Ascletis Pharma Inc. - Annual Report 2020

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ANNUAL REPORT 2020

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2 Corporate Information
4 Chairman’s Statement
5 Financial Summary
6 Corporate Profile
9 Management Discussion and Analysis
29 Directors and Senior Management
33 Report of Directors
50 Corporate Governance Report
63 Environmental, Social and Governance Report
98 Independent Auditor’s Report
103 Consolidated Statement of Profit or Loss
104 Consolidated Statement of Comprehensive Income
105 Consolidated Statement of Financial Position
106 Consolidated Statement of Changes in Equity
107 Consolidated Statement of Cash Flows
109 Notes to Financial Statements
175 Definitions

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Corporate Information

BOARD OF DIRECTORS

Executive Directors

Dr. Jinzi Jason WU (Chairman and Chief Executive Officer) Mrs. Judy Hejingdao WU (Vice President)

REGISTERED OFFICE

Walkers Corporate Limited 190 Elgin Avenue George Town Grand Cayman KY1-9008 Cayman Islands

CORPORATE HEADQUARTERS IN THE PRC

Independent Non-executive Directors

Dr. Yizhen WEI Mr. Jiong GU Ms. Lin HUA

AUDIT COMMITTEE

Mr. Jiong GU (Chairman) Dr. Yizhen WEI Ms. Lin HUA

REMUNERATION COMMITTEE

Ms. Lin HUA (Chairman) Dr. Yizhen WEI Mrs. Judy Hejingdao WU

NOMINATION COMMITTEE

Dr. Jinzi Jason WU (Chairman) Ms. Lin HUA Dr. Yizhen WEI

AUTHORISED REPRESENTATIVES

Dr. Jinzi Jason WU Mrs. Judy Hejingdao WU

COMPANY SECRETARY

Mr. Lok Kwan YIM

12/F, Building D 198 Qidi Road HIPARK Xiaoshan District Hangzhou Zhejiang Province PRC

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

40th Floor Dah Sing Financial Centre No. 248 Queen’s Road East Wanchai Hong Kong

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE IN CAYMAN ISLANDS

Walkers Corporate Limited 190 Elgin Avenue George Town Grand Cayman KY1-9008 Cayman Islands

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

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Corporate Information

HONG KONG LEGAL ADVISER

Kirkland & Ellis 26/F, Gloucester Tower The Landmark 15 Queen’s Road Central Hong Kong

AUDITOR

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

STOCK CODE

1672

COMPANY WEBSITE

www.ascletis.com

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Chairman’s Statement

Dear Shareholders,

2020 was an exciting year for the Group as we made significant progresses in NASH pipeline with three potential first/best-in-class assets against three complementary targets (FASN, THR-β and FXR) and combination therapies of these complementary targets. The Group has obtained two U.S. FDA IND approvals (ASC41 and ASC42); one China NMPA IND approval (ASC41); and two U.S. FDA Fast Track Designation (ASC42 and ASC40) as of the date of this report. The Group has also completed four Phase I/Ib clinical studies (three for ASC41 and one for ASC40) and one Phase II clinical study (ASC40).

In 2020, the Group has also made significant progress in our oncology pipeline by focusing on cancer lipid metabolism and immune modulation for unmet medical needs in oncology since we have unique competitive edges: oral fatty acid synthase (“FASN”) small molecule inhibitors target cancer lipid metabolism as an attractive cancer therapeutic option; oral PD-L1 small molecule inhibitors are next generation checkpoint inhibitors versus PD-1/PD-L1 antibodies.

Lipid metabolism has been reported to play a critical role in various cancers. Fatty acid synthase (FASN) is one of the most important enzymes which regulates lipid metabolism. Many solid and hematopoietic tumors overexpress FASN, including glioblastoma (GBM, Grade IV astrocytoma), non-small cell lung, breast, ovarian, prostate, colon, pancreatic cancers, and non-Hodgkin lymphoma.

GBM represents the most common and devastating primary brain tumor. There is no standard of care after patients have progressed on chemo-radiation. An investigator sponsored Phase II trial of ASC40 (TVB-2640) in combination with bevacizumab in patients with first relapse of high-grade astrocytoma (including GMB) was completed in the United Stated. The data have shown that the overall response rate (ORR) for TVB-2640/bevacizumab was 65% including the complete response (CR) of 20% and partial response (PR) of 45%. Furthermore, the data indicate that the progression-free survival at six months (PFS6) observed for TVB-2640 plus bevacizumab was 47%, representing a statistically significant improvement in PFS6 over historical bevacizumab monotherapy (BELOB 16%, p=0.01). Based on such positive Phase II data, the Company plans to initiate a pivotal randomized, double-blind, placebo-controlled Phase II trial of ASC40 (TVB-2640) in combination with bevacizumab in China for the same patient population (first relapse of high-grade astrocytoma) as in the United States. The Company is also considering additional clinical trials in the future (1) ASC40 in combination with chemotherapies for high-grade astrocytoma immediately followed the surgery and radiation therapy; (2) ASC40 in combination with other therapies for various solid tumors.

We would like to offer our sincere thanks to our patients, doctors and shareholders. The trust, patience and encouragement you place in the Company are what keeps us innovating every day for unmet medical needs in China and globally. We also want to extend the deepest appreciation to our dedicated employees, who make the impossible possible.

Dr. Jinzi Jason WU

Chairman & Chief Executive Officer

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Financial Summary

A summary of the results and of the assets and liabilities of the Group for the last five financial years, as extracted from the audited financial information and financial statements is set out below:

	2016	2017	2018		2019	2020
	RMB’ 000	RMB’ 000	RMB’ 000		RMB’ 000	RMB’000
Revenue
Sale of products	–	–	72,273		124,419	(29,602)
Promotion service revenue	–	–	3,474		47,638	64,603
Collaboration revenue	32,976	53,202	90,578		1,386	–
Total	32,976	53,202	166,325		173,443	35,001
Gross (loss)/profit	32,976	53,202	153,946		124,283	(23,497)
Loss before tax	(31,873)	(80,441)	(19,870)		(95,969)	(209,241)
Loss for the year	(31,873)	(86,931)	(19,745)		(95,969)	(209,241)
Loss attributable to
the owner of the Group	(26,807)	(53,935)	(7,258)		(95,969)	(209,241)
Net loss margin	(96.7%)	(163.4%)	(11.9%)		(55.3%)	(597.8%)
	RMB	RMB	RMB		RMB	RMB
Loss per share– Basic and diluted	N/A	(9.03 cents)	(0.84 cents)		(9.10 cents)	(20.12 cents)
		As of December		31,
	2016	2017	2018		2019	2020
	RMB’ 000	RMB’ 000	RMB’ 000		RMB’ 000	RMB’000
Non-current assets	70,257	115,636	164,267		233,813	237,085
Current assets	466,008	875,618	3,363,336		3,192,574	2,829,987
Non-current liabilities	53,782	22,195	6,786		14,518	11,650
Current liabilities	73,399	99,228	93,405		87,652	73,772
Non-controlling interests	136,725	272,870	–		–	–
Total equity	409,084	869,831	3,427,412		3,324,217	2,981,650

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Corporate Profile

OUR VISION

Ascletis’ vision is to become the most innovative world-class biomedical company addressing global unmet medical needs in the areas of NASH, cancer lipid metabolism and oral checkpoint inhibitors, viral hepatitis, and HIV/AIDS.

OVERVIEW

Ascletis is an innovative R&D driven biotechnology company focusing on developing and commercializing innovative drugs in the four therapeutic areas, namely NASH, cancer lipid metabolism and oral checkpoint inhibitors, viral hepatitis and HIV/AIDS globally. Led by a management team with deep expertise and a proven track record, Ascletis has developed a fully integrated platform covering the entire value chain from discovery and development to manufacturing and commercialization.

During the Reporting Period and up to the date of this report, the Group has made remarkable progresses as summarized below:

NASH

As of the date of this report, the Group has obtained two U.S. FDA IND approvals (ASC41 and ASC42), one NMPA IND approval (ASC41) and two U.S. FDA Fast Track Designations (ASC42 and ASC40). The Group has completed four Phase I/Ib clinical studies (three for ASC41 and one for ASC40) and one Phase II clinical study (ASC40). Our NASH pipeline is shown below:

Single Agent and Combo Therapy Pipeline[1]

Target	Product/ Candidate	Commercial Rights	Pre-IND	IND	Phase I	Phase II a
FASN	ASC40	Greater China2
					U.S. FDA F	ast Track

THR-β	ASC41	Global


FXR	ASC42	Global			ck
			U.S.	FDA Fast Tra

FASN + FXR	ASC40/ASC42 Combo Therapy	Global2
THR-β+ FXR	ASC41/ASC42 Combo Therapy	Global
FASN + THR-β	ASC40/ASC41 Combo Therapy	Global2

Notes:

Our NASH pipeline is owned by Gannex.
ASC40 is licensed from Sagimet Biosciences Inc. (“ Sagimet ”), (previously known as 3-V Biosciences, Inc.) for the exclusive rights in the Greater China.

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Corporate Profile

Cancer lipid Metabolism and Oral Checkpoint Inhibitors

The Group has been focused on cancer lipid metabolism and oral checkpoint inhibitors for unmet medical needs in oncology since we have unique competitive edges: oral fatty acid synthase (FASN) small molecule inhibitors target cancer lipid metabolism as an attractive cancer therapeutic option; oral PD-L1 small molecule inhibitors are next generation checkpoint inhibitors versus PD-1/PD-L1 antibodies. Our cancer lipid metabolism and oral checkpoint inhibitors pipeline is shown below:

Target	Product/ Candidate	Indication	Commercial Rights	IND	Phase I	POC
FASN + VEGF	ASC40 (Oral) + Bevacizumab	Glioblastoma	Greater China1
				I	ST Phase II C	ompleted

FASN	ASC40 (Oral)	Multiple Solid Tumors	Greater China1


FASN	ASC60 (Oral)	Multiple Solid Tumors	Greater China1


PD-L1	ASC61 (Oral)	Multiple Tumors	Global


PD-L1	ASC63 (Oral)	Multiple Tumors	Global

Note:

ASC40 and ASC60 are licensed from Sagimet for the exclusive rights in the Greater China.

Viral Hepatitis

Hepatitis B Virus (HBV) Clinical Cure

As a marketed drug of clinically curing chronic Hepatitis B (CHB), Pegasys[®] promotion revenue increased 35.6% from approximately RMB47.6 million for the year ended December 31, 2019 to approximately RMB64.6 million for the year ended December 31, 2020.

ASC22 (Envafolimab), a first-in-class, subcutaneously administered PD-L1 antibody, has completed Phase IIa trial and initiated the multi-dose Phase IIb study in CHB patients. Our HBV clinical cure pipeline is shown below:

Target	Product/ Candidate	Commercial Rights
Interferon receptor	Pegasys® (Peginterferon alfa-2a)	Mainland China1


PD-L1	ASC22	Greater China2


Undisclosed	Candidate identifed	Global


FXR	ASC42	Global

Notes:

Pegasys[®] is licensed from Shanghai Roche Pharmaceuticals Ltd. (上海羅氏製藥有限公司)for the exclusive rights in the Mainland China.
ASC22 is licensed from Suzhou Alphamab Co., Ltd. ( 蘇州康寧傑瑞生物科技有限公司) (“ Alphamab ”) for the exclusive rights in the Greater China.

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Corporate Profile

Hepatitis C Virus (HCV)

The NDA of the all-oral regimen of ASCLEVIR[®] (Ravidasvir) in combination with GANOVO[®] (Danoprevir) (the “RDV/DNV Regimen”) was approved by the NMPA on July 29, 2020. Phase II/III clinical trial has shown that the RDV/DNV Regimen demonstrated a cure rate of 99% (SVR12) with a short treatment duration of 12 weeks in genotype 1 patients. In patients with baseline NS5A resistance mutations, the RDV/DNV Regimen demonstrated a cure rate of 100% (SVR12). Our HCV pipeline is shown below:

Target	Product/ Candidate	Commercial Rights
NS3/4A	GANOVO® (Danoprevir)	Greater China1


NS5A	ASCLEVIR® (Ravidasvir)	Greater China2


Dual Targeted FDC	ASC18	Greater China

Notes:

GANOVO[®] is licensed from Roche for the exclusive rights in the Greater China.
ASCLEVIR[®] is licensed from Presidio Pharmaceuticals, Inc. for the exclusive rights in the Greater China.

HIV/AIDS

Our HIV/AIDS pipeline is shown below:

Target	Product/ Candidate	Commercial Rights
Protease	ASC09F (ASC09/ Ritonavir FDC)	Mainland China and Macau1


PD-L1	ASC22	Greater China2

Notes:

ASC09 is licensed from Jassen R&D Ireland for the exclusive rights in Mainland China and Macau.
ASC22 is licensed from Alphamab for the exclusive rights in the Greater China.
The tablet formulation of Ritonavir that the Group develops has completed bioequivalence (BE) studies of the tablets on healthy volunteers. ANDA of Ritonavir was accepted by the NMPA on August 22, 2019.

IN-HOUSE DISCOVERY

The in-house discovery team of the Group has delivered two U.S. FDA IND approvals (ASC41 and ASC42) and one NMPA IND approval (ASC41) for NASH in 2020. In addition, the in-house discovery team made significant progress for the oral PD-L1 small molecule inhibitor program for cancer immune modulation.

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Management Discussion and Analysis

BUSINESS REVIEW

During the Reporting Period and up to the date of this report, the Group made the following progresses with respect to its business.

NASH

2020 was an exciting year for the Group as we made significant progress in NASH pipeline with three potential first/best-in-class assets against three complementary targets (FASN, THR-β and FXR) and combination therapies of these complementary targets. The Group has obtained two U.S. FDA IND approvals (ASC41 and ASC42), one NMPA IND approval (ASC41); and two U.S. FDA Fast Track Designations (ASC42 and ASC40) as of the date of this report. The Group has also completed four Phase I/Ib clinical studies (three for ASC41 and one for ASC40) and one Phase II clinical study (ASC40).

ASC40

ASC40 is a novel, first-in-class, FASN inhibitor. The Company and its partner Sagimet have completed the global Phase II trials of 129 NASH patients in China and U.S. cohorts. The preliminary data showed that ASC40 meaningfully reduced liver fat, the primary efficacy endpoint of this trial, with the responder rates ranging 50% to 61% (percentage of patients achieving ≥30% liver fat reduction).

The China cohort of the global Phase II trials evaluated the safety and efficacy of an oral, once-daily dosing of 50 mg of ASC40 or matching placebo for 12 weeks in 30 patients with NASH. Trial participants were required to have at least 8% liver fat at baseline, as measured by magnetic resonance imaging-proton density fat fraction (MRI-PDFF), and evidence of stage F1 to F3 liver fibrosis on liver biopsy or characteristics of metabolic syndrome. The study demonstrated a relative reduction in liver fat of 28.2% in the ASC40 group versus a reduction of 11.1% in the placebo group. ASC40 also showed a statistically significant decrease in ALT by 29.8% (P =0.0499) (mean decrease of 33 U/L at week 12), which indicates reduction of liver inflammation. In 63% of patients on ASC40, ALT decreased by 17 U/L or greater, which has been shown to correlate with liver biopsy response in NASH patients.

ASC40 was well tolerated with no serious adverse events. All treatment emergent adverse events were grade one or two and there were no statistically significant changes in serum triglycerides.

Based on the positive Phase II data, we have selected doses for the pivotal Phase IIb/III NASH patient trial of ASC40 in China.

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Management Discussion and Analysis

ASC41

ASC41 is a liver-targeted prodrug. The active metabolite of ASC41 is a potent and selective thyroid hormone receptor beta (THR-β) agonist. The Company achieved remarkable milestones with IND approvals by both the U.S. FDA and NMPA for ASC41. The Company has completed Phase I trial in 65 subjects with elevated low-density lipoprotein cholesterol (LDL-C) (> 110 mg/dL), a population characteristic of non-alcoholic fatty liver disease (NAFLD). The preliminary data suggest that after 14 days of once daily oral dosing, subjects demonstrate clinically meaningful and statistically significant reduction in LDL-C and triglycerides compared to placebo. At a low dose of 1 mg, placebo-adjusted relative triglyceride reduction from baseline was 39% after 14 days of once daily oral dosing, differentiating from our competitors. ASC41 had a benign adverse event profile at all doses following 14-day treatment, with no grade three or above adverse events, no serious adverse events or premature discontinuations. Furthermore, ASC41 tablet formulation displayed a dose-proportional pharmacokinetic profile from 1 mg to 5 mg following once daily, 14-day dosing.

The Company has further completed Phase Ib trial in 20 overweight and obese subjects with positive clinical results.

Based on the positive clinical results, doses were selected for Phase II trial in patients with NASH. Furthermore, the commercially ready oral tablets developed in-house using proprietary technology will accelerate our clinical development to market.

ASC42

ASC42 is a novel non-steroidal, potent and selective FXR agonist with the best-in-class potential. The Company also achieved remarkable milestones for ASC42 with IND approval and Fast Track Designation by U.S. FDA. The U.S. FDA’s Fast Track development program is designed to facilitate the development and expedite the review of drugs that have ability to treat serious or life-threatening diseases or conditions and demonstrate the potential to address unmet medical needs with additional clinical benefits to patients. There are no FDA approved medicines for NASH indication yet. This Fast Track designation represents FDA’s recognition of ASC42’s potential in addressing these unmet medical needs for NASH patients.

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Management Discussion and Analysis

Combination Therapies

With three single agents against three distinct but complementary targets, the Company has initiated formulation development of fixed dose combinations (FDCs) and preclinical toxicology studies of three combination therapies to take advantage of synergies among these targets (see below).

Combination Therapies: Synergies among ASC40, ASC41 and ASC42

		Monotherapy		Combination therapy	Combination therapy
Treatment Goals	ASC40	ASC41	ASC42	ASC40/ASC42	ASC41/ASC42	ASC40/ASC41
	FASN	THR-β	FXR	FASN+FXR	THR-β+FXR	FASN+THR-β
Liver fat reduction
Anti-infammation
Anti-fbrosis
Lowering LDL-C and TG

Cancer Lipid Metabolism and Oral Checkpoint Inhibitors

The Group has been focused on discovery and development of therapeutics in the areas of cancer lipid metabolism and oral checkpoint inhibitors since we have unique competitive edges against our competitors. In 2017, U.S. FDA approved Agios’ and Celgene’s enasidenib for acute myeloid leukaemia (AML) as the first-in-class cancer lipid metabolism drug, validating metabolism-modulating drugs as a means of killing cancer cells.

Lipid metabolism has been reported to play a critical role in various cancers. Fatty acid synthase (FASN) is one of the most important proteins which regulates lipid metabolism. Many solid and hematopoietic tumors overexpress FASN, including glioblastoma (GBM, Grade IV astrocytoma), non-small cell lung, breast, ovarian, prostate, colon, pancreatic cancers and non-Hodgkin lymphoma.

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Management Discussion and Analysis

Based on such positive Phase II data, the Company plans to initiate a pivotal randomized, double-blind, placebo-controlled Phase II trial of ASC40 (TVB-2640) in combination with bevacizumab in China for the same patient population (first relapse of high-grade astrocytoma) as in the U.S.. The Company is also considering additional clinical trials for (i) ASC40 in combination with chemotherapies for high-grade astrocytoma immediately followed by the surgery and radiation therapy; (ii) ASC40 in combination with other therapies for various solid tumors.

ASC60 is a next generation oral FASN inhibitor which may be combined with other therapies for various solid tumors.

Our oral PD-L1 small molecule inhibitors discovered in-house have shown favorable anti-tumor activities in animal model compared to a marketed anti-PD-L1 antibody. The Company believes that oral PD-L1 small molecule inhibitors will be the next generation checkpoint inhibitors as cancer immune therapies and have the potential to be combined with oral FASN small molecule inhibitors.

Viral Hepatitis

HBV

There are 257 million people worldwide, including 86 million people in China, infected by HBV.

Pegasys[®]

As a marketed drug of clinically curing CHB, Pegasys[®] promotion income increased 35.6% from approximately RMB47.6 million for the year ended December 31, 2019 to approximately RMB64.6 million for the year ended December 31, 2020.

ASC22

In August 2020, the Company dosed first HBV patient in Phase IIa single dose escalation clinical trial to explore the safety and tolerability of ASC22 (Envafolimab) in the CHB patients. The data from Phase IIa study indicated that ASC22 (Envafolimab) is safe and well tolerated in the CHB patients receiving nucleos(t)ides as the background therapy. All adverse effects were grade one and no grade two or above adverse effects were observed to date. Based on such data, a multi-dose Phase IIb study of ASC22 (Envafolimab) has been initiated. As T cell exhaustion in HBV infections is an important factor in immune tolerance, blocking the PD-1/PD-L1 pathway could be an effective immunotherapy approach to improve specific T cell function and lead to an effective clinical cure for CHB.

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Management Discussion and Analysis

HCV

The NDA of the all-oral regimen of ASCLEVIR[®] (Ravidasvir) in combination with the GANOVO[®] (Danoprevir) was approved by the NMPA on July 29, 2020. However, due to the impact of the low pricing strategy of our competitors for all-oral HCV regimens in China, the Group made the strategic decision to focus on the promotion of Pegasys[®] for CHB and has initiated the process to seek external partners to promote the RDV/DNV Regimen for chronic Hepatitis C.

HIV/AIDS

The Group received IND approval from the NMPA for ASC09F, an ASC09/Ritonavir Fixed-Dose Combination (FDC). ASC09 has an unprecedented high genetic barrier to resistance and has completed Phase I and Phase IIa clinical trials, which have shown potent anti-viral activity. Previous clinical trials have also shown that ASC09 is safe and well-tolerated. After two weeks of treatment of mono-therapy, ASC09 demonstrated up to a 1.79 log viral load decrease (62-fold reduction of viral load in blood samples of patients). Our studies have shown that ASC09 requires seven mutations before HIV develops resistance to ASC09, indicating ASC09 to have high genetic barrier to resistance compared to other approved protease inhibitors. These characteristics make ASC09 a promising HIV drug therapy candidate for both treatment-naïve and treatment-experienced patients.

CAPABILITY OF COMMERCIALIZATION

With the successful launch of GANOVO[®] , the Group has demonstrated potent development capability and established a solid commercial presence in China in the area of hepatitis. As of December 31, 2020, the Group has built a commercialization team of approximately 110 members, covering approximately 1,000 hospitals and pharmacies strategically located in regions where Hepatitis C and B are prevalent in China. Our commercial team has identified and educated approximately 5,400 specialists and KOLs in the hepatitis field. We have entered into 22 distribution agreements with different distributors that cover approximately 310 direct-to-patient (DTP) pharmacies, hospital-linked pharmacies and other pharmacies through our distributors, either directly or through their sub-distributors.

THE GROUP’S FACILITIES

We have one manufacturing facility located in Shaoxing, Zhejiang Province with a total gross floor area of 17,000 square meters. Our manufacturing facility has one production line with a designed annual production capacity of 130 million tablets. As substantially all of our drug candidates are administered in tablet form, we are able to manufacture our drugs using the same production line. We have obtained the drug production license for our manufacturing facility. Our manufacturing facility is equipped with state-of-the-art production equipment with cutting-edge technology capabilities such as hot-melt extrusion and high-speed press to ensure the high quality of our products.

As of December 31, 2020, we had 10 wholly-owned subsidiaries. Our business was mainly conducted through three operating subsidiaries in China, namely Ascletis BioScience Co., Ltd. (歌禮生物科技（杭州）有限公司), Ascletis Pharmaceuticals Co., Ltd. (歌禮藥業（浙江）有限公司) and Gannex.

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Management Discussion and Analysis

IMPACT OF COVID-19

During the Reporting Period, COVID-19 pandemic had limited impacts on the Group’s business, such as research and development and sales activities. The Group took various measures to minimize negative impacts of COVID-19 pandemic on our operations and business activities. As a result, the Pegasys[®] promotion still increased 35.6% from approximately RMB47.6 million for the year ended December 31, 2019 to approximately RMB64.6 million for the year ended December 31, 2020.

The initiation and patient enrollment of some of our clinical trials were slowed down in the first half 2020 under the impact of COVID-19 pandemic. As a result, the Group’s R&D expenses decreased by 13.5% from approximately RMB126.0 million for the year ended December 31, 2019 to approximately RMB109.1 million for the year ended December 31, 2020.

FUTURE AND OUTLOOK

In 2021 and beyond, we will focus on four therapeutic areas: NASH, cancer lipid metabolism and oral checkpoint inhibitors, HBV clinical cure and HIV/AIDS.

Over the last few years, we have built a global leading NASH pipeline with three single agents and three combination therapies. We are planning to advance ASC40 and ASC41 into pivotal clinical trials in 2021 and beyond for NASH indication registration purposes. We are also planning to advance ASC42 into proof-of concept Phase II clinical trials in 2021.

Over the last few years, we have built an oncology pipeline focusing on cancer lipid metabolism and oral checkpoint inhibitors. In 2021, we are planning to advance ASC40 in combination with bevacizumab into a pivotal randomized, double-blind, placebo-controlled Phase II trial in China for the same patient population (first relapse of high-grade astrocytoma) as in the U.S.. We are also considering additional clinical trials of ASC40 for (i) combination with chemotherapies for high-grade astrocytoma immediately followed by the surgery and radiation therapy; and (ii) combination with other therapies for various solid tumors. In 2021, we are planning to file an IND of our next generation FASN inhibitor ASC60 (TVB-3567) for oncology indications.

In December 2020, we reported that Phase IIa data demonstrated that ASC22 (Envafolimab), a first-inclass, subcutaneously administered PD-L1 antibody, is safe and well tolerated in CHB patients and Phase IIb clinical trial has been initiated. In 2021, we will focus on advancing ASC22 Phase IIb clinical trials with the goal to achieve clinical cure of CHB.

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Management Discussion and Analysis

FINANCIAL REVIEW

Revenue

The Group have commercialized three products, namely GANOVO[®] (Danoprevir) in China on June 8, 2018, Pegasys[®] on December 1, 2018, and ASCLEVIR[®] (Ravidasvir) in China on July 29, 2020. The revenue generated during the Reporting Period consisted of (i) the promotion services of Pegasys[®] ； and (ii) sales of products from the all-oral regimen of ASCLEVIR[®] (Ravidasvir) in combination with GANOVO[®] (Danoprevir).

Despite the impact of COVID-19, the revenue generated from promotion services of Pegasys[®] increased 35.6% from approximately RMB47.6 million for the year ended December 31, 2019 to approximately RMB64.6 million for the year ended December 31, 2020.

The total revenue of the Group decreased by 79.8% from approximately RMB173.4 million for the year ended December 31, 2019 to approximately RMB35.0 million for the year ended December 31, 2020. The decrease was mainly because (i) termination of promotion and sales of GANOVO[®] (Danoprevir) in combination with pegylated interferon and ribavirin (the “GANOVO Regimen”) in 2020 due to all-oral regimens have become the standard for HCV treatment in 2020 in China, the GANOVO Regimen is no longer an option for HCV patients; and (ii) we recalled the stocks in the sales channel at the end of 2020 and adjusted down the sales price of GANOVO[®] (Danoprevir) since January 1, 2021. Therefore, the relative negative impacts offset the revenue of RMB32.6 million in 2020.

Cost of Sales

The cost of sales of the Group increased by 19.0% from approximately RMB49.2 million for the year ended December 31, 2019 to approximately RMB58.5 million for the year ended December 31, 2020. The increased cost of sales was attributable to (i) the additional impairment provision of GANOVO[®] (Danoprevir) and its materials amounted to RMB24.3 million, reflecting that GANOVO[®] (Danoprevir) in combination with pegylated interferon is no longer an option for HCV patients since all-oral regimens have become the standard for HCV treatment in 2020 in China; and (ii) the costs of inventories sold decreased in line with the sales result on GANOVO[®] (Danoprevir) compared with that in 2019 and the costs were reversed due to the recalled GANOVO[®] (Danoprevir).

The cost of sales of the Group consisted of direct labor costs, cost of raw materials, overheads, royalty fees, costs of rendering promotion services and the write-down of inventories to net realizable value.

Direct labor costs primarily consisted of salaries, bonus and social security costs for our employees.

Costs of raw materials represented the costs in relation to the purchase of raw materials. We own technologies and intellectual properties to manufacture APIs for GANOVO[®] (Danoprevir) and Ravidasvir. We have engaged third party CMOs to manufacture APIs for GANOVO[®] (Danoprevir) to maintain continuity in our source of APIs in the production of GANOVO[®] (Danoprevir). We manufacture the APIs and tablet formulation for ASCLEVIR[®] (Ravidasvir) in-house.

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Management Discussion and Analysis

Overheads primarily consisted of depreciation expenses on our facilities and equipment and other manufacturing expenses.

We agreed to pay Roche and Presidio tiered royalties in the mid-single digits based on net sales of GANOVO[®] (Danoprevir) and ASCLEVIR[®] (Ravidasvir) in any and all regimens in the Greater China.

Gross Profit

The gross profit of the Group decreased by 118.9% from approximately RMB124.3 million for the year ended December 31, 2019 to approximately RMB(23.5) million for the year ended December 31, 2020. The decreased in the gross profit was mainly due to (i) we recognized RMB30.2 million impairment provision of inventories including the additional impairment provision of GANOVO[®] (Danoprevir) and its materials; and (ii) the recalled sales of GANOVO[®] (Danoprevir).

Other Income and Gains

The other income and gains of the Group decreased by 29.0% from approximately RMB126.6 million for the year ended December 31, 2019 to approximately RMB89.9 million for the year ended December 31, 2020, primarily due to (i) the decrease of RMB31.6 million from approximately RMB72.2 million for the year ended December 31, 2019 to approximately RMB40.6 million for the year ended December 31, 2020 in our bank interest income in line with the decreased market bank interest rate; and (ii) we did not incur any foreign exchange gain for the year ended December 31, 2020 compared with RMB4.5 million for the year ended December 31, 2019.

The government grants mainly represented the subsidies we received from the local governments for compensating our expenses from research activities and clinical trials, awarding our new drug development and capital expenditure incurred on certain projects.

The following table sets forth the components of our other income and gains for the years indicated:

	Year ended December 31, 2020 2019 RMB’ 000 % RMB’ 000 %	Year ended December 31, 2020 2019 RMB’ 000 % RMB’ 000 %	Year ended December 31, 2020 2019 RMB’ 000 % RMB’ 000 %	Year ended December 31, 2020 2019 RMB’ 000 % RMB’ 000 %
Government grants Bank interest income Investment income from financial assets at fair value through profit or loss Foreign exchange gain, net Others Total	48,861 40,626 290 – 79 89,856	54.4 45.2 0.3 – 0.1 100	49,869 72,239 – 4,485 – 126,593	39.4 57.1 – 3.5 – 100

Selling and Distribution Expenses

The selling and distribution expenses of the Group mainly consisted of staff costs for our sales personnel and the expenses for our marketing promotion activities.

The selling and distribution expenses represented 78.2% of our revenue for the year ended December 31, 2020, primarily because the sales return of GANOVO[®] (Danoprevir) offset our Group’s total revenue.

Ascletis PhArmA inc. 2020 AnnuAl rePort 17

Management Discussion and Analysis

Administrative Expenses

The administrative expenses of the Group decreased significantly by 14.5% from RMB49.0 million for the year ended December 31, 2019 to RMB41.8 million for the year ended December 31, 2020, primarily due to (i) a decrease in utilities, rent and general office expenses of RMB3.9 million as a result of our cost saving strategies; and (ii) a decrease in staff salary and welfare of RMB3.0 million, which is in line with the reduced headcount.

The following table sets forth the components of our administrative expenses for the years indicated:

	Year ended December 31, 2020 2019 RMB’ 000 % RMB’ 000 %	Year ended December 31, 2020 2019 RMB’ 000 % RMB’ 000 %	Year ended December 31, 2020 2019 RMB’ 000 % RMB’ 000 %	Year ended December 31, 2020 2019 RMB’ 000 % RMB’ 000 %
Staff salary and welfare Utilities, rent and general office expenses Agency and consulting fee Others Total	21,408 15,217 4,315 905 41,845	51.2 36.4 10.3 2.1 100	24,419 19,159 4,411 973 48,962	49.9 39.1 9.0 2.0 100

Research and Development Expenses

Our Group’s research and development expenses primarily consisted of clinical trial expenses, staff costs and third-party contracting costs.

The research and development expenses of the Group for developing our drug candidates decreased by 13.4% from approximately RMB126.0 million for the year ended December 31, 2019 to approximately RMB109.1 million for the year ended December 31, 2020. This was primarily because of the delay of initiation and patient enrollment of some of our clinical trials in the first half 2020 under the impact of COVID-19 pandemic.

The following table sets forth the components of our research and development costs for the years indicated:

	Year ended December 31, 2020 2019 RMB’ 000 RMB’ 000	Year ended December 31, 2020 2019 RMB’ 000 RMB’ 000
Clinical trial expenses Staff costs Depreciation and amortization Third-party contracting costs Others Total	49,960 33,829 18,067 536 6,707 109,099	62,711 30,559 15,893 4,012 12,787 125,962

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Management Discussion and Analysis

The following table sets forth the components of our research and development costs by product pipeline for the years indicated:

	Year ended December 31, 2020 2019 RMB’ 000 RMB’ 000	Year ended December 31, 2020 2019 RMB’ 000 RMB’ 000
NASH HBV HCV HIV/AIDS Others(Note) Total	42,642 24,963 24,936 8,698 7,860 109,099	21,040 13,571 73,637 17,156 558 125,962

Note: “Others” includes research and development costs of pre-clinical programs.

Finance Costs

The Group recorded finance costs amounted to approximately RMB0.1 million for the year ended December 31, 2020, as a result of the amount of the remaining lease liabilities decreased as the term of the lease contract decreased.

The following table sets forth the components of our finance costs for the years indicated:

	Year ended December 31, 2020 2019 RMB’ 000 % RMB’ 000 %	Year ended December 31, 2020 2019 RMB’ 000 % RMB’ 000 %	Year ended December 31, 2020 2019 RMB’ 000 % RMB’ 000 %	Year ended December 31, 2020 2019 RMB’ 000 % RMB’ 000 %
Interest on the lease liabilities Total	135 135	100 100	182 182	100 100

Other Expenses

Our other expenses primarily included donations and foreign exchange loss. Our other expenses increased by 39.7% from approximately RMB59.7 million in 2019 to approximately RMB83.4 million in 2020, mainly due to (i) we recognized foreign exchange loss of RMB30.4 million in 2020 in line with the fluctuation in foreign currency exchange rates, primarily with respect to the exchange rate between USD and RMB; (ii) the write-down of inventories to net realisable value caused a total expense of RMB15.3 million in 2020; (iii) we recognized impairment of intangible asset on ASC21 IP upfront payment amounted to RMB5.8 million as business strategic plan change; and (iv) the decrease of RMB26.1 million in our donation in 2020 compared with that in 2019.

Ascletis PhArmA inc. 2020 AnnuAl rePort 19

Management Discussion and Analysis

The following table sets forth the components of other expenses for the years indicated:

	Year ended December 31, 2020 2019 RMB’ 000 RMB’ 000	Year ended December 31, 2020 2019 RMB’ 000 RMB’ 000
Donation Foreign exchange loss, net Write-down of inventories to net realisable value Impairment of an intangible asset Loss on disposal of items of property, plant and equipment Impairment of trade receivables Others Total	31,789 30,425 15,315 5,771 92 – 20 83,412	57,871 – – – 1,388 88 369 59,716

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 operated.

The Group calculates the income tax expense by using the tax rate that would be applicable to the expected total annual earnings. For the years ended December 31, 2019 and 2020, the Group did not incur any income tax expense as we did not generate any taxable income. We recorded loss before tax of RMB96.0 million for the year ended December 31, 2019 and loss before tax of RMB209.2 million for the year ended December 31, 2020, respectively.

We had tax losses arising in the PRC of RMB563.6 million and RMB762.9 million for the year ended December 31, 2019 and 2020, respectively, which are expected to expire in one to five years for offsetting our future taxable profits.

Inventories

The inventories of the Group consisted of raw materials used in the commercial manufacturing, work in progress, finished goods and research materials. The inventories decreased by 31.5% from approximately RMB86.0 million as at December 31, 2019 to approximately RMB58.9 million as at December 31, 2020, primarily due to the recognition of RMB30.2 million impairment provision of inventories mainly for GANOVO[®] (Danoprevir) and its APIs.

The following table sets forth the inventory balances as of the dates indicated:

	December 31, 2020 RMB’ 000	December 31, 2019 RMB’ 000
Raw materials Work in progress Finished goods Total	32,601 7,871 18,422 58,894	60,468 20,408 5,163 86,039

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Management Discussion and Analysis

Trade Receivables

The Group had RMB68.4 million trade receivables as at December 31, 2019 and RMB26.6 million as at December 31, 2020.

	December 31, 2020 RMB’ 000	December 31, 2019 RMB’ 000
Trade receivables Less: Impairment of trade receivables Total	26,629 9 26,620	68,485 88 68,397

The trading terms of our Group with its customers are mainly on credit. The credit period is generally from 30 days to 180 days. The Group seeks to maintain strict control over its outstanding receivables and overdue balances are regularly reviewed by relevant senior management. In view of the before mentioned and the fact that our Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. Our trade receivables are non-interest-bearing.

An aging analysis of the trade receivables as at the dates indicated, based on the invoice date and net of loss allowance, is as follows:

			December 31,	December 31,
			2020	2019
			RMB’ 000	RMB’ 000
Less than	3	months	26,620	68,397

Prepayments, Other Receivables and Other Assets

The following table sets forth the components of prepayment, other receivables and other assets as at the dates indicated:

	December 31, 2020 RMB’ 000	December 31, 2019 RMB’ 000
Value-added tax recoverable Prepayments Deposits and other receivables Interest receivable Prepaid expenses Prepaid income tax Total	19,703 3,437 2,209 1,904 1,846 1,363 30,462	13,225 7,686 4,788 18,899 1,885 1,363 47,846

Ascletis PhArmA inc. 2020 AnnuAl rePort 21

Management Discussion and Analysis

Our value-added tax recoverable represented the value-added taxes paid with respect to our procurement that can be credited against future value-added tax payables. Our value-added tax recoverable increased from RMB13.2 million as of December 31, 2019 to RMB19.7 million as of December 31, 2020, which was in line with our increased purchases of service.

Our prepayments mainly included our purchase of services. Our prepayments decreased by 55.3% from RMB7.7 million as of December 31, 2019 to RMB3.4 million as of December 31, 2020. Prepayments to supplier as at the end of December 31, 2020 are due within one year. None of the above assets is past due or impaired.

We had RMB18.9 million and RMB1.9 million interest receivable as of December 31, 2019 and December 31, 2020, respectively, which represented the expected interest to be received on time deposits.

Other receivables and prepaid expenses are miscellaneous expenses including other administrative related expenses.

Fair Value and Fair Value Hierarchy of Financial Instruments

We did not have financial instruments other than those with carrying amounts that reasonably approximate to fair values, as at December 31, 2019 and 2020, respectively.

Cash and Cash Equivalents

The following table sets forth the components of our Group’s cash and cash equivalents and time deposits as of the dates indicated:

	December 31, 2020 RMB’ 000	December 31, 2019 RMB’ 000
Cash and bank balances Time deposits Total	1,256,267 1,457,744 2,714,011	167,982 2,821,182 2,989,164

Cash at banks earns interest at floating rates based on daily bank deposit rates. Time deposits are made for varying periods between one day and 12 months depending on our immediate cash requirements, and earn interest at the respective time deposit rates. The bank balances and time deposits are deposited with creditworthy banks with no recent history of default.

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Management Discussion and Analysis

Trade and Other Payables

Trade and bills payables of the Group primarily consisted of payments to raw materials suppliers. The following table sets forth the components of trade payables as at the dates indicated:

	December 31, 2020 RMB’ 000	December 31, 2019 RMB’ 000
Trade payables Bills payable Total	334 596 930	3,961 2,682 6,643

An aging analysis of the trade and bills payables as at the end of the Reporting Period, based on the invoice date, is as follows:

	December 31, 2020 RMB’ 000	December 31, 2019 RMB’ 000
– Within 1 month – 1 to 3 months – 3 to 6 months	334 596 – 930	3,933 28 2,682 6,643

The following table sets forth the components of other payables and accruals outstanding as at the dates indicated:

	December 31, 2020 RMB’ 000	December 31, 2019 RMB’ 000
Other payables Payroll payable Accrued expenses Refund liabilities Taxes other than income tax Total	36,760 19,122 11,960 1,473 659 69,974	33,276 23,387 14,347 4,432 1,617 77,059

Ascletis PhArmA inc. 2020 AnnuAl rePort 23

Management Discussion and Analysis

Our other payables increased by 10.5% from RMB33.3 million as of December 31, 2019 to RMB36.8 million as of December 31, 2020 as a result of the extended payment term in the contract.

The payroll payable are the bonus of 2020 accrued and salary accrued of December 2020, which are due within one year.

The accrued expenses as at December 31, 2020 mainly represented the accrued R&D expenses actually incurred but not yet invoiced, which are non-interest-bearing and due within one year.

Deferred Income

The deferred income of the Group represented government grants which have been awarded, but we have yet to meet the conditions of the grants as of the relevant dates. The following table sets forth the deferred income as of the dates indicated:

	December 31, 2020 RMB’ 000	December 31, 2019 RMB’ 000
Government grants – Current – Non-current Total	1,724 11,207 12,931	1,724 12,931 14,655

Other Intangible Assets

The intangible assets of the Group primarily represented (i) a patent that was transferred from Presidio to the Group in relation to the development and license agreement entered between the Group and Presidio in September, 2014, under which we made upfront and milestone payments to Presidio; and (ii) a patent that was transferred from Alphamab to the Group in relation to the exclusive license and development agreement entered between the Group and Alphamab in January,2019, under which we made upfront payments to Alphamab.

The useful economic lives of these intangible assets are 10 to 17 years, which we consider to be reasonable considering that the duration of the patent right is shorter than the anticipated duration of sales of product. The amortization of intangible assets begins on the transfer date of patent because it is the date from which the intangible assets are available for use by us.

We recognized an impairment loss for ASC21 with RMB5.8 million due to the change of our business strategic plan throughout the Reporting Period. ASC21 is an IND-approved NS5B polymerase nocleot(s)ide inhibitor licensed from Medivir AB under the exclusive licensing agreement executed in June 2017. The Group currently has another IND-approved HCV dual-targeted fixed-dose combination (FDC) candidate in its pipeline, ASC18, which is in-house developed, one-pill once-a-day FDC as the complete treatment of Hepatitis C. Since ASC21 is also an NS5B polymerase nocleot(s)ide inhibitor, which intended to be combined with Ravidavir as FDC, ceasing cooperation with Medivir AB does not have material impact on the Company’s HCV pipeline.

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Management Discussion and Analysis

Because our other intangible assets primarily represented a patent transferred to us from Presidio, which related to the development, manufacture and commercialization of Ravidasvir in the Greater China. The NDA for Ravidasvir has been approved by the NMPA on July 29, 2020. The IND of ASC22 was approved by the NMPA on January 22, 2020 to conduct clinical trials in Hepatitis B patients. Therefore, we do not foresee any indicators of impairment for these two intangible assets.

Liquidity and Capital Resources

The primary uses of cash of the Group are to fund research and development, clinical trials, purchase of equipment and raw materials and other recurring expenses. During the Reporting Period, the Group funded our working capital and other capital expenditure requirements through capital injections from Shareholders at the Listing.

The following table sets forth a condensed summary of our Group’s consolidated statement of cash flows for the periods indicated and analysis of balances of cash and cash equivalents for the years indicated:

	December 31,	December 31,
	2020	2019
	RMB’ 000	RMB’ 000
Net cash used in operating activities	(84,911)	(74,341)
Net cash from investing activities	132,297	602,269
Net cash used in financing activities	(21,670)	(48,217)
Net increase in cash and cash equivalents	25,716	479,711
Cash and cash equivalents at the beginning of year	2,295,044	1,781,892
Effect of foreign exchange rate changes, net	(110,256)	33,441
Cash and cash equivalents at the end of year	2,210,504	2,295,044

As at December 31, 2020, our cash and cash equivalents were mainly denominated in Renminbi, USD and HKD.

Operating Activities

Our cash inflows from operating activities mainly consisted of trade and bills receivables from customers, government grants and bank interests. Our cash outflow from operating activities mainly consisted of selling and distribution expenses, research and development costs, and administrative expenses.

For the year ended December 31, 2020, we had net cash flows used in operating activities of RMB84.9 million, primarily as a result of operating loss before changes in working capital of RMB153.0 million. The negative changes in working capital are mainly due to (i) an increase in bank interest received of RMB57.6 million; (ii) a decrease of RMB42.9 million in trade and bills receivables in relation to our product sales; and (iii) a decrease in trade and bills payables and other payables and accruals of RMB12.8 million.

Ascletis PhArmA inc. 2020 AnnuAl rePort 25

Management Discussion and Analysis

Investing Activities

Our cash used in investing activities mainly consisted of investment in an associate, purchase of property, equipment and construction in progress and purchase of intangible assets.

For the year ended December 31, 2020, our net cash from investing activities was RMB132.3 million, primarily attributable to a decrease in time deposits with original maturity of over three months of RMB190.6 million, which were offset by purchases of intangible assets RMB34.0 million, and investment in an associate of RMB19.7 million.

Financing Activities

Our cash inflow from financing activities primarily related to our corporate financings during the Reporting Period.

For the year ended December 31, 2020, our net cash flows used in financing activities was RMB21.7 million, primarily attributable to repurchase of Shares in an aggregate consideration of RMB19.6 million.

Capital Expenditures

The principal capital expenditures of the Group primarily consisted of plant and machinery, expenditures for construction in progress, leasehold improvements and the purchase of office equipment. The following table sets forth our net capital expenditures as at the dates indicated:

	December 31, 2020 RMB’ 000	December 31, 2019 RMB’ 000
Plant and machinery Motor vehicles Office equipment Leasehold improvements Construction in progress Total	852 – 720 – 3,350 4,922	4,348 121 2,383 1,284 11,006 19,142

Significant Investments, Material Acquisitions and Disposals

In 2019, AP11 Limited, a wholly-owned subsidiary of the Company, entered into a capital increase agreement with 3-V Biosciences (currently known as Sagimet), pursuant to which AP11 Limited agreed to invest US$8,100,000.00 in cash at the initial closing and US$1,899,999.95 in cash at the second closing into Sagimet. On December 21, 2020, AP11 Limited increased investment US$2,999,999.92 in cash into Sagimet. As at the year ended December 31, 2020, AP11 Limited holds approximately 10.56% of the equity interest in Sagimet. The Group recognizes such investment as an investment in an associate to which the equity method is applied.

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Management Discussion and Analysis

Indebtedness

Borrowings

As of December 31, 2020, the Group did not have any indebtedness, and the undrawn bank facilities was RMB50 million as of the same date.

As of December 31, 2020, the Group did not have any outstanding mortgages, charges, debentures, other issued debt capital, bank overdrafts, borrowings, liabilities under acceptance or other similar indebtedness, any guarantees or other material contingent liabilities.

Contingent Liabilities, Charges of Assets and Guarantees

As of December 31, 2020, the Group was not involved in any material legal, arbitration or administrative proceedings, or any contingent liabilities or charges of assets and guarantees, that, if adversely determined, would materially adversely affect our business, financial position or results of operations.

Contractual Commitments

We lease certain of our properties and warehouse under operating lease arrangements. Leases for properties and warehouse are negotiated for terms ranging mainly from one to five years.

The Group had nil operating lease commitments as at December 31, 2020 and nil as at December 31, 2019, respectively.

The Group had nil the capital commitments as at December 31, 2020 and RMB3.5 million as at December 31, 2019, respectively.

Gearing Ratio

Gearing ratio is calculated by dividing total liabilities by total assets and multiplying it by 100%. As at December 31, 2020, the gearing ratio of the Group was 2.8% (as at December 31, 2019: 3.0%).

The following table sets forth our key financial ratios as of the dates indicated:

	December 31,	December 31,
	2020	2019
Current ratio(1)	38.4	36.4
Quick ratio(2)	37.6	35.4

Notes:

(1) Current ratio represents current assets divided by current liabilities as of the same date.

(2) Quick ratio represents current assets less inventories and divided by current liabilities as of the same date.

Ascletis PhArmA inc. 2020 AnnuAl rePort 27

Management Discussion and Analysis

Our current ratio increased from 36.4 as of December 31, 2019 to 38.4 as of December 31, 2020, and our quick ratio increased from 35.4 as of December 31, 2019 to 37.6 as of December 31, 2020, primarily due to a decrease in current liabilities.

Foreign Exchange

Foreign currency risk refers to the risk of loss resulting from changes in foreign currency exchange rates. Fluctuations in exchange rates between Renminbi and other currencies in which the Group conducts business may affect our financial condition and results of operation.

The Group mainly operates in the PRC and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD. Foreign exchange risk arises from recognized assets and liabilities in foreign operations. The conversion of Renminbi from foreign currencies, including the USD, has been based on rates set by the People’s Bank of China. The Group seeks to limit our exposure to foreign currency risk by closely monitoring and minimizing its net foreign currency position. During the Reporting Period, the Group did not enter into any currency hedging transactions. The revenue denominated in USD represented 0.8% and 0.0% of the total revenue of the Company for the year ended December 31, 2019 and 2020, respectively.

Employees and Remuneration Policies

As at December 31, 2020, the Group had a total of 256 employees, 253 of which were located in the PRC. Over 62% of our employees obtained a bachelor’s degree or higher. The table below sets forth our Group’s employees by function as disclosed:

	Numbers of employees	% of total
Management Research and development Commercialization Manufacturing(Note) Operations Total	6 76 106 26 42 256	2 30 42 10 16 100

Note: reclassified 20 employees who in charge of Chemistry, Manufacturing and Control function from Manufacturing to Research and development.

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Management Discussion and Analysis

Our Group’s total staff costs for the year ended December 31, 2020 was RMB94.1 million, compared to RMB115.1 million for the year ended December 31, 2019.

We recruits employees through recruitment websites, recruiters, internal referral and job fairs. The Group conducts new employee training, as well as professional and compliance training programs for employees of the commercialization team.

The Group enters into employment contracts with employees to cover matters such as wages, benefits and grounds for termination. The remuneration package of our employees includes salary and bonus, which are generally determined by the qualifications, industry experience, position and performance. The Group makes contributions to social insurance and housing provident funds for our employees as required by the PRC laws and regulations.

The Group also has adopted a Restricted Stock Unit Scheme, a Restricted Stock Unit Option Incentive Scheme and a Share Option Scheme.

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Ascletis PhArmA inc. 2020 AnnuAl rePort 29

Directors and Senior Management

DIRECTORS

Executive Directors

Jinzi Jason WU

Chairman of the Board, executive Director and chief executive officer

Dr. Jinzi Jason WU (吳勁梓), aged 58, is the Founder of our Group. Dr. Wu was appointed as a Director on February 25, 2014 and was appointed as the chairman of the Board on March 30, 2018. Dr. Wu was redesignated as an executive Director on April 27, 2018. Dr. Wu has served as the chief executive officer of our Group since April 2013. Dr. Wu is primarily responsible for overall management of the business strategy and corporate development of our Group. Dr. Wu is also involved in research and development of all of the candidates in the Group’s pipeline, including but not limited to ASC40, ASC41, ASC42 and ASC22. Dr. Wu also holds the following positions with other members of our Group:

a director of PowerTree since January 2011;
a director and chief executive officer of Ascletis BioScience since April 2013;
a director and chief executive officer of Ascletis Pharmaceuticals since September 2014;
a director of Ascletis Pharma (China) since March 2018;
a director and chief executive officer of Ascletis Biopharma since April 2018;
a director and chief executive officer of Ascletis Xinnuo Medicine since July 2018;
a director of AP11 Limited since November 2018;
a director of Sagimet since February 2019;
a director of SoundRidge Pharmaceuticals (Hong Kong) Co., Limited since April 2019;
a director and chief executive officer of Gannex Pharma Co., Ltd. Since September 2019; and
a manager of Gannex, LLC since October 2020.

Dr. Wu has more than 23 years of experience in pharmaceutical research and development. From June 2008 to February 2011, he served as a vice president of HIV Drug Discover Performance Unit at GSK in the U.S., a global pharmaceutical company whose shares are listed on the New York Stock Exchange (ticker symbol: GSK), where he was mainly responsible for discovery and development of multiple preclinical and clinical stage drug candidates. From June 2004 to June 2008, Dr. Wu served as a vice president of Pre-clinical and Basic Research at Ambrilia (formerly known as Procyon), a global biotech company headquartered in Montreal Canada, whose shares were listed on the Canada Stock Exchange (ticker symbol: AMB) and were later delisted on March 4, 2011, where he was mainly responsible for overseeing research and development in areas of anti-viral and anti-cancer drugs. From 2002 to 2004, Dr. Wu also served at PhageTech Inc., an antibiotic discovery company, as a vice president of research and development. Dr. Wu also worked at Immunex Corporation as a group leader of small molecule drug discovery in 2002 prior to joining PhageTech Inc. From 1997 to 2000, Dr. Wu served as a senior scientist at Novartis Pharmaceuticals Corporation, a global pharmaceutical company whose shares are listed on New York Stock Exchange (ticker symbol: NVS), where he was mainly responsible for drug screening.

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Directors and Senior Management

Dr. Wu received his bachelor’s degree in physiology from Nanjing University (南京大學) in the PRC in July 1985, his master’s degree in physiology from Nanjing University in the PRC in June 1988 and his doctorate degree in cancer biology from University of Arizona in the U.S. in August 1996.

Mrs. Judy Hejingdao WU (何淨島), aged 47, was appointed as a Director on March 30, 2018 and was redesignated as an executive Director on April 27, 2018. Mrs. Wu also served as a Director of our Company from September 9, 2015 to September 26, 2016. Mrs. Wu is the spouse of Dr. Jinzi Jason WU. Mrs. Wu has served as a vice president of our Group since January 2014. Since joining our Group, Mrs. Wu has actively participated in the daily operations of our Group and she is primarily responsible for overseeing operations of our Group, including management of our human resource and general affairs of our Group, among others. Mrs. Wu also holds the following positions with other members of our Group:

a director and a vice president of Ascletis BioScience, where she is mainly responsible for operations of the company since January 2014; and
a vice president of Ascletis Pharmaceuticals where she is mainly responsible for operations of the company since September 2014;

Mrs. Wu received her bachelor’s degree in industrial design from Zhejiang University (浙江大學) in the PRC in July 1996.

Note: Dr. Wu and Mrs. Wu are spouses.

Independent Non-executive Directors

Dr. Yizhen WEI (魏以楨), aged 46, was appointed as an independent non-executive Director on April 27, 2018. Dr. Wei is primarily responsible for supervising and providing independent judgement to our Board.

Dr. Wei has over 18 years of experience in clinical medicine industry. Since December 1999, Dr. Wei has served several positions at Fuwai Hospital – China Academy of Medical Science ( 中國醫學科學院阜外醫院), including resident physician from December 1999 to September 2003, attending physician from September 2003 to July 2009 and consultant physician then. Dr. Wei was appointed as a medical appraisal expert of Beijing Medical Association (北京市醫學會) in December 2013. Dr. Wei has served as a member of the Cardiovascular Committee of the National Cardiovascular Disease Center since August 2016.

Dr. Wei received his bachelor’s degree in clinical medicine in English (英文醫學) from China Medical University (中國醫科大學) in the PRC in July 1998 and his doctorate degree in Surgery from Chinese Academy of Medical Science & Peking Union Medical College (中國醫學科學院北京協和醫學院) in the PRC in January 2008.

Mr. Jiong GU (顧炯), aged 48, was appointed as an independent non-executive Director on April 27, 2018. Mr. Gu is primarily responsible for supervising and providing independent judgement to our Board. Mr. Gu is also the chairman of the audit committee of our Board.

Ascletis PhArmA inc. 2020 AnnuAl rePort 31

Directors and Senior Management

Since September 2013 and October 2015, Mr. Gu has served as the chief financial officer of CMC Capital Partners (華人文化產業投資基金), an investment fund specializing in media and entertainment investment in the PRC and globally, and CMC Holdings Limited (華人文化有限責任公司), an investment platform focusing on media and entertainment investments, respectively. From January 2010 to August 2013, Mr. Gu served as the chief financial officer in BesTV New Media Co., Ltd. (百視通新媒體股份有限公司), a PRC company principally engaged in the provision of technical services, content services and marketing services for television terminals, computer terminals and mobile terminals through a media source platforms, whose shares are listed on Shanghai Stock Exchange (stock code: 600637). From April 2004 to December 2009, Mr. Gu successively worked at UTStarcom Telecom Co., Ltd. (UT斯達康通訊有限公司) and its holding company, UTStarcom Inc. a global telecom infrastructure provider specialized in the provision of packet optical transport and broadband access products to network operators, whose shares are listed on Nasdaq (ticker symbol: UTSI), where he was responsible for accounting and financial matters. From July 1995 to April 2004, Mr. Gu had worked for Ernst & Young’s Shanghai office and was the senior manager of the audit department when he left the firm. From June 2015, Mr. GU has been appointed as the independent non-executive director of Xinming China Holdings Limited (新明中國控股有限公司) (HK2699). From June 2015 to November 2020, Mr. Gu was the independent non-executive director of Chen Xing Development Holdings Ltd (辰興發展控股有限公司) (HK2286). From March 2017, he has been appointed as the independent non-executive director of Amlogic (Shanghai) Co., Ltd (晶晨半導體（上海）股份有限公司) (Stock code: 688099). From September 2018, he has been appointed as the independent non-executive director of Dafa Properties Group Limited (大發地產集團有限公司) (HK6111). From May 2019, Mr. GU has been appointed as the independent non-executive director of Mulsanne Holding Limited (慕尚集團控股有限公司) (HK1817). From June 2019 to November 2020, he was the independent non-executive director of Tu Yi Holding Company Limited (途屹控股有限公司) (HK1701). From December 2020, he has been appointed as the independent non-executive director of Vesync Co., Ltd (HK2148).

Mr. Gu has been a non-practicing member of the Chinese Institute of Certified Public Accountants since April 2004. Mr. Gu received his bachelor’s degree in finance management from Fudan University (復旦大學) in the PRC in July 1995.

Ms. Lin HUA (華林), aged 47, was appointed as an independent non-executive Director on April 27, 2018. Ms. Hua is primarily responsible for supervising and providing independent judgement to our Board.

Since May 2016, Ms. Hua has served as the managing director of Beijing Highgrove Cultural Communication Co., Ltd. (北京海格羅府文化傳播有限公司), a company primarily conducted cultural communication activities including organizing exhibitions and introducing and marketing foreign brands into PRC, where she was mainly responsible for overall management of its Greater China operations. From April 2010 to April 2016, Ms. Hua had worked for Yang Guang Xin Ye Real Property Co., Ltd. (陽光新業地產股份有限公司), a real estate development and management company whose shares are listed on the Shenzhen Stock Exchange (stock code: 000608) and served as a vice president of commercial management department when she left. From May 2003 to March 2010, Ms. Hua worked at Verakin Group Company Ltd. (同景集團有限公司), a company primarily conducted real estate development, education, healthcare and tourism and served as board secretary and head of Beijing headquarter when she left. From October 2002 to April 2003, Ms. Hua served as an assistant to producer and program director at China Central Television. From September 1996 to June 2000, Ms. Hua worked at Daiko Pacific International Advertising Inc. (大廣太平洋國際廣告有限公司), an international advertising company, and she served as a creative director when she left.

Ms. Hua received her bachelor’s degree in industrial design from Zhejiang University in July 1996 and her master degree in distributed computing system from the University of Greenwich in the U.K in June 2002.

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Directors and Senior Management

SENIOR MANAGEMENT

For the biographies of Dr. Jinzi Jason WU and Mrs. Judy Hejingdao WU, please refer to “Directors – Executive Directors”.

Dr. Handan HE (何菡萏), aged 59, was appointed as the Chief Scientific Officer of the Group on October 8, 2019. Prior to joining our Group, Dr. He was a former Global Head of Computational, Biopharmaceutics and Translational PK/PD at Novartis Pharmaceutical Corporation, New Jersey, USA. Dr. He joined Novartis, New Jersey in 1997. She managed scientific teams across Novartis global sites in USA and Switzerland. Her main responsibilities included in silico ADME predictions, human PK/PD projections, translational PK/PD, in vitro and in vivo correlations, and clinical Physiologically Based Pharmacokinetic modeling for drug absorption, drug interaction, organ impairment and pediatrics.

Dr. He was a recipient of the 2009 Outstanding 50 Asian Americans in Business Award. Dr. He served as the 20th President of Sino-American Pharmaceutical Professionals Association (SAPA), an organization of over 4000 pharmaceutical scientists. She obtained Ph.D. in Drug Metabolism and Pharmacokinetics from University of Saskatchewan, Canada in May, 1995.

Dr. Melissa Palmer , M.D., aged 62, was appointed as the chief medical officer of Gannex on December 1, 2020. Prior to joining Gannex, Dr. Palmer was the head of liver disease of clinical development at Takeda Pharmaceuticals. She has also held senior leadership positions at the Shire Pharmaceuticals and Kadmon Corporation, where she was in charge of the global development of NASH and other liver disease programs. Prior to joining the pharmaceutical industry, she was a clinical professor at New York University Langone Medical Center and a director of Hepatology at New York University Plainview, NY. Since 1991, Dr. Palmer served as a hepatology consultant for over 40 biotech and pharmaceutical companies and was a primary investigator on numerous clinical trials in liver disease.

Dr. Palmer has authored over 100 publications, abstracts, articles, and book chapters, in addition to a best-selling book on liver disease “Dr. Melissa Palmer’s Guide to Hepatitis and Liver Disease”. She trained in Hepatology at Mount Sinai School of Medicine, where she also received her M.D. degree. She received her Bachelor of Science degree from Columbia University in New York City.

Ms. (Helen) Yuemei YAN (言月梅), aged 51, was appointed as the Sales Director of the Group on November 8, 2016 and was appointed as Vice President of the Company in April 2018. Ms. Yan has over 18 years of experience in sales management. Prior to joining our Group, Ms. Yan served several roles at Sino-American Shanghai Squibb Pharmaceuticals Ltd. (中美上海施貴寶製藥有限公司) including sales managers and national sales director from November 2005 to October 2016, where she mainly in charge of sales for products of cardiovascular and virology therapeutic area. From June 2001 to October 2005, Ms. Yan served as Medicine Representative in Hangzhou Merck Sharp & Dohme Pharmaceuticals Limited (杭州默沙東製藥有限公司). From August 1988 to June 2001, Ms. Yan served as a nurse at Ningbo No. 1 Hospital (寧波市第一醫院). Ms. Yan obtained her master degree in business administration from Asia Metropolitan University in Malaysia in June 2018 and obtained her college degree in nursing from Zhejiang University (浙江大學) in the PRC in December 1999 through part-time study.

COMPANY SECRETARY

Mr. Lok Kwan YIM (嚴洛鈞), was appointed as our company secretary on June 4, 2018. Mr. Yim currently serves as a manager of SWCS Corporate Services Group (Hong Kong) Limited (方圓企業服務集團(香港) 有限公司), a professional services provider specializing in corporate services. He has over eight years of experience in corporate services industry. Mr. Yim obtained his bachelor’s degree in accounting from Hong Kong Shue Yan University and his master degree in corporate governance from Hong Kong Polytechnic University. Mr. Yim is an associate member of both of The Hong Kong Institute of Chartered Secretaries and The Chartered Governance Institute.

Ascletis PhArmA inc. 2020 AnnuAl rePort 33

Report of Directors

The Directors are pleased to present this annual report and the audited consolidated financial statements of the Group for the year ended December 31, 2020.

PRINCIPAL ACTIVITIES

The principal activity of the Company is investment holding and the Group is principally engaged in research and development, production, marketing and sale of pharmaceutical products.

A list of the Company’s subsidiaries, together with their places of incorporation, principal activities and particulars of their issued shares/paid up capital, is set out in Note 1 to the consolidated financial statements in this annual report.

BUSINESS REVIEW

Overview and Performance of the Year

A review of the business of the Group during the year, a discussion and analysis on the Group’s future business development and the financial and operational key performance indicators employed by the Directors in measuring the performance of the Group’s business are set out in the sections headed “Financial Summary” on page 5 of this annual report, “Corporate Profile” on pages 6 to 8 and “Management Discussion and Analysis” on pages 9 to 28 of this annual report.

Environmental Policies and Performance

The Group is subject to national and local environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes in China. The Group has established detailed internal rules regarding environmental protection. The Group tests effluent water to ensure compliance with national emission standards. Solid waste is sorted for proper disposal. Hazardous waste is sent to qualified third parties for treatment. When a new construction project is proposed, the Group conducts comprehensive analysis and testing on the environmental issues involved in the manufacturing processes. The Group’s production team and environment, health and safety department are primarily responsible for ensuring compliance with applicable environmental rules and regulations. All of the Group’s properties, plants and equipment meet the standards required for compliance with applicable environmental rules and regulations, and the Group believes it has maintained a good relationship with the communities surrounding the Group’s production facilities.

To the best knowledge of the Group, during the year ended December 31, 2020, the Group has complied with the relevant environmental and occupational health and safety laws and regulations in China and we did not have any incidents or complaints which had a material and adverse effect on our business, financial condition or results of operations during the Reporting Period.

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Report of Directors

BUSINESS REVIEW (Continued)

Compliance with Relevant Laws and Regulations

For the year ended December 31, 2020, compliance procedures were in place to ensure adherence to applicable laws, rules and regulations which have significant impact on the Group. The Board and senior management within their respective duties in conjunction with internal and external professional advisors monitored the Group’s policies and practices on compliance with legal and regulatory requirements. Changes in the applicable laws, rules and regulations which have significant impact on the Group (if any) were brought to the attention of relevant employees and relevant operation units from time to time. During the Reporting Period, various works of the Board and senior management were in compliance with the relevant applicable laws and regulations, the articles of association of the Company, charters of the board committees, internal policies and the relevant provisions of various internal control systems. Decision-making process was legitimate and effective. Directors and senior management performed in a diligent and responsible manner and the resolutions of the board meetings were implemented faithfully. Meanwhile, the Company has timely performed its disclosure obligations which were in strict compliance with the requirements of the listing rules or manuals of the Hong Kong Stock Exchange.

In accordance with the requirements of the laws, regulations and related policies in China and relevant other jurisdictions in which the Group operates, the Group provides and maintains statutory benefits for its staff, including but not limited to pension schemes, mandatory provident fund, basic medical insurance, work injury insurance, etc. Further, the Group has been committed in complying relevant laws and regulations on work and occupational safety of employees of the Group. The Group has implemented work safety guidelines setting out safety practices, accident prevention and accident reporting. Our employees responsible for manufacturing and quality control and assurance are required to hold relevant qualifications, as well as wear the proper safety gear when working. We conduct safety inspections for our manufacturing facility twice every month.

To the best knowledge of the Group, during the year ended December 31, 2020, there were no material breaches of the Group’s internal rules or applicable laws and regulations relating to the promotion and distribution of the Group’s pharmaceutical products by its employees or distributors and the Group has complied with all relevant rules and regulations that have significant impact on it.

Ascletis PhArmA inc. 2020 AnnuAl rePort 35

Report of Directors

BUSINESS REVIEW (Continued)

Key Relationship with Stakeholders

The Group recognizes that various stakeholders including employees, medical experts, distributors, and other business associates are key to Group’s success. The Group strives to achieve corporate sustainability through engaging, collaborating, and cultivating strong relationship with them.

The Group believes that it is vital to attract, recruit and retain quality employees. To maintain the quality, knowledge and skill levels of Group’s workforce, the Group provide the employees with periodic training, including introductory training for new employees, technical training, professional and management training and health and safety training. The Group believes that it maintains a good relationship with its employees and the Group did not experience any significant labor disputes or any difficulty in recruiting staff for its operations.

The Group conducts academic marketing activities to establish and maintain relationships with key opinion leaders in the national medical system. The Group provides these experts with detailed information on its products and helps them make independent comparisons among competing products in the market. The Group also maintains long-term cooperative relationships with several national academic associations. The Group believes that its relationships with medical experts help to raise Group’s profile, enhance awareness of Group’s products in the medical community and among patients, and provide it with valuable clinical data to improve the Group’s products, all of which help the Group more effectively market and sell its products.

A significant amount of Group’s sales is attributable to a limited number of distributors. The Group selects the distributors based on their qualifications, reputation, market coverage and sales experience. The Group generally seeks to have long time business relationship with its large distributors.

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Report of Directors

BUSINESS REVIEW (Continued)

Key Risks and Uncertainties and Risk Management

The Group is a biotechnology company listed on the Main Board of the Stock Exchange under Chapter 18A of the Listing Rules. There are unique challenges, risks and uncertainties associated with companies such as our Company, including:

our financial prospects for the next couple of years are substantially dependent upon the successful sales of Ganovo[®] (Danoprevir) and successful sales of ASCLEVER[®] (Ravidasvir);
we may face intense competition in the market for anti-viral drugs;
we may be unable to obtain regulatory approval for our drug candidates;
our financial prospects depend on the successful development and approval of our clinical-stage and pre-clinical stage product pipeline;
our drug candidates may fail to achieve the degree of market acceptance by physicians, patients, third-party payers and others in the medical community necessary for commercial success;
we have in-licensed, and may continue to seek strategic alliances or enter into additional licensing arrangements in the future, a number of drug candidates for development and commercialization, which is subject to risks;
we could be unsuccessful in obtaining or maintaining adequate patent protection for one or more of our drug candidates; and
we may be unable to attract and retain senior management and key scientific employees.

The Company believes that risk management is essential to the Group’s efficient and effective operation. The Company’s management assists the Board in evaluating material risk exposure arising internally and externally from the Group’s business, including operational risks, financial risks, regulatory risks, etc, and proactively setting up appropriate risk management and internal control mechanism which is embedded in daily operation management. The Group’s financial risk management objectives and policies are set out in Note 33 to the consolidated financial statements in this annual report.

Ascletis PhArmA inc. 2020 AnnuAl rePort 37

Report of Directors

DIRECTORS

The Directors during the Reporting Period and up to the date of this Directors’ Report were:

Executive Directors

Dr. Jinzi Jason WU (Chairman and Chief Executive Officer) Mrs. Judy Hejingdao WU (Vice President)

Independent Non-executive Directors

Dr. Yizhen WEI Mr. Jiong GU Ms. Lin HUA Dr. Ru Rong JI (resigned on June 30, 2020)

Biographies of the Directors and Senior Management

The biographical details of the Directors and the senior management of the Company are set out in the section headed “Directors and Senior Management” on pages 29 to 32 of this annual report.

Service Contracts of the Directors

Each of the executive Directors has entered into a three-year service contract with the Company dated July 11, 2018 and effective from their respective appointment dates, subject to termination before expiry by either party giving not less than 30 days’ notice in writing to the other. Each of the independent non-executive Directors has entered into a renewed agreement of appointment with the Company with effective date of April 1, 2021 for a term of three years since the effective date.

None of the Directors proposed for re-election at the forthcoming AGM has a service contract with the Company or any member of the Group which is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

Remuneration of the Directors and Five Highest Paid Individuals

Details of the Directors’ remuneration and the five highest paid individuals in the Group are set out in Note 8 and 9 to the consolidated financial statements in this annual report.

Employees and Remuneration Policies

A review of the employees and remuneration policies of the Group during the year are set out in the section headed “Management Discussion and Analysis” on pages 9 to 28 of this annual report.

Independence of Independent Non-Executive Directors

The Company has received from each of the independent non-executive Directors an annual confirmation of his/her independence pursuant to Rule 3.13 of the Listing Rules. The Company considers that all of the independent non-executive Directors are independent in accordance with the guidelines set out in the Listing Rules.

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Report of Directors

NON-COMPETE UNDERTAKING

Our Controlling Shareholders, provided a non-compete undertaking in favour of the Group (the “ Noncompete Undertaking ”), pursuant to which our Controlling Shareholders undertook not to, and to procure their respective close associate(s) (other than our Group) not to, either directly or indirectly, compete with our principal business, which includes development and commercialization of innovative drugs against HCV, HIV, HBV, liver cancer and fatty liver (“ Restricted Activities ”) unless with prior approval from nonrelated Directors and granted our Group the option for new business opportunities.

Our Controlling Shareholders have confirmed in writing to the Company of their compliance with the Noncompete Undertaking during the Reporting Period. No new business opportunity was informed by the Controlling Shareholders during the Reporting Period.

The independent non-executive Directors have reviewed the implementation of the Non-compete Undertaking based on the information and confirmation provided by or obtained from the Controlling Shareholders, and are of the view that the Non-compete Undertaking has been complied with by our Controlling Shareholders during the Reporting Period.

DIRECTORS’ INTERESTS IN COMPETING BUSINESSES

Save as disclosed in this annual report, as at December 31, 2020, none of the Directors or their respective associates had engaged in or had any interest in any business which competes or may compete with the business of the Group.

DIRECTORS’ INTERESTS IN TRANSACTION, ARRANGEMENT OR CONTRACT OF SIGNIFICANCE

Save as disclosed in this annual report, there was no transaction, arrangement or contract of significance subsisted in which a Director or an entity connected with a Director was materially interested, whether directly or indirectly, during or at the end of the Reporting Period.

Ascletis PhArmA inc. 2020 AnnuAl rePort 39

Report of Directors

CONNECTED TRANSACTIONS

Details on related party transactions for the year ended December 31, 2020 are set out in note 30 to the consolidated financial statements. There was no connected transaction nor continuing connected transaction of the Group which has to be disclosed in accordance with the Chapter 14A of the Listing Rules during the Reporting Period.

DIRECTORS’ AND CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY OR ITS ASSOCIATED CORPORATIONS

As at the date of this annual report, the interests and short positions of the Directors and chief executive 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 SFO) as recorded in the register required to be kept pursuant to Section 352 of the SFO; or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code were as follows:

Interests in shares or underlying shares of the Company

		Number of	Approximate
		Shares/	percentage of
		underlying	shareholding
Name of Director	Capacity/Nature of interest	Shares(1)	interest
Dr. Wu	Interest in controlled corporation(2) (4)	597,221,078 (L)	54.35%
	Interest held jointly with another person(3)	2,311,000 (L)	0.21%
Mrs. Wu	Beneficiary of a trust(4)	44,827,414 (L)	4.08%
	Interest of spouse	552,393,664 (L)	50.27%
	Interest held jointly with another person(3)	2,311,000 (L)	0.21%

Notes:

(1) The letter “L” denotes the person’s long position in the Shares.
(2) 552,393,664 Shares were held by Dr. Wu through JJW12 Limited, a company incorporated in the BVI and wholly owned by Dr. Wu.
(3)
2,311,000 Shares were held by Dr. Wu and Mrs. Wu in a joint account.
(4) As of the date of this report, Lakemont Holding LLC was controlled by Lakemont Remainder Trust as to 56.55% and Dr. Wu as to 43.45%. Mrs. Wu exercises the voting rights of the Shares held through Lakemont Remainder Trust and is a beneficiary of the Lakemont Remainder Trust.

Save as disclosed above, as at the date of this annual report, so far as it was known to the Directors or chief executive of the Company, none of the Directors or chief executive of the Company had interests or short positions in the Shares, underlying Shares and debentures of the Company or its associated corporations as recorded in the register required to be kept, pursuant to Section 352 of the SFO; or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

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Report of Directors

SUBSTANTIAL SHAREHOLDERS’ INTERESTS AND SHORT POSITIONS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY

As at the date of this annual report, so far as it was known to the Directors or chief executive of the Company, the following persons (other than the Directors and chief executive of the Company) had interests and/or short positions in the Shares or underlying Shares as recorded in the register required to be kept by the Company under section 336 of the SFO.

Interests in shares or underlying shares of the Company

			Approximate
			percentage of
		Number of	Shareholding
Name of Shareholder	Capacity/Nature of Interest	Shares(1)	interest
JJW11 Limited(2)	Beneficial owner	64,738,176 (L)	5.89%
CBC Investment Twelve Limited(3)	Beneficial owner	50,729,518 (L)	4.62%
CBC Investment Fifteen Limited(4)	Beneficial owner	25,570,542 (L)	2.33%

Notes:

(1) The letter “L” denotes the person’s long position in the Shares.
(2) The only one issued share of JJW11 Limited was held by Dr. Wu on behalf of the participants under the RSU Scheme adopted by JJW11 Limited. Dr. Wu has irrevocably appointed Ms. Heying YANG (楊荷英) (being a supervisor of Ascletis BioScience and the sole director of JJW11 Limited) as proxy to exercise all voting rights on such shares in her absolute discretion. Dr. Wu does not enjoy and disclaim any beneficial interest in JJW11 Limited.
(3) Each of CBC Investment Ascletis Limited (as the sole shareholder of CBC Investment Twelve Limited (“ CBC 12 ”)), CBC Investment Eleven Limited (“ CBC 11 ”, holding approximately 95.24% equity interest in CBC Investment Ascletis Limited), C-Bridge Healthcare Fund II. L.P. (as the sole shareholder of CBC 11), C-Bridge Healthcare Fund GP II. L.P. (as general partner of C-Bridge Healthcare Fund II. L.P.), C-Bridge Capital GP, Ltd., (as general partner of C-Bridge Healthcare Fund GP II. L.P.), TF Capital II, Ltd. (holding approximately 38.34% equity interest in C-Bridge Capital GP, Ltd.), Kang Hua Investment Company Limited and Nova Aqua Limited (holding approximately 52.17% and 47.83% respectively equity interest in TF Capital II, Ltd.), Dan YANG (as the sole shareholder of Kang Hua Investment Company Limited) and Wei FU (as the beneficial owner of Nova Aqua Limited) is deemed to be interested in the Shares held by CBC 12 under the SFO.
(4) Each of CBC Investment Seven Limited (“ CBC 7 ”, as the sole shareholder of CBC Investment Fifteen Limited (“ CBC 15 ”)), C-Bridge Healthcare Fund, L.P. (holding approximately 75.47% equity interest in CBC 7), C-Bridge Healthcare Fund GP, L.P. (as general partner of C-Bridge Healthcare Fund L.P.), C-Bridge Capital GP, Ltd., (as general partner of C-Bridge Healthcare Fund GP, L.P.), TF Capital II, Ltd. (holding approximately 38.34% equity interest in C-Bridge Capital GP, Ltd.), Kang Hua Investment Company Limited and Nova Aqua Limited (holding approximately 52.17% and 47.83% respectively equity interest in TF Capital II, Ltd.), Dan YANG (as the sole shareholder of Kang Hua Investment Company Limited) and Wei FU (as the beneficial owner of Nova Aqua Limited) is deemed to be interested in the Shares held by CBC 15 under the SFO.

Save as disclosed above, as at the date of this annual report, 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.

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Report of Directors

CONTROLLING SHAREHOLDERS’ INTERESTS IN CONTRACT OF SIGNIFICANCE

Save as disclosed in this annual report, no Controlling Shareholders or their subsidiaries had a material interest, either directly or indirectly, in any contract of significance, whether for the provision of services or otherwise, to the Group to which the Company or any of its subsidiaries was a party during the Reporting Period.

MAJOR CUSTOMERS AND SUPPLIERS

Major Customers

For the year ended December 31, 2020, the Group’s sales to its five largest customers accounted for 100%, as compared to 80.5% of the Group’s total revenue for the year ended December 31, 2019. The Group’s sales to the largest customer accounted for 96.9%, as compared to 27.5% of the Group’s total revenue for the year ended December 31, 2019.

Major Suppliers

For the year ended December 31, 2020, the Group’s five largest suppliers accounted for 64.6%, as compared to 61.0% of the Group’s total purchase amounts for the year ended December 31, 2019. The Group’s single largest supplier accounted for 26.5%, as compared to 23.8% of the Group’s total purchases for the year ended December 31, 2019.

During the year ended December 31, 2020, none of the Directors or any of their close associates or any Shareholders (which, to the best knowledge of the Directors, own more than 5% of the number of issued shares of the Company) had any interest in the Group’s five largest customers and suppliers.

MANAGEMENT CONTRACTS

During the Reporting Period, the Company has not entered into any contract with any individuals, firm or body corporate to manage or administer the whole or any substantial part of any business of the Group.

DIRECTORS’ PERMITTED INDEMNITY PROVISION

Each Director or other officer of the Company shall be entitled to be indemnified out of the assets of Company from and against all actions, costs, charges, losses, damages and expenses which he/she may sustain or incur in or about the execution of the duties of his/her office or trusts or otherwise in relation thereto in accordance with the Articles of Association. The Company has arranged appropriate directors’ liability insurance coverage for the Directors of the Group during the year ended December 31, 2020.

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Report of Directors

RESULTS AND DIVIDENDS

The Group’s loss for the year ended December 31, 2020 and the Group’s financial position at that date are set out in the consolidated financial statements on pages 103 to 174. The Board does not recommend any payment of final dividend for the year ended December 31, 2020. Details of dividend declared prior to the Listing during the Reporting Period are set out in note 11 to the consolidated financial statements in this annual report.

SHARE CAPITAL

Details of movements in share capital of the Company during the Reporting Period are set out in note 25 to the consolidated financial statements in this annual report.

RESERVES

Details of movements in the reserves of the Group and of the Company during the year are set out in the consolidated statement of changes in equity and note 26 to the consolidated financial statements in this annual report.

The Company’s reserves available for distribution to the shareholders of the company as at December 31, 2020 amounted to RMB2.9 billion.

CHARITABLE DONATIONS

During the Reporting Period, charitable and other donations made by the Group amounted to RMB31,789,000 (2019: RMB57,871,000).

PROPERTY, PLANT AND EQUIPMENT

Details of movements in property, plant and equipment of the Group during the Reporting Period are set out in note 13 to the consolidated financial statements in this annual report.

USE OF PROCEEDS FROM LISTING

In connection with the Company’s initial public offering, 224,137,000 ordinary shares of US$0.0001 each were issued at a price of HK$14.00 per share for a total cash consideration, before expenses, of approximately HK$3,137,918,000 (equivalent to RMB2,730,284,000).

Ascletis PhArmA inc. 2020 AnnuAl rePort 43

Report of Directors

USE OF PROCEEDS FROM LISTING (Continued)

The net proceeds from the Listing (adjusted on a pro rata basis based on the actual net proceeds) have been utilized in that same manner, proportion and the expected timeframe as set out in the Prospectus under the section headed “Future Plans and Use of Proceeds” and the interim report published by the Company on September 24, 2020.

On November 18, 2020, the Board resolved to change the use of the remaining net proceed of HK$2,282.3 million as follows:

		The unutilized
		net proceeds	Percentage		Unutilized
		after the	of total net	Actual	net proceeds
		re-allocation	proceeds	usage up to	as at
		as at June 30,	after the	December 31,	December 31,	Expected timeframe
Use of proceeds		2020	re-allocation	2020	2020	for use of proceeds
		(HK$ million)	(%)	(HK$ million)	(HK$ million)
For the Core Products
For continued research and		1,218.3	50.4	60.3	1,158.0	The remaining amount is
	development of the Core					expected to be utilized in
	Product pipeline in Viral					around two and half years
	hepatitis, NASH, HIV/AIDS					from December 31, 2020
For the other assets and other purposes
For upfront and milestone		438.3	15.0	35.2	403.1	The remaining amount is
	payments of in-licensing					expected to be utilized in
	new drug candidates					around two and half years
						from December 31, 2020
For supporting the research		264.5	9.6	5.2	259.3	The remaining amount is
	and development of new					expected to be utilized in
	pipeline drug candidates					around two and half years
						from December 31, 2020
For continued enhancement of		248.3	18.0	5.6	242.7	The remaining amount is
	current commercialization					expected to be utilized in
	capability of marketed					around two and half years
	core products and future					from December 31, 2020
	products
For the working capital and		112.9	7.0	35.9	77.0	The remaining amount is
	other general corporate					expected to be utilized in
	purposes					around two and half years
						from December 31, 2020
Total		2,282.3	100.0	142.2	2,140.1

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Report of Directors

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY

At the Company’s annual general meeting held on June 15, 2020, the shareholders of the Company approved a general mandate to authorise the directors of the Company to repurchase the Company’s shares of up to 10% of the issued shares of the Company as at the date of June 15, 2020. During the year ended December 31, 2020, the Company repurchased 7,554,000 shares on the Stock Exchange for an aggregate consideration of approximately HKD22,693,440 before expenses. The repurchased shares were subsequently cancelled. The repurchase was effected by the Board for the enhancement of shareholder value in the long term. Details of the shares repurchased are as follows:

Month of purchase in 2020	Purchase consideration per share No. of shares purchased Highest price paid Lowest price paid HKD HKD	Aggregate consideration paid HKD
October November December Total:	5,674,000 3.11 2.90 700,000 2.90 2.81 1,180,000 2.95 2.78 7,554,000	17,352,170 1,998,170 3,343,100 22,693,440

Save as disclosed above, neither the Company nor its subsidiaries have purchased, redeemed or sold any of the Company’s listed securities.

EQUITY-LINKED AGREEMENTS

The Company has adopted the Share Option Scheme on June 6, 2019 and is subject to the requirements under Chapter 17 of the Listing Rules.

1. PURPOSE

The purpose of the Share Option Scheme is to provide incentive or reward to Eligible Persons for their contribution to, and continuing efforts to promote the interests of, the Group and for such other purposes as the Board may approve from time to time.

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Report of Directors

EQUITY-LINKED AGREEMENTS (Continued)

2. WHO MAY JOIN

Eligible Persons include:

(a) any employee (whether full-time or part-time) of the Company, any of its subsidiaries or any entity in which the Group holds an equity interest (“Invested Entity”);
(b) any director (including executive, non-executive and independent non-executive directors) of the Group or any Invested Entity;
(c) any supplier of goods or services to any member of the Group or any Invested Entity;
(d) any customer of any member of the Group or any Invested Entity;
(e) any advisory (professional or otherwise), consultant or agent that provides design, research, development or other technological support to any member of the Group or any Invested Entity; and
(f) any shareholder or any member of the Group or any Invested Entity or any holder of any securities issued by any member of the Group or any Invested Entity.

The basis of eligibility of any of the above classes of Eligible Persons to the grant of any Options shall be determined by the Board from time to time on the basis of their contribution to the development and growth of the Group.

3. DURATION OF THE SHARE OPTION SCHEME

The Share Option Scheme shall be valid and effective for a period of 10 years and until June 5, 2029, after which period no further Options shall be granted. Subject to the above, in all other respects, in particular, in respect of Options remaining outstanding on the expiry of the 10-year period referred to in this paragraph, the provisions of the Share Option Scheme shall remain in full force and effect.

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EQUITY-LINKED AGREEMENTS (Continued)

4. MAXIMUM NUMBER OF SHARES

At the time of adoption of the Share Option Scheme or any new share option scheme (the “New Scheme”), the aggregate number of Shares which may be issued upon exercise of all Options to be granted under the Share Option Scheme, the New Scheme and all schemes existing at such time (the “Existing Scheme(s)”) of the Company must not in aggregate exceed 10% of the total number of Shares in issue as at the date of adoption of the Share Option Scheme or the New Scheme (as the case may be) (the “Scheme Mandate Limit”). For the purposes of calculating the Scheme Mandate Limit, Shares which are the subject matter of any Options that have already lapsed in accordance with the terms of the relevant Existing Scheme(s) shall not be counted. The Scheme Mandate Limit may be refreshed by ordinary resolution of the Shareholders in general meeting, provided that:

(a) the Scheme Mandate Limit so refreshed shall not exceed 10% of the total number of Shares in issue as at the date of Shareholders’ approval of the refreshing of the Scheme Mandate Limit;
(b) Options previously granted under any Existing Scheme(s) (including options outstanding, cancelled, or lapsed in accordance with the relevant scheme rules or exercised options) shall not be counted for the purpose of calculating the limit as refreshed; and
(c) a circular regarding the proposed refreshing of the Scheme Mandate Limit has been despatched to the Shareholders in a manner complying with, and containing the matters specified in, the relevant provisions of Chapter 17 of the Listing Rules in force from time to time. In accordance with the current Listing Rules, the circular must contain the information required under Rule 17.02(2)(d) and the disclaimer required under Rule 17.02(4).

The Company may seek separate approval from the Shareholders in the general meeting for granting Options which will result in the Scheme Mandate Limit being exceeded, provided that:

(a) the grant is to Eligible Persons specifically identified by the Company before the approval is sought; and
(b) a circular regarding the grant has been despatched to the Shareholders in a manner complying with, and containing the matters specified in, the relevant provisions of Chapter 17 of the Listing Rules in force from time to time. In accordance with the current Listing Rules, the circular must contain a generic description of the specified participants who may be granted such Options, the number and terms of the Options to be granted, the purpose of granting Options to the specified participants with an explanation as to how the terms of the Options serve such purpose, the information required under Rule 17.02(2)(d) and the disclaimer required under Rule 17.02(4).

Notwithstanding the foregoing, the maximum aggregate number of Shares which may be issued upon exercise of all outstanding Options granted and yet to be exercised under the Share Option Scheme and any other share option schemes of the Company, must not, in aggregate, exceed 30% of the total number of Shares in issue from time to time. No options may be granted under the Share Option Scheme and any other share option schemes of the Company if this will result in such limit being exceeded.

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Report of Directors

EQUITY-LINKED AGREEMENTS (Continued)

5. MAXIMUM ENTITLEMENT OF EACH ELIGIBLE PERSON

No Option shall be granted to any Eligible Person (the “Relevant Eligible Person”) if, at the relevant time of grant, the number of Shares issued and to be issued upon exercise of all Options (granted and proposed to be granted, whether exercised, cancelled or outstanding) to the Relevant Eligible Person in the 12-month period up to and including the date of such grant would exceed 1% of the total number of Shares in issue at such time, unless:

(a) such grant has been duly approved, in the manner prescribed by the relevant provisions of Chapter 17 of the Listing Rules in force from time to time, by ordinary resolution of the Shareholders in general meeting, at which the Relevant Eligible Person and his close associates (or his associates if the Relevant Eligible Person is a Connected Person) abstained from voting;
(b) a circular regarding the grant has been despatched to the Shareholders in a manner complying with, and containing the information specified in, the relevant provisions of Chapter 17 of the Listing Rules in force from time to time. In accordance with the current Listing Rules, the circular must disclose the identity of the participant, the number and terms of the Options to be granted (and Options previously granted to such participant), the information required under Rule 17.02(2)(d) and the disclaimer required under Rule 17.02(4); and
(c) the number and terms (including the Subscription Price) of such Options are fixed before the general meeting of the Company at which the same are approved.

6. EXERCISE OF OPTION

The Share Option Scheme does not stipulate either a minimum period for which an Option must be held or any performance targets a Grantee is required to achieve before an Option may be exercised. The Board may specify in the Offer Letter any conditions which must be satisfied before the Option may be exercised, including without limitation such performance targets (if any) and minimum periods for which an Option must be held before it can be exercised and any other terms in relation to the exercise of the Option, including without limitation such percentages of the Options that can be exercised during a certain period of time, as the Board may determine from time to time.

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EQUITY-LINKED AGREEMENTS (Continued)

7. SUBSCRIPTION PRICE AND CONSIDERATION FOR THE OPTION

The price at which each Share subject to an Option may be subscribed for on the exercise of that Option (the “Subscription Price”) shall be a price solely determined by the Board and notified to an Eligible Person and shall be at least the highest of:

(a) the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on the Offer Date, which must be a Business Day;
(b) the average of the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheets for the five Business Days immediately preceding the Offer Date; and
(c) the nominal value of the Shares.

No consideration is required upon acceptance of the grant of Options.

During the year ended December 31, 2020, a total of 7,413,155 share options were approved by the board under the Share Option Scheme and a total of 7,249,120 share options were granted.

Details of options granted, exercised, cancelled/lapsed and outstanding under the Share Option Scheme during the year are as follows:

						Changes during the year	Changes during the year
			Closing price		Balance
		Exercise	immediately		as at				Balance as at
Category of		price per	before the		January 1,			Canceled/	December 31,
participants	Date of grant	share	date of grant	Exercise period	2020	Granted	Exercised	Lapsed	2020
		(HK$)	(HK$)
Eligible employees	March 31, 2020	2.90	2.90	March 31, 2021 –	–	5,249,120	–	(328,070)	4,921,050
				March 30, 2030
				(Note a)
	December 31, 2020	2.87	2.87	December 1, 2021 –	–	2,000,000	–	–	2,000,000
				November 30, 2030
				(Note b)

Note:

a) All options granted have a vesting period of five years in equal proportions starting from the 1st anniversary and become fully vested on the 5th anniversary of the grant. In this table, “exercise period” begins with the 1st anniversary of the grant date.
b) Subject to the satisfaction of certain conditions, the first 20% of the total options can be exercised from the date as specified in the relevant grant letter, and each 20% of the total options will become exercisable in each subsequent year.

Save as disclosed above and in our Prospectus, there was no other equity-linked agreement entered into by the Company during the year ended December 31, 2020.

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Report of Directors

AGM AND CLOSURE OF REGISTER OF MEMBERS

The Company will announce the date of the AGM and the period of closure of register of members in due course.

CORPORATE GOVERNANCE

A report on the principle corporate governance practices adopted by the Company is set out in the Corporate Governance Report on pages 50 to 62 of this annual report.

SUFFICIENCY OF PUBLIC FLOAT

Based on information that is publicly available and within the knowledge of the Directors, the Company maintained the prescribed public float as required under the Listing Rules as at the date of this annual report.

TAX RELIEF AND EXEMPTION

The Directors are not aware of any tax relief and exemption available to the Shareholders by reason of their holding of the Company’s listed securities.

PRE-EMPTIVE RIGHTS

There are no provisions for pre-emptive rights under the Articles of Association or the relevant laws of the Cayman Islands where the Company is incorporated which would oblige the Company to offer new Shares on a pro-rata basis to existing Shareholders.

AUDITORS

The Company has appointed Ernst & Young as the auditor of the Company for the year ended December 31, 2020. The financial statements of the Company for the year ended December 31, 2020 have been audited by Ernst & Young.

By order of the Board Ascletis Pharma Inc. 歌禮製藥有限公司 Jinzi Jason WU Chairman

Hangzhou, the People’s Republic of China, March 30, 2021

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Corporate Governance Report

COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

The Company is committed to maintaining high standard of corporate governance to safeguard the interests of the Shareholders, enhance corporate value, formulate its business strategies and policies, and enhance its transparency and accountability.

The Company has adopted the code provisions of the CG Code as set out in Appendix 14 to the Listing Rules as its own code of corporate governance.

The Board is of the view that the Company has complied with all applicable code provisions of the CG Code during the Reporting Period, except for a deviation from the code provision A.2.1 of the CG Code, the roles of chairman and chief executive officer of the Company are not separate and are both performed by Dr. Wu. The Company is an investment holding company with a professional management team to monitor the operations of the subsidiaries. The Board considers that vesting the roles of chairman and chief executive officer in the same person is more efficient in the direction and management of the Company and does not impair the balance of power and authority of the Board and the management of the business of the Company. The Board will review the corporate governance structure and practices from time to time and shall make necessary arrangements when the Board considers appropriate.

COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS

The Company has adopted the Written Guidelines on no less exacting terms than the Model Code as its own code of conduct regarding securities transactions by the Directors.

Having made specific enquiry of all Directors, all of them have confirmed that they have complied with the Model Code and the Written Guidelines throughout the Reporting Period and to the date of this report. No incident of non-compliance of the Written Guidelines by the employees who are likely to be in possession of inside information of the Company was noted by the Company.

BOARD OF DIRECTORS

The Board oversees the Group’s businesses, strategic decisions and performance and should take decisions objectively in the best interests of the Company.

The Board should regularly review the contribution required of a Director to perform his responsibilities to the Company, and whether the Director is spending sufficient time in performing them.

The Board of the Company currently comprises the following Directors:

Executive Directors

Dr. Jinzi Jason WU (Chairman and Chief Executive Officer)[(Note)] Mrs. Judy Hejingdao WU (Vice President)[(Note)]

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BOARD OF DIRECTORS (Continued)

Independent Non-executive Directors

Dr. Yizhen WEI Mr. Jiong GU Ms. Lin HUA

Note: Dr. Wu and Mrs. Wu are spouses.

The biographical information of the Directors are set out in the section headed “Directors and Senior Management” on pages 29 to 32 of this annual report.

The list of Directors (by category) is also disclosed in all corporate communications issued by the Company from time to time pursuant to the Listing Rules. The independent non-executive Directors are expressly identified in all corporate communications pursuant to the Listing Rules.

Save as disclosed above, the Directors do not have any other financial, business, family or other material/ relevant relationships with one another.

Board Meetings and Directors’ Attendance Records

Code provision A.1.1 of the CG Code prescribes that at least four regular Board meetings should be held in each year at approximately quarterly intervals with active participation of majority of directors, either in person or through electronic means of communication.

During the Reporting Period the Company convened one General Meeting and the Board convened seven Board meetings and the attendances of Board Meetings and General Meetings are listed below:

	Attendance/	Attendance/
	Number of	Number of
Name of Directors	Board Meeting(s)	General Meeting(s)
Dr. Jinzi Jason WU	7/7	1/1
Mrs. Judy Hejingdao WU	7/7	1/1
Dr. Yizhen WEI	7/7	1/1
Mr. Jiong GU	7/7	1/1
Ms. Lin HUA	7/7	1/1
Dr. Ru Rong JI (resigned on June 30, 2020)	3/3	1/1

Apart from regular Board meetings, the Chairman also held a meeting with the independent nonexecutive Directors without the presence of Executive Director during the year.

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BOARD OF DIRECTORS (Continued)

Chairman and Chief Executive Officer

Code provision A.2.1 of the CG Code stipulates that the roles of chairman and chief executive should be separate and should not be performed by the same individual.

In view of Dr. Wu’s experience, personal profile and his roles in our Group as mentioned above and that Dr. Wu has assumed the role of chief executive officer of our Group since our commencement of business, the Board considers it beneficial to the business prospect and operational efficiency of our Group that, Dr. Wu acts as the chairman of the Board and continues to act as the chief executive officer of our Company. While this deviates from Code Provision A.2.1 of the Code as set out in Appendix 14 to the Hong Kong Listing Rules, the Board believes that this structure will not impair the balance of power and authority between the Board and the management of the Company, given that: (i) decision to be made by our Board requires approval by at least a majority of our Directors and that our Board comprises three independent non-executive directors out of five Directors, which is more than half of the Board composition and the Hong Kong Listing Rules requirement of one-third, and we believe that there is sufficient check and balance in the Board; (ii) Dr. Wu and the other Directors are aware of and undertake to fulfil their fiduciary duties as Directors, which require, among other things, that he acts for the benefit and in the best interests of our Company and will make decisions for our Group accordingly; and (iii) the balance of power and authority is ensured by the operations of the Board which comprises experienced and high caliber individuals who meet regularly to discuss issues affecting the operations of the Company. Moreover, the overall strategic and other key business, financial, and operational policies of our Group are made collectively after thorough discussion at both Board and senior management levels. The Board will continue to review the effectiveness of the corporate governance structure of our Group in order to assess whether separation of the roles of chairman of the Board and chief executive officer is necessary.

Independent Non-executive Directors

During the Reporting Period, the Board at all times met the requirements of the Listing Rules relating to the appointment of at least three independent non-executive Directors representing not less than onethird of the Board with one of whom possessing appropriate professional qualifications or accounting or related financial management expertise.

The Company has received written annual confirmation from each of the independent non-executive Directors in respect of his/her independence in accordance with the independence guidelines set out in Rule 3.13 of the Listing Rules. The Company is of the view that all independent non-executive Directors are independent in accordance with the independence requirement set out in the Listing Rules.

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Corporate Governance Report

BOARD OF DIRECTORS (Continued)

Appointment and Re-election of Directors

Each of the Directors is engaged on a service contract (in the case of the executive Directors) or a letter of appointment (in the case of the non-executive Directors and independent non-executive Directors) for a specific term of three years, which is renewable by mutual consent and subject to the Articles of Association of the Company.

The Articles of Association provides that all Directors appointed to fill a casual vacancy or as an addition to the Board shall be subject to election by shareholders at the next following general meeting of the Company.

Every Director (including those appointed for a specific term) shall also be subject to retirement and re – election by rotation at least once every three years at the annual general meetings of the Company under the Articles of Association of the Company.

Responsibilities of the Directors

The Board should assume responsibility for leadership and control of the Company; and is collectively responsible for directing and supervising the Company’s affairs.

The Board directly, and indirectly through its committees, leads and provides direction to management by laying down strategies and overseeing their implementation, monitors the Group’s operational and financial performance, and ensures that sound internal control and risk management systems are in place.

All Directors, including independent non-executive Directors, have brought a wide spectrum of valuable business experience, knowledge and professionalism to the Board for its efficient and effective functioning.

The independent non-executive Directors are responsible for ensuring a high standard of regulatory reporting of the Company and providing a balance in the Board for bringing effective independent judgment on corporate actions and operations.

All Directors have full and timely access to all the information of the Company and may, upon request, seek independent professional advice in appropriate circumstances, at the Company’s expenses for discharging their duties to the Company.

The Board reserves for its decision all major matters relating to policy matters, strategies and budgets, internal control and risk management, material transactions (in particular those that may involve conflict of interests), financial information, appointment of directors and other significant operational matters of the Company. Responsibilities relating to implementing decisions of the Board, directing and coordinating the daily operation and management of the Company are delegated to the management.

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BOARD OF DIRECTORS (Continued)

Continuous Professional Development of Directors

Directors shall keep abreast of regulatory developments and changes in order to effectively perform their responsibilities and to ensure that they remain informed and relevant for their contribution to the Board.

Every newly appointed Director has received formal, comprehensive and tailored induction on the first occasion of his appointment to ensure appropriate understanding of the business and operations of the Company and full awareness of Director’s responsibilities and obligations under the Listing Rules and relevant statutory requirements. Besides, meetings with senior management of the Company were also arranged.

Directors should participate in appropriate continuous professional development to develop and refresh their knowledge and skills. Internally-facilitated briefings for Directors would be arranged and reading material on relevant topics would be provided to Directors where appropriate. All Directors are encouraged to attend relevant training courses at the Company’s expenses.

During the Reporting Period, the Company organized one training session conducted by the Company’s Hong Kong legal adviser for all the Directors. In addition, relevant reading materials including directors’ manual, legal and regulatory updates and seminar handouts have been provided to the directors for their reference and studying. They also received from the Company from time-to-time updates on laws, rules and regulations which may be relevant to their roles, duties and functions as director of a listed company. The table below summarises the participation of each of the Directors in continuous professional development during the Reporting Period:

		Reading Legal
		and Regulatory
		Updates and
	Attending	other Reference
Name of Directors	training session	Materials
Executive Directors
Dr. Jinzi Jason Wu	√	√
Mrs. Judy Hejingdao WU	√	√
Independent Non-executive Directors
Dr. Yizhen WEI	√	√
Mr. Jiong GU	√	√
Ms. Lin HUA	√	√
Dr. Ru Rong JI (resigned on June 30, 2020)		√

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Corporate Governance Report

BOARD COMMITTEES

The Board has established three committees, namely, the Audit Committee, Remuneration Committee and Nomination Committee, for overseeing particular aspects of the Company’s affairs. All Board committees of the Company are established with specific written terms of reference which deal clearly with their authority and duties. The terms of reference of the Audit Committee, Remuneration Committee and Nomination Committee are posted on the Company’s website and the Stock Exchange’s website and are available to shareholders upon request.

The majority of the members of the Remuneration Committee, Audit Committee and Nomination Committee are independent non-executive Directors.

The Board committees are provided with sufficient resources to discharge their duties and, upon reasonable request, are able to seek independent professional advice in appropriate circumstances, at the Company’s expense.

Audit Committee

The Audit Committee consists of three independent non-executive Directors, namely Mr. Jiong GU, Dr. Yizhen WEI and Ms. Lin HUA. Mr. Jiong GU, being the chairman of the committee, is appropriately qualified as required under Rules 3.10(2) and 3.21 of the Listing Rules.

The terms of reference of the Audit Committee are of no less exacting terms than those set out in the CG Code. The main duties of the Audit Committee are to review and supervise the financial reporting process, risk management and internal controls system of the Group, assist the Board to fulfill its responsibility over the audit, and review and approve connected transactions and to advise the Board.

The Audit Committee is also responsible for performing the functions set out in code provision D.3.1 of the CG Code. These include developing and reviewing the Company’s policies and practices on corporate governance and making recommendations to the Board; reviewing and monitoring the training and continuous professional development of directors and senior management of the Company; reviewing and monitoring the Company’s policies and practices on compliance with legal and regulatory requirements; developing, reviewing and monitoring the code of conduct and compliance manual (if any) applicable to employees and directors of the Company; and reviewing the Company’s compliance with the CG Code from time to time adopted by the Company and the disclosure in the corporate governance report to be contained in the Company’s annual report.

The Audit Committee held 4 meetings during the Reporting Period to review and consider the interim financial results and reports for the six months ended June 30, 2020, the annual financial results and reports for the year ended December 31, 2019 and review the appropriateness and effectiveness of the risk management and internal control systems.

The Audit Committee also met the external auditors four times during the Reporting Period without the presence of the executive Directors and the management.

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BOARD COMMITTEES (Continued)

Audit Committee (Continued)

The attendance records of the members of the Audit Committee are as follows:

	Attendance/
	Number of
Name of Directors	Meeting(s)
Mr. Jiong GU (Chairman)	4/4
Dr. Yizhen WEI	4/4
Ms. Lin HUA	4/4

The Company’s annual results for the year ended December 31, 2020 have been reviewed by the Audit Committee.

Remuneration Committee

The Remuneration Committee consists of three independent non-executive Directors, namely Ms. Lin HUA, Dr. Yizhen WEI and Mrs. Judy Hejingdao WU. Ms. Lin HUA is the chairman of the committee.

The terms of reference of the Remuneration Committee are of no less exacting terms than those set out in the CG Code. The main duties of the Remuneration Committee are to review and make recommendations to the Board regarding the terms of remuneration packages, bonuses and other compensation payable to our Directors and senior management.

The Remuneration Committee held two meetings during the Reporting Period to review and make recommendation to the Board on the remuneration policy and structure of the Company and the remuneration packages of the executive Directors and senior management, and other related matters.

Pursuant to code provision B.1.5 of the CG Code, details of the remuneration of the senior management (other than Directors) by bands for the year ended December 31, 2020 is as follows:

		Number of	Number of
		employee(s)
HK$1,000,001	to HK$1,500,000		–
HK$1,500,001	to HK$2,000,000		1
HK$2,000,001	to HK$2,500,000		1
HK$2,500,001	to HK$3,000,000		1

Details of the Directors’ remuneration are set out in note 8 to the consolidated financial statements in this annual report.

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BOARD COMMITTEES (Continued)

Remuneration Committee (Continued)

The attendance records of the members of the Remuneration Committee are as follows:

	Attendance/
	Number of
Name of Members of the Remuneration Committee	Meeting(s)
Ms. Lin HUA (Chairman)	2/2
Dr. Yizhen WEI	2/2
Mrs. Judy Hejingdao WU *	0/0

Dr. Ru Rong JI resigned since June 30, 2020 and Mrs. Judy Hejingdao WU had become a member of the Remuneration Committee since then. Dr. Ru Rong JI attended both two Remuneration Committee meetings in 2020.

Nomination Committee

The Nomination Committee consists of three Directors, namely Dr. Jinzi Jason WU, Dr. Yizhen WEI and Ms. Lin HUA. Dr. Jinzi Jason WU is the chairman of the committee.

The terms of reference of the Nomination Committee are of no less exacting terms than those set out in the CG Code. The main duties of the Nomination Committee are to make recommendations to our Board regarding the appointment of Directors and Board succession.

The Board has adopted a board diversity policy on December 27, 2018. A summary of the Board Diversity Policy is set out below:

Purpose: The Board Diversity Policy aims to set out the approach to achieve diversity of the Board. Board Diversity With a view to achieving a sustainable and balanced development, the Company Policy statement: sees increasing diversity at the Board level as an essential element in supporting the attainment of its strategic objectives and its sustainable development. In designing the Board’s composition, Board diversity has been considered from a number of aspects, including but not limited to gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service. All Board appointments will be based on meritocracy, and candidates will be considered against objective criteria, having due regard for the benefits of diversity on the Board. Measurable Selection of candidates will be based on a range of diversity perspectives, including Objectives: but not limited to gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service. The ultimate decision will be based on merit and contribution that the selected candidates will bring to the Board.

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BOARD COMMITTEES (Continued)

Nomination Committee (Continued)

The Nomination Committee has adopted a nomination policy which set out a set of nomination procedures and selection criteria for directors. The Nomination Committee shall evaluate and select candidates based on the criteria by reference to character and integrity, business experience relevant and beneficial to the Company, qualifications including professional qualifications, skills and knowledge that are relevant to the Company’s business and corporate strategy, willingness to devote adequate time to discharge duties as a member of the Board and other significant commitments, present needs of the Board for particular expertise, skills or experience and whether the candidates would satisfy those needs, requirement for the Board to have independent directors in accordance with the Listing Rules and whether the candidates for independent directors would be considered independent with reference to the independence guidelines set out in the Listing Rules and the board diversity policy and any measurable objectives adopted by the Nomination Committee for achieving diversity on the Board.

The Nomination Committee held one meeting during the Reporting Period to review, among others, the structure, size, composition and diversity (including the skills, knowledge, experience, gender, age, cultural and educational background, ethnicity, professional experience and length of service) of the Board to ensure that the Board has a balance of expertise, skills and experience appropriate for the requirements of the business of our Company, to assess the independence of the independent nonexecutive Directors, and to discuss the Directors who retired by rotation in accordance with the Articles of Association, being eligible, had offered themselves for re-election at the 2020 AGM of the Company.

The attendance records of the members of the Remuneration Committee are as follows:

	Attendance/
	Number of
Name of Members of the Nomination Committee	Meeting(s)
Dr. Jinzi Jason WU (Chairman)	1/1
Dr. Yizhen WEI*	0/0
Dr. Lin HUA	1/1

Dr. Ru Rong JI resigned since June 30, 2020 and Dr. Yizhen WEI had become a member of the Remuneration Committee since then. Dr. Ru Rong JI attended the one Nomination Committee meeting held in 2020.

RISK MANAGEMENT AND INTERNAL CONTROLS

The Board acknowledges its responsibility for the risk management and internal control systems and reviewing their effectiveness. Such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Board has delegated the Audit Committee with the responsibility to oversee the risk management and internal control systems of the Group on an on-going basis and to review the effectiveness of the systems annually. The review covers all material controls, including financial, operational and compliance controls. The Audit Committee assists the Board in leading the management and overseeing their design, implementation and monitoring of the risk management and internal control systems.

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Corporate Governance Report

RISK MANAGEMENT AND INTERNAL CONTROLS (Continued)

Under the Company’s risk management and internal control structure, the management is responsible for the design, implementation and maintenance of risk management and internal control systems to ensure, amongst others, (i) appropriate policies and control procedures have been designed and established to safeguard the Group’s assets against improper use or disposal; (ii) relevant laws, rules and regulations are adhered to and complied with; and (iii) that reliable financial and accounting records are maintained in accordance with relevant accounting standards and regulatory reporting requirements. The Group’s risk management and internal control systems provide a comprehensive and organized structure with clearly defined scopes of responsibilities, authorities and procedures. Each department of the Group is also required to adhere strictly to the Group’s internal control procedures and report to the risk management and internal control team of any risks or internal control issues. The Group would conduct self-assessment each year to confirm that all departments and the Group have properly complied with the risk management and internal control policy.

The Group has established an internal audit department, which carries out analysis and independent appraisal of relevant internal policies, including risk management and internal control policies to access operating risks and identify measures to minimize those risks; monitors and assesses the adequacy and effectiveness of the risk management system and internal control system of the Group regularly including the financial, operational and compliance controls; and reports to the Audit Committee and the Board on the audit results regularly and makes recommendations to the Board and the management to address the significant deficiencies of the system or problems that identified during the monitoring process.

Any internal control defects identified by the internal audit department will be communicated to the department in question with advice for correction and remediation. Before the end of year, the status will be reviewed. The compliance department will also assist in the correction and remediation. Any unresolved control defects at the end of the year will be informed to the management. For the year ended December 31, 2020, no material internal control defect was detected.

Arrangements are in place to facilitate employees of the Group to raise, in confidence, concerns about possible improprieties in financial reporting, internal control or other matters of the Group. The Board is entrusted with the responsibility for monitoring and implementing the procedural requirements in the information disclosure policy. Release of inside information shall be led by the Board. Unless duly authorized, all staff members of the Company shall not disseminate inside information relating to the Group to any external parties and shall not respond to media report or market speculation which may materially affect the trading price or volume of the Shares.

During the year ended December 31, 2020, the Board, as supported by the Audit Committee as well as the management and internal audit department of the Group, reviewed the risk management and internal control systems of the Group and considered that such systems are effective and adequate. Audit Committee has reviewed and considered that the internal audit department of the Group had adequate resources to carry out the assessment and the effectiveness of the risk management and internal control systems for the Reporting Period. The annual review also covered the financial reporting and staff qualifications, experience and relevant resources.

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DIRECTORS’ RESPONSIBILITY IN RESPECT OF THE FINANCIAL STATEMENTS

The Directors acknowledge their responsibility for preparing the financial statements of the Company for the year ended December 31, 2020.

The Directors are not aware of any material uncertainties relating to events or conditions that may cast significant doubt upon the Company’s ability to continue as a going concern.

The statement of the independent auditors of the Company about their reporting responsibilities on the financial statements is set out in the Independent Auditor’s Report on pages 101 to 102 of this annual report.

DIVIDEND POLICY

The Company has adopted a dividend policy on December 27, 2018 which is in accordance with the relevant provisions of the Articles of Association. Pursuant to the dividend policy, the Company may from time to time in general meeting declare dividends in any currency to be paid to the members of the Company but no dividend shall be declared in excess of the amount recommended by the Board. No dividend shall be declared or payable except out of the profits and reserves of the Company lawfully available for distribution, including share premium. No dividend shall carry interest against the Company.

The Board may, before recommending any dividend, set aside out of the profits of the Company such sums as it thinks fit as a reserve or reserves which shall, at the discretion of the Board, be applicable for meeting claims on or liabilities of the Company or contingencies or for paying off any loan capital or for equalising dividends or for any other purpose to which the profits of the Company may be properly applied, and pending such application may, at the like discretion, either be employed in the business of the Company or be invested in such investments as the Board may from time to time think fit, and so that it shall not be necessary to keep any reserves separate or distinct from any other investments of the Company. The Board may also without placing the same to reserve carry forward any profits which it may think prudent not to distribute by way of dividend.

The Board may also, without convening a general meeting, from time to time declare interim dividends as appear to the Board to be justified by the financial conditions and the profits of the Company. The Board may also pay half-yearly or at other suitable intervals to be selected by it any dividend which may be payable at a fixed rate if the Board is of the opinion that the financial conditions and the profits available for distribution justify the payment. The Board may in addition from time to time declare and pay special dividends of such amounts and on such dates and out of such distributable funds of the Company as it thinks fit. Whenever the Board or the Company in general meeting has resolved that a dividend be paid or declared on the share capital of the Company, the Board may further resolve that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment. In case of the Board elects to pay the dividend in shares, the Company shall abide by the provisions of the Articles of Association of the Company on scrip dividends.

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AUDITORS’ REMUNERATION

An analysis of the remuneration paid/payable to the external auditors of the Company, Ernst & Young, in respect of audit services and non-audit services for the year ended December 31, 2020 is set out below:

Service Category	Fees Paid/ Payable RMB’ 000
Audit Services Non-audit Services TOTAL	2,190 – 2,190

COMPANY SECRETARY

The Company has engaged SWCS Corporate Services Group (Hong Kong) Limited, external service provider, and Mr. Lok Kwan YIM has been appointed as company secretary. Its primary contact person at the Company is Lingjie JIANG, the senior supervisor of the Company.

During the Reporting Period, Mr. Lok Kwan YIM attended sufficient professional training as required under the Listing Rules for the year ended December 31, 2020 to update his skills and knowledge.

SHAREHOLDERS’ RIGHTS

To safeguard shareholder interests and rights, separate resolution should be proposed for each substantially separate issue at general meetings, including the election of individual Director. All resolutions put forward at general meetings will be voted on by poll pursuant to the Listing Rules and poll results will be posted on the websites of the Company and of the Stock Exchange after each general meeting.

Convening an Extraordinary General Meeting

Pursuant to article 64 of the Articles of Association of the Company, extraordinary general meetings shall also be convened on the written requisition of one or more members deposited at the principal office of the Company in Hong Kong specifying the objects of the meeting and signed by the requisitionist(s), provided that such requisitionist(s) held as at the date of deposit of the requisition not less than one – tenth of the paid up capital of the Company which carries the right of voting at general meetings of the Company.

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SHAREHOLDERS’ RIGHTS (Continued)

Putting Forward Proposals at General Meetings

There are no provisions in the Articles of Association or the Cayman Islands Companies Law for shareholders to move new resolutions at general meetings. Shareholders who wish to move a resolution may request the Company to convene a general meeting in accordance with the procedures set out in the preceding paragraph. As regards proposing a person for election as a director of the Company, please refer to the “Procedures for Shareholders to Propose a Person other than a Retiring Director for Election as a Director” of the Company which is posted on the Company’s website.

Putting Forward Enquiries to the Board

For putting forward any enquiries to the Board of the Company, shareholders may send written enquiries to the Company. The Company will not normally deal with verbal or anonymous enquiries.

CONTACT DETAILS

Shareholders may send their enquiries or requests as mentioned above to the following:

Address:	12/F, Building D, 198 Qidi Road, HIPARK, Xiaoshan District, Hangzhou, Zhejiang
	Province, PRC
Fax:	+86 571-85389730
Email:	[email protected]

For the avoidance of doubt, shareholder(s) must deposit and send the original duly signed written requisition, notice or statement, or enquiry (as the case may be) to the above address and provide their full name, contact details and identification in order to give effect thereto. Shareholders’ information may be disclosed as required by law.

COMMUNICATION WITH SHAREHOLDERS AND INVESTORS

The Company considers that effective communication with shareholders is essential for enhancing investor relations and investor understanding of the Group’s business performance and strategies. The Company endeavours to maintain an on-going dialogue with shareholders and in particular, through annual general meetings and other general meetings. At the annual general meeting, directors (or their delegates as appropriate) are available to meet shareholders and answer their enquiries.

The Company maintains a website at www.ascletis.com as a communication platform with shareholders of the Company and investors, where the financial information and other relevant information of the Company are available for public access.

CONSTITUTIONAL DOCUMENTS

During the Reporting Period, there is no change in the Company’s constitutional documents.

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Environmental, Social and Governance Report

1. ABOUT THE REPORT

This Environmental, Social and Governance Report (the “ ESG Report ” or the “ Report ”) aims to present the environmental, social and governance performance of Ascletis Pharma Inc. (hereinafter the “ Ascletis ” or the “ Company ”) and its subsidiaries (collectively the “ Group ” or “ we ”) during the year of 2020. This is the third ESG report published by Ascletis.

Basis for Preparation

The Report is prepared in accordance with the Environmental, Social and Governance Reporting Guide (the “ Guide ”) as set out in Appendix 27 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited with scope and contents that comply with the “comply or explain” provisions of the Guide.

Reporting Period and Scope

The content of the Report mainly focuses on the core businesses of the Group, embodies the Group’s fulfillment of ESG principles from 1 January 2020 to 31 December 2020 (the “ Year ” or the “ Reporting Period ”) and fulfills the overall performance of corporate social responsibility (CSR). Unless otherwise specified, the Report covers the directly controlled businesses.

Languages for the Report

The Report is available in both Chinese and English. If there are inconsistencies between the English and Chinese versions, the English version shall prevail.

Report Publications

The report is available online. The online edition of the Report is available for review and downloading at the website of The Stock Exchange of Hong Kong Limited (www.hkex.com.hk) and the official website of the Group (www.ascletis.com).

Contact Details

Shareholders may send their enquiries to the following:

Address of the Corporate Headquarter: 12F, Building D, 198 Qidi Road, HIPARK, Fax: +86 571-85389730 Email: [email protected]

Xiaoshan District, Hangzhou, Zhejiang Province, PRC

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2. GOVERNANCE SYSTEM

2.1 About the Group

Ascletis is an innovative R&D driven biotech and listed on Hong Kong Stock Exchange (1672. HK). Ascletis is committed to developing and commercializing innovative drugs in the areas of NASH, cancer lipid metabolism and oral checkpoint inhibitors, viral hepatitis and HIV/AIDS for unmet medical needs in China and globally. Led by a management team with deep expertise and a proven track record, Ascletis has developed into a fully integrated platform covering the entire value chain from discovery and development to manufacturing and commercialization.

Ascletis has three marketed products and seventeen R&D pipeline drug candidates or combination therapies (eleven of them developed in-house). 1. NASH: Gannex, a wholly-owned company of Ascletis, is fully dedicated to the R&D and commercialization of new drugs in the field of NASH. Gannex has three clinical stage drug candidates against three different targets – FASN, THR-beta and FXR, and three pre-clinical stage combination therapies. 2. Cancer lipid metabolism and oral checkpoint inhibitors: focus on a pipeline of oral inhibitors targeting FASN which plays a key role in cancer lipid metabolism and a pipeline of oral PD-L1 small molecule inhibitors as the next generation checkpoint inhibitors. 3. Viral hepatitis: (i) Hepatitis B: focus on breakthrough therapies for HBV clinical cure with subcutaneously injected PD-L1 antibody – ASC22 and Pegasys[®] as cornerstone drugs. (ii) Hepatitis C: successfully launched all oral regimen of ASCLEVIR[®] and GANOVO[®] combination (RDV/DNV regimen); and ASC18 fixed dose combination (FDC) is an upgraded version of RDV/DNV regimen with bridging study finished. 4. HIV/AIDS: ASC09F is a FDC treatment of HIV targeting protease. The clinical trial application of ASC09F has been approved.

2.2 Corporate Culture

The Group establishes our own corporate culture to show our devotion in fulfilling corporate social responsibility and to drive the success of our business development in a sustainable way. In 2019, we developed our new version of mission, vision and core values to guide us in driving the sustainable growth of our business and how we work together with our domestic and global partners in adhering to the concept of corporate social responsibility.

Mission

Innovative cures liberate life to the fullest
To become the most innovative world-class biomedical company
Integrity, Courage, Excellence, Collaboration

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Awards and Honors of the Year

The innovative and outstanding performance of the Group in developing and commercializing new drugs are highly recognized by various organizations and media. In 2020, we won several awards and honors in view of our contribution and influence in the industry. Our awards and honors received in 2020 are listed below.

Awards and Honors	Awarded Entity	Awarded by	Awarding Time
China ChemPharm	Ascletis Pharmaceuticals	China ChemPharm Annual	October 2020
Special Award for	Co., Ltd.	Summit 2020
Innovative Drugs	（歌禮藥業（浙江）	(2020中國化學製藥行業
2020	有限公司）	年度峰會）
(2020中國化學製藥行
業創新藥特設獎）
Enterprise of the Year of	Ascletis BioScience Co., Ltd.	2020 The 2ndChinese	October 2020
2020 The 2ndChinese	（歌禮生物科技（杭州）	Physicians Assembly for
Physicians Assembly	有限公司）	Humanity
for Humanity		(2020第二屆中國醫師
(2020第二屆中國醫師		公益大會）
公益大會年度企業）

2.3 ESG Structure

While developing and commercializing our innovative and best-in-class drugs, we devote ourselves to driving our success in CSR. We have established the ESG committee since 2018 to better identify and manage relevant risks in ESG and drive the efficient implementation of various ESG policies across the various departments. Ascletis makes effort to incorporate the ideas of sustainable development into the overall strategy, policy and business plans of the Group.

The Board of Directors of the Group takes full responsibility for ESG strategies and reporting and leads the ESG Committee comprised of the executive directors, the person-in-charge of ESG and representatives from all major departments of the Group. The ESG Committee is responsible for coordinating and determining the ESG risk management and internal monitoring systems within the Group.

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Board of Directors
• Establish sustainability strategies
• Identify the potential risks in the
business development plans
Management
• Review and supervise the measures for
the implementation of sustainability
• Evaluate and manage risks during the
course of operation
Functional Departments
• Implement various ESG policies
• Raise the awareness of employees
in sustainability
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ESG
Committee
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ESG Structure

The major responsibilities of the ESG Committee are clearly stated in the rules governing the ESG Committee which include:

Identifying the ESG issues which have a significant impact on our operations, shareholders and other major stakeholders of the Group, including but not limited to the quality of working environment, environmental protection, operating practices, community activities and welfare, as well as developing corresponding control initiatives;
Identifying stakeholders’ major ESG concerns in appropriate ways and responding in a timely manner;
Preparing annual working report of the Committee and submitting to Chairman for Group’s ESG performance improvements;
Responsible for formulating and refining the Group’s ESG policies and promoting implementation across all departments;
Ensuring that the Group is in compliance with the relevant legal and regulatory requirements so that it can monitor and respond to latest ESG policies and issues;
Maintaining the operation of the Group’s management system for social responsibility and raising the social awareness of employees.

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Sustainable Development Policy

To enhance our performance and measures in environmental and social aspects and exhibit our devotion in providing sustainable development services, the Group develops the Sustainable Development Policy. This policy integrates the concept of sustainable development into our business decision making and daily operations. It covers our sustainable development management approach towards five aspects, including environmental management, operational practices, employee rights, community investment and stakeholder engagement. To ensure the implementation of this policy in a proper way, our ESG Committee continues to monitor and review the actual execution status of this policy and the implementation progress of each sustainable development measure. Our ESG Committee is responsible for assessing the environmental and social impact of the group’s business operations and setting sustainable development goals to continuously improve our sustainability performance and minimize potential negative impacts on the environment and society. Through various internal communication channels and the ESG report published each year, we disseminate the information related to this policy to our employees and the external stakeholders and report our environmental and social performance.

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Environmental
management
Operational Employee
practices rights
Sustainable
Development
Policy
Community Stakeholder
investment engagement
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2.4 Managing Corruption Risks and Promoting Integrity

The Group is highly concerned about operation compliance, managing corruption risks and promoting integrity. We are committed to complying with the relevant laws and regulations of the places where we operate, including the Criminal Law of the People’s Republic of China 《中華人民共和國刑法》( ) and the Anti-unfair Competition Law (《反不正當競爭法》). We have established Anti-Corruption Policy (《反腐敗政策》), Expense Reimbursement Management System (《費用報銷管理制度》) and Employee Code of Conduct (《員工行為準則》) to ensure strict compliance with the relevant laws and regulations by all of our employees and agents. We prohibit any payment to government officials by our employees and agents for obtaining or retaining business or products. To further ensure our agents, business partners and suppliers to adhere to ethical practices in our business and not attempt to improperly influence others by paying or accepting bribes or kickbacks in any form, we require them to sign the anti-bribery commitments (《反賄賂承諾》) and annual compliance letter (《年度合規函》) when they are doing business with us.

We implement a zero-tolerance policy towards any illegal act such as bribery, blackmail, fraud and money laundering to prevent business corruption. We have also developed a whistleblowing and reporting channel with a dedicated e-mail address for employees to report any illegal acts such as money laundering and corruption of employees, business partners and suppliers. During the Year, there was no record of illegal acts such as corruption, bribery, fraud and money laundering involving the Group or our employees.

2.5 Stakeholder Engagement

The Group acknowledges the importance of understanding the expectations and needs of various stakeholders, including shareholders and investors, government and regulatory bodies, customers, employees, suppliers, the community and the public, in achieving our success. The Group considers that effective communication with stakeholders is essential and endeavors to maintain on-going and proactive dialogues with stakeholders. The main communication channels of our key stakeholders are as follows.

Key Stakeholders

Expectations and Needs

Main Communication Channels

Shareholders and Investors Government and Regulatory Bodies

Compliant and sound • General meetings operation • Interim and annual report
• Good return on investment • Investor meetings
Good return on investment
Effective risk management • Senior management • Protection of intellectual meetings property right • Corporate communications
Results announcement
Forums • Pharmaceutical development policy consultation
Facilitating economic development
• Supporting communities and livelihood
Communications with medical department
• Written response to enquiries
Efficient corporate governance
Resources utilization
Waste management
On-site visits
Compliance report • Meetings

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Key Stakeholders

Expectations and Needs

Main Communication Channels

Customers

Quality control
Protection of customers’ safety
Protection of customers’ privacy
Customer satisfaction survey and feedback forms
Customer service
Daily operation/ communications
Company website
Email and hotline of the Company

Employees

Job stability
Benefits and remuneration
Safe working environment
Career progression
Staff opinion survey
Channels for staff to express opinions
Performance assessment
Group discussions
Publications for staff communication
Staff communication meetings
• Staff intranet
Suppliers • Fair procurement • Regular meetings • On-site visits • Supplier management procedure
• Supplier assessment system
Community and the Public • Promoting social harmony • Charity activities • Supporting charitable • Community activities activities • Seminars/workshops/
• Promoting energy meetings conservation and emission reduction

Materiality Assessment

To identify the key areas of ESG implementation and disclosure, enhance the focused points and responsiveness of the report, we appointed an independent consultant to carry out the materiality assessment of ESG issues this year. We identified 25 potential ESG material topics with reference to the Guide from Hong Kong Stock Exchange and the materiality map from Sustainability Accounting Standards Board (SASB) after considering our business development direction and operation condition. We conducted the questionnaire survey with our identified key stakeholders to understand their level of concerns and materiality towards the potential ESG material topics.

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Based on the results of the questionnaire survey, we performed a materiality matrix analysis in two dimensions, which are the materiality to the stakeholders and the materiality to the Group’s development in order to prioritize the ESG material topics. Finally, the priority results of ESG material topics were verified by the management of the Group to ensure the results were in line with our actual business situation. The results of the materiality matrix are showed below.

ESG Materiality Matrix

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High materiality topics Highest materiality topics
1
2
4 3
6 5
7
16 9
8
11 10
12
17
13
21 19
18
20 14 Innovation-Driven and Collaborative
23 15 Cooperation
24 22 Commitment to Quality and Integrity
Talent Management
Environmental Protection for a Green
25 World
Materiality topics
Materiality to the Stakeholders
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Materiality to the Group’s Development
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Highest materiality topics:

ESG related topic

1 Innovative R&D
2 Compliance operation 3 Product quality management 4 Product safety assurance 5 Protection of intellectual property
6 Protection of patients’ interests 7 Production safety management 8 Risk management 9 Employees’ health and safety 10 Anti-corruption

ESG related topic

11 Reduction in pollutant emissions 12 Waste management 13 Water resources management 14 Greenhouse gas emissions 15 Customer service and communication
16 Prevention of child and forced labour
17 Protection of environment and natural resources
18 Employees’ rights 19 Employment equality 20 Energy saving

ESG related topic

21 Supply chain management 22 Monitoring on product information and advertising
23 Training and development of employees 24 Climate change mitigation 25 Participating in charity

Environmental, Social and Governance Report

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Innovation-Driven
and Collaborative
Cooperation
Commitment
to Quality and
ESG Talent
Integrity
Management
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3. INNOVATION-DRIVEN AND COLLABORATIVE COOPERATION

3.1 Innovative R&D Activities

Ascletis’ R&D pipeline consists of first/best-in-class drug candidates of antibody-based immunotherapy and small molecules at various preclinical and clinical development stages, addressing unmet medical needs in the following therapeutic areas: NASH, viral hepatitis and HIV/AIDS. Among twelve drug candidates in our R&D pipeline, nine drug candidates are in-house developed and the other three are licensed from Big Pharma and leading biotech companies.

For NASH therapeutic area, ASC40 is a first-in-class, small molecule FASN inhibitor for NASH and is currently in its Global Phase II Clinical Trial. Another drug candidate, ASC41, an orally bioavailable, highly selective small molecule THR-β agonist for the treatment of NASH is developed in-house by the Group, which is expected to be used alone or in combination with ASC40 or ASC42. ASC42, which is an in-house developed Farnesoid X Receptor (FXR) agonist with best-in-class potential, received IND approval in October 2020 and is now in Phase I trials and has good safety profile to date.

For anti-viral therapeutic area, ASC22 is a global first-in-class Phase II-ready PD-L1 antibody immunotherapy, which may lead to a significant breakthrough towards a clinical cure for chronic Hepatitis B. IND approval of ASC22 was received on January 22, 2020 by NMPA to conduct clinical trials in Hepatitis B patients. For COVID-19 therapeutic area, the Group completed the first clinical study using HCV protease inhibitor GANOVO[®] (Danoprevir) to treat Naïve and experienced COVID-19 patients.

3.2 Collaborative Cooperation

While Ascletis is conducting in-house drug discovery and development, our entrepreneurial spirit and commitment to bring breakthrough therapeutics to patients drive us to explore business opportunities beyond our own internal effort. At Ascletis, we search globally for innovative product candidates at various stages of development, with a clear goal to accelerate the delivery of novel and effective products to the China marketplace as well as markets worldwide.

Ascletis understands that the path from scientific breakthrough to successful therapeutic products depends on successfully utilizing the best global resources, expertise and experience. Ascletis is dedicated to bringing considerable resources and expertise to its alliances, and open to different collaboration structures. Our platform has enabled us to become a partner-of-choice in China for global leading pharmaceutical companies, as demonstrated by the R&D and commercial collaborations with many global pharmaceutical companies such as Roche. During the Year, Gannex collaborated with Galmed to expand the pipeline of NASH and developed combined medication research of Aramchol and ASC41. To facilitate the academic communication of liver disease, we were one of the supporting organizations to collaborate with China Health Promotion Foundation in organizing the Symposium on the Progress in Diagnosis and Treatment of Viral Hepatitis 2020 (2020病毒性肝炎診療進展研討會).

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3.3 Intellectual Property Protection

As an innovative-driven company, Ascletis values the protection of intellectual property and is zero-tolerant of any infringement on intellectual property rights. The Group strictly complies with laws and regulations in relation to intellectual property such as the Intellectual Property Law of the People’s Republic of China (《中華人民共和國知識產權法》), the Patent Law of the People’s Republic of China (《中華人民共和國專利法》), the Trademark Law of the People’s Republic of China (《中華人民共和國商標法》). We formulate the Administrative Measurements for Intellectual Property (《知識產權管理辦法》) and the Rules for Research and Development Management (《研發管理制度》) with reference to the relevant laws and regulations to standardize and strengthen our internal management on intellectual properties with our rules and systems.

We rely on employees and various regulations, confidentiality agreements and applications for patents in protecting our intellectual property rights such as confidential data, professional know-how and other proprietary information. In R&D activities and business activities, we protect proprietary information with our confidentiality agreements and patents. For example, every employee is required to sign a confidentiality agreement and an invention assignment agreement. Our confidentiality agreements and invention assignment agreements are carefully drafted to protect our proprietary interests.

In addition, we require that all publicly available products and business information shall be examined strictly. We also ensure that all advertisements used for brand promotion shall deliver complete, true and accurate information to the public without any false or misleading product descriptions and acts such as infringement upon others’ rights such as intellectual property rights, patent rights, and copyrights.

In addition to requirements for intellectual property rights, we also strictly standardize the code of operation for external suppliers. In our cooperation with external suppliers, we will enter into confidentiality agreements. In addition, suppliers shall guarantee that all the technological and development achievements obtained during the cooperation will not infringe upon legitimate rights of any third party such as the legal patent rights, trademarks and copyrights.

4. COMMITMENT TO QUALITY AND INTEGRITY

4.1 Product Quality Management

4.1.1 Product Quality

The Group strictly complies with the Drug Administration Law of the People’s Republic of China (《中華人民共和國藥品管理法》), Product Quality Law of the People’s Republic of China (《中華人民共和國產品質量法》), Good Manufacturing Practices for Pharmaceutical Products (《藥品生產質量管理規範》) and Good Supply Practice for Pharmaceutical Products (《藥品經營質量管理規範》), which provide the legal framework for compliant operations of enterprises engaged in manufacturing, sales and quality management of drugs.

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Our Wide Dimensions in Quality Assurance

Industry Norms

Our production base strictly complies with the most stringent cGMP* regulations in all stages from design, construction and operation

Quality Assurance

We have adopted a wide range of state-of-the-art equipment with cutting-edge technology capabilities at global level to ensure that all of our pharmaceutical products are of high quality

International Standards

• We have experienced manufacturing employees from multinational corporations to ensure our production quality and management system to maintain the international standards

Ensure Production Capacity

We have sufficient production capacity to ensure consistent supply of our drugs for clinical treatments

The Group considers product quality and safety as key elements of our business. To ensure our product quality, we establish various quality management procedures and systems for suppliers, manufacturing process, laboratory tests and finished goods to manage the quality throughout the whole product life cycle. We continuously make improvements in our product quality and optimize the quality control management system.

cGMP: Current Good Manufacturing Practice

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Our GMP Manufacturing Facilities Excellent Quality Control and Assurance

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Certificate of GMP for Pharmaceutical Products of the People’s Republic of China

Our manufacturing facilities have been awarded the Certificate of Good Manufacturing Practices (GMP) for Pharmaceutical Products of the People’s Republic of China (《中華人民共和國藥品GMP證書》) and our pharmaceutical production complies with the GMP requirements in China.

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4.1.2 Monitoring on Product Information and Advertising

As integrity is one of our core values, the Group prohibits any fraud, false or hidden of information. For packaging, labelling and advertising of drugs, we strictly comply with relevant laws and regulations to ensure the safety of patients.

Pharmaceutical Packaging

The Group complies with the Measures for The Administration of Pharmaceutical Packaging 《直接接觸藥品的包裝材料和容器管理辦法》( ) to ensure that the packaging for all of our drugs is in compliance with national and professional standards. When national or professional standards are not available for reference, we will develop our corporate standards which will be implemented upon approval by the food and drug authorities at the national level and the relevant regulatory authorities. We will file the application with the relevant authorities for approval when changes to the standards for packaging are required.

The Group complies with the Provisions on the Administration of Pharmaceutical Directions and Labels (《藥品說明書和標籤管理規定》), which stipulates that the pharmaceutical directions and labels of drugs should be reviewed and approved by the National Medical Products Administration. Our pharmaceutical directions include the scientific data, conclusions and information concerning drug safety and effectiveness according to relevant provisions, in order to ensure the safe and rational use of drugs. We strictly follow the relevant provisions to make sure the inner labels of drugs include information such as the drug’s name, indication or function, specification, dose and usage, production date, batch number, expiry date and drug manufacturer, and the outer labels of drugs indicate information such as the drug’s name, ingredients, indication or function, specification, dose and usage, adverse reaction, batch number, expiry date and drug manufacturer.

We formulate the Design and Approval Management Procedure for Printed Packaging Materials 《印字包材的設計和審批管理程序》( ) to stipulate the approval responsibility of each relevant department and approval procedure on the contents of the printed packaging materials of our pharmaceutical products. We also formulate the Management Procedure for Solid Dosage Workshop of Packaging Materials (《固體車間包裝材料管理規程》). When using the packaging materials, the printed contents will be checked carefully to ensure the information on the packaging materials of our pharmaceutical products are correct and true.

Drug Advertisements

The Group complies with the Drug Administration Law of the People’s Republic of China (《中華人民共和國藥品管理法》), Advertising Law of the People’s Republic of China (《中華人民共和國廣告法》) and the Measures for the Examination of Drug Advertisements (《藥品廣告審查辦法》). We obtain approval document numbers for all advertisements relating to our drugs upon approval by competent authorities to ensure all the contents shown in the drug advertisement are true and legal. We will file new applications for approval to obtain approval document numbers for advertisements for our drugs relating to approval when an alteration to the content of such advertisements is required.

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4.2 Product Safety Assurance

As the Group highly values the health and safety of our patients, product safety assurance is one of our utmost concerns in our business. In accordance with the Measures for the Administration on Reporting and Monitoring of Side Effect of Pharmaceuticals (《藥品不良反應報告和監測管理辦法》), the Measures for the Administration on Reporting and Monitoring of Side Effect of Pharmaceuticals (《藥品不良反應報告和監測管理指南》) and the Announcement on the Direct Reporting of Adverse Reactions by the Licensee of Marketed Drugs issued by China Drug Administration (2018 no. 66) (《國家藥品監督管理局關於藥品上市許可持有人直接報告不良反應事宜的公告（2018 年第66 號）》), we formulate the Management System of Pharmaceuticals’ Safety Information Report (《藥品安全性信息報告管理制度》) and the Operation Management Procedure of Pharmaceuticals’ Regular Safety Update Report (《藥品定期安全性更新報告操作管理規程》) to stipulate the report of safety information and regular safety update of our pharmaceuticals to strengthen the safety management of products at various clinical stages and in the market.

For any medical case in relation to adverse reactions suffered by patients or clinical subjects who received drug treatment, we carry out the procedures as specified by our management system for adverse reactions to the drugs to determine if the side effects are related to the use of the drug. Employees of our Group are required to report such case of adverse reactions to the pharmacovigilance department in a timely manner within one business day when they become aware of any adverse reactions as a result of the use of the Group’s products (and any case of death and group adverse reactions to a drug must be reported to the pharmacovigilance department immediately). The pharmacovigilance department will conduct preliminary investigation and inspection, data entry, quality control of data, conduct medical assessment and evaluation for the case and handle procedures such as appealing and reporting.

To ensure the quality and safety of our products and to safeguard the rights and interests of our patients, we develop the management procedures for rejected materials, returned goods and emergency recall. We carry out quality assessments of the returned goods and determine the handling methods in order to improve our product quality and safety continuously. During the Year, the Group did not receive any recall of products sold or delivered by us due to safety and health issues.

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4.3 Supply Chain Management

As a group focusing on developing and commercializing innovative and best-in-class drugs, it is our top priority to have an excellent supply chain management to guarantee the quality of our suppliers and products. To standardize and manage effectively our selection procedure of suppliers, the Group formulates Procurement Management System (《採購管理制度》), Tender Management Standard Operating Procedure (《招標管理標準操作流程》), Supplier Quality Management Procedure (《供應商質量管理程序》),and Distributor and Pharmacy Management Standard Operating Procedure (《經銷商及藥店管理標準操作流程》).In addition to factors such as product and service quality, technology standard, reputation and cost, there are important considerations for the suppliers and distributors to have commitment to environmental and social responsibilities, such as environmental, health and safety status. To continue monitoring the performance of our supply chain in an all-round manner, we also established a Supplier Quality Audit Procedure (《供應商質量審計程序》). Furthermore, to ensure the ethical standard of our supply chain, all of our vendors, suppliers, subcontractors and distributors that have significant business relations with any company of the Group are required to make the Anti-bribery Commitments and issue us the Annual Compliance Letter. We also enter into confidentiality agreements with suppliers for technical cooperation.

Number of Suppliers*

Mainland China Hong Kong, Macau, Taiwan and other countries or regions

*Note: The number of suppliers includes those of producers, distributors, purchasing agents, traders and suppliers for indirect procurement.

4.4 Protection of Patients’ Interests

4.4.1 Protection of Patients’ Privacy

The Group places high importance to information security and privacy protection of the patients and trial subjects. To enhance information security, we establish Computer Active Directory (AD) Network User Management Regulation (《計算機AD網絡用戶管理規範》) to manage the user access authority of specific data and information, data security and intranet security. Only the relevant departments may have the authority of access to the information of the patients and our employees are required to obtain approval from their supervisors for accessing to the information of the patients. We also establish the Computer and Information Management Regulation (《計算機及信息管理規範》) to stipulate the management and safety usage of hardware, software, and internet within the Group. We have utilized professional firewall and anti-virus software to prevent any malicious intrusion activities.

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We specify with the collection, use and disclosure of information of patients and trial subjects and the ways of maintaining such information are carefully monitored and controlled. Every trial subject needs to sign the informed consent form before trial to make sure that they recognize the purpose, details and risks of the trials. Each of our employees is required to enter into a confidentiality agreement at the time of joining the Group to protect the privacy of the patients.

4.4.2 Emphasis on Patients’ Interests

The Group treasures patients’ opinions and interests. We have established various channels for patients or their families to express opinions or complaints, such as email, hotline and letter. To standardize our customer service procedure, we formulate the Product Complaints and Consultation Management Measurements (《產品投訴和諮詢的管理制度》), Operation Procedure of Dealing with Complaints (《產品投訴處理操作規程》) and the Operation Procedure of Dealing with Medical Consulting (《醫學諮詢處理操作規程》) and we follow the established procedures of handling complaints, enquiries and opinions. Upon receipt of inquiries, complaints or issues on drug adverse reaction, the relevant departments will contact the patients in time to follow through on the situation, claims, key facts and reasons of the complaint, and ensure that the opinions and complaints received are responded and followed up properly and in a timely manner. To manage and standardize the handling procedure in case of any product quality complaints, returns and recalls of our products, we formulate the Management Procedure of Product Complaints, Returns and Recalls (《產品投訴與退貨召回管理規程》). We review and optimize the product complaints and consultation management system on a regular basis in order to protect patients’ interests and maintain the reputation of the Group. During the Year, the Group did not receive any products and service related complaints.

4.5 Repaying Community

The Group spares no effort to promote community services and perform its corporate social responsibilities. We organize, promote and support our employees in engaging voluntary services, and provide drug donations to patients. During the Year, the Group made total donations of RMB31,789 thousand through RAH Charity Foundation to Hepatitis C patients for them to get effective and timely treatment and relieve patients’ burden on their family and society.

During the Year, the Group completed first clinical study using HCV protease inhibitor GANOVO[®] (Danoprevir) to treat Naïve and experienced COVID-19 patients. The data from this small-sample clinical study showed that GANOVO[®] (Danoprevir) combined with Ritonavir is safe and well tolerated in all subjects. After 4 to 12-day treatment of GANOVO[®] (Danoprevir) combined with Ritonavir, all 11 moderate COVID-19 patients were discharged from the hospital after meeting the discharge criteria issued by China’s National Health Commission.

We communicate and interact with various social sectors through organizing and participating in numerous activities to build, grow and sustain social communities. We are committed to promoting the development of new innovative drugs in China and continue to make contributions towards sustainable social communities. Moving onwards, we will explore more community services and charitable activities for helping more people in need through various channels.

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5. TALENT MANAGEMENT

Employees are our most valuable assets and the cornerstone for the success of our Group. We adhere to the “Human-Based” management philosophy to allow for career advancement considerations with our employees. The Group strictly complies with the relevant laws and regulations in the places where we operate, including but not limited to the Employment Ordinance 《僱傭條例》( ) in Hong Kong and the Labor Law of the People’s Republic of China (《中華人民共和國勞動法》) and Labor Contract Law of the People’s Republic of China (《中華人民共和國勞動合同法》) in Mainland China.

5.1 Talent Employment

We have adopted policies to provide and ensure a harmonious, tolerant, fair and non-discriminatory working environment. We strictly comply with the Labor Law of the People’s Republic of China (《中華人民共和國勞動法》) and Labor Contract Law of the People’s Republic of China (《中華人民共和國勞動合同法》) and other relevant laws and regulations, and formulate our human resources policies in accordance with the relevant laws and regulations.

As of December 31, 2020, the Group had a total of 252 employees. The details of our employees are set out in Appendix I: Sustainability Data Statement.

Recruitment Management System

To recruit suitable talents effectively for our business development strategy, we formulate the Recruitment Management System (《招聘管理制度》). Our human resources department implements the recruitment process based on the recruitment plan for the year. The Group recruits employees through various channels such as recruitment websites, newspapers advertisement, recruiters, internal referrals and job fairs. No matter it is external or internal recruitment, we follow the basic principles of “openness, justice and fairness” regardless of gender, nationality and race to select appropriate candidates by considering their education background, experience and skills of the applicant. For every successful candidate, our human resources department carries out background checks and examines carefully their age, identity and qualifications of candidates before signing employment contracts to prevent employment of child labor. The Group enters into employment contracts with the employees which cover remuneration, benefits, basis of termination and other matters to ensure no forced labor. The Group will deal with non-compliance incidents in accordance with the laws. During the Year, no child and forced labor was found in the Group.

Stability of Employees

We formulate an Employee Handbook to stipulate the human resources management such as recruitment, promotion, dismissal, compensation, working hours and rest periods. As we treasure, respect and take care of every employee, any discrimination or harassment is strictly prohibited in the Group. In order to reduce the employee turnover rate, we proactively conduct face-to-face interviews with departing employees to understand relevant reasons to enable corporate management improvements.

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5.2 Employee’s Health and Safety

We adhere to providing a safe and healthy working environment to our employees. We strictly comply with the relevant laws and regulations related to occupational health and safety, including but not limited to the Fire Control Law of the People’s Republic of China (《中華人民共和國消防法》) and the Work Safety Law of the People’s Republic of China (《中華人民共和國安全生產法》).

Clean and Safe Working Environment

We dedicate to protecting the health and safety of our employees and formulate the Environmental, Health and Safety (EHS) Handbook to manage the health and safety aspects of the Group. All-round health and safety aspects, including fire safety, occupational disease prevention, handling measures of dangerous goods and chemicals, hidden danger checking and emergency measures, are well controlled and monitored.

To ensure a safe working environment for our employees and to regulate the safety use and management of fire, electricity, dangerous goods, gas and electrical appliances, we have established various safety management regulations, such as Fire Safety Management Regulation (《消防安全管理規定》), Fire Inspection Management Regulation (《消防檢查管理規定》), Regulation on the Safety Management of the Use of Fire and Electricity (《火、電安全使用管理規定》), Regulation on the Management of Maintenance of Fire Protection Facilities 《消防設施設備維護管理規定》( ) and Equipment and Regulation on the Management of Safe Evacuation Facilities (《安全疏散設施管理規定》).

For fire safety, we follow the approach of “prevention first with the combination of elimination” and management principle of “who is in charge has to take the responsibility” and have formulated the Fire Safety Responsibility System to stipulate the responsibilities of each responsible departments and employees. To monitor the implementation of fire safety measures, we have formulated the Regulation on the Management of Fire Safety Work Assessment, Rewards and Punishments (《消防安全工作評估、獎懲管理規定》) to assess the fire safety implementation and knowledge of our employees.

In addition, to ensure the health of our employees, all employees are entitled to free physical health examination on a regular basis. In accordance with the requirements of the Law on Prevention and Control of Occupational Diseases of People’s Republic of China (《中華人民共和國職業病防治法》), the Group regularly conducts occupational disease health check for every employee exposed to occupational disease hazards. During the Year, the Group did not have any accident involving work-related death or injury of employees to indicate our achievement in protecting the health and safety of our employees.

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Health and Safety Trainings

To enhance the health and safety knowledge of employees, we offer various health and safety trainings to our employees. We have formulated the Regulations on the Management of Fire Safety Education and Training (《消防安全教育、培訓管理規定》) to strengthen and regulate the fire safety training work of the Group. This regulation regulates the content and frequency of fire safety trainings received by management staff, on-the-job staff, new staff and other staff. Good fire safety training files should be established by responsible departments and units. We have also formulated the Regulations on the Management of Firefighting and Emergency Evacuation Drills (《滅火和應急疏散預案演練管理規定》) to ensure organized firefighting and evacuation in case of fire. During the Year, we carried out regular fire drills in accordance with the requirement of the fire-control authorities to enhance the fire prevention awareness of all employees. We established a plan for each drill to get well preparation of division of labour, emergency equipment and procedure.

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Fire emergency rescue drills

During the Year, we organized first aid training offered by Yuecheng District Red Cross and cardiopulmonary resuscitation (CPR) training offered by Xiaoshan District Medical Emergency Command Center. We also joined safety trainings organized by the Bureau of Emergency Management of Shaoxing and Shaoxing General Union.

First aid training

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CPR training
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Protecting Employees from COVID-19

We value the health and safety of our employees. We monitored closely the pandemic situation, implemented various measures to protect our employees from COVID-19 and achieved zero infection. We formulated the Pandemic Prevention and Control Measures in Office (《辦公場所疫情防控措施》) and required all employees that resumed work to strictly follow these measures. The protective measures are as follows:

Implemented “work from home” policy until the pandemic situation has alleviated;
Cancelled or reduced unnecessary business travel;
Adopted video or phone meeting to replace physical meeting;
Resumed work in batches;
Delivered masks and sterilized items to all our employees.

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Delivered masks and sterilized items to our employees

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5.3 Benefits of Employees

To attract and retain talents of high caliber, the Group is committed to providing fair and competitive remuneration and benefits to employees. We formulate the Employee Handbook and update the policy of benefits and remuneration on a regular basis to keep the benefits and remuneration at an appropriate and market competitive level. The Group makes contributions to social insurance and housing provident fund for its employees as required by the laws of the People’s Republic of China, including pension insurance, medical insurance, unemployment insurance, maternity insurance, work-related injury insurance and housing provident fund.

We pay great attention to benefits for employees and strictly comply with the Labor Law of the People’s Republic of China (《中華人民共和國勞動法》) in making arrangements such as working hours and overtime pay for employees. We provide employees with benefits that are better than the minimum standard provided under the laws. We provide all employees with paid annual leave, sick leave, casual leave, maternity leave, wedding leave, bereavement leave and work-related injury leave. For general benefits, we provide employees with meal allowance, summer hot weather allowance, birthday and festival benefits, etc.

5.4 Cultural Events for Employees

The Group organizes recreational events for our employees on a regular basis to alleviate work pressure and to develop the spirit of teamwork and cohesiveness. The Group organizes indoor events such as Christmas team building activity, and outdoor events such as trips and outreaching activities to recognize outstanding performance of our employees, to enhance their sense of achievement and sense of belonging to the Group.

Christmas team building activity

5.5 Training and Development of Employees

The Group is committed to employees’ training and development for excellent team building and maintains the competitiveness of the Group. To expand the horizons and enhance the expertise, technical knowhow, quality and skills of the employees, we offer various types of training program to our employees, including internal training, external training, individual education in professional training organizations, exchanges with fellows and site-visits.

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Internal Training

To maintain quality, expertise and skills of the employees, the Group provides employees with regular training, which includes introductory training for new employees, skill training, professional and general skills training, compliance training, and training on health and safety. During the Year, we organized a two-day training for our employees in the R&D sector. During this training, the most updated information, trends and experience related to clinical operation are shared to our R&D employees to strengthen their knowledge in the industry.

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A two-day training for our employees in R&D sector

Exchanges with Fellows

We encourage our employees to participate in seminars and sharing sessions held by external organizations to enrich their expertise. In addition, we provide employees with outstanding performance and great potential with opportunities for advanced studies and industry conferences. The Group conducts academic marketing activities to establish and maintain relationships with medical experts and key opinion leaders. We also maintain long-term cooperative relationships with several national academic associations. Through various activities, our employees may have exchanges with industry talents, which will help the Group to develop, market and sell its products more effectively.

Annual Performance Assessment

To drive business results, develop employees’ ability and support human resources management, we have developed an annual performance appraisal system. We appraise the performance of our employees annually on objective considerations such as business performance, management capabilities and cultural values, which is subsequently used in deciding the awarding of year-end bonus, salary adjustment and promotion. Setting of individual growth target can be selected from three dimensions including professional knowledge or capability, general capability, and corporate culture awareness and action. Adopting the principle of “suitable talent fits for suitable job”, we promote the employees with outstanding performance and strong ability.

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Business appraisal
• Appraise the performance of
the employees in terms of
duties and working standards
for the year
Management appraisal Appraisal on corporate culture
• Appraise the performance in • Appraise the performance on
terms of people management, four corporate cultural values,
treasury management, i.e. Integrity · Courage ·
operation management and Excellence · Collaboration
system development
Annual Performance Appraisal System
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6. ENVIRONMENTAL PROTECTION FOR A GREEN WORLD

6.1 Environmental Protection System Establishment

To assure proper implementation of environmental management system in the Group, apart from establishing the ESG Committee, the Group establishes the Sustainable Development System (《可持續發展制度》) and related policy to continuously improve environmental measures. Our Sustainable Development Policy (《可持續發展政策》) regulates the environmental measures of the Group in controlling and reducing its air emissions, greenhouse gas (“ GHG ”) emissions, effluent, use of resources and waste production. The ESG committee is responsible to monitor the implementation status of the related policy and implementation progress of the environmental measures. We establish an Environmental, Health and Safety (EHS) Handbook (《環境、健康與安全（EHS）手冊》) to regulate the handling and controlling measures of air emissions, effluent and waste produced from the Group.

The Group strictly abides by relevant laws and regulations of the regions where the Group operates, such as the Environmental Protection Law of the People’s Republic of China (《中華人民共和國環境保護法》), the Law of the People’s Republic of China on Prevention and Control of Water Pollution (《中華人民共和國水污染防治法》), the Law of the People’s Republic of China on the Prevention and Control of Atmospheric Pollution (《中華人民共和國大氣污染防治法》) and the Law of the People’s Republic of China on Prevention and Control of Environmental Pollution by Solid Waste (《中華人民共和國固體廢物污染環境防治法》). In order to maintain good relationships with communities in the surroundings of the production base, the Group strives to save energy as much as possible in business operations, implements measures for water management and waste recycling, reduces GHG emissions and improves energy efficiency. During the Year, there was no material incident affecting the environmental and natural resources nor any punishment and litigation in respect to environmental regulations.

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6.2 Emissions Management

GHG Emissions Inspection

In fulfilling China’s responsibilities under the Paris Agreement and other related important policies such as National Strategies on Adaptation to Climate Change (《國家適應氣候變化戰略》), the Group is committed to minimizing the impacts arising from the risk of global warming. We carry out the inspection of GHG emissions of the Group in accordance with the Greenhouse Gas Protocol jointly developed by the World Resources Institute and the World Business Council for Sustainable Development and ISO14064-1 developed by the International Standardization Organization. We are committed to reducing the carbon footprint during the operations of the Group and implement low carbon business.

Following the inspection, the Group’s GHG emissions are divided into direct GHG emissions (Scope 1) and indirect GHG emissions (Scope 2 and Scope 3). Scope 1 refers to direct GHG emissions from sources that are owned or controlled by the Group. Scope 2 refers to indirect GHG emissions resulting from the generation of electricity, heating and cooling, or steam generated off site but purchased by the Group. Scope 3 refers to emissions that include indirect GHG emissions from sources not owned or directly controlled by the Group but related to our activities. GHG emissions in all scopes were originated from the fuel consumption of the Group and the fuel oil used by its vehicles (Scope 1), electricity consumption during operation (Scope 2) and waste landfill, paper consumption and business air travel (Scope 3), etc. A summary of GHG emissions during the Year is described in Appendix 1.

Air Emissions

Our air emissions mainly come from the emissions of volatile organic compounds (VOCs) and acidic exhaust arising from the manufacturing processes of drug and emissions of nitrogen oxides (NOx), sulphur oxides (SOx) and particulate matters (PM) arising from our group vehicles. We adopt appropriate reduction measures of air emissions to reduce the influence towards the environment.

For exhaust arising from drug manufacturing processes, we adopt suitable processes, such as spraying, adsorption and regenerative thermal oxidizer (RTO), to treat the exhaust. After treating, the amount of air emissions can attain the national and local emission standard of air pollutants.

For reducing vehicle emissions, we formulate the Vehicle and Driver Management System 《車輛及駕駛員管理制度》( ) for reasonable vehicle arrangement for business purpose. We encourage the use of online meetings to reduce unnecessary business travels. We encourage our employees to travel by public transport. If group vehicle is necessary, we encourage more employees to share one vehicle when travelling to reduce the use of group vehicles.

Wastewater Discharge

Wastewater generated by the Group mainly comes from drug manufacturing processes, equipment washing, pure water manufacturing processes, exhaust treatment and domestic sewage. All types of wastewater will be treated by the sewage treatment station in the factory area to meet the required standard before discharge. Water discharged from recirculating cooling systems and sewage from water purification generated in the factory area is discharged directly to the sewage treatment plant in Shaoxing for centralized treatment and is discharged when effluent has met the required standards. All discharge of wastewater generated by the Group meet with the required standards for emissions at national level and local level.

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Disposal of Waste

The Group employs professional and qualified waste treatment companies for the disposal of both hazardous waste and non-hazardous waste. To achieve waste reduction and better resource utilization, we introduce sorting and storage of waste according to type and deliver waste to different companies for recovery, utilization and disposal based on their recycling purposes. Waste is stored in sealed containers with waste labels and transported by GPS-equipped transportation vehicles to achieve complete process supervision. We also have sufficient safety equipment, decontamination and clean-up tools and kits as well as the compilation of an Environmental Contingency Plan for Wastes (《廢棄物環境應急預案》) to deal with accidents.

Reduction of Business Trip

The Group is aware that business trips can result in GHG emissions. Therefore, we encourage employees to replace unnecessary overseas business trips with video conferences, and choose non-stop flights for unavoidable business trips, in order to minimize GHG emissions.

6.3 Use of Resources

The Group is committed to protecting the environment and conserves the natural resources, therefore we establish the Office Management Regulation (《辦公管理規範》) to manage the employees’ behaviors in the aspects of energy saving, water resources management and green office. We adopt the following measures to have better utilization of resources and waste reduction during the Year.

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Water
Energy resources
saving manage-
ment
Green office
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Energy Saving

Air conditioning system is one of the most intensive power-usage devices in the office. For effective energy saving, we use an air conditioning system with proven energy efficient label and avoid installing the air conditioner under direct sunlight in order to enhance energy efficiency. We stipulate our employees to turn off the air conditioning system in their office when not in use. The lowest temperature of air conditioning is set to be 22°C in summer and the highest temperature of air conditioning is set to be 20°C in winter. The windows in our office are attached with UV-resistant insulation film to reduce heat absorption. During hot weather, we allow our staff not to wear ties and suits and to wear smart causal on Friday to reduce the use of air conditioning system.

For energy saving in the lighting system, we promote the use of energy-efficient LED lighting. We also divide our offices and laboratories into several different lighting zones to provide independent control of the lighting system, and stipulate employees to turn off unnecessary lighting when not in use as they leave the office for outdoor work, go out for lunch or at the end of the day. Besides, we regularly check the level of illumination in different parts of the office, and for places with light exceeding the required brightness level, so that we may reduce the number of lights to reduce energy consumption.

In order to reduce fuel consumption, the Group regularly carries out inspection and maintenance of the vehicle fleet, inflates the tires regularly to keep proper air inflation and improves the automobile efficiency to reduce fuel consumption and emission of pollutants. We also offer training for drivers to prevent engine idling and improve fuel oil efficiency.

Water Resources Management

The Group recognizes that the world is now facing a water shortage crisis and we strive to promote water conservation. We implement a number of measures throughout our operations to enhance the effective use of water resources. We take the initiative to lower the water pressure to the lowest possible level, take meter readings regularly and check for hidden leaks. To further reduce water consumption, we place water saving reminder stickers, use double flush toilet and use sanitary ware with water saving labels and infrared sensing in the washroom. Our water source is from local waterworks and we do not have any issue in sourcing water.

Green Office

The Group adopts green measures in our office. We use an online management platform as an important tool in streamlining and managing the business processes to reduce paper consumption. For unavoidable paper consumption, we encourage our employees to reuse or use both sides of paper to raise their environmental protection awareness. We also encourage our employees to use wastepaper for internal record purposes and use e-greeting cards instead of traditional greeting cards to send holiday greetings to minimize paper consumption. We regularly check and monitor the paper usage and carry out suitable improvement measures.

Before purchasing office stationery, we firstly assess the material usage to avoid excessive inventory. If there is any need for the purchase of materials, we give priority to the products that can be recycled or replenished and reduce the use of one-off and unrecyclable ones. We encourage our staff to reuse envelopes, spring binders, file cards and other stationeries. We post waste separation guidelines in our offices to encourage staff to separate recyclables such as metal cans, plastics and used paper to facilitate recycling and disposal of wastes.

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7. APPENDIX I: SUSTAINABILITY DATA STATEMENT

Environmental Subject Area1	Unit	2020
Air emissions2
NOx	kilogram	7.70
SOx	kilogram	0.14
PM	kilogram	0.61
GHG emissions3
Direct GHG emissions (Scope 1)	tonnes carbon dioxide equivalent	27.39
Indirect GHG emissions (Scope 2)	tonnes carbon dioxide equivalent	1,751.01
Other indirect GHG emissions (Scope 3)	tonnes carbon dioxide equivalent	172.59
Total GHG emissions (Scope 1, 2 & 3)	tonnes carbon dioxide equivalent	1,893.30
GHG emission intensity
GHG emission intensity (per square metre)	tonnes carbon dioxide equivalent/
(Scope 1, 2 & 3)	square metre	0.08
Energy consumption
Total electricity consumption	kilowatt-hours	2,870,038.00
Electricity consumption intensity
(per square metre)	kilowatt-hours/square metre	123.93
Gasoline consumption (fleet)	litre	9,215.92
Diesel consumption (fleet)	litre	189.81
Water consumption
Total water consumption	cubic metre	16,408.00
Water consumption intensity (per square
metre)	cubic metre/square metre	0.71
Hazardous waste
Total hazardous waste	tonnes	73.97
Hazardous waste intensity (per employee)	tonnes/employee	0.48

1 Reporting boundary of environmental subject area includes Ascletis BioScience Co., Ltd., Ascletis Pharmaceuticals Co., Ltd., Ascletis Biopharmaceutical (Hangzhou) Co., Ltd., Ascletis XinNuo Medicine (Hangzhou) Co., Ltd. and Gannex Pharma Co., Ltd.

2 Air emissions from company vehicles 3

There may be a slight discrepancy between the sum of individual items and the total owing to rounding.

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Environmental Subject Area1	Unit	2020
Non-hazardous waste
Total non-hazardous waste	tonnes	54.09
Non-hazardous waste intensity
(per employee)	tonnes/employee	0.35
Total non-hazardous waste recycled	tonnes	0.73
Paper consumption	tonnes	2.78
Paper consumption intensity (per employee)	tonnes/employee	0.02
Packing materials
Bottle label	tonnes	0.02
Paper box	tonnes	0.20
Carton	tonnes	0.26
Polyolefin bottle for oral solid drugs	tonnes	1.00
Bottle lid	tonnes	1.00
Plastic bag	tonnes	0.15
Social Subject Area	Unit	2020
Total employees
Total number of female employees	no. of people	133
Total number of male employees	no. of people	119
Total employees	no. of people	252
Total employees (by age group)
Below 30	no. of people	64
Aged 30-50	no. of people	183
Above 50	no. of people	5
Employee participation in training
Total number of employees participating in
training	no. of people	252
Percentage of employees participating
in training (by gender)
Percentage of female employees	%	100.0
Percentage of male employees	%	100.0
Average training hours per employee
(by gender)
Average training hours per female employee	hours	13.4
Average training hours per male employee	hours	14.2
Occupational health and safety
Work-related casualties
Lost days due to work injury	days	0
Number of work-related fatalities	no. of people	0

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8. APPENDIX II: HONG KONG STOCK EXCHANGE ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORTING GUIDE CONTENT INDEX

Index	content			Relevant sections
A.	Environmental	Area
A1:	Emissions	General	Information on: (a) the policies; and	Environmental
		Disclosure	(b) compliance with relevant laws and	Protection for a
			regulations that have a significant	Green World
			impact on the issuer relating to air and
			greenhouse gas emissions, discharges
			into water and land, and generation of
			hazardous and non-hazardous waste.
		A1.1	The types of emissions and respective	Appendix I:
			emissions data.	Sustainability Data
				Statement
		A1.2	Greenhouse gas emissions in total and	Appendix I:
			intensity.	Sustainability Data
				Statement
		A1.3	Total hazardous waste produced and	Appendix I:
			intensity.	Sustainability Data
				Statement
		A1.4	Total non-hazardous waste produced	Appendix I:
			and intensity.	Sustainability Data
				Statement
		A1.5	Description of measures to mitigate	Emissions
			emissions and results achieved.	Management
				Use of Resources
		A1.6	Description of how hazardous and	Emissions
			non-hazardous wastes are handled,	Management
			r e d u c t i o n i n i t i a t i v e s a n d r e s u l t s	Use of Resources
			achieved.
A2:	Use of	General	P o l i c i e s o n t h e e f f i c i e n t u s e o f	Use of Resources
	Resources	Disclosure	resources, including energy, water and
			other raw materials.
		A2.1	D i r e c t a n d / o r i n d i r e c t e n e r g y	Appendix I:
			consumption by type (e.g. electricity,	Sustainability Data
			gas or oil) in total and intensity.	Statement
		A2.2	W a t e r c o n s u m p t i o n i n t o t a l a n d	Appendix I:
			intensity.	Sustainability Data
				Statement
		A2.3	Description of energy use efficiency	Use of Resources
			initiatives and results achieved.
		A2.4	Description of whether there is any	Use of Resources
			issue in sourcing water that is fit for
			purpose, water efficiency initiatives and
			results achieved.
		A2.5	Total packaging material used for	Appendix I:
			finished products and with reference to	Sustainability Data
			per unit produced.	Statement

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Index	content			Relevant sections
A3:	The	General	Policies on minimising the issuer’s	Environmental
	Environment	Disclosure	significant impact on the environment	Protection for a
	and Natural		and natural resources.	Green World
	Resources
		A3.1	Description of the significant impacts	Environmental
			of activities on the environment and	Protection for a
			natural resources and the actions taken	Green World
			to manage them.
B.	Social Area
B1:	Employment	General	I n f o rma ti o n o n : (a ) th e p o l i c i e s ;	Talent Employment
		Disclosure	and (b) compliance with relevant	Benefits of
			laws and regulations that have a	Employees
			significant impact on the issuer relating
			t o c o m p e n s a t i o n a n d d i s m i s s a l ,
			recruitment and promotion, working
			hours, rest periods, equal opportunity,
			diversity, anti-discrimination, and other
			benefits and welfare.
		B1.1	Total workforce by gender, employment	Total workforce
			type, age group and geographical	by gender and
			region.	age group is set
				out in Appendix
				I: Sustainability
				Data Statement,
				while further
				categorisation is
				being considered
				for disclosure in
				the future
		B1.2	Employee turnover rate by gender, age	Considering
			group and geographical region.	disclosure in the
				future
B2:	Health and	General	Information on: (a) the policies; and	Employee’s Health
	Safety	Disclosure	(b) compliance with relevant laws and	and Safety
			regulations that have a significant
			i m p a c t o n t h e i s s u e r r e l a t i n g t o
			providing a safe working environment
			a n d p r o t e c t i n g e m p l o y e e s f r o m
			occupational hazards.
		B2.1	Number and rate of work-related	Appendix I:
			fatalities.	Sustainability Data
				Statement
		B2.2	Lost days due to work injury.	Appendix I:
				Sustainability Data
				Statement
		B2.3	Description of occupational health and	Employee’s Health
			safety measures adopted, how they are	and Safety
			implemented and monitored.

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Index	content			Relevant sections
B3:	Development	General	Policies on improving employees’	Training and
	and Training	Disclosure	knowledge and skills for discharging	Development of
			duties at work. Description of training	Employees
			activities.
		B3.1	The percentage of employees trained	The percentage of
			by gender and employee category	employees trained
			(e.g. senior management, middle	by gender is set
			management).	out in Appendix
				I: Sustainability
				Data Statement,
				while further
				categorisation is
				being considered
				for disclosure in
				the future
		B3.2	The average training hours completed	The average
			per employee by gender and employee	training hours
			category.	completed per
				employee by
				gender is set
				out in Appendix
				I: Sustainability
				Data Statement,
				while further
				categorisation is
				being considered
				for disclosure in
				the future
B4:	Labour	General	Information on: (a) the policies; and	Talent Employment
	Standards	Disclosure	(b) compliance with relevant laws and
			regulations that have a significant
			i m p a c t o n t h e i s s u e r r e l a t i n g t o
			preventing child and forced labour.
		B4.1	Description of measures to review	Talent Employment
			employment practices to avoid child
			and forced labour.
		B4.2	Description of steps taken to eliminate	Talent Employment
			such practices when discovered.

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Index	content			Relevant sections
B5:	Supply Chain	General	Policies on managing environmental	Supply Chain
	Management	Disclosure	and social risks of the supply chain.	Management
		B5.1	Number of suppliers by geographical	Supply Chain
			region.	Management
		B5.2	Description of practices relating	Supply Chain
			to engaging suppliers, number of	Management
			suppliers where the practices are
			being implemented, how they are
			implemented and monitored.
B6:	Product	General	Information on: (a) the policies; and	Product Quality
	Responsibility	Disclosure	(b) compliance with relevant laws and	Management
			regulations that have a significant	Product Safety
			impact on the issuer relating to health	Assurance
			and safety, advertising, labelling and	Protection of
			privacy matters relating to products	Patients’ Interests
			and services provided and methods of
			redress.
		B6.1	Percentage of total products sold or	Product Safety
			shipped subject to recalls for safety	Assurance
			and health reasons.
		B6.2	Number of products and service related	Product Safety
			complaints received and how they are	Assurance
			dealt with.	Protection of
				Patients’ Interests
		B6.3	Description of practices relating to	Intellectual
			observing and protecting intellectual	Property Protection
			property rights.
		B6.4	Description of quality assurance	Product Quality
			process and recall procedures.	Management
				Product Safety
				Assurance
				Protection of
				Patients’ Interests
		B6.5	D e s c r i p t i o n o f c o n s u m e r d a t a	Protection of
			protection and privacy policies, how	Patients’ Interests
			they are implemented and monitored.

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Index content

Relevant sections

B7:	Anti-corruption	General	Information on: (a) the policies; and	Managing
		Disclosure	(b) compliance with relevant laws and	Corruption Risks
			regulations that have a significant	and Promoting
			impact on the issuer relating to bribery,	Integrity
			extortion, fraud and money laundering.
		B7.1	Number of concluded legal cases	Managing
			regarding corrupt practices brought	Corruption Risks
			against the issuer or its employees	and Promoting
			during the reporting period and the	Integrity
			outcomes of the cases.
		B7.2	Description of preventive measures and	Managing
			whistle-blowing procedures, how they	Corruption Risks
			are implemented and monitored.	and Promoting
				Integrity
B8:	Community	General	Policies on community engagement	Repaying
	Investment	Disclosure	t o u n d e r s t a n d t h e n e e d s o f t h e	Community
			communities where the issuer operates
			and to ensure its activities take into
			c o n s i d e r a t i o n t h e c o m m u n i t i e s ’
			interests.
		B8.1	Focus areas of contribution (e.g.	Repaying
			education, environmental concerns,	Community
			labour needs, health, culture, sport).
		B8.2	Resources contributed to the focus	Repaying
			area.	Community

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Independent Auditor’s Report

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To the shareholders of Ascletis Pharma Inc.

(Incorporated in the Cayman Islands with limited liability)

OPINION

We have audited the consolidated financial statements of Ascletis Pharma Inc. (the “Company”) and its subsidiaries (the “Group”) set out on pages 103 to 174, which comprise the consolidated statement of financial position as at 31 December 2020, and the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2020, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance.

BASIS FOR OPINION

We conducted our audit in accordance with Hong Kong Standards on Auditing (“HKSAs”) issued by the HKICPA. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the HKICPA’s Code of Ethics for Professional Accountants (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

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KEY AUDIT MATTERS (Continued)

Key audit matter

How our audit addressed the key audit matter

Impairment of inventories

As at 31 December 2020, the net carrying amount of the Group’s inventories was RMB58,894,000. The Group’s inventories, comprising majority raw materials and finished goods, are carried at the lower of cost and net realisable value which requires management significant estimation of the net realisable value of the inventories based on future usage and sales and judgements in determining the appropriate level of inventory provisions against identified surplus or obsolete items.

The Group’s disclosures about impairment of inventories are included note 2.4 Summary of significant accounting policies , note 3 Significant accounting judgements and estimates and note 17 Inventories , which specifically explain the accounting policies and management’s accounting estimates.

We evaluated management’s assessment of the inventories provisions by reviewing the analyses of the ageing of the inventories and assessing actual and forecast usage or sale of inventories. We attended physical inventory counts on a sample basis to ascertain the condition of the inventories and to evaluate the adequacy of provision for slow moving and obsolete inventories. We also evaluated the key assumptions used to determine the net realisable value of inventories and recalculated the expected provisions based on the key assumptions to ensure the mathematical accuracy of the calculation.

Cut-off of research and development costs

The Group incurred significant research and development costs of RMB109,099,000 for the year ended 31 December 2020 mainly consist of staff costs, clinical trial expenses and service fees paid materials to outsourced service providers. The research and development activities with these service providers are documented in detailed agreements and are typically performed over an extended period. Allocation of these costs to the appropriate reporting period based on the progress of the research and development projects involves judgement.

We reviewed the key terms set out in agreements with outsourced service providers. We evaluated the progress of the research and development projects based on inquiry with project managers, inspection of supporting documents and obtaining confirmations from outsourced service providers, o n a s a m p l e b a s i s , i n o r d e r t o d e t e r m i n e completeness, cut-off and nature of the research and development costs.

The Group’s disclosure about research and development costs is included in note 2.4 Summary of significant accounting policies.

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OTHER INFORMATION INCLUDED IN THE ANNUAL REPORT

The directors of the Company are responsible for the other information. The other information comprises the Management Discussion and Analysis of the Annual Report (but does not include the consolidated financial statements and our auditor’s report thereon), which we obtained prior to the date of this auditor’s report, and the Chairman’s Statement, the Report of Directors, the Corporate Governance Report and the Environmental, Social and Governance Report, which are expected to be made available to us after that date.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

When we read the Chairman’s Statement, the Report of Directors, the Corporate Governance Report and the Environmental, Social and Governance Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the Audit Committee.

RESPONSIBILITIES OF THE DIRECTORS FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The directors of the Company are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with HKFRSs issued by the HKICPA and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors of the Company are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors of the Company either intend to liquidate the Group or to cease operations or have no realistic alternative but to do so.

The directors of the Company are assisted by the Audit Committee in discharging their responsibilities for overseeing the Group’s financial reporting process.

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AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Our report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with HKSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with HKSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with the Audit Committee, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Lai Chee Kong.

Ernst & Young Certified Public Accountants Hong Kong 29 March 2021

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Consolidated Statement of Profit or Loss

Year ended 31 December 2020

		2020	2019
	Notes	RMB’ 000	RMB’ 000
REVENUE	5	35,001	173,443
Cost of sales		(58,498)	(49,160)
including royalties		1,322	(4,966)
Gross (loss)/profit		(23,497)	124,283
Other income and gains	5	89,856	126,593
Selling and distribution expenses		(27,356)	(100,500)
Research and development costs		(109,099)	(125,962)
Administrative expenses		(41,845)	(48,962)
Other expenses		(83,412)	(59,716)
Finance costs	7	(135)	(182)
Share of loss of an associate		(13,753)	(11,523)
LOSS BEFORE TAX	6	(209,241)	(95,969)
Income tax credit	10	–	–
LOSS FOR THE YEAR		(209,241)	(95,969)
Attributable to:
Owners of the parent		(209,241)	(95,969)
LOSS PER SHARE ATTRIBUTABLE TO
ORDINARY EQUITY HOLDERS OF THE PARENT
Basic and diluted	12	RMB(20.12)cents	RMB(9.10) cents

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Consolidated Statement of Comprehensive Income Year ended 31 December 2020

	2020	2019
	RMB’ 000	RMB’ 000
LOSS FOR THE YEAR	(209,241)	(95,969)
OTHER COMPREHENSIVE (LOSS)/INCOME
Other comprehensive income that may be reclassified to
profit or loss in subsequent periods:
Exchange differences on translation of foreign operations	45,677	2,305
Other comprehensive (loss)/income that will not be reclassified to
profit or loss in subsequent periods:
Exchange differences on translation of the Company’s
financial statements into presentation currency	(164,014)	33,614
OTHER COMPREHENSIVE (LOSS)/INCOME FOR THE YEAR, NET OF TAX	(118,337)	35,919
TOTAL COMPREHENSIVE LOSS FOR THE YEAR	(327,578)	(60,050)
Attributable to:
Owners of the parent	(327,578)	(60,050)

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Consolidated Statement of Financial Position

31 December 2020

		2020	2019
	Notes	RMB’ 000	RMB’ 000
NON-CURRENT ASSETS
Property, plant and equipment	13	82,556	94,494
Right-of-use assets	14	2,023	4,233
Other intangible assets	15	90,702	75,614
Investment in an associate	16	60,915	58,109
Long-term deferred expenditure		889	1,363
Total non-current assets		237,085	233,813
CURRENT ASSETS
Inventories	17	58,894	86,039
Trade and bills receivables	18	26,620	69,525
Prepayments, other receivables and other assets	19	30,462	47,846
Cash and cash equivalents	20	2,714,011	2,989,164
Total current assets		2,829,987	3,192,574
CURRENT LIABILITIES
Trade and bills payables	21	930	6,643
Other payables and accruals	22	69,974	77,059
Lease liabilities	14	1,144	2,226
Deferred income	23	1,724	1,724
Total current liabilities		73,772	87,652
NET CURRENT ASSETS		2,756,215	3,104,922
TOTAL ASSETS LESS CURRENT LIABILITIES		2,993,300	3,338,735
NON-CURRENT LIABILITIES
Lease liabilities	14	443	1,587
Deferred income	23	11,207	12,931
Total non-current liabilities		11,650	14,518
Net assets		2,981,650	3,324,217
EQUITY
Equity attributable to owners of the parent
Share capital	25	750	754
Reserves	26	2,980,900	3,323,463
Total equity		2,981,650	3,324,217

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Consolidated Statement of Changes in Equity Year ended 31 December 2020

Attributable to owners of the parent

	Share capital RMB’000	Treasury shares* RMB’000	Share premium account* RMB’000	Capital reserve* RMB’000	Exchange fluctuation Accumulated reserve losses RMB’000 RMB’000	Exchange fluctuation Accumulated reserve losses RMB’000 RMB’000	Total equity RMB’000
At 1 January 2019 Loss for the year Other comprehensive income for the year: Exchange differences Total comprehensive income/(loss) for the year Shares repurchased Shares cancelled Equity-settled share award and option arrangements At 31 December 2019	764 – – – – (10) – 754	– – – – (46,269) 46,269 – –	2,959,390 – – – – (46,259) – 2,913,131	649,804 – – – – – 3,124 652,928	28,072 – 35,919 35,919 – – – 63,991	(210,618) (95,969) – (95,969) – – – (306,587)	3,427,412 (95,969) 35,919 (60,050) (46,269) – 3,124 3,324,217

Attributable to owners of the parent

	Share capital RMB’000	Treasury shares RMB’000*	Share premium account RMB’000*	Capital reserve RMB’000*	Exchange fluctuation Accumulated reserve losses RMB’000 RMB’000**	Exchange fluctuation Accumulated reserve losses RMB’000 RMB’000**	Total equity RMB’000
At 1 January 2020 Loss for the year Other comprehensive loss for the year: Exchange differences Total comprehensive loss for the year Shares repurchased Shares cancelled Equity-settled share award and option arrangements At 31 December 2020	754 – – – – (4) – 750	– – – – (19,601) 15,079 – (4,522)	2,913,131 – – – – (15,075) – 2,898,056	652,928 – – – – – 4,612 657,540	63,991 – (118,337) (118,337) – – – (54,346)	(306,587) (209,241) – (209,241) – – – (515,828)	3,324,217 (209,241) (118,337) (327,578) (19,601) – 4,612 2,981,650

These reserve accounts comprise the consolidated reserves of RMB2,980,900,000 (2019: RMB3,323,463,000) in the consolidated statement of financial position.

Ascletis PhArmA inc. 2020 AnnuAl rePort 107

Consolidated Statement of Cash Flows

Year ended 31 December 2020

		2020	2019
	Notes	RMB’ 000	RMB’ 000
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before tax		(209,241)	(95,969)
Adjustments for:
Finance costs	7	135	182
Share of loss of an associate		13,753	11,523
Bank interest income	5	(40,626)	(72,239)
Investment income from financial assets
at fair value through profit or loss	5	(290)	–
Loss on disposal of items of property, plant and equipment	6	92	1,388
Depreciation of items of property, plant and equipment	13	12,611	10,928
Depreciation of right-of-use assets	14(a)	2,210	1,838
Covid-19-related rent concessions from lessors	14(b)	(292)	–
Amortisation of intangible assets	15	12,342	9,382
Amortisation of long-term deferred expenditure		447	162
Write-down of inventories to net realisable value		45,518	–
Impairment of an intangible asset	15	5,771	–
Equity-settled share award and option expense	6	4,612	3,124
		(152,958)	(129,681)
Increase in inventories		(18,373)	(2,162)
Increase in long-term deferred expenditure		–	(1,250)
Decrease/(increase) in trade and bills receivables		42,905	(11,902)
Decrease in prepayments, other receivables and other assets		416	8,730
Decrease in trade and bills payables		(5,713)	(7,548)
(Decrease)/increase in other payables and accruals		(7,085)	4,003
(Decrease)/increase in deferred income		(1,724)	1,711
Interest received		57,621	63,758
Net cash flows used in operating activities		(84,911)	(74,341)

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Consolidated Statement of Cash Flows

Year ended 31 December 2020

		2020	2019
	Notes	RMB’ 000	RMB’ 000
Net cash flows used in operating activities		(84,911)	(74,341)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of items of property, plant and
equipment and construction in progress	13	(4,922)	(18,885)
Proceeds from disposal of items of property,
plant and equipment		6	665
Purchases of intangible assets	15	(34,038)	(9,348)
Purchase of a shareholding in an associate		(19,652)	(67,400)
Purchases of financial assets at fair value through
profit or loss		(75,418)	–
Proceeds from sales of financial assets
at fair value through profit or loss		75,418	–
Receipt of investment income from financial assets
at fair value through profit or loss	5	290	–
Decrease in time deposits with original maturity of
over three months		190,613	697,237
Net cash flows from investing activities		132,297	602,269
CASH FLOWS FROM FINANCING ACTIVITIES
Principal portion of lease payments	28(b)	(2,069)	(1,948)
Shares repurchased		(19,601)	(46,269)
Net cash flows used in financing activities		(21,670)	(48,217)
NET INCREASE IN CASH AND CASH EQUIVALENTS		25,716	479,711
Cash and cash equivalents at beginning of year		2,295,044	1,781,892
Effect of foreign exchange rate changes, net		(110,256)	33,441
CASH AND CASH EQUIVALENTS AT END OF YEAR		2,210,504	2,295,044
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Cash and cash equivalents as stated in
the consolidated statement of financial position	20	2,714,011	2,989,164
Non-pledged time deposits with original maturity of
over three months when acquired		(503,507)	(694,120)
Cash and cash equivalents as stated in
the consolidated statement of cash flows		2,210,504	2,295,044

Ascletis PhArmA inc. 2020 AnnuAl rePort 109

Notes to Financial Statements Year ended 31 December 2020

1. CORPORATE AND GROUP INFORMATION

The Company is a limited liability company incorporated in the Cayman Islands on 25 February 2014. The registered office address of the Company is located at 190 Elgin Avenue, George Town, Grand Cayman KY1-9008, Cayman Islands. The principal place of business in Hong Kong of the Company is located at 40th Floor, Dah Sing Financial Centre, No. 248 Queen’s Road East, Wanchai, Hong Kong.

The Company is an investment holding company. The Company’s subsidiaries are principally engaged in the research and development, production, marketing and sale of pharmaceutical products.

The shares of the Company were listed on the Main Board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on 1 August 2018.

Information about subsidiaries

Particulars of the Company’s subsidiaries are as follows:

	Place and date of	Issued ordinary/
	incorporation/	registered	Percentage	of equity
Name	registration and business	share capital	attributable to the Company			Principal activities
			Direct	Indirect
PowerTree Investment (BVI) Ltd.	British Virgin Islands	United States	100%		–	Investment holding
(“PowerTree”)	13 January 2011	dollars (“US$”) 102
AP11 Limited	British Virgin Islands	US$ 103	100%		–	Investment holding
	20 November 2018
Ascletis Pharma (China)	Hong Kong	US$	–	100%		Investment holding
Co., Limited	15 March 2018	80,010,254.04
(歌禮製藥（中國）有限公司)
SoundRidge Pharmaceuticals	Hong Kong	US$	–	100%		Investment holding
(Hong Kong) Co., Limited	23 April 2019	28,015,012.75
Gannex Pharma Co., Ltd.	People’s Republic of	US$ 8,000,000	–	100%		Manufacture, research
(“Gannex Pharma”)	China/Mainland china					and development of
(甘萊製藥有限公司)(i)	3 September 2019					pharmaceutical products
Ascletis BioScience	People’s Republic of	US$ 180,600,162	–	100%		Research, development
(歌禮生物科技（杭州）	China/ Mainland china					and commercialisation of
有限公司)(i)	26 April 2013					pharmaceutical products
Ascletis Pharmaceuticals Co., Ltd.	People’s Republic of	Renminbi (“RMB”)	–	100%		Manufacture,
(“Ascletis Pharmaceuticals”)	China/Mainland China	411,002,100				commercialisation,
(歌禮藥業（浙江）有限公司)(ii)	24 September 2014					research and
						development of
						pharmaceutical products

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Notes to Financial Statements

1. CORPORATE AND GROUP INFORMATION (Continued)

Information about subsidiaries (Continued)

Particulars of the Company’s subsidiaries are as follows: (Continued)

	Place and date of	Issued ordinary/
	incorporation/	registered	Percentage	of equity
Name	registration and business	share capital	attributable to the Company		Principal activities
			Direct	Indirect
Ascletis Biopharmaceutical	People’s Republic of	RMB 50,000,000	–	100%	Manufacture, research
(Hangzhou) Co., Ltd.	China/Mainland China				and development of
(“Ascletis Biopharma”)	19 April 2018				pharmaceutical products
(歌禮生物製藥（杭州）
有限公司)(ii)
Ascletis XinNuo Medicine	People’s Republic of	RMB 10,000,000	–	100%	Sale of pharmaceutical
(Hangzhou) Co., Ltd.	China/Mainland China				products
(“Ascletis XinNuo”)	24 July 2018
(歌禮欣諾醫藥（杭州）
有限公司)(ii)
Gannex, LLC	United States/Delaware	US$ 1,000,000	–	100%	Research and development
	30 October 2020

Notes:

(i) These entities are registered as wholly-foreign-owned enterprises under People’s Republic of China (“ PRC ”) law.

(ii) These entities are limited liability enterprises established under PRC law.

2.1 BASIS OF PREPARATION

These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention. These financial statements are presented in RMB and all values are rounded to the nearest thousand except when otherwise indicated.

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Notes to Financial Statements

2.1 BASIS OF PREPARATION (Continued)

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries (collectively referred to as the “Group”) for the year ended 31 December 2020. A subsidiary is an entity (including a structured entity), directly or indirectly, controlled by the Company. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee (i.e., existing rights that give the Group the current ability to direct the relevant activities of the investee).

When the Company has, directly or indirectly, less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

(a) the contractual arrangement with the other vote holders of the investee;
(b) rights arising from other contractual arrangements; and
(c) the Group’s voting rights and potential voting rights.

The financial statements of the subsidiaries are prepared for the same reporting period as the Company, using consistent accounting policies. The results of subsidiaries are consolidated from the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases.

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control described above. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.

If the Group loses control over a subsidiary, it derecognises (i) the assets (including goodwill) and liabilities of the subsidiary, (ii) the carrying amount of any non-controlling interest and (iii) the cumulative translation differences recorded in equity; and recognises (i) the fair value of the consideration received, (ii) the fair value of any investment retained and (iii) any resulting surplus or deficit in profit or loss. The Group’s share of components previously recognised in other comprehensive income is reclassified to profit or loss or retained profits, as appropriate, on the same basis as would be required if the Group had directly disposed of the related assets or liabilities.

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Notes to Financial Statements

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The Group has adopted the Conceptual Framework for Financial Reporting 2018 and the following revised HKFRSs for the first time for the current year’s financial statements.

Amendments to HKFRS 3 Definition of a Business Amendments to HKFRS 9, HKAS 39 and HKFRS 7 Interest Rate Benchmark Reform Amendment to HKFRS 16 Covid-19-Related Rent Concessions (early adopted) Amendments to HKAS 1, and HKAS 8 Definition of Material

The nature and the impact of the Conceptual Framework for Financial Reporting 2018 and the revised HKFRSs are described below:

(a) Conceptual Framework for Financial Reporting 2018 (the “Conceptual Framework”) sets out a comprehensive set of concepts for financial reporting and standard setting, and provides guidance for preparers of financial statements in developing consistent accounting policies and assistance to all parties to understand and interpret the standards. The Conceptual Framework includes new chapters on measurement and reporting financial performance, new guidance on the derecognition of assets and liabilities, and updated definitions and recognition criteria for assets and liabilities. It also clarifies the roles of stewardship, prudence and measurement uncertainty in financial reporting. The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements in any standard. The Conceptual Framework did not have any significant impact on the financial position and performance of the Group.
(b) Amendments to HKFRS 3 clarify and provide additional guidance on the definition of a business. The amendments clarify that for an integrated set of activities and assets to be considered a business, it must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. A business can exist without including all of the inputs and processes needed to create outputs. The amendments remove the assessment of whether market participants are capable of acquiring the business and continue to produce outputs. Instead, the focus is on whether acquired inputs and acquired substantive processes together significantly contribute to the ability to create outputs. The amendments have also narrowed the definition of outputs to focus on goods or services provided to customers, investment income or other income from ordinary activities. Furthermore, the amendments provide guidance to assess whether an acquired process is substantive and introduce an optional fair value concentration test to permit a simplified assessment of whether an acquired set of activities and assets is not a business. The Group has applied the amendments prospectively to transactions or other events that occurred on or after 1 January 2020. The amendments did not have any impact on the financial position and performance of the Group.

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Notes to Financial Statements

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (Continued)

(c) Amendments to HKFRS 9, HKAS 39 and HKFRS 7 address issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative risk-free rate (“RFR”). The amendments provide temporary reliefs which enable hedge accounting to continue during the period of uncertainty before the introduction of the alternative RFR. In addition, the amendments require companies to provide additional information to investors about their hedging relationships which are directly affected by these uncertainties. The amendments did not have any impact on the financial position and performance of the Group as the Group does not have any interest rate hedging relationships.
(d) Amendment to HKFRS 16 provides a practical expedient for lessees to elect not to apply lease modification accounting for rent concessions arising as a direct consequence of the Covid-19 pandemic. The practical expedient applies only to rent concessions occurring as a direct consequence of the pandemic and only if (i) the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; (ii) any reduction in lease payments affects only payments originally due on or before 30 June 2021; and (iii) there is no substantive change to other terms and conditions of the lease. The amendment is effective for annual periods beginning on or after 1 June 2020 with earlier application permitted and shall be applied retrospectively.

During the year ended 31 December 2020, certain monthly lease payments for the leases of the Group’s office premises and staff dormitory have been waived by the lessors upon reducing the scale of production as a result of the pandemic and there are no other changes to the terms of the leases. The Group has early adopted the amendment on 1 January 2020 and elected not to apply lease modification accounting for all rent concessions granted by the lessors as a result of the pandemic during the year ended 31 December 2020. Accordingly, a reduction in the lease payments arising from the rent concessions of RMB292,000 has been accounted for as a variable lease payment by derecognising part of the lease liabilities and crediting to profit or loss for the year ended 31 December 2020.

(e) Amendments to HKAS 1 and HKAS 8 provide a new definition of material. The new definition states that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements. The amendments clarify that materiality will depend on the nature or magnitude of information, or both. The amendments did not have any significant impact on the financial position and performance of the Group.

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Notes to Financial Statements

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS

The Group has not applied the following new and revised HKFRSs, that have been issued but are not yet effective, in these financial statements.

Amendments to HKFRS 3 Reference to the Conceptual Framework[2] Amendments to HKFRS 9, HKAS 39, HKFRS 7, HKFRS 4 and HKFRS 16 Interest Rate Benchmark Reform – Phase 2[1] Amendments to HKFRS 10 and Sale or Contribution of Assets between an Investor and HKAS 28 (2011) its Associate or Joint Venture[4] HKFRS 17 Insurance Contracts[3] Amendments to HKFRS 17 Insurance Contracts[3,6] Amendments to HKAS 1 Classification of Liabilities as Current or Non-current[3,5] Amendments to HKAS 16 Property, Plant and Equipment: Proceeds before Intended Use[2] Amendments to HKAS 37 Onerous Contracts – Cost of Fulfilling a Contract[2] Annual Improvements to Amendments to HKFRS 1, HKFRS 9, Illustrative HKFRSs 2018-2020 Examples accompanying HKFRS 16, and HKAS 41[2]

1 Effective for annual periods beginning on or after 1 January 2021
2 Effective for annual periods beginning on or after 1 January 2022
3 Effective for annual periods beginning on or after 1 January 2023
4 No mandatory effective date yet determined but available for adoption
5 As a consequence of the amendments to HKAS 1, Hong Kong Interpretation 5 Presentation of Financial Statements – Classification by the Borrower of a Term Loan that Contains a Repayment on Demand Clause was revised in October 2020 to align the corresponding wording with no change in conclusion
6 As a consequence of the amendments to HKFRS 17 issued in October 2020, HKFRS 4 was amended to extend the temporary exemption that permits insurers to apply HKAS 39 rather than HKFRS 9 for annual periods beginning before 1 January 2023

Further information about those HKFRSs that are expected to be applicable to the Group is described below.

Amendments to HKFRS 3 are intended to replace a reference to the previous Framework for the Preparation and Presentation of Financial Statements with a reference to the Conceptual Framework for Financial Reporting issued in June 2018 without significantly changing its requirements. The amendments also add to HKFRS 3 an exception to its recognition principle for an entity to refer to the Conceptual Framework to determine what constitutes an asset or a liability. The exception specifies that, for liabilities and contingent liabilities that would be within the scope of HKAS 37 or HK(IFRIC)-Int 21 if they were incurred separately rather than assumed in a business combination, an entity applying HKFRS 3 should refer to HKAS 37 or HK(IFRIC)-Int 21 respectively instead of the Conceptual Framework. Furthermore, the amendments clarify that contingent assets do not qualify for recognition at the acquisition date. The Group expects to adopt the amendments prospectively from 1 January 2022. Since the amendments apply prospectively to business combinations for which the acquisition date is on or after the date of first application, the Group will not be affected by these amendments on the date of transition.

Ascletis PhArmA inc. 2020 AnnuAl rePort 115

Notes to Financial Statements

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

Amendments to HKFRS 10 and HKAS 28 (2011) address an inconsistency between the requirements in HKFRS 10 and in HKAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The amendments require a full recognition of a gain or loss when the sale or contribution of assets between an investor and its associate or joint venture constitutes a business. For a transaction involving assets that do not constitute a business, a gain or loss resulting from the transaction is recognised in the investor’s profit or loss only to the extent of the unrelated investor’s interest in that associate or joint venture. The amendments are to be applied prospectively. The previous mandatory effective date of amendments to HKFRS 10 and HKAS 28 (2011) was removed by the HKICPA in January 2016 and a new mandatory effective date will be determined after the completion of a broader review of accounting for associates and joint ventures. However, the amendments are available for adoption now.

Amendments to HKAS 1 clarify the requirements for classifying liabilities as current or non-current. The amendments specify that if an entity’s right to defer settlement of a liability is subject to the entity complying with specified conditions, the entity has a right to defer settlement of the liability at the end of the reporting period if it complies with those conditions at that date. Classification of a liability is unaffected by the likelihood that the entity will exercise its right to defer settlement of the liability. The amendments also clarify the situations that are considered a settlement of a liability. The amendments are effective for annual periods beginning on or after 1 January 2023 and shall be applied retrospectively. Earlier application is permitted. The amendments are not expected to have any significant impact on the Group’s financial statements.

Amendments to HKAS 16 prohibit an entity from deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling any such items, and the cost of those items, in profit or loss. The amendments are effective for annual periods beginning on or after 1 January 2022 and shall be applied retrospectively only to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments. Earlier application is permitted. The amendments are not expected to have any significant impact on the Group’s financial statements.

Amendments to HKAS 37 clarify that for the purpose of assessing whether a contract is onerous under HKAS 37, the cost of fulfilling the contract comprises the costs that relate directly to the contract. Costs that relate directly to a contract include both the incremental costs of fulfilling that contract (e.g., direct labour and materials) and an allocation of other costs that relate directly to fulfilling that contract (e.g., an allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract as well as contract management and supervision costs). General and administrative costs do not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract. The amendments are effective for annual periods beginning on or after 1 January 2022 and shall be applied to contracts for which an entity has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments. Earlier application is permitted. Any cumulative effect of initially applying the amendments shall be recognised as an adjustment to the opening equity at the date of initial application without restating the comparative information. The amendments are not expected to have any significant impact on the Group’s financial statements.

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Notes to Financial Statements

2.3 ISSUED BUT NOT YET EFFECTIVE HONG KONG FINANCIAL REPORTING STANDARDS (Continued)

Annual Improvements to HKFRSs 2018-2020 sets out amendments to HKFRS 1, HKFRS 9, Illustrative Examples accompanying HKFRS 16, and HKAS 41. Details of the amendments that are expected to be applicable to the Group are as follows:

HKFRS 9 Financial Instruments: clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual periods beginning on or after 1 January 2022. Earlier application is permitted. The amendment is not expected to have a significant impact on the Group’s financial statements.
HKFRS 16 Leases: removes the illustration of payments from the lessor relating to leasehold improvements in Illustrative Example 13 accompanying HKFRS 16. This removes potential confusion regarding the treatment of lease incentives when applying HKFRS 16.

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments in an associate

An associate is an entity in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

The Group’s investment in an associate is stated in the consolidated statement of financial position at the Group’s share of net assets under the equity method of accounting, less any impairment losses.

The Group’s share of the post-acquisition results and other comprehensive income of associates and joint ventures is included in the consolidated statement of profit or loss and consolidated other comprehensive income, respectively. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associate are eliminated to the extent of the Group’s investment in the associate, except where unrealised losses provide evidence of an impairment of the assets transferred. Goodwill arising from the acquisition of an associate is included as part of the Group’s investment in associate.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investments in an associate (Continued)

If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.

When an investment in an associate is classified as held for sale, it is accounted for in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

Fair value measurement

The Group measures its investments at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1 – based on quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly
Level 3 – based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair value measurement (Continued)

For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

Impairment of non-financial assets

Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories and financial assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the statement of profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset.

An assessment is made at the end of the year as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the statement of profit or loss in the period in which it arises.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Related parties

A party is considered to be related to the Group if:

(a) the party is a person or a close member of that person’s family and that person
(i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group;

(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Group are joint ventures of the same third party;
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
(vi) the entity is controlled or jointly controlled by a person identified in (a);
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and
(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the statement of profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.

Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:

Plant and machinery	9.50% to 33.33%
Motor vehicles	19.00% to 25.00%
Office equipment	19.00% to 33.33%
Leasehold improvements	20.00% to 34.78%

Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.

An item of property, plant and equipment including any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the statement of profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents plants under construction, which are stated at cost less any impairment losses, and are not depreciated. Cost comprises the direct costs of construction during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Intangible assets (other than goodwill)

Intangible assets acquired separately are measured on initial recognition at cost. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end.

Intangible assets are stated at cost less impairment and are amortised on the straight-line basis over the following useful economic lives:

Software	3	to 5 years
Intellectual property	10	to17 years

Research and development costs

All research costs are charged to the statement of profit or loss as incurred.

Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred.

Leases

The Group assesses at contract inception whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

Group as a lessee

The Group applies a single recognition and measurement approach for all leases, except for short-term leases. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Leases (Continued)

Group as a lessee (Continued)

(a) Right-of-use assets

Right-of-use assets are recognised at the commencement date of the lease (that is the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and any impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease terms and the estimated useful lives of the assets as follows:

Office premises and staff dormitories 2 to 3 years

If ownership of the leased asset transfers to the Group by the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset.

(b) Lease liabilities

Lease liabilities are recognised at the commencement date of the lease at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for termination of a lease, if the lease term reflects the Group exercising the option to terminate the lease. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period in which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in lease payments (e.g., a change to future lease payments resulting from a change in an index or rate) or a change in assessment of an option to purchase the underlying asset.

(c) Short-term leases

The Group applies the short-term lease recognition exemption to its short-term leases of staff dormitories (that is those leases that have a lease term of 12 months and do not contain a purchase option).

Lease payments on short-term leases are recognised as an expense on a straight-line basis over the lease term.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investments and other financial assets

Initial recognition and measurement

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient of not adjusting the effect of a significant financing component, the Group initially measures a financial asset at its fair value, plus in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component or for which the Group has applied the practical expedient are measured at the transaction price determined under HKFRS 15 in accordance with the policies set out for “Revenue recognition” below.

In order for a financial asset to be classified and measured at amortised cost or fair value through other comprehensive income, it needs to give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.

The Group’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortised cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows, while financial assets classified and measured at fair value through other comprehensive income are held within a business model with the objective of both holding to collect contractual cash flows and selling. Financial assets which are not held within the aforementioned business models are classified and measured at fair value through profit or loss.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.

Subsequent measurement

The subsequent measurement of financial assets depends on their classification as follows:

Financial assets at amortised cost (debt instruments)

Financial assets at amortised cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses are recognised in the statement of profit or loss when the asset is derecognised, modified or impaired.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investments and other financial assets (Continued)

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value recognised in the statement of profit or loss.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognised (i.e., removed from the Group’s consolidated statement of financial position) when:

the rights to receive cash flows from the asset have expired; or
the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risk and rewards of ownership of the asset. When it has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the Group continues to recognise the transferred asset to the extent of the Group’s continuing involvement. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Impairment of financial assets

The Group recognises an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. 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, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of financial assets (Continued)

General approach

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

At each reporting date, the Group assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When making the assessment, the Group compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and considers reasonable and supportable information that is available without undue cost or effort, including historical and forward-looking information.

The Group considers a financial asset in default when contractual payments are 60 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. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Financial assets at amortised cost are subject to impairment under the general approach and they are classified within the following stages for measurement of ECLs except for trade receivables which apply the simplified approach as detailed below.

Stage 1 – Financial instruments for which credit risk has not increased significantly since initial recognition and for which the loss allowance is measured at an amount equal to 12-month ECLs
Stage 2 – Financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-impaired financial assets and for which the loss allowance is measured at an amount equal to lifetime ECLs
Stage 3 – Financial assets that are credit-impaired at the reporting date (but that are not purchased or originated credit-impaired) and for which the loss allowance is measured at an amount equal to lifetime ECLs

Simplified approach

For trade receivables that do not contain a significant financing component or when the Group applies the practical expedient of not adjusting the effect of a significant financing component, the Group applies the simplified approach in calculating ECLs. Under the simplified approach, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forwardlooking factors specific to the debtors and the economic environment.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition as payables.

All financial liabilities are recognised initially at fair value and, in the case of payables, net of directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, accruals and lease liabilities.

Subsequent measurement

The subsequent measurement of financial liabilities depends on their classification as follows:

Financial liabilities at amortised cost (payables)

After initial recognition, payables are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the statement of profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the statement profit or loss.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the statement of profit or loss.

Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Treasury shares

Own equity instruments which are reacquired and held by the Company or the Group (treasury shares) are recognised directly in equity at cost. No gain or loss is recognised in the statement of profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, and form an integral part of the Group’s cash management.

For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which are not restricted as to use.

Provisions

A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the statement of profit or loss.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the year, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the year between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognised for all taxable temporary differences, except:

when the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, and the carryforward of unused tax credits and any unused tax losses. Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised, except:

when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at the end of the year and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of the year and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income tax (Continued)

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the year.

Deferred tax assets and deferred tax liabilities are offset if and only if the Group has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

Government grants

Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, for which it is intended to compensate, are expensed.

Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the statement of profit or loss over the expected useful life of the relevant asset by equal annual instalments or deducted from the carrying amount of the asset and released to the statement of profit or loss by way of a reduced depreciation charge.

Revenue recognition

Revenue from contracts with customers

Revenue from contracts with customers is recognised when control of goods or services is transferred to the customers at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services.

When the consideration in a contract includes a variable amount, the amount of consideration is estimated to which the Group will be entitled in exchange for transferring the goods or services to the customer. The variable consideration is estimated at contract inception and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue recognition (Continued)

Revenue from contracts with customers (Continued)

When the contract contains a financing component which provides the customer with a significant benefit of financing the transfer of goods or services to the customer for more than one year, revenue is measured at the present value of the amount receivable, discounted using the discount rate that would be reflected in a separate financing transaction between the Group and the customer at contract inception. When the contract contains a financing component which provides the Group with a significant financial benefit for more than one year, revenue recognised under the contract includes the interest expense accreted on the contract liability under the effective interest method. For a contract where the period between the payment by the customer and the transfer of the promised goods or services is one year or less, the transaction price is not adjusted for the effects of a significant financing component, using the practical expedient in HKFRS 15.

(a) Sale of products

Revenue from the sale of products is recognised at the point in time when control of the asset is transferred to the customer, generally on acceptance of the products.

(b) Collaboration revenue

Licences of intellectual property

In assessing whether a licence is distinct from the other promises, the Group considers factors such as the research, development, manufacturing and commercialisation capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, the Group considers whether the counterparty can benefit from a licence for its intended purpose without the receipt of the remaining promise(s) by considering whether the value of the licence is dependent on the unsatisfied promise(s), whether there are other vendors that could provide the remaining promise(s), and whether it is separately identifiable from the remaining promise(s). For licences that are combined with other promises, the Group utilises judgement to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognising revenue.

The Group presents a contract liability or a contract asset in its consolidated statement of financial position when either party to the contract has performed. The Group performs by transferring goods or services to the collaboration partner, and the collaboration partner performs by paying consideration to the Group.

Any unconditional rights to consideration are presented separately as trade receivables.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Revenue recognition (Continued)

Revenue from contracts with customers (Continued)

Transaction price is derived from fee based on a percentage of the customer’s sales, and the performance obligation is not satisfied until the customer’s sales occur. Accordingly, revenue from the provision of promotion services is recognised at a point in time, generally when the customer’s sales occur.

Other income

Interest income is recognised on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset.

Dividend income is recognised when the shareholders’ right to receive payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably.

Refund liabilities

A refund liability is recognised for the obligation to refund some or all of the consideration received (or receivable) from a customer and is measured at the amount the Group ultimately expects it will have to return to the customer. The Group updates its estimates of refund liabilities (and the corresponding change in the transaction price) at the end of each reporting period.

Share-based payments

The Group operates a share award for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Employees of the Group receive remuneration in the form of share-based payments, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an external valuer using an binomial model, further details of which are given in note 27 to the financial statements.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Share-based payments (Continued)

The cost of equity-settled transactions is recognised in employee benefit expense, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at the end of each of the year until the vesting date reflects the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the statement of profit or loss for a period represents the movement in the cumulative expense recognised as at the beginning and end of that period.

Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions.

For awards that do not ultimately vest because non-market performance and/or service conditions have not been met, no expense is recognised. Where awards include a market or non-vesting condition, the transactions are treated as vesting irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.

Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified, if the original terms of the award are met. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payments, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the Group or the employee are not met. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Other employee benefits

Pension scheme

The employees of the Group’s subsidiaries which operate in Mainland China are required to participate in a central pension scheme operated by the local municipal government. The subsidiaries operating in Mainland China are required to contribute a certain percentage of their payroll costs to the central pension scheme. The contributions are charged to the statement of profit or loss as they become payable in accordance with the rules of the central pension scheme.

Dividends

Final dividends are recognised as a liability when they are approved by the shareholders in a general meeting.

Interim dividends are simultaneously proposed and declared, because the Company’s memorandum and articles of association grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised immediately as a liability when they are proposed and declared.

Foreign currencies

These financial statements are presented in RMB as the major operations of the Group are within the PRC. The functional currency of the Company and certain subsidiaries incorporated outside Mainland China is the US$ and the functional currency of the subsidiaries established in Mainland China is RMB, which is the currency of the primary economic environment in which those entities operate. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the year. Differences arising on settlement or translation of monetary items are recognised in the statement of profit or loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively).

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Notes to Financial Statements

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Foreign currencies (Continued)

In determining the exchange rate on initial recognition of the related asset, expense or income on the derecognition of a non-monetary asset or non-monetary liability relating to an advance consideration, the date of initial transaction is the date on which the Group initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Group determines the transaction date for each payment or receipt of the advance consideration.

The functional currencies of the Company and an overseas subsidiary are currencies other than the RMB. As at the end of the year, the assets and liabilities of the Company and an overseas subsidiary are translated into RMB at the exchange rates prevailing at the end of the year and their statements of profit or loss are translated into RMB at the weighted average exchange rates for the year.

The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the statement of profit or loss.

For the purpose of the consolidated statement of cash flows, the cash flows of the non-PRC established subsidiaries are translated into RMB at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of the non-PRC established companies which arise throughout the year are translated into RMB at the weighted average exchange rates for the year.

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and their accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

There is no significant effect on the amounts recognised in the Group’s financial statements arising from the judgements, apart from those involving estimations, made by management in the process of applying the Group’s accounting policies.

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Notes to Financial Statements

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued)

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

Write-down of inventories to net realisable value

Write-down of inventories to net realisable value is made for those identified obsolete and slow-moving inventories and inventories with a carrying amount higher than net realisable value. The assessment of the provision required involves management’s judgement and estimates on which are influenced by assumptions concerning future sales and usage and judgements in determining the appropriate level of inventory provisions against identified surplus or obsolete items. Where the actual outcome or expectation in future is different from the original estimate, such differences will have an impact on the carrying amounts of inventories and the write-down/write-back of inventories in the period in which such estimate has been changed. At 31 December 2020, the carrying amount of inventories was RMB58,894,000 (2019: RMB86,039,000).

Deferred tax assets

Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time and it is not considered probable that taxable profits will be available against which the tax losses can be utilised. Further details are included in note 24 to the financial statements.

Useful lives of intangible assets

The Group’s finite life intangible assets primarily represent patents transferred from third parties. These intangible assets are amortised on a straight-line basis over their useful economic lives, which are estimated to be the patent life. If the Group’s estimate of the duration of sale of the product is shorter than the patent life, then the shorter period is used. Additional amortisation is recognised if the estimated useful lives of patents are different from the previous estimation. Useful lives are reviewed at the end of the year based on changes in circumstances.

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Notes to Financial Statements

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (Continued)

Estimation uncertainty (Continued)

Useful lives and residual values of property, plant and equipment

In determining the useful lives and residual values of items of property, plant and equipment, the Group has to consider various factors, such as technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the asset, expected usage of the asset, expected physical wear and tear, the care and maintenance of the asset and the legal or similar limits on the use of the asset. The estimation of the useful life of the asset is based on the experience of the Group with similar assets that are used in a similar way.

Additional depreciation is recognised if the estimated useful lives and/or the residual values of items of property, plant and equipment are different from the previous estimation. Useful lives and residual values are reviewed at each financial year end date based on changes in circumstances.

Leases – Estimating the incremental borrowing rate

The Group cannot readily determine the interest rate implicit in a lease, and therefore, it uses an incremental borrowing rate (“IBR”) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group “would have to pay”, which requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when it needs to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group estimates the IBR using observable inputs (such as market interest rates) when available.

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Notes to Financial Statements

4. OPERATING SEGMENT INFORMATION

Management monitors the operating results of the Group’s operating segment as a whole for the purpose of making decisions about resource allocation and performance assessment.

Geographical information

(a) Revenue from external customers

	2020 RMB’ 000	2019 RMB’ 000
Mainland China Other country Total	35,001 – 35,001	172,057 1,386 173,443

The revenue information above is based on the locations of the customers.

(b) Non-current assets

	2020 RMB’ 000	2019 RMB’ 000
Mainland China British Virgin Islands Cayman Islands Total	164,360 60,915 11,810 237,085	161,123 58,109 14,581 233,813

The non-current asset information above is based on the locations of assets.

Information about a major customer

Revenue of RMB64,603,000 (2019: RMB47,638,000) was derived from the rendering of promotion services to a single customer during the year.

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Notes to Financial Statements

5. REVENUE, OTHER INCOME AND GAINS

An analysis of revenue is as follows:

		2020	2019
		RMB’ 000	RMB’ 000
Revenue from contracts with customers		35,001	173,443
Revenue from contracts with customers
(i)	Disaggregation of revenue information
		2020	2019
		RMB’ 000	RMB’ 000
	Types of goods or services
	– Sale of products	(29,602)	124,419
	– Rendering of promotion services	64,603	47,638
	– Collaboration revenue	–	1,386
	Total revenue from contracts with customers	35,001	173,443
		2020	2019
		RMB’ 000	RMB’ 000
	Timing of revenue recognition
	At a point in time
	– Sale of products	(29,602)	124,419
	– Rendering of promotion services	64,603	47,638
	– Collaboration revenue	–	1,386
	Total revenue from contracts with customers	35,001	173,443
		2020	2019
		RMB’ 000	RMB’ 000
	Geographical markets
	Mainland China
	– Sale of products	(29,602)	124,419
	– Rendering of promotion services	64,603	47,638
	Other country
	– Collaboration revenue	–	1,386
	Total revenue from contracts with customers	35,001	173,443

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Notes to Financial Statements

5. REVENUE, OTHER INCOME AND GAINS (Continued)

Revenue from contracts with customers (Continued)

(i) Disaggregation of revenue information (Continued)

The following table shows the amount of revenue recognised during the reporting period that was included in the contract liabilities at the beginning of the reporting period and recognised from performance obligations satisfied in previous periods:

	2020	2019
	RMB’ 000	RMB’ 000
Revenue recognised that was included in contract
liabilities at the beginning of the reporting period:
Sale of products	–	230

(ii) Performance obligations

Information about the Group’s performance obligations is summarised below:

Sale of products

The performance obligation is satisfied upon acceptance of the products and payment is generally due within 30 to 180 days from acceptance.

Promotion services

The performance obligation is satisfied at a point in time when the customer’s sales occur and payment is generally due within 60 days from the date of billing.

Collaboration revenue

The performance obligation is satisfied over time or at a point in time as output generated from the development activities is supplied to the collaboration partner or upon completion of services, and payment is generally due within 30 to 60 days from the date of billing.

	2020 RMB’ 000	2019 RMB’ 000
Other income and gains Government grants* Bank interest income Investment income from financial assets at fair value through profit or loss Foreign exchange gain, net Others	48,861 40,626 290 – 79 89,856	49,869 72,239 – 4,485 – 126,593

The government grants mainly represent subsidies received from the local governments for the purpose of compensation for expenses arising from research activities and clinical trials, awards for new drug development and capital expenditure incurred on certain projects.

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Notes to Financial Statements

6. LOSS BEFORE TAX

The Group’s loss before tax is arrived at after charging/(crediting):

Notes	2020 RMB’ 000	2019 RMB’ 000
Cost of inventories sold Cost of services provided Depreciation of items of property, plant and equipment 13 Depreciation of right-of-use assets 14(a) Amortisation of intangible assets 15 Write-down of inventories to net realisable value* Lease payments not included in the measurement of lease liabilities 14(c) Auditor’s remuneration Research and development costs Government grants Covid-19-related rent concessions from lessors 14(b) Donation Foreign exchange differences, net Impairment of an intangible asset 15 Impairment of trade receivables, net 18 Loss on disposal of items of property, plant and equipment Employee benefit expenses (excluding directors’ and chief executive’s remuneration (note 8)): Wages and salaries Pension scheme contributions Staff welfare expenses Equity-settled share award and option expense	27,734 30,764 12,611 2,210 12,342 45,518 19 2,190 109,099 (48,861) (292) 31,789 30,425 5,771 (79) 92 62,835 9,077 3,876 4,612 80,400	18,802 30,358 10,928 1,838 9,382 5,153 235 2,180 125,962 (49,869) – 57,871 (4,485) – 88 1,388 78,352 16,018 4,361 3,124 101,855

The amortisation of intangible assets is included in “Administrative expenses” and “Research and development costs” in the consolidated statement of profit or loss.

** The write-down of inventories to net realisable value of RMB45,518,000 for the year ended 31 December 2020 (2019: RMB5,153,000) is included in “Cost of sales” and “Other expenses” in the consolidated statement of profit or loss.

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Notes to Financial Statements

7. FINANCE COST

An analysis of finance costs is as follows:

	2020	2019
	RMB’ 000	RMB’ 000
Interest on lease liabilities	135	182

8. DIRECTORS’ AND CHIEF EXECUTIVE’S REMUNERATION

Directors’ and chief executive’s remuneration for the year, disclosed pursuant to the Listing Rules, section 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, is as follows:

	2020 RMB’ 000	2019 RMB’ 000
Fees Other emoluments: Salaries, bonuses, allowances and benefits in kind Pension scheme contributions	1,120 13,547 122 13,669 14,789	1,280 13,024 172 13,196 14,476

(a) Independent non-executive directors

The fees paid to independent non-executive directors during the year were as follows:

	2020 RMB’ 000	2019 RMB’ 000
Jiong GU Lin HUA Ru Rong JI* Yizhen WEI	320 320 160 320 1,120	320 320 320 320 1,280

Ru Rong JI resigned from his position as an independent non-executive director with effect from 30 June 2020.

There were no other emoluments payable to the independent non-executive directors during the year (2019: Nil).

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Notes to Financial Statements

8. DIRECTORS’ AND CHIEF EXECUTIVE’S REMUNERATION (Continued)

(b) Executive directors and the chief executive

	Salaries, bonuses, allowances and benefits in kind RMB’ 000	Pension scheme contributions RMB’ 000	Total remuneration RMB’ 000
2020 Executive directors: Jinzi Jason WU Judy Hejingdao WU 2019 Executive directors: Jinzi Jason WU Judy Hejingdao WU	11,407 2,140 13,547 10,852 2,172 13,024	61 61 122 86 86 172	11,468 2,201 13,669 10,938 2,258 13,196

Jinzi Jason WU was also the chief executive of the Company during the year.

There was no arrangement under which a director or the chief executive waived or agreed to waive any remuneration during the year.

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Notes to Financial Statements

9. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included two directors (2019: two directors), details of whose remuneration are set out in note 8 above. Details of the remuneration for the year of the remaining three (2019: three) highest paid employees who are neither a director nor chief executive of the Company are as follows:

	2020 RMB’ 000	2019 RMB’ 000
Salaries, bonus, allowances and benefits in kind Pension scheme contributions Equity-settled share award and option expense	6,290 63 1,822 8,175	5,266 88 76 5,430

The number of the non-director and non-chief executive highest paid employees whose remuneration fell within the following bands is as follows:

	Number of employees 2020 2019	Number of employees 2020 2019
Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000 HK$2,000,001 to HK$2,500,000 HK$2,500,001 to HK$3,000,000	– – 1 1 1 3	– 1 1 1 – 3

During the year and in prior years, shares and options were granted to non-director and non-chief executive highest paid employees in respect of their services to the Group, further details of which are included in the disclosures in note 27 to the financial statements. The fair value of such awarded shares and options, which has been recognised in the vesting period, was determined as at the date of grant and the amount included in the financial statements for the current year is included in the above non-director and non-chief executive highest paid employees’ remuneration disclosures.

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Notes to Financial Statements

10. 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.

Cayman Islands

Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains. In addition, upon payments of dividends by the Company to its shareholders, no Cayman Islands withholding tax is imposed.

British Virgin Islands

Under the current laws of the British Virgin Islands (“BVI”), PowerTree is not subject to tax on income or capital gains. In addition, upon payments of dividends by PowerTree to its shareholder, no BVI withholding tax is imposed.

Hong Kong

Under the current laws of the Hong Kong, the subsidiary in Hong Kong is subject to profit tax at a rate of 16.5% (2019: 16.5%) on the estimated assessable profits arising in Hong Kong. During the year, no provision for profit tax has been made as the subsidiary did not generate any assessable profits in Hong Kong.

Mainland China

Pursuant to the Corporate Income Tax Law of the PRC and the respective regulations (the “CIT Law”), the subsidiaries which operate in Mainland China are subject to CIT at a rate of 25% (2019: 25%) on the taxable income. Preferential tax treatment is available to Ascletis Pharmaceuticals since it was recognised as a High and New Technology Enterprise, and it was entitled to a preferential tax rate of 15% (2019: 15%) during the year. Gannex Pharma, Ascletis Biopharma and Ascletis XinNuo are qualified as Small and Micro Enterprises and were subject to a preferential tax rate of 5% (2019: 5%) during the year.

The income tax credit of the Group for the year is analysed as follows:

	2020 RMB’ 000	2019 RMB’ 000
Current tax: Charge for the year Deferred tax (note 24) Total tax credit for the year	– – –	– – –

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Notes to Financial Statements

10. INCOME TAX (Continued)

Mainland China (Continued)

A reconciliation of the tax credit applicable to loss before tax at the statutory rate in Mainland China to the tax credit at the effective tax rate is as follows:

	2020 RMB’ 000	2019 RMB’ 000
Loss before tax At the PRC’s statutory income tax rate of 25% Effect of tax rate differences in other countries Preferential income tax rates enacted by local authority Effect of tax concessions and allowances Tax losses not recognised Expenses not deductible for tax Tax credit at the Group’s effective rate	(209,241) (52,310) 371 21,257 (10,625) 39,161 2,146 –	(95,969) (23,992) (1,877) 7,529 (17,054) 34,297 1,097 –

11. DIVIDENDS

The board does not recommend the payment of any dividend in respect for the year ended 31 December 2020 (2019: Nil).

12. LOSS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT

The calculation of the basic loss per share amounts is based on the loss for the year attributable to ordinary equity holders of the parent of RMB209,241,000 (2019: RMB95,969,000), and the weighted average number of ordinary shares of 1,040,055,731 (2019: 1,054,545,974) in issue during the year. The number of shares for the current year has been arrived at 1,100,662,000 after eliminating the shares repurchased.

No adjustment has been made to the basic loss per share amounts presented for the years ended 31 December 2019 and 2020 in respect of a dilution as the impact of the share award had an anti-dilutive effect on the basic loss per share amount presented.

The calculation of basic loss per share is based on:

	2020 RMB’ 000	2019 RMB’ 000
Loss Loss attributable to ordinary equity holders of the parent	(209,241) (95,969) Number of shares 2020 2019
Shares Weighted average number of shares in issue during the year	1,040,055,731 1,054,545,974

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Notes to Financial Statements

13. PROPERTY, PLANT AND EQUIPMENT

	Plant and	Motor	Office	Leasehold	Construction
	machinery	vehicles	equipment	improvements	in progress	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
31 December 2020
At 1 January 2020:
Cost	95,357	3,295	10,406	2,873	1,413	113,344
Accumulated depreciation	(13,311)	(1,489)	(3,573)	(477)	–	(18,850)
Net carrying amount	82,046	1,806	6,833	2,396	1,413	94,494
At 1 January 2020, net of
accumulated depreciation	82,046	1,806	6,833	2,396	1,413	94,494
Additions	852	–	720	–	3,350	4,922
Disposal	(36)	–	(62)	–	–	(98)
Depreciation provided
during the year	(9,401)	(607)	(2,013)	(590)	–	(12,611)
Transfers	337	–	275	–	(4,763)	(4,151)
At 31 December 2020, net of
accumulated depreciation	73,798	1,199	5,753	1,806	–	82,556
At 31 December 2020:
Cost	96,497	3,295	11,025	2,873	–	113,690
Accumulated depreciation	(22,699)	(2,096)	(5,272)	(1,067)	–	(31,134)
Net carrying amount	73,798	1,199	5,753	1,806	–	82,556

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Notes to Financial Statements

13. PROPERTY, PLANT AND EQUIPMENT (Continued)

	Plant and	Motor	Office	Leasehold	Construction
	machinery	vehicles	equipment	improvements	in progress	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
31 December 2019
At 1 January 2019:
Cost	83,798	3,174	5,238	1,235	3,520	96,965
Accumulated depreciation	(5,268)	(784)	(2,120)	(460)	–	(8,632)
Net carrying amount	78,530	2,390	3,118	775	3,520	88,333
At 1 January 2019, net of
accumulated depreciation	78,530	2,390	3,118	775	3,520	88,333
Additions	4,348	121	2,383	1,284	11,006	19,142
Disposal	(1,346)	–	–	(707)	–	(2,053)
Depreciation provided
during the year	(8,225)	(705)	(1,453)	(545)	–	(10,928)
Transfers	8,739	–	2,785	1,589	(13,113)	–
At 31 December 2019, net of
accumulated depreciation	82,046	1,806	6,833	2,396	1,413	94,494
At 31 December 2019:
Cost	95,357	3,295	10,406	2,873	1,413	113,344
Accumulated depreciation	(13,311)	(1,489)	(3,573)	(477)	–	(18,850)
Net carrying amount	82,046	1,806	6,833	2,396	1,413	94,494

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Notes to Financial Statements

14. LEASES

The Group as a lessee

The Group has lease contracts for various items of office premises and staff dormitories used in its operations. Leases of office premises and staff dormitories have lease terms between 2 and 3 years. Generally, the Group is restricted from assigning and subleasing the leased assets outside the Group.

(a) Right-of-use assets

The carrying amounts of the Group’s right-of-use assets and the movements during the year are as follows:

Office premises and staff dormitories RMB’ 000	Office premises and staff dormitories RMB’ 000
At 1 January 2019 Additions Depreciation charge (note 6) At 31 December 2019 and 1 January 2020 Additions Depreciation charge (note 6) At 31 December 2020	2,740 3,331 (1,838) 4,233 – (2,210) 2,023

(b) Lease liabilities

The carrying amount of lease liabilities and the movements during the year are as follows:

	2020 RMB’ 000	2019 RMB’ 000
Carrying amount at 1 January New leases Accretion of interest recognised during the year (note 7) Covid-19-related rent concessions from lessors (note 6) Payments Carrying amount at 31 December Analysed into: Current portion Non-current portion	3,813 – 135 (292) (2,069) 1,587 1,144 443	2,248 3,331 182 – (1,948) 3,813 2,226 1,587

The maturity analysis of lease liabilities is disclosed in note 33 to the financial statements.

As disclosed in note 2.2 to the financial statements, the Group has early adopted the amendment to HKFRS 16 and applied the practical expedient to all eligible rent concessions granted by the lessors for leases of certain office premises and staff dormitories during the year.

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Notes to Financial Statements

14. LEASES (Continued)

The Group as a lessee (Continued)

(c) The amounts recognised in profit or loss in relation to leases are as follows:

	2020 RMB’ 000	2019 RMB’ 000
Interest on lease liabilities Depreciation charge of right-of-use assets Expense relating to short-term leases (included in administrative expenses and research and development costs) Covid-19-related rent concessions from lessors Total amount recognised in profit or loss	135 2,210 19 (292) 2,072	182 1,838 235 – 2,255

(d) The total cash outflow for leases is disclosed in note 28(c) to the financial statements.

15. OTHER INTANGIBLE ASSETS

	Intellectual property RMB’ 000	Software RMB’ 000	Total RMB’ 000
31 December 2020 At 1 January 2020: Cost Accumulated amortisation Net carrying amount Cost at 1 January 2020, net of accumulated amortisation Additions Amortisation provided during the year (note 6) Impairment during the year (note 6) Exchange realignment At 31 December 2020 At 31 December 2020: Cost Accumulated amortisation and impairment Net carrying amount	95,549 (22,281) 73,268 73,268 29,622 (10,949) (5,771) (837) 85,333 123,591 (38,258) 85,333	3,133 (787) 2,346 2,346 4,416 (1,393) – – 5,369 7,549 (2,180) 5,369	98,682 (23,068) 75,614 75,614 34,038 (12,342) (5,771) (837) 90,702 131,140 (40,438) 90,702

During the year, an impairment loss of RMB5,771,000 was recognised in the consolidated statement of profit or loss as other expense, in respect of the intellectual property used for research and development purpose. The recoverable amount of the intellectual property was assessed to be zero since the related research and development project was ceased and the management estimated there is no other use.

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Notes to Financial Statements

15. OTHER INTANGIBLE ASSETS (Continued)

	Intellectual property RMB’ 000	Software RMB’ 000	Total RMB’ 000
31 December 2019 At 1 January 2019: Cost Accumulated amortisation Net carrying amount Cost at 1 January 2019, net of accumulated amortisation Additions Amortisation provided during the year (note 6) Exchange realignment At 31 December 2019 At 31 December 2019: Cost Accumulated amortisation Net carrying amount INVESTMENT IN AN ASSOCIATE	88,154 (13,330) 74,824 74,824 7,000 (8,802) 246 73,268 95,549 (22,281) 73,268	785 (207) 578 578 2,348 (580) – 2,346 3,133 (787) 2,346 2020 RMB’ 000	88,939 (13,537) 75,402 75,402 9,348 (9,382) 246 75,614 98,682 (23,068) 75,614 2019 RMB’ 000
Share of net assets 35,459 32,187 Goodwill on acquisition 25,456 25,922 60,915 58,109 Particular of the associate is as follow: Name Particulars of issued shares held Place of incorporation and business Percentage of ownership interest attributable to the Group Principal activity
Sagimet Bioscience Inc. (“Sagimet”) Preferred stock United States of America 10.56 Research and development of pharmaceutical products

16. INVESTMENT IN AN ASSOCIATE

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Notes to Financial Statements

16. INVESTMENT IN AN ASSOCIATE (Continued)

The Group’s shareholding in this associate comprise equity shares held through a wholly-owned subsidiary of the Company. On 21 December 2020, AP11 Limited, a wholly-owned subsidiary of the Company, entered into a stock purchase agreement with Sagimet, pursuant to which AP11 Limited agreed to invest additional US$3,000,000 in cash to participate in the Sagimet’s crossover financing totaling US$80,000,000 with other new investors and existing investors. The initial closing of Sagimet’s crossover financing was closed on the same date and upon the closing, AP11 Limited holds approximately 10.56% of the equity interest in Sagimet. The Group’s investment in Sagimet is accounted for under the equity method of accounting because the Group has significant influence over Sagimet by way of representation on the board of directors and participation in the policymaking process for the year ended 31 December 2020, despite the fact that the Group’s direct equity interest in Sagimet was lower than 20%.

Sagimet, which is considered a material associate of the Group, is a strategic partner of the Group engaged in research and development of pharmaceutical products.

The following table illustrates the summarised financial information in respect of Sagimet adjusted for any differences in accounting policies and reconciled to the carrying amount in the consolidated financial statements:

	2020 RMB’ 000	2019 RMB’ 000
Current assets Non-current assets, excluding goodwill Goodwill on acquisition of the associate Current liabilities Non-current liabilities Net assets Net assets, excluding goodwill Reconciliation to the Group’s interest in the associate: Proportion of the Group’s ownership Group’s share of net assets of the associate, excluding goodwill Goodwill on acquisition Carrying amount of the investment Revenue Loss for the year Total comprehensive loss for the year INVENTORIES	448,507 789,166 65,418 (12,090) (235,539) 1,055,462 990,044 10.56% 35,459 25,456 60,915 – 96,073 96,073 2020 RMB’ 000	77,301 216,326 170,989 (16,003) (65,309) 383,304 212,315 15.16% 32,187 25,922 58,109 – 79,059 79,059 2019 RMB’ 000
Raw materials Work in progress Finished goods	32,601 7,871 18,422 58,894	60,468 20,408 5,163 86,039

17. INVENTORIES

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Notes to Financial Statements

18. TRADE AND BILLS RECEIVABLES

	2020 RMB’ 000	2019 RMB’ 000
Trade receivables Bills receivable Impairment	26,629 – 26,629 (9) 26,620	68,485 1,128 69,613 (88) 69,525

The Group’s trading terms with its customers are mainly on credit. The credit period is generally 30 days to 180 days. The Group seeks to maintain strict control over its outstanding receivables and overdue balances are reviewed regularly by senior management. In view of the before mentioned 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.

An ageing analysis of the trade receivables as at the end of the reporting period, based on the invoice date and net of loss allowance, is as follows:

			2020	2019
			RMB’ 000	RMB’ 000
Less than	3	months	26,620	68,397

The Group’s bills receivable were aged within six months and were neither past due nor impaired.

The movement in the loss allowance for impairment of trade receivables is as follows:

	2020 RMB’ 000	2019 RMB’ 000
At beginning of year Impairment losses, net (note 6) At end of year	88 (79) 9	– 88 88

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions.

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Notes to Financial Statements

18. TRADE AND BILLS RECEIVABLES (Continued)

Set out below is the information about the credit risk exposure on the Group’s trade receivables using a provision matrix:

As at 31 December 2020

Current	Past due Less than 3 to 6 over 3 months months 6 months Total
Expected credit loss rate 0.03% Gross carrying amount (RMB’ 000) 26,629 Expected credit losses (RMB’ 000) 9	– – – 0.03% – – – 26,629 – – – 9

As at 31 December 2019

Current	Past due Less than 3 to 6 over 3 months months 6 months Total
Expected credit loss rate 0.13% Gross carrying amount (RMB’ 000) 68,485 Expected credit losses (RMB’ 000) 88	– – – 0.13% – – – 68,485 – – – 88

19. PREPAYMENTS, OTHER RECEIVABLES AND OTHER ASSETS

	2020 RMB’ 000	2019 RMB’ 000
Value-added tax recoverable Prepayments Deposits and other receivables Interest receivable Prepaid expenses Prepaid income tax	19,703 3,437 2,209 1,904 1,846 1,363 30,462	13,225 7,686 4,788 18,899 1,885 1,363 47,846

Other receivables mainly represent rental and other deposits. An impairment analysis is performed at each reporting date by applying an expected credit loss rate approach with reference to the historical loss record of the Group. The loss rate is adjusted to reflect the current conditions and forecasts of future economic conditions. As at 31 December 2020 and 2019, the expected credit loss rate was close to zero.

The financial assets included in the above balances are non-interest-bearing, unsecured and repayable on demand and relate to receivables for which there was no recent history of default and past due amounts. As at 31 December 2020 and 2019, the loss allowance was assessed to be minimal.

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Notes to Financial Statements

20. CASH AND CASH EQUIVALENTS

	2020 RMB’ 000	2019 RMB’ 000
Cash and bank balances Time deposits Cash and cash equivalents Denominated in RMB Denominated in US$ Denominated in HK$ Denominated in other currencies Cash and cash equivalents	1,256,267 1,457,744 2,714,011 600,126 2,097,638 16,241 6 2,714,011	167,982 2,821,182 2,989,164 475,320 2,497,054 16,784 6 2,989,164

The RMB is not freely convertible into other currencies, however, under Mainland China’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. Time deposits are made for varying periods of between one day and twelve months depending on the immediate cash requirements of the Group, and earn interest at the respective time deposit rates. The bank balances and time deposits are deposited with creditworthy banks with no recent history of default.

21. TRADE AND BILLS PAYABLES

	2020 RMB’ 000	2019 RMB’ 000
Trade payables Bills payable	334 596 930	3,961 2,682 6,643

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

	2020 RMB’ 000	2019 RMB’ 000
Within 1 month 1 to 3 months 3 to 6 months	334 596 – 930	3,933 28 2,682 6,643

The trade payables are non-interest-bearing and are normally settled within three months.

The maturity of the bills payable is within six months.

Ascletis PhArmA inc. 2020 AnnuAl rePort 155

Notes to Financial Statements

22. OTHER PAYABLES AND ACCRUALS

Note	2020 RMB’ 000	2019 RMB’ 000
Other payables (a) Payroll payable Accrued expenses Refund liabilities Taxes other than income tax	36,760 19,122 11,960 1,473 659 69,974	33,276 23,387 14,347 4,432 1,617 77,059

Note:

(a) Other payables are non-interest-bearing.

23. DEFERRED INCOME

	2020 RMB’ 000	2019 RMB’ 000
Government grants Current Non-current	1,724 11,207 12,931	1,724 12,931 14,655

The movements in government grants during the year are as follows:

	2020 RMB’ 000	2019 RMB’ 000
At beginning of year Grants received during the year Amount released At end of year Current Non-current	14,655 – (1,724) 12,931 1,724 11,207 12,931	12,944 12,020 (10,309) 14,655 1,724 12,931 14,655

The grants are related to the subsidies received from the government for the purpose of compensation for expenses arising from research activities and clinical trials, awards for its new drug development and capital expenditure incurred on certain projects.

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Notes to Financial Statements

24. DEFERRED TAX

The movements in deferred tax liabilities and assets during the year are as follows:

2020

Deferred tax liabilities

	Right-of-use assets RMB’ 000	Total RMB’ 000
At 1 January 2020 Deferred tax credited to profit or loss during the year Gross deferred tax liabilities at 31 December 2020 Deferred tax assets	785 (389) 396 Lease liabilities RMB’ 000	785 (389) 396 Total RMB’ 000
At 1 January 2020 Deferred tax charged to profit or loss during the year Gross deferred tax assets at 31 December 2020	785 (389) 396	785 (389) 396

2019

Deferred tax liabilities

	Right-of-use assets RMB’ 000	Total RMB’ 000
At 1 January 2019 Deferred tax charged to profit or loss during the year Gross deferred tax liabilities at 31 December 2019	231 554 785	231 554 785

Ascletis PhArmA inc. 2020 AnnuAl rePort 157

Notes to Financial Statements

24. DEFERRED TAX (Continued)

Deferred tax assets

	Lease liabilities RMB’ 000	Total RMB’ 000
At 1 January 2019 231 231 Deferred tax credited to profit or loss during the year 554 554 Gross deferred tax assets at 31 December 2019 785 785 For presentation purposes, certain deferred tax assets and liabilities have been offset in the statement of financial position. The following is an analysis of the deferred tax balances of the Group for financial reporting purposes: 2020 2019 RMB’ 000 RMB’ 000
Net deferred tax recognised in consolidated statement of financial position – –

For presentation purposes, certain deferred tax assets and liabilities have been offset in the statement of financial position. The following is an analysis of the deferred tax balances of the Group for financial reporting purposes:

The Group has tax losses arising in Mainland China of RMB762,867,000 (2019: RMB563,635,000) that will expire in one to five years for offsetting against future taxable profits.

Deferred tax assets have not been recognised in respect of these losses as they have arisen in subsidiaries that have been loss-making for some time and it is not considered probable that taxable profits will be available against which the tax losses can be utilised.

25. SHARE CAPITAL

	2020	2019
Authorised: 7,000,000,000 (2019: 7,000,000,000) ordinary shares of US$0.0001 each US$ Issued and fully paid: 1,100,662,000 (2019: 1,106,336,000) ordinary shares of US$0.0001 each US$ RMB	700,000 110,066 750,000	700,000 110,634 754,000

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Notes to Financial Statements

25. SHARE CAPITAL (Continued)

A summary of movements in the Company’s issued share capital, treasury shares and share premium is as follows:

Notes	Number of shares in issue	Share capital RMB’000	Treasury shares RMB’000	Share premium account RMB’000	Total RMB’000
At 1 January 2019, Shares repurchased (a) Shares cancelled (a) At 31 December 2019 and 1 January 2020 Shares repurchased (b) Shares cancelled (b) At 31 December 2020 Notes:	1,120,685,000 – (14,349,000) 1,106,336,000 – (5,674,000) 1,100,662,000	764 – (10) 754 – (4) 750	– (46,269) 46,269 – (19,601) 15,079 (4,522)	2,959,390 – (46,259) 2,913,131 – (15,075) 2,898,056	2,960,154 (46,269) – 2,913,885 (19,601) – 2,894,284

(a) The Company purchased 14,349,000 of its shares on the Stock Exchange for a total cash consideration of HK$51,508,000 (equivalent to approximately RMB46,269,000), which were cancelled on 31 December 2019.

(b) The Company purchased 7,554,000 of its shares on the Stock Exchange for a total cash consideration of HK$22,693,000 (equivalent to approximately RMB19,601,000), of which 5,674,000 shares were cancelled on 31 December 2020 (equivalent to approximately RMB15,079,000). The remaining of 1,880,000 shares were cancelled on 14 January 2021.

26. RESERVES

The amounts of the Group’s reserves and the movements therein for the year are presented in the consolidated statement of changes in equity of the Group.

Statutory reserve

In accordance with the Company Law of the PRC, the subsidiary of the Group which is a domestic enterprise is required to allocate 10% of its profit after tax, as determined in accordance with the relevant PRC GAAP, to its statutory surplus reserve until the reserve reaches 50% of its registered capital. Subject to certain restrictions set out in the Company Law of the PRC, part of the statutory surplus reserve may be converted to share capital, provided that the remaining balance after the capitalisation is not less than 25% of the registered capital.

Exchange fluctuation reserve

The exchange fluctuation reserve is used to record exchange differences arising from the translation of the financial statements of entities of which the functional currency is not the RMB.

Ascletis PhArmA inc. 2020 AnnuAl rePort 159

Notes to Financial Statements

27. SHARE AWARD

Restricted Stock Unit Scheme

On 14 July 2016, Zande Investment and Management LLP (“Zande”) entered into an equity interest subscription agreement with PowerTree, pursuant to which Zande subscribed for approximately 2.44% equity interest in Ascletis BioScience for a cash consideration of US$312,220. Subsequently on 2 August 2016, Zande, Hangzhou Zanqin Investment and Management LLP (“Zanqin”), Hangzhou Zanwei Investment and Management LLP (“Zanwei”) and Hangzhou Zanfang Investment and Management LLP (“Zanfang”) (collectively, the “PRC Share Incentive Entities”) and PowerTree entered into an equity interest subscription agreement with Ascletis BioScience, pursuant to which Zanqin, Zanwei, Zanfang, Zande and PowerTree agreed to subscribe for approximately 1.18%, 1.18%, 1.18%, 0.25% and 10.08% equity interest in Ascletis BioScience, respectively, at cash consideration of RMB2,319,581, RMB2,319,581, RMB2,319,581, RMB497,045 and US$3,133,689, respectively. The considerations were determined based on fair market value at that time. The purpose to establish the PRC Share Incentive Entities was to reserve equity interest for future employee incentive plans. Ms. Heying YANG, being a supervisor of Ascletis BioScience and the mother of a director, as the general partner, and the Group’s employees, each as a limited partner, subscribed for equity interest in Zanqin and Zanwei by way of entering into partnership agreement.

On 15 March 2018, JJW11 Limited was incorporated in the BVI. The purpose for its incorporation is to set up an offshore share incentive platform to replace the PRC Share Incentive Entities and to hold incentive shares for the participants of the employee incentive plans. For any participant who had subscribed for equity interest in the PRC Share Incentive Entities, the amount of the award is determined based on his/her previous interest in such PRC Share Incentive Entities. There is no significant change to the terms of the employee incentive plans.

The employees of the Group shall not have any right to receive any shares awarded to them and all other interest attributable thereto unless and until the shares have transferred the legal and beneficial ownership of such awarded shares to them and the legal and beneficial ownership of those awarded shares vested in them. When the participant ceased to be the Group’s employee, the unvested shares would be retained by the partnerships.

The fair value of services received in return for shares granted is measured by reference to the fair value of shares granted. The fair value of the shares granted is measured at the grant date at the market value of the shares and is determined using an option pricing model, adjusted for the exclusion of expected dividends to be received in the vesting period.

Pursuant to share award on 9 July 2016, equity interest in Ascletis BioScience was granted to a selected employee at a consideration of RMB100,000 and the earliest vesting date is 9 July 2021. There is no other performance target required except the eligible participant remains as an employee of the Group during the vesting period.

Pursuant to share award on 21 December 2016, equity interest in Ascletis BioScience was granted to 5 selected employees at a total consideration of RMB319,000 and the earliest vesting date is 21 December 2021. There is no other performance target required except the eligible participant remains as an employee of the Group during the vesting period.

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Notes to Financial Statements

27. SHARE AWARD (Continued)

Restricted Stock Unit Scheme (Continued)

Pursuant to share award on 25 June 2017, equity interest in Ascletis BioScience was granted to 19 selected employees at a total consideration of RMB486,000 and the earliest vesting date is 25 June 2022. There is no other performance target required except the eligible participant remains as an employee of the Group during the vesting period.

Pursuant to share award on 18 December 2017, equity interest in Ascletis BioScience was granted to 67 selected employees at a total consideration of RMB2,750,000 and the earliest vesting date is 18 December 2022. There is no other performance target required except the eligible participant remains as an employee of the Group during the vesting period.

Pursuant to share award on 12 March 2018, equity interest in Ascletis BioScience was granted to a selected employee at a total consideration of RMB420,000 and the earliest vesting date is 12 March 2023. There is no other performance target required except the eligible participant remains as an employee of the Group during the vesting period.

During the year, share award expense of RMB(353,000) (2019: RMB2,956,000) was credited to the consolidated statement of profit or loss, which was mainly due to the impact of certain forfeited share award.

Restricted Stock Unit Option Incentive Scheme

The shareholder of the Company, JJW11 Limited, adopted a Restricted Stock Unit Option Incentive Scheme on 8 August 2018 (the “Scheme”). The purpose of the Scheme is to provide incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Scheme include senior management members who serve as directors, supervisors, presidents, vice presidents, financial managers and board secretaries at the Group as well as other core technical personnel, key personnel or other natural persons or entities that were or will be important to the development of the Group.

Subject to any early termination as may be determined by the board of directors in accordance with the rules of the Scheme, the Scheme shall be valid and effective for a term of twelve years commencing on the 8 August 2018 (the “Adoption Date”).

The director of JJW11 Limited (or its authorised person) (the “Option Manager”) shall have the full and absolute management right over the operation of the Scheme, including but not limited to the absolute discretion in matters such as the grant, vesting, exercise, cancellation and validity period of options.

The grantees shall only be entitled to the property rights expressly specified in the Scheme in relation to the restricted stock units acquired from the exercise of their options, and shall not be entitled to any voting rights or any other shareholders’ rights of JJW11 Limited and the Company. The Option Manager shall have the absolute right to exercise the voting rights attached to the Company’s shares held by JJW11 Limited and any other shareholders’ rights on behalf of JJW11 Limited.

Ascletis PhArmA inc. 2020 AnnuAl rePort 161

Notes to Financial Statements

27. SHARE AWARD (Continued)

Restricted Stock Unit Option Incentive Scheme (Continued)

Options granted to the grantees shall not be exercised within 3 years from the date of signing the option incentive agreement under the Scheme. 60% of the options granted shall become exercisable by the grantees between 3 years (inclusive of the 3rd anniversary) and 4 years (exclusive of the 4th anniversary) from the date of signing the option incentive agreement under the Scheme for the purchase of corresponding number of restricted stock units; 80% of the options granted shall become exercisable by the grantees between 4 years (inclusive of the 4th anniversary) and 5 years (exclusive of the 5th anniversary) from the date of signing the option incentive agreement under the Scheme for the purchase of corresponding number of restricted stock units; 100% of the options granted shall become exercisable by the grantees after 5 years (inclusive of the 5th anniversary) from the date of signing the option incentive agreement under the Scheme for the purchase of corresponding number of restricted stock units.

The option exercise price shall be agreed in writing at the time the grantees sign the option incentive agreement with JJW11 Limited, and the grantees may choose (a) to deliver the option exercise price to the Option Manager at the point when the options are exercised, and request the Option Manager to continue to manage the underlying restricted stock units associated with the exercised options, or (b) to deduct the option exercise price from the proceeds from the transfer of the underlying shares of the Company immediately following the exercise of the options.

The following share options were outstanding under the Scheme during the year:

2020 2019 Weighted average exercise price Number of options Weighted average exercise price Number of options HK$per share ’000 HK$per share ’000	2020 2019 Weighted average exercise price Number of options Weighted average exercise price Number of options HK$per share ’000 HK$per share ’000	2020 2019 Weighted average exercise price Number of options Weighted average exercise price Number of options HK$per share ’000 HK$per share ’000
At 1 January 3.2807 Granted during the year 3.2807 Forfeited during the year 3.2807 At 31 December 3.2807	660 3.2807 1,600 3.2807 (340) 3.2807 1,920 3.2807	1,357 600 (1,297) 660

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Notes to Financial Statements

27. SHARE AWARD (Continued)

Restricted Stock Unit Option Incentive Scheme (Continued)

The exercise prices and exercise periods of the share options outstanding as at the end of the reporting period are as follows:

2020

	Number of options Exercise price Exercise period ’ 000 HK$per share
90 3.2807 2022/9/30-2031/9/29 330 3.2807 2022/10/8-2031/10/7 1,500 3.2807 2023/3/31-2032/3/30 1,920 2019 Number of options Exercise price Exercise period ’ 000 HK$per share
	60 3.2807 2021/10/22-2030/10/21 60 3.2807 2022/2/25-2031/2/24 60 3.2807 2022/2/26-2031/2/25 60 3.2807 2022/6/30-2031/6/29 90 3.2807 2022/9/30-2031/9/29 330 3.2807 2022/10/8-2031/10/7 660

The fair value of the options granted during the year was HK$11,251,000 (HK$7.03 each) (2019: HK$6,766,000), of which the Group recognised a share option expense of RMB2,034,000 (2019: RMB168,000) during the year ended 31 December 2020.

The fair value of equity-settled share options granted during the year was estimated as at the date of grant using a binomial model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the model used:

	2020	2019
Dividend yield (%)	0.00	0.00
Expected volatility (%)	82.22	84.56 – 89.30
Risk-free interest rate (%)	0.77	1.34 – 1.76
Early exercise multiple	2.20 – 2.80	2.80
Weighted average share price (HK$ per share)	2.90	3.09 – 6.82
Forfeiture rate (%)	0.00	0.00

No other feature of the options granted was incorporated into the measurement of fair value.

Ascletis PhArmA inc. 2020 AnnuAl rePort 163

Notes to Financial Statements

27. SHARE AWARD (Continued)

Share Option Scheme

The Company has adopted a share option scheme (the “Share Option Scheme”) on 6 June 2019 for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the Share Option Scheme include the Company’s directors, including independent non-executive directors, other employees of the Group, suppliers of goods or services to the Group, customers of the Group, the Company’s shareholders, and any non-controlling shareholder in the Company’s subsidiaries. The Share Option Scheme became effective on 6 June 2019 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date.

The maximum aggregate number of unexercised share options currently permitted to be granted under the Share Option Scheme or any new share option scheme (the “New Scheme”) is an amount equivalent, upon their exercise, to 10% of the shares of the Company in issue at any time. The maximum number of shares issuable under share options to each eligible participant in the Share Option Scheme within any 12-month period is limited to 1% of the shares of the Company in issue at any time. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting. Notwithstanding the foregoing, the maximum aggregate number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other share option schemes of the Company, must not, in aggregate, exceed 30% of the total number of shares in issue from time to time. No options may be granted under the Share Option Scheme and any other share option schemes of the Company if this will result in such limit being exceeded.

Share options granted to a director, chief executive or substantial shareholder of the Company, or to any of their associates, are subject to approval in advance by the independent non-executive directors. In addition, any share options granted to a substantial shareholder or an independent non-executive director of the Company, or to any of their associates, in excess of 0.1% of the shares of the Company in issue at any time or with an aggregate value (based on the price of the Company’s shares at the date of grant) in excess of HK$5,000,000, within any 12-month period, are subject to shareholders’ approval in advance in a general meeting.

The Share Option Scheme does not stipulate either a minimum period for which an option must be held or any performance targets a Grantee is required to achieve before an option may be exercised. The board of the Company may specify in the offer letter any conditions which must be satisfied before the option may be exercised, including without limitation such performance targets (if any) and minimum periods for which an option must be held before it can be exercised and any other terms in relation to the exercise of the option, including without limitation such percentages of the options that can be exercised during a certain period of time, as the board of the Company may determine from time to time.

The exercise price of share options is determinable by the directors, but may not be less than the higher of (i) the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on the Offer Date, which must be a Business Day; (ii) the average of the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheets for the five Business Days immediately preceding the Offer Date; and (iii) the nominal value of the shares. No consideration is required upon acceptance of the grant of options.

Share options do not confer rights on the holders to dividends or to vote at shareholders’ meetings.

As at 31 December 2019, no option had been granted under the Share Option Scheme.

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Notes to Financial Statements

27. SHARE AWARD (Continued)

Share Option Scheme (Continued)

The following share options were outstanding under the Scheme during the year:

2020 Weighted average exercise price Number of options HK$per share ’ 000	2020 Weighted average exercise price Number of options HK$per share ’ 000
At 1 January – Granted during the year 2.90 Forfeited during the year 2.90 At 31 December 2.90	– 7,249 (328) 6,921

The exercise prices and exercise periods of the share options outstanding as at the end of the reporting period are as follows:

2020

	Number of options Exercise price Exercise period ’ 000 HK$per share
	4,921 2.90 2021/3/31-2030/3/30 2,000 2.87 2021/12/1-2030/11/30 6,921

The fair value of the options granted during the year was HK$14,877,000 (HK$2.05 each) (2019: Nil), of which the Group recognised a share option expense of RMB2,931,000 (2019: Nil) during the year ended 31 December 2020.

	2020
Dividend yield (%)	0.00
Expected volatility (%)	82.22 – 85.57
Risk-free interest rate (%)	0.75 – 0.78
Early exercise multiple	2.20 – 2.80
Weighted average share price (HK$ per share)	2.87 – 2.90
Forfeiture rate (%)	0.00

No other feature of the options granted was incorporated into the measurement of fair value.

Ascletis PhArmA inc. 2020 AnnuAl rePort 165

Notes to Financial Statements

28. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

(a) Major non-cash transactions

During the year, there were no non-cash additions to right-of-use assets and lease liabilities (2019: RMB3,331,000).

(b) Changes in liabilities arising from financing activities

2020

	Lease liabilities RMB’ 000
At 1 January 2020 and 31 December 2019 Change from financing cash flows Finance costs Covid-19-related rent concessions from lessors At 31 December 2020	3,813 (2,069) 135 (292) 1,587

2019

	Lease liabilities RMB’ 000
At 1 January 2019 Change from financing cash flows Finance costs New leases At 31 December 2019	2,248 (1,948) 182 3,331 3,813

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Notes to Financial Statements

28. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

(c) Total cash outflow for leases

The total cash outflow for leases included in the statement of cash flows is as follows:

	2020 RMB’ 000	2019 RMB’ 000
Within operating activities Within financing activities	19 2,069 2,088	235 1,948 2,183

29. COMMITMENTS

The Group had the following capital commitments at the end of the reporting period:

	2020	2019
	RMB’ 000	RMB’ 000
Contracted, but not provided for:
Plant and machinery	–	3,520

30. RELATED PARTY TRANSACTIONS

(a) The Group had the following transactions with a related party during the year ended 31 December 2019:

		2020	2019
	Note	RMB’ 000	RMB’ 000
An associate:
Purchase of products	(i)	–	212

Note:

(i) The purchase from an associate is determined at the price mutually agreed between the parties.

Ascletis PhArmA inc. 2020 AnnuAl rePort 167

Notes to Financial Statements

30. RELATED PARTY TRANSACTIONS (Continued)

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

	2020 RMB’ 000	2019 RMB’ 000
Short term employee benefits Pension scheme contributions Equity-settled share award and option expense Total compensation paid to key management personnel	20,077 186 1,957 22,220	20,058 289 254 20,601

Further details of directors’ and chief executive’s remuneration are included in note 8 to the financial statements.

31. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows:

2020

Financial assets

	Financial assets at amortised cost RMB’ 000	Total RMB’ 000
Trade and bills receivables Financial assets included in prepayments, other receivables and other assets Cash and cash equivalents	26,620 4,113 2,714,011 2,744,744	26,620 4,113 2,714,011 2,744,744

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Notes to Financial Statements

31. FINANCIAL INSTRUMENTS BY CATEGORY (Continued)

The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows: (Continued)

2020

Financial liabilities

	Financial liabilities at amortised cost RMB’ 000	Total RMB’ 000
Trade and bills payables Lease liabilities Financial liabilities included in other payables and accruals	930 1,587 48,720 51,237	930 1,587 48,720 51,237

2019

Financial assets

	Financial assets at amortised cost RMB’ 000	Total RMB’ 000
Trade and bills receivables Financial assets included in prepayments, other receivables and other assets Cash and cash equivalents	69,525 23,687 2,989,164 3,082,376	69,525 23,687 2,989,164 3,082,376

Financial liabilities

	Financial liabilities at amortised cost RMB’ 000	Total RMB’ 000
Trade and bills payables Lease liabilities Financial liabilities included in other payables and accruals	6,643 3,813 47,623 58,079	6,643 3,813 47,623 58,079

Ascletis PhArmA inc. 2020 AnnuAl rePort 169

Notes to Financial Statements

32. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

Fair values

All the carrying amounts of the Group’s financial instruments approximate to their fair values. Management has assessed that the fair values of cash and cash equivalents, trade and bills receivables, financial assets included in prepayments, other receivables and other assets, trade and bills payables and financial liabilities included in other payables and accruals approximate to their carrying amounts largely due to the short-term maturities of these instruments.

The Group’s finance department headed by the finance director is responsible for determining the policies and procedures for the fair value measurement of financial instruments. The finance department reports directly to the finance director. At each reporting date, the finance department 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 finance director. The valuation process and results are discussed with the directors once a year for 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 fair values of lease liabilities 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 changes in fair value as a result of the Group’s own nonperformance risk for lease liabilities as at 31 December 2019 and 2020 were assessed to be insignificant.

Fair value hierarchy

The Group did not have any financial assets or financial liabilities measured at fair value as at 31 December 2020 (2019: Nil).

During the year, 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 (2019: Nil).

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Notes to Financial Statements

33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments comprise cash and short term deposits. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as trade and bills receivables and trade and bills payables, which arise directly from its operations.

The main risks arising from the Group’s financial instruments are foreign currency risk, credit risk and liquidity risk. The directors review and agree policies for managing each of these risks and they are summarised below.

Foreign currency risk

Foreign currency risk is the risk of loss resulting from changes in foreign currency exchange rates. Fluctuations in exchange rates between RMB and other currencies in which the Group conducts business may affect the Group’s financial condition and results of operations. The Group seeks to limit its exposure to foreign currency risk by minimising its net foreign currency position.

The following table demonstrates the sensitivity at the end of the year to a reasonably possible change in foreign currency exchange rates, with all other variables held constant, of the Group’s loss before tax (due to changes in the fair values of monetary assets and liabilities) and the Group’s equity.

	Increase/	Increase/	(Increase)/
	(decrease)		decrease	Increase/
	in rate of		in loss	(decrease)
	foreign currency		before tax	in equity
		%	RMB’ 000	RMB’ 000
2020
If the RMB weakens against the US$		5	37,178	104,882
If the RMB strengthens against the US$		(5)	(37,178)	(104,882)
If the RMB weakens against the HK$		5	812	812
If the RMB strengthens against the HK$		(5)	(812)	(812)
2019
If the RMB weakens against the US$		5	21,888	124,853
If the RMB strengthens against the US$		(5)	(21,888)	(124,853)
If the RMB weakens against the HK$		5	839	839
If the RMB strengthens against the HK$		(5)	(839)	(839)

Ascletis PhArmA inc. 2020 AnnuAl rePort 171

Notes to Financial Statements

33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

Credit risk

The Group trades only with recognised and creditworthy third parties. Receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant. The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, trade and bills receivables and other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer/counterparty and by geographical region. There are no significant concentrations of credit risk within the Group as the customer bases of the Group’s trade receivables are widely dispersed in different regions.

Further analysis in respect of the Group’s exposure to credit risk arising from trade and other receivables are disclosed in notes 18 and 19 to the financial statements, respectively.

To manage this risk arising from cash and cash equivalents, they are mainly placed with banks with high credit ratings. There has been no recent history of default in relation to these financial institutions. The expected credit loss is close to zero.

Liquidity risk

The Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management of the Group to finance the operations and mitigate the effects of fluctuations in cash flows.

The maturity profile of the Group’s financial liabilities as at the end of the year, based on the contractual undiscounted payments, is as follows:

		As at 31 December 2020	As at 31 December 2020	As at 31 December 2020	Total RMB’ 000
	On demand RMB’ 000	Less than 1 month RMB’ 000	1 to less than 12 months RMB’ 000	1 to 5 years RMB’ 000
Lease liabilities Trade and bills payables Financial liabilities included in other payables and accruals	– 930 36,260 37,190	100 – 3,447 3,547	1,094 – 8,947 10,041	448 – 66 514	1,642 930 48,720 51,292

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Notes to Financial Statements

33. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)

Liquidity risk (Continued)

On demand RMB’ 000		As at 31 December 2019	As at 31 December 2019	As at 31 December 2019	Total RMB’ 000
		Less than 1 month RMB’ 000	1 to less than 12 months RMB’ 000	1 to 5 years RMB’ 000
Lease liabilities Trade and bills payables Financial liabilities included in other payables and accruals	– 26 32,582 32,608	137 1,758 1,827 3,722	2,216 4,859 12,608 19,683	1,642 – 606 2,248	3,995 6,643 47,623 58,261

Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2020 and 31 December 2019.

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Notes to Financial Statements

34. STATEMENT OF FINANCIAL POSITION OF THE COMPANY

Information about the statement of financial position of the Company at the end of the reporting period is as follows:

	2020 RMB’ 000	2019 RMB’ 000
NON-CURRENT ASSETS Intangible assets Investments in subsidiaries Long-term deferred expenditure Total non-current assets CURRENT ASSETS Prepayments, other receivables and other assets Cash and cash equivalents Total current assets CURRENT LIABILITIES Other payables and accruals Total current liabilities NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES Net assets EQUITY Share capital Reserves (note) Total equity	11,779 1,564,884 31 1,576,694 526 1,363,536 1,364,062 28,115 28,115 1,335,947 2,912,641 2,912,641 750 2,911,891 2,912,641	14,581 1,044,383 – 1,058,964 11,815 2,075,165 2,086,980 28,557 28,557 2,058,423 3,117,387 3,117,387 754 3,116,633 3,117,387

continued/

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Notes to Financial Statements

34. STATEMENT OF FINANCIAL POSITION OF THE COMPANY (Continued)

Note:

A summary of the Company’s reserves is as follows:

	Treasury shares RMB’000	Share premium account RMB’000	Capital reserve RMB’000	Exchange fluctuation reserve RMB’000	Retained profits RMB’000	Total RMB’000
At 1 January 2019 Profit for the year Other comprehensive income for the year: Exchange differences Total comprehensive income for the year Equity-settled share award and option arrangements Shares repurchased Shares cancelled At 31 December 2019 At 1 January 2020 Profit for the year Other comprehensive loss for the year: Exchange differences Total comprehensive (loss)/income for the year Equity-settled share award and option arrangements Shares repurchased Shares cancelled At 31 December 2020	– – – – – (46,269) 46,269 – – – – – – (19,601) 15,079 (4,522)	2,959,390 – – – – – (46,259) 2,913,131 2,913,131 – – – – – (15,075) 2,898,056	5,430 – – – 3,124 – – 8,554 8,554 – – – 4,612 – – 13,166	59,439 – 51,354 51,354 – – – 110,793 110,793 – (201,863) (201,863) – – – (91,070)	48,498 35,657 – 35,657 – – – 84,155 84,155 12,106 – 12,106 – – – 96,261	3,072,757 35,657 51,354 87,011 3,124 (46,269) 10 3,116,633 3,116,633 12,106 (201,863) (189,757) 4,612 (19,601) 4 2,911,891

35. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 29 March 2021.

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Definitions

“AGM”

“ANDA”
“Ascletis”, “Company”,
“the Company” or “We”
“Audit Committee”
“Board” or “Board of Directors”
“CAGR”
“CG Code”
“Chairman”
“China”, “Mainland China” or “the PRC”
“CMO(s)”
“Controlling Shareholders”
“Core Product(s)”
“COVID-19”
“Director(s)”
“Dr. Wu”
“FDA” or “U.S. FDA”
“Founder”
“Group”, “our Group” or “the Group”
“Gannex”
“Greater China”
“HK$” or “HKD”
“HKFRS”

annual general meeting of the Company

abbreviated new drug application

Ascletis Pharma Inc. ( 歌禮製藥有限公司 ), an exempted company incorporated in the Cayman Islands with limited liability on February 25, 2014

the audit committee of the Board of the Company

the board of directors of the Company

compound annual growth rate

the Corporate Governance Code as set out in Appendix 14 to the Listing Rules

the Chairman of the Board

the People’s Republic of China, excluding, for the purpose of this annual report, Hong Kong, Macau Special Administrative Region and Taiwan

contract manufacturing organization, a company that manufactures drug products for pharmaceutical companies on a contract basis

has the meaning ascribed thereto under the Listing Rules and unless the context requires otherwise, refers to Dr. Wu, Mrs. Wu, JJW12 Limited, Lakemont Holding LLC and the Lakemont Remainder Trust, as a group, or any member of them

has the meaning ascribed to it in Chapter 18A of the Listing Rules; for purposes of this annual report, our Core Products include Ganovo[®] (Danoprevir), Ravidasvir, ASC09 and ASC06

an infectious disease caused by a newly discovered coronavirus (severe acute respiratory syndrome coronavirus)

the director(s) of the Company

Dr. Jinzi Jason WU (吳勁梓), our Founder and the spouse of Mrs. Wu, chairman of the Board, chief executive officer, an executive Director of the Company, one of our Controlling Shareholders

U.S. Food and Drug Administration

the founder of our Group, being Dr. Wu

the Company and its subsidiaries

Gannex Pharma Co., Ltd (甘萊製藥有限公司), a limited liability company incorporated under the laws of the PRC on September 3, 2019, a whollyowned subsidiary of the Company

Mainland China, Hong Kong, Macau and Taiwan

Hong Kong dollars, the lawful currency of Hong Kong

the Hong Kong Financial Reporting Standards

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Definitions

“Hong Kong”

“IND” “KOL(s)” “Listing” or “IPO” “Listing Rules” “Main Board” “Model Code”

“Mrs. Wu” “NASH” “NMPA”

“Prospectus”

“R&D” “Reporting Period” “Renminbi” or “RMB” “Roche” “SFO”

the Hong Kong Special Administrative Region of the PRC

investigational new drug, an experimental drug for which a pharmaceutical company obtains permission to ship across jurisdictions (usually to clinical investigators) before a marketing application for the drug has been approved

Key opinion leader(s)

the listing of the Shares on the Main Board of the Stock Exchange on August 1, 2018

the Rules Governing the Listing of Securities on the Stock Exchange, as amended or supplemented from time to time

the Main Board of the Stock Exchange

the Model Code for Securities Transactions by Directors of Listed Issuers contained in Appendix 10 to the Listing Rules Mrs. Judy Hejingdao WU, an executive Director, one of our Controlling Shareholders and the spouse of Dr. Wu

non-alcoholic steatohepatitis

China National Medical Products Administration (中國國家藥品監督管理局) the prospectus issued by the Company dated July 20, 2018

Research and development the one-year period from January 1, 2020 to December 31, 2020 Renminbi Yuan, the lawful currency of China F. Hoffmann-La Roche AG, a Swiss multi-national healthcare company the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended or supplemented from time to time

“Shareholder(s)” holder(s) of Shares “Share(s)” ordinary shares in the share capital of our Company of US$0.0001 each “Share Option Scheme” the share option scheme adopted by the Company on June 6, 2019 “Stock Exchange” The Stock Exchange of Hong Kong Limited “U.S. dollar(s)”, “USD” United States dollars, the lawful currency of the United States of America or “US$” “Written Guidelines” the Guidelines for Securities Transactions by Directors adopted by the Company

In this annual report, the terms “associate”, “connected person”, “controlling shareholder” and “subsidiary” shall have the meanings given to such terms in the Listing Rules, unless the context otherwise requires.

AI assistant

Ascletis Pharma Inc. — Annual Report 2020

50081_rns_2021-04-28_7c7779d6-088f-4ae5-9454-2f9e67a4434c.pdf

Contents

Corporate Information

BOARD OF DIRECTORS

Executive Directors

REGISTERED OFFICE

CORPORATE HEADQUARTERS IN THE PRC

Independent Non-executive Directors

AUDIT COMMITTEE

REMUNERATION COMMITTEE

NOMINATION COMMITTEE

AUTHORISED REPRESENTATIVES

COMPANY SECRETARY

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE IN CAYMAN ISLANDS

HONG KONG SHARE REGISTRAR

Corporate Information

HONG KONG LEGAL ADVISER

AUDITOR

STOCK CODE

COMPANY WEBSITE

Chairman’s Statement

Dear Shareholders,

Dr. Jinzi Jason WU

Financial Summary

Corporate Profile

OUR VISION

OVERVIEW

NASH

Single Agent and Combo Therapy Pipeline[1]

Corporate Profile

Cancer lipid Metabolism and Oral Checkpoint Inhibitors

Viral Hepatitis

Hepatitis B Virus (HBV) Clinical Cure

Notes:

Corporate Profile

Hepatitis C Virus (HCV)

HIV/AIDS

Notes:

IN-HOUSE DISCOVERY

Management Discussion and Analysis

BUSINESS REVIEW

NASH

ASC40

Management Discussion and Analysis

ASC41

ASC42

Management Discussion and Analysis

Combination Therapies

Combination Therapies: Synergies among ASC40, ASC41 and ASC42

Cancer Lipid Metabolism and Oral Checkpoint Inhibitors

Management Discussion and Analysis

Viral Hepatitis

HBV

Pegasys[®]

ASC22

Management Discussion and Analysis

HCV

HIV/AIDS

CAPABILITY OF COMMERCIALIZATION

THE GROUP’S FACILITIES

Management Discussion and Analysis

IMPACT OF COVID-19

FUTURE AND OUTLOOK

Management Discussion and Analysis

FINANCIAL REVIEW

Revenue

Cost of Sales

Management Discussion and Analysis

Gross Profit

Other Income and Gains

Selling and Distribution Expenses

Management Discussion and Analysis

Administrative Expenses

Research and Development Expenses

Management Discussion and Analysis

Finance Costs

Other Expenses

Ascletis Pharma Inc. Annual Report 2020