华东医药:2019年年度报告(英文版)

                The 2019 Annul Report of Huadong Medicine Co., Ltd.




Huadong Medicine Co., Ltd.

  The Annual Report 2019




        April 2020




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                                                      The 2019 Annul Report of Huadong Medicine Co., Ltd.




                                   To the shareholders

    Dear Fellow Shareholders,


    2019 was a year where the pharmaceutical industry in China underwent significant structural
changes. It was also an incredibly important year for Huadong that we accelerated our
transformation and took great strides toward a new era of growth. Look back on 2019, our
employees had altogether accomplished outstanding results through commitment and relentless hard
work. Overall, the company continued to deliver solid overall performance and business results.
    Our company’s financial results again reached new high record, with consolidated net profit
increased by 24.08% to RMB 2.813billion. Zhongmei Huadong achieved annual sales revenue of
more than RMB 10 billion for the first time, a historical milestone. Zhongmei Huadong invested
RMB1.055 billion in research and development (R&D), a 49.14% increase compared to prior year.
We successfully established Zhongmei Huadong - centered a global R&D strategic collaboration
ecosystem and completed R&D project evaluation and approval system. We made significant
breakthroughs in research and innovation, where we saw TTP273, the world’s first oral small
molecular GLP-1 agonist drug receiving regulatory approval to commence Phase I clinical trial, and
other key R&D projects, including Mafatinib and Liraglutide, entering Phase III clinical trials. We
also entered into strategic collaborations with R2 and MediBeacon in the US and Kylane in
Switzerland while obtained global commercialization rights to a number of innovative products,
which enriched our product pipeline and drivers for future growth.
    In June 2019, we welcomed our new board of directors and successfully completed the
handover of the new and old management teams. We formulated a new growth strategy to focus on
the pharmaceutical and healthcare sectors, led by the pharmaceutical industry division, while
expanding in pharmaceutical distribution and aesthetics. We keep faith with our corporate
philosophy of being “R&D based and patient centered” and we are dedicated to becoming a major
global branded pharmaceutical company driven by research and innovation.
    The boom of generic drugs in China has come to an end, but the golden age of innovative
drugs has already been emerging.
    Going forward, Huadong Medicine will stay primary focus on three core therapeutic areas of
oncology, endocrinology and autoimmunology. We will focus on innovative products with


                                                 2
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meaningful clinical value and significant market potential. We will conduct a comprehensive review
of our existing product portfolio to reduce the number of generic drugs with low barriers of entry
and low commercial value. We will continue to solidify our leading position in diabetes and
transplantation immunology in China, through establishing core competencies and strategies based
on innovative drugs R&D and differentiated generic drugs with high technical barriers of entry, as
well as targeting break-through sciences.
     We will continue to invest and expand our R&D capabilities. Our annual R&D expenditure
will be at least equal up to 10% of Pharmaceutical Industry sales. Through both organic growth and
in-organic transactions, establishing partnerships and collaborations horizontally and vertically
across healthcare industries, we aim to rapidly expand and optimize our pipelines of innovative
products in core areas of focus across various stages of R&D. We will continuously improve our
R&D capabilities and effectiveness to enable Huadong Medicine to be the leading pharmaceutical
company with best-in-class R&D, strong scientific marketing promotion and state-of-the-art
manufacturing capabilities. We endeavor to launch new products every year from 2022 onwards and
by 2025 have sales contribution of innovative products to be 30% of total Pharmaceutical Industry
sales and rising.
     2020 is going to be a year of transformation for Huadong. We are prepared to embrace more
intensive competitive environment and challenges. Any challenge would only ensure our continued
success in the future. We are well positioned to rapidly respond and adapt to any emerging situation
or issue as we make further advances in the transition period. We are committed to our
transformation strategy to pursue innovation as high priority. We are positioning for the longevity of
the business and have great confidence that we could overcome any obstacle. We will make steady
progress on course to innovation and transformation and target sustainable growth, cost saving and
debt reduction, by optimizing organisational structure, attracting new talents and streamlining
operating models.
     We will transform from being led to leading, from generic to innovation, from domestic to
global and from success to excellence! We will fully leverage our great culture of exploration as
well as capital and technology we have cumulated through the past years. We have embarked on a
journey to innovation and transformation with a comprehensive plan and we are dedicated to make
great progress towards achieving the goal by overcoming any challenge. We envisage by 2025
Huadong Medicine will be successfully transformed from a traditional generic drug manufacturer to
a leading innovative pharmaceutical company. We also envisage that going forward Huadong
Medicine will become a leading global pharmaceutical company.



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     This year is our 20th anniversary of our initial public offering. We sincerely thank all our
shareholders for your support in Huadong Medicine for the past 20 years.
    We are not afraid of change and committed to stay on course and work even more diligently to
deliver best results.
     We will stay true to our purpose and core values and will continue to create long term and
sustainable meaningful value for our shareholders!




                                                                                Lyu Liang, Chairman
                                                                   On behalf of Huadong Medicine
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        Section I. Important Declaration, Contents and Definitions


     The Board of Directors, Board of Supervisors, directors, supervisors and

senior management of Huadong Medicine Co., Ltd. (hereinafter referred to as

the “Company”) hereby guarantee that the information presented in this annual

report is authentic, accurate and complete and free of any false records,

misleading statements or material omissions, and shall undertake individual and

joint legal liabilities.

     Lyu Liang, the Company’s legal representative and the officer in charge of

accounting, and Qiu Renbo, head of accounting department (accounting

supervisor) hereby declare and guarantee that the financial statements in this

annual report are authentic, accurate and complete.

     All directors have attended the Board of Directors meeting to review this

annual report.

     The future plans, development strategies and other forward-looking

statements in this annual report shall not be considered as substantial

commitment of the Company to investor. Therefore, investors are kindly

reminded to pay attention to possible investment risks.

     The profit distribution plan reviewed and adopted by this Board of

Directors meeting is as follows: on the basis of 1,749,809,548 shares, a cash

dividend of 2.8 yuan (tax included) is to be distributed to all shareholders for


                                        5
                                               The 2019 Annul Report of Huadong Medicine Co., Ltd.



every 10 shares; no bonus share will be issued; and no capital reserve will be

converted to increase the capital stock.

    According to “Stock Listing Rules of the Shenzhen Stock Exchange”, if

listed companies have both Chinese or other language version of public notice,

they should ensure the content of both versions are the same. In the case of

discrepancy, the original version in Chinese shall prevail.




                                           6
                                                                                           The 2019 Annul Report of Huadong Medicine Co., Ltd.




                                                                        Contents




To the shareholders .................................................................................................................................................. 2
Section I. Important Declaration, Contents and Definitions ............................................................................... 5
Section II. Company Profile and Key Financial Indicators ................................................................................. 9
Section III. Overview of the Company’s Business .............................................................................................. 14
Section IV. Discussion and Analysis of Operations ............................................................................................. 20
Section V. Important Matters ............................................................................................................................... 66
Section VI. Share Change and Shareholders ..................................................................................................... 104
Section VII. Preferred Shares ..............................................................................................................................113
Section VIII. Convertible Corporate Bonds .......................................................................................................114
Section IX. Directors, Supervisors, Senior Managers and Employees .............................................................115
Section X. Corporate Governance ...................................................................................................................... 126
Section XI. Information about Corporate Bonds.............................................................................................. 132
Section XII. Financial Report ............................................................................................................................. 136




                                                                                   7
                                                                  The 2019 Annul Report of Huadong Medicine Co., Ltd.




                                                Definitions


                     Term                  refers to                                 Definition

Huadong Medicine/the Company/our Company   refers to Huadong Medicine Co., Ltd.

CGE                                        refers to China Grand Enterprises, Inc.

Huadong Medicine Group                     refers to Hangzhou Huadong Medicine Group Co., Ltd.

Zhongmei Huadong                           refers to Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd.

Xi’an Bohua                               refers to Huadong Medicine (Xi’an) Bohua Pharmaceutical Co., Ltd.

Jiangdong Company                          refers to Hangzhou Zhongmei Huadong Pharmaceutical Jiangdong Co., Ltd.

Huadong Ningbo Company                     refers to Huadong Ningbo Medicine Co., Ltd.

Sinclair                                   refers to Sinclair Pharma Limited

Chongqing Peg-Bio                          refers to Chongqing Peg-Bio Biopharm Co., Ltd.

CSRC                                       refers to China Securities Regulatory Commission

RAPT                                       refers to RAPT Therapeutics, Inc.

SSE                                        refers to Shenzhen Stock Exchange

GMP                                        refers to Good Manufacturing Practice

GSP                                        refers to Good Supply Practice

BE                                         refers to Bioequivalence

                                           refers to Center for Drug Evaluation (of National Medical Products
CDE
                                                       Administration)

MAH                                        refers to Marketing Authorization Holder

FDA                                        refers to (U.S.) Food and Drug Administration

ANDA                                       refers to (U.S.) Abbreviated New Drug Application

                                           refers to International Council for Harmonisation (of Technical Requirements
ICH
                                                       for Pharmaceuticals for Human Use)

IND                                        refers to Investigational New Drug

PK/PD                                      refers to pharmacokinetics/pharmacodynamics

CMC                                        refers to Chemistry, Manufacturing and Control

PMA                                        refers to Premarket Application

QA                                         refers to Quality Assurance (department)

                                           refers to Drugs that can only be purchased and used according to prescriptions
prescription drugs
                                                       issued by physicians



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                                                                        The 2019 Annul Report of Huadong Medicine Co., Ltd.




             Section II. Company Profile and Key Financial Indicators

I. Company information

Stock name (abbreviation)     Huadong Medicine                          Stock code                   000963

Stock listed on               Shenzhen Stock Exchange

Company name in Chinese       华东医药股份有限公司

Company name in Chinese
                              华东医药
(abbreviation)

Company name in English (if
                              Huadong Medicine Co., Ltd.
any)

Company name in English
                              Huadong Medicine
(abbreviation, if any)

Legal representative          Lyu Liang

Registered address            Floor 7, 9 and 10, Gate No. 1, Building No. 1, 468 Yan’an Road, Hangzhou

Zip code of the registered
                              310006
address

Office address                866 Moganshan Road, Hangzhou

Zip code of the office address 310011

Official website              www.eastchinapharm.com

Email address                 hz000963@126.com


II. Contact persons and contact information

                                                Secretary of the Board of Directors          Securities affairs representative

Name                                      Chen Bo                                      Xie Lihong

Contact address                           866 Moganshan Road, Hangzhou                 866 Moganshan Road, Hangzhou

Tel.                                      0571-89903300                                0571-89903300

Fax                                       0571-89903300                                0571-89903300

Email address                             hz000963@126.com                             hz000963@126.com


III. Channels of disclosure and location of preparation

Media selected by the Company for information
                                                       China Securities Journal, Securities Times, and Shanghai Securities News
disclosure

Website designated by CSRC for publication of the      http://www.cninfo.com.cn


                                                                 9
                                                                             The 2019 Annul Report of Huadong Medicine Co., Ltd.


annual report

Location of preparation of the Company’s annual
                                                         Office of the Company’s Board of Directors
report


IV. Registration changes

Organization code                                         91330000143083157E

Changes of the Company’s main business since its
                                                          None
listing (if any)

Previous changes of controlling shareholder (if any)      None


V. Other relevant information

The accounting firm hired by the Company

Name of the accounting firm                               Pan-China Certified Public Accountants (special general partnership)

                                                          Floor 15, Block B, China Resources Building, 1366 Qianjiang Road,
Office address of the accounting firm
                                                          Jianggan District, Hangzhou, Zhejiang Province

Certified public accountants (signatories)                Wang Fukang, Xu Ping

Sponsor(s) hired by the Company to fulfil the duty of continuous supervision during the reporting period
□ Applicable √ N/A
Financial consultant(s) hired by the Company to fulfil the duty of continuous supervision during the reporting period
□ Applicable √ N/A




VI. Key accounting data and financial indicators

Whether the Company needs to perform a retroactive adjustment or restatement of previous accounting data
√ Yes □ No
Reason(s) for retroactive adjustment or restatement
Other reason(s)

                                                                                            Percentage
                                                                                          increase/decrea
                                                                   2018                    se from last                   2017
                                        2019                                                year to this
                                                                                               year

                                                       Before               After              After           Before              After
                                                      adjustment          adjustment        adjustment       adjustment          adjustment

                                 35,445,698,216 30,663,374,326 30,663,374,326                               27,831,823,148 27,831,823,148
Operating revenue (yuan)                                                                          15.60%
                                               .15              .27                 .27                                 .07                .07

Net profit attributable to        2,813,118,702. 2,267,229,174. 2,267,229,174.                    24.08% 1,779,506,061. 1,779,506,061.


                                                                    10
                                                                             The 2019 Annul Report of Huadong Medicine Co., Ltd.


shareholders of listed                          11                 08               08                                   59                59
companies (yuan)
Net profit attributable to
shareholders of listed
                                    2,574,437,417. 2,236,323,500. 2,236,323,500.                            1,740,064,200. 1,740,064,200.
companies after deducting                                                                        15.12%
                                                52                 44               44                                   10                10
non-recurring gains/losses
(yuan)

Net cash flow from operating        2,001,698,170. 2,039,496,083. 2,039,496,083.                            1,661,118,663. 1,661,118,663.
                                                                                                  -1.85%
activities (yuan)                               67                 26               26                                   70                70
Basic earnings per share
                                              1.61                1.55     1.29 (Note)           24.08%                 1.83     1.02 (Note)
(yuan/share)
Diluted earnings per share
                                              1.61                1.55     1.29 (Note)           24.08%                 1.83     1.02 (Note)
(yuan/share)
Weighted average return on
                                           25.29%           24.87%             24.87%              0.42%           23.02%            23.02%
equity (ROE)
                                                                                            Percentage
                                                                                          increase/decrea
                                                                                          se from the end
                                                              End of 2018                                           End of 2017
                                                                                          of last year to
                                     End of 2019
                                                                                          the end of this
                                                                                               year

                                                         Before             After             After            Before             After
                                                      adjustment          adjustment        adjustment       adjustment        adjustment

                                    21,463,974,146 19,217,357,282 19,217,357,282                            15,987,106,537 15,987,106,537
Total assets (yuan)                                                                              11.69%
                                                .63                .33              .33                                  .46               .46
Net assets attributable to
                                    12,309,477,308 9,938,148,996. 9,938,148,996.                            8,393,269,796. 8,393,269,796.
shareholders of listed                                                                           23.86%
                                                .00                53               53                                   56                56
companies (yuan)

      Note: During the reporting period, the Company implemented Profit Distribution Plan 2018 in June 2019. On
the basis of 1,458,174,624 shares of the Company’s capital stock, a cash dividend of 3.3 yuan (tax included) was
distributed for every 10 shares, and the capital reserve was converted to increase 2 shares for every 10 shares.
Data on earnings per share for 2017 and 2018 were adjusted on the basis of the latest capital stock according to
relevant accounting standards.


Capital stock of the Company as of the trading day before disclosure

Capital stock of the Company as of the trading day before
                                                                                                                               1,749,809,548
disclosure (share)

Fully diluted earnings per share calculated on the basis of the latest capital stock

Dividends paid on preferred shares                                                                                                        0.00

Fully diluted earnings per share calculated on the basis of the
                                                                                                                                     1.6077
latest capital stock (yuan/share)



                                                                     11
                                                                             The 2019 Annul Report of Huadong Medicine Co., Ltd.


VII. Differences in accounting data under domestic and overseas accounting standards

1. Differences in net profit and net assets disclosed in financial statements under international and Chinese
accounting standards

□ Applicable √ N/A
There are no differences in net profit and net assets disclosed in financial statements under international and Chinese accounting
standards.


2. Differences in net profit and net assets disclosed in financial statements under overseas and Chinese
accounting standards

□ Applicable √ N/A
There are no differences in net profit and net assets disclosed in financial statements under overseas and Chinese accounting
standards.




VIII. Key financial indicators by quarter

                                                                                                                        Unit: RMB yuan

                                                  Q1                       Q2                     Q3                       Q4

Operating revenue                           9,705,148,188.21            8,543,519,428.77      9,379,217,601.89         7,817,812,997.28

Net profit attributable to
                                                907,244,647.77           689,038,770.54         616,830,635.77           600,004,648.03
shareholders of listed companies

Net profit attributable to
shareholders of listed companies
                                                856,031,343.59           618,403,044.38         605,545,800.58           494,457,228.97
after deducting non-recurring
gains/losses

Net cash flow from operating
                                                -433,890,841.71         1,396,919,178.57        -53,990,090.92         1,092,659,924.73
activities

Whether the above financial indicators or their totals are significantly different from relevant financial indicators in previous
quarterly and semiannual reports by the Company
□ Yes √ No


IX. Items and amounts of non-recurring gains/losses

√ Applicable □ N/A
                                                                                                                         Unit: RMB yuan

                       Item                              2019                   2018               2017                   Note

                                                                                                                 Mainly due to the
Gains/losses on disposal of non-current
                                                       109,574,836.97           -697,591.38       -7,395,738.16 confirmation of
assets (including the written-off part of the
                                                                                                                 housing demolition

                                                                    12
                                                                         The 2019 Annul Report of Huadong Medicine Co., Ltd.


accrued assets impairment reserve)                                                                            and relocation funds
                                                                                                              in the current period.

Tax refund and reduction with ultra vires
examination and approval or without offical          4,407,536.93         1,630,170.53        11,124,356.12
approval documents

                                                                                                              Mainly due to the
                                                                                                              confirmation of
                                                                                                              government grants by
Government grants included in current
                                                                                                              the Company’s
gains/losses (excluding those closely related
                                                   112,527,883.18        79,368,271.28        85,111,812.35 subsidiaries,
to operating activities and measured
                                                                                                              Zhongmei Huadong
according to unified national standards)
                                                                                                              and Huadong Ningbo
                                                                                                              Company, in the
                                                                                                              current period.

Gains/losses on assets entrusted to others for
                                                                         16,058,460.95         2,575,905.01
investment or management

Gains/losses on debt restructuring                                                             2,439,066.31

Receivables subject to separate impairment
test and reversal of reserve for impairment          1,896,979.79
of contract assets

                                                                                                              Mainly due to the
                                                                                                              adjustment of
                                                                                                              contingent
Other non-operating revenue or expenditure                                                                    consideration
                                                    77,976,120.18       -34,052,605.70       -20,536,885.66
expect above-mentioned items                                                                                  payments of the rights
                                                                                                              and interests of
                                                                                                              Sinclair products in
                                                                                                              the current period.

Less: Amount affected by income tax                 47,542,186.99        14,789,855.01        19,783,865.78

     Amount affected by rights and interests
                                                    20,159,885.47        16,611,177.03        14,092,788.70
of minority stakeholders (after tax)

Total                                              238,681,284.59        30,905,673.64        39,441,861.49                --

If the Company recognizes an item as a non-recurring gain/loss based on the “Interpretative Announcement No. 1 on Information
Disclosure Criteria for Public Companies – Non-Recurring Profit/Loss” or recognizes an item satisfying the definition of
non-recurring gain/loss in the announcement as a recurring gain/loss, reasons should be specified.
□ Applicable √ N/A
No such case during the reporting period.




                                                                 13
                                                        The 2019 Annul Report of Huadong Medicine Co., Ltd.




               Section III. Overview of the Company’s Business

I. Main business of the Company during the reporting period

     Huadong Medicine Co., Ltd. (stock code: 000963), founded in 1993 and headquartered in
Hangzhou, Zhejiang Province, was listed on Shenzhen Stock Exchange in December 1999. After
more than 20 years of development, the Company’s business covers the whole pharmaceutical
industrial chain. With the medicine industry as its core, the Company expands its medicine business
and aesthetic medicine industry, and has developed into a large comprehensive listed
pharmaceutical company integrating R&D, production and sales of medicine.

     The pharmaceutical industry of the Company focuses on R&D, production and sales of
medication for specialist departments, chronic diseases and special purposes. The Company has
formed core product pipelines in such fields as chronic kidney diseases, transplantation immunity,
internal secretion and digestive system, and owns a number of first-line clinical medications with
market advantages in China. Meanwhile, through independent development, external introduction
and project cooperation, the Company focuses on the R&D layout of innovative drugs and generic
drugs with high technical barriers in the three core fields of anti-tumor, internal secretion and
autoimmunity. The Company continues to carry out international product registration, international
certification, consistency evaluation, etc., forming an international pharmaceutical industry system.

     The Company’s pharmaceutical commerce has four sections: Western Medicine & Traditional
Chinese Medince (TCM), medical equipment, ginseng & herb and health industry, covering
medicine wholesale, medicine retail, third-party medicine logistics featured by cold chain, medicine
e-commerce, hospital value-added services and featured big health industry, providing customers
with integrated solutions.

     The Company’s aesthetic medicine business focuses on R&D, production and sales of the
latest products and devices in facial micro-plastic surgery and skin management. Sinclair, a
wholly-owned subsidiary headquartered in the United Kingdom, has production bases in France, the
Netherlands and the United States, and promotes and sells long-acting microspheres for injection,
hyaluronic acid, thread lift and other products in the global market. Sinclair is the Company’s global

                                                  14
                                                                              The 2019 Annul Report of Huadong Medicine Co., Ltd.



operation platform for aesthetic medicine. Huadong Ningbo Company, a partially-owned subsidiary,
is a comprehensive aesthetic medicine and healthcare platform company integrating R&D,
production and sales of aesthetic medicine products and customized services. It is acting as the
general agent for Korean YVOIRE hyaluronic acid products in the Chinese market.




II. Significant changes in major assets

1. Significant changes in major assets


                Major assets                                                   Note on significant changes


                                               The ending balance is 464.27 million yuan, an increase of 157.89% from the beginning
Equity assets                                  of the period, which is mainly due to the increase of long-term equity investments and
                                               other equity instrument investment in the current period.

Fixed assets                                   None

Intangible assets                              None

                                               The ending balance is 1.82981 billion yuan, an increase of 196.57% from the beginning
                                               of the period, which is mainly due to the increase of Zhongmei Huadong R&D platform
Constructions in progress
                                               construction and Huadong Medicine Biomedical Science and Technology Park Project
                                               Phase II.

                                               The ending balance is 254.89 million yuan, an increase of 63.9% from the beginning of
Advance reciepts
                                               the period, which is mainly due to the increase of drug sales revenue received in advance.
Non-current liabilities due within one
                                               Mainly due to the transfer of bonds payable due within one year.
year
                                               The ending balance is 48.08 million yuan, a decrease of 82.5% from the beginning of the
Long-term payables                             period, which is mainly due to the adjustment of contingent consideration payments of
                                               the rights and interests of Sinclair products in the current period.


2. Major overseas assets

√ Applicable □ N/A

                                                                                                               Proportion of     Whether
                                                                                   Control
   Specific                      Assets size                                                                      overseas     there are any
                 Reason for                                       Operating      measures to
  content of                    (ten thousand      Location                                     Profit or loss assets in the    significant
                    formation                                        mode       ensure assets
    assets                         yuan)                                                                        Company’s     impairment
                                                                                    safety
                                                                                                                 net assets        risks

Sinclair        Acquisition                                     Independent Control of
                                93,619.01        UK                                                 Profit            7.61% None
Pharma          of equity                                       accounting      the Board of


                                                                       15
                                                              The 2019 Annul Report of Huadong Medicine Co., Ltd.


Limited                                                        Directors and
                                                               examination
                                                               & approval
                                                               of major
                                                               decisions;
                                                               daily
                                                               supervision
                                                               of financial
                                                               matters;
                                                               entrusting
                                                               external
                                                               intermediarie
                                                               s to conduct
                                                               audits


     Note: During the reporting period, in April 2019, the Company entered into strategic cooperation with R2

Dermatology, a US company specializing in medical devices and technology development related to dark spot

removal and skin whitening using freezing technology in the field of aesthetic medicine, and made equity

investment in R2 and became its shareholder. As of the date of this disclosure, the Company has invested 20

million US dollars, with a shareholding ratio of 26.60%. In July 2019, the Company entered into strategic

cooperation with MediBeacon, a US company dedicated to the development of contrast agents and equipment in

such medical fields as renal function and gastrointestinal function assessment, and invested 30 million US dollars

for equity investment. As of the date of this report, the Company has contributed 15 million US dollars, or 4.3% of

its shares.


III. Analysis of core competitiveness

      1. Open R&D system and continuous improvement of innovation capability

      After years of development, the Company has established and improved its independent R&D
system, built a global R&D strategy collaboration ecosystem centered on Zhongmei Huadong,
established a global new drug R&D center, set up joint research offices in Boston and Silicon Valley
in the United States, and cooperated with world-renowned colleges, research institutes, innovative
biotech companies, professional technology platforms and other institutions in new drug R&D
projects. The Company has continuously increased R&D investment, adjusted its existing product
structure in an all-round way, resolutely cleaned up and phased out generic drugs with low barriers

                                                        16
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and low commercial value, focused on three core areas of anti-tumor, internal secretion and
autoimmunity, continued to consolidate its position as a domestic leader in the field of diabetes and
autoimmune drugs, quickly completed the layout of innovative product pipelines in the core areas,
and enabled the Company to effectively supplement and take the lead in innovative products in the
core areas. Independent R&D, external M&A, and product license-in have rapidly enriched product
pipelines in the core areas, forming a good development trend of continuous proposal and market
launch of innovative products, providing new momentum for medium and long-term growth.

     2. Comprehensive capability in international business development

     The Company has actively promoted internationalization and acquired 100% shares of Sinclair,
a British listed company, through international M&A, thus realizing the global layout of aesthetic
medicine sales network. Its strategic cooperation with US companies R2 and MediBeacon and
Kylane in Switzerland has increased its international commercial development rights and interests.
The Company has accelerated the international registration of products. All its chemical raw
medicine in production have been certified by FDA or in authoritative markets such as the European
Union; its Pantoprazole Sodium Lyophilized Powder for Injection has been temporarily approved
by FDA; and its Acarbose Tablets gained access to the Austrian market in the European Union. The
Company is the first Chinese medicine enterprise to achieve these results. The production lines of
all of its raw medicines and some of its preparations have been certified by FDA or in authoritative
markets such as the European Union. The Company actively engages itself with international
logistics and purchasing suppliers, realizes the internationalization of purchasing ability, strengthens
international trade cooperation, and achieves positive results in the expansion of internation al raw
medicine market.

     3. Abundant product pipelines for specialist departments and chronic diseases and
overall competitive advantage in the field of diabetes medication

     Over the years, the Company has been deeply engaged in medication for specialist departments,
chronic diseases and special purposes, and has built a good brand effect and solid market foundation
in such fields as chronic kidney diseases, transplantation immunity, internal secretion, and digestive
system . Its market share remains in the forefront of domestic similar products. An overall layout of
innovative targets and differentiated generic drug product pipelines has been formed in the


                                                   17
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important clinical medication targets of diabetes. In the field of organ transplantation, the
Company’s products cover all clinical first-line immunosuppressant. In the future, the Company
will focus on the R&D layout of innovative products in the three core areas of anti-tumor, internal
secretion and autoimmunity. At present, the Company has 22 core products on the market and 16
varieties under R&D included in the 2019 National Reimbursement Drug List and 10 core products
on the market and 4 varieties under R&D included in the 2018 National Essential Drug List.



    Full product line layout of Huadong Medicine in the field of diabetes medication (R&D progress as of April 2020)


          Traditional oral           DPP-4 inhibitors          SGLT-2 inhibitors        GLP-1 receptor stimulants          Insulin and biosimilars
       hypoglycemic drugs


     Acarbose (already on the      Sitagliptin -Metformin   Empagliflozin-Metformin      Liraglutide (clinical trial    Insulin Detemir (clinical trial
              market)              Compound (applied for     Compound (applied for               phase III)                        phase I)
                                        production)               production)

      Pioglitazone-Metformin                                   Canagliflozin (BE         Liraglutide (clinical trial     Insulin Aspart (preclinical)
      (already on the market)                                completed, to apply for      phase I: indications for
                                                                  production)                  weight loss)

    Pioglitazone (already on the                                                       TTP273 (oral administration)           Insulin Degludec
              market)                                                                  (overseas clinical trial phase            (preclinical)
                                                                                          II completed; domestic
                                                                                           clinical trial phase I)
     Voglibose (already on the                                                                                              Lucentis (preclinical)
              market)



     Repaglinide (BE research)




     4. Leading pharmaceutical professional promotion team and market network in China

     With academic promotion of clinical value as the core, the Company has promoted a
multi-channel marketing mode that combines comprehensive hospitals, primary medical institutions,
retail and third terminals, and Internet, and has gradually formed effective coverage through
multiple channels. With the full coverage of Zhejiang Province, the Company has established
business cooperation with 31 of the world’s top 50 pharmaceutical multinational companies and 80
of China’s top 100 pharmaceutical companies, and its cold-chain logistics and distribution business
is taking the lead in China. In the field of aesthetic medicine, Ningbo Company, a partially-owned
subsidiary, ranks first in the market share of domestic aesthetic medicine. The core products of
Sinclair, a wholly-owned subsidiary, have been launched in more than 60 countries and regions
around the world.

     5. Prudent and pragmatic operation style and shareholder return


                                                                                                   18
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    The Company values management innovation, and strives to meet the demand of market
competition by improving its quality of operation. The compliant and efficient marketing services,
differentiated market positioning, innovative R&D layout and perfect talent planning promote the
Company’s lasting and steady development. Since its listing, the Company has maintained steady
growth in performance for 20 years. Since 2007, the Company has kept the return on equity (ROE)
above 20% for 13 consecutive years, leading A-share listed companies and the medicine industry.
Since its listing 20 years ago, the Company has paid dividends for 16 times, with a total value of
3.684 billion yuan, far exceeding the 250 million yuan raised in its IPO. The Company has brought
continuous and stable returns on investment to shareholders.




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              Section IV. Discussion and Analysis of Operations

I. Overview

    2019 is a year of great historical significance in the development of New China, and a year of
profound and dramatic changes in China’s medicine industry. It is also a key year for the Company
to deepen its transformation, and the first year for the Company to implement the entrepreneurial
spirit and enter a new period of development. Over the past year, faced with the enormous pressure
brought by the national economic downturn, the serious situation in the domestic medicine market,
the pressure of price reduction, regulatory compliance and market competition brought by the
intensive implementation of national health reform policies such as centralized purchasing, the
Company focuses on enhancing soft value, adheres to strategic enterprise transformation,
emphasizes    high-quality   development,     comprehensively      and    rapidly     promotes      the
internationalization of innovation transformation, maintains balanced development of industry and
business, continues to push forward in a complex and changeable policy and industry environment,
and has achieved remarkable operating results. The Company’s operating revenue and net profit
have reached new highs, and its operating performance has maintained steady growth for 20
consecutive years. Meanwhile, its business quality has been continuously improved.

    During the reporting period, the income from main business and net profit continued to
increase. The annual operating revenue was 35.446 billion yuan, an increase of 15.60% over the
previous year. The net profit attributable to shareholders of the parent company was 2.813 billion
yuan, an increase of 24.08% over the previous year. By the end of 2019, the total assets of the
Company had reached 21.464 billion yuan, and the net assets belonging to the shareholders of the
parent company were 12.309 billion yuan. The liabilities to assets (L/A) ratio was 40.05%; the
return on equity (ROE) was 25.29%, which remained above 20% for 13 consecutive years.

    In 2019, Zhongmei Huadong, a wholly-owned subsidiary of the Company, has completed the
tasks of scientific research, production and operation, continuously enhanced its market
competitiveness and profitability, and continued to exploit the chronic disease market; the four
product lines of chronic kidney diseases, diabetes, transplantation immunity and digestive system

                                                20
                                                                                                  The 2019 Annul Report of Huadong Medicine Co., Ltd.



all maintain growth. Its operating revenue topped 10 billion yuan for the first time, reaching 10.508
billion yuan, with a net profit of 2.198 billion yuan, with year-on-year increases of 28.02% and
18.14%, respectively. Huadong Medicine’s business sector has actively innovated and developed its
business mode, continuously improved its operating efficiency, and maintained a steady growth in
its business. With annual sales revenue of 25.098 billion yuan, it continued to maintain a leading
position in the medicine industry in Zhejiang Province. In the aesthetic medicine industry, it
continued to explore the domestic and overseas markets, with annual income exceeding 1.2 billion
yuan.



                                                              State of perating
                                                              Growth trend of Huadong Medicine’s operating revenue (100 million yuan) in the past 10 years




                                                                                                                                                               100 million yuan




        Compound annual growth rate of operating
        revenue (100 million yuan) in the past 10 years




                                                  (100 million yuan)




                Growth trend of Huadong Medicine’s operating revenue over the past 10 years


                                                           Growth trend of Huadong Medicine’s net profit (100 million yuan)
                                                           attributable to the parent company in the past 10 years



                                                                                                                                                              100 million yuan




         Compound annual growth rate of net profit
         attributable to the parent company (100 million
         yuan) in recent 10 years


                                                 (100 million yuan)




 Growth trend of Huadong Medicine’s net profit attributable to the parent company in the past 10
                                            years

                                                                                      21
                                                                        The 2019 Annul Report of Huadong Medicine Co., Ltd.




                                 ROE of Huadong Medicine (%) from 2007 to 2019
                                                                                           ROE of Huadong Medicine (%) from
                                                                                           2007 to 2019




                                              ROE of      Huadong              ROE of domestic medicine        industy
                                              Medicine                         (source: SASAC; iFinD)



                            ROE of Huadong Medicine (%) from 2007 to 2019




            Growth rate of the Company’s major product
            lines in 2019



                       All major product lines maintained good growth
                                                                                                      Growth
                                                                                                       rate




                                              Growth
                                               rate                               Growth
                                Growth                              Growth         rate
                                 rate                                rate
                            TCM for kidney    Diabetes    Immunosuppressants      Digestive     Cardiovascular and
                              diseases       medication                         system drugs   cerebrovascular drugs



                  Growth rate of Huadong Medicine’s major product lines in 2019


    1. Accelerated R&D transformation, increased R&D investment, and abundant product
pipelines

    In 2019, the Company continued to promote R&D transformation, with an annual R&D
investment of 1.055 billion yuan, a year-on-year growth of 49.14%. Through independent
development, external introduction and project cooperation, the Company has accelerated the
enrichment of its product pipelines. It has set up an international new drug development center, a


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R&D project decision-making committee and an expert management committee, further
strengthened BD team building, and established the BD coordination mechanism and PM
management mechanism. The Company has strengthened the full life cycle management of R&D
projects, further improved the proposal approval and dynamic evaluation system of R&D projects,
timely adjusted the R&D strategies and direction, and cleaned up and eliminated generic drugs with
low barriers and low commercial value, so as to ensure the maximum utilization of its R&D
resources. It has optimized the R&D incentive system and fostered a R&D atmosphere that
encourages innovation and initiative by taking innovation as the orientation and the actual R&D
achievement as the evaluation standard. The Company has vigorously carried out the consistency
evaluation of each product, actively promoted clinical trials and sample preparation, completed the
process verification of 8 varieties and the BE/pre-BE sample preparation of 11 varieties, and
completed the supplementary application of products on the market and supplementary research of
related new products. Aligned with international standards, the Company has actively promoted the
R&D efficiency through the CMO/CDMO cooperation mode. A total of 3 clinical approvals and 1
production approval were obtained throughout the year; TTP273 obtained phase I clinical approval;
R2, HDSY313, MB102, MET306, CX-01-T and other innovation projects under R&D are
progressing in a planned and orderly manner; Liraglutide for Injection officially entered phase III
clinical trial and clinical enrollment continued as planned. (For details about R&D investment and
product pipelines under R&D, please refer to the relevant content in the R&D section)

    2. Positive results in international development and major breakthroughs in international
registration

    International product introduction and cooperation: (1) The Company signed a strategic
cooperation agreement with R2 Dermatology, made equity investment in R2 and obtained the
exclusive distribution rights of medical devices F1 and F2 developed by R2 and their future
improved models in 34 Asian countries and regions including China’s mainland, Japan and South
Korea; (2) Through strategic cooperation with MediBeacon, the Company obtained the exclusive
commercialization rights of all the products (including renal function monitoring and assessment,
gastrointestinal function assessment, and surgical visualization) owned by MediBeacon in 25 Asian
countries and regions including China’s mainland after subscribing part of the series B preferred


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shares issued by MediBeacon. The signing of this project will promote the Company to gradually
form a complementary and collaborative drug product line and accurate monitoring means in the
field of chronic disease diagnosis and treatment, and further consolidate the Company’s
comprehensive competitiveness in chronic disease diagnosis and treatment; (3) The Company
reached a strategic cooperation intention with Switzerland’s KYLANE LABORATOIRES and
formally signed an agreement in the first quarter of 2020 to obtain the commercialization rights of
its Kysense series of high-end hyaluronic acid products in the global market. The products are
expected to be approved for sale in the European market in 2020, further enriching the aesthetic
medicine product pipelines.

     International registration of preparations: The Company has continued to promote
international strategic goals. Pantoprazole Sodium for Injection (40mg) was temporarily approved
by FDA, filling the gap in ANDA registration of the Company’s preparations. Acarbose Tablets
were approved for sale in the Austrian market in the European Union; it is the first domestic oral
diabetes drug approved for sale in the European Union market.

     3. Innovative operating mode for an international medicine production system of
Huadong

     The Company has actively adapted its production system to the market. Centering on patients’
unsatisfied treatment needs and the Company’s product strategies, the Company has focused on the
implementation of generic drugs and the approval of innovative products, continued to enhance the
bulk R&D registration, production and manufacturing capabilities, further integrated the Company’s
superior resources, built an open manufacturing system, accelerated the transformation of
production and operation from the traditional “hard assets” to the “light assets” operating mode,
adjusted the product structure using the total factor layout, and piloted a new diversified operating
mode of light assets (MAH).

     The Company has completed the transfer for production and approval of proposal of scientific
research projects to production in 2019, continuously promoted the ANDA internationalization
project of products, and carried out the international registration of Daptomycin and Daptomycin
for Injection, Fondaparinux Sodium and Fondaparinux Sodium Injection, Acarbose Tablets,
Pioglitazone-Metformin Tablets, Everolimus Tablets, Sirolimus Tablets and other products. The


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Company has made preparations for the international commercial production of Pantoprazole
Sodium for Injection provisionally approved by FDA and Tacrolimus Capsules to be approved.

     In the new context of centralized purchasing, the Company combines independent innovation
and technology introduction to improve the technical level of its raw medicines. Focusing on the
total production factors, the Company has paid close attention to fine management, vigorously
carried out lean production and total cost management, improved the level of information
technology and operating efficiency, optimized the production process, and promoted cost saving
and reduction. The Company is devoted to improving skills in international production, making
preparations for the international commercial production of products that have obtained overseas
certification, and creating products that are compliant with regulations, international-oriented,
high-quality and competitive in the market.

     The Company has steadily promoted the construction of key projects. The Company has
focused on key engineering projects such as Jiangdong Phase II and the international R&D and
manufacturing center for preparations, completed work on schedule, further improved the
construction of four major production parks (Hangzhou Xiangfuqiao, Jiangdong Park, Jiangsu
Jiuyang and Xi’an Bohua) and two off-site workshops and the transfer of product approval
numbers.

     4. Strengthened talent and expert team building to promote collective and international
human resources management

     In 2019, the Company thoroughly implemented the working principles of “talent management
innovation” and “strategic human resources management”, strengthening the introduction of
scientific research and international high-end talents, and promoting the continuous expansion of its
talent team through internal training and external recruitment. The Company launched the global
campus recruitment and completed the first batch of on-site publicity and recruitment at renowned
colleges and universities in the United States and Singapore, and achieved expected results. In 2019,
34 people were recruited for core positions, including 22 with doctoral degrees and 27 who have
worked or studied overseas; a total of 123 people with postgraduate degrees were hired; 96
graduates from universities in the development plan of “world-class universities and first-class
disciplines” were recruited. The structure and proportion of scientific research and technical


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management personnel have been continuously improved. The Company has established an
incentive mechanism guided by high efficiency, high performance and high market value,
formulated a medium- and long-term incentive mechanism plan for R&D projects, implemented a
comprehensive production assessment to increase the labor efficiency per capita by about 12%,
promoted collective and international human resources management, and completed internal audit,
personnel assignment and budget management of Sinclair.

     5. Implementation of whole-process quality management and promotion of the
transformation and upgrading of the quality system

     The quality system follows the guideline of “compliance, implementation and acceleration”.
The Company aims at the world-class quality management and promotes the construction of
integrity quality culture, and strictly adheres to the quality bottom line. It has made great efforts to
strengthen the quality compliance and GMP normalization management, and implemented the
whole-process quality management to ensure the quality of all production links is controllable,
under control and controlled. It has also improved quality management systems such as
pharmacovigilance and R&D quality, promoted the transformation and upgrading of the quality
system using information technologies such as LIMS system and QMS system, properly carried out
pharmacy administration and MAH management, and completed the GMP certification inspection
and filing.

     6. Accelerated marketing structure reform & mode transformation and accelerated
growth of the primary market

     In 2019, Pharmaceutical Service Corporation of Zhongmei Huadong has set the goal of
establishing a “pharmaceutical service management system adapted to the development of the
modern medicine industry” and continued to deepen the organizational structure reform,
comprehensively promoted the layout and construction of the primary market and the
out-of-hospital market, enhanced the market service and management capabilities, and actively and
properly carried out key tasks such as business management, bid invitation and price negotiation.
The corporation has actively responded to the national policy of hierarchical diagnosis and
treatment, accelerated the transformation of marketing modes and the construction of clinical
pharmaceutical service teams, implemented hierarchical customer management and precision


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marketing, focused on target chronic disease patients who have not received standard treatment,
delivered product value and expanded incremental markets in accordance with the policy of “three
equal attentions” (equal attention to primary market and central city market, equal attention to
out-of-hospital market and in-hospital market, and equal attention to technology-enabled marketing
and traditional marketing). It has continued to carry out clinical re-research of products for market
launch. Through the construction of the academic platform for experts and all-round academic
publicity, it has promoted products to enter clinical application guidelines, improved expert
consensus and recognition of clinical value, and created favorable conditions for products to expand
market coverage and grow rapidly. On the basis of consolidating and expanding the market of
hospitals in key cities, it has accelerated penetration into county-level hospitals, community
hospitals, township hospitals and out-of-hospital markets. During the reporting period, the sales of
the Company’s core varieties in the primary market continued to grow rapidly, and the market share
kept increasing.




                                                                                                       Heilongjiang




                                                                                                           Jilin

          Xinjiang
                                                                                                Liaoning
                                                                                                                                                    Huzhou                 Jiaxing
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                                                                          Beijing
                                  Inner Mongolia
                                                                                Tianjin
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                                           Ningxia                                Shandong
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                     Qinghai                                                                                                                                                       Chain
                                     Gansu
                                                     Shaanxi                          Jiangsu

                                                                   Henan                                                                                                                        Ningbo Sales Company
                                                                                                      Shanghai
             Tibet
                                                                                    Anhui
                                                                                                                                                                    Shaoxing Company
                                                                  Hubei
                                 Sichuan                                                           Hangzhou
                                                Chongqing

                                                                                                                      Chun’an Hangzhou
                                                               Hunan            Jiangxi
                                                                                          Fujian                          Company
                                              Guizhou                                                                                                        Jinhua Supply Chain

                               Yunnan
                                                     Guangxi            Guangdong                                                                       Jinhua Company
                                                                                                                                                                                           Taizhou Company
                                                                                                                           Quzhou Office

                                                               Hainan




                                                                                                                                           Lishui Company

                                                                                                                                                            Wenzhou Company

                                                                                                                                                                        Wenzhou Supply Chain




    Distribution of the Company’s medicine                                                                                                   Distribution of the Company’s medicine
     industry marketing network in China                                                                                                      business marketing network in Zhejiang
                                                                                                                                                              Province




                                                                                                                                27
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     7. In-depth exploration in Zhejiang market and strengthened network layout to maintain
the leading position of medicine business in Zhejiang market

     In 2019, the Company’s business sector has insisted on improving performance through
management, and actively responded to policies such as centralized purchasing and medical
insurance payment reform by vigorously promoting business and management transformation. It
has pushed forward the three key tasks of “comprehensive budget management, ERP system
upgrade, and province-wide logistics system”. It has simultaneously implemented the two key
businesses of “province-wide sales of decoction pieces and DTP province-wide network”, paid
special attention to the three rates (customer coverage rate, market share, and sales growth rate) to
stabilize and improve the order fulfillment rate, especially the order fulfillment rate of hospitals
outside the city and primary hospitals, to ensure that it ranked first in the volume of centralized
purchasing and distribution in the province. In response to the reform of county-level medical
communities and hierarchical diagnosis and treatment, it has adjusted the sales organization
structure, continued to consolidate the in-hospital market, actively expanded the OTC pharmacy
chain market, made layout in high-quality private hospitals, and promoted the channel sinking and
market sinking.

     The Company has continuously optimized its product structure, with the emphasis on generic
drugs with high technical barriers that have passed consistency evaluation and new innovative drugs
on the market, strengthened the cooperation and introduction of key products with high growth
potential and high gross profit, actively changed the cooperation mode, provided customers and
hospitals with a variety of value-added services and in-depth services such as hospital access and
pharmacy service upgrade, and extended the product lines to businesses such as decoction pieces,
consumables and medical devices, and reached strategic cooperation with a number of multinational
medicine enterprises in the primary market concerning chronic disease products, covering more
than 2,400 hospitals in 10 cities of Zhejiang Province. The sales revenue of innovative business has
continued to increase rapidly, consolidating the Company’s leading position in Zhejiang and
remaining top 10 in China.

     The Company has actively improved the layout network in the province, and established
Huadong Medicine Taizhou Co., Ltd. and Huadong Medicine Jinhua Co., Ltd. The preparations


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made for various preliminary reviews have been completed for the construction of Jinhua Supply
Chain Center, which is expected to be completed and put into use in 2021. A province-wide
logistics system with multiple interconnected warehouses will be formed based on the three major
logistics centers in northern, central and southern Zhejiang, supplemented by branch warehouses of
regional subsidiaries. It is a solid step to realize the comprehensive coverage of medical logistics
network in the province.

     8. Active development of global aesthetic medicine business and continuous improvement
of the layout to build a new space for future development

     Sinclair, the Company’s international aesthetic medicine business platform, has been actively
expanding its business in the global market, continuously optimizing and adjusting its product
structure and introducing high-end products, and has made positive progress. During the reporting
period, new product registrations have been completed in 5 countries and regions; the annual
operating revenue was up 36% from the same period last year; the net profit went from a loss to a
profit.

     In 2019, the Company established the aesthetic medicine product management department,
quickly established the initial team of aesthetic medicine product management department, and
comprehensively managed and coordinated the domestic and overseas innovative business of
aesthetic medicine. It has completed the domestic clinical work of Ellanse (long-acting microsphere
for injection), the core product of its UK subsidiary Sinclair, and formally submitted the application
for registration. The design and preparations of the clinical trials of Silhouette (a thread lift product)
in China have been completed. The Company has gradually promoted domestic clinical trials of
R2’s F1 (dark spot removal medical device using freezing technology) and F2 (whole-body
whitening medical device) imported from the United States, and improved post-investment
management such as product design improvement, supporting product development and expansion
of potential distributors in countries in the Asia-Pacific region.




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                          Dutch Subsidiary
                          German Subsidiary
       Headquarters of    French Subsidiary                                                                    US Subsidiary
     Sincalir in the UK
    Spanish Subsidiary                                                         South Korean Subsidiary
                                                                                                                  Mexican Subsidiary
                                Indian Subsidiary

                                              Singaporean Subsidiary

                                                                                                                                          Brazilian Subsidiary

                                                                                         Australian Subsidiary                                Chilean Subsidiary




                                                             Legend                                                     Sinclair’s global sales areas
                                                                       Locations of Huadong Medicine and its overseas
                                                                                                                                Direct sales area
                                                                       subsidiary Sinclair Pharma Limited
                                                                                                                                Sales area in Latin America
                                                                       Huadong Medicine’s major overseas partners
                                                                                                                                Sales area in Central and Eastern Europe

                                                                       Major subsidiaries of Sinclair Pharma Limited            Sales area in the Asian-Pacific Region
                                                                       worldwide                                                Sales area in the Middle East & Africa




Huadong Medicine’s global business partners and international layout of aesthetic medicine business



       9. Change of the Board of Directors and creation of a new team leading the Company on
a new journey

       In June 2019, the Company completed the change of the Board of Directors . After deliberation
and approval by the general meeting of shareholders, a new management team was elected with Mr.
Lyu Liang as Chairman of the Board and Mr. Li Yuedong as General Manager. Mr. Li Bangliang
was appointed Honorary Chairman of the Company. The change of personnel that concerns the
Company’s long-term development has been successfully completed. The new management team
will lead all the members of Huadong Medicine to unswervingly promote the transformation of the
Company into an international and innovative medicine enterprise in the new period.

II. Analysis of main business

1. Overview

Refer to “I. Overview” in “Discussion and Analysis of Operations”.




                                                                                30
                                                                               The 2019 Annul Report of Huadong Medicine Co., Ltd.


2. Income and cost

(1) Composition of operating revenue

                                                                                                                          Unit: RMB yuan

                                           2019                                             2018                           Year-on-year
                                                     Proportion in                                   Proportion in          percentage
                                Amount                                           Amount
                                                  operating revenue                                operating revenue     increase/decrease

 Total operating
                            35,445,698,216.15                 100%        30,663,374,326.27                    100%               15.60%
 revenue

 By sector

 Business                   25,098,006,088.85               68.79%        22,853,322,427.62                  72.89%                 9.82%

 Manufacturing              10,864,875,032.13               29.78%         8,573,439,130.79                  26.86%               26.73%

 International
                               509,190,691.24                 1.43%             76,019,939.06                 0.25%              569.81%
 aesthetic medicine

 Offset (inter-sectoral
                            -1,026,373,596.07                                  -839,407,171.20
 offset)

 By product

 By region

 Domestic sales             34,883,617,590.88               98.41%        30,541,135,176.56                  99.60%               14.22%

 Overseas sales                562,080,625.27                 1.59%            122,239,149.71                 0.40%              359.82%


(2) Sectors, products or regions that accounts for more than 10% of the Company’s operating revenue or
operating profit:

√ Applicable □ N/A
                                                                                                                            Unit: RMB yuan

                                                                                    Year-on-year        Year-on-year        Year-on-year
                                                                      Gross          percentage          percentage          percentage
                       Operating revenue    Operating cost            profit       increase/decrea    increase/decrea     increase/decrea
                                                                       rate        se in operating     se in operating       se in gross
                                                                                      revenue               cost             profit rate

 By sector

 Business              25,098,006,088.85   23,169,206,360.31          7.69%                 9.82%             10.02%               -0.16%

 Manufacturing         10,864,875,032.13        1,802,276,075.36      83.41%              26.73%              17.62%                1.28%

 International
 aesthetic                509,190,691.24         140,481,356.33       72.41%              569.81%            619.33%               -1.90%
 medicine




                                                                     31
                                                                            The 2019 Annul Report of Huadong Medicine Co., Ltd.


 Offset
 (inter-sectoral       -1,026,373,596.07      -1,025,240,830.27
 offset)

 By product

 By region

 Domestic sales        34,883,617,590.88      23,916,538,278.74      31.44%            14.22%             10.10%                 2.56%

 Overseas sales           562,080,625.27         170,184,682.99      69.72%          359.82%             224.62%             12.61%



If the statistical specifications of the Company’s main business data have been adjusted during the reporting period, the Company’s
main business data of the most recent year should be adjusted according to the specifications at the end of the reporting period.
□ Applicable √ N/A


(3) Whether the Company’s income from in-kind sales is greater than that from labor services

√ Yes □ No


(4) Performance of major sales contracts signed by the Company as of the current reporting period

□ Applicable √ N/A


(5) Composition of operating cost

By sector
                                                                                                                       Unit: RMB yuan

                                                        2019                                 2018                     Year-on-year
                                                                  Proportion                          Proportion       percentage
      Sector                Item
                                               Amount          in operating         Amount           in operating    increase/decrea
                                                                     cost                                cost               se

 Business              Operating cost      23,169,206,360.31         96.19%     21,059,806,073.72         96.72%             10.02%

 Manufacturing         Operating cost       1,802,276,075.36          7.48%      1,532,269,288.35          7.04%             17.62%

 International
 aesthetic             Operating cost        140,481,356.33           0.58%         19,529,585.29          0.09%            619.33%
 medicine

 Offset
 (inter-sectoral       Operating cost      -1,025,240,830.27                      -836,899,569.25
 offset)


(6) Whether the scope of consolidation has changed during the reporting period

√ Yes □ No
For details, please refer to “VIII. Change of consolidation scope” in “Section XII. Financial Report”.

                                                                    32
                                                                            The 2019 Annul Report of Huadong Medicine Co., Ltd.


(7) Significant changes or adjustments to the Company’s business, products or services during the
reporting period

□ Applicable √ N/A


(8) Major customers and major suppliers

The Company’s major customers

 Total sales amount of the top five customers (yuan)                                                                 5,566,864,329.53

 Proportion of the total sales amount of the top five
                                                                                                                                15.71%
 customers in the total annual sales amount

 Proportion of related parties’ sales amount of the top
 five customers’ sales amount in the total annual sales                                                                         0.00%
 amount

Note: The customers under the control of the same actual controller shall be listed together, except those under the actual control of
the same state-owned assets management institution.
Information of the Company’s top five customers

                                                                                                 Proportion in the total annual sales
     No.                   Customer name                         Sales amount (yuan)
                                                                                                               amount

 1           Customer a1                                                 2,573,910,052.06                                        7.26%

 2           Customer a2                                                 1,219,154,713.77                                        3.44%

 3           Customer a3                                                   712,849,895.81                                        2.01%

 4           Customer a4                                                   585,626,847.43                                        1.65%

 5           Customer a5                                                   475,322,820.46                                        1.34%

 Total                            --                                     5,566,864,329.53                                       15.71%

Note: The customers under the control of the same actual controller shall be listed together, except those under the actual control of
the same state-owned assets management institution.
Other information of major customers
□ Applicable √ N/A
Note: The Company shall state whether the top five customers are related to the Company, and whether the Company’s directors,
supervisors, senior management, core technical personnel, shareholders holding more than 5% of the shares, actual controllers and
other related parties have rights and interests in the major customers directly or indirectly.
Information of the Company’s major suppliers

 Total purchase amount of the top five suppliers (yuan)                                                              2,786,324,393.06

 Proportion of the total purchase amount of the top five
                                                                                                                                11.57%
 suppliers in the total annual purchase amount

 Proportion of related parties’ purchase amount of the
 top five customers’ purchase amount in the total annual                                                                        0.00%
 purchase amount



                                                                    33
                                                                           The 2019 Annul Report of Huadong Medicine Co., Ltd.


Note: The suppliers under the control of the same actual controller shall be listed together, except those under the actual control of
the same state-owned assets management institution.
Information of the Company’s top five suppliers

                                                                                               Proportion in the total annual purchase
     No.                    Supplier name                     Purchase amount (yuan)
                                                                                                               amount

 1            Supplier b1                                                 667,792,069.08                                             2.77%

 2            Supplier b2                                                 629,700,409.34                                             2.61%

 3            Supplier b3                                                 578,497,423.09                                             2.40%

 4            Supplier b4                                                 505,211,171.74                                             2.10%

 5            Supplier b5                                                 405,123,319.81                                             1.68%

 Total                             --                                   2,786,324,393.06                                           11.57%

Note: The suppliers under the control of the same actual controller shall be listed together, except those under the actual control of
the same state-owned assets management institution.
Other information of major suppliers
□ Applicable √ N/A




3. Expenses

                                                                                                                          Unit: RMB yuan

                                                                             Year-on-year
                                    2019                   2018               percentage                    Note on changes
                                                                           increase/decrease

                                                                                                 Mainly due to the year-on-year
                                                                                                 increase in employee benefits and
 Sales expenses                5,797,236,883.02      4,297,355,738.06                34.90%
                                                                                                 travel expenses and Sinclair’s
                                                                                                 incorporation in November 2018.

                                                                                                 Mainly due to the increase in
 Administrative                                                                                  employee benefits, amortization of
                               1,095,227,423.65        785,170,898.51                39.49%
 expenses                                                                                        intangible assets and Sinclair’s
                                                                                                 incorporation in November 2018.

                                                                                                 Mainly due to the transfer of
                                                                                                 expenditure on discount interest to
                                                                                                 investment income and the
                                                                                                 write-down financial expenses
 Financial expenses                2,473,146.13         86,484,247.20               -97.14%
                                                                                                 caused by the discount interest
                                                                                                 adjustment of contingent
                                                                                                 consideration of Sinclair products’
                                                                                                 rights and interests rights.




                                                                   34
                                                               The 2019 Annul Report of Huadong Medicine Co., Ltd.


                                                                                Mainly due to the increase of R&D
 R&D expenses             1,072,937,182.39    706,041,257.10           51.97%
                                                                                investment in the current period.


4. R&D investment

√Applicable □ N/A

     (1) Overall situation of R&D

     Adhering to the corporate philosophy of “scientific research-based and patient-oriented”, the Company

continued to increase R&D investment and enrich the layout of innovative drug R&D. During the reporting period,

the Company invested 1.055 billion yuan in medicine R&D, an increase of 49.14% compared with the same

period in 2018. The R&D work during the reporting period mainly involves the following aspects:

     1) The Company has continued to implement the new drug R&D mode of “independent R&D + cooperative

entrusted development + product license-in”, tracking the latest international research progress in drug action

mechanisms & targets and clinical application, accelerating the deployment of innovative drugs and the

introduction of innovative drug projects at home and abroad. It has completed the establishment of multiple

potential innovative drug projects in such fields as metabolism and kidney diseases;

     2) The Company has focused on clinically effective varieties and drugs for special groups, accelerated the

R&D of generic drugs with high technical barriers and improved new drugs (505b(2)), and set up a number of

projects focusing on immunity during the reporting period;

     3) The Company has continuously improved the technology and quality level of raw medicines and

preparations, reduced costs, actively developed multiple dosage forms for products on the market, and

strengthened market competitiveness;

     4) The Company has strengthened the comprehensive dynamic evaluation of varieties under R&D, and

ensured the R&D progress of key varieties under R&D to the greatest extent by prioritizing projects under R&D

and rationally allocating R&D resources.

     (2) R&D of major innovative drugs and biosimilar projects

     The Company on the one hand has promoted the clinical research progress of several innovative drugs and

key biosimilar varieties under R&D, so as to get them approved for market launch as soon as possible. On the

other hand, it has formulated a strategic plan for the development of innovative drugs up to 2025, focusing on the

existing coverage of treatment fields, and defining the key directions and quantity of innovative projects to be

initiated each year during the planning period. It is proposed that no less than 15 innovative varieties (including


                                                        35
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innovative drugs, improved new drugs, innovative aesthetic medicine products and devices) should be established

and stored every year during the planning period. In addition, during the reporting period, the Company has

actively explored and drawn lessons from the international advanced innovative drug R&D system construction,

continuously optimized and adjusted its overall R&D system structure, and improved various functional modules

of innovation project R&D through the introduction of high-end R&D talents, fully ensuring the realization of the

Company’s strategic planning objectives for innovation projects.

     In 2019, more than 15 innovative projects have been established, including HD1902, HD1903, HD1906 and

other Class I innovative drug projects in the field of tumor and autoimmunity, and HD1901, HD1905, HD-IM-001

and other Class II new drugs of new indications or improved new dosage forms, which further enrich the

innovative product pipelines. In addition, Chongqing Peg-Bio invested by the Company has accumulated a

number of innovative Class I biological drugs and biosimilar varieties by virtue of its two core technologies of

PEGylation platform and high-efficiency polypeptide tandem expression platform, and will start IND application

in 2020, forming good synergy with the Company’s innovative drug strategy. The clinical research progress of the

Company’s key innovative drug projects and biosimilar projects is as follows:

     1) Mefatinib: Mefatinib for advanced non-small cell lung cancer has entered the phase III clinical trial; the

phase II single arm clinical trial is for rare first- and second-line gene mutations; based on the good curative effect

in the first stage, communication with CDE will be completed, so that the drug can be applied for market launch

based on the phase II clinical results.

     2) TTP273: GLP-1 innovative drug TTP273 for oral administration introduced from vTv in the United States

has obtained the clinical trial notification in May 2019; clinical protocol confirmation and hospital ethics approval

have been completed. The phase I PK bridging trial will be carried out in the first half of 2020.

     3) Biosimilar varieties: The multi-center phase III clinical trial (indications for type II diabetes) for the

Company’s key product in the field of diabetes, Lilarutide Injection, has now been fully launched, which is

expected to be completed in 2020. The multi-center phase III clinical trial (indications for weight loss) for the

product has been formally launched; the phase I clinical trial has been formally launched for Insulin Detemir.

Clinical application has been submitted for Lucentis; research on the relevant supplementary information is in

progress.



     (3) R&D of major generic drugs

     During the reporting period, the Company carefully carried out dynamic evaluation and sorting of the

                                                          36
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           existing generic drugs under R&D in a scientific manner, and further clarified the key and priority varieties. The

           progress of key varieties is as follows:

                    1) The on-site check lists have been submitted for Anastrozole Tablets, Caspofungin and Lyophilized Powder

           for Injection. Siglitine-Metformin Compound Tablets (50/500mg) have passed technical review. The above

           projects will be subject to on-site inspection in 2020.

                    2) Supplementary information research and consistency evaluation have been completed for

           Omeprazole-Sodium Bicarbonate Compound Capsules; Letrozole Tablets and Empagliflozin-Metformin

           Compound Tablets have been applied for production. The above projects are expected to get production approval

           in 2020 or the first half of 2021.

                    3) Supplementary information studies have been basically completed for Micafungin and Lyophilized

           Powder for Injection; the BE trial and process verification have been completed for Linezolid Tablets,

           Canagliflozin and Canagliflozin Tablets, Macitentan and Macitentan Tablets and Sorafenib and Sorafenib Tablets.

           These products are expected to be applied for production in 2020.

                    The main R&D of generic drugs is shown in the table below:


                                                                                                                           R&D progress
     Treatment field                                Product                                    Indication                                                                      Progress description
                                                                                                                     BE                ANDA
Diabetes                     *Canagliflozin and Canagliflozin Tablets             Type II diabetes                                                         The BE trial and process verification have been completed;
                                                                                                                                                           production application to be submitted in 2020
                             *Empagliflozin-Metformin Compound Tablets            Type II diabetes                                                         The production application has been submitted and is under
                                                                                                                                                           review
                             *Sitagliptin-Metformin Tablets                       Type II diabetes                                                         The product has passed the review and will be subject to
                                                                                                                                                           on-site inspection
                             Pioglitazone-Metformin Tablets (15/850mg)            Type II diabetes                                                         Formulation and process optimization; pre-BE trial
                             Repaglinide Tablets                                  Type II diabetes                                                         Under BE study
Immunity                     Sirolimus Tablets                                    Anti-rejection                                                           Preparation for small-scale trial study
                             Tacrolimus Ointment                                  Anti-rejection                                                           Small-scale trial study
Anti-tumor                   *Letrozole Tablets Note 1                            Breast cancer                                                            The production application has been submitted and is under
                                                                                                                                                           review
                                                    Note 2
                             *Anastrozole Tablets                                 Breast cancer                                                            The on-site check list has been submitted; production site
                                                                                                                                                           inspection to be carried out
                             *Sorafenib and Sorafenib Tablets                     Liver cancer                                                             The product has passed pre-BE trial; BE trial is in progress
Super antibiotics            *Caspofungin and Caspofungin Injection               Antifungal                                                               The on-site check list has been submitted; production site
                                                                                                                                                           inspection to be carried out
                             *Micafungin and Micafungin Injection                 Antifungal                                                               Supplementary information research has been completed;
                                                                                                                                                           production application to be submitted in 2020
                             *Linezolid Tablets                                   Super-antibiotics                                                        Production application to be submitted in the first half of
                                                                                                                                                           2020
Digestive system             Omeprazole-Sodium           Bicarbonate   Compound   Gastric ulcer                                                            Supplementary information research and consistency
                             Capsules                                                                                                                      evaluation have been completed; the product has been
                                                                                                                                                           applied for production
                             Vonoprazan and Vonoprazan Tablets                    Gastric ulcer                                                            The product has passed pre-BE trial; BE trial is in progress
Cardiovascular diseases      Macitentan and Macitentan Tablets                    Pulmonary arterial hypertension                                          The product has passed pre-BE trial; BE trial is in progress
Kidney diseases              Secondary development of Bailing Keli                Tonifying lungs and kidneys                                              The formulation and process have been optimized; samples
                                                                                                                                                           to be prepared
           Note 1 and Note 2 refer to “7.22” clinical self-inspection varieties that have been voluntarily withdrawn, which shall be included in the priority review procedure after re-application.
           Note 3: The items marked with “※” are developed by New Drug Research Institute Co., Ltd. of Hangzhou Huadong Medicine Group, entrusted by the Company. The Company or its
           subsidiaries shall pay for the relevant entrusted development to obtain the property rights of the corresponding item.




                    At the same time, the Company has adjusted the existing product structure comprehensively in combination

           with the market competition pattern and the R&D progress of projects. After careful discussion and research, the

                                                                                                                37
                                                                   The 2019 Annul Report of Huadong Medicine Co., Ltd.



  Company has cleaned up and eliminated some generic drugs with low barriers and low commercial value,

  including Erlotinib Tablets, Imatinib Tablets and Bosutinib Tablets in the field of anti-tumor, Fidaxomicin Tablets

  and Dalbavancin Lyophilized Powder for Injection in the field of super-antibiotics, and (S)-Pantoprazole

  Lyophilized Powder for Injection in the field of digestive system.

         (4) R&D cooperation

         During the reporting period, the Company actively carried out cooperation and negotiations with domestic

  and overseas innovative drug R&D companies and research institutes on new drug projects. The details are as

  follows:

         1) In cooperation with Shenyang Pharmaceutical University, the Company has introduced Class 1 chemical

  drug innovation projects for broad-spectrum anti-tumor treatment, and is currently carrying out a small-scale trial

  study of raw medicines and preparations as well as impurity research;

         2) The Company has reached the entrusted development project of new biosimilar drugs in the field of

  autoimmunity (HDG1903) with the shareholding company Jiuyuan Gene, which enriched the Company’s

  biosimilar projects;

         3) The Company has deepened cooperation with the University of Minnesota in the field of integrated

  materials science and engineering technology for medical products, and enhanced its R&D capability in the field

  of high-end oral solid preparations;

         4) The Company has reached cooperation with well-known domestic R&D companies or institutions such as

  WuXi AppTec, Pharmaron Inc., and Zhejiang University on multiple Class1 innovative drug projects.

         (5) R&D of aesthetic medicine and medical devices

         During the reporting period, the Company has reached strategic cooperation with R2 and MediBeacon in the

  United States, and with Kylane in Switzerland, and obtained commercialization rights of several innovative

  products. The core products of Sinclair, a wholly-owned subsidiary, have continued to make positive progress in

  registration in China and other countries. The specific progress is as follows:

Compan       Company       Relationshi   Related    main   Indications    Rights and     R&D progress     R&D progress
y name       profile       p with the    products                         interests of   (overseas)       (China)
                           Company                                        Huadong
                                                                          (or
                                                                          subsidiaries
                                                                          )




                                                            38
                                                                                    The 2019 Annul Report of Huadong Medicine Co., Ltd.


                                                   Microspheres         Facial                 All               Registration               The registration
                                                   for      injection   subcutaneous                             certification        or    clinical trial has
                                                   (Ellanse)            implantation to                          market access has          been completed
                                                                        permanently                              been obtained in           in China, and
                                                                        reduce                                   more        than     60    the application
                                                                        wrinkles                                 countries            or    for          market
            Global                                                                                               regions                    launch has been
            aesthetic                                                                                                                       accepted
                                    Wholly-ow
            medicine                               Thread lift          Suitable        for    All               Registration               The registration
Sinclair                            ned
            product                                (Silhouette)         mid-face        lift                     certification        or    of Silhouette in
                                    subsidiary
            business                                                    surgery,                                 market access has          China has been
            operation                                                   temporarily                              been obtained in           initiated,        and
                                                                        fixing          and                      more        than     60    the       clinical
                                                                        lifting         the                      countries            or    registration
                                                                        dermis      under                        regions                    development
                                                                        the cheek                                                           plan and trial
                                                                                                                                            protocol are in
                                                                                                                                            preparation

Kylane in   A          biotech      Product        MaiLi series, a      Facial filler          Exclusive         CE         certification   R&D plan to be
Switzerla   company that            licensing      novel                                       worldwide         application          in    determined
nd          offers                  partnership;   hyaluronic acid                             license           progress
            innovative              no    equity   containing
            facial fillers          relationship   lidocaine

            Development                            F1                   Eliminate              Exclusive         The product has            Registration in
            of        relevant                                          benign                 distribution      been approved by           China        to    be
            medical                                                     pigmentation           rights in 34      FDA        for   510(k)    started
            devices          and                                        of the skin            Asian             and is expected to
            technologies in                                                                    countries         be available in the
            the      field     of                                                              and regions       US by the end of
R2 in the                           Shareholdin
            aesthetic                                                                          including         2020
United                              g
            medicine, such                         F2                   Whole       body       China,            Under R&D                  R&D plan to be
States                              company
            as dark spot                                                whitening              Japan       and                              determined
            removal using                                                                      South Korea
            freezing
            technology
            and              skin
            whitening

            Committed to                           Dynamic TGFR         Renal function         Rights      and   The        phase     III   IND       to       be
MediBeac    physiological                          monitoring           assessment             interests    in   critical     study    is   submitted          in
on in the   monitoring,                            system               through                25 countries      planned for 2020 in        China in 2020
                                    Shareholdin
United      surgical                                                    real-time              and regions       the United States;
                                    g company
States      guidance,                                                   TGFR                   in          the   PMA application is
            disease                                                     monitoring             Asia-Pacific      expected in 2021


                                                                          39
                                                                    The 2019 Annul Report of Huadong Medicine Co., Ltd.


         diagnosis, and                                                      region     (registration    of
         biocompatible                                                                  Class III medical
         optical                                                                        devices)
         equipment                    Gastrointestinal   Diagnosis      of              The POC trial to       R&D plan to be
         development                  monitoring         gastrointestinal               diagnose    Crohn’s   determined
         and                                             diseases                       disease has been
                                      system
         commercializa                                   through                        completed in the
         tion                                            gastrointestinal               United States
                                                         permeability
                                                         (GIP)
                                                         monitoring



     (6) Progress in consistency evaluation
     During the reporting period, the quality and efficacy consistency evaluation of the Company’s generic drugs

progressed smoothly. Cyclosporine Soft Capsules (25mg, 50mg) obtained the approval of supplementary

application for consistency evaluation. Acarbose Tablets (100mg) obtained the approval of supplementary

application for consistency evaluation. Pioglitazone-Metformin Tablets (15mg/500mg) obtained the acceptance

notice of supplementary application for consistency evaluation. Clarithromycin Tablets (0.25g) obtained the

acceptance notice of supplementary application for consistency evaluation. Cyclosporine Soft Capsules (10mg)

obtained the acceptance notice of supplementary application for consistency evaluation. Pioglitazone

Hydrochloride Tablets (30g) obtained the acceptance notice of supplementary application for consistency

evaluation. Materials of the supplementary application for consistency evaluation have been submitted for

Mycophenolate Mofetil Capsules (0.25g). Other varieties to be evaluated are in the stage of pharmaceutical

research, medium-scale trial and scale-up or process verification.



     (7) Patents

     In recent years, the Company attaches great importance to its own intellectual property protection and

achievement transformation and application, and the number of patent applications and granted patents has been

steadily increasing. Over the years, the Company has applied for more than 500 patents at home and abroad,

including more than 260 authorized patents for invention.

     During the reporting period, the Company successfully passed the supervision and verification of the

implementation of enterprise’s intellectual property standards, and declared the navigation project of enterprise

operation patents in Zhejiang Province concerning oral diabetes drugs. In 2019, Zhongmei Huadong submitted a


                                                           40
                                                                       The 2019 Annul Report of Huadong Medicine Co., Ltd.



total of 18 patent applications including 12 patents for invention; a total of 14 patents for invention were

authorized; it was rated as “2019 National Intellectual Property Demonstration Enterprise” by the State

Intellectual Property Office. In 2019, Sinclair obtained one European patent and one Russian patent.


R&D investment of the Company

                                              2019                             2018                       Percentage change

Number of R&D personnel
                                                           1,078                              550                              96%
(person)

Proportion of R&D personnel                              11.31%                             6.52%                             4.79%

R&D investment amount (yuan)                    1,054,842,676.50                   707,286,570.76                         49.14%

Proportion of R&D investment
                                                         10.04%                             8.62%                             1.42%
in operating revenue

Capitalized R&D investment
                                                             0.00                             0.00                              0%
amount (yuan)

Proportion of capitalized R&D
                                                           0.00%                            0.00%                               0%
investment in R&D investment

Note: (1) The proportion of R&D personnel is: the proportion of personnel in the Company’s subsidiaries mainly
engaged pharmaceutical production and manufacturing; the proportion of R&D investment in operating revenue is:
the proportion of R&D investment in new drugs in the operating revenue of the Company’s pharmaceutical
manufacturing.
(2) The R&D personnel of 2019 are: the total R&D personnel of the Company’s R&D system and the R&D
personnel of the production system, while the R&D personnel of 2018 are the number of R&D personnel of the
Company’s R&D system.
Reasons for the year-on-year significant change in the proportion of total R&D investment in operating revenue
√ Applicable □ N/A


     In 2019, the total direct and indirect expenditure on R&D of the Company and its major industrial wholly- or

partially-owned subsidiaries reached 1.055 billion yuan, a year-on-year growth of 49.14%, and the proportion of

R&D investment in the Company’s pharmaceutical manufacturing operating revenue increased by 1.42%

compared with the same period last year. The Company’s R&D investment is mainly used in the clinical research

of products under R&D, process improvement of existing products, entrusted technological development,

consistency evaluation, international registration and certification, etc. Most of the above R&D investment is

calculated as expenses in the current period, which do not need to be amortized in the following years. It will not

have a significant impact on the Company’s future business performance.



                                                                41
                                                                          The 2019 Annul Report of Huadong Medicine Co., Ltd.




Reasons for the significant change in the capitalization rate of R&D investment and its rationality
□ Applicable √ N/A


5. Cash flows

                                                                                                                     Unit: RMB yuan

               Item                              2019                            2018                      Year-on-year change

Cash inflows from operating
                                                38,801,282,424.47                34,527,594,657.56                            12.38%
activities

Cash outflows for operating
                                                36,799,584,253.80                32,488,098,574.30                            13.27%
activities

Net cash flow from operating
                                                 2,001,698,170.67                  2,039,496,083.26                            -1.85%
activities

Cash inflows from investing
                                                    74,637,287.55                  4,662,886,992.29                           -98.40%
activities

Cash outflows for investing
                                                 1,657,245,184.32                  6,223,628,251.72                           -73.37%
activities

Net cash flow from investing
                                                -1,582,607,896.77                 -1,560,741,259.43                             1.40%
activities

Cash inflows from financing
                                                 1,922,537,327.51                  2,134,859,129.38                            -9.95%
activities

Cash outflows for financing
                                                 2,531,134,823.51                  2,565,297,917.38                            -1.33%
activities

Net cash flow from financing
                                                  -608,597,496.00                   -430,438,788.00                           41.39%
activities

Net increase in cash and cash
                                                  -166,937,959.56                     25,889,881.24                         -744.80%
equivalents



Main influencing factors of significant changes in relevant data year on year
√ Applicable □ N/A
The cash inflows from investing activities in the current period are 75 million yuan, a year-on-year decrease of 4.588 billion yuan or
98.4%, mainly due to the large number of financial products redeemed in the previous period.
The cash outflows for investing activities in the current period are 1.657 billion yuan, a year-on-year decrease of 4.567 billion yuan
or 73.37%, mainly due to the large number of financial products purchased in the previous period.


Reasons for the significant difference between the Company’s net cash flow from operating activities and the current year’s net profit
during the reporting period
□ Applicable √N/A


                                                                  42
                                                                                   The 2019 Annul Report of Huadong Medicine Co., Ltd.


III. Analysis of non-main business

√ Applicable □ N/A
                                                                                                                                  Unit: RMB yuan

                                                 Proportion
                                                                                                                                  Sustainable or
                               Amount              in total                               Note on reasons
                                                                                                                                          not
                                                       profit

                                                                    Mainly due to the adjustment of contingent
 Non-operating
                            118,292,148.72               3.41%      consideration payments of Sinclair in the current             No
 revenue
                                                                    period

 Non-operating                                                      Mainly due to the donations and compensation
                              45,068,060.85              1.30%                                                                    No
 expenditure                                                        expenditure in the current period

 Gains on asset                                                     Mainly due to the confirmation of housing demolition
                            114,154,941.45               3.29%                                                                    No
 disposal                                                           and relocation funds in the current period

                                                                    Mainly due to the confirmation of government grants
 Other gains                113,635,429.90               3.27%                                                                    No
                                                                    in the current period




IV. Assets and liabilities

1. Major changes in asset composition

Since 2019, the Company has implemented new financial instrument standards, new income standards or new lease standards for the
first time, and adjusted and implemented items related to financial statements at the beginning of the year
√ Applicable □ N/A
                                                                                                                                  Unit: RMB yuan

                              End of 2019                        Beginning of 2019            Change
                                                                                                 of
                                       Proportion in                          Proportion in                       Note on major changes
                         Amount                                 Amount                        proportio
                                        total assets                           total assets
                                                                                                 n

                                                                                                          Mainly due to the increase of the
                    2,402,730,395.                       2,442,723,381.                                   Company’s total assets and the
Monetary funds                               11.19%                                 12.71%      -1.52%
                                  39                                     93                               decrease of the proportion of monetary
                                                                                                          funds in the current period

Accounts            6,092,305,184.                       5,633,011,225.
                                             28.38%                                 29.31%      -0.93% /
receivable                        47                                     41

                                                                                                          Mainly due to the increase of the
                    4,038,975,496.                       3,875,647,048.                                   Company’s total assets and the
Inventories                                  18.82%                                 20.17%      -1.35%
                                  93                                     31                               decrease of the proportion of
                                                                                                          inventories

Real estate            21,701,908.75          0.10% 23,841,968.85                    0.12%      -0.02% /


                                                                          43
                                                                          The 2019 Annul Report of Huadong Medicine Co., Ltd.


properties for
investment

Long-term equity 222,595,018.5                                                                Mainly due to the increase of equity
                                             1.04% 88,918,218.64              0.46%   0.58%
investments                       4                                                           investments in the current period

                    2,175,216,842.                  2,033,587,957.
Fixed assets                              10.13%                          10.58%      -0.45% /
                                 65                             65

                                                                                              Mainly due to the increase of
                                                                                              Zhongmei Huadong R&D platform
Constructions in    1,829,808,233.
                                             8.53% 617,004,995.98             3.21%   5.32% construction and Huadong Medicine
progress                         19
                                                                                              Biomedical Science and Technology
                                                                                              Park Project Phase II

Short-term             655,549,973.2
                                             3.05% 636,693,929.73             3.31%   -0.26% /
borrowing                         7


2. Assets and liabilities measured at fair value

□ Applicable √ N/A


3. Limitation of asset rights at the end of the reporting period

                                                                                                                      Unit: RMB yuan

Item                                           Book value at the end of the period                  Reason for limitation
Monetary funds                                                         170,958,848.89                   Cash deposit
Bills receivable                                                       149,235,686.25                     Bill pledge
Real    estate          properties     for                                2,103,865.43 Mortgage guarantee for borrowing
investment
Fixed assets                                                             58,428,133.40 Mortgage guarantee for borrowing
Intangible assets                                                         4,509,292.49 Mortgage guarantee for borrowing
Total                                                                  385,235,826.46


V. Investment

1. Overview

√ Applicable □ N/A

 Investment amount in the reporting period     Investment amount in the same period of
                                                                                                      Percentage change
                   (yuan)                                  last year (yuan)

                            1,965,240,000.00                           2,533,800,000.00                                       -22.44 %




                                                                  44
                                                                                   The 2019 Annul Report of Huadong Medicine Co., Ltd.


Note: The investment amount in the reporting period refers to the total capital expenditure in the reporting period.

2. Significant equity investments acquired during the reporting period

√ Applicable □ N/A


                                                                                                                        Unit: RMB ten thousand yuan

                                                                                                                Profit
 Name                                                                                     Progres              or loss
     of                                                                                    s as of                of      Involve               Disclos
              Main   Way of Investm Shareh                          Term of                          Project                         Disclos
investe                                            Capital                     Product         the             investm      d in                  ure
          busines investm         ent     olding             Partner investm                             ed                          ure date
      d                                            source                          type   balance               ent in litigatio                index
                s      ent      amount     ratio                        ent                          income                          (if any)
compan                                                                                     sheet                 the      n or not              (if any)
      y                                                                                     date               current
                                                                                                               period

          R&D
          of
          biologi
          cal
          chemic
          al
                                                                                          The
Chongq product
                                                                                          first
ing       and        Capital
                                                                                          capital              No
Peg-Bi technol increas
                                                   Own                                    increas              profit
o         ogies;     e and      21,000 39.80%                /      /          R&D                   /                    No         N/A        N/A
                                                   funds                                  e has                for the
Biopha R&D           equity
                                                                                          been                 time
rm Co., of           transfer
                                                                                          complet              being
Ltd.      ferment
                                                                                          ed
          ation
          process
          optimiz
          ation
          technol
          ogy

          Develo                                                               Develo The
          pment                                                                pment      first
          of                                                                   of         investm              No
R2
          aestheti Capital USD                                                 aestheti ent of                 profit
Dermat                                             Own
          c          increas 30           34%                /      /          c          USD        /         for the No            N/A        N/A
ology,                                             funds
          medicin e             million                                        medicin 10                      time
lnc.
          e                                                                    e          million              being
          equipm                                                               equipm has
          ent                                                                  ent        been


                                                                        45
                                                                                       The 2019 Annul Report of Huadong Medicine Co., Ltd.


                                                                                                complet
                                                                                                ed, with
                                                                                                a
                                                                                                shareho
                                                                                                lding of
                                                                                                16.6%

                                                                                                    The
           Develo                                                                     Develo        first
           pment                                                                      pment     investm
           of                                                                         of            ent of
           contrast                                                                   contrast USD
           agents                                                                     agents         15                   No
Medi       with        Capital        USD                                             with      million                 profit
                                                    Own
Beacon good            increas         30 8.14%               /          /            good           has     /          for the No         N/A      N/A
                                                    funds
Inc.       biocom e               million                                             biocom        been                time
           patibilit                                                                  patibilit complet                 being
           y and                                                                      y and     ed, with
           related                                                                    related         a
           equipm                                                                     equipm shareho
           ent                                                                        ent       lding of
                                                                                                    4.3%
Note: 1. During the reporting period and as of the first quarter of 2020, the Company’s wholly-owned
subsidiary Zhongmei Huadong has invested a total of 210 million yuan in Chongqing Peg-Bio to acquire
39.80% of its equity through two capital increases, combined with acquisition of minority shares, and thus
became its second largest shareholder. So far, 190 million yuan has been invested, and the remaining 20
million yuan will be paid according to the contract schedule.
2. The Company has invested USD 30 million in R2 Dermatology, Inc. By April 26, 2020, USD 20 million
of equity investment has been paid, and the remaining USD 10 million will be paid according to the contract
schedule.
3. The Company has invested USD 30 million in Medi Beacon Inc. By April 26, 2020, USD 15 million of
equity investment has been paid, and the remaining USD 15 million will be paid according to the contract
schedule.


3. Significant non-equity investments in progress during the reporting period

√ Applicable □ N/A
                                                                                                                                            Unit: RMB yuan

                                                             Cumulati                                        Cumulati Reasons
                                                 Investme
                                      Industry               ve actual                                             ve          for not
                         Investme                   nt
                                      involved               investme                                            income     meeting
                Way of      nt in                amount                                                                                  Disclosu Disclosu
 Project                               in the                     nt     Capital       Project Projected realized                the
            investme       fixed                  during                                                                                 re date    re index
  name                                investme               amount          source    progress income           by the     planned
                  nt      assets or                the                                                                                   (if any)   (if any)
                                         nt                   by the                                             end of     schedule
                            not                  reporting
                                       project                end of                                              the            and
                                                  period
                                                                  the                                        reporting projected


                                                                               46
                                                                                               The 2019 Annul Report of Huadong Medicine Co., Ltd.


                                                               reporting                                                  period        income
                                                                 period

Huadong                                                                                                                                             March 9, http://w
Medicin                                                                                                                                             2017       ww.cninf
e                                                                                                                                                              o.com.cn
Biomedi
                                      Pharmac
cal
             Self-built               eutical       895,157, 1,328,42 Own
Science                   Yes                                                                  55.00%                /             / N/A
             project                  manufact           221.60 4,238.71 funds
and
                                      uring
Technolo
gy Park
Project
Phase II

                                                    895,157, 1,328,42
Total            --             --        --                                      --             --                  /             /      --           --         --
                                                         221.60 4,238.71


4. Investment in financial assets

(1) Securities Investment

√ Applicable □ N/A


                                                                                                                                                        Unit: RMB yuan

                                                                      Gain/los Accumu
                                                              Book
                                                                      s from           lative     Purchas
                                                Account value at                                                 Selling Gain/los Book
                                                                          fair          fair            e
                          Stock      Initial        ing        the                                               amount s during value at
Type of       Stock                                                    value           value      amount                                             Account Capital
                        abbrevia investm measure beginni                                                         in the      the         the end
    stock     code                                                    changes changes                 in the                                         ing item source
                          tion       ent cost    ment         ng of                                              current reportin of the
                                                                       in the included current
                                                model          the                                               period g period period
                                                                      current            in           period
                                                             period
                                                                      period           equity

    Dome                                                                                                                                              Other
                                                Fair
    stic                                                                                                                                              equity
                                      20,20     value         20,20       21,80        21,80          20,20                  21,80        42,00
    and                                                                                                                                               instru    Own
             RAPT         RAPT       7,400.     measu        7,400.    1,854.          1,854.         7,400.                1,854.       9,254.
    overs                                                                                                                                             ment      funds
                                         00     remen            00         79            79                00                     79          79
    eas                                                                                                                                               invest
                                                t
    stock                                                                                                                                             ment

    Other securities
    investments held at the                         --                                                                                                  --        --
    end of the period




                                                                                  47
                                                                            The 2019 Annul Report of Huadong Medicine Co., Ltd.


                              20,20              20,20    21,80         21,80    20,20          21,80   42,00
 Total                        7,400.        --   7,400.   1,854.        1,854.   7,400.        1,854.   9,254.       --   --
                                 00                 00       79            79       00            79       79

 Date of announcement of
 the Board of Directors on
                             N/A
 securities investment
 approval

 Date of announcement of
 the Board of
 Shareholders on             N/A
 securities investment
 approval (if any)
      Note: During the reporting period, Huadong Medicine Investment Holding (Hong Kong) Co., Ltd., a
subsidiary of the Company, invested USD 3 million to purchase 218,102 preferred shares of RAPT Therapeutics,
Inc. in C-2 series. RAPT Therapeutics, Inc. (stock code: RAPT) was listed on the NASDAQ Stock Exchange on
October 30, 2019. Huadong Medicine Investment Holding (Hong Kong) Co., Ltd. holds 0.91% of the total shares
of RAPT Therapeutics, Inc.

(2) Derivatives investment

□ Applicable √ N/A
No such case during the reporting period.


5. Use of raised funds

□ Applicable √ N/A
No such case during the reporting period.


VI. Major assets and equity sales

1. Major assets sales

□ Applicable √ N/A
No such case during the reporting period.


2. Major equity sales

□ Applicable √ N/A


VII. Analysis of wholly-partially owned and shareholding companies

√ Applicable □ N/A
Main subsidiaries and the shareholding companies that have an impact on the Company’s net profit of more than 10%


                                                                   48
                                                                           The 2019 Annul Report of Huadong Medicine Co., Ltd.


                                                                                                                         Unit: RMB yuan

  Company                              Main       Registered                                  Operating      Operating
               Company type                                     Total assets    Net assets                                   Net profit
    name                          business            capital                                 revenue         profit

                                Production
                                and
                                management
Hangzhou                        of Traditional
Zhongmei                        Chinese and
                                                                8,184,324,20 5,705,834,45 10,507,745,8 2,530,825,85 2,197,743,34
Huadong        Subsidiary       Western raw 872,308,130
                                                                         2.84          4.48        23.08           0.63             4.46
Pharmaceutic                    medicines
al Co., Ltd.                    and
                                preparations,
                                and health
                                care products

Huadong                         Sales of
Ningbo                          biological                      1,084,256,65 620,882,917. 1,666,221,69 260,927,747. 191,684,987.
               Subsidiary                        5,000,000
Medicine                        products as                              9.62            22         0.42               76             77
Co., Ltd.                       proxy

                                Wholesale of
                                TCM
                                materials,
Huadong
                                TCM
Medicine                                                        1,079,378,53 202,402,011. 2,571,247,12 26,292,169.4 20,384,390.6
               Subsidiary       decoction        61,300,000
Wenzhou                                                                  4.86            73         7.39                 8                7
                                pieces,
Co., Ltd.
                                chemical
                                preparations,
                                etc.

Huadong
Medicine
                                Warehousing
Supply Chain                                                    154,557,858. 111,995,746. 158,166,197. 17,479,057.3 12,546,378.1
               Subsidiary       and storage      50,729,863
Management                                                                41             67             29               5                9
                                services
(Hangzhou)
Co., Ltd.

                                R&D,
                                production
Sinclair
                                and sales of     219,962,963. 936,190,063. 395,565,859. 509,190,691. 33,748,752.6 119,556,109.
Pharma         Sub-subsidiary
                                aesthetic        92                       02             60             24               2            67
Limited
                                medicine
                                products



Acquisition and disposal of subsidiaries during the reporting period
√ Applicable □ N/A


                                                                    49
                                                                    The 2019 Annul Report of Huadong Medicine Co., Ltd.


                                          Methods of acquisition and disposal of     Impact on the overall production, operation
               Company name
                                          subsidiaries during the reporting period                  and performance

                                                                                     Expanding the coverage of medicine
Huadong Medicine Jinhua Co., Ltd.       New subsidiary
                                                                                     business network in Zhejiang Province

                                                                                     Expanding the coverage of medicine
Huadong Medicine (Hangzhou) Co., Ltd.   Equity acquisition
                                                                                     business network in Zhejiang Province

Huadong Medicine Skin Management                                                     The Company’s international aesthetic
                                        New subsidiary
(Hong Kong) Co., Ltd.                                                                medicine business investment platform

                                                                                     International aesthetic medicine business
Huadong Ningbo Medicine (Hong Kong)
                                        New subsidiary                               development platform of the Company’s
Co., Ltd.
                                                                                     subsidiaries

                                                                                     The Company’s international aesthetic
Sinclair Pharma Australia Pty Ltd       New subsidiary
                                                                                     medicine business development platform

                                                                                     Adjustment of Sinclair’s international
Medicalio SL                            Cancellation
                                                                                     aesthetic medicine regional business




VIII. Structured entities controlled by the Company

□ Applicable √ N/A


IX. Prospect of the Company’s future development


1. Macro-economy and the development & prospect of medicine industry

      In 2019, the global economic growth slowed down, global trade protectionism continued to

spread, and Sino-US trade frictions were deadlocked. In the context of increasing uncertainties in

global economic development, downward pressure on economic growth has increased significantly.

Represented by the Trump administration’s “America First” policy and Britain’s “Brexit”, the risk

of trade protectionism is on the rise in the US and Europe, and the global economy is weakening.

      With the further opening-up of China’s economy, the external environment continues to

increase its impact on China’s economy. The domestic economic structure is in a critical period of

transformation and upgrading, and the demand for enterprise innovation and upgrading and

structural adjustment is increasingly strong. Domestic manufacturing enterprises are facing fierce

external competition and enormous policy pressure.

      The international medicine industry is in a period of renewal. Patent drugs are expiring across

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the globe, competition for generic drugs is escalating, and the global medicine market is

accelerating its shift to emerging markets; the R&D cycle and market demand for innovative drugs

have a greater impact on the treatment field. In the context of global economic downturn, drastic

cuts in health care costs have become the trend.

     Multinational medicine companies take the initiative with their abundant product pipelines,

accelerating the review and launch of international innovative drugs in China. Meanwhile,

competition in the domestic market for generic drugs with expired patents has become increasingly

fierce, and prices have been sharply reduced in local bid invitations and national centralized

purchasing. All these will bring fierce market competition and operating pressure to domestic

generic drug enterprises.

     The medicine industry is an important industry related to the national economy and people’s

livelihood, a key area of “Made in China 2025” and strategic emerging industries, and an important

guarantee for promoting the construction of a Healthy China. According to IQVIA, global drug

spending in 2019 was close to USD 1.3 trillion, with overall growth of 4-5%. China has become the

world’s second largest medicine market. According to the data of the National Bureau of Statistics,

in 2019, the cumulative operating revenue and total profit of domestic industrial enterprises above a

certain scale in the pharmaceutical manufacturing industry were 2390.86 billion yuan and 311.95

billion yuan, respectively, with year-on-year growth of 7.4% and 5.9%, both higher than the level of

industrial enterprises above a certain scale in China in the same period. In 2019, the growth of

industrial added value above a certain scale in the pharmaceutical manufacturing industry slowed

down to 6.6%, down 3.1 percentage points from 2018 and 0.9 percentage points higher than that of

the whole country in the same period.

2. Development trend of medicine industry

     In recent years, China’s medicine industry is undergoing profound changes driven by policies.

Influenced by the medical insurance fee control, the centralized purchasing of generic starting at the

end of 2018 is the first market-oriented reform of domestic drug purchase, which also brings a value

orientation of focusing on patients to the medicine industry. This market-oriented reform has


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brought about a sharp reduction in the price of domestic original drugs with expired patents and

price competition among mature generic drugs, reshaping the circulation value chain of the

medicine industry. Although it has brought the medicine industry into the new normal of overall

growth slowdown, it has also promoted the future standardization and centralization of the medicine

industry, accelerated its integration into the international market, facilitated the transformation and

upgrading of pharmaceutical enterprises, and increased the development of high-end generic drugs

and the investment in innovative drugs. The layout of generic drug and innovative drug business

and varieties, the selection of global supply chain systems, quality and cost control, and the

establishment of differentiated products will all be important considerations for the future market

strategies of pharmaceutical companies.

     China’s medicine industry is embracing a new pattern driven by policy. The development

theme of the medicine industry has gradually shifted from imitation to innovation, and

pharmaceutical innovation has become the core driving force to support the future development of

enterprises, as well as the inevitable choice of medicine enterprises. The revised “The

Pharmaceutical Administration Law of the People's Republic of China” came into force on

December 1, 2019, and its general provisions clearly stipulate that the state encourages new drug

R&D. The state has strengthened policy support for innovative drugs, which is not only reflected in

the reform of approval processes such as the MAH system, the clinical value orientation and the

implementation of innovative review mechanism, but also in the continuous improvement of

medical insurance payments. The guidance and application of pharmacoeconomics in medical

insurance negotiation, and the gradual implementation of DRGs (disease diagnosis groups) have

played a positive role in changing medical behavior, reducing the proportion of unreasonable drug

use, and promoting the return of products to clinical value. The introduction of these policies

indicates that the medical insurance assessment mechanism will focus on medical quality and safety

instead of fee control, and China’s medicine industry will be more strictly regulated, the medicine

market will become more standardized, and the survival of the fittest will become more severe. In

the future, benefited by the national policy of encouraging innovation, pharmaceutical enterprises


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will be greatly promoted in their enthusiasm for R&D and innovation, the domestic chemical and

pharmaceutical industry will be reshaped, and medicine enterprises will be promoted to transform

and shift their focus from common generic drugs to such fields as high-quality generic drugs,

improved new drugs, innovative drugs, and biological drugs.

     With the further institutionalization and standardization of drug evaluation, the administrative

penalties for drug-related violations have been strengthened. This requires medicine enterprises to

integrate the concepts of “compliance” and “risk control” into the production, R&D, management,

marketing and operation. Domestic medicine enterprises can promote their own sustainable

development only when they have a deep understanding of and conform to the development trend

of China’s medicine industry, embrace innovation, seize opportunities, and make improvement in

such aspects as commercialization capacity, clinical value of drugs, academic promotion, clinical

influence, business strategies, policy affairs and market access.

3. The Company’s development plan

     The Company has formulated a brand-new development strategy based on the medicine and

health industries, taking the medicine industry as the leading role and expanding medicine business

and aesthetic medicine business. Adhering to the philosophy of “scientific research-based and

patient-oriented”, the Company plans to become a strong international medicine enterprise driven

by scientific research and innovation.

     Development plan for medicine innovation:

     (1) Focus on the core treatment field; shift from imitation to innovation and from following to

leading. In the future scientific research and innovation, the Company will be oriented to meet the

clinical needs, focus on the medium- and long-term product pipeline layout, and attach equal

importance to the upgrading of generic drugs and the development of innovative drugs. The R&D

of generic drugs should be high-tech, differentiated, fast and cost-effective. The R&D of innovative

drugs should be international with a high starting point, a wide track and new targets. Taking

innovative drugs as the basis and direction for building the core competitiveness in the future, the

Company will focus on developing innovative drugs with outstanding clinical value and generic


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drugs with high-tech barriers in serious and chronic disease fields such as anti-tumor, internal

secretion and autoimmity, and closely track the technological development and R&D trends in

frontier fields such as biological drugs, gene therapy and antibody drugs at home and abroad. With a

scientific and pragmatic attitude, combined with its own ability and risk matching degree, the

Company will start from differentiated innovation and gradually move towards the breakthrough

innovation mode of “number one/best of its kind”, accelerate integration into the innovation and

value chains of global new drug innovation, move from “new in China” to “new in the world”, and

continuously raise its innovation level.

     (2) Increased R&D investment; continuous enrichment and optimization of product pipelines.

Since 2020, the Company’s annual R&D expenses have accounted for more than 10% of the sales

revenue of the medicine industry, providing sufficient material guarantee for innovation. With the

increase of investment, the use efficiency of R&D funds should be improved. Through independent

project initiation and external introduction, the Company strives to complete at least 15 innovative

projects (including drugs, medical devices, etc.) each year, of which at least 3 innovative drug

projects should be initiated, so that each existing product line is complemented and led by

innovative products, eventually building abundant product pipelines and a good product mix, thus

forming a healthy development pace with innovative products going on the market from 2022

onwards. The Company will strive to achieve the goal that the innovation business segment should

account for 30% of the total industrial operating revenue by 2025.

     (3) Accelerated introduction of high-level talents and building of high-level research teams.

The Company will focus on the introduction of R&D leaders and high-level R&D technicians with

rich working experience, strengthen the internal R&D system and technology platform construction,

and actively promote the construction of domestic and overseas R&D platforms. It will also create

an innovative cultural environment and atmosphere that encourages innovation and success and

tolerates failure, and establish a success-oriented market-oriented performance mechanism. A

pioneering and innovative scientific research team with outstanding ability, open mind, passion and

courage will be built to facilitate the implementation of the Company’s innovative


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internationalization strategies. The Company will establish a dynamic evaluation mechanism for

R&D projects, and set up an external expert academic committee to assist the Company in the

decision-making and management of R&D and product introduction, so as to ensure scientific,

advanced and feasible research innovation.

     (4) Deepening of all-round cooperation with overseas partners and product introduction and

construction of a global R&D strategic collaboration ecosystem centered on Zhongmei Huadong.

The Company will integrate and connect external advantageous resources and technologies,

promote the introduction and development of high-quality innovative projects through cooperative

development, authorization & licensing or acquisition, etc., and continuously enrich its product

pipelines and improve the medium- and long-term layout of innovative products. It will also

enhance the international operating capability of products, and properly license its superior products

and advanced technologies and patents to external agencies.

     Development plan for Huadong business:

     With service as its core and innovation as the driving force for transformation, the Company

will stick to in-depth exploration in Zhejiang, continue to enhance its brand influence and maintain

its leading position in the industry in Zhejiang Province; pay equal attention to scale and benefits

instead of pursuing simple scale expansion; pursue high-quality and sustainable benefits through

fine management; perfect the modern medicine logistics network covering Zhejiang Province, and

make every effort to build a high-end third-party medicine logistics featuring cold chain to enhance

value-added service capability; drive the market network and channel resources with the help of

commerce, transform and upgrade the traditional business model, actively develop new business

models such as general agency, business trusteeship, BTC pharmacy, and cultivate innovative

business; consolidate the in-hospital market, expand the out-of-hospital market, use the Internet

platform and new technologies such as big data, artificial intelligence and the Internet-of-Things to

innovate services to suppliers, extend the service supply chain, accurately connect downstream

medical institutions and upstream pharmaceutical enterprises, and gradually develop value-added

services for the modern medicine sector, taking the road of sustainable development.


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     Development plan for aesthetic medicine:

     The aesthetic medicine industry has a broad prospect. The Company, with the layout of

“aesthetic medicine” as an important way to implement the strategy of “big health + big

consumption”, will uphold the “customer-oriented” service concept, focus on the huge consumer

market of facial micro-plastic surgery and skin care, and continuously enrich its product portfolio

on the basis of consolidating its leading position in the aesthetic medicine market in China. With

Sinclair as the international aesthetic medicine operation platform, it will set up a professional and

international talent team, actively introduce international high-end aesthetic medicine products and

expand global market business, create high-end brands in the industry, and provide healthy, safe,

effective and personalized overall aesthetic medicine solutions to global customers.

7. The Company’s operating plan for 2020

     The year 2020 will be a year of continuous great changes in the medicine industry and great

differentiation of medicine enterprises, as well as the 20th anniversary of the Company’s listing and

the key year for the comprehensive implementation of strategic transformation and

internationalization. It is bound to be one of the most difficult years in the Company’s history. In the

transition period of accelerating R&D and product pipeline adjustment, the Company is faced with

drastic changes in national policies and the medicine market; it failed to win the bid for national

centralized purchasing of Acarbose Tablets, and has been affected by the COVID-19 outbreak at

home and abroad. In the short term, it is faced with the severe test of weakened growth momentum

and slowing growth.

     In 2020, the Company will adhere to the strategy of R&D innovation and internationalization

under the annual operating policy of “seeking common survival, seeking steady development, and

strengthening innovation and deepening transformation”. It will fully implement various innovative

measures, continue to deepen reform, adjust the organizational structure, optimize the incentive

mechanism, strengthen cost and expense reduction, strive for progress, overcome difficulties, and

strive to achieve the operating objective of continuous growth throughout the year.

     (1) R&D: In 2020, the Company will put scientific research innovation at the top of all its

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work, further strengthen and perfect the R&D system combining imitation and innovation, and

complete the appointment of the Company’s chief scientific officer and the continuous introduction

of high-end R&D talents. Through the comprehensive diagnosis and identification of the weak links

and pain points in R&D, the Company will define the reform direction, and complete the top-level

design of the R&D system and the reform of the organizational structure. It will intensify the

construction of innovative platforms and the integration of resources, continuously optimize the

project management mechanisms (BD coordination mechanism, project PM mechanism, project

committee mechanism and dynamic evaluation mechanism for products under R&D), optimize the

process of project selection, project initiation and approval in all aspects, and gradually phase out

the generic drug projects without market competitiveness through dynamic evaluation; focus on the

R&D of innovative drugs and generic drugs with high technical barriers, supplement and improve

the series of products in each product field of the Company, and achieve mutual supplement and

timely upgrade and substitution of the same series of products. It will speed up the registration

application for generic drug projects that have obtained clinical approval documents, complete the

phase III clinical trial for Liraglutide and phase II clinical trial for Mefatinib as soon as possible. It

will accelerate the progress of registration and approval, strive to establish 15 innovative products,

obtain more than 4 production approvals and complete 15 patent applications in the year.

     (2) Medicine industry: The Company will continue to accelerate the transformation and

upgrading of the production system, continue to make use of the MAH diversified cooperation

mode, and build a brand-new Huadong medicine production and operation system adapted to the

new policies and market environment through strategic cooperation, entrusted production and

supplier development.

     The Company will properly carry out production and provide supply guarantee, deliver

products in a compliant and high-quality manner, further improve the control system in such aspects

as R&D, production, quality and sales, and focus on product quality improvement, cost control and

R&D innovation. It will continue to carry out “three reductions”, improve the technical level

through technological progress and internal potential tapping, improve the operation efficiency


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through lean production, continuously reduce production costs, realize the “high-quality, low-cost”

operation management and production objectives, enhance its market competitiveness in terms of

cost, and strengthen the safety training for all employees and raise the awareness of production

safety.

     The Company will promote the construction of production parks as planned, and ensure safe

construction, efficient management and compliant production. It will complete the capital

construction of Jiangdong Phase II, complete intensive registration and certification preparations for

large-scale product transfer, complete the equipment verification of Jiangdong Phase II Project

before the end of 2020, and strive to put it into use in 2021.

     The Company will continue to strengthen quality compliance and GMP normalization

management, speed up the construction of the talent team in the quality system, improve work

efficiency, accelerate drug quality consistency evaluation and international registration, and further

enrich its international product list. It will improve the collective management of the quality system

mode and post-marketing pharmacovigilance to ensure the efficient operation of future multiple

production forms.

     (3) Zhongmei Huadong’s marketing and pharmaceutical services: In the severe market

environment, it is necessary to maintain strategic focus, actively respond to the new challenges in

the market after the failure to win the bid for the national centralized purchasing of Acarbose

Tablets, and deepen the transformation of marketing models. It will optimize and adjust the

marketing strategies, the marketing team structure and the personnel, and strengthen patient

education and the promotion of the clinical value of products, build a team for clinical promotion of

innovative drugs, improve the new academic promotion system of whole products with academic

marketing as the core, consolidate the foundation of compliance marketing, make good promotion

plans for each product under the new situation, focusing on the cultivation of potential varieties:

Acarbose Chewable Tablets should be promoted in the national market so that it can enter more

than 90% of Grade III hospitals in China; the sales of Pioglitazone-Metformin Tablets and

Indobufen Tablets should increase by more than 100% year on year. It will properly carry out the


                                                   58
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comprehensive development of Bailing series products as well as the sales promotion in the primary

and self-paying markets.

     The Company will continue to give full play to its overall marketing advantages, closely

follow the trend of prescription outflows after the implementation of hierarchical diagnosis and

treatment, firmly expand and continue to sink marketing channels, speed up the deployment in key

markets, and vigorously expand the primary market, out-of-hospital market and OTC retail market.

The number of hospitals covered by the primary market should double year on year.

     (4) Human resources: The Company will continue to raise the level of human resources

management, strengthen the building of talent reserves and teams, vigorously introduce high-end

and scarce talents in the field of innovative drug R&D, optimize the enterprise organization and

human resources allocation, promote both incentives and efficiency, and constantly improve the

efficiency of human resources. It will further strengthen the cultivation of cadres, continue to

strengthen ideological education for cadres, strengthen the management of their rights and

responsibilities, allocation, assessment and motivation, and establish an assessment mechanism with

the goal of “abandoning mediocrity and pursuing excellence”. It will accelerate the development

and practice of a mechanism for the movement of cadres, and cultivate versatile talents who are

willing to take on responsibilities and explore new areas.

     (5) Medicine business company: It will actively face the new challenges after the

implementation of centralized purchasing in Zhejiang Province and continue to improve its

comprehensive service capability, implement differentiated in-hospital and out-of-hospital market

service modes, combine with “Internet medical care” and “continuous prescription for chronic

diseases”, extend services to end patients, and create a closed-loop innovative service with

prescription outflow, adhere to the in-depth development in the Zhejiang market, and accelerate the

development of high-end third-party logistics services featuring “cold chain” and special medicine

distribution supported by the logistics system covering Zhejiang Province with “order fulfillment

rate” as the starting point.

     The Company will promote innovative business modes, continue to expand cooperation with


                                                  59
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multinational medicine companies and domestic innovative drug R&D enterprises, steadily promote

CSO team building, strengthen e-commerce business, cooperate with Internet platforms, and

continue to develop BTB and BTC business.

     The Company will deepen the organizational restructuring of its business company, strengthen

financial budget management, continuously improve the management and operation efficiency

through the ERP information system, actively overcome the impact of the COVID-19 outbreak,

ensure the completion of the three major operating assessment indicators (annual main operating

revenue, net profit, and capital return rate), and strive to maintain year-on-year growth in overall

income and net profit.

     (6) Aesthetic medicine: The Company will improve the international operation system,

actively carry out research and project introduction of high-tech new products and new technologies

in the field of aesthetic medicine worldwide, continue to promote the structural adjustment of

aesthetic medicine products and the development of innovative business, and complete the

registration and launch of core products such as Ellanse and R2-SPA in the Chinese market in 2020

as planned. It will speed up the construction of a promotion team of new aesthetic medicine

products, properly plan and implement the launch and promotion of products, actively reduce

expenses and costs, carry out brand promotion and customer relationship maintenance, and strive to

reduce the impact of the continued COVID-19 outbreak on the Company’s aesthetic medicine

business at home and abroad in 2020, laying a solid foundation for normal operation after the

pandemic.

X. Risks and countermeasures


1. Industry policies and market impact

      At present, China has continuously deepened reform in the field of medicine and health, and

various policies have been introduced intensively. Policies such as national centralized purchasing,

generic drug consistency evaluation, two-vote system, new drug approval, control of the proportion

of hospital drugs, secondary price negotiation in hospitals, and close medical association will have a
significant impact on the R&D, production, and circulation of drugs. At the same time, with the

                                                  60
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implementation of medical insurance fee control, the reform of payment methods, and the further

implementation of the generic drug centralized purchasing policy, some drugs will face the risk of

further price reduction.

     Countermeasures:

     The Company will pay close attention to, analyze and grasp major national medicine policies

and industry development trends, strengthen the layout of innovative varieties and R&D investment

through endogenous development and outward extension, reduce production and operation risks

through lean production, fully implement the international development strategy and improve the

technological quality advantages of products with international standards. It will continue to tap the

advantageous products and subdivisions of aesthetic medicine to create new profit points. It will

vigorously expand grassroots communities and OTC markets, and increase the coverage of primary

and retail terminal markets to maintain stable growth in operations.

2. New drug R&D risk

     New drug R&D involves a long cycle, large investment and many uncertainties. In the R&D

process, there are also risks such as shortage of high-level talents, failure to obtain registration and

approval for new drug R&D due to curative effect or safety reasons. After new drugs hit the market,

there are also risks such as market demand test, purchasing by bidding, medical insurance payment
access, and market competition for similar products. In addition, the investment in R&D will also

bring certain pressure to the realization of the Company’s current operating objectives.

      Countermeasures: The Company will continue to increase investment in new drug R&D,

optimize the innovation mechanism, improve the scientific new drug research evaluation and

decision-making system, and establish close ties with well-known R&D institutions at home and

abroad, focus on the core treatment fields, continue to enrich and optimize the product pipelines

through independent project establishment and external introduction, vigorously develop innovative

drugs and generic drugs with high technical barriers, and gradually eliminate the backward varieties

that are not competitive in the market, increase the introduction of high-level research personnel,

build a research team that covers the entire development cycle of new drugs, and strengthen the
training and encouragement of core technical personnel, and accelerate the construction of

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high-standard medicine R&D centers and pilot test bases.

3. Price reduction risk

        With the intensified competition in the medicine market and the further promotion of the

national centralized purchasing policy, domestic medicine enterprises will face the pressure of

policy-based price reduction for a long time. There will be more competitive manufacturers of

similar products, leading to the risk of failure in bidding, which is also a negative factor affecting

the Company’s business performance.

        Countermeasures: Focusing on scientific R&D and technological innovation, the Company

will improve the technological quality advantages of its products with international standards,

strengthen internal management and technological upgrading, strengthen cost competitive

advantages, carry out marketing assessment and incentives and channel sinking, continue to expand

the professional promotion team of county-level markets, vigorously expand primary communities

and OTC markets, and increase the coverage of primary and retail terminal markets to maintain

stable market growth.

XI. Activities of receptions, including research, communication and interview

1. Registration form of receptions, including research, communication and interview, undertaken during
the reporting period

√ Applicable □ N/A
                                                                               Index of basic information of the
            Date                  Method                Type of visitor
                                                                                            research

                                                                           Please refer to “Huadong Medicine:
                                                                           000963 Huadong Medicine information
                                                                           on research activities: January 18, 2019”
January 16, 2019        Field research        Institution
                                                                           presented on the websites of
                                                                           irm.cninfo.com.cn and cninfo.com.cn for
                                                                           details.

                                                                           Please refer to “Huadong Medicine:
                                                                           record of investor relations activities:
February 19, 2019       Field research        Institution                  February 19 and 20, 2019” presented on
                                                                           the websites of irm.cninfo.com.cn and
                                                                           cninfo.com.cn for details.

February 20, 2019       Field research        Institution                  Please refer to “Huadong Medicine:



                                                   62
                                                            The 2019 Annul Report of Huadong Medicine Co., Ltd.


                                                                              record of investor relations activities:
                                                                              February 19 and 20, 2019” presented on
                                                                              the websites of irm.cninfo.com.cn and
                                                                              cninfo.com.cn for details.

                                                                              Please refer to “Huadong Medicine:
                                                                              record of investor relations activities:
                                              Institution and individual
April 19, 2019   Communication by phone                                       April 19-24, 2019” presented on the
                                              investor
                                                                              websites of irm.cninfo.com.cn and
                                                                              cninfo.com.cn for details.

                                                                              Please refer to “Huadong Medicine:
                                                                              record of investor relations activities:
                                              Institution and individual
April 23, 2019   Communication by phone                                       April 19-24, 2019” presented on the
                                              investor
                                                                              websites of irm.cninfo.com.cn and
                                                                              cninfo.com.cn for details.

                                                                              For details, please refer to “Huadong
                                                                              Medicine: record of investor relations
April 24, 2019   Field research               Institution                     activities: April 19-24, 2019” presented
                                                                              on the websites of irm.cninfo.com.cn and
                                                                              cninfo.com.cn for details.

                                                                              Please refer to “Huadong Medicine:
                                                                              000963 Huadong Medicine information
                                              Institution and individual      on research activities: January 18, 2019”
April 30, 2019   Communication by phone
                                              investor                        presented on the websites of
                                                                              irm.cninfo.com.cn and cninfo.com.cn for
                                                                              details.

                                                                              Please refer to “Huadong Medicine:
                                                                              record of investor relations activities:
                                              Institution and individual
May 28, 2019     Communication by phone                                       May 28-29, 2019” presented on the
                                              investor
                                                                              websites of irm.cninfo.com.cn and
                                                                              cninfo.com.cn for details.

                                                                              Please refer to “Huadong Medicine:
                                                                              record of investor relations activities:
May 29, 2019     Field research               Institution                     May 28-29, 2019” presented on the
                                                                              websites of irm.cninfo.com.cn and
                                                                              cninfo.com.cn for details.

                                                                              Please refer to “Huadong Medicine:
                                                                              record of investor relations activities:
                 Shareholders’ meeting and   Institution, shareholder
                                                                              June 6, 2019 (investor reception day
June 06, 2019    investor reception day       representative and individual
                                                                              activities)” presented on the websites of
                 activities                   investor
                                                                              irm.cninfo.com.cn and cninfo.com.cn for
                                                                              details.

July 18, 2019    Field research               Institution                     Please refer to “Huadong Medicine:


                                                   63
                                                                        The 2019 Annul Report of Huadong Medicine Co., Ltd.


                                                                                       record of investor relations activities:
                                                                                       July 18-19, 2019” presented on the
                                                                                       websites of irm.cninfo.com.cn and
                                                                                       cninfo.com.cn for details.

                                                                                       Please refer to “Huadong Medicine:
                                                                                       record of investor relations activities:
July 19, 2019                Field research               Institution                  July 18-19, 2019” presented on the
                                                                                       websites of irm.cninfo.com.cn and
                                                                                       cninfo.com.cn for details.

                                                                                       Please refer to “Huadong Medicine:
                                                                                       record of investor relations activities:
                                                          Institution and individual
August 28, 2019              Communication by phone                                    August 28, 2019” presented on the
                                                          investor
                                                                                       websites of irm.cninfo.com.cn and
                                                                                       cninfo.com.cn for details.

                                                                                       Please refer to “Huadong Medicine:
                                                                                       record of investor relations activities:
September 23, 2019           Field research               Institution                  September 23-25, 2019” presented on
                                                                                       the websites of irm.cninfo.com.cn and
                                                                                       cninfo.com.cn for details.

                                                                                       Please refer to “Huadong Medicine:
                                                                                       record of investor relations activities:
September 25, 2019           Field research               Institution                  September 23-25, 2019” presented on
                                                                                       the websites of irm.cninfo.com.cn and
                                                                                       cninfo.com.cn for details.

                                                                                       Please refer to “Huadong Medicine:
                                                                                       record of investor relations activities:
                                                          Institution and individual
October 30, 2019             Communication by phone                                    October 30, 2019” presented on the
                                                          investor
                                                                                       websites of irm.cninfo.com.cn and
                                                                                       cninfo.com.cn for details.

                                                                                       Please refer to “Huadong Medicine:
                                                                                       “Huadong Medicine - communication
                             Group reception day for                                   for development and rational co-growth -
                                                          Institution and individual
November 05, 2019            investors – online Q&A on                                investor group reception day of listed
                                                          investor
                             quanjing.com                                              companies in Zhejiang Province in
                                                                                       2019” presented on http://rs.p5w.net/ for
                                                                                       details

Number of receptions                                                                                                              17

Number of institutions received                                                                                              1,500

Number of individuals received                                                                                                    60

Number of other visitors received                                                                                                 0

Has any undisclosed important information been


                                                               64
                                        The 2019 Annul Report of Huadong Medicine Co., Ltd.


disclosed, revealed or divulged?                                                       No




                                   65
                                                                            The Annul Report 2019 of Huadong Medicine Co., Ltd.




                                        Section V. Important Matters

I. The Company’s profit distribution of common shares and increase of capital stock by
capital reserve conversion

Formulation, implementation or adjustment of the profit distribution policy of common shares, especially the cash dividend policy,
during the reporting period
√ Applicable □ N/A
During the reporting period, the Company’s profit distribution policy conforms to the Articles of Association and the review
procedure, and fully protects the legitimate rights and interests of small and medium investors. The independent directors have
expressed their opinion, and there is a clear standard and ratio of dividends.


                                                 Special notes on cash dividend policy

Whether it complies with the provisions of the Articles of
Association or the requirements of the resolutions of                                            Yes
shareholders’ meeting:

Whether the standard and ratio of dividends are clear:                                           Yes

Whether the relevant decision-making procedures and
                                                                                                 Yes
mechanisms are complete:

Whether the independent directors have performed their duties
                                                                                                 Yes
and played their due roles:

Whether minority shareholders have the opportunity to fully
express their opinions and demands, and whether their legitimate                                 Yes
rights and interests are fully protected:

If the cash dividend policy is adjusted or changed, whether the
                                                                                                 Yes
conditions and procedures are compliant and transparent:
The Company’s common share dividend distribution plan (preplan) and plan for capital stock increase by capital reserve conversion
(preplan) in recent three years (including the current reporting period):
(1) The Company’s distribution plan for 2017: Based on the total share capital of 972,116,416 shares, 7.2 yuan (tax included) is paid
as a cash dividend for every 10 shares; the total share dividend distributed is 699,923,819.52 yuan, and 5 shares are added for every
10 shares by capital reserve conversion;
(2) The Company’s distribution plan for 2018: Based on the total share capital of 1,458,174,624 shares, 3.3 yuan (tax included) is
paid as a cash dividend for every 10 shares; the total share dividend distributed is 481,197,625.92 yuan, and 2 shares are added for
every 10 shares by capital reserve conversion;
(3) The Company’s distribution plan for 2019: Based on the total share capital of 1,749,809,548 shares, 2.8 yuan (tax included) is
paid as a cash dividend for every 10 shares; the total share dividend distributed is 489,946,673.44 yuan, and 0 shares are added for
every 10 shares by capital reserve conversion.


The Company’s cash dividends of common shares in recent three years (including the reporting period)



                                                                   66
                                                                                The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                                                                                                             Unit: RMB yuan

                                                                                                                               Proportion of
                                                                                                                                 total cash
                                                                                             Proportion of
                                                       Proportion of                                                             dividends
                                                                                            cash dividends
                                     Net profit        cash dividends                                                            (including
                                                                                            by other means
                                   attributable to in the net profit                                                           those by other
                                                                                            in the net profit   Total cash
                                    the common         attributable to Cash dividends                                          means) in the
   Year when                                                                                attributable to     dividends
                 Cash dividends shareholders of         the common       by other means                                          net profit
 dividends are                                                                               the common         (including
                  (tax included)   the Company shareholders of (such as share                                                  attributable to
   distributed                                                                              shareholders of those by other
                                   in the annual       the Company           repurchase)                                        the common
                                                                                             the Company         means)
                                    consolidated           in the                                                             shareholders of
                                                                                                 in the
                                     statements         consolidated                                                           the Company
                                                                                             consolidated
                                                         statements                                                                in the
                                                                                              statements
                                                                                                                               consolidated
                                                                                                                                statements

                                   2,813,118,702.
2019             489,946,673.44                               17.42%                 0.00             0.00% 489,946,673.44            17.42%
                                                  11

                                   2,267,229,174.
2018             481,197,625.92                               21.22%                 0.00             0.00% 481,197,625.92            21.22%
                                                  08

                                   1,779,506,061.
2017             699,923,819.52                               39.33%                 0.00             0.00% 699,923,819.52            39.33%
                                                  59

During the reporting period, the Company made profits and the profit available to common shareholders of the parent company was
positive, but no cash dividend plan for common shares was proposed
□ Applicable √ N/A


II. Profit distribution and capital stock increase by capital reserve conversion during the
current reporting period

√ Applicable □ N/A

Number of bonus shares every 10 shares (share)                                                                                                 0

Dividends paid every 10 shares (tax included)                                                                                                 2.8

Number of shares added for every 10 shares by
                                                                                                                                               0
capital reserve conversion

Capital stock base of the distribution plan (share)                                                                            1,749,809,548

Cash dividends (yuan) (tax included)                                                                                          489,946,673.44

Cash dividends by other means (such as share
                                                                                                                                            0.00
repurchase) (yuan)

Total cash dividends (yuan)                                                                                                   489,946,673.44

Distributable profit (yuan)                                                                                                  3,431,594,974.14

Proportion of total cash dividends (including those                                                                                     100%


                                                                        67
                                                                               The Annul Report 2019 of Huadong Medicine Co., Ltd.


by other means) in the total profit distributed

                                                             Current cash dividends

If the Company is in a mature stage of development and has a significant capital expenditure arrangement, the proportion of cash
dividends in the current profit distribution should be at least 40%.

               Details of the profit distribution plan or the plan for capital stock increase by capital reserve conversion

The Company’s profit distribution plan for 2019: Based on the total share capital of 1,749,809,548 shares, 2.8 yuan (tax included)
is paid as a cash dividend for every 10 shares; the total share dividend distributed is 489,946,673.44 yuan, and 0 shares are added
for every 10 shares by capital reserve conversion.




III. Fulfillment of commitments

1. Commitments made by interested parties such as the Company’s actual controller, shareholders, related
parties, acquirer(s), and the Company that are fulfilled during the reporting period or unfulfilled by the
end of the reporting period

√ Applicable □ N/A

                                  Commitment           Type of                                    Date of       Term of       Fulfilled or
         Commitment                                                Details of commitment
                                     maker         commitment                                  commitment     commitment      unfulfilled

Share reform                   N/A                 N/A             N/A                                        N/A          N/A

A commitment made in
the report of acquisition or
                               N/A                 N/A             N/A                                        N/A          N/A
the report of change in
equity

A commitment made in
                               N/A                 N/A             N/A                                        N/A          N/A
assets restructuring

                                                                   China Grand
                                                                   Enterprises will abide
                                                                   by the “Administrative
                                                                   Measures for the
                                                                   Issuance of Securities
                                                   A               by Listed Companies”,
A commitment made at
                                                   commitment “Rules for Stock Listing
the time of an initial         China Grand                                                     February 05,
                                                   made at the of Shenzhen Stock                              36 months    Fulfilled
public offering or             Enterprises, Inc.                                               2016
                                                   time of         Exchange”, and
refinancing
                                                   refinancing relevant provisions of
                                                                   laws, regulations and
                                                                   regulatory documents,
                                                                   and will not transfer the
                                                                   shares it has subscribed
                                                                   for within 36 months



                                                                       68
                                                                           The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                                              from the date of this
                                                              non-public offering of
                                                              shares by Huadong
                                                              Medicine.

                                                              Huadong Group will
                                                              abide by the
                                                              “Administrative
                                                              Measures for the
                                                              Issuance of Securities
                                                              by Listed Companies”,
                                                              “Rules for Stock Listing
                                              A               of Shenzhen Stock
                          Hangzhou
                                              commitment Exchange”, and
                          Huadong                                                           February 05,
                                              made at the relevant provisions of                           36 months   Fulfilled
                          Medicine Group                                                    2016
                                              time of         laws, regulations and
                          Co., Ltd.
                                              refinancing regulatory documents,
                                                              and will not transfer the
                                                              shares it has subscribed
                                                              for within 36 months
                                                              from the date of this
                                                              non-public offering of
                                                              shares by Huadong
                                                              Medicine.

Equity incentives         N/A                 N/A             N/A                                          N/A         N/A

                                                              China Grand
                                                              Enterprises undertakes
                                                              that it has no plan to sell
                                                              all of its shares in                                     Fulfilled (the
                                              Commitmen
                                                              Huadong Medicine                                         commitment
                          China Grand         t to reducing                                 February 11,
                                                              within 12 months from                        12 months   expired on
                          Enterprises, Inc.   shareholding                                  2019
                                                              the date of the lifting of                               February 10,
                                              s
                                                              restrictions on the                                      2020)
Other commitments made                                        non-public offering of
to the Company’s small                                       shares by Huadong
and medium shareholders                                       Medicine in 2016.

                                                              Huadong Group
                                                              undertakes that it has no
                                                                                                                       Fulfilled (the
                          Hangzhou            Commitmen plan to sell all of its
                                                                                                                       commitment
                          Huadong             t to reducing shares in Huadong               February 11,
                                                                                                           12 months   expired on
                          Medicine Group      shareholding Medicine within 12               2019
                                                                                                                       February 10,
                          Co., Ltd.           s               months from the date of
                                                                                                                       2020)
                                                              the lifting of restrictions
                                                              on the non-public


                                                                  69
                                                                           The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                                               offering of shares by
                                                               Huadong Medicine in
                                                               2016.

Whether the commitment
                             Yes
has been fulfilled on time

If the commitment is
overdue and has not been
fulfilled, the specific
reasons for unfulfillment    N/A
and the future work plan
should be explained in
detail.


2. If there is a profit forecast for the Company’s assets or projects and the reporting period is in the profit
forecast period, the Company should state the assets or projects that meet the original profit forecast and
the reasons for that

□ Applicable √ N/A


IV. Controlling shareholder’s and related parties’ occupation of non-operating funds of the
listed companies

□ Applicable √ N/A
No such case during the reporting period.


V. Explanation by the Board of Directors, the Board of Supervisors and the independent
directors (if any) on the “auditor’s nonstandard report” of the accounting firm during the
current reporting period

□ Applicable √ N/A


VI. Changes in accounting policies, estimation and accounting methods as compared with the
previous financial report

√ Applicable □ N/A
     Since January 1, 2019, the Company has implemented “Accounting Standard for Business Enterprises No. 22 - Recognition and
Measurement of Financial Instruments”, “Accounting Standard for Business Enterprises No. 23 - Transfer of Financial Assets”,
“Accounting Standard for Business Enterprises No. 24 – Hedging”, and “Accounting Standard for Business Enterprises No. 37 -
Presentation of Financial Instruments” revised by the Ministry of Finance in 2017. For details, please refer to “V (44) Changes in
important accounting policies and accounting estimation” in “Section XII. Financial Report” of this report.




                                                                   70
                                                                                The Annul Report 2019 of Huadong Medicine Co., Ltd.


  VII. Retrospective restatement of the correction of significant accounting errors during the
  reporting period

  □ Applicable √ N/A
  No such case during the reporting period.


  VIII. Changes in the scope of consolidated statements as compared to the previous financial
  report

  √ Applicable □ N/A

        1. Increase of the consolidation scope

                                                                                  Time of equity
  Company name                                   Method of equity acquisition                       Amount of capital      Ratio of capital
                                                                                    acquisition

Huadong Medicine Jinhua Co., Ltd.                      New subsidiary              March 2019         80,000,000.00             100%

Huadong Medicine (Hangzhou) Co., Ltd.                 Share acquisition             May 2019          50,059,838.75             100%

Huadong     Medicine     Skin   Management
                                                       New subsidiary               April 2019           [Note 1]               100%
(Hong Kong) Co., Ltd.

Huadong Ningbo Medicine (Hong Kong)
                                                       New subsidiary               July 2019            [Note 2]               100%
Co., Ltd.

Sinclair Pharma Australia Pty Ltd                      New subsidiary             February 2019          [Note 3]               100%

        Note 1: No capital has been contributed as of December 31, 2019.

        Note 2: No capital has been contributed as of December 31, 2019.

        Note 3: No capital has been contributed as of December 31, 2019.

        2. Reduction of the consolidation scope

                                                                                                                        Net profit from the
                                                                           Time of equity          Net assets at         beginning of the
    Company name                 Method of equity disposal
                                                                                disposal           disposal date      period to the disposal
                                                                                                                               date

  Medicalio SL                         Cancellation                        December 2019                43,121.51




  IX. Employment and dismissal of accounting firms

  Accounting firm employed by the Company for now

                                                                             Pan-China Certified Public Accountants (special general
  Name of the domestic accounting firm
                                                                                                   partnership)

  Continuous number of years of audit services provided by the                                          22



                                                                      71
                                                                           The Annul Report 2019 of Huadong Medicine Co., Ltd.


domestic accounting firm

Remuneration of the domestic accounting firm (ten thousand
                                                                                                    165
yuan)

Certified public accountants of the domestic accounting firm                              Wang Fukang, Xu Ping

Continuous number of years of audit services provided by
                                                                                                      4
certified public accountants of the domestic accounting firm

Name of the overseas accounting firm (if any)                                                      None

Remuneration of the overseas accounting firm (ten thousand
                                                                                                      0
yuan) (if any)

Continuous number of years of audit services provided by the
                                                                                                   None
overseas accounting firm (if any)

Certified public accountants of the overseas accounting firm (if
                                                                                                   None
any)

Continuous number of years of audit services provided by
certified public accountants of the overseas accounting firm (if                                   None
any)

Whether the accounting firm employed was replaced in the current period
□ Yes √ No
Information about the internal control audit accounting firm, financial consultant or sponsor employed by the Company
√ Applicable □ N/A
During the reporting period, the Company employed Pan-China Certified Public Accountants (special general partnership) as the
audit institution of its annual financial report and internal control audit report; the annual financial report and internal control audit
report audit fee paid is 1.65 million yuan.


X. Suspension and termination of listing after annual report disclosure

□ Applicable √ N/A


XI. Bankruptcy reorganization

□ Applicable √ N/A
No such case during the reporting period.


XII. Major litigation and arbitration

□ Applicable √ N/A
No such case during the reporting period.


XIII. Punishment and rectification

□ Applicable √ N/A


                                                                   72
                                                                                       The Annul Report 2019 of Huadong Medicine Co., Ltd.


No such case during the reporting period.


XIV. Integrity of the Company and its controlling shareholder and actual controller

□ Applicable √ N/A


XV. Implementation of the Company’s equity incentive plan, employee stock ownership plan
or other employee incentive measures

□ Applicable √ N/A
No such case during the reporting period.


XVI. Major related transactions

1. Transactions related to daily operations

√ Applicable □ N/A

                                                                                   Proporti Approv                            Availabl
                                                                     Related                             Whethe Settlem
                                               Pricing                              on in       ed                               e
                                   Content                           transacti                             r it     ent
                       Type of                 principl Price of                     the     transacti                        market
                                      of                                on                               exceeds method                   Date of Disclos
 Related Relation related                        es for    related                 amount       on                             prices
                                   related                           amount                                the       of                   disclosu     ure
   party     ship      transacti                related transacti                     of     amount                              of
                                   transacti                           (ten                              approve related                        re    index
                           on                  transacti      on                   similar     (ten                           similar
                                      on                             thousan                                d     transacti
                                                      on                           transacti thousan                          transacti
                                                                     d yuan)                             amount      on
                                                                                     ons     d yuan)                            ons

                                               Market
                                               price
                                               determi
           Subsidia
                                               ned by
Sichuan    ry of the
                                               the                                                                                                   cninfo
Yuanda     Compan                                                                                                 Cash,
                       Drug                    Compan                                                                                     April      (http://
Shuyang y’s                       Drug                    Market     5,236.9                                     banker’s Market
                       purchas                 y’s                                 0.17%       5,000 Yes                                 19,        www.c
Pharmace controlli                 purchase                price              7                                   accepta price
                       e                       related                                                                                    2019       ninfo.c
utical     ng                                                                                                     nce bill
                                               transacti                                                                                             om.cn)
Co., Ltd. sharehol
                                               on
           der
                                               decision
                                               -making
                                               process




                                                                              73
                                                                             The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                             Market
                                             price
                                             determi
            Subsidia
                                             ned by
Beijing     ry of the
                                             the                                                                           cninfo
Grand       Compan                                                                              Cash,
                        Drug                 Compan                                                                April   (http://
Johamu      y’s                  Drug                   Market                                 banker’s Market
                        purchas              y’s                 4,939.7   0.16%   5,000 No                       19,     www.c
Pharmace controlli                purchase               price                                  accepta price
                        e                    related                                                               2019    ninfo.c
utical      ng                                                                                  nce bill
                                             transacti                                                                     om.cn)
Co., Ltd. sharehol
                                             on
            der
                                             decision
                                             -making
                                             process

                                             Market
                                             price
                                             determi
            Subsidia
                                             ned by
            ry of the
                                             the                                                                           cninfo
Grandpha Compan                                                                                 Cash,
                        Drug                 Compan                                                                April   (http://
rma         y’s                  Drug                   Market   4,325.7                       banker’s Market
                        purchas              y’s                           0.14%   3,500 Yes                      19,     www.c
(China)     controlli             purchase               price         2                        accepta price
                        e                    related                                                               2019    ninfo.c
Co., Ltd. ng                                                                                    nce bill
                                             transacti                                                                     om.cn)
            sharehol
                                             on
            der
                                             decision
                                             -making
                                             process

                                             Market
                                             price
                                             determi
                                             ned by
Hangzhou
            Joint                            the                                                                           cninfo
Jiuyuan                                                                                         Cash,
            venture Drug                     Compan                                                                April   (http://
Gene                              Drug                   Market   2,257.0                       banker’s Market
            of the      purchas              y’s                           0.07%   6,000 No                       19,     www.c
Engineeri                         purchase               price         9                        accepta price
            Compan e                         related                                                               2019    ninfo.c
ng Co.,                                                                                         nce bill
            y                                transacti                                                                     om.cn)
Ltd.
                                             on
                                             decision
                                             -making
                                             process




                                                                       74
                                                                              The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                              Market
                                              price
                                              determi
             Subsidia
Yunnan                                        ned by
             ry of the
Leiyunsh                                      the                                                                           cninfo
             Compan                                                                              Cash,
ang                      Drug                 Compan                                                                April   (http://
             y’s                  Drug                   Market   1,527.1                       banker’s Market
Lixiang                  purchas              y’s                           0.05%   2,500 No                       19,     www.c
             controlli             purchase               price         6                        accepta price
Pharmace                 e                    related                                                               2019    ninfo.c
             ng                                                                                  nce bill
utical                                        transacti                                                                     om.cn)
             sharehol
Co., Ltd.                                     on
             der
                                              decision
                                              -making
                                              process

                                              Market
                                              price
                                              determi
             Subsidia
Wuhan                                         ned by
             ry of the
Grand                                         the                                                                           cninfo
             Compan                                                                              Cash,
Pharmace                 Drug                 Compan                                                                April   (http://
             y’s                  Drug                   Market                                 banker’s Market
utical                   purchas              y’s                 884.55    0.03%    850 Yes                       19,     www.c
             controlli             purchase               price                                  accepta price
Group                    e                    related                                                               2019    ninfo.c
             ng                                                                                  nce bill
Sales Co.,                                    transacti                                                                     om.cn)
             sharehol
Ltd.                                          on
             der
                                              decision
                                              -making
                                              process

                                              Market
                                              price
                                              determi
             Subsidia
Shenyang                                      ned by
             ry of the
Yaoda                                         the                                                                           cninfo
             Compan                                                                              Cash,
Leiyunsh                 Drug                 Compan                                                                April   (http://
             y’s                  Drug                   Market                                 banker’s Market
ang                      purchas              y’s                 719.43    0.02%   1,500 No                       19,     www.c
             controlli             purchase               price                                  accepta price
Pharmace                 e                    related                                                               2019    ninfo.c
             ng                                                                                  nce bill
utical                                        transacti                                                                     om.cn)
             sharehol
Co., Ltd.                                     on
             der
                                              decision
                                              -making
                                              process




                                                                        75
                                                                             The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                              Market
                                              price
                                              determi
             Subsidia
                                              ned by
             ry of the
Penglai                                       the                                                                          cninfo
             Compan                                                                             Cash,
Nuokang                  Drug                 Compan                                                               April   (http://
             y’s                  Drug                   Market                                banker’s Market
Pharmace                 purchas              y’s                 531.14   0.02%   2,500 No                       19,     www.c
             controlli             purchase               price                                 accepta price
utical Co.               e                    related                                                              2019    ninfo.c
             ng                                                                                 nce bill
Ltd.                                          transacti                                                                    om.cn)
             sharehol
                                              on
             der
                                              decision
                                              -making
                                              process

                                              Market
                                              price
                                              determi
             Subsidia
Xi’an                                        ned by
             ry of the
Grandpha                                      the                                                                          cninfo
             Compan                                                                             Cash,
rma                      Drug                 Compan                                                               April   (http://
             y’s                  Drug                   Market                                banker’s Market
Xinbeilin                purchas              y’s                 323.93   0.01%     50 Yes                       19,     www.c
             controlli             purchase               price                                 accepta price
Pharmace                 e                    related                                                              2019    ninfo.c
             ng                                                                                 nce bill
utical Co.                                    transacti                                                                    om.cn)
             sharehol
Ltd.                                          on
             der
                                              decision
                                              -making
                                              process

                                              Market
             Joint                            price
             venture                          determi
             of the                           ned by
Shanghai
             Subsidia                         the                                                                          cninfo
Xudong                                                                                          Cash,
             ry of the Drug                   Compan                                                               April   (http://
Haipu                              Drug                   Market                                banker’s Market
             Compan purchas                   y’s                 332.17   0.01%    400 No                        19,     www.c
Pharmace                           purchase               price                                 accepta price
             y’s        e                    related                                                              2019    ninfo.c
utical Co.                                                                                      nce bill
             controlli                        transacti                                                                    om.cn)
Ltd.
             ng                               on
             sharehol                         decision
             der                              -making
                                              process




                                                                       76
                                                                              The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                               Market
                                               price
                                               determi
              Subsidia
                                               ned by
Leiyunsh ry of the
                                               the                                                                          cninfo
ang           Compan                                                                             Cash,
                          Drug                 Compan                                                               April   (http://
Pharmace y’s                       Drug                   Market                                banker’s Market
                          purchas              y’s                 298.16   0.01%   500 No                         19,     www.c
utical        controlli             purchase               price                                 accepta price
                          e                    related                                                              2019    ninfo.c
Group         ng                                                                                 nce bill
                                               transacti                                                                    om.cn)
Co. Ltd.      sharehol
                                               on
              der
                                               decision
                                               -making
                                               process

                                               Market
                                               price
                                               determi
              Subsidia
                                               ned by
              ry of the
Hangzhou                                       the                                                                          cninfo
              Compan                                                                             Cash,
Grand                     Drug                 Compan                                                               April   (http://
              y’s                  Drug                   Market                                banker’s Market
Biologic                  purchas              y’s                 207.96   0.01%   850 No                         19,     www.c
              controlli             purchase               price                                 accepta price
Pharmace                  e                    related                                                              2019    ninfo.c
              ng                                                                                 nce bill
utical Inc.                                    transacti                                                                    om.cn)
              sharehol
                                               on
              der
                                               decision
                                               -making
                                               process

                                               Market
                                               price
                                               determi
              Subsidia
                                               ned by
Changshu ry of the
                                               the                                                                          cninfo
Leiyunsh Compan                                                                                  Cash,
                          Drug                 Compan                                                               April   (http://
ang           y’s                  Drug                   Market                                banker’s Market
                          purchas              y’s                 210.22   0.01%   400 No                         19,     www.c
Pharmace controlli                  purchase               price                                 accepta price
                          e                    related                                                              2019    ninfo.c
utical        ng                                                                                 nce bill
                                               transacti                                                                    om.cn)
Co., Ltd. sharehol
                                               on
              der
                                               decision
                                               -making
                                               process




                                                                        77
                                                                            The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                             Market
                                             price
                                             determi
            Subsidia
Guangdo                                      ned by
            ry of the
ng                                           the                                                                          cninfo
            Compan                                                                             Cash,
Leiyunsh                Drug                 Compan                                                               April   (http://
            y’s                  Drug                   Market                                banker’s Market
ang                     purchas              y’s                 126.77   0.00%   300 No                         19,     www.c
            controlli             purchase               price                                 accepta price
Pharmace                e                    related                                                              2019    ninfo.c
            ng                                                                                 nce bill
utical                                       transacti                                                                    om.cn)
            sharehol
Co., Ltd.                                    on
            der
                                             decision
                                             -making
                                             process

                                             Market
                                             price
                                             determi
            Subsidia
Changchu                                     ned by
            ry of the
n                                            the                                                                          cninfo
            Compan                                                                             Cash,
Leiyunsh                Drug                 Compan                                                               April   (http://
            y’s                  Drug                   Market                                banker’s Market
ang                     purchas              y’s                  75.23   0.00%   100 No                         19,     www.c
            controlli             purchase               price                                 accepta price
Pharmace                e                    related                                                              2019    ninfo.c
            ng                                                                                 nce bill
utical                                       transacti                                                                    om.cn)
            sharehol
Co., Ltd.                                    on
            der
                                             decision
                                             -making
                                             process

                                             Market
                                             price
Hangzhou                                     determi
            Subsidia
Huadong                                      ned by
            ry of the
Medicine                                     the                                                                          cninfo
            Compan                                                                             Cash,
Group                   Drug                 Compan                                                               April   (http://
            y’s                  Drug                   Market                                banker’s Market
Guizhou                 purchas              y’s                  49.33   0.00%      0 Yes                       19,     www.c
            second                purchase               price                                 accepta price
TCM                     e                    related                                                              2019    ninfo.c
            largest                                                                            nce bill
Develop                                      transacti                                                                    om.cn)
            sharehol
ment Co.,                                    on
            der
Ltd.                                         decision
                                             -making
                                             process




                                                                      78
                                                                           The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                             Market
                                             price
                                             determi
            Subsidia
                                             ned by
            ry of the
Beijing                                      the                                                                         cninfo
            Compan                                                                            Cash,
Huajin                  Drug                 Compan                                                              April   (http://
            y’s                  Drug                   Market                               banker’s Market
Pharmace                purchas              y’s                 14.64   0.00%     80 No                        19,     www.c
            controlli             purchase               price                                accepta price
utical                  e                    related                                                             2019    ninfo.c
            ng                                                                                nce bill
Co., Ltd.                                    transacti                                                                   om.cn)
            sharehol
                                             on
            der
                                             decision
                                             -making
                                             process

                                             Market
                                             price
                                             determi
            Subsidia
Grandpha                                     ned by
            ry of the
rma                                          the                                                                         cninfo
            Compan                                                                            Cash,
Huangshi                Drug                 Compan                                                              April   (http://
            y’s                  Drug                   Market                               banker’s Market
Feiyun                  purchas              y’s                  1.96   0.00%      0 Yes                       19,     www.c
            controlli             purchase               price                                accepta price
Pharmace                e                    related                                                             2019    ninfo.c
            ng                                                                                nce bill
utical                                       transacti                                                                   om.cn)
            sharehol
Co., Ltd.                                    on
            der
                                             decision
                                             -making
                                             process

                                             Market
                                             price
                                             determi
            Subsidia
                                             ned by
Jiangsu     ry of the
                                             the                                                                         cninfo
Grand       Compan                                                                            Cash,
                        Drug                 Compan                                                              April   (http://
Xianle      y’s                  Drug                   Market                               banker’s Market
                        purchas              y’s                    0    0.00%   1,200 No                       19,     www.c
Pharmace controlli                purchase               price                                accepta price
                        e                    related                                                             2019    ninfo.c
utical      ng                                                                                nce bill
                                             transacti                                                                   om.cn)
Co., Ltd. sharehol
                                             on
            der
                                             decision
                                             -making
                                             process




                                                                     79
                                                                             The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                             Market
                                             price
                                             determi
            Subsidia
                                             ned by
            ry of the
Xi’an                                       the                                                                           cninfo
            Compan                                                                              Cash,
Beilin                  Drug                 Compan                                                                April   (http://
            y’s                  Drug                   Market                                 banker’s Market
Pharmace                purchas              y’s                   0.94    0.00%      0 Yes                       19,     www.c
            controlli             purchase               price                                  accepta price
utical                  e                    related                                                               2019    ninfo.c
            ng                                                                                  nce bill
Co., Ltd.                                    transacti                                                                     om.cn)
            sharehol
                                             on
            der
                                             decision
                                             -making
                                             process

                                             Market
                                             price
                                             determi
                                             ned by
Hangzhou
                                             the                                                                           cninfo
Junlan      Shareho                                                                             Cash,
                                             Compan                                                                April   (http://
Pharmace lding          Drug      Drug                   Market   12,538.                       banker’s Market
                                             y’s                           0.35%      0 Yes                       19,     www.c
utical      enterpri sales        sales                  price        87                        accepta price
                                             related                                                               2019    ninfo.c
Trading     se                                                                                  nce bill
                                             transacti                                                                     om.cn)
Co. Ltd.
                                             on
                                             decision
                                             -making
                                             process

            Subsidia                         Market
            ry of the                        price
Hangzhou Compan                              determi
Tangyang y’s joint                          ned by
yuan        venture                          the                                                                           cninfo
                                                                                                Cash,
TCM         Hangzh                           Compan                                                                April   (http://
                        Drug      Drug                   Market                                 banker’s Market
Outpatien ou                                 y’s                 1,078.8   0.03%   1,500 No                       19,     www.c
                        sales     sales                  price                                  accepta price
t           Tangyan                          related                                                               2019    ninfo.c
                                                                                                nce bill
Departme gyuan                               transacti                                                                     om.cn)
nt Co.,     Pharma                           on
Ltd.        ceutical                         decision
            Co.,                             -making
            Ltd.                             process




                                                                       80
                                                                       The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                        Market
                                        price
                                        determi
                                        ned by
Hangzhou
            Joint                       the                                                                          cninfo
Jiuyuan                                                                                   Cash,
            venture                     Compan                                                               April   (http://
Gene                    Drug    Drug                Market                                banker’s Market
            of the                      y’s                 553.86   0.02%   1,000 No                       19,     www.c
Engineeri               sales   sales               price                                 accepta price
            Compan                      related                                                              2019    ninfo.c
ng Co.,                                                                                   nce bill
            y                           transacti                                                                    om.cn)
Ltd.
                                        on
                                        decision
                                        -making
                                        process

                                        Market
                                        price
                                        determi
            Subsidia
Guangdo                                 ned by
            ry of the
ng                                      the                                                                          cninfo
            Compan                                                                        Cash,
Leiyunsh                                Compan                                                               April   (http://
            y’s        Drug    Drug                Market                                banker’s Market
ang                                     y’s                 459.48   0.01%    400 Yes                       19,     www.c
            controlli sales     sales               price                                 accepta price
Pharmace                                related                                                              2019    ninfo.c
            ng                                                                            nce bill
utical                                  transacti                                                                    om.cn)
            sharehol
Co., Ltd.                               on
            der
                                        decision
                                        -making
                                        process

                                        Market
                                        price
                                        determi
            Subsidia
                                        ned by
Leiyunsh ry of the
                                        the                                                                          cninfo
ang         Compan                                                                        Cash,
                                        Compan                                                               April   (http://
Pharmace y’s           Drug    Drug                Market                                banker’s Market
                                        y’s                 455.68   0.01%    300 Yes                       19,     www.c
utical      controlli sales     sales               price                                 accepta price
                                        related                                                              2019    ninfo.c
Group       ng                                                                            nce bill
                                        transacti                                                                    om.cn)
Co. Ltd.    sharehol
                                        on
            der
                                        decision
                                        -making
                                        process




                                                                 81
                                                                       The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                        Market
                                        price
                                        determi
            Subsidia
Yunnan                                  ned by
            ry of the
Leiyunsh                                the                                                                          cninfo
            Compan                                                                        Cash,
ang                                     Compan                                                               April   (http://
            y’s        Drug    Drug                Market                                banker’s Market
Lixiang                                 y’s                 197.94   0.01%   150 Yes                        19,     www.c
            controlli sales     sales               price                                 accepta price
Pharmace                                related                                                              2019    ninfo.c
            ng                                                                            nce bill
utical                                  transacti                                                                    om.cn)
            sharehol
Co., Ltd.                               on
            der
                                        decision
                                        -making
                                        process

                                        Market
                                        price
                                        determi
Huadong
            Associat                    ned by
Medicine
            ion with                    the                                                                          cninfo
Group                                                                                     Cash,
            the                         Compan                                                               April   (http://
New                     Drug    Drug                Market                                banker’s Market
            Senior                      y’s                  92.26   0.00%   400 No                         19,     www.c
Drug                    sales   sales               price                                 accepta price
            manage                      related                                                              2019    ninfo.c
Research                                                                                  nce bill
            ment                        transacti                                                                    om.cn)
Institute
            [note]                      on
Co., Ltd.
                                        decision
                                        -making
                                        process

                                        Market
                                        price
                                        determi
                                        ned by
Hangzhou
            Joint                       the                                                                          cninfo
Tangyang                                                                                  Cash,
            venture                     Compan                                                               April   (http://
yuan                    Drug    Drug                Market                                banker’s Market
            of the                      y’s                  58.41   0.00%      0 Yes                       19,     www.c
Pharmace                sales   sales               price                                 accepta price
            Compan                      related                                                              2019    ninfo.c
utical                                                                                    nce bill
            y                           transacti                                                                    om.cn)
Co., Ltd.
                                        on
                                        decision
                                        -making
                                        process




                                                                 82
                                                                       The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                         Market
                                         price
                                         determi
              Subsidia
                                         ned by
              ry of the
                                         the                                                                         cninfo
Grand         Compan                                                                      Cash,
                                         Compan                                                              April   (http://
Resources y’s            Drug   Drug                Market                               banker’s Market
                                         y’s                 15.82   0.00%      0 Yes                       19,     www.c
Group         controlli sales    sales               price                                accepta price
                                         related                                                             2019    ninfo.c
Co., Ltd. ng                                                                              nce bill
                                         transacti                                                                   om.cn)
              sharehol
                                         on
              der
                                         decision
                                         -making
                                         process

                                         Market
                                         price
                                         determi
              Subsidia
                                         ned by
              ry of the
Hangzhou                                 the                                                                         cninfo
              Compan                                                                      Cash,
Grand                                    Compan                                                              April   (http://
              y’s        Drug   Drug                Market                               banker’s Market
Biologic                                 y’s                 15.79   0.00%      0 Yes                       19,     www.c
              controlli sales    sales               price                                accepta price
Pharmace                                 related                                                             2019    ninfo.c
              ng                                                                          nce bill
utical Inc.                              transacti                                                                   om.cn)
              sharehol
                                         on
              der
                                         decision
                                         -making
                                         process

                                         Market
                                         price
                                         determi
              Subsidia
                                         ned by
              ry of the
Shanxi                                   the                                                                         cninfo
              Compan                                                                      Cash,
Grand                                    Compan                                                              April   (http://
              y’s        Drug   Drug                Market                               banker’s Market
Real                                     y’s                  9.02   0.00%      0 Yes                       19,     www.c
              controlli sales    sales               price                                accepta price
Estate                                   related                                                             2019    ninfo.c
              ng                                                                          nce bill
Co., Ltd.                                transacti                                                                   om.cn)
              sharehol
                                         on
              der
                                         decision
                                         -making
                                         process




                                                                 83
                                                                          The Annul Report 2019 of Huadong Medicine Co., Ltd.


                                            Market
                                            price
                                    &ensp