Pharmaron Beijing Co., Ltd — Interim / Quarterly Report 2021

Sep 23, 2021

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Pharmaron Beijing Co., Ltd.[*]

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

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2021
INTERIM
REPORT
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• For identification purposes only

PREMIER R&D SERVICE PROVIDER FOR THE LIFE SCIENCES INDUSTRY

About Pharmaron

Pharmaron (Stock Code: 300759.SZ/3759.HK) is a premier R&D service provider for the life sciences industry. Founded in 2004, Pharmaron has invested in its people and facilities, and established a broad spectrum of research, development and manufacturing service capabilities throughout the entire drug discovery, preclinical and clinical development process across multiple therapeutic modalities, including small molecules, biologics and CGT products. With over 12,000 employees, and operations in China, the U.S., and the U.K., Pharmaron has an excellent track record in the delivery of R&D solutions to its partners in North America, Europe, Japan and China.

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CONTENTS

• 2 Corporate Information 4 Financial Highlights 5 Management Discussion and Analysis

• 28 Supplementary Information 44 Interim Condensed Consolidated Statement of Profit or Loss 45 Interim Condensed Consolidated Statement of Comprehensive Income

• 46 Interim Condensed Consolidated Statement of Financial Position

• 48 Interim Condensed Consolidated Statement of Changes In Equity

• 50 Interim Condensed Consolidated Statement of Cash Flows 52 Notes to the Interim Condensed Consolidated Financial Statements

• 85 Definitions

Corporate Information

EXECUTIVE DIRECTORS

Dr. LOU Boliang (樓柏良) (Chairman) Mr. LOU Xiaoqiang (樓小強) Ms. ZHENG Bei (鄭北)

NON-EXECUTIVE DIRECTORS

Mr. CHEN Pingjin (陳平進) Mr. HU Baifeng (胡柏風) Mr. LI Jiaqing (李家慶) Mr. ZHOU Hongbin (周宏斌)

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. DAI Lixin (戴立信） Ms. CHEN Guoqin (陳國琴) Mr. TSANG Kwan Hung Benson (曾坤鴻) Mr. YU Jian (余堅)

NOMINATION COMMITTEE

Ms. CHEN Guoqin (陳國琴) (Chairperson) Dr. LOU Boliang (樓柏良) Ms. ZHENG Bei (鄭北) Mr. TSANG Kwan Hung Benson (曾坤鴻) Mr. YU Jian (余堅)

STRATEGY COMMITTEE

Dr. LOU Boliang (樓柏良) (Chairperson) Mr. LOU Xiaoqiang (樓小強) Mr. CHEN Pingjin (陳平進) Mr. LI Jiaqing (李家慶) Mr. DAI Lixin (戴立信）

COMPANY SECRETARY

Ms. MAK Po Man Cherie (麥寶文)

AUTHORIZED REPRESENTATIVES

SUPERVISORS

Dr. YANG Kexin (楊珂新) (Chairperson) Ms. FENG Shu (馮書) Ms. ZHANG Lan (張嵐)

AUDIT COMMITTEE

Mr. YU Jian (余堅) (Chairperson) Ms. CHEN Guoqin (陳國琴) Mr. TSANG Kwan Hung Benson (曾坤鴻)

REMUNERATION AND APPRAISAL

COMMITTEE

Ms. CHEN Guoqin (陳國琴) (Chairperson) Dr. LOU Boliang (樓柏良) Mr. LOU Xiaoqiang (樓小強) Mr. TSANG Kwan Hung Benson (曾坤鴻)

Mr. YU Jian (余堅)

Mr. LOU Xiaoqiang (樓小強) Ms. MAK Po Man Cherie (麥寶文)

AUDITOR

Ernst & Young

27/F, One Taikoo Place 979 King’s Road Quarry Bay Hong Kong

LEGAL ADVISERS

As to Hong Kong law: O’Melveny & Myers 31st Floor, AIA Central 1 Connaught Road Central Hong Kong

As to PRC law:

Zhong Lun Law Firm 23-31/F, South Tower of CP Center, 20 Jin He East Avenue Chaoyang District Beijing 100022 P.R China

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Corporate Information

REGISTERED OFFICE IN THE PRC

8th Floor, Block 1 6 Tai-He Road Beijing Economic Technological Development Area Beijing PRC

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

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

H SHARE REGISTRAR AND TRANSFER OFFICE

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

STOCK CODE

3759

COMPANY WEBSITE

www.pharmaron.com

Pharmaron Beijing Co., Ltd. Interim Report 2021 3

Financial Highlights

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Six months ended June 30,
2021 2020 Change
RMB’000 RMB’000 %
Revenue 3,285,511 2,193,167 49.8
Gross profit 1,189,711 794,400 49.8
Profit attributable to owners of the parent 564,837 478,960 17.9
Non-IFRSs adjusted net profit attributable
to owners of the parent 651,392 431,608 50.9
Net cash flows generated from operating activities 845,064 617,948 36.8
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During the Reporting Period, the Group recorded aggregate revenue of approximately RMB3,285.5 million, representing an increase of approximately RMB1,092.3 million, or 49.8%, as compared to the six months ended June 30, 2020.

During the Reporting Period, the profit attributable to owners of the parent was approximately RMB564.8 million, representing an increase of approximately 17.9% as compared to the six months ended June 30, 2020.

During the Reporting Period, the net cash flows generated from operating activities was approximately RMB845.1 million, representing an increase of approximately 36.8% as compared to the six months ended June 30, 2020.

The Company did not declare any interim dividend for the six months ended June 30, 2021.

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Management Discussion and Analysis

BUSINESS REVIEW

Principal Business

The Company is a leading fully-integrated pharmaceutical R&D services platform with global operations to accelerate drug innovation for our customers. The Company provides fully-integrated drug research, development and manufacturing services from drug discovery to drug development. In terms of main business type, our services can be divided into four service segments: laboratory services, CMC (small molecule CDMO) services, clinical development services, and biologics and CGT services.

The Company’s business originates from the drug discovery stage and is in a leading position in drug discovery, preclinical and early clinical-stage research, and is committed to expanding its downstream R&D service capabilities including drug development, clinical and manufacturing. We continue to strengthen the Company’s fully-integrated service capabilities in pharmaceutical research and development. Through years of construction, the Company has built a chemistry technical service platform and DMPK/ADME service platform throughout the entire drug R&D process and commercial stages, and has established a complete integrated R&D service platform from drug discovery to POC (“Proof of Clinical Concept”). In the process of development, the Company has successfully evolved from a pure laboratory chemistry service provider to an end-to-end pharmaceutical R&D services platform with operations in China, the U.S. and the U.K. By using global operation and management methods, we are able to effectively integrate our resources to create global professional service capability to provide comprehensive and high quality services globally. Also, the Company will accelerate the establishment of R&D service capabilities for biologics and CGT products and committed to becoming a global leader in pharmaceutical R&D services across multiple therapeutic modalities.

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Pharmaron Beijing Co., Ltd. Interim Report 2021

5

Management Discussion and Analysis

The Company has a well-established R&D services platform for the discovery stage of small molecule innovative drugs, based on which the Company has expanded its expertise to various stages of drug development and manufacturing. In order to meet customers’ need for pharmaceutical R&D services, the Company expands its service scope to CMC (small molecule CDMO) and clinical development services. The Company’s drug development services platform mainly provides drug safety assessment services with GLP compliance accredited by NMPA, FDA and OECD, chemical and formulations development services, GMP manufacturing services for chemical APIs and finished dosages, comprehensive radiolabelled substance synthesis, analysis and clinical trial services, clinical trial and analysis, as well as clinical development services including drug & device registration and application, medical affairs, clinical operation, data management and biostatistics and bioanalysis in both China and U.S..

The Company made significant efforts to establish the service platform of biologics and CGT products. On one hand, the Company has accelerated the establishment of the team and facilities for biologics products in China. On the other hand, through the acquisition of Absorption Systems LLC, and Allergan Biologics Limited (newly known as Pharmaron Biologics (UK) Ltd.), the Company has begun to develop a service platform for CGT products to establish laboratory services and CDMO services of CGT products, so as to better meet the needs of our customers. For further details of the acquisition of Allergan Biologics Limited, please refer to the announcement of the Company date March 1, 2021.

Operating Models

1. Laboratory services

Laboratory services of the Company include laboratory chemistry and bioscience (including DMPK/ADME, in vitro biology and in vivo pharmacology, safety assessment and U.S. laboratory services) services.

Laboratory chemistry is the starting point for the Company’s development, and it’s also the core and cornerstone of the Company’s business. The Company has accumulated extensive experiences and established a core talent pool in the field of compound design and synthesis, providing drug discovery services in target selection, lead compound screening services according to the needs of the customers. At the same time, as the important components of our laboratory services, in vitro and in vivo DMPK/ADME, in vitro biology and in vivo pharmacology provide customers with drug discovery services including target validation, structure activity relationship studies, candidate compound identification, drugability studies (from aspects of biology, DMPK/ADME, pharmacology and safety assessment).

With the advantage of global GLP compliance ( F D A , N M P A , O E C D ) , t h e C o m p a n y ’ s drug safety assessment services provide a comprehensive IND support to our global customers by performing all the related drug safety assessment studies to support their IND filing in different jurisdictions. With our global R&D team and validated quality standards and systems, our drug discovery and subsequent systematic drug development services assist our customers in accelerating their R&D projects from preclinical R&D to clinical phases in a number of countries.

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Management Discussion and Analysis

To further strengthen the fully-integrated services platform and continue expand the global footprint, the Company acquired Absorption Systems in November 2020 and improved U.S. laboratory services through such acquisition. Absorption Systems laboratory provides DMPK/ADME and bioanalysis services needed in the development of small molecules. With the global network of laboratory services capabilities, the Company will further strengthen and consolidate its leading position in drug discovery and development of fully-integrated DMPK service platform. In addition, Absorption Systems is also able to provide laboratory services in the areas of ophthalmology and medical devices.

2. CMC (small molecule CDMO) services

Our experienced CMC (small molecule CDMO) services team delivers customized and cost efficient solutions to customers in drug development and manufacturing, including small molecule APIs process development and manufacturing, materials science/preformulation, formulation development and manufacturing, and analytical development services to support pre-clinical and clinical development. The CMC (small molecule CDMO) services of the Company mainly provide pharmaceutical companies with chemical and formulation process development and clinical scale manufacturing services during the drug development stage with capabilities and capacities to cover the process development and manufacturing needs throughout clinical Phase I to III. The cGMP API and drug product manufacturing facilities of the Company are qualified to manufacture products to support clinical trials in global markets, including the U.S., China and EU. Our quality assurance system follows guidelines of the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH Guidelines) and supports the development and manufacture regulation of APIs and pharmaceuticals in compliance with FDA, NMPA and EMA, and can also support the preparation of complete regulatory data packages and documentation for regulatory filings and cGMP audits in the U.S., EU, and Asia.

For the capability’s improvement, the Company keeps investing on cutting-edge technologies of small molecule to provide value-added process optimization and manufacture services to domestic and foreign customers to meet their needs at different drug development stages. In terms of R&D and manufacturing capacity, the Company has facilities in Tianjin, Shaoxing, Ningbo and the U.K., and will continue to increase capacity to provide customers with services that consistently meeting their global quality standards and production requirement. In terms of customer services, leveraging on the technical experience accumulated over the years and integrated services platform, the Company’s development and manufacturing services get involved at the early stage of the drug development projects, the solid foundation of the early stage projects has paved the way for the development of our commercial manufacturing business.

3. Clinical development services

Our clinical development services include overseas and domestic clinical development services.

The overseas clinical development services includes radiolabelled science services and pre-clinical trial services. Our independent early clinical R&D center with 96 beds in Maryland, the U.S., has an experienced medical and support team in clinical pharmacology, specializing in comprehensive FIH studies, vaccine development/infection challenge studies, comprehensive[14] C drug absorption, distribution and excretion trial, TQT/cardiac safety, cross-ethnic bridging studies and patient recruitment.

Meanwhile, the Company has the global bioanalytical capabilities in China, the U.S. and the U.K., which is available for use by clinical trials around the world. Our regulatory bioanalysis includes small molecule bioassays, biologics bioassays, and[14] C-API and[14] C metabolism bioassays. The Company’s experienced synthetic chemists, analytical chemists and pharmaceutical chemical metabolism scientists help our customers

Pharmaron Beijing Co., Ltd. Interim Report 2021 7

Management Discussion and Analysis

synthesize[14] C and[3] H radiolabelled compounds and use for the DMPK/ADME studies of various compounds during clinical, preclinical and discovery stages, so as to accelerate their clinical development process.

Domestic clinical development services include clinical research services and site management services, covering different service needs of clinical research. Among which, clinical research services mainly include: regulatory and registration services, medical affairs, clinical operations, data management and statistics, bioanalysis and pharmacovigilance, etc.; Site management services include CRC services, hospital research and selection, SSU (Study Start Up) rapid start-up, recruitment and management, quality assurance and training and post-marketing studies, etc.

With the establishment of domestic and overseas clinical development services platforms, it enables our customers to submit IND application for their drug candidates in China, the U.S. or EU in parallel, building an integrated platform for clinical development services. With the synergetic effect of the integrated services approach and the continuous improvement of our capabilities, the Company’s revenue in clinical development service increased rapidly.

4. Biologics and CGT services

Since 2019, the Company has been deploying Biologics and CGT Services. Through self – development and external acquisitions, the Company has accelerated the construction of its Biologics and CGT Service platform covering Biologics Discovery Services, Biologics and CGT Lab Services, CGT Development and Manufacturing Services CDMO, and Biologics Development and Manufacturing Services CDMO.

Biologics Discovery Services include biologics plasmid design, cell screening, target biologics expression and purification, analytical method development for target biologics and analysis and identification of the products, primarily serving various needs for cells and proteins, including mAbs, at the early stage of research and development.

Biologics and CGT Lab Services include analytical method development and validation for various proteins, and cells, as well as for various types of DNA and RNA products, and analysis of activity, toxicity, tissue distribution and viral shedding, and quantitative analysis of gene cell products, which can meet the specific requirements for analysis (including compliance with GLP/GCP/GMP regulations) of gene cell products during the pre-clinical and clinical development and marketing stages.

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Management Discussion and Analysis

CGT Development and Manufacturing Services CDMO include plasmid synthesis containing therapeutic genes, cell line development, cell bank establishment, production process development and optimization, formulation preparation process optimization, mass production of products, analytical method development and validation, product-related impurities identification and analysis, stability evaluation, product analysis and identification and GMP batch release, etc., covering a full set of CDMO services for the entire process of CGT products process development and their cGMP production, so as to support the needs for pre – clinical safety evaluation of gene cell products, Phase I, II and III clinical trials, and post – marketing product life cycle management. These services are licensed by MHRA, the UK pharmaceutical administration authority, for the manufacture of biologics.

For Biologics Development and Manufacturing Services CDMO, the Company is accelerating the build-up of the base of biologics CDMO service platform. The Hangzhou Bay service center II Phase I is the base of Company’s biologics development and production service (covers nearly 70,000 m[2] ). After the project is completed, it will be able to provide development services for cell line and cell culture process, upstream and downstream process development, formulation development and fill-and-finish process and analytical methods, as well as drug substances and product manufacturing services with 200L to 2,000L production capacity to support the project from pilot to commercial stage production.

FINANCIAL REVIEW

In the first half of 2021, the Company adheres to the mission of “Supporting Our Partners’ Success in Discovery, Development and Commercialization of Innovative Medicines.” With the joint efforts of all employees, the Company continued to provide customers with high quality R&D services, all business sectors of the Company have achieved rapid growth. At the same time, the Company actively integrated and improved new business

sectors, gradually improved our fully-integrated pharmaceutical R&D services platform for new drugs, further improved R&D efficiency, saved R&D time and costs for our customers, and provided customers with a full range of service support for R&D topics. Since the global outbreak of the COVID-19 pandemic, the Company’s business has remained steady growth. The pandemic has not imposed a material adverse impact on the operation of the Company. As the global pharmaceutical market continued to grow steadily and the market penetration rate continued to increase, the Company seized the opportunity of the rapid development of the healthcare industry, cooperated more closely with domestic and foreign pharmaceutical and biopharmaceutical R&D companies, and gradually expanded its business and cooperation. The Company accelerated the establishment of R&D service capabilities for biologics and CGT products, and established a biologics and CGT business segment. Pharmaron is committed to becoming a global leader in pharmaceutical R&D services across multiple therapeutic modalities.

During the Reporting Period, all business segments of the Company maintained strong growth momentum. The Company recorded total revenue of RMB3,285.5 million, representing an increase of 49.8% over the same period of last year. With the benefit from economies of scale and the growth in revenue, the Company achieved gross profit of RMB1,189.7 million and gross profit margin of 36.2%, net profit attributable to owners of the parent of RMB564.8 million, representing an increase of 17.9% over the same period of last year, and the NonIFRSs adjusted net profit attributable to owners of the parent of RMB651.4 million, representing an increase of 50.9% over the same period of last year. The Company continues to develop its clinical research services and strategically deploy its biologics and CGT services based on the expanding of the laboratory and CMC (small molecule CDMO) services, and enable high quality development in terms of services capabilities and business growth which in turn further strengthened our fully integrated pharmaceutical R&D services platform.

Pharmaron Beijing Co., Ltd. Interim Report 2021 9

Management Discussion and Analysis

Overall Operation Results

In the first half of 2021, the Company introduced over 400 new customers, and our new drug R&D service platform served customers including the global top 20 pharmaceutical companies, with over 90% of revenue from the Company’s large, diverse and loyal repeat customers. Our end-to-end R&D services platform with seamless integration approach greatly improved efficiency and further enhanced the synergies of our different service segments as well as gained more and more customer recognition. During the Reporting Period, over 80% of the revenue of our discovery stage bioscience services contributed by our existing laboratory chemistry customers, and approximately 71% of CMC (small molecule CDMO) revenue contributed by our existing customers from drug discovery services (laboratory chemicals and bioscience services). During the Reporting Period, the Company contributed to the development of global innovative drug R&D by applying our long-accumulated expertise in pharmaceutical R&D to support our customers’ R&D projects, the Company contributed to the global pharmaceutical R&D community and conducted studies for 55 investigational new drugs (IND) or new drug applications filing for our Chinese customers, of which, 44 projects applied simultaneously in multiple jurisdictions (including China, the U.S. and EU), an integrated service package for IND enabling R&D services gained more and more customer recognition. Meanwhile, with the strengthening of both capability and capacity of the pharmaceutical process development and manufacturing services, the Company worked on 695 APIs or intermediates, including 467 preclinical stage, 197 Phase I-II clinical stage, 27 Phase III clinical stage and 4 in process validation and commercial stage. The Company’s overseas laboratory continued to improve and validate its service capacity. The San Diego laboratory of Absorption Systems successfully passed FDA on-site inspection in mid-August. Up to now, the laboratory has passed two FDA inspections without any FDA 438 defect rectification and observation requirements; Pharmaron UK’s Hoddesden factory accepted the GMP inspection of the MHRA in the UK at the end of June this year.

During the Reporting Period, the Company continued expanding capacity to meet the growing business demand. The Company was about to complete the construction of Phase III of Tianjin plant (40,000 m[2] ) and part of it has been gradually in operation from the first quarter of 2021, which will increase the process development capacity of our CMC (small molecule CDMO) services. During the Reporting Period, the Company continued the construction of Phase II of Hangzhou Bay R&D service center. The first 120,000 m[2] of laboratory space of Phase II of Hangzhou Bay R&D service center was about to complete and part of it has been gradually in operation from the first quarter of 2021. The remaining 42,000 m[2] of Phase II of Hangzhou Bay R&D service center was under construction and expected to complete the main structure and start internal installation in 2021. Once completed, Phase II of Hangzhou Bay R&D service center can provide additional laboratory space for up to 2,500 scientists and technician for our laboratory and CMC (small molecule CDMO) services. Furthermore, with our strategy to expand our CMC (small molecule CDMO) service downstream to late-stage clinical and commercial manufacturing, we accelerated the construction of Shaoxing Phase I facility with an area of 81,000 m[2] and reactor volume of 600 m[3] , of which, reactor volume of 200 m[3] was expected to be operational in the second half of 2021 and the remaining 400 m[3] will be completed in 2022. In the first half of 2021, the Company continued to develop the biologics drug development and manufacturing service (CDMO) capability and accelerated the buildup of the biologics CDMO service platform. We started the construction of nearly 70,000 m[2] of our biologics product development and manufacturing facility at our Hangzhou Bay service center II Phase I and was expected to start internal installation and become operational for GMP production in the first half of 2023.

With the growth in business demand, the Company continuously expanding its talent pool. As of June 30, 2021, The Company had a total of 12,776 employees, of which, 11,400 R&D, production technology and clinical services staff, accounting for 89.2% of the total headcount. As of June 30, 2021, the headcount of R&D, production technology and clinical services staff increased by 1,573 as compared with December 31, 2020.

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Management Discussion and Analysis

In June 2021, the Company successfully issued principal amount of US$300 million zero coupon convertible bonds due 2026 and principal amount of RMB1,916 million zero coupon US$settled convertible bonds due 2026 (together, the “Convertible Bonds”) (both bonds could be converted to H Shares of the Company). The net proceeds from this issuance are approximately RMB3,776.0 million, and will be used to expand capacities and capabilities of pharmaceutical process development and manufacturing facilities, expand capability of R&D and manufacturing service platforms for biologics, expand capacities and capabilities of safety assessment of laboratory R&D services as well as laboratory and manufacturing facilities in the U.K., and supplement for working capital and general corporate purposes.

Operation results of each business sector

1. Laboratory services

As global pharmaceutical R&D investment continues to grow and the penetration rate for pharmaceutical R&D outsourcing continues to increase, the business volume from high quality customers and projects is on the rising trend. During the Reporting Period, the Company, through it’s global resources allocation and long-accumulated laboratory service capabilities, supported our customers to continue their pharmaceutical R&D programs and have undertaken more research works from customers, which contributed to the rapid growth of laboratory service revenue. The Company recorded revenue of RMB2,027.0 million in laboratory services, which representing an increase of 41.9% as compared to same period of last year, with the gross profit margin of 41.9%, representing an increase of 0.9% compared to same period of last year.

The Company had over 4,400 scientists and technicians in laboratory chemistry area which is one of the world leading chemistry groups in terms of size and expertise. During the Reporting Period, whilst our laboratory chemistry services achieved steady growth, the headcount of scientists and technicians in the bioscience areas exceeded 1,700, bioscience services entered the fast lane of development with the bioscience revenue contribution to the

laboratory service increased to 45.8% as a result of the seamless integration with laboratory chemistry services. In order to strengthen our quality control of animal experiments and optimize our supply system of animal experiments, and to enhance our capabilities in the biological sciences such as drug safety assessment, the Company acquired the right of control of Biomedical Research (GZ), Ltd. (肇 慶創藥生物科技有限公司 ), a subsidiary of Shin Nippon Biomedical Laboratories (Asia) Limited ( 新日本科學 ( 亞洲 ) 有限公司 ), in the first half of 2021 by way of equity purchase and capital contribution. Biomedical Research (GZ), Ltd. has experienced husbandry team in animal experiments as well as advanced and standardized facilities. Biomedical Research (GZ), Ltd. is committed to promoting the humanized management and scientific husbandry.

In order to meet the increasing business demand, the Company continued to expand its services capacity. At the same time, in order to meet the business needs, the Company continues to expand its R&D team and improve the caliber of its personnel. As of June 30, 2021, the staff for the laboratory service business were 6,122, representing an increase of 565 as compared to December 31, 2020.

2. CMC (small molecule CDMO) services

For pharmaceutical and R&D companies, the CMC (small molecule CDMO) services delivered by the Company can help our customers significantly reduce R&D costs and expedite the R&D process. During the Reporting Period, the Company recorded revenue of RMB762.2 million in CMC (small molecule CDMO) services, representing an increase of 50.5% as compared to the same period of last year, with the gross profit margin of 36.5%, representing an increase of 7.7% as compared to the same period of last year.

The increase in revenue from CMC (small molecule CDMO) services was mainly due to more drug discovery projects accumulated over the years progressing to the development stage, the expanded CMC (small molecule

Pharmaron Beijing Co., Ltd. Interim Report 2021 11

Management Discussion and Analysis

CDMO) services offering, the improvement of technical capabilities, and the continuous expansion of manufacturing capacity and the increased demand from the domestic innovative drug development market. During the Reporting Period, the Company continuously strengthens the CMC (small molecule CDMO) service platform with the U.K. and Chinese teams worked more closely together which in turn contributing to the continuous improvement in the business quality in the CMC (small molecule CDMO) services. With the implementation of China’s Drug Marketing Authorization Holder System and the rise of a large number of biotech start-ups, the focus of pharmaceutical R&D in China is shifting from generic drug R&D to innovative drug R&D, and China’s innovative drug market is developing rapidly. It is expected that the Chinese CMC (small molecule CDMO) market will continue to grow.

In order to meet the growing demand for CMC (small molecule CDMO) services, the Company is actively expanding its CMC (small molecule CDMO) service team. As of June 30, 2021, the Company had 2,160 employees engaged in CMC (small molecule CDMO) services, representing an increase of 226 employees as compared to December 31, 2020.

3. Clinical development services

During the Reporting Period, with the help of our unique integrated services platform of radioisotope compound “synthesis clinicalanalysis”, our overseas operations achieved steady growth. The Company will build up a fully-integrated international pharmaceutical R&D services platform to provide clinical development services for our customers. During the Reporting Period, the Company recorded revenue of RMB422.7 million in clinical development services, representing an increase of 74.3% over the same period of last year, and a gross profit margin of 14.1%, representing an decrease of 7.7% over the same period of last year.

During the reporting period, the Company established Pharmaron Clinical Services. Pharmaron Clinical Services will integrate the clinical development capabilities of its subsidiaries and departments to optimize the organizational structure of experts and management teams, and build a fully-integrated clinical development service platform, so as to provide customers with higher quality, more comprehensive and more efficient integrated clinical development services. While Pharmaron Clinical Services building fully-integrated clinical development service platform in China, it will also further deepen the close cooperation between China and the U.S. through this integration, and provide end-to-end solutions to customers for clinical development and complementary trials between China and the U.S. In addition, the Company has begun to develop drug discovery, preclinical R&D and CDMO service platforms in China, the U.S., and the U.K., Pharmaron Clinical Services will also benefit from the integration of the Company’s global clinical resources, achieve seamless upstream and downstream docking, and in turn lay a solid foundation for clinical development in Phase I/II/III/IV trials.

The Company continuously develop the clinical development services and increased the talent pool in clinical development services. As of June 30, 2021, the Company had 2,848 employees engaged in clinical development services, representing an increase of 640 as compared to December 31, 2020.

4. Biologics and CGT services

To strengthen the building and management of R&D service capabilities for biologics and cell and gene therapies, the biologics and CGT business segments began independent accounting during the Reporting Period. In the first half of 2021, the Company recorded revenue of RMB71.7 million in biologics and CGT services, and a gross profit margin of 3.0%. As of June 30, 2021, there are a total of 270 employees engaged in underlying biologics and CGT services of its subsidiaries and departments, representing an increase of 142 as compared to December 31, 2020.

12 Pharmaron Beijing Co., Ltd. Interim Report 2021

Management Discussion and Analysis

In the second quarter of 2021, the Company completed its acquisition of Allergan Biologics Limited in Liverpool, U.K.. Allergan Biologics Limited is equipped with advanced and flexible cGMP biologics manufacturing facilities and has over 100 experienced science and technology and production personnel. It provides customers with CDMO services mainly focusing on CGT products: plasmid synthesis containing therapeutic genes, cell line development, cell bank establishment, production process development and optimization, formulation process optimization, mass production of products, analytical method development and validation, product-related impurities identification and analysis, stability valuation, product analysis and identification and GMP batch release, etc., covering a full set of CDMO services for the entire process of CGT products process development and their cGMP production, so as to support the needs for pre-clinical safety evaluation of gene cell products, Phase I, II and III clinical trials, and post-marketing product life cycle management. Allergan Biologics Limited has been holding a biologics production license issued by the MHRA (Medicines and Healthcare Products Regulatory Agency of the U.K.) since 2007. The Company will transform Allergan Biologics Limited from an in-house R&D center to a company that provides CGT Development and Manufacturing Services CDMO to third-party customers by means of business integration.

In November 2020, the Company acquired Absorption Systems located in the U.S. providing customers with biologics and CGT in vitro and in vivo laboratory analytical, bioassays testing and animal testing services. The analytical laboratory services of biologics and CGT products at Absorption Systems include development of various analytical methods and analysis of samples for early-stage research and development projects, as well as analytical method development and validation in compliance with ICH’s GCP, GLP and GMP regulatory guidelines and their application to the analysis of samples for later-stage research

and development, so as to meet different customer requirements for identification of product candidates and products at different research and development stages, as well as the release of GMP products and technology transfer of production processes. The analytical platforms include the analytical method development and validation for various proteins and cell therapeutical products, as well as the analytical method development and validation for quantitative DNA and RNA products, which is used for the analysis of activity, toxicity, tissue distribution, and viral shedding, and quantitative analysis of gene cell products. These analytical methods can be used for both early-stage projects in the research and development of CGT products and for analysis that needs to meet GLP/GCP/ GMP requirements. The analytical platform of Absorption Systems can be used for the safety evaluation of CGT products, as well as for the analysis at clinical development stage and batch release of a marketed product. The successful acquisition of Absorption Systems and Allergan Biologics Limited further has improved the Company’s layout in the field of CGT services.

To meet the production capacity demand for biologics drug development and manufacturing services (CDMO), the Company is accelerating the build-up of the biologics CDMO service platform. We have completed the civil construction of our biologics drug development and manufacturing facility at our Hangzhou Bay service center II Phase I (nearly 70,000 m[2] ) and started the internal installation, which will become operational for GMP production in the first half of 2023. After the project is delivered, it will be able to provide development services for cell line and cell culture process, upstream and downstream process development, formulation development and fill-and-finish process and analytical methods, as well as drug substances and product manufacturing services with 200L to 2,000L production capacity to support the project from pilot to commercial stage production.

Pharmaron Beijing Co., Ltd. Interim Report 2021 13

Management Discussion and Analysis

Gross Profit and Gross Profit Margin

During the Reporting Period, our gross profit was approximately RMB1,189.7 million, as compared to RMB794.4 million for the six months ended June 30, 2020. Gross profit margin remained stable at 36.2% as compared to the six months ended June 30, 2020. The stable gross margin for the six months ended June 30, 2021 was a combination effects of: (1) higher operating efficiency from the economies of scale of the established service lines; (2) continuous investment in the new service offerings with relatively low margin during the development and rampedup period and (3) RMB appreciation in the Reporting Period. Should the weighted average USD exchange rate in the Reporting Period remains the same as the same period of last year, the gross margin for the six months ended June 30, 2021 will be higher by 3.6%.

Gross profit of our laboratory services increased from RMB586.5 million for the six months ended June 30, 2020 to RMB848.5 million for the Reporting Period. Gross profit margin of our laboratory services increased from 41.0% for the six months ended June 30, 2020 to 41.9% for the Reporting Period.

Gross profit of our CMC (small molecule CDMO) services increased from RMB145.8 million for the six months ended June 30, 2020 to RMB278.5 million for the Reporting Period. Gross profit margin of our CMC (small molecule CDMO) services increased from 28.8% for the six months ended June 30, 2020 to 36.5% for the Reporting Period.

Gross profit of our clinical development services increased from RMB52.9 million for the six months ended June 30, 2020 to RMB59.6 million for the Reporting Period. Gross profit margin of our clinical development services decreased from 21.8% for the six months ended June 30, 2020 to 14.1% for the Reporting Period, representing a decrease of 7.7% over the same period last year.

Gross profit of our Biologics and CGT services decreased from RMB3.0 million for the six months ended June 30, 2020 to RMB2.2 million for the Reporting Period. Gross profit margin of our Biologics and CGT services decreased from 61.6% for the six months ended June 30, 2020 to 3.0% for the Reporting Period, representing a decrease of 58.6% over the same period last year primarily due to the impact of Allergan Biologics Limited which was acquired in April 2021.

Other Income and Gains

During the Reporting Period, other income and gains was approximately RMB119.9 million, representing an decrease of approximately 40.9% or RMB82.9 million as compared to the six months ended June 30, 2020. The decrease was mainly due to: (1) decrease in gains on fair value change of our equity investment of RMB83.8 million; (2) decrease in interest income of RMB23.3 million; (3) increase in gains resulting from transfer of an investment in associate, Shanghai Kejun Pharmaceutical Technology Co., Ltd. (上海柯君醫藥科技有限公司), to equity investments at fair value through profit or loss of RMB25.5 million; (4) increase in gains on financial assets at fair value through profit or loss of RMB12.0 million; (5) one-off fair value gain of RMB23.1 million resulted from re-measurement of our equity interest in LinkStart when it became our subsidiary in June 2020.

Other Expenses

During the Reporting Period, other expenses was approximately RMB109.6 million, representing an increase of approximately 171.0% or RMB69.2 million as compared to the six months ended June 30, 2020. The increase was mainly due to losses on fair value change of convertible bonds – embedded derivative component issued by the Company in 2021 with RMB100.4 million.

Selling and Distribution Expenses

The selling expenses in the Reporting Period were approximately RMB63.7 million, increased by approximately 57.7% or approximately RMB23.3 million as compared to the six months ended June 30, 2020. The increase was primarily due to increase in headcount of our business development staff to support our expansion of operation.

14 Pharmaron Beijing Co., Ltd. Interim Report 2021

Management Discussion and Analysis

Administrative Expenses

The administrative expenses of the Group in the Reporting Period were approximately RMB383.6 million, as compared to approximately RMB303.5 million for the six months ended June 30, 2020. The increase was mainly due to our continued business expansion. Our administrative expenses as a percentage to revenue decreased from 13.8% in the six months ended June 30, 2020 to 11.7% in the Reporting Period, which was mainly due to the economies of scale and our expense control effort.

Research and Development Costs

The research and development expenses of the Group in the Reporting Period were approximately RMB64.5 million, representing an increase of approximately 49.6% or RMB21.4 million as compared to the six months ended June 30, 2020. The increase was primarily due to our increased internal R&D activities for exploring and expanding into new service offerings.

Finance Costs

During the Reporting Period, finance costs was approximately RMB15.8 million, representing an increase of approximately 17.9% or RMB2.4 million as compared to the six months ended June 30, 2020. The increase was primarily due to interest expense from Convertible Bonds issued in the Reporting Period.

Income Tax Expense

The income tax expense in the Reporting Period was approximately RMB118.6 million, representing an increase of 80.6% or approximately RMB52.9 million as compared to the six months ended June 30, 2020. It was primarily due to the increase in profit before tax as a result of the growth of the Group’s business operations.

Non-IFRSs Adjusted Net Profit for the Period Attributable to Owners of the Parent

To supplement the financial statements prepared by us, we use non-IFRSs adjusted net profit attributable to owners of the parent as an additional financial measure. We define non-IFRSs adjusted net profit attributable to owners of the parent as net profit before certain expenses/(gains) as set out in the table below.

The Company believes that the consideration of the non-IFRSs adjusted net profit attributable to owners of the parent by eliminating the impact of certain incidental, non-cash or non-operating items is useful for better understanding and assessing underlying business performance and operating trends for the Company’s management, shareholders and potential investors.

The non-IFRSs adjusted net profit attributable to owners of the parent is not an alternative to (i) profit before tax or net profit (as determined in accordance with IFRSs) as a measure of our operating performance, (ii) cash flows from operating, investing and financing activities as a measure of our ability to satisfy our cash needs, or (iii) any other measures of performance or liquidity. In addition, the presentation of the non-IFRSs adjusted net profit attributable to owners of the parent is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with the IFRSs. Shareholders and potential investors should not view the non-IFRSs adjusted net profit attributable to owners of the parent on a stand-alone basis or as a substitute for results under the IFRSs, or as being comparable to results reported or forecasted by other companies.

Profit in the Reporting Period

As a result of the foregoing, the profit attributable to owners of the parent in the Reporting Period was RMB564.8 million, increased by 17.9% as compared to RMB479.0 million for the six months ended June 30, 2020.

Pharmaron Beijing Co., Ltd. Interim Report 2021 15

Management Discussion and Analysis

==> picture [223 x 441] intentionally omitted <==

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

Six months Six months
ended ended
June 30, June 30,
2021 2020
RMB’000 RMB’000
(unaudited) (unaudited)
Profit attributable to
owners of the parent 564,837 478,960
Add:
Share-based compensation
expenses 21,932 28,488
Interest and issuance
expense on convertible
bonds 6,409 –
Losses on fair value
change of convertible
bonds-embedded
–
derivative component 100,395
Foreign exchange
Foreign exchange related (gains)/losses related (gains)/losses (9,937) 27,296
Non-IFRS net profit
attributable to owners
of the parent 683,636 534,744
Add:
Realized and unrealized
gains or losses from
equity investments (32,244) (103,136)
Non-IFRS adjusted net
profit attributable to
owners of the parent 651,392 431,608
----- End of picture text -----

The Non-IFRSs adjusted net profit attributable to owners of the parent in the Reporting Period was RMB651.4 million, increased by 50.9% as compared to RMB431.6 million for the six months ended June 30, 2020.

Cash Flows

During the Reporting Period, net cash flows generated from operating activities of the Group amounted to RMB845.1 million, representing an increase of RMB227.1 million or 36.8% over the six months ended June 30, 2020. The increase was mainly due to the increase in revenue and profit of the Group during the Reporting Period.

During the Reporting Period, net cash flows used in investing activities of the Group amounted to RMB2,224.8 million, representing an increase of RMB192.4 million or 9.5% over the six months ended June 30, 2020. The net cash flows used in investing activities during the Reporting Period was mainly from (1) construction of our Phase II of Hangzhou Bay R&D service center, Phase I of Shaoxing Shangyu manufacturing facility and purchases of other property, plant and equipment of RMB1,031.9 million; and (2) net cash outflows used in acquisition of subsidiaries and capital injection in an associate and other equity investment of RMB939.5 million.

During the Reporting Period, net cash flows generated from financing activities of the Group amounted to RMB3,938.1 million, representing an increase of RMB4,681.2 million or 629.9% over the six months ended June 30, 2020. The increase was primarily due to the proceeds of Convertible Bonds during the Reporting Period.

Liquidity and Financial Resources

The Group has maintained a sound financial position during the Reporting Period. As at June 30, 2021, the Group’s cash and cash equivalents amounted to approximately RMB5,950.5 million. For the Reporting Period, net cash flows generated from operating activities of the Group amounted to approximately RMB845.1 million.

The Group recorded total current assets of approximately RMB8,818.0 million as at June 30, 2021 (December 31, 2020: approximately RMB5,540.4 million) and total current liabilities of approximately RMB2,515.5 million as at June 30, 2021 (December 31, 2020: approximately RMB1,981.8 million). The current ratio (calculated by dividing the current assets by the current liabilities) of the Group was approximately 3.5 as at June 30, 2021 (December 31, 2020: approximately 2.8).

16 Pharmaron Beijing Co., Ltd. Interim Report 2021

Management Discussion and Analysis

Borrowings and Gearing Ratio

As at June 30, 2021, the Group aggregated interestbearing bank borrowings of RMB1,265.6 million. Among the total borrowings, RMB406.6 million will be due within one year and RMB859.0 million will be due after one year.

As at June 30, 2021, the gearing ratio, calculated as total liabilities over total assets, was 44.2%, as compared with 25.0% as at December 31, 2020.

Pledge of Assets

As at June 30, 2021, the Group mortgaged property, plant and equipment with a net carrying amount of approximately RMB419.6 million (December 31, 2020: approximately RMB405.6 million); and the mortgaged right-of-use assets had a net carrying amount of approximately RMB178.1 million (December 31, 2020: approximately RMB180.5 million).

Those pledged assets above have been used to secure the Group’s interest-bearing bank borrowings.

Besides, as at June 30, 2021, the Group pledged deposits of approximately RMB18.3 million (December 31, 2020: approximately RMB7.3 million) to issue letters of credit and for environmental protection.

Contingent Liabilities

As at June 30, 2021, the Group did not have any material contingent liabilities.

CORE COMPETITIVENESS ANALYSIS

The Company provides customers with fully integrated services covering drug research, development and manufacturing services for innovative pharmaceutical products throughout the research and development cycle, which lead to significant competitive advantages in the business model, R&D service capabilities, customer collaboration and supporting domestic and foreign pharmaceutical/biotech companies in innovative drug R&D.

1. Leading fully-integrated pharmaceutical R&D services platform with strong capabilities and comprehensive service offerings across the globe

T h e C o m p a n y h a s a w e l l - e s t a b l i s h e d pharmaceutical R&D services platform for the discovery stage of small molecule innovative drugs, based on which the Company has expanded its expertise to various stages of drug development and manufacturing. The Company is in a leading position in drug discovery, preclinical and early clinical-stage research, and is committed to expanding its capabilities downstream to late clinical-stage development and commercial manufacturing. In the process of expanding R&D services, the Company has successfully evolved from a pure laboratory chemistry service provider to an endto-end pharmaceutical R&D services platform with operations in China, the U.S. and the U.K. The Company has established comprehensive expertise in different R&D stages, so as to assist customers in accelerating their R&D programs and cater to a full spectrum of customers’ needs. The Company has established a good reputation in the global pharmaceutical R&D service industry and a strong partnership with top pharmaceutical and biotech companies. Through the comprehensive early-stage drug R&D services, we have accumulated a profound understanding of the unique scientific challenges facing their new pharmaceutical R&D projects, which better positions the Company to press ahead with such projects in the late development stage. The Company’s profound industry knowledge, strong execution capability and end-to-end solutions will shorten the drug discovery and development cycle and reduce the associated risks, thereby creating value for customers.

As a fully-integrated pharmaceutical R&D service provider, the Company’s comprehensive pharmaceutical R&D services platform has the following three core competences:

Pharmaron Beijing Co., Ltd. Interim Report 2021 17

Management Discussion and Analysis

(1) Comprehensive chemistry platform throughout the entire drug R&D and commercial stages

As a fully-integrated service provider for the research, development and m a n u f a c t u r i n g o f s m a l l m o l e c u l e pharmaceutical products, the Company’s expertise and advantage in chemistry technology is crucial throughout the whole drug R&D process.

With the comprehensive chemical technology platform covering compound design (including CADD), design and synthesis of a compound library, medicinal chemistry, synthetic chemistry, analytical chemistry, early process chemistry, and process chemistry and GMP API manufacturing, the Company can satisfy customers’ demand for pharmaceutical R&D and manufacturing in each stage of the pharmaceutical R&D process, including laboratory synthesis process at the drug discovery stage, small-scale process and GLP/GMP manufacturing at the preclinical drug development stage, mid-scale process and GMP manufacturing at the clinical stage as well as process development for GMP commercial manufacturing, which fully cater to the diversified needs of different types of customers. In addition to providing R&D services for the compound synthesis process, combined with its formulation development services, the Company is able to provide customers with fully-integrated pharmaceutical R&D and manufacturing solutions from initial compounds to finished dosages.

(2) DMPK/ADME service platform throughout the entire drug R&D process

The Company provides DMPK/ADME services covering the whole R&D process from drug discovery to development. The early DMPK/ADME studies are of great importance as they can provide a key basis for our customers to determine their late-stage drug development strategy. Radioisotopic analysis technology is critical as an important drug metabolism analysis technology during the clinical stage. Following the approval of the radioisotopic use license at the Company’s clinical center in the U.S. in early 2018, the Company is the only pharmaceutical R&D service provider that offers integrated pharmaceutical R&D solutions, which cover radioisotope compound synthesis and human ADME studies using regular isotope analysis technology or high-sensitivity AMS technology. In addition, with acquisition of Absorption Systems, the Company broadens its global service network and further strengthens its leading position in discovery and development DMPK platform.

(3) Comprehensive integrated platform from drug discovery to POC (“proof of concept”)

From inception, the Company has committed to the establishment of integrated services platform from drug discovery to proof of concept stage, which covers compound design, compound library synthesis, synthetic and medicinal chemistry, biology, DMPK, pharmacology, toxicology, drug safety assessment, radiolabelled chemistry and DMPK, clinical pharmacology, clinical bioanalysis, clinical data statistics, chemical process development and API manufacturing and formulation and drug product manufacturing.

With this comprehensive integrated services platform, the Company has undertaken many integrated research

18 Pharmaron Beijing Co., Ltd. Interim Report 2021

Management Discussion and Analysis

projects, and achieved a considerable number of milestones. In addition, the Company can also provide a customized service package at a particular stage of drug R&D process, such as an integrated service package for IND enabling which includes preclinical safety assessment, early process development and manufacturing, pharmacology, DMPK and clinical proposal. With this comprehensive IND enabling solutions and the ability to support IND filing for different jurisdictions, it provides flexibility to the customers, accelerates their drug development process and reduces their overall R&D costs.

1. Global operations, profound experience in pharmaceutical R&D and state-of-the art technologies to provide customized solutions

The Company has 17 (of which 9 are overseas) operating entities in China, the U.K. and the U.S. The Company integrates its resources and conducts global business with international operations and management tools. By relying on the profound experience in global pharmaceutical R&D, service facilities and world-class technical strength, the Company possesses international professional service capabilities and is able to offer customers with high-quality customized services.

It is the Company’s core strategy for each international acquisition to effectively integrate with our global services platform and brought in the world class talent and facilities into our integrated services platform to further strengthen our overall services capabilities and increase the efficiency of our services. These strategies complement each other to effectively improve the Company’s international operation capability and bring high value-added services to customers. For example, our process chemistry and drug discovery teams in China and the U.K. worked closely together to provide customized solutions with hybrid model which continued to gain recognition from customers.

Through our global operation, the Company has established a services network and strategic presence in global life science hubs which enhance the customer communication and understanding of customer needs. Also, by carrying out our R&D services under different jurisdictions, it provides flexibility to customize our services and solutions that best suit our customers’ geographic and strategic needs. The clinical pharmacology team in the U.S. has worked seamlessly with our Chinese team to help customers in China for the preparation and filing of IND application and conducted the first-in-human (FIH) studies in the U.S. In addition, the Company’s experience in regulatory filings in various jurisdictions and its service model of providing customers with total solution enable our customers to file IND applications for their drug candidates in China, the U.S., or EU in parallel, which makes the IND applications of our customers more flexible and efficient.

1. Committed to utilizing innovative technologies to meet evolving R&D needs and increase efficiency

Since inception, the Company has put great emphasis on technology and innovation to fuel the constant grow of the business and satisfy the evolving R&D needs. It develops new technologies through multiple measures such as internal research and development, collaboration with academic and professional institutions, customer col laboration and acquisitions. In recent years, the Company has been strategically developing new technologies and capabilities in chemistry and bioscience areas, and committed to further strengthening of the integrated services platform. In the chemical synthesis and manufacturing technology area, we focused on the application of the high throughput chemical reaction screening platform, flow chemical technology and biocatalysis technology. In the discovery and bioscience area,the Company had established DNA encoded Library (DEL) screening platform, chemopoteomics platform, in vivo imaging technology platform and 3D spheroid and organoid screening platform.

Pharmaron Beijing Co., Ltd. Interim Report 2021 19

Management Discussion and Analysis

1. Dedicated, stable and visionary management teams, experienced talent pools with progressive corporate culture The Company’s management team is led by Dr. LOU Boliang, our chairman and chief executive officer. With over 30 years of experience in the pharmaceutical industry, he is highly respected in the industry for his excellent leadership that contributes to the Company’s rapid development. The Company’s senior management team has been with us for more than 10 years. The Company, by introducing overseas talents and internal training, has nearly 100 senior scientific and technical leaders, 3 of whom were named as National Talents and 15 named as Beijing Talents. Members of our highly skilled, experienced and international management team possess diverse expertise and extensive knowledge, and have significantly contributed to the growth of the Company’s institutional knowledge base. The Company focuses on its home-grown scientific team consisting of selected, young and promising scientists, which enables us to form a cohesive and vibrant mid-level management team composed of 2,165 technical managers and high-caliber scientific research talents across all scientific disciplines of the Company. In addition, the Company’s visionary management team has established a highly experienced and skilled talent pool with strong execution efficiency. As of June 30, 2021, the Company had 11,400 R&D, production technology and clinical services staff in China, the U.K. and the U.S. The highly professional technical team ensures the Company’s continuous provision of high-quality R&D services for customers. The open platform for talent development ensures that the Company will continuously attract talents from around the globe.

The Company is committed to its corporate philosophy of “Employee First and Customer Centric” which put strong emphasis on employee training and improves all mechanisms so as to integrate their career development into the Company’s overall development strategy. In order to develop and train our talents, the Company provides training to our employees through our in-house training system including

the “Pharmaron College”, visiting scholar programs at renowned laboratories and institutions and holds various seminars, forums and academic symposiums regularly, through which our team members acquire updates on the most advanced technology and techniques of the industry. In addition, the Company has developed training programs with the world renowned universities and research institutes for high-caliber scientific research talent. The above measures have greatly improved the scientific research capabilities and cohesion of the Company and its employees. Furthermore, we respect and value every single customer so as to ensure R&D quality by tackling each technical challenge and completing every single task with integrity and scientific rigor.

O u r d e d i c a t e d , s t a b l e a n d v i s i o n a r y management team, experienced talent pool and outstanding corporate culture lay a solid foundation for the Company’s long-term success.

1. Reputable, loyal and expanding customer base that contributes to our sustainable growth and business collaboration

The Company has a large, diverse and loyal customer base, and provides services to the customers, including the global top 20 pharmaceutical companies and numerous reputable biotech companies. In the first half of 2021, the Company introduced over 400 new customers, with over 90% of revenue contributed by the Company’s large, diverse and loyal repeat customers The Company’s fully-integrated solution and deep understanding of customers’ needs allow it to provide customized pharmaceutical R&D services for customers according to their needs. With further progress made in the existing customers’ projects, the loyal and growing customer base will enable us to develop new services in drug development and at the early clinical stage.

20 Pharmaron Beijing Co., Ltd. Interim Report 2021

Management Discussion and Analysis

The Company benefits from its strategic partnership with specific customers. Through know-how sharing and training provided during our deep collaboration with these customers, the Company is able to further improve technical capabilities and enhance service excellence, thereby creating a virtuous cycle. With our strong technical expertise, advanced technological infrastructure, profound industry knowledge, strong execution capability and quality customer services, the Company is able to become our customers’ strategic partner and help them form their drug development or R&D outsourcing strategies, which in turn reinforces our close relationships with such customers. In addition to our strong scientific capabilities, the Company puts emphasis on areas like environmental protection, health, safety and intellectual property protection. The Company takes such measures as establishing the intellectual property protection system and building the information system to ensure that our customers’ intellectual properties are well protected, and is widely recognized and trusted by customers in this respect. The Company’s high-quality services enable us to accumulate a good reputation among our existing customers, and to further expand our customer base by acquiring new customers through word-ofmouth referrals.

addition, the number of biotech start-ups and their R&D investments increase rapidly. Out of consideration of costs and time efficiency, these biotech start-ups more extensively use the fullyintegrated R&D services platform to support their pharmaceutical R&D programs. Through long-term collaboration with customers, the Company will contribute to transforming the drug R&D industry in a more efficient way and continuously benefit from the growing demand for pharmaceutical R&D services.

Along with the trend of the Chinese pharmaceutical industry shifting from generic drugs to innovative drugs and the rapidly increasing number of biotech start-ups in China, China has a robust demand for pharmaceutical R&D services and becomes fastest-growing pharmaceutical R&D services market across the world. The Company is well-positioned to capitalize on the strong growth drivers in China’s pharmaceutical R&D industry and further strengthen its leadership in such a market.

OUTLOOK FOR THE SECOND HALF OF 2021

D i s c u s s i o n a n d A n a l y s i s o f F u t u r e Development

1. Industry competition and development

1. Insight into industry trends and well positioned to capture growth opportunities arising from industry evolution

The Company, with profound industry accumulation, large customer base and close partnership, keeps abreast of the global pharmaceutical R&D trends. It’s strong awareness and understanding of evolving R&D needs allow the Company to strengthens the technology service platform and updates the service model in time, to better serve our customers.

It is a trend for pharmaceutical R&D companies to enter into deeper collaborations with their pharmaceutical R&D service providers that provide end-to-end services with good track records to achieve higher R&D efficiency. In

The Company is engaged in drug research, development and manufacturing services, and provides customers with fully-integrated services for innovative pharmaceutical products throughout the research and development cycle. Its business is closely related to the development of the pharmaceutical industry and pharmaceutical R&D outsourcing market.

• (1) Market conditions of pharmaceutical R&D and outsourcing services

Under the pressure of increasing R&D costs and patent cliff, as well as limited by their own R&D capacity, pharmaceutical companies gradually turn to pharmaceutical R&D/manufacturing outsourcing services with an aim to reduce their R&D costs of drugs and improve their R&D efficiency. The increasing investment

Pharmaron Beijing Co., Ltd. Interim Report 2021 21

Management Discussion and Analysis

in pharmaceutical R&D also provides a solid foundation and guarantee for the market development of outsourcing services for R&D and manufacturing. In the future, the size of global pharmaceutical research, development and manufacturing service market and the size of China’s pharmaceutical service market are expected to maintain sound growth. According to Frost & Sullivan’s forecast, the size of global pharmaceutical service market is expected to be US$99.9 billion in 2020. It is estimated that the size of global pharmaceutical service market will increase to US$149.8 billion by 2024, representing an excepted CAGR of 10.7% from 2020 to 2024. Compared to global pharmaceutical service market, China’s pharmaceutical service market is smaller in size but is growing at a faster growth rate. According to Frost & Sullivan’s forecast, the size of China’s pharmaceutical service market is expected to reach US$12 billion in 2020, and it is expected to increase to US$32.7 billion by 2024, twice the growth rate of global pharmaceutical service market. According to Frost & Sullivan’s forecast, the size of global pharmaceutical R&D outsourcing services market was US$67.2 billion in 2020, representing a market penetration rate (the proportion of the size of the total CRO services market in the total R&D investment) of 35.2%; meanwhile, the size of Chinese pharmaceutical R&D outsourcing services market is expected to be US$8 billion in 2020, representing a market penetration rate of 31.7%. In 2024, the size of global pharmaceutical R&D outsourcing services market is expected to be US$96 billion, and the market penetration rate will further climb to 42.3%; the Chinese market is expected to reach US$22.2 billion and the market penetration rate is expected to be 46.6%.

(2) Market conditions of drug discovery R&D services

• Drug discovery is a multidisciplinary and systematic work and process. According to Frost & Sullivan’s forecast, the size of the global drug discovery service market is expected to be US$14.2 billion in 2020, representing a market penetration rate (the proportion of the revenue from services in the total R&D investment) of 35.5%. It is estimated that the size of global drug discovery service market will increase to US$20.4 billion by 2024, representing a CAGR of 9.5% from 2020 to 2024, far exceeding the growth rate of investment in drug discovery R&D in the same period, and the penetration rate of global drug discovery R&D service market will reach 43.3%; meanwhile, the size of China’s drug discovery service market is estimated to be US$1.6 billion in 2020, accounting for 43.2% of the entire drug discovery R&D market. It is estimated that the size of China’s drug discovery R&D service market will increase to US$4.3 billion by 2024, exceeding the growth rates of both the investment in drug discovery and the global drug discovery R&D services in the same period. The market penetration rate of China’s drug discovery R&D services will also rise to 62.1%.

• (3) Market conditions of pharmaceutical development and manufacturing services P h a r m a c e u t i c a l d e v e l o p m e n t a n d m a n u f a c t u r i n g s e r v i c e s c o v e r t h e whole process of preclinical research, clinical research, drug registration and commercial manufacturing. According to Frost & Sullivan’s forecast, the size of the global pharmaceutical CMO service market is expected to be US$32.7 billion in 2020. It is estimated that the size of global pharmaceutical CMO service market will increase to US$53.8 billion by 2024, representing a CAGR of 13.3% from 2020 to 2024; meanwhile, the size of China’s pharmaceutical CMO service market is expected to be US$4 billion in

22 Pharmaron Beijing Co., Ltd. Interim Report 2021

Management Discussion and Analysis

2020, accounting for 12.2% of the entire pharmaceutical CMO service market. It is estimated that the size of China’s pharmaceutical CMO service market will increase to US$10.5 billion by 2024, 14.0% higher than the growth rate of global pharmaceutical CMO service in the same period.

(4) M a r k e t c o n d i t i o n s o f c l i n i c a l development services

Drug clinical development services cover Phase I to Phase III of human clinical trials and post-commercialization research of drugs. With the steady growth in investments in drug research and development, patent cliff for a number of major pharmaceutical products drawing near and the raise in prominence of small to medium size biotech companies globally, pharmaceutical companies appreciate the use of contract research services, particularly the contracting of clinical development services, having a relatively high cost of human resources, in order to advance the drug development stages more efficiently. According to Frost and Sullivan’s forecast, the global market for drug clinical development services reached US$43.2 billion in 2020, and market penetration (the proportion of revenue of clinical development CRO service in total clinical development investment) is 33.5%. The global market is expected to reach US$62.2 billion by 2024, representing an expected CAGR of 9.5%, and market penetration is expected to reach 40.3%; at the same time in 2020, the market for drug clinical development outsourcing services in China has reached US$4.4 billion, accounting for 10.1% of the global market for drug clinical development services, and market penetration was 26.0%. With the rapid growth of the Chinese pharmaceutical industry, it is expected that the market for drug clinical research service in China will reach US$13.7 billion and market penetration rate of 42.7% by 2024, representing an expected CAGR of 33.1%, far exceeding the global market growth rate of 9.5% during the same period.

2. Outlook and strategy of the Company’s future development

The Company will continue to build and improve our fully-integrated and international pharmaceutical R&D service platform, which has always been our core development strategy. In addition to continue develop our small molecule integrated R&D services platform, the Company will accelerate the establishment of R&D service capabilities for biologics and CGT products as Pharmaron is committed to becoming a global leader in drug R&D services across multiple therapeutic modalities. Through the fully-integrated service platform, the Company is able to provide customers with more flexible and efficient services, business teams equipped with various professional skills customize services for customers according to their needs in a timely manner, and promptly respond to the requirements of relevant R&D projects, so as to help customers successfully and efficiently complete pharmaceutical R&D works while promoting collaboration between different disciplines. On one hand, our international acquisition effectively integrate with our global services platform and brought in the world class talent and facilities into our integrated services platform to further strengthen our overall services capabilities and increase the efficiency of our services. On the other hand, our global operation has established a services network and strategic presence in global life science hubs which enhance the customer communication and understanding of customer needs as well as offers customized solutions to customers by integrating the expertise and presence from our global operations.

We will adhere to the business development strategy that put emphasis on both domestic and overseas markets. Through our established effort in developing overseas market, we have a large customers base with solid customer relationship and we will constantly improves our R&D capabilities and professional skills to offer high quality services to our customers and expand our collaboration with them. Also, we will take advantage of our brand reputation and develop and introduce our services to more

Pharmaron Beijing Co., Ltd. Interim Report 2021 23

Management Discussion and Analysis

customers. For the domestic market, we will pay more attention in cultivating the domestic market and adopt a specific market strategy to address the domestic needs.

In the second half of 2021, based on its longterm development strategy, the Company will continue to focus on the following work:

• (1) Maintain its leading position in the small molecule R&D service area and further enhance our technologies and global footprint expansion.

• Advanced technologies are crucial for the Company to maintain its leading position in the small molecule area, the Company will build upon its established fully-integrated small molecule drugs R&D services platform and continuously invest in the latest small molecule technology to expand the services offerings. Also, regarding business development, we will pay more attention to brand building by providing top quality small molecule services to further strengthen customer loyalty and brand recognition. The twopronged approach of platform building and brand building has built our international competitiveness in the field of small molecule services.

• (2) Accelerate the build up of biologics and CGT services platform

• While developing discovery biologics service capabilities, we will accelerate the build – up of the CDMO service platform for biologics and CGT products. In 2021, we will further develop our biologics drug discovery service capabilities by expanding our team and introduce more professional talent and broaden our services offering. We will accelerate the construction of biologics manufacturing capacities for drug development stage in Ningbo and establishing a quality system that meet the highest international standard. Furthermore, we will leverage on the existing CGT service capabilities of Absorption Systems and the acquisition of Allergan Biologics Limited which we completed in second quarter of 2021 to establish our global CGT service platform.

(3) F u r t h e r e n h a n c e m a n a g e m e n t capabilities

• To strengthen our core competitiveness, we will further integrate our global resources to build a global services platform. As such, we will improve execution efficiency of the management team to better support our global expansion strategy. Our management capabilities also involves quality and safety management. In 2021, the Company will provide high quality services and products to our customers by adhering to the highest international quality standards. Safety production will continue to be the top priority of our daily operation which is crucial for the sustainability of the Company businesses. On top of that, information security will become an important component of our safety production efforts. For this purpose, we will continuously optimize and upgrade the information system of our global operation to constantly safeguard customers’ information and intellectual properties.

• (4) Continue to expand domestic and overseas market shares

For the overseas market growth, we will continue to maintain our solid relationships with our existing customer base, deeply analyze and explore customer needs, expand our service offerings, and introduce new customers with the help of our reputation and brand influence. For the domestic market, we will pay more attention in cultivating the domestic market and adopt a specific market strategy to address the domestic needs to improve our competitiveness in the domestic market. With the increase of our late stage CMC (small molecule CDMO) service capacity, we are seeking further expansion in the domestic market.

24 Pharmaron Beijing Co., Ltd. Interim Report 2021

Management Discussion and Analysis

(5) Continue to strengthen our talent pool to support our long-term and sustainable growth

Human resources are the foundation of innovation and key to strengthen our core competitiveness. As future development of the Company rely on high caliber talents in different areas, we deeply understand the urgency and necessity of building an inclusive and open talent development platform to continually infuse new energy to fuel our company innovation and growth.

3. Potential risks

• (1) R i s k o f d e c l i n i n g d e m a n d i n pharmaceutical R&D service market

The Company is a leading fully-integrated pharmaceutical R&D service platform with global operations to accelerate drug innovation for our customers. While the global pharmaceutical industry is expected to keep growing driven by such factors as an aging population, higher disposable income and increased spending on healthcare, there is no guarantee, however, that the pharmaceutical industry will grow at the rate we project. If the growth of the global pharmaceutical market slows down in the future, customers may suspend their pharmaceutical R&D projects or reduce their pharmaceutical R&D budget, which will have an adverse impact on the Company’s business performance and prospects. The Company will continue to implement its strategies, improve its scientific research capabilities and service quality and enhance its market competitiveness.

• (2) R i s k o f l o s i n g s c i e n t i f i c a n d technological talents and senior management members

The Company has established a talent team with extensive experience and strong execution capability, which possesses the ability to provide customers with highquality services in a timely manner and keep up with the cutting-edge technology and latest development of pharmaceutical

R&D. However, there is a limited supply of qualified R&D personnel with requisite experience and expertise and such qualified personnel are also highly-sought after by large pharmaceutical companies, biotech start-ups and scientific research institutes. If the Company fails to maintain competitiveness in attracting and retaining excellent scientific and technological personnel in the future, we may not be able to provide customers with high-quality services, which could have a material adverse impact on its business.

The Company will optimize and improve the human resource management system, further strengthen efforts in various aspects such as attraction, assessment, training and incentives, and constantly improve the long-term incentive mechanism (including equity incentives) for all kinds of talent, striving to establish a talent team with firstclass caliber that can adapt to international competition.

• (3) Risks regarding intellectual property protection

Protection of intellectual property rights associated with customers’ R&D services is critical to all of our customers. The service agreements and confidentiality agreements signed between the Company and our customers typically require the Company to exercise all reasonable precautions to protect the integrity and confidentiality of our customers’ information. Any unauthorized disclosure of our customers’ intellectual property or confidential information could subject the Company to liability for breach of contract and result in significant damage to our reputation, which could have a material adverse impact on the Company’s business and operating results.

The Company will continuously improve the existing confidentiality policy, software and hardware, and continue to carry out internal training for employees to enhance their awareness of confidentiality and intellectual property protection.

Pharmaron Beijing Co., Ltd. Interim Report 2021

25

Management Discussion and Analysis

(4) Risks regarding policies and regulation

There are strict laws, regulations and industry standards in many countries or regions to which drugs are intended to be ultimately sold (such as China, the U.S., the U.K. and several EU countries) to regulate drug development and manufacturing. The pharmaceutical regulatory authorities of these countries (e.g., FDA or NMPA) also conduct planned or unplanned facility inspections over drug development and manufacturing agencies (e.g., our customers and us) to ensure that relevant facilities meet regulatory requirements. During the past periods, the Company has passed the inspection of relevant regulatory authorities on drug discovery, development and manufacturing processes and facilities in all major aspects. If the Company fails to continuously meet the requirements of regulatory policies or fails to pass the on-site inspection by regulatory authorities in the future, it may be disqualified or subject to other administrative penalties, resulting in the termination of cooperation by our customers.

In addition, the operation of the Company is subject to national and regional laws on environmental protection, health and safety, including but not limited to the use of hazardous chemicals that are flammable, explosive and toxic and the treatment of pollutants (waste gas, waste water, waste residue or other pollutants). If the relevant environmental protection policies become more stringent in the future, the Company’s costs for environmental compliance will rise.

The Company will monitor the trend of applicable policies and regulations to ensure its continuous fulfillment of regulatory policy requirements.

• (5) Risk of international policy changes

• We are a pharmaceutical R&D service platform with well-established global operations and a substantial portion of our customers are pharmaceutical and biotechnology companies outside of China. The demand for our services by these customers may be impacted by trade policies promulgated by respective local governments against Chinese pharmaceutical R&D service providers as a result of the rise in trade protectionism and unilateralism in recent years. In the event the trade tension between China and other major countries continue to escalate, or any such countries impose restrictions or limitations on pharmaceutical R&D outsourcing, our business and results of operations may be adversely affected. We have been expanding our service capabilities in overseas markets from 2015 with an aim to mitigate any potential impact such policy changes may have on our business.

• (6) Risk of failure to obtain the licenses required for carrying out businesses

• The Company is subject to a number of laws and regulations on pharmaceutical R&D and manufacturing. These laws and regulations require that the Company obtain a number of approvals, licenses and permits from different competent authorities to operate our business, some of which are subject to regular renewal. The Company has and will continue to strictly monitor its licensing management. If the Company fails to obtain the approval, license and permit required for its operations, it will have to suspend its operation as ordered by the relevant regulatory authorities.

26 Pharmaron Beijing Co., Ltd. Interim Report 2021

Management Discussion and Analysis

(7) Risks regarding exchange rates

The Company’s exchange currency risk mainly relates to USD, GBP and EUR. During the Reporting Period, the Company’s income from overseas customers took up a much higher portion than that from domestic customers, and a considerable portion of our income came from sales denominated in USD. However, most of the Company’s personnel and operating facilities are located in China, and the relevant operating costs and expenses are denominated in RMB. In recent years, as affected by China’s political and economic conditions, trade tensions between the U.S. and China, international economic and political developments, as well as the decision of the Chinese government to further promote the reform of the RMB exchange rate system and enhance the flexibility of RMB exchange rates, the exchange rates between RMB and USD and other currencies fluctuate.

In response to the risk of exchange rate fluctuations, the Company has reduced and will continue to reduce such risk through hedging transactions.

(8) Risks regarding market competition

The global pharmaceutical R&D service market for innovative drugs is highly competitive. The Company is committed to building a fully-integrated service platform with laboratory services, clinical development and CMC (small molecule CDMO) services capabilities. Therefore, the Company expects to compete with domestic and international competitors at specific stages of pharmaceutical R&D. At the same time, the Company also competes with the discovery, trial, development and commercial manufacturing departments within pharmaceutical companies. As more competitors enter the market, level of competition is expected to escalate. The Company is confronted with market competition in terms of service quality,

breadth of integrated service, timeliness of delivery, R&D service strength, intellectual property protection, depth of customer relationship, price, etc.

(9) R i s k s r e g a r d i n g t e c h n o l o g i c a l innovation

With the continuous market development and innovation of R&D technologies, advanced technologies are vital for the Company to maintain its leading position in the industry. The Company shall keep up with the development direction of new technologies and processes to maintain our leading position in the industry.

The Company will continue to invest a large amount of human and capital resources to develop new technologies and upgrade our service platform. If target companies with new technologies appeal to us, the Company will consider acquisitions to inject new service capabilities into our platform.

(10) Risks regarding service quality

Service quality and customer satisfaction are one of the important factors for the Company to maintain performance growth. The Company’s pharmaceutical research, development and production services mainly provide customers with experimental data and samples, which serve as an important basis for customers to carry out subsequent R&D and manufacturing. Meanwhile, our customers have the right to review the standard operating procedures and records of the Company’s services, and check the facilities used to provide services to them. If the Company fails to maintain high service quality, or the experimental data or samples we provide are defective, or our service facilities fail to pass customers’ review, the Company may face liquidated damages and suffer loss of customers due to reputation damage, which will have an adverse impact on the Company’s business.

Pharmaron Beijing Co., Ltd. Interim Report 2021 27

Supplementary Information

INTERIM DIVIDEND

The Company did not declare any interim dividend for the six months ended June 30, 2021.

SUPPLEMENTAL DISCLOSURE REGARDING DEFINED CONTRIBUTION SCHEMES

As disclosed in the annual report of the Company issued on April 28, 2021, the employees of the Group’s subsidiaries which operate in Mainland China are required to participate in a central pension scheme operated by the local municipal government. The Group is required to contribute a certain percentage of their payroll costs to the central pension scheme. The contributions are charged to profit or loss as they become payable in accordance with the rules of the central pension scheme. Employee benefits to all eligible employees of the overseas subsidiaries are made in accordance with the rules set forth in the collective labour agreement, and recorded as an expense in the period they are due as a charge to profit or loss.

Pursuant to the relevant laws and regulations, the Company is not in a position to forfeit contributions to the central pension scheme and thus there is no forfeited contributions.

CORPORATE GOVERNANCE PRACTICES

The Board strives to maintain a high standard of corporate governance and believes that effective and reasonable corporate governance practices are essential to the development of the Group and at the same time protect and enhance shareholders’ rights.

The Company’s corporate governance practices are based on the principles and code provisions set out in the Appendix 14 Corporate Governance Code (the “CG Code”) to the Rules Governing the Listing of Securities on the Stock Exchange (the “Stock Exchange”) (the “Listing Rules”).

Save as disclosed herein, the Company has complied with the code provisions as set out in the CG Code during the Reporting Period.

Pursuant to Code Provision A.2.1 of the CG Code, the roles of chairman and chief executive officer shall be separate and performed by different individuals. Up to the date of this interim report, there is no distinction between the positions of chairman and chief executive officer of the Company, and Dr. LOU Boliang (“Dr. LOU”) currently holds both positions. Dr. LOU is responsible for the overall management, strategic planning and corporate development of the Group.

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

28 Pharmaron Beijing Co., Ltd. Interim Report 2021

Supplementary Information

COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted the Model Code as set out in Appendix 10 of the Listing Rules as its code of conduct for Directors’ securities transactions. Having made specific enquiry with the Directors and Supervisors, all of the Directors and Supervisors each confirmed that they have complied with the required standards as set out in the Model Code during the Reporting Period.

Pursuant to Code B.13 of the Model Code, directors have also requested that any employee of the Company or director or employee of a subsidiary of the Company who may obtain inside information about the securities of the Company as a result of serving or being employed by the Company or a subsidiary shall not trade in securities of the Company as prohibited by the Model Code (just as a director).

EMPLOYEE REMUNERATION AND RELATIONS

As at June 30, 2021, the Group had a total of 12,776 employees, as compared to 11,012 employees as at December 31, 2020. The Group provides employees with competitive remuneration and benefits, and the Group’s remuneration policies are formulated according to the assessment of individual performance and are periodically reviewed. The Group provides employees with opportunities to work on cutting-edge drug development projects with world-class scientists, as well as offer opportunities to continue academic learning in the Group’s Pharmaron College.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

Neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities during the Reporting Period.

During the extraordinary general meetings held on May 28, 2021 and July 12, 2021, the Shareholders have approved the special resolution to repurchase (at the repurchase price of RMB17.85 per Share) and cancel a total of 210,364 Restricted A Shares due to the resignation of six participants. The above 210,364 Restricted A Shares were granted to these six participants on October 30, 2019 and remain subject to lock-up, and the Company will apply to China Securities Depository and Clearing Corporation Limited Shenzhen Branch for repurchase and cancellation in due course in accordance with the 2019 A Share Incentive Scheme.

SIGNIFICANT INVESTMENTS AND FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS

The Group has no significant investment, or plan authorized by the Board for other material investments or additions of capital assets during the Reporting Period.

MATERIAL ACQUISITIONS AND DISPOSAL OF SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

Save as disclosed in the Company’s announcement dated March 1, 2021 in relation to the acquisition of Allergan Biologics Limited, the Group has no material acquisitions or disposal of subsidiaries, associates and joint ventures during the Reporting Period.

CONTINUING DISCLOSURE OBLIGATIONS PURSUANT TO THE LISTING RULES

The Company does not have any other disclosure obligations under Rules 13.20, 13.21 and 13.22 of the Listing Rules.

CHANGES IN INFORMATION OF THE DIRECTORS, AND SUPERVISORS AND CHIEF EXECUTIVES OF THE COMPANY

There was no change of the information of Directors, Supervisors and chief executives of the Company during the Reporting Period which is required to be disclosed pursuant to Rules 13.51B(1) and 13.51B(2) of the Listing Rules.

Pharmaron Beijing Co., Ltd. Interim Report 2021 29

Supplementary Information

REVIEW OF INTERIM FINANCIAL INFORMATION

Audit Committee

The Company has established the Audit Committee with written terms of reference in compliance with Rule 3.21 of the Listing Rules and the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 to the Listing Rules. The Audit Committee comprises three members, namely, Mr. YU Jian, Mr. TSANG Kwan Hung Benson and Ms. CHEN Guoqin. Mr. YU Jian is the chairman of the Audit Committee, who possesses suitable professional qualifications.

The Audit Committee has reviewed the Company’s interim financial information of the Group for the Reporting Period and confirms that the applicable accounting principles, standards and requirements have been complied with, and that adequate disclosures have been made. The Audit Committee has also discussed the auditing, internal control and financial reporting matters.

This interim financial information has not been audited or reviewed by the independent auditors of the Company.

INTERESTS AND SHORT POSITION OF THE DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVES OF THE COMPANY IN THE SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATION

As at June 30, 2021, the interests and short positions of the Directors, the Supervisors and the chief executive of the Company in the Shares, underlying shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) as 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 he/she is keen to taken or deemed to have under such provisions of the SFO), or as recorded in the registered maintained by the Company under section 352 of the SFO, or as notified to the Company and the Stock Exchange pursuant to the Model Code were as follows:

30 Pharmaron Beijing Co., Ltd. Interim Report 2021

Supplementary Information

Long Position in Shares

==> picture [456 x 201] intentionally omitted <==

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

Approximate Percentage in
Number of percentage of its total number of
Name Class of Shares Nature of Interest Shares class of Shares Shares
Dr. LOU Boliang A Shares Interests held jointly with 187,423,105 28.38% 23.59%
another person; interests of
controlled corporation
Mr. LOU Xiaoqiang A Shares Beneficial owner; interests 187,423,105 28.38% 23.59%
held jointly with another
person; interests of controlled
corporation; interests of
spouse
Ms. ZHENG Bei A Shares Interests held jointly with 187,423,105 28.38% 23.59%
another person; interests
of controlled corporation;
interests of spouse
----- End of picture text -----

Note:

1. Dr. LOU Boliang, Mr. LOU Xiaoqiang and Ms. ZHENG Bei have entered into a voting rights agreement on October 19, 2018 (which formalizes their pre-existing voting arrangement), pursuant to which they have agreed to reach consensus on any proposal presented to the Board and the general meeting of the shareholders of the Company for voting (the “Voting Agreement”). Pursuant to the Voting Agreement, Dr. LOU Boliang, Mr. LOU Xiaoqiang and Ms. ZHENG Bei are concert parties and they are deemed to be interested in each other’s interests in our Company under the SFO.

2. Mr. LOU Xiaoqiang and Ms. ZHENG Bei are spouses.

Save as disclosed above, as of June 30, 2021, to the knowledge of the Board, none of the Directors, the Supervisors or chief executives of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be (i) 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 the Directors, the Supervisors and chief executives of the Company were taken or deemed to have under such provisions of the SFO); (ii) recorded in the register kept by the Company pursuant to Section 352 of the SFO; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code.

Pharmaron Beijing Co., Ltd. Interim Report 2021 31

Supplementary Information

INTERESTS OF SUBSTANTIAL SHAREHOLDERS IN THE SHARES AND UNDERLYING SHARES

As of June 30, 2021, according to the register kept by the Company pursuant to Section 336 of the SFO and so far is known to, or can be ascertained after reasonable enquiry by the Directors, the following person/ entity had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO, or be directly and indirectly interested in 5% or more of the nominal value of any class of share capital carrying rights to vote on all circumstances at general meetings of the Company:

Interests in the Shares of the Company

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

Approximate
percentage in
the respective Percentage in
Class of Number of class of share total number
Name Shares Nature of Interest Shares [(1)] capital of Shares
Pharmaron Holdings Limited [(2)] A Shares Beneficial owner 97,600,003(L) 14.78% 12.29%
CITIC Securities Co. Ltd. (中信証券 A Shares Interest of controlled 185,637,121(L) 28.11% 23.37%
股份有限公司) (“CITIC Securities”) [(3)] corporation
Beijing Junlian Tongdao Investment A Shares Interest of controlled 55,960,871(L) 8.47% 7.04%
Management Partnership (Limited corporation
Partnership) (北京君聯同道投資管
理合夥企業（有限合夥）) (“Junlian
Tongdao”) [(4)]
JPMorgan Chase & Co [(5)] H Shares Interest of controlled 23,496,336(L) 17.53(L) 2.96%
corporation, investment 5,753,127(S) 4.29(S) 0.72%
manager, person having a 9,060,892(P) 6.76(P) 1.14%
security interest in shares,
approved lending agent
The Capital Group Companies, Inc. [(6)] H Shares Interest of controlled 16,060,700(L) 11.98% 2.02%
corporation
FMR LLC [(7)] H Shares Interest of controlled 10,705,396(L) 7.99% 1.35%
corporation
BlackRock, Inc. [(8)] H Shares Interest of controlled 12,580,325(L) 9.39% 1.58%
corporation 25,400(S) 0.02% 0.00%
China Structural Reform Fund H Shares Beneficial owner 7,931,600(L) 5.91% 1.00%
Corporation Limited (中國國有企業
結構調整基金股份有限公司)
(“China Structural Reform Fund”) [(9)]
----- End of picture text -----

32 Pharmaron Beijing Co., Ltd. Interim Report 2021

Supplementary Information

Notes:

1. The letter “L”, “S” and “P” stand for long position, short position and lending pool, respectively.

2. Pharmaron Holdings Limited is held as to 67.17% by Dr. LOU Boliang.

3. Shenzhen Xinzhong Kangcheng Investment Partnership (Limited Liability Partnership) (深圳市信中康成投資合夥企業（有限 合夥)) (“Shenzhen Xinzhong Kangcheng”) directly held 157,142,855 A Shares. To the best knowledge of our Company, the general partner of Shenzhen Xinzhong Kangcheng is CITIC Buyout Fund Management Company Limited (中信併購基金管理 有限公司) (“CITIC Fund”). Shenzhen Xinzhong Kangcheng is held as to 50.16% by CITIC Buyout Investment Fund (Shenzhen) (Limited Partnership) (中信併購投資基金（深圳）合夥企業（有限合夥）) (“CITIC Fund Shenzhen”) as a limited partner, the general partner of which is CITIC Fund. CITIC Fund is wholly-owned by Gold Stone Investment Co., Ltd (金石投資有限公司), which is in turn wholly-owned by CITIC Securities, a company listed on the Hong Kong Stock Exchange (stock code: 6030). In addition, CITIC Securities is also considered as having control over CITIC Fund Shenzhen according to the investment contract.

4. Tianjin Junlian Wenda Equity Investment Partnership (Limited Partnership) (天津君聯聞達股權投資合夥企業（有限合夥)) (“Junlian Wenda”) and Beijing Junlian Maolin Equity Investment Partnership (Limited Partnership) (北京君聯茂林股權投資合 夥企業（有限合夥) directly held 51,978,628 and 3,982,243 A Shares respectively. The general partner of Junlian Wenda and Junlian Maolin is Junlian Tongdao, and Mr. Wang Nengguang (王能光), Mr. Chen Hao (陳浩) and Mr. ZHU Linan (朱立南) are deemed to be interested in the A Shares held by Junlian Wenda and Junlian Maolin under the SFO, with details as follows:

==> picture [436 x 354] intentionally omitted <==

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

Direct interest Number of
Name of controlled corporation Name of controlling person % control (Y/N) A Shares
Junlian Wenda Junlian Tongdao (as general partner) 0.00 Y 51,978,628 (L)
Junlian Maolin Junlian Tongdao (as general partner) 2.46 Y 3,982,243 (L)
Junlian Tongdao Junlian Capital (Shenzhen) Management Co., 0.01 N 55,960,871 (L)
Ltd. (君聯資本（深圳）管理有限公司) (as
general partner)
Junlian Capital (Shenzhen) Management Co., Junlian Capital Management Co., Ltd. (君聯資本 100.00 N 55,960,871 (L)
Ltd. (君聯資本（深圳）管理有限公司) 管理股份有限公司)
Junlian Capital Management Co., Ltd. (君聯資 Beijing Juncheng Hezhong Investment 80.00 N 55,960,871 (L)
本管理股份有限公司) Management Partnership (Limited
Partnership) (北京君誠合眾投資管理合夥企業
（有限合夥）)
Beijing Juncheng Hezhong Investment Junqi Jiarui Enterprise Management Co., Ltd 0.01 N 55,960,871 (L)
Management Partnership (Limited (北京君祺嘉睿企業管理有限公司) (as general
Partnership) (北京君誠合眾投資管理合夥企業 partner)
（有限合夥）)
Beijing Juncheng Hezhong Investment Tianjin Huizhi No.1 Enterprise Management 58.12 N 55,960,871 (L)
Management Partnership (Limited Consulting Partnership (Limited Partnership)
Partnership) (北京君誠合眾投資管理合夥企業 (天津匯智壹號企業管理諮詢合夥企業（有限
（有限合夥）) 合夥）)
Junqi Jiarui Enterprise Management Co., Ltd Wang Nengguang (王能光) 40.00 N 55,960,871 (L)
(北京君祺嘉睿企業管理有限公司)
Junqi Jiarui Enterprise Management Co., Ltd Chen Hao (陳浩) 40.00 N 55,960,871 (L)
(北京君祺嘉睿企業管理有限公司)
Tianjin Huizhi No. 1 Enterprise Management Zhu Linan (朱立南) 48.85 N 55,960,871 (L)
Consulting Partnership (Limited Partnership)
(天津匯智壹號企業管理諮詢合夥企業（有限
合夥）)
----- End of picture text -----

Pharmaron Beijing Co., Ltd. Interim Report 2021 33

Supplementary Information

1. JPMorgan Chase & Co. has a total interest of 23,496,336 (long position), 5,753,127 (short position) and 9,060,892 (lending pool) H Shares in our Company by virtue of its relationship with a number of corporations. According to the disclosure of interest notice filed by JPMorgan Chase & Co. with a relevant event date of June 23, 2021, the following interest in H Shares were held by JPMorgan Chase & Co.:

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Direct interest Number of
Name of controlled corporation Name of controlling person % control (Y/N) H Shares
JPMorgan Asset Management (Taiwan) Limited JPMorgan Asset Management (Asia) Inc. 100.00 Y 274,700(L)
J.P. Morgan Securities LLC J.P. Morgan Broker-Dealer Holdings Inc. 100.00 Y 809,130(L)
168,014(S)
JPMORGAN CHASE BANK, N.A. – JPMorgan Chase Bank, National Association 100.00 Y 9,060,892(L)
LONDON BRANCH
J.P. Morgan Prime Inc. J.P. Morgan Securities LLC 100.00 Y 1,100(L)
1,100(S)
J.P. Morgan Investment Management Inc. JPMorgan Asset Management Holdings Inc. 100.00 Y 463,000(L)
JPMORGAN ASSET MANAGEMENT JPMORGAN ASSET MANAGEMENT 100.00 Y 887,952(L)
(UK) LIMITED INTERNATIONAL LIMITED
JPMorgan Chase Bank, National Association JPMorgan Chase & Co. 100.00 Y 271,200(L)
JPMorgan Asset Management (Asia Pacific) JPMorgan Asset Management (Asia) Inc. 99.99 Y 5,100,600(L)
Limited
J.P. MORGAN SECURITIES PLC J.P. MORGAN CAPITAL HOLDINGS LIMITED 100.00 Y 6,627,762(L)
5,584,013(S)
JPMorgan Asset Management (Asia) Inc. JPMorgan Asset Management Holdings Inc. 100.00 N 5,375,300(L)
JPMorgan Asset Management Holdings Inc. JPMorgan Chase Holdings LLC 100.00 N 6,726,252(L)
JPMorgan Chase Holdings LLC JPMorgan Chase & Co. 100.00 N 7,536,482(L)
169,114(S)
J.P. Morgan Broker-Dealer Holdings Inc. JPMorgan Chase Holdings LLC 100.00 N 810,230(L)
169,114(S)
JPMorgan Chase Bank, National Association JPMorgan Chase & Co. 100.00 N 15,688,654(L)
5,584,013(S)
J.P. Morgan Securities LLC J.P. Morgan Broker-Dealer Holdings Inc. 100.00 N 1,100(L)
1,100(S)
JPMORGAN ASSET MANAGEMENT JPMorgan Asset Management Holdings Inc. 100.00 N 887,952(L)
INTERNATIONAL LIMITED
J.P. MORGAN CAPITAL HOLDINGS LIMITED J.P. Morgan International Finance Limited 100.00 N 6,627,762(L)
5,584,013(S)
J.P. Morgan International Finance Limited JPMorgan Chase Bank, National Association 100.00 N 6,627,762(L)
5,584,013(S)
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The capacity under which the interests are held are as follow:

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Capacity in which interest is held Number of H Shares
Interest of controlled corporation 6,612,257 (L)
5,753,127 (S)
Investment manager 6,997,452 (L)
Person having a security interest in shares 825,735 (L)
Approved lending agent 9,060,892 (L)
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Additionally, 15,896 H Shares (short position) were held through a physically settled unlisted derivative, and 677,300 H Shares (long position) and 2,599,246 H Shares (short position) were held through a cash settled unlisted derivative. 2,896,110 H Shares (long position) and 30,942 H Shares (short position) were held through listed derivatives which were convertible instruments.

34 Pharmaron Beijing Co., Ltd. Interim Report 2021

Supplementary Information

1. According to the disclosure of interest notice filed by The Capital Group Companies, Inc. with a relevant event date of December 27, 2019, it has a total interest of 16,060,700 (long position) H Shares in our Company by virtue of its control over Capital Research and Management Company.

2. FMR LLC has a total interest of 10,705,396 (long position) H Shares in our Company by virtue of its relationship with a number of corporations. According to the disclosure of interest notice filed by FMR LLC with a relevant event date of June 17, 2021, the following interest in H Shares were held by FMR LLC:

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Direct interest Number of
Name of controlled corporation Name of controlling person % control (Y/N) H Shares
Fidelity Management & Research Company LLC FMR LLC 100.00 N 6,951,152(L)
Fidelity Management & Research Company LLC FMR LLC 100.00 Y 6,560,563(L)
Fidelity Management & Research Fidelity Management & Research Company LLC 100.00 Y 619,971(L)
(Hong Kong) Limited
Fidelity Management & Research (Japan) Limited Fidelity Management & Research Company LLC 100.00 N 5,985,381(L)
FIAM Holdings LLC FMR LLC 100.00 N 3,181,946(L)
Fidelity Institutional Asset Management FIAM Holdings LLC 100.00 Y 1,487,629(L)
Trust Company
FIAM Institutional Funds Manager, LLC FIAM Holdings LLC 100.00 N 53,500(L)
FIAM LLC FIAM Holdings LLC 100.00 N 7,084(L)
FIAM LLC FIAM Holdings LLC 100.00 Y 1,687,233(L)
Fidelity Advisory Holdings LLC FMR LLC 100.00 N 578,100(L)
Strategic Advisers LLC Fidelity Advisory Holdings LLC 100.00 N 578,100(L)
Fidelity Canada Investors LLC Owned by certain employees and 100.00 N 228,275(L)
shareholders of FMR LLC
Bay Street Holdings LLC Fidelity Canada Investors LLC 100.00 N 228,275(L)
483A Bay Street Holdings LP Bay Street Holdings LLC 18.00 N 228,275(L)
BlueJay Lux 1 S.a.r.l. 483A Bay Street Holdings LP 100.00 N 228,275(L)
Fidelity Investments Canada ULC BlueJay Lux 1 S.a.r.l. 100.00 N 228,275(L)
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1. BlackRock Inc. has a total interest of 12,580,325 (long position) and 25,400 (short position) H Shares in our Company by virtue of its relationship with a number of corporations. According to the disclosure of interest notice filed by BlackRock Inc. with a relevant event date of June 29, 2021, the following interest in H Shares were held by BlackRock Inc.:

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Direct interest Number of
Name of controlled corporation Name of controlling person % control (Y/N) H Shares
Trident Merger, LLC BlackRock, Inc. 100.00 N 114,800(L)
BlackRock Investment Management, LLC Trident Merger, LLC 100.00 Y 114,800(L)
BlackRock Holdco 2, Inc. BlackRock, Inc. 100.00 N 12,465,525(L)
25,400(S)
BlackRock Financial Management, Inc. BlackRock Holdco 2, Inc. 100.00 N 11,845,990(L)
25,400(S)
BlackRock Financial Management, Inc. BlackRock Holdco 2, Inc. 100.00 Y 619,535(L)
BlackRock Holdco 4, LLC BlackRock Financial Management, Inc. 100.00 N 4,927,100(L)
25,400(S)
BlackRock Holdco 6, LLC BlackRock Holdco 4, LLC 90.00 N 4,927,100(L)
25,400(S)
BlackRock Delaware Holdings Inc. BlackRock Holdco 6, LLC 100.00 N 4,927,100(L)
25,400(S)
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Pharmaron Beijing Co., Ltd. Interim Report 2021 35

Supplementary Information

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||||||
|---|---|---|---|---|
|Direct interest|Number of|
|Name of controlled corporation|Name of controlling person|% control|(Y/N)|H Shares|
|BlackRock Institutional Trust Company,|BlackRock Delaware Holdings Inc.|100.00|Y|2,033,900(L)|
|National Association|25,400(S)|
|BlackRock Fund Advisors|BlackRock Delaware Holdings Inc.|100.00|Y|2,893,200(L)|
|BlackRock Capital Holdings, Inc.|BlackRock Financial Management, Inc.|100.00|N|23,500(L)|
|BlackRock Advisors, LLC|BlackRock Capital Holdings, Inc.|100.00|Y|23,500(L)|
|BlackRock International Holdings, Inc.|BlackRock Financial Management, Inc.|100.00|N|6,895,390(L)|
|BR Jersey International Holdings L.P.|BlackRock International Holdings, Inc.|86.00|N|6,895,390(L)|
|BlackRock Lux Finco S.à r.l.|BlackRock HK Holdco Limited|100.00|N|859,517(L)|
|BlackRock Japan Holdings GK|BlackRock Lux Finco S.à r.l.|100.00|N|859,517(L)|
|BlackRock Japan Co., Ltd.|BlackRock Japan Holdings GK|100.00|Y|859,517(L)|
|BlackRock Holdco 3, LLC|BR Jersey International Holdings L.P.|100.00|N|5,849,411(L)|
|BlackRock Canada Holdings LP|BlackRock Holdco 3, LLC|99.90|N|13,100(L)|
|BlackRock Canada Holdings ULC|BlackRock Canada Holdings LP|100.00|N|13,100(L)|
|BlackRock Asset Management Canada Limited|BlackRock Canada Holdings ULC|100.00|Y|13,100(L)|
|BlackRock Australia Holdco Pty. Ltd.|BR Jersey International Holdings L.P.|100.00|N|77,400(L)|
|BlackRock Investment Management (Australia)|BlackRock Australia Holdco Pty. Ltd.|100.00|Y|77,400(L)|
|Limited|
|BlackRock (Singapore) Holdco Pte. Ltd.|BR Jersey International Holdings L.P.|100.00|N|968,579(L)|
|BlackRock HK Holdco Limited|BlackRock (Singapore) Holdco Pte. Ltd.|100.00|N|958,479(L)|
|BlackRock Asset Management North Asia Limited|BlackRock HK Holdco Limited|100.00|Y|98,962(L)|
|BlackRock Cayman 1 LP|BlackRock Holdco 3, LLC|100.00|N|5,836,311(L)|
|BlackRock Cayman West Bay Finco Limited|BlackRock Cayman 1 LP|100.00|N|5,836,311(L)|
|BlackRock Cayman West Bay IV Limited|BlackRock Cayman West Bay Finco Limited|100.00|N|5,836,311(L)|
|BlackRock Group Limited|BlackRock Cayman West Bay IV Limited|90.00|N|5,836,311(L)|
|BlackRock Finance Europe Limited|BlackRock Group Limited|100.00|N|1,518,872(L)|
|BlackRock (Netherlands) B.V.|BlackRock Finance Europe Limited|100.00|Y|338,977|
|BlackRock Advisors (UK) Limited|BlackRock Finance Europe Limited|100.00|Y|6,400|
|BlackRock International Limited|BlackRock Group Limited|100.00|N|40,170|
|BlackRock Group Limited-Luxembourg Branch|BlackRock Group Limited|100.00|N|4,277,269|
|BlackRock Luxembourg Holdco S.à r.l.|BlackRock Group Limited-Luxembourg Branch|100.00|N|4,277,269|
|BlackRock Investment Management Ireland|BlackRock Luxembourg Holdco S.à r.l.|100.00|N|1,031,701|
|Holdings Limited|
|BlackRock Asset Management Ireland Limited|BlackRock Investment Management Ireland|100.00|Y|1,031,701|
|Holdings Limited|
|BLACKROCK (Luxembourg) S.A.|BlackRock Luxembourg Holdco S.à r.l.|100.00|Y|3,244,968|
|BlackRock Investment Management (UK) Limited|BlackRock Finance Europe Limited|100.00|N|741,395|
|BlackRock Investment Management (UK) Limited|BlackRock Finance Europe Limited|100.00|Y|432,100|
|BlackRock Fund Managers Limited|BlackRock Investment Management (UK) Limited|100.00|Y|741,395|
|BlackRock Life Limited|BlackRock International Limited|100.00|Y|40,170|
|BlackRock (Singapore) Limited|BlackRock (Singapore) Holdco Pte. Ltd.|100.00|Y|10,100|
|BlackRock UK Holdco Limited|BlackRock Luxembourg Holdco S.à r.l.|100.00|N|600|
|BlackRock Asset Management Schweiz AG|BlackRock UK Holdco Limited|100.00|Y|600|

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Additionally, 86,400 H Shares (long position) and 25,400 H Shares (short position) were held through a cash settled unlisted derivative. 847,503 H Shares (long position) were held through listed derivatives which were convertible instruments.

36 Pharmaron Beijing Co., Ltd. Interim Report 2021

Supplementary Information

1. According to the disclosure of interest notice filed by China Structural Reform Fund, CCB (Beijing) Investment Fund Management Co., Ltd. (建信（北京）投資基金管理有限責任公司) (“CCB Beijing”), CCB Trust Co., Ltd. (建信信託有限責任公司) (“CCB Trust”) and China Post Savings Bank Co., Ltd. (中國郵政儲蓄銀行股份有限公司) (“China Post Savings Bank”), each with a relevant event date of December 27. 2019, China Structural Reform Fund has a beneficial interest of 7,931,600 (long position) H Shares in our Company and the interest of CCB Beijing, CCB Trust and China Post Savings Banks is as follow:

as filed by CCB Trust

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Direct interest Number of
Name of controlled corporation Name of controlling person % control (Y/N) H Shares
CCB Beijing CCB Trust 100.00 N 7,931,600 (L)
China Structural Reform Fund CCB Beijing 38.20 Y 7,931,600 (L)
as filed by China Post Savings Bank Co., Ltd.
Names of trust Capacity Number of H Shares
CCB Trust-Wutong Tree Fund Trust Plan (asset allocation class 26 investment unit) Beneficiary of a trust 7,931,600 (L)
(建信信託－梧桐樹資金信託計劃（資產配置類26號投資單元）) (other than a discretionary interest)
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Substantial shareholders of other members of the Group

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Approximate
percentage
held by the
substantial
Name Member of the Group shareholder
WU Yu CR Medicon 23.04%
Xiamen Sanomai Kang Enterprise Management Partnership CR Medicon 14.73%
(Limited Partnership) （廈門賽諾邁康企業管理合夥企業（有限合夥））
(Former name: Nanjing Sanomai Kang Enterprise Management
Partnership (Limited Partnership) ) (曾用名：南京賽諾邁康企業
管理合夥企業（有限合夥）)
Xiamen Xiya Enterprise Management Partnership (Limited Partnership) CR Medicon 6.67%
（廈門希雅企業管理合夥企業（有限合夥））(Former name: Nanjing Xiya
Enterprise Management Partnership (Limited Partnership) )
(曾用名：南京希雅企業管理合夥企業（有限合夥）)
Shin Nippon Biomedical Laboratories, Ltd Pharmaron CPC 20.00%
LIU Yang LinkStart 22.40%
Xiamen Deshu Enterprise Management Partnership LinkStart 8.00%
(Limited Partnership) （廈門德數企業管理合夥企業（有限合夥））
(Former name: Beijing Deshu Enterprise Management Center
(Limited Partnership)) (曾用名：北京德數企業管理中心（有限合夥）)
Hainan Shenzhou Deshu No. 1 Enterprise Management Center Hainan Shenzhou Deshu Medical 20.00%
(Limited Partnership) (海南神州德數一號企業管理中心（有限合夥）) Technology Co., Ltd.
(海南神州德數醫療科技有限公司)
Ningbo Kangzhi Zhongsheng Enterprise Management Consulting Pharmaron (Ningbo) Biologics Co., Ltd. 15.00%
Partnership (Limited Partnership) （康龍化成（寧波）生物醫藥有限公司）
（寧波康智眾盛企業管理諮詢合夥企業（有限合夥））
Shin Nippon Biomedical Laboratories (Asia) Limited Biomedical Research (GZ), Ltd. 49.99%
(新日本科學（亞洲）有限公司) （肇慶創藥生物科技有限公司）
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Pharmaron Beijing Co., Ltd. Interim Report 2021 37

Supplementary Information

Save as disclosed above, as of June 30, 2021, to the knowledge of the Directors, no other person had, or were deemed or taken to have interest or short position in the Shares or underlying Shares 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 registry kept by the Company pursuant to Section 336 of the SFO.

SHARE INCENTIVE SCHEMES

2019 A Share Incentive Scheme

In order to establish and improve long-term corporate incentive systems of the Group, attract and retain talent, motivate the employees of our Group, effectively align the interests of our Shareholders, the Group and the employees of the Group and enabling the respective parties to become aware of the Group’s longterm development, and to promote the realization of the development strategies of the Group, the 2019 A Share Incentive Scheme was approved by Shareholders’ meeting of the Company and became effective on August 15, 2019 to issue up to a total of 5,651,359 A Shares of the Company, amongst which 4,521,087 A Shares would be granted by way of Restricted A Shares and the remaining 1,130,272 A Shares were reserved for option grants.

The total number of grantees who have been granted and who have taken up the relevant Restricted A Shares under the A Share Incentive Scheme is 227, including senior-level management of the Company, midlevel managers and backbone members of our technicians and basic-level managers and other technicians.

As of the date of this interim report, no share options have been granted under the 2019 A Share Incentive Scheme and the 1,130,272 reserved A Shares have lapsed on August 15, 2020. As of the date of this interim report, a total of 4,077,387 Restricted A shares have been subscribed by eligible employees. These granted Restricted A Shares have a contractual term of no more than four years and unlock over a three year period, with 40%, 30% and 30% of the awards unlocking on the first, second and third anniversary date of the A Shares registration date upon meeting certain unlocking conditions. As of the date of this interim report, a total of 1,509,337 Restricted A Shares have been unlocked.

First H Share Award and Trust Scheme

The Shareholders have resolved to adopt the First H Share Award and Trust Scheme during the extraordinary general meeting of the Shareholders on December 11, 2020. Pursuant to the First H Share Award and Trust Scheme, the maximum number of H Shares that can be purchased on the market by the trustee appointed by the Company for the purpose of servicing the First H Share Award and Trust Scheme shall not exceed 7,940,000 H Shares, representing approximately 6% of the Company’s total number of issued H Shares. Awards under the Employee Share Award Plan shall be vested in four equal tranches and awards under the Share Bonus Plan shall be vested in two equal tranches, both subject to vesting conditions specified in the applicable award letters. For details of the terms of the First H Share Award and Trust Scheme, please refer to the circular of the Company dated November 25, 2020.

On December 14, 2020, the management committee of the First H Share Award and Trust Scheme has resolved to grant awards of a total of 776,100 H Shares to 81 eligible employees under the First H Share Award and Trust Scheme. None of the grantees is a director or connected person of the Company.

38 Pharmaron Beijing Co., Ltd. Interim Report 2021

Supplementary Information

2021 A Share Incentive Scheme

The Shareholders have resolved to adopt the 2021 A Share Incentive Scheme during the extraordinary general meeting of the Shareholders on July 12, 2021. Pursuant to the 2021 A Share Incentive Scheme, the maximum number of Restricted A Shares to be issued by the Company is 774,200 A Shares. The granted Restricted A Shares shall be vested over a four-year period, with 25%, 25%, 25% and 25% of total shares vesting on each anniversary date after the vesting commencement date upon meeting certain sales performance conditions. For details of the terms of the 2021 A Share Incentive Scheme, please refer to the circular of the Company dated June 24, 2021.

On July 27, 2021, the Company has granted a total of 774,200 restricted A shares of the Company to eligible employees for them to subscribe at the price of RMB70.17 per A share. None of the grantees is a director or connected person of the Company.

USE OF PROCEEDS FROM THE GLOBAL OFFERING

Upon completion of the global offering of its H Shares (the “Global Offering”), the Company raised net proceeds of approximately RMB4,522.7 million. As at June 30, 2021, the balance of unutilized net proceeds amounted to approximately RMB1,108.2 million. The net proceeds from the Global Offering have been and will be utilized in accordance with the purposes set out in the prospectus of the Company dated November 14, 2019. The table below sets out the planned applications of the net proceeds and actual usage up to June 30, 2021.

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Expected
timeline for
Unutilized utilizing the
Utilized net proceeds net proceeds
Percentage of Allocation amount as at as at from the
allocation of of net June 30, June 30, Global
Use of proceeds net proceeds proceeds 2021 2021 Offering [(1)]
(RMB million) (RMB million) (RMB million)
Expand capacities and capabilities in 30.0% 1,356.8 1,179.9 176.9 Expected to be
laboratory and manufacturing facilities fully utilized by
in the PRC: December 31,
2021
• upgrading and expanding our 19.5% 881.9 705.0 176.9 Expected to be
Ningbo facility fully utilized by
December 31,
2021
• upgrading and expanding our 4.5% 203.5 203.5 – Have been
Tianjin facility fully utilized by
June 30, 2021
• upgrading and expanding other 6.0% 271.4 271.4 – Have been
manufacturing facilities fully utilized by
June 30, 2021
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Pharmaron Beijing Co., Ltd. Interim Report 2021 39

Supplementary Information

	Use of proceeds	Percentage of allocation of net proceeds	Allocation of net proceeds	Utilized amount as at June 30, 2021	Unutilized net proceeds as at June 30, 2021
			(RMB million)	(RMB million)	(RMB million)
	Fund further expansion of businesses in the U.S. and U.K.	10.0%	452.3	114.6	337.7
	Establish pharmaceutical R&D services platform for discovery and development of biologics	20.0%	904.5	904.5	–
	Expand clinical development services	15.0%	678.4	84.8	593.6
	Expand our capacity and capabilities through potential acquisitions of CRO and CMO companies and businesses	15.0%	678.4	678.4	–
	General corporate and working capital	10.0%	452.3	452.3	–
	Total	100%	4,522.7	3,414.5	1,108.2

Note: The Company intends to use the remaining unused net proceeds in the coming years in accordance with the purpose set out in the Prospectus. The Company will continue to evaluate the Group’s business objectives and will change or modify the plans against the changing market conditions to suit the business growth of the Group. We will issue an appropriate announcement if there is any material change to the above proposed use of proceeds.

40 Pharmaron Beijing Co., Ltd. Interim Report 2021

Supplementary Information

ISSUE OF AND USE OF PROCEEDS FROM CONVERTIBLE BONDS

On June 18, 2021, the Company issued the Series 1 Bonds and Series 2 Bonds in an aggregate principal amount of US$300 million and RMB1,916 million, respectively. The Series 1 Bonds and Series 2 Bonds are convertible in the circumstances set out in their respective terms and conditions into H Shares at an initial Series 1 Bonds Conversion Price and the Series 2 Bonds Conversion Price of HK$250.75 per H Share and HK$229.50 per H Share (subject to adjustments), respectively. Assuming full conversion of the Series 1 Bonds and Series 2 Bonds at the initial Series 1 Bonds Conversion Price and the initial Series 2 Bonds Conversion Price, respectively, the Series 1 Bonds and the Series 2 Bonds will be convertible into approximately 9,282,711 H Shares and 10,137,685 H Shares, respectively. The closing price of the H Shares was HK$177.50 on June 8, 2021, being the date of the initial announcement of the proposed issuance of the Convertible Bonds. The Convertible Bonds were offered to no less than six independent placees (who are independent individual, corporate and/or institutional investors). For details of the Convertible Bonds, please refer to the announcements of the Company dated June 8, 2021, June 9, 2021, June 11, 2021, June 18, 2021 and June 21, 2021.

The net proceeds, after deduction of fees, commissions and expenses payable, was approximately RMB3,776.0 million. The net proceeds from the Convertible Bonds had not yet been utilized and all of the net proceeds has been deposited into short-term deposits in bank accounts maintained by the Group. The table below sets out the planned applications of the net proceeds and actual usage up to June 30, 2021.

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Unutilized
Utilized net proceeds Expected
Percentage of amount as at as at timeline for
allocation of Allocation of June 30, June 30, utilizing the
Use of proceeds net proceeds net proceeds 2021 2021 net proceeds
(RMB million) (RMB million) (RMB million)
Expanding capacities and capabilities of 33.3% 1,258.7 – 1,258.7 Expected to be
the Group’s pharmaceutical process fully utilized by
development and manufacturing facilities December 31,
(i.e. CMC services) for small molecule drugs 2024.
Expanding the Group’s R&D and 33.3% 1,258.7 – 1,258.7 Expected to be
manufacturing service platform for fully utilized by
biologics December 31,
2024.
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Pharmaron Beijing Co., Ltd. Interim Report 2021 41

Supplementary Information

	Use of proceeds	Percentage of allocation of net proceeds	Allocation of net proceeds	Utilized amount as at June 30, 2021	Unutilized net proceeds as at June 30, 2021
			(RMB million)	(RMB million)	(RMB million)
	Expanding capabilities of the Group’s laboratory services in drug safety assessment	13.3%	503.4	–	503.4
	Expanding capacities and capabilities of the Group’s laboratory and manufacturing facilities in the United Kingdom	10.0%	377.6	–	377.6
	Replenishing working capital and other general corporate purposes	10.0%	377.6	–	377.6
	Total	100%	3,776.0	–	3,776.0

Note: Any discrepancies in the table between the total and the sum of the amounts listed are due to rounding.

MATERIAL EVENT AFTER THE REPORTING PERIOD

Acquisition of 55% Equity interest in Enyuan

On July 6, 2021, the Company made a capital injection for the subscribed registered capital of Enyuan Pharmaceutical Technology (Beijing) Co., Ltd. (“Enyuan”, an international contract research organization), with a cash consideration of RMB55,000,000 in exchange for 55% of its equity interest. After the completion of this transaction, the Group was able to control Enyuan and Enyuan became a subsidiary of the Group. The acquisition of Enyuan did not constitute a notifiable transaction or connected transaction of the Company under Chapter 14 or 14A of the Listing Rules.

42 Pharmaron Beijing Co., Ltd. Interim Report 2021

Supplementary Information

2021 A Share Incentive Scheme

On July 27, 2021, the Company has granted a total of 774,200 restricted A shares of the Company to eligible employees for them to subscribe at the price of RMB70.17 per A share (the “2021 A Share Incentive Scheme”). The granted restricted A shares under the 2021 A Share Incentive Scheme shall be vested over a four-year period, with 25%, 25%, 25% and 25% of total shares vesting on each anniversary date after the vesting commencement date upon meeting certain sales performance conditions.

Entering into the limited partnership agreement to invest in the Legend Huikang Fund

On July 27, 2021, the Company entered into a limited partnership agreement with Lasa Junqi (as the general partner) and 37 other limited partners in relation to the investment in the Legend Huikang Fund. The amount of capital contribution payable by the Company as a limited partner is RMB68,000,000. Lasa Junqi, the general partner of the Legend Huikang Fund, is the general partner of Beijing Junlian Tongdao Investment Management Partnership (Limited Partnership) (北京君聯同道投資管理合夥企業(有限合夥)), which is the general partner of Tianjin Junlian Wenda Equity Investment Partnership (Limited Partnership) (天津君聯聞達 股權投資合夥企業(有限合夥)), a substantial shareholder of the Company. Four other limited partners are also connected persons of the Company. For further details, please refer to the announcement of the Company dated July 27, 2021.

Entering into the limited partnership agreement to invest in the Kangjun Zhongyuan Fund

On August 12, 2021, Kangjun Investment (as the general partner) and eleven limited partners including the Company entered into the limited partnership agreement to invest in the Kangjun Zhongyuan Fund. The amount of capital contribution payable by the Company is RMB260,000,000. Kangjun Investment, the general partner of the Kangjun Zhongyuan Fund, is an associate of Legend Capital, a substantial shareholder of the Company. For further details, please refer to the announcements of the Company dated August 12, 2021 and August 17, 2021.

Annual Dividends

On May 28, 2021, the Company’s shareholders approved the 2020 Profit Distribution Plan at annual general meeting, pursuant to which a final dividend of RMB0.3 (inclusive of tax) per share in respect of the year ended December 31, 2020 was declared to both holders of A shares and H shares and aggregate dividend amounted to RMB238,316,000 (inclusive of tax). As at June 30, 2021, RMB231,825,000 has been paid.

Save as disclosed above, no other important events affecting the Company occurred since June 30, 2021 and up to the date of this interim report.

Pharmaron Beijing Co., Ltd. Interim Report 2021 43

Interim Condensed Consolidated Statement of Profit or Loss

For the six months ended June 30, 2021

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Six months ended June 30,
2021 2020
Notes RMB’000 RMB’000
(unaudited) (unaudited)
REVENUE 4 3,285,511 2,193,167
Cost of sales (2,095,800) (1,398,767)
Gross profit 1,189,711 794,400
Other income and gains 5 119,881 202,817
Other expenses 5 (109,595) (40,442)
Selling and distribution expenses (63,733) (40,422)
Administrative expenses (383,583) (303,525)
Research and development costs (64,464) (43,104)
Impairment reversal/(losses) on financial and contract assets 6 472 (3,215)
Finance costs (15,786) (13,386)
Share of losses of associates (6,993) (20,824)
Profit before tax 665,910 532,299
Income tax expense 7 (118,610) (65,664)
Profit for the period 547,300 466,635
Attributable to:
Owners of the parent 564,837 478,960
Non-controlling interests (17,537) (12,325)
547,300 466,635
EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY
EQUITY HOLDERS OF THE PARENT
Basic
For profit for the period 9 RMB0.7126 RMB0.6053
Diluted
For profit for the period 9 RMB0.7121 RMB0.6045
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44 Pharmaron Beijing Co., Ltd. Interim Report 2021

Interim Condensed Consolidated Statement of Comprehensive Income

For the six months ended June 30, 2021

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

Six months ended June 30,
2021 2020
RMB’000 RMB’000
(unaudited) (unaudited)
Profit for the period 547,300 466,635
OTHER COMPREHENSIVE INCOME
Other comprehensive (loss)/income that may be reclassified to
profit or loss in subsequent periods:
Exchange differences on translation of foreign operations (28,626) (30,421)
Fair value gain on
– hedging instruments designated in cash flow hedges 10,947 –
Net other comprehensive loss that may be reclassified to
profit or loss in subsequent periods (17,679) (30,421)
Other comprehensive loss for the period, net of tax (17,679) (30,421)
Total comprehensive income for the period 529,621 436,214
Attributable to:
Owners of the parent 547,136 448,509
Non-controlling interests (17,515) (12,295)
529,621 436,214
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Pharmaron Beijing Co., Ltd. Interim Report 2021 45

Interim Condensed Consolidated Statement of Financial Position

June 30, 2021

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

June 30, December 31,
2021 2020
Notes RMB’000 RMB’000
(unaudited) (audited)
NON-CURRENT ASSETS
Property, plant and equipment 10 4,754,574 3,841,445
Right-of-use assets 626,860 567,630
Investment properties – 43,889
Goodwill 11 1,804,929 1,166,172
Other intangible assets 180,024 189,976
Investments in associates 298,178 280,474
Equity investments at fair value through profit or loss 198,215 121,230
Biological assets 35,553 –
Deferred tax assets 12,629 8,436
Other non-current assets 308,726 149,162
Total non-current assets 8,219,688 6,368,414
CURRENT ASSETS
Inventories 160,889 128,757
Contract costs 190,044 152,860
Trade receivables 12 1,127,460 1,076,614
Contract assets 13 182,647 133,764
Biological assets 94,408 –
Prepayments, other receivables and other assets 14 336,621 196,020
Financial assets at fair value through profit or loss 720,403 825,312
Derivative financial instruments 15 36,744 84,698
Pledged deposits 18,306 7,263
Cash and cash equivalents 5,950,491 2,935,090
Total current assets 8,818,013 5,540,378
CURRENT LIABILITIES
Interest-bearing bank borrowings 16 406,611 386,146
Trade payables 18 268,436 191,497
Other payables and accruals 19 919,640 819,313
Contract liabilities 615,694 473,289
Lease liabilities 84,537 83,925
Financial liabilities at fair value through profit or loss 145,352 –
Tax payable 75,253 27,620
Total current liabilities 2,515,523 1,981,790
NET CURRENT ASSETS 6,302,490 3,558,588
TOTAL ASSETS LESS CURRENT LIABILITIES 14,522,178 9,927,002
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46 Pharmaron Beijing Co., Ltd. Interim Report 2021

Interim Condensed Consolidated Statement of Financial Position June 30, 2021

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

June 30, December 31,
2021 2020
Notes RMB’000 RMB’000
(unaudited) (audited)
NON-CURRENT LIABILITIES
Interest-bearing bank borrowings 16 858,967 394,811
Deferred tax liabilities 112,647 106,906
Financial liabilities at fair value through profit or loss – 146,810
Deferred income 155,197 158,128
Convertible bonds-debt component 17 3,436,490 –
Convertible bonds-embedded derivative component 17 254,808 –
Lease liabilities 200,804 186,608
Total non-current liabilities 5,018,913 993,263
NET ASSETS 9,503,265 8,933,739
EQUITY
Share capital 20 794,387 794,387
Treasury shares (81,391) (45,475)
Equity component of convertible bonds 17 198,554 –
Reserves 8,455,086 8,121,407
Equity attributable to owners of the parent 9,366,636 8,870,319
Non-controlling interests 136,629 63,420
Total equity 9,503,265 8,933,739
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Pharmaron Beijing Co., Ltd. Interim Report 2021 47

Interim Condensed Consolidated Statement of Changes in Equity

For the six months ended June 30, 2021

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

Attributable to owners of the parent
Equity
component Share- Cash
of based Exchange flow Non-
Share Treasury convertible Share payment Capital Statutory fluctuation hedge Retained controlling Total
capital shares bonds premium reserve reserve * reserve reserve reserve profits * Total interests equity
(note 20) (note 17) (note 21)
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at January 1, 2021 794,387 (45,475) – 5,900,148 68,393 59,602 202,465 (38,224) – 1,929,023 8,870,319 63,420 8,933,739
Profit for the period
(unaudited) – – – – – – – – – 564,837 564,837 (17,537) 547,300
Other comprehensive
(loss)/income for the period
(unaudited) – – – – – – – (28,648) 10,947 – (17,701) 22 (17,679)
Total comprehensive
(loss)/income for the period
(unaudited) – – – – – – – (28,648) 10,947 564,837 547,136 (17,515) 529,621
Issue of convertible bonds – – 198,554 – – – – – – – 198,554 – 198,554
– – – – – – – – – –
Repurchase of H Shares (36,610) (36,610) (36,610)
Acquisition of a subsidiary
(note 22) – – – – – – – – – – – 89,734 89,734
Recognition of share-based
payments – – – – 24,730 – – – – – 24,730 990 25,720
Dividends declared – 694 – – – – – – – (238,187) (237,493) – (237,493)
As at June 30, 2021
(unaudited) 794,387 (81,391) 198,554 5,900,148 93,123 59,602 202,465 (66,872) 10,947 2,255,673 9,366,636 136,629 9,503,265
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• These reserve accounts comprise the consolidated reserves of RMB8,455,086,000 in the interim condensed consolidated statement of financial position as at June 30, 2021.

48 Pharmaron Beijing Co., Ltd. Interim Report 2021

Interim Condensed Consolidated Statement of Changes in Equity For the six months ended June 30, 2021

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

Attributable to owners of the parent
Equity
component Share-
of based Exchange Cash flow Non-
Share Treasury convertible Share payment Capital Statutory fluctuation hedge Retained controlling Total
capital shares bonds premium reserve reserve * reserve reserve reserve profits * Total interests equity
(note 20)
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
As at January 1, 2020 794,387 (72,781) – 5,872,090 33,198 59,602 116,024 2,324 – 962,219 7,767,063 70,955 7,838,018
Profit for the period (unaudited) – – – – – – – – – 478,960 478,960 (12,325) 466,635
Other comprehensive (loss)/income
for the period (unaudited) – – – – – – – (30,451) – – (30,451) 30 (30,421)
Total comprehensive income/(loss)
for the period (unaudited) – – – – – – – (30,451) – 478,960 448,509 (12,295) 436,214
Capital injection from
non-controlling shareholders – – – 3,263 – – – – – – 3,263 2,610 5,873
Acquisition of a subsidiary – – – – – – – – – – – 12,808 12,808
Recognition of share-based
payments – – – – 33,572 – – – – – 33,572 998 34,570
Dividends declared – 611 – – – – – – – (119,158) (118,547) – (118,547)
As at June 30, 2020 (unaudited) 794,387 (72,170) – 5,875,353 66,770 59,602 116,024 (28,127) – 1,322,021 8,133,860 75,076 8,208,936
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• These reserve accounts comprise the consolidated reserves of RMB7,411,643,000 in the interim condensed consolidated statement of financial position as at June 30, 2020.

Pharmaron Beijing Co., Ltd. Interim Report 2021 49

Interim Condensed Consolidated Statement of Cash Flows

For the six months ended June 30, 2021

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Six months ended June 30,
2021 2020
Notes RMB’000 RMB’000
(unaudited) (unaudited)
Cash flows from operating activities
Profit before tax 665,910 532,299
Adjustments for:
– Finance costs 15,786 13,386
– Share of losses of associates 6,993 20,824
– Interest income from time deposits with original maturity of
more than three months when acquired (11,170) (6,472)
– Losses on disposal of property, plant and equipment 5 872 390
–
– Foreign exchange gain (4,762)
– (Gains)/losses on derivative financial instruments 5 (5,918) 35,303
– Gains on financial assets at fair value through profit or loss 5 (27,705) (15,722)
– Gains on fair value change of equity investment at
fair value through profit or loss 5 (17,057) (100,837)
– Gains resulting from transfer of an investment in associates to
equity investments at fair value through profit or loss 5 (25,452) –
– Gains on fair value re-measurement of existing equity in
business combination not under common control 5 – (23,123)
– Losses on fair value change of convertible bonds-embedded
derivative component 5 100,395 –
– Depreciation of property, plant and equipment 6 207,380 167,654
– Depreciation of right-of-use assets 6 49,459 34,307
– Depreciation of investment properties 6 344 411
– Amortisation of other intangible assets 6 12,108 3,179
– Impairment losses on inventories, net of reversal 6 1,252 2,162
– Impairment (reversal)/losses on financial and contract assets 6 (472) 3,215
– Share-based compensation expenses 6 25,720 34,570
993,683 701,546
Increase in inventories (27,076) (34,739)
Increase in contract costs (37,184) (41,318)
Increase in trade receivables (59,115) (106,473)
(Increase)/decrease in prepayments, other receivables and
other assets (56,231) 22,820
(Increase)/decrease in contract assets (48,268) 11,571
Decrease in other non-current assets 2,934 2,596
Increase in trade payables 70,992 46,083
(Decrease)/increase in other payables and accruals (59,568) 17,963
(Decrease)/increase in deferred income (2,931) 2,347
Increase in contract liabilities 142,405 42,998
Cash flows generated from operations Cash flows generated from operations 919,641 665,394
Cash flows generated from operations 919,641 665,394
Income tax paid (74,577) (47,446)
Net cash flows generated from operating activities 845,064 617,948
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50 Pharmaron Beijing Co., Ltd. Interim Report 2021

Interim Condensed Consolidated Statement of Cash Flows For the six months ended June 30, 2021

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

Six months ended June 30,
2021 2020
Notes RMB’000 RMB’000
(unaudited) (unaudited)
Cash flows from investing activities
Purchases of property, plant and equipment (1,031,929) (393,699)
Proceeds from disposal of property, plant and equipment 1,024 263
Proceeds from disposal of financial assets
at fair value through profit or loss 2,807,764 424,311
Additions of other intangible assets (3,191) (2,223)
Proceeds from disposal of right-of-use assets – 2,800
Purchase of equity investments at fair value through profit or loss (29,000) (12,171)
Settlement of derivative financial instrument 71,165 (7,450)
Purchase of financial assets at fair value through profit or loss (2,675,150) (927,299)
Purchase of time deposits with original maturity of
more than three months when acquired (720,000) (880,000)
Proceeds from disposal of time deposits with original maturity
of more than three months when acquired 265,023 103,262
Acquisition of subsidiaries 22 (867,231) (48,850)
–
Payment for acquisitions in prior periods (10,310)
Capital injection in associates (33,000) (291,375)
Net cash flows used in investing activities (2,224,835) (2,032,431)
Cash flows from financing activities
Interest on bank and other borrowings paid (20,083) (10,339)
Proceeds from bank borrowings 579,487 50,341
Repayments of bank and other borrowings (81,946) (742,544)
Payments of lease liabilities (56,333) (33,329)
–
Payments of expenses for issuance of shares (13,149)
–
Payments of expenses for issuance of convertible bonds (2,061)
Proceeds from issuance of convertible bonds 3,787,449 –
–
Repurchase of H shares under share option scheme (36,610)
–
Dividends paid to shareholders (231,825)
Capital injection from non-controlling shareholders – 5,873
Net cash flows generated from/(used in) financing activities 3,938,078 (743,147)
Net increase/(decrease) in cash and cash equivalents 2,558,307 (2,157,630)
Cash and cash equivalents at beginning of period 2,353,933 4,442,218
Effect of foreign exchange rate changes, net (9,473) (25,458)
Cash and cash equivalents at end of period 4,902,767 2,259,130
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Pharmaron Beijing Co., Ltd. Interim Report 2021 51

Notes to the Interim Condensed Consolidated Financial Statements

June 30, 2021

1. GENERAL INFORMATION

Pharmaron Beijing Co., Ltd. was incorporated and registered in the People’s Republic of China (“PRC”) on July 1, 2004. With the approval of the China Securities Regulatory Commission, the Company completed its initial public offering and was listed on the Shenzhen Stock Exchange (stock code: 300759.SZ) on January 28, 2019. On November 28, 2019, the Company was listed on the Main Board of the Stock Exchange of Hong Kong Limited (the “HKSE”) (stock code: 3759.HK). The address of the registered office is 8th Floor, Block 1, 6 Taihe Road, Beijing Economic Technological Development Area, Beijing, China.

The Company is a leading fully-integrated pharmaceutical R&D service platform with global operations to accelerate drug innovation for our customers. The principal activity of the Company and its subsidiaries (together, the “Group”) is to provide contract research, development and manufacturing services for innovative pharmaceutical products throughout the research and development cycle and the services are organised in four major categories: laboratory services, CMC (small molecule CDMO) services, clinical development services and biologics and CGT services.

2.1 BASIS OF PREPARATION

The interim condensed consolidated financial information for the six months ended June 30, 2021 has been prepared in accordance with International Accounting Standard (“IAS”) 34 Interim Financial Reporting. The interim condensed consolidated financial information does not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements for the year ended December 31, 2020 which have been prepared in accordance with International Financial Reporting Standards (IFRSs).

The interim condensed consolidated financial information has been prepared under the historical cost convention, except for biological assets which are measured at fair value less costs to sell, equity investments at fair value through profit or loss, derivative financial instruments and financial assets and financial liabilities at fair value through profit or loss which have been measured at fair value. The interim condensed consolidated financial information is presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand except when otherwise indicated.

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those applied in the preparation of the Group’s annual consolidated financial statements for the year ended December 31, 2020, except for the adoption of the following revised IFRSs and newly adoption of certain IFRSs for the first time for the current period’s financial information.

The nature and impact of the revised IFRSs are described below:

Amendments to IFRS 9, IAS 39, IFRS 7, Interest Rate Benchmark Reform – Phase 2 IFRS 4 and IFRS 16 Amendment to IFRS 16 Covid-19-Related Rent Concessions beyond 30 June 2021 (early adopted)

52 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (CONTINUED)

• a) Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 address issues not dealt with in the previous amendments which affect financial reporting when an existing interest rate benchmark is replaced with an alternative risk-free rate (“RFR”). The phase 2 amendments provide a practical expedient to allow the effective interest rate to be updated without adjusting the carrying amount of financial assets and liabilities when accounting for changes in the basis for determining the contractual cash flows of financial assets and liabilities, if the change is a direct consequence of the interest rate benchmark reform and the new basis for determining the contractual cash flows is economically equivalent to the previous basis immediately preceding the change. In addition, the amendments permit changes required by the interest rate benchmark reform to be made to hedge designations and hedge documentation without the hedging relationship being discontinued. Any gains or losses that could arise on transition are dealt with through the normal requirements of IFRS 9 to measure and recognise hedge ineffectiveness. The amendments also provide a temporary relief to entities from having to meet the separately identifiable requirement when an RFR is designated as a risk component. The relief allows an entity, upon designation of the hedge, to assume that the separately identifiable requirement is met, provided the entity reasonably expects the RFR risk component to become separately identifiable within the next 24 months. Furthermore, the amendments require an entity to disclose additional information to enable users of financial statements to understand the effect of interest rate benchmark reform on an entity’s financial instruments and risk management strategy. The Conceptual Framework has had no material impact on the disclosures set out in these condensed consolidated financial statements. The Group had certain interest-bearing bank borrowings denominated in foreign currencies based on the London Interbank Offered Rate (“LIBOR”) as at June 30, 2021. Since the interest rates of these borrowings were not replaced by RFRs during the period, the amendment did not have any impact on the financial position and performance of the Group. If the interest rates of these borrowings are replaced by RFRs in a future period, the Group will apply this practical expedient upon the modification of these borrowings provided that the “economically equivalent” criterion is met.

• b) Amendment to IFRS 16 issued in April 2021 extends the availability of the practical expedient for lessees to elect not to apply lease modification accounting for rent concessions arising as a direct consequence of the covid-19 pandemic by 12 months. Accordingly, the practical expedient applies to rent concessions for which any reduction in lease payments affects only payments originally due on or before June 30, 2022, provided the other conditions for applying the practical expedient are met. The amendment is effective retrospectively for annual periods beginning on or after April 1, 2021 with any cumulative effect of initially applying the amendment recognised as an adjustment to the opening balance of retained profits at the beginning of the current accounting period. Earlier application is permitted.

The Group had no material rent concessions granted by the lessors and this amendment to IFRS 16 has had no material impact on the disclosures set out in these condensed consolidated financial statements.

Pharmaron Beijing Co., Ltd. Interim Report 2021 53

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES (CONTINUED)

The following accounting policies have been adopted by the Group and become effective on January 1, 2021:

Biological assets

Biological assets included monkeys for experiment, which are classified as current assets and monkeys for breeding, which are classified as non-current assets of the Group. Biological assets are measured on initial recognition and at the end of the reporting period at their fair value less costs to sell, with any resultant gain or loss recognised in the consolidated statement of profit or loss for the period in which it arises. The fair value of monkeys is determined by using the market method through direct comparison or analysis of the recent trading prices of the same or similar assets, and is determined independently by a professional valuer.

No material changes in fair value for the current period was recognised in the interim condensed consolidated statement of profit or loss.

Financial liabilities

Convertible bonds

The component of convertible bonds that exhibits characteristics of a liability is recognised as a liability in the statement of financial position, net of transaction costs. On issuance of convertible bonds, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond; and this amount is carried as a long-term liability on the amortised cost basis until extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in shareholders’ equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the convertible bonds based on the allocation of proceeds to the liability and equity components when the instruments are first recognised.

If the conversion option of convertible bonds exhibits characteristics of an embedded derivative, it is separated from its liability component. On initial recognition, the derivative component of the convertible bonds is measured at fair value and presented as part of derivative financial instruments. Any excess of proceeds over the amount initially recognised as the derivative component is recognised as the liability component. Transaction costs are apportioned between the liability and derivative components of the convertible bonds based on the allocation of proceeds to the liability and derivative components when the instruments are initially recognised. The portion of the transaction costs relating to the liability component is recognised initially as part of the liability. The portion relating to the derivative component is recognised immediately in the statement of profit or loss.

54 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

3. OPERATING SEGMENT INFORMATION

For management purposes, the Group is organised into business units based on their services and has five reportable operating segments as follows:

• The laboratory services segment includes laboratory chemistry and bioscience (including DMPK/ADME, in vitro biology and in vivo pharmacology, safety assessment and U.S. laboratory services) services

• The CMC (small molecule CDMO) services segment includes small molecule APIs process development and manufacturing, materials science/pre-formulation, formulation development and manufacturing, and analytical development services

• The clinical development services segment includes clinical research services, site management services, regulatory bioanalysis and radiolabelled science services

• The Biologics and CGT services segment includes biologics discovery services, biologics and CGT lab services, CGT development and manufacturing services CDMO and biologics development and manufacturing services CDMO

• The “Others” segment

Pharmaron Beijing Co., Ltd. Interim Report 2021 55

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

3. OPERATING SEGMENT INFORMATION (CONTINUED)

Segment revenue and results

The following is an analysis of the Group’s revenue and results by reportable segments:

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

CMC (small
molecule Clinical Biologics
Laboratory CDMO) development and CGT
services services services services Others Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Six months ended June 30, 2021
(unaudited)
Segment revenue 2,027,048 762,243 422,691 71,661 1,868 3,285,511
Segment results 848,521 278,517 59,614 2,159 900 1,189,711
Unallocated amount:
Other income and gains 119,881
Other expenses (109,595)
Selling and distribution expenses (63,733)
Administrative expenses (383,583)
Research and development costs (64,464)
Impairment reversals on financial and
contract assets 472
Finance costs (15,786)
Share of losses of associates (6,993)
Group’s profit before tax 665,910
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56 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements

June 30, 2021

3. OPERATING SEGMENT INFORMATION (CONTINUED)

Segment revenue and results (continued)

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

CMC (small
molecule Clinical Biologics
Laboratory CDMO) development and CGT
services services services services Others Total
RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Six months ended June 30, 2020
(unaudited)
Segment revenue 1,428,844 506,460 242,549 4,877 10,437 2,193,167
Segment results 586,486 145,794 52,893 3,005 6,222 794,400
Unallocated amount:
Other income and gains 202,817
Other expenses (40,442)
Selling and distribution expenses (40,422)
Administrative expenses (303,525)
Research and development costs (43,104)
Impairment losses on financial and
contract assets (3,215)
Finance costs (13,386)
Share of losses of associates (20,824)
Group’s profit before tax 532,299
----- End of picture text -----

Management monitors the results of the Group’s operating segments separately for the purpose of making decisions about resources allocation and performance assessment. No analysis of segment asset and liability is presented as the management does not regularly review such information for the purposes of resources allocation and performance assessment. Therefore, only segment revenue and segment results are presented.

Pharmaron Beijing Co., Ltd. Interim Report 2021 57

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

3. OPERATING SEGMENT INFORMATION (CONTINUED)

Geographical information

(a) Revenue from external customers

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

Six months ended June 30,
2021 2020
RMB’000 RMB’000
(unaudited) (unaudited)
North America 2,136,045 1,389,926
Europe 564,435 454,454
Asia (except Mainland China) 77,995 66,860
Mainland China 492,991 256,632
Others 14,045 25,295
3,285,511 2,193,167
----- End of picture text -----

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

(b) Non-current assets

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

June 30, December 31,
2021 2020
RMB’000 RMB’000
(unaudited) (audited)
Mainland China 5,406,929 4,529,104
North America 1,279,053 1,278,656
Europe 1,301,514 430,988
Asia (except Mainland China) 21,348 –
8,008,844 6,238,748
----- End of picture text -----

The non-current assets information above is based on the locations of the assets and excludes equity investments at fair value through profit or loss and deferred tax assets.

58 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements

June 30, 2021

4. REVENUE

An analysis of revenue is as follows:

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

Six months ended June 30,
2021 2020
RMB’000 RMB’000
(unaudited) (unaudited)
Revenue from contracts with customers 3,283,643 2,182,730
Revenue from other sources 1,868 10,437
3,285,511 2,193,167
----- End of picture text -----

Revenue from contracts with customers

(a) Disaggregated revenue information

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

Six months ended June 30,
2021 2020
Segments RMB’000 RMB’000
(unaudited) (unaudited)
Type of services
Laboratory services 2,027,048 1,428,844
CMC (small molecule CDMO) services 762,243 506,460
Clinical development services 422,691 242,549
Biologics and CGT services 71,661 4,877
Total revenue from contracts with customers 3,283,643 2,182,730
Timing of revenue recognition
Services transferred at a point of time 1,776,503 1,172,809
Services transferred over time 1,507,140 1,009,921
Total revenue from contracts with customers 3,283,643 2,182,730
----- End of picture text -----

Pharmaron Beijing Co., Ltd. Interim Report 2021 59

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

4. REVENUE (CONTINUED)

Revenue from contracts with customers (continued)

(b) Performance obligations

The Group has different contractual arrangements with different customers under two different charge methods: Full-Time-Equivalent (“FTE”) or Fee-For-Service (“FFS”) model.

All services under the FTE model, revenue is recognised over time at the amount to which the Group has the right to invoice for services performed. Therefore, under practical expedients allowed by IFRS 15, the Group does not disclose the value of unsatisfied performance obligations under the FTE model.

Similarly, certain services under the FFS model, revenue is recognised over time and contracts are generally within an original expected length of one year or less. Therefore, the practical expedients are also applied.

60 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

5. OTHER INCOME AND GAINS AND OTHER EXPENSES

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

Six months ended June 30,
2021 2020
RMB’000 RMB’000
(unaudited) (unaudited)
Other income
Interest income 19,884 43,143
Government grants and subsidies related to
– Assets (i) 5,930 5,159
– Income (ii) 17,584 11,428
43,398 59,730
Other gains
Foreign exchange gains, net – 3,231
Gains on fair value change of equity investment at fair value
through profit or loss 17,057 100,837
Gains on financial assets at fair value through profit or loss 27,705 15,722
Gains on derivative financial instruments 5,918 –
Gains on fair value re-measurement of existing equity in
business combination not under common control – 23,123
Gains resulting from transfer of an investment in associates to
equity investments at fair value through profit or loss 25,452 –
Others 351 174
76,483 143,087
119,881 202,817
Other expenses
–
Foreign exchange loss, net (2,961)
Losses on disposal of property, plant and equipment (872) (390)
Losses of derivative financial instruments – (35,303)
Losses on fair value change of convertible bonds-embedded
–
derivative component (100,395)
Others (5,367) (4,749)
(109,595) (40,442)
----- End of picture text -----

Pharmaron Beijing Co., Ltd. Interim Report 2021 61

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

5. OTHER INCOME AND GAINS AND OTHER EXPENSES (CONTINUED)

• (i) The Group has received certain government grants related to assets to invest in laboratory equipment and plant. The grants related to assets were recognised in profit and loss over the useful lives of relevant assets.

• (ii) The government grants and subsidies related to income have been received to compensate for the Group’s research and development expenditures. Some of the grants related to income have future related costs expected to be incurred and require the Group to comply with conditions attached to the grants and the government to acknowledge the compliance of these conditions. These grants related to income are recognised in the statement of profit or loss on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed.

Other government grants related to income that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable.

6. PROFIT BEFORE TAX

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

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Six months ended June 30,
2021 2020
RMB’000 RMB’000
(unaudited) (unaudited)
Depreciation of property, plant and equipment 207,380 167,654
Depreciation of right-of-use assets 49,459 34,307
Depreciation of investment properties 344 411
Amortization of other intangible assets 12,108 3,179
Staff costs (including directors’ and chief executive’s remuneration):
Salaries and other benefits 1,106,238 727,978
Pension scheme contribution, social welfare and other welfare 310,516 160,095
Share-based compensation expenses 25,720 34,570
Gains resulting from transfer of an investment in associates to
–
equity investments at fair value through profit or loss (25,452)
Gains on fair value re-measurement of existing equity in
business combination not under common control – (23,123)
Gains on financial assets at fair value through profit or loss (27,705) (15,722)
Gains on fair value change of equity investment at fair value
through profit or loss (17,057) (100,837)
Impairment losses on inventories, net of reversal 1,252 2,162
Impairment (reversal)/losses on financial and contract assets (472) 3,215
(Gains)/losses on derivative financial instruments (5,918) 35,303
Losses on fair value change of convertible bonds-embedded
derivative component 100,395 –
Auditor’s remuneration 2,150 1,740
----- End of picture text -----*

• The staff costs for the period are included in “Cost of sales”, “Administrative expenses”, “Selling and distribution expenses” and “Research and development costs” in the interim condensed consolidated statement of profit or loss.

62 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements

June 30, 2021

7. INCOME TAX EXPENSE

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

Six months ended June 30,
2021 2020
RMB’000 RMB’000
(unaudited) (unaudited)
Current tax 119,638 64,707
Deferred tax (1,028) 957
118,610 65,664
----- End of picture text -----

8. DIVIDENDS

On May 28, 2021, the Company’s shareholders approved the 2020 Profit Distribution Plan at annual general meeting, pursuant to which a final dividend of RMB0.3 (inclusive of tax) per share in respect of the year ended December 31, 2020 was declared to both holders of A shares and H shares and aggregate dividend amounted to RMB238,316,000 (inclusive of tax). As at June 30, 2021 RMB231,825,000 has been paid.

The directors of the Company have determined that no dividend will be proposed or declared in respect of the current interim period (Six months ended June 30, 2020: Nil).

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

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

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

Six months ended June 30,
2021 2020
RMB’000 RMB’000
(unaudited) (unaudited)
Earnings:
Profit attributable to ordinary equity holders of the parent 564,837 478,960
Less: Cash dividends attributable to the shareholders of
restricted shares expected to be unlocked in the future (694) (611)
Earnings for the purpose of calculating basic earnings per share 564,143 478,349
Effect of diluted potential ordinary shares:
Add: Cash dividends attributable to the shareholders of
restricted shares expected to be unlocked in the future 347 611
Earnings for the purpose of calculating diluted earnings per share 564,490 478,960
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Pharmaron Beijing Co., Ltd. Interim Report 2021 63

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

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

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

Six months ended June 30,
2021 2020
(unaudited) (unaudited)
Number of shares:
Weighted average number of ordinary shares in issue during the period,
used in the basic earnings per share calculation 791,669,412 790,310,075
Effect of diluted potential ordinary shares:
Effective of restricted shares units and share awards issued
by the Company 1,038,939 2,000,880
Weighted average number of ordinary shares in issue during the period,
used in the diluted earnings per share calculation 792,708,351 792,310,955
----- End of picture text -----

10. PROPERTY, PLANT AND EQUIPMENT

During the six months ended June 30, 2021, the Group acquired assets with a cost of RMB866,626,000 (Six months ended June 30, 2020: RMB321,200,000), excluding property, plant and equipment acquired through business combination disclosed in note 22 to the interim condensed consolidated financial information, and disposed of assets with a net carrying amount of RMB1,228,000 (Six months ended June 30, 2020: RMB479,000).

11. GOODWILL

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

June 30, December 31,
2021 2020
RMB’000 RMB’000
(unaudited) (audited)
Cost 1,804,929 1,166,172
– –
Accumulated impairment
Net carrying amount 1,804,929 1,166,172
Opening carrying amount, net of accumulated impairment 1,166,172 203,286
Acquisition of subsidiaries (note 22) 653,277 984,040
Exchange realignment (14,520) (21,154)
1,804,929 1,166,172
----- End of picture text -----

64 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

12. TRADE RECEIVABLES

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

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

June 30, December 31,
2021 2020
RMB’000 RMB’000
(unaudited) (audited)
Within 1 year 1,113,526 1,065,203
1 year to 2 years 13,934 11,411
1,127,460 1,076,614
----- End of picture text -----

Included in trade receivables was an amount due from a related party of RMB470,000 (December 31, 2020: RMB7,339,000) which was repayable on credit terms similar to those offered to the major customers of the Group.

13. CONTRACT ASSETS

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

June 30, December 31,
2021 2020
RMB’000 RMB’000
(unaudited) (audited)
Contract assets 184,083 136,234
Allowance for impairment (1,436) (2,470)
182,647 133,764
----- End of picture text -----

Pharmaron Beijing Co., Ltd. Interim Report 2021 65

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

14. PREPAYMENTS, OTHER RECEIVABLES AND OTHER ASSETS

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

June 30, December 31,
2021 2020
RMB’000 RMB’000
(unaudited) (audited)
Prepayments 17,306 9,991
Deposits and other receivables 39,444 17,414
Prepaid expenses 61,313 36,162
Tax recoverable 216,486 128,963
Others 2,072 3,490
336,621 196,020
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As at each end of the reporting period, other receivables of the Group are considered to be of low credit risk and thus the Group has assessed that the ECL for other receivables is immaterial under the 12-month expected loss method.

15. DERIVATIVE FINANCIAL INSTRUMENTS

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June 30, December 31,
2021 2020
RMB’000 RMB’000
(unaudited) (audited)
Current assets
Derivatives under hedge accounting
Cash flow hedges – Foreign currency forward contracts 36,744 –
Other Derivatives (not under hedge accounting)
Foreign currency forward contracts – 84,698
36,744 84,698
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66 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

15. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)

Derivatives under hedge accounting

It is the policy of the Group to enter into forward foreign exchange contracts to manage its foreign exchange rate risk arising from anticipated future foreign currency transactions up to 12 months, in particular, the exchange rate between USD and RMB, which are designated into cash flow hedges.

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

Average strike Foreign Notional Fair value
rate as at currency as at value as at assets as at
June 30,2021 June 30,2021 June 30,2021 June 30,2021
USD’000 RMB’000 RMB’000
Sell USD
Less than 3 months 6.6524 30,000 199,572 13,888
3 to 6 months 6.6720 90,000 600,480 22,856
----- End of picture text -----

As at June 30, 2021, the aggregate amount of gain after tax under foreign exchange forward contracts recognised in other comprehensive income and accumulated in cash flow hedge reserve relating to the exposure on anticipated future sales transactions denominated in USD is RMB10,947,000 (December 31, 2020: Nil). It is anticipated that the sales will take place within next 6 months at which time the amount recognised in other comprehensive income will be reclassified to profit or loss.

At the inception of above hedging relationships, the Group formally designates and documents the hedge relationship, risk management objective and strategy for undertaking the hedge. The cash flow hedge mentioned above were assessed to be highly effective.

Pharmaron Beijing Co., Ltd. Interim Report 2021 67

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

16. INTEREST-BEARING BANK BORROWINGS

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

June 30, 2021 December 31, 2020
Effective Effective
interest interest
rate (%) Maturity RMB’000 rate (%) Maturity RMB’000
(unaudited) (audited)
Current
Bank borrowings –
secured (a) 3.970~4.650 2021~2022 13,119 3.970~4.650 2021 4,703
Bank borrowings –
unsecured 1.756~4.275 2021~2022 393,492 1.000~4.275 2021 381,443
406,611 386,146
Non-current
Bank borrowings –
secured (a) 3.970~4.650 2026~2030 776,967 3.970~4.650 2027~2030 300,703
Bank borrowings –
unsecured 4.275 2022~2024 82,000 1.000~4.275 2022~2024 94,108
858,967 394,811
1,265,578 780,957
June 30, December 31,
2021 2020
Analysed into: RMB’000 RMB’000
(unaudited) (audited)
Bank borrowings repayable:
Within one year 406,611 386,146
In the second year 88,726 27,149
In the third to fifth years, inclusive 747,881 192,759
Beyond five years 22,360 174,903
1,265,578 780,957
----- End of picture text -----

(a) As at June 30, 2021, the bank borrowings with the amount of RMB790,086,000 (December 31, 2020: RMB305,406,000) are secured by the mortgage of the Group’s long-term assets (property, plant and equipment and right-of-use assets) owned by the Group.

As at June 30, 2021, the mortgaged property, plant and equipment have a net carrying amount of approximately RMB419,561,000 (December 31, 2020: RMB405,629,000), and the mortgaged right-of-use assets have a net carrying amount of RMB178,088,000 (December 31, 2020: RMB180,531,000).

68 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

17. CONVERTIBLE BONDS

On June 18, 2021 (the “Issue Date”), the Company issued two series of five-year zero coupon convertible bonds due 2026 in an aggregate principal amount of USD300,000,000 (the “Series 1 Bonds”) and RMB1,916,000,000 (the “Series 2 Bonds”), respectively (together, the “Convertible Bonds”). The conversion right attaching to any bond may be exercised, at the option of the bondholder, at any time on or after the 41st day after the Issue Date up to the close of business on the date falling 10 working days prior to June 18, 2026 (the “Maturity Date”) of each respective series (both days inclusive) into fully paid ordinary H shares with a nominal value of RMB1.00 each at an initial conversion price of HKD250.75 per share for Series 1 Bonds and HKD229.50 per share for Series 2 Bonds, respectively, with a fixed exchange rate of HKD7.7588 to USD1.00 and a fixed exchange rate of HKD1.2143 to RMB1.00, respectively, but could be subject to certain adjustments, as applicable.

On the Maturity Date, unless previously redeemed, converted or purchased and cancelled, the Company will redeem each Series 1 Bonds at 100% of its principal amount and each Series 2 Bonds at the USD equivalent of 107.76% of its principal amount, respectively.

The Company will, at the option of the holder of any bond, redeem all or some only of that holder’s bonds on June 18, 2024 at, in respect of the Series 1 Bonds, 100%, and in respect of the Series 2 Bonds, the USD equivalent of 104.59% of their outstanding principal amount.

On giving not less than 30 nor more than 60 days’ notice to the bondholders, the trustee and the principal agent (which notice will be irrevocable), the bonds may be redeemed by the Company in whole, but not in part, on the date specified in the optional redemption notice at, in respect of the Series 1 Bonds, the principal amount, and in respect of the Series 2 Bonds, the USD equivalent of the early redemption amount, (i) in respect of the Series 1 Bonds only at any time after June 18, 2024 but prior to the Maturity Date, subject to certain conditions as specified in the terms and conditions, or (ii) in respect of both Series at any time if, the aggregate principal amount of the bonds outstanding is less than 10% of the aggregate principal amount originally issued.

The Series 1 Bonds comprise two components:

• (a) Debt component was initially measured at fair value. It is subsequently measured at amortised cost using the effective interest method after considering the effect of the transaction costs.

• (b) Embedded derivative component comprises conversion options and early redemption options (not closely related to the debt component), which was initially and subsequently measured at fair value.

The Series 2 Bonds comprise two components:

• (a) Debt component was initially measured at fair value. It is subsequently measured at amortised cost using the effective interest method after considering the effect of the transaction costs.

• (b) Equity component comprises conversion options. It was initially measured at fair value and subsequently kept unchanged.

The total transaction costs that are related to the issue of the Convertible Bonds were allocated to the debt component, derivative component and equity component in proportion to their respective fair values.

Pharmaron Beijing Co., Ltd. Interim Report 2021 69

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

17. CONVERTIBLE BONDS (CONTINUED)

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

Embedded
Debt derivative Equity
component component component Total
RMB’000 RMB’000 RMB’000 RMB’000
Issue of Convertible Bonds 3,490,689 154,413 201,728 3,846,830
Transaction cost (64,225) (3,390) (3,174) (70,789)
Transaction cost charged into
profit or loss immediately – 3,390 – 3,390
Exchange adjustments 6,499 – – 6,499
Interest charge 3,527 – – 3,527
Loss arising on changes of fair value – 100,395 – 100,395
As at June 30, 2021 (Unaudited) 3,436,490 254,808 198,554 3,889,852
----- End of picture text -----

No conversion or redemption of the Convertible Bonds has occurred up to June 30, 2021.

As at June 30, 2021, the embedded derivative component was measured at fair value with reference to valuation report issued by an independent qualified professional valuer unrelated to the Group. The changes in fair value are recognised in profit or loss during the interim period.

18. TRADE PAYABLES

Trade payables are non-interest-bearing and normally settled on terms of one to three months.

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

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

June 30, December 31,
2021 2020
RMB’000 RMB’000
(unaudited) (audited)
Within 1 year 263,642 187,369
Over 1 year 4,794 4,128
268,436 191,497
----- End of picture text -----

Included in the trade payables was an amounts due to a related party of RMB4,000 (December 31, 2020: RMB804,000) which was repayable within 30 days, which represents credit terms similar to those offered by the related party to their major customers.

70 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements

June 30, 2021

19. OTHER PAYABLES AND ACCRUALS

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

June 30, December 31,
2021 2020
RMB’000 RMB’000
(unaudited) (audited)
Staff payroll and welfare payables 384,375 402,325
Other tax payable 24,274 24,214
Payables for acquisition of plant and equipment 331,601 212,436
Accrued expenses 69,934 72,969
Restricted stock repurchase obligation 44,721 45,454
Dividend payable 8,374 612
Payable for acquisition of equity interests in subsidiaries 28,434 34,063
Others 27,927 27,240
919,640 819,313
----- End of picture text -----

20. SHARE CAPITAL

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

June 30, December 31,
2021 2020
RMB’000 RMB’000
(unaudited) (audited)
Issued and fully paid: 794,387 794,387
----- End of picture text -----

A summary of movements in the Company’s share capital is as follows:

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

Number of
shares in issue Share capital
RMB’000
At December 31, 2020 and January 1, 2021 794,387,462 794,387
At June 30, 2021 794,387,462 794,387
----- End of picture text -----

21. SHARE INCENTIVE SCHEMES

2019 A Share Incentive Scheme

On August 15, 2019, the shareholders’ meeting of the Company passed a resolution to issue up to 5,651,359 A Shares of the Company under the 2019 A Share Incentive Scheme consisting of Restricted A shares and share options. On October 24, 2019, 4,077,387 restricted A shares of the Company were approved for eligible employees to subscribe at the price of RMB17.85 per A Share and the grant date was October 30, 2019. As of November 5, 2019, 4,077,387 A Shares were subscribed by eligible employees and a consideration of RMB72,781,000 was received by the Company. These granted restricted A Shares have a contractual term of no more than four years and will be unlocked over a three-year period, with 40%, 30% and 30% of the awards unlocking on the first, second and third anniversary dates of the A Share registration date upon meeting certain annual performance conditions. Pursuant to the black-out period provisions of the 2019 A Share Incentive Scheme, employees shall not transfer the A Shares which fulfil the unlocking conditions to any third party in any form within six months from each unlocking anniversary date.

Pharmaron Beijing Co., Ltd. Interim Report 2021 71

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

21. SHARE INCENTIVE SCHEMES (CONTINUED)

2019 A Share Incentive Scheme (continued)

For the period ended June 30, 2021, the Group has recorded share-based compensation expenses of RMB11,379,000 (Six months ended June 30, 2020: RMB33,572,000) in relation to the 2019 A Share Incentive Scheme.

As at June 30, 2021, a total of 1,509,337 restricted A Shares have been unlocked.

The First H Share Award and Trust Scheme

The Company adopted a H share award and trust scheme (the “H Share Scheme”), comprised of the Employee Share Award Plan (the “ESAP”) and the Share Bonus Plan, for the purpose of providing incentives and rewards to eligible participants who contribute to the success of the Group’s operations. Eligible participants of the H Share Scheme include any individual, being a Director, senior management, key operating team member, employee, or consultant, who is a full-time PRC or non-PRC employee of any members of the Group. The awards under the ESAP shall be vested over a four-year period, with 25%, 25%, 25% and 25% of total options vesting on each anniversary date after the vesting commencement date upon meeting certain sales performance conditions. Awards under the Share Bonus Plan shall be vested in two equal tranches (i.e., 50% and 50% on each anniversary date after the vesting commence date upon meeting certain profit performance conditions). The H Share Scheme was approved in the 2020 third extraordinary general meeting (“EGM”) of the Company on December 11, 2020 and, unless otherwise cancelled or amended, will remain in force for 10 years from that date. Further details of the H Share Scheme are also set out in an announcement of the Company.

In order to operate the H Share Scheme, a trust was established pursuant to the trust deed between the Company and Computershare Hong Kong Trustees Limited (the “Trustee”), an independent third party. The source of the Award Shares under the H Share Scheme shall be H Shares to be acquired by the Trustee through on-market transactions at the prevailing market price. The maximum number of shares may be issued under the H Share Scheme in any case is 7,940,000 H Shares, representing approximately 0.99% of the Company’s total share capital as at the approval date. Any further grant of share options in excess of this limit is subject to shareholders’ approval in a general meeting.

For the period ended June 30, 2021, the Group had recorded share-based compensation expenses of RMB13,289,000 (Six months ended June 30, 2020: Nil) in relation to the H Share Scheme-ESAP. During the period ended June 30, 2021, 300,000 shares of H share with market price of RMB36,610,000 had been repurchased by the Company through the trustee from the open market and had been deducted from equity as treasure shares.

Share Option Plan of Subsidiaries

Certain subsidiaries of the Group granted 969,000 share options to eligible employees to attract and motivate personnel and promote the success of the subsidiaries. The Group recognised share-based compensation expenses of RMB1,052,000 during the period ended June 30, 2021 (Six months ended June 30, 2020: Nil).

72 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

22. BUSINESS COMBINATIONS

On April 30, 2021, the Group acquired 100% equity interest of Pharmaron Biologics (UK) Ltd (formerly known as Allergan Biologics Limited), for a cash consideration of USD154,458,000 (equivalent to RMB998,912,000) and Pharmaron Biologics (UK) Ltd became a subsidiary of the Group. Pharmaron Biologics (UK) Ltd mainly provides CDMO services of CGT products.

The fair values of the identifiable assets and liabilities of Pharmaron Biologics (UK) Ltd as at the date of acquisition were as follows:

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

Fair value
recognised on
acquisition
RMB’000
Property, plant and equipment 185,252
Right-of-use assets 7,350
Inventories 5,620
Prepayments, other receivables and other assets 36,297
Cash and cash equivalents 213,610
Trade payables (5,827)
Other payables and accruals (62,944)
Lease liabilities – short term (981)
Tax payables (3,990)
Deferred tax liabilities (924)
Lease liabilities – long term (7,578)
Total identifiable net assets at fair value 365,885
Goodwill on acquisition 633,027
Satisfied by cash 998,912
----- End of picture text -----

An analysis of the cash flows in respect of the acquisition of a subsidiary is as follows:

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

RMB’000
Cash consideration (998,912)
Unpaid cash consideration included in other payables and accruals 4,686
Cash and cash equivalents acquired 213,610
Net outflow of cash and cash equivalents included in cash flows generated in
investment activities (780,616)
----- End of picture text -----

Since the acquisition, Pharmaron Biologics (UK) Ltd contributed RMB97,000 to the Group’s revenue and caused a loss of RMB33,143,000 to the consolidated profit of the Group for the six months ended June 30, 2021.

Pharmaron Beijing Co., Ltd. Interim Report 2021 73

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

22. BUSINESS COMBINATIONS (CONTINUED)

Had the combination taken place at the beginning of the period, the revenue of the Group and the profit of the Group for the period would have been RMB3,375,862,000 and RMB508,204,000, respectively.

In April 2021, the Company entered into an acquisition agreement with Shin Nippon Biomedical Laboratories (Asia) Limited to acquire 38.42% equity interests of Biomedical Research (GZ), Ltd. (“Zhaoqing”), with a cash consideration of RMB68,620,000 (“Equity Purchase”) and then subscribed for the increased registered capital of Zhaoqing for another cash consideration of RMB41,400,000 (“Capital Contribution”). On Jun 29, 2021, after the Equity Purchase and Capital Contribution, the Company owned 50.01% equity interests of Zhaoqing and obtained the control of Zhaoqing. Therefore, Zhaoqing became a subsidiary of the Group. Zhaoqing mainly engages in humanized management and scientific husbandry of monkeys for experiment.

The fair values of the identifiable assets and liabilities of as at the date of acquisition were as follows:

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

Fair value
recognised on
acquisition
RMB’000
Property, plant and equipment 27,397
Biological assets – long term 35,553
Other non-current assets 130
Inventories 688
Biological assets – short term 94,408
Prepayments, other receivables and other assets 632
Pledged deposits 420
Cash and cash equivalents 23,405
Trade payables (120)
Other payables and accruals (3,009)
Total identifiable net assets at fair value 179,504
Non-controlling interests (89,734)
Goodwill on acquisition 20,250
Satisfied by cash 110,020
----- End of picture text -----

74 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

22. BUSINESS COMBINATIONS (CONTINUED)

An analysis of the cash flows in respect of the acquisition of a subsidiary is as follows:

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

RMB’000
Cash consideration (110,020)
Cash and cash equivalents acquired 23,405
Net outflow of cash and cash equivalents included in cash flows generated in
investment activities (86,615)
----- End of picture text -----

Since the acquisition, no revenue and profit has been contributed to the Group’s consolidated revenue and profit for the six months ended June 30, 2021.

Had the combination taken place at the beginning of the period, the revenue of the Group and the profit of the Group for the period would have been RMB3,285,518,000 and RMB542,583,000 respectively.

The biological assets of Zhaoqing as at the acquisition date were valued by an independent qualified professional valuer unrelated to the Group. The fair value less costs to sell of biological assets are determined as follows:

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

Valuation Relationship of unobservable
technique Significant unobservable inputs Range inputs to fair value
–
Biological assets Comparable Recent transaction prices and adjustment The higher the change
market coefficients based on biological asset in the adjustment coefficient,
method characteristics (including age, variety, the higher the fair value
health status, etc.)
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Pharmaron Beijing Co., Ltd. Interim Report 2021 75

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

23. CONTINGENT LIABILITIES

As at June 30, 2021 and December 31, 2020, neither the Group nor the Company had any significant contingent liabilities.

24. COMMITMENTS

(a) Operating lease commitments As lessor

As at June 30, 2021, the Group had no significant future minimum lease receivables under noncancellable operating leases with its tenants falling due (As at December 31, 2020: RMB1,000,000).

(b) Capital commitments

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June 30, December 31,
2021 2020
RMB’000 RMB’000
(unaudited) (audited)
Contracted, but not provided for:
Property, plant and equipment 592,050 897,759
Capital contributions payable to associates 70,000 132,000
662,050 1,029,759
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76 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements

June 30, 2021

25. RELATED PARTY TRANSACTIONS

The Group had the following material transactions with related parties during the six months ended June 30, 2021 and 2020, respectively:

(a) Transactions with related parties:

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Six months ended June 30,
2021 2020
RMB’000 RMB’000
(unaudited) (unaudited)
Entities controlled by the close family
members of the directors
Purchase of raw materials (i) 3,906 4,617
Entities in which the directors act as key
management personnel
Provision of pharmaceutical R&D service (ii) 9,331 3,587
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Notes:

• (i) The purchases from related parties were made according to the published prices and conditions similar to those offered to the major customers of the suppliers.

(ii) The R&D service fees were made according to the price list for similar nature and quantity of services provided to other clients.

(b) Other transactions with related parties:

During the six months ended June 30, 2021, the Group recognised a rental revenue of RMB59,000 for leasing out an office cube to an associate of the Company.

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

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Six months ended June 30,
2021 2020
RMB’000 RMB’000
(unaudited) (unaudited)
Salaries and other benefits 6,121 6,012
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(d) Outstanding balances with related parties

As at June 30, 2021, the Group had an outstanding balance with a related party included in contract assets and liabilities amounting to RMB1,747,000 (December 31, 2020: RMB62,000) and RMB2,822,000 (December 31, 2020: RMB4,889,000), respectively.

Details of the Group’s trade receivables and payables with its related parties as at June 30, 2021 and December 31, 2020 are disclosed in notes 12 and 18 to the financial information.

Pharmaron Beijing Co., Ltd. Interim Report 2021 77

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

26. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at June 30, 2021 and December 31, 2020 are as follows:

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Financial assets at fair value
June 30, 2021 through profit or loss
Equity
investments at Mandatorily
Financial assets fair value through designated
Financial assets at amortised cost profit or loss as such Total
RMB’000 RMB’000 RMB’000 RMB’000
Equity investments at fair value through profit or loss – 198,215 – 198,215
Financial assets included in other non-current assets 21,477 – – 21,477
Trade receivables 1,127,460 – – 1,127,460
Financial assets included in prepayments,
other receivables and other assets 39,444 – – 39,444
Financial assets at fair value through profit or loss – – 720,403 720,403
Derivative financial instruments – – 36,744 36,744
Pledged deposits 18,306 – – 18,306
Cash and cash equivalents 5,950,491 – – 5,950,491
7,157,178 198,215 757,147 8,112,540
Financial liabilities
at fair value through Financial liabilities
Financial liabilities profit or loss at amortised cost Total
RMB’000 RMB’000 RMB’000
Interest-bearing bank borrowings – 1,265,578 1,265,578
Trade payables – 268,436 268,436
Financial liabilities included in other payables and accruals – 502,617 502,617
Financial liabilities at fair value through profit or loss 145,352 – 145,352
Convertible bonds
– debt component – 3,436,490 3,436,490
– embedded derivative component 254,808 – 254,808
400,160 5,473,121 5,873,281
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78 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

26. FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED)

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Financial assets at fair value
December 31, 2020 through profit or loss
Equity investments Mandatorily
Financial assets at fair value through designated
Financial assets at amortised cost profit or loss as such Total
RMB’000 RMB’000 RMB’000 RMB’000
Equity investments at fair value through profit or loss – 121,230 – 121,230
Financial assets included in other non-current assets 20,480 – – 20,480
Trade receivables 1,076,614 – – 1,076,614
Financial assets included in prepayments,
other receivables and other assets 17,414 – – 17,414
Financial assets at fair value through profit or loss – – 825,312 825,312
Derivative financial instruments – – 84,698 84,698
Pledged deposits 7,263 – – 7,263
Cash and cash equivalents 2,935,090 – – 2,935,090
4,056,861 121,230 910,010 5,088,101
Financial liabilities
at fair value through Financial liabilities
Financial liabilities profit or loss at amortised cost Total
RMB’000 RMB’000 RMB’000
Interest-bearing bank borrowings – 780,957 780,957
Trade payables – 191,497 191,497
Financial liabilities included in other payables and accruals – 392,162 392,162
Financial liabilities at fair value through profit or loss 146,810 – 146,810
146,810 1,364,616 1,511,426
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Pharmaron Beijing Co., Ltd. Interim Report 2021 79

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

27. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

The carrying amounts of the Group’s financial instruments approximate to their fair values.

Management has assessed that the fair values of cash and cash equivalents, trade receivables, financial assets included in prepayments, other receivables and other assets, current interest-bearing bank borrowings, trade payables, financial liabilities included in other payables and accruals approximate to their carrying amounts largely due to the short-term maturities of these instruments.

The fair value of the non-current portion of interest-bearing bank borrowings and debt component of convertible bonds have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities.

The Group’s own non-performance risk for interest-bearing bank borrowings as at June 30, 2021 and December 31, 2020 was assessed to be insignificant.

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

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

For the fair value of the unlisted equity investments at fair value through profit or loss, management has estimated the potential effect of using reasonably possible alternatives as inputs to the valuation model.

The Group invests in wealth management products issued by banks in Mainland China. The Group has estimated the fair value of these unlisted investments by using a discounted cash flow valuation model based on the market interest rates of instruments with similar terms and risks.

The Group enters into derivative financial instruments including forward currency contracts are measured using valuation techniques similar to forward pricing, using present value calculations. The models incorporate various market unobservable inputs.

The fair value of the derivative component of the convertible bonds were measured with reference to valuation report issued by a third party professional valuer.

80 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements

June 30, 2021

27. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (CONTINUED)

Below is a summary of significant unobservable inputs to the valuation of financial instruments together with a relationship of unobservable inputs to fair value as at June 30, 2021 and December 31, 2020:

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Valuation Significant unobservable Relationship of unobservable
technique inputs (level 3) Range inputs to fair value
Equity investments at fair value Valuation multiples Average EV/R&D 3.0-8.7 The higher the multiples,
through profit or loss multiple of peers the higher the fair value
–
Derivative financial instruments–foreign Option pricing Expected volatility The higher the expected volatility,
currency forward contracts model the higher the fair value
Contingent consideration Discounted Probability-adjusted – The higher probability-adjusted
cashflow method revenue/Discount rate revenue, the higher the fair value.
The lower discount rate,
the higher the fair value
Convertible bonds – embedded Binomial model Expected volatility/Risk-free – The higher the expected volatility,
derivative component rate the higher the fair value.
The lower risk-free rate,
the higher the fair value
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Fair value hierarchy

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

Pharmaron Beijing Co., Ltd. Interim Report 2021 81

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

27. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (CONTINUED)

Fair value hierarchy (continued)

Assets measured at fair value

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Significant Significant Significant
Observable observable unobservable
inputs inputs inputs
(level 1) (level 2) (level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
As at June 30, 2021
Equity investments at fair value through
profit or loss 97,969 – 100,246 198,215
Financial assets at fair value through
profit or loss – 720,403 – 720,403
Derivative financial instruments –
foreign currency forward contracts – 36,744 – 36,744
97,969 757,147 100,246 955,362
As at December 31, 2020
Equity investments at fair value through
profit or loss 96,609 – 24,621 121,230
Financial assets at fair value
through profit or loss – 825,312 – 825,312
Derivative financial instruments –
foreign currency forward contracts – 84,698 – 84,698
96,609 910,010 24,621 1,031,240
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Details of the reconciliation of equity investments at fair value through profit or loss measured at Level 3 fair value measurement are as follows:

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As at As at
June 30, December 31,
Equity investments at fair value through profit or loss – unlisted 2021 2020
RMB’000 RMB’000
At January 1 24,621 59,054
Purchase 29,000 17,323
Transferred from an investment in associates 31,817 –
Transferred out – (50,159)
Fair value gain 14,955 –
Exchange realignment (147) (1,597)
100,246 24,621
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82 Pharmaron Beijing Co., Ltd. Interim Report 2021

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

27. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (CONTINUED)

Fair value hierarchy (continued)

Liabilities measured at fair value

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

Significant Significant Significant
Observable observable unobservable
inputs inputs inputs
(level 1) (level 2) (level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
As at June 30, 2021
Contingent consideration of
an acquirer in a business
combination – – 145,352 145,352
Convertible bonds – embedded
derivative component – – 254,808 254,808
– – 400,160 400,160
Significant Significant Significant
Observable observable unobservable
inputs inputs inputs
(level 1) (level 2) (level 3) Total
RMB’000 RMB’000 RMB’000 RMB’000
As at December 31, 2020
Contingent consideration of
an acquirer in a business
combination – – 146,810 146,810
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During the six months ended June 30, 2021, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of level 3 for financial liabilities.

Pharmaron Beijing Co., Ltd. Interim Report 2021 83

Notes to the Interim Condensed Consolidated Financial Statements June 30, 2021

28. EVENTS AFTER THE REPORTING PERIOD

On July 6, 2021, the Company made a capital injection for the subscribed registered capital of Enyuan Pharmaceutical Technology (Beijing) Co., Ltd. (“Enyuan”, an international contract research organization), with a cash consideration of RMB55,000,000 in exchange for 55% of its equity interest. After the completion of this transaction, the Group was able to control Enyuan and Enyuan became a subsidiary of the Group.

On July 27, 2021, the Company has granted a total of 774,200 restricted A shares of the Company to eligible employees for them to subscribe at the price of RMB70.17 per A share (the “2021 A Share Incentive Scheme”). The granted restricted A shares under the 2021 A Share Incentive Scheme shall be vested over a four-year period, with 25%, 25%, 25% and 25% of total shares vesting on each anniversary date after the vesting commencement date upon meeting certain sales performance conditions.

On July 27, 2021, the Company entered into a limited partnership agreement with Lasa Junqi (as the general partner) and 37 other limited partners in relation to the investment in the Legend Huikang Fund. The amount of capital contribution payable by the Company as a limited partner is RMB68,000,000. Lasa Junqi, the general partner of the Legend Huikang Fund, is the general partner of Beijing Junlian Tongdao Investment Management Partnership (Limited Partnership) (北京君聯同道投資管理合夥企業(有限合夥)), which is the general partner of Tianjin Junlian Wenda Equity Investment Partnership (Limited Partnership) (天津君聯聞達股權投資合 夥企業(有限合夥)), a substantial shareholder of the Company. Four other limited partners are also connected persons of the Company. For further details, please refer to the announcement of the Company dated July 27, 2021.

On August 12, 2021, Kangjun Investment (as the general partner) and eleven limited partners including the Company entered into the limited partnership agreement to invest in the Kangjun Zhongyuan Fund. The amount of capital contribution payable by the Company is RMB260,000,000. Kangjun Investment, the general partner of the Kangjun Zhongyuan Fund, is an associate of Legend Capital, a substantial shareholder of the Company. For further details, please refer to the announcements of the Company dated August 12, 2021 and August 17, 2021.

84 Pharmaron Beijing Co., Ltd. Interim Report 2021

Definitions

“2019 A Share Incentive Scheme”

“2021 A Share Incentive Scheme” “A Share(s)”

“Absorption Systems”

“AMS”

“API”

“Articles”

“Audit Committee”

“Board”

“CGT”

“CMC”

“CMO”

“CNS”

“Company” or “Pharmaron”

“Convertible Bonds”

“Corporate Governance Code”

the 2019 Restricted A Share and Share Option Incentive Scheme of the Company

the 2021 Restricted A Share Incentive Scheme of the Company

domestic shares of our Company, with a nominal value of RMB1.00 each, which are listed for trading on the Shenzhen Stock Exchange and traded in RMB

Absorption Systems LLC, a Delaware limited liability company formerly known as Absorption Systems LP

accelerator mass spectrometry

Active Pharmaceutical Ingredient

the articles of association of the Company, as amended, modified or supplemented from time to time

the audit committee of the Board

the board of Directors of the Company

Cell and Gene Therapy chemistry, manufacturing and controls Contract Manufacturing Organization central nervous system

Pharmaron Beijing Co., Ltd. (康龍化成（北京）新藥技術股份有限公 司), a joint stock limited company incorporated under the laws of the PRC on July 1, 2004, the A Shares of which are listed on the Shenzhen Stock Exchange (stock code: 300759) and the H Shares of which are listed on the Main Board of the Hong Kong Stock Exchange (stock code: 3759)

the (i) US$300.0 million zero coupon convertible bonds due 2026 (debt stock code: 40725) and the (ii) RMB1,916.0 million zero coupon US$-settled convertible bonds due 2026 (debt stock code: 40733) issued by the Company on June 18, 2021

the Corporate Governance Code contained in Appendix 14 to the Listing Rules

Pharmaron Beijing Co., Ltd. Interim Report 2021 85

Definitions

“CR Medicon” Nanjing Sirui Biotechnology Co., Ltd. (南京思睿生物科技有限公司), a company incorporated in PRC on February 7, 2018 and is held as to 55.56% by our Company “CRO” Contract Research Organization “DMPK/ADME” drug metabolism and pharmacokinetics/Absorption, Distribution, Metabolism and Excretion “Directors” directors of the Company “Employee Share Award Plan” one of the two plans which collectively make up the First H Share Award and Trust Scheme “EU” European Union

“FDA”

the Food and Drug Administration of the U.S.

“FIH”

first-in-human

“First H Share Award and Trust Scheme” “GLP”

the First H Share Award and Trust Scheme of the Company

Good Laboratory Practice

“GMP” Good Manufacturing Practice “Group”, “we”, “our” or “us” the Company and its subsidiaries “H Share(s)” overseas-listed foreign shares in the share capital of our Company, with a nominal value of RMB1.00 each, which are listed for trading on the Hong Kong Stock Exchange and traded in HK dollars “IND applications” Investigational new drug applications “Linkstart” Beijing LinkStart Biotechnology Co., Ltd. (北京聯斯達醫藥科技發展 有限公司), a company incorporated in PRC on July 19, 2012, one of our subsidiaries “Listing Rules” the Rules Governing the Listing of Securities of the Stock Exchange “Model Code” the Model Code for Securities Transactions by Directors of the Listing Issuers “NMPA” National Medical Product Administration (國家藥品監督管理局) (formerly known as China Food and Drug Administration), the authority responsible for approving drug and biologic products in China “OECD” the Organization for Economic Cooperation and Development

86 Pharmaron Beijing Co., Ltd. Interim Report 2021

Definitions

• “Pharmaron Biologics UK”

• “Pharmaron CPC”

• “Pharmaron Clinical Services”

• “Pharmaron Ningbo Tech”

• “Pharmaron Shaoxing”

• “Pharmaron Tianjin”

• “Pharmaron UK”

• “PRC”

• “R&D”

• “Reporting Period”

• “Restricted A Shares”

“RMB”

• “Series 1 Bonds”

Pharmaron Biologics (UK), Ltd., formerly known as Allergan Biologics Limited, a private company limited by shares incorporated under the laws of England and Wales

• Pharmaron CPC, Inc., formerly known as SNBL Clinical Pharmacology Center, Inc., a company incorporated in the U.S. on October 7, 2004, which is held as to 80% by Pharmaron HK International, our wholly-owned subsidiary, and 20% by Shin Nippon Biomedical Laboratories, Ltd.

• Pharmaron (Chengdu) Clinical Services Co., Ltd. (康龍化成(成都)臨床 研究服務有限公司), a company incorporated in the PRC on May 21, 2021 our wholly-owned subsidiary

• Pharmaron (Ningbo) Technology Development Co., Ltd. (康龍化成 (寧波)科技發展有限公司), formerly known as Ningbo KTB Technology Development Co., Ltd. (寧波康泰博科技發展有限公司), a company incorporated in the PRC on January 12, 2015, our wholly-owned subsidiary

• Pharmaron Shaoxing Co., Ltd. (康龍化成(紹興)藥業有限公司), a company incorporated in the PRC on January 3, 2017, our whollyowned subsidiary

• Pharmaron (Tianjin) Process Development and Manufacturing Co., Ltd. (康龍化成(天津)藥物製備技術有限公司), a company incorporated in the PRC on July 16, 2008, our wholly-owned subsidiary

• Pharmaron UK Limited, formerly known as Quotient Bioresearch Group Limited, a company incorporated in the U.K. on October 30, 2013, which is held as to 100% by Pharmaron HK International, our wholly-owned subsidiary

the People’s Republic of China

• research and development

• the six months ended June 30, 2021

• A Share(s) granted to the participants by the Company on such conditions as stipulated under the A Share Incentive Scheme, which are subject to the attribution conditions stipulated under the A Share Incentive Scheme and can only be attributed and transferred after satisfaction of the attribution conditions

Renminbi, the lawful currency of the PRC

• the US$300.0 million zero coupon convertible bonds due 2026 (debt stock code: 40725) issued by the Company on June 18, 2021

Pharmaron Beijing Co., Ltd. Interim Report 2021 87

Definitions

“Series 1 Bonds Conversion Price”	the price per Series 1 Bonds Conversion Share (subject to
	adjustments) at which the Series 1 Bonds may be converted into the
	H Shares
“Series 1 Bonds Conversion Share(s)”	the H Share(s) to be issued upon conversion of the Series 1 Bonds
	pursuant to the applicable trust deed and the applicable terms and
	conditions
“Series 2 Bonds”	the RMB1,916.0 million zero coupon US$-settled convertible bonds
	due 2026 (debt stock code: 40733) issued by the Company on June
	18, 2021
“Series 2 Bonds Conversion Price”	the price per Series 2 Bonds Conversion Share (subject to
	adjustments) at which the Series 2 Bonds may be converted into the
	H Shares
“Series 2 Bonds Conversion Share(s)”	the H Share(s) to be issued upon conversion of the Series 2 Bonds
	pursuant to the applicable trust deed and the applicable terms and
	conditions
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the laws of
	Hong Kong), as amended, supplemented or otherwise modified
	from time to time
“Share Bonus Plan”	one of the two plans which collectively make up the First H Share
	Award and Trust Scheme
“SMO”	Site Management Organization
“SSU”	Study Start up
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“U.K.”	the United Kingdom
“U.S.”	the United States
“%”	per cent

88 Pharmaron Beijing Co., Ltd. Interim Report 2021

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Pharmaron Beijing Co., Ltd.[*]

6 Tai-He Road, Beijing Economic Technological Development Area, Beijing, China http://www.pharmaron.com pharmaron@pharmaron-bj.com

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