3SBio Inc. — Interim / Quarterly Report 2018

Sep 27, 2018

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(Incorporated in the Cayman Islands with limited liability) Stock Code: 1530 Convertible Bonds Code: 5241

2018 Interim Report

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Contents

Company Overview	2
Corporate Information	3
Financial Highlights	5
Management Discussion and Analysis	6
Corporate Governance and	21
Other Information
Report on Review of Interim Condensed Consolidated	29
Financial Statements
Unaudited Interim Condensed Consolidated	31
Statement of Proft or Loss
Unaudited Interim Condensed Consolidated	32
Statement of Comprehensive Income
Unaudited Interim Condensed Consolidated	33
Statement of Financial Position
Unaudited Interim Condensed Consolidated	35
Statement of Changes in Equity
Unaudited Interim Condensed Consolidated	36
Statement of Cash Flows
Notes to the Unaudited Interim Condensed	38
Consolidated Financial Statements

Company Overview

3SBio Inc. (the “Company” or “3SBio”, with its subsidiaries collectively, the “Group”) is a leading biotechnology company in the People’s Republic of China (the “PRC” or “China”)[1] . As a pioneer in the Chinese biotechnology industry, the Group has extensive expertise in researching and developing, manufacturing and marketing biopharmaceuticals. The core products of the Group include TPIAO (特比澳), Yisaipu (益賽普), recombinant human erythropoietin (“rhEPO”) products EPIAO (益比奥) and SEPO (賽博爾), all four products being market leaders in China. TPIAO is the only commercialized recombinant human thrombopoietin (“rhTPO”) product in the world. According to IMS Health Inc. (“IMS”)[2] , the China market share of TPIAO increased to 63.2% for the treatment of thrombocytopenia in the first half of 2018. Yisaipu is a Tumour Necrosis Factor (“TNF”) inhibitor product with a continuing dominant market share in China of 63.5% in the first half of 2018. With its two rhEPO products, the Group has been the dominant market leader in the China rhEPO market for more than a decade, with a total market share of 41.3% in the first half of 2018. The Group has made a strong entrance and is growing in the diabetes treatment area through in-license of several products from AstraZeneca PLC (“AstraZeneca”) and Eli Lilly and Company (“Lilly”): Byetta (百泌達), which the Group started to consolidate in its accounts from October 2016; Humulin (優泌林), from July 2017; and Bydureon (百達揚), launched on 25 May 2018 as the first-to-market once-weekly therapy for type 2 diabetes in China, from the launch date.

As at 30 June 2018, amongst the 32 product candidates within the Group’s active pipeline, 17 were being developed as National Class I New Drugs (國家一類新藥) in China. The Group has eight product candidates in oncology; 12 product candidates that target auto-immune diseases including rheumatoid arthritis (“RA”), and other diseases such as refractory gout and age-related macular degeneration (“AMD”); seven product candidates in nephrology; two product candidates in the metabolic area that target type-2 diabetes; and three product candidates in dermatology.

The Group operates in a highly attractive industry. Biotechnology has revolutionized the pharmaceutical industry by addressing unmet medical needs and offering innovative treatments for a wide array of human diseases. In China, the biotechnology industry enjoys strong government support and has been selected by the State Council of China as a key strategic emerging industry. Strong government support along with increasing physician adoption of biopharmaceuticals has driven strong industry growth in China.

The Group is well positioned for global expansion. Outside of China, TPIAO has been approved in seven countries; Yisaipu has been approved in 13 countries; and EPIAO has been approved in 22 countries. The Group’s manufacturing facility for Yisaipu has received a Qualified Person’s Declaration Equivalence to European Union Good Manufacturing Practice for Investigation Medicinal Products manufactured in Third Countries. The Group is conducting multi-center biosimilar clinical trials for EPIAO in Russia and Thailand. In the long term, the Group aims to market its products in developed countries. Furthermore, the Group is collaborating with international partners to develop and market the Group’s product candidates, such as pegsiticase. The Group aims to focus its efforts on research and development (“R&D”) by providing innovative therapeutics for patients in China and globally.

As at 30 June 2018, the Group had operation facilities in Shenyang, Shanghai, Hangzhou and Shenzhen, all in China, as well as in Como, Italy, with over 4,400 employees. The Group’s pharmaceutical products are marketed and sold in all provinces, autonomous regions and special municipalities (except Hong Kong and Macau) in China, as well as a number of foreign countries and regions. During the six months ended 30 June 2018 (the “Reporting Period”), the Group’s nationwide sales and distribution network enabled it to sell its products to approximately 13,000 hospitals and medical institutions in China.

Notes:

1 Except where the context requires otherwise excluding Hong Kong, Macau and Taiwan.

2 All market share information throughout this Report cites the IMS data, unless otherwise noted.

2 3SBIO INC.

Corporate Information

BOARD OF DIRECTORS

Executive Directors

Dr. LOU Jing (Chairman and Chief Executive Officer)

Mr. TAN Bo

Ms. SU Dongmei Mr. HUANG Bin

Non-executive Directors

Mr. LIU Dong Mr. WANG Steven Dasong

NOMINATION COMMITTEE

Dr. LOU Jing (Chairman) Mr. PU Tianruo Mr. MA Jun

REGISTERED OFFICE (IN THE CAYMAN ISLANDS)

Cricket Square, Hutchins Drive PO Box 2681 Grand Cayman, KY1-1111 Cayman Islands

Independent Non-executive Directors

Mr. PU Tianruo Mr. David Ross PARKINSON Mr. MA Jun

JOINT COMPANY SECRETARIES

Ms. LIU Yanli Ms. LAI Siu Kuen (resigned on 20 August 2018) Ms. LEUNG Suet Wing (appointed on 20 August 2018)

AUTHORIZED

REPRESENTATIVES

Mr. TAN Bo Ms. LIU Yanli

AUDIT COMMITTEE

Mr. PU Tianruo (Chairman) Mr. WANG Steven Dasong Mr. MA Jun

HEADQUARTER

No. 3 A1, Road 10 Shenyang Economy and Technology Development Zone Shenyang People’s Republic of China

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

31/F, Tower Two, Times Square 1 Matheson Street Causeway Bay Hong Kong

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

Conyers Trust Company (Cayman) Limited Cricket Square, Hutchins Drive PO Box 2681 Grand Cayman, KY1-1111 Cayman Islands

REMUNERATION COMMITTEE

Mr. MA Jun (Chairman) Mr. LIU Dong Mr. PU Tianruo

Interim Report 2018 3

Corporate Information

HONG KONG SHARE REGISTRAR

Computershare Hong Kong Investor Services Limited Shops 1712–1716, 17th Floor Hopewell Centre 183 Queen’s Road East Wanchai Hong Kong

AUDITORS

Ernst & Young Certified Public Accountants 22/F, CITIC Tower 1 Tim Mei Avenue Central Hong Kong

SECURITIES CODES

LEGAL ADVISERS

As to Hong Kong law and United States law

Baker & McKenzie 14th Floor, Hutchison House 10 Harcourt Road Central Hong Kong

As to China law:

Jingtian & Gongcheng 34th Floor, Tower 3, China Central Place 77 Jianguo Road Chaoyang District Beijing People’s Republic of China

As to Cayman Islands law: Conyers Dill & Pearman Cricket Square, Hutchins Drive PO Box 2681 Grand Cayman, KY1-1111 Cayman Islands

Shares Listing Ordinary Shares The Stock Exchange of Hong Kong Limited (Stock Code: 1530)

Convertible Bonds Listing €300,000,000 Zero-Coupon Convertible Bonds due 2022 The Stock Exchange of Hong Kong Limited (Convertible Bonds Code: 5241)

COMPANY’S WEBSITE

www.3sbio.com

PRINCIPAL BANK

Industrial Bank Co., Ltd, Shenyang Branch No. 36 Shiyiwei Road Heping District Shenyang People’s Republic of China

3SBIO INC.

4

Financial Highlights

• Revenue increased by approximately RMB467.2 million or approximately 27.4% to approximately RMB2,174.0 million, as compared to the six months ended 30 June 2017.

• Gross profit increased by approximately RMB289.6 million or approximately 19.9% to approximately RMB1,746.6 million, as compared to the six months ended 30 June 2017, and gross profit margin was approximately 80.3%.

• Normalized EBITDA[1] increased by approximately RMB171.5 million or approximately 25.7% to approximately RMB838.5 million, as compared to the six months ended 30 June 2017. EBITDA increased by approximately RMB139.1 million or approximately 21.3% to approximately RMB791.8 million, as compared to the six months ended 30 June 2017.

• Normalized net profit attributable to owners of the parent[2] increased by approximately RMB153.8 million or approximately 37.8% to approximately RMB560.8 million, as compared to the six months ended 30 June 2017. Net profit attributable to owners of the parent increased by approximately RMB121.4 million or approximately 30.9% to approximately RMB514.2 million, as compared to the six months ended 30 June 2017.

Notes:

• 1 The normalized EBITDA is defined as the EBITDA for the period excluding, as applicable: (a) the expenses incurred in relation to the issuance of the Euro-denominated zero-coupon convertible bonds (the “Bonds”) in an aggregate principal amount of €300,000,000 due 2022; (b) the option expenses associated with the options granted on 2 February 2017.

2 The normalized net profit attributable to owners of the parent is defined as the profit for the period excluding the same items as listed in Note 1 above.

5

Interim Report 2018

Management Discussion and Analysis

Key Events

As announced on 4 January 2018, one of the Group’s in-licensed products, China’s first GLP-1 receptor agonist weekly preparation Bydureon (generic name: Exenatide Microsphere for injection) had been approved by the State Drug Administration of China[3] (“SDA”) as a new treatment option to improve glycemic control for patients with type 2 diabetes. As the first and currently the only GLP-1 medicine in China administered once-weekly, Exenatide Microsphere can reduce the frequency of dosing, reduce gastrointestinal adverse effects, increase drug stability and improve patient compliance by continuing to provide steady-state levels of Exenatide with sustained release microsphere technology. This product was licensed to the Group by AstraZeneca in October 2016, and launched in China on 25 May 2018.

As announced on 15 January 2018, 3SBio’s wholly-owned subsidiary, Hongkong Sansheng Medical Limited (香港三生醫 藥有限公司, “Hongkong Sansheng”) and Toray Industries, Inc. (“Toray”) entered into an exclusive licensing agreement (the “Toray Agreement”) on certain oral disintegration tablet formulation of antipruritic drug TRK-820 (as under Toray development code, with generic name nalfurafine hydrochloride, also known as “REMITCH” as approved in Japan) that is developed and manufactured by Toray. Pursuant to the Toray Agreement, Toray agreed to grant Hongkong Sansheng the exclusive right to develop and commercialize this product in the PRC except for Hong Kong, Macau and Taiwan. Hongkong Sansheng agreed to pay initial payment and milestone payments to Toray.

As announced on 22 February 2018, the Group had received an approval from the SDA to conduct clinical trials of TPIAO for the pediatric immune thrombocytopenia (immune thrombocytopenia, “ITP”) indication.

On 30 April 2018, the Company announced a research collaboration with Menlo Park, California-based Refuge Biotechnologies, Inc. (“Refuge”), a company leveraging gene engineering technologies to develop intelligent cell therapeutics programmed to make decisions inside of patients. The two companies will jointly design and carry out research programs focusing on developing Programmed Therapeutic Cells that can produce therapeutic biologics agents in a disease micro environment inside patient’s body, using Refuge’s platform technology. 3SBio will have exclusive license to develop and commercialize the Programmed Therapeutic Cells in Greater China under the research collaboration agreement. Concurrently, 3SBio and co-lead investors Sequoia Capital China, as well as existing Series A investors, had completed a United States Dollar (“USD”) 25 million Series B investment round into Refuge.

In May 2018, the Group received an approval from SDA for Phase II and Phase III trials of NuPIAO (SSS06) in anemic patients.

In June 2018, the Group received three additional clinical trial approvals from the SDA for an anti-VEGF antibody (601A) for the treatment of several ophthalmic diseases, including macular edema following retinal vein occlusion (RVO), myopic choroidal neovascularization (mCNV), and diabetic retinopathy with macular edema (DME).

Note:

3 Formerly known as the China Food and Drug administration, restructured and renamed in April 2018.

6 3SBIO INC.

Management Discussion and Analysis

In July 2018, the Group entered into an agreement with a Beijing-based pharmaceutical company to acquire a calcium acetate tablet product. Calcium acetate tablet treats hyperphosphatemia in patients with chronic kidney disease, and is included in the National Reimbursement Drug List (“NRDL”) as a Class B Drug (No. 149). A market survey conducted by the Company shows that this product is one of the primary treatments in hyperphosphatemia. The Company expects to market this product by the end of 2018.

In August 2018, China Pharmaceutical Industry Information Center (“CPIIC”) issued the “2017 China Pharma 100” List (the “List”), which ranked the Group as the 67th of the top 100 pharmaceutical companies in China, as compared to 84th in 2016, and the Group is the pharmaceutical company with fastest rise in the List. CPIIC is an official pharmaceutical information platform of the PRC Ministry of Industry and Information Technology. The List is officially recognized by local authorities in the government-sponsored competitive bidding process that determines the medicine procurement of state-owned hospitals, as any company elected in the List will be awarded points for the bidding. CPIIC also elected the Group as one of the Best Pharmaceutical R&D Pipeline Companies in China.

Key Products

TPIAO is the Group’s self-developed proprietary product, and has been the only commercialized rhTPO product in the world since its launch in 2006. TPIAO has been approved by the SDA for two indications: the treatment of chemotherapyinduced thrombocytopenia (“CIT”) and ITP. TPIAO has the advantages of higher efficacy, faster platelet recovery and fewer side effects as compared to alternative treatments for CIT and ITP. TPIAO is included in the 2017 NRDL as a Class B Drug (No. 214) for the treatment of severe CIT in patients with solid tumors or ITP. In “The Consensus of China Experts on Diagnosis and Treatment of Adult Primary Immune Thrombocytopenia” (2016 Version), rhTPO products are included as the first choice recommendation for the second line treatments list, and are recommended among the medicines to boost platelet production in certain emergencies cases. In “The Chinese Guidelines for Treatment of Adult Primary Immune Thrombocytopenia”, published in International Journal of Hematology in April 2018, rhTPO is included as the first choice recommendation for the second line treatments list. In “The Guidelines of Chinese Society of Clinical Oncology (CSCO) — Conventional Osteosarcoma”, issued in April 2018, TPIAO is recommended as one of the primary treatments in the CIT context. TPIAO has experienced significant sales growth due to increasing physician awareness of its safety and efficacy as a treatment for CIT and ITP and its quick adoption in China. The inclusion in the 2017 NRDL also led to accelerated growth for TPIAO since the fourth quarter of 2017, as the 2017 NRDL was implemented from September 2017 onwards. The Group believes that TPIAO is still at an early stage of its product life cycle. The Group estimates that the penetration rates for both CIT and ITP indications in China may be approximately 17% to 19%. Currently, the majority of the Group’s sales of TPIAO is generated from approximately 12% of the hospitals covered by the Group’s sales team. The China market share of TPIAO for the treatment of thrombocytopenia by volume is 18.2% in the first half of 2018. On 24 May 2017, the Group received an approval from the SDA to conduct clinical trials for TPIAO for the treatment of surgery patients with hepatic dysfunction at the risk of thrombocytopenia. In addition, TPIAO has received an approval from the SDA to conduct clinical trials for pediatric ITP indication in February 2018. Outside of China, TPIAO has been approved in seven countries.

Interim Report 2018 7

Management Discussion and Analysis

Yisaipu, generically known as Etanercept, is a TNF α inhibitor product. It was first launched in 2005 in China for RA. Its indications were expanded to ankylosing spondylitis (“AS”) and psoriasis in 2007. The Group actively participated in the works related to “The Rheumatoid Arthritis Treatment Guidance” (the “Guidance”), an authoritative document issued by the China Medical Association. Yisaipu is adopted in the Guidance under ‘TNF- α inhibitors’ as one of the RA treatment options, and the Guidance deems TNF- α inhibitors as a group of biological agents with relatively sufficient evidence and relatively wide adoption in treating RA. Yisaipu is included in the 2017 NRDL as a Class B Drug (No. 846) for the treatment of patients with confirmed diagnosis of RA, and for the treatment of patients with confirmed diagnosis of AS (not including pre-radiographic axial spondyloarthritis), each subject to certain medical prerequisites. Yisaipu has experienced significant growth as the first-to-market Etanercept product in China, with a dominant market share in China of 63.5% by sales in the first half of 2018. The sales coverage of Yisaipu extends to more than 2,600 hospitals in China, including over 1,000 Grade III hospitals. The inclusion in the 2017 NRDL also led to accelerated growth of Yisaipu since the fourth quarter of 2017, as the 2017 NRDL was implemented from September 2017 onwards. The Group believes that Yisaipu is still at an early stage of its product life cycle. The Group estimates that the penetration rates for RA and AS in China are each less than 5%. Currently, the majority of the Group’s sales of Yisaipu is generated from approximately 9% of the hospitals covered by the Group’s sales team. The prefilled syringe of Yisaipu in the Group’s pipeline would be the only TNF α inhibitor product in prefilled format among Chinese peers, of which the Group has completed the Phase III trial and is expecting to apply for manufacturing approval in the second half of 2018. The Group is of the view that the prefilled syringe of Yisaipu will improve patients convenience and contribute to further growth of Yisaipu. Outside of China, Yisaipu has been approved in 13 countries. In March 2018, the Group received the marketing authorization for Yisaipu from Thailand. Thailand is a member of the Pharmaceutical Inspection Co-operation Scheme (the “PIC/S”). PIC/S is a non-binding and informal co-operative arrangement between regulatory authorities in the field of Good Manufacturing Practices of medicinal products for human or veterinary use. PIC/S presently comprises 52 participating authorities from Europe, Africa, America, Asia and Australia. The marketing authorization received from a PIC/S member will facilitate the review process by other PIC/S members and benefit the Group’s international registration in PIC/S countries and its further expansion into the highly regulated markets. In July 2018, the Group received the marketing authorization for Yisaipu from the Philippines which has a population over 100 million, with the potential to increase the Group’s export sales. In November 2017, the Group’s manufacturing facility for Yisaipu received a Qualified Person’s Declaration Equivalence to European Union Good Manufacturing Practice for Investigation Medicinal Products manufactured in Third Countries. This declaration attests to the high quality of Yisaipu as assessed under the EU standards and the good adherence of the Yisaipu manufacturing facility to the EU standards.

EPIAO is still the only rhEPO product approved by the SDA for three indications: the treatment of anemia associated with chronic kidney disease (“CKD”), the treatment of chemotherapy-induced anemia (“CIA”) and the reduction of allogeneic blood transfusion in surgery patients. EPIAO is included in the NRDL as a category B drug in China since 2000. EPIAO has consistently been the dominant market leader in China rhEPO market since 2002 in terms of both volume and value. EPIAO is the only rhEPO product in China available at 36,000 IU (international unit per vial) dosage, and together with SEPO, claims the majority of the China rhEPO market share at 10,000 IU dosage. Future growth for EPIAO may be driven by: (1) the increase of the dialysis penetration rate among stages IV and V CKD patients, which the Group believes is substantially lower in China as compared with other countries;

8 3SBIO INC.

Management Discussion and Analysis

and (2) the increase in the applications of EPIAO in reducing allogeneic blood transfusion and in CIA oncology indication in China, which the Group believes is at a very early stage of growth. With contribution from the second brand of the Group’s rhEPO products, SEPO, market coverage of the Group’s rhEPO products has expanded in Grade II and Grade I hospitals, where sales of its rhEPO products have been experiencing significant growth. The Group expects that SEPO will continue to gain market share in the China rhEPO market. Outside of China, EPIAO has been approved in 22 countries. The multi-center biosimilar clinical trials for EPIAO in Russia and Thailand have made good progress, with patients recruitment for the maintenance period to be completed by the end of 2018. The trials are expected to be completed by 2019. The Group intends to include Ukraine in the multi-center clinical trials in 2018 to expedite patient enrollment.

Humulin was the first bio-synthetic human insulin product and was also the first medical product for human therapeutic use produced by recombinant DNA technology in the world. Humulin is licensed from Lilly, and the Group started to consolidate the revenue of Humulin from July 2017. Diabetes is a major chronic disease in China, and China has the largest diabetes patient population in the world. The Group is of the view that Human insulin being included in the 2017 NRDL as a Class A Drug and the establishment and implementation of the tiered medical service system will lead to further growth of human insulin in lower tier market in China.

Byetta, generically known as “Exenatide injection”, is an injectable GLP-1 receptor agonist, administered twice daily as an adjunct to diet and exercise to improve glycemic control in adults with type 2 diabetes mellitus, which is indicated for treatment of patients who have not achieved adequate glycaemic control on metformin, sulphonylureas, or metformin plus sulphonylureas. Byetta is licensed from AstraZeneca, and the Group started to record the revenue of Byetta from October 2016. Bydureon, the weekly administered GLP-1 product licensed from AstraZeneca, was launched on 25 May 2018, and the Group started to record its revenue since the launch date. In “the Clinical Application of GLP-1 receptor agonists — Experts Guidance” (the “Experts Guidance”) published in Chinese Journal of Diabetes (May 2018, Vol. 26, No. 5), the experts are of the opinion that GLP-1 receptor agonists are an important class of novel hypoglycemic drug in the treatment of type 2 diabetes mellitus, with increasingly wider clinical application; that they have reliable and safe hypoglycemic efficacy, and have additional benefits outside blood glucose reduction including body weight reduction, systolic pressure reduction and blood lipid profile improvement. The Experts Guidance recommends that GLP-1 receptor agonists can be used in mono-therapy, or in combination therapy when other multiple oral hypoglycemic drug and basal insulin fail to achieve desired glycemic control.

Qiming Keli, Man Di (蔓迪), Di Su (迪蘇) and Lai Duo Fei (萊多菲) are a group of dermatology and ophthalmology drugs, indicated to treat diabetic retinopathy, alopecia areata, chronic bronchitis and chronic idiopathic urticaria, respectively. Qiming Keli is included in the 2017 NRDL as a Class B Traditional Chinese Medicine (No. 1004) for the treatment of non-proliferative retinopathy caused by type 2 diabetes.

Interim Report 2018 9

Management Discussion and Analysis

Product Pipeline

As at 30 June 2018, amongst the 32 product candidates within the Group’s active pipeline, 17 were being developed as National Class I New Drugs in China. The Group has eight product candidates in oncology; 12 product candidates that target auto-immune diseases including RA, and other diseases such as refractory gout and AMD; seven product candidates in nephrology; two product candidates in the metabolic area that target type-2 diabetes; and three product candidates in dermatology.

Robust and Innovative Product Pipeline Supported by Integrated R&D Platform

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----- Start of picture text -----

Clinical Trial New Drug Production
Therapeutic Area Product Candidate Pre-Clinical Application Phase I Phase II Phase III Registration Permit
SSS06
RD001
SSS17
Nephrology SSS18
Nalfurafine hydrochloride
SSS12
SSS13
302H
304R
602
SSS24
Oncology
609A
612
704
705
301S
SSS07
SSS11
601A
TPIAO — Hepatic disease
Auto-Immune
TPIAO — Pediatric ITP
Diseases and
AP506
Other Areas
SSS20
SSS32
608
610
611
Metabolic Bydureon DCP
Diseases SSS26
KW303
Dermatological MN709
Diseases
ND409
[Monoclonal Antibody] [Other Biologics] [Small Molecular Drugs]
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Research and Development

The Group’s integrated R&D platform covers a broad range of technical expertise in the discovery and development of innovative bio-pharmaceutical products, including molecular cloning, antibody/protein engineering, gene expression, cell line construction, manufacturing process development, large scale manufacturing, quality control and assurance, design and management of pre-clinical and clinical trials, and regulatory filing and registration. The Group is experienced in R&D of mammalian cell-expressed, bacterial cell-expressed and chemically-synthesized pharmaceuticals.

3SBIO INC.

10

Management Discussion and Analysis

The Group focuses its R&D efforts on researching and developing innovative biologics products. Currently, the Group has several leading biologics products in various stages of clinical development, including SSS06 (NuPIAO, the second-generation rhEPO to treat anemia), RD001 (pegylated long-acting erythropoietin to treat anemia), SSS07 (the anti-TNF α antibody to treat RA), SSS11 (Pegsiticase, a modified pegylated recombinant uricase from candida utilis to treat refractory gout), 602 (an anti-epidermal growth factor receptor antibody to treat cancer), 601A (an anti-vascular endothelial growth factor (“VEGF”) antibody to treat AMD), and 301S (prefilled syringe dosage form of Yisaipu). On the research front, the Group is developing a panel of novel biologics products, including monoclonal antibody (“mAb”) products, bispecific antibodies and fusion proteins, and a number of small molecule generic drugs, in the areas of oncology, auto-immune and inflammatory diseases, nephrology, metabolic and dermatological diseases.

The Group has completed the Phase III trial of the prefilled syringe dosage form of Yisaipu (301S) and is preparing to apply for manufacturing approval from the SDA in the second half of 2018.

The Group has completed the Phase III trials of Clindamycin Phosphate and Tretinoin Gel for topical treatment of acne vulgaris in patients of 12 years and older, and expects to file for manufacturing approval in the second half of 2018.

The Group has completed multiple Phase I trials of NuPIAO (SSS06) in anemic patients, and obtained an approval from SDA in May 2018 for Phase II and Phase III clinical trials. Patient enrollment is expected to begin soon.

The Group has completed the Phase Ia clinical trial of a humanized anti-TNF α antibody (SSS07) in healthy volunteers, and has initiated the Phase Ib trial in patients with RA since the second half of 2017.

The Group has completed patient enrollment for a Phase I trial of an anti-epidermal growth factor receptor antibody (602), and is currently planning the pivotal Phase III trials of this product candidate in patients with colorectal cancer.

As announced on 5 January 2017, the Group has received an investigation new drug (“IND”) approval for clinical trials for Pegsiticase (SSS11) from the SDA in refractory gout patients with high uric acid level. Clinical trial for Pegsiticase has been initiated in the second half of 2017. The Group’s business partner, Selecta Biosciences, Inc. (NASDAQ: SELB) (“Selecta”) is conducting Phase II trials for SEL-212 (consisting of Pegsiticase, co-administered with SVP-Rapamycin to prevent the formation of anti-drug antibodies) in the United States. Their study has shown positive results in reducing uric acid levels while having significantly fewer patients experiencing gout flares during treatment. Selecta expects to initiate its Phase III trial in 2018.

On 24 May 2017, the Group received an IND approval for clinical trials from the SDA for TPIAO in surgery patients with hepatic dysfunction at the risk of thrombocytopenia. Patient enrollment has begun since the second quarter of 2018. In addition, the Group was granted a new IND approval from the SDA for clinical trials of TPIAO in pediatric ITP indication in February 2018.

As announced on 11 October 2017, an anti-VEGF antibody (601A) had been granted an approval by the SDA for clinical trials in patients with neovascular AMD. Patient enrollment is expected to be initiated in the second half of 2018. In January 2018, the Group received clinical trial approvals from the SDA for this product candidate in patients with non-small cell lung cancer and cervical carcinoma. Further, the Group received three additional clinical trial approvals from the SDA in June 2018 for this product candidate for the treatment of several other ophthalmic diseases, including macular edema following retinal vein occlusion (RVO), myopic choroidal neovascularization (mCNV), and diabetic retinopathy with macular edema (DME).

Interim Report 2018 11

Management Discussion and Analysis

As announced on 4 January 2018, one of the Group’s in-licensed products, a GLP-1 receptor agonist weekly preparation, Bydureon (generic name: Exenatide Microsphere for injection), was approved by the SDA as a new treatment option to improve glycemic control for patients with type-2 diabetes. The Group has launched this product, the first long-acting weeklydosing GLP-1 receptor agonist on China market in May 2018.

Fluticasone Propionate Cream, a product with broad applications in the treatment of a variety of dermatological disorders, was granted a marketing approval from the SDA on 26 July 2017. The Group launched the product in March 2018.

On 1 February 2018, the Group received a supplemental marketing approval from the SDA of Tacrolimus Ointment (0.03%) for pediatric indications in children aged 2–15 years old with moderate to severe atopic dermatitis.

During the period from 2009 to 2013, the Group conducted an open label, multi-center, perspective Phase III trial in China with a humanized anti-HER2 antibody, the Group’s product candidate 302H (賽普汀), in patients with HER2 over-expressing metastatic breast cancer. A total of 26 hospitals and clinical centers participated in the study. A group of 341 eligible patients were randomized into two groups, one receiving the product candidate 302H plus vinorelbine (長春瑞濱), while the other group receiving vinorelbine until either intolerance due to toxicity or disease progression, followed by switching to the product candidate 302H as a single agent therapy. The final results showed that there was a significant prolongation in progression-free survival (“PFS”) and greater reduction in the risk of disease progression in patients who received the product candidate 302H plus vinorelbine in combination, as compared to those receiving chemotherapy alone or chemotherapy followed by the product candidate 302H. The medium PFS for the combination group was 39 weeks (95% CI, 32.0–48.0), whereas the medium PFS for the chemotherapy-alone group was 14.1 weeks (95% CI, 8.0–21.0) (HR, 0.24, p<0.0001). The overall objective response rate (ORR, CR+PR) was also significantly higher in the combination group than the chemotherapy-alone group (46.7% vs 18.45%, p<0.0001). The disease control rate (CR+PR+SD) was 80.66% in the combination group and 45.63% in the chemotherapyalone group (p<0.0001). There was no significant difference in the occurrence of systemic toxicities and serious adverse events between the two treatment groups. The Group has completed a thorough inspection and audit of all the clinical sites and the associated clinical data, with the assistance of a retained third-party clinical study audit firm. The Group has finalized the clinical study report, and re-submitted a new drug application to the SDA recently, with the aim to register the product in China as a safe and efficacious therapeutic biologics medicine for the treatment of HER2 over-expression metastatic breast cancer.

The Group’s R&D team of experienced researchers and scientists under the leadership of Dr. ZHU Zhenping, the chief scientific officer of the Company, is working diligently to research and discover new medicines, to accelerate the progress of clinical development, and to bring breakthrough therapies to fulfill the unmet medical needs of patients.

Sales, Marketing and Distribution

The Group’s sales and marketing efforts are characterized by a strong emphasis on academic promotion. The Group aims to promote and strengthen the Group’s academic recognition and the brand awareness of its products among medical experts. The Group markets and promotes its key products mainly through its in-house sales and marketing team. The Group sells these products to distributors who are responsible for delivering products to hospitals and other medical institutions. The Group relies on third-party promoters to market certain products.

12 3SBIO INC.

Management Discussion and Analysis

As at 30 June 2018, the Group’s extensive sales and distribution network in China was supported by approximately 2,727 sales and marketing employees, 345 distributors and 1,561 third-party promoters. As at 30 June 2018, the Group’s sales team covered over 2,000 Grade III hospitals and over 11,000 Grade II or lower hospitals and medical institutions, reaching all provinces, autonomous regions and special municipalities in China. In addition, TPIAO, Yisaipu, EPIAO, SEPO and some of the Group’s other products are exported to a number of countries through international promoters.

With the in-license of the AstraZeneca diabetes products (including Byetta and Bydureon), Byetta’s sales team was integrated into the Group’s commercialization platform. With the in-license of Humulin from Lilly, the Group further expanded diabetes sales team to promote Humulin in China in 2017.

Outlook

With the deepening of the healthcare reform in China, the Group is of the view that the pharmaceutical landscape will reshape in the coming years. The healthcare reforms carry a variety of implications to the industry and will favor companies with focus on innovation, manufacturing quality, and market access. More government support is expected for innovative drugs and drugs with urgent clinical needs, indicating accelerated approval timeline and greater chance to be included on the NRDL. The R&D bar is raised with the aim to improve drug quality. The acceptance of overseas clinical trial data will bring in more innovative drugs to address the unmet medical needs in China. The improved living standards and an aging population demand high quality healthcare products.

The mission of the Group has been to provide innovative and affordable medicines with global quality standard to the public. The Group aims to become a China-based, leading global biopharmaceutical company by leveraging its integrated R&D, commercial and manufacturing platforms.

The Group plans to grow sales of its marketed products by further penetration into the hospitals currently covered by the Group’s sales and marketing team and new hospitals to be reached and brought under coverage, through continuous education of the medical profession. The current market penetration rates of the Group’s three core products are still relatively low, promising significant growth potentials. With the three products (including two core products) added in the 2017 NRDL, the Group is strengthening these products’ penetration in the hospitals under its coverage and executes further expansion of these products in lower-tier cities and hospitals to address unmet medical needs.

The Group focuses on developing leading biologics products, including NuPIAO, RD001, SSS07, Pegsiticase, product candidate 602, product candidate 601A, prefilled syringe of Yisaipu and other mAb products. The Group is developing a panel of novel biologic products, including mAbs, bispecific antibodies and fusion proteins and a number of small molecule generic drugs. The Group’s core therapeutic areas include oncology, immunology, nephrology, metabolic diseases and dermatology. The Group expects to receive one new Class 1 drug and/or new indication approval and two to three IND approvals on an annual basis. The Group will continue to build up its in-house clinical development capacity and capability through human capital and financial resource invested on a high priority basis.

Interim Report 2018 13

Management Discussion and Analysis

The Group continues to build up a comprehensive quality system and voluntarily adheres to global standards. The Group has proven track record in terms of the efficacy and safety profile of Group’s products, and the Group’s manufacturing facilities have passed numerous inspections conducted by the SDA and local authorities in the past years. With the Group’s approximately 38,000-liter capacity mAb facility, as well as mammalian cell-based, bacteria cell-based and small molecule manufacturing facilities and over 25 years of experience in the biologics medicine manufacturing field, the Group is able to manufacture high quality pharmaceutical products with scalable manufacturing capacity at competitive cost. The mAb manufacturing capability of the Group well positions it for its strategic objective of creating a profitable CDMO business, leveraging on its existing CDMO assets. The Group is actively and selectively seeking opportunities to bring in clinical trial stage biologic products in order to provide commercial manufacturing service.

The Group continues to seek selective merger and acquisition and collaboration opportunities to enrich its existing product portfolio and pipeline to sustain long term growth. The strategic collaborations with AstraZeneca, Lilly and Toray are affirmations of the Group being the partner of choice to leading pharmaceutical companies around the world, and serve as an important foundation for future strategic collaborations. The Group is growing its international sales through registration of existing products in new countries and registration of new products in highly regulated markets.

FINANCIAL REVIEW

Revenue

For the six months ended 30 June 2018, the Group’s revenue amounted to approximately RMB2,174.0 million, as compared to approximately RMB1,706.7 million for the six months ended 30 June 2017, representing an increase of approximately RMB467.2 million, or approximately 27.4%. The increase is mainly attributable to the sales growth of the Group’s key products and the consolidation of the revenue of Humulin into the Group’s consolidated financial statements since 1 July 2017.

For the six months ended 30 June 2018, the Group’s sales of TPIAO increased to approximately RMB840.7 million, as compared to approximately RMB492.6 million for the six months ended 30 June 2017, representing an increase of approximately RMB348.0 million, or approximately 70.7%. Under the IMS methodology, the hospital consumption of TPIAO grew approximately 101.0% for the six months ended 30 June 2018, as compared to the corresponding period in 2017. The increase is primarily attributable to an increase in sales volume, which in turn was primarily driven by the increase in recognition of TPIAO within the medical profession and the accelerated growth due to the implementation of the NRDL beginning from September 2017. For the six months ended 30 June 2018, sales of TPIAO accounted for approximately 38.5% of the Group’s total sales of goods.

For the six months ended 30 June 2018, the Group’s sales of Yisaipu increased to approximately RMB442.4 million, as compared to approximately RMB439.8 million for the six months ended 30 June 2017, representing a slight increase of approximately RMB2.6 million, or approximately 0.6%. Under the IMS methodology, the hospital consumption of Yisaipu grew approximately 36.9% for the six months ended 30 June 2018, as compared to the corresponding period in 2017. The increase was primarily attributable to an increase in sales volume, which in turn was driven by the accelerated growth due to

14 3SBIO INC.

Management Discussion and Analysis

the implementation of the NRDL beginning from September 2017. The slower growth of the Group’s reported sales of Yisaipu than the hospital consumption is primarily due to the Group’s improvement of its commercial policy. The new policy requires a lower level of channel stock, and as a result, the Group is able to negotiate more favorable commercial terms with the distributors. For the six months ended 30 June 2018, the sales of Yisaipu accounted for approximately 20.3% of the Group’s total sales of goods.

For the six months ended 30 June 2018, the Group’s sales of EPIAO and SEPO increased to approximately RMB426.8 million, as compared to approximately RMB409.0 million for the six months ended 30 June 2017, representing an increase of approximately RMB17.7 million, or approximately 4.3%. The increase was primarily attributable to an increase in sales volume. For the six months ended 30 June 2018, the Group’s sales of SEPO increased to approximately RMB87.4 million, as compared to approximately RMB65.2 million for the six months ended 30 June 2017, representing an increase of approximately RMB22.3 million, or approximately 34.2%. For the six months ended 30 June 2018, the Group’s sales of EPIAO decreased to approximately RMB339.3 million, as compared to approximately RMB343.9 million for the six months ended 30 June 2017, representing a slight decrease of approximately RMB4.5 million, or approximately 1.3%. The decrease was primarily attributable to a decrease in the ex-factory price. The second brand of the Group’s rhEPO product, SEPO, performed strongly and expanded the market coverage. For the six months ended 30 June 2018, the sales of EPIAO and SEPO accounted for a total of approximately 19.5% of the Group’s total sales of goods.

For the six months ended 30 June 2018, the Group’s sales of Humulin were approximately RMB15.9 million, and service income associated with the promotion of Humulin was approximately RMB77.9 million, both of which were consolidated into the Group’s consolidated financial statements since 1 July 2017.

For the six months ended 30 June 2018, the Group’s sales of Byetta and Bydureon were approximately RMB78.4 million, as compared to approximately RMB85.2 million for the six months ended 30 June 2017, representing a slight decrease of RMB6.8 million, or approximately 7.9%. Bydureon demonstrated encouraging momentum after its launch, while Byetta is under some pressure.

For the six months ended 30 June 2018, the Group’s sales of dermatology products increased to approximately RMB104.5 million, as compared to approximately RMB89.9 million for the six months ended 30 June 2017, representing an increase of approximately RMB14.6 million, or approximately 16.2%.

For the six months ended 30 June 2018, the Group’s export sales increased to approximately RMB40.5 million, as compared to approximately RMB37.0 million for the six months ended 30 June 2017, representing an increase of approximately RMB3.5 million, or approximately 9.4%. The increase was primarily attributable to an increase in export sales to Sri Lanka.

For the six months ended 30 June 2018, the Group’s sales of other products primarily included the contract manufacturing income derived from Sirton Pharmaceuticals S.p.A. (“Sirton”), a wholly-owned subsidiary of the Company, and the sales of IV Iron Sucrose, Sparin and Qiming Keli.

Interim Report 2018 15

Management Discussion and Analysis

Cost of Sales

The Group’s cost of sales increased from approximately RMB249.6 million for the six months ended 30 June 2017 to approximately RMB427.3 million for the six months ended 30 June 2018, which accounted for approximately 19.7% of the Group’s total revenue for the same period. The primary reasons for the increase in the Group’s cost of sales were the increased sales volume for the six months ended 30 June 2018, as compared to the corresponding period in 2017, and the consolidation of the cost of sales of Humulin into the Group’s consolidated financial statements since 1 July 2017.

Gross Profit

For the six months ended 30 June 2018, the Group’s gross profit increased to approximately RMB1,746.6 million, as compared to approximately RMB1,457.1 million for the six months ended 30 June 2017, representing an increase of approximately RMB289.6 million, or approximately 19.9%. The increase in the Group’s gross profit was broadly in line with its revenue growth during the period. The Group’s gross profit margin decreased to approximately 80.3% for the six months ended 30 June 2018 from approximately 85.4% for the corresponding period in 2017. The decrease was mainly attributable to the Group’s consolidation of income associated with the promotion of Humulin since 1 July 2017, which had a lower gross profit margin than the Group’s other businesses.

Other Income and Gains

The Group’s other income and gains mainly comprised government grants, interest income, foreign exchange gain and other miscellaneous income. For the six months ended 30 June 2018, the Group’s other income and gains increased to approximately RMB117.5 million, as compared to approximately RMB35.4 million for the six months ended 30 June 2017, representing an increase of approximately RMB82.1 million, or approximately 231.8%. The increase was mainly attributable to the increase in foreign exchange gains and interest income derived from the treasury or cash management products and other investments.

Selling and Distribution Expenses

The Group’s selling and distribution expenses primarily consisted of marketing and promotion expenses, staff costs, transportation expenses, consulting fees and other miscellaneous selling and distribution expenses. For the six months ended 30 June 2018, the Group’s selling and distribution expenses amounted to approximately RMB822.9 million, as compared to approximately RMB654.9 million for the six months ended 30 June 2017, representing an increase of approximately RMB168.0 million, or approximately 25.6%. The increase was mainly attributable to the increased promotional activities for the Group’s key products and the marketing expenses associated with the launch of Bydureon. In terms of the percentage of revenue, the Group’s selling and distribution expenses decreased from approximately 38.4% for the six months ended 30 June 2017 to approximately 37.9% for the six months ended 30 June 2018.

16 3SBIO INC.

Management Discussion and Analysis

Administrative Expenses

The Group’s administrative expenses consisted of staff costs, professional fees, depreciation and amortization, property expenses, share-based compensation, and other miscellaneous administrative expenses. For the six months ended 30 June 2018, the Group’s administrative expenses amounted to approximately RMB134.3 million, as compared to approximately RMB140.1 million for the six months ended 30 June 2017, representing a decrease of approximately RMB5.8 million, or approximately 4.2%. The decrease was mainly due to the one-off advisory fee of RMB4.5 million incurred in 2017 in relation to the issuance of the Bonds. Had the effects of the non-recurring item been excluded, the administrative expenses for the six months ended 30 June 2018 would have been approximately RMB123.5 million, as compared to approximately RMB125.9 million for the six months ended 30 June 2017, representing a slight decrease of approximately RMB2.4 million, or approximately 1.9%. The administrative expenses (excluding the aforementioned non-recurring item) as a percentage of revenue was approximately 5.7% for the six months ended 30 June 2018, as compared to approximately 7.4% for the corresponding period in 2017.

Other Expenses and Losses

The Group’s other expenses and losses primarily consisted of its R&D costs. For the six months ended 30 June 2018, the Group’s other expenses and losses amounted to approximately RMB224.2 million, as compared to approximately RMB149.1 million for the six months ended 30 June 2017, representing an increase of approximately RMB75.2 million, or approximately 50.4%. The increase was mainly due to increased R&D costs, which increased from approximately RMB113.1 million for the six months ended 30 June 2017 to approximately RMB178.0 million for the six months ended 30 June 2018.

Finance Costs

For the six months ended 30 June 2018, the Group’s finance costs amounted to approximately RMB73.4 million, as compared to approximately RMB60.1 million for the six months ended 30 June 2017, representing an increase of approximately RMB13.3 million, or approximately 22.1%. The increase was mainly due to the increase in non-cash interest expenses of the Bonds, which was partially offset by the decrease in interest expenses derived from bank borrowings due to the repayment of bank borrowings during the six months ended 30 June 2018. Excluding the non-cash interest expenses of the Bonds, the finance cost for the six months ended 30 June 2018 would have been approximately RMB37.6 million.

Income Tax Expense

For the six months ended 30 June 2018, the Group’s income tax expense amounted to approximately RMB92.7 million, as compared to approximately RMB93.7 million for the six months ended 30 June 2017, representing a decrease of approximately RMB1.1 million, or approximately 1.1%. The decrease was mainly due to the increase of tax-deductible expenses during the six months ended 30 June 2018, as compared to the corresponding period in 2017. The effective tax rates for the six months ended 30 June 2018 and the corresponding period in 2017 were 15.4% and 19.4% respectively. The decrease in effective tax rate was mainly due to the decrease in offshore losses for the six months ended 30 June 2018, as compared to those for the six months ended 30 June 2017.

Interim Report 2018 17

Management Discussion and Analysis

EBITDA and Net Profit Attributable to Owners of the Parent

The EBITDA for the six months ended 30 June 2018 increased by approximately RMB139.1 million or approximately 21.3% to approximately RMB791.8 million, as compared to approximately RMB652.7 million for the six months ended 30 June 2017. The normalized EBITDA is defined as the EBITDA for the period excluding, as applicable: (a) the expenses incurred in relation to the issuance of the Bonds in an aggregate principal amount of €300,000,000 due 2022; and (b) the option expenses associated with options granted on 2 February 2017. The Group’s normalized EBITDA for the six months ended 30 June 2018 increased by approximately RMB171.5 million or approximately 25.7% to approximately RMB838.5 million, as compared to approximately RMB667.0 million for the six months ended 30 June 2017.

The net profit attributable to owners of the parent for the six months ended 30 June 2018 was approximately RMB514.2 million, as compared to approximately RMB392.8 million for the six months ended 30 June 2017, representing an increase of approximately RMB121.4 million, or approximately 30.9%. The normalized net profit attributable to owners of the parent is defined as the profit for the period excluding, as applicable: (a) the expenses incurred in relation to the issuance of the Bonds in an aggregate principal amount of €300,000,000 due 2022; and (b) the option expenses associated with options granted on 2 February 2017. The Group’s normalized net profit attributable to owners of the parent for the six months ended 30 June 2018 was approximately RMB560.8 million, as compared to approximately RMB407.0 million for the six months ended 30 June 2017, representing an increase of approximately RMB153.8 million, or approximately 37.8%. The faster growth of the normalized net profit than the revenue growth is primarily due to the lower interest expenses associated with bank loans, the increase in foreign exchange gains and in the interest income derived from the treasury or cash management products and other investments, as well as the accelerated growth of the Group’s core products with higher operating margin and improvement of operating efficiency.

Other Financial Assets

As at 30 June 2018, other financial assets primarily comprised the investment in treasury or cash management products issued by certain banks, the investment in a listed company and the investments in private equity funds which focus on investment in healthcare industry, which were recognised as available-for-sale investments under IAS 39 in previous years.

LIQUIDITY, FINANCIAL AND CAPITAL RESOURCES

The Group’s liquidity remained strong. For the six months ended 30 June 2018, the Group’s operating activities generated a net cash inflow of approximately RMB446.8 million. As at 30 June 2018, the Group’s cash and cash equivalents and time deposits (including pledged time deposits) were approximately RMB2,157.2 million.

18 3SBIO INC.

Management Discussion and Analysis

Net Current Assets

As at 30 June 2018, the Group had net current assets of approximately RMB2,504.6 million, as compared to net current assets of approximately RMB3,080.4 million as at 31 December 2017. The current ratio of the Group decreased from approximately 2.4 as at 31 December 2017 to approximately 2.0 as at 30 June 2018. The decrease in net current assets was mainly due to the increase in long-term interest-bearing bank borrowings due within one year and the increase in dividend payable.

Funding and Treasury Policies, Borrowing and Pledge of Assets

The Group’s finance department is responsible for the funding and treasury policies with regard to the overall business operation of the Group. The Company expects to fund its working capital and other capital requirements from a combination of various sources, including but not limited to internal financing and external financing at reasonable market rates. The Group continues to seek improving the return of the equity and assets while maintaining prudent funding and treasury policies.

As at 30 June 2018, the Group had an aggregate interest-bearing bank borrowings of approximately RMB1,567.9 million, as compared to approximately RMB2,134.3 million as at 31 December 2017. The decrease in bank borrowings primarily reflected the repayment of loans of RMB792.0 million, which was partially offset by the additional short-term bank loans of RMB221.5 million obtained in 2018. The short-term bank borrowings were obtained to replace long-term bank borrowings so as to lower interest expenses. Among the short-term deposits, none was pledged to secure bank loans as at 30 June 2018.

As at 30 June 2018, the Group had convertible bonds outstanding of approximately RMB2,234.9 million.

Gearing Ratio

The gearing ratio of the Group, which was calculated by dividing the total borrowings (excluding the Bonds) by the total equity, decreased to approximately 19.4% as at 30 June 2018 from approximately 28.0% as at 31 December 2017. The decrease was primarily due to repayment of loans.

Contingent Liabilities

As at 30 June 2018, the Group had no significant contingent liabilities.

Contractual Obligations

The Group’s capital commitment amounted to approximately RMB153.1 million as at 30 June 2018, as compared to approximately RMB93.5 million as at 31 December 2017.

Interim Report 2018 19

Management Discussion and Analysis

Foreign Exchange and Exchange Rate Risk

The Group mainly operates in China, with all material aspects of its regular business conducted in Renminbi other than: (1) the operations of Sirton; and (2) the Group’s exports, which amounted to approximately RMB40.5 million, or approximately 1.9% of the Group’s revenue, for the six months ended 30 June 2018. Except for the operations of Sirton, the Group’s exports, potential international deal-making expenditures (such as related to international licensing and acquisitions), foreign currency denominated bank deposits and the Euro-dominated Bonds, the Group believes that it does not have any other material direct exposure to foreign exchange fluctuations. As at 30 June 2018, the Group’s foreign currency denominated bank deposits primarily comprised: (1) approximately USD145.4 million (equivalent to approximately RMB962.1 million) denominated in US dollars; (2) approximately HKD15.9 million (equivalent to approximately RMB13.4 million) denominated in HK dollars; and (3) approximately €117.5 million (equivalent to approximately RMB899.2 million) denominated in Euro. The Group expects that the fluctuation of the Renminbi exchange rate will not have a material adverse effect on the operations of the Group in the foreseeable future.

Significant Investments Held

During the six months ended 30 June 2018, the Group did not have any significant investments.

Future Plans for Material Investments or Capital Assets

The Group estimates that the capital expenditure will be RMB300 million to RMB400 million per year for the next three years. These expected capital expenditures will primarily be incurred for the maintenance of the Group’s existing facilities and the expansion of the Group’s production capabilities. The Group expects to finance its capital expenditures through a combination of internally generated funds and bank borrowings.

EMPLOYEES AND EMOLUMENTS POLICY

As at 30 June 2018, the Group employed a total of 4,405 employees, as compared to a total of 4,051 employees as at 31 December 2017. The staff costs, including Directors’ emoluments but excluding any contributions to pension scheme, were approximately RMB474.1 million for the six months ended 30 June 2018, as compared to approximately RMB340.6 million for the corresponding period in 2017. The Group generally formulated its employees’ remuneration package to include salary, bonus and allowance elements. The compensation programs were designed to remunerate the employees based on their performance, measured against specified objective criteria. The Group also provided the employees with welfare benefits in accordance with applicable regulations and the Group’s internal policies. The Company has adopted a share option scheme and other incentive initiatives such as share and cash awards for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations.

20 3SBIO INC.

Corporate Governance and Other information

CORPORATE GOVERNANCE PRACTICES

The Group is committed to maintaining high standards of corporate governance to safeguard the interests of members of the Company and to enhance corporate value and accountability. The Company has adopted the Corporate Governance Code (the “CG Code”) contained in Appendix 14 to the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) as its own code of corporate governance.

Except as expressly described below, the Company complied with all applicable code provisions set out in the CG Code throughout the Reporting Period.

Pursuant to code provision A.2.1 of the CG Code, companies listed on the Stock Exchange are expected to comply with, but may choose to deviate from, the requirement that the responsibilities between the chairman and the chief executive officer should be segregated and should not be performed by the same individual. The Company does not have a separate chairman and chief executive officer. Dr. LOU Jing currently performs these two roles. The board (the “Board”) of Directors (the “Directors”) of the Company believes that vesting the roles of both chairman and chief executive officer in the same person has the benefit of ensuring consistent leadership within the Group and enabling more effective and efficient overall strategic planning for the Group. The Board considers that the balance of power and authority for the present arrangement will not be impaired and this structure will enable the Company to make and implement decisions promptly and effectively. The Board will from time to time review and consider splitting the roles of chairman of the Board and the chief executive officer of the Company at an appropriate time, taking into account the circumstances of the Group as a whole.

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS OF LISTED ISSUERS

The Company has adopted the “Model Code for Securities Transactions by Directors of Listed Issuer” as set out in Appendix 10 to the Listing Rules (the “Model Code”) as its code of conduct regarding securities transactions by the Directors. Having made specific enquiry with the Directors, all Directors confirmed that they had complied with the required standard as set out in the Model Code during the six months ended 30 June 2018.

THE BOARD AND ITS COMMITTEES

The compositions of the Board, the Audit Committee, the Nomination Committee and the Remuneration Committee of the Company are as set out in the Corporate Information section.

INTERIM DIVIDEND

The Board does not recommend any interim dividend for the six months ended 30 June 2018.

Interim Report 2018 21

Corporate Governance and Other information

CHANGES TO INFORMATION REGARDING DIRECTORS AND CHIEF EXECUTIVES

The Directors confirm that no information is required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules.

AUDIT COMMITTEE

The Board has established an audit committee (the “Audit Committee”) which comprises two independent non-executive Directors and one non-executive Director, namely Mr. PU Tianruo (chairman), Mr. WANG Steven Dasong and Mr. MA Jun.

The Audit Committee, together with the management, has reviewed the unaudited condensed consolidated interim financial statements of the Group for the six months ended 30 June 2018. The Audit Committee does not have any disagreement with any accounting treatment which had been adopted. The Audit Committee has also reviewed the effectiveness of the financial controls, and internal control and risk management systems of the Company and considers such controls and systems to be effective and adequate.

In addition, the independent auditor of the Company, Ernst & Young, has reviewed the unaudited condensed consolidated interim financial statements of the Group for the six months ended 30 June 2018 in accordance with International Standard on Review Engagements 2410 “ Review of Interim Financial Information Performed by the Independent Auditor of the Entity ”.

PURCHASE, SALE OR REDEMPTION BY THE COMPANY

Neither the Company nor its subsidiaries had purchased, sold or redeemed any of the Company’s listed securities during the six months ended 30 June 2018.

POST-IPO SHARE OPTION SCHEME

Pursuant to a written resolution passed by the then sole shareholder of the Company on 23 May 2015, the Company adopted a share option scheme pursuant to Chapter 17 of the Listing Rules (the “Scheme”). The details of the Scheme has been disclosed in the Company’s prospectus dated 1 June 2015 in the section headed “Statutory and General Information — 5. Post-IPO Share Option Scheme” in Appendix IV. Under the Scheme, the Company is authorised to issue up to 242,439,857 ordinary shares (subject to possible adjustments), which represents approximately 9.55% of the issued shares as at 30 June 2018. The Scheme will continue to be in effect for a term of ten years unless terminated sooner, and has a remaining term of approximately 6.5 years as at the date of this report. On 28 June 2016, the Company amended the Scheme to include nominees and/or trustees of employee benefit trusts set up for the employees of the members of the Group as participants eligible to participate in the Scheme.

22 3SBIO INC.

Corporate Governance and Other information

The following share options were outstanding under the Scheme as of 30 June 2018:

		NUMBER OF SHARE OPTIONS	NUMBER OF SHARE OPTIONS	NUMBER OF SHARE OPTIONS	NUMBER OF SHARE OPTIONS	NUMBER OF SHARE OPTIONS	NUMBER OF SHARE OPTIONS						WEIGHTED AVERAGE PRICE OF THE COMPANY’S SHARES	WEIGHTED AVERAGE PRICE OF THE COMPANY’S SHARES
NAME OR CATEGORY OF PARTICIPANT		AS AT 1 JANUARY 2018	GRANTED DURING THE PERIOD	EXERCISED DURING THE PERIOD	FORFEITED DURING THE PERIOD	EXPIRED DURING THE PERIOD	AS AT 30 JUNE 2018	DATE OF GRANT OF SHARE OPTIONS	EXERCISE PERIOD OF SHARE OPTIONS	EXERCISE PRICE OF SHARE OPTIONS (HKD PER SHARE)	PRICE OF THE COMPANY’S SHARES IMMEDIATELY BEFORE THE GRANT DATE OF OPTIONS (HKD PER SHARE)		IMMEDIATELY BEFORE THE EXERCISE DATE (HKD PER SHARE)	AT EXERCISE DATE OF THE OPTIONS (HKD PER SHARE)
The Empire Trust*	20,000,000 0 0 0 — 20,000,000 2 February 2017 From 2 August 2018 to 2 February 2027** 7.62 7.37											— —
	20,000,000 0 0 0 — 20,000,000

• The Empire Trust is a trust established by the Company for beneficiaries who are employees of the Company and its subsidiaries and affiliates, and any other persons as nominated from time to time by the advisory committee of The Empire Trust that is established with the authority of the Board. ** Share options granted are subject to vesting conditions.

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at 30 June 2018, the interests or short positions of the Directors or chief executives of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the “SFO”)) required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest or short positions which they were taken or deemed to have under such provisions of the SFO), or which would be required, pursuant to section 352 of the SFO, to be entered in the register

Interim Report 2018 23

Corporate Governance and Other information

referred to therein, or which would be required to be notified to the Company and the Stock Exchange pursuant to Model Code are as follows:

Interest in the Company

==> picture [485 x 49] intentionally omitted <==

----- Start of picture text -----

Percentage of
Number of All Shares
Name and Position Nature of Interest Shares Held in Issue [(1)]
LOU Jing (婁競) [(2)] Interest of spouse 599,367,030 [(L)] 23.61%
----- End of picture text -----

LOU Jing (婁競)(2)	Interest of spouse	5	99,367,030(L)	23.61%
Executive Director
	Benefciaryof a trust		41,746,000(L)	1.64%
	Benefcial owner		660,000(L)	0.03%
	Interest in a controlled corporation		6,200,010(L)	0.24%
		Total: 647,973,040(L)		Total: 25.52%
TAN Bo (譚擘)(3)	Benefcial owner		660,000(L)	0.03%
Executive Director
	Interest in a controlled corporation	116,985,920(L)		4.61%
		Total: 117,645,920(L)		Total*: 4.63%
SU Dongmei (蘇冬梅)(4)	Interest in a controlled corporation		24,555,130(L)	0.97%
Executive Director
	Founder of a discretionarytrust		19,340,000(L)	0.76%
	Benefcial owner		660,000(L)	0.03%
		Total:	44,555,130(L)	Total*: 1.75%
HUANG Bin (黃斌)(5)	Benefcial owner		660,000(L)	0.03%
Executive Director
	Interest in a controlled corporation		32,197,350(L)	1.27%
		Total:	32,857,350(L)	Total*: 1.29%

Notes:

• (L): denotes long position

• Figures shown as total may not be an arithmetic aggregation of the figures preceding them due to rounding adjustments.

• (1) The calculation is based on the total number of 2,538,796,890 ordinary shares in the share capital of the Company (each with a par value USD0.00001, the “Share”) in issue as at 30 June 2018.

• (2) LOU Jing’s spouse, XING Lily, was interested in 599,367,030 Shares and therefore, LOU Jing was deemed to be interested in the same number of Shares; in addition, LOU Jing was a beneficiary of an unnamed trust, which was interested in 41,746,000 Shares, and therefore LOU Jing was deemed to be interested in all such Shares; further, LOU Jing was granted 660,000 share options by the Company, representing 660,000 Shares upon full exercise; and lastly, he owned 100% of Hero Grand Management Limited, a company incorporated in the BVI, which owned 6,200,010 Shares of the Company.

• (3) TAN Bo directly held the entire issued share capital of Triple Talent Enterprises Limited (“TTE”) and therefore was deemed to be interested in the same number of Shares in which TTE was interested (i.e. 116,985,920 Shares); in addition, TAN Bo was granted 660,000 share options by the Company, representing 660,000 Shares upon full exercise.

• (4) SU Dongmei directly held the entire issued share capital of Joint Palace Group Limited (“JPG”) and therefore, was deemed to be interested in the same number of Shares in which JPG was interested (i.e. 24,555,130 Shares); in addition, SU Dongmei served as the sole member of the advisory committee of The Empire Trust, and was thus deemed to be interested in the 19,340,000 share options (each entitling the holder to subscribe for one Share) held by The Empire Trust; and lastly, SU Dongmei was granted 660,000 share options by the Company, representing 660,000 Shares upon full exercise.

24 3SBIO INC.

Corporate Governance and Other information

• (5) HUANG Bin directly held the entire issued share capital of Known Virtue International Limited (“KVI”) and therefore, was deemed to be interested in the same number of Shares in which KVI was interested (i.e. 32,197,350 Shares); in addition, HUANG Bin was granted 660,000 share options by the Company, representing 660,000 Shares upon full exercise.

Save as disclosed above, as at 30 June 2018, none of the Directors and chief executives of the Company had or was deemed to have any interests or short positions in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which would be required to be recorded in the register required to be kept by the Company pursuant to section 352 of the SFO, or which would be required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES

As at 30 June 2018, to the best of the Directors’ knowledge, the following persons (other than the Directors or chief executives of the Company) had interests or short positions in the shares and underlying shares of the Company as recorded in the register of interests required to be kept by the Company pursuant to Section 336 of the SFO:

==> picture [485 x 64] intentionally omitted <==

----- Start of picture text -----

Approximate
percentage
Number of of all Shares
Name of shareholder Nature of Interest Shares held in Issue [(1)]
Decade Sunshine Limited (“DSL”) Beneficial owner 599,367,030 [(L)] 23.61%
----- End of picture text -----

Name of shareholder Decade Sunshine Limited(“DSL”)	Nature of Interest Benefcial owner	Number of Shares held 599,367,030(L)	Approximate percentage of all Shares in Issue(1) 23.61%
CenturySunshine Limited(“CSL”)(2)	Interest in a controlled corporation	599,367,030(L)	23.61%
XING Lily	Interest in a controlled corporation(2)	599,367,030(L)	23.61%
	Interest of spouse(3)	48,606,010(L)	1.91%
		Total: 647,973,040(L)	Total: 25.52%
Lambda International Limited(2)	Interest in a controlled corporation	599,367,030(L)	23.61%
LOU Dan(4)	Founder of a discretionarytrust	599,367,030(L)	23.61%
TMF(Cayman)Ltd.(5)	Trustee	657,434,010(L)	25.90%
CS Sunshine Investment Limited(6)	Benefcial owner	472,212,360(L)	18.60%
CPEChina Fund, L.P.(6)	Interest in a controlled corporation	472,212,360(L)	18.60%
CITIC PE Associates, L.P.(6)	Interest in a controlled corporation	472,212,360(L)	18.60%
CITIC PE Funds Limited(6)	Interest in a controlled corporation	472,212,360(L)	18.60%
CITICPE Holdings Limited(6)	Interest in a controlled corporation	472,212,360(L)	18.60%
CLSA Global Investment	Interest in a controlled corporation	472,212,360(L)	18.60%
Management Limited(6)
CITIC Securities International	Interest in a controlled corporation	472,212,360(L)	18.60%
CompanyLimited(6)
CITIC Securities CompanyLimited(6)	Interest in a controlled corporation	472,212,360(L)	18.60%
JPMorgan Chase & Co.	Benefcial owner	81,226,291(L)	3.20%
	Investment manager	18,245,500(L)	0.72%
	Approved lendingagent	79,891,087(L)	3.15%
		Total: 179,362,878(L)	Total*: 7.06%
	Benefcial owner	32,425,919(S)	1.28%

Interim Report 2018 25

Corporate Governance and Other information

Notes:

• (L): denotes long position

• (S): denotes short position

• Figures shown as total may not be an arithmetic aggregation of the figures preceding them due to rounding adjustments.

• (1) The calculation is based on the total number of 2,538,796,890 Shares in issue as at 30 June 2018.

• (2) DSL was wholly-owned by CSL and therefore CSL was deemed to be interested in 599,367,030 Shares held by DSL; further, 42.60% and 35.65% of CSL were respectively controlled by XING Lily and Lambda International Limited, who were therefore deemed to be interested in such 599,367,030 Shares.

• (3) XING Lily’s spouse, LOU Jing, was interested in 48,606,010 Shares and therefore XING Lily was deemed to be interested in the same number of Shares.

• (4) LOU Dan was the founder of a discretionary trust and was therefore deemed to be interested in the 599,367,030 Shares in which the trust was interested.

• (5) TMF (Cayman) Ltd. was the trustee with respect to three unnamed trusts, which respectively were interested in 599,367,030, 38,066,980 and 20,000,000 Shares, and therefore TMF (Cayman) Ltd. was deemed to be interested in all such Shares. Such interests represent only those that are required to be disclosed by TMF (Cayman) Ltd. under Divisions 2 and 3 of Part XV of the SFO, and do not include 1,358,000 Shares representing approximately 0.05% of all Shares in issue as at 30 June 2018 that were disposed in January 2018.

• (6) CS Sunshine Investment Limited was wholly-owned by CPEChina Fund, L.P. The general partner of CPEChina Fund, L.P. was CITIC PE Associates, L.P., an exempted limited partnership registered under the laws of the Cayman Islands whose general partner was CITIC PE Funds Limited, an exempted company incorporated in the Cayman Islands with limited liability. CITICPE Holdings Limited exercised 100% control over CITIC PE Funds Limited. 35% of CITICPE Holdings Limited was controlled by CLSA Global Investment Management Limited, which therefore was deemed to be interested in the Shares in which CITICPE Holdings Limited was interested. CITIC Securities International Company Limited exercised 100% control over CLSA Global Investment Management Limited. CITIC Securities Company Limited exercised 100% control over CITIC Securities International Company Limited.

Save as disclosed above, as at 30 June 2018, the Directors and the chief executives of the Company were not aware of any other person (other than the Directors or chief executives of the Company) who had an interest or short position in the shares or underlying shares of the Company as recorded in the register required to be kept by the Company pursuant to section 336 of the SFO.

DIRECTORS’ RIGHTS TO ACQUIRE SHARES OR DEBENTURES

Other than disclosed under the heading “Directors’ and Chief Executive’s Interests and Short Positions in Shares, Underlying Shares and Debentures”, at no time during the Reporting Period was the Company or any of its subsidiaries or holding company or any subsidiary of the Company’s holding company a party to any arrangement that would enable the Directors to acquire benefits by means of acquisition of shares in, or debentures of, the Company or any other body corporate, and none of the Directors or any of their spouses or children under the age of 18 were granted any right to subscribe for the equity or debt securities of the Company or any other body corporate or had exercised any such right.

26 3SBIO INC.

Corporate Governance and Other information

DISCLOSURE PURSUANT TO RULES 13.18 AND 13.21 OF THE LISTING RULES

On 22 February 2016, Hongkong Sansheng, a wholly owned subsidiary of the Company, entered into a Hong Kong dollar equivalent RMB2,200,000,000 term loan facility (the “Loan Facility”) with Ping An Bank Company Limited (平安銀行股份有 限公司). The funds from the Loan Facility were used for the purposes of acquiring further equity interests in Sunshine Guojian Pharmaceutical (Shanghai) Co., Ltd..

The Loan Facility is to be repaid in five installments with the last instalment due on the date falling 36 months after the first utilization date. As at 30 June 2018, the outstanding amount owing by the Hongkong Sansheng under the Loan Facility was RMB996.40 million.

The details of the Loan Facility are set out in the announcement of the Company dated 22 February 2016.

Pursuant to the terms of the Loan Facility, Hongkong Sansheng shall procure that Dr. LOU Jing, a controlling shareholder of the Company (as defined in the Listing Rules), will remain a controlling shareholder of the Company for as long as any amount is outstanding under the Loan Facility. As at 30 June 2018, the controlling shareholders of the Company (including DSL and Dr. LOU Jing through his associates and close relatives) collectively control 857,760,420 Shares of the Company (representing approximately 33.79% of the issued share capital of the Company).

Save as disclosed above, the Directors are not aware of any other circumstances which would give rise to a disclosure obligation pursuant to the requirements under Rules 13.18 and 13.21 of the Listing Rules as at 30 June 2018.

CONVERTIBLE BONDS

On 12 July 2017, the Group, through Strategic International Group Limited (the “Issuer”), a direct wholly-owned subsidiary of the Company, conducted an international offering of Euro-denominated zero-coupon convertible bonds, or the Bonds (as defined above), in an aggregate principal amount of €300,000,000 due 2022, which is unconditionally and irrevocably guaranteed by the Company. The issue of the Bonds was completed on 21 July 2017. The listing of and permission to deal in the Bonds became effective on 24 July 2017. The information regarding the Bonds are summarized in note 17 to the unaudited interim condensed consolidated financial statements and the Company’s announcements dated 12 July 2017 and 21 July 2017.

The Bonds constitute direct, unconditional, unsubordinated and (subject to the provision relating to the negative pledge in respect thereof) unsecured obligations of the Issuer and shall rank pari passu and without any preference or priority among themselves. The successful issue of the Bonds represents an opportunity for 3SBio to improve the liquidity position of the Group, to reduce the financing costs of the Group and to raise further working capital of the Group.

Interim Report 2018 27

Corporate Governance and Other information

Use of Proceeds of the Bonds

The net proceeds of approximately €295,898,164, representing a net issue price of approximately HK$14.04 per conversion share based on the initial conversion price of HK$14.28 per conversion share. As disclosed in the announcement of the Company dated 12 July 2017 in relation to the proposed issue of the Bonds (the “Announcement”), the net proceeds from the Bonds were proposed to be used for repaying the loans of the Group, future merger and acquisitions, R&D, purchase of operation facilities and other general corporate purposes. As of 30 June 2018, the net proceeds of approximately €295,898,164 from the issue of the Bonds had not yet been allocated or applied specifically to any of the intended use.

It is estimated that the proceeds of the Bonds will be allocated or applied in accordance with the proposed uses as disclosed in the Announcement and is expected to be fully utilized in three to five years.

Conversion Price and Shares to be Issued upon Full Conversion

As at 30 June 2018, the outstanding principal amount of the Bonds was €300,000,000. The initial conversion price of the Bonds was HK$14.28 per conversion share, which represents (i) a premium of approximately 40% over the closing price of HK$10.20 per Share as quoted on the Stock Exchange on 12 July 2017 (being the trading day on which the terms of the issue of the Bonds were fixed) and (ii) a premium of approximately 38.69% over the average closing price of approximately HK$10.296 as quoted on the Stock Exchange for the five consecutive trading days up to and including 12 July 2017. Assuming full conversion of the Bonds based on such initial conversion price, the total number of Shares issued by the Company would be 2,727,160,335 Shares as of 30 June 2018. The Company has a general mandate sufficient to cover the shares issued upon full conversion of the Bonds.

The following table summaries the potential effects on the shareholding structure of the Company as a result of the full conversion of the Bonds:

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----- Start of picture text -----

Assuming the Bonds are fully
converted at the initial
As at 30 June 2018 conversion price
Approximate Approximate %
Number of % of total Number of of the enlarged
Name of shareholders Shares issued Shares Shares issued Shares
Decade Sunshine Limited 599,367,030 23.61% 599,367,030 21.98%
CS Sunshine Investment Limited 472,212,360 18.60% 472,212,360 17.32%
Hero Grand Management Limited [(1)] 47,946,010 1.89% 47,946,010 1.76%
Directors and Chief Executive [(2)] 173,738,400 6.84% 173,738,400 6.37%
Other public shareholders 1,245,533,090 49.06% 1,245,533,090 45.67%
Bondholders — — 188,363,445 6.91%
Total [(3)] 2,538,796,890 100.00% 2,727,160,335 100.00%
----- End of picture text -----

Note:

(1) Hero Grand Management Limited (“Hero Grand”) is owned as to 100% by Dr. LOU Jing (Chairman of the Company). As at 30 June 2018, Hero Grand held (a) 1.64% of the total share capital of the Company on behalf of Dr. LOU Jing; and (b) 0.24% of the total share capital of the Company for itself.

(2) The Directors and chief executive (other than Dr. LOU Jing) held 6.84% of the total share capital of the Company in aggregate as at 30 June 2018.

(3) The percentages are subject to rounding difference, and figures shown as totals may not be an arithmetic aggregation of the figures preceding them, if any.

28 3SBIO INC.

Report on Review of Interim Condensed Consolidated Financial Statements

==> picture [430 x 66] intentionally omitted <==

To the Board of Directors of 3SBio Inc.

(Incorporated in the Cayman Islands with limited liability)

INTRODUCTION

We have reviewed the interim condensed consolidated financial statements set out on pages 31 to 68, which comprise the interim condensed consolidated statement of financial position of 3SBio Inc. (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) as at 30 June 2018 and the related interim condensed consolidated statements of profit or loss and comprehensive income, changes in equity and cash flows for the six-month period then ended, and explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim condensed consolidated financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) issued by the International Accounting Standards Board. The directors of the Company are responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with IAS 34. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review. Our report is made solely to you, as a body, in accordance with our agreed terms of engagement, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

SCOPE OF REVIEW

We conducted our review in accordance with International Standard on Review Engagements 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the International Auditing and Assurance Standards Board. A review of interim condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Interim Report 2018 29

Report on Review of Interim Condensed Consolidated Financial Statements

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34.

Ernst & Young

Certified Public Accountants

Hong Kong

20 August 2018

30 3SBIO INC.

Unaudited Interim Condensed Consolidated Statement of Profit or Loss

Notes		For the six months ended 30 June	For the six months ended 30 June
		2018	2017
		(unaudited)	(unaudited)
		RMB’000	RMB’000
CONTINUING OPERATIONS Revenue from contracts with customers 3	2,173,964 1,706,735
REVENUE Cost of sales	2,173,964 1,706,735 (427,319) (249,647)
Gross proft Other income and gains 4 Selling and distribution expenses Administrative expenses Other expenses and losses 5 Finance costs 6 Share of losses of associates	1,746,645 1,457,088 117,500 35,412 (822,877) (654,906) (134,291) (140,118) (224,246) (149,060) (73,404) (60,098) (6,684) (5,038)
PROFIT BEFORE TAX Income tax expense 7	602,643 483,280 (92,658) (93,729)
PROFIT FOR THE PERIOD	509,985 389,551
Attributable to: Owners of the parent Non-controllinginterests	514,197 392,764 (4,212) (3,213)
	509,985 389,551
EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT — Basic(RMB) 9	0.20 0.16
— Diluted(RMB) 9	0.20 0.15

Interim Report 2018 31

Unaudited Interim Condensed Consolidated Statement of Comprehensive Income

	For the six months ended 30 June	For the six months ended 30 June
	2018	2017
	(unaudited)	(unaudited)
	RMB’000	RMB’000
PROFIT FOR THE PERIOD	509,985 389,551
OTHER COMPREHENSIVE INCOME/(LOSS) Other comprehensive income/(loss) to be reclassifed to proft or loss in subsequent periods: Exchange differences on translation of foreign operations	21,637 (45,288)
Net other comprehensive income/(loss) to be reclassifed toproft or loss in subsequentperiods	21,637 (45,288)
Other comprehensive income not to be reclassifed to proft or loss in subsequent periods: Net gain/(loss) on equity instruments at fair value through other comprehensive income	8,507 (2,668)
Net other comprehensive income/(loss) not being reclassifed toproft or loss in subsequentperiods	8,507 (2,668)
OTHER COMPREHENSIVE INCOME/(LOSS)FOR THE PERIOD,NET OF TAX	30,144 (47,956)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD	540,129 341,595
Attributable to: Owners of the parent Non-controllinginterests	544,341 344,808 (4,212) (3,213)
	540,129 341,595

32 3SBIO INC.

Unaudited Interim Condensed Consolidated Statement of Financial Position

Notes	30 June 2018	31 December 2017
	(unaudited)	(audited)
	RMB’000	RMB’000
NON-CURRENT ASSETS Property, plant and equipment 10 1,786,340 1,759,669 Prepaid land lease payments 302,462 306,557 Goodwill 3,965,040 3,923,598 Other intangible assets 2,366,486 2,253,516 Investments in associates 39,803 33,510 Long-term receivables 36,008 35,372 Available-for-sale investments — 48,333 Non-current fnancial assets 80,984 — Deferred tax assets 71,793 76,363 Prepaid expenses and other receivables 95,370 39,837
Total non-current assets 8,744,286 8,476,755
CURRENT ASSETS Inventories 11 353,210 376,529 Trade and notes receivables 12 1,430,895 1,324,084 Prepaid expenses and other receivables 469,610 459,251 Available-for-sale investments — 704,564 Other current fnancial assets 477,656 — Derivative fnancial instruments 4,379 1,322 Cash and cash equivalents 13 2,130,625 2,398,621 Pledged deposits 13 26,587 11,845
Total current assets 4,892,962 5,276,216

Interim Report 2018 33

Unaudited Interim Condensed Consolidated Statement of Financial Position (continued)

Notes	30 June 2018	31 December 2017
	(unaudited)	(audited)
	RMB’000	RMB’000
CURRENT LIABILITIES Trade and bills payables 14 125,374 274,568 Contract liabilities 19,087 — Other payables and accruals 15 771,758 695,898 Deferred income 41,697 26,671 Interest-bearing bank and other borrowings 16 1,222,862 1,087,466 Tax payable 67,233 111,206 Dividendspayable 8 140,308 —
Total current liabilities 2,388,319 2,195,809
NET CURRENT ASSETS 2,504,643 3,080,407
TOTAL ASSETS LESS CURRENT LIABILITIES 11,248,929 11,557,162
NON-CURRENT LIABILITIES Interest-bearing bank and other borrowings 16 345,000 1,046,791 Convertible bonds 17 2,234,888 2,271,874 Deferred income 277,849 310,410 Deferred tax liabilities 272,635 280,268 Other non-current liabilities 18,287 18,173
Total non-current liabilities 3,148,659 3,927,516
Net assets 8,100,270 7,629,646
EQUITY Equity attributable to owners of the parent Share capital 18 156 156 Share premium 4,372,460 4,372,460 Other reserves 3,439,008 3,024,172
7,811,624 7,396,788 Non-controllinginterests 288,646 232,858
Total equity 8,100,270 7,629,646

Director Director

34 3SBIO INC.

Unaudited Interim Condensed Consolidated Statement of Changes in Equity

	Attributable to owners of the parent	Attributable to owners of the parent	Attributable to owners of the parent	Attributable to owners of the parent	Attributable to owners of the parent	Attributable to owners of the parent	Attributable to owners of the parent	Attributable to owners of the parent	Attributable to owners of the parent
	Share capital	Share premium	Contributed surplus*	Equity component of convertible bonds*	Statutory surplus reserve*	Retained earnings*	Fair value Reserve*	Exchange fuctuation reserve*	Total	Non- controlling interests	Total equity
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)	(unaudited)
At 1 January 2018 156 4,372,460 195,788 47,133 307,794 2,443,925 (4,393) 33,925 7,396,788 232,858 7,629,646 Proft for the period — — — — — 514,197 — — 514,197 (4,212) 509,985 Other comprehensive income: Change in fair value of equity instruments at fair value through other comprehensive income, net of tax — — — — — — 8,507 — 8,507 — 8,507 Exchange differences on translation of foreign operations — — — — — — — 21,637 21,637 — 21,637
	156 4,372,460 195,788 47,133 307,794 2,443,925 (4,393) 33,925 7,396,788 232,858 7,629,646
	— — — — — 514,197 — — 514,197 (4,212) 509,985
Total comprehensive income — — — — — 514,197 8,507 21,637 544,341 (4,212) 540,129 Dividends — — — — — (140,308) — — (140,308) — (140,308) Transfer to statutory reserves — — — — 53,885 (53,885) — — — — — Equity-settled share option scheme (Note 19) — — 10,803 — — — — — 10,803 — 10,803 Capital injection from a non-controlling shareholder — — — — — — — — — 60,000 60,000
At 30 June 2018 156 4,372,460 206,591 47,133 361,679 2,763,929 4,114 55,562 7,811,624 288,646 8,100,270
At 1 January 2017 155 4,367,719 179,417 — 206,847 1,609,483 57 158,821 6,522,499 243,843 6,766,342 Proft for the period — — — — — 392,764 — — 392,764 (3,213) 389,551 Other comprehensive loss: Change in fair value of non-current fnancial assets, net of tax — — — — — — (2,668) — (2,668) — (2,668) Exchange differences on translation of foreign operations — — — — — — — (45,288) (45,288) — (45,288)
Total comprehensive income — — — — — 392,764 (2,668) (45,288) 344,808 (3,213) 341,595 Equity-settled share option scheme (Note 19) — — 9,808 — — — — — 9,808 — 9,808
At 30 June 2017 155 4,367,719 189,225 — 206,847 2,002,247 (2,611) 113,533 6,877,115 240,630 7,117,745

• These reserve accounts comprise the consolidated reserves of RMB3,439,008,000 in the unaudited interim condensed consolidated statement of financial position as at 30 June 2018 (as at 31 December 2017: RMB3,024,172,000).

Interim Report 2018 35

Unaudited Interim Condensed Consolidated Statement of Cash Flows

Notes		For the six months ended 30 June	For the six months ended 30 June
		2018	2017
		(unaudited)	(unaudited)
		RMB’000	RMB’000
CASH FLOWS FROM OPERATING ACTIVITIES Proft before tax Adjustments for: Share of losses of associates Interest income 4 Finance costs 6 Foreign exchange differences 4, 5 Charge of share-based compensation costs 19 Depreciation 5, 10 Amortisation of other intangible assets 5 Amortisation of prepaid land lease payments 5 Amortisation of long-term deferred expenditures 5 Recognition of deferred income Fair value (gain)/loss on derivative fnancial instruments 4, 5 Provision for impairment of trade receivables 5 Provision for impairment of other receivables 5 Provision for impairment of long-term receivables 5 Provision/(reversal of provision) for impairment of inventories Reversal of accruals for investment activities Loss on disposal of items ofproperty,plant and equipment 5	602,643 483,280 6,684 5,038 (30,208) (10,012) 73,404 60,098 (53,029) 5,214 10,803 9,808 76,295 61,612 65,059 52,716 4,095 3,923 556 1,102 (20,247) (13,273) (2,927) 2,276 19,776 6,816 3,493 — 364 — (62) 696 (11,886) — 3,443 110
Increase in inventories Decrease/(increase) in pledged deposits Increase in trade and notes receivables Decrease/(increase) in prepaid expenses and other receivables Increase/(decrease) in trade and bills payables Increase in otherpayables and accruals	748,256 669,404 (18,545) (9,466) (7,334) 2,841 (194,893) (250,155) 11,123 (24,984) (39,228) 5,881 87,330 34,520
Cash generated from operations Income taxpaid	586,709 428,041 (139,875) (77,679)
Net cash fows from operating activities	446,834 350,362

36 3SBIO INC.

Unaudited Interim Condensed Consolidated Statement of Cash Flows (continued)

Notes		For the six months ended 30 June	For the six months ended 30 June
		2018	2017
		(unaudited)	(unaudited)
		RMB’000	RMB’000
CASH FLOWS FROM INVESTING ACTIVITIES Interest received Purchase of items of property, plant and equipment Proceeds from disposal of treasury or cash management products Purchase of treasury or cash management products Purchase of non-current fnancial assets Addition to other intangible assets Increase in prepaid expenses and other receivables Payments for investments in associates Loans to a third party Advance payment in connection with a collaboration Received fund from government grant Proceeds from disposal ofproperty,plant and equipment	27,142 6,403 (159,952) (73,283) 671,754 361,516 (435,900) (22,190) (32,776) — (171,715) (3,899) — (10,000) (21,263) — (9,608) — — (102,289) 57 — 562 143
Net cash fows from/(used in)investingactivities	(131,699) 156,401
CASH FLOWS FROM FINANCING ACTIVITIES Decrease in pledged deposits for bank borrowings Received capital injection from a non-controlling shareholder Proceeds from bank borrowings Repayments of bank borrowings Interestpaid	(7,408) 5,887 60,000 — 221,490 300,000 (791,953) (909,404) (38,346) (75,656)
Net cash fows used in fnancingactivities	(556,217) (679,173)
NET DECREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of period Effect of foreign exchange rate changes on cash,net	(241,082) (172,410) 2,398,621 677,598 (26,914) (4,202)
CASH AND CASH EQUIVALENTS AT END OF PERIOD	2,130,625 500,986

Interim Report 2018 37

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

1. CORPORATE INFORMATION

3SBio Inc. (the “Company”) was incorporated in the Cayman Islands as an exempted company with limited liability under the Cayman Islands Companies Laws on 9 August 2006. The registered office address of the Company is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The Company’s shares were listed on the Main Board of the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on 11 June 2015.

The Company is an investment holding company. During the six months ended 30 June 2018, the Company and its subsidiaries (hereinafter collectively referred to as the “Group”) were principally engaged in the development, production, marketing and sale of biopharmaceutical products in the People’s Republic of China (the “PRC”) except for Hong Kong and Macau (“Mainland China”).

2. BASIS OF PREPARATION AND CHANGES TO THE GROUP’S ACCOUNTING POLICIES

2.1 Basis of preparation

The unaudited interim condensed consolidated financial statements for the six months ended 30 June 2018 have been prepared in accordance with IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board (the “IASB”) and the disclosure requirements of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”).

The unaudited interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements for the year ended 31 December 2017.

The unaudited interim condensed consolidated financial statements are presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand, except when otherwise indicated.

2.2 New standards, interpretations and amendments adopted by the Group

The accounting policies adopted in the preparation of the unaudited interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2017, except for the adoption of new standards, interpretations and amendments effective as of 1 January 2018. The Group has not otherwise adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

38 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

2. BASIS OF PREPARATION AND CHANGES TO THE GROUP’S ACCOUNTING POLICIES (continued)

2.2 New standards, interpretations and amendments adopted by the Group (continued)

The Group applies, for the first time, IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments that require restatement of previous financial statements. As required by IAS 34, the nature and effect of these changes are disclosed below.

Several other amendments and interpretations apply for the first time in 2018, but do not have any significant impact on the unaudited interim condensed consolidated financial statements of the Group.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 supersedes IAS 11 Construction Contracts , IAS 18 Revenue and related Interpretations and it applies to all revenue arising from contracts with customers, unless those contracts are in the scope of other standards. The new standard establishes a five-step model to account for revenue arising from contracts with customers.

The Group adopted IFRS 15 from 1 January 2018 using the modified retrospective method of adoption and applied to contracts that are not completed at the date of initial application.

The Group’s contracts with customers for the sale of biopharmaceutical products generally include one performance obligation. The Group has concluded that revenue from sale of biopharmaceutical products should be recognised at the point in time when control of the goods is transferred to the customer. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.

The Group has advances from customers. Prior to the adoption of IFRS 15, the Group represented these advances in “Other payables and accruals” in the consolidated statement of financial position. Upon the adoption of IFRS 15, the Group reclassified the advances from customers to “Contract liabilities”. As at 1 January 2018, the Group had advances from customers amounting to RMB76,854,000 that were reclassified to contract liabilities at the initial application of IFRS 15.

Refer to note 3 for the disclosure on disaggregated revenue.

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.

Interim Report 2018 39

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

1. BASIS OF PREPARATION AND CHANGES TO THE GROUP’S ACCOUNTING POLICIES (continued)

2.2 New standards, interpretations and amendments adopted by the Group (continued)

IFRS 9 Financial Instruments (continued)

The Group has applied IFRS 9 retrospectively with the initial application date of 1 January 2018. Certain disclosures for the comparative period were prepared under IAS 39 and therefore may not be comparable as comparative information.

The effect of adopting IFRS 9 is as follows:

(a) Classification and measurement

Under IFRS 9, debt financial instruments are subsequently measured at fair value through profit or loss (“FVPL”), amortised cost, or fair value through other comprehensive income (“FVOCI”). The classification is based on two criteria: the Group’s business model for managing the assets; and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding (the “SPPI criterion”).

The new classification and measurement of the Group’s debt financial assets are as follows:

• Debt instruments at amortised cost for financial assets that are held within a business model with the objective to hold the financial assets in order to collect contractual cash flows that meet the SPPI criterion. This category includes the Group’s trade and notes receivables, cash and cash equivalents, pledged deposits, certain items of prepaid expenses and other receivables and long-term receivables.

Other financial assets are classified and subsequently measured as follows:

• Equity instruments at FVOCI, with no recycling of gains or losses to profit or loss on derecognition. This category includes equity instruments, which the Group intends to hold for the foreseeable future and which the Group has irrevocably elected to so classify upon initial recognition or transition. The Group classified its quoted and unquoted equity instruments as equity instruments at FVOCI. Equity instruments at FVOCI are not subject to an impairment assessment under IFRS 9. Under IAS 39, the Group’s quoted and unquoted equity instruments were classified as available-for-sale financial assets.

40 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

1. BASIS OF PREPARATION AND CHANGES TO THE GROUP’S ACCOUNTING POLICIES (continued)

2.2 New standards, interpretations and amendments adopted by the Group (continued)

IFRS 9 Financial Instruments (continued)

(a) Classification and measurement (continued)

• Financial assets at FVPL comprise derivative instruments and treasury or cash management products which the Group had not irrevocably elected, at initial recognition or transition, to classify at FVOCI. Under IAS 39, the Group’s treasury or cash management products were classified as available-for-sale financial assets.

The assessment of the Group’s business models was made as of the date of initial application, 1 January 2018, and then applied retrospectively to those financial assets that were not derecognised before 1 January 2018. The assessment of whether contractual cash flows on debt instruments were solely comprised of principal and interest was made based on the facts and circumstances as at the initial recognition of the assets.

The accounting for the Group’s financial liabilities remains largely the same as it was under IAS 39. Similar to the requirements of IAS 39, IFRS 9 requires contingent consideration liabilities to be treated as financial instruments measured at fair value, with the changes in fair value recognised in the statement of profit or loss.

(b) Impairment

The adoption of IFRS 9 has fundamentally changed the Group’s accounting for impairment losses for financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss (“ECL”) approach.

IFRS 9 requires the Group to record an allowance for ECLs for trade receivables and all other debt financial assets not held at FVPL.

ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate.

For trade receivables, the Group has applied the simplified approach and has calculated ECLs based on lifetime ECLs. The Group has established a provision matrix that is based on the Group’s historical credit loss experience and adjusted for forward-looking factors specific to the debtors.

Interim Report 2018 41

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

2. BASIS OF PREPARATION AND CHANGES TO THE GROUP’S ACCOUNTING POLICIES (continued)

2.2 New standards, interpretations and amendments adopted by the Group (continued)

IFRS 9 Financial Instruments (continued)

(b) Impairment (continued)

For other debt financial assets, the ECL is based on the 12-month ECL. The 12-month ECL is the portion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after that reporting date. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECL.

The Group considers a financial asset in default when contractual payment are 60 or 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group.

As the impact of adaption of IFRS 9 is immaterial, the adjustment was therefore not restated in the unaudited interim condensed consolidated statement of financial position as at 31 December 2017 or recognised against retained profits on 1 January 2018.

IFRIC Interpretation 22 Foreign Currency Transactions and Advance Considerations

The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. This Interpretation does not have any material impact on the unaudited interim condensed consolidated financial statements.

Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions

The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a sharebased payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met. These amendments do not have any material impact on the unaudited interim condensed consolidated financial statements.

42 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

3. REVENUE FROM CONTRACTS WITH CUSTOMERS

Set out below is the disaggregation of the Group’s revenue from contracts with customers:

	For the six months ended 30 June	For the six months ended 30 June
	2018	2017
	(unaudited)	(unaudited)
	RMB’000	RMB’000
Segments Type of goods Sale of biopharmaceuticals		1,706,735
	2,173,964
Total revenue from contracts with customers		1,706,735
	2,173,964
Geographical markets Mainland China Others		1,632,545 74,190
	2,099,289
	74,675
Total revenue from contracts with customers		1,706,735
	2,173,964
Timing of revenue recognition Goods transferred at apoint in time		1,706,735
	2,173,964
Total revenue from contracts with customers		1,706,735
	2,173,964

Interim Report 2018 43

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

4. OTHER INCOME AND GAINS

An analysis of other income and gains is as follows:

	For the six months ended 30 June	For the six months ended 30 June
	2018	2017
	(unaudited)	(unaudited)
	RMB’000	RMB’000
Other income Interest income Government grants related to — Assets — Income Others		10,012 10,074 12,581 2,745
	30,208
	17,897
	8,150
	5,289
		35,412
	61,544
Gains Foreign exchange differences Fair valuegain on derivative fnancial instruments		— —
	53,029
	2,927
		—
	55,956
		35,412
	117,500

44 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

5. PROFIT BEFORE TAX

The Group’s profit before tax is arrived at after charging:

	For the six months ended 30 June	For the six months ended 30 June
	2018	2017
	(unaudited)	(unaudited)
	RMB’000	RMB’000
Cost of inventories sold		249,647
	427,319
Depreciation of items of property, plant and equipment Amortisation of other intangible assets Amortisation of prepaid land lease payments Amortisation of long-term deferred expenditures Employee beneft expenses (including directors’ and chief executive’s remuneration): Wages, salaries and staff welfare Equity-settled compensation expenses Pension scheme contributions Social welfare and other costs		61,612 52,716 3,923 1,102 310,877 9,808 22,492 19,929
	76,295
	65,059
	4,095
	556
	434,170
	10,803
	31,338
	29,174
		363,106
	505,485
Other expenses and losses: Research and development costs Provision for impairment of trade receivables Donation Provision for impairment of other receivables Loss on disposal of items of property, plant and equipment Provision for impairment of long-term receivables Foreign exchange differences Fair value loss on derivative fnancial instruments Others		113,055 6,816 15,150 — 110 — 5,214 2,276 6,439
	178,005
	19,776
	13,785
	3,493
	3,443
	364
	—
	—
	5,380
		149,060
	224,246

Interim Report 2018 45

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

6. FINANCE COSTS

An analysis of finance costs is as follows:

	For the six months ended 30 June	For the six months ended 30 June
	2018	2017
	(unaudited)	(unaudited)
	RMB’000	RMB’000
Interests on bank borrowings Interests on convertible bonds		60,098 —
	37,598
	35,806
		60,098
	73,404

7. INCOME TAX

The Group is subject to income tax on an entity basis on profits arising in or derived from the jurisdictions in which members of the Group are domiciled and operate.

Pursuant to the relevant rules and regulations of the Cayman Islands and the British Virgin Islands (“BVI”), the Company and the subsidiaries of the Group incorporated therein are not subject to any income tax in the Cayman Islands and the BVI.

No provision for Hong Kong profits tax has been made for the six months ended 30 June 2018 as the Group had no assessable profits arising in Hong Kong.

Under the relevant PRC income tax law, except for Shenyang Sunshine Pharmaceutical Co., Ltd. (“Shenyang Sunshine”), Sunshine Guojian Pharmaceutical (Shanghai) Co., Ltd. (“Sunshine Guojian”), National Engineering Research Center of Antibody Medicine (“NERC”), Shenzhen Sciprogen Bio-pharmaceutical Technology Co., Ltd. (“Sciprogen”) and Zhejiang Wansheng Pharmaceutical Co., Ltd. (“Zhejiang Wansheng”), all of which enjoy certain preferential treatment, the PRC subsidiaries of the Group are subject to income tax at a rate of 25% on their respective taxable income. In accordance with relevant Italian tax regulations, Sirton Pharmaceuticals S.p.A. is subject to income tax at a rate of 27.9%.

Shenyang Sunshine, Sunshine Guojian, NERC, Sciprogen and Zhejiang Wansheng, which are qualified as High and New Technology Enterprises, were entitled to a preferential income tax rate of 15% for the six months ended 30 June 2018.

46 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

7. INCOME TAX (continued)

Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. The requirement became effective from 1 January 2008 and is applicable to earnings after 31 December 2007. However, a lower withholding tax rate of 5% may be applied if there is a tax treaty between the PRC and the jurisdiction of the foreign investors.

An analysis of the provision for tax in the financial statements is as follows:

	For the six months ended 30 June	For the six months ended 30 June
	2018	2017
	(unaudited)	(unaudited)
	RMB’000	RMB’000
Current Deferred		101,076 (7,347)
	95,253
	(2,595)
Total tax charge for theperiod		93,729
	92,658

8. DIVIDENDS PAYABLE

DIVIDENDS PAYABLE
	For the six months ended 30 June
	2018	2017
	(unaudited)	(unaudited)
	RMB’000	RMB’000
Dividend on ordinary shares declared and accrued: Final dividend for 2017: HKD6.85 centsper share(2016: Nil)		—
	140,308

The proposed dividend on ordinary shares has been approved at the annual general meeting held on 20 June 2018.

Interim Report 2018 47

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

9. EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

The calculation of the basic earnings per share amount is based on the profit for the six months ended 30 June 2018 attributable to equity holders of the parent of RMB514,197,000 (for the six months ended 30 June 2017: RMB392,764,000) and the weighted average of 2,538,796,890 (for the six months ended 30 June 2017: 2,532,313,570) ordinary shares of the Company in issue during the reporting period, as adjusted to reflect the issue of ordinary shares during the reporting period.

The calculation of the diluted earnings per share amount is based on the profit for the period attributable to equity holders of the parent, adjusted to reflect the interest on the convertible bonds. The weighted average number of ordinary shares used in the calculation is the number of ordinary shares in issue during the period, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares.

The calculations of basic and diluted earnings per share are based on:

	For the six months ended 30 June	For the six months ended 30 June
	2018	2017
	(unaudited)	(unaudited)
	RMB’000	RMB’000
Earnings Proft attributable to equity holders of the parent Interest on convertible bonds		392,764 —
	514,197
	35,806
Proft attributable to ordinary equity holders of the parent before interest on convertible bonds		392,764
	550,003

48 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

9. EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT (continued)

EARNINGS PER SHARE ATTRIBUTABLE TO OF THE PARENT (continued)	EQUITY HOLDERS	EQUITY HOLDERS
	For the six months ended 30 June
	2018	2017
	(unaudited)	(unaudited)
Shares Weighted average number of ordinary shares in issue during the reporting period Effect of dilution — weighted average number of ordinary shares: Warrants Share options Convertible bonds		2,532,313,570 39,440,692 — —
	2,538,796,890
	32,957,550
	6,666,667
	188,363,445
		2,571,754,262
	2,766,784,552

10. PROPERTY, PLANT AND EQUIPMENT

PROPERTY, PLANT AND EQUIPMENT
30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Carrying amount at 1 January 1,759,669 Additions 107,873 Depreciation provided during the period/year (76,295) Disposals (4,005) Exchange realignment (902)	1,762,813 150,013 (128,453) (27,248) 2,544
Carryingamount at 30 June / 31 December 1,786,340	1,759,669

A freehold land with a carrying amount of approximately RMB3,896,000 as at 30 June 2018 (31 December 2017: RMB3,973,000) is situated in Italy.

The Group was in the process of applying for the title certificates of certain of its buildings with an aggregate book value of approximately RMB65,311,000 as at 30 June 2018 (31 December 2017: RMB8,199,000). The Directors are of the view that the Group is entitled to lawfully and validly occupy and use the above-mentioned buildings. The Directors are also of the opinion that the aforesaid matter does not have any significant impact on the Group’s financial position as at 30 June 2018.

Interim Report 2018 49

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

11. INVENTORIES

INVENTORIES
30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Raw materials 71,456 Work in progress 179,121 Finished goods 80,181 Consumables andpackagingmaterials 23,683	54,942 180,972 121,996 19,912
354,441 Provision for impairment of inventories (1,231)	377,822 (1,293)
353,210	376,529

12. TRADE AND NOTES RECEIVABLES

TRADE AND NOTES RECEIVABLES
30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Trade receivables 1,397,401 Notes receivable 80,277	1,212,782 138,309
1,477,678 Provision for impairment of trade receivables (46,783)	1,351,091 (27,007)
1,430,895	1,324,084

The Group’s trading terms with its customers are mainly on credit. The credit period is generally two months, extending up to three months for major customers. The Group seeks to maintain strict control over its outstanding receivables and overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Group’s trade receivables relate to large number of diversified customers, there is no significant concentration of credit risk. Trade receivables are non-interest-bearing.

50 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

12. TRADE AND NOTES RECEIVABLES (continued)

An ageing analysis of the trade receivables, based on the invoice date, is as follows:

30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Within 1 year 1,350,618 1 to 2 years 33,906 Over 2years 12,877	1,185,775 18,525 8,482
1,397,401	1,212,782

13. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS

30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Cash and bank balances 2,129,127 Restricted cash 1,498 Pledged deposits 26,587	2,396,410 2,211 11,845
2,157,212 Less: Pledged deposits for letters of credit (7,597) Pledged deposits for bank acceptance bills (18,990)	2,410,466 (263) (11,582)
Cash and cash equivalents 2,130,625	2,398,621

The RMB is not freely convertible into other currencies. However, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business. The remittance of funds out of Mainland China is subject to exchange restrictions imposed by the PRC government.

Interim Report 2018 51

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

13. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS (continued)

The Group’s cash and cash equivalents and deposits as at 30 June 2018 are denominated in the following currencies:

30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Denominated in: — RMB 282,491 — Hong Kong Dollar (“HKD”) 13,367 — United States Dollar (“USD”) 962,116 — Euro (“EUR”) 899,236 — Great Britain Pound(“GBP”) 2	329,729 4,558 936,699 1,139,478 2
2,157,212	2,410,466

Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances and deposits are deposited with creditworthy banks with no recent history of default.

The carrying amounts of the cash and cash equivalents approximated to their fair values as at 30 June 2018. Deposits of approximately RMB26,587,000 (31 December 2017: RMB11,845,000) have been pledged to secure letters of credit and bank acceptance bills as at 30 June 2018.

52 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

14. TRADE AND BILLS PAYABLES

An ageing analysis of the trade and bills payables, based on the invoice date, as at the end of the reporting period is as follows:

30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Within 3 months 97,804 3 to 6 months 17,921 Over 6 months 9,649	88,458 179,505 6,605
125,374	274,568

The trade payables are non-interest-bearing and repayable within the normal operating cycle or on demand.

15. OTHER PAYABLES AND ACCRUALS

OTHER PAYABLES AND ACCRUALS
30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Accrued selling and marketing expenses 375,582 Accrued salaries, bonuses and welfare expenses 136,283 Due to related parties (note 20) 68,151 Interest payable 55,947 Taxes payable (other than income tax) 44,536 Receipts in advance from customers — Payable to vendors of property, plant and equipment 14,712 Payable to vendors of technology know-how 11,745 Others 64,802	240,548 151,079 76,114 28,557 38,875 76,854 10,601 2,689 70,581
771,758	695,898

Other payables are non-interest-bearing.

Interim Report 2018 53

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

16. INTEREST-BEARING BANK AND OTHER BORROWINGS

30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Current Bank loans — unsecured 100,000 Bank loans — secured 126,466 Currentportion of longterm bank loans — secured 996,396	100,000 200,000 787,466
1,222,862	1,087,466
Non-current Other secured bank loans 345,000 Convertible bonds(note 17) 2,234,888	1,046,791 2,271,874
Total 3,802,750	4,406,131
30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Analysed into: Bank loans and overdrafts repayable: Within one year or on demand 1,222,862 In the second year — In the third to ffthyears, inclusive 345,000	1,087,466 496,791 550,000
1,567,862	2,134,257

Notes:

• (a) The bank borrowings bear interest at fixed interest rates ranging from 2.5% to 4.65% per annum.

• (b) The bank borrowings are secured by equity interests in the subsidiaries of the Group.

• (c) The carrying amounts of the current bank borrowings approximate to their fair values.

54 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

17. CONVERTIBLE BONDS

On 21 July 2017, Strategic International Group Limited, a direct wholly-owned subsidiary of the Company, issued Eurodenominated zero-coupon convertible bonds in an aggregate principal amount of EUR300,000,000.

None of the convertible bonds were repaid or redeemed during the period. The bonds are guaranteed by the Company and convertible at the option of the bondholders into ordinary shares with the initial conversion price of HKD14.28 per share at any time on and after 31 August 2017 and up to the close of business on the date falling seven days prior to 21 July 2022.

18. SHARE CAPITAL

SHARE CAPITAL
30 June 2018 Shares (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Issued and fully paid: 2,538,796,890 (31 December 2017: 2,538,796,890)ordinaryshares 156	156

A summary of movements in the Company’s issued share capital for the six months ended 30 June 2018 is as follows:

Number of shares in issue	Share capital	Share premium	Total
	(unaudited)	(unaudited)	(unaudited)
	RMB’000	RMB’000	RMB’000
Ordinary shares of USD0.00001 each at 30 June 2018 and 31 December 2017 2,538,796,890 156 4,372,460 4,372,616

Interim Report 2018 55

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

19. SHARE INCENTIVE SCHEME

Share option scheme adopted by the Company

On 2 February 2017, a total 20,000,000 of share options, each entitles the holders to subscribe for one ordinary share of the Company at an exercise price of HKD7.62 (which is the higher of the closing price of HKD7.30 per share and the average closing price of HKD7.62 per share) , were granted to TMF (Cayman) Ltd. (“TMF”), as the trustee of The Empire Trust (the “Grantee”) under the Share Option Scheme for the benefits of the designated beneficiaries. The share options will vest and become exercisable upon meeting certain vesting conditions. If the vesting conditions are not met, the share options will lapse.

The fair value of the share options at grant date is estimated using a binomial options pricing model, taking into account the terms and conditions upon which the share options were granted. The contractual life of each option granted is ten years. There is no cash settlement of the share options. The fair value of share options granted on 2 February 2017 was estimated on the date of grant using the following assumptions:

Dividend yield (%)	—
Expected volatility (%)	39.63
Risk-free interest rate (%)	1.91
Contractual life of share options (years)	10.00
Underlying share price (RMB)	6.45
Exercise price of each warrant (RMB)	6.73

At the date of approval of the unaudited interim condensed consolidated financial statements, the Company had 20,000,000 share options outstanding under the Share Option Scheme, which represented approximately 0.79% of the Company’s shares in issue as at that date.

The fair value of the share options was HKD66,287,000. For the six months ended 30 June 2018, the Group had recorded share-based payment expenses of RMB10,803,000 in the statement of profit or loss (for the six months ended 30 June 2017: RMB9,808,000).

Warrants granted by the Company

On 1 January 2015, the Company issued warrants to Shanghai Junling Investment Partnership (Limited Partnership) which is beneficially owned by certain management members of Sunshine Guojian (“Sunshine Guojian Warrants”), in which the Group held an approximately 6.96% equity interest. The Sunshine Guojian Warrants entitle the holders to purchase 1,128.82033 ordinary shares of the Company at an exercise price of USD1.00 for each warrant. Pursuant to the subdivision of the par value of the Company’s authorised shares from USD1.00 per share to USD0.00001 per share on 4 February 2015, the number of shares of the Company exercisable by the Sunshine Guojian Warrants has been changed to 112,882,033 and the exercise price from USD1.00 per share to USD0.00001 per share.

56 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

19. SHARE INCENTIVE SCHEME (continued)

Warrants granted by the Company (continued)

The Sunshine Guojian Warrants will vest and become exercisable upon meeting certain vesting and non-vesting conditions. If the vesting conditions are not met, the warrants will lapse.

The fair value of the Sunshine Guojian Warrants at grant date is estimated using a Black-Scholes option pricing model, taking into account the terms and conditions upon which the warrants were granted. The contractual life of each warrant granted is three and a half years. There is no cash settlement of the warrants. The fair value of warrants granted on 1 January 2015 was estimated on the date of grant using the following assumptions:

Dividend yield (%)	—
Expected volatility (%)	37.50
Risk-free interest rate (%)	1.1
Contractual life of warrants (years)	3.50
Underlying share price (RMB)	70.50
Exercise price of each warrant (RMB)	0.00006

On the date of grant, the fair values of each of the Sunshine Guojian Warrants with probability of meeting the non-vesting conditions of 30% and 50% were RMB19.37 and RMB32.26, respectively.

At the date of approval of the unaudited interim condensed consolidated financial statements, the Company had warrants exercisable on 32,957,697 ordinary shares outstanding. Under the present capital structure of the Company, the exercise in full of the outstanding warrants would result in the issue of 32,957,697 additional ordinary shares of the Company and additional share capital of RMB2,000 (before issue expenses).

There were no vested warrants for the six months ended 30 June 2018. For the six months ended 30 June 2018, there was no exercise of warrants (for the six months ended 30 June 2017: Nil).

There was no forfeiture or expiry of warrants for the six months ended 30 June 2018 and 2017.

Interim Report 2018 57

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

20. RELATED PARTY DISCLOSURES

Details of the Group’s principal related parties are as follows:

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Company Relationship
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Century Sunshine Limited (“Century Sunshine”)	Ultimate shareholder of the Company
Ascentage Pharma Group Co., Ltd.	Associate
(“Ascentage Pharma”)
Ascentage Pharma Group International	Associate
(“Ascentage International”)
Beijing Huansheng Medical	Under signifcant infuence of a director of
Investment Co., Ltd.	the Company and owned by certain middle
(“Beijing Huansheng”)	management personnel of the Group
Liaoning Sunshine Science and	Subsidiary of Beijing Huansheng
Technology Development Co., Ltd.
(“Liaoning Sunshine Technology”)
Zhejiang Sunshine Pharmaceutical	Under signifcant infuence of a director
Co., Ltd. (“Zhejiang Sunshine”)	and key management personnel of the Company

(a) The Group had the following transactions with related parties during the six months ended 30 June 2018:

Notes		For the six months ended 30 June	For the six months ended 30 June
		2018	2017
		(unaudited)	(unaudited)
		RMB’000	RMB’000
Loan including interest to Liaoning Sunshine Technology (i) Loans to Beijing Huansheng (ii) Loans to Zhejiang Sunshine (iii) Loan from Century Sunshine (iv) Convertible loan including interest to Zhejiang Sunshine (v) Guaranteeprovided to BeijingHuansheng (vi)	31,648 10,477 30,894 68,151 36,372 —		30,604 10,000 — 109,605 82,517 5,000

58 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

20. RELATED PARTY DISCLOSURES (continued)

• (a) The Group had the following transactions with related parties during the six months ended 30 June 2018: (continued)

Notes:

• (i) On 7 December 2016 and 23 December 2016, Sunshine Guojian extended loans with principal amounts of RMB20,000,000 and RMB10,000,000 to Liaoning Sunshine Technology at an annual interest rate of 3.85% with maturity dates on 7 March 2017 and 23 March 2017, respectively. Pursuant to the renewed supplemental agreements, the maturity loan periods were extended to 6 March 2019 and 22 March 2019, respectively. The accrued interest for six months ended 30 June 2018 was RMB1,044,000 (for the six months ended 30 June 2017: RMB604,000).

• (ii) On 26 May 2017, Zhejiang Wansheng provided a loan with principal amount of RMB10,000,000, to Beijing Huansheng at an interest rate of 4.35% per annum with the maturity date on 26 May 2018. Pursuant to supplemental agreements dated 26 May 2018, the maturity date was deferred to 26 May 2019. The accrued interest for six months ended 30 June 2018 was RMB477,000 (for the six months ended 30 June 2017: Nil).

• (iii) On 11 August 2017 and 18 September 2017, Shenyang Sunshine provided entrust loan with principal amounts of RMB20,000,000 and RMB10,000,000, to Zhejiang Sunshine at an annual interest rate of 3.48% with the maturity dates on 11 August 2018 and 18 September 2018, respectively. The accrued interest for six months ended 30 June 2018 was RMB522,000 (for the six months ended 30 June 2017: Nil).

• (iv) On 2 March 2017, 5 May 2017 and 30 October 2017, the Group repaid Century Sunshine a loan of USD5,500,000 entirely, which is equivalent to RMB37,135,000. As at 30 June 2018, the balance was approximately RMB68,151,000.

• (v) On 29 March 2016, Shenyang Sunshine lent to Zhejiang Sunshine, a related party in which an approximately 52.1% equity interest was then owned by one of the controlling shareholders of the Company, a convertible loan with a principal amount of RMB75,000,000 at an annual interest rate of 8%. In 2017, Zhejiang Sunshine has repaid RMB50,000,000 of the principal amount. The accrued interest for the six months ended 30 June 2018 was RMB1,000,000 (for the six months ended 30 June 2017: RMB3,000,000).

• (vi) On 18 November 2016, the Group provided a financial guarantee to Beijing Huansheng in favour of bank borrowings amounting to RMB5,000,000 on a term of six months. The guarantee expired on 18 May 2017.

Interim Report 2018 59

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

20. RELATED PARTY DISCLOSURES (continued)

(b) Outstanding balances with related parties:

30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Due from related parties: Current portion Liaoning Sunshine Technology 31,332 Zhejiang Sunshine 30,585 Beijing Huansheng 10,372 Directors and senior management 7,336	31,126 30,372 10,260 7,336
79,625	79,094
Non-current portion ZhejiangSunshine 36,008	35,372
30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Due to related parties: Current portion Ascentage Pharma — Century Sunshine 68,151 Ascentage International —	8,799 67,302 13
68,151	76,114

60 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

20. RELATED PARTY DISCLOSURES (continued)

(c) Compensation of key management personnel of the Group:

	For the six months ended 30 June	For the six months ended 30 June
	2018	2017
	(unaudited)	(unaudited)
	RMB’000	RMB’000
Salaries, allowances and benefts in kind Pension scheme contributions		11,464 152
	12,364
	238
		11,616
	12,602

21. COMMITMENTS

The Group had the following capital commitments as at 30 June 2018:

30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Contracted, but not provided for: Plant and machinery 143,140 Capital contributionpayable 9,925	93,536 —
153,065	93,536

Interim Report 2018 61

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

22. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at 30 June 2018 are as follows:

30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Financial assets Debt instruments of amortised cost: Financial assets included in prepaid expenses and other receivables 370,222 364,971 Trade and notes receivables 1,430,895 1,324,084 Long-term receivables 36,008 35,372 Cash and cash equivalents 2,130,625 2,398,621 Pledged deposits 26,587 11,845 Equity instruments at fair value through other comprehensive income 122,740 — Financial assets at fair value through proft or loss 440,279 — Available-for-sale investments — 752,897 Derivative fnancial instrument — 1,322
4,557,356 4,889,112
30 June 2018 (unaudited) RMB’000	31 December 2017
	(audited)
	RMB’000
Financial liabilities Financial liabilities at amortised cost: Trade and bills payables 125,374 274,568 Convertible bonds 2,234,888 2,271,874 Financial liabilities included in other payables and accruals 215,357 188,542 Interest-bearing bank borrowings 1,567,862 2,134,257 Financial liabilities included in other non-current liabilities 12,505 12,350
4,155,986 4,881,591

62 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

23. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

The carrying amounts and fair values of the Group’s financial instruments, other than those with carrying amounts that reasonably approximate to fair values, are as follows:

	Carrying amounts	Carrying amounts	Fair value	Fair value
	30 June 2018	31 December 2017	30 June 2018	31 December 2017
	(unaudited)	(audited)	(unaudited)	(audited)
	RMB’000	RMB’000	RMB’000	RMB’000
Financial assets Equity instruments at fair value through other comprehensive income Financial assets at fair value through proft or loss Available-for-sale investments Derivative fnancial instrument Long-term receivables	122,740 — 122,740 — 440,279 — 440,279 — — 752,897 — 752,897 — 1,322 — 1,322 36,008 35,372 36,008 35,372
	599,027 789,591 599,027 789,591
Financial liabilities Interest-bearing bank borrowings Convertible bonds	345,000 1,046,791 355,940 1,063,419 2,234,888 2,271,874 2,234,888 2,271,874
	2,579,888 3,318,665 2,590,828 3,335,293

Management has determined that the fair values of cash and cash equivalents, pledged deposits, deposits, trade and notes receivables, financial assets included in prepaid expenses and other receivables, financial assets included in other non-current assets, trade and bills payables, financial liabilities included in other payables and accruals and financial liabilities are reasonably approximate to their carrying amounts largely due to the short-term maturities of these instruments.

Interim Report 2018 63

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

23. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

The Group’s finance team headed by the finance director is responsible for determining the policies and procedures for the fair value measurement of financial instruments. The finance director reports directly to the chief financial officer. At each reporting date, the finance team analyses the movements in the values of financial instruments and determines the major inputs applied in the valuation. The valuation is reviewed and approved by the chief financial officer. The valuation process and results are discussed with senior management twice a year for interim and annual financial reporting.

The fair values of the financial assets and liabilities are included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.

The following methods and assumptions were used to estimate the fair values:

The fair values of the interest-bearing bank borrowings and convertible bonds have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities. The Group’s own non-performance risk for interest-bearing bank borrowings as at 30 June 2018 was assessed to be insignificant. The fair value of the liability portion of the convertible bonds is estimated by discounting the expected future cash flows using an equivalent market interest rate for a similar convertible bond with consideration of the Group’s own non-performance risk.

The fair values of listed equity investments are based on quoted prices in an active market. The fair values of the investments in treasury or cash management products approximate to their acquisition costs plus accrued interests.

The fair value of derivative financial instrument is measured using Black-Scholes option pricing model which incorporates various markets observable inputs including risk-free interest rate, quoted market price of the underlying stock and dividend ratio.

64 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

23. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

Fair value hierarchy

The following tables illustrate the fair value measurement hierarchy of the Group’s financial instruments:

Financial assets measured at fair value:

As at 30 June 2018

	Fair value measurement using	Fair value measurement using	Fair value measurement using
	Quoted prices in active markets	Signifcant observable inputs	Signifcant unobservable inputs
	(Level 1)	(Level 2)	(Level 3)	Total
	(unaudited)	(unaudited)	(unaudited)	(unaudited)
	RMB’000	RMB’000	RMB’000	RMB’000
Equity instruments at fair value through other comprehensive income: Listed equity investments Unlisted equityinvestments
	41,756 — — 41,756
	— — 80,984 80,984
Financial assets at fair value through proft or loss: Investments in treasury or cash management products Derivative fnancial instruments
	— 435,900 — 435,900
	— 4,379 — 4,379
	41,756 440,279 80,984 563,019

Interim Report 2018 65

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

23. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

Fair value hierarchy (continued)

Financial assets measured at fair value: (continued)

As at 31 December 2017

	Fair value measurement using	Fair value measurement using	Fair value measurement using
	Quoted prices in active markets	Signifcant observable inputs	Signifcant unobservable inputs
	(Level 1)	(Level 2)	(Level 3)	Total
	(audited)	(audited)	(audited)	(audited)
	RMB’000	RMB’000	RMB’000	RMB’000
Available-for-sale investments: Listed equity investments Unlisted equity investments Investments in treasury or cash management products Derivative fnancial instruments	32,810 — — 32,810 — — 48,333 48,333 — 671,754 — 671,754 — 1,322 — 1,322
	32,810 673,076 48,333 754,219

The Group did not have any financial liabilities measured at fair value as at 30 June 2018 and 31 December 2017.

Assets for which fair values are disclosed:

As at 30 June 2018

	Fair value measurement using	Fair value measurement using	Fair value measurement using
	Quoted prices in active markets	Signifcant observable inputs	Signifcant unobservable inputs
	(Level 1)	(Level 2)	(Level 3)	Total
	(unaudited)	(unaudited)	(unaudited)	(unaudited)
	RMB’000	RMB’000	RMB’000	RMB’000
Long-term receivables
	— 36,008 — 36,008

66 3SBIO INC.

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

23. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

Fair value hierarchy (continued)

Assets for which fair values are disclosed: (continued)

As at 31 December 2017

	Fair value measurement using	Fair value measurement using	Fair value measurement using
	Quoted prices in active markets	Signifcant observable inputs	Signifcant unobservable inputs
	(Level 1)	(Level 2)	(Level 3)	Total
	(audited)	(audited)	(audited)	(audited)
	RMB’000	RMB’000	RMB’000	RMB’000
Long-term receivables	— 35,372 — 35,372

Liabilities for which fair values are disclosed:

As at 30 June 2018

	Fair value measurement using	Fair value measurement using	Fair value measurement using
	Quoted prices in active markets	Signifcant observable inputs	Signifcant unobservable inputs
	(Level 1)	(Level 2)	(Level 3)	Total
	(unaudited)	(unaudited)	(unaudited)	(unaudited)
	RMB’000	RMB’000	RMB’000	RMB’000
Interest-bearing bank borrowings Convertible bonds
	— 355,940 — 355,940
	— 2,234,888 — 2,234,888
	— 2,590,828 — 2,590,828

Interim Report 2018 67

Notes to the Unaudited Interim Condensed Consolidated Financial Statements

23. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (continued)

Fair value hierarchy (continued)

Liabilities for which fair values are disclosed: (continued)

As at 31 December 2017

	Fair value measurement using	Fair value measurement using	Fair value measurement using
	Quoted prices in active markets	Signifcant observable inputs	Signifcant unobservable inputs
	(Level 1)	(Level 2)	(Level 3)	Total
	(audited)	(audited)	(audited)	(audited)
	RMB’000	RMB’000	RMB’000	RMB’000
Interest-bearing bank borrowings Convertible bonds	— 1,063,419 — 1,063,419 — 2,271,874 — 2,271,874
	— 3,335,293 — 3,335,293

During the six months ended 30 June 2018, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 for both financial assets and financial liabilities (for the six months ended 30 June 2017: Nil).

24. EVENTS AFTER THE REPORTING PERIOD

There was no significant events after the reporting period.

25. APPROVAL OF ISSUANCE OF THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited interim condensed consolidated financial statements have been authorised for issuance by the board of directors on 20 August 2018.

68 3SBIO INC.