RemeGen Co., Ltd. — Annual Report 2020

Apr 28, 2021

2020 ANNUAL REPORT

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榮昌生物製藥(煙台)股份有限公司 RemeGen Co., Ltd.*

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

Stock Code: 9995

*For identification purpose only

CONTENT

• 2 Corporate information

• 4 Chairman’s statement

• 6 Management discussion and analysis

• 18 Biographies of directors, supervisors and senior management

• 26 Corporate governance report

• 42 Directors’ report

• 64 Report of the Supervisory Committee

• 65 Independent auditor’s report

• 70 Consolidated statement of profit or loss

• 71 Consolidated statement of comprehensive income

• 72 Consolidated statement of financial position

• 74 Consolidated statement of changes in equity

• 76 Consolidated statement of cash flows

• 78 Notes to financial statements

• 147 Financial summary

• 148 Definitions and glossary

2

RemeGen Co., Ltd.

CORPORATE INFORMATION

EXECUTIVE DIRECTORS

Mr. Wang Weidong (王威東) (Chairman) Dr. Fang Jianmin (房健民) Dr. He Ruyi (何如意) Mr. Lin Jian (林健)

NON-EXECUTIVE DIRECTORS

Dr. Wang Liqiang (王荔強) Dr. Su Xiaodi (蘇曉迪)

INDEPENDENT NON-EXECUTIVE DIRECTORS

Ms. Yu Shanshan (于珊珊) Mr. Hao Xianjing (郝先經) Dr. Lorne Alan Babiuk

STRATEGY COMMITTEE

Dr. Fang Jianmin (房健民) (Chairman) Mr. Wang Weidong (王威東) Dr. He Ruyi (何如意) Dr. Wang Liqiang (王荔強) Dr. Su Xiaodi (蘇曉迪) Dr. Lorne Alan Babiuk

JOINT COMPANY SECRETARIES

Mr. Li Jia (李嘉) Ms. Tam Pak Yu, Vivien (譚栢如)

AUTHORIZED REPRESENTATIVES

Dr. Fang Jianmin (房健民) Ms. Tam Pak Yu, Vivien (譚栢如)

SUPERVISORS

Mr. Ren Guangke (任廣科) (Chairperson) Mr. Li Yupeng (李宇鵬) Mr. Li Zhuanglin (李壯林)

AUDIT COMMITTEE

Mr. Hao Xianjing (郝先經) (Chairman) Ms. Yu Shanshan (于珊珊) Dr. Wang Liqiang (王荔強)

REMUNERATION AND APPRAISAL

COMMITTEE

Ms. Yu Shanshan (于珊珊) (Chairwoman) Mr. Hao Xianjing (郝先經) Mr. Lin Jian (林健)

AUDITOR

Ernst & Young Registered Public Interest Entity Auditor 22/F CITIC Tower, 1 Tim Mei Avenue Central, 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:

King & Wood Mallesons

NOMINATION COMMITTEE

Mr. Wang Weidong (王威東) (Chairman) Mr. Hao Xianjing (郝先經) Ms. Yu Shanshan (于珊珊)

18th Floor, East Tower World Financial Center 1 Dongsanhuan Zhonglu Chaoyang District Beijing 100020

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Annual Report 2020

CORPORATE INFORMATION

COMPLIANCE ADVISER

Rainbow Capital (HK) Limited Room 5B, 12/F., Tung Ning Building No. 2 Hillier Street Sheung Wan Hong Kong

HEADQUARTERS AND PRINCIPAL PLACE OF BUSINESS IN THE PRC

58 Middle Beijing Road Yantai Development Zone Yantai Area of Shandong Pilot Free Trade Zone PRC

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

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

Yantai Bank Development Zone branch

161 Changjiang Road Yantai Economic and Technological Development Area Yantai, Shandong Province PRC

Qingdao Bank Yantai Development Zone Technological branch

108 Hengda • Haixin Garden Yantai Economic and Technological Development Area Yantai, Shandong Province PRC

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

PRINCIPAL BANKERS

9995

China Construction Bank Yantai Development branch

77 Changjiang Road Yantai Economic and Technological Development Area Yantai, Shandong Province PRC

COMPANY WEBSITE

www.remegen.com

4 RemeGen Co., Ltd.

CHAIRMAN’S STATEMENT

Dear Shareholders,

Thank you for your continuous support to RemeGen. On behalf of the Board, I am pleased to present this annual report of the Group for the year ended December 31, 2020.

RemeGen is a commercial-ready biopharmaceutical company committed to the discovery, development and commercialization of innovative and differentiated biologics for the treatment of autoimmune, oncology and ophthalmic diseases with unmet medical needs in China and globally. Since our inception in 2008, we have built fully-integrated, end-to-end therapeutics development capabilities encompassing all key biologic drug development functionalities. 2020 was a very important year for RemeGen. During the year we have achieved numerous important milestones. We were successfully listed on the Stock Exchange on November 9, 2020 with the stock code of 9995. During the process of listing we have attracted a great number of quality institutional investors to become our Shareholders. On the business side, we have also made significant progress in advancing the development of our product pipeline during the year. We are one step closer to achieving our vision of becoming a leading player in the global biopharmaceutical industry. Looking ahead to 2021, we expect that we will continue to maintain a steady growth momentum as we keep moving forward for full transition into a commercialized biopharmaceutical company.

In March 2021, the NMPA officially approved the conditional marketing of telitacicept for the treatment of SLE in China. We started marketing and selling this product in China since April 2021. We built a sales force consisting of over 100 people in the autoimmune areas and this team is expected to cover over 29 provinces and 350 hospitals in China. We believe that the unique clinical advantage of this product coupled with our strong sales force will help us deepen market penetration and ramp up sales in China over the next few years. As our sales grow, we will continue to expand the sales force and cover more cities and hospitals.

Furthermore, we continued to make progress in the development programs for other indications of telitacicept and expand their clinical applications. We have completed the patient enrollment for two Phase II studies to treat patients with IgAN and Sjogren’s Syndrome, while we continued to recruit patients in other clinical trials to treat four autoimmune indications.

In 2020, we successfully submitted to the NMPA a NDA for disitamab vedotin to treat patients with HER2 over-expressing GC. This is also the second NDA filed by the Company in China. We expect to receive the marketing approval for this indication in China during 2021. Furthermore, we have also completed the second registrational trial for such product to treat patients with HER2 over-expressing UC in China in 2020, and we expect to submit a NDA to the NMPA in 2021. For breast cancer, we have initiated a Phase III study to treat patients with HER2 low-expressing BC in China and are currently recruiting patients for this trial.

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Annual Report 2020

CHAIRMAN’S STATEMENT

2020 also marks an important milestone in our internationalization plan. During the year, we began to prepare ourselves for expansion into the US and the European markets. We have held a number of meetings with the FDA in the US to discuss the registrational pathways for our products. During the year, disitamab vedotin was granted designation as a breakthrough therapy as well as a Fast Track designation by the FDA. We plan to initiate a Phase II trial for disitamab vedotin to treat patients with HER2 over-expressing UC in the US in 2021. We have also confirmed the design of the Phase III clinical trial for telitacicept to treat patients with SLE, and we plan to start recruiting patients in 2021. Besides, we have also successfully filed an IND with the FDA for telitacicept to treat patients with IgAN, and we plan to initiate a Phase II study in the US in 2021.

In addition, we continued to advance the R&D for the rest of our pipeline assets. Leveraging our three unique R&D platforms and our fully integrated team, we have rich reserves for programs in preclinical and clinical stages and we expect to keep developing more products covering a variety of therapeutic targets and modalities. We also increased our global presence during the past year. Currently we have offices located in Yantai, Shanghai, Beijing, Hong Kong, South San Francisco CA and Rockville MA.

Despite the challenges posed by the global COVID-19 epidemic, the impact was limited due to our resilient business operation in 2020. I hope that in 2021 RemeGen will make significant progress both in China and globally. Under the support of our Shareholders, we are well positioned to maintain our growth momentum and deliver great returns to our Shareholders, and meanwhile develop first-in-class and best-in-class products to help patients with unmet medical needs.

RemeGen Co., Ltd. Mr. Wang Weidong

Chairman and Executive Director

March 26, 2021

6

RemeGen Co., Ltd.

MANAGEMENT DISCUSSION AND ANALYSIS

OVERVIEW

We are a commercial-ready biopharmaceutical company committed to the discovery, development and commercialization of innovative and differentiated biologics for the treatment of autoimmune, oncology and ophthalmic diseases with unmet medical needs in China and globally. Our vision is to become a leading player in the global biopharmaceutical industry. Since our inception in 2008, we have been dedicated to the research and development of biologics with novel targets, innovative design and breakthrough potential to address global unmet clinical needs. Through more than ten years of efforts, we have built fully-integrated, end-to-end therapeutics development capabilities encompassing all the key biologic drug development functionalities, including discovery, pre-clinical pharmacology, process and quality development, clinical development, and manufacturing in compliance with global good manufacturing practice (GMP). Leveraging our strong research and development platforms, we have discovered and developed a robust pipeline of more than ten drug candidates. Among our drug candidates, six are in clinical development stage targeting 17 indications. Two of our clinical-stage candidates, telitacicept (RC18) and disitamab vedotin (RC48), are in registrational trials targeting six indications in China and the United States. Our new drug application (NDA) for telitacicept in China for systemic lupus erythematosus (SLE) was accepted by the National Medical Products Administration (NMPA) in November 2019 and we obtained marketing approval in March 2021. Our NDA for disitamab vedotin in China for gastric cancer (GC) was accepted by the NMPA and was granted priority review in August 2020.

PRODUCT PIPELINE

The following chart illustrates our pipeline and summarizes the development status of our clinical-stage drug candidates and selected IND-enabling stage candidates as of December 31, 2020:

	Target Modality Drug Classification Drug Candidates	Indication	Status (Clinical Sites Indicated on Status Bar)	Status (Clinical Sites Indicated on Status Bar)	Status (Clinical Sites Indicated on Status Bar)
			Pre-clinic. Ph I Ph II Pivotal/Ph III Launched IND NDA
Autoim- mune Diseases	Telitacicept (RC18) BLyS/ APRIL Fusion protein Category I (China) Fast Track Designation (U.S. for SLE)	Systemic Lupus Erythematosus	China
		Systemic Lupus Erythematosus	the U.S.
		Neuromyelitis Optica Spectrum Disorder	China
		Rheumatoid Arthritis	China
		IgA Nephritis	China
		IgA Nephritis	the U.S.
		Sjogren’s Syndrome	China
		Multiple Sclerosis	China
		Myasthenia Gravis	China
Onco- logy	Disitamab Vedotin (RC48) HER2 ADC Category I (China) Orphan Drug Designation (U.S. for GC) Fast Track Designation and Breakthrough Therapy Designation (U.S. for UC)	HER2-Expressing4 Gastric Cancer	China		NDA filed in Aug 2020
		HER2-Expressing Urothelial Cancer	China
		HER2-Expressing Urothelial Cancer	the U.S.
		HER2-Expressing Gastric Cancer	the U.S.
		HER2 Low-Expressing4 Breast Cancer	China
		HER2 Low- to Non-Expressing4 Urothelial Cancer	China
		HER2-Expressing Biliary Tract Carcinoma	China
		HER2-Expressing Non-Small-Cell Lung Cancer	China
	RC88 Category I (China) ADC Mesothelin	Mesothelioma, Bile Duct Carcinoma, Pancreatic Cancer, Ovarian Carcinoma, Lung Adenocarcinoma and other Solid Tumor	s China
	RC98 Category I (China) mAb PD-L1	Lung Cancer, Urothelial Cancer and other Solid Tumors	China
	RC108 Category I (China) ADC c-MET	Multiple Solid Tumors	China
	RC118 Category I (China) ADC Confidential	Multiple Solid Tumors
	RC138 Category I (China) HiBody Confidential	Multiple Solid Tumors
	RC148 Category I (China) HiBody Confidential	Multiple Solid Tumors
	RC158 Category I (China) HiBody Confidential	Multiple Solid Tumors
Ophthal- mology	RC28 Fusion protein Category I (China) VEGF/ FGF	Wet Age-Related Macular Degeneration	China
		Diabetic macular edema	China
		Diabetic retinopathy	China

7

Annual Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

BUSINESS REVIEW

The Company was successfully listed on the Stock Exchange on November 9, 2020. Since that date, the Group has made significant progress in its pipeline drugs and business operations to meet investor expectations.

Telitacicept (RC18)

• Telitacicept is our proprietary novel fusion protein for treating autoimmune diseases. It is constructed with the extracellular domain of the human transmembrane activator and calcium modulator and cyclophilin ligand interactor (TACI) receptor and the fragment crystallizable (Fc) domain of human immunoglobulin G (IgG). Telitacicept targets two cell-signaling molecules critical for B-lymphocyte development: B-cell lymphocyte stimulator (BLyS) and a proliferation inducing ligand (APRIL), which allows it to effectively reduce B-cell mediated autoimmune responses that are implicated in several autoimmune diseases.

• We are currently evaluating telitacicept in late-stage clinical trials in order to explore its potential to address seven autoimmune diseases, in an attempt to address the significant unmet or underserved medical needs in this therapeutic area.

• SLE

  • China: Based on the completed Phase IIb registrational trial in China, we have initiated a Phase III confirmatory clinical trial in China in July 2019. The NMPA accepted our NDA for the conditional marketing of telitacicept for the treatment of SLE in November 2019 and granted us priority review in December 2019. We were granted conditional marketing approval by the NMPA in March 2021. We have enrolled 281 patients in the Phase III confirmatory clinical trial as of December 31, 2020.

  • United States: The U.S. Food and Drug Administration (FDA) has cleared our Phase II investigational new drug (IND) application for telitacicept in August 2019. We held an end-ofPhase II meeting with the FDA in January 2020 when the FDA reviewed the drug candidate’s positive data from our trials in China and discussed the design for the Phase III clinical trials. Based on this meeting, the FDA allowed us to conduct the Phase III studies of telitacicept for the treatment of SLE in the United States. In April 2020, the FDA granted fast track designation to telitacicept, which could expedite the review and potential approval process with the FDA.

Immunoglobulin A Nephropathy (IgAN)

• China: We are conducting a randomized, double-blind and placebo-controlled Phase II clinical trial to evaluate the efficacy and safety of telitacicept in IgAN patients. Patient enrollment was completed as of December 31, 2020.

• United States: Telitacicept was approved by the FDA to conduct a Phase II clinical trial for the treatment of IgAN in the United States in December 2020. This provides the Company with a clear path to directly initiate a Phase II clinical trial of telitacicept in IgAN without a Phase I study in the United States.

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RemeGen Co., Ltd.

MANAGEMENT DISCUSSION AND ANALYSIS

• Sjögren’s syndrome (SS): We are conducting a randomized, double-blind and placebo-controlled Phase II clinical trial in China. Patient enrollment was completed as of December 31, 2020.

• Neuromyelitis optica spectrum disorder (NMOSD): We are conducting a randomized, double-blind and placebo-controlled Phase III clinical trial to evaluate the efficacy and safety of telitacicept for the treatment of NMOSD in China. We initiated the Phase III clinical trials in September 2017 and enrolled the first patient in January 2018. We have enrolled 115 patients in this trial as of December 31, 2020.

• Rheumatoid Arthritis (RA) – We are conducting a multi-center, double-blind and placebo-controlled Phase III trial in China. We have enrolled 269 patients in this trial as of December 31, 2020.

• Other indications: In addition to the indications described above, we are also evaluating telitacicept for two other hard-to-treat autoimmune diseases, namely multiple sclerosis (MS) and myasthenia gravis (MG).

• Leveraging our experience in developing telitacicept for SLE globally, we will continue to explore the global path of approval and commercialization for the treatment of other autoimmune diseases. We intend to prioritize indications with high unmet medical needs and sizeable addressable patient population in the global market, such as IgAN and Sjögren’s syndrome (SS), or indications for which telitacicept has the potential to be the first biologic therapy.

• Warning under Rule 18A.08(3) of the Listing Rules : There is no assurance that the telitacicept (RC18) will ultimately be successfully developed and marketed by the Company. Shareholders of the Company and potential investors are advised to exercise caution when dealing in the shares of the Company.

Disitamab vedotin (RC48)

• Disitamab vedotin is our leading antibody-drug conjugate (ADC) product candidate and is the first ADC in China to have received IND approval for clinical trials. Disitamab vedotin is a novel ADC independently developed by us to treat human epidermal growth factor receptor 2 (HER2) expressing (including lowexpressing) solid tumors. Disitamab vedotin is currently being studied in multiple late-stage clinical trials in China across a variety of solid tumor types. In two Phase II clinical trials in China, disitamab vedotin has demonstrated promising efficacy in patients with HER2-expressing advanced or metastatic gastric cancer (GC) and urothelial cancer (UC), and has also proved its potential as treatment for HER2-expressing (including lowexpressing) breast cancer (BC).

• We have been developing disitamab vedotin for a variety of HER2-expressing cancer types. Currently, we are strategically focused on clinical investigation of disitamab vedotin for GC, UC and BC, which suggest particularly significant unmet medical needs. We are also exploring the efficacy of disitamab vedotin in other prevalent cancer types with HER2 expression, such as non-small cell lung cancer (NSCLC) and biliary tract cancer (BTC).

Annual Report 2020 9

MANAGEMENT DISCUSSION AND ANALYSIS

o

GC

• China: We have substantially completed our Phase II registrational trial of disitamab vedotin as monotherapy for the treatment of HER2 over-expressing (IHC 2+ or IHC 3+) GC in China in November 2019. Based on the Phase II registrational trial results for the treatment of GC, we submitted our NDA to the NMPA for conditional approval of disitamab vedotin for GC in August 2020, which was accepted by the NMPA and was granted priority review. We are also exploring the clinical potential of disitamab vedotin in combination of PD-1 antibody for the treatment of HER2 over-expressing GC.

• United States: We received IND approval from FDA for the treatment of patients with advanced or metastatic gastric cancer and gastro-esophageal junction adenocarcinoma in October 2020. The FDA also granted fast track designation to disitamab vedotin for the treatment of gastric cancer in November 2020.

UC

• China: We have completed a Phase II trial of disitamab vedotin in the patients with HER2 overexpressing (IHC 2+ or IHC 3+) UC in China. Based on the positive clinical results of this Phase II trial and after communicating with the NMPA, we initiated a multi-center, single-arm and openlabel Phase II registrational trial to evaluate disitamab vedotin as monotherapy for the treatment of HER2 over-expressing UC in China. Patient enrollment for this trial was completed as of September 2020. We were granted the breakthrough therapy designation for the treatment of UC by the NMPA in December 2020. We are also exploring the clinical potential of disitamab vedotin in combination of PD-1 antibody for the treatment of HER2-expressing UC.

• United States: We have obtained FDA’s approval for the IND application for a Phase II trial in UC in April 2020. In July and September 2020, the FDA granted disitamab vedotin fast track designation and breakthrough therapy designation for UC, respectively.

• BC: As we have observed preliminary efficacy of disitamab vedotin in patients with low-level HER2 expression, we have communicated with the NMPA and obtained their consent for us to initiate a Phase III trial of disitamab vedotin in patients with HER2 low-expressing (IHC 2+ and FISH–) BC. We have enrolled 17 patients as of December 31, 2020.

• NSCLC: We are conducting an open-label Phase Ib trial to evaluate disitamab vedotin as monotherapy for the treatment of HER2 over-expressing (IHC 2+ or IHC 3+) or HER2 mutant NSCLC in China. We have enrolled 31 patients as of December 31, 2020.

• BTC: We are conducting a multi-center, single-arm and open-label Phase II trial to evaluate disitamab vedotin as monotherapy in the patients with HER2 over-expressing (IHC 2+ or IHC 3+) BTC post to the failure of first-line chemotherapy in China. We have enrolled one patient in this trial as of December 31, 2020.

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RemeGen Co., Ltd.

MANAGEMENT DISCUSSION AND ANALYSIS

• Warning under Rule 18A.08(3) of the Listing Rules: There is no assurance that the disitamab vedotin (RC48) will ultimately be successfully developed and marketed by the Company. Shareholders of the Company and potential investors are advised to exercise caution when dealing in the shares of the Company.

RC28

– RC28 is an innovative fusion protein targeting both vascular endothelial growth factor (VEGF) and fibroblast growth factor (FGF). We are evaluating, and plan to evaluate, RC28 in clinical studies for several ophthalmic diseases, including wet age-related macular degeneration (wet AMD), diabetic macular edema (DME) and diabetic retinopathy (DR). In the Phase I clinical trial, no safety concerns were detected for up to 2.0 mg injection of RC28 in wet AMD patients.

– Currently, we are conducting an open-label, single-arm Phase Ib dose-expansion trial to evaluate the efficacy and safety of RC28 in the patients with wet AMD. We have enrolled 37 patients in this trial as of December 31, 2020.

• Warning under Rule 18A.08(3) of the Listing Rules: There is no assurance that the RC28 will ultimately be successfully developed and marketed by the Company. Shareholders of the Company and potential investors are advised to exercise caution when dealing in the shares of the Company.

Other Clinical-stage Drug Candidates

• RC88 is a novel mesothelin-targeting ADC we developed for the treatment of solid tumors. It is currently in a Phase I clinical trial in patients with multiple advanced solid tumors, with a particular focus on pancreatic cancer, mesothelioma, bile duct carcinoma, ovarian carcinoma, gastric cancer, triple-negative breast cancer and lung adenocarcinoma. We have enrolled 7 patients in this trial as of December 31, 2020.

– RC98 is an innovative PD-L1 monoclonal antibody we developed for the treatment of solid tumors. We obtained the IND approval for RC98 from the NMPA in July 2019 and we have initiated a Phase I clinical trial in patients with multiple advanced solid tumors, including but not limited to lung cancer and urothelial cancer. We have enrolled 2 patients as of December 31, 2020.

– RC108 is our third ADC product developed in-house that has entered into clinical development stage. It is a c-Met-targeted ADC. c-Met is a receptor tyrosine kinase that, after binding with its ligand, hepatocyte growth factor, activates a wide range of different cellular signaling pathways, including those involved in proliferation, motility, migration and invasion. It is a well-characterized oncogene that is associated with poor prognosis in many solid tumor types. We have obtained approval from NMPA to advance to Phase I clinical trial for c-Met positive advanced solid tumors in China in November 2020.

– Warning under Rule 18A.08(3) of the Listing Rules: There is no assurance that the RC88, RC98 or RC108 will ultimately be successfully developed and marketed by the Company. Shareholders of the Company and potential investors are advised to exercise caution when dealing in the shares of the Company.

Annual Report 2020 11

MANAGEMENT DISCUSSION AND ANALYSIS

Commercialization

We have established our sales and marketing department dedicated to the commercialization of our pipeline products. According to the indications of our products, we have established two independent sales teams in the areas of autoimmune diseases and oncology.

As of December 31, 2020, the initial sales team for autoimmune diseases has been established and consists of 90 members with rich experience in the commercialization of autoimmune therapeutics. While telitacicept gradually penetrates the market, we expect to continue to expand this team after the commercialization of this product.

We began to establish sales team for the oncology diseases in 2020. We have recruited 7 members for this team as of December 31, 2020. We expect to expand this team to around 150 members before the approval for the commercialization of disitamab vedotin is obtained this year.

Leveraging the expertise and industry connections of our team, we will market the products primarily through a physician-targeted marketing strategy, focusing on direct and interactive communication with key opinion leaders and physicians in the respective therapeutic areas to promote the differentiating clinical aspects of our products. Such marketing efforts are expected to commence several months before the expected approval for the commercialization of a drug candidate. In preparation for the sales of telitacicept, for instance, we have identified a number of hospitals, clinics and physicians specialized in the treatment of SLE, and have started to visit the sites and physicians in person for pre-launch training and liaison.

KEY EVENTS AFTER THE REPORTING PERIOD

On March 11, 2021, we obtained a conditional marketing authorization from NMPA for telitacicept (brand name: 泰 愛®) in the treatment of SLE in China, and we started to sell this product in China in the same month.

The Impact of COVID-19

The management of the Company expected that clinical trials in and outside mainland China will not be significantly affected by the outbreak of COVID-19. The Directors believe that, based on the information available as of the date of this announcement, the outbreak of COVID-19 would not result in a material disruption to the Group’s business operations or a material impact on the financial position or financial performance of the Group. Due to the outbreak of COVID-19, we have taken various measures, including but not limited to reducing face-to-face meetings by means of telephone or video conferences; avoiding unnecessary travels and trips for interviews as well as providing face masks, hand sanitizers and other sanitation supplies.

FUTURE PLANS FOR MATERIAL INVESTMENTS OR CAPITAL ASSETS

Save as disclosed in the Prospectus, the Group did not have other approved plans for material investments or capital assets as at 31 December 2020.

12 RemeGen Co., Ltd.

MANAGEMENT DISCUSSION AND ANALYSIS

FUTURE DEVELOPMENT

The Company is committed to becoming China’s leading and world-class biopharmaceutical company to discover, develop, manufacture and commercialize first-in-class and best-in-class biopharmaceuticals to create clinical value, maximize shareholder benefits and provide patients with high-quality drugs to address unmet significant clinical needs worldwide in the major therapeutic areas of autoimmune diseases, oncology and ophthalmology.

Looking forward to 2021, we will endeavor to get the listing and commercialization of telitacicept and disitamab vedotin in China. At the same time, we will accelerate the application and clinical trials for the expansion of the indications of these two products. We expect to apply for the NDA for disitamab vedotin in the treatment of UC indications to the NMPA in China in the third quarter. In addition, we will advance the clinical trials of several other autoimmune disease indications of telitacicept as soon as possible. On the international front, we will step up our efforts for expansion in the international market, especially in the United States and Europe, and quickly advance and initiate clinical studies of our two Core Products in the international market. We expect to start a phase III clinical trial of telitacicept for the treatment of SLE indications and a phase II clinical trial for the treatment of IgAN in the United States in the second half of this year. At the same time, we also plan to launch a phase II clinical trial of disitamab vedotin for the second-line treatment of HER2 over-expressing UC indications in the United States.

We will continue to expand our sales team in China, formulate clear and aspiring business strategies, and prepare for commercialization. With our understanding of the Chinese market environment and the rich experience of our sales team personnel, we will formulate stable market access strategies to meet market demand. In addition, we expect to complete the capacity expansion this year, with the production capacity of the manufacturing facilities to increase from 12,000L disposable bag bioreactors to 36,000L.

FINANCIAL REVIEW

Revenue

For the years ended December 31, 2019 and 2020, the Group has not commercialized any products and therefore has not recorded any revenue.

Other Income and Gains

The Group’s other income and gains primarily consist of government grants, rental income, sales of materials, gain on disposal of equipment, and interest income.

Our other income and gains increased from RMB38.5 million in 2019 to RMB75.4 million in 2020, primarily due to an increase in government grants realised of RMB36.8 million compared with the corresponding period last year.

Selling and Distribution Expenses

The Group’s selling and distribution expenses mainly consist of employee benefits expenses and market development expenses.

Our selling and distribution expenses increased from RMB0.6 million in 2019 to RMB24.2 million in 2020, primarily as we established our sales and marketing department and initiated market development activities in preparation for commercialization of our products in July 2019.

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Annual Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Administrative Expenses

The Group’s administrative expenses mainly consist of employee benefits expenses, consulting service expenses, general office expenses, depreciation and amortization expenses, listing expenses and other administrative expenses.

Our administrative expenses increased from RMB68.4 million in 2019 to RMB217.6 million in 2020, primarily due to (i) an increase in employee benefits expenses of RMB66.8 million mainly due to an increase in the number of employees, and an increase in their salaries and share-based compensation; (ii) an increase in listing expenses of RMB60.6 million; (iii) an increase in consulting service expenses of RMB8.2 million mainly due to an increase in commercial consulting fees incurred in relation to the overseas clinical trial development as well as overseas sales and marketing plan for our drug candidates, an increase in foreign patent agency service expenses and an increase in recruitment expenses; (iv) an increase in depreciation and amortization expenses, general office expenses and other expenses of RMB11.9 million mainly due to an increase in general office expenses resulting from the increase in the number of our administrative employees, and the increases in hospitality expenses and publicity expenses; and (v) an increase in auditor’s remuneration of RMB1.7 million.

Research and Development Expenses

The Group’s research and development expenses consist of employee benefits expenses, expenses for procuring raw materials used in the research and development, clinical trial expenses for our drug candidates, testing expenses for pre-clinical programs, depreciation and amortization expenses, utilities used for research and development activities, and other research and development expenses. Our research and development expenses increased from RMB352.1 million in 2019 to RMB465.8 million in 2020. The following table sets forth the components of our research and development expenses for the years indicated.

		Year ended	December 31,
	2020		2019
	RMB’ 000	%	RMB’ 000	%
Employee benefits expenses	122,982	26.4	109,189	31.0
Raw material expenses	108,787	23.4	71,570	20.3
Clinical trial expenses	67,570	14.5	36,352	10.3
Testing expenses	40,300	8.7	38,258	10.9
Depreciation and amortization expenses	62,977	13.5	36,179	10.3
Utilities	20,232	4.3	16,393	4.7
Others	42,973	9.2	44,125	12.5
Total	465,821	100.0	352,066	100.0

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RemeGen Co., Ltd.

MANAGEMENT DISCUSSION AND ANALYSIS

• (i) Employee benefits expenses increased by RMB13.8 million, mainly due to an increase in the number of research and development employees and an increase in staff salary levels;

• (ii) Raw material expenses increased by RMB37.2 million, mainly due to the continuous development of drug candidates;

• (iii) Clinical trial expenses increased by RMB31.2 million, mainly due to the continuous clinical development of drug candidates;

• (iv) Testing expenses increased by RMB2 million, mainly due to the continuous development of drug candidates;

• (v) Depreciation and amortization expenses increased by RMB26.8 million, mainly due to an increase in depreciation of right-of-use assets as a result of new leases of buildings;

• (vi) Utilities increased by RMB3.8 million, mainly due to an increase in utilities for research and development purpose;

• (vii) Other expenses decreased by RMB1.2 million.

Net Impairment Losses on Financial Assets

The Group’s net impairment losses on financial assets mainly consist of the impairment losses in relation to other receivables. We reversed the net impairment losses on financial assets of RMB0.1 million in 2019, while we recorded an increase of RMB0.05 million in 2020.

Other Expenses

The Group’s other expenses primarily consist of (i) rental related expenses relating to the leases of our facilities to related parties; (ii) expenses incurred for sales of materials to our related parties; (iii) losses from changes in foreign currency exchange rates; and (iv) other expenses incurred for our provision of testing services to related parties and donation to a charity organization. Our other expenses increased from RMB4.0 million in 2019 to RMB36.3 million in 2020, mainly due to an increase in losses from changes in foreign currency exchange rates of RMB32.3 million.

Finance Costs

The Group’s finance costs mainly consist of interest on borrowings from a related party, interest on bank borrowings and interest on lease liabilities. Our financial costs decreased from RMB43.8 million in 2019 to RMB29.2 million in 2020, mainly due to a decrease in interest expenses of RMB17.7 million as a result of the repayment of borrowings to a related party this year and a reduction of RMB3.0 million by the interest on new lease liabilities this year.

Income Tax Expenses

For the years ended December 31, 2019 and 2020, the Group’s income tax expenses were nil.

Loss for the Year

Based on the factors described above, the Group’s loss increased from RMB430.3 million in 2019 to RMB697.8 million in 2020.

Annual Report 2020 15

MANAGEMENT DISCUSSION AND ANALYSIS

Liquidity and Financial Resources

We have incurred net losses and negative cash flows from operations since inception. Our primary use of cash is to fund research and development expenses. As of December 31, 2020, our net cash used in operating activities was negative RMB660.1 million. As of December 31, 2020, we had cash and cash equivalent of RMB2,768.5 million, an increase of RMB2,734.0 million from RMB34.5 million as of December 31, 2019, primarily due to the proceeds raised from our Listing.

On November 9, 2020, the Company issued 76,537,000 new H Shares at HK$52.10 per H Share through the initial public offering on the Stock Exchange, raising net proceeds of approximately HK$3.86 billion after deduction of listing expenses.

On December 7, 2020, as part of the Global Offering, the over-allotment option was exercised in full and the Company issued a total of 11,480,500 H Shares at HK$52.10 per H Share, raising net proceeds of approximately HK$580 million after deduction of listing expenses.

After deduction of listing expenses, the total net proceeds from the Global Offering (including the exercise of the over-allotment option) was approximately HK$4.44 billion.

Loans and Gearing Ratio

As of December 31, 2020, the Group’s interest-bearing bank and other borrowings amounted to RMB108.1 million in total with an annual interest rate of 4.12% and will expire within one year.

The gearing ratio is calculated using the Group’s liabilities divided by its assets. As of December 31, 2020, the Group’s gearing ratio was 12.7% (December 31, 2019: 133.7%).

Significant Investments, Material Acquisitions and Disposal

The Group did not have any significant investments or material acquisitions or disposals of subsidiaries, associates and joint ventures for the year ended December 31, 2020.

Capital Commitments

For the years ended December 31, 2019 and 2020, the Group had capital commitments contracted for but not yet provided of RMB653.8 million and RMB1,035.4 million, respectively, primarily in connection with (i) contracts entered into with contractors for the construction of our new manufacturing facilities; and (ii) contracts entered into with suppliers for the purchase of equipment.

Contingent Liabilities

As at December 31, 2019 and 2020, the Group did not have any contingent liabilities.

16 RemeGen Co., Ltd.

MANAGEMENT DISCUSSION AND ANALYSIS

Foreign Exchange Exposure

Our financial statements are expressed in RMB, but certain of our cash and cash equivalents, time deposits, other receivables, debt instruments at fair value through other comprehensive income, other investments classified as financial assets measured at fair value through profit or loss and trade and other payables are denominated in foreign currencies, and are exposed to foreign currency risk. We currently do not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

Employees and Remuneration

As of December 31, 2020, the Group had a total of 1,366 employees. The total remuneration cost for 2020 was RMB235.5 million, as compared to RMB138.5 million for 2019, primarily due to an increase in the number of employees and an increase in their salaries.

To maintain the quality, knowledge and skill levels of our workforce, the Group provides continuing education and training programs, including internal and external training, for our employees to improve their technical, professional or management skills. The Group also provides trainings programs to our employees from time to time to ensure their awareness and compliance with our policies and procedures in various aspects.

We provide various incentives and benefits to our employees. We offer competitive salaries, bonuses and sharebased compensation to our employees, especially key employees. We have made contributions to social security insurance funds (including pension plans, medical insurance, work-related injury insurance, unemployment insurance and maternity insurance) and housing funds for our employees in accordance with applicable PRC laws.

Annual Report 2020 17

MANAGEMENT DISCUSSION AND ANALYSIS

USE OF PROCEEDS FROM THE LISTING

The Company’s Shares were listed on the Stock Exchange on the Listing Date with a total of 88,017,500 offer shares (including the Shares issued as a result of the full exercise of the over-allotment option) issued and the net proceeds raised during the Global Offering (including the exercise of the over-allotment option) were approximately HK$4,444.2 million (equivalent to approximately RMB3,784.5 million). There was no change in the intended use of net proceeds as previously disclosed in the Prospectus, and the Company will gradually utilise the residual amount of the net proceeds in accordance with such intended purposes based on actual business needs.

As at December 31, 2020, approximately RMB1,024.06 million of the net proceeds of the Global Offering had been utilised as follows:

			Utilised	Unutilised
	Allocation of net		as at	as at
	proceeds from the		December 31,	December 31,
	Global Offering		2020	2020
	(RMB million)	Proportion	(RMB million)	(RMB million)
Clinical trials of telitacicept (RC18)	567.68	15%	50.57	517.11
Clinical trials of disitamab vedotin (RC48)	567.68	15%	55.80	511.88
Clinical trials of RC28	189.22	5%	5.23	183.99
Development of RC88 and RC98, as well as
early-stage drug discovery and development	567.68	15%	62.77	504.91
Construction of new manufacturing facility to
expand commercial manufacturing capacity	946.13	25%	179.20	766.93
Repayment of the borrowings from RC Pharma	567.68	15%	485.85	81.83
General corporate and working capital purposes	378.45	10%	184.64	193.81
Total	3,784.52	100%	1,024.06	2,760.46

18 RemeGen Co., Ltd.

BIOGRAPHIES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

DIRECTORS

Executive Directors

Mr. Wang Weidong (王威東) , aged 61, was appointed as a Director on October 30, 2013 and redesignated as an executive Director on May 22, 2020, and has been the chairman of our Board since June 21, 2019. Mr. Wang is primarily responsible for the overall management, business and strategy of our Group. He founded RC Pharma in March 1993 and has served as its chairman and legal representative since its establishment, accumulating more than 27 years of experience in the pharmaceutical industry.

Mr. Wang obtained his bachelor’s degree in Chinese medicine manufacturing at the Heilongjiang School of Commerce (黑龍江商學院) (currently known as Harbin University of Commerce (哈爾濱商業大學)) in July 1982. He is currently serving a representative on the 13th National People’s Congress in the PRC.

Mr. Wang has served as a deputy to the 13th National People’s Congress (第十三屆全國人大代表) since March 2018 and his awards and recognitions include “Outstanding Builder of Socialism with Chinese Characteristics in Non-StateOwned Sector in Shandong Province” (山東省非公有制經濟人士優秀中國特色社會主義事業建設者) jointly awarded by Shandong Provincial United Front Work Department (山東省委統戰部), Shandong Provincial Federation of Industry and Commerce (山東省工商業聯合會), Shandong Provincial Department of Industry and Information Technology (山 東省工業和信息化廳), Shandong Provincial Department of Human Resources and Social Security (山東省人力資源和社 會保障廳) and Shandong Provincial Department of Market Regulation (山東省市場監管局) in July 2019, “2019 YEDA Distinguished Personnel” (煙台開發區功勳人物) awarded by the YEDA Management Committee Office (煙台開發區 工委管委) in February 2020, and “Entrepreneurs With Outstanding Contribution” (紮根煙台開發區創業二十年特殊貢 獻企業家) awarded by the YEDA Management Committee Office (煙台開發區工委管委) in February 2020 for his 20year deep-rooted entrepreneurship contribution in YEDA.

Dr. Fang Jianmin (房健民) , aged 58, was appointed as our Director, chief executive officer and chief scientific officer on October 16, 2008, and redesignated as an executive Director on May 22, 2020. Dr. Fang is a co-founder of our Company and is primarily responsible for the overall management, business and strategy of our Group. Since inception, Dr. Fang has been the key driving force in our innovation and overseen our new drug research and development from discovery, target validation, CMC development, to clinical studies. He possesses more than 20 years of experience in the research and development of biopharmaceuticals. Dr. Fang also serves as director of RemeGen Medical Research (Shanghai) Co., Ltd., RemeGen Biosciences, Inc. and RemeGen Hong Kong Limited, our wholly-owned subsidiaries.

Dr. Fang obtained his doctorate degree in Biology from Dalhousie University in Canada in May 1998 and was a postdoctoral fellow focusing on cancer research at the Department of Surgery, Harvard Medical School/Boston Children’s Hospital from 1997 to 2000.

Annual Report 2020 19

BIOGRAPHIES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Dr. Fang was recognized as a Taishan Scholar (泰山學者) by the Shandong Provincial People’s Government (山東省 人民政府) in March 2010. He has been a member of the scientific expert committee of the National Major Scientific and Technological Project for “Major Drug Innovations” of China (“重大新藥創制” 國家科技重大專項總體專家組) since December 2012 which overseen the nation’s drug innovation strategy. Dr. Fang is a professor of molecular medicine at School of Life Science and Technology at Tongji University in Shanghai, PRC. He is member of the Board of Directors of Chinese Pharmaceutical Association (中國藥學會), vice chairman of Antibody Drug Division at China Medicinal Biotechnology Association (中國醫藥生物技術協會 “單克隆抗體專業委員會”) and vice chairman of Drug Innovation Division at Chinese Pharmaceutical Innovation Research and Development Association (中國醫藥創新促進 會藥物研發專業委員會). He is the inventor of conbercept and owns more than 40 patents.

Dr. He Ruyi (何如意) , aged 59, was appointed as a Director on May 11, 2020 and redesignated as an executive Director on May 22, 2020 and appointed as the chief medical officer and head of clinical research of our Company on May 11, 2020 and is primarily responsible for the management of the clinical needs, medical support, clinical pharmacology, registrational compliance, drug safety, clinical researches and statistics of our Group. Dr. He possesses more than 33 years of experience in medical and pharmaceutical industries in the PRC and the U.S. and nearly 20 years of unique policy-making and managerial experience at the FDA in the U.S. and the NMPA in China. He has been the chief scientist of healthcare and medicine (醫藥健康首席科學家) at SDIC Fund Management Co., Ltd. (國 投招商投資管理有限公司) to advise on investment decisions in the healthcare and medicine field since October 2018. From July 2016 to October 2018, he was the chief scientist at the Center for Drug Evaluation, the China Food and Drug Administration (currently known as the National Medical and Pharmaceutical Administration) (國 家食品藥品監督管理總局藥品審評中心), where he was responsible for improving its drug evaluation and approval process and supervising assessments related to the safety, effectiveness and quality of innovative drugs. He served in various capacities from medical officer to medical team leader and the acting deputy director in the Center for Drug Evaluation and Research at the Food and Drug Administration in the U.S. from 1999 to 2016. Dr. He was a doctor of internal medicine at Howard University Hospital and Affiliated Hospitals in Washington, District of Columbia, the U.S. between June 1996 and June 1999, and a visiting fellow at the National Institutes of Health in the U.S. between March 1988 and June 1996. He served as a doctor of internal medicine at the First Hospital of China Medical University (中國醫科大學附屬第一醫院) from July 1986 to March 1988.

Dr. He obtained his bachelor’s and master’s degrees in medicine from China Medical University (中國醫科大學) in August 1983 and July 1986, respectively, and a certification of postgraduate medical education in internal medicine from Howard University in the U.S. in June 1997. He is certified as a diplomate in internal medicine by the American Board of Internal Medicine and licensed to practise medicine and surgery in West Virginia, the U.S. since 1999 and 2015, respectively. Dr. He has served as the independent director of Suzhou Zelgen Biopharmaceuticals Co., Ltd. (蘇 州澤璟生物製藥股份有限公司), a company listed on the Science and Technology Innovation Board of the Shanghai Stock Exchange (stock code: 688266), since February 2019.

20

RemeGen Co., Ltd.

BIOGRAPHIES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Dr. He’s awards and recognitions include a Serotonin (5-HT) Receptor Against Class – AC team excellence award by the Center for Drug Evaluation and Research of the Food and Drug Administration in the U.S. in September 2012, FDA group recognitions awarded by the Food and Drug Administration in the U.S. in July and October 2013, and a leveraging collaboration award from the Food and Drug Administration in the U.S. in September 2014. Dr. He was also recognized for his outstanding service of more than 25 years in developing scientific education training activities for staff in Center for Drug Evaluation and Research of the Food and Drug Administration in the U.S. in May 2015.

Mr. Lin Jian (林健) , aged 65, was appointed as a Director on July 4, 2008 and redesignated as an executive Director on May 22, 2020. He has more than 35 years of experience in the pharmaceutical industry and is primarily responsible for the overall management, business and strategy of our Group. Mr. Lin served as the chairman of our Board from July 2008 to June 2019 and was responsible for our strategic planning and development of our Group. He is also director of Ruimeijing (Beijing) Pharmaceutical Technology Co., Ltd. and RemeGen Biosciences, Inc., our wholly-owned subsidiaries.

Mr. Lin obtained his bachelor’s degree in Chinese medicine manufacturing from the Heilongjiang School of Commerce (黑龍江商學院) (currently known as Harbin University of Commerce (哈爾濱商業大學)) in January 1982.

Non-Executive Directors

Dr. Wang Liqiang (王荔強) , aged 50, was appointed as a Director on May 11, 2020 and redesignated as a nonexecutive Director on May 22, 2020. Dr. Wang has more than 26 years of experience in the pharmaceutical industry and is primarily responsible for supervising the management of our Board. Since January 1994, Dr. Wang has served in various positions in RC Pharma, including a sales manager and vice president and the president. He currently serves as the chairman of the board and the president of RC Pharmaceutical (Zibo) Co, Ltd. (榮昌製藥 (淄博) 有限 公司), a subsidiary of RC Pharma. In these capacities, his responsibilities primarily included production, supply and sales management, as well as business operations and overall management. Dr. Wang was also appointed as the vice chairman (副會長) of the PRC Chinese Medicine Association of Anorectal Studies (中國中醫藥研究促進會肛腸 分會) in October 2019 and a member of the 3rd Council of the Pharmaceutical Chamber of Commerce of All-China Federation of Industry and Commerce (中華全國工商業聯合會醫藥業商會第三屆理事會) in August 2019.

Dr. Wang obtained his doctorate degree in business administration at the United Business Institute in Belgium in November 2019. Dr. Wang is qualified as an intermediate economist in business management (經濟專業技術資格中 級經濟師工商管理專業) with the Ministry of Personnel (now known as the Ministry of Human Resources and Social Security (人力資源和社會保障部)) of the PRC since November 2000.

Annual Report 2020 21

BIOGRAPHIES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Dr. Wang’s awards and recognitions include top 10 emerging figures in the pharmaceutical industry in the PRC (中 國醫藥行業十大新銳人物) awarded by the All-China Federation of Industry and Commerce (中華全國工商業聯合會 醫藥業商會) in June 2019, 70th establishment anniversary of the PRC – Distinguished figure in the pharmaceutical industry (建國70周年•醫藥產業功勳人物) awarded by Organizing Committee of Assessment Results of Chinese Brand Influence (中國品牌影響力評價成果發佈活動組委會) in May 2019, 2017 Star Entrepreneur (2017年度明星企業家) awarded by the Management Committee of Zibo National New & Hi-tech Industrial Development Zone (淄博高新區 管委會) in February 2018 and 2015 top 100 innovative individuals in PRC enterprises (2015年度中國企業百名創新人 物) awarded by the Cultural Management Professional Committee of the China Culture Administration Association (中國文化管理協會企業文化管理專業委員會) in November 2015.

Dr. Su Xiaodi (蘇曉迪) , aged 34, was appointed as a Director on May 11, 2020 and redesignated as a non-executive Director on May 22, 2020. She has around 6 years of experience in management consulting and investments in the biomedical industry, and is primarily responsible for supervising the management of our Board. She is currently a vice president at Lilly Asia Ventures. Prior to joining our Group, she was a life science specialist at L.E.K. Consulting from September 2015 to November 2017, where she led and supported more than 15 projects focusing on pharmaceutical and medtech sectors.

Dr. Su obtained her bachelor’s degree in biology from Fudan University in Shanghai, the PRC in July 2008 and her doctoral degree in immunology and microbial pathogenesis (免疫與微生物病原學) from Cornell University in the United States in May 2014. From June 2014 to March 2015, she was a post-doctoral fellow at Hospital for Special Surgery in New York, the United States.

Independent non-executive Directors

Ms. Yu Shanshan (于珊珊) , aged 37, was appointed as an independent Director on May 11, 2020 and redesignated as an independent non-executive Director on May 22, 2020. She is responsible for providing independent advice and judgment to our Board. Ms. Yu has more than 12 years of experience in accounting, auditing, and corporate finance. She has been an associate at China-ASEAN Capital Advisory Company Ltd. since April 2020. She was an associate at the CLSA Group from January 2018 to May 2020 and served as an analyst at BOCI Asia Limited from June 2012 to December 2017, at both she led and assisted pre-IPO financing projects, merger and acquisitions, as well as listing applications to the Stock Exchange. Ms. Yu was a senior accountant at BDO Canada LLP from September 2011 to January 2012 and a junior accountant at Fruitman Kates LLP in Toronto, Canada from December 2007 until July 2011, respectively.

Ms. Yu graduated from the University of British Columbia with a bachelor’s degree in finance in May 2005. She received a master’s degree in accounting and management from the University of Toronto in November 2007. Ms. Yu has passed the International Uniform Certified Public Accountant Qualification Examination in January 2012, and has been a member of the Chartered Professional Accountants of Canada since November 2012 and Chartered Financial Analyst since July 2016.

22 RemeGen Co., Ltd.

BIOGRAPHIES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Mr. Hao Xianjing (郝先經) , aged 55, was appointed as an independent Director on May 11, 2020 and redesignated as an independent non-executive Director on May 22, 2020. He is responsible for providing independent advice and judgment to our Board. Mr. Hao has more than 19 years of experience in accounting, auditing, and financial reporting. Mr. Hao has served as a partner and principal accountant at ShineWing Certified Public Accountants (信永 中和會計師事務所) since October 2009.

Mr. Hao is currently an independent director at AVCON Information Technology Co., Ltd. (華平資訊技術股份有限公 司) and at Tianguang Zhongmao Co., Ltd. (天廣中茂股份有限公司), both of which are listed on the Shenzhen Stock Exchange (stock codes: 300074 and 002509, respectively), since June 2018 and September 2019, respectively. From May 2008 to April 2014, he served as an independent director of Inspur Electronic Information Industry Co., Ltd. (浪 潮電子資訊產業股份有限公司), a company listed on the Shenzhen Stock Exchange (stock code: 000977).

Mr. Hao graduated from Shandong University of Finance (山東財政學院) (currently known as Shandong University of Finance and Economics (山東財經大學)) in the PRC with a bachelor’s degree in finance in July 1989. He received a master’s degree in economics from Liaoning University (遼寧大學) in the PRC in July 1996. Mr. Hao has been a member of the Chinese Institute of Certified Public Accountants (中國註冊會計師協會) since June 1995 and a member of the China Certified Tax Agents Association (中國註冊稅務師協會) since December 2000.

Dr. Lorne Alan Babiuk , aged 75, was appointed as an independent Director on May 11, 2020 and redesignated as an independent non-executive Director on May 22, 2020. He is responsible for providing independent advice and judgment to our Board. Dr. Babiuk has more than 46 years of experience in teaching and research in immunology, pathogenesis, virology, molecular virology, and vaccinology. He was a professor of University of Saskatchewan and chief executive officer of the Vaccine and Infectious Disease Organization of the University of Saskatchewan from 1973 to 2007, and a professor of University of Alberta from 2007 to 2019. His experience was widely recognized in the field and has received the Distinguished Microbiologist Award from the Canadian College of Microbiologists in 2011, the Global Confederation of Higher Education Associations (GCHERA) World Agriculture Prize in 2016, the Canadian Association for Clinical Microbiology and Infectious Diseases (CACMID) Fitzgerald award in 2018.

Dr. Babiuk obtained his bachelor’s degree in agriculture and master’s degree in science from University of Saskatchewan in Canada in May 1967 and May 1969, respectively, and a doctorate degree in philosophy from the University of British Columbia in Canada in November 1972. He was also awarded Honorary Doctor of Science by Colorado State University in the United States, University of Guelph in Canada and University of Saskatchewan in Canada in 2007, 2008 and 2014, respectively.

Annual Report 2020 23

BIOGRAPHIES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

SUPERVISORS

Mr. Ren Guangke (任廣科) , aged 47, was appointed as a Supervisor on May 11, 2020, and is primarily responsible for the supervision of the performance of the Directors and members of the senior management in performing their duties to the Company. Mr. Ren has around 23 years of experience in the legal field. He joined our Company on May 25, 2019 and is primarily responsible for intellectual property matters and legal affairs of our Company. Prior to joining our Company, Mr. Ren served as the deputy general manager (副總經理) and manager of the intellectual property legal affairs department (知識產權及法務部) of RC Pharma from June 2017 to April 2019 and a president (庭長) of Shandong Yantai Intermediate People’s Court (煙台市中級人民法院) to preside over and decide cases from February 2014 to May 2017.

Mr. Ren obtained his bachelor’s degree in physics from Yantai University (煙台大學) in the PRC in June 1996.

Mr. Li Yupeng (李宇鵬) , aged 38, was appointed as a Supervisor on May 11, 2020, and is primarily responsible for the supervision of the performance of the Directors and members of the senior management in performing their duties to the Company. Mr. Li has around 9 years of experience in the investment management and has been the vice-president (副總裁) of SDIC Venture Capital Management Co., Ltd. (國投創業投資管理有限公司) since December 2016 and is primarily responsible for overseeing biomedical investments of our Company.

Mr. Li obtained his bachelor’s degree in computer engineering from Beijing Institute of Technology (北京理工大學) in the PRC in July 2006 and his master’s degree in finance from the Chinese Academy of Fiscal Sciences (中國財政研究 院) in the PRC in July 2011.

Mr. Li Zhuanglin (李壯林) , aged 46, was appointed as a Supervisor on May 11, 2020, and is primarily responsible for the supervision of the performance of the Directors and members of the senior management in performing their duties to the Company. Mr. Li has around 15 years of experience in the biomedical manufacturing field. He has been the deputy general manager (副總經理) of our Company since July 2011 and May 2019, respectively, and is primarily responsible for overseeing the commercialization and manufacturing center (商業化製造中心) of our Group. Prior to joining our Group, he was the deputy general manager (副總經理) of Shandong Simcere Pharmaceutical Co., Ltd. (山 東先聲生物製藥有限公司) and supervised its manufacturing and engineering departments.

Mr. Li obtained his bachelor’s degree in microbiology (微生物學) from Yantai University (煙台大學) in the PRC in July 1997 and his master’s degree in biochemistry and molecular biology (生物化學與分子生物學) and his doctoral degree in microbiology (微生物學) from Shandong University (山東大學) in the PRC in December 2006 and June 2011, respectively.

Other Disclosure Pursuant to Rule 13.51(2) of the Listing Rules

During the Reporting Period, there is no change of information of each Director and Supervisor that is required to be disclosed under Rules 13.51(2) and 13.51B(1) of the Listing Rules.

24 RemeGen Co., Ltd.

BIOGRAPHIES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

SENIOR MANAGEMENT

Dr. Fang Jianmin (房健民) , see “– Directors – Executive Directors” for details.

Dr. Fu Daotian (傅道田) , aged 58, was appointed as the president of our Company on September 2, 2019 and is primarily responsible for operational management of the new drug pre-clinical research and development, processes development, quality control, pharmaceutical production of our Group. Dr. Fu possesses more than 25 years of experience in research and development of biopharmaceuticals in the PRC and the U.S. Prior to joining our Group, he was the vice president and executive director of Livzon Pharmaceutical Group Inc. (“Livzon Pharmaceutical”), a company listed on the Stock Exchange (stock code: 1513) and in the PRC (SZSE: 000513) from March and June 2014, respectively to September 2019, where he was responsible for the strategic planning and development of research and development in biotech industry. He was the general manager of Livzon MABPharm Inc., a subsidiary of Livzon Pharmaceutical from March 2012 to September 2019, where he supervised its overall management and operation. At Livzon, he led the biologics development efforts with one successful BLA submission and multiple programs in clinical development. Dr. Fu returned to China after spending 28 years training and working in the biopharmaceutical industry in the United States. Dr. Fu had served as Vice President, Research at Genzyme Corp., one of the top five global biotech companies and was later acquired by Sanofi, a company listed on Nasdaq (stock code: SNY). At Genzyme Corp., Dr. Fu was responsible for CMC development of clinical stage programs, and was directly involved in global launching of five major biologics and clinical development of multiple research and development programs.

Dr. Fu was a guest processor of Sun Yat-Sen University (中山大學) in the PRC from 2015 to 2018, and has been an external graduate advisor of China Pharmaceutical University (中國藥科大學) in the PRC and a member of the Professional Teaching Guidance Sub-Committee under the Tertiary Education Pharmacy Teaching Guidance Committee (高等學校藥學類專業教學指導委員會) commissioned by the Ministry of Education in the PRC.

Dr. Fu obtained his bachelor’s degree in biology from Shandong University in the PRC in July 1983 and his doctorate degree in biochemistry from Iowa State University, the U.S. in May 1990.

Dr. He Ruyi (何如意) , see “– Directors – Executive Directors” for details.

Annual Report 2020 25

BIOGRAPHIES OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Mr. Wen Qingkai (溫慶凱) , aged 54, was appointed as the board secretary of our Company on May 11, 2020 and is primarily responsible for overseeing financing activities, internal control and securities and listing matters of our Group. Mr. Wen has more than 16 years of experience in capital operation and corporate governance. He also currently serves as a supervisor of Heyuan Aidisi Biomedical Technology Co., Ltd. (煙台市和元艾迪斯生物醫藥科技有 限公司), an investee of our Company and is responsible for supervising its board, business and operational matters. From February 2004 to May 2019, he served as the vice president (副總裁) in RC Pharma, and was responsible for its corporate management, internal control and information technology matters. He has been appointed as a director at Yantai MabPlex International Biomedical Co., Ltd. since November 2019. Mr. Wen obtained his bachelor’s degree in physics at Yangzhou University in the PRC in June 1990 and master’s degree in philosophy of science and technology at Zhejiang University in the PRC in May 1995.

Mr. Li Jia (李嘉) , aged 40, was appointed as the chief financial officer and joint company secretary of our Company on May 11, 2020 and is primarily responsible for overseeing the overall financial management and corporate development of our Group.

Mr. Li possesses more than 15 years of experience in investment banking and corporate finance. Prior to joining our Group, he was an executive director of Goldman Sachs, focusing on transactions in the healthcare space, the board secretary and assistant to the chairman of Hilong Holdings Ltd., a company listed on the Stock Exchange (stock code: 1623), and various investment banking positions at Morgan Stanley, China Renaissance, and Barclays Capital in Asia and the United States.

Mr. Li obtained his bachelor’s degree in business administration and a master’s degree in accountancy from University of Wisconsin-Madison in Madison, the United States in August 2003 and August 2004, respectively, and a master’s degree in business administration from University of Chicago in Illinois, the United States in June 2009.

JOINT COMPANY SECRETARIES

Mr. Li Jia (李嘉) , see “– Senior Management” for details.

Ms. Tam Pak Yu, Vivien (譚栢如) , was appointed as a joint company secretary of our Company on May 11, 2020. Ms. Tam serves as an assistant manager of SWCS Corporate Services Group (Hong Kong) Limited (方圓企業服務集 團 (香港) 有限公司), a professional services provider specializing in corporate services, and has over five years of experience in corporate secretarial field. Ms. Tam has been admitted as an associate member of both The Hong Kong Institute of Chartered Secretaries and The Chartered Governance Institute in 2018.

Ms. Tam obtained a bachelor’s degree in China Studies from Hong Kong Baptist University in 2014 and a master’s degree in Professional Accounting and Corporate Governance from City University of Hong Kong in 2017.

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CORPORATE GOVERNANCE PRACTICES

The Directors recognize the importance of incorporating elements of good corporate governance in the management structures and internal control procedures of the Group so as to achieve effective accountability. The Company has adopted the code provisions stated in the CG Code. The Company is committed to the view that the Board should include a balanced composition of executive Directors and independent non-executive Directors so that there is a strong independent element on the Board, which can effectively exercise independent judgment.

The Group is committed to achieving high standards of corporate governance with a view to safeguarding the interests of the Shareholders as a whole. The Company’s H shares have been listed on the Stock Exchange since November 9, 2020. The Company had complied with the provisions of the CG Code for the period from the Listing Date up to and including December 31, 2020.

THE BOARD OF DIRECTORS

Board composition

As at December 31, 2020, the Board consists of four executive Directors, namely Mr. Wang Weidong, Dr. Fang Jianmin, Dr. He Ruyi and Mr. Lin Jian, two non-executive Directors, namely Dr. Wang Liqiang and Dr. Su Xiaodi, and three independent non-executive Directors, namely Ms. Yu Shanshan, Mr. Hao Xianjing and Dr. Lorne Alan Babiuk. Their biographical details are set out in the “Biographies of directors, supervisors and senior management” section of this report. The overall management and supervision of the Company’s operation and the function of formulating overall business strategies were vested in the Board. There are no financial, business, family or other material relationships among members of the Board.

From the Listing Date up to and including December 31, 2020, the Board has at all times met the requirements of Rules 3.10(1) and (2) of the Listing Rules relating to the appointment of at least three independent non-executive directors with at least one independent non-executive director possessing appropriate professional qualifications, or accounting or related financial management expertise. The three independent non-executive Directors represent one-third of the Board, complying with the requirement under Rule 3.10A of the Listing Rules whereby independent non-executive directors of a listed issuer must represent at least one-third of the board. The Board believes there is sufficient independence element in the Board to safeguard the interest of Shareholders.

Chairman and chief executive officer

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

During the Reporting Period, in line with the recommendations under the Listing Rules, the roles and functions of the chairman of the Board and the chief executive officer of the Company were taken up by different individuals, and their respective duties were clearly defined.

As of the end of the Reporting Period, Mr. Wang Weidong held the position of chairman of the Board, and Dr. Fang Jianmin held the position of chief executive officer of the Company, responsible for the daily operation and management of the Company.

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Directors’ responsibilities

The Board takes the responsibility to oversee all major matters of the Company, including the formulation and approval of all policy matters, overall strategies, internal control and risk management systems, and monitor the performance of the senior executives. The Directors have to make decisions objectively in the interests of the Company.

Liability insurance for Directors and senior management of the Company is maintained by the Company with appropriate coverage for certain legal liabilities which may arise in the course of performing their duties.

Delegation by the Board

The management, consisting of executive Directors along with other senior executives, is delegated with responsibilities for implementing the strategy and direction as adopted by the Board from time to time, and conducting the day-to-day management and operations of the Group. Executive Directors and senior executives meet regularly to review the performance of the businesses of the Group as a whole, co-ordinate overall resources and make financial and operational decisions. The Board also gives clear directions as to their powers of management including circumstances where management should report back, and will review the delegation arrangements on a periodic basis to ensure that they remain appropriate to the needs of the Group.

Directors’ responsibilities for financial statements

The Directors acknowledge their responsibilities for preparing the consolidated financial statements of the Group in accordance with statutory requirements and applicable accounting standards. The Directors also acknowledge their responsibilities to ensure that the consolidated financial statements of the Group are published in a timely manner. The Directors are not aware of any material uncertainties relating to events or conditions which may cast significant doubt upon the Company’s ability to continue as a going concern. Accordingly, the Directors have prepared the consolidated financial statements of the Group on a going concern basis.

Independent non-executive Directors

The independent non-executive Directors play a significant role in the Board by virtue of their independent judgment and their views carry significant weight in the Board’s decision. The functions of independent non-executive Directors include bringing an impartial view and judgement on issues of the Company’s strategies, performance and control; and scrutinizing the Company’s performance and monitoring performance reporting.

All independent non-executive Directors possess extensive academic, professional and industry expertise and management experience and have made positive contributions to the development of the Company through providing their professional advice to the Board.

All independent non-executive Directors are appointed for a term of three years from May 11, 2020.

Confirmation of independence

The independence of the independent non-executive Directors has been assessed in accordance with the applicable Listing Rules and each of the independent non-executive Directors has provided an annual written confirmation of independence to the Company pursuant to Rule 3.13 of the Listing Rules. The Company is of the view that all independent non-executive Directors meet the guidelines for assessing independence set out in Rule 3.13 of the Listing Rules and are independent.

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Board diversity policy

Our Company seeks to enhance the effectiveness of the Board and to maintain high standards of corporate governance by adopting a board diversity policy. Pursuant to this policy, we intend to achieve board diversity through the consideration of a number of factors at the selection of candidates to the Board, including but not limited to gender, age, cultural and educational background, ethnicity, professional experience, skills, knowledge and length of service. The ultimate decisions of Board appointments will be based on merit and the contribution which the selected candidates will bring to the Board.

Our Board consists of seven male members and two female members with two Directors of 40 years old or below, one Director of age 41 to 50 years old, four Directors of 51 to 60 years old and two Directors over 60 years old. Our Company has reviewed the membership, structure and composition of the Board, and is of the opinion that the structure of the Board is reasonable, and the experiences and skills of the Directors in various aspects and fields can enable our Company to maintain high standard of operation. Our Nomination Committee is responsible for reviewing the diversity of the Board.

After Listing, our Nomination Committee will continue to monitor and evaluate the implementation of the board diversity policy from time to time to ensure its continued effectiveness and we will disclose in our corporate governance report about the implementation of the board diversity policy, including any measurable objectives set for implementing the board diversity policy and the progress on achieving these objectives on an annual basis. We will also continue to take steps to promote gender diversity at all levels of our Company.

Appointment and re-election of Directors

Pursuant to the requirements of the Articles of Association, Directors (including non-executive Directors) shall be elected at the general meeting with a term of three years. A Director shall be eligible for re-election on the expiry of each term. The Company has implemented a set of effective procedures for appointment of new Directors. The nomination of new Directors shall be first deliberated by the nomination committee and then submitted to the Board, subject to approval by election at the general meeting.

Each of the executive Directors, non-executive Directors, independent non-executive Directors and Supervisors has entered into a service contract or a letter of appointment with the Company with a specific term. Such term is subject to his retirement and re-election at the annual general meeting of the Company in accordance with the Articles of Association.

Save as disclosed above, the Company did not sign any relevant unexpired service contract which is not terminable within a year without payment of any compensation, other than statutory compensation.

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Compensation of Directors, Supervisors and senior management

The emoluments of the Directors, Supervisors and senior management of the Group are decided by the Board with reference to the recommendation given by the Remuneration and Appraisal Committee, having regard to the Group’s operating results, individual performance and comparable market statistics.

Details of the Directors’ emoluments and emoluments of the five highest paid individuals in the Group are set out in notes 8 and 9 to financial statements on pages 102 to 106 of this annual report. Details of the Executive Directors’, Supervisors’ and senior managements’ emoluments are set out in note 8 to financial statement on page 102 to 105 of this annual report.

For the Reporting Period, no emoluments were paid by the Group to any Director, Supervisors or any of the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office. None of the Directors or Supervisors has waived any emoluments for the year ended December 31, 2020.

Except as disclosed above, no other payments have been made or are payable, for the year ended December 31, 2020, by our Group to or on behalf of any of the Directors.

Directors’ training and professional development

Every newly appointed Director has been given a comprehensive, formal and tailored induction on appointment. Subsequently, the Directors will receive updates on the Listing Rules, legal and other regulatory requirements and the latest development of the Group’s business and are encouraged to participate in continuous professional development to develop their knowledge and skills. During the year ended December 31, 2020, the Directors have participated in a training session conducted by O’Melveny & Myers, the Company’s legal adviser as to Hong Kong law, on directors’ duties, responsibilities and obligations under the Listing Rules and the SFO. Pursuant to the requirements of the code provisions set out in the CG Code, all Directors have provided the Company with records of the training they received to ensure that their contributions to the Board remain informed and relevant.

Board meetings

Pursuant to Code Provision A.1.1 of the CG Code, the Company has adopted the practice of holding Board meetings for at least four times a year at approximately quarterly intervals. Notice of not less than fourteen days are given for all regular Board meetings to provide all Directors with an opportunity to attend and include matters in the agenda for a regular meeting in accordance with Code Provision A.1.3 of the CG Code.

All Directors are provided with agenda and relevant information in advance before a Board meeting. They have access to the senior management and the joint company secretaries of the Company at all times and, upon reasonable request, may seek independent professional advice at the Company’s expense.

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Minutes of Board meetings are kept by the secretary to the Board with copies circulated to all Directors for information and records. Minutes of Board meetings and committee meetings record sufficient detail of the matters considered by the Board and the committees and the decisions reached, including any concerns raised by the Directors. Draft minutes of Board meetings and committee meetings are sent to the Directors for comments within a reasonable time after the date on which a meeting is held. The minutes of the Board meetings are open for inspection by Directors.

As the Company was only listed on November 9, 2020, no Board meeting was held during the period from November 9, 2020 to December 31, 2020. The Company expects to continue to convene at least four regular meetings in each financial year at approximately quarterly intervals in accordance with code provision A.1.1 of the CG Code.

Nomination policy

The primary responsibilities of the nomination committee are to consider and recommend to the Board suitable and qualified candidates of Directors and to review the structure, size and composition of the Board and the board diversity policy adopted by the Company on a regular basis.

The nomination committee utilizes various methods for identifying candidates for directorship, including recommendations from Board members, management, and professional search firms. In addition, the nomination committee will consider candidates for directorship properly submitted by the Shareholders. The evaluation of candidates for directorship by the nomination committee may include, without limitation, review of resume and job history, personal interviews, verification of professional and personal references and performance of background checks. The Board will consider the recommendations of the nomination committee and is responsible for designating the candidates for directorship to be considered by the Shareholders for their election at the general meeting of the Company, or appointing the suitable candidate to act as Director to fill the Board vacancies or as an addition to the Board members, subject to compliance of the constitutional documents of the Company. All appointments of Director should be confirmed by letter of appointment and/or service contract setting out the key terms and conditions of the appointment of Directors.

The nomination committee should consider the following qualifications as a minimum to be required for a candidate in recommending to the Board to be a potential new Director, or the continued service of existing Director:

• the highest personal and professional ethics and integrity;

• proven achievement and competence in the nominee’s field and the ability to exercise sound business judgment;

• skills that are complementary to those of the existing Board;

• the ability to assist and support management and make significant contributions to the Company’s success;

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• an understanding of the fiduciary responsibilities that is required for a member of the Board and the commitment of time and energy necessary to diligently carry out those responsibilities;

• independence: the candidates for independent non-executive directorship should meet the “independence” criteria as required under the Listing Rules and the composition of the Board is in conformity with the provisions of the Listing Rules.

The nomination committee may also consider such other factors as it may deem are in the best interests of the Company and the Shareholders as a whole.

COMPLIANCE WITH THE MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

AND SUPERVISORS

The Company has adopted the Model Code as the guidelines for the Directors’ dealings in the securities of the Company since the Listing and, upon specific enquiries of all the Directors and Supervisors, each of them has confirmed that he complied with all applicable code provisions under the Model Code since the Listing and up to December 31, 2020.

As required by the Company, relevant officers and employees of the Company are also bound by the Model Code, which prohibits them to deal in securities of the Company at any time when he/she possesses insider information in relation to those securities. No incident of non-compliance of the Model Code by the relevant officers and employees was noted by the Company.

REMUNERATION PAYABLE TO MEMBERS OF SENIOR MANAGEMENT

Pursuant to code provision B.1.5 of the Corporate Governance Code, the annual remuneration of members of the senior management (other than Directors) by band for the year ended December 31, 2020 is set out below:

	Number of members
	of senior management
Nil to RMB1,000,000	1
RMB1,000,001 to RMB1,500,000	0
RMB1,500,001 to RMB2,000,000	1
RMB2,000,001 to RMB2,500,000	0
RMB2,500,001 to RMB3,000,000	0
RMB3,000,001 to RMB3,500,000	0
Over RMB3,500,001	1

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DIVIDEND POLICY

No dividends have been declared or paid by entities comprising the Group. The Company currently expects to retain all future earnings for use in operation and expansion of the Group’s business, and does not have any dividend policy to declare or pay any dividends in the foreseeable future. The declaration and payment of any dividends in the future will be determined by the Board and subject to the Articles of Association and the PRC Company Law, and will depend on a number of factors, including the successful commercialization of the drugs of the Company as well as the Group’s earnings, capital requirements, overall financial condition and contractual restrictions. No dividend shall be declared or payable except out of profits and reserves lawfully available for distribution. As confirmed by the Company’s legal advisor as to PRC laws, according to the PRC law, any future net profit that the Company make will have to be first applied to make up for our historically accumulated losses, after which the Company will be obliged to allocate 10% of the net profit to statutory common reserve fund until such fund has reached more than 50% of the registered capital. The Company will therefore only be able to declare dividends after (i) all historically accumulated losses have been made up for; and (ii) sufficient net profit has been allocated to the statutory common reserve fund as described above.

CORPORATE GOVERNANCE FUNCTIONS

The Board is responsible for performing the corporate governance duties including:

• to develop and review the Company’s policies and practices on corporate governance;

• to review and monitor the training and continuous professional development of Directors and senior management;

• to review and monitor the Company’s policies and practices on compliance with legal and regulatory requirements;

• to develop, review and monitor the code of conduct and compliance manual (if any) applicable to employees and Directors; and

• to review the Company’s compliance with Appendix 14 to the Listing Rules (Corporate Governance Code and Corporate Governance Report).

The Board had performed the above duties during the year ended December 31, 2020.

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BOARD COMMITTEES

The Board has established four committees with specific written terms of reference to oversee particular aspects of the Group’s affairs.

Audit Committee

The Company has established an audit committee with written terms of reference in compliance with Rule 3.21 of the Listing Rules and paragraph C.3 and paragraph D.3 of the Corporate Governance Code as set out in Appendix 14 of the Listing Rules. The Audit Committee consists of Mr. Hao Xianjing, Ms. Yu Shanshan and Dr. Wang Liqiang. The chairman of the Audit Committee is Mr. Hao Xianjing and is our independent non-executive Director with the appropriate professional qualifications as required under Rules 3.10(2) and 3.21 of the Listing Rules. The main duties of the Audit Committee include but are not limited to:

• monitoring and evaluating the work of the external auditor;

• supervising the implementation of the internal audit system of the Company;

• being responsible for the communications among the management level of the Company, the internal and external audit;

• reviewing and commenting on the financial reports of our Company;

• examining the financial reporting system, risk management and internal control systems of our Company;

• making recommendations to our Company on the appointment, reappointment and removal of the external auditor;

• performing daily management duties and implementing control on connected transactions; and

• performing such other duties determined by the Board.

During the period from the Listing Date to December 31, 2020, the Audit Committee has not convened any meetings.

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Remuneration and Appraisal Committee

The Company has established a remuneration and appraisal committee with written terms of reference in compliance with Rule 3.25 of the Listing Rules and paragraph B.1 of the Corporate Governance Code. The Remuneration and Appraisal Committee consists of Ms. Yu Shanshan, Mr. Hao Xianjing and Mr. Lin Jian, and is chaired by Ms. Yu Shanshan. The main duties of the Remuneration and Appraisal Committee include but are not limited to:

• formulating remuneration policies for Directors and senior management in accordance with the respective scope, responsibilities and significance of Directors and senior management and remuneration levels of similar positions in other enterprises within the same industry;

• making recommendations to the Board on the establishment of a formal and transparent procedure for developing remuneration policies;

• monitoring the implementation of remuneration system of our Company for the Directors and senior management;

• assessing the fulfilment of duties of Directors and senior management of our Company and appraising their annual performance; determining or making recommendations to the Board, with delegated responsibility, the remuneration packages of individual Directors and senior management;

• reviewing and approving compensation payable to Directors and senior management for any loss or termination of office or appointment to ensure that it is consistent with contractual terms and is otherwise fair and not excessive;

• reviewing and managing the share incentive scheme(s) of our Company, including determining the scope of the eligible participants and conditions of a grant and auditing the exercise conditions; and

• performing such other duties determined by the Board.

During the period from the Listing Date to December 31, 2020, the Remuneration and Appraisal Committee has not convened any meetings.

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CORPORATE GOVERNANCE REPORT

Nomination Committee

The Company has established a nomination committee with written terms of reference in compliance with paragraph A.5 of the Corporate Governance Code. The Nomination Committee consists of Mr. Wang Weidong, Mr. Hao Xianjing and Ms. Yu Shanshan, and is chaired by Mr. Wang Weidong. The main duties of the Nomination Committee include but are not limited to:

• making recommendation to the Board on its size and composition to complement the Company’s business operation and shareholding structure;

• reviewing and making recommendations to the selection standard and procedure of Directors and senior management;

• identifying individuals suitably qualified to become Directors and senior management and selecting or making recommendations to the board on the selection of individuals nominated for directorships or senior management positions;

• reviewing the structure, size and composition (including the skills, knowledge and experience) of the Board at least annually and making recommendations on any proposed changes to the Board to complement our Company’s corporate strategy;

• assessing the independence of independent non-executive Directors; and

• performing such other duties determined by the Board.

The Board has adopted a board diversity policy, please refer to “Board diversity policy” on page 28 of this annual report for more details. When a vacancy in the Board arises, the “Nomination Committee” will then identify suitable candidates and convene a meeting to discuss and vote on the nomination of directors and make recommendation to the Board on the candidate(s) for directorship. Please refer to “Nomination policy” on page 30 to 31 of this annual report for more details.

During the period from the Listing Date to December 31, 2020, the Nomination Committee has not convened any meetings.

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Strategy Committee

The Company has established a strategy committee, which consists of Dr. Fang Jianmin, Mr. Wang Weidong, Dr. He Ruyi, Dr. Su Xiaodi, Dr. Lorne Alan Babiuk and Dr. Wang Liqiang, and is chaired by Dr. Fang Jianmin. The main duties of the Strategy Committee include but are not limited to:

• researching and recommending on long-term development strategy of our Company;

• researching and recommending on significant investment and financing plans of our Company;

• researching and recommending on major capital operation and asset management project, and annual financial budget plan of our Company;

• researching and recommending on significant matters relating to the development of our Company;

• monitoring the above matters and assessing, examining and recommending on significant changes; and

• performing such other duties determined by the Board.

During the period from the Listing Date to December 31, 2020, the Strategy Committee has not convened any meetings.

SUPERVISORY COMMITTEE

The Supervisory Committee is a supervisory agency of the Company which is responsible for the supervision of the Board and its members and senior management such as the general manager and deputy general manager so as to prevent them from the misuse of authority and infringement upon lawful rights of the shareholders, the Company and the Company’s employees. The number of members and the composition of the Supervisory Committee are in line with the provisions and requirements of the laws, regulations and the Articles. During the Reporting Period, the Supervisory Committee was comprised of three supervisors, of whom one was an employee representative supervisor democratically elected by our employees. The background and biographical details of the supervisors are set out in the section headed “Biographies of directors, supervisors and senior management” in this annual report.

FINANCIAL REPORTING SYSTEM, RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM

Financial reporting system

The Directors acknowledge their responsibility for preparing the consolidated financial statements for the year ended 31 December 2020 which give a true and fair view of the affairs of the Company and the Group and of the Group’s financial performance and cash flows. The Directors also acknowledge their responsibilities to ensure that the consolidated financial statements of the Group are published in a timely manner.

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

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Risk management

The Company is exposed to various risks in its business operations and the Company recognizes that risk management is critical to its success. Please refer to the “Principal Risks and Uncertainties” section of this report for a discussion of various operational risks and uncertainties faced by the Company. The Company has adopted a series of risk management policies which set out a risk management framework to identify, assess, evaluate and monitor key risks associated with the Company’s strategic objectives on an on-going basis. Risks identified by management will be analyzed on the basis of likelihood and impact, and will be properly followed up and mitigated and rectified by the Group and reported to the Directors. Our Audit Committee, and ultimately the Directors supervise the implementation of the Company’s risk management policies. The Directors and the senior management possess the necessary knowledge and experience in providing good corporate governance oversight in connection with risk management and internal control. The Company has adopted and will continue to adopt, among other things, the following risk management measures:

• The Audit Committee will oversee and manage the overall risks associated with the Company’s business operations, including (i) reviewing and approving the risk management policy to ensure that it is consistent with the Company’s corporate objectives; (ii) reviewing and approving the Company’s corporate risk tolerance; (iii) monitoring the most significant risks associated with the Company’s business operation and the management’s handling of such risks; (iv) reviewing the Company’s corporate risk in the light of the Company’s corporate risk tolerance; and (v) monitoring and ensuring the appropriate application of the risk management framework across the Group.

• The Board will be responsible for (i) formulating the risk management policy and reviewing major risk management issues of the Company; (ii) providing guidance on the risk management approach to the relevant departments in the Company; (iii) reviewing the relevant departments’ reporting on key risks and providing feedbacks; (iv) supervising the implementation of the Company’s risk management measures by the relevant departments; and (v) reporting to the Audit Committee on the Company’s material risks.

• The relevant departments in the Company, including but not limited to the finance department, the legal department and the human resources department, are responsible for implementing the Company’s risk management policy and carrying out the Company’s day-to-day risk management practice. In order to formalize risk management across the Group and set a common level of transparency and risk management performance, the relevant departments will (i) gather information about the risks relating to their operation or function; (ii) conduct risk assessments, which include the identification, prioritization, measurement and categorization of all key risks that could potentially affect their objectives; (iii) prepare a risk management report annually for the chief executive officer’s review; (iv) continuously monitor the key risks relating to their operation or function; (v) implement appropriate risk responses where necessary; and (vi) develop and maintain an appropriate mechanism to facilitate the application of the Company’s risk management framework.

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Internal control system

The Board is responsible for the risk management and internal control systems of the Group and for reviewing their effectiveness at least annually, with assistance from the Audit Committee assists the Board in fulfilling its oversight and corporate governance roles in the Group’s financial, operational, compliance and risk management. The risk management and internal control systems of the Group are designed to manage rather than eliminate risks of failure to achieve business objectives, and can only provide reasonable, but not absolute, assurance against material misstatement or loss.

The Company has an internal audit function in place, which is responsible for independently reviewing the adequacy and effectiveness of the risk management and internal control system of the Company, and reporting the results to the Audit Committee. Internal control supervisor of the Company is responsible for coordinating the internal control, sorting out and improving the business process and management mechanism, and carrying out the effectiveness evaluation of internal control. In addition to the internal control and internal audit functions, all employees are liable for risk management and internal control within their business scope. Each department shall actively cooperate with the internal control and internal review, report to the management on the important development of the department’s business and the implementation of policies and strategies established by the Company, and identify, evaluate and manage major risks in time.

The Company has established risk management and internal control management to build general risk management internal control environment. At present, the Company has built an internal control process framework covering procurement, sales, human resources and compensation management, marketing and promotion management, tax management, capital management, information security and intellectual property rights, financial reporting and disclosure and other business processes and carry out risk assessment regularly to ensure risk management and internal control being in operation effectively. The Company has also engaged an independent internal control consultant to review the Company’s internal controls in relation to financial management on a quarterly basis until 24 months after the Listing.

The Audit Committee has made an annual review and was satisfied as to the implementation and effectiveness of the Group’s risk management and internal control procedures. There were no matters of material concerns relating to financial, operational or compliance controls. The Board is satisfied with the adequacy of the risk management and internal control procedures of the Group during the Reporting Period.

Handling of inside information

The Company has adopted an inside information policy in accordance with the Securities and Futures Ordinance and the Listing Rules to ensure confidentiality when handling inside information and the publication of relevant disclosures to the public as soon as practicable. Under this policy, the Company disseminates information to specified persons on a need-to-know basis, and requires all employees who have access to the inside information to maintain strict confidentiality of the inside information until it is announced. The policy also sets out the scope of inside information and the procedures and precautionary measures for reporting or leakage of inside information of the Group.

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CORPORATE GOVERNANCE REPORT

AUDITOR’S REMUNERATION

The Company appointed Ernst & Young, certified public accountants, as the external auditor for the year ended December 31, 2020. The work scope and reporting responsibilities of Ernst & Young are set out in the “Independent Auditor’s Report” on pages 65 to 69 of this report. For the year ended December 31, 2020, the remunerations paid or payable to Ernst & Young in respect of its audit services and non-audit services are as follows:

	Fees Paid/Payable
Service Category	(RMB million)
Audit services	5.43
– Initial Public Offerings Service	3.73
– Annual Audit Service	1.70
Non-audit services – Internal control review	0.16
Total	5.59

The Audit Committee was satisfied that the non-audit services in 2020 did not affect the independence of the auditor.

JOINT COMPANY SECRETARIES

Directors have access to the services of the joint company secretary to ensure that the Board procedures are followed. The joint company secretaries of the Company are Mr. Li Jia and Ms. Tam Pak Yu, Vivien. Mr. Li is the primary contact person of Ms. Tam in the Company. In compliance with Rule 3.29 of the Listing Rules, Mr. Li and Ms. Tam have undertaken no less than 15 hours of relevant professional training during the year of 2020. The biographies of Mr. Li and Ms. Tam are set out in the “Biographies of directors, supervisors and senior management” section on page 25 of this report.

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SHAREHOLDERS’ RIGHTS

Procedures for Shareholder(s) to Convene an Extraordinary General Meeting (“EGM”)

Shareholders requesting the convening of an EGM shall proceed in accordance with the procedures set forth below.

Any Shareholder individually or jointly holding over 10% of the Shares is/are entitled to request in writing the Board to convene an EGM. The Board shall, in accordance with the laws, administrative regulations and the Articles of Association, furnish a written reply to such shareholder(s) stating its agreement or disagreement to the convening of the EGM within 10 days after having received such requisition.

In the event that the Board agrees to convene an EGM, a notice for convening such meeting shall be given within 5 days after the relevant Board resolution is passed and consent of the relevant shareholder(s) shall be obtained in case of any changes to the original requisition in the notice.

In the event that the Board disagrees to convene an EGM or does not furnish any reply within 10 days after having received such requisition, the Board is deemed to be unable or unwilling to perform the duty of convening a general meeting, in which case Shareholder(s) individually or jointly holding more than 10% of the Shares may propose in writing for the Supervisory Committee to convene the EGM.

In the event that the Supervisory Committee agrees to convene an EGM, a notice for convening such meeting shall be given within 5 days after having received such requisition and consent of the relevant Shareholder(s) shall be obtained in case of any changes to the original proposal in the notice.

In the event that the Supervisory Committee fails to serve any notice of an EGM within the prescribed period, the Supervisory Committee is deemed not to convene and preside over such meeting, in which case the Shareholder(s) individually or jointly holding more than 10% of the shares of the Company for more than 90 consecutive days may convene and preside over such a meeting by himself/themselves.

Procedures for Shareholder(s) to Put Forward Proposals at a General Meeting

When the Company convenes a shareholders’ general meeting, Shareholders individually or jointly holding 3% or more of the total voting shares of the Company are entitled to propose new resolutions in writing to the Company and submit them to the convener 10 days before the meeting. The convener of the Shareholders’ general meeting shall issue a supplementary notice of the Shareholders’ general meeting to other Shareholders within two days upon the receipt of such proposal and notify them of the contents of such proposals.

Procedures for Directing Shareholders’ Enquiries to the Board

Shareholders may at any time send their enquiries and concerns to the Board in writing to the Company’s headquarters and principal place of business in China at 58 Middle Beijing Road, Yantai Development Zone, Yantai Area of Shandong Pilot Free Trade Zone, PRC. Shareholders may also make enquiries with the Board at the general meetings of the Company.

Annual Report 2020 41

CORPORATE GOVERNANCE REPORT

COMMUNICATIONS WITH SHAREHOLDERS

The Company continuously attaches great importance to maintaining and developing investor relations for a long time, enhances transparency of the corporate information by promptly and effectively releasing the corporate information to the public, which has established effective channels for the Company to communicate with investors.

The Company publishes its announcements, financial information and other relevant information on the website at www.remegen.com, as a channel to facilitate effective communication.

The Board welcomes Shareholders’ views and encourages them to attend general meetings to convey any concerns they might have to the Board or the management. Chairman of the Board and the chairman of all committees (or their proxy) will attend the annual general meeting and other general meetings. At the general meetings, all shareholders attending the meeting may make enquiries to the Directors and other management in respect of matters relevant to the resolutions. The Company has published detailed contact methods through its website, notices of the general meeting, circulars to the shareholders and annual reports for shareholders to express their views or make enquiries.

INVESTOR RELATIONS

The Company considers it crucial to provide investors with accurate information in a timely manner and maintains communication with investors through effective communication channels, with an aim to enhance mutual understanding between investors and the Company and to improve the transparency of the Company’s information disclosure.

In accordance with the Listing Rules, the Company shall duly disseminate its corporate information via various channels, including regular reports, announcements and company website.

CONSTITUTIONAL DOCUMENTS

There had been no change to the Company’s constitutional documents since the Listing Date. The Company’s Articles of Association is available on the Company’s website and the Stock Exchange’s website.

42 RemeGen Co., Ltd.

DIRECTORS’ REPORT

The Board is pleased to present the annual report together with the audited consolidated financial statements of the Group for the year ended December 31, 2020.

GLOBAL OFFERING

The Company is a joint stock company incorporated in the PRC with limited liability. Its H shares were listed and traded on the Main Board of the Stock Exchange on November 9, 2020. The Prospectus of the Company dated October 28, 2020 has been published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.remegen.com).

PRINCIPAL ACTIVITIES

The Company is a commercial-ready biopharmaceutical company committed to the discovery, development and commercialization of innovative and differentiated biologics for the treatment of autoimmune, oncology and ophthalmic diseases with unmet medical needs in China and globally.

The activities and particulars of the Company’s principal subsidiaries are shown under note 1 to financial statements. An analysis of the Group’s revenue and operating profit for the year by principal activities is set out in the section headed “Management Discussion and Analysis” in this annual report and note 7 to financial statements.

RESULTS

The results of the Group for the year ended December 31, 2020 are set out in the section headed “Chairman’s Statement” of this report and the consolidated statements of profit or loss and other comprehensive income of the Group on pages 70 to 71 of this report.

BUSINESS REVIEW

A fair review of the business of the Group as required by Schedule 5 to the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), including an analysis of the Group’s financial performance, an indication of likely future developments in the Group’s business and the Group’s key relationships with its stakeholders who have a significant impact on the Group and on which the Group’s success depends, is set out in the section headed “Management Discussion and Analysis” of this annual report. These discussions form part of this annual report. Events affecting the Company that have occurred since the end of the financial year is set out in the section headed “Key Events After The Reporting Period” in this annual report.

Annual Report 2020 43

DIRECTORS’ REPORT

PRINCIPAL RISKS AND UNCERTAINTIES

The following list is a summary of certain principal risks and uncertainties facing the Group, some of which are beyond its control.

Risks relating to our financial position and need for additional capital:

• We have incurred significant net losses since inception, and expect to continue to incur net losses for the foreseeable future and we may not be able to generate sufficient revenue to achieve or maintain profitability. Potential investors may lose substantially all their investments in us given the high risks involved in our business.

• We had net liabilities, net current liabilities and net cash outflows in operating activities during the Track Record Period, and may continue to have net liabilities going forward, which can expose us to liquidity risk.

• We have a limited operating history, particularly as a standalone company, and have limited experience in manufacturing and sales and marketing of drugs, which may make it difficult to evaluate our current business and predict our future performance.

• Historically, we have been funding our operations primarily through equity financing and debt financing, of which a substantial portion was borrowings from RC Pharma. We will need to obtain additional financing to fund our operations, and financing may not be available on terms acceptable to us, or at all. If we are unable to obtain sufficient financing, we may be unable to complete the development and commercialization of our drug candidates.

• The performance and value of our investments in equity investments are subject to uncertainties and fluctuation.

Risks relating to our business:

• Our business and financial prospects depend substantially on the success of our clinical stage and pre-clinical stage drug candidates. If we are unable to successfully complete their clinical development, obtain their regulatory approvals or achieve their commercialization, or if we experience significant delays in doing any of the foregoing, our business will be materially harmed.

• If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

• Clinical drug development involves a lengthy and expensive process with an uncertain outcome.

44

RemeGen Co., Ltd.

DIRECTORS’ REPORT

• All material aspects of the research, development, manufacturing and commercialization of our drug candidates are heavily regulated.

• The regulatory approval processes of the NMPA, FDA, EMA and other comparable regulatory authorities are lengthy, time-consuming and inherently unpredictable. If we are unable to obtain without undue delay any regulatory approval for our drug candidates in our targeted markets, our business may be substantially harmed.

• Adverse events caused by our drug candidates could interrupt, delay or halt clinical trials, delay or prevent regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following any regulatory approval.

• Any delays in completing and receiving regulatory approvals for our manufacturing facilities, or any disruption of our current facilities or in the development of new facilities, could reduce or restrict our production capacity or our ability to develop or sell products, which could have a material and adverse effect on our business, financial condition and results of operations.

• If we are unable to meet the increasing demand for our existing drug candidates and future drug products by ensuring that we have adequate manufacturing capacity, or if we are unable to successfully manage our anticipated growth or to precisely anticipate market demand, our business could suffer.

• Our drug candidates, once approved, may fail to achieve the degree of market acceptance by physicians, patients, third-party payers and others in the medical community that would be necessary for their commercial success.

• We have no track record and limited experience in commercialization of drugs. If we are unable to build or maintain sufficient sales and marketing capabilities, either by ourselves or through third parties, we may not be able to successfully create or increase market awareness of our products or sell our products, which will materially affect our ability to generate product sales revenue.

• We face substantial competition and our competitors may discover, develop or commercialize competing drugs faster or more successfully than we do.

• Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual property rights, the outcome of which would be uncertain, and we may be subject to substantial costs and liability, or be prevented from using technologies incorporated in our drug candidates or future drugs, or delay the commercialization of our drug candidates in certain jurisdictions, as a result of such litigation or other proceedings relating to patent or other intellectual property rights.

Annual Report 2020 45

DIRECTORS’ REPORT

• If we are unable to obtain and maintain adequate patent and other intellectual property protection for our drug candidates throughout the world, or if the scope of such intellectual property rights obtained is not sufficiently broad, third parties could develop and commercialize products and technologies similar or identical to ours and compete directly against us, and our ability to successfully develop and commercialize any of our drug candidates or technologies would be materially adversely affected.

• The scope of our patent protection may be uncertain. Our current or any future patents may be challenged and invalidated even after issuance, which would materially adversely affect our ability to successfully commercialize any product or technology.

• We work with various third parties to develop our drug candidates, such as those who help us conduct our pre-clinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected timelines, we may not be able to obtain regulatory approval for, or commercialize, our drug candidates, and our business could be materially harmed.

• We have entered into collaborations with our partners and may form or seek additional collaborations or strategic alliances or enter into additional licensing arrangements in the future. We may not realize any or all benefits of such alliances or licensing arrangements, and disputes may arise between us and our current or future collaboration partners.

• We may rely on third parties to manufacture a portion of our drug candidates for clinical development and commercial sales. Our business could be harmed if those third parties fail to deliver sufficient quantities of product or fail to do so at acceptable quality levels or prices.

Risks relating to our operations:

• We operate in a competitive industry and may fail to compete effectively.

• Any failure to obtain or renew certain approvals, licenses, permits and certificates required for our business may materially and adversely affect our business, financial condition and results of operations.

• Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

• The loss of any key members of our senior management team or our inability to attract and retain highly skilled scientists, clinical and sales personnel could adversely affect our business.

• We have been, and in the future may be, involved in lawsuits or other legal proceedings, which could adversely affect our business, financial conditions, results of operations and reputation.

46

RemeGen Co., Ltd.

DIRECTORS’ REPORT

Risks relating to our doing business in China:

• The pharmaceutical industry in China is highly regulated and such regulations are subject to change, which may affect approval and commercialization of our drug candidates.

• Changes in the political and economic policies of the Chinese government may materially adversely affect our business, financial condition, results of operations and prospects and may result in our inability to sustain our growth and expansion strategies.

• There are uncertainties regarding the interpretation and enforcement of Chinese laws, rules and regulations.

However, the above is not an exhaustive list. Investors are advised to make their own judgment or consult with their own investment advisers before making any investment.

ENVIRONMENTAL POLICIES AND PERFORMANCE

We are committed to operate our business in a manner that protects environment, provides a safety workplace for our employees and performs our social liabilities.

We have implemented a set of policies on environment, social and governance consistent with industry standards and in compliance with the requirements of the Listing Rules. We have implemented company-wide environmental, health and safety (EHS) policies and operating procedures relating to process and work safety management, waste treatment, and emergency planning and response. Our EHS department is responsible for the formulation and updates of our EHS policies under the supervision of our Directors, and it continuously provide safety training sessions to our employees and monitors the compliance of relevant functions with our policies. Our operations involve the use of hazardous chemicals. We implemented safety guidelines setting out information about potential safety hazards and procedures for operating in the laboratory and manufacturing facilities, and we installed video surveillance systems inside the manufacturing facilities to monitor the operation process. Our operations also produce waste water and chemical waste. We treat the waste water existing our bioreactors in our biological waste disposal facilities, and store hazardous wastes in special warehouse. We also contract with third parties for the disposal of hazardous materials and wastes.

COMPLIANCE WITH THE RELEVANT LAWS AND REGULATIONS

As far as the Board and management are aware, the Group has complied in all material aspects with the relevant laws and regulations that have a significant impact on the business and operation of the Group. During the year ended December 31, 2020, there was no material breach of, or non-compliance with, applicable laws and regulations by the Group.

Annual Report 2020 47

DIRECTORS’ REPORT

FINANCIAL SUMMARY

A summary of the Group’s operating results, assets and liabilities for the last three financial years is set out on page 147 of this annual report. This summary does not form part of the audited consolidated financial statements.

FINAL DIVIDEND

The Board does not recommend payment of a final dividend for the year ended 31 December 2020.

PROPERTY, PLANT AND EQUIPMENT

Details of movements in the property, plant and equipment of the Company and the Group during the year ended December 31, 2020 are set out in Note 13 to financial statements.

BANK LOANS AND BORROWINGS

Particulars of bank loans and other borrowings of the Group as at December 31, 2020 are set out in the section headed “Management Discussion and Analysis” in this annual report and note 23 to financial statements.

SHARE CAPITAL

Details of the movements in the share capital of the Company during the year ended December 31, 2020 are set out in note 25 to financial statements.

RESERVES

As at December 31, 2020, the Company had distributable reserve accounting to approximately RMB3,186 million.

DONATIONS

During the year ended December 31, 2020, the Group made charitable donations of approximately RMB1.46 million (2019: did not make any charitable donation).

FINANCIAL STATEMENTS

The results of the Group for the year ended December 31, 2020 and the state of the Group’s financial position as at that date are set out in the consolidated financial statements on pages 72 to 73 of this report.

48 RemeGen Co., Ltd.

DIRECTORS’ REPORT

DIRECTORS

The Directors and Supervisors during the year ended December 31, 2020 and up to the date of this report were:

Executive Directors

Mr. Wang Weidong Dr. Fang Jianmin Dr. He Ruyi Mr. Lin Jian

Non-executive Directors

Dr. Wang Liqiang

Dr. Su Xiaodi

Independent non-executive Directors

Ms. Yu Shanshan Mr. Hao Xianjing Dr. Lorne Alan Babiuk

Supervisors

Mr. Ren Guangke Mr. Li Yupeng Mr. Li Zhuanglin

The biographical information of the Directors and Supervisors are set out in the section headed “Biographies of directors, supervisors and senior management” in this annual report.

DIRECTORS’ AND SUPERVISORS’ INTERESTS IN TRANSACTION, ARRANGEMENT OR CONTRACTS OF SIGNIFICANCE

The Group has not entered into any transaction agreement or contract of significance in which the Group’s Directors and Supervisors have direct or indirect material interests during the Reporting Period.

CONTROLLING SHAREHOLDERS’ INTERESTS IN CONTRACTS OF SIGNIFICANCE

None of the Controlling Shareholders has or had a material interest, either directly or indirectly, in any contract of significance, whether for the provision of services or otherwise, to the business of the Group to which the Company or any of its subsidiaries was a party during the Reporting Period.

Annual Report 2020 49

DIRECTORS’ REPORT

NON-COMPETITION UNDERTAKING

Pursuant to the Deed of Non-Competition, the Controlling Shareholders have undertaken that that they would not and would use their best endeavors to procure their close associates (except any members of the Group) not to, directly or indirectly, at any time during the relevant period (as defined below), carry on, engage in, invest in, participate in, attempt to participate in, render any services to, provide any financial support to or otherwise be involved in or interested in, whether alone or jointly with another person and whether directly or indirectly or on behalf of or to assist or act in concert with any other person, any business which is the same as, similar to or in competition or will compete or may compete with the core business of the Company.

The Company has received confirmations from the Controlling Shareholders confirming their compliance with the Deed of Non-Competition for the year ended December 31, 2020 for disclosure in this annual report. The independent non-executive Directors have also reviewed the Controlling Shareholders’ compliance with the Deed of Non-Competition for the year ended December 31, 2020.

DIRECTORS’ INTERESTS IN COMPETING BUSINESS

None of the Directors nor their respective associates (as defined in the Listing Rules) had any interest in a business that competed or might compete with the business of the Group.

EMOLUMENTS OF THE DIRECTORS AND THE FIVE HIGHEST PAID INDIVIDUALS

The remuneration committee determines or makes recommendation to the Board (as case may be) on the remuneration and other benefits payable to the Directors and Supervisors by the Group. The committee regularly oversees the remuneration of all Directors and Supervisors to ensure that their remuneration and compensation are at an appropriate level. The Group maintains competitive remuneration packages with reference to the industry standard and according to the business development of the Group, and determines remuneration of the Directors and Supervisors based on their qualifications, experience and contributions, to attract and retain its Directors and Supervisors as well as to control costs.

Details of emoluments of Directors, Supervisors and the top 5 highest paid individuals are set out in note 8 and note 9 to financial statements. For the year ended December 31, 2020, none of the Directors has waived or agreed to waive any emoluments.

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

As at December 31, 2020, the interests and short positions of the Directors and the chief executives of the Company in the Shares, underlying Shares and debentures of the Company or its associated corporation (within the meaning of Part XV of the SFO) which were required to be entered in the register kept by the Company pursuant to section 352 of the SFO, or which were otherwise required, to be notified to the Company and the Stock Exchange pursuant to the Model Code, are set out below:

50

RemeGen Co., Ltd.

DIRECTORS’ REPORT

INTERESTS IN SHARES OF THE COMPANY

			Number of	Approximate
			Shares or	percentage in	Approximate
			underlying	relevant class	percentage of
Name of Director	Class of Shares	Nature of Interest	Shares(Note 1)	of Shares(2)	shareholding(2)
Mr. Wang Weidong(3)	Domestic Shares	Interests of controlled	148,873,474	62.21%	30.39%
	Unlisted Foreign Shares	corporation; interests held jointly	11,683,725	8.84%	2.39%
		with another person
	Unlisted Foreign Shares	Interests held jointly with	65,818,320	49.79%	13.44%
		another person
Dr. Fang Jianmin(3)	Domestic Shares	Interests held jointly with	148,873,474	62.21%	30.39%
	Unlisted Foreign Shares	another person	11,683,725	8.84%	2.39%
	Unlisted Foreign Shares	Beneficial owner; interests held	26,218,320	19.83%	5.35%
		jointly with another person
	Unlisted Foreign Shares	Interests of controlled	39,600,000	29.96%	8.08%
		corporation; interests held jointly
		with another person
Dr. Wang Liqiang(3)	Domestic Shares	Interests held jointly with	148,873,474	62.21%	30.39%
	Unlisted Foreign Shares	another person	77,502,045	58.63%	15.82%
Mr. Lin Jian(3)	Domestic Shares	Interests held jointly with	148,873,474	62.21%	30.39%
	Unlisted Foreign Shares	another person	77,502,045	58.63%	15.82%

Notes:

• (1) The letter “L” stands for long position.

• (2) The calculation is based on percentage of shareholding in a total of 489,836,702 Shares, which consists of 118,348,877 H Shares, 239,294,291 Domestic Shares and 132,193,534 Unlisted Foreign Shares as at December 31, 2020.

• (3) As at December 31, 2020, each of Yantai Rongda Venture Capital Center (Limited Partnership) (煙台榮達創業投資中心 (有限合夥)) (“Rongda”), Yantai Rongqian Enterprise Management Center (Limited Partnership) (煙台榮謙企業管理中心 (有限合夥)) (“Rongqian”), Yantai Rongshi Enterprise Management Center (Limited Partnership) (煙台榮實企業管理中心 (有限合夥)) (“Rongshi”), Yantai Rongyi Enterprise Management Center (Limited Partnership) (煙台榮益企業管理中心 (有 限合夥)) (“Rongyi”), Yantai Rongjian Enterprise Management Center (Limited Partnership) (煙台榮建企業管理中心 (有限 合夥)) (“Rongjian”) was a limited partnership established in the PRC. Each of Rongqian, Rongshi, Rongyi and Rongjian is an employee incentive platform and held 18,507,388, 9,190,203, 16,630,337 and 2,163,655 Domestic Shares in our Company, respectively. Mr. Wang is the executive partner of each of Rongda, Rongqian, Rongshi, Rongyi and Rongjian. As such, under the SFO, Mr. Wang is deemed to be interested in the equity interests held by Rongda, Rongqian, Rongshi, Rongyi and Rongjian.

Further, as at December 31, 2020, RongChang Holding Group LTD. was a company incorporated in the British Virgin Islands. Mr. Wang was the sole director of RongChang Holding Group LTD. and RongChang Holding Group LTD. is accustomed to act in accordance with Mr. Wang’s instructions. As such, under the SFO, Mr. Wang is deemed to be interested in the equity interests held by RongChang Holding Group LTD.

51

Annual Report 2020

DIRECTORS’ REPORT

As at December 31, 2020, I-NOVA Limited was a company incorporated in the British Virgin Islands and was wholly-owned by Dr. Fang. As such, under the SFO, Dr. Fang is deemed to be interested in the equity interests held by I-NOVA Limited.

On April 16, 2020, Mr. Wang, Dr. Fang, Mr. Lin Jian, Dr. Wang Liqiang, Mr. Wang Xudong, Mr. Deng Yong, Mr. Xiong Xiaobin, Mr. Wen Qingkai, Ms. Yang Minhua, Mr. Wei Jianliang, Rongda, RongChang Holding LTD. and I-NOVA Limited entered into a concert party agreement to confirm that they have acted in concert in the management, decision-making and all major decisions of our Group. As such, each of the Concert Parties are deemed to be interested in the Shares each other is interested in.

Save as disclosed above, as at December 31, 2020, none of the Directors and chief executives of the Company had any interests or short positions in the Shares, underlying Shares and debentures of the Company or its associated corporations, recorded in the register required to be kept under section 352 of the SFO or required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

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

So far as is known to the Company, as at December 31, 2020, as recorded in the register required to be kept by the Company under section 336 of the SFO, the following persons, other than a Director or chief executive of the Company, had an interest of 5% or more in the Shares or underlying Shares:

			Number of	Approximate
			Shares or	percentage in	Approximate
			underlying	relevant class	percentage of
Name of Director	Class of Shares	Nature of Interest	Shares(Note 1)	of Shares(2)	shareholding(2)
Yantai Rongda Venture Capital	Domestic Shares	Interests held jointly with	46,491,583	19.43%	9.49%
Center (Limited Partnership)	Unlisted Foreign Shares	another person	77,502,045	58.63%	15.82%
(煙台榮達創業投資中心	Domestic Shares	Beneficial owners; interests held	102,381,891	42.78%	20.90%
(有限合夥))(3)		jointly with another person
Yantai Rongqian Enterprise	Domestic Shares	Beneficial owner	18,507,388	7.73%	3.78%
Management Center (Limited
Partnership) (煙台榮謙企業管理
中心(有限合夥))(3)
Yantai Rongyi Enterprise	Domestic Shares	Beneficial owner	16,630,337	6.95%	3.40%
Management Center (Limited
Partnership) (煙台榮益
企業管理中心(有限合夥))(3)
RongChang Holding Group LTD.(3)	Domestic Shares	Interests held jointly with	148,873,474	62.21%	30.39%
	Unlisted Foreign Shares	another person	65,818,320	49.79%	13.44%
	Unlisted Foreign Shares	Beneficial owner; interests held	11,683,725	8.84%	2.39%
		jointly with another person

52

RemeGen Co., Ltd.

DIRECTORS’ REPORT

			Number of	Approximate
			Shares or	percentage in	Approximate
			underlying	relevant class	percentage of
Name of Director	Class of Shares	Nature of Interest	Shares(Note 1)	of Shares(2)	shareholding(2)
I-NOVA Limited(3)	Domestic Shares	Interest held jointly with another	148,873,474	62.21%	30.39%
	Unlisted Foreign Shares	person	37,902,045	28.67%	7.74%
	Unlisted Foreign Shares	Beneficial owner; interests held	39,600,000	29.96%	8.08%
		jointly with another person
Mr. Wang Xudong(3)	Domestic Shares	Interest held jointly with another	148,873,474	62.21%	30.39%
	Unlisted Foreign Shares	person	77,502,045	58.63%	15.82%
Mr. Deng Yong(3)	Domestic Shares	Interest held jointly with another	148,873,474	62.21%	30.39%
	Unlisted Foreign Shares	person	77,502,045	58.63%	15.82%
Mr. Xiong Xiaobin(3)	Domestic Shares	Interest held jointly with another	148,873,474	62.21%	30.39%
	Unlisted Foreign Shares	person	77,502,045	58.63%	15.82%
Mr. Wen Qingkai(3)	Domestic Shares	Interest held jointly with another	148,873,474	62.21%	30.39%
	Unlisted Foreign Shares	person	77,502,045	58.63%	15.82%
Ms. Yang Minhua(3)	Domestic Shares	Interest held jointly with another	148,873,474	62.21%	30.39%
	Unlisted Foreign Shares	person	77,502,045	58.63%	15.82%
Mr. Wei Jianliang(3)	Domestic Shares	Interest held jointly with another	148,873,474	62.21%	30.39%
	Unlisted Foreign Shares	person	77,502,045	58.63%	15.82%
Fund for the transformation of	Domestic Shares	Beneficial Owner	24,732,556	10.34%	5.05%
National Science and
Technology Major Project (國投
(上海)科技成果轉化創業
投資基金企業(有限合夥))
(“SDIC Venture”)(4)
SDIC (Shanghai) Venture Capital	Domestic Shares	Interests of controlled	24,732,556	10.34%	5.05%
Management Co., Ltd.		corporation
(國投(上海)創業投資管理
有限公司)(4)
SDIC Venture Capital Management	Domestic Shares	Interests of controlled	24,732,556	10.34%	5.05%
Co., Ltd. (國投創業投資管理		corporation
有限公司)(4)
China SDIC Gaoxin Industrial	Domestic Shares	Interests of controlled	35,285,870	14.75%	7.20%
Investment Corp., Ltd. (中國		corporation
國投高新產業投資有限公司)(4)(5)
State Development & Investment	Domestic Shares	Interests of controlled	35,285,870	14.75%	7.20%
Corporation (國家開發投資集團		corporation
有限公司)(4)(5)

Annual Report 2020 53

DIRECTORS’ REPORT

			Number of	Approximate
			Shares or	percentage in	Approximate
			underlying	relevant class	percentage of
Name of Director	Class of Shares	Nature of Interest	Shares(Note 1)	of Shares(2)	shareholding(2)
PAG Growth Prosperity Holding I	Unlisted Foreign Shares	Beneficial owner	15,076,145	11.40%	3.08%
(HK) Limited (“PAG I”)	H Shares		6,030,457	5.64%	1.23%
PAG Growth I LP(6)	Unlisted Foreign Shares	Interests of controlled	15,400,762	11.65%	3.14%
	H Shares	corporation	7,708,071	7.21%	1.57%
Wholly Sunbeam Limited	Unlisted Foreign Shares	Beneficial owner	15,274,307	11.55%	3.12%
	H Shares		419,404	0.39%	0.09%
Mr. Zhu Hongtu(7)	Unlisted Foreign Shares	Interests of controlled	15,274,307	11.55%	3.12%
	H Shares	corporation	419,404	0.39%	0.09%
RC-Biology Investment Ltd.	Unlisted Foreign Shares	Beneficial owner	10,818,262	8.18%	2.21%
Pandanus Associates Inc.	H Shares	Interests of controlled	7,646,500	7.16%	1.56%
		corporation
FIL Limited	H Shares	Interests of controlled	7,646,500	7.16%	1.56%
		corporation
Pandanus Partners L.P.	H Shares	Interests of controlled	7,646,500	7.16%	1.56%
		corporation
Lake Bleu Capital (Hong Kong)	H Shares	Investment manager	7,503,427	7.02%	1.53%
Limited
Invesco Advisers, Inc.	H Shares	Investment manager	6,728,000	5.68%	1.37%
Shenzhen Capital Group Co., Ltd.	Domestic Shares	Beneficial owner	12,813,478	5.35%	2.62%
(深圳市創新投資集團有限公司)

Notes:

• (1) The letter “L” stands for long position.

• (2) The calculation is based on percentage of shareholding in a total of 489,836,702 Shares, which consists of 118,348,877 H Shares, 239,294,291 Domestic Shares and 132,193,534 Unlisted Foreign Shares as at December 31, 2020.

• (3) Please refer to the footnote (3) under the heading “DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES OF THE COMPANY OR ITS ASSOCIATED CORPORATIONS” above.

• (4) SDIC Venture beneficially owns 24,732,556 Domestic Shares and is a limited partnership incorporated in the PRC, whose executive partner is SDIC (Shanghai) Venture Capital Management Co., Ltd. (國投 (上海) 創業投資管理有限公司), a whollyowned subsidiary of SDIC Venture Capital Management Co., Ltd. (國投創業投資管理有限公司), which is owned as to 40% by China SDIC Gaoxin Industrial Investment Corp., Ltd. (中國國投高新產業投資有限公司).

China SDIC Gaoxin Industrial Investment Corp., Ltd. is a wholly-owned subsidiary of State Development & Investment Corporation (國家開發投資集團有限公司), a state-owned entity incorporated in the PRC.

As such, under the SFO, each of SDIC (Shanghai) Venture Capital Management Co., Ltd., SDIC Venture Capital Management Co., Ltd., China SDIC Gaoxin Industrial Investment Corp., Ltd. and State Development & Investment Corporation is deemed to be interested in the equity interests held by SDIC Venture.

54

RemeGen Co., Ltd.

DIRECTORS’ REPORT

• (5) SDIC Chuanghe beneficially owns 7,538,084 Domestic Shares and is a limited partnership incorporated in the PRC, whose executive partner is SDIC Unity Capital Co., Ltd. (國投創合基金管理有限公司).

Hangzhou Chuanghe beneficially owns 3,015,230 Domestic Shares and is a limited partnership incorporated in the PRC, whose executive partner is SDIC Unity (Hangzhou) Start-up Investment Management Co., Ltd. (國投創合 (杭州) 創業投資管 理有限公司), a wholly-owned subsidiary of SDIC Unity Capital Co., Ltd.

SDIC Unity Capital Co., Ltd. is owned as to 40% by State Development and Hi-tech Investment Corp. (國投高科技投資有限 公司), a wholly-owned subsidiary of China SDIC Gaoxin Industrial Investment Corp., Ltd. (中國國投高新產業投資有限公司). Please refer to footnote (4) for shareholding information of China SDIC Gaoxin Industrial Investment Corp., Ltd.

As such, under the SFO, each of SDIC Unity Capital Co., Ltd., State Development and Hi-tech Investment Corp. and China SDIC Gaoxin Industrial Investment Corp., Ltd. is deemed to be interested in the equity interests held by SDIC Chuanghe, and each of SDIC Unity (Hangzhou) Start-up Investment Management Co., Ltd. and SDIC Unity Capital Co., Ltd. is deemed to be interested in the equity interests held by Hangzhou Chuanghe.

• (6) PAG I beneficially owns 115,076,145 Unlisted Foreign Shares and 6,030,457 H Shares, and is wholly-owned by PAG Growth Prosperity Holding I (Cayman) Limited, which is in turn wholly-owned by PAG Growth Prosperity Holding I Limited, a whollyowned subsidiary of PAG Growth I LP. As such, under the SFO, each of PAG Growth Prosperity Holding I (Cayman) Limited, PAG Growth Prosperity Holding I Limited and PAG Growth I LP is deemed to be interested in the equity interests held by PAG I.

PAG Growth Holding IV (HK) Limited (“PAG IV”) beneficially owns 324,617 Unlisted Foreign Shares and 1,677,614 H Shares, and is wholly-owned by PAG Growth Holding IV (Cayman) Limited, which is in turn wholly-owned by PAG Growth Holding IV Limited, a wholly-owned subsidiary of PAG Growth I LP. As such, under the SFO, each of PAG Growth Prosperity Holding IV (Cayman) Limited, PAG Growth Prosperity Holding IV Limited and PAG Growth I LP is deemed to be interested in the equity interests held by PAG IV.

• (7) Wholly Sunbeam Limited beneficially owns 15,274,307 Unlisted Foreign Shares and 419,404 H Shares, and is wholly-owned by Mr. Zhu Hongtu (朱宏圖). As such, under the SFO, Mr. Zhu Hongtu is deemed to be interested in the equity interests held by Wholly Sunbeam Limited.

Save as disclosed above, as at December 31, 2020, the Company had not been notified of any persons (other than a Director or chief executive of the Company) who had an interest or short position in the Shares or underlying Shares that were recorded in the register required to be kept under section 336 of the SFO.

Annual Report 2020 55

DIRECTORS’ REPORT

ARRANGEMENTS TO PURCHASE SHARES OR DEBENTURES

At no time during the year ended December 31, 2020 was the Company or any of its subsidiaries a party to any arrangements to enable the Directors to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate; and none of the Directors, or any of their spouse or children under the age of 18, had any right to subscribe for equity or debt securities of the Company or any other body corporate, or had exercised any such right.

MAJOR CUSTOMERS AND SUPPLIERS

As we have no products approved for commercial sale and have not generated any revenue from any product sales, we did not generate any revenue for the Reporting Period.

Purchases attributable to the Group’s five largest suppliers and the largest supplier accounted for 25% and 9%, respectively, of the Group’s total purchases for the Reporting Period.

None of the Directors or any of their close associates (as defined in the Listing Rules) or any Shareholders (whom, to the best knowledge and belief of the Directors, own more than 5% of the Company’s total issued share capital) had a material interest in the Group’s five largest suppliers during the Reporting Period.

CONTINUING CONNECTED TRANSACTIONS

We have entered into, and are expected to continue, certain transactions which will constitute non-exempt continuing connected transactions of our Company under the Listing Rules upon the Listing. Accordingly, we have applied to the Stock Exchange for, and the Stock Exchange has granted, waivers in relation to certain continuing connected transactions between us and certain connected persons under Chapter 14A of the Listing Rules.

56 RemeGen Co., Ltd.

DIRECTORS’ REPORT

From the Listing and until December 31, 2020, details of the Group’s continuing connected transactions subject to the reporting, annual review and announcement requirements are set out as follows:

					Actual
					tax-included
					transaction
				Annual cap for	value for the
Continuing				the year ended	year ended
connected		Connected	Description and purpose of the	December 31,	December 31,
transaction	Date	person	transaction	2020	2020
CRC Services Framework	August 22, 2020	Kangkang	Provision of clinical trial management	RMB19,000,000	RMB16,076,000
Agreement			services from Kangkang to the Company
General Services	June 24, 2020	RC Pharma	Provision of steam for the Group’s	RMB7,646,000	RMB7,616,000
Framework			business operations; provision of
Agreement			coordination and management services
			in relation to construction works; and
			provision of other miscellaneous services
			such as canteen, business cars hire and
			supporting facilities services
MabPlex Master Service	August 15, 2020	MabPlex	Provision of research and development	RMB46,200,000	RMB19,908,000
Agreement			and manufacturing services to our
			Company
Materials Purchase	August 22, 2020	CelluPro	Sales of medium products from CelluPro	RMB10,646,650	RMB8,361,000
Framework Agreement			to our Company
MabPlex Property Lease	April 22, 2020	MabPlex	Lease of manufacturing facilities from	RMB2,468,000	RMB2,164,000
Agreement			our Company to MabPlex

The detailed terms of the non-exempt continuing connected transactions mentioned above are as follows:

CRC Services Framework Agreement

Our Company has entered into a framework agreement dated August 22, 2020 with Kangkang (the “CRC Services Framework Agreement”) pursuant to which our Company has agreed to engage Kangkang and Kangkang has agreed to provide certain clinical trials management services to our Company, including but not limited to coordinating clinical research, providing training to clinical research coordinators who shall assist investigators in their clinical trials according to the requests of our Company and providing supporting services for investigators. The Company and Kangkang will enter into separate individual agreements or work orders which will set out the specific terms and conditions according to the principles in the CRC Services Framework Agreement.

Shanghai Kangkang Medical Technology Center (“Kangkang Medical”) transferred its CRC business to Shanghai Kangkang Medical Technology Co., Ltd. (“Kangkang”) in 2020 for the development of business. The service provider of the CRC services framework agreement signed by the Company and Kangkang Medical in April 2020 was changed from Kangkang Medical to Kangkang. Therefore, the amount of this continuing connected transaction for the year ended 31 December 2020 is the sum of the CRC services provided by Kangkang Medical and Kangkang.

Annual Report 2020 57

DIRECTORS’ REPORT

Pricing

Service fees will be charged at rates no more favorable than rates at which our Company pays independent third parties for comparable transactions and will be determined by our Company and Kangkang through arm’s length negotiation based on a number of factors applicable to all service providers, including but not limited to the nature, complexity and value of tasks completed by Kangkang at each stage under each work order, the personnel and working hours estimated to be equipped and spent on providing specific service, historical hourly rate of staff in operational and managerial capacities and the then prevailing market rates by obtaining and comparing against fee quotes provided by other companies.

Annual caps

For the three years ending December 31, 2020, 2021 and 2022, the total amount payable by our Company to Kangkang for the services under the CRC Services Framework Agreement shall not exceed RMB19,000,000, RMB19,000,000 and RMB19,000,000, respectively.

During the Reporting Period, the amount of service fees paid/payable by the Company to Kangkang under the CRC Services Framework Agreement was RMB16,076,000.

General Services Framework Agreement

Our Company has entered into a general services framework agreement dated December 6, 2019 and a supplemental general services framework agreement dated June 24, 2020 with RC Pharma (together, the “General Services Framework Agreement”) in relation to general services provided by RC Pharma in the Park. The scope of such general services include (i) provision of steam for our business operations; (ii) provision of coordination and management services in relation to construction works; and (iii) provision of other miscellaneous services such as canteen, business cars hire and supporting facilities services.

Pricing

Service fees will be charged at rates no less favorable to our Company than rates at which RC Pharma charges independent third parties and other connected persons for comparable transactions and will be determined by the relevant parties through arm’s length negotiation based on factors applicable to all service providers, the factors applying to each of the three types of services are as follows:

• i. provision of steam: the provision of steam will be charged at the procurement costs paid by RC Pharma, for the natural gas required for producing steam plus service charge for the maintenance of facilities and equipment for converting the same into steam;

• ii. coordination and management services for construction works: the number of staff involved and the time spent by such staff on the relevant coordination and management services, which will be charged at fixed cost per man-hour as determined based on arms’ length negotiation between the Company and RC Pharma;

• iii. miscellaneous service: the actual number of people and the number of meals consumed, the actual usage of transportation services and costs of supporting facilities services, together with the corresponding service fees.

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DIRECTORS’ REPORT

Annual caps

For the three years ending December 31, 2020, 2021 and 2022, the maximum aggregate annual amount of service fees under the General Services Framework Agreement shall not exceed RMB7,646,000, RMB9,011,000 and RMB9,111,000, respectively.

During the Reporting Period, the amount of service fees paid/payable by the Company to RC Pharma under the General Services Framework Agreement was RMB7,616,000.

MabPlex Master Service Agreement

We entered into a M16120 master service agreement dated January 4, 2019 and a supplemental master service agreement dated August 15, 2020 with MabPlex (together, the “MabPlex Master Service Agreement”), pursuant to which MabPlex provides research and development and manufacturing services to our Company. Pursuant to the MabPlex Master Service Agreement, MabPlex provides certain research and development and manufacturing services to our Company, including but not limited to cell culture manufacturing, synthesis of linker-payloads, ADC conjugation service, release testing service, GMP fill/finish of ADC products, and cell banking. The Company and MabPlex will enter into separate individual agreements or work orders which will set out the specific terms and conditions according to the principles in the MabPlex Master Service Agreement.

Pricing

Service fees will be charged at rates no less favorable to our Company than rates at which our Company pays independent third parties for comparable transactions; and service fees will be determined by our Company and MabPlex through arm’s length negotiation with reference to a number of factors applicable to all service providers, including but not limited to the nature, complexity, and value of tasks completed by MabPlex at each stage under each work order, the market rates, quantity and sourcing of materials, the method of delivery, the fees charged for historical transactions of similar nature and the then prevailing market rates by obtaining and comparing against fee quotes provided by other third-party companies.

Annual caps

For the three years ending December 31, 2020, 2021 and 2022, the total amounts under the MabPlex Master Service Agreement shall not exceed RMB46,200,000, RMB41,700,000 and RMB29,110,000, respectively.

During the Reporting Period, the amount of service fees paid/payable by the Company to MabPlex under the MabPlex Master Service Agreement was RMB19,908,000.

Annual Report 2020 59

DIRECTORS’ REPORT

Materials Purchase Framework Agreement

Our Company has entered into a framework agreement for purchase of materials with CelluPro dated August 22, 2020 (the “Materials Purchase Framework Agreement”) pursuant to which CelluPro has agreed to sell and our Company has agreed to buy from CelluPro medium products manufactured by CelluPro. Pursuant to the Materials Purchase Framework Agreement, CelluPro will sell to our Company and our Company will buy from CelluPro certain medium products we use in our research and development activities including but not limited to basic culture medium and feed medium. The Company and CelluPro will enter into separate individual agreements or work orders which will set out the specific terms and conditions according to the principles in the Materials Purchase Framework Agreement.

Pricing

Fees will be charged at rates no less favorable to our Company than rates at which our Company pays independent third parties for comparable transactions and will be determined by our Company and CelluPro through arm’s length negotiation with reference to a number of factors applicable to all suppliers, including but not limited to the market price of the products, quantity and method of procurement, specifications of the products, the fees charged for historical transactions of similar nature and the then prevailing market rates based on unit price per litre for different culture mediums.

Annual caps

For the three years ending December 31, 2020, 2021 and 2022, the total amounts under the Materials Purchase Framework Agreement shall not exceed RMB10,646,650, RMB14,714,000 and RMB14,893,000, respectively.

During the Reporting Period, the amount of fees paid/payable by the Company to CelluPro under the Materials Purchase Framework Agreement was RMB8,361,000.

MabPlex Property Lease Agreement

Our Company entered into a property lease agreement dated April 22, 2020 with MabPlex (the “MabPlex Property Lease Agreement”), pursuant to which MabPlex leases from our Company manufacturing facilities comprising a nonsterilized area of 2,933.78 m[2] and a sterilized area of 465 m[2] .

Pricing

The rentals for sterilized area and non-sterilized area are RMB46,000 per month and RMB44,100 per month, respectively. Such rentals are determined by our Company and MabPlex through arm’s length negotiation based on a number of factors including but not limited to prevailing market rent of similar property located in the vicinity and the term of the lease.

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RemeGen Co., Ltd.

DIRECTORS’ REPORT

Further, the operational service charges for the sterilized and non-sterilized area are RMB128,000 and RMB58,000, respectively. Such operational service charges are determined through arm’s length negotiation by our Company and MabPlex based on a number of factors including the costs of maintenance of the operations by the Company and the prevailing market rates for such charges for similar property located in the vicinity. The Company will also charge service charges for usages of purified water, water for injection and purified steam at the rates of RMB42/ton, RMB130/ton and RMB408/ton, respectively. Such service charges are determined through arm’s length negotiation by our Company and MabPlex based on a number of factors including the costs of raw materials and for processing them.

Annual caps

For the three years ending December 31, 2020, 2021 and 2022, the total amounts receivable by our Company from MabPlex under the MabPlex Property Lease Agreement shall not exceed RMB2,468,000, RMB3,772,000 and RMB3,772,000, respectively.

During the Reporting Period, the amount of amounts received/receivable by the Company from MabPlex under the MabPlex Property Lease Agreement was RMB2,164,000.

Confirmation of the auditor

The Company’s auditor was engaged to report on the Group’s continuing connected transactions in accordance with Hong Kong Standard on Assurance Engagements 3000 (Revised) “Assurance Engagements Other than Audits or Reviews of Historical Financial Information” and with reference to Practice Note 740 “Auditor’s Letter on Continuing Connected Transactions under the Hong Kong Listing Rules” issued by the Hong Kong Institute of Certified Public Accountants. The Company’s auditor has issued an unqualified letter containing the findings and conclusions in respect of the above mentioned continuing connected transactions in accordance with Rule 14A.56 of the Listing Rules. A copy of the auditor’s letter has been provided by the Company to the Stock Exchange.

The auditor of the Company had informed the Board and confirmed nothing has come to their attention that cause them to believe that the continuing connected transactions:

• i. have not been approved by the Board;

• ii. are not carried out in accordance with the pricing policies in all material respects;

• iii. are not entered into in accordance with the related transaction agreement in any material respects; and

• iv. exceed the relevant annual caps as disclosed in the Prospectus.

In respect of the above mentioned non-exempt continuing connected transactions, the Directors also confirmed that the Company has complied with the disclosure requirements under Chapter 14A of the Listing Rules.

Annual Report 2020 61

DIRECTORS’ REPORT

All independent non-executive Directors had reviewed the non-exempt continuing connected transactions and confirmed that the non-exempt continuing connected transactions for the Reporting Period were: (i) in the ordinary and usual course of the Company’s business; (ii) on normal commercial terms or better to the Company; and (iii) in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

During the Reporting Period, there was no connected transaction or continuing connected transaction of the Group which has to be disclosed in accordance with the Listing Rules, save for the foregoing.

MATERIAL RELATED PARTY TRANSACTIONS

Save as disclosed in the paragraph headed “Continuing Connected Transactions” in this annual report, the related party transactions as set out in note 31 to financial statements were not regarded as connected transactions or were exempt from reporting, announcement and shareholders’ approval requirements under the Listing Rules.

PRE-EMPTIVE RIGHTS AND TAX RELIEF

There is no provision for the pre-emptive rights in the articles of association of the Company or under the laws of the PRC being the jurisdiction in which the Company was incorporated, which would oblige the Company to offer new Shares on a pro-rata basis to its existing shareholders.

The Company is not aware of any tax relief or exemption available to the Shareholders of the Company by reason of their holding of the Company’s securities.

PUBLIC FLOAT

According to information that is publicly available to the Company and within the knowledge of the Board, as at the date of this annual report, the Company has maintained the public float as required under the Listing Rules, as waived by the Stock Exchange pursuant to the waiver granted. Details of the waiver are disclosed in the Prospectus.

CORPORATE GOVERNANCE

The Board is of opinion that the Company had adopted, applied and complied with the code provisions as set out in the Corporate Governance Code contained in Appendix 14 to the Listing Rules during the year under review. Principal corporate governance practices adopted by the Company are set out in the “Corporate Governance Report” section of this report.

SUBSIDIARIES

Particulars of the Company’s subsidiaries as at December 31, 2020 are set out in note 1 to financial statements.

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DIRECTORS’ REPORT

PERMITTED INDEMNITY

The Company has purchased appropriate liability insurance for its Directors and Supervisors which provides proper protection for the Directors and Supervisors.

EQUITY-LINKED AGREEMENTS

The Company had not entered into any equity-linked agreement for the year ended 31 December 2020, nor did any equity-linked agreement subsist as at 31 December 2020.

MANAGEMENT CONTRACTS

No contracts concerning the management and administration of the whole or any substantial part of any business of the Company were entered into during the year or subsisted at the end of the year.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY

Neither the Company nor any of its subsidiaries had purchased, sold or redeemed any of the listed securities of the Company since the Listing and up to December 31, 2020.

MATERIAL LITIGATION

The Company was not involved in any material litigation or arbitration during the year ended December 31, 2020. The Directors are also not aware of any material litigation or claims that are pending or threatened against the Group during the year ended December 31, 2020.

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.

AGM AND CLOSURE OF REGISTER OF MEMBERS

The AGM will be held on Tuesday, June 1, 2021. A notice convening the AGM will be published on the Company’s website and the Stock Exchange’s website and dispatched to the Shareholders in accordance with the requirements of the Listing Rules in due course. For the purposes of determining the Shareholders’ eligibility to attend, speak and vote at the AGM and the Shareholders’ entitlement to the proposed final dividend, the Register of Members will be closed as appropriate as set out below:

Annual Report 2020 63

DIRECTORS’ REPORT

For determining the entitlement to attend and vote at the AGM

The Register of Members will be closed from Sunday, May 2, 2021 to Tuesday, June 1, 2021, both days inclusive, during which period no transfer of Shares will be effected. In order to determine the identity of members who are entitled to attend and vote at the AGM, all share transfer documents accompanied by the relevant share certificates must be lodged for registration with the Company’s share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong no later than 4:30 p.m. on Friday, April 30, 2021.

AUDITOR

The consolidated financial statements of the Group for the year ended December 31, 2020 have been audited by Ernst & Young who will retire at the AGM. Ernst & Young, being eligible, will offer themselves for re-appointment. A resolution for the re-appointment of Ernst & Young as the auditor of the Company will be proposed at the AGM.

By order of the Board of RemeGen Co., Ltd.

Mr. Wang Weidong Chairman and Executive Director

Yantai, the PRC March 26, 2021

64 RemeGen Co., Ltd.

REPORT OF THE SUPERVISORY COMMITTEE

The Supervisory Committee of the Company, in compliance with the relevant requirements of the PRC Company Law and the Articles of Association of the Company, has conducted its work in accordance with the fiduciary principle, and has taken up an active role to work seriously and with diligence to protect the interests of the Company and its shareholders.

During the Reporting Period, the Supervisory Committee had reviewed cautiously the development plans of the Company and provided reasonable suggestions and opinions to the Board. It also strictly and effectively monitored and supervised the Company’s management in making significant policies and decisions to ensure that they are in compliance with the relevant requirements of the PRC Company Law and the Articles of Association of the Company, and in the interests of its shareholders.

We have reviewed and agreed to the report of the Directors, audited financial statements and the dividend to be proposed by the Board for presentation at the forthcoming annual general meeting. We are of the opinion that the Directors, the chief executive officer and other senior management of the Company are able to strictly observe their fiduciary duty, to act diligently, to exercise their authority faithfully in the best interests of the Company and to work in accordance with the Articles of Association of the Company. The transactions between the Company and connected persons are in the interests of the shareholders as a whole and under fair and reasonable terms.

As of today, none of the Directors, chief executive officer and senior management staff had been found to have abused their authority, damaged the interests of the Company or infringed upon the interests of its shareholders and employees. None of them was found to be in breach of any laws and regulations or the Articles of Association of the Company.

The Supervisory Committee is satisfied with the achievement and cost-effectiveness of the Company in 2020 and has great confident in the future prospect of the Company.

By Order of the Supervisory Committee

REMEGEN CO., LTD.

Mr. Ren Guangke

Chairperson of the Supervisory Committee

Yantai, the PRC

March 26, 2021

Annual Report 2020 65

INDEPENDENT AUDITOR’S REPORT

To the shareholders of RemeGen Co., Ltd.

(Incorporated in the People’s Republic of China with limited liability)

OPINION

We have audited the consolidated financial statements of RemeGen Co., Ltd. (the “Company”) and its subsidiaries (the “Group”) set out on pages 70 to 146, which comprise the consolidated statement of financial position as at 31 December 2020, and the consolidated statement of profit or loss, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

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

BASIS FOR OPINION

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

KEY AUDIT MATTERS

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

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

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RemeGen Co., Ltd.

INDEPENDENT AUDITOR’S REPORT

Key audit matter

How our audit addressed the key audit matter

Recognition of research and development expenses

For the year ended 31 December 2020, the research and development (“R&D”) expenses incurred by the Group amounted to RMB465,821,000. The R&D expenses accounted for 66% of summary of selling and distribution expenses, R&D expenses and administrative expenses.

Our procedures in relation to the recognition of R&D expenses included:

We obtained an understanding and evaluated the design and the operating effectiveness of the key controls related to the Group’s R&D process.

The R&D activities are the principal business operations of the Group, and the recognition of research and development expenses has a significant impact on the financial statements. We identified the recognition of R&D expenses as a key audit matter.

The disclosures about accounting policies of R&D expense recognition are included in note 2.4 “Summary of significant accounting policies”, note 3 “Significant accounting judgements and estimates”

We obtained an understanding and evaluated management’s basis and assessment in relation to the timing and conditions of the capitalization of R&D expenditures.

Based on the progress of R&D projects, we inquired management about the reasons for periodical fluctuations in R&D expenses and analyzed those fluctuations.

We obtained the breakdown of prepayment, reviewed the contract and evaluated the completion status on a sample basis and analyzed prepayment with long age.

For the service fees paid to third parties for clinical trial and testing expenses, we tested the accrual of the clinical trial and testing expenses related costs, on a sample basis, against the clinical trial and testing expenses data and terms of services.

We reviewed on a sample basis the terms in R&D related agreements, invoices and expense breakdowns, we evaluated the measurement basis of the R&D expenses and relevant accruals with the reference to the progress reported by the relevant providers.

We conducted background check on major clinical trial third parties and performed test of details on a sample basis and reviewed related supporting documents in relation to the recognition of R&D expenses.

We preformed cut-off test of R&D expenses.

We focused on the adequacy of the disclosures in the consolidated financial statements.

67

Annual Report 2020

INDEPENDENT AUDITOR’S REPORT

OTHER INFORMATION INCLUDED IN THE ANNUAL REPORT

The directors of the Company are responsible for the other information. The other information comprises the information included in the Annual Report, other than the consolidated financial statements and our auditor’s report thereon.

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

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

RESPONSIBILITIES OF THE DIRECTORS FOR THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

68

RemeGen Co., Ltd.

INDEPENDENT AUDITOR’S REPORT

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

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.

• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

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

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

69

Annual Report 2020

INDEPENDENT AUDITOR’S REPORT

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

The engagement partner on the audit resulting in this independent auditor’s report is Yim Chi Hung Henry.

Ernst & Young

Certified Public Accountants

Hong Kong 26 March 2021

70

RemeGen Co., Ltd.

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

Year ended 31 December 2020

	Notes	2020 2019 RMB’ 000 RMB’ 000
REVENUE		– –
Cost of sales		– –
Gross profit		– –
Other income and gains	5	75,400 38,481
Selling and distribution expenses		(24,180) (621)
Administrative expenses		(217,623) (68,434)
Research and development costs		(465,821) (352,066)
Impairment losses on financial assets, net		(47) 134
Other expenses		(36,324) (3,985)
Finance costs	6	(29,226) (43,789)
LOSS BEFORE TAX Income tax expense	7 10	(697,821) (430,280) – –
LOSS FOR THE YEAR		(697,821) (430,280)
Attributable to:
Owners of the parent		(697,821) (430,280)
LOSS PER SHARE
ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT
Basic and diluted (RMB)	12	(1.71) (1.65)

71

Annual Report 2020

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 December 2020

	2020 2019 RMB’ 000 RMB’ 000
LOSS FOR THE YEAR	(697,821) (430,280)
OTHER COMPREHENSIVE INCOME/(LOSS)
Other comprehensive loss that may be reclassified to profit or loss
in subsequent periods:
Exchange differences on translation of foreign operations	(314) (62)
Other comprehensive income that will not be reclassified to profit or loss
in subsequent periods:
Equity investments designated at fair value through other comprehensive income:
Changes in fair value	732 1,425
OTHER COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX	418 1,363
TOTAL COMPREHENSIVE LOSS FOR THE YEAR	(697,403) (428,917)
Attributable to:
Owners of the parent	(697,403) (428,917)

72

RemeGen Co., Ltd.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31 December 2020

	Notes	2020 2019 RMB’ 000 RMB’ 000
NON-CURRENT ASSETS
Property, plant and equipment	13	802,568 459,713
Right-of-use assets	14	137,939 11,007
Other intangible assets	15	5,095 2,133
Equity investments designated at fair value through
other comprehensive income	16	12,907 11,448
Pledged deposits	20	577 –
Other non-current assets	17	181,264 67,436
Total non-current assets		1,140,350 551,737
CURRENT ASSETS
Inventories Bills receivable Prepayments, other receivables and other assets	18 19	66,204 31,247 – 1,058 102,404 29,858
Pledged deposits	20	40,212 40,866
Cash and cash equivalents	20	2,768,521 34,545
Total current assets		2,977,341 137,574
CURRENT LIABILITIES
Trade and bills payables	21	62,646 67,697
Other payables and accruals	22	211,320 720,602
Interest-bearing bank borrowings	23	108,124 60,000
Lease liabilities Deferred income	14 24	42,990 1,602 6,208 7,052
Total current liabilities		431,288 856,953
NET CURRENT ASSETS/(LIABILITIES)		2,546,053 (719,379)

73

Annual Report 2020

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31 December 2020

	Notes	2020 2019 RMB’ 000 RMB’ 000
TOTAL ASSETS LESS CURRENT LIABILITIES		3,686,403 (167,642)
NON-CURRENT LIABILITIES
Lease liabilities Deferred tax liabilities	14	46,578 3,762 727 –
Deferred income	24	44,477 60,565
Total non-current liabilities		91,782 64,327
Net assets/(liabilities)		3,594,621 (231,969)
EQUITY
Equity attributable to owners of the parent
Share capital	25	489,837 –
Paid-in capital	25	– 168,654
Reserves	26	3,104,784 (400,623)
Total equity/(deficit)		3,594,621 (231,969)

Wang Weidong Director

Fang Jianmin Director

74 RemeGen Co., Ltd.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2020

	Attributable to owners of the parent
	Paid-in capital Capital reserve Other reserve Fair value reserve Exchange fluctuation reserve Accumulated losses* Total deficit RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2019 Loss for the year Other comprehensive income/(loss) for the year: Changes in fair value of equity investments at fair value through other comprehensive income, net of tax Exchange differences related to foreign operations	70,000 127 4,379 23 106 (572,813) (498,178) – – – – – (430,280) (430,280) – – – 1,425 – – 1,425 – – – – (62) – (62)
Total comprehensive loss for the year Debt to equity conversion (note 25 and note 28(a)) Capital contributions from shareholders (note 25 and note 26) Share-based payments (note 27)	– – – 1,425 (62) (430,280) (428,917) 95,913 504,087 – – – – 600,000 2,741 87,259 – – – – 90,000 – – 5,126 – – – 5,126
At 31 December 2019	168,654 591,473 9,505 1,448 44 (1,003,093) (231,969)

75

Annual Report 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Year ended 31 December 2020

	Attributable to owners of the parent
	Share capital Share premium Paid-in capital Capital reserve Other reserve *Fair value reserve Exchange fluctuation reserve Accumulated losses *Total equity
	RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
At 1 January 2020 – – 168,654 591,473 9,505 1,448 44 (1,003,093) (231,969) Loss for the year – – – – – – – (697,821) (697,821) Other comprehensive income/(loss) for the year: – – Changes in fair value of equity investments at fair value through other comprehensive income, net of tax – – – – – 732 – – 732 Exchange differences related to foreign operations – – – – – – (314) – (314)
	– – 168,654 591,473 9,505 1,448 44 (1,003,093) (231,969)
	– – – – – – – (697,821) (697,821)
Total comprehensive loss for the year – – – – – 732 (314) (697,821) (697,403) Capital contribution from shareholders (note 25 and note 26) – – 13,991 721,835 – – – – 735,826 Conversion into a joint stock company upon restructuring (note 25 and note 26) 401,819 25,812 (182,645) (1,313,308) (11,436) (1,448) – 1,081,206 – Issue of H shares in initial public offering (“IPO”) (note 25 and note 26) 76,537 3,207,707 – – – – – – 3,284,244 Over-allotment option of IPO (note 25 and note 26) 11,481 475,821 – – – – – – 487,302 Share-based payments (note 27) – – – – 16,621 – – – 16,621
At 31 December 2020 489,837 3,709,340 – – 14,690 732 (270) (619,708) 3,594,621

• These reserve accounts comprise the consolidated reserves of RMB3,104,784,000 (31 December 2019: minus RMB400,623,000) in the consolidated statement of financial position as at 31 December 2020.

76

RemeGen Co., Ltd.

CONSOLIDATED STATEMENT OF CASH FLOWS

Year ended 31 December 2020

	Notes	2020 2019 RMB’ 000 RMB’ 000
CASH FLOWS FROM OPERATING ACTIVITIES
Loss before tax Adjustments for:		(697,821) (430,280)
Finance costs Bank interest income Investment income received from financial investments Gain upon early termination of leases	6 5 5	29,226 43,789 (1,655) (147) (287) – (5) –
Depreciation of property, plant and equipment	7,13	49,094 40,203
Depreciation of right-of-use assets	7,14	27,580 1,769
Amortisation of other intangible assets	7,15	992 800
Amortisation of long-term prepayments	7	65 28
Impairment of financial assets included in prepayments,
other receivables and other assets	7,19	47 (134)
Loss on disposal of items of property, plant and equipment	7	210 340
Share-based payment expenses	27	16,563 5,126
Foreign exchange differences, net		30,795 (66)
Increase in inventories Decrease in bills receivable Increase in prepayments, other receivables and other assets		(545,196) (338,572) (34,899) (1,576) – 20,802 (74,295) (10,549)
Increase in other non-current assets Increase/(decrease) in trade and bills payables		(13,304) (16,563) (5,266) 19,006
Increase in other payables and accruals		29,426 23,481
(Increase)/decrease in pledged deposits		730 (8,742)
(Decrease)/increase in deferred income in respect of
government grants related to income		(18,928) 29,820
Cash used in operations		(661,732) (282,893)
Interest received		1,655 147
Net cash flows used in operating activities		(660,077) (282,746)

Annual Report 2020 77

CONSOLIDATED STATEMENT OF CASH FLOWS Year ended 31 December 2020

		2020	2019
	Notes	RMB’ 000	RMB’ 000
CASH FLOWS FROM INVESTING ACTIVITIES Purchases of items of property, plant and equipment		(443,489)	(65,209)
Purchases of items of other intangible assets		(2,101)	–
Purchases of items of land use rights		(35,244)	–
Proceeds from disposal of items of property, plant and equipment		82	199
Purchases of items of financial investments Redemption of financial investments Investment income received from financial investments Receipts of government grants related to assets Increase in pledged deposits		(102,000) 102,000 287 2,053 (653)	– – – 2,034 (32,124)
Net cash flows used in investing activities		(479,065)	(95,100)
CASH FLOWS FROM FINANCING ACTIVITIES New bank borrowings Repayment of bank borrowings New borrowings from a related party Repayment of borrowings from a related party		168,000 (120,000) 495,192 (1,041,625)	146,000 (86,000) 556,975 (209,050)
New other loan		20,000	–
Repayment of other loan Capital contributions from shareholders Proceeds from issue of H shares and over-allotment through HK IPO Interest paid for bank borrowings Interest paid for borrowings from a related party Interest portion of lease payment Principal portion of lease payments		(20,000) 735,826 3,772,203 (3,123) (65,594) (3,340) (33,314)	– 90,000 – (1,811) (86,860) (329) (1,603)
Net cash flows from financing activities		3,904,225	407,322
NET INCREASE IN CASH AND CASH EQUIVALENTS		2,765,083	29,476
Cash and cash equivalents at beginning of year		34,545	5,069
Effect of foreign exchange rate changes, net		(31,107)	–
CASH AND CASH EQUIVALENTS AT END OF YEAR	20	2,768,521	34,545
ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS
Cash and bank balances	20	2,809,310	75,411
Less: pledged deposits	20	(40,789)	(40,866)
Cash and cash equivalents as stated in the consolidated statement of
cash flows		2,768,521	34,545

78

RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS 31 December 2020

1. CORPORATE AND GROUP INFORMATION

RemeGen Co., Ltd. (the “Company”) was incorporated in the People’s Republic of China (the “PRC”) on 4 July 2008 as a limited liability company. On 12 May 2020, the Company was converted into a joint stock company with limited liability under the Company Law of the PRC. The registered office of the Company is located at 58 Middle Beijing Road, Yantai Development Zone, Yantai Area of Shandong Pilot Free Trade Zone, PRC.

During the year, the Company and its subsidiaries (the “Group”) were principally engaged in the research and development of biological products.

Information about subsidiaries

Particulars of the Company’s principal subsidiaries are as follows:

	Place and date		Percentage
	of registration/		of equity
	incorporation and	Nominal value of issued ordinary/	attributable to
Name	place of operations	registered paid-in capital	the Company	Principal activities
			Direct
RemeGen Biosciences, Inc. (previously known as	Delaware, United	1,500 common shares	100%	Research and development,
“RC Biotechnologies, Inc.”)	States of America			registration and business
	(“USA”)			development
	18 April 2011
Ruimeijing (Beijing) Pharmaceutical Technology Co., Ltd.	Beijing, PRC	RMB1,000,000	100%	Research and development
(瑞美京(北京)醫藥科技有限公司)*	14 August 2019
RemeGen Hong Kong Limited	Hong Kong	United States dollars (“USD”)	100%	Research and development
	26 September 2019	4,000,000		and business development
RemeGen Medical Research (Shanghai) Co., Ltd.	Shanghai, PRC	RMB8,000,000	100%	Research and development
(榮昌生物醫藥研究(上海)有限公司)*	20 May 2020
RemeGen Australia Pty Ltd	South Australia	100 ordinary shares	100%	Research and development
	3 March 2021

• The English name of this subsidiary represented the best efforts made by the management of the Company to translate the Chinese name as it does not have an official English name registered in the PRC.

• Registered as domestic limited liability companies under PRC law.

79

Annual Report 2020

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.1 BASIS OF PREPARATION

These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”), which comprise all standards and interpretations approved by the International Accounting Standards Board (“IASB”) and the disclosure requirements of the Hong Kong Companies Ordinance.

These financial statements have been prepared under the historical cost convention, except for equity investments designated at fair value through other comprehensive income and other financial assets which have been measured at fair value. These financial statements are presented in Renminbi (“RMB”) and all values are rounded to the nearest thousand (“RMB’ 000”) except when otherwise indicated.

The Group incurred losses continually during the year due to the pre-revenue stage of its drug research and development businesses. The Group has been taking various measures to obtain sufficient financing for the Group to operate as a going concern, which included the initial listing and over-allotment of its shares on the Stock Exchange. In addition, the Group obtained new banking facilities of RMB630 million in June 2020, which replaced the then unused banking facilities of RMB143 million. As at 31 December 2020, the unused banking facilities of the Group were RMB520,000,000, and the Group had current assets exceeded its current liabilities by RMB2,546,053,000.

In light of the above measures of the Group and after taking into account the Group’s operating cash flow needs and capital expenditure spending in the foreseeable future, the Directors are of the opinion that the Group shall be able to meet with its liabilities and expenses as and when they fall due in the foreseeable future. Hence the preparation of financial statements under the going concern basis by the Directors is appropriate.

Basis of consolidation

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

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

• (a) the contractual arrangement with the other vote holders of the investee;

• (b) rights arising from other contractual arrangements; and

• (c) the Group’s voting rights and potential voting rights.

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

80 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.1 BASIS OF PREPARATION (CONTINUED)

Basis of consolidation (continued)

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent of the Group. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

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

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

2.2 CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES

Pursuant to the Accountants’ Report of the Group in connection with the listing of the shares of the Company on the Stock Exchange, all IFRSs in issue as at 30 June 2020 and effective for annual periods beginning 1 January 2020, together with the relevant transitional provisions, had been early adopted by the Group in the preparation of the consolidated statements of profit or loss, statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group for each of the years ended 31 December 2018 and 2019 and the six months ended 30 June 2020, and the consolidated statements of financial position of the Group and the statements of financial position of the Company as at 31 December 2018 and 2019 and 30 June 2020. Thus, the adoption of the below amendments has had no impact on the Group’s financial statements for the year ended 31 December 2020.

Amendments to IFRS 3 Amendments to IFRS 9, IAS 39 and IFRS 7 Amendment to IFRS 16 Amendments to IAS 1 and IAS 8

Definition of a Business Interest Rate Benchmark Reform Covid-19-Related Rent Concessions (early adopted) Definition of Material

81

Annual Report 2020

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.3 ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS

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

Amendments to IFRS 10 and IAS 28	Sale or Contribution of Assets between an Investor and
	its Associate or Joint Venture 1
Amendments to IFRS 9, IAS 39, IFRS 7,	Interest Rate Benchmark Reform – Phase 2 2
IFRS 4 and IFRS 16
Amendments to IFRS 3	Reference to the Conceptual Framework 3
Amendments to IAS 16	Property, Plant and Equipment: Proceeds before
	Intended Use 3
Amendments to IAS 37	Onerous Contracts – Cost of Fulfilling a Contract 3
Annual Improvements to IFRSs 2018-2020	Amendments to IFRS 1, IFRS 9, IAS 41 and Illustrative
	Examples accompanying IFRS 163
Amendments to IAS 1	Classification of Liabilities as Current or Non-current4
Amendments to IAS 1	Disclosure of Accounting Policies4
Amendments to IAS 8	Definition of Accounting Estimates4
IFRS 17	Insurance Contracts5
Amendments to IFRS 17	Insurance Contracts5

• 1 No mandatory effective date yet determined but available for adoption

• 2 Effective for annual periods beginning on or after 1 January 2021

• 3 Effective for annual periods beginning on or after 1 January 2022

• 4 Effective for annual periods beginning on or after 1 January 2023

• 5 As a consequence of the amendments to IFRS 17 issued in June 2020, the effective date of IFRS 17 was deferred to 1 January 2023, and IFRS 4 was amended to extend the temporary exemption that permits insurers to apply IAS 39 rather than IFRS 9 for annual periods beginning before 1 January 2023

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

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

82

RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.3 ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS (CONTINUED)

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

• IFRS 9 Financial Instruments: clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual periods beginning on or after 1 January 2022. Earlier application is permitted. The amendment is not expected to have a significant impact on the Group’s financial statements.

• IFRS 16 Leases: removes the illustration of payments from the lessor relating to leasehold improvements in Illustrative Example 13 accompanying IFRS 16. This removes potential confusion regarding the treatment of lease incentives when applying IFRS 16.

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

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

83

Annual Report 2020

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Fair value measurement

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

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

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

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

• －

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

• －

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

• －

• Level 3 based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

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

Impairment of non-financial assets

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

84

RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of non-financial assets (continued)

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

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

Related parties

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

• (a) the party is a person or a close member of that person’s family and that person

• (i) has control or joint control over the Group;

• (ii) has significant influence over the Group; or

• (iii) is a member of the key management personnel of the Group or of a parent of the Group;

or

• (b) the party is an entity where any of the following conditions applies: (i) the entity and the Group are members of the same group;

• (ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);

• (iii) the entity and the Group are joint ventures of the same third party;

• (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;

• (v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;

85

Annual Report 2020

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Related parties (continued)

• (b) the party is an entity where any of the following conditions applies: (continued) (vi) the entity is controlled or jointly controlled by a person identified in (a);

• (vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and

• (viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.

Property, plant and equipment and depreciation

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

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

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

Buildings	1.90%-19.00%
Plant and machinery	8.45%-20.62%
Office equipment and others	2.32%-47.50%
Motor vehicles	11.88%-19.00%

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

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

86

RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, plant and equipment and depreciation (continued)

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

Intangible assets (other than goodwill)

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

Patents and licences

Patents and licences are stated at cost less any impairment losses and are amortised on the straight-line basis over their estimated useful lives of 10 years. The useful life of patents and licenses is determined by considering the periods of validity of patents and the technical obsolescence.

Research and development costs

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

Leases

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

Group as a lessee

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

87

Annual Report 2020

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Leases (continued)

Group as a lessee (continued)

(a) Right-of-use assets

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

Land use rights	50 years
Buildings	1 to 4 years
Plant and machinery	3 to 5 years

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

(b) Lease liabilities

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

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

88

RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Leases (continued)

Group as a lessee (continued)

(c) Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases (that is those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the recognition exemption for leases of low-value assets to leases of office equipment and laptop computers that are considered to be of low value. Lease payments on short-term leases and leases of low-value assets are recognised as an expense on a straight-line basis over the lease term.

Group as a lessor

When the Group acts as a lessor, it classifies at lease inception (or when there is a lease modification) each of its leases as either an operating lease or a finance lease.

Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset are classified as operating leases. When a contract contains lease and non-lease components, the Group allocates the consideration in the contract to each component on a relative stand-alone selling price basis. Rental income is accounted for on a straight-line basis over the lease terms and is included in revenue in profit or loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned.

Leases that transfer substantially all the risks and rewards incidental to ownership of an underlying asset to the lessee, are accounted for as finance leases.

Investments and other financial assets

Initial recognition and measurement

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

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

89

Annual Report 2020

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Investments and other financial assets (continued)

Initial recognition and measurement (continued)

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

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

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

Subsequent measurement

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

Financial assets at amortised cost (debt instruments)

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

Financial assets at fair value through other comprehensive income (debt instruments)

For debt investments at fair value through other comprehensive income, interest income, foreign exchange revaluation and impairment losses or reversals are recognised in profit or loss and computed in the same manner as for financial assets measured at amortised cost. The remaining fair value changes are recognised in other comprehensive income. Upon derecognition, the cumulative fair value change recognised in other comprehensive income is recycled to profit or loss.

Financial assets at fair value through other comprehensive income (equity investments)

Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity investments designated at fair value through other comprehensive income when they meet the definition of equity under IAS 32 Financial Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-instrument basis.

90

RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Investments and other financial assets (continued)

Financial assets at fair value through other comprehensive income (equity investments) (continued) Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognised as other income in profit or loss when the right of payment has been established, it is probable that the economic benefits associated with the dividend will flow to the Group and the amount of the dividend can be measured reliably, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in other comprehensive income. Equity investments designated at fair value through other comprehensive income are not subject to impairment assessment.

Derecognition of financial assets

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

• the rights to receive cash flows from the asset have expired; or

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

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

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

Impairment of financial assets

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

91

Annual Report 2020

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of financial assets (continued)

General approach

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

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

The Group considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Group may also consider a financial asset to be in default when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

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

• －

• Stage 1 Financial instruments for which credit risk has not increased significantly since initial recognition and for which the loss allowance is measured at an amount equal to 12-month ECLs

• －

• Stage 2 Financial instruments for which credit risk has increased significantly since initial recognition but that are not credit-impaired financial assets and for which the loss allowance is measured at an amount equal to lifetime ECLs

• －

• Stage 3 Financial assets that are credit-impaired at the reporting date (but that are not purchased or originated credit-impaired) and for which the loss allowance is measured at an amount equal to lifetime ECLs

Simplified approach

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

92

RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Financial liabilities

Initial recognition and measurement

Financial liabilities are classified, at initial recognition, as loans and borrowings, or payables, as appropriate.

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

The Group’s financial liabilities include trade and other payables, financial liabilities included in other payables and accruals, interest-bearing bank borrowings and lease liabilities.

Subsequent measurement

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

Financial liabilities at amortised cost (loans and borrowings)

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

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

Derecognition of financial liabilities

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

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

Offsetting of financial instruments

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

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

93

Annual Report 2020

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash at banks, are subject to an insignificant risk of changes in value and form an integral part of the Group’s cash management.

For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash at banks and demand deposits, which are not restricted as to use.

Provisions

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

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

Income tax

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

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

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

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

• when the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business consolidation and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

94

RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income tax (continued)

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

• when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business consolidation and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

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

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

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

Government grants

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

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

95

Annual Report 2020

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue recognition

Other income

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

Rental income is recognised on a time proportion basis over the lease terms. Variable lease payments that do not depend on an index or a rate are recognised as income in the accounting period in which they are incurred.

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

Share-based payments

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

The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value of share options and restricted shares is determined by an external valuer using the Black-Scholes Option Pricing Model and the discounted cash flow model, respectively. Further details are included in note 27 to the financial statements.

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

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

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

96

RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Share-based payments (continued)

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

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

Other employee benefits

Pension scheme

The employees of the Group which operate in Mainland China are required to participate in a defined central pension scheme managed by the local municipal government. The subsidiaries operating in Mainland China are required to contribute a certain percentage of the relevant part of the payroll of these employees to the central pension scheme. The Group has no obligation for the payment of retirement benefits beyond the annual contributions. The contributions are charged to profit or loss as they become payable in accordance with the rules of the central pension scheme.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Foreign currencies

These financial statements are presented in RMB. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognised in the statement of profit or loss.

97

Annual Report 2020

NOTES TO FINANCIAL STATEMENTS

31 December 2020

2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Foreign currencies (continued)

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

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

The functional currencies of certain overseas subsidiaries are currencies other than the RMB. As at the end of the reporting period, the assets and liabilities of these entities are translated into RMB at the exchange rates prevailing at the end of the reporting period and their statements of profit or loss are translated into RMB at the weighted average exchange rates for the year.

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

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

98

RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS 31 December 2020

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES

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

Judgements

In the process of applying the Group’s accounting policies, management has made the following judgement, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements:

Research and development expenses

Development expenses incurred on the Group’s drug product pipelines are capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, the Group’s intention to complete and the Group’s ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the pipelines and the ability to measure reliably the expenditure during the development. Development expenses which do not meet these criteria are expensed when incurred. The management of the Group will assess the progress of each of the research and development projects and determine the criteria met for capitalisation. All development expenses were expensed when incurred during the current and prior years.

Estimation uncertainty

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

Recognition of income taxes and deferred tax assets

Determining income tax provision involves judgement on the future tax treatment of certain transactions and when certain matters relating to the income taxes have not been confirmed by the local tax bureau. Management evaluates tax implications of transactions and tax provisions are set up accordingly. The tax treatments of such transactions are reconsidered periodically to take into account all changes in tax legislation. Deferred tax assets are recognised in respect of deductible temporary differences and unused tax losses. As those deferred tax assets can only be recognised to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences and the losses can be utilised, management’s judgement is required to assess the probability of future taxable profits. Management’s assessment is revised as necessary and additional deferred tax assets are recognised if it becomes probable that future taxable profits will allow the deferred tax assets to be recovered.

99

Annual Report 2020

NOTES TO FINANCIAL STATEMENTS

31 December 2020

3. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (CONTINUED)

Estimation uncertainty (continued)

Impairment of non-financial assets (other than goodwill)

The Group assesses whether there are any indicators of impairment for all non-financial assets (including the right-of-use assets) at the end of each reporting period. Indefinite life intangible assets are tested for impairment annually and at other times when such an indicator exists. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cash-generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in an arm’s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value in use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash-generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.

Useful lives and residual values of property, plant and equipment

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

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

Write-down of inventories to net realisable value

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

Fair value of unlisted equity investments

The unlisted equity investments have been valued based on the expected cash flows discounted at current rates applicable for items with similar terms and risk characteristics. This valuation requires the Group to make estimates about expected future cash flows, discount for lack of marketability and discount rates, and hence they are subject to uncertainty. The fair value of unlisted equity investments at 31 December 2020 was RMB12,907,000 (31 December 2019: RMB11,448,000). Further details are included in note 16 to the financial statements.

100 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS 31 December 2020

4. OPERATING SEGMENT INFORMATION

The Group is engaged in biopharmaceutical research, biopharmaceutical service, and biopharmaceutical production, which is regarded as a single reportable segment in a manner consistent with the way in which information is reported internally to the Group’s senior management for purposes of resource allocation and performance assessment. Therefore, no analysis by operating segment is presented.

Geographical information

Non-current assets

	2020 2019
	RMB’ 000 RMB’ 000
Mainland China	1,122,249 540,020
USA	5,194 269
	1,127,443 540,289

The non-current asset information above is based on the locations of the assets and excludes equity investments designated at fair value through other comprehensive income.

5. OTHER INCOME AND GAINS

	Notes	2020 2019 RMB’ 000 RMB’ 000
Government grants*	7	70,289 33,471
Rental income Bank interest income	14 7	2,624 2,452 1,655 147
Investment income from financial investments	7	287 –
Sales of materials Others		93 1,610 452 801
		75,400 38,481

• The government grants mainly represent subsidies received from government authorities for the purpose of compensation for expenditure arising from research activities and clinical trials, awards for new drug development and capital expenditure incurred on certain projects. There are no unfulfilled conditions or contingencies relating to these government grants.

Annual Report 2020 101

NOTES TO FINANCIAL STATEMENTS 31 December 2020

6. FINANCE COSTS

	2020 2019 RMB’ 000 RMB’ 000
Interest on borrowings from a related party (note 31(b))	23,945 41,649
Interest on bank borrowings	3,247 1,811
Interest on lease liabilities (note 14(c))	3,340 329
Less: interest capitalised in property, plant and equipment	30,532 43,789 1,306 – 29,226 43,789

7. LOSS BEFORE TAX

LOSS BEFORE TAX
The Group’s loss before tax is arrived at after charging/(crediting):
	Notes	2020 2019 RMB’ 000 RMB’ 000
Research and development costs (note (a))		465,821 352,066
Depreciation of property, plant and equipment (note (b))	13	49,094 40,203
Depreciation of right-of-use assets	14	27,580 1,769
Amortisation of other intangible assets (note (c))	15	992 800
Amortisation of long-term prepayments		65 28
Listing expenses attributed to listing of existing shares		62,283 980
Auditor’s remuneration		1,700 661
Government grants	5	(70,289) (33,471)
Lease payments not included in the measurement of lease liabilities		1,282 850
Employee benefit expenses
(excluding directors’ and supervisors’ remuneration (note 8)):
Wages, salaries and allowances		186,986 109,601
Pension scheme contributions Staff welfare expenses		1,278 11,146 14,946 9,395
Share-based payment expenses		10,150 5,126
		213,360 135,268
Foreign exchange differences, net		32,330 –
Impairment of financial assets, net:
Impairment of financial assets included in prepayments, other
receivables and other assets (note (d))	19	47 (134)
Bank interest income Investment income from financial investments Loss on disposal of items of property, plant and	5 5	(1,655) (147) (287) –
equipment (note (d))		210 340

102 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

7. LOSS BEFORE TAX (CONTINUED)

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

Notes:

• (a) The research and development costs include RMB185,958,000 (2019: RMB145,368,000) relating to employee benefit expenses, depreciation and amortisation for the year ended 31 December 2020, which are also included in the respective amounts disclosed above for each type of expenses.

• (b) Mainly included in “Administrative expenses”, “Research and development costs” and “Selling and distribution expenses” in the consolidated statement of profit or loss.

• (c) Mainly included in “Administrative expenses” and “Research and development costs” in the consolidated statement of profit or loss.

• (d) Included in “Other expenses” in the consolidated statement of profit or loss.

8. DIRECTORS’ AND SUPERVISORS’ REMUNERATION

Directors’ and supervisors’ remuneration for the year, disclosed pursuant to the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”), section 383(1)(a), (b), (c) and (f) of the Hong Kong Companies Ordinance and Part 2 of the Companies (Disclosure of Information about Benefits of Directors) Regulation, is as follows:

	2020 2019 RMB’ 000 RMB’ 000
Fees	576 –
Other emoluments:
Salaries, allowances and benefits in kind	11,695 2,583
Performance related bonuses	3,393 560
Pension scheme contributions	23 121
Share-based payment expenses	6,471 –
	21,582 3,264
	22,158 3,264

Annual Report 2020 103

NOTES TO FINANCIAL STATEMENTS

31 December 2020

8. DIRECTORS’ AND SUPERVISORS’ REMUNERATION (CONTINUED)

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

Year ended 31 December 2020

	Fees Salaries, allowances and benefits in kind Performance related bonuses Pension scheme contributions Share-based payment expenses Total remuneration RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
Executive directors
Mr. Wang Weidong (note (a))	– 840 660 – – 1,500
Dr. Fang Jianmin (note (b))	– 4,636 960 3 – 5,599
Mr. Lin Jian (note (c))	– 486 403 – – 889
Dr. He Ruyi (note (d))	– 4,152 960 3 4,648 9,763
	– 10,114 2,983 6 4,648 17,751
Non-executive directors
Mr. Deng Yong (note (e))	– – – – – –
Ms. Tao Luqun (note (e))	– 238 – 14 – 252
Dr. Wang Liqiang (note (d))	– – – – – –
Dr. Su Xiaodi (note (d))	– – – – – –
	– 238 – 14 – 252
Independent non-executive
directors
Ms. Yu Shanshan (note (f))	192 – – – – 192
Mr. Hao Xianjing (note (f))	192 – – – – 192
Dr. Lorne Alan Babiuk (note (f))	192 – – – – 192
	576 – – – – 576
Supervisors
Mr. Wen Qingkai (note (g))	– 270 – 3 – 273
Mr. Ren Guangke (note (h))	– 313 205 – 1,297 1,815
Mr. Li Yupeng (note (h))	– – – – – –
Mr. Li Zhuanglin (note (h))	– 760 205 – 526 1,491
	– 1,343 410 3 1,823 3,579
	1,955 10,316 3,393 23 6,471 22,158

104 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS 31 December 2020

8. DIRECTORS’ AND SUPERVISORS’ REMUNERATION (CONTINUED)

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

Year ended 31 December 2019

	Salaries,		Pension
	allowances and	Performance	scheme	Total
	benefits in kind	related bonuses	contributions	remuneration
	RMB’ 000	RMB’ 000	RMB’ 000	RMB’ 000
Directors
Mr. Wang Weidong (note (a))	398	140	24	562
Dr. Fang Jianmin (note (b))	517	140	25	682
Mr. Lin Jian (note (c))	479	140	–	619
Mr. Deng Yong (note (e))	–	–	–	–
Ms. Tao Luqun (note (e))	701	–	43	744
	2,095	420	92	2,607
Supervisor
Mr. Wen Qingkai (note (g))	488	140	29	657
	2,583	560	121	3,264

Notes:

(a) Mr. Wang Weidong was designated as a director in October 2013 and appointed as the Chairman of the Board with effect from June 2019. He was designated as an executive director in May 2020.

• (b) Dr. Fang Jianmin is also the chief executive officer of the Company with effect from October 2008, and his remuneration disclosed above included the services rendered by him as the chief executive officer. Dr. Fang Jianmin was designated as an executive director in May 2020.

• (c) Mr. Lin Jian served as a director from July 2008 and was the Chairman of the Board from July 2008 to June 2019. He was designated as an executive director in May 2020.

• (d) Dr. He Ruyi, Dr. Wang Liqiang and Dr. Su Xiaodi were appointed as directors of the Company and designated as an executive director, a non-executive director and a non-executive director in May 2020, respectively. Dr. He Ruyi was also one of the five highest paid employees, and his remuneration disclosed above included the services rendered by him as an employee of the Company during the period from January 2020 to April 2020 which amounted to RMB300,000.

(e) Mr. Deng Yong and Ms. Tao Luqun retired as directors of the Company in May 2020.

Annual Report 2020 105

NOTES TO FINANCIAL STATEMENTS

31 December 2020

8. DIRECTORS’ AND SUPERVISORS’ REMUNERATION (CONTINUED)

Notes: (continued)

• (f) Ms. Yu Shanshan, Mr. Hao Xianjing and Dr. Lorne Alan Babiuk were appointed as independent non-executive directors of the Company in May 2020.

• (g) Mr. Wen Qingkai retired as a supervisor of the Company in May 2020 and was appointed as key management personnel in May 2020.

• (h) Mr. Ren Guangke, Mr. Li Yupeng and Mr. Li Zhuanglin were appointed as supervisors of the Company in May 2020.

There was no arrangement under which a director or a supervisor waived or agreed to waive any remuneration during the year. No emoluments were paid by the Group to any of the directors or supervisors as an inducement to join or upon joining the Group or as compensation for loss of office.

9. FIVE HIGHEST PAID EMPLOYEES

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

	2020 2019 RMB’ 000 RMB’ 000
Salaries, bonuses, allowances and benefits in kind	10,671 3,968
Performance related bonuses	1,766 967
Pension scheme contributions	6 104
Share-based payment expenses	4,536 2,003
	16,979 7,042

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

	Number of employees
	2020 2019
Nil to RMB1,000,000	–	–
RMB1,000,001 to RMB1,500,000	–	4
RMB1,500,001 to RMB2,000,000	–	1
RMB2,000,001 to RMB3,000,000	2	–
RMB10,000,001 to RMB12,000,000	1	–

106 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

9. FIVE HIGHEST PAID EMPLOYEES (CONTINUED)

During the year, share awards were granted to the five highest paid employees in respect of their services to the Group, further details of the share award scheme are included in the disclosures in note 27 to the financial statements. The fair value of such awarded shares, which has been recognised in the consolidated statement of profit or loss over the vesting period, was determined as at the date of grant and the amount included in the financial statements for the year is included in the above five highest paid employees’ remuneration disclosures.

No emoluments were paid by the Group to any of the above non-director or non-supervisor highest paid employees as an inducement to join or upon joining the Group or as compensation for loss of office.

10. INCOME TAX

The provision for corporate income tax in Mainland China is based on the statutory rate of 25% of the assessable profits as determined in accordance with the PRC Corporate Income Tax Law which was approved and became effective on 1 January 2008.

The subsidiary incorporated in the USA is subject to America federal and California state income tax. America federal income tax was provided at the rate of 21% during the year, and California state income tax was provided at the rate of 8.84% during the year on the estimated assessable profits arising in the USA.

The subsidiary incorporated in Hong Kong is subject to Hong Kong profits tax at the rate of 16.5% on any estimated assessable profits arising in Hong Kong during the year. No provision for Hong Kong profits tax has been made as the Group has no assessable profits derived from or earned in Hong Kong during the year.

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

	2020	2019
	RMB’ 000 RMB’ 000
Charge for the year:
Current	–	–
Deferred	–	–
Total tax charge for the year	–	–

Annual Report 2020 107

NOTES TO FINANCIAL STATEMENTS 31 December 2020

10. INCOME TAX (CONTINUED)

A reconciliation of the tax expense applicable to loss before tax at the statutory rates for the jurisdictions in which the Company and the majority of its subsidiaries are domiciled to the tax expense at the effective tax rate is as follows:

	2020 2019 RMB’ 000 RMB’ 000
Loss before tax	(697,821) (430,280)
Tax calculated at the statutory tax rate of 25%	(174,455) (107,570)
Effect of tax rate differences in other jurisdictions	1,426 215
Expenses not deductible for tax	8,005 2,956
Additional deductible allowance for research and development expenses	(73,521) (59,558)
Deductible temporary difference and tax losses not recognised	238,545 163,957
Tax charge at the Group’s effective rate	– –

The Group has tax losses in Mainland China of RMB955,552,000 (2019: RMB608,600,000) as at the end of the year, that will expire in one to five years for offsetting against future taxable profits of the companies in which the losses arose.

The Group also has tax losses in the USA of RMB10,212,000 (2019: RMB5,387,000) as at the end of the year, that will be carried forward indefinitely for offsetting against future taxable profits of the companies in which the losses arose.

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

11. DIVIDENDS

No dividend has been declared and paid by the Company during the year (2019: nil).

108 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

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

The calculation of the basic loss per share amounts is based on the loss for the year attributable to ordinary equity holders of the parent, and the weighted average number of ordinary shares in issue during the year, and assuming the ordinary shares in issue before the conversion into a joint stock company was determined by assuming that the paid-in capital had been fully converted into share capital at the same conversion ratio of 1:2.2 as upon transformation into a joint stock company in May 2020, as further detailed in note 25 to the financial statements.

The Group had no potentially dilutive ordinary shares in issue during the year ended December 31, 2020. No adjustment has been made to the basic loss per share amounts presented for the year ended 31 December 2019 in respect of a dilution as the impact of the share awards had an anti-dilutive effect on the basic loss per share amounts presented.

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

	2020	2019
	RMB’ 000 RMB’ 000
Loss
Loss attributable to ordinary equity holders of the parent,
used in the basic loss per share calculation:	(697,821) (430,280)
	Number of shares
	2020	2019
Shares
Weighted average number of ordinary shares in issue during the year
used in the basic loss per share calculation	408,148,548 260,470,517

In May 2020, the Company was converted into a joint stock company and total of 401,819,202 ordinary shares with par value of RMB1 each were issued and allotted to the respective shareholders of the Company according to the paid-in capital registered under these shareholders on 11 May 2020.

In November 2020, the Company issued its first stock on the Stock Exchange and issued 76,537,000 ordinary shares at HK$52.10 per share. The raised funds were equivalent to RMB3,400,606,000. After deducting the issuance costs, the actual net funds raised were RMB3,284,244,000, including RMB76,537,000 of share capital and RMB3,207,707,000 of share premium.

In December 2020, the Company exercised the over-allotment right and over-allotted 11,480,500 shares at HK$52.10 per share. The raised funds were equivalent to RMB504,406,000. After deducting the issuance expenses, the actual net funds raised were RMB487,302,000, including RMB11,480,500 of share capital and RMB475,821,500 of share premium.

Annual Report 2020 109

NOTES TO FINANCIAL STATEMENTS

31 December 2020

13. PROPERTY, PLANT AND EQUIPMENT

	Buildings Plant and machinery Office equipment and others Motor vehicles Construction in progress Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000
31 December 2020
At 1 January 2020:
Cost	180,773 313,968 26,972 305 40,167 562,185
Accumulated
depreciation	(21,253) (73,662) (7,286) (271) – (102,472)
Net carrying amount	159,520 240,306 19,686 34 40,167 459,713
At 1 January 2020, net of
accumulated depreciation	159,520 240,306 19,686 34 40,167 459,713
Additions	– 76,006 3,948 – 320,645 400,599
Disposals	– (305) (35) (9) – (349)
Depreciation provided
during the year	(10,467) (33,433) (5,182) (12) – (49,094)
Adjustment	(4,386) (2,964) – – – (7,350)
Transfers Exchange realignment	1,052 17,745 2,280 – (22,026) (949) – (1) (1) – – (2)
At 31 December 2020, net of
accumulated depreciation	145,719 297,354 20,696 13 338,786 802,568
At 31 December 2020:
Cost	177,439 402,763 33,057 244 338,786 952,289
Accumulated depreciation	31,720 105,409 12,361 231 – 149,721
Net carrying amount	145,719 297,354 20,696 13 338,786 802,568

110 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

13. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

			Office
		Plant and	equipment	Motor	Construction
	Buildings	machinery	and others	vehicles	in progress	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
31 December 2019
At 1 January 2019:
Cost	181,254	233,769	17,319	305	17,738	450,385
Accumulated depreciation	(10,560)	(48,307)	(3,620)	(235)	–	(62,722)
Net carrying amount	170,694	185,462	13,699	70	17,738	387,663
At 1 January 2019, net of
accumulated depreciation	170,694	185,462	13,699	70	17,738	387,663
Additions	–	56,957	9,671	–	49,294	115,922
Disposals	(140)	(441)	(8)	–	–	(589)
Depreciation provided during
the year	(10,725)	(25,714)	(3,728)	(36)	–	(40,203)
Adjustment	(3,084)	–	–	–	–	(3,084)
Transfers	2,775	24,038	52	–	(26,865)	–
Exchange realignment	–	4	–	–	–	4
At 31 December 2019, net of
accumulated depreciation	159,520	240,306	19,686	34	40,167	459,713
At 31 December 2019:
Cost	180,773	313,968	26,972	305	40,167	562,185
Accumulated depreciation	(21,253)	(73,662)	(7,286)	(271)	–	(102,472)
Net carrying amount	159,520	240,306	19,686	34	40,167	459,713

The Group’s buildings, included above at cost, were valued at RMB223,021,000 as at 31 August 2020 in the Company’s prospectus issued on 28 October 2020 in connection with the Hong Kong listing of the Company’s shares on 9 November 2020. Had the Group’s buildings been included in these financial statements at such valuation amount throughout the four months ended 31 December 2020, an additional depreciation charge of RMB1,572,000 would have been recognised in the consolidated statement of profit or loss for the year ended 31 December 2020.

Annual Report 2020 111

NOTES TO FINANCIAL STATEMENTS

31 December 2020

13. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

At 31 December 2020, certain of the Group’s buildings with a net carrying amount of approximately RMB128,738,000 (2019: RMB63,480,000), the corresponding land use right with a net carrying amount of approximately RMB5,417,000 (2019: RMB3,182,000) and certain of the Group’s machinery with a net carrying amount of approximately RMB73,664,000 (2019: nil), were pledged to secure general banking facilities granted to the Group.

At 31 December 2020，certain of the construction in progress with a net carrying amount of approximately RMB227,265,000 (2019: nil) and the corresponding land use right with a net carrying amount of approximately RMB4,688,000 (2019: nil) was mortgaged to Yantai Bank Co., Ltd. Yantai Development District Branch to obtain a letter of bank guarantee.

The Group’s building and the corresponding land use right with net carrying amounts of RMB85,956,000 and RMB2,368,000, respectively, as at 31 December 2019 were pledged to secure bank loans (note 23).

14. LEASES

The Group as a lessee

The Group has lease contracts for various items of land use rights, buildings, plant and machinery used in its operations. Lump sum payments were made upfront to acquire the leased land from the owners with lease periods of 50 years, and no ongoing payments will be made under the terms of these land leases. Leases of buildings, plant and machinery generally have lease terms between 1 and 5 years. Generally, the Group is restricted from assigning and subleasing the leased assets outside the Group.

(a) Right-of-use assets

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

	Land use		Plant and
	rights	Buildings	machinery	Total
	RMB’ 000	RMB’ 000	RMB’ 000	RMB’ 000
As at 1 January 2019	5,682	548	4,090	10,320
Additions	–	621	1,835	2,456
Depreciation charge	(132)	(481)	(1,156)	(1,769)
As at 31 December 2019
and 1 January 2020	5,550	688	4,769	11,007
Additions	35,244	113,244	6,601	155,089
Depreciation charge	(683)	(25,269)	(1,628)	(27,580)
Remeasurement resulted from the
early termination of leases	–	(577)	–	(577)
As at 31 December 2020	40,111	88,086	9,742	137,939

Land use rights represent the land use rights granted by the PRC government authority on the use of land within the pre-approved lease period, the original terms of the land use rights of the Group held in the PRC are 50 years up to December 2061 and June 2062, respectively.

112 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

14. LEASES (CONTINUED)

The Group as a lessee (continued)

(b) Lease liabilities

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

	2020 2019 RMB’ 000 RMB’ 000
Carrying amount at 1 January	5,364 4,511
New lease arrangements	118,100 2,456
Accretion of interest recognised during the year	3,340 329
Remeasurement resulted from the early termination of leases	(582) –
Payments	(36,654) (1,932)
Carrying amount at 31 December	89,568 5,364
Analysed into:
Current portion	42,990 1,602
Non-current portion	46,578 3,762

The maturity analysis of lease liabilities is disclosed in note 34 to the financial statements.

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

The payments of lease liabilities to a related party for the year ended 31 December 2020 were RMB32,962,000 (2019: RMB1,824,000), details of which are included in note 31 to the financial statements.

The balances of lease liabilities due to a related party as at 31 December 2020 were RMB69,653,000 (2019: RMB4,734,000), details of which are included in note 31 to the financial statements.

Annual Report 2020 113

NOTES TO FINANCIAL STATEMENTS 31 December 2020

14. LEASES (CONTINUED)

The Group as a lessee (continued)

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

	2020 2019 RMB’ 000 RMB’ 000
Interest on lease liabilities (note 6)	3,340 329
Depreciation charge of right-of-use assets	27,580 1,769
Expense relating to short-term leases*	1,141 848
Expense relating to leases of low-value assets*	141 2
Total amount recognised in profit or loss	32,202 2,948

• Included in “Administrative expenses” and “Selling and distribution expenses” in the consolidated statement of profit or loss.

The total cash outflow for leases included in the consolidated statement of cash flows is disclosed in note 28(c) to the financial statements.

The Group as a lessor

The Group leases its properties under operating lease arrangements. Rental income recognised by the Group for the year ended 31 December 2020 was RMB2,624,000 (2019: RMB2,452,000), details of which are included in note 5 to the financial statements.

114 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

15. OTHER INTANGIBLE ASSETS

	Patents and licenses Software Total RMB’ 000 RMB’ 000 RMB’ 000
31 December 2020
Cost at 1 January 2020, net of accumulated amortisation	2,133 – 2,133
Additions	– 3,954 3,954
Amortisation provided during the year	(800) (192) (992)
At 31 December 2020	1,333 3,762 5,095
At 31 December 2020:
Cost	13,387 3,954 17,341
Accumulated amortisation	(12,054) (192) (12,246)
Net carrying amount	1,333 3,762 5,095
	Patents and
	licenses
	RMB’ 000
31 December 2019
Cost at 1 January 2019, net of accumulated amortisation	2,933
Amortisation provided during the year	(800)
At 31 December 2019	2,133
At 31 December 2019:
Cost	13,388
Accumulated amortisation	(11,255)
Net carrying amount	2,133

Annual Report 2020 115

NOTES TO FINANCIAL STATEMENTS 31 December 2020

16. EQUITY INVESTMENTS DESIGNATED AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

	2020	2019
	RMB’ 000	RMB’ 000
Unlisted equity investments, at fair value
Yantai Heyuan Addis Biomedical Technology, Ltd.*	12,907	11,448

• The English name of the entity represented the best efforts made by the management of the Group to translate the Chinese name as it did not have an official English name registered in the PRC.

The above equity investment was irrevocably designated as at fair value through other comprehensive income as the Group considers this investment to be strategic in nature.

17. OTHER NON-CURRENT ASSETS

		2020 2019
		RMB’ 000 RMB’ 000
Prepayments	for property, plant and equipment	120,457 19,825
Value-added	tax recoverable	60,642 47,548
Others		165 63
		181,264 67,436

18. INVENTORIES

2020 RMB’ 000	2019 RMB’ 000
Raw materials 49,167 Work in progress 17,037 Low-value consumption materials –	29,876 – 1,371
66,204	31,247

116 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

19. PREPAYMENTS, OTHER RECEIVABLES AND OTHER ASSETS

	2020 2019
	RMB’ 000 RMB’ 000
Value-added tax recoverable	36,184 16,786
Prepayments	62,038 10,156
Due from other related parties (note 31)	64 64
Deposits and other receivables	4,253 2,940
	102,539 29,946
Impairment allowance	(135) (88)
	102,404 29,858

Financial assets included in prepayments, other receivables and other assets mainly represent deposits with suppliers and other parties. The Group has applied the general approach to provide for expected credit losses for non-trade other receivables under IFRS 9. Other receivables had no historical default, the financial assets included in the above balances were categorised in stage 1 at the end of the year. In calculating the expected credit loss rate, the Group considers the flow rate and adjusts for forward-looking macroeconomic data.

The credit quality of the financial assets included in prepayments, other receivables and other assets is considered to be normal because they are not past due and there is no information indicating that the financial assets had a significant increase in credit risk.

The Group applies an “expected credit loss (“ECL”) model” to evaluate the credit losses for other receivables. The movements in provision for impairment of other receivables are as follows:

	2020 2019 RMB’ 000 RMB’ 000
At beginning of year	88 222
Impairment losses, net (note 7)	47 (134)
At end of year	135 88

Annual Report 2020 117

NOTES TO FINANCIAL STATEMENTS

31 December 2020

20. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS

	2020 2019 RMB’ 000 RMB’ 000
Cash and bank balances Time deposits	1,097,076 75,411 1,712,234 –
Less: Pledged for bills payable (note (a))	2,809,310 75,411 (38,866) (40,866)
Pledged for wages of migrant workers (note (b))	(616) –
Interest receivable recorded in pledged deposits (note (c))	(730) –
Pledged for office lease (note (d))	(577) –
Cash and cash equivalents	2,768,521 34,545
Notes:

• (a) As at 31 December 2020, the amounts of bank balances of RMB38,866,000 (2019: RMB40,866,000) were pledged for bills payable.

• (b) As at 31 December 2020, the amounts of bank balances of RMB616,000 (2019: nil) were pledged for wages of migrant workers.

• (c) As at 31 December 2020, the amounts of bank balances of RMB484,000 (2019:nil) and the amounts of time deposits of RMB246,000 (2019: nil) were interest receivable.

• (d) As at 31 December 2020, the amounts of bank balances of RMB577,100 (2019: nil) were pledged for office lease.

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

118 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

20. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS (CONTINUED)

The Group’s cash and cash equivalents as at the end of the year are denominated in the following currencies:

	2020 2019
	RMB’ 000 RMB’ 000
Denominated in RMB	2,222,331 34,295
Denominated in HKD	515,192 –
Denominated in USD	30,998 250
	2,768,521 34,545

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

Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default.

Annual Report 2020 119

NOTES TO FINANCIAL STATEMENTS 31 December 2020

21. TRADE AND BILLS PAYABLES

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

	2020 2019 RMB’ 000 RMB’ 000
Within 3 months 3 to 6 months 6 months to 1 year	56,498 46,209 6,113 21,417 14 54
Over 1 year	21 17
	62,646 67,697

Included in the trade and bills payables are trade payables of RMB795,000 (31 December 2019: RMB10,507,000) (note 31) due to the Group’s related parties as at 31 December 2020, which are repayable within 180 days and represent credit terms similar to those offered by the related parties to their major customers.

Other than trade payables due to the Group’s related parties, the remaining trade and bills payables are normally settled on terms of one to three months.

22. OTHER PAYABLES AND ACCRUALS

OTHER PAYABLES AND ACCRUALS
	2020 2019 RMB’ 000 RMB’ 000
Payables for purchase of property, plant and equipment	96,849 47,751
Payroll payable	52,437 28,091
Other tax payables	5,684 1,087
Accruals Due to key management personnel (note 31)	6,370 1,196 – 4
Due to related parties (note 31)	6,149 615,857
Other payables	43,831 26,616
	211,320 720,602

Other payables are unsecured, non-interest-bearing and repayable on demand.

120 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

23. INTEREST-BEARING BANK BORROWINGS

	2020	2019
	RMB’ 000	RMB’ 000
Analysed into:
Bank loans repayable:
Within one year	108,124	60,000

Notes:

• (a) As at 31 December 2020, the bank loan secured by the letter of guarantee of Yantai Bank Co., Ltd. Yantai Development District Branch, with an interest rate of one-year loan prime rate plus 0.3% per annum, is denominated in RMB and was repaid in January 2021, and certain of the construction in progress with a net carrying amount of approximately RMB227,265,000 and the corresponding land use right with a net carrying amount of approximately RMB4,688,000 was pledged to obtain the above-mentioned letter of guarantee.

• (b) As at 31 December 2019, the secured bank loan was secured by the mortgage of the Group’s building and its corresponding land use right with net carrying amounts of RMB85,956,000 and RMB2,368,000, respectively, and guaranteed by Mr. Wang Weidong, the Company’s Chairman of the Board with an interest rate of 6.31% per annum is denominated in RMB, and RMB30,000,000 of which was repaid in January 2020, and the remaining RMB30,000,000 was repaid in March 2020.

24. DEFERRED INCOME

DEFERRED INCOME
	2020 2019 RMB’ 000 RMB’ 000
Government grants:
Current Non-current	6,208 7,052 44,477 60,565
	50,685 67,617

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

	2020 2019 RMB’ 000 RMB’ 000
At beginning of year	67,617 35,813
Grants received during the year	45,414 65,325
Released to profit or loss during the year	(62,346) (33,521)
At end of year	50,685 67,617

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

Annual Report 2020 121

NOTES TO FINANCIAL STATEMENTS

31 December 2020

25. SHARE CAPITAL/PAID-IN CAPITAL

Shares

		Nominal
	Numbers	value of
	of shares	shares
		RMB’ 000
Ordinary shares upon conversion into a joint stock company
At 31 December 2019 and 1 January 2020	–	–
Conversion into a joint stock company upon restructuring	401,819,202	401,819
Issue of shares from initial public offering (note (c))	76,537,000	76,537
Issue of shares under the over-allotment option (note (c))	11,480,500	11,481
At 31 December 2020	489,836,702	489,837
A summary of movements in the Company’s share capital/paid-in capital is as follows:
Share capital

Share capital
	Numbers
	of ordinary
	shares	Total
		RMB’ 000
Issued and fully paid of RMB1.00 each:
At 31 December 2019 and 1 January 2020	–	–
Issue of ordinary shares upon conversion into
a joint stock company (note (b))	401,819,202	401,819
Issue of shares from initial public offering (note (c))	76,537,000	76,537
Issue of shares under the over-allotment option (note (c))	11,480,500	11,481
At 31 December 2020	489,836,702	489,837

122 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

25. SHARE CAPITAL/PAID-IN CAPITAL (CONTINUED)

Paid-in capital

	Total
	RMB’ 000
At 1 January 2019	70,000
Debt to equity conversion (note 28 (a))	95,913
Capital contributions from shareholders	2,741
At 31 December 2019 and 1 January 2020	168,654
Capital contributions from shareholders (note (a))	13,991
Conversion into a joint stock company upon restructuring (note (b))	(182,645)
At 31 December 2020	–

Notes:

• (a) In February 2020, the Company entered into a capital increase agreement with LAV Remegen Limited, LBC Sunshine Healthcare Fund L.P., Suzhou Likang Equity Investment Center L.P., Suzhou Lirui Equity Investment Center L.P., Janchor Partners Pan-Asian Master Fund, Hudson Bay Master Fund Ltd., ORBIMED PARTNERS MASTER FUND LIMITED, ORBIMED GENESIS MASTER FUND, L.P., Vivo Capital Fund IX, L.P., PAG Growth Holding IV (HK) Limited, Yantai Hongda Investment Co., Ltd., Wholly Sunbeam Limited, Shandong Jifu Jingu New Kinetic Energy Equity Investment Fund Partnership L.P. and Tibet Longpan Yijing Venture Capital Center L.P., pursuant to which total capital of USD105,355,000 (equivalent to RMB735,826,000) was to be injected into the Company with approximately RMB13,991,000 and RMB721,835,000 credited to the Company’s paid-in capital and capital reserve, respectively.

• (b) Pursuant to the shareholders’ resolutions dated 12 May 2020 and the Promoters’ agreement dated 11 May 2020, the then existing shareholders of the Company agreed to convert the Company into a joint stock limited liability company. The net assets of the Company as of the conversion base date on 31 March 2020, including paid-in capital, other reserve and accumulated losses, amounting to RMB427,631,000 were converted into 401,819,202 ordinary shares at RMB1.00 each. The excess of the net assets converted over the nominal value of the ordinary shares was credited to the Company’s share premium. Upon the completion of registration with the Yantai Administration for Industry and Commerce on 12 May 2020, the Company was converted into a joint stock company with limited liability under the PRC Company Law, and renamed from RemeGen, Ltd. to RemeGen Co., Ltd. In accordance with the business license of the Company, the Company became a joint stock limited liability company on 12 May 2020.

• (c) In connection with the Company’s Global Offering on the Stock Exchange, on 9 November 2020, 76,537,000 ordinary shares of RMB1.00 each were issued at a subscription price of HK$52.1 per share, and on 7 December 2020, 11,480,500 ordinary shares of RMB1.00 each were issued by the partial exercise of the over-allotment option at a price of HK$52.1 per share, after deducting expenses attributed to the issue of new shares, the share capital and share premium of the Company increased by RMB88,018,000 and RMB3,683,528,000, respectively.

Annual Report 2020 123

NOTES TO FINANCIAL STATEMENTS

31 December 2020

26. RESERVES

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

(a) Share premium

The share premium of the Group represents the share premium contributed by the shareholders of the Company upon its conversion into a joint stock company in May 2020 and the share premium contributed by the Company’s Global Offering on the Stock Exchange in November and December 2020.

(b) Capital reserve

The capital reserve of the Group represents the share premium arising from debt to equity conversion in June 2019 and share premium contributed by the shareholders of the Company before its conversion into a joint stock company in May 2020.

(c) Other reserve

Other reserve of the Group represents the share-based compensation reserve from the equity-settled share award.

(d) Fair value reserve

It represents the fair value of equity investments at fair value through other comprehensive income.

(e) Exchange fluctuation reserve

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

27. SHARE AWARD

The Company adopted a share award scheme for certain personnel in order to recognise and reward the contribution of certain employees to the growth and development of the Group, and retain certain eligible employees for the continual operation and development of the Group. Before the reorganisation of the Company, certain employees (the “Granted Employees”) are granted share options of Yantai Rongchang Pharmaceutical Co., Ltd. (“Rongchang Pharmaceuticals”).

Pursuant to the share award during the period from years 2015 to 2017, 724,070 share options in Rongchang Pharmaceuticals were granted to fourteen selected employees of the Company and the earliest vesting date is 1 January 2020. There is no other performance target required except the eligible participant remains as an employee of Rongchang Pharmaceuticals and its subsidiaries for five years after the grant dates.

Pursuant to the share award during the year ended 31 December 2018, 1,370,000 share options in Rongchang Pharmaceuticals were granted to fifteen selected employees of the Company and the earliest vesting date is 1 January 2023. There is no other performance target required except the eligible participant remains as an employee of Rongchang Pharmaceuticals and its subsidiaries for five years after the grant dates.

124 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

27. SHARE AWARD (CONTINUED)

Pursuant to the share award during the year ended 31 December 2019, 265,000 share options in the Company were granted to nine selected employees of the Company and the earliest vesting date is 1 June 2024. There are no other performance targets required except the eligible participant remains as an employee of the Group for five years after the grant dates.

In December 2019, the equity interests in the Company were transferred to the then ultimate shareholders of the Company pursuant to a reorganisation (“Reorganisation”). Prior to the Reorganisation, the Company was wholly owned by Rongchang Pharmaceuticals. Upon completion of the Reorganisation, the Company and Rongchang Pharmaceuticals were owned immediately by the then ultimate shareholders of the Company. Yantai Rongjian Enterprise Management Center LP (“Rongjian”) and Yantai Rongyi Enterprise Management Center LP (“Rongyi”) were established by the then ultimate shareholders of the Company as the Group’s additional immediate shareholders. The purpose to establish Rongjian and Rongyi (collectively, the “PRC Share Incentive Entities”) was to hold incentive shares of the Company for the Granted Employees during the period from years 2015 to 2019. Some Granted Employees became limited partners of Rongjian and Rongyi which subscribed for restricted stocks of the Company (“restricted stocks”) and share options of Rongchang Pharmaceuticals in the PRC Share Incentive Entities to replace the original share options in Rongchang Pharmaceuticals granted during the period from years 2015 to 2018. Other Granted Employees became limited partners of Rongjian and Rongyi which subscribed for restricted stocks of the Company to replace the share options in the Company granted to them during the year of 2019. The percentage of partnership equity interests in the PRC Share Incentive Entities was determined based on the percentage of his/her previous granted options and the percentage of shares in the Company as held by the PRC Share Incentive Entities. There was no significant change to the terms of the employee incentive plans.

The Granted Employees shall not have any right to receive any shares of the Company awarded to them and all other interests attributable thereto unless and until the legal and beneficial ownership of the awarded shares of the Company were transferred to them and the legal and beneficial ownership of those awarded shares vested to them. When the Granted Employees ceased to be the Group’s employees, the unvested shares of the Company would be retained by the PRC Share Incentive Entities.

The Granted Employees shall not have any right to transfer the legal and beneficial ownership in the PRC Share Incentive Entities until the original vesting date as defined in the employee incentive plans granted prior to the Reorganisation.

The fair value of services received in return for share options granted is measured by reference to the fair value of share options granted. The fair value of the share options granted is measured at the grant date at the market value of the share options and is determined using an option pricing model and a discounted cash flow model, adjusted for the exclusion of expected dividends to be received in the vesting period. The fair value of the restricted share is measured using Asian Put Option Valuation model and Enterprise Value Allocation model.

Annual Report 2020 125

NOTES TO FINANCIAL STATEMENTS

31 December 2020

27. SHARE AWARD (CONTINUED)

On the day of the Reorganisation, restricted stocks of the Company and share options of Rongchang Pharmaceuticals were granted to the Granted Employees through their respective ownership interests in the PRC Share Incentive Entities, the Company identified these new equity instruments as replacement equity instruments for the original granted share options in Rongchang Pharmaceuticals and the Company. The Company accounted for the granting of replacement equity instruments in the same way as a modification of the original grant of equity instruments. The incremental fair value granted is the difference between the fair value of the restricted stock of the Group and the net fair value of the share options previously granted on the day of the Reorganisation. The incremental fair value represented additional share-based payment which is charged to profit or loss over the remaining vesting periods under the straight-line amortisation basis.

In December 2019, RC-Biology Investment Ltd. (“RC-Biology”), a company limited by shares and incorporated in the British Virgin Islands was established by the Concert Parties (note 31(a)) of the Group and acquired shares from the original shareholder of the Group as the Group’s immediate shareholders. The purpose to establish RC-Biology was to hold incentive shares for the foreign employees.

On 5 May 2020, 8,624,319 special shares of RC-Biology (“Special Shares”) were granted to nine foreign employees (the “Purchasers”). According to the agreement, upon each twelve-month anniversary of the initial public offering date of the Group, 20% of the Special Shares that are not vested (“Unvested Shares”) will become Special Shares that are vested (“Vested Shares”), if the Purchasers provide continuous full-time employment to the Company or its affiliates through each such anniversary date. No Unvested Shares will become Vested Shares after the date on which the Purchasers’ employment is terminated.

On 27 July 2020, 1,320,000 special shares of RC-Biology (“Special Shares”) were granted to a foreign employee (the “Purchaser”). According to the agreement, upon each twelve-month anniversary of the initial public offering date of the Group, 20% of the Special Shares that are not vested (“Unvested Shares”) will become Special Shares that are vested (“Vested Shares”), if the Purchasers provide continuous full-time employment to the Company or its affiliates through each such anniversary date. No Unvested Shares will become Vested Shares after the date on which the Purchasers’ employment is terminated.

During the year, share award expenses (including the above incremental share-based payments) of RMB16,563,000 (2019: RMB5,126,000) were charged to profit or loss and RMB58,000 (2019: nil) were charged to inventory.

126 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

28. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

(a) Major non-cash transactions

• In June 2019, the capital of the Group was increased by RMB600,000,000, of which RMB95,913,000 was included in the paid-in capital and the remaining RMB504,087,000 was included in the capital reserve. The transaction was made by converting the amount of RMB600,000,000 due to Rongchang Pharmaceuticals, the original parent of the Group (before December 2019), into equity.

During the year, the Group endorsed bills receivable amounting to nil (2019: RMB27,079,000) for the purchase of equipment, construction services and raw materials.

During the year, the Group had non-cash additions to right-of-use assets of RMB119,845,000 (2019: RMB2,456,000) and non-cash additions to lease liabilities of RMB118,100,000 (2019: RMB2,456,000), respectively, in respect of lease arrangements for plant and machinery, buildings.

(b) Changes in liabilities arising from financing activities Year ended 31 December 2020

	Interest-bearing borrowings Other borrowings and interest payables included in other payables and accruals Lease liabilities RMB’000 RMB’000 RMB’000
At 1 January 2020	60,000 588,082 5,364
Changes from financing cash flows	44,877 (612,027) (36,654)
Remeasurement upon early termination of leases	– – (582)
Accretion of interest	– – 3,340
New lease arrangements	– – 118,100
Capitalised interest expense	1,306 – –
Interest expense	1,941 23,945 –
At 31 December 2020	108,124 – 89,568

Annual Report 2020 127

NOTES TO FINANCIAL STATEMENTS

31 December 2020

28. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)

• (b) Changes in liabilities arising from financing activities (continued) Year ended 31 December 2019

(c)	Interest-bearing borrowings Other borrowings and interest payables included in other payables and accruals Lease liabilities RMB’000 RMB’000 RMB’000
	At 1 January 2019 – 858,289 4,511 Changes from financing cash flows 60,000 259,254 (1,932) Obtained by the endorsement of bank acceptance bills – 27,079 – Debt to equity conversion – (600,000) – New lease arrangements – – 2,456 Accretion of interest – – 329 Interest expense – 43,460 –
	At 31 December 2019 60,000 588,082 5,364
	Total cash outflow for leases The total cash outflow for leases included in the statement of cash flows is as follows: 2020 2019 RMB’ 000 RMB’ 000
	Within operating activities 3,850 825 Within financing activities 36,654 1,932
	40,504 2,757

29. PLEDGE OF ASSETS

Details of the Group’s assets pledged for the Group’s bills payable, bank facilities and bank borrowings are included in notes 13, 20 and 23, to the financial statements.

128 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

30. COMMITMENTS

The Group had the following capital commitments at the end of the reporting period:

		2020	2019
		RMB’ 000	RMB’ 000
Contracted,	but not provided for:
Purchases	of items of property, plant and equipment	1,035,381	653,810

31. RELATED PARTY TRANSACTIONS

The Directors are of the view that the following companies are related parties that have material transactions or balances with the Group during the year.

(a)

Name and relationships of the related parties Name Relationship

Yantai MabPlex International Biomedical Co., Ltd. (“煙台邁百瑞國際生物醫藥股份有限公司”) (“MabPlex International”) (i) Yantai CelluPro Biotechnology Co., Ltd. (“煙台賽普生物技術有限公司”) (“CelluPro Biotechnology”) (i) Yantai Yeda International Biomedical Innovation Incubation Center Co., Ltd. (“煙台業達國際生物醫藥創新孵化中心有限公司”) (“Yeda International”) (i) Rongchang Pharmaceuticals (“煙台榮昌製藥股份有限公司”) (ii) Yantai Lida Medicine Co., Ltd. (“煙台立達醫藥有限公司”) (“Lida Pharmaceutical”) (i) Shanghai Kangkang Medical Technology Center (“上海康康醫藥科技中心”) (“Kangkang Medical”) (i) Shanghai Kangkang Medical Technology Co., Ltd. (“上海康康醫療科技有限公司”) (“Kangkang”) (i) Rongchang Pharma (Zibo) Co., Ltd. (“榮昌製藥(淄博)有限公司”) (“Rongchang Pharma (Zibo)”) (i) Yantai Dasike Biotechnology Co., Ltd. (“煙台達思科生物科技有限公司”) (“Dasike Biotechnology”) (i) Yantai Rongchang Biomedical Industry Technology Research Institute Co., Ltd. (“煙台榮昌生物醫藥產業技術研究院有限公司”) (“Rongchang Biomedical Industry”) (i) Dr. Fu Daotian (“傅道田”) President Mr. Wang Weidong (“王威東”) Chairman and executive director

Annual Report 2020 129

NOTES TO FINANCIAL STATEMENTS

31 December 2020

31. RELATED PARTY TRANSACTIONS (CONTINUED)

(a) Name and relationships of the related parties (continued)

• Notes:

• (i) These entities were subsidiaries of Rongchang Pharmaceuticals which was majority-owned by the Concert Parties as defined below during the year.

• (ii) Rongchang Pharmaceuticals held a 100% equity interest in the Company before December 2019.

The English names of the companies registered in the PRC represent the best efforts made by the management of the Company in directly translating the Chinese names of these companies as no English names have been registered.

Before the reorganisation of the Group in December 2019, all of the Group’s paid-in capital was injected by Rongchang Pharmaceuticals. Pursuant to the Group reorganisation, the paid-in capital of the Group held by Rongchang Pharmaceuticals has been transferred to various shareholders in proportion to their respective shareholdings in Rongchang Pharmaceuticals.

Pursuant to a concert party agreement dated 16 April 2020 entered into amongst Dr. Fang Jianmin, Mr. Wang Weidong, Mr. Lin Jian, Mr. Xiong Xiaobin, Dr. Wang Liqiang, Mr. Wang Xudong, Mr. Deng Yong, Ms. Yang Minhua, Mr. Wen Qingkai and Mr. Wei Jianliang, Yantai Rongda Venture Capital Center (Limited Partnership), RongChang Holding Group Ltd., and I-NOVA Limited (together, the “Concert Parties”), the Concert Parties confirmed that they have acted in concert in the management, decision-making and all major decisions of the Group since 1 January 2017, and they have agreed to continue to act in concert and reach consensus on any proposal presented to the general meeting of the shareholders of the Company for voting. In the event they fail to reach such consensus, each of the Concert Parties shall exercise their respective indirect voting rights in accordance with majority vote amongst the Concert Parties. The Concert Parties collectively held 56.35% of equity interests in the Company.

In the opinion of the directors, the Company was controlled by the Concert Parties.

130 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

31. RELATED PARTY TRANSACTIONS (CONTINUED)

(b) In addition to the transactions detailed elsewhere in the financial statements, the Group had the following transactions with related parties during the year:

		2020	2019
	Notes	RMB’ 000	RMB’ 000
Sales of materials
Dasike Biotechnology	(i)	–	1
Rongchang Biomedical Industry	(i)	1	–
MabPlex International	(i)	–	1,451
CelluPro Biotechnology	(i)	92	155
Yeda International	(i)	–	1
		93	1,608
Rendering of services
MabPlex International	(i)	1	474
CelluPro Biotechnology	(i)	229	215
		230	689
Rental income
MabPlex International	(i)	2,567	2,449
Lida Pharmaceutical	(i)	57	3
		2,624	2,452
Sales of equipment
Rongchang Pharmaceuticals	(i)	5	–
CelluPro Biotechnology	(i)	16	194
		21	194
Purchases of materials
MabPlex International	(i)	63	–
Rongchang Pharmaceuticals	(i)	3	–
CelluPro Biotechnology	(i)	7,384	1,450
Yeda International	(i)	–	2
		7,450	1,452

Annual Report 2020 131

NOTES TO FINANCIAL STATEMENTS 31 December 2020

31. RELATED PARTY TRANSACTIONS (CONTINUED)

(b) In addition to the transactions detailed elsewhere in the financial statements, the Group had the following transactions with related parties during the year (continued):

2020 Notes RMB’ 000	2019 RMB’ 000
Purchases of services Kangkang Medical (i) 6,581 Kangkang (i) 8,585 MabPlex International (i) 18,989 Rongchang Pharmaceuticals (i) 23,070 Yeda International (i) 859	390 – 10,236 21,619 –
58,084	32,245
Purchases of non-proprietary technology Rongchang Pharma (Zibo) (i) –	8,930
Purchases of equipment Rongchang Pharmaceuticals (i) 23 Yeda International (i) –	– 685
23	685
Purchases of land use right MabPlex International (i) 4,589	–
Rental expenses MabPlex International (i) 380 Yeda International (i) 237	512 388
617	900
Interest expenses on borrowings Rongchang Pharmaceuticals (ii) 23,945	41,649
Borrowings from a related party Rongchang Pharmaceuticals (ii) 495,192	584,054
Repayment of interest expenses Rongchang Pharmaceuticals (ii) 65,594	86,860
Repayment of borrowings Rongchang Pharmaceuticals (ii) 1,041,625	209,050
Repayment of lease liabilities Yeda International (i) 32,962	1,824
Interest expenses on lease liabilities Yeda International (i) 2,661	281

132 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

31. RELATED PARTY TRANSACTIONS (CONTINUED)

• (b) In addition to the transactions detailed elsewhere in the financial statements, the Group had the following transactions with related parties during the year (continued): Notes:

• (i) During the year, the transactions were carried out in accordance with mutually agreed terms and conditions.

• (ii) During the year, the Group obtained borrowings from Rongchang Pharmaceuticals. The loans are unsecured and repayable on demand. The directors consider that the applicable interest rates are determined in accordance with the prevailing market borrowing rates. During the year, nil (2019: RMB25.62 million) of the borrowings were obtained by the endorsement of bank acceptance bills to the Group by Rongchang Pharmaceuticals. Further details of the bills endorsement are disclosed in note 28(a) to the financial statements.

• (c) Outstanding balances with related parties:

	2020 2019 RMB’ 000 RMB’ 000
Trade and bills payables
MabPlex International	455 –
CelluPro Biotechnology	340 1,577
Rongchang Pharma (Zibo)	– 8,930
	795 10,507
Prepayments, other receivables and other assets
Yeda International	64 64
	64 64
Other payables and accruals
Dr. Fu Daotian	– 4
Yeda International MabPlex International Rongchang Pharmaceuticals	– 2,392 – 10,275 6,149 603,184
Lida Pharmaceutical	– 6
	6,149 615,861
Other non-current assets
Yeda International	714 –
Lease liabilities
Yeda International	69,653 4,734

Annual Report 2020 133

NOTES TO FINANCIAL STATEMENTS 31 December 2020

31. RELATED PARTY TRANSACTIONS (CONTINUED)

(c) Outstanding balances with related parties (continued):

Note:

The Group’s balances due from and due to the related companies are trade in nature, unsecured, interest-free and have no fixed terms of repayment as at the end of the year (2019: except for the amounts of RMB588,082,000 due to Rongchang Pharmaceuticals which was repayable on demand with interest rates at 5.955% per annum).

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

Compensation of key management personnel of the Group:
	2020 2019
	RMB’ 000 RMB’ 000
Fees	576 –
Salaries, allowances and benefits in kind	17,765 2,187
Performance related bonuses	4,220 564
Pension scheme contributions	20 102
Share-based payment expenses	9,180 –
Total compensation paid to key management personnel	31,761 2,853

Further details of directors’ and supervisors’ remuneration are included in note 8 to the financial statements.

(e) Other transactions with related parties

During the year, Mr. Wang Weidong had provided the Group guarantees for banking facilities, one of which was for a period from September 2019 to September 2022 and the maximum amount was RMB70,000,000, the other of which was for a period from February 2020 to February 2023 and the maximum amount was RMB143,000,000. The Group has fully repaid the relevant bank borrowing in the principal amount of RMB60,000,000 in the first quarter of 2020, and thus the relevant guarantee provided by Mr. Wang Weidong for this bank borrowing has been fully released in March 2020.

In 2019, the Company and the related party signed the patent transfer agreement to transfer the following patents at a consideration of RMB0.00, as follows:

	Application	Date of
Patent	number	application	Transferor	Transferee
Optimized TACI-Fc Fusion Protein	CN200710111162.2	2007.06.15	Rongchang	The Company
			Pharmaceuticals
Application of optimized TACI (Transmembrane Activator and CAML	CN201110021344.7	2011.01.19	Rongchang	The Company
Interactor)-Fc fusion protein in preparation of medicaments for			Pharmaceuticals
treating systemic lupus erythematosus
Application of optimized TACI (Transmembrane Activator and CAML	CN201110021339.6	2011.01.19	Rongchang	The Company
Interactor)-Fc fusion protein in preparation of medicaments for			Pharmaceuticals
treating rheumatoid arthritis
FGFR-Fc Fusion Protein and Use thereof	CN201110132218.9	2011.05.20	Rongchang	The Company
			Pharmaceuticals
Fusion Protein for Antagonizing Angiogenesis Inducible Factors and	CN201110131029.X	2011.05.20	Rongchang	The Company
Users thereof			Pharmaceuticals

134 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

32. FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments as at the end of the year are as follows:

As at 31 December 2020

Financial assets

	Financial assets at fair value through other comprehensive income
	Equity investments Financial assets at amortised cost Total
	RMB’000 RMB’000 RMB’000
Equity investment designated at fair value through other comprehensive income Financial assets included in prepayments, other receivables and other assets Pledged deposits Cash and cash equivalents
	12,907 – 12,907
	– 4,183 4,183
	– 40,789 40,789
	– 2,768,521 2,768,521
	12,907 2,813,493 2,826,400
Financial liabilities	Financial liabilities at amortised cost RMB’ 000
Trade and bills payables Financial liabilities included in other payables and accruals Interest-bearing bank borrowings Lease liabilities	62,646 153,199 108,124 89,568
	413,537

Annual Report 2020 135

NOTES TO FINANCIAL STATEMENTS

31 December 2020

32. FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED)

The carrying amounts of each of the categories of financial instruments as at the end of the year are as follows (continued):

As at 31 December 2019

Financial assets

	Financial assets at fair value through other comprehensive income Equity investments Financial assets at amortised cost Total RMB’000 RMB’000 RMB’000
Equity investment designated at fair value through other comprehensive income Debt investments at fair value through other comprehensive income Financial assets included in prepayments, other receivables and other assets Pledged deposits Cash and cash equivalents	11,448 – 11,448 1,058 – 1,058 – 2,064 2,064 – 40,866 40,866 – 34,545 34,545 12,506 77,475 89,981

Financial liabilities

Financial liabilities
	Financial liabilities
	at amortised cost
	RMB’ 000
Trade and bills payables	67,697
Financial liabilities included in other payables and accruals	691,424
Interest-bearing bank borrowings	60,000
Lease liabilities	5,364
	824,485

136 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

33. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS

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

The carrying amounts of the Group’s financial instruments, other than those with carrying amounts that reasonably approximate to fair values, are as follows:

	31 December 2020 31 December 2019
	Carrying amount Fair value Carrying amount Fair value RMB’ 000 RMB’ 000 RMB’ 000 RMB’ 000
Financial assets Debt investments at fair value through other comprehensive income Equity investment designated at fair value through other comprehensive income	– – 1,058 1,058 12,907 12,907 11,448 11,448
	12,907 12,907 12,506 12,506

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

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

The fair values of bills receivable and unlisted equity investments designated at fair value through other comprehensive income have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms.

The fair values of bills receivable have been calculated by discounting the expected future cash flows using rates currently available for instruments with similar terms, credit risk and remaining maturities.

Annual Report 2020 137

NOTES TO FINANCIAL STATEMENTS

31 December 2020

33. 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 quantitative sensitivity analysis as at 31 December 2020 and 2019:

		Significant
	Valuation	unobservable		Sensitivity of fair value
	technique	input	Range	to the input
Unlisted equity	Discounted	Discount rate	31 December	Increase/(decrease)
investment	cash flow		2020:	in 1% would result in a
	method		14.15%	(decrease)/increase in
				fair value by
				(RMB3,852,000)/
				RMB4,901,000
			(31 December	Increase/(decrease) in
			2019:	1% would result in a
			14.08%)	(decrease)/increase in fair
				value by (RMB4,642,000)/
				RMB4,896,000
		Discount for	31 December	Increase/(decrease) in 5%
		lack of	2020:	would result in a (decrease)/
		marketability	28.09%	increase in fair value by
				(RMB897,000)/RMB898,000
			(31 December	Increase/(decrease) in 5%
			2019:	would result in a (decrease)/
			28.09%)	increase in fair value by
				(RMB796,000)/RMB796,000

The discount for lack of marketability represents the amounts of premiums and discounts determined by the Group that market participants would take into account when pricing the investment.

138 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

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

Fair value hierarchy

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

Assets measured at fair value:

As at 31 December 2020

	Fair value measurement using
	Quoted prices in active markets Significant observable inputs Significant unobservable inputs
	(Level 1) (Level 2) (Level 3) Total
	RMB’ 000 RMB’ 000 RMB’ 000 RMB’ 000
Equity investment designated at fair value through other comprehensive income
	– – 12,907 12,907

As at 31 December 2019

As at 31 December 2019
	Fair value measurement using Quoted prices in active markets Significant observable inputs Significant unobservable inputs (Level 1) (Level 2) (Level 3) Total RMB’ 000 RMB’ 000 RMB’ 000 RMB’ 000
Equity investment designated at fair value through other comprehensive income Debt investments at fair value through other comprehensive income	– – 11,448 11,448 – 1,058 – 1,058
	– 1,058 11,448 12,506

Annual Report 2020 139

NOTES TO FINANCIAL STATEMENTS 31 December 2020

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

Fair value hierarchy (continued)

The movements in fair value measurements within Level 3 during the year are as follows:

	2020 2019 RMB’ 000 RMB’ 000
Equity investment designated at fair value through
other comprehensive income
At beginning of year	11,448 10,023
Total gains recognised in other comprehensive income	1,459 1,425
At end of the year	12,907 11,448

During the year, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3 for both financial assets and financial liabilities (2019: Nil).

Liabilities for which fair values are disclosed:

As at 31 December 2020

	Fair value measurement using
	Quoted prices in active markets Significant observable inputs Significant unobservable inputs
	(Level 1) (Level 2) (Level 3) Total
	RMB’ 000 RMB’ 000 RMB’ 000 RMB’ 000
Interest-bearing bank borrowings
	– 108,124 – 108,124
As at 31 December 2019	Fair value measurement using Quoted prices in active markets Significant observable inputs Significant unobservable inputs (Level 1) (Level 2) (Level 3) Total RMB’ 000 RMB’ 000 RMB’ 000 RMB’ 000 – 60,000 – 60,000
Interest-bearing bank borrowings

Management has determined that the carrying amounts of interest-bearing bank borrowings approximate to their fair values largely because of their short term maturities.

140 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Group’s principal financial instruments mainly comprise cash and bank balances and interest-bearing borrowings. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial assets and liabilities such as bills receivable, other receivables, trade and bills payables and other payables, which arise directly from its operations.

The main risks arising from the Group’s financial instruments are foreign currency risk, credit risk and liquidity risk. The directors review and agree policies for managing each of these risks and they are summarised below.

Foreign currency risk

Foreign currency risk is the risk of loss resulting from changes in foreign currency exchange rates. Fluctuations in exchange rates between RMB and other currencies in which the Group conducts business may affect the Group’s financial condition and results of operations.

The following table demonstrates the sensitivity at the end of the year to a reasonably possible change in foreign currency exchange rate, with all other variables held constant, of the Group’s loss before tax (due to changes in the fair values of monetary assets and liabilities) and the Group’s equity.

	Increase/
	(decrease) in	Increase/	Increase/
	the rate of	(decrease) in loss	(decrease) in
	foreign currency	before tax	equity
	%	RMB’ 000	RMB’ 000
31 December 2020
If RMB weakens against USD	5	(1,471)	(1,471)
If RMB strengthens against USD	(5)	1,471	1,471
If RMB weakens against HKD	5	(25,624)	(25,624)
If RMB strengthens against HKD	(5)	25,624	25,624
31 December 2019
If RMB weakens against USD	5	(12)	(12)
If RMB strengthens against USD	(5)	12	12

Annual Report 2020 141

NOTES TO FINANCIAL STATEMENTS

31 December 2020

34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Credit risk

The Group trades only with recognised and creditworthy parties. Receivable balances are monitored on an ongoing basis and the Group’s exposure to bad debts is not significant. The credit risk of the Group’s other financial assets, which comprise cash and cash equivalents, pledged deposits and financial assets included in prepayments, other receivables and other assets, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments.

For other receivables and other assets, management makes periodic collective assessment as well as individual assessment on the recoverability of other receivables based on historical settlement records and past experience. The directors believe that there is no material credit risk inherent in the Group’s outstanding balance of other receivables.

As at the end of the year, cash and cash equivalents were deposited in financial institutions in high quality without significant credit risk.

Maximum exposure and year-end staging

The tables below show the credit quality and the maximum exposure to credit risk based on the Group’s credit policy, which is mainly based on past due information unless other information is available without undue cost or effort, and year-end staging classification as at 31 December.

The amounts presented are gross carrying amounts for financial assets.

As at 31 December 2020

	12-month ECLs	Lifetime ECLs
	Stage 1	Stage 2 Stage 3 Total
	RMB’ 000	RMB’ 000 RMB’ 000 RMB’ 000
Financial assets included in prepayments, other receivables and other assets Pledged deposits Cash and cash equivalents
	4,183	– – 4,183
	40,789	– – 40,789
	2,768,521	– – 2,768,521
	2,813,493	– – 2,813,493

142 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Credit risk (continued)

Maximum exposure and year-end staging (continued)

As at 31 December 2019

	12-month ECLs Stage 1 RMB’ 000	Lifetime ECLs Stage 2 Stage 3 Total RMB’ 000 RMB’ 000 RMB’ 000
Debt investments at fair value through other comprehensive income Financial assets included in prepayments, other receivables and other assets Pledged deposits Cash and cash equivalents	1,058 2,064 40,866 34,545	– – 1,058 – – 2,064 – – 40,866 – – 34,545
	78,533	– – 78,533

Liquidity risk

The Group monitors and maintains a level of cash and cash equivalents deemed adequate by the management of the Group to finance the operations and mitigate the effects of fluctuations in cash flows.

The maturity profile of the Group’s financial liabilities as at the end of the year, based on the contractual payments, is as follows:

As at 31 December 2020

	On demand Within one year One to five years Over five years Total RMB’ 000 RMB’ 000 RMB’ 000 RMB’ 000 RMB’ 000
Trade and bills payables	– 62,646 – – 62,646
Financial liabilities included in
other payables and accruals	153,199 – – – 153,199
Interest-bearing bank borrowings	– 108,124 – – 108,124
Lease liabilities	– 45,061 51,535 – 96,596
	153,199 215,831 51,535 – 420,565

Annual Report 2020 143

NOTES TO FINANCIAL STATEMENTS

31 December 2020

34. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED)

Liquidity risk (continued)

As at 31 December 2019

		Within	One to	Over
	On demand	one year	five years	five years	Total
	RMB’ 000	RMB’ 000	RMB’ 000	RMB’ 000	RMB’ 000
Trade and bills payables	–	67,697	–	–	67,697
Financial liabilities included in
other payables and accruals	691,424	–	–	–	691,424
Interest-bearing bank borrowings	–	60,000	–	–	60,000
Lease liabilities	–	1,851	4,087	–	5,938
	691,424	129,548	4,087	–	825,059

Capital management

The primary objectives of the Group’s capital management are to safeguard the Group’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the year ended 31 December 2020.

35. EVENTS AFTER THE REPORTING PERIOD

The impact of COVID-19

There has been an outbreak of COVID-19 around the world.

The management of the Company expected that clinical trials in and outside of Mainland China will not be significantly affected by the outbreak of COVID-19. The directors believe that, based on the information available as of the date of these financial statements, the outbreak of COVID-19 would not result in a material disruption to the Group’s business operations or a material impact on the financial position or financial performance of the Group.

It is uncertain when and whether COVID-19 could be controlled globally. The above analysis is made by the management of the Company based on the currently available information concerning COVID-19. The management of the Company cannot assure that the outbreak of COVID-19 will not further escalate or have a material adverse effect on the Group’s results of operations.

144 RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

36. STATEMENT OF FINANCIAL POSITION OF THE COMPANY

Information about the statement of financial position of the Company at the end of the year is as follows:

	2020 2019 RMB’ 000 RMB’ 000
NON-CURRENT ASSETS
Property, plant and equipment	797,373 459,444
Right-of-use assets	127,230 11,007
Other intangible assets	5,095 2,133
Investments in subsidiaries Equity investments designated at fair value through	52,602 21,786
other comprehensive income	12,907 11,448
Other non-current assets	181,125 67,436
Total non-current assets	1,176,332 573,254
CURRENT ASSETS
Inventories Bills receivable Prepayments, other receivables and other assets	66,204 31,247 – 1,058 131,887 29,859
Pledged deposits	40,212 40,866
Cash and cash equivalents	2,763,090 33,295
Total current assets	3,001,393 136,325
CURRENT LIABILITIES
Trade and bills payables	62,645 67,697
Other payables and accruals	200,542 720,291
Interest-bearing bank borrowings	108,124 60,000
Lease liabilities Deferred income	39,528 1,602 6,208 7,052
Total current liabilities	417,047 856,642

Annual Report 2020 145

NOTES TO FINANCIAL STATEMENTS

31 December 2020

36. STATEMENT OF FINANCIAL POSITION OF THE COMPANY (CONTINUED)

Information about the statement of financial position of the Company at the end of the year is as follows (continued):

	2020 2019 RMB’ 000 RMB’ 000
NET CURRENT ASSETS/(LIABILITIES)	2,584,346 (720,317)
TOTAL ASSETS LESS CURRENT LIABILITIES	3,760,678 (147,063)
NON-CURRENT LIABILITIES
Lease liabilities Deferred tax liabilities	39,246 3,762 727 –
Deferred income	44,477 60,565
Total non-current liabilities	84,450 64,327
Net assets/(liabilities)	3,676,228 (211,390)
EQUITY
Equity attributable to owners of the parent
Share capital	489,837 –
Paid-in capital	– 168,654
Reserves (note)	3,186,391 (380,044)
Total equity/(deficit)	3,676,228 (211,390)

146

RemeGen Co., Ltd.

NOTES TO FINANCIAL STATEMENTS

31 December 2020

36. STATEMENT OF FINANCIAL POSITION OF THE COMPANY (CONTINUED)

Note:

A summary of the Company’s reserves is as follows:

	Share	Capital	Other	Fair value	Accumulated
	premium	reserve	reserve	reserve	losses	Total
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
At 1 January 2019	–	127	4,379	23	(557,574)	(553,045)
Loss for the year	–	–	–	–	(424,896)	(424,896)
Debt to equity conversion	–	504,087	–	–	–	504,087
Capital contributions from shareholders	–	87,259	–	–	–	87,259
Change in fair value of equity
investments at fair value through
other comprehensive income,
net of tax	–	–	–	1,425	–	1,425
Share-based payment expenses	–	–	5,126	–	–	5,126
At 31 December 2019 and
1 January 2020	–	591,473	9,505	1,448	(982,470)	(380,044)
Loss for the year	–	–	–	–	(636,807)	(636,807)
Capital contributions from shareholders	–	721,835	–	–	–	721,835
Conversion into a joint stock company
upon restructuring	25,812	(1,313,308)	(11,436)	(1,448)	1,081,206	(219,174)
Change in fair value of equity
investments at fair value through
other comprehensive income,
net of tax	–	–	–	732	–	732
Issue of H shares in IPO	3,207,707	–	–	–	–	3,207,707
Over-allotment option of IPO	475,821	–	–	–	–	475,821
Share-based payment expenses	–	–	16,321	–	–	16,321
At 31 December 2020	3,709,340	–	14,390	732	(538,071)	3,186,391

37. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved and authorised for issue by the board of directors on 26 March 2021.

Annual Report 2020 147

FINANCIAL SUMMARY

	31 December 31 December	31 December
	2020 2019	2018
	RMB’ 000 RMB’ 000	RMB’ 000
Total assets	4,117,691 689,311	531,092
Total liabilities	523,070 921,280	1,029,270
Total equity	3,594,621 (231,969)	(498,178)
REVENUE	– –	11,321
Cost of sales	– –	(8,932)
Gross profit	– –	2,389
Other income and gains	75,400 38,481	15,377
Selling and distribution expenses	(24,180) (621)	–
Administrative expenses	(217,623) (68,434)	(29,125)
Research and development costs	(465,821) (352,066)	(216,438)
Impairment losses on financial assets, net	(47) 134	(196)
Other expenses	(36,324) (3,985)	(1,900)
Finance costs	(29,226) (43,789)	(40,055)
LOSS BEFORE TAX	(697,821) (430,280)	(269,948)

148 RemeGen Co., Ltd.

DEFINITIONS AND GLOSSARY

“AGM”

the annual general meeting of the Company for the year ended December 31, 2020 to be convened and held on June 1, 2021

“Articles”

“Audit Committee”

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

• “Board of Directors” or “Board” the board of Directors of the Company

“CelluPro” Yantai CelluPro Biotechnology Co., Ltd. (煙台賽普生物技術有限公司), a limited liability company incorporated in the PRC on June 27, 2018 and owned by MabPlex and RC Pharma as to 51% and 49%, respectively

“CG Code”

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

“Company” RemeGen Co., Ltd. (榮昌生物製藥(煙台)股份有限公司), a joint stock company incorporated in the PRC with limited liability, the H Shares of which are listed on the Stock Exchange (Stock code: 9995)

• “Controlling Shareholder(s)” or has the meaning ascribed under the Listing Rules and unless the context “Concert Party(ies)” otherwise requires, refers to Mr. Wang Weidong (王威東), Dr. Fang Jianmin (房 健民), Mr. Lin Jian (林健), Dr. Wang Liqiang (王荔強), Mr. Wang Xudong (王旭 東), Mr. Deng Yong (鄧勇), Mr. Xiong Xiaobin (熊曉濱), Mr. Wen Qingkai (溫 慶凱), Ms. Yang Minhua (楊敏華), Mr. Wei Jianliang (魏建良), Yantai Rongda Venture Capital Center (Limited Partnership) (煙台榮達創業投資中心(有限合 夥)), RongChang Holding Group LTD. and I-NOVA Limited, and each of them, a “Controlling Shareholder” or “Concert Party”

• “Core Product(s)” has the meaning ascribed to it in Chapter 18A of the Listing Rules; for purposes of this report, our core products include telitacicept (RC18), disitamab vedotin (RC48) and RC28

“Deed of Non-Competition” the deed of non-competition undertakings executed by the Controlling Shareholders in favor of the Company

Annual Report 2020 149

DEFINITIONS AND GLOSSARY

“Director”	the director of the Company
“Domestic Share(s)”	ordinary share(s) in the share capital of the Company, with a nominal value of
	RMB1.00 each, which are subscribed for and paid up in RMB and are unlisted
	Shares which are currently not listed or traded on any stock exchange
“Global Offering”	the offer of H Shares for subscription as described in the Prospectus
“Group”	the Company and its subsidiaries
“H Shares”	overseas listed foreign invested ordinary share(s) in the ordinary share capital of
	the Company, with a nominal value of RMB1.00 each, listed on the Main Board
	of the Stock Exchange
“HK$” or “Hong Kong dollars”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Independent Third Party(ies)”	Any entity or person who is not a connected person of the Company within the
	meaning ascribed thereto under the Listing Rules
“Kangkang”	Shanghai Kangkang Medical Technology Co., Ltd. (上海康康醫藥科技有限公司),
	is owned as to 90% by and is a subsidiary of Yeda Incubation
“Listing”	the listing of the H Shares of the Company on the Main Board of the Stock
	Exchange
“Listing Date”	November 9, 2020
“Listing Rules”	the Rules Governing the Listing of Securities on The Stock Exchange of Hong
	Kong Limited, as amended, supplemented or otherwise modified from time to
	time
“MabPlex”	Yantai MabPlex International Biomedical Co., Ltd. (煙台邁百瑞國際生物醫藥有限
	公司), a limited liability company incorporated in the PRC on June 25, 2013 and
	controlled by the Concert Parties
“Main Board”	the Main Board of the Stock Exchange

150 RemeGen Co., Ltd.

DEFINITIONS AND GLOSSARY

“Model Code”

the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules

“Nomination Committee”

the nomination committee of the Board

• “Prospectus”

the prospectus issued by the Company dated October 28, 2020

“RC Pharma”

Yantai Rongchang Pharmaceutical Co., Ltd. (煙台榮昌製藥股份有限公司), a joint stock company incorporated in the PRC on March 18, 1993, a company controlled by our Controlling Shareholders

“Reporting Period”

the year ended December 31, 2020

“RMB”

“Shareholder(s)”

Renminbi, the lawful currency of China holder(s) of the Shares

“Share(s)” shares in the share capital of the Company, with a nominal value of RMB1.00 each, comprising the Domestic Shares, Unlisted Foreign Shares and H Shares “Stock Exchange” the Stock Exchange of Hong Kong Limited “Strategy Committee” the strategy committee of the Board “Supervisory Committee” the Supervisory Committee of the Company “Supervisor(s)” supervisor(s) of the Company “Unlisted Foreign Shares” ordinary shares issued by the Company with a nominal value of RMB1.00 each and are held by foreign investors and are not listed on any stock exchange “Yeda Incubation” Yeda Incubation is owned as to 55% by and is a subsidiary of RC Pharma