Pharmaron Beijing Co., Ltd. Pharmaron Beijing Co., Ltd.* (a joint stock company incorporated in the People’s Republic of China with limited liability) Stock Code: 3759 * 2019 ANNUAL REPORT ANNU A L REPO R T 2019 * For identification purposes only PREMIER R&D SERVICE PROVIDER FOR THE LIFE SCIENCES INDUSTRY About Pharmaron is a premier R&D service company supporting the life science Pharmaron industry. Founded in 2004, Pharmaron has invested in its people and facilities and established its comprehensive service offerings throughout the pharmaceutical R&D lifecycle. With operations in China, US and UK staffed by over 7,000 employees, Pharmaron has an excellent track record in the delivery of R&D solutions to its partners in North America, Europe, Japan and China. CONTENTS 2 Corporate Information 3 Chairman’s Statement 6 Financial Highlights 7 Financial Summary 12 Management Discussion and Analysis 33 Profile of Directors, Supervisors and Senior Management 42 Corporate Governance Report 59 Directors’ Report 73 Environmental, Social and Governance Report 103 Independent Auditor’s Report 107 Consolidated Statement of Profit or Loss 108 Consolidated Statement of Comprehensive Income 109 Consolidated Statement of Financial Position 111 Consolidated Statement of Changes In Equity 112 Consolidated Statement of Cash Flows 114 Notes to the Consolidated Financial Statements 194 Definitions Corporate Information EXECUTIVE DIRECTORS AUTHORIZED REPRESENTATIVES Dr. LOU Boliang (樓柏良) (Chairman) Mr. LOU Xiaoqiang (樓小強) Mr. LOU Xiaoqiang (樓小強) Ms. MAK Po Man Cherie (麥寶文) Ms. ZHENG Bei (鄭北) AUDITOR NON-EXECUTIVE DIRECTORS Ernst & Young Mr. CHEN Pingjin (陳平進) 22/F CITIC Tower Mr. HU Baifeng (胡柏風) 1 Tim Mei Avenue, Central Mr. LI Jiaqing (李家慶) Hong Kong Mr. ZHOU Hongbin (周宏斌) LEGAL ADVISERS INDEPENDENT NON-EXECUTIVE DIRECTORS As to Hong Kong law: O’Melveny & Myers Mr. DAI Lixin (戴立信） Ms. LI Lihua (李麗華) 31st Floor, AIA Central Ms. CHEN Guoqin (陳國琴) 1 Connaught Road Central Ms. SHEN Rong (沈蓉) Hong Kong Mr. TSANG Kwan Hung Benson (曾坤鴻) As to PRC law: SUPERVISORS Zhong Lun Law Firm Dr. YANG Kexin (楊珂新) (Chairperson) 28/31/33/36/37F, SK Tower Mr. LIU Jun (劉駿) 6A Jianguomenwai Avenue Ms. ZHANG Lan (張嵐) Chaoyang District Beijing 100022 AUDIT COMMITTEE PRC Ms. SHEN Rong (沈蓉) (Chairperson) REGISTERED OFFICE IN THE PRC Ms. LI Lihua (李麗華) Ms. CHEN Guoqin (陳國琴) 8th Floor, Block 1 6 Tai-He Road REMUNERATION AND APPRAISAL Beijing Economic Technological Development Area COMMITTEE Beijing PRC Ms. SHEN Rong (沈蓉) (Chairperson) Dr. LOU Boliang (樓柏良) PRINCIPAL PLACE OF BUSINESS Mr. LOU Xiaoqiang (樓小強) IN HONG KONG Ms. LI Lihua (李麗華) Ms. CHEN Guoqin (陳國琴) 40th Floor, Sunlight Tower No. 248 Queen’s Road East NOMINATION COMMITTEE Wanchai Hong Kong Ms. CHEN Guoqin (陳國琴) (Chairperson) Dr. LOU Boliang (樓柏良) H SHARE REGISTRAR AND TRANSFER Ms. ZHENG Bei (鄭北) OFFICE Ms. SHEN Rong (沈蓉) Ms. LI Lihua (李麗華) Computershare Hong Kong Investor Services Limited Shops 1712-1716, 17th Floor STRATEGY COMMITTEE Hopewell Centre 183 Queen’s Road East Dr. LOU Boliang (樓柏良) (Chairperson) Wanchai, Hong Kong Mr. LOU Xiaoqiang (樓小強) Mr. CHEN Pingjin (陳平進) STOCK CODE Mr. LI Jiaqing (李家慶) Mr. DAI Lixin (戴立信） 3759 COMPANY SECRETARY COMPANY WEBSITE Ms. MAK Po Man Cherie (麥寶文) www.pharmaron.com 2 Pharmaron Beijing Co., Ltd. Annual Report 2019 Chairman’s Statement Dear Shareholders: 2019 marks a unique year for Pharmaron, as it has been our first year as a public company. On January 28, 2019, the Company successfully completed the initial public offering of RMB-denominated ordinary shares (A shares) and was listed on the ChiNext of Shenzhen Stock Exchange. On November 28, 2019, the Company announced HKD-denominated H shares was listed on the main board of the Hong Kong Stock Exchange. Bolstered by domestic and overseas capital markets, the successful listings marked our entry into a new stage of development. I am delighted to share Pharmaron’s key performance highlights in 2019 with our shareholders. I. Dedication to further enhancing and developing our fully-integrated pharmaceutical R&D service platform to accelerate our clients’ discovery, development and commercialization of innovative drugs. In 2019, the revenue was RMB3,757.2 million, representing an increase of 29.2% over the same period; gross profit was RMB1,331.7 million, representing an increase of 40.5% over the same period; achieving a gross profit margin of 35.4%; profit for the year attributable to the owners of the parent was RMB547.2 million, representing an increase of 62.8% over the same period in 2018. With continuous development of our established laboratory services and chemistry, manufacturing and control (CMC) services, we strategically set our footprint in the clinical development space. By implementing the strategies highlighted in our 2018 annual report (disclosed on the Shenzhen Stock Exchange), the quality development of these services enabled us to improve our R&D service capability and operating ability and strengthen our position as an industry leader. Pharmaron Beijing Co., Ltd. Annual Report 2019 3 Chairman’s Statement 1. Our pharmaceutical R&D service platform vitro Biology and in vivo Pharmacology, provided services to 1,038 clients (192 continuously deepens the integration with were new clients added) in 2019, which the laboratory chemistry business at the includes the top 20 global pharmaceutical drug discovery stage, increasing CMC companies. At the same time, our businesses derived from our existing drug extensive experience in new drug R&D discovery clients. In 2019, the overlap rate added impetus to the R&D of innovative of clients from drug safety assessment with drugs in China. In 2019, we assisted CMC businesses grew to 68% as a result domestic pharmaceutical and biotech of increased interest from our clients in companies in filing clinical trial applications our integrated IND enabling service. Our for 29 investigational new drugs (IND), 21 end-to-end R&D service platforms with of which were filed with multi-jurisdictions, seamless integration approach gained including China, the US and Europe. This more client recognition as it significantly demonstrates our growing contribution to improved R&D efficiency and reduced new the new drug research and development in drug R&D costs. China and the world. 4. In 2019, our safety assessment facility in 2. In 2019, our well-recognized service Beijing passed the US FDA audit for the capabilities and qualities allowed us to third consecutive time since the first audit achieve a steady growth in laboratory in 2009. Together with our existing GLP services. In CMC services, 588 APIs or certification of China’s NMPA (formerly advanced intermediates were supplied known as the CFDA) and Belgium’s OECD through clinical stages, including 9 GLP accreditation, we continuously support for Phase III clinical trials. In clinical our clients to conduct regulatory filings in development service, we have a parallel with various jurisdictions. unique integrated service platform that combines radioisotope based compound 5. In order to meet the increasing business synthesis-clinical-analysis for clinical demand, the Company continues to invest metabolism studies. To integrate together in capacity expansion. In 2019, we added with our oversea clinical operation, we 3,500 square meters at our animal facilities strategically expanded our clinical services for safety assessment services, started in China, which includes, among other laboratory service operation in Shanghai things, the acquisition of Nanjing Sirui and expanded our operations in the UK Biotechnology Co., Ltd., a China-based and the US. In addition, we commenced Contract Research Organization (CRO), the construction of Phase II of our Ningbo and the strategic investment in Beijing Hangzhou Bay R&D service center in 2019, LinkStart Biotechnology Co., Ltd., a which will provide additional space for up clinical Site Management Organization to 2,500 more scientists and technicians (SMO), specialized in providing third-party for our laboratory and CMC services by independent clinical on-site management the end of 2021. Also, the construction of services. Phase III of our Tianjin CMC facility started in 2019, which will be completed by the 3. With the strengthened R&D capabilities end of 2020. Furthermore, with our strategy and capacities across our service lines, to expand downstream to late-stage the synergy created from integration of clinical and commercial manufacturing, different R&D disciplines became more we commenced the construction of our apparent. While our bioscience service manufacturing facility in Shaoxing in 2019. platform, which includes DMPK/ADME, in The construction of Phase I of the Shaoxing facility, with a gross area of 81,000 square meters, is expected to complete by 2022. 4 Pharmaron Beijing Co., Ltd. Annual Report 2019 Chairman’s Statement II. Continuously cultivate a learning culture and 3. Pharmaron lectures/postdoctoral fellowship promote sustainable development program continued as part of our efforts to contribute to the talent development at We are committed to building a strong universities and encourage students to join talent pool by recruiting drug R&D scientists the pharmaceutical industry. Currently we from both home and abroad to meet our have set up Pharmaron Lectures programs in business demand. As of December 31, 2019, Shenzhen Graduate School of Peking University we had a total of 7,393 employees. By using and Shanghai Jiao Tong University, in China, a multi-dimensional and comprehensive and Oxford University, in the UK, and Toronto on-the-job learning platform, we focused on University, in Canada, respectively, in addition the development of young staff competent for to a Pharmaron sponsored postdoctoral our corporate development. We systematically program at the Shanghai Institute of Organic recruited, trained and developed talents in Chemistry of the Chinese Academy of Sciences. various professional fields and retained a team composed of staff in multi-levels (i.e. senior, 2020 will be the first year for our “New Five-Year middle and junior), which served as a talent Plan.” Going forward, we are well positioned pool for our long-term business development.