THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stock broker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.
If you have sold or transferred all your shares in 上海復旦張江生物醫藥股份有限公司 (Shanghai Fudan-ZhangjiangBio-Pharmaceutical Co., Ltd.*), you should at once hand this circular to the purchaser or transferee or to the bank or licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.
上 海 復 旦 張 江 生 物 醫 藥 股 份 有 限 公 司
Shanghai Fudan-ZhangjiangBio-Pharmaceutical Co., Ltd.*
(a joint stock company incorporated in the People's Republic of China with limited liability)
(Stock code: 1349)
CONTINUING CONNECTED TRANSACTIONS
SALES AND DISTRIBUTION AGREEMENT WITH
SHANGHAI PHARMACEUTICALS
Independent Financial Adviser to the Independent Board Committee
and the Independent Shareholders
A letter from the Board is set out on pages 4 to 12 of this circular. A letter from the Independent Board Committee in respect of the Sales and Distribution Agreement and the proposed annual caps is set out on pages 13 to 14 of this circular. A letter of advice from Grande Capital Limited, the Independent Financial Adviser, in respect of the Sales and Distribution Agreement and the proposed annual caps to the Independent Board Committee and the Independent Shareholders is set out on pages 15 to 26 of this circular.
The EGM of the Company will be held at No. 308, Cailun Road, Zhangjiang Hi-Tech Park, Pudong New Area, Shanghai, the PRC at 10:00 a.m. on Monday, 28 October 2019. For details, please refer to the notice of EGM dated 13 September 2019 published on the websites of the Stock Exchange and the Company.
* For identification purpose only.
11 October 2019
CONTENTS | |
Page | |
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 1 |
LETTER FROM THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 4 |
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . | 13 |
LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED . . . . . . . . . . . . . . . . | 15 |
APPENDIX I - GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 27 |
- i -
DEFINITIONS
In this circular, unless the context otherwise requires, the following expressions have the following meanings:
"associate(s)" | has the same meaning ascribed to it under the Listing |
Rules | |
"Board" | the board of Directors |
"Company" | 上海復旦張江生物醫藥股份有限公司 (Shanghai Fudan- |
Zhangjiang Bio-Pharmaceutical Co., Ltd.*), a company | |
incorporated in the PRC with limited liability and the | |
H shares of which are listed on the Main Board | |
"connected person(s)" | has the same meaning ascribed to it under the Listing |
Rules | |
"Contractual Period" | the period from 1 January 2019 to 31 December 2020 |
"Director(s)" | the director(s) of the Company |
"Domestic Share(s)" | ordinary domestic share(s) with a nominal value of |
RMB0.10 each in the share capital of the Company | |
which are subscribed for in RMB | |
"EGM" | the extraordinary general meeting to be held at No. 308 |
Cailun Road, Zhangjiang Hi-Tech Park, Pudong New | |
Area, Shanghai, the PRC at 10:00 a.m. on Monday, 28 | |
October 2019, for the purpose of considering and, if | |
thought fit, approving the continuing connected | |
transactions contemplated under the Sales and | |
Distribution Agreement and the proposed annual caps | |
"Former Sales and Distribution | the sales and distribution agreement entered into |
Agreement" | between the Company and Shanghai Pharmaceuticals |
on 17 August 2018 for the continuing connected | |
transactions contemplated thereunder for the two years | |
ending 31 December 2019, details of which were set | |
out in the circular of the Company dated 14 September | |
2018 | |
"Group" | the Company and/or its subsidiaries |
"H Share(s)" | overseas listed foreign share(s) with a nominal value of |
RMB0.10 each in the share capital of the Company | |
which are listed on the Stock Exchange and are | |
subscribed for and traded in Hong Kong dollars |
- 1 -
DEFINITIONS | |
"Independent Board Committee" | an independent committee of Directors appointed to |
advise the Independent Shareholders in respect of the | |
Sales and Distribution Agreement and the proposed | |
annual caps | |
"Independent Financial Adviser" | Grande Capital Limited, a licensed corporation to carry |
out Type 6 (advising on corporate finance) regulated | |
activities under the SFO, being the independent | |
financial adviser to advise the Independent Board | |
Committee and the Independent Shareholders in respect | |
of the Sales and Distribution Agreement and the | |
proposed annual caps | |
"Independent Shareholders" | the Shareholders excluding Shanghai Pharmaceuticals |
and its associates, who are not required to abstain from | |
voting on the resolution at the EGM for approving the | |
continuing connected transactions contemplated under | |
the Sales and Distribution Agreement and the proposed | |
annual caps | |
"Independent Third Party(ies)" | third party(ies) who is (are) not connected persons of |
the Company as defined in the Listing Rules and is | |
(are) independent of the Company and the connected | |
persons of the Company | |
"Latest Practicable Date" | 30 September 2019, being the latest practicable date |
prior to the printing of this circular for the purpose of | |
ascertaining certain information contained in this | |
circular | |
"Listing Rules" | the Rules Governing the Listing of Securities on the |
Stock Exchange | |
"Main Board" | the main board of the Stock Exchange |
"PRC" | the People's Republic of China |
"promoter" | has the same meaning ascribed to it under the Listing |
Rules | |
"RMB" | Renminbi, the lawful currency of the PRC |
"Sales and Distribution | the sales and distribution agreement entered into |
Agreement" | between the Company and Shanghai Pharmaceuticals |
on 11 September 2019 for the sale and distribution of | |
the Group's pharmaceutical products during the | |
Contractual Period |
- 2 -
DEFINITIONS
"SFO" | the Securities and Futures Ordinance (Chapter 571 of | |||||
the Laws of Hong Kong), as amended, supplemented or | ||||||
otherwise modified from time to time | ||||||
"Shanghai Pharmaceuticals" | 上海醫藥集團股份有限公司 | Shanghai | Pharmaceuticals | |||
Holding Co., Ltd.*, a joint stock limited company | ||||||
incorporated in the PRC whose A shares are listed on | ||||||
the Shanghai Stock Exchange and H shares are listed | ||||||
on the Stock Exchange, and a promoter of the | ||||||
Company and a substantial Shareholder holding | ||||||
approximately 22.77% of the total share capital of the | ||||||
Company as at the Latest Practicable Date | ||||||
"Shanghai Pharmaceuticals | Shanghai Pharmaceuticals and/or its subsidiaries and/or | |||||
Group" | associates | |||||
"Shareholder(s)" | the shareholder(s) of the Company | |||||
"Stock Exchange" | The Stock Exchange of Hong Kong Limited | |||||
"subsidiary(ies)" | has the same meaning ascribed to it under the Listing | |||||
Rules | ||||||
"substantial Shareholder" | has the same meaning ascribed to it under the Listing | |||||
Rules | ||||||
"Supervisor(s)" | the supervisor(s) of the Company | |||||
"Transactions" | the continuing connected transactions contemplated | |||||
under the Sales and Distribution Agreement entered | ||||||
into | between | the | Company | and | Shanghai | |
Pharmaceuticals on 11 September 2019 | ||||||
"%" | per cent |
- For identification purpose only
- 3 -
LETTER FROM THE BOARD
上 海 復 旦 張 江 生 物 醫 藥 股 份 有 限 公 司
Shanghai Fudan-ZhangjiangBio-Pharmaceutical Co., Ltd.*
(a joint stock company incorporated in the People's Republic of China with limited liability)
(Stock code: 1349)
Executive Directors: | Registered office and principal place |
Mr. Wang Hai Bo (Chairman) | of business in the PRC: |
Mr. Su Yong | No. 308, Cailun Road |
Mr. Zhao Da Jun | Zhangjiang Hi-Tech Park |
Pudong New Area, Shanghai | |
Non-executive Directors: | China |
Mr. Shen Bo | 201210 |
Ms. Yu Xiao Yang | |
Principal place of business | |
Independent Non-executive Directors: | in Hong Kong: |
Mr. Zhou Zhong Hui | 19/F, Three Exchange Square |
Mr. Lam Yiu Kin | 8 Connaught Place, Central |
Mr. Xu Qing | Hong Kong |
Mr. Yang Chun Bao | |
11 October 2019 | |
To the Shareholders | |
Dear Sir or Madam, |
CONTINUING CONNECTED TRANSACTIONS
SALES AND DISTRIBUTION AGREEMENT WITH
SHANGHAI PHARMACEUTICALS
- INTRODUCTION
Reference is made to the announcement of the Company dated 11 September 2019 in relation to the continuing connected transactions contemplated under the Sales and Distribution Agreement with Shanghai Pharmaceuticals.
The purpose of this circular is to provide you with, among other things, (i) details of the Sales and Distribution Agreement and the proposed annual caps; (ii) a letter from the Independent Financial Adviser containing its advice to the Independent Board Committee on the Sales and Distribution Agreement and the proposed annual caps; and (iii) a letter from the Independent Board Committee containing its recommendations on the Sales and Distribution Agreement and the proposed annual caps, to enable you to make an informed decision on whether to vote for or against the relevant resolution at the EGM.
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LETTER FROM THE BOARD
II. SALES AND DISTRIBUTION AGREEMENT WITH SHANGHAI PHARMACEUTICALS
The Board announced that the Company entered into the Sales and Distribution Agreement with Shanghai Pharmaceuticals on 11 September 2019 for the sales and distribution of the Group's pharmaceutical products by the Shanghai Pharmaceuticals Group during the Contractual Period. The Former Sales and Distribution Agreement will be terminated immediately upon the Sales and Distribution Agreement becoming effective.
1. Sales and Distribution Agreement
Date | : | 11 September 2019 |
Parties | : | The Company (for itself and/or on behalf of its |
subsidiaries), being the vendor; and | ||
Shanghai Pharmaceuticals (for itself and/or on behalf of | ||
its subsidiaries and/or associates), being the purchaser | ||
Subject | : | The Company has agreed to authorise the Shanghai |
Pharmaceuticals Group to sell and distribute the | ||
pharmaceutical products of the Group during the | ||
Contractual Period. The sales and distribution services to | ||
be provided to the Group by Shanghai Pharmaceuticals | ||
Group is on a non-exclusive basis with the terms of sales | ||
and distribution of each specific pharmaceutical product | ||
to be agreed upon in accordance with the principles set | ||
out in the Sales and Distribution Agreement. | ||
Pricing policy | : | The price of the pharmaceutical products to be sold by |
the Group to the Shanghai Pharmaceuticals Group shall | ||
be determined on fair market basis with reference to the | ||
price of a particular pharmaceutical product as prescribed | ||
by the local statutory pricing authorities which will be | ||
adjusted by a reasonable profit margin of the Shanghai | ||
Pharmaceuticals Group for provision of sales and | ||
distribution services. | ||
The abovementioned reasonable profit margin of the | ||
Shanghai Pharmaceuticals Group shall be determined | ||
with reference to (i) the profit margin of a comparable | ||
quantity of the similar products sold to at least two | ||
Independent Third Parties by the Group in the financial | ||
year when conducting the specific transactions under the | ||
Sales and Distribution Agreement; and (ii) the profit | ||
margin of a comparable quantity of the similar products | ||
sold to the Shanghai Pharmaceuticals Group by the | ||
Group in past transactions. |
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LETTER FROM THE BOARD
Such profit margin of the Shanghai Pharmaceuticals Group will be within a range from 5% to 10% of the price of the particular pharmaceutical product as prescribed by the local statutory pricing authorities. For the past transactions contemplated under the Former Sales and Distribution Agreement for the year ended 31 December 2018 and the six months ended 30 June 2019, the profit margin of Shanghai Pharmaceuticals Group provided by the Group was within the range from 5% to 10% of the price of the particular pharmaceutical product as prescribed by the local statutory pricing authorities.
Credit period of | : | The | credit | period | granted | to | the | Shanghai |
trade | Pharmaceuticals Group by the Group in respect of the | |||||||
receivables | trade receivables generated under the Sales and | |||||||
Distribution Agreement will not exceed 4 months, which | ||||||||
is not superior to the credit period granted to other | ||||||||
customers of the Group. | ||||||||
Term | : | The Sales and Distribution Agreement shall take effect | ||||||
upon execution by the duly authorised representatives | ||||||||
with seal and approval by the relevant bodies of the | ||||||||
parties (including the Board and the general meeting of | ||||||||
the Company), with retrospective effect from 1 January | ||||||||
2019 and ending on 31 December 2020. The Former | ||||||||
Sales and Distribution Agreement will be terminated | ||||||||
immediately upon the Sales and Distribution Agreement | ||||||||
becoming effective. |
2. Proposed Annual Caps and Basis for the Proposed Annual Caps
The annual caps of the continuing connected transactions under the Former Sales and Distribution Agreement for the two years ending 31 December 2019 were RMB46,000,000 and RMB62,000,000, respectively. Set out below is the summary of the historical amounts for the continuing connected transactions for the year ended 31 December 2018 and the six months ended 30 June 2019:
For the | For the six | |
year ended | months ended | |
31 December | 30 June | |
2018 | 2019 | |
(RMB) | (RMB) | |
Continuing connected transactions under the | ||
Former Sales and Distribution Agreement | 45,559,000 | 44,972,000 |
Since the Company continues to adjust the sales mode of certain products this year, the Group will sell and distribute a larger number of products through the Shanghai Pharmaceuticals Group in a broader area. The actual annual transaction amount of continuing connected transactions conducted under the Former Sales and
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LETTER FROM THE BOARD
Distribution Agreement is expected to exceed the existing annual cap of RMB62,000,000 for the year ending 31 December 2019. The Company and Shanghai Pharmaceuticals estimated that the proposed annual caps of the Transactions for the two years ending 31 December 2020 are approximately RMB81,000,000 and RMB109,000,000, respectively.
The Directors have taken into account the following principal factors in estimating the proposed annual caps above:
- According to the official website of Shanghai Pharmaceuticals Group, the Shanghai Pharmaceuticals Group has the third largest distribution network, covering 31 provinces, municipalities and autonomous regions as at the Latest Practicable Date. At the same time, Shanghai Pharmaceuticals Group is gradually acquiring a series of companies to further extend its distribution network in recent years. Leveraging on the extensive network of the Shanghai Pharmaceuticals Group, the Group is able to sell its products to a broader area and effectively improves the market penetration and market share of the Group. The Group is also pleased to cooperate with the companies newly acquired by Shanghai Pharmaceuticals Group;
- The sales of ALA (艾拉) and LIBOd (里葆多), the major products of the Group, under the Former Sales and Distribution Agreement has been increasing considerably. The aggregate sales income generated by ALA and LIBOd under the Former Sales and Distribution Agreement was approximately RMB45,559,000 and RMB44,972,000 for the year ended 31 December 2018 and the six months ended 30 June 2019, respectively. The sales of the two products for the six months ended 30 June 2019 increased by approximately 38% as compared to that during the corresponding period in 2018. In addition, the Group continues to develop targeted promotional and marketing activities, which mainly include participating in seminars or other activities organized by relevant industry professional associations to introduce the past treatments of the products and organizing medical experts to share and analyse the related cases. Through these activities, the understanding of the patients, experts and relevant industry professional associations on the products of the Group has been deepened gradually, which facilitates the improvement of the market recognition of the products of the Group. After taking into account the abovementioned historical amounts, the promotional and marketing activities and the improvement in the market recognition of such pharmaceutical product, the Group and the Shanghai Pharmaceuticals Group anticipate that the aggregate sales under the Sales and Distribution Agreement will increase by approximately 78% and 35%, respectively, for the two years ending 31 December 2020;
- The sales and distribution of LIBOd, one of the major products of the Group, was newly added in the transactions under the Former Sales and Distribution Agreement since the year of 2018. For LIBOd, the Company terminated the original exclusive agency on 15 December 2017 and entered into sales and distribution agreements with various pharmaceutical distributor
- 7 -
LETTER FROM THE BOARD
companies respectively to entrust them to distribute LIBOd in designated areas. In addition, in accordance with the requirement issued by relevant regulatory authorities, LIBOd may opt to calculate VAT at the rate of 3% under the simplified calculation method. With the implementation of such tax policy, many small pharmaceutical distributor companies, including subsidiaries of Shanghai Pharmaceuticals Group, directly enter into sales and distribution agreements with the Group for the purpose of reducing tax costs. Such factors directly lead to the increase in the number of connected persons under the Sales and Distribution Agreement and the amounts of continuing connected transactions thereunder; and
- The annual cap for the year ending 31 December 2019 of RMB81,000,000 was also estimated after taking into account various factors, including but not limited to the historical transaction amounts for the year ended 31 December 2018 and the six months ended 30 June 2019, the expected sales in different areas, and the fact that certain pharmaceutical distributor companies under the Shanghai Pharmaceuticals Group intend to purchase the pharmaceutical products from the Group in the first half of the year in case of running out of stock.
After taking into account the abovementioned factors, the Board considers the proposed annual caps are fair and reasonable and in the interests of the Company and its Shareholders as a whole.
3. Internal Control Procedures
To ensure the Company's conformity with the pricing policy of the Sales and Distribution Agreement, the Company adopts a series of internal control policies during its daily operation. Such internal control policies are conducted and supervised by the internal audit and control department of the Company, the independent non-executive Directors and the external auditors of the Company:
- The business manager of the sales department of the Company will be responsible for the determination of each specific price in accordance with the pricing policies under the Sales and Distribution Agreement (including taking into account the profit margin of a comparable quantity of the similar products sold to at least two Independent Third Parties by the Group in the financial year when conducting the specific transactions under the Sales and Distribution Agreement), and will submit the prepared specific price quote to the management of the Company for review and approval in due course. After the approval, the sales department, the finance department and the internal audit and control department of the Company will monitor the implementation of the relevant price throughout the transaction on a joint basis, and will review the fairness and reasonableness of the price under the Sales and Distribution Agreement on an average quarterly basis and will assist the person in charge of sales to adjust the price (if necessary);
- 8 -
LETTER FROM THE BOARD
- The internal audit and control department of the Company monitors daily the connected transactions of the Company and reports to the audit committee of the Company and independent non-executive Directors together with the external auditors' report for their review and approval. The internal audit and control department of the Company supervises the connected transactions to ensure they were entered into: (1) in accordance with the pricing policy under the Sales and Distribution Agreement; (2) in the ordinary and usual course of business of the Group; (3) on normal commercial terms or better; and (4) according to the Sales and Distribution Agreement on terms that are fair and reasonable and in the interests of the Company and Shareholders as a whole;
- The independent non-executive Directors have reviewed and will continue to review the continuing connected transactions to confirm in the annual report whether the transactions have been entered into on normal commercial terms or better, and according to the Sales and Distribution Agreement on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole; and
- The external auditors of the Company will also conduct an annual review on the pricing policy and annual caps of the Sales and Distribution Agreement, and provide confirmation in the Company's annual report.
The Directors are of the view that the above internal control procedures can ensure that the transactions contemplated under the Sales and Distribution Agreement will be conducted on normal commercial terms or better, and will not be prejudicial to the interests of the Company and the Shareholders.
The annual cap of RMB62,000,000 under the Former Sales and Distribution Agreement shall apply to the continuing connected transactions conducted during the period from 1 January 2019 to the date of the Sales and Distribution Agreement and the proposed annual caps being approved by the Independent Shareholders at the EGM. The internal audit and control department and the Board office of the Company monitor the actual transaction amount on a monthly basis to ensure it will not exceed the annual cap for the year ending 31 December 2019 under the Former Sales and Distribution Agreement.
4. Reasons for and Benefit of the Transactions
The Company conducts the Transactions with the Shanghai Pharmaceuticals Group in order to leverage on the established and extensive sales and distribution network of the Shanghai Pharmaceuticals Group. The Directors (including the independent non-executive Directors) are of the view that the terms of the Sales and Distribution Agreement are made on an arm's length basis in the ordinary and usual course of business of the Company and are normal commercial terms which are no less favourable than the terms available from Independent Third Parties, and that the terms of the Sales and Distribution Agreement and the proposed annual caps thereof are fair and reasonable and in the interest of the Company and the Shareholders as a whole.
- 9 -
LETTER FROM THE BOARD
5. Listing Rules Implications
Shanghai Pharmaceuticals is a promoter of the Company and a substantial Shareholder, and therefore is a connected person of the Company under the Listing Rules. The Transactions under the Sales and Distribution Agreement will be carried out on a continuing or recurring basis in the ordinary and usual course of business of the Company and therefore, constitute continuing connected transactions of the Company under the Listing Rules.
Since the highest applicable percentage ratio in respect of the proposed annual caps for the two years ending 31 December 2020 for the Transactions under the Sales and Distribution Agreement exceeds 5%, the Transactions are subject to the reporting, announcement, annual review and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.
Shanghai Pharmaceuticals and its associates, holding approximately 22.77% of the total issued share capital of the Company as at the Latest Practicable Date, are required to abstain from voting on the resolution at the EGM for approving the Sales and Distribution Agreement and the proposed annual caps. Save as mentioned above, to the best of the Directors' knowledge, information and belief, none of the other Shareholders has any material interest in the Transactions and therefore will be required to abstain from voting on the relevant resolution at the EGM.
Mr. Shen Bo, the Director, has abstained from voting on the Board resolution approving the Sales and Distribution Agreement since he serves as a director at Shanghai Pharmaceuticals. Save as mentioned above, no other Director has a material interest in the Transactions and hence no other Director has abstained from voting on such Board resolution.
The Independent Board Committee, comprising four independent non-executive Directors, has been appointed and has advised the Independent Shareholders in relation to the Sales and Distribution Agreement and the proposed annual caps. The letter from the Independent Board Committee to the Independent Shareholders is set out on pages 13 to 14 of this circular. Grande Capital Limited has also been appointed as the Independent Financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. The letter from Grande Capital Limited is set out on pages 15 to 26 of this circular.
6. General Information
The Company is principally engaged in the research, development and selling of self-developedbio-pharmaceuticalknow-how, carrying out contracted research for customers, manufacturing and selling of medical products in the PRC.
Shanghai Pharmaceuticals is a joint stock limited company incorporated in the PRC, whose A shares and H shares are listed on the Shanghai Stock Exchange and the Stock Exchange respectively. Shanghai Pharmaceuticals is principally engaged in research and development, manufacturing and sale of a broad range of pharmaceutical
- 10 -
LETTER FROM THE BOARD
and healthcare products; pharmaceutical distribution, warehousing, logistics, and other value-added pharmaceutical supply chain solutions and related services to pharmaceutical manufacturers and dispensers, such as hospitals, distributors and retail pharmacies; and operation of a network of retail pharmacy stores.
III. EGM
The EGM will be held at No. 308, Cailun Road, Zhangjiang Hi-Tech Park, Pudong New Area, Shanghai, the PRC at 10:00 a.m. on Monday, 28 October 2019 to consider, and if thought fit, approve the Sales and Distribution Agreement and the proposed annual caps, and the notice of the EGM was despatched to the Shareholders on 13 September 2019.
The reply slip and proxy form for the EGM were despatched to the Shareholders in conjunction with the notice of the EGM. Such notice, reply slip and proxy form are also published on the website of the Stock Exchange at www.hkex.com.hk. Shareholders who are eligible and intended to attend the EGM, please complete and return the reply slip in accordance with the instructions printed thereon on or before Tuesday, 8 October 2019. Shareholders who intend to appoint a proxy to attend the EGM shall complete and return the proxy form in accordance with the instructions printed thereon to the H share registrar of the Company, at 17M Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong (for the holders of H Shares), or to the office of the company secretary of the Company at No. 308, Cailun Road, Zhangjiang Hi-Tech Park, Pudong New Area, Shanghai, the PRC (for the holders of Domestic Shares) as soon as possible but in any event not later than 24 hours before the time fixed for holding the EGM or any adjournment thereof (as the case may be). Completion and return of the proxy form will not preclude you from attending and voting at the EGM or any adjourned meeting in person should you so desire.
For details of the eligibility and registration procedures for attending the EGM, the book closure and other matters in relation to the EGM, please refer to the notice of the EGM of the Company dated 13 September 2019.
IV. VOTING BY WAY OF POLL
In accordance with the relevant provisions of the Listing Rules, any vote of shareholders at a general meeting must be taken by poll. As such, the resolution set out in the notice of EGM will be voted by poll.
- RECOMMENDATION
The Directors, including the independent non-executive Directors, are of the view that the terms of the Sales and Distribution Agreement are entered into in the ordinary and usual course of business of the Company on normal commercial terms, in the interests of the Company and its Shareholders as a whole and fair and reasonable, and the proposed annual caps thereof are fair and reasonable. Accordingly, the Directors recommend the Independent Shareholders to vote in favour of the relevant resolution to approve the Sales and Distribution Agreement and the proposed annual caps for the Transactions to be proposed at the EGM.
- 11 -
LETTER FROM THE BOARD
Your attention is drawn to the letter from the Independent Board Committee set out on pages 13 to 14 of this circular and the letter of advice from Grande Capital Limited to the Independent Board Committee and the Independent Shareholders set out on pages 15 to 26 of this circular.
VI. ADDITIONAL INFORMATION
Your attention is drawn to the additional information set out in the appendix to this circular.
Yours faithfully,
For and on behalf of the Board
Wang Hai Bo
Chairman
- 12 -
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
上 海 復 旦 張 江 生 物 醫 藥 股 份 有 限 公 司
Shanghai Fudan-ZhangjiangBio-Pharmaceutical Co., Ltd.*
(a joint stock company incorporated in the People's Republic of China with limited liability)
(Stock code: 1349)
11 October 2019
To the Independent Shareholders,
Dear Sir or Madam,
SALES AND DISTRIBUTION AGREEMENT WITH
SHANGHAI PHARMACEUTICALS
We refer to the circular dated 11 October 2019 issued by the Company (the "Circular"), of which this letter forms a part. Terms defined in the Circular shall have the same meanings when used herein, unless the context requires otherwise.
We have been appointed as the members of the Independent Board Committee to advise you as to whether in our opinion, the terms and conditions of the Sales and Distribution Agreement (including the proposed annual caps), details of which are set out in the letter from the Board, and the Transactions are fair and reasonable so far as the interests of the Independent Shareholders are concerned.
Grande Capital Limited has been appointed by the Company as the Independent Financial Adviser to advise us and the Independent Shareholders on the fairness and reasonableness of the terms and conditions of the Sales and Distribution Agreement and the proposed annual caps. Details of the advice from Grande Capital Limited, together with the principal factors taken into consideration in arriving at such advice, are set out in its letter on pages 15 to 26 of the Circular.
Your attention is also drawn to the letter from the Board set out on pages 4 to 12 and the additional information set out in the appendix to the Circular.
Having considered the terms and conditions of the Sales and Distribution Agreement and proposed annual caps, the interests of the Independent Shareholders and the advice and recommendation of Grande Capital Limited, we are of the view that the terms and conditions of the Sales and Distribution Agreement are entered into after arm's length negotiation in the ordinary and usual course of business of the Company and on normal commercial terms, and the proposed annual caps for the Transactions are fair and reasonable as far as the Company and the Independent Shareholders are concerned, and are in the interests of the Company and its Shareholders as a whole.
- 13 -
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant resolution at the EGM so as to approve the Sales and Distribution Agreement and the proposed annual caps for the Transactions.
Yours faithfully,
For and on behalf of
Independent Board Committee
Zhou Zhong Hui, Independent non-executive Director
Lam Yiu Kin, Independent non-executive Director
Xu Qing, Independent non-executive Director
Yang Chun Bao, Independent non-executive Director
- 14 -
LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED
The following is the text of a letter from Grande Capital Limited in connection with advice to the Independent Board Committee and the Independent Shareholders on the continuing connected transactions contemplated under the Sales and Distribution Agreement:
11 October 2019
To the independent board committee and the Independent shareholders of 上海復旦張江生物醫藥股份有限公司 (Shanghai Fudan-ZhangjiangBio-Pharmaceutical Co., Ltd.*)
Dear Sirs/Madams,
CONTINUING CONNECTED TRANSACTIONS
SALES AND DISTRIBUTION AGREEMENT WITH
SHANGHAI PHARMACEUTICALS
INTRODUCTION
We refer to our engagement as the Independent Financial Advisor to advise the Independent Board Committee and the Independent Shareholders in respect of the terms of the Sales and Distribution Agreement, the Transactions and the proposed annual caps for the two years ending 31 December 2020 contemplated under the Sales and Distribution Agreement, details of which are set out in the letter from the Board (the "Letter from the Board") contained in the circular of the Company dated 11 October 2019 (the "Circular"), of which this letter forms part. Capitalised terms in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires.
On 11 September 2019, the Company has entered into the Sales and Distribution Agreement with Shanghai Pharmaceuticals for the sales and distribution of the Group's pharmaceutical products by the Shanghai Pharmaceuticals Group during the Contractual Period.
Shanghai Pharmaceuticals is a promoter of the Company and a substantial Shareholder, and therefore is a connected person of the Company under the Listing Rules. The Transactions under the Sales and Distribution Agreement will be carried out on a continuing or recurring basis in the ordinary and usual course of business of the Company and therefore, constitute continuing connected transactions of the Company under the Listing Rules. Since the highest applicable percentage ratio in respect of the proposed annual caps for the two years ending 31 December 2020 for the Transactions under the Sales and Distribution Agreement exceeds 5%, the Transactions are subject to the reporting, announcement, annual review and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.
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LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED
Since Shanghai Pharmaceuticals and its associates, holding approximately 22.77% of the total issued share capital of the Company as at the Latest Practicable Date. Shanghai Pharmaceuticals and its associates shall abstain from voting on the resolution at the EGM for approving the Sales and Distribution Agreement and the proposed annual caps. Save as mentioned above, to the best of the Directors' knowledge, information and belief, none of the other Shareholders has any material interest in the Transactions and will be required to abstain from voting on the relevant resolution at the EGM.
The Board has appointed the Independent Board Committee, comprising four independent non-executive Directors, to advise the Independent Shareholders in relation to the Sales and Distribution Agreement and the proposed annual caps. We, Grande Capital Limited, have been appointed as an Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders as to (i) whether the terms of the Sales and Distribution Agreement in relation to the Transactions and the proposed annual caps for the two years ended 31 December 2020 are on normal commercial terms, in the ordinary and usual course of business of the Group, fair and reasonable and in the interests of the Company and the Shareholders as a whole, and (ii) whether the Independent Shareholders should vote in favour of the resolution to be proposed at the EGM to approve the Sales and Distribution Agreement, the Transactions and the proposed annual caps for the two years ended 31 December 2020.
OUR INDEPENDENCE
As at the Latest Practicable Date, we did not have any relationship with or interest in the Company or any other parties that could reasonably be regarded as relevant to our independence. In the last two years, we have acted as the independent financial adviser to the independent board committee and the independent shareholders of the Company for the following transaction:
Date of the relevant circular | |
and our letter of advice | Nature of the transaction |
14 September 2018 | Continuing connected transactions in relation to |
the sales and distribution agreement with | |
Shanghai Pharmaceuticals |
Apart from normal professional fees paid or payable to us in connection with the previous appointment mentioned above as well as this appointment as the Independent Financial Adviser, no arrangements exist whereby we had received or will receive any fees or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. Accordingly, we consider that the aforementioned previous appointment would not affect our independence, and that we are independent pursuant to Rule 13.84 of the Listing Rules.
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LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED
BASIS OF OUR OPINION
In formulating our opinion, we have relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Directors and the management of the Company. We have assumed that all statements, information and representations provided by the Directors and the management of the Company, for which they are solely and wholly responsible, were true and accurate at the time when they were provided and continue to be so as at the Latest Practicable Date. We have also assumed that all statements of belief, opinion and expectation made by the Directors in the Circular were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information has been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Circular, or the reasonableness of the opinions expressed by the Directors and the management of the Company. We believe that we have been provided with sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, carried out any independent verification of the information provided by the Directors and the management of the Company, nor have we conducted an independent investigation into the business and affairs of the Group.
The Directors collectively and individually accept full responsibility for the accuracy of the information contained in the Circular, which includes particular given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in the Circular is accurate and complete in all materials respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or in the circular misleading.
This letter is issued for the information of the Independent Board Committee and the Independent Shareholders solely in connection with their consideration of the Sales and Distribution Agreement, the Transactions and the proposed annual caps for the two years ended 31 December 2020, and except for its inclusion in the Circular, is not to be quoted or referred to, in whole or in part, nor shall this letter be used for any other purposes, without our prior written consent.
PRINCIPAL FACTORS AND REASONS CONSIDERED
In arriving at our recommendation to the Independent Board Committee and the Independent Shareholders, we have taken the following principal factors and reasons into consideration:
- Background of the Sales and Distribution Agreement
The historical amounts for the continuing connected transactions conducted under the Former Sales and Distribution Agreement for the year ended 31 December 2018 and for the six months ended 30 June 2019 were approximately RMB45,559,000 and approximately RMB44,972,000, respectively, while the annual caps were RMB46,000,000 and RMB62,000,000, respectively. Since the Group continues to adjust sales mode of certain products since this year, the Group will sell and distribute a
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LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED
larger number of products through the Shanghai Pharmaceuticals Group in a broader area. The continuing connected transactions conducted under the Former Sales and Distribution Agreement for the six months ended 30 June 2019 amounted to approximately RMB44,972,000, and is expected to exceed the proposed annual cap of RMB62,000,000 for the year ending 31 December 2019 as agreed in the Former Sales and Distribution Agreement. Since the Group intends to continue its business relationship with Shanghai Pharmaceutical Group, on 11 September 2019, the Company has entered into the Sales and Distribution Agreement with Shanghai Pharmaceuticals for the sales and distribution of the Group's pharmaceutical products by the Shanghai Pharmaceuticals Group during the Contractual Period.
Further details of the terms of the Sales and Distribution Agreement are set out in the Letter from the Board.
- Reasons for and benefits of entering into the Sales and Distribution Agreement
As disclosed in the Letter from the Board, the Company conducts the Sales and Distribution Agreement with the Shanghai Pharmaceuticals Group in order to leverage the established and extensive sales and distribution network of the Shanghai Pharmaceuticals Group.
We note that the Group is principally engaged in research, development and selling of self-developedbio-pharmaceuticalknow-how, carrying out contracted research for customers, manufacturing and selling of medical products in the PRC. On commercialization, the major products of the Group are ALA, LIBOd, FuMeiDa and various kinds of diagnostic reagents. We also note that Shanghai Pharmaceuticals Group is primarily engaged in (i) research and development, manufacturing and sale of a broad range of pharmaceutical and healthcare products; (ii) pharmaceutical distribution, warehousing, logistics, and other value-added pharmaceutical supply chain solutions and related services to pharmaceutical manufacturers and dispensers, such as hospitals, distributors and retail pharmacies; and (iii) operation of a network of retail pharmacy stores in the PRC.
Having considered the principal business activities of Shanghai Pharmaceuticals Group, in particular, the operation of a network of retail pharmacy stores in the PRC, the nature of the Transaction as well as the principal business activities of the Group, we are of the view that the Transactions are of a revenue nature for the Group and are in the ordinary and usual course of business of the Group.
- Principal terms of the Sales and Distribution Agreement
Pursuant to the Sales and Distribution Agreement, the price of the pharmaceutical products to be sold by the Group to the Shanghai Pharmaceuticals Group shall be determined on fair market basis with reference to the price of a particular pharmaceutical product as prescribed by the local statutory pricing authorities which will be adjusted by a reasonable profit margin of the Shanghai Pharmaceuticals Group for the provision of sales and distribution services.
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LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED
The abovementioned reasonable profit margin of the Shanghai Pharmaceuticals Group shall be determined with reference to (i) the profit margin of a comparable quantity of the similar products sold to at least two Independent Third Parties by the Group in the financial year; and (ii) the profit margin of a comparable quantity of the similar products sold to the Shanghai Pharmaceuticals Group by the Group in past transactions. Such profit margin of the Shanghai Pharmaceuticals Group will be within a range from 5% to 10% of the price of the particular pharmaceutical product as prescribed by the local statutory pricing authorities.
In addition, the credit period granted to the Shanghai Pharmaceuticals Group by the Group in respect of the trade receivables generated under the Sales and Distribution Agreement will not exceed 4 months.
In assessing the fairness and reasonableness of the price and payment terms under Sales and Distribution Agreement, we have randomly selected and reviewed sales records of the ALA and LIBOd, the two major products sold under the Sales and Distribution Agreement, and note that the price of the ALA and LIBOd offered by the Group to the Shanghai Pharmaceutical Group is higher than the costs incurred for ALA and LIBOd, such as production costs. We have also, for comparison purpose, randomly selected and reviewed the sales records of ALA and LIBOd of the Group sold to Shanghai Pharmaceutical Group and the Independent Third Parties. Based on our review, we note that the prices of the ALA and LIBOd offered by the Group to the Shanghai Pharmaceutical Group were no less favourable to the Group than the prices offered to an Independent Third Party, given that the sales quantity are comparable. In addition, we also note that the credit period offered by the Group to the Shanghai Pharmaceutical Group was generally in line with or shorter than the credit period offered by the Group to the Independent Third Parties.
Taking into account that (i) the Sales and Distribution Agreement will enable the Group to increase its revenue; and (ii) the prices of the ALA and LIBOd offered by the Group to the Shanghai Pharmaceutical Group were no less favourable to the Group than the prices offered to an Independent Third Party, given that the sales quantity are comparable; and (iii) the credit period offered by the Group to the Shanghai Pharmaceutical Group was generally in line with or shorter than the credit period offered by the Group to the Independent Third Parties as mentioned above, we are of the view that the terms of the Sales and Distribution Agreement and the Transactions contemplated thereunder are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned.
- Annual Caps
Pursuant to the Sales and Distribution Agreement, the proposed annual caps for the two years ending 31 December 2020 are approximately RMB81,000,000 and RMB109,000,000 respectively.
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LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED
In assessing the fairness and reasonableness of the proposed annual caps, we have discussed with the management of the Company regarding the principal assumptions and basis adopted for the determination of the proposed annual caps, and are given to understand that the Company has taken into account the following principal factors:
- Historical transaction values
As disclosed in the Letter from the Board, we note that the historical transaction values for the continuing connected transactions conducted under the Former Sales and Distribution Agreement amounted to approximately RMB45,559,000 for the year ended 31 December 2018, and approximately RMB44,972,000 for the six months ended 30 June 2019. We note that approximately 99.0% and approximately 72.5% of the historical annual caps under the Former Sales and Distribution Agreement were utilised by the Group for the year ended 31 December 2018 and for the six months ended 30 June 2019.
We note that the historical transaction values under the Former Sales and Distribution Agreement have demonstrated a general increasing trend, and the transaction value for the six months ended 30 June 2019 (being approximately RMB44,972,000) was approaching the transaction value for the full year of 2018 (being approximately RMB45,559,000). In addition, we understand from the management that the sales of ALA and LIBOd under the Sales and Distribution Agreement would continue to increase significantly for the two years ending 31 December 2020 after taking into account the historical amounts as discussed above, the promotional/marketing activities, the expansion of distribution channels through Shanghai Pharmaceuticals Group to a broader area in the PRC and the improvement in the market recognition of such pharmaceutical product.
- Expected increase in the transaction values under the Sales and Distribution Agreement
We have reviewed the statistics from the National Bureau of Statistics of China and noted that there was an increase in the total sales value of retail of medicines from approximately RMB438.1 million in 2013 to approximately RMB536.4 million in 2017. The increasing trend was further supported by the policies introduced by the State Council. The 13th Five-Year (i.e. 2016 to 2020) plan on medical sector was issued by the State Council in December 2016, targeting to establish a sound healthcare system and to achieve universal health coverage to increase the number of citizens benefit from the healthcare system by 2020. Such initiative will further expand the market for pharmaceutical products.
In addition, we understand from the management that recently there are two major products under the Sales and Distribution Agreement, namely ALA and LIBOd.
The sales of ALA to Shanghai Pharmaceuticals for the year ended 31 December 2017 was over RMB13 million. The sales of ALA under the Former Sales and Distribution Agreement were over RMB26 million and over RMB14
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LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED
million for the year ended 31 December 2018 and for the six months ended 30 June 2019, respectively. We note that the historical transaction values in relation to ALA under the Former Sales and Distribution Agreement have demonstrated a general increasing trend, where the Company recorded an approximately 15.3% increase in the sales of ALA for the six months ended 30 June 2019 as compared to that for the six months ended 30 June 2018.
The sales of LIBOd under the Former Sales and Distribution Agreement were over RMB18 million and over RMB29 million for the year ended 31 December 2018 and for the six months ended 30 June 2019, respectively. We also note that the sales of LIBOd during the six months ended 30 June 2019 under the Former Sales and Distribution Agreement has already surpassed the full year of 2018.
We understand from the management that regarding to choosing Shanghai Pharmaceuticals Group or its agencies as the distributor, the management have considered (i) the distributor's distribution network; (ii) the terms and conditions offered by the distributors; and (iii) other factors such as the procedures and the delivery time in relation to the distribution. In light of the above and the historical transaction values for the continuing connected transactions conducted under the Former Sales and Distribution Agreement amounted to approximately RMB45,559,000 for the year ended 31 December 2018, and approximately RMB44,972,000 for the six months ended 30 June 2019, the aggregate expected sales of ALA and LIBOd by the Group under the Sales and Distribution Agreement for the two years ending 31 December 2020 are estimated to be approximately RMB73,033,000 and RMB98,882,000, respectively, according to the expected demand as discussed between the Group and Shanghai Pharmaceuticals Group. We understand from the management that the remaining portion is reserved for capturing any unforeseen market opportunities. Hence, the proposed annual cap is approximately RMB81,000,000 and RMB109,000,000, respectively for the two years ending 31 December 2020.
Set out below are the expected sales of ALA, LIBOd and other products by the Group under the Sales and Distribution Agreement for each of the two years ending 31 December 2020 based on the expected demand as discussed between the Group and Shanghai Pharmaceuticals Group:
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LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED
For the year ending | |||
2019 | 2020 | ||
RMB'000 | RMB'000 | ||
ALA | 32,789 | 42,429 | |
LIBOd | 40,244 | 56,453 | |
Other products and buffer to capture unforeseen | |||
market opportunities | 7,967 | 10,118 | |
Total | 81,000 | 109,000 | |
Proposed annual caps | 81,000 | 109,000 | |
Total expected sales of ALA and LIBOd as a | |||
percentage of proposed annual caps | 90.2% | 90.7% |
In arriving the above projected sales, the management adopted the following assumptions:
- steady growth of the PRC economy in the next decade;
- the stability of the PRC social, economic and political environment in the forecast period;
- related key industry drivers and the below drivers of the Group remain relevant and applicable during the forecast period; and
- no substantial changes to the related industries during the forecast period.
In addition on the general assumptions above, we also understand from the management that the increase in the expected sales of ALA, LIBOd and other products by the Group under the Sales and Distribution Agreement for the two years ending 31 December 2020 was mainly because of the following:
- According to the official website of Shanghai Pharmaceuticals Group, the Shanghai Pharmaceuticals Group has the third largest distribution network, covering 31 provinces, municipalities and autonomous regions as at 11 September 2019. At the same time, Shanghai Pharmaceuticals Group is gradually acquiring a series of companies to further extend its distribution network in recent years. Leveraging on the extensive network of the Shanghai Pharmaceuticals Group, the Group is able to sell its products to a broader area and effectively improves the market penetration and market share of the Group. The Group is also pleased to cooperate with the companies newly acquired by Shanghai Pharmaceuticals Group.
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LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED
- In accordance with the Value-Added Tax Policies for Anti-Cancer Drugs implemented in 2018, LIBOd, being one of the anti-cancer drugs that benefits from such tax policy, opts to calculate VAT at the rate of 3% under the simplified calculation method, instead of 13% before the implementation of such policy. With the implementation of such tax policy, many small pharmaceutical distributor companies, including subsidiaries of Shanghai Pharmaceuticals Group, directly enter into sales and distribution agreements with the Group for the purpose of reducing tax costs, which may result in the increase in the number of connected persons under the Sales and Distribution Agreement and the amounts of continuing connected transactions thereunder; and
- The Group continues to develop targeted promotional and marketing activities, which mainly include participating in seminars or other activities organized by relevant industry professional associations to introduce the past treatments of the products and organizing medical experts to share and analyse the related cases. Through these activities, the understanding of the patients, experts and relevant industry professional associations on the products of the Group has been deepened gradually, which facilitates the improvement of the market recognition of the products of the Group. In addition, we note that the Group has entered into a market promotion service agreement for LIBOd with Huizheng (Shanghai) Pharmaceuticals Technology Co., Ltd and such agreement commenced on 1 November 2018, as stated in the announcement published on 29 October 2018. The management believe that such agreement will improve the market recognition of LIBOd, and hence, bring a positive impact on the end-sales volume and market shares of LIBOd of the Group. The management further anticipate that the sales of their products would increase significantly for the two years ending 31 December 2020 after taking into account the abovementioned promotional/marketing activities and the improvement in the market recognition of their pharmaceutical products.
We note that the proposed annual caps set by the Group is consistent with the expected sales of ALA and LIBOd. As the Company has set the proposed annual caps mainly based on the expected demand of ALA and LIBOd, we have based our opinion on (i) the potential expansion of the pharmaceutical products market as supported by the increasing trend of the total sales value of retail of medicines over the five years ending 2017 and the 13th Five-Year plan initiative on the medical sector; (ii) the historical increase in the sales of ALA and LIBOd for the six months ended 30 June 2019; and (iii) the demand projections provided by the Group in assessing the fairness and reasonableness of the proposed annual caps. We have reviewed the figures from the internal assessment provided by the management of the Company in respect of the expected demand of ALA and LIBOd under the Sales and Distribution Agreement for each of the two years ending 31 December 2020. We note that the indicated sales for such products for the two years ending 31 December 2020 are expected to be close to but not
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LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED
exceeding RMB81,000,000 and RMB109,000,000, respectively. We also understand that such expected increase in demand for ALA and LIBOd under the Sales and Distribution Agreement are based on the Group's internal assessments and projections after taking into account the historical amounts, the promotional/ marketing activities, the new tax policy implemented and the market recognition of such pharmaceutical product.
Our view
Having considered that:
- the potential expansion of the pharmaceutical products market in the PRC;
- the historical transaction values in relation to ALA and LIBOd under the Former Sales and Distribution Agreement have demonstrated a general increasing trend;
- the extensive distribution network established by Shanghai Pharmaceuticals Group as mentioned above and the principal business activities of Shanghai Pharmaceuticals Group, in particular, the operation of a network of retail pharmacy stores in the PRC;
- the benefit of the new tax policy; and
- the marketing/promotion activities and the improvement in the market recognition of the Group's pharmaceutical products as mentioned above,
we are of the view that the proposed annual caps set by the Group (which are consistent with the demand projections provided by the Group) are fair and reasonable.
However, the Shareholders should note that the proposed annual caps are determined based on various factors relating to future events and they do not represent forecasts of revenue to be generated from the operations of the Group. Consequently, we express no opinion as to how closely the actual amounts to be received by the Group will correspond with the proposed annual caps. The Shareholders should also note that the Shanghai Pharmaceuticals Group has not secured any sales and distribution of ALA and LIBOd for the two years ending 31 December 2020, as the management consider that such long-term commitment contract is not a common practice among the pharmaceutical distributors in the PRC.
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LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED
- Measures to safeguard interests of Independent Shareholders
To ensure the Company's conformity with the pricing policy of the Sales and Distribution Agreement, the Company adopts a series of internal control policies during its daily operation. Such internal control policies are conducted and supervised by the internal audit and control department of the Company, the independent non-executive Directors and the external auditors of the Company:
- The business manager of sales department will be responsible for the determination of each specific price in accordance with the pricing policies under the Sales and Distribution Agreement (including taking into account the profit margin of a comparable quantity of the similar products sold to at least two Independent Third Parties by the Group in the financial year when entering into the specific transactions under the Sales and Distribution Agreement), and will submit the prepared specific price quote to the management for review and approval in due course. After the approval, the sales department, the finance department and the internal audit and control department of the Company will monitor the implementation of the relevant price throughout the transaction on a joint basis, and will review the fairness and reasonableness of the price under the Sales and Distribution Agreement on an average quarterly basis and will assist the person in charge of sales to adjust the price (if necessary);
- The internal audit and control department of the Company monitors the connected transactions of the Company and reports to the audit committee of the Company and independent non-executive Directors together with the external auditors' report for their review and approval. The internal audit and control department of the Company supervises the connected transactions to ensure they were entered into: (a) in accordance with the pricing policy under the Sales and Distribution Agreement; (b) in the ordinary and usual course of business of the Group; (c) on normal commercial terms or better; and (d) according to the Sales and Distribution Agreement on terms that are fair and reasonable and in the interests of the Company and Shareholders as a whole;
- The independent non-executive Directors have reviewed and will continue to review the continuing connected transactions to ensure that the transactions have been entered into on normal commercial terms or better, and according to the Sales and Distribution Agreement on terms that are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and provide confirmation in the Company's annual report; and
- The external auditors of the Company will also conduct an annual review on the pricing policy and annual caps of the Sales and Distribution Agreement, and provide confirmation in the Company's annual report.
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LETTER OF ADVICE FROM GRANDE CAPITAL LIMITED
We have reviewed the past transaction records under the Former Sales and Distribution Agreement, board meeting minutes in relation to the transactions under the Former Sales and Distribution Agreement, the actual procedure of approving the connected transaction and the annual report of the Group and note that the above measures has been properly implemented.
Having considered, in particular, (i) the restriction of the value of the continuing connected transactions by way of the proposed annual caps; (ii) the ongoing review by the independent non-executive Directors and the auditors of the Company of the terms of the continuing connected transactions, the pricing policy and the proposed annual caps not being exceeded; and (iii) the above internal control measures have been properly implemented, we are of the view that there are appropriate measures in place to govern the conduct of the continuing connected transactions and such measures are effective and safeguard the interests of the Independent Shareholders.
RECOMMENDATION
Having taken into account the principal factors discussed above, we are of the view that the Sales and Distribution Agreement, the Transactions and the proposed annual cap are on normal commercial terms, in the ordinary and usual course of business of the Group, fair and reasonable, and in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders, and the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the resolution to be proposed at the EGM to approve the Sales and Distribution Agreement, the Transactions and the proposed annual caps.
Yours faithfully,
For and on behalf of
Grande Capital Limited
Matthew Leung | Sumwing Shum |
Managing Director | Director |
Mr. Matthew Leung is licensed under the Securities and Futures Ordinance to carry on Type 6 (advising on corporate finance) regulated activity and is currently a responsible officer and sponsor principal of Grande Capital Limited. Mr. Leung has over 9 years of experience in the corporate finance industry.
Mr. Sumwing Shum is licensed under the Securities and Futures Ordinance to carry on Type 6 (advising on corporate finance) regulated activity and is currently a responsible officer of Grande Capital Limited. Mr. Shum has over 4 years of experience in the corporate finance industry.
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APPENDIX I | GENERAL INFORMATION |
1. RESPONSIBILITY STATEMENTS
This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.
2. NO MATERIAL ADVERSE CHANGE
As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2018, the date to which the latest published audited consolidated financial statements of the Group were made up.
3. DISCLOSURE OF INTERESTS
- Directors', chief executive's and Supervisors' interest in shares of the Company
Save as disclosed below, as at the Latest Practicable Date, none of the Directors, Supervisors and chief executives of the Company and their respective associates had any interests and/or short positions in the shares, underlying shares and debentures of the Company and its associated corporations which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and/or short positions which they have taken or which they are deemed to have taken under such provisions of the SFO), or which were required to be recorded in the register maintained by the Company pursuant to Section 352 of the SFO, or otherwise required to be notified to the Company pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers under Appendix 10 of the Listing Rules.
Percentage | Percentage | |||||||
in the | in total | |||||||
respective | number of | |||||||
Class of | Number of | Type of | class of | issued | ||||
Name | Position | Shares | Shares held | Capacity | interest | share | shares | |
(%) | (%) | |||||||
Wang Hai Bo | Director | Domestic | 57,886,430 | (L) | Beneficial | Personal | 9.93% | 6.27% |
Shares | owner | |||||||
Su Yong | Director | Domestic | 22,312,860 | (L) | Beneficial | Personal | 3.83% | 2.42% |
Shares | owner | |||||||
Zhao Da Jun | Director | Domestic | 19,260,710 | (L) | Beneficial | Personal | 3.30% | 2.09% |
Shares | owner | |||||||
Wang Luo Chun | Supervisor | Domestic | 1,170,000 | (L) | Beneficial | Personal | 0.20% | 0.13% |
Shares | owner |
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APPENDIX I | GENERAL INFORMATION | ||||||
Percentage | Percentage | ||||||
in the | in total | ||||||
respective | number of | ||||||
Class of | Number of | Type of | class of | issued | |||
Name | Position | Shares | Shares held | Capacity | interest | share | shares |
(%) | (%) | ||||||
Yu Dai Qing | Supervisor | Domestic | 800,000 (L) | Beneficial | Personal | 0.14% | 0.09% |
Shares | owner |
Note: The letter "L" stands for long position
- Interest and/or short position of entities (other than the Directors, Supervisors or chief executives of the Company) in the Shares which is discloseable under Divisions 2 and 3 of Part XV of the SFO
So far as to the knowledge of the Directors, as at the Latest Practicable Date, the following Shareholders (other than the Directors, Supervisors or chief executives of the Company) had interests and/or short positions in the shares or underlying shares of the Company which are required to be notified to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO.
Percentage | Percentage | ||||||
in the | in total | ||||||
Name of | respective | number of | |||||
substantial | Class of | Number of | Type of | class of | issued | ||
shareholders | Shares | Shares held | Capacity | interest | share | shares | |
(%) | (%) | ||||||
Shanghai Industrial | Domestic | 139,578,560 | (L) | Interest of | Corporate | 23.94% | 22.77% |
Investment | Shares | controlled | |||||
(Holdings) Co. | corporation | ||||||
Ltd. | |||||||
H Shares | 70,564,000 | (L) | 20.75% | ||||
Shanghai | Domestic | 139,578,560 | (L) | Beneficial | Corporate | 23.94% | 22.77% |
Pharmaceuticals | Shares | owner | |||||
H Shares | 70,564,000 | (L) | 20.75% | ||||
China New | Domestic | 156,892,912 | (L) | Beneficial | Corporate | 26.91% | 17.00% |
Enterprise | Shares | owner | |||||
Investment Fund | |||||||
II | |||||||
Yang Zong Meng | Domestic | 80,000,000 | (L) | Beneficial | Personal | 13.72% | 8.67% |
Shares | owner | ||||||
Fudan University | Domestic | 30,636,286 | (L) | Interest of | Corporate | 5.25% | 3.32% |
Shares | controlled | ||||||
corporation | |||||||
Shanghai Fudan | Domestic | 30,636,286 | (L) | Beneficial | Corporate | 5.25% | 3.32% |
Asset Operating | Shares | owner | |||||
Limited*(上海復 | |||||||
旦資產經營有限公 | |||||||
司) | |||||||
Invesco Hong Kong | H Shares | 27,313,000 | (L) | Investment | Corporate | 8.03% | 2.96% |
Limited | manager |
Note: The letter "L" stands for long position
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APPENDIX I | GENERAL INFORMATION |
As at the Latest Practicable Date, Mr. Shen Bo, a Director, served as the director of Shanghai Pharmaceuticals. Ms. Yu Xiao Yang, a Director, is a founding partner of China New Enterprise Investment Fund II. Mr. Zhou Xi, a Supervisor, acts as the general manager of Shanghai Fudan Asset Operating Limited.
Save as disclosed above, as at the Latest Practicable Date, none of the Directors, the chief executive or the Supervisors was a director or employee of a company which had an interest or short position in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.
4. COMPETING INTEREST
As at the Latest Practicable Date, so far as the Directors were aware, none of the Directors, management shareholder or their respective associates is considered by the Company to have interests in business which compete with, or might compete with, either directly or indirectly, with the business of the Group, other than those business in which such Directors have been appointed to represent the interests of the Company and/or other members of the Group.
5. DIRECTORS' INTEREST IN SERVICE CONTRACTS
As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which will not expire or is not determinable by the relevant member of the Group within one year without payment of any compensation (other than statutory compensation).
6. DIRECTORS' INTERESTS IN ASSETS AND CONTRACTS OF SIGNIFICANCE
As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which have been acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries since 31 December 2018, the date of which the latest published audited consolidated financial statements of the Group were made up.
No contract or arrangement in which a Director is materially interested and which is significant in relation to the business of the Group subsisted as at the Latest Practicable Date.
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APPENDIX I | GENERAL INFORMATION |
7. EXPERT'S QUALIFICATION AND CONSENT
- The following is the qualification of the expert who has given its opinion or advice which is contained in this circular:
Name | Qualifications |
Grande Capital Limited | a licensed corporation to carry on type 6 |
(advising on corporate finance) regulated | |
activities under the SFO |
- As at the Latest Practicable Date, the expert mentioned in paragraph (a) above did not have any shareholding in the Group nor any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in the Group.
- The expert has on 11 October 2019 given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and opinion dated 11 October 2019 and reference to its name in the form and context in which they appear.
- The letter and recommendation given by Grande Capital Limited are given as of the date of this circular for incorporation herein.
- The expert has no direct or indirect interest in any assets which have been acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries since 31 December 2018, being the date to which the latest published audited consolidated financial statements of the Group were made up.
8. LITIGATION
As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration or claim of material importance and, so far as the Directors were aware, no litigation or claims of material importance are pending or threatened by or against any member of the Group.
9. GENERAL
- The registered office of the Company is situated at No. 308, Cailun Road, Zhangjiang Hi-Tech Park, Pudong New Area, Shanghai, 201210, the PRC.
- The principal place of business of the Company in Hong Kong is 19/F, Three Exchange Square, 8 Connaught Place, Central, Hong Kong.
- The Company's H Share registrar and transfer office in Hong Kong is Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen's Road East, Hong Kong.
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APPENDIX I | GENERAL INFORMATION |
- Mr. Zhao Da Jun is an authorized representative of the Company. He graduated from Fudan University with a master's degree in biology. He also holds a master's degree in Business Administration from the University of Hong Kong.
- Ms. Xue Yan is the company secretary and an authorized representative of the Company. She is a member of Hong Kong Institute of Certified Public Accountants (HKICPA), a fellow of the Association of Chartered Certified Accountants (ACCA) and a member of the Chinese Institute of Certified Public Accountants (CICPA).
- Unless otherwise indicated, the English text of this circular shall prevail over the Chinese text.
10. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be made available for inspection at the Company's principal place of business in Hong Kong at 19/F, Three Exchange Square, 8 Connaught Place, Central, Hong Kong during normal business hours on any weekday (except for public holidays) up to the date which is 14 days from the date of the circular:
- the Sales and Distribution Agreement dated 11 September 2019;
- the letter of recommendation from the Independent Board Committee, the text of which is set out on pages 13 to 14 of this circular;
- the letter of advice issued by Grande Capital Limited to the Independent Board Committee and the Independent Shareholders, the text of which is set out on pages 15 to 26 of this circular; and
- the written consent of Grande Capital Limited referred to in paragraph 7(c) above.
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Shanghai Fudan-Zhangjiang Bio-Pharmaceutical Co. Ltd. published this content on 10 October 2019 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 October 2019 09:10:06 UTC