Livzon Pharmaceutical Group Inc. - Proxy Solicitation & Information Statement 2016

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in 麗珠醫藥集團股份有限公司 Livzon Pharmaceutical Group Inc.*, you should at once hand this circular together with the enclosed reply slip for attendance and proxy form to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or transferee.

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

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

(a joint stock company incorporated in the People’s Republic of China with limited liability)

(Stock code: 1513)

(I) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2017 TO 2019 AND

(II) ADDITION OF IMPLEMENTATION SUBJECT FOR THE FUND-RAISING INVESTMENT PROJECT

Independent Financial Adviser to the Independent Board Committee

and the Independent Shareholders

Frontpage Capital Limited

A letter from the Board is set out from pages 5 to 21 of this circular. A letter from the Independent Board Committee containing its advice to the Independent Shareholders in connection with the transactions contemplated under the 2017 Joincare Purchases Framework Agreement is set out on page 22 of this circular. A letter from Frontpage Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders, containing its advice to the Independent Board Committee and the Independent Shareholders in connection with the transactions contemplated under the 2017 Joincare Purchases Framework Agreement is set out from pages 23 to 41 of this circular.

The notice convening the EGM to be held at the Conference Room on the 3rd Floor of Headquarters Building, 38 Chuangye North Road, Jinwan District, Zhuhai, Guangdong Province, China at 2 p.m. on Friday, 23 December 2016 was given by the Company on 26 October 2016. The reply slip for attendance and proxy form for the EGM, which were also dispatched by the Company on 26 October 2016, are also available at the website of Hong Kong Exchanges and Clearing Limited (www.hkexnews.hk) and the website of the Company (www.livzon.com.cn). If you would like to attend the EGM in person or by proxy, please complete the reply slip in accordance with the instructions printed thereon and return it to the H Share Registrar of the Company, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong by hand, by post or by fax in any event on or before Saturday, 3 December 2016. If you would like to attend the EGM by proxy, please complete the proxy form in accordance with the instructions printed thereon and return it to the H Share Registrar of the Company, Tricor Investor Services Limited as soon as possible and in any event no later than 24 hours before the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting at the EGM or any adjournment thereof in person if you so wish.

5 December 2016

For identification purpose only

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
I. Renewal of continuing connected transactions for 2017 to 2019 . . . . . . . . . . . . . . . . . . .	6
II. Addition of implementation subject for the fund-raising investment project . . . . . . . . . .	19
III. EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
IV. Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
V. Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Appendix – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	42

– i –

DEFINITIONS

In this circular, the following terms shall have the meanings set out below unless the context requires otherwise:

‘‘2014 Joincare Purchases Agreement’’

the framework agreement (as supplemented and amended by the Supplemental Agreement dated 24 September 2015) entered into between the Company and Joincare on 5 September 2014 in respect of the purchase by the Group of certain products and raw materials which are mainly used for the production of antifungal and antibiotics related drug preparation products from Joincare Group for a term from 5 September 2014 to 31 December 2016

‘‘2017 Joincare Purchases Framework Agreement’’
the framework agreement entered into between the Company and Joincare on 25 October 2016 in respect of the purchase by the Group of certain products and raw materials which are mainly used for the production of antifungal and antibiotics related drug preparation products from Joincare Group
‘‘A Share(s)’’

the ordinary shares in the registered capital of the Company with a nominal value of RMB1.00 each, which are listed and traded on the Shenzhen Stock Exchange

‘‘A Shareholder(s)’’ holder(s) of A Share(s)
‘‘Announcement’’
the announcement of the Company dated 25 October 2016 in relation to the 2017 Joincare Purchases Framework Agreement, the transactions contemplated thereunder and the proposed annual caps
‘‘Articles of Association’’ the articles of association of the Company
‘‘associate(s)’’ has the meaning ascribed to it under the Listing Rules
‘‘Board’’ the board of Directors of the Company
‘‘Company’’ 麗珠醫藥集團股份有限公司 Livzon Pharmaceutical Group Inc.*, a joint stock company incorporated in the PRC in accordance with the Company Law on 25 January 1985 with limited liability, its shares are listed on the Stock Exchange and the Shenzhen Stock Exchange

– 1 –

DEFINITIONS

‘‘Company Law’’ 《中華人民共和國公司法》Company Law of the PRC, as amended, supplemented or otherwise modified from time to time
‘‘connected person(s)’’ has the meaning ascribed to it under the Listing Rules
‘‘Controlling Shareholder(s)’’ has the meaning ascribed to it under the Listing Rules
‘‘CSRC’’ China Securities Regulatory Commission
‘‘Director(s)’’ the director(s) of the Company
‘‘EGM’’ the 2016 Third Extraordinary General Meeting of the Company to be held at the Conference Room on the 3rd Floor of Headquarters Building, 38 Chuangye North Road, Jinwan District, Zhuhai, Guangdong Province, China at 2 p.m. on Friday, 23 December 2016
‘‘EGM Notice’’ the notice convening the 2016 Third Extraordinary General Meeting of the Company dated 26 October 2016
‘‘Group’’ the Company and its subsidiaries collectively
‘‘H Share(s)’’

the ordinary shares in the registered capital of the Company with a nominal value of RMB1.00 each, which are listed and traded on the Stock Exchange

‘‘H Shareholder(s)’’ holder(s) of H Share(s)
‘‘Hong Kong’’
the Hong Kong Special Administrative Region of the PRC
‘‘Independent Board Committee’’

the independent committee of the Board comprising all the Independent non-executive Directors established for the purpose of advising the Independent Shareholders on the 2017 Joincare Purchases Framework Agreement, the transactions contemplated thereunder and the proposed annual caps

– 2 –

DEFINITIONS

‘‘Independent Financial Adviser’’ or ‘‘Frontpage Capital’’
‘‘Independent Shareholders’’
‘‘Independent Third Party(ies)’’
‘‘Joincare’’
‘‘Joincare Group’’
‘‘Latest Practicable Date’’
‘‘Listing Rules’’
‘‘Pharmaceutical Factory’’
‘‘PRC’’
‘‘RMB’’
‘‘SFO’’
Frontpage Capital Limited, a licensed corporation to registered under the Securities and Futures Ordinance to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance, and is appointed as the independent financial adviser by the Independent Board Committee to advise the Independent Board Committee and the Independent Shareholders in respect of the 2017 Joincare Purchases Framework Agreement, the transactions contemplated thereunder and the proposed annual caps
Shareholders other than Joincare, Shenzhen Haibin Pharmaceutical Co., Ltd., Topsino Industries Limited and their respective associates
a person or persons or a company or companies that is not or are not the connected person(s) of the Group
健康元藥業集團股份有限公司 (Joincare Pharmaceutical Industry Group Co., Ltd.*) (Shanghai Stock Exchange stock code: 600380), a joint stock company incorporated in the PRC and listed on the Shanghai Stock Exchange in 2001 and one of the Company’s Controlling Shareholders

Joincare and its subsidiaries (other than the Group)

30 November 2016, being the latest practicable date for the purpose of ascertaining certain information contained in this circular prior to its publication
the Rules Governing the Listing of Securities on the Stock Exchange, and the version as may be amended and supplemented or otherwise modified from time to time
Livzon Group Livzon Pharmaceutical Factory（麗珠集團麗珠製藥廠）, a wholly-owned subsidiary of the Company
the People’s Republic of China
Renminbi, the lawful currency of the PRC

the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

– 3 –

DEFINITIONS

‘‘Shanghai Stock Exchange’’ 上海證券交易所 (the Shanghai Stock Exchange) ‘‘Shareholder(s)’’ holder(s) of the share(s) of the Company ‘‘Shenzhen Listing Rules’’ 《深圳證券交易所股票上市規則（2014年修訂）》(the Rules Governing Listing of Stocks on Shenzhen Stock Exchange (2014 Revision))
‘‘Shenzhen Stock Exchange’’ 深圳證券交易所 (the Shenzhen Stock Exchange) ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited ‘‘Supervisory Committee’’ the supervisory committee of the Company ‘‘Supplemental Agreement’’ the conditional supplemental agreement entered into between the Company and Joincare on 24 September 2015 to further revise the annual caps for the two years ended 31 December 2015 and 2016 under the 2014 Joincare Purchases Agreement
‘‘%’’ per cent

If there is any inconsistency between the Chinese names of the PRC entities mentioned in this circular and their English translations, the Chinese names shall prevail.

For identification purpose only

– 4 –

LETTER FROM THE BOARD

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock code: 1513)

Executive Directors:

Mr. Tao Desheng (Vice Chairman and President) Mr. Fu Daotian (Vice President) Mr. Yang Daihong (Vice President)

Non-executive Directors:

Mr. Zhu Baoguo (Chairman) Mr. Qiu Qingfeng Mr. Zhong Shan

Independent non-executive Directors: Mr. Xu Yanjun Mr. Guo Guoqing Mr. Wang Xiaojun Mr. Xie Yun Mr. Zheng Zhihua

Registered office: Headquarters Building, 38 Chuangye North Road, Jinwan District, Zhuhai, Guangdong Province, China

Principle place of business in Hong Kong: Flat 02, 17/F, Bayfield Building, 99-101 Hennessy Road, Wanchai, Hong Kong

5 December 2016

To the Shareholders

Dear Sir or Madam,

(I) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2017 TO 2019 AND (II) ADDITION OF IMPLEMENTATION SUBJECT FOR THE FUND-RAISING INVESTMENT PROJECT

Reference is made to (i) the Announcement regarding the 2017 Joincare Purchases Framework Agreement, the transactions contemplated thereunder and the proposed annual caps; (ii) the overseas regulatory announcement of the Company dated 25 October 2016 in relation to the addition of implementation subject for the fund-raising investment project of the Company（募集資金投資項目增加實施主體）; and (iii) the EGM Notice.

For identification purpose only

– 5 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, amongst others, (i) further details of the 2017 Joincare Purchases Framework Agreement and the transactions contemplated thereunder; (ii) information of the addition of implementation subject for the fund-raising investment project of the Company; (iii) a letter of advice from the Independent Board Committee to the Independent Shareholders in relation to the 2017 Joincare Purchases Framework Agreement (including the transactions contemplated thereunder and the proposed annual caps); (iv) a letter of advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in relation to the 2017 Joincare Purchases Framework Agreement, the transactions contemplated thereunder and the proposed annual caps.

I. RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2017 TO 2019

Reference is made to the announcements of the Company dated 5 September 2014 and 24 September 2015, and the circulars of the Company dated 7 October 2014 and 22 October 2015, in relation to, among others, the 2014 Joincare Purchases Agreement and the Supplemental Agreement, pursuant to which the Company and Joincare revised the annual caps for the three years ended 31 December 2014, 2015 and 2016.

The Board announced that having considered the 2014 Joincare Purchases Agreement will be expired on 31 December 2016, with the continuous development of the Group’s business, the Group will keep on developing and manufacturing various kinds of antifungal and antibiotics related products and new products from time to time. In order to renew the 2014 Joincare Purchases Agreement, the Company and Joincare entered into the 2017 Joincare Purchases Framework Agreement on 25 October 2016, pursuant to which, the parties have agreed conditionally that Joincare shall sell products and raw materials which are mainly used for the production of antifungal and antibiotics related drug preparation products to certain members of the Group from time to time in accordance with the terms of the 2017 Joincare Purchases Framework Agreement for a period of three years commencing from 1 January 2017 to 31 December 2019; and to set out the annual caps for the continuing connected transactions contemplated for the three years ended 31 December 2019.

2017 Joincare Purchases Framework Agreement

Date

25 October 2016

Parties

Purchaser: the Company

Supplier: Joincare

– 6 –

LETTER FROM THE BOARD

Term

From 1 January 2017 to 31 December 2019

Conditions precedent

The 2017 Joincare Purchases Framework Agreement and the transactions contemplated thereunder are subject to the fulfillment of the following conditions:

(i) all necessary disclosures in respect of the 2017 Joincare Purchases Framework Agreement and the transactions contemplated thereunder (including the annual caps) having been made by the Company in accordance with the Listing Rules; and
(ii) approval from the Independent Shareholders in respect of the 2017 Joincare Purchases Framework Agreement and the transactions contemplated thereunder (including the annual caps) having been obtained by the Company in accordance with the Listing Rules.

Subject matters

2017 Joincare Purchases Framework Agreement contains the general terms and conditions for the relevant members of the Group to purchase products and raw materials from the relevant members of the Joincare Group. Pursuant to the 2017 Joincare Purchases Framework Agreement, Joincare shall sell products and raw materials which are mainly used for the production of antifungal and antibiotics related drug preparation products to certain members of the Group from time to time during the three years from 1 January 2017 to 31 December 2019, and both parties have agreed that if the conditions offered by a third party are more favorable than that of being offered by Joincare, the Group can purchase such raw materials from such third party. The relevant members of the Group may from time to time place purchase orders with detail terms for the purchase of products and raw materials, provided that such detailed terms shall not contravene the terms of the 2017 Joincare Purchases Framework Agreement.

– 7 –

LETTER FROM THE BOARD

Similar to the 2014 Joincare Purchases Agreement, the products and raw materials to be purchased from the Joincare Group would be mainly used for the production of antifungal and antibiotics related drug preparation products. Since the Group had suspended the research and development of Flomoxef Sodium（氟氧頭孢鈉）and therefore had ceased the purchase from the Joincare Group of the relevant raw material, namely OXAT（氟氧頭孢母核）, as there is no breakthrough in the technical research and development of Flomoxef Sodium（氟氧頭孢鈉）, the primary products and raw materials to be purchased by the Group from the Joincare Group would be voriconazole（伏立康唑）, 7-ACA and D7-ACA, etc. which are expected to continue to account for over 90% of the total purchases from the Joincare Group under the proposed annual cap for each of the three years ending 31 December 2019 as compared with the existing total purchases. Similar to the 2014 Joincare Purchases Agreement, the actual quantity, types, prices, and settlement arrangements of the products and raw materials to be sold to the relevant members of the Group shall be subject to the individual purchase order to be placed by the relevant members of the Group with the relevant members of the Joincare Group from time to time. As such, save for the revision of the existing annual caps to the proposed annual caps, there is no major change in the key terms of the 2017 Joincare Purchases Framework Agreement as compared with the 2014 Joincare Purchases Agreement.

The prices at which the products and raw materials are to be sold by the relevant members of the Joincare Group to the relevant members of the Group shall be (a) the indicative prices (if any) prescribed by the national price administration department; (b) where (a) is not available, the comparable market prices based on quotation(s) obtained from other third party suppliers; or (c) where (a) and (b) are not available, the prices to be agreed between the parties, provided that such prices and other terms shall not be less favorable than the prices and terms offered by Joincare Group to third parties for similar transactions.

REASONS FOR ENTERING INTO THE 2017 JOINCARE PURCHASES FRAMEWORK AGREEMENT

The Company is a PRC based pharmaceutical company principally engaged in the research and development, production and sales of pharmaceutical products.

– 8 –

LETTER FROM THE BOARD

Members of the Group have commenced purchasing products and raw materials from the relevant members of the Joincare Group which are mainly used for the production of antifungal and antibiotics related drug preparation products since the year ended 31 December 2007, and no material issue were found on the products and raw materials being supplied from members of the Joincare Group. The Group has been continuously expanding its business, in order to facilitate the future growth of the Group’s business, it anticipates that it will need more raw materials to produce the Group’s products. Taking into account factors such as the quality and price of raw materials supplied by the relevant members of Joincare Group and the reputation of Joincare, the purpose of entering into the 2017 Joincare Purchases Framework Agreement is to renew the 2014 Joincare Purchases Agreement for another three years to 31 December 2019, and to amend the annual caps of the transactions contemplated thereunder, so as to ensure that the Group and Joincare can continue the existing trading transactions under the existing raw materials purchases agreement. The Group considers that the purchase of raw materials under the 2017 Joincare Purchases Framework Agreement is necessary to facilitate the Group’s business development plan, and will improve the competitiveness, quality and price of the Group’s products.

The Directors (including the independent non-executive Directors) are of the view that the 2017 Joincare Purchases Framework Agreement (including the proposed annual caps) is entered into on normal commercial terms in the ordinary and usual course of business of the Group, and that the terms thereof are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

HISTORICAL TRANSACTION AMOUNT AND ANNUAL CAPS

The historical annual caps and the historical transaction amount under the 2014 Joincare Purchases Agreement are set out as follow:

Historical Annual Caps

		For the	For the	For the
		year ended	year ended	year ended
		31 December	31 December	31 December
		2014	2015	2016
		(RMB million)	(RMB million)	(RMB million)
Annual	cap	260	340	572

– 9 –

LETTER FROM THE BOARD

Historical Transaction Amount

			For the	For the	For the nine
			year ended	year ended	months ended
			31 December	31 December	30 September
			2014	2015	2016
			(RMB million)	(RMB million)	(RMB million)
Historical	transaction	amount	237.82	294.18	247.74

In the year 2014 and 2015, the utilisation rate of annual caps under the 2014 Joincare Purchases Agreement has maintained at a relatively high level of approximately 91.47% and 86.52% respectively. The Company expected that the total purchases from the Joincare Group for the year ending 31 December 2016 would be approximately RMB307.74 million, representing approximately 53.80% of the 2016 annual cap. The decrease of the anticipated utilisation rate of the 2016 annual cap is primarily due to the fact the Group had suspended the research and development of Flomoxef Sodium（氟氧頭孢鈉）and therefore had ceased the purchase from the Joincare Group of the relevant raw material, namely OXAT（氟氧頭孢母核）.

The Directors kept monitoring the amount of the transactions contemplated under the 2014 Joincare Purchases Agreement, and such amount did not exceed the respective annual cap for the two years ended 31 December 2015. As at the Latest Practicable Date and for the year ending 31 December 2016, the transaction amount under the 2014 Joincare Purchases Agreement has not, and is expected that it will not, exceed the annual cap for the year ending 31 December 2016.

PROPOSED ANNUAL CAPS UNDER THE 2017 JOINCARE PURCHASES FRAMEWORK AGREEMENT

Pursuant to the 2017 Joincare Purchaser Framework Agreement, the annual caps for the three years ending 31 December 2017, 2018 and 2019 are RMB382.00 million, RMB421.00 million and RMB473.00 million respectively.

– 10 –

LETTER FROM THE BOARD

The table below sets out the estimated percentages of the total purchases of the major products and raw materials (the ‘‘Major Products and/or Raw Materials’’) by the members of the Group from the Joincare Group for the three years ending 31 December 2019:

		Estimated	Estimated	Estimated
		percentage of	percentage of	percentage of
		the total	the total	the total
		purchases from	purchases from	purchases from
		the Joincare	the Joincare	the Joincare
		Group under	Group under	Group under
		the proposed	the proposed	the proposed
		annual cap for	annual cap for	annual cap for
		the year ending	the year ending	the year ending
Major Products	Description of the Major Products	31 December	31 December	31 December
and/or Raw Materials	and/or Raw Materials	2017	2018	2019
7-ACA and D7-ACA	Both 7-ACA and D7-ACA can be used in the	85.72%	83.74%	81.19%
	synthesis of various types of cephalosporanic
	antibiotics.
	7-ACA is the key intermediate of cephalosporin.
	D7-ACA is an intermediate for synthetic
	cephalosporanic antibiotics, which can
	substitute for 7-ACA.
Voriconazole	A broad-spectrum triazole antifungal drug mainly	10.40%	12.74%	15.31%
（伏立康唑）	used for the treatment of patients with
	progressive immune deficiency, possibly life-
	threatening infections. It is applicable to the
	treatment of severe fungal infections in
	immune-suppressed patients, acute invasive
	pulmonary aspergillosis (the most commonly
	found pathogenic agents being aspergillus
	fumigatus, followed by aspergillus flavus,
	aspergillus niger and aspergillus terreus),
	severe invasive infections caused by
	fluconazole-resistant yeasts (including Candida
	krusei) and severe infections caused by
	scedosporium species and fusarium species.
	TOTAL	96.12%	96.48%	96.50%

– 11 –

LETTER FROM THE BOARD

Notes:

7-ACA and D7-ACA are the primary raw materials used for production of the Company’s cephalosporins categories bulk medicine products. Voriconazole（伏立康唑）is the primary raw material used for production of the Company’s voriconazole for injection（注射用伏立康唑）.
The estimated percentages of the total purchases of Voriconazole（伏立康唑）from the Joincare Group increase year-by-year given its relatively higher growth rates as compared to that of 7-ACA and D7-ACA.

The table below sets out the estimated growth rates of the demand of the Major Products and/or Raw Materials by the members of the Group from the Joincare Group for the three years ending 31 December 2019:

	Estimated	Estimated	Estimated
	growth rate	growth rate	growth rate
	of the	of the	of the
	demand for	demand for	demand for
	the year	the year	the year
	ending 31	ending 31	ending 31
	December	December	December
Major Products and/or Raw Materials	2017	2018	2019
7-ACA and D7-ACA	18.94%	7.67%	8.93%
Voriconazole（伏立康唑）	23.43%	35.00%	35.00%

In arriving the aforesaid annual caps, the Directors have determined mainly by reference to the following factors:

The historical transaction amount for the year ended 31 December 2015 under the 2014 Joincare Purchases Agreement increased by approximately RMB56.36 million, representing an increase by approximately 23.70% compared with that of 2014. For the nine months ended 30 September 2016, the actual transaction amount under the 2014 Joincare Purchases Agreement was approximately RMB247.74 million, representing approximately 84.21% of the total purchases from the Joincare Group for the whole year of 2015. Further, with the continuing development of the business of the Group, the Group achieved further growth of sales in 2015. For the year ended 31 December 2015, the Group’s principal activities generated an operating income of approximately RMB6,516.61 million, representing an increase of approximately RMB1,060.40 million or 19.43% as compared with 2014. In particular, sales of bulk medicine and intermediates increased by approximately 33.11% as compared with 2014, representing an increase of market demand for such products from the Group. In the future, the Group will keep on developing and manufacturing various kinds of antifungal and antibiotics related products and new products. It was expected that the actual transaction amount in the next three years with the Joincare Group would maintain an increasing trend.

– 12 –

LETTER FROM THE BOARD

Furthermore, the Company’s shares in the Chinese and Indian cephalosporins categories bulk medicine market is expected to grow as:

(a) our regular customers in the relevant markets have increased their demand for the Company’s cephalosporins categories bulk medicine products taken into account the growth rate of approximately 21.55% of the sales of the Group’s cephalosporins categories bulk medicine products for the year ending 31 December 2015. We expect the demand from our regular customers would continue to grow because of the recognised and improving quality of our products and after-sale services;
(b) we will proactively develop business relationship with new customers and strengthen the cooperation with our regular customers in the relevant markets. In particular,

we will screen target customers by investigating the operations and sale of the downstream customers (the preparation manufacturers) and increasing our presence in more domestic and overseas pharmaceutical trade shows, enhance the attendance appraisal of our salesmen, and improve contact frequency and communication with our customers so as to establish closer business connection with them. We had successfully established business relationships with over 50 new customers for the nine months ended 30 September 2016 in the relevant markets, which contributed approximately 10% of our total sales of cephalosporins categories bulk medicine products in the relevant period;

we will strengthen business cooperation with our regular customers, implement the ‘‘Multi-products Portfolio’’ strategy (the Company’s cephalosporins categories bulk medicine products include Cefodizime sodium（頭孢地嗪鈉）, Cefuroxime sodium（頭孢呋辛鈉）, Ceftriaxone sodium（頭孢曲松鈉）, crude Ceftriaxone sodium（頭孢曲松鈉粗品）, Ceftazidime/Sodium carbonate（頭孢他啶╱碳酸鈉）, Ceftriaxone sodium mixed with sulbactam sodium（頭孢曲松鈉混舒巴坦鈉）, etc), and provide various product portfolios for regular customers, thereby continuously increasing the percentage of sales volume to our regular customers; and

(c) we had successfully completed the registration and certification of the Group’s cephalosporins categories bulk medicine products exported to India and our sales in the Indian market had increased by approximately 21.91% for the year ending 31 December 2015. We expect such demand will continue to grow steadily given the insufficient production and/or supply of the similar products locally in India as supported by our internal analysis and research.

Having considered the above, the Company has included a greater buffer for the expected increase in the sales volume of the Chinese and Indian cephalosporins categories bulk medicine products in 2017 to capture the potential positive effect arises from abovementioned measures to be implemented from 2017, and expected that the product volumes in the Chinese and Indian cephalosporins categories bulk medicine market will continue to increase steadily for 2018-2019.

– 13 –

LETTER FROM THE BOARD

The market share attributable to voriconazole for injection（注射用伏立康唑）in the voriconazole（伏立康唑）market has been increasing year-by-year from 30% for 2013 to 34% for 2015. The sales volume of the Group’s Voriconazole for injection（注射用伏立康唑）had increased from approximately 448,000 bottles in 2013 to approximately 833,000 bottles in 2015, representing a CAGR of 36.36% for the past three years ended 31 December 2015, which is higher than the CAGR of 32.00% for the domestic market. Our market share in the relevant market had increased from approximately 16% in 2013 and is expected to increase to approximately 19% in 2016.

To boost the sales volume of voriconazole for injection（注射用伏立康唑）, which is one of our key products, the Company has (a) improved sales promotion and implemented detailed sales management for the appraisal of sales goal, commercial delivery, market entry, etc; and (b) explored specialized production line for such products which would be able to fully meet the estimated demand from 2017 to 2019.

Furthermore, the Group expects to launch a new preparation model of voriconazole for injection（注射用伏立康唑）in 2017 which aims to solve the solubility problem of our existing preparation model, eliminate the potential risk of external crystallization and relieve patients’ stress during transfusion. With the expected launch of our new preparation model in 2017 and given the time for promotion after the launch, it was expected that our sales volume and market share of voriconazole for injection（注射用伏立康唑）would be further increased for 2018 and 2019.

With the amendments to the Environmental Protection Law of the People’s Republic of China （《中華人民共和國環境保護法》）which promulgated and come into force on 1 January 2015, as well as other important laws, regulations and requirements (such as the Action Plan for Prevention and Control of Water Pollution（《水污染防治行動計劃》）, Action Plan for Prevention and Control of Air Pollution（《大氣污染防治行動計劃》）and Action Plan for Prevention and Control of Soil Pollution（《土壤污染防治行動計劃》））promulgated by the Ministry of Environmental Protection of the People’s Republic of China（中華人民共和國環境保護部）in succession in 2015 and 2016, the Company expects more stringent supervision over pharmaceutical enterprises on environmental aspects to come, and many pharmaceutical enterprises that are not up to par in production and operation will be forced to increase investments in environmental protection or to cease production due to the costs involved in environmental protection. At the same time, the Group has been in strict compliance with the national and local laws and regulations requirements over the years, and our continuous investment in environmental friendly equipment and facilities and environmental management have given us more advantages over our competitors in the overall stringent regulatory environment in environmental protection at present and in the future, and has laid a solid base for us to gradually capture the benefits from environmental efficiency and economic efficiency. The Directors expect that the Group can increase its market share by taking up the market share of those competitors which have been eliminated.

– 14 –

LETTER FROM THE BOARD

Accordingly, the proposed annual caps for each of the three years ending 31 December 2017, 2018 and 2019 have been determined with reference to (a) the historical transaction amounts between members of the Group and the Joincare Group; (b) the internal projection of the development of the Group’s business; (c) the prevailing market condition and demand for the Group’s products; (d) the historical growth of the PRC pharmaceutical industry; (e) the prevailing market prices of the relevant raw materials; (f) inflation; (g) the business development plan of the Group; and (h) the Group’s potential in increasing its market share in the area of bulk medicine (including cephalosporins category（頭孢類）) and intermediates.

In view of: (a) the Company will leverage on its quality products and services to increase its shares in the Chinese and Indian cephalosporins category（頭孢類）bulk medicine market in the future; (b) the Company is proactively obtaining international accreditation, and plans to explore the European cephalosporins category（頭孢類）bulk medicine market, and expects to increase its sales volume to those markets; (c) the implementation of a share incentive assessment scheme to boast the sales volume of our key products, which will further increase the production volume of antifungal products of Pharmaceutical Factory; and (d) approval for launch and sale in respect of the new preparation model of antifungal products are expected to be obtained in 2017, as the market size of such products is growing rapidly, the Group’s market share is expected to enlarge in the future.

The proposed annual cap for 2017 is lower than the exiting annual cap for 2016 since the Group had suspended the research and development of Flomoxef Sodium（氟氧頭孢鈉）and therefore has ceased the purchase from the Joincare Group of the relevant raw material, namely OXAT（氟氧頭孢母核）. However, taking into account the aforesaid trends and the expected launch of new preparation model of voriconazole for injection（注射用伏立康唑）in 2017, the Board anticipated that the actual transaction amounts for the three years ending 31 December 2019 will continue to increase steadily. The Board is of the view that the aforementioned analysis and assumptions are fair and reasonable in determining the proposed annual cap for the year ending 31 December 2017 at a higher growth rate, which would then increase at approximately 10-12% in each of the two years ending 31 December 2019. It was expected that the utilisation rate of the proposed annual caps will be principally in line with that in 2014 and 2015.

Therefore, the Directors (including the independent non-executive Directors) are of the view that the terms of the transactions contemplated under 2017 Joincare Purchases Framework Agreement and the proposed annual caps thereunder for the three years ending 31 December 2017, 2018 and 2019 are conducted and entered into in the ordinary and usual course of business of the Group, and on normal commercial terms that are fair and reasonable, and in the interests of the Company and the Shareholders as a whole.

– 15 –

LETTER FROM THE BOARD

PRICING PRINCIPLES

The basis of determining the prices of the products and raw materials to be purchased by members of the Group from the Joincare Group will be based on the indicative prices (if any) prescribed by the national price administrative department. If such indicative prices are not applicable, the prices of the products and raw materials will be determined in accordance with the prevailing market prices of such products and raw materials and on the following principles:

(a) by reference to the prevailing market price of the same products and raw materials, taking into account of the price of the same products and raw materials with comparable order quantities and quality offered by other third party suppliers; and
(b) if there are not sufficient comparable transactions in (a) above (i.e. one to two quotations from independent suppliers), on normal commercial terms comparable to those offered to Independent Third Parties by the Joincare Group in respect of the same products and raw materials with comparable quantities.

As at the Latest Practicable Date, there was no indicative price prescribed by the national price administrative department for all products and raw materials purchased by members of the Group from the Joincare Group. For all products and raw materials to be purchased from the Joincare Group, the same pricing principle of taking reference to the prevailing market price and being not less favourable to comparable quotations offered by Independent Third Parties applies.

In determining the prevailing market price of the products and raw materials for a particular purchase order, the Group will invite one to two quotations from independent suppliers (depending on the availability of quotations obtained at the particular time) to give a reference on the prevailing market prices for the relevant products and raw materials to be procured. Given that the number of independent suppliers for the relevant major products and raw materials are less than five, the Directors are of the view that one to two quotations from independent suppliers can ensure that purchase orders represent prevailing market prices. Such quotations will be reviewed and evaluated from both the technical and commercial perspectives (including but not limited to price, supply sustainability, product quality and the length of payment period) by qualified personnel of the Group, comprising the officer of the procurement department, the manager of the procurement department, and the senior officer of the finance department specialising in material procurement, to ensure that the prices of the products and raw materials to be procured from the Joincare Group are no less favorable to the prices for such products and raw materials being offered by Independent Third Parties and the transactions are to be conducted on normal commercial terms.

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LETTER FROM THE BOARD

Based on the aforementioned pricing principles, the purchase price for 7-ACA and D7-ACA shall be principally determined with reference to the lowest price offered from the comparable quotations by two Independent Third Parties whereas the purchase price for voriconazole shall be principally determined with reference to the price offered by an Independent Third Party (given there is only two suppliers that supply the required sterile raw materials for voriconazole in the PRC market, namely the Joincare Group and another Independent Third Party).

The pricing principles above are in line with the historical and existing principles adopted for the three years ending 31 December 2016.

INTERNAL CONTROL MEASURES

To further ensure that the actual prices of the products and raw materials to be purchased by members of the Group from the Joincare Group are on normal commercial terms as stated above and on terms no less favourable to the Group than that available from Independent Third Party suppliers, the Group adopts a series of internal control procedures for its daily operation as follows:

(i) The Group will conduct regular checks to review and assess whether the products and raw materials have been purchased in accordance with the terms of the 2017 Joincare Purchases Framework Agreement. Such checks will be conducted by the financial controller of the Group on a monthly basis and the secretary of the Board on a quarterly basis.
(ii) To ensure the continuing connected transactions do not exceed the annual caps, the subsidiaries shall submit sale statistical figures monthly for the financial department of the Group for summary and analysis. The procurement by our Group shall be conducted based on the annual sale plan which is formulated by the finance department of the Group at the year end of the preceding year and would be subject to review quarterly. Specifically, the finance department of the Group shall be responsible for monitoring the actual amount of the transactions with the Joincare Group on a monthly basis to ensure it does not exceed the proposed annual caps. In the event the amount of continuing connected transactions incurred and to be incurred for a financial year is expected to exceed the annual caps, the financial controller of the Group shall report to the management of the Company to determine if amendment to the annual caps is required to ensure compliance of the requirements under the Listing Rules.
(iii) The procurement department and the finance department of the Group will review the internal pricing policy annually and should the relevant departments consider it was necessary to adjust the pricing policy or mechanism, they shall propose to the management of the Group.

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LETTER FROM THE BOARD

(iv) The auditors of the Company will conduct an annual review of the transactions contemplated under the 2017 Joincare Purchases Framework Agreement.

Having considered the methods and procedures mentioned above, the Directors (including the independent non-executive Directors) considered that such methods and procedures can ensure and guarantee that the transactions contemplated under the 2017 Joincare Purchases Framework Agreement will be entered into on normal commercial terms, and will not impair the interests of the Company and the Shareholders as a whole.

INFORMATION ON THE JOINCARE GROUP

Joincare is a joint stock company incorporated in the PRC and was listed on the Shanghai Stock Exchange in 2001. It is principally engaged in three major business segments, namely (a) the production and sales of drug preparation products; (b) the production and sales of bulk medicines and intermediates; and (c) the research, production and sales of healthcare products. Mr. Zhu Baoguo, the chairman of the Company and a non-executive Director, is also the chairman and a director of Joincare as well as the ultimate beneficial owner of Joincare. Mr. Qiu Qingfeng, a non-executive Director, is also a director and a vice general manager of Joincare. Mr. Zhong Shan, a non-executive Director, is also a vice general manager of Joincare.

LISTING RULES IMPLICATIONS

As at the Latest Practicable Date, Joincare directly and indirectly owned 116,301,300 A Shares of the Company and 74,358,067 H Shares of the Company, representing in aggregate approximately 44.78% of the total issued share capital of the Company and therefore Joincare is a Controlling Shareholder of the Company. Accordingly, Joincare and its associates are connected persons of the Company and the transactions contemplated under the 2017 Joincare Purchases Framework Agreement constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules. Mr. Zhu Baoguo, Mr. Qiu Qingfeng and Mr. Zhong Shan have abstained from voting in the meeting of the Board in which the 2017 Joincare Purchases Framework Agreement and the transactions contemplated thereunder and the proposed annual caps were approved. Save as disclosed above, none of the Director has material interest in the 2017 Joincare Purchases Framework Agreement and transactions contemplated thereunder, and no Director is required to abstain from voting for the resolution in relation to considering and approving the said matters according to the Articles of Association.

As the highest applicable percentage ratio for the proposed annual caps under the 2017 Joincare Purchases Framework Agreement exceeds 5%, the transactions contemplated under the 2017 Joincare Purchases Framework Agreement are therefore subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

– 18 –

LETTER FROM THE BOARD

An Independent Board Committee comprising all the independent non-executive Directors, namely Mr. Xu Yanjun, Mr. Guo Guoqing, Mr. Wang Xiaojun, Mr. Zheng Zhihua and Mr. Xie Yun, has been established to advise the Independent Shareholders on the terms of the 2017 Joincare Purchases Framework Agreement (including the annual caps) and the transactions contemplated thereunder. Frontpage Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

II. ADDITION OF IMPLEMENTATION SUBJECT FOR THE FUND-RAISING INVESTMENT PROJECT

Reference is made to the announcements of the Company dated 2 November 2015 and 8 March 2016, and the circulars of the Company dated 26 November 2015 and 8 April 2016, in relation to, among others, the Company’s non-public issuance of A Shares and its feasibility report.

As disclosed in the announcement of the Company dated 25 October 2016, the 30th meeting of the eighth session of the Board has approved the addition of implementation subject for the fund-raising investment project of the Company. An ordinary resolution will be proposed at the EGM to approve the addition of implementation subject for the fund-raising investment project of the Company, details of which are as follows:

The Company’s proposal of the non-public issuance of A Shares have been approved by the CSRC and the related issuance has been completed. The project of ‘‘deeper development and industrialization upgrade of series of innovative Ilaprazole’’, one of the fund-raising investment projects, is based on the existing product of the Company – Ilaprazole Enteric-coated Tablet (trade name: Ilaprazole（壹麗安））, which is used for duodenal ulcer treatment and available in 5mg enteric-coated tablet.

The project is entirely carried out by the Company and a total investment of RMB450.00 million is projected. The project includes new dosage forms and indications of Ilaprazole entericcoated tablet and Ilaprazole Sodium for injection, post-marketing clinical research (including phase IV clinical trial and pharmacoeconomic studies), quality standard improvement and industrialization development, technical reconstruction and expansion of production capacity and etc, as well as preclinical research, clinical research, post-marketing clinical research, industrialization development and technical reconstruction of Ilaprazole optical isomer preparation and Ilaprazole compound preparation.

– 19 –

LETTER FROM THE BOARD

In order to enhance the efficiency of the project and to further ramp up production capacity, to ensure quality and to defend the Company’s technical advantage and market advantage, the Board has approved the Company’s wholly-owned subsidiary Pharmaceutical Factory as the additional implementation subject of the project of ‘‘deeper development and industrialization upgrade of series of innovative Ilaprazole’’.

The addition of implementation subject for the aforesaid fund-raising investment project will not result in any change in the investment direction of the project, or any impact on the implementation of the project, or any adverse impact on the Company’s financial position. The Company will strictly comply with the Shenzhen Listing Rules, the Guidelines of the Shenzhen Stock Exchange for the Standardized Operation of Companies Listed on the Main Board（《深圳證券交易所主板上市公司規範運作指引》）, the Listed Companies Regulatory Guidance No.2 – Regulatory Requirements on the Management and Use of Proceeds of Listed Companies（《上市公司監管指引第2號－上市公司募集資金管理和使用的監管要求》）and the Administrative Rules for Raising Proceeds by Livzon Pharmaceutical Group Inc.（《麗珠醫藥集團股份有限公司募集資金管理制度》）to enhance the administration of the proceeds from the non-public issuance and ensure the legal and effective use of the proceeds.

III. EGM

If you would like to attend the EGM in person or by proxy, please complete the reply slip in accordance with the instructions printed thereon and return it to the H Share Registrar of the Company, Tricor Investor Services Limited, at Level 22, Hopewell Centre, 183 Queen’s Road East, Hong Kong by hand, by post or by fax in any event on or before Saturday, 3 December 2016. If you would like to attend the EGM by proxy, please complete the proxy form in accordance with the instructions printed thereon and return it to the H Share Registrar of the Company, Tricor Investor Services Limited, as soon as possible and in any event no later than 24 hours before the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting at the EGM or any adjournment thereof in person if you so wish.

– 20 –

LETTER FROM THE BOARD

IV. RECOMMENDATION

The Independent Board Committee and the Board, having taken into account the advice of the Independent Financial Adviser, consider that the terms of the 2017 Joincare Purchases Framework Agreement (including the proposed annual caps) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned, and that the transactions contemplated under the 2017 Joincare Purchases Framework Agreement are in the interests of the Company and the Shareholders as a whole. In addition, the 2017 Joincare Purchases Framework Agreement was entered into by the Group in its ordinary and usual course of business. Accordingly, the Independent Board Committee and the Board recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM.

Further, the Board considers that the resolution set out in the EGM Notice in relation to the addition of implementation subject for the fund-raising investment project of the Company is in the best interests of the Company and the Shareholders as a whole, and recommends Shareholders to vote in favour of the aforesaid resolution at the EGM.

V. ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendix to this circular.

By order of the Board 麗珠醫藥集團股份有限公司 Livzon Pharmaceutical Group Inc.* Yang Liang Company Secretary

5 December 2016 Zhuhai, China

As at the date of this circular, the Executive Directors of the Company are Mr. Tao Desheng (Vice Chairman and President), Mr. Fu Daotian (Vice President) and Mr. Yang Daihong (Vice President); the Non-Executive Directors of the Company are Mr. Zhu Baoguo (Chairman), Mr. Qiu Qingfeng and Mr. Zhong Shan; and the Independent Non-Executive Directors of the Company are Mr. Xu Yanjun, Mr. Guo Guoqing, Mr. Wang Xiaojun, Mr. Zheng Zhihua and Mr. Xie Yun.

For identification purpose only

– 21 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

(a joint stock company incorporated in the People’s Republic of China with limited liability) (Stock code: 1513)

5 December 2016

To the Independent Shareholders

Dear Sir or Madam,

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2017 TO 2019

We refer to the circular dated 5 December 2016 issued by the Company (the ‘‘Circular’’), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

We have been appointed to advise the Independent Shareholders in connection with the terms of the 2017 Joincare Purchases Framework Agreement (including the annual caps) and the transactions contemplated thereunder. Frontpage Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

After taking into account the advice of the Independent Financial Adviser as set out from pages 23 to 41 of the Circular, we are of the view that the terms of the 2017 Joincare Purchases Framework Agreement (including the annual caps) are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned, and that the transactions contemplated under the 2017 Joincare Purchases Framework Agreement are in the interests of the Company and the Shareholders as a whole. In addition, the 2017 Joincare Purchases Framework Agreement was entered into by the Group in its ordinary and usual course of business.

Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to approve the 2017 Joincare Purchases Framework Agreement, the transactions contemplated thereunder and the proposed annual caps.

Yours faithfully,

Independent Board Committee Mr. Xu Yanjun Mr. Guo Guoqing Mr. Wang Xiaojun Mr. Zheng Zhihua Mr. Xie Yun Independent non-executive Directors

For identification purpose only

– 22 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is the text of a letter received from Frontpage Capital, the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the 2017 Joincare Purchases Framework Agreement, the transactions contemplated thereunder and the proposed annual caps for the purpose of inclusion in this circular.

5 December 2016

The Independent Board Committee and the Independent Shareholders of

Livzon Pharmaceutical Group Inc.*

Dear Sirs,

RENEWAL OF THE CONTINUING CONNECTED TRANSACTIONS FOR 2017 TO 2019

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the 2017 Joincare Purchases Framework Agreement and the transactions contemplated thereunder, whereby the Joincare Group shall sell certain products and raw materials to the Group in order to satisfy its production needs of antifungal and antibiotics related drug preparation products. Details of the terms of the continuing connected transactions and the annual caps for the three years ending 31 December 2017, 2018 and 2019 are set out in the Letter from the Board (the ‘‘Board Letter’’) contained in the circular of the Company dated 5 December 2016 issued to the Shareholders (the ‘‘Circular’’), of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as those defined in the Circular, unless otherwise specified.

Since Joincare directly and indirectly holds an approximately 44.78% equity interest in the Company, Joincare is a controlling Shareholder of the Company. Accordingly, Joincare and its associates are connected persons of the Company and the transactions contemplated under the 2017 Joincare Purchases Framework Agreement (the ‘‘Continuing Connected Transactions’’) constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules.

Based on the highest percentage ratio for the proposed annual caps under the 2017 Joincare Purchases Framework Agreement which exceeds 5%, the transactions contemplated under the 2017 Joincare Purchases Framework Agreement constitute non-exempt continuing connected transactions of the Company that are subject to the reporting, annual review, announcement and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

– 23 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In view of the interests of Joincare in the Company, Joincare, Shenzhen Haibin Pharmaceutical Co., Ltd., Topsino Industries Limited and their respective associates will abstain from voting in relation to the resolution(s) to approve the transactions contemplated under the 2017 Joincare Purchases Framework Agreement. In addition, Mr. Zhu Baoguo, Mr. Qiu Qingfeng and Mr. Zhong Shan have abstained from voting in the meeting of the Board in which the 2017 Joincare Purchases Framework Agreement and the transactions contemplated thereunder were approved.

The Independent Board Committee, comprising all the independent non-executive Directors, namely Mr. Xu Yanjun, Mr. Guo Guoqing, Mr. Wang Xiaojun, Mr. Zheng Zhihua and Mr. Xie Yun, has been established to advise the Independent Shareholders as regards the fairness and reasonableness of the terms of the 2017 Joincare Purchases Framework Agreement (including the proposed annual caps) and the transactions contemplated thereunder, and to make a recommendation to the Independent Shareholders in respect thereof.

We have been appointed by the Company to advise the Independent Board Committee and the Independent Shareholders on whether (i) the terms and annual caps of the 2017 Joincare Purchases Framework Agreement are on normal commercial terms, in the ordinary and usual course of business of the Company, fair and reasonable insofar as the Independent Shareholders are concerned; and (ii) whether the entering into of the 2017 Joincare Purchases Framework Agreement is in the interests of the Company and the Shareholders as a whole.

Apart from normal professional fees for our services to the Company in connection with the engagement described above, no arrangement exists whereby we will receive any fees and benefits from the Group, Joincare or, where applicable, any of their respective associates. We are independent from and not connected with the Group, Joincare or, where applicable, any of their respective substantial shareholders, directors or chief executive, or any of their respective associates pursuant to Rule 13.84 of the Listing Rules, and are accordingly qualified to give independent advice to the Independent Board Committee and the Independent Shareholders regarding the Continuing Connected Transactions.

BASIS OF OPINION

In putting forth our recommendation, we have considered, among other things, the 2017 Joincare Purchases Framework Agreement and other information as set out in the Circular. We have also relied on all relevant information, opinions and facts supplied and representations made to us by the Directors and the representatives of the Company.

– 24 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have assumed that all such information, opinions, facts and representations, which have been provided to us by the Directors or the representatives of the Company, for which they are fully responsible, are true, accurate and complete in all respects. The Company has also confirmed to us that no material facts have been omitted from the information supplied and we have no reason to suspect that any material information has been withheld by the Company or is misleading.

We consider that we have reviewed sufficient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out independent verification of the information provided by the Directors and the representatives of the Company, nor have we conducted any form of in-depth investigation into the businesses, affairs, operations, financial position or future prospects of each of the Group, Joincare Group and any of their respective subsidiaries and associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In considering whether the terms and the entering into of the 2017 Joincare Purchases Framework Agreement including the proposed annual caps are on normal commercial terms in the ordinary and usual course of business of the Group, fair and reasonable insofar as the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole, we have taken into account the following principal factors and reasons:

I. Background of and reasons for entering into of the 2017 Joincare Purchases Framework Agreement

The Company is a PRC based pharmaceutical company which is principally engaged in the research and development, production and sales of pharmaceutical products.

Joincare is a joint stock company incorporated in the PRC and was listed on the Shanghai Stock Exchange in 2001. It is principally engaged in three major business segments, namely (a) the production and sales of drug preparation products; (b) the production and sales of bulk medicines and intermediates; and (c) the research, production and sales of healthcare products. Joincare established its leading position in the healthcare industry with one of its well-known products, the ‘‘Taitai Oral Liquid’’. Members of the Group have commenced purchasing products and raw materials mainly used for the production of antifungal and antibiotics related drug preparation products from members of the Joincare Group since the year ended 31 December 2007. The management of the Company has represented to us that no material issue on the quality of the products and raw materials from members of the Joincare Group were noted.

– 25 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in the Board Letter, as the Group has been continuously expanding its business, and the Group will keep on developing and manufacturing various kinds of antifungal and antibiotics related products and new products from time to time. In order to facilitate the future growth of the Group’s business, the Group anticipates that more products and raw materials for the manufacture of the said products, of which the Company is currently procuring form the Joincare Group under the 2014 Joincare Purchases Agreement (as supplemented and amended by the Supplemental Agreement), will be required for the Group’s future business growth.

The terms of the 2014 Joincare Purchases Agreement (as supplemented and amended by the Supplemental Agreement) and its annual caps will expire on 31 December 2016. Taking into account factors such as the quality and price of raw materials supplied by the relevant members of Joincare Group and the reputation of Joincare, the Directors propose to seek Independent Shareholders’ approval to renew the Continuing Connected Transactions for a term up to 31 December 2019 in order to comply with the continuing connected transaction requirements under the Listing Rules, and to ensure that the Group and Joincare can continue the existing trading transactions under the existing raw materials purchases agreement. The Group considers that the purchase of raw materials under the 2017 Joincare Purchases Framework Agreement is necessary to facilitate the Group’s business development plan, and will improve the competitiveness, quality and price of the Group’s products.

Based on the above, the Directors are of the view that the 2017 Joincare Purchases Framework Agreement was entered into in the ordinary course of business and on normal commercial terms which are fair and reasonable, and in the interests of the Company and the Shareholders as a whole.

Having considered that:

the Group has established business relationship with the Joincare Group;
the purchase of raw materials are recurring transactions of the Group and the entering into of the 2017 Joincare Purchases Framework Agreement will enable the Group to continue its business with the Joincare Group;
the Continuing Connected Transactions are in line with the existing business activities of the Group;
the 2017 Joincare Purchases Framework Agreement can help the Group ensuring stable supply of quality raw materials from the Joincare Group; and
the transactions contemplated under the 2017 Joincare Purchases Framework Agreement shall be conducted on an arm’s length basis and on terms that are fair and reasonable to the Company.

– 26 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

we concur with the view of the Directors that the entering into of the 2017 Joincare Purchases Framework Agreement is in the ordinary and usual course of business of the Company and is in the interests of the Company and the Shareholders as a whole.

II. Principal terms of the 2017 Joincare Purchases Framework Agreement

Pursuant to the 2017 Joincare Purchases Framework Agreement, the parties have agreed conditionally that Joincare shall sell products and raw materials which are mainly used for the production of antifungal and antibiotics related drug preparation products to certain members of the Group from time to time in accordance with the terms of the 2017 Joincare Purchases Framework Agreement for a period of three years commencing from 1 January 2017 to 31 December 2019. The 2017 Joincare Purchases Framework Agreement will be conditional upon, among other things, the approval of the Independent Shareholders at the EGM. Pursuant to the 2017 Joincare Purchases Framework Agreement, the products and raw materials to be supplied by the Joincare Group to the Group include (but not limited to) voriconazole, 7-ACA and D7-ACA, which are mainly used for the production of the Group’s antifungal and antibiotics related drug preparation products. As stated in the Board Letter, the primary products and raw materials to be purchased by the Group from the Joincare Group would be voriconazole, 7-ACA and D7-ACA, etc. which were expected to continue to account for over 90% of the total purchases from the Joincare Group under the proposed annual cap for each of the three years ending 31 December 2019 as compared with the existing total purchases. The relevant members of the Group may from time to time place purchase orders with detail terms for the purchase of products and raw materials, provided that such detailed terms shall not contravene the terms of the 2017 Joincare Purchases Framework Agreement. The actual quantity, types, prices, and settlement arrangements of the products and raw materials to be sold to the relevant members of the Group shall be subject to the individual purchase order to be placed by the relevant members of the Group with the relevant members of the Joincare Group from time to time.

As stated in the Board Letter, in particular, the prices at which the products and raw materials are to be sold by the relevant members of the Joincare Group to the relevant members of the Group shall be (i) the indicative prices (if any) prescribed by the national price administration department; (ii) where (i) is not available, the comparable market prices based on quotation(s) obtained from other third party suppliers; or (iii) where (i) and (ii) are not available, the prices to be agreed between the parties, provided that such prices and other terms shall not be less favorable than the prices and terms offered by Joincare Group to third parties for similar transactions.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the management of the Company and our independent research on the website of the National Development and Reform Commission (http://www.ndrc.gov.cn) regarding voriconazole, 7-ACA and D7-ACA, it is noted that there is no indicative prices prescribed by the national price administrative department, nor was there a standard price list, for the products under the 2017 Joincare Purchases Framework Agreement. Nonetheless, pursuant to the 2017 Joincare Purchases Framework Agreement, should the indicative prices promulgated by the national price administrative department for the products or raw materials to be purchased from Joincare becoming available in the future, the Joincare Group and the Group will abide by such prices so as to comply with the applicable rules and regulations. In the absence of such indicative prices, the prices of the major products and raw materials purchased by members of the Group from the Joincare Group are either 1) by reference to the prevailing market price of the same products and raw materials being offered by Independent Third Parties with comparable order quantities and quality; or 2) on normal commercial terms no less favorable to those offered to Independent Third Parties by the Joincare Group in respect of the same products and raw materials with comparable quantities if 1) is not available. As stated in the Board Letter, for all products and raw materials to be purchased from the Joincare Group, the same pricing principle of taking reference to the prevailing market price and being not less favourable to comparable quotations offered by Independent Third Parties applies. Based on the aforementioned pricing principles, the purchase price for 7-ACA and D7-ACA shall be principally determined with reference to the lowest price offered from the comparable quotations by two Independent Third Parties whereas the purchase price for voriconazole shall be principally determined with reference to the price offered by an Independent Third Party (given there is only two suppliers that supply the required sterile raw materials for voriconazole in the PRC market, namely the Joincare Group and another Independent Third Party). The pricing principles above are in line with the historical and existing principles adopted in the three years ended 31 December 2016.

According to the Board Letter, the Group has relevant policies and procedures to ensure the Company’s conformity with the above pricing principles from time to time, including 1) the Group will invite one to two quotations from independent suppliers (depending on the availability of quotations obtained at the particular time) to give a reference on the prevailing market prices for the relevant products and raw materials to be procured. Such quotations will be reviewed and evaluated from both the technical and commercial perspectives, including but not limited to price, supply sustainability, product quality and the length of payment period, by qualified personnel of the Group, comprising the officer of the procurement department, the manager of the procurement department with over 16 years of working experience, and the senior officer of the finance department specialising in material procurement, to ensure that the prices of the products and raw materials to be procured from the Joincare Group are no less favorable to the prices for such

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

products and raw materials being offered by Independent Third Parties and the transactions are to be conducted on normal commercial terms. As advised by the management of the Company, in respect of the procurement of raw materials, the officer of the procurement department will select potential suppliers from the internal approved list of qualified suppliers. The price examiner then evaluates the quotations obtained from the short-listed suppliers. Following with the meeting held by the officer of the procurement and tender committee, the tender committee will then contact all short-listed suppliers for second round quotations to select the optimal supplier. The manager of the procurement department will review the selected supplier and its quotation. Upon approval from the procurement manager, the procurement department will then pass the quotation obtained from the selected supplier to the finance department. The senior officer of the finance department will review the prices of the products and raw materials to be procured from the Joincare Group. Such personnel will also review other applicable terms of the quotations from independent suppliers (including but not limited to product quality assurance, payment terms and terms on delivery timing) in order to ascertain whether the terms of the individual purchase order are on normal commercial terms; and 2) the Group will conduct regular checks to review and assess whether the products and raw materials have been purchased in accordance with the terms of the 2017 Joincare Purchases Framework Agreement. Such checks will be conducted by the financial controller of the Group on a monthly basis and the secretary of the Board on a quarterly basis. We have been provided with sample procurement approval forms of comparable transactions carried out in 2016, and we consider that the abovementioned review process is in place.

We have been provided with samples of quotations from independent suppliers and samples of procurement contracts signed between the Company and Joincare in respect of purchases of raw materials in 2016, of which the comparable transactions were related to the particular types of raw materials, namely voriconazole, 7-ACA and D7-ACA, conducted during the nine months ended 30 September 2016. We are advised by the Company that these samples are typical transactions of the relevant kind. On this basis and given that the samples obtained included the major raw materials contemplated under the 2017 Joincare Purchases Framework Agreement, we consider that we have reviewed fair and representative samples. We noted that the prices of the products and raw materials to be purchased by the Group from the Joincare Group were no less favorable to the prices for such products and raw materials being offered by Independent Third Parties and the transactions are on normal commercial terms comparable to those offered by Independent Third Parties in respect of the same products and raw materials with comparable quantities. It is also noted that the credit term of purchases from the Joincare Group is similar to the credit term offered by various independent suppliers as shown in the sample quotations obtained. Accordingly, we are of the view that the payment terms under the 2017 Joincare Purchases Framework Agreement is fair and reasonable so far as the Company and the Independent Shareholders are concerned.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The independent non-executive Directors of the Company have reviewed and would continue to review the non-exempt continuing connected transactions to ensure such agreements are entered into on normal commercial terms, are fair and reasonable, and are carried out pursuant to the terms of such agreements. The auditors of the Company would also conduct an annual review on the pricing terms and annual caps of such non-exempt continuing connected transactions.

Having considered that (i) the transactions contemplated under the 2017 Joincare Purchases Framework Agreement have been carried out by the Group in its ordinary and usual course of business; (ii) the terms of the 2017 Joincare Purchases Framework Agreement are normal commercial terms and on terms no less favorable to the Group than those offered by Independent Third Parties; and (iii) the measures in place to ensure the Company’s conformity with the procurement policies from time to time, we are of the view that the terms of the 2017 Joincare Purchases Framework Agreement (including the pricing principles) are fair and reasonable so far as the Company and the Independent Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.

III. Review of the Continuing Connected Transaction by the auditors

The auditors of the Company have performed a review of the Continuing Connected Transactions for the three financial years ended 31 December 2015 (the ‘‘Past Transactions’’). We noted from the 2013, 2014 and 2015 annual reports of the Company (the ‘‘Annual Reports’’) and understood from the management of the Company that the auditors confirmed that the Past Transactions (a) had received the approval of the Board; (b) were, in all material respects, in accordance with the pricing policies of the Group; (c) had been entered into, in all material respects, in accordance with terms of the relevant agreements governing them; and (d) had not exceeded the relevant annual caps. Accordingly, we consider that the Group has established a good track record on compliance matters in relation to the Continuing Connected Transactions.

Given the above and (i) the independent non-executive Directors will continue to, pursuant to Rule 14A.55 of the Listing Rules, review, among other things, whether the transactions contemplated under the 2017 Joincare Purchases Framework Agreement are conducted on normal and commercial terms; and (ii) the auditors of the Company will continue to review transactions contemplated under the 2017 Joincare Purchases Framework Agreement in accordance with Rule 14A.56 of the Listing Rule, we are of the view that adequate measures have been put in place, as required under the Listing Rules mentioned above, to monitor the transactions contemplated under the 2017 Joincare Purchases Framework Agreement in order to protect the interests of the Company and the Independent Shareholders.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

IV. Historical transactions and proposed annual monetary caps

As stated in the Board Letter, (i) the historical annual caps and the historical transaction amounts under the 2014 Joincare Purchases Agreement and (ii) the proposed annual caps are as follow:

		For the year	For the year For the year	For the year For the year	For the nine
		ended 31	ended 31 ended 31		months ended
		December	December December		30 September
		2013		2014 2015	2016
		(RMB million)	(RMB million) (RMB million)		(RMB million)
Historical	transaction amounts	149.05		237.82 294.18	247.74
		For	the year	For the year	For the year
			ended 31	ended 31	ending 31
		December 2014		December 2015	December 2016
		(RMB million)		(RMB million)	(RMB million)
Historical	Annual Caps		260	340	572
		For	the year	For the year	For the year
		ending 31		ending 31	ending 31
		December 2017		December 2018	December 2019
		(RMB million)		(RMB million)	(RMB million)
Proposed	annual caps		382	421	473

In arriving at the proposed annual caps, the Directors have taken the followings into account:

(i) the historical transaction amounts between members of the Group and the Joincare Group;
(ii) the internal projection of the development of the Group’s business, which in turn is based on prevailing market condition and demand for the Group’s products and the prevailing market prices for the relevant raw materials;
(iii) the business development plan of the Group with reference to the historical growth of the PRC pharmaceutical industry; and
(iv) the Group’s potential in increasing its market share in the area of bulk medicine (including cephalosporins category) and intermediates.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

It is noted that the annual cap for the year ending 31 December 2017 of RMB382.0 million represented an increase of about RMB134.26 million as compared to the historical transaction amount for the nine months ended 30 September 2016. The increase in the annual cap for the year ending 31 December 2017 is mainly attributable to the increase in purchases of the corresponding raw materials of cephalosporins category products s (i.e. 7- ACA and D7-ACA) and voriconazole products as a result of the expected increase in market demand for the relevant products in future. In addition, a year-on-year increase of the proposed annual caps in 2018 and 2019 of approximately 10.21% and 12.35% respectively was estimated after taking into account the year-on-year growth of the Group’s operating income of approximately 19.41% for the year ended 31 December 2015.

In assessing whether the proposed annual caps under the 2017 Joincare Purchases Framework Agreement are fair and reasonable, we have considered the following:

i) Increase in market demand

As advised by the management of the Company, due to the continuous increase of market demand for the antifungal and antibiotics related products and the reinforcement of marketing management by the Company, the Company recorded a significant increase in the sales of its (i) antibiotics related products and (ii) bulk medicine (including cephalosporins category) and intermediates. In particular, sales of bulk medicines and intermediates increased by 33.11% from approximately RMB1,139.19 million for the year ended 2014 to approximately RMB1,516.34 million for the year ended 2015.

In respect of voriconzale products (antifungal products)

According to the Board Letter, voriconazole, the primary raw materials used for production of the Company’s new preparation model of voriconazole for injection, is expected to contribute approximately 10.40%, 12.74% and 15.31% of the proposed annual caps for 2017, 2018 and 2019, respectively. The demand of voriconazole by the Group is expected to grow at a growth rate of approximately 23.43%, 35.00% and 35.00% for each of 2017, 2018 and 2019. As advised by the management of the Company, the Company endeavours to research and develop new preparation model of voriconazole for injection（注射用伏立康唑）, prepared by way of sterile lyophilisation, which are one of the antifungal products with high product safety and efficacy. The Group’s existing

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

preparation model of voriconazole for injection with dosage volume of 0.1g, namely Voriconazole for Injection（麗福康）, is prepared in form of sterile powder filling. It was launched into the market in 2006 and was selected to be listed on the National Medicine Catalogue in 2009. As advised by the management of the Company, the new preparation model of voriconazole for injection by way of sterile lyophilisation has higher solubility which offers more convenient and efficient of dosage to users. We have been provided with the relevant Clinical Test Approval（臨床試驗批件）of the new preparation model of voriconazole for injection in February 2014 and the submission record of application for the Drug Registration Approval（藥品註冊批件）to China Food and Drug Administration（國家食品藥品監管總局）in early November 2016. The Company expects such new preparation model of voriconazole for injection will be approved and launched in 2017.

When forecasting its production volume of voriconazole for injection products for the coming years 2017 to 2019, the Group have taking into account (i) the average market growth rate of domestic voriconazole for injection in past three years was 31.8%, while the average growth rate of the Group was 38% (ii) the share of voriconazole for injection in the voriconazole market has increased over the last three years from approximately 30% to 34% (iii) the introduction of the new preparation model of voriconazole for injection offers more convenient and efficient of dosage to users which will increase the Company’s market share; and (iv) a year-by-year increase of the incidence of fungal disease and the aging population, thereby promoting the future market capacity of antifungal products. The Company has further advised us that sales of Group’s existing voriconazole for injection product increased from approximately 448,000 bottles for the year ended 31 December 2013 to approximately 833,000 bottles for the year ended 31 December 2015, representing a CAGR of 36.36% for the past three years ended 31 December 2015. The Company expected that the Group’s market share will be enlarged in the future, taking into account the rapid historical growth of sales of such products and the launching of the new preparation model of voriconazole for injection. As advised by the management of the Company, the Company expects that the new preparation model of voriconazole for injection will increase the relative market demand given that the improved solubility by sterile lyophilisation technology can alleviate the transfusion burden of the patients, as compared to the existing preparation model.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We conducted an independent research on the website of China Food and Drug Administration（國家食品藥品監管總局）(http://www.sda.gov.cn/) regarding voriconazole for injection（注射用伏立康唑）, and it is noted that there were only four and two preparation models of voriconazole for injection manufactured by four domestic manufacturers (including the Group) and one overseas manufacturer, respectively, which were listed on the National Medicine Catalogue. Among these existing preparation models of voriconazole for injection, each of them have different dosage volume. The four preparation models of voriconazole for injection domestically manufactured had dosage volume of 0.1g (the Group), 0.2g, 50mg and 0.1g (in powder form), respectively, and the two preparation models of voriconazole for injection imported had dosage volume of 0.2g and 200mg respectively.

We have searched for listed companies (the ‘‘Peer Companies’’), including the five manufacturers (including the Group) above identified from the website of China Food and Drug Administration (http://www.sda.gov.cn/), which are also engaging in manufacture and sales of voriconazole products. To the best of our knowledge, the Peer Companies are exhaustive. Details of the Peer Companies are set out as follow:

			Segmental
			revenue
			Y-o-Y
			growth rate
Company	Stock code	Relevant segment	(Note)
Pfizer Inc.	PFE:US	Injectable Pharmaceuticals	38.17%
Zhejiang Huahai	600521:CH	Raw materials and	16.15%
Pharmaceutical		intermediate sales
Company Limited
Chongqing Lummy	300006:CH	Anti-infective	6.40%
Pharmaceutical Co., Ltd.
Chengdu Huasun	000790:CH	Pharmaceutical Division	6.31%
Group Inc., Ltd.
Uni-Bio Science Group Ltd.	690:HK	Voriconazole	33.5%

Note: Based on respective latest annual results publicly available.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

According to the above table, the year-to-year growth rate for sales of voriconazole products ranged from 6.31% to 38.17%. The Group’s expected growth rates of 23.43% to 35.00% are within the aforesaid range. Accordingly, we consider that the expected growth rates of 23.43% to 35.00% to be acceptable.

As further advised by the management of the Company, the Group’s existing Voriconazole for Injection（麗福康）is more price-competitive as compared with imported voriconazole for injection. The Company also advised us that it implemented a share incentive assessment scheme to boost the sales volume of its key products and the company’s production line for antifungal products is sufficient to fully meet the forecasted demand for 2017 to 2019, in which the Company expected that it will further increase the production volume of antifungal products of Pharmaceutical Factory. Therefore, we concur with the Directors that there are rooms for the Group to enlarge its market share in the future given the growing of market size of such products and a limited number of market players, and the Company’s assumptions on the production volume for 2017 to 2019 is fair and reasonable.

In respect of bulk medicine (including cephalosporins category) in which 7-ACA and D7-ACA are major raw materials

According to the Board Letter, 7-ACA and D7-ACA, the primary raw materials used for production of the Company’s cephalosporins categories bulk medicine products, is expected to contribute approximately 85.72%, 83.74% and 81.19% of the proposed annual caps for 2017, 2018 and 2019, respectively. The demand of 7-ACA and D7-ACA by the Group is expected to grow at a growth rate of approximately 18.94%, 7.67% and 8.93% for each of 2017, 2018 and 2019. When forecasting its demand for 7-ACA and D7-ACA in the coming years 2017 to 2019, the Group have taking into account (i) the growth rate of the sales of the Chinese and Indian cephalosporins category bulk medicine products of the Group in 2015 of approximately 21.55%, (ii) the expected increase in market shares in Chinese and Indian cephalosporins category bulk medicine market, (iii) the expansion of customer base by developing business relationship with new customers and strengthening the cooperation with regular customers. The Company has included a greater buffer for the expected increase in the sales volume of the Chinese and Indian cephalosporins category bulk medicine products in 2017 to capture the potential positive effect arises from its marketing

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

promotion plan to be implemented from 2017, including increasing presence in more domestic and overseas pharmaceutical trade shows, enhancing attendance appraisal for the salesmen, and improving contact frequency and communication with customers. The Company expected that the product volume in the Chinese and Indian cephalosporins category bulk medicine market will continue to increase steadily in 2018 and 2019.

The Group’s cephalosporins category bulk medicines include Cefodizime sodium（頭孢地嗪鈉）, Cefuroxime sodium（頭孢呋辛鈉）, Ceftriaxone sodium （頭孢曲松鈉）, crude Ceftriaxone sodium（頭孢曲松鈉粗品）, Ceftazidime/ Sodium carbonate（頭孢他啶╱碳酸鈉）and Ceftriaxone sodium mixed with sulbactam sodium（頭孢曲松鈉混舒巴坦鈉）. The Company will leverage on its quality products and services to increase its shares in Chinese and Indian cephalosporins category bulk medicine market in the future, and the Company is planning to explore the European cephalosporins category bulk medicine market, expecting to increase its sales volume to those markets. The Company’s shares in Chinese and Indian cephalosporins categories bulk medicine market is expected to grow as (a) the regular customers of the Company in those markets have increased their demand for the Company’s cephalosporins categories bulk medicine products; (b) the Company will proactively develop new customers and stabilize the collaboration with its regular customers in those markets. Riding on such potential growth in the relevant market, the Group expects that the product volume in the Chinese and Indian cephalosporins categories bulk medicine markets will continue to increase steadily.

In respect of the Group’s market expansion plan overseas, we have discussed with the management of the Company, and we were advised that the Group’s sales to overseas market increased from approximately RMB342.02 million for the year ended 31 December 2013 to approximately RMB634.92 million for the year ended 31 December 2015, representing a CAGR of 36.25% for the past three years ended 31 December 2015. In particular, India has been the Group’s largest overseas market, as advised by the Company, contributed approximately 48.61%, 47.83% and 44.72% of operating income from overseas sales for each of the three years ended 31 December 2015. The Company foresees the potential of the overseas markets and expects to increase its sales volume to those markets.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We have obtained and reviewed lists of new customers (domestic and export) and the relevant sales contracts of the Group. A summary of number of new cephalosporins categories customers for the nine months ended 30 September 2016 is as follow:

Domestic Export

For the nine months ended 30 September 2016

Number of new customers 23 35

These new customers have contributed approximately 10% of our total sales of cephalosporins category bulk medicine products in the relevant period. We have also reviewed the Group’s historical transaction amounts with the domestic regular customers and export regular customers. The sales of cephalosporins categories products to the Group’s top 20 customers (domestic and export) is expected to increase by approximately 7.7% for the year ending 31 December 2016 (annualized based on actual sales for nine months ended 30 September 2016) as compared to the year ended 31 December 2015.

As further advised by the management of the Company, the Group had completed the registration and have obtained the relevant certificate for the export of the cephalosporins category bulk medicine to India. We were provided with registration certificate from the Drugs Controller General of the Directorate General of Health Services in India. Based on the export channels and the enlarging customer base the Group have established, we consider that the Group has the capability to execute its market expansion plan.

We have studied several market research in the global market for antibiotics, particularly cephalosporins categories products, based on publicly available sources. We have identified a relevant report from BCC Research LLC, which is a leading market research company in science and technology, and TechNavio, the market research platform of Infiniti Research Ltd., which is a research company with global coverage focusing on emerging market trends. BCC Research LLC has been providing high-quality, technology market research

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

reports and technical publications for more than 40 years and TechNavio covers more than 100 industries across 50 countries delivering over 5,000 research deliverables every year, and we consider these research reliable. According to the market reports, the global cephalosporin market is forecasted to grow at a CAGR of 3.21% over the period 2014 to 2019. Asian countries account for the fastestgrowing market due to the increasing aging population, increasing GDP rate and increasing awareness about healthcare. In particular, antibiotic manufacturers are compelled to explore new regions, such as India, China and Brazil, for growth opportunities in light of economic conditions and cost-containment issues. We are of the view that the information disclosed in the market researches are reasonable and in-line with the Group’s situation.

Based on our observation above, we are of the view that the Group’s expected demand of 7-ACA and D7-ACA is in line with the expected growth rate of the sales of cephalosporins categories products, and the Group’s assumption in respect of the sales of cephalosporins categories products is fair and reasonable.

ii) Historical amounts

The Group’s demand for the raw materials largely depends on the business scale and business growth of the Group. According to the 2015 annual report of the Company, the material costs of the Group in 2015 and 2014 amounted to approximately RMB1,811.56 million and RMB1,594.23 million respectively. As advised by the management of the Group, the aggregate cost of purchases of the major raw materials from the Joincare Group, namely voriconazole, 7-ACA and D7-ACA, in 2015 and 2014 amounted to approximately RMB293.97 million and RMB237.26 million respectively representing about 16.23% and 14.88% of the material costs of the Group in the respective years. As the Group continues to grow in business scale in the future, the Group would demand for more raw materials.

The historical purchase amount of raw materials by the Group from Joincare Group showed a robust growth, from approximately RMB149.05 million for the year ended 31 December 2013 to approximately RMB294.18 million for the year ended 31 December 2015, representing a CAGR of 40.49%.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We noted that the utilisation rate of annual caps under the 2014 Joincare Purchases Agreement has maintained at a relatively high level of approximately 91.47% and 86.52% respectively in the year 2014 and 2015. We also noted that for the nine months period ended 30 September 2016, purchase of raw materials from Joincare Group was amounted to approximately RMB247.74 million, representing 84.21% of the total purchase from Joincare Group for the whole year 2015 and expected to reach to approximately RMB307.74 million for the year ending 31 December 2016, representing approximately 53.8% of the approved annual cap of RMB572.00 million for the year ending 31 December 2016. We have discussed with the management of the Company that the difference between the approved annual cap for the year 31 December 2016 and the expected actual transaction amount was primarily due to the suspension of the research and development of Flomoxef Sodium（氟氧頭孢鈉）and therefore had ceased the purchase from the Joincare Group of relevant raw material, namely OXAT（氟氧頭孢母核）in 2016, as there is no breakthrough in the technical research and development of the Flomoxef Sodium. The Directors expect that the purchase of the major raw materials for antifungal and antibiotics, namely voriconazole, 7-ACA and D7-ACA, from the Joincare Group will continue to increase in 2017, 2018 and 2019.

iii) Market consolidation

With the amendments to the Environmental Protection Law of the People’s Republic of China（《中華人民共和國環境保護法》）which promulgated and come into for on 1 January 2015, as well as other important laws, regulations and requirements (such as the Action Plan for Prevention and Control of Water Pollution（《水污染防治行動計劃》）, Action Plan for Prevention and Control of Air Pollution（《大氣污染防治行動計劃》）and Action Plan for Prevention and Control of Soil Pollution（《土壤污染防治行動計劃》））promulgated by the Ministry of Environmental Protection of the People’s Republic of China（中華人民共和國環境保護部）in succession in 2015 and 2016, the Company expects that more stringent supervision over pharmaceutical enterprises on environmental aspects to come, and many pharmaceutical enterprises that are not up to par in production and operation will be forced to increase investments in environmental protection or to cease production due to the costs involved in environmental protection. Leveraging on its strict compliance with the national and local laws and regulations requirements over years, as well as its continuous investment in environmental friendly equipment and facilities and environmental management, the Company expects that the Group can take up the market share of those competitors which have been eliminated and enlarge its market share.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Taking into account:

CAGR of 40.49% in the historical transaction amounts for the past three years ended 31 December 2015 due to the strong market demand for the Group’s voriconazole products and cephalosporins category products;
the growth for the demand of the Group’s voriconazole products and cephalosporins category products and actual purchase of raw materials from the Joincare Group were in line with the operating results of the Group for the year ended 31 December 2015 and the six months ended 30 June 2016; and
it is expected that the Group is taking up market shares by (i) expanding to the Chinese and Indian bulk medicine (including cephalosporins category) market along with plan to explore the European bulk medicine (including cephalosporins category) market; (ii) obtaining the approval for launch and sale in respect of the new preparation model of antifungal products in 2017; and (iii) expected market consolidation arising from the stringent supervision imposed by the PRC government over pharmaceutical enterprises and the Group’s strict compliance with the national and local laws and regulations requirements over years, as well as its continuous investment in environmental friendly equipment and facilities and environmental management,

we concur with the Directors that the proposed annual caps under the 2017 Joincare Purchases Framework Agreement are fair and reasonable so far as the Independent Shareholders are considered and in the interests of the Company and the Shareholders as a whole.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RECOMMENDATION

Having taken into account the principal factors and reasons set out above, we are of the opinion that the terms of the 2017 Joincare Purchases Framework Agreement (including the proposed annual caps) are on normal commercial terms, fair and reasonable and in the interests of the Company and Shareholders as a whole, the transactions contemplated thereunder are in the ordinary and usual course of business of the Group. Accordingly, we would recommend that the Independent Shareholders vote, and that the Independent Board Committee advise the Independent Shareholders to vote, in favour of the ordinary resolutions to be proposed at the upcoming EGM to approve the transactions under the 2017 Joincare Purchases Framework Agreement (including the proposed annual caps).

Yours faithfully, For and on behalf of Frontpage Capital Limited Chai Yee Choong Director

Note: Mr. Chai Yee Choong is a licensed person registered with the Securities and Futures Commission of Hong Kong and a responsible officer of Frontpage Capital Limited to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance. He has over 8 years of experience in corporate finance.

for identification purpose only

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and that there are no other matter the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS BY DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE OF THE COMPANY

As at the Latest Practicable Date, the interests and short positions of the Directors, supervisors and chief executives of the Company in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of the Part XV of the SFO) (1) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (2) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (3) which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules (‘‘Model Code’’) to be notified to the Company and the Stock Exchange, were as follows:

Interest in shares of the Company

Name of Director Capacity Mr. Zhu Baoguo （朱保國先生） Interest of controlled corporations Mr. Tao Desheng （陶德勝先生） Beneficial owner Spouse interest Mr. Yang Daihong （楊代宏先生） Beneficial owner	Number of Shares Interested As a percentage to the specific class of issued shares of the Company As a percentage to the total issued shares of the Company (Long position) 116,301,300 A Shares (1) (2) 41.52% 27.32% 74,358,067 H Shares (1) (3) 51.07% 17.47% 275,990 A Shares 48,360 A Shares (4) 324,350 A Shares 0.12% 0.08% 176,540 A Shares 0.06% 0.04%

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GENERAL INFORMATION

APPENDIX

Interest in Shares of Associated Corporations of the Company

==> picture [379 x 296] intentionally omitted <==

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

As a percentage
to the equity
interest of
Name of associated associated
Name of Director corporation Capacity Equity interest corporation
(RMB)
Mr. Zhu Baoguo Shenzhen Baiyeyuan Beneficial owner 72,000,000 90%
（朱保國先生） Investment Co.,
Ltd.（深圳市
百業源投資
有限公司）
(‘‘Baiyeyuan’’)
Joincare Beneficial owner 48,277,046
Interest of controlled 742,415,520 [(5)]
corporations
790,692,566 49.92%
Livzon MABPharm Interest of controlled 261,331,700 [(1)] [(6)] 49.00%
Inc.（珠海市麗珠 corporations
單抗生物技術
有限公司）
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Notes:

(1) Joincare is 46.78% held by Baiyeyuan which is in turn 90% held by Mr. Zhu Baoguo. According to provisions of the SFO, Mr. Zhu Baoguo is deemed to be interested in the shares of the Company and the equity interest of its associated corporations by virtue of interests held or deemed to be held by Joincare.
(2) Among these shares, 108,640,474 shares and 7,660,826 shares are held directly by Joincare and its wholly-owned subsidiary, Shenzhen Haibin Pharmaceutical Co., Ltd.（深圳市海濱製藥有限公司）(‘‘Shenzhen Haibin’’), respectively.
(3) These shares are held directly by Topsino Industries Limited, a wholly-owned subsidiary of Joincare.
(4) As Mr. Tao Desheng is the spouse of Ms. Hou Xuemei, Mr. Tao Desheng is deemed to be interested in shares directly held by Ms. Hou Xuemei.
(5) These shares are held by Baiyeyuan.
(6) These shares are held by Joincare.

– 43 –

GENERAL INFORMATION

APPENDIX

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, supervisors and chief executives of the Company had any interest or short position in shares, underlying shares or debentures of the Company or any of its associated corporations which were recorded in the register required to be kept under Section 352 of the SFO or notified to the Company and the Stock Exchange pursuant to the Model Code.

3. DISCLOSURE OF INTERESTS BY SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as was known to the Directors, the following persons (other than the Directors, supervisors or chief executives of the Company) had interests or short positions in the Shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register of substantial shareholders required to be kept by the Company under section 336 of the SFO.

Name of Shareholder
Capacity
Baiyeyuan
Interest of controlled
corporations
Interest of controlled
corporations
Ms. Liu Guangxia
（劉廣霞女士）
Spouse interest
Joincare（健康元）
Beneficial owner
Interest of controlled
corporations
Person having a
security interest
in shares
Interest of controlled
corporations
Topsino Industries Limited
（天誠實業有限公司）
(‘‘Topsino’’)
Beneficial owner
Other persons
UBS Group AG
Person having
a security interest
in shares
Interest of controlled
corporations
Interest of controlled
corporations
Value Partners Group Limited
Interest of controlled
corporations

Number of
Shares interested/
subject to short position
Position
As a percentage
to the specific
class of issued
shares of the
Company
As a percentage
to the total
issued shares of
the Company
116,301,300 A Shares(1)
Long position
41.52%
27.32%
74,358,067 H Shares(2)
Long position
51.07%
17.47%
116,301,300 A Shares(3)
Long position
41.52%
27.32%
74,358,067 H Shares(3)
Long position
51.07%
17.47%
100,763,218 A Shares
Long position
7,660,826 A Shares(4)
Long position
7,877,256 A Shares(5)
Long position
116,301,300 A Shares
41.52%
27.32%
74,358,067 H Shares(2)
Long position
51.07%
17.47%
74,358,067 H Shares(2)
Long position
51.07%
17.47%
358,910 H Shares(6)
Long position
9,244,995 H Shares(6)
Long position
9,603,905 H Shares
6.60%
2.26%
63,200 H Shares(7)
Long position
0.04%
0.01%
7,337,090 H Shares(8)
Long position
5.04%
1.72%

– 44 –

GENERAL INFORMATION

APPENDIX

Notes:

(1) Among these shares, 108,640,474 shares and 7,660,826 shares are held directly by Joincare and its whollyowned subsidiary, Shenzhen Haibin.
(2) These shares are held directly by Topsino, a wholly-owned subsidiary of Joincare.
(3) As Ms. Liu Guangxia is the spouse of Mr. Zhu Baoguo, Ms. Liu Guangxia is deemed to be interested in Mr. Zhu Baoguo’s equities in which he is deemed to be interested.
(4) These shares are held directly by Shenzhen Haibin, a wholly-owned subsidiary of Joincare.
(5) These shares were directly transferred from, entrusted and pledged by Guangzhou Begol Trading Corporation （廣州市保科力貿易公司）(‘‘Begol’’) in favor of Joincare in accordance with the share transfer, custody and pledge agreement with Joincare and Zhuhai Lishi Investment Co., Ltd.（珠海市麗士投資有限公司）dated 2 January 2004, the share transfer and custody agreement and the share pledge agreement with Joincare.
(6) These shares include 358,910 shares attributable to security interest and 9,244,995 shares attributable to interest in controlled corporations, among which 4,180 shares are derivatives settled by cash. Interest in controlled corporations is held as to 30,183 shares, 2,067,122 shares, 190,980 shares, 6,925,310 shares, 1,400 shares and 30,000 shares by its wholly-owned entities, namely UBS AG, UBS Asset Management (Hong Kong) Ltd, UBS Asset Management (Singapore) Ltd, UBS Fund Management (Luxembourg) S.A., UBS Fund Management (Switzerland) AG and UBS Securities LLC, respectively.
(7) These short positions are held by its wholly-owned UBS AG and UBS Securities LLC by 33,200 and 30,000 shares, respectively. Among which, 33,200 shares are derivatives settled by cash.
(8) These shares are held directly by Value Partners Limited, a wholly-owned subsidiary of Value Partners Hong Kong Limited.

Save as disclosed herein, the Directors are not aware of any person who, as at the Latest Practicable Date, was entitled to exercise or control the exercise of 5% or more of the voting power at the general meeting of the Company and was also able to direct or influence the management of the Company in a practicable manner.

– 45 –

GENERAL INFORMATION

APPENDIX

4. DIRECTORS’ AND SUPERVISORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, no service contract that cannot be terminated within one year without payment of compensation (other than statutory compensation) has been or proposed to be entered into between the Company and the Directors or the supervisors of the Company.

5. DIRECTORS’ INTERESTS IN THE GROUP’S ASSETS, CONTRACTS OR ARRANGEMENTS SIGNIFICANT TO THE GROUP

As at the Latest Practicable Date, none of the Directors or proposed Directors, directly or indirectly, had any interest in any asset which had since 31 December 2015 (being the date to which the latest published audited accounts of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or which were proposed to be acquired or disposed of by or leased to any member of the Group.

There was no contract or arrangement subsisting at the Latest Practicable Date, in which any of the Directors were materially interested and which was significant to the business of the Group.

6. COMPETING INTERESTS

As disclosed in the section headed ‘‘Relationship with our controlling shareholders’’ in the listing document of the Company dated 14 January 2014, both of the Group and Joincare Group have been engaged in the research, development, production and/or sale of four different types of drugs, namely: (i) cardio-cerebralvascular drugs; (ii) systemic anti-infective drugs/antibiotics; (iii) blood and hemopoietic system drugs; and (iv) blood management drugs. However, the drugs researched, developed, produced and/or sold by the Group are of different categories from those of Joincare Group. Although both groups adopt similar distribution models for the sales and distribution of drug preparation products in the PRC, which is in line with the industry practice, and their targeted end customers are similar (including hospitals, clinics and pharmacies) also, the Directors are of the view that the Group and Joincare Group are two separate groups operating independently of each other with individual listing status. Furthermore, the sales teams of the Group are separate from and independent of Joincare Group, and the Group does not share its customer resources and databases with Joincare Group. Accordingly, the Directors are of the view that there is no substantial competition between the Group’s production and sales of products and those of Joincare Group.

– 46 –

GENERAL INFORMATION

APPENDIX

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or proposed Directors or their respective close associates had any interest in a business which competes or may compete with the businesses of the Group (as would be required to be disclosed under Rule 8.10 of the Listing Rules if each of them was a Controlling Shareholder of the Company).

7. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2015, the date to which the latest published audited accounts of the Group were made up.

8. QUALIFICATIONS AND CONSENTS OF EXPERT

The following is the qualification of the expert who has given opinion or advice which is contained in this circular:

Name			Qualification
Frontpage	Capital	Limited	a corporation licensed to carry on type 1 (dealing in
			securities) and type 6 (advising on corporate finance)
			regulated activities under the SFO

The Independent Financial Adviser has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and/or reference to its name or opinion in the form and context in which it appears.

As at the Latest Practicable Date, the Independent Financial Adviser did not have any shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, the Independent Financial Adviser did not, directly or indirectly, had any interest in any asset which had since 31 December 2015 (being the date to which the latest published audited accounts of the Group were made up) been acquired or disposed of by or leased to any member of the Group, or which were proposed to be acquired or disposed of by or leased to any member of the Group.

– 47 –

GENERAL INFORMATION

APPENDIX

9. GENERAL

In the event of any inconsistency, the Chinese version of this circular shall prevail.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during business hours at the Company’s principal place of business in Hong Kong at Flat 02, 17/F, Bayfield Building, 99101 Hennessy Road, Wanchai, Hong Kong from the date of this circular up to and including the date of the EGM:

(a) the 2017 Joincare Purchases Framework Agreement;
(b) the letter from the Independent Board Committee as set out on page 22 of this circular;
(c) the letter from the Independent Financial Adviser as set out from pages 23 to 41 of this circular; and
(d) the written consent from the Independent Financial Adviser as mentioned in the section headed ‘‘Qualifications and Consents of Expert’’ in this appendix.

– 48 –

AI assistant

Livzon Pharmaceutical Group Inc. — Proxy Solicitation & Information Statement 2016

49967_rns_2016-12-02_d2aef9a6-d1eb-41de-9708-80a2b4f7ac00.pdf

麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]

(I) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2017 TO 2019 AND

Independent Financial Adviser to the Independent Board Committee

Frontpage Capital Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]

To the Shareholders

(I) RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2017 TO 2019 AND (II) ADDITION OF IMPLEMENTATION SUBJECT FOR THE FUND-RAISING INVESTMENT PROJECT

LETTER FROM THE BOARD

I. RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2017 TO 2019

2017 Joincare Purchases Framework Agreement

Date

Parties

Term

Conditions precedent

Subject matters

LETTER FROM THE BOARD

REASONS FOR ENTERING INTO THE 2017 JOINCARE PURCHASES FRAMEWORK AGREEMENT

LETTER FROM THE BOARD

HISTORICAL TRANSACTION AMOUNT AND ANNUAL CAPS

Historical Annual Caps

LETTER FROM THE BOARD

Historical Transaction Amount

PROPOSED ANNUAL CAPS UNDER THE 2017 JOINCARE PURCHASES FRAMEWORK AGREEMENT

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

LETTER FROM THE BOARD

PRICING PRINCIPLES

LETTER FROM THE BOARD

INTERNAL CONTROL MEASURES

LETTER FROM THE BOARD

INFORMATION ON THE JOINCARE GROUP

LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

II. ADDITION OF IMPLEMENTATION SUBJECT FOR THE FUND-RAISING INVESTMENT PROJECT

LETTER FROM THE BOARD

III. EGM

LETTER FROM THE BOARD

IV. RECOMMENDATION

V. ADDITIONAL INFORMATION

麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS FOR 2017 TO 2019

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

RENEWAL OF THE CONTINUING CONNECTED TRANSACTIONS FOR 2017 TO 2019

INTRODUCTION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OPINION

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

I. Background of and reasons for entering into of the 2017 Joincare Purchases Framework Agreement

II. Principal terms of the 2017 Joincare Purchases Framework Agreement

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

III. Review of the Continuing Connected Transaction by the auditors

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

IV. Historical transactions and proposed annual monetary caps

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

i) Increase in market demand

In respect of voriconzale products (antifungal products)

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

For the nine months ended 30 September 2016

ii) Historical amounts

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

iii) Market consolidation

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS BY DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE OF THE COMPANY

Interest in shares of the Company

APPENDIX

Interest in Shares of Associated Corporations of the Company

Livzon Pharmaceutical Group Inc. Proxy Solicitation & Information Statement 2016

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**

**麗珠醫藥集團股份有限公司 LIVZON PHARMACEUTICAL GROUP INC.[*]**