Pharmaron Beijing Co., Ltd — Capital/Financing Update 2020

Nov 9, 2020

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

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Pharmaron Beijing Co., Ltd.* 康龍化成（北京）新藥技術股份有限公司

(A joint stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 3759)

DISCLOSEABLE TRANSACTION IN RELATION TO ACQUISITION OF 100% EQUITY INTEREST IN A LABORATORY SERVICES COMPANY BASED IN THE U.S.

DISCLOSEABLE TRANSACTION

The Board is pleased to announce that on November 6, 2020 (U.S. time), Pharmaron Lab Testing, an indirect wholly-owned subsidiary of the Company (as purchaser) entered into the Membership Interest Purchase Agreement with Absorption Holdings and the Target Companies, pursuant to which Pharmaron Lab Testing agreed to acquire the 100% equity interest in Absorption Systems and ASC from Absorption Holdings and 100% equity interest in ASB from Absorption Systems, for a total Consideration of up to US$137,500,000. Upon completion of the Acquisition, the Target Companies will become indirect wholly-owned subsidiaries of the Company.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratio(s) calculated in accordance with Rule 14.07 of the Listing Rules in respect of the Acquisition under the Membership Interest Purchase Agreement is/are more than 5% but less than 25%, the entering into of the Membership Interest Purchase Agreement constitutes a discloseable transaction of the Company and is subject to the reporting and announcement requirements but exempt from the shareholders’ approval requirement under Chapter 14 of the Listing Rules.

INTRODUCTION

The Board is pleased to announce that on November 6, 2020 (U.S. time), Pharmaron Lab Testing, an indirect wholly-owned subsidiary of the Company (as purchaser) entered into the Membership Interest Purchase Agreement with Absorption Holdings and the Target Companies, pursuant to which Pharmaron Lab Testing agreed to acquire the 100% equity interest in Absorption Systems and ASC from Absorption Holdings and 100% equity interest in ASB from Absorption Systems, for a total Consideration of up to US$137,500,000. Upon completion of the Acquisition, the Target Companies will become indirect wholly-owned subsidiaries of the Company.

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THE MEMBERSHIP INTEREST PURCHASE AGREEMENT

The Membership Interest Purchase Agreement has become effective upon signing. The salient terms of the Membership Interest Purchase Agreement are as follows:

Date

November 6, 2020 (U.S. time)

Parties

• (1) Pharmaron Lab Testing;

• (2) Absorption Holdings;

• (3) Absorption Systems;

• (4) ASB; and

• (5) ASC

To the best knowledge, information and belief of the Board after making all reasonable enquiries, as of the date of this announcement, Absorption Holdings, the Target Companies and their ultimate beneficial owners are third parties independent of the Company and its connected persons. Save for the Acquisition, Absorption Holdings, the Target Companies and their ultimate beneficial owners have no other business relationship with the Company and its connected persons.

Subject assets to be acquired

The entire equity interests of Absorption Systems and ASC were held by Absorption Holdings, and the entire equity interest of ASB was held by Absorption Systems. Pursuant to the terms of the Membership Interest Purchase Agreement, Pharmaron Lab Testing agreed to acquire the 100% equity interest in Absorption Systems from Absorption Holdings for a total Consideration of up to US$137,500,000 (as further detailed below).

Consideration

The aggregate Consideration potentially payable by Pharmaron Lab Testing for the Acquisition is US$137,500,000. The Consideration was agreed after arm’s length negotiations between the parties to the Membership Interest Purchase Agreement by taking into consideration various factors, including but not limited to: (i) the unaudited consolidated financial information and the financial condition of the Target Companies; (ii) the arrangement in relation to the earn-out payment as set out in the Membership Interest Purchase Agreement as described below; and (iii) the technical capabilities, operation scale and business prospects of the Target Companies. The Consideration will be financed solely from the internal resources of the Group.

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Under the Membership Interest Purchase Agreement, the Consideration shall be payable by Pharmaron Lab Testing in cash as described below:

(1) Base Purchase Price of US$115,000,000

Subject to the terms of the Membership Interest Purchase Agreement, the base purchase price of US$115,000,000 shall be paid to Absorption Holdings upon the closing of the Acquisition.

(2) Earn-out Payment of US$22,500,000

Subject to the terms of the Membership Interest Purchase Agreement, an earn-out payment of up to US$22,500,000 shall be paid to Absorption Holdings if certain agreed targets relating to the financial performance of the Target Companies’ for years 2020 and 2021 are met.

In the event that the Target Companies fail to meet the agreed financial performance targets, Pharmaron Lab Testing will not be obliged to pay, and Absorption Holdings will not be entitled to receive, the earn-out payment.

Escrow Arrangements

At the closing of the Acquisition, Absorption Holdings will cause: (i) a purchase price escrow amount of US$380,000; and (ii) an indemnity escrow amount of US$11,500,000 to be deposited in an escrow account.

Any balance remaining in relation to the purchase price escrow amount will be released within 90 days after the post-closing purchase price adjustment is completed. The post-closing purchase price adjustment is intended to settle the difference between the expected and actual working capital and cash balances as of the closing date.

The indemnity escrow amount is intended to cover the indemnity obligations of Absorption Holdings in the event that there is any breach of the representations and warranties of Absorption Holdings under the Membership Interest Purchase Agreement, and will be released in two tranches, being respectively six months and twelve months after the closing of the Acquisition.

Completion

Subject to the terms of the Membership Interest Purchase Agreement, completion of the purchase of the entire equity interest in the Target Company shall take place when the conditions as provided for under Membership Interest Purchase Agreement which are customary to similar transactions are met.

INFORMATION ABOUT THE GROUP AND PHARMARON LAB TESTING

The Company is incorporated in the PRC and its Shares are listed on the Shenzhen Stock Exchange and the Main Board of the Stock Exchange. The Group is a leading fully-integrated pharmaceutical research and development service platform with global operations to accelerate drug innovation for its customers.

Pharmaron Lab Testing is a company established in the U.S. with limited liability and an indirect wholly-owned subsidiary of the Company.

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INFORMATION ABOUT ABSORPTION HOLDINGS

Absorption Holdings is incorporated in the State of Delaware, U.S. and is an investment holding company with the 100% equity interest in Absorption Systems. As of the date of this announcement, Absorption Holdings is held as to 94.52% by Mr. Patrick M. Dentinger, Mr. Ismael J. Hidalgo and Mr. Sid Bhoopathy, each of whom is an independent third party independent of the Company and its connected persons.

INFORMATION ABOUT THE TARGET COMPANIES

Absorption Systems is a limited liability company incorporated in the State of Delaware, U.S. ASB is a limited liability company incorporated in the State of Delaware, U.S. ASC is a limited liability company incorporated in the State of Nevada, U.S. The Target Companies are engaged in the business of providing certain non-clinical in vitro and in vivo laboratory analytical, biological, and animal testing service solutions to support the discovery, development, and approval of therapeutics, for small molecule, large molecule, cell and gene therapy and medical device products.

Set out below is the unaudited financial information of the Target Companies on a consolidated basis for the financial year ended December 31, 2019 and the six months ended June 30, 2020:

	For the year	For the six months
	ended December 31,	ended June 30,
	2019	2020
	US$’000	US$’000
Total assets	33,962	34,886
Total liabilities	19,711	20,763
Account receivables	6,028	5,693
Contingent liabilities	–	–
Net assets	14,251	14,123
Revenue	34,806	17,585
Operating profit	3,896	1,777
Profit before tax	3,662	1,761
Net profit	2,637	1,268
Net cash flows generated from operating activities	6,033	2,986

The unaudited revenue, operating profit, profit before tax and net profit of the Target Companies on a consolidated basis for the year ended December 31, 2018 amounted to US$35,139,000, US$5,323,000, US$5,115,000 and US$3,683,000, respectively.

The financial information of the Target Companies as disclosed in this announcement are unaudited, prepared based on IFRS and adjusted by the management taking into account the Acquisition and other factors.

REASONS FOR AND BENEFIT OF ENTERING INTO THE MEMBERSHIP INTEREST PURCHASE AGREEMENT

The Group is a leading fully-integrated pharmaceutical R&D service platform with global operations to accelerate drug innovation for its customers. It believes that the Acquisition will enable the Group to further strengthen its service offerings and expand its global footprint. The Group also expects this Acquisition to further enhance the Group’s technical capabilities and lead to greater synergies, in line with the Group’s long-term growth strategy and the interests of all Shareholders.

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The Board is of the view that the terms of the Membership Interest Purchase Agreement are on normal commercial terms after arm’s length negotiations among the parties, fair and reasonable and in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratio(s) calculated in accordance with Rule 14.07 of the Listing Rules in respect of the Acquisition under the Membership Interest Purchase Agreement is/are more than 5% but less than 25%, the entering into of the Membership Interest Purchase Agreement constitutes a discloseable transaction of the Company and is subject to the reporting and announcement requirements but exempt from the shareholders’ approval requirement under Chapter 14 of the Listing Rules.

DEFINITIONS

In this announcement, the following expressions have the meanings set out below unless the context requires otherwise:

“Acquisition”	the proposed acquisition of the entire equity interest of the Target
	Company pursuant to the terms and conditions of the Membership
	Interest Purchase Agreement
“Absorption Holdings”	Absorption Holdings LLC, a Delaware limited liability company
“Absorption Systems”	Absorption Systems LLC, a Delaware limited liability company
	formerly known as Absorption Systems LP
“ASB”	Absorption Systems Boston, LLC, a Delaware limited liability
	company formerly known as TGA BioServices, LLC
“ASC”	Absorption Systems California, LLC, a Nevada limited liability
	company formerly known as Absorption Systems Inc.
“Board” or	the board of Directors of the Company
“Board of Directors”
“Company”	Pharmaron Beijing Co., Ltd.*康龍化成（北京）新藥技術股份有限
	公司, a joint stock company incorporated in the People’s Republic of
	China with limited liability
“Consideration”	the consideration payable by the Group for the Acquisition in the
	amount of up to US$137,500,000
“Director(s)”	the director(s) of the Company
“Membership Interest	the membership interest purchase agreement dated November 6,
Purchase Agreement”	2020 (U.S. time) entered into between Pharmaron Lab Testing (as
	purchaser), Absorption Holdings (as vendor) and the Target Company
	relating to the Acquisition

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“Group” the Company and its subsidiaries “Hong Kong” the Hong Kong Special Administrative Region of the PRC “IFRS” the International Financial Reporting Standards “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange “Pharmaron Lab Testing” Pharmaron (US) Lab Testing, Inc., a limited liability company established in the U.S. on 1 October 2020, and an indirect whollyowned subsidiary of the Company “PRC” the People’s Republic of China, which for the sole purpose of this announcement excludes Hong Kong, Macau Special Administrative Region and Taiwan “Share(s)” the shares of the Company “Shareholder(s)” holders of the Shares “Stock Exchange” The Stock Exchange of Hong Kong Limited “Target Company” or Absorption Systems, ASB and ASC “Target Companies” “U.S.” the United States of America “US$”, “USD” or U.S. dollar(s), the lawful currency of the United States of America “U.S. dollars” “%” per cent. By order of the Board Pharmaron Beijing Co., Ltd.* 康龍化成（北京）新藥技術股份有限公司 Dr. Lou Boliang Chairman

Beijing, the PRC November 9, 2020

As at the date of this announcement, the Board of Directors comprises Dr. Lou Boliang, Mr. Lou Xiaoqiang and Ms. Zheng Bei as executive Directors; Mr. Chen Pingjin, Mr. Hu Baifeng, Mr. Li Jiaqing and Mr. Zhou Hongbin as non-executive Directors; Mr. Dai Lixin, Ms. Chen Guoqin, Mr. Tsang Kwan Hung Benson and Mr. Yu Jian as independent non-executive Directors.

• For identification purposes only

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