Hua Medicine Shanghai : Environment, Social and Governance Report 2020

(Incorporated in the Cayman Islands with limited liability) Stock Code: 2552

ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT

2020

CONTENTS

02

ABOUT THE REPORT

1. Compilation Reference

1. Report Scope

1. Report Availability

03 ABOUT US

1. Message from CEO
2. Business Overview

1. Innovative R&D Model
2. Awards & Recognitions in 2020
3. Highlights of 2020

07

RESPONSIBILITY MANAGEMENT

07 Sustainability Strategy

1. Stakeholder Communication
2. Board Statement
3. Business Ethics

11

CARING FOR ECOLOGY &

BUILDING A BEAUTIFUL ENVIRONMENT

1. Pollution Prevention
2. Utilization of Energy and Resource
3. Low-CarbonWorkstyles

14

CARING FOR EMPLOYEES & CREATING A BETTER LIFE

1. Employment Management

1. Employee Safety & Health

1. Training & Development

1. Activities & Care

21

CARING FOR QUALITY & CREATING A SECURE INDUSTRY

22 Quality Management

25 Supply Chain Management

27 Intellectual Property Management

29

CARING FOR COMMUNITY & SHARING A WARM HOME

31 APPENDIX

31 ESG Guideline Content Index

2 Hua Medicine Environmental, Social and Governance Report 2020

ABOUT THE REPORT

Hua Medicine (the "Company" or together with its subsidiaries, the "Group" or "We") hereby presents the Environmental, Social and Governance report ("ESG report" or the "Report") to the public for the year of 2020. This report aims to present the ESG policies and performance during the year.

Compilation Reference

This report discloses or explains the Group's sustainable business as of December 31, 2020 and is prepared in accordance with the requirements set out in the "ESG Guide" in Appendix 27 to the Main Board Listing Rules published by the Hong Kong Stock Exchange and Clearing Limited ("HKEX"), with the Group's own situation considered as well.

The data of this report is derived from the internal database and other statistical data of the Group.

Report Scope

This report outlines the Group's efforts and achievements in fulfilling corporate social responsibility and promoting sustainable development from January 1, 2020 to December 31, 2020.

Report Availability

The report is available in an electronic version which can be viewed on the website of the Group (https://www.huamedicine.com/investor-information.asp) and on the website of HKEX (www.hkexnews.hk).

The report is prepared in both traditional Chinese and English. In the event of discrepancy between the two versions, the English version shall prevail.

Hua Medicine Environmental, Social and Governance Report 2020

3

ABOUT US

Message from CEO

2020 was the third consecutive year for Hua Medicine to publish the environmental, social and governance report. We hope to use this communication channel to demonstrate to our equity holders our efforts and achievements in fulfilling our environmental, social and governance responsibilities, as well as our outlook and commitment to take on more responsibilities in the future.

2020 was a special year. The sudden outbreak of Covid-19 brought great changes to people's lives and posed challenges to the Group. In addition to actively responding and promptly implementing strategic decisions related to the prevention and control of the epidemic, we continue to promote initiatives related to environmental protection and implement the concept of green operations and sustainable development; adhere to the people-oriented approach, create a good office environment for employees and continue to provide various forms of vocational training to help employees achieve value enhancement and self-development; adhere to the "high standards and high quality to create high value" management principle, insist on the highest standard of pharmaceutical research and development; uphold the highest

quality of pharmaceutical manufacturing standards, and strive to create newCEO, Dr. Li CHEN miracles in pharmaceutical development.

2020 was the tenth year of Hua Medicine's establishment. In this year, Hua Medicine accomplished significant milestones in its clinical development program, and received care, recognition, and support from all sectors of society. A number of clinical studies achieved fruitful results, and the Group obtained the Drug Manufacturing Permit for dorzagliatin in the second half of 2020 and completed the core work of commercial production preparation, laying a solid foundation for the commercial production supply of post-marketing drugs and the gradual increase of production capacity in the future. At the same time, the Group has established a strategic partnership with Bayer in China in the field of diabetes. By leveraging Bayer's leading edge in the field of diabetes management in China and Hua Medicine's innovative capabilities, the Group will provide a new choice of treatment options for Chinese diabetes patients. Looking into the future, Hua Medicine will continue to set sail on the long voyage and explore the future by adhering to the tenet of "For Patient, Global Innovation, Effective Medicine".

4 Hua Medicine Environmental, Social and Governance Report 2020

Business Overview

Hua Medicine is a leading, clinical-stage innovative drug development company in China focused on developing novel therapies for the treatment of diabetes. Founded by an experienced group of entrepreneurs and international investment firms, Hua Medicine advanced a first-in-class oral drug for the treatment of Type 2 diabetes into NDA-enabling stage. Hua Medicine successfully completed two Phase III registration trials in 2020. In preparation for our eventual new drug application (NDA) submission for dorzagliatin with the National Medical Products Administration (NMPA), we completed the required active pharmaceutical ingredient commercial manufacturing process validation. In 2020, we obtained the Drug Manufacturing Permit and established a solid foundation for the successful launch of future products under development.

Innovative R&D Model

In the drug development phase, we adopted "RPP" Model: Regulation + Policy + Practice, and throughout the drug's full life cycle, our team has always placed an emphasis on management of "Q" (Quality). Hua Medicine has established the Drug Safety Management Committee and the Quality Risk Management Committee, which focus on drug safety and quality issues within our clinical trials, manufacturing and sales, to ensure that the trial design, research execution, and operations can all be implemented in accordance with international standards. Our R&D model not only enables us to improve efficiency and reduce costs of drug innovation, but also ensures the drug quality and data rigorousness.

Hua Medicine Environmental, Social and Governance Report 2020

5

Awards & Recognitions in 2020

Hua Medicine was recognized as a high-growth headquarters in Pudong

New Area by Shanghai Pudong New Area Municipal Commission of Commerce in 2020

Hua Medicine received Certificate of Multinational R&D Center from Shanghai Municipal Commission of Commerce in 2020

Hua Medicine receives the 2020 Gelonghui Most Innovative Award

6 Hua Medicine Environmental, Social and Governance Report 2020

Highlights of 2020

2020/6/18

Hua Medicine Successfully Completes SEED (HMM0301), Dorzagliatin's Phase III Monotherapy Trial

2020/8/17

Hua Medicine announces strategic collaboration with Bayer in the field of diabetes

2020/10/14

Hua Medicine announces the Drug Manufacturing Permit granted for dorzagliatin

2020/12/18

Hua Medicine Successfully Completes Its Registration Phase III Trials; Announces 52-Week Results for DAWN (HMM0302), Dorzagliatin's Phase III Combination with Metformin Trial

2020/12/30

Hua Medicine Global Operation Headquarters and R&D Center officially established

Hua Medicine Environmental, Social and Governance Report 2020

7

RESPONSIBILITY MANAGEMENT

Sustainability Strategy

Our Mission

To focus on innovative, first-in-class medicines that address unmet medicine needs globally.

Our Core Values

For Patients

Focus on patients' needs to provide truly valuable products.

Global Innovation

Utilize "innovative ideas" to promote "innovative technology", utilize "innovative models" to produce new drug and develop "innovative talent", and create "innovative environment" altogether.

Effective Medicines

Emphasis on quality management to continuously enhance ability on quality and risk control.

Our core ESG strategy is reflected in our mission and values. As we continue to deliver innovation and address global needs of diabetes patients, we remain committed to improving the Company's sustainability. We work hard to integrate ESG concept into our sustainability strategy, which guides our everyday decisions and actions, so that we can improve corporate management and create sustainable values for all stakeholders.

8 Hua Medicine Environmental, Social and Governance Report 2020

Stakeholder Communication

We believe understanding stakeholder expectations is a vital element in sustainability strategy. Through actively creating innovative channels to strengthen communications with stakeholders, the Group continuously revises and optimizes its environmental and corporate social responsibility initiatives.

Stakeholder		Expectations		Communication Channels
	•	Compliance with the Law	•	Work report
	•	Promote industry innovation	•	Government-Enterprise meetings
Government/Regulatory			•	Policy consultation
Agencies
	•	Protect shareholders' rights and	•	Timely information disclosure
		interests	•	Shareholder meetings
Shareholders/Investors	•	Satisfactory investment return	•	Sound legal risk control system
•	Compliance management

	•	Protect employees' rights and interests
	•	Democratic and empathetic
		management
Employees	•	Focus on health and safety
•	Provide trainings and career
		development channels

• Performance evaluation mechanism
• Periodic safety drill
• Labor union and employee caring activities
• Professional trainings

	•	Provide safe and high-quality drug
	•	Protect safety of patients
	•	Protect privacy of patients
Medical Community	•	Listen to feedbacks from patients

• Innovative drug research
• Product quality control
• Personal data protection
• Effective helplines, complaint filling channels

	•	Fulfill contracts	•	Long-term strategic cooperation
	•	Ensure open and transparent	•	Procurement guidance
Suppliers/Partners		cooperation	•	Management visits
•	Create a win-win situation	•	Consistent communication
	•	Create environmental-friendly	•	Resource saving promotion
		workplace	•	Industry forum
Community/Public	•	Hold community charity events	•	Public speeches
		•	Social media

Hua Medicine Environmental, Social and Governance Report 2020

9

Board Statement

Since its establishment, Hua Medicine has been committed to the "Patients First, Global Innovation, Effective Medicines" philosophy. In order to deliver high value products to future patients, the Group has been very focused on ensuring that its clinical trials, manufacturing, and corporate development has been conducted with the highest quality. As Hua Medicine approaches potential commercial launch of its first drug, dorzagliatin, it is of the utmost importance that this adherence to high quality continues to be maintained during the new drug application process, and manufacturing and commercialization of dorzagliatin.

With reference to environmental, social and governance reporting guidelines, based on communication and exchanges with various stakeholders, and taking into account the development trend and general concerns of the biotechnology and pharmaceutical industry, Hua Medicine ranked the importance of each potential issue and confirmed the following as the Group's key areas of concern.

Category	Issues
Environmental	Pollutants emission management
	Efficient use of resources
	Greenhouse gas emission and management
Social and governance	Quality management
	Intellectual property management
	Supply chain management
	Staff safety and health
	Staff development and training
	Anti-corruption
	Public welfare

Regarding the key areas of concern under the environmental category, as the Group approaches the potential commercial launch of dorzagliatin, the environmental impact from its business becomes increasingly significant, especially with regards to the manufacturing process of the drug. Hua Medicine will extend its commitment to green and sustainable practices to our expansion of manufacturing processes and scale-up of other commercialization related processes.

Regarding key areas of concern under the social and governance categories, these have been the Group's top priorities since establishment. As a China-based global biotechnology company, quality and IP management are critical to ensure the future of Hua Medicine's business. The Group's current operations are also heavily reliant on its staff, as well as its supply chain of outside vendors who support Hua Medicine in running clinical trials, and manufacturing and commercializing dorzagliatin, etc.

The Group's Board of Directors meets regularly to hear the progress of each division responsible for the aforementioned issues for the current period, and to discuss the need for additions, deletions and modifications to key areas based on the status of achievement and the core business model and operational processes.

10 Hua Medicine Environmental, Social and Governance Report 2020

Business Ethics

Hua Medicine has formulated Fraud Policy Statement and Whistleblower Policy in accordance with the laws and regulations of PRC Criminal Law and PRC Company Law. Fraud Policy Statement stipulates the definition of fraud, the investigation of fraud, and the handling procedures, etc. In 2020, the Group updated the Whistleblower Policy to improve the whistleblowing system and to ensure that improper conduct disclosure handling process complies with the objectives of management, the audit committee, and the internal audit department. Whistleblower Policy clearly stipulates the methods and forms of reporting improper conduct, the acceptance and investigation of disclosures, and the recording and reporting. All employees have access to this policy and are provided with training about this policy and their rights and obligations under it. At the same time, Hua Medicine has clearly explained the penalties for employees' corrupt behavior in the Employee Handbook.

In the updated physical procurement contract and service procurement contract templates in 2020, Hua Medicine states that the partner shall comply with all relevant Chinese laws, rules and regulations as well as the use of other national laws and regulations used in the contract, especially all applicable laws related to anti-bribery,anti-corruption,anti-money laundering, bookkeeping and internal control, including the U.S. Foreign Corrupt Practices Act and the International Anti-Corruption Law. If the partner finds any misconduct of Hua Medicine or its employees, affiliates, subcontractors, or representatives in the performance of this contract that violates the laws, rules or regulations related to anti-bribery,anti-corruption, bookkeeping and internal control, the partner can report via [e-mail]. In 2020, no major corruption cases involving bribery or money laundering were found in the Group.

Hua Medicine Environmental, Social and Governance Report 2020

11

CARING FOR ECOLOGY & BUILDING A BEAUTIFUL ENVIRONMENT

Pollution Prevention

The Group upholds the concept of green development and strictly follow Environmental Protection Law of the People's Republic of China ("the PRC"), the Law of the PRC on the Prevention and Control of Water Pollution, and the Law of the PRC on the Prevention and Control of Atmospheric Pollution, etc. We have also formulated and implemented relevant internal policies such as the Hua Medicine Pharmaceutical R&D Center Contingency Plan for Environment Emergencies and Chemicals Safety Management. With our environmental protection management, we aim to maximize resource utilization efficiency and minimize impact on the environment, and to practically assume our corporate social responsibility. In 2020, the Group abided by all applicable laws and regulations which have major impact on us. No major environment pollution incident was reported, and no complaint was received resulting from environment pollution or non-compliance with environmental laws and regulations.

Hua Medicine's R&D model enables us to work closely with multiple third parties in both drug development and drug manufacturing phases. When we choose our partners, we not only have strict requirements on the quality of their services, but also scrutinize their environment and social awareness, to ensure our partners have well-established pollution prevention standards for green emissions. In daily operations, we mainly consume electricity provided by the State Grid, through which we discharge little greenhouse gas indirectly.

Within the reporting period, two laboratories were put into operation in Shanghai Zhangjiang Hi-tech Park, mainly for biology and pharmacology experiments, sample analysis and product formulation study. Upon project completion, according to requirements set out in state regulations including Regulations on the Environmental Protection for Construction Projects and Interim Measures for the Acceptance of Environmental Protection on the Completion of Construction Projects , we organized a team to perform inspection on environment protection measures implemented in the laboratories. Hence, we ensured that all pollutants are to be properly treated, minimizing the adverse impact on environment.

12 Hua Medicine Environmental, Social and Governance Report 2020

Emission	Source	Treatment
Wastewater	Laboratory wastewater and	Wastewater is pretreated and discharged into the municipal
	domestic sewage	sewage network, then into sewage treatment plant;
		Wastewater meets relevant effluent standards.
Air Emission	Laboratory exhaust gas	Exhaust gas collected from fume hood is discharged after
		purification by active carbon absorber.
Noise	Laboratory equipment noise	Use low-noise advanced equipment, or high-noise equipment
		with vibration-isolated foundation, sound cushion, etc.

Solid Waste	Hazardous waste
	(laboratory waste, liquid waste, etc.)
	Household garbage

The waste is sorted and processed by qualified third party/ property after chemical ablation.

The garbage is sorted and disposed in waste container, then collected and recycled by sanitation department.

Over the reporting period, a total of 15 kg of experimental hazardous waste and a total of 3 tons of other non-hazardous waste such as domestic waste were disposed by qualified third party on behalf of the Group.

Utilization of Energy and Resource

In daily operations, the Group mainly consumes water, electricity, and a small quantity of gasoline, all from procurement. We actively respond to the environmental protection and resource conservation measures implemented by the government to utilize current resources fully, reasonably, and efficiently, and at the same time reducing operation costs.

Over the reporting period, resource and energy consumption of Hua Medicine is as follow:
Resource	Data
Executive Water Consumption	1,066	Ton
Water Consumption Per Capita	6.6	Ton
Executive Electricity Consumption	349,128 kWh
Electricity Consumption Per Capita	2,155 kWh
Executive Gasoline Consumption	9,600	Liter
Gasoline Consumption Per Capita	59	Liter

Through calculation, 245,045 kg of greenhouse gas (CO2) was generated by the Group indirectly through electricity and gasoline usage, which converts to 1,512 kg per capita emission.

Hua Medicine Environmental, Social and Governance Report 2020

13

Low-Carbon Workstyles

In recent years, climate change, mainly characterized by the greenhouse effect, has occurred frequently around the world, bringing impacts on the sustainable development of human economy and society. To cope with the adverse effects and adapt to climate change, we have actively taken measures to gradually reduce and minimize greenhouse gas emissions and prepare contingency plans for emergencies caused by climate change.

We integrate our green development concept into each aspect of our daily operation. We proactively advocate that we handle business with minimal impact on environment and encourage our employees to start from details such as saving every piece of paper, every drop of water, and enhancing the conservation awareness within the Group. We require that all high-power appliances in office buildings use products that meet requirements of Level 1 Energy Efficiency Index. We continue to promote digitalization and paperless office to save energy and resources, and to improve work efficiency. We prepared the emergency plan to prevent the possible impact of extreme weather emergencies in advance. Through our process improvement and optimized administrative policies, the consumption per capita of electricity, gasoline, and greenhouse gas all decreased compared to the previous reporting period:

Electricity Consumption	Gasoline Consumption	Greenhouse Gas Emission
Per Capita (kWh)	Per Capita (Liter)	Per Capita (kg)

2,516				1,744
	2,115	61	59		1,512
2019	2020	2019	2020	2019	2020

14 Hua Medicine Environmental, Social and Governance Report 2020

CARING FOR EMPLOYEES & CREATING A BETTER LIFE

Employment Management

Talent Acquisition

The Group strictly abides by laws and regulations such as the Labor Law of the PRC , the Labor Contract Law of the PRC , and the Regulations for the Implementation of the Labor Contract Law of the PRC. Based on the regulations of open and non-discriminative recruitment, we hire talents that are competitive and meet the needs of the company, and clearly state that the age must be at least 18 years old. As at the end of 2020, there were 162 talents in the Group.

Hua Medicine Employment Data of 2020

By		58			103
Gender
0%	20%	40%	60%	80%	100%

By			84	63		15
Education
0%	20%	40%	60%	80%	100%

By Age		35			82	29	16 0
	0%	20%	40%	60%	80%	100%

By			162		0
Employment
Type
0%	20%	40%	60%	80%	100%

Male

Female

Postgraduate & Above

Undergraduate

Below Undergraduate

Below 30

31-40

41-50

51-60

60 & Above

Regular Staff

Contractor

Hua Medicine Environmental, Social and Governance Report 2020

15

	Hua Medicine Turnover Data of 2020
By Gender				By Education
				1
				5%
	6
	30%			10
				50%			Postgraduate &
14			Male	9			Above
				Undergraduate
		Female	45%
70%					Below

Undergraduate

		By Age		By Employment Type
2	0	2		0
	0%
10%	0% 10%
5
25%			Below 30			Regular Staff
					Contractor
			31-40
			41-50
			51-60
		11	Above 60	20
		55%		100%

Working Hours and Holidays

Hua Medicine's non-R&D employees enjoy a 5-day8-hour work schedule with working hours from 8:30 to 17:00, including a half-hour lunch break. R&D employees enjoy flexible working hours due to the needs of their work, and the detailed schedule of R&D employee is managed by each Department Head according to the status of each project. In addition to public holidays, the employees also enjoy a 12-day annual leave per year, or a 15-day of annual leave per year for those with more than 20 years of work experience. There is also marriage leave, maternity leave, paternity leave, bereavement leave, work injury leave and paid sick leave.

16 Hua Medicine Environmental, Social and Governance Report 2020

Promotion Process

The Group has developed a comprehensive compensation system and promotion process. The Human Resources Department organizes promotion meetings where members of the promotion committee objectively discuss, evaluate, and finally confirm the employees' capabilities in all aspects. The aim is to ensure that employees can make full use of their skills in appropriate positions and encourage employees to make continuous improvement.

		(The Committee		(Human Resources,
		evaluates and votes)		Department Head, CEO)
Promotion		Promotion		Salary		Promotion
nomination PPT		meeting		Proposal		letter

Hua Medicine Promotion process flow

KPI

The Group sets milestone awards for employees. The Group sets overall quarterly and annual goals based on each employee's position, then set quantitative indicators, qualitative indicators and weights based on the goals. The Group evaluates, scores the performance of each employee, and work out results fairly and objectively, and finally issue a KPI report for each employee.

Employee Safety & Health

Safety Guideline

The Group strictly abides by laws and regulations such as the PRC Work Safety Law , Administrative Measures for Emergency Response Plan for Production Safety Accidents, Occupational Disease Prevention Law of the PRC and other laws and regulations, and is committed to providing employees with a safe and secure office environment and protecting employees' personal safety. The Group has issued the Safety Precautions for Employees , which requires to conduct training for employees when they join the company, the training includes the escape routes, medical cabinets, etc. For medical laboratories, the Group released the Laboratory Safety Management Regulations, which regulates the laboratory's operation, the use of hazardous chemicals, and the handling procedures for safety incidents. During the reporting period, there were no work-relatedinjuries or deaths.

Hua Medicine Environmental, Social and Governance Report 2020

17

Fire Drill

In accordance with national laws related to fire protection and safety in production, the Group invited Mr. Gaofeng Yang of Shanghai Vision Fire School to conduct fire safety training for all the employees on October 16, 2020.

Fire prevention seminar

Practice of fire extinguisher by employees

Health Guarantee

The Group arranges physical examination for employees once a year and provides each employee with personal accident insurance and commercial medical insurance. In addition, the Group has purchased gym annual cards and badminton membership cards for all employees and established the employee activity center in the office building, in order to encourage them to exercise and maintain a healthy lifestyle in their spare time.

Employee Activity Center

18 Hua Medicine Environmental, Social and Governance Report 2020

Epidemic Prevention

In order to ensure the health and safety of every employee and the orderly implementation of the epidemic prevention and control work, the Group has taken a series of positive and effective measures, including: accurate positioning of the location of all employees, and the implementation of daily reporting and statistical work on the health status of employees; detailed data analysis of the epidemic situation in the location of employees and regular updates; provide important scientific basis for the company's epidemic prevention work; send the company's care, support and material sponsorship to employees in seriously impacted areas (e.g. Wuhan area), and help local employees to overcome the difficulties together; formulated a scientific and reasonable plan for the phased and batch return of employees to their workplaces; overcame difficulties to provide all employees with "home office" conditions, such as computer equipment and remote video conferencing functions; formulated a strict plan of action for disinfection before the office was reopened.

Nucleic Acid Test for employees

Training & Development

As a people-oriented company, Hua Medicine has always believed that the development of the company is inseparable from the development of the employees themselves. In order to better improve the quality of employees' abilities and enhance their understanding of corporate culture, the Training Management Process developed by Hua Medicine officially took effect on August 17, 2020, which further standardizes the duties of personnel, training system, training plan development and implementation, training evaluation, etc., providing a complete set of training process guidelines for the organization of future training.

Hua Medicine Environmental, Social and Governance Report 2020

19

In 2020, due to the impact of the epidemic, the organization of offline trainings encountered some challenges, but Hua Medicine actively adopted online training in addition to offline training and organized a total of 26 training sessions (excluding professional training organized by departments). The total trained employees were 61, with a total of 2,454 training hours. Relevant data and photos of 2020 trainings are as follow.

	Male Staff	Female Staff
Percentage of Trained Employees	29.3%	70.7%
Average Training Hours	29.5	30.1
	Department Head	Other Employees
Percentage of Trained Employees	4.9%	95.1%
Average Training Hours	18.0	30.5

Hua Medicine - The first onboarding training for new employees in 2020

20 Hua Medicine Environmental, Social and Governance Report 2020

Activities & Care

In addition to focusing on the professional development of employees, HUA Medicine is also committed to fostering a warm working environment comprised of employees that care and support each other.

Under the premise of ensuring good safety and protection, the Labor Union of Hua Medicine organized a series of cultural and sports activities in 2020, such as table tennis competition, birthday party for employees, and honoring the elderly on Chung Yeung Festival, which increased the communication among employees and enhanced the cohesion within the Group.

Hua Medicine - Honoring the elderly on 2020 Chung Yeung Festival

Hua Medicine - Table tennis competition in August 2020

HUA Medicine - Birthday party for employees in October 2020

Hua Medicine - Birthday party for employees in November 2020

Hua Medicine Environmental, Social and Governance Report 2020

21

CARING FOR QUALITY & CREATING A SECURE INDUSTRY

On October 14, 2020, Hua Medicine announced that, after review and on-site verification under the Marketing Authorization Holder ("MAH") system, Hua Medicine has obtained the Drug Manufacturing Permit for dorzagliatin, its investigational first-in-class drug, issued by the Shanghai Municipal Drug Administrative Bureau. This is a milestone step for Hua Medicine, as the grant of the Drug Manufacturing Permit will further accelerate the dorzagliatin New Drug Application (NDA) process, facilitate the commercial production and supply of the drug upon the product launch and lay a solid foundation for the expected increase of production capacity in the future.

Hua Medicine - The Drug Manufacturing Permit obtained in 2020

As one of the first batch of MAH enterprises in China, Hua Medicine always upholds the quality vision of "Lead our partners to continuously improve the quality of our collective outputs as we develop innovative medicines for treating patients" and has established management systems for drug safety/pharmacovigilance and pharmaceutical quality that are in line with its responsibilities as a MAH and also comply with international and domestic standards.

22 Hua Medicine Environmental, Social and Governance Report 2020

Quality Management

Quality Management Model

Hua Medicine, as a MAH, both CEO and Quality Head take overall quality responsibilities, and report to Board of Directors. Hua Medicine has implemented its total quality management through the establishment of independent quality department, quality committee (QC), and set quality management function in functional department and project.

CEO

&

Quality Head

Hua Quality Committee

Quality Assurance Department

Overall quality responsibilities

Report to Board of Directors

Joint Quality Council (JQC)

Led by Hua, vendors involved

Quality issues communication and resolution

Quality review/improvement, experience sharing

GxP quality system continuous improvement, quality culture

Deviation, change, risk management, CAPA, product release, recall, complaint

Partner management (qualication, daily supervision, QAA, etc.)

GxP training, documentation system

Hua Medicine - Quality Management Model

Hua Medicine Environmental, Social and Governance Report 2020

23

Quality Management System (QMS)

A well-designed system is the basis for excellent quality management. In 2020, Hua Medicine further reviewed its QMS and updated more than 20 quality assurance Standard Operating Procedures (SOPs) to ensure that the Group's internal policies are more in line with the provisions of the PRC Drug Administration Law, the Drug Manufacturing Supervision and Administration Measures, the Drug Registration Management Measures and other relevant national laws and regulations. Hua Medicine's QMS can be summarized into the six modules in the figure below, which are interlinked and complementary to each other to achieve the monitoring and improvement of the whole cycle of quality.

Documentation

System

Continuous	Qualification
and Training
Improvement
System
	Quality Design
	Quality Risk
Issue	Management
Contract
Management,
CAPAs,	Vendor
Change	Management
Management	Risk-based
	Supervision
	and
	Inspection/
	Audit/Quality
	Control

Hua Medicine's Quality Management System

(QMS) complies with China Drug Administration

Law, China GMP, GCP, GLP, GSP, GVP and other applicable regulations and ICH guidelines.

Documentation System

Quality Policy, Quality Manual

Procedures, SOPs, Guidelines

Templates and forms

Other required documents, such as programs, plans, etc.

Qualification and Training System

Hua Medicine's quali•cation, job training, continuing education GxP trainings

Contract Vendor Management

Vendor lifecycle management, vendor selection, quali•cation con•rmation, daily monitoring, audit, etc.

Quality agreements, issue handling, Joint Quality Council Personnel-in-Plant (PIP) and Quality-in-Plant (QIP)

Batch release

Risk-based Supervision & Inspection/Audit/Quality Control

Risk-based quality audits of material vendors, CMOs, CROs, etc. Risk-based quality audits of clinical study centers

Quality control of clinical trial data

Issue Management: Deviations, CAPAs, Changes, Complaints & Recalls

Issue reporting, investigation, risk analysis, decision

CAPAs & effectiveness check

Changes

Complaints

Recalls

Continuous Improvement

QMS review and continuous improvement

Variance analysis and implementation of applicable regulations Promotion of quality culture

Hua Medicine - Quality Management System

24 Hua Medicine Environmental, Social and Governance Report 2020

Drug Release

As a MAH, Hua Medicine fulfills its responsibility for the release of drugs to market and updated SOPs such as Premarketing Formulation Finished Product Release Procedures and Listed Formulation Finished Product Release Procedures in 2020 to take responsibility for the overall quality of drugs and ensure the safety, efficiency, and quality control of drugs during their life cycle.

Drug Manufacturing Release

Drug Marketing Release

Entrusted

Entrusted Party

Audit of batch

Release to Market by

Party

Release

records by Hua

Hua

Manufacture

Quality

Manufacture

Review of batch

Audit of batch

compliance

manufacture

manufacture

supervision by

audit of batch

and inspection

records by

Hua Medicine's

manufacture

record by

process

PIP and QIP staff

and

manufacture

technicians

inspection

Issue

team and QC

records

Audit of batch

communication,

Audit of batch

inspection

negotiation and

Audit of drug

records by QA

records by

resolution

marketing

inspection

release by

Release audit

technicians

quali•ed

by quali•ed

person	person

Hua Medicine - Drug release procedures

In addition, Hua Medicine developed the Quality Standards and Test Methods SOP, which was released in October 2020. The SOP regulates the quality standards and test methods of all Hua Medicine's products in the proposed marketing/post-marketing phase to ensure the safety, effectiveness, and quality control of the drugs.

Issue Handling

A well-defined Corrective Action and Preventive Action (CAPA) process and system can minimize the possibility of recurrence of non-compliance/deviation/violation and is an integral part of Hua Medicine's QMS. In 2020, Hua Medicine updated the Event and Deviation Management SOP and CAPA Management SOP, and designed Event Report Form and Deviation Investigation Record to further standardize the event identification, deviation confirmation, impact assessment, and CAPA to ensure that they comply with national laws and regulations and the requirements of Hua Medicine's QMS.

Hua Medicine Environmental, Social and Governance Report 2020

25

Quality Culture

Hua Medicine's emphasis on quality is also reflected in the daily promotion of quality culture awareness and quality system training for employees. Every year, Hua Medicine will make GxP training plan for the year and conduct thematic training and promotion from time to time according to new laws and regulations. In 2020, Hua Medicine organized more than ten quality-related trainings, some of which such as "GVP laws and regulations training" and "How quality can guarantee Value" are for all employees.

As Hua Medicine has not initiated sales, there were no consumer complaints or product recall related cases received in 2020. In 2019, Hua Medicine has refined the Product Quality Complaint Handling Procedures to ensure that all customer complaints can be dealt with in a timely and effective manner.

Supply Chain Management

Vendors form an integral component of the business strategy of Hua Medicine, and the appropriate selection, oversight and governance of vendors is important to ensure that Hua Medicine can verify ongoing compliance and contractual obligations. In 2020, the Group updated and published Vendor Qualification and Monitor Process which provides standardized guidelines on the process of vendor selection, qualification, approval and monitor for Hua Medicine as a MAH.

By the end of 2020, Hua Medicine had a total of 120 administrative-related vendors including cleaning, travel and decoration vendors, and a total of 42 manufacturing and R&D vendors, including CMO, CRO, raw material and package vendors, R&D instrument and equipment vendors, technical service providers, etc. Among the 42 manufacturing and R&D vendors, 33 are in East China, 7 are in North China and 2 are in other regions of China.

Vendor Selection

In terms of vendor selection, Hua Medicine adopts vendor grading strategy, selects preferred vendors through market research and follows the Group's vendor acceptance process. In terms of supply chain risk management, the Group takes various external and interior risks into consideration when selecting vendors and diversifies supply chain risks by increasing alternative vendors and diversifying vendor backgrounds.

For the vendors that the Group decide to work with, Hua Medicine ensures that the vendors have been qualified according to the defined processes to perform the tasks that are outsourced to them, that the expectations for the quality of tasks and deliverables are mutually agreed between Hua Medicine and the vendor via the contractual framework, like via specific Quality Assurance Agreement (QAA), and that appropriate governance processes are in place, based on risk based criteria, to ensure that risk can be proactively identified and managed.

In 2020, Hua Medicine signed an agreement with ZKH Industrial Supply Co., Ltd. and Shanghai Titan Scientific Co., Ltd. to build a one-stop procurement platform for the Group's researchers to save the time and economic cost of procurement.

26 Hua Medicine Environmental, Social and Governance Report 2020

Vendor Monitor and Performance Assessment

To timely detect and address critical issues or risks that may arise during the cooperation between the Group and vendors, a Joint Quality Council (JQC) is established by the Group and its major vendors. The JQC will be composed of representatives from Hua Medicine's quality department and vendor's quality department, as well as personnel from the operational functions of both parties.

The JQC will drive and govern quality, compliance, continuous quality improvement, and quality risk management across the partnership through the review and assessment of quality metrics, provision of expert guidance and advice, and strategic planning and execution of oversight and verification activities, including but not limited to, internal audits, inspection readiness activities, regulatory authority inspections, and the efficient investigation and management of incidents of potential or actual noncompliance.

Hua Medicine's vendor performance management mainly includes vendor performance target setting, performance standard setting, performance data management, performance improvement. The Group will classify vendors into high-performance vendors and low-performance vendors to adjust the follow-up cooperation strategy with them.

In 2020, Hua Medicine completed 9 GMP vendor audits and signed 8 quality agreements and completed 7 GCP/GLP vendor audits and signed 4 quality agreements in total. Due to the impact of the epidemic, for the vendors that Hua Medicine could not conduct on-site audits, the Group conducted remote audits by reviewing documents and issuing questionnaires. Each Hua Medicine audit was documented in Vendor/Contractor Audit Report and signed by the auditors for confirmation.

Green Supply Chain

The environmental performance of vendors is also an important aspect that is taken into consideration when Hua Medicine choosing vendors. When contracting with manufacturing partners, Hua Medicine clearly states the environmental management responsibilities of the partner in the contract to ensure that the health, safety, and environmental issues involved have been adequately considered to meet relevant regulations of Chinese regulatory authorities and Hua Medicine's own requirements.

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27

Intellectual Property Management

Adhering to the approach of "Patients First, Global Innovation, Effective Medicines", Hua Medicine strives to achieve continuous innovation in research and development, share R&D achievements, and at the same time attach great importance to the application and protection of intellectual property rights.

In 2020, Hua Medicine further builds a more comprehensive intellectual property management system, and Patent Application Process, Trademark Registration Process and Copyright Registration Process took effective in January 2020. In the updated physical procurement contract and service procurement contract templates in 2020, Hua Medicine has clearly stated the responsibilities related to intellectual property rights of both parties.

During the reporting period, Hua Medicine was not involved in any litigation regarding violations of intellectual property rights. As of December 31, 2020, the distribution of Hua Medicine patents is as follows.

Patent Type	Patent Coverage	Application Status
Invention Patent	HMS5552 Compound	Received 11 patents in 12 countries and regions
Invention Patent	HMS5552 Process	Received all patents in 15 countries and regions
Invention Patent	HMS5552 Formulation	Received 3 patents in 21 countries and regions
Invention Patent	(HMS5552 + biguanide) Compound	16 applications are in progress
	Formulation
Invention Patent	(HMS5552 + K-ATP channel blockers)	Received 1 patents in 16 countries and regions
	Compound Formulation
Invention Patent	(HMS5552 + SGLT-2 inhibitors) Compound	16 applications are in progress
	Formulation
Invention Patent	(HMS5552 + DPP-IV inhibitors) Compound	16 applications are in progress
	Formulation
Invention Patent	(HMS5552 + AGI) Compound Formulation	16 applications are in progress
Invention Patent	(HMS5552 + PPAR) Compound Formulation	16 applications are in progress
Invention Patent	HMS5552 New Usage Method	2 applications are in progress
Design Patent	HMS5552 Tablet Appearance Design	16 applications are in progress
Invention Patent	mGluR 3rd generation Compounds	Received 5 patents in 16 countries and regions
Invention Patent	mGluR 2nd generation Compounds-Pyrazole	2 applications are in progress
	derivatives
Invention Patent	mGluR 2nd generation Compounds-Pyrrole	Received 1 patents in 2 countries and regions
	derivatives
Invention Patent	mGluR 1st generation Compounds	Received 1 patent in 1 country

28 Hua Medicine Environmental, Social and Governance Report 2020

Hua Medicine's select newly granted patents in 2020

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CARING FOR COMMUNITY & SHARING A WARM HOME

As a leading, clinical-stage innovative drug development company in China, Hua Medicine is committed to advancing diabetes care solutions for patients worldwide. At the same time, the Group takes advantage of its own advantages in the pharmaceutical industry to actively undertake social responsibilities, care for community and care for the society.

On November 12, 2020, Dr. Li Chen, CEO of Hua Medicine, was invited to attend the Celebration of the 30th Anniversary of the Development and Opening-up of Pudong, and was invited to be a part of a photo with Chinese President Jinping Xi as a representative of Chinese biotech companies.

30th Anniversary Celebration of Pudong Development and Opening Up

30 Hua Medicine Environmental, Social and Governance Report 2020

In addition, the management of Hua Medicine has participated in many industry forums and seminars in 2020 to discuss future opportunities and challenges and to contribute to the industry development.

The first Hongqiao Drug Administration Autumn Salon in 2020

Shanghai Pudong Biomedical Innovation Forum in December 2020 - "Biomedical Industry Development and Policy Seminar under COVID-19"

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APPENDIX: ESG GUIDELINE CONTENT INDEX

			Hua Medicine Related
Item	Descriptions		sections/Claims
A. Environmental
A1. Emissions	General	Information on the policies and compliance with	Caring for Ecology & Building a Beautiful
	Disclosure	relevant laws and regulations that have a significant	Environment - Pollution Prevention
		impact on the issuer relating to emissions of waste gas
		and greenhouse gas, discharge into water and land,
		generation of hazardous and non-hazardous waste
	A1.1	The types of emissions and respective emissions data	Caring for Ecology & Building a Beautiful
			Environment - Pollution Prevention
	A1.2	Direct and energy indirect greenhouse gas emissions	Caring for Ecology & Building a Beautiful
		and, where appropriate, intensity	Environment - Utilization of Energy and
			Resource
	A1.3	Total hazardous waste produced and, where	Caring for Ecology & Building a Beautiful
		appropriate, intensity	Environment - Pollution Prevention
	A1.4	Total non-hazardous waste produced and, where	Caring for Ecology & Building a Beautiful
		appropriate, intensity	Environment - Pollution Prevention
	A1.5	Description of emissions target(s) set and steps taken to	Caring for Ecology & Building a Beautiful
		achieve them	Environment - Pollution Prevention
	A1.6	Description of how hazardous and non-hazardous	Caring for Ecology & Building a Beautiful
		wastes are handled, and a description of reduction	Environment - Pollution Prevention
		target(s) set and steps taken to achieve them

32 Hua Medicine Environmental, Social and Governance Report 2020

			Hua Medicine Related
Item	Descriptions		sections/Claims
A. Environmental
A2. Use of	General	Policies on the efficient use of resources, including	Caring for Ecology & Building a Beautiful
Resources	Disclosure	energy, water and other raw materials.	Environment - Utilization of Energy and
			Resource
	A2.1	Direct and/or indirect energy consumption by type in	Caring for Ecology & Building a Beautiful
		total and intensity	Environment - Utilization of Energy and
			Resource
	A2.2	Water consumption in total and intensity	Caring for Ecology & Building a Beautiful
			Environment - Utilization of Energy and
			Resource
	A2.3	Description of energy use efficiency target(s) set and	Caring for Ecology & Building a Beautiful
		steps taken to achieve them	Environment - Low-Carbon Workstyles
	A2.4	Description of whether there is any issue in sourcing	Caring for Ecology & Building a Beautiful
		water that is fit for purpose, water efficiency target(s)	Environment - Utilization of Energy and
		set and steps taken to achieve them	Resource
	A2.5	Total packaging material used for finished products and,	Not applicable
		if applicable, with reference to per unit produced
A3. The	General	Policies on minimizing the issuer's significant impact on	Caring for Ecology & Building a Beautiful
Environment	Disclosure	the environment and natural resources	Environment - Pollution Prevention
and Natural
A3.1	Description of the significant impacts of activities on	Caring for Ecology & Building a Beautiful
Resources
	the environment and natural resources and the actions	Environment - Pollution Prevention
		taken to manage them	Caring for Ecology & Building a Beautiful
			Environment - Low-Carbon Workstyles
A4. Climate	General	Policies on identification and mitigation of significant	Caring for Ecology & Building a Beautiful
Change	Disclosure	climate-related issues which have impacted, and those	Environment - Low-Carbon Workstyles
		which may impact, the issuer
	A4.1	Description of the significant climate-related issues	Caring for Ecology & Building a Beautiful
		which have impacted, and those which may impact, the	Environment - Low-Carbon Workstyles
		issuer, and the actions taken to manage them

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				Hua Medicine Related
Item	Descriptions		sections/Claims
B.	Social
B1.	Employment	General	Information on the policies and compliance with	Caring for Employees & Creating a Better
		Disclosure	relevant laws and regulations that have a significant	Life - Employment Management
			impact on the issuer	Caring for Employees & Creating a Better
				Life - Activities & Care
		B1.1	Total workforce by gender, employment type, age	Caring for Employees & Creating a Better
			group and geographical region	Life - Employment Management
		B1.2	Employee turnover rate by gender, age group and	Caring for Employees & Creating a Better
			geographical region	Life - Employment Management
B2.	Health and	General	Information on the policies and compliance with	Caring for Employees & Creating a Better
	Safety	Disclosure	relevant laws and regulations that have a significant	Life - Employee Safety & Health
			impact on the issuer
		B2.1	Number and rate of work-related fatalities occurred in	Caring for Employees & Creating a Better
			each of the past three years including the reporting year	Life - Employee Safety & Health
		B2.2	Lost days due to work injury	Caring for Employees & Creating a Better
				Life - Employee Safety & Health
		B2.3	Description of occupational health and safety measures	Caring for Employees & Creating a Better
			adopted, how they are implemented and monitored	Life - Employee Safety & Health
B3.	Development	General	Policies on enhancing the knowledge and skills of	Caring for Employees & Creating a Better
	and Training	Disclosure	employees to perform duties. Describe training activities	Life - Training & Development
		B3.1	The percentage of employees trained by gender and	Caring for Employees & Creating a Better
			employment type	Life - Training & Development
		B3.2	The average training hours completed per employee by	Caring for Employees & Creating a Better
			gender and employment category	Life - Training & Development
B4.	Labor	General	Information on the policies and compliance with	Caring for Employees & Creating a Better
	Standards	Disclosure	relevant laws and regulations that have a significant	Life - Employment Management
			impact on the issuer relating to prevention of child labor
			or forced labor
		B4.1	Description of measures to review employment practices	Caring for Employees & Creating a Better
			to avoid child and forced labor	Life - Employment Management
		B4.2	Description of steps taken to eliminate such practices	Caring for Employees & Creating a Better
			when discovered	Life - Employment Management

34 Hua Medicine Environmental, Social and Governance Report 2020

				Hua Medicine Related
Item	Descriptions		sections/Claims
B.	Social
B5.	Supply Chain	General	Policies on managing environmental and social risks of	Caring for Quality & Creating a Secure
	Management	Disclosure	the supply chain	Industry - Supply Chain Management
		B5.1	Number of suppliers by geographical region	Caring for Quality & Creating a Secure
				Industry - Supply Chain Management
		B5.2	Description of practices relating to engaging suppliers,	Caring for Quality & Creating a Secure
			number of suppliers where the practices are being	Industry - Supply Chain Management
			implemented, how they are implemented and
			monitored
		B5.3	Description of practices used to identify environmental	Caring for Quality & Creating a Secure
			and social risks along the supply chain, and how they	Industry - Supply Chain Management
			are implemented and monitored
		B5.4	Description of practices used to promote	Caring for Quality & Creating a Secure
			environmentally preferable products and services when	Industry - Supply Chain Management
			selecting suppliers, and how they are implemented and
			monitored
B6.	Product	General	Information on the policies and compliance with	Caring for Quality & Creating a Secure
	Responsibility	Disclosure	relevant laws and regulations that have a significant	Industry - Quality Management
			impact on the issuer
		B6.1	Percentage of total products sold or shipped subject to	Not applicable
			recalls for safety and health reasons
		B6.2	Number of products and service-related complaints	Caring for Quality & Creating a Secure
			received and how they are dealt with	Industry - Quality Management
		B6.3	Description of practices relating to observing and	Caring for Quality & Creating a Secure
			protecting intellectual property rights	Industry - Quality Management
		B6.4	Description of quality assurance process and recall	Caring for Quality & Creating a Secure
			procedures	Industry - Quality Management
		B6.5	Description of consumer data protection and privacy	Not applicable
			policies, how they are implemented and monitored

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				Hua Medicine Related
Item	Descriptions		sections/Claims
B.	Social
B7.	Anti-	General	Information on the policies and compliance with	Responsibility Management - Business
	corruption	Disclosure	relevant laws and regulations that have a significant	Ethics
			impact on the issuer
		B7.1	Number of concluded legal cases regarding corrupt	Responsibility Management - Business
			practices brought against the issuer or its employees	Ethics
			during the reporting period and the outcomes of the
			cases
		B7.2	Description of preventive measures and whistle-blowing	Responsibility Management - Business
			procedures, how they are implemented and monitored	Ethics
		B7.3	Description of anti-corruption training provided to	Responsibility Management - Business
			directors and staff	Ethics
B8.	Community	General	Policies on community engagement to understand the	Caring for Community & Sharing a Warm
	Investment	Disclosure	needs of the communities where the issuer operates	Home
			and to ensure its activities take into consideration the
			communities' interests
		B8.1	Focus areas of contribution (e.g. education,	Caring for Community & Sharing a Warm
			environmental concerns, labor needs, health, culture,	Home
			sport)
		B8.2	Resources (e.g. money or time) contributed to the focus	Caring for Community & Sharing a Warm
			area	Home