE LAKE PHARMA CO., LTD.

BY WAY OF MERGER BY ABSORPTION OF

YICHANG HEC CHANGJIANG PHARMACEUTICAL CO., LTD.

(2) PROPOSED SPECIAL DIVIDEND

(3) PROPOSED WITHDRAWAL OF LISTING

(4) RESUMPTION OF TRADING

Financial Adviser to the Offeror

Financial Adviser to the Company

Valuation Adviser to the Offeror

Independent Financial Adviser to the Independent Board Committee

NOTICE TO H SHAREHOLDERS

This joint announcement appears for information purposes only and is not intended to and does not constitute, or form part of, any offer to sell or an invitation or solicitation of an offer to acquire, purchase or subscribe for any securities of the Offeror or the Company or the solicitation of any vote or approval in any jurisdiction, nor shall there be any sale, issuance or transfer of securities of the Offeror or the Company in any jurisdiction in contravention of applicable law or regulation. This joint announcement does not constitute a prospectus or a prospectus equivalent document. H Shareholders are advised to carefully read the formal documentation in relation to the Merger once it has been despatched.

In particular, this joint announcement is not an offer of securities for sale or the solicitation of an offer to buy any securities in the United States or any other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. The Offeror H Shares to be issued in connection with the Merger have not been, and will not be, registered under the U.S. Securities Act or under the securities law of any state, district or other jurisdiction of the United States, and no regulatory clearance in respect of the Merger or the distribution of the Offeror H Shares has been, or will be, applied for in any jurisdiction other than Hong Kong and the PRC. The Offeror H Shares may not be offered, sold, transferred or delivered, directly or indirectly, in any other jurisdiction where to do so would violate the laws of that jurisdiction or would require registration thereof in such jurisdiction. Certain H Shareholders may be excluded from receiving the Offeror H Shares if such H Shareholders reside in any country, jurisdiction or territory outside Hong Kong and the PRC where receiving the Offeror H Shares would require the Offeror to comply with any registration or other legal requirements. Any person resident outside Hong Kong and the PRC wishing to elect to receive the Offeror H Shares is responsible for fully observing and complying with the laws of the relevant country, jurisdiction or territory, including obtaining any government or other consents that may be required and observing any other formalities in such country, jurisdiction or territory.

NOTICE TO U.S. H SHAREHOLDERS

The Merger will be implemented by way of a merger by absorption provided for under the laws of the PRC, which will involve the exchange of securities of two companies incorporated in the PRC with limited liability and the cancellation of the securities of a company incorporated in the PRC with limited liability. The Merger is subject to Hong Kong disclosure requirements, which are different from those of the United States. The financial information included in this joint announcement has been prepared in accordance with IFRS and thus may not be comparable to financial information of U.S. companies or companies whose financial statements are prepared in accordance with generally accepted accounting principles in the United States.

The Merger will be made in the United States pursuant to the applicable U.S. tender offer rules or certain available exemptions or exceptions therefrom and otherwise in accordance with the requirements of the laws of Hong Kong and the PRC. Accordingly, the Merger will be subject to Hong Kong and PRC disclosure and other procedural requirements, including with respect to withdrawal rights, offer timetable, settlement procedures and timing of payments that are different from those applicable under U.S. domestic tender offer procedures and law.

This joint announcement is not an offer of securities for sale nor a solicitation of an offer to buy securities in the United States. The Offeror H Shares to be issued in connection with the Merger have not been, and will not be, registered under the U.S. Securities Act or under the securities law of any state, district or other jurisdiction of the United States, and no regulatory clearance in respect of the Merger or the distribution of the Offeror H Shares has been, or will be, applied for in any jurisdiction other than Hong Kong and the PRC. Securities may not be offered or sold in the United States absent registration under the U.S. Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act. The Offeror H Shares are expected to be issued to U.S. H Shareholders in reliance upon the exemption from the registration requirements of the U.S. Securities Act provided by Rule 802 under the U.S. Securities Act and in reliance on available exemptions from any state law registration requirements. The Offeror H Shares to be issued pursuant to the Merger will be ‘‘restricted securities’’ within the meaning of Rule 144(a)(3) under the U.S. Securities Act to the same extent and proportion as the Share Exchange H Shares for which they were exchanged in the Merger.

The receipt of Offeror H Shares pursuant to the Merger by a U.S. H Shareholder or the receipt of cash by a U.S. Dissenting Shareholder pursuant to the Merger, in each case as consideration for the cancellation of its Shares pursuant to the Merger, may be a taxable transaction for U.S. federal income tax purposes and under applicable state and local, as well as foreign and other tax laws. Each U.S. H Shareholder is urged to consult his/her/its independent professional advisor immediately regarding the tax consequences of the implementation of the Merger.

U.S. H Shareholders may encounter difficulty enforcing their rights and any claims arising out of the U.S. federal securities laws, as the Offeror and the Company are located in a country outside the United States and some or all of their respective officers and directors may be residents of a country other than the United States. U.S. H Shareholders may not be able to sue a non-U.S. company or its officers or directors in a non-U.S. court for violations of the U.S. securities laws. Further, U.S. H Shareholders may encounter difficulty compelling a non-U.S. company and its affiliates to subject themselves to a U.S. court’s judgment.

In accordance with the Takeovers Code and Rule 14e-5(b) of the U.S. Exchange Act, CICC and its affiliates may continue to act as exempt principal traders in the Shares on the Stock Exchange. These purchases may occur either in the open market at prevailing prices or in private transactions at negotiated prices, provided that any such purchase or arrangement complies with applicable law, including but not limited to the Takeovers Code, and is made outside the United States. Any information about such purchases will be reported to the SFC in accordance with the requirements of the Takeovers Code and, to the extent made public by the SFC, will be available on the website of the SFC at http://www.sfc.hk and the Stock Exchange at www.hkexnews.hk.

Reference is made to the announcements of the Company dated 8 March 2024, 8 April 2024 and 7 May 2024 pursuant to Rule 3.7 of the Takeovers Code in relation to, among others, the Merger.

The Offeror and the Company are pleased to jointly announce that on 10 May 2024, the Offeror and the Company have entered into the Merger Agreement, pursuant to which the Offeror and the Company have agreed to implement the Merger subject to the terms and conditions of the Merger Agreement, including the Pre-Conditions and the Conditions. Following the fulfilment (or waiver, as applicable) of the Pre-Conditions and Conditions and the completion of the Share Exchange, the Company will be delisted from the Stock Exchange, the Offeror H Shares will be listed on the Main Board of the Stock Exchange by way of introduction and the Company will be merged into and absorbed by the Offeror in accordance with the terms of the Merger Agreement and PRC Company Law and other applicable PRC Laws.

The Offeror has appointed CICC to act as its financial adviser in connection with the Merger.

The Company has appointed GF Capital to act as its financial adviser in connection with the Merger.

Pursuant to the Merger Agreement, conditional upon the fulfilment (or waiver, as applicable) of the Pre-Conditions and the Conditions set out in the section headed ‘‘3. PRINCIPAL TERMS OF THE MERGER AGREEMENT’’ below, the Share Exchange Shareholders will be entitled to receive from the Offeror:

For every Share Exchange H Share cancelled . . . . . . . 0.263614 new Offeror H Share

The Offeror proposes to issue 112,712,832 Offeror H shares in exchange for all of the issued H Shares held by the Share Exchange Shareholders at the Share Exchange Ratio.

The Listing and the issuance of the Offeror H Shares to the Share Exchange Shareholders will only take place if all of the Pre-Conditions and the Conditions (being the Conditions to effectiveness and the Conditions to implementation) have been fulfilled or waived (as applicable).

Following the fulfilment (or waiver, as applicable) of the Pre-Conditions and the Conditions and the completion of the Share Exchange, (i) the Offeror H Shares will be listed on the Main Board of the Stock Exchange by way of introduction; and (ii) the Share Exchange Shareholders will become shareholders of the Offeror. The Offeror will assume all assets, liabilities, interests, businesses, employees, contracts and all other rights and obligations of the Company from the Implementation Date; and the Company will be eventually deregistered in the PRC.

The Share Exchange Ratio will not be adjusted and the Offeror does not reserve the right to do so.

Neither the Offeror nor the Company intends to declare and/or pay any dividend (save for the Special Dividend, the details of which are set out in the section headed ‘‘5. PROPOSED SPECIAL DIVIDEND’’ below) before the Delisting Date or the date on which the Merger is not approved or otherwise lapses (as the case may be).

Pursuant to Note 2 to Rule 30.1 of the Takeovers Code, the Offeror and the Company may only invoke any or all of the conditions (1) to (4) set out in the paragraph headed ‘‘Conditions to implementation’’ in this section or terminate the Merger Agreement in accordance with the paragraph headed ‘‘Termination’’ in this section as a basis for not proceeding with the Merger only if the circumstances which give rise to the right to invoke any such condition or termination right are of material significance to the Offeror in the context of the Merger.

The Share Exchange Ratio of 0.263614 new Offeror H Share for every Share Exchange H Share cancelled was determined on commercial basis on arm’s length terms after taking into account, among other things:

Valuation and Comparisons of value

The Valuation Adviser appointed by the Offeror to value the Offeror H Shares has estimated that the value of each Offeror H Share as at 8 March 2024 is in the range of approximately RMB62.39 to RMB70.92 (equivalent to approximately HK$68.74 to HK$78.14 based on the Exchange Rate) and is approximately RMB66.45 (equivalent to approximately HK$73.21 based on the Exchange Rate) based on the methodology detailed in Annex 2 of this joint announcement. On the basis of such valuation and that the Share Exchange Shareholders will receive 0.263614 Offeror H Share for every Share Exchange H Share cancelled, the theoretical value of the Offeror H Shares under the Merger for each Share Exchange H Share will be HK$19.30 and in the range of approximately HK$18.12 to HK$20.60.

The foregoing paragraph is subject to and should be read in conjunction with the bases, limitations and assumptions set out in the Valuation Report set out in Annex 2 of this joint announcement, which has been reported on by CICC. In particular, Shareholders, investors and potential investors should note that the value of the Offeror H Shares estimated by the Valuation Adviser does not represent the trading price of the Offeror H Shares immediately following completion of the Listing or at any time. The trading price of the Offeror H Shares may fluctuate subject to prevailing market conditions and may materially differ from the value estimated by the Valuation Adviser. Moreover, as the Independent Board Committee will make a recommendation only after taking into account of the advice from Gram Capital (to be included in the Composite Document), it is not expressing any view as to the contents of the Valuation Report. Accordingly, Shareholders, investors and potential investors should not rely on the Valuation Adviser’s estimated value of the Offeror H Shares as the basis for the trading price of the Offeror H Shares upon completion of the Listing.

On the basis of (1) the Share Exchange Ratio of 0.263614 Offeror H Share for every Share Exchange H Share cancelled and (2) the value estimated by the Valuation Adviser as at 8 March 2024 of HK$73.21 per Offeror H Share, the theoretical value of the Offeror H Shares under the Merger is equivalent to approximately HK$19.30 for each Share Exchange H Share and represents:

The Merger will be implemented at the Share Exchange Ratio. The comparisons above are provided solely for the convenience of investors. They are illustrations only. Shareholders should use the comparisons with care and take into account other disclosures in this joint announcement, including the reasons and benefits of the Merger.

The Share Exchange Ratio will not be adjusted and the Offeror does not reserve the right to do so.

Highest and lowest prices

During the six-month period preceding 8 March 2024 (being the commencement date of the Offer Period) and up to and including the Last Trading Day, the highest closing price of the H Shares as quoted on the Stock Exchange was HK$11.24 on 1 March 2024 and the lowest closing price of the H Shares as quoted on the Stock Exchange was HK$6.27 on 9 October 2023.

Value of the Merger

As at the date of this joint announcement, there are 879,967,700 Shares in issue, comprising 653,767,700 H Shares and 226,200,000 Domestic Shares. The Offeror holds approximately 51.41% of the Shares, comprising (a) a direct shareholding of 226,200,000 Domestic Shares (representing all of the Domestic Shares in issue and approximately 25.71% of the total issued share capital of the Company) and (b)  an indirect shareholding of 226,200,000 H Shares through its wholly-owned subsidiary HEC (Hong Kong) (representing approximately 34.60% of the total number of H Shares in issue and approximately 25.71% of the total issued share capital of the Company).

On the basis of the theoretical value of the Offeror H Shares per Share Exchange H Share (being the theoretical value of the Offeror H Shares determined on the basis of the estimated value of each Offeror H Share being approximately HK$73.21 as at 8 March 2024 as estimated by the Valuation Adviser), assuming (i) there will be no change in the number of Shares in issue prior to the Share Exchange Record Date; (ii)  the Merger Agreement becomes effective; and (iii) there will be no Dissenting Shareholder whose H Shares will not form part of the Share Exchange, the Merger values all of the Share Exchange H Shares at approximately HK$8,251.71 million, and the entire issued share capital of the Company at approximately HK$16,982.66 million.

On the basis of such number of Share Exchange H Shares and the Share Exchange Ratio, upon the fulfilment (or waiver, as applicable) of the Pre-Conditions and the Conditions, an aggregate of 112,712,832 Offeror H Shares (representing approximately 24.29% of the entire issued share capital of the Offeror as at the date of this joint announcement, or approximately 19.55% of the entire issued share capital of the Offeror as enlarged by the issuance of such Offeror H Shares), will be issued by the Offeror.

All of the Offeror H Shares to be issued as consideration to the Share Exchange Shareholders will be free from all liens, charges and encumbrances and together with all rights attaching to them, including the right to receive all dividends and other distributions.

Considering (1) the Company’s intention to return value to the Shareholders in the hope of the Shareholders’ continuous support of the Offeror’s listing by introduction and future development and (2) the Company’s intention to provide Shareholders with good cash returns despite the underperformance of the stock market, subject to the fulfilment (or waiver, as applicable) of all the Pre-Conditions and the Conditions, the Company will pay a special dividend to the Shareholders whose names appear on the register of members of the Company on the Special Dividend Record Date other than the Offeror and its subsidiaries (if applicable). The Offeror has indicated that, subject to its shareholders’ approval, it and its subsidiaries (if applicable) will waive their entitlements to the Special Dividend.

The Special Dividend will only be paid to the Shareholders if all of the Pre-Conditions and the Conditions have been fulfilled or waived (as applicable), and thus the Special Dividend may or may not materialise. Shareholders, investors and potential investors in the securities of the Company should therefore exercise caution when dealing in the securities of the Company. Persons who are in doubt as to the action to take should consult their stockbroker, bank manager, solicitor or other professional advisers.

The payment of the Special Dividend will not result in any adjustment to the Share Exchange Ratio.

Background and Reasons of the Merger and the Listing

The Offeror plans to further integrate with the Company to become a leading global comprehensive pharmaceutical company driven by independent R&D and incorporating R&D, production and sales capabilities, further capitalising on the scale effect and synergies to unleash greater growth potential.

Before the completion of the Merger, the Company lacks an independent R&D system, and its revenue and profits mainly come from its core product, Kewei (oseltamivir phosphate). The product structure is relatively simple and the channels for acquiring new products are limited. Through the full integration of the Offeror and the Company, the Post-Merger Offeror will further promote the vertically integrated operation and management of R&D, production and commercialisation. By fully integrating the Offeror’s leading R&D capability and strong R&D pipeline and the Company’s strong nationwide sales capability, the Post-Merger Offeror will make use of the synergy effect of the Merger. The Post-Merger Offeror will reduce its dependence on major products through Post-Merger Offeror’s diverse and robust drug pipeline, achieve long-term sustainable growth, expand its market value, and consolidate its position as a leading comprehensive pharmaceutical company.

Before the completion of the Merger, based on the agreement to avoid peer competition between the Company and the Offeror, the Company was responsible for the sales of medicines in China, while the Offeror was responsible for drug R&D and overseas sales. After years of development, the Company has formed a large domestic sales network in the PRC, while the overseas sales and distribution network of the Offeror covers more than eight jurisdictions and regions including but not limited to the United States, Germany, and the United Kingdom. It has established an independent brand with good reputation and formed certain sales capabilities. Through this integration, the domestic and overseas sales channels of the Offeror and the Company can be fully integrated, so that the Post-Merger Offeror can carry out its business operations more flexibly and meet the unfulfilled medical needs of various medicines without being subject to the constraints of the agreement to avoid peer competition between the Offeror and the Company, and provide a rich and strong pipeline of medicines in both domestic and overseas markets, which is conducive to the creation of a global pharmaceutical company and the enhancement of the Offeror’s leading industry position and global influence.

Under the current arrangement, the review chain of major business decision-making processes is long and requires approval from each of the Offeror and the Company. It also takes a long time to implement the approval process for connected transactions of the Company, and strategic opportunities for product development may be missed. After completion of the Merger, the Offeror’s and the Company’s R&D and sales capabilities will be integrated to optimise the management structure, shorten the business decision-making process, improve the management operation efficiency and integrate the R&D system, production facilities and sales network, thus achieving long-term sustainable and resilient growth.

Benefits to the Share Exchange Shareholders

The board of the Offeror believes that the Post-Merger Offeror will be an attractive investment target. Upon completion of the Merger, the Share Exchange Shareholders will not only be able to continue investing in the Company (as a part of the Offeror) which is equipped with excellent commercialisation capabilities, but will also be able to share in the benefits brought by the potential synergies that can be realised as a result of the Merger. In addition, apart from the greater capital market potential of the investment target, the Share Exchange Shareholders will also directly receive immediate cash value by receiving the Special Dividend of HK$1.50 per Share to be distributed by the Company, thus enabling the Share Exchange Shareholders to realise a certain level of capital return from their investment. As the Offeror does not need to raise large-scale external capital for the Listing, the proposed transaction will be less exposed to capital market volatility. In summary, the Offeror believes that the overall offer structure is in the interests of the Share Exchange Shareholders and that the long-term growth benefits to the Share Exchange Shareholders include the following:

According to the industry data collected by Frost & Sullivan, the market size of China’s anti-influenza drug market in 2022 was RMB4.4 billion and the market size in 2023 was estimated to be approximately RMB8.5 billion. Kewei (oseltamivir phosphate), a core product of the Company, accounts for approximately 69.8% of China’s anti-influenza drug market in 2022, which is already at a high market share level. In order to promote the long-term sustainable development of the Company, apart from ensuring the growth of revenue from existing pharmaceutical products, it is necessary for the Company to build up a strong product pipeline and continue to introduce new pharmaceutical products to ensure long-term growth potential. The Offeror has leading pharmaceutical R&D capability in the PRC and has established a vertically integrated and proprietary R&D system and a R&D platform covering the complete development cycle of small and large molecule drugs. It possesses proprietary and systematic R&D capability that enable rapid commercialisation of the Company’s drugs under development. Relying on its R&D platform, the Offeror has established pipelines in three major therapeutic areas with huge unfulfilled needs, and has formed distinct differentiated development paths in each R&D field: (1) indications in the field of infectious diseases covering hepatitis B, hepatitis C, influenza and acute respiratory infection, establishing a leading R&D position in domestic anti-infective drug; (2) establishing a leading diabetes drug portfolio in the field of chronic diseases, continuing to expand product lines for respiratory system diseases including, among others, pulmonary fibrosis, pulmonary hypertension, chronic obstructive pulmonary disease and asthma, and gradually expanding to metabolic disorders such as gout and obesity and neuropsychiatric disorders; (3) the oncology pipeline focusing on the treatment of solid tumour and blood cancers (hematological malignancy) utilising technologies such as precise targeting. According to the industry data collected by Frost & Sullivan, the global diabetes drugs market is expected to reach US$118.9 billion in 2030, China’s anti-hepatitis B drugs market is expected to reach RMB50.1 billion, China’s depression drugs market is expected to reach RMB35.4 billion and China’s pulmonary fibrosis drugs market is expected to reach RMB3 billion. The future pipeline of the Post-Merger Offeror group will focus on significantly enlarged market size, reduce performance volatility through the gradual commercialisation of its product pipeline in various fields, and become a comprehensive pharmaceutical enterprise with both growth and profitability.

Through this integration, the Share Exchange Shareholders will become the shareholders of the Post-Merger Offeror, and share the R&D results from the R&D platform and three focused key areas of the Offeror. The Post-Merger Offeror will achieve a positive cycle business model of integrated research, production and sales, mainly focus on innovative new drugs, and is also involved in modified new drugs, generic drugs and biosimilars. The major products of the Post-Merger Offeror will continuously generate strong cash flow to support R&D investments, and the strong R&D capabilities of the Post-Merger Offeror will enrich the range of long-term commercialised products in the future, which will be conducive to the realisation of sustainable business growth and creation of long-term value.

Prior to the Merger, the Company’s revenue and profit were mainly derived from its core product, Kewei (oseltamivir phosphate), with a high degree of dependence on this single product and insufficient risk resistance. The Company currently does not have an independent R&D system, while the Offeror has domestically leading pharmaceutical R&D capabilities, and has established a comprehensive, integrated and independent R&D system and an R&D platform that covers the complete development cycle of small and large molecule drugs. Its strong in-house R&D capabilities have translated into a diverse and robust drug pipeline, enabling swift advancement of its drugs under development to commercialisation. Focusing on the fields of infectious diseases, chronic diseases and oncology, the Offeror has established a pipeline of drugs with differentiation and high commercial potential. The Offeror’s core pipeline in development is expected to progressively realise revenues from 2025 onwards and cash inflows from 2028 onwards. Upon completion of the Merger, the Post-Merger Offeror group will have an in-house R&D system and a rich pipeline of commercialised products in the future, achieving sustainable and resilient long-term business growth and generating long-term returns for its shareholders.

The theoretical value of the Offeror H Shares under the Merger will present the Share Exchange Shareholders with an attractive premium over the market value of the Company, with an implied value of the Share Exchange H Shares that is significantly higher than recent historical trading prices of the Shares. In addition, the Share Exchange Shareholders will be able to realise a level of capital return on their investment by receiving immediate cash value directly through the Special Dividend. At the same time, the Share Exchange Shareholders will also be able to share the revenue and profits to be realised by the Offeror in the future and obtain a long-term return on their capital investment.

Under the current shareholding structure, the Offeror and the Company are required to comply with the agreement to avoid peer competition and make arrangements in respect of the business separation, which constitutes a continuing connected transaction under the Listing Rules.

Upon this integration, the Post-Merger Offeror will be able to complete the integration of R&D, production and sales, resulting in a more streamlined and efficient decision-making process and enabling it to respond to demands in the marketplace more quickly and with more economical commercial arrangements. In addition, the Post-Merger Offeror will be able to utilise the supply chain system and leading manufacturing bases of the Offeror and the Company, which will further reduce the procurement and manufacturing costs, thus enhancing management efficiency, reducing the overall business operating costs, maximising cooperation efficiency and realising economies of scale.

Firstly, prior to the implementation of the Merger, the Company did not have an independent R&D system, and its capital market valuation was obviously at a low level. After completion of the Merger, the Post-Merger Offeror will become a comprehensive pharmaceutical enterprise integrating production, marketing and research, and a listed entity with a complete business chain, enhancing investors’ market confidence in the Post-Merger Offeror.

Secondly, the Post-Merger Offeror will have significantly reduced number of continuing connected transactions as well as reduced additional restrictions against peer competition, which are conducive to reduce administrative and compliance costs, thus boost overall business performance.

Thirdly, prior to the implementation of the Merger, the Company’s sources of major revenue and profits were relatively concentrated. After completion of the Merger, the Post-Merger Offeror will have stronger R&D capabilities and a richer future drug pipeline to cope with changing market competition, and will have greater long-term investment value. The above changes will also make the Post- Merger Offeror attractive to more investors.

In summary, after the Merger becomes unconditional and upon completion of the Listing, the Post-Merger Offeror will become a comprehensive pharmaceutical enterprise integrating R&D, production and sales, with reduced additional management costs and compliance costs, and a more stable and continuously growing source of revenue and profits, thus enhancing the overall performance of the Post-Merger Offeror in the capital market.

Strategic Plans of the Offeror Group

The Offeror is committed to becoming an integrated world-class pharmaceutical enterprise under the dual driving forces of ‘‘innovation’’ and ‘‘internationalisation’’. By adhering to the corporate mission of ‘‘scientific innovation of new drugs for high-quality of healthy life’’, and focusing on research, development, production and sales of innovative drugs, while also involving in modified new drugs, generic drugs and biosimilars, the Offeror is dedicated to developing products that are first-of-its-kind or best-in-class with breakthrough potential in both domestic and overseas markets. Through this integration, the Offeror intends to achieve structural optimisation and business integration. The Merger and the Listing will enable the Offeror to reap further synergies from the integration of ‘‘research, production and marketing’’ and enhance its market competitiveness, which in turn will maximise returns for shareholders.

Prior to the completion of Merger, the Company is still at the stage of continuously exploring further development opportunities. Although the Company has achieved profitability in recent years, the Company’s dividend policy is relatively conservative due to the need to respond to the opportunities and challenges brought about by rapid changes in the market. Upon completion of the Merger, the Post-Merger Offeror group will have a clear development direction to become a comprehensive pharmaceutical enterprise integrating research, production and sales. The overall improvement in competitiveness of the Post-Merger Offeror will enhance its ability to give back to shareholders.

The Post-Merger Offeror group will continue to invest into enhancing its own R&D platform to provide patients with better health solutions and affordable quality products, with a focus on first-of-its-kind or best-in-class drugs for the field of indications with huge market potential. Such strong R&D capabilities will also continue to enrich the range of long-term commercialised products of the Post- Merger Offeror in the future, building the foundation for the Post-Merger Offeror’s sustainable business growth and long-term competitive advantage.

After completion of the Merger, the Post-Merger Offeror will be able to enjoy a streamlined decision-making process and shortened business decision-making time as there will no longer be peer competition restrictions between the Post-Merger Offeror and the Company (as part of the Post-Merger Offeror) and transactions between both parties will no longer constitute connected transactions under the Listing Rules. The Post-Merger Offeror will be able to promptly react to market changes and various challenges, and flexibly reschedule its various drug sales channels to facilitate the dual globalised development of market and technology, creating a Chinese brand that becomes a leading international pharmaceutical innovation enterprise.

Upon completion of the Listing, the Post-Merger Offeror will be able to tap into international capital market as a listed company. The Post-Merger Offeror will also be able to further enhance its level of corporate governance through the introduction of international investors as well as its business agility through flexible financing. Upon the Merger becoming unconditional and the completion of the Listing, the Post-Merger Offeror will be listed on the Main Board of the Stock Exchange with a view to becoming a leading pharmaceutical listed company in the industry, which will help enhance its market image among its customers, suppliers and other business partners.

In the future, the Post-Merger Offeror group will further broaden its financing channels and enhance its brand influence, promote the effective interaction between its business development and the capital market, and bring better long-term capital market returns to the Share Exchange Shareholders and widely attract talents through potential and diverse equity incentive schemes, which will also benefit all the Share Exchange Shareholders.

Future Development and Integration Initiatives of the Offeror Group

The Post-Merger Offeror will continue to devote to build an all-round and comprehensive independent R&D system and a R&D platform that covers the complete development cycle of drugs, while continue to invest in R&D platform and technology upgrading to facilitate the continuous commercial development of products such as innovative drugs, modified new drugs, generic drugs and biosimilars, with an aim to continuously consolidate its competitive strength by creating a stable, sustainable and tiered product pipeline.

The Post-Merger Offeror will continue to strengthen its brand building in the market. Leveraging on the leading market position and brand awareness of Kewei (oseltamivir phosphate) and the Offeror’s rich product pipelines, the Post-Merger Offeror would be able to enhance its brand image as a leading integrated pharmaceutical company that integrates drug R&D, production and sales, and continue to foster its own brand image as a PRC pharmaceutical company in overseas markets and boost its international reputation through overseas cooperation.

To facilitate the commercial development of the Post-Merger Offeror’s product pipelines, the Post-Merger Offeror will continue its efforts to develop a more transparent and efficient international distribution network, strengthen the digitalisation of its marketing network and its data analysis capabilities, enhance the efficiency of sales process, and keep optimising its branding and marketing strategies.

The Post-Merger Offeror will focus on upgrading all aspects of its production system, accelerating the integration of production facilities and capacity planning, strengthening the deployment of production automation and information technology, coordinating supply chain resources and improving procurement and logistics planning. These would further optimise the cost structure, and quality of its product pipelines, which in turn would enhance the systematic production operation efficiency of the Offeror.

The Post-Merger Offeror will accelerate the integration of its mid-to-back office structure and promote a smart mid-to-back office system that integrates all processes, incorporating finance, R&D, sales, purchasing, inventory, administrative office systems and digital infrastructure. Moreover, the Post-Merger Offeror will optimise and adjust the previous arrangement for connected transactions to improve decision-making and reduce governance costs.

The Board (other than members of the Independent Board Committee, whose views will be given after receiving the opinion of Gram Capital) is of the view that the terms of the Merger are fair and reasonable and in the interests of the Company and its Shareholders as a whole.

Overview of the Offeror

The Offeror was established in 2003. It is an integrated pharmaceutical company driven by independent R&D, rooted in China and opened to the world. It has comprehensive strength in R&D, production and sales. The Offeror focuses on the three key areas of infectious diseases, chronic diseases and oncology. In particular, according to the industry data collected by Frost & Sullivan, Kewei (oseltamivir phosphate), the core product in the anti-infectious field, has a leading position in the influenza market with a market share of approximately 69.8% of China’s anti-influenza drug market in 2022. With its rich pipeline of anti-infective drugs, it has been approved by the Ministry of Science and Technology of the PRC to establish a State Key Laboratory of Anti-Infective Drug Development. The Offeror focuses on innovative drugs and is also involved in modified new drugs, generic drugs and biosimilars. It currently has a diversified and large product portfolio and a sustainable development pipeline. After over 20 years of experience accumulation, the Offeror has established a leading R&D platform, international standard production capacity and a global sales network. The Offeror has been named in the Top 20 of ‘‘China Drug Research and Development Comprehensive Strength Ranking’’ published by Yaozh.com, for seven consecutive years since 2017. In 2023, it was successfully selected as one of the ‘‘Top 100 Competitive Enterprises in Chinese Pharmaceutical Industry’’ and ranked at the top of the list of the ‘‘Top 100 Chinese Pharmaceutical Innovators for 2023’’ released by Healthcare Executive Magazine.

The Offeror is committed to developing products that are first-of-its-kind or best-in-class with breakthrough potential in the global market. It has built outstanding R&D capabilities and created a diversified and robust pipeline portfolio with broad and deep indication coverage through differentiated molecular design and comprehensive technology platforms. The Offeror has formed a large-scale, professional and comprehensive R&D team with more than 1,200 personnels as of 31 March 2024, and has established a comprehensive and integrated independent R&D system and a R&D platform covering the complete development cycle of large and small molecule drugs. Its R&D capabilities are independent and systematic, which enables the Offeror to swiftly advance its drugs under development to commercialisation. As of 31 March 2024, the Offeror has 146 approved drugs in the world, including in China, the United States and Europe, more than 100 drugs in the pipeline, including 45 Class I Innovative Drugs candidates among which three are under the NMPA’s review for launching in China and 10 are in Phases II or III of clinical trials. The Offeror is one of a handful of PRC pharmaceutical companies who has successfully launched one Class I Innovative Drug and applied for the launch of three Class I Innovative Drugs through in-house R&D. The Offeror attaches great importance to the protection of core technologies. Its patents cover new drug compounds, protein molecular structures, manufacturing processes, usage and preparation formulation, providing a sufficient and long-life patent protection strategy for the Offeror’s products. As of 31 December 2023, the Offeror had applied for a total of 2,306 invention patents, including 350 Patent Cooperation Treaty (PCT) applications, 1,076 domestic invention patents, and 880 overseas invention patents; among them, a total of 1,260 invention patents have been granted by the relevant patent authorities, including 651 domestic invention patents and 609 overseas invention patents. According to Frost & Sullivan, the Offeror ranked first among PRC pharmaceutical companies in the number of patents published and the number of authorised patent announcements in China between 1 January 2014 and 31 December 2023, and the Offeror ranked 44th in the world and 4th in China in terms of the number of public invention patent applications for the global biomedical industry in 2022.

As of 31 December 2023, the Offeror has two high-standard production bases in Songshan Lake, Dongguan, Guangdong and Yidu, Hubei, covering a total area of more than 1,300 mu, covering the entire pharmaceutical production process in respect of the formulation production. It has production capabilities for tablets, capsules, granules, dry suspensions and freeze-dried powder injections. The Offeror has also formed a pharmaceutical production and quality management system with international standards, aiming to provide high-quality medicines and laying the foundation for the subsequent sales of the Offeror’s products in overseas jurisdictions.

The Offeror has an extensive global sales network, covering the Chinese mainland market, European market, North American market and other areas of the world. In the domestic market, as of 31 December 2023, the Offeror has a nationwide sales and distribution network and more than 1,788 professional sales personnels, covering 32 provincial-level regions and nearly 300 prefecture-level cities. The Offeror extensively covers more than 2,400 Class III Hospitals, more than 8,900 Class II Hospitals and more than 65,000 Class I Hospitals in the PRC as well as many large-scale national or regional pharmacy chains.

As at the date of this joint announcement, the Offeror has a total issued share capital of 463,943,215 ordinary shares. The Offeror has no other relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) as at the date of this joint announcement. The ultimate controlling shareholders of the Offeror are Ms. Guo Meilan and her son Mr. Zhang Yushuai controlling approximately 62.12% equity interests in the Offeror as at the date of this joint announcement. Please refer to the paragraph headed “Shareholding in the Company” in this section for further details.

Advantages of the Offeror

After over 20 years of development, the Offeror has managed to create a virtuous circle in respect of its business model through its integrated capabilities in R&D, production and sales, and is one of the domestic pharmaceutical companies with the ability to carry out international R&D and sales. The Offeror continues to make forward-looking plans around drug innovation, focusing on the three major fields of infectious diseases, chronic diseases and oncology. With its excellent commercialisation capabilities, it continues to cultivate a large variety of drugs, gradually growing into a company with comprehensive capabilities in R&D, production and sales. Such competitive advantage can enhance the Offeror’s position in the fast-growing pharmaceutical industry in China and around the world.

The Offeror has one of the largest in-house R&D teams among PRC pharmaceutical companies. It has formed a large-scale, professional and comprehensive R&D team of more than 1,200 personnels. The core members of the team have profound industry insights and rich drug R&D experience. The Offeror has its own R&D platform and is one of the first companies in China to get involved in the development of innovative drugs. It has created a series of innovative drug pipelines, with one Class  I Innovative Drug launched, three Class I Innovative Drugs under application for the NMPA’s review for launching in China, and 10 Class I Innovative Drugs in Phases II or III clinical trials. The Offeror’s pipeline assets and core technologies are also protected by a comprehensive patent portfolio. As of 31 December 2023, the Offeror has applied for a total of 2,306 invention patents, including 350 Patent Cooperation Treaty (PCT) applications, 1,076 domestic invention patents, and 880 overseas invention patents; in particular, a total of 1,260 invention patents have been granted by the relevant patent authorities, including 651 domestic invention patents and 609 overseas invention patents. Based on its fruitful R&D results, the Offeror has won a number of national platform titles, including the State Key Laboratory of Anti-Infective Drug Development (as approved by the Ministry of Science and Technology of the PRC), the National Intellectual Property Model Enterprise (as designated by the China National Intellectual Property Administration) and a postdoctoral research workstation. According to Frost & Sullivan, the Offeror is among the top PRC pharmaceutical companies in terms of the number of innovative drugs under clinical development.

International layout is also an important strategy for the sustainable development of the Offeror. The Offeror is one of the leading companies in the internationalisation of pharmaceutical preparations in China. As of 31 March 2024, with its international platform, the Offeror had obtained 252 international drug approvals in respect of 70 overseas pharmaceutical products and 8 approvals for first generic drugs from the FDA, making it the PRC pharmaceutical company that has obtained the most overseas drugs approvals through its independent R&D.

As of 31 March 2024, the Offeror had promoted and sold 45 pharmaceutical products in the PRC and 18 of which had been the winning bids in connection with the centralised tender with respect to medicine procurement by the PRC authorities including 2 insulin products which have become a reliable source of revenue for the Offeror. Specifically, Kewei (oseltamivir phosphate), the Offeror’s top brand of oseltamivir phosphate, is available for sale in more than 2,400 Class III Hospitals, more than 8,900 Class II Hospitals and more than 65,000 Class  I Hospitals in the PRC as well as many large-scale national or regional pharmacy chains.

As one of the pioneers in preparation export, the Offeror has 70 approved drugs abroad, including 36 in the United States and 31 in Europe. With the Fingolimod capsule, an FDA approved first generic drug, the Offeror has become the first PRC pharmaceutical company that successfully challenged the patent of a novel drug in the US. The large number of overseas approvals the Offeror has obtained can help the Offeror further improve its overseas market position, strengthen its product supply chain, and expand its market size.

The Offeror focuses on the three major fields of infectious diseases, chronic diseases and oncology, focusing on the R&D of first-in-class or best-in-class drugs for indications with huge market potential and clinical demand gaps. With its independent R&D capabilities, the Offeror has a huge product cluster, including 146 globally approved drugs and more than 100 products in the pipeline at different stages of R&D. In particular, the variety of innovative drugs under clinical research ranks highly among domestic pharmaceutical companies, and its abundant pipeline reserves ensure the sustainable development and commercialisation of the Offeror’s products. It is one of a handful of PRC pharmaceutical companies that has successfully developed and launched one Class I Innovative Drug and has applications for launching three Class I Innovative Drugs in China through in-house R&D.

Anti-hepatitis C drug pipeline: The Offeror is the only PRC pharmaceutical company that has a commercialised Class  I Innovative Drug for the treatment of genotype-specific chronic hepatitis C and has Class I Innovative Drug candidates for the treatment of pan-genotypic chronic hepatitis C at the same time. It has the advantages of a complete pipeline, independent intellectual property rights.

Anti-hepatitis B drug pipeline: Morphothiadine mesylate is the only anti-hepatitis B virus capsid inhibitor in Phase III clinical trial in China.

Diabetes treatment drug pipeline: The Offeror has established a comprehensive product portfolio and drug pipeline, including chemical drugs and biologics, for the treatment of diabetes. Five insulin products have been approved for sale in the Chinese market as of 31 March 2024 and one innovative drug will be launched soon.

Idiopathic pulmonary fibrosis treatment drug pipeline: Yinfenidone hydrochloride is a Class I Innovative Drug candidate that the Offeror has been developing in-house for the treatment of idiopathic pulmonary fibrosis. It has a brand-new mechanism of action and best-in-class potential. It has completed Phase I clinical trials in China and the United States, and has obtained orphan drug designation from the FDA. The Offeror has been conducting its Phase II clinical trial in China and expects to obtain interim analysis data to submit its Phase III clinical trial application to the CDE to accelerate and the R&D and launching process of yinfenidone hydrochloride. It is expected to bring safer and more effective therapeutic drugs to patients with pulmonary fibrosis. The Offeror plans to submit a new drug application after Phase III clinical trial. When yinfenidone hydrochloride has been approved by the NMPA, the Offeror will launch it to the market and start to generate revenue. Subject to requirements of the NMPA, a Phase IV clinical trial may or may not begin after yinfenidone hydrochloride has been approved. The Offeror will conduct the Phase IV clinical trial as and when required by the NMPA.

Drug pipeline for the treatment of AML: Clifutinib besylate is a Class I Innovative Drug candidate the Offeror has been developing in-house for the treatment of AML and is the first highly selective FLT3 inhibitor (a type of targeted therapy used in the treatment of AML, which works by blocking the activity of the FLT3 protein, a receptor tyrosine kinase that plays a key role in the survival, proliferation and differentiation of hematopoietic stem/progenitor cells) drug candidate developed by a PRC pharmaceutical company via in-house R&D to enter Phase III clinical trials.

The Offeror has formed comprehensive global independent discovery and clinical development capabilities, covering chemistry, biology, pharmacology, toxicology, clinical, production and control and regulatory matters. Through a high degree of integration of all links, seamless operation and efficient support for drug R&D is achieved. The comprehensive and integrated drug discovery and development process has given the Offeror a significant advantage. In terms of small molecule drug discovery, the Offeror has always adhered to independent original research and innovation, and has established an early-stage drug R&D engine. Its 18 years of experience in the R&D of Class I Innovative Drugs has made the Offeror one of the first companies in China to enter the R&D of innovative drugs. It has established a complete R&D platform for recombinant proteins, antibodies, cells and gene therapy products which utilises various technologies such as target discovery and validation technology, whole human antibody library technology, phage and yeast display technology and various other technologies. In terms of clinical development, the Offeror has established strong internal clinical development capabilities, with a clinical research team of more than 300 people distributed in 8 offices across the PRC. Its expertise covers clinical medicine, clinical operations, data management, biostatistics, clinical pharmacology, drug safety and other functions, comprehensively covering all aspects of clinical development. It can complete Phases I, II and III clinical studies of innovative drugs independently, with high quality and speed.

In order to further promote the rapid discovery of candidate molecules, the Offeror continues to improve its technology platform and iteratively optimise it. The Offeror has built advanced technology platforms such as artificial intelligence driven drug design, small nucleic acid, protein degradation-targeting chimeric molecules, antibody-drug conjugates, specific antibodies, oncolytic viruses, and CAR-T to empower the research and development of innovative drugs and enhance innovation. In particular, in the field of artificial intelligence, based on the large amount of R&D data accumulated by the Offeror over the past 20 years, data suitable for artificial intelligence-assisted pharmaceuticals has been obtained through data governance; the Offeror cooperates with well-known technology companies in China to use its large language models to predict compound properties and screen drug molecules; the Offeror also uses open source models to pre-train and train its own compound chemical absorption, distribution, metabolism, excretion and toxicity attribute prediction and drug screening platform; the Offeror has applied the above artificial intelligence technology-assisted pharmaceutical technology to the early research and development of new small molecule drugs, and will gradually apply it to the research and development of new large molecule drugs.

The Offeror has a huge global sales network covering the PRC, the United States, Germany and the United Kingdom and other countries, and continues to expand to more international markets. Through close cooperation with local partners, the Offeror has established stable sales channels and distribution networks, providing customers with convenient product acquisition channels and high-quality after-sales services.

In the domestic market, the Offeror has a nationwide sales and distribution network and more than 1,788 professional sales personnels, covering 32 provincial-level regions (provinces, autonomous regions, and municipalities directly under the Central Government) and nearly 300 prefecture-level cities. The domestic marketing team is divided into the pediatric line represented by the Offeror’s core product Kewei (oseltamivir phosphate), the chronic disease line focusing on the Offeror’s insulin series products, the innovative drug line represented by the Offeror’s hepatitis C drug Emitasvir, and the centralised procurement and other market channels line represented by the Offeror’s esomeprazole magnesium enteric-coated capsules. In 2023, sales of each line showed high-quality and strong growth. As of 31 March 2024, the Offeror promoted and sold a total of 45 pharmaceutical products domestically. The Offeror extensively covered more than 2,400 Class  III Hospitals, more than 8,900 Class II Hospitals, and more than 65,000 Class  I Hospitals in the PRC as well as many large-scale national or regional pharmacy chains. In addition, the Offeror has actively participated in the national medical insurance negotiations. As of 31 March 2024, one of the Offeror’s Class I Innovative Drugs has been included in the NRDL. In foreign markets, the overseas sales and distribution network of the Offeror spans across eight countries including the United States, Germany and the United Kingdom. The Offeror plans to expand its overseas sales network to Africa and Latin America, forming a global sales network across five continents.

The Offeror has many global strategic partners. In the domestic market, it has established strategic partnerships with many well-known pharmaceutical companies and scientific research institutions; in foreign markets, it has maintained long-term sales cooperation with world-renowned companies.

The production bases of the Offeror have adopted a comprehensive quality management system to ensure that the product quality of the Offeror reaches the highest standards. The Offeror strictly follows GMP and other quality standards set by relevant regulatory authorities, and has passed a number of audits by these regulators.

The Offeror has two production bases in Songshan Lake, Dongguan, Guangdong and Yidu, Hubei, covering a total area of more than 1,300 mu, covering the entire production process in respect of formulations. The Songshan Lake production base in Dongguan, Guangdong is China’s first-class solid chemical formulation and biologics production base, and has obtained GMP certificates from the United States, the European Union, and China, and recently passed the inspection conducted by the FDA in March 2024. The Yidu production base in Hubei is a production base for a wide range of insulin products and the largest oseltamivir phosphate formulation production base in the world as of 31 December 2023.

The Offeror is a supplier in the field of oseltamivir, providing reliable supply for the Chinese national drug reserve. Over the years, the Offeror has demonstrated strong and high standard production capabilities in response to influenza outbreaks. The Offeror has advanced facilities and high production standards which comply with GMP and other quality management systems.

The Offeror has established a technical management team consisting of scientists with extensive working experience in multinational pharmaceutical companies and pharmaceutical talents with wide-ranging experience in R&D practice. The members possess experience in pharmaceutical R&D across various stages of its life cycle as well as in corporate operation and management. Under the leadership of its technical management team, as of 31 March 2024, the Offeror has formed a large-scale, professional and comprehensive R&D team with 1,200 personnels, whose experience and qualifications spread across chemistry, pharmaceutics, analytics, biology, pharmacology, clinical medicine and other fields, which gives the Offeror significant edges in innovation and execution abilities and provides strong assurance to the efficient progression of its projects.

All members of the Offeror’s management team, on top of their comprehensive professional knowledge in fields such as R&D, production and marketing, also have over 10 years of relevant experience in the pharmaceutical industry or in professional management. They have contributed to the Offeror’s technological innovation and enhanced its project management and commercialisation abilities. Their professional knowledge and experience provide strong support to the R&D and operation of the Offeror and facilitate its continuous growth and success in the pharmaceutical industry.

Strategies of the Offeror

With the future vision of becoming a world-class pharmaceutical company by focusing on innovation and internationalisation and leveraging its excellent commercialisation capabilities, the Offeror implements the corporate mission of providing innovative, high-quality and affordable medications to patients around the world.

In order to achieve this goal, the Offeror plans to implement the following strategies:

Financial information of the Offeror

The following is a summary of certain financial information of the Offeror for the three years ended 31 December 2021, 2022 and 2023, based on the unaudited consolidated financial statements of the Offeror prepared in accordance with IFRS:

The Offeror’s unaudited profit figures (the ‘‘Profit Figures’’) included in this joint announcement, the Valuation Report in Annex 2 and the investor presentation in Annex 5 of this joint announcement constitute profit forecasts under Rule 10 of the Takeovers Code and should be reported on by the financial adviser and auditors or accountants of the Offeror in accordance with Rule  10.4 of the Takeovers Code. The Profit Figures are included in this joint announcement as they are required under the Listing Rules to be disclosed in the Offeror’s application for the listing of the Offeror H Shares, and are thus also material for disclosure in this joint announcement pursuant to General Principle 6 of the Takeovers Code. Under Rule 10.4 of the Takeovers Code, when a forecast is made in an announcement, that announcement must contain a statement that the forecast has been reported on in accordance with the Takeovers Code and the reports have been lodged with the Executive. However, the Offeror has encountered genuine practical difficulties in meeting the reporting requirements set out in Rule 10.4 of the Takeovers Code. The Profit Figures will be reported on in accordance with Rule 10.4 of the Takeovers Code unless the audited financial information of the Offeror has been published on or before the date of the Composite Document, in which case, the requirements to report on the Profit Figures will no longer apply.

Shareholders and potential investors should note that the Profit Figures have not been reported on in accordance with the requirements under Rule 10 of the Takeovers Code and do not meet the standard required by Rule 10 of the Takeovers Code. Shareholders and potential investors should therefore exercise caution in placing reliance on the Profit Figures in assessing the merits and demerits of the Merger and the Listing.

In connection with the Merger, the Offeror is seeking a listing of the Offeror H Shares by way of introduction on the Main Board of the Stock Exchange. The purpose of the Listing is to create liquidity for the Offeror H Shares and provide the Offeror with greater access to international capital through its listing platform, thereby increasing the attractiveness of the Offeror H Shares. At the same time, the distribution of the Offeror H Shares to a wide group of Share Exchange Shareholders pursuant to the Merger upon fulfilment (or waiver, as applicable) of the Pre-Conditions and the Conditions will enable the Offeror to satisfy the minimum public float requirement under Rule 8.08(1)(b) of the Listing Rules. Accordingly, it is a Pre-Condition to the Merger that the Listing Committee of the Stock Exchange approves the listing (by way of introduction) of, and permission to deal in, the Offeror H Shares on the Stock Exchange and a Condition to implementation that such approval remains valid and it will be a condition to the Listing that the Merger Agreement becomes effective.

No Offeror H Shares will be issued in connection with the Merger other than to the Share Exchange Shareholders upon fulfilment (or waiver, as applicable) of the Pre- Conditions and the Conditions.

The Company is a pharmaceutical manufacturing company that focuses on the production, sales and development of pharmaceutical products in the therapeutic areas of anti-infectives, endocrine and metabolism. The ultimate controlling Shareholders of the Company are Ms.  Guo Meilan and her son Mr. Zhang Yushuai as they control approximately 62.12% interests in the Offeror, which in turn controls approximately 51.41% interests in the Company.

As at the date of this joint announcement, the relevant securities of the Company in issue are 879,967,700 Shares, which comprise 653,767,700 H Shares and 226,200,000 Domestic Shares.

As at the date of this joint announcement, the Offeror holds approximately 51.41% of the Shares, comprising (a) a direct shareholding of 226,200,000 Domestic Shares (representing all of the Domestic Shares in issue and approximately 25.71% of the total issued share capital of the Company) and (b) an indirect shareholding of 226,200,000 H Shares through its wholly-owned subsidiary HEC (Hong Kong) (representing approximately 34.60% of the total number of H Shares in issue and approximately 25.71% of the total issued share capital of the Company). All the H Shares and Domestic Shares held by the Offeror (including those held through HEC (Hong Kong)) will not form part of the Share Exchange but will be cancelled after completion of the Merger.

For the avoidance of doubt, all H Shares and Domestic Shares will be cancelled after completion of the Merger.

Set out below is a shareholding table of the Company as at the date of this joint announcement.

Set out below is the simplified shareholding structure of the Company as at the date of this joint announcement:

Notes:

Reference is made to the announcement of the Company dated 8 March 2024 pursuant to Rule 3.7 of the Takeovers Code. On 8 March 2024 (after trading hours), the Offeror and its wholly-owned subsidiary HEC (Hong Kong) entered into a share transfer agreement pursuant to which HEC (Hong Kong) will, subject to the terms and conditions of such agreement, transfer to the Offeror 226,200,000 H Shares (representing approximately 25.71% of the total issued share capital of the Company) at a consideration of HK$9.14 per Share. Completion of the transfer of the rights and obligations attached to, and the profit or loss arising from, such H Shares has already taken place on 8 March 2024. HEC (Hong Kong) further undertakes that it will use its best endeavours to procure the Company to complete the updating of the register of members of the Company in relation to such transfer of H Shares.

Set out below is the simplified shareholding structure of the Offeror immediately upon the completion of the Merger assuming there is no Dissenting Shareholder:

As at the date of this joint announcement, there are no outstanding options, warrants or convertible securities issued by the Company.

Note:

As at the date of this joint announcement:

The Board approved the Merger and its related matters at its board meeting on 10 May 2024.

Pursuant to Rule 2.8 of the Takeovers Code, the Independent Board Committee is required to comprise all the non-executive Directors who have no direct or indirect interest in the Merger other than as Shareholders. Mr. TANG Xinfa, the non-executive Director of the Company, is a director of the Offeror and is presumed to be acting in concert with the Offeror by virtue of falling into class (2) of the definition of ‘‘acting in concert’’ in the Takeovers Code. Accordingly, Mr. TANG Xinfa is regarded as being interested in the Merger for the purpose of Rule 2.8 of the Takeovers Code. The Board has therefore established the Independent Board Committee, consisting of all of the independent non-executive Directors, being Mr. TANG Jianxin, Ms. XIANG Ling and Mr. LI Xuechen. Such committee will advise the Independent Shareholders as to: (a) whether the terms of the Merger are fair and reasonable for the purpose of the Takeovers Code; and (b) whether to vote in favour of or against the Merger at the EGM and the H Shareholders’ Class Meeting.

Gram Capital has been appointed as the Independent Financial Adviser, with the approval of the Independent Board Committee pursuant to Rule 2.1 of the Takeovers Code, to provide advice to it in respect of the Merger. The Independent Board Committee is evaluating the Merger and its views and recommendations will be set out in the Composite Document to be despatched to the Shareholders.

Upon fulfilment of the Pre-Conditions and all the Conditions to effectiveness, the Company will apply to the Stock Exchange for voluntary withdrawal of the listing of the H Shares from the Stock Exchange pursuant to Rule 6.15 of the Listing Rules.

The Company will issue separate announcement(s) notifying H Shareholders of the proposed withdrawal of listing and the exact dates and relevant arrangements for the last day for dealing in H Shares on the Stock Exchange as well as when the formal delisting of the H Shares will become effective.

The listing of the H Shares on the Stock Exchange will not be withdrawn if the Merger is not approved or lapses or does not become unconditional for any reason.

The Company will convene the EGM and the H Shareholders’ Class Meeting for the Shareholders and the H Shareholders respectively, to consider and, if thought fit, approve matters including the Merger. The Composite Document containing, among others, (i) further details of the Merger and the Merger Agreement and other matters in relation to the Merger; (ii) a letter of advice issued by Gram Capital to the Independent Board Committee; (iii) recommendations and advice from the Independent Board Committee; and (iv) an advanced draft or a copy of the Listing Document, together with a notice of the EGM, a notice of the H Shareholders’ Class Meeting and proxy form are expected to be despatched to the Shareholders within seven days after fulfilment of the Pre-Conditions. The Offeror will apply to the Executive for its consent under Note 2 to Rule 8.2 of the Takeovers Code to permit the Composite Document to be posted within seven days after the earlier of (1) the date of fulfilment of the Pre-Conditions or (2) 30 June 2025 or such other date as agreed between the Offeror and the Company with the consent of the Executive (i.e. the Long-stop Date).

In accordance with Rule 3.8 of the Takeovers Code, associates of the Offeror and the Company (including persons who owns or controls 5% or more of any class of relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) of the Offeror or the Company) are hereby reminded to disclose their dealings in any shares in the Offeror and the Company pursuant to the requirements of the Takeovers Code.

In accordance with Rule 3.8 of the Takeovers Code, reproduced below is the full text of Note 11 to Rule 22 of the Takeovers Code:

‘‘Responsibilities of stockbrokers, banks and other intermediaries

Stockbrokers, banks and others who deal in relevant securities on behalf of clients have a general duty to ensure, so far as they are able, that those clients are aware of the disclosure obligations attaching to associates of an offeror or the offeree company and other persons under Rule 22 and that those clients are willing to comply with them. Principal traders and dealers who deal directly with investors should, in appropriate cases, likewise draw attention to the relevant Rules. However, this does not apply when the total value of dealings (excluding stamp duty and commission) in any relevant security undertaken for a client during any 7 day period is less than HK$1 million.

This dispensation does not alter the obligations of principals, associates and other persons themselves to initiate disclosure of their own dealings, whatever total value is involved.

Intermediaries are expected to co-operate with the Executive in its dealings enquiries. Therefore, those who deal in relevant securities should appreciate that stockbrokers and other intermediaries will supply the Executive with relevant information as to those dealings, including identities of clients, as part of that co-operation.’’

Share Exchange Shareholders are recommended to consult their own professional advisers if they are in any doubt as to the taxation implications of accepting the Merger. It is emphasised that none of the Offeror, the Company or any of their respective directors, officers or associates or any other person involved in the Merger accepts responsibility (other than in respect of themselves, if applicable) for any taxation effects on, or liabilities of, any other persons as a result of their acceptance or rejection of the Merger.

Annex 5 sets out a copy of the investor presentation relating to the Merger and the Listing, which forms part of this joint announcement.

The Offeror has appointed China Sunrise Capital Limited, the Valuation Adviser, to advise on the value of the Offeror H Shares. The Valuation Report containing the Valuation Adviser’s estimate of the value of the Offeror H Shares is set out in Annex 2 of this joint announcement.

The valuation report of the Valuation Adviser has been reported on by CICC in accordance with the requirements under Rules 10.3(b) and 11.1(b)  of the Takeovers Code and by KPMG in accordance with the requirements under Rules  10.3(b)  and 11.1(a) of the Takeovers Code respectively and the reports from CICC and KPMG have been lodged with the Executive. A copy of the reports from CICC and KPMG is also set out in Annexes 3 and 4 of this joint announcement respectively.

This joint announcement includes certain ‘‘forward-looking statements’’. These statements are based on the current expectations of the management of the Offeror and/ or the Company (as the case may be) and are naturally subject to uncertainty and changes in circumstances. The forward-looking statements contained in this joint announcement include statements about the expected effects on the Offeror and the Company of the Merger, the expected timing and scope of the Merger, and all other statements in this joint announcement other than historical facts.

Forward-looking statements include, without limitation, statements typically containing words such as ‘‘intends’’, ‘‘expects’’, ‘‘anticipates’’, ‘‘targets’’, ‘‘estimates’’, ‘‘envisages’’ and words of similar import. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements. These factors include, but are not limited to, the fulfilment (or waiver, as applicable) of the Pre-Conditions and the Conditions to the Merger, as well as additional factors, such as general, social, economic and political conditions in the countries in which the Offeror and/or the Offeror Group operate or other countries which have an impact on the Offeror and/or the Offeror Group’s business activities or investments, interest rates, the monetary and interest rate policies of the countries in which the Offeror and/or the Offeror Group operate, inflation or deflation, foreign exchange rates, the performance of the financial markets in the countries in which the Offeror and/or the Offeror Group operate and globally, changes in domestic and foreign laws, regulations and taxes, changes in competition and the pricing environments in the countries in which the Offeror and/or Offeror Group operate and regional or general changes in asset valuations and disruptions or reductions in operations due to natural or man-made disasters, pandemics, epidemics, or outbreaks of infectious or contagious diseases such as the novel coronavirus. Other unknown or unpredictable factors could cause actual results to differ materially from those in the forward-looking statements.

All written and oral forward-looking statements attributable to the Offeror, the Company or persons acting on behalf of any of them are expressly qualified in their entirety by the cautionary statements above. The forward-looking statements included herein are made only as of the date of this joint announcement.

Any forward-looking statement contained in this joint announcement based on past or current trends and/or activities of the relevant company should not be taken as a representation that such trends or activities will continue in the future. No statement in this joint announcement is intended to be a profit forecast or to imply that the earnings of the relevant company for the current year or future years will necessarily match or exceed its historical or published earnings. Each forward-looking statement speaks only as at the date of the particular statement. Subject to the requirements of the Takeovers Code and other applicable laws and regulations, each of the Offeror and the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in their expectations with regard thereto or any change in events, conditions of circumstances on which any such statement is based.

At the request of the Company, trading in the H Shares on the Stock Exchange was halted from 9: 00 a.m. on 10 May 2024. An application has been made by the Company to the Stock Exchange for the resumption of trading in the H Shares from 9: 00 a.m. on 13 May 2024.

The Pre-Conditions and the Conditions to effectiveness must be fulfilled before the Merger Agreement becoming effective. The Merger Agreement becoming effective is therefore a possibility only. Further, Shareholders, investors and potential investors in the securities of the Company should be aware that the implementation of the Merger is subject to the Conditions to implementation set out in this joint announcement being fulfilled or waived, as applicable. Neither the Offeror nor the Company provides any assurance that any or all Conditions or Pre-Conditions can be fulfilled, and thus the Merger Agreement may or may not become effective or, if effective, may or may not be implemented or completed. Shareholders, investors and potential investors in the securities of the Company should therefore exercise caution when dealing in the securities of the Company. Persons who are in doubt as to the action to take and the implications arising from the Merger should consult their stockbroker, bank manager, solicitor or other professional advisers (including tax adviser regarding the tax consequences of the cancellation of the Shares and the implementation of the Merger).

Hubei, the PRC

10 May 2024

As at the date of this joint announcement, the Offeror’s directors are Dr. ZHANG Yingjun, Ms. LI Wenjia, Mr. Zhang Yushuai, Mr. TANG Xinfa, Mr. ZHU Yingwei, Mr.  ZHANG Jianbin, Ms. DONG Xiaowei, Ms. WANG Lei, Dr. LI Xintian, Dr. MA Dawei, Dr. YIN Hang Hubert and Dr. LIN Aimei. The directors of the Offeror jointly and severally accept full responsibility for the accuracy of the information contained in this joint announcement (other than in relation to the Company or the Directors in their capacity as such) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this joint announcement (other than those expressed by the Company or the Directors in their capacity as such) have been arrived at after due and careful consideration and there are no other facts not contained in this joint announcement the omission of which would make any of the statements in this joint announcement misleading.

As at the date of this joint announcement, the Board consists of Mr. JIANG Juncai, Mr.  WANG Danjin, Mr. LI Shuang and Mr. CHEN Hao as executive Directors; Mr. TANG Xinfa as non-executive Director; and Mr. TANG Jianxin, Ms. XIANG Ling and Mr. LI Xuechen as independent non-executive Directors. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this joint announcement (other than in relation to the Offeror or its directors in their capacity as such) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this joint announcement (other than those expressed by the Offeror or its directors in their capacity as such) have been arrived at after due and careful consideration and there are no other facts not contained in this joint announcement the omission of which would make any of the statements in this joint announcement misleading.

* For identification purposes only

ANNEX 1 

SHAREHOLDING STRUCTURE OF THE OFFEROR AS AT THE DATE OF THIS JOINT ANNOUNCEMENT

Notes:

ANNEX 2

VALUATION REPORT

The following is the text of the letter from China Sunrise Capital Limited to the Board of the Offeror prepared for the purpose of incorporation into this joint announcement.

CHINA SUNRISE CAPITAL LIMITED

Unit 4513, 45^th Floor

The Center

99 Queen’s Road Central

Hong Kong

The Board of Directors

The Offeror

No. 368 Zhen’an Middle Road

Chang’an Town, Dongguan City

Guangdong Province

the People’s Republic of China

China International Capital Corporation Hong Kong Securities Limited

29/F, One International Finance Centre

1 Harbour View Street, Central

Hong Kong

10 May 2024

Dear Sirs,

PROPOSED PRE-CONDITIONAL PRIVATISATION OF THE COMPANY

BY THE OFFEROR BY WAY OF MERGER 

BY ABSORPTION OF THE COMPANY

ESTIMATED VALUE OF THE OFFEROR H SHARES

We refer to our engagement as the Valuation Adviser to the board of directors of the Offeror in respect of providing an estimated value of the Offeror H Shares (‘‘Estimated Value’’). The Offeror H Shares are to be issued to the shareholders of the Company according to the proposed pre-conditional privatisation of the Company. Capitalised terms used in this letter shall have the same meanings as those defined in the joint announcement dated 10 May 2024 jointly issued by the Offeror and the Company (the ‘‘Joint Announcement’’) unless the context requires otherwise.

On 10 May 2024, the Offeror and the Company have entered into the Merger Agreement, pursuant to which the Offeror and the Company have agreed to implement the Merger subject to the terms and conditions of the Merger Agreement, including the Pre-Conditions and the Conditions. Following the fulfilment (or waiver, as applicable) of the Pre-Conditions and Conditions and the completion of the Share Exchange, the Company will be delisted from the Stock Exchange, the Offeror H Shares will be listed on the Main Board of the Stock Exchange by way of introduction and the Company will be merged into and absorbed by the Offeror in accordance with the terms of the Merger Agreement and PRC Company Law and other applicable PRC Laws. The Share Exchange Shareholders (which do not include the Offeror or its subsidiaries (if any)) will become shareholders of the Offeror.

We have been appointed to provide the Estimated Value of the Offeror H Shares, to be offered to the Shareholders, pursuant to paragraph 30 of Schedule I of the Takeovers Code which provides that the offer document should contain ‘‘when the offer involves the issue of unlisted securities, an estimate of the value of such securities by an appropriate adviser, together with the assumptions and methodology used in arriving at the value’’. Although as at the date of this letter the Offeror H Shares are not listed on any stock exchange, it is one of the Pre-Conditions of the Merger that the Listing Committee of the Stock Exchange approves the listing of and permission to deal in the Offeror H Shares on the Stock Exchange pursuant to the Listing.

The Estimated Value has been provided to the board of directors of the Offeror and CICC solely for the purpose of paragraph 30 of Schedule I of the Takeovers Code and shall not be used or relied upon for any other purpose whatsoever. This letter is not addressed to and may not be relied upon by any third party for any purposes whatsoever and we expressly disclaim any duty or liability to any third party with respect to the contents of this letter.

The Estimated Value assumes a willing buyer and seller, neither being under any compulsion to buy or sell, dealing on an arm’s length basis, each having knowledge of all relevant facts. The Estimated Value is also prepared on the basis of a value as to investors acquiring a minority interest as a portfolio investment. It does not include any premium for control.

The Estimated Value does not constitute an opinion as to the price at which the Offeror H Shares may trade at any point, present or in the future, or represent the value that a holder of the Offeror H Shares may realise on any sale, present or in the future, where such a value may be higher or lower than the Estimated Value contained in this letter. We assume no obligation to update or revise the Estimated Value based upon circumstances or events occurring after the date of this letter.

In formulating the Estimated Value, we have reviewed, among other things, the following materials (the ‘‘Materials’’):

We have assumed that all information, facts, opinions and representations contained in the Materials which we have relied on, are true, complete and accurate and not misleading in all material respects. We have not conducted any independent verification of the Materials.

We would like to draw your attention that the Shares are publicly traded securities and will be subject to the fluctuations of the capital market. Those certain market uncertainties and contingencies are difficult to predict and are beyond our control. Consequently, the Estimated Value expressed in this letter is not necessarily indicative of the price at which the Offeror H Shares might actually trade in any public market as at the date of this letter or at any future date, or the amount which might be realised upon a sale of the Offeror H Shares to a third party. The Estimated Value may differ substantially from estimates available from other sources such as research reports published by brokers. In addition, our view would be expected to fluctuate with changes in prevailing market conditions, the financial conditions and prospects of the Offeror and other factors which generally influence the valuation of securities. As a result, there can be no assurance that the actual price of the Offeror H Shares will be higher or lower than implied by the Estimated Value.

There are three generally accepted approaches to appraise the Estimated Value of the Offeror H Shares, namely the income approach, the asset-based approach and the market approach. All three of them have been considered regarding this valuation:

The income approach provides an indication of value based on the principle that an informed buyer would pay no more than the present value of anticipated future economic benefits generated by the subject asset.

The fundamental method for income approach is the discounted cash flow (‘‘DCF’’) method. Under the DCF method, the value depends on the present value of future economic benefits to be derived from the ownership of the enterprise. Thus, an indication of the equity value is calculated as the present value of the future free cash flow of a company less outstanding interest-bearing debt, if any. The future cash flow is discounted at the market-derived rate of return appropriate for the risks and hazards of investing in a similar business.

The asset-based approach considers the cost to reproduce or replace in new condition the assets appraised in accordance with current market prices for similar assets, with allowance for accrued depreciation arising from condition, utility, age, wear and tear, or obsolescence (physical, functional or economical) present, taking into consideration the past and present maintenance policy and rebuilding history.

The market approach provides an indication of value by comparing the subject asset to the same asset or similar assets that have been sold in the market, with appropriate adjustments for the differences between the subject asset and the assets that are comparable to the subject asset.

There are three methods under the market approach. Firstly, the guideline company method computes a price multiple for publicly listed companies that are considered to be comparable to the subject company and then applies the multiple to the corresponding financial metric of the subject company. Secondly, the comparable transaction method computes a price multiple using recent transactions of assets that are considered to be comparable to the subject asset and then applies the result to the corresponding financial metric of the subject company. Thirdly, the market price method directly takes reference to the trading prices of the assets in the open market.

Each of the above-mentioned approaches is appropriate in one or more circumstances, and sometimes, two or more approaches may be used together. Whether to adopt a certain approach will be determined by the most adopted practice in valuing business entities that are similar in nature.

For the purpose of this valuation, we have determined that sum-of-the-parts approach is the most appropriate valuation methodology as we have taken into consideration the following:

Considering that all 25 subsidiaries of the Offeror, although they are either operational or possess assets, and none of them exhibit significant cash generating activities, we believe it is appropriate to employ the asset-based approach for the valuation of the 25 subsidiaries;

Table 1 — List of 25 subsidiaries of the Offeror

Thus, we determined that the asset-based approach was the most appropriate valuation approach to value the 25 wholly-owned subsidiaries of the Offeror and we have applied the adjusted net assets value method under the asset-based approach in this valuation by considering the assets and liabilities of the 25 subsidiaries.

Apart from the asset-based approach, we adopted market approach for the Long-term Equity Investment and income approach for the Pipeline Products.

Given that the Shares are listed on the Stock Exchange, we are of the view that the market price reflects the willingness of buyers and sellers to transact at a particular price, making it an objective and representative measure of the investment’s value. We have adopted the 90-trading day timeframe which allows us to consider the medium-term perspective, looking beyond short-term fluctuations.

We understand from the Management that capitalised development expenditure are mainly for the Pipeline Products. As the Pipeline Products are expected to generate income benefit streams in the future, by which the value of the Pipeline Products is determined, we consider that the income benefit streams could be valued as intangible assets. The capitalised development expenditure would be assigned nil value as its value is included in the valuation of the Pipeline Products.

The income benefit streams of the Pipeline Products could be identified based on projected cash flows prepared by the Management. Therefore, we consider income approach is applicable for the Pipeline Products.

The Exchange Rate of HK$1 = RMB0.90765 as at 8 March 2024, being the market reference date (the ‘‘Market Reference Date’’) prior to the date of this Valuation Report for the purpose of ascertaining certain information contained in this Valuation Report was applied in our calculations.

The Offeror was established in 2003. It is an integrated pharmaceutical company driven by independent R&D, rooted in China and opened to the world. It has comprehensive strength in R&D, production and sales. The Offeror focuses on the three key areas of infectious diseases, chronic diseases and oncology. In particular, according to the industry data collected by Frost & Sullivan, Kewei (oseltamivir phosphate), the core product in the anti-infectious field, has a leading position in the influenza market with a market share of approximately 69.8% of China’s anti-influenza drug market in 2022. With its rich pipeline of anti-infective drugs, it has been approved by the Ministry of Science and Technology of the PRC to establish a State Key Laboratory of Anti-Infective Drug Development. The Offeror focuses on innovative drugs and is also involved in modified new drugs, generic drugs and biosimilars. It currently has a diversified and large product portfolio and a sustainable development pipeline. After over 20 years of experience accumulation, the Offeror has established a leading R&D platform, international standard production capacity and a global sales network. The Offeror has been named in the Top 20 of ‘‘China Drug Research and Development Comprehensive Strength Ranking’’ published by Yaozh.com, for seven consecutive years since 2017. In 2023, it was successfully selected as one of the ‘‘Top 100 Competitive Enterprises in Chinese Pharmaceutical Industry’’ and ranked at the top of the list of the ‘‘Top 100 Chinese Pharmaceutical Innovators for 2023’’ released by Healthcare Executive Magazine.

The Offeror is committed to developing products that are first-of-its-kind or best-in-class with breakthrough potential in the global market. It has built outstanding R&D capabilities and created a diversified and robust pipeline portfolio with broad and deep indication coverage through differentiated molecular design and comprehensive technology platforms. The Offeror has formed a large-scale, professional and comprehensive R&D team with more than 1,200 personnels as of 31 March 2024, and has established a comprehensive and integrated independent R&D system and a R&D platform covering the complete development cycle of large and small molecule drugs. Its R&D capabilities are independent and systematic, which enables the Offeror to swiftly advance its drugs under development to commercialisation. As of 31 March 2024, the Offeror has 146 approved drugs in the world, including in China, the United States and Europe, more than 100 drugs in the pipeline, including 45 Class I Innovative Drugs candidates among which three are under the NMPA’s review for launching in China and 10 are in Phases II or III of clinical trials. The Offeror is one of a handful of PRC pharmaceutical companies who has successfully launched one Class I Innovative Drug and applied for the launch of three Class I Innovative Drugs through in-house R&D. The Offeror attaches great importance to the protection of core technologies. Its patents cover new drug compounds, protein molecular structures, manufacturing processes, usage and preparation formulation, providing a sufficient and long-life patent protection strategy for the Offeror’s products. As of 31 December 2023, the Offeror had applied for a total of 2,306 invention patents, including 350 Patent Cooperation Treaty (PCT) applications, 1,076 domestic invention patents, and 880 overseas invention patents; among them, a total of 1,260 invention patents have been granted by the relevant patent authorities, including 651 domestic invention patents and 609 overseas invention patents. According to Frost & Sullivan, the Offeror ranked first among PRC pharmaceutical companies in the number of patents published and the number of authorised patent announcements in China between 1 January 2014 and 31 December 2023, and the Offeror ranked 44th in the world and 4th in China in terms of the number of public invention patent applications for the global biomedical industry in 2022.

As of 31 December 2023, the Offeror has two high-standard production bases in Songshan Lake, Dongguan, Guangdong and Yidu, Hubei, covering a total area of more than 1,300 mu, covering the entire pharmaceutical production process in respect of the formulation production. It has production capabilities for tablets, capsules, granules, dry suspensions and freeze-dried powder injections. The Offeror has also formed a pharmaceutical production and quality management system with international standards, aiming to provide high-quality medicines and laying the foundation for the subsequent sales of the Offeror’s products in overseas jurisdictions.

The Offeror has an extensive global sales network, covering the Chinese mainland market, European market, North American market and other areas of the world. In the domestic market, as of 31 December 2023, the Offeror has a nationwide sales and distribution network and more than 1,788 professional sales personnels, covering 32 provincial-level regions and nearly 300 prefecture-level cities. The Offeror extensively covers more than 2,400 Class III Hospitals, more than 8,900 Class II Hospitals and more than 65,000 Class I Hospitals in the PRC as well as many large-scale national or regional pharmacy chains.

As at the date of the joint announcement, the Offeror has a total issued share capital of 463,943,215 ordinary shares. The Offeror has no other relevant securities (as defined in Note 4 to Rule 22 of the Takeovers Code) as at the date of the joint announcement. The ultimate controlling shareholders of the Offeror are Ms. Guo Meilan and her son Mr. Zhang Yushuai, who together controlling approximately 62.12% equity interests in the Offeror as at the date of the joint announcement.

Please refer to section 7(1) headed ‘‘Information on the Offeror’’ in the Joint Announcement for further details of the Offeror.

For the year ended 31 December 2023, the Offeror recorded revenue of approximately RMB6,386 million, representing an increase of approximately 67.44% as compared with the that of the previous financial year. The net profit for the year of the Offeror recorded approximately RMB1,014 million for the year ended 31 December 2023, reversing the loss of approximately RMB1,416 million as at 31 December 2022.

As at 31 December 2023, the Offeror had cash and cash equivalents of approximately RMB1,920 million, registered an increase of approximately 97.65% as compared with approximately RMB972 million as at 31 December 2022. The net asset value attributable to shareholders of the Offeror was approximately RMB4,175 million as at 31 December 2023, reversing the deficit of approximately RMB874 million as at 31 December 2022.

The diagram below shows the existing shareholding structure of the Offeror.

* Most of the other subsidiaries are wholly-owned by the Offeror.

The Company is a pharmaceutical manufacturing company that focuses on the production, sales and development of pharmaceutical products in the therapeutic areas of anti-infectives, endocrine and metabolism. The ultimate controlling Shareholders owners of the Company are Ms. Guo Meilan and her son Mr. Zhang Yushuai as they control approximately 62.12% interests in the Offeror, which in turn controls approximately 51.41% interests in the Company.

Please refer to section 8(3) headed ‘‘Information on the Company’’ in the Joint Announcement for further details of the Company.

For the year ended 31 December 2023, the Company had revenue of approximately RMB6,294.6 million, representing an increase of approximately 68.1% as compared with the previous financial year. Net profit for year recorded RMB1,855.8 million for the year ended 31 December 2023, increased by approximately 3,669.0% from RMB49.2 million for the year ended 31 December 2022.

As at 31 December 2023, the Company had cash and cash equivalents of approximately RMB1,674.4 million, an increase of approximately 81.3% as compared with approximately RMB923.5 million as at 31 December 2022. The net asset value attributable to shareholders was approximately RMB7,935.5 million as at 31 December 2023, approximately 30.7% comparing with approximately RMB6,070.0 million as at 31 December 2022.

The pharmaceutical market in China has been expanding rapidly, driven by factors such as an aging population, increasing healthcare expenditure, rising middle-class incomes, government initiatives to improve healthcare access, the decline in birth rate of newborns and the increase in life expectancy, the gaining trend of the Chinese population is accelerating. From 2018 to 2022, the ageing of the Chinese population continued to intensify, with approximately 209.8 million people over 65 years old in 2022. This number is expected to reach approximately 243.3 million by 2026, growing at a compounded annual growth rate of approximately 3.77% from 2022 to 2026. China’s ageing population is expected to reach approximately 273.2 million by 2030, accounting for approximately 19.57% of the total population.

Chart 1: China ageing population trend, 2018–2030E

Source: National Bureau of Statistics and Frost and Sullivan

China’s total health expenditure has been increasing significantly over the years as the country focuses on improving healthcare access and quality for its population. China’s total health expenditure has been growing at a robust rate, driven by factors such as population growth, urbanisation, aging population, and increased healthcare needs. The Chinese government has been increasing its healthcare budget to meet these demands and actively investing in healthcare infrastructure, facilities, and services. It has implemented several healthcare reform initiatives to enhance healthcare access, including the establishment of primary healthcare centers, the expansion of healthcare insurance coverage, and the implementation of the ‘‘Healthy China 2030 plan’’* (健康中國2030規劃綱要).

The demand for medical and health services in China is on the rise due to the increasing prevalence of adult diseases at younger ages. As a result, health expenditure per capita in the country has been experiencing rapid growth. According to the National Bureau of Statistics, from 2018 to 2021, health expenditure per capita increased from approximately RMB4,206.7 to approximately RMB5,348.1, reflecting a compound annual growth rate of approximately 8.33%. Projections indicate that by 2025 and 2030, health expenditure per capita is expected to reach approximately RMB7,723.7 and approximately RMB11,242.8, respectively, with a compound annual growth rate of approximately 7.80%.

Chart 2: China health expenditure, 2018–2030E

Source: National Bureau of Statistics and Frost and Sullivan

During the period from 2018 to 2021, China witnessed a substantial increase in total healthcare expenditure, rising from approximately RMB5.9 trillion to approximately RMB7.6 trillion, reflecting a compound annual growth rate of approximately 8.54% during the period. This upward trend is projected to continue in the future, with China’s total health expenditure expected to reach approximately RMB11.0 trillion by 2025 and approximately RMB16.3 trillion by 2030.

From 2018 to 2022, the total size of China’s pharmaceutical market increased from approximately RMB1,533.4 billion to approximately RMB1,554.1 billion, with a compound annual growth rate of approximately 0.34%. It is expected to reach approximately RMB2,095.8 billion in 2026 and approximately RMB2,624.5 billion in 2030.

Chart 3: China medical market, 2018–2030E

Source: National Bureau of Statistics and Frost and Sullivan

In 2022, the chemical medicines market dominated the China medical market, with a value of approximately RMB710.7 billion, representing approximately 45.73% of the total market. The remaining market share is divided between the biological medicines market and Chinese traditional medicines. However, projections indicate a shift in the future years, with the biological medicines market expected to surpass the chemical medicines market. By 2027, the biological medicines market is anticipated to reach a value of approximately RMB867.1 billion, accounting for approximately 38.94% of the total market.

China’s medical expenditure has been on the rise, driven by the improved health awareness of its population and the increase in residents’ disposable income. This shift in focus from merely treating diseases to a more holistic approach of long-term comprehensive health management, along with the prevention and treatment of complications, has been observed with the progress of people’s health awareness. The 2020 Report on the Status of Nutrition and Chronic Diseases* (中國營養與慢性病狀況報告(2020年)) in China highlights a significant increase in the proportion of individuals regularly monitoring health indicators such as weight, blood pressure, blood sugar, and blood lipids. This growing health consciousness among patients with chronic diseases is expected to contribute to the development of China’s pharmaceutical market to a certain degree.

China’s economic and social development, along with advancements in health services, have led to a continuous increase in life expectancy per capita. Consequently, the survival period for patients with chronic diseases like diabetes, cardiovascular diseases, and cerebrovascular diseases has significantly lengthened. Additionally, factors such as an aging population, urbanisation, industrialisation, and lifestyle changes have contributed to a notable rise in the incidence of chronic diseases in China. As a result, the number of patients with chronic diseases has been expanding steadily, which in turn drives further growth in the related pharmaceutical market.

The Chinese government has implemented a range of policies in recent years to foster the growth of the pharmaceutical industry. In October  2019, the National Development and Reform Commission introduced the Industrial Structure Adjustment Guidance Catalogue (2019 Edition)* (產業結構調整指導目錄(2019年本)) which, for the first time, included the development and production of new drugs with independent intellectual property rights and the production of generic drugs for the prevention and treatment of major diseases in China. These industries were listed among those encouraged for development.

Furthermore, the ‘‘14th Five-Year Plan’’ outline, released by the National People’s Congress in March 2021, identifies biopharmaceutical technology innovation and antibody drug research and development as frontier areas of scientific and technological research. These initiatives aim to establish a new pillar in the industrial system. The outline also emphasises the need to expedite the growth of biomedicine and other industries to further enhance the bioeconomy’s size and strength. The introduction of various innovation incentives by the government has provided a significant boost to the pharmaceutical industry’s development and innovation efforts.

As medical reform progresses, the accessibility of healthcare services in China has been steadily enhancing. The Chinese government has prioritised investments in the construction and modernisation of medical infrastructure, as well as the expansion of medical insurance coverage. According to the Chinese Pharmaceutical Association, there has been a consistent increase in the proportion of medical insurance drugs within the drugs utilised by medical institutions since 2018. This trend has further solidified the dominant position of medical insurance drugs, resulting in improved rationality in clinical drug usage. Simultaneously, the inclusion of innovative drugs in medical insurance has been accelerated, significantly reducing the approval cycle and enhancing patient accessibility to these medications.

In 2022, the State Council of China issued the Opinions on Deepening the Reform of the Medical Security System* (關於深化醫藥衛生體制改革的意見), which outlines the importance of enhancing the basic medical insurance system. The document emphasises the need to establish a comprehensive and inclusive medical insurance system and policy framework that covers all citizens in accordance with the law. It also highlights the importance of unifying the medical insurance catalog and standardising medical insurance payment processes.

Medical insurance payment serves as a crucial mechanism to ensure that citizens can avail themselves of high-quality medical services. To adapt to the advancements in innovative pharmaceutical research and development technology and meet the clinical needs of the population, the dynamic adjustment mechanism of the medical insurance catalog is being optimised and improved. This ensures that drugs with significant clinical value and excellent economic evaluation are included in the scope of medical insurance, enhancing patients’ accessibility to clinically beneficial medications.

In 2021, several key departments, including the Ministry of Industry and Information Technology, the National Health Commission, the National Health Insurance Administration, and the State Food and Drug Administration, collaborated to issue the ‘‘14th Five-Year Plan for the Development of the Pharmaceutical Industry’’* (‘‘十四五’’國家藥品安全及促進高品質發展規劃). This plan highlights the significant progress made during the ‘‘13th Five-Year Plan’’ period, with traditional pharmaceutical companies accelerating their innovation and transformation efforts. The number of innovative pharmaceutical companies has also seen a notable increase, accompanied by a rise in the number of new drugs entering the clinical stage and a surge in research and development investments. Driven by a range of incentive policies promoting innovation-driven transformation, the pharmaceutical industry is poised to continue its investment in innovation, expedite transformation processes, and facilitate sustained growth in the number of new drugs entering the clinical stage. Furthermore, the plan sets forth a target for the ‘‘14th Five- Year Plan’’ period, aiming for an average annual growth rate of research and development investment across the entire industry of over 10.00%. This strategic focus will contribute to the emergence of transformative innovative drugs and therapies, fostering the continuous expansion of China’s drug market.

Chronic diseases, including diabetes, have emerged as the leading cause of death in China, and their prevalence is escalating due to the aging population. The State Council’s Report on the Status of Nutrition and Chronic Diseases in China (2020)* (中國營養與慢性病狀況報告(2020年)) reveals that chronic diseases accounted for approximately 88.50% of all deaths in China in 2019. Furthermore, as the population continues to age, the incidence of new cancer cases is projected to rise, highlighting the increasing demand for anti-tumor drugs. This industry landscape propels the acceleration of technological innovation in the field of anti-tumor drugs to cater to the evolving clinical requirements of tumor treatments. Simultaneously, the misuse of anti-infective drugs is contributing to the surge in drug resistance. Coupled with growing consumer health awareness, the use of anti-infective drugs is becoming more cautious, with consumers seeking safer, more effective, and reliable alternatives. Presently, the government places greater emphasis on drug treatments for diseases with significant clinical burdens such as diabetes, cardiovascular and cerebrovascular diseases, central nervous system diseases, tumors, and infections. In the future, the development of innovative drugs in China will prioritise medications that meet the criteria of safety, long-term efficacy, patient compliance, and comprehensive benefits. These innovative drugs will occupy a significant position in the research and development landscape, aligning with the evolving needs of the population.

The Offeror’s products are primarily developed through independent research and development. The pipeline is rich and focuses on innovative drugs, innovative formulations, and high-end generics in the areas of infection, oncology, and chronic diseases. As of the end of 2023, the Offeror had a portfolio of 112 marketed products and 100 products in the pipeline, and 10 drugs were in phase II and III clinical trials as at the end of 2023.

The valuation results from three different approaches are derived from the evaluation of various factors. The asset-based approach considers the value, book value, and appraisal value of assets and liabilities of the Offeror (excluding the Long-term Equity Investment and the Pipeline Products). The market approach focuses on the market price of the Long-term Equity Investment. Lastly, the income approach estimates the present value of the income benefit streams generated by the Pipeline Products. By utilizing these three approaches, a comprehensive assessment of the valuation is obtained, considering different aspects of the assets, liabilities, and income potential.

Based on the assumption of an open market, the appraised value does not consider the impact of potential price fluctuations in special transactions, nor does it consider the influence of macroeconomic changes, natural forces, or other force majeure events on the asset price.

The valuation results in this Valuation Report are based on the above assumptions and limitations. When the above valuation assumptions and limitations change significantly, the valuation results will be invalid.

As the Offeror has provided the list of main assets of the Offeror which are normally used or in use, and the replacement value of the relevant assets of the Offeror is easily accessible and the depreciation can be reasonably predicted, the asset-based approach is suitable for this valuation excluding the Pipeline Products.

Monetary funds include bank deposits and other monetary funds. For non-foreign currency accounts, the appraised value is determined based on the verified book value. For foreign currency accounts, the appraised value is determined by multiplying the foreign currency exchange rate on the Market Reference Date by the book value of foreign currency.

Bills receivable are non-interest bearing bank acceptance bills. The appraised value is determined based on the verified book value.

On the basis of verification, the appraised value of various receivables is determined based on the amount of each payment that may be recovered. For the receivables that are believed to be fully recoverable with reasons, the appraised value is calculated based on the entire amount of receivables; for the amounts that may be partially unrecoverable, in the event that it is difficult to determine the amount of unrecoverable accounts, the amounts are estimated based on the historical information and on-site investigation, specifically analysing the amount, time and reason of the arrears, recovery of the amounts, the funds, credit, operation and management status of the debtors, and with reference to the ageing analysis method, and the appraised value is calculated after deducting the risk loss; for those that have conclusive evidence that they are unable to be recovered, the appraised value is zero; as the aforementioned calculation of trade and other receivables has taken provision for bad debts and the deduction of risk loss into consideration, the Offeror’s subsidiaries have made provisions for all receivables. Therefore, the appraised value of ‘‘provision for bad debts’’ items of the accounts is zero.

The valuation of prepayment is based on the accounting treatment as to determine if the value of assets or rights of the corresponding goods that can be recovered. We have also discussed with the Management and understand that, historically, the Offeror has not experienced any recoverability issues involving the prepayment. Therefore, the verified book value is taken as the appraised value.

Inventories evaluated include materials procurement (material in transportation), raw materials, work in progress, finished goods and goods delivered. Based on the spot check and verification of the reported quantity and amount, the estimations are as follows:

For materials procurement and raw materials, the replacement cost method is adopted which is based on the prevailing market prices of various materials, plus reasonable transportation and miscellaneous expenses and other reasonable expenses, multiplied by the actual quantity and recognised as the appraised value.

For semi finished products, on the basis of verification, considering that the production cycle is short, the enterprise records the actual cost. The cost comprised raw materials used for production, and the book value can basically be reflected in the current value of the products. Therefore, the verified book value is recognised as the appraised value.

For finished products, the appraised value is determined by multiplying the verified quantity by the prevailing market selling price after deducting reasonable sales costs, taxes and appropriate profits.

The verified book value is taken as the appraised value in this valuation.

The verified book value is taken as the appraised value in this valuation.

The verified book value is taken as the appraised value in this valuation.

As at the Market Reference Date, intangible assets — other intangible assets include purchased software and off-book research and development projects recorded in the book.

We have reviewed the book value of the software system and estimated the amortisation of the software system based on the market selling price. The estimated value after amortisation is equivalent to the book value. The verified book value is taken as the appraised value in this valuation.

The Pipeline Products in the research and development projects are appraised based on income approach, details of which are set out below in section ‘‘4. Income approach for the Pipeline Products’’.

In this valuation, the development expenditures are appraised as part of the research and development projects of other assets in intangible assets. The capitalized development expenditure would be assigned nil value as its value is replaced by the valuation of the Pipeline Products.

All other non-current assets are receivables, which we have adopted the same valuation as trade receivable as set out above in the subsection headed c. Trade and other receivables.

Liabilities include short-term borrowings, note payable, accounts payable, contract liabilities, staff emoluments payable, taxes payable, other payables, long-term borrowings, lease liabilities, long-term payables, provisions and deferred income.

The appraised amount is determined according to the subsequent obligations agreed in the contracts and the relevant tax payment obligations. For advances from other non-related parties, as the contract cost cannot be reasonably estimated, the appraised amount is determined based on the verified book value.

On the basis of verification, the appraised amount is determined based on the amount of principal and interest payable according to actual term of the borrowings.

On the basis verification and out of the purpose of conservatism, the appraised amount is determined based on the verified book value, except for accounts and other payable aged more than 5 years with non-related parties, which are appraised as nil.

As estimated liability only involve the contingent liability under a pending legal action, on the basis verification and out of the purpose of conservatism, the appraised amount is determined based on the verified book value.

On the basis of verification, the appraised amount is determined based on the book value.

We have chosen to analyze the Company’s stock performance over a 90-trading day period as part of our evaluation of the Long-term Equity Investment. This approach is based on the market’s assessment, which reflects the willingness of buyers and sellers to transact at a particular price, making it an objective and representative measure of the investment’s value. We have considered the Company’s positive profit alert dated 26 July 2023 and the interim results for the six months ended 30 June 2023, which were announced on 31 August 2023. Since then, we have not observed any announcements that significantly impacted the performance of the shares. It is important to note that the market may take time to fully reflect such announcements in stock prices. As the 90-trading day timeframe allows us to consider the medium-term perspective, looking beyond short-term fluctuations, we believe it is reasonable to reference the 90-trading day period for the purpose of valuing the Long-term Equity Investment.

Taking reference to 90-trading day average price of the Shares, which is from 20 October 2023 to 1 March 2024, the last trading day before the Market Reference Date, the estimated value of the Company is approximately RMB7,155.5 million or approximately for RMB8.13 per share (equivalent to approximately HK$8.96 per share based on the Exchange Rate).

As such, the valuation of the Long-term Equity Investment is approximately RMB3,678.6 million.

Moreover, the appraised value above in relation to the Long-term Equity Investment does not constitute an opinion as to the price at which the Offeror H Shares may trade at any point, present or in the future, or represent the value that a holder of the H Shares may realise on any sale, present or in the future, where such a value may be higher or lower than the appraised value above.

Considering that research and development projects, which are the Pipeline Products, are the main business of pharmaceutical research and development enterprises and the main source of future profits of enterprises, the income approach is adopted in this valuation for the Offeror’s innovative drugs and biological drugs research and development projects.

In connection with the Pipeline Products, assuming that (i) the future income can be reasonably estimated and measured; (ii) the risks associated with the expected returns can be measured; and (iii) the income period can be determined or reasonably expected, we have adopted income approach by conducting discounted cashflow valuation. The appraisal period of the Pipeline Products is 10 years. We consider the appraisal period of 10 years is reasonable on the following basis:

Additionally, considering that the Pipeline Products are in various stages of development, their valuation will be affected by the timing of listing and success probabilities. Therefore, the WACC (as defined below) will be used to discount projected pre-listing costs and post-listing revenues for each year and for each Selected Pipeline Products (as defined below).

The Pipeline Products that have reached clinical stage (the ‘‘Selected Pipeline Products’’, as set out in the table below) are valued mainly based on their expected revenue, research and development expenses, expected commercialisation date and success probability.

Table 2: Selected Pipeline Products

The Management has provided the expected success probabilities of the Selected Pipeline Products. Having reviewed the average success probabilities of the industry, the reasons provided by the Management and the discussion with the industry adviser, Frost and Sullivan, we have adjusted downward the success probabilities to better reflect the risk nature of the Selected Pipeline Products and be closer to the industry average suggested below.

We have also reviewed the data of average success probabilities of the industry provided by Frost and Sullivan and academic journal (International Journal of Pharmacology, 18 (6): 1137–1150, 2022) which summarized the success probabilities of various stages in China, which are approximately 30%–91%. In addition, we have reference to Frost and Sullivan’s report and the average success probabilities of the industry, combined with the different clinical stages of the Pipeline Products, in order to determine the success probabilities. Thus, we consider the success probabilities are reasonable and able to reflect the risk nature of the Selected Pipeline Products. For the success probabilities, of the Selected Pipeline Products, please refer to the table 2 above.

Revenue is projected by the estimated number of patients for indication of each Selected Pipeline Products respectively, diagnostic rate, treatment rate, product penetration rate and unit revenue.

Cost of sales represents the direct cost incurred in the production. According to the Management, the cost of sales for new drugs is higher and then gradually decreases due to scale of economics. We have reviewed the industry average (the ‘‘Industry Average’’) and the industry median (the ‘‘Industry Median’’) of the Comparable Public Companies (as defined below under the subsection headed ‘‘(3) Beta’’), which are approximately 21.5% and 20.1%, respectively. Due to the high cost of sales for new drugs and for the purpose of conservatism, the costs of sales will be 25.00% of the projected revenue for the first year of listing for each Selected Pipeline Products, and then drop by 1.00% per year until it reaches 15.00% as we have discussed with Frost and Sullivan and noted that such decrease in percentage is due to scale of economics and in line with industry average in terms of new drugs. Such decrease in costs per year is based on the equal distribution taken into consideration of resource planning and cost management, the assumption of which can assist the company to maintain stability and sustainability in expenses throughout the appraisal period.

In the financial projection, the operating expenses consist of the following items:

Tax and surcharge were projected as a percentage of revenue. It is understood that taxes and surcharges include urban construction and maintenance tax, education surcharge, real estate tax, land use tax, stamp duty, etc., but not corporate income tax. As the tax and surcharge of the Offeror in the past 3 years prior to the appraisal period was 1.41% in average, it is projected to remain stable at approximately 1.41% during the appraisal period.

Selling expenses were projected as a percentage of revenue. We have reviewed the Industry Average and the Industry Median of the selling expenses, which are approximately 31.5% and 32.8%, respectively. We understand from the Management that, the selling expenses of new drugs at first are higher and then gradually drops. Therefore, the selling expense percentage of revenue is projected to be 40.00%, and then drop by 1.00% per year until it reaches 30.00%, which is closer to the industry average.

Management expenses were projected as a percentage of revenue. We have reviewed the Industry Average and the Industry Median of the management expenses, which are approximately 9.2% and 8.2%, respectively. The management expense of the Offeror in the past 3 years prior to the appraisal period was approximately 6.53%, 23.29% and 25.73%, respectively and was 18.51% in average. We have discussed with the Management and noted that such high percentages were mainly due to the distortion of the pandemic that leads to the decrease in revenue, which in turn increases the management expenses in terms of the percentage of revenue.

Therefore, we have also reviewed the 2-year period before the pandemic and noted that the average of the management expense in terms of percentage of revenue is approximately 6.25%. We assume that the percentage will drop and resume to the pre-pandemic level. However, for the purpose of conservatism, we suggest that percentage will decrease gradually. we adopted the average of approximately 18.51%, rather than the latest year figure, for the first year of the appraisal period, and then drop by 1.00% per year over the appraisal period of 10 years by which it reaches approximately 8.51%, which is closer to the Industry Average. Besides, although the management expenses should cover the whole business of the Offeror, for the purpose of the valuation, we adopted activity-based costing, by which we identified the cost of the Selected Pipeline Products and allocated the corresponding management expenses based on their revenue respectively.

The Management has provided the research and development plan for the Pipeline Products, which includes the budget covering the clinical trial expenses, material costs, salaries, patent registry and maintenance costs, etc. Certain part of the expenses is capitalised into research and development expense on the balance sheet, depending on the clinical trial stage. Based on the prevailing accounting treatment, expenses incurred during the pre-clinical phase to clinical phase 3 of a project are not capitalized. However, during the clinical phase 3 to pre-listing stage, a substantial portion of expenses, typically ranging from 90% to 100%, are capitalized and recorded as research and development expenses on the balance sheet.

As the depreciation expenses of the fixed assets, not including the research and development projects, in the past 3 years prior to the appraisal period were 7.03% of the beginning balance of the fixed assets in average, they were projected with the assumption that the annual depreciation is 7.03% of the beginning balance of the fixed assets.

As the depreciation and amortisation expenses of the research and development expenses in the past 3 years prior to the appraisal period were 3.43% and 0.05% respectively, they were projected with the assumption that the annual depreciation and amortisation are 3.43% and 0.05%, respectively.

As the depreciation expenses of the fixed assets and the depreciation and amortisation expenses of the research and development expenses are non-cash items, such amounts would be subsequently added back when calculating the cash flow for the year.

Capital expenditure represented expenditure to be incurred in the construction of additional production lines and upgrade or replacement of existing fixed assets. Referring to the Management, there is a capital expenditure plan to ensure that the capacity of production lines can match with the future revenue.

Working capital mainly includes accounts receivable, prepayment, inventory, bills payable, trade payable, salary payable and tax payable. In order to determine the movement of net working capital, working capital is projected based on the estimation of the Management and historical working capital ratios as follows:

Referring to the Management, the corporate income tax rate of the Offeror is 15.00% as it is a national high-tech enterprise that enjoys a lower corporate income tax in accordance with ‘‘Administrative measures for the determination of high and new technology enterprises’’* (高新技術企業認定管理辦法).

Other (New drugs), are the drugs and biological drugs that have entered the clinical stage I or II but are excluded from the Selected Pipeline Products. Despite considering that they are at the early stage of research and development and the research and development cycle is long, from the perspective of cash outflow, their research and development expenses pose impacts on future cash flow. In view of this, we include them into valuation while adjust their success probabilities to approximately 47.00% based on the average industry success probabilities in China from the academic journal (International Journal of Pharmacology, 18 (6): 1137–1150, 2022).

We developed weighted average cost of capital (the ‘‘WACC’’), which is based on the cost of equity for this valuation based on data and factors relevant to the economy, the industry as at the Market Reference Date, and the cost of debt based on the Offeror’s historical financial information and capital structure.

MCAPM, as applied to this valuation, can be summarised as follows:

Re = R_f + Beta * ERP + RP_u

Risk free rate was determined by identifying the return yields of the local government bonds. Ideally, the duration of the security used as an indication of risk free rate should match the horizon of the projected cash flows that were being discounted, which was into perpetuity in the present case. Despite the Offeror’s intention to pursue a listing in Hong Kong, we relied on the 10-year MOF-China Government Bond Yield, which was 2.28% as at the Market Reference Date according to Ministry of Finance of the PRC, taking into consideration below:

By taking into consideration the Offeror’s business operations, we have selected the 10-year MOF-China Government Bond Yield as the risk free rate which is more appropriate in the current context. The 10-year MOF-China Government Bond Yield is more align with the Offeror’s business operations, which are primarily located in China and directly tied to the local market and economic factors. By using the 10-year MOF-China Government Bond Yield, we aim to capture the risk and market conditions that closely impact the Offeror’s operations. We believe that the 10-year MOF-China Government Bond Yield provides a more appropriate basis for the risk free rate. In the event that if the 10-year yield-to-maturity of Hong Kong was adopted as the risk free rate, for illustration purpose, the Appraised value of the Pipeline Products under the base-case scenario would be approximately RMB26,519.3 million, which is lower by approximately 16%.

In the MCAPM formula, beta is a measure of the systematic risk of a particular investment relative to the market for all investment assets. Due to the business nature of the Offeror is different from the Company, we selected an exhaustive list of comparable companies and obtained betas of nine (9) comparable public companies (the ‘‘Comparable Public Companies’’) for this valuation. In order to obtain betas of the Comparable Public Companies, we have collected the historical daily price data for FY2023, including the Hang Seng Index as the benchmark index and the Comparable Public Companies. After calculating the daily returns of the benchmark index Comparable Public Companies, covariance between the daily return of the benchmark index and the Comparable Public Companies, and the variance of the benchmark return, we could obtain the betas which is a measure of systematic risk and represents the stock’s sensitivity to market movements. The identified betas have been un-levered to remove the effects of financial leverage on the indication of relative risk provided by the beta, then taken the market capitalisation weighted average, and re-levered at the estimated capital structure of the Offeror in the long run.

As aforementioned, the Comparable Public Companies were selected to compute beta in the determination of cost of equity, we have selected the companies based on the following criteria: