华东医药：2022年第三季度报告（英文版）

The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 1 Stock code: 000963 Stock abbreviation: Huadong Medicine Announcement No.: 2022-070 Huadong Medicine Co., Ltd. The Third Quarterly Report 2022 The Company and all members of the Board of Directors hereby guarantee that the information presented in this report is authentic, accurate and complete and free of any false records, misleading statements or material omissions. Important Declaration: 1. The Board of Directors, Board of Supervisors, directors, supervisors, and senior management of Huadong Medicine Co., Ltd. (hereinafter referred to as the “Company”) hereby guarantee that the information presented in this report is authentic, accurate, and complete and free of any false records, misleading statements or material omissions, and shall undertake individual and joint legal liabilities. 2. The Company’s legal representative and the officer in charge of accounting, and head of accounting department (accounting supervisor) hereby declare and guarantee that the financial statements in this quarterly report are authentic, accurate, and complete. 3. Has the third quarterly report been audited □ Yes No This report is prepared both in Chinese and English. Should there be any discrepancy between the Chinese and English versions, the Chinese version shall prevail. The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 2 I. Key financial data (I) Key accounting data and financial indicators Whether the Company needs to perform retroactive adjustment or restatement of previous accounting data □ Yes No The current reporting period Change of the current reporting period over the same period last year First nine months of 2022 Change of the first nine months of 2022 over the same period last year Operating income (yuan) 9,660,543,088.0910.43% 27,858,507,079.107.45% Net profit attributable to listed-company shareholders (yuan) 640,899,562.977.71% 1,981,470,047.954.54% Net profit attributable to listed-company shareholders after deducting non-recurring gains/losses (yuan) 629,214,050.4310.77% 1,901,053,230.067.89% Net cash flows from operating activities (yuan) — — 1,320,252,925.99 -37.31% Basic earnings per share (yuan/share) 0.36637.71% 1.13244.54% Diluted earnings per share (yuan/share) 0.36637.71% 1.13244.54% Weighted average return on equity (ROE) 3.62% -0.13% 11.39% -0.89% End of the current reporting period End of last year Change of the end of the current reporting period over the end of last year Total assets (yuan) 30,662,572,819.6726,996,403,366.6913.58% Total ownership interest attributable to listed-company shareholders (yuan) 18,068,711,890.0516,579,374,323.088.98% Share capital of the Company as of the trading day before disclosure: Share capital of the Company as of the trading day before disclosure (shares) 1,749,809,548.00 Fully diluted earnings per share calculated on the basis of the latest share capital Dividends paid on preferred shares 0.00 Perpetual bond interest paid (yuan) 0.00 Fully diluted earnings per share calculated on the basis of the latest share capital (yuan/share) 1.1324 (II) Items and amounts of non-recurring gains/losses Applicable □Inapplicable Unit: RMB yuan Item Amount in the current reporting period Amount in the first nine months of 2022 Note Gains/losses on disposal of non-current assets (including the written-off part of the accrued assets impairment reserve) -6,456,222.422,413,541.61 Tax refund and reduction with 298,676.542,758,810.47 The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 3 ultra vires examination and approval or without official approval documents Government grants included in current gains/losses (excluding those closely related to daily business operation and distributed constantly in accordance with certain standard quota or quantity in line with national policies and regulations) 34,136,781.84113,330,078.60 Mainly due to the confirmation of government grants by subsidiaries in the current period. Other non-operating revenue or expenditure except above-mentioned items -14,144,513.35 -18,729,257.39 Less: Amount affected by income tax 2,614,873.5517,708,027.55 Amount affected by rights and interests of minority stakeholders (after tax) -465,663.481,648,327.85 Total 11,685,512.5480,416,817.89 -- Details of other items of gains/losses meet the definition of non-recurring gains/losses: □Applicable Inapplicable There are no other gain/loss items in line with the definition of non-recurring gains/losses in the Company. Explanation for recognizing an item listed as a non-recurring gain/loss in the “Interpretative Announcement No.1 on Information Disclosure Criteria for Public Companies – Non-Recurring Gains/Losses” as a recurring gain/loss □Applicable Inapplicable There is no circumstance in which the Company recognizes an item listed as a non-recurring gain/loss in the “Interpretative Announcement No.1 on Information Disclosure Criteria for Public Companies – Non-Recurring Gains/Losses” as a recurring gain/loss. (III) Changes in key accounting data and financial indicators and their reasons Applicable □Inapplicable Balance sheet item End of the period Beginning of the period Change rate Notes on cause of changes Accounts receivable 8,831,060,590.996,430,482,175.9737.33% Mainly due to the increase in payment for goods in the settlement period by the end of the current period Other receivables 371,528,921.48223,707,267.3066.08% Mainly due to the increase in receivables and suspense payments in the current period Long-term equity investments 1,694,315,448.54984,927,398.6872.02% Mainly due to investment in Heidelberg Pharma AG Other equity instrument investments 359,700,638.43257,815,844.6839.52% Mainly due to investment in Ashvattha Therapeutics Other non-current assets 1,407,052,577.68911,062,879.8354.44% Mainly due to the increase in payments for product introduction in the current period Short-term borrowing 736,186,259.251,237,843,228.13 -40.53% Mainly due to the repayment of borrowings in the current period Notes payable 1,178,537,227.66671,964,504.0075.39% Mainly due to the increase in notes for payment in the current period Taxes payable 626,833,981.791,029,610,563.41 -39.12% Mainly due to the increase in taxes paid in the current period Non-current liabilities due within one year 44,491,162.31244,256,705.59 -81.79% Mainly due to the repayment of long-term borrowing in the current period Other current liabilities 18,254,352.5611,386,267.1160.32% Mainly due to the increase of contract liabilities with corresponding taxes transferred to other current liabilities Long-term borrowing 1,312,010,297.75139,178,905.04842.68% Mainly due to the increase in new borrowing in the current period The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 4 Other comprehensive income -66,798,628.56 -47,768,225.80 -39.84% Mainly due to the decrease in exchange differences arising on conversion of financial statements denominated in foreign currencies Income statement item Amount of the current period Amount of the previous period Change Cause of change Investment income -99,173,464.90 -60,001,493.40 -65.28% Mainly due to the decrease in investment income from associates Gains on assets disposal 5,578,009.76 -149,966.613819.50% Mainly due to the sale of real properties in the current period Non-operating income 5,034,409.2117,439,095.86 -71.13% Mainly due to the decrease in confiscated income year on year Non-operating expenses 27,069,853.1119,888,568.8936.11% Mainly due to the increase in donation in the current period Cash flow statement item Amount of the current period Amount of the previous period Change Cause of change Net cash flows from operating activities 1,320,252,925.992,105,916,826.72 -37.31% Mainly due to the year-on-year decrease in government grants as well as the increase in taxes paid, deposit payment, and R&D expenses in the current period Net cash flows from investment activities -2,183,831,586.20 -1,406,864,147.47 -55.23% Mainly due to investment in Heidelberg Pharma AG Net cash flows from financing activities -114,865,223.05 -525,617,150.1978.15% Mainly due to the increase in interest-bearing liabilities in the current period II. Shareholder information (I) Total number of common shareholders, number of shareholders of preferred shares with voting rights restored, and information about top 10 shareholders Unit: share Total number of common shareholders at the end of the reporting period 83,815 Total number of shareholders of preferred shares with voting rights restored at the end of the reporting period (if any) 0 Information about top 10 shareholders Name of shareholder Nature of shareholder Shareholding ratio Number of shares held Number of shares subject to trading restrictions Pledged, marked or frozen Status Amount China Grand Enterprises Inc. Domestic non-state-owned corporation 41.77% 730,938,1570 Pledged 144,642,000 Hangzhou Huadong Medicine Group Co., Ltd. State-owned corporation 16.46% 288,000,0000 Hong Kong Securities Clearing Company Ltd. Overseas corporation 3.09% 54,109,5300 Industrial and Commercial Bank of China Limited--China-Europe Healthcare Hybrid Securities Investment Fund Others 2.59% 45,271,9410 China Securities Finance Corporation Domestic non-state-owned corporation 1.27% 22,186,8180 The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 5 Limited China Construction Bank Corporation--ICBCCredit Suisse Frontier Medical Equity Investment Fund Others 1.14% 20,000,0780 Norges Bank--Equity fund Overseas corporation 0.51% 8,959,3080 Industrial and Commercial Bank of China Limited--China-Europe Healthcare Innovation Stock Investment Fund Others 0.51% 8,871,5840 Shanghai Gao Yi Asset Management Partnership (L.P.)--Gao Yi Xiaofeng No.2 Zhixin Fund Others 0.40% 7,052,1200 National Council for Social Security Fund--Portfolio No.110 Others 0.40% 7,033,4320 Shareholding of the top 10 shareholders without trading restrictions Name of shareholder Number of the trading unrestricted shares held Type of shares Type of shares Amount China Grand Enterprises Inc.730,938,157 RMB common shares 730,938,157 Hangzhou Huadong Medicine Group Co., Ltd. 288,000,000 RMB common shares 288,000,000 Hong Kong Securities Clearing Company Ltd. 54,109,530 RMB common shares 54,109,530 Industrial and Commercial Bank of China Limited--China-Europe Healthcare Hybrid Securities Investment Fund 45,271,941 RMB common shares 45,271,941 China Securities Finance Corporation Limited 22,186,818 RMB common shares 22,186,818 China Construction Bank Corporation--ICBCCredit Suisse Frontier Medical Equity Investment Fund 20,000,078 RMB common shares 20,000,078 Norges Bank--Equity fund 8,959,308 RMB common shares 8,959,308 Industrial and Commercial Bank of China Limited--China-Europe Healthcare Innovation Stock Investment Fund 8,871,584 RMB common shares 8,871,584 Shanghai Gao Yi Asset Management Partnership (L.P.)--Gao Yi Xiaofeng No.2 Zhixin Fund 7,052,120 RMB common shares 7,052,120 National Council for Social Security Fund--Portfolio No.110 7,033,432 RMB common shares 7,033,432 Description of relations or acting in concert among The Company does not know whether the above-mentioned shareholders The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 6 the shareholders mentioned above are related parties or whether they are acting-in-concert parties with one another. Description of the participation in securities margin trading business of the top 10 shareholders (if any) At the end of the reporting period, among the top 10 common shareholders of the Company, there were no shareholders holding the Company’s shares through the securities margin trading account. (II) Total number of shareholders of preferred shares and information about top 10 shareholders of preferred shares □Applicable Inapplicable III. Other important matters Applicable □Inapplicable (I) Overview of operations 1. The Company’s overall operations during the reporting period During the reporting period, the Company continued to overcome the challenges brought about by the COVID-19 resurgence and the fierce market competition. With the core objective of restoring growth, it accelerated operation and innovation in various fields, so its key operational indicators continued to recover growth amid the effective response to various pressures and uncertainties. In the first nine months of 2022, the Company realized operating income of RMB27.86 billion, up 7.4% year on year (up 0.4% in the first quarter and 5.9% in the first half year on year). Meanwhile, it produced net profit attributable to listed-company shareholders after deduction of non-recurring gains or losses of RMB1.9 billion, up 7.9% (up 0.4% in the first quarter and 6.5% in the first half year on year). Calculated by the same standard in the previous annual report after excluding the controlling subsidiary Huadong Ningbo, operating income in the first nine months of 2022 increased by 11.2% year on year, and net profit attributable to listed-company shareholders after deduction of non-recurring gains or losses went up by 9.3% year on year. The Company saw its overall operations growing steadily. In the third quarter of 2022, the Company posted total operating income of RMB9.66 billion, an increase of 10.4% compared with the same period last year and 4.3% from the second quarter of the year as well as net profit attributable to listed-company shareholders after deduction of non-recurring gains or losses of RMB630 million, an increase of 10.8% compared with the same period last year and 9.8% from the second quarter of the year. Calculated by the same standard in the previousannual report after excluding the controlling subsidiary Huadong Ningbo, the Company’s operating income in the third quarter of 2022 increased by 14.4% year on year, and its net profit attributable to listed-company shareholders after deduction of non-recurring gains or losses rose by 11.2% year on year. The pharmaceutical industry segment (including CSO business) recorded operating income of RMB8.22 billion in the first nine months of 2022, up 5.3% year on year (down 13.4% in the first quarter and up 1.4% in the first half year on year). It realized net profit attributable to listed-company The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 7 shareholders after deduction of non-recurring gains or losses of RMB1.62 billion, up 0.9% year on year (down 4.3% in the first quarter and down 3.7% in the first half year on year). In the third quarter of 2022, the segment achieved operating income of RMB2.71 billion and net profit attributable to listed-company shareholders after deduction of non-recurring gains or losses of RMB550 million, up 14.0% and 11.1% year on year. The industrial microbiology business grew slower in the third quarter of 2022 compared with the first half of the year, due to the decline in demand for nucleoside raw materials in the downstream international market and the delayed delivery of the Company’s production in pursuit of overseas certification. However, the overall business is expected to gradually recover in the fourth quarter. From a full-year perspective, the Company continued to implement its industrial microbiology strategy, to enrich product pipelines with high innovation, technical barriers, and value-added in various business areas, and to optimize the product structure. At the same time, it got products registered overseas and launched international business actively. All of these steps aimed to promote the steady growth of the industrial microbiology business. During the reporting period, the Company’s pharmaceutical commerce maintained steady growth, achieving operating income of RMB18.97 billion, up 9.8% year on year, and total net profit of RMB300 million, up 5.0% year on year. During the reporting period, the Company’s aesthetic medicine segment maintained rapid growth as a whole. In the period, the segment achieved total operating income of RMB1.37 billion (excluding internal offsetting factors), representing the highest level of the same period in the Company’s history, and a year-on-year increase of 113.7% on a comparable basis (excluding Huadong Ningbo). Sinclair, a wholly-owned subsidiary in the United Kingdom (the UK), continued to grow fast, making strides in overseas market expansion and international sales. During the reporting period, Sinclair registered consolidated operating income of GBP95.37 million (approximately RMB790 million), an increase of 79.7% year on year, and earnings before interest, taxes, depreciation, and amortization (EBITDA) of GBP17.36 million, an increase of 254.9% year on year. In the third quarter alone, the subsidiary posted operating income of over GBP32 million in spite of the mounting pressures from inflation and rising costs overseas. The Préime DermaFacial, a multi-functional facial skin management platform that Sinclair exclusively introduced from Ireland-based EMAAesthetics Limited, become available for commercial sales in major global aesthetic medicine markets such as Europe and the United States from September 2022. The energy-based device is scheduled to be launched in China in 2023. As for domestic aesthetic medicine business, Sinclair (Shanghai), the wholly-owned subsidiary of the Company, tapped deep into the core target markets, on the premise of ensuring operational compliance. As its flagship product Ellansé grew market share and gained greater brand visibility, The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 8 the subsidiary continued to lead high-end regenerative filler market in China. Thanks to the constantly enhanced attention and penetration, the domestic aesthetic medicine business saw its sales proceeds in the third quarter of 2022 rebounding significantly compared with the second quarter. Sinclair (Shanghai) racked up total operating income of RMB440 million in the first nine months of 2022. China hence become the largest market for Ellansé worldwide. In the fourth quarter, which is a peak season for medical aesthetics sales, Sinclair (Shanghai) is expected to continue its good performance in the third quarter, thus beating the full-year business target smoothly. 2. R&D progress of the Company during the reporting period (1) Progress of clinical studies on major innovative drugs, innovative medical equipment and biosimilars From January to September 2022, the Company continued to accelerate the R&D work. The R&D expenditure in the pharmaceutical industry was RMB870 million, with a year-on-year increase of 21.5% among which RMB760 million was for R&D expenses. As at the date of issuance of this Report, the Company’s main R&D progress of innovative drugs, innovative medical equipment and biosimilars is as follows: Endocrine HDM1002: AGLP-1 receptor agonist formed from small molecules which is independently researched and developed by the Company. It is projected that Pre-IND applications will be delivered both in China and the United States by the end of 2022. Liraglutide Injection: AGLP-1 receptor agonist. The marketing authorization application for diabetes indication was accepted in September 2021 and the submission of materials for supplementary studies was completed in August 2022. The marketing authorization application for obesity or overweight indication was accepted in July 2022. Semaglutide Injection: AGLP-1 receptor agonist. The administration and follow-up visits to all subjects for Phase I clinical trials have been completed. Insulin Degludec Injection: Its IND approval received in September 2022. HDM7003 (D-4517.2): This product is under development jointly by the Company and Ashvattha Therapeutic, Inc., the joint-stock company in the United States. In September 2022, Ashvattha announced that the first subject enrollment for the Phase II clinical trial in the United States of the product, which is utilized for treating wet age-related macular degeneration and diabetic macular edema, had been completed. Oncology HDM2002 (Mirvetuximab Soravtansine): The first investigational ADC targeting positive ovarian cancer with folate receptor alpha (“FRα”) in the world. It is utilized for treating platinum-The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 9 resistant ovarian cancer with high expression of FRα. In terms of its Phase I clinical trials in China for pharmacokinetics, the enrollment of all subjects was completed in July 2022. In August 2022, the first subject enrollment was completed for its Phase III single-arm clinical trial in China. Autoimmunity ARCALYST (Rilonacept): A recombinant dimer fusion protein that can block the transmission of IL-1α and IL-1β signals. In February 2022, the Company signed a cooperative agreement with Kiniksa on introducing this product. Continually, ARCALYST was approved in the United States in 2008,2020 and 2021 for treating cryopyrin-associated periodic syndromes (“CAPS”), deficiency of IL-1 receptor antagonist (“DIRA”) and recurrent pericarditis. Also, ARCALYST was included by the CDE in the List of Overseas New Drugs for Urgent Clinical Needs (Group 1) for CAPS. The Company filed a Pre-BLA to the CDE for the product’s CAPS indication in July 2022 and feedback has been procured. It is expected that the BLA application will be delivered domestically in the fourth quarter of 2022. HDM5001 (OP-101): This product is under development jointly by the Company and Ashvattha Therapeutic, Inc., the joint-stock company in the United States. On the basis of its original function of treating severe COVID-19 indications, the possibility of new indication development is currently under assessment. An IND application will be delivered domestically after a conclusion is formed. Innovative medical equipment HD-NP-102 (Transdermal Glomerular Filtration Rate Measurement System and MB102): This product is jointly developed by the Company and MediBeacon, Inc. in the United States. Based on the changes in fluorescence over time emitted by exogenous tracers for non-invasive monitoring, this system can continuously measure the glomerular filtration rate (“GFR”) of patients with normal or impaired renal functions. In July 2022, the registration application for medical equipment of this system was accepted by the NMPA and will enter the review phase. MB-102 Injection (Relmapirazin) which works together with this system is a global innovative drug. The first domestic subject enrollment for the Phase III multi-regional clinical trial (MRCT) was completed in September 2022. (2) R&D and registration of domestic aesthetic medicine products No. Category Product Name Purpose Latest Progress 1 Injection MaiLi Extreme HA Facial filling As for clinical trials in China, the first subject enrollment was completed in September 2022 2 Injection Ellansé-MFacial filling Domestic registration inspection reached the end in August 2022, and clinical trials in China are underway and the ethical approval of the main research unit has been obtained 3 Injection Perfectha Biphase HA Facial filling Efforts related to domestic registration are underway 4 Thread lifting Silhouette Instalift Mid-facial lifting As for domestic clinical trials, part of the subjects have been enrolled, and the follow-ups at time nodes are in progress The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 10 5 Energy based device Glacial Rx (F1) Removal of benign pigmentary lesions of the skin Domestic registration inspection is underway 6 Energy based device Cooltech Define Fat reduction and body shaping Domestic registration inspection is underway 7 Energy based device Primelase Hair removal Domestic registration inspection is underway 8 Energy based device V product line (V20, V30) Skin firming, body and facial shaping, skin rejuvenation and hair removal Domestic registration inspection is underway 9 Energy based device EnerJet Scar rehabilitation, facial lifting and dermal thickening Domestic registration inspection is underway 10 Energy based device Préime DermaFacial Facial skin management Equipment classification and complementary cosmetics registration are underway domestically 11 Energy based device Reaction Body and facial shaping and skin firming Changes in domestic agents were approved in August 2022, registration of the foreign factory address change is under review, and the product will reenter the Chinese market in Q12023 as envisaged In addition, the Company is actively accelerating its applications for the franchises for Silhouette, Lanluma and Ellansé series products in Hainan Boao Lecheng Pilot Zone of International Medical Tourism. 3. External investment and cooperation progress of the Company during the reporting period (1) During the reporting period, the Company completed the delivery of the additional stocks issued publicly and shares transferred by agreement by the listing company in Germany Heidelberg Pharma (please refer to the relevant announcements disclosed by the Company on the website of cninfo.com.cn for details; announcement No.: 2022-060 and 2022-065). After the completion of the delivery, the Company’s equity investment in Heidelberg Pharma was successfully completed. Ultimately, the Company’s wholly owned subsidiary Huadong Medicine Investment Holding (Hong Kong) Limited holds a total of 16,304,560 shares in Heidelberg Pharma, with the corresponding percentage of equity interest held being 35.00%. For this percentage, the Company becomes the second largest shareholder. In terms of the ADC field, the Company further expanded its differentiated layout. It invested in Qyuns Therapeutics, an antibody R&D and production company, and Nuoling Bio, a company specializing in ADC linkers and conjugate techniques, and incubated Huida Biotech which owns the whole product line of ADC payloads. It also controls Doer Biologics, a multi-antibody platform R&D company, and has strong ADCR&D technological accumulations. By carrying out equity investment and product cooperation with Heidelberg Pharma, a global emerging technology company in the ADC field, and introducing a number of ADC innovative products, the Company further enriched its innovative pipeline for oncology products and realized a differentiated layout in the ADC field. In The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 11 the future, the Company will fully integrate its ADCR&D technological accumulations with the advanced and proprietary ATAC technological platform of Heidelberg Pharma to form a unique ADC global R&D ecosystem, gradually build a differentiating ADC independent R&D platform, and strengthen and improve the antineoplastic product innovation chain and the ADC ecological chain. The Company has established an independent ADCR&D center which will, driven by clinical needs that have not been satisfied, actively cooperate with international leading technical teams and integrate advantageous ecosystem resources. In the next three years, it plans to develop at least ten ADC innovative products and actively promote the registration work and clinical studies. (2) On August 8,2022, Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. (hereinafter referred to as “Zhongmei Huadong”), the Company’s wholly owned subsidiary, signed the Agreement on Capital Injection to and Transfer of Equity Interest in Wuhu Huaren Science and Technology Co., Ltd. with Wuhu Huaren Science and Technology Co., Ltd. (hereinafter referred to as “Huaren Science and Technology”), natural persons Shi Ping and Zhao Huijiao, and Wuhu Huaxuan Enterprise Management Partnership (Limited Partnership). Zhongmei Huadong will contribute no more than RMB396 million in total, in the form of capital injection and share acceptance, to acquire a 60% equity interest in Huaren Science and Technology and become its controlling shareholder (please refer to the relevant announcement disclosed by the Company on the website of cninfo.com.cn for details; announcement No.: 2022-056). Up to now, the Company has completed the formalities for changing registration with the administration for industry and commerce related to this transaction, the payment of all the capital injection funds and part of the equity transfer consideration, and the The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 12 closing of the capital injection to and acceptance of the equity interest in Huaren Science and Technology. In the future, in the nucleoside business layout of the Company’s industrial microbial segment, Huaren Science and Technology will mainly focus on the markets of nucleoside raw materials for small nucleic acid drugs and diagnostic reagents, with modified nucleosides, phosphoramidite monomers and dNTPs, among others, as the main products. The Company’s wholly owned subsidiary, Anhui Meihua Hi-Tech Pharmaceutical Co., Ltd. (hereinafter referred to as “Meihua Hi-Tech”), will assist Huaren Science and Technology with its large-scale production and undertake the function of producing modified nucleosides, monomers and upstream raw materials. Through a series of R&D and integration of industry resources, the Company has formed a complete technological layout necessary for the nucleoside business in fields such as synthetic biology technology, enzyme catalysis, chemical synthesis and modification, and separation and purification. Meanwhile, leveraging Huaren Science and Technology, Meihua Hi-Tech and other production bases, a comprehensive production layout of nucleic acid drugs and upstream raw materials for diagnosis has been formed. In the future, the Company will continue to expand and strengthen the production of nucleic acid drugs and upstream raw materials for diagnosis, and dedicate itself to becoming an international leading supplier in the field of nucleoside raw materials. (3) Meihua Hi-Tech (formerly Anhui Huachang Hi-Tech Pharmaceutical Co., Ltd.), all of whose equity has been acquired by the Company, has started the production of existing nucleoside product projects in an orderly manner and has formed industry linkage and resource integration with Zhongmei Huadong and Huaren Science and Technology within the Company. Currently, the trial production of the Phase I project of Meihua Hi-Tech is undergoing acceptance inspection and at the same time Phase II project planning is being actively promoted. (4) In July 2022, the Company’s wholly owned subsidiary, Zhongmei Huadong, and Gongshu District Government in Hangzhou and Zhejiang University of Technology jointly established the Huadong Institute of Synthetic Biology Industry Technology (hereinafter referred to as the “Institute”), which will focus on the four fields of nutrition and pharmaceutical chemicals, aesthetic medical biology, biomaterials and health substitutes based on synthetic biology technology. Meanwhile, the Institute insists on serving the strategic needs of the national “bio-economy”, and takes as breakthroughs the new mechanism of intelligent biological manufacturing and industrial revolutionary technical issues, while carrying out technological innovation research and industrial transformation research around intelligent biological manufacturing with the help of artificial intelligence, big data and intelligent automation equipment. The Institute is in the Huadong Medical Life Science Industrial Park (the Company’s Xiangfu Qiao plant), and Zheng Yuguo, an academician The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 13 of the Chinese Academy of Engineering, is the president. Synthetic biology is one of the core technologies that the Company relies on for industrial microbial development. Through linkage, sharing and integration, the pioneer cooperation between “government, industry and university in research and application” will accelerate the transformation of innovative projects, which is expected to help build a new cluster of biological manufacturing industry and give the Company a new impetus for industrial microbial innovation. 4. Other work matters During the reporting period, the Company launched the equity incentive plan for the first time since its listing. To further establish and improve the long-term incentive mechanisms, attract and retain outstanding talents, fully mobilize the initiative of the senior management members, managers, and core technical (business) personnel, effectively combine the interests of shareholders, the Company, core teams, and employees together, and rally all parties around the long-term development of the Company, the Restricted Share Incentive Plan 2022 (Draft) (hereinafter referred to as “the Plan”) was formulated on the premise of fully safeguarding the interests of shareholders, as per the principle of matching earnings and contributions, and in accordance with the pertinent laws, regulations, and normative documents of China, such as the Company Law, the Securities Law, the Administrative Measures for Equity Incentives of Listed Companies as well as the Articles of Association of the Company. The Plan would grant restricted shares to the incentive recipients. The second session of the 10th Meeting of the Board of Directors and the second session of the 10th Meeting of the Board of Supervisors were held on August 8,2022, to review and adopt the Proposal on the Company’s Restricted Share Incentive Plan 2022 (Draft) and Its Summary (details can be seen in the announcement disclosed by the Company on cninfo.com.cn on August 10,2022). According to the Plan, the Company would grant 5 million restricted shares, at the price of RMB25.00 per share, which represented approximately 0.286% of 1,749,809,548 shares, the total share capital of the Company at the time of the announcement of the Plan. These restricted shares would go to 117 persons in total, including directors, senior management, middle management, and core technical (business) personnel who were working for the Company (including its subsidiaries) at the time of the announcement of the Plan. The Company released the list of first incentive recipients of the Restricted Share Incentive Plan through its intranet for 10 days, that is, August 15-25,2022. By the end of the public announcement period on August 25,2022, the Board of Supervisors did not receive any objection from anyone to the incentive recipients. On August 25,2022, the Board of Supervisors meeting was convened to review and adopt the Verification Opinions and Public Announcement on the List of First Incentive The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 14 Recipients under the Restricted Share Incentive Plan 2022 (details can be seen in the relevant announcement disclosed on by the Company on cninfo.com.cn on the same day). The Company held the first extraordinary general meeting of 2022 on August 31,2022 to review and adopt the Proposal on the Company’s Restricted Share Incentive Plan 2022 (Draft) and Its Summary (details can be seen in the relevant announcement disclosed by the Company on cninfo.com.cn on the same day). The work related to equity incentive is now continuing as scheduled. (II) Registration form of receptions, including research, communication and interview, undertaken Reception date Reception venue Reception method Type of visitor Affiliation of visitor Main content of discussion and information provided Index of basic information of the research July 06 and July 08, 2022 Company conference room Field research, communication via phone call Institution, individual Industrial Securities, Zheshang Securities, Morgan Stanley, CITIC Securities, etc. Investor communication, online seminar on China’s A-share market Please refer to “Huadong Medicine: record of investor relations activities on July 06 and July 08, 2022” presented on the websites of irm.cninfo.com.cn and cninfo.com.cn for details. August 10, 2022 Company conference room Communication via phone call Institution, individual Industrial Securities, etc. Interpretation of results of 2022 Interim Report by Huadong Medicine Please refer to “Huadong Medicine: record of investor relations activities on August 10,2022” presented on the websites of irm.cninfo.com.cn and cninfo.com.cn for details. The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 15 IV. Quarterly financial statements (I) Financial statements 1. Consolidated balance sheet Prepared by Huadong Medicine Co., Ltd. September 30,2022 Unit: RMB yuan Item September 30,2022 January 1,2022 Current assets: Monetary funds 3,175,270,378.544,032,424,555.22 Settlement reserve Lending to other banks and other financial institutions Financial assets for trade Derivative financial assets Notes receivable Accounts receivable 8,831,060,590.996,430,482,175.97 Accounts receivable financing 505,223,136.35509,190,888.54 Advance payments 286,046,854.82275,353,134.69 Premiums receivable Reinsurance accounts receivable Reinsurance contract reserve receivable Other receivables 371,528,921.48223,707,267.30 Including: Interests receivable Dividends receivable 3,404,934.45877,734.45 Financial assets purchased for resale Inventories 4,101,303,627.613,974,549,648.96 Contract assets Assets held for sale Non-current assets due within one year Other current assets 50,283,045.0540,907,922.76 Total current assets 17,320,716,554.8415,486,615,593.44 Non-current assets: Loans and advances to customers Debt investments Other debt investments Long-term receivables Long-term equity investments 1,694,315,448.54984,927,398.68 Other equity instrument investments 359,700,638.43257,815,844.68 Other non-current financial assets Real estate properties for investment 13,850,319.6014,569,533.94 Fixed assets 2,954,233,810.763,077,227,759.84 Constructions in progress 1,793,856,597.841,582,125,201.25 Biological assets for production Oil & gas assets Right-of-use assets 113,951,068.86153,724,197.81 Intangible assets 2,246,242,618.652,233,450,369.34 Development expenditures 107,996,900.93 Goodwill 2,479,054,921.922,138,808,037.01 Long-term unamortized expenses 13,991,020.8112,425,364.03 Deferred income tax assets 157,610,340.81143,651,186.84 Other non-current assets 1,407,052,577.68911,062,879.83 Total non-current assets 13,341,856,264.8311,509,787,773.25 The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 16 Total assets 30,662,572,819.6726,996,403,366.69 Current liabilities: Short-term borrowing 736,186,259.251,237,843,228.13 Borrowing from the central bank Borrowing from other banks and other financial institutions Financial liabilities for trade Derivative financial liabilities Notes payable 1,178,537,227.66671,964,504.00 Accounts payable 4,721,925,574.383,847,719,574.86 Advance receipts 1,904,991.131,147,425.45 Contract liabilities 139,272,182.95118,341,141.48 Financial assets sold for repurchase Absorbing deposits and due from banks Receipts for buying and selling securities as proxy Receipts for underwriting securities as proxy Employee benefits payable 211,128,617.38168,210,088.82 Taxes payable 626,833,981.791,029,610,563.41 Other payables 2,437,266,239.541,935,116,784.93 Including: Interests payable Dividends payable 224,219.602,184,219.60 Handling fees and commissions payable Reinsurance accounts payable Liabilities held for sale Non-current liabilities due within one year 44,491,162.31244,256,705.59 Other current liabilities 18,254,352.5611,386,267.11 Total current liabilities 10,115,800,588.959,265,596,283.78 Non-current liabilities: Insurance contract reserve Long-term borrowing 1,312,010,297.75139,178,905.04 Bonds payable Including: Preferred shares Perpetual bonds Lease liabilities 65,563,558.7880,889,403.39 Long-term payables 262,627,804.02261,903,489.09 Long-term employee benefits payable Provision 37,924,447.2739,086,238.25 Deferred gains 101,838,308.1783,521,649.96 Deferred income tax liabilities 184,714,029.50184,908,391.50 Other non-current liabilities Total non-current liabilities 1,964,678,445.49789,488,077.23 Total liabilities 12,080,479,034.4410,055,084,361.01 Ownership interest: Share capital 1,749,809,548.001,749,809,548.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserve 2,264,211,002.792,229,868,312.11 Less: Treasury shares Other comprehensive income -66,798,628.56 -47,768,225.80 Special reserve Surplus reserve 1,021,670,687.311,021,670,687.31 General risk reserve Undistributed profit 13,099,819,280.5111,625,794,001.46 Total ownership interest attributable to 18,068,711,890.0516,579,374,323.08 The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 17 the parent company Minority interest 513,381,895.18361,944,682.60 Total ownership interest 18,582,093,785.2316,941,319,005.68 Total liabilities & ownership interest 30,662,572,819.6726,996,403,366.69 Legal representative: Lv Liang Officer in charge of accounting: Lv Liang Head of accounting department: Qiu Renbo 2. Consolidated income statement in the first nine months of 2022 Unit: RMB yuan Item Amount incurred during the current period Amount incurred during the previous period I. Total operating income 27,858,507,079.1025,927,477,363.27 Including: Operating income 27,858,507,079.1025,927,477,363.27 Interests received Premiums earned Handling fees and commissions received II. Total operating cost 25,422,451,966.5723,721,020,429.04 Including: Operating cost 19,006,828,172.0017,820,264,592.12 Interests paid Handling fees and commissions paid Surrender value Net payment of insurance claims Net appropriation of policy reserve Policy dividends paid Reinsurance expenses Taxes and surcharges 145,766,634.10132,071,642.16 Selling expenses 4,503,511,492.024,165,255,628.17 Administrative expenses 958,816,065.06859,932,896.49 R&D expenses 788,158,101.57727,596,640.52 Financial expenses 19,371,501.8215,899,029.58 Including: Interests paid 55,731,896.9959,960,711.55 Interests received 75,779,611.1464,850,873.74 Add: Other gains 116,088,889.07157,965,604.53 Investment gains (Losses are indicated by “-”) -99,173,464.90 -60,001,493.40 Including: Investment gains from associates and joint ventures -80,967,957.60 -18,970,341.98 Gains from the derecognition of financial assets measured at amortized cost Gains on exchange (Losses are indicated by “-”) Gains on net exposure hedging (Losses are indicated by “-”) Gains on changes in fair value (Losses are indicated by “-”) Credit impairment losses (Losses are indicated by “-”) -71,965,559.59 -38,263,673.24 Assets impairment losses (Losses are indicated by “-”) 3,054,806.20 Gains on assets disposal (Losses are indicated by “-”) 5,578,009.76 -149,966.61 III. Operating profit (Losses are indicated by “-”) 2,386,582,986.872,269,062,211.71 Add: Non-operating income 5,034,409.2117,439,095.86 Less: Non-operating expenditure 27,069,853.1119,888,568.89 IV. Total profit (Total losses are indicated by “-”) 2,364,547,542.972,266,612,738.68 Less: Income tax expenses 358,222,730.61324,435,752.43 V. Net profit (Net losses are indicated by “-”) 2,006,324,812.361,942,176,986.25 The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 18 (I) Categorized by the continuity of operations 1. Net profit from continued operations (Net losses are indicated by “-”) 2,006,324,812.361,942,176,986.25 2. Net profit from discontinued operations (Net losses are indicated by “-”) (II) Categorized by attribution of the ownership 1. Net profit attributable to shareholders of the parent company (Net losses are indicated by “-”) 1,981,470,047.951,895,384,579.34 2. Gains/losses of minority shareholders (Net losses are indicated by “-”) 24,854,764.4146,792,406.91 VI. Net amount after tax of other comprehensive income -19,030,402.76115,596,732.48 Net amount after tax of other comprehensive income attributable to owners of the parent company -19,030,402.76115,596,732.48 (I) Other comprehensive income that cannot be reclassified into gains/losses -4,775,671.9818,270,393.86 1. Changes in remeasurement on the defined benefit plan 2. Other comprehensive income that cannot be reclassified into gains/losses under equity method 3. Changes in fair value of other equity instrument investments -4,775,671.9818,270,393.86 4. Changes in fair value of credit risk of the enterprise 5. Others (II) Other comprehensive income to be reclassified into gains/losses -14,254,730.7897,326,338.62 1. Other comprehensive income that can be reclassified into gains/losses under equity method 2. Changes in fair value of other debt investments 3. Amount of financial assets reclassified into other comprehensive income 4. Credit impairment reserve of other debt investments 5. Cash flow hedging reserve 6. Exchange differences arise from translation of foreign currency financial statements -14,254,730.7897,326,338.62 7. Others Net amount after tax of other comprehensive income attributable to minority shareholders VII. Total comprehensive income 1,987,294,409.602,057,773,718.73 (I) Total comprehensive income attributable to owners of the parent company 1,962,439,645.192,010,981,311.82 (II) Total comprehensive income attributable to minority shareholders 24,854,764.4146,792,406.91 VIII. Earnings per share (EPS): (I) Basic EPS 1.13241.0832 (II) Diluted EPS 1.13241.0832 As for enterprise merger under the same control in the current period, the net profit generated by the merged party before the merger is 0 yuan, and that generated during the previous period is 0 yuan. Legal representative: Lv Liang Officer in charge of accounting: Lv Liang Head of accounting department: Qiu Renbo The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 19 3. Consolidated cash flow statement in the first nine months of 2022 Unit: RMB yuan Item Amount incurred during the current period Amount incurred during the previous period I. Cash flows from operating activities: Cash from the sale of goods and provision of services 28,636,082,628.3727,674,577,148.04 Net increase in customer deposits and due from banks Net increase in borrowing from the central bank Net increase in borrowing from other financial institutions Cash from the premium of the original insurance policy Net cash from reinsurance Net increase in deposits and investment of the insured Cash from interests, handling fees and commissions Net increase in borrowing from other banks and other financial institutions Net increase in funds for repurchase Net cash received for buying and selling securities as proxy Tax refund received 48,130,176.6011,649,988.97 Other cash receipts in relation to operating activities 519,344,662.31529,610,507.12 Total cash inflows from operating activities 29,203,557,467.2828,215,837,644.13 Cash payments for goods and services 19,098,109,891.2518,596,693,102.88 Net increase in customer loans and prepayments Net increase in deposits of central bank and due from banks Cash for payment of original insurance claims Net increase in lending to other banks and other financial institutions Cash for payment of interests, handling fees and commissions Cash for payment of policy dividends Cash payments to and for employees 2,163,638,874.661,822,563,793.72 Payment of taxes and fees 2,310,543,611.371,531,826,498.86 Other cash payments in relation to operating activities 4,311,012,164.014,158,837,421.95 Total cash outflows for operating activities 27,883,304,541.2926,109,920,817.41 Net cash flows from operating activities 1,320,252,925.992,105,916,826.72 II. Cash flows from investing activities: Cash from recovery of investments 20,432,161.82 Cash from investment gains 900,000.004,281,616.50 Net cash from disposal of fixed assets, intangible assets and other long-term assets 13,562,748.022,009,441.20 Net cash from disposal of subsidiaries and other business units Other cash receipts in relation to investing activities 29,602,856.85 Total cash inflows from investing activities 14,462,748.0256,326,076.37 Cash payments for purchase and construction of fixed assets, intangible 838,159,013.91539,567,188.77 The Third Quarterly Report 2022 of Huadong Medicine Co., Ltd. 20 assets and other long-term assets Cash payments for investment 855,517,746.06120,706,000.00 Net increase in pledge loans Net cash paid for acquisition of subsidiaries and other business units 404,617,574.25776,789,194.67 Other cash payments in relation to investing activities 100,000,000.0026,127,840.40 Total cash outflows for investing activities 2,198,294,334.221,463,190,223.84 Net cash flows from investment activities -2,183,831,586.20 -1,406,864,147.47 III. Cash flows from financing activities: Cash from absorbing investments 30,000,000.00 Including: Cash from absorption of minority shareholders’ investments by subsidiaries 30,000,000.00 Cash from borrowing 3,625,643,992.661,854,078,657.43 Other cash receipts in relation to financing activities 598,142,418.56360,000,000.00 Total cash inflows from financing activities 4,253,786,411.222,214,078,657.43 Cash for repayment of debt 3,141,986,846.061,874,703,029.58 Cash payments for dividends, profits or interests 627,878,033.15499,317,003.89 Including: Payment of dividends and profits by subsidiaries to minority shareholders 1,960,000.00 Other cash payments in relation to financing activities 598,786,755.06365,675,774.15 Total cash outflows for financing activities 4,368,651,634.272,739,695,807.62 Net cash flows from financing activities -114,865,223.05 -525,617,150.19 IV. Influence of exchange rate fluctuations on cash and cash equivalents 17,694,818.12 -1,383,998.81 V. Net increase in cash and cash equivalents -960,749,065.14172,051,530.25 Add: Balance of cash and cash equivalents at the beginning of the period 3,580,140,638.173,157,407,073.26 VI. Balance of cash and cash equivalents at the end of the period 2,619,391,573.033,329,458,603.51 (II) Audit report Has the third quarterly report been audited □ Yes No The third quarterly report has not been audited. The Board of Directors of Huadong Medicine Co., Ltd. October 26,2022 I. Key financial data (I) Key accounting data and financial indicators (II) Items and amounts of non-recurring gains/losses (III) Changes in key accounting data and financial indicators and their reasons II. Shareholder information (I) Total number of common shareholders, number of shareholders of preferred shares with voting rights restored, and information about top 10 shareholders (II) Total number of shareholders of preferred shares and information about top 10 shareholders of preferred shares III. Other important matters IV. Quarterly financial statements (I) Financial statements 1. Consolidated balance sheet 2. Consolidated income statement in the first nine months of 2022 3. Consolidated cash flow statement in the first nine months of 2022 (II) Audit report