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

Feb 6, 2020

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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)

SUPPLEMENT ANNOUNCEMENT IN RELATION TO CONNECTED TRANSACTION ESTABLISHMENT OF THE FUND

Reference is made to the announcement of Pharmaron Beijing Co., Ltd. (the “ Company ”) dated January 20, 2020 in relation to the establishment of the Fund (the “ Announcement ”). Terms used herein shall have the same meanings as defined in the Announcement.

The Board wishes to provide the Shareholders and potential investors of the Company with additional information in relation to the details of the Fund and the contemplated investments.

Further Information about the Investment Mandate of the Fund and Investment Targets

Pursuant to the Limited Partnership Agreement, the Fund focuses its investment on platforms offering innovative biomedical technologies or services. As of the date of this announcement, the Fund is contemplating investment in biomedical technologies or services platforms and is conducting due diligence on two investment targets engaged in such businesses.

Further Information about the General Partner’s Experience and Expertise

In terms of managing investments in the biomedical industry, the shareholders of Kangjun Investment are brought together to provide the necessary knowledge and expertise in managing the Fund’s investments as well as implementing the Fund’s strategic goals. Pursuant to the shareholders’ agreement of Kangjun Investment, each of Ningbo Kangwan, the Company and Legend Capital has the right to appoint one director to the board of directors of Kangjun Investment and to appoint one member to the investment committee of the Fund.

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The board of directors of Kangjun Investment and the investment committee of the Fund integrates the Company’s and Ningbo Kangwan’s technical expertise and knowledge of the biomedical industry and Legend Capital’s financing experience, investment network, portfolio management experience, consulting capability in strategic investment and business ecosystem of investees. The board of directors of Kangjun Investment is responsible for steering the strategic goals of the Fund whereas the investment committee of the Fund is responsible for reviewing and resolving on the major decisions of the Funds, such as the making of investments or divestments.

In terms of operating the Fund, each of the General Partner itself and the management of the General Partner possesses recognized qualifications. The General Partner has been registered as a fund manager with the Asset Management Association of China (中國證券投資基金業協會) since November 2019 (licence number: P1070330). The General Partner is managed by Mr. Dai Yiren (戴奕人) as its legal representative and general manager, and Mr. Su Yuexing (蘇躍星) as the person-in-charge of its compliance and risk management functions. Mr. Dai is a member of the Asset Management Association of China (中國證券投資基金業協會) (licence number: P1031507100015) and has over 8 years of investment experience. After serving as the general manager in the China region of DJO Global (蒂捷歐醫療器械貿易（上海）有限公司) from January 2012 to March 2018, and was in charge of the general operation and strategic investment of the greater China region, Mr. Dai served as the director and general manager of Highlight Capital (弘 暉資本) from July to September 2018. Mr. Su is a member of the Asset Management Association of China (中國證券投資基金業協會) (licence number: P1070330100001) and has around 9 years of experience in capital markets and had served as a director of Citi Orient Securities Co., Ltd. from May 2011 to August 2019, during which he acted as the sponsor for a number of A shares listing applications, including listing applications of PRC biomedical companies.

Further Information about the Structure of the Fund

Based on the following reasons, the Directors are of the view that as compared to direct equity or debt investments, establishing the Fund pursuant to the Limited Partnership Agreement would best serve its investment mandate and is a more preferred arrangement:

(1) Having a more professional and focused team engaged in investment activities

As disclosed in the Company’s prospectus dated November 14, 2019, according to the industry consultant, the Company is the second largest pharmaceutical R&D service platform in China and one of the top three drug discovery service providers globally in terms of revenue in 2018. By establishing the Fund, the Company would be able to rely on the expertise of the General Partner, who is principally engaged in investment management, to review, analyse and make investments and realize its gains out of such investments without having to divert from its principal business as a fully-integrated pharmaceutical R&D service platform.

(2) Synergistic effect by bringing together industry knowledge and investment expertise

The synergies from different parties can be maximized by bringing together industry knowledge of our Company and Ningbo Kangwan as well as the investment expertise of Legend Capital.

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As disclosed in the Announcement, the Fund is managed by Kangjun Investment, which is both the General Partner and the Executive Partner, and is owned by Ningbo Kangwan, the Company and Legend Capital as to 40%, 30% and 30%, respectively. Pursuant to the shareholders’ agreement of Kangjun Investment, each of Ningbo Kangwan, the Company and Legend Capital has the right to appoint one director to the board of directors of Kangjun Investment.

The Company’s leading market position and long operating history since July 2004 provides technical expertise and strategic industrial synergy in considering and analyzing technical capacity of potential investees of the Fund.

Legend Capital focuses on early-stage venture capital and expansion-stage growth capital investment in the TMT, healthcare and culture and sports sectors. Its operating history dates back to 2001 and is one of the early entrants in the private equity industry in China. As abovementioned, Legend Capital contributes to the management of the Fund by way of its financing experience, investment network, portfolio management experience, consulting capability in strategic investment and business ecosystem of investees.

Ningbo Kangwan, as an indirect majority-owned company of two of the Directors of the Company, provides both capital resources and industry expertise in the board of directors of Kangjun Investment. It has played a significant role in bringing together the Company and Legend Capital in the establishment of the Fund and will continue to assist the Fund in implementing its strategic goals.

(3) Scale of investment, fundraising flexibility and capital efficiency

The current structure provides fundraising flexibility and capital efficiency. Investment through a fund structure is getting increasingly common in the market and in particular, among A shares listed companies and dual-listed A shares and H shares listed companies.

Pursuant to the Limited Partnership Agreement and in line with general practice in private equity, after the initial closing of the Fund, the General Partner may further increase capital available to the Fund by admitting additional Limited Partners and issuing notice of drawdown for committed capital.

As compared to direct equity or debt investments, investing through a fund allows the Company to flexibly increase the scale of its investments through funds raised from other Limited Partners. A fund structure allows for greater utilization and leverage of Kangjun Investment’s professional capital investment and management capabilities that the Company could not otherwise achieve through direct investments. By investing via the Fund, investment risks would be shared amongst other Limited Partners whereas under a direct equity or debt investment model, the Company would have to bear all the risk of an investment.

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Further Information about Accounting Treatment

Given that the Company is a Limited Partner of the Fund and it also holds 30% equity interest in the Kangjun Investment, the General Partner and Executive Partner of the Fund, the Fund will be accounted for as an associate of the Company.

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

Hong Kong, February 6, 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. Li Lihua, Ms. Chen Guoqin, Ms. Shen Rong and Mr. Tsang Kwan Hung Benson as independent non-executive Directors.

• For identification purposes only

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